CA L AVO GROW ER S, I NC.
1141 Cummings Road,
Santa Paula, California 93060
www.calavo.com
CG 805 525 1245
financial highlights
Operating highlights
The prior year was one of exceptional accomplishment. Revenues and
Calavo’s newest fresh avocado packinghouse came online in Jalisco,
gross margin rose to new all-time highs. Net income and per-share
Mexico. Renaissance Food Group scaled up operations in Florida, Texas
results nearly equaled the record levels set in fiscal 2016. These financial
and Southern California to achieve greater customer penetration and
results squarely position Calavo for future growth across all three
seamless, just-in-time national distribution. These additional production
business segments.
facilities crown an intensive four years of capital investment.
new plants
new products
new demand
Through this multi-year expansion
effort, RFG grows its footprint with
new facilities in Jacksonville, Fla.
and Riverside, Calif., and enlarged
capacity in Houston, Texas, to
put us closer to our growing
With these new facilities, RFG
is speeding its rate of product
development. A lineup of value-
added fresh meal kits is driving
growth—well-received by
Fresh avocado demand continues
to surge both domestically
and around the globe. Our
sourcing, production and sales
management—Calavo strengths—
consumers who increasingly
are linchpins of company initiatives
customer base.
crave healthy choices and require
to keep pace with and meet
convenient cooking options.
growing consumption.
01
10
A decade of vision
Taking the long view—our path to $1 billion
A Focused strategy...
Calavo’s multi-platform model—three business segments that
have driven our consistent, upward revenue and earnings trend
lines—are at the center of the company’s strategic agenda. These
highly complementary segments—Fresh, Renaissance Food
Group (RFG), and Calavo Foods—are part of our decade-long
concentration to leverage: our core strength in an expanding
avocado industry; the growing consumer preference for healthy
fresh fruits and vegetables; and the company’s unrivaled
distribution expertise. The three segments benefit, as well,
from synergies in sourcing and a shared refrigerated
distribution infrastructure.
…To Seize Market Opportunities
Our avocado industry leadership, including broad, deep
resources in sales and production management, will enable
Calavo’s further penetration in a category where fresh fruit
consumption continues to rise at near-double-digit annual rates.
RFG’s rapid growth—25 consecutive quarters of double-digit,
year-over-year sales gains through fiscal 2017—underscores
demographic shifts and consumer demand for fresh, refrigerated
fruits and vegetables, as health and convenience are sought
more than ever before. We have built an infrastructure that is the
envy of the industry: one of the most complete food distribution
networks with 15 facilities seamlessly covering the country
and with capacity for future growth.
03
Fresh Avocados
2017 Domestic Consumption
global
currency
Rising Consumer Demand Drives…
The fresh avocado industry—which Calavo created and remains at the
forefront of—continues its brisk expansion. Domestic consumption has
more than doubled within the last decade, reaching 2.2 billion pounds in
fiscal 2017. That translates to near-double-digit annual growth over that
period—to about seven pounds per capita consumption, up from three
pounds in 2009. And expansion is expected to continue accelerating: early
industry outlook calls for an all-source supply that should rise more than 20
percent again in 2018. Demographic shifts, avocados’ healthful properties,
and strong industry marketing are catalysts for domestic growth.
…the Avocado Growth Trajectory
Calavo resides in the avocado “sweet spot.” We possess sourcing, sales
and production-management leadership that enable our success even
in challenging market conditions such as the industry encountered last
year when demand outstripped available supply. Significant capital
investment—most notably, Calavo’s Jalisco, Mexico packinghouse which
began operations in fiscal 2017—expand our fresh avocado packing
capacity to meet growing demand in markets including Asia, Canada and
Europe. The avocado-consumption growth trajectory—both domestically
and internationally—is headed in one direction: upward.
★ ★ ★ ★ ★
Jalisco, Mexico
05
2.2billion pounds★
Renaissance Food Group
Placing Us Closer than Ever to Customers
★ ★ ★ ★ ★
the currency of
distribution
Seamless Distribution Coverage…
RFG’s rapid expansion took further root in fiscal 2017, continuing its ascent
as a leader in fresh-cut fruits and vegetables, as well as refrigerated
prepared foods. These value-added categories are among the fastest-
growing segments of the retail grocery industry. A series of capital
investments over the past four years has added new production facilities
in Jacksonville, Florida and Riverside, California, along with the substantial
enlargement of its plant in Houston, Texas, positioning the RFG segment for
deeper penetration to customers in new geographic markets.
…Ensures Just-In-Time Delivery
Indicative of this success, RFG posted sales growth above 25 percent last
year and marked its 25th consecutive year-over-year quarter of double-
digit top-line gains. This impressive growth rate is attributable to RFG’s
capabilities for partnering with its customers for complete fresh-food
solutions on exacting time tables. Expanding upon Calavo’s success in
refrigerated food distribution, seven strategically located facilities nationwide
provide RFG the platform for the most wholesome made-to-order products
delivered just-in-time to grocers nationwide.
Sacramento, CA
Riverside, CA
Portland, OR
Houston, TX
Indianapolis, IN
Jacksonville, FL
Rosenhayn, NJ
07
7production facilitiesnationwide
Healthy, Convenient Options
INSIDE THE PRODUCT
VAULT
A Growing Treasure Trove of Fresh Foods
A Range of Full-Scale Prepared
Food Solutions...
Behind our respected family of brands—Calavo, Chef Essentials, Garden
Highway, Salsa Lisa and even products sold under grocers’ own store
labels—is a relentless commitment to quality. At the core is a dynamic
product-development capability—an RFG hallmark and key differentiator—
where the rapidly expanding portfolio meets the shifting consumer
preference for fresh, healthy, convenient and on-the-go eating alternatives.
…To Capture Rapidly Shifting
Consumer Preference
RFG is on the leading edge of the trend by offering exciting choices and
a budding lineup of fresh prepared meal-kit components and ready-to-
heat options to meet rising demand. The products are genuine game-
changers—both for their convenience to consumers and their farm-fresh
great taste—and they’re driving RFG’s rapid growth. We are able to deliver
fruit bursting with flavor and the crispest vegetables through just-in-time
distribution, ensuring our products reach customers optimally fresh.
As revenue drivers, value-added fresh fruits and vegetables, along with
prepared foods, are among the fastest-growing segments of the grocery
industry. Calavo Foods’ popular fresh guacamole, salsas and dips—with
an expanding array of offerings and packaging configurations—also
occupy a category that is developing at a quick rate and deepen the
company’s retail brand presence.
★ ★ ★ ★ ★
Expanding Product Lineup
Retail Grocers and Food
Distributors Nationwide
09
Investment & Return of Capital
Building
Value for Our
Owners
3
Pillars
SHAREHOLDER RETURN
Calavo remains committed to the dual objectives of returning the highest possible amounts to
its shareholders through the annual cash dividend on its common stock while retaining ample
capital for reinvestment into the growth of its various business segments. The company’s
consistent, steadily growing profitability has enabled it to balance these goals. Once again
last year, Calavo returned more than $16.7 million, or 95 cents per common share, to its stock
owners via the dividend, which increased for the fifth consecutive year and has risen at a
compounded average rate of nearly 8 percent over that period.
WEALTH CREATION
Our strong operating results over the past five years—during which revenues, gross profit and
net income have climbed at double-digit rates annually—have fueled strong appreciation of
CVGW shares. At October 31, 2017, Calavo’s market capitalization stood at nearly $1.3 billion.
How does this translate to our shareholders? Consider that $10,000 invested in Calavo stock on
November 1, 2002, along with reinvested dividends, would have grown nearly $147,000 at the
most recent fiscal-year end.
INVESTMENT AND REINVESTMENT
Over the past four years, Calavo has made more than $95 million in capital expenditures to build,
strengthen and diversify its businesses, investing in facilities, people, equipment and product
development. Similarly, strategic investments in unconsolidated subsidiaries—Limoneira,
FreshRealm and Agricola Don Memo—are prospective growth catalysts for our company and,
by extension, its shareholders.
11
To Our Shareholders
Fiscal 2017 was a monumental
year for Calavo Growers, Inc.,
as we once again advanced our
strategic agenda with great
success. Among the company’s
notable accomplishments
were:
1 Posting record revenues as our top line increased by double-digit
percentages and surpassed the $1 billion-in-sales threshold;
1 Expanding fresh avocado production capacity measurably to satisfy rising
demand with the opening of our newest packinghouse in Jalisco, Mexico;
1 Completing a multi-year series of initiatives—adding plants and products—in
the Renaissance Food Group (RFG) business segment to pace our leadership in the
value-added fresh fruit, vegetable, and prepared foods category; and,
1 Delivering higher shareholder return through an increased annual cash
dividend on Calavo’s common stock, even while making the aforementioned
investments to drive our growth.
Reflecting on these achievements, what occurred to me is that underlying the
growth and considerable value creation into which it translates for shareholders,
Calavo avocados and family of fresh foods are themselves a formidable currency—
specifically, Fresh Currency, the theme of this year’s annual report.
~ 2017 ~
FINANCIAL
RESULTS
Revenue
(Dollars in Millions)
$1,076
$935.7
$856.8
$782.5
$691.5
13
14
15
16
17
Gross Margin
(Dollars in Millions)
LEE E. COLE
CHAIRMAN, PRESIDENT AND CEO
Let me recap operating results for the fiscal-year-ended October 31, 2017. Net
$114 .5
income registered $37.3 million, equal to $2.13 per diluted share, virtually equal
to $38.0 million, or $2.18 per diluted share—the all-time high recorded in fiscal
2016. Revenues climbed 15 percent to a record $1.08 billion from $935.7 million the
prior year. Gross margin rose by $7 million in the most-recent year to reach a new
historic level of $114.5 million from $107.5 million in fiscal 2016.
$107.5
$85.2
$71.2
$59.4
In recognition of our outstanding financial performance, Calavo’s Board of
Directors declared a 95 cent per share annual cash dividend on our common
stock, returning more than $16.7 million to owners. This year’s award was nearly
a six percent increase from fiscal 2016. During the past five years, the dividend
has increased at a compound average growth rate of almost eight percent. Our
ability to deliver these returns and create value for shareholders—Calavo’s market
capitalization standing at nearly $1.3 billion at fiscal-year end—are sources of
immense pride.
13
14
15
16
17
13
$
Net Income
(Dollars in Millions)
$38.0
$37.2
$27.2
$25.0
$17.3
13
14
15
16
17
The pace of Calavo’s progress continues to quicken. To place in context just
how far our company has come, consider revenues have doubled in the past
five years from just over $550 million in fiscal 2012, compounding at an annual
growth rate exceeding 12 percent. Gross margin dollars, too, have virtually
doubled in the past five years—again, a mid-teen growth rate. Revenue and
margin growth have lifted Calavo’s bottom line, as adjusted per-share results
registered an almost two-fold increase during this same five-year period.
To what do we attribute this success? A deep focus on our three principal
business segments and disciplined implementation of the company’s strategic
plan. These complementary units are the principal factor in our consistent,
sustained revenue and earnings growth. As avocados have surged in
popularity, we have built on our historic leadership to ride the crest of this
growth. Our capabilities—end-to-end strength in sourcing, sales, marketing,
distribution and production management—are the envy of the industry. In
concert with surging domestic and global demand, Calavo has expanded fresh
avocado infrastructure to capitalize on these opportunities. We remain on
the forward edge of avocado-industry growth fueled by demographic change,
health and outstanding marketing. While comprising a smaller portion of our
Fresh business than avocados, our tomato and papaya operations provide solid
incremental sales and margin contribution to round out the segment.
The second prong of this strategy is RFG. This business segment’s
rapid advancement is compelling validation of Calavo’s decision to invest
significantly to build a best-in-category, value-added fresh fruit, vegetable and
prepared foods business. As we predicted, the rising groundswell of consumer
preference for healthy and convenient food choices put RFG in the “sweet
spot:” one of the fastest-growing segments in the retail grocery channel.
Specifically, RFG’s ascent in the fresh meal-kits and ready-to-eat foods are
game changers. RFG’s outstanding product-development capabilities, in
concert with Calavo’s deep expertise in assembling a seamless, nationwide
food-distribution infrastructure, have propelled the segment.
Together, our Calavo Foods business segment of guacamole, salsas and dips,
along with RFG, make available a great family of products and strengthen the
presence of our sterling brands—Calavo, Garden Highway, Chef Essentials
and Salsa Lisa—at the retail grocery level. Strategic focus and disciplined
implementation aside, I have long maintained there is no substitute in our
business for great-tasting, high-quality products. That is the axiom essential
to success—and a strength underlying our family of fresh brands. We source
only the best. We possess innovative product development and state-of-
the-art manufacturing to create new offerings. And we have put in place the
distribution apparatus to ensure that they reach customers and consumers
fresh and bursting with flavor.
Calavo has not been reluctant to deploy its considerable financial resources
to execute our strategy. In the past four years alone, our company made
capital investments totaling more than $95 million in the “Three Ps:” plants,
products and people. Among them are the Jalisco, Mexico fresh avocado
packinghouse and, in the RFG segment, new production facilities in Riverside,
California and Jacksonville, Florida, and expansion of an existing plant in
Houston, Texas.
As internal growth quickens, we remain focused on our core businesses,
each segment offering the platform for “bolt-on” acquisitions if opportunities
present themselves. Our success integrating and building RFG is case-in-
point. We are vigilant, have the financial resources at our disposal, and
routinely evaluate prospective transactions. However, any deal will have to
be complementary to our current segments and immediately accretive to
earnings.
Earnings Per
Share
(Dollars)
$2.18
$2.13
Similarly, Calavo’s judicious investments in unconsolidated subsidiaries
hold excellent potential: Nasdaq-listed Limoneira Co., whose substantial
avocado crop we also pack and market; tomato-growing partner Agricola Don
Memo; and FreshRealm, a food technology and distribution platform for
fresh prepared products.
$1.57
$1.45
$1.11
13
14
15
16
17
Calavo’s future has never been more exciting. With the framework in
place, I expect further acceleration of growth. Domestic avocado demand—
increasing at double-digit rates—will remain on its extended upward arc.
Global consumption—particularly emerging Asian markets but also Canada
and Europe—will also increase at an equally brisk, if not faster, rate. RFG is
well positioned—with plants, products and people squarely in place—for
continued customer and geographic penetration.
As we move forward into this ever-brighter future, I conclude, as always,
with thanks—in fact, a billion of ‘em!—to our Board for stewardship and
sound judgment, Calavo’s management team and employees for their tireless
dedication, and to our customers and their customers, as well, for their
support. To you, my fellow shareholders, I extend immense gratitude for your
loyalty which we work day-in and day-out to maintain and reward.
Sincerely,
Lee E. Cole
Chairman, president and Chief Executive Officer
March 4, 2018
15
LECIL E. COLE
Chairman, President and CEO
Calavo Growers, Inc.
Santa Paula, California
BOARD OF
DIRECTORS 13
Directors
CORPORATE HEADQUARTERS
Santa Paula, California
J. LINK LEAVENS
SCOTT N. VAN DER KAR
DORCAS H. THILLE
First Vice Chairman, General Manager
Second Vice Chairman, General Manager, Van
Owner and Operator, J.K. Thille Ranches
Leavens Ranches, Ventura, California
Der Kar Family Farms, Carpinteria, California
Santa Paula, California
JOHN M. HUNT
Manager, Embarcadero Ranch
Goleta, California
DONALD “MIKE” SANDERS
President, S&S Grove Management
Escondido, California
EGIDIO “GENE“ CARBONE, JR.
Retired CFO, Calavo Growers, Inc.
Santa Paula, California
HAROLD S. EDWARDS
President and CEO, Limoneria Company
Santa Paula, California
STEVEN W. HOLLISTER
Managing Member, Rocking Spade, LLC
Arroyo Grande, California
MARC L. BROWN
Attorney/Partner, Troy Gould PC
Los Angeles, California
JAMES D. HELIN
MICHAEL A. “MIKE” DIGREGORIO
President, CEO, JDH Associates
Board & Strategic Advisory Services
Los Angeles, California
Westlake Village, California
KATHLEEN HOLMGREN
Management Consultant
Ventura, California
16
17
Financial Section
Selected Consolidated Financial Data
The following summary of consolidated financial data (other than pounds information) for each of the years in the five-year period ended
October 31, 2017, are derived from the audited consolidated financial statements of Calavo Growers, Inc.
(1)
In July 2013, we entered into an Amended and Restated Limited Liability Company Agreement of FreshRealm. When we deconsolidated FreshRealm
(see below), principal operations had not yet commenced. As a result, FreshRealm had no sales or cost of sales. FreshRealm had 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.
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,
2017
2016
2015
2014
2013
(In thousands, except per share data)
INCOME STATEMENT DATA: (1)(2)( 5)( 6 )
Net sales
Gross profit
Selling, general and administrative
Net income attributable to Calavo Growers, Inc.
Basic net income per share
Diluted net income per share
$
$
2.14
2.13
$
$
2.19
2.18
$
$
1.57
1.57
$
$
$ 1,075,565
$
935,679
$
856,824
$
782,510
$
691,451
114,544
107,534
56,651
37,270
46,440
38,022
85,227
41,558
27,199
71,228
36,605
97
0.01
0.01
$
$
59,448
33,485
(1,795)
(0.12)
(0.12)
(2)
In May 2014, we deconsolidated FreshRealm (see 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. For fiscal 2017 and 2016, we contributed $7.5 million and $3.2 million as investments in FreshRealm.
Our total investment of $28.4 million and $21.0 million in FreshRealm as of October 31, 2017 and 2016, has been recorded as investment in unconsolidated
subsidiaries on our balance sheet.
(3)
In July 2015, Calavo Growers de Mexico entered into a Shareholder Agreement with Belo, a Mexican Company owned by Agricola Belher, and Don Memo.
Don Memo, a Mexican corporation created in July 2013, is engaged in the business of owning and improving land in Jalisco, Mexico for the growing of
tomatoes and other produce and the sale and distribution of tomatoes and other produce. In fiscal 2017, 2016, 2015, and 2013, we contributed $0.5 million,
$2.3 million, $1.0 million, and $1.0 million as investments in Don Memo. In fiscal 2015 and 2014, we advanced $0.8 million and $3.2 million. These monies
totaling $4.0 million, effectively a bridge loan, were repaid in the first quarter of fiscal 2016. We had recorded such loans in prepaids and other current assets.
(4) Cost of Sales for fiscal 2014 and 2013 include non-cash compensation expenses related to the acquisition of RFG totaling $1.8 million, and $0.7 million. These
non-cash expenses will not continue in the future.
(5) Selling, General, and Administrative expenses for fiscal 2014 and 2013 include non-cash compensation expenses related to the acquisition of RFG totaling
$0.7 million, and $0.3 million. These non-cash expenses will not continue in the future.
(6)
Included in accrued liabilities as of October 31, 2013 is a non-cash, contingent consideration liability totaling $15.6 million related to the acquisition of RFG.
This liability resolved during fiscal 2014 and will not continue in the future.
BAL ANCE SHEET DATA
AS OF END OF PERIOD:
Working capital
Total assets
Accrued expenses
Current portion of long-term obligations
Long-term obligations, less current portion
$
3,661
$
25,612
$
18,964
$
22,047
$
(3,252)
364,117
327,933
284,945
283,464
39,946
31,095
21,311
25,303
129
439
138
445
2,206
586
5,099
2,791
239,810
36,541
5,258
7,792
Shareholders’ equity
244,122
215,069
185,982
179,406
119,093
CASH FLOWS PROVIDED BY
(USED IN):
Operations
Investing(2)(3)(4)
Financing(4)
OTHER DATA:
Cash dividends declared per share
Net book value per share
Pounds of California avocados sold
Pounds of non-California avocados sold
Pounds of processed avocados products sold
$
62,140
$
61,968
$
37,283
$
24,547
$
13,712
(53,668)
(15,689)
(21,731)
(33,566)
(21,054)
(15,802)
(21,753)
(4,069)
(7,746)
(5,050)
$
$
0.95
13.92
$
$
0.90
12.33
$
$
0.80
10.70
$
$
0.75
10.37
$
$
53,875
245,463
29,911
109,545
278,200
26,773
75,538
74,438
312,710
258,940
27,182
26,451
0.70
7.58
141,400
218,244
21,636
18
19
CALAVO1B1B
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 our Annual Report 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 retail grocery, foodservice, club
stores, mass merchandisers, food distributors and wholesalers
on a worldwide basis. We procure avocados from California,
Mexico and other growing regions around the world. Through
our various operating facilities, we (i) sort, pack, and/or
ripen avocados, tomatoes and/or Hawaiian grown papayas,
(ii) process and package a portfolio of healthy fresh foods
including fresh-cut fruit, fresh-cut vegetables, and prepared
foods and (iii) process and package guacamole and salsa. We
report our operations in three different business segments:
Fresh products, Calavo Foods and RFG. See Note 11 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. During
fiscal 2017, we operated two packinghouses and four operating
and distributing facilities that handle avocados across the United
States. We believe that our continued success in marketing
avocados is largely dependent upon securing a reliable, high-
quality supply of avocados at reasonable prices, and keeping the
handling costs low as we ship avocados to our packinghouses
and distribution centers. We believe our diversified avocado
sources help provide a level of relative supply stability that may,
over time, serve to increase the availability and demand for
avocados among consumers in the United States and elsewhere
in the world. Significant fluctuations in the volume of avocados
delivered have an impact on the per pound packing costs of
avocados we handle. Generally, larger crops will result in a
lower per pound handling cost. As a result of our investment in
packinghouse equipment, distribution centers with value-added
ripening and packing capabilities, and personnel, we believe that
our cost structure is geared to optimally handle larger avocado
volume. We believe our efforts in distributing our other various
perishable foods, such as tomatoes and papayas, complement
our offerings of avocados. From time to time, we continue to
explore the distribution of other crops that provide reasonable
returns to our 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 freshness of our refrigerated guacamole and
relatively longer shelf-life of our frozen guacamole, we believe
that we are well positioned to address the diverse taste and
needs of today’s foodservice and retail customers. Additionally,
we also prepare various fresh salsa products. Our Calavo
Foods segment maintains relationships with foodservice
companies and food retailers. We continue to seek to expand
our relationships with major foodservice companies and food
retailers and develop alliances that will allow our products to
reach a larger percentage of the marketplace.
Net sales of frozen products represented approximately
47% and 50% of total processed segment sales for the years
ended October 31, 2017 and 2016. Net sales of our refrigerated
products represented approximately 53% and 50% of total
processed segment sales for the years ended October 31, 2017
and 2016.
Our RFG business produces, markets and distributes
nationally a portfolio of healthy, high quality fresh packaged
food products for consumers sold through the retail channel.
RFG products include fresh-cut fruit and vegetables, fresh
prepared entrée salads, wraps, sandwiches and fresh snacking
products, as well as ready-to-heat entrees and other hot bar
and various deli items, meals kits and salad kits. RFG products
are marketed under the Garden Highway Fresh Cut, Garden
Highway, and Garden Highway Chef Essentials brands, as well
as store-brand and private label programs.
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, including
but not limited to 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, the utilization of production capacity at our various
plant locations, 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
Dividend Payment
On October 4, 2017, the Company declared a $0.95 per share
cash dividend to shareholders of record on November 17, 2017.
On December 8, 2017, the Company paid this cash dividend
which totaled $16.7 million.
Riverside facility
On November 1, 2016, we acquired certain real property,
consisting of land, a refrigerated building and select
production and office equipment located at 1730 Eastridge
Avenue, Riverside, California from Fresh Foods, LLC for total
consideration of approximately $19.4 million. We intend to
operate the refrigerated facility as part of our network of USDA
and organic certified fresh food facilities.
The Thomas fire
We have multiple facilities located in Santa Paula, California,
most notably our corporate headquarters. None of our facilities
sustained damage from the Thomas fire in California and
disruption to our operations was minimal. We do not expect
the fires in Ventura County to have a significant impact on our
avocado volumes or earnings. We expect to manage through
any shortfall in the Ventura County avocado supply through
our diversified avocado sourcing.
Litigation
We are currently a named defendant in two class action
lawsuits filed in Superior state courts in California alleging
violations of California wage-and-hour laws, failure to pay
overtime, failure to pay for missed meal and rest periods, failure
to provide accurate itemized wage statements, failure to pay all
wages due at the time of termination or resignation, as well as
statutory penalties for violation of the California Labor Code and
Minimum Wage Order-2014.
In August 2017, the parties reached a tentative settlement of
the case, whereby we agreed to pay $0.4 million to resolve the
allegations and avoid further distraction that would result if the
litigation continued. The settlement is subject to court approval.
The Company recorded $0.4 million as a selling, general and
administrative expense in the third quarter of fiscal 2017.
From time to time, we are also involved in other litigation
arising in the ordinary course of our business that we do not
believe will have a material adverse impact on our financial
statements.
Mexico tax audits
We conduct business internationally and, as a result, one or
more of our subsidiaries files income tax returns in U.S. federal,
U.S. state and certain foreign jurisdictions. Accordingly, in
the normal course of business, we are subject to examination
by taxing authorities, primarily in Mexico and the United
States. During our third quarter of fiscal 2016, our wholly-
owned subsidiary, Calavo de Mexico (“CDM”), received a
written communication from the Ministry of Finance and
Administration of the government of the State of Michoacan,
Mexico (“MFM”) containing preliminary observations related
to a fiscal 2011 tax audit of such subsidiary. MFM’s preliminary
observations outline certain proposed adjustments primarily
related to intercompany funding, deductions for services
from certain vendors/suppliers and Value Added Tax (“VAT”).
During our fourth fiscal quarter of 2016, we provided a written
rebuttal to MFM’s preliminary observations and requested the
adoption of a conclusive agreement before the PRODECON
(Local Tax Ombudsman) so that a full discussion of the case
between us, the MFM and the PRODECON, as appropriate, can
lead to a reconsideration of the MFM findings. During our third
and fourth fiscal quarters of 2017, several meetings between
MFM, PRODECON and us took place and on November 28, 2017,
the PRODECON process concluded. As a result, the MFM is
expected to issue its final assessment within the following
five months. If the MFM’s final assessment does not differ
materially from their preliminary observations, then we will
resolve the matter through legal means. We believe we have
the legal arguments and documentation to sustain the positions
challenged by tax authorities.
Additionally, we also received notice from Mexico’s Federal
Tax Administration Service, Servicio de Administracion
Tributaria (SAT), that our wholly-owned Mexican subsidiary,
Calavo de Mexico, is currently under examination related
to fiscal year 2013. In January 2017 we received preliminary
observations from SAT outlining certain proposed adjustments
primarily related to intercompany funding deductions for
services from certain vendors/suppliers and VAT. We provided
a written rebuttal to these preliminary observations during
our second fiscal quarter of 2017 which the SAT is in process
of analyzing. During our third fiscal quarter of 2017, we
requested the adoption of a conclusive agreement before the
PRODECON (Local Tax Ombudsman) so that a full discussion
of the case between us, the SAT and the PRODECON, as
appropriate, can lead to a reconsideration of the SATs findings.
We expect that several formal meetings between us, the SAT
and the PRODECON will be required before the SAT will reach
a conclusion. Note that during the meeting and discussion
process, the fiscal year 2013 final assessment (previously
expected no later September 2017) has been suspended.
We believe that the ultimate resolution of these matters
is unlikely to have a material effect on our consolidated
financial position.
CRITICAL ACCOUNTING ESTIMATES
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
20
21
CALAVO1B1B Management’s Discussion and Analysis
of Financial Condition and Results of Operations
equipment, promotional allowances, equity income/losses from
unconsolidated entities, 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 third 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.
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.
We believe the following are the more significant judgments
Goodwill and acquired intangible assets
and estimates used in the preparation of our consolidated
financial statements.
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 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. We estimate that a one percent
(100 basis point) change in the derived percentage for the entire
year would impact results of operations by approximately
$0.9 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
Goodwill, defined as unidentified asset(s) acquired in
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
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. We can use a qualitative
test, known as “Step 0,” or a two-step quantitative method
to determine whether impairment has occurred. In Step 0, we
elect to perform an optional qualitative analysis and based on
the results skip the two step analysis. In fiscal 2017, 2016 and
2015, we elected to implement Step 0 and were not required to
conduct the remaining two step analysis. 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. The results of our Step 0 assessments indicated that it
was more likely than not that the fair value of its reporting unit
exceeded its carrying value and therefore we concluded that
there were no impairments for the years ended October 31, 2017,
2016 or 2015.
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 OPERATIONS
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,
2017
2016
2015
Net sales
Gross profit
Selling, general and
administrative
Operating income
Interest income
100%
10.6%
100%
11.5%
5.3%
5.4%
0.0%
5.0%
6.5%
0.0%
100%
9.9%
4.9%
5.1%
0.0%
Interest expense
(0.1)%
(0.1)%
(0.1)%
Other income, net
Net income
Net Sales
0.0%
3.5%
0.0%
4.1%
0.0%
3.2%
We believe that the fundamentals for our products continue
to be favorable. Firstly, United States (U.S.) avocado demand
continues to grow, with per capita use in 2016/17 reaching 7.1
pounds per person, up 2 percent from the previous year, and
approximately double the estimate from 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, 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 impact the consumption of avocados and avocado-
based products. The Hispanic community currently accounts
for approximately 18% of the U.S. population and the total
number of Hispanics is estimated to double by the year 2050.
Avocados are considered a staple item purchased by Hispanic
consumers, as the per-capita avocado consumption in Mexico
is 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 one of the largest marketers 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 2017, 2016 and 2015, on behalf of avocado growers,
we remitted approximately $1.7 million, $2.4 million and
$1.7 million to the California Avocado Commission. During fiscal
2017, 2016 and 2015, we remitted approximately $5.8 million,
$8.2 million and $8.3 million to the Hass Avocado Board related
to avocados.
We also believe that our other fresh products, primarily
tomatoes, are positioned for future growth.
The tomato is the fourth most popular fresh-market
vegetable (though a fruit scientifically speaking, tomatoes are
more commonly considered a 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, the increased development of hot-house
grown tomatoes (such as those grown by our ADM affiliate),
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, potassium
and magnesium; and fiber.
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, and foodservice
departments. RFG products include fresh-cut fruit and
vegetables, fresh prepared entrée salads, wraps, sandwiches
and fresh snacking products as well as ready-to-heat entrees and
other hot bar and various deli items, meals kits and salad kits.
RFG products are marketed under the Garden Highway Fresh
Cut, Garden Highway, and Garden Highway Chef Essentials
brands, as well as store-brand, private label programs.
22
23
CALAVO1B1B Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following tables set forth sales by product category and sales incentives, by segment (dollars in thousands):
The following table summarizes our net sales by business segment:
YEAR ENDED OCTOBER 31, 2017
YEAR ENDED OCTOBER 31, 2016
2017
CHANGE
2016
CHANGE
2015
THIRD -PARTY
SALES:
Avocados
Tomatoes
Papayas
Other fresh products
Prepared avocado products
Salsa
Fresh-cut fruit & vegetables
and prepared foods
FRESH
PRODUCTS
CALAVO
FOODS
RFG
TOTAL
FRESH
PRODUCTS
CALAVO
FOODS
RFG
TOTAL
$ 546,433 $
— $
— $ 546,433 $ 493,440 $
— $
— $ 493,440
29,199
36,286
29,199
9,402
445
—
—
—
—
—
—
85,204
3,951
—
—
—
—
—
9,402
445
85,204
3,951
—
419,973
419,973
9,514
5,600
—
—
—
—
—
—
73,009
3,617
—
—
—
—
—
36,286
9,514
5,600
73,009
3,617
—
336,989
336,989
Total gross sales
585,479
89,155
419,973
1,094,607
544,840
76,626
336,989
958,455
Less sales incentives
(1,503)
(11,576)
(1,465)
(14,544)
(1,844)
(10,438)
(3,491)
(15,773)
Less inter-company
eliminations
(1,314)
(3,184)
—
(4,498)
(4,309)
(2,694)
—
(7,003)
Net sales
$ 582,662 $
74,395 $ 418,508 $ 1,075,565 $ 538,687 $
63,494 $ 333,498 $ 935,679
YEAR ENDED OCTOBER 31, 2016
YEAR ENDED OCTOBER 31, 2015
FRESH
PRODUCTS
CALAVO
FOODS
RFG
TOTAL
FRESH
PRODUCTS
CALAVO
FOODS
RFG
TOTAL
THIRD -PARTY
SALES:
Avocados
Tomatoes
Papayas
Other fresh products
Prepared avocado products
Salsa
Fresh-cut fruit & vegetables
and prepared foods
$ 493,440 $
— $
— $ 493,440 $ 471,178 $
— $
— $ 471,178
36,286
18,681
36,286
9,514
5,600
—
—
—
—
—
—
73,009
3,617
—
—
—
—
—
9,514
5,600
73,009
3,617
—
336,989
336,989
9,485
4,336
—
—
—
—
—
—
51,135
22,736
—
—
—
—
—
18,681
9,485
4,336
51,135
22,736
—
296,697
296,697
Total gross sales
544,840
76,626
336,989
958,455
503,680
73,871
296,697
874,248
Less sales incentives
(1,844)
(10,438)
(3,491)
(15,773)
(1,472)
(9,792)
(2,740)
(14,004)
Less inter-company
eliminations
(4,309)
(2,694)
—
(7,003)
(1,497)
(1,923)
—
(3,420)
Net sales
$ 538,687 $
63,494 $ 333,498 $ 935,679 $ 500,711 $
62,156 $ 293,957 $ 856,824
Net sales to third parties by segment exclude inter-segment
Net sales to third parties by segment exclude inter-segment
sales and cost of sales. For fiscal year 2017, 2016 and 2015, inter-
segment sales and cost of sales of $1.3 million, $4.3 million and
$1.5 million between Fresh products and RFG were eliminated.
For fiscal year 2017, 2016 and 2015, inter-segment sales and cost
of sales of $3.2 million, $2.7 million and $1.9 million between
Calavo Foods and RFG were eliminated.
(Dollars in thousands)
NET SALES:
Fresh products
Calavo Foods
RFG
Total net sales
AS A PERCENTAGE OF NET SALES:
Fresh products
Calavo Foods
RFG
Summary
Net sales for the year ended October 31, 2017, as compared
to 2016, increased by $139.9 million, or 15.0%. The increase in
sales, when compared to the same corresponding prior year
periods, is related to growth from all segments.
For fiscal year 2017, our largest percentage increase in sales
was RFG, followed by Calavo Foods and our Fresh products
segment, as shown above. Our increase in RFG sales was due
primarily to increased sales from fresh prepared food products
and fresh-cut fruit and vegetable products. We experienced
an increase in our Calavo Foods segment during fiscal year
2017, which was due primarily to an increase in the sales of our
prepared avocado products. Our increase in Fresh product sales
was due primarily to increased sales of avocados, which was
partially offset by decreased sales of tomatoes. See discussion
below for further details.
All three segments of our business are subject to seasonal
trends, which can impact the volume and/or quality of fruit
sourced in any particular quarter.
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. Additionally, net sales
to third parties by segment exclude sales between Avocados
de Jalisco and the parent company. All intercompany sales are
eliminated in our consolidated results of operations.
Fresh products
Fiscal 2017 vs. Fiscal 2016:
Net sales delivered by the Fresh products business increased
by approximately $44.0 million, or 8.2%, for the year ended
October 31, 2017, when compared to fiscal 2016. As discussed
above, this increase in Fresh product sales during fiscal 2017
was primarily related to increased sales of avocados, which was
partially offset by decreased sales of tomatoes.
$
582,662
8.2%
$
538,687
7.6%
$
500,711
74,395
418,508
17.2%
25.5%
63,494
333,498
2.2%
13.5%
62,156
293,957
$ 1,075,565
15.0%
$
935,679
9.2%
$
856,824
54.2%
6.9%
38.9%
100%
57.6%
6.8%
35.6%
100%
58.4%
7.3%
34.3%
100%
Sales of avocados increased $53.4 million, or 10.9%, for the
year ended October 31, 2017, when compared to the same prior
year period. The increase in avocado sales was primarily due to
an increase in the sales price per carton of 46.0%, compared to
fiscal 2016. The increase in sales price per carton was partially
offset by a decrease in volume of avocados sold of 88.4 million
pounds, or 23%. We attribute much of the change in price to
market conditions during the year, in which consumer demand
continued to exceed available industry supply.
Sales of tomatoes decreased to $27.9 million for the year
ended October 31, 2017, compared to $36.0 million for the same
period for fiscal 2016. The decrease in sales of tomatoes is due
to a decrease in the sales price per carton of approximately
23.5% due primarily to a change in weather patterns which
resulted in wider availability of tomatoes in the market.
We anticipate that sales volume of avocados will increase
in fiscal 2018, due to larger expected avocado crops, when
compared to the same prior year period. We do not expect
the fires in Ventura County to have a significant impact on our
avocado volumes or earnings. We expect to manage through
any shortfall in the Ventura County avocado supply through our
diversified avocado sourcing.
Fiscal 2016 vs. Fiscal 2015:
Net sales delivered by the Fresh products business increased
by approximately $38.0 million, or 7.6%, for the year ended
October 31, 2016, when compared to fiscal 2015. The increase in
Fresh product sales during fiscal 2016 was primarily related to
increased sales of avocados and tomatoes. See details below.
Sales of avocados increased $21.9 million, or 4.7%, for the
year ended October 31, 2016, when compared to the same
prior year period. The increase in avocados was primarily
due to an increase of pounds sold of $1.4 million, or 0.4%. We
attribute most of this increase in volume to the larger California
avocado crop in fiscal 2016, compared to the same prior year
24
25
CALAVO1B1B
Fiscal 2016 vs. Fiscal 2015:
Summary
Fiscal 2016 vs. Fiscal 2015:
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
period. Partially offsetting the California avocado crop increase
was a decrease in Mexican sourced avocados, due to supply
disruptions in July and October which stalled the harvesting
of avocados for the entire industry. In addition to the overall
increase in pounds sold, is an increase in the sales price per
carton. The sales price per carton for avocados increased by
approximately 3.4%. We attribute much of this change in price
to a lower overall supply of avocados in the market during the
fourth quarter of fiscal 2016.
Sales of tomatoes increased to $36.0 million for the year
ended October 31, 2016, compared to $18.7 million for the same
period for fiscal 2015. The increase in sales of tomatoes is due to
an increase in cartons sold of approximately 1.1 million cartons
or 62.9%. In addition, tomatoes experienced an increase in the
sales price per carton of approximately 18.2%, most notable
during our fiscal first quarter, primarily resulting from a change
in weather patterns.
Calavo Foods
Fiscal 2017 vs. Fiscal 2016:
Sales for Calavo Foods for the year ended October 31,
2017, when compared to the same period for fiscal 2016,
increased $10.9 million, or 17.2%. This increase is primarily
due to an increase in sales of prepared avocado products
of approximately $10.8 million, or 18.0%, for the year ended
October 31, 2017, when compared to the same prior year period.
The increase in sales of prepared avocado products was related
to an increase in overall pounds sold and the price per pound.
Sales for Calavo Foods for the year ended October 31, 2016,
when compared to the same period for fiscal 2015, increased
$1.3 million, or 2.2%. This increase is primarily due to an
increase in sales of salsa products of approximately $1.4 million,
or 66.8%, for the year ended October 31, 2016, when compared
to the same prior year period. The increase in sales of salsa was
primarily related to an increase in overall pounds sold.
RFG
Fiscal 2017 vs. Fiscal 2016:
Sales for RFG for the year ended October 31, 2017, when
compared to the same period for fiscal 2016, increased
$85.0 million, or 25.5%. This increase is due primarily to
increased sales from prepared foods, fresh-cut fruit and
vegetable products. The overall increase in sales is primarily
due to an increase in sales volume, which we believe results
from our ability to develop new retail relationships and expand
current retail partnerships into additional geographies and
product categories as we continue to build out our national
manufacturing capabilities.
Fiscal 2016 vs. Fiscal 2015:
Sales for RFG for the year ended October 31, 2016, when
compared to the same period for fiscal 2015, increased
$39.5 million, or 13.5%. This increase is due primarily to
increased sales from fresh prepared food and fresh-cut fruit and
vegetable products. The overall increase in sales is primarily
due to an increase in sales volume, which we believe results
from an increase in demand for the variety of innovative and
convenient products that we offer, as well as our ability to
expand retail relationships by providing high-quality, fresh
foods solutions from our growing national production footprint.
Gross Profit
The following table summarizes our gross profit and gross profit percentages by business segment:
2017
CHANGE
2016
CHANGE
2015
(Dollars in thousands)
GROSS PROFIT:
Fresh products
Calavo Foods
RFG
$
72,376
24.8%
$
57,997
56.5%
$
37,064
13,353
28,815
(40.5)%
6.4%
22,448
27,089
9.4%
(2.0)%
20,511
27,652
Total gross profit
$
114,544
6.5%
$
107,534
26.2%
$
85,227
GROSS PROFIT PERCENTAGES:
Fresh products
Calavo Foods
RFG
Consolidated
12.4%
17.9%
6.9%
10.6%
26
10.8%
35.4%
8.1%
11.5%
7.4%
33.0%
9.4%
9.9%
Our cost of goods sold consists predominantly of ingredient
costs (primarily fruit and other whole foods), packing
materials, freight and handling, labor and overhead (including
depreciation) associated with preparing food products and
other direct expenses pertaining to products sold. Gross
profit increased by approximately $7.0 million, or 6.5%, for
the year ended October 31, 2017, when compared to the same
period for fiscal 2016. The increase was attributable to gross
profit increases across the Fresh products and RFG segments,
partially offset by a decrease in our Calavo Foods segment.
Fresh products
Fiscal 2017 vs. Fiscal 2016:
During fiscal 2017, as compared to the same prior year
period, the increase in our Fresh products segment gross profit
percentage was the result of increased profit for avocados,
partially offset by a decreased profit for tomatoes. For the year
ended October 31, 2017, compared to the same prior year period,
the gross profit percentage for avocados increased from 10.9%
in 2016 to a gross profit percentage of 12.7% in 2017. The profit
improvement during fiscal 2017, was primarily the result of
management’s focus and execution on continuous improvement
across the operation which helped to complement the current
market conditions, in which consumer demand continued to
exceed available industry supply. In addition, U.S. Dollar to
Mexican Peso exchange rate was stronger in fiscal 2017, when
compared to fiscal 2016. 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 segment.
For the year ended October 31, 2017 we generated gross
profit of $2.7 million from tomato sales, down 36.3% from
$4.2 million in the corresponding prior year period. The decline
in tomato gross profit is due primarily to a decrease in the
sales price per carton of approximately 23.5%. The majority of
our tomato sales are done on a consignment basis, in which
the gross profit we earn is generally based on a commission
agreed to with each party, which usually is a percent of the
overall selling price; however, we also purchase some tomatoes
on the spot market to meet specific customer requests and
have certain fixed overhead costs associated with our tomato
operations which impact the overall gross profit realized from
tomato sales. The gross profit percentage for consignment
sales 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. Although we
generally do not take legal title to such consigned products
prior to sale, we do assume responsibilities (principally
assuming credit risk, inventory loss and delivery risk, and
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 products procured under
consignment arrangements.
During fiscal 2016, as compared to the same prior year
period, the increase in our Fresh products segment gross profit
percentage was the result of increased profit for avocados and
tomatoes. For the year ended October 31, 2016, compared to the
same prior year period, the gross profit percentage for avocados
increased from 7.3% in 2015 to a gross profit percentage of
10.9% in 2016. For fiscal 2016, we were able to effectively
manage our fruit costs during select periods within the year and
better leverage our fixed handling costs. In addition, the U.S.
Dollar to Mexican Peso exchange rate continued to strengthen
in fiscal 2016. 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 profit for our Fresh
products segment.
For the year ended October 31, 2016 we generated gross
profit of $4.2 million from consigned tomato sales, up 107%
from $2.0 million in the corresponding prior year period.
This improvement in tomato gross profit, is due to an overall
increase in tomato sales, which increased $17.3 million for the
year ended October 31, 2016, compared to the same period
for fiscal 2015. The increase in sales of tomatoes is due to an
increase in cartons sold of approximately 1.1 million cartons
or 62.9%. In addition, tomatoes experienced an increase in the
sales price per carton of approximately 18.2%, most notable
during our fiscal first quarter, primarily resulting from a change
in weather patterns.
Calavo Foods
Fiscal 2017 vs. Fiscal 2016:
The Calavo Foods segment gross profit percentage during
our year ended October 31, 2017 decreased to 17.9%, compared
to the same prior year period gross profit percentage of 35.4%.
This decrease was primarily due to an increase in fruit input
costs for the year ended October 31, 2017, as compared to the
same period year period. Note that any significant fluctuation
in the cost of fruit used in the production process or the
exchange rate between the U.S. Dollar and the Mexican Peso
may have a material impact on future gross profit for our
Calavo Foods segments.
Fiscal 2016 vs. Fiscal 2015:
The Calavo Foods segment gross profit percentage during
our year ended October 31, 2016 increased to 35.4%, compared
to the same prior year period gross profit percentage of
33.0%. This increase was primarily due to (i) lower guacamole
production costs resulting from the U.S. Dollar to Mexican Peso
exchange rate strengthening by approximately 18% for the
year ended October 31, 2016, as compared to the same period
year period and (ii) lower salsa production costs. Note that any
significant fluctuation in the cost of fruit used in the production
process or the exchange rate between the U.S. Dollar and the
Mexican Peso may have a material impact on future gross profit
for our Calavo Foods segments.
27
CALAVO1B1B
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
RFG
Fiscal 2017 vs. Fiscal 2016:
RFG’s gross profit percentage during our fiscal year ended
October 31, 2017 was 6.9%, compared 8.1% in the same prior
year period. This lower gross profit percentage was primarily
the result of additional costs incurred during the year associated
with growth initiatives currently underway for the segment.
Specifically, these costs relate to the start-up and ramping
up periods at new or recently expanded RFG plants, as well
as higher costs related to the development and optimization
of new product categories. The gross profit of fiscal 2017
was enhanced, in part, by a change in the presentation of
broker commission expenses, totaling $3.0 million in fiscal
2017, which was moved to selling, general and administrative
expense, rather than shown as a reduction in net sales, as was
done in prior year. Without the broker commission impact,
gross profit would have decreased $1.2 million for year ended
October 31, 2017 when compared to the same prior year period.
Fiscal 2016 vs. Fiscal 2015:
RFG’s decreased gross profit percentage for the year ended
October 31, 2016, is due in part to the lingering effects of adverse
weather conditions (related to El Nino) that impacted certain
fruit and vegetable growing regions and caused reduced raw
material availability, increased raw material prices, and reduced
processing yields in our first fiscal quarter of 2016 and to a lesser
extent in our second fiscal quarter of 2016. Similar to the Calavo
Foods segment, RFG often has agreed upon pricing with many
of their customers. Note that any significant fluctuation in raw
material availability, price and/or quality may have a material
impact on future gross profit for our RFG segment.
RFG invested throughout fiscal year 2016 by expanding its
production facilities and adding capabilities to meet growing
customer demand. Certain expenses associated with the start-up
and initial optimization of those facilities temporarily reduced
gross profit percentage in the year ended October 31, 2016.
Selling, General and Administrative
2017
CHANGE
2016
CHANGE
2015
(Dollars in thousands)
Selling, general and administrative
$
56,651
22.0%
$
46,440
11.7%
$
41,558
Percentage of net sales
5.3%
5.0%
4.9%
Selling, general and administrative expenses in fiscal
2017 include costs of marketing and advertising, sales
expenses (including broker commissions) and other general
and administrative costs. Selling, general and administrative
expenses increased $10.2 million, or 22.0%, for the year ended
October 31, 2017, when compared to the same prior year period.
This increase was partly related to three factors that do not
reflect changes in the overall cost structure of the Company,
specifically a change in presentation of broker commissions
(approximately $3.0 million) to include such costs in selling,
general and administrative expenses, which had historically
been presented as a reduction in net sales, non-recurring
expenses related to the resignation and retirement of two
corporate officers (approximately $1.2 million) and a $0.4 million
settlement (see Note 7 for further information). In addition to
these items, the increase was related to an increase in salaries
and benefits (approximately $2.3 million, due in part to higher
headcount), an increase in bad debt (approximately $1.2 million),
and an increase in stock based compensation (approximately
$1.0 million) and legal fees (approximately $0.2 million), which
were partially offset by a decrease in accrued management
bonuses (approximately $0.6 million).
Selling, general and administrative expenses in fiscal 2016
include costs of marketing and advertising, sales expenses
and other general and administrative costs. Selling, general
and administrative expenses increased $4.9 million, or 11.7%,
for the year ended October 31, 2016, 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 salaries (approximately
$2.5 million), accrued management bonuses (approximately
$1.3 million), insurance (approximately $0.6 million),
depreciation (approximately $0.3 million), and employee
benefits (approximately $0.2 million), partially offset by
decreases in administration fees (approximately $0.4 million)
and legal fees (approximately $0.2 million).
Income (Loss) from Unconsolidated Entities
2017
CHANGE
2016
CHANGE
2015
(Dollars in thousands)
Income (loss) from unconsolidated entities
$
401
(170.4)% $
(570)
1,290.2% $
Percentage of net sales
— %
(0.1)%
(41)
— %
Income (loss) from unconsolidated entities includes our
proportionate share of earnings or losses from our investment
in Agricola Don Memo, S.A. de C.V. (Don Memo). We use the
equity method of accounting to account for this investment.
Interest Income
(Dollars in thousands)
Interest income
Percentage of net sales
2017
CHANGE
2016
CHANGE
2015
$
24
— %
(81.8)% $
132
71.4% $
— %
77
— %
Interest income was primarily generated from our loans
to growers. The decrease in interest income in fiscal 2017 as
compared to 2016 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 2016 as compared
to 2015 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
2017
CHANGE
2016
CHANGE
2015
$
1,023
35.3% $
756
(8.9)% $
830
Percentage of net sales
0.1%
0.1%
0.1%
Interest expense is primarily generated from our line of
credit borrowings with Farm Credit West, PCA (FCW) and
Bank of America, N.A. (BoA), as well as our former term
loan agreements with FCW and BofA (prior to June 2016).
For fiscal 2017, as compared to fiscal 2016, the increase in
interest expense was primarily related to higher average debt
balance due primarily to the purchase of property in Riverside,
California and other capital expenditures, as well as higher
LIBOR rates which increased our interest rate. For fiscal 2016,
as compared to fiscal 2015, the decrease in interest expense
was primarily related to the payoff of our term loans with FCW
and BoA, and the lower average outstanding balance on our
non-collateralized, revolving credit facility.
Other Income, Net
(Dollars in thousands)
Other income, net
Percentage of net sales
2017
CHANGE
2016
CHANGE
2015
$
479
11.9% $
428
2.6% $
417
0.0%
0.0%
0.0%
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
2017 compared to fiscal 2016 and 2015. During fiscal 2017, 2016
and 2015, we received $0.4 million, $0.3 million and $0.3 million
as dividend income from Limoneira.
Provision for Income Taxes
(Dollars in thousands)
2017
CHANGE
2016
CHANGE
2015
Provision for income taxes
$
20,450
(6.5)% $
21,869
35.9% $
16,093
Effective tax rate
35.4%
36.3%
37.2%
For fiscal year 2017, our provision for income taxes was
$20.5 million, as compared to $21.9 million recorded for the
comparable prior year period. For fiscal year 2016, our provision
for income taxes was $21.9 million, as compared to $16.1 million
recorded for the comparable prior year period.
Any change in the U.S. tax law has the potential to materially
impact our consolidated financial statements.
28
29
CALAVO1B1B
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Net income attributable to noncontrolling interest
2017
CHANGE
2016
CHANGE
2015
(Dollars in thousands)
Net income attributable to noncontrolling interest
$
(54)
(87.6)%
$
(437)
NM% $
Percentage of net sales
0.0%
0.0%
—
0.0%
For fiscal 2016, the noncontrolling interest for Salsa Lisa is
recorded at the greater of the noncontrolling interest balance
adjusted for the attribution of loss or the amount redeemable
pursuant to the buyout process contained in the amended
and restated limited liability company agreement of Calavo
Salsa Lisa LLC. For fiscal 2016, we recorded an adjustment
of $486,000 to increase the noncontrolling interest balance
to the currently expected redeemable amount of $771,000.
This adjustment has been included in net loss attributed to
noncontrolling interest. See Note 2 in our consolidated financial
statements for further information.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for each
of the eight fiscal quarters in the period ended October 31, 2017.
The information for each of these quarters is derived from our
unaudited interim financial statements and should be read in
conjunction with our audited consolidated financial statements
included in this Annual Report. In our opinion, all necessary
adjustments, which consist only of normal and recurring
accruals, have been included to fairly present our unaudited
quarterly results. Historically, we receive and sell a substantially
smaller volume of California avocados in our first fiscal quarter.
OCT. 31,
2017
JULY 31,
2017
APR. 30,
2017
JAN. 31,
2017
OCT. 31,
2016
JULY 31,
APR. 30,
2016
2016
JAN. 31,
2016
THREE MONTHS ENDED
(in thousands, except per share amounts)
STATEMENT OF
INCOME DATA
$ 277,204 $ 301,645 $ 270,162 $ 226,554 $ 247,655 $ 263,146 $ 220,303 $ 204,575
245,689
276,793
233,909
204,630
220,570
230,502
193,496
183,577
31,515
24,852
36,253
21,924
27,085
32,644
26,807
20,998
14,701
16,814
12,698
12,154
15,426
20,827
13,826
8,098
11,574
15,511
12,287
20,357
11,658
15,149
10,921
10,077
24
Other income (expense), net
126
361
(290)
(316)
(553)
(325)
88
Income before provision
for income taxes
16,940
12,515
20,537
6,567
10,373
3,719
8,796
7,603
12,934
7,782
2,561
5,221
14,958
20,032
15,237
10,101
5,260
9,698
7,323
12,709
5,561
9,676
3,725
6,376
(107)
14
11
28
(459)
36
13
(27)
10,266 $
8,810 $
12,945 $
5,249 $
9,239 $
12,745 $
9,689 $
6,349
0.59 $
0.51 $
0.74 $
0.30 $
0.53 $
0.73 $
0.56 $
0.59 $
0.50 $
0.74 $
0.30 $
0.53 $
0.73 $
0.56 $
0.37
0.37
Net sales
Cost of sales
Gross profit
Selling, general
and administrative
Operating income
Provision for income taxes
Net income
Add: Net (income) loss –
noncontrolling interest
Net income –
Calavo Growers, Inc
Basic
Diluted
Number of shares used in
per share computation:
$
$
$
Basic
Diluted
17,429
17,544
17,428
17,544
17,426
17,539
17,374
17,430
17,355
17,447
17,351
17,447
17,348
17,445
17,322
17,386
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for fiscal 2017, 2016 and 2015 provided cash
flows of $62.1 million, $62.0 million and $37.3 million. Fiscal year
2017 operating cash flows reflect our net income of $37.3 million,
net increase of noncash charges (depreciation and amortization,
income from unconsolidated entities, provision for losses on
accounts receivable, interest on deferred compensation, deferred
income taxes, and stock compensation expense) of $18.6 million
and a net increase from changes in the non-cash components
of our working capital accounts of approximately $6.2 million.
Fiscal year 2017 increases in operating cash flows, caused by
working capital changes, includes an increase in trade accounts
payable, accrued expenses, and other long-term liabilities of
$14.7 million, a decrease in inventory of $1.0 million, an increase
in deferred rent of $0.4 million, and a decrease in advances
to suppliers of $0.1 million, partially offset by, a decrease in
payable to growers of $4.2 million, an increase in other assets of
$2.4 million, an increase in prepaid expenses and other current
assets of $1.4 million, and an increase in accounts receivable of
$0.9 million.
The increase in accounts payable and accrued expenses is
primarily related to an increase in our payables related to RFG.
The decrease in our inventory balance is primarily related to a
decrease in fruit cost included in Mexican avocado inventory
on hand at October 31, 2017 as compared to the same prior year
period. The decrease in payable to our growers primarily reflects
a decrease in our Mexican avocado grower payable due to lower
avocado prices in October 2017 compared to October 2016. The
increase in other assets is due to an increase in Mexican IVA tax
receivable (see Note 16 to our consolidated condensed financial
statements). The increase in our accounts receivable, as of
October 31, 2017 when compared to October 31, 2016, primarily
reflects higher sales recorded in the month of October 2017, as
compared to October 2016.
Cash used in investing activities was $53.7 million,
$21.7 million and $21.1 million for fiscal years 2017, 2016, and
2015. Fiscal year 2017 cash flows used in investing activities
include capital expenditures of $44.5 million of property, plant
and equipment items for expansion projects in the RFG segment
(including more than $19 million for purchase of the new
Riverside plant which was financed under our existing credit
facilities as noted below) and Fresh products segments. It also
includes additional investment in FreshRealm of $9.1 million,
and additional investment in Agricola Don Memo of $0.5 million,
partially offset by proceeds received from the repayment of the
loans to San Rafael of $0.4 million.
Cash used in financing activities was $15.7 million,
$33.6 million and $15.8 million for fiscal years 2017, 2016 and
2015. Cash used during fiscal year 2017 primarily related to
receipts on our credit facilities totaling $1.0 million, partially
offset by the payment of our $15.7 million dividend and the
purchase of the noncontrolling interest of Salsa Lisa for
$1.0 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, 2017 and 2016 totaled $6.6 million
and $13.8 million. Our working capital at October 31, 2017 was
$3.7 million, compared to $25.6 million at October 31, 2016.
We believe that cash flows from operations and the available
Credit Facility will be sufficient to satisfy our future capital
expenditures, grower recruitment efforts, working capital and
other financing requirements for the next twelve months. We
will continue to evaluate grower recruitment opportunities,
expanded relationships with retail and club customers, and
exclusivity arrangements with food service companies to fuel
growth in each of our business segments. We have a revolving
credit facility with Bank of America as administrative agent and
Merrill Lynch, Pierce, Fenner & Smith Inc. as joint lead arranger
and sole bookrunner, and Farm Credit West, as joint lead
arranger. Under the terms of this agreement, we are advanced
funds for both working capital and long-term productive asset
purchases. Total credit available under this agreement is
$80 million, and will expire in June 2021. Upon notice to Bank
of America, we may from time to time, request an increase in
the Credit Facility by an amount not exceeding $50 million. For
our current and past line of credit agreements the weighted-
average interest rate was 2.2% and 1.9% at October 31, 2017
and 2016. Under these credit facilities, we had $20.0 million and
$19.0 million outstanding as October 31, 2017 and 2016.
This new Credit Facility contains customary affirmative
and negative covenants for agreements of this type, including
the following financial covenants applicable to the Company
and its subsidiaries on a consolidated basis: (a) a quarterly
consolidated leverage ratio of not more than 2.50 to 1.00 and
(b) a quarterly consolidated fixed charge coverage ratio of not
less than 1.15 to 1.00. We were in compliance with all such
covenants at October 31, 2017.
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, 2017:
CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD
TOTAL
LESS THAN 1 YEAR
1-3 YEARS
3-5 YEARS MORE THAN 5 YEARS
(in thousands)
Long-term debt obligations (including interest)
$
594
$
153
$
269
$
172
$
Revolving credit facilities
Defined benefit plan
Operating lease commitments
20,000
176
53,067
20,000
38
5,360
—
76
—
62
9,860
8,246
29,601
—
—
—
30
31
Total
$
73,837
$
25,551
$
10,205
$
8,480
$
29,601
CALAVO1B1B
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
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 March 2016, the Financial Accounting Standards
Board (“FASB”) issued an Accounting Standards Update
(“ASU”), Improvements to Employee Share-Based Payment
Accounting, which simplified several areas of accounting
for share-based compensation arrangements, including the
income tax impact, classification on the statement of cash
flows and forfeitures. The new standard requires excess
tax benefits or deficiencies for share-based payments to be
recognized as income tax benefit or expense, rather than within
additional paid-in capital, when the awards vest or are settled.
Furthermore, cash flows related to excess tax benefits are
required to be classified as operating activities in the statement
of cash flows rather than financing activities. We have elected
to account for forfeitures of stock-based awards as they occur.
The Company’s early adoption of the amendments resulted
in an income tax benefit of approximately $0.3 million on the
Company’s net earnings in the first quarter of fiscal year 2017.
In July 2015, the FASB issued an ASU for measuring
inventory. The core principal of the guidance is that an entity
should measure inventory at the lower of cost and net realizable
value. Net realizable value is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. The Company adopted
this new standard beginning in the three months ended January
31, 2017. The adoption of the amendment did not have a material
impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In May 2017, the FASB issued an ASU, Stock Compensation
(Topic 718), Scope of Modification Accounting. This ASU clarifies
when changes to the terms or conditions of a share-based
payment award must be accounted for as modifications. The
guidance clarifies that modification accounting will be applied
if the value, vesting conditions or classification of the award
changes. This ASU will be effective for us beginning the first day
of our 2018 fiscal year. We do not anticipate a significant impact
on our financial condition, results of operations or cash flows
upon adoption.
In March 2017, the FASB issued an ASU, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost. This ASU requires that the service
cost component of net periodic benefit costs from defined
benefit and other postretirement benefit plans be included in the
same Statement of Earnings captions as other compensation
costs arising from services rendered by the covered employees
during the period. The other components of net benefit cost
will be presented in the Statement of Earnings separately from
service costs. Following adoption, only service costs will be
eligible for capitalization into manufactured inventories, which
should reduce diversity in practice. This ASU will be effective
for us beginning the first day of our 2019 fiscal year. We do not
anticipate a significant impact on our financial condition, results
of operations or cash flows upon adoption.
In January 2017, the FASB issued an ASU, Business
Combinations: Clarifying the Definition of a Business, which
adds guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or
disposals) of assets or businesses. This ASU will be effective for
us beginning the first day of our 2019 fiscal year. Early adoption
is permitted. We do not expect this ASU to have an impact until
an applicable transaction takes place.
In October 2016, the FASB issued an ASU, Intra-Entity
Transfers of Assets Other Than Inventory, which will require
companies to recognize the income tax effects of intra-entity
sales and transfers of assets other than inventory, particularly
those asset transfers involving intellectual property, in the
period in which the transfer occurs. The ASU will be effective
for us beginning the first day of our 2019 fiscal year and is not
expected to have a significant impact upon adoption.
In January 2017, the FASB issued an ASU, Simplifying the
Test for Goodwill Impairment, which removes the requirement
to compare the implied fair value of goodwill with its carrying
amount as part of step 2 of the goodwill impairment test. The
ASU permits an entity to perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting
unit with its carrying amount and to recognize an impairment
charge for the amount by which the carrying amount exceeds
the reporting unit’s fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to
that reporting unit. This ASU will be effective for us beginning
the first day of our 2021 fiscal year. Early adoption is permitted.
We are evaluating the impact of adoption of this ASU on our
financial condition, results of operations and cash flows, and as
such, we are not able to estimate the effect the adoption of the
new standard will have on our financial statements.
In February 2016, the FASB issued an ASU, Leases, which
requires a dual approach for lessee accounting under which a
lessee would account for leases as finance leases or operating
leases. Both finance leases and operating leases will result in
the lessee recognizing a right-of use asset and a corresponding
lease liability. For finance leases, the lessee would recognize
interest expense and amortization of the right-of-use asset, and
for operating leases, the lessee would recognize a straight-line
total lease expense. The guidance also requires qualitative
and specific quantitative disclosures to supplement the
amounts recorded in the financial statements so that users
can understand more about the nature of an entity’s leasing
activities, including significant judgments and changes in
judgments. This ASU will be effective for us beginning the first
day of our 2020 fiscal year. Early adoption is permitted. We are
evaluating the impact of adoption of this ASU on our financial
condition, results of operations and cash flows, and as such,
we are not able to estimate the effect the adoption of the new
standard will have on our financial statements.
In January 2016, the FASB issued an ASU, which requires
equity investments (except those accounted for under the
equity method of accounting) to be measured at fair value
with changes in fair value recognized in net income. The
guidance is effective for interim and annual periods beginning
after December 15, 2017. Early adoption is permitted. We are
evaluating the impact of adoption of this ASU on our financial
condition, result of operations and cash flows.
In May 2014, the FASB amended the existing accounting
standards for revenue recognition. The amendments are based
on the principle that revenue should be recognized to depict
the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
We are required to adopt the amendments in the first quarter of
fiscal 2019. 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 are evaluating the impact of the
adoption of this amended accounting standard on our financial
condition, result of operations and cash flows.
QUANTITATIVE AND QUALITATIVE
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, 2017.
2018
2019
2020
2021
2022
THEREAFTER
TOTAL
FAIR VALUE
EXPECTED MATURITY DATE OCTOBER 31,
(All amounts in thousands)
ASSETS
Cash and cash equivalents(1) $
6,625 $
— $
— $
— $
— $
— $
6,625 $
6,625
Accounts receivable(1)
69,750
—
—
—
—
—
69,750
69,750
LIABILITIES
Payable to growers(1)
$
16,524 $
— $
— $
— $
— $
— $
16,524 $
16,524
Accounts payable(1)
22,911
Current borrowings pursuant
to credit facilities(1)
20,000
—
—
—
—
—
—
Fixed-rate long-term
obligations(2)
129
134
128
112
—
—
65
—
—
—
22,911
22,911
20,000
20,000
568
591
(1) 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.
(2) Fixed-rate long-term obligations bear interest rates ranging from 3.5% to 4.3% with a weighted-average interest rate of 4.2%. 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 $14,000.
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 a significant portion
of business in Mexican pesos. Funds are transferred by our
corporate office to Mexico on a weekly basis to satisfy domestic
cash needs. We do not currently use derivative instruments to
hedge fluctuations in the Mexican peso to U.S. dollar exchange
rates. Management does, however, evaluate this opportunity
from time to time. Total foreign currency translation losses for
fiscal years 2017, 2016, and 2015, net of gains, were $0.3 million,
$1.1 million and $1.8 million.
32
33
CALAVO1B1B
Consolidated
Balance Sheets
Consolidated Statements
of Income
2017
2016
YEAR ENDED OCTOBER 31,
2017
2016
2015
OCTOBER 31,
(in thousands)
ASSETS
Current Assets :
Cash and cash equivalents
$
6,625
$
13,842
Accounts receivable, net of allowances of $2,490 (2017) $2,063 (2016)
Inventories, net
Prepaid expenses and other current assets
Advances to suppliers
Income taxes receivable
Total current assets
Property, plant, and equipment, net
Investment in Limoneira Company
Investment in unconsolidated entities
Deferred income taxes
Goodwill
Other assets
69,750
30,858
6,872
4,346
1,377
119,828
120,072
40,362
33,019
9,783
18,262
22,791
70,101
31,849
14,402
4,425
334
134,953
87,837
34,036
24,652
14,944
18,262
13,249
(in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative
Operating income
Income (loss) from unconsolidated entities
Interest income
Interest expense
Other income, net
Income before provision for income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interest
$ 1,075,565
$
935,679
$
856,824
961,021
114,544
56,651
57,893
401
24
(1,023)
479
57,774
20,450
37,324
(54)
828,145
107,534
46,440
61,094
(570)
132
(756)
428
60,328
21,869
38,459
(437)
771,597
85,227
41,558
43,669
(41)
77
(830)
417
43,292
16,093
27,199
—
Net income attributable to Calavo Growers, Inc.
$
37,270
$
38,022
$
27,199
LIABILITIES AND SHAREHOLDERS’ EQUITY
$
364,117
$
327,933
CAL AVO GROWERS , INC.’S NET INCOME
PER SHARE:
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 rent
Other long-term liabilities
Total long-term liabilities
Commitments and contingencies
Noncontrolling interest, Calavo Salsa Lisa
Shareholders’ Equity:
Common stock ($0.001 par value, 100,000 shares authorized;
17,533 (2017) and 17,440 (2016) shares issued and outstanding)
Additional paid-in capital
Accumulated other comprehensive income
Noncontrolling interest
Retained earnings
Total shareholders’ equity
See accompanying notes to consolidated financial statements.
$
16,524
$
20,965
Basic
Diluted
$
$
2.14
2.13
$
$
2.19
2.18
$
$
1.57
1.57
NUMBER OF SHARES USED IN
PER SHARE COMPUTATION:
Basic
Diluted
17,416
17,514
17,347
17,431
17,295
17,363
22,911
39,946
20,000
16,657
129
116,167
439
2,732
657
3,828
—
18
154,243
10,434
1,016
78,411
244,122
22,447
31,095
19,000
15,696
138
109,341
445
2,307
—
2,752
771
17
149,748
6,544
962
57,798
215,069
$
364,117
$
327,933
See accompanying notes to consolidated financial statements.
34
35
CALAVO1B1B
Consolidated Statements
of Comprehensive Income
Consolidated Statements
of Shareholders’ Equity
YEAR ENDED OCTOBER 31,
2017
2016
2015
COMMON STOCK
SHARES
AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
RETAINED
EARNINGS
NON-
CONTROLLING
INTEREST
$
37,324
$
38,459
$
27,199
(in thousands)
Balance, October 31, 2014
17,295
17
144,496
12,713
22,180
(in thousands)
Net income
Other comprehensive income, before tax:
Unrealized investment gains (losses)
Income tax benefit (expense) related to items of other
comprehensive income
Other comprehensive income (loss), net of tax
Comprehensive income
Less: Net income attributable to noncontrolling interest
6,327
6,621
(16,940)
(2,437)
3,890
41,214
(54)
(2,496)
4,125
42,584
(437)
6,646
(10,294)
16,905
—
Comprehensive income – Calavo Growers, Inc.
$
41,160
$
42,147
$
16,905
Exercise of stock options and
income tax benefit
Stock compensation expense
Restricted stock issued
Unrealized loss on Limoneira
investment, net
Dividend declared to shareholders
Avocados de Jalisco noncontrolling
interest contribution
Net income attributable to
Calavo Growers, Inc
13
—
76
—
—
—
—
Balance, October 31, 2015
17,384
Exercise of stock options and
income tax benefit
Stock compensation expense
Restricted stock issued
Unrealized gain on Limoneira
investment, net
Dividend declared to shareholders
Avocados de Jalisco noncontrolling
interest contribution
Net income attributable to
Calavo Growers, Inc.
5
—
51
—
—
—
—
Balance, October 31, 2016
17,440
Exercise of stock options and
income tax benefit
Stock compensation expense
Restricted stock issued
Unrealized gain on Limoneira
investment, net
Dividend declared to shareholders
Salsa Lisa contingent consideration
adjustment
Avocados de Jalisco noncontrolling
interest contribution
Net income attributable to
Calavo Growers, Inc.
2
—
91
—
—
—
—
—
—
—
—
—
—
—
—
17
—
—
—
—
—
—
—
17
—
—
1
—
—
—
—
—
TOTAL
179,406
360
2,108
99
(10,294)
(13,907)
—
—
—
—
—
—
—
—
—
—
(13,907)
—
1,011
1,011
27,199
35,472
—
27,199
1,011
185,982
—
—
—
—
(15,696)
—
—
—
—
—
551
2,134
—
4,125
(15,696)
—
(49)
(49)
38,022
57,798
—
962
38,022
215,069
360
2,108
99
—
—
—
—
—
—
—
(10,294)
—
—
—
147,063
2,419
551
2,134
—
—
—
—
—
—
—
—
4,125
—
—
—
149,748
6,544
404
3,148
1,172
—
—
(229)
—
—
—
—
—
3,890
—
—
—
—
—
—
—
—
(16,657)
—
—
37,270
—
—
—
—
—
—
54
—
404
3,148
1,173
3,890
(16,657)
(229)
54
37,270
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
Balance, October 31, 2017
17,533
$
18
$
154,243
$
10,434
$
78,411
$
1,016
$
244,122
36
37
CALAVO1B1B
Consolidated Statements
of Cash Flows
YEAR ENDED OCTOBER 31,
(in thousands)
CASH FLOWS FROM
OPER ATING ACTIVITIES:
2017
2016
2015
YEAR ENDED OCTOBER 31,
2017
2016
2015
(in thousands)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net income
$
37,324
$
38,459
$
27,199
Payment of dividend to shareholders
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Provision for losses on accounts receivable
Loss (income) from unconsolidated entities
Contingent consideration related to acquisition of Salsa Lisa
Stock compensation expense
Loss on disposal of property, plant, and equipment
Excess tax benefit from stock-based compensation
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/payable
Other assets
Payable to growers
Deferred rent
Trade accounts payable, accrued expenses and other
long-term liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of and deposits on property, plant, and equipment
Investment in unconsolidated entities
Proceeds received for repayment of San Rafael note
Purchase of noncontrolling interest of Salsa Lisa
Infrastructure advance to Agricola Belher
Loan to Agricola Don Memo
Proceeds received for repayment of loan to Agricola Don Memo
Investment in Agricola Don Memo
Net cash used in investing activities
10,691
1,230
(401)
—
4,320
74
—
2,725
(879)
991
(1,447)
79
(1,043)
(2,362)
(4,239)
425
14,652
62,140
(44,510)
(9,067)
409
—
—
—
—
(500)
(53,668)
8,812
47
570
—
2,134
248
(447)
1,603
(11,542)
(5,498)
(5,097)
(1,605)
6,224
683
18,084
1,697
7,596
61,968
(21,859)
(3,900)
28
—
—
—
4,000
—
(21,731)
8,038
75
109
15
2,108
147
—
3,183
(2,063)
4,713
(1,780)
438
(3,465)
441
(1,889)
—
14
37,283
(18,099)
(1,800)
386
262
(1,000)
(803)
—
—
(21,054)
Proceeds from revolving credit facility
Payments on revolving credit facility
Purchase of noncontrolling interest of Salsa Lisa
Payments on long-term obligations
Proceeds from stock option exercises
Proceeds from issuance of noncontrolling interest stock
Excess tax benefit from stock-based compensation
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
(15,696)
163,500
(162,500)
(1,000)
(58)
65
—
—
(15,689)
(7,217)
13,842
(13,907)
217,230
(235,140)
(91)
(2,209)
104
—
447
(33,566)
6,671
7,171
Cash and cash equivalents, end of period
$
6,625
$
13,842
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest
Income taxes
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Declared dividends payable
Record IVA as a long term asset
Investment in FreshRealm included in accrued expenses
Property, plant, and equipment included in trade accounts payable
and accrued expenses
Noncash assets received for issuance of noncontrolling interest
Collection for Agricola Belher Infrastructure Advance
Unrealized holding gains (losses)
$
$
$
$
$
$
$
$
$
1,094
17,011
16,657
8,368
—
1,833
—
200
6,326
$
$
$
$
$
$
$
$
$
741
14,425
15,696
—
1,600
4,574
—
1,045
6,621
(12,971)
255,350
(254,340)
—
(5,098)
249
817
191
(15,802)
427
6,744
7,171
843
15,495
13,907
—
—
529
194
845
(16,940)
$
$
$
$
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
38
39
CALAVO1B1B
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 retail grocery, foodservice, club
stores, mass merchandisers, food distributors and wholesalers
on a worldwide basis. We procure avocados from California,
Mexico and other growing regions around the world. Through
our various operating facilities, we (i) sort, pack, and/or ripen
avocados, tomatoes and/or Hawaiian grown papayas, (ii)
create, process and package a portfolio of healthy fresh foods
including fresh-cut fruit and vegetables, and prepared foods and
(iii) process and package guacamole and salsa. 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 (RFG).
2.
BASIS OF PRESENTATION 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 Growers de Mexico, S. de R.L. de C.V. ( Calavo
Growers de Mexico), Maui Fresh International, Inc. (Maui),
Hawaiian Sweet, Inc. (HS), Hawaiian Pride, LLC (HP), Calavo
Salsa Lisa, LLC (CSL), Avocados de Jalisco, S.A.P.I. de C.V.
(Avocados de Jalisco), in which we have a 80 percent ownership
interest, and RFG. 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 $4.7 million
and $11.6 million at October 31, 2017 and 2016. Included in
non-trade receivables are $1.4 million and $8.4 million related
to the current portion of Mexican IVA (i.e. value-added) taxes
at October 31, 2017 and 2016 (See Note 16). Infrastructure
advances are discussed below. Prepaid expenses totaling
$2.9 million and $2.8 million at October 31, 2017 and 2016, 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 10 years. Significant repairs and
maintenance that increase the value or extend the useful life
of our fixed asset are capitalized. On-going maintenance and
repairs are charged to expense.
In August of 2017, the Company has implemented a new
financial accounting system in one of our three business
segments. 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.
Goodwill and Acquired Intangible Assets
Goodwill, defined as unidentified asset(s) acquired in
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
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. We can use a qualitative
test, known as “Step 0,” or a two-step quantitative method
to determine whether impairment has occurred. In Step 0, we
elect to perform an optional qualitative analysis and based on
the results skip the two step analysis. In fiscal 2017, 2016 and
2015, we elected to implement Step 0 and were not required to
conduct the remaining two step analysis. 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. The results of our Step 0 assessments indicated that it
was more likely than not that the fair value of our reporting unit
exceeded its carrying value and therefore we concluded that
there were no impairments for the years ended October 31, 2017,
2016 or 2015.
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 years 2017 and 2016, we performed our
annual assessment of long-lived assets and determined that no
impairment indicators existed as of October 31, 2017 and 2016.
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 December 2014, Calavo formed a wholly owned subsidiary
Calavo Growers De Mexico, S. de R.L. de C.V. (Calavo Sub). In
July 2015, Calavo Sub entered into a Shareholder Agreement
with Grupo Belo del Pacifico, S.A. de C.V., (Belo) a Mexican
Company owned by Agricola Belher, and Agricola Don Memo,
S.A. de C.V. (Don Memo). Don Memo, a Mexican corporation
formed in July 2013, is engaged in the business of owning and
improving land in Jalisco, Mexico for the growing of tomatoes
and other produce and the sale and distribution of tomatoes
and other produce. Belo and Calavo Sub have an equal one-half
ownership interest in Don Memo. Pursuant to a management
service agreement, Belo, through its officers and employees,
shall have day-to-day power and authority to manage the
operations. In fiscal 2017 and 2016, we contributed $0.5 million
and $2.3 million as investments in Don Memo. These investment
contributions represent Calavo Sub’s 50% ownership in Don
Memo, which is included in investment in unconsolidated
entities on our balance sheet. We use the equity method to
account for this investment.
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
to FreshRealm for 28.6% ownership. In the third and fourth
quarter of fiscal 2015, FreshRealm issued additional units to
various parties, which reduced our ownership percentage
to approximately 49% at October 31, 2015. In the fourth
quarter of fiscal 2016, FreshRealm completed another round
of financing in which Calavo invested $3.2 million. In April
2017, in another round of financing, we committed to invest
an additional $8.3 million into FreshRealm if and when certain
terms and conditions are met. During fiscal 2017, Calavo
invested $7.5 million in FreshRealm. In October 2017, our Chief
Executive Officer invested $7.0 million into FreshRealm, as a
result of which our ownership percentage as of October 31, 2017
decreased to approximately 43%.
We estimated the fair value of our noncontrolling interest
in FreshRealm by performing a fair value measurement. This
analysis was conducted with the consultation from a third party
consulting firm. Our investment of $28.4 million in FreshRealm
million has been recorded as investment in unconsolidated
subsidiaries on our balance sheet.
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 considered available for sale securities
based on management’s intent with respect to such securities
and 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 $40.4 million, $23.5 million
and $16.9 million as of October 31, 2017. The estimated
fair value, cost, and gross unrealized gain related to such
investment was $34.0 million, $23.5 million and $10.5 million
as of October 31, 2016.
Advances to Suppliers
We advance funds to third-party growers primarily in 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. We recorded an
allowance of $0.4 million at October 31, 2017. No such allowance
was required at October 31, 2016.
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
40
41
CALAVO1B1B Notes to
Consolidated Financial Statements
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. For
fiscal 2017, we agreed to advance an additional $4.0 million for
preseason advances. As of October 31, 2017 and 2016, we have
total advances of $4.0 million and $4.4 million to Belher pursuant
to this agreement, which is recorded in advances to suppliers.
Similar to Belher, we make advances to Don Memo for
operating purposes, provide additional advances as shipments
are made during the season, and return the proceeds from
such tomato sales to Don Memo, net of our commission and
aforementioned advances. As of October 31, 2017 and 2016,
we have total advances of $1.6 million and $0.9 million to Don
Memo, 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, 2017 and 2016.
As of October 31, 2017, we have advanced a total of $0.6 million
($0.2 million included in prepaid expenses and other current
assets and $0.4 million included in other long-term assets). As
of October 31, 2016, we have advanced a total of $0.8 million
($0.2 million included in prepaid expenses and other current
assets and $0.6 million included in other long-term assets).
Belher is to annually repay these advances in no less than 20%
increments through June 2020. 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. 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.
Accrued Expenses
Included in accrued expenses at October 31, 2017 and 2016
are liabilities related to the receipt of goods and/or services
for which an invoice has not yet been received. These totaled
approximately $24.8 million and $12.4 million for the year ended
October 31, 2017 and 2016.
Revenue Recognition
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 delivery 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
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 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, 2017, 2016 and 2015 in the
financial statements pursuant to consignment arrangements are
as follows (in thousands):
Research and Development
Research and development costs are expensed as incurred
and are generally included as a component of selling, general
and administrative expense. Total research and development
costs for fiscal years 2017, 2016 and 2015 were less than
$0.1 million.
Other Income, Net
Included in other income, net is dividend income totaling
$0.5 million for fiscal year 2017. Dividend income totaled
$0.6 million and $0.5 million for fiscal years 2016 and 2015.
See Note 9 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. 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.
Basic and diluted net income per share is calculated as follows (U.S. dollars in thousands, except per share data):
YEAR ENDED OCTOBER 31,
2017
2016
2015
2017
2016
2015
Numerator:
Sales
Cost of Sales
Gross Profit
$ 25,891
$ 34,919
$ 28,139
22,784
30,729
25,177
$
3,107
$
4,190
$
2,962
Advertising Expense
Advertising costs are expensed when incurred and are
generally included as a component of selling, general and
administrative expense. Such costs were approximately
$0.1 million, $0.2 million and $0.2 million for fiscal years 2017,
2016, and 2015.
Net Income attributable to Calavo Growers, Inc.
$
37,270
$
38,022
$
27,199
Denominator:
Weighted average shares – Basic
Effect on dilutive securities – Restricted stock/options
Weighted average shares – Diluted
Net income per share attributable to Calavo Growers, Inc:
17,416
98
17,514
17,347
84
17,431
17,295
68
17,363
Basic
Diluted
$
$
2.14
2.13
$
$
2.19
2.18
$
$
1.57
1.57
42
43
CALAVO1B1B
Notes to
Consolidated Financial Statements
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 our statements of income. 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 income over the service
period that the awards are expected to vest.
For the years ended October 31, 2017, 2016 and 2015, we
recognized compensation expense of $4.3 million, $2.1 million,
and $2.1 million related to non-acquisition stock-based
compensation (See Note 13). The value of the stock-based
compensation was determined from quoted market prices at the
date of the grant.
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 2017, 2016 and 2015, net of
gains, were $0.3 million, $1.1 million, and $1.8 million.
Fair Value of Financial Instruments
We believe that the carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, and
short-term borrowings approximates fair value based on either
their short-term nature or on terms currently available to the
Company in financial markets. Due to current market rates, we
believe that our fixed-rate long-term obligations have the same
fair value and carrying value of approximately $0.6 million as of
October 31, 2017.
Deferred Rent
As part of certain lease agreements, we receive construction
allowances from our landlords. The construction allowances are
deferred and amortized on a straight-line basis over the life of
the lease as a reduction to rent expense.
Derivative Financial Instruments
We were not a party to any material 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 March 2016, the Financial Accounting Standards
Board (“FASB”) issued an Accounting Standards Update
(“ASU”), Improvements to Employee Share-Based Payment
Accounting, which simplified several areas of accounting
for share-based compensation arrangements, including the
income tax impact, classification on the statement of cash
flows and forfeitures. The new standard requires excess
tax benefits or deficiencies for share-based payments to be
recognized as income tax benefit or expense, rather than within
additional paid-in capital, when the awards vest or are settled.
Furthermore, cash flows related to excess tax benefits are
required to be classified as operating activities in the statement
of cash flows rather than financing activities. We have elected
to account for forfeitures of stock-based awards as they occur.
The Company’s early adoption of the amendments resulted
in an income tax benefit of approximately $0.3 million on the
Company’s net earnings in the first quarter of fiscal year 2017.
In July 2015, the FASB issued an ASU for measuring
inventory. The core principal of the guidance is that an entity
should measure inventory at the lower of cost and net realizable
value. Net realizable value is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. The Company adopted
this new standard beginning in the three months ended January
31, 2017. The adoption of the amendment did not have a material
impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In May 2017, the FASB issued an ASU, Stock Compensation
(Topic 718), Scope of Modification Accounting. This ASU clarifies
when changes to the terms or conditions of a share-based
payment award must be accounted for as modifications. The
guidance clarifies that modification accounting will be applied
if the value, vesting conditions or classification of the award
changes. This ASU will be effective for us beginning the first day
of our 2018 fiscal year. We do not anticipate a significant impact
on our financial condition, results of operations or cash flows
upon adoption.
In March 2017, the FASB issued an ASU, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost. This ASU requires that the service
cost component of net periodic benefit costs from defined
benefit and other postretirement benefit plans be included in the
same Statement of Earnings captions as other compensation
costs arising from services rendered by the covered employees
during the period. The other components of net benefit cost
will be presented in the Statement of Earnings separately from
service costs. Following adoption, only service costs will be
eligible for capitalization into manufactured inventories, which
should reduce diversity in practice. This ASU will be effective
for us beginning the first day of our 2019 fiscal year. We do not
anticipate a significant impact on our financial condition, results
of operations or cash flows upon adoption.
In January 2017, the FASB issued an ASU, Business
Combinations: Clarifying the Definition of a Business, which
adds guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or
disposals) of assets or businesses. This ASU will be effective for
us beginning the first day of our 2019 fiscal year. Early adoption
is permitted. We do not expect this ASU to have an impact until
an applicable transaction takes place.
In October 2016, the FASB issued an ASU, Intra-Entity
Transfers of Assets Other Than Inventory, which will require
companies to recognize the income tax effects of intra-entity
sales and transfers of assets other than inventory, particularly
those asset transfers involving intellectual property, in the
period in which the transfer occurs. The ASU will be effective
for us beginning the first day of our 2019 fiscal year and is not
expected to have a significant impact upon adoption.
In January 2017, the FASB issued an ASU, Simplifying the
Test for Goodwill Impairment, which removes the requirement
to compare the implied fair value of goodwill with its carrying
amount as part of step 2 of the goodwill impairment test. The
ASU permits an entity to perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting
unit with its carrying amount and to recognize an impairment
charge for the amount by which the carrying amount exceeds
the reporting unit’s fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to
that reporting unit. This ASU will be effective for us beginning
the first day of our 2021 fiscal year. Early adoption is permitted.
We are evaluating the impact of adoption of this ASU on our
financial condition, results of operations and cash flows, and as
such, we are not able to estimate the effect the adoption of the
new standard will have on our financial statements.
In February 2016, the FASB issued an ASU, Leases, which
requires a dual approach for lessee accounting under which a
lessee would account for leases as finance leases or operating
leases. Both finance leases and operating leases will result in
the lessee recognizing a right-of use asset and a corresponding
lease liability. For finance leases, the lessee would recognize
interest expense and amortization of the right-of-use asset, and
for operating leases, the lessee would recognize a straight-line
total lease expense. The guidance also requires qualitative
and specific quantitative disclosures to supplement the
amounts recorded in the financial statements so that users
can understand more about the nature of an entity’s leasing
activities, including significant judgments and changes in
judgments. This ASU will be effective for us beginning the first
day of our 2020 fiscal year. Early adoption is permitted. We are
evaluating the impact of adoption of this ASU on our financial
condition, results of operations and cash flows, and as such,
we are not able to estimate the effect the adoption of the new
standard will have on our financial statements.
44
45
In January 2016, the FASB issued an ASU, which requires
equity investments (except those accounted for under the
equity method of accounting) to be measured at fair value
with changes in fair value recognized in net income. The
guidance is effective for interim and annual periods beginning
after December 15, 2017. Early adoption is permitted. We are
evaluating the impact of adoption of this ASU on our financial
condition, result of operations and cash flows.
In May 2014, the FASB amended the existing accounting
standards for revenue recognition. The amendments are based
on the principle that revenue should be recognized to depict
the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
We are required to adopt the amendments in the first quarter of
fiscal 2019. 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 are evaluating the impact of the
adoption of this amended accounting standard on our financial
condition, result of operations and cash flows.
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, 2017, other comprehensive income includes
the unrealized gain on our Limoneira investment totaling
$3.9 million, net of income taxes. Limoneira’s stock price at
October 31, 2017 equaled $23.35 per share. For the fiscal year
ended October 31, 2016, other comprehensive income includes
the unrealized gain on our Limoneira investment totaling
$4.1 million, net of income taxes. Limoneira’s stock price at
October 31, 2016 equaled $19.69 per share. For the fiscal year
ended October 31, 2015, other comprehensive income includes
the unrealized loss on our Limoneira investment totaling
$10.3 million, net of income taxes. Limoneira’s stock price at
October 31, 2015 equaled $15.86 per share.
Noncontrolling Interest
The following tables reconcile shareholders’ equity
attributable to noncontrolling interest related to the Salsa Lisa
acquisition, and Avocados de Jalisco (in thousands).
SALSA LISA
NONCONTROLLING INTEREST
YEAR ENDED
OCTOBER 31, 2017
YEAR ENDED
OCTOBER 31, 2016
Noncontrolling interest,
beginning
Purchase of noncontrolling
interest of Salsa Lisa
Noncontrolling interest, ending
$
—
$
(771)
486
771
$
771
$
285
CALAVO1B1B
4. PROPERTY, PLANT, AND EQUIPMENT
The intangible assets consist of the following (in thousands):
Property, plant, and equipment consist of the following
OCTOBER 31, 2017
OCTOBER 31, 2016
Notes to
Consolidated Financial Statements
$
962
$
1,011
Equipment
In March 2017, pursuant to the Amended and Restated
Limited Liability Company Agreement dated February 8, 2010
entered into by Calavo Growers, Inc., Calavo Salsa Lisa LLC,
Lisa’s Salsa Company, Elizabeth Nicholson and Eric Nicholson,
we purchased the 35 percent ownership of Calavo Salsa Lisa not
held by us for $1.0 million.
AVOCADOS DE JALISCO
NONCONTROLLING INTEREST
YEAR ENDED
OCTOBER 31, 2017
YEAR ENDED
OCTOBER 31, 2016
Noncontrolling interest,
beginning
Net income (loss) attributable
to noncontrolling interest
of Avocados de Jalisco
54
(49)
Noncontrolling interest, ending
$
1,016
$
962
3. INVENTORIES
Inventories consist of the following (in thousands):
OCTOBER 31,
Fresh fruit
2017
2016
$ 14,566
$ 17,126
Packing supplies and ingredients
Finished prepared foods
9,755
6,537
7,605
7,118
$ 30,858
$ 31,849
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. 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 recorded an adjustment of $0.4 million and $1.1 million to
adjust our fresh fruit inventory to the net realizable value as of
October 31, 2017 and 2016.
(in thousands):
OCTOBER 31,
Land
Buildings and improvements
Leasehold improvements
Information systems – hardware
and software
Construction in progress
Less accumulated depreciation
and amortization
2017
2016
$ 11,569
$
7,023
44,338
25,030
79,023
10,264
7,487
22,480
8,918
66,109
8,089
25,456
177,711
138,075
(57,639)
(50,238)
$ 120,072
$ 87,837
Depreciation expense was $9.5 million, $7.3 million and
$6.4 million for fiscal years 2017, 2016, and 2015, of which
$0.5 million was related to depreciation on capital leases for
fiscal year 2017, 2016, and 2015.
Property, plant, and equipment include various capital
leases which total $3.4 million and $3.2 million, less
accumulated depreciation of $3.0 million and $2.5 million as
of October 31, 2017 and 2016.
The decrease in construction in progress from $25.5 million
as of October 31, 2016, to $7.5 million as of October 31, 2017,
is due to the Avocados de Jalisco packinghouse beginning
operations in June 2017, leasehold improvements to the facility
in Jacksonville, Florida, and leasehold improvements to the
facility in Houston, Texas.
5. OTHER ASSETS
Other assets consist of the following (in thousands):
OCTOBER 31,
2017
2016
Intangibles, net
$
2,226
$
3,365
Mexican IVA (i.e. value-added)
taxes receivable
18,174
Grower advances
Infrastructure advance
to Agricola Belher
Loan to FreshRealm members
Notes receivable from San Rafael
Other
—
400
315
493
1,183
6,962
49
600
318
928
1,027
$ 22,791
$ 13,249
WEIGHTED-
AVERAGE
USEFUL LIFE
GROSS
CARRYING
VALUE
ACCUMULATED
AMORTIZATION
NET BOOK
VALUE
GROSS
CARRYING
VALUE
ACCUMULATED
AMORTIZATION
NET BOOK
VALUE
Customer list/relationships
8.0 years
$
7,640
$
(6,181)
$
1,459
$
7,640
$
(5,241)
$
2,399
Trade names
8.2 years
2,760
(2,529)
Trade secrets/recipes
9.3 years
Brand name intangibles
indefinite
Non-competition agreements
5.0 years
630
275
267
(369)
—
(267)
231
261
275
—
2,760
(2,380)
630
275
267
(319)
—
(267)
380
311
275
—
Intangibles, net
$
11,572
$
(9,346)
$
2,226
$
11,572
$
(8,207)
$
3,365
We recorded amortization expense of approximately
$1.2 million, $1.5 million, and $1.6 million for fiscal years 2017,
2016, and 2015. We anticipate recording amortization expense
of approximately $1.1 million, $0.7 million, $0.1 million, and
$0.1 million for fiscal years 2018 through 2021. The remainder
of approximately $0.1 million will be amortized over fiscal years
2021 through 2023.
6. REVOLVING CREDIT FACILITIES
In June 2016, we entered into a new Credit Agreement with
Bank of America, N.A. (“Bank of America”) as administrative
agent and Merrill Lynch, Pierce, Fenner & Smith Inc. as joint lead
arranger and sole bookrunner, and Farm Credit West (“FCW”),
as joint lead arranger. The Credit Agreement provides for a five-
year, $80 million syndicated senior unsecured revolving credit
facility maturing on June 14, 2021 (the”Credit Facility”), which
replaces the Company’s prior revolving credit facilities, which
were scheduled to expire on July 1, 2016.
Provided there exists no default, upon notice to Bank of
America, the Company may from time to time, request an
increase in the Credit Facility by an amount not exceeding
$50 million (the “Accordion”). Any future exercises of the
Accordion would require additional commitments from existing
or new lenders.
The Credit Facility also contains customary events of default.
If any event of default occurs and is continuing, Bank of America
may take the following actions: (a) declare the commitment of
each lender to make loans and any obligation of the Issuer to
make credit extensions to be terminated; (b) declare the unpaid
principal amount of all outstanding loans, all interest, and all
other amounts to be immediately due and payable; (c) require
that Calavo cash collateralize the obligations; and (d) exercise
on behalf of itself, the lenders and the Issuer all rights and
remedies available to it.
7. EMPLOYEE BENEFIT PLANS
We sponsor five defined contribution retirement plans
for salaried and hourly employees. Expenses for these plans
approximated $1.2 million in fiscal 2017 and $1.0 million for
fiscal years 2016 and 2015, 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, were insignificant for the years ended October 31, 2017,
2016, and 2015. These amounts are included in selling,
general and administrative expenses in the accompanying
financial statements.
Borrowings under the Credit Facility will be at the
Components of the change in projected benefit obligation
Company’s discretion either at a Eurodollar Rate (“LIBOR”)
loan plus applicable margin or a base rate loan plus applicable
margin. The applicable margin will be based on the Company’s
Consolidated Leverage Ratio and can range from 1.00% to 1.50%
for LIBOR loans and 0.00% to 0.50% for Base Rate Loans. The
Credit Facility also includes a commitment fee on the unused
commitment amount at a rate per annum of 0.15%.
The Credit Facility contains customary affirmative and
negative covenants for agreements of this type, including
the following financial covenants applicable to the Company
and its subsidiaries on a consolidated basis: (a) a quarterly
consolidated leverage ratio of not more than 2.50 to 1.00 and
(b) a quarterly consolidated fixed charge coverage ratio of not
less than 1.15 to 1.00. We were in compliance with all such
covenants at October 31, 2017.
for fiscal year ends consist of the following (in thousands):
2017
2016
CHANGE IN PROJECTED
BENEFIT OBLIGATION:
Projected benefit obligation
at beginning of year
$
195
$
215
Interest cost
Actuarial loss
Benefits paid
7
12
(38)
8
9
(37)
Projected benefit obligation
at end of year (unfunded)
$
176
$
195
46
47
CALAVO1B1B
Notes to
Consolidated Financial Statements
The following is a reconciliation of the unfunded status
of the plans at fiscal year ends included in accrued expenses
(in thousands):
2017
2016
Projected benefit obligation
$
176
$
195
Unrecognized net (gain) loss
—
—
Recorded pension liabilities
$
176
$
195
Significant assumptions used in the determination of
pension expense consist of the following:
2017
2016
Discount rate on projected
benefit obligation
3.7%
3.7%
8. COMMITMENTS AND CONTINGENCIES
Commitments and guarantees
We lease facilities and certain equipment under
non-cancelable operating leases expiring at various dates
through 2031. We are committed to make minimum cash
payments under these agreements as of October 31, 2017,
as follows (in thousands):
In July 2015, we entered into a Lease Agreement with
Green Cove, LLC to lease an operating facility in Jacksonville,
Florida. The facility is approximately 200,000 square feet and
is expected to be a value-added distribution center for all
operating segments. We took possession of the property in
August 2015 and are in the process of making improvements to
this facility. The lease began in November 2015 and is scheduled
to terminate in October 2031.
Effective January 28, 2016, Calavo Growers, Inc. and
Bank of America, N.A. (“BoA”), entered into a Continuing and
Unconditional Guaranty agreement (the “Guaranty”). Under
the terms of the Guaranty, the Company unconditionally
guarantees and promises to pay BoA any and all Indebtedness,
as defined therein, of our unconsolidated subsidiary Agricola
Don Memo, S.A. de C.V. to BoA. Grupo Belo del Pacifico, S.A. de
C.V. has also entered into a similar guarantee with BoA. These
guarantees relate to a new loan in the amount of $4.5 million
loan from BoA to Don Memo that closed on January 28, 2016.
On January 29, 2016, Don Memo, used the proceeds from the
new BoA loan to repay $4.0 million due the Company.
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.
2018
2019
2020
2021
2022
Thereafter
Total rent expense amounted to approximately $6.0 million,
$5.8 million and $4.4 million for the years ended October 31,
2017, 2016, and 2015. Rent to Limoneira, for our corporate
office, amounted to approximately $0.3 million for fiscal years
2017, 2016, and 2015. 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 2016, we renewed the lease of our facility in Houston,
Texas through fiscal 2021 at an annual rental of $0.7 million per
annum (subject to annual CPI increases, as defined).
$
5,360
Litigation
5,188
4,672
4,276
3,970
29,601
$ 53,067
We are currently a named defendant in two class action
lawsuits filed in Superior state courts in California alleging
violations of California wage-and-hour laws, failure to pay
overtime, failure to pay for missed meal and rest periods, failure
to provide accurate itemized wage statements, failure to pay all
wages due at the time of termination or resignation, as well as
statutory penalties for violation of the California Labor Code and
Minimum Wage Order — 2014.
In August 2017, the parties reached a tentative settlement of
the case, whereby we agreed to pay $0.4 million to resolve the
allegations and avoid further distraction that would result if the
litigation continued. The settlement is subject to court approval.
The Company recorded $0.4 million as a selling, general and
administrative expense in the third quarter of fiscal 2017.
From time to time, we are also involved in other litigation
arising in the ordinary course of our business that we do
not believe will have a material adverse impact on our
financial statements.
Mexico Tax Audits
9. RELATED-PARTY TRANSACTIONS
We conduct business internationally and, as a result,
one or more of our subsidiaries files income tax returns in
U.S. federal, U.S. state and certain foreign jurisdictions.
Accordingly, in the normal course of business, we are subject
to examination by taxing authorities, primarily in Mexico and
the United States. During our third quarter of fiscal 2016, our
wholly-owned subsidiary, Calavo de Mexico (“CDM”), received
a written communication from the Ministry of Finance and
Administration of the government of the State of Michoacan,
Mexico (“MFM”) containing preliminary observations related
to a fiscal 2011 tax audit of such subsidiary. MFM’s preliminary
observations outline certain proposed adjustments primarily
related to intercompany funding, deductions for services
from certain vendors/suppliers and Value Added Tax (“VAT”).
During our fourth fiscal quarter of 2016, we provided a written
rebuttal to MFM’s preliminary observations and requested the
adoption of a conclusive agreement before the PRODECON
(Local Tax Ombudsman) so that a full discussion of the case
between us, the MFM and the PRODECON, as appropriate, can
lead to a reconsideration of the MFM findings. During our third
and fourth fiscal quarters of 2017, several meetings between
MFM, PRODECON and us took place and on November 28,
2017, the PRODECON process concluded. As a result, the MFM
is expected to issue its final assessment within the following
five months. If the MFM’s final assessment does not differ
materially from their preliminary observations, then we will
resolve the matter through legal means. We believe we have
the legal arguments and documentation to sustain the positions
challenged by tax authorities.
Additionally, we also received notice from Mexico’s Federal
Tax Administration Service, Servicio de Administracion
Tributaria (SAT), that our wholly-owned Mexican subsidiary,
Calavo de Mexico, is currently under examination related
to fiscal year 2013. In January 2017 we received preliminary
observations from SAT outlining certain proposed adjustments
primarily related to intercompany funding deductions for
services from certain vendors/suppliers and VAT. We provided
a written rebuttal to these preliminary observations during
our second fiscal quarter of 2017 which the SAT is in process
of analyzing. During our third fiscal quarter of 2017, we
requested the adoption of a conclusive agreement before the
PRODECON (Local Tax Ombudsman) so that a full discussion
of the case between us, the SAT and the PRODECON, as
appropriate, can lead to a reconsideration of the SATs findings.
We expect that several formal meetings between us, the SAT
and the PRODECON will be required before the SAT will reach
a conclusion. Note that during the meeting and discussion
process, the fiscal year 2013 final assessment (previously
expected no later September 2017) has been suspended.
We believe that the ultimate resolution of these matters
is unlikely to have a material effect on our consolidated
financial position.
Certain members of our Board of Directors market California
avocados through Calavo pursuant to marketing agreements
substantially similar to the marketing agreements that we
enter into with other growers. During the years ended October
31, 2017, 2016, and 2015, the aggregate amount of avocados
procured from entities owned or controlled by members of
our Board of Directors was $19.8 million, $25.5 million and
$16.4 million. We did not have any amounts due to Board
members as of October 31, 2017 and 2016.
During fiscal years 2017, 2016, and 2015, we received
$0.4 million, $0.3 million and $0.3 million as dividend income
from Limoneira. In addition, we lease office space from
Limoneira for our corporate office. Rent to Limoneira amounted
to approximately $0.3 million for fiscal years 2017, 2016,
and 2015. Harold Edwards, who is a member of our Board of
Directors, is the Chief Executive Officer of Limoneira Company.
We have a 12% ownership interest in Limoneira. Additionally,
our Chief Executive Officer is a member of the Limoneira Board
of Directors.
We currently have a member of our Board of Directors who
also serves as a partner in the law firm of TroyGould PC, which
frequently represents Calavo as legal counsel. During the years
ended October 31, 2017, 2016, and 2015, Calavo Growers, Inc.
paid fees totaling approximately $0.2 million to TroyGould PC.
In December 2014, Calavo formed a wholly owned subsidiary
Calavo Growers De Mexico, S. de R.L. de C.V. (Calavo Sub). In
July 2015, Calavo Sub entered into a Shareholder Agreement
with Grupo Belo del Pacifico, S.A. de C.V., (Belo) a Mexican
Company owned by Agricola Belher, and formed Agricola Don
Memo, S.A. de C.V. Belo and Calavo Sub have an equal one-half
ownership interest in Don Memo in exchange for $2 million
each. Pursuant to a management service agreement, Belo,
through its officers and employees, has day-to-day power
and authority to manage the operations. Belo is entitled to a
management fee, as defined, which is payable annually in July
of each year. Additionally, Calavo Sub is entitled to commission,
for the sale of produce in the Mexican National Market, United
States, Canada, and any other overseas market.
We loaned a total of $4.0 million to Don Memo since its
formation. These monies, effectively a bridge loan, were
replaced with a new loan to Don Memo from Bank of America,
N.A. (BoA) during our first fiscal quarter of 2016 and our bridge
loan was repaid from the proceeds of the new loan. Also, in
January 2016, Calavo and BoA, entered into a Continuing and
Unconditional Guaranty Agreement (the Guaranty). Under
the terms of the Guaranty, Calavo unconditionally guarantees
and promises to pay BoA any and all Indebtedness, as defined
therein, of our unconsolidated subsidiary Don Memo to BoA.
Belo has also entered into a similar guarantee with BoA. These
guarantees were entered into in connection with the new loan in
the amount of $4.5 million from BoA to Don Memo that closed in
January 2016.
48
49
CALAVO1B1B
Notes to
Consolidated Financial Statements
During the year ended October 31, 2017, 2016 and 2015, we
have an investment of $4.6 million, $3.7 million and $2.0 million,
representing Calavo Sub’s 50% ownership in Don Memo, which
is included as an investment in unconsolidated entities on our
balance sheet. We make advances to Don Memo for operating
purposes, provide additional advances as shipments are
made during the season, and return the proceeds from tomato
sales under our marketing program to Don Memo, net of our
commission and aforementioned advances. As of October
31, 2017, 2016 and 2015, we had outstanding advances of
$1.6 million, $0.9 million and $1.8 million to Don Memo. During
the year ended October 31, 2017, 2016 and 2015 we recorded
$8.9 million, $4.8 million and $2.3 million of expenses to Don
Memo pursuant to our consignment agreement.
We had grower advances due from Belher of $4.0 million,
$4.4 million and $3.0 million as of October 31, 2017, 2016
and 2015. In addition, we had infrastructure advances due
from Belher of $0.6 million, $0.8 million and $1.8 million as
of October 31, 2017, 2016 and 2015. Of these infrastructure
advances $0.2 million was recorded as receivable in prepaid
and other current assets and $0.4 million is included in other
assets. During the year ended October 31, 2017, 2016 and 2015,
we purchased $13.9 million, $26.0 million, and $14.2 million of
tomatoes from Belher pursuant to our consignment agreement.
In August 2015, we entered into Shareholder’s Agreement
with various partners which created Avocados de Jalisco,
S.A.P.I. de C.V. Avocados de Jalisco is a Mexican corporation
created to engage in procuring, packing and selling avocados.
This entity is approximately 80% owned by Calavo and is
consolidated in our financial statements. Avocados de Jalisco
has built a packinghouse located in Jalisco, Mexico and such
packinghouse began operations in June of 2017. As of October
31, 2017, 2016 and 2015, we have made preseason advances of
approximately $0.1 million to various partners of Avocados de
Jalisco. During the year ended October 31, 2017, we purchased
approximately $1.9 million of avocados from the partners of
Avocados de Jalisco.
We have an approximate 43% ownership interest in
FreshRealm, LLC (FreshRealm). Two officers, two members
of our board of directors and key employees have made
investments into FreshRealm. In addition, as of October
31, 2017 and 2016, we have a loan to FreshRealm members
of approximately $0.3 million. In February 2017, we loaned
$0.8 million to FreshRealm. In addition, two other FreshRealm
members loaned approximately $0.8 million to FreshRealm.
In total, this $1.5 million was considered a bridge loan, and
was repaid in April 2017. In April 2017, in another round of
financing, we committed to invest an additional $8.3 million
into FreshRealm if and when certain terms and conditions are
met. Through October of 2017, we have invested $7.5 million
of the total $8.3 million. In October 2017, our Chief Executive
Officer invested $7.0 million into FreshRealm, and as a result our
ownership percentage as of October 31, 2017 decreased from
46% to approximately 43%.
We provide storage services to FreshRealm from our
New Jersey Value-Added Depot and from our new RFG
Riverside location. We have received $0.1 million in storage
services revenue from FreshRealm during fiscal 2017.
In March 2017, pursuant to the Amended and Restated
Limited Liability Company Agreement dated February 8, 2010
entered into by Calavo Growers, Inc., Calavo Salsa Lisa LLC,
Lisa’s Salsa Company, Elizabeth Nicholson and Eric Nicholson,
we purchased the 35 percent ownership of Calavo Salsa Lisa not
held by us for $1.0 million.
The previous owners and current managers of RFG have
a majority ownership of certain entities that provide various
services to RFG, specifically LIG Partners, LLC and THNC, LLC.
RFG’s California operating facility leases a building from LIG
partners, LLC (LIG) pursuant to an operating lease. RFG’s Texas
operating facility leases a building from THNC, LLC (THNC)
pursuant to an operating lease. See the following tables for the
related party activity and balances for fiscal year 2017 and 2016:
YEAR ENDED OCTOBER 31,
2017
2016
(in thousands)
Rent paid to LIG
Rent paid to THNC, LLC
$
$
546
659
$
$
529
342
10. INCOME TAXES
The income tax provision consists of the following for the
years ended October 31, (in thousands):
2017
2016
2015
CURRENT:
Federal
State
Foreign
2,561
290
2,040
982
1,650
1,110
Total current
17,726
20,266
12,910
DEFERRED:
Federal
State
Foreign
2,567
1,863
3,314
335
(178)
533
(793)
98
(229)
Total deferred
2,724
1,603
3,183
Total income tax provision
$ 20,450
$ 21,869
$ 16,093
At October 31, 2017 and 2016, gross deferred tax assets
totaled approximately $31.9 million and $33.9 million, while
gross deferred tax liabilities totaled approximately $22.1 million
and $18.9 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.
Significant components of our deferred taxes assets
(liabilities) as of October 31, are as follows (in thousands):
2017
2016
Property, plant, and equipment
$
(7,861)
$
(6,901)
Intangible assets
24,647
27,686
Unrealized gain, Limoneira investment
(6,485)
(4,048)
Investment in FreshRealm
(6,808)
(6,902)
Stock-based compensation
State taxes
Credits and incentives
Allowance for accounts receivable
Inventories
Accrued liabilities
Other
1,154
(805)
2,253
1,239
322
2,245
(118)
952
(931)
2,070
875
395
1,912
(164)
Long-term deferred income taxes
$
9,783
$ 14,944
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:
Federal statutory tax rate
State taxes, net of
federal effects
Foreign income taxes greater
than U.S.
2017
2016
2015
35.0%
35.0%
35.0%
2.9
2.9
0.1
(2.2)
0.7
(1.7)
3.0
0.7
(0.8)
State rate change
0.3
—
—
Other
(0.7)
(0.6)
35.4%
36.3%
(0.7)
37.2%
We intend to reinvest our accumulated foreign earnings,
which approximated $15.6 million at October 31, 2017,
indefinitely. As a result, we have not provided any deferred
income taxes on such unremitted earnings.
For fiscal years 2017, 2016 and 2015, income before income
taxes related to domestic operations was approximately
$57.5 million, $61.0 million, and $41.5 million. For fiscal years
2017, 2016 and 2015, income (loss) before income taxes
related to foreign operations was approximately $0.2 million,
$(0.6) million and $1.8 million.
As of October 31, 2017 and 2016, we had liability of
$0.7 million and $0.4 million for unrecognized tax benefits
related to various foreign income tax matters.
We are subject to U.S. federal income tax as well as income
of multiple state tax and foreign tax jurisdictions. We are no
longer subject to U.S. income tax examinations for the fiscal
years prior to October 31, 2014, and are no longer subject
to state income tax examinations for fiscal years prior to
October 31, 2013.
Any change in the U.S. tax law has the potential to materially
impact our consolidated financial statements.
11. SEGMENT INFORMATION
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, and
salsa. The RFG segment represents all operations related to
the manufacturing and distribution of fresh-cut fruit, ready-
to-eat vegetables, recipe-ready vegetables and deli products.
Selling, general and administrative expenses, as well as other
non-operating income/expense items, are evaluated by our
Chief Executive Officer in the aggregate. We do not allocate
assets, or specifically identify them to, our operating segments.
$ 14,875
$ 17,244
$ 10,150
Section 199 deduction
50
51
CALAVO1B1B
Notes to
Consolidated Financial Statements
The following table sets forth sales by product category, by segment (in thousands):
The following table sets forth sales by product category, by segment (in thousands):
FRESH PRODUCTS
CALAVO FOODS
RFG
TOTAL
YEAR ENDED OCTOBER 31, 2017
YEAR ENDED OCTOBER 31, 2016
(All amounts are presented in thousands)
YEAR ENDED
OCTOBER 31, 2 017
Net sales (before eliminations)
$
583,976
$
77,579
$
418,508
$ 1,080,063
Intercompany eliminations
Net sales
Cost of sales (before eliminations)
Intercompany eliminations
Cost of sales
Gross profit
YEAR ENDED
OCTOBER 31, 2 016
(1,314)
582,662
511,410
(1,124)
510,286
(3,184)
74,395
63,751
(2,709)
61,042
—
418,508
390,358
(665)
389,693
(4,498)
1,075,565
965,519
(4,498)
961,021
$
72,376
$
13,353
$
28,815
$
114,544
THIRD -PARTY
SALES:
Avocados
Tomatoes
Papayas
Other fresh products
Prepared avocado products
Salsa
Fresh-cut fruit & vegetables
and prepared foods
FRESH
PRODUCTS
CALAVO
FOODS
RFG
TOTAL
FRESH
PRODUCTS
CALAVO
FOODS
RFG
TOTAL
$ 546,433 $
— $
— $ 546,433 $ 493,440 $
— $
— $ 493,440
29,199
36,286
29,199
9,402
445
—
—
—
—
—
—
85,204
3,951
—
—
—
—
—
9,402
445
85,204
3,951
—
419,973
419,973
9,514
5,600
—
—
—
—
—
—
73,009
3,617
—
—
—
—
—
36,286
9,514
5,600
73,009
3,617
—
336,989
336,989
Total gross sales
585,479
89,155
419,973
1,094,607
544,840
76,626
336,989
958,455
Net sales (before eliminations)
$
542,996
$
66,188
$
333,498
$
942,682
Less sales incentives
(1,503)
(11,576)
(1,465)
(14,544)
(1,844)
(10,438)
(3,491)
(15,773)
(4,309)
538,687
484,982
(4,292)
480,690
(2,694)
63,494
42,829
(1,783)
41,046
—
333,498
307,337
(928)
306,409
(7,003)
935,679
835,148
(7,003)
828,145
Less inter-company
eliminations
(1,314)
(3,184)
—
(4,498)
(4,309)
(2,694)
—
(7,003)
Net sales
$ 582,662 $
74,395 $ 418,508 $ 1,075,565 $ 538,687 $
63,494 $ 333,498 $ 935,679
YEAR ENDED OCTOBER 31, 2016
YEAR ENDED OCTOBER 31, 2015
$
57,997
$
22,448
$
27,089
$
107,534
FRESH
PRODUCTS
CALAVO
FOODS
RFG
TOTAL
FRESH
PRODUCTS
CALAVO
FOODS
RFG
TOTAL
Intercompany eliminations
Net sales
Cost of sales (before eliminations)
Intercompany eliminations
Cost of sales
Gross profit
YEAR ENDED
OCTOBER 31, 2 015
Net sales (before eliminations)
$
502,208
$
64,079
$
293,957
$
860,244
Intercompany eliminations
Net sales
Cost of sales (before eliminations)
Intercompany eliminations
Cost of sales
Gross profit
(1,497)
500,711
465,123
(1,476)
463,647
(1,923)
62,156
43,382
(1,737)
41,645
—
293,957
266,512
(207)
266,305
(3,420)
856,824
775,017
(3,420)
771,597
$
37,064
$
20,511
$
27,652
$
85,227
For fiscal year 2017, 2016 and 2015, inter-segment sales
and cost of sales of $1.3 million, $4.3 million and $1.5 million
between Fresh products and RFG were eliminated. For fiscal
year 2017, 2016 and 2015, inter-segment sales and cost of sales
of $3.2 million, $2.7 million and $1.9 million between Calavo
Foods and RFG were eliminated.
THIRD -PARTY
SALES:
Avocados
Tomatoes
Papayas
Other fresh products
Prepared avocado products
Salsa
Fresh-cut fruit & vegetables
and prepared foods
$ 493,440 $
— $
— $ 493,440 $ 471,178 $
— $
— $ 471,178
36,286
18,681
36,286
9,514
5,600
—
—
—
—
—
—
73,009
3,617
—
—
—
—
—
9,514
5,600
73,009
3,617
—
336,989
336,989
9,485
4,336
—
—
—
—
—
—
51,135
22,736
—
—
—
—
—
18,681
9,485
4,336
51,135
22,736
—
296,697
296,697
Total gross sales
544,840
76,626
336,989
958,455
503,680
73,871
296,697
874,248
Less sales incentives
(1,844)
(10,438)
(3,491)
(15,773)
(1,472)
(9,792)
(2,740)
(14,004)
Less inter-company
eliminations
(4,309)
(2,694)
—
(7,003)
(1,497)
(1,923)
—
(3,420)
Net sales
$ 538,687 $
63,494 $ 333,498 $ 935,679 $ 500,711 $
62,156 $ 293,957 $ 856,824
Sales to customers outside the United States were
for fiscal 2017 and 2016.
approximately $29.8 million, $25.4 million and $26.7 million
for fiscal years 2017, 2016, and 2015.
RFG segment sales included sales to one customer who
represented more than 10% of total consolidated revenues
Our goodwill balance of $18.2 million is attributed
by segment to Fresh products for $3.9 million and RFG for
$14.3 million as of October 31, 2017.
52
53
CALAVO1B1B
Notes to
Consolidated Financial Statements
Long-lived assets attributed to geographic areas as of
At October 31, 2017, capital lease payments are scheduled as
October 31, are as follows (in thousands):
follows (in thousands):
$
TOTAL
153
140
129
108
64
—
594
(26)
UNITED STATES
MEXICO
CONSOLIDATED
YEAR ENDING OCTOBER 31:
2017
2016
$ 88,078
$ 31,994
$ 120,072
$ 55,715
$ 32,122
$ 87,837
12. LONG-TERM OBLIGATIONS
Long-term obligations at fiscal year ends consist of the
following (in thousands):
2018
2019
2020
2021
2022
Thereafter
Capital leases
Less current portion
2017
2016
Minimum lease payments
$
568
$
583
Less interest
(129)
(138)
Present value of future minimum lease payments
$
568
$
439
$
445
The Company and FCW entered into a Term Loan
Agreement (Term Agreement) in connection with the RFG
acquisition, 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 were required to make
60 monthly principal and interest payments, from July 1, 2011 to
June 1, 2016. In fiscal 2016, this term loan was repaid in full.
Effective September 30, 2011, the Company and 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).
In fiscal 2016, this term loan was repaid in full.
Effective January 28, 2016, Calavo Growers, Inc. and
BoA, entered into a Continuing and Unconditional Guaranty
agreement (the “Guaranty”). Under the terms of the Guaranty,
the Company unconditionally guarantees and promises to
pay BoA any and all Indebtedness, as defined therein, of our
unconsolidated subsidiary Agricola Don Memo, S.A. de C.V. to
BoA. Grupo Belo del Pacifico, S.A. de C.V. has also entered into
a similar guarantee with BoA. These guarantees relate to a new
loan in the amount of $4.5 million from BoA to Don Memo that
closed on January 28, 2016. On January 29, 2016, Don Memo,
used the proceeds from the new BoA loan to repay $4.0 million
due the Company.
13. STOCK-BASED COMPENSATION
The 2005 Stock Incentive Plan
The 2005 Stock Incentive Plan, was a stock-based
compensation plan, under which employees and directors could
be granted options to purchase shares of our common stock.
In June 2012, this plan was 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 income 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.
A summary of stock option activity is as follows (in
thousands, except for per share amounts):
NUMBER OF
SHARES
WEIGHTED-
AVERAGE
EXERCISE
PRICE
AGGREGATE
INTRINSIC
VALUE
Outstanding at
October 31, 2016
Exercised
Outstanding at
October 31, 2017
Exercisable at
October 31, 2017
8
(1)
$
$
18.05
14.58
7
$
18.54
$
506
7
$
18.54
$
506
The weighted average remaining life of such outstanding
options is 1.6 years and the total intrinsic value of options
exercised during fiscal 2017 was $0.1 million. The weighted
average remaining life of such exercisable options is 1.6 years.
The fair value of shares vested during the year ended
October 31, 2017, 2016, and 2015 was approximately $0.5 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 2015, 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 $40.39. On January 1, 2016, as long as the directors are still
serving on the board, these shares lose their restriction and
become non-forfeitable and transferable. The total recognized
stock-based compensation expense for these grants was
$0.7 million for fiscal 2015.
On February 6, 2015, our executive officers were granted a
total of 55,394 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 $40.17. These shares
vest in one-third increments, on an annual basis, beginning
January 8, 2016. These shares were granted pursuant to our
2011 Management Incentive Plan. The total recognized stock-
based compensation expense for these grants was $0.5 million
for fiscal 2015. On June 15, 2015, our Chief Operating Officer/
Chief Financial Officer retired from Calavo. His unvested portion
of restricted stock of 12,322 shares issued in February of 2015
and January of 2014 was forfeited. As part of his retirement on
June 1st 2015, he was granted 12,322 shares of unrestricted
stock. The closing price of our stock on such date was
$49.95. We recorded for this grant $0.6 million of stock-based
compensation expense for fiscal years 2016 and 2015.
On January 4, 2016, 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 $48.46. On January 3, 2017, as long as the
directors are still serving on the board, these shares lose
their restriction and become non-forfeitable and transferable.
These shares were granted pursuant to our 2011 Management
Incentive Plan. The total recognized stock-based compensation
expense for these grants was $0.8 million for the year ended
October 31, 2016.
On January 8, 2016, our executive officers were granted a
total of 24,582 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 $48.68. These shares vest
in one-third increments, on an annual basis, beginning January
8, 2017. These shares were granted pursuant to our 2011
Management Incentive Plan. The total recognized stock-based
compensation expense for these grants was $0.3 million for the
year ended October 31, 2016.
On December 19, 2016, our executive officers were granted
a total of 70,327 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 $56.20. These shares
vest in one-third increments, on an annual basis, beginning
December 19, 2017. These shares were granted pursuant to
our 2011 Plan. The total recognized stock-based compensation
expense for these grants was $0.9 million for the year ended
October 31, 2017.
On January 4, 2017, 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 $62.65. On January 3, 2018, as long as the
directors are still serving on the board, these shares lose
their restriction and become non-forfeitable and transferable.
These shares were granted pursuant to our 2011 Plan. The total
recognized stock-based compensation expense for these grants
was $1.1 million for the year ended October 31, 2017.
On January 6, 2017, our Chief Operating Officer resigned
from Calavo. His unvested portion of restricted stock of 12,800
shares issued in December of 2016 and January of 2016 was
forfeited. On January 25, 2017, as part of his resignation he was
granted 12,800 shares of unrestricted stock, which immediately
vested. The closing price of our stock on such date was
$58.05. We recorded for this grant $0.7 million of stock-based
compensation expense in our fiscal first quarter of 2017.
On February 2, 2017, our Vice President of the Foods Division
retired from Calavo for medical reasons. In January 2017, the
board of directors agreed that his unvested portion of restricted
stock of 13,040 shares shall be vested due to the medical
reasons provision in the restricted stock agreements. As a
result, we recorded $0.5 million of stock-based compensation
expense in our fiscal first quarter of 2017.
In January 2017, our Board of Directors approved the
issuance of options to acquire a total of 10,000 shares of our
common stock to one member of our Board of Directors.
Such grant vests in equal increments over a five-year period
and has an exercise price of $56.65 per share. Vested options
have an exercise period of five years from the vesting date.
The market price of our common stock at the grant date was
$56.65. The estimated fair market value of such option grant
was approximately $0.2 million. The total compensation cost
not yet recognized as of October 31, 2017 was approximately
$0.2 million, which will be recognized over the remaining
service period of 60 months.
54
55
CALAVO1B1B
Notes to
Consolidated Financial Statements
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
AGGREGATE
INTRINSIC
VALUE
Outstanding at
October 31, 2016
Granted
Exercised
Outstanding at
October 31, 2017
Exercisable at
October 31, 2017
11
10
(1)
$
$
$
23.33
56.65
21.80
20
$
40.07
$
645
8
$
23.48
$
391
The weighted average remaining life of such outstanding
options is 5.2 years. The weighted average remaining life of
such exercisable options is 2.7 years. The fair value of shares
vested during the year ended October 31, 2017, was $0.4 million.
14. DIVIDENDS
On October 4, 2017, the Company declared a $0.95 per share
cash dividend to shareholders of record on November 17, 2017.
On December 8, 2017, the Company paid this cash dividend
which totaled $16.7 million. On December 8, 2016, the Company
paid a $0.90 per share dividend in the aggregate amount of
$15.7 million to shareholders of record on November 17, 2016.
15. 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 value of each option award is estimated using a lattice-
based 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.
Prior to November 1, 2016, stock-based compensation
expense was recorded net of estimated forfeitures our
consolidated statements of income and, accordingly, was
recorded for only those stock-based awards that the we
expected to vest. We estimated the forfeiture rate based on
historical forfeitures of equity awards and adjusted the rate to
reflect changes in facts and circumstances, if any. We revised
our estimated forfeiture rate if actual forfeitures differed from
its initial estimates.
Effective as of November 1, 2016, we adopted a change
in accounting policy in accordance with ASU 2016-09,
“Compensation—Stock Compensation (Topic 718)” to account
for forfeitures as they occur. The change was applied on a
modified retrospective basis, and no prior periods were restated
as a result of this change in accounting policy.
We measure the fair value of our stock option awards on
the date of grant. The following assumptions were used in the
estimated grant date fair value calculations for stock options
issued for fiscal 2017:
Risk-free interest rate
Expected volatility
Dividend yield
Expected life (years)
1.84%
42.09%
1.59%
5.0
A summary of restricted stock activity, related to our 2011
Management Incentive Plan, is as follows (in thousands, except
for per share amounts):
NUMBER OF
SHARES
WEIGHTED-
AVERAGE
GRANT
PRICE
AGGREGATE
INTRINSIC
VALUE
Outstanding at
October 31, 2016
Vested
Forfeited
Granted
Outstanding at
October 31, 2017
84
(71)
(13)
103
$
$
$
$
44.76
52.29
53.66
57.62
103
$
54.64
$
7,488
The total recognized stock-based compensation expense
for restricted stock was $4.3 million for the year ended
October 31, 2017.
The following table sets forth our financial assets and liabilities as of October 31, 2017 that are measured on a recurring basis
during the period, segregated by level within the fair value hierarchy:
Assets at Fair Value:
(All amounts are presented in thousands)
Investment in Limoneira Company(1)
Total assets at fair value
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
$
$
40,362
40,362
—
—
—
—
$
$
40,362
40,362
(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, 2017 and October 31, 2016
equaled $23.35 per share and $19.69 per share. Unrealized gains and losses are recognized through other comprehensive income. Unrealized investment holding
gains arising during the years ended October 31, 2017 and 2016 were $6.3 million and $6.6 million. Unrealized investment holding losses arising during the year
ended October 31, 2015 was $16.9 million.
16. MEXICAN IVA TAXES RECEIVABLE
During the first quarter of fiscal 2017, tax authorities
Included in other assets are tax receivables due from
the Mexican government for value-added taxes (IVA) paid
in advance. CDM is charged IVA by vendors on certain
expenditures in Mexico, which, insofar as they relate to the
exportation of goods, translate into IVA amounts receivable
from the Mexican government.
As of October 31, 2017 and 2016, IVA receivables totaled
$19.5 million and $15.4 million. Historically, CDM received
IVA refund payments from the Mexican tax authorities on a
timely basis. Beginning in fiscal 2014 and continuing into fiscal
2017, however, the tax authorities began carrying out more
detailed reviews of our refund requests and our supporting
documentation. Additionally, they are also questioning the
refunds requested attributable to IVA paid to certain suppliers
that allegedly did not fulfill their own tax obligations. We
believe these factors and others have contributed to delays in
the processing of IVA claims by the Mexican tax authorities.
Currently, we are in the process of collecting such balances
through regular administrative processes, but certain amounts
may ultimately need to be recovered via legal means. We believe
that our operations in Mexico are properly documented and that
the Mexican tax authorities will ultimately authorize the refund of
the corresponding IVA amounts. We will continue to monitor the
collection of these receivables with our outside consultants.
informed us that their internal opinion, based on the information
provided by local SAT office in Uruapan, considers that CDM is
not properly documented relative to its declared tax structure
and therefore CDM cannot claim the refundable IVA balance.
CDM has strong arguments and supporting documentation
to sustain its declared tax structure for IVA and income tax
purposes. CDM decided to start an administrative appeal for
the IVA related to the request of the months of July, August and
September of 2015 in order to assert its argument that CDM
is properly documented and to therefore change the SAT’s
internal assessment. CDM expected to have a resolution to this
matter in fiscal 2018; however, it should be noted that our timing
expectations are predicated on a timely response from the tax
authorities, according to the most recent communications with
tax authorities it is likely to have a resolution during fiscal 2018.
Based on the information mentioned above, in the first quarter
of fiscal 2017, we reclassified the total CDM IVA balance from
prepaid and other current assets to other assets. As of October
31, 2017 and October 31, 2016, $18.2 million and $7.0 million
of CDM IVA receivables were recorded in other assets. As of
October 31, 2016, $8.4 million of CDM IVA were recorded in
prepaids and other current assets.
56
57
CALAVO1B1B
Report of Independent Registered
Public Accounting Firm
Management’s Report on Internal Control
Over Financial Reporting
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CALAVO GROWERS, INC.
SANTA PAULA, CALIFORNIA
We have audited the accompanying consolidated balance sheets of Calavo Growers, Inc. and subsidiaries (the Company) as of
October 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and
cash flows for each of the three years in the period ended October 31, 2017. Our audits also included the financial statement schedule
listed in the index at Item 15 (a). These consolidated financial statements and financial statements schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial
statement 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 consolidated financial statements present fairly, in all material respects, the consolidated financial position of
Calavo Growers, Inc. and subsidiaries at October 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended October 31, 2017, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such 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.
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, 2017, based on criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
December 22, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Costa Mesa, California
December 22, 2017
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of the end of the period covered by this report based on the framework set forth in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Based on our evaluation under the framework set forth in Internal Control — Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of October 31, 2017. Our internal control over financial reporting
as of October 31, 2017 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their
report which is included herein.
Lecil E. Cole
Chairman of the Board of Directors,
President and Chief Executive Officer
B. John Lindeman
Chief Financial Officer and
Corporate Secretary
58
59
CALAVO1B1B Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
Corporate Information
OFFICERS
AUDIT COMMITTEE
HEADQUARTERS
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 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
HIGH
66.35
66.60
76.15
74.80
$
$
$
$
LOW
FISCAL 2016
$
$
$
$
53.65
51.20
64.43
66.35
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
HIGH
56.58
57.54
67.43
69.78
$
$
$
$
LOW
48.12
47.64
55.10
58.78
$
$
$
$
As of November 30, 2017, there were approximately 810 stockholders of record of our common stock, which includes shareholders
whose shares were held in brokerage firms, depositories and other institutional firms in “street name”.
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, 2017, we paid a $0.95 per share dividend in the aggregate amount of $16.7 million to shareholders of record on
November 17, 2017. On December 8, 2016, we paid a $0.90 per share dividend in the aggregate amount of $15.7 million to shareholders
of record on November 17, 2016.
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, 2012 and
ending October 31, 2017. In making this comparison, we have assumed an investment of $100 in Calavo Growers, Inc. common stock,
the Nasdaq Market Index, a new 2017 Peer Group Index and the 2016 Peer Group Index as of October 31, 2012. We have also assumed
the reinvestment of all dividends.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Among Calavo Growers, Inc., The NASDAQ Composite Index, 2016 Peer Group and 2017 Peer Group
$400
$350
$300
$250
$200
$150
$100
$50
$0
*
*
*
*
10/12
10/13
10/14
10/15
10/16
10/17
Calavo Growers, Inc.
NASDAQ Composite
2016 Peer Group
*
2017 Peer Group
*$100 invested on 10/31/12 in stock or index, including reinvestment of dividends. Fiscal year ending October 31.
Lecil E. Cole
Chairman of the Board, President
and Chief Executive Officer
B. John Lindeman
Chief Financial Officer and
Corporate Secretary
Rob Wedin
Vice President
Fresh Sales and Marketing
Mike Browne
Vice President
Fresh Operations
Ron Araiza
Vice President
Foods Division Sales
and Operations
James E. Gibson
President
Renaissance Food Group
James E. Snyder
Corporate Controller
Chief Accounting Officer
OFFICER—CALAVO
DE MEXICO
Dionisio Ortiz
Director of Operations
Calavo de Mexico
PRINCIPAL 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
Steven W. Hollister
Michael A. “Mike” DiGregorio
Kathleen M. Holmgren
NOMINATING &
GOVERNANCE COMMITTEE
Egidio “Gene” Carbone, Jr.
Chairman
Michael A. “Mike” DiGregorio
James D. Helin
COMPENSATION COMMITTEE
Steven W. Hollister
Chairman
Michael A. “Mike” DiGregorio
Kathleen M. Holmgren
OPERATING DIRECTORS
& MANAGERS
Michael D. Hause
Director, Purchasing
and Risk Management
John Agapin
Director, Systems Analysis
and Planning
Patricia D. Vorhies
Director, Human Resources
Gary M. Gunther
Director, Fresh Operations
Special Projects
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
Deloitte & Touche LLP
Costa Mesa, California
INVESTOR & CORPORATE
RELATIONS COUNSEL
Michael Lippold
Director, Strategic Development
FoleyFreisleben LLC
Los Angeles, California
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.
College Station, Texas
Marc Fallini
Director, California Avocado Operations
Joseph Malagone
Packinghouse Manager, Santa Paula
Francisco Orozco
Packinghouse Manager, Jalisco Mexico
COMMON STOCK LISTING
Shares of the company’s common stock
are listed on the Nasdaq Global Select
Market under the symbol CVGW.
60
61
CALAVO1B1B
Calavo Growers, Inc.
Calavo Growers, Inc. is a global avocado industry leader and expanding provider of
value-added fresh food. The company serves retail grocery, food service, club stores, mass
merchandisers, food distributors and wholesalers worldwide through its three principal
operating segments: Fresh, Renaissance Food Group, LLC (RFG) and Calavo Foods.
The Fresh segment procures and markets fresh avocados and other fresh produce (tomatoes and
papayas). Calavo packs, markets and distributes approximately 20 percent of the total available
all-source fresh avocado supply to North America. This includes selling to the United States and
Canada approximately 28 percent of all fresh avocados grown in California and about 18 percent of
the annual crop sourced from Mexico. The company procures avocados from California, Mexico,
Chile and Peru to satisfy year-round domestic demand, for export beyond North America to Asia
and Europe, as well as for use in Calavo Foods’ prepared products.
The RFG segment creates, markets and distributes a portfolio of healthy, fresh foods including
fresh-cut fruit and vegetables and an extensive array of prepared items sold through the retail
grocery channel.
The Calavo Foods business segment 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.
Calavo products are sold under the company’s own respected brand name, as well as Garden
Highway, Chef Essentials and a variety of private label and store brands.
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 more than 2,000 people, the
company is headquartered in Santa Paula, California, and operates packing, production and
distribution facilities nationwide and in Mexico, providing Calavo with one of the nation’s largest,
most complete fresh-food infrastructure networks. These include:
1 Three fresh avocado packinghouses (in Santa Paula, Michoacán, Mexico, and Jalisco, Mexico);
1 One fresh papaya packinghouse (in Hawaii);
1 Seven RFG production and distribution facilities (in Northern and Southern California,
Oregon, Texas, Indiana, Florida and New Jersey);
1 Two Calavo Foods production facilities (in Michoacán, Mexico and Minnesota); and,
1 Three Value-Added Depots housing ProRipeVIP® ripening technology, distribution and sales
(in Santa Paula, Texas and New Jersey).
SENIOR
MANAGEMENT
CORPORATE HEADQUARTERS
Santa Paula, California
5
Senior
Managers
ROB WEDIN
Vice President
Fresh Sales and Marketing
MIKE BROWNE
Vice President
Fresh Operations
B. JOHN LINDEMAN
Chief Financial Officer
and Corporate Secretary
RON ARAIZA
Vice President, Foods Division Sales
and Operations
JAMES E. GIBSON
President, Renaissance
Food Group
62
Creative Direction: Dan McNulty Designed: MC BrandStudios www.mc-brandstudios.com Concept/Editorial: FoleyFreisleben, LLC. www.folfry.com Illustration: Steve Nobel www.stevennoble.com
Printing: Jano Graphics www.janographics.com
CALAVO1B1B