Calavo Growers, Inc. Annual Report 2018

← All annual reports

FY2018 Annual Report · Calavo Growers, Inc.

Loading PDF…

Calavo Growers, Inc.
2018
Annual Report

Calavo Growers, Inc.

1141 Cummings Road

Santa Paula, California 93060

www.calavo.com

SuperGreen

01023

Last year, indicative of the underlying strength of our three principal
business segments—Fresh, Renaissance Food Group and Calavo Foods—
we once again posted record revenues, record adjusted net income and
record adjusted per-share results. With new all-time highs in these key
metrics, the theme of this year’s annual report—in recognition of our record
operating performance and agribusiness roots—is Super Green.

Super

Growth

Revenue

(Dollars in Millions)

$1,089

$1,076

$935.7

$856.8

$782.5

Gross Profit

(Dollars in Millions)

$114.5

$113.6

$107.5

$85.2

$71.2

Adjusted Net Income

(Dollars in Millions)

$43.7***

$38.0 $38.0**

$27.2

$25.0*

Adjusted
Earnings Per Share

(Dollars)

$2.49†††

$2.18

$2.17††

$1.57

$1.45 †

(*) Adjusted Annual Net Income before RFG non-cash contingent consideration expense of $33.2 million and including gain of $8.3 from deconsolidation of FreshRealm. After amounts, net income totaled $0.1 million.

(**) Adjusted Annual Net Income before certain management transition expenses ($1.2 million) and tax impact of adjustments ($0.4 million). After amounts, net income totaled $37.3 million.

(***) Adjusted Annual Net Income before non-cash losses recognized from FreshRealm ($12.0 million), one-time, non-cash tax charges from Tax Cut & Jobs Act ($1.7 million), certain management transition expenses ($0.9 million), and tax impact of
adjustments ($3.2 million). After amounts, net income totaled $32.3 million.

(†) After RFG non-cash contingent consideration, and including the gain on deconsolidation of FreshRealm, diluted EPS totaled $0.01.

(††) After management transition expenses and tax impact of adjustments described above, diluted EPS totaled $2.13.

(†††) After non-cash losses recognized from FreshRealm, one-time, non-cash tax charges from Tax Cut & Jobs Act, management transition expenses and tax impact of adjustments described above, diluted EPS totaled $1.84.

0102

The admired Calavo brand—and its widespread
recognition and affinity with our customers—is no
flash in the pan. Instead, this respected reputation is
a result of a 95-year company tradition of delivering
the finest, highest quality and most flavorful
avocados, fresh fruits, vegetables and other products
worthy of carrying our name.

Focused execution year-in, year-out delivering on this brand promise translates to nothing
short of super visibility among customers and consumers. Calavo’s brand equity is one
of our most valuable intangible assets.

Reciprocally, from a company standpoint, visibility has an altogether different meaning:
a clear, unimpeded industry perspective that powers our market leadership. Calavo’s core

strengths in sourcing, production management, sales and distribution are built upon our

senior management team’s decades-long industry experience. It provides us the vision,

know-how and breadth of grower and customer relationships—among numerous other

factors—that represent true strategic differentiators and competitive advantages.

Super

Visibility

“…I have the wind at my back. The sun is rising over the foothills ahead of me
as I push ahead on my trail run. Strength training yesterday and eight miles on
the open road today. Digging deep, my mind wanders to what’s waiting for me at
home: a bowl of wholesome, fresh Calavo avocados. I’ll cool down and recharge
with a breakfast of hearty, flavorful avocado toast. There’s no better way to
replenish. Avocados—and there are none fresher or better tasting than Calavo’s—
are higher in potassium than bananas to replace critical electrolytes that keep
me hydrated after workouts…

“…It’s no surprise that health experts consider avocados a superfood. This
super fruit is super healthy: mineral-and nutrient-rich, dense in fiber, high in
heart-healthy monounsaturated fat and anti-oxidants thought to prevent cancer.
These benefits are one of the reasons why avocado demand is surging. The fact
that avocados are so healthy is a value-added. The main reason I have eaten them
for as long as I can remember, though, is because they taste so darn good…”

Super

Fruit

Super

Healthy

(*)Hass Avocado Board

(*)Healthline.com

0106

“…The alarm blares at 5:30 a.m. Oh, how I want to hit that ‘snooze’ button for
another 10 minutes. But it’s up and at ‘em. The busy day—is there any other
kind?—awaits. Make breakfast for the family—check. Wake the kids and get them
moving—check. Pack school lunches—check. And then it’s out the door to drive
carpool and on to my office for that 8:30 a.m. client call. In the afternoons and
evenings, it’s homework help, soccer practice and piano lessons. But I need to get
dinner on the table…
“…Harried lifestyles demand super convenient options. Who has time to chop
and prep? But I never sacrifice on health and nutrition when it comes to my
family. Thank goodness that with Calavo’s Garden Highway products, we get the
best of both. Fresh-cut fruits bursting with juicy, flavorful goodness. Ready-to-eat
sandwiches, wraps and snacks for the kids’ lunches. Prepped ingredients—pre-
made salads and meal-kit components—for home-cooked dinners. Not to mention,
trays and platters that make any party a snap. They are adding more and more
products every time I look. And, knowing that Garden Highway from RFG is part
of Calavo, a brand we know and trust, I can breathe easy that the products will be
of the highest quality and farm-fresh because my family deserves the very best…”

Super

Expansion Convenient

(*)DMA Solutions

(*)Nielsen

010208

“…I couldn’t stop eating the guacamole at the Super Bowl party; it was the
best I had ever tasted—chunks of fresh avocado and just the right blend of spices.
I complimented George, the party’s host, and asked if he would share his ‘secret
guacamole recipe.’ He said, ‘Sure, I’d be happy to,’ broke into a sly smile and
led me to his refrigerator.Reaching in, he pulled out a package of Calavo fresh
prepared guacamole. ‘A-ha,’ I thought. I should have known anything that
super tasty had to be Calavo. After all, they are the First Name in AvocadosTM
for a reason…”

“…I have been buying Calavo fresh avocados for years and know it’s a brand I can
always trust for flavorful goodness and the highest quality. And when I found out
that RFG’s Garden Highway—with its fresh refrigerated packaged foods, cut fruits
and veggies, prepared salads and meal kits—was part of the Calavo family, I was
not in the least surprised. The Garden Highway lineup of products have become
super popular. But while convenience and availability led me to try them, it’s
the great taste that keeps me coming back…”

Super

Tasty

(*)Chipotle Mexican Grill

Super

Popular

(*)Nielsen

010210

We packed and sold 19 percent more fresh avocados.
Reflective of an industry that continues its extended, long-term growth arc, Calavo packed
and sold more than 14 million cartons—nearly 360 million pounds—of fresh avocados in fiscal
2018, an increase of more than 19 percent from the prior year. Our sourcing, production
management, sales and distribution expertise enable us to successfully navigate and manage
through complex industry cross-currents that arise in the high-growth avocado industry.
Operationally, our company has positioned itself well for expansion, adding ample production
capacity to keep pace with rapidly increasing domestic and global fresh avocado consumption.

We are building efficiencies at our newest facilities.
From 2015 through 2017, Calavo invested more than $45 million in capital expenditures to
expand the production and distribution footprint of its RFG fresh refrigerated packaged goods
business segment. We are working painstakingly to optimize those new facilities. Building
arguably the most comprehensive, seamless national distribution network in the fresh produce
industry enables us to penetrate new markets and customers, service the needs of our largest
retail grocery accounts and achieve economies of scale that will drive profitability.

Super

Performance

Calavo is well-positioned—both now and for the future—with multiple

revenue and profit engines that will propel our growth. We remain

We posted record revenues.
For the eighth consecutive year, Calavo’s revenues climbed to a new all-time high. The
most-recent year caps a decade during which the company’s compound annual
growth rate in net sales equaled a robust 12 percent. Revenue growth in fiscal 2018 was
powered by a nearly 20 percent sales increase in the Calavo Foods business
segment, as well as solid top-line gains in our RFG unit.

focused on the disciplined implementation of our strategic agenda and

are optimistic about the potential of the company’s three fast-growth,

complementary business segments—each occupying a unique category

and possessing distinctive competitive advantages. Our deep reserve

of resources—operating, financial and human capital—will support

Calavo in this mission as we continue to build a larger, broader based

agribusiness and fresh-food enterprise.

We delivered higher shareholder returns.
Calavo’s board of directors boosted the annual cash dividend on its common stock by
5.3 percent to $1.00 per share last year. The increased payout represents the
seventh consecutive increase and the 17th straight annual cash dividend dating back
to the company becoming publicly traded in 2002. Since that time, Calavo’s
dividend has increased 400 percent.

To Our

Shareholders

Lee E. Cole
Chairman, President and CEO

Calavo Growers, Inc. posted record revenue of $1.1 billion
in fiscal 2018—the eighth consecutive year in which our
top line registered a new all-time high. Your company also
surpassed previous bests for adjusted net income and adjusted
earnings per share, while posting gross profit virtually equal
to the record set in fiscal 2017. It was, in short, another very
successful year.

Let me drill down on these operating results.

publicly traded in 2002. The most-recent award

Adjusted net income for the fiscal year ended

was a 5.3 percent increase from one year earlier

October 31, 2018, which excludes certain items

and reflects a steady, consistent 400 percent

impacting comparability, increased by 15 percent

climb since our listing on the Nasdaq Market.

to $43.7 million, equal to $2.49 per diluted share,

Nothing underscores Calavo’s commitment

which compares with adjusted net income of

to delivering the highest possible shareholder

$38.0 million, or $2.17 per diluted share, in the

returns than the upward trendline of the

prior year. (Net income for the most recent year

company dividend.

totaled $32.3 million, or $1.84 per diluted share,

which compares with $37.3 million, or $2.13 per

diluted share, last year.)

Consider another significant aspect of value

creation for our owners. During the past decade

alone, Calavo’s stock price has appreciated at a

Revenues for the most-recent year slightly edged

compound annual growth rate of 25 percent—

the company’s top line in fiscal 2017. Gross

directly reflective of our success building a larger,

profit totaled $113.6 million, or 10.4 percent of

more profitable enterprise. In dollars and cents,

revenues, versus $114.5 million, equal to 10.6

$10,000 of company shares at the time Calavo

percent of revenues, in the prior year. Operating

began trading on Nasdaq, along with reinvested

income measured $56.5 million as compared

cash dividends, would have risen to $195,000 at

with $57.9 million in fiscal 2017.

October 31, 2018.

In recognition of our sustained profitability, our

Last year did present a series of transitory

board of directors declared a $1.00 per share

operating challenges in each of Calavo’s

annual cash dividend on Calavo’s common stock,

three principal business segments. All were

the 17th consecutive payout since becoming

comparatively short-lived market or industry

010214

conditions. Nothing makes me prouder than to

millions of pounds of fresh avocados and other

write that despite these unique circumstances, we

commodity goods from our packinghouses and

continued to execute well across our businesses

value-added depots so it reaches our customers

to deliver strong operating results. Our success

fresh and equal to our quality standards and, just

in navigating through turbulent cross currents

as importantly, theirs. The same know-how has

is attributable, above all else, to one factor:

been invaluable in RFG’s rapid expansion under

experience. Calavo’s senior management team

Calavo ownership. Not only have we injected

collectively possesses about 200 years of know-

Calavo financial resources to speed RFG’s

how in the agribusiness and fresh food sectors.

growth, but also our operating experience.

Calavo’s stock price has appreciated at a compound annual
growth rate of 25 percent over the past decade. A $10,000
investment in Calavo shares when we began trading on Nasdaq,
along with reinvested cash dividends, would have risen in value
to $195,000 at October 31, 2018.

The incalculable value of experience, especially

The result is a seamless national network of seven

in last year’s operating environment, cannot

strategically placed RFG production facilities

be overstated.

We bring to bear that same breadth and depth of

management experience in the disciplined and

focused execution of Calavo’s strategic agenda.

Our core expertise and category leadership in

across the U.S. with the capabilities to fulfill

retail-grocery customers’ orders on a just-in-time

basis—as quickly as the next day. The distribution

footprint we have cast is arguably unrivaled in the

fresh refrigerated produce industry.

the fresh avocado industry has provided the

We enter fiscal 2019 in a very strong position.

springboard into higher margin, faster growth

The fresh avocado industry continues its

categories—specifically, our Calavo Foods and

extended consumption-growth curve. Last year,

RFG business segments—that have each become

all-source fresh avocado volume in the U.S. grew

outstanding contributors to overall revenue

by 21 percent from the prior year to reach 2.6

and profit. In sum, these three segments also

billion pounds. These numbers are predicted to

contribute to consistency in our operating

rise again in fiscal 2019. As an early indication

performance, “smoothing out” overall results and

of further growth, in January 2019 all-source

offsetting macro industry and market conditions

fruit volume reached a new high, surpassing 70

that can invariably arise in any of our segments.

million pounds in a single week. As an industry

How else have we applied this experience?

Consider our deeply rooted understanding of

complex distribution and logistics amassed from

decades-long experience shipping perishable

produce. That expertise was born out of

necessity: the requirement to move hundreds of

leader, Calavo is well positioned in both sourcing

and customer relationships—as well as through

hallmarks such as production management and

distribution—to be a prime beneficiary of this

ascending consumption trend line.

We have put in place the packing capacity for

proven, high-margin business accounted for

long-term growth—selling domestically and

eight percent of total revenues last year but

abroad. The company sees rapidly expanding

added a significant 23 percent of the company’s

potential in emerging avocado markets such

overall gross profit. In the current year, we once

as China and Korea where our fresh fruit sales

again expect Calavo Foods segment sales to grow

increased by double digits last year.

by double digits as its top line closes in on $100

RFG is primed to re-accelerate sales and gross

profit growth this year as we attain improved

million, while gross profit dollars should rise by

a mid-teen rate.

capacity utilization and gain operating

With so much to build upon, the year ahead

efficiencies at our newer and expanded

looks exceedingly promising. Our strong, largely

production facilities. Last year, the industry

unlevered balance sheet provides us flexibility to

confronted a series of food-safety events,

reinvest cash to grow our businesses. We routinely

including recalls of romaine lettuce, melon and

evaluate possible acquisition opportunities, but

sweet corn. While RFG was not responsible for

judiciously maintain our rigorous criteria that any

any of these recalls, they impacted its sales and

deal fit within our core businesses and must be

gross profit. Nonetheless sales rose by more than

accretive to operating results.

seven percent last year; since being acquired by

Calavo in 2011, RFG revenues have quadrupled.

Let me conclude by expressing gratitude to our

senior management team and employees across

The fresh refrigerated packaged goods category

the company for their dedication. I extend

is the fastest-growing segment of the retail

thanks to our board of directors for sound

grocery business, with the cut fruit and vegetable

counsel. I offer appreciation to our customers

product segment alone growing eight to nine

for choosing to partner with us. And to you,

percent annually and presently totaling $12

my fellow shareholders, your loyalty is greatly

billion in industry sales, according to research

valued and we will work tirelessly to justify your

data. It’s no surprise then that we are continuing

continued confidence.

to invest in RFG’s future growth to keep pace.

With its outstanding and expanding line-up

of products, as well as the addition of some of

the nation’s leading food retailers as customers,

Sincerely,

RFG is exceedingly well situated. This year, we

Lee E. Cole

will add a new production facility in Portland,

Chairman, President and Chief Executive Officer

Oregon, which will also include a Calavo value-

March 4, 2019

added depot for fresh avocados, to deepen

our penetration into the Pacific Northwest.

Previously serving the region through co-

packing arrangements, RFG’s new facility will

bring operations under direct company control

and facilitate more rapid expansion.

Calavo Foods will remain a solid incremental

contributor to overall company results. This

Our
Board of Directors

(from left to right)

Kathleen Holmgren Management Consultant, Ventura, California ◊ Lecil E. Cole Chairman, President and CEO, Calavo Growers,

John M. Hunt Manager, Embarcadero Ranch, Goleta, California ◊ Harold S. Edwards President and CEO, Limoneria Company,

Inc., Santa Paula, California ◊ Scott N. Van Der Kar Second Vice Chairman, General Manager, Van Der Kar Family Farms, Carpinteria,

Santa Paula, California ◊ Steven W. Hollister Managing Member, Rocking Spade, LLC, Arroyo Grande, California ◊ Marc L. Brown

California ◊ Dorcas H. Thille Owner and Operator, J.K. Thille Ranches, Santa Paula, California ◊ James D. Helin President,

Attorney/Partner, Troy Gould PC, Los Angeles, California ◊ Donald “Mike” Sanders President, S&S Grove Management, Escondido,

CEO, JDH Associates, Los Angeles, California ◊ J. Link Leavens First Vice Chairman, General Manager, Leavens Ranches, Ventura,

California ◊ Egidio “Gene“ Carbone, Jr. Retired CFO, Calavo Growers, Inc., Santa Paula, California

California ◊ Michael A. “Mike” diGregorio Board & Strategic Advisory Services, Westlake Village, California

010218

Selected Consolidated Financial Data

The following summary of consolidated financial data (other than information regarding the volume of products sold) for each
of the years in the five-year period ended October 31, 2018, are derived from the audited consolidated financial statements
of Calavo Growers, Inc.

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,

2018

2017

2016

2015

2014

(In thousands, except per share data)

INCOME STATEMENT DATA: (1)(2)(4)

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

BALANCE 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

$ 1,088,758

$ 1,075,565

935,679

856,824

782,510

113,616

57,081

32,281

114,544

107,534

56,651

37,270

46,440

38,022

85,227

41,558

27,199

1.85

1.84

2.14

2.13

2.19

2.18

1.57

71,228

36,605

0.01

29,567

3,661

25,612

18,964

22,047

367,736

38,521

118

314

364,117

39,946

129

439

327,933

31,095

138

445

284,945

21,311

2,206

586

283,464

25,303

5,099

2,791

Shareholders’ equity

264,959

244,122

215,069

185,982

179,406

CASH FLOWS PROVIDED BY
(USED IN):

Operations

Investing activities(2)(3)

Financing activities(3)

OTHER DATA:

48,426

62,140

61,968

37,283

24,547

(30,204)

(23,327)

(53,668)

(15,689)

(21,731)

(33,566)

(21,054)

(15,802)

(21,753)

(4,069)

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

1.00

15.11

0.95

13.92

0.90

12.33

0.80

10.70

65,428

291,585

32,333

53,875

245,463

29,911

109,545

278,200

26,773

75,538

312,710

27,182

0.75

10.37

74,438

258,940

26,451

Financial

Section

(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 of expenses related to
its development as of October 31, 2014, which are included in selling, general and administrative expenses.

(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 2018, we have recognized $12.0 million in losses from FreshRealm, which has been recorded as losses from
unconsolidated entities. For fiscal 2018, 2017 and 2016, we contributed $3.5 million, $7.5 million and $3.2 million as investments in FreshRealm. Our total investment
of $19.9 million, $28.4 million and $21.0 million in FreshRealm as of October 31, 2018, 2017 and 2016, has been recorded as investment in unconsolidated
subsidiaries on our balance sheet.

(3) Cost of Sales for fiscal 2014 includes non-cash compensation expenses related to the acquisition of RFG totaling $1.8 million. These non-cash expenses will not

continue in the future.

(4) Selling, General, and Administrative expenses for fiscal 2014 include non-cash compensation expenses related to the acquisition of RFG totaling $0.7 million.

These non-cash expenses will not continue in the future.

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) create, process and package guacamole and
salsa and (iii) create, process and package a portfolio of healthy
fresh foods including fresh-cut fruit, fresh-cut vegetables, and
prepared foods. We report our operations in three different business
segments: Fresh products, Calavo Foods and RFG. See Note 10 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 2018, we operated four packinghouses and four operating
and distributing facilities (aka value-added depots or VADs) that
handle avocados that are sold across the United States and to select
international markets. 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 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 high-quality, no
preservative nature of our guacamole and the variety of packaging
formats that we offer, 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 41%

and 47% of total processed segment sales for the years ended
October 31, 2018 and 2017. Net sales of our refrigerated products
represented approximately 59% and 53% of total processed
segment sales for the years ended October 31, 2018 and 2017.

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 kit
components 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, food safety advisories impacting the fresh perishable
food categories in which we currently operate, 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, the availability, quality and price of
raw materials, new product introductions by our competitors, the
utilization of production capacity at our various plant locations,
change in the mix of products that our Fresh, Calavo Foods and
RFG segments 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

U.S. Tax Reform

and introducing new limitations on certain business deductions,
will not apply until our 2019 fiscal year. For fiscal 2018, the most
significant impacts include: lowering of the U.S. federal corporate
income tax rate; remeasuring certain net deferred tax assets
and liabilities; and requiring the transition tax on the deemed
repatriation of certain foreign earnings. We recorded $1.7 million
in one-time, non-cash charges related to the revaluation of our net
deferred tax assets (approx. $1.4 million) and the transition tax on
the deemed repatriation of foreign earnings (approx. $0.3 million).
On December 22, 2017, the SEC issued guidance under Staff
Accounting Bulletin No. 118, Income Tax Accounting Implications
of the Tax Cuts and Jobs Act (“SAB 118”) allowing taxpayers to
record a reasonable estimate of the impact of the U.S. legislation
when it does not have the necessary information available, prepared
or analyzed (including computations) in reasonable detail to
complete its accounting for the change in tax law. In accordance
with SAB 118, the estimated income tax charge of $2.3 million
represents the Company’s best estimate based on interpretation
of the U.S. legislation. As a result, the actual impact on the net
deferred tax liability may vary from the estimated amount due to
uncertainties in the Company’s preliminary review.

The Company recorded a provisional expense of approximately

$0.3 million related to the one-time transition tax on the deemed
repatriation of undistributed foreign earnings. The transition tax
is based on the Company’s estimated total post-1986 undistributed
foreign earnings at a tax rate of 15.5% for foreign cash and certain
other specified assets, and 8% on the remaining earnings. The
actual transition tax due will be based on actual undistributed
foreign earnings and cash and certain other specified assets as of
the required measurement date, which could materially affect the
amount of the transition tax. Accordingly, the non-current portion
of the provisional expense for the transition tax of $0.3 million, net
of applicable foreign tax credits the Company expects to utilize, has
been recorded in Deferred income taxes and other liabilities on the
Unaudited Condensed Consolidated Balance Sheets.

Prior to the enactment of the Tax Act, the Company regularly

determined certain foreign earnings to be indefinitely reinvested
outside the United States. Our intent is to permanently reinvest
these funds outside of the United States and our current plans do
not demonstrate a need to repatriate the cash to fund our U.S.
operations. However, if these funds were repatriated, we would be
required to accrue and pay applicable United States taxes (if any)
and withholding taxes payable to foreign tax authorities.

Dividend payment

On October 2, 2018, the Company declared a $1.00 per share

cash dividend to shareholders of record on November 16, 2018.
On December 7, 2018, the Company paid this cash dividend, which
totaled $17.6 million.

Litigation

We were 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 (pending court approval), whereby we agreed to pay
$0.4 million to resolve the allegations and avoid further distraction
that would result if the litigation continued. The Company recorded
$0.4 million as a selling, general and administrative expense in the
third quarter of fiscal 2017. In August 2018, the court approved the
settlement, and we paid $0.4 million.

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.

However, the outcome of all litigation is inherently uncertain.
If one or more of the lawsuits referred to in the paragraphs above is
resolved against the Company in a reporting period for amounts in
excess of management’s expectations, our financial condition and
operating results for that reporting period could be materially and
adversely affected.

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 U.S. 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
initial PRODECON process concluded. In April 2018, we filed
a second formal agreement before the PRODECON, so that we
can continue the discussion of the case between us, the MFM and
the PRODECON. During this meeting and discussion period, the
statutory period that MFM has in order to issue the tax assessment
has been suspended. Currently, we are waiting for the response of
the MFM and the PRODECON regarding our next meeting date.
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

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

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. During this meeting and discussion period, the
statutory period that SAT had in order to issue the tax assessment
was suspended. During our first fiscal quarter of 2018, we had an
initial meeting with officials from the SAT and the PRODECON,
which led to a further exchange of supporting information and
documentation. Although several meetings and discussions with the
PRODECON and the SAT were conducted during our fiscal third
quarter, we were unable to materially resolve our case with the SAT
through the PRODECON process.

As a result, on July 12, 2018, the SAT’s local office in Uruapan

issued to CDM a final tax assessment (the “2013 Assessment”)
totaling approximately $2.62 billion Mexican pesos related to
Income Tax, Flat Rate Business Tax, and Value Added Tax,
related to this fiscal 2013 tax audit. Additionally, the tax authorities
have determined an employee’s profit sharing liability totaling
approximately $118 million Mexican pesos as well.

We have consulted with both an internationally recognized tax
advisor, as well as a global law firm with offices throughout Mexico,
and we continue to believe this tax assessment is without merit.
In August 2018, we filed an administrative appeal on the 2013
Assessment. The filing of an administrative appeal in Mexico is a
process in which the taxpayer appeals to a different office within
the Mexican tax authorities forcing the legal office within the SAT
to rule on the matter. This process preserves the taxpayer’s right to
litigate in tax court if the administrative appeal process ends without
a favorable or just resolution. Here, CDM has appealed our case to
the SAT’s central legal department in Mexico City. Furthermore, in
August 2018, we received a favorable ruling from the SAT’s central
legal department in Mexico City on another tax matter (see footnote
15 regarding VAT refunds) indicating that they believe that our legal
interpretation is accurate on a matter that is also central to the 2013
Assessment. We believe this recent ruling significantly undermines
the 2013 Assessment we received in July 2018.

We continue to believe that the ultimate resolution of these
matters is unlikely to have a material effect on our consolidated
financial position, results of operations and cash flows.

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 equipment, promotional allowances, equity
income/losses and impairment analysis from unconsolidated
entities, loans to 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.

We believe the following are the more significant judgments

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 $1.2 million.

The application of tax laws and regulations is subject to legal
and factual interpretation, judgment and uncertainty. Tax laws and
regulations themselves are subject to change as a result of changes
in fiscal policy, changes in legislation, the evolution of regulations
and court rulings. Therefore, the actual liability for U.S. or foreign
taxes may be materially different from management’s estimates,
which could result in the need to record additional tax liabilities or
potentially reverse previously recorded tax liabilities.

Goodwill and acquired intangible assets

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 2018, 2017 and 2016, 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, 2018, 2017 or 2016.

Income taxes

Investments

We account for deferred tax liabilities and assets for the
future consequences of events that have been recognized in our
consolidated financial statements or tax returns. Measurement of
the deferred items is based on enacted tax laws. In the event the
future consequences of differences between financial reporting
bases and tax bases of our assets and liabilities result in a deferred
tax asset, we perform an evaluation of the probability of being able
to realize the future benefits indicated by such asset. A valuation
allowance related to a deferred tax asset is recorded when it is more
likely than not that some portion or all of the deferred tax asset will
not be realized.

As a multinational corporation, we are subject to taxation in
many jurisdictions, and the calculation of our tax liabilities involves
dealing with uncertainties in the application of complex tax laws
and regulations in various taxing jurisdictions. If we ultimately
determine that the payment of these liabilities will be unnecessary,
the liability will be reversed and we will recognize a tax benefit
during the period in which it is determined the liability no longer
applies. Conversely, we record additional tax charges in a period in
which it is determined that a recorded tax liability is less than the
ultimate assessment is expected to be.

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 order to estimate the fair value of our investment
in FreshRealm, we hired an independent third-party expert to
provide their written opinion on the fair value of our investment.
We reviewed and considered their independent expert opinion in
making our determination.

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,

2018

2017

2016

Net sales

Gross profit

Selling, general and
administrative

Operating income

Interest income

Interest expense

Other income, net

Income (loss) from
unconsolidated entities

Net income

Net Sales

100.0%

10.4%

10.6%

11.5%

5.2%

0.0%

(0.1)%

0.0%

(0.1)%

3.0%

5.3%

5.4%

0.0%

(0.1)%

0.0%

3.5%

5.0%

6.5%

0.0%

(0.1)%

0.0%

(0.0)%

4.1%

We believe that the fundamental consumption trends for our
products continue to be favorable. Firstly, U.S. avocado demand
continues to grow, with per capita use in 2017/18 reaching
7.5 pounds per person, up 6 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 U.S.
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 helps 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
imported fresh avocados, 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

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

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 2018, 2017 and 2016, on behalf of avocado growers, we
remitted approximately $1.5 million, $1.7 million and $2.4 million
to the California Avocado Commission. During fiscal 2018, 2017
and 2016, we remitted approximately $6.9 million, $5.8 million
and $8.2 million to the Hass Avocado Board related to avocados.
Similarly, Avocados from Mexico (AFM) was formed in 2013
as the marketing arm of the Mexican Hass Avocados Importers
Association (MHAIA) and the Association of Growers and Packers
of Avocados From Mexico (APEAM). During fiscal 2018, 2017
and 2016, we remitted approximately $4.7 million, $3.5 million
and $3.8 million to APEAM primarily related to these marketing
activities for Mexican 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
U.S. 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
U.S. 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. Value-added fruits and
vegetables have continued to grow faster than their broader produce
categories as consumers increasingly place value on the convenient
nature of those products and producers like RFG continue to
develop new formulations of value-added products. RFG has also
expanded the capacity to provide products for a larger portion
of the Fresh Deli department, which remains one of the fastest
growing aisles in retail grocery.

YEAR ENDED OCTOBER 31, 2017

YEAR ENDED OCTOBER 31, 2016

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

9,514

5,600

—

73,009

3,617

—

36,286

9,514

5,600

73,009

3,617

—

336,989

THIRD-PARTY SALES:

Avocados

Tomatoes

Papayas

Other fresh products

Prepared avocado products

Salsa

Fresh-cut fruit & vegetables
and prepared foods

Total gross sales

585,479

89,155

419,973

1,094,607

544,840

76,626

336,989

958,455

Less sales incentives

Less inter-company
eliminations

(1,503)

(11,576)

(1,465)

(14,544)

(1,844)

(10,438)

(3,491)

(15,773)

(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

Net sales to third parties by segment exclude inter-segment sales
and cost of sales. For fiscal year 2018, 2017 and 2016, inter-segment
sales and cost of sales of $1.6 million, $1.3 million and $4.3 million
between Fresh products and RFG were eliminated. For fiscal

year 2018, 2017 and 2016, inter-segment sales and cost of sales of
$3.5 million, $3.2 million and $2.7 million between Calavo Foods
and RFG were eliminated.

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, 2018

YEAR ENDED OCTOBER 31, 2017

FRESH
PRODUCTS

CALAVO
FOODS

RFG

TOTAL

FRESH
PRODUCTS

CALAVO
FOODS

RFG

TOTAL

(Dollars in thousands)

2018

CHANGE

2017

CHANGE

2016

THIRD-PARTY SALES:

Avocados

Tomatoes

Papayas

Other fresh products

Prepared avocado products

Salsa

Fresh-cut fruit & vegetables
and prepared foods

$ 511,730 $

— $

— $ 511,730 $ 546,433 $

— $

— $ 546,433

31,608

11,699

498

—

99,635

3,423

—

31,608

11,699

498

99,635

3,423

—

451,203

29,199

9,402

445

—

85,204

3,951

—

29,199

9,402

445

85,204

3,951

—

419,973

Total gross sales

555,535

103,058

451,203

1,109,796

585,479

89,155

419,973

1,094,607

Less sales incentives

Less inter-company
eliminations

(2,327)

(11,412)

(2,273)

(16,012)

(1,503)

(11,576)

(1,465)

(14,544)

(1,554)

(3,472)

—

(5,026)

(1,314)

(3,184)

—

(4,498)

Net sales

$ 551,654 $

88,174 $ 448,930 $ 1,088,758 $ 582,662 $

74,395 $ 418,508 $ 1,075,565

NET SALES:

Fresh products

Calavo Foods

RFG

Total net sales

AS A PERCENTAGE OF NET SALES:

Fresh products

Calavo Foods

RFG

551,654

(5.3)%

582,662

8.2%

538,687

88,174

448,930

18.5%

7.3%

74,395

418,508

17.2%

25.5%

63,494

333,498

$ 1,088,758

1.2%

$ 1,075,565

15.0%

935,679

50.7%

8.1%

41.2%

100%

54.2%

6.9%

38.9%

100%

57.6%

6.8%

35.6%

100%

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

Summary

Net sales for the year ended October 31, 2018, as compared
to 2017, increased by $13.2 million, or 1.2%. The increase in sales,
when compared to the same corresponding prior year periods, is
related to growth from Calavo Foods and RFG, partially offset by
a decrease in Fresh products.

For fiscal year 2018, Calavo Foods had our largest percentage
increases in sales, followed by our RFG segment. Our Fresh product
segment decreased, as shown above. The increase in Calavo Foods
sales was due primarily to increased sales of our prepared avocado
products. The increase in RFG sales was due primarily to increased
sales from fresh prepared food, fresh-cut fruit and vegetable
products. The decrease in Fresh products sales was due primarily to
a decrease in the per unit selling price of avocados. 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 2018 vs. Fiscal 2017:

Net sales delivered by the Fresh products business decreased

by approximately $31.0 million, or 5%, for the year ended
October 31, 2018, when compared to the same period for fiscal
2017. This decrease in Fresh product sales during the year ended
2018 was primarily related to decreased sales of avocados, partially
offset by increased sales of tomatoes.

Sales of avocados decreased $35.9 million, or 7%, for the
year ended October 31, 2018, when compared to the same prior
year period. Our volume of avocados sold during fiscal year 2018
increased by 57.7 million pounds, or 19%, compared to the prior
year; however, this increase in sales volume was significantly offset by
a 22% decrease in the average sales price per carton, when compared
to the unusually high market prices experienced in fiscal 2017.

Sales of tomatoes increased to $30.5 million for the year ended
October 31, 2018, compared to $27.9 million for the same period for
fiscal 2017. The increase in sales for tomatoes is primarily due to an
approximately 7% increase in the average sales price per carton, in
addition to a 2% increase in volume of tomatoes sold during the year.
We anticipate that our sales volume of avocados will increase in
fiscal 2019, due to a larger expected all-source avocado crop, when
compared to the same prior year period.

Fiscal 2017 vs. Fiscal 2016:

Net sales delivered by the Fresh products business increased

by approximately $44.0 million, or 8%, 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.

Sales of avocados increased $53.4 million, or 11%, 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 was due to a decrease
in the sales price per carton of approximately 24% due primarily
to a change in weather patterns which resulted in wider availability
of tomatoes in the market.

Calavo Foods

Fiscal 2018 vs. Fiscal 2017:

Sales for Calavo Foods for the year ended October 31, 2018,

when compared to the same period for fiscal 2017, increased
$13.8 million, or 19%. Sales of prepared avocado products
increased by approximately $14.4 million, or 20%, for the year
ended October 31, 2018, when compared to the same prior year
period, resulting from increases in both the average sales price per
pound and the total volume of pounds sold. Partially offsetting this
gain were sales of salsa products, which decreased by approximately
$0.6 million during the year.

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%. This increase was primarily due to an
increase in sales of prepared avocado products of approximately
$10.8 million, or 18%, 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.

RFG

Fiscal 2018 vs. Fiscal 2017:

Sales for RFG for the year ended October 31, 2018,
when compared to the same period for fiscal 2017, increased
$30.4 million, or 7%. The overall increase in sales is primarily
due to higher sales from expanded retail partnerships in multiple
geographies, most notably in a few regions in which the Company
has added production capacity.

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 26%. This increase was due primarily to increased
sales from prepared foods, fresh-cut fruit and vegetable products.
The overall increase in sales was 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.

Gross Profit

The following table summarizes our gross profit and gross profit percentages by business segment:

2018

CHANGE

2017

CHANGE

2016

(Dollars in thousands)

GROSS PROFIT:

Fresh products

Calavo Foods

RFG

54,160

(25.2)%

72,376

24.8%

57,997

26,313

33,143

97.1%

15.0%

13,353

28,815

(40.5)%

6.4%

22,448

27,089

Total gross profit

113,616

(0.8)%

114,544

6.5%

107,534

GROSS PROFIT PERCENTAGES:

Fresh products

Calavo Foods

RFG

Consolidated

Summary

9.8%

29.8%

7.4%

10.4%

12.4%

17.9%

6.9%

10.6%

10.8%

35.4%

8.1%

11.5%

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 decreased
by approximately $0.9 million, or 1%, for the year ended
October 31, 2018, when compared to the same period for fiscal
2017. The decrease was primarily attributable to a gross profit
decrease in our Fresh products segment, partially offset by increases
in our Calavo Foods and RFG segments.

Fresh products

Fiscal 2018 vs. Fiscal 2017:

During our year ended October 31, 2018, as compared to
the same prior year period, the decrease in our Fresh products
segment gross profit percentage was the result of decreased profit for
avocados, partially offset by an increase in tomatoes. For the year
ended October 31, 2018, compared to the same prior year period,
the gross profit percentage for avocados decreased to 9.7% in 2018
from 12.7% in 2017. The decrease during fiscal 2018 was primarily
related to the unusual market supply conditions experienced last
year in which consumer demand greatly exceeded market supply,
and higher year-over-year freight costs. 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 profits for
our Fresh products segment.

For the year ended October 31, 2018 we generated gross profit

of $3.2 million from tomato sales, up from $2.7 million in the
corresponding prior year period. The increase in tomato gross profit
was due primarily to the year-over-year increase in sales described
in more detail earlier. 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.

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 24%.

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

Calavo Foods

Fiscal 2018 vs. Fiscal 2017:

RFG

Fiscal 2018 vs. Fiscal 2017:

Calavo Foods gross profit percentage increased to 29.8% of net
sales, during the year ended October 31, 2018 compared to 17.9%
during the same prior year period. The increase in Calavo Foods
gross profit percentage was due primarily to increased gross profit
of our prepared avocado products. The increase in gross profit and
margin for our prepared avocado products was primarily due to
higher sales, as well as fruit costs that were below last year’s record-
high fruit 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.

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.

RFG’s gross profit percentage for the year ended October 31,
2018 was 7.4%, compared to 6.9% in the same prior year period.
The gross profit improvement for the year ended October 31, 2018,
was due primarily to higher net sales and manufacturing efficiencies
generated across the segment’s manufacturing footprint, as well as
lower raw material costs.

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.

Selling, General and Administrative

2018

CHANGE

2017

CHANGE

2016

(Dollars in thousands)

Selling, general and administrative

57,081

0.8%

56,651

22.0%

46,440

Percentage of net sales

5.2%

5.3%

5.0%

Selling, general and administrative expenses of $57.1 million

Selling, general and administrative expenses in fiscal 2017

for the year ended October 31, 2018 include costs of marketing
and advertising, sales expenses (including broker commissions)
and other general and administrative costs, as well as $0.9 million
of management transition related expenses. Selling, general and
administrative expenses increased $0.4 million, or 1%, for the year
ended October 31, 2018, when compared to the same period for
fiscal 2017.

This increase was primarily related to approximately
$3.3 million increase in salaries and benefits ($1.6 million of
costs related to the vesting of stock grants earned by certain
members of the senior management team over the past three fiscal
years, as well as $1.7 million due in part to higher headcount).
Partially offsetting this increase was a decrease in bad debt
(approximately $1.3 million), a decrease in accrued management
bonuses (approximately $0.6 million) and a decrease in legal fees
(approximately $0.5 million) for year ended October 31, 2018, when
compared to the same period for 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%, 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).

Income (loss) from Unconsolidated Entities

2018

CHANGE

2017

CHANGE

2016

(Dollars in thousands)

Income (loss) from unconsolidated entities

(11,850)

(3055.1)% $

Percentage of net sales

(1.1)%

401

—%

170.4%

(570)

(0.1)%

Income (loss) from unconsolidated entities includes our

allocation of earnings or losses from our investments in FreshRealm
and Don Memo. For the year ended October 31, 2018 and 2017, we
recognized $0.2 million of income and $0.4 of income related to
Don Memo. For the year ended October 31, 2018, we recognized
$12.0 million of losses related to FreshRealm. While we are

unable to determine with certainty the future operating results
of FreshRealm and future non-Calavo investments, if any, we
anticipate recording additional non-cash losses from FreshRealm
during fiscal 2019. See Note 16 in our consolidated financial
statements for more information.

Interest Income

(Dollars in thousands)

Interest income

Percentage of net sales

2018

CHANGE

2017

CHANGE

2016

318

—%

1,225.0% $

—%

(81.8)% $

132

—%

The increase in interest income in fiscal 2018 as compared to
2017 is primarily due to the loans to FreshRealm in fiscal 2018. See
the related party footnote in our consolidated financial statements

for further information. The decrease in interest income in fiscal
2017 as compared to 2016 is due to the loans to California avocado
growers decreasing in the current year compared to the prior year.

Interest expense

(Dollars in thousands)

Interest expense

Percentage of net sales

2018

CHANGE

2017

CHANGE

2016

831

0.1%

(18.8)% $

1,023

35.3% $

0.1%

756

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. (Bank of America), as well as our former term loan
agreements with FCW and Bank of America (prior to June 2016).
For fiscal 2018, as compared to fiscal 2017, the decrease in interest
expense was primarily related to lower average debt balance, offset

by higher LIBOR interest rates. 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.

Other Income, Net

(Dollars in thousands)

Other income, net

Percentage of net sales

2018

CHANGE

2017

CHANGE

2016

559

0.1%

16.7%

479

0.0%

11.9%

428

0.0%

Other income, net includes dividend income, as well as certain
other transactions that are outside of the normal course of operations.

During fiscal 2018, 2017 and 2016, we received $0.4 million,
$0.4 million and $0.3 million as dividend income from Limoneira.

Provision for Income Taxes

(Dollars in thousands)

Provision for income taxes

Effective tax rate

2018

CHANGE

2017

CHANGE

2016

12,719

(37.8)%

20,450

(6.5)%

21,869

28.4%

36.3%

37.2%

Our tax provision is determined using an estimated annual
effective tax rate and adjusted for discrete taxable events that may
occur during the quarter. In the first quarter of fiscal 2018, we
recorded $1.7 million in one-time, non-cash charges related to the
revaluation of our net deferred tax assets (approx. $1.4 million) and

the transition tax on the deemed repatriation of foreign earnings
(approx. $0.3 million). In addition, we recorded an income tax
benefit of approximately $0.4 million and $0.3 million for the
first quarters of fiscal 2018 and 2017, pursuant to ASU 2016-09,
Improvements to Employee Share-based Payment Accounting. We recognize

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

the effects of tax legislation in the period in which the law is
enacted. Our deferred tax assets and liabilities are remeasured
using enacted tax rates expected to apply to taxable income in the
years we estimate the related temporary differences to reverse.
Based on the Tax Act and a change accelerating certain tax

deductions on our 2017 federal tax return, we recorded $0.8 million
of a tax benefit as a discrete item during our third fiscal quarter of
2018. Additionally, we also recorded approximately $0.2 million of
tax expense related to return to provision differences upon the filing
of the 2017 tax return during our third fiscal quarter of 2018.

Net loss (income) attributable to noncontrolling interest

2018

CHANGE

2017

CHANGE

2016

(Dollars in thousands)

Net loss (income) attributable to noncontrolling interest

Percentage of net sales

269
0.0%

598.1%

(54)

0.0%

(87.6)%

(437)

0.0%

For fiscal 2018, the net loss attributable to noncontrolling
interest is due to a loss from Avocados de Jalisco. 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, 2018. 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.

OCT. 31,
2018

JULY 31,
2018

APR. 30,
2018

JAN. 31,
2018

OCT. 31,
2017

JULY 31,
2017

APR. 30,
2017

JAN. 31,
2017

THREE MONTHS ENDED

$ 280,005 $ 296,419 $ 264,405 $ 247,928 $ 277,204 $ 301,645 $ 270,162 $ 226,554
257,738
204,630
22,267
21,924

221,618
26,310

263,349
33,070

232,436
31,969

245,689
31,515

276,793
24,852

233,909
36,253

14,796
7,471

13,893
19,177

12,875
19,094

15,517
10,793

14,701
16,814

(131)

271

(105)

(185)

7,340
250

19,448
3,403

19,105
4,764

10,688
4,302

(8,451)
(1,361)

(3,677)
12,368

(325)

14,016

603
6,989

16,629
6,567

311
10,373

12,698
12,154

(131)

12,023
3,719

492
8,796

15,426
20,827

(54)

20,773
7,603

(236)
12,934

13,826
8,098

(150)

7,948
2,561

(166)
5,221

(in thousands, except per share amounts)

STATEMENT OF
INCOME DATA

Net sales

Cost of sales
Gross profit

Selling, general
and administrative
Operating income

Other income (expense), net
Income before provision for

income taxes and income (loss)
from unconsolidated entities

Provision for income taxes

Income (loss) from
unconsolidated entities
Net income

Add: Net (income) loss –
noncontrolling interest

Net income (loss) –
Calavo Growers, Inc

Basic
Diluted
Number of shares used in
per share computation:
Basic
Diluted

LIQUIDITY AND CAPITAL RESOURCES

Cash used in financing activities was $23.3 million, $15.7 million

Operating activities for fiscal 2018, 2017 and 2016 provided cash

flows of $48.4 million, $62.1 million and $62.0 million. Fiscal year
2018 operating cash flows reflect our net income of $32.0 million,
net increase of noncash charges (depreciation and amortization,
income/(loss) from unconsolidated entities, provision for losses on
accounts receivable, deferred income taxes, and stock compensation
expense) of $34.5 million and a net decrease from changes in
the non-cash components of our working capital accounts of
approximately $18.1 million.

Fiscal year 2018 decreases in operating cash flows, caused by

working capital changes, includes a decrease in trade accounts
payable, accrued expenses, and other long-term liabilities of
$8.0 million, an increase in inventory of $4.1 million, an increase
in other assets of $3.1 million, a decrease in payable to growers of
$2.5 million, an increase in income tax receivable of $2.1 million,
an increase in advances to suppliers of $1.0 million, and an increase
in prepaid expenses and other current assets of $0.7 million,
partially offset by, a decrease in accounts receivable of $3.6 million.
The decrease in accounts payable and accrued expenses is
primarily related to a decrease in our payables related to RFG.
The increase in our inventory balance is primarily related to an
increase of guacamole on hand at October 31, 2018 as compared
to the same prior year period. The increase in other assets is due
to an increase in Mexican IVA tax receivable (see Note 15 to our
consolidated condensed financial statements). The decrease in
payable to our growers primarily reflects a decrease in our Mexican
avocado grower payable due to lower avocado prices in October
2018 compared to October 2017. The increase in advances to
suppliers is mainly due to an increase in advances to our tomato
growers in fiscal 2018 compared to fiscal 2017. The decrease in
our accounts receivable, as of October 31, 2018 when compared to
October 31, 2017, primarily reflects more receivable collections in
the month of October 2018, as compared to October 2017.

Cash used in investing activities was $30.2 million, $53.7 million

and $21.7 million for fiscal years 2018, 2017, and 2016. Fiscal
year 2018 cash flows used in investing activities include capital
expenditures of $15.0 million of property, plant and equipment.
It also includes loans to FreshRealm of $11.5 million, an additional
investment in FreshRealm of $3.5 million, an infrastructure loan
to Agricola Belher of $3.0 million, and additional investment in
Agricola Don Memo of $0.1 million, partially offset by proceeds
received from the repayment of a loan to FreshRealm of $2.5 million
and the repayment of loans to San Rafael of $0.4 million.

and $33.6 million for fiscal years 2018, 2017 and 2016. Cash
used during fiscal year 2018 primarily to the payment of our
$16.7 million dividend, payments on our credit facilities totaling
$5.0 million, and the payment of minimum withholding taxes on
net share settlement of equity awards of $1.6 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, 2018 and 2017 totaled $1.5 million
and $6.6 million. Our working capital at October 31, 2018 was
$29.6 million, compared to $3.7 million at October 31, 2017.

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 line of credit the weighted-average interest rate
was 3.4% and 2.2% at October 31, 2018 and 2017. Under this credit
facility, we had $15.0 million and $20.0 million outstanding as of
October 31, 2018 and 2017.

This 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, 2018.

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, 2018:

CONTRACTUAL OBLIGATIONS

PAYMENTS DUE BY PERIOD

TOTAL

LESS THAN
1 YEAR

1-3 YEARS

3-5 YEARS

MORE THAN
5 YEARS

(18)

106

150

(107)

(in thousands)

$ (1,330) $ 12,350 $ 14,122 $

7,139 $

10,266 $

8,810 $

12,945 $

5,249

Long-term debt obligations (including interest)

441

140

237

$
$

0.81 $
0.71 $
(0.08) $
(0.08) $ 0.70 $ 0.80 $

0.41 $
0.41 $

0.59 $
0.59 $

0.51 $
0.50 $

0.74 $
0.74 $

0.30
0.30

17,482
17,581

17,481
17,581

17,481
17,580

17,446
17,525

17,429
17,544

17,428
17,544

17,426
17,539

17,374
17,430

Revolving credit facilities

Defined benefit plan

Operating lease commitments

Total

15,000

147

53,588

15,000

5,455

—

69,176

20,630

9,681

8,455

30,410

9,374

8,349

30,410

—

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

The California avocado industry is subject to a state marketing

In October 2016, the FASB issued an ASU, Intra-Entity Transfers

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.

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 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. The Company
adopted this new standard at the beginning of fiscal 2018. The
adoption of the amendment did not have a material impact on the
Company’s consolidated financial statements.

Recently Issued Accounting Standards

In June 2018, the FASB issued an ASU, Improvements to

Nonemployee Share-Based Payment Accounting. The FASB is issuing this
update to simplify the accounting for share-based payments to
nonemployees by aligning it with the accounting for share-based
payments to employees, with certain exceptions. This ASU will be
effective for us beginning the first day of our 2020 fiscal year. We
are evaluating the impact of the update 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 2018, the FASB issued an ASU, Reclassification
of Certain Tax Effects From Accumulated Other Comprehensive Income,
which amends Accounting Standards Codification (“ASC”) 220,
Income Statement — Reporting Comprehensive Income, to allow
a reclassification from accumulated other comprehensive income
to retained earnings for stranded tax effects resulting from the
Tax Cuts and Jobs Act, (the “Act”). In addition, under the ASU,
an entity will be required to provide certain disclosures regarding
stranded tax effects. This ASU is effective for us 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 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.

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 and is not
expected to have a significant impact upon adoption.

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.
Although we are in the process of evaluating the impact of adoption
of ASU 2016-02 on our consolidated financial statements, we
currently expect the most significant changes will be related to the
recognition of material new long-term right-of-use assets and lease
liabilities on our consolidated balance sheet.

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
fiscal years and interim period within those fiscal years beginning
after December 15, 2017. Early adoption is permitted. The impact
of the adoption of this ASU on our consolidated statements of
income depends on the net unrealized gain or loss on our equity
investment. For the year ended October 31, 2018 and 2017, the net
unrealized gain on our equity investment was $2.2 million and
$6.3 million which relates solely to our investment in Limoneira.
In May 2014, the FASB issued a comprehensive new revenue

expanded disclosures surrounding revenue recognition. During
fiscal 2017, the FASB issued additional clarification guidance on
the new revenue recognition standard which also included certain
scope improvements and practical expedients. The standard
(including clarification guidance issued) is effective for fiscal periods
beginning after December 15, 2017, which will be our first quarter
of fiscal 2019. We will adopt the new standard using the modified
retrospective transition method, under which the cumulative
effect of initially applying the new guidance is recognized as an
adjustment to the opening balance of retained earnings on the first
day of our 2019 fiscal year. This standard will not have material
impact on our results of operations or financial position.

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, 2018.

2019

2020

2021

2022

2023

THEREAFTER

TOTAL

FAIR VALUE

EXPECTED MATURITY DATE OCTOBER 31,

(All amounts in thousands)

ASSETS

Cash and cash equivalents(1)

1,520 $

— $

1,520 $

1,520

Accounts receivable(1)

66,143

—

66,143

LIABILITIES

Payable to growers(1)

Accounts payable(1)

Current borrowings pursuant

to credit facilities(1)

Fixed-rate long-term obligations(2)

118

14,001 $

— $

14,001 $

14,001

13,735

15,000

—

122

—

122

—

13,735

15,000

432

447

(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 $8,000.

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 2018, 2017, and
2016, net of gains, were $0.8 million, $0.3 million and $1.1 million.

Consolidated Balance Sheets

Consolidated Statements of Income

OCTOBER 31,

(in thousands)

ASSETS

Current Assets:

Cash and cash equivalents

Accounts receivable, net of allowances of $3,227 (2018) $2,490 (2017)

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

LIABILITIES AND SHAREHOLDERS’ EQUITY

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

Shareholders’ Equity:

Common stock ($0.001 par value, 100,000 shares authorized;

17,567 (2018) and 17,533 (2017) shares issued and outstanding)

Additional paid-in capital

Accumulated other comprehensive income

Noncontrolling interest

Retained earnings

Total shareholders’ equity

2018

2017

YEAR ENDED OCTOBER 31,

2018

2017

2016

(in thousands, except per share amounts)

Net sales

Cost of sales

Gross profit

Selling, general and administrative

Operating income

Interest income

Interest expense

Other income, net

Income before provision for income taxes and income (loss)

from unconsolidated entities

Provision for income taxes

Income (loss) from unconsolidated entities

Net income

Less: Net loss (income) attributable to noncontrolling interest

$ 1,088,758

975,142

113,616

57,081

56,535

318

(831)

559

56,581

12,719

(11,850)

32,012

269

$ 1,075,565

935,679

961,021

114,544

56,651

57,893

(1,023)

479

57,373

20,450

401

37,324

(54)

828,145

107,534

46,440

61,094

132

(756)

428

60,898

21,869

(570)

38,459

(437)

Net income attributable to Calavo Growers, Inc.

$ 32,281

37,270

38,022

CALAVO GROWERS, INC.’S NET INCOME
PER SHARE:

Basic

Diluted

NUMBER OF SHARES USED IN
PER SHARE COMPUTATION:

Basic

Diluted

1.85

1.84

2.14

2.13

2.19

2.18

17,477

17,568

17,416

17,514

17,347

17,431

1,520
66,143
35,044
16,727
5,555
3,521
128,510
122,143
42,609
24,805
4,377
18,262
27,030
$ 367,736

14,001
13,735
38,521
15,000
17,568
118
98,943

314
2,678
842
3,834

18
157,928
12,141
1,748
93,124
264,959
$ 367,736

6,625

69,750

30,858

6,872

4,346

1,377

119,828

120,072

40,362

33,019

9,783

18,262

22,791

364,117

16,524

22,911

39,946

20,000

16,657

129

116,167

439

2,732

657

3,828

154,243

10,434

1,016

78,411

244,122

364,117

See accompanying notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Shareholders’ Equity

YEAR ENDED OCTOBER 31,

2018

2017

2016

COMMON STOCK

AMOUNT

ADDITIONAL
PAID-IN
CAPITAL

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME

RETAINED
EARNINGS

NON-
CONTROLLING
INTEREST

TOTAL

$ 32,012

37,324

38,459

(in thousands)

Net income

Other comprehensive income, before tax:

Unrealized investment gains

Income tax expense related to items of other
comprehensive income

Other comprehensive income, net of tax

Comprehensive income

Less: Net loss (Income) attributable to noncontrolling interest

2,247

(540)

1,707

33,719

269

6,327

(2,437)

3,890

41,214

(54)

6,621

(2,496)

4,125

42,584

(437)

Comprehensive income – Calavo Growers, Inc.

$ 33,988

41,160

42,147

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

—

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.

—

Balance, October 31, 2017

17,533

Exercise of stock options and

income tax benefit

Stock compensation expense

Restricted stock issued

Unrealized gain on Limoneira

investment, net

Dividend declared to shareholders

Noncash transfer of
noncontrolling interest

Avocados de Jalisco noncontrolling

interest contribution

Net income attributable to
Calavo Growers, Inc.

—

Balance, October 31, 2018

17,567

—

147,063

2,419

35,472

1,011

185,982

551

2,134

—

4,125

—

149,748

6,544

—

(15,696)

—

551

2,134

—

4,125

(15,696)

—

(49)

38,022

57,798

—

962

38,022

215,069

404

3,148

1,172

—

(229)

—

3,890

—

154,243

10,434

3,742

891

—

(1,001)

—

1,707

—

(16,657)

—

37,270

78,411

—

(17,568)

—

1,016

—

404

3,148

1,173

3,890

(16,657)

(229)

37,270

244,122

3,742

891

1,707

(17,568)

1,001

—

(269)

32,281

—

32,281

$ 157,928

12,141

93,124

1,748

$ 264,959

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows

YEAR ENDED OCTOBER 31,

(in thousands)

2018

2017

2016

YEAR ENDED OCTOBER 31,

2018

2017

2016

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

CASH FLOWS FROM FINANCING ACTIVITIES:

Net income

$ 32,012

37,324

38,459

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

Depreciation and amortization

Provision for losses (recoveries) on accounts receivable

Loss (income) from unconsolidated entities

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, net

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

Infrastructure advance to Agricola Belher

Loan to FreshRealm

Proceeds received for repayment of loan to FreshRealm

Investment in Agricola Don Memo

Net cash used in investing activities

13,042

(10)

11,851

4,633

121

—

4,866

3,617

(4,186)

(729)

(1,009)

(2,144)

(3,118)

(2,524)

(54)

(7,942)

48,426

(15,004)

(3,500)

436

(3,000)

(11,500)

2,500

(136)

(30,204)

10,691

1,230

(401)

4,320

—

2,725

(879)

991

(1,447)

(1,043)

(2,362)

(4,239)

425

14,652

62,140

(44,510)

(9,067)

409

—

(500)

(53,668)

8,812

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)

—

4,000

—

(21,731)

Payment of dividend to shareholders

Proceeds from revolving credit facility

Payments on revolving credit facility

Payment of minimum withholding taxes on
net share settlement of equity awards

Purchase of noncontrolling interest of Salsa Lisa

Payments on long-term obligations

Proceeds from stock option exercises

Excess tax benefit from stock-based compensation

Net cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

(16,657)

278,500

(283,500)

(1,587)

—

(136)

—

(23,327)

(5,105)

6,625

(15,696)

163,500

(162,500)

—

(1,000)

(58)

—

(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

1,520

6,625

13,842

SUPPLEMENTAL INFORMATION:

Cash paid during the year for:

Interest

Income taxes

NONCASH INVESTING AND FINANCING ACTIVITIES:

Declared dividends payable

Acquisitions of property, plant, and equipment with capital lease

Investment in FreshRealm included in accrued expenses

Property, plant, and equipment included in trade accounts payable
and accrued expenses

Collection for Agricola Belher Infrastructure Advance

Unrealized investment gain

874

9,262

17,568

—

946

200

2,247

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

See accompanying notes to consolidated financial statements.

Notes To Consolidated Financial Statements

1. DESCRIPTION OF THE BUSINESS

Prepaid Expenses and Other Current Assets

Business

Calavo Growers, Inc. (Calavo, the Company, we, us or our), is a
global leader in the avocado industry and a 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 U.S.

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 de Mexico), 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 an 83 percent ownership
interest, and RFG. All intercompany accounts and transactions
have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with

accounting principles generally accepted in the U.S. 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.

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 consist primarily

of non-trade receivables, infrastructure advances and prepaid
expenses. Non-trade receivables were $4.9 million and
$4.7 million at October 31, 2018 and 2017. Included in non-trade
receivables are $1.5 million and $1.4 million related to the
current portion of non-CDM Mexican IVA (i.e. value-added)
taxes at October 31, 2018 and 2017 (See Note 15). Infrastructure
advances are discussed below. In addition, loans of $9.0 million to
FreshRealm are included in prepaid expenses and other current
assets (See Note 8). Prepaid expenses totaling $2.8 million and
$2.9 million at October 31, 2018 and 2017, are primarily for
insurance, rent and other items.

Inventories

Inventories are stated at the lower of cost and net realizable
value. 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 2017, the Company implemented a new financial
accounting system in one of our three business segments. In fiscal
2017, we capitalized software development costs of $1.8 million
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
2018, 2017 and 2016, 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, 2018 and 2017.

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 2018 and 2017, we performed our annual assessment
of long-lived assets and determined that no impairment indicators
existed as of October 31, 2018 and 2017.

Investments

We account for non-marketable investments using the equity

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 2018 and 2017,
we contributed $0.1 million and $0.5 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. As of October 31, 2018 and
2017, we have an investment of $4.9 million and $4.6 million in
Don Memo.

As of October 31, 2018 and 2017, we have an investment of
$19.9 million and $28.4 million in FreshRealm, LLC (“FreshRealm”).
We record the amount of our investment in FreshRealm in
“Investment in unconsolidated entities” on our Consolidated
Balance Sheets and recognize losses in FreshRealm in “Income/
(loss) in unconsolidated entities” in our Consolidated Condensed
Statement of Income. See Note 16 for additional information.

Freshrealm we hired an independent third-party expert to provide
their written opinion on the fair value of our investment. We
reviewed and considered their independent expert opinion in
making our determination.

Marketable Securities

Our marketable securities consist of our investment in
Limoneira Company (Limoneira) stock. We currently own less
than 10% 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 $42.6 million, $23.5 million and $19.1 million
as of October 31, 2018. 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.

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. No such allowance was required at October 31, 2018.
We recorded an allowance of $0.4 million at October 31, 2017.

Notes To Consolidated Financial Statements

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 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 agreed 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
2018 and 2017, we agreed to advance $4.0 million for preseason
advances. As of October 31, 2018 and 2017, we have total advances
of $4.0 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, 2018 and 2017, we have total advances
of $2.5 million and $1.6 million to Don Memo, which is recorded
in advances to suppliers, offset by tomato liabilities from the sales of
tomatoes per the tomato marketing agreement.

Infrastructure Advances

Pursuant to our infrastructure agreements, 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. In August 2018, we
entered into an amended infrastructure agreement with Belher and
advanced $3.0 million. This amount shall be paid back in annual
installments of $0.6 million through June 2023, and incurs interest
at Libor plus 10%. Advances prior to this amended agreement
incur interest at Libor plus 3.0%. As of October 31, 2018, we have
advanced a total of $3.4 million ($0.8 million included in prepaid
expenses and other current assets and $2.6 million included in
other long-term assets). 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). 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, 2018 and 2017 are

liabilities related to the receipt of goods and/or services for which
an invoice has not yet been received. These totaled approximately
$20.9 million and $24.8 million for the year ended October 31, 2018
and 2017.

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.

Customers

We sell to retail grocery, foodservice, club stores, mass

merchandisers, food distributors and wholesale customers. Our top
ten customers accounted for approximately 59%, 59% and 52%
of our consolidated net sales in fiscal years 2018, 2017 and 2016,
respectively. Sales to our largest customer, Kroger (including its
affiliates), represented approximately 20%, 19%, and 17% of net
sales in each of fiscal years 2018, 2017, and 2016. Additionally,
Wal-Mart (including its affiliates) represented approximately 10% of
net sales in fiscal year 2018. No other single customer accounted for
more than 10% of our net sales in any of the last three fiscal years.

Shipping and Handling

We include shipping and handling fees billed to customers in
net revenues. Amounts incurred by us for freight are included in cost
of goods sold.

Promotional Allowances

We provide for promotional allowances at the time of sale,
based on our historical experience. Our estimates are generally
based on evaluating the historical relationship between promotional
allowances and gross sales. The derived percentage is then applied
to the current period’s sales revenues in order to arrive at the
appropriate debit to sales allowances for the period. The offsetting
credit is made to accrued expenses. When certain amounts of specific
customer accounts are subsequently identified as promotional, they
are written off against this allowance. Actual amounts may differ
from these estimates and such differences are recognized as an
adjustment to net sales in the period they are identified.

Allowance for Accounts Receivable

We provide an allowance for estimated uncollectible accounts
receivable balances based on historical experience and the aging of
the related accounts receivable.

Consignment Arrangements

We frequently enter into consignment arrangements with

avocado and tomato growers and packers located outside of the U.S.
and growers of certain perishable products in the U.S. 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, 2018, 2017 and 2016 in the
financial statements pursuant to consignment arrangements are as
follows (in thousands):

Sales

Cost of Sales

Gross Profit

2018

2017

2016

$ 43,490

$ 25,891

$ 34,919

38,186

22,784

30,729

$ 5,304

3,107

4,190

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 $0.2 million, $0.1 million
and $0.2 million for fiscal years 2018, 2017, and 2016.

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 2018, 2017 and 2016 were less than $0.1 million.

Other Income

Included in other income is dividend income totaling $0.6 million

for fiscal year 2018. Dividend income totaled $0.5 million and
$0.6 million for fiscal years 2017 and 2016. See Note 8 for related
party disclosure related to other income.

Income Taxes

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.

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,

2018

2017

2016

Numerator:

Net Income attributable to Calavo Growers, Inc.

$ 32,281

37,270

38,022

Denominator:

Weighted average shares – Basic

Effect on dilutive securities – Restricted stock/options

Weighted average shares – Diluted

17,477

17,568

17,416

17,514

17,347

17,431

Net income per share attributable to Calavo Growers, Inc:

Basic

Diluted

1.85

1.84

2.14

2.13

2.19

2.18

Notes To Consolidated Financial Statements

Stock-Based Compensation

Recently Adopted Accounting Pronouncements

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, 2018, 2017 and 2016, we
recognized compensation expense of $4.6 million, $4.3 million,
and $2.1 million related to stock-based compensation (See Note 12).
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 translation losses for fiscal 2018,
2017 and 2016, net of gains, were $0.8 million, $0.3 million, and
$1.1 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 $0.4 million and $0.6 million as of October 31, 2018
and 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 Issued Accounting Standards

In June 2018, the FASB issued an ASU, Improvements to

Nonemployee Share-Based Payment Accounting. The FASB is issuing this
update to simplify the accounting for share-based payments to
nonemployees by aligning it with the accounting for share-based
payments to employees, with certain exceptions. This ASU will
be effective for us beginning the first day of our 2020 fiscal year.
We are evaluating the impact of the update 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 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

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 and is not
expected to have a significant impact upon adoption.

recognition standard which will supersede previous existing
revenue recognition guidance. The standard is intended to clarify
the principles of recognizing revenue and create common revenue
recognition guidance between U.S. GAAP and International
Financial Reporting Standards. The standard also requires
expanded disclosures surrounding revenue recognition. During
fiscal 2017, the FASB issued additional clarification guidance on
the new revenue recognition standard which also included certain
scope improvements and practical expedients. The standard
(including clarification guidance issued) is effective for fiscal periods
beginning after December 15, 2017, which will be our first quarter
of fiscal 2019. We will adopt the new standard using the modified
retrospective transition method, under which the cumulative
effect of initially applying the new guidance is recognized as an
adjustment to the opening balance of retained earnings on the first
day of our 2019 fiscal year. This standard will not have material
impact on our results of operations or financial position.

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, 2018,
other comprehensive income includes the unrealized gain on our
Limoneira investment totaling $1.7 million, net of income taxes.
Limoneira’s stock price at October 31, 2018 equaled $24.65 per share.
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.

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, 2018

YEAR ENDED
OCTOBER 31, 2016

Noncontrolling interest,
beginning

Purchase of noncontrolling
interest of Salsa Lisa

Noncontrolling interest, ending

—

771

(771)

—

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, 2018

YEAR ENDED
OCTOBER 31, 2016

Noncontrolling interest,
beginning

Noncash transfer of
noncontrolling interest

Net income (loss) attributable
to noncontrolling interest

of Avocados de Jalisco

1,016

962

1,001

(269)

—

Noncontrolling interest, ending

1,748

1,016

Notes To Consolidated Financial Statements

3. INVENTORIES

4. PROPERTY, PLANT, AND EQUIPMENT

The intangible assets consist of the following (in thousands):

Inventories consist of the following (in thousands):

Property, plant, and equipment consist of the following

OCTOBER 31, 2018

OCTOBER 31, 2017

OCTOBER 31,

Fresh fruit

2018

2017

$ 12,902

$ 14,566

Packing supplies and ingredients

Finished prepared foods

10,889

11,253

9,755

6,537

$ 35,044

$ 30,858

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 to adjust our fresh
fruit inventory to the net realizable value as of October 31, 2017.
No adjustment was necessary as of October 31, 2018.

(in thousands):

OCTOBER 31,

Land

2018

2017

$ 11,569

Buildings and improvements

44,828

Leasehold improvements

Equipment

Information systems –
hardware and software

Construction in progress

26,004

89,451

10,752

5,867

44,338

25,030

79,023

10,264

7,487

Less accumulated depreciation
and amortization

188,471

177,711

(66,328)

$ 122,143

(57,639)

$ 120,072

Depreciation expense was $11.9 million, $9.5 million and

$7.3 million for fiscal years 2018, 2017, and 2016, of which
$0.3 million, $0.5 million and $0.5 million was related to
depreciation on capital leases for fiscal year 2018, 2017, and 2016.
Property, plant, and equipment include various capital leases

which total $3.4 million and $3.4 million, less accumulated
depreciation of $3.3 million and $3.0 million as of October 31, 2018
and 2017.

5. OTHER ASSETS

Other assets consist of the following (in thousands):

OCTOBER 31,

Intangibles, net

2018

2017

$ 1,109

2,226

Mexican IVA (i.e. value-added)
taxes receivable (see note 15)

Infrastructure advance
to Agricola Belher

Loan to FreshRealm members

Notes receivable from San Rafael

Other

21,859

18,174

2,600

—

1,423

$ 27,030

400

315

493

1,183

$ 22,791

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

(7,106)

534

7,640

(6,181)

1,459

Trade names

Trade secrets/recipes

Brand name intangibles

Intangibles, net

8.5 years

9.3 years

indefinite

2,760

(2,672)

630

275

(418)

—

212

275

2,760

(2,529)

630

275

(369)

—

231

261

275

11,305

(10,196)

1,109

11,305

(9,079)

2,226

We recorded amortization expense of approximately

$1.1 million, $1.2 million, and $1.5 million for fiscal years 2018,
2017, and 2016. We anticipate recording amortization expense
of approximately $0.7 million, $0.1 million, $0.1 million, and
$0.1 million for fiscal years 2019 through 2022. The remainder
which is less than $0.1 million will be amortized over fiscal years
2022 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. For our line of credit the weighted-average
interest rate was 3.4% and 2.2% at October 31, 2018 and 2017.
Under this credit facility, we had $15.0 million and $20.0 million
outstanding as of October 31, 2018 and 2017.

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.

Borrowings under the Credit Facility will be at the 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

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. 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, 2018, as follows (in thousands):

2019

2020

2021

2022

2023

Thereafter

5,455

4,888

4,486

4,171

4,178

30,410

$ 53,588

Total rent expense amounted to approximately $6.4 million,

$6.0 million and $5.8 million for the years ended October 31,
2018, 2017, and 2016. Rent to Limoneira, for our corporate office,
amounted to approximately $0.3 million for fiscal years 2018, 2017,
and 2016.

Effective January 28, 2016, Calavo Growers, Inc. and Bank
of America, N.A., entered into a Continuing and Unconditional
Guaranty agreement (the “Guaranty”). Under the terms of the
Guaranty, the Company unconditionally guarantees and promises
to pay Bank of America any and all Indebtedness, as defined therein,
of our unconsolidated subsidiary Agricola Don Memo, S.A. de
C.V. to Bank of America. Grupo Belo del Pacifico, S.A. de C.V. has

Notes To Consolidated Financial Statements

also entered into a similar guarantee with Bank of America. These
guarantees relate to a new loan in the amount of $4.5 million loan
from Bank of America to Don Memo that closed on January 28,
2016. On January 29, 2016, Don Memo, used the proceeds from the
new Bank of America loan to repay $4.0 million due the Company.
In December 2018, Don Memo received third party financing,
repaid its loan to Bank of America and therefore, it is no longer
necessary for Calavo to guarantee Don Memo’s indebtedness.

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.

Litigation

We were 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 Company recorded $0.4 million as a
selling, general and administrative expense in the third quarter of
fiscal 2017. In August 2018, the court approved the settlement, and
we paid $0.4 million.

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.

However, the outcome of all litigation is inherently uncertain.

If one or more of the lawsuits referred to in this paragraph is
resolved against the Company in a reporting period for amounts in
excess of management’s expectations, our financial condition and
operating results for that reporting period could be materially and
adversely affected.

Mexico Tax Audits

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
initial PRODECON process concluded. In April 2018, we filed
a second formal agreement before the PRODECON, so that we
can continue the discussion of the case between us, the MFM and
the PRODECON. During this meeting and discussion period, the
statutory period that MFM has in order to issue the tax assessment
has been suspended. Currently, we are waiting for the response of
the MFM and the PRODECON regarding our next meeting date.
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. During this meeting and discussion period, the
statutory period that SAT had in order to issue the tax assessment
was suspended. During our first fiscal quarter of 2018, we had an
initial meeting with officials from the SAT and the PRODECON,
which led to a further exchange of supporting information and
documentation. Although several meetings and discussions with the
PRODECON and the SAT were conducted during our fiscal third
quarter, we were unable to materially resolve our case with the SAT
through the PRODECON process.

As a result, on July 12, 2018, the SAT’s local office in Uruapan

August 2018, we received a favorable ruling from the SAT’s central
legal department in Mexico City on another tax matter (see footnote
15 regarding VAT refunds) indicating that they believe that our legal
interpretation is accurate on a matter that is also central to the 2013
Assessment. We believe this recent ruling significantly undermines
the 2013 Assessment we received in July 2018.

We continue to believe that the ultimate resolution of these
matters is unlikely to have a material effect on our consolidated
financial position, results of operations and cash flows.

However, the outcome of all litigation is inherently uncertain.

8. RELATED -PARTY TRANSACTIONS

Certain members of our Board of Directors market California

avocados through Calavo pursuant to marketing agreements
substantially similar to the marketing agreements that we enter into
with other growers. During the years ended October 31, 2018, 2017,
and 2016, the aggregate amount of avocados procured from entities
owned or controlled by members of our Board of Directors was
$11.2 million, $19.8 million and $25.5 million. We did not have any
amounts due to Board members as of October 31, 2018 and 2017.

During fiscal years 2018, 2017, and 2016, we received

$0.4 million, $0.4 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 2018, 2017, and 2016. Harold Edwards,
who is a member of our Board of Directors, is the Chief Executive
Officer of Limoneira Company. We have less than 10% ownership
interest in Limoneira. Additionally, our Chief Executive Officer is a
member of the Limoneira Board of Directors. In December 2018, our
Chief Executive Officer retired from Limoneira’s 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, 2018, 2017, and 2016, 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, U.S., Canada, and any other overseas market.
In January 2016, our unconsolidated subsidiary, Don Memo,
entered into a loan agreement in the amount of $4.5 million with

Bank of America, N.A. (BoA) proceeds of which were used by Don
Memo to repay debt owed to Calavo. 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 Bank
of America 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. In December 2018, Don Memo
received third party financing, repaid its loan to Bank of America
and therefore, it is no longer necessary for Calavo to guarantee Don
Memo’s indebtedness.

As of October 31, 2018, 2017 and 2016, we have an investment
of $4.9 million, $4.6 million and $3.7 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. In September 2018, we contributed $0.2 million, of
which $0.1 million was a short-term loan, and $0.1 million was
an additional investment. As of October 31, 2018, 2017 and 2016,
we had outstanding advances of $2.5 million, $1.6 million and
$0.9 million to Don Memo. During the year ended October 31,
2018, 2017 and 2016 we purchased $11.1 million, $8.9 million
and $4.8 million of tomatoes from Don Memo pursuant to our
consignment agreement.

We had grower advances due from Belher of $4.0 million,
$4.0 million and $4.4 million as of October 31, 2018, 2017 and
2016. In August 2018, we entered into an amended infrastructure
agreement with Belher and advanced $3.0 million. This amount
shall be paid back annually at $0.6 million through June 2023, and
incur interest of Libor plus 10%. We had infrastructure advances
due from Belher of $3.4 million, $0.6 million and $0.8 million as of
October 31, 2018, 2017 and 2016. Of these infrastructure advances
$0.8 million was recorded as receivable in prepaid and other
current assets and $2.6 million is included in other assets. During
the year ended October 31, 2018, 2017 and 2016, we purchased
$14.1 million, $13.9 million, and $26.0 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 83% 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, 2018, 2017 and 2016, we have
made preseason advances of approximately $0.1 million to various
partners of Avocados de Jalisco. During the year ended October
31, 2018 and 2017, we purchased approximately $1.8 million and
$1.9 million of avocados from the partners of Avocados de Jalisco.
In January 2018, we transferred $1.0 million of interest to the
Avocados de Jalisco noncontrolling members.

Notes To Consolidated Financial Statements

As of October 31, 2018 and 2017, we have an investment

of $19.9 million and $28.4 million in FreshRealm, LLC
(“FreshRealm”). We record the amount of our investment in
FreshRealm in “Investment in unconsolidated entities” on our
Consolidated Condensed Balance Sheets and recognize losses in
FreshRealm in “Income/(loss) in unconsolidated entities” in our
Consolidated Condensed Statement of Income. See Note 16 for
additional information.

On July 3, 2018, we entered into a $2.5 million Promissory Note

with FreshRealm. That note was repaid in full on July 31, 2018 in
connection with the debt and equity financing described below.

Effective July 31, 2018, we entered into a Note and Membership
Unit Purchase Agreement (“NMUPA”) with FreshRealm, pursuant
to which we agreed to provide additional financing to FreshRealm,
subject to certain terms and conditions. Pursuant to such NMUPA,
we entered into a Subscription Agreement with FreshRealm,
whereby we purchased $3.5 million of equity units in FreshRealm,
on July 31, 2018. FreshRealm concurrently entered into subscription
agreements with certain third-party investors for an additional
$3.5 million of equity investments. As of October 31, 2018, our
ownership percentage in FreshRealm was approximately 37%.
Additionally, pursuant to such NMUPA, we entered into a
$12 million Senior Promissory Note and corresponding Security
Agreement (collectively, the “Agreements”) with FreshRealm,
effective August 10, 2018. Pursuant to the Agreements, the
$12 million facility is available in two $6 million tranches.
On August 10, 2018, we funded the first $6 million tranche
to FreshRealm. The second $6 million tranche initially was
available to FreshRealm upon its attainment of least $17 million
in gross revenues over any consecutive two calendar months (i.e.
in aggregate). In October 2018, we waived the sales threshold
requirement and loaned FreshRealm $3.0 million. In November
2018, we again waived the sales threshold and loaned the remaining
$3.0 million. See Note 16 for further information.

Three officers and five members of our board of directors have
investments in FreshRealm. In addition, as of October 31, 2018 and
2017, we have a loan to FreshRealm members of approximately
$0.2 million and $0.3 million. In October 2017 and December 2017,
our Chairman and Chief Executive Officer invested $7.0 million
and $1.5 million, respectively, into FreshRealm. In January
2018, one of our non-executive directors invested $1.8 million
into FreshRealm. In the second quarter of fiscal 2018, two of our
non-executive directors invested $1.2 million into FreshRealm.

We provide storage services to FreshRealm from our New Jersey

and Texas Value-Added Depots, and our RFG Riverside facility.
We received $0.3 million, $0.2 million and $0.1 million in storage
services revenue from FreshRealm for the year ended October 31,
2018, 2017 and 2016. For the year ended October 31, 2018 and 2017,
RFG sold $9.9 million and $7.3 million of products to FreshRealm.
For fiscal 2016, RFG did not have sales to FreshRealm.

The previous owners of RFG, one of which is currently an
officer of Calavo, have a majority ownership of certain entities that
provide various services to RFG, specifically LIG Partners, LLC
and THNC, LLC. One of RFG’s California operating facilities
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 for fiscal years 2018
and 2017:

YEAR ENDED OCTOBER 31,

2018

(in thousands)

Rent paid to LIG

Rent paid to THNC, LLC

$ 603

819

2017

546

659

9. INCOME TAXES

On December 22, 2017, the President of the United States
signed and enacted comprehensive tax legislation into law H.R. 1,
commonly referred to as the Tax Cuts and Jobs Act (the “Tax
Act”). Except for certain provisions, the Tax Act is effective for tax
years beginning on or after January 1, 2018. As a fiscal year U.S.
taxpayer with an October 31 fiscal year end, the majority of the
new provisions, such as eliminating the domestic manufacturing
deduction, creating new taxes on certain foreign sourced income
and introducing new limitations on certain business deductions,
will not apply until our 2019 fiscal year. For fiscal 2018, the most
significant impacts include: lowering of the U.S. federal corporate
income tax rate; remeasuring certain net deferred tax assets
and liabilities; and requiring the transition tax on the deemed
repatriation of certain foreign earnings. We recorded $1.7 million
in one-time, non-cash charges related to the revaluation of our net
deferred tax assets (approx. $1.4 million) and the transition tax on
the deemed repatriation of foreign earnings (approx. $0.3 million).
On December 22, 2017, the SEC issued guidance under Staff
Accounting Bulletin No. 118, Income Tax Accounting Implications
of the Tax Cuts and Jobs Act (“SAB 118”) allowing taxpayers to
record a reasonable estimate of the impact of the U.S. legislation
when it does not have the necessary information available, prepared
or analyzed (including computations) in reasonable detail to
complete its accounting for the change in tax law. In accordance
with SAB 118, the estimated income tax charge of $2.3 million
represents the Company’s best estimate based on interpretation
of the U.S. legislation. As a result, the actual impact on the net
deferred tax liability may vary from the estimated amount due to
uncertainties in the Company’s preliminary review.

The Company recorded a provisional expense of approximately

Significant components of our deferred taxes assets (liabilities) as

Prior to the enactment of the Tax Act, the Company regularly

The income tax provision consists of the following for the years

ended October 31, (in thousands):

2018

2017

2016

CURRENT:

Federal

State

Foreign

7,115

$ 14,875

$ 17,244

1,582

(844)

2,561

290

2,040

982

Total current

7,853

17,726

20,266

DEFERRED:

Federal

State

Foreign

3,328

2,567

1,863

690

848

335

(178)

533

(793)

Total deferred

4,866

2,724

1,603

Total income tax provision $ 12,719

$ 20,450

$ 21,869

At October 31, 2018 and 2017, gross deferred tax assets totaled
approximately $19.1 million and $31.9 million, while gross deferred
tax liabilities totaled approximately $14.8 million and $22.1 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.

of October 31, are as follows (in thousands):

2018

2017

Property, plant, and equipment

$ (7,715) $

(7,861)

Intangible assets

13,886

24,647

Unrealized gain, Limoneira investment

(4,777)

Investment in FreshRealm

Stock-based compensation

State taxes

Credits and incentives

Allowance for accounts receivable

Inventories

Accrued liabilities

Other

(1,283)

899

(690)

1,641

825

353

1,533

(295)

(6,485)

(6,808)

1,154

(805)

2,253

1,239

322

2,245

(118)

Long-term deferred income taxes

$ 4,377

9,783

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

23.3%

35.0%

2018

2017

2016

State taxes, net of
federal effects

Foreign income taxes
greater than U.S.

Revaluation of deferred taxes

Section 199 deduction

Provision to return

Transition Tax

State rate change

Other

3.6

0.7

4.5

(1.9)

(1.2)

0.6

0.2

2.9

0.1

—

(2.2)

—

0.3

2.9

0.7

—

(1.7)

—

(1.4)

28.4%

(0.7)

35.4%

(0.6)

36.3%

For fiscal years 2018, 2017 and 2016, income before income taxes

related to domestic operations was approximately $45.8 million,
$57.5 million, and $61.0 million. For fiscal years 2018, 2017 and
2016, income (loss) before income taxes related to foreign operations
was approximately $(1.1) million, $0.2 million and $(0.6) million.

As of October 31, 2018 and 2017, we had liability of $0.1 million

and $0.7 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, 2015, and are no longer subject to state income tax
examinations for fiscal years prior to October 31, 2014.

Notes To Consolidated Financial Statements

10. 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,
fresh-cut vegetables and prepared foods. Selling, general and
administrative expenses, as well as other non-operating income/
expense items, are evaluated by our Chief Executive Officer in the
aggregate. We do not allocate assets, or specifically identify them
to, our operating segments.

The following table sets forth sales by product category, by segment (in thousands):

FRESH PRODUCTS

CALAVO FOODS

RFG

TOTAL

(All amounts are presented in thousands)

YEAR ENDED OCTOBER 31, 2018

Net sales (before intercompany eliminations)

553,208

91,646

448,930

$ 1,093,784

Intercompany eliminations

Net sales

Cost of sales (before intercompany eliminations)

Intercompany eliminations

Cost of sales

Gross profit

YEAR ENDED OCTOBER 31, 2017

(1,554)

551,654

498,962

(1,468)

497,494

54,160

(3,472)

88,174

64,221

(2,360)

61,861

26,313

—

448,930

416,985

(1,198)

415,787

(5,026)

1,088,758

980,168

(5,026)

975,142

33,143

113,616

Net sales (before intercompany eliminations)

583,976

77,579

418,508

$ 1,080,063

Intercompany eliminations

Net sales

Cost of sales (before intercompany eliminations)

Intercompany eliminations

Cost of sales

Gross profit

YEAR ENDED OCTOBER 31, 2016

(1,314)

582,662

511,410

(1,124)

510,286

72,376

(3,184)

74,395

63,751

(2,709)

61,042

13,353

—

418,508

390,358

(665)

389,693

(4,498)

1,075,565

965,519

(4,498)

961,021

28,815

114,544

Net sales (before intercompany eliminations)

542,996

66,188

333,498

942,682

Intercompany eliminations

Net sales

Cost of sales (before intercompany eliminations)

Intercompany eliminations

Cost of sales

Gross profit

(4,309)

538,687

484,982

(4,292)

480,690

57,997

(2,694)

63,494

42,829

(1,783)

41,046

22,448

—

333,498

307,337

(928)

306,409

(7,003)

935,679

835,148

(7,003)

828,145

27,089

107,534

For fiscal year 2018, 2017 and 2016, inter-segment sales and
cost of sales of $1.6 million, $1.3 million and $4.3 million between
Fresh products and RFG were eliminated. For fiscal year 2018,

2017 and 2016, inter-segment sales and cost of sales of $3.5 million,
$3.2 million and $2.7 million between Calavo Foods and RFG
were eliminated.

The following table sets forth sales by product category, by segment (in thousands):

YEAR ENDED OCTOBER 31, 2018

YEAR ENDED OCTOBER 31, 2017

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

$ 511,730 $

— $

— $ 511,730 $ 546,433 $

— $

— $ 546,433

31,608

11,699

498

—

99,635

3,423

—

31,608

11,699

498

99,635

3,423

—

451,203

29,199

9,402

445

—

85,204

3,951

—

29,199

9,402

445

85,204

3,951

—

419,973

Total gross sales

555,535

103,058

451,203

1,109,796

585,479

89,155

419,973

1,094,607

Less sales incentives

Less inter-company
eliminations

(2,327)

(11,412)

(2,273)

(16,012)

(1,503)

(11,576)

(1,465)

(14,544)

(1,554)

(3,472)

—

(5,026)

(1,314)

(3,184)

—

(4,498)

Net sales

$ 551,654 $

88,174 $ 448,930 $ 1,088,758 $ 582,662 $

74,395 $ 418,508 $ 1,075,565

YEAR ENDED OCTOBER 31, 2017

YEAR ENDED OCTOBER 31, 2016

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

$ 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

9,514

5,600

—

73,009

3,617

—

36,286

9,514

5,600

73,009

3,617

—

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

Sales to customers outside the U.S. were approximately

$41.8 million, $29.8 million and $25.4 million for fiscal years 2018,
2017, and 2016.

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, 2018 and 2017.

RFG segment sales included sales to one customer who
represented more than 10% of total consolidated revenues for
fiscal 2018, 2017 and 2016.

Notes To Consolidated Financial Statements

Long-lived assets attributed to geographic areas as of October 31,

12 . STOCK-BASED COMPENSATION

are as follows (in thousands):

UNITED STATES

MEXICO

CONSOLIDATED

2018

2017

$ 88,600

$ 33,543 $ 122,143

88,078

$ 31,994

$ 120,072

11. LONG -TERM OBLIGATIONS

Long-term obligations at fiscal year ends consist of the following

(in thousands):

Capital leases

Less current portion

2018

$ 432

(118)

2017

568

(129)

314

439

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,

The Company and FCW entered into a Term Loan Agreement

except for per share amounts):

(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.

At October 31, 2018, capital lease payments are scheduled as

follows (in thousands):

YEAR ENDING OCTOBER 31:

TOTAL

2019

2020

2021

2022

2023

Thereafter

Minimum lease payments

Less interest

140

129

108

—

441

(9)

Present value of future minimum lease payments

432

NUMBER OF
SHARES

WEIGHTED-
AVERAGE
EXERCISE
PRICE

AGGREGATE
INTRINSIC
VALUE

(3)

18.54

17.66

19.20

390

19.20

390

Outstanding at
October 31, 2017

Exercised

Outstanding at
October 31, 2018

Exercisable at
October 31, 2018

The weighted average remaining life of such outstanding

options is 1.6 years and the total intrinsic value of options exercised
during fiscal 2018 was $0.2 million. The weighted average
remaining life of such exercisable options is 1.6 years. The fair value
of vested shares as of October 31, 2018, and 2017 was approximately
$0.4 million and $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.

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 $0.2 million and
$0.8 million for the year ended October 31, 2017 and 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 $0.2 million for the year ended October 31, 2018.
The total recognized stock-based compensation expense for these
grants was $0.3 million for the year ended October 31, 2017 and 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, 2018 and 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 $0.2 million and $1.1 million for the year ended
October 31, 2018 and 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 2018, per the terms of our 2011
Plan and the respective employee award, the board of directors
awarded the portion of the fiscal 2017 management bonus for the
percentage of the year worked. As a result, he was granted 867
shares of unrestricted stock, which immediately vested. As a result,
we recorded $0.1 million of stock-based compensation expense in
our fiscal first quarter of 2018.

On October 31, 2017, a member of the management team at
RFG resigned. His unvested portion of restricted stock issued in
December of 2016 and January of 2016 was forfeited. On January
25, 2018, in consideration of and in exchange for his forfeiture
of restricted shares upon his resignation, the board of directors
granted 10,788 shares of unrestricted stock, which immediately
vested. The closing price of our stock on such date was $87.10. We
recorded for this grant $0.9 million of stock-based compensation
expense in our fiscal first quarter of 2018.

On December 18, 2017, our executive officers were granted a
total of 25,241 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 $75.45. These shares vest in one-third
increments, on an annual basis, beginning December 18, 2018.
These shares were granted pursuant to our 2011 Plan. The total
recognized stock-based compensation expense for these grants was
$0.6 million for the year ended October 31, 2018.

On January 2, 2018, 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 $85.90. On January 2, 2019, 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 $1.5 million for the year
ended October 31, 2018.

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, 2018 was
approximately $0.1 million, which will be recognized over the
remaining service period of 60 months.

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.

Notes To Consolidated Financial Statements

Prior to November 1, 2016, stock-based compensation expense

was recorded net of estimated forfeitures in 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
EXERCISE
PRICE

AGGREGATE
INTRINSIC
VALUE

Outstanding at
October 31, 2017

Vested

Forfeited

Granted

Outstanding at
October 31, 2018

103

(58)

(7)

54.64

54.27

52.69

80.20

68.82

8,251

The total recognized stock-based compensation expense for
restricted stock was $4.6 million and $4.3 million for the years
ended October 31, 2018 and 2017.

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, 2017

Outstanding at
October 31, 2018

Exercisable at
October 31, 2018

40.07

1,143

29.01

818

The weighted average remaining life of such outstanding
options is 4.5 years. The weighted average remaining life of such
exercisable options is 2.8 years. The fair value of vested shares as of
October 31, 2018 and 2017, was $0.8 million and $0.4 million.

13. DIVIDENDS

On October 2, 2018, the Company declared a $1.00 per share

cash dividend to shareholders of record on November 16, 2018.
On December 7, 2018, the Company paid this cash dividend which
totaled $17.6 million. On December 8, 2017, the Company paid
a $0.95 per share dividend in the aggregate amount of $16.7 million
to shareholders of record on November 17, 2017.

14. FAIR VALUE MEASUREMENTS

A fair value measurement is determined based on the

assumptions that a market participant would use in pricing an asset
or liability. A three-tiered hierarchy draws distinctions between
market participant assumptions based on (i) observable inputs such
as quoted prices in active markets (Level 1), (ii) inputs other than
quoted prices in active markets that are observable either directly
or indirectly (Level 2) and (iii) unobservable inputs that require the
Company to use present value and other valuation techniques in the
determination of fair value (Level 3).

The following table sets forth our financial assets and liabilities as of October 31, 2018 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)

LEVEL 1

LEVEL 2

LEVEL 3

TOTAL

Investment in Limoneira Company(1)
Total assets at fair value

$
$

42,609
42,609

—
—

$
$

42,609
42,609

(1) The investment in Limoneira Company consists of marketable securities in the Limoneira Company stock. We currently own approximately 10% of Limoneira’s

outstanding common stock. These securities are measured at fair value by quoted market prices. Limoneira’s stock price at October 31, 2018 and October 31, 2017
equaled $24.65 per share and $23.35 per share. Unrealized gains and losses are recognized through other comprehensive income. Unrealized investment holding gains
arising during the years ended October 31, 2018, 2017 and 2016 were $2.2 million, $6.3 million and $6.6 million.

15. MEXICAN IVA TAXES RECEIVABLE

16. FRESHREALM

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, 2018 and 2017, CDM IVA receivables totaled

$21.9 million and $18.2 million. Historically, CDM received IVA
refund payments from the Mexican tax authorities on a timely basis.
Beginning in fiscal 2014 and continuing into fiscal 2018, 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.

During the first quarter of fiscal 2017, tax authorities informed

us that their internal opinion, based on the information provided
by the 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 started an administrative appeal for the IVA related to
the request of the months of July, August and September of 2015
(the “2015 Appeal”) in order to assert its argument that CDM is
properly documented and to therefore change the SAT’s internal
assessment. In August 2018, we received a favorable ruling from
the SAT’s central legal department in Mexico City on the 2015
Appeal indicating that they believe CDM’s legal interpretation of
its declared tax structure is indeed accurate. While favorable on this
central matter of CDMs declared tax structure, the ruling, however,
still does not recognize the taxpayers right to a full refund for the
IVA related to the months of July, August and September 2015.
Therefore, CDM may need to file a substance-over-form annulment
suit in the Federal Tax Court to recover its full refund for IVA over
the subject period.

We believe that our operations in Mexico are properly
documented. Furthermore, our internationally recognized tax
advisors believe that there are legal grounds to prevail in the Federal
Tax Court and that therefore, the Mexican tax authorities will
ultimately authorize the refund of the corresponding IVA amounts.

Variable Interest Entity

Based on the NMUPA and related Agreements, as described

in Note 8, we reconsidered whether FreshRealm is a variable
interest entity (VIE) as of October 31, 2018. A VIE refers to a legal
business structure in which an investor has a controlling interest
in, despite not having a majority of voting rights; or a structure
involving equity investors that do not have sufficient resources to
support the ongoing operating needs of the business. Due primarily
to FreshRealm utilizing substantially more debt to finance
its activities, in addition to its existing equity, we believe that
FreshRealm should be considered a VIE. In evaluating whether
we are the primary beneficiary of FreshRealm, we considered
several factors, including whether we (a) have the power to direct
the activities that most significantly impact FreshRealm’s economic
performance and (b) the obligation to absorb losses and the right
to receive benefits that could potentially be significant to the VIE.
We were not the primary beneficiary of FreshRealm at October
31, 2018 because the nature of our involvement with the activities
of FreshRealm does not give us the power to direct the activities
that most significantly impact its economic performance. We do
not have a future obligation to fund losses or debts on behalf of
FreshRealm. We may, however, voluntarily contribute funds. In the
accompanying statements of income, we have presented the income
(loss) from unconsolidated entities, after the provision for income
taxes for all periods presented.

We record the amount of our investment in FreshRealm,
totaling $19.9 million at October 31, 2018, in “Investment in
unconsolidated entities” on our Consolidated Balance Sheets and
recognize losses in FreshRealm in “Income/(loss) in unconsolidated
entities” on our Consolidated Statement of Income.

For the year ended October 31, 2018, FreshRealm incurred
losses totaling $29.4 million, of which we recorded $12.0 million
of non-cash losses during fiscal 2018. In periods prior to our fiscal
third quarter, Calavo had not recorded losses from FreshRealm
since Impermanence (a non-affiliated investor group) invested
in FreshRealm and Calavo deconsolidated FreshRealm in fiscal
2014. FASB Accounting Standards Codification (“ASC”) 810,
ASC 323, and ASC 970 mandate that the recognition of losses for
an unconsolidated subsidiary be handled in a manner consistent
with cash distributions upon liquidation of the entity when
such distributions are different than the investors percentage
ownership. Further, the current FreshRealm LLC operating
agreement mandates that losses be recognized first by other
investors (“non-option investors”) with positive capital accounts
and then by Calavo (the only “option investor” to date) until all
such capital accounts are reduced to zero. During our third fiscal
quarter of 2018, we estimated that all non-option investor capital
accounts were reduced to zero and we were the only investor with
a remaining positive capital account balance. As of October 31,
2018, our capital account balance was approximately $1.5 million.
Unless we opt to contribute additional funds (i.e. equity or debt),
we estimate that our maximum exposure to loss from FreshRealm,
as of October 31, 2018, is limited to our total investment balance
of approximately $19.9 million, plus $12 million related to the debt
Agreements, as described in Note 8.

Notes To Consolidated Financial Statements

Report of Independent Registered
Public Accounting Firm

Unconsolidated Significant Subsidiary

The following tables show summarized financial information for

TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF CALAVO GROWERS, INC. SANTA PAULA , CA

As described in footnote 8, we own approximately 37% of
FreshRealm as of October 31, 2018. In accordance with Rules
3-09 and 4-08(g) of Regulation S-X, we must determine if
our unconsolidated subsidiaries are considered, “significant
subsidiaries”. In evaluating our investments, there are three tests
utilized to determine if our subsidiaries are considered significant
subsidiaries: the asset test, the income test and the investment test.
Rule 3-09 of Regulation S-X requires separate audited financial
statements of an unconsolidated subsidiary in an annual report if
any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X
requires summarized financial information in an annual report if
any of the three tests exceed 10%.

FreshRealm incurred losses totaling $29.4 million, of which

we recorded $12.0 million of non-cash losses during our fiscal
year 2018. Pursuant to Rule 3-09 of Regulation S-X, this requires
separate audited financial statements of FreshRealm in our Form
10-K. However, because Calavo and FreshRealm have different
fiscal year-ends, the guidance in Rule 3-09(b)(2), as well our filing
status, must be considered in determining the due date for Calavo
to file the financial statements of FreshRealm in our Form 10-K.
Since we are a large accelerated filer, our 2018 Form 10-K is due
by December 30, 2018. Since FreshRealm’s fiscal year-end is
December 31, we plan to file the financial statements of FreshRealm
as an amendment to our Form 10-K within 90 days after
FreshRealm’s year-end (i.e., by April 1, 2019).

Note that since Rule 3-09 of Regulation S-X financial

statements are not filed at the same time as our 2018 Form 10-K, we
must include Rule 4-08(g) summarized financial information in our
2018 Form 10-K.

FreshRealm (in thousands):

Balance Sheet:

OCTOBER 31,

ASSETS:

2018

2017

Cash and cash equivalents

814

4,063

Accounts receivable,
net of allowances

Inventories, net

Prepaid expenses and
other current assets

Property, plant, and
equipment, net

Other assets

LIABILITIES AND EQUITY:

Current liabilities

Debt to Calavo

Long-term liabilities

Equity

1,903

3,186

1,648

1,728

1,152

787

9,152

1,500

6,910

—

$ 17,707

$ 15,136

6,557

9,000

505

1,645

3,919

—

995

10,222

$ 17,707

$ 15,136

Income Statement:

12 MONTHS ENDED OCTOBER 31,

2018

2017

2016

Net sales

Gross loss

Selling, general
and administrative

Other

Net loss

$ 33,769

$ 16,933

2,688

(10,868)

(7,275)

(2,153)

(19,512)

(12,733)

(5,457)

1,023

(13)

(56)

$ (29,357) $ (20,021)

(7,666)

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Calavo Growers, Inc. and subsidiaries (the “Company”) as of
October 31, 2018 and 2017, 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, 2018, and the related notes and the schedules listed in the Index at Item 15 (a)
collectively referred to as the “financial statements”. In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of October 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three
years in the period ended October 31, 2018, in conformity with the applicable financial reporting framework and accounting principles
generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),

the Company’s internal control over financial reporting as of October 31, 2018, 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 20,
2018, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.

Costa Mesa, California
December 20, 2018

We have served as the Company’s auditor since 2015.

Management’s Report on Internal Control
Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act 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, 2018. Our internal control over financial reporting as of
October 31, 2018 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,
and Chief Executive Officer

B. John Lindeman,
Chief Financial Officer

Report of Independent Registered
Public Accounting Firm

TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF CALAVO GROWERS, INC. SANTA PAULA , CA

Opinion on Internal Control Over Financial Reporting

We have audited the internal control over financial reporting of Calavo Growers, Inc. and subsidiaries (the “Company”) as of October 31, 2018,

based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of October 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated financial statements as of and for the year ended October 31, 2018, of the Company and our report dated December 20, 2018,
expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting, including the possibility of collusion or improper management

override of controls, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Costa Mesa, California
December 20, 2018

Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities

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 2018

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

HIGH

89.40

98.50

97.85

$ 107.15

LOW

FISCAL 2017

69.35

82.75

83.85

92.70

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

HIGH

66.35

66.60

76.15

74.80

LOW

53.65

51.20

64.43

66.35

As of November 30, 2018, there were approximately 775 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 October 2, 2018, we declared a dividend of $1.00 per share. December 7, 2018, we paid the aggregate amount of $17.6 million
to shareholders of record on November 16, 2018. 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.

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, 2013 and ending
October 31, 2018. In making this comparison, we have assumed an investment of $100 in Calavo Growers, Inc. common stock, the Nasdaq
Market Index, the Peer Group Index as of October 31, 2013. We have also assumed the reinvestment of all dividends.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Among Calavo Growers, Inc., The NASDAQ Composite Index, and a Peer Group

$400

$350

$300

$250

$200

$150

$100

$50

10/13

10/14

10/15

10/16

10/17

10/18

Calavo Growers, Inc.

NASDAQ Composite

Peer Group

*$100 invested on 10/31/13 in stock or index, including reinvestment of dividends. Fiscal year ending October 31.

Corporate Information

OFFICERS

AUDIT COMMITTEE

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

Marc Fallini
Director, California Avocado Operations

Joseph Malagone
Packinghouse Manager, Santa Paula

Francisco Orozco
Packinghouse Manager, Jalisco Mexico

HEADQUARTERS

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

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

COMMON STOCK LISTING

Shares of the company’s common stock are
listed on the Nasdaq Global Select Market
under the symbol CVGW.

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,

Peru and Colombia 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 Growers, Inc.

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 approximately 3,000 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:

◊
Three fresh avocado packinghouses (in Santa Paula, Michoacán, Mexico, and Jalisco, Mexico);

◊
One fresh papaya packinghouse (in Hawaii);

◊
Seven RFG production and distribution facilities (in Northern and Southern California, Oregon,

Texas, Indiana, Florida and New Jersey);

◊
Two Calavo Foods production facilities (in Michoacán, Mexico and Minnesota); and,

◊
Three Value-Added Depots housing ProRipeVIP® ripening technology, distribution and sales

(in Santa Paula, Texas and New Jersey).

Senior Management

(from left to right)

James E. Gibson President, Renaissance Food Group B. John Lindeman Chief Financial Officer and Corporate Secretary

Rob Wedin Vice President, Fresh Sales and Marketing Ron Araiza Vice President, Foods Division Sales and Operations

Mike Browne Vice President, Fresh Operations

Creative Direction: Dan McNulty Designed: MC BrandStudios www.mc-brandstudios.com Concept/Editorial: FoleyFreisleben LLC www.folfry.com Photography: Marcelo Coelho www.marcelocoelho.com
Printing: Jano Graphics www.janographics.com