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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 31, 2019

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

   

Trading Symbol(s)

   

Name of each exchange on which registered

Common Stock

 

CVGW

 

Nasdaq Global Market

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

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes   No  

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

Emerging Growth Company

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. 

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

Registrant's number of shares of common stock outstanding as of July 31, 2019 was 17,594,621

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, gross profit, expenses, gain/(loss) on Limoneira shares, income/(loss) from unconsolidated entities, earnings, earnings per share, tax provisions, cash flows, currency exchange rates, the impact of acquisitions or debt or equity investments or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration (including information technology systems 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, whether attributable to Calavo or any of its unconsolidated entities; any statements regarding pending investigations, legal claims or tax disputes; any statements of expectation or belief; any risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and trade protection measures, such as import/export/customs duties, tariffs and/or quotas); any risks associated with receivables from and/or equity investments in unconsolidated entities; 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, legal claims and tax disputes; any risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and trade protection measures, such as import/export/customs duties, tariffs and/or quotas); any risks associated with receivables from and/or equity investments in unconsolidated entities; 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, 2018, and those detailed from time to time in our other filings with the Securities and Exchange Commission. Calavo assumes no obligation and does not intend to update these forward-looking statements.

2

CALAVO GROWERS, INC.

INDEX

    

PAGE

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited):

Consolidated Condensed Balance Sheets – July 31, 2019 and October 31, 2018

4

Consolidated Condensed Statements of Income – Three and Nine Months Ended July 31, 2019 and 2018

5

Consolidated Condensed Statements of Comprehensive Income – Three and Nine Months Ended July 31, 2019 and 2018

6

Consolidated Condensed Statements of Cash Flows – Nine Months Ended July 31, 2019 and 2018

7

Consolidated Statements of Shareholders’ Equity

8

Notes to Consolidated Condensed Financial Statements

10

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

34

Item 6.

Exhibits

34

Signatures

36

3

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)

July 31, 

October 31, 

2019

2018

Assets

    

    

    

    

Current assets:

Cash and cash equivalents

$

5,168

$

1,520

Accounts receivable, net of allowances of $4,122 (2019) $3,227 (2018)

 

87,977

 

66,143

Inventories, net

 

46,340

 

35,044

Prepaid expenses and other current assets

 

7,248

 

16,727

Advances to suppliers

 

5,140

 

5,555

Income taxes receivable

 

361

 

3,521

Total current assets

 

152,234

 

128,510

Property, plant, and equipment, net

 

131,245

 

122,143

Investment in Limoneira Company

 

33,194

 

42,609

Investment in unconsolidated entities

 

12,860

 

24,805

Deferred income taxes

 

4,377

 

4,377

Goodwill

 

18,262

 

18,262

Notes receivable from FreshRealm

 

30,743

 

Other assets

 

30,132

 

27,030

$

413,047

$

367,736

Liabilities and shareholders' equity

Current liabilities:

Payable to growers

$

34,597

$

14,001

Trade accounts payable

 

15,385

 

13,735

Accrued expenses

 

48,941

 

38,521

Short-term borrowings

 

 

15,000

Dividend payable

 

 

17,568

Current portion of long-term obligations

 

754

 

118

Total current liabilities

 

99,677

 

98,943

Long-term liabilities:

Long-term obligations, less current portion

 

5,590

 

314

Deferred rent

3,631

2,678

Other long-term liabilities

 

4,987

 

842

Total long-term liabilities

 

14,208

 

3,834

Commitments and contingencies

Shareholders' equity:

Common stock ($0.001 par value, 100,000 shares authorized; 17,595 (2019) and 17,567 (2018) shares issued and outstanding)

 

18

 

18

Additional paid-in capital

 

160,722

 

157,928

Accumulated other comprehensive income

 

 

12,141

Noncontrolling interest

 

1,722

 

1,748

Retained earnings

 

136,700

 

93,124

Total shareholders' equity

 

299,162

 

264,959

$

413,047

$

367,736

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

4

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

Three months ended

Nine months ended

July 31, 

July 31, 

2019

2018

2019

2018

Net sales

    

$

359,332

    

$

296,419

    

$

903,601

    

$

808,752

Cost of sales

 

323,557

 

263,349

 

800,152

 

717,403

Gross profit

 

35,775

 

33,070

 

103,449

 

91,349

Selling, general and administrative

 

14,295

 

13,893

 

44,228

 

42,285

Gain on sale of Temecula packinghouse

 

75

 

 

2,002

 

Operating income

 

21,555

19,177

 

61,223

 

49,064

Interest expense

 

(228)

 

(135)

 

(847)

 

(654)

Other income, net

 

936

 

406

 

2,332

 

831

Unrealized and realized net loss on Limoneira shares

 

(5,116)

 

 

(8,262)

 

Income before provision for income taxes and loss from unconsolidated entities

 

17,147

 

19,448

 

54,446

 

49,241

Provision for income taxes

 

3,987

 

3,403

 

11,093

 

12,469

Net loss from unconsolidated entities

 

(2,510)

 

(3,677)

 

(11,944)

 

(3,399)

Net income

 

10,650

 

12,368

 

31,409

 

33,373

Less: Net loss (income) attributable to noncontrolling interest

 

(47)

 

(18)

 

26

 

238

Net income attributable to Calavo Growers, Inc.

$

10,603

$

12,350

$

31,435

$

33,611

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

Basic

$

0.61

$

0.71

$

1.79

$

1.92

Diluted

$

0.60

$

0.70

$

1.79

$

1.91

Number of shares used in per share computation:

Basic

 

17,525

 

17,481

 

17,517

 

17,475

Diluted

 

17,605

 

17,581

 

17,589

 

17,567

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

5

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

Three months ended

Nine months ended

July 31, 

July 31, 

2019

2018

2019

2018

Net income

    

$

10,650

    

$

12,368

    

$

31,409

    

$

33,373

Other comprehensive income, before tax:

Unrealized investment gains

 

 

6,880

 

 

6,758

Income tax expense related to items of other comprehensive income

 

 

(1,789)

 

 

(1,477)

Other comprehensive income, net of tax

 

 

5,091

 

 

5,281

Comprehensive income

 

10,650

 

17,459

 

31,409

 

38,654

Less: Net loss (income) attributable to noncontrolling interest

 

(47)

 

(18)

 

26

 

238

Comprehensive income – Calavo Growers, Inc.

$

10,603

$

17,441

$

31,435

$

38,892

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

6

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Nine months ended July 31, 

2019

2018

Cash Flows from Operating Activities:

    

    

    

    

Net income

$

31,409

$

33,373

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

Depreciation and amortization

 

10,173

 

9,796

Provision for losses (gains) on accounts receivable

 

83

 

(10)

Net loss from unconsolidated entities

 

11,945

 

3,399

Unrealized and realized net loss on Limoneira shares

 

8,262

 

Interest income on notes to FreshRealm

 

(1,643)

 

Stock-based compensation expense

 

2,710

 

3,716

Gain on sale of Temecula packinghouse

 

(2,002)

 

Gain on disposal of property, plant, and equipment

 

 

(108)

Deferred income taxes

 

 

3,527

Effect on cash of changes in operating assets and liabilities:

Accounts receivable, net

 

(21,917)

 

(3,652)

Inventories, net

 

(11,296)

 

(4,999)

Prepaid expenses and other current assets

 

(652)

 

(203)

Advances to suppliers

 

1,215

 

(775)

Income taxes receivable/payable

 

3,160

 

2,353

Other assets

 

(3,754)

 

(3,246)

Payable to growers

 

20,596

 

5,500

Deferred rent

954

50

Trade accounts payable, accrued expenses and other long-term liabilities

 

11,239

 

(8,753)

Net cash provided by operating activities

 

60,482

 

39,968

Cash Flows from Investing Activities:

Acquisitions of and deposits on property, plant, and equipment

 

(11,701)

 

(11,551)

Proceeds received for repayment of San Rafael note

 

339

 

349

Proceeds received from Limoneira stock sales

 

1,154

 

Proceeds from sale of Temecula packinghouse

 

7,100

 

Investment in FreshRealm

 

 

(3,500)

Notes receivables advanced to FreshRealm

(20,100)

(2,500)

Proceeds received for repayment of loan to FreshRealm

 

 

2,500

Net cash used in investing activities

 

(23,208)

 

(14,702)

Cash Flows from Financing Activities:

Payment of dividend to shareholders

 

(17,568)

 

(16,657)

Proceeds from revolving credit facility

 

195,500

 

185,500

Payments on revolving credit facility

 

(210,500)

 

(197,500)

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

(1,008)

(1,158)

Payments on long-term obligations

 

(135)

 

(100)

Proceeds from stock option exercises

 

85

 

53

Net cash used in financing activities

 

(33,626)

 

(29,862)

Net increase (decrease) in cash and cash equivalents

 

3,648

 

(4,596)

Cash and cash equivalents, beginning of period

 

1,520

 

6,625

Cash and cash equivalents, end of period

$

5,168

$

2,029

Noncash Investing and Financing Activities:

Acquisitions of property, plant, and equipment with capital lease

$

2,827

$

Capital lease related to Temecula packinghouse

$

3,306

$

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

$

2,484

$

367

Noncash transfer of noncontrolling interest

$

$

1,001

Collection for Agricola Belher Infrastructure Advance

$

800

$

200

Unrealized investment gain

$

$

6,758

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

7

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, 2017

17,533

 

18

 

154,243

 

10,434

 

78,411

 

1,016

 

244,122

Exercise of stock options and income tax benefit

3

 

 

53

 

 

 

 

53

Stock compensation expense

 

 

941

 

 

 

 

941

Restricted stock issued

7

 

 

891

 

 

 

 

891

Unrealized gain on Limoneira investment, net

 

 

 

(2,022)

 

 

 

(2,022)

Noncash transfer of noncontrolling interest

 

 

(1,001)

 

 

 

1,001

 

Avocados de Jalisco noncontrolling interest contribution

 

 

 

 

 

(150)

 

(150)

Net income attributable to Calavo Growers, Inc.

 

 

 

 

7,139

 

 

7,139

Balance, January 31, 2018

17,543

 

18

 

155,127

 

8,412

 

85,550

 

1,867

 

250,974

Stock compensation expense

 

 

942

 

 

 

 

942

Restricted stock issued

24

 

 

 

 

 

 

Unrealized gain on Limoneira investment, net

 

 

 

2,212

 

 

 

2,212

Avocados de Jalisco noncontrolling interest contribution

 

 

 

 

 

(106)

 

(106)

Net income attributable to Calavo Growers, Inc.

 

 

 

 

14,122

 

 

14,122

Balance, April 30, 2018

17,567

 

18

 

156,069

 

10,624

 

99,672

 

1,761

 

268,144

Stock compensation expense

 

 

942

 

 

 

 

942

Unrealized gain on Limoneira investment, net

 

 

 

5,091

 

 

 

5,091

Avocados de Jalisco noncontrolling interest contribution

 

 

 

 

 

18

 

18

Net income attributable to Calavo Growers, Inc.

 

 

 

 

12,350

 

 

12,350

Balance, July 31, 2018

17,567

$

18

$

157,011

$

15,715

$

112,022

$

1,779

$

286,545

8

    

    

    

    

Accumulated

    

    

    

 

Additional

Other

 

Common Stock

Paid-in

Comprehensive

Retained

Noncontrolling

 

Shares

Amount

Capital

Income

Earnings

Interest

Total

Balance, October 31, 2018

17,567

 

18

 

157,928

 

12,141

 

93,124

 

1,748

 

264,959

Exercise of stock options and income tax benefit

2

 

 

47

 

 

 

 

47

Stock compensation expense

 

 

966

 

 

 

 

966

Restricted stock issued

24

 

 

 

 

 

 

Unrealized gains on Limoneira investment reclassed to retained earnings

 

 

 

(12,141)

 

12,141

 

 

Avocados de Jalisco noncontrolling interest contribution

 

 

 

 

 

(6)

 

(6)

Net income attributable to Calavo Growers, Inc.

 

 

 

 

4,487

 

 

4,487

Balance, January 31, 2019

17,593

 

18

 

158,941

 

 

109,752

 

1,742

 

270,453

Exercise of stock options and income tax benefit

2

37

37

Stock compensation expense

860

860

Avocados de Jalisco noncontrolling interest contribution

(67)

(67)

Net income attributable to Calavo Growers, Inc.

16,345

16,345

Balance, April 30, 2019

17,595

 

18

 

159,838

 

 

126,097

 

1,675

 

287,628

Stock compensation expense

 

 

884

 

 

 

 

884

Avocados de Jalisco noncontrolling interest contribution

 

 

 

 

 

47

 

47

Net income attributable to Calavo Growers, Inc.

 

 

 

 

10,603

 

 

10,603

Balance, July 31, 2019

17,595

$

18

$

160,722

$

$

136,700

$

1,722

 

$

299,162

See accompanying notes to consolidated financial statements.

9

CALAVO GROWERS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of the business

Business

Calavo Growers, Inc. (Calavo, the Company, we, us or our), is a global leader in the avocado industry and a provider of value-added fresh food. Our expertise in marketing and distributing avocados, prepared avocados, and other perishable foods allows us to deliver a wide array of fresh and prepared food products to retail grocery, foodservice, club stores, mass merchandisers, food distributors and wholesalers on a worldwide basis. We procure avocados from California, Mexico and other growing regions around the world. Through our various operating facilities, we (i) sort, pack, and/or ripen avocados, tomatoes and/or Hawaiian grown papayas, (ii) create, process and package a portfolio of healthy fresh foods including fresh-cut fruit and vegetables, and prepared foods and (iii) process and package guacamole and salsa. We distribute our products both domestically and internationally and report our operations in three different business segments: Fresh products, Calavo Foods and Renaissance Food Group (RFG).

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 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, 2018.

Recently Adopted Accounting Pronouncements

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 Company adopted this new standard at the beginning of fiscal 2019. With the adoption of this new standard, we reclassed unrealized gains of $12.1 million in accumulated other comprehensive income to retained earnings as of November 1, 2018. Additionally, for the nine months ended July 31, 2019, we sold 51,271 shares of Limoneira stock and recorded a loss of $0.1 million in our consolidated statements of income. Limoneira’s stock price at July 31, 2019, April 30, 2019 and October 31, 2018 equaled $19.79 per share, $22.84 per share, and $24.65 per share. Our remaining shares of Limoneira stock, totaling 1,677,299, were revalued to $19.79 per share at July 31, 2019 and, as a result, we recorded a loss of $5.1 million for the three months ended July 31, 2019 and we recorded a loss of $8.2 million for the nine months ended July 31, 2019 in our consolidated condensed statements of income.

In May 2014, the FASB issued a comprehensive new revenue recognition standard which superseded previous existing revenue recognition guidance. The standard is intended to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. The standard also requires expanded disclosures surrounding revenue recognition. During fiscal 2017, the FASB issued additional clarification guidance on the new revenue recognition standard which also included certain scope improvements and practical expedients. The Company adopted this new standard at the beginning of fiscal 2019 using the modified retrospective transition method, under which the cumulative effect of initially applying the new guidance is recognized as an adjustment to the opening balance of retained earnings on the first day of our 2019 fiscal year. The adoption of the amendment did not have an impact on the Company’s consolidated financial statements. See Note 14 for further information.

10

Recently Issued Accounting Standards

In October 2018, the FASB issued ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. This ASU provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The new guidance is effective for fiscal years beginning after December 15, 2019. This ASU will be effective for us beginning the first day of our 2021 fiscal year. We are evaluating the impact of the adoption of this ASU on our financial condition, results of operations and cash flows, and, as such, we are not able to estimate the effect the adoption of the new standard will have on our financial statements.

In September 2018, the FASB issued and ASU, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software and deferred over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. This ASU will be effective for us beginning the first day of our 2021 fiscal year. We are evaluating the impact of the adoption of this ASU on our financial condition, results of operations and cash flows, and, as such, we are not able to estimate the effect the adoption of the new standard will have on our financial statements.

In June 2018, the FASB issued an ASU, Improvements to Nonemployee Share-Based Payment Accounting. The FASB issued this update to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. This ASU will be effective for us beginning the first day of our 2020 fiscal year and is not expected to have a significant impact upon adoption.

In February 2018, the FASB issued an ASU, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income, which amends Accounting Standards Codification ("ASC") 220, Income Statement — Reporting Comprehensive Income, to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, (the "Act"). In addition, under the ASU, an entity will be required to provide certain disclosures regarding stranded tax effects. This ASU is effective for us the first day of our 2020 fiscal year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, results of operations and cash flows, and, as such, we are not able to estimate the effect the adoption of the new standard will have on our financial statements.

In January 2017, the FASB issued an ASU, Simplifying the Test for Goodwill Impairment, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. The ASU permits an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU will be effective for us beginning the first day of our 2021 fiscal year and is not expected to have a significant impact upon adoption.

In February 2016, the FASB issued an ASU, Leases, which requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. This ASU will be effective for us beginning the first day of our 2020 fiscal year. Although we are in the process of evaluating the impact of adoption of ASU 2016-02 on our consolidated financial statements, we currently expect the most significant changes will be related to the recognition of material new long-term right-of-use assets and lease liabilities on our consolidated balance sheet.

11

2. Information regarding our operations in different segments

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

Three months ended July 31, 2019

Three months ended July 31, 2018

    

Fresh

    

Calavo

    

    

    

Fresh

    

Calavo

    

    

products

Foods

RFG

Total

products

Foods

RFG

Total

Avocados

$

196,047

$

$

$

196,047

$

141,545

$

$

$

141,545

Tomatoes

 

8,708

 

 

 

8,708

 

6,248

 

 

 

6,248

Papayas

 

3,105

 

 

 

3,105

 

2,882

 

 

 

2,882

Other fresh products

 

424

 

 

 

424

 

142

 

 

 

142

Prepared avocado products

 

 

27,427

 

 

27,427

 

 

28,395

 

 

28,395

Salsa

 

 

930

 

 

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