e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 31, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-33385
CALAVO GROWERS, INC.
(Exact name of registrant as specified in its charter)
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California
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33-0945304 |
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(State of incorporation)
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(I.R.S. Employer Identification No.) |
1141-A Cummings Road
Santa Paula, California 93060
(Address of principal executive offices) (Zip code)
(805) 525-1245
(Registrants 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 þ No o
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):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer o |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).Yes o No þ
Registrants number of shares of common stock outstanding as of January 31, 2008 was 14,402,833
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains statements relating to our future results
(including certain projections and business trends) that are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those
sections. Forward-looking statements frequently are identifiable by the use of words such as
believe, anticipate, expect, intend, will, and other similar expressions. Our actual
results may differ materially from those projected as a result of certain risks and uncertainties.
These risks and uncertainties include, but are not limited to: increased competition, conducting
substantial amounts of business internationally, pricing pressures on agricultural products,
adverse weather and growing conditions confronting avocado growers, new governmental regulations,
as well as other risks and uncertainties, including but not limited to those set forth in Part I.,
Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended October 31,
2007, and those detailed from time to time in our other filings with the Securities and Exchange
Commission. These forward-looking statements are made only as of the date hereof, 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
3
PART 1. FINANCIAL INFORMATION
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ITEM 1. |
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FINANCIAL STATEMENTS |
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(All amounts in thousands, except per share amounts)
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January 31, |
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October 31, |
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2008 |
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2007 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,667 |
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$ |
967 |
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Accounts receivable, net of allowances
of $2,580 (2008) and $2,271 (2007) |
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31,644 |
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25,992 |
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Inventories, net |
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12,352 |
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8,359 |
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Prepaid expenses and other current assets |
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6,399 |
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4,911 |
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Advances to suppliers |
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2,337 |
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2,292 |
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Income taxes receivable |
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1,123 |
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1,539 |
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Deferred income taxes |
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2,525 |
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2,525 |
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Total current assets |
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58,047 |
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46,585 |
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Property, plant, and equipment, net |
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20,893 |
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20,888 |
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Investment in Limoneira |
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38,029 |
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48,962 |
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Investment in Maui Fresh, LLC |
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461 |
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403 |
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Goodwill |
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3,591 |
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3,591 |
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Other assets |
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7,874 |
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7,589 |
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$ |
128,895 |
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$ |
128,018 |
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Liabilities and shareholders equity |
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Current liabilities: |
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Payable to growers |
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$ |
1,723 |
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$ |
2,414 |
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Trade accounts payable |
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2,742 |
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2,643 |
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Accrued expenses |
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16,726 |
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12,227 |
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Short-term borrowings |
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18,450 |
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6,630 |
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Dividend payable |
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5,030 |
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Current portion of long-term obligations |
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1,307 |
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1,307 |
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Total current liabilities |
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40,948 |
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30,251 |
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Long-term liabilities: |
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Long-term obligations, less current portion |
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13,106 |
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13,106 |
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Deferred income taxes |
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6,438 |
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10,658 |
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Total long-term liabilities |
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19,544 |
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23,764 |
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Commitments and contingencies
Shareholders equity: |
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Common stock, $0.001 par value; 100,000
shares authorized; 14,403 (2008) and 14,371 (2007)
issued and outstanding |
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14 |
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14 |
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Additional paid-in capital |
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38,451 |
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38,068 |
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Accumulated other comprehensive income |
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8,951 |
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15,664 |
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Retained earnings |
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20,987 |
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20,257 |
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Total shareholders equity |
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68,403 |
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74,003 |
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$ |
128,895 |
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$ |
128,018 |
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The accompanying notes are an integral part of these consolidated condensed financial
statements.
4
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(All amounts in thousands, except per share amounts)
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Three months ended |
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January 31, |
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2008 |
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2007 |
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Net sales |
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$ |
72,241 |
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$ |
57,244 |
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Cost of sales |
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66,212 |
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50,325 |
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Gross margin |
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6,029 |
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6,919 |
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Selling, general and administrative |
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4,750 |
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4,582 |
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Operating income |
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1,279 |
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2,337 |
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Interest expense |
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(348 |
) |
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(300 |
) |
Other income, net |
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261 |
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144 |
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Income before provision for income taxes |
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1,192 |
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2,181 |
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Provision for income taxes |
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460 |
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850 |
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Net income |
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$ |
732 |
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$ |
1,331 |
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Net income per share: |
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Basic |
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$ |
0.05 |
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$ |
0.09 |
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Diluted |
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$ |
0.05 |
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$ |
0.09 |
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Number of shares used in per share computation: |
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Basic |
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14,375 |
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14,293 |
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Diluted |
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14,503 |
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14,359 |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
5
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(All amounts in thousands)
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Three months ended |
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January 31, |
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2008 |
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2007 |
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Net income |
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$ |
732 |
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$ |
1,331 |
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Other comprehensive income (loss), before tax: |
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Unrealized holding gains (losses) arising during
period |
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(10,933 |
) |
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7,261 |
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Income tax (expense) benefit related to items of
other comprehensive income (loss) |
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4,220 |
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(2,674 |
) |
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Other comprehensive income (loss), net of tax |
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(6,713 |
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4,587 |
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Comprehensive income (loss) |
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$ |
(5,981 |
) |
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$ |
5,918 |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
6
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
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Three months ended January 31, |
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2008 |
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2007 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
732 |
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$ |
1,331 |
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Adjustments to reconcile net income to net cash
used in operating activities: |
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Depreciation and amortization |
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567 |
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548 |
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Income from Maui Fresh, LLC |
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(58 |
) |
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(32 |
) |
Stock compensation expense |
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2 |
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8 |
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Provision for losses on accounts receivable |
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40 |
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Effect on cash of changes in operating assets and
liabilities: |
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Accounts receivable |
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(5,652 |
) |
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(2,310 |
) |
Inventories, net |
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(3,993 |
) |
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(1,830 |
) |
Prepaid expenses and other current assets |
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(1,398 |
) |
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69 |
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Advances to suppliers |
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(45 |
) |
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(2,139 |
) |
Income taxes receivable |
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|
531 |
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|
744 |
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Other assets |
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(28 |
) |
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|
69 |
|
Payable to growers |
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(691 |
) |
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(3,589 |
) |
Trade accounts payable and
accrued expenses |
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4,565 |
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329 |
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Net cash used in operating activities |
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(5,468 |
) |
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(6,762 |
) |
Cash Flows from Investing Activities: |
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Loan to Agricola Belher |
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(450 |
) |
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Acquisitions of and deposits on
property, plant, and equipment |
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(436 |
) |
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(1,677 |
) |
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Net cash used in investing activities |
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(886 |
) |
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(1,677 |
) |
Cash Flows from Financing Activities: |
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Payment of dividend to shareholders |
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(5,032 |
) |
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(4,573 |
) |
Proceeds from revolving credit facilities, net |
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11,820 |
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12,987 |
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Exercise of stock options |
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266 |
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Collection on notes receivable from shareholders |
|
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166 |
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Net cash provided by financing activities |
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7,054 |
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8,580 |
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Net increase in cash and cash equivalents |
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700 |
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|
141 |
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Cash and cash equivalents, beginning of period |
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|
967 |
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50 |
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Cash and cash equivalents, end of period |
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$ |
1,667 |
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$ |
191 |
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Noncash Investing and Financing Activities: |
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Tax benefit related to stock option exercise |
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$ |
115 |
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$ |
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Construction in progress included in trade accounts payable |
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$ |
33 |
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$ |
173 |
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|
|
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Unrealized holding gains (losses) |
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$ |
(10,933 |
) |
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$ |
7,261 |
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|
|
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The accompanying notes are an integral part of these consolidated condensed financial statements.
7
1. Description of the business
Business
Calavo Growers, Inc. (Calavo, the Company, we, us or our) procures and markets avocados and
other perishable commodities and prepares and distributes processed avocado products. We deliver a
wide array of fresh and processed 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 operating facilities in southern California, Texas, New
Jersey, Arizona, and Mexico, we sort, pack, and/or ripen avocados for distribution both
domestically and internationally. Additionally, we also distribute other perishable foods, such as
tomatoes, pineapples, and Hawaiian grown papayas, and prepare processed avocado products. We
report our operations in two different business segments: fresh products and processed products.
The accompanying unaudited condensed consolidated 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 condensed consolidated financial
statements contain all adjustments, consisting of adjustments of a normal recurring nature
necessary to present fairly the Companys 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 Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2007.
Uncertain Tax Positions
In November 2007, we adopted the provisions of the Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, (FIN 48) which provides a financial statement recognition threshold and
measurement attribute for a tax position taken or expected to be taken in a tax return. Under FIN
48, a company may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit that has a greater
than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on
derecognition of income tax assets and liabilities, classification of current and deferred income
tax assets and liabilities, accounting for interest and penalties associated with tax positions,
and income tax disclosures. The adoption of FIN 48 did not impact our financial position or
results of operations.
We
are subject to income taxes in both the United States and Mexico. In the ordinary course of
our business, there are many transactions and calculations in which the ultimate tax
determination is uncertain and significant judgment is required in determining our
worldwide provision for income taxes. Although we believe our tax estimates are reasonable, the final
determination of tax audits could be different than that which is reflected in historical
income tax provisions and accruals. Based on the results of an audit, a material effect on
our income tax provision, net income, or cash flows in the period or periods for which that
determination is made could result. We file U.S. and state income returns in jurisdictions with
varying statutes of limitation. The fiscal years 2003 through 2007 generally remain subject to examination by federal
and most state tax authorities.
Recent Accounting Standards
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FAS 141(R)). This
Statement provides greater consistency in the accounting and financial reporting of business
combinations. It requires the acquiring entity in a business combination to recognize all assets
acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as
the measurement objective for all assets acquired and liabilities assumed, and requires the
acquirer to disclose the nature and financial effect of the business combination. FAS 141(R) is
effective for fiscal years beginning after December 15, 2008. We will adopt FAS 141(R) no later
than the first quarter of fiscal 2010 and are currently assessing the impact the adoption will have
on our financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements (FAS 160). This Statement amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 is
effective for fiscal years beginning after December 15, 2008. We will
8
adopt FAS 160 no later than the first quarter of fiscal 2010 and are currently assessing the
impact the adoption will have on our financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, which permits entities to choose to measure at fair value eligible financial
instruments and certain other items that are not currently required to be measured at fair value.
The standard requires that unrealized gains and losses on items for which the fair value option has
been elected be reported in earnings at each subsequent reporting date. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 159 no later than the
first quarter of fiscal 2009. We are currently assessing the impact the adoption of SFAS No. 159
will have on our financial position and results of operations.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R). SFAS No. 158 requires company plan sponsors to display the net over- or under-funded
position of a defined benefit postretirement plan as an asset or liability, with any unrecognized
prior service costs, transition obligations or actuarial gains/losses reported as a component of
other comprehensive income in shareholders equity. SFAS No. 158 is effective for fiscal years
ending after December 15, 2006. We adopted the recognition provisions of SFAS No. 158 as of the
end of fiscal 2007. The adoption of SFAS No. 158 did not have a material effect on the Companys
financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
establishes a framework for measuring fair value in generally accepted accounting principles,
clarifies the definition of fair value and expands disclosures about fair value measurements. SFAS
No. 157 does not require any new fair value measurements. However, the application of SFAS No. 157
may change current practice for some entities. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal
years. We will adopt SFAS No. 157 in the first quarter of fiscal 2009. We are currently assessing
the impact that the adoption of SFAS No. 157 will have on our financial position and results of
operations.
2. Information regarding our operations in different segments
We report our operations in two different business segments: fresh products and processed
products. These two business segments are presented based on how information is used by our
president to measure performance and allocate resources. The fresh products segment includes all
operations that involve the distribution of avocados grown both inside and outside of California,
as well as the distribution of other non-processed, perishable food products. The processed
products segment represents all operations related to the purchase, manufacturing, and distribution
of processed avocado products. Additionally, selling, general and administrative expenses, as well
as other non-operating income/expense items, are evaluated by our president in the aggregate. We
do not allocate assets, or specifically identify them to, our operating segments. Prior period
amounts have been reclassified to conform to the current period presentation.
9
The following table sets forth sales by product category, by segment (in thousands):
|
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Three months ended January 31, 2008 |
|
|
Three months ended January 31, 2007 |
|
|
|
Fresh |
|
|
Processed |
|
|
|
|
|
|
Fresh |
|
|
Processed |
|
|
|
|
|
|
products |
|
|
products |
|
|
Total |
|
|
products |
|
|
products |
|
|
Total |
|
Third-party sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California avocados |
|
$ |
1,621 |
|
|
$ |
|
|
|
$ |
1,621 |
|
|
$ |
9,263 |
|
|
$ |
|
|
|
$ |
9,263 |
|
Imported avocados |
|
|
42,182 |
|
|
|
|
|
|
|
42,182 |
|
|
|
28,163 |
|
|
|
|
|
|
|
28,163 |
|
Tomatoes |
|
|
6,110 |
|
|
|
|
|
|
|
6,110 |
|
|
|
2,599 |
|
|
|
|
|
|
|
2,599 |
|
Pineapples |
|
|
3,073 |
|
|
|
|
|
|
|
3,073 |
|
|
|
12 |
|
|
|
|
|
|
|
12 |
|
Papayas |
|
|
1,762 |
|
|
|
|
|
|
|
1,762 |
|
|
|
1,135 |
|
|
|
|
|
|
|
1,135 |
|
Specialties and Tropicals |
|
|
386 |
|
|
|
|
|
|
|
386 |
|
|
|
1,190 |
|
|
|
|
|
|
|
1,190 |
|
Processed food service |
|
|
|
|
|
|
9,362 |
|
|
|
9,362 |
|
|
|
|
|
|
|
7,932 |
|
|
|
7,932 |
|
Processed retail and club |
|
|
|
|
|
|
3,025 |
|
|
|
3,025 |
|
|
|
|
|
|
|
2,860 |
|
|
|
2,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fruit and product sales to
third-parties |
|
|
55,134 |
|
|
|
12,387 |
|
|
|
67,521 |
|
|
|
42,362 |
|
|
|
10,792 |
|
|
|
53,154 |
|
Freight and other charges |
|
|
6,627 |
|
|
|
240 |
|
|
|
6,867 |
|
|
|
5,768 |
|
|
|
138 |
|
|
|
5,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total third-party sales |
|
|
61,761 |
|
|
|
12,627 |
|
|
|
74,388 |
|
|
|
48,130 |
|
|
|
10,930 |
|
|
|
59,060 |
|
Less sales incentives |
|
|
(1 |
) |
|
|
(2,146 |
) |
|
|
(2,147 |
) |
|
|
(9 |
) |
|
|
(1,807 |
) |
|
|
(1,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales to third-parties |
|
|
61,760 |
|
|
|
10,481 |
|
|
|
72,241 |
|
|
|
48,121 |
|
|
|
9,123 |
|
|
|
57,244 |
|
Intercompany sales |
|
|
4,306 |
|
|
|
2,455 |
|
|
|
6,761 |
|
|
|
3,038 |
|
|
|
1,810 |
|
|
|
4,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales before eliminations |
|
$ |
66,066 |
|
|
$ |
12,936 |
|
|
|
79,002 |
|
|
$ |
51,159 |
|
|
$ |
10,933 |
|
|
|
62,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany sales eliminations |
|
|
|
|
|
|
|
|
|
|
(6,761 |
) |
|
|
|
|
|
|
|
|
|
|
(4,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales |
|
|
|
|
|
|
|
|
|
$ |
72,241 |
|
|
|
|
|
|
|
|
|
|
$ |
57,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(All amounts are presented in thousands) |
|
|
|
Fresh |
|
|
Processed |
|
|
Inter-segment |
|
|
|
|
|
|
Products |
|
|
products |
|
|
eliminations |
|
|
Total |
|
|
|
(All amounts are presented in thousands) |
|
Three months ended January 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
66,066 |
|
|
$ |
12,936 |
|
|
$ |
(6,761 |
) |
|
$ |
72,241 |
|
Cost of sales |
|
|
62,635 |
|
|
|
10,338 |
|
|
|
(6,761 |
) |
|
|
66,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
3,431 |
|
|
$ |
2,598 |
|
|
|
|
|
|
$ |
6,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh |
|
|
Processed |
|
|
Inter-segment |
|
|
|
|
|
|
Products |
|
|
products |
|
|
eliminations |
|
|
Total |
|
|
|
(All amounts are presented in thousands) |
|
Three months ended January 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
51,159 |
|
|
$ |
10,933 |
|
|
$ |
(4,848 |
) |
|
$ |
57,244 |
|
Cost of sales |
|
|
47,433 |
|
|
|
7,740 |
|
|
|
(4,848 |
) |
|
|
50,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
3,726 |
|
|
$ |
3,193 |
|
|
|
|
|
|
$ |
6,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
3. Inventories
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
October 31, |
|
|
|
2008 |
|
|
2007 |
|
Fresh fruit |
|
$ |
6,656 |
|
|
$ |
3,884 |
|
Packing supplies and ingredients |
|
|
2,683 |
|
|
|
2,389 |
|
Finished processed foods |
|
|
3,013 |
|
|
|
2,086 |
|
|
|
|
|
|
|
|
|
|
$ |
12,352 |
|
|
$ |
8,359 |
|
|
|
|
|
|
|
|
During the three month periods ended January 31, 2008 and 2007, 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
We sell papayas obtained from an entity owned by our Chairman of the Board of Directors, Chief
Executive Officer and President. Sales of papayas procured from the related entity amounted to
approximately $1,762,000, and $1,135,000 for the three months ended January 31, 2008 and 2007,
resulting in gross margins of approximately $132,000 and $93,000. Amounts payable are
approximately $131,000 and $438,000 at January 31, 2008 and October 31, 2007 due to this entity.
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 January 31, 2008 and 2007, the aggregate amount of avocados procured
from entities owned or controlled by members of our Board of Directors was $0.2 million and $1.2
million. Amounts payable to these board members were $0.1 million and $0.2 million as of January
31, 2008 and October 31, 2007.
During the first quarter of fiscal 2008 and 2007, we received $0.1 million as dividend income
from Limoneira.
5. Other assets
Included in other assets in the accompanying consolidated condensed financial statements are
the following intangible assets: customer-related intangibles of $590,000 (accumulated
amortization of $474,000 at January 31, 2008), brand name intangibles of $275,000 and other
identified intangibles totaling $2,000 (accumulated amortization of $2,000 at January 31, 2008).
The customer-related intangibles are being amortized over five years. The other identified
intangibles are fully amortized as of January 31, 2008. The intangible asset related to the brand
name currently has an indefinite remaining useful life and, as a result, is not currently subject
to amortization. We anticipate recording amortization expense of approximately $88,000 for the
remainder of fiscal 2008, with the remaining amortization expense of approximately $28,000 recorded
in fiscal 2009.
6. Stock-Based Compensation
We have one active stock-based compensation plan under which employees and directors may be
granted options to purchase shares of our common stock. Stock options are generally 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 five years after the grant date. We settle stock option exercises
with newly issued shares of common stock.
Our Employee Stock Option Purchase Plan has not had activity since fiscal 2002 and our
Director Stock Option Plan was terminated in fiscal 2007.
We account for our stock option plans in accordance with SFAS No. 123(R), Share-Based Payment.
Under SFAS No. 123(R), we are required to 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
11
that the awards are expected to vest. We measure the fair
value of our stock based compensation awards on the date of grant.
The following weighted average assumptions were used in the estimated grant date fair value
calculations for share-based payments:
|
|
|
|
|
|
|
Fiscal quarter ended |
|
|
January 31, 2007 |
Expected dividend yield |
|
|
3.10 |
% |
Expected stock price volatility |
|
|
22.19 |
% |
Risk free interest rate |
|
|
3.25 |
% |
Expected life (in years) |
|
|
5.5 |
|
The expected stock price volatility rates were based on the historical volatility of our
common stock. The risk free interest rate was based on the U.S. Treasury yield curve in effect at
the time of grant for periods approximating the expected life of the option. The expected life
represents the average period of time that options granted are expected to be outstanding, as
calculated using the simplified method described in the Securities and Exchange Commissions Staff
Accounting Bulletin No. 107.
A summary of stock option activity, related to our 2005 Stock Incentive Plan, is as follows
(in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
Aggregate |
|
|
Number of Shares |
|
Exercise Price |
|
Intrinsic Value |
Outstanding at October 31, 2007 |
|
|
333 |
|
|
$ |
9.18 |
|
|
|
|
|
Exercised |
|
|
(20 |
) |
|
$ |
9.10 |
|
|
|
|
|
Outstanding at January 31, 2008 |
|
|
313 |
|
|
$ |
9.19 |
|
|
$ |
3,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 31, 2008 |
|
|
297 |
|
|
$ |
9.12 |
|
|
$ |
3,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 31, 2008, outstanding stock options had a weighted-average remaining contractual
term of 2.7 years. At January 31, 2008, exercisable stock options had a weighted-average remaining
contractual term of 2.6 years. The total cash received from employees as a result of stock option
exercises during the fiscal quarter ended January 31, 2008 totaled $0.3 million. During the fiscal
quarter ended January 31, 2007, 20,000 stock options were granted with a weighted average exercise
price of $2.06. No options were granted during the fiscal quarter ended January 31, 2008. The
total recognized and unrecognized stock-based compensation expense was immaterial as of and for the
quarter ended January 31, 2008.
A summary of stock option activity, related to our Directors Stock Option Plan (which was
terminated in fiscal 2007), is as follows (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
Aggregate |
|
|
Number of Shares |
|
Exercise Price |
|
Intrinsic Value |
Outstanding at October 31, 2007 |
|
|
49 |
|
|
$ |
7.00 |
|
|
|
|
|
Exercised |
|
|
(12 |
) |
|
$ |
7.00 |
|
|
|
|
|
Outstanding at January 31, 2008 |
|
|
37 |
|
|
$ |
7.00 |
|
|
$ |
493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 31, 2008 |
|
|
37 |
|
|
$ |
7.00 |
|
|
$ |
493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 31, 2008, outstanding and exercisable stock options had a weighted-average
remaining contractual term of 1.1 years. The total cash received from non-employee directors as a result of
stock option exercises during the fiscal quarter ended January 31, 2008 totaled $0.1 million.
12
7. Other events
Dividend payment
On January 2, 2008, we paid a $0.35 per share dividend in the aggregate amount of $5.0 million
to shareholders of record on December 15, 2007.
Contingencies
Hacienda Suit We are currently under examination by the Mexican tax authorities (Hacienda)
for the tax year ended December 31, 2000 and December 31, 2004. We have received assessments
totaling approximately $2.0 million and $4.5 million from Hacienda related to the amount of income
at our Mexican subsidiary. Subsequent to that initial assessment, the Hacienda offered a
settlement of approximately $400,000 related to the tax year 2000 assessment, which we declined.
Based primarily on discussions with legal counsel and the evaluation of our claim, we maintain our
belief that the Haciendas position has no merit and that we will prevail. Accordingly, no amounts
have been provided in the financial statements as of January 31, 2008. We pledged our processed
products building located in Uruapan, Michoacan, Mexico as collateral to the Hacienda in regards to
this assessment.
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.
Agreement with Mushroom Grower
Effective November 2007, we entered into a consignment and marketing agreement with Farmers
Fresh Mushroom, Inc (FFMI) to market and sell conventional and organic mushrooms in the United
States. FFMI agreed, among other things, to source, pack, and ship product primarily to our
customers, but also to any of our distribution centers, at our option. In exchange, we agreed,
among other things, to market and sell such product. The agreement specifically calls for FFMI to
not actively pursue new business in the United States and it also requires that all product sold by
us will be packed in our cartons and sold only by us.
The term of this agreement is for 12 months (through October 2008) and automatically renews
for a 12-month period on the final day of the agreement, unless terminated, as defined.
Agreement with Tomato Grower
During the first quarter of fiscal 2008, we agreed to advance Agricola Belher (Belher) of
Mexico an additional $0.5 million related to our infrastructure agreement entered into in June
2007. Pursuant to this agreement, these funds are to be used solely for the acquisition,
construction, and installation of improvements to and on certain land owned by Belher, as well as
packing line equipment. These advances incur interest at 9.4% at January 31, 2008. We have
advanced a total of $5.5 million as of January 31, 2008 ($1.1 million included in prepaid expenses
and other current assets and $4.4 million included in other long-term assets). Belher is to
annually repay these advances in no less than 20% increments through July 2012. Interest is to be
paid monthly or annually, as defined. Belher may prepay, without penalty, all or any portion of
the advances at any time.
Agreement with Pineapple Grower
Effective December 2007, we entered into a Consignment and Marketing Agreement with Maui
Pineapple Company, LTD. (MPC), to market and sell Maui Gold Pineapples throughout the continental
United States and Canada. MPC agreed, among other things, to source, pack and ship such pineapples
to an agreed port of entry. In exchange, we agreed, among other things, to be responsible for such
product upon arrival at the port, to market and sell the related product, and to develop and
implement marketing strategies aimed at building the Maui Gold brand recognition. The agreement
specifically calls for us to be the sole and exclusive source for the sale of Maui Gold Pineapples.
Additionally, Maui Gold Pineapples are to be our sole fresh pineapple product.
13
The agreement calls for us to provide certain advances, as defined, and return the proceeds
from such pineapple sales to MPC, net of our commission, fees, and incentives, if applicable. The
term of this agreement is for 13 months (through December 2008) and automatically renews for a
12-month period, unless terminated, as defined.
|
|
|
ITEM 2. |
|
MANAGEMENTS 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 Managements 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, 2007 of Calavo Growers, Inc. (we, Calavo, or the Company). Certain prior
year amounts have been reclassified to conform to the current period presentation.
Recent Developments
Dividend payment
On January 2, 2008, we paid a $0.35 per share dividend in the aggregate amount of $5.0 million
to shareholders of record on December 15, 2007.
Contingencies
Hacienda Suit We are currently under examination by the Mexican tax authorities (Hacienda)
for the tax year ended December 31, 2000 and December 31, 2004. We have received assessments
totaling approximately $2.0 million and $4.5 million from Hacienda related to the amount of income
at our Mexican subsidiary. Subsequent to that initial assessment, the Hacienda offered a
settlement of approximately $400,000 related to the tax year 2000 assessment, which we declined.
Based primarily on discussions with legal counsel and the evaluation of our claim, we maintain our
belief that the Haciendas position has no merit and that we will prevail. Accordingly, no amounts
have been provided in the financial statements as of January 31, 2008. We pledged our processed
products building located in Uruapan, Michoacan, Mexico as collateral to the Hacienda in regards to
this assessment.
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.
Agreement with Mushroom Grower
Effective November 2007, we entered into a Consignment and Marketing Agreement with Farmers
Fresh Mushroom, Inc (FFMI) to market and sell conventional and organic mushrooms in the United
States. FFMI agreed, among other things, to source, pack, and ship product primarily to our
customers, but also to any of our distribution centers, at our option. In exchange, we agreed,
among other things, to market and sell such product. The agreement specifically calls for FFMI to
not actively pursue new business in the United States and it also requires that all product sold by
us will be packed in our cartons and sold only by us.
The term of this agreement is for 12 months (through October 2008) and automatically renews
for a 12-month period on the final day of the agreement, unless terminated, as defined.
14
Agreement with Tomato Grower
During the first quarter of fiscal 2008, we agreed to advance Agricola Belher (Belher) of Mexico an
additional $0.5 million related to the infrastructure agreement entered into in June 2007.
Pursuant to this agreement, these funds are to be used solely for the acquisition, construction,
and installation of improvements to and on certain land owned by Belher, as well as packing line
equipment. These advances incur interest at 9.4% at January 31, 2008. We have advanced a total of
$5.5 million as of January 31, 2008 ($1.1 million included in prepaid expenses and other current
assets and $4.4 million included in other long-term assets). Belher is to annually repay these
advances in no less than 20% increments through July 2012. Interest is to be paid monthly or
annually, as defined. Belher may prepay, without penalty, all or any portion of the advances at
any time.
Agreement with Pineapple Grower
Effective December 2007, we entered into a consignment and marketing agreement with Maui
Pineapple Company, LTD. (MPC), to market and sell Maui Gold Pineapples throughout the continental
United States and Canada. MPC agreed, among other things, to source, pack and ship such pineapples
to an agreed port of entry. In exchange, we agreed, among other things, to be responsible for such
product upon arrival at the port, to market and sell the related product, and to develop and
implement marketing strategies aimed at building the Maui Gold brand recognition. The agreement
specifically calls for us to be the sole and exclusive source for the sale of Maui Gold Pineapples.
Additionally, Maui Gold Pineapples are to be our sole fresh pineapple product.
The agreement calls for us to provide certain advances, as defined, and return the proceeds
from such pineapple sales to MPC, net of our commission, fees, and incentives, if applicable. The
term of this agreement is for 13 months (through December 2008) and automatically renews for a
12-month period, unless terminated, as defined.
Net Sales
The following table summarizes our net sales by business segment for each of the three-month
periods ended January 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
|
(in thousands) |
|
2008 |
|
|
Change |
|
|
2007 |
|
Net sales to third-parties: |
|
|
|
|
|
|
|
|
|
|
|
|
Fresh products |
|
$ |
61,760 |
|
|
|
28.3 |
% |
|
$ |
48,121 |
|
Processed products |
|
|
10,481 |
|
|
|
14.9 |
% |
|
|
9,123 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
72,241 |
|
|
|
26.2 |
% |
|
$ |
57,244 |
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Fresh products |
|
|
85.5 |
% |
|
|
|
|
|
|
84.1 |
% |
Processed products |
|
|
14.5 |
% |
|
|
|
|
|
|
15.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
|
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Net sales for the first quarter of fiscal 2008, compared to fiscal 2007, increased by $15.0
million, or 26.2%. The increase in fresh product sales during the first quarter of fiscal 2008 was
primarily related to increased sales in Mexican sourced avocados, tomatoes, and pineapples. These
increases were partially offset, however, by decreased sales from California and Chilean sourced
avocados. While the procurement of fresh avocados related to our fresh products segment is very
seasonal, our processed products business is generally not subject to a seasonal effect. For the
related three-month period, the increase in net sales to third parties delivered by our processed
products business was due primarily to an increase in total pounds of product sold.
Net sales to third parties by segment exclude value-added services billed by our Uruapan
packinghouse and our Uruapan processing plant to the parent company. All intercompany sales are
eliminated in our consolidated results of operations.
15
Fresh products
Net sales delivered by the business increased by approximately $13.6 million, or 28.3%, for
the first quarter of fiscal 2008, when compared to the same period for fiscal 2007. This increase
was primarily related to an increase in sales of Mexican grown avocados, as well as tomatoes and
pineapples. The volume of Mexican fruit sold increased by approximately 6.1 million pounds, or
20.4%, when compared to the same prior year period. This increase was primarily related to the
significant decrease in the volume of California and Chilean avocados in the U.S. marketplace. We
believe such decrease in California avocados is primarily related to the timing of delivery to the
U.S. marketplace, while such decrease in Chilean is primarily related to a significantly smaller
Chilean avocado crop.
Additionally, the volume of tomatoes and pineapples increased by approximately 0.2 million and
0.3 million cartons, or 69.6% and 100.0%, when compared to the same prior year period. These
increases were primarily related to the distribution and infrastructure agreements with Agricola
Belher of Mexico (for the tomatoes) and the consignment and marketing agreement with Maui Pineapple
Company, LTD (for the pineapples).
The average selling price, on a per carton basis, of Mexican avocados sold increased 50.7%
when compared to the same prior year period. We believe some of this increase is due to the
aforementioned low-level of California and Chilean avocados in the U.S. marketplace.
The increase in sales discussed above was partially offset by a decrease in sales related to
avocados sourced from California and Chile. California avocados sales reflect an 85.8% decrease in
pounds of avocados sold, when compared to the same prior year period. As discussed above, the
decrease in pounds is primarily related to the timing of delivery to the U.S. marketplace. Our
market share of California avocados decreased to 29.0% in the first quarter of fiscal 2008, when
compared to a 42.0% market share for the same prior year period. Additionally, the volume of
Chilean fruit sold decreased by approximately 6.4 million pounds, or 62.3%, when compared to the
same prior year period. As discussed above, this decrease is primarily related to the size of the
Chilean avocado crop. The average selling price, on a per carton basis, of California and Chilean
avocados sold increased 29.9% and 65.6% when compared to the same prior year period. We believe
some of this increase is related to the decrease in the total California and Chilean avocados in
the U.S. marketplace, when compared to the same prior year period.
We anticipate that California avocado sales will experience a seasonal increase during our
second fiscal quarter of 2008, as compared to the first fiscal quarter of 2008. Additionally, we
expect an increase in the overall harvest of the California avocado crop for the 2007/2008 season.
We anticipate that net sales related to non-California sourced avocados, tomatoes, and
pineapples will remain consistent during our second fiscal quarter of 2008, as compared
to the first fiscal quarter of 2008, with the exception of Chilean avocados, which we
anticipate a seasonal decrease.
Processed products
For the quarter ended January 31, 2008, when compared to the same period for fiscal 2007,
sales to third-party customers increased by approximately $1.4 million, or 14.9%. This increase is
primarily related to a 17.8% increase in total pounds sold. The increase in pounds sold primarily
relates to an increase in the sale of both our frozen and high-pressure guacamole products, which
increased approximately 23.6% and 7.9%, when compared to the same prior year period. There was no
significant change in the average net selling price per pound for our first fiscal quarter of 2008
when compared to the same prior year period.
16
Gross Margins
The following table summarizes our gross margins and gross profit percentages by business
segment for each of the three-month periods ended January 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
|
(in thousands) |
|
2008 |
|
|
Change |
|
|
2007 |
|
Gross margins: |
|
|
|
|
|
|
|
|
|
|
|
|
Fresh products |
|
$ |
3,431 |
|
|
|
(7.9 |
)% |
|
$ |
3,726 |
|
Processed products |
|
|
2,598 |
|
|
|
(18.6 |
)% |
|
|
3,193 |
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margins |
|
$ |
6,029 |
|
|
|
(12.9 |
)% |
|
$ |
6,919 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
Fresh products |
|
|
5.6 |
% |
|
|
|
|
|
|
7.7 |
% |
Processed products |
|
|
24.8 |
% |
|
|
|
|
|
|
35.0 |
% |
Consolidated |
|
|
8.3 |
% |
|
|
|
|
|
|
12.1 |
% |
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 decreased by approximately $0.9
million, or 12.9%, for the first quarter of fiscal 2008 when compared to the same period for fiscal
2007. These decreases were primarily attributable to reductions in both our fresh products and our
processed products segments.
During our first fiscal quarter of 2008, as compared to the same prior year period, the
decrease in our fresh products segment gross margin percentage was primarily related to a
significant decrease in pounds of California sourced fruit sold, as well as an increase in the
market price of California avocados. During our first quarter of 2008, when compared to the prior year, we
experienced an 85.8% decrease in pounds of avocados sold. Additionally, we also experienced a
29.9% increase in the average sales price of California avocados. Additionally, we also
experienced an increase in Mexican and Chilean fruit costs. Combined, these had the effect
of increasing our per pound costs, which, as a result, negatively impacted gross margins. Such
decreases were partially offset, however, by an increase in both the volume of tomatoes sold, as
well as an increase in the average net selling price per carton of tomatoes. When compared to the
same prior period, the volume of tomatoes sold increased by approximately 69.6% and the average net
selling price per carton increased $3.97 per carton.
The processed products gross profit percentages for the first quarter of fiscal 2008, as
compared to the same prior period, decreased primarily as a result of higher fruit costs, partially
offset by an increase in total pounds produced. We anticipate that the gross profit percentage for
our processed product segment will continue to experience significant fluctuations during the next
fiscal quarter primarily due to the uncertainty of the cost of fruit that will be used in the
production process.
Selling, General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
(in thousands) |
|
2008 |
|
Change |
|
2007 |
Selling, general and administrative |
|
$ |
4,750 |
|
|
|
3.7 |
% |
|
$ |
4,582 |
|
Percentage of net sales |
|
|
6.6 |
% |
|
|
|
|
|
|
8.0 |
% |
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 $0.2 million, or 3.7%, for the three months ended January 31, 2008, when compared to the
same period for fiscal 2007. This increase was primarily related to higher corporate costs,
including, but not limited to, higher marketing and promotion expenses (totaling approximately $0.1
million), as well as an increase in repair and maintenance expenses (totaling approximately $0.1
million).
17
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
(in thousands) |
|
2008 |
|
Change |
|
2007 |
Provision for income taxes |
|
$ |
460 |
|
|
|
(45.9 |
)% |
|
$ |
850 |
|
Percentage of income before
provision for income taxes |
|
|
38.6 |
% |
|
|
|
|
|
|
39.0 |
% |
For the first three months of fiscal 2008, our provision for income taxes was $0.5 million, as
compared to $0.9 million for the comparable prior year period. We expect our effective tax rate to
approximate 39% during fiscal 2008.
Liquidity and Capital Resources
Cash used in operating activities was $5.5 million for the three months ended January 31,
2008, compared to $6.8 million for the similar period in fiscal 2007. Operating cash flows for the
three months ended January 31, 2008 reflect our net income of $0.7 million, net non-cash charges
(depreciation and amortization, stock compensation expense and income from Maui, LLC) of $0.5
million and a net decrease in the noncash components of our working capital of approximately $6.7
million.
These working capital decreases include an increase in accounts receivable of $5.7 million, an
increase in inventory of $4.0 million, an increase in prepaid expenses and other current assets of
$1.4 million, and an increase in payable to growers of $0.7 million, partially offset by an
increase in trade accounts payable and accrued expenses of $4.6 million and a decrease in income
tax receivable of $0.5 million.
The increase in our accounts receivable balance, as of January 31, 2008, when compared to
October 31, 2007, primarily reflects higher sales recorded in the month of January 2008, as
compared to October 2007. The increase in inventory is primarily related to an increase in
finished processed foods, primarily driven by production exceeding sales during such time period.
The increase in prepaid expenses and other current assets is primarily related to taxes receivable
from the taxing authorities in Mexico. The increase in payable to our growers primarily reflects
an increase in California fruit delivered in the month of January 2008, as compared to October
2007. The increase in trade accounts payable and accrued expenses is primarily related to the
increase in tomato and pineapple fruit delivered during the quarter ended January 31, 2008. The
decrease in income tax receivable primarily relates to income from operations through the three
months ended January 31, 2008.
Cash used in investing activities was $0.9 million for the three months ended January 31, 2008
and related principally to the purchase of property, plant and equipment items and additional
amounts advanced to Agricola Belher.
Cash provided by financing activities was $7.1 million for the three months ended January 31,
2008, which related principally to $11.8 million provided from our net borrowings on our lines of
credit. These proceeds were partially offset, however, by the payment of our $5.0 million
dividend.
Our principal sources of liquidity are our existing cash reserves, cash generated from
operations and amounts available for borrowing under our existing credit facilities. Cash and cash
equivalents as of January 31, 2008 and October 31, 2007 totaled $1.7 million and $1.0 million. Our
working capital at January 31, 2008 was $17.1 million, compared to $16.3 million at October 31,
2007. Overall, our working capital remained fairly consistent from October 31, 2007.
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. In July 2007 and October 2007, we renewed and extended our non-
18
collateralized, revolving credit facilities with Farm Credit West, PCA and Bank of America, N.A. These two credit facilities
now expire in February 2012 and July 2009. 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 $30 million, with a weighted-average interest rate of
4.3% and 5.8% at January 31, 2008 and October 31, 2007. Under these credit facilities, we had
$22.5 million and $10.6 million outstanding as of January 31, 2008 and October 31, 2007, of which
$4.0 million was classified as a long-term liability as of January 31, 2008 and October 31, 2007.
These credit facilities contain various financial covenants, the most significant relating to
working capital, tangible net worth (as defined), and Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA) (as defined). We were in compliance with all such covenants at January
31, 2008. We had commitments for capital expenditures totaling approximately $0.4 million as of
January 31, 2008.
The following table summarizes contractual obligations pursuant to which we are required to
make cash payments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
Contractual Obligations |
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
4-5 years |
|
|
More than 5 years |
|
Long-term debt obligations
(including interest) |
|
$ |
17,132 |
|
|
$ |
2,054 |
|
|
$ |
8,360 |
|
|
$ |
3,970 |
|
|
$ |
2,748 |
|
Payable to growers |
|
|
1,723 |
|
|
|
1,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
18,450 |
|
|
|
18,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plan |
|
|
401 |
|
|
|
34 |
|
|
|
141 |
|
|
|
94 |
|
|
|
132 |
|
Operating lease commitments |
|
|
4,534 |
|
|
|
554 |
|
|
|
1,602 |
|
|
|
751 |
|
|
|
1,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
42,240 |
|
|
$ |
22,815 |
|
|
$ |
10,103 |
|
|
$ |
4,815 |
|
|
$ |
4,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments include cash and cash equivalents, accounts receivable, notes
receivable from shareholders, payable to growers, accounts payable, current borrowings pursuant to
our credit facility, and long-term 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 January 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(All amounts in thousands) |
|
Expected maturity date October 31, |
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|
Total |
|
Fair Value |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1) |
|
$ |
1,667 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,667 |
|
|
$ |
1,667 |
|
Accounts receivable (1) |
|
|
31,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,644 |
|
|
|
31,644 |
|
Advances to Suppliers (1) |
|
|
2,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,337 |
|
|
|
2,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to growers (1) |
|
$ |
1,723 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,723 |
|
|
$ |
1,723 |
|
Accounts payable (1) |
|
|
2,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,742 |
|
|
|
2,742 |
|
Current borrowings pursuant to credit
facilities (1) |
|
|
18,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,450 |
|
|
|
18,450 |
|
Long-term borrowings pursuant to credit
facilities (2) |
|
|
|
|
|
|
1,000 |
|
|
|
1,000 |
|
|
|
1,000 |
|
|
|
1,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
4,286 |
|
Fixed-rate long-term obligations (3) |
|
|
1,307 |
|
|
|
1,306 |
|
|
|
1,300 |
|
|
|
1,300 |
|
|
|
1,300 |
|
|
|
3,900 |
|
|
|
10,413 |
|
|
|
10,506 |
|
|
|
|
(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) |
|
Long-term borrowings pursuant to our credit facility bears interest at 6.4%. We
believe that a portfolio of loans with a similar risk profile would currently yield a
return of 4.2%. We project the impact of an increase or decrease in interest rates of 100
basis points would result in a change of fair value by approximately $131,000. |
|
(3) |
|
Fixed-rate long-term obligations bear interest rates ranging from 3.3% to 5.7% with a
weighted-average interest rate of 5.7%. We believe that loans with a similar risk profile
would currently yield a return of 5.5%. 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 $361,000. |
We were not a party to any derivative instruments during the fiscal year. It is currently our
intent not to use derivative instruments for speculative or trading purposes. Additionally, we do
not use any hedging or forward contracts to offset market volatility.
Our Mexican-based operations transact business in Mexican pesos. Funds are transferred by our
corporate office to Mexico on a weekly basis to satisfy domestic cash needs. Consequently, the spot
rate for the Mexican peso has a moderate impact on our operating results. However, we do not
believe that this impact is sufficient to warrant the use of derivative instruments to hedge the
fluctuation in the Mexican peso. Total foreign currency gains and losses for each of the three
years in the period ended January 31, 2008 do not exceed $0.1 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 Companys internal control over financial reporting during the
quarter ended January 31, 2008 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 from operations.
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 |
|
Certification by Chief Executive Officer and Chief Financial Officer of
Periodic Report Pursuant to 18 U.S.C. Section 1350 |
21
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: March 10, 2008 |
By /s/ Lecil E. Cole
|
|
|
Lecil E. Cole |
|
|
Chairman of the Board of Directors,
Chief Executive Officer and President
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
Date: March 10, 2008 |
By /s/ Arthur J. Bruno
|
|
|
Arthur J. Bruno |
|
|
Chief Operating Officer, Chief Financial Officer
and Corporate Secretary
(Principal Financial Officer) |
|
22
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
|
|
Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report
Pursuant to 18 U.S.C. Section 1350. |
23