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EX-32.1 - EX-32.1 - CALAVO GROWERS INCcvgw-20160131ex321f23a38.htm
EX-31.2 - EX-31.2 - CALAVO GROWERS INCcvgw-20160131ex312935b0d.htm
EX-31.1 - EX-31.1 - CALAVO GROWERS INCcvgw-20160131ex3113ca525.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


 

FORM 10-Q

 

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

 

For the quarterly period ended January 31, 2016

 

OR

 

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

 

Commission file number: 000-33385

 

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)

 

California

33-0945304

(State of incorporation)

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

 

1141-A Cummings Road

Santa Paula, California   93060

(Address of principal executive offices) (Zip code)

 

(805) 525-1245

(Registrant's telephone number, including area code)

 

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

Yes    No

 

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

 

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

 

Large accelerated filer  

Accelerated filer 

Non-accelerated filer

Smaller Reporting Company

 

(Do not check if a smaller reporting company)

 

 

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

 

Registrant's number of shares of common stock outstanding as of January 31, 2016 was 17,435,408

 


 

 

 


 

CAUTIONARY STATEMENT

 

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

 

2


 

CALAVO GROWERS, INC.

 

INDEX

 

 

    

PAGE

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

Item 1. 

Financial Statements (unaudited):

 

 

 

 

 

Consolidated Condensed Balance Sheets – January 31, 2016 and October 31, 2015

 

 

 

 

Consolidated Condensed Statements of Income – Three Months Ended January 31, 2016 and 2015

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income – Three Months Ended January 31, 2016 and 2015

 

 

 

 

Consolidated Condensed Statements of Cash Flows – Three Months Ended January 31, 2016 and 2015

 

 

 

 

Notes to Consolidated Condensed Financial Statements

 

 

 

Item 2. 

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

15 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

21 

 

 

 

Item 4. 

Controls and Procedures

21 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

Item 1. 

Legal Proceedings

21 

 

 

 

Item 1A. 

Risk Factors

22 

 

 

 

Item 6. 

Exhibits

22 

 

 

 

 

Signatures

23 

 

 

3


 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS 

 

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

January 31, 

 

October 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

Assets

    

 

    

    

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,188

 

$

7,171

 

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

 

 

74,122

 

 

58,606

 

Inventories, net

 

 

27,090

 

 

26,351

 

Prepaid expenses and other current assets

 

 

13,206

 

 

15,763

 

Advances to suppliers

 

 

 —

 

 

2,820

 

Income taxes receivable

 

 

3,120

 

 

6,111

 

Total current assets

 

 

125,726

 

 

116,822

 

Property, plant, and equipment, net

 

 

72,158

 

 

69,448

 

Investment in Limoneira Company

 

 

21,745

 

 

27,415

 

Investment in unconsolidated entities

 

 

19,868

 

 

19,720

 

Deferred income taxes

 

 

20,812

 

 

19,277

 

Goodwill

 

 

18,262

 

 

18,262

 

Other assets

 

 

13,203

 

 

14,001

 

 

 

$

291,774

 

$

284,945

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Payable to growers

 

$

11,164

 

$

3,924

 

Trade accounts payable

 

 

21,347

 

 

19,600

 

Accrued expenses

 

 

23,445

 

 

21,311

 

Short-term borrowings

 

 

44,000

 

 

36,910

 

Dividend payable

 

 

 —

 

 

13,907

 

Current portion of long-term obligations

 

 

1,417

 

 

2,206

 

Total current liabilities

 

 

101,373

 

 

97,858

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term obligations, less current portion

 

 

552

 

 

586

 

Deferred income taxes

 

 

234

 

 

234

 

Total long-term liabilities

 

 

786

 

 

820

 

Commitments and contingencies

 

 

 

 

 

 

 

Noncontrolling interest, Calavo Salsa Lisa

 

 

285

 

 

285

 

Shareholders' equity:

 

 

 

 

 

 

 

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

 

 

17

 

 

17

 

Additional paid-in capital

 

 

147,636

 

 

147,063

 

Accumulated other comprehensive income (loss)

 

 

(1,181)

 

 

2,419

 

Noncontrolling interest

 

 

1,038

 

 

1,011

 

Retained earnings

 

 

41,820

 

 

35,472

 

Total shareholders' equity

 

 

189,330

 

 

185,982

 

 

 

$

291,774

 

$

284,945

 

 

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

4


 

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

 

January 31, 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

Net sales

    

$

204,575

    

$

194,791

    

 

Cost of sales

 

 

183,577

 

 

176,986

 

 

Gross margin

 

 

20,998

 

 

17,805

 

 

Selling, general and administrative

 

 

10,921

 

 

9,510

 

 

Operating income

 

 

10,077

 

 

8,295

 

 

Interest expense

 

 

(217)

 

 

(223)

 

 

Other income, net

 

 

241

 

 

117

 

 

Income before provision for income taxes

 

 

10,101

 

 

8,189

 

 

Provision for income taxes

 

 

3,725

 

 

2,890

 

 

Net income

 

 

6,376

 

 

5,299

 

 

Less: Net income attributable to noncontrolling interest

 

 

(27)

 

 

 —

 

 

Net income attributable to Calavo Growers, Inc.

 

$

6,349

 

$

5,299

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.37

 

$

0.31

 

 

Diluted

 

$

0.37

 

$

0.31

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in per share computation:

 

 

 

 

 

 

 

 

Basic

 

 

17,322

 

 

17,295

 

 

Diluted

 

 

17,386

 

 

17,311

 

 

 

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

 

5


 

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

 

January 31, 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

    

$

6,376

    

$

5,299

    

 

Other comprehensive loss, before tax:

 

 

 

 

 

 

 

 

Unrealized investment losses arising during period

 

 

(5,670)

 

 

(8,401)

 

 

Income tax benefit related to items of other comprehensive loss

 

 

2,070

 

 

3,276

 

 

Other comprehensive loss, net of tax

 

 

(3,600)

 

 

(5,125)

 

 

Comprehensive income

 

 

2,776

 

 

174

 

 

Less: Net income attributable to noncontrolling interest

 

 

(27)

 

 

 —

 

 

Comprehensive income – Calavo Growers, Inc.

 

$

2,749

 

$

174

 

 

 

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

 

 

6


 

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three months ended  January 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

    

 

    

    

 

    

 

Net income

 

$

6,376

 

$

5,299

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,103

 

 

1,968

 

Income from unconsolidated entities

 

 

(146)

 

 

 —

 

Stock compensation expense

 

 

462

 

 

211

 

Deferred income taxes

 

 

598

 

 

 —

 

Effect on cash of changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(15,516)

 

 

(13,692)

 

Inventories, net

 

 

(739)

 

 

3,913

 

Prepaid expenses and other current assets

 

 

(1,443)

 

 

(2,800)

 

Advances to suppliers

 

 

2,820

 

 

2,798

 

Income taxes receivable

 

 

3,102

 

 

(1,641)

 

Other assets

 

 

372

 

 

108

 

Payable to growers

 

 

7,237

 

 

1,162

 

Trade accounts payable and accrued expenses

 

 

3,814

 

 

1,043

 

Net cash provided by (used in) operating activities

 

 

9,040

 

 

(1,631)

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Acquisitions of property, plant, and equipment

 

 

(4,411)

 

 

(3,689)

 

Proceeds received for repayment of San Rafael note

 

 

28

 

 

 —

 

Proceeds received for repayment of loan to Agricola Don Memo

 

 

4,000

 

 

 —

 

Net cash used in investing activities

 

 

(383)

 

 

(3,689)

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Payment of dividend to shareholders

 

 

(13,907)

 

 

(12,970)

 

Proceeds from revolving credit facility

 

 

61,390

 

 

78,590

 

Payments on revolving credit facility

 

 

(54,300)

 

 

(60,880)

 

Payments on long-term obligations

 

 

(823)

 

 

(1,047)

 

Proceeds from stock option exercises

 

 

 —

 

 

15

 

Net cash provided by (used in) financing activities

 

 

(7,640)

 

 

3,708

 

Net increase (decrease) in cash and cash equivalents

 

 

1,017

 

 

(1,612)

 

Cash and cash equivalents, beginning of period

 

 

7,171

 

 

6,744

 

Cash and cash equivalents, end of period

 

$

8,188

 

$

5,132

 

Noncash Investing and Financing Activities:

 

 

 

 

 

 

 

Construction in progress included in trade accounts payable and accrued expenses

 

$

4

 

$

 —

 

Unrealized holding losses

 

$

(5,670)

 

$

(8,401)

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7


 

 

 

CALAVO GROWERS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. Description of the business

 

Business

 

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

 

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

 

Recently Issued Accounting Standards 

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  ASU No. 2016-02 includes a lessee accounting model that recognizes two types of leases - finance leases and operating leases. The standard requires that a lessee recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease.  New disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases are also required. These disclosures include qualitative and quantitative requirements, providing information about the amounts recorded in the financial statements. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal. The Company is still in the process of evaluating the impact of the adoption of this amendment.

 

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

 

8


 

2.  Information regarding our operations in different segments

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  January 31, 2016

 

Three months ended  January 31, 2015

 

 

    

    

 

    

    

 

    

 

 

    

 

 

    

    

 

    

    

 

    

 

 

    

 

 

 

 

 

Fresh

 

Calavo

 

    

 

 

    

 

 

Fresh

 

Calavo

 

    

 

 

    

 

 

 

 

products

 

Foods

 

RFG

 

Total

 

products

 

Foods

 

RFG

 

Total

 

Third-party sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Avocados

 

$

95,222

 

$

 

$

 

$

95,222

 

$

102,426

 

$

 —

 

$

 

$

102,426

 

Tomatoes

 

 

16,030

 

 

 

 

 

 

16,030

 

 

6,053

 

 

 —

 

 

 

 

6,053

 

Papayas

 

 

2,214

 

 

 

 

 

 

2,214

 

 

2,519

 

 

 —

 

 

 

 

2,519

 

Other fresh products

 

 

121

 

 

 

 

 

 

121

 

 

1,224

 

 

 —

 

 

 

 

1,224

 

Food service

 

 

 

 

12,637

 

 

 

 

12,637

 

 

 —

 

 

11,522

 

 

 

 

11,522

 

Retail and club

 

 

 

 

5,322

 

 

76,783

 

 

82,105

 

 

 —

 

 

5,662

 

 

69,151

 

 

74,813

 

Total gross sales

 

 

113,587

 

 

17,959

 

 

76,783

 

 

208,329

 

 

112,222

 

 

17,184

 

 

69,151

 

 

198,557

 

Less sales incentives

 

 

(441)

 

 

(2,471)

 

 

(842)

 

 

(3,754)

 

 

(573)

 

 

(2,561)

 

 

(632)

 

 

(3,766)

 

Net sales

 

$

113,146

 

$

15,488

 

$

75,941

 

$

204,575

 

$

111,649

 

$

14,623

 

$

68,519

 

$

194,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Fresh

    

Calavo

    

 

 

    

 

 

 

 

 

products

 

Foods

 

RFG

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(All amounts are presented in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  January 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

113,146

 

$

15,488

 

$

75,941

 

$

204,575

 

Cost of sales

 

 

102,651

 

 

9,984

 

 

70,942

 

 

183,577

 

Gross margin

 

$

10,495

 

$

5,504

 

$

4,999

 

$

20,998

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  January 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

111,649

 

$

14,623

 

$

68,519

 

$

194,791

 

Cost of sales

 

 

102,932

 

 

11,030

 

 

63,024

 

 

176,986

 

Gross margin

 

$

8,717

 

$

3,593

 

$

5,495

 

$

17,805

 

 

For the three months ended January 31, 2016 and 2015, inter-segment sales and cost of sales of $0.2 million and $0.1 million between Fresh products and RFG were eliminated.  For the three months ended January 31, 2016 and 2015, inter-segment sales and cost of sales of $0.7 million and $0.3 million between Calavo Foods and RFG were eliminated.

 

9


 

3.Inventories

 

Inventories consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

January 31, 

 

October 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Fresh fruit

    

$

13,445

    

$

11,939

 

Packing supplies and ingredients

 

 

6,430

 

 

6,347

 

Finished prepared foods

 

 

7,215

 

 

8,065

 

 

 

$

27,090

 

$

26,351

 

 

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

 

4.Related party transactions

 

Certain members of our Board of Directors market California avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers.  During the three months ended January 31, 2016 and 2015, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $0.2 million and $0.6 million.  Amounts payable to these board members were $0.2 million as of January 31, 2016.  We did not have any amounts due to Board members as of October 31, 2015.

 

During the three months ended January 31, 2016 and 2015, we received $0.1 million as dividend income from Limoneira Company (Limoneira).  In addition, we lease office space from Limoneira and paid rental expenses of $0.1 million for the three months ended January 31, 2016 and 2015. Harold Edwards, who is a member of our Board of Directors, is the Chief Executive Officer of Limoneira Company.

 

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

 

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

 

Additionally, $2.0 million, representing Calavo Sub’s 50% ownership in Don Memo, is included in investment in unconsolidated entities on our balance sheet.  We make advances to Don Memo for operating purposes, provide additional advances as shipments are made during the season, and return the proceeds from tomato sales under this program to Don Memo, net of our commission and aforementioned advances. As of January 31, 2016 and October 31, 2015, we advanced $1.1 million and $1.8 million to Don Memo, which is recorded in advances to suppliers and netted with payable to growers. During the three months ended January 31, 2016, we paid/accrued $1.9 million to Don Memo pursuant to our consignment agreement.

10


 

 

We had grower advances due from Belher of $3.3 million and $3.0 million as of January 31, 2016 and October 31, 2015.  In addition, we had infrastructure advances due from Belher of $1.8 million as of January 31, 2016 and October 31, 2015.  Of these infrastructure advances $1.0 million was recorded as receivable in prepaid and other current assets.  The remaining $0.8 million of these infrastructure advances are recorded in other assets. During the three months ended January 31, 2016 and 2015, we paid/accrued $12.1 million and $5.3 million to Belher pursuant to our consignment agreement.

 

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

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

 

 

 

 

 

 

 

 

 

 

 

Three months ended  January 31,

 

 

(in thousands)

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Rent paid to LIG

    

$

  131

    

$

131

 

 

Rent paid to THNC, LLC

 

$

    76

 

$

76

 

 

Sales to Third Coast

 

$

    -

 

$

129

 

 

Purchases from Third Coast

 

$

    -

 

$

59

 

 

 

 

5.Other assets

 

Other assets consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

January 31, 

    

October 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Intangibles, net

 

$

4,289

 

$

4,613

 

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

 

 

5,319

 

 

5,853

 

Grower advances

 

 

272

 

 

346

 

Loan to Agricola Belher

 

 

800

 

 

800

 

Loan to FreshRealm members

 

 

310

 

 

307

 

Notes receivable from San Rafael

 

 

1,292

 

 

1,286

 

Other

 

 

921

 

 

796

 

 

 

$

13,203

 

$

14,001

 

 

11


 

Intangible assets consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2016

 

October 31, 2015

 

 

    

Weighted-

    

Gross

    

 

 

    

Net

    

Gross

    

 

 

    

Net

 

 

 

Average

 

Carrying

 

Accum.

 

Book

 

Carrying

 

Accum.

 

Book

 

 

 

Useful Life

 

Value

 

Amortization

 

Value

 

Value

 

Amortization

 

Value

 

Customer list/relationships

 

8.0 years

 

$

7,640

 

$

(4,520)

 

$

3,120

 

$

7,640

 

$

(4,282)

 

$

3,358

 

Trade names

 

8.1 years

 

 

2,760

 

 

(2,229)

 

 

531

 

 

2,760

 

 

(2,164)

 

 

596

 

Trade secrets/recipes

 

9.3 years

 

 

630

 

 

(281)

 

 

349

 

 

630

 

 

(270)

 

 

360

 

Brand name intangibles

 

indefinite

 

 

275

 

 

 

 

275

 

 

275

 

 

 

 

275

 

Non-competition agreements

 

5.0 years

 

 

267

 

 

(253)

 

 

14

 

 

267

 

 

(243)

 

 

24

 

Intangibles, net

 

 

 

$

11,572

 

$

(7,283)

 

$

4,289

 

$

11,572

 

$

(6,959)

 

$

4,613

 

 

We anticipate recording amortization expense of approximately $0.9 million for the remainder of fiscal 2016, with $1.1 million for fiscal year 2017 and 2018,  $0.7 million for each of the fiscal year 2019, and $0.2 million for years thereafter, through fiscal year 2023.

 

6.Stock-Based Compensation

 

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 $0.1 million for the three months ended January 31, 2016. 

 

On January 8, 2016, our executive officers were granted a total of 24,582 restricted shares.  These shares have full voting rights and participate in dividends as if unrestricted.  The closing price of our stock on such date was $48.68.  These shares vest in one-third increments, on an annual basis, beginning January 8, 2017. These shares were granted pursuant to our 2011 Management Incentive Plan. The total recognized stock-based compensation expense for these grants was less than $0.1 million for the three months ended January 31, 2016. 

 

Stock options are granted with exercise prices of not less than the fair market value at grant date, generally vest over one to five years and generally expire two to five years after the grant date.  We settle stock option exercises with newly issued shares of common stock.

We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest.  We measure the fair value of our stock based compensation awards on the date of grant.

A summary of stock option activity, related to our 2005 Stock Incentive Plan, is as follows (in thousands, except for per share amounts):

 

12


 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Weighted-Average

    

Aggregate

 

 

 

Number of Shares

 

Exercise Price

 

Intrinsic Value

 

Outstanding at October 31, 2015

 

10

 

$

18.28

 

 

 

 

Outstanding at January 31, 2016

 

10

 

$

18.28

 

$

515

 

Exercisable at January 31, 2016

 

10

 

$

18.28

 

$

515

 

 

At January 31, 2016, outstanding and exercisable stock options had a weighted-average remaining contractual term of 2.9 years.  The total recognized and unrecognized stock-based compensation expense was insignificant for the three months ended January 31, 2016. 

 

A summary of stock option activity, related to our 2011 Management Incentive Plan, is as follows (in thousands, except for per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Weighted-Average

    

Aggregate

 

 

 

 

 

Exercise

 

Intrinsic

 

 

 

Number of Shares

 

Price

 

Value

 

Outstanding at October 31, 2015

 

14

 

$

23.00

 

 

 

 

Outstanding at January 31, 2016

 

14

 

$

23.00

 

$

399

 

Exercisable at January 31, 2016

 

8

 

$

23.06

 

$

227

 

 

At January 31, 2016, outstanding stock options had a weighted-average remaining contractual term of 5.1 years.  At January 31, 2016, exercisable stock options had a weighted-average remaining contractual term of 4.2 years. The total recognized and unrecognized stock-based compensation expense was insignificant for the three ended January 31, 2016. 

 

7.Other events

 

Dividend payment

 

On December 8, 2015, we paid a $0.80 per share dividend in the aggregate amount of $13.9 million to shareholders of record on November 17, 2015.

 

Contingencies

 

In January 2015, various class action lawsuits, which had been consolidated into a single lawsuit during our second fiscal quarter of 2015, were initiated against the company related to the restatement of previously-issued financial statements.  On February 24, 2016, the court agreed with our claim that this case was without merit and dismissed the case with prejudice. 

 

Revolving credit facilities

 

In January 2016, we entered into separate loan amendments with Bank of America, N.A. and Farm Credit West, PCA that extended the expiration dates for our existing revolving credit facilities from February 1, 2016 to June 1, 2016.  We are currently engaged in discussions with prospective lenders regarding a new credit facility. We expect to complete these discussions and finalize a new credit facility before June 1, 2016.

 

8.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).

13


 

 

The following table sets forth our financial assets and liabilities as of January 31, 2016 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

(All amounts are presented in thousands)

 

Assets at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Limoneira Company(1)

 

$

21,745

 

 

-

 

 

-

 

$

21,745

 

Total assets at fair value

 

$

21,745

 

$

-

 

$

-

 

$

21,745

 


(1)

The investment in Limoneira Company consists of marketable securities in the Limoneira Company stock.  We currently own approximately 12% of Limoneira’s outstanding common stock.  These securities are measured at fair value by quoted market prices.  Limoneira’s stock price at January 31, 2016 and October 31, 2015 equaled $12.58 per share and $15.86 per share.  Unrealized gains and losses are recognized through other comprehensive income. Unrealized investment holding losses arising during the three months ended January 31, 2016 and 2015 was $5.7 million and $8.4 million.    

 

 

 

 

 

9.Noncontrolling interest

 

The following table reconciles shareholders’ equity attributable to noncontrolling interest related to Salsa Lisa and Avocados de Jalisco (in thousands). 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

Salsa Lisa noncontrolling interest

 

January 31, 2016

 

January 31, 2015

 

 

 

 

 

 

 

 

Noncontrolling interest, beginning

 

$

285

 

$

270

 

Net loss attributable to noncontrolling interest of Salsa Lisa

 

 

 —

 

 

 —

 

Noncontrolling interest, ending

 

$

285

 

$

270

 

 

 

 

 

vo

 

 

 

 

 

 

 

Avocados de Jalisco noncontrolling interest

 

January 31, 2016

 

January 31, 2015

 

 

 

 

 

 

 

 

Noncontrolling interest, beginning

 

$

1,011

 

$

 —

 

Net income attributable to noncontrolling interest of Avocados de Jalisco

 

 

27

 

 

 —

 

Noncontrolling interest, ending

 

$

1,038

 

$

 —

 

 

 

 

10.Subsequent events

 

We have evaluated subsequent events to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q.  Such events were evaluated through the date these financial statements were issued. 

 

 

14


 

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This information should be read in conjunction with the unaudited consolidated condensed financial statements and the notes thereto included in this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K for the year ended October 31, 2015 of Calavo Growers, Inc. (we, Calavo, or the Company). 

 

Recent Developments

 

Dividend payment

 

On December 8, 2015, we paid a $0.80 per share dividend in the aggregate amount of $13.9 million to shareholders of record on November 17, 2015.

 

Net Sales

 

The following table summarizes our net sales by business segment for each of the three month periods ended January 31, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  January 31, 

 

(in thousands)

 

2016

 

Change

 

2015