UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 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)
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California | 33-0945304 |
(State of incorporation) | (I.R.S. Employer Identification No.) |
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1141-A Cummings Road, Santa Paula, CA | 93060 |
(Address of principal executive offices) | (Zip code) |
Registrant's telephone number, including area code: (805) 525-1245
Securities registered pursuant to Section 12(b) of the Act:
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| Name Of Each Exchange |
Title of Each Class | On Which Registered |
Common Stock, $0.001 Par Value per Share | Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [X] No []
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
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 [X] 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 (§232.0405 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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 [X] 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 [X]
Based on the closing price as reported on the Nasdaq Global Select Market, the aggregate market value of the Registrant's Common Stock held by non-affiliates on April 30, 2016 (the last business day of the Registrant's most recently completed second fiscal quarter) was approximately $866.3 million. Shares of Common Stock held by each executive officer and director and by each shareholder affiliated with a director or an executive officer have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the Registrant's Common Stock as of November 30, 2016 was 17,440,408.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the 2017 Annual Meeting of Shareholders, which we intend to hold on April 26, 2017 are incorporated by reference into Part III of this Form 10-K. The definitive Proxy Statement will be filed within 120 days after October 31, 2016.
CAUTIONARY STATEMENT
This Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, 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 (CG) 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 CG 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 CG'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 "Risk Factors" in Item 1A of this report, and that are otherwise described or updated from time to time in CG's Securities and Exchange Commission reports. CG assumes no obligation and does not intend to update these forward-looking statements .
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PART I
Item 1. Business
General development of the 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, convenience stores, 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. We distribute our products both domestically and internationally and report our operations in three different business segments: Fresh products, Calavo Foods and RFG. See Note 11 in our consolidated financial statements for further information about our business segments. Our principal executive offices are located at 1141-A Cummings Road, Santa Paula, California 93060; telephone (805) 525-1245.
On October 9, 2001, we completed a series of transactions whereby common and preferred shareholders of Calavo Growers of California (the Cooperative), an agricultural marketing cooperative association, exchanged all of their outstanding shares for shares of our common stock. Concurrent with this transaction, the Cooperative was merged into us with Calavo Growers, Inc. (Calavo) emerging as the surviving entity. These transactions had the effect of converting the legal structure of the business from a non-profit cooperative to a for-profit corporation.
In December 2014, Calavo formed a wholly owned subsidiary Calavo Growers De Mexico, S. de R.L. de C.V. (Calavo Growers de Mexico). In July 2015, Calavo Growers de Mexico entered into a Shareholder Agreement with Grupo Belo del Pacifico, S.A. de C.V., (Belo) a Mexican Company owned by Agricola Belher, and Agricola Don Memo, S.A. de C.V. (Don Memo). Don Memo, a Mexican corporation formed in July 2013, is engaged in the business of owning and improving land in Jalisco, Mexico for the growing of tomatoes and other produce and the sale and distribution of tomatoes and other produce. Belo and Calavo Growers de Mexico 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 2016 and 2015, we contributed $2.3 million and $1.0 million as investments in Don Memo. These investment contributions represent Calavo Growers de Mexico's 50% ownership in Don Memo, which is included in investment in unconsolidated entities on our balance sheet. In fiscal 2015 and 2014, we advanced $0.8 million and $3.2 million. These monies totaling $4.0 million, effectively a bridge loan, were repaid in the first quarter of fiscal 2016. In January 2016, Calavo entered into an agreement with Bank of America, N.A. (BoA), essentially guaranteeing a loan made from BoA to Don Memo. See footnote 12 to our consolidated financial statements.
In August 2015, we entered into a Shareholder's Agreement with various partners which 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 in Jalisco, Mexico. This entity is approximately 80% owned by Calavo Growers de Mexico, a wholly owned subsidiary of Calavo, and is consolidated into our financial statements. In the 3 rd fiscal quarter of 2016, Avocados de Jalisco completed the construction of a packinghouse located in Jalisco, Mexico which is expected to be operational in the first quarter of 2017. We invested approximately $10.8 million to construct and equip this new packinghouse.
In fiscal 2016, we expanded and refurbished our plant facilities in Houston, TX and Jacksonville, FL to add additional capacity and in-plant capabilities. We invested approximately $7.3 million into the Houston facility and $13.3 million into the Jacksonville facility.
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Available information
We maintain an Internet website at http://www.calavo.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and other information related to us, are available, free of charge, on our website as soon as reasonably practicable after we electronically file those documents with, or otherwise furnish them to, the Securities and Exchange Commission (SEC). Our Internet website and the information contained therein, or connected thereto, is not and is not intended to be incorporated into this Annual Report on Form 10-K.
We have a code of ethics that applies to all employees, including our executive officers, as well as to the Board of Directors. Our code of ethics is available for review on our corporate website. We intend to disclose any changes in, or waivers from, this code by posting such information on the same website or by filing a Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or NASDAQ.
Fresh products
Calavo was founded in 1924 to market California avocados. In California, the growing area stretches from San Diego County to Monterey County, with the majority of the growing areas located approximately 100 miles north and south of Los Angeles County. The storage life of fresh avocados is limited. It generally ranges from one to four weeks, depending upon the maturity of the fruit, the growing methods used, and the handling conditions in the distribution chain.
We sell avocados to a diverse group of supermarket chains, wholesalers, food service and other distributors, under the Calavo family of brand labels, as well as private labels. From time to time, some of our larger customers seek short-term sales contracts that formalize their pricing and volume requirements. Generally, these contracts contain provisions that establish a price floor and/or ceiling during the contract duration. In our judgment, the shift by our customers to drafting sales contracts benefits large handlers like us, which have the ability to fulfill the terms of these contracts. During fiscal year 2016, our 5 and 25 largest fresh customers represented approximately 15% and 36% of our total consolidated revenues. During fiscal year 2015, our 5 and 25 largest fresh customers represented approximately 18% and 39% of our total consolidated revenues. During fiscal year 2016, 2015 and 2014 none of our fresh customers represented more than 10% of total consolidated revenues.
The Hass variety is the predominant avocado variety marketed on a worldwide basis. Generally, California grown Hass avocados are available year-round, with peak production periods occurring from April through August. Other varieties have a more limited picking season and generally command a lower price. Approximately 1,900 California growers deliver avocados to us, generally pursuant to a standard marketing agreement. Our share of the California avocado crop approximated 28% of the 2016 shipped California avocado crop, based on data published by the California Avocado Commission. We attribute our solid foothold in the California industry principally to the competitiveness of the per pound returns we pay and the communication and service we maintain with our growers.
California avocados delivered to our packinghouses are grouped as a homogenous pool on a weekly basis based on the variety, size, and grade. They are then graded, sized, packed, cooled and, frequently, ripened for delivery to customers. Our ability to estimate the size, as well as the timing of the delivery of the annual avocado crop, has a substantial impact on both our costs and the sales price we receive for the fruit. To that end, our field personnel maintain direct contact with growers and farm managers and coordinate harvest plans. The feedback from our field-managers is used by our sales department to prepare sales plans used by our direct sales force.
A significant portion of our California avocado handling costs is fixed. As a result, significant fluctuations in the volume of avocados delivered have a considerable impact on the per pound packing costs of avocados we handle. Generally, larger crops will result in a lower per pound handling cost. We believe that our cost structure is geared to optimally handle larger avocado crops. Our strategy calls for continued efforts in aggressively recruiting new large growers, retaining existing growers, and procuring a larger percentage of the California avocado crop.
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The proceeds we receive from the sale of each separate avocado pool, net of a packing and marketing fee to cover our costs and a profit, generate the initial amounts considered to be paid back to the growers once a month. The packing and marketing fee we withhold is determined by our Chief Executive Officer and is revised from time to time based on our estimated per pound packing and operating costs, as well as our operating profit. This fee is a fixed rate per pound packed. These amounts are then compared to field quotes provided for each avocado pool, with the resulting final payment determined based on the field quotes to the growers.
The California avocado market is highly competitive with nine major avocado handlers. A marketing order enacted by the state legislature is in effect for California grown avocados and provides the financial resource to fund generic advertising and promotional programs. Avocados handled by us are identifiable through packaging and the Calavo brand name sticker.
We also import avocados from Mexico. We typically purchase Mexican avocados from growers and packers located in Mexico. The purchase price we pay for fruit acquired from Mexican growers is generally negotiated for substantially all the fruit in a particular grove, by bloom. The Mexican avocado crop will typically have three to four blooms in a single year. Once a purchase price is tentatively agreed to, the fruit is then harvested and delivered to our packinghouse located in Uruapan, Michoacán, Mexico. Purchased fruit is harvested and hauled by a number of subcontracted picking companies that we hire. Once delivered, such fruit is weighed, graded, sized, packed, and cooled for shipment, primarily to the United States. Payment for such fruit can be changed from what was initially agreed to if the actual packout does not reach levels forecasted by the grower. Fruit purchased directly from unaffiliated third-party Mexican packers is used as a supplemental source and is packed to our standards for shipment to either our customers' or our operating facilities. In either case, the purchase price of Mexican avocados is generally based on our estimated selling prices of such fruit, less anticipated packing and/or selling costs and our desired margin. We believe these two current sources, in conjunction with the expected opening of our packinghouse in Jalisco, Mexico, allow us to maximize both the timely acquisition, as well as purchase price, of Mexican fruit.
Similar to California avocados, a significant portion of our handling costs for Mexican avocados are fixed. As a result, significant fluctuations in the volume of Mexican avocados delivered to our packinghouse can have a considerable impact on the per pound packing costs of avocados we handle. Generally, larger crops will result in a lower per pound handling cost. In fiscal year 2012, we completed an expansion of our Uruapan packinghouse. This expansion more than doubled our capacity to handle Mexican avocados. We believe that our cost structure for Mexican avocados is geared to optimally handle larger avocado crops.
We believe that our continued success in marketing Mexican 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 the Mexican avocados to our packinghouses and distribution centers. We are subject to USDA and other regulatory inspections to ensure the safety and the quality of the fruit being delivered from Mexico. The Mexican avocado harvest is year round (though generally most significant from September to June). As a result, it is common for Mexican growers to monitor year round the supply of avocados for export to the United States in order to obtain higher field prices. During 2016, we packed and distributed approximately 16% of the avocados exported from Mexico into the United States and approximately 7% of the avocados exported from Mexico to countries outside of North America, based on our estimates.
We have developed a series of marketing and sales initiatives primarily aimed at our largest customers that are designed to differentiate our products and services from those offered by our competitors. Some of these key initiatives are as follows:
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| We continue to have success with our ProRipeVIP™ avocado ripening program. This proprietary program allows us to deliver avocados ~evenly ripened to our customers' specifications. We have invested in TasteTech Near Infrared (NIR) technology and equipment. The most significant reason we invested in the TasteTech systems is because the NIR technology measures internal qualities of the entire piece of fruit, as opposed to competitive mechanical tests that use pressure and calculated averages to measure firmness. We believe that ripened avocados help our customers address the consumers' immediate needs and accelerate the sale of avocados through their stores. We currently have three TasteTech systems in use in the United States, which, we believe, can effectively meet our customers' demand for conditioned fruit. |
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| We have developed various display techniques and packages that appeal to consumers and, in particular, impulse buyers. Some of our techniques include the bagging of avocados and the strategic display of the bags within the produce section of retail stores. Our research has demonstrated that consumers generally purchase a larger quantity of avocados when presented in a bag as opposed to the conventional bulk displays. We also believe that the value proposition of avocados in a bag provides for a higher level of sales to grocery stores. |
Other perishable food products include various other fruit, such as tomatoes, papayas, and pineapples. The majority of our other perishable food sales are generated from tomatoes and papayas. Tomatoes are primarily handled on a consigned basis, while papayas are handled on a pooling basis, generally at a fixed fee per papaya delivered. Sales of our diversified Fresh products generally experience fluctuations related to seasonality. We believe our efforts in distributing our other various types of fruit complement our offerings of avocados.
Calavo Foods
The Calavo Foods segment was originally conceived as a mechanism to stabilize the price of California avocados by reducing the volume of avocados available to the marketplace. In the 1960's and early 1970's, we pioneered the process of freezing avocado pulp and developed a wide variety of guacamole recipes to address the diverse tastes of consumers and buyers in both the retail and food service industries. One of the key benefits of frozen products is their long shelf-life. With the introduction of low cost processed products delivered from Mexican based processors, however, we realigned the segment's strategy by shifting the fruit procurement and pulp processing functions to Mexico.
We utilize ultra-high pressure technology equipment, which is designed to protect and safeguard our avocado and guacamole products without the need of preservatives. Using high pressure only, this procedure substantially destroys the cells of any bacteria that could lead to spoilage, food safety, or oxidation issues. Once the procedure is complete, our packaged guacamole is cased and shipped to various retail, club, and food service customers throughout the markets we service in the U.S and abroad. By fiscal year 2010, we had two ultra-high pressure machines into service. These machines, which are located in Uruapan, pressurize all guacamole product lines, including all frozen products, which begun in fiscal 2010. A 3rd ultra-high pressure machine, with a larger capacity, was put into service during our first fiscal quarter of 2012. We estimate that our actual capacity utilization for all three ultra-high pressure machines for fiscal 2016 to be approximately 90%. In fiscal 2017, we expect to use a qualified co-packer to produce several of our retail and foodservice products. This co-packer will also use ultra-high pressure technology, similar to our existing production, and will be overseen by certain Calavo personnel. We expect our selling capacity to increase materially through the use of this co-packer. Net sales of our ultra-high pressure (fresh refrigerated) products, typically sold to retail customers, represented approximately 50% and 48% of total guacamole products within the Calavo Foods segment sales for the years ended October 31, 2016 and 2015.
Sales in the U.S. and Canada are made principally through a commissioned nationwide broker network, which is supported by our regional sales managers. We believe that our marketing strength is distinguished by providing quality products, innovation, year-round product availability, strategically located warehouses, and market relationships. During fiscal year 2016, our 5 and 25 largest processed product customers represented approximately 3% and 6% of our total consolidated revenues. During fiscal year 2015, our 5 and 25 largest processed product customers represented approximately 3% and 5% of our total consolidated revenues. During fiscal years 2016, 2015 and 2014 none of our processed product customers represented more than 10% of total consolidated revenues.
RFG
Acquired in June of 2011, Renaissance Food Group, LLC (RFG) is a leader in the fast-growing refrigerated fresh packaged foods category. RFG produces, markets, and distributes nationally a portfolio of healthy, high quality fresh packaged food products for consumers via the retail channel, including national and regional supermarkets, club stores, mass merchandisers, convenience stores, and specialty/natural retailers. As a leader in refrigerated fresh packaged foods, RFG utilizes a network of company-operated and independently-operated USDA and organic certified fresh food facilities strategically located across the U.S. These facilities allow RFG to offer national retailers high quality, refrigerated fresh foods that can be delivered within hours from time of production. Consumer demand is high for
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quality refrigerated fresh packaged foods and RFG's speed to market, product innovation and broad product range positions the Company well to serve retailers addressing this consumer trend. RFG products include fresh prepared 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 behind-the-deli glass meal and salad kits. RFG products are marketed under the Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef Essentials as well as store-brand, private label programs. Backed by Calavo's resources, the business unit continues to expand its footprint in the retail grocery channel During fiscal year 2016, our 5 and 25 largest RFG product customers represented approximately 25% and 36% of our total consolidated revenues. During fiscal year 2015, our 5 and 25 largest RFG product customers represented approximately 23% and 33% of our total consolidated revenues. During fiscal year 2016, RFG had one customer that represented more than 10% of total consolidated revenues. During fiscal years 2015 and 2014, none of our RFG product customers represented more than 10% of total consolidated revenues.
Sales and Other Financial Information by Business Segment and Product Category
Sales and other financial information by business segment are provided in Note 11 to our consolidated financial statements that are included in this Annual Report.
Patents and Trademarks
Our trademarks include the Calavo and RFG brand name and related logos. We also utilize the following trademarks in conducting our business: Avo Fresco, Bueno, Calavo Gold, Calavo Salsa Lisa, Salsa Lisa, Celebrate the Taste, El Dorado, Fresh Ripe, Select, Taste of Paradise, The First Name in Avocados, Tico, Mfresh, Maui Fresh International, Triggered Avocados, ProRipeVIP™, Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef Essentials.
Working Capital Requirements
Generally, we make payments to our avocado growers and other suppliers in advance of collecting all of the related accounts receivable. We generally bridge the timing between vendor payments and customer receipts by using operating cash flows and commercial bank borrowings. In addition, we provide crop loans and other advances to some of our growers, which are also funded through operating cash flows and borrowings.
Non-California sourced avocados and other perishable food products often require working capital to finance the payment of advances to suppliers and collection of accounts receivable. These working capital needs are also financed through the use of operating cash flows and bank borrowings.
With respect to our Calavo Foods business, we require working capital to finance the production of our processed avocado products, building and maintaining an adequate supply of finished product, and collecting our accounts receivable balances. These working capital needs are financed through the use of operating cash flows and bank borrowings.
Backlog
Our customers do not place product orders significantly in advance of the requested product delivery dates. Customers typically order perishable products two to ten days in advance of shipment, and typically order Calavo Foods within thirty days in advance of shipment.
Research and Development
Prior to the acquisition of RFG, we did not undertake significant research and development efforts. Research and development programs, if any, were limited to the continuous process of refining and developing new techniques to enhance the effectiveness and efficiency of our Calavo Foods operations and the handling, ripening, storage, and packing of fresh avocados. With the acquisition of RFG, however, we have increased research and development for new and improved products which is driven by customer requests, changes in product specifications, customer and market
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research and/or innovative ideas generated by our own team of experts with food processing and culinary backgrounds. We solicit customer and supplier input, review process and product trends and conduct sensory and shelf life testing, all to expand the category and drive new sales for our customers. In fiscal year 2014, with the consolidation of FreshRealm, we had an increased emphasis on research and development. Much of the research and development for FreshRealm was on a re-usable shipping container, which includes designing and the testing of prototypes, testing packing efficiency, gathering consumer feedback, thermal research, and testing the longevity and reusability of the containers. We deconsolidated FreshRealm in the third quarter of fiscal 2014. Research and development costs are charged to expense when incurred. Total research and development costs for fiscal years 2016 and 2015 were insignificant. Total research and development costs for fiscal years 2014 were approximately $0.8 million.
Compliance with Government Regulations
The California State Department of Food and Agriculture oversees the packing and processing of California avocados and conducts tests for fruit quality and packaging standards. All of our packages are stamped with the state seal as meeting standards. Various states have instituted regulations providing differing levels of oversight with respect to weights and measures, as well as quality standards.
As a manufacturer and marketer of processed avocado products, our operations are subject to extensive regulation by various federal government agencies, including the Food and Drug Administration (FDA), the USDA and the Federal Trade Commission (FTC), as well as state and local agencies, with respect to production processes, product attributes, packaging, labeling, storage and distribution. Under various statutes and regulations, these agencies prescribe requirements and establish standards for safety, purity and labeling. In addition, advertising of our products is subject to regulation by the FTC, and our operations are subject to certain health and safety regulations, including those issued under the Occupational Safety and Health Act. Our manufacturing facilities and products are subject to periodic inspection by federal, state and local authorities.
As a result of our agricultural and food processing activities, we are subject to numerous environmental laws and regulations. These laws and regulations govern the treatment, handling, storage and disposal of materials and waste and the remediation of contaminated properties.
We seek to comply at all times with all such laws and regulations and to obtain any necessary permits and licenses, and we are not aware of any instances of material non-compliance. We believe our facilities and practices are sufficient to maintain compliance with applicable governmental laws, regulations, permits and licenses.
Employees
As of October 31, 2016, we had 2,096 employees, of which 681 were located in the United States and 1,415 were located in Mexico. We do not have a significant number of United States employees covered by a collective bargaining agreement. Approximately 1,250 of Calavo's Mexican employees are represented by a union. We consider the relationship with our employees to be good and we have never experienced a significant work stoppage.
The following is a summary of the number of "salaried" and "hourly" employees as of October 31, 2016.
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Location |
| Salaried |
| Hourly |
| Total |
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United States |
| 198 |
| 483 |
| 681 |
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Mexico |
| 167 |
| 1,248 |
| 1,415 |
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TOTAL |
| 365 |
| 1,731 |
| 2,096 |
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Item 1A. Risk Factors
Risks Related to Our Business
We are subject to increasing competition that may adversely affect our operating results.
The market for avocados and processed avocado products is highly competitive and affects each of our businesses. Each of our businesses is subject to competitive pressures, including the following:
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| California avocados are impacted by an increasing volume of foreign grown avocados being imported into the United States. Recently, there have been significant plantings of avocados in Mexico, Chile, the Dominican Republic, Peru and other parts of the world, which have had, and will continue to have, the effect of increasing the volume of foreign grown avocados entering the United States market. |
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| California avocados are subject to competition from other California avocado handlers. If we are unable to consistently pay California growers a competitive price for their avocados, these growers may choose to have their avocados marketed by alternate handlers. |
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| Non-California sourced avocados and perishable food products are impacted by competitors operating in Mexico. Generally, handlers of Mexican grown avocados operate facilities that are substantially smaller than our facility in Uruapan, Mexico. If we are unable to pack and market a sufficient volume of Mexican grown avocados, smaller handlers will have a lower per unit cost and be able to offer Mexican avocados at a more competitive price to our customers. |
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| Non-California sourced avocados and perishable food products are also subject to competition from other California avocado handlers that market Chilean and Peruvian grown avocados. |
We are subject to the risks of doing business internationally.
We conduct a substantial amount of business with growers and customers who are located outside the United States. We purchase avocados from foreign growers and packers, sell fresh avocados and processed avocado products to foreign customers, and operate a packinghouse and a processing plant in Mexico. In the most recent years, there has been an increase in organized crime in Mexico. This has not had a significant impact on our operations, but this does increase the risk of doing business in Mexico. We are also subject to regulations imposed by the Mexican government, and also to examinations by the Mexican tax authorities. Significant changes to these government regulations and to assessments by the Mexican tax authorities can have a negative impact on our operations and operating results in Mexico. For additional information about our Mexican sourced fruit, see the "Business" section included in this Annual Report.
Our current international operations are subject to a number of inherent risks, including:
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| Local economic and political conditions, including disruptions in supply, trading and capital markets; |
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| Restrictive foreign governmental actions, such as restrictions on transfers of funds and trade protection measures, including export duties and quotas and customs duties and tariffs; and |
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| Changes in legal or regulatory requirements affecting foreign investment, loans, taxes (including value-added taxes), imports, and exports. |
Currency exchange fluctuations may impact the results of our operations.
Currency exchange rate fluctuations, depending upon the nature of the changes, may make our domestic-sourced products more expensive compared to foreign grown products or may increase our cost of obtaining foreign-sourced products. Because we do not hedge against our foreign currency exposure, our business has increased susceptibility to foreign currency fluctuations.
We and our growers are subject to the risks that are inherent in farming.
Our results of operations may be adversely affected by numerous factors over which we have little or no control and that are inherent in farming, including reductions in the market prices for our products, adverse weather and growing
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conditions, pest and disease problems, and new government regulations regarding farming and the marketing of agricultural products.
Our earnings are sensitive to fluctuations in market prices and demand for our products.
Excess supplies often cause severe price competition in our industry. Growing conditions in various parts of the world, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product.
Fresh produce is highly perishable and generally must be brought to market and sold soon after harvest. The selling price received for each type of produce depends on all of these factors, including the availability and quality of the produce item in the market, and the availability and quality of competing types of produce.
In addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. To the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products.
Increases in commodity or raw product costs, such as fuel, packaging, and paper, could adversely affect our operating results.
Many factors may affect the cost and supply of fresh produce, including external conditions, commodity market fluctuations, currency fluctuations, changes in governmental laws and regulations, agricultural programs, severe and prolonged weather conditions and natural disasters. Increased costs for purchased fruit have in the past negatively impacted our operating results, and there can be no assurance that they will not adversely affect our operating results in the future.
The price of various commodities can significantly affect our costs. Fuel and transportation cost is a significant component of the price of much of the produce that we purchase from growers, and there can be no assurance that we will be able to pass on to our customers the increased costs we incur in these respects.
The cost of paper is also significant to us because most of our products are packed in cardboard boxes. If the price of paper increases and we are not able to effectively pass these price increases along to our customers, then our operating income will decrease.
We are subject to the risk of product liability claims.
The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image.
We are subject to possible changing USDA and FDA regulations which govern the importation of foreign avocados into the United States and the processing of processed avocado products.
The USDA has established, and continues to modify, regulations governing the importation of avocados into the United States. Our permits that allow us to import foreign-sourced avocados into the United States generally are contingent on our compliance with these regulations. Our results of operations may be adversely affected if we are unable to comply with existing and modified regulations and are unable to secure avocado import permits in the future.
10
The FDA establishes, and continues to modify, regulations governing the production of processed avocado products, such as the new Food Safety Modernization Act, which implements mandatory preventive controls for food facilities and compliance with mandatory produce safety standards. Our results of operations may be adversely affected if we are unable to comply with these existing and modified regulations.
If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis.
From time to time we may dispose of properties in transactions that are intended to qualify as tax deferred exchanges under Section 1031 (Section 1031 Exchanges). It is possible that the qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable. In addition, if a Section 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicable year in question, including any information reports we sent our stockholders. Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to Section 1031Exchanges, which could make it more difficult or not possible for us to dispose of properties on a tax deferred basis.
The acquisition of other businesses could pose risks to our operating income.
We intend to review acquisition prospects that would complement our business. While we are not currently a party to any agreement with respect to any acquisitions, we may acquire other businesses in the future. Future acquisitions by us could result in accounting charges, potentially dilutive issuances of equity securities, and increased debt and contingent liabilities, any of which could have a material adverse effect on our business and the market price of our common stock. Acquisitions entail numerous risks, including the integration of the acquired operations, diversion of management's attention to other business concerns, risks of entering markets in which we have limited prior experience, and the potential loss of key employees of acquired organizations. We may be unable to successfully integrate businesses or the personnel of any business that might be acquired in the future, and our failure to do so could have a material adverse effect on our business and on the market price of our common stock.
Our ability to competitively serve our customers is a function of reliable and low cost transportation. Disruption of the supply of these services and/or significant increases in the cost of these services could impact our operating income.
We use multiple forms of transportation to bring our products to market. They include ocean, truck, and air-cargo. Disruption to the timely supply of these services or dramatic increases in the cost of these services for any reason including availability of fuel for such services, labor disputes, or governmental restrictions limiting specific forms of transportation could have an adverse effect on our ability to serve our customers and consumers and could have an adverse effect on our financial performance.
We depend on our infrastructure to have sufficient capacity to handle our annual production needs.
We have an infrastructure that has sufficient capacity for our production needs, but if we lose machinery or facilities due to natural disasters or mechanical failure, we may not be able to operate at a sufficient capacity to meet our production needs. This could have a material adverse effect on our business, which could impact our results of operations and our financial condition.
We depend on our key personnel and if we lose the services of any of these individuals, or fail to attract and retain additional key personnel, we may not be able to implement our business strategy or operate our business effectively.
Our future success largely depends on the contributions of our management team. We believe that these individuals' expertise and knowledge about our industry and their respective fields and their relationships with other individuals in our industry are critical factors to our continued growth and success. We do not carry key person insurance. The loss of the services of any member of our senior management team could have a material adverse effect on our business and
11
prospects. Our success also depends upon our ability to attract and retain additional qualified sales, marketing and other personnel.
A portion of our workforce is unionized and labor disruptions could decrease our profitability.
While we believe that our relations with our employees are good, we cannot assure you that we will be able to negotiate collective bargaining agreements on favorable terms, or at all, and without production interruptions, including labor stoppages. A prolonged labor dispute, which could include a work stoppage, could have a material adverse effect on the portion of our business affected by the dispute, which could impact our business, results of operations and financial condition.
System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our internal operations or services provided to customers, and any such disruption could reduce our expected revenue, increase our expenses, damage our reputation and adversely affect our stock price.
Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including "bugs" and other problems that could unexpectedly interfere with the operation of the system. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.
Portions of our IT infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales, lower margins or lost customers resulting from these disruptions have adversely affected in the past, and in the future could adversely affect, our financial results, stock price and reputation.
Risks Related to Our Common Stock
The value of our common stock may be adversely affected by market volatility.
The trading price of our common stock fluctuates and may be influenced by many factors, including:
| · |
| Our operating and financial performance and prospects; |
| · |
| The depth and liquidity of the market for our common stock; |
| · |
| Investor perception of us and the industry and markets in which we operate; |
| · |
| Our inclusion in, or removal from, any equity market indices; |
| · |
| Changes in earnings estimates or buy/sell recommendations by analysts; and |
| · |
| General financial, domestic, international, economic and other market conditions; |
Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from executing our growth strategy.
The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on many factors, including:
| · |
| Market acceptance of our products; and |
| · |
| The existence of opportunities for expansion. |
12
If our capital resources are not sufficient to satisfy our liquidity needs, we may seek to sell additional equity or obtain additional debt financing. The sale of additional equity would result in dilution to our shareholders. Additional debt would result in increased expenses and could result in covenants that would restrict our operations. With the exception of our existing credit facility, we have not made arrangements to obtain additional financing. We may not be able to obtain additional financing, if required, in amounts or on terms acceptable to us, or at all.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease our corporate headquarters building from Limoneira Company (Limoneira) located in Santa Paula, California. In addition, RFG leases their corporate office in Ranch Cordova, California. We have numerous facilities throughout the United States, and three facilities in Mexico. See the following table for a summary of our locations:
United States Locations:
Packinghouses:
|
|
|
|
|
|
|
|
Leased or Owned: |
| City |
| State |
| Description |
|
Owned |
| Santa Paula |
| California |
| Primarily handles California and Mexican avocados. The facility was purchased in 1955 and has been improved in capacity and efficiency since then. This facility operates substantially similar to our Temecula facility. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs. |
|
|
|
|
|
|
|
|
|
Owned |
| Temecula |
| California |
| Primarily handles California and Mexican avocados. The facility was built in 1985 and has been improved in capacity and efficiency since then. This facility operates substantially similar to our Santa Paula facility. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs. |
|
13
Operating and Distributing Facilities:
|
|
|
|
|
|
|
|
Leased or Owned: |
| City |
| State |
| Description |
|
Owned |
| Santa Paula |
| California |
| Primarily ripens, sorts, packs and ships fresh avocados. We sort and pack certain diversified commodities as well. We believe that the annual capacity of this facility will be sufficient to pack and ripen, if necessary, its expected annual volume of avocados and specialty commodities delivered to us. |
|
|
|
|
|
|
|
|
|
Leased |
| Swedesboro |
| New Jersey |
| Primarily ripens, sorts, packs, and ships avocados. Additionally, it also serves to store and ship certain tropical commodities, as well as ready-to-eat/heat deli and prepared guacamole products. In 2016, we increased this facility's ripe room capacity by 50%, and doubled its bagging capacity. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs. |
|
|
|
|
|
|
|
|
|
Leased |
| Garland |
| Texas |
| Primarily ripens, sorts, packs and ships fresh avocados. Additionally, it also serves to store and ship prepared guacamole products as well. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs. |
|
|
|
|
|
|
|
|
|
Leased |
| Jacksonville |
| Florida |
| Opened in the first fiscal quarter of 2016, this facility ripens, sorts, packs and ships fresh avocados and stores and ships prepared guacamole. This facility also processes cut fruits and vegetables, salads, sandwiches, and wraps. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs. |
|
|
|
|
|
|
|
|
|
Leased |
| Nogales |
| Arizona |
| Primarily ripens, sorts, packs and ships, tomatoes, and other diversified commodities. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs. |
|
|
|
|
|
|
|
|
|
Leased |
| Hilo |
| Hawaii |
| Primarily sorts, packs, and ships papayas. We believe that the annual capacity will be sufficient to handle its forecasted annual production needs. |
|
|
|
|
|
|
|
|
|
Owned |
| Hilo |
| Hawaii |
| Primarily provides irradiation services for produce grown in Hawaii. We believe that the annual capacity will be sufficient to handle its forecasted annual production needs. |
|
|
|
|
|
|
|
|
|
Leased |
| St. Paul |
| Minnesota |
| CSL facility that produces salsa. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs. |
|
|
|
|
|
|
|
|
|
Leased |
| Houston |
| Texas |
| RFG facility that primarily processes cut fruits and vegetables, salads, sandwiches, and wraps. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs.
|
|
|
|
|
|
|
|
|
|
Leased |
| Sacramento |
| California |
| RFG facility that primarily processes cut fruits and vegetables, salads, sandwiches, and wraps. We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs. |
|
14
Mexico Locations:
Packinghouse and Processing Facility:
|
|
|
|
|
|
|
|
Leased or Owned: |
| City |
| State |
| Description |
|
Owned |
| Uruapan |
| Michoacan |
| Our Calavo Foods processing facility produces our guacamole products. While we believe this capacity is reasonable give our current sales, we are considering various plans to meet our future expected growth. |
|
|
|
|
|
|
|
|
|
Owned |
| Uruapan |
| Michoacan |
| Handles avocados delivered to us by Mexican growers. The facility was built in 1985 and has been significantly improved in capacity and efficiency since then. We believe that the annual capacity of this facility will be sufficient to process its forecasted annual production needs.
|
|
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|
|
|
|
|
|
|
Owned |
| Ciudad Guzman |
| Jalisco |
| Construction of this packinghouse was completed in the third fiscal quarter of 2016, and is expected to be operational in calendar 2017. We believe that the annual capacity of this facility will be sufficient to process its forecasted annual production needs. |
|
Item 3. Legal Proceedings
See Note 8 of our consolidated financial statements for further information.
Item 4. Mine Safety Disclosures
Not applicable
Executive Officers of the Registrant
The following table sets forth the name, age and position of individuals who hold positions as executive officers of our company. There are no family relationships between any director or executive officer and any other director or executive officer of our company. Executive officers are elected by the Board of Directors and serve at the discretion of the Board.
|
|
|
|
|
Name |
| Age |
| Position |
Lecil E. Cole |
| 77 |
| Chairman of the Board and Chief Executive Officer |
Kenneth J. Catchot |
| 53 |
| Chief Operating Officer and President |
B. John Lindeman |
| 46 |
| Chief Financial Officer and Corporate Secretary |
Robert J. Wedin |
| 67 |
| Vice President, Sales and Fresh Marketing |
Alan C. Ahmer |
| 68 |
| Vice President, Processed Product Sales and Production |
Michael A. Browne |
| 58 |
| Vice President, Fresh Operations |
Lecil E. Cole has been a member of our board of directors since February 1982 and has served as Chairman of the Board since 1988. Mr. Cole has also served as our Chief Executive Officer and President since February 1999. He served as an executive of Safeway Stores from 1964 to 1976 and as Chairman of Central Coast Federal Land Bank from 1986 to 1996. Mr. Cole has served as Chairman and President of Hawaiian Sweet, Inc. and Tropical Hawaiian Products, Inc. since 1996. Mr. Cole farms approximately 4,400 acres in California on which avocados and cattle are produced and raised.
15
Kenneth J. Catchot has served as our President and Chief Operating Officer since June 2015. Mr. Catchot co-founded RFG in 2003 and has served as an officer of RFG since 2003. In January 2017, Mr. Catchot will resign as President and Chief Operating Officer. Following Mr. Catchot's resignation, Mr. Cole will serve as our President in addition to continuing to serve as our Chief Executive Officer and Chairman of the Board of Directors.
B. John Lindeman has served as our Chief Financial Officer and Corporate Secretary since August 2015. Prior to joining Calavo, Mr. Lindeman served as Managing Director at Sageworth Trust Company. Prior to joining Sageworth, Mr. Lindeman served as Managing Director at Janney Montgomery Scott from August 2009 to March 2015. Prior to joining Janney, Mr. Lindeman served as Managing Director at Stifel Nicolaus from December 2005 to August 2009 and as Principal at Legg Mason from October 1999 to December 2005. Prior to joining Legg Mason, Mr. Lindeman was Manager at PricewaterhouseCoopers LLP.
Robert J. Wedin has served as our Vice President since 1993. Mr. Wedin joined us in 1973 at our then Santa Barbara packinghouse. Beginning in 1990, Mr. Wedin served as a director of the California Avocado Commission for a period of ten years. Mr. Wedin currently is a board member of Producesupply.org and serves as a member of that organization's executive committee.
Alan C. Ahmer has served as our Vice President since 1989. Mr. Ahmer joined us in 1979 as a regional sales manager in our Calavo Foods business. In September 2003, Mr. Ahmer's new title became Vice-President, Calavo Foods Sales and Production.
Michael A. Browne has served as our Vice President since 2005. From 1997 until joining us, Mr. Browne served as the founder and co-owner of Fresh Directions International, a closely held multinational fresh produce company, which marketed fresh avocados from Mexico, Chile, and the Dominican Republic. Mr. Browne joined us in May 2005.
PART II
Item 5. 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 2016 |
| High |
| Low |
| ||
First Quarter |
| $ | 56.58 |
| $ | 48.12 |
|
Second Quarter |
| $ | 57.54 |
| $ | 47.64 |
|
Third Quarter |
| $ | 67.43 |
| $ | 55.10 |
|
Fourth Quarter |
| $ | 69.78 |
| $ | 58.78 |
|
|
|
|
|
|
|
|
|
Fiscal 2015 |
| High |
| Low |
| ||
First Quarter |
| $ | 48.73 |
| $ | 38.83 |
|
Second Quarter |
| $ | 52.85 |
| $ | 39.46 |
|
Third Quarter |
| $ | 56.67 |
| $ | 49.95 |
|
Fourth Quarter |
| $ | 60.50 |
| $ | 44.09 |
|
As of November 30, 2016, there were approximately 854 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".
16
Dividend Policy
Our dividend policy is to provide for an annual dividend payment, as determined by the Board of Directors. We anticipate paying dividends in the first quarter of our fiscal year.
On December 8, 2016, we paid a $0.90 per share dividend in the aggregate amount of $15.7 million to shareholders of record on November 17, 2016.
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.
17
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data (other than pounds information) for each of the years in the five-year period ended October 31, 2016, 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.
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|
|
|
|
|
|
| Fiscal Year Ended October 31, |
| |||||||||||||
|
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| |||||
|
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|
|
|
|
|
|
|
|
|
|
|
| |||
|
| (In thousands, except per share data) |
| |||||||||||||
Income Statement Data: (1)(2)(5)(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 935,679 |
| $ | 856,824 |
| $ | 782,510 |
| $ | 691,451 |
| $ | 551,119 |
|
Gross margin |
|
| 107,534 |
|
| 85,227 |
|
| 71,228 |
|
| 59,448 |
|
| 60,665 |
|
Selling, general and administrative |
|
| 46,440 |
|
| 41,558 |
|
| 36,605 |
|
| 33,485 |
|
| 32,714 |
|
Net income attributable to Calavo Growers, Inc. |
|
| 38,022 |
|
| 27,199 |
|
| 97 |
|
| (1,795) |
|
| 15,802 |
|
Basic net income per share |
| $ | 2.19 |
| $ | 1.57 |
| $ | 0.01 |
| $ | (0.12) |
| $ | 1.07 |
|
Diluted net income per share |
| $ | 2.18 |
| $ | 1.57 |
| $ | 0.01 |
| $ | (0.12) |
| $ | 1.05 |
|
Balance Sheet Data as of End of Period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
| $ | 25,612 |
| $ | 18,964 |
| $ | 22,047 |
| $ | (3,252) |
| $ | 1,287 |
|
Total assets |
|
| 327,933 |
|
| 284,945 |
|
| 283,464 |
|
| 239,810 |
|
| 207,787 |
|
Accrued expenses |
|
| 31,095 |
|
| 21,311 |
|
| 25,303 |
|
| 36,541 |
|
| 30,554 |
|
Current portion of long-term obligations |
|
| 138 |
|
| 2,206 |
|
| 5,099 |
|
| 5,258 |
|
| 5,416 |
|
Long-term obligations, less current portion |
|
| 445 |
|
| 586 |
|
| 2,791 |
|
| 7,792 |
|
| 13,039 |
|
Shareholders' equity |
|
| 215,069 |
|
| 185,982 |
|
| 179,406 |
|
| 119,093 |
|
| 102,719 |
|
Cash Flows Provided by (Used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations |
| $ | 61,968 |
| $ | 37,283 |
| $ | 24,547 |
| $ | 13,712 |
| $ | 22,011 |
|
Investing(2)(4) |
|
| (21,731) |
|
| (21,054) |
|
| (21,753) |
|
| (7,746) |
|
| (7,449) |
|
Financing(4) |
|
| (33,566) |
|
| (15,802) |
|
| (4,069) |
|
| (5,050) |
|
| (10,233) |
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share |
| $ | 0.90 |
| $ | 0.80 |
| $ | 0.75 |
| $ | 0.70 |
| $ | 0.65 |
|
Net book value per share |
| $ | 12.33 |
| $ | 10.70 |
| $ | 10.37 |
| $ | 7.58 |
| $ | 6.90 |
|
Pounds of California avocados sold |
|
| 109,545 |
|
| 75,538 |
|
| 74,438 |
|
| 141,400 |
|
| 127,145 |
|
Pounds of non-California avocados sold |
|
| 278,200 |
|
| 312,710 |
|
| 258,940 |
|
| 218,244 |
|
| 174,995 |
|
Pounds of processed avocados products sold |
|
| 26,773 |
|
| 27,182 |
|
| 26,451 |
|
| 21,636 |
|
| 17,341 |
|
| (1) |
| In July 2013, we entered into an Amended and Restated Limited Liability Company Agreement of FreshRealm. When we deconsolidated FreshRealm (see below), principal operations had not yet commenced. As a result, FreshRealm had no sales or cost of sales. FreshRealm had incurred $1.0 million and $1.9 million of expenses related to its development as of October 31, 2014 and 2013, which are included in selling, general and administrative expenses. |
| (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. In September 2016, we contributed an additional $1.6 million as an investment in FreshRealm. Our total investment of $19.4 million in FreshRealm has been recorded as investment in unconsolidated subsidiaries on our balance sheet. |
| (3) |
| In July 2015, Calavo Growers de Mexico entered into a Shareholder Agreement with Belo a Mexican Company owned by Agricola Belher, and Don Memo. Don Memo, a Mexican corporation created in July 2013, is engaged in |
18
the business of owning and improving land in Jalisco, Mexico for the growing of tomatoes and other produce and the sale and distribution of tomatoes and other produce. In fiscal 2013, 2015 and 2016, we contributed $1.0 million, $1.0 million and $2.3 million as investments in Don Memo. In fiscal 2014 and 2015, we advanced $3.2 million and $0.8 million. These monies totaling $4.0 million, effectively a bridge loan, were repaid in the first quarter of fiscal 2016. We had recorded such loans in prepaids and other current assets. |
| (4) |
| Cost of Sales for fiscal 2014, 2013, and 2012 include non-cash compensation expense related to the acquisition of RFG totaling $1.8 million, $0.7 million, and an insignificant amount. These non-cash expenses will not continue into fiscal 2015 nor beyond. |
| (5) |
| Selling, General, and Administrative expenses for fiscal 2014, 2013 and 2012 include non-cash compensation expense related to the acquisition of RFG totaling $0.7 million, $0.3 million, and an insignificant amount. These non-cash expenses will not continue into the future. |
| (6) |
| Included in accrued liabilities as of October 31, 2013 and 2012 is a non-cash, contingent consideration liability totaling $15.6 million and $11.2 million related to the acquisition of RFG. This liability resolved during fiscal 2014 and will not continue in the future. |
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Consolidated Financial Data" and our consolidated financial statements and notes thereto that appear elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those presented under "Risks related to our business" included in Item 1A and elsewhere in this Annual Report.
Overview
We are a leader in the distribution of avocados, prepared avocado products, and other perishable food products throughout the United States. Our expertise in marketing and distributing avocados, prepared avocados, and other perishable foods allows us to deliver a wide array of fresh and prepared food products to food distributors, produce wholesalers, supermarkets, and restaurants on a worldwide basis. We procure avocados principally from California 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. We report our operations in three different business segments: (1) Fresh products, (2) Calavo Foods and (3) RFG. See Note 11 to our consolidated financial statements for further discussion.
Our Fresh products business grades, sizes, packs, cools, and ripens (if desired) avocados for delivery to our customers. During fiscal 2016, we operated two packinghouses and four operating and distributing facilities that handle avocados across the United States. These packinghouses handled approximately 28% of the California avocado crop during the 2016 fiscal year, based on data obtained from the California Avocado Commission. Our operating results are highly dependent on the volume of avocados delivered to our packinghouses, as a significant portion of our costs are fixed. Our strategy calls for continued efforts to retain and recruit growers that meet our business model. Additionally, our Fresh products business also procures avocados grown in Mexico, as well as other various perishable foods, including tomatoes and papayas. Based on our estimates, we handled approximately 16% of the Mexican avocado crop bound for the United States market and approximately 7% of the avocados exported from Mexico to countries outside of North America during the 2015-2016 Mexican season through the operation of our packinghouse in Mexico and fruit purchased from co-packers. Our strategy is to increase our market share of currently sourced avocados to help meet anticipated demand. We believe our diversified avocado sources provide a level of supply stability that may, over time, help solidify the demand for avocados among consumers in the United States and elsewhere in the world. We believe our efforts in distributing our other various perishable foods, such as those mentioned above, complement our offerings of avocados. From time to time, we continue to explore distribution of other crops that provide reasonable returns to the business.
Our Calavo Foods business procures avocados, processes avocados into a wide variety of guacamole products, and distributes the processed product to our customers. All of our prepared avocado products shipped to North America are "cold pasteurized" and include both frozen and fresh guacamole. Due to the long shelf-life of our frozen guacamole and the purity of our fresh guacamole, we believe that we are well positioned to address the diverse taste and needs of today's customers. Additionally, we also prepare various fresh salsa products. 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 50% and 52% of total processed segment sales for the years ended October 31, 2016 and 2015. Net sales of our refrigerated products represented approximately 50% and 48% of total processed segment sales for the years ended October 31, 2016 and 2015.
Our RFG business produces, markets and distributes nationally a portfolio of healthy, high quality fresh packaged food products for consumers via the retail channel. RFG products include fresh prepared fruit and vegetables, fresh prepared entrée salads, wraps, sandwiches and fresh snacking products as well as ready-to-heat entrees and other hot bar
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and behind-the-deli glass meal and salad kits. RFG products are marketed under the Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef Essentials as well as store-brand, 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, such as pests and disease, weather patterns, changes in demand by consumers, the timing of the receipt, reduction, or cancellation of significant customer orders, the gain or loss of significant customers, market acceptance of our products, our ability to develop, introduce, and market new products on a timely basis, availability and cost of avocados and supplies from growers and vendors, new product introductions by our competitors, change in the mix of avocados and Calavo Foods and RFG products we sell, and general economic conditions. We believe, however, that we are currently positioned to address these risks and deliver favorable operating results for the foreseeable future.
Recent Developments
Dividend Payment
On September 27, 2016, the Company declared a $0.90 per share cash dividend to shareholders of record on November 17, 2016. On December 8, 2016, the Company paid this cash dividend which totaled $15.7 million.
Houston and Jacksonville Facilities
In fiscal 2016, we expanded and refurbished our plant facilities in Houston, TX and Jacksonville, FL to add additional production capacity and in-plant capabilities. We invested approximately $7.3 million into the Houston facility and $13.3 million into the Jacksonville facility.
Mexico tax audits
We conduct business internationally and, as a result, one or more of our subsidiaries files income tax returns in U.S. federal, U.S. state and certain foreign jurisdictions. Accordingly, in the normal course of business, we are subject to examination by taxing authorities, primarily in Mexico and the United States. During our third quarter of fiscal 2016, our wholly-owned subsidiary, Calavo de Mexico ("CDM"), received a written communication from the Ministry of Finance and Administration of the government of the State of Michoacan, Mexico ("MFM") containing preliminary observations related to a fiscal 2011 tax audit of such subsidiary. MFM's preliminary observations outline certain proposed adjustments primarily related to intercompany funding, deductions for services from certain vendors/suppliers and Value Added Tax ("VAT"). During our fourth fiscal quarter of 2016, we provided a written rebuttal to MFM's preliminary observations and requested the adoption of a conclusive agreement before the PRODECON (Local Tax Ombudsman) so that a full discussion of the case between us, the MFM and the PRODECON can occur and so that, as appropriate, the MFM can reconsider their findings. Note that until such discussion occurs, the normal period during which the MFM would issue its final assessment (previously expected no later February 2017) has been suspended. Though a formal meeting date has not yet been determined, the discussion between us, the MFM and the PRODECON is expected to start in calendar 2017.
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. Under Mexican law, the SAT has u ntil approximately March 2017 to complete their review. In conjunction with their examination, the SAT has requested information though no formal findings have yet been received.
We believe that the ultimate resolution of these matters is unlikely to have a material effect on our consolidated financial position.
From time to time, we are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements.
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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, 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. A 1% change in the derived percentage for the entire year would impact results of operations by approximately $0.7 million.
Income taxes. We account for deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of our assets and liabilities result in a deferred tax asset, we perform an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, we record additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from management's estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.
Goodwill and acquired intangible assets . 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. Goodwill impairment testing is a
22
two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test would be unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. The estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. We performed our annual assessment of goodwill and determined that no impairment existed as of October 31, 2016.
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:
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| Year ended October 31, |
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| 2016 |
| 2015 |
| 2014 |
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Net sales |
| 100 | % | 100 | % | 100 | % |
Gross margins |
| 11.5 | % | 9.9 | % | 9.1 | % |
Selling, general and administrative |
| 5.0 | % | 4.9 | % | 4.7 | % |
Contingent consideration related to RFG acquisition |
| 0.0 | % | 0.0 | % | 6.5 | % |
Operating income |
| 6.5 | % | 5.1 | % | (2.1) | % |
Interest income |
| 0.0 | % | 0.0 | % | 0.0 | % |
Interest expense |
| (0.1) | % | (0.1) | % | (0.1) | % |
Other income, net |
| 0.0 | % | 0.0 | % | 0.1 | % |
Net income |
| 4.1 | % | 3.2 | % | 0.0 | % |
Net Sales
We believe that the fundamentals for our products continue to be favorable. Firstly, United States (U.S.) avocado demand continues to grow, with per capita use in 2015/16 reaching 6.9 pounds per person, up 7 percent from the previous year, and approximately double the estimate of a decade ago. We believe that the healthy eating trend that has been developing in the United States contributes to such growth, as avocados, which are cholesterol and sodium free, are dense in fiber, vitamin B6, antioxidants, potassium, folate, and contain unsaturated fat, which help lower cholesterol. Also, a growing number of research studies seem to suggest that phytonutrients, which avocados are rich in, help fight chronic illnesses, such as heart disease and cancer.
Additionally, we believe that the demographic changes in the U.S. will 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.
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We anticipate avocado products will further penetrate the United States marketplace driven by year-round availability of fresh avocados due to imports, a rapidly growing Hispanic population, and the promotion of the health benefits of avocados. As one of the largest marketers of avocado products in the United States, we believe that we are well positioned to leverage this trend and to grow our Fresh products and Calavo Foods segments of our business. Additionally, we also believe that avocados and avocado based products will further penetrate other marketplaces that we currently operate in, as interest in avocados continues to expand.
In October 2002, the USDA announced the creation of a Hass Avocado Board to promote the sale of Hass variety avocados in the U.S. marketplace. This board provides a basis for a unified funding of promotional activities based on an assessment on all avocados sold in the U.S. marketplace. The California Avocado Commission, which receives its funding from California avocado growers, has historically shouldered the promotional and advertising costs supporting avocado sales. We believe that the incremental funding of promotional and advertising programs in the U.S. will, in the long term, positively impact average selling prices and will favorably impact our avocado businesses. During fiscal 2016, 2015 and 2014, on behalf of avocado growers, we remitted approximately $2.4 million, $1.7 million and $1.7 million to the California Avocado Commission. During fiscal 2016, 2015 and 2014, we remitted approximately $8.2 million, $8.3 million and $7.1 million to the Hass Avocado Board related to avocados.
We also believe that our diversified fresh products, primarily tomatoes and papayas, are positioned for future growth.
The tomato is the fourth most popular fresh-market vegetable (though a fruit scientifically speaking, tomatoes are more commonly considered a vegetable) behind potatoes, lettuce, and onions in the United States. Although stabilizing in the first decade of the 2000s, annual average fresh-market tomato consumption remains well above that of the previous decade. Over the past few decades, per capita use of tomatoes has been on the rise due to the enduring popularity of salads, salad bars, and submarine sandwiches. Perhaps of greater importance has been the introduction of improved and new tomato varieties, heightened consumer interest in a wider range of tomatoes, a surge of new immigrants who eat vegetable-intensive diets, and expanding national emphasis on health and nutrition.
Papayas have become more popular as the consumption in the United States has more than doubled in the past decade. Papayas have high nutritional benefits. They are rich in anti-oxidants, the B vitamins, folate and pantothenic acid; and the minerals, potassium and magnesium; and fiber. Together, these nutrients promote the health of the cardiovascular system and also provide protection against colon cancer.
Additionally, through the acquisition of RFG, we substantially expanded and accelerated the Company's presence in the fast-growing refrigerated fresh packaged foods category through an array of retail product lines for produce, deli, and foodservice departments. RFG products include fresh prepared 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 behind-the-deli glass meal and salad kits. RFG products are marketed under the Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef Essentials as well as store-brand, private label programs.
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The following tables set forth sales by product category and sales incentives, by segment (dollars in thousands):
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| Year ended October 31, 2016 |
| Year ended October 31, 2015 |
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| Fresh |
| Calavo |
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| Fresh |
| Calavo |
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| products |
| Foods |
| RFG |
| Total |
| products |
| Foods |
| RFG |
| Total |
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Third-party sales: |
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Avocados |
| $ | 493,440 |
| $ | - |
| $ | - |
| $ | 493,440 |
| $ | 471,178 |
| $ | - |
| $ | - |
| $ | 471,178 |
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Tomatoes |
|
| 35,981 |
|
| - |
|
| - |
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| 35,981 |
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| 18,681 |
|
| - |
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| - |
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| 18,681 |
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Papayas |
|
| 9,514 |
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| - |
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| - |
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| 9,514 |
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| 9,485 |
|
| - |
|
| - |
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| 9,485 |
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Pineapples |
|
| 1,060 |
|
| - |
|
| - |
|
| 1,060 |
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| 2,397 |
|
| - |
|
| - |
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| 2,397 |
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Other fresh products |
|
| 536 |
|
| - |
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| - |
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| 536 |
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| 442 |
|
| - |
|
| - |
|
| 442 |
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Food service |
|
| - |
|
| 50,716 |
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| - |
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| 50,716 |
|
| - |
|
| 49,212 |
|
| - |
|
| 49,212 |
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Retail and club |
|
| - |
|
| 23,216 |
|
| 336,989 |
|
| 360,205 |
|
| - |
|
| 22,736 |
|
| 296,697 |
|
| 319,433 |
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Total gross sales |
|
| 540,531 |
|
| 73,932 |
|
| 336,989 |
|
| 951,452 |
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| 502,183 |
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| 71,948 |
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| 296,697 |
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| 870,828 |
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Less sales incentives |
|
| (1,844) |
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| (10,438) |
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| (3,491) |
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| (15,773) |
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| (1,472) |
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| (9,792) |
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| (2,740) |
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| (14,004) |
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Net sales |
| $ | 538,687 |
| $ | 63,494 |
| $ | 333,498 |
| $ | 935,679 |
| $ | 500,711 |
| $ | 62,156 |
| $ | 293,957 |
| $ | 856,824 |
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| Year ended October 31, 2015 |
| Year ended October 31, 2014 |
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| Fresh |
| Calavo |
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| Fresh |
| Calavo |
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| products |
| Foods |
| RFG |
| Total |
| products |
| Foods |
| RFG |
| Total |
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Third-party sales: |
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Avocados |
| $ | 471,178 |
| $ | - |
| $ | - |
| $ | 471,178 |
| $ | 433,581 |
| $ | - |
| $ | - |
| $ | 433,581 |
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Tomatoes |
|
| 18,681 |
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| - |
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| - |
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| 18,681 |
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| 19,705 |
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| - |
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| - |
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| 19,705 |
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Papayas |
|
| 9,485 |
|
| - |
|
| - |
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| 9,485 |
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| 12,619 |
|
| - |
|
| - |
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| 12,619 |
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Pineapples |
|
| 2,397 |
|
| - |
|
| - |
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| 2,397 |
|
| 5,086 |
|
| - |
|
| - |
|
| 5,086 |
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Other fresh products |
|
| 442 |
|
| - |
|
| - |
|
| 442 |
|
| 1,037 |
|
| - |
|
| - |
|
| 1,037 |
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Food service |
|
| - |
|
| 49,212 |
|
| - |
|
| 49,212 |
|
| - |
|
| 48,085 |
|
| - |
|
| 48,085 |
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Retail and club |
|
| - |
|
| 22,736 |
|
| 296,697 |
|
| 319,433 |
|
| - |
|
| 22,334 |
|
| 255,074 |
|
| 277,408 |
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Total gross sales |
|
| 502,183 |
|
| 71,948 |
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| 296,697 |
|
| 870,828 |
|
| 472,028 |
|
| 70,419 |
|
| 255,074 |
|
| 797,521 |
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Less sales incentives |
|
| (1,472) |
|
| (9,792) |
|
| (2,740) |
|
| (14,004) |
|
| (1,079) |
|
| (11,140) |
|
| (2,792) |
|
| (15,011) |
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Net sales |
| $ | 500,711 |
| $ | 62,156 |
| $ | 293,957 |
| $ | 856,824 |
| $ | 470,949 |
| $ | 59,279 |
| $ | 252,282 |
| $ | 782,510 |
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Net sales to third parties by segment exclude inter-segment sales and cost of sales. For fiscal year 2016, 2015 and 2014, inter-segment sales and cost of sales of $4.3 million, $1.5 million and $2.2 million between Fresh products and RFG were eliminated. For fiscal year 2016, 2015 and 2014, inter-segment sales and cost of sales of $2.7 million, $1.9 million and $1.7 million between Calavo Foods and RFG were eliminated.
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The following table summarizes our net sales by business segment:
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| 2016 |
| Change |
| 2015 |
| Change |
| 2014 |
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(in thousands) |
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| (Dollars in thousands) |
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Net sales: |
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Fresh products |
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| $ | 538,687 |
| 7.6 | % | $ | 500,711 |
| 6.3 | % | $ | 470,949 |
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Calavo Foods |
|
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| 63,494 |
| 2.2 | % |
| 62,156 |
| 4.9 | % |
| 59,279 |
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RFG |
|
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| 333,498 |
| 13.5 | % |
| 293,957 |
| 16.5 | % |
| 252,282 |
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Total net sales |
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| $ | 935,679 |
| 9.2 | % | $ | 856,824 |
| 9.5 | % | $ | 782,510 |
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As a percentage of net sales: |
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Fresh products |
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| 57.6 | % |
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| 58.4 | % |
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| 60.2 | % |
Calavo Foods |
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| 6.8 | % |
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| 7.3 | % |
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| 7.6 | % |
RFG |
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| 35.6 | % |
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| 34.3 | % |
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| 32.2 | % |
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| 100 | % |
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| 100 | % |
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| 100 | % |
Summary
Net sales for the year ended October 31, 2016, compared to 2015, increased by $78.9 million, or 9.2%. The increase in sales, when compared to the same corresponding prior year periods, is related to growth from all segments.
For fiscal year 2016, our largest percentage increase in sales was RFG, followed by our Fresh products segment and our Calavo Foods segment, as shown above. Our increase in RFG sales was due primarily to increased sales from fresh prepared food and fresh-cut fruit and vegetable products. Our increase in Fresh product sales was due primarily to increased sales of California avocados and tomatoes, partially offset by decreased sales of Mexican avocados. We experienced an increase in our Calavo Foods segment during fiscal year 2016, which was due primarily to an increase in the sales of our salsa products. 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. All intercompany sales are eliminated in our consolidated results of operations.
Fresh products
Fiscal 2016 vs. Fiscal 2015:
Net sales delivered by the Fresh products business increased by approximately $38.0 million, or 7.6%, for the year ended October 31, 2016, when compared to fiscal 2015. As discussed above, this increase in Fresh product sales during fiscal 2016 was primarily related to increased sales of California avocados and tomatoes, partially offset by decreased sales of Mexican avocados. See details below.
Sales of California sourced avocados increased $50.0 million, or 50.6%, for the year ended October 31, 2016, when compared to the same prior year period. The increase in California sourced avocados was primarily due to an increase of 34.0 million pounds of avocados sold, or 45.0%. We attribute most of this increase in volume to the larger California avocado crop in fiscal 2016, compared to the same prior year period. In addition to this increase in pounds sold, is an increase in the sales price per carton. The sales price per carton for California sourced avocados increased by approximately 3.9%. We attribute much of this change in price to a lower overall supply of avocados in the market during the fourth quarter of fiscal 2016.
26
Sales of tomatoes increased to $36.0 million for the year ended October 31, 2016, compared to $18.7 million for the same period for fiscal 2015. The increase in sales of tomatoes is due to an increase in cartons sold of approximately 1.1 million cartons or 62.9%. In addition, tomatoes experienced an increase in the sales price per carton of approximately 18.2%, most notable during our fiscal first quarter, primarily resulting from a change in weather patterns.
Partially offsetting these increases was a decrease in sales of Mexican sourced avocados, which decreased $22.6 million, or 6.2%, for the year ended October 31, 2016, when compared to the same prior year period. The decrease in Mexican sourced avocados was primarily due to a decrease in pounds sold of Mexican sourced avocados, which decreased approximately 26.7 million pounds or 8.8%. This decrease is primarily due to supply disruptions in July and October which stalled the harvesting of avocados for the entire industry.
Sales of Peruvian sourced avocados decreased $5.4 million for the year ended October 31, 2016, compared to the same period for fiscal 2015. We chose not to sell Peruvian sourced avocados in fiscal 2016.
We anticipate that sales volume of California grown avocados will decrease in fiscal 2017, due to a smaller expected California avocado crop. We anticipate that sales of Mexican grown avocados will increase in fiscal 2017, when compared to the same prior year period.
Fiscal 2015 vs. Fiscal 2014:
Net sales delivered by the Fresh products business increased by approximately $29.8 million, or 6.3%, for the year ended October 31, 2015, when compared to fiscal 2014. As discussed above, this increase in Fresh product sales during fiscal 2015 was primarily related to increased sales of Mexican and Peruvian sourced avocados, partially offset by decreases in sales of California and Chilean sourced avocados, papayas, pineapples, and tomatoes. See details below.
Sales of Mexican sourced avocados increased $39.3 million, or 12.0%, for the year ended October 31, 2015, when compared to the same prior year period. The increase in Mexican sourced avocados was primarily due to an increase in the pounds sold, which increased by approximately 51.3 million pounds of avocados sold, or 20.1%, when compared to the same prior year period. Partially offsetting this increase in pounds sold, however, is a decrease in the sales price per carton. The sales price per carton for Mexican sourced avocados decreased by approximately 6.7%. We attribute much of this change to a higher supply of avocados in the market.
Sales of Peruvian sourced avocados increased to $5.4 million for the year ended October 31, 2015, compared to $0.8 million for the same period for fiscal 2014. The increase in Peruvian sourced avocados was primarily due to an increase in the pounds sold, which increased by approximately 5.2 million pounds.
Partially offsetting such increases was a decrease in sales of California sourced avocados, which decreased $3.7 million, or 3.6% for the year ended October 31, 2015, when compared to the same prior year period. The decrease in California sourced avocados was primarily due to a decrease in the sales price per carton, which decreased approximately 5.0%. Partially offsetting this decrease, however, was an increase pounds sold. California sourced avocados sales reflect an increase in 1.1 million pounds of avocados sold, or 1.5%, when compared to the same prior year period.
Sales of Chilean sourced avocados decreased $3.0 million, or 97.4%, for the year ended October 31, 2015, when compared to the same prior year period. The decrease in Chilean sourced avocados was primarily due to the Company's decision to focus more heavily on sourcing avocados from other growing regions outside the US, namely Mexico and Peru. As a result, Chilean sourced avocados sales reflect a decrease in 2.7 million pounds of avocados sold, when compared to the same prior year period. In addition, we have liquidated our unconsolidated subsidiary Calavo Chile, which further caused the above decrease.
Partially offsetting these increases were decreases in sales of pineapples, papayas and tomatoes. Sales of papayas decreased $2.7 million, or 23.9%, sales of pineapples decreased $2.7 million, or 52.9% and sales of tomatoes decreased $1.0 million, or 5.2%, for the year ended October 31, 2015, when compared to the same period for fiscal 2014. The decrease in sales for pineapples, papayas, and tomatoes are primarily due to decreases in the number of cartons sold. We
27
attribute all of these decreases in cartons sold due primarily to weather related issues effecting the quality and quantity of the fruit.
Calavo Foods
Fiscal 2016 vs. Fiscal 2015:
Sales for Calavo Foods for the year ended October 31, 2016, when compared to the same period for fiscal 2015, increased $1.3 million, or 2.2%. This increase is primarily due to an increase in sales of salsa products of approximately $1.4 million, or 66.8%, for the year ended October 31, 2016, when compared to the same prior year period. The increase in sales of salsa was primarily related to an increase in overall pounds sold.
Fiscal 2015 vs. Fiscal 2014:
Sales for Calavo Foods for the year ended October 31, 2015, when compared to the same period for fiscal 2014, increased $2.9 million, or 4.9%. This increase is due to an increase in sales of prepared guacamole products which increased approximately $2.3 million, or 3.9%, for the year ended October 31, 2015, when compared to the same prior year period. The increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 0.7 million pounds, or 2.8%. In addition, sales of salsa products increased approximately $0.6 million, or 41.3%, for the year ended October 31, 2015, when compared to the same prior year period. The increase in sales of salsa was primarily related to an increase in overall pounds sold, which increased 0.4 million pounds, or 47.8%.
RFG
Fiscal 2016 vs. Fiscal 2015:
Sales for RFG for the year ended October 31, 2016, when compared to the same period for fiscal 2015, increased $39.5 million, or 13.5%. This increase is due primarily to increased sales from fresh prepared food and fresh-cut fruit and vegetable products. The overall increase in sales is primarily due to an increase in sales volume, which we believe results from an increase in demand for the variety of innovative and convenient products that we offer, as well as our ability to expand retail relationships by providing high-quality, fresh foods solutions from our growing national production footprint.
Fiscal 2015 vs. Fiscal 2014:
Sales for RFG for the year ended October 31, 2015, when compared to the same period for fiscal 2014, increased $41.7 million, or 16.5%. This increase is due primarily to increased sales from cut fruit and deli products, as well as an increase in sales of cut vegetables. The overall increase in sales is primarily due to an increase in sales volume, partially offset by a decrease in the sales price per unit. Collectively, cut fruit, cut vegetable, and deli product sales increased 8.8 million units, or 31.2%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative products that we offer.
28
Gross Margins
The following table summarizes our gross margins and gross margin percentages by business segment:
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Gross Margins: |
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Fresh products |
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| $ | 57,997 |
| 56.5 | % | $ | 37,064 |
| 2.6 | % | $ | 36,129 |
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Calavo Foods |
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| 22,448 |
| 9.4 | % |
| 20,511 |
| 57.7 | % |
| 13,010 |
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RFG |
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| 27,089 |
| (2.0) | % |
| 27,652 |
| 25.2 | % |
| 22,089 |
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Total gross margins |
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| $ | 107,534 |
| 26.2 | % | $ | 85,227 |
| 19.7 | % | $ | 71,228 |
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Gross margin percentages: |
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Fresh products |
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| 10.8 | % |
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| 7.4 | % |
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| 7.7 | % |
Calavo Foods |
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| 35.4 | % |
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| 33.0 | % |
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| 21.9 | % |
RFG |
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| 8.1 | % |
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| 9.4 | % |
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| 8.8 | % |
Consolidated |
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| 11.5 | % |
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| 9.9 | % |
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| 9.1 | % |
Summary
Our cost of goods sold consists predominantly of fruit costs, packing materials, freight and handling, labor and overhead (including depreciation) associated with preparing food products and other direct expenses pertaining to products sold. Gross margins increased by approximately $22.3 million, or 26.2%, for the year ended October 31, 2016, when compared to the same period for fiscal 2015. These increases were attributable to gross margin increases across the Fresh products and Calavo Foods segments, partially offset by a decrease in our RFG segment.
Note that RFG's Cost of Sales for fiscal 2014, includes a non-cash compensation expense related to the sale/acquisition of RFG totaling $1.8 million.
Fresh products
Fiscal 2016 vs. Fiscal 2015:
During fiscal 2016, as compared to the same prior year period, the increase in our Fresh products segment gross margin percentage was the result of increased margins for Californian and Mexican sourced avocados. For the year ended October 31, 2016, compared to the same prior year period, the gross margin percentage for California sourced avocados increased from a loss of -1.6% in 2015 to a margin of 9.0% in 2016. For fiscal 2016, we were able to effectively manage our fruit costs during select periods within the year and better leverage our fixed handling costs. For the year ended October 31, 2016, compared to the same prior year period, the gross margin percentage for Mexican sourced avocados increased from 9.6% in 2015 to 11.7% in 2016. For fiscal 2016, we were able to manage fruit cost for Mexican sourced avocados effectively. In addition, the U.S. Dollar to Mexican Peso exchange rate continued to strengthen in fiscal 2016. Note that any significant fluctuations in the exchange rate between the U.S. Dollar and the Mexican Peso may have a material impact on future gross margins for our Fresh products segment.
The gross margin and/or 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. The gross margin we earn is generally based on a commission agreed to with each party, which usually is a percent of the overall selling price. Although we generally do not take legal title to such products prior to sale, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, our results of operations include sales and cost of sales from the sale of products procured under consignment arrangements. For the year ended October 31, 2016 we generated gross margins of $4.2 million from consigned tomato sales, up 107% from $2.0 million in the corresponding prior year period. This improvement in tomato gross margins, is due to an overall increase in tomato sales, which increased $17.3 million
29
for the year ended October 31, 2016, compared to the same period for fiscal 2015. The increase in sales of tomatoes is due to an increase in cartons sold of approximately 1.1 million cartons or 62.9%. In addition, tomatoes experienced an increase in the sales price per carton of approximately 18.2%, most notable during our fiscal first quarter, primarily resulting from a change in weather patterns. Gross margins of Peruvian sourced avocados decreased $0.5 million for the year ended October 31, 2016, compared to the same period for fiscal 2015. We chose not sell Peruvian sourced avocados in fiscal 2016.
Fiscal 2015 vs. Fiscal 2014:
During fiscal 2015, as compared to the same prior year period, the increase in our Fresh products segment gross margin percentage was primarily the result of increased margins for Mexican sourced avocados that increased from 8.1% in fiscal 2014 to 9.6% in fiscal 2015. In the current year, we were able to manage the spread between the sales price and the fruit cost of Mexican sourced avocados more effectively, as average fruit costs decreased 8.3%, we were able to have the decrease in sales prices to be only approximately 6.7%. In addition, the U.S. Dollar to Mexican Peso exchange rate strengthened in fiscal year 2015, more significantly compared to fiscal year 2014. Note that any significant fluctuations in the exchange rate between the U.S. Dollar and the Mexican Peso may have a material impact on future gross margins for our Fresh products and Calavo Foods segments.
Partially offsetting this increase in gross margin percentage was a decrease in the gross margin percentage for California sourced avocados for fiscal 2015, as compared to the same prior year periods. This decrease was primarily related to increased fruit cost, in the form of higher grower returns vs. the related selling prices. We believe this is primarily due to California avocado sales prices decreasing for prolonged periods of time during fiscal 2015. This declining market negatively impacted gross margins.
The gross margin and/or gross profit percentage for consignment sales, including certain Peruvian avocados, Chilean avocados, tomatoes and pineapples, are dependent on the volume of fruit we handle, the average selling prices, and the competitiveness of the returns that we provide to third-party growers/packers. The gross margin we earn is generally based on a commission agreed to with each party, which usually is a percent of the overall selling price. Although we generally do not take legal title to such avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, our results of operations include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. For fiscal year 2015 we generated gross margins of $3.0 million from consigned sales. This is consistent for consigned sales compared to previous year. Sales of Peruvian sourced avocados increased to $5.4 million for the year ended October 31, 2015, compared to $0.8 million for the same period for fiscal 2014. The increase in Peruvian sourced avocados was primarily due to an increase in the pounds sold, which increased by approximately 5.2 million pounds. Sales of Chilean sourced avocados decreased $3.0 million, or 97.4%, for the year ended October 31, 2015 when compared to the same prior year period. The decrease in Chilean sourced avocados was due to a decrease in pounds sold. Chilean sourced avocados sales reflect a decrease in 2.7 million pounds of avocados sold when compared to the same prior year period. This decrease in sales is due to the high availability of other avocado sources, and an increased focus on Mexican and California sourced avocados for the year ended October 31, 2015. In addition, we have liquidated our unconsolidated subsidiary Calavo Chile, which further caused the above decrease. Sales of tomatoes decreased to $18.7 million for the year ended October 31, 2015, compared to $19.7 million for the same period for fiscal 2014. The decrease in sales for tomatoes is due to a decrease in the sales price per carton, which decreased 7.2%. We believe this decline in the sales price per carton is due to the higher supply of tomatoes in the marketplace.
Calavo Foods
Fiscal 2016 vs. Fiscal 2015:
The Calavo Foods segment gross margin percentage during our year ended October 31, 2016 increased to 35.4%, compared to the same prior year period gross margin percentage of 33.0%. This increase was primarily due to (i) lower guacamole production costs resulting from the U.S. Dollar to Mexican Peso exchange rate strengthening by approximately 18% for the year ended October 31, 2016, as compared to the same period year period and (ii) lower salsa
30
production costs. Note that any significant fluctuation in the cost of fruit used in the production process or the exchange rate between the U.S. Dollar and the Mexican Peso may have a material impact on future gross margins for our Calavo Foods segments.
Fiscal 2015 vs. Fiscal 2014:
The Calavo Foods segment gross margin percentage during our year ended October 31, 2015, when compared to the same prior year period, increased primarily due to a decrease in fruit costs. Fruit costs decreased during our year ended October 31, 2015, by approximately 36.1%. In addition, the U.S. Dollar to Mexican Peso exchange rate strengthened for the year ended October 31, 2015, 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 margins for our Calavo Foods segments
RFG
Fiscal 2016 vs. Fiscal 2015:
RFG's decreased gross margin percentage for the year ended October 31, 2016, is due in part to the lingering effects of adverse weather conditions (related to El Nino) that impacted certain fruit and vegetable growing regions and caused reduced raw material availability, increased raw material prices, and reduced processing yields in our first fiscal quarter of 2016 and to a lesser extent in our second fiscal quarter of 2016. Similar to the Calavo Foods segment, RFG often has agreed upon pricing with many of their customers. Note that any significant fluctuation in raw material availability, price and/or quality may have a material impact on future gross margins for our RFG segment.
RFG invested throughout fiscal year 2016 by expanding its production facilities and adding capabilities to meet growing customer demand. Certain expenses associated with the start-up and initial optimization of those facilities temporarily reduced gross margin percentage in the year ended October 31, 2016.
Fiscal 2015 vs. Fiscal 2014:
RFG's improved gross-margin is reflective of certain economies of scale resulting from significant sales growth (see discussion above), improved labor utilization and improved raw-material quality and yield. Benefits from superior fruit quality/yield extend beyond just lower fruit costs, but also reduce other costs, including the labor needed to process such fruit. Sales for RFG for the year ended October 31, 2015, when compared to the same period for fiscal 2014, increased $41.7 million, or 16.5%.
Selling, General and Administrative
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Selling, general and administrative |
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| $ | 46,440 |
| 11.7 | % | $ | 41,558 |
| 13.5 | % | $ | 36,605 |
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Percentage of net sales |
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| 5.0 | % |
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| 4.9 | % |
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| 4.7 | % |
Selling, general and administrative expenses include costs of marketing and advertising, sales expenses and other general and administrative costs. Selling, general and administrative expenses increased $4.9 million, or 11.7%, for the year ended October 31, 2016, when compared to the same prior year period. This increase was primarily related to higher corporate costs, including, but not limited to, general and administrative costs related to salaries (approximately $2.5 million), accrued management bonuses (approximately $1.3 million), insurance (approximately $0.6 million), depreciation (approximately $0.3 million), and employee benefits (approximately $0.2 million), partially offset by a decreases in administration fees (approximately $0.4 million) and legal fees (approximately $0.2 million).
Selling, general and administrative expenses increased $5.0 million, or 13.5%, for the year ended October 31, 2015, when compared to the same prior year period. This increase was primarily related to higher corporate costs, including,
31
but not limited to, general and administrative costs related to salaries (approximately $1.7 million), stock-based compensation expense (approximately $1.4 million), a write-down of contingent consideration related to Salsa Lisa (approximately $0.5 million), legal/consulting fees (approximately $0.4 million), promotion and advertising (approximately $0.3 million), data processing (approximately $0.3 million), consulting fees (approximately $0.3 million), workers compensation (approximately $0.3 million), employee benefits (approximately $0.2 million), and other admin fees (approximately $0.2 million), partially offset by a decrease in the start-up operations of FreshRealm (approximately $1.0 million) and accrued management bonuses (approximately $0.6 million).
Contingent Consideration Related to RFG Acquisition
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Contingent Consideration Related to RFG Acquisition |
| $ | - |
| NM | % | $ | - |
| NM | % | $ | 51,082 |
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Percentage of net sales |
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| - | % |
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| - | % |
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| 6.5 | % |
RFG's former owners received the maximum earn-out payment permitted pursuant to the acquisition agreement in fiscal 2014. This caused the significant increase in contingent consideration for fiscal 2014. There was no contingent consideration expense for fiscal year 2016 and 2015. There will be no future expenses related to this acquisition. See the 2014 fiscal year Consolidated Financial Statement for more information.
Interest Income
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Interest income |
| $ | 132 |
| 71.4 | % | $ | 77 |
| (66.2) | % | $ | 228 |
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Percentage of net sales |
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| - | % |
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| - | % |
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| - | % |
Interest income was primarily generated from our loans to growers. The increase in interest income in fiscal 2016 as compared to 2015 is due to the borrowings by California avocado growers increasing in the current year compared to the prior year.
The decrease in interest income in fiscal 2015 as compared to 2014 is due to the borrowings by California avocado growers decreasing in the current year compared to the prior year.
Interest Expense
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Interest expense |
| $ | 756 |
| (8.9) | % | $ | 830 |
| (15.6) | % | $ | 983 |
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Percentage of net sales |
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| 0.1 | % |
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| 0.1 | % |
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| 0.1 | % |
Interest expense is primarily generated from our line of credit borrowings, as well as our term loan agreements with Farm Credit West, PCA (FCW) and Bank of America, N.A. (BoA). For fiscal 2016, as compared to fiscal 2015, the decrease in interest expense was primarily related to the payoff of our term loans with FCW and BoA, and the lower average outstanding balance on our non-collateralized, revolving credit facility.
For fiscal 2015, as compared to fiscal 2014, the decrease in interest expense was primarily related to a lower average outstanding balance on our non-collateralized, revolving credit facilities.
32
Other Income, Net
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Other income, net |
| $ | 428 |
| 2.6 | % | $ | 417 |
| (11.8) | % | $ | 473 |
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Percentage of net sales |
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| 0.0 | % |
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| 0.0 | % |
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| 0.1 | % |
Other income, net includes dividend income, as well as certain other transactions that are outside of the normal course of operations. Other Income stayed relatively consistent in fiscal 2016 compared to fiscal 2015 and 2014. During fiscal 2016, 2015 and 2014, we received $0.3 million as dividend income from Limoneira.
Provision (benefit) for Income Taxes
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Provision (benefit) for income taxes |
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| $ | 21,869 |
| 35.9 | % | $ | 16,093 |
| NM | % | $ | (3,916) |
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Effective tax rate |
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| 36.3 | % |
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| 37.2 | % |
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| (94.8) | % |
For fiscal year 2016, our provision for income taxes was $21.9 million, as compared to $16.1 million recorded for the comparable prior year period.
For fiscal year 2015, our provision for income taxes was $16.1 million, as compared to a benefit of $3.9 million recorded for the comparable prior year period. The prior year benefits for income taxes are primarily attributable to the revaluation adjustment related to contingent consideration .
The benefit for income taxes of $3.9 million in fiscal year 2014 is attributable to the revaluation adjustment of $88.1 million related to contingent consideration which was spread between fiscal year 2014 through fiscal year 2011. The prior year revaluation expense drove pre-tax book income into a loss position, thus causing a benefit for income taxes as this revaluation adjustment is capitalized and amortized as goodwill over the remaining useful life for income tax purposes resulting in a taxable income position for the prior year.
Net (income) loss attributable to noncontrolling interest
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Net (income) loss attributable to noncontrolling interest |
| $ | (437) |
| NM | % | $ | - |
| (100.0) | % | $ | 312 |
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Percentage of net sales |
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| 0.0 | % |
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| 0.0 | % |
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.
33
Quarterly Results of Operations
The following table presents our operating results for each of the eight fiscal quarters in the period ended October 31, 2016. The information for each of these quarters is derived from our unaudited interim financial statements and should be read in conjunction with our audited consolidated financial statements included in this Annual Report. In our opinion, all necessary adjustments, which consist only of normal and recurring accruals, have been included to fairly present our unaudited quarterly results. Historically, we receive and sell a substantially smaller volume of California avocados in our first fiscal quarter.
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| Oct. 31, 2016 |
| July 31, 2016 |
| Apr. 30, 2016 |
| Jan. 31, 2016 |
| Oct. 31, 2015 |
| July 31, 2015 |
| Apr. 30, 2015 |
| Jan. 31, 2015 |
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Statement of Operations Data |
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Net sales |
| $ 247,655 |
| $ 263,146 |
| $ 220,303 |
| $ 204,575 |
| $ 207,994 |
| $ 232,450 |
| $ 221,589 |
| $ 194,791 |
Cost of sales |
| 220,570 |
| 230,502 |
| 193,496 |
| 183,577 |
| 187,825 |
| 208,172 |
| 198,614 |
| 176,986 |
Gross margin |
| 27,085 |
| 32,644 |
| 26,807 |
| 20,998 |
| 20,169 |
| 24,278 |
| 22,975 |
| 17,805 |
Selling, general and administrative |
| 11,574 |
| 12,287 |
| 11,658 |
| 10,921 |
| 11,442 |
| 10,620 |
| 9,986 |
| 9,510 |
Operating income |
| 15,511 |
| 20,357 |
| 15,149 |
| 10,077 |
| 8,727 |
| 13,658 |
| 12,989 |
| 8,295 |
Other income (expense), net |
| (553) |
| (325) |
| 88 |
| 24 |
| (237) |
| (107) |
| 73 |
| (106) |
Income before provision for income taxes |
| 14,958 |
| 20,032 |
| 15,237 |
| 10,101 |
| 8,490 |
| 13,551 |
| 13,062 |
| 8,189 |
Provision for income taxes |
| 5,260 |
| 7,323 |
| 5,561 |
| 3,725 |
| 3,703 |
| 4,910 |
| 4,590 |
| 2,890 |
Net income |
| 9,698 |
| 12,709 |
| 9,676 |
| 6,376 |
| 4,787 |
| 8,641 |
| 8,472 |
| 5,299 |
Add: Net (income) loss-noncontrolling interest |
| (459) |
| 36 |
| 13 |
| (27) |
| - |
| - |
| - |
| - |
Net income-Calavo Growers, Inc |
| $ 9,239 |
| $ 12,745 |
| $ 9,689 |
| $ 6,349 |
| $ 4,787 |
| $ 8,641 |
| $ 8,472 |
| $ 5,299 |
Basic |
| $ 0.53 |
| $ 0.73 |
| $ 0.56 |
| $ 0.37 |
| $ 0.28 |
| $ 0.50 |
| $ 0.49 |
| $ 0.31 |
Diluted |
| $ 0.53 |
| $ 0.73 |
| $ 0.56 |
| $ 0.37 |
| $ 0.28 |
| $ 0.50 |
| $ 0.49 |
| $ 0.31 |
Number of shares used in per share computation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 17,355 |
| 17,351 |
| 17,348 |
| 17,322 |
| 17,307 |
| 17,301 |
| 17,300 |
| 17,295 |
Diluted |
| 17,447 |
| 17,447 |
| 17,445 |
| 17,386 |
| 17,392 |
| 17,386 |
| 17,382 |
| 17,311 |
Liquidity and Capital Resources
Operating activities for fiscal 2016, 2015 and 2014 provided cash flows of $62.0 million, $37.3 million, and $24.5 million. Fiscal year 2016 operating cash flows reflect our net income of $38.5 million, net increase of noncash charges (depreciation and amortization, income from unconsolidated entities, provision for losses on accounts receivable, interest on deferred compensation, excess tax benefit from stock based compensation, deferred income taxes, and stock compensation expense) of $13.0 million and a net increase from changes in the non-cash components of our working capital accounts of approximately $10.5 million.
Fiscal year 2016 increases in operating cash flows, caused by working capital changes, includes an increase in payable to growers of $18.1 million, an increase in trade accounts payable and accrued expenses of $7.6 million, a decrease in income tax receivable of $6.2 million, an increase in deferred rent of $1.7 million, and a decrease in other assets of $0.6 million, partially offset by an increase in accounts receivable of $11.5 million, an increase in inventory of $5.5 million, an increase in prepaid expenses and other current assets of $5.1 million and an increase in advances to suppliers of $1.6 million.
The increase in payable to our growers primarily reflects an increase in fruit prices for Mexican fruit delivered in the month of October 2016, as compared to the month of October 2015. The increase in accounts payable and accrued expenses is primarily related to increase in fruit or other related cost, and an increase in our accrual for management incentives. The decrease in income tax receivable and the increase in income taxes payable primarily reflects the tax impact of the current year's net income. The increase in deferred rent is due to the new lease in Jacksonville Florida. The decrease in other assets is primarily due to the collection of infrastructure through the settlement process of advances to our tomato growers Agricola Belher. The increase in our accounts receivable, as of October 31, 2016 when compared to October 31, 2015, primarily reflects higher sales recorded in the month of October 2016, as compared to October 2015. The increase in our inventory balance is primarily related to an increase in Mexico avocado inventory on hand at October 31, 2016 and higher fruit prices, as compared to the same prior year period. The net increase in our prepaid assets and other assets is due
34
primarily to an increase in our Mexican IVA tax receivable in fiscal 2016. The increase in our advances to suppliers is primarily related to an increase in preseason advances to our grower Agricola Belher.
Cash used in investing activities was $21.7 million, $21.1 million, and $21.8 million for fiscal years 2016, 2015, and 2014. Fiscal year 2016 cash flows used in investing activities include capital expenditures of $21.8 million of property, plant and equipment items for expansion projects in the RFG and Fresh products segments and an additional investment in Agricola Don Memo of $2.3 million, an additional investment in FreshRealm of $1.6 million, partially offset by proceeds received from the repayment of the loan to Agricola Don Memo of $4.0 million.
Cash used in financing activities was $33.6 million, $15.8 million and $4.1 million for fiscal years 2016, 2015 and 2014. Cash used during fiscal year 2016 primarily related to the payment of a dividend of $13.9 million, payments on our credit facilities totaling $17.9 million, payments on long-term obligations of $2.2 million and deferred financing costs of $0.1 million, partially offset by the excess of the tax benefit of stock based compensation of $0.4 million and proceeds from the exercise of stock options of $0.1 million.
Our principal sources of liquidity are our existing cash reserves, cash generated from operations and amounts available for borrowing under our existing credit facilities. Cash and cash equivalents as of October 31, 2016 and 2015 totaled $13.8 million and $7.2 million. Our working capital at October 31, 2016 was $25.6 million, compared to $19.0 million at October 31, 2015.
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. In June 2016, we entered into a new unsecured, 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 new agreement is $80 million, and will expire in June 2021. Upon notice to Bank of America, we may from time to time, request an increase in the Credit Facility by an amount not exceeding $50 million. For our current and past line of credit agreements the weighted-average interest rate was 1.9% and 1.7% at October 31, 2016 and 2015. Under these credit facilities, we had $19.0 million and $36.9 million outstanding as October 31, 2016 and 2015.
This new Credit Facility contains customary affirmative and negative covenants for agreements of this type, including the following financial covenants applicable to the Company and its subsidiaries on a consolidated basis: (a) a quarterly consolidated leverage ratio of not more than 2.50 to 1.00 and (b) a quarterly consolidated fixed charge coverage ratio of not less than 1.15 to 1.00. We were in compliance with all such covenants at October 31, 2016.
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, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| Payments due by period |
|
|
|
| |||||||||
Contractual Obligations |
| Total |
| Less than 1 year |
| 1-3 years |
| 3-5 years |
| More than 5 years |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Long-term debt obligations (including interest) |
| $ | 662 |
| $ | 162 |
| $ | 222 |
| $ | 202 |
| $ | 76 |
| ||
Revolving credit facilities |
|
| 19,000 |
|
| 19,000 |
|
| - |
|
| - |
|
| - |
| ||
Defined benefit plan |
|
| 195 |
|
| 33 |
|
| 66 |
|
| 66 |
|
| 30 |
| ||
Operating lease commitments |
|
| 58,206 |
|
| 5,268 |
|
| 10,445 |
|
| 8,922 |
|
| 33,571 |
| ||
Total |
| $ | 78,063 |
| $ | 24,463 |
| $ | 10,733 |
| $ | 9,190 |
| $ | 33,677 |
|
The California avocado industry is subject to a state marketing order whereby handlers are required to collect assessments from the growers and remit such assessments to the California Avocado Commission (CAC). The assessments are primarily for advertising and promotions. The amount of the assessment is based on the dollars paid to
35
the growers for their fruit, and, as a result, is not determinable until the value of the payments to the growers has been calculated.
With similar precision, amounts remitted to the Hass Avocado Board (HAB) in connection with their assessment program are likewise not determinable until the fruit is actually delivered to us. HAB assessments are primarily used to fund marketing and promotion efforts.
Recently Adopted Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU"), which amends the existing accounting standards for income taxes. The amendment required companies to report their deferred tax liabilities and deferred tax assets each as a single non-current item on their classified balance sheets. The Company elected to adopt the amendments in the first quarter of fiscal year 2016 and applied them prospectively to the current period presented, as permitted by the standard. The adoption of the amendments had no impact on the Company's net earnings or cash flow from operations for any period presented.
Recently Issued Accounting Standards
In March 2016, the FASB issued an ASU, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU will be effective for us beginning the first day of our 2017 fiscal year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.
In February 2016, the FASB issued an ASU, which requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity's leasing activities, including significant judgments and changes in judgments. This ASU will be effective for us beginning the first day of our 2019 fiscal year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.
In January 2016, the FASB issued an ASU, which requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows.
In July 2015, the FASB issued an ASU for measuring inventory. The core principal of the guidance is that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for us on a prospective basis beginning on the first day of our fiscal 2017 year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.
In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We are required to adopt the amendments in the first quarter of fiscal 2018. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. We are evaluating the impact of the adoption of this amended accounting
36
standard on our financial condition, result of operations and cash flows, but we do not expect the adoption of this accounting standard to have a significant effect.
Item 7A. 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, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(All amounts in thousands) |
| Expected maturity date October 31, |
| ||||||||||||||||||||||
|
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| Thereafter |
| Total |
| Fair Value |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1) |
| $ | 13,842 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 13,842 |
| $ | 13,842 |
|
Accounts receivable (1) |
|
| 70,101 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 70,101 |
|
| 70,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to growers (1) |
| $ | 20,965 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 20,965 |
| $ | 20,965 |
|
Accounts payable (1) |
|
| 22,447 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 22,447 |
|
| 22,447 |
|
Current borrowings pursuant to credit facilities (1) |
|
| 19,000 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 19,000 |
|
| 19,000 |
|
Fixed-rate long-term obligations (2) |
|
| 138 |
|
| 99 |
|
| 89 |
|
| 92 |
|
| 92 |
|
| 73 |
|
| 583 |
|
| 551 |
|
| (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 2.3%. We believe that loans with a similar risk profile would currently yield a return of 2.8%. 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 $18,000. |
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 2016, 2015, and 2014, net of gains, were $1.1 million, $1.8 million and $0.1 million.
37
Item 8. Financial Statements and Supplementary Data
CALAVO GROWERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
| October 31, |
| ||||
|
|
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
|
| |
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| $ | 13,842 |
| $ | 7,171 |
|
Accounts receivable, net of allowances of $2,063 (2016) $2,312 (2015) |
|
|
| 70,101 |
|
| 58,606 |
|
Inventories, net |
|
|
| 31,849 |
|
| 26,351 |
|
Prepaid expenses and other current assets |
|
|
| 14,402 |
|
| 15,763 |
|
Advances to suppliers |
|
|
| 4,425 |
|
| 2,820 |
|
Income taxes receivable |
|
|
| 334 |
|
| 6,111 |
|
Total current assets |
|
|
| 134,953 |
|
| 116,822 |
|
Property, plant, and equipment, net |
|
|
| 87,837 |
|
| 69,448 |
|
Investment in Limoneira Company |
|
|
| 34,036 |
|
| 27,415 |
|
Investment in unconsolidated entities |
|
|
| 24,652 |
|
| 19,720 |
|
Deferred income taxes |
|
|
| 14,944 |
|
| 19,277 |
|
Goodwill |
|
|
| 18,262 |
|
| 18,262 |
|
Other assets |
|
|
| 13,249 |
|
| 14,001 |
|
|
|
| $ | 327,933 |
| $ | 284,945 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Payable to growers |
|
| $ | 20,965 |
| $ | 3,924 |
|
Trade accounts payable |
|
|
| 22,447 |
|
| 19,600 |
|
Accrued expenses |
|
|
| 31,095 |
|
| 21,311 |
|
Short-term borrowings |
|
|
| 19,000 |
|
| 36,910 |
|
Dividend payable |
|
|
| 15,696 |
|
| 13,907 |
|
Current portion of long-term obligations |
|
|
| 138 |
|
| 2,206 |
|
Total current liabilities |
|
|
| 109,341 |
|
| 97,858 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Long-term obligations, less current portion |
|
|
| 445 |
|
| 586 |
|
Deferred rent |
|
|
| 2,307 |
|
| - |
|
Deferred income taxes |
|
|
| - |
|
| 234 |
|
Total long-term liabilities |
|
|
| 2,752 |
|
| 820 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Noncontrolling interest, Calavo Salsa Lisa |
|
|
| 771 |
|
| 285 |
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Common stock ($0.001 par value, 100,000 shares authorized; 17,440 (2016) and 17,384 (2015) shares issued and outstanding) |
|
|
| 17 |
|
| 17 |
|
Additional paid-in capital |
|
|
| 149,748 |
|
| 147,063 |
|
Accumulated other comprehensive income |
|
|
| 6,544 |
|
| 2,419 |
|
Noncontrolling interest |
|
|
| 962 |
|
| 1,011 |
|
Retained earnings |
|
|
| 57,798 |
|
| 35,472 |
|
Total shareholders' equity |
|
|
| 215,069 |
|
| 185,982 |
|
|
|
| $ | 327,933 |
| $ | 284,945 |
|
See accompanying notes to consolidated financial statements.
38
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended October 31, |
| |||||||
|
|
| 2016 |
| 2015 |
| 2014 |
| |||
|
|
|
|
|
|
|
|
|
| ||
Net sales |
|
| $ | 935,679 |
| $ | 856,824 |
| $ | 782,510 |
|
Cost of sales |
|
|
| 828,145 |
|
| 771,597 |
|
| 711,282 |
|
Gross margin |
|
|
| 107,534 |
|
| 85,227 |
|
| 71,228 |
|
Selling, general and administrative |
|
|
| 46,440 |
|
| 41,558 |
|
| 36,605 |
|
Contingent consideration related to RFG acquisition |
|
|
| - |
|
| - |
|
| 51,082 |
|
Operating income (loss) |
|
|
| 61,094 |
|
| 43,669 |
|
| (16,459) |
|
Losses from unconsolidated entities |
|
|
| (570) |
|
| (41) |
|
| (12) |
|
Interest income |
|
|
| 132 |
|
| 77 |
|
| 228 |
|
Interest expense |
|
|
| (756) |
|
| (830) |
|
| (983) |
|
Gain on deconsolidation of FreshRealm |
|
|
| - |
|
| - |
|
| 12,622 |
|
Other income, net |
|
|
| 428 |
|
| 417 |
|
| 473 |
|
Income (loss) before provision for income taxes |
|
|
| 60,328 |
|
| 43,292 |
|
| (4,131) |
|
Provision (benefit) for income taxes |
|
|
| 21,869 |
|
| 16,093 |
|
| (3,916) |
|
Net income (loss) |
|
|
| 38,459 |
|
| 27,199 |
|
| (215) |
|
Less: Net (income) loss attributable to noncontrolling interest |
|
|
| (437) |
|
| - |
|
| 312 |
|
Net income attributable to Calavo Growers, Inc. |
|
| $ | 38,022 |
| $ | 27,199 |
| $ | 97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Calavo Growers, Inc.'s net income per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| $ | 2.19 |
| $ | 1.57 |
| $ | 0.01 |
|
Diluted |
|
| $ | 2.18 |
| $ | 1.57 |
| $ | 0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per share computation: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
| 17,347 |
|
| 17,295 |
|
| 15,765 |
|
Diluted |
|
|
| 17,431 |
|
| 17,363 |
|
| 17,220 |
|
See accompanying notes to consolidated financial statements.
39
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year ended |
| |||||||
|
|
| October 31, |
| |||||||
|
|
| 2016 |
| 2015 |
| 2014 |
| |||
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| $ | 38,459 |
| $ | 27,199 |
| $ | (215) |
|
Other comprehensive income (loss), before tax: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses) arising during period |
|
|
| 6,621 |
|
| (16,940) |
|
| (1,175) |
|
Income tax benefit (expense) related to items of other comprehensive loss |
|
|
| (2,496) |
|
| 6,646 |
|
| 474 |
|
Other comprehensive income (loss), net of tax |
|
|
| 4,125 |
|
| (10,294) |
|
| (701) |
|
Comprehensive income (loss) |
|
|
| 42,584 |
|
| 16,905 |
|
| (916) |
|
Less: Net (income) loss attributable to noncontrolling interest |
|
|
| (437) |
|
| - |
|
| 312 |
|
Comprehensive income (loss) – Calavo Growers, Inc. |
|
| $ | 42,147 |
| $ | 16,905 |
| $ | (604) |
|
See accompanying notes to consolidated financial statements.
40
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Additional |
| Other |
|
|
|
|
|
|
|
|
| |||
|
| Common Stock |
| Paid-in |
| Comprehensive |
| Retained |
| Noncontrolling |
|
|
|
| |||||||
|
| Shares |
| Amount |
| Capital |
| Income |
| earnings |
| Interest |
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2013 |
| 15,720 |
|
| 15 |
|
| 70,790 |
|
| 13,414 |
|
| 35,054 |
|
| (180) |
|
| 119,093 |
|
Exercise of stock options and income tax benefit of $191 |
| 8 |
|
| - |
|
| 318 |
|
| - |
|
| - |
|
| - |
|
| 318 |
|
Stock compensation expense |
| - |
|
| - |
|
| 727 |
|
| - |
|
| - |
|
| - |
|
| 727 |
|
Restricted stock issued |
| 35 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
Issuance of stock related to RFG Contingent consideration and non-cash compensation |
| 1,532 |
|
| 2 |
|
| 67,288 |
|
| - |
|
| - |
|
| - |
|
| 67,290 |
|
Unrealized loss on Limoneira investment, net |
| - |
|
| - |
|
| - |
|
| (701) |
|
| - |
|
| - |
|
| (701) |
|
Dividend declared to shareholders |
| - |
|
| - |
|
| - |
|
| - |
|
| (12,971) |
|
| - |
|
| (12,971) |
|
FreshRealm noncontrolling interest contribution |
| - |
|
| - |
|
| 5,373 |
|
| - |
|
| - |
|
| 4,627 |
|
| 10,000 |
|
Deconsolidation of FreshRealm |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (4,030) |
|
| (4,030) |
|
Net loss attributable to FreshRealm |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (417) |
|
| (417) |
|
Net income attributable to Calavo Growers, Inc |
| - |
|
| - |
|
| - |
|
| - |
|
| 97 |
|
| - |
|
| 97 |
|
Balance, October 31, 2014 |
| 17,295 |
|
| 17 |
|
| 144,496 |
|
| 12,713 |
|
| 22,180 |
|
| - |
|
| 179,406 |
|
Exercise of stock options and income tax benefit of $111 |
| 13 |
|
| - |
|
| 360 |
|
| - |
|
| - |
|
| - |
|
| 360 |
|
Stock compensation expense |
| - |
|
| - |
|
| 2,108 |
|
| - |
|
| - |
|
| - |
|
| 2,108 |
|
Restricted stock issued |
| 76 |
|
| - |
|
| 99 |
|
| - |
|
| - |
|
| - |
|
| 99 |
|
Unrealized loss on Limoneira investment, net |
| - |
|
| - |
|
| - |
|
| (10,294) |
|
| - |
|
| - |
|
| (10,294) |
|
Dividend declared to shareholders |
| - |
|
| - |
|
| - |
|
| - |
|
| (13,907) |
|
| - |
|
| (13,907) |
|
Avocados de Jalisco noncontrolling interest contribution |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,011 |
|
| 1,011 |
|
Net income attributable to Calavo Growers, Inc. |
| - |
|
| - |
|
| - |
|
| - |
|
| 27,199 |
|
| - |
|
| 27,199 |
|
Balance, October 31, 2015 |
| 17,384 |
|
| 17 |
|
| 147,063 |
|
| 2,419 |
|
| 35,472 |
|
| 1,011 |
|
| 185,982 |
|
Exercise of stock options and income tax benefit of $447 |
| 5 |
|
| - |
|
| 551 |
|
| - |
|
| - |
|
| - |
|
| 551 |
|
Stock compensation expense |
| - |
|
| - |
|
| 2,134 |
|
| - |
|
| - |
|
| - |
|
| 2,134 |
|
Restricted stock issued |
| 51 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
Unrealized gain on Limoneira investment, net |
| - |
|
| - |
|
| - |
|
| 4,125 |
|
| - |
|
| - |
|
| 4,125 |
|
Dividend declared to shareholders |
| - |
|
| - |
|
| - |
|
| - |
|
| (15,696) |
|
| - |
|
| (15,696) |
|
Avocados de Jalisco noncontrolling interest contribution |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (49) |
|
| (49) |
|
Net income attributable to Calavo Growers, Inc. |
| - |
|
| - |
|
| - |
|
| - |
|
| 38,022 |
|
| - |
|
| 38,022 |
|
Balance, October 31, 2016 |
| 17,440 |
| $ | 17 |
| $ | 149,748 |
| $ | 6,544 |
| $ | 57,798 |
| $ | 962 |
| $ | 215,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended October 31, |
| |||||||
|
|
| 2016 |
| 2015 |
| 2014 |
| |||
|
|
|
|
|
|
|
|
|
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| $ | 38,459 |
| $ | 27,199 |
| $ | (215) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
| 8,812 |
|
| 8,038 |
|
| 6,926 |
|
Provision for losses on accounts receivable |
|
|
| 47 |
|
| 75 |
|
| 154 |
|
Loss from unconsolidated entities |
|
|
| 570 |
|
| 109 |
|
| 15 |
|
Interest on contingent consideration |
|
|
| - |
|
| - |
|
| 37 |
|
Contingent consideration and non-cash compensation expense related to the acquisition of RFG |
|
|
| - |
|
| - |
|
| 53,611 |
|
Contingent consideration related to acquisition of Salsa Lisa |
|
|
| - |
|
| 15 |
|
| (491) |
|
Stock compensation expense |
|
|
| 2,134 |
|
| 2,108 |
|
| 727 |
|
Gain on deconsolidation of FreshRealm |
|
|
| - |
|
| - |
|
| (12,622) |
|
Loss on disposal of property, plant, and equipment |
|
|
| 248 |
|
| 147 |
|
| 115 |
|
Excess tax benefit from stock-based compensation |
|
|
| (447) |
|
| - |
|
| - |
|
Deferred income taxes |
|
|
| 1,603 |
|
| 3,183 |
|
| (15,076) |
|
Effect on cash of changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
| (11,542) |
|
| (2,063) |
|
| (1,712) |
|
Inventories, net |
|
|
| (5,498) |
|
| 4,713 |
|
| (2,302) |
|
Prepaid expenses and other current assets |
|
|
| (5,097) |
|
| (1,780) |
|
| (5,614) |
|
Advances to suppliers |
|
|
| (1,605) |
|
| 438 |
|
| (45) |
|
Income taxes receivable/payable |
|
|
| 6,224 |
|
| (3,465) |
|
| (648) |
|
Other assets |
|
|
| 683 |
|
| 441 |
|
| 48 |
|
Payable to growers |
|
|
| 18,084 |
|
| (1,889) |
|
| (6,985) |
|
Deferred rent |
|
|
| 1,697 |
|
| - |
|
| - |
|
Trade accounts payable and accrued expenses |
|
|
| 7,596 |
|
| 14 |
|
| 8,624 |
|
Net cash provided by operating activities |
|
|
| 61,968 |
|
| 37,283 |
|
| 24,547 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of property, plant, and equipment |
|
|
| (21,859) |
|
| (18,099) |
|
| (11,613) |
|
Investment in unconsolidated entities |
|
|
| (3,900) |
|
| (1,800) |
|
| (125) |
|
Proceeds received for repayment of San Rafael note |
|
|
| 28 |
|
| 386 |
|
| - |
|
Proceeds from liquidation of Calavo Chile |
|
|
| - |
|
| 262 |
|
| - |
|
Decrease in cash due to deconsolidation of FreshRealm |
|
|
| - |
|
| - |
|
| (6,813) |
|
Infrastructure advance to Agricola Belher |
|
|
| - |
|
| (1,000) |
|
| - |
|
Loan to Agricola Don Memo |
|
|
| - |
|
| (803) |
|
| (3,202) |
|
Proceeds received for repayment of loan to Agricola Don Memo |
|
|
| 4,000 |
|
| - |
|
| - |
|
Net cash used in investing activities |
|
|
| (21,731) |
|
| (21,054) |
|
| (21,753) |
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
Payment of dividend to shareholders |
|
|
| (13,907) |
|
| (12,971) |
|
| (11,005) |
|
Proceeds from revolving credit facility |
|
|
| 217,230 |
|
| 255,350 |
|
| 242,340 |
|
Payments on revolving credit facility |
|
|
| (235,140) |
|
| (254,340) |
|
| (240,430) |
|
Deferred financing costs |
|
|
| (91) |
|
| - |
|
| - |
|
Payments on long-term obligations |
|
|
| (2,209) |
|
| (5,098) |
|
| (5,160) |
|
Proceeds from stock option exercises |
|
|
| 104 |
|
| 249 |
|
| 127 |
|
Proceeds from issuance of FreshRealm stock |
|
|
| - |
|
| - |
|
| 10,000 |
|
Proceeds from issuance of noncontrolling interest stock |
|
|
| - |
|
| 817 |
|
| - |
|
Excess tax benefit from stock-based compensation |
|
|
| 447 |
|
| 191 |
|
| 59 |
|
Net cash used in financing activities |
|
|
| (33,566) |
|
| (15,802) |
|
| (4,069) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
| 6,671 |
|
| 427 |
|
| (1,275) |
|
Cash and cash equivalents, beginning of period |
|
|
| 7,171 |
|
| 6,744 |
|
| 8,019 |
|
Cash and cash equivalents, end of period |
|
| $ | 13,842 |
| $ | 7,171 |
| $ | 6,744 |
|
Supplemental Information: |
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
| $ | 741 |
| $ | 843 |
| $ | 986 |
|
Income taxes |
|
| $ | 14,425 |
| $ | 15,495 |
| $ | 11,355 |
|
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock related to RFG contingent consideration |
|
| $ | - |
| $ | - |
| $ | 66,988 |
|
Declared dividends payable |
|
| $ | 15,696 |
| $ | 13,907 |
| $ | 12,971 |
|
Investment in FreshRealm included in accrued expenses |
|
| $ | 1,600 |
| $ | - |
| $ | - |
|
Construction in progress included in trade accounts payable and accrued expenses |
|
| $ | 4,574 |
| $ | 529 |
| $ | - |
|
Noncash assets received for issuance of noncontrolling interest |
|
| $ | - |
| $ | 194 |
| $ | - |
|
Collection for Agricola Belher Infrastructure Advance |
|
| $ | 1,045 |
| $ | 845 |
| $ | 845 |
|
Unrealized holding gains (losses) |
|
| $ | 6,621 |
| $ | (16,940) |
| $ | (1,175) |
|
See accompanying notes to consolidated financial statements.
42
CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. We distribute our products both domestically and internationally and report our operations in three different business segments: Fresh products, Calavo Foods and Renaissance Food Group, LLC (RFG).
2. Basis of Presentation and Significant Accounting Policies
The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States.
Our consolidated financial statements include the accounts of Calavo Growers, Inc. and our wholly owned subsidiaries, Calavo de Mexico S.A. de C.V., Calavo Foods de Mexico S.A. de C.V., Calavo Growers de Mexico, S. de R.L. de C.V. ( Calavo Growers de Mexico), Maui Fresh International, Inc. (Maui), Hawaiian Sweet, Inc. (HS), Hawaiian Pride, LLC (HP), Avocados de Jalisco, S.A.P.I. de C.V. (Avocados de Jalisco), in which we have a 80 percent ownership interest, and RFG. We consolidate our entity Calavo Salsa Lisa, LLC (CSL), in which we currently have a 65 percent ownership interest. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
We consider all highly liquid financial instruments purchased with an original maturity date of three months or less to be cash equivalents. The carrying amounts of cash and cash equivalents approximate their fair values.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of non-trade receivables, infrastructure advances and prepaid expenses. Non-trade receivables were $11.6 million and $12.3 million at October 31, 2016 and 2015. Included in non-trade receivables are $8.4 million and $5.7 million related to the current portion of Mexican IVA (i.e. value-added) taxes at October 31, 2016 and 2015. In addition, included in non-trade receivables at October 31, 2015 is $4.0 million related to the bridge loan to the then newly created joint venture Agricola Don Memo. Infrastructure advances are discussed below. Prepaid expenses totaling $2.8 million and $2.3 million at October 31, 2016 and 2015, are primarily for insurance, rent and other items.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on a monthly weighted-average basis, which approximates the first-in, first-out method; market is based upon estimated replacement costs. Costs included in inventory primarily include the following: fruit, picking and hauling, overhead, labor, materials and freight.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are stated at cost and amortized over the lesser of their estimated useful lives or
43
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. Replaced fixed assets are written off. Ordinary maintenance and repairs are charged to expense.
We capitalize software development costs for internal use beginning in the application development stage and ending when the asset is placed into service. Costs capitalized include coding and testing activities and various implementation costs. These costs are limited to (1) external direct costs of materials and services consumed in developing or obtaining internal-use computer software; (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project to the extent of the time spent directly on the project; and (3) interest cost incurred while developing internal-use computer software. See Note 4 for further information.
Goodwill and Acquired Intangible Assets
Goodwill is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. Goodwill impairment testing is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test would be unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. The estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. For fiscal years 2016 and 2015, we performed our annual assessment of goodwill and noted no impairments existed as of October 31, 2016 and 2015.
Long-lived Assets
Long-lived assets, including fixed assets and intangible assets (other than goodwill), are continually monitored and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use of an asset and its eventual disposition. The estimate of undiscounted cash flows is based upon, among other things, certain assumptions about future operating performance, growth rates and other factors. Estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, changes to the business model or changes in operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, an impairment loss will be recognized, measured as the amount by which the carrying value exceeds the fair value of the asset. For fiscal year 2016 and 2015, we performed our annual assessment of long-lived assets and determined that no impairment existed as of October 31, 2016 and 2015.
Investments
We account for non-marketable investments using the equity method of accounting if the investment gives us the ability to exercise significant influence over, but not control, an investee. Significant influence generally exists when we have an ownership interest representing between 20% and 50% of the voting stock of the investee. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions.
44
In December 2014, Calavo formed a wholly owned subsidiary Calavo Growers De Mexico, S. de R.L. de C.V. (Calavo Sub). In July 2015, Calavo Sub entered into a Shareholder Agreement with Grupo Belo del Pacifico, S.A. de C.V., (Belo) a Mexican Company owned by Agricola Belher, and Agricola Don Memo, S.A. de C.V. (Don Memo). Don Memo, a Mexican corporation formed in July 2013, is engaged in the business of owning and improving land in Jalisco, Mexico for the growing of tomatoes and other produce and the sale and distribution of tomatoes and other produce. Belo and Calavo Sub have an equal one-half ownership interest in Don Memo. Pursuant to a management service agreement, Belo, through its officers and employees, shall have day-to-day power and authority to manage the operations. In fiscal 2016 and 2015, we contributed $2.3 million and $1.0 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. In fiscal 2015 and 2014, we advanced Don Memo $0.8 million and $3.2 million. These monies, totaling $4.0 million, effectively a bridge loan, were repaid in the first quarter of fiscal 2016. We had recorded such loans in prepaids and other current assets. We use the equity method to account for this investment.
Effective May 2014, we closed our Second Amended and Restated Limited Liability Company Agreement by and among FreshRealm and the ownership members of FreshRealm. Pursuant to this agreement, Impermanence, LLC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million to FreshRealm for 28.6% ownership. As a result of the admission of Impermanence, Calavo's ownership was reduced from 71.1% to 50.8%. The minority/non-Calavo unit-holders held substantive participating rights. These rights existed primarily in two forms: (1) two out of a total of four board of director seats and (2) a provision in the Agreement that states that for situations for which the approval of the Members, as defined, is required by the Agreement, the Members shall act by Super-Majority Vote. As such, Calavo could not control FreshRealm through its two board of director seats, nor its 50.8% ownership. Based on the foregoing, we deconsolidated FreshRealm in May 2014. In the third and fourth quarter of fiscal 2015, FreshRealm issued additional units to various parties, which reduced our ownership percentage to approximately 49% at October 31, 2015. In the fourth quarter of fiscal 2016, FreshRealm completed another round of financing in which Calavo invested $3.2 million. During that round of financing, FreshRealm issued additional units to various parties, which reduced our ownership percentage further to approximately 46% at October 31, 2016.
We estimated the fair value of our noncontrolling interest in FreshRealm by performing a fair value measurement. This analysis was conducted with the consultation from a third party consulting firm. Our investment of $19.4 million in FreshRealm million has been recorded as investment in unconsolidated subsidiaries on our balance sheet.
Marketable Securities
Our marketable securities consist of our investment in Limoneira Company (Limoneira) stock. We currently own approximately 12% of Limoneira's outstanding common stock. These securities are considered available for sale securities based on management's intent with respect to such securities and are carried at fair value as determined from quoted market prices. The estimated fair value, cost, and gross unrealized gain related to such investment was $3 4.0 million, $23.5 million and $10.5 million as of October 31, 2016. The estimated fair value, cost, and gross unrealized gain related to such investment was $27.4 million, $23.5 million and $4.0 million as of October 31, 2015.
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, 2016, nor October 31, 2015.
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
45
agreement with Belher, we advanced Belher a total of $3.0 million, up from $2.0 million in the original agreement, during fiscal 2011. Additionally, the amended agreement calls for us to continue to advance $3.0 million per annum for operating purposes through 2019. These advances will be collected through settlements by the end of each year. For fiscal 2016, we agreed to advance an additional $1.4 million for preseason advances. As of October 31, 2016 and 2015, we have total advances of $4.4 million and $3.0 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, 2016 and 2015, we have total advances of $0.9 million and $1.8 million to Don Memo, which is recorded in advances to suppliers.
Infrastructure Advances
Pursuant to our infrastructure agreement, we make advances to be used solely for the acquisition, construction, and installation of improvements to and on certain land owned/controlled by Belher, as well as packing line equipment. Advances incur interest at 4.7% at October 31, 2016 and 2015. As of October 31, 2016, we have advanced a total of $0.8 million ($0.2 million included in prepaid expenses and other current assets and $0.6 million included in other long-term assets). As of October 31, 2015, we have advanced a total of $1.8 million ($1.0 million included in prepaid expenses and other current assets and $0.8 million included in other long-term assets). Belher is to annually repay these advances in no less than 20% increments through June 2020. Interest is to be paid monthly or annually, as defined. Belher may prepay, without penalty, all or any portion of the advances at any time. In order to secure their obligations pursuant to both agreements discussed above, Belher granted us a first-priority security interest in certain assets, including cash, inventory and fixed assets, as defined.
Accrued Expenses
Included in accrued expenses at October 31, 2016 and 2015 are liabilities related to the receipt of goods and/or services for which an invoice has not yet been received. These totaled approximately $12.4 million and $6.2 million for the year ended October 31, 2016 and 2015.
Revenue Recognition
Sales of products and related costs of products sold are recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. These terms are typically met upon delivery of product to the customer. Service revenue, including freight, ripening, storage, bagging and palletization charges, is recorded when services are performed and sales of the related products are delivered.
Shipping and Handling
We include shipping and handling fees billed to customers in net revenues. Amounts incurred by us for freight are included in cost of goods sold.
Promotional Allowances
We provide for promotional allowances at the time of sale, based on our historical experience. Our estimates are generally based on evaluating the historical relationship between promotional allowances and gross sales. The derived percentage is then applied to the current period's sales revenues in order to arrive at the appropriate debit to sales allowances for the period. The offsetting credit is made to accrued expenses. When certain amounts of specific customer accounts are subsequently identified as promotional, they are written off against this allowance. Actual amounts may differ from these estimates and such differences are recognized as an adjustment to net sales in the period they are identified.
46
Allowance for Accounts Receivable
We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable.
Consignment Arrangements
We frequently enter into consignment arrangements with pineapple and tomato growers and packers located outside of the United States and growers of certain perishable products in the United States. Although we generally do not take legal title to these avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, the accompanying financial statements include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. Amounts recorded for each of the fiscal years ended October 31, 2016, 2015 and 2014 in the financial statements pursuant to consignment arrangements are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| 2014 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Sales |
| $ | 34,919 |
| $ | 28,139 |
| $ | 30,721 |
|
Cost of Sales |
|
| 30,729 |
|
| 25,177 |
|
| 27,759 |
|
Gross Margin |
| $ | 4,190 |
| $ | 2,962 |
| $ | 2,962 |
|
Advertising Expense
Advertising costs are expensed when incurred and are generally included as a component of selling, general and administrative expense. Such costs were approximately $0.2 million for fiscal years 2016, 2015, and 2014.
Research and Development
Research and development costs are expensed as incurred and are generally included as a component of selling, general and administrative expense. FreshRealm, a development stage company, comprised the majority of our research and development costs in 2014. Total research and development costs for fiscal years 2016 and 2015 were less than $0.1 million. Total research and development costs for fiscal years 2014, were approximately $0.8 million.
Other Income, Net
Included in other income, net is dividend income totaling $0.6 million for fiscal year 2016. Dividend income totaled $0.5 million for fiscal years 2015 and 2014. See Note 9 for related party disclosure related to other income.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to valuation allowances for accounts receivable, goodwill, grower advances, inventories, long-lived assets, valuation of and estimated useful lives of identifiable intangible assets, stock-based compensation, promotional allowances and income taxes. On an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates.
Income Taxes
We account for deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of our assets and
47
liabilities result in a deferred tax asset, we perform an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, we record additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from management's estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.
Basic and Diluted Net Income per Share
Basic earnings per share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of stock options and contingent consideration. Diluted earnings per common share is calculated using the weighted-average number of common shares outstanding during the period after consideration of the dilutive effect of stock options and the effect of contingent consideration shares.
Basic and diluted net income per share is calculated as follows (U.S. dollars in thousands, except share and per share data):
|
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|
|
| |||||||
|
| Year ended October 31, |
| |||||||
|
| 2016 |
| 2015 |
| 2014 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
Net Income attributable to Calavo Growers, Inc. |
| $ | 38,022 |
| $ | 27,199 |
| $ | 97 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
Weighted average shares - Basic |
|
| 17,347,121 |
|
| 17,295,305 |
|
| 15,765,102 |
|
Effect on dilutive securities – Restricted stock/options |
|
| 83,560 |
|
| 67,731 |
|
| 1,455,000 |
|
Weighted average shares - Diluted |
|
| 17,430,681 |
|
| 17,363,036 |
|
| 17,220,102 |
|
Net income per share attributable to Calavo Growers, Inc: |
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.19 |
| $ | 1.57 |
| $ | 0.01 |
|
Diluted |
| $ | 2.18 |
| $ | 1.57 |
| $ | 0.01 |
|
Stock-Based Compensation
We account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in our statements of operations. We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest.
48
For the years ended October 31, 2016, 2015 and 2014, we recognized compensation expense of $2,134,000, $2,108,000, and $727,000 related to non-acquisition stock-based compensation. The value of the stock-based compensation was determined from quoted market prices at the date of the grant.
Foreign Currency Translation and Remeasurement
Our foreign operations are subject to exchange rate fluctuations and foreign currency transaction costs. The functional currency of our foreign subsidiaries is the United States dollar. As a result, monetary assets and liabilities are translated into U.S. dollars at exchange rates as of the balance sheet date and non-monetary assets, liabilities and equity are translated at historical rates. Sales and expenses are translated using a weighted-average exchange rate for the period. Gains and losses resulting from those remeasurements are included in income. Gains and losses resulting from foreign currency transactions are also recognized currently in income. Total foreign currency losses for fiscal 2016, 2015 and 2014, net of gains, were $1.1 million, $1.8 million, and $0.1 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 $0.6 million as of October 31, 2016.
Deferred Rent
As part of certain lease agreements, we receive construction allowances from our landlords. The construction allowances are deferred and amortized on a straight-line basis over the life of the lease as a reduction to rent expense.
Derivative Financial Instruments
We were not a party to any material derivative instruments during the fiscal year. It is currently our intent not to use derivative instruments for speculative or trading purposes. Additionally, we do not use any hedging or forward contracts to offset market volatility.
Recently Adopted Accounting Pronouncements
In November 2015, the FASB issued an ASU, which amends the existing accounting standards for income taxes. The amendment required companies to report their deferred tax liabilities and deferred tax assets each as a single non-current item on their classified balance sheets. The Company elected to adopt the amendments in the first quarter of fiscal year 2016 and applied them prospectively to the current period presented, as permitted by the standard. The adoption of the amendments had no impact on the Company's net earnings or cash flow from operations for any period presented.
Recently Issued Accounting Standards
In March 2016, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU"), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU will be effective for us beginning the first day of our 2017 fiscal year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.
In February 2016, the FASB issued an ASU, which requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to
49
supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity's leasing activities, including significant judgments and changes in judgments. This ASU will be effective for us beginning the first day of our 2019 fiscal year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.
In January 2016, the FASB issued an ASU, which requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows.
In July 2015, the FASB issued an ASU for measuring inventory. The core principal of the guidance is that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for us on a prospective basis beginning on the first day of our fiscal 2017 year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.
In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We are required to adopt the amendments in the first quarter of fiscal 2018. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. We are evaluating the impact of the adoption of this amended accounting standard on our financial condition, result of operations and cash flows, but we do not expect the adoption of this accounting standard to have a significant effect.
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, 2016, other comprehensive income includes the unrealized gain on our Limoneira investment totaling $4.1 million, net of income taxes. Limoneira's stock price at October 31, 2016 equaled $19.69 per share. For the fiscal year ended October 31, 2015, other comprehensive income includes the unrealized loss on our Limoneira investment totaling $10.3 million, net of income taxes. Limoneira's stock price at October 31, 2015 equaled $15.86 per share. For the fiscal year ended October 31, 2014, other comprehensive loss includes the unrealized loss on our Limoneira investment totaling $0.7 million, net of income taxes. Limoneira's stock price at October 31, 2014 equaled $25.66 per share.
Noncontrolling Interest
The following tables reconcile shareholders' equity attributable to noncontrolling interest related to the Salsa Lisa acquisition, and Avocados de Jalisco (in thousands).
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|
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|
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|
|
|
| ||
|
| Year ended |
| Year ended |
| ||
Salsa Lisa noncontrolling interest |
| October 31, 2016 |
| October 31, 2015 |
| ||
|
|
|
|
|
|
| |
Noncontrolling interest, beginning |
| $ | 285 |
| $ | 270 |
|
Accretion attributable to noncontrolling interest of Salsa Lisa |
|
| 486 |
|
| 15 |
|
Noncontrolling interest, ending |
| $ | 771 |
| $ | 285 |
|
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 acquisition agreement. For fiscal 2016, we recorded an
50
adjustment of $486,000 to increase the noncontrolling interest balance to the expected redeemable amount of $771,000. This adjustment has been included in net (income) loss attributed to noncontrolling interest.
|
|
|
|
|
|
|
|
|
|
|
| Year ended |
| Year ended |
| ||
Avocados de Jalisco noncontrolling interest |
|
| October 31, 2016 |
| October 31, 2015 |
| ||
|
|
|
|
|
|
|
|
|
Noncontrolling interest, beginning |
|
| $ | 1,011 |
| $ | - |
|
Noncontrolling interest contribution |
|
|
| - |
|
| 1,011 |
|
Net loss attributable to noncontrolling interest of Avocados de Jalisco |
|
|
| (49) |
|
| - |
|
Noncontrolling interest, ending |
|
| $ | 962 |
| $ | 1,011 |
|
3. Inventories
Inventories consist of the following (in thousands):
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|
|
|
|
|
|
|
|
|
| October 31, |
| ||||
|
|
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
|
|
|
Fresh fruit |
|
| $ | 17,126 |
| $ | 11,939 |
|
Packing supplies and ingredients |
|
|
| 7,605 |
|
| 6,347 |
|
Finished prepared foods |
|
|
| 7,118 |
|
| 8,065 |
|
|
|
| $ | 31,849 |
| $ | 26,351 |
|
We assess the recoverability of inventories through an ongoing review of inventory levels in relation to sales and forecasts and product marketing plans. When the inventory on hand, at the time of the review, exceeds the foreseeable demand, the value of inventory that is not expected to be sold is written down. The amount of the write-down is the excess of historical cost over estimated realizable value (generally zero). Once established, these write-downs are considered permanent adjustments to the cost basis of the excess inventory.
The assessment of the recoverability of inventories and the amounts of any write-downs are based on currently available information and assumptions about future demand and market conditions. Demand for processed avocado products may fluctuate significantly over time, and actual demand and market conditions may be more or less favorable than our projections. In the event that actual demand is lower than originally projected, additional inventory write-downs may be required.
We recorded an adjustment of $1.1 million to adjust our fresh fruit inventory to the lower of cost or market as of October 31, 2016. We did not record any lower of cost or market adjustments during fiscal year 2015.
51
4. Property, Plant, and Equipment
Property, plant, and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
| October 31, |
| ||||
|
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
|
|
Land |
| $ | 7,023 |
| $ | 7,023 |
|
Buildings and improvements |
|
| 22,480 |
|
| 22,497 |
|
Leasehold improvements |
|
| 8,918 |
|
| 4,810 |
|
Equipment |
|
| 66,109 |
|
| 59,391 |
|
Information systems - hardware and software |
|
| 8,089 |
|
| 7,839 |
|
Construction in progress |
|
| 25,456 |
|
| 12,305 |
|
|
|
| 138,075 |
|
| 113,865 |
|
Less accumulated depreciation and amortization |
|
| (50,238) |
|
| (44,417) |
|
|
| $ | 87,837 |
| $ | 69,448 |
|
Depreciation expense was $7.3 million, $6.4 million and $5.3 million for fiscal years 2016, 2015, and 2014, of which $0.5 million was related to depreciation on capital leases for fiscal year 2016, 2015, and 2014.
Property, plant, and equipment include various capital leases which total $3.2 million and $3.3 million, less accumulated depreciation of $2.5 million and $2.1 million as of October 31, 2016 and 2015.
The increase in construction in progress from $12.3 million as of October 31, 2015, to $25.5 million as of October 31, 2016, is due to leasehold improvements to the facility in Jacksonville, Florida, and leasehold improvements to the facility in Houston, Texas.
5. Other Assets
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
| October 31, |
| October 31, |
| ||
|
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
|
|
Intangibles, net |
| $ | 3,365 |
| $ | 4,613 |
|
Mexican IVA (i.e. value-added) taxes receivable |
|
| 6,962 |
|
| 5,853 |
|
Grower advances |
|
| 49 |
|
| 346 |
|
Infrastructure advance to Agricola Belher |
|
| 600 |
|
| 800 |
|
Loan to FreshRealm members |
|
| 318 |
|
| 307 |
|
Notes receivable from San Rafael |
|
| 928 |
|
| 1,286 |
|
Other |
|
| 1,027 |
|
| 796 |
|
|
| $ | 13,249 |
| $ | 14,001 |
|
The intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| October 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 |
| $ | (5,241) |
| $ | 2,399 |
| $ | 7,640 |
| $ | (4,282) |
| $ | 3,358 |
| |
Trade names |
| 8.2 years |
|
| 2,760 |
|
| (2,380) |
|
| 380 |
|
| 2,760 |
|
| (2,164) |
|
| 596 |
| |
Trade secrets/recipes |
| 9.3 years |
|
| 630 |
|
| (319) |
|
| 311 |
|
| 630 |
|
| (270) |
|
| 360 |
| |
Brand name intangibles |
| indefinite |
|
| 275 |
|
| - |
|
| 275 |
|
| 275 |
|
| - |
|
| 275 |
| |
Non-competition agreements |
| 5.0 years |
|
| 267 |
|
| (267) |
|
| - |
|
| 267 |
|
| (243) |
|
| 24 |
|
52
Intangibles, net |
|
|
| $ | 11,572 |
| $ | (8,207) |
| $ | 3,365 |
| $ | 11,572 |
| $ | (6,959) |
| $ | 4,613 |
|
We recorded amortization expense of approximately $1.5 million, $1.6 million, and $1.3 million for fiscal years 2016, 2015, and 2014. We anticipate recording amortization expense of approximately $1.1 million, $1.1 million, $0.7 million, $0.1 million, and $0.1 million for fiscal years 2017 through 2021. The remainder of approximately $0.1 million will be amortized over fiscal years 2021 through 2023.
6. Revolving Credit Facilities
In June 2016, we entered into a new Credit Agreement with Bank of America, N.A. ("Bank of America") as administrative agent and Merrill Lynch, Pierce, Fenner & Smith Inc. as joint lead arranger and sole bookrunner, and Farm Credit West ("FCW"), as joint lead arranger. The Credit Agreement provides for a five-year, $80 million syndicated senior unsecured revolving credit facility maturing on June 14, 2021(the"Credit Facility"), which replaces the Company's prior revolving credit facilities, which were scheduled to expire on July 1, 2016.
Provided there exists no default, upon notice to Bank of America, the Company may from time to time, request an increase in the Credit Facility by an amount not exceeding $50 million (the "Accordion"). Any future exercises of the Accordion would require additional commitments from existing or new lenders.
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 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, 2016.
The Credit Facility also contains customary events of default. If any event of default occurs and is continuing, Bank of America may take the following actions: (a) declare the commitment of each lender to make loans and any obligation of the Issuer to make credit extensions to be terminated; (b) declare the unpaid principal amount of all outstanding loans, all interest, and all other amounts to be immediately due and payable; (c) require that Calavo cash collateralize the obligations; and (d) exercise on behalf of itself, the lenders and the Issuer all rights and remedies available to it.
7. Employee Benefit Plans
We sponsor five defined contribution retirement plans for salaried and hourly employees. Expenses for these plans approximated $984,000, $922,000, and $943,000 for fiscal years 2016, 2015 and 2014, which are included in selling, general and administrative expenses in the accompanying financial statements.
We also sponsor a non-qualified defined benefit plan for two retired executives. Pension expenses, including actuarial losses, approximated $8,000, $10,000 and $9,000 for the year ended October 31, 2016, 2015, and 2014. These amounts are included in selling, general and administrative expenses in the accompanying financial statements.
53
Components of the change in projected benefit obligation for fiscal year ends consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| ||
Change in projected benefit obligation: |
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
| $ | 215 |
| $ | 196 |
|
Interest cost |
|
| 8 |
|
| 7 |
|
Actuarial loss |
|
| 9 |
|
| 48 |
|
Benefits paid |
|
| (37) |
|
| (36) |
|
Projected benefit obligation at end of year (unfunded) |
| $ | 195 |
| $ | 215 |
|
The following is a reconciliation of the unfunded status of the plans at fiscal year ends included in accrued expenses (in thousands):
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
|
|
Projected benefit obligation |
| $ | 195 |
| $ | 215 |
|
Unrecognized net (gain) loss |
|
| - |
|
| - |
|
Recorded pension liabilities |
| $ | 195 |
| $ | 215 |
|
Significant assumptions used in the determination of pension expense consist of the following:
|
|
|
|
|
|
|
| 2016 |
| 2015 |
|
Discount rate on projected benefit obligation |
| 3.7 | % | 4.3 | % |
8. Commitments and Contingencies
Commitments and guarantees
We lease facilities and certain equipment under non-cancelable operating leases expiring at various dates through 2031. We are committed to make minimum cash payments under these agreements as of October 31, 2016, as follows (in thousands):
|
|
|
|
|
2017 |
| $ | 5,268 |
|
2018 |
|
| 5,305 |
|
2019 |
|
| 5,140 |
|
2020 |
|
| 4,644 |
|
2021 |
|
| 4,278 |
|
Thereafter |
|
| 33,571 |
|
|
| $ | 58,206 |
|
Total rent expense amounted to approximately $5.8 million, $4.4 million and $3.8 million for the years ended October 31, 2016, 2015, and 2014. Rent to Limoneira, for our corporate office, amounted to approximately $0.3 million for fiscal years 2016, 2015, and 2014. In fiscal 2014, we renewed our lease with Limoneira for our corporate facility through fiscal 2020 at an annual rental of $0.3 million per annum (subject to annual CPI increases, as defined).
In fiscal 2016, we renewed the lease of our facility in Houston Texas through fiscal 2021 at an annual rental of $0.7 million per annum (subject to annual CPI increases, as defined).
In July 2015, we entered into a Lease Agreement with Green Cove, LLC to lease an operating facility in Jacksonville Florida. The facility is approximately 200,000 square feet and is expected to be a value-added distribution center for all operating segments. We took possession of the property in August 2015 and are in the process of making improvements to this facility. The lease began in November 2015 and is scheduled to terminate in October 2031.
54
In fiscal 2014, we renewed the lease of our distribution facility in Garland Texas through fiscal 2029 at an annual rental of $0.8 million per annum (subject to annual CPI increases, as defined).
In fiscal 2014, we had two lease renewals for our RFG facilities in California, one being the corporate office of RFG in Rancho Cordova, and the other being a fresh processing facility in Sacramento. The RFG corporate office in Rancho Cordova has an operating lease through June 2018. Total rent for fiscal 2016, 2015, and 2014 was approximately $0.4 million. The processing facility in Sacramento has an operating lease through May 2021(subject to annual CPI increases, as defined). Total rent for fiscal 2016, 2015, and 2014 was approximately $0.5 million.
Effective January 28, 2016, Calavo Growers, Inc. and Bank of America, N.A. ("BoA"), entered into a Continuing and Unconditional Guaranty agreement (the "Guaranty"). Under the terms of the Guaranty, the Company unconditionally guarantees and promises to pay BoA any and all Indebtedness, as defined therein, of our unconsolidated subsidiary Agricola Don Memo, S.A. de C.V. ("Don Memo") to BoA. Grupo Belo del Pacifico, S.A. de C.V. has also entered into a similar guarantee with BoA. These guarantees relate to a new loan in the amount of $4.5 million loan from BoA to Don Memo that closed on January 28, 2016. On January 29, 2016, Don Memo, used the proceeds from the new BoA loan to repay $4.0 million due the Company.
We indemnify our directors and have the power to indemnify each of our officers, employees and other agents, to the maximum extent permitted by applicable law. The maximum amount of potential future payments under such indemnifications is not determinable. No amounts have been accrued in the accompanying financial statements related to these indemnifications.
Litigation
From time to time, we are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements.
Mexico tax audits
We conduct business internationally and, as a result, one or more of our subsidiaries files income tax returns in U.S. federal, U.S. state and certain foreign jurisdictions. Accordingly, in the normal course of business, we are subject to examination by taxing authorities, primarily in Mexico and the United States. During our third quarter of fiscal 2016, our wholly-owned subsidiary, Calavo de Mexico ("CDM"), received a written communication from the Ministry of Finance and Administration of the government of the State of Michoacan, Mexico ("MFM") containing preliminary observations related to a fiscal 2011 tax audit of such subsidiary. MFM's preliminary observations outline certain proposed adjustments primarily related to intercompany funding, deductions for services from certain vendors/suppliers and Value Added Tax ("VAT"). During our fourth fiscal quarter of 2016, we provided a written rebuttal to MFM's preliminary observations and requested the adoption of a conclusive agreement before the PRODECON (Local Tax Ombudsman) so that a full discussion of the case between us, the MFM and the PRODECON can occur and so that, as appropriate, the MFM can reconsider their findings. Note that until such discussion occurs, the normal period during which the MFM would issue its final assessment (previously expected no later February 2017) has been suspended. Though a formal meeting date has not yet been determined, the discussion between us, the MFM and the PRODECON is expected to start in calendar 2017.
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. Under Mexican law, the SAT has u ntil approximately March 2017 to complete their review. In conjunction with their examination, the SAT has requested information though no formal findings have yet been received.
We believe that the ultimate resolution of these matters is unlikely to have a material effect on our consolidated financial position.
55
9. Related-Party Transactions
Certain members of our Board of Directors market avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers. During the years ended October 31, 2016, 2015, and 2014, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $25.5 million, $16.4 million and $10.5 million. We did not have any amounts due to Board members as of October 31, 2016 and 2015.
During fiscal years 2016, 2015, and 2014, we received $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 2016, 2015, and 2014. Harold Edwards, who is a member of our Board of Directors, is the Chief Executive Officer of Limoneira Company. We have a 12% ownership interest in Limoneira. Additionally, our Chief Executive Officer is a member of the Limoneira Board of Directors.
We currently have a member of our Board of Directors who also serves as a partner in the law firm of TroyGould PC, which frequently represents Calavo as legal counsel. During the years ended October 31, 2016, 2015, and 2014, Calavo Growers, Inc. paid fees totaling approximately $0.2 million, $0.2 million and $0.1 million to TroyGould PC.
During the 3 rd and 4 th quarters of fiscal 2015, in conjunction with another round of financing for FreshRealm, LLC (FreshRealm), we invested $0.8 million. Additionally, two officers of Calavo contributed $1.8 million, in exchange for a 2.8% ownership interest, and three board of director members contributed $0.3 million in exchange for a 0.44% ownership interest. RFG is a supplier for FreshRealm. Based on the total number of shares issued, our ownership interest in FreshRealm decreased from approximately 50% to approximately 49%. During the 4 th quarter of fiscal 2016, FreshRealm had another round of financing, which we invested $3.2 million. Based on the total number of LLC units issued, our ownership interest in FreshRealm decreased from approximately 49% to approximately 46%. In fiscal 2016, 2015 and 2014, we had sales of $1.1 million, $0.5 million and $0.2 million to FreshRealm.
In December 2014, Calavo formed a wholly owned subsidiary Calavo Growers De Mexico, S. de R.L. de C.V. (Calavo Sub). In July 2015, Calavo Sub entered into a Shareholder Agreement with Grupo Belo del Pacifico, S.A. de C.V., (Belo) a Mexican Company owned by Agricola Belher, and Agricola Don Memo, S.A. de C.V. (Don Memo). Don Memo, a Mexican corporation formed in July 2013, is engaged in the business of owning and improving land in Jalisco, Mexico for the growing of tomatoes and other produce and the sale and distribution of tomatoes and other produce. Belo and Calavo Sub have an equal one-half ownership interest in Don Memo. Pursuant to a management service agreement, Belo, through its officers and employees, shall have day-to-day power and authority to manage the operations. Belo is entitled to a management fee equal to 20% of the earnings before interest and taxes (EBIT), as defined, which is payable annually in July of each year. Additionally, Calavo Sub is entitled to a 12% commission, calculated in U.S. dollars, for the sale of produce in the Mexican National Market, United States, Canada, and any other overseas market. In fiscal 2016 and 2015, we contributed $2.3 million and $1.0 million as investments in Don Memo, respectively. These investment contributions represent Calavo Sub's 50% ownership in Don Memo, which is included in investment in unconsolidated entities on our balance sheet. In fiscal 2015 and 2014, we advanced $0.8 million and $3.2 million. These monies totaling $4.0, effectively a bridge loan, were repaid in the first quarter of fiscal 2016. We had recorded such loans in prepaids and other current assets. We use the equity method to account for this investment. As of October 31, 2016 and 2015, we have total advances of $0.9 million and $1.8 million to Don Memo, which is recorded in advances to suppliers. During the year ended October 31, 2016 and 2015, we incurred $4.8 million and $2.3 million of expenses to Don Memo pursuant to our consignment agreement.
Effective January 28, 2016, Calavo Growers, Inc. and BoA, entered into a Continuing and Unconditional Guaranty agreement (the "Guaranty"). Under the terms of the Guaranty, the Company unconditionally guarantees and promises to pay BoA any and all Indebtedness, as defined therein, of our unconsolidated subsidiary Agricola Don Memo, S.A. de C.V. ("Don Memo") to BoA. Grupo Belo del Pacifico, S.A. de C.V. has also entered into a similar guarantee with BoA. These guarantees relate to a new loan in the amount of $4.5 million loan from BoA to Don Memo that closed on January 28, 2016. On January 29, 2016, Don Memo, used the proceeds from the new BoA loan to repay $4.0 million due the Company.
56
We had grower advances due from Belher of $4.4 million and $3.0 million as of October 31, 2016 and 2015. In addition, we had infrastructure advances due from Belher of $0.8 million and $1.8 million as of October 31, 2016 and 2015. Of these infrastructure advances $0.2 million was recorded as receivable in prepaid and other current assets and $0.6 million is included in other assets. During the year ended October 31, 2016, 2015 and 2014, we purchased $26.0 million, $14.2 million, and $17.4 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"). Avocados de Jalisco is a Mexican corporation created to engage in procuring, packing and selling avocados in Jalisco Mexico. This entity is approximately 80% owned by Calavo and was consolidated as of October 31, 2015. In the third fiscal quarter of 2016, Avocados de Jalisco completed the construction of a packinghouse located in Jalisco, Mexico; such packinghouse is expected to be operational in the first quarter of 2017. As of October 31, 2016 and 2015, we have made preseason advances of approximately $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:
|
|
|
|
|
|
|
|
|
| Year ended October 31, |
| ||||
(in thousands) |
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
|
|
Rent paid to LIG |
| $ | 529 |
| $ | 522 |
|
Rent paid to THNC, LLC |
| $ | 342 |
| $ | 304 |
|
Sales to Third Coast |
| $ | - |
| $ | 270 |
|
Purchases from Third Coast |
| $ | - |
| $ | 195 |
|
10. Income Taxes
The income tax provision (benefit) consists of the following for the years ended October 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| 2014 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 17,244 |
| $ | 10,150 |
| $ | 7,379 |
|
State |
|
| 2,040 |
|
| 1,650 |
|
| 939 |
|
Foreign |
|
| 982 |
|
| 1,110 |
|
| 842 |
|
Total current |
|
| 20,266 |
|
| 12,910 |
|
| 9,160 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 1,863 |
|
| 3,314 |
|
| (10,392) |
|
State |
|
| 533 |
|
| 98 |
|
| (2,870) |
|
Foreign |
|
| (793) |
|
| (229) |
|
| 186 |
|
Total deferred |
|
| 1,603 |
|
| 3,183 |
|
| (13,076) |
|
Total income tax provision (benefit) |
| $ | 21,869 |
| $ | 16,093 |
| $ | (3,916) |
|
At October 31, 2016 and 2015, gross deferred tax assets totaled approximately $33.9 million and $36.1 million, while gross deferred tax liabilities totaled approximately $18.9 million and $17.0 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.
57
Significant components of our deferred taxes assets (liabilities) as of October 31, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Property, plant, and equipment |
|
| (6,901) |
|
| (6,877) |
|
Intangible assets |
|
| 27,686 |
|
| 31,432 |
|
Unrealized gain, Limoneira investment |
|
| (4,048) |
|
| (1,553) |
|
Investment in FreshRealm |
|
| (6,902) |
|
| (7,024) |
|
Stock-based compensation |
|
| 952 |
|
| 556 |
|
State taxes |
|
| (931) |
|
| (1,358) |
|
Credits and incentives |
|
| 2,070 |
|
| 2,044 |
|
Allowance for accounts receivable |
|
| 875 |
|
| 662 |
|
Inventories |
|
| 395 |
|
| 495 |
|
Accrued liabilities |
|
| 1,912 |
|
| 885 |
|
Other |
|
| (164) |
|
| (219) |
|
Long-term deferred income taxes |
| $ | 14,944 |
| $ | 19,043 |
|
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:
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| 2014 |
|
|
|
|
|
|
|
|
|
Federal statutory tax rate |
| 35.0 | % | 35.0 | % | 35.0 | % |
State taxes, net of federal effects |
| 2.9 |
| 3.0 |
| 22.3 |
|
Foreign income taxes greater than U.S. |
| 0.7 |
| 0.7 |
| 5.8 |
|
Section 199 deduction |
| (1.7) |
| (0.8) |
| 15.8 |
|
Tax Credits |
| - |
| - |
| 15.2 |
|
Other |
| (0.6) |
| (0.7) |
| 0.7 |
|
|
| 36.3 | % | 37.2 | % | 94.8 | % |
We intend to reinvest our accumulated foreign earnings, which approximated $15.5 million at October 31, 2016, indefinitely. As a result, we have not provided any deferred income taxes on such unremitted earnings.
For fiscal years 2016, 2015 and 2014, income (loss) before income taxes related to domestic operations was approximately $61.0 million, $41.5 million, and $(0.6) million. For fiscal years 2016, 2015 and 2014, income (loss) before income taxes related to foreign operations was approximately $(0.6) million, $1.8 million and $3.6 million.
As of October 31, 2016, we had liability of $0.4 million for unrecognized tax benefits related to various foreign income tax matters. As of October 31, 2015, we did not have a liability for unrecognized tax benefits related to various federal and state income tax matters.
In fiscal 2014, the benefit for income taxes of $3.9 million is attributable to the revaluation adjustment of $88.1 million related to contingent consideration which was spread between fiscal year 2014 through fiscal year 2011. The revalued contingent consideration and non-cash compensation expense resulted in $53.6 million additional GAAP expense recorded in fiscal years 2014. In fiscal 2014, the revaluation expense drove pre-tax book income into a loss position, thus causing a benefit for income taxes as this revaluation adjustment is capitalized and amortized as goodwill over the remaining useful life for income tax purposes resulting in a taxable income position for the current year.
We are subject to U.S. federal income tax as well as income of multiple state tax jurisdictions. We are no longer subject to U.S. income tax examinations for the fiscal years prior to October 31, 2013, and are no longer subject to state income tax examinations for fiscal years prior to October 31, 2012.
58
11. Segment Information
As discussed in Note 1, we report our operations in three different business segments: (1) Fresh products, (2) Calavo Foods, and (3) RFG. These three business segments are presented based on how information is used by our Chief Executive Officer to measure performance and allocate resources. The Fresh products segment includes all operations that involve the distribution of avocados and other fresh produce products. The Calavo Foods segment represents all operations related to the purchase, manufacturing, and distribution of prepared products, including guacamole, and salsa. The RFG segment represents all operations related to the manufacturing and distribution of fresh-cut fruit, ready-to-eat vegetables, recipe-ready vegetables and deli products. Selling, general and administrative expenses, as well as other non-operating income/expense items, are evaluated by our Chief Executive Officer in the aggregate. We do not allocate assets, or specifically identify them to, our operating segments.
The following table sets forth sales by product category, by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fresh |
| Calavo |
|
|
|
|
|
|
| ||
| products |
| Foods |
| RFG |
| Total |
| ||||
| (All amounts are presented in thousands) |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 538,687 |
| $ | 63,494 |
| $ | 333,498 |
| $ | 935,679 |
|
Cost of sales |
| 480,690 |
|
| 41,046 |
|
| 306,409 |
|
| 828,145 |
|
Gross margin | $ | 57,997 |
| $ | 22,448 |
| $ | 27,089 |
| $ | 107,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 500,711 |
| $ | 62,156 |
| $ | 293,957 |
| $ | 856,824 |
|
Cost of sales |
| 463,647 |
|
| 41,645 |
|
| 266,305 |
|
| 771,597 |
|
Gross margin | $ | 37,064 |
| $ | 20,511 |
| $ | 27,652 |
| $ | 85,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 470,949 |
| $ | 59,279 |
| $ | 252,282 |
| $ | 782,510 |
|
Cost of sales |
| 434,820 |
|
| 46,269 |
|
| 230,193 |
|
| 711,282 |
|
Gross margin | $ | 36,129 |
| $ | 13,010 |
| $ | 22,089 |
| $ | 71,228 |
|
For fiscal year 2016, 2015 and 2014, inter-segment sales and cost of sales of $4.3 million, $1.5 million and $2.2 million between Fresh products and RFG were eliminated. For fiscal year 2016, 2015 and 2014, inter-segment sales and cost of sales of $2.7 million, $1.9 million and $1.7 million between Calavo Foods and RFG were eliminated.
59
The following table sets forth sales by product category, by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended October 31, 2016 |
| Year Ended October 31, 2015 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fresh |
| Calavo |
|
|
|
|
|
|
| Fresh |
| Calavo |
|
|
|
|
|
|
| ||||
|
|
| products |
| Foods |
| RFG |
| Total |
| products |
| Foods |
| RFG |
| Total |
| ||||||||
Third-party sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avocados |
|
| $ | 493,440 |
| $ | - |
| $ | - |
| $ | 493,440 |
| $ | 471,178 |
| $ | - |
| $ | - |
| $ | 471,178 |
|
Tomatoes |
|
|
| 35,981 |
|
| - |
|
| - |
|
| 35,981 |
|
| 18,681 |
|
| - |
|
| - |
|
| 18,681 |
|
Papayas |
|
|
| 9,514 |
|
| - |
|
| - |
|
| 9,514 |
|
| 9,485 |
|
| - |
|
| - |
|
| 9,485 |
|
Pineapples |
|
|
| 1,060 |
|
| - |
|
| - |
|
| 1,060 |
|
| 2,397 |
|
| - |
|
| - |
|
| 2,397 |
|
Other fresh products |
|
|
| 536 |
|
| - |
|
| - |
|
| 536 |
|
| 442 |
|
| - |
|
| - |
|
| 442 |
|
Food service |
|
|
| - |
|
| 50,716 |
|
| - |
|
| 50,716 |
|
| - |
|
| 49,212 |
|
| - |
|
| 49,212 |
|
Retail and club |
|
|
| - |
|
| 23,216 |
|
| 336,989 |
|
| 360,205 |
|
| - |
|
| 22,736 |
|
| 296,697 |
|
| 319,433 |
|
Total gross sales |
|
|
| 540,531 |
|
| 73,932 |
|
| 336,989 |
|
| 951,452 |
|
| 502,183 |
|
| 71,948 |
|
| 296,697 |
|
| 870,828 |
|
Less sales incentives |
|
|
| (1,844) |
|
| (10,438) |
|
| (3,491) |
|
| (15,773) |
|
| (1,472) |
|
| (9,792) |
|
| (2,740) |
|
| (14,004) |
|
Net sales |
|
| $ | 538,687 |
| $ | 63,494 |
| $ | 333,498 |
| $ | 935,679 |
| $ | 500,711 |
| $ | 62,156 |
| $ | 293,957 |
| $ | 856,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended October 31, 2015 |
| Year Ended October 31, 2014 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fresh |
| Calavo |
|
|
|
|
|
|
| Fresh |
| Calavo |
|
|
|
|
|
|
| ||||
|
|
| products |
| Foods |
| RFG |
| Total |
| products |
| Foods |
| RFG |
| Total |
| ||||||||
Third-party sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avocados |
|
| $ | 471,178 |
| $ | - |
| $ | - |
| $ | 471,178 |
| $ | 433,581 |
| $ | - |
| $ | - |
| $ | 433,581 |
|
Tomatoes |
|
|
| 18,681 |
|
| - |
|
| - |
|
| 18,681 |
|
| 19,705 |
|
| - |
|
| - |
|
| 19,705 |
|
Papayas |
|
|
| 9,485 |
|
| - |
|
| - |
|
| 9,485 |
|
| 12,619 |
|
| - |
|
| - |
|
| 12,619 |
|
Pineapples |
|
|
| 2,397 |
|
| - |
|
| - |
|
| 2,397 |
|
| 5,086 |
|
| - |
|
| - |
|
| 5,086 |
|
Other fresh products |
|
|
| 442 |
|
| - |
|
| - |
|
| 442 |
|
| 1,037 |
|
| - |
|
| - |
|
| 1,037 |
|
Food service |
|
|
| - |
|
| 49,212 |
|
| - |
|
| 49,212 |
|
| - |
|
| 48,085 |
|
| - |
|
| 48,085 |
|
Retail and club |
|
|
| - |
|
| 22,736 |
|
| 296,697 |
|
| 319,433 |
|
| - |
|
| 22,334 |
|
| 255,074 |
|
| 277,408 |
|
Total gross sales |
|
|
| 502,183 |
|
| 71,948 |
|
| 296,697 |
|
| 870,828 |
|
| 472,028 |
|
| 70,419 |
|
| 255,074 |
|
| 797,521 |
|
Less sales incentives |
|
|
| (1,472) |
|
| (9,792) |
|
| (2,740) |
|
| (14,004) |
|
| (1,079) |
|
| (11,140) |
|
| (2,792) |
|
| (15,011) |
|
Net sales |
|
| $ | 500,711 |
| $ | 62,156 |
| $ | 293,957 |
| $ | 856,824 |
| $ | 470,949 |
| $ | 59,279 |
| $ | 252,282 |
| $ | 782,510 |
|
Sales to customers outside the United States were approximately $25.4 million, $26.7 million and $32.8 million for fiscal years 2016, 2015, and 2014.
60
Long-lived assets attributed to geographic areas as of October 31, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| United States |
| Mexico |
| Consolidated |
| |||
2016 |
| $ | 55,715 |
| $ | 32,122 |
| $ | 87,837 |
|
2015 |
| $ | 37,573 |
| $ | 31,875 |
| $ | 69,448 |
|
12. Long-Term Obligations
Long-term obligations at fiscal year ends consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| ||
Farm Credit West, PCA, (FCW) term loan |
| $ | - |
| $ | 1,002 |
|
Bank of America, N.A. (BoA) term loan |
|
| - |
|
| 1,019 |
|
Capital leases |
|
| 583 |
|
| 771 |
|
|
|
| 583 |
|
| 2,792 |
|
Less current portion |
|
| (138) |
|
| (2,206) |
|
|
| $ | 445 |
| $ | 586 |
|
The Company and FCW entered into a Term Loan Agreement (Term Agreement) in connection with the RFG acquisition, effective May 31, 2011. Under the terms of the Term Agreement, we were advanced $15 million for the purchase of RFG. Pursuant to this agreement, we were required to make 60 monthly principal and interest payments, from July 1, 2011 to June 1, 2016. In fiscal 2016, this term loan was repaid in full.
Effective September 30, 2011, the Company and BoA, entered into an agreement, Amendment No. 4 to Loan Agreement (the Agreement), which amended our existing credit facility with BoA. This agreement included a variable rate term loan in the amount of approximately $7.1 million. These proceeds were used to retire approximately 50% of the outstanding balance (as of September 30, 2011) of the term loan owed to FCW related to the purchase of RFG (see above). In fiscal 2016, this term loan was repaid in full.
Effective January 28, 2016, Calavo Growers, Inc. and BoA, entered into a Continuing and Unconditional Guaranty agreement (the "Guaranty"). Under the terms of the Guaranty, the Company unconditionally guarantees and promises to pay BoA any and all Indebtedness, as defined therein, of our unconsolidated subsidiary Agricola Don Memo, S.A. de C.V. ("Don Memo") to BoA. Grupo Belo del Pacifico, S.A. de C.V. has also entered into a similar guarantee with BoA. These guarantees relate to a new loan in the amount of $4.5 million loan from BoA to Don Memo that closed on January 28, 2016. On January 29, 2016, Don Memo, used the proceeds from the new BoA loan to repay $4.0 million due the Company.
At October 31, 2016, capital lease payments are scheduled as follows (in thousands):
|
|
|
|
|
|
| Total |
| |
Year ending October 31: |
|
|
|
|
2017 |
| $ | 162 |
|
2018 |
|
| 118 |
|
2019 |
|
| 104 |
|
2020 |
|
| 103 |
|
2021 |
|
| 99 |
|
Thereafter |
|
| 76 |
|
Minimum lease payments |
|
| 662 |
|
Less interest |
|
| (79) |
|
Present value of future minimum lease payments |
| $ | 583 |
|
61
13. Stock-Based Compensation
The 2005 Stock Incentive Plan
The 2005 Stock Incentive Plan, was a stock-based compensation plan, under which employees and directors may be granted options to purchase shares of our common stock. In June 2012, this plan has been terminated without affecting the outstanding stock options related to this plan.
Stock options were granted with exercise prices of not less than the fair market value at grant date, generally vested over one to five years and generally expired two to five years after the grant date. We settle stock option exercises with newly issued shares of common stock.
We measured compensation cost for all stock-based awards pursuant to this plan at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest. We measured the fair value of our stock based compensation awards on the date of grant.
A summary of stock option activity is as follows (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
| Aggregate |
| ||
|
| Number of Shares |
| Exercise Price |
| Intrinsic Value |
| ||
Outstanding at October 31, 2015 |
| 10 |
| $ | 18.28 |
|
|
|
|
Exercised |
| (2) |
| $ | 19.20 |
|
|
|
|
Outstanding at October 31, 2016 |
| 8 |
| $ | 18.05 |
| $ | 474 |
|
Exercisable at October 31, 2016 |
| 8 |
| $ | 18.05 |
| $ | 474 |
|
The weighted average remaining life of such outstanding options is 2.5 years and the total intrinsic value of options exercised during fiscal 2016 was $0.1 million. The weighted average remaining life of such exercisable options is 2.5 years. The fair value of shares vested during the year ended October 31, 2016, 2015, and 2014 was approximately $0.5 million, $0.5 million, and $0.8 million.
The 2011 Management Incentive Plan
In April 2011, our shareholders approved the Calavo Growers, Inc. 2011 Management Incentive Plan (the 2011 Plan). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2011 Plan. Up to 1,500,000 shares of common stock may be issued by Calavo under the 2011 Plan.
In January 2014, all 12 of our non-employee directors were each granted 1,750 restricted shares (total of 21,000 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $32.49. This grant of restricted stock incurred $0.2 million and $0.5 million in stock compensation expenses in fiscal 2015 and 2014, respectively. As of January 1, 2015, all shares have vested.
In January 2014, our executive officers were granted a total of 10,774 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $30.50. These shares vest in one-third increments, on an annual basis, beginning January 1, 2015. This grant of restricted stock incurred $0.1 million in stock compensation expenses in fiscal 2016, 2015 and 2014.
In January 2015, all 12 of our non-employee directors were granted 1,750 restricted shares each (total of 21,000 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $40.39. On January 1, 2016, as long as the directors are still serving on the board, these shares lose their restriction and become non-forfeitable and transferable. The total recognized stock-based compensation expense for these grants was $0.7 million for fiscal 2015.
62
On February 6, 2015, our executive officers were granted a total of 55,394 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $40.17. These shares vest in one-third increments, on an annual basis, beginning January 8, 2016. These shares were granted pursuant to our 2011 Management Incentive Plan. The total recognized stock-based compensation expense for these grants was $0.5 million for fiscal 2015. On June 15, 2015, our Chief Operating Officer/Chief Financial Officer retired from Calavo. His unvested portion of restricted stock of 12,322 shares issued in February of 2015 and January of 2014 was forfeited. As part of his retirement on June 1 st 2015, he was granted 12,322 shares of unrestricted stock. The closing price of our stock on such date was $49.95. We recorded for this grant $0.6 million of stock-based compensation expense for fiscal years 2016 and 2015.
On January 4, 2016, all 12 of our non-employee directors were granted 1,750 restricted shares each (total of 21,000 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $48.46. On January 3, 2017, as long as the directors are still serving on the board, these shares lose their restriction and become non-forfeitable and transferable. These shares were granted pursuant to our 2011 Management Incentive Plan. The total recognized stock-based compensation expense for these grants was $0.8 million for the year ended October 31, 2016.
On January 8, 2016, our executive officers were granted a total of 24,582 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $48.68. These shares vest in one-third increments, on an annual basis, beginning January 8, 2017. These shares were granted pursuant to our 2011 Management Incentive Plan. The total recognized stock-based compensation expense for these grants was $0.3 million for the year ended October 31, 2016.
63
A summary of restricted stock activity, related to our 2011 Management Incentive Plan, is as follows (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
| Aggregate |
| ||
|
| Number of Shares |
| Grant Price |
| Intrinsic Value |
| ||
Outstanding at October 31, 2015 |
| 72 |
| $ | 39.01 |
|
|
|
|
Vested |
| (39) |
| $ | 39.5 |
|
|
|
|
Granted |
| 51 |
| $ | 48.58 |
|
|
|
|
Outstanding at October 31, 2016 |
| 84 |
| $ | 44.76 |
| $ | 4,981 |
|
The total recognized stock-based compensation expense for restricted stock was $2.1 million for the year ended October 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 |
|
|
|
Exercised |
| (3) |
| $ | 21.80 |
|
|
|
Outstanding at October 31, 2016 |
| 11 |
| $ | 23.33 |
| $ | 395 |
Exercisable at October 31, 2016 |
| 7 |
| $ | 20.13 |
| $ | 274 |
The weighted average remaining life of such outstanding options is 4.3 years. The weighted average remaining life of such exercisable options is 2.8 years. The fair value of shares vested during the year ended October 31, 2016, was $0.3 million.
14. Dividends
On September 27, 2016, the Company declared a $0.90 per share cash dividend to shareholders of record on November 17, 2016. On December 8, 2016, the Company paid this cash dividend which totaled $15.7 million. On December 8, 2015, the Company paid a $0.80 per share dividend in the aggregate amount of $13.9 million to shareholders of record on November 17, 2015.
15. Fair Value Measurements
A fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).
The following table sets forth our financial assets and liabilities as of October 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 pres e nted in thousands) |
| ||||||||||
Assets at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Limoneira Company (1) |
| $ | 34,036 |
|
| - |
|
| - |
| $ | 34,036 |
|
Total assets at fair value |
| $ | 34,036 |
| $ | - |
| $ | - |
| $ | 34,036 |
|
64
(1) The investment in Limoneira Company consists of marketable securities in the Limoneira Company stock. We currently own approximately 12% of Limoneira's outstanding common stock. These securities are measured at fair value by quoted market prices. Limoneira's stock price at October 31, 2016 and October 31, 2015 equaled $19.69 per share and $15.86 per share. Unrealized gains and losses are recognized through other comprehensive income. Unrealized investment holding gains arising during the year ended October 31, 2016 was $6.6 million. Unrealized investment holding losses arising during the year ended October 31, 2015 and 2014 was $16.9 million and $1.2 million.
16. Mexican IVA taxes receivable
Included in prepaids & other current assets and 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, 2016 and 2015, IVA receivables totaled $15.4 million and $11.6 million. Historically, CDM received IVA refund payments from the Mexican tax authorities on a timely basis. Beginning in fiscal 2014 and continuing into fiscal 2016, however, the tax authorities began carrying out more detailed reviews of our refund requests and our supporting documentation. Additionally, they are also questioning the refunds requested attributable to IVA paid to certain suppliers that allegedly did not fulfill their own tax obligations. We believe these factors and others have contributed to delays in the processing of IVA claims by the Mexican tax authorities. Currently, we are in the process of collecting such balances through regular administrative processes, but certain amounts may ultimately need to be recovered via legal means. We believe that our operations in Mexico are properly documented and that the Mexican tax authorities will ultimately authorize the refund of the corresponding IVA amounts. We will continue to monitor the collection of these receivables with our outside consultants.
As of October 31, 2016, $8.4 million and $7.0 million of IVA were recorded in prepaids & other current assets and other assets. As of October 31, 2015, $5.7 million and $5.9 million of IVA receivables were recorded in prepaids & other current assets and other assets.
17. Subsequent Events
Riverside Facility - On November 1, 2016, we acquired certain real property, consisting of land, a refrigerated building and select production and office equipment located at 1730 Eastridge Avenue, Riverside, California (collectively, the "Property") from Fresh Foods, LLC (the "Seller") for total consideration of approximately $19.4 million.
RFG intends to operate the refrigerated facility as part of its network of USDA and organic certified fresh food facilities. On November 3, 2016 the Company issued a press release discussing the completed purchase of the Property.
The acquisition of the Property was effected in connection with a potential reverse exchange pursuant to Section 1031 of the Internal Revenue Code.
Temecula Facility - On December 21, 2016, we entered into an agreement (the "Agreement") with Pac West Group Inc., a Delaware limited liability company (the "Buyer"), pursuant to which the Company will sell to the Buyer certain real property located at 28410 Vincent Moraga Drive, Temecula, California (collectively, the "Temecula Property").
The Agreement contains customary representations and warranties, covenants, closing conditions and termination provisions and contemplates a buyer due diligence period that would lead to a closing date on or before March 8, 2017. Subject to satisfactory completion of the Buyer's due diligence, the purchase price for the Temecula Property will be approximately $6.6 million.
The proceeds from this transaction are currently expected to be used in conjunction with the recently completed acquisition of 1730 Eastridge Avenue, Riverside, California, to complete a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code.
65
Maui Note - On November 30, 2016, we entered into an Amendment to the Goodwill Promissory Note (the "Amended Note") with San Rafael Distributing, Inc., an Arizona corporation ("San Rafael"), pursuant to which the Company has agreed to amend the Goodwill Promissory Note (the "Note") dated as of October 31, 2012.
This Amended Note changes the payment terms from the entire $1.3 million being due on November 1, 2017 to equal monthly installments over a 36 month payment cycle. Interest at the rate of 4.5% per annum shall begin to accrue and be payable on December 1, 2017 and each month thereafter until paid in full.
The payment of the Amended Note is secured by a pledge of all of the membership interest of Maui Fresh International, LLC, a California limited liability company ("Maui") owned by Borrower pursuant to that certain Pledge and Security Agreement (the "Security Agreement") dated as of October 31, 2012 by Borrower in favor of Holder, and the payment of the Note as amended hereby remains secured by the Security Agreement.
66
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Calavo Growers, Inc.
We have audited the accompanying consolidated statements of income, comprehensive income, shareholders' equity, and cash flows of Calavo Growers, Inc. for the year ended October 31, 2014. Our audit also included the financial statement schedule for the year ended October 31, 2014 listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows of Calavo Growers Inc. for the year ended October 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the year ended October 31, 2014, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
|
|
| /s/ Ernst & Young LLP |
|
|
Los Angeles, California |
|
January 30, 2015 |
|
67
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Calavo Growers, Inc.
Santa Paula, California
We have audited the accompanying consolidated balance sheets of Calavo Growers, Inc. and subsidiaries (the Company) as of October 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive operations, shareholders' equity, and cash flows for the years ended October 31, 2016 and 2015. Our audits also included the financial statement schedule listed in the index at Item 15 (a). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Calavo Growers, Inc. and subsidiaries at October 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for the years ended October 31, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Calavo Growers Inc.'s internal control over financial reporting as of October 31, 2016, 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 23, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.
|
|
| /s/ Deloitte & Touche LLP |
|
|
Costa Mesa, California |
|
December 23, 2016 |
|
68
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of October 31, 2016.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended October 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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, 2016. Our internal control over financial reporting as of October 31, 2016 has been audited by Deloitte LLP, an independent registered public accounting firm, as stated in their report which is included herein.
69
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Calavo Growers, Inc.
Santa Paula, California
We have audited internal control over financial reporting of Calavo Growers, Inc. and subsidiaries (the Company) as of October 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended October 31, 2016 of the Company and our report dated December 23, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule.
|
|
| /s/ Deloitte & Touche LLP |
|
|
Costa Mesa, California |
|
December 23, 2016
|
|
70
Item 9B. Other Information
None.
PART III
Certain information required by Part III is omitted from this Annual Report because we will file a definitive Proxy Statement for the Annual Meeting of Shareholders pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the Proxy Statement ), not later than 120 days after the end of the fiscal year covered by this Annual Report, and the applicable information included in the Proxy Statement is incorporated herein by reference.
Item 10. Directors, Executive Officers, and Corporate Governance
The names of our executive officers and their ages, titles and biographies are incorporated by reference from Part I, above.
The following information is included in our Notice of Annual Meeting of Shareholders and Proxy Statement to be filed within 120 days after our fiscal year end of October 31, 2016 (the Proxy Statement) and is incorporated herein by reference:
| Ø |
| Information regarding our directors who are standing for reelection and any persons nominated to become our directors is set forth under "Election of Directors." |
| Ø |
| Information regarding our Audit Committee and designated "audit committee financial expert" is set forth under "Corporate Governance Principles and Board Matters-Board Structure and Committee Composition-Audit Committee." |
| Ø |
| Information on our code of ethics for directors, officers and employees and our Corporate Governance Guidelines is set forth under "Corporate Governance Principles and Board Matters." |
| Ø |
| Information regarding Section 16(a) beneficial ownership reporting compliance is set forth under "Section 16(a) Beneficial Ownership Reporting Compliance." |
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the sections entitled "Executive Compensation" and "Directors' Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the sections entitled "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the section entitled "Certain Relationships and Related Transactions" in the Proxy Statement.
Item 14. Principal Accountant's Fees and Services
Information required by this Item is incorporated herein by reference to the section of the Proxy Statement entitled "Principal Accountant Fees and Services."
71
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) (1) Financial Statements
The following consolidated financial statements as of October 31, 2016 and 2015 and for each of the three years in the period ended October 31, 2016 are included herewith:
Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows, Consolidated Statements of Shareholders' Equity, Notes to Consolidated Financial Statements, and Report of Deloitte and Touche LLP, Independent Registered Public Accounting Firm.
(2) Supplemental Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the consolidated financial statements or notes thereto.
72
(3) Exhibits
|
|
|
Exhibit |
| Description |
|
|
|
2.1 |
| Agreement and Plan of Merger and Reorganization dated as of |
|
| February 20, 2001 between Calavo Growers, Inc. and Calavo |
|
| Growers of California. 1 |
2.2 |
| Agreement and Plan of Merger dated as of November 7, 2003 |
|
| Among Calavo Growers, Inc., Calavo Acquisition, Inc., Maui Fresh |
|
| International, Inc. and Arthur J. Bruno, Robert J. Bruno and Javier J. Badillo 2 |
2.3 |
| Stock Purchase Agreement dated as of June 1, 2005, between |
|
| Limoneira Company and Calavo Growers, Inc. 3 |
2.4 |
| Acquisition Agreement between Calavo Growers, Inc., a California corporation and Lecil E. Cole, Eric Weinert, Suzanne Cole-Savard, Guy Cole, and Lecil E. Cole and Mary Jeanette Cole, acting jointly and severally as trustees of the Lecil E. and Mary Jeanette Cole Revocable Trust dated October 19, 1993, also known as the Lecil E. and Mary Jeanette Cole Revocable 1993 Trust dated May 19, 2008 4 |
2.5 |
| Acquisition Agreement between Calavo Growers, Inc., Calavo Salsa Lisa, LLC, Lisa's Salsa Company and Elizabeth Nicholson and Eric Nicholson dated February 8, 2010 5 |
2.6 |
| Amended and Restated Limited Liability Company Agreement for Calavo Salsa Lisa, LLC dated February 8, 2010 among Calavo Growers, Inc., Calavo Salsa Lisa LLC, Lisa's Salsa Company, Elizabeth Nicholson and Eric Nicholson. (Portions of this agreement have been deleted and filed separately with the Securities and Exchange Commission Pursuant to a request for confidential treatment.) 15 |
2.7 |
| Agreement and Plan of Merger dated May 25, 2011 among Calavo Growers, Inc., CG Mergersub LLC, Renaissance Food Group, LLC and Liberty Fresh Foods, LLC, Kenneth Catchot, Cut Fruit, LLC, James Catchot, James Gibson, Jose O. Castillo, Donald L. Johnson and RFG Nominee Trust 1 (Certain portions of the exhibit have been omitted based upon a request for confidential treatment filed by the Registrant with the Securities and Exchange Commission. The omitted portions of the exhibit have been separately filed by the Registrant with the Securities and Exchange Commission.) 19 |
2.9 |
| Amendment No. 1 to Agreement and Plan of Merger, dated July 31, 2013, among Calavo Growers, Inc., Renaissance Food Group, LLC and Liberty Fresh Foods, LLC, Kenneth Catchot, Cut Fruit, LLC, James Catchot, James Gibson, Jose O. Castillo, Donald L. Johnson and RFG Nominee Trust. 25 |
2.10 |
| Amended and Restated Limited Liability Company Agreement, dated August 16, 2013, by and among FreshRealm, LLC, a Delaware limited liability company, and the Members. 26 |
2.11 |
| Amendment No. 2 to Agreement and Plan of Merger, dated as of October 1, 2013, among Calavo Growers, Inc., Renaissance Food Group, LLC and Liberty Fresh Foods, LLC, Kenneth J. Catchot, Cut Fruit, LLC, James S. Catchot, James Gibson, Jose O. Castillo, Donald L. Johnson and the RFG Nominee Trust. 27 |
3.1 |
| Articles of Incorporation of Calavo Growers, Inc. 1 |
3.2 |
| Amended and Restated Bylaws of Calavo Growers, Inc. 6 |
3.3 |
| Amendments to Articles of Incorporation or Bylaws of Calavo Growers, Inc. 18 |
3.4 |
| Amended and Restated Bylaws of Calavo Growers, Inc., effective as of September 25, 2014. 28 |
10.1 |
| Form of Marketing Agreement for Calavo Growers, Inc. 7 |
10.2 |
| Marketing Agreement dated as of April 1, 1996 between |
|
| Tropical Hawaiian Products, Inc., a Hawaiian corporation, |
|
| and Calavo Growers of California. 1 |
10.3 |
| Lease Agreement dated as of November 21, 1997, between Tede |
|
| S.A. de C.V., a Mexican corporation, and Calavo de Mexico, |
|
| S.A. de C.V., a Mexican corporation, including attached Guaranty |
|
| of Calavo Growers of California dated December 16, 1996. 1 |
10.4 |
| Lease agreement dated as of February 15, 2005, between Limoneira |
|
| Company and Calavo Growers, Inc. 3 |
10.5 |
| Standstill agreement dated June 1, 2005, between Limoneira |
|
| Company and Calavo Growers, Inc. 3 |
73
|
|
|
10.6 |
| Standstill agreement dated June 1, 2005 between Calavo Growers, Inc. |
|
| And Limoneira Company 3 |
10.7 |
| Term Loan Agreement dated April 9, 2008 (effective date May 1, 2008) |
|
| between Farm Credit West, PCA, and Calavo Growers, Inc. 7 |
10.8 |
| 2005 Stock Incentive Plan Of Calavo Growers, Inc. 9 |
10.9 |
| Calavo Supplemental Executive Retirement Agreement dated |
|
| March 11, 1989 between Egidio Carbone, Jr. and Calavo |
|
| Growers of California. 1 |
10.10 |
| Amendment to the Calavo Growers of California Supplemental |
|
| Executive Retirement Agreement dated November 9, 1993 |
|
| Between Egidio Carbone, Jr. and Calavo Growers of California. 1 |
10.11 |
| Line of Credit and Security Agreement, dated July 15, 2013 by and between Calavo Growers, Inc. a California Corporation, and FreshRealm, LLC, a Delaware limited liability company. 26 |
10.12 |
| Business Loan Agreement between Bank of America, N.A. and Calavo |
|
| Growers, Inc., dated October 15, 2007 10 |
10.13 |
| First Amendment Agreement between Bank of America, N.A. and Calavo |
|
| Growers, Inc., dated August 28, 2008 11 |
10.14 |
| Form of Stock Option Agreement 12 |
10.15 |
| Amendment No. 2 to Loan Agreement dated as of July 31, 2009 between Calavo Growers, Inc. and Bank of America, N.A. 13 |
10.16 |
| Amendment to Term Loan Agreement between Farm Credit West, PCA, and Calavo Growers, Inc 14` |
10.17 |
| Amendment No. 3 to Loan Agreement dated February 9, 2010 between Bank of America, N.A. and Calavo Growers, Inc. 15 |
10.18 |
| 2011 Management Incentive Plan of Calavo Growers, Inc. 16 |
10.19 |
| Retention Bonus Agreement between Lecil E. Cole and Calavo Growers, Inc. 17 |
10.20 |
| Term Revolving Credit Agreement between Farm Credit West, PCA and Calavo Growers, Inc. as of May 31, 2011. 20 |
10.21 |
| Term Loan Agreement between Farm Credit West, PCA and Calavo Growers, Inc. as of May 31, 2011. 20 |
10.22 |
| Amendment to Term Revolving Credit Agreement between FCW and Calavo Growers, Inc. dated May 31, 2011. 21 |
10.23 |
| Amendment No. 4 to Loan Agreement dated as of September 30, 2011 between Calavo Growers, Inc. and Bank of America, N.A. 22 |
10.24 |
| Amendment No. 2 to Term Revolving Credit Agreement dated October 31, 2012 between Farm Credit West, PCA and Calavo Growers, Inc. 23 |
10.25 |
| Amendment No. 2 to Term Loan Agreement dated October 31, 2012 between Farm Credit West, PCA and Calavo Growers, Inc. 23 |
10.26 |
| Amendment No. 2 to Promissory Note dated October 31, 2012 between Farm Credit West, PCA and Calavo Growers, Inc. 23 |
10.27 |
| Equity Secured Promissory Note dated October 31, 2013 between Calavo Growers, Inc. and San Rafael Distributing, Inc. 24 |
10.28 |
| Goodwill Secured Promissory Note dated October 31, 2013 between Calavo Growers, Inc. and San Rafael Distributing, Inc. 24 |
10.29 |
| Pledge and Security Agreement dated October 31, 2013 between Calavo Growers, Inc. and San Rafael Distributing, Inc. 24 |
10.30 |
| Personal Guaranty dated October 31, 2013 between Calavo Growers, Inc. and Francisco Clouthier. 24 |
10.31 |
| Restricted Stock Award Agreement, dated January 9, 2014. 29 |
10.32 |
| Restricted Stock Award Agreement, dated January 9, 2014. 29 |
10.33 |
| Restricted Stock Award Agreement, dated January 20, 2015. 30 |
10.34 |
| Restricted Stock Award Agreement, dated February 6, 2015. 31 |
10.35 |
| Amendment to Goodwill Promissory Note * |
10.36 |
| Amendment No. 7 to Business Loan Agreement, dated as of January 19, 2016 between Bank of America, N.A. and Calavo Growers, Inc. 32 |
10.37 |
| Letter Amendment to Revolving Credit Facility, dated January 19, 2016 between Farm Credit West, PCA and Calavo Growers, Inc. 32 |
74
10.38 |
| Letter Amendment to Revolving Credit Facility, dated January 26, 2016 between Farm Credit West, PCA and Calavo Growers, Inc. 33 |
10.39 |
| Amendment No. 8 to Business Loan Agreement, dated as of January 28, 2016 between Bank of America, N.A. and Calavo Growers, Inc. 33 |
10.40 |
| Continuing and Unconditional Guaranty, dated as of January 28, 2016 between Bank of America, N.A. and Calavo Growers, Inc. 33 |
10.41 |
| Amendment No. 9 to Business Loan Agreement, dated as of May 26, 2016 between Bank of America, N.A. and Calavo Growers, Inc. 34 |
10.42 |
| Letter Amendment to Revolving Credit Facility, dated May 26, 2016 between Farm Credit West, PCA and Calavo Growers, Inc. 34 |
10.43 |
| Credit Agreement, dated as of June 14, 2016, by and among Calavo Growers, Inc., and the subsidiary guarantor identified therein and the lenders and agents names therein. 35 |
10.44 |
| Revolving Credit Note, dated as of June 14, 2016, by and among Calavo Growers, Inc., and FCW. 35 |
10.45 |
| First Amendment to Credit Agreement dated August 29, 2016. 36 |
10.46 |
| Agreement to Sell and Purchase and Escrow Instructions with Fresh Foods, LLC, a Delaware limited liability company dated August 3, 2016. 37 |
10.47 |
| First Amendment Agreement to Sell and Purchase and Escrow Instructions, by and among Calavo Growers, Inc., and Fresh Foods, LLC. 38 |
10.48 |
| Agreement to Sell and Purchase and Escrow instructions with Fresh Foods, LLC dated August 3, 2016. 38 |
10.49 |
| Agreement to Sell and Purchase and Escrow instructions with Pac West Group Inc. dated December 21, 2016. * |
21.1 |
| Subsidiaries of Calavo Growers, Inc. 1 |
23.1 |
| Consent of Deloitte & Touche LLP. * |
23.2 |
| Consent of Ernst & Young LLP. * |
31.1 |
| Certification of Chief Executive Officer Pursuant to Rule 13a-15(e) |
|
| or Rule 15d-15(e) * |
31.2 |
| Certification of Chief Financial Officer Pursuant to Rule 13a-15(e) |
|
| or Rule 15d-15(e) * |
|
|
|
32 |
| Certification of Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350 * |
101 |
| The following financial information from the Annual Report on Form 10-K of Calavo Growers, Inc. for the year ended October 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Balance Sheets as of October 31, 2016 and 2015; (2) Consolidated Statements of Income for the years ended October 31, 2016, 2015 and 2014; (3) Consolidated Statements of Comprehensive Income for the years ended October 31, 2016, 2015, and 2014; (4) Consolidated Statements of Shareholders' Equity for the years ended October 31, 2016, 2015, and 2014; (5) Consolidated Statements of Cash Flows for the years ended October 31, 2016, 2015 and 2014; and (6) Notes to Financial Statements. *
|
* Filed with this Annual Report on Form 10-K.
| 1 |
| Previously filed on April 24, 2001 as an exhibit to the Registrant's Registration Statement on Form S-4, File No. 333-59418, and incorporated herein by reference. |
| 2 |
| Previously filed on January 23, 2004 as an exhibit to the Registrant's Report on Form 10-K and incorporated herein by reference. |
| 3 |
| Previously filed on June 9, 2005 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference. |
4 Previously filed on May 29, 2008 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
5 Previously filed on February 8, 2010 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
75
6 Previously filed on December 19, 2002 as an exhibit to the Registrant's Report on Form 8-K, and incorporated herein by reference.
7 Previously filed on January 28, 2003 as an exhibit to the Registrant's Report on Form 10-K and incorporated herein by reference.
8 Previously filed on May 8, 2008 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
9 Previously filed on March 21, 2005 as an exhibit to the Registrant's Definitive Proxy Statement on Form DEF14A and incorporated herein by reference.
10 Previously filed on October 19, 2007 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
11 Previously filed on January 27, 2009 as an exhibit to the Registrant's Report on Form 10-K/A and incorporated herein by reference.
12 Previously filed on September 11, 2006 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
13 Previously filed on August 6, 2009 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
14 Previously filed on January 11, 2010 as an exhibit to the Registrant's Report on Form 10-K and incorporated herein by reference.
15 Previously filed on March 11, 2010 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
16 Previously filed on January 14, 2011 as an exhibit to the Registrant's Report on Form 10-K and incorporated herein by reference.
17 Previously filed on March 2, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
18 Previously filed on March 30, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
19 Previously filed on January 10, 2012 as an exhibit to the Registrant's Report on Form 8-K/A and incorporated herein by reference.
20 Previously filed on June 15, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
21 Previously filed on September 9, 2011 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
22 Previously filed on October 6, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
23 Previously filed on November 14, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
24 Previously filed on November 6, 2012 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
25 Previously filed on September 4, 2013 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
26 Previously filed on September 9, 2013 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
27 Previously filed on November 26, 2013 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
28 Previously filed on September 30, 2014 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
76
29 Previously filed on March 11, 2014 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
30 Previously filed on March 12, 2015 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
31 Previously filed on June 9, 2015 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
32 Previously filed on January 19, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
33 Previously filed on January 26, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
34 Previously filed on May 26, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
35 Previously filed on June 14, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
36 Previously filed on August 29, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
37 Previously filed on September 8, 2016 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
38 Previously filed on November 1, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
(b) Exhibits
See subsection (a) (3) above.
(c) Financial Statement Schedules
See subsection (a) (1) and (2) above.
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 23, 2016.
|
|
|
|
|
| CALAVO GROWERS, INC | |
|
|
| |
|
| By: | /s/ Lecil E. Cole |
|
|
| Lecil E. Cole |
|
|
| Chairman of the Board of Directors, and |
|
|
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 23, 2016 by the following persons on behalf of the registrant and in the capacities indicated:
|
|
|
Signature |
| Title |
|
|
|
/s/ Lecil E. Cole |
| Chairman of the Board of Directors, and |
Lecil E. Cole |
| Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
/s/ B. John Lindeman |
| Chief Financial Officer and Corporate Secretary |
B. John Lindeman |
| (Principal Financial Officer) |
|
|
|
/s/ James E. Snyder |
| Corporate Controller |
James E. Snyder |
| (Principal Accounting Officer) |
|
|
|
/s/ Donald M. Sanders |
| Director |
Donald M. Sanders |
|
|
|
|
|
/s/ Marc L. Brown |
| Director |
Marc L. Brown |
|
|
|
|
|
/s/ John M. Hunt |
| Director |
John M. Hunt |
|
|
|
|
|
|
|
|
/s/ Michael A. DiGregorio |
| Director |
Michael A. DiGregorio |
|
|
|
|
|
/s/ J. Link Leavens |
| Director |
J. Link Leavens |
|
|
|
|
|
/s/ James Helin |
| Director |
James Helin |
|
|
|
|
|
/s/ Dorcas H. Thille |
| Director |
Dorcas H. Thille |
|
|
|
|
|
/s/ Egidio Carbone, Jr |
| Director |
Egidio Carbone, Jr |
|
|
|
|
|
/s/ Steven W. Hollister |
| Director |
Steven W. Hollister |
|
|
|
|
|
/s/ Harold Edwards |
| Director |
Harold Edwards |
|
|
|
|
|
/s/ Scott Van Der Kar |
| Director |
Scott Van Der Kar |
|
|
78
SCHEDULE II
CALAVO GROWERS, INC.
VALUATION AND QUALIFYING ACCOUNTS (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal year |
| Balance at |
|
|
|
|
| Balance at |
|
|
| ended |
| beginning |
|
|
|
|
| end |
|
|
| October 31: |
| of year |
| Additions(1) |
| Deductions(2) |
| of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for customer deductions |
| 2014 |
| 1,482 |
| 11,833 |
| 10,290 |
| 3,025 |
|
|
| 2015 |
| 3,025 |
| 10,400 |
| 11,284 |
| 2,141 |
|
|
| 2016 |
| 2,141 |
| 9,325 |
| 9,621 |
| 1,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
| 2014 |
| 215 |
| 143 |
| 135 |
| 223 |
|
|
| 2015 |
| 223 |
| 74 |
| 126 |
| 171 |
|
|
| 2016 |
| 171 |
| 47 |
| - |
| 218 |
|
(1) Charged to net sales (customer deductions) or costs and expenses (doubtful accounts).
(2) Customer deductions taken or write off of accounts receivables.
79
EXHIBIT INDEX
Exhibit |
| Description |
|
|
|
2.1 |
| Agreement and Plan of Merger and Reorganization dated as of |
|
| February 20, 2001 between Calavo Growers, Inc. and Calavo |
|
| Growers of California. 1 |
2.2 |
| Agreement and Plan of Merger dated as of November 7, 2003 |
|
| Among Calavo Growers, Inc., Calavo Acquisition, Inc., Maui Fresh |
|
| International, Inc. and Arthur J. Bruno, Robert J. Bruno and Javier J. Badillo 2 |
2.3 |
| Stock Purchase Agreement dated as of June 1, 2005, between |
|
| Limoneira Company and Calavo Growers, Inc. 3 |
2.4 |
| Acquisition Agreement between Calavo Growers, Inc., a California corporation and Lecil E. Cole, Eric Weinert, Suzanne Cole-Savard, Guy Cole, and Lecil E. Cole and Mary Jeanette Cole, acting jointly and severally as trustees of the Lecil E. and Mary Jeanette Cole Revocable Trust dated October 19, 1993, also known as the Lecil E. and Mary Jeanette Cole Revocable 1993 Trust dated May 19, 2008 4 |
2.5 |
| Acquisition Agreement between Calavo Growers, Inc., Calavo Salsa Lisa, LLC, Lisa's Salsa Company and Elizabeth Nicholson and Eric Nicholson dated February 8, 2010 5 |
2.6 |
| Amended and Restated Limited Liability Company Agreement for Calavo Salsa Lisa, LLC dated February 8, 2010 among Calavo Growers, Inc., Calavo Salsa Lisa LLC, Lisa's Salsa Company, Elizabeth Nicholson and Eric Nicholson. (Portions of this agreement have been deleted and filed separately with the Securities and Exchange Commission Pursuant to a request for confidential treatment.) 15 |
2.7 |
| Agreement and Plan of Merger dated May 25, 2011 among Calavo Growers, Inc., CG Mergersub LLC, Renaissance Food Group, LLC and Liberty Fresh Foods, LLC, Kenneth Catchot, Cut Fruit, LLC, James Catchot, James Gibson, Jose O. Castillo, Donald L. Johnson and RFG Nominee Trust 1 (Certain portions of the exhibit have been omitted based upon a request for confidential treatment filed by the Registrant with the Securities and Exchange Commission. The omitted portions of the exhibit have been separately filed by the Registrant with the Securities and Exchange Commission.) 19 |
2.8 |
| Sale of LLC Interest Agreement dated October 31, 2013 between Calavo Growers, Inc. and San Rafael Distributing, Inc. 24 |
2.9 |
| Amendment No. 1 to Agreement and Plan of Merger, dated July 31, 2013, among Calavo Growers, Inc., Renaissance Food Group, LLC and Liberty Fresh Foods, LLC, Kenneth Catchot, Cut Fruit, LLC, James Catchot, James Gibson, Jose O. Castillo, Donald L. Johnson and RFG Nominee Trust. 25 |
2.10 |
| Amended and Restated Limited Liability Company Agreement, dated August 16, 2013, by and among FreshRealm, LLC, a Delaware limited liability company, and the Members. 26 |
2.11 |
| Amendment No. 2 to Agreement and Plan of Merger, dated as of October 1, 2013, among Calavo Growers, Inc., Renaissance Food Group, LLC and Liberty Fresh Foods, LLC, Kenneth J. Catchot, Cut Fruit, LLC, James S. Catchot, James Gibson, Jose O. Castillo, Donald L. Johnson and the RFG Nominee Trust. 27 |
3.1 |
| Articles of Incorporation of Calavo Growers, Inc. 1 |
3.2 |
| Amended and Restated Bylaws of Calavo Growers, Inc. 6 |
3.3 |
| Amendments to Articles of Incorporation or Bylaws of Calavo Growers, Inc. 18 |
3.4 |
| Amended and Restated Bylaws of Calavo Growers, Inc., effective as of September 25, 2014. 28 |
10.1 |
| Form of Marketing Agreement for Calavo Growers, Inc. 7 |
10.2 |
| Marketing Agreement dated as of April 1, 1996 between Tropical Hawaiian Products, Inc., a Hawaiian corporation, and Calavo Growers of California. 1 |
10.3 |
| Lease Agreement dated as of November 21, 1997, between Tede S.A. de C.V., a Mexican corporation, and Calavo de Mexico, S.A. de C.V., a Mexican corporation, including attached Guaranty of Calavo Growers of California dated December 16, 1996. 1 |
10.4 |
| Lease agreement dated as of February 15, 2005, between Limoneira Company and Calavo Growers, Inc. 3 |
10.5 |
| Standstill agreement dated June 1, 2005, between Limoneira Company and Calavo Growers, Inc. 3 |
10.6 |
| Standstill agreement dated June 1, 2005 between Calavo Growers, Inc. And Limoneira Company 3 |
80
Exhibit |
| Description |
10.7 |
| Term Loan Agreement dated April 9, 2008 (effective date May 1, 2008) between Farm Credit West, PCA, and Calavo Growers, Inc. 7 |
10.8 |
| 2005 Stock Incentive Plan Of Calavo Growers, Inc. 9 |
10.9 |
| Calavo Supplemental Executive Retirement Agreement dated March 11, 1989 between Egidio Carbone, Jr. and Calavo Growers of California. 1 |
10.10 |
| Amendment to the Calavo Growers of California Supplemental Executive Retirement Agreement dated November 9, 1993 Between Egidio Carbone, Jr. and Calavo Growers of California. 1 |
10.11 |
| Line of Credit and Security Agreement, dated July 15, 2013 by and between Calavo Growers, Inc. a California Corporation, and FreshRealm, LLC, a Delaware limited liability company. 2 6 |
10.12 |
| Business Loan Agreement between Bank of America, N.A. and Calavo Growers, Inc., dated October 15, 2007 10 |
10.13 |
| First Amendment Agreement between Bank of America, N.A. and Calavo Growers, Inc., dated August 28, 2008 11 |
10.14 |
| Form of Stock Option Agreement 12 |
10.15 |
| Amendment No. 2 to Loan Agreement dated as of July 31, 2009 between Calavo Growers, Inc. and Bank of America, N.A. 13 |
10.16 |
| Amendment to Term Loan Agreement between Farm Credit West, PCA, and Calavo Growers, Inc 14 |
10.17 |
| Amendment No. 3 to Loan Agreement dated February 9, 2010 between Bank of America, N.A. and Calavo Growers, Inc. 15 |
10.18 |
| 2011 Management Incentive Plan of Calavo Growers, Inc. 16 |
10.19 |
| Retention Bonus Agreement between Lecil E. Cole and Calavo Growers, Inc. 17 |
10.20 |
| Term Revolving Credit Agreement between Farm Credit West, PCA and Calavo Growers, Inc. as of May 31, 2011. 20 |
10.21 |
| Term Loan Agreement between Farm Credit West, PCA and Calavo Growers, Inc. as of May 31, 2011. 20 |
10.22 |
| Amendment to Term Revolving Credit Agreement between FCW and Calavo Growers, Inc. dated May 31, 2011. 21 |
10.23 |
| Amendment No. 4 to Loan Agreement dated as of September 30, 2011 between Calavo Growers, Inc. and Bank of America, N.A. 22 |
10.24 |
| Amendment No. 2 to Term Revolving Credit Agreement dated October 31, 2012 between Farm Credit West, PCA and Calavo Growers, Inc. 23 |
10.25 |
| Amendment No. 2 to Term Loan Agreement dated October 31, 2012 between Farm Credit West, PCA and Calavo Growers, Inc. 23 |
10.26 |
| Amendment No. 2 to Promissory Note dated October 31, 2012 between Farm Credit West, PCA and Calavo Growers, Inc. 23 |
10.27 |
| Equity Secured Promissory Note dated October 31, 2013 between Calavo Growers, Inc. and San Rafael Distributing, Inc. 24 |
10.28 |
| Goodwill Secured Promissory Note dated October 31, 2013 between Calavo Growers, Inc. and San Rafael Distributing, Inc. 24 |
10.29 |
| Pledge and Security Agreement dated October 31, 2013 between Calavo Growers, Inc. and San Rafael Distributing, Inc. 24 |
10.30 |
| Personal Guaranty dated October 31, 2013 between Calavo Growers, Inc. and Francisco Clouthier. 2 |
10.31 |
| Restricted Stock Award Agreement, dated January 9, 2014. 29 |
10.32 |
| Restricted Stock Award Agreement, dated January 9, 2014. 29 |
10.33 |
| Restricted Stock Award Agreement, dated January 20, 2015. 30 |
10.34 |
| Restricted Stock Award Agreement, dated February 6, 2015. 31 |
10.35 |
| Amendment to Goodwill Promissory Note * |
10.36 |
| Amendment No. 7 to Business Loan Agreement, dated as of January 19, 2016 between Bank of America, N.A. and Calavo Growers, Inc. 32 |
10.37 |
| Letter Amendment to Revolving Credit Facility, dated January 19, 2016 between Farm Credit West, PCA and Calavo Growers, Inc. 32 |
10.38 |
| Letter Amendment to Revolving Credit Facility, dated January 26, 2016 between Farm Credit West, PCA and Calavo Growers, Inc. 33 |
81
Exhibit |
| Description |
10.39 |
| Amendment No. 8 to Business Loan Agreement, dated as of January 28, 2016 between Bank of America, N.A. and Calavo Growers, Inc. 33 |
10.40 |
| Continuing and Unconditional Guaranty, dated as of January 28, 2016 between Bank of America, N.A. and Calavo Growers, Inc. 33 |
10.41 |
| Amendment No. 9 to Business Loan Agreement, dated as of May 26, 2016 between Bank of America, N.A. and Calavo Growers, Inc. 34 |
10.42 |
| Letter Amendment to Revolving Credit Facility, dated May 26, 2016 between Farm Credit West, PCA and Calavo Growers, Inc. 34 |
10.43 |
| Credit Agreement, dated as of June 14, 2016, by and among Calavo Growers, Inc., and the subsidiary guarantor identified therein and the lenders and agents names therein. 35 |
10.44 |
| Revolving Credit Note, dated as of June 14, 2016, by and among Calavo Growers, Inc., and FCW. 35 |
10.45 |
| First Amendment to Credit Agreement dated August 29, 2016. 36 |
10.46 |
| Agreement to Sell and Purchase and Escrow Instructions with Fresh Foods, LLC, a Delaware limited liability company dated August 3, 2016. 37 |
10.47 |
| First Amendment Agreement to Sell and Purchase and Escrow Instructions, by and among Calavo Growers, Inc., and Fresh Foods, LLC. 38 |
10.48 |
| Agreement to Sell and Purchase & Escrow instructions with Fresh Foods, LLC dated August 3, 2016 38 |
10.49 |
| Agreement to Sell and Purchase and Escrow instructions with Pac West Group Inc. dated December 21, 2016. * |
21.1 |
| Subsidiaries of Calavo Growers, Inc. 1 |
23.1 |
| Consent of Deloitte & Touche LLP. * |
23.2 |
| Consent of Ernst & Young LLP. * |
31.1 |
| Certification of Chief Executive Officer Pursuant to Rule 13a-15(e) |
|
| or Rule 15d-15(e) * |
31.2 |
| Certification of Chief Financial Officer Pursuant to Rule 13a-15(e) |
|
| or Rule 15d-15(e) * |
32 |
| Certification of Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350 * |
101 |
| The following financial information from the Annual Report on Form 10-K of Calavo Growers, Inc. for the year ended October 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Balance Sheets as of October 31, 2016 and 2015; (2) Consolidated Statements of Income for the years ended October 31, 2016, 2015 and 2014; (3) Consolidated Statements of Comprehensive Income for the years ended October 31, 2016, 2015, and 2014; (4) Consolidated Statements of Shareholders' Equity for the years ended October 31, 2016, 2015, and 2014; (5) Consolidated Statements of Cash Flows for the years ended October 31, 2016, 2015 and 2014; and (6) Notes to Financial Statements. * |
* Filed with this Annual Report on Form 10-K.
| 1 |
| Previously filed on April 24, 2001 as an exhibit to the Registrant's Registration Statement on Form S-4, File No. 333-59418, and incorporated herein by reference. |
| 2 |
| Previously filed on January 23, 2004 as an exhibit to the Registrant's Report on Form 10-K and incorporated herein by reference. |
| 3 |
| Previously filed on June 9, 2005 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference. |
| 4 |
| Previously filed on May 29, 2008 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 5 |
| Previously filed on February 8, 2010 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 6 |
| Previously filed on December 19, 2002 as an exhibit to the Registrant's Report on Form 8-K, and incorporated herein by reference. |
82
| 7 |
| Previously filed on January 28, 2003 as an exhibit to the Registrant's Report on Form 10-K and incorporated herein by reference. |
| 8 |
| Previously filed on May 8, 2008 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 9 |
| Previously filed on March 21, 2005 as an exhibit to the Registrant's Definitive Proxy Statement on Form DEF14A and incorporated herein by reference. |
| 10 |
| Previously filed on October 19, 2007 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 11 |
| Previously filed on January 27, 2009 as an exhibit to the Registrant's Report on Form 10-K/A and incorporated herein by reference. |
| 12 |
| Previously filed on September 11, 2006 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference. |
| 13 |
| Previously filed on August 6, 2009 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 14 |
| Previously filed on January 11, 2010 as an exhibit to the Registrant's Report on Form 10-K and incorporated herein by reference. |
| 15 |
| Previously filed on March 11, 2010 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference. |
| 16 |
| Previously filed on January 14, 2011 as an exhibit to the Registrant's Report on Form 10-K and incorporated herein by reference. |
| 17 |
| Previously filed on March 2, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 18 |
| Previously filed on March 30, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 19 |
| Previously filed on January 10, 2012 as an exhibit to the Registrant's Report on Form 8-K/A and incorporated herein by reference. |
| 20 |
| Previously filed on June 15, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 21 |
| Previously filed on September 9, 2011 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference. |
| 22 |
| Previously filed on October 6, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 23 |
| Previously filed on November 14, 2011 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 24 |
| Previously filed on November 6, 2012 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 25 |
| Previously filed on September 4, 2013 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 26 |
| Previously filed on September 9, 2013 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference. |
| 27 |
| Previously filed on November 26, 2013 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 28 |
| Previously filed on September 30, 2014 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference. |
| 29 |
| Previously filed on March 11, 2014 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference. |
83
30 Previously filed on March 12, 2015 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
31 Previously filed on June 9, 2015 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
32 Previously filed on January 19, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
33 Previously filed on January 26, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
34 Previously filed on May 26, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
35 Previously filed on June 14, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
36 Previously filed on August 29, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
37 Previously filed on September 8, 2016 as an exhibit to the Registrant's Report on Form 10-Q and incorporated herein by reference.
38 Previously filed on November 1, 2016 as an exhibit to the Registrant's Report on Form 8-K and incorporated herein by reference.
84