XNAS:CVGW Calavo Growers, Inc. Quarterly Report 10-Q Filing - 4/30/2012

Effective Date 4/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended April 30, 2012

OR

 

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

Commission file number: 000-33385

 

 

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

California   33-0945304
(State of incorporation)   (I.R.S. Employer Identification No.)

1141-A Cummings Road

Santa Paula, California 93060

(Address of principal executive offices) (Zip code)

(805) 525-1245

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    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

Registrant’s number of shares of common stock outstanding as of April 30, 2012 was 14,787,433

 

 

 


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CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Calavo Growers, Inc. and its consolidated subsidiaries (Calavo, the Company, we, us or our) may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, currency exchange rates, the impact of acquisitions or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration plans; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Calavo and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic trends and events; the competitive pressures faced by Calavo’s businesses; the development and transition of new products and services (and the enhancement of existing products and services) to meet customer needs; integration and other risks associated with business combinations; the hiring and retention of key employees; the resolution of pending investigations, claims and disputes; and other risks that are described herein, including, but not limited to, the items discussed in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended October 31, 2011, and those detailed from time to time in our other filings with the Securities and Exchange Commission. Calavo assumes no obligation and does not intend to update these forward-looking statements.

 

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CALAVO GROWERS, INC.

INDEX

 

          PAGE  

PART I. FINANCIAL INFORMATION

  

Item 1.

  

Financial Statements (unaudited):

  
  

Consolidated Condensed Balance Sheets – April 30, 2012 and October 31, 2011

     4   
  

Consolidated Condensed Statements of Income – Three Months and Six Months Ended April 30, 2012 and 2011

     5   
  

Consolidated Condensed Statements of Comprehensive Income – Three Months and Six Months Ended April 30, 2012 and 2011

     6   
  

Consolidated Condensed Statements of Cash Flows – Six Months Ended April 30, 2012 and 2011

     7   
  

Notes to Consolidated Condensed Financial Statements

     8   

Item 2.

  

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

     16   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     24   

Item 4.

  

Controls and Procedures

     24   

PART II. OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

     25   

Item 1A.

  

Risk Factors

     25   

Item 6.

  

Exhibits

     25   
  

Signatures

     26   

EX-31.1

  

Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

EX-31.2

  

Certification of Principal Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

EX-32.1

  

Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report.

  

EX-101

  

XBRL Instance Document

  

EX-101

  

XBRL Schema Document

  

EX-101

  

XBRL Calculation Linkbase Document

  

EX-101

  

XBRL Labels Linkbase Document

  

EX-101

  

XBRL Presentation Linkbase Document

  

EX-101

  

XBRL Definition Linkbase Document

  

 

3


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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)

 

     April 30,      October 31,  
     2012      2011  

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 4,682       $ 2,774   

Accounts receivable, net of allowances of $2,718 (2012) and $2,285 (2011)

     51,512         36,101   

Inventories, net

     25,032         17,787   

Prepaid expenses and other current assets

     6,797         6,220   

Advances to suppliers

     1,342         3,349   

Income taxes receivable

     —           3,111   

Deferred income taxes

     2,136         2,136   
  

 

 

    

 

 

 

Total current assets

     91,501         71,478   

Property, plant, and equipment, net

     48,606         47,091   

Investment in Limoneira Company

     29,057         29,991   

Investment in unconsolidated entities

     2,498         2,292   

Goodwill

     18,349         18,349   

Other assets

     15,242         16,122   
  

 

 

    

 

 

 
   $ 205,253       $ 185,323   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Current liabilities:

     

Payable to growers

   $ 12,535       $ 5,082   

Trade accounts payable

     9,010         7,038   

Accrued expenses

     19,367         19,285   

Income tax payable

     471         —     

Short-term borrowings

     33,190         17,860   

Dividend payable

     —           8,123   

Current portion of long-term obligations

     5,473         5,448   
  

 

 

    

 

 

 

Total current liabilities

     80,046         62,836   

Long-term liabilities:

     

Long-term obligations, less current portion

     16,189         18,244   

Deferred income taxes

     7,638         8,002   
  

 

 

    

 

 

 

Total long-term liabilities

     23,827         26,246   

Commitments and contingencies:

     

Noncontrolling interest

     421         461   

Shareholders’ equity:

     

Common stock, $0.001 par value; 100,000

shares authorized; 14,787 (2012) and 14,770 (2011)

issued and outstanding

     14         14   

Additional paid-in capital

     50,451         49,929   

Accumulated other comprehensive income

     3,366         3,935   

Retained earnings

     47,128         41,902   
  

 

 

    

 

 

 

Total shareholders’ equity

     100,959         95,780   
  

 

 

    

 

 

 
   $ 205,253       $ 185,323   
  

 

 

    

 

 

 

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

 

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CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

 

    

Three months ended

April 30,

   

Six months ended

April 30,

 
     2012     2011     2012     2011  

Net sales

   $ 138,992      $ 118,720      $ 256,386      $ 210,039   

Cost of sales

     124,297        109,386        229,789        192,175   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     14,695        9,334        26,597        17,864   

Selling, general and administrative

     7,618        5,549        15,112        10,425   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     7,077        3,785        11,485        7,439   

Interest expense

     (311     (235     (609     (439

Other income, net

     469        458        706        684   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     7,235        4,008        11,582        7,684   

Provision for income taxes

     4,700        1,634        6,395        3,020   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     2,535        2,374        5,187        4,664   

Add: Net loss – noncontrolling interest

     13        30        40        51   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Calavo Growers, Inc.

   $ 2,548      $ 2,404      $ 5,227      $ 4,715   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ 0.17      $ 0.16      $ 0.35      $ 0.32   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.17      $ 0.16      $ 0.35      $ 0.32   
  

 

 

   

 

 

   

 

 

   

 

 

 

Number of shares used in per share computation:

        

Basic

     14,787        14,726        14,779        14,724   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     14,802        14,734        14,792        14,731   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

 

    

Three months ended

April 30,

   

Six months ended

April 30,

 
     2012     2011     2012     2011  

Net income

   $ 2,535      $ 2,374      $ 5,187      $ 4,664   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax:

        

Unrealized holding gains (losses) arising during period

     (2,022     (847     (933     3,060   

Income tax benefit (expense) related to items of other comprehensive income (loss)

     789        330        364        (1,116
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (1,233     (517     (569     1,944   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     1,302        1,857        4,618        6,608   
  

 

 

   

 

 

   

 

 

   

 

 

 

Add: Net loss – noncontrolling interest

     13        30        40        51   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income – Calavo Growers, Inc.

   $ 1,315      $ 1,887      $ 4,658      $ 6,659   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

     Six months ended
April 30,
 
     2012     2011  

Cash Flows from Operating Activities:

    

Net income

   $ 5,187      $ 4,664   

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     2,780        1,839   

Provision for losses on accounts receivable

     5        3   

Income from unconsolidated entities

     (347     (404

Interest on contingent consideration

     62        35   

Revalue adjustment on contingent consideration

     171        —     

Stock-based compensation expense

     210        66   

Effect on cash of changes in operating assets and liabilities:

    

Accounts receivable

     (15,416     (9,361

Inventories, net

     (7,245     (6,989

Prepaid expenses and other current assets

     (577     2,995   

Advances to suppliers

     2,007        927   

Income taxes receivable

     3,206        (44

Other assets

     106        (2

Payable to growers

     7,453        4,084   

Income taxes payable

     471        —     

Trade accounts payable and accrued expenses

     1,795        (3,155
  

 

 

   

 

 

 

Net cash used in operating activities

     (132     (5,342

Cash Flows from Investing Activities:

    

Acquisitions of and deposits on property, plant, and equipment

     (3,494     (2,806

Distributions from unconsolidated entity

     141        164   
  

 

 

   

 

 

 

Net cash used in investing activities

     (3,353     (2,642

Cash Flows from Financing Activities:

    

Payment of dividend to shareholders

     (8,124     (8,099

Proceeds on revolving credit facilities, net

     15,330        16,210   

Payments on long-term obligations

     (2,030     (34

Exercise of stock options

     217        213   
  

 

 

   

 

 

 

Net cash provided by financing activities

     5,393        8,290   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     1,908        306   

Cash and cash equivalents, beginning of period

     2,774        1,064   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 4,682      $ 1,370   
  

 

 

   

 

 

 

Noncash Investing and Financing Activities:

    

Tax benefit related to stock option exercise

   $ 95      $ 42   
  

 

 

   

 

 

 

Collection for Beltran Infrastructure Advance

   $ —        $ 1,225   
  

 

 

   

 

 

 

Unrealized investment holding gains (losses)

   $ (933   $ 3,060   
  

 

 

   

 

 

 

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

 

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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, Mexico, and Chile. Through our various operating facilities, we sort, pack, and/or ripen avocados, tomatoes and/or Hawaiian grown papayas. Additionally, we also produce salsa and prepare ready-to-eat produce and deli products.

During the second quarter of 2012, we increased the number of our reportable segments. Renaissance Food Group, LLC (RFG), which was previously included in our Calavo Foods segment, has now been separated as a segment of its own. Accordingly, we now have three reportable operating segments, (1) Fresh products, (2) Calavo Foods, and (3) RFG. Segment results of the prior period have been reclassified to reflect these changes. Beginning with the second quarter of 2012, our Chief Executive Officer reviews our business as having three reportable segments. The change in segments was made as RFG ceased having similar economic characteristics to products included in our Calavo Foods segment.

The accompanying unaudited consolidated condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2011.

Recently Adopted Accounting Pronouncements

In December 2010, the FASB issued an update to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The adoption of this accounting guidance did not have a material impact on our financial position, results of operations or liquidity.

Recently Issued Accounting Standards

In June 2011, the FASB issued guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The adoption of this standard will only impact the presentation of our consolidated financial statements and will have no impact on the reported results.

 

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In December 2011, the FASB issued guidance to defer the effective date for those aspects relating to the presentation of reclassification adjustments out of accumulated other comprehensive income. The adoption of this standard will only impact the presentation of our consolidated financial statements and will have no impact on the reported results.

In May 2011, the FASB issued additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. We do not believe that adoption of this guidance will have a material impact on our financial position and results of operations.

Reclassifications

Certain items in the prior period consolidated condensed financial statements have been reclassified to conform to the current period presentation.

2.    Information regarding our operations in different segments

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

 

     Six months ended April 30, 2012     Six months ended April 30, 2011  
     Fresh
products
    Calavo
Foods
    RFG      Total     Fresh
products
    Calavo
Foods
    RFG      Total  

Third-party sales:

                  

Avocados

   $ 141,078      $ —        $ —         $ 141,078      $ 160,293      $ —        $ —         $ 160,293   

Tomatoes

     11,146        —          —           11,146        20,112        —          —           20,112   

Papayas

     6,635        —          —           6,635        6,388        —          —           6,388   

Pineapples

     3,217        —          —           3,217        594        —          —           594   

Other fresh products

     1,193        —          —           1,193        1,506        —          —           1,506   

Food service

     —          17,322        —           17,322        —          17,790        —           17,790   

Retail and club

     —          9,767        71,037         80,804        —          8,154        —           8,154   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total gross sales

     163,269        27,089        71,037         261,395        188,893        25,944        —           214,837   

Less sales incentives

     (401     (4,608     —           (5,009     (587     (4,211     —           (4,798
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net sales

   $ 162,868      $ 22,481      $ 71,037       $ 256,386      $ 188,306      $ 21,733      $ —         $ 210,039   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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     Three months ended April 30, 2012     Three months ended April 30, 2011  
     Fresh
products
    Calavo
Foods
    RFG      Total     Fresh
products
    Calavo
Foods
    RFG      Total  

Third-party sales:

                  

Avocados

   $ 76,958      $ —        $ —         $ 76,958      $ 90,645      $ —        $ —         $ 90,645   

Tomatoes

     8,946        —          —           8,946        13,195        —          —           13,195   

Papayas

     3,142        —          —           3,142        2,971        —          —           2,971   

Pineapples

     1,964        —          —           1,964        593        —          —           593   

Other fresh products

     909        —          —           909        593        —          —           593   

Food service

     —          8,916        —           8,916        —          9,312        —           9,312   

Retail and club

     —          4,622        36,058         40,680        —          3,945        —           3,945   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total gross sales

     91,919        13,538        36,058         141,515        107,997        13,257        —           121,254   

Less sales incentives

     (187     (2,336     —           (2,523     (347     (2,187     —           (2,534
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net sales

   $ 91,732      $ 11,202      $ 36,058       $ 138,992      $ 107,650      $ 11,070      $ —         $ 118,720   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

     Fresh
products
     Calavo
Foods
     RFG      Total  
     (All amounts are presented in thousands)  

Six months ended April 30, 2012

           

Net sales

   $ 162,868       $ 22,481       $ 71,037       $ 256,386   

Cost of sales

     148,934         15,154         65,701         229,789   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross margin

   $ 13,934       $ 7,327       $ 5,336       $ 26,597   
  

 

 

    

 

 

    

 

 

    

 

 

 

Six months ended April 30, 2011

           

Net sales

   $ 188,306       $ 21,733       $ —         $ 210,039   

Cost of sales

     174,784         17,391         —           192,175   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross margin

   $ 13,522       $ 4,342       $ —         $ 17,864   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the six months ended April 30, 2012 and 2011, inter-segment sales and cost of sales for Fresh products totaling $11.3 million and $8.6 million were eliminated. For the six months ended April 30, 2012 and 2011, inter-segment sales and cost of sales for Calavo Foods totaling $5.8 million were eliminated.

 

     Fresh
products
     Calavo
Foods
     RFG      Total  
     (All amounts are presented in thousands)  

Three months ended April 30, 2012

           

Net sales

   $ 91,732       $ 11,202       $ 36,058       $ 138,992   

Cost of sales

     83,767         7,283         33,247         124,297   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross margin

   $ 7,965       $ 3,919       $ 2,811       $ 14,695   
  

 

 

    

 

 

    

 

 

    

 

 

 

Three months ended April 30, 2011

           

Net sales

   $ 107,650       $ 11,070       $ —         $ 118,720   

Cost of sales

     100,107         9,279         —           109,386   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross margin

   $ 7,543       $ 1,791       $ —         $ 9,334   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three months ended April 30, 2012 and 2011, inter-segment sales and cost of sales for Fresh products totaling $6.3 million and $4.3 million were eliminated. For the three months ended April 30, 2012 and 2011, inter-segment sales and cost of sales for Calavo Foods totaling $2.9 million and $2.8 million were eliminated.

 

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3.    Inventories

Inventories consist of the following (in thousands):

 

     April 30,
2012
     October 31,
2011
 

Fresh fruit

   $ 9,295       $ 6,588   

Packing supplies and ingredients

     9,262         5,610   

Finished prepared foods

     6,475         5,589   
  

 

 

    

 

 

 
   $ 25,032       $ 17,787   
  

 

 

    

 

 

 

During the three and six-month periods ended April 30, 2012 and 2011, we were not required to and did not record any provisions to reduce our inventories to the lower of cost or market.

4.    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 three months ended April 30, 2012 and 2011, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $1.8 million and $2.0 million. During the six months ended April 30, 2012 and 2011, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $2.1 million and $3.5 million. Amounts payable to these board members were $ 1.1 million and $0.1 million as of April 30, 2012 and October 31, 2011.

During the three and six months ended April 30, 2012 and 2011, we received $0.1 million as dividend income from Limoneira Company.

The three previous owners and current executives of RFG have a majority ownership of certain entities that provide various services to RFG. RFG’s California operating facility leases a building from LIG partners, LLC (LIG) pursuant to an operating lease. LIG is majority owned by an entity owned by such three executives of RFG. For the three months ended April 30, 2012, total rent paid to LIG was $0.1 million. For the six months ended April 30, 2012, total rent paid to LIG was $0.3 million. Additionally, RFG sells cut produce and purchases raw materials, obtains transportation services, and shares costs for certain utilities with Third Coast Fresh Distribution (Third Coast). Third Coast is majority owned by an entity owned by such three executives of RFG. For the three months ended April 30, 2012, total sales made to Third Coast were $0.7 million. For the six months ended April 30, 2012, total sales made to Third Coast were $1.5 million. For the three months April 30, 2012, total purchases made from Third Coast were $0.5 million. For the six months April 30, 2012, total purchases made from Third Coast were $1.0 million. Amounts due from Third Coast were $0.4 million and $0.3 million at April 30, 2012 and October 31, 2011. Amounts due to Third Coast were $0.2 million at April 30, 2012 and October 31, 2011.

5.    Other assets

Other assets consist of the following (in thousands):

 

     April 30,
2012
     October 31,
2011
 

Intangibles, net

   $ 10,054       $ 10,771   

Grower advances

     1,383         1,531   

Loan to Agricola Belher

     3,380         3,380   

Other

     425         440   
  

 

 

    

 

 

 
   $ 15,242       $ 16,122   
  

 

 

    

 

 

 

 

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Intangible assets consist of the following (in thousands):

 

            April 30, 2012     

October 31, 2011

 
     Weighted-
Average
Useful Life
     Gross
Carrying
Value
     Accum.
Amortization
    Net
Book
Value
     Gross
Carrying
Value
     Accum.
Amortization
    Net
Book
Value
 

Customer list/relationships

     8.0 years       $ 7,640       $ (926   $ 6,714       $ 7,640       $ (445   $ 7,195   

Trade names

     8.4 years         3,009         (1,342     1,667         3,009         (1,207     1,802   

Trade secrets/recipes

     12.0 years         1,520         (286     1,234         1,520         (205     1,315   

Brand name intangibles

     indefinite         275         —          275         275         —          275   

Non-competition agreements

     5.0 years         267         (103     164         267         (83     184   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Intangibles, net

      $ 12,711       $ (2,657   $ 10,054       $ 12,711       $ (1,940   $ 10,771   
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

We anticipate recording amortization expense of approximately $0.7 million for the remainder of fiscal 2012, with $1.4 million of amortization expense for each of the fiscal years 2013 through 2015. We anticipate recording amortization expense of approximately $1.3 million for fiscal year 2016. The remainder of approximately $3.5 million will be amortized over fiscal years 2017 through 2023.

6.    Stock-Based Compensation

In April 2011, our shareholders approved the Calavo Growers, Inc. 2011 Management Incentive Plan (the “2011 Plan”). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2011 Plan. Up to 1,500,000 shares of common stock may be issued by Calavo under the 2011 Plan. As a result of such new plan, no new awards will be made under our 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. We anticipate terminating such plan in the near future.

On January 26, 2012, all 12 of our non-employee directors were granted 1,000 restricted shares each (total of 12,000 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $27.68. On January 1, 2013, 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.

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

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

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

 

     Number
of
Shares
    Weighted-
Average

Exercise
Price
     Aggregate
Intrinsic
Value
 

Outstanding at October 31, 2011

     72      $ 13.75         —     

Exercised

     (18   $ 14.58         —     
  

 

 

      

Outstanding at April 30, 2012

     54      $ 14.23       $ 1,562   
  

 

 

      

 

 

 

Exercisable at April 30, 2012

     19      $ 19.83       $ 551   
  

 

 

      

 

 

 

At April 30, 2012, outstanding stock options had a weighted-average remaining contractual term of 5.2 years. At April 30, 2012, exercisable stock options had a weighted-average remaining contractual term of 3.9 years. The total recognized stock-based compensation expense was insignificant for the three months ended April 30, 2012.

 

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

 

     Number
of
Shares
     Weighted-
Average

Exercise
Price
     Aggregate
Intrinsic
Value
 

Outstanding at October 31, 2011

     65       $ 21.82         —     

Outstanding at April 30, 2012

     65       $ 21.82       $ 448   
  

 

 

       

 

 

 

Exercisable at April 30, 2012

     55       $ 21.82       $ 1,579   
  

 

 

       

 

 

 

At April 30, 2012, outstanding stock options had a weighted-average remaining contractual term of 1.9 years. The total recognized stock-based compensation expense was $0.1 million for the three months ended April 30, 2012, and $0.2 million for the six months ended April 30, 2012.

7.    Other events

Dividend payment

On December 12, 2011, we paid a $0.55 per share dividend in the aggregate amount of $8.1 million to shareholders of record on December 2, 2011.

Contingencies

Hacienda Suits — During the third quarter of fiscal year 2012, we received an update from our outside legal counsel regarding the Hacienda’s examination of the tax year ended December 31, 2004. As previously disclosed, we were awaiting the resolution of two outstanding tax assessments from the Hacienda for which we had previously received unfavorable rulings. The appellate court, via a second resolution, upheld the lower court’s decision on these two remaining items. Management, as well as our outside legal counsel, still believes the company’s position is correct and the final outcome should have been in our favor.

Based on discussions with our outside legal counsel in Mexico, we do not believe it is likely that we will be able to appeal this decision any further (i.e. to the Mexican Supreme Court). The total assessment related to these allegations is estimated to be approximately $1.9 million, which we recorded as income tax expense and income tax payable as of and for the period ended April 30, 2012.

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.

8.    Fair value measurements

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

 

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The following table sets forth our financial assets and liabilities as of April 30, 2012 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:

 

     Level 1      Level 2      Level 3      Total  
     (All amounts are presented in thousands)  

Assets at Fair Value:

           

Investment in Limoneira Company(1)

   $ 29,057         —           —         $ 29,057   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 29,057       $ —         $ —         $ 29,057   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

The investment in Limoneira Company consists of marketable securities in the Limoneira Company stock. We currently own approximately 15% of Limoneira’s outstanding common stock. These securities are measured at fair value by quoted market prices. Limoneira’s stock price at April 30, 2012 and October 31, 2011 equaled $16.81 per share and $17.35 per share. Unrealized gains and losses are recognized through other comprehensive income. Unrealized investment holding losses arising during the three months ended April 30, 2012 and 2011 were $2.0 million and $0.8 million. Unrealized investment holding losses arising during the six months ended April 30, 2012 were $0.9 million. Unrealized investment holding gains arising during the six months ended April 30, 2011 were $3.1 million.

 

     Level 1      Level 2      Level 3      Total  
     (All amounts are presented in thousands)  

Liabilities at fair value:

           

Salsa Lisa contingent consideration(2)

     —           —         $ 1,006       $ 1,006   

RFG contingent consideration(2)

     —           —         $ 1,857       $ 1,857   
     

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ —         $ —         $ 2,863       $ 2,863   
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) 

Each period we revalue the contingent consideration obligations to their fair value and record increases or decreases in the fair value into selling, general and administrative expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period. Total net increase to the contingent considerations during the three and six months ended April 30, 2012 totaled $0.1 million and $0.2 million.

The following is a reconciliation of the beginning and ending amounts of the contingent consideration for Salsa Lisa and RFG:

 

     Balance at
October 31,
2011
     Interest      Revalue
Adjustment
     Balance
April 30,
2012
 
     (All amounts are presented in thousands)  

Salsa Lisa contingent consideration

   $ 978       $ 28       $ —         $ 1,006   

RFG contingent consideration

     1,652         34         171         1,857   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,630       $ 62       $ 171       $ 2,863   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

9.    Noncontrolling interest

The following table reconciles shareholders’ equity attributable to noncontrolling interest related to the Salsa Lisa acquisition (in thousands):

 

     Three months
ended

April 30, 2012
    Three months
ended

April 30, 2011
 

Noncontrolling interest, beginning

   $ 434      $ 554   

Net loss attributable to noncontrolling interest

     (13     (30
  

 

 

   

 

 

 

Noncontrolling interest, ending

   $ 421      $ 524   
  

 

 

   

 

 

 

 

     Six months
ended

April 30, 2012
    Six months
ended

April 30, 2011
 

Noncontrolling interest, beginning

   $ 461      $ 575   

Net loss attributable to noncontrolling interest

     (40     (51
  

 

 

   

 

 

 

Noncontrolling interest, ending

   $ 421      $ 524   
  

 

 

   

 

 

 

10.    Subsequent events

We have evaluated subsequent events to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Such events were evaluated through the date these financial statements were issued. Based upon this evaluation, it was determined that no subsequent events occurred that require recognition in the financial statements, except as disclosed in footnote 7.

 

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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with the unaudited consolidated condensed financial statements and the notes thereto included in this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K for the year ended October 31, 2011 of Calavo Growers, Inc. (we, Calavo, or the Company).

Recent Developments

Dividend payment

On December 12, 2011, we paid a $0.55 per share dividend in the aggregate amount of $8.1 million to shareholders of record on December 2, 2011.

Contingencies

Hacienda Suits — During the third quarter of fiscal year 2012, we received an update from our outside legal counsel regarding the Hacienda’s examination of the tax year ended December 31, 2004. As previously disclosed, we were awaiting the resolution of two outstanding tax assessments from the Hacienda for which we had previously received unfavorable rulings. The appellate court, via a second resolution, upheld the lower court’s decision on these two remaining items. Management, as well as our outside legal counsel, still believes the company’s position is correct and the final outcome should have been in our favor.

Based on discussions with our outside legal counsel in Mexico, we do not believe it is likely that we will be able to appeal this decision any further (i.e. to the Mexican Supreme Court). The total assessment related to these allegations is estimated to be approximately $1.9 million, which we recorded as income tax expense and income tax payable as of and for the period ended April 30, 2012.

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.

Net Sales

The following table summarizes our net sales by business segment for each of the three and six-month periods ended April 30, 2012 and 2011:

 

     Three months ended April 30,     Six months ended April 30,  

(in thousands)

   2012     Change     2011     2012     Change     2011  

Net sales to third-parties:

            

Fresh products

   $ 91,732        (14.8 )%    $ 107,650      $ 162,868        (13.5 )%    $ 188,306   

Calavo Foods

     11,202        1.2     11,070        22,481        3.4     21,733   

RFG

     36,058        N/A        —          71,037        N/A        —     
  

 

 

     

 

 

   

 

 

     

 

 

 

Total net sales

   $ 138,992        17.1   $ 118,720      $ 256,386        22.1   $ 210,039   
  

 

 

     

 

 

   

 

 

     

 

 

 

As a percentage of net sales:

            

Fresh products

     66.0       90.7     63.5       89.7

Calavo Foods

     8.1       9.3     8.8       10.3

RFG

     25.9       —          27.7       —     
  

 

 

     

 

 

   

 

 

     

 

 

 
     100.0       100.0     100.0       100.0
  

 

 

     

 

 

   

 

 

     

 

 

 

 

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Table of Contents

Net sales for the second quarter of fiscal 2012, compared to fiscal 2011, increased by $20.3 million, or 17.1%. The increase in sales, when compared to the same corresponding prior year period, is primarily related to the sales of RFG, which was acquired on June 1, 2011. Not considering RFG, we experienced a decrease in Fresh product sales during the second quarter of fiscal 2012, which was due primarily to decreased sales of Mexican and California sourced avocados, as well as tomatoes, partially offset by an increase in sales of Chilean sourced avocados and pineapples.

Net sales for the six months ended April 30, 2012, compared to fiscal 2011, increased by $46.3 million, or 22.1%. The increase in sales, when compared to the same corresponding prior year period, is primarily related to the sales of RFG. Not considering RFG, we experienced a decrease in Fresh product sales during the second quarter of fiscal 2012, which was due primarily to decreased sales of Mexican and California sourced avocados, as well as tomatoes, partially offset by an increase in sales of Chilean sourced avocados and pineapples. While the procurement of fresh avocados related to our Fresh products segment is very seasonal, our Calavo Foods business is generally not subject to a seasonal effect.

Fresh products

Second Quarter 2012 vs. Second Quarter 2011

Net sales delivered by the Fresh products business decreased by approximately $15.9 million, or 14.8%, for the second quarter of fiscal 2012, when compared to the same period for fiscal 2011. As discussed above, this decrease in Fresh product sales during the second quarter of fiscal 2012 was primarily related to decreased sales of Mexican and California sourced avocados and tomatoes, partially offset by an increase in sales from Chilean sourced avocados and pineapples. See details below.

Sales of Mexican sourced avocados decreased $15.0 million, or 21.4%, for the second quarter of 2012, when compared to the same prior year period. The decrease in Mexican sourced avocados was due to a decrease in the sales price per carton, which decreased by approximately 32.0%, when compared to the same prior year period. We attribute this decrease primarily to a higher overall volume of avocados in the marketplace, partially offset by increase in pounds sold of 7.0 million pounds or 15.6%, when compared to the same prior year period.

Sales of tomatoes decreased $4.2 million, or 32.2%, for the second quarter of fiscal 2012, when compared to the same period for fiscal 2011. The decrease in sales for tomatoes is primarily due to a decrease in the sales price per carton of 63.3%, when compared to the same prior year period. We attribute most of the decrease in the per carton selling price to the higher volume of tomatoes in the U.S. marketplace, as compared to prior year same period, due primarily to cold weather in the prior year which reduced supplies and delayed harvests. Partially offsetting this decrease is an increase in cartons sold of 84.9%, when compared to the same prior year period. This increase of tomatoes sold is due primarily to a freeze in Mexico in the prior year that resulted in delayed tomato harvests.

Sales of California sourced avocados decreased $0.5 million, or 2.4%, for the second quarter of 2012, when compared to the same prior year period. The decrease in California sourced avocados was due to a decrease in the sales price per carton, which decreased 26.8%, when compared to the same prior year period. Partially offsetting this decrease is an increase in pound of avocados sold by 4.2 million or 33.3%, when compared to the same prior year period. We attribute most of this increase in volume and decrease in per sale price per carton to the larger California avocado crop in 2012, when compared to 2011.

Partially offsetting such decreases was an increase in sales of Chilean sourced avocados, which increased $1.6 million, or 442.5% for the second quarter of 2012, when compared to the same prior year period. The increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increase in 1.5 million pounds of avocados sold, or 508.3%, when compared to the same prior year period. We attribute much of this increase in volume to the larger Chilean avocado crop in 2012, when compared to prior year.

 

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Table of Contents

Sales of pineapples increased $1.4 million, or 231.2%, for the second quarter of 2012, when compared to the same prior year period. The increase in sales of pineapples was due to an increase in units sold of 254.2%, when compared to the same prior year period. This increase is primarily related to a new supplier of pineapples, that has provided a more reliable supply of pineapples.

Six Months Ended 2012 vs. Six Months Ended 2011

Net sales delivered by the Fresh products business decreased by approximately $25.4 million, or 13.5%, for the six months ended April 30, 2012, when compared to the same period for fiscal 2011. As discussed above, this decrease in Fresh product sales during the first six months of fiscal 2012 was primarily related to decreased sales of Mexican and California sourced avocados and tomatoes. These decreases were partially offset, however, by increased sales from Chilean sourced avocados and pineapples. See details below.

Sales of California sourced avocados decreased $13.1 million, or 39.2%, for the six months ended April 30, 2012, when compared to the same prior year period. The decrease in California sourced avocados was due to a combination of a decrease in pounds sold and a decrease in the sales price per carton. California sourced avocados sales reflect a decrease in 7.0 million pounds of avocados sold or 28.5%, when compared to the same prior year period. We attribute most of this decrease in volume to the large California avocado crop in 2010, which contributed to significant deliveries in November 2010. In addition, the sales price per carton decreased by approximately 15.0%. We attribute this decrease primarily to a higher overall volume of avocados in the marketplace.

Sales of Mexican sourced avocados decreased $8.9 million, or 7.2%, for the six months ended April 30, 2012, when compared to the same prior year period. The decrease in Mexican sourced avocados was due to a decrease in the sales price per carton, which decreased by approximately 20.5%, when compared to the same prior year period. We attribute this decrease primarily to a higher overall volume of avocados in the marketplace. Partially offsetting this decrease, is an increase in pounds sold of 15.3 million pounds or 16.7%, when compared to the same prior year period.

Sales of tomatoes decreased $9.0 million, or 44.6%, for the six months ended April 30, 2012, when compared to the same period for fiscal 2011. The decrease in sales for tomatoes is primarily due to a decrease in the sales price per carton of 53.7%, when compared to the same prior year period. We attribute most of the decrease in the per carton selling price to the higher volume of tomatoes in the U.S. marketplace, due primarily to cold weather which reduced supplies and delayed harvests in prior year. Partially offsetting this decrease is an increase in cartons sold of 19.7%, when compared to the same prior year period. This increase of tomatoes sold is due primarily to a freeze in Mexico in the prior year that resulted in delayed tomato harvests.

Partially offsetting such decreases was an increase in sales of pineapples, which increased $2.6 million, or 441.6%, for the six months ended April 30, 2012, when compared to the same prior year period. The increase in sales of pineapples was due to an increase in units sold of 519.7%, when compared to the same prior year period. This increase is primarily related to a new supplier of pineapples, that has provided a more reliable supply of pineapples.

Sales of Chilean sourced avocados increased $1.7 million, or 56.3% for first six months of fiscal 2012, when compared to the same prior year period. The increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increase in 1.4 million pounds of avocados sold, or 52.0%, when compared to the same prior year period. We attribute much of this increase in volume to the larger Chilean avocado crop in 2012, when compared to prior year.

We anticipate that California avocado sales will experience an increase during our third fiscal quarter of 2012 as compared to the second quarter of 2012. Additionally, we believe that the sales volume of California grown avocados will increase in third quarter of fiscal 2012, when compared to the same prior year period. This increase is due to a larger expected California avocado crop.

 

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Table of Contents

We anticipate that net sales related to Mexican sourced avocados and tomatoes will decrease during our third fiscal quarter of 2012, as compared to the second fiscal quarter of 2012. We anticipate that sales of Mexican grown avocados will decrease in the third quarter of fiscal 2012, when compared to the same prior year period, due to higher volume of avocados in the marketplace, which should decrease overall sales prices. We anticipate that sales volume for tomatoes will increase in the third quarter of fiscal 2012, when compared to the same prior year period. This increase is due to a larger expected tomato crop.

Calavo Foods

Second Quarter 2012 vs. Second Quarter 2011

Sales for Calavo Foods for the quarter ended April 30, 2012, when compared to the same period for fiscal 2011, increased $0.1 million, or 1.2%. This increase is due to an increase in sales of Calavo tortilla chips which increased approximately $0.1 million, or 121.7%, in the second quarter of fiscal year 2012, when compared to the same prior year period, as well as an increase in sales of Calavo Salsa Lisa which increased approximately $0.1 million, or 18.8%, in the second quarter of fiscal year 2012, when compared to the same prior year period. Partially offsetting these increases, is a decrease of sales of prepared guacamole products of 0.1 million or 0.8%. This decrease was primarily related to a decrease in overall pounds sold by 17.2%, partially offset by 17.4% increase in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products (formerly high-pressure).

Six Months Ended 2011 vs. Six Months Ended 2010

Sales for Calavo Foods for the quarter ended April 30, 2012, when compared to the same period for fiscal 2011, increased $0.7 million, or 3.4%. This increase is due to an increase in sales of Calavo Salsa Lisa, which increased approximately $0.5 million, or 79.3%, an increase in sales of Calavo tortilla chips, which increased approximately $0.2 million, or 36.9%, and an increase of sales of prepared guacamole products of 0.1 million or 0.4%. This increase was primarily related to an 18.8% increase in the average net selling price per pound for our frozen and refrigerated guacamole products (formerly high-pressure), partially offset by a decrease in overall pounds sold by 15.5%.

RFG

RFG’s sales for the three and six months ended April 30, 2012 was $36.1 million and $71.0 million. As the acquisition of RFG was completed on June 1, 2011, no comparable prior period results are available.

 

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Gross Margins

The following table summarizes our gross margins and gross profit percentages by business segment for each of the three and six-month periods ended April 30, 2012 and 2011:

 

     Three months ended April 30,     Six months ended April 30,  

(in thousands)

   2012     Change     2011     2012     Change     2011  

Gross margins:

            

Fresh products

   $ 7,965        5.6   $ 7,543      $ 13,934        4.6   $ 13,522   

Calavo Foods

     3,919        118.8     1,791        7,327        68.7     4,342   

RFG

     2,811        N/A        —          5,336        N/A        —     
  

 

 

     

 

 

   

 

 

     

 

 

 

Total gross margins

   $ 14,695        57.4   $ 9,334      $ 26,597        50.1   $ 17,864   
  

 

 

     

 

 

   

 

 

     

 

 

 

Gross profit percentages:

            

Fresh products

     8.7       7.0     8.6       7.2

Calavo Foods

     35.0       16.2     32.6       20.0

RFG

     7.8       —          7.5       —     

Consolidated

     10.6       7.9     10.4       8.5

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 $5.4 million, or 57.4%, for the second quarter of fiscal 2012, when compared to the same period for fiscal 2011. This increase was attributable to gross margin increases in all of our segments (Fresh products, Calavo Foods, and RFG). Gross margins increased by approximately $8.7 million, or 50.1%, for the first six months of fiscal 2012 when compared to the same period for fiscal 2011. This increase was attributable to all of our segments (Fresh products, Calavo Foods, and RFG).

During our three and six-month periods of fiscal 2012, as compared to the same prior year periods, the increase in our fresh products segment gross margin percentage was primarily related to an increase in the gross margin percentage for California avocados. This was due to a significant increase in the volume of California avocados sold in the second quarter of fiscal 2012, which increased 33.5%, when compared to the same prior year period. This increase was primarily related to the larger California avocado crop for 2012, when compared to prior year. This had the effect of decreasing our fixed per pound costs, which, as a result, positively impacted gross margins. In addition, Mexican sourced avocados had an increased margin by percentage. This is due to lower fruit costs per pound in the second quarter of fiscal 2012, which decreased by 38.9%, when compared to the same prior year period. Fruit costs for the first six months of fiscal 2012 decreased 25.3%, when compared to the same prior year period. We believe this decrease was primarily related to the increase in the availability of avocados in the U.S. marketplace, when compared to the same prior year period. In addition, the U.S. Dollar to Mexican Peso exchange rate strengthened in the second fiscal quarter of 2012, when compared to the same prior period. All of these combined had the effect of decreasing our per pound costs related to Mexican sourced avocados, which, as a result, positively impacted gross margins.

The Calavo Foods segment gross margin for the three and six month periods of fiscal 2012, when compared to the same prior year period, increased primarily as a result of lower fruit and operating costs, partially offset by a decrease in total pounds sold. Fruit costs for the second quarter of fiscal 2012 decreased 38.9%, when compared to the same prior year period. Fruit costs for the first six months of fiscal 2012 decreased 25.3%, when compared to the same prior year period. These decreases in fruit costs are due to the increase in the availability of avocados in the U.S. marketplace, when compared to same prior year period. In addition, the strengthening of the U.S. Dollar compared to the Mexican Peso, decreased our per pound costs. All of these combined had the effect of decreasing our per pound costs, which, as a result, positively impacted gross margins. We anticipate that the gross margin percentage for our Calavo Foods segment will continue to experience significant fluctuations during this fiscal year primarily due to the uncertainty of the cost of fruit that will be used in the production process. In addition, any significant fluctuation in the exchange rate between the U.S. Dollar and the Mexican Peso may have a material impact on future gross margins for our Fresh products and Calavo Foods segments.

 

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RFG’s gross margin for the three and six months ended April 30, 2012 was $2.8 million and $5.3 million. As the acquisition of RFG was completed on June 1, 2011, no comparable prior period results are available.

Selling, General and Administrative

 

     Three months ended April 30,     Six months ended April 30,  

(in thousands)

   2012     Change     2011     2012     Change     2011  

Selling, general and administrative

   $ 7,618        37.3   $ 5,549      $ 15,112        45.0   $ 10,425   

Percentage of net sales

     5.5       4.7     5.9       4.1

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 $2.1 million, or 37.3%, for the three months ended April 30, 2012, when compared to the same period for fiscal 2011. This increase was primarily related to the acquisition of RFG which contributed $1.9 million in selling, general and administrative expenses for the three months ended April 30, 2012. The remaining increase of $0.2 million is due to higher corporate costs, including, but not limited to, management bonuses (totaling approximately $0.3 million), stock-based compensation expense (totaling approximately $0.1 million), partially offset by decreases in legal fees (totaling approximately $0.1 million), and consulting fees (totaling approximately $0.1 million).

Selling, general and administrative expenses increased $4.7 million, or 45.0%, for the six months ended April 30, 2012, when compared to the same period for fiscal 2011. This increase was primarily related to the acquisition of RFG which contributed $3.8 million in selling, general and administrative expenses for the six months ended April 30, 2012. The remaining increase of $0.9 million is due to higher corporate costs, including, but not limited to, management bonuses (totaling approximately $0.5 million), the fair value adjustment of the contingent consideration related to the acquisition of RFG (totaling approximately $0.2 million), stock-based compensation expense (totaling approximately $0.1 million), other administration fees (totaling approximately $0.1 million), and communication expense (totaling approximately $0.1 million), partially offset by decrease in legal fees (totaling approximately $0.1 million).

Provision for Income Taxes

 

     Three months ended April 30,     Six months ended April 30,  

(in thousands)

   2012     Change     2011     2012     Change     2011  

Provision for income taxes

   $ 4,700        187.6   $ 1,634      $ 6,395        111.8   $ 3,020   

Percentage of income before

provision for income taxes

     65.0       40.8     55.2       39.3

For the second quarter of fiscal 2012, our provision for income taxes was $4.7 million, as compared to $1.6 million recorded for the comparable prior year period. During the third quarter of fiscal year 2012, we received an update from our outside legal counsel regarding the Hacienda’s examination of the tax year ended December 31, 2004. As previously disclosed, we were awaiting the resolution of two outstanding tax assessments from the Hacienda for which we had previously received unfavorable rulings. The appellate court, via a second resolution, upheld the lower court’s decision on these two remaining items. Management, as well as our outside legal counsel, still believes the company’s position is correct and the final outcome should have been in our favor.

Based on discussions with our outside legal counsel in Mexico, we do not believe it is likely that we will be able to appeal this decision any further (i.e. to the Mexican Supreme Court). The total assessment related to these allegations is estimated to be approximately $1.9 million, which we recorded as income tax expense and income tax payable as of and for the period ended April 30, 2012.

 

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For the first six months of fiscal 2012, our provision for income taxes was $6.4 million, as compared to $3.0 million recorded for the comparable prior year period. Excluding the Hacienda assessment, mentioned above, we expect our effective tax rate to approximate 39.0% during fiscal 2012.

Liquidity and Capital Resources

Cash used in operating activities was $0.1 million for the six months ended April 30, 2012, compared to $5.3 million used in operations for the similar period in fiscal 2011. Operating cash flows for the six months ended April 30, 2012 reflect our net income of $5.2 million, net non-cash charges (depreciation and amortization, stock compensation expense, interest on contingent consideration, and income from unconsolidated entities) of $2.9 million and a net decrease in the noncash components of our operating capital of approximately $8.2 million.

Our operating capital decrease includes a net increase in accounts receivable of $15.4 million, an increase in inventory of $7.2 million, and an increase in prepaid expenses and other current assets of $0.6 million and, partially offset by an increase in payable to growers of $7.4 million, a net increase in income tax payable of $3.7 million, a decrease in advances to suppliers of $2.0 million, an increase in trade accounts payable and accrued expenses of $1.8 million and a decrease in other assets of $0.1 million.

The increase in our accounts receivable, as of April 30, 2012, when compared to October 31, 2011, primarily reflects higher sales recorded in the month of April 2012, as compared to October 2011. The increase in inventory is primarily related to an increase in the fresh fruit on hand at April 30, 2012. This was primarily driven by an increase in the volume of Mexican avocados purchased during our second fiscal quarter of 2012, as well as more fruit being delivered for California sourced avocados in the month of April 2012, as compared to October 2011. The increase in payable to growers primarily reflects an increase in California fruit delivered in the month of April 2012, as compared to October 2011. The net increase in income tax payable relates primarily to the Hacienda assessment from the examination of tax year end December 31, 2004 and income from operations through the six months ended April 30, 2012. The decrease in advances to suppliers primarily reflects fewer advances made to Agricola Belher related to the receipt of tomatoes in April 2012, compared to October 2011.

Cash used in investing activities was $3.4 million for the six months ended April 30, 2012 and related principally to the purchase of property, plant and equipment items of $3.5 million, partially offset by a cash distribution from an unconsolidated entity of $0.1 million.

Cash provided by financing activities was $5.4 million for the six months ended April 30, 2012, which related principally to the proceeds from our credit facilities totaling $15.3 million and exercises of stock options of $0.2 million, partially offset by the payment of our $8.1 million dividend and payments on long-term obligations of $2.0 million.

Our principal sources of liquidity are our existing cash balances, cash generated from operations and amounts available for borrowing under our existing credit facilities. Cash and cash equivalents as of April 30, 2012 and October 31, 2011 totaled $4.7 million and $2.8 million. Our working capital at April 30, 2012 was $11.5 million, compared to $8.6 million at October 31, 2011.

We believe that cash flows from operations and available credit facilities will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, working capital and other financing requirements. We will continue to evaluate grower recruitment opportunities and exclusivity arrangements with food service companies to fuel growth in each of our business segments. Our non-collateralized, revolving credit facilities with Farm Credit West, PCA and Bank of America, N.A. expire in February 2016. Under the terms of these agreements, we are advanced funds for both working capital and long-term productive asset purchases. Total credit available under these combined borrowing agreements was $65 million, with a weighted-average interest rate of 1.8% and 1.6% at April 30, 2012 and October 31, 2011. Under these credit facilities, we had $33.2 million and $17.9 million outstanding as April 30, 2012 and October 31, 2011. These credit facilities contain various financial covenants, the most significant relating to Tangible Net Worth (as defined), Current Ratio (as defined), and Fixed Charge Coverage Ratio (as defined). We were in compliance with all such covenants at April 30, 2012.

 

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Contractual Obligations

There have been no material changes to our contractual commitments from those previously disclosed in our Annual Report on Form 10-K for our fiscal year ended October 31, 2011. For a summary of the contractual commitments at October 31, 2011, see Part II, Item 7, in our 2011 Annual Report on Form 10-K.

Impact of Recently Issued Accounting Pronouncements

See footnote 1 to the consolidated condensed financial statements that are included in this Quarterly Report on Form 10-Q.

 

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ITEM 3. 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 April 30, 2012.

 

(All amounts in thousands)    Expected maturity date April 30,  
     2012      2013      2014      2015      2016      Thereafter      Total      Fair Value  

Assets

                       

Cash and cash equivalents (1)

   $ 4,682       $ —         $ —         $ —         $ —         $ —         $ 4,682       $ 4,682   

Accounts receivable (1)

     51,512         —           —           —           —           —           51,512         51,512   

Advances to suppliers (1)

     1,342         —           —           —           —           —           1,342         1,342   

Liabilities

                       

Payable to growers (1)

   $ 12,535       $ —         $ —         $ —         $ —         $ —         $ 12,535       $ 12,535   

Accounts payable (1)

     9,010         —           —           —           —           —           9,010         9,010   

Current borrowings pursuant to credit

facilities (1)

     33,190         —           —           —           —           —           33,190         33,190   

Fixed-rate long-term obligations (2)

     5,473         5,384         5,264         4,498         589         454         21,662         21,443   

 

  (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 1.8% to 5.7% with a weighted-average interest rate of 3.1%. We believe that loans with a similar risk profile would currently yield a return of 2.5%. We project the impact of an increase or decrease in interest rates of 100 basis points would result in a change of fair value of approximately $512,000.

Except for the buyout option for Calavo Salsa Lisa, LLC, as mentioned on Note 16 on Form 10-K for our fiscal year ended October 31, 2011, we were not a party to any derivative instruments during the fiscal year. It is currently our intent not to use derivative instruments for speculative or trading purposes. Additionally, we do not use any hedging or forward contracts to offset market volatility.

Our Mexican-based operations transact business in Mexican pesos. Funds are transferred by our corporate office to Mexico on a weekly basis to satisfy domestic cash needs. Historically, the consistency of the spot rate for the Mexican peso has led to a small-to-moderate impact on our operating results. We do not anticipate using derivative instruments to hedge fluctuations in the Mexican peso to U.S. dollar exchange rates during fiscal 2012. Total foreign currency losses for the three months and six months ended April 30, 2012, net of gains, were less than $0.1 million. Total foreign currency losses for the three months and six months ended April 30, 2011, net of gains, were $0.2 million and $0.3 million.

 

ITEM 4. 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.

There were no changes in the Company’s internal control over financial reporting during the quarter ended April 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Table of Contents

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

See Note 7 to our financial statements set forth in Part 1, Item 1 of this Current Report on Form 10-Q, which is incorporated by reference into this Item 1, for a discussion of the resolution of the outstanding tax assessments brought against us by Mexican tax authorities.

We are involved in litigation in the ordinary course of business, none of which we believe will have a material adverse impact on our financial position or results of operations.

 

ITEM 1A. RISK FACTORS

For a discussion of our risk factors, see Part 1, item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended October 31, 2011. There have been no material changes from the risk factors set forth in such Annual Report on Form 10-K. However, the risks and uncertainties that we face are not limited to those set forth in the 2011 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock.

 

ITEM 6. EXHIBITS

 

  31.1 Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

  31.2 Certification of Principal Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

  32.1 Certification by 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 Quarterly Report on Form 10-Q of Calavo Growers, Inc. for the quarter ended April 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Condensed Balance Sheets as of April 30, 2012 and October 31, 2011; (2) Consolidated Condensed Statements of Income for the three and six months ended April 30, 2012 and 2011; (3) Consolidated Condensed Statements of Comprehensive Income for the three and six months ended April 30, 2012 and 2011; (4) Consolidated Condensed Statements of Cash Flows for the six months ended April 30, 2012 and 2011; and (5) Notes to Unaudited Condensed Financial Statements.*

 

 

 

  * Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101(a) is “furnished” and is not deemed to be “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections.

 

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SIGNATURES

Pursuant to the requirements 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.

 

   

Calavo Growers, Inc.

(Registrant)

Date: June 8, 2012     By   /s/ Lecil E. Cole
     

Lecil E. Cole

Chairman of the Board of Directors,

Chief Executive Officer and President

(Principal Executive Officer)

 

Date: June 8, 2012     By   /s/ Arthur J. Bruno
     

Arthur J. Bruno

Chief Operating Officer, Chief Financial Officer and

Corporate Secretary

(Principal Financial Officer)

 

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Table of Contents

INDEX TO EXHIBITS

 

Exhibit
Number

  

Description

31.1    Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Principal Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification by 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 Quarterly report on Form 10-Q of Calavo Growers, Inc. for the quarter ended April 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Condensed Balance Sheets as of April 30, 2012 and October 31, 2011; (2) Consolidated Condensed Statements of Income for the three and six months ended April 30, 2012 and 2011; (3) Consolidated Condensed Statements of Comprehensive Income for the three and six months ended April 30, 2012 and 2011; (4) Consolidated Condensed Statements of Cash Flows for the six months ended April 30, 2012 and 2011; and (5) Notes to Unaudited Condensed Financial Statements.*

 

* Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 (a) is “furnished” and is not deemed to be “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections.

 

27

XNAS:CVGW Calavo Growers, Inc. Quarterly Report 10-Q Filling

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