Calavo Growers
Annual Report 2014

Plain-text annual report

Calavo Growers, Inc. 2014 AnnuAl RePoR t Calavo Growers, Inc. 1141A Cummings Road, Santa Paula, California 93060 www.calavo.com Eat. Live. Grow. Revenue (dollars in millions) $522.5 $551.1 $398.4 $782.5 $691.5 2010 2011 2012 2013 2014 Gross Margins (dollars in millions) $51.5 $42.3 $60.7 $59.4 $71.2 2010 2011 2012 2013 2014 Net Income (dollars in millions) $25.0** $17.8 $17.1* $17.3* $11.1 2010 2011 2012 2013 2014 Earnings Per Share (in dollars) $1.22 $0.75 Ours is a company and industry story that continues to unfold—now 90 years in the making. Calavo Growers, Inc. was the force behind the launch of the modern avocado industry—and continues leading it to this day. We introduced and established the market for the delicious, pebble-skinned fruit. In effect, our company has played an influential role in What We Eat—spawning a near-century-long love affair between consumers and their avocados that grows with each passing year. Our avocados and other fresh foods are welcomed into homes—and lives— finding a place at cherished family dinners or game-day parties with friends. A taste of a wholesome, delicious Calavo avocado may harken a beloved childhood memory of being hoisted on dad’s shoulders to pull down fruit right from the tree. Over this same time span, we have witnessed and responded to the massive shift in How We Live. People are busier and more time-constrained than ever—two working-adult families, smaller households and the pace of urban lives. Demand for fresher, healthier food grows at a staggering clip, as does the need for convenience. Our success in diversifying into a full-line leader in fresh refrigerated packaged goods points to our deep understanding of the dynamics driving today’s consumers. Most importantly, these achievements underscore Why We Grow, most notably posting record operating results again in fiscal 2014. We remain focused squarely on maximizing value for shareholders. Yet, even as our company grows, we hold true to the values—integrity, quality and stewardship, among them—that have guided Calavo since its humble roots. $1.45†† $1.13† $1.11† Eat. Live. Grow. There’s nothing more fundamental. There’s nothing that better defines Calavo. (*) Adjusted Annual net Income before RFG non-cash contingent consideration expense equal to $1.3 million (2012) and $19.1 million (2013). After amounts, net income totaled $15.8 million (2012) and a net loss of $1.8 million (2013). (**) Adjusted Annual net Income before RFG non-cash contingent consideration expense of $33.2 million and including gain of $8.3 from deconsolidation of FreshRealm. After amounts, net income totaled $0.1 million (†) After RFG non-cash contingent consideration, mentioned above, diluted epS totaled $1.05 (2012) and a net loss per share of $0.12 (2013). (††) After RFG non-cash contingent consideration, and including the gain on deconsolidation of FreshRealm, diluted epS totaled $0.01. 2010 2011 2012 2013 2014 Calavo Growers, Inc. 2014 AnnuAl RepoR t 1 . Revenue (dollars in millions) $522.5 $551.1 $398.4 $782.5 $691.5 2010 2011 2012 2013 2014 Gross Margins (dollars in millions) $51.5 $42.3 $60.7 $59.4 $71.2 2010 2011 2012 2013 2014 Net Income (dollars in millions) $25.0** $17.8 $17.1* $17.3* $11.1 2010 2011 2012 2013 2014 Earnings Per Share (in dollars) $1.22 $0.75 Ours is a company and industry story that continues to unfold—now 90 years in the making. Calavo Growers, Inc. was the force behind the launch of the modern avocado industry—and continues leading it to this day. We introduced and established the market for the delicious, pebble-skinned fruit. In effect, our company has played an influential role in What We Eat—spawning a near-century-long love affair between consumers and their avocados that grows with each passing year. Our avocados and other fresh foods are welcomed into homes—and lives— finding a place at cherished family dinners or game-day parties with friends. A taste of a wholesome, delicious Calavo avocado may harken a beloved childhood memory of being hoisted on dad’s shoulders to pull down fruit right from the tree. Over this same time span, we have witnessed and responded to the massive shift in How We Live. People are busier and more time-constrained than ever—two working-adult families, smaller households and the pace of urban lives. Demand for fresher, healthier food grows at a staggering clip, as does the need for convenience. Our success in diversifying into a full-line leader in fresh refrigerated packaged goods points to our deep understanding of the dynamics driving today’s consumers. Most importantly, these achievements underscore Why We Grow, most notably posting record operating results again in fiscal 2014. We remain focused squarely on maximizing value for shareholders. Yet, even as our company grows, we hold true to the values—integrity, quality and stewardship, among them—that have guided Calavo since its humble roots. $1.45†† $1.13† $1.11† Eat. Live. Grow. There’s nothing more fundamental. There’s nothing that better defines Calavo. (*) Adjusted Annual net Income before RFG non-cash contingent consideration expense equal to $1.3 million (2012) and $19.1 million (2013). After amounts, net income totaled $15.8 million (2012) and a net loss of $1.8 million (2013). (**) Adjusted Annual net Income before RFG non-cash contingent consideration expense of $33.2 million and including gain of $8.3 from deconsolidation of FreshRealm. After amounts, net income totaled $0.1 million (†) After RFG non-cash contingent consideration, mentioned above, diluted epS totaled $1.05 (2012) and a net loss per share of $0.12 (2013). (††) After RFG non-cash contingent consideration, and including the gain on deconsolidation of FreshRealm, diluted epS totaled $0.01. 2010 2011 2012 2013 2014 Calavo Growers, Inc. 2014 AnnuAl RepoR t 1 . our advanced ripening technologies and Per capita U.S. fresh avocado One avocado daily as part of a moderate-fat diet improved the cholesterol sophisticated distribution network keep us on consumption today registers about 5 ratios of overweight and obese men and women who participated in a recent the cusp of change. This videm seninterit, qua con lbs. That’s up two-fold from a study by The Pennsylvania State University. Researchers concluded that food tam tere tem ata, ses viris endam ternihilius. Ferei ia vocuppl decade ago. An abundant, year-round supply of sources rich in monounsaturated fats, fiber and phytosterols—all found in fresh fruit sourced from California, Mexico, Chile and avocados—“...confer greater cardiovascular health benefits...” peru helps meet rising demand—and drives Calavo’s market leadership. et Catin hilicaet vicae qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia nostribus audemque macto hocri publiam intraedesus C. Ro, ocultis fica me ex me mod con rebusta, vente, omniam terum. Ferei ia vocuppl intraedesus C. Ro, ocultis fica me ex me mod con Notably, the Penn State diet that included avocado rebusta, vente, et Catin hilicaet vicae quon tarterid red stium vicaes provided 35 percent more fiber than those that did not. consuliam aut ignatum tem iae, C. Ime nox modicup iortem et? Awareness of the fruit’s healthful properties continues Alemquam poenti in dit gractorae auc ina, nostribus audemque to be a driver of increased avocado consumption. In addition to monounsaturated “good fat,” avocados are packed with potassium—nearly twice as much as found in a banana—and have the highest levels of protein macto hocri publiam omniam terum. etium publia ac te confirm aximpermius; ne nostra, nonsule found in any fruit. It is no wonder that avocados rfermili in Ita rena mo videm seninterit, qua con tam tere tem were named a 2015 superfood in a recent poll of 500 ata, ses viris endam ternihilius. Ferei ia vocuppl intraedesus C. dieticians. And, avocados even have the ability to Ro, ocultis fica me ex me mod con rebusta, vente, et Catin hilicaet lessen the inflammatory properties of other foods eaten vicae quon tarterid red stium vicaes consuliam aut ignatum tem alongside them, including red meat, according to a iae, C. Ime nox modicup iortem et? Alemquam poenti in dit study at U.C.L.A. gractorae auc ina, nostribus audemque macto hocri publiam Eat... Eat... Calavo Growers, Inc. 2014 AnnuAl RepoR t 2 . 3 our advanced ripening technologies and Per capita U.S. fresh avocado One avocado daily as part of a moderate-fat diet improved the cholesterol sophisticated distribution network keep us on consumption today registers about 5 ratios of overweight and obese men and women who participated in a recent the cusp of change. This videm seninterit, qua con lbs. That’s up two-fold from a study by The Pennsylvania State University. Researchers concluded that food tam tere tem ata, ses viris endam ternihilius. Ferei ia vocuppl decade ago. An abundant, year-round supply of sources rich in monounsaturated fats, fiber and phytosterols—all found in fresh fruit sourced from California, Mexico, Chile and avocados—“...confer greater cardiovascular health benefits...” peru helps meet rising demand—and drives Calavo’s market leadership. et Catin hilicaet vicae qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia nostribus audemque macto hocri publiam intraedesus C. Ro, ocultis fica me ex me mod con rebusta, vente, omniam terum. Ferei ia vocuppl intraedesus C. Ro, ocultis fica me ex me mod con Notably, the Penn State diet that included avocado rebusta, vente, et Catin hilicaet vicae quon tarterid red stium vicaes provided 35 percent more fiber than those that did not. consuliam aut ignatum tem iae, C. Ime nox modicup iortem et? Awareness of the fruit’s healthful properties continues Alemquam poenti in dit gractorae auc ina, nostribus audemque to be a driver of increased avocado consumption. In addition to monounsaturated “good fat,” avocados are packed with potassium—nearly twice as much as found in a banana—and have the highest levels of protein macto hocri publiam omniam terum. etium publia ac te confirm aximpermius; ne nostra, nonsule found in any fruit. It is no wonder that avocados rfermili in Ita rena mo videm seninterit, qua con tam tere tem were named a 2015 superfood in a recent poll of 500 ata, ses viris endam ternihilius. Ferei ia vocuppl intraedesus C. dieticians. And, avocados even have the ability to Ro, ocultis fica me ex me mod con rebusta, vente, et Catin hilicaet lessen the inflammatory properties of other foods eaten vicae quon tarterid red stium vicaes consuliam aut ignatum tem alongside them, including red meat, according to a iae, C. Ime nox modicup iortem et? Alemquam poenti in dit study at U.C.L.A. gractorae auc ina, nostribus audemque macto hocri publiam Eat... Eat... Calavo Growers, Inc. 2014 AnnuAl RepoR t 2 . 3 ...Fresh. The Hass Avocado Board has a budget of nearly $50 million in 2015, principally for advertising, marketing and promotion. A Super Bowl ad by Avocados from Mexico, “First Draft Ever,” was one of this year’s most talked about and widely publicized. Evolving demographics, awareness of healthful benefits and new ways to enjoy avocados—along with promotion—are driving consumption upward. Eat... 4 . 5 Calavo Growers, Inc. 2014 AnnuAl RepoR t Per capita annual U.S. avocado consumption has risen to 5 pounds, up from 1.5 pounds in the past two decades. More than half of all American grocery shoppers today purchase avocados and, as a result of advanced pre-conditioning technologies such as Calavo’s ProRipeVIP™, fruit is now available in produce sections ripe and ready-to-eat—another boon to consumption. Year-round availability of fruit, thanks to an abundant supply of avocados sourced from Mexico and South America, are another key factor. Add to that shifting demographics—a burgeoning Hispanic population in the U.S., 97 percent of which buy avocados regularly—and it adds up to consumption trending toward two billion pounds annually. ...Fresh. The Hass Avocado Board has a budget of nearly $50 million in 2015, principally for advertising, marketing and promotion. A Super Bowl ad by Avocados from Mexico, “First Draft Ever,” was one of this year’s most talked about and widely publicized. Evolving demographics, awareness of healthful benefits and new ways to enjoy avocados—along with promotion—are driving consumption upward. Eat... 4 . 5 Calavo Growers, Inc. 2014 AnnuAl RepoR t Per capita annual U.S. avocado consumption has risen to 5 pounds, up from 1.5 pounds in the past two decades. More than half of all American grocery shoppers today purchase avocados and, as a result of advanced pre-conditioning technologies such as Calavo’s ProRipeVIP™, fruit is now available in produce sections ripe and ready-to-eat—another boon to consumption. Year-round availability of fruit, thanks to an abundant supply of avocados sourced from Mexico and South America, are another key factor. Add to that shifting demographics—a burgeoning Hispanic population in the U.S., 97 percent of which buy avocados regularly—and it adds up to consumption trending toward two billion pounds annually. Calavo’s Renaissance Food Group is a rapidly expanding player in the “sweet spot” of the grocery industry: the fresh-prepared segment. Consulting firm A.T. Kearney forecasts that dollar sales of the $26 billion fresh-prepared segment will expand at a 6 to 7 percent compound annual growth rate (CAGR) through 2017, outpacing the 2 to 3 percent CAGR of retail grocery food and beverage overall. RFG is widely hailed for its rate and breadth of product innovation and the speed-to-shelf applied to every aspect of its business. Backed by Calavo’s vast resources, the business unit continues to expand its footprint in the retail grocery channel through a portfolio of ultra-fresh, high-quality products marketed under the Garden Highway and Chef Essentials brands. RFG’s expansive portfolio of offerings—with new items added frequently—is enabling the fast-growth unit to penetrate the grocery channel through produce, meat and deli departments, as well as the foodservice category and other high-volume operations. Live... Eat... Calavo Growers, Inc. 2014 AnnuAl RepoR t 6 . 7 Calavo’s Renaissance Food Group is a rapidly expanding player in the “sweet spot” of the grocery industry: the fresh-prepared segment. Consulting firm A.T. Kearney forecasts that dollar sales of the $26 billion fresh-prepared segment will expand at a 6 to 7 percent compound annual growth rate (CAGR) through 2017, outpacing the 2 to 3 percent CAGR of retail grocery food and beverage overall. RFG is widely hailed for its rate and breadth of product innovation and the speed-to-shelf applied to every aspect of its business. Backed by Calavo’s vast resources, the business unit continues to expand its footprint in the retail grocery channel through a portfolio of ultra-fresh, high-quality products marketed under the Garden Highway and Chef Essentials brands. RFG’s expansive portfolio of offerings—with new items added frequently—is enabling the fast-growth unit to penetrate the grocery channel through produce, meat and deli departments, as well as the foodservice category and other high-volume operations. Live... Eat... Calavo Growers, Inc. 2014 AnnuAl RepoR t 6 . 7 Smaller households and urban consumers want convenient, healthier and Per capita U.S. fresh avocado fresher products. As a result, sales of fresh-cut fruit and snacking vegetables consumption today registers about 5 grew 20 percent last year, while salad kit sales jumped a formidable 26 lbs. That’s up two-fold from a percent, according to Nielsen industry data. Convenient produce options that decade ago. An abundant, year-round supply of fit the “semi-prepared” bill appeal to consumers who want to feel involved in fresh fruit sourced from California, Mexico, Chile and meal preparation, regardless of a lack of cooking skills or kitchen space. peru helps meet rising demand—and drives Calavo’s market leadership. our advanced ripening technologies and sophisticated distribution network keep us on the cusp of change. This videm seninterit, qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia vocuppl intraedesus C. nostribus audemque macto hocri publiam omniam terum. Ro, ocultis fica me ex me mod con rebusta, vente, et Catin hilicaet vicae qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia Active, busy lifestyles have precipitated these eating changes. Recognizing this opportunity, Calavo jumped into the refrigerated fresh food category through its 2011 acquisition of RFG, which has been a resounding success and a model for future transactions. In RFG, Calavo identified a well-managed company that understood the intricacies of the fresh prepared foods segment: factors such as the supply chain and distribution, frequent inventory turnover and optimized product assortment. Leveraging the resources of its new parent, RFG revenues have expanded more than 150 percent since it became part of Calavo, while earnings before interest, taxes, depreciation and amortization (EBITDA) have risen seven-fold. ...Healthy. 8 . 9 Calavo Growers, Inc. 2014 AnnuAl RepoR t Smaller households and urban consumers want convenient, healthier and Per capita U.S. fresh avocado fresher products. As a result, sales of fresh-cut fruit and snacking vegetables consumption today registers about 5 grew 20 percent last year, while salad kit sales jumped a formidable 26 lbs. That’s up two-fold from a percent, according to Nielsen industry data. Convenient produce options that decade ago. An abundant, year-round supply of fit the “semi-prepared” bill appeal to consumers who want to feel involved in fresh fruit sourced from California, Mexico, Chile and meal preparation, regardless of a lack of cooking skills or kitchen space. peru helps meet rising demand—and drives Calavo’s market leadership. our advanced ripening technologies and sophisticated distribution network keep us on the cusp of change. This videm seninterit, qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia vocuppl intraedesus C. nostribus audemque macto hocri publiam omniam terum. Ro, ocultis fica me ex me mod con rebusta, vente, et Catin hilicaet vicae qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia Active, busy lifestyles have precipitated these eating changes. Recognizing this opportunity, Calavo jumped into the refrigerated fresh food category through its 2011 acquisition of RFG, which has been a resounding success and a model for future transactions. In RFG, Calavo identified a well-managed company that understood the intricacies of the fresh prepared foods segment: factors such as the supply chain and distribution, frequent inventory turnover and optimized product assortment. Leveraging the resources of its new parent, RFG revenues have expanded more than 150 percent since it became part of Calavo, while earnings before interest, taxes, depreciation and amortization (EBITDA) have risen seven-fold. ...Healthy. 8 . 9 Calavo Growers, Inc. 2014 AnnuAl RepoR t Calavo is widely recognized as a logistics and distribution powerhouse. Three Value-Added Depots (VADs), along with six strategically situated RFG production facilities, provide the company with seamless distribution coverage of North America. The VADs, equipped with our ProRipeVIP™ technology, allow the company to ship fresh avocados pre-conditioned to customers’ precise specifications. Speedy RFG excels in just-in-time distribution with orders expedited within hours of being received. Fresh food distribution seems simple in principle but is highly complex in execution. Time-to-market efficiency is essential. The benefits are apparent for perishable products: less chance to deteriorate or be prone to damage. Our success comes from being able to meet our customers’ product requirements wherever they may be and whenever they need them. Calavo brand equity and its sterling reputation are a result of freshness, great taste and, most of all, product quality. Sourcing the highest caliber products is only one half of the success equation; the other is our vast capability bringing nature’s bounty to market in the most efficient ways possible. Grow... Calavo Growers, Inc. 2014 AnnuAl RepoR t 10 . 11 Calavo is widely recognized as a logistics and distribution powerhouse. Three Value-Added Depots (VADs), along with six strategically situated RFG production facilities, provide the company with seamless distribution coverage of North America. The VADs, equipped with our ProRipeVIP™ technology, allow the company to ship fresh avocados pre-conditioned to customers’ precise specifications. Speedy RFG excels in just-in-time distribution with orders expedited within hours of being received. Fresh food distribution seems simple in principle but is highly complex in execution. Time-to-market efficiency is essential. The benefits are apparent for perishable products: less chance to deteriorate or be prone to damage. Our success comes from being able to meet our customers’ product requirements wherever they may be and whenever they need them. Calavo brand equity and its sterling reputation are a result of freshness, great taste and, most of all, product quality. Sourcing the highest caliber products is only one half of the success equation; the other is our vast capability bringing nature’s bounty to market in the most efficient ways possible. Grow... Calavo Growers, Inc. 2014 AnnuAl RepoR t 10 . 11 ...Strategically. Our company is steadfast in balancing the dual objectives of reinvesting sufficient profit to drive the growth of our business while maximizing value and return to shareholders. Calavo’s annual cash dividend has increased 275 percent since the company’s listing on the Nasdaq Market. $10,000 invested in Calavo common stock on October 31, 2004, along with reinvested dividends, would have appreciated to more than $60,000 at the close of the most recent fiscal year. Calavo’s market capitalization at the close of fiscal 2014 stood at $765 million, an increase of more than 700 percent from $95 million at October 31, 2002. The company’s rate of compound annual growth in revenues (CAGR) over the past five years equals 17.8 percent. Numbers like these speak for themselves but represent only one facet of Calavo’s equation for success. More importantly, look behind these metrics. Our operating and financial resources layer strength upon strength. It begins with a focused strategic blueprint and disciplined execution: in sourcing and marketing domestically and around the globe; in packing and distribution; in ripening technologies that drive avocado consumption higher…and higher. 12 . 13 Calavo Growers, Inc. 2014 AnnuAl RepoR t ...Strategically. Our company is steadfast in balancing the dual objectives of reinvesting sufficient profit to drive the growth of our business while maximizing value and return to shareholders. Calavo’s annual cash dividend has increased 275 percent since the company’s listing on the Nasdaq Market. $10,000 invested in Calavo common stock on October 31, 2004, along with reinvested dividends, would have appreciated to more than $60,000 at the close of the most recent fiscal year. Calavo’s market capitalization at the close of fiscal 2014 stood at $765 million, an increase of more than 700 percent from $95 million at October 31, 2002. The company’s rate of compound annual growth in revenues (CAGR) over the past five years equals 17.8 percent. Numbers like these speak for themselves but represent only one facet of Calavo’s equation for success. More importantly, look behind these metrics. Our operating and financial resources layer strength upon strength. It begins with a focused strategic blueprint and disciplined execution: in sourcing and marketing domestically and around the globe; in packing and distribution; in ripening technologies that drive avocado consumption higher…and higher. 12 . 13 Calavo Growers, Inc. 2014 AnnuAl RepoR t To Our Shareholders, I am pleased to report that Calavo Growers, Inc. posted record results from operations in its most recent year, and our company is squarely positioned to reach historic new highs again in fiscal 2015. While preparing this letter, I mentioned to a colleague that I am more optimistic than ever about Calavo’s prospects moving forward. My associate replied: “lee, you say that every year.” You know, I guess I do. But that’s because our company’s operating performance continues to strengthen and the trend lines of our key metrics ascend steadily as a result of the successful implementation of Calavo’s focused strategic agenda. Notable accomplishments in fiscal 2014 underscore this point. Among these are: Double-digit growth in revenues and gross margin, with strong sales increases in all three of the company’s principal business segments; New highs in adjusted annual net income and earnings per share, significantly outstripping all prior results; Continued outstanding performance by our Renaissance Food Group, LLC (RFG) business unit, which has surpassed all expectations; and, Planned expansion of fresh avocado operations in Mexico through a second packinghouse in a fertile agriculture region • • • • of Jalisco state. To recap our operating results, revenues for the 12 months ended October 31, 2014 rose 13.2 percent to a record $782.5 million, up from $691.5 million in the previous year. Fiscal 2014 gross margin reached an all-time high of $71.2 million, rising 19.8 percent from $59.4 million one year earlier. On the strength of this outstanding sales and gross margin expansion, adjusted annual net income soared 44.5 percent to $25.0 million, equal to $1.45 per diluted share, from $17.3 million, or $1.11 per diluted share, in fiscal 2013. These adjusted net income and EPS amounts are before contingent consideration expense related to the RFG acquisition of $33.2 million, or $1.93 per share, and a gain after tax of $8.3 million, or $0.48 per share, from the deconsolidation of FreshRealm, LLC. Including these amounts, fiscal 2014 net income totaled $0.1 million, or $0.01 per diluted share, which compares with a net loss of $1.8 million, or $0.12 per diluted share, last year. Calavo’s balance sheet is stronger than ever—flexible and with untapped capacity for leverage. Total assets reached $283.5 million at fiscal-year end, up from $239.9 million at October 31, 2013. Long-term debt—principally the balance of borrowings to finance our acquisition of RFG—stood at just $2.8 million at the close of the most recent year, down from $7.8 million one-year earlier and $13.0 million on October 31, 2012. Since fiscal 2011, the year Calavo acquired RFG, long-term borrowings have been pared from $18.2 million. Reciprocally, while debt has been reduced, our company’s net book value per share has risen sharply, climbing to $10.37 at October 31, 2014, from $7.58 at the close of the prior year. Calavo Growers, Inc. 2014 AnnuAl RepoR t 14 . 15 To Our Shareholders, I am pleased to report that Calavo Growers, Inc. posted record results from operations in its most recent year, and our company is squarely positioned to reach historic new highs again in fiscal 2015. While preparing this letter, I mentioned to a colleague that I am more optimistic than ever about Calavo’s prospects moving forward. My associate replied: “lee, you say that every year.” You know, I guess I do. But that’s because our company’s operating performance continues to strengthen and the trend lines of our key metrics ascend steadily as a result of the successful implementation of Calavo’s focused strategic agenda. Notable accomplishments in fiscal 2014 underscore this point. Among these are: Double-digit growth in revenues and gross margin, with strong sales increases in all three of the company’s principal business segments; New highs in adjusted annual net income and earnings per share, significantly outstripping all prior results; Continued outstanding performance by our Renaissance Food Group, LLC (RFG) business unit, which has surpassed all expectations; and, Planned expansion of fresh avocado operations in Mexico through a second packinghouse in a fertile agriculture region • • • • of Jalisco state. To recap our operating results, revenues for the 12 months ended October 31, 2014 rose 13.2 percent to a record $782.5 million, up from $691.5 million in the previous year. Fiscal 2014 gross margin reached an all-time high of $71.2 million, rising 19.8 percent from $59.4 million one year earlier. On the strength of this outstanding sales and gross margin expansion, adjusted annual net income soared 44.5 percent to $25.0 million, equal to $1.45 per diluted share, from $17.3 million, or $1.11 per diluted share, in fiscal 2013. These adjusted net income and EPS amounts are before contingent consideration expense related to the RFG acquisition of $33.2 million, or $1.93 per share, and a gain after tax of $8.3 million, or $0.48 per share, from the deconsolidation of FreshRealm, LLC. Including these amounts, fiscal 2014 net income totaled $0.1 million, or $0.01 per diluted share, which compares with a net loss of $1.8 million, or $0.12 per diluted share, last year. Calavo’s balance sheet is stronger than ever—flexible and with untapped capacity for leverage. Total assets reached $283.5 million at fiscal-year end, up from $239.9 million at October 31, 2013. Long-term debt—principally the balance of borrowings to finance our acquisition of RFG—stood at just $2.8 million at the close of the most recent year, down from $7.8 million one-year earlier and $13.0 million on October 31, 2012. Since fiscal 2011, the year Calavo acquired RFG, long-term borrowings have been pared from $18.2 million. Reciprocally, while debt has been reduced, our company’s net book value per share has risen sharply, climbing to $10.37 at October 31, 2014, from $7.58 at the close of the prior year. Calavo Growers, Inc. 2014 AnnuAl RepoR t 14 . 15 Per capita U.S. fresh avocado consumption today registers about 5 On the strength of the company’s operating results, our Board of Directors declared a 75 cent per share annual lbs. That’s up two-fold from a cash dividend on Calavo common stock, which was paid to owners subsequent to fiscal-year end. The dividend decade ago. An abundant, year-round supply of reflects a seven percent increase from 12 months earlier and a 275 percent jump from fiscal 2002, the year Calavo fresh fruit sourced from California, Mexico, Chile and shares began trading on the Nasdaq Market. Expressed another way, the most recent payout translates to $13 peru helps meet rising demand—and drives Calavo’s million returned to our shareholders in the form of Calavo’s cash dividend—further indication of the company’s market leadership. solid profitability that enables us to balance the dual objectives of rewarding our owners while investing in the our advanced ripening technologies and sophisticated distribution network keep us on the cusp of change. This videm seninterit, qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia vocuppl intraedesus C. nostribus audemque macto hocri publiam omniam terum. Ro, ocultis fica me ex me mod con rebusta, vente, et Catin hilicaet vicae qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia growth of our businesses. The impact of the rise of the Mexican avocado market, and the opening of the borders for year-round importation of fruit to all 50 states, cannot be overstated as a factor driving the market. Today, about 60 percent of United States avocado volume is sourced from Mexico, making possible 12-month availability of fruit. Calavo was an early entrant to the Mexican avocado market in the late 1990s with packing, and later with prepared food operations, in Uruapan, Michoacán. Our success in Mexico contributes substantially to our undisputed market leadership in fresh and prepared avocados in which we command 22 and 35 percent category shares, respectively. I am pleased to inform you that Calavo is expanding its Mexican operations during the current fiscal year Nowhere is this successful reinvestment to fuel growth more evident than the company’s acquisition of RFG through the construction of a second packinghouse in Guzmán, Jalisco, a prime growing region about 45 three years ago. In every respect—from the favorable structure of the transaction itself to the complementary fit minutes east of Guadalajara. The 70,000-square-foot facility—being built on a sizable piece of company-owned within our company’s operations to RFG’s outstanding execution since becoming part of Calavo—this deal was a property that provides room for future growth—will pack fresh avocados for export to both the United States and win. The purchase was on risk-averse terms to our company, principally compensating the sellers for meeting or international markets. With the potential of markets such as China and other parts of the Asia-Pacific region, we exceeding agreed performance targets. And meet them they did. Last year, sales in the RFG business segment climbed more than 31 percent to $252.3 million from $191.5 million in fiscal 2013. Segment gross margin also grew 135 basis points in fiscal 2014. Since its acquisition by Calavo, RFG revenues have soared from a “run rate” of $94.1 million in fiscal 2011, while earnings before interest, taxes, depreciation and amortization (EBITDA) are up 515 percent to $16.0 million from $2.6 million. I am confident of RFG’s continued strong prospects, and expect sales and gross margin to rise by 20 percent in fiscal 2015. One component of RFG’s success is directly attributable to the financial and operational resources available to it as a wholly owned Calavo subsidiary. Another significant factor is the growth rate of the fresh refrigerated packaged goods category—the fastest growing segment of the retail grocery channel. The unit’s execution has been flawless as it builds a category leadership position: quick-to-shelf order fulfillment, product innovation, and the nimble distribution that is a Calavo hallmark. It is remarkable that, after 90 years, the fresh avocado sector still can be considered a growth industry. But that is what it is and, by all indications, will continue to be well into the foreseeable future. U.S. per capita consumption of fresh avocados now exceeds five pounds annually, up from about one and a half pounds two decades ago. I expect domestic avocado consumption will reach or exceed two billion pounds this year. Just a decade ago, that figure was 800 million pounds. Popular acceptance and widespread appeal is being fueled by a perfect avocado storm of outstanding industry promotion, awareness of the fruit’s healthful benefits, and shifting demographics. Avocados seem to be regularly in the headlines. A recent Penn State study trumpeted the cardiovascular health benefits of a diet rich with the fruit. A Super Bowl ad by Avocados from Mexico, one of the big game’s most memorable, resulted in stories across all media that yielded tens of millions of additional impressions. Just weeks ago, respected magazine The Atlantic published an in-depth story about the rise of the avocado industry. It is a great read. 16 . 17 Calavo Growers, Inc. 2014 AnnuAl RepoR t see tremendous opportunity in being an early entrant in Guzmán, just as we were in Uruapan. A number of the growers with whom Calavo already does business in Michoacán also have avocado groves in Jalisco, providing us a significant competitive advantage as we enter this new region. Additionally, our new packing operation, which will be online by mid-year, is a short distance from our company’s successful tomato-growing partnership with Agricola Belhar, further deepening our ties to the region. Longer term, we will likely build another prepared products facility in Guzmán that can source its principal ingredient from the sister packinghouse nearby. We fully expect this capital investment to translate into new revenue and profit drivers; I look forward to sharing more about Calavo’s progress in Jalisco in the future. As you can see, the “building blocks” are in place for another outstanding year in fiscal 2015. In addition to expectations of formidable performances by our Fresh and RFG business units, the Calavo Foods prepared avocado business segment, which posted record sales in fiscal 2014, is trending strongly. I expect Calavo Foods to realize double-digit sales and gross margin growth in the current year. With each of Calavo’s three business units “firing on all cylinders,” you can understand my confidence in the company’s prospects: fiscal 2015 will be another record year, with revenues and earnings per share surpassing all prior highs. Let me close by expressing deep appreciation to Calavo’s senior management team for its leadership and our employees for their dedication. To our board of directors, I offer thanks for your wise counsel and insight. And to you, Calavo’s owners, I extend gratitude for your confidence and support, which we work hard to justify every day. Sincerely, Lee E. Cole Chairman, President and Chief Executive Officer March 4, 2015 Per capita U.S. fresh avocado consumption today registers about 5 On the strength of the company’s operating results, our Board of Directors declared a 75 cent per share annual lbs. That’s up two-fold from a cash dividend on Calavo common stock, which was paid to owners subsequent to fiscal-year end. The dividend decade ago. An abundant, year-round supply of reflects a seven percent increase from 12 months earlier and a 275 percent jump from fiscal 2002, the year Calavo fresh fruit sourced from California, Mexico, Chile and shares began trading on the Nasdaq Market. Expressed another way, the most recent payout translates to $13 peru helps meet rising demand—and drives Calavo’s million returned to our shareholders in the form of Calavo’s cash dividend—further indication of the company’s market leadership. solid profitability that enables us to balance the dual objectives of rewarding our owners while investing in the our advanced ripening technologies and sophisticated distribution network keep us on the cusp of change. This videm seninterit, qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia vocuppl intraedesus C. nostribus audemque macto hocri publiam omniam terum. Ro, ocultis fica me ex me mod con rebusta, vente, et Catin hilicaet vicae qua con tam tere tem ata, ses viris endam ternihilius. Ferei ia growth of our businesses. The impact of the rise of the Mexican avocado market, and the opening of the borders for year-round importation of fruit to all 50 states, cannot be overstated as a factor driving the market. Today, about 60 percent of United States avocado volume is sourced from Mexico, making possible 12-month availability of fruit. Calavo was an early entrant to the Mexican avocado market in the late 1990s with packing, and later with prepared food operations, in Uruapan, Michoacán. Our success in Mexico contributes substantially to our undisputed market leadership in fresh and prepared avocados in which we command 22 and 35 percent category shares, respectively. I am pleased to inform you that Calavo is expanding its Mexican operations during the current fiscal year Nowhere is this successful reinvestment to fuel growth more evident than the company’s acquisition of RFG through the construction of a second packinghouse in Guzmán, Jalisco, a prime growing region about 45 three years ago. In every respect—from the favorable structure of the transaction itself to the complementary fit minutes east of Guadalajara. The 70,000-square-foot facility—being built on a sizable piece of company-owned within our company’s operations to RFG’s outstanding execution since becoming part of Calavo—this deal was a property that provides room for future growth—will pack fresh avocados for export to both the United States and win. The purchase was on risk-averse terms to our company, principally compensating the sellers for meeting or international markets. With the potential of markets such as China and other parts of the Asia-Pacific region, we exceeding agreed performance targets. And meet them they did. Last year, sales in the RFG business segment climbed more than 31 percent to $252.3 million from $191.5 million in fiscal 2013. Segment gross margin also grew 135 basis points in fiscal 2014. Since its acquisition by Calavo, RFG revenues have soared from a “run rate” of $94.1 million in fiscal 2011, while earnings before interest, taxes, depreciation and amortization (EBITDA) are up 515 percent to $16.0 million from $2.6 million. I am confident of RFG’s continued strong prospects, and expect sales and gross margin to rise by 20 percent in fiscal 2015. One component of RFG’s success is directly attributable to the financial and operational resources available to it as a wholly owned Calavo subsidiary. Another significant factor is the growth rate of the fresh refrigerated packaged goods category—the fastest growing segment of the retail grocery channel. The unit’s execution has been flawless as it builds a category leadership position: quick-to-shelf order fulfillment, product innovation, and the nimble distribution that is a Calavo hallmark. It is remarkable that, after 90 years, the fresh avocado sector still can be considered a growth industry. But that is what it is and, by all indications, will continue to be well into the foreseeable future. U.S. per capita consumption of fresh avocados now exceeds five pounds annually, up from about one and a half pounds two decades ago. I expect domestic avocado consumption will reach or exceed two billion pounds this year. Just a decade ago, that figure was 800 million pounds. Popular acceptance and widespread appeal is being fueled by a perfect avocado storm of outstanding industry promotion, awareness of the fruit’s healthful benefits, and shifting demographics. Avocados seem to be regularly in the headlines. A recent Penn State study trumpeted the cardiovascular health benefits of a diet rich with the fruit. A Super Bowl ad by Avocados from Mexico, one of the big game’s most memorable, resulted in stories across all media that yielded tens of millions of additional impressions. Just weeks ago, respected magazine The Atlantic published an in-depth story about the rise of the avocado industry. It is a great read. 16 . 17 Calavo Growers, Inc. 2014 AnnuAl RepoR t see tremendous opportunity in being an early entrant in Guzmán, just as we were in Uruapan. A number of the growers with whom Calavo already does business in Michoacán also have avocado groves in Jalisco, providing us a significant competitive advantage as we enter this new region. Additionally, our new packing operation, which will be online by mid-year, is a short distance from our company’s successful tomato-growing partnership with Agricola Belhar, further deepening our ties to the region. Longer term, we will likely build another prepared products facility in Guzmán that can source its principal ingredient from the sister packinghouse nearby. We fully expect this capital investment to translate into new revenue and profit drivers; I look forward to sharing more about Calavo’s progress in Jalisco in the future. As you can see, the “building blocks” are in place for another outstanding year in fiscal 2015. In addition to expectations of formidable performances by our Fresh and RFG business units, the Calavo Foods prepared avocado business segment, which posted record sales in fiscal 2014, is trending strongly. I expect Calavo Foods to realize double-digit sales and gross margin growth in the current year. With each of Calavo’s three business units “firing on all cylinders,” you can understand my confidence in the company’s prospects: fiscal 2015 will be another record year, with revenues and earnings per share surpassing all prior highs. Let me close by expressing deep appreciation to Calavo’s senior management team for its leadership and our employees for their dedication. To our board of directors, I offer thanks for your wise counsel and insight. And to you, Calavo’s owners, I extend gratitude for your confidence and support, which we work hard to justify every day. Sincerely, Lee E. Cole Chairman, President and Chief Executive Officer March 4, 2015 Board of Directors (from left to right) (from left to right) gEorgE h. “Bud” BarnES Avocado Grower, Valley Center, California lEcil E. c olE Chairman, President and CEO, Calavo Growers, Inc., Santa John M. hunt Manager, Embarcadero Ranch, Goleta, California harold S. Edward S President and CEO, Limoneria Company, Santa Paula, Paula, California Scott n. v an dEr k ar Second Vice Chairman, General Manager, Van Der Kar Family Farms, Carpinteria, California dorca S California StEvEn w . holliS tEr Managing Member, Rocking Spade, LLC, Arroyo Grande, California Marc l. Brown Attorney/Partner, h. McFarlanE Owner and Operator, J.K. Thille Ranches, Santa Paula, California JaMES d . hElin President, CEO, JDH Associates, Los Angeles, Troy Gould PC, Los Angeles, California donald “MikE” SandErS President, S&S Grove Management, Escondido, California Egidio “gEnE“ California J. link lEavEnS First Vice Chairman, General Manager, Leavens Ranches, Ventura, California MichaEl a. “MikE” digrEgorio carBonE, Jr. Retired CFO, Calavo Growers, Inc., Santa Paula, California Board & Strategic Advisory Services, Westlake Village, California Calavo Growers, Inc. 2014 AnnuAl RepoR t 18 . 19 Board of Directors (from left to right) (from left to right) gEorgE h. “Bud” BarnES Avocado Grower, Valley Center, California lEcil E. c olE Chairman, President and CEO, Calavo Growers, Inc., Santa John M. hunt Manager, Embarcadero Ranch, Goleta, California harold S. Edward S President and CEO, Limoneria Company, Santa Paula, Paula, California Scott n. v an dEr k ar Second Vice Chairman, General Manager, Van Der Kar Family Farms, Carpinteria, California dorca S California StEvEn w . holliS tEr Managing Member, Rocking Spade, LLC, Arroyo Grande, California Marc l. Brown Attorney/Partner, h. McFarlanE Owner and Operator, J.K. Thille Ranches, Santa Paula, California JaMES d . hElin President, CEO, JDH Associates, Los Angeles, Troy Gould PC, Los Angeles, California donald “MikE” SandErS President, S&S Grove Management, Escondido, California Egidio “gEnE“ California J. link lEavEnS First Vice Chairman, General Manager, Leavens Ranches, Ventura, California MichaEl a. “MikE” digrEgorio carBonE, Jr. Retired CFO, Calavo Growers, Inc., Santa Paula, California Board & Strategic Advisory Services, Westlake Village, California Calavo Growers, Inc. 2014 AnnuAl RepoR t 18 . 19 Selected Consolidated Financial Data the following information as of and for the years ended october 31, 2013, 2012 and 2011 has been restated to reflect adjustments to our previously issued financial statements as more fully discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of operations” and in note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements included in Item 8 of this Annual Report. the following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of operations” and the financial statements of the Company, including the notes thereto, in Items 7 and 8, respectively, of this Annual Report in order to fully understand factors that may affect the comparability of the financial data. the following selected financial data as of october 31, 2014 and 2010 and for the years ended october 31, 2014, 2013, 2012 and 2010 (other than pounds information), are derived from the audited consolidated financial statements of Calavo Growers, Inc. the financial data as of october 31, 2011 and the year ended october 31, 2011 are derived from our restated financial statements. We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. the financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon. Historical results are not necessarily indicative of results that may be expected in any future period. the following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of operations” and our consolidated financial statements and notes thereto that are included elsewhere in this Annual Report. FISCAl YeAR enDeD oCtobeR 31, 2014 2013 2012 2011 2010 (In thousands, except per share data) ReSt AteD ReSt AteD ReSt AteD (11) Income Statement Data : (1) ( 2 ) ( 3 ) (4 ) ( 8 ) ( 9 ) net sales Gross margin Selling, general and administrative net income attributable to Calavo Growers, Inc. basic net income per share Diluted net income per share Bal ance Sheet Data aS of e nD of Per IoD : (4 ) (10 ) Working capital total assets Accrued expenses Current portion of long-term obligations long-term debt, less current portion $ 782,510 $ 691,451 $ 551,119 $ 522,529 $ 398,351 71,228 36,605 97 0.01 0.01 $ $ 59,448 33,485 (1,795) 60,665 32,714 15,802 42,931 24,934 10,863 51,530 23,168 17,764 $ $ (0.12) (0.12) $ $ 1.07 1.05 $ $ 0.74 0.74 $ $ 1.22 1.22 $ 22,047 $ (3,252) $ 1,287 $ 2,323 $ 14,801 283,464 239,939 207,787 185,284 150,198 25,303 36,541 5,099 2,791 5,258 7,792 30,554 5,416 13,039 25,565 5,448 18,244 89,632 15,353 1,369 6,089 88,257 Shareholders’ equity 179,406 119,093 102,719 (1) (2) (3) (4) (5) (6) (7) (8) (9) In July 2013, we entered into an Amended and Restated limited liability Company Agreement of FreshRealm. When we deconsolidated FreshRealm (see below), planned, principal operations had not yet commenced. As a result, FreshRealm has no sales or cost of sales. FreshRealm has incurred $1.0 million and $1.9 million of expenses related to its development as of october 31, 2014 and 2013, which are included in selling, general and administrative expenses. on May 2, 2014, we closed our Second Amended and Restated limited liability Company Agreement (Agreement) by and among FreshRealm and the ownership members of FreshRealm. pursuant to this agreement, Impermanence, llC (Impermanence) was admitted as an ownership member of FreshRealm. As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.1% to 50.8%. Due to this dilution and lack of super majority on the board of directors of FreshRealm, Calavo cannot control FreshRealm. based on the foregoing, we deconsolidated FreshRealm as of May 2, 2014. based on the above, we recorded a gain on the deconsolidation of FreshRealm of $12.6 million, which has been recorded on the face of the income statement as other income. our investment of $17.0 million in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. In october 2012, we entered into a sale agreement with SRD, pursuant to which the Company has agreed to sell to SRD all of our interest, representing one-half ownership, in Maui Fresh for $2.6 million. this transaction resulted in a gain on sale of approximately $0.5 million. operating results for fiscal 2014, 2013, 2012 and 2011 and balance sheet data as of end of those respective periods include the acquisition of RFG from the date of acquisition of June 1, 2011. For fiscal year 2014, RFG net sales, gross margins, and net income before taxes were $252.3 million, $22.1 million and $11.1 million. For fiscal year 2013, RFG net sales, gross margins, and net income before taxes were $191.5 million, $14.9 million and $5.9 million. For fiscal year 2012, RFG net sales, gross margins, and net income before taxes were $154.1 million, $12.4 million and $4.5 million. For fiscal year 2011, RFG net sales, gross margins, and net income before taxes were $56.7 million, $4.3 million and $1.2 million. We have paid the Sellers $14.2 million in cash, net of adjustments based on RFG’s financial condition at closing. For fiscal year 2011, we made a $3.0 million infrastructure advance to Agricola belher. We collected $0.8 million, $1.7 million, $1.2 million and $1.8 million in fiscal years 2014, 2013, 2011 and 2010 related to infrastructure advances. For fiscal 2012, the 2012 payment was not made and both parties agreed to defer the payment until 2013. on April 10, 2013, we repurchased 165,000 shares of our common stock from limoneira for cash consideration of $4.8 million at a purchase price of $29.02 per share, the closing price on April 10, 2013. these shares were cancelled and returned to authorized, but unissued, status. In october 2013, we contributed $1.0 million to the purchase of 60 hectares of property in Jalisco, Mexico, for the development of facilities to grow tomatoes. In fiscal 2014, we have advanced an additional $3.2 million for construction of greenhouses (bridge loan). the bridge loan will be replaced with a loan from an institutional lender in the amount of $4.5 million and the bridge loan will be immediately repaid from the proceeds of the new loan. In the second quarter of 2015, we expect to finalize a joint venture agreement with belher. Such joint venture will operate under the name of Agricola Don Memo. belher and Calavo are expected to have equal one-half ownership interests in Agricola Don Memo, but belher will ultimately have overall management responsibility for the operations of Agricola Don Memo. the contribution of $3.2 million has been recorded as a receivable in prepaid and other current assets. Cost of Sales for fiscal 2014, 2013, and 2012 include non-cash compensation expense related to the acquisition of RFG totaling $1.9 million, $0.7 million, and an insignificant amount. these non-cash expenses will not continue into fiscal 2015 nor beyond. See note 3 to our Consolidated Financial Statements. Selling, General, and Administrative expenses for fiscal 2014, 2013 and 2012 include non-cash compensation expense related to the acquisition of RFG totaling $0.7 million, $0.3 million, and an insignificant amount. these non-cash expenses will not continue into fiscal 2015 nor beyond. See note 3 to our Consolidated Financial Statements. (10) Included in accrued liabilities as of october 31, 2013, 2012, and 2011 is a non-cash, contingent consideration liability totaling $15.6 million, $11.2 million, and $8.3 million related to the acquisition of RFG. this liability resolved during fiscal 2014 and will not continue in fiscal 2015 or beyond. See note 3 to our Consolidated Financial Statements. (11) this has been derived from our restated, unaudited financial statements for the year ended october 31, 2011. caSh f lowS Prov IDeD B y ( USeD I n ) : operations Investing(2)(3)(5)(7) Financing(6) other Data : $ 21,345 $ 13,712 $ 22,011 $ 7,866 $ 19,979 (18,551) (4,069) (7,746) (5,050) (7,449) (20,907) (10,233) 14,751 (9,502) (10,288) Dividends declared per share net book value per share $ $ 0.75 10.37 $ $ 0.70 7.58 $ $ 0.65 6.90 $ $ 0.55 6.07 $ $ 0.55 6.04 pounds of California avocados sold 74,438 141,400 127,145 84,913 170,650 pounds of non-California avocados sold 258,940 218,244 174,995 156,973 123,700 pounds of processed avocados products sold 26,451 21,636 17,341 18,811 21,651 20 . 21 Calavo Growers, Inc. 2014 AnnuAl RepoR t Financials. Selected Consolidated Financial Data the following information as of and for the years ended october 31, 2013, 2012 and 2011 has been restated to reflect adjustments to our previously issued financial statements as more fully discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of operations” and in note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements included in Item 8 of this Annual Report. the following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of operations” and the financial statements of the Company, including the notes thereto, in Items 7 and 8, respectively, of this Annual Report in order to fully understand factors that may affect the comparability of the financial data. the following selected financial data as of october 31, 2014 and 2010 and for the years ended october 31, 2014, 2013, 2012 and 2010 (other than pounds information), are derived from the audited consolidated financial statements of Calavo Growers, Inc. the financial data as of october 31, 2011 and the year ended october 31, 2011 are derived from our restated financial statements. We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. the financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon. Historical results are not necessarily indicative of results that may be expected in any future period. the following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of operations” and our consolidated financial statements and notes thereto that are included elsewhere in this Annual Report. FISCAl YeAR enDeD oCtobeR 31, 2014 2013 2012 2011 2010 (In thousands, except per share data) ReSt AteD ReSt AteD ReSt AteD (11) Income Statement Data : (1) ( 2 ) ( 3 ) (4 ) ( 8 ) ( 9 ) net sales Gross margin Selling, general and administrative net income attributable to Calavo Growers, Inc. basic net income per share Diluted net income per share Bal ance Sheet Data aS of e nD of Per IoD : (4 ) (10 ) Working capital total assets Accrued expenses Current portion of long-term obligations long-term debt, less current portion $ 782,510 $ 691,451 $ 551,119 $ 522,529 $ 398,351 71,228 36,605 97 0.01 0.01 $ $ 59,448 33,485 (1,795) 60,665 32,714 15,802 42,931 24,934 10,863 51,530 23,168 17,764 $ $ (0.12) (0.12) $ $ 1.07 1.05 $ $ 0.74 0.74 $ $ 1.22 1.22 $ 22,047 $ (3,252) $ 1,287 $ 2,323 $ 14,801 283,464 239,939 207,787 185,284 150,198 25,303 36,541 5,099 2,791 5,258 7,792 30,554 5,416 13,039 25,565 5,448 18,244 89,632 15,353 1,369 6,089 88,257 Shareholders’ equity 179,406 119,093 102,719 (1) (2) (3) (4) (5) (6) (7) (8) (9) In July 2013, we entered into an Amended and Restated limited liability Company Agreement of FreshRealm. When we deconsolidated FreshRealm (see below), planned, principal operations had not yet commenced. As a result, FreshRealm has no sales or cost of sales. FreshRealm has incurred $1.0 million and $1.9 million of expenses related to its development as of october 31, 2014 and 2013, which are included in selling, general and administrative expenses. on May 2, 2014, we closed our Second Amended and Restated limited liability Company Agreement (Agreement) by and among FreshRealm and the ownership members of FreshRealm. pursuant to this agreement, Impermanence, llC (Impermanence) was admitted as an ownership member of FreshRealm. As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.1% to 50.8%. Due to this dilution and lack of super majority on the board of directors of FreshRealm, Calavo cannot control FreshRealm. based on the foregoing, we deconsolidated FreshRealm as of May 2, 2014. based on the above, we recorded a gain on the deconsolidation of FreshRealm of $12.6 million, which has been recorded on the face of the income statement as other income. our investment of $17.0 million in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. In october 2012, we entered into a sale agreement with SRD, pursuant to which the Company has agreed to sell to SRD all of our interest, representing one-half ownership, in Maui Fresh for $2.6 million. this transaction resulted in a gain on sale of approximately $0.5 million. operating results for fiscal 2014, 2013, 2012 and 2011 and balance sheet data as of end of those respective periods include the acquisition of RFG from the date of acquisition of June 1, 2011. For fiscal year 2014, RFG net sales, gross margins, and net income before taxes were $252.3 million, $22.1 million and $11.1 million. For fiscal year 2013, RFG net sales, gross margins, and net income before taxes were $191.5 million, $14.9 million and $5.9 million. For fiscal year 2012, RFG net sales, gross margins, and net income before taxes were $154.1 million, $12.4 million and $4.5 million. For fiscal year 2011, RFG net sales, gross margins, and net income before taxes were $56.7 million, $4.3 million and $1.2 million. We have paid the Sellers $14.2 million in cash, net of adjustments based on RFG’s financial condition at closing. For fiscal year 2011, we made a $3.0 million infrastructure advance to Agricola belher. We collected $0.8 million, $1.7 million, $1.2 million and $1.8 million in fiscal years 2014, 2013, 2011 and 2010 related to infrastructure advances. For fiscal 2012, the 2012 payment was not made and both parties agreed to defer the payment until 2013. on April 10, 2013, we repurchased 165,000 shares of our common stock from limoneira for cash consideration of $4.8 million at a purchase price of $29.02 per share, the closing price on April 10, 2013. these shares were cancelled and returned to authorized, but unissued, status. In october 2013, we contributed $1.0 million to the purchase of 60 hectares of property in Jalisco, Mexico, for the development of facilities to grow tomatoes. In fiscal 2014, we have advanced an additional $3.2 million for construction of greenhouses (bridge loan). the bridge loan will be replaced with a loan from an institutional lender in the amount of $4.5 million and the bridge loan will be immediately repaid from the proceeds of the new loan. In the second quarter of 2015, we expect to finalize a joint venture agreement with belher. Such joint venture will operate under the name of Agricola Don Memo. belher and Calavo are expected to have equal one-half ownership interests in Agricola Don Memo, but belher will ultimately have overall management responsibility for the operations of Agricola Don Memo. the contribution of $3.2 million has been recorded as a receivable in prepaid and other current assets. Cost of Sales for fiscal 2014, 2013, and 2012 include non-cash compensation expense related to the acquisition of RFG totaling $1.9 million, $0.7 million, and an insignificant amount. these non-cash expenses will not continue into fiscal 2015 nor beyond. See note 3 to our Consolidated Financial Statements. Selling, General, and Administrative expenses for fiscal 2014, 2013 and 2012 include non-cash compensation expense related to the acquisition of RFG totaling $0.7 million, $0.3 million, and an insignificant amount. these non-cash expenses will not continue into fiscal 2015 nor beyond. See note 3 to our Consolidated Financial Statements. (10) Included in accrued liabilities as of october 31, 2013, 2012, and 2011 is a non-cash, contingent consideration liability totaling $15.6 million, $11.2 million, and $8.3 million related to the acquisition of RFG. this liability resolved during fiscal 2014 and will not continue in fiscal 2015 or beyond. See note 3 to our Consolidated Financial Statements. (11) this has been derived from our restated, unaudited financial statements for the year ended october 31, 2011. caSh f lowS Prov IDeD B y ( USeD I n ) : operations Investing(2)(3)(5)(7) Financing(6) other Data : $ 21,345 $ 13,712 $ 22,011 $ 7,866 $ 19,979 (18,551) (4,069) (7,746) (5,050) (7,449) (20,907) (10,233) 14,751 (9,502) (10,288) Dividends declared per share net book value per share $ $ 0.75 10.37 $ $ 0.70 7.58 $ $ 0.65 6.90 $ $ 0.55 6.07 $ $ 0.55 6.04 pounds of California avocados sold 74,438 141,400 127,145 84,913 170,650 pounds of non-California avocados sold 258,940 218,244 174,995 156,973 123,700 pounds of processed avocados products sold 26,451 21,636 17,341 18,811 21,651 20 . 21 Calavo Growers, Inc. 2014 AnnuAl RepoR t Financials. Management’s Discussion and Analysis of Financial Condition and results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated 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 “Risks related to our business” included in Item 1A and elsewhere in our Annual Report filed on Form 10-K. Overview We are a leader in the distribution of avocados, prepared avocado products, and other perishable food products throughout the united States. 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, Mexico, and Chile. through our various operating facilities, we sort, pack, and/ or ripen avocados, tomatoes and/or Hawaiian grown papayas. Additionally, we also produce salsa and prepare ready-to-eat produce and deli products. We report our operations in three different business segments: (1) Fresh products, (2) Calavo Foods and (3) RFG. See note 12 to our consolidated financial statements for further discussion. our Fresh products business grades, sizes, packs, cools, and ripens (if desired) avocados for delivery to our customers. We presently operate two packinghouses and three operating and distributing facilities that handle avocados across the united States. these packinghouses handled approximately 24% of the California avocado crop during the 2014 fiscal year, based on data obtained from the California Avocado Commission. our operating results and the returns we pay our growers are highly dependent on the volume of avocados delivered to our packinghouses, as a significant portion of our costs is fixed. our strategy calls for continued efforts to retain and recruit growers that meet our business model. Additionally, our Fresh products business also procures avocados grown in Chile and Mexico, as well as other various commodities, including tomatoes, papayas, and pineapples. We operate a packinghouse in Mexico that, together with certain co-packers that we frequently purchase fruit from, handled approximately 20% of the Mexican avocado crop bound for the united States market and approximately 5% of the avocados exported from Mexico to countries other than the united States during the 2013-2014 Mexican season, based on our estimates. our strategy is to increase our market share of currently sourced avocados to all accepted marketplaces. We believe our diversified avocado sources provides a level of supply stability that may, over time, help solidify the demand for avocados among consumers in the united States and elsewhere in the world. We believe our efforts in distributing our other various commodities, such as those shown above, complement our offerings of avocados. From time to time, we continue to explore distribution of other crops that provide reasonable returns to the business. our Calavo Foods business procures avocados, processes avocados into a wide variety of guacamole products, and distributes the processed product to our customers. All of our prepared avocado products shipped to north America are “cold pasteurized” and include both frozen and fresh guacamole. Due to the long shelf-life of our frozen guacamole and the purity of our fresh guacamole, we believe that we are well positioned to address the diverse taste and needs of today’s customers. Additionally, we also prepare various fresh salsa products. Customers include both food service industry and retail businesses. We continue to seek to expand our relationships with major food service companies and develop alliances that will allow our products to reach a larger percentage of the marketplace. net sales of frozen products represented approximately 55% and 54% of total processed segment sales for the years ended october 31, 2014 and 2013. net sales of our ultra-high pressure products represented approximately 45% and 46% of total processed segment sales for the years ended october 31, 2014 and 2013. our RFG business produces, markets and distributes nationally a portfolio of healthy, high quality lifestyle products for consumers via the retail channel. RFG products range from fresh-cut fruit, ready-to-eat vegetables, recipe-ready vegetables and deli meat products. RFG sells under the popular labels of Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef essentials to a wide range of customers. the operating results of all of our businesses have been, and will continue to be, affected by quarterly and annual fluctuations and market downturns due to a number of factors, such as pests and disease, weather patterns, changes in demand by consumers, the timing of the receipt, reduction, or cancellation of significant customer orders, the gain or loss of significant customers, market acceptance of our products, our ability to develop, introduce, and market new products on a timely basis, availability and cost of avocados and supplies from growers and vendors, new product introductions by our competitors, change in the mix of avocados and Calavo Foods and RFG products we sell, and general economic conditions. We believe, however, that we are currently positioned to address these risks and deliver favorable operating results for the foreseeable future. recent DeveloPmentS Restatement of previously-Issued Financial Statements In connection with the preparation, review and audit of the Company’s consolidated financial statements required to be included in its Annual Report on Form 10-K for the fiscal year ended october 31, 2014, the Company identified a non-cash misstatement in its historical consolidated financial statements related to its treatment of contingent consideration in the acquisition of RFG in June 2011. In accordance with the earn-out provisions in the RFG acquisition agreement, if RFG’s operating results exceeded defined thresholds, additional purchase price was required to be paid by the Company, subject to a ceiling. RFG’s results substantially exceeded defined thresholds and expectations and, accordingly, RFG’s former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement. the total cumulative amount of non-cash operating expense, primarily related to the revaluation of RFG earn-out liability, that needed to be recorded is approximately $88.1 million, accounted for over the period from the date of acquisition of RFG (i.e. June 1, 2011) through the period ended october 31, 2014. Initially, we recorded the contingent consideration, which was settleable in common stock, as an equity instrument and therefore did not record expense based on the changes in fair value of the contingent consideration. However, the contingent consideration should have been accounted for as a liability requiring re-measurement to fair value. Additionally, certain amounts of the consideration have been recorded as compensation expense. See following table for the adjustments relating to total contingent consideration and non-cash compensation for the acquisition of RFG for fiscal years 2014, 2013, and 2012: 2014 2013 2012 Contingent Consideration $ 51,082 $ 31,066 $ 2,157 non-cash compensation recorded in cost of sales 1,807 676 non-cash compensation recorded in selling, general and administrative 722 268 1 1 total $ 53,611 $ 32,010 $ 2,159 the Company has also identified certain immaterial adjustments primarily relating to non-controlling interest, diluted number of shares outstanding, and income tax expense related to fiscal years ended october 31, 2014, october 31, 2013, and october 31, 2012, which are reflected in the restated consolidated financial statements for the Relevant periods. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for more information. We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. the financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon. Dividend payment on December 8, 2014, we paid a $0.75 per share dividend in the aggregate amount of $13.0 million to shareholders of record on november 17, 2014. Contingencies From time to time, we are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements. In January 2015, various class action lawsuits have been initiated against the company related to the restatement of previously-issued financial statements, we believe these are without merit and will defend ourselves vigorously. See Item 3 of this Annual Report on Form 10-K which is incorporated by reference herein. Deconsolidation of FreshRealm, llC on May 2, 2014, we closed our Second Amended and Restated limited liability Company Agreement (Agreement) by and among FreshRealm and the ownership members of FreshRealm. the effective date of this agreement was April 30, 2014. pursuant to this agreement, Impermanence, llC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million to FreshRealm for 28.6% ownership. We agreed to dilute our ownership percentage in FreshRealm, as an injection of significant working capital would reduce the immediate need of Calavo to provide operating funds to FreshRealm and would also serve to preserve the value of our investment. As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.1% to 50.8% and $4.6 million was attributed to noncontrolling interest. Additionally, effective April 1, 2014, the first $10.0 million of losses will be allocated primarily to Impermanence. even though Calavo controlled greater than 50% of the outstanding units of FreshRealm as of May 2, 2014, the minority/ non-Calavo unit-holders held substantive participating rights. these rights existed primarily in two forms: (1) two out of a total of four board of director seats and (2) a provision in the Agreement that states that for situations for which the approval of the Members, as defined, (rather than the approval of the board of directors on behalf of the Members) is required by the Agreement, the Members shall act by Super-Majority Vote. Super-Majority Vote is defined in the Agreement as the affirmative vote of the holders of at least seventy percent of the outstanding units that are held by the Members. As such, Calavo cannot control FreshRealm through its two board of director seats, nor its 50.8% ownership. based on the foregoing, we deconsolidated FreshRealm as of May 2, 2014. As a result of the deconsolidation, we were required to record a gain related to this transaction. pursuant to ASC 810-10-40-5, we calculated our gain on deconsolidation by considering: a) the aggregate of (1) the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated and (2) the carrying amount of any noncontrolling interest in the former subsidiary; less b) the carrying amount of the former subsidiary’s assets and liabilities. See following table: Calavo Growers, Inc. 2014 AnnuAl RepoR t 22 . 23 Management’s Discussion and Analysis of Financial Condition and results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated 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 “Risks related to our business” included in Item 1A and elsewhere in our Annual Report filed on Form 10-K. Overview We are a leader in the distribution of avocados, prepared avocado products, and other perishable food products throughout the united States. 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, Mexico, and Chile. through our various operating facilities, we sort, pack, and/ or ripen avocados, tomatoes and/or Hawaiian grown papayas. Additionally, we also produce salsa and prepare ready-to-eat produce and deli products. We report our operations in three different business segments: (1) Fresh products, (2) Calavo Foods and (3) RFG. See note 12 to our consolidated financial statements for further discussion. our Fresh products business grades, sizes, packs, cools, and ripens (if desired) avocados for delivery to our customers. We presently operate two packinghouses and three operating and distributing facilities that handle avocados across the united States. these packinghouses handled approximately 24% of the California avocado crop during the 2014 fiscal year, based on data obtained from the California Avocado Commission. our operating results and the returns we pay our growers are highly dependent on the volume of avocados delivered to our packinghouses, as a significant portion of our costs is fixed. our strategy calls for continued efforts to retain and recruit growers that meet our business model. Additionally, our Fresh products business also procures avocados grown in Chile and Mexico, as well as other various commodities, including tomatoes, papayas, and pineapples. We operate a packinghouse in Mexico that, together with certain co-packers that we frequently purchase fruit from, handled approximately 20% of the Mexican avocado crop bound for the united States market and approximately 5% of the avocados exported from Mexico to countries other than the united States during the 2013-2014 Mexican season, based on our estimates. our strategy is to increase our market share of currently sourced avocados to all accepted marketplaces. We believe our diversified avocado sources provides a level of supply stability that may, over time, help solidify the demand for avocados among consumers in the united States and elsewhere in the world. We believe our efforts in distributing our other various commodities, such as those shown above, complement our offerings of avocados. From time to time, we continue to explore distribution of other crops that provide reasonable returns to the business. our Calavo Foods business procures avocados, processes avocados into a wide variety of guacamole products, and distributes the processed product to our customers. All of our prepared avocado products shipped to north America are “cold pasteurized” and include both frozen and fresh guacamole. Due to the long shelf-life of our frozen guacamole and the purity of our fresh guacamole, we believe that we are well positioned to address the diverse taste and needs of today’s customers. Additionally, we also prepare various fresh salsa products. Customers include both food service industry and retail businesses. We continue to seek to expand our relationships with major food service companies and develop alliances that will allow our products to reach a larger percentage of the marketplace. net sales of frozen products represented approximately 55% and 54% of total processed segment sales for the years ended october 31, 2014 and 2013. net sales of our ultra-high pressure products represented approximately 45% and 46% of total processed segment sales for the years ended october 31, 2014 and 2013. our RFG business produces, markets and distributes nationally a portfolio of healthy, high quality lifestyle products for consumers via the retail channel. RFG products range from fresh-cut fruit, ready-to-eat vegetables, recipe-ready vegetables and deli meat products. RFG sells under the popular labels of Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef essentials to a wide range of customers. the operating results of all of our businesses have been, and will continue to be, affected by quarterly and annual fluctuations and market downturns due to a number of factors, such as pests and disease, weather patterns, changes in demand by consumers, the timing of the receipt, reduction, or cancellation of significant customer orders, the gain or loss of significant customers, market acceptance of our products, our ability to develop, introduce, and market new products on a timely basis, availability and cost of avocados and supplies from growers and vendors, new product introductions by our competitors, change in the mix of avocados and Calavo Foods and RFG products we sell, and general economic conditions. We believe, however, that we are currently positioned to address these risks and deliver favorable operating results for the foreseeable future. recent DeveloPmentS Restatement of previously-Issued Financial Statements In connection with the preparation, review and audit of the Company’s consolidated financial statements required to be included in its Annual Report on Form 10-K for the fiscal year ended october 31, 2014, the Company identified a non-cash misstatement in its historical consolidated financial statements related to its treatment of contingent consideration in the acquisition of RFG in June 2011. In accordance with the earn-out provisions in the RFG acquisition agreement, if RFG’s operating results exceeded defined thresholds, additional purchase price was required to be paid by the Company, subject to a ceiling. RFG’s results substantially exceeded defined thresholds and expectations and, accordingly, RFG’s former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement. the total cumulative amount of non-cash operating expense, primarily related to the revaluation of RFG earn-out liability, that needed to be recorded is approximately $88.1 million, accounted for over the period from the date of acquisition of RFG (i.e. June 1, 2011) through the period ended october 31, 2014. Initially, we recorded the contingent consideration, which was settleable in common stock, as an equity instrument and therefore did not record expense based on the changes in fair value of the contingent consideration. However, the contingent consideration should have been accounted for as a liability requiring re-measurement to fair value. Additionally, certain amounts of the consideration have been recorded as compensation expense. See following table for the adjustments relating to total contingent consideration and non-cash compensation for the acquisition of RFG for fiscal years 2014, 2013, and 2012: 2014 2013 2012 Contingent Consideration $ 51,082 $ 31,066 $ 2,157 non-cash compensation recorded in cost of sales 1,807 676 non-cash compensation recorded in selling, general and administrative 722 268 1 1 total $ 53,611 $ 32,010 $ 2,159 the Company has also identified certain immaterial adjustments primarily relating to non-controlling interest, diluted number of shares outstanding, and income tax expense related to fiscal years ended october 31, 2014, october 31, 2013, and october 31, 2012, which are reflected in the restated consolidated financial statements for the Relevant periods. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for more information. We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. the financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon. Dividend payment on December 8, 2014, we paid a $0.75 per share dividend in the aggregate amount of $13.0 million to shareholders of record on november 17, 2014. Contingencies From time to time, we are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements. In January 2015, various class action lawsuits have been initiated against the company related to the restatement of previously-issued financial statements, we believe these are without merit and will defend ourselves vigorously. See Item 3 of this Annual Report on Form 10-K which is incorporated by reference herein. Deconsolidation of FreshRealm, llC on May 2, 2014, we closed our Second Amended and Restated limited liability Company Agreement (Agreement) by and among FreshRealm and the ownership members of FreshRealm. the effective date of this agreement was April 30, 2014. pursuant to this agreement, Impermanence, llC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million to FreshRealm for 28.6% ownership. We agreed to dilute our ownership percentage in FreshRealm, as an injection of significant working capital would reduce the immediate need of Calavo to provide operating funds to FreshRealm and would also serve to preserve the value of our investment. As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.1% to 50.8% and $4.6 million was attributed to noncontrolling interest. Additionally, effective April 1, 2014, the first $10.0 million of losses will be allocated primarily to Impermanence. even though Calavo controlled greater than 50% of the outstanding units of FreshRealm as of May 2, 2014, the minority/ non-Calavo unit-holders held substantive participating rights. these rights existed primarily in two forms: (1) two out of a total of four board of director seats and (2) a provision in the Agreement that states that for situations for which the approval of the Members, as defined, (rather than the approval of the board of directors on behalf of the Members) is required by the Agreement, the Members shall act by Super-Majority Vote. Super-Majority Vote is defined in the Agreement as the affirmative vote of the holders of at least seventy percent of the outstanding units that are held by the Members. As such, Calavo cannot control FreshRealm through its two board of director seats, nor its 50.8% ownership. based on the foregoing, we deconsolidated FreshRealm as of May 2, 2014. As a result of the deconsolidation, we were required to record a gain related to this transaction. pursuant to ASC 810-10-40-5, we calculated our gain on deconsolidation by considering: a) the aggregate of (1) the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated and (2) the carrying amount of any noncontrolling interest in the former subsidiary; less b) the carrying amount of the former subsidiary’s assets and liabilities. See following table: Calavo Growers, Inc. 2014 AnnuAl RepoR t 22 . 23 (AS oF MAY 2, 2014, In tHouSAnDS) promotional allowances Fair value of retained noncontrolling investment $ 16,962 Carrying amount of noncontrolling interest $ 4,031 Carrying amount of FreshRealm’s assets and liabilities $ (8,371) Gain on deconsolidation of FreshRealm $ 12,622 We estimated the fair value of our noncontrolling interest in FreshRealm by performing a forecast projection analysis. this analysis was conducted with the consultation from a third party consulting firm. See note 16 to the financial statements for additional information regarding the fair value calculation and assumptions used. based on the above, we recorded a gain on the deconsolidation of FreshRealm of $12.6 million, which has been recorded on the face of the income statement. our investment in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. As of July 31, 2014, FreshRealm issued additional units to various 3rd parties, which reduced our ownership percentage to exactly 50%. CritiCAl ACCOunting eStiMA teS our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the united States of America. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. on an ongoing basis, we re-evaluate all of our estimates, including those related to the areas of customer and grower receivables, inventories, useful lives of property, plant and equipment, promotional allowances, income taxes, retirement benefits, and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Additionally, we frequently engage 3rd party valuation experts to assist us with estimates described below. Actual results may materially differ from these estimates under different assumptions or conditions as additional information becomes available in future periods. Management has discussed the development and selection of critical accounting estimates with the Audit Committee of the board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting estimates in this Annual Report. We provide for promotional allowances at the time of sale, based on our historical experience. our estimates are generally based on evaluating the relationship between promotional allowances and gross sales. the derived percentage is then applied to the current period’s sales revenues in order to arrive at the appropriate debit to sales allowances for the period. the offsetting credit is made to accrued liabilities. When certain amounts of specific customer accounts are subsequently identified as promotional, they are written off against this allowance. Actual amounts may differ from these estimates and such differences are recognized as an adjustment to net sales in the period they are identified. A 1% change in the derived percentage for the entire year would impact results of operations by approximately $0.7 million. Income taxes We account for deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of our assets and liabilities result in a deferred tax asset, we perform an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized. As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, we record additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be. the application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. therefore, the actual liability for u.S. or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Goodwill and acquired intangible assets We believe the following are the more significant judgments Goodwill, defined as unidentified asset(s) acquired in and estimates used in the preparation of our consolidated financial statements. conjunction with a business acquisition, is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount 24 . 25 Calavo Growers, Inc. 2014 AnnuAl RepoR t may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. Goodwill impairment testing is a two-step process. the first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test would be unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. the second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. the estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. We performed our annual assessment of goodwill and determined that no impairment existed as of october 31, 2014. Allowance for accounts receivable We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. reSultS OF OperA tiOnS the following table sets forth certain items from our consolidated statements of income, expressed as percentages of our total net sales, for the periods indicated: YeAR enDeD oCtobeR 31, 2014 2013 2012 net sales Gross margins Selling, general and administrative ReSt AteD ReSt AteD 100.0% 100.0% 100.0% 9.1% 8.6% 11.0% 4.7% 4.8% 5.9% Contingent consideration related to RFG acquisition 6.5% 4.8% operating income (2.1)% (1.0)% Interest income 0.0% 0.0% 0.5% 4.6% 0.0% Interest expense (0.1)% (0.2)% (0.2)% other income, net 0.1% 0.1% net income (loss) (0.0)% (0.4)% 0.2% 2.8% Contingent consideration net SaleS See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. each period, we revalue our contingent consideration obligations to their fair value and record increases or decreases in the fair value into contingent consideration, cost of sales and/or selling, general and administrative expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in the assumed timing and amount of revenue and expense estimates, changes in the probability of payment scenarios, changes in stock values, as well as changes in capital market conditions, which impact the discount rate used in the fair valuation. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period. total net increase to the contingent considerations in fiscal years 2014, 2013 and 2012 totaled $53.1 million, $33.6 million (restated) and $2.6 million (restated). We believe that the fundamentals for our products continue to be favorable. Firstly, Americans continue to eat more avocados. united States (u.S.) avocado demand continues to grow, with per capita use in 2012/13 reaching 5.6 pounds per person, up 10 percent from the previous year, and approximately 130% higher the estimate of a decade ago. We believe that the healthy eating trend that has been developing in the united States contributes to such growth, as avocados, which are cholesterol and sodium free, are dense in fiber, vitamin b6, antioxidants, potassium, folate, and contain unsaturated fat, which help lower cholesterol. Also, a growing number of research studies seem to suggest that phytonutrients, which avocados are rich in, help fight chronic illnesses, such as heart disease and cancer. Additionally, we believe that the demographic changes in the u.S. will greatly impact the consumption of avocados and avocado-based products. the Hispanic community currently accounts for approximately 17% of the u.S. population, and the total number of Hispanics is estimated to triple by the year 2050. Avocados are considered a staple item purchased by Hispanic consumers, as the per-capita avocado consumption in Mexico is considered significantly higher than that of the u.S. (AS oF MAY 2, 2014, In tHouSAnDS) promotional allowances Fair value of retained noncontrolling investment $ 16,962 Carrying amount of noncontrolling interest $ 4,031 Carrying amount of FreshRealm’s assets and liabilities $ (8,371) Gain on deconsolidation of FreshRealm $ 12,622 We estimated the fair value of our noncontrolling interest in FreshRealm by performing a forecast projection analysis. this analysis was conducted with the consultation from a third party consulting firm. See note 16 to the financial statements for additional information regarding the fair value calculation and assumptions used. based on the above, we recorded a gain on the deconsolidation of FreshRealm of $12.6 million, which has been recorded on the face of the income statement. our investment in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. As of July 31, 2014, FreshRealm issued additional units to various 3rd parties, which reduced our ownership percentage to exactly 50%. CritiCAl ACCOunting eStiMA teS our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the united States of America. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. on an ongoing basis, we re-evaluate all of our estimates, including those related to the areas of customer and grower receivables, inventories, useful lives of property, plant and equipment, promotional allowances, income taxes, retirement benefits, and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Additionally, we frequently engage 3rd party valuation experts to assist us with estimates described below. Actual results may materially differ from these estimates under different assumptions or conditions as additional information becomes available in future periods. Management has discussed the development and selection of critical accounting estimates with the Audit Committee of the board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting estimates in this Annual Report. We provide for promotional allowances at the time of sale, based on our historical experience. our estimates are generally based on evaluating the relationship between promotional allowances and gross sales. the derived percentage is then applied to the current period’s sales revenues in order to arrive at the appropriate debit to sales allowances for the period. the offsetting credit is made to accrued liabilities. When certain amounts of specific customer accounts are subsequently identified as promotional, they are written off against this allowance. Actual amounts may differ from these estimates and such differences are recognized as an adjustment to net sales in the period they are identified. A 1% change in the derived percentage for the entire year would impact results of operations by approximately $0.7 million. Income taxes We account for deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of our assets and liabilities result in a deferred tax asset, we perform an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized. As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, we record additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be. the application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. therefore, the actual liability for u.S. or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Goodwill and acquired intangible assets We believe the following are the more significant judgments Goodwill, defined as unidentified asset(s) acquired in and estimates used in the preparation of our consolidated financial statements. conjunction with a business acquisition, is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount 24 . 25 Calavo Growers, Inc. 2014 AnnuAl RepoR t may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. Goodwill impairment testing is a two-step process. the first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test would be unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. the second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. the estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. We performed our annual assessment of goodwill and determined that no impairment existed as of october 31, 2014. Allowance for accounts receivable We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. reSultS OF OperA tiOnS the following table sets forth certain items from our consolidated statements of income, expressed as percentages of our total net sales, for the periods indicated: YeAR enDeD oCtobeR 31, 2014 2013 2012 net sales Gross margins Selling, general and administrative ReSt AteD ReSt AteD 100.0% 100.0% 100.0% 9.1% 8.6% 11.0% 4.7% 4.8% 5.9% Contingent consideration related to RFG acquisition 6.5% 4.8% operating income (2.1)% (1.0)% Interest income 0.0% 0.0% 0.5% 4.6% 0.0% Interest expense (0.1)% (0.2)% (0.2)% other income, net 0.1% 0.1% net income (loss) (0.0)% (0.4)% 0.2% 2.8% Contingent consideration net SaleS See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. each period, we revalue our contingent consideration obligations to their fair value and record increases or decreases in the fair value into contingent consideration, cost of sales and/or selling, general and administrative expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in the assumed timing and amount of revenue and expense estimates, changes in the probability of payment scenarios, changes in stock values, as well as changes in capital market conditions, which impact the discount rate used in the fair valuation. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period. total net increase to the contingent considerations in fiscal years 2014, 2013 and 2012 totaled $53.1 million, $33.6 million (restated) and $2.6 million (restated). We believe that the fundamentals for our products continue to be favorable. Firstly, Americans continue to eat more avocados. united States (u.S.) avocado demand continues to grow, with per capita use in 2012/13 reaching 5.6 pounds per person, up 10 percent from the previous year, and approximately 130% higher the estimate of a decade ago. We believe that the healthy eating trend that has been developing in the united States contributes to such growth, as avocados, which are cholesterol and sodium free, are dense in fiber, vitamin b6, antioxidants, potassium, folate, and contain unsaturated fat, which help lower cholesterol. Also, a growing number of research studies seem to suggest that phytonutrients, which avocados are rich in, help fight chronic illnesses, such as heart disease and cancer. Additionally, we believe that the demographic changes in the u.S. will greatly impact the consumption of avocados and avocado-based products. the Hispanic community currently accounts for approximately 17% of the u.S. population, and the total number of Hispanics is estimated to triple by the year 2050. Avocados are considered a staple item purchased by Hispanic consumers, as the per-capita avocado consumption in Mexico is considered significantly higher than that of the u.S. We anticipate avocado products will further penetrate the united States marketplace driven by year-round availability of fresh avocados due to imports, a rapidly growing Hispanic population, and the promotion of the health benefits of avocados. As the largest marketer of avocado products in the united States, we believe that we are well positioned to leverage this trend and to grow our Fresh products and Calavo Foods segments of our business. Additionally, we also believe that avocados and avocado based products will further penetrate other marketplaces that we currently operate in, as interest in avocados continues to expand. In october 2002, the uSDA announced the creation of a Hass Avocado board to promote the sale of Hass variety avocados in the u.S. marketplace. this board provides a basis for a unified funding of promotional activities based on an assessment on all avocados sold in the u.S. marketplace. the California Avocado Commission, which receives its funding from California avocado growers, has historically shouldered the promotional and advertising costs supporting avocado sales. We believe that the incremental funding of promotional and advertising programs in the u.S. will, in the long term, positively impact average selling prices and will favorably impact our avocado businesses. During fiscal 2014, 2013 and 2012, on behalf of avocado growers, we remitted approximately $1.7 million, $2.0 million and $0.9 million to the California Avocado Commission. During fiscal 2014, 2013 and 2012, we remitted approximately $7.1 million, $8.0 million and $5.7 million to the Hass Avocado board related to avocados. We also believe that our diversified fresh products, primarily tomatoes, papayas and pineapples, are positioned for future growth and expansion. the tomato is the fourth most popular fresh-market vegetable behind potatoes, lettuce, and onions in the united States. Although stabilizing in the first decade of the 2000s, annual average fresh-market tomato consumption remains well above that of the previous decade. over the past few decades, per capita use of tomatoes has been on the rise due to the enduring popularity of salads, salad bars, and submarine sandwiches. perhaps of greater importance has been the introduction of improved and new tomato varieties, heightened consumer interest in a wider range of tomatoes, a surge of new immigrants who eat vegetable-intensive diets, and expanding national emphasis on health and nutrition. papayas have become more popular as the consumption in the united States has more than doubled in the past decade. papayas have high nutritional benefits. they are rich in Anti- oxidants, the b vitamins, folate and pantothenic acid; and the minerals, potassium and magnesium; and fiber. together, these nutrients promote the health of the cardiovascular system and also provide protection against colon cancer. Additionally, through the acquisition of RFG, we substantially expanded and accelerated the Company’s presence in the fast- growing refrigerated fresh packaged foods category through an array of retail product lines for produce, deli, meat and food service departments. RFG products range from fresh-cut fruit, ready-to-eat vegetables, recipe-ready vegetables and deli meat products. RFG sells under the popular labels of Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef essentials to a wide range of customers. Sales of products and related costs of products sold are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. Service revenue, including freight, ripening, storage, bagging and palletization charges, is recorded when services are performed and sales of the related products are delivered. We provide for sales returns and promotional allowances at the time of shipment, based on our experience. the following tables set forth sales by product category and sales incentives, by segment (dollars in thousands): YeAR enDeD oCtobeR 31, 2014 YeAR enDeD oCtobeR 31, 2013 FReSH pRoDuCtS CAlAVo FooDS RFG totAl FReSH pRoDuCtS CAlAVo FooDS RFG tot Al th IrD - Part y S aleS : Avocados tomatoes papayas pineapples other fresh products Food service Retail and club $ 433,581 $ — $ — $ 433,581 $ 407,678 $ — $ — $ 407,678 19,705 12,619 5,086 1,037 — — — — — — 48,085 — — — — — 19,705 22,623 12,619 13,077 5,086 1,037 48,085 5,739 601 — — — — — — 43,616 — — — — — 22,623 13,077 5,739 601 43,616 18,789 195,376 214,165 22,334 255,074 277,408 total gross sales 472,028 70,419 255,074 797,521 449,718 62,405 195,376 707,499 less sales incentives (1,079) (11,140) (2,792) (15,011) (1,349) (10,791) (3,908) (16,048) net sales $ 470,949 $ 59,279 $ 252,282 $ 782,510 $ 448,369 $ 51,614 $ 191,468 $ 691,451 YeAR enDeD oCtobeR 31, 2013 YeAR enDeD oCtobeR 31, 2012 FReSH pRoDuCtS CAlAVo FooDS RFG totAl FReSH pRoDuCtS CAlAVo FooDS RFG totAl $ 407,678 $ — $ — $ 407,678 $ 318,556 $ — $ — $ 318,556 22,623 13,077 5,739 601 — — — — — — 43,616 — — — — — 22,623 11,404 13,077 12,753 5,739 601 43,616 6,840 1,788 — — — — — — 36,289 — — — — — 11,404 12,753 6,840 1,788 36,289 19,758 157,333 177,091 18,789 195,376 214,165 th IrD - Part y S aleS : Avocados tomatoes papayas pineapples other fresh products Food service Retail and club total gross sales 449,718 62,405 195,376 707,499 351,341 56,047 157,333 564,721 less sales incentives (1,349) (10,791) (3,908) (16,048) (759) (9,623) (3,220) (13,602) net sales $ 448,369 $ 51,614 $ 191,468 $ 691,451 $ 350,582 $ 46,424 $ 154,113 $ 551,119 net sales to third parties by segment exclude inter-segment sales and cost of sales. For fiscal years 2014, 2013, and 2012, inter-segment sales and cost of sales for Fresh products totaling $33.7 million, $29.9 million and $22.2 million were eliminated. the following table summarizes our net sales by business segment: For fiscal years 2014, 2013, and 2012, inter-segment sales and cost of sales for Calavo Foods totaling $16.4 million, $14.3 million, and $11.6 million were eliminated. 2014 CHAnGe 2013 CHAnGe 2012 (Dollars in thousands) net S aleS : Fresh products Calavo Foods RFG total net sales aS a P ercentage of net S aleS : Fresh products Calavo Foods RFG Summary $ 470,949 5.0% $ 448,369 27.9% $ 350,582 59,279 14.9% 51,614 11.2% 46,424 252,282 31.8% 191,468 24.2% 154,113 $ 782,510 13.2% $ 691,451 25.5% $ 551,119 60.2% 7.6% 32.2% 64.8% 7.5% 27.7% 63.6% 8.4% 28.0% 100.0% 100.0% 100.0% net sales for the year ended october 31, 2014, compared to 2013, increased by $91.1 million, or 13.2%. the increases in sales, when compared to the same corresponding prior year periods, are related to increases in sales from all segments. We experienced an increase in RFG sales during fiscal year 2014, which was due primarily to increased sales from cut fruit and vegetables platters, as well as an increase in sales of deli products. We experienced an increase in Fresh product sales during fiscal 2014, which was due primarily to increased sales of Mexican sourced avocados. partially offsetting this increase in Fresh product sales, however, was a decrease in sales of California sourced avocados. We experienced an increase in our Calavo Foods segment during fiscal year 2014, which was due primarily to an increase in the sales of our guacamole products. While the procurement of fresh avocados related to our Fresh products segment is very seasonal, our Calavo Foods business is generally not subject to a seasonal effect. See detailed explanations below. Calavo Growers, Inc. 2014 AnnuAl RepoR t 26 . 27 We anticipate avocado products will further penetrate the united States marketplace driven by year-round availability of fresh avocados due to imports, a rapidly growing Hispanic population, and the promotion of the health benefits of avocados. As the largest marketer of avocado products in the united States, we believe that we are well positioned to leverage this trend and to grow our Fresh products and Calavo Foods segments of our business. Additionally, we also believe that avocados and avocado based products will further penetrate other marketplaces that we currently operate in, as interest in avocados continues to expand. In october 2002, the uSDA announced the creation of a Hass Avocado board to promote the sale of Hass variety avocados in the u.S. marketplace. this board provides a basis for a unified funding of promotional activities based on an assessment on all avocados sold in the u.S. marketplace. the California Avocado Commission, which receives its funding from California avocado growers, has historically shouldered the promotional and advertising costs supporting avocado sales. We believe that the incremental funding of promotional and advertising programs in the u.S. will, in the long term, positively impact average selling prices and will favorably impact our avocado businesses. During fiscal 2014, 2013 and 2012, on behalf of avocado growers, we remitted approximately $1.7 million, $2.0 million and $0.9 million to the California Avocado Commission. During fiscal 2014, 2013 and 2012, we remitted approximately $7.1 million, $8.0 million and $5.7 million to the Hass Avocado board related to avocados. We also believe that our diversified fresh products, primarily tomatoes, papayas and pineapples, are positioned for future growth and expansion. the tomato is the fourth most popular fresh-market vegetable behind potatoes, lettuce, and onions in the united States. Although stabilizing in the first decade of the 2000s, annual average fresh-market tomato consumption remains well above that of the previous decade. over the past few decades, per capita use of tomatoes has been on the rise due to the enduring popularity of salads, salad bars, and submarine sandwiches. perhaps of greater importance has been the introduction of improved and new tomato varieties, heightened consumer interest in a wider range of tomatoes, a surge of new immigrants who eat vegetable-intensive diets, and expanding national emphasis on health and nutrition. papayas have become more popular as the consumption in the united States has more than doubled in the past decade. papayas have high nutritional benefits. they are rich in Anti- oxidants, the b vitamins, folate and pantothenic acid; and the minerals, potassium and magnesium; and fiber. together, these nutrients promote the health of the cardiovascular system and also provide protection against colon cancer. Additionally, through the acquisition of RFG, we substantially expanded and accelerated the Company’s presence in the fast- growing refrigerated fresh packaged foods category through an array of retail product lines for produce, deli, meat and food service departments. RFG products range from fresh-cut fruit, ready-to-eat vegetables, recipe-ready vegetables and deli meat products. RFG sells under the popular labels of Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef essentials to a wide range of customers. Sales of products and related costs of products sold are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. Service revenue, including freight, ripening, storage, bagging and palletization charges, is recorded when services are performed and sales of the related products are delivered. We provide for sales returns and promotional allowances at the time of shipment, based on our experience. the following tables set forth sales by product category and sales incentives, by segment (dollars in thousands): YeAR enDeD oCtobeR 31, 2014 YeAR enDeD oCtobeR 31, 2013 FReSH pRoDuCtS CAlAVo FooDS RFG totAl FReSH pRoDuCtS CAlAVo FooDS RFG tot Al th IrD - Part y S aleS : Avocados tomatoes papayas pineapples other fresh products Food service Retail and club $ 433,581 $ — $ — $ 433,581 $ 407,678 $ — $ — $ 407,678 19,705 12,619 5,086 1,037 — — — — — — 48,085 — — — — — 19,705 22,623 12,619 13,077 5,086 1,037 48,085 5,739 601 — — — — — — 43,616 — — — — — 22,623 13,077 5,739 601 43,616 18,789 195,376 214,165 22,334 255,074 277,408 total gross sales 472,028 70,419 255,074 797,521 449,718 62,405 195,376 707,499 less sales incentives (1,079) (11,140) (2,792) (15,011) (1,349) (10,791) (3,908) (16,048) net sales $ 470,949 $ 59,279 $ 252,282 $ 782,510 $ 448,369 $ 51,614 $ 191,468 $ 691,451 YeAR enDeD oCtobeR 31, 2013 YeAR enDeD oCtobeR 31, 2012 FReSH pRoDuCtS CAlAVo FooDS RFG totAl FReSH pRoDuCtS CAlAVo FooDS RFG totAl $ 407,678 $ — $ — $ 407,678 $ 318,556 $ — $ — $ 318,556 22,623 13,077 5,739 601 — — — — — — 43,616 — — — — — 22,623 11,404 13,077 12,753 5,739 601 43,616 6,840 1,788 — — — — — — 36,289 — — — — — 11,404 12,753 6,840 1,788 36,289 19,758 157,333 177,091 18,789 195,376 214,165 th IrD - Part y S aleS : Avocados tomatoes papayas pineapples other fresh products Food service Retail and club total gross sales 449,718 62,405 195,376 707,499 351,341 56,047 157,333 564,721 less sales incentives (1,349) (10,791) (3,908) (16,048) (759) (9,623) (3,220) (13,602) net sales $ 448,369 $ 51,614 $ 191,468 $ 691,451 $ 350,582 $ 46,424 $ 154,113 $ 551,119 net sales to third parties by segment exclude inter-segment sales and cost of sales. For fiscal years 2014, 2013, and 2012, inter-segment sales and cost of sales for Fresh products totaling $33.7 million, $29.9 million and $22.2 million were eliminated. the following table summarizes our net sales by business segment: For fiscal years 2014, 2013, and 2012, inter-segment sales and cost of sales for Calavo Foods totaling $16.4 million, $14.3 million, and $11.6 million were eliminated. 2014 CHAnGe 2013 CHAnGe 2012 (Dollars in thousands) net S aleS : Fresh products Calavo Foods RFG total net sales aS a P ercentage of net S aleS : Fresh products Calavo Foods RFG Summary $ 470,949 5.0% $ 448,369 27.9% $ 350,582 59,279 14.9% 51,614 11.2% 46,424 252,282 31.8% 191,468 24.2% 154,113 $ 782,510 13.2% $ 691,451 25.5% $ 551,119 60.2% 7.6% 32.2% 64.8% 7.5% 27.7% 63.6% 8.4% 28.0% 100.0% 100.0% 100.0% net sales for the year ended october 31, 2014, compared to 2013, increased by $91.1 million, or 13.2%. the increases in sales, when compared to the same corresponding prior year periods, are related to increases in sales from all segments. We experienced an increase in RFG sales during fiscal year 2014, which was due primarily to increased sales from cut fruit and vegetables platters, as well as an increase in sales of deli products. We experienced an increase in Fresh product sales during fiscal 2014, which was due primarily to increased sales of Mexican sourced avocados. partially offsetting this increase in Fresh product sales, however, was a decrease in sales of California sourced avocados. We experienced an increase in our Calavo Foods segment during fiscal year 2014, which was due primarily to an increase in the sales of our guacamole products. While the procurement of fresh avocados related to our Fresh products segment is very seasonal, our Calavo Foods business is generally not subject to a seasonal effect. See detailed explanations below. Calavo Growers, Inc. 2014 AnnuAl RepoR t 26 . 27 net sales to third parties by segment exclude value-added services billed by our uruapan packinghouse and our uruapan processing plant to the parent company. All intercompany sales are eliminated in our consolidated results of operations. approximately 19.6%. We attribute this increase in the per carton selling price primarily to the 2013 (tomato) suspension agreement, which increased the floor sales price of Mexican tomatoes sold in the u.S. marketplace. Fresh products Fiscal 2014 vs. Fiscal 2013: net sales delivered by the Fresh products business increased by approximately $22.6 million, or 5.0%, for the year ended october 31, 2014, when compared to fiscal 2013. As discussed above, this increase in Fresh product sales during fiscal 2014 was primarily related to increased sales of Mexican sourced avocados, partially offset by a decrease in sales from California sourced avocados. See details below. Sales of Mexican sourced avocados increased $91.9 million, or 39.2%, for the year ended october 31, 2014, when compared to the same prior year period. the increase in Mexican sourced avocados was due primarily to an increase in the sales price per carton, which increased by approximately 18.8%. We attribute this increase primarily to a lower overall volume of California avocados in the marketplace, due to a smaller crop, and an overall increase in the demand of quality avocados. In addition, there was an increase in the pounds sold, which increased by approximately 37.4 million pounds of avocados sold, or 17.2%, when compared to the same prior year period. Sales of Chilean sourced avocados increased $2.9 million for the year ended october 31, 2014, when compared to the same prior year period. the increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increased in 2.7 million pounds of avocados sold, when compared to the same prior year period. this increase in sales is due to the lower availability of California avocados, and an increased focus on obtaining an increased supply of avocados from more diversified sources. partially offsetting such increases was a decrease in sales of California sourced avocados, which decreased $69.3 million, or 40.4% for the year ended october 31, 2014, when compared to the same prior year period. the decrease in California sourced avocados was primarily due to a decrease in pounds sold. California sourced avocados sales reflect a decrease in 67.0 million pounds of avocados sold, or 47.4%, when compared to the same prior year period. We attribute most of this decrease in volume to the cyclically smaller California avocado crop for fiscal 2014. partially offsetting this decrease, however, was the increase in the sales price per carton, which increased by approximately 13.3%. We attribute this increase primarily to a lower overall volume of avocados in the marketplace and an overall increase in the demand for avocados. Sales of tomatoes decreased to $19.7 million for the year ended october 31, 2014, compared to $22.6 million for the same period for fiscal 2013. the decrease in sales for tomatoes is due to a decrease in cartons sold to 1.9 million cartons from 2.6 million cartons. partially offsetting this decrease is an increase in the sales price per carton, which increased We anticipate that sales volume of California grown avocados will increase in fiscal 2015, due to a larger expected California avocado crop. We anticipate that sales of Mexican grown avocados will increase in fiscal 2015, when compared to the same prior year period, due to higher overall volume. In addition, we anticipate that sales volume of tomatoes will increase in fiscal 2015. Fiscal 2013 vs. Fiscal 2012: net sales delivered by the Fresh products business increased by approximately $97.8 million, or 27.9%, for the year ended october 31, 2013, when compared to fiscal 2012. As discussed above, this increase in Fresh product sales during fiscal year 2013 was primarily related to increased sales of Mexican and California sourced avocados, as well as tomatoes. partially offsetting these increases in Fresh product sales, however, was a decrease in sales of Chilean sourced avocados. See details below. Sales of Mexican sourced avocados increased $52.9 million, or 29.1%, for the year ended october 31, 2013, when compared to the same prior year period. the increase in Mexican sourced avocados was primarily due to an increase in pounds sold. Mexican sourced avocados sales reflect an increase in 50.3 million pounds of avocados sold, or 30.0%, when compared to the same prior year period. We attribute much of this increase in volume to the larger Mexican avocado crop in the current year, as well as current initiatives to expand our customer base and market share. partially offsetting this increase, however, was the decrease in the sales price per carton, which decreased by approximately 0.7%. We attribute this decrease primarily to a higher overall volume of avocados in the marketplace, as well as the aforementioned change in strategy to increase avocado market share. Sales of California sourced avocados increased $42.7 million, or 33.0%, for the year ended october 31, 2013, when compared to the same prior year period. the increase in California sourced avocados was primarily due to an increase in the sales price per carton and an increase in pounds sold. California sourced avocados experienced an increase in the sales price per carton of approximately 19.6%. We attribute this increase primarily to a higher overall demand of avocados in the marketplace. Additionally there was an increase in pounds sold, which increased 14.3 million pounds, or 11.2%, when compared to the same prior year period. We attribute much of this increase in volume to the larger California avocado crop in the current year. Sales of tomatoes increased $11.2 million, or 98.4%, for the year ended october 31, 2013, when compared to the same period for fiscal 2012. the increase in sales for tomatoes is primarily due to a combination of an increase in the number of cartons sold and an increase in the sales price per carton. Warmer than expected weather was experienced in both Florida and Mexico growing areas which delayed the start of the respective harvests and reduced the number of units available in prior year. 28 . 29 Calavo Growers, Inc. 2014 AnnuAl RepoR t We attribute some of this increase in the per carton selling price to the lower volume of quality tomatoes in the u.S. marketplace. partially offsetting the increases described in the paragraphs above was a decrease in sales of Chilean sourced avocados, which decreased $5.7 million, or 95.9%, for the year ended october 31, 2013, when compared to the same period for fiscal 2012. the decrease in Chilean sourced avocados was due to a decrease in pounds sold. Chilean sourced avocados sales reflect a decrease in 5.4 million pounds of avocados sold, when compared to the same prior year period. this decrease in sales is due to the high availability of other avocado sources, and an increased focus on Mexican and California sourced avocados for the year ended october 31, 2013. Calavo Foods Fiscal 2014 vs. Fiscal 2013: Sales for Calavo Foods for the year ended october 31, 2014, when compared to the same period for fiscal 2013, increased $7.7 million, or 14.9%. this increase is due to an increase in sales of prepared guacamole products which increased approximately $8.1 million, or 16.5%, for the year ended october 31, 2014, when compared to the same prior year period. the increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 4.8 million pounds, or 22.3%, partially offset by a decrease in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products of approximately 4.4%, primarily due to a change in the product mix. Fiscal 2013 vs. Fiscal 2012: Sales for Calavo Foods for the year ended october 31, 2013, when compared to the same period for fiscal 2012, increased $5.2 million, or 11.2%. this increase is due to an increase in sales of prepared guacamole products which increased approximately $6.0 million, or 13.9%, for the year ended october 31, 2013, when compared to the same prior year period. the increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 4.3 million pounds, or 24.8%, partially offset by a decrease in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products of approximately 8.0%. the decrease in the average net selling price is primarily related to an increase in sales to high volume but lower margin customers. partially offsetting this increase is a decrease of sales of Calavo Salsa lisa products of $0.5 million or 21.8% and tortilla chips of $0.4 million or 32.7%. RFG Fiscal 2014 vs. Fiscal 2013: Sales for RFG for the year ended october 31, 2014, when compared to the same prior year period, increased $60.8 million, or 31.8%. this increase is due primarily to increased sales from packaged fresh cut fruit, packaged fresh cut vegetables and fresh prepared and packaged deli style salads, sandwiches and wraps. the overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 18.8 million units, or 25.9%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative packaged fresh food products that we offer. As point of note, under Calavo ownership RFG revenues have grown from a fiscal 2011 “run rate” of $94.1 million to $252.3 million for the fiscal year ended oct. 31, 2014. Fiscal 2013 vs. Fiscal 2012: Sales for RFG for the year ended october 31, 2013, when compared to the same prior year period, increased $37.4 million, or 24.2%. this increase is due primarily to increased sales from packaged fresh cut fruit, packaged fresh cut vegetables and fresh prepared and packaged deli style salads, sandwiches and wraps. the overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 13.8 million units, or 24.0%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative packaged fresh food products that we offer. groSS margInS the following table summarizes our gross margins and gross profit percentages by business segment: (Dollars in thousands) groSS m argInS : Fresh products Calavo Foods RFG total gross margins groSS P rofIt P ercentageS : Fresh products Calavo Foods RFG Consolidated 2014 CHAnGe 2013 CHAnGe 2012 (ReSt AteD) (ReSt AteD) $ 36,129 13,010 22,089 $ 71,228 15.8% (2.8)% 48.6% 19.8% $ 31,193 13,388 14,867 $ 59,448 (9.0)% (4.4)% 20.2% (2.0)% $ 34,295 14,002 12,368 $ 60,665 7.7% 21.9% 8.8% 9.1% 7.0% 25.9% 7.8% 8.6% 9.8% 30.2% 8.0% 11.0% net sales to third parties by segment exclude value-added services billed by our uruapan packinghouse and our uruapan processing plant to the parent company. All intercompany sales are eliminated in our consolidated results of operations. approximately 19.6%. We attribute this increase in the per carton selling price primarily to the 2013 (tomato) suspension agreement, which increased the floor sales price of Mexican tomatoes sold in the u.S. marketplace. Fresh products Fiscal 2014 vs. Fiscal 2013: net sales delivered by the Fresh products business increased by approximately $22.6 million, or 5.0%, for the year ended october 31, 2014, when compared to fiscal 2013. As discussed above, this increase in Fresh product sales during fiscal 2014 was primarily related to increased sales of Mexican sourced avocados, partially offset by a decrease in sales from California sourced avocados. See details below. Sales of Mexican sourced avocados increased $91.9 million, or 39.2%, for the year ended october 31, 2014, when compared to the same prior year period. the increase in Mexican sourced avocados was due primarily to an increase in the sales price per carton, which increased by approximately 18.8%. We attribute this increase primarily to a lower overall volume of California avocados in the marketplace, due to a smaller crop, and an overall increase in the demand of quality avocados. In addition, there was an increase in the pounds sold, which increased by approximately 37.4 million pounds of avocados sold, or 17.2%, when compared to the same prior year period. Sales of Chilean sourced avocados increased $2.9 million for the year ended october 31, 2014, when compared to the same prior year period. the increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increased in 2.7 million pounds of avocados sold, when compared to the same prior year period. this increase in sales is due to the lower availability of California avocados, and an increased focus on obtaining an increased supply of avocados from more diversified sources. partially offsetting such increases was a decrease in sales of California sourced avocados, which decreased $69.3 million, or 40.4% for the year ended october 31, 2014, when compared to the same prior year period. the decrease in California sourced avocados was primarily due to a decrease in pounds sold. California sourced avocados sales reflect a decrease in 67.0 million pounds of avocados sold, or 47.4%, when compared to the same prior year period. We attribute most of this decrease in volume to the cyclically smaller California avocado crop for fiscal 2014. partially offsetting this decrease, however, was the increase in the sales price per carton, which increased by approximately 13.3%. We attribute this increase primarily to a lower overall volume of avocados in the marketplace and an overall increase in the demand for avocados. Sales of tomatoes decreased to $19.7 million for the year ended october 31, 2014, compared to $22.6 million for the same period for fiscal 2013. the decrease in sales for tomatoes is due to a decrease in cartons sold to 1.9 million cartons from 2.6 million cartons. partially offsetting this decrease is an increase in the sales price per carton, which increased We anticipate that sales volume of California grown avocados will increase in fiscal 2015, due to a larger expected California avocado crop. We anticipate that sales of Mexican grown avocados will increase in fiscal 2015, when compared to the same prior year period, due to higher overall volume. In addition, we anticipate that sales volume of tomatoes will increase in fiscal 2015. Fiscal 2013 vs. Fiscal 2012: net sales delivered by the Fresh products business increased by approximately $97.8 million, or 27.9%, for the year ended october 31, 2013, when compared to fiscal 2012. As discussed above, this increase in Fresh product sales during fiscal year 2013 was primarily related to increased sales of Mexican and California sourced avocados, as well as tomatoes. partially offsetting these increases in Fresh product sales, however, was a decrease in sales of Chilean sourced avocados. See details below. Sales of Mexican sourced avocados increased $52.9 million, or 29.1%, for the year ended october 31, 2013, when compared to the same prior year period. the increase in Mexican sourced avocados was primarily due to an increase in pounds sold. Mexican sourced avocados sales reflect an increase in 50.3 million pounds of avocados sold, or 30.0%, when compared to the same prior year period. We attribute much of this increase in volume to the larger Mexican avocado crop in the current year, as well as current initiatives to expand our customer base and market share. partially offsetting this increase, however, was the decrease in the sales price per carton, which decreased by approximately 0.7%. We attribute this decrease primarily to a higher overall volume of avocados in the marketplace, as well as the aforementioned change in strategy to increase avocado market share. Sales of California sourced avocados increased $42.7 million, or 33.0%, for the year ended october 31, 2013, when compared to the same prior year period. the increase in California sourced avocados was primarily due to an increase in the sales price per carton and an increase in pounds sold. California sourced avocados experienced an increase in the sales price per carton of approximately 19.6%. We attribute this increase primarily to a higher overall demand of avocados in the marketplace. Additionally there was an increase in pounds sold, which increased 14.3 million pounds, or 11.2%, when compared to the same prior year period. We attribute much of this increase in volume to the larger California avocado crop in the current year. Sales of tomatoes increased $11.2 million, or 98.4%, for the year ended october 31, 2013, when compared to the same period for fiscal 2012. the increase in sales for tomatoes is primarily due to a combination of an increase in the number of cartons sold and an increase in the sales price per carton. Warmer than expected weather was experienced in both Florida and Mexico growing areas which delayed the start of the respective harvests and reduced the number of units available in prior year. 28 . 29 Calavo Growers, Inc. 2014 AnnuAl RepoR t We attribute some of this increase in the per carton selling price to the lower volume of quality tomatoes in the u.S. marketplace. partially offsetting the increases described in the paragraphs above was a decrease in sales of Chilean sourced avocados, which decreased $5.7 million, or 95.9%, for the year ended october 31, 2013, when compared to the same period for fiscal 2012. the decrease in Chilean sourced avocados was due to a decrease in pounds sold. Chilean sourced avocados sales reflect a decrease in 5.4 million pounds of avocados sold, when compared to the same prior year period. this decrease in sales is due to the high availability of other avocado sources, and an increased focus on Mexican and California sourced avocados for the year ended october 31, 2013. Calavo Foods Fiscal 2014 vs. Fiscal 2013: Sales for Calavo Foods for the year ended october 31, 2014, when compared to the same period for fiscal 2013, increased $7.7 million, or 14.9%. this increase is due to an increase in sales of prepared guacamole products which increased approximately $8.1 million, or 16.5%, for the year ended october 31, 2014, when compared to the same prior year period. the increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 4.8 million pounds, or 22.3%, partially offset by a decrease in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products of approximately 4.4%, primarily due to a change in the product mix. Fiscal 2013 vs. Fiscal 2012: Sales for Calavo Foods for the year ended october 31, 2013, when compared to the same period for fiscal 2012, increased $5.2 million, or 11.2%. this increase is due to an increase in sales of prepared guacamole products which increased approximately $6.0 million, or 13.9%, for the year ended october 31, 2013, when compared to the same prior year period. the increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 4.3 million pounds, or 24.8%, partially offset by a decrease in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products of approximately 8.0%. the decrease in the average net selling price is primarily related to an increase in sales to high volume but lower margin customers. partially offsetting this increase is a decrease of sales of Calavo Salsa lisa products of $0.5 million or 21.8% and tortilla chips of $0.4 million or 32.7%. RFG Fiscal 2014 vs. Fiscal 2013: Sales for RFG for the year ended october 31, 2014, when compared to the same prior year period, increased $60.8 million, or 31.8%. this increase is due primarily to increased sales from packaged fresh cut fruit, packaged fresh cut vegetables and fresh prepared and packaged deli style salads, sandwiches and wraps. the overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 18.8 million units, or 25.9%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative packaged fresh food products that we offer. As point of note, under Calavo ownership RFG revenues have grown from a fiscal 2011 “run rate” of $94.1 million to $252.3 million for the fiscal year ended oct. 31, 2014. Fiscal 2013 vs. Fiscal 2012: Sales for RFG for the year ended october 31, 2013, when compared to the same prior year period, increased $37.4 million, or 24.2%. this increase is due primarily to increased sales from packaged fresh cut fruit, packaged fresh cut vegetables and fresh prepared and packaged deli style salads, sandwiches and wraps. the overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 13.8 million units, or 24.0%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative packaged fresh food products that we offer. groSS margInS the following table summarizes our gross margins and gross profit percentages by business segment: (Dollars in thousands) groSS m argInS : Fresh products Calavo Foods RFG total gross margins groSS P rofIt P ercentageS : Fresh products Calavo Foods RFG Consolidated 2014 CHAnGe 2013 CHAnGe 2012 (ReSt AteD) (ReSt AteD) $ 36,129 13,010 22,089 $ 71,228 15.8% (2.8)% 48.6% 19.8% $ 31,193 13,388 14,867 $ 59,448 (9.0)% (4.4)% 20.2% (2.0)% $ 34,295 14,002 12,368 $ 60,665 7.7% 21.9% 8.8% 9.1% 7.0% 25.9% 7.8% 8.6% 9.8% 30.2% 8.0% 11.0% Summary our cost of goods sold consists predominantly of fruit costs, packing materials, freight and handling, labor and overhead (including depreciation) associated with preparing food products and other direct expenses pertaining to products sold. Gross margins increased by approximately $11.8 million, or 19.8%, for the year ended october 31, 2014, when compared to the same period for fiscal 2013. these increases were attributable to gross margin increases in our Fresh products and RFG segments, partially offset by a decrease in our Calavo Foods segment. note that RFG’s Cost of Sales for fiscal 2014, 2013, and 2012 include non-cash compensation expense related to the sale/ acquisition of RFG totaling $1.8 million, and $0.7 million, and an insignificant amount. See note 3 to our Consolidated Financial Statements. If we did not include this non-cash expense, RFG’s gross margin and resulting gross profit percentages would be as follows: 2014 CHAnGe 2013 CHAnGe 2012 (Dollars in thousands) groSS m argInS : RFG groSS P rofIt P ercentageS : RFG Fresh products Fiscal 2014 vs. Fiscal 2013: During fiscal 2014, as compared to the same prior year period, the increase in our Fresh products segment gross margin percentage was primarily the result of increased margins for Mexican sourced avocados that increased from 5.0% in fiscal 2013 to 8.1% in fiscal 2014. In the current year, we were able to manage the spread between the sales price and the fruit cost of Mexican sourced avocados more effectively, as average fruit costs increased 15.0%, we were able to increase sales prices by approximately 18.8%. In addition, the u.S. Dollar to Mexican peso exchange rate weakened in fiscal year 2013, while in fiscal 2014 the u.S. Dollar to Mexican peso exchange rate strengthened. note that any significant fluctuations in the exchange rate between the u.S. Dollar and the Mexican peso may have a material impact on future gross margins for our Fresh products and Calavo Foods segments. partially offsetting this increase in gross margin percentage was a decrease in the gross margin percentage for California sourced avocados for fiscal 2014, as compared to the same prior year periods. Gross margin percentages related to California avocados are largely dependent on production yields achieved at our packinghouses, current market prices of avocados, our packing and marketing fee, and volume of avocados packed. A significant portion of our costs are fixed. As such, a lower volume of fruit going through our packinghouses will decrease our gross margin percentage. pounds of California avocados sold decreased 47.4% in fiscal 2014 as compared to fiscal 2013. this had the effect of increasing our per pound costs, which, as a result, negatively impacted gross margins. the gross margin and/or gross profit percentage for consignment sales, including certain Chilean avocados, tomatoes and pineapples, are dependent on the volume of fruit we 23,896 53.7% 15,543 25.7% 12,369 9.5% 8.1% 8.0% handle, the average selling prices, and the competitiveness of the returns that we provide to third-party growers/packers. the gross margin we earn is generally based on a commission agreed to with each party, which usually is a percent of the overall selling price. Although we generally do not take legal title to such avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and limited pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, our results of operations include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. For fiscal years 2014, we generated gross margins of $3.0 million from consigned sales. this is a $0.1 million increase in gross margin for consigned sales compared to previous year. Sales of Chilean sourced avocados increased $2.9 million for the year ended october 31, 2014, when compared to the same prior year period. the increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increased in 2.7 million pounds of avocados sold, when compared to the same prior year period. this increase in sales is due to the lower availability of California avocados, and an increased focus on obtaining an increased supply of avocados from more diversified sources. Sales of tomatoes decreased to $19.7 million for the year ended october 31, 2014, compared to $22.6 million for the same period for fiscal 2013. the decrease in sales for tomatoes is due to a decrease in cartons sold to 1.9 million cartons from 2.6 million cartons. partially offsetting this decrease is an increase in the sales price per carton, which increased approximately 19.6%. We attribute this increase in the per carton selling price primarily to the 2013 (tomato) suspension agreement, which increased the floor sales price of Mexican tomatoes sold in the u.S. marketplace. Fiscal 2013 vs. Fiscal 2012: During fiscal 2013, as compared to the same prior year period, the decrease in our Fresh products segment gross margin percentage was primarily the result of higher Mexican sourced avocado fruit costs year-over-year. In addition, the u.S. Dollar to Mexican peso exchange rate weakened in fiscal year 2013, when compared to the same prior period. We also focused on our current initiatives to expand our customer base and market share. Contributing to the decrease in the gross margin percentage was a decrease in the gross margin percentage for California sourced avocados for fiscal 2013, as compared to the same prior year periods. this decrease was primarily attributed to our current increased focus on initiatives to expand our customer base and market share. the combined effect of these negatively impacted gross margins. the gross margin and/or gross profit percentage for consignment sales, including certain Chilean avocados and tomatoes, are dependent on the volume of fruit we handle, the average selling prices, and the competitiveness of the returns that we provide to third-party growers/packers. the gross margin we earn is generally based on a commission agreed to with each party, which usually is a percent of the overall selling price. Although we generally do not take legal title to such avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and limited pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, our results of operations include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. For fiscal years 2013, we generated gross margins of $2.9 million from consigned sales. this is a $0.5 million increase in gross margin for consigned sales compared to previous year. this increase is due to an increase in tomato sales of 98.4% for fiscal 2013, when compared to the same prior year period. the increase in sales for tomatoes is primarily due to a combination of an increase in the number of cartons sold and an increase in the sales price per carton. Warmer than expected weather was experienced in both Florida and Mexico growing areas which delayed the start of the respective harvests and reduced the number of units available in prior year. We attribute some of this increase in the per carton selling price to the lower volume of quality tomatoes in the u.S. marketplace. partially offsetting the increase in tomato sales is the decrease in Chilean avocado sales, which decreased $5.7 million, or 95.9%, for the year ended october 31, 2013, when compared to the same period for fiscal 2012. the decrease in Chilean sourced avocados was due to a decrease in pounds sold. Chilean sourced avocados sales reflect a decrease in 5.4 million pounds of avocados sold, when compared to the same prior year period. this decrease in sales is due to the high availability of other avocado sources, and an increased focus on Mexican and California sourced avocados for the year ended october 31, 2013. Calavo Foods Fiscal 2014 vs. Fiscal 2013: the Calavo Foods segment gross margin percentage during our year ended october 31, 2014, when compared to the same prior year periods, decreased primarily due to an increase in fruit costs. Fruit costs increased during our year ended october 31, 2014, by approximately 2.8%. In addition, gross margins decreased due to an increase in sales of frozen, high volume but low margin customers. partially offsetting these decreases to the gross margin percentage was the strengthening of the u.S. Dollar compared to the Mexican peso, which decreased many of our per pound costs. We anticipate that the gross margin percentage for our Calavo Foods segment will continue to experience significant fluctuations during this fiscal year primarily due to the uncertainty of the cost of fruit that will be used in the production process. note that any significant fluctuation in the exchange rate between the u.S. Dollar and the Mexican peso may have a material impact on future gross margins for our Calavo Foods segments. Fiscal 2013 vs. Fiscal 2012: Gross profit percentages for Calavo Foods for the year ended october 31, 2013, as compared to the same prior year period, decreased primarily as a result of higher fruit and operating costs for our prepared guacamole products. Fruit costs for the year ended october 31, 2013, increased 19.7%, when compared to the same prior year period. We believe these increases in fruit costs are primarily due to an overall higher demand for avocados in the marketplace. In addition, the weakening of the u.S. Dollar compared to the Mexican peso, year-over-year, increased our per pound costs. All of these combined had the effect of increasing our per pound costs, which, as a result, negatively impacted gross margins. In addition, included in the cost of sales was an impairment of $0.6 million for certain intangible assets related to the Calavo Salsa lisa reporting unit. this impairment was a result of less than anticipated sales since acquisition and was calculated via a forecast projection analysis, with consultation from a third party consulting firm. We anticipate that the gross margin percentage for our Calavo Foods segment will continue to experience significant fluctuations due to the uncertainty of the cost of fruit that will be used in the production process. RFG Fiscal 2014 vs. Fiscal 2013: not considering the non-cash compensation expense as described above, gross profit for RFG for the year ended october 31, 2014, when compared to the same prior year period, increased $8.4 million, or 53.7%. RFG’s improved gross-margin is reflective of certain economies of scale resulting from significant sales growth (see discussion above), improved labor utilization and improved raw-material quality and yield. benefits from superior fruit quality/ yield extend beyond just lower fruit costs, but also reduce other costs, including the labor needed to process such fruit. Calavo Growers, Inc. 2014 AnnuAl RepoR t 30 . 31 Summary our cost of goods sold consists predominantly of fruit costs, packing materials, freight and handling, labor and overhead (including depreciation) associated with preparing food products and other direct expenses pertaining to products sold. Gross margins increased by approximately $11.8 million, or 19.8%, for the year ended october 31, 2014, when compared to the same period for fiscal 2013. these increases were attributable to gross margin increases in our Fresh products and RFG segments, partially offset by a decrease in our Calavo Foods segment. note that RFG’s Cost of Sales for fiscal 2014, 2013, and 2012 include non-cash compensation expense related to the sale/ acquisition of RFG totaling $1.8 million, and $0.7 million, and an insignificant amount. See note 3 to our Consolidated Financial Statements. If we did not include this non-cash expense, RFG’s gross margin and resulting gross profit percentages would be as follows: 2014 CHAnGe 2013 CHAnGe 2012 (Dollars in thousands) groSS m argInS : RFG groSS P rofIt P ercentageS : RFG Fresh products Fiscal 2014 vs. Fiscal 2013: During fiscal 2014, as compared to the same prior year period, the increase in our Fresh products segment gross margin percentage was primarily the result of increased margins for Mexican sourced avocados that increased from 5.0% in fiscal 2013 to 8.1% in fiscal 2014. In the current year, we were able to manage the spread between the sales price and the fruit cost of Mexican sourced avocados more effectively, as average fruit costs increased 15.0%, we were able to increase sales prices by approximately 18.8%. In addition, the u.S. Dollar to Mexican peso exchange rate weakened in fiscal year 2013, while in fiscal 2014 the u.S. Dollar to Mexican peso exchange rate strengthened. note that any significant fluctuations in the exchange rate between the u.S. Dollar and the Mexican peso may have a material impact on future gross margins for our Fresh products and Calavo Foods segments. partially offsetting this increase in gross margin percentage was a decrease in the gross margin percentage for California sourced avocados for fiscal 2014, as compared to the same prior year periods. Gross margin percentages related to California avocados are largely dependent on production yields achieved at our packinghouses, current market prices of avocados, our packing and marketing fee, and volume of avocados packed. A significant portion of our costs are fixed. As such, a lower volume of fruit going through our packinghouses will decrease our gross margin percentage. pounds of California avocados sold decreased 47.4% in fiscal 2014 as compared to fiscal 2013. this had the effect of increasing our per pound costs, which, as a result, negatively impacted gross margins. the gross margin and/or gross profit percentage for consignment sales, including certain Chilean avocados, tomatoes and pineapples, are dependent on the volume of fruit we 23,896 53.7% 15,543 25.7% 12,369 9.5% 8.1% 8.0% handle, the average selling prices, and the competitiveness of the returns that we provide to third-party growers/packers. the gross margin we earn is generally based on a commission agreed to with each party, which usually is a percent of the overall selling price. Although we generally do not take legal title to such avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and limited pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, our results of operations include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. For fiscal years 2014, we generated gross margins of $3.0 million from consigned sales. this is a $0.1 million increase in gross margin for consigned sales compared to previous year. Sales of Chilean sourced avocados increased $2.9 million for the year ended october 31, 2014, when compared to the same prior year period. the increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increased in 2.7 million pounds of avocados sold, when compared to the same prior year period. this increase in sales is due to the lower availability of California avocados, and an increased focus on obtaining an increased supply of avocados from more diversified sources. Sales of tomatoes decreased to $19.7 million for the year ended october 31, 2014, compared to $22.6 million for the same period for fiscal 2013. the decrease in sales for tomatoes is due to a decrease in cartons sold to 1.9 million cartons from 2.6 million cartons. partially offsetting this decrease is an increase in the sales price per carton, which increased approximately 19.6%. We attribute this increase in the per carton selling price primarily to the 2013 (tomato) suspension agreement, which increased the floor sales price of Mexican tomatoes sold in the u.S. marketplace. Fiscal 2013 vs. Fiscal 2012: During fiscal 2013, as compared to the same prior year period, the decrease in our Fresh products segment gross margin percentage was primarily the result of higher Mexican sourced avocado fruit costs year-over-year. In addition, the u.S. Dollar to Mexican peso exchange rate weakened in fiscal year 2013, when compared to the same prior period. We also focused on our current initiatives to expand our customer base and market share. Contributing to the decrease in the gross margin percentage was a decrease in the gross margin percentage for California sourced avocados for fiscal 2013, as compared to the same prior year periods. this decrease was primarily attributed to our current increased focus on initiatives to expand our customer base and market share. the combined effect of these negatively impacted gross margins. the gross margin and/or gross profit percentage for consignment sales, including certain Chilean avocados and tomatoes, are dependent on the volume of fruit we handle, the average selling prices, and the competitiveness of the returns that we provide to third-party growers/packers. the gross margin we earn is generally based on a commission agreed to with each party, which usually is a percent of the overall selling price. Although we generally do not take legal title to such avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and limited pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, our results of operations include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. For fiscal years 2013, we generated gross margins of $2.9 million from consigned sales. this is a $0.5 million increase in gross margin for consigned sales compared to previous year. this increase is due to an increase in tomato sales of 98.4% for fiscal 2013, when compared to the same prior year period. the increase in sales for tomatoes is primarily due to a combination of an increase in the number of cartons sold and an increase in the sales price per carton. Warmer than expected weather was experienced in both Florida and Mexico growing areas which delayed the start of the respective harvests and reduced the number of units available in prior year. We attribute some of this increase in the per carton selling price to the lower volume of quality tomatoes in the u.S. marketplace. partially offsetting the increase in tomato sales is the decrease in Chilean avocado sales, which decreased $5.7 million, or 95.9%, for the year ended october 31, 2013, when compared to the same period for fiscal 2012. the decrease in Chilean sourced avocados was due to a decrease in pounds sold. Chilean sourced avocados sales reflect a decrease in 5.4 million pounds of avocados sold, when compared to the same prior year period. this decrease in sales is due to the high availability of other avocado sources, and an increased focus on Mexican and California sourced avocados for the year ended october 31, 2013. Calavo Foods Fiscal 2014 vs. Fiscal 2013: the Calavo Foods segment gross margin percentage during our year ended october 31, 2014, when compared to the same prior year periods, decreased primarily due to an increase in fruit costs. Fruit costs increased during our year ended october 31, 2014, by approximately 2.8%. In addition, gross margins decreased due to an increase in sales of frozen, high volume but low margin customers. partially offsetting these decreases to the gross margin percentage was the strengthening of the u.S. Dollar compared to the Mexican peso, which decreased many of our per pound costs. We anticipate that the gross margin percentage for our Calavo Foods segment will continue to experience significant fluctuations during this fiscal year primarily due to the uncertainty of the cost of fruit that will be used in the production process. note that any significant fluctuation in the exchange rate between the u.S. Dollar and the Mexican peso may have a material impact on future gross margins for our Calavo Foods segments. Fiscal 2013 vs. Fiscal 2012: Gross profit percentages for Calavo Foods for the year ended october 31, 2013, as compared to the same prior year period, decreased primarily as a result of higher fruit and operating costs for our prepared guacamole products. Fruit costs for the year ended october 31, 2013, increased 19.7%, when compared to the same prior year period. We believe these increases in fruit costs are primarily due to an overall higher demand for avocados in the marketplace. In addition, the weakening of the u.S. Dollar compared to the Mexican peso, year-over-year, increased our per pound costs. All of these combined had the effect of increasing our per pound costs, which, as a result, negatively impacted gross margins. In addition, included in the cost of sales was an impairment of $0.6 million for certain intangible assets related to the Calavo Salsa lisa reporting unit. this impairment was a result of less than anticipated sales since acquisition and was calculated via a forecast projection analysis, with consultation from a third party consulting firm. We anticipate that the gross margin percentage for our Calavo Foods segment will continue to experience significant fluctuations due to the uncertainty of the cost of fruit that will be used in the production process. RFG Fiscal 2014 vs. Fiscal 2013: not considering the non-cash compensation expense as described above, gross profit for RFG for the year ended october 31, 2014, when compared to the same prior year period, increased $8.4 million, or 53.7%. RFG’s improved gross-margin is reflective of certain economies of scale resulting from significant sales growth (see discussion above), improved labor utilization and improved raw-material quality and yield. benefits from superior fruit quality/ yield extend beyond just lower fruit costs, but also reduce other costs, including the labor needed to process such fruit. Calavo Growers, Inc. 2014 AnnuAl RepoR t 30 . 31 Fiscal 2013 vs. Fiscal 2012: not considering the non-cash compensation expense as described above, gross profit for RFG for the year ended october 31, 2013, when compared to the same prior year period, increased $3.2 million, or 25.7%. this increase is due primarily to increased sales from packaged fresh cut fruit, packaged fresh cut vegetables and fresh prepared and packaged deli style salads, sandwiches and wraps. the overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 13.8 million units, or 24.0%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative packaged fresh food products that we offer. SellIng, general anD aDmInIStratIve 2014 CHAnGe 2013 CHAnGe 2012 (Dollars in thousands) (ReSt AteD) (ReSt AteD) Selling, general and administrative $ 36,605 9.3% $ 33,485 2.4% $ 32,714 percentage of net sales 4.7% 4.8% 5.9% Selling, general and administrative expenses include costs of marketing and advertising, sales expenses and other general and administrative costs. Selling, general and administrative expenses increased $3.1 million, or 9.3%, for the year ended october 31, 2014, when compared to the same prior year period. this increase was primarily related to higher corporate costs, including, but not limited to, general and administrative costs related to accrued management bonuses (approximately $1.3 million), salaries (approximately $1.2 million), non-cash compensation related to RFG acquisition (approximately $0.5 million), stock option expense (approximately $0.4 million), accounting fees (approximately $0.4 million), bad debt expense (approximately $0.2 million), employee benefits (approximately $0.2 million), other administration fees (approximately $0.2 million) and broker commissions (approximately $0.1 million), partially offset by a decrease in the expenses related to the start-up operations of FreshRealm (approximately $0.9 million), write-down of contingent consideration related to Salsa lisa (approximately $0.3 million), promotions and advertising (approximately $0.1 million) and legal fees (approximately $0.1 million). Selling, general and administrative expenses increased $0.8 million, or 2.4%, for the year ended october 31, 2013, when compared to the same prior year period. this increase was primarily due to the start-up operations of FreshRealm (approximately $1.9 million), as well as higher corporate costs, including, but not limited to, salaries (approximately $0.7 million), non-cash compensation related to RFG acquisition (approximately $0.3 million), accounting fees (approximately $0.2 million), and legal fees (approximately $0.2 million), partially offset by decreases in management bonuses (approximately $2.2 million), consulting fees (approximately $0.1 million), data processing (approximately $0.1 million) and a decrease in the revalue adjustments on contingent consideration related to the acquisition of Calavo Salsa lisa compared to prior year (approximately $0.1 million). contIngent conSIDeratIon relateD to rfg acQUISItIon (Dollars in thousands) 2014 CHAnGe 2013 CHAnGe 2012 (ReSt AteD) (ReSt AteD) IntereSt Income (Dollars in thousands) Interest income percentage of net sales 2014 CHAnGe 2013 CHAnGe 2012 $ 228 (10.6)% $ 255 11.4% $ 229 0.0% 0.0% 0.0% Interest income was primarily generated from our loans to growers. the increase in interest income in fiscal 2014 as compared to 2013 is due to the borrowings by California avocado growers decreasing in the current year compared to the prior year. the increase in interest income in fiscal 2013 as compared to 2012 is due to the borrowings by California avocado growers increasing in the current year compared to the prior year. IntereSt eXPenSe (Dollars in thousands) Interest expense percentage of net sales 2014 CHAnGe 2013 CHAnGe 2012 983 0.1% (10.5)% $ 1,098 (4.7)% $ 1,152 0.2% 0.2% Interest expense is primarily generated from our line of credit borrowings, as well as our term loan agreements with Farm Credit West, pCA (FCW) and bank of America, n.A. (boA). For fiscal 2014, as compared to fiscal 2013, the decrease in interest expense was primarily related to a lower average outstanding balance on our non-collateralized, revolving credit facilities with FCW and boA. For fiscal 2013, as compared to fiscal 2012, the decrease in interest expense was primarily related to a lower average outstanding balance on our non-collateralized, revolving credit facilities with FCW and boA. other Income, net (Dollars in thousands) other income, net percentage of net sales 2014 CHAnGe 2013 CHAnGe 2012 $ 473 5.6% $ 448 (49.5)% $ 887 0.1% 0.1% 0.2% other income, net includes dividend income, as well as certain other transactions that are outside of the normal course of operations. other Income stayed relatively consistent in fiscal 2014 compared to fiscal 2013. During fiscal 2014 and 2013, we received $0.3 million as dividend income from limoneira. During fiscal 2012, we received $0.2 million as dividend income from limoneira. the decrease in fiscal year 2013, compared to 2012 is due the sale to San Rafael of all our interest, representing one-half ownership, in Maui Fresh International in prior year. this transaction resulted in a prior year gain on sale of approximately $0.5 million. not included in the other income discussion above, is the gain on the deconsolidation of FreshRealm that is disclosed on its own line on the income statement. For further discussion on the $12.6 million gain in fiscal 2014, see note 18 of the consolidated financial statements. Contingent consideration related to RFG acquisition $ 51,082 55.4% $ 32,867 1,177.9% $ 2,572 ProvISIon (BenefIt) for Income taXeS 2014 CHAnGe 2013 CHAnGe 2012 percentage of net sales 6.5% 4.8% 0.5% (Dollars in thousands) (ReSt AteD) (ReSt AteD) See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. We revalued contingent consideration obligations to their fair value and recorded increases or decreases in the fair value into contingent consideration expense. Increases or decreases in the fair value of the contingent consideration obligations resulted from changes in the assumed timing and amount of revenue and expense estimates, changes in the probability of payment scenarios, as well as changes in capital market conditions, which impacted the discount rate used in the fair valuation. Significant judgment was employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. RFG and Salsa lisa are the two acquisitions that have contingent consideration. RFG’s results substantially exceeded defined thresholds and expectations and, accordingly, RFG’s former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement. this caused the significant increase in contingent consideration for fiscal year 2014 and 2013. As discussed in note 3 and note 17, RFG’s former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement, as amended, and there will be no future expenses related to this acquisition. provision for income taxes $ (3,916) (16.9)% $ (4,715) (146.2)% $ 10,213 effective tax rate (94.8)% (63.7)% 39.5% See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. the benefit for income taxes of $3.9 million is attributable to the revaluation adjustment of $88.1 million related to contingent consideration which was spread between fiscal year 2014 through fiscal year 2011. the revalued contingent consideration and non-cash compensation expense resulted in $53.7 million, $32.0 million, and $2.2 million additional GAAp expense recorded in fiscal years 2014, 2013, and 2012, respectively. the current year revaluation expense drove pre-tax book income into a loss position, thus causing a benefit for income taxes as this revaluation adjustment is capitalized and amortized as goodwill over the remaining useful life for income tax purposes resulting in a taxable income position for the current year. 32 . 33 Calavo Growers, Inc. 2014 AnnuAl RepoR t Fiscal 2013 vs. Fiscal 2012: not considering the non-cash compensation expense as described above, gross profit for RFG for the year ended october 31, 2013, when compared to the same prior year period, increased $3.2 million, or 25.7%. this increase is due primarily to increased sales from packaged fresh cut fruit, packaged fresh cut vegetables and fresh prepared and packaged deli style salads, sandwiches and wraps. the overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 13.8 million units, or 24.0%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative packaged fresh food products that we offer. SellIng, general anD aDmInIStratIve 2014 CHAnGe 2013 CHAnGe 2012 (Dollars in thousands) (ReSt AteD) (ReSt AteD) Selling, general and administrative $ 36,605 9.3% $ 33,485 2.4% $ 32,714 percentage of net sales 4.7% 4.8% 5.9% Selling, general and administrative expenses include costs of marketing and advertising, sales expenses and other general and administrative costs. Selling, general and administrative expenses increased $3.1 million, or 9.3%, for the year ended october 31, 2014, when compared to the same prior year period. this increase was primarily related to higher corporate costs, including, but not limited to, general and administrative costs related to accrued management bonuses (approximately $1.3 million), salaries (approximately $1.2 million), non-cash compensation related to RFG acquisition (approximately $0.5 million), stock option expense (approximately $0.4 million), accounting fees (approximately $0.4 million), bad debt expense (approximately $0.2 million), employee benefits (approximately $0.2 million), other administration fees (approximately $0.2 million) and broker commissions (approximately $0.1 million), partially offset by a decrease in the expenses related to the start-up operations of FreshRealm (approximately $0.9 million), write-down of contingent consideration related to Salsa lisa (approximately $0.3 million), promotions and advertising (approximately $0.1 million) and legal fees (approximately $0.1 million). Selling, general and administrative expenses increased $0.8 million, or 2.4%, for the year ended october 31, 2013, when compared to the same prior year period. this increase was primarily due to the start-up operations of FreshRealm (approximately $1.9 million), as well as higher corporate costs, including, but not limited to, salaries (approximately $0.7 million), non-cash compensation related to RFG acquisition (approximately $0.3 million), accounting fees (approximately $0.2 million), and legal fees (approximately $0.2 million), partially offset by decreases in management bonuses (approximately $2.2 million), consulting fees (approximately $0.1 million), data processing (approximately $0.1 million) and a decrease in the revalue adjustments on contingent consideration related to the acquisition of Calavo Salsa lisa compared to prior year (approximately $0.1 million). contIngent conSIDeratIon relateD to rfg acQUISItIon (Dollars in thousands) 2014 CHAnGe 2013 CHAnGe 2012 (ReSt AteD) (ReSt AteD) IntereSt Income (Dollars in thousands) Interest income percentage of net sales 2014 CHAnGe 2013 CHAnGe 2012 $ 228 (10.6)% $ 255 11.4% $ 229 0.0% 0.0% 0.0% Interest income was primarily generated from our loans to growers. the increase in interest income in fiscal 2014 as compared to 2013 is due to the borrowings by California avocado growers decreasing in the current year compared to the prior year. the increase in interest income in fiscal 2013 as compared to 2012 is due to the borrowings by California avocado growers increasing in the current year compared to the prior year. IntereSt eXPenSe (Dollars in thousands) Interest expense percentage of net sales 2014 CHAnGe 2013 CHAnGe 2012 983 0.1% (10.5)% $ 1,098 (4.7)% $ 1,152 0.2% 0.2% Interest expense is primarily generated from our line of credit borrowings, as well as our term loan agreements with Farm Credit West, pCA (FCW) and bank of America, n.A. (boA). For fiscal 2014, as compared to fiscal 2013, the decrease in interest expense was primarily related to a lower average outstanding balance on our non-collateralized, revolving credit facilities with FCW and boA. For fiscal 2013, as compared to fiscal 2012, the decrease in interest expense was primarily related to a lower average outstanding balance on our non-collateralized, revolving credit facilities with FCW and boA. other Income, net (Dollars in thousands) other income, net percentage of net sales 2014 CHAnGe 2013 CHAnGe 2012 $ 473 5.6% $ 448 (49.5)% $ 887 0.1% 0.1% 0.2% other income, net includes dividend income, as well as certain other transactions that are outside of the normal course of operations. other Income stayed relatively consistent in fiscal 2014 compared to fiscal 2013. During fiscal 2014 and 2013, we received $0.3 million as dividend income from limoneira. During fiscal 2012, we received $0.2 million as dividend income from limoneira. the decrease in fiscal year 2013, compared to 2012 is due the sale to San Rafael of all our interest, representing one-half ownership, in Maui Fresh International in prior year. this transaction resulted in a prior year gain on sale of approximately $0.5 million. not included in the other income discussion above, is the gain on the deconsolidation of FreshRealm that is disclosed on its own line on the income statement. For further discussion on the $12.6 million gain in fiscal 2014, see note 18 of the consolidated financial statements. Contingent consideration related to RFG acquisition $ 51,082 55.4% $ 32,867 1,177.9% $ 2,572 ProvISIon (BenefIt) for Income taXeS 2014 CHAnGe 2013 CHAnGe 2012 percentage of net sales 6.5% 4.8% 0.5% (Dollars in thousands) (ReSt AteD) (ReSt AteD) See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. We revalued contingent consideration obligations to their fair value and recorded increases or decreases in the fair value into contingent consideration expense. Increases or decreases in the fair value of the contingent consideration obligations resulted from changes in the assumed timing and amount of revenue and expense estimates, changes in the probability of payment scenarios, as well as changes in capital market conditions, which impacted the discount rate used in the fair valuation. Significant judgment was employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. RFG and Salsa lisa are the two acquisitions that have contingent consideration. RFG’s results substantially exceeded defined thresholds and expectations and, accordingly, RFG’s former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement. this caused the significant increase in contingent consideration for fiscal year 2014 and 2013. As discussed in note 3 and note 17, RFG’s former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement, as amended, and there will be no future expenses related to this acquisition. provision for income taxes $ (3,916) (16.9)% $ (4,715) (146.2)% $ 10,213 effective tax rate (94.8)% (63.7)% 39.5% See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. the benefit for income taxes of $3.9 million is attributable to the revaluation adjustment of $88.1 million related to contingent consideration which was spread between fiscal year 2014 through fiscal year 2011. the revalued contingent consideration and non-cash compensation expense resulted in $53.7 million, $32.0 million, and $2.2 million additional GAAp expense recorded in fiscal years 2014, 2013, and 2012, respectively. the current year revaluation expense drove pre-tax book income into a loss position, thus causing a benefit for income taxes as this revaluation adjustment is capitalized and amortized as goodwill over the remaining useful life for income tax purposes resulting in a taxable income position for the current year. 32 . 33 Calavo Growers, Inc. 2014 AnnuAl RepoR t QuArterly reSultS OF OperA tiOnS the following operating results for each of the eight fiscal quarters in the period ended october 31, 2014 (except for the current quarter ending october 31, 2014) has been restated to reflect adjustments to our previously issued financial statements as more fully discussed in note 3, “Restatement of previously- Issued Financial Statements” to the Consolidated Financial Statements included in Item 8 of this Form 10-K. the information should be read in conjunction with our audited consolidated financial statements included in this Annual Report. Historically, we receive and sell a substantially smaller volume of California avocados in our first fiscal quarter. See note 19, “Selected Quarterly Financial Data (unaudited)” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously- issued financial statements. liQuiDity AnD CApit Al reSOurCeS operating activities for fiscal 2014, 2013 and 2012 provided cash flows of $21.3 million, $13.7 million, and $22.0 million. Fiscal year 2014 operating cash flows reflect our net loss of $0.2 million, net decrease of noncash charges (depreciation and amortization, income from unconsolidated entities, provision for losses on accounts receivable, interest on deferred compensation, deferred income taxes, revalue adjustment on contingent consideration and non-cash compensation expense, impairment on intangible assets, stock compensation expense and gain from deconsolidation of FreshRealm) of $33.3 million and a net decrease from changes in the non-cash components of our working capital accounts of approximately $11.8 million. Fiscal year 2014 decreases in operating cash flows, caused by working capital changes, includes an increase in prepaid expenses and other current assets of $8.8 million, a decrease in payable to growers of $7.0 million, an increase in accounts receivable of $1.7 million, an increase in inventory of $2.3 million and an increase in income tax receivable of $0.6 million, partially offset by an increase in trade accounts payable and accrued expenses of $8.6 million. the decrease in payable to our growers primarily reflects a decrease in California fruit delivered in the month of october 2014, as compared to the month of october 2013. the increase in prepaid expenses and other current assets is primarily due to an increase in the receivable of Mexican IVA taxes related to the increase of purchases of Mexican avocados as compared to prior year. the increase in our accounts receivable balance as of october 31, 2014, when compared to october 31, 2013, primarily reflects an increase in sales in our Foods and RFG segments in the month of october 2014, as compared to october 2013. the increase in our inventory balance is primarily related to an increase in Mexico avocado inventory on hand at october 31, 2014, as compared to the same prior year period. the increase in our trade accounts payable and accrued expenses is mainly due to an increase in purchases of Mexican avocados from co-packers in the month of october 2014, as compared to october 2013. In addition, this increase is also attributed to an increase in freight accruals due to an overall increase in the volume of Mexican avocados in the month of october 2014, as compared to october 2013. Cash used in investing activities was $18.6 million, $7.7 million, and $7.4 million for fiscal years 2014, 2013, and 2012. Fiscal year 2014 cash flows used in investing activities include capital expenditures of $11.6 million, the deconsolidation of FreshRealm, net of cash $6.8 million, and investments in unconsolidated entities of $0.2 million. Cash used in financing activities was $4.1 million, $5.1 million and $10.2 million for fiscal years 2014, 2013 and 2012. Cash used during fiscal year 2014 primarily related to the payment of a dividend of $11.0 million and payments on long-term debt obligations of $5.1 million. partially offsetting these proceeds, however, includes proceeds received for the issuance of FreshRealm stock of $10.0 million, proceeds from our non-collateralized, revolving credit facilities totaling $1.9 million, and exercises of stock options of $0.1 million. our principal sources of liquidity are our existing cash reserves, cash generated from operations and amounts available for borrowing under our existing credit facilities. Cash and cash equivalents as of october 31, 2014 and 2013 totaled $6.7 million and $8.0 million. our working capital at october 31, 2014 was $22.0 million, compared to a negative $3.3 million (restated) at october 31, 2013. We believe that cash flows from operations and available credit facilities will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, working capital and other financing requirements. We will continue to evaluate grower recruitment opportunities and exclusivity arrangements with food service companies to fuel growth in each of our business segments. effective May 31, 2011, the Company and FCW, entered into a term Revolving Credit Agreement (Revolving Agreement). under the terms of the Revolving Agreement, we are advanced funds for working capital purposes, the purchase and installation of capital items, as well as other corporate needs of the Company. total credit available under the borrowing agreement is $40 million, up from $30 million, and expires on February 1, 2016. this increase was at our request and not due to any immediate cash flows needs. the credit facility and term loan contain various financial covenants, the most significant relating to tangible net worth (as defined), Fixed Charge Coverage Ratio (as defined) and Current Ratio (as defined). effective September 30, 2011, the Company and bank of America, n.A. (boA), entered into an agreement, Amendment no. 4 to loan Agreement (the Agreement), which amended our existing credit facility with boA. under the terms of the Agreement, we are advanced funds primarily for working capital purposes. total credit available under the borrowing agreement is now $25 million, up from $15 million and now expires on February 1, 2016. We are currently working on additional financing based on expected future growth of the company. under the terms of these agreements, we are advanced funds for both working capital and long-term productive asset purchases. total credit available under these combined borrowing agreements was $65 million, with a weighted-average interest rate of 1.7% at october 31, 2014 and 2013. under these credit facilities, we had $35.9 million and $34.0 million outstanding as october 31, 2014 and 2013. these credit facilities contain various financial covenants, the most significant relating to tangible net Worth (as defined), Current Ratio (as defined), and Fixed Charge Coverage Ratio (as defined). We were in compliance with all such covenants at october 31, 2014. the following table summarizes contractual obligations pursuant to which we are required to make cash payments. the information is presented as of our fiscal year ended october 31, 2014: ContRACtuAl oblIGA tIonS pAYMentS Due bY peRIoD totAl leSS tHAn 1 YeAR 1-3 YeARS 3-5 YeARS MoRe tHAn 5 YeARS long-term debt obligations (including interest) $ 8,170 $ 5,294 $ 2,390 $ 215 $ 271 Revolving credit facilities Defined benefit plan operating lease commitments 35,900 35,900 196 27,670 35 3,353 — 70 — 70 — 21 6,690 6,059 11,568 total $ 71,936 $ 44,582 $ 9,150 $ 6,344 $ 11,860 the California avocado industry is subject to a state marketing order whereby handlers are required to collect assessments from the growers and remit such assessments to the California Avocado Commission (CAC). the assessments are primarily for advertising and promotions. the amount of the assessment is based on the dollars paid to the growers for their fruit, and, as a result, is not determinable until the value of the payments to the growers has been calculated. With similar precision, amounts remitted to the Hass Avocado board (HAb) in connection with their assessment program are likewise not determinable until the fruit is actually delivered to us. HAb assessments are primarily used to fund marketing and promotion efforts. recently aDoPteD accoUntIng PronoUncementS In February 2013, the FASb issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. this guidance is effective for annual reporting periods beginning after December 15, 2012. the adoption of this standard had no impact on our financial statements. In February 2013, the FASb issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. this guidance is effective for annual reporting periods beginning after December 15, 2012. the adoption of this standard had no impact on our financial statements. recently ISSUeD accoUntIng StanDarDS In May 2014, the Financial Accounting Standards board (“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. In July 2013, the FASb issued a standard permitting the Fed In April 2014, the FASb issued guidance which changes the Funds effective Swap Rate to be used as a u.S. benchmark interest rate for hedge accounting purposes, in addition to the united States treasury rate and london Interbank offered Rate (“lIboR”). In addition, the restriction on using different benchmark rates for similar hedges is removed. the Company is required to adopt these provisions prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. the adoption of this standard had no impact on our financial statements. criteria for identifying a discontinued operation. the guidance limits the definition of a discontinued operation to the disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. We are required to adopt the guidance in the first quarter of fiscal 2016, with early adoption permitted for transactions that have not been reported in financial statements previously issued. We do not expect the adoption of this guidance to have a material impact on our financial statements Calavo Growers, Inc. 2014 AnnuAl RepoR t 34 . 35 QuArterly reSultS OF OperA tiOnS the following operating results for each of the eight fiscal quarters in the period ended october 31, 2014 (except for the current quarter ending october 31, 2014) has been restated to reflect adjustments to our previously issued financial statements as more fully discussed in note 3, “Restatement of previously- Issued Financial Statements” to the Consolidated Financial Statements included in Item 8 of this Form 10-K. the information should be read in conjunction with our audited consolidated financial statements included in this Annual Report. Historically, we receive and sell a substantially smaller volume of California avocados in our first fiscal quarter. See note 19, “Selected Quarterly Financial Data (unaudited)” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously- issued financial statements. liQuiDity AnD CApit Al reSOurCeS operating activities for fiscal 2014, 2013 and 2012 provided cash flows of $21.3 million, $13.7 million, and $22.0 million. Fiscal year 2014 operating cash flows reflect our net loss of $0.2 million, net decrease of noncash charges (depreciation and amortization, income from unconsolidated entities, provision for losses on accounts receivable, interest on deferred compensation, deferred income taxes, revalue adjustment on contingent consideration and non-cash compensation expense, impairment on intangible assets, stock compensation expense and gain from deconsolidation of FreshRealm) of $33.3 million and a net decrease from changes in the non-cash components of our working capital accounts of approximately $11.8 million. Fiscal year 2014 decreases in operating cash flows, caused by working capital changes, includes an increase in prepaid expenses and other current assets of $8.8 million, a decrease in payable to growers of $7.0 million, an increase in accounts receivable of $1.7 million, an increase in inventory of $2.3 million and an increase in income tax receivable of $0.6 million, partially offset by an increase in trade accounts payable and accrued expenses of $8.6 million. the decrease in payable to our growers primarily reflects a decrease in California fruit delivered in the month of october 2014, as compared to the month of october 2013. the increase in prepaid expenses and other current assets is primarily due to an increase in the receivable of Mexican IVA taxes related to the increase of purchases of Mexican avocados as compared to prior year. the increase in our accounts receivable balance as of october 31, 2014, when compared to october 31, 2013, primarily reflects an increase in sales in our Foods and RFG segments in the month of october 2014, as compared to october 2013. the increase in our inventory balance is primarily related to an increase in Mexico avocado inventory on hand at october 31, 2014, as compared to the same prior year period. the increase in our trade accounts payable and accrued expenses is mainly due to an increase in purchases of Mexican avocados from co-packers in the month of october 2014, as compared to october 2013. In addition, this increase is also attributed to an increase in freight accruals due to an overall increase in the volume of Mexican avocados in the month of october 2014, as compared to october 2013. Cash used in investing activities was $18.6 million, $7.7 million, and $7.4 million for fiscal years 2014, 2013, and 2012. Fiscal year 2014 cash flows used in investing activities include capital expenditures of $11.6 million, the deconsolidation of FreshRealm, net of cash $6.8 million, and investments in unconsolidated entities of $0.2 million. Cash used in financing activities was $4.1 million, $5.1 million and $10.2 million for fiscal years 2014, 2013 and 2012. Cash used during fiscal year 2014 primarily related to the payment of a dividend of $11.0 million and payments on long-term debt obligations of $5.1 million. partially offsetting these proceeds, however, includes proceeds received for the issuance of FreshRealm stock of $10.0 million, proceeds from our non-collateralized, revolving credit facilities totaling $1.9 million, and exercises of stock options of $0.1 million. our principal sources of liquidity are our existing cash reserves, cash generated from operations and amounts available for borrowing under our existing credit facilities. Cash and cash equivalents as of october 31, 2014 and 2013 totaled $6.7 million and $8.0 million. our working capital at october 31, 2014 was $22.0 million, compared to a negative $3.3 million (restated) at october 31, 2013. We believe that cash flows from operations and available credit facilities will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, working capital and other financing requirements. We will continue to evaluate grower recruitment opportunities and exclusivity arrangements with food service companies to fuel growth in each of our business segments. effective May 31, 2011, the Company and FCW, entered into a term Revolving Credit Agreement (Revolving Agreement). under the terms of the Revolving Agreement, we are advanced funds for working capital purposes, the purchase and installation of capital items, as well as other corporate needs of the Company. total credit available under the borrowing agreement is $40 million, up from $30 million, and expires on February 1, 2016. this increase was at our request and not due to any immediate cash flows needs. the credit facility and term loan contain various financial covenants, the most significant relating to tangible net worth (as defined), Fixed Charge Coverage Ratio (as defined) and Current Ratio (as defined). effective September 30, 2011, the Company and bank of America, n.A. (boA), entered into an agreement, Amendment no. 4 to loan Agreement (the Agreement), which amended our existing credit facility with boA. under the terms of the Agreement, we are advanced funds primarily for working capital purposes. total credit available under the borrowing agreement is now $25 million, up from $15 million and now expires on February 1, 2016. We are currently working on additional financing based on expected future growth of the company. under the terms of these agreements, we are advanced funds for both working capital and long-term productive asset purchases. total credit available under these combined borrowing agreements was $65 million, with a weighted-average interest rate of 1.7% at october 31, 2014 and 2013. under these credit facilities, we had $35.9 million and $34.0 million outstanding as october 31, 2014 and 2013. these credit facilities contain various financial covenants, the most significant relating to tangible net Worth (as defined), Current Ratio (as defined), and Fixed Charge Coverage Ratio (as defined). We were in compliance with all such covenants at october 31, 2014. the following table summarizes contractual obligations pursuant to which we are required to make cash payments. the information is presented as of our fiscal year ended october 31, 2014: ContRACtuAl oblIGA tIonS pAYMentS Due bY peRIoD totAl leSS tHAn 1 YeAR 1-3 YeARS 3-5 YeARS MoRe tHAn 5 YeARS long-term debt obligations (including interest) $ 8,170 $ 5,294 $ 2,390 $ 215 $ 271 Revolving credit facilities Defined benefit plan operating lease commitments 35,900 35,900 196 27,670 35 3,353 — 70 — 70 — 21 6,690 6,059 11,568 total $ 71,936 $ 44,582 $ 9,150 $ 6,344 $ 11,860 the California avocado industry is subject to a state marketing order whereby handlers are required to collect assessments from the growers and remit such assessments to the California Avocado Commission (CAC). the assessments are primarily for advertising and promotions. the amount of the assessment is based on the dollars paid to the growers for their fruit, and, as a result, is not determinable until the value of the payments to the growers has been calculated. With similar precision, amounts remitted to the Hass Avocado board (HAb) in connection with their assessment program are likewise not determinable until the fruit is actually delivered to us. HAb assessments are primarily used to fund marketing and promotion efforts. recently aDoPteD accoUntIng PronoUncementS In February 2013, the FASb issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. this guidance is effective for annual reporting periods beginning after December 15, 2012. the adoption of this standard had no impact on our financial statements. In February 2013, the FASb issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. this guidance is effective for annual reporting periods beginning after December 15, 2012. the adoption of this standard had no impact on our financial statements. recently ISSUeD accoUntIng StanDarDS In May 2014, the Financial Accounting Standards board (“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. In July 2013, the FASb issued a standard permitting the Fed In April 2014, the FASb issued guidance which changes the Funds effective Swap Rate to be used as a u.S. benchmark interest rate for hedge accounting purposes, in addition to the united States treasury rate and london Interbank offered Rate (“lIboR”). In addition, the restriction on using different benchmark rates for similar hedges is removed. the Company is required to adopt these provisions prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. the adoption of this standard had no impact on our financial statements. criteria for identifying a discontinued operation. the guidance limits the definition of a discontinued operation to the disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. We are required to adopt the guidance in the first quarter of fiscal 2016, with early adoption permitted for transactions that have not been reported in financial statements previously issued. We do not expect the adoption of this guidance to have a material impact on our financial statements Calavo Growers, Inc. 2014 AnnuAl RepoR t 34 . 35 In July 2013, the FASb issued a new accounting standard requiring the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated balance Sheets when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. We are required to adopt this new standard on a prospective basis in the first quarter of fiscal 2015; however, early adoption is permitted as is retrospective application. We will adopt the new standard in the first fiscal quarter of 2015 on a prospective basis. Adoption of the new standard is not expected to have a material effect on our Consolidated Financial Statements. QuAntit Ative AnD QuAlit Ative DiSClOSureS ABOut MArket riSk our financial instruments include cash and cash equivalents, accounts receivable, payable to growers, accounts payable, current and long-term borrowings pursuant to our credit facilities with financial institutions, and long-term, fixed-rate obligations. All of our financial instruments are entered into during the normal course of operations and have not been acquired for trading purposes. the table below summarizes interest rate sensitive financial instruments and presents principal cash flows in u.S. dollars, which is our reporting currency, and weighted-average interest rates by expected maturity dates, as of october 31, 2014. expeCteD MA tuRItY DA te oCtobeR 31, 2015 2016 2017 2018 2019 tHeReAFteR tot Al FAIR VAlue (All amounts in thousands) aSSetS Cash and cash equivalents(1) $ 6,744 $ — $ — $ — $ — $ — $ 6,744 $ 6,744 Accounts receivable(1) Advances to suppliers(1) 56,618 3,258 — — — — — — — — — — 56,618 56,618 3,258 3,258 lIaBIlI tIeS payable to growers(1) $ 6,660 $ — $ — $ — $ — $ — $ 6,660 $ 6,660 Accounts payable(1) 15,065 Current borrowings pursuant to credit facilities(1) 35,900 — — — — Fixed-rate long-term obligations(2) 5,099 2,241 109 — — 89 — — 92 — 15,065 15,065 — 35,900 35,900 260 7,890 7,988 (1) (2) We believe the carrying amounts of cash and cash equivalents, accounts receivable, advances to suppliers, payable to growers, accounts payable, and current borrowings pursuant to credit facilities approximate their fair value due to the short maturity of these financial instruments. Fixed-rate long-term obligations bear interest rates ranging from 1.7% to 5.7% with a weighted-average interest rate of 2.8%. We believe that loans with a similar risk profile would currently yield a return of 2.5%. We project the impact of an increase or decrease in interest rates of 100 basis points would result in a change of fair value of approximately $117,000. except as disclosed with the acquisition of Calavo Salsa lisa and RFG (and related amendments), we were not a party to any derivative instruments during the fiscal year. It is currently our intent not to use derivative instruments for speculative or trading purposes. Additionally, we do not use any hedging or forward contracts to offset market volatility. our Mexican-based operations transact business in Mexican pesos. Funds are transferred by our corporate office to Mexico on a weekly basis to satisfy domestic cash needs. Historically, the consistency of the spot rate for the Mexican peso has led to a small-to-moderate impact on our operating results. We do not anticipate using derivative instruments to hedge fluctuations in the Mexican peso to u.S. dollar exchange rates during fiscal 2015. total foreign currency losses for fiscal years 2014 and 2013, net of gains, were $0.1 million and $0.4 million. total foreign currency gains for fiscal 2012, net of losses was $0.1 million. 36 . 37 Calavo Growers, Inc. 2014 AnnuAl RepoR t Consolidated Balance Sheets oCtobeR 31, (in thousands) aSSetS CuRR ent ASS e tS : Cash and cash equivalents Accounts receivable, net of allowances of $3,248 (2014) and $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Deferred income taxes Goodwill other assets lIaBIlI tIeS anD S hareholD erS’ e QUIt y CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Dividend payable Current portion of long-term obligations total current liabilities lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies noncontrolling interest, Calavo Salsa lisa SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 17,295 and 15,720 shares outstanding at october 31, 2014 and 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings total shareholders’ equity See accompanying notes to consolidated financial statements. 2014 2013 ReSt AteD $ 6,744 $ 8,019 56,618 30,975 19,528 3,258 2,627 3,294 55,060 28,673 10,757 3,213 2,013 1,995 123,044 109,730 57,352 44,355 18,380 12,287 18,262 9,784 52,649 45,531 1,420 — 18,262 12,347 $ 283,464 $ 239,939 $ 6,660 $ 14,490 15,065 25,303 35,900 12,970 5,099 11,699 36,541 33,990 11,004 5,258 100,997 112,982 2,791 — 2,791 270 17 144,496 12,713 — 22,180 179,406 $ 283,464 7,792 129 7,921 (57) 15 70,790 13,414 (180) 35,054 119,093 $ 239,939 In July 2013, the FASb issued a new accounting standard requiring the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated balance Sheets when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. We are required to adopt this new standard on a prospective basis in the first quarter of fiscal 2015; however, early adoption is permitted as is retrospective application. We will adopt the new standard in the first fiscal quarter of 2015 on a prospective basis. Adoption of the new standard is not expected to have a material effect on our Consolidated Financial Statements. QuAntit Ative AnD QuAlit Ative DiSClOSureS ABOut MArket riSk our financial instruments include cash and cash equivalents, accounts receivable, payable to growers, accounts payable, current and long-term borrowings pursuant to our credit facilities with financial institutions, and long-term, fixed-rate obligations. All of our financial instruments are entered into during the normal course of operations and have not been acquired for trading purposes. the table below summarizes interest rate sensitive financial instruments and presents principal cash flows in u.S. dollars, which is our reporting currency, and weighted-average interest rates by expected maturity dates, as of october 31, 2014. expeCteD MA tuRItY DA te oCtobeR 31, 2015 2016 2017 2018 2019 tHeReAFteR tot Al FAIR VAlue (All amounts in thousands) aSSetS Cash and cash equivalents(1) $ 6,744 $ — $ — $ — $ — $ — $ 6,744 $ 6,744 Accounts receivable(1) Advances to suppliers(1) 56,618 3,258 — — — — — — — — — — 56,618 56,618 3,258 3,258 lIaBIlI tIeS payable to growers(1) $ 6,660 $ — $ — $ — $ — $ — $ 6,660 $ 6,660 Accounts payable(1) 15,065 Current borrowings pursuant to credit facilities(1) 35,900 — — — — Fixed-rate long-term obligations(2) 5,099 2,241 109 — — 89 — — 92 — 15,065 15,065 — 35,900 35,900 260 7,890 7,988 (1) (2) We believe the carrying amounts of cash and cash equivalents, accounts receivable, advances to suppliers, payable to growers, accounts payable, and current borrowings pursuant to credit facilities approximate their fair value due to the short maturity of these financial instruments. Fixed-rate long-term obligations bear interest rates ranging from 1.7% to 5.7% with a weighted-average interest rate of 2.8%. We believe that loans with a similar risk profile would currently yield a return of 2.5%. We project the impact of an increase or decrease in interest rates of 100 basis points would result in a change of fair value of approximately $117,000. except as disclosed with the acquisition of Calavo Salsa lisa and RFG (and related amendments), we were not a party to any derivative instruments during the fiscal year. It is currently our intent not to use derivative instruments for speculative or trading purposes. Additionally, we do not use any hedging or forward contracts to offset market volatility. our Mexican-based operations transact business in Mexican pesos. Funds are transferred by our corporate office to Mexico on a weekly basis to satisfy domestic cash needs. Historically, the consistency of the spot rate for the Mexican peso has led to a small-to-moderate impact on our operating results. We do not anticipate using derivative instruments to hedge fluctuations in the Mexican peso to u.S. dollar exchange rates during fiscal 2015. total foreign currency losses for fiscal years 2014 and 2013, net of gains, were $0.1 million and $0.4 million. total foreign currency gains for fiscal 2012, net of losses was $0.1 million. 36 . 37 Calavo Growers, Inc. 2014 AnnuAl RepoR t Consolidated Balance Sheets oCtobeR 31, (in thousands) aSSetS CuRR ent ASS e tS : Cash and cash equivalents Accounts receivable, net of allowances of $3,248 (2014) and $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Deferred income taxes Goodwill other assets lIaBIlI tIeS anD S hareholD erS’ e QUIt y CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Dividend payable Current portion of long-term obligations total current liabilities lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies noncontrolling interest, Calavo Salsa lisa SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 17,295 and 15,720 shares outstanding at october 31, 2014 and 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings total shareholders’ equity See accompanying notes to consolidated financial statements. 2014 2013 ReSt AteD $ 6,744 $ 8,019 56,618 30,975 19,528 3,258 2,627 3,294 55,060 28,673 10,757 3,213 2,013 1,995 123,044 109,730 57,352 44,355 18,380 12,287 18,262 9,784 52,649 45,531 1,420 — 18,262 12,347 $ 283,464 $ 239,939 $ 6,660 $ 14,490 15,065 25,303 35,900 12,970 5,099 11,699 36,541 33,990 11,004 5,258 100,997 112,982 2,791 — 2,791 270 17 144,496 12,713 — 22,180 179,406 $ 283,464 7,792 129 7,921 (57) 15 70,790 13,414 (180) 35,054 119,093 $ 239,939 Consolidated Statements of Operations Consolidated Statements of Comprehensive Operations YeAR enDeD oCtobeR 31, (in thousands) net income (loss) 2014 2013 ReSt AteD 2012 ReSt AteD $ (215) $ (2,684) $ 15,630 other comprehensive income (loss), before tax: unrealized investment gains (losses) arising during period (1,175) Income tax benefit (expense) related to items of other comprehensive income (loss) other comprehensive income (loss), net of tax Comprehensive income (loss) Add: net loss attributable to noncontrolling interest 474 (701) (916) 312 6,690 (2,666) 4,024 1,340 889 8,850 (3,395) 5,455 21,085 172 Comprehensive income (loss) – Calavo Growers, Inc. $ (469) $ 2,229 $ 21,257 YeAR enDeD oCtobeR 31, (in thousands, except per share amounts) net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income (loss) equity (losses) in earnings from unconsolidated entities Interest income Interest expense Gain on deconsolidation of FreshRealm other income, net Income (loss) before provision for income taxes provision (benefit) for income taxes net income (loss) Add: net loss attributable to noncontrolling interest net income (loss) attributable to Calavo Growers, Inc. cal avo g row erS, Inc.’S net I ncome ( loSS ) P er S hare : basic Diluted nUmBer of S hareS US eD I n P er S hare comPUtatIon : basic Diluted 2014 $ 782,510 711,282 2013 ReSt AteD $ 691,451 632,003 2012 ReSt AteD $ 551,119 490,454 71,228 36,605 51,082 (16,459) (12) 228 (983) 12,622 473 (4,131) (3,916) (215) 312 97 0.01 0.01 15,765 17,220 $ $ $ 59,448 33,485 32,867 (6,904) (100) 255 (1,098) — 448 (7,399) (4,715) (2,684) 889 60,665 32,714 2,572 25,379 500 229 (1,152) — 887 25,843 10,213 15,630 172 $ (1,795) $ 15,802 $ $ (0.12) (0.12) $ $ 1.07 1.05 14,856 14,856 14,795 15,100 See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. Calavo Growers, Inc. 2014 AnnuAl RepoR t 38 . 39 Consolidated Statements of Operations Consolidated Statements of Comprehensive Operations YeAR enDeD oCtobeR 31, (in thousands) net income (loss) 2014 2013 ReSt AteD 2012 ReSt AteD $ (215) $ (2,684) $ 15,630 other comprehensive income (loss), before tax: unrealized investment gains (losses) arising during period (1,175) Income tax benefit (expense) related to items of other comprehensive income (loss) other comprehensive income (loss), net of tax Comprehensive income (loss) Add: net loss attributable to noncontrolling interest 474 (701) (916) 312 6,690 (2,666) 4,024 1,340 889 8,850 (3,395) 5,455 21,085 172 Comprehensive income (loss) – Calavo Growers, Inc. $ (469) $ 2,229 $ 21,257 YeAR enDeD oCtobeR 31, (in thousands, except per share amounts) net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income (loss) equity (losses) in earnings from unconsolidated entities Interest income Interest expense Gain on deconsolidation of FreshRealm other income, net Income (loss) before provision for income taxes provision (benefit) for income taxes net income (loss) Add: net loss attributable to noncontrolling interest net income (loss) attributable to Calavo Growers, Inc. cal avo g row erS, Inc.’S net I ncome ( loSS ) P er S hare : basic Diluted nUmBer of S hareS US eD I n P er S hare comPUtatIon : basic Diluted 2014 $ 782,510 711,282 2013 ReSt AteD $ 691,451 632,003 2012 ReSt AteD $ 551,119 490,454 71,228 36,605 51,082 (16,459) (12) 228 (983) 12,622 473 (4,131) (3,916) (215) 312 97 0.01 0.01 15,765 17,220 $ $ $ 59,448 33,485 32,867 (6,904) (100) 255 (1,098) — 448 (7,399) (4,715) (2,684) 889 60,665 32,714 2,572 25,379 500 229 (1,152) — 887 25,843 10,213 15,630 172 $ (1,795) $ 15,802 $ $ (0.12) (0.12) $ $ 1.07 1.05 14,856 14,856 14,795 15,100 See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. Calavo Growers, Inc. 2014 AnnuAl RepoR t 38 . 39 Consolidated Statements of Shareholders’ equity Consolidated Statements of Cash Flows CoMMon StoCK SHAReS AMount ADDItIonAl pAID-In CApIt Al ACCuMulA teD otHeR CoMpRe- HenSIVe InCoMe RetAIneD eARnInGS non- ContRollInG InteReSt, FReSHReAlM 14,770 14 43,986 3,935 41,697 (in thousands) Balance, october 31, 2011 (restated) exercise of stock options and income tax benefit of $139 Stock compensation expense non-cash compensation related to RFG acquisition* Restricted stock issued unrealized loss on limoneira investment, net Dividend declared to shareholders net income attributable to Calavo Growers, Inc* Balance, october 31, 2012 (restated) exercise of stock options and income tax benefit of $59 Stock compensation expense Restricted stock issued Issuance of stock related to RFG Contingent consideration and non-cash compensation* Retirement of stock purchased from limoneira unrealized gain on limoneira investment, net Dividend declared to shareholders FreshRealm noncontrolling interest contribution net loss attributable to FreshRealm* net loss attributable to Calavo Growers, Inc. * 54 — — 11 — — — 14,835 39 — 12 999 (165) — — — — — Balance, october 31, 2013 (restated) exercise of stock options and income tax benefit of $191 Stock compensation expense Issuance of stock related to RFG Contingent Consideration and non-cash compensation, net tax Restricted stock issued unrealized loss on limoneira investment, net Dividend declared to shareholders FreshRealm noncontrolling interest contribution Deconsolidation of FreshRealm net loss attributable to FreshRealm net income attributable to Calavo Growers, Inc. 15,720 8 — 1,532 35 — — — — — — Balance, october 31, 2014 17,295 $ *Restated See accompanying notes to consolidated financial statements. totAl 89,632 930 417 95 — 5,455 (9,612) 15,802 801 376 — 28,974 (4,788) 4,024 (11,038) 362 (542) 930 417 95 — — — — — — — — — — — — 5,455 — — (9,612) — 15,802 — — — — — — — — 45,428 9,390 47,887 — 102,719 — — — — — — — — — — 4,024 — — (11,038) — — — — — — — 801 376 — 28,973 (4,788) — — — — — — — 362 (542) — — — (1,795) — (1,795) 70,790 13,414 35,054 (180) 119,093 318 727 67,288 — — — 5,373 — — — — — — — — — — — (701) — — (12,971) — — — — — — — 97 $ 144,496 $ 12,713 $ 22,180 $ — — — — — — 4,627 (4,030) (417) 318 727 67,290 — (701) (12,971) 10,000 (4,030) (417) — — 97 $ 179,406 — — — — — — — 14 — — — 1 — — — — — — 15 — — 2 — — — — — — — 17 40 . 41 Calavo Growers, Inc. 2014 AnnuAl RepoR t YeAR enDeD oCtobeR 31, (in thousands) caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization provision for losses on accounts receivable Income (loss) from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation expense related to the acquisition of RFG Contingent consideration related to acquisition of Salsa lisa Stock compensation expense Gain on deconsolidation of FreshRealm loss on disposal of property, plant, and equipment Distribution from unconsolidated entity Gain on sale of Maui Fresh International Intangible assets impairment on Calavo Salsa lisa Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Investment in unconsolidated entity proceeds from sale of Maui Fresh International Decrease in cash due to deconsolidation of FreshRealm Investment in Agricola Don Memo net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility payments on revolving credit facility proceeds from issuance of long-term obligations payments on long-term obligations Retirement of stock purchased from limoneira proceeds from stock option exercises proceeds from issuance of FreshRealm stock tax benefit of stock option exercises net cash used in financing activities net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year SUPPlemental InformatI on : Cash paid during the year for: Interest Income taxes noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Issuance of stock related to RFG contingent consideration Declared dividends payable notes receivable issued for sale of Maui Fresh International Construction in progress included in trade accounts payable and accrued expenses Collection for Agricola belher Infrastructure Advance unrealized holding gains (losses) See accompanying notes to consolidated financial statements. 2014 2013 ReSt AteD 2012 ReSt AteD $ (215) $ (2,684) $ 15,630 6,926 154 15 37 53,611 (491) 727 (12,622) 115 — — — (15,076) (1,712) (2,302) (8,816) (45) (648) 48 (6,985) 8,624 21,345 (11,613) (125) — (6,813) — (18,551) (11,005) 242,340 (240,430) — (5,160) — 127 10,000 59 (4,069) (1,275) 8,019 6,744 986 11,355 191 66,988 12,971 — — 845 (1,175) $ $ $ $ $ $ $ $ $ $ 6,367 1 100 146 33,811 (230) 376 — 30 — — 615 (12,121) (16,191) (5,725) (3,567) (844) 781 135 7,705 5,007 13,712 (6,746) — — — (1,000) (7,746) (9,646) 200,670 (186,850) — (5,405) (4,788) 751 79 139 (5,050) 916 7,103 8,019 1,087 5,532 59 28,973 11,004 — — 1,690 6,690 $ $ $ $ $ $ $ $ $ $ 5,909 68 (501) 128 2,574 5 417 — 136 288 (519) 87 (1,673) (2,837) (5,161) (639) 980 475 14 3,394 3,236 22,011 (7,749) — 300 — — (7,449) (8,123) 158,200 (155,890) — (5,237) — 791 — 26 (10,233) 4,329 2,774 7,103 1,146 9,274 139 — 9,612 2,204 28 — 8,850 $ $ $ $ $ $ $ $ $ $ Consolidated Statements of Shareholders’ equity Consolidated Statements of Cash Flows CoMMon StoCK SHAReS AMount ADDItIonAl pAID-In CApIt Al ACCuMulA teD otHeR CoMpRe- HenSIVe InCoMe RetAIneD eARnInGS non- ContRollInG InteReSt, FReSHReAlM 14,770 14 43,986 3,935 41,697 (in thousands) Balance, october 31, 2011 (restated) exercise of stock options and income tax benefit of $139 Stock compensation expense non-cash compensation related to RFG acquisition* Restricted stock issued unrealized loss on limoneira investment, net Dividend declared to shareholders net income attributable to Calavo Growers, Inc* Balance, october 31, 2012 (restated) exercise of stock options and income tax benefit of $59 Stock compensation expense Restricted stock issued Issuance of stock related to RFG Contingent consideration and non-cash compensation* Retirement of stock purchased from limoneira unrealized gain on limoneira investment, net Dividend declared to shareholders FreshRealm noncontrolling interest contribution net loss attributable to FreshRealm* net loss attributable to Calavo Growers, Inc. * 54 — — 11 — — — 14,835 39 — 12 999 (165) — — — — — Balance, october 31, 2013 (restated) exercise of stock options and income tax benefit of $191 Stock compensation expense Issuance of stock related to RFG Contingent Consideration and non-cash compensation, net tax Restricted stock issued unrealized loss on limoneira investment, net Dividend declared to shareholders FreshRealm noncontrolling interest contribution Deconsolidation of FreshRealm net loss attributable to FreshRealm net income attributable to Calavo Growers, Inc. 15,720 8 — 1,532 35 — — — — — — Balance, october 31, 2014 17,295 $ *Restated See accompanying notes to consolidated financial statements. totAl 89,632 930 417 95 — 5,455 (9,612) 15,802 801 376 — 28,974 (4,788) 4,024 (11,038) 362 (542) 930 417 95 — — — — — — — — — — — — 5,455 — — (9,612) — 15,802 — — — — — — — — 45,428 9,390 47,887 — 102,719 — — — — — — — — — — 4,024 — — (11,038) — — — — — — — 801 376 — 28,973 (4,788) — — — — — — — 362 (542) — — — (1,795) — (1,795) 70,790 13,414 35,054 (180) 119,093 318 727 67,288 — — — 5,373 — — — — — — — — — — — (701) — — (12,971) — — — — — — — 97 $ 144,496 $ 12,713 $ 22,180 $ — — — — — — 4,627 (4,030) (417) 318 727 67,290 — (701) (12,971) 10,000 (4,030) (417) — — 97 $ 179,406 — — — — — — — 14 — — — 1 — — — — — — 15 — — 2 — — — — — — — 17 40 . 41 Calavo Growers, Inc. 2014 AnnuAl RepoR t YeAR enDeD oCtobeR 31, (in thousands) caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization provision for losses on accounts receivable Income (loss) from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation expense related to the acquisition of RFG Contingent consideration related to acquisition of Salsa lisa Stock compensation expense Gain on deconsolidation of FreshRealm loss on disposal of property, plant, and equipment Distribution from unconsolidated entity Gain on sale of Maui Fresh International Intangible assets impairment on Calavo Salsa lisa Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Investment in unconsolidated entity proceeds from sale of Maui Fresh International Decrease in cash due to deconsolidation of FreshRealm Investment in Agricola Don Memo net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility payments on revolving credit facility proceeds from issuance of long-term obligations payments on long-term obligations Retirement of stock purchased from limoneira proceeds from stock option exercises proceeds from issuance of FreshRealm stock tax benefit of stock option exercises net cash used in financing activities net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year SUPPlemental InformatI on : Cash paid during the year for: Interest Income taxes noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Issuance of stock related to RFG contingent consideration Declared dividends payable notes receivable issued for sale of Maui Fresh International Construction in progress included in trade accounts payable and accrued expenses Collection for Agricola belher Infrastructure Advance unrealized holding gains (losses) See accompanying notes to consolidated financial statements. 2014 2013 ReSt AteD 2012 ReSt AteD $ (215) $ (2,684) $ 15,630 6,926 154 15 37 53,611 (491) 727 (12,622) 115 — — — (15,076) (1,712) (2,302) (8,816) (45) (648) 48 (6,985) 8,624 21,345 (11,613) (125) — (6,813) — (18,551) (11,005) 242,340 (240,430) — (5,160) — 127 10,000 59 (4,069) (1,275) 8,019 6,744 986 11,355 191 66,988 12,971 — — 845 (1,175) $ $ $ $ $ $ $ $ $ $ 6,367 1 100 146 33,811 (230) 376 — 30 — — 615 (12,121) (16,191) (5,725) (3,567) (844) 781 135 7,705 5,007 13,712 (6,746) — — — (1,000) (7,746) (9,646) 200,670 (186,850) — (5,405) (4,788) 751 79 139 (5,050) 916 7,103 8,019 1,087 5,532 59 28,973 11,004 — — 1,690 6,690 $ $ $ $ $ $ $ $ $ $ 5,909 68 (501) 128 2,574 5 417 — 136 288 (519) 87 (1,673) (2,837) (5,161) (639) 980 475 14 3,394 3,236 22,011 (7,749) — 300 — — (7,449) (8,123) 158,200 (155,890) — (5,237) — 791 — 26 (10,233) 4,329 2,774 7,103 1,146 9,274 139 — 9,612 2,204 28 — 8,850 $ $ $ $ $ $ $ $ $ $ notes to Consolidated Financial Statements 1. DeSCriptiOn OF the BuSineSS InventorIeS 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, Mexico, and Chile. through our various operating facilities, we sort, pack, and/or ripen avocados, tomatoes, pineapples and/or Hawaiian grown papayas. Additionally, we also produce salsa and prepare ready- to-eat produce and deli products. We distribute our products both domestically and internationally and report our operations in three different business segments: Fresh products, Calavo Foods and Renaissance Food Group, llC (RFG). See note 18 for more information on the deconsolidation of FreshRealm, llC (FreshRealm). 2. BASiS OF preSent AtiOn AnD SigniFiCAnt ACCOunting pOliCieS the accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the united States. our consolidated financial statements include the accounts of Calavo Growers, Inc. and our wholly owned subsidiaries, Calavo de Mexico S.A. de C.V., Calavo Foods de Mexico S.A. de C.V., Calavo Inversiones (Chile) limitada, Maui Fresh International, Inc. (Maui), Hawaiian Sweet, Inc. (HS), Hawaiian pride, llC (Hp), and RFG. We consolidate our entity Calavo Salsa lisa, llC (CSl), in which we have a 65 percent ownership interest. All intercompany accounts and transactions have been eliminated in consolidation. caSh anD caSh eQUIvalentS We consider all highly liquid financial instruments purchased with an original maturity date of three months or less to be cash equivalents. the carrying amounts of cash and cash equivalents approximate their fair values. PrePaID eXPenSeS anD other cUrrent aSSetS prepaid expenses and other current assets consist primarily of non-trade receivables, infrastructure advances and prepaid expenses. non-trade receivables were $17.0 million and $8.3 million at october 31, 2014 and 2013. Included in non-trade receivables are $11.9 million and $6.6 million related to Mexican IVA (i.e. value-added) taxes. Infrastructure advances are discussed below. prepaid expenses totaling $1.7 million and $1.6 million at october 31, 2014 and 2013, are primarily for insurance, rent and other items. Inventories are stated at the lower of cost or market. Cost is computed on a monthly weighted-average basis, which approximates the first-in, first-out method; market is based upon estimated replacement costs. Costs included in inventory primarily include the following: fruit, picking and hauling, overhead, labor, materials and freight. ProPerty, Plant, anD eQUIPment property, plant, and equipment are stated at cost and depreciated over their estimated useful lives using the straight- line method. leasehold improvements are stated at cost and amortized over the lesser of their estimated useful lives or the term of the lease, using the straight-line method. useful lives are as follows: buildings and improvements - 7 to 50 years; leasehold improvements - the lesser of the term of the lease or 7 years; equipment - 7 to 25 years; information systems hardware and software – 3 to 15 years. Significant repairs and maintenance that increase the value or extend the useful life of our fixed asset are capitalized. Replaced fixed assets are written off. ordinary maintenance and repairs are charged to expense. We capitalize software development costs for internal use beginning in the application development stage and ending when the asset is placed into service. Costs capitalized include coding and testing activities and various implementation costs. these costs are limited to (1) external direct costs of materials and services consumed in developing or obtaining internal-use computer software; (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project to the extent of the time spent directly on the project; and (3) interest cost incurred while developing internal-use computer software. See note 5 for further information. gooDwIll anD acQUIreD IntangIBle aSSetS Goodwill is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. Goodwill impairment testing is a two-step process. the first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test would be unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. the second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. the estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. For fiscal years 2014 and 2013, we performed our annual assessment of goodwill and noted no impairments as of october 31, 2014 and 2013. the following table reconciles by segment goodwill and the impairment losses recognized for the year ended october 31, 2012, 2013 and 2014 (in thousands): FReSH pRoDuCtS CAlAVo FooDS RFG totAl Goodwill, beginning november 1, 2011 $ 3,997 $ Calavo Salsa lisa Goodwill impairment losses Goodwill, ending october 31, 2012 Calavo Salsa lisa Goodwill impairment losses Goodwill, october 31, 2013 Calavo Salsa lisa Goodwill impairment losses — 3,997 — 3,997 — Goodwill, october 31, 2014 $ 3,997 $ 87 (87) — — — — — $ 14,265 $ 18,349 — 14,265 — 14,265 — (87) 18,262 — 18,262 — $ 14,265 $ 18,262 long-lIveD aSSetS long-lived assets, including fixed assets and intangible assets (other than goodwill), are continually monitored and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. the determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use of an asset and its eventual disposition. the estimate of undiscounted cash flows is based upon, among other things, certain assumptions about future operating performance, growth rates and other factors. estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, changes to the business model or changes in operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, an impairment loss will be recognized, measured as the amount by which the carrying value exceeds the fair value of the asset. For fiscal year 2013, we performed our annual assessment of long- lived assets and determined that an impairment of $0.6 million existed related to the trade name and trade secrets/recipes of CSl. For fiscal year 2014, we performed our annual assessment of long-lived assets and determined that no impairment existed as of october 31, 2014. InveStmentS We account for non-marketable investments using the equity method of accounting if the investment gives us the ability to exercise significant influence over, but not control, an investee. Significant influence generally exists when we have an ownership interest representing between 20% and 50% of the voting stock of the investee. under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions. In June 2009, we (through our wholly owned subsidiary: Calavo Inversiones (Chile) limitada) entered into a joint venture agreement with exportadora M5, S.A. (M5) for the purpose of selling and distributing Chilean sourced avocados. Such joint venture operates under the name of Calavo Chile and commenced operations in July 2009. M5 and Calavo each have an equal one-half ownership interest in Calavo Chile, but M5 has overall management responsibility for the operations of Calavo Chile. We use the equity method to account for this investment. In october 2013, we contributed $1.0 million to the purchase of 60 hectares of property in Jalisco, Mexico, for the development of facilities to grow tomatoes. In fiscal 2014, we have advanced an additional $3.2 million for construction of greenhouses in the form of a bridge loan. this bridge loan will be replaced with a loan from an institutional lender in the amount of $4.5 million and the bridge loan will be repaid as soon as possible from the proceeds of the new loan. In the second quarter of 2015, we expect to finalize a joint venture agreement with Agricola belher (belher). Such joint venture will operate under the name of Agricola Don Memo. belher and Calavo are expected to have equal one-half ownership interests in Agricola Don Memo, but belher will ultimately have overall management responsibility for the operations of Agricola Don Memo. the contribution of $3.2 million has been recorded as a receivable in prepaid and other current assets. effective May 2014, we closed our Second Amended and Restated limited liability Company Agreement by and among FreshRealm and the ownership members of FreshRealm. pursuant to this agreement, Impermanence, llC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million Calavo Growers, Inc. 2014 AnnuAl RepoR t 42 . 43 notes to Consolidated Financial Statements 1. DeSCriptiOn OF the BuSineSS InventorIeS 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, Mexico, and Chile. through our various operating facilities, we sort, pack, and/or ripen avocados, tomatoes, pineapples and/or Hawaiian grown papayas. Additionally, we also produce salsa and prepare ready- to-eat produce and deli products. We distribute our products both domestically and internationally and report our operations in three different business segments: Fresh products, Calavo Foods and Renaissance Food Group, llC (RFG). See note 18 for more information on the deconsolidation of FreshRealm, llC (FreshRealm). 2. BASiS OF preSent AtiOn AnD SigniFiCAnt ACCOunting pOliCieS the accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the united States. our consolidated financial statements include the accounts of Calavo Growers, Inc. and our wholly owned subsidiaries, Calavo de Mexico S.A. de C.V., Calavo Foods de Mexico S.A. de C.V., Calavo Inversiones (Chile) limitada, Maui Fresh International, Inc. (Maui), Hawaiian Sweet, Inc. (HS), Hawaiian pride, llC (Hp), and RFG. We consolidate our entity Calavo Salsa lisa, llC (CSl), in which we have a 65 percent ownership interest. All intercompany accounts and transactions have been eliminated in consolidation. caSh anD caSh eQUIvalentS We consider all highly liquid financial instruments purchased with an original maturity date of three months or less to be cash equivalents. the carrying amounts of cash and cash equivalents approximate their fair values. PrePaID eXPenSeS anD other cUrrent aSSetS prepaid expenses and other current assets consist primarily of non-trade receivables, infrastructure advances and prepaid expenses. non-trade receivables were $17.0 million and $8.3 million at october 31, 2014 and 2013. Included in non-trade receivables are $11.9 million and $6.6 million related to Mexican IVA (i.e. value-added) taxes. Infrastructure advances are discussed below. prepaid expenses totaling $1.7 million and $1.6 million at october 31, 2014 and 2013, are primarily for insurance, rent and other items. Inventories are stated at the lower of cost or market. Cost is computed on a monthly weighted-average basis, which approximates the first-in, first-out method; market is based upon estimated replacement costs. Costs included in inventory primarily include the following: fruit, picking and hauling, overhead, labor, materials and freight. ProPerty, Plant, anD eQUIPment property, plant, and equipment are stated at cost and depreciated over their estimated useful lives using the straight- line method. leasehold improvements are stated at cost and amortized over the lesser of their estimated useful lives or the term of the lease, using the straight-line method. useful lives are as follows: buildings and improvements - 7 to 50 years; leasehold improvements - the lesser of the term of the lease or 7 years; equipment - 7 to 25 years; information systems hardware and software – 3 to 15 years. Significant repairs and maintenance that increase the value or extend the useful life of our fixed asset are capitalized. Replaced fixed assets are written off. ordinary maintenance and repairs are charged to expense. We capitalize software development costs for internal use beginning in the application development stage and ending when the asset is placed into service. Costs capitalized include coding and testing activities and various implementation costs. these costs are limited to (1) external direct costs of materials and services consumed in developing or obtaining internal-use computer software; (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project to the extent of the time spent directly on the project; and (3) interest cost incurred while developing internal-use computer software. See note 5 for further information. gooDwIll anD acQUIreD IntangIBle aSSetS Goodwill is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. Goodwill impairment testing is a two-step process. the first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test would be unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. the second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. the estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. For fiscal years 2014 and 2013, we performed our annual assessment of goodwill and noted no impairments as of october 31, 2014 and 2013. the following table reconciles by segment goodwill and the impairment losses recognized for the year ended october 31, 2012, 2013 and 2014 (in thousands): FReSH pRoDuCtS CAlAVo FooDS RFG totAl Goodwill, beginning november 1, 2011 $ 3,997 $ Calavo Salsa lisa Goodwill impairment losses Goodwill, ending october 31, 2012 Calavo Salsa lisa Goodwill impairment losses Goodwill, october 31, 2013 Calavo Salsa lisa Goodwill impairment losses — 3,997 — 3,997 — Goodwill, october 31, 2014 $ 3,997 $ 87 (87) — — — — — $ 14,265 $ 18,349 — 14,265 — 14,265 — (87) 18,262 — 18,262 — $ 14,265 $ 18,262 long-lIveD aSSetS long-lived assets, including fixed assets and intangible assets (other than goodwill), are continually monitored and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. the determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use of an asset and its eventual disposition. the estimate of undiscounted cash flows is based upon, among other things, certain assumptions about future operating performance, growth rates and other factors. estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, changes to the business model or changes in operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, an impairment loss will be recognized, measured as the amount by which the carrying value exceeds the fair value of the asset. For fiscal year 2013, we performed our annual assessment of long- lived assets and determined that an impairment of $0.6 million existed related to the trade name and trade secrets/recipes of CSl. For fiscal year 2014, we performed our annual assessment of long-lived assets and determined that no impairment existed as of october 31, 2014. InveStmentS We account for non-marketable investments using the equity method of accounting if the investment gives us the ability to exercise significant influence over, but not control, an investee. Significant influence generally exists when we have an ownership interest representing between 20% and 50% of the voting stock of the investee. under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions. In June 2009, we (through our wholly owned subsidiary: Calavo Inversiones (Chile) limitada) entered into a joint venture agreement with exportadora M5, S.A. (M5) for the purpose of selling and distributing Chilean sourced avocados. Such joint venture operates under the name of Calavo Chile and commenced operations in July 2009. M5 and Calavo each have an equal one-half ownership interest in Calavo Chile, but M5 has overall management responsibility for the operations of Calavo Chile. We use the equity method to account for this investment. In october 2013, we contributed $1.0 million to the purchase of 60 hectares of property in Jalisco, Mexico, for the development of facilities to grow tomatoes. In fiscal 2014, we have advanced an additional $3.2 million for construction of greenhouses in the form of a bridge loan. this bridge loan will be replaced with a loan from an institutional lender in the amount of $4.5 million and the bridge loan will be repaid as soon as possible from the proceeds of the new loan. In the second quarter of 2015, we expect to finalize a joint venture agreement with Agricola belher (belher). Such joint venture will operate under the name of Agricola Don Memo. belher and Calavo are expected to have equal one-half ownership interests in Agricola Don Memo, but belher will ultimately have overall management responsibility for the operations of Agricola Don Memo. the contribution of $3.2 million has been recorded as a receivable in prepaid and other current assets. effective May 2014, we closed our Second Amended and Restated limited liability Company Agreement by and among FreshRealm and the ownership members of FreshRealm. pursuant to this agreement, Impermanence, llC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million Calavo Growers, Inc. 2014 AnnuAl RepoR t 42 . 43 to FreshRealm for 28.6% ownership. We agreed to dilute our ownership percentage in FreshRealm, as an injection of significant working capital would reduce the immediate need of Calavo to provide operating funds to FreshRealm and would also serve to preserve the value of our investment. As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.1% to 50.8%. even though Calavo controlled greater than 50% of the outstanding units of FreshRealm, the minority/non-Calavo unit-holders held substantive participating rights. these rights existed primarily in two forms: (1) two out of a total of four board of director seats and (2) a provision in the Agreement that states that for situations for which the approval of the Members, as defined, is required by the Agreement, the Members shall act by Super-Majority Vote. As such, Calavo cannot control FreshRealm through its two board of director seats, nor its 50.8% ownership. based on the foregoing, we deconsolidated FreshRealm in May 2014. We estimated the fair value of our noncontrolling interest in FreshRealm by performing a forecast projection analysis. this analysis was conducted with the consultation from a third party consulting firm. our investment of $17.0 million in FreshRealm million has been recorded as investment in unconsolidated subsidiaries on our balance sheet. As of July 31, 2014, FreshRealm issued additional units to various 3rd parties, which reduced our ownership percentage to exactly 50%. See note 18 for more information on the deconsolidation of FreshRealm. marketaBle SecUrItIeS our marketable securities consist of our investment in limoneira Company (limoneira) stock. We currently own approximately 12% of limoneira’s outstanding common stock. these securities are carried at fair value as determined from quoted market prices. the estimated fair value, cost, and gross unrealized gain related to such investment was $44.4 million, $23.5 million and $20.9 million as of october 31, 2014. the estimated fair value, cost, and gross unrealized gain related to such investment was $45.5 million, $23.5 million and $22.0 million as of october 31, 2013. agreed to sell and distribute such tomatoes, make advances to belher for operating purposes, provide additional advances as shipments are made during the season (subject to limitations, as defined), and return the proceeds from such tomato sales to belher, net of our commission and aforementioned advances. pursuant to such amended agreement with belher, we advanced belher a total of $3.0 million, up from $2.0 million in the original agreement, during fiscal 2011. Additionally, the amended agreement calls for us to continue to advance $3.0 million per annum for operating purposes through 2019. these advances will be collected through settlements by the end of each year. As of october 31, 2014 and 2013, we have total advances of $3.0 million to belher pursuant to this agreement, which is recorded in advances to suppliers. InfraStrUctUre aDvanceS pursuant to our infrastructure agreement, we make advances to be used solely for the acquisition, construction, and installation of improvements to and on certain land owned/ controlled by belher, as well as packing line equipment. Advances incur interest at 4.7% at october 31, 2014 and 2013. As of october 31, 2014, we have advanced a total of $1.6 million ($0.8 million included in prepaid expenses and other current assets and $0.8 million included in other long-term assets). As of october 31, 2013, we have advanced a total of $2.5 million ($0.8 million included in prepaid expenses and other current assets and $1.7 million included in other long-term assets). belher is to annually repay these advances in no less than 20% increments through July 2016. Interest is to be paid monthly or annually, as defined. belher may prepay, without penalty, all or any portion of the advances at any time. based on an unusually poor tomato season, belher did not make a payment in fiscal 2012 pursuant to such agreement. both parties agreed to defer such payment until 2013 and such payment was made as expected. In order to secure their obligations pursuant to both agreements discussed above, belher granted us a first-priority security interest in certain assets, including cash, inventory and fixed assets, as defined. aDvanceS to SUPPlIerS accrUeD eXPenSeS We advance funds to third-party growers primarily in Chile and Included in accrued expenses at october 31, 2014 and 2013 Mexico for various farming needs. typically, we obtain collateral (i.e. fruit, fixed assets, etc.) that approximates the value at risk, prior to making such advances. We continuously evaluate the ability of these growers to repay advances in order to evaluate the possible need to record an allowance. no such allowance was required at october 31, 2014, nor october 31, 2013. pursuant to our distribution agreement, which was amended in fiscal 2011, with Agricola belher (belher) of Mexico, a producer of fresh vegetables, primarily tomatoes, for export to the u.S. market, belher agreed, at their sole cost and expense, to harvest, pack, export, ship, and deliver tomatoes exclusively to our company, primarily our Arizona facility. In exchange, we are liabilities related to the receipt of goods and/or services for which an invoice has not yet been received. these totaled approximately $4.7 million and $3.7 million. Additionally, included in accrued expenses at october 31, 2013 are liabilities related to contingent consideration and non-cash compensation related to the acquisition of RFG. these totaled approximately $15.6 million. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. 44 . 45 Calavo Growers, Inc. 2014 AnnuAl RepoR t revenUe recognItIon aDvertISIng eXPenSe Sales of products and related costs of products sold are recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. these terms are typically met upon shipment of product to the customer. Service revenue, including freight, ripening, storage, bagging and palletization charges, is recorded when services are performed and sales of the related products are delivered. ShIPPIng anD hanDlIng We include shipping and handling fees billed to customers in net revenues. Amounts incurred by us for freight are included in cost of goods sold. PromotIonal allowanceS We provide for promotional allowances at the time of sale, based on our historical experience. our estimates are generally based on evaluating the historical relationship between promotional allowances and gross sales. the derived percentage is then applied to the current period’s sales revenues in order to arrive at the appropriate debit to sales allowances for the period. the offsetting credit is made to accrued expenses. When certain amounts of specific customer accounts are subsequently identified as promotional, they are written off against this allowance. Actual amounts may differ from these estimates and such differences are recognized as an adjustment to net sales in the period they are identified. allowance for accoUntS receIvaBle We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable. conSIgnment arrangementS We frequently enter into consignment arrangements with avocado, pineapple and tomato growers and packers located outside of the united States and growers of certain perishable products in the united States. Although we generally do not take legal title to these avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and limited pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, the accompanying financial statements include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. Amounts recorded for each of the fiscal years ended october 31, 2014, 2013 and 2012 in the financial statements pursuant to consignment arrangements are as follows (in thousands): Sales Cost of Sales Gross Margin 2014 2013 2012 $ 30,721 $ 30,620 $ 28,297 27,759 27,679 25,893 $ 2,962 $ 2,941 $ 2,404 Advertising costs are expensed when incurred. Such costs were approximately $0.2 million, $0.1 million, and $0.2 million for fiscal years 2014, 2013, and 2012. reSearch anD DeveloPment Research and development costs are expensed as incurred and are generally included as a component of selling, general and administrative expense. FreshRealm, a development stage company, comprises the majority of our research and development costs. total research and development costs for fiscal years 2014 and 2013 were approximately $0.8 million and $1.5 million. total research and development costs for fiscal years 2012 was less than $0.1 million. other Income, net Included in other income, net is dividend income totaling $0.5 million for fiscal year 2014. Dividend income totaled $0.4 million for fiscal year 2013 and 2012. See note 10 for related party disclosure related to other income. USe of eStImateS the preparation of financial statements in conformity with accounting principles generally accepted in the united States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to valuation allowances for accounts receivable, goodwill, grower advances, inventories, long-lived assets, valuation of and estimated useful lives of identifiable intangible assets, stock- based compensation, promotional allowances and income taxes. on an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates. Income taXeS We account for deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of our assets and liabilities result in a deferred tax asset, we perform an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on 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 should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. to FreshRealm for 28.6% ownership. We agreed to dilute our ownership percentage in FreshRealm, as an injection of significant working capital would reduce the immediate need of Calavo to provide operating funds to FreshRealm and would also serve to preserve the value of our investment. As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.1% to 50.8%. even though Calavo controlled greater than 50% of the outstanding units of FreshRealm, the minority/non-Calavo unit-holders held substantive participating rights. these rights existed primarily in two forms: (1) two out of a total of four board of director seats and (2) a provision in the Agreement that states that for situations for which the approval of the Members, as defined, is required by the Agreement, the Members shall act by Super-Majority Vote. As such, Calavo cannot control FreshRealm through its two board of director seats, nor its 50.8% ownership. based on the foregoing, we deconsolidated FreshRealm in May 2014. We estimated the fair value of our noncontrolling interest in FreshRealm by performing a forecast projection analysis. this analysis was conducted with the consultation from a third party consulting firm. our investment of $17.0 million in FreshRealm million has been recorded as investment in unconsolidated subsidiaries on our balance sheet. As of July 31, 2014, FreshRealm issued additional units to various 3rd parties, which reduced our ownership percentage to exactly 50%. See note 18 for more information on the deconsolidation of FreshRealm. marketaBle SecUrItIeS our marketable securities consist of our investment in limoneira Company (limoneira) stock. We currently own approximately 12% of limoneira’s outstanding common stock. these securities are carried at fair value as determined from quoted market prices. the estimated fair value, cost, and gross unrealized gain related to such investment was $44.4 million, $23.5 million and $20.9 million as of october 31, 2014. the estimated fair value, cost, and gross unrealized gain related to such investment was $45.5 million, $23.5 million and $22.0 million as of october 31, 2013. agreed to sell and distribute such tomatoes, make advances to belher for operating purposes, provide additional advances as shipments are made during the season (subject to limitations, as defined), and return the proceeds from such tomato sales to belher, net of our commission and aforementioned advances. pursuant to such amended agreement with belher, we advanced belher a total of $3.0 million, up from $2.0 million in the original agreement, during fiscal 2011. Additionally, the amended agreement calls for us to continue to advance $3.0 million per annum for operating purposes through 2019. these advances will be collected through settlements by the end of each year. As of october 31, 2014 and 2013, we have total advances of $3.0 million to belher pursuant to this agreement, which is recorded in advances to suppliers. InfraStrUctUre aDvanceS pursuant to our infrastructure agreement, we make advances to be used solely for the acquisition, construction, and installation of improvements to and on certain land owned/ controlled by belher, as well as packing line equipment. Advances incur interest at 4.7% at october 31, 2014 and 2013. As of october 31, 2014, we have advanced a total of $1.6 million ($0.8 million included in prepaid expenses and other current assets and $0.8 million included in other long-term assets). As of october 31, 2013, we have advanced a total of $2.5 million ($0.8 million included in prepaid expenses and other current assets and $1.7 million included in other long-term assets). belher is to annually repay these advances in no less than 20% increments through July 2016. Interest is to be paid monthly or annually, as defined. belher may prepay, without penalty, all or any portion of the advances at any time. based on an unusually poor tomato season, belher did not make a payment in fiscal 2012 pursuant to such agreement. both parties agreed to defer such payment until 2013 and such payment was made as expected. In order to secure their obligations pursuant to both agreements discussed above, belher granted us a first-priority security interest in certain assets, including cash, inventory and fixed assets, as defined. aDvanceS to SUPPlIerS accrUeD eXPenSeS We advance funds to third-party growers primarily in Chile and Included in accrued expenses at october 31, 2014 and 2013 Mexico for various farming needs. typically, we obtain collateral (i.e. fruit, fixed assets, etc.) that approximates the value at risk, prior to making such advances. We continuously evaluate the ability of these growers to repay advances in order to evaluate the possible need to record an allowance. no such allowance was required at october 31, 2014, nor october 31, 2013. pursuant to our distribution agreement, which was amended in fiscal 2011, with Agricola belher (belher) of Mexico, a producer of fresh vegetables, primarily tomatoes, for export to the u.S. market, belher agreed, at their sole cost and expense, to harvest, pack, export, ship, and deliver tomatoes exclusively to our company, primarily our Arizona facility. In exchange, we are liabilities related to the receipt of goods and/or services for which an invoice has not yet been received. these totaled approximately $4.7 million and $3.7 million. Additionally, included in accrued expenses at october 31, 2013 are liabilities related to contingent consideration and non-cash compensation related to the acquisition of RFG. these totaled approximately $15.6 million. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. 44 . 45 Calavo Growers, Inc. 2014 AnnuAl RepoR t revenUe recognItIon aDvertISIng eXPenSe Sales of products and related costs of products sold are recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. these terms are typically met upon shipment of product to the customer. Service revenue, including freight, ripening, storage, bagging and palletization charges, is recorded when services are performed and sales of the related products are delivered. ShIPPIng anD hanDlIng We include shipping and handling fees billed to customers in net revenues. Amounts incurred by us for freight are included in cost of goods sold. PromotIonal allowanceS We provide for promotional allowances at the time of sale, based on our historical experience. our estimates are generally based on evaluating the historical relationship between promotional allowances and gross sales. the derived percentage is then applied to the current period’s sales revenues in order to arrive at the appropriate debit to sales allowances for the period. the offsetting credit is made to accrued expenses. When certain amounts of specific customer accounts are subsequently identified as promotional, they are written off against this allowance. Actual amounts may differ from these estimates and such differences are recognized as an adjustment to net sales in the period they are identified. allowance for accoUntS receIvaBle We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable. conSIgnment arrangementS We frequently enter into consignment arrangements with avocado, pineapple and tomato growers and packers located outside of the united States and growers of certain perishable products in the united States. Although we generally do not take legal title to these avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and limited pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, the accompanying financial statements include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. Amounts recorded for each of the fiscal years ended october 31, 2014, 2013 and 2012 in the financial statements pursuant to consignment arrangements are as follows (in thousands): Sales Cost of Sales Gross Margin 2014 2013 2012 $ 30,721 $ 30,620 $ 28,297 27,759 27,679 25,893 $ 2,962 $ 2,941 $ 2,404 Advertising costs are expensed when incurred. Such costs were approximately $0.2 million, $0.1 million, and $0.2 million for fiscal years 2014, 2013, and 2012. reSearch anD DeveloPment Research and development costs are expensed as incurred and are generally included as a component of selling, general and administrative expense. FreshRealm, a development stage company, comprises the majority of our research and development costs. total research and development costs for fiscal years 2014 and 2013 were approximately $0.8 million and $1.5 million. total research and development costs for fiscal years 2012 was less than $0.1 million. other Income, net Included in other income, net is dividend income totaling $0.5 million for fiscal year 2014. Dividend income totaled $0.4 million for fiscal year 2013 and 2012. See note 10 for related party disclosure related to other income. USe of eStImateS the preparation of financial statements in conformity with accounting principles generally accepted in the united States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to valuation allowances for accounts receivable, goodwill, grower advances, inventories, long-lived assets, valuation of and estimated useful lives of identifiable intangible assets, stock- based compensation, promotional allowances and income taxes. on an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates. Income taXeS We account for deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of our assets and liabilities result in a deferred tax asset, we perform an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on 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 should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, we record additional tax charges in a period in which it is determined that a recorded tax liability |is less than the ultimate assessment is expected to be. the application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. therefore, the actual liability for u.S. or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. BaSIc anD DIlUteD net Income Per Share basic earnings per share is calculated using the weighted- average number of common shares outstanding during the period without consideration of the dilutive effect of stock options and contingent consideration. the basic weighted- average number of common shares outstanding was 15,765,000, 14,856,000, and 14,795,000 for fiscal years 2014, 2013, and 2012. Diluted earnings per common share is calculated using the weighted-average number of common shares outstanding during the period after consideration of the dilutive effect of stock options and the effect of contingent consideration shares, which were 1,455,000, and 305,000 (restated) for fiscal years 2014 and 2012. For fiscal year 2013, no dilutive shares were considered due to the impact of anti-dilution. Stock-BaSeD comPenSatIon We account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest. the value of each option award that contains a market condition is estimated using a lattice-based option valuation model, while all other option awards are valued using the black-Scholes-Merton option valuation model. We primarily consider the following assumptions when using these models: (1) expected volatility, (2) expected dividends, (3) expected life and (4) risk-free interest rate. Such models also consider the intrinsic value in the estimation of fair value of the option award. Forfeitures are estimated when recognizing compensation expense, and the estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods. We measure the fair value of our stock option awards on the date of grant. no options were granted in fiscal years 2014 and 2012. the following assumptions were used in the estimated grant date fair value calculations for stock options issued in 2013: Risk-free interest rate expected volatility Dividend yield expected life (years) 2013 0.70% 44.30% 2.60% 5.0 For the years ended october 31, 2014, 2013 and 2012, we recognized compensation expense of $727,000, $376,000, and $417,000 related to non-acquisition stock-based compensation. Contingent consideration treated as non-cash compensation expense totaled $2.5 million, $0.9 million, and less than $0.1 million in fiscal years 2014, 2013, and 2012. See note 3 and note 14 for further information. the expected stock price volatility rates were based on the historical volatility of our common stock. the risk free interest rate was based on the u.S. treasury yield curve in effect at the time of grant for periods approximating the expected life of the option. the expected life represents the average period of time that options granted are expected to be outstanding, as calculated using the simplified method described in the Securities and exchange Commission’s Staff Accounting bulletin no. 107. the black-Scholes-Merton and lattice-based option valuation models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. because options held by our directors and employees have characteristics significantly different from those of traded options, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of these options. foreIgn cUrrency tranSlatIon anD remeaSUrement our foreign operations are subject to exchange rate fluctuations and foreign currency transaction costs. the functional currency of our foreign subsidiaries is the united States dollar. As a result, monetary assets and liabilities are translated into u.S. dollars at exchange rates as of the balance sheet date and non-monetary assets, liabilities and equity are translated at historical rates. Sales and expenses are translated using a weighted-average exchange rate for the period. Gains and losses resulting from those remeasurements are included in income. Gains and losses resulting from foreign currency transactions are also recognized currently in income. total foreign currency losses for fiscal 2014, net of gains, were $0.1 million. total foreign currency losses for fiscal 2013, net of gains, were $0.4 million. total foreign currency gains for fiscal 2012, net of losses, were $0.1 million. faIr v alUe of fInancIal InStrUmentS We believe that the carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value based on either their short-term nature or on terms currently available to the Company in financial markets. We believe that our fixed-rate long-term obligations have a fair value of approximately $8.0 million as of october 31, 2014, with a corresponding carrying value of approximately $7.9 million. DerIvatIve fInancIal InStrUmentS We were not a party to any derivative instruments during the fiscal year. It is currently our intent not to use derivative instruments for speculative or trading purposes. Additionally, we do not use any hedging or forward contracts to offset market volatility. recently aDoPteD accoUntIng PronoUncementS In February 2013, the FASb issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. this guidance is effective for annual reporting periods beginning after December 15, 2012. the adoption of this standard had no impact on our financial statements. In July 2013, the FASb issued a standard permitting the Fed Funds effective Swap Rate to be used as a u.S. benchmark interest rate for hedge accounting purposes, in addition to the united States treasury rate and london Interbank offered Rate (“lIboR”). In addition, the restriction on using different benchmark rates for similar hedges is removed. the Company is required to adopt these provisions prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. the adoption of this standard had no impact on our financial statements. In February 2013, the FASb issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. this guidance is effective for annual reporting periods beginning after December 15, 2012. the adoption of this standard had no impact on our financial statements. recently ISSUeD accoUntIng StanDarDS In May 2014, the Financial Accounting Standards board (“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. In April 2014, the FASb issued guidance which changes the criteria for identifying a discontinued operation. the guidance limits the definition of a discontinued operation to the disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. We are required to adopt the guidance in the first quarter of fiscal 2016, with early adoption permitted for transactions that have not been reported in financial statements previously issued. We do not expect the adoption of this guidance to have a material impact on our financial statements In July 2013, the FASb issued a new accounting standard requiring the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated balance Sheets when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. We are required to adopt this new standard on a prospective basis in the first quarter of fiscal 2015; however, early adoption is permitted as is retrospective application. We will adopt the new standard in the first fiscal quarter of 2015 on a prospective basis. Adoption of the new standard is not expected to have a material effect on our Consolidated Financial Statements. comPrehenSIve Income (loSS) Comprehensive income (loss) is defined as all changes in a company’s net assets, except changes resulting from transactions with shareholders. For the fiscal year ended october 31, 2014, other comprehensive loss includes the unrealized loss on our limoneira investment totaling $0.7 million, net of income taxes. limoneira’s stock price at october 31, 2014 equaled $25.66 per share. For the fiscal year ended october 31, 2013, other comprehensive income includes the unrealized gain on our limoneira investment totaling $4.0 million, net of income taxes. limoneira’s stock price at october 31, 2013 equaled $26.34 per share. For the fiscal year ended october 31, 2012, other comprehensive income includes the unrealized loss on our limoneira investment totaling $5.5 million, net of income taxes. limoneira’s stock price at october 31, 2012 equaled $22.47 per share. Calavo Growers, Inc. 2014 AnnuAl RepoR t 46 . 47 As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, we record additional tax charges in a period in which it is determined that a recorded tax liability |is less than the ultimate assessment is expected to be. the application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. therefore, the actual liability for u.S. or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. BaSIc anD DIlUteD net Income Per Share basic earnings per share is calculated using the weighted- average number of common shares outstanding during the period without consideration of the dilutive effect of stock options and contingent consideration. the basic weighted- average number of common shares outstanding was 15,765,000, 14,856,000, and 14,795,000 for fiscal years 2014, 2013, and 2012. Diluted earnings per common share is calculated using the weighted-average number of common shares outstanding during the period after consideration of the dilutive effect of stock options and the effect of contingent consideration shares, which were 1,455,000, and 305,000 (restated) for fiscal years 2014 and 2012. For fiscal year 2013, no dilutive shares were considered due to the impact of anti-dilution. Stock-BaSeD comPenSatIon We account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest. the value of each option award that contains a market condition is estimated using a lattice-based option valuation model, while all other option awards are valued using the black-Scholes-Merton option valuation model. We primarily consider the following assumptions when using these models: (1) expected volatility, (2) expected dividends, (3) expected life and (4) risk-free interest rate. Such models also consider the intrinsic value in the estimation of fair value of the option award. Forfeitures are estimated when recognizing compensation expense, and the estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods. We measure the fair value of our stock option awards on the date of grant. no options were granted in fiscal years 2014 and 2012. the following assumptions were used in the estimated grant date fair value calculations for stock options issued in 2013: Risk-free interest rate expected volatility Dividend yield expected life (years) 2013 0.70% 44.30% 2.60% 5.0 For the years ended october 31, 2014, 2013 and 2012, we recognized compensation expense of $727,000, $376,000, and $417,000 related to non-acquisition stock-based compensation. Contingent consideration treated as non-cash compensation expense totaled $2.5 million, $0.9 million, and less than $0.1 million in fiscal years 2014, 2013, and 2012. See note 3 and note 14 for further information. the expected stock price volatility rates were based on the historical volatility of our common stock. the risk free interest rate was based on the u.S. treasury yield curve in effect at the time of grant for periods approximating the expected life of the option. the expected life represents the average period of time that options granted are expected to be outstanding, as calculated using the simplified method described in the Securities and exchange Commission’s Staff Accounting bulletin no. 107. the black-Scholes-Merton and lattice-based option valuation models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. because options held by our directors and employees have characteristics significantly different from those of traded options, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of these options. foreIgn cUrrency tranSlatIon anD remeaSUrement our foreign operations are subject to exchange rate fluctuations and foreign currency transaction costs. the functional currency of our foreign subsidiaries is the united States dollar. As a result, monetary assets and liabilities are translated into u.S. dollars at exchange rates as of the balance sheet date and non-monetary assets, liabilities and equity are translated at historical rates. Sales and expenses are translated using a weighted-average exchange rate for the period. Gains and losses resulting from those remeasurements are included in income. Gains and losses resulting from foreign currency transactions are also recognized currently in income. total foreign currency losses for fiscal 2014, net of gains, were $0.1 million. total foreign currency losses for fiscal 2013, net of gains, were $0.4 million. total foreign currency gains for fiscal 2012, net of losses, were $0.1 million. faIr v alUe of fInancIal InStrUmentS We believe that the carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value based on either their short-term nature or on terms currently available to the Company in financial markets. We believe that our fixed-rate long-term obligations have a fair value of approximately $8.0 million as of october 31, 2014, with a corresponding carrying value of approximately $7.9 million. DerIvatIve fInancIal InStrUmentS We were not a party to any derivative instruments during the fiscal year. It is currently our intent not to use derivative instruments for speculative or trading purposes. Additionally, we do not use any hedging or forward contracts to offset market volatility. recently aDoPteD accoUntIng PronoUncementS In February 2013, the FASb issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. this guidance is effective for annual reporting periods beginning after December 15, 2012. the adoption of this standard had no impact on our financial statements. In July 2013, the FASb issued a standard permitting the Fed Funds effective Swap Rate to be used as a u.S. benchmark interest rate for hedge accounting purposes, in addition to the united States treasury rate and london Interbank offered Rate (“lIboR”). In addition, the restriction on using different benchmark rates for similar hedges is removed. the Company is required to adopt these provisions prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. the adoption of this standard had no impact on our financial statements. In February 2013, the FASb issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. this guidance is effective for annual reporting periods beginning after December 15, 2012. the adoption of this standard had no impact on our financial statements. recently ISSUeD accoUntIng StanDarDS In May 2014, the Financial Accounting Standards board (“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. In April 2014, the FASb issued guidance which changes the criteria for identifying a discontinued operation. the guidance limits the definition of a discontinued operation to the disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. We are required to adopt the guidance in the first quarter of fiscal 2016, with early adoption permitted for transactions that have not been reported in financial statements previously issued. We do not expect the adoption of this guidance to have a material impact on our financial statements In July 2013, the FASb issued a new accounting standard requiring the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated balance Sheets when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. We are required to adopt this new standard on a prospective basis in the first quarter of fiscal 2015; however, early adoption is permitted as is retrospective application. We will adopt the new standard in the first fiscal quarter of 2015 on a prospective basis. Adoption of the new standard is not expected to have a material effect on our Consolidated Financial Statements. comPrehenSIve Income (loSS) Comprehensive income (loss) is defined as all changes in a company’s net assets, except changes resulting from transactions with shareholders. For the fiscal year ended october 31, 2014, other comprehensive loss includes the unrealized loss on our limoneira investment totaling $0.7 million, net of income taxes. limoneira’s stock price at october 31, 2014 equaled $25.66 per share. For the fiscal year ended october 31, 2013, other comprehensive income includes the unrealized gain on our limoneira investment totaling $4.0 million, net of income taxes. limoneira’s stock price at october 31, 2013 equaled $26.34 per share. For the fiscal year ended october 31, 2012, other comprehensive income includes the unrealized loss on our limoneira investment totaling $5.5 million, net of income taxes. limoneira’s stock price at october 31, 2012 equaled $22.47 per share. Calavo Growers, Inc. 2014 AnnuAl RepoR t 46 . 47 noncontrollIng IntereSt the following table reconciles shareholders’ equity attributable to noncontrolling interest related to the Salsa lisa acquisition and FreshRealm, llC (in thousands). See note 18 for additional information related to FreshRealm. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously- issued financial statements. SAlSA lISA non- ContRollInG InteReSt YeAR enDeD oCtobeR 31, 2014 YeAR enDeD oCtobeR 31, 2013 ReSt AteD noncontrolling interest, beginning (Restated) net loss attributable to noncontrolling interest of Salsa lisa other noncontrolling interest, ending $ $ (57) $ 290 (152) 479 270 (347) — $ (57) FReSHReAlM non- ContRollInG InteReSt YeAR enDeD oCtobeR 31, 2014 YeAR enDeD oCtobeR 31, 2013 ReSt AteD noncontrolling interest, beginning (Restated) noncontrolling interest contribution net loss attributable to noncontrolling interest of FreshRealm $ (180) $ — 4,627 362 Deconsolidation of FreshRealm (4,030) (417) (542) — noncontrolling interest, ending $ — $ (180) We recorded an immaterial error correction of $479,000 in the current year whereby the noncontrolling interest for Salsa lisa should have been recorded historically at the greater of the noncontrolling interest balance adjusted for the attribution of losses or the amount redeemable pursuant to the acquisition agreement. our management evaluated the materiality of these errors both qualitatively and quantitatively in accordance with Staff Accounting bulletin no. 99, Materiality, and determined that these errors were not material to our previously reported financial statements. of this amount, $257,000 has been included in net loss attributable to noncontrolling interest. 3. reSt AteMent OF previOuSly-iSSueD FinAnCiAl St AteMentS In connection with the preparation, review and audit of the Company’s consolidated financial statements required to be included in its Annual Report on Form 10-K for the fiscal year ended october 31, 2014, the Company identified a non-cash misstatement in its historical consolidated financial statements related to its treatment of contingent consideration resulting from the acquisition of RFG in June 2011. In accordance with the earn-out provisions in the RFG acquisition agreement, if RFG’s operating results exceeded defined thresholds, additional purchase price was required to be paid by the Company, subject to a ceiling. RFG’s results substantially exceeded defined thresholds and expectations and, accordingly, RFG’s former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement. the total cumulative amount of non-cash operating expense, primarily related to the revaluation of RFG earn-out liability, that needed to be recorded was approximately $88.1 million, accounted for over the period from the date of acquisition of RFG (i.e. June 1, 2011) through the period ended october 31, 2014. Initially, we recorded the contingent consideration, which was settleable in common stock, as an equity instrument and therefore did not record expense based on the changes in fair value of the contingent consideration. However, the contingent consideration should have been accounted for as a liability requiring re-measurement to fair value. Additionally, certain amounts of the consideration have been recorded as compensation expense. See following table for the adjustments relating to total contingent consideration and non-cash compensation for the acquisition of RFG for fiscal years 2014, 2013, and 2012: 2014 2013 2012 Contingent Consideration $ 51,082 $ 31,066 $ 2,157 non-cash compensation recorded in cost of sales 1,807 676 non-cash compensation recorded in selling, general and administrative 722 268 1 1 total $ 53,611 $ 32,010 $ 2,159 the Company has also identified certain immaterial adjustments primarily relating to non-controlling interest, diluted number of shares outstanding, and income tax expense related to fiscal years ended october 31, 2014, october 31, 2013, and october 31, 2012, which are reflected in the restated consolidated financial statements. We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. the financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon. See note 19, “Selected Quarterly Financial Data (unaudited)” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously- issued interim financial statements. the following tables summarize the impact of the restatement on our previously reported statements of consolidated operations for fiscal years 2013 and 2012 (in thousands, except per share data): YeAR enDeD oCtobeR 31, 2013 YeAR enDeD oCtobeR 31, 2012 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 691,451 $ — $ 691,451 $ 551,119 $ 631,327 676 632,003 490,453 60,124 33,217 1,801 25,106 (100) 255 (1,098) 448 24,611 7,866 16,745 (676) 268 31,066 (32,010) — — — — (32,010) (12,581) (19,429) 59,448 33,485 32,867 (6,904) (100) 255 (1,098) 448 (7,399) (4,715) (2,684) 60,666 32,713 415 27,538 500 229 (1,152) 887 28,002 11,055 16,947 — 1 (1) 1 2,157 (2,159) — — — — (2,159) (842) (1,317) $ 551,119 490,454 60,665 32,714 2,572 25,379 500 229 (1,152) 887 25,843 10,213 15,630 604 285 889 105 67 172 $ 17,349 $ (19,144) $ (1,795) $ 17,052 $ (1,250) $ 15,802 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income (loss) equity (losses) in earnings from unconsolidated entities Interest income Interest expense other income, net Income (loss) before provision for income taxes provision (benefit) for income taxes net income (loss) Add: net loss attributable to noncontrolling interest net income (loss) attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income (loss) per share: basic Diluted $ $ 1.17 1.17 $ $ (1.29) (1.29) $ $ (0.12) (0.12) $ $ 1.15 1.15 $ $ (0.08) (0.10) $ $ 1.07 1.05 number of shares used in per share computation: basic Diluted 14,856 14,863 — (7) 14,856 14,856 14,795 14,808 — 292 14,795 15,100 48 . 49 Calavo Growers, Inc. 2014 AnnuAl RepoR t noncontrollIng IntereSt the following table reconciles shareholders’ equity attributable to noncontrolling interest related to the Salsa lisa acquisition and FreshRealm, llC (in thousands). See note 18 for additional information related to FreshRealm. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously- issued financial statements. SAlSA lISA non- ContRollInG InteReSt YeAR enDeD oCtobeR 31, 2014 YeAR enDeD oCtobeR 31, 2013 ReSt AteD noncontrolling interest, beginning (Restated) net loss attributable to noncontrolling interest of Salsa lisa other noncontrolling interest, ending $ $ (57) $ 290 (152) 479 270 (347) — $ (57) FReSHReAlM non- ContRollInG InteReSt YeAR enDeD oCtobeR 31, 2014 YeAR enDeD oCtobeR 31, 2013 ReSt AteD noncontrolling interest, beginning (Restated) noncontrolling interest contribution net loss attributable to noncontrolling interest of FreshRealm $ (180) $ — 4,627 362 Deconsolidation of FreshRealm (4,030) (417) (542) — noncontrolling interest, ending $ — $ (180) We recorded an immaterial error correction of $479,000 in the current year whereby the noncontrolling interest for Salsa lisa should have been recorded historically at the greater of the noncontrolling interest balance adjusted for the attribution of losses or the amount redeemable pursuant to the acquisition agreement. our management evaluated the materiality of these errors both qualitatively and quantitatively in accordance with Staff Accounting bulletin no. 99, Materiality, and determined that these errors were not material to our previously reported financial statements. of this amount, $257,000 has been included in net loss attributable to noncontrolling interest. 3. reSt AteMent OF previOuSly-iSSueD FinAnCiAl St AteMentS In connection with the preparation, review and audit of the Company’s consolidated financial statements required to be included in its Annual Report on Form 10-K for the fiscal year ended october 31, 2014, the Company identified a non-cash misstatement in its historical consolidated financial statements related to its treatment of contingent consideration resulting from the acquisition of RFG in June 2011. In accordance with the earn-out provisions in the RFG acquisition agreement, if RFG’s operating results exceeded defined thresholds, additional purchase price was required to be paid by the Company, subject to a ceiling. RFG’s results substantially exceeded defined thresholds and expectations and, accordingly, RFG’s former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement. the total cumulative amount of non-cash operating expense, primarily related to the revaluation of RFG earn-out liability, that needed to be recorded was approximately $88.1 million, accounted for over the period from the date of acquisition of RFG (i.e. June 1, 2011) through the period ended october 31, 2014. Initially, we recorded the contingent consideration, which was settleable in common stock, as an equity instrument and therefore did not record expense based on the changes in fair value of the contingent consideration. However, the contingent consideration should have been accounted for as a liability requiring re-measurement to fair value. Additionally, certain amounts of the consideration have been recorded as compensation expense. See following table for the adjustments relating to total contingent consideration and non-cash compensation for the acquisition of RFG for fiscal years 2014, 2013, and 2012: 2014 2013 2012 Contingent Consideration $ 51,082 $ 31,066 $ 2,157 non-cash compensation recorded in cost of sales 1,807 676 non-cash compensation recorded in selling, general and administrative 722 268 1 1 total $ 53,611 $ 32,010 $ 2,159 the Company has also identified certain immaterial adjustments primarily relating to non-controlling interest, diluted number of shares outstanding, and income tax expense related to fiscal years ended october 31, 2014, october 31, 2013, and october 31, 2012, which are reflected in the restated consolidated financial statements. We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. the financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon. See note 19, “Selected Quarterly Financial Data (unaudited)” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously- issued interim financial statements. the following tables summarize the impact of the restatement on our previously reported statements of consolidated operations for fiscal years 2013 and 2012 (in thousands, except per share data): YeAR enDeD oCtobeR 31, 2013 YeAR enDeD oCtobeR 31, 2012 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 691,451 $ — $ 691,451 $ 551,119 $ 631,327 676 632,003 490,453 60,124 33,217 1,801 25,106 (100) 255 (1,098) 448 24,611 7,866 16,745 (676) 268 31,066 (32,010) — — — — (32,010) (12,581) (19,429) 59,448 33,485 32,867 (6,904) (100) 255 (1,098) 448 (7,399) (4,715) (2,684) 60,666 32,713 415 27,538 500 229 (1,152) 887 28,002 11,055 16,947 — 1 (1) 1 2,157 (2,159) — — — — (2,159) (842) (1,317) $ 551,119 490,454 60,665 32,714 2,572 25,379 500 229 (1,152) 887 25,843 10,213 15,630 604 285 889 105 67 172 $ 17,349 $ (19,144) $ (1,795) $ 17,052 $ (1,250) $ 15,802 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income (loss) equity (losses) in earnings from unconsolidated entities Interest income Interest expense other income, net Income (loss) before provision for income taxes provision (benefit) for income taxes net income (loss) Add: net loss attributable to noncontrolling interest net income (loss) attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income (loss) per share: basic Diluted $ $ 1.17 1.17 $ $ (1.29) (1.29) $ $ (0.12) (0.12) $ $ 1.15 1.15 $ $ (0.08) (0.10) $ $ 1.07 1.05 number of shares used in per share computation: basic Diluted 14,856 14,863 — (7) 14,856 14,856 14,795 14,808 — 292 14,795 15,100 48 . 49 Calavo Growers, Inc. 2014 AnnuAl RepoR t the following tables summarize the impact of the restatement on our previously reported consolidated statements of comprehensive the following table summarizes the impact of the restatement on our previously reported consolidated balance sheet for year ending income (loss) for fiscal years 2013 and 2012: october 31, 2013 (in thousands): YeAR enDeD oCtobeR 31, 2013 YeAR enDeD oCtobeR 31, 2012 oCtobeR 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD net income (loss) $ 16,745 $ (19,429) $ (2,684) $ 16,947 $ (1,317) $ 15,630 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD aSSetS CuRR ent ASS e tS : other comprehensive income, before tax: unrealized investment gains arising during period Income tax expense related to items of other comprehensive income other comprehensive income, net of tax Comprehensive income Add: net loss attributable to noncontrolling interest Comprehensive income – Calavo Growers, Inc. 6,690 (2,666) 4,024 20,769 — — — (19,429) 6,690 8,850 (2,666) (3,395) 4,024 1,340 5,455 22,402 — — — (1,317) 8,850 (3,395) 5,455 21,085 604 285 889 105 67 172 $ 21,373 $ (19,144) $ 2,229 $ 22,507 $ (1,250) $ 21,257 Cash and cash equivalents $ 8,019 $ Accounts receivable, net of allowances of $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Goodwill other assets lIaBIlI tIeS anD S hareholD erS’ e QUIt y CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Income tax payable Dividend payable Current portion of long-term obligations total current liabilities lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies 55,060 28,673 10,757 3,213 2,013 1,995 109,730 52,649 45,531 1,420 18,262 12,347 $ 239,939 $ 14,490 11,699 20,939 33,990 — 11,004 5,258 97,380 7,792 6,194 13,986 $ $ — — — — — — — — — — — — — — — — 15,602 — — — — $ 8,019 55,060 28,673 10,757 3,213 2,013 1,995 109,730 52,649 45,531 1,420 18,262 12,347 $ 239,939 $ 14,490 11,699 36,541 33,990 — 11,004 5,258 15,602 112,982 — (6,065) (6,065) 7,792 129 7,921 noncontrolling interest, Calavo Salsa lisa 121 (178) (57) SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 15,720 shares outstanding at october 31, 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings total shareholders’ equity 15 59,376 13,414 (6) 55,653 128,452 $ 239,939 — 11,414 — (174) (20,599) (9,359) $ — Calavo Growers, Inc. 2014 AnnuAl RepoR t 15 70,790 13,414 (180) 35,054 119,093 $ 239,939 50 . 51 the following tables summarize the impact of the restatement on our previously reported consolidated statements of comprehensive the following table summarizes the impact of the restatement on our previously reported consolidated balance sheet for year ending income (loss) for fiscal years 2013 and 2012: october 31, 2013 (in thousands): YeAR enDeD oCtobeR 31, 2013 YeAR enDeD oCtobeR 31, 2012 oCtobeR 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD net income (loss) $ 16,745 $ (19,429) $ (2,684) $ 16,947 $ (1,317) $ 15,630 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD aSSetS CuRR ent ASS e tS : other comprehensive income, before tax: unrealized investment gains arising during period Income tax expense related to items of other comprehensive income other comprehensive income, net of tax Comprehensive income Add: net loss attributable to noncontrolling interest Comprehensive income – Calavo Growers, Inc. 6,690 (2,666) 4,024 20,769 — — — (19,429) 6,690 8,850 (2,666) (3,395) 4,024 1,340 5,455 22,402 — — — (1,317) 8,850 (3,395) 5,455 21,085 604 285 889 105 67 172 $ 21,373 $ (19,144) $ 2,229 $ 22,507 $ (1,250) $ 21,257 Cash and cash equivalents $ 8,019 $ Accounts receivable, net of allowances of $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Goodwill other assets lIaBIlI tIeS anD S hareholD erS’ e QUIt y CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Income tax payable Dividend payable Current portion of long-term obligations total current liabilities lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies 55,060 28,673 10,757 3,213 2,013 1,995 109,730 52,649 45,531 1,420 18,262 12,347 $ 239,939 $ 14,490 11,699 20,939 33,990 — 11,004 5,258 97,380 7,792 6,194 13,986 $ $ — — — — — — — — — — — — — — — — 15,602 — — — — $ 8,019 55,060 28,673 10,757 3,213 2,013 1,995 109,730 52,649 45,531 1,420 18,262 12,347 $ 239,939 $ 14,490 11,699 36,541 33,990 — 11,004 5,258 15,602 112,982 — (6,065) (6,065) 7,792 129 7,921 noncontrolling interest, Calavo Salsa lisa 121 (178) (57) SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 15,720 shares outstanding at october 31, 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings total shareholders’ equity 15 59,376 13,414 (6) 55,653 128,452 $ 239,939 — 11,414 — (174) (20,599) (9,359) $ — Calavo Growers, Inc. 2014 AnnuAl RepoR t 15 70,790 13,414 (180) 35,054 119,093 $ 239,939 50 . 51 the following tables summarize the impact of the restatement on our previously reported consolidated statements of cash flows for YeAR enDeD oCtobeR 31, 2012 AS RepoR teD ADJuStMentS ReSt AteD fiscal years 2013 and 2012 (in thousands): YeAR enDeD oCtobeR 31,2013 AS RepoR teD ADJuStMentS ReSt AteD $ 16,745 $ (19,429) $ (2,684) caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization provision for losses on accounts receivable Income (loss) from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Contingent consideration related to the acquisition of Salsa lisa Stock compensation expense loss on disposal of property, plant, and equipment Intangible assets impairment on Calavo Salsa lisa Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Investment in Agricola Don Memo net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on revolving credit facility, net payments on long-term obligations Retirement of stock purchased from limoneira proceeds from stock option exercises proceeds from issuance of FreshRealm stock tax benefit of stock option exercises net cash used in financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year SUPPlemental InformatI on : Cash paid during the year for: Interest Income taxes noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise 6,367 1 100 146 1,801 (230) 376 30 615 (6,917) (16,191) (5,725) (3,567) (844) 8,158 135 7,705 5,007 13,712 (6,746) (1,000) (7,746) (9,646) 200,670 (186,850) (5,405) (4,788) 751 79 139 (5,050) 916 7,103 $ 8,019 $ $ $ 1,087 5,532 59 — — — — 32,010 — — — — (5,204) — — — — (7,377) — — — — — — — — — — — — — — — — — — — — — — $ $ $ $ Conversion of cash consideration to stock consideration for RFG acquisition $ 11,711 $ 17,262 Declared dividends payable Collection for Agricola belher Infrastructure Advance unrealized holding gains (losses) $ 11,004 $ $ 1,690 6,690 $ $ $ — — — 52 . 53 Calavo Growers, Inc. 2014 AnnuAl RepoR t 6,367 1 100 146 33,811 (230) 376 30 615 (12,121) (16,191) (5,725) (3,567) (844) 781 135 7,705 5,007 13,712 (6,746) (1,000) (7,746) (9,646) 200,670 (186,850) (5,405) (4,788) 751 79 139 (5,050) 916 7,103 8,019 1,087 5,532 59 $ $ $ $ $ 28,973 $ 11,004 $ $ 1,690 6,690 caSh f lowS from oP er atIng a c tIvItIeS : net income adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization provision for losses on accounts receivable loss from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Contingent consideration related to the acquisition of Salsa lisa Stock compensation expense loss on disposal of property, plant, and equipment Distribution from unconsolidated entity Gain on sale of Maui Fresh International Intangible assets impairment on Calavo Salsa lisa Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment proceeds from sale of Maui Fresh International net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on revolving credit facility, net payments on long-term obligations proceeds from stock option exercises tax benefit of stock option exercises net cash used in financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year SUPPlemental InformatI on : Cash paid during the year for: Interest Income taxes noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Declared dividends payable notes receivable issued for sale of Maui Fresh International Construction in progress included in trade accounts payable and accrued expenses unrealized holding gains (losses) $ 16,947 $ (1,317) $ 15,630 5,909 68 (501) 128 415 5 417 136 288 (519) 87 (818) (2,837) (5,161) (639) 980 462 14 3,394 3,236 22,011 (7,749) 300 (7,449) (8,123) 158,200 (155,890) (5,237) 791 26 (10,233) 4,329 2,774 $ 7,103 $ $ $ $ $ $ $ 1,146 9,274 139 9,612 2,204 28 8,850 — — — — 2,159 — — — — — — (855) — — — — 13 — — — — — — — — — — — — — — — — — — — — — — — — $ $ $ $ $ $ $ $ 5,909 68 (501) 128 2,574 5 417 136 288 (519) 87 (1,673) (2,837) (5,161) (639) 980 475 14 3,394 3,236 22,011 (7,749) 300 (7,449) (8,123) 158,200 (155,890) (5,237) 791 26 (10,233) 4,329 2,774 7,103 1,146 9,274 139 9,612 2,204 28 8,850 $ $ $ $ $ $ $ $ the following tables summarize the impact of the restatement on our previously reported consolidated statements of cash flows for YeAR enDeD oCtobeR 31, 2012 AS RepoR teD ADJuStMentS ReSt AteD fiscal years 2013 and 2012 (in thousands): YeAR enDeD oCtobeR 31,2013 AS RepoR teD ADJuStMentS ReSt AteD $ 16,745 $ (19,429) $ (2,684) caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization provision for losses on accounts receivable Income (loss) from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Contingent consideration related to the acquisition of Salsa lisa Stock compensation expense loss on disposal of property, plant, and equipment Intangible assets impairment on Calavo Salsa lisa Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Investment in Agricola Don Memo net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on revolving credit facility, net payments on long-term obligations Retirement of stock purchased from limoneira proceeds from stock option exercises proceeds from issuance of FreshRealm stock tax benefit of stock option exercises net cash used in financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year SUPPlemental InformatI on : Cash paid during the year for: Interest Income taxes noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise 6,367 1 100 146 1,801 (230) 376 30 615 (6,917) (16,191) (5,725) (3,567) (844) 8,158 135 7,705 5,007 13,712 (6,746) (1,000) (7,746) (9,646) 200,670 (186,850) (5,405) (4,788) 751 79 139 (5,050) 916 7,103 $ 8,019 $ $ $ 1,087 5,532 59 — — — — 32,010 — — — — (5,204) — — — — (7,377) — — — — — — — — — — — — — — — — — — — — — — $ $ $ $ Conversion of cash consideration to stock consideration for RFG acquisition $ 11,711 $ 17,262 Declared dividends payable Collection for Agricola belher Infrastructure Advance unrealized holding gains (losses) $ 11,004 $ $ 1,690 6,690 $ $ $ — — — 52 . 53 Calavo Growers, Inc. 2014 AnnuAl RepoR t 6,367 1 100 146 33,811 (230) 376 30 615 (12,121) (16,191) (5,725) (3,567) (844) 781 135 7,705 5,007 13,712 (6,746) (1,000) (7,746) (9,646) 200,670 (186,850) (5,405) (4,788) 751 79 139 (5,050) 916 7,103 8,019 1,087 5,532 59 $ $ $ $ $ 28,973 $ 11,004 $ $ 1,690 6,690 caSh f lowS from oP er atIng a c tIvItIeS : net income adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization provision for losses on accounts receivable loss from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Contingent consideration related to the acquisition of Salsa lisa Stock compensation expense loss on disposal of property, plant, and equipment Distribution from unconsolidated entity Gain on sale of Maui Fresh International Intangible assets impairment on Calavo Salsa lisa Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment proceeds from sale of Maui Fresh International net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on revolving credit facility, net payments on long-term obligations proceeds from stock option exercises tax benefit of stock option exercises net cash used in financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year SUPPlemental InformatI on : Cash paid during the year for: Interest Income taxes noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Declared dividends payable notes receivable issued for sale of Maui Fresh International Construction in progress included in trade accounts payable and accrued expenses unrealized holding gains (losses) $ 16,947 $ (1,317) $ 15,630 5,909 68 (501) 128 415 5 417 136 288 (519) 87 (818) (2,837) (5,161) (639) 980 462 14 3,394 3,236 22,011 (7,749) 300 (7,449) (8,123) 158,200 (155,890) (5,237) 791 26 (10,233) 4,329 2,774 $ 7,103 $ $ $ $ $ $ $ 1,146 9,274 139 9,612 2,204 28 8,850 — — — — 2,159 — — — — — — (855) — — — — 13 — — — — — — — — — — — — — — — — — — — — — — — — $ $ $ $ $ $ $ $ 5,909 68 (501) 128 2,574 5 417 136 288 (519) 87 (1,673) (2,837) (5,161) (639) 980 475 14 3,394 3,236 22,011 (7,749) 300 (7,449) (8,123) 158,200 (155,890) (5,237) 791 26 (10,233) 4,329 2,774 7,103 1,146 9,274 139 9,612 2,204 28 8,850 $ $ $ $ $ $ $ $ 4. inventOrieS 5. prOperty, plAnt, AnD eQuipMent the intangible assets consist of the following (in thousands): Inventories consist of the following (in thousands): property, plant, and equipment consist of the following oCtobeR 31, 2014 oCtobeR 31, 2013 2014 2013 (in thousands): buildings and improvements 21,713 20,304 trade names 8.4 years 2,760 (1,900) oCtobeR 31, Fresh fruit packing supplies and ingredients Finished prepared foods $ 15,640 $ 13,928 6,324 9,011 5,511 9,234 $ 30,975 $ 28,673 We assess the recoverability of inventories through an ongoing review of inventory levels in relation to sales and forecasts and product marketing plans. When the inventory on hand, at the time of the review, exceeds the foreseeable demand, the value of inventory that is not expected to be sold is written down. the amount of the write-down is the excess of historical cost over estimated realizable value (generally zero). once established, these write-downs are considered permanent adjustments to the cost basis of the excess inventory. the assessment of the recoverability of inventories and the amounts of any write-downs are based on currently available information and assumptions about future demand and market conditions. Demand for processed avocado products may fluctuate significantly over time, and actual demand and market conditions may be more or less favorable than our projections. In the event that actual demand is lower than originally projected, additional inventory write-downs may be required. We did not record any lower of cost or market adjustments during fiscal years 2014 and 2013. oCtobeR 31, land 2014 2013 $ 7,023 $ 7,023 leasehold improvements 4,435 1,671 equipment 55,467 50,426 Information systems – hardware and software Construction in progress less accumulated depreciation and amortization 7,564 1,057 7,188 1,535 97,259 88,147 (39,907) (35,498) $ 57,352 $ 52,649 Depreciation expense was $5.3 million, $4.6 million and $4.2 million for fiscal years 2014, 2013, and 2012, of which $0.6 million was related to depreciation on capital leases for fiscal year 2014, 2013, and 2012. property, plant, and equipment include various capital leases which total $3.4 million and $3.6 million, less accumulated depreciation of $1.7 million and $1.2 million as of october 31, 2014 and 2013. We capitalize software development costs for internal use beginning in the application development stage and ending when the asset is placed into service. We amortize such costs using the straight-line basis over estimated useful lives. 6. Other ASSetS other assets consist of the following (in thousands): oCtobeR 31, Intangibles, net Grower advances loan to Agricola belher loan to FreshRealm members 2014 2013 $ 5,925 $ 7,272 642 845 296 938 1,690 283 notes receivable from San Rafael 1,343 1,594 other 733 570 $ 9,784 $ 12,347 effective July 31, 2013, we entered into with certain noncontrolling members an Amended and Restated limited liability Company Agreement of FreshRealm. As part of this agreement, we loaned certain noncontrolling members $0.3 million for their part of the contribution into FreshRealm. Customer list/relationships 8.0 years $ 7,640 $ (3,323) $ 4,317 $ 7,640 $ (2,364) $ 5,276 WeIGHteD- AVeRAGe uSeFul lIFe GRoSS CARRYInG V Alue ACCuM. AMoR tIzA tIon net booK V Alue GRoSS CARRYInG V Alue ACCuM. AMoR tIzA tIon net booK VAlue trade secrets/recipes brand name intangibles 13.0 years indefinite non-competition agreements 5.0 years 630 275 267 (220) — (204) 860 410 275 63 2,760 (1,636) 1,124 630 275 267 (137) — (163) 493 275 104 Intangibles, net $ 11,572 $ (5,647) $ 5,925 $ 11,572 $ (4,300) $ 7,272 We recorded amortization expense of approximately $1.3 million, $1.4 million, and $1.4 million for fiscal years 2014, 2013, and 2012. We anticipate recording amortization expense of approximately $1.3 million, $1.2 million, $1.1 million, $1.1 million, and $0.7 million for fiscal years 2015 through 2019. the remainder of approximately $0.2 million will be amortized over fiscal years 2020 through 2023. facilities, we had $35.9 million and $34.0 million outstanding as october 31, 2014 and 2013. these credit facilities contain various financial covenants, the most significant relating to tangible net Worth (as defined), Current Ratio (as defined), and Fixed Charge Coverage Ratio (as defined). We were in compliance with all such covenants at october 31, 2014. For fiscal year 2013, we performed our annual assessment 8. eMplOyee BeneFit plAnS of long-lived assets and determined that an impairment of $0.6 million existed related to the trade name and trade secrets/ recipes of CSl. this impairment was a result of less than anticipated sales since acquisition and was calculated via a forecast projection analysis, with consultation from a third party consulting firm. 7. revOlving CreDit F ACilitieS effective May 31, 2011, the Company and Farm Credit West, pCA (FCW), entered into a term Revolving Credit Agreement (Revolving Agreement). under the terms of the Revolving Agreement, we are advanced funds for working capital purposes, the purchase and installation of capital items, as well as other corporate needs of the Company. total credit available under the borrowing agreement is $40 million, up from $30 million, and expires on February 1, 2016. effective September 30, 2011, the Company and bank of America, n.A. (boA), entered into an agreement, Amendment no. 4 to loan Agreement (the Agreement), which amended our existing credit facility with boA. under the terms of the Agreement, we are advanced funds primarily for working capital purposes. total credit available under the borrowing agreement is now $25 million, up from $15 million and now expires on February 1, 2016. under the terms of these agreements, we are advanced funds for both working capital and long-term productive asset purchases. total credit available under these combined borrowing agreements was $65.0 million, with a weighted-average interest rate of 1.7% at october 31, 2014 and 2013. under these credit We sponsor two defined contribution retirement plans for salaried and hourly employees. We have three additional defined contribution retirement plans bringing the total to five. expenses for these plans approximated $943,000, $807,000, and $811,000 for fiscal years 2014, 2013 and 2012, which are included in selling, general and administrative expenses in the accompanying financial statements. We also sponsor a non-qualified defined benefit plan for two retired executives. pension expenses, including actuarial losses, approximated $9,000, $12,000 and $16,000 for the year ended october 31, 2014, 2013, and 2012. these amounts are included in selling, general and administrative expenses in the accompanying financial statements. Components of the change in projected benefit obligation for fiscal year ends consist of the following (in thousands): 2014 2013 change I n P rojec teD BenefIt oBl IgatIon : projected benefit obligation at beginning of year $ 218 $ 245 Interest cost Actuarial loss benefits paid 9 4 8 4 (35) (39) projected benefit obligation at end of year (unfunded) $ 196 $ 218 Calavo Growers, Inc. 2014 AnnuAl RepoR t 54 . 55 4. inventOrieS 5. prOperty, plAnt, AnD eQuipMent the intangible assets consist of the following (in thousands): Inventories consist of the following (in thousands): property, plant, and equipment consist of the following oCtobeR 31, 2014 oCtobeR 31, 2013 2014 2013 (in thousands): buildings and improvements 21,713 20,304 trade names 8.4 years 2,760 (1,900) oCtobeR 31, Fresh fruit packing supplies and ingredients Finished prepared foods $ 15,640 $ 13,928 6,324 9,011 5,511 9,234 $ 30,975 $ 28,673 We assess the recoverability of inventories through an ongoing review of inventory levels in relation to sales and forecasts and product marketing plans. When the inventory on hand, at the time of the review, exceeds the foreseeable demand, the value of inventory that is not expected to be sold is written down. the amount of the write-down is the excess of historical cost over estimated realizable value (generally zero). once established, these write-downs are considered permanent adjustments to the cost basis of the excess inventory. the assessment of the recoverability of inventories and the amounts of any write-downs are based on currently available information and assumptions about future demand and market conditions. Demand for processed avocado products may fluctuate significantly over time, and actual demand and market conditions may be more or less favorable than our projections. In the event that actual demand is lower than originally projected, additional inventory write-downs may be required. We did not record any lower of cost or market adjustments during fiscal years 2014 and 2013. oCtobeR 31, land 2014 2013 $ 7,023 $ 7,023 leasehold improvements 4,435 1,671 equipment 55,467 50,426 Information systems – hardware and software Construction in progress less accumulated depreciation and amortization 7,564 1,057 7,188 1,535 97,259 88,147 (39,907) (35,498) $ 57,352 $ 52,649 Depreciation expense was $5.3 million, $4.6 million and $4.2 million for fiscal years 2014, 2013, and 2012, of which $0.6 million was related to depreciation on capital leases for fiscal year 2014, 2013, and 2012. property, plant, and equipment include various capital leases which total $3.4 million and $3.6 million, less accumulated depreciation of $1.7 million and $1.2 million as of october 31, 2014 and 2013. We capitalize software development costs for internal use beginning in the application development stage and ending when the asset is placed into service. We amortize such costs using the straight-line basis over estimated useful lives. 6. Other ASSetS other assets consist of the following (in thousands): oCtobeR 31, Intangibles, net Grower advances loan to Agricola belher loan to FreshRealm members 2014 2013 $ 5,925 $ 7,272 642 845 296 938 1,690 283 notes receivable from San Rafael 1,343 1,594 other 733 570 $ 9,784 $ 12,347 effective July 31, 2013, we entered into with certain noncontrolling members an Amended and Restated limited liability Company Agreement of FreshRealm. As part of this agreement, we loaned certain noncontrolling members $0.3 million for their part of the contribution into FreshRealm. Customer list/relationships 8.0 years $ 7,640 $ (3,323) $ 4,317 $ 7,640 $ (2,364) $ 5,276 WeIGHteD- AVeRAGe uSeFul lIFe GRoSS CARRYInG V Alue ACCuM. AMoR tIzA tIon net booK V Alue GRoSS CARRYInG V Alue ACCuM. AMoR tIzA tIon net booK VAlue trade secrets/recipes brand name intangibles 13.0 years indefinite non-competition agreements 5.0 years 630 275 267 (220) — (204) 860 410 275 63 2,760 (1,636) 1,124 630 275 267 (137) — (163) 493 275 104 Intangibles, net $ 11,572 $ (5,647) $ 5,925 $ 11,572 $ (4,300) $ 7,272 We recorded amortization expense of approximately $1.3 million, $1.4 million, and $1.4 million for fiscal years 2014, 2013, and 2012. We anticipate recording amortization expense of approximately $1.3 million, $1.2 million, $1.1 million, $1.1 million, and $0.7 million for fiscal years 2015 through 2019. the remainder of approximately $0.2 million will be amortized over fiscal years 2020 through 2023. facilities, we had $35.9 million and $34.0 million outstanding as october 31, 2014 and 2013. these credit facilities contain various financial covenants, the most significant relating to tangible net Worth (as defined), Current Ratio (as defined), and Fixed Charge Coverage Ratio (as defined). We were in compliance with all such covenants at october 31, 2014. For fiscal year 2013, we performed our annual assessment 8. eMplOyee BeneFit plAnS of long-lived assets and determined that an impairment of $0.6 million existed related to the trade name and trade secrets/ recipes of CSl. this impairment was a result of less than anticipated sales since acquisition and was calculated via a forecast projection analysis, with consultation from a third party consulting firm. 7. revOlving CreDit F ACilitieS effective May 31, 2011, the Company and Farm Credit West, pCA (FCW), entered into a term Revolving Credit Agreement (Revolving Agreement). under the terms of the Revolving Agreement, we are advanced funds for working capital purposes, the purchase and installation of capital items, as well as other corporate needs of the Company. total credit available under the borrowing agreement is $40 million, up from $30 million, and expires on February 1, 2016. effective September 30, 2011, the Company and bank of America, n.A. (boA), entered into an agreement, Amendment no. 4 to loan Agreement (the Agreement), which amended our existing credit facility with boA. under the terms of the Agreement, we are advanced funds primarily for working capital purposes. total credit available under the borrowing agreement is now $25 million, up from $15 million and now expires on February 1, 2016. under the terms of these agreements, we are advanced funds for both working capital and long-term productive asset purchases. total credit available under these combined borrowing agreements was $65.0 million, with a weighted-average interest rate of 1.7% at october 31, 2014 and 2013. under these credit We sponsor two defined contribution retirement plans for salaried and hourly employees. We have three additional defined contribution retirement plans bringing the total to five. expenses for these plans approximated $943,000, $807,000, and $811,000 for fiscal years 2014, 2013 and 2012, which are included in selling, general and administrative expenses in the accompanying financial statements. We also sponsor a non-qualified defined benefit plan for two retired executives. pension expenses, including actuarial losses, approximated $9,000, $12,000 and $16,000 for the year ended october 31, 2014, 2013, and 2012. these amounts are included in selling, general and administrative expenses in the accompanying financial statements. Components of the change in projected benefit obligation for fiscal year ends consist of the following (in thousands): 2014 2013 change I n P rojec teD BenefIt oBl IgatIon : projected benefit obligation at beginning of year $ 218 $ 245 Interest cost Actuarial loss benefits paid 9 4 8 4 (35) (39) projected benefit obligation at end of year (unfunded) $ 196 $ 218 Calavo Growers, Inc. 2014 AnnuAl RepoR t 54 . 55 4.10% 4.60% lItIgatIon the following is a reconciliation of the unfunded status of the plans at fiscal year ends included in accrued expenses (in thousands): projected benefit obligation $ 196 $ unrecognized net (gain) loss — 2014 2013 218 — Recorded pension liabilities $ 196 $ 218 Significant assumptions used in the determination of pension expense consist of the following: 2014 2013 Discount rate on projected benefit obligation 9. COMMitMentS AnD COntingenCieS commItmentS anD gUaranteeS We lease facilities and certain equipment under non-cancelable operating leases expiring at various dates through 2021. We are committed to make minimum cash payments under these agreements as of october 31, 2014, as follows (in thousands): 2015 2016 2017 2018 2019 thereafter $ 3,353 3,358 3,332 3,201 2,859 11,568 $ 27,671 total rent expense amounted to approximately $3.8 million, $3.5 million and $3.0 million for the years ended october 31, 2014, 2013, and 2012. Rent to limoneira, for our corporate office, amounted to approximately $0.3 million for fiscal years 2014, 2013, and 2012. In fiscal 2014, we renewed our lease with limoneira for our corporate facility through fiscal 2020 at an annual rental of $0.3 million per annum (subject to annual CpI increases, as defined). In fiscal 2014, we renewed the lease of our distribution facility in Garland texas through fiscal 2029 at an annual rental of $0.8 million per annum (subject to annual CpI increases, as defined). We have two additional facilities in California, one being the corporate office of RFG in Rancho Cordova, and the other being a fresh processing facility in Sacramento. RFG also has one other fresh processing facility in Houston, texas. both facilities process cut fruits and vegetables, salads, sandwiches, and wraps. the RFG corporate office in Rancho Cordova has an operating lease through June 2018. total rent for fiscal 2014 and 2013 was approximately $0.4 million. total rent for fiscal 2012 was approximately $0.3 million. the processing facility in Sacramento has an operating lease through May 2021. total rent for fiscal 2014 and 2013 was approximately $0.5 million. total rent for fiscal 2012 was approximately $0.5 million. the processing facility in Houston has an operating lease through May 2021. total rent for fiscal 2014 and 2013 was approximately $0.3 million. total rent for fiscal 2012 was approximately $0.3 million. We indemnify our directors and have the power to indemnify each of our officers, employees and other agents, to the maximum extent permitted by applicable law. the maximum amount of potential future payments under such indemnifications is not determinable. no amounts have been accrued in the accompanying financial statements related to these indemnifications. From time to time, we are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements. In January 2015, various class action lawsuits have been initiated against the company related to the restatement of previously-issued financial statements. We believe these lawsuits are without merit and will defend ourselves vigorously. We do not expect that such legal claims and litigation will ultimately have a material adverse effect on our consolidated financial position or results of operations. 10. relA teD-pArty trAnSACtiOnS Certain members of our board of Directors market avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers. During the years ended october 31, 2014, 2013, and 2012, the aggregate amount of avocados procured from entities owned or controlled by members of our board of Directors was $10.5 million, $20.9 million and $21.1 million. Accounts payable to these board members was $0.1 million and $3.3 million as of october 31, 2014, and 2013. During fiscal years 2014 and 2013, we received $0.3 million as dividend income from limoneira. During fiscal year 2012, we received $0.2 million as dividend income from limoneira. on April 10, 2013, we repurchased 165,000 shares of our common stock from limoneira at a purchase price of $29.02 per share, the closing price on April 10, 2013. the total amount wired to limoneira was $4.8 million. these shares were cancelled and returned to authorized, but unissued, status. 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. lIG is majority owned by an entity owned by such three executives of RFG. For the year ended october 31, 2014 and 2013, total rent paid to lIG was $0.5 million. RFG’s texas operating facility leases a building from tHnC, llC (tHnC) pursuant to an operating lease. tHnC is majority owned by an 56 . 57 Calavo Growers, Inc. 2014 AnnuAl RepoR t cUrrent: Federal State Foreign entity owned by such three executives of RFG. For the year ended october 31, 2014 and 2013, total rent paid to tHnC was $0.3 million. 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). third Coast is majority owned by an entity owned by such three executives of RFG. For the year ended october 31, 2014 and 2013, total sales made to third Coast were $1.0 million and $2.3 million. For the year ended october 31, 2014 and 2013, total purchases made from third Coast were $0.4 million and $1.1 million. Amounts due from third Coast were $0.4 million and $1.0 million as of october 31, 2014 and 2013. Amounts due to third Coast were less than $0.1 million as of october 31, 2014 and 2013. 11. inCOMe tAxeS the income tax provision (benefit) consists of the following Significant components of our deferred taxes assets (liabilities) as of october 31, are as follows (in thousands): 2014 2013 ReSt AteD Allowances for accounts receivable $ 1,312 $ Inventories State taxes Credits and incentives Accrued liabilities 478 202 300 1,002 634 417 269 — 675 Current deferred income taxes $ 3,294 $ 1,995 property, plant, and equipment (6,373) (6,892) Intangible assets 34,697 15,610 unrealized gain, limoneira investment (8,199) (8,674) for the years ended october 31, (in thousands): Investment in FreshRealm 2014 2013 2012 Stock-based compensation ReSt AteD ReSt AteD State taxes Credits and incentives $ 7,379 $ 5,587 $ 8,225 other (7,594) 355 (1,690) 1,287 (196) — 369 (847) 713 (242) 939 842 1,261 549 1,233 2,428 long-term deferred income taxes $ 12,287 $ 37 total current 9,160 7,397 11,886 DeferreD : Federal State Foreign (10,392) (9,536) (2,870) (2,548) 186 (28) (935) (693) (45) total deferred (13,076) (12,112) (1,673) total income tax provision $ (3,916) $ (4,715) $ 10,213 At october 31, 2014 and 2013, gross deferred tax assets totaled approximately $39.7 million and $18.6 million, while gross deferred tax liabilities totaled approximately $24.1 million and $16.6 million. Deferred income taxes reflect the net of temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes. the october 31, 2014 net increase in deferred intangible assets by $19.1 million is mostly attributable to the RFG contingent liability payout during the year. the payout of the contingent liability resulted in additional RFG tax basis goodwill equal to the fair market value of the stock issued, which increased the Company’s net intangibles deferred tax asset. A reconciliation of the significant differences between the federal statutory income tax rate and the effective income tax rate on pretax income for the years ended october 31, is as follows: 2014 2013 2012 ReSt AteD ReSt AteD Federal statutory tax rate 35.0% 35.0% 35.0% State taxes, net of federal effects Foreign income taxes greater (less) than u.S. Hacienda assessment Section 199 deduction tax Credits other 22.3 11.8 1.5 5.8 — 15.8 15.2 0.7 6.1 — 8.2 (0.9) 3.5 (2.9) 6.8 (0.8) — (0.1) 94.8% 63.7% 39.5% 4.10% 4.60% lItIgatIon the following is a reconciliation of the unfunded status of the plans at fiscal year ends included in accrued expenses (in thousands): projected benefit obligation $ 196 $ unrecognized net (gain) loss — 2014 2013 218 — Recorded pension liabilities $ 196 $ 218 Significant assumptions used in the determination of pension expense consist of the following: 2014 2013 Discount rate on projected benefit obligation 9. COMMitMentS AnD COntingenCieS commItmentS anD gUaranteeS We lease facilities and certain equipment under non-cancelable operating leases expiring at various dates through 2021. We are committed to make minimum cash payments under these agreements as of october 31, 2014, as follows (in thousands): 2015 2016 2017 2018 2019 thereafter $ 3,353 3,358 3,332 3,201 2,859 11,568 $ 27,671 total rent expense amounted to approximately $3.8 million, $3.5 million and $3.0 million for the years ended october 31, 2014, 2013, and 2012. Rent to limoneira, for our corporate office, amounted to approximately $0.3 million for fiscal years 2014, 2013, and 2012. In fiscal 2014, we renewed our lease with limoneira for our corporate facility through fiscal 2020 at an annual rental of $0.3 million per annum (subject to annual CpI increases, as defined). In fiscal 2014, we renewed the lease of our distribution facility in Garland texas through fiscal 2029 at an annual rental of $0.8 million per annum (subject to annual CpI increases, as defined). We have two additional facilities in California, one being the corporate office of RFG in Rancho Cordova, and the other being a fresh processing facility in Sacramento. RFG also has one other fresh processing facility in Houston, texas. both facilities process cut fruits and vegetables, salads, sandwiches, and wraps. the RFG corporate office in Rancho Cordova has an operating lease through June 2018. total rent for fiscal 2014 and 2013 was approximately $0.4 million. total rent for fiscal 2012 was approximately $0.3 million. the processing facility in Sacramento has an operating lease through May 2021. total rent for fiscal 2014 and 2013 was approximately $0.5 million. total rent for fiscal 2012 was approximately $0.5 million. the processing facility in Houston has an operating lease through May 2021. total rent for fiscal 2014 and 2013 was approximately $0.3 million. total rent for fiscal 2012 was approximately $0.3 million. We indemnify our directors and have the power to indemnify each of our officers, employees and other agents, to the maximum extent permitted by applicable law. the maximum amount of potential future payments under such indemnifications is not determinable. no amounts have been accrued in the accompanying financial statements related to these indemnifications. From time to time, we are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements. In January 2015, various class action lawsuits have been initiated against the company related to the restatement of previously-issued financial statements. We believe these lawsuits are without merit and will defend ourselves vigorously. We do not expect that such legal claims and litigation will ultimately have a material adverse effect on our consolidated financial position or results of operations. 10. relA teD-pArty trAnSACtiOnS Certain members of our board of Directors market avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers. During the years ended october 31, 2014, 2013, and 2012, the aggregate amount of avocados procured from entities owned or controlled by members of our board of Directors was $10.5 million, $20.9 million and $21.1 million. Accounts payable to these board members was $0.1 million and $3.3 million as of october 31, 2014, and 2013. During fiscal years 2014 and 2013, we received $0.3 million as dividend income from limoneira. During fiscal year 2012, we received $0.2 million as dividend income from limoneira. on April 10, 2013, we repurchased 165,000 shares of our common stock from limoneira at a purchase price of $29.02 per share, the closing price on April 10, 2013. the total amount wired to limoneira was $4.8 million. these shares were cancelled and returned to authorized, but unissued, status. 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. lIG is majority owned by an entity owned by such three executives of RFG. For the year ended october 31, 2014 and 2013, total rent paid to lIG was $0.5 million. RFG’s texas operating facility leases a building from tHnC, llC (tHnC) pursuant to an operating lease. tHnC is majority owned by an 56 . 57 Calavo Growers, Inc. 2014 AnnuAl RepoR t cUrrent: Federal State Foreign entity owned by such three executives of RFG. For the year ended october 31, 2014 and 2013, total rent paid to tHnC was $0.3 million. 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). third Coast is majority owned by an entity owned by such three executives of RFG. For the year ended october 31, 2014 and 2013, total sales made to third Coast were $1.0 million and $2.3 million. For the year ended october 31, 2014 and 2013, total purchases made from third Coast were $0.4 million and $1.1 million. Amounts due from third Coast were $0.4 million and $1.0 million as of october 31, 2014 and 2013. Amounts due to third Coast were less than $0.1 million as of october 31, 2014 and 2013. 11. inCOMe tAxeS the income tax provision (benefit) consists of the following Significant components of our deferred taxes assets (liabilities) as of october 31, are as follows (in thousands): 2014 2013 ReSt AteD Allowances for accounts receivable $ 1,312 $ Inventories State taxes Credits and incentives Accrued liabilities 478 202 300 1,002 634 417 269 — 675 Current deferred income taxes $ 3,294 $ 1,995 property, plant, and equipment (6,373) (6,892) Intangible assets 34,697 15,610 unrealized gain, limoneira investment (8,199) (8,674) for the years ended october 31, (in thousands): Investment in FreshRealm 2014 2013 2012 Stock-based compensation ReSt AteD ReSt AteD State taxes Credits and incentives $ 7,379 $ 5,587 $ 8,225 other (7,594) 355 (1,690) 1,287 (196) — 369 (847) 713 (242) 939 842 1,261 549 1,233 2,428 long-term deferred income taxes $ 12,287 $ 37 total current 9,160 7,397 11,886 DeferreD : Federal State Foreign (10,392) (9,536) (2,870) (2,548) 186 (28) (935) (693) (45) total deferred (13,076) (12,112) (1,673) total income tax provision $ (3,916) $ (4,715) $ 10,213 At october 31, 2014 and 2013, gross deferred tax assets totaled approximately $39.7 million and $18.6 million, while gross deferred tax liabilities totaled approximately $24.1 million and $16.6 million. Deferred income taxes reflect the net of temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes. the october 31, 2014 net increase in deferred intangible assets by $19.1 million is mostly attributable to the RFG contingent liability payout during the year. the payout of the contingent liability resulted in additional RFG tax basis goodwill equal to the fair market value of the stock issued, which increased the Company’s net intangibles deferred tax asset. A reconciliation of the significant differences between the federal statutory income tax rate and the effective income tax rate on pretax income for the years ended october 31, is as follows: 2014 2013 2012 ReSt AteD ReSt AteD Federal statutory tax rate 35.0% 35.0% 35.0% State taxes, net of federal effects Foreign income taxes greater (less) than u.S. Hacienda assessment Section 199 deduction tax Credits other 22.3 11.8 1.5 5.8 — 15.8 15.2 0.7 6.1 — 8.2 (0.9) 3.5 (2.9) 6.8 (0.8) — (0.1) 94.8% 63.7% 39.5% We intend to reinvest our accumulated foreign earnings, See note 3, “Restatement of previously-Issued Financial which approximated $13.2 million at october 31, 2014, indefinitely. As a result, we have not provided any deferred income taxes on such unremitted earnings. For fiscal years 2014, 2013 and 2012, income (loss) before income taxes related to domestic operations was approximately $(0.6) million, $(10.6) million, and $22.0 million. For fiscal years 2014, 2013 and 2012, income before income taxes related to foreign operations was approximately $3.6 million, $2.9 million and $3.8 million. As of october 31, 2014 and 2013, we did not have a liability for unrecognized tax benefits related to various federal and state income tax matters. the tax effected amount would reduce our effective income tax rate if recognized. the benefit for income taxes of $3.9 million is attributable to the revaluation adjustment of $88.1 million related to contingent consideration which was spread between fiscal year 2014 through fiscal year 2011. the revalued contingent consideration and non-cash compensation expense resulted in $53.6 million, $32.0 million, and $2.2 million additional GAAp expense recorded in fiscal years 2014, 2013, and 2012, respectively. the current year revaluation expense drove pre-tax book income into a loss position, thus causing a benefit for income taxes as this revaluation adjustment is capitalized and amortized as goodwill over the remaining useful life for income tax purposes resulting in a taxable income position for the current year. Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. 12. SegMent inFOrMA tiOn As discussed in note 1, 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, tortilla chips 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 meat 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): For fiscal years 2014, 2013 and 2012, inter-segment sales and cost of sales of $50.1 million, $44.2 million, and $33.8 million were eliminated in consolidation. the following table sets forth sales by product category, by segment (in thousands): YeAR enDeD oCtobeR 31, 2014 YeAR enDeD oCtobeR 31, 2013 FReSH pRoDuCtS CAlAVo FooDS RFG totAl FReSH pRoDuCtS CAlAVo FooDS RFG tot Al th IrD - Part y S aleS : Avocados tomatoes papayas pineapples other fresh products Food service Retail and club $ 433,581 $ — $ — $ 433,581 $ 407,678 $ — $ — $ 407,678 19,705 12,619 5,086 1,037 — — — — — — 48,085 — — — — — 19,705 22,623 12,619 13,077 5,086 1,037 48,085 5,739 601 — — — — — — 43,616 — — — — — 22,623 13,077 5,739 601 43,616 18,789 195,376 214,165 22,334 255,074 277,408 total gross sales 472,028 70,419 255,074 797,521 449,718 62,405 195,376 707,499 less sales incentives (1,079) (11,140) (2,792) (15,011) (1,349) (10,791) (3,908) (16,048) net sales $ 470,949 $ 59,279 $ 252,282 $ 782,510 $ 448,369 $ 51,614 $ 191,468 $ 691,451 YeAR enDeD oCtobeR 31, 2013 YeAR enDeD oCtobeR 31, 2012 FReSH pRoDuCtS CAlAVo FooDS RFG totAl FReSH pRoDuCtS CAlAVo FooDS RFG tot Al FReSH pRoDuCtS CAlAVo FooDS RFG totAl th IrD - Part y S aleS : (All amounts are presented in thousands) y ear enDeD o c toBer 31, 2014 net sales Cost of sales Gross margin y ear enDeD o c toBer 31, 2013 net sales Cost of sales(1) Gross margin y ear enDeD o c toBer 31, 2012 net sales Cost of sales(1) Gross margin $ 470,949 434,820 $ 36,129 $ 448,369 417,176 $ 31,193 $ 350,582 316,287 $ 34,295 $ 59,279 46,269 $ 13,010 $ 51,614 38,226 $ 13,388 $ 46,424 32,422 $ 14,002 $ 252,282 230,193 $ 22,089 $ 191,468 176,601 $ 14,867 $ 154,113 141,745 $ 12,368 $ 782,510 711,282 $ 71,228 $ 691,451 632,003 $ 59,448 $ 551,119 490,454 $ 60,665 (1) Cost of sales for RFG and the corresponding totals have been restated for the years ended october 31, 2013 and 2012. Avocados tomatoes papayas pineapples other fresh products Food service Retail and club $ 407,678 $ — $ — $ 407,678 $ 318,556 $ — $ — $ 318,556 22,623 13,077 5,739 601 — — — — — — 43,616 — — — — — 22,623 11,404 13,077 12,753 5,739 601 43,616 6,840 1,788 — — — — — — 36,289 — — — — — 11,404 12,753 6,840 1,788 36,289 19,758 157,333 177,091 18,789 195,376 214,165 total gross sales 449,718 62,405 195,376 707,499 351,341 56,047 157,333 564,721 less sales incentives (1,349) (10,791) (3,908) (16,048) (759) (9,623) (3,220) (13,602) net sales $ 448,369 $ 51,614 $ 191,468 $ 691,451 $ 350,582 $ 46,424 $ 154,113 $ 551,119 net sales to third parties by segment exclude inter-segment long-lived assets attributed to geographic areas as of sales and cost of sales. For fiscal years 2014, 2013, and 2012, inter-segment sales and cost of sales for Fresh products totaling $33.7 million, $29.9 million and $22.2 million were eliminated. For fiscal years 2014, 2013, and 2012, inter-segment sales and cost of sales for Calavo Foods totaling $16.4 million, $14.3 million, and $11.6 million were eliminated. Sales to customers outside the united States were approximately $32.8 million, $37.2 million and $28.8 million for fiscal years 2014, 2013, and 2012. october 31, are as follows (in thousands): 2014 2013 unIteD St AteS MexICo ConSolIDA teD $ 36,052 $ 21,300 $ 57,352 $ 31,250 $ 21,399 $ 52,649 Calavo Growers, Inc. 2014 AnnuAl RepoR t 58 . 59 We intend to reinvest our accumulated foreign earnings, See note 3, “Restatement of previously-Issued Financial which approximated $13.2 million at october 31, 2014, indefinitely. As a result, we have not provided any deferred income taxes on such unremitted earnings. For fiscal years 2014, 2013 and 2012, income (loss) before income taxes related to domestic operations was approximately $(0.6) million, $(10.6) million, and $22.0 million. For fiscal years 2014, 2013 and 2012, income before income taxes related to foreign operations was approximately $3.6 million, $2.9 million and $3.8 million. As of october 31, 2014 and 2013, we did not have a liability for unrecognized tax benefits related to various federal and state income tax matters. the tax effected amount would reduce our effective income tax rate if recognized. the benefit for income taxes of $3.9 million is attributable to the revaluation adjustment of $88.1 million related to contingent consideration which was spread between fiscal year 2014 through fiscal year 2011. the revalued contingent consideration and non-cash compensation expense resulted in $53.6 million, $32.0 million, and $2.2 million additional GAAp expense recorded in fiscal years 2014, 2013, and 2012, respectively. the current year revaluation expense drove pre-tax book income into a loss position, thus causing a benefit for income taxes as this revaluation adjustment is capitalized and amortized as goodwill over the remaining useful life for income tax purposes resulting in a taxable income position for the current year. Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. 12. SegMent inFOrMA tiOn As discussed in note 1, 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, tortilla chips 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 meat 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): For fiscal years 2014, 2013 and 2012, inter-segment sales and cost of sales of $50.1 million, $44.2 million, and $33.8 million were eliminated in consolidation. the following table sets forth sales by product category, by segment (in thousands): YeAR enDeD oCtobeR 31, 2014 YeAR enDeD oCtobeR 31, 2013 FReSH pRoDuCtS CAlAVo FooDS RFG totAl FReSH pRoDuCtS CAlAVo FooDS RFG tot Al th IrD - Part y S aleS : Avocados tomatoes papayas pineapples other fresh products Food service Retail and club $ 433,581 $ — $ — $ 433,581 $ 407,678 $ — $ — $ 407,678 19,705 12,619 5,086 1,037 — — — — — — 48,085 — — — — — 19,705 22,623 12,619 13,077 5,086 1,037 48,085 5,739 601 — — — — — — 43,616 — — — — — 22,623 13,077 5,739 601 43,616 18,789 195,376 214,165 22,334 255,074 277,408 total gross sales 472,028 70,419 255,074 797,521 449,718 62,405 195,376 707,499 less sales incentives (1,079) (11,140) (2,792) (15,011) (1,349) (10,791) (3,908) (16,048) net sales $ 470,949 $ 59,279 $ 252,282 $ 782,510 $ 448,369 $ 51,614 $ 191,468 $ 691,451 YeAR enDeD oCtobeR 31, 2013 YeAR enDeD oCtobeR 31, 2012 FReSH pRoDuCtS CAlAVo FooDS RFG totAl FReSH pRoDuCtS CAlAVo FooDS RFG tot Al FReSH pRoDuCtS CAlAVo FooDS RFG totAl th IrD - Part y S aleS : (All amounts are presented in thousands) y ear enDeD o c toBer 31, 2014 net sales Cost of sales Gross margin y ear enDeD o c toBer 31, 2013 net sales Cost of sales(1) Gross margin y ear enDeD o c toBer 31, 2012 net sales Cost of sales(1) Gross margin $ 470,949 434,820 $ 36,129 $ 448,369 417,176 $ 31,193 $ 350,582 316,287 $ 34,295 $ 59,279 46,269 $ 13,010 $ 51,614 38,226 $ 13,388 $ 46,424 32,422 $ 14,002 $ 252,282 230,193 $ 22,089 $ 191,468 176,601 $ 14,867 $ 154,113 141,745 $ 12,368 $ 782,510 711,282 $ 71,228 $ 691,451 632,003 $ 59,448 $ 551,119 490,454 $ 60,665 (1) Cost of sales for RFG and the corresponding totals have been restated for the years ended october 31, 2013 and 2012. Avocados tomatoes papayas pineapples other fresh products Food service Retail and club $ 407,678 $ — $ — $ 407,678 $ 318,556 $ — $ — $ 318,556 22,623 13,077 5,739 601 — — — — — — 43,616 — — — — — 22,623 11,404 13,077 12,753 5,739 601 43,616 6,840 1,788 — — — — — — 36,289 — — — — — 11,404 12,753 6,840 1,788 36,289 19,758 157,333 177,091 18,789 195,376 214,165 total gross sales 449,718 62,405 195,376 707,499 351,341 56,047 157,333 564,721 less sales incentives (1,349) (10,791) (3,908) (16,048) (759) (9,623) (3,220) (13,602) net sales $ 448,369 $ 51,614 $ 191,468 $ 691,451 $ 350,582 $ 46,424 $ 154,113 $ 551,119 net sales to third parties by segment exclude inter-segment long-lived assets attributed to geographic areas as of sales and cost of sales. For fiscal years 2014, 2013, and 2012, inter-segment sales and cost of sales for Fresh products totaling $33.7 million, $29.9 million and $22.2 million were eliminated. For fiscal years 2014, 2013, and 2012, inter-segment sales and cost of sales for Calavo Foods totaling $16.4 million, $14.3 million, and $11.6 million were eliminated. Sales to customers outside the united States were approximately $32.8 million, $37.2 million and $28.8 million for fiscal years 2014, 2013, and 2012. october 31, are as follows (in thousands): 2014 2013 unIteD St AteS MexICo ConSolIDA teD $ 36,052 $ 21,300 $ 57,352 $ 31,250 $ 21,399 $ 52,649 Calavo Growers, Inc. 2014 AnnuAl RepoR t 58 . 59 13. lOng-terM OBligA tiOnS At october 31, 2014, annual current and long-term obligation A summary of stock option activity is as follows (in thousands, long-term obligations at fiscal year ends consist of the payments are scheduled as follows (in thousands): except for share amounts): totAl $ 5,099 2,241 109 89 92 260 $ 7,890 $ totAl 814 218 168 128 108 231 1,667 (129) following (in thousands): YeAR enDInG oCtobeR 31: 2014 2013 Farm Credit West, pCA, (FCW) term loan, bearing interest at 1.7% $ 2,504 $ 4,007 bank of America, n.A. (boA) term loan, bearing interest at 1.7% 2,548 4,077 FCW, term loan, bearing interest at 5.7% Capital leases less current portion 1,300 1,538 2,600 2,366 7,890 13,050 (5,099) (5,258) 2015 2016 2017 2018 2019 thereafter At october 31, 2014, capital lease payments are scheduled as follows (in thousands): $ 2,791 $ 7,792 YeAR enDInG oCtobeR 31: In conjunction with such acquisition, the Company and FCW entered into a term loan Agreement (term Agreement), effective May 31, 2011. under the terms of the term Agreement, we were advanced $15 million for the purchase of RFG. pursuant to this agreement, we are required to make 60 monthly principal and interest payments, from July 1, 2011 to June 1, 2016. there is no prepayment penalty associated with this term Agreement. this term Agreement also replaces in its entirety the original term loan Agreement dated June 1, 2005 by and between the Company and FCW. there was no significant change in terms between the original term loan Agreement and this new agreement. effective September 30, 2011, the Company and bank of America, n.A. (boA), entered into an agreement, Amendment no. 4 to loan Agreement (the Agreement), which amended our existing credit facility with boA. this agreement included a variable rate term loan in the amount of approximately $7.1 million. these proceeds were used to retire approximately 50% of the outstanding balance (as of September 30, 2011) of the term loan owed to FCW related to the purchase of RFG (see above). this effectively split the funding of the amounts due at closing for that acquisition between both banks. the credit facility and term loan contain various financial covenants, the most significant relating to tangible net Worth (as defined), Fixed Charge Coverage Ratio (as defined) and Current Ratio (as defined). In conjunction with the purchase of RFG, we assumed various capital leases related to machinery and equipment. these leases bear interest at a weighted average interest rate of approximately 4.0%. the total obligation acquired related to these capital leases were $4.0 million, with $1.1 million being classified as in the current portion. 2015 2016 2017 2018 2019 thereafter Minimum lease payments less interest present value of future minimum lease payments $ 1,538 14. StOCk-BASeD COMpenSA tiOn the 2005 Stock IncentIve Plan the 2005 Stock Incentive plan, was a stock-based compensation plan, under which employees and directors may be granted options to purchase shares of our common stock. In June 2012, this plan has been terminated without affecting the outstanding stock options related to this plan. Stock options were granted with exercise prices of not less than the fair market value at grant date, generally vested over one to five years and generally expired two to five years after the grant date. We settle stock option exercises with newly issued shares of common stock. We measured compensation cost for all stock-based awards pursuant to this plan at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest. We measured the fair value of our stock based compensation awards on the date of grant. 60 . 61 Calavo Growers, Inc. 2014 AnnuAl RepoR t outstanding at october 31, 2011 exercised outstanding at october 31, 2012 exercised outstanding at october 31, 2013 exercised outstanding at october 31, 2014 exercisable at october 31, 2014 nuMbeR oF SHAReS WeIGHteD- AVeRAGe exeRCISe pRICe AGGReGA te IntRInSIC VAlue 72 $ 13.75 (37) $ 13.54 35 $ 15.16 (8) $ 12.84 27 $ 15.79 (10) $ 13.25 17 $ 17.22 $ 856 15 $ 17.03 $ 758 the weighted average remaining life of such outstanding options is 3.6 years and the total intrinsic value of options exercised during fiscal 2014 was $0.3 million. the weighted average remaining life of such exercisable options is 3.3 years. the fair value of shares vested during the year ended october 31, 2014, 2013, and 2012 was approximately $0.8 million, $0.6 million, and $0.3 million. the 2011 management IncentIve Plan In April 2011, our shareholders approved the Calavo Growers, Inc. 2011 Management Incentive plan (the 2011 plan). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2011 plan. up to 1,500,000 shares of common stock may be issued by Calavo under the 2011 plan. In January 2013, our board of Directors approved the issuance of options to acquire a total of 10,000 shares of our common stock by one member of our board of Directors. Such grant vests in equal increments over a five-year period and has an exercise price of $23.48 per share. Vested options have a term of five years from the vesting date. the market price of our common stock at the grant date was $23.48. the estimated fair market value of such option grant was approximately $0.1 million. the total compensation cost not yet recognized as of october 31, 2014 was approximately $0.1 million, which will be recognized over the remaining service period of 60 months. In January 2012, all 12 of our non-employee directors were granted 1,000 restricted shares each (total of 12,000 shares). these shares have full voting rights and participate in dividends as if unrestricted. the closing price of our stock on such date was $27.68. this grant of restricted stock incurred $0.2 million in stock compensation expenses in fiscal 2012. As of January 2013, 11,000 shares vested, because such board members were still serving on the board at this time. the remaining 1,000 shares vested in May 2012 with the passing of one of our directors. In January 2013, all 12 of our non-employee directors were granted 1,000 restricted shares each (total of 12,000 shares). these shares have full voting rights and participate in dividends as if unrestricted. the closing price of our stock on such date was $24.71. this grant of restricted stock incurred $0.2 million in stock compensation expenses in fiscal 2013. As of January 2014, all shares have vested, because such board members were still serving on the board at this time. In January 2014, all 12 of our non-employee directors were granted 1,750 restricted shares each (total of 21,000 shares). these shares have full voting rights and participate in dividends as if unrestricted. the closing price of our stock on such date was $32.49. this grant of restricted stock incurred $0.6 million in stock compensation expenses in fiscal 2014. As of January 1, 2015, these shares will vest and be unrestricted. In January 2014, our executive officers were granted a total of 10,774 restricted shares. these shares have full voting rights and participate in dividends as if unrestricted. the closing price of our stock on such date was $30.50. these shares vest in one-third increments, on an annual basis, beginning January 1, 2015. this grant of restricted stock incurred $0.1 million in stock compensation expenses in fiscal 2014. A summary of stock option activity, related to our 2011 Management Incentive plan, is as follows (in thousands, except for per share amounts): nuMbeR oF SHAReS WeIGHteD- AVeRAGe exeRCISe pRICe AGGReGA te IntRInSIC VAlue outstanding at october 31, 2011 exercised outstanding at october 31, 2012 Granted exercised outstanding at october 31, 2013 outstanding at october 31, 2014 exercisable at october 31, 2014 65 $ 21.82 (15) $ 21.82 50 $ 21.82 10 $ 23.48 (40) $ 21.82 20 $ 22.64 20 $ 22.64 $ 525 8 $ 22.22 $ 213 the weighted average remaining life of such outstanding options is 5.6 years. the weighted average remaining life of such exercisable options is 4.1 years. the fair value of shares vested during the year ended october 31, 2014, was $0.2 million. 13. lOng-terM OBligA tiOnS At october 31, 2014, annual current and long-term obligation A summary of stock option activity is as follows (in thousands, long-term obligations at fiscal year ends consist of the payments are scheduled as follows (in thousands): except for share amounts): totAl $ 5,099 2,241 109 89 92 260 $ 7,890 $ totAl 814 218 168 128 108 231 1,667 (129) following (in thousands): YeAR enDInG oCtobeR 31: 2014 2013 Farm Credit West, pCA, (FCW) term loan, bearing interest at 1.7% $ 2,504 $ 4,007 bank of America, n.A. (boA) term loan, bearing interest at 1.7% 2,548 4,077 FCW, term loan, bearing interest at 5.7% Capital leases less current portion 1,300 1,538 2,600 2,366 7,890 13,050 (5,099) (5,258) 2015 2016 2017 2018 2019 thereafter At october 31, 2014, capital lease payments are scheduled as follows (in thousands): $ 2,791 $ 7,792 YeAR enDInG oCtobeR 31: In conjunction with such acquisition, the Company and FCW entered into a term loan Agreement (term Agreement), effective May 31, 2011. under the terms of the term Agreement, we were advanced $15 million for the purchase of RFG. pursuant to this agreement, we are required to make 60 monthly principal and interest payments, from July 1, 2011 to June 1, 2016. there is no prepayment penalty associated with this term Agreement. this term Agreement also replaces in its entirety the original term loan Agreement dated June 1, 2005 by and between the Company and FCW. there was no significant change in terms between the original term loan Agreement and this new agreement. effective September 30, 2011, the Company and bank of America, n.A. (boA), entered into an agreement, Amendment no. 4 to loan Agreement (the Agreement), which amended our existing credit facility with boA. this agreement included a variable rate term loan in the amount of approximately $7.1 million. these proceeds were used to retire approximately 50% of the outstanding balance (as of September 30, 2011) of the term loan owed to FCW related to the purchase of RFG (see above). this effectively split the funding of the amounts due at closing for that acquisition between both banks. the credit facility and term loan contain various financial covenants, the most significant relating to tangible net Worth (as defined), Fixed Charge Coverage Ratio (as defined) and Current Ratio (as defined). In conjunction with the purchase of RFG, we assumed various capital leases related to machinery and equipment. these leases bear interest at a weighted average interest rate of approximately 4.0%. the total obligation acquired related to these capital leases were $4.0 million, with $1.1 million being classified as in the current portion. 2015 2016 2017 2018 2019 thereafter Minimum lease payments less interest present value of future minimum lease payments $ 1,538 14. StOCk-BASeD COMpenSA tiOn the 2005 Stock IncentIve Plan the 2005 Stock Incentive plan, was a stock-based compensation plan, under which employees and directors may be granted options to purchase shares of our common stock. In June 2012, this plan has been terminated without affecting the outstanding stock options related to this plan. Stock options were granted with exercise prices of not less than the fair market value at grant date, generally vested over one to five years and generally expired two to five years after the grant date. We settle stock option exercises with newly issued shares of common stock. We measured compensation cost for all stock-based awards pursuant to this plan at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest. We measured the fair value of our stock based compensation awards on the date of grant. 60 . 61 Calavo Growers, Inc. 2014 AnnuAl RepoR t outstanding at october 31, 2011 exercised outstanding at october 31, 2012 exercised outstanding at october 31, 2013 exercised outstanding at october 31, 2014 exercisable at october 31, 2014 nuMbeR oF SHAReS WeIGHteD- AVeRAGe exeRCISe pRICe AGGReGA te IntRInSIC VAlue 72 $ 13.75 (37) $ 13.54 35 $ 15.16 (8) $ 12.84 27 $ 15.79 (10) $ 13.25 17 $ 17.22 $ 856 15 $ 17.03 $ 758 the weighted average remaining life of such outstanding options is 3.6 years and the total intrinsic value of options exercised during fiscal 2014 was $0.3 million. the weighted average remaining life of such exercisable options is 3.3 years. the fair value of shares vested during the year ended october 31, 2014, 2013, and 2012 was approximately $0.8 million, $0.6 million, and $0.3 million. the 2011 management IncentIve Plan In April 2011, our shareholders approved the Calavo Growers, Inc. 2011 Management Incentive plan (the 2011 plan). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2011 plan. up to 1,500,000 shares of common stock may be issued by Calavo under the 2011 plan. In January 2013, our board of Directors approved the issuance of options to acquire a total of 10,000 shares of our common stock by one member of our board of Directors. Such grant vests in equal increments over a five-year period and has an exercise price of $23.48 per share. Vested options have a term of five years from the vesting date. the market price of our common stock at the grant date was $23.48. the estimated fair market value of such option grant was approximately $0.1 million. the total compensation cost not yet recognized as of october 31, 2014 was approximately $0.1 million, which will be recognized over the remaining service period of 60 months. In January 2012, all 12 of our non-employee directors were granted 1,000 restricted shares each (total of 12,000 shares). these shares have full voting rights and participate in dividends as if unrestricted. the closing price of our stock on such date was $27.68. this grant of restricted stock incurred $0.2 million in stock compensation expenses in fiscal 2012. As of January 2013, 11,000 shares vested, because such board members were still serving on the board at this time. the remaining 1,000 shares vested in May 2012 with the passing of one of our directors. In January 2013, all 12 of our non-employee directors were granted 1,000 restricted shares each (total of 12,000 shares). these shares have full voting rights and participate in dividends as if unrestricted. the closing price of our stock on such date was $24.71. this grant of restricted stock incurred $0.2 million in stock compensation expenses in fiscal 2013. As of January 2014, all shares have vested, because such board members were still serving on the board at this time. In January 2014, all 12 of our non-employee directors were granted 1,750 restricted shares each (total of 21,000 shares). these shares have full voting rights and participate in dividends as if unrestricted. the closing price of our stock on such date was $32.49. this grant of restricted stock incurred $0.6 million in stock compensation expenses in fiscal 2014. As of January 1, 2015, these shares will vest and be unrestricted. In January 2014, our executive officers were granted a total of 10,774 restricted shares. these shares have full voting rights and participate in dividends as if unrestricted. the closing price of our stock on such date was $30.50. these shares vest in one-third increments, on an annual basis, beginning January 1, 2015. this grant of restricted stock incurred $0.1 million in stock compensation expenses in fiscal 2014. A summary of stock option activity, related to our 2011 Management Incentive plan, is as follows (in thousands, except for per share amounts): nuMbeR oF SHAReS WeIGHteD- AVeRAGe exeRCISe pRICe AGGReGA te IntRInSIC VAlue outstanding at october 31, 2011 exercised outstanding at october 31, 2012 Granted exercised outstanding at october 31, 2013 outstanding at october 31, 2014 exercisable at october 31, 2014 65 $ 21.82 (15) $ 21.82 50 $ 21.82 10 $ 23.48 (40) $ 21.82 20 $ 22.64 20 $ 22.64 $ 525 8 $ 22.22 $ 213 the weighted average remaining life of such outstanding options is 5.6 years. the weighted average remaining life of such exercisable options is 4.1 years. the fair value of shares vested during the year ended october 31, 2014, was $0.2 million. 15. DiviDenDS on December 8, 2014, we paid a $0.75 per share dividend in the aggregate amount of $13.0 million to shareholders of record on november 17, 2014. on December 12, 2013, we paid a $0.70 per share dividend in the aggregate amount of $11.0 million to shareholders of record on november 29, 2013. 16. FAir vAlue MeASureMentS A fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (level 3). the following table sets forth our financial assets and liabilities as of october 31, 2014 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy: aSSetS at fa Ir valU e : (All amounts are presented in thousands) Investment in limoneira Company(1) total assets at fair value leVel 1 leVel 2 leVel 3 totAl $ 44,355 $ 44,355 — — $ — — $ $ 44,355 $ 44,355 (1) the investment in limoneira Company consists of marketable securities in the limoneira Company stock. We currently own approximately 12% of limoneira’s outstanding common stock. these securities are measured at fair value by quoted market prices. limoneira’s stock price at october 31, 2014 and october 31, 2013 equaled $25.66 per share and $26.34 per share. unrealized gains and losses are recognized through other comprehensive income. unrealized investment holding losses arising during the year ended october 31, 2014 was $1.2 million. unrealized investment holding gains arising during the year ended october 31, 2013, and 2012 was $6.7 million, and $8.9 million. the following table sets forth our financial assets as of october 31, 2014 that are measured on a non-recurring basis during the period, segregated by level within the fair value hierarchy: aSSetS at fa Ir valU e : (All amounts are presented in thousands) Investment in FreshRealm(3) total assets at fair value leVel 1 leVel 2 leVel 3 totAl $ $ — — $ $ — — $ 16,962 $ 16,962 $ 16,962 $ 16,962 (3) See note 18 for additional information on the deconsolidation of FreshRealm. We estimated the fair value of our noncontrolling interest in FreshRealm by performing a forecast projection analysis. this analysis was conducted with the consultation from a third party consulting firm. Increases or decreases in the fair value calculation can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates. Significant judgment is employed in determining the appropriateness of these assumptions. We recorded a gain on the deconsolidation of FreshRealm of $12.6 million, which has been recorded on the face of the income statement. our investment in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. the following is a reconciliation of the beginning and ending amounts of the contingent consideration for RFG: (All amounts are presented in thousands) RFG contingent consideration (Restated)(1) $ 15,602 — $ 53,611 $ (69,213) — bAlAnCe A t 10/31/13 InteReSt ReVAlue ADJuStMent SettleD bAlAnCe A t 10/31/14 (All amounts are presented in thousands) RFG contingent consideration (Restated) (1) $ 10,667 $ 97 $ 33,811 $ (28,973) $ 15,602 bAlAnCe A t 10/31/12 InteReSt ReVAlue ADJuStMent SettleD bAlAnCe A t 10/31/13 (1) We have amended our acquisition agreement with RFG in regards to the cash payment portion of the Stage 2 & 3 earnouts. See note 17. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. 17. AMenDMentS tO rFg ACQuiSitiOn AgreeMent amenDment no. 1 to rfg acQUISItIon agreement Calavo, RFG and liberty Fresh Foods, llC, Kenneth Catchot, Cut Fruit, llC, James Catchot, James Gibson, Jose o. Castillo, Donald l. Johnson and RFG nominee trust (collectively, the “Sellers”) entered into Amendment no. 1 of the Agreement and plan of Merger dated July 31, 2013 (the “First Amendment”). Calavo, RFG and the Sellers are parties to an Agreement and plan of Merger dated as of May 25, 2011 (the “Merger Agreement”) pursuant to which, among other things, Calavo acquired RFG from the Sellers and Calavo agreed to make earn-out payments to the Sellers upon the satisfaction of certain performance requirements specified in the Merger Agreement. the Merger Agreement states that, upon the attainment of the Stage 2 Maximum earn-out trigger prior to the end of the earn-out period, Calavo shall be obligated to pay the Stage 2 Maximum earn-out Consideration to the Sellers. the Merger Agreement states that the Stage 2 Maximum earn-out Consideration shall be $5,000,000 in cash and 827,000 shares of Calavo common stock. the Merger Agreement states that the Stage 2 Maximum earn-out trigger shall be met if, for any 12-month period during the earn-out period, (1) the ebItDA for RFG is equal to or greater than $8,000,000 and (2) the Revenue for RFG is equal to or greater than $130,000,000. Calavo, RFG and the Sellers have amended the Merger Agreement by the First Amendment to provide, among other things, that: (1) Calavo shall deliver $5,000,000 of Common Stock to the Sellers, as part of the Stage 2 Maximum earn-out Consideration instead of delivering $5,000,000 of cash to the Sellers; (2) the Sellers shall receive specified price protection from Calavo with respect to the sale of such Common Stock; and (3) Calavo shall file with the Securities and exchange Commission (the “SeC”) a Registration Statement on Form S-3 (the “Registration Statement”) which shall cover the public resale of such Common Stock by the Sellers during the period specified in the First Amendment. price protection, as defined, is broken into two parts: (1) additional shares of our common stock (“price protection Shares” or “ppS”) and (2) a potential cash payment. During the thirty-day period starting on the later of the date that the Additional Shares are issued to the Sellers or the date that the Registration Statement is declared effective by the SeC (the “Initial price protection period”), the Sellers shall have price protection for any Additional Shares sold by the Sellers on the nasdaq Stock Market. We shall be obligated to issue additional shares of ppS to the Sellers only if the Sellers sell any Additional Shares on the nasdaq Stock Market during the Initial price protection period for a price that is less than the Valuation price. the dollar value of the price protection Shares required to be issued by Calavo shall equal the difference between (1) the aggregate sales price of all Additional Shares sold by the Sellers on the nasdaq Stock Market during the Initial price protection period for sales prices that were less than the Valuation price and (2) the aggregate sales price that the trust would have received for such Additional Shares if they had been sold for the Valuation price. the amount calculated pursuant to the immediately preceding sentence is referred to in the First Amendment as the “Shortfall”, and the closing price of our stock on the nasdaq Stock Market that is used to determine the number of price protection shares that we must issue is referred to as the “Initial price protection Valuation.” If, during the thirty-day period immediately following its receipt of the ppS, the Sellers sell any of the ppS on the nasdaq Stock Market for a sales price that is less than the Initial price protection Valuation, Calavo shall be obligated to deliver to the Sellers a cash payment equal to the difference between (a) the aggregate sales price of all price protection Shares sold by the Sellers on the nasdaq Stock Market during such thirty-day period for sales prices that were less than the Initial price protection Valuation and (b) the aggregate sales price that the Sellers would have received for such price protection Shares if they had been sold for the Initial price protection Valuation. Such cash payment shall be made by Calavo within twenty days after Calavo and the Sellers have agreed upon the amount of such shortfall. As a result of this transaction, we evaluated the fair market value of the cash derivative per the Merger Agreement with the equity derivative per this First Amendment, noting no significant difference. Further, we also believe the estimated fair market value of the cash derivative per this First Amendment is not material. Additionally, we have reclassified the RFG contingent consideration liability of $4.2 million from accrued expenses to additional paid in capital as of July 31, 2013. During our fourth fiscal quarter, RFG attained the Stage 2 Maximum earn-out trigger. As such, and pursuant to this amendment, we filed the Registration Statement and issued 172,117 shares of common stock, valued at $29.05, to the Sellers in october 2013. From october 2013 to november 2013, the Sellers sold all 172,117 shares for $5.0 million. amenDment no. 2 to rfg acQUISItIon agreement Calavo, RFG and liberty Fresh Foods, llC, Kenneth Catchot, Cut Fruit, llC, James Catchot, James Gibson, Jose o. Castillo, Donald l. Johnson and RFG nominee trust (collectively, the “Sellers”) entered into Amendment no. 2 of the Agreement and plan of Merger dated october 1, 2013 (the “Second Amendment”). Calavo, RFG and the Sellers are parties to an Agreement and plan of Merger dated as of May 25, 2011, as amended by Amendment no. 1 thereto, dated July 28, 2013 (as so amended the “Merger Agreement”), pursuant to which, among other things, Calavo acquired RFG from the Sellers and Calavo agreed to make earn-out payments to the Sellers upon the satisfaction of certain performance requirements specified in the Merger Agreement. Calavo Growers, Inc. 2014 AnnuAl RepoR t 62 . 63 15. DiviDenDS on December 8, 2014, we paid a $0.75 per share dividend in the aggregate amount of $13.0 million to shareholders of record on november 17, 2014. on December 12, 2013, we paid a $0.70 per share dividend in the aggregate amount of $11.0 million to shareholders of record on november 29, 2013. 16. FAir vAlue MeASureMentS A fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (level 3). the following table sets forth our financial assets and liabilities as of october 31, 2014 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy: aSSetS at fa Ir valU e : (All amounts are presented in thousands) Investment in limoneira Company(1) total assets at fair value leVel 1 leVel 2 leVel 3 totAl $ 44,355 $ 44,355 — — $ — — $ $ 44,355 $ 44,355 (1) the investment in limoneira Company consists of marketable securities in the limoneira Company stock. We currently own approximately 12% of limoneira’s outstanding common stock. these securities are measured at fair value by quoted market prices. limoneira’s stock price at october 31, 2014 and october 31, 2013 equaled $25.66 per share and $26.34 per share. unrealized gains and losses are recognized through other comprehensive income. unrealized investment holding losses arising during the year ended october 31, 2014 was $1.2 million. unrealized investment holding gains arising during the year ended october 31, 2013, and 2012 was $6.7 million, and $8.9 million. the following table sets forth our financial assets as of october 31, 2014 that are measured on a non-recurring basis during the period, segregated by level within the fair value hierarchy: aSSetS at fa Ir valU e : (All amounts are presented in thousands) Investment in FreshRealm(3) total assets at fair value leVel 1 leVel 2 leVel 3 totAl $ $ — — $ $ — — $ 16,962 $ 16,962 $ 16,962 $ 16,962 (3) See note 18 for additional information on the deconsolidation of FreshRealm. We estimated the fair value of our noncontrolling interest in FreshRealm by performing a forecast projection analysis. this analysis was conducted with the consultation from a third party consulting firm. Increases or decreases in the fair value calculation can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates. Significant judgment is employed in determining the appropriateness of these assumptions. We recorded a gain on the deconsolidation of FreshRealm of $12.6 million, which has been recorded on the face of the income statement. our investment in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. the following is a reconciliation of the beginning and ending amounts of the contingent consideration for RFG: (All amounts are presented in thousands) RFG contingent consideration (Restated)(1) $ 15,602 — $ 53,611 $ (69,213) — bAlAnCe A t 10/31/13 InteReSt ReVAlue ADJuStMent SettleD bAlAnCe A t 10/31/14 (All amounts are presented in thousands) RFG contingent consideration (Restated) (1) $ 10,667 $ 97 $ 33,811 $ (28,973) $ 15,602 bAlAnCe A t 10/31/12 InteReSt ReVAlue ADJuStMent SettleD bAlAnCe A t 10/31/13 (1) We have amended our acquisition agreement with RFG in regards to the cash payment portion of the Stage 2 & 3 earnouts. See note 17. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. 17. AMenDMentS tO rFg ACQuiSitiOn AgreeMent amenDment no. 1 to rfg acQUISItIon agreement Calavo, RFG and liberty Fresh Foods, llC, Kenneth Catchot, Cut Fruit, llC, James Catchot, James Gibson, Jose o. Castillo, Donald l. Johnson and RFG nominee trust (collectively, the “Sellers”) entered into Amendment no. 1 of the Agreement and plan of Merger dated July 31, 2013 (the “First Amendment”). Calavo, RFG and the Sellers are parties to an Agreement and plan of Merger dated as of May 25, 2011 (the “Merger Agreement”) pursuant to which, among other things, Calavo acquired RFG from the Sellers and Calavo agreed to make earn-out payments to the Sellers upon the satisfaction of certain performance requirements specified in the Merger Agreement. the Merger Agreement states that, upon the attainment of the Stage 2 Maximum earn-out trigger prior to the end of the earn-out period, Calavo shall be obligated to pay the Stage 2 Maximum earn-out Consideration to the Sellers. the Merger Agreement states that the Stage 2 Maximum earn-out Consideration shall be $5,000,000 in cash and 827,000 shares of Calavo common stock. the Merger Agreement states that the Stage 2 Maximum earn-out trigger shall be met if, for any 12-month period during the earn-out period, (1) the ebItDA for RFG is equal to or greater than $8,000,000 and (2) the Revenue for RFG is equal to or greater than $130,000,000. Calavo, RFG and the Sellers have amended the Merger Agreement by the First Amendment to provide, among other things, that: (1) Calavo shall deliver $5,000,000 of Common Stock to the Sellers, as part of the Stage 2 Maximum earn-out Consideration instead of delivering $5,000,000 of cash to the Sellers; (2) the Sellers shall receive specified price protection from Calavo with respect to the sale of such Common Stock; and (3) Calavo shall file with the Securities and exchange Commission (the “SeC”) a Registration Statement on Form S-3 (the “Registration Statement”) which shall cover the public resale of such Common Stock by the Sellers during the period specified in the First Amendment. price protection, as defined, is broken into two parts: (1) additional shares of our common stock (“price protection Shares” or “ppS”) and (2) a potential cash payment. During the thirty-day period starting on the later of the date that the Additional Shares are issued to the Sellers or the date that the Registration Statement is declared effective by the SeC (the “Initial price protection period”), the Sellers shall have price protection for any Additional Shares sold by the Sellers on the nasdaq Stock Market. We shall be obligated to issue additional shares of ppS to the Sellers only if the Sellers sell any Additional Shares on the nasdaq Stock Market during the Initial price protection period for a price that is less than the Valuation price. the dollar value of the price protection Shares required to be issued by Calavo shall equal the difference between (1) the aggregate sales price of all Additional Shares sold by the Sellers on the nasdaq Stock Market during the Initial price protection period for sales prices that were less than the Valuation price and (2) the aggregate sales price that the trust would have received for such Additional Shares if they had been sold for the Valuation price. the amount calculated pursuant to the immediately preceding sentence is referred to in the First Amendment as the “Shortfall”, and the closing price of our stock on the nasdaq Stock Market that is used to determine the number of price protection shares that we must issue is referred to as the “Initial price protection Valuation.” If, during the thirty-day period immediately following its receipt of the ppS, the Sellers sell any of the ppS on the nasdaq Stock Market for a sales price that is less than the Initial price protection Valuation, Calavo shall be obligated to deliver to the Sellers a cash payment equal to the difference between (a) the aggregate sales price of all price protection Shares sold by the Sellers on the nasdaq Stock Market during such thirty-day period for sales prices that were less than the Initial price protection Valuation and (b) the aggregate sales price that the Sellers would have received for such price protection Shares if they had been sold for the Initial price protection Valuation. Such cash payment shall be made by Calavo within twenty days after Calavo and the Sellers have agreed upon the amount of such shortfall. As a result of this transaction, we evaluated the fair market value of the cash derivative per the Merger Agreement with the equity derivative per this First Amendment, noting no significant difference. Further, we also believe the estimated fair market value of the cash derivative per this First Amendment is not material. Additionally, we have reclassified the RFG contingent consideration liability of $4.2 million from accrued expenses to additional paid in capital as of July 31, 2013. During our fourth fiscal quarter, RFG attained the Stage 2 Maximum earn-out trigger. As such, and pursuant to this amendment, we filed the Registration Statement and issued 172,117 shares of common stock, valued at $29.05, to the Sellers in october 2013. From october 2013 to november 2013, the Sellers sold all 172,117 shares for $5.0 million. amenDment no. 2 to rfg acQUISItIon agreement Calavo, RFG and liberty Fresh Foods, llC, Kenneth Catchot, Cut Fruit, llC, James Catchot, James Gibson, Jose o. Castillo, Donald l. Johnson and RFG nominee trust (collectively, the “Sellers”) entered into Amendment no. 2 of the Agreement and plan of Merger dated october 1, 2013 (the “Second Amendment”). Calavo, RFG and the Sellers are parties to an Agreement and plan of Merger dated as of May 25, 2011, as amended by Amendment no. 1 thereto, dated July 28, 2013 (as so amended the “Merger Agreement”), pursuant to which, among other things, Calavo acquired RFG from the Sellers and Calavo agreed to make earn-out payments to the Sellers upon the satisfaction of certain performance requirements specified in the Merger Agreement. Calavo Growers, Inc. 2014 AnnuAl RepoR t 62 . 63 the Merger Agreement provides that, upon the attainment of the Stage 3 Maximum earn-out trigger or the Stage 3 Scale earn-out trigger, as applicable, Calavo shall be obligated to make a Stage 3 earn-out payment to the Sellers consisting of either the Stage 3 Maximum earn-out Consideration or the Stage 3 Scale earn-out Consideration, each of which shall consist of a specified amount of cash and a specified number of Merger Shares. pursuant to the Second Amendment, Calavo, RFG and the Sellers amended the Merger Agreement to provide, among other things, that: (1) with respect to the portion of the Stage 3 Maximum earn-out Consideration or the Stage 3 Scale earn-out Consideration, as applicable, that is currently required by the Merger Agreement to be paid in cash to the Sellers, Calavo shall have the right to elect to pay all or a portion of such cash amount by delivery of additional Merger Shares to the RFG nominee trust (the “trust”), for the benefit of the Sellers; (2) the Sellers shall receive specified price protection from Calavo with respect to the trust’s sale of shares of Common Stock on the nasdaq Stock Market, up to the total number of shares of Common Stock issued to the trust pursuant to this Second Amendment; and (3) Calavo shall file with the SeC a Registration Statement on Form S-3 covering the trust’s resale on the nasdaq Stock Market of any additional Merger Shares issued pursuant to the Second Amendment for sales that occur during the period specified in this Second Amendment. Any additional Merger Shares issued by Calavo in lieu of cash payments to the Sellers will be valued for this purpose at the closing price of Calavo Common Stock as reported on the nasdaq Stock Market at the time of issuance. price protection, as defined, is broken into two parts: (1) additional shares of our common stock (“price protection Shares” or “ppS”) and (2) a potential cash payment. During the 120-day period starting on the later of the date that the Additional Shares are issued to the Sellers or the date that the Registration Statement is declared effective by the SeC (the “Initial price protection period”), the Sellers shall have price protection for any Additional Shares sold by the Sellers on the nasdaq Stock Market. We shall be obligated to issue additional shares of ppS to the Sellers only if the Sellers sell any Additional Shares on the nasdaq Stock Market during the Initial price protection period for a price that is less than the Valuation price. the dollar value of the price protection Shares required to be issued by Calavo shall equal the difference between (1) the aggregate sales price of all Additional Shares sold by the Sellers on the nasdaq Stock Market during the Initial price protection period for sales prices that were less than the Valuation price and (2) the aggregate sales price that the trust would have received for such Additional Shares if they had been sold for the Valuation price. the amount calculated pursuant to the immediately preceding sentence is referred to in the Second Amendment as the “Shortfall”, and the closing price of our stock on the nasdaq Stock Market that is used to determine the number of price protection shares that we must issue is referred to as the “Initial price protection Valuation.” If, during the 120-day period immediately following its receipt of the ppS, the Sellers sell any of the ppS on the nasdaq Stock Market for a sales price that is less than the Initial price protection Valuation (First-Stage price protection Shortfall), Calavo shall be obligated to deliver to the Sellers additional shares “Second-Stage price protection Shares” equal to the difference between (a) the aggregate sales price of all price protection Shares sold by the Sellers on the nasdaq Stock Market during such 120-day period for sales prices that were less than the Initial price protection Valuation and (b) the aggregate sales price that the Sellers would have received for such price protection Shares if they had been sold for the Initial price protection Valuation. If additional shortfalls continue to occur (Second-Stage price protection Shortfall) a cash payment shall be made by Calavo within twenty days after Calavo and the Sellers have agreed upon the amount of such shortfall. on october 23, 2014, based on the results of operations to date, the Stage 3 Maximum earn-out trigger was met and we issued 434,783 shares of unregistered Calavo common stock to the Sellers. Additionally, on october 23, 2014, we issued 1,097,213 shares of unregistered Calavo common stock, with a value on the date of issuance totaling $50 million, to a trust for the benefit of the Sellers. Shortly after, we filed a Form S-3 registration statement, registering the resale of these 1,097,213 shares. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. 18. DeCOnSOliDA tiOn OF FreShreAlM, llC As a result of the deconsolidation, we were required to record on May 2, 2014, we closed our Second Amended and Restated limited liability Company Agreement (Agreement) by and among FreshRealm and the ownership members of FreshRealm. the effective date of this agreement was April 30, 2014. pursuant to this agreement, Impermanence, llC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million to FreshRealm for 28.6% ownership. We agreed to dilute our ownership percentage in FreshRealm, as an injection of significant working capital would reduce the immediate need of Calavo to provide operating funds to FreshRealm and would also serve to preserve the value of our investment. As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.1% to 50.8% and $4.6 million was attributed to noncontrolling interest. Additionally, effective April 1, 2014, the first $10.0 million of losses will be allocated primarily to Impermanence. even though Calavo controlled greater than 50% of the outstanding units of FreshRealm as of May 2, 2014, the minority/ non-Calavo unit-holders held substantive participating rights. these rights existed primarily in two forms: (1) two out of a total of four board of director seats and (2) a provision in the Agreement that states that for situations for which the approval of the Members, as defined, (rather than the approval of the board of directors on behalf of the Members) is required by the Agreement, the Members shall act by Super-Majority Vote. Super-Majority Vote is defined in the Agreement as the affirmative vote of the holders of at least seventy percent of the outstanding units that are held by the Members. As such, Calavo cannot control FreshRealm through its two board of director seats, nor its 50.8% ownership. based on the foregoing, we deconsolidated FreshRealm as of May 2, 2014. a gain related to this transaction. pursuant to ASC 810-10-40-5, we calculated our gain on deconsolidation by considering: a) the aggregate of (1) the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated and (2) the carrying amount of any noncontrolling interest in the former subsidiary; less b) the carrying amount of the former subsidiary’s assets and liabilities. See following table: (AS oF MAY 2, 2014, In tHouSAnDS) Fair value of retained noncontrolling investment $ 16,962 Carrying amount of noncontrolling interest $ 4,031 Carrying amount of FreshRealm’s assets and liabilities $ (8,371) Gain on deconsolidation of FreshRealm $ 12,622 We estimated the fair value of our noncontrolling interest in FreshRealm by performing a forecast projection analysis. this analysis was conducted with the consultation from a third party consulting firm. See note 16 to the financial statements for additional information regarding the fair value calculation and assumptions used. based on the above, we recorded a gain on the deconsolidation of FreshRealm of $12.6 million, which has been recorded on the face of the income statement. our investment in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. As of July 31, 2014, FreshRealm issued additional units to various 3rd parties, which reduced our ownership percentage to exactly 50%. 64 . 65 Calavo Growers, Inc. 2014 AnnuAl RepoR t the Merger Agreement provides that, upon the attainment of the Stage 3 Maximum earn-out trigger or the Stage 3 Scale earn-out trigger, as applicable, Calavo shall be obligated to make a Stage 3 earn-out payment to the Sellers consisting of either the Stage 3 Maximum earn-out Consideration or the Stage 3 Scale earn-out Consideration, each of which shall consist of a specified amount of cash and a specified number of Merger Shares. pursuant to the Second Amendment, Calavo, RFG and the Sellers amended the Merger Agreement to provide, among other things, that: (1) with respect to the portion of the Stage 3 Maximum earn-out Consideration or the Stage 3 Scale earn-out Consideration, as applicable, that is currently required by the Merger Agreement to be paid in cash to the Sellers, Calavo shall have the right to elect to pay all or a portion of such cash amount by delivery of additional Merger Shares to the RFG nominee trust (the “trust”), for the benefit of the Sellers; (2) the Sellers shall receive specified price protection from Calavo with respect to the trust’s sale of shares of Common Stock on the nasdaq Stock Market, up to the total number of shares of Common Stock issued to the trust pursuant to this Second Amendment; and (3) Calavo shall file with the SeC a Registration Statement on Form S-3 covering the trust’s resale on the nasdaq Stock Market of any additional Merger Shares issued pursuant to the Second Amendment for sales that occur during the period specified in this Second Amendment. Any additional Merger Shares issued by Calavo in lieu of cash payments to the Sellers will be valued for this purpose at the closing price of Calavo Common Stock as reported on the nasdaq Stock Market at the time of issuance. price protection, as defined, is broken into two parts: (1) additional shares of our common stock (“price protection Shares” or “ppS”) and (2) a potential cash payment. During the 120-day period starting on the later of the date that the Additional Shares are issued to the Sellers or the date that the Registration Statement is declared effective by the SeC (the “Initial price protection period”), the Sellers shall have price protection for any Additional Shares sold by the Sellers on the nasdaq Stock Market. We shall be obligated to issue additional shares of ppS to the Sellers only if the Sellers sell any Additional Shares on the nasdaq Stock Market during the Initial price protection period for a price that is less than the Valuation price. the dollar value of the price protection Shares required to be issued by Calavo shall equal the difference between (1) the aggregate sales price of all Additional Shares sold by the Sellers on the nasdaq Stock Market during the Initial price protection period for sales prices that were less than the Valuation price and (2) the aggregate sales price that the trust would have received for such Additional Shares if they had been sold for the Valuation price. the amount calculated pursuant to the immediately preceding sentence is referred to in the Second Amendment as the “Shortfall”, and the closing price of our stock on the nasdaq Stock Market that is used to determine the number of price protection shares that we must issue is referred to as the “Initial price protection Valuation.” If, during the 120-day period immediately following its receipt of the ppS, the Sellers sell any of the ppS on the nasdaq Stock Market for a sales price that is less than the Initial price protection Valuation (First-Stage price protection Shortfall), Calavo shall be obligated to deliver to the Sellers additional shares “Second-Stage price protection Shares” equal to the difference between (a) the aggregate sales price of all price protection Shares sold by the Sellers on the nasdaq Stock Market during such 120-day period for sales prices that were less than the Initial price protection Valuation and (b) the aggregate sales price that the Sellers would have received for such price protection Shares if they had been sold for the Initial price protection Valuation. If additional shortfalls continue to occur (Second-Stage price protection Shortfall) a cash payment shall be made by Calavo within twenty days after Calavo and the Sellers have agreed upon the amount of such shortfall. on october 23, 2014, based on the results of operations to date, the Stage 3 Maximum earn-out trigger was met and we issued 434,783 shares of unregistered Calavo common stock to the Sellers. Additionally, on october 23, 2014, we issued 1,097,213 shares of unregistered Calavo common stock, with a value on the date of issuance totaling $50 million, to a trust for the benefit of the Sellers. Shortly after, we filed a Form S-3 registration statement, registering the resale of these 1,097,213 shares. See note 3, “Restatement of previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements. 18. DeCOnSOliDA tiOn OF FreShreAlM, llC As a result of the deconsolidation, we were required to record on May 2, 2014, we closed our Second Amended and Restated limited liability Company Agreement (Agreement) by and among FreshRealm and the ownership members of FreshRealm. the effective date of this agreement was April 30, 2014. pursuant to this agreement, Impermanence, llC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million to FreshRealm for 28.6% ownership. We agreed to dilute our ownership percentage in FreshRealm, as an injection of significant working capital would reduce the immediate need of Calavo to provide operating funds to FreshRealm and would also serve to preserve the value of our investment. As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.1% to 50.8% and $4.6 million was attributed to noncontrolling interest. Additionally, effective April 1, 2014, the first $10.0 million of losses will be allocated primarily to Impermanence. even though Calavo controlled greater than 50% of the outstanding units of FreshRealm as of May 2, 2014, the minority/ non-Calavo unit-holders held substantive participating rights. these rights existed primarily in two forms: (1) two out of a total of four board of director seats and (2) a provision in the Agreement that states that for situations for which the approval of the Members, as defined, (rather than the approval of the board of directors on behalf of the Members) is required by the Agreement, the Members shall act by Super-Majority Vote. Super-Majority Vote is defined in the Agreement as the affirmative vote of the holders of at least seventy percent of the outstanding units that are held by the Members. As such, Calavo cannot control FreshRealm through its two board of director seats, nor its 50.8% ownership. based on the foregoing, we deconsolidated FreshRealm as of May 2, 2014. a gain related to this transaction. pursuant to ASC 810-10-40-5, we calculated our gain on deconsolidation by considering: a) the aggregate of (1) the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated and (2) the carrying amount of any noncontrolling interest in the former subsidiary; less b) the carrying amount of the former subsidiary’s assets and liabilities. See following table: (AS oF MAY 2, 2014, In tHouSAnDS) Fair value of retained noncontrolling investment $ 16,962 Carrying amount of noncontrolling interest $ 4,031 Carrying amount of FreshRealm’s assets and liabilities $ (8,371) Gain on deconsolidation of FreshRealm $ 12,622 We estimated the fair value of our noncontrolling interest in FreshRealm by performing a forecast projection analysis. this analysis was conducted with the consultation from a third party consulting firm. See note 16 to the financial statements for additional information regarding the fair value calculation and assumptions used. based on the above, we recorded a gain on the deconsolidation of FreshRealm of $12.6 million, which has been recorded on the face of the income statement. our investment in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. As of July 31, 2014, FreshRealm issued additional units to various 3rd parties, which reduced our ownership percentage to exactly 50%. 64 . 65 Calavo Growers, Inc. 2014 AnnuAl RepoR t 19. SeleCteD QuArterly FinAnCiAl DA tA (unAuDiteD) the following operating results for each of the eight fiscal quarters in the period ended october 31, 2014 (except for the current quarter ending october 31, 2014) has been restated to reflect adjustments to our previously issued financial statements as more fully discussed in note 3, “Restatement of previously-Issued Financial Statements”. the Company has also identified certain immaterial adjustments primarily relating to non-controlling interest, diluted number of shares outstanding, and income tax expense related to fiscal years ended october 31, 2014, october 31, 2013, which are reflected in the restated consolidated financial statements for the Relevant periods. the following tables summarize the impact of the restatement on our previously reported interim consolidated statements of operations (in thousands, except per share data): net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income (loss) Interest expense other income, net Income (loss) before provision for income taxes provision (benefit) for income taxes net income (loss) Add: net loss attributable to noncontrolling interest net income (loss) attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income (loss) per share: basic Diluted number of shares used in per share computation: basic Diluted tHRee MontHS enDeD JAnuARY 31, 2014 tHRee MontHS enDeD JAnuARY 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 168,165 $ 154,475 13,690 8,272 — 5,418 (256) 135 5,297 1,822 3,475 — 49 (49) 20 9,218 (9,287) — — (9,287) (3,898) (5,389) $ 168,165 $ 139,499 $ 154,524 126,375 13,641 8,292 9,218 (3,869) (256) 135 (3,990) (2,076) (1,914) 13,124 7,576 1,245 4,303 (252) 138 4,189 1,508 2,681 — 1 (1) — $ 139,499 126,376 13,123 7,576 8,152 (8,153) — — (8,153) (4,020) (4,133) 9,397 (3,850) (252) 138 (3,964) (2,512) (1,452) 500 (352) 148 26 16 42 $ 3,975 $ (5,741) $ (1,766) $ 2,707 $ (4,117) $ (1,410) $ $ 0.25 0.25 $ $ (0.36) (0.36) $ $ (0.11) (0.11) $ $ 0.18 0.18 $ $ (0.28) (0.28) $ $ (0.10) (0.10) 15,726 15,736 — (10) 15,726 15,726 14,834 14,854 — (20) 14,834 14,834 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income Add: net loss attributable to noncontrolling interest net income attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income per share: basic Diluted number of shares used in per share computation: basic Diluted tHRee MontHS enDeD ApRIl 30, 2014 tHRee MontHS enDeD ApRIl 30, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 194,894 $ 175,917 18,977 9,111 — 9,866 (292) 270 9,844 3,432 6,412 — 85 (85) 34 7,036 (7,155) — — (7,155) (1,999) (5,156) $ 194,894 $ 166,336 $ 176,002 154,800 18,892 9,145 11,536 7,991 — 61 (61) 24 $ 166,336 154,861 11,475 8,015 7,036 2,711 (292) 270 2,689 1,433 1,256 199 3,346 (317) 235 3,264 1,071 2,193 1,926 (2,011) — — (2,011) (292) (1,719) 2,125 1,335 (317) 235 1,253 779 474 35 298 — 298 20 15 $ 6,710 $ (5,156) $ 1,554 $ 2,213 $ (1,704) $ 509 $ $ 0.43 0.43 $ $ (0.33) (0.34) $ $ 0.10 0.09 $ $ 0.15 0.15 $ $ (0.12) (0.12) $ $ 0.03 0.03 15,755 15,764 — 1,412 15,755 17,176 14,819 14,839 — 756 14,819 15,595 Calavo Growers, Inc. 2014 AnnuAl RepoR t 66 . 67 19. SeleCteD QuArterly FinAnCiAl DA tA (unAuDiteD) the following operating results for each of the eight fiscal quarters in the period ended october 31, 2014 (except for the current quarter ending october 31, 2014) has been restated to reflect adjustments to our previously issued financial statements as more fully discussed in note 3, “Restatement of previously-Issued Financial Statements”. the Company has also identified certain immaterial adjustments primarily relating to non-controlling interest, diluted number of shares outstanding, and income tax expense related to fiscal years ended october 31, 2014, october 31, 2013, which are reflected in the restated consolidated financial statements for the Relevant periods. the following tables summarize the impact of the restatement on our previously reported interim consolidated statements of operations (in thousands, except per share data): net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income (loss) Interest expense other income, net Income (loss) before provision for income taxes provision (benefit) for income taxes net income (loss) Add: net loss attributable to noncontrolling interest net income (loss) attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income (loss) per share: basic Diluted number of shares used in per share computation: basic Diluted tHRee MontHS enDeD JAnuARY 31, 2014 tHRee MontHS enDeD JAnuARY 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 168,165 $ 154,475 13,690 8,272 — 5,418 (256) 135 5,297 1,822 3,475 — 49 (49) 20 9,218 (9,287) — — (9,287) (3,898) (5,389) $ 168,165 $ 139,499 $ 154,524 126,375 13,641 8,292 9,218 (3,869) (256) 135 (3,990) (2,076) (1,914) 13,124 7,576 1,245 4,303 (252) 138 4,189 1,508 2,681 — 1 (1) — $ 139,499 126,376 13,123 7,576 8,152 (8,153) — — (8,153) (4,020) (4,133) 9,397 (3,850) (252) 138 (3,964) (2,512) (1,452) 500 (352) 148 26 16 42 $ 3,975 $ (5,741) $ (1,766) $ 2,707 $ (4,117) $ (1,410) $ $ 0.25 0.25 $ $ (0.36) (0.36) $ $ (0.11) (0.11) $ $ 0.18 0.18 $ $ (0.28) (0.28) $ $ (0.10) (0.10) 15,726 15,736 — (10) 15,726 15,726 14,834 14,854 — (20) 14,834 14,834 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income Add: net loss attributable to noncontrolling interest net income attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income per share: basic Diluted number of shares used in per share computation: basic Diluted tHRee MontHS enDeD ApRIl 30, 2014 tHRee MontHS enDeD ApRIl 30, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 194,894 $ 175,917 18,977 9,111 — 9,866 (292) 270 9,844 3,432 6,412 — 85 (85) 34 7,036 (7,155) — — (7,155) (1,999) (5,156) $ 194,894 $ 166,336 $ 176,002 154,800 18,892 9,145 11,536 7,991 — 61 (61) 24 $ 166,336 154,861 11,475 8,015 7,036 2,711 (292) 270 2,689 1,433 1,256 199 3,346 (317) 235 3,264 1,071 2,193 1,926 (2,011) — — (2,011) (292) (1,719) 2,125 1,335 (317) 235 1,253 779 474 35 298 — 298 20 15 $ 6,710 $ (5,156) $ 1,554 $ 2,213 $ (1,704) $ 509 $ $ 0.43 0.43 $ $ (0.33) (0.34) $ $ 0.10 0.09 $ $ 0.15 0.15 $ $ (0.12) (0.12) $ $ 0.03 0.03 15,755 15,764 — 1,412 15,755 17,176 14,819 14,839 — 756 14,819 15,595 Calavo Growers, Inc. 2014 AnnuAl RepoR t 66 . 67 SIx MontHS enDeD JAnuARY 31, 2014 SIx MontHS enDeD JAnuARY 31, 2013 tHRee MontHS enDeD Jul Y 31, 2014 tHRee MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD Gain on deconsolidation of FreshRealm 12,622 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income Add: net loss attributable to noncontrolling interest net income attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income per share: basic Diluted number of shares used in per share computation: basic Diluted $ 218,702 $ — $ 218,702 $ 194,943 $ — $ 194,943 197,757 769 198,526 176,865 181 177,046 20,945 9,431 (769) 307 20,176 9,738 18,078 8,349 — 23,249 23,249 11,514 (24,325) (12,811) (220) 120 24,036 8,064 15,972 — — — (24,325) (9,844) (14,481) (220) 12,622 120 (289) (1,780) 1,491 357 9,372 (293) — 209 9,288 3,163 6,125 (181) 72 2,974 (3,227) — — — (3,227) 636 (3,863) 17,897 8,421 3,331 6,145 (293) — 209 6,061 3,799 2,262 60 — 60 274 136 410 $ 16,032 $ (14,481) $ 1,551 $ 6,399 $ (3,727) $ 2,672 $ $ 1.02 1.02 $ $ (0.92) (0.93) $ $ 0.10 0.09 $ $ 0.43 0.43 $ $ (0.25) (0.26) $ $ 0.18 0.17 15,760 15,769 — 1,898 15,760 17,667 14,848 14,870 — 946 14,848 15,816 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income Add: net loss attributable to noncontrolling interest net income (loss) attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income (loss) per share: basic Diluted number of shares used in per share computation: basic Diluted $ 363,059 $ — $ 363,059 $ 305,835 $ 330,392 134 330,526 281,175 32,667 17,383 (134) 54 — 16,254 15,284 (16,442) (548) 405 — — 32,533 17,437 16,254 (1,158) (548) 405 15,141 (16,442) (1,301) 5,254 9,887 (5,897) (10,545) (643) (658) 24,660 15,567 1,444 7,649 (569) 373 7,453 2,579 4,874 — 62 (62) 24 10,078 (10,164) — — (10,164) (4,312) (5,852) $ 305,835 281,237 24,598 15,591 11,522 (2,515) (569) 373 (2,711) (1,733) (978) 798 (352) 446 46 31 77 $ 10,685 $ (10,897) $ (212) $ 4,920 $ (5,821) $ (901) $ $ 0.68 0.68 $ $ (0.69) (0.69) $ $ (0.01) (0.01) $ $ 0.33 0.33 $ $ (0.39) (0.39) $ $ (0.06) (0.06) 15,755 15,764 — (9) 15,755 15,755 14,819 14,839 — (20) 14,819 14,819 68. 69 Calavo Growers, Inc. 2014 AnnuAl RepoR t SIx MontHS enDeD JAnuARY 31, 2014 SIx MontHS enDeD JAnuARY 31, 2013 tHRee MontHS enDeD Jul Y 31, 2014 tHRee MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD Gain on deconsolidation of FreshRealm 12,622 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income Add: net loss attributable to noncontrolling interest net income attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income per share: basic Diluted number of shares used in per share computation: basic Diluted $ 218,702 $ — $ 218,702 $ 194,943 $ — $ 194,943 197,757 769 198,526 176,865 181 177,046 20,945 9,431 (769) 307 20,176 9,738 18,078 8,349 — 23,249 23,249 11,514 (24,325) (12,811) (220) 120 24,036 8,064 15,972 — — — (24,325) (9,844) (14,481) (220) 12,622 120 (289) (1,780) 1,491 357 9,372 (293) — 209 9,288 3,163 6,125 (181) 72 2,974 (3,227) — — — (3,227) 636 (3,863) 17,897 8,421 3,331 6,145 (293) — 209 6,061 3,799 2,262 60 — 60 274 136 410 $ 16,032 $ (14,481) $ 1,551 $ 6,399 $ (3,727) $ 2,672 $ $ 1.02 1.02 $ $ (0.92) (0.93) $ $ 0.10 0.09 $ $ 0.43 0.43 $ $ (0.25) (0.26) $ $ 0.18 0.17 15,760 15,769 — 1,898 15,760 17,667 14,848 14,870 — 946 14,848 15,816 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income Add: net loss attributable to noncontrolling interest net income (loss) attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income (loss) per share: basic Diluted number of shares used in per share computation: basic Diluted $ 363,059 $ — $ 363,059 $ 305,835 $ 330,392 134 330,526 281,175 32,667 17,383 (134) 54 — 16,254 15,284 (16,442) (548) 405 — — 32,533 17,437 16,254 (1,158) (548) 405 15,141 (16,442) (1,301) 5,254 9,887 (5,897) (10,545) (643) (658) 24,660 15,567 1,444 7,649 (569) 373 7,453 2,579 4,874 — 62 (62) 24 10,078 (10,164) — — (10,164) (4,312) (5,852) $ 305,835 281,237 24,598 15,591 11,522 (2,515) (569) 373 (2,711) (1,733) (978) 798 (352) 446 46 31 77 $ 10,685 $ (10,897) $ (212) $ 4,920 $ (5,821) $ (901) $ $ 0.68 0.68 $ $ (0.69) (0.69) $ $ (0.01) (0.01) $ $ 0.33 0.33 $ $ (0.39) (0.39) $ $ (0.06) (0.06) 15,755 15,764 — (9) 15,755 15,755 14,819 14,839 — (20) 14,819 14,819 68. 69 Calavo Growers, Inc. 2014 AnnuAl RepoR t Gain on deconsolidation of FreshRealm 12,622 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income (loss) Add: net loss attributable to noncontrolling interest net income attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income per share: basic Diluted number of shares used in per share computation: basic Diluted nIne MontHS enDeD Jul Y 31, 2014 nIne MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 581,761 $ — $ 581,761 $ 500,778 $ — $ 500,778 528,149 903 529,052 458,040 243 458,283 53,612 26,814 (903) 361 52,709 27,175 — 39,503 39,503 26,798 (40,767) (13,969) (768) 525 39,177 13,318 25,859 — — — (40,767) (15,741) (25,026) (768) 12,622 525 (1,590) (2,423) 833 42,738 23,916 1,801 17,021 (862) — 582 16,741 5,742 10,999 (243) 96 13,052 (13,391) — — — (13,391) (3,676) (9,715) 42,495 24,012 14,853 3,630 (862) — 582 3,350 2,066 1,284 858 (352) 506 320 167 487 $ 26,717 $ (25,378) $ 1,339 $ 11,319 $ (9,548) $ 1,771 $ $ 1.70 1.69 $ $ (1.62) (1.61) $ $ 0.08 0.08 $ $ 0.76 0.76 $ $ (0.64) (0.65) $ $ 0.12 0.11 15,760 15,769 — 1,461 15,760 17,230 14,848 14,870 — 805 14,848 15,675 tHRee MontHS enDeD oCtobeR 31, 2014 tHRee MontHS enDeD oCtobeR 31, 2013 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income (loss) Add: net loss attributable to noncontrolling interest $ 200,749 182,230 18,519 9,430 11,579 (2,490) (215) 164 (2,541) (1,493) (1,048) (194) AS RepoR teD ADJuStMentS ReSt AteD $ 190,673 $ — $ 190,673 173,287 433 173,720 17,386 9,301 (433) 172 — 18,014 16,953 9,473 18,014 8,085 (18,619) (10,534) (236) 21 7,870 2,124 5,746 284 — — (236) 21 (18,619) (10,749) (8,905) (9,714) 118 (6,781) (3,968) 402 net income attributable to Calavo Growers, Inc. $ (1,242) $ 6,030 $ (9,596) $ (3,566) Calavo Growers, Inc.’s net income (loss) per share: basic Diluted number of shares used in per share computation: basic Diluted $ $ (0.08) (0.08) 15,815 15,815 $ $ .40 .40 $ $ (0.64) (0.64) $ $ (0.24) (0.24) 15,030 15,038 — (8) 15,030 15,030 the following table summarizes the impact of the restatement on our previously reported interim consolidated statements of comprehensive operations for fiscal years 2014 and 2013: tHRee MontHS enDeD JAnuARY 31, 2014 tHRee MontHS enDeD JAnuARY 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD net income (loss) $ 3,475 $ (5,389) $ (1,914) $ 2,681 $ (4,133) $ (1,452) other comprehensive income (loss), before tax: unrealized investment losses arising during period Income tax benefit related to items of other comprehensive income (9,628) 3,755 other comprehensive loss, net of tax (5,873) — — — Comprehensive income (loss) (2,398) (5,389) (9,628) (1,244) 3,755 (5,873) (7,787) 485 (759) — — — (1,244) 485 (759) 1,922 (4,133) (2,211) Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. 500 (352) 148 26 16 42 $ (1,898) $ (5,741) $ (7,639) $ 1,948 $ (4,117) $ (2,169) Calavo Growers, Inc. 2014 AnnuAl RepoR t 70 . 71 Gain on deconsolidation of FreshRealm 12,622 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income (loss) Add: net loss attributable to noncontrolling interest net income attributable to Calavo Growers, Inc. Calavo Growers, Inc.’s net income per share: basic Diluted number of shares used in per share computation: basic Diluted nIne MontHS enDeD Jul Y 31, 2014 nIne MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 581,761 $ — $ 581,761 $ 500,778 $ — $ 500,778 528,149 903 529,052 458,040 243 458,283 53,612 26,814 (903) 361 52,709 27,175 — 39,503 39,503 26,798 (40,767) (13,969) (768) 525 39,177 13,318 25,859 — — — (40,767) (15,741) (25,026) (768) 12,622 525 (1,590) (2,423) 833 42,738 23,916 1,801 17,021 (862) — 582 16,741 5,742 10,999 (243) 96 13,052 (13,391) — — — (13,391) (3,676) (9,715) 42,495 24,012 14,853 3,630 (862) — 582 3,350 2,066 1,284 858 (352) 506 320 167 487 $ 26,717 $ (25,378) $ 1,339 $ 11,319 $ (9,548) $ 1,771 $ $ 1.70 1.69 $ $ (1.62) (1.61) $ $ 0.08 0.08 $ $ 0.76 0.76 $ $ (0.64) (0.65) $ $ 0.12 0.11 15,760 15,769 — 1,461 15,760 17,230 14,848 14,870 — 805 14,848 15,675 tHRee MontHS enDeD oCtobeR 31, 2014 tHRee MontHS enDeD oCtobeR 31, 2013 net sales Cost of sales Gross margin Selling, general and administrative Contingent consideration related to RFG acquisition operating income Interest expense other income, net Income before provision for income taxes provision for income taxes net income (loss) Add: net loss attributable to noncontrolling interest $ 200,749 182,230 18,519 9,430 11,579 (2,490) (215) 164 (2,541) (1,493) (1,048) (194) AS RepoR teD ADJuStMentS ReSt AteD $ 190,673 $ — $ 190,673 173,287 433 173,720 17,386 9,301 (433) 172 — 18,014 16,953 9,473 18,014 8,085 (18,619) (10,534) (236) 21 7,870 2,124 5,746 284 — — (236) 21 (18,619) (10,749) (8,905) (9,714) 118 (6,781) (3,968) 402 net income attributable to Calavo Growers, Inc. $ (1,242) $ 6,030 $ (9,596) $ (3,566) Calavo Growers, Inc.’s net income (loss) per share: basic Diluted number of shares used in per share computation: basic Diluted $ $ (0.08) (0.08) 15,815 15,815 $ $ .40 .40 $ $ (0.64) (0.64) $ $ (0.24) (0.24) 15,030 15,038 — (8) 15,030 15,030 the following table summarizes the impact of the restatement on our previously reported interim consolidated statements of comprehensive operations for fiscal years 2014 and 2013: tHRee MontHS enDeD JAnuARY 31, 2014 tHRee MontHS enDeD JAnuARY 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD net income (loss) $ 3,475 $ (5,389) $ (1,914) $ 2,681 $ (4,133) $ (1,452) other comprehensive income (loss), before tax: unrealized investment losses arising during period Income tax benefit related to items of other comprehensive income (9,628) 3,755 other comprehensive loss, net of tax (5,873) — — — Comprehensive income (loss) (2,398) (5,389) (9,628) (1,244) 3,755 (5,873) (7,787) 485 (759) — — — (1,244) 485 (759) 1,922 (4,133) (2,211) Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. 500 (352) 148 26 16 42 $ (1,898) $ (5,741) $ (7,639) $ 1,948 $ (4,117) $ (2,169) Calavo Growers, Inc. 2014 AnnuAl RepoR t 70 . 71 tHRee MontHS enDeD ApRIl 30, 2014 tHRee MontHS enDeD ApRl 30, 2013 tHRee MontHS enDeD Jul Y 31, 2014 tHRee MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD net income $ 6,412 $ (5,156) $ 1,256 $ 2,193 $ (1,719) $ 474 net income $ 15,972 $ (14,481) $ 1,491 $ 6,125 $ (3,863) $ 2,262 other comprehensive income (loss), before tax: unrealized investment gains (losses) arising during period 3,803 Income tax benefit (expense) related to items of other comprehensive income other comprehensive income (loss), net of tax Comprehensive income (loss) Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. — — — (5,156) 3,803 (5,393) — (5,393) (1,483) 2,103 2,320 3,576 (3,290) (1,097) — — (1,719) 2,103 (3,290) (2,816) (1,483) 2,320 8,732 other comprehensive income (loss), before tax: unrealized investment gains (losses) arising during period Income tax benefit (expense) related to items of other comprehensive income other comprehensive income (loss), net of tax (1,590) — (1,590) 6,586 Comprehensive income (loss) 15,002 (14,481) 620 (970) — — 620 (2,568) (970) 521 4,018 10,143 — — — (3,863) 6,586 (2,568) 4,018 6,280 298 — 298 20 15 35 $ 9,030 $ (5,156) $ 3,874 $ (1,077) $ (1,704) $ (2,781) Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. 60 — 60 274 136 410 $ 15,062 $ (14,481) $ 581 $ 10,417 $ (3,727) $ 6,690 SIx MontHS enDeD ApRIl 30, 2014 SIx MontHS enDeD ApRIl 30, 2013 nIne MontHS enDeD Jul Y 31, 2014 nIne MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD net income (loss) $ 9,887 $ (10,545) $ (658) $ 4,874 $ (5,852) $ (978) net income (loss) $ 25,859 $ (25,026) $ 833 $ 10,999 $ (9,715) $ 1,284 other comprehensive income (loss), before tax: unrealized investment losses arising during period Income tax benefit related to items of other comprehensive income (5,825) 2,272 other comprehensive loss, net of tax (3,553) — — — Comprehensive income (loss) 6,334 (10,545) (5,825) (6,638) 2,272 (3,553) (4,211) 2,589 (4,049) 825 — — — (5,852) (6,638) 2,589 (4,049) (5,027) other comprehensive income (loss), before tax: unrealized investment losses arising during period Income tax benefit related to items of other comprehensive income (7,416) 2,893 other comprehensive loss, net of tax (4,523) — — — Comprehensive income (loss) 21,336 (25,026) (7,416) 2,893 (4,523) (3,690) (52) 20 (32) — — — (52) 20 (32) 10,967 (9,715) 1,252 Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. 798 (352) 446 46 31 77 $ 7,132 $ (10,897) $ (3,765) $ 871 $ (5,821) $ (4,950) Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. 858 (352) 506 320 167 487 $ 22,194 $ (25,378) $ (3,184) $ 11,287 $ (9,548) $ 1,739 72. 73 Calavo Growers, Inc. 2014 AnnuAl RepoR t tHRee MontHS enDeD ApRIl 30, 2014 tHRee MontHS enDeD ApRl 30, 2013 tHRee MontHS enDeD Jul Y 31, 2014 tHRee MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD net income $ 6,412 $ (5,156) $ 1,256 $ 2,193 $ (1,719) $ 474 net income $ 15,972 $ (14,481) $ 1,491 $ 6,125 $ (3,863) $ 2,262 other comprehensive income (loss), before tax: unrealized investment gains (losses) arising during period 3,803 Income tax benefit (expense) related to items of other comprehensive income other comprehensive income (loss), net of tax Comprehensive income (loss) Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. — — — (5,156) 3,803 (5,393) — (5,393) (1,483) 2,103 2,320 3,576 (3,290) (1,097) — — (1,719) 2,103 (3,290) (2,816) (1,483) 2,320 8,732 other comprehensive income (loss), before tax: unrealized investment gains (losses) arising during period Income tax benefit (expense) related to items of other comprehensive income other comprehensive income (loss), net of tax (1,590) — (1,590) 6,586 Comprehensive income (loss) 15,002 (14,481) 620 (970) — — 620 (2,568) (970) 521 4,018 10,143 — — — (3,863) 6,586 (2,568) 4,018 6,280 298 — 298 20 15 35 $ 9,030 $ (5,156) $ 3,874 $ (1,077) $ (1,704) $ (2,781) Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. 60 — 60 274 136 410 $ 15,062 $ (14,481) $ 581 $ 10,417 $ (3,727) $ 6,690 SIx MontHS enDeD ApRIl 30, 2014 SIx MontHS enDeD ApRIl 30, 2013 nIne MontHS enDeD Jul Y 31, 2014 nIne MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD net income (loss) $ 9,887 $ (10,545) $ (658) $ 4,874 $ (5,852) $ (978) net income (loss) $ 25,859 $ (25,026) $ 833 $ 10,999 $ (9,715) $ 1,284 other comprehensive income (loss), before tax: unrealized investment losses arising during period Income tax benefit related to items of other comprehensive income (5,825) 2,272 other comprehensive loss, net of tax (3,553) — — — Comprehensive income (loss) 6,334 (10,545) (5,825) (6,638) 2,272 (3,553) (4,211) 2,589 (4,049) 825 — — — (5,852) (6,638) 2,589 (4,049) (5,027) other comprehensive income (loss), before tax: unrealized investment losses arising during period Income tax benefit related to items of other comprehensive income (7,416) 2,893 other comprehensive loss, net of tax (4,523) — — — Comprehensive income (loss) 21,336 (25,026) (7,416) 2,893 (4,523) (3,690) (52) 20 (32) — — — (52) 20 (32) 10,967 (9,715) 1,252 Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. 798 (352) 446 46 31 77 $ 7,132 $ (10,897) $ (3,765) $ 871 $ (5,821) $ (4,950) Add: net loss attributable to noncontrolling interest Comprehensive income (loss) – Calavo Growers, Inc. 858 (352) 506 320 167 487 $ 22,194 $ (25,378) $ (3,184) $ 11,287 $ (9,548) $ 1,739 72. 73 Calavo Growers, Inc. 2014 AnnuAl RepoR t the following table summarizes the impact of the restatement on our previously reported interim consolidated balance sheet for fiscal ApRIl 30, 2014 ApRIl 30, 2013 years 2014 and 2013: aSSetS CuRR ent ASS e tS : Cash and cash equivalents Accounts receivable, net of allowances of $2,289 (2014) and $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Deferred income taxes Goodwill other assets JAnuARY 31, 2014 JAnuARY 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 6,346 $ — $ 6,346 $ 9,067 $ — $ 9,067 60,060 27,659 11,965 3,419 2,235 1,995 113,679 53,050 35,902 1,544 — 18,262 12,034 — — — — (1,731) — (1,731) — — — 9,255 — 60,060 27,659 11,965 3,419 504 1,995 111,948 53,050 35,902 1,544 9,255 18,262 — 12,034 48,367 22,331 8,013 1,324 2,807 2,222 94,131 50,966 37,596 520 — 18,262 14,949 $ 234,471 $ 7,524 $ 241,995 $ 216,424 $ — — — — (90) — (90) — — — — — — (90) 48,367 22,331 8,013 1,324 2,717 2,222 94,041 50,966 37,596 520 — 18,262 14,949 $ 216,334 lIaBIlI tIeS anD S hareholD erS’ e QUIt y CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Current portion of long-term obligations $ total current liabilities lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies noncontrolling interest, Calavo Salsa lisa SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 15,752 and 15,720 shares outstanding at January 31, 2014 and January 31, 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings 4,720 12,330 23,802 52,690 5,245 98,787 6,841 2,439 9,280 $ — — 24,833 — — 24,833 $ 4,720 12,330 48,635 52,690 5,245 123,620 — (2,439) (2,439) 6,841 — 6,841 $ 5,985 9,498 27,832 32,780 5,329 81,424 12,073 10,179 22,252 $ $ — — 16,244 — — 16,244 — (5,084) (5,084) 5,985 9,498 44,076 32,780 5,329 97,668 12,073 5,095 17,168 (69) — (69) 331 (83) 248 15 59,606 7,541 (316) 59,627 — 11,470 — — (26,340) 15 71,076 7,541 (316) 33,287 14 51,757 8,631 — 52,015 — (5,595) — — (5,572) 14 46,162 8,631 — 46,443 aSSetS CuRR ent ASS e tS : Cash and cash equivalents Accounts receivable, net of allowances of $2,789 (2014) and $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes 64,093 32,261 13,528 39 773 1,995 total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Deferred income taxes Goodwill other assets 132,603 55,568 39,705 1,533 — 18,262 11,436 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 19,914 $ (10,000) $ 9,914 $ 7,119 $ — $ 7,119 — — — — (773) — (10,773) — — — 8,826 — — 64,093 32,261 13,528 39 — 1,995 121,830 55,568 39,705 1,533 8,826 18,262 11,436 59,349 25,434 8,539 31 3,083 2,222 105,777 51,230 32,203 520 — 18,262 13,540 — — — — (101) — (101) — — — — — — (101) 59,349 25,434 8,539 31 2,982 2,222 105,676 51,230 32,203 520 — 18,262 13,540 $ 221,431 $ 259,107 $ (1,947) $ 257,160 $ 221,532 $ lIaBIlI tIeS anD S hareholD erS’ e QUIt y CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Income taxes payable Current portion of long-term obligations $ 19,117 15,850 22,568 41,030 — 5,321 total current liabilities 103,886 $ — — 31,944 — 14 — 31,958 $ 19,117 15,850 54,512 41,030 14 5,321 135,844 $ 17,301 12,535 24,155 35,140 — 5,747 94,878 $ — — 18,174 — — — 18,174 $ 17,301 12,535 42,329 35,140 — 5,747 113,052 lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies noncontrolling interest, Calavo Salsa lisa SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 15,760 and 15,720 shares outstanding at April 30, 2014 and April 30, 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings 5,801 3,922 9,723 — (3,922) (3,922) 5,801 — 5,801 11,097 8,076 19,173 — (5,387) (5,387) 11,097 2,689 13,786 (104) — (104) 311 (98) 213 15 65,358 9,861 4,031 66,337 — 6,123 — (4,610) (31,496) 15 71,481 9,861 (579) 34,841 14 47,587 5,341 — 54,228 — (5,514) — — (7,276) 14 42,073 5,341 — 46,952 94,380 total shareholders’ equity 126,473 (14,870) 111,603 112,417 (11,167) 101,250 $ 234,471 $ 7,524 $ 241,995 $ 216,424 $ (90) $ 216,334 $ 259,107 $ (1,947) $ 257,160 $ 221,532 $ (101) $ 221,431 Calavo Growers, Inc. 2014 AnnuAl RepoR t 74 . 75 total shareholders’ equity 145,602 (29,983) 115,619 107,170 (12,790) the following table summarizes the impact of the restatement on our previously reported interim consolidated balance sheet for fiscal ApRIl 30, 2014 ApRIl 30, 2013 years 2014 and 2013: aSSetS CuRR ent ASS e tS : Cash and cash equivalents Accounts receivable, net of allowances of $2,289 (2014) and $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Deferred income taxes Goodwill other assets JAnuARY 31, 2014 JAnuARY 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 6,346 $ — $ 6,346 $ 9,067 $ — $ 9,067 60,060 27,659 11,965 3,419 2,235 1,995 113,679 53,050 35,902 1,544 — 18,262 12,034 — — — — (1,731) — (1,731) — — — 9,255 — 60,060 27,659 11,965 3,419 504 1,995 111,948 53,050 35,902 1,544 9,255 18,262 — 12,034 48,367 22,331 8,013 1,324 2,807 2,222 94,131 50,966 37,596 520 — 18,262 14,949 $ 234,471 $ 7,524 $ 241,995 $ 216,424 $ — — — — (90) — (90) — — — — — — (90) 48,367 22,331 8,013 1,324 2,717 2,222 94,041 50,966 37,596 520 — 18,262 14,949 $ 216,334 lIaBIlI tIeS anD S hareholD erS’ e QUIt y CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Current portion of long-term obligations $ total current liabilities lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies noncontrolling interest, Calavo Salsa lisa SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 15,752 and 15,720 shares outstanding at January 31, 2014 and January 31, 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings 4,720 12,330 23,802 52,690 5,245 98,787 6,841 2,439 9,280 $ — — 24,833 — — 24,833 $ 4,720 12,330 48,635 52,690 5,245 123,620 — (2,439) (2,439) 6,841 — 6,841 $ 5,985 9,498 27,832 32,780 5,329 81,424 12,073 10,179 22,252 $ $ — — 16,244 — — 16,244 — (5,084) (5,084) 5,985 9,498 44,076 32,780 5,329 97,668 12,073 5,095 17,168 (69) — (69) 331 (83) 248 15 59,606 7,541 (316) 59,627 — 11,470 — — (26,340) 15 71,076 7,541 (316) 33,287 14 51,757 8,631 — 52,015 — (5,595) — — (5,572) 14 46,162 8,631 — 46,443 aSSetS CuRR ent ASS e tS : Cash and cash equivalents Accounts receivable, net of allowances of $2,789 (2014) and $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes 64,093 32,261 13,528 39 773 1,995 total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Deferred income taxes Goodwill other assets 132,603 55,568 39,705 1,533 — 18,262 11,436 AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD $ 19,914 $ (10,000) $ 9,914 $ 7,119 $ — $ 7,119 — — — — (773) — (10,773) — — — 8,826 — — 64,093 32,261 13,528 39 — 1,995 121,830 55,568 39,705 1,533 8,826 18,262 11,436 59,349 25,434 8,539 31 3,083 2,222 105,777 51,230 32,203 520 — 18,262 13,540 — — — — (101) — (101) — — — — — — (101) 59,349 25,434 8,539 31 2,982 2,222 105,676 51,230 32,203 520 — 18,262 13,540 $ 221,431 $ 259,107 $ (1,947) $ 257,160 $ 221,532 $ lIaBIlI tIeS anD S hareholD erS’ e QUIt y CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Income taxes payable Current portion of long-term obligations $ 19,117 15,850 22,568 41,030 — 5,321 total current liabilities 103,886 $ — — 31,944 — 14 — 31,958 $ 19,117 15,850 54,512 41,030 14 5,321 135,844 $ 17,301 12,535 24,155 35,140 — 5,747 94,878 $ — — 18,174 — — — 18,174 $ 17,301 12,535 42,329 35,140 — 5,747 113,052 lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies noncontrolling interest, Calavo Salsa lisa SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 15,760 and 15,720 shares outstanding at April 30, 2014 and April 30, 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings 5,801 3,922 9,723 — (3,922) (3,922) 5,801 — 5,801 11,097 8,076 19,173 — (5,387) (5,387) 11,097 2,689 13,786 (104) — (104) 311 (98) 213 15 65,358 9,861 4,031 66,337 — 6,123 — (4,610) (31,496) 15 71,481 9,861 (579) 34,841 14 47,587 5,341 — 54,228 — (5,514) — — (7,276) 14 42,073 5,341 — 46,952 94,380 total shareholders’ equity 126,473 (14,870) 111,603 112,417 (11,167) 101,250 $ 234,471 $ 7,524 $ 241,995 $ 216,424 $ (90) $ 216,334 $ 259,107 $ (1,947) $ 257,160 $ 221,532 $ (101) $ 221,431 Calavo Growers, Inc. 2014 AnnuAl RepoR t 74 . 75 total shareholders’ equity 145,602 (29,983) 115,619 107,170 (12,790) JulY 31, 2014 JulY 31, 2013 the following table summarizes the impact of the restatement on our previously reported interim consolidated statement of cash flows AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD for fiscal years 2014 and 2013: $ 9,436 $ — $ 9,436 $ 5,927 $ — $ 5,927 net income (loss) $ 2,681 $ (4,133) $ (1,452) tHRee MontHS enDeD JAnuARY 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD caSh f lowS from oP er atIng a c tIvItIeS : aSSetS CuRR ent ASS e tS : Cash and cash equivalents Accounts receivable, net of allowances of $3,127 (2014) and $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes 63,731 33,035 15,492 1,385 — 1,995 total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Deferred income taxes Goodwill other assets 125,074 54,565 38,115 18,382 — 18,262 10,114 — — — — — — — — — — 17,912 — — 63,731 33,035 15,492 1,385 — 1,995 125,074 54,565 38,115 18,382 17,912 18,262 10,114 60,464 31,590 8,784 1,963 1,519 2,222 112,469 51,798 38,789 520 — 18,262 13,186 — — — — (114) — (114) — — — — — — (114) 60,464 31,590 8,784 1,963 1,405 2,222 112,355 51,798 38,789 520 — 18,262 13,186 $ 234,910 $ 264,512 $ 17,912 $ 282,424 $ 235,024 $ lIaBIlItIeS anD ShareholDerS’ eQUIty CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Income tax payable Current portion of long-term obligations $ 20,920 16,061 26,236 28,740 3,680 5,231 $ — — 56,122 — (591) — $ 20,920 16,061 82,358 28,740 3,089 5,231 total current liabilities 100,868 55,531 156,399 $ 28,049 13,308 19,140 25,980 — 5,679 92,156 $ — — 25,540 — — — 25,540 $ 28,049 13,308 44,680 25,980 — 5,679 117,696 lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies noncontrolling interest, Calavo Salsa lisa SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 15,762 and 15,720 shares outstanding at July 31, 2014 and July 31, 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings 3,629 3,302 6,931 — (3,302) (3,302) 3,629 — 3,629 8,843 12,085 20,928 — (4,764) (4,764) 8,843 7,321 16,164 (146) — (146) 37 (234) (197) 15 65,584 8,891 — 82,369 — 11,660 — — (45,977) 15 77,244 8,891 — 36,392 14 51,904 9,358 — 60,627 — (9,653) — — (11,003) 14 42,251 9,358 — 49,624 total shareholders’ equity 156,859 (34,317) 122,542 121,903 (20,656) 101,247 $ 264,512 $ 17,912 $ 282,424 $ 235,024 $ (114) $ 234,910 76 . 77 Calavo Growers, Inc. 2014 AnnuAl RepoR t Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Contingent consideration related to the acquisition of Salsa lisa Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations tax benefit of stock option exercises net cash provided by financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year 1,607 35 1,245 — 116 — (9,497) 617 22 1,045 87 13 (2,490) 5,887 1,368 (1,548) (1,548) (9,646) 12,610 (1,053) 233 2,144 1,964 7,103 Cash and cash equivalents, end of year $ 9,067 noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Construction in progress included in trade accounts payable unrealized holding (losses) $ 132 28 $ (1,244) $ $ $ — — 8,153 — — (4,058) — — — — 38 — — — — — — — — — — — — — — — — — 1,607 35 9,398 — 116 (4,058) (9,497) 617 22 1,045 125 13 (2,490) 5,887 1,368 (1,548) (1,548) (9,646) 12,610 (1,053) 233 2,144 1,964 7,103 $ 9,067 $ 132 28 $ (1,244) JulY 31, 2014 JulY 31, 2013 the following table summarizes the impact of the restatement on our previously reported interim consolidated statement of cash flows AS RepoR teD ADJuStMentS ReSt AteD AS RepoR teD ADJuStMentS ReSt AteD for fiscal years 2014 and 2013: $ 9,436 $ — $ 9,436 $ 5,927 $ — $ 5,927 net income (loss) $ 2,681 $ (4,133) $ (1,452) tHRee MontHS enDeD JAnuARY 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD caSh f lowS from oP er atIng a c tIvItIeS : aSSetS CuRR ent ASS e tS : Cash and cash equivalents Accounts receivable, net of allowances of $3,127 (2014) and $1,697 (2013) Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable Deferred income taxes 63,731 33,035 15,492 1,385 — 1,995 total current assets property, plant, and equipment, net Investment in limoneira Company Investment in unconsolidated entities Deferred income taxes Goodwill other assets 125,074 54,565 38,115 18,382 — 18,262 10,114 — — — — — — — — — — 17,912 — — 63,731 33,035 15,492 1,385 — 1,995 125,074 54,565 38,115 18,382 17,912 18,262 10,114 60,464 31,590 8,784 1,963 1,519 2,222 112,469 51,798 38,789 520 — 18,262 13,186 — — — — (114) — (114) — — — — — — (114) 60,464 31,590 8,784 1,963 1,405 2,222 112,355 51,798 38,789 520 — 18,262 13,186 $ 234,910 $ 264,512 $ 17,912 $ 282,424 $ 235,024 $ lIaBIlItIeS anD ShareholDerS’ eQUIty CuRRent lIAbIlItIeS : payable to growers trade accounts payable Accrued expenses Short-term borrowings Income tax payable Current portion of long-term obligations $ 20,920 16,061 26,236 28,740 3,680 5,231 $ — — 56,122 — (591) — $ 20,920 16,061 82,358 28,740 3,089 5,231 total current liabilities 100,868 55,531 156,399 $ 28,049 13,308 19,140 25,980 — 5,679 92,156 $ — — 25,540 — — — 25,540 $ 28,049 13,308 44,680 25,980 — 5,679 117,696 lonG -teRM lIAbIlItIeS : long-term obligations, less current portion Deferred income taxes total long-term liabilities Commitments and contingencies noncontrolling interest, Calavo Salsa lisa SHAReHolDeRS’ eQuIt Y: Common stock ($0.001 par value, 100,000 shares authorized; 15,762 and 15,720 shares outstanding at July 31, 2014 and July 31, 2013) Additional paid-in capital Accumulated other comprehensive income noncontrolling interest, FreshRealm Retained earnings 3,629 3,302 6,931 — (3,302) (3,302) 3,629 — 3,629 8,843 12,085 20,928 — (4,764) (4,764) 8,843 7,321 16,164 (146) — (146) 37 (234) (197) 15 65,584 8,891 — 82,369 — 11,660 — — (45,977) 15 77,244 8,891 — 36,392 14 51,904 9,358 — 60,627 — (9,653) — — (11,003) 14 42,251 9,358 — 49,624 total shareholders’ equity 156,859 (34,317) 122,542 121,903 (20,656) 101,247 $ 264,512 $ 17,912 $ 282,424 $ 235,024 $ (114) $ 234,910 76 . 77 Calavo Growers, Inc. 2014 AnnuAl RepoR t Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Contingent consideration related to the acquisition of Salsa lisa Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations tax benefit of stock option exercises net cash provided by financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year 1,607 35 1,245 — 116 — (9,497) 617 22 1,045 87 13 (2,490) 5,887 1,368 (1,548) (1,548) (9,646) 12,610 (1,053) 233 2,144 1,964 7,103 Cash and cash equivalents, end of year $ 9,067 noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Construction in progress included in trade accounts payable unrealized holding (losses) $ 132 28 $ (1,244) $ $ $ — — 8,153 — — (4,058) — — — — 38 — — — — — — — — — — — — — — — — — 1,607 35 9,398 — 116 (4,058) (9,497) 617 22 1,045 125 13 (2,490) 5,887 1,368 (1,548) (1,548) (9,646) 12,610 (1,053) 233 2,144 1,964 7,103 $ 9,067 $ 132 28 $ (1,244) SIx MontHS enDeD ApRIl 30, 2013 AS RepoR teD ADJuStMentS ReSt AteD nIne MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD caSh f lowS from oP er atIng a c tIvItIeS : caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) $ 4,874 $ (5,852) $ (978) net income $ 10,999 $ (9,715) $ 1,284 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations Retirement of stock purchased from limoneira proceeds from stock option exercises net cash used in financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year 3,293 84 1,444 191 — (20,479) (2,486) (1,349) 2,338 (113) 143 10,516 5,027 3,483 (3,092) (3,092) (9,646) 14,970 (1,611) (4,788) 700 (375) 16 7,103 Cash and cash equivalents, end of year $ 7,119 noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Collection for Agricola belher Infrastructure Advance unrealized holding (losses) $ $ 208 1,690 (6,638) $ $ $ $ — — 10,164 — (4,361) — — — — 49 — — — — — — — — — — — — — — — — — — 3,293 84 11,608 191 (4,361) (20,479) (2,486) (1,349) 2,338 (64) 143 10,516 5,027 3,483 (3,092) (3,092) (9,646) 14,970 (1,611) (4,788) 700 (375) 16 7,103 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations Retirement of stock purchased from limoneira proceeds from stock option exercises net cash used in financing activities net (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year 5,011 133 1,801 288 — (21,594) (8,642) (1,594) 406 2,891 62 21,264 4,599 15,624 (4,943) (4,943) (9,646) 5,810 (3,933) (4,788) 700 (11,857) (1,176) 7,103 $ 7,119 Cash and cash equivalents, end of year $ 5,927 $ — — 13,391 — (3,738) — — — — 62 — — — — — — — — — — — — — — — 5,011 133 15,192 288 (3,738) (21,594) (8,642) (1,594) 406 2,953 62 21,264 4,599 15,624 (4,943) (4,943) (9,646) 5,810 (3,933) (4,788) 700 (11,857) (1,176) 7,103 $ 5,927 $ $ 208 1,690 (6,638) noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise $ 208 $ — $ 208 Calavo Growers, Inc. 2014 AnnuAl RepoR t 78 . 79 SIx MontHS enDeD ApRIl 30, 2013 AS RepoR teD ADJuStMentS ReSt AteD nIne MontHS enDeD Jul Y 31, 2013 AS RepoR teD ADJuStMentS ReSt AteD caSh f lowS from oP er atIng a c tIvItIeS : caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) $ 4,874 $ (5,852) $ (978) net income $ 10,999 $ (9,715) $ 1,284 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations Retirement of stock purchased from limoneira proceeds from stock option exercises net cash used in financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year 3,293 84 1,444 191 — (20,479) (2,486) (1,349) 2,338 (113) 143 10,516 5,027 3,483 (3,092) (3,092) (9,646) 14,970 (1,611) (4,788) 700 (375) 16 7,103 Cash and cash equivalents, end of year $ 7,119 noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Collection for Agricola belher Infrastructure Advance unrealized holding (losses) $ $ 208 1,690 (6,638) $ $ $ $ — — 10,164 — (4,361) — — — — 49 — — — — — — — — — — — — — — — — — — 3,293 84 11,608 191 (4,361) (20,479) (2,486) (1,349) 2,338 (64) 143 10,516 5,027 3,483 (3,092) (3,092) (9,646) 14,970 (1,611) (4,788) 700 (375) 16 7,103 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations Retirement of stock purchased from limoneira proceeds from stock option exercises net cash used in financing activities net (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year 5,011 133 1,801 288 — (21,594) (8,642) (1,594) 406 2,891 62 21,264 4,599 15,624 (4,943) (4,943) (9,646) 5,810 (3,933) (4,788) 700 (11,857) (1,176) 7,103 $ 7,119 Cash and cash equivalents, end of year $ 5,927 $ — — 13,391 — (3,738) — — — — 62 — — — — — — — — — — — — — — — 5,011 133 15,192 288 (3,738) (21,594) (8,642) (1,594) 406 2,953 62 21,264 4,599 15,624 (4,943) (4,943) (9,646) 5,810 (3,933) (4,788) 700 (11,857) (1,176) 7,103 $ 5,927 $ $ 208 1,690 (6,638) noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise $ 208 $ — $ 208 Calavo Growers, Inc. 2014 AnnuAl RepoR t 78 . 79 tHRee MontHS enDeD JAnuARY 31, 2014 AS RepoR teD ADJuStMentS ReSt AteD SIx MontHS enDeD ApRIl 30, 2014 AS RepoR teD ADJuStMentS ReSt AteD caSh f lowS from oP er atIng a c tIvItIeS : caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) $ 3,475 $ (5,389) $ (1,914) net income (loss) $ 9,887 $ (10,545) $ (658) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Income (loss) from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash used in operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Investment in unconsolidated entity net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations proceeds from stock option exercises net cash provided by financing activities net (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year 1,689 1 9 — 93 — (5,000) 1,014 (1,208) (206) (100) (103) (9,769) 3,485 (6,620) (1,674) (125) (1,799) (11,005) 18,700 (964) 15 6,746 (1,673) 8,019 Cash and cash equivalents, end of year $ 6,346 noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise unrealized holding (losses) $ $ 122 (9,628) $ $ $ — — — 9,287 — (5,463) — — — — 1,565 — — — — — — — — — — — — — — — — — 1,689 1 9 9,287 93 (5,463) (5,000) 1,014 (1,208) (206) 1,465 (103) (9,769) 3,485 (6,620) (1,674) (125) (1,799) (11,005) 18,700 (964) 15 6,746 (1,673) 8,019 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization loss from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Investment in unconsolidated entity net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations proceeds from issuance of FreshRealm stock proceeds from stock option exercises net cash used in financing activities net increase in cash and cash equivalents $ 6,346 Cash and cash equivalents, beginning of year 3,378 12 18 — 303 — (9,033) (3,588) (2,771) 3,174 1,415 78 4,628 5,762 13,263 (5,464) (125) (5,589) (11,005) 7,040 (1,928) 10,000 114 4,221 11,895 8,019 — — — 16,442 — (6,518) — — — — 621 — — — — — — — — — — (10,000) — (10,000) (10,000) — 3,378 12 18 16,442 303 (6,518) (9,033) (3,588) (2,771) 3,174 2,036 78 4,628 5,762 13,263 (5,464) (125) (5,589) (11,005) 7,040 (1,928) — 114 (5,779) 1,895 8,019 Cash and cash equivalents, end of year $ 19,914 $ (10,000) $ 9,914 $ $ 122 (9,628) noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise unrealized holding (losses) $ $ 175 (5,825) $ $ — — $ $ 175 (5,825) 80. 81 Calavo Growers, Inc. 2014 AnnuAl RepoR t tHRee MontHS enDeD JAnuARY 31, 2014 AS RepoR teD ADJuStMentS ReSt AteD SIx MontHS enDeD ApRIl 30, 2014 AS RepoR teD ADJuStMentS ReSt AteD caSh f lowS from oP er atIng a c tIvItIeS : caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) $ 3,475 $ (5,389) $ (1,914) net income (loss) $ 9,887 $ (10,545) $ (658) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Income (loss) from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash used in operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Investment in unconsolidated entity net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations proceeds from stock option exercises net cash provided by financing activities net (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year 1,689 1 9 — 93 — (5,000) 1,014 (1,208) (206) (100) (103) (9,769) 3,485 (6,620) (1,674) (125) (1,799) (11,005) 18,700 (964) 15 6,746 (1,673) 8,019 Cash and cash equivalents, end of year $ 6,346 noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise unrealized holding (losses) $ $ 122 (9,628) $ $ $ — — — 9,287 — (5,463) — — — — 1,565 — — — — — — — — — — — — — — — — — 1,689 1 9 9,287 93 (5,463) (5,000) 1,014 (1,208) (206) 1,465 (103) (9,769) 3,485 (6,620) (1,674) (125) (1,799) (11,005) 18,700 (964) 15 6,746 (1,673) 8,019 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization loss from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Investment in unconsolidated entity net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations proceeds from issuance of FreshRealm stock proceeds from stock option exercises net cash used in financing activities net increase in cash and cash equivalents $ 6,346 Cash and cash equivalents, beginning of year 3,378 12 18 — 303 — (9,033) (3,588) (2,771) 3,174 1,415 78 4,628 5,762 13,263 (5,464) (125) (5,589) (11,005) 7,040 (1,928) 10,000 114 4,221 11,895 8,019 — — — 16,442 — (6,518) — — — — 621 — — — — — — — — — — (10,000) — (10,000) (10,000) — 3,378 12 18 16,442 303 (6,518) (9,033) (3,588) (2,771) 3,174 2,036 78 4,628 5,762 13,263 (5,464) (125) (5,589) (11,005) 7,040 (1,928) — 114 (5,779) 1,895 8,019 Cash and cash equivalents, end of year $ 19,914 $ (10,000) $ 9,914 $ $ 122 (9,628) noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise unrealized holding (losses) $ $ 175 (5,825) $ $ — — $ $ 175 (5,825) 80. 81 Calavo Growers, Inc. 2014 AnnuAl RepoR t nIne MontHS enDeD Jul Y 31, 2014 AS RepoR teD ADJuStMentS ReSt AteD 20. SuBSeQuent eventS caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) $ 25,859 $ (25,026) $ 833 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization provision for losses on accounts receivable loss from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Gain on deconsolidation of FreshRealm Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Decrease in cash due to deconsolidation of FreshRealm Investment in Agricola Don Memo Investment in unconsolidated entity net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations proceeds from stock option exercises proceeds from issuance of FreshRealm stock net cash used in financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year 5,113 88 13 28 — 517 (12,622) — (8,759) (4,362) (3,280) 1,828 5,884 135 7,274 9,769 27,485 (7,085) (6,813) (1,730) (125) (15,753) (11,005) (5,250) (4,190) 130 10,000 (10,315) 1,417 8,019 Cash and cash equivalents, end of year $ 9,436 noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Collection for Agricola belher Infrastructure Advance unrealized holding (losses) $ $ $ 191 845 (7,416) $ $ $ $ — — — — 40,767 — — (14,984) — — — — (757) — — — — — — — — — — — — — — — — — — — — — 5,113 88 13 28 40,767 517 (12,622) (14,984) (8,759) (4,362) (3,280) 1,828 5,127 135 7,274 9,769 27,485 (7,085) (6,813) (1,730) (125) (15,753) (11,005) (5,250) (4,190) 130 10,000 (10,315) 1,417 8,019 $ 9,436 $ $ $ 191 845 (7,416) We have evaluated subsequent events to assess the need for potential recognition or disclosure in this Annual Report on Form 10-K. Such events were evaluated through the date these financial statements were issued. Controls and procedures DiSClOSure COntrOlS AnD prOCeDureS Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the exchange Act, are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SeC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the exchange Act is accumulated and communicated to our management, including our Chief executive officer and Chief Financial officer, as appropriate to allow timely decisions regarding required disclosures. As of october 31, 2014, our management, with the participation of our Chief executive officer and Chief Financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) promulgated under the exchange Act. based on that evaluation and as a result of the material weakness in internal control over financial reporting as set forth below, the Company’s Chief executive officer and Chief Financial officer concluded that the Company’s disclosure controls and procedures were not effective as of october 31, 2014. our management’s annual report on internal control over financial reporting is set forth below. MAnAgeMent’S repOrt On internAl COntrOl Over FinAnCiAl repOrting our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief executive officer and Chief Financial officer, and effected by our board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. With the participation of the Chief executive officer and Chief Financial officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the 1992 “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring organizations of the treadway Commission. based upon this evaluation, our Chief executive officer and Chief Financial officer concluded that, as of october 31, 2014, our internal controls over financial reporting In January 2015, various class action lawsuits have been initiated against the company related to the restatement of previously-issued financial statements, we believe these are without merit and will defend ourselves vigorously. were not effective due to a material weakness in our controls over our accounting for contingent consideration as such applies to business combinations. As of october 31, 2014, there was a material weakness in the Company’s controls over its accounting for and reporting of contingent consideration as such applies to business combinations. Specifically, our controls did not properly identify the failure to apply generally accepted accounting principles with respect to what qualifies as an equity instrument vs. a liability instrument in a business combination. Initially, we recorded the contingent consideration, which was settleable in common stock, as an equity instrument and therefore did not record expense based on the changes in fair value of the contingent consideration. However, the contingent consideration should have been accounted for as a liability requiring re-measurement to fair value. As a result, material errors to the recorded contingent consideration occurred and were not timely detected. ernst & Young llp, an independent registered public accounting firm, issued an attestation report on the Company’s internal control over financial reporting as of october 31, 2014, as stated in their report which is included herein. remeDIatIon effortS to aDDreSS materIal weakneSS to remediate the material weakness described above, we are currently evaluating the controls and procedures we will design and put in place to address this material weakness and plan to implement appropriate measures as part of this effort. these controls and procedures may include engagement of independent consultants to aid the Company in its review of future acquisitions for proper accounting. Any actions we have taken or may take to remediate this material weakness are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our board of Directors. We cannot assure you, in any way, even if we involve an independent consultant, that material weaknesses or significant deficiencies will not occur in the future and that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. changeS In Internal control over fInancIal rePortIng except as described above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the exchange Act) during our fiscal quarter ended october 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Calavo Growers, Inc. 2014 AnnuAl RepoR t 82 . 83 nIne MontHS enDeD Jul Y 31, 2014 AS RepoR teD ADJuStMentS ReSt AteD 20. SuBSeQuent eventS caSh f lowS from oP er atIng a c tIvItIeS : net income (loss) $ 25,859 $ (25,026) $ 833 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization provision for losses on accounts receivable loss from unconsolidated entities Interest on contingent consideration Contingent consideration and non-cash compensation related to the acquisition of RFG Stock compensation expense Gain on deconsolidation of FreshRealm Deferred income taxes effect on cash of changes in operating assets and liabilities: Accounts receivable Inventories, net prepaid expenses and other current assets Advances to suppliers Income taxes receivable other assets payable to growers trade accounts payable and accrued expenses net cash provided by operating activities caSh f lowS from Inve StIng a c tIvItIeS : Acquisitions of property, plant, and equipment Decrease in cash due to deconsolidation of FreshRealm Investment in Agricola Don Memo Investment in unconsolidated entity net cash used in investing activities caSh f lowS from fI nancIng a c tIvItIeS : payment of dividend to shareholders proceeds from revolving credit facility, net payments on long-term obligations proceeds from stock option exercises proceeds from issuance of FreshRealm stock net cash used in financing activities net increase in cash and cash equivalents Cash and cash equivalents, beginning of year 5,113 88 13 28 — 517 (12,622) — (8,759) (4,362) (3,280) 1,828 5,884 135 7,274 9,769 27,485 (7,085) (6,813) (1,730) (125) (15,753) (11,005) (5,250) (4,190) 130 10,000 (10,315) 1,417 8,019 Cash and cash equivalents, end of year $ 9,436 noncaSh InveStIng anD fI nancIng a c tIvItIeS : tax receivable increase related to stock option exercise Collection for Agricola belher Infrastructure Advance unrealized holding (losses) $ $ $ 191 845 (7,416) $ $ $ $ — — — — 40,767 — — (14,984) — — — — (757) — — — — — — — — — — — — — — — — — — — — — 5,113 88 13 28 40,767 517 (12,622) (14,984) (8,759) (4,362) (3,280) 1,828 5,127 135 7,274 9,769 27,485 (7,085) (6,813) (1,730) (125) (15,753) (11,005) (5,250) (4,190) 130 10,000 (10,315) 1,417 8,019 $ 9,436 $ $ $ 191 845 (7,416) We have evaluated subsequent events to assess the need for potential recognition or disclosure in this Annual Report on Form 10-K. Such events were evaluated through the date these financial statements were issued. Controls and procedures DiSClOSure COntrOlS AnD prOCeDureS Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the exchange Act, are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SeC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the exchange Act is accumulated and communicated to our management, including our Chief executive officer and Chief Financial officer, as appropriate to allow timely decisions regarding required disclosures. As of october 31, 2014, our management, with the participation of our Chief executive officer and Chief Financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) promulgated under the exchange Act. based on that evaluation and as a result of the material weakness in internal control over financial reporting as set forth below, the Company’s Chief executive officer and Chief Financial officer concluded that the Company’s disclosure controls and procedures were not effective as of october 31, 2014. our management’s annual report on internal control over financial reporting is set forth below. MAnAgeMent’S repOrt On internAl COntrOl Over FinAnCiAl repOrting our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief executive officer and Chief Financial officer, and effected by our board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. With the participation of the Chief executive officer and Chief Financial officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the 1992 “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring organizations of the treadway Commission. based upon this evaluation, our Chief executive officer and Chief Financial officer concluded that, as of october 31, 2014, our internal controls over financial reporting In January 2015, various class action lawsuits have been initiated against the company related to the restatement of previously-issued financial statements, we believe these are without merit and will defend ourselves vigorously. were not effective due to a material weakness in our controls over our accounting for contingent consideration as such applies to business combinations. As of october 31, 2014, there was a material weakness in the Company’s controls over its accounting for and reporting of contingent consideration as such applies to business combinations. Specifically, our controls did not properly identify the failure to apply generally accepted accounting principles with respect to what qualifies as an equity instrument vs. a liability instrument in a business combination. Initially, we recorded the contingent consideration, which was settleable in common stock, as an equity instrument and therefore did not record expense based on the changes in fair value of the contingent consideration. However, the contingent consideration should have been accounted for as a liability requiring re-measurement to fair value. As a result, material errors to the recorded contingent consideration occurred and were not timely detected. ernst & Young llp, an independent registered public accounting firm, issued an attestation report on the Company’s internal control over financial reporting as of october 31, 2014, as stated in their report which is included herein. remeDIatIon effortS to aDDreSS materIal weakneSS to remediate the material weakness described above, we are currently evaluating the controls and procedures we will design and put in place to address this material weakness and plan to implement appropriate measures as part of this effort. these controls and procedures may include engagement of independent consultants to aid the Company in its review of future acquisitions for proper accounting. Any actions we have taken or may take to remediate this material weakness are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our board of Directors. We cannot assure you, in any way, even if we involve an independent consultant, that material weaknesses or significant deficiencies will not occur in the future and that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. changeS In Internal control over fInancIal rePortIng except as described above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the exchange Act) during our fiscal quarter ended october 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Calavo Growers, Inc. 2014 AnnuAl RepoR t 82 . 83 report of independent registered public Accounting Firm report of independent registered public Accounting Firm the BOArD OF DireCtOrS AnD ShArehOlDerS OF CAlA vO grOwerS, inC. the BOArD OF DireCtOrS AnD ShArehOlDerS OF CAlA vO grOwerS, inC. We have audited the accompanying consolidated balance sheets of Calavo Growers, Inc. as of october 31, 2014 and 2013 (restated), We have audited Calavo Growers, Inc.’s internal control over financial reporting as of october 31, 2014, based on criteria established and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the years ended october 31, 2014, october 31, 2013 (restated) and october 31, 2012 (restated). our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). these financial statements and schedule are the responsibility of the Company’s management. our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the public Company Accounting oversight board (united States). those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Calavo Growers, Inc. at october 31, 2014 and 2013 (restated), and the consolidated results of its operations and its cash flows for the years ended october 31, 2014, october 31, 2013 (restated) and october 31, 2012 (restated), in conformity with u.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 3 to the consolidated financial statements, the october 31, 2013 and 2012 consolidated financial statements have been restated to correct errors for the improper accounting for business combination contingent consideration. We also have audited, in accordance with the standards of the public Company Accounting oversight board (united States), Calavo Growers, Inc.’s internal control over financial reporting as of october 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring organizations of the treadway Commission (1992 framework) and our report dated January 30, 2015 expressed an adverse opinion thereon. los Angeles, California January 30, 2015 in Internal Control-Integrated Framework issued by the Committee of Sponsoring organizations of the treadway Commission (1992 framework) (the CoSo criteria). Calavo Growers, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the public Company Accounting oversight board (united States). those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. the following material weakness has been identified and included in management’s report on internal control over financial reporting. Management has identified a material weakness in the design and operation of the Company’s controls over its accounting for business combination contingent consideration. We also have audited, in accordance with the standards of the public Company Accounting oversight board (united States), the consolidated balance sheets of Calavo Growers, Inc. as of october 31, 2014 and 2013 (restated) and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the years ended october 31, 2014, october 31, 2013 (restated) and october 31, 2012 (restated). this material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of those financial statements, and this report does not affect our report dated January 30, 2015, which expressed an unqualified opinion on those financial statements. In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Calavo Growers, Inc. has not maintained effective internal control over financial reporting as of october 31, 2014, based on the CoSo criteria. los Angeles, California January 30, 2015 84 . 85 Calavo Growers, Inc. 2014 AnnuAl RepoR t report of independent registered public Accounting Firm report of independent registered public Accounting Firm the BOArD OF DireCtOrS AnD ShArehOlDerS OF CAlA vO grOwerS, inC. the BOArD OF DireCtOrS AnD ShArehOlDerS OF CAlA vO grOwerS, inC. We have audited the accompanying consolidated balance sheets of Calavo Growers, Inc. as of october 31, 2014 and 2013 (restated), We have audited Calavo Growers, Inc.’s internal control over financial reporting as of october 31, 2014, based on criteria established and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the years ended october 31, 2014, october 31, 2013 (restated) and october 31, 2012 (restated). our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). these financial statements and schedule are the responsibility of the Company’s management. our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the public Company Accounting oversight board (united States). those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Calavo Growers, Inc. at october 31, 2014 and 2013 (restated), and the consolidated results of its operations and its cash flows for the years ended october 31, 2014, october 31, 2013 (restated) and october 31, 2012 (restated), in conformity with u.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 3 to the consolidated financial statements, the october 31, 2013 and 2012 consolidated financial statements have been restated to correct errors for the improper accounting for business combination contingent consideration. We also have audited, in accordance with the standards of the public Company Accounting oversight board (united States), Calavo Growers, Inc.’s internal control over financial reporting as of october 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring organizations of the treadway Commission (1992 framework) and our report dated January 30, 2015 expressed an adverse opinion thereon. los Angeles, California January 30, 2015 in Internal Control-Integrated Framework issued by the Committee of Sponsoring organizations of the treadway Commission (1992 framework) (the CoSo criteria). Calavo Growers, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the public Company Accounting oversight board (united States). those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. the following material weakness has been identified and included in management’s report on internal control over financial reporting. Management has identified a material weakness in the design and operation of the Company’s controls over its accounting for business combination contingent consideration. We also have audited, in accordance with the standards of the public Company Accounting oversight board (united States), the consolidated balance sheets of Calavo Growers, Inc. as of october 31, 2014 and 2013 (restated) and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the years ended october 31, 2014, october 31, 2013 (restated) and october 31, 2012 (restated). this material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of those financial statements, and this report does not affect our report dated January 30, 2015, which expressed an unqualified opinion on those financial statements. In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Calavo Growers, Inc. has not maintained effective internal control over financial reporting as of october 31, 2014, based on the CoSo criteria. los Angeles, California January 30, 2015 84 . 85 Calavo Growers, Inc. 2014 AnnuAl RepoR t Market for registrant’s Common equity, related Stockholder Matters and issuer purchases of equity Securities Corporate information In March 2002, our common stock began trading on the otC bulletin board under the symbol “CVGW.” In July 2002, our common stock began trading on the nasdaq national Market under the symbol “CVGW” and currently trades on the nasdaq Global Select Market. the following tables set forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the nasdaq Global Select Market. FISCAl 2014 First Quarter Second Quarter third Quarter Fourth Quarter HIGH loW FISCAl 2013 HIGH loW $ 32.49 $ 36.17 $ 35.23 $ 48.63 $ 28.30 First Quarter $ 28.69 Second Quarter $ 29.91 third Quarter $ 35.51 Fourth Quarter $ 24.74 $ 29.06 $ 31.68 $ 30.77 $ 20.88 $ 24.57 $ 25.66 $ 24.19 As of november 30, 2014, there were approximately 948 stockholders of record of our common stock. As previously reported on Current Reports on Form 8-K, we issued 1,531,996 shares of unregistered Calavo common stock per the RFG Amended Acquisition Agreement, in october 2014. We filed an S-3 registration statement registering the resale of 1,097,213 of these shares in october 2014. DiviDenD pOliCy our dividend policy is to provide for an annual dividend payment, as determined by the board of Directors. We anticipate paying dividends in the first quarter of our fiscal year. on December 8, 2014, we paid a $0.75 per share dividend in the aggregate amount of $13.0 million to shareholders of record on november 17, 2014. on December 12, 2013, we paid a $0.70 per share dividend in the aggregate amount of $11.0 million to shareholders of record on november 29, 2013. Shareowner return performance graph the following graph compares the performance of our common stock with the performance of the nasdaq Market Index and a peer Group of major diversified companies in our same industry for approximately the 60-month period beginning on october 31, 2009 and ending october 31, 2014. In making this comparison, we have assumed an investment of $100 in Calavo Growers, Inc. common stock, the nasdaq Market Index , and the peer Group Index as of october 31, 2009. We have also assumed the reinvestment of all dividends. comP arISon of 5-year cUmUlatIve total retUrn* Among Calavo Growers, Inc., the nASDAQ Composite Index, and a peer Group $400 $350 $300 $250 $200 $150 $100 $50 $0 10/09 10/10 10/11 10/12 10/13 10/14 Calavo Growers, Inc. nASDAQ Composite peer Group *$100 invested on 10/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending october 31. offIcerS aUDIt commIttee heaDQUarterS lecil e. cole Chairman, president and Chief executive officer arthur j. Bruno Chief operating officer Chief Financial officer Corporate Secretary rob wedin Vice president Fresh Sales and Marketing al ahmer Vice president Foods Division Sales and operations mike Browne Vice president Fresh operations james e. Snyder Corporate Controller Chief Accounting officer offIcer—calavo De meXIco Dionisio ortiz Vice president, operations PrIncIP al BoarD commItteeS eXecUtIve commIttee lecil e. cole Chairman j. link leavens First Vice Chairman Scott n. van Der kar Second Vice Chairman Dorcas h. thille Donald “mike” Sanders harold S. edwards egidio “gene” carbone, jr. Chairman george h. Barnes john m. hunt Steven w. hollister michael a. “mike” Digregorio nomInatIng & governance commIttee john m. hunt Chairman george h. Barnes marc Brown comPenSatIon commIttee Steven w. hollister Chairman james D. helin calavo growers, Inc. 1141A Cummings Road Santa paula, California 93060 telephone 805.525.1245 Fax 805.921.3219 www.calavo.com general coUnSel troy gould Pc los Angeles, California InDePenDent regIStereD PUBlIc accoUntIng fIrm ernst & young llP los Angeles, California InveStor & corPorate relatIonS coUnSel foleyfreisleben llc los Angeles, California michael a. “mike” Digregorio form 10-k A copy of the company’s annual report as filed upon Form 10-K is available upon request to the Corporate Controller or online from the Securities and exchange Commission at www.sec.gov. tranSfer agent & regIStrar computershare trust Company, n.A. Canton, Massachusetts common Stock lIStIng Shares of the company’s common stock are listed on the nasdaq Global Select Market under the symbol CVGW. oPeratIng DIrectorS & managerS Bruce Spurrell Director, purchasing and Risk Management john agapin Director, Systems Analysis and planning michael f. Derr Director, Fresh packing michael angelo Director, national Fresh Sales Patricia D. vorhies Director, Human Resources gary m. gunther Director, Fresh operations Special projects michael lippold Director, Strategic Development joseph malagone packinghouse Manager, Santa paula francisco orozco packinghouse Manager, temecula Calavo Growers, Inc. 2014 AnnuAl RepoR t 86 . 87 Market for registrant’s Common equity, related Stockholder Matters and issuer purchases of equity Securities Corporate information In March 2002, our common stock began trading on the otC bulletin board under the symbol “CVGW.” In July 2002, our common stock began trading on the nasdaq national Market under the symbol “CVGW” and currently trades on the nasdaq Global Select Market. the following tables set forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the nasdaq Global Select Market. FISCAl 2014 First Quarter Second Quarter third Quarter Fourth Quarter HIGH loW FISCAl 2013 HIGH loW $ 32.49 $ 36.17 $ 35.23 $ 48.63 $ 28.30 First Quarter $ 28.69 Second Quarter $ 29.91 third Quarter $ 35.51 Fourth Quarter $ 24.74 $ 29.06 $ 31.68 $ 30.77 $ 20.88 $ 24.57 $ 25.66 $ 24.19 As of november 30, 2014, there were approximately 948 stockholders of record of our common stock. As previously reported on Current Reports on Form 8-K, we issued 1,531,996 shares of unregistered Calavo common stock per the RFG Amended Acquisition Agreement, in october 2014. We filed an S-3 registration statement registering the resale of 1,097,213 of these shares in october 2014. DiviDenD pOliCy our dividend policy is to provide for an annual dividend payment, as determined by the board of Directors. We anticipate paying dividends in the first quarter of our fiscal year. on December 8, 2014, we paid a $0.75 per share dividend in the aggregate amount of $13.0 million to shareholders of record on november 17, 2014. on December 12, 2013, we paid a $0.70 per share dividend in the aggregate amount of $11.0 million to shareholders of record on november 29, 2013. Shareowner return performance graph the following graph compares the performance of our common stock with the performance of the nasdaq Market Index and a peer Group of major diversified companies in our same industry for approximately the 60-month period beginning on october 31, 2009 and ending october 31, 2014. In making this comparison, we have assumed an investment of $100 in Calavo Growers, Inc. common stock, the nasdaq Market Index , and the peer Group Index as of october 31, 2009. We have also assumed the reinvestment of all dividends. comP arISon of 5-year cUmUlatIve total retUrn* Among Calavo Growers, Inc., the nASDAQ Composite Index, and a peer Group $400 $350 $300 $250 $200 $150 $100 $50 $0 10/09 10/10 10/11 10/12 10/13 10/14 Calavo Growers, Inc. nASDAQ Composite peer Group *$100 invested on 10/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending october 31. offIcerS aUDIt commIttee heaDQUarterS lecil e. cole Chairman, president and Chief executive officer arthur j. Bruno Chief operating officer Chief Financial officer Corporate Secretary rob wedin Vice president Fresh Sales and Marketing al ahmer Vice president Foods Division Sales and operations mike Browne Vice president Fresh operations james e. Snyder Corporate Controller Chief Accounting officer offIcer—calavo De meXIco Dionisio ortiz Vice president, operations PrIncIP al BoarD commItteeS eXecUtIve commIttee lecil e. cole Chairman j. link leavens First Vice Chairman Scott n. van Der kar Second Vice Chairman Dorcas h. thille Donald “mike” Sanders harold S. edwards egidio “gene” carbone, jr. Chairman george h. Barnes john m. hunt Steven w. hollister michael a. “mike” Digregorio nomInatIng & governance commIttee john m. hunt Chairman george h. Barnes marc Brown comPenSatIon commIttee Steven w. hollister Chairman james D. helin calavo growers, Inc. 1141A Cummings Road Santa paula, California 93060 telephone 805.525.1245 Fax 805.921.3219 www.calavo.com general coUnSel troy gould Pc los Angeles, California InDePenDent regIStereD PUBlIc accoUntIng fIrm ernst & young llP los Angeles, California InveStor & corPorate relatIonS coUnSel foleyfreisleben llc los Angeles, California michael a. “mike” Digregorio form 10-k A copy of the company’s annual report as filed upon Form 10-K is available upon request to the Corporate Controller or online from the Securities and exchange Commission at www.sec.gov. tranSfer agent & regIStrar computershare trust Company, n.A. Canton, Massachusetts common Stock lIStIng Shares of the company’s common stock are listed on the nasdaq Global Select Market under the symbol CVGW. oPeratIng DIrectorS & managerS Bruce Spurrell Director, purchasing and Risk Management john agapin Director, Systems Analysis and planning michael f. Derr Director, Fresh packing michael angelo Director, national Fresh Sales Patricia D. vorhies Director, Human Resources gary m. gunther Director, Fresh operations Special projects michael lippold Director, Strategic Development joseph malagone packinghouse Manager, Santa paula francisco orozco packinghouse Manager, temecula Calavo Growers, Inc. 2014 AnnuAl RepoR t 86 . 87 Calavo Growers, Inc. is a leading packer and marketer of fresh and prepared avocados throughout the united States and other countries globally, as well as an expanding distributor of other diversified produce items sold under the company’s well-respected brand name and its Maui Fresh label, a wholly owned subsidiary. the company supplies wholesale, retail, restaurant and institutional food service customers on a world-wide basis through its three principal operating units—Fresh products, Calavo Foods and Renaissance Food Group, llC (RFG). Calavo packs, markets and distributes about 22 percent of the available all-source fresh avocado supply to the united States and Canada, nearly twice the market share of its closest competitor. the company sources these avocados from California, Mexico and Chile to satisfy year-round domestic demand, for export and for use in prepared products. Calavo is also a leading marketer of fresh fruit grown in the Hawaiian Islands, including papayas and other tropical-produce items. other diversified fresh produce items include Calavo-brand tomatoes and pineapples, as well as Hispanic specialties such as a wide range of chilies. the company’s Calavo Foods business unit manufactures and distributes prepared items including fresh refrigerated guacamole and other avocado products, as well as guacamole hummus. under the Calavo Salsa lisa brand, the company produces and sells six varieties of wholesome refrigerated fresh salsa made with all-natural ingredients. the company also distributes Calavo premium tortilla Chips. Calavo’s RFG business unit, acquired in June 2011, is a leader in the fast-growing refrigerated fresh packaged goods category through an array of retail product lines for produce, deli, meat and food-service departments sold under brands that include Garden Highway and Chef essentials. Founded in 1924 as a grower-owned cooperative, Calavo today is publicly traded on the nasdaq Global Select Market under the ticker symbol CVGW. employing nearly 2,000 people, the company is headquartered in Santa paula, California, where it also operates one of three fresh- avocado packinghouses and a Value Added Depot, housing sales, distribution and advanced ripening technologies. Calavo’s additional two packinghouses are located in temecula, California and uruapan, Michoacán, Mexico, where the company also operates its prepared-avocado manufacturing facility. there are additional Value Added Depots equipped with the company’s proprietary proRipeVIp® technology in Dallas, texas and Swedesboro, new Jersey. RFG operates six production and distribution centers strategically situated across the united States. Calavo. Creative Direction: Dan mcnulty Designed: mc BrandStudios www.mc-brandstudios.com Concept/editorial: foleyfreisleben llc www.folfry.com photography: marcelo coelho www.marcelocoelho.com printing: jano graphics www.janographics.com 88 . Calavo Growers, Inc. 2014 AnnuAl RepoR t Senior Management (from left to right) Arthur J. BrunO Chief OperatingOfficer, Chief Financial Officer and Corporate Secretary rOB weDin Vice President, Fresh Sales and Marketing Al AhMer Vice President, Foods Division Sales and Operations Mike BrOwne Vice President, Fresh Operations Calavo Growers, Inc. is a leading packer and marketer of fresh and prepared avocados throughout the united States and other countries globally, as well as an expanding distributor of other diversified produce items sold under the company’s well-respected brand name and its Maui Fresh label, a wholly owned subsidiary. the company supplies wholesale, retail, restaurant and institutional food service customers on a world-wide basis through its three principal operating units—Fresh products, Calavo Foods and Renaissance Food Group, llC (RFG). Calavo packs, markets and distributes about 22 percent of the available all-source fresh avocado supply to the united States and Canada, nearly twice the market share of its closest competitor. the company sources these avocados from California, Mexico and Chile to satisfy year-round domestic demand, for export and for use in prepared products. Calavo is also a leading marketer of fresh fruit grown in the Hawaiian Islands, including papayas and other tropical-produce items. other diversified fresh produce items include Calavo-brand tomatoes and pineapples, as well as Hispanic specialties such as a wide range of chilies. the company’s Calavo Foods business unit manufactures and distributes prepared items including fresh refrigerated guacamole and other avocado products, as well as guacamole hummus. under the Calavo Salsa lisa brand, the company produces and sells six varieties of wholesome refrigerated fresh salsa made with all-natural ingredients. the company also distributes Calavo premium tortilla Chips. Calavo’s RFG business unit, acquired in June 2011, is a leader in the fast-growing refrigerated fresh packaged goods category through an array of retail product lines for produce, deli, meat and food-service departments sold under brands that include Garden Highway and Chef essentials. Founded in 1924 as a grower-owned cooperative, Calavo today is publicly traded on the nasdaq Global Select Market under the ticker symbol CVGW. employing nearly 2,000 people, the company is headquartered in Santa paula, California, where it also operates one of three fresh- avocado packinghouses and a Value Added Depot, housing sales, distribution and advanced ripening technologies. Calavo’s additional two packinghouses are located in temecula, California and uruapan, Michoacán, Mexico, where the company also operates its prepared-avocado manufacturing facility. there are additional Value Added Depots equipped with the company’s proprietary proRipeVIp® technology in Dallas, texas and Swedesboro, new Jersey. RFG operates six production and distribution centers strategically situated across the united States. Calavo. Creative Direction: Dan mcnulty Designed: mc BrandStudios www.mc-brandstudios.com Concept/editorial: foleyfreisleben llc www.folfry.com photography: marcelo coelho www.marcelocoelho.com printing: jano graphics www.janographics.com 88 . Calavo Growers, Inc. 2014 AnnuAl RepoR t Senior Management (from left to right) Arthur J. BrunO Chief OperatingOfficer, Chief Financial Officer and Corporate Secretary rOB weDin Vice President, Fresh Sales and Marketing Al AhMer Vice President, Foods Division Sales and Operations Mike BrOwne Vice President, Fresh Operations Calavo Growers, Inc. 2014 AnnuAl RePoR t Calavo Growers, Inc. 1141A Cummings Road, Santa Paula, California 93060 www.calavo.com Eat. Live. Grow. 

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