0001558370-22-003566.txt : 20220314 0001558370-22-003566.hdr.sgml : 20220314 20220314170110 ACCESSION NUMBER: 0001558370-22-003566 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 65 CONFORMED PERIOD OF REPORT: 20220131 FILED AS OF DATE: 20220314 DATE AS OF CHANGE: 20220314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALAVO GROWERS INC CENTRAL INDEX KEY: 0001133470 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 330945304 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-33385 FILM NUMBER: 22737392 BUSINESS ADDRESS: STREET 1: 1141A CUMMINGS ROAD CITY: SANTA PAULA STATE: CA ZIP: 93060 BUSINESS PHONE: 805-525-1245 MAIL ADDRESS: STREET 1: 1141A CUMMINGS ROAD CITY: SANTA PAULA STATE: CA ZIP: 93060 10-Q 1 cvgw-20220131x10q.htm 10-Q
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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 January 31, 2022

or

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

For the transition period from ______________________ to ______________________

Commission file number: 000-33385

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)

California

33-0945304

(State or other jurisdiction of

incorporation or organization)

(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)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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, $0.001 par value per share

 

CVGW

 

Nasdaq Global Select 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.

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 13(a) of the Exchange 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 January 31, 2022 was 17,716,314

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains statements relating to future events and results of Calavo Growers, Inc. and its consolidated subsidiaries (Calavo, the Company, we, us or our), including certain projections and business trends, that are "forward-looking statements," as defined in the Private Securities Litigation and Reform Act of 1995, that involve risks, uncertainties and assumptions. These statements are based on our current expectations and are not promises or guarantees. If any of the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Calavo 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 and currency exchange rates; the impact of COVID-19 on our business, results of operations and financial condition; 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 COVID-19 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; system security risk and cyber-attacks and any statements of assumptions underlying any of the foregoing.

Risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by the forward-looking statements include, but are not limited to, the following: the impact of the COVID-19 pandemic on our business, results of operations, and financial condition, including, but not limited to, disruptions in the manufacturing of our products and the operations of the related supply chains supporting our ability to deliver our products to consumers, impacts on our employees and uncertainty regarding our ability to implement health and safety measures for our employees, uncertainties regarding consumer demand for our products, impact on our food service customers, increased costs, the impact of governmental trade restrictions imposed as a result of COVID-19 and the possible adverse impact of COVID-19 on our goodwill and other intangible assets; our ability to raise prices, particularly in our RFG and Foods segments, to offset increased costs of goods sold, and the impact of such price increases on future net sales; seasonality of our business; sensitivity of our business to changes in market prices of avocados and other agricultural products and other raw materials including fuel, packaging and paper;  potential disruptions to our supply chain; risks associated with potential future acquisitions, including integration; potential exposure to data breaches and other cyber-attacks on our systems or those of our suppliers or customers; dependence on large customers; dependence on key personnel and the ability of our management team to work together successfully; potential for labor disputes; reliance on co-packers for a portion of our production needs; competitive pressures, including from foreign growers; risks of recalls and food-related injuries to our customers; changing consumer preferences; the impact of environmental regulations, including those related to climate change; our ability to develop and transition new products and services and enhance existing products and services to meet customer needs; risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and COVID-19 and trade protection measures such as import/export/customs duties, tariffs and/or quotas and currency fluctuations); risks associated with receivables from, loans to and/or equity investments in unconsolidated entities, volatility in the value of our common stock; the impact of macroeconomic trends and events; and the resolution of pending investigations, legal claims and tax disputes, including an assessment imposed by the Servicio de Administracion Tributaria in Mexico (the “SAT”) and our defenses against collection activities commenced by the SAT.

For a further discussion of these risks and uncertainties and other risks and uncertainties that we face, please see the risk factors described in our most recent Annual Report on Form 10-K for the fiscal year ended October 31, 2021 filed with the Securities and Exchange Commission and any subsequent updates that may be contained in our Quarterly Reports on Form 10-Q (including this Quarterly Report on Form 10-Q) and other filings with the Securities and Exchange Commission. Forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

2

CALAVO GROWERS, INC.

INDEX

PAGE

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited):

Consolidated Condensed Balance Sheets – January 31, 2022 and October 31, 2021

4

Consolidated Condensed Statements of Operations – Three Months Ended January 31, 2022 and 2021

5

Consolidated Condensed Statements of Cash Flows – Three Months Ended January 31, 2022 and 2021

6

Consolidated Condensed Statements of Shareholders’ Equity – Three Months Ended January 31, 2022 and 2021

7

Notes to Consolidated Condensed Financial Statements

8

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

36

3

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED, in thousands)

January 31, 

October 31, 

2022

2021

Assets

    

    

    

    

Current assets:

Cash and cash equivalents

$

7,826

$

1,885

Restricted cash

970

970

Accounts receivable, net of allowances of $5,012 (2022) and $4,816 (2021)

 

89,467

 

78,866

Inventories

 

52,402

 

40,757

Prepaid expenses and other current assets

 

10,905

 

11,946

Advances to suppliers

 

9,951

 

6,693

Income taxes receivable

 

8,016

 

11,524

Total current assets

 

179,537

 

152,641

Property, plant, and equipment, net

 

116,034

 

118,280

Operating lease right-of-use assets

 

58,568

 

59,842

Investment in Limoneira Company

 

24,925

 

27,055

Investments in unconsolidated entities

 

3,810

 

4,346

Deferred income taxes

 

5,316

 

5,316

Goodwill

 

28,653

 

28,653

Intangibles, net

8,381

8,769

Other assets

 

43,408

 

40,500

$

468,632

$

445,402

Liabilities and shareholders' equity

Current liabilities:

Payable to growers

$

37,798

$

23,033

Trade accounts payable

 

11,848

 

9,794

Accrued expenses

 

47,761

 

42,063

Dividend payable

 

 

20,330

Other current liabilities

11,000

11,000

Current portion of operating leases

 

6,876

 

6,817

Current portion of long-term obligations and finance leases

 

1,593

 

1,587

Total current liabilities

 

116,876

 

114,624

Long-term liabilities:

Borrowings pursuant to credit facilities, long-term

64,000

37,700

Long-term operating leases, less current portion

 

56,277

 

57,561

Long-term obligations and finance leases, less current portion

 

5,171

 

5,553

Other long-term liabilities

 

3,026

 

3,081

Total long-term liabilities

 

128,474

 

103,895

Commitments and contingencies

Shareholders' equity:

Common stock ($0.001 par value, 100,000 shares authorized; 17,716 (2022) and 17,686 (2021) shares issued and outstanding)

 

18

 

18

Additional paid-in capital

 

168,692

 

168,133

Noncontrolling interest

 

1,251

 

1,368

Retained earnings

 

53,321

 

57,364

Total shareholders' equity

 

223,282

 

226,883

$

468,632

$

445,402

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

4

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)

Three months ended

January 31, 

2022

2021

Net sales

    

$

274,092

    

$

220,578

    

Cost of sales

 

260,864

 

202,739

Gross profit

 

13,228

 

17,839

Selling, general and administrative

 

15,337

 

14,174

Expenses related to Mexican tax matters

367

Impairment and charges related to RFG Florida facility closure

565

Gain on sale of Temecula packinghouse

 

(54)

 

(54)

Operating income (loss)

 

(2,987)

3,719

Interest expense

 

(327)

 

(174)

Other income, net

 

659

 

201

Unrealized net gain (loss) on Limoneira shares

 

(2,130)

 

3,589

Income (loss) before income taxes and loss from unconsolidated entities

 

(4,785)

 

7,335

Income tax (provision) benefit

 

1,160

 

(1,943)

Net loss from unconsolidated entities

 

(535)

 

(155)

Net income (loss)  

 

(4,160)

 

5,237

Add: Net loss attributable to noncontrolling interest

 

117

 

40

Net income (loss) attributable to Calavo Growers, Inc.

$

(4,043)

$

5,277

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

Basic

$

(0.23)

$

0.30

Diluted

$

(0.23)

$

0.30

Number of shares used in per share computation:

Basic

 

17,653

 

17,599

Diluted

 

17,653

 

17,669

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

5

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three months ended January 31, 

2022

2021

Cash Flows from Operating Activities:

    

    

    

    

Net income (loss)

$

(4,160)

$

5,237

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

 

4,312

 

4,294

Non-cash operating lease expense

49

16

Net loss from unconsolidated entities

 

535

 

155

Unrealized net loss (gain) on Limoneira shares

 

2,130

 

(3,589)

Impairment and non-cash charges related to closure of RFG Florida facility

317

Stock-based compensation expense

 

556

 

907

Gain on sale of Temecula packinghouse

 

(54)

 

(54)

Effect on cash of changes in operating assets and liabilities:

Accounts receivable, net

 

(10,601)

 

(7,935)

Inventories, net

 

(11,735)

 

81

Prepaid expenses and other current assets

 

(1,559)

 

(1,298)

Advances to suppliers

 

(3,258)

 

152

Income taxes receivable/payable

 

3,508

 

3,888

Other assets

 

(308)

 

(3,638)

Payable to growers

 

14,765

 

210

Trade accounts payable, accrued expenses and other liabilities

 

7,891

 

14,739

Net cash provided by operating activities

 

2,388

 

13,165

Cash Flows from Investing Activities:

Purchases of property, plant, and equipment

 

(2,044)

 

(4,768)

Net cash used in investing activities

 

(2,044)

 

(4,768)

Cash Flows from Financing Activities:

Payment of dividend to shareholders

 

(20,330)

 

(20,343)

Proceeds from revolving credit facility

 

96,300

 

91,000

Payments on revolving credit facility

 

(70,000)

 

(74,400)

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

(44)

(467)

Payments on long-term obligations and finance leases

 

(376)

 

(121)

Proceeds from stock option exercises

 

47

 

47

Net cash provided by (used in) financing activities

 

5,597

 

(4,284)

Net decrease in cash, cash equivalents and restricted cash

 

5,941

 

4,113

Cash, cash equivalents and restricted cash, beginning of period

 

2,855

 

4,055

Cash, cash equivalents and restricted cash, end of period

$

8,796

$

8,168

Noncash Investing and Financing Activities:

Right of use assets obtained in exchange for new financing lease obligations

$

$

301

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

$

173

$

863

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

6

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands)

    

    

    

    

    

    

Additional

Common Stock

Paid-in

Retained

Noncontrolling

Shares

Amount

Capital

Earnings

Interest

Total

Balance, October 31, 2020

17,661

 

$

18

 

$

165,000

 

$

89,512

 

$

1,472

 

$

256,002

Exercise of stock options and income tax benefit

2

 

 

47

 

 

 

47

Payment of min. withholding of taxes on net share settlement of equity awards

(467)

(467)

Stock compensation expense

 

 

907

 

 

 

907

Restricted stock issued

23

 

 

 

 

 

Avocados de Jalisco noncontrolling interest contribution

 

 

 

 

(40)

 

(40)

Net income attributable to Calavo Growers, Inc.

 

 

 

5,277

 

 

5,277

Balance, January 31, 2021

17,686

 

18

 

165,487

 

94,789

 

1,432

 

261,726

    

    

    

    

    

    

Additional

 

Common Stock

Paid-in

Retained

Noncontrolling

 

Shares

Amount

Capital

Earnings

Interest

Total

Balance, October 31, 2021

17,686

 

$

18

 

$

168,133

 

$

57,364

 

$

1,368

 

$

226,883

Exercise of stock options and income tax benefit

2

 

 

47

 

 

 

47

Payment of min. withholding of taxes on net share settlement of equity awards

(44)

(44)

Stock compensation expense

 

 

556

 

 

 

556

Restricted stock issued

28

 

 

 

 

 

Avocados de Jalisco noncontrolling interest contribution

 

 

 

 

(117)

 

(117)

Net loss attributable to Calavo Growers, Inc.

 

 

 

(4,043)

 

 

(4,043)

Balance, January 31, 2022

17,716

 

18

 

168,692

 

53,321

 

1,251

 

223,282

See accompanying notes to consolidated condensed financial statements.

7

CALAVO GROWERS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of the business

Business

Calavo Growers, Inc. (Calavo, the Company, we, us or our), is a global leader in the avocado industry and 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, Renaissance Food Group (RFG) and Calavo Foods.

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, 2021.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which amends and simplifies the accounting for income taxes by removing certain exceptions and providing new guidance to reduce complexity in certain aspects of the current guidance. This guidance was adopted by the Company during the first quarter of 2022 and did not impact the Company’s financial statements or related disclosures.

2. Information regarding our operations in different segments

We report our operations in three different business segments: (1) Fresh products, (2) RFG, and (3) Calavo Foods. 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 RFG segment represents operations related to the manufacturing and distribution of fresh-cut fruit, fresh-cut vegetables, and prepared foods. The Calavo Foods segment represents operations related to the purchase, manufacturing, and distribution of prepared avocado products, including guacamole, and salsa. Selling, general and administrative expenses, as well as other non-operating income/expense

8

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 sales data in the following tables is presented in thousands:

Three months ended January 31, 2022

Three months ended January 31, 2021

    

Fresh

    

    

Calavo

    

    

Fresh

    

    

Calavo

    

products

RFG

Foods

Total

products

RFG

Foods

Total

Avocados

$

150,505

$

$

$

150,505

$

103,858

$

$

$

103,858

Tomatoes

 

9,987

 

 

 

9,987

 

9,187

 

 

 

9,187

Papayas

 

3,040

 

 

 

3,040

 

2,751

 

 

 

2,751

Other fresh income

 

25

 

 

 

25

 

326

 

 

 

326

Fresh-cut fruit

43,373

43,373

42,944

42,944

Fresh-cut vegetables

28,086

28,086

29,589

29,589

Prepared products

 

 

24,818

 

18,409

 

43,227

 

 

18,718

 

16,838

 

35,556

Salsa

 

 

 

421

 

421

 

 

 

712

 

712

Total gross sales

 

163,557

 

96,277

 

18,830

 

278,664

 

116,122

 

91,251

 

17,550

 

224,923

Less sales allowances

 

(972)

 

(513)

 

(1,702)

 

(3,187)

 

(663)

 

(945)

 

(1,092)

 

(2,700)

Less inter-company eliminations

(603)

(782)

(1,385)

(526)

(1,119)

(1,645)

Net sales

$

161,982

$

95,764

$

16,346

$

274,092

$

114,933

$

90,306

$

15,339

$

220,578

    

Fresh

    

    

Calavo

    

Interco.

    

products

RFG

Foods

Elimins.

Total

(All amounts are presented in thousands)

Three months ended January 31, 2022

Net sales

$

162,585

$

95,764

$

17,128

$

(1,385)

$

274,092

Cost of sales

150,919

96,416

14,914

(1,385)

260,864

Gross profit (loss)

$

11,666

$

(652)

$

2,214

$

$

13,228

Three months ended January 31, 2021

Net sales

$

115,459

$

90,306

$

16,458

$

(1,645)

$

220,578

Cost of sales

102,314

90,329

11,741

(1,645)

202,739

Gross profit (loss)

$

13,145

$

(23)

$

4,717

$

$

17,839

For the three months ended January 31, 2022 and 2021, intercompany sales and cost of sales of $0.6 million and $0.5 million between Fresh products and RFG were eliminated. For the three months ended January 31, 2022 and 2021, intercompany sales and cost of sales of $0.8 million and $1.1 million between Calavo Foods and RFG were eliminated.

Sales to customers outside the U.S. were approximately $7.1 million, and $8.1 million for the three months ended January 31, 2022 and 2021.

Our foreign operations in Mexico are subject to exchange rate fluctuations and foreign currency transaction costs. The functional currency of our foreign subsidiaries in Mexico is the United States dollar (U.S. dollar). As a result, monetary assets and liabilities are translated into U.S. dollars at exchange rates as of the balance sheet date and non-monetary assets, liabilities and equity are translated at historical rates. Sales and expenses are translated using a weighted-average exchange rate for the period. Gains and losses resulting from those remeasurements and foreign currency transactions are recognized within cost of sales. We recognized foreign currency remeasurement losses in the current quarter. These losses were due primarily to certain long-term net peso receivables. Foreign currency remeasurement losses, net of gains, for the three months ended January 31, 2022 was $0.6 million. Foreign currency remeasurement gains, net of losses, for the three months ended January 31, 2021 was $1.0 million.

9

Long-lived assets attributed to geographic areas as of January 31, 2022 and October 31, 2021, are as follows (in thousands):

    

United States

    

Mexico

    

Consolidated

January 31, 2022

$

79,245

$

36,789

$

116,034

October 31, 2021

$

81,059

$

37,221

$

118,280

3.

Inventories

Inventories consist of the following (in thousands):

January 31, 

October 31, 

2022

2021

Fresh fruit

    

$

29,704

    

$

17,648

Packing supplies and ingredients

 

14,642

 

13,088

Finished prepared foods

 

8,056

 

10,021

$

52,402

$

40,757

Inventories are stated at the lower of cost or net realizable value. We periodically review the value of items in inventory and record any necessary write downs of inventory based on our assessment of market conditions. Inventory includes reserves of $0.5 million and $0.2 million in slow moving and obsolete packing supply inventory as of January 31, 2022 and October 31, 2021. No additional inventory reserve was considered necessary as of January 31, 2022 and October 31, 2021.

4.

Related party transactions

Certain members of our Board of Directors market California avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers. For the three months ended January 31, 2022, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $0.2 million. There were no avocados procured from entities owned or controlled by members of our Board of directors for the three months ended January 31, 2021. Amounts payable to these Board members were $0.2 million as of January 31, 2022. We did not have any amounts payable to these Board members as of October 31, 2021.

During the three months ended January 31, 2022 and 2021, we received $0.1 million as dividend income from Limoneira Company (Limoneira). In addition, we lease office space from Limoneira for our corporate office. We paid rent expense to Limoneira totaling $0.1 million for the three months ended January 31, 2022 and 2021. Harold Edwards, who resigned as a member of our Board of Directors in February 2022, is the Chief Executive Officer of Limoneira Company. As of January 31, 2022, we own approximately 9% of Limoneira’s outstanding shares. In February 2022, Limoneira ended its marketing agreement with Calavo. The termination of this agreement is not expected to have a significant effect on either sales or results of operations.

Calavo and Agricola Belher (“Belher”) have an equal one-half ownership interest in Agricola Don Memo, S.A. de C.V. (“Don Memo”). Pursuant to a management service agreement, Belher, through its officers and employees, has day-to-day power and authority to manage the operations.

As of January 31, 2022, and October 31, 2021, we had an investment of $3.8 million and $4.3 million, representing Calavo’s 50% ownership in Don Memo, which was included as an investment in unconsolidated entities on our balance sheet.  We make advances to Don Memo for operating purposes, provide additional advances as shipments are made during the season, and return the proceeds from tomato sales under our marketing program to Don Memo, net of our commission and aforementioned advances. As of January 31, 2022 and October 31, 2021, we had outstanding advances of $4.2 million and $4.2 million to Don Memo. In October 2020, we entered into an infrastructure loan agreement with Don Memo for up to $2.4 million secured by certain property and equipment of Don Memo. This infrastructure loan

10

accrues interest at 7.25%. In October 2020, we funded $0.7 million related to this loan agreement, and we funded an additional $0.7 million, and $0.6 million in the first, and second quarters of fiscal 2021, for a total outstanding balance at January 31, 2022 of $2.0 million ($0.4 million is included in prepaids and other current assets and $1.6 million in other assets). This infrastructure loan agreement will mature in fiscal 2024. During the three months ended January 31, 2022 and 2021, we incurred $3.4 million and $3.5 million of cost of sales to Don Memo pursuant to our purchase consignment agreement.

We make advances to Belher for operating purposes, provide additional advances as shipments are made during the season, and return the proceeds from tomato sales under our marketing program to Belher, net of our commission and aforementioned advances. We had grower advances due from Belher totaling $4.5 million and $4.5 million as of January 31, 2022 and October 31, 2021, which are netted against the grower payable. In addition, we had infrastructure advances due from Belher of $0.9 million as of January 31, 2022 and October 31, 2021. These infrastructure advances were recorded as a receivable in prepaid and other current assets as of January 31, 2022 and October 31, 2021. In July 2021, we made a bridge loan of $3.5 million to Belher. This loan is secured by certain farmland in Mexico and accrues interest at 10%. In the first quarter of fiscal 2022, this loan has been amended to be due with installments of $0.9 million on July 31, 2022, $0.9 million on July 31, 2023 and $1.7 million on July 31, 2024. This bridge loan has been recorded as $0.9 million in prepaid expenses and other current assets and $2.6 million in other assets. During the three months ended January 31, 2022 and 2021, we incurred $3.4 million and $3.3 million of cost of sales to Belher pursuant to our purchase consignment agreement.

In August 2015, we entered into a Shareholder’s Agreement with various Mexican partners and created Avocados de Jalisco, S.A.P.I. de C.V. (“Avocados de Jalisco”). Avocados de Jalisco is a Mexican corporation created to engage in procuring, packing and selling avocados. As of January 31, 2022, this entity was approximately 83% owned by Calavo and was consolidated in our financial statements. Avocados de Jalisco built a packinghouse located in Jalisco, Mexico, which began operations in June of 2017. During the three months ended January 31, 2022 and 2021, we purchased approximately $3.5 million and $2.2 million of avocados from the partners of Avocados de Jalisco.

5.

Other assets and Intangibles

Other assets consist of the following (in thousands):

    

January 31, 

    

October 31, 

2022

2021

Mexican IVA (i.e. value-added) taxes receivable (see note 11)

$

38,217

$

37,493

Infrastructure advances to Agricola Belher

 

1,641

 

1,641

Bridge loan to Agricola Belher

 

2,600

 

Other

 

950

 

1,366

$

43,408

$

40,500

Intangible assets consist of the following (in thousands):

January 31, 2022

October 31, 2021

    

Weighted-

    

Gross

    

Net

    

Gross

    

    

Net

Average

Carrying

Accum.

Book

Carrying

Accum.

Book

Useful Life

Value

Amortization

Value

Value

Amortization

Value

Customer list/relationships

 

7 years

$

17,340

$

(10,335)

$

7,005

$

17,340

$

(9,989)

$

7,351

Trade names

 

8 years

 

4,060

 

(3,010)

 

1,050

 

4,060

 

(2,980)

 

1,080

Trade secrets/recipes

 

9 years

 

630

 

(579)

 

51

 

630

 

(567)

 

63

Brand name intangibles

 

indefinite

 

275

 

 

275

 

275

 

 

275

Intangibles, net

$

22,305

$

(13,924)

$

8,381

$

22,305

$

(13,536)

$

8,769

We anticipate recording amortization expense of $1.2 million for the remainder of fiscal 2022, $1.5 million for fiscal year 2023, $1.5 million for fiscal year 2024, $1.5 million for fiscal year 2025, and $2.4 million thereafter.

11

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. Shares were issuable under the 2011 Plan through December 2020. On April 21, 2021, the shareholders of Calavo approved the Calavo Growers, Inc. 2020 Equity Incentive Plan (the “2020 Plan”). This is a five-year plan, with up to 1,500,000 shares that are issuable pursuant to awards that may be made through December 9, 2025.

On December 13, 2021, certain of our officers were granted a total of 5,355 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $40.53. These shares vest over two years, on an annual basis, beginning December 13, 2022. These shares were granted pursuant to our 2020 Plan. The total recognized stock-based compensation expense for these grants was less than $0.1 million for the three months ended January 31, 2022.

On January 3, 2022, all 10 of our current directors were granted 2,814 restricted shares each (for a total of 28,140 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing share price of our stock on such grant date was $42.64. As of January 3, 2023, these shares will vest and become unrestricted subject to the continued service of the director. The total recognized stock-based compensation expense for these grants was $0.1 million for the three months ended January 31, 2022.

On January 20, 2022, one of our current directors was granted 1,500 unrestricted shares as a component of her compensation for services rendered during the 2021 fiscal year. The closing share price of our stock on such grant date was $41.73. The total recognized stock-based compensation expense for this grant was $0.1 million for the three months ended January 31, 2022.

On February 1, 2022, Brian Kocher, our new Chief Executive Officer, was granted 28,993 of restricted shares as part of his employment agreement. The closing share price of our stock on such grant date was $41.39. These shares will vest over three years on an annual basis, beginning February 1, 2023.

A combined summary of restricted stock activity, related to our 2011 and 2020 Plans, is as follows (in thousands, except for per share amounts):

    

    

    

Weighted-Average

    

Aggregate

 

    

Number of Shares

    

Grant Price

    

Intrinsic Value

 

Outstanding at October 31, 2021

 

43

$

64.89

Vested

 

(27)

$

42.28

Granted

 

35

$

42.28

Outstanding at January 31, 2022

 

51

$

47.41

$

2,112

The total recognized stock-based compensation expense for restricted stock was $0.6 million and $0.9 million for the three months ended January 31, 2022 and 2021. Total unrecognized stock-based compensation expense totaled $2.5 million as of January 31, 2022 and will be amortized through fiscal year 2024.

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 vest 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.

12

A summary of stock option activity, related to our 2011 and 2020 Plans, is as follows (in thousands, except for per share amounts):

    

    

Weighted-Average

    

Aggregate

Exercise

Intrinsic

Number of Shares

Price

Value