UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended October 31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 000-33385
CALAVO GROWERS, INC.
(Exact name of registrant as specified in its charter)
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California
(State of incorporation)
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33-0945304
(I.R.S. Employer Identification No.)
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1141-A Cummings Road, Santa Paula, CA
(Address of principal executive offices)
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93060
(Zip code)
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Registrants telephone number, including area code: (805) 525-1245
Securities registered pursuant to Section 12(b) of the Act:
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Name Of Each Exchange
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Title of Each Class
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On Which Registered
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Common Stock, $0.001 Par Value per Share
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Nasdaq Global Select Market
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
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No
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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
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No
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Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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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
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark if whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
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No
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Based on the closing price as reported on the Nasdaq Global Select Market, the aggregate
market value of the Registrants Common Stock held by non-affiliates on April 30, 2010 (the last
business day of the Registrants most recently completed second fiscal quarter) was approximately
$207.0 million. Shares of Common Stock held by each executive officer and director and by each
shareholder affiliated with a director or an executive officer have been excluded from this
calculation because such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes. The number of outstanding
shares of the Registrants Common Stock as of November 30, 2010 was 14,711,833.
Documents Incorporated by Reference
Portions of the Registrants Proxy Statement for the 2011 Annual Meeting of Shareholders,
which we intend to hold on April 27, 2011 are incorporated by reference into Part III of this Form
10-K. The definitive Proxy Statement will be filed within 120 days after October 31, 2010.
TABLE OF CONTENTS
CAUTIONARY STATEMENT
This Annual Report on Form 10-K contains statements relating to future results of Calavo Growers,
Inc. (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, general
economic and business conditions, energy costs and availability, 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 those set forth in Item 1A. Risk Factors and elsewhere in this Annual
Report on Form 10-K 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.
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PART I
Item 1. Business
General development of the 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. Our
expertise in marketing and distributing avocados, processed avocados, and other perishable foods
allows us to 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 Arizona,
California, Hawaii, New Jersey, Texas, and Mexico, we sort, pack, and/or ripen avocados, tomatoes
and/or Hawaiian grown papayas for distribution both domestically and internationally. We also have
an operating facility in Minnesota that produces salsa. We report our operations in two different
business segments: (1) Fresh products and (2) CalavoFoods. See Note 11 in our consolidated
financial statements for further information about our business segments. Our principal executive
offices are located at 1141-A Cummings Road, Santa Paula, California 93060; telephone (805)
525-1245.
On October 9, 2001, we completed a series of transactions whereby common and preferred
shareholders of Calavo Growers of California (the Cooperative), an agricultural marketing
cooperative association, exchanged all of their outstanding shares for shares of our common stock.
Concurrent with this transaction, the Cooperative was merged into us with Calavo Growers, Inc.
(Calavo) emerging as the surviving entity. These transactions had the effect of converting the
legal structure of the business from a non-profit cooperative to a for-profit corporation.
In August 2006, we entered into a joint venture agreement with San Rafael Distributing (SRD)
for the purpose of the marketing, sale and distribution of fresh produce from the existing location
of SRD at the Los Angeles Wholesale Produce Market (Terminal Market), located in Los Angeles,
California. Such joint venture operates under the name of Maui Fresh International, LLC (Maui
Fresh) and commenced operations in August 2006. SRD and Calavo each have an equal one-half
ownership interest in Maui Fresh, but SRD has overall management responsibility for the operations
of Maui Fresh at the Terminal Market.
In June 2007, we entered into a distribution agreement with Agricola Belher (Belher) of
Mexico, a well-established quality producer of fresh vegetables, primarily tomatoes, for export to
the U.S. market. Pursuant to such distribution agreement, Belher agreed, at their sole cost and
expense, to harvest, pack, export, ship, and deliver tomatoes exclusively to our company, primarily
our Arizona facility. In exchange, we agreed to sell and distribute such tomatoes, advance $2
million to Belher for operating purposes, provide additional advances as shipments are made during
the season (subject to limitations, as defined), and return the proceeds from such tomato sales to
Belher, net of our commission and aforementioned advances. The agreement also allows for us to
advance additional amounts to Belher at our sole discretion.
We also entered into an infrastructure agreement in June 2007 with Belher in order to
significantly increase production yields and fruit quality. Pursuant to this agreement, we are to
advance up to $5.0 million 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. Advances
incur interest at
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.5% and 6.8% at October 31, 2010 and 2009. We advanced $2.4 million
and $4.2 million as of October 31, 2010 and 2009 ($1.2 million and $1.8 million included in prepaid
expenses and other current assets and $1.2 million and $2.4 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. In order to secure their obligations pursuant to
both agreements discussed above, Belher granted us a first-priority security interest in certain
assets, including cash, inventory and fixed assets, as defined.
In May 2008, we purchased all of the outstanding shares of Hawaiian Sweet, Inc. (HS) and all
ownership interests of Hawaiian Pride, LLC (HP) from the Chairman of our Board of Directors,
Chief Executive Officer and President. HS and HP engage in tropical-product packing and processing
operations in Hawaii. Pursuant to the acquisition agreement, we made an initial purchase price
payment in the aggregate amount of $3,500,000 for both entities on May 20, 2008. We then made two
additional annual payments, based on certain operating results (the Earn-Out Payment(s)), as
defined. The first Earn-Out payment, which was made on September 23, 2009, totaled approximately
$2.4 million. The second, and final, Earn-Out payment, which was made on July 9, 2010, totaled
approximately $4.5 million.
In June 2009, we (through a newly created wholly owned subsidiary: Calavo Inversiones (Chile)
Limitada) entered into a joint venture agreement with Exportadora M5, S.A. (M5) for the purpose of
selling and distributing Chilean sourced avocados, as well as other perishable commodities. Such
joint venture operates under the name of Calavo de Chile and commenced operations in July 2009. M5
and Calavo each have an equal one-half ownership interest in Calavo de Chile, but M5 has overall
management responsibility for the operations of Calavo De Chile.
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On February 8, 2010, Calavo Growers, Inc. (Calavo), Calavo Salsa Lisa, LLC (Calavo Salsa
Lisa), Lisas Salsa Company (LSC) and Elizabeth Nicholson and Eric Nicholson, entered into an
Asset Purchase and Contribution Agreement, dated February 8, 2010 (the Acquisition Agreement),
which sets forth the terms and conditions pursuant to which Calavo acquired a 65 percent ownership
interest in newly created Calavo Salsa Lisa which acquired substantially all of the assets of LSC.
Elizabeth Nicholson and Eric Nicholson, through LSC, hold the remaining 35 percent ownership of
Calavo Salsa Lisa. LSC is a regional producer in the upper Midwest of Salsa Lisa refrigerated
salsas. We believe that this new line of salsas will further diversify our product offerings and
will be a natural complement to our ultra-high-pressure guacamole, as well as our recently
introduced Calavo tortilla chips. See Note 16 in our consolidated financial statements for further
information.
Available information
We maintain an Internet website at http://www.calavo.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or
furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
and other information related to us, are available, free of charge, on our website as soon as
reasonably practicable after we electronically file those documents with, or otherwise furnish them
to, the Securities and Exchange Commission. Our Internet website and the information contained
therein, or connected thereto, is not and is not intended to be incorporated into this Annual
Report on Form 10-K.
Fresh products
Calavo was founded in 1924 to market California avocados. In California, the growing area
stretches from San Diego County to Monterey County, with the majority of the growing areas located
approximately 100 miles north and south of Los Angeles County. The storage life of fresh avocados
is limited. It generally ranges from one to four weeks, depending upon the maturity of the fruit,
the growing methods used, and the handling conditions in the distribution chain.
We sell avocados to a diverse group of supermarket chains, wholesalers, food service and other
distributors, under the Calavo family of brand labels, as well as private labels. From time to
time, some of our larger customers seek short-term sales contracts that formalize their pricing and
volume requirements. Generally, these contracts contain provisions that establish a price floor
and/or ceiling during the contract duration. In our judgment, the shift by our customers to
drafting sales contracts benefits large handlers like us, which have the ability to fulfill the
terms of these contracts. During fiscal year 2010, our 5 and 25 largest fresh customers
represented approximately 24% and 48% of our total consolidated revenues. During fiscal year 2009,
our 5 and 25 largest fresh customers represented approximately 20% and 46% of our total
consolidated revenues. During fiscal year 2010, one fresh customer represented approximately 11%
of our total consolidated revenues. During fiscal years 2009 and 2008 none of our fresh customers
represented more than 10% of total consolidated revenues.
The Hass variety is the predominant avocado variety marketed on a worldwide basis. Generally,
California grown Hass avocados are available year-round, with peak production periods occurring
between January through October. Other varieties have a more limited picking season and generally
command a lower price. Approximately 1,950 California growers deliver avocados to us, generally
pursuant to a standard marketing agreement. Over the past several years, our share of the
California avocado crop has remained strong, with approximately 30% of the 2010 shipped California
avocado crop handled by us, based on data published by the California Avocado Commission. We
attribute our solid foothold in the California industry principally to the competitiveness of the
per pound returns we pay and the communication and service we maintain with our growers.
California avocados delivered to our packinghouses are graded, sized, packed, cooled and,
frequently, ripened for delivery to customers. Our ability to estimate the size, as well as the
timing of the delivery of the annual avocado crop, has a substantial impact on both our costs and
the sales price we receive for the fruit. To that end, our field personnel maintain direct contact
with growers and farm managers and coordinate harvest plans. The feedback from our field-managers
is used by our sales department to prepare sales plans used by our direct sales force.
A significant portion of our California avocado handling costs is fixed. As a result,
significant fluctuations in the volume of avocados delivered have a considerable impact on the per
pound packing costs of avocados we handle. Generally, larger crops will result in a lower per
pound handling cost. We believe that our cost structure is geared to optimally handle larger
avocado crops. Our strategy calls for continued efforts in aggressively recruiting new growers,
retaining existing growers, and procuring a larger percentage of the California avocado crop.
California avocados delivered to us are grouped as a homogenous pool on a weekly basis based
on the variety, size, and grade. The proceeds we receive from the sale of each separate avocado
pool, net of a packing and marketing fee to cover our costs and a profit, are paid back to the
growers once each month. The packing and marketing fee we withhold is determined by our Chief
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Executive Officer and is revised from time to time based on our estimated per pound packing
and operating costs, as well as our operating profit. This fee is a fixed rate per pound packed.
Significant competitive pressures dictate that our grower returns are set at the highest possible
level to attract new and retain existing grower business. We believe that, if net proceeds paid
ceased to be competitive, growers would simply choose to deliver their avocados to alternate
competitive handlers. Consequently, we strive to deliver growers the highest return possible on
avocados delivered to our packinghouses.
The California avocado market is highly competitive with 9 major avocado handlers. A
marketing order enacted by the state legislature is in effect for California grown avocados and
provides the financial resource to fund generic advertising and promotional programs. Avocados
handled by us are identifiable through packaging and the Calavo brand name sticker.
We also import avocados from Mexico, Chile and Peru. Our strategy is to increase our market
share of currently sourced avocados to all accepted marketplaces. We believe our diversified
avocado sources provide a level of supply stability that may, over time, help solidify the demand
for avocados among consumers in all the markets we distribute to.
We typically purchase Mexican avocados from growers and packers located in Mexico. The
purchase price we pay for fruit acquired from Mexican growers is generally negotiated for
substantially all the fruit in a particular grove. Once a purchase price is agreed to, the fruit
is then harvested and delivered to our packinghouse located in Uruapan, Michoacán, Mexico. Once
delivered, such fruit is weighed, graded, sized, packed, and cooled for shipment, primarily to the
United States. Fruit purchased directly from Mexican packers, however, is already packed for
shipment to either our customers or operating facilities. This fruit is packed pursuant to our
standards and is generally for additional, specific sizes we require. In either case, the purchase
price of Mexican avocados is generally based our estimated selling prices of such fruit, less
anticipated packing and/or selling costs and our desired margin. We believe these two sources
allow us to maximize both the timely acquisition, as well as purchase price, of Mexican fruit.
Similar to California avocados, a significant portion of our handling costs for Mexican
avocados are fixed. As a result, significant fluctuations in the volume of Mexican avocados
delivered to our packinghouse can have a considerable impact on the per pound packing costs of
avocados we handle. Generally, larger crops will result in a lower per pound handling cost. We
believe that our cost structure for Mexican avocados is geared to optimally handle larger avocado
crops.
We believe that our continued success in marketing Mexican avocados is largely dependent upon
securing a reliable, high-quality supply of avocados at reasonable prices, and keeping the handling
costs low as we ship the Mexican avocados to our packinghouses. We are subject to USDA and other
regulatory inspections to ensure the safety and the quality of the fruit being delivered from
Mexico. The Mexican avocado harvest, which is often considerably larger than the California
avocado harvest, is both complimentary and competitive with the California market, as the Mexican
harvest is near year round (most significant from September to June). As a result, it is common
for Mexican growers to monitor the supply of avocados for export to the United States in order to
obtain higher field prices. During 2010, we packed and distributed approximately 21% of the
avocados exported from Mexico into the United States and approximately 5% of the avocados exported
from Mexico to countries other than the United States, based on our estimates.
We also handle avocados from Chile and Peru, most of which are on a consignment basis with the
suppliers. Pursuant to our joint venture agreement with M5, Calavo de Chile is now the primary
contact with our Chilean avocado sources. Our commission percentages often range from 8% to 10%.
Additionally, from time to time, we may purchase Chilean sourced avocados. Pursuant to our
consignment arrangements, we occasionally make advances to both Chilean and Peruvian growers.
Historically, we made such advances related to both pre-harvest and post-harvest activities, but
our focus during fiscal 2009 and 2010 was primarily related to post-harvest activities. Typically,
we obtain collateral (i.e. fruit, fixed assets, etc.) that approximates the value at risk, prior to
making such advances. Historical experience demonstrates that providing post-harvest advances
results in our acquiring full market risk for the product, as it is possible (although unlikely)
that our resale proceeds may be less than the amounts we paid to the grower. This is a result of
the high level of volatility inherent in the avocado and perishable food markets, which are subject
to significant pricing declines based on the availability of fruit in the market. In the event
that we do make a pre-season advance, our ability to recover such pre-harvest advance would be
largely dependent on the growers ability to deliver avocados to us, as well as the inherent risks
of farming, such as weather and pests.
Sales of Chilean grown avocados have generally been significant during our 4
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fiscal quarters. Additionally, with the Chilean harvesting season being
complimentary to the California season (August through February), Chilean avocados are able to
command competitive retail pricing in the market. During 2010, we distributed approximately 5% of
the total Chilean avocados imported into the United States, based on our estimates.
We have developed a series of marketing and sales initiatives primarily aimed at our largest
customers that are designed to differentiate our products and services from those offered by our
competitors. Some of these key initiatives are as follows:
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We continue to have success with our ProRipeVIP avocado ripening program. This
proprietary program allows us to deliver avocados evenly ripened to our customers
specifications. We have invested in the Aweta AFS (acoustic firmness sensor) technology and
equipment. ProRipeVIP is the next generation of selling conditioned avocados that have
firmness determined via soundwaves. This technology is fairly new to avocados. The most
significant and compelling reason we invested in the Aweta systems is because the acoustic
sensors measure firmness of the entire piece of fruit, as opposed to competitive mechanical
tests that use pressure and calculated averages to measure firmness. We believe that
ripened avocados help our customers address the consumers immediate needs and accelerate
the sale of avocados through their stores. We currently have three Aweta systems in use in
the United States, which, we believe, can effectively meet our customers demand for
conditioned fruit.
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We have developed various display techniques and packages that appeal to consumers and,
in particular, impulse buyers. Some of our techniques include the bagging of avocados and
the strategic display of the bags within the produce section of retail stores. Our research
has demonstrated that consumers generally purchase a larger quantity of avocados when
presented in a bag as opposed to the conventional bulk displays. We also believe that the
value proposition of avocados in a bag provides for a higher level of sales to grocery
stores.
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From time to time, we market our avocados under joint promotion programs with other food
manufacturers. Under these programs, we seek to increase the promotional exposure of our
products by providing certain sales incentives. These incentives will be offered in
conjunction with various promotional campaigns designed to advertise the products of all
parties involved. We believe these programs will help us minimize our advertising costs, as
they will be shared with other parties, while still achieving recognition in the
marketplace.
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Perishable food products include various commodities, including tomatoes, papayas, mushrooms,
and pineapples. The majority of our sales are generated from tomatoes and papayas. Tomatoes are
primarily handled on a consigned basis, while papayas are handled on a pool basis, similar to the
California avocado pool previously described. Sales of our diversified products do not generally
experience significant fluctuations related to seasonality. We believe our efforts in distributing
our other various commodities complement our offerings of avocados.
CalavoFoods
The CalavoFoods segment was originally conceived as a mechanism to stabilize the price of
California avocados by reducing the volume of avocados available to the marketplace. In the 1960s
and early 1970s, we pioneered the process of freezing avocado pulp and developed a wide variety of
guacamole recipes to address the diverse tastes of consumers and buyers in both the retail and food
service industries. One of the key benefits of frozen products is their long shelf-life. With the
introduction of low cost processed products delivered from Mexican based processors, however, we
realigned the segments strategy by shifting the fruit procurement and pulp processing functions to
Mexico. In 1995, we invested in a processing plant in Mexicali, Mexico to derive the benefit of
competitive avocado prices available in Mexico.
Through January 2003, the primary function of our Mexicali processed operation was to produce
pulp for our Santa Paula plant. Our processing facility in Santa Paula, California would receive
the pulp from Mexicali, add ingredients, and package the product in
various containers. The product would then be frozen for storage with shipment to warehouses and,
ultimately, to our customers. From January 2003 to August 2004, however, our Mexicali processed
operations became primarily focused on our individually quick frozen (IQF) avocado half product
line and one of our ultra high-pressure lines. Our IQF line provides food service and retail
customers with peeled avocado halves that are ripe and suitable for immediate consumption. These
halves were frozen, packaged and shipped out of Mexicali to warehouses located in the U.S., and,
ultimately, to our customers.
In February 2003, our Board of Directors approved a plan whereby the operations of our
CalavoFoods business would be relocated. The plan called for the closing of our Santa Paula,
California and Mexicali, Baja California Norte (Mexicali) processing facilities and relocating
these operations to a new facility in Uruapan, Michoacan, Mexico (Uruapan). This restructuring has
provided for cost savings in the elimination of certain transportation costs, duplicative overhead
structures, and savings in the overall cost of labor and services. The Uruapan facility commenced
operations in February 2004 and the Santa Paula and Mexicali facilities ceased production in
February 2003 and August 2004. Net sales of frozen products, typically sold to foodservices
customers, represented approximately 54% and 53% of total CalavoFoods segment sales for the years
ended October 31, 2010 and 2009.
We utilize ultra high pressure machines which are designed to cold pasteurize our guacamole
products. Using high pressure only, this procedure substantially destroys the cells of any
bacteria that could lead to spoilage, food safety, or oxidation issues. Once the procedure is
complete, our guacamole is packaged and shipped to various retail and food service customers
throughout the markets we service. In fiscal year 2010, we put a second 215L ultra high pressure
machine into service. These machines, which are located in Uruapan, pressurize all product lines
within CalavoFoods, including all frozen products, which begun in fiscal 2010. We estimate
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our operating capacity for these two machines to be approximately 80% as of October 31, 2010.
A 3
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ultra high pressure machine, with a larger capacity of 350L, has been ordered and
is expected to be put into service during our second fiscal quarter of 2011. We believe our
operating capacity with three high pressure machines will be reasonable given our current sales
projections and expected growth. Net sales of our ultra high pressure (fresh) products, typically
sold to retail customers, represented approximately 46% and 47% of total CalavoFoods segment sales
for the years ended October 31, 2010 and 2009.
Sales are made principally through a commissioned nationwide broker network, which is
supported by our regional sales managers. Our guacamole hummus is being sold on an exclusive basis
through a leading national grocery chain under a one-year agreement. We believe that our marketing
strength is distinguished by providing quality products, innovation, year-round product
availability, strategically located warehouses, and market relationships. During fiscal year 2010,
our 5 and 25 largest processed product customers represented approximately 6% and 11% of our total
consolidated revenues. During fiscal year 2009, our 5 and 25 largest processed product customers
represented approximately 7% and 12% of our total consolidated revenues. During fiscal years 2010,
2009 and 2008 none of our processed product customers represented more than 10% of total
consolidated revenues.
In February 2010, we entered into an Acquisition Agreement, which sets forth the terms and
conditions pursuant to which we acquired a 65 percent ownership interest in newly created Calavo
Salsa Lisa which acquired substantially all of the assets of LSC. Elizabeth Nicholson and Eric
Nicholson, through LSC, hold the remaining 35 percent ownership of Calavo Salsa Lisa. LSC is a
regional producer in the upper Midwest of Salsa Lisa refrigerated salsas. We believe that this new
line of salsas will further diversify our product offerings and will be a natural complement to our
ultra-high-pressure guacamole, as well as our recently introduced Calavo tortilla chips.
Sales and Other Financial Information by Business Segment and Product Category
Sales and other financial information by business segment are provided in Note 11 to our
consolidated financial statements that are included in this Annual Report.
Patents and Trademarks
Our trademarks include the Calavo brand name and related logos. We also utilize the following
trademarks in conducting our business: Avo Fresco, Bueno, Calavo Gold, Calavo Salsa Lisa, Salsa
Lisa, Celebrate the Taste, El Dorado, Fresh Ripe, Select, Taste of Paradise, The First Name in
Avocados, Tico, Mfresh, Maui Fresh International and Triggered Avocados, and ProRipeVIP.
Working Capital Requirements
Generally, we make payments to our avocado growers and other suppliers in advance of
collecting all of the related accounts receivable. We generally bridge the timing between vendor
payments and customer receipts by using operating cash flows and commercial bank borrowings. In
addition, we provide crop loans and other advances to some of our growers, which are also funded
through operating cash flows and borrowings.
Non-California sourced avocados and perishable food products often require working capital to
finance the payment of advances to suppliers and collection of accounts receivable. These working
capital needs are also financed through the use of operating cash flows and bank borrowings.
With respect to our CalavoFoods business, we require working capital to finance the production
of our processed avocado products, building and maintaining an adequate supply of finished product,
and collecting our accounts receivable balances. These working capital needs are financed through
the use of operating cash flows and bank borrowings.
Backlog
Our customers do not place product orders significantly in advance of the requested product
delivery dates. Customers typically order perishable products two to ten days in advance of
shipment, and typically order CalavoFoods within thirty days in advance of shipment.
Research and Development
We do not undertake significant research and development efforts. Research and development
programs, if any, are limited to the continuous process of refining and developing new techniques
to enhance the effectiveness and efficiency of our CalavoFoods operations and the handling,
ripening, storage, and packing of fresh avocados.
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Compliance with Government Regulations
The California State Department of Food and Agriculture oversees the packing and processing of
California avocados and conducts tests for fruit quality and packaging standards. All of our
packages are stamped with the state seal as meeting standards. Various states have instituted
regulations providing differing levels of oversight with respect to weights and measures, as well
as quality standards.
As a manufacturer and marketer of processed avocado products, our operations are subject to
extensive regulation by various federal government agencies, including the Food and Drug
Administration (FDA), the USDA and the Federal Trade Commission (FTC), as well as state and local
agencies, with respect to production processes, product attributes, packaging, labeling, storage
and distribution. Under various statutes and regulations, these agencies prescribe requirements and
establish standards for safety, purity and labeling. In addition, advertising of our products is
subject to regulation by the FTC, and our operations are subject to certain health and safety
regulations, including those issued under the Occupational Safety and Health Act. Our
manufacturing facilities and products are subject to periodic inspection by federal, state and
local authorities.
As a result of our agricultural and food processing activities, we are subject to numerous
environmental laws and regulations. These laws and regulations govern the treatment, handling,
storage and disposal of materials and waste and the remediation of contaminated properties.
We seek to comply at all times with all such laws and regulations and to obtain any necessary
permits and licenses, and we are not aware of any instances of material non-compliance. We believe
our facilities and practices are sufficient to maintain compliance with applicable governmental
laws, regulations, permits and licenses. Nevertheless, there is no guarantee that we will be able
to comply with any future laws and regulations or requirements for necessary permits and licenses.
Our failure to comply with applicable laws and regulations or obtain any necessary permits and
licenses could subject us to civil remedies including fines, injunctions, recalls or seizures, as
well as potential criminal sanctions.
Employees
As of October 31, 2010, we had 1,157 employees, of which 428 were located in the United States
and 729 were located in Mexico. We do not have a significant number of United States employees
covered by a collective bargaining agreement. 603 of Calavos Mexican employees are represented by
a union. We consider the relationship with our employees to be good and we have never experienced
a significant work stoppage.
The following is a summary of the number of salaried and hourly employees as of October
31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Salaried
|
|
|
Hourly
|
|
|
Total
|
|
United States
|
|
|
116
|
|
|
|
312
|
|
|
|
428
|
|
Mexico
|
|
|
126
|
|
|
|
603
|
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
242
|
|
|
|
915
|
|
|
|
1,157
|
|
|
|
|
|
|
|
|
|
|
|
8
Item 1A. Risk Factors
Risks Related to Our Business
We are subject to increasing competition that may adversely affect our operating results.
The market for avocados and processed avocado products is highly competitive and affects each
of our businesses. Each of our businesses is subject to competitive pressures, including the
following:
|
|
|
California avocados are impacted by an increasing volume of foreign grown avocados being
imported into the United States. Recently, there have been significant plantings of
avocados in Mexico, Chile, the Dominican Republic, Peru and other parts of the world, which
have had, and will continue to have, the effect of increasing the volume of foreign grown
avocados entering the United States market.
|
|
|
|
|
California avocados are subject to competition from other California avocado handlers.
If we are unable to consistently pay California growers a competitive price for their
avocados, these growers may choose to have their avocados marketed by alternate handlers.
|
|
|
|
|
Non-California sourced avocados and perishable food products are impacted by competitors
operating in Mexico. Generally, handlers of Mexican grown avocados operate facilities that
are substantially smaller than our facility in Uruapan, Mexico. If we are unable to pack
and market a sufficient volume of Mexican grown avocados, smaller handlers will have a lower
per unit cost and be able to offer Mexican avocados at a more competitive price to our
customers.
|
|
|
|
|
Non-California sourced avocados and perishable food products are also subject to
competition from other California avocado handlers that market Chilean grown avocados. If
we are unable to consistently pay Chilean packers a competitive price for their avocados,
these packers may choose to have their avocados marketed by alternate handlers.
|
We are subject to the risks of doing business internationally.
We conduct a substantial amount of business with growers and customers who are located outside
the United States. We purchase avocados from foreign growers and packers, sell fresh avocados and
processed avocado products to foreign customers, and operate a packinghouse and a processing plant
in Mexico. In the most recent years, there has been an increase in organized crime in Mexico.
This has not had an impact on our operations, but this does increase the risk of doing business in
Mexico. We are also subject to regulations imposed by the Mexican government, and also to
examinations by the Mexican tax authorities (See Note 8 in the consolidated financial statements).
Significant changes to these government regulations and to assessments by the Mexican tax
authorities can have a negative impact on our operations and operating results in Mexico. For
additional information about our non-California sourced fruit, see the Business section included
in this Annual Report.
Our current international operations are subject to a number of inherent risks, including:
|
|
|
Local economic and political conditions, including disruptions in trading and capital
markets;
|
|
|
|
|
Restrictive foreign governmental actions, such as restrictions on transfers of funds and
trade protection measures, including export duties and quotas and customs duties and
tariffs; and
|
|
|
|
|
Changes in legal or regulatory requirements affecting foreign investment, loans, taxes,
imports, and exports
|
Currency exchange fluctuations may impact the results of our operations.
Currency exchange rate fluctuations, depending upon the nature of the changes, may make our
domestic-sourced products more expensive compared to foreign grown products or may increase our
cost of obtaining foreign-sourced products. Because we do not hedge against our foreign currency
exposure, our business has increased susceptibility to foreign currency fluctuations.
We and our growers are subject to the risks that are inherent in farming.
Our results of operations may be adversely affected by numerous factors over which we have
little or no control and that are inherent in farming, including reductions in the market prices
for our products, adverse weather and growing conditions, pest and disease problems, and new
government regulations regarding farming and the marketing of agricultural products.
Our earnings are sensitive to fluctuations in market prices and demand for our products.
Excess supplies often cause severe price competition in our industry. Growing conditions in
various parts of the world, particularly weather conditions such as windstorms, floods, droughts
and freezes, as well as diseases and pests, are primary factors affecting market prices because of
their influence on the supply and quality of product.
9
Fresh produce is highly perishable and generally must be brought to market and sold soon after
harvest. The selling price received for each type of produce depends on all of these factors,
including the availability and quality of the produce item in the market, and the availability and
quality of competing types of produce.
In addition, general public perceptions regarding the quality, safety or health risks
associated with particular food products could reduce demand and prices for some of our products.
To the extent that consumer preferences evolve away from products that we produce for health or
other reasons, and we are unable to modify our products or to develop products that satisfy new
consumer preferences, there will be a decreased demand for our products.
Increases in commodity or raw product costs, such as fuel, and paper, could adversely affect our
operating results.
Many factors may affect the cost and supply of fresh produce, including external conditions,
commodity market fluctuations, currency fluctuations, changes in governmental laws and regulations,
agricultural programs, severe and prolonged weather conditions and natural disasters. Increased
costs for purchased fruit have in the past negatively impacted our operating results, and there can
be no assurance that they will not adversely affect our operating results in the future.
The price of various commodities can significantly affect our costs. Fuel and
transportation cost is a significant component of the price of much of the produce that we purchase
from growers, and there can be no assurance that we will be able to pass on to our customers the
increased costs we incur in these respects.
The cost of paper is also significant to us because some of our products are packed in
cardboard boxes. If the price of paper increases and we are not able to effectively pass these
price increases along to our customers, then our operating income will decrease.
We are subject to the risk of product liability claims.
The sale of food products for human consumption involves the risk of injury to consumers. Such
injuries may result from tampering by unauthorized third parties, product contamination or
spoilage, including the presence of foreign objects, substances, chemicals, other agents, or
residues introduced during the growing, storage, handling or transportation phases. While we are
subject to governmental inspection and regulations and believe our facilities comply in all
material respects with all applicable laws and regulations, we cannot be sure that consumption of
our products will not cause a health-related illness in the future or that we will not be subject
to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful
or is not fully pursued, the negative publicity surrounding any assertion that our products caused
illness or injury could adversely affect our reputation with existing and potential customers and
our corporate and brand image.
We are subject to possible changing USDA and FDA regulations which govern the importation of
foreign avocados into the United States and the processing of processed avocado products.
The USDA has established, and continues to modify, regulations governing the importation of
avocados into the United States. Our permits that allow us to import foreign-sourced avocados into
the United States generally are contingent on our compliance with these regulations. Our results
of operations may be adversely affected if we are unable to comply with existing and modified
regulations and are unable to secure avocado import permits in the future.
The FDA establishes, and continues to modify, regulations governing the production of
processed avocado products, such as the new Food Safety Modernization Act, which implements
mandatory preventive controls for food facilities and compliance with mandatory produce safety
standards. Our results of operations may be adversely affected if we are unable to comply with
these existing and modified regulations.
10
The acquisition of other businesses could pose risks to our operating income.
We intend to review acquisition prospects that would complement our business. While we are
not currently a party to any agreement with respect to any acquisitions, we may acquire other
businesses in the future. Future acquisitions by us could result in accounting charges,
potentially dilutive issuances of equity securities, and increased debt and contingent liabilities,
any of which could have a material adverse effect on our business and the market price of our
common stock. Acquisitions entail numerous risks, including the assimilation of the acquired
operations, diversion of managements attention to other business concerns, risks of entering
markets in which we have limited prior experience, and the potential loss of key employees of
acquired organizations. We may be unable to successfully integrate businesses or the personnel of
any business that might be acquired in the future, and our failure to do so could have a material
adverse effect on our business and on the market price of our common stock.
Our ability to competitively serve our customers is a function of reliable and low cost
transportation. Disruption of the supply of these services and/or significant increases in the cost
of these services could impact our operating income.
We use multiple forms of transportation to bring our products to market. They include ocean,
truck, and air-cargo. Disruption to the timely supply of these services or dramatic increases in
the cost of these services for any reason including availability of fuel for such services, labor
disputes, or governmental restrictions limiting specific forms of transportation could have an
adverse effect on our ability to serve our customers and consumers and could have an adverse effect
on our financial performance.
We depend on our key personnel and if we lose the services of any of these individuals, or fail to
attract and retain additional key personnel, we may not be able to implement our business strategy
or operate our business effectively.
Our future success largely depends on the contributions of our senior management team. We
believe that these individuals expertise and knowledge about our industry and their respective
fields and their relationships with other individuals in our industry are critical factors to our
continued growth and success. We do not carry key person insurance. The loss of the services of any
member of our senior management team could have a material adverse effect on our business and
prospects. Our success also depends upon our ability to attract and retain additional qualified
sales, marketing and other personnel.
A portion of our workforce is unionized and labor disruptions could decrease our profitability.
While we believe that our relations with our employees are good, we cannot assure you that we
will be able to negotiate collective bargaining agreements on favorable terms, or at all, and
without production interruptions, including labor stoppages. A prolonged labor dispute, which could
include a work stoppage, could have a material adverse effect on the portion of our business
affected by the dispute, which could impact our business, results of operations and financial
condition.
Risks Related to Our Common Stock
The value of our common stock may be adversely affected by market volatility.
The trading price of our common stock fluctuates and may be influenced by many factors, including:
|
|
|
Our operating and financial performance and prospects;
|
|
|
|
|
The depth and liquidity of the market for our common stock;
|
|
|
|
|
Investor perception of us and the industry and markets in which we operate;
|
|
|
|
|
Our inclusion in, or removal from, any equity market indices;
|
|
|
|
|
Changes in earnings estimates or buy/sell recommendations by analysts; and
|
|
|
|
|
General financial, domestic, international, economic and other market conditions;
|
Our ability to raise capital in the future may be limited, and our failure to raise capital when
needed could prevent us from executing our growth strategy.
The timing and amount of our working capital and capital expenditure requirements may vary
significantly depending on many factors, including:
|
|
|
Market acceptance of our products; and
|
|
|
|
|
The existence of opportunities for expansion.
|
If our capital resources are not sufficient to satisfy our liquidity needs, we may seek to
sell additional equity or obtain additional debt financing. The sale of additional equity would
result in dilution to our shareholders. Additional debt would result in increased
11
expenses and
could result in covenants that would restrict our operations. With the exception of our existing
credit facility, we have not made arrangements to obtain additional financing. We may not be able
to obtain additional financing, if required, in amounts or on terms acceptable to us, or at all.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease our corporate headquarters building from Limoneira located in Santa Paula,
California. Additionally, we own two packinghouses and one distribution and ripening facility (our
former processing facility) in California, and lease one facility in
the following states: Arizona, Hawaii, New Jersey, Texas, and Minnesota. Also, we own one processing
facility and one packinghouse in Mexico.
United States Locations
Our two California facilities handle avocados delivered to us by California, Mexican and
Chilean growers. The Temecula, California facility was built in 1985 and has been improved in
capacity and efficiency since then. The Santa Paula, California facility was purchased in 1955 and
has had equipment improvements substantially equivalent to our Temecula facility. We believe that
the combined annual capacity of the two packinghouses, under normal workweek operations, is
sufficient to pack the annually budgeted volume of California avocados delivered to us by our
growers.
Our Santa Paula, California processing facility was built in 1975 and had a major expansion in
1988. In conjunction with our restructuring plan, which was approved in February 2003, this
facility ceased operating as a processed product avocado processing facility and now functions
primarily as a ripening, storage and shipping facility for our fresh avocado operations.
Additionally, it also serves to store and ship certain processed avocado products as well. Also,
effective December 2005, we sort and pack certain tropical commodities as well. We believe that
the annual capacity of this facility will be sufficient to pack and ripen, if necessary, the
expected annual volume of avocados and specialty commodities delivered to us.
Our leased Nogales, Arizona facility primarily sorts, packs, ripens, and ships, tomatoes,
avocados, and other tropical commodities as well. We believe that the annual capacity of this
facility will be sufficient to handle our budgeted annual production needs.
Our leased Swedesboro, New Jersey facility primarily sorts, packs, ripens, and ships avocados.
Additionally, it also serves to store and ship certain tropical commodities as well. We believe
that the annual capacity of this facility will be sufficient to handle our budgeted annual
production needs.
Our leased Garland, Texas primarily ripens, sorts, packs and ships fresh avocados. We believe
that the annual capacity of this facility will be sufficient to handle our budgeted annual
production needs.
Our
leased Hawaiian facility primarily sorts, packs, and ships papayas. We believe that the annual
capacity of this facility will be sufficient to handle our budgeted annual production needs.
During fiscal 2010, through the acquisition of Calavo Salsa Lisa, we now have a 65 percent
ownership interest in a Minnesota facility that produces salsa. We believe that the annual
capacity of this facility will be sufficient to handle our budgeted annual production needs.
Mexico Locations
Our processing facility in Uruapan, Michoacan, Mexico was constructed pursuant to our
restructuring plan approved in February 2003. We believe that the annual capacity of this facility
will be sufficient to process our budgeted annual production needs.
Our fresh avocado packinghouse located in Uruapan, Michoacan, Mexico sorts, packs, and ships
avocados delivered to us by Mexican growers. We believe that the annual capacity of this facility
will be sufficient to process our budgeted annual production needs.
12
Item 3. Legal Proceedings
From time to time, we become involved in legal proceedings that are related to our business
operations. We are not currently a party to any legal proceedings that could have a material
adverse effect upon our financial position or results of operations.
Item 4. [Removed and Reserved.]
Executive Officers of the Registrant
The following table sets forth the name, age and position of individuals who hold positions as
executive officers of our company. There are no family relationships between any director or
executive officer and any other director or executive officer of our company. Executive officers
are elected by the Board of Directors and serve at the discretion of the Board.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Lecil E. Cole
|
|
|
71
|
|
|
Chairman of the Board, Chief Executive Officer and President
|
Arthur J. Bruno
|
|
|
60
|
|
|
Chief Operating Officer, Chief Financial Officer and Corporate Secretary
|
Robert J. Wedin
|
|
|
61
|
|
|
Vice President, Sales and Fresh Marketing
|
Alan C. Ahmer
|
|
|
62
|
|
|
Vice President, Processed Product Sales and Production
|
Michael A. Browne
|
|
|
52
|
|
|
Vice President, Fresh Operations
|
Lecil E. Cole
has been a member of our board of directors since February 1982 and has served
as Chairman of the Board since 1988. Mr. Cole has also served as our Chief Executive Officer and
President since February 1999. He served as an executive of Safeway Stores from 1964 to 1976 and
as Chairman of Central Coast Federal Land Bank from 1986 to 1996. Mr. Cole has served as Chairman
and President of Hawaiian Sweet, Inc. and Tropical Hawaiian Products, Inc. since 1996. Mr. Cole
farms approximately 4,400 acres in California on which avocados and cattle are produced and raised.
Arthur J. Bruno
has served as our Chief Financial Officer and Corporate Secretary since
October 2003. During fiscal 2004, Mr. Bruno also assumed the title and responsibilities of Chief
Operating Officer. From 1988 to 2003, Mr. Bruno served as the president and co-founder of Maui
Fresh International, Inc. Mr. Bruno is a Certified Public Accountant.
Robert J. Wedin
has served as our Vice President since 1993. Mr. Wedin joined us in 1973 at
our then Santa Barbara packinghouse. Beginning in 1990, Mr. Wedin served as a director of the
California Avocado Commission for a period of ten years. Mr. Wedin currently is a board member of
Producesupply.org and serves as a member of that organizations executive committee.
Alan C. Ahmer
has served as our Vice President since 1989. Mr. Ahmer joined us in 1979 as a
regional sales manager in our CalavoFoods business. In September 2003, Mr. Ahmers new title
became Vice-President, CalavoFoods Sales and Production.
Michael A. Browne
has served as our Vice President since 2005. From 1997 until joining us,
Mr. Browne served as the founder and co-owner of Fresh Directions International, a closely held
multinational fresh produce company, which marketed fresh avocados from Mexico, Chile, and the
Dominican Republic. Mr. Browne joined us in May 2005.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
In March 2002, our common stock began trading on the OTC Bulletin Board under the symbol
CVGW. In July 2002, our common stock began trading on the Nasdaq National Market under the
symbol CVGW and currently trades on the Nasdaq Global Select Market.
13
The following tables set forth, for the periods indicated, the high and low sales prices per
share of our common stock as reported on the Nasdaq Global Select Market.
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
18.58
|
|
|
$
|
14.99
|
|
Second Quarter
|
|
$
|
18.74
|
|
|
$
|
15.85
|
|
Third Quarter
|
|
$
|
21.06
|
|
|
$
|
15.25
|
|
Fourth Quarter
|
|
$
|
21.83
|
|
|
$
|
18.68
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
13.34
|
|
|
$
|
5.93
|
|
Second Quarter
|
|
$
|
14.49
|
|
|
$
|
10.22
|
|
Third Quarter
|
|
$
|
20.01
|
|
|
$
|
11.82
|
|
Fourth Quarter
|
|
$
|
20.30
|
|
|
$
|
16.29
|
|
As of November 30, 2010, there were approximately 1,095 stockholders of record of our common
stock.
During the year ended October 31, 2010, we did not issue any shares of common stock that were
not registered under the Securities Act of 1933 and we did not repurchase any shares of our common
stock.
Dividend Policy
Our dividend policy is to provide for an annual dividend payment, as determined by the Board
of Directors. We anticipate paying dividends in the first quarter of our fiscal year.
On December 13, 2010, we paid a $0.55 per share dividend in the aggregate amount of $8,092,000
to shareholders of record on December 1, 2010.
On December 11, 2009, we paid a $0.50 per share dividend in the aggregate amount of $7,252,000
to shareholders of record on December 1, 2009.
14
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data (other than pounds information) for each of
the years in the five-year period ended October 31, 2010 are derived from the audited consolidated
financial statements of Calavo Growers, Inc.
Historical results are not necessarily indicative of results that may be expected in any
future period. The following data should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and our consolidated financial
statements and notes thereto that are included elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
Income Statement Data: (1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
398,351
|
|
|
$
|
344,765
|
|
|
$
|
361,474
|
|
|
$
|
302,984
|
|
|
$
|
273,723
|
|
Gross margin
|
|
|
51,530
|
|
|
|
44,533
|
|
|
|
33,181
|
|
|
|
31,772
|
|
|
|
29,084
|
|
Net income
|
|
|
17,640
|
|
|
|
13,611
|
|
|
|
7,725
|
|
|
|
7,330
|
|
|
|
5,788
|
|
Basic net income per share
|
|
$
|
1.22
|
|
|
$
|
0.94
|
|
|
$
|
0.54
|
|
|
$
|
0.51
|
|
|
$
|
0.40
|
|
Diluted net income per share
|
|
$
|
1.22
|
|
|
$
|
0.94
|
|
|
$
|
0.53
|
|
|
$
|
0.51
|
|
|
$
|
0.40
|
|
Balance Sheet Data as of End of Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
14,801
|
|
|
$
|
12,052
|
|
|
$
|
15,413
|
|
|
$
|
16,334
|
|
|
$
|
12,023
|
|
Total assets
|
|
|
150,198
|
|
|
|
122,749
|
|
|
|
134,422
|
|
|
|
127,920
|
|
|
|
107,563
|
|
Current portion of long-term obligations
|
|
|
1,369
|
|
|
|
1,366
|
|
|
|
1,362
|
|
|
|
1,307
|
|
|
|
1,308
|
|
Long-term debt, less current portion
|
|
|
6,089
|
|
|
|
13,908
|
|
|
|
25,351
|
|
|
|
13,106
|
|
|
|
10,406
|
|
Shareholders equity
|
|
|
88,257
|
|
|
|
69,487
|
|
|
|
65,517
|
|
|
|
74,003
|
|
|
|
58,943
|
|
Cash Flows Provided by (Used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
$
|
18,198
|
|
|
$
|
21,997
|
|
|
$
|
5,296
|
|
|
$
|
4,629
|
|
|
$
|
7,819
|
|
Investing(3)
|
|
|
(7,721
|
)
|
|
|
(5,990
|
)
|
|
|
(7,454
|
)
|
|
|
(7,950
|
)
|
|
|
(4,663
|
)
|
Financing
|
|
|
(10,288
|
)
|
|
|
(16,641
|
)
|
|
|
2,700
|
|
|
|
4,238
|
|
|
|
(4,239
|
)
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
0.55
|
|
|
$
|
0.50
|
|
|
$
|
0.35
|
|
|
$
|
0.35
|
|
|
$
|
0.32
|
|
Net book value per share
|
|
$
|
6.04
|
|
|
$
|
4.79
|
|
|
$
|
4.52
|
|
|
$
|
5.15
|
|
|
$
|
4.12
|
|
Pounds of California avocados sold
|
|
|
170,650
|
|
|
|
53,000
|
|
|
|
92,165
|
|
|
|
91,038
|
|
|
|
218,460
|
|
Pounds of non-California avocados sold
|
|
|
123,700
|
|
|
|
162,950
|
|
|
|
123,740
|
|
|
|
135,723
|
|
|
|
70,063
|
|
Pounds of processed avocados products sold
|
|
|
21,651
|
|
|
|
21,259
|
|
|
|
22,274
|
|
|
|
22,556
|
|
|
|
20,489
|
|
|
|
|
(1)
|
|
Operating results for fiscal 2010 include the acquisitions of Calavo Salsa Lisa from the date
of acquisition of February 8, 2010. For fiscal year 2010, Calavo Salsa Lisas net sales and
gross losses were $0.8 million and $0.4 million. Net loss was not significant. See Note 16
to our consolidated financial statements for further discussion of these acquisitions.
|
|
(2)
|
|
Operating results for fiscal 2010, 2009 and 2008 include the acquisitions of HS and HP. Such
acquisitions, however, did not significantly impact trends or results of operations for fiscal
2008, as such acquisitions substantially replaced the previous consigned arrangement.
|
|
(3)
|
|
For fiscal years 2010 and 2009, we have not made any infrastructure advances to Agricola
Belher. Agricola Belher paid $1.8 million and $0.5 million in fiscal years 2010 and 2009
related to infrastructure advances.
|
15
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results
of operations together with Selected Consolidated Financial Data and our consolidated financial
statements and notes thereto that appear elsewhere in this Annual Report. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.
Actual results may differ materially from those anticipated in these forward-looking statements as
a result of various factors, including, but not limited to, those presented under Risks related to
our business included in Item 1A and elsewhere in this Annual Report.
Overview
We are a leader in the distribution of avocados, prepared avocado products, and other
perishable food products throughout the United States. Our history and expertise in handling
California grown avocados has allowed us to develop a reputation of delivering quality products, at
competitive prices, while providing competitive returns to our growers. This reputation has
enabled us to expand our product offerings to include avocados sourced on an international basis,
prepared avocado products, and other perishable foods. We report our operations in two different
business segments: (1) Fresh products and (2) CalavoFoods. See Note 11 to our consolidated
financial statements for further discussion.
Our Fresh products business grades, sizes, packs, cools, and ripens (if desired) avocados for
delivery to our customers. We presently operate three packinghouses in Southern California. These
packinghouses handled approximately 30% of the California avocado crop during the 2010 fiscal year,
based on data obtained from the California Avocado Commission. Our operating results and the
returns we pay our growers are highly dependent on the volume of avocados delivered to our
packinghouses, as a significant portion of our costs are fixed. Our strategy calls for continued
efforts to retain and recruit growers that meet our business model. Additionally, our Fresh
products business also procures avocados grown in Chile, Mexico and Peru, as well as other various
commodities, including tomatoes, papayas, mushrooms, and pineapples. We operate a packinghouse in
Mexico that, together with certain co-packers that we frequently purchase fruit from, handled
approximately 21% of the Mexican avocado crop bound for the United States market and approximately
5% of the avocados exported from Mexico to countries other than the United States during the
2009-2010 Mexican season, based on our estimates. Additionally, during the 2009-2010 Chilean
avocado season, we handled approximately 5% of the Chilean avocado crop, based on our estimates.
Our strategy is to increase our market share of currently sourced avocados to all accepted
marketplaces. We believe our diversified avocado sources provides a level of supply stability that
may, over time, help solidify the demand for avocados among consumers in the United States and
elsewhere in the world. We believe our efforts in distributing our other various commodities, such
as those shown above, complement our offerings of avocados. From time to time, we continue to
explore distribution of other crops that provide reasonable returns to the business.
Our CalavoFoods business procures avocados, processes avocados into a wide variety of
guacamole products, and distributes the processed product to our customers. All of our prepared
avocado products are now cold pasteurized and include both frozen and fresh guacamole.
Additionally, we also prepare various fresh salsa products. Customers include both food service
industry and retail businesses. Due to the long shelf-life of our frozen guacamole and the purity
of our fresh guacamole, we believe that we are well positioned to address the diverse taste and
needs of todays customers. We continue to seek to expand our relationships with major food
service companies and develop alliances that will allow our products to reach a larger percentage
of the marketplace.
Net sales of frozen products represented approximately 54% and 53% of total processed segment
sales for the years ended October 31, 2010 and 2009. Net sales of our ultra high pressure products
represented approximately 46% and 47% of total processed segment sales for the years ended October
31, 2010 and 2009.
Our Fresh products business is characterized by crop volume and price changes. Furthermore,
the operating results of all of our businesses, including our CalavoFoods business, have been, and
will continue to be, affected by quarterly and annual fluctuations and market downturns due to a
number of factors, such as pests and disease, weather patterns, changes in demand by consumers, the
timing of the receipt, reduction, or cancellation of significant customer orders, the gain or loss
of significant customers, market acceptance of our products, our ability to develop, introduce, and
market new products on a timely basis, availability and cost of avocados and supplies from growers
and vendors, new product introductions by our competitors, change in the mix of avocados and
CalavoFoods we sell, and general economic conditions. We believe, however, that we are currently
positioned to address these risks and deliver favorable operating results for the foreseeable
future.
Recent Developments
Dividend Payment
On December 13, 2010, we paid a $0.55 per share dividend in the aggregate amount of $8,092,000
to shareholders of record on December 1, 2010.
16
Earn-Out Payment
In May 2008, we purchased all of the outstanding shares of Hawaiian Sweet (HS) and all
ownership interests of Hawaiian Pride (HP) from the Chairman of our Board of Directors, Chief
Executive Officer and President. HS and HP engage in tropical-product packing and processing
operations in Hawaii. Pursuant to the acquisition agreement, we made an initial purchase price
payment in the aggregate amount of $3,500,000 for both entities on May 20, 2008. We then made two
additional annual payments, based on certain operating results (the Earn-Out Payment(s)), as
defined. The first annual Earn-Out payment, which was made on September 23, 2009, totaled
approximately $2.4 million. The second, and final, annual Earn-Out payment, which was made on July
9, 2010, totaled approximately $4.5 million.
Contingencies
Hacienda Suits
We are currently under examination by the Mexican tax authorities (Hacienda)
for the tax year ended December 31, 2000. We have received an assessment totaling approximately
$2.0 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, which we
declined. In the second quarter of 2009, we won our appeal case. The Hacienda subsequently
appealed that decision and the case was sent back to the tax court due to administrative error by
such jurisdiction. During the second quarter of 2010, we once again won our appeal and, once
again, the Hacienda appealed the decision and the case has been sent back to the tax court. We do
not believe that the resolution of this examination will have a significant impact on our results
of operations.
We are currently under examination by the Mexican tax authorities (Hacienda) for the tax year
ended December 31, 2004. We have received an assessment totaling approximately $4.5 million from
Hacienda related to the amount of income at our Mexican subsidiary, which primarily is related to
three issues, one of which represents the majority of the total assessment (the primary
assessment). In the fourth quarter of 2010, we received a favorable ruling from the tax court
related to the primary assessment, but received an unfavorable ruling related to the remaining
issues. We appealed the unfavorable rulings, which we believe are without merit. We do not
believe that the resolution of this examination will have a significant impact on our results of
operations.
In the second quarter of 2009, the Hacienda initiated an examination related to the tax year
ended December 31, 2007 as well. We are not aware of any assessments related to this examination,
nor do we expect this examination to have a significant impact on our results of operations.
In the first quarter of 2011, we received an assessment totaling approximately $720,000
related to the tax year ended December 31, 2005. This assessment relates to depreciation expense
taken on such tax return. Based on discussions with legal, we believe that the Haciendas position
is without merit and do not believe that the resolution of this examination will have a significant
impact on our results of operations.
We pledged our CalavoFoods building located in Uruapan, Michoacan, Mexico as collateral to the
Hacienda in regards to these assessments.
From time to time, we are also involved in litigation arising in the ordinary course of our
business that we do not believe will have a material adverse impact on our financial statements.
Acquisition
On February 8, 2010, Calavo Growers, Inc. (Calavo), Calavo Salsa Lisa, LLC (Calavo Salsa
Lisa), Lisas Salsa Company (LSC) and Elizabeth Nicholson and Eric Nicholson, entered into an
Asset Purchase and Contribution Agreement, dated February 8, 2010 (the Acquisition Agreement),
which sets forth the terms and conditions pursuant to which Calavo acquired a 65 percent ownership
interest in newly created Calavo Salsa Lisa which acquired substantially all of the assets of LSC.
Elizabeth Nicholson and Eric Nicholson, through LSC, hold the remaining 35 percent ownership of
Calavo Salsa Lisa. LSC is a regional producer in the upper Midwest of Salsa Lisa refrigerated
salsas. We believe that this new line of salsas will further diversify our product offerings and
will be a natural complement to our ultra-high-pressure guacamole, as well as our recently
introduced Calavo tortilla chips. See Note 16 in our consolidated financial statements for further
information.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
17
liabilities, revenues and expenses. On an ongoing basis, we re-evaluate all of our estimates,
including those related to the areas of customer and grower receivables, inventories, useful lives
of property, plant and equipment, promotional allowances, income taxes, retirement benefits, and
commitments and contingencies. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may materially differ from these estimates
under different assumptions or conditions as additional information becomes available in future
periods.
Management has discussed the development and selection of critical accounting estimates with
the Audit Committee of the Board of Directors and the Audit Committee has reviewed our disclosure
relating to critical accounting estimates in this Annual Report.
We believe the following are the more significant judgments and estimates used in the
preparation of our consolidated financial statements.
Promotional allowances
.
We provide for promotional allowances at the time of sale, based on
our historical experience. Our estimates are generally based on evaluating the relationship
between promotional allowances and gross sales. The derived percentage is then applied to the
current periods sales revenues in order to arrive at the appropriate debit to sales allowances for
the period. The offsetting credit is made to accrued liabilities. When certain amounts of
specific customer accounts are subsequently identified as promotional, they are written off against
this allowance. Actual amounts may differ from these estimates and such differences are recognized
as an adjustment to net sales in the period they are identified. A 1% change in the derived
percentage for the entire year would impact results of operations by approximately $0.5 million.
Income Taxes
.
We account for deferred tax liabilities and assets for the future consequences
of events that have been recognized in our consolidated financial statements or tax returns.
Measurement of the deferred items is based on enacted tax laws. In the event the future
consequences of differences between financial reporting bases and tax bases of our assets and
liabilities result in a deferred tax asset, we perform an evaluation of the probability of being
able to realize the future benefits indicated by such asset. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
As a multinational corporation, we are subject to taxation in many jurisdictions, and the
calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that
the payment of these liabilities will be unnecessary, the liability will be reversed and we will
recognize a tax benefit during the period in which it is determined the liability no longer
applies. Conversely, we record additional tax charges in a period in which it is determined that a
recorded tax liability is less than the ultimate assessment is expected to be.
The application of tax laws and regulations is subject to legal and factual interpretation,
judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of
changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings.
Therefore, the actual liability for U.S. or foreign taxes may be materially different from
managements estimates, which could result in the need to record additional tax liabilities or
potentially reverse previously recorded tax liabilities.
Goodwill and acquired intangible assets
. Goodwill, defined as unidentified asset(s) acquired
in conjunction with a business acquisition, is tested for impairment on an annual basis and between
annual tests whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating
segment or one level below the operating segment. Goodwill impairment testing is a two-step
process. The first step of the goodwill impairment test, used to identify potential impairment,
compares the fair value of a reporting unit with its carrying amount, including goodwill. If the
fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired, and the second step of the impairment test would be unnecessary. If the
carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill
impairment test must be performed to measure the amount of impairment loss, if any. The second
step of the goodwill impairment test, used to measure the amount of impairment loss, compares the
implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the
carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss must be recognized in an amount equal to that excess. Goodwill impairment testing
requires significant judgment and management estimates, including, but not limited to, the
determination of (i) the number of reporting units, (ii) the goodwill and other assets and
liabilities to be allocated to the reporting units and (iii) the fair values of the reporting
units. The estimates and assumptions described above, along with other factors such as discount
rates, will significantly affect the outcome of the impairment tests and the amounts of any
resulting impairment losses. We performed our annual assessment of goodwill and determined that no
impairment existed as of October 31, 2010.
18
Allowance for accounts receivable
. We provide an allowance for estimated uncollectible
accounts receivable balances based on historical experience and the aging of the related accounts
receivable. If the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required.
Results of Operations
The following table sets forth certain items from our consolidated statements of income,
expressed as percentages of our total net sales, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31,
|
|
|
2010
|
|
2009
|
|
2008
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Gross margins
|
|
|
12.9
|
%
|
|
|
12.9
|
%
|
|
|
9.2
|
%
|
Selling, general and administrative
|
|
|
5.8
|
%
|
|
|
6.6
|
%
|
|
|
5.8
|
%
|
Operating income
|
|
|
7.1
|
%
|
|
|
6.3
|
%
|
|
|
3.4
|
%
|
Interest income
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Interest expense
|
|
|
(0.2
|
)%
|
|
|
(0.3
|
)%
|
|
|
(0.4
|
)%
|
Other income, net
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
Net income
|
|
|
4.4
|
%
|
|
|
3.9
|
%
|
|
|
2.1
|
%
|
Net Sales
We believe that the fundamentals for our products continue to be favorable. Firstly,
Americans are eating more avocados. Over the last 10 years, United States (U.S.) consumption of
avocados has expanded at a compounded annual growth rate of 7.3% and we do not anticipate this
growth significantly changing. We believe that the healthy eating trend that has been developing
in the United States contributes to such growth, as avocados, which are cholesterol and sodium
free, are dense in fiber, vitamin B6, antioxidants, potassium, folate, and contain unsaturated fat,
which help lower cholesterol. Also, a growing number of research studies seem to suggest that
phytonutrients, which avocados are rich in, help fight chronic illnesses, such as heart disease and
cancer.
Additionally, we believe that the demographic changes in the U.S. will greatly impact the
consumption of avocados and avocado-based products. The Hispanic community currently accounts for
approximately 16% of the U.S. population, and the total number of Hispanics is estimated to triple
by the year 2050. Avocados are considered a staple item purchased by Hispanic consumers, as the
per-capita avocado consumption in Mexico is estimated to be more than seven-fold that of the U.S.
We anticipate avocado products will further penetrate the United States marketplace driven by
year-round availability of fresh avocados due to imports, a rapid growing Hispanic population, and
the promotion of the health benefits of avocados. As the largest marketer of avocado products in
the United States, we believe that we are well positioned to leverage this trend and to grow all
segments of our business. Additionally, we also believe that avocados and avocado based products
will further penetrate other marketplaces that we currently operate in, as interest in avocados
continues to expand.
In October 2002, the USDA announced the creation of a Hass Avocado Board to promote the sale
of Hass variety avocados in the U.S. marketplace. This board provides a basis for a unified
funding of promotional activities based on an assessment on all avocados sold in the U.S.
marketplace. The California Avocado Commission, which receives its funding from California avocado
growers, has historically shouldered the promotional and advertising costs supporting avocado
sales. We believe that the incremental funding of promotional and advertising programs in the U.S.
will, in the long term, positively impact average selling prices and will favorably impact our
avocado businesses. During fiscal 2010, 2009 and 2008, on behalf of avocado growers, we remitted
approximately $2.0 million, $0.6 million and $2.2 million to the California Avocado Commission.
During fiscal 2010, 2009 and 2008, we remitted approximately $5.6 million, $3.8 million and $4.2
million to the Hass Avocado Board related to avocados.
Sales of products and related costs of products sold are recognized when persuasive evidence
of an arrangement exists, delivery has occurred, the price is fixed or determinable and
collectability is reasonably assured. Service revenue, including freight, ripening, storage,
bagging and palletization charges, is recorded when services are performed and sales of the related
products are delivered. We provide for sales returns and promotional allowances at the time of
shipment, based on our experience.
19
The following tables set forth sales by product category and sales incentives, by segment
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2010
|
|
|
Year ended October 31, 2009
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
Third-party sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avocados
|
|
$
|
287,808
|
|
|
$
|
|
|
|
$
|
287,808
|
|
|
$
|
259,558
|
|
|
$
|
|
|
|
$
|
259,558
|
|
Tomatoes
|
|
|
41,595
|
|
|
|
|
|
|
|
41,595
|
|
|
|
14,067
|
|
|
|
|
|
|
|
14,067
|
|
Papayas
|
|
|
11,278
|
|
|
|
|
|
|
|
11,278
|
|
|
|
9,118
|
|
|
|
|
|
|
|
9,118
|
|
Pineapples
|
|
|
3,838
|
|
|
|
|
|
|
|
3,838
|
|
|
|
13,341
|
|
|
|
|
|
|
|
13,341
|
|
Other Fresh products
|
|
|
3,617
|
|
|
|
|
|
|
|
3,617
|
|
|
|
4,219
|
|
|
|
|
|
|
|
4,219
|
|
CalavoFoods food service
|
|
|
|
|
|
|
40,654
|
|
|
|
40,654
|
|
|
|
|
|
|
|
36,493
|
|
|
|
36,493
|
|
CalavoFoods retail and club
|
|
|
|
|
|
|
17,473
|
|
|
|
17,473
|
|
|
|
|
|
|
|
15,554
|
|
|
|
15,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross sales
|
|
|
348,136
|
|
|
|
58,127
|
|
|
|
406,263
|
|
|
|
300,303
|
|
|
|
52,047
|
|
|
|
352,350
|
|
Less sales incentives
|
|
|
(84
|
)
|
|
|
(7,828
|
)
|
|
|
(7,912
|
)
|
|
|
(68
|
)
|
|
|
(7,517
|
)
|
|
|
(7,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
348,052
|
|
|
$
|
50,299
|
|
|
$
|
398,351
|
|
|
$
|
300,235
|
|
|
$
|
44,530
|
|
|
$
|
344,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2009
|
|
|
Year ended October 31, 2008
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
Third-party sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avocados
|
|
$
|
259,558
|
|
|
$
|
|
|
|
$
|
259,558
|
|
|
$
|
268,674
|
|
|
$
|
|
|
|
$
|
268,674
|
|
Tomatoes
|
|
|
14,067
|
|
|
|
|
|
|
|
14,067
|
|
|
|
19,666
|
|
|
|
|
|
|
|
19,666
|
|
Papayas
|
|
|
9,118
|
|
|
|
|
|
|
|
9,118
|
|
|
|
8,392
|
|
|
|
|
|
|
|
8,392
|
|
Pineapples
|
|
|
13,341
|
|
|
|
|
|
|
|
13,341
|
|
|
|
16,442
|
|
|
|
|
|
|
|
16,442
|
|
Other Fresh products
|
|
|
4,219
|
|
|
|
|
|
|
|
4,219
|
|
|
|
2,564
|
|
|
|
|
|
|
|
2,564
|
|
CalavoFoods food service
|
|
|
|
|
|
|
36,493
|
|
|
|
36,493
|
|
|
|
|
|
|
|
38,919
|
|
|
|
38,919
|
|
CalavoFoods retail and club
|
|
|
|
|
|
|
15,554
|
|
|
|
15,554
|
|
|
|
|
|
|
|
14,634
|
|
|
|
14,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross sales
|
|
|
300,303
|
|
|
|
52,047
|
|
|
|
352,350
|
|
|
|
315,738
|
|
|
|
53,553
|
|
|
|
369,291
|
|
Less sales incentives
|
|
|
(68
|
)
|
|
|
(7,517
|
)
|
|
|
(7,585
|
)
|
|
|
(71
|
)
|
|
|
(7,746
|
)
|
|
|
(7,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
300,235
|
|
|
$
|
44,530
|
|
|
$
|
344,765
|
|
|
$
|
315,667
|
|
|
$
|
45,807
|
|
|
$
|
361,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to third parties by segment exclude value-added services billed by our Uruapan
packinghouse and processing plant to the parent company. For fiscal years 2010, 2009, and 2008,
inter-segment sales and cost of sales for Fresh products totaling $11.7 million, $14.1 million and
$13.9 million were eliminated. For fiscal years 2010, 2009, and 2008, inter-segment sales and cost
of sales for CalavoFoods totaling $9.4 million $7.8 million, and $9.6 million were eliminated.
The following table summarizes our net sales by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
|
2009
|
|
|
Change
|
|
|
2008
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh products
|
|
$
|
348,052
|
|
|
|
15.9
|
%
|
|
$
|
300,235
|
|
|
|
(4.9
|
%)
|
|
$
|
315,667
|
|
CalavoFoods
|
|
|
50,299
|
|
|
|
13.0
|
%
|
|
|
44,530
|
|
|
|
(2.8
|
%)
|
|
|
45,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
398,351
|
|
|
|
15.5
|
%
|
|
$
|
344,765
|
|
|
|
(4.6
|
%)
|
|
$
|
361,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh products
|
|
|
87.4
|
%
|
|
|
|
|
|
|
87.1
|
%
|
|
|
|
|
|
|
87.3
|
%
|
CalavoFoods
|
|
|
12.6
|
%
|
|
|
|
|
|
|
12.9
|
%
|
|
|
|
|
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the year ended October 31, 2010, when compared to 2009, increased by
approximately $53.6 million, or 15.5%, principally as a result of an increase in both our Fresh
products and CalavoFoods segments. The increase in fresh product sales for the year ended October
31, 2010 was primarily related to increased sales of California avocados and tomatoes. These
increases were partially offset, however, by decreased sales from Mexican sourced avocados,
pineapples and Chilean sourced avocados. While the procurement of fresh avocados related to our
fresh products segment is seasonal based on region, our CalavoFoods business is generally not
subject to a seasonal effect. The increase in net sales delivered by our CalavoFoods business was
due primarily to an increase in pounds sold and an increase in the net sales price compared to
prior year.
Fresh products
Fiscal 2010 vs. Fiscal 2009:
Net sales delivered by the business increased by approximately $47.8 million, or 15.9%, from
fiscal 2009 to 2010. This increase was primarily related to an increase in sales of California
sourced avocados (due primarily to a significant increase in cartons sold) as well as tomatoes (due
primarily to an increase in units sold and an increase in per unit sales price). These increases
were partially offset, however, by decreased sales from Mexican sourced avocados (due primarily to
a decrease in cartons sold and a decrease in sales price per unit), pineapples (due primarily to a
decrease in units sold), as well as Chilean sourced avocados (due primarily to a decrease in
cartons sold and a decrease in sales price per unit).
20
Sales of California sourced avocados increased $87.2 million, or 119.1%, for fiscal year 2010,
when compared to the same prior year period. California sourced
avocado sales reflect a 222.0%
increase in pounds of avocados sold, when compared to the same prior year period. The increase in
California sourced avocados was primarily related to the larger California avocado crop for fiscal
2010. Our market share of California avocados decreased to 30% for fiscal year 2010, when compared
to a 31% market share for the same prior year period. The average selling price, on a per carton
basis, of California avocados sold decreased approximately 31.8% when compared to the same prior
year period. We attribute this decrease to the higher overall volume of California avocados in the
marketplace. California avocados are primarily sold in the U.S. marketplace. We anticipate that
sales of California grown avocados will significantly decrease in fiscal 2011, due to a
significantly smaller expected avocado crop.
Sales of tomatoes increased $27.5 million, or 195.7%, for fiscal year 2010, when compared to
the same prior year period. The increase in sales for tomatoes is due to an increase in the
average per carton selling price of 128.1%, in addition to a 29.6% increase in the number of units
sold. We attribute most of the increase in the per carton selling price to the lower volume of
tomatoes in the U.S. marketplace (due to weather conditions in Florida) for fiscal 2010, as
compared to the same prior period. We attribute most of the increase in units sold to growers
supplying us with significantly more volume, due primarily to market conditions. We do not
anticipate a significant change in the sales of tomatoes for fiscal 2011, based on current weather
conditions in Florida.
Partially offsetting such increases described above was a decrease in sales of Mexican sourced
avocados, which decreased $49.0 million, or 29.0%, for fiscal year 2010, when compared to the same
prior year period. The decrease in Mexican sourced avocados was primarily related to the decrease
in the volume of Mexican fruit sold by 29.1 million pounds, or 20.1%, when compared to the same
prior year period. In addition, Mexican sourced avocados had a decrease in the average selling
price per carton of approximately 11.2%, when compared to the same prior year period. As mentioned
above, we attribute most of this decrease in volume and price to the increase in volume of
California sourced avocados in the U.S. marketplace during fiscal year 2010, as compared to the
same prior year period.
Sales of pineapples decreased $9.5 million, or 71.2%, when compared to the same prior year
period. The decrease in sales for pineapples was primarily due to a decrease in volume by 73.2%
when compared to the same prior year period. This decrease is primarily related to the expiration
of our agreement with Maui Pineapple Company (Maui) in December 2009, which was primarily related
to Maui exiting the pineapple business. We do not anticipate a significant change in pineapple
sales during fiscal 2011.
Sales of Chilean sourced avocados decreased $9.5 million, or 57.2% for fiscal year 2010, when
compared to the same prior year period. The volume of Chilean fruit sold decreased by
approximately 7.8 million pounds, or 51.1%, when compared to the same prior year period. This
decrease was primarily related to the smaller Chilean avocado crop in fiscal year 2010 when
compared to the crop in fiscal year 2009. In addition to the increase in pounds sold, our average
selling prices, on a per carton basis, experienced a decrease of 12.4% for fiscal 2010, when
compared to the same prior period. We attribute most of this decrease in volume and price to the
increase in volume of California sourced avocados in the U.S. marketplace during fiscal year 2010,
as compared to the same prior year period.
Mexican and Chilean grown avocados are primarily sold in the U.S., Japanese, and/or European
marketplace. We anticipate that the combined sales of Mexican and Chilean grown avocados will
increase in fiscal 2011.
Fiscal 2009 vs. Fiscal 2008:
Net sales delivered by the business decreased by approximately $15.4 million, or 4.9%, from
fiscal 2008 to 2009. This decrease was primarily related to decreased sales of California
avocados, tomatoes, and pineapples. Such decreases were partially offset, however, by increased
sales from Mexican and Chilean sourced avocados. For fiscal 2009, due to the significant increase
in the Mexican avocado crop, there was an increase in the volume of avocados delivered to the
United States market. As a result, avocado prices industry-wide decreased for most of fiscal 2009,
which primarily caused our total avocado revenues to decrease for the year.
For fiscal year 2009, California sourced avocado sales (which are primarily sold in the U.S.
marketplace) reflect a 42.5% decrease in pounds of avocados sold, when compared to the same prior
year period. This decrease in pounds sold is primarily related to the corresponding decrease in
the California avocado crop for fiscal 2008/2009. Such decrease is believed to be primarily
related to poor weather conditions. Our market share of California avocados increased to 31% for
fiscal year 2009, when compared to a 28% market share for the same prior year period. The average
selling price, on a per carton basis, of California avocados sold increased approximately 13.8%
when compared to the same prior year period. We attribute some of this increase to the lower
overall volume of California avocados in the marketplace.
Sales of tomatoes decreased $5.6 million, or 28.5%, for fiscal year 2009, when compared to the
same prior year period. The decrease in sales for tomatoes is primarily due to the decrease in the
average carton selling price by 38.0%. This was partially offset by an increase in the volume of
tomatoes by approximately 0.3 million cartons, or 15.3%, when compared to the same prior year
21
period. We attribute most of this decrease in the per carton selling price to the out of
season production from the U.S. east coast that increased the volume of tomatoes in the U.S.
marketplace at the very beginning of the Mexican tomato season.
Sales of pineapples decreased $3.1 million, or 18.9%, when compared to the same prior year
period. The decrease in sales for pineapples is primarily due to the decrease in the per unit
selling price by 12.2%, in addition to the decrease in the volume of pineapples by approximately
0.1 million units, or 7.5%, when compared to the same prior year period. We attribute some of this
decrease in the per carton selling price to the volume of pineapples in the U.S. marketplace and
the recession in the United States. Our agreement with Maui Pineapple Company ended December 31,
2009, and is not expected to be extended.
Partially offsetting such decreases was an increase in sales of Mexican sourced avocados,
which increased $20.1 million, or 13.5%, for fiscal year 2009, when compared to the same prior year
period. The increase in Mexican sourced avocados was primarily related to an increase in the
volume of Mexican fruit sold of 35.1 million pounds, or 31.1%, when compared to the same prior year
period. We attribute some of this increase to the large Mexican avocado crop for fiscal 2009.
Such increase was partially offset, however, by a decrease in the average carton selling price of
Mexican avocados, which decreased approximately 13.4% when compared to the same prior year period.
We attribute some of this decrease to the higher overall volume of Mexican avocados in the
marketplace.
Sales of Chilean sourced avocados increased $9.0 million, or 117.0% for fiscal year 2009, when
compared to the same prior year period. The volume of Chilean fruit sold increased by
approximately 7.0 million pounds, or 94.6%, when compared to the same prior year period. This
increase was primarily related to the improvement of the Chilean avocado crop in fiscal year 2009
when compared to the disappointing crop in fiscal year 2008. In addition to the increase in pounds
sold, our average selling prices, on a per carton basis, experienced an increase of 11.5% for
fiscal 2009, when compared to the same prior period. We attribute some of these price fluctuations
to the smaller California avocado crops, as well as the timing of the delivery of such crops, in
the marketplace during fiscal 2009.
CalavoFoods
Fiscal 2010 vs. Fiscal 2009:
Net sales increased by approximately $5.8 million, or 13.0% for fiscal 2010, when compared to
the same prior period. This increase is primarily related to a 1.8% increase in total pounds sold
for fiscal year 2010 and an increase in the average net selling price per pound of 2.4%, when
compared to the same prior year period. The increase in average net selling price is primarily
related to a change in sales mix. In addition, the recently acquired Calavo Salsa Lisa contributed
approximately $0.8 million for fiscal year 2010.
We currently have two 215L ultra high pressure machines located in Uruapan. Starting in
fiscal year 2010, we have begun using the two 215L ultra high pressure machines to pressurize all
product lines within CalavoFoods (including frozen products). This has caused our operating
capacity for these two 215L ultra high pressure machines to be approximately 80% as of October 31,
2010. Our estimated combined operating capacity for these two machines was approximately 59% as of
October 31, 2009. A 3
rd
ultra high pressure machine with a larger capacity of 350L has
been ordered and is expected to begin operating during our second
fiscal quarter of 2011. We believe with this
3
rd
machine our operating capacity will be in line with our current sales projections
and expected growth. Net sales of our ultra high pressure (fresh) products, typically sold to
retail customers, represented approximately 46% and 47% of total processed segment sales for the
years ended October 31, 2010 and 2009.
We believe that these ultra high pressure machines will enable our company to deliver the
widest available array of prepared avocado and other products to our customers. Consequently, we
believe that we are positioned to expand our ultra high pressure product line to include more
avocado related products, mangoes and other readily available fruit products. We anticipate a
marginal increase in sales related to our CalavoFoods.
22
Fiscal 2009 vs. Fiscal 2008:
Net sales decreased by approximately $1.3 million, or 2.8% for fiscal 2009, when compared to
the same prior period. This decrease is primarily related to a 4.4% decrease in total pounds sold
for fiscal year 2009, when compared to the same prior year period. Frozen product sales are
closely linked to the economic environment of the foodservice industry.
We currently have two 215L ultra high pressure machines located in Uruapan and estimate we are
operating at approximately 59% of the combined machines capacities as of October 31, 2009. We
believe this combined capacity is reasonable given our current sales projections and expected
growth. Net sales of our ultra high pressure products represented approximately 47% and 44% of
total processed segment sales for the years ended October 31, 2009 and 2008.
We believe that these ultra high pressure machines will enable our company to deliver the
widest available array of prepared avocado and other products to our customers. Consequently, we
believe that we are positioned to expand our ultra high pressure product line to include more
avocado related products, high-end salsas, mangoes and other readily available fruit products.
Gross Margins
The following table summarizes our gross margins and gross profit percentages by business
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
|
2009
|
|
|
Change
|
|
|
2008
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Gross Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh products
|
|
$
|
38,443
|
|
|
|
32.2
|
%
|
|
$
|
29,076
|
|
|
|
30.8
|
%
|
|
$
|
22,223
|
|
CalavoFoods
|
|
|
13,087
|
|
|
|
(15.3
|
%)
|
|
|
15,457
|
|
|
|
41.1
|
%
|
|
|
10,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margins
|
|
$
|
51,530
|
|
|
|
15.7
|
%
|
|
$
|
44,533
|
|
|
|
34.2
|
%
|
|
$
|
33,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh products
|
|
|
11.0
|
%
|
|
|
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
7.0
|
%
|
CalavoFoods
|
|
|
26.0
|
%
|
|
|
|
|
|
|
34.7
|
%
|
|
|
|
|
|
|
23.9
|
%
|
Consolidated
|
|
|
12.9
|
%
|
|
|
|
|
|
|
12.9
|
%
|
|
|
|
|
|
|
9.2
|
%
|
Our cost of sales 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. Consolidated gross margin, as a percent of
sales, stayed consistent at 12.9% for fiscal year 2010 when compared to fiscal year 2009. Gross
margins increased by approximately $7.0 million, or 15.7%, for fiscal year 2010, when compared to
the same prior year period. This increase was attributable primarily to an increase in our Fresh
products segment, partially offset by a decrease in our CalavoFoods segment.
Fresh products
Fiscal 2010 vs. Fiscal 2009:
During fiscal year 2010, as compared to the same prior year period, the increase in our Fresh
products segment gross margin and gross margin percentage was primarily related to an increase in
the gross margin percentage for California avocados. This was due to a significant increase in the
volume of California avocados sold, which increased 222.0%. This increase was primarily related to
the larger California avocado crop. This had the effect of decreasing our per pound costs, which,
as a result, positively impacted gross margins. Partially offsetting this increase in gross margin
was a decrease in margins for Mexican sourced avocados due to a similar fruit cost year-over-year,
but at a lower selling price, for Mexican sourced avocados. We believe this decrease in selling
price is primarily related to a significantly higher volume of non-Mexican fruit in the U.S
marketplace, which put downward pressure on carton selling prices. As a result of this downward
pressure, we were not able to purchase Mexican sourced fruit as effectively (in relation to the
selling price) as we were able to in the same prior year period. Additionally, we experienced a
decrease in the volume of Mexican sourced avocados sold by 29.1 million pounds or 20.1%, which we
believe was primarily related to the aforementioned pricing pressure. In addition, the U.S. Dollar
to Mexican Peso exchange rate weakened during fiscal 2010, when compared to the same prior period.
All of these combined had the effect of increasing our per pound costs, which, as a result,
negatively impacted gross margins.
As mentioned above, the weakening of the U.S. Dollar compared to the Mexican Peso negatively
affected our gross margin for fiscal year 2010. Any significant fluctuations in the exchange rate
between the U.S. Dollar and the Mexican Peso may have a material impact on future gross margins for
our fresh and CalavoFoods segments.
The gross margin and gross profit percentage for consignment sales, including certain Chilean
avocados and tomatoes, are dependent on the volume of fruit we handle, the average selling prices,
and the competitiveness of the returns that we provide to
23
third-party growers/packers. The gross
margin we earn is generally based on a commission agreed to with each party, which usually is a
percent of the overall selling price. Although we generally do not take legal title to such
avocados and perishable products, we do assume responsibilities (principally assuming credit risk,
inventory loss and delivery risk, and limited pricing risk) that are consistent with acting as a
principal in the transaction. Accordingly, our results of operations include sales and cost of
sales from the sale of avocados and perishable products procured under consignment arrangements.
For fiscal years 2010, we generated gross margins of $6.0 million from the sale of fresh produce
products that were packed by third parties. This is a $3.2 million increase in gross margin for
consigned sales compared to previous year. This increase is due to an increase in tomato sales of
195.7% for fiscal 2010, when compared to the same prior year period. The increase in sales for
tomatoes is due to an increase in the average per carton selling price of 128.1%, in addition to a
29.6% increase in the number of units sold. We attribute most of the increase in the per carton
selling price to the lower volume of tomatoes in the U.S. marketplace (due to weather conditions in
Florida) for fiscal 2010, as compared to the same prior period. We attribute most of the increase
in units sold to growers supplying us with significantly more volume, due primarily to market
conditions.
Fiscal 2009 vs. Fiscal 2008:
During fiscal year 2009, as compared to the same prior year period, the increase in our Fresh
products segment gross margin percentage was primarily related to a significant decrease in fruit
costs for Mexican sourced avocados, as well as a decrease in substantially all operating costs
related to our Mexican operations. These decreases are primarily related to the large Mexican
avocado crop, as well as the considerable strengthening of the U.S. Dollar compared to the Mexican
Peso. For fiscal year 2009, when compared to the prior year period, we experienced an increase in
the volume of Mexican sourced avocados sold by 35.1 million pounds or 31.1%. Combined, these had
the effect of decreasing our per pound costs, which, as a result, positively impacted gross
margins. Such increase was partially offset, however, by a decrease in the average carton selling
price of Mexican avocados, which decreased approximately 13.4% when compared to the same prior year
period. Collectively, these items positively increased gross margins generated from the sale of
Mexican avocados from approximately $11.1 million in fiscal year 2008 to $22.5 million in fiscal
year 2009.
The gross margin and gross profit percentage for consignment sales, including Chilean
avocados, pineapples, and tomatoes, are dependent on the volume of fruit we handle, the average
selling prices, and the competitiveness of the returns that we provide to third-party
growers/packers. The gross margin we earn is generally based on a commission agreed to with each
party, which varies from a fixed rate per box to a percent of the overall selling price. Although
we generally do not take legal title to such avocados and perishable products, we do assume
responsibilities (principally assuming credit risk, inventory loss and delivery risk, and limited
pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, our
results of operations include sales and cost of sales from the sale of avocados and perishable
products procured under consignment arrangements. For fiscal years 2009, we generated gross
margins of $2.8 million from the sale of fresh produce products that were packed by third parties.
Gross margin percentages related to California avocados are largely dependent on production
yields achieved at our packinghouses, current market prices of avocados, our packing and marketing
fee, and the volume of avocados packed. A significant portion of our costs are fixed. As such, a
lower volume of fruit going through our packinghouses will decrease our gross margin percentage.
Pounds of California avocados sold decreased 42.5% in fiscal 2009 as compared to fiscal 2008. This
had the effect of increasing our per pound costs, which, as a result, negatively impacted gross
margins.
CalavoFoods
Fiscal 2010 vs. Fiscal 2009:
Gross margin percentages for our CalavoFoods business are largely dependent on the pricing of
our final product and the cost of avocados used in preparing guacamole. The CalavoFoods gross
profit percentages for the fiscal year 2010, when compared to the same prior year period, decreased
$2.4 million or 15.3%, primarily as a result of higher fruit and operating costs, partially offset
by an increase in total pounds sold by 1.8%. We anticipate that the gross profit percentage for
our CalavoFoods segment will continue to experience significant fluctuations during the next fiscal
year primarily due to the uncertainty of the cost of fruit that will be used in the production
process.
24
Fiscal 2009 vs. Fiscal 2008:
Gross margin percentages for our CalavoFoods business are largely dependent on the pricing of
our final product and the cost of avocados used in preparing guacamole. The CalavoFoods gross
profit percentages for the fiscal year 2009, when compared to the same prior year period, increased
$4.4 million or 41.1%, primarily as a result of lower fruit and operating costs, partially offset
by a decrease in total pounds sold by 4.4%. As discussed above, the large Mexican avocado crop, as
well as the considerable strengthening of the U.S. Dollar compared to the Mexican Peso,
significantly decreased our per pound costs. We anticipate that the gross profit percentage for
our processed product segment will continue to experience fluctuations during the next fiscal year
primarily due to the uncertainty of the cost of fruit that will used in the production process, and
the uncertainty of the exchange rate between the U.S. Dollar and the Mexican Peso (as discussed
above).
Selling, General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Change
|
|
2009
|
|
Change
|
|
2008
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Selling, general and administrative
|
|
$
|
23,168
|
|
|
|
1.7
|
%
|
|
$
|
22,791
|
|
|
|
9.0
|
%
|
|
$
|
20,914
|
|
Percentage of net sales
|
|
|
5.8
|
%
|
|
|
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
5.8
|
%
|
Selling, general and administrative expenses include costs of marketing and advertising,
sales expenses, and other general and administrative costs. For fiscal year 2010, selling, general
and administrative expenses increased $0.4 million or 1.7% when compared to the same period for
fiscal 2009. This increase was primarily related to higher corporate costs, including, but not
limited to, costs related to an increase in management bonuses (totaling approximately $0.9
million), and an increase in directors fees (totaling approximately $0.3 million). Such higher
corporate costs were partially offset, however, by lower salaries and employee benefits (totaling
approximately $0.4 million), lower audit fees (totaling approximately $0.3 million) and a decrease
in bad debt expense (totaling approximately $0.1 million).
For fiscal year 2009, selling, general and administrative expenses increased $1.9 million or
9.0% when compared to the same period for fiscal 2008. This increase was primarily related to
higher corporate costs, including, but not limited to, costs related to an increase in management
bonuses (totaling approximately $1.7 million), an increase in salaries and benefits (totaling
approximately $0.5 million), and an increase in general insurance (totaling approximately $0.3
million). Such higher corporate costs were partially offset, however, by lower broker commissions
(totaling approximately $0.3 million) and lower audit fees (totaling approximately $0.3 million).
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Change
|
|
2009
|
|
Change
|
|
2008
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Interest income
|
|
$
|
274
|
|
|
|
(28.1
|
%)
|
|
$
|
381
|
|
|
|
(26.2
|
%)
|
|
$
|
516
|
|
Percentage of net sales
|
|
|
0.1
|
%
|
|
|
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
0.1
|
%
|
Interest income was primarily generated from loans to growers. The decrease in interest
income in fiscal 2010 as compared to 2009 is due to the principal balances being paid off by
Agricola Belher for infrastructure advances.
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Change
|
|
2009
|
|
Change
|
|
2008
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Interest expense
|
|
$
|
(834
|
)
|
|
|
(24.7
|
%)
|
|
$
|
(1,108
|
)
|
|
|
(25.4
|
%)
|
|
$
|
(1,485
|
)
|
Percentage of net sales
|
|
|
(0.2
|
%)
|
|
|
|
|
|
|
(0.3
|
%)
|
|
|
|
|
|
|
(0.4
|
%)
|
Interest expense is primarily generated from our line of credit borrowings, as well as
our term loan agreement with Farm Credit West, PCA. For fiscal 2010, as compared to fiscal 2009,
the decrease in interest expense was primarily related to a lower average outstanding balance and
an overall decrease in interest rates under our non-collateralized, revolving credit facilities
with Farm Credit West, PCA and Bank of America, N.A.
For fiscal 2009, as compared to fiscal 2008, the decrease in interest expense was primarily
related to a lower average outstanding balance and an overall decrease in interest rates under our
non-collateralized, revolving credit facilities with Farm Credit West, PCA and Bank of America,
N.A.
25
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Change
|
|
2009
|
|
Change
|
|
2008
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Other income, net
|
|
$
|
430
|
|
|
|
63.5
|
|
|
$
|
263
|
|
|
|
(63.2
|
%)
|
|
$
|
715
|
|
Percentage of net sales
|
|
|
0.1
|
%
|
|
|
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
0.2
|
%
|
Other income, net includes dividend income, as well as certain other transactions that
are outside of the normal course of operations. During fiscal 2010, 2009, and 2008, we received
$0.2 million, $0.1 million, and $0.6 million as dividend income from Limoneira.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Change
|
|
2009
|
|
Change
|
|
2008
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Provision for income taxes
|
|
$
|
11,341
|
|
|
|
35.4
|
%
|
|
$
|
8,277
|
|
|
|
81.2
|
%
|
|
$
|
4,567
|
|
Percentage of income before
provision for income taxes
|
|
|
39.1
|
%
|
|
|
|
|
|
|
37.8
|
%
|
|
|
|
|
|
|
37.2
|
%
|
The effective income tax rate for fiscal years 2010, 2009, and 2008 is higher than the
federal statutory rate principally due to state taxes. Our effective income tax rate increased
from 37.8% in fiscal year 2009 to 39.1% in fiscal year 2010 primarily due to a higher portion of
the total pre-tax book income being taxed at the higher U.S. statutory rate compared to Mexico as
well as an increase in our federal tax rate, partially offset by several miscellaneous reductions.
Our effective income tax rate increased from 37.2% in fiscal year 2008 to 37.8% in fiscal year 2009
primarily as a result of an increase in foreign taxes, partially offset by a decrease in our
average state tax rate.
Quarterly Results of Operations
The following table presents our operating results for each of the eight fiscal quarters in
the period ended October 31, 2010. The information for each of these quarters is derived from our
unaudited interim financial statements and should be read in conjunction with our audited
consolidated financial statements included in this Annual Report. In our opinion, all necessary
adjustments, which consist only of normal and recurring accruals, have been included to fairly
present our unaudited quarterly results. Historically, we receive and sell a substantially lesser
number of California avocados in our first fiscal quarter. Certain items in the prior period
amounts have been reclassified to conform to the current period presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Oct. 31,
|
|
|
July 31,
|
|
|
Apr. 30,
|
|
|
Jan. 31,
|
|
|
Oct. 31,
|
|
|
July 31,
|
|
|
Apr. 30,
|
|
|
Jan. 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
107,234
|
|
|
$
|
114,578
|
|
|
$
|
109,219
|
|
|
$
|
67,320
|
|
|
$
|
80,942
|
|
|
$
|
106,347
|
|
|
$
|
86,829
|
|
|
$
|
70,647
|
|
Cost of sales
|
|
|
92,940
|
|
|
|
99,303
|
|
|
|
96,133
|
|
|
|
58,445
|
|
|
|
71,713
|
|
|
|
96,441
|
|
|
|
73,890
|
|
|
|
58,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
14,294
|
|
|
|
15,275
|
|
|
|
13,086
|
|
|
|
8,875
|
|
|
|
9,229
|
|
|
|
9,906
|
|
|
|
12,939
|
|
|
|
12,459
|
|
Selling, general and administrative
|
|
|
7,035
|
|
|
|
5,514
|
|
|
|
5,455
|
|
|
|
5,164
|
|
|
|
6,134
|
|
|
|
5,822
|
|
|
|
5,535
|
|
|
|
5,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,259
|
|
|
|
9,761
|
|
|
|
7,631
|
|
|
|
3,711
|
|
|
|
3,095
|
|
|
|
4,084
|
|
|
|
7,404
|
|
|
|
7,159
|
|
Other income (expense), net
|
|
|
169
|
|
|
|
181
|
|
|
|
233
|
|
|
|
36
|
|
|
|
164
|
|
|
|
(22
|
)
|
|
|
75
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes
|
|
|
7,428
|
|
|
|
9,942
|
|
|
|
7,864
|
|
|
|
3,747
|
|
|
|
3,259
|
|
|
|
4,062
|
|
|
|
7,479
|
|
|
|
7,088
|
|
Provision for income taxes
|
|
|
2,733
|
|
|
|
4,045
|
|
|
|
3,090
|
|
|
|
1,473
|
|
|
|
955
|
|
|
|
1,597
|
|
|
|
3,017
|
|
|
|
2,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4,695
|
|
|
|
5,897
|
|
|
|
4,774
|
|
|
|
2,274
|
|
|
|
2,304
|
|
|
|
2,465
|
|
|
|
4,462
|
|
|
|
4,380
|
|
Add: Net loss-noncontrolling interest
|
|
|
55
|
|
|
|
50
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income-Calavo Growers, Inc
|
|
$
|
4,750
|
|
|
$
|
5,947
|
|
|
$
|
4,793
|
|
|
$
|
2,274
|
|
|
$
|
2,304
|
|
|
$
|
2,465
|
|
|
$
|
4,462
|
|
|
$
|
4,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.17
|
|
|
$
|
0.31
|
|
|
$
|
0.30
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.17
|
|
|
$
|
0.31
|
|
|
$
|
0.30
|
|
Number of shares used in per share
computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,710
|
|
|
|
14,651
|
|
|
|
14,572
|
|
|
|
14,505
|
|
|
|
14,505
|
|
|
|
14,457
|
|
|
|
14,423
|
|
|
|
14,419
|
|
Diluted
|
|
|
14,722
|
|
|
|
14,676
|
|
|
|
14,598
|
|
|
|
14,572
|
|
|
|
14,582
|
|
|
|
14,529
|
|
|
|
14,508
|
|
|
|
14,429
|
|
Liquidity and Capital Resources
Operating activities for fiscal 2010, 2009 and 2008 provided cash flows of $18.2 million,
$22.0 million, and $5.3 million. Fiscal year 2010 operating cash flows reflect our net income of
$17.6 million, net noncash charges (depreciation and amortization, income from unconsolidated
entities, provision for losses on accounts receivable, interest on deferred compensation, deferred
income taxes, and stock compensation expense) of $4.1 million and a net decrease from changes in
the non-cash components of our working capital accounts of approximately $3.5 million.
26
Fiscal year 2010 increases in operating cash flows, caused by working capital changes, include
an increase in accounts receivable of $9.4 million, an increase in inventory of $3.0 million, and
an increase in prepaid expenses and other current assets of $2.5 million, partially offset by an
increase in payable to growers of $6.9 million, an increase in trade accounts payable and accrued
expenses of $2.7 million, a decrease in advances to suppliers of $1.0 million and a decrease in
income tax receivable of $0.8 million.
The increase in our accounts receivable balance as of October 31, 2010, when compared to
October 31, 2009, primarily reflects more California avocado sales recorded in the month of October
2010, as compared to October 2009. This is consistent to what was expected with the greatly
improved California avocado season ending later in the current year than in the prior year. The
increase in our inventory balance is primarily related to an increase in California and Mexico
avocado inventory on hand at October 31, 2010, as compared to the same prior year period. The
increase in payable to our growers primarily reflects an increase in California fruit delivered in
the month of October 2010, as compared to the month of October 2009. The increase in our trade
accounts payable and accrued expenses primarily reflect a contingent consideration accrual related
to our acquisition of Calavo Salsa Lisa (see note 16), and an increase in management bonuses in
fiscal year 2010, compared to the previous year.
Cash used in investing activities was $7.7 million, $6.0 million, and $7.5 million for fiscal
years 2010, 2009, and 2008. Fiscal year 2010 cash flows used in investing activities includes
capital expenditures of $4.7 million, the final annual Earn-Out payment from the acquisition of HS
and HP, totaling approximately $4.5 million and $0.4 million in payments related to the acquisition
of Calavo Salsa Lisa. Such payments were partially offset by the collection of $1.8 million from
Agricola Belher, pursuant to our tomato agreements and distributions received of $0.1 million from
our joint venture Maui Fresh International, LLC.
Cash used in financing activities was $10.3 million and $16.6 million for fiscal years 2010
and 2009. Cash provided by financing activities was $2.7 million for fiscal years 2008. Cash used
during fiscal year 2010 primarily includes the payment of a dividend totaling $7.3 million, and
payments related to our long-term obligations of $6.8 million. Partially offsetting these
payments, however, were $2.2 million in cash provided by the exercise of stock options, and
proceeds from our non-collateralized, revolving credit facilities totaling $1.6 million.
Our principal sources of liquidity are our existing cash reserves, cash generated from
operations and amounts available for borrowing under our existing credit facilities. Cash and cash
equivalents as of October 31, 2010 and 2009 totaled $1.1 million and $0.9 million. Our working
capital at October 31, 2010 was $14.8 million, compared to $12.1 million at October 31, 2009.
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. Effective July 31, 2009, we entered into a new loan agreement with Bank of America, N.A.
which increased our existing non-collateralized, revolving credit facility to $15.0 million, from
$10.0 million. This new agreement expires July 1, 2011. Our non-collateralized, revolving credit
facilities with Farm Credit West, PCA expires in February 2012. 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 $45 million, with
a weighted-average interest rate of 2.3% and 2.4% at October 31, 2010 and 2009. Under these credit
facilities, we had $8.2 million and $12.0 million outstanding as October 31, 2010 and 2009, of
which $6.5 million was classified as a long-term liability as October 31, 2009. These credit
facilities contain various financial covenants, the most significant relating to 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 October 31, 2010.
The following table summarizes contractual obligations pursuant to which we are required to
make cash payments. The information is presented as of our fiscal year ended October 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than 5 years
|
|
Long-term debt obligations
(including interest)
|
|
$
|
8,768
|
|
|
$
|
1,781
|
|
|
$
|
3,340
|
|
|
$
|
3,045
|
|
|
$
|
602
|
|
Revolving credit facilities
|
|
|
8,150
|
|
|
|
8,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plan
|
|
|
275
|
|
|
|
42
|
|
|
|
84
|
|
|
|
84
|
|
|
|
65
|
|
Operating lease commitments
|
|
|
11,492
|
|
|
|
1,480
|
|
|
|
2,743
|
|
|
|
2,513
|
|
|
|
4,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,685
|
|
|
$
|
11,453
|
|
|
$
|
6,167
|
|
|
$
|
5,642
|
|
|
$
|
5,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The California avocado industry is subject to a state marketing order whereby handlers
are required to collect assessments from the growers and remit such assessments to the California
Avocado Commission (CAC). The assessments are primarily for advertising and promotions. The
amount of the assessment is based on the dollars paid to the growers for their fruit, and, as a
result, is not determinable until the value of the payments to the growers has been calculated.
27
With similar precision, amounts remitted to the Hass Avocado Board (HAB) in connection with
their assessment program (see Item 7 for further discussion), are likewise not determinable until
the fruit is actually delivered to us. HAB assessments are primarily used to fund marketing and
promotion efforts.
Recently Adopted Accounting Pronouncements
In April 2009, as amended in February 2010, we adopted accounting guidance for subsequent
events, which establishes general standards of accounting for, and disclosure of, events that occur
after the balance sheet date, but before financial statements are issued or are available to be
issued. In particular, this accounting guidance sets forth:
|
|
|
The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements.
|
|
|
|
|
The circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements.
|
|
|
|
|
The disclosures that should be made about events or transactions that occurred after the
balance sheet date.
|
Our adoption of this accounting guidance did not have a material impact on our financial
position, results of operations or liquidity.
Effective the first quarter of fiscal 2010, we adopted, on a prospective basis, guidance
related to fair value measurements pertaining to nonfinancial assets and liabilities. The adoption
of this accounting guidance did not have a material impact on our financial position, results of
operations or liquidity.
Effective the first quarter of fiscal 2010, we adopted revised accounting guidance for
business combinations, which changed its previous accounting practices regarding business
combinations. The statement requires a number of changes, to be applied prospectively, to the
purchase method of accounting for acquisitions, including changes in the way assets and liabilities
are recognized in the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of in-process research
and development at fair value, and requires the expensing of acquisition-related costs as incurred.
The impact of this accounting guidance and its relevant updates on our results of operations or
financial position will vary depending on each specific business combination. See Note 16 for a
business combination we closed in February 2010.
Effective the first quarter of fiscal 2010, we adopted revised accounting guidance for the
determination of the useful life of intangible assets. This accounting guidance amends the factors
that should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. This change is intended to improve the consistency
between the useful life of a recognized intangible asset and the period of expected cash flows used
to measure the fair value of the asset. The requirement for determining useful lives must be
applied prospectively to intangible assets acquired after the effective date and the disclosure
requirements must be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date. Our adoption of this guidance did not have a material impact on
its financial position, results of operations or liquidity.
Effective the first quarter of fiscal 2010, we adopted revised accounting guidance for
measuring liabilities at fair value. This accounting guidance provides clarification that in
circumstances in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more of the following
methods: 1) a valuation technique that uses a) the quoted price of the identical liability when
traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded
as assets and/or 2) a valuation technique that is consistent with the principles of the accounting
guidance for fair value measurements and disclosures. This guidance also clarifies that when
estimating the fair value of a liability, a reporting entity is not required to adjust to include
inputs relating to the existence of transfer restrictions on that liability. Our adoption of this
accounting guidance did not have a material impact on our financial position, results of operations
or liquidity.
Effective the first quarter of fiscal 2010, we adopted revised accounting guidance related to
the accounting and reporting for minority interests. Minority interests are now re-characterized
as noncontrolling interests and in most cases are reported as a component of equity separate from
the parents equity, and purchases or sales of equity interests that do not result in a change in
control will be accounted for as equity transactions. In addition, net income attributable to the
noncontrolling interest is now included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any interest retained, will be
recorded at fair value with any gain or loss recognized in earnings. See Note 16 for a business
combination we closed in February 2010.
28
Recently Issued Accounting Standards
In June 2009, the FASB issued revised guidance for the accounting of transfers of financial
assets. This guidance is intended to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial statements about
a transfer of financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferors continuing involvement, if any, in transferred
financial assets. This accounting guidance will be effective for financial statements issued for
fiscal years beginning after November 15, 2009, and interim periods within those fiscal years.
Early adoption is not permitted. We do not believe that adoption of this guidance will have a
material impact on our financial position and results of operations.
In June 2009, the FASB issued revised guidance for the accounting of variable interest
entities, which replaces the quantitative-based risks and rewards approach with a qualitative
approach that focuses on identifying which enterprise has the power to direct the activities of a
variable interest entity that most significantly impact the entitys economic performance. This
accounting guidance also requires an ongoing reassessment of whether an entity is the primary
beneficiary and requires additional disclosures about an enterprises involvement in variable
interest entities. This accounting guidance will be effective for financial statements issued for
fiscal years beginning after November 15, 2009, and interim periods within those fiscal years.
Early adoption is not permitted. We do not believe that adoption of this guidance will have a
material impact on our financial position and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our financial instruments include cash and cash equivalents, accounts receivable, payable to
growers, accounts payable, current and long-term borrowings pursuant to our credit facilities with
financial institutions, and long-term, fixed-rate obligations. All of our financial instruments
are entered into during the normal course of operations and have not been acquired for trading
purposes. The table below summarizes interest rate sensitive financial instruments and presents
principal cash flows in U.S. dollars, which is our reporting currency, and weighted-average
interest rates by expected maturity dates, as of October 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date October 31,
|
|
(All amounts in thousands)
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1)
|
|
$
|
1,064
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,064
|
|
|
$
|
1,064
|
|
Accounts receivable (1)
|
|
|
31,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,743
|
|
|
|
31,743
|
|
Advances to suppliers (1)
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,598
|
|
|
|
1,598
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to growers (1)
|
|
$
|
11,208
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,208
|
|
|
$
|
11,208
|
|
Accounts payable (1)
|
|
|
2,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,839
|
|
|
|
2,839
|
|
Current borrowings pursuant to credit
facilities (1)
|
|
|
7,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,150
|
|
|
|
7,150
|
|
Current long-term borrowings
pursuant to credit facilities (2)
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
1,024
|
|
Fixed-rate long-term obligations (3)
|
|
|
1,369
|
|
|
|
1,373
|
|
|
|
1,376
|
|
|
|
1,380
|
|
|
|
1,383
|
|
|
|
577
|
|
|
|
7,458
|
|
|
|
8,082
|
|
|
|
|
(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)
|
|
Current long-term borrowings pursuant to our credit facility bears interest at 6.5%.
We believe that a portfolio of loans with a similar risk profile would currently yield a
return of 4.0%. 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 $10,000.
|
|
(3)
|
|
Fixed-rate long-term obligations bear interest rates ranging from 4.3% to 5.7% with a
weighted-average interest rate of 5.5%. We believe that loans with a similar risk profile
would currently yield a return of 2.5%. We project the impact of an increase or decrease
in interest rates of 100 basis points would result in a change of fair value of
approximately $235,000.
|
Except as disclosed in Note 16, we were not a party to any derivative instruments during
the fiscal year. It is currently our intent not to use derivative instruments for speculative or
trading purposes. Additionally, we do not use any hedging or forward contracts to offset market
volatility.
Our Mexican-based operations transact business in Mexican pesos. Funds are transferred by our
corporate office to Mexico on a weekly basis to satisfy domestic cash needs. Historically, the
consistency of the spot rate for the Mexican peso has led to a small-to-moderate impact on our
operating results. We do not anticipate using derivative instruments to hedge fluctuations in the
Mexican peso to U.S. dollar exchange rates during fiscal 2011. Total foreign currency losses for
fiscal 2010, net of gains was $0.1 million. Total foreign currency gains for fiscal 2009, and
2008, net of losses, was less than $0.1 million and $0.5 million.
29
Item 8. Financial Statements and Supplementary Data
CALAVO GROWERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,064
|
|
|
$
|
875
|
|
Accounts
receivable, net of allowances of $1,372 (2010) and $2,353 (2009)
|
|
|
31,743
|
|
|
|
22,314
|
|
Inventories, net
|
|
|
14,831
|
|
|
|
11,731
|
|
Prepaid expenses and other current assets
|
|
|
8,424
|
|
|
|
6,430
|
|
Advances to suppliers
|
|
|
1,598
|
|
|
|
2,623
|
|
Income taxes receivable
|
|
|
1,816
|
|
|
|
2,178
|
|
Deferred income taxes
|
|
|
2,336
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
61,812
|
|
|
|
48,879
|
|
Property, plant, and equipment, net
|
|
|
41,059
|
|
|
|
38,621
|
|
Investment in Limoneira Company
|
|
|
34,986
|
|
|
|
24,200
|
|
Investment in unconsolidated entities
|
|
|
2,016
|
|
|
|
1,382
|
|
Goodwill
|
|
|
4,085
|
|
|
|
3,591
|
|
Other assets
|
|
|
6,240
|
|
|
|
6,076
|
|
|
|
|
|
|
|
|
|
|
$
|
150,198
|
|
|
$
|
122,749
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Payable to growers
|
|
$
|
11,208
|
|
|
$
|
4,343
|
|
Trade accounts payable
|
|
|
2,839
|
|
|
|
2,223
|
|
Accrued expenses
|
|
|
15,353
|
|
|
|
16,123
|
|
Short-term borrowings
|
|
|
8,150
|
|
|
|
5,520
|
|
Dividend payable
|
|
|
8,092
|
|
|
|
7,252
|
|
Current portion of long-term obligations
|
|
|
1,369
|
|
|
|
1,366
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,011
|
|
|
|
36,827
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term obligations, less current portion
|
|
|
6,089
|
|
|
|
13,908
|
|
Deferred income taxes
|
|
|
8,266
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
14,355
|
|
|
|
16,435
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
575
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock
($0.001 par value, 100,000 shares authorized; 14,712 and 14,505
shares outstanding at October 31, 2010 and 2009)
|
|
|
14
|
|
|
|
14
|
|
Additional paid-in capital
|
|
|
42,319
|
|
|
|
39,714
|
|
Accumulated other comprehensive income
|
|
|
6,959
|
|
|
|
466
|
|
Retained earnings
|
|
|
38,965
|
|
|
|
29,293
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
88,257
|
|
|
|
69,487
|
|
|
|
|
|
|
|
|
|
|
$
|
150,198
|
|
|
$
|
122,749
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
30
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net sales
|
|
$
|
398,351
|
|
|
$
|
344,765
|
|
|
$
|
361,474
|
|
Cost of sales
|
|
|
346,821
|
|
|
|
300,232
|
|
|
|
328,293
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
51,530
|
|
|
|
44,533
|
|
|
|
33,181
|
|
Selling, general and administrative
|
|
|
23,168
|
|
|
|
22,791
|
|
|
|
20,914
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
28,362
|
|
|
|
21,742
|
|
|
|
12,267
|
|
Equity in earnings from unconsolidated entities
|
|
|
749
|
|
|
|
610
|
|
|
|
279
|
|
Interest income
|
|
|
274
|
|
|
|
381
|
|
|
|
516
|
|
Interest expense
|
|
|
(834
|
)
|
|
|
(1,108
|
)
|
|
|
(1,485
|
)
|
Other income, net
|
|
|
430
|
|
|
|
263
|
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
28,981
|
|
|
|
21,888
|
|
|
|
12,292
|
|
Provision for income taxes
|
|
|
11,341
|
|
|
|
8,277
|
|
|
|
4,567
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
17,640
|
|
|
|
13,611
|
|
|
|
7,725
|
|
Add: Net
loss attributable to noncontrolling interest
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Calavo Growers, Inc.
|
|
$
|
17,764
|
|
|
$
|
13,611
|
|
|
$
|
7,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calavo Growers, Inc.s net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.22
|
|
|
$
|
0.94
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.22
|
|
|
$
|
0.94
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,610
|
|
|
|
14,451
|
|
|
|
14,398
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
14,619
|
|
|
|
14,503
|
|
|
|
14,481
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
31
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net income
|
|
$
|
17,640
|
|
|
$
|
13,611
|
|
|
$
|
7,725
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period
|
|
|
10,786
|
|
|
|
(5,704
|
)
|
|
|
(19,058
|
)
|
Income tax benefit (expense) related to items of other
comprehensive income (loss)
|
|
|
(4,293
|
)
|
|
|
2,227
|
|
|
|
7,337
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
6,493
|
|
|
|
(3,477
|
)
|
|
|
(11,721
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
24,133
|
|
|
|
10,134
|
|
|
|
(3,996
|
)
|
Add: Net loss attributable to noncontrolling interest
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) Calavo Growers, Inc.
|
|
$
|
24,257
|
|
|
$
|
10,134
|
|
|
$
|
(3,996
|
)
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
32
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Total
|
|
Balance, October 31, 2007
|
|
|
14,371
|
|
|
|
14
|
|
|
|
38,068
|
|
|
|
15,664
|
|
|
|
20,257
|
|
|
|
74,003
|
|
Exercise of stock options and
income tax benefit of $147
|
|
|
48
|
|
|
|
|
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
|
534
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Unrealized loss on Limoneira investment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,721
|
)
|
|
|
|
|
|
|
(11,721
|
)
|
Dividend declared to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,048
|
)
|
|
|
(5,048
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,725
|
|
|
|
7,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2008
|
|
|
14,419
|
|
|
|
14
|
|
|
|
38,626
|
|
|
|
3,943
|
|
|
|
22,934
|
|
|
|
65,517
|
|
Exercise of stock options and
income tax benefit of $261
|
|
|
86
|
|
|
|
|
|
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
1,044
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Unrealized loss on Limoneira investment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,477
|
)
|
|
|
|
|
|
|
(3,477
|
)
|
Dividend declared to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,252
|
)
|
|
|
(7,252
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,611
|
|
|
|
13,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2009
|
|
|
14,505
|
|
|
|
14
|
|
|
|
39,714
|
|
|
|
466
|
|
|
|
29,293
|
|
|
|
69,487
|
|
Exercise of stock options and
income tax benefit of $664
|
|
|
207
|
|
|
|
|
|
|
|
2,553
|
|
|
|
|
|
|
|
|
|
|
|
2,553
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
Unrealized gain on Limoneira investment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,493
|
|
|
|
|
|
|
|
6,493
|
|
Dividend declared to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,092
|
)
|
|
|
(8,092
|
)
|
Net income attributable to Calavo Growers,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,764
|
|
|
|
17,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2010
|
|
|
14,712
|
|
|
$
|
14
|
|
|
$
|
42,319
|
|
|
$
|
6,959
|
|
|
$
|
38,965
|
|
|
$
|
88,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
33
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,640
|
|
|
$
|
13,611
|
|
|
$
|
7,725
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,368
|
|
|
|
3,054
|
|
|
|
2,657
|
|
Provision for losses on accounts receivable
|
|
|
38
|
|
|
|
106
|
|
|
|
20
|
|
Income from unconsolidated entities
|
|
|
(750
|
)
|
|
|
(610
|
)
|
|
|
(279
|
)
|
Interest on deferred consideration
|
|
|
62
|
|
|
|
152
|
|
|
|
75
|
|
Stock compensation expense
|
|
|
52
|
|
|
|
44
|
|
|
|
24
|
|
Loss on disposal of property, plant, and equipment
|
|
|
|
|
|
|
|
|
|
|
70
|
|
Deferred income taxes
|
|
|
1,332
|
|
|
|
(215
|
)
|
|
|
940
|
|
Effect on cash of changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(9,353
|
)
|
|
|
5,297
|
|
|
|
(1,400
|
)
|
Inventories, net
|
|
|
(3,006
|
)
|
|
|
3,158
|
|
|
|
(5,587
|
)
|
Prepaid expenses and other current assets
|
|
|
(2,544
|
)
|
|
|
(963
|
)
|
|
|
1
|
|
Advances to suppliers
|
|
|
1,025
|
|
|
|
219
|
|
|
|
(549
|
)
|
Income taxes receivable
|
|
|
765
|
|
|
|
(1,072
|
)
|
|
|
461
|
|
Other assets
|
|
|
(25
|
)
|
|
|
(113
|
)
|
|
|
171
|
|
Payable to growers
|
|
|
6,865
|
|
|
|
(602
|
)
|
|
|
919
|
|
Trade accounts payable and accrued expenses
|
|
|
2,729
|
|
|
|
(69
|
)
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
18,198
|
|
|
|
21,997
|
|
|
|
5,296
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of property, plant, and equipment
|
|
|
(4,767
|
)
|
|
|
(4,149
|
)
|
|
|
(2,674
|
)
|
Loan to Agricola Belher
|
|
|
|
|
|
|
|
|
|
|
(750
|
)
|
Collections from Agricola Belher
|
|
|
1,781
|
|
|
|
507
|
|
|
|
1,000
|
|
Distribution from unconsolidated entity
|
|
|
116
|
|
|
|
|
|
|
|
|
|
Acquisition of Hawaiian Sweet and Pride, net of cash acquired
|
|
|
(4,500
|
)
|
|
|
(2,348
|
)
|
|
|
(5,030
|
)
|
Acquisition of Calavo Salsa Lisa, net of cash acquired
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,721
|
)
|
|
|
(5,990
|
)
|
|
|
(7,454
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend paid to shareholders
|
|
|
(7,252
|
)
|
|
|
(5,047
|
)
|
|
|
(5,031
|
)
|
Proceeds (repayments) from (on) line of credit borrowings, net
|
|
|
1,580
|
|
|
|
(11,160
|
)
|
|
|
8,500
|
|
Payments on long-term obligations
|
|
|
(6,766
|
)
|
|
|
(1,364
|
)
|
|
|
(1,389
|
)
|
Proceeds from stock option exercises
|
|
|
1,889
|
|
|
|
783
|
|
|
|
387
|
|
Tax benefit of stock option exercises
|
|
|
261
|
|
|
|
147
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(10,288
|
)
|
|
|
(16,641
|
)
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
189
|
|
|
|
(634
|
)
|
|
|
542
|
|
Cash and cash equivalents, beginning of year
|
|
|
875
|
|
|
|
1,509
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,064
|
|
|
$
|
875
|
|
|
$
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information -
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
850
|
|
|
$
|
1,195
|
|
|
$
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
8,845
|
|
|
$
|
8,803
|
|
|
$
|
2,504
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax receivable increase related to stock option exercise
|
|
$
|
664
|
|
|
$
|
261
|
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
|
Declared dividends payable
|
|
$
|
8,092
|
|
|
$
|
7,252
|
|
|
$
|
5,047
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress included in trade accounts payable and accrued expenses
|
|
$
|
32
|
|
|
$
|
245
|
|
|
$
|
259
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset acquired with long term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
Minimum earnout adjustment related to the acquisition of Hawaiian Sweet and Pride
|
|
$
|
|
|
|
$
|
902
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses)
|
|
$
|
10,786
|
|
|
$
|
(5,704
|
)
|
|
$
|
(19,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
In February 2010, we entered into an asset purchase and contribution agreement in which we
acquired a 65 percent ownership interest in newly created Calavo Salsa Lisa, LLC which acquired
substantially all of the assets of Lisas Salsa Company. See Note 16 for further information. The
following table summarizes the estimated fair values of the non-cash assets acquired and
liabilities assumed at the date of acquisition (in thousands):
|
|
(in thousands)
|
|
2010
|
|
Current assets, excluding cash
|
|
$
|
214
|
|
Property, plant, and equipment
|
|
|
321
|
|
Goodwill
|
|
|
88
|
|
Intangible assets
|
|
|
1,950
|
|
|
|
|
|
Total assets acquired
|
|
|
2,573
|
|
Current liabilities
|
|
|
(55
|
)
|
Noncontrolling interest
|
|
|
(699
|
)
|
Contingent consideration
|
|
|
(1,468
|
)
|
|
|
|
|
Net non-cash assets acquired
|
|
$
|
351
|
|
|
|
|
|
34
CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
(in thousands)
In May 2008, we acquired all of the outstanding shares of Hawaiian Sweet, Inc. and all
ownership interests of Hawaiian Pride, LLC for approximately $5.0 million, as well as approximately
$7.7 million in deferred and contingent consideration, plus acquisition costs of approximately $0.2
million. The following table summarizes the estimated fair values of the non-cash assets
acquired and liabilities assumed at the date of acquisition.
|
|
|
|
|
(in thousands)
|
|
2008
|
|
Current assets
|
|
$
|
1,303
|
|
Fixed assets
|
|
|
10,947
|
|
Intangible assets
|
|
|
1,310
|
|
|
|
|
|
Total non-cash assets acquired
|
|
|
13,560
|
|
Current liabilities assumed
|
|
|
809
|
|
Deferred and contingent consideration
|
|
|
7,721
|
|
|
|
|
|
Net non-cash assets acquired
|
|
$
|
5,030
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
35
CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Our
expertise in marketing and distributing avocados, processed avocados, and other perishable foods
allows us to 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 Arizona,
California, Hawaii, New Jersey, Texas, and Mexico, we sort, pack, and/or ripen avocados, tomatoes
and/or Hawaiian grown papayas for distribution both domestically and internationally. We also have
an operating facility in Minnesota that produces salsa. We report our operations in two different
business segments: (1) Fresh products and (2) CalavoFoods. See Note 11 in our consolidated
financial statements for further information about our business segments. See Note 16 for
discussion regarding our acquisition of Calavo Salsa Lisa.
2. Basis of Presentation and Significant Accounting Policies
The accompanying consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States.
Our consolidated financial statements include the accounts of Calavo Growers, Inc. and our
wholly owned subsidiaries, Calavo de Mexico S.A. de C.V., Calavo Foods de Mexico S.A. de C.V., Maui
Fresh International, Inc. (Maui), Calavo Inversiones (Chile) Limitada, Hawaiian Sweet, Inc. (HS)
and Hawaiian Pride, LLC (HP). In addition, we consolidate our newly acquired entity Calavo Salsa
Lisa, in which we have a 65 percent ownership interest. See Note 16 for discussion regarding our
acquisition of Calavo Salsa Lisa. Such dissolution did not have any impact on our financial
position or our results of operations. All intercompany accounts and transactions have been
eliminated in consolidation. Effective July 2009, we formed Calavo Inversiones (Chile) Limitada, a
wholly owned subsidiary.
Cash and Cash Equivalents
We consider all highly liquid financial instruments purchased with an original maturity date
of three months or less to be cash equivalents. The carrying amounts of cash and cash equivalents
approximate their fair values.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of non-trade receivables,
infrastructure advances and prepaid expenses. Non-trade receivables
were $6.9 and $5.0 million at
October 31, 2010 and 2009. Infrastructure advances are discussed further below. Prepaid expenses
are primarily for insurance, rent and other items.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on a weighted-average
basis, which approximates the first-in, first-out method; market is based upon estimated
replacement costs. Costs included in inventory primarily include the following: fruit, picking
and hauling, overhead, labor, materials and freight.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and depreciated over their estimated useful
lives using the straight-line method. Leasehold improvements are stated at cost and amortized over
the lesser of their estimated useful lives or the term of the lease, using the straight-line
method. Useful lives are as follows: buildings and improvements 7 to 50 years; leasehold
improvements the lesser of the term of the lease or 7 years; equipment 7 to 25 years;
information systems hardware and software 3 to 15 years. Significant repairs and maintenance
that increase the value or extend the useful life of our fixed asset are capitalized. Replaced
fixed assets are written off. Ordinary maintenance and repairs are charged to expense.
We capitalize software development costs for internal use beginning in the
application development stage and ending when the asset is placed into service. Costs capitalized
include coding and testing activities and various implementation costs. These costs are limited to
(1) external direct costs of materials and services consumed in developing or obtaining
internal-use computer software; (2) payroll and payroll-related costs for employees who are
directly associated with and who devote time to the internal-use computer software project to the
extent of the time spent directly on the project; and (3) interest cost incurred while developing
internal-use computer software. See Note 4 for further information.
36
Goodwill and Acquired Intangible Assets
Goodwill is tested for impairment on an annual basis and between annual tests whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is
tested at the reporting unit level, which is defined as an operating segment or one level below the
operating segment. Goodwill impairment testing is a two-step process. The first step of the
goodwill impairment test, used to identify potential impairment, compares the fair value of a
reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the
second step of the impairment test would be unnecessary. If the carrying amount of a reporting
unit exceeds its fair value, the second step of the goodwill impairment test must be performed to
measure the amount of impairment loss, if any. The second step of the goodwill impairment test,
used to measure the amount of impairment loss, compares the implied fair value of reporting unit
goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit
goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in
an amount equal to that excess. Goodwill impairment testing requires significant judgment and
management estimates, including, but not limited to, the determination of (i) the number of
reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the
reporting units and (iii) the fair values of the reporting units. The estimates and assumptions
described above, along with other factors such as discount rates, will significantly affect the
outcome of the impairment tests and the amounts of any resulting impairment losses. We performed
our annual assessment of goodwill and determined that no impairment existed as of October 31, 2010.
Long-lived Assets
Long-lived assets, including fixed assets and intangible assets (other than goodwill), are
continually monitored and are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not be recoverable. The determination of
recoverability is based on an estimate of undiscounted cash flows expected to result from the use
of an asset and its eventual disposition. The estimate of undiscounted cash flows is based upon,
among other things, certain assumptions about future operating performance, growth rates and other
factors. Estimates of undiscounted cash flows may differ from actual cash flows due to, among
other things, technological changes, economic conditions, changes to the business model or changes
in operating performance. If the sum of the undiscounted cash flows (excluding interest) is less
then the carrying value, an impairment loss will be recognized, measured as the amount by which the
carrying value exceeds the fair value of the asset. We have evaluated our long-lived assets and
determined that no impairment existed as of October 31, 2010.
Investments
We account for non-marketable investments using the equity method of accounting if the
investment gives us the ability to exercise significant influence over, but not control, an
investee. Significant influence generally exists when we have an ownership interest representing
between 20% and 50% of the voting stock of the investee. Under the equity method of accounting,
investments are stated at initial cost and are adjusted for subsequent additional investments and
our proportionate share of earnings or losses and distributions. Additional investments by other
parties in the investee, if any, will result in a reduction in our ownership interest, and the
resulting gain or loss will be recorded in our consolidated statements of income.
In August 2006, we entered into a joint venture agreement with San Rafael Distributing (SRD)
for the purpose of the wholesale marketing, sale and distribution of fresh produce from the
existing location of SRD at the Los Angeles Wholesale Produce Market (Terminal Market), located in
Los Angeles, California. Such joint venture operates under the name of Maui Fresh International,
LLC (Maui Fresh LLC) and commenced operations in August 2006. SRD and Calavo each have an equal
one-half ownership interest in Maui Fresh, but SRD has overall management responsibility for the
operations of Maui Fresh at the Terminal Market. We use the equity method to account for this
investment.
Commencing on the first anniversary of this agreement and continuing thereafter during the
term of the agreement, Calavo has the unconditional right, but not the obligation, to purchase the
one-half interest in Maui Fresh owned by SRD at a purchase price to be determined pursuant to the
agreement. The term of the agreement is for five years, which may be extended, or terminated
early, as defined. As of October 31, 2010, we have no advances outstanding to Maui Fresh. As of
October 31, 2009, we have advanced Maui Fresh approximately $0.4 million (included in prepaid
expenses and other current assets) for working capital purposes. Per the agreement, these advances
were made at our own discretion and are expected to be paid back in cash.
In June 2009, we (through a newly created wholly owned subsidiary: Calavo Inversiones (Chile)
Limitada) entered into a joint venture agreement with Exportadora M5, S.A. (M5) for the purpose of
selling and distributing Chilean sourced avocados. Such joint venture operates under the name of
Calavo de Chile and commenced operations in July 2009. M5 and Calavo each have an equal
37
one-half ownership interest in Calavo de Chile, but M5 has overall management responsibility for
the operations of Calavo De Chile. We use the equity method to account for this investment.
Marketable Securities
Our marketable securities consist of our investment in Limoneira Company (Limoneira) stock.
We currently own approximately 15% of Limoneiras outstanding common stock. These securities are
carried at fair value as determined from quoted market prices. The estimated fair value, cost, and
gross unrealized gain related to such investment was $35.0 million, $23.5 million and $11.5 million
as of October 31, 2010. The estimated fair value, cost, and gross unrealized gain related to such
investment was $24.2 million, $23.5 million and $0.7 million as of October 31, 2009.
Advances to Suppliers
We advance funds to third-party growers primarily in Chile and Mexico for various farming
needs. Typically, we obtain collateral (i.e. fruit, fixed assets, etc.) that approximates the
value at risk, prior to making such advances. We continuously evaluate the ability of these
growers to repay advances in order to evaluate the possible need to record an allowance. No such
allowance was required at October 31, 2010, nor October 31, 2009.
In June 2007, we entered into a distribution agreement with Agricola Belher (Belher) of
Mexico, a producer of fresh vegetables, primarily tomatoes, for export to the U.S. market.
Pursuant to such distribution agreement, Belher agreed, at their sole cost and expense, to harvest,
pack, export, ship, and deliver tomatoes exclusively to our company, primarily our Arizona
facility. In exchange, we agreed to sell and distribute such tomatoes, advance $2 million to
Belher for operating purposes, provide additional advances as shipments are made during the season
(subject to limitations, as defined), and return the proceeds from such tomato sales to Belher, net
of our commission and aforementioned advances. The agreement also allows for us to advance
additional amounts to Belher at our sole discretion. As of October 31, 2010 and 2009, we have
advanced $1.0 million and $2.0 million to Belher pursuant to this agreement, which is recorded in
advances to suppliers.
Infrastructure Advances
We entered into an infrastructure agreement in June 2007 with Belher in order to significantly
increase production yields and fruit quality. Pursuant to this agreement, we advanced $2.4 million
and $4.2 million as of October 31, 2010 and 2009 ($1.2 million and $1.8 million included in prepaid
expenses and other current assets and $1.2 million and $2.4 million included in other long-term
assets). Belher is to annually repay these advances in no less than 20% increments through July
2012. Agricola Belher paid $1.8 million and $0.5 million in fiscal years 2010 and 2009 related to
infrastructure advances. For fiscal year 2010 and 2009, we have not made any infrastructure
advances to Agricola Belher. In addition, the agreement allows for additional $1.0 million
advances to take place during the last five months of each of our fiscal years 2009 and 2010, but
they are subject to certain conditions and are to be made at our sole discretion. Belher is to
annually repay these advances in full on or before each of July 2010 and July 2011. For fiscal
2010 and 2009, no additional advances were made to Belher. 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.
Accrued Expenses
Included in accrued expenses at October 31, 2010 are un-vouchered receipts and deferred
consideration of approximately $1.9 million and $1.5 million. Included in accrued expenses at
October 31, 2009 are un-vouchered receipts and deferred consideration of $2.0 million and $3.9
million.
Revenue Recognition
Sales of products and related costs of products sold are recognized when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or
determinable and (iv) collectability is reasonably assured. These terms are typically met upon
shipment of product to the customer. Service revenue, including freight, ripening, storage,
bagging and palletization charges, is recorded when services are performed and sales of the related
products are delivered.
Shipping and Handling
We include shipping and handling fees billed to customers in net revenues. Amounts incurred
by us for freight are included in cost of goods sold.
38
Promotional Allowances
We provide for promotional allowances at the time of sale, based on our historical experience.
Our estimates are generally based on evaluating the historical relationship between promotional
allowances and gross sales. The derived percentage is then applied to the current periods sales
revenues in order to arrive at the appropriate debit to sales allowances for the period. The
offsetting credit is made to accrued expenses. When certain amounts of specific customer accounts
are subsequently identified as promotional, they are written off against this allowance. Actual
amounts may differ from these estimates and such differences are recognized as an adjustment to net
sales in the period they are identified.
Allowance for Accounts Receivable
We provide an allowance for estimated uncollectible accounts receivable balances based on
historical experience and the aging of the related accounts receivable.
Consignment Arrangements
We frequently enter into consignment arrangements with avocado and tomato growers and packers
located outside of the United States and growers of certain perishable products in the United
States. Although we generally do not take legal title to these avocados and perishable products, we
do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and
limited pricing risk) that are consistent with acting as a principal in the transaction.
Accordingly, the accompanying financial statements include sales and cost of sales from the sale of
avocados and perishable products procured under consignment arrangements. Amounts recorded for
each of the fiscal years ended October 31, 2010, 2009 and 2008 in the financial statements pursuant
to consignment arrangements are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Sales
|
|
$
|
54,736
|
|
|
$
|
44,776
|
|
|
$
|
49,189
|
|
Cost of Sales
|
|
|
48,713
|
|
|
|
41,941
|
|
|
|
45,739
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
6,023
|
|
|
$
|
2,835
|
|
|
$
|
3,450
|
|
|
|
|
|
|
|
|
|
|
|
Advertising Expense
Advertising costs are expensed when incurred. Such costs in fiscal 2010, 2009, and 2008 were
approximately $0.1 million.
Other income, net
Included in other income, net is dividend income totaling $0.3 million, $0.2 million and $0.6
million for fiscal years 2010, 2009, and 2008.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Among the
significant estimates affecting the financial statements are those related to valuation allowances
for accounts receivable, goodwill, grower advances, inventories, long-lived assets, valuation of
and estimated useful lives of identifiable intangible assets, stock-based compensation, promotional
allowances and income taxes. On an ongoing basis, management reviews its estimates based upon
currently available information. Actual results could differ materially from those estimates.
Income Taxes
We account for deferred tax liabilities and assets for the future consequences of events that
have been recognized in our consolidated financial statements or tax returns. Measurement of the
deferred items is based on enacted tax laws. In the event the future consequences of differences
between financial reporting bases and tax bases of our assets and liabilities result in a deferred
tax asset, we perform an evaluation of the probability of being able to realize the future benefits
indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it
is more likely than not that some portion or all of the deferred tax asset will not be realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate settlement.
39
As a multinational corporation, we are subject to taxation in many jurisdictions, and the
calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that
the payment of these liabilities will be unnecessary, the liability will be reversed and we will
recognize a tax benefit during the period in which it is determined the liability no longer
applies. Conversely, we record additional tax charges in a period in which it is determined that a
recorded tax liability is less than the ultimate assessment is expected to be.
The application of tax laws and regulations is subject to legal and factual
interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to
change as a result of changes in fiscal policy, changes in legislation, the evolution of
regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be
materially different from managements estimates, which could result in the need to record
additional tax liabilities or potentially reverse previously recorded tax liabilities.
Basic and Diluted Net Income per Share
Basic earnings per share is calculated using the weighted-average number of common shares
outstanding during the period without consideration of the dilutive effect of stock options. The
basic weighted-average number of common shares outstanding was 14,610,000, 14,451,000, and
14,398,000 for fiscal years 2010, 2009, and 2008. Diluted earnings per common share is calculated
using the weighted-average number of common shares outstanding during the period after
consideration of the dilutive effect of stock options, which were 9,000, 52,000, and 83,000 for
fiscal years 2010, 2009 and 2008. There were no significant anti-dilutive options for fiscal years
2010, 2009 and 2008.
Stock-Based Compensation
We account for awards of equity instruments issued to employees under the fair value method of
accounting and recognize such amounts in their statements of operations. We measure compensation
cost for all stock-based awards at fair value on the date of grant and recognize compensation
expense in our consolidated statements of operations over the service period that the awards are
expected to vest.
The value of each option award that contains a market condition is estimated using a
lattice-based option valuation model, while all other option awards are valued using the
Black-Scholes-Merton option valuation model. We primarily consider the following assumptions when
using these models: (1) expected volatility, (2) expected dividends, (3) expected life and (4)
risk-free interest rate. Such models also consider the intrinsic value in the estimation of fair
value of the option award. Forfeitures are estimated when recognizing compensation expense, and
the estimate of forfeitures will be adjusted over the requisite service period to the extent that
actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated
forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and
will also impact the amount of compensation expense to be recognized in future periods.
We measure the fair value of our stock option awards on the date of grant. The following
assumptions were used in the estimated grant date fair value calculations for stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Risk-free interest rate
|
|
|
1.70
|
%
|
|
|
2.02
|
%
|
|
|
2.95
|
%
|
Expected volatility
|
|
|
47.37
|
%
|
|
|
67.95
|
%
|
|
|
28.24
|
%
|
Dividend yield
|
|
|
2.5
|
%
|
|
|
4.3
|
%
|
|
|
2.4
|
%
|
Expected life (years)
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
For the years ended October 31, 2010, 2009 and 2008, we recognized compensation expense of
$52,000, $44,000, and $24,000 related to stock-based compensation.
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.
The Black-Scholes-Merton and lattice-based option valuation models were developed for use in
estimating the fair value of traded options that have no vesting restrictions and are fully
transferable. Because options held by our directors and employees have characteristics
significantly different from those of traded options, in our opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of these options.
40
Foreign Currency Translation and Remeasurement
Our foreign operations are subject to exchange rate fluctuations and foreign currency
transaction costs. The functional currency of our foreign subsidiaries is the United States
dollar. As a result, monetary assets and liabilities are translated into U.S. dollars at exchange
rates as of the balance sheet date and non-monetary assets, liabilities and equity are translated
at historical rates. Sales and expenses are translated using a weighted-average exchange rate for
the period. Gains and losses resulting from those remeasurements are included in income. Gains
and losses resulting from foreign currency transactions are also recognized currently in income.
Total foreign currency losses for fiscal 2010, net of gains was $0.1 million. Total foreign
currency gains for fiscal 2009, and 2008, net of losses, was less than $0.1 million and $0.5
million.
Fair Value of Financial Instruments
We believe that the carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximates fair value based on either their short-term nature or on terms
currently available to the Company in financial markets. We believe that our fixed-rate long-term
obligations have a fair value of approximately $8.1 million as of October 31, 2010, with a
corresponding carrying value of approximately $7.5 million. In addition, our long-term borrowings
pursuant to credit facilities have a fair value and a corresponding carrying value of approximately
of $1.0 million.
Derivative Financial Instruments
Except as disclosed in Note 16, we were not a party to any derivative instruments during the
fiscal year 2010. It is currently our intent not to use derivative instruments for speculative or
trading purposes. Additionally, we do not use any hedging or forward contracts to offset market
volatility.
Recently Adopted Accounting Pronouncements
In April 2009, as amended in February 2010, we adopted accounting guidance for subsequent
events, which establishes general standards of accounting for, and disclosure of, events that occur
after the balance sheet date, but before financial statements are issued or are available to be
issued. In particular, this accounting guidance sets forth:
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|
|
The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements.
|
|
|
|
|
The circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements.
|
|
|
|
|
The disclosures that should be made about events or transactions that occurred after the
balance sheet date.
|
Our adoption of this accounting guidance did not have a material impact on our financial
position, results of operations or liquidity.
Effective the first quarter of fiscal 2010, we adopted, on a prospective basis, guidance
related to fair value measurements pertaining to nonfinancial assets and liabilities. The adoption
of this accounting guidance did not have a material impact on our financial position, results of
operations or liquidity.
Effective the first quarter of fiscal 2010, we adopted revised accounting guidance for
business combinations, which changed its previous accounting practices regarding business
combinations. The statement requires a number of changes, to be applied prospectively, to the
purchase method of accounting for acquisitions, including changes in the way assets and liabilities
are recognized in the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of in-process research
and development at fair value, and requires the expensing of acquisition-related costs as incurred.
The impact of this accounting guidance and its relevant updates on our results of operations or
financial position will vary depending on each specific business combination. See Note 16 for a
business combination we closed in February 2010.
Effective the first quarter of fiscal 2010, we adopted revised accounting guidance for the
determination of the useful life of intangible assets. This accounting guidance amends the factors
that should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. This change is intended to improve the consistency
between the useful life of a recognized intangible asset and the period of expected cash flows used
to measure the fair value of the asset. The requirement for determining useful lives must be
applied prospectively to intangible assets acquired after the effective date and the disclosure
requirements must be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date. Our adoption of this guidance did not have a material impact on
its financial position, results of operations or liquidity.
41
Effective the first quarter of fiscal 2010, we adopted revised accounting guidance for
measuring liabilities at fair value. This accounting guidance provides clarification that in
circumstances in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more of the following
methods: 1) a valuation technique that uses a) the quoted price of the identical liability when
traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded
as assets and/or 2) a valuation technique that is consistent with the principles of the accounting
guidance for fair value measurements and disclosures. This guidance also clarifies that when
estimating the fair value of a liability, a reporting entity is not required to adjust to include
inputs relating to the existence of transfer restrictions on that liability. Our adoption of this
accounting guidance did not have a material impact on our financial position, results of operations
or liquidity.
Effective the first quarter of fiscal 2010, we adopted revised accounting guidance related to
the accounting and reporting for minority interests. Minority interests are now re-characterized
as noncontrolling interests and in most cases are reported as a component of equity separate from
the parents equity, and purchases or sales of equity interests that do not result in a change in
control will be accounted for as equity transactions. In addition, net income attributable to the
noncontrolling interest is now included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any interest retained, will be
recorded at fair value with any gain or loss recognized in earnings. See Note 16 for a business
combination we closed in February 2010.
Recently Issued Accounting Standards
In June 2009, the FASB issued revised guidance for the accounting of transfers of financial
assets. This guidance is intended to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial statements about
a transfer of financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferors continuing involvement, if any, in transferred
financial assets. This accounting guidance will be effective for financial statements issued for
fiscal years beginning after November 15, 2009, and interim periods within those fiscal years.
Early adoption is not permitted. We do not believe that adoption of this guidance will have a
material impact on our financial position and results of operations.
In June 2009, the FASB issued revised guidance for the accounting of variable interest
entities, which replaces the quantitative-based risks and rewards approach with a qualitative
approach that focuses on identifying which enterprise has the power to direct the activities of a
variable interest entity that most significantly impact the entitys economic performance. This
accounting guidance also requires an ongoing reassessment of whether an entity is the primary
beneficiary and requires additional disclosures about an enterprises involvement in variable
interest entities. This accounting guidance will be effective for financial statements issued for
fiscal years beginning after November 15, 2009, and interim periods within those fiscal years.
Early adoption is not permitted. We do not believe that adoption of this guidance will have a
material impact on our financial position and results of operations.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as all changes in a companys net assets, except
changes resulting from transactions with shareholders. For the fiscal year ended October 31, 2010,
other comprehensive income includes the unrealized gain on our
Limoneira investment totaling $6.5 million, net of income taxes. Limoneiras stock price at October 31, 2010 equaled $20.24 per
share, after a 10 for 1 stock split in the second quarter of fiscal year 2010. For the fiscal year
ended October 31, 2009, other comprehensive loss includes the unrealized loss on our Limoneira
investment totaling $3.5 million, net of income taxes. Limoneiras stock price at October 31, 2009
equaled $14.00 per share (adjusted for the above mentioned stock split). For the fiscal year ended
October 31, 2008, other comprehensive loss includes the unrealized loss on our Limoneira investment
totaling $11.7 million, net of income taxes. Limoneiras stock price at October 31, 2008 equaled
$17.30 per share (adjusted for the above mentioned stock split).
Reclassifications
Certain items in the prior period financial statements have been reclassified to conform to
the current period presentation.
42
3. Inventories
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
Fresh fruit
|
|
$
|
8,630
|
|
|
$
|
4,495
|
|
Packing supplies and ingredients
|
|
|
3,069
|
|
|
|
2,652
|
|
Finished processed foods
|
|
|
3,132
|
|
|
|
4,584
|
|
|
|
|
|
|
|
|
|
|
$
|
14,831
|
|
|
$
|
11,731
|
|
|
|
|
|
|
|
|
We did not record any lower of cost or market adjustments during fiscal years 2010 and 2009.
We assess the recoverability of inventories through an ongoing review of inventory levels in
relation to sales and forecasts and product marketing plans. When the inventory on hand, at the
time of the review, exceeds the foreseeable demand, the value of inventory that is not expected to
be sold is written down. The amount of the write-down is the excess of historical cost over
estimated realizable value (generally zero). Once established, these write-downs are considered
permanent adjustments to the cost basis of the excess inventory.
The assessment of the recoverability of inventories and the amounts of any write-downs are
based on currently available information and assumptions about future demand and market conditions.
Demand for processed avocado products may fluctuate significantly over time, and actual demand and
market conditions may be more or less favorable than our projections. In the event that actual
demand is lower than originally projected, additional inventory write-downs may be required.
We may retain and make available for sale some or all of the inventories which have been
written down. In the event that actual demand is higher than originally projected, we may be able
to sell a portion of these inventories in the future. We generally scrap inventories which have
been written down and are identified as obsolete.
4. Property, Plant, and Equipment
Property, plant, and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
Land
|
|
$
|
7,023
|
|
|
$
|
6,923
|
|
Buildings and improvements
|
|
|
18,039
|
|
|
|
17,694
|
|
Leasehold improvements
|
|
|
1,104
|
|
|
|
828
|
|
Equipment
|
|
|
48,725
|
|
|
|
45,812
|
|
Information systems Hardware and software
|
|
|
5,175
|
|
|
|
5,209
|
|
Construction in progress
|
|
|
2,265
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
82,331
|
|
|
|
77,114
|
|
Less accumulated depreciation and amortization
|
|
|
(41,272
|
)
|
|
|
(38,493
|
)
|
|
|
|
|
|
|
|
|
|
$
|
41,059
|
|
|
$
|
38,621
|
|
|
|
|
|
|
|
|
Depreciation expense was $2.8 million, $2.6 million and $2.1 million for fiscal years 2010,
2009, and 2008, of which $0.1 million was related to depreciation on capital leases for fiscal
years 2010, 2009, and 2008.
We capitalize software development costs for internal use beginning in the application
development stage and ending when the asset is placed into service. We amortize such costs using
the straight-line basis over estimated useful lives. In fiscal year 2010, we have begun the
conversion to a new accounting software system. The net book value of capitalized computer
software costs was $2.0 million and $0.4 million as of October 31, 2010 and 2009 and the related
depreciation expense was $0.1 million for the fiscal years ended October 31, 2010 and 2009.
43
5. Other Assets
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
Grower advances
|
|
$
|
1,827
|
|
|
$
|
2,123
|
|
Intangibles, net
|
|
|
2,872
|
|
|
|
1,205
|
|
Loan to Agricola Belher
|
|
|
1,225
|
|
|
|
2,450
|
|
Other
|
|
|
316
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
$
|
6,240
|
|
|
$
|
6,076
|
|
|
|
|
|
|
|
|
At October 31, 2010, other assets in the accompanying consolidated financial statements
included the following intangible assets: customer list, trade name and non-competition agreements
of $2.2 million (accumulated amortization of $1.1 million), brand name intangibles of $0.3 million,
trade secrets of $1.4 million (accumulated amortization of $0.1 million) and a customer list of
$0.2 million. The customer-related, trade name and non-competition agreements are being amortized
over periods up to 10 years, the trade secrets are being amortized over 13 years and the customer
list is being amortized over 7 years. The intangible asset related to the brand name currently has
an indefinite life and, as a result, is not currently subject to amortization. We recorded
amortization expense of approximately $291,000, $171,000, and $247,000 for fiscal years 2010, 2009,
and 2008. We anticipate recording amortization expense of approximately $318,000 of amortization
expense for fiscal year 2011 and $305,000 of amortization expense for fiscal years 2012 through
2015. The remainder of approximately $1,058,000 will be amortized over fiscal years 2016 through
2023.
6. Revolving Credit Facilities
In July 2009 and May 2008, we renewed and/or extended our non-collateralized, revolving credit
facilities with Bank of America, N.A. and Farm Credit West, PCA. These two credit facilities
expire in July 2011 and February 2012. Under the terms of these agreements, we are advanced funds
for working capital, the purchase and installation of capital items, and/or other corporate needs
of the Company. In July 2009, our credit available under these combined borrowing agreements was
increased from $40 million to $45 million, with a weighted-average interest rate of 2.3% at October
31, 2010 and 2.4% at October 31, 2009. Under these credit facilities, we had $8.2 million and
$12.0 million outstanding at October 31, 2010 and 2009, of which $6.5 million was classified as a
long-term liability as October 31, 2009. These credit facilities contain various financial
covenants, the most significant relating to 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 October 31, 2010.
7. Employee Benefit Plans
We sponsor two defined contribution retirement plans for salaried and hourly employees.
Expenses for these plans approximated $639,000, $557,000, and $604,000 for fiscal years 2010, 2009
and 2008, which are included in selling, general and administrative expenses in the accompanying
financial statements.
We also sponsor a non-qualified defined benefit plan for two retired executives. Pension
expenses, including actuarial losses, approximated $34,000 and $48,000 for the year ended October
31, 2010, and 2009. Pension income, including actuarial gains approximated $36,000 for the years
ended October 31, 2008. These amounts are included in selling, general and administrative expenses
in the accompanying financial statements.
Components of the change in projected benefit obligation for fiscal year ends consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
283
|
|
|
$
|
279
|
|
Interest cost
|
|
|
16
|
|
|
|
18
|
|
Actuarial loss
|
|
|
18
|
|
|
|
30
|
|
Benefits paid
|
|
|
(42
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year (unfunded)
|
|
$
|
275
|
|
|
$
|
283
|
|
|
|
|
|
|
|
|
44
The following is a reconciliation of the unfunded status of the plans at fiscal year ends
included in accrued expenses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Projected benefit obligation
|
|
$
|
275
|
|
|
$
|
283
|
|
Unrecognized net (gain) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded pension liabilities
|
|
$
|
275
|
|
|
$
|
283
|
|
|
|
|
|
|
|
|
Significant assumptions used in the determination of pension expense consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Discount rate on projected benefit obligation
|
|
|
5.00
|
%
|
|
|
5.25
|
%
|
8. Commitments and Contingencies
Commitments and guarantees
We lease facilities and certain equipment under non cancelable operating leases expiring at
various dates through 2021. We are committed to make minimum cash payments under these agreements
as of October 31, 2010 as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
1,480
|
|
2012
|
|
|
1,378
|
|
2013
|
|
|
1,365
|
|
2014
|
|
|
1,297
|
|
2015
|
|
|
1,216
|
|
Thereafter
|
|
|
4,756
|
|
|
|
|
|
|
|
$
|
11,492
|
|
|
|
|
|
Total rent expense amounted to approximately $1.7 million, $1.8 million and $1.7 million for
the years ended October 31, 2010, 2009, and 2008. Rent to Limoneira, for our corporate office,
amounted to approximately $0.2 million for fiscal years 2010, 2009, and 2008. We are committed to
rent our corporate facility through fiscal 2015 at an annual rental of $0.2 million per annum
(subject to annual CPI increases, as defined).
We indemnify our directors and officers and have the power to indemnify each of our employees
and other agents, to the maximum extent permitted by applicable law. The maximum amount of
potential future payments under such indemnifications is not determinable. No amounts have been
accrued in the accompanying financial statements related to these indemnifications.
In February 2009, we ceased operating in our distribution center in San Antonio, Texas and
transferred our operations to our newly leased facility location in Garland, Texas. The term of the
operating lease for the new facility is for 10 years, with two five year options to extend at our
choice. Total rent expense amounted to approximately $0.6 million and $0.5 million for the years
ended October 31, 2010 and 2009.
Litigation
Hacienda Suits
We are currently under examination by the Mexican tax authorities (Hacienda)
for the tax year ended December 31, 2000. We have received an assessment totaling approximately
$2.0 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, which we
declined. In the second quarter of 2009, we won our appeal case. The Hacienda subsequently
appealed that decision and the case was sent back to the tax court due to administrative error by
such jurisdiction. During the second quarter of 2010, we once again won our appeal and, once
again, the Hacienda appealed the decision and the case has been sent back to the tax court. We do
not believe that the resolution of this examination will have a significant impact on our results
of operations.
We are currently under examination by the Mexican tax authorities (Hacienda) for the tax year
ended December 31, 2004. We have received an assessment totaling approximately $4.5 million from
Hacienda related to the amount of income at our Mexican subsidiary, which primarily is related to
three issues, one of which represents the majority of the total assessment (the primary
assessment). In the fourth quarter of 2010, we received a favorable ruling from the tax court
related to the primary assessment, but received an unfavorable ruling related to the remaining issues. We appealed the unfavorable
rulings, which we believe are without merit. We do not believe that the resolution of this
examination will have a significant impact on our results of operations.
45
In the second quarter of 2009, the Hacienda initiated an examination related to tax year
ended December 31, 2007 as well. We are not aware of any assessments related to this examination,
nor do we expect this examination to have a significant impact on our results of operations.
In the first quarter of 2011, we received an assessment totaling approximately $720,000
related to tax year ended December 31, 2005. This assessment relates to depreciation expense taken
on such tax return. Based on discussions with legal counsel, we believe that the Haciendas
position is without merit and do not believe that the resolution of this examination will have a
significant impact on our results of operations.
We pledged our CalavoFoods building located in Uruapan, Michoacan, Mexico as collateral to the
Hacienda in regards to these assessments.
From time to time, we are also involved in litigation arising in the ordinary course of our
business that we do not believe will have a material adverse impact on our financial statements.
9. Related-Party Transactions
We sell papayas obtained from an entity previously owned by our Chairman of the Board of
Directors, Chief Executive Officer and President. On May 30, 2008, we acquired all of the
outstanding shares of this entity. Sales of papayas through the acquisition date amounted to
approximately $4,383,000, resulting in gross margins of approximately $323,000.
Certain members of our Board of Directors market avocados through Calavo pursuant to our
customary marketing agreements. During the years ended October 31, 2010, 2009 and 2008, the
aggregate amount of avocados procured from entities owned or controlled by members of our Board of
Directors, was $23.9 million, $7.2 million, and $11.9 million. Accounts payable to these Board
members was $1.3 million as of October 31, 2010. We did not have an accounts payable balance to
these Board member as of October 31, 2009.
During fiscal 2010, 2009 and 2008, we received $0.2 million, $0.1 million, and $0.6 million as
dividend income from Limoneira.
10. Income Taxes
The income tax provision consists of the following for the years ended October 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7,988
|
|
|
$
|
6,305
|
|
|
$
|
2,639
|
|
State
|
|
|
1,868
|
|
|
|
1,522
|
|
|
|
615
|
|
Foreign
|
|
|
153
|
|
|
|
160
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
10,009
|
|
|
|
7,987
|
|
|
|
3,505
|
|
Deferred
|
|
|
1,332
|
|
|
|
290
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
11,341
|
|
|
$
|
8,277
|
|
|
$
|
4,567
|
|
|
|
|
|
|
|
|
|
|
|
At October 31, 2010 and 2009, gross deferred tax assets totaled approximately $3.0 million and
$3.0 million, while gross deferred tax liabilities totaled approximately $9.0 million and $3.3
million. Deferred income taxes reflect the net of temporary differences between the carrying
amount of assets and liabilities for financial reporting and income tax purposes.
Significant components of our deferred taxes assets (liabilities) as of October 31, 2010 and
2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Allowances for accounts receivable
|
|
$
|
609
|
|
|
$
|
1,568
|
|
Inventories
|
|
|
662
|
|
|
|
283
|
|
State taxes
|
|
|
470
|
|
|
|
342
|
|
Intangible assets
|
|
|
|
|
|
|
73
|
|
Accrued liabilities
|
|
|
595
|
|
|
|
462
|
|
|
|
|
|
|
|
|
Current deferred income taxes
|
|
$
|
2,336
|
|
|
$
|
2,728
|
|
|
|
|
|
|
|
|
Property, plant, and equipment
|
|
|
(3,775
|
)
|
|
|
(2,732
|
)
|
Intangible assets
|
|
|
(76
|
)
|
|
|
(178
|
)
|
Unrealized gain, Limoneira investment
|
|
|
(4,586
|
)
|
|
|
(292
|
)
|
Retirement benefits
|
|
|
|
|
|
|
(83
|
)
|
Stock-based compensation
|
|
|
125
|
|
|
|
250
|
|
Other
|
|
|
46
|
|
|
|
3
|
|
|
|
|
|
|
|
|
Long-term deferred income taxes
|
|
$
|
(8,266
|
)
|
|
$
|
(3,032
|
)
|
|
|
|
|
|
|
|
46
A reconciliation of the significant differences between the federal statutory income tax rate
and the effective income tax rate on pretax income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal effects
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
4.3
|
|
Foreign income taxes greater (less) than U.S.
|
|
|
(0.9
|
)
|
|
|
(1.1
|
)
|
|
|
(1.2
|
)
|
Benefit of lower federal tax brackets
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
Other
|
|
|
0.2
|
|
|
|
(1.0
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.1
|
%
|
|
|
37.8
|
%
|
|
|
37.2
|
%
|
|
|
|
|
|
|
|
|
|
|
We intend to reinvest our accumulated foreign earnings, which approximated $6.2 million at
October 31, 2010, indefinitely. As a result, we have not provided any deferred income taxes on
such unremitted earnings. For fiscal years 2010, 2009 and 2008, income before income taxes related
to domestic operations was approximately $28.3 million, $21.0 million, and $10.9 million. For
fiscal years 2010, 2009 and 2008, income before income taxes related to foreign operations was
approximately $0.7 million, $0.9 million and $1.4 million.
As of October 31, 2010 and 2009, we provided a liability of $0.1 million for unrecognized tax
benefits related to various federal and state income tax matters. The tax effected amount would
reduce our effective income tax rate if recognized.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows
(in thousands):
|
|
|
|
|
Balance at November 1, 2008
|
|
$
|
107
|
|
Additions for tax positions of prior years
|
|
|
(4
|
)
|
|
|
|
|
Balance at October 31, 2009
|
|
|
103
|
|
Balance at October 31, 2010
|
|
$
|
103
|
|
|
|
|
|
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax
expense. For fiscal 2010 and 2009, we did not record any significant accrued interest and
penalties. We do not expect any unrecognized tax benefits to reverse in fiscal 2011.
We are subject to U.S. federal income tax as well as income of multiple state tax
jurisdictions. We are no longer subject to U.S. income tax examinations for the fiscal years prior
to fiscal year October 31, 2007, and are no longer subject to state income tax examinations for
years prior to October 31, 2006.
11. Segment Information
During the second quarter of fiscal 2010, we renamed our processed products business segment
to CalavoFoods. Such name was changed to better describe the segment. As such, we now report
our operations in two different business segments: Fresh products and CalavoFoods. 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 CalavoFoods segment represents
all operations related to the purchase, manufacturing, and distribution of processed avocado
products. Additionally, selling, general and administrative expenses and non-operating line items
are not charged directly, nor allocated to, a specific product line. These items are now evaluated
by our president only in aggregate. We do not allocate assets, or specifically identify them to,
our operating segments.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
|
|
(All amounts are presented in thousands)
|
|
Year ended October 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
348,052
|
|
|
$
|
50,299
|
|
|
$
|
398,351
|
|
Cost of sales
|
|
|
309,609
|
|
|
|
37,212
|
|
|
|
346,821
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
38,443
|
|
|
$
|
13,087
|
|
|
$
|
51,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
300,235
|
|
|
$
|
44,530
|
|
|
$
|
344,765
|
|
Cost of sales
|
|
|
271,159
|
|
|
|
29,073
|
|
|
|
300,232
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
29,076
|
|
|
$
|
15,457
|
|
|
$
|
44,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
315,667
|
|
|
$
|
45,807
|
|
|
$
|
361,474
|
|
Cost of sales
|
|
|
293,444
|
|
|
|
34,849
|
|
|
|
328,293
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
22,223
|
|
|
$
|
10,958
|
|
|
$
|
33,181
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal years 2010, 2009 and 2008, inter-segment sales and cost of sales of $21.1 million, $21.9
million, and $23.5 million were eliminated in consolidation.
The following table sets forth sales by product category, by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2010
|
|
|
Year ended October 31, 2009
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
Third-party sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avocados
|
|
$
|
287,808
|
|
|
$
|
|
|
|
$
|
287,808
|
|
|
$
|
259,558
|
|
|
$
|
|
|
|
$
|
259,558
|
|
Tomatoes
|
|
|
41,595
|
|
|
|
|
|
|
|
41,595
|
|
|
|
14,067
|
|
|
|
|
|
|
|
14,067
|
|
Papayas
|
|
|
11,278
|
|
|
|
|
|
|
|
11,278
|
|
|
|
9,118
|
|
|
|
|
|
|
|
9,118
|
|
Pineapples
|
|
|
3,838
|
|
|
|
|
|
|
|
3,838
|
|
|
|
13,341
|
|
|
|
|
|
|
|
13,341
|
|
Other Fresh products
|
|
|
3,617
|
|
|
|
|
|
|
|
3,617
|
|
|
|
4,219
|
|
|
|
|
|
|
|
4,219
|
|
CalavoFoods food service
|
|
|
|
|
|
|
40,654
|
|
|
|
40,654
|
|
|
|
|
|
|
|
36,493
|
|
|
|
36,493
|
|
CalavoFoods retail and club
|
|
|
|
|
|
|
17,473
|
|
|
|
17,473
|
|
|
|
|
|
|
|
15,554
|
|
|
|
15,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross sales
|
|
|
348,136
|
|
|
|
58,127
|
|
|
|
406,263
|
|
|
|
300,303
|
|
|
|
52,047
|
|
|
|
352,350
|
|
Less sales incentives
|
|
|
(84
|
)
|
|
|
(7,828
|
)
|
|
|
(7,912
|
)
|
|
|
(68
|
)
|
|
|
(7,517
|
)
|
|
|
(7,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
348,052
|
|
|
$
|
50,299
|
|
|
$
|
398,351
|
|
|
$
|
300,235
|
|
|
$
|
44,530
|
|
|
$
|
344,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2009
|
|
|
Year ended October 31, 2008
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
Fresh
|
|
|
Calavo-
|
|
|
|
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
|
products
|
|
|
Foods
|
|
|
Total
|
|
Third-party sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avocados
|
|
$
|
259,558
|
|
|
$
|
|
|
|
$
|
259,558
|
|
|
$
|
268,674
|
|
|
$
|
|
|
|
$
|
268,674
|
|
Tomatoes
|
|
|
14,067
|
|
|
|
|
|
|
|
14,067
|
|
|
|
19,666
|
|
|
|
|
|
|
|
19,666
|
|
Papayas
|
|
|
9,118
|
|
|
|
|
|
|
|
9,118
|
|
|
|
8,392
|
|
|
|
|
|
|
|
8,392
|
|
Pineapples
|
|
|
13,341
|
|
|
|
|
|
|
|
13,341
|
|
|
|
16,442
|
|
|
|
|
|
|
|
16,442
|
|
Other Fresh products
|
|
|
4,219
|
|
|
|
|
|
|
|
4,219
|
|
|
|
2,564
|
|
|
|
|
|
|
|
2,564
|
|
CalavoFoods food service
|
|
|
|
|
|
|
36,493
|
|
|
|
36,493
|
|
|
|
|
|
|
|
38,919
|
|
|
|
38,919
|
|
CalavoFoods retail and club
|
|
|
|
|
|
|
15,554
|
|
|
|
15,554
|
|
|
|
|
|
|
|
14,634
|
|
|
|
14,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross sales
|
|
|
300,303
|
|
|
|
52,047
|
|
|
|
352,350
|
|
|
|
315,738
|
|
|
|
53,553
|
|
|
|
369,291
|
|
Less sales incentives
|
|
|
(68
|
)
|
|
|
(7,517
|
)
|
|
|
(7,585
|
)
|
|
|
(71
|
)
|
|
|
(7,746
|
)
|
|
|
(7,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
300,235
|
|
|
$
|
44,530
|
|
|
$
|
344,765
|
|
|
$
|
315,667
|
|
|
$
|
45,807
|
|
|
$
|
361,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal years 2010, 2009, and 2008, inter-segment sales and cost of sales for Fresh
products totaling $11.7 million, $14.1 million and $13.9 million were eliminated. For fiscal years
2010, 2009, and 2008, inter-segment sales and cost of sales for CalavoFoods totaling $9.4 million
$7.8 million, and $9.6 million were eliminated.
Sales to customers outside the United States were approximately $24.3 million, $16.3 million
and $27.3 million for fiscal years 2010, 2009, and 2008.
Long-lived assets attributed to geographic areas as of October 31 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Mexico
|
|
Consolidated
|
2010
|
|
$
|
24,816
|
|
|
$
|
16,243
|
|
|
$
|
41,059
|
|
2009
|
|
$
|
22,748
|
|
|
$
|
15,873
|
|
|
$
|
38,621
|
|
48
12. Long-Term Obligations
Long-term obligations at fiscal year ends consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Farm Credit West, PCA, term loan, bearing interest at 5.7%
|
|
$
|
6,500
|
|
|
$
|
7,800
|
|
Farm Credit West, PCA, long-term portion of revolving credit facility (Note 6)
|
|
|
|
|
|
|
6,450
|
|
Capital Lease, bearing interest at 4.3% at October 31, 2010 and 2009
|
|
|
958
|
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
|
|
7,458
|
|
|
|
15,274
|
|
Less current portion
|
|
|
(1,369
|
)
|
|
|
(1,366
|
)
|
|
|
|
|
|
|
|
|
|
$
|
6,089
|
|
|
$
|
13,908
|
|
|
|
|
|
|
|
|
In July 2005, we entered into a non-collateralized term loan agreement with Farm Credit West,
PCA to finance the purchase of our Limoneira Stock. Pursuant to such agreement, we borrowed $13.0
million, which is to be repaid in 10 annual installments of $1.3 million. Such annual installments
began July 2006 and continue through July 2015. Interest is paid monthly, in arrears, and began in
August 2005, and will continue through the life of the loan. Such loan bears interest at a fixed
rate of 5.70%.
Such term loan contains various financial covenants, the most significant relating to 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 October 31, 2010.
At October 31, 2010, annual debt payments are scheduled as follows (in thousands):
|
|
|
|
|
|
|
Total
|
|
Year ending October 31:
|
|
|
|
|
2011
|
|
$
|
1,369
|
|
2012
|
|
|
1,373
|
|
2013
|
|
|
1,376
|
|
2014
|
|
|
1,380
|
|
2015
|
|
|
1,383
|
|
Thereafter
|
|
|
577
|
|
|
|
|
|
|
|
$
|
7,458
|
|
|
|
|
|
13. Stock-Based Compensation
The Directors Stock Option Plan
Participation in the directors stock option plan, which was approved by our Board of
Directors in 2001, was limited to members of our Board of Directors. The plan made available to
the Board of Directors the right to grant options to purchase up to 3,000,000 shares of common
stock. In connection with the adoption of the plan, the Board of Directors approved an award of
fully vested options to purchase 1,240,000 shares of common stock at an exercise price of $5.00 per
share.
A summary of stock option activity is as follows (in thousands, except for share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
Outstanding at October 31, 2007
|
|
|
49
|
|
|
$
|
7.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(25
|
)
|
|
$
|
7.00
|
|
Forfeited
|
|
|
(24
|
)
|
|
$
|
7.00
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We terminated this plan during fiscal 2007 and no options remain outstanding as of October 31,
2008.
The Employee Stock Purchase Plan
The employee stock purchase plan was approved by our Board of Directors and shareholders.
Participation in the employee stock purchase plan is limited to employees. The plan provides the
Board of Directors, or a plan administrator, the right to make available up to 2,000,000 shares of
common stock at a price not less than fair market value. In March 2002, the Board of Directors
awarded selected employees the opportunity to purchase up to 474,000 shares of common stock at
$7.00 per share, the closing price of our common stock on the date prior to the grant. The plan
also permits us to advance all or some of the purchase price of the purchased stock to the employee
upon the execution of a full-recourse note at prevailing interest rates. These awards expired in
April 2002, with
49
84
|
|
participating employees electing to purchase approximately 279,000 shares. There was
no activity related to such plan since this award.
|
The 2005 Stock Incentive Plan
The 2005 Stock Incentive Plan of Calavo Growers, Inc. (the 2005 Plan) was approved by our
Board of Directors and shareholders. The 2005 Plan authorizes the granting of the following types
of awards to persons who are employees, officers, consultants, advisors, or directors of Calavo
Growers, Inc. or any of its affiliates:
|
|
Incentive stock options that are intended to satisfy the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder;
|
|
|
|
Non-qualified stock options that are not intended to be incentive stock options; and
|
|
|
|
Shares of common stock that are subject to specified restrictions
|
Subject to the adjustment provisions of the 2005 Plan that are applicable in the event of a
stock dividend, stock split, reverse stock split or similar transaction, up to 2,500,000 shares of
common stock may be issued under the 2005 Plan and no person shall be granted awards under the 2005
Plan during any 12-month period that cover more than 500,000 shares of common stock.
In December 2006, our Board of Directors approved the issuance of options to acquire a total
of 20,000 shares of our common stock to two members of our Board of Directors. Each grant to
acquire 10,000 shares vests in increments of 2,000 per annum over a five-year period and has an
exercise price of $10.46 per share. Vested options have a term of five years from the vesting
date. The market price of our common stock at the grant date was $10.46. The estimated fair
market value of such option grant was approximately $40,000. The total compensation cost not yet
recognized as of October 31, 2010 was not significant.
In May 2008, our Board of Directors approved the issuance of options to acquire a total of
58,000 shares of our common stock to three members of our Board of Directors. Each grant vests in
equal increments over a five-year period and has an exercise price of $14.58 per share. Vested
options have a term of five years from the vesting date. The market price of our common stock at
the grant date was $14.58. The estimated fair market value of such option grants were
approximately $184,000. The total compensation cost not yet recognized as of October 31, 2010 was
approximately $95,000, which will be recognized over the remaining service period of 31 months
In December 2008, our Board of Directors approved the issuance of options to acquire a total
of 10,000 shares of our common stock to one member of our Board of Directors. Such grant vests in
equal increments over a five-year period and has an exercise price of $8.05 per share. Vested
options have a term of five years from the vesting date. The market price of our common stock at
the grant date was $8.05. The estimated fair market value of such option grant was approximately
$37,000. The total compensation cost not yet recognized as of October 31, 2010 was approximately
$23,000, which will be recognized over the remaining service period of 37 months.
In August 2010, our Board of Directors approved the issuance of options to acquire a total of
10,000 shares of our common stock to one member of our Board of Directors. Such grant vests in
equal increments over a five-year period and has an exercise price of $19.20 per share. Vested
options have a term of five years from the vesting date. The market price of our common stock at
the grant date was $19.20. The estimated fair market value of such option grant was approximately
$64,000. The total compensation cost not yet recognized as of October 31, 2010 was approximately
$60,000, which will be recognized over the remaining service period of 57 months.
A summary of stock option activity is as follows (in thousands, except for share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Fair-Value
|
|
|
Intrinsic Value
|
|
Outstanding at October 31, 2007
|
|
|
333
|
|
|
$
|
9.18
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
58
|
|
|
$
|
14.58
|
|
|
$3.18/share
|
|
|
|
|
Forfeited
|
|
|
(8
|
)
|
|
$
|
10.46
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(23
|
)
|
|
$
|
9.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2008
|
|
|
360
|
|
|
$
|
10.02
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
10
|
|
|
$
|
8.05
|
|
|
$3.67/share
|
|
|
|
|
Exercised
|
|
|
(86
|
)
|
|
$
|
9.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2009
|
|
|
284
|
|
|
$
|
10.23
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
10
|
|
|
$
|
19.20
|
|
|
$6.36/share
|
|
|
|
|
Exercised
|
|
|
(207
|
)
|
|
$
|
9.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2010
|
|
|
87
|
|
|
$
|
13.89
|
|
|
|
|
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at October 31, 2010
|
|
|
28
|
|
|
$
|
13.53
|
|
|
|
|
|
|
$
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
The weighted average remaining life of such outstanding options is 5.7 years and the total
intrinsic value of options exercised during fiscal 2010 was $2.6 million. The fair value of shares
vested during the year ended October 31, 2010 and 2009 was approximately $0.7 million and $0.2
million. The fair value of shares vested during the year ended October 31, 2008 was not
significant.
14. Dividends
On December 13, 2010, we paid a $0.55 per share dividend in the aggregate amount of $8,092,000
to shareholders of record on December 1, 2010. On December 11, 2009, we paid a $0.50 per share
dividend in the aggregate amount of $7,252,000 to shareholders of record on December 1, 2009.
15. Fair value measurements
A fair value measurement is determined based on the assumptions that a market participant
would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between
market participant assumptions based on (i) observable inputs such as quoted prices in active
markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable
either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to
use present value and other valuation techniques in the determination of fair value
(Level 3).
The following table sets forth our financial assets (there are no liabilities requiring
disclosure) as of October 31, 2010 that are measured on a recurring basis during the period,
segregated by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(All amounts are pres
e
nted in thousands)
|
|
|
|
|
|
Assets at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Limoneira Company
(1)
|
|
$
|
34,986
|
|
|
|
|
|
|
|
|
|
|
$
|
34,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
34,986
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
34,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The investment in Limoneira Company consists of marketable securities in the
Limoneira Company stock. We currently own approximately 15% of Limoneiras outstanding
common stock. These securities are measured at fair value by quoted market prices.
Limoneiras stock price at October 31, 2010 and October 31, 2009 equaled $20.24 per share
and $14.00 per share (adjusted for a 10 to 1 stock split). Unrealized gain and losses
are recognized through other comprehensive income. Unrealized investment holding gains
arising during the year ended October 31, 2010 was $10.8 million. Unrealized investment
holding losses arising during the year ended October 31, 2009 was $5.7 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(All amounts are pres
e
nted in thousands)
|
|
|
|
|
|
Liabilities at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salsa Lisa contingent consideration
(2)
|
|
|
|
|
|
|
|
|
|
$
|
1,521
|
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,521
|
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
See Note 16 for further discussion.
|
16. Business Acquisition
On February 8, 2010, Calavo Growers, Inc. (Calavo), Calavo Salsa Lisa, LLC (Calavo Salsa
Lisa), Lisas Salsa Company (LSC) and Elizabeth Nicholson and Eric Nicholson, entered into an
Asset Purchase and Contribution Agreement, dated February 8, 2010 (the Acquisition Agreement),
which sets forth the terms and conditions pursuant to which Calavo acquired a 65 percent ownership
interest in newly created Calavo Salsa Lisa which acquired substantially all of the assets of LSC.
Elizabeth Nicholson and Eric Nicholson, through LSC, hold the remaining 35 percent ownership of
Calavo Salsa Lisa. LSC is a regional producer in the upper Midwest United States of Salsa Lisa
refrigerated salsas. We believe that this new line of salsas will further diversify our product
offerings and will be a natural complement to our ultra-high-pressure guacamole, as well as our
recently introduced Calavo tortilla chips.
The Acquisition Agreement provided that, among other things, Calavo make a payment totaling
$100,000 for the 65 percent interest, as well a $300,000 payment representing a loan to be repaid
from Calavo Salsa Lisa to Calavo. Calavo made these initial payments on February 8, 2010.
51
The purchase price can increase, subject to earn-out payments. These earn-out payments are
based on net annual sales (as defined) achievements, through fiscal year October 31, 2016, which
are as follows:
|
|
|
|
|
|
|
Then Earn-out
|
|
Net Sales of:
|
|
Payment shall be:
|
|
$30,000,000
|
|
$
|
1,000,000
|
|
$40,000,000
|
|
$
|
1,000,000
|
|
$50,000,000
|
|
$
|
1,000,000
|
|
|
|
|
|
Maximum earn-out payment possible
|
|
$
|
3,000,000
|
|
More than one of the earn-out payments may be earned in a particular fiscal year through
October 31, 2016, but in no event shall more than an aggregate of $3,000,000 in earn-out payments
be made.
Concurrently with the execution of the Acquisition Agreement, Calavo, Calavo Salsa Lisa, LSC
and Elizabeth Nicholson and Eric Nicholson entered into an Amended and Restated Limited Liability
Company Agreement. Among other things, such agreement calls for the establishment and maintenance
of capital accounts, how profits and losses are to be allocated, as well as a buy-out option for
Calavo.
Such buy-out option grants Calavo the right to cause LSC to transfer to Calavo all of LSCs
membership interest for an amount equal to $5 million at any time until October 31, 2016. If the
buy-out option has not been exercised by Calavo as of October 31, 2016, however, then Calavo is
required to deliver a binding offer to LSC to purchase LSCs membership interest for a price no
less than an amount equal to (A) LSCs percentage interest, multiplied by (B) the EBTDA multiple of
8.0, multiplied by (C) Calavo Salsa Lisas earnings before taxes, depreciation, and amortization
(EBTDA) for the year ending October 31, 2016. LSC may then elect to either accept such offer or
reject such offer and submit a counter offer to purchase Calavos membership interest for a price
no less than an amount equal to (A) Calavos membership interest, multiplied by (B) the EBTDA
multiple of 8.0, plus 0.5, or 8.5, multiplied by (C) the Company EBTDA for the year ending October
31, 2016. LSC may not reject the buy-out offer without making a counter offer.
If LSC makes a counter offer to Calavo, Calavo may either accept such offer or reject such
offer and submit a counter offer to purchase LSCs membership interest for a price no less than an
amount equal to (A) LSCs membership interest, multiplied by (B) the EBTDA multiple of 8, plus 0.5,
plus an additional 0.5, or 9.0 total, multiplied by (C) the Company EBTDA for the year ending
October 31, 2016. The process cited above shall continue, with the EBTDA multiple increasing 0.5%
at each counter offer, until either LSC or Calavo accepts the counter offer made to them.
Based on the buy-out option, as well as the initial binding offer to be made to LSC, we
recorded the noncontrolling interest outside of permanent equity to highlight the potential future
cash obligation related to this instrument.
The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition (in thousands). We obtained preliminary third-party
valuations for the long-term assets acquired and incurred approximately $0.2 million in acquisition
costs, which have been expensed in selling, general and administrative expenses in the period
incurred.
At February 8, 2010
|
|
|
|
|
Current assets
|
|
$
|
263
|
|
Property, plant, and equipment
|
|
|
321
|
|
Goodwill
|
|
|
88
|
|
Intangible assets
|
|
|
1,950
|
|
|
|
|
|
Total assets acquired
|
|
|
2,622
|
|
Current liabilities
|
|
|
(55
|
)
|
Noncontrolling interest
|
|
|
(699
|
)
|
Contingent consideration
|
|
|
(1,468
|
)
|
|
|
|
|
Net cash paid as of February 8, 2010
|
|
$
|
400
|
|
|
|
|
|
Of the $1,950,000 of intangible assets, $240,000 was assigned to customer relationships with a
life of 7 years, $360,000 to trademarks and trade names with a life of 10 years and $1,350,000 to
trade secrets with a life of 13 years. We determined the fair value of the non-controlling
interest in Calavo Salsa Lisa taking into consideration discounts for lack of control and lack of
marketability. The fair value of the $5.0 million purchase option was determined using a
Black-Scholes option pricing model. Significant inputs include the risk free rate, volatility
factor, time to expiration, underlying stock price, and exercise price. As discussed above, we
will be required to pay up to an additional $3.0 million if Calavo Salsa Lisa achieves specified
revenue targets during the first seven years, post transaction. The fair value of this contingent
consideration was determined based on a probability
52
weighted method, which incorporates managements forecasted revenue, the likelihood of the
$5.0 million purchase option being exercised, and the likelihood of the revenue targets being
achieved.
The following table reconciles shareholders equity attributable to noncontrolling interest (in
thousands):
|
|
|
|
|
|
|
Year ended
|
|
|
|
October 31, 2010
|
|
Noncontrolling interest, beginning
|
|
$
|
|
|
Net loss attributable to noncontrolling
interest
|
|
|
(124
|
)
|
Capital contributions
|
|
|
699
|
|
|
|
|
|
Noncontrolling interest, ending
|
|
$
|
575
|
|
|
|
|
|
17. Subsequent Events
We have evaluated subsequent events to assess the need for potential recognition or disclosure
in this Annual Report on Form 10-K. Such events were evaluated till the date these financial
statements were issued. Based upon this evaluation, it was determined that no subsequent events
occurred that require recognition in the financial statements.
* * *
Our unaudited quarterly results of operations for the eight fiscal quarters ended October 31,
2010 are set forth above under Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations.
53
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Calavo Growers, Inc.
We have audited the accompanying consolidated balance sheets of Calavo Growers, Inc. and
subsidiaries (the Company) as of October 31, 2010 and 2009, and the related consolidated
statements of income, comprehensive income (loss), shareholders equity, and cash flows for each of
the three years in the period ended October 31, 2010. Our audits also included the financial
statement schedule listed at Item 15(a)(2). These financial statements and schedule are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Calavo Growers, Inc. and subsidiaries at October
31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each
of the three years in the period ended October 31, 2010, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Calavo Growers Inc.s internal control over financial reporting as of
October 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January
13, 2011 expressed an unqualified opinion thereon.
Los Angeles, California
January 13, 2011
54
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report.
Based on this evaluation, our principal executive officer and our principal financial officer
concluded that our disclosure controls and procedures were effective as of October 31, 2010.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter
ended October 31, 2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of the end of the period covered by this report based on the
framework set forth in
Internal Control Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework
set forth in
Internal Control Integrated Framework
, our management concluded that our internal
control over financial reporting was effective as of October 31, 2010. Our internal control over
financial reporting as of October 31, 2010 has been audited by Ernst and Young LLP, an independent
registered public accounting firm, as stated in their report which is included herein.
55
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Calavo Growers, Inc.
We have audited Calavo Growers, Inc.s internal control over financial reporting as of October 31,
2010, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Calavo
Growers, Inc.s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Calavo Growers, Inc. maintained, in all material respects, effective internal
control over financial reporting as of October 31, 2010, based on the COSO criteria
.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Calavo Growers, Inc. as of October 31,
2010 and 2009 and the related consolidated statements of income, comprehensive income (loss),
shareholders equity, and cash flows for each of the three years in the period ended October 31,
2010 of Calavo Growers Inc., and our report dated January 13, 2011 expressed an unqualified opinion
thereon.
Los Angeles, California
January 13, 2011
56
Item 9B. Other Information
None.
PART III
Certain information required by Part III is omitted from this Annual Report because we will
file a definitive Proxy Statement for the Annual Meeting of Shareholders pursuant to Regulation 14A
of the Securities Exchange Act of 1934 (the Proxy Statement), not later than 120 days after the
end of the fiscal year covered by this Annual Report, and the applicable information included in
the Proxy Statement is incorporated herein by reference.
Item 10. Directors, Executive Officers, and Corporate Governance
The names of our executive officers and their ages, titles and biographies are incorporated by
reference from Part I, above.
The following information is included in our Notice of Annual Meeting of Shareholders and
Proxy Statement to be filed within 120 days after our fiscal year end of October 31, 2010 (the
Proxy Statement) and is incorporated herein by reference:
|
|
|
Information regarding our directors who are standing for reelection and any
persons nominated to become our directors is set forth under Election of
Directors.
|
|
|
|
|
Information regarding our Audit Committee and designated audit committee
financial expert is set forth under Corporate Governance Principles and Board
MattersBoard Structure and Committee CompositionAudit Committee.
|
|
|
|
|
Information on our code of ethics for directors, officers and employees and our
Corporate Governance Guidelines is set forth under Corporate Governance Principles
and Board Matters.
|
|
|
|
|
Information regarding Section 16(a) beneficial ownership reporting compliance is
set forth under Section 16(a) Beneficial Ownership Reporting Compliance.
|
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the sections
entitled Executive Compensation and Directors Compensation in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the sections
entitled Security Ownership of Certain Beneficial Owners and Management and Equity Compensation
Plan Information in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the section
entitled Certain Relationships and Related Transactions in the Proxy Statement.
Item 14. Principal Accountants Fees and Services
Information required by this Item is incorporated herein by reference to the section of the
Proxy Statement entitled Principal Accountant Fees and Services.
57
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a)
|
(1)
|
Financial Statements
|
|
|
|
The following consolidated financial statements as of October 31, 2010 and 2009 and for each
of the three years in the period ended October 31, 2010 are included herewith:
|
|
|
|
Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of
Comprehensive Income (Loss), Consolidated Statements of Cash Flows, Consolidated Statements of
Shareholders Equity, Notes to Consolidated Financial Statements, and Report of Ernst & Young
LLP, Independent Registered Public Accounting Firm.
|
|
(2)
|
Supplemental Schedules
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
|
All other schedules have been omitted since the required information is not present in
amounts sufficient to require submission of the schedule, or because the required information
is included in the consolidated financial statements or notes thereto.
|
|
|
(3)
|
Exhibits
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
2.1
|
|
Agreement and Plan of Merger and Reorganization dated as of
February 20, 2001 between Calavo Growers, Inc. and Calavo
Growers of California.
1
|
|
|
|
2.2
|
|
Agreement and Plan of Merger dated as of November 7, 2003
Among Calavo Growers, Inc., Calavo Acquisition, Inc., Maui Fresh
International, Inc. and Arthur J. Bruno, Robert J. Bruno and Javier J. Badillo
2
|
|
|
|
2.3
|
|
Stock Purchase Agreement dated as of June 1, 2005, between
Limoneira Company and Calavo Growers, Inc.
3
|
|
|
|
2.4
|
|
Acquisition Agreement between Calavo Growers, Inc., a California corporation and Lecil E.
Cole, Eric Weinert, Suzanne Cole-Savard, Guy Cole, and Lecil E. Cole and Mary Jeanette
Cole, acting jointly and severally as trustees of the Lecil E. and Mary Jeanette Cole
Revocable Trust dated October 19, 1993, also known as the Lecil E. and Mary Jeanette Cole
Revocable 1993 Trust dated May 19, 2008
4
|
|
|
|
2.5
|
|
Acquisition Agreement between Calavo Growers, Inc., Calavo Salsa Lisa, LLC, Lisas Salsa
Company and Elizabeth Nicholson and Eric Nicholson dated February 8, 2010
5
|
|
|
|
3.1
|
|
Articles of Incorporation of Calavo Growers, Inc.
1
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of Calavo Growers, Inc.
6
|
|
|
|
10.1
|
|
Form of Marketing Agreement for Calavo Growers, Inc.
7
|
|
|
|
10.2
|
|
Marketing Agreement dated as of April 1, 1996 between
Tropical Hawaiian Products, Inc., a Hawaiian corporation,
and Calavo Growers of California.
1
|
|
|
|
10.3
|
|
Lease Agreement dated as of November 21, 1997, between Tede
S.A. de C.V., a Mexican corporation, and Calavo de Mexico,
S.A. de C.V., a Mexican corporation, including attached Guaranty
of Calavo Growers of California dated December 16, 1996.
1
|
|
|
|
10.4
|
|
Lease agreement dated as of February 15, 2005, between Limoneira
Company and Calavo Growers, Inc.
3
|
|
|
|
10.5
|
|
Standstill agreement dated June 1, 2005, between Limoneira
Company and Calavo Growers, Inc.
3
|
|
|
|
10.6
|
|
Standstill agreement dated June 1, 2005 between Calavo Growers, Inc.
And Limoneira Company
3
|
|
|
|
10.7
|
|
Term Loan Agreement dated April 9, 2008 (effective date May 1, 2008)
between Farm Credit West, PCA, and Calavo Growers, Inc.
8
|
|
|
|
10.8
|
|
2005 Stock Incentive Plan Of Calavo Growers, Inc.
9
|
58
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
10.9
|
|
Calavo Supplemental Executive Retirement Agreement dated
March 11, 1989 between Egidio Carbone, Jr. and Calavo
Growers of California.
1
|
|
|
|
10.10
|
|
Amendment to the Calavo Growers of California Supplemental
Executive Retirement Agreement dated November 9, 1993
Between Egidio Carbone, Jr. and Calavo Growers of California.
1
|
|
|
|
10.11
|
|
2001 Stock Option Plan for Directors.
10
|
|
|
|
10.12
|
|
2001 Stock Purchase Plan for Officers and Employees.
10
|
|
|
|
10.13
|
|
Business Loan Agreement between Bank of America, N.A. and Calavo
Growers, Inc., dated October 15, 2007
11
|
|
|
|
10.14
|
|
First Amendment Agreement between Bank of America, N.A. and Calavo
Growers, Inc., dated August 28, 2008
12
|
|
|
|
10.15
|
|
Form of Stock Option Agreement
13
|
|
|
|
10.16
|
|
Amendment No. 2 to Loan Agreement dated as of July 31, 2009 between Calavo Growers, Inc.
and Bank of America, N.A.
14
|
|
|
|
10.17
|
|
Amendment to Term Loan Agreement between Farm Credit West, PCA, and Calavo Growers, Inc
15
|
|
|
|
10.18
|
|
2011 Management Incentive Plan of Calavo Growers, Inc.
*
|
|
|
|
21.1
|
|
Subsidiaries of Calavo Growers, Inc.
1
|
|
|
|
23.1
|
|
Consent of Ernst & Young LLP.
*
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Rule 13a-15(e)
or Rule 15d-15(e)
*
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Rule 13a-15(e)
or Rule 15d-15(e)
*
|
|
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer of
Periodic Report Pursuant to 18 U.S.C. Section 1350
*
|
|
|
|
*
|
|
Filed with this Annual Report on Form 10-K.
|
|
1
|
|
Previously filed on April 24, 2001 as an exhibit to the Registrants Registration Statement
on Form S-4, File No. 333-59418, and incorporated herein by reference.
|
|
2
|
|
Previously filed on January 23, 2004 as an exhibit to the Registrants Report on Form 10-K and incorporated herein by reference.
|
|
3
|
|
Previously filed on June 9, 2005 as an exhibit to the Registrants Report on Form 10-Q and incorporated herein by reference.
|
|
4
|
|
Previously filed on May 29, 2008 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
5
|
|
Previously filed on February 8, 2010 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
6
|
|
Previously filed on December 19, 2002 as an exhibit to the Registrants Report on Form 8-K, and incorporated herein by reference.
|
|
7
|
|
Previously filed on January 28, 2003 as an exhibit to the Registrants Report on Form 10-K and incorporated herein by reference.
|
|
8
|
|
Previously filed on May 8, 2008 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
9
|
|
Previously filed on March 21, 2005 as an exhibit to the Registrants Definitive Proxy
Statement on Form DEF14A and incorporated herein by reference.
|
|
10
|
|
Previously filed on December 18, 2001 as an exhibit to the Registrants Registration
Statement on Form S-8, File No. 333-75378, and incorporated herein by reference.
|
|
11
|
|
Previously filed on October 19, 2007 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
12
|
|
Previously filed on January 27, 2009 as an exhibit to the Registrants Report on Form 10-K/A and incorporated herein by reference.
|
|
13
|
|
Previously filed on September 11, 2006 as an exhibit to the Registrants Report on Form 10-Q and incorporated herein by reference.
|
|
14
|
|
Previously filed on August 6, 2009 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
15
|
|
Previously filed on January 11, 2010 as an exhibit to the Registrants Report on Form 10-K and incorporated herein by reference.
|
(b) Exhibits
See subsection (a) (3) above.
59
(c)
Financial Statement Schedules
See subsection (a) (1) and (2) above.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on January 13, 2011.
|
|
|
|
|
|
CALAVO GROWERS, INC
|
|
|
By:
|
/s/ Lecil E. Cole
|
|
|
|
Lecil E. Cole
|
|
|
|
Chairman of the Board of Directors,
Chief Executive Officer and President
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on January 13, 2011 by the following persons on behalf of the registrant and in the
capacities indicated:
|
|
|
Signature
|
|
Title
|
|
|
|
/s/ Lecil E. Cole
Lecil E. Cole
|
|
Chairman of the Board of Directors,
Chief
Executive Officer and President
(Principal Executive Officer)
|
|
|
|
/s/ Arthur J. Bruno
Arthur J. Bruno
|
|
Chief Operating Officer, Chief
Financial Officer and
Corporate Secretary
(Principal
Financial Officer)
|
|
|
|
/s/ James E. Snyder
James E. Snyder
|
|
Corporate Controller
(Principal
Accounting Officer)
|
|
|
|
/s/ Donald M. Sanders
Donald M. Sanders
|
|
Director
|
|
|
|
/s/ Marc L. Brown
Marc L. Brown
|
|
Director
|
|
|
|
/s/ John M. Hunt
John M. Hunt
|
|
Director
|
|
|
|
/s/ George H. Barnes
George H. Barnes
|
|
Director
|
|
|
|
/s/ J. Link Leavens
J. Link Leavens
|
|
Director
|
|
|
|
/s/ Alva V. Snider
Alva V. Snider
|
|
Director
|
|
|
|
/s/ Michael D. Hause
Michael D. Hause
|
|
Director
|
|
|
|
/s/ Dorcas H. McFarlane
Dorcas H. McFarlane
|
|
Director
|
|
|
|
/s/ Egidio Carbone, Jr
Egidio Carbone, Jr
|
|
Director
|
|
|
|
/s/ Steven W. Hollister
Steven W. Hollister
|
|
Director
|
|
|
|
/s/ Harold Edwards
Harold Edwards
|
|
Director
|
|
|
|
/s/ Scott Van Der Kar
Scott Van Der Kar
|
|
Director
|
61
SCHEDULE II
CALAVO GROWERS, INC.
VALUATION AND QUALIFYING ACCOUNTS (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
ended
|
|
|
beginning
|
|
|
|
|
|
|
|
|
|
|
end
|
|
|
|
October 31:
|
|
|
of year
|
|
|
Additions(1)
|
|
|
Deductions(2)
|
|
|
of year
|
|
Allowance for customer deductions
|
|
|
2008
|
|
|
|
1,329
|
|
|
|
7,065
|
|
|
|
7,163
|
|
|
|
1,231
|
|
|
|
|
2009
|
|
|
|
1,231
|
|
|
|
6,080
|
|
|
|
6,058
|
|
|
|
1,253
|
|
|
|
|
2010
|
|
|
|
1,253
|
|
|
|
6,474
|
|
|
|
6,912
|
|
|
|
815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
2008
|
|
|
|
942
|
|
|
|
93
|
|
|
|
53
|
|
|
|
982
|
|
|
|
|
2009
|
|
|
|
982
|
|
|
|
122
|
|
|
|
4
|
|
|
|
1,100
|
|
|
|
|
2010
|
|
|
|
1,100
|
|
|
|
127
|
|
|
|
670
|
|
|
|
557
|
|
|
|
|
(1)
|
|
Charged to net sales (customer deductions) or costs and expenses (doubtful accounts).
|
|
(2)
|
|
Customer deductions taken or write off of accounts receivables.
|
62
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
2.1
|
|
Agreement and Plan of Merger and Reorganization dated as of
February 20, 2001 between Calavo Growers, Inc. and Calavo
Growers of California.
1
|
|
|
|
2.2
|
|
Agreement and Plan of Merger dated as of November 7, 2003
Among Calavo Growers, Inc., Calavo Acquisition, Inc., Maui Fresh
International, Inc. and Arthur J. Bruno, Robert J. Bruno and Javier J. Badillo
2
|
|
|
|
2.3
|
|
Stock Purchase Agreement dated as of June 1, 2005, between
Limoneira Company and Calavo Growers, Inc.
3
|
|
|
|
2.4
|
|
Acquisition Agreement between Calavo Growers, Inc., a California corporation and Lecil E.
Cole, Eric Weinert, Suzanne Cole-Savard, Guy Cole, and Lecil E. Cole and Mary Jeanette
Cole, acting jointly and severally as trustees of the Lecil E. and Mary Jeanette Cole
Revocable Trust dated October 19, 1993, also known as the Lecil E. and Mary Jeanette Cole
Revocable 1993 Trust dated May 19, 2008
4
|
|
|
|
2.5
|
|
Acquisition Agreement between Calavo Growers, Inc., Calavo Salsa Lisa, LLC, Lisas Salsa
Company and Elizabeth Nicholson and Eric Nicholson dated February 8, 2010
5
|
|
|
|
3.1
|
|
Articles of Incorporation of Calavo Growers, Inc.
1
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of Calavo Growers, Inc.
6
|
|
|
|
10.1
|
|
Form of Marketing Agreement for Calavo Growers, Inc.
7
|
|
|
|
10.2
|
|
Marketing Agreement dated as of April 1, 1996 between
Tropical Hawaiian Products, Inc., a Hawaiian corporation,
and Calavo Growers of California.
1
|
|
|
|
10.3
|
|
Lease Agreement dated as of November 21, 1997, between Tede
S.A. de C.V., a Mexican corporation, and Calavo de Mexico,
S.A. de C.V., a Mexican corporation, including attached Guaranty
of Calavo Growers of California dated December 16, 1996.
1
|
|
|
|
10.4
|
|
Lease agreement dated as of February 15, 2005, between Limoneira
Company and Calavo Growers, Inc.
3
|
|
|
|
10.5
|
|
Standstill agreement dated June 1, 2005, between Limoneira
Company and Calavo Growers, Inc.
3
|
|
|
|
10.6
|
|
Standstill agreement dated June 1, 2005 between Calavo Growers, Inc.
And Limoneira Company
3
|
|
|
|
10.7
|
|
Term Loan Agreement dated April 9, 2008 (effective date May 1, 2008)
between Farm Credit West, PCA, and Calavo Growers, Inc.
8
|
|
|
|
10.8
|
|
2005 Stock Incentive Plan Of Calavo Growers, Inc.
9
|
|
|
|
10.9
|
|
Calavo Supplemental Executive Retirement Agreement dated
March 11, 1989 between Egidio Carbone, Jr. and Calavo
Growers of California.
1
|
|
|
|
10.10
|
|
Amendment to the Calavo Growers of California Supplemental
Executive Retirement Agreement dated November 9, 1993
Between Egidio Carbone, Jr. and Calavo Growers of California.
1
|
|
|
|
10.11
|
|
2001 Stock Option Plan for Directors.
10
|
|
|
|
10.12
|
|
2001 Stock Purchase Plan for Officers and Employees.
10
|
|
|
|
10.13
|
|
Business Loan Agreement between Bank of America, N.A. and Calavo
Growers, Inc., dated October 15, 2007
11
|
|
|
|
10.14
|
|
First Amendment Agreement between Bank of America, N.A. and Calavo
Growers, Inc., dated August 28, 2008
12
|
|
|
|
10.15
|
|
Form of Stock Option Agreement
13
|
|
|
|
10.16
|
|
Amendment No. 2 to Loan Agreement dated as of July 31, 2009 between Calavo Growers, Inc.
and Bank of America, N.A.
14
|
|
|
|
10.17
|
|
Amendment to Term Loan Agreement between Farm Credit West, PCA, and Calavo Growers, Inc
15
|
|
|
|
10.18
|
|
2011 Management Incentive Plan of Calavo Growers, Inc.
*
|
|
|
|
21.1
|
|
Subsidiaries of Calavo Growers, Inc.
1
|
|
|
|
23.1
|
|
Consent of Ernst & Young LLP.
*
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Rule 13a-15(e)
or Rule 15d-15(e)
*
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Rule 13a-15(e)
or Rule 15d-15(e)
*
|
63
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer of
Periodic Report Pursuant to 18 U.S.C. Section 1350
*
|
|
|
|
*
|
|
Filed with this Annual Report on Form 10-K.
|
|
1
|
|
Previously filed on April 24, 2001 as an exhibit to the Registrants Registration Statement
on Form S-4, File No. 333-59418, and incorporated herein by reference.
|
|
2
|
|
Previously filed on January 23, 2004 as an exhibit to the Registrants Report on Form 10-K and incorporated herein by reference.
|
|
3
|
|
Previously filed on June 9, 2005 as an exhibit to the Registrants Report on Form 10-Q and incorporated herein by reference.
|
|
4
|
|
Previously filed on May 29, 2008 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
5
|
|
Previously filed on February 8, 2010 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
6
|
|
Previously filed on December 19, 2002 as an exhibit to the Registrants Report on Form 8-K, and incorporated herein by reference.
|
|
7
|
|
Previously filed on January 28, 2003 as an exhibit to the Registrants Report on Form 10-K and incorporated herein by reference.
|
|
8
|
|
Previously filed on May 8, 2008 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
9
|
|
Previously filed on March 21, 2005 as an exhibit to the Registrants Definitive Proxy
Statement on Form DEF14A and incorporated herein by reference.
|
|
10
|
|
Previously filed on December 18, 2001 as an exhibit to the Registrants Registration
Statement on Form S-8, File No. 333-75378, and incorporated herein by reference.
|
|
11
|
|
Previously filed on October 19, 2007 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
12
|
|
Previously filed on January 27, 2009 as an exhibit to the Registrants Report on Form 10-K/A and incorporated herein by reference.
|
|
13
|
|
Previously filed on September 11, 2006 as an exhibit to the Registrants Report on Form 10-Q and incorporated herein by reference.
|
|
14
|
|
Previously filed on August 6, 2009 as an exhibit to the Registrants Report on Form 8-K and incorporated herein by reference.
|
|
15
|
|
Previously filed on January 11, 2010 as an exhibit to the Registrants Report on Form 10-K and incorporated herein by reference.
|
64
Exhibit 10.18
CALAVO GROWERS, INC.
2011 MANAGEMENT INCENTIVE PLAN
ARTICLE I
PURPOSE AND EFFECTIVE DATE
Section 1.1
Purpose
.
The purpose of this 2011 Management Incentive Plan is to promote
the interests of Calavo Growers, Inc. and its shareholders by (a) attracting, retaining and
motivating directors, officers, employees and consultants (including prospective directors,
officers, employees and consultants) of the Company and its Affiliates and (b) enabling such
individuals to participate in the growth and financial success of the Company. Capitalized terms
in this Article I and in other Articles of the Plan have the respective meanings for such terms
that are set forth in Article II.
Section 1.2
Effective Date; Shareholder Approval Required
.
The effective date of the
Plan is December 9, 2010 (the
Effective Date
), which is the date on which the Plan was
approved and adopted by the Board. Notwithstanding the preceding sentence, the Plan is subject to
approval by the Companys shareholders at the 2011 annual meeting of the Companys shareholders.
Section 1.3
Expiration Date
.
No Award shall be granted under the Plan after the tenth
anniversary of the Effective Date. All Awards granted on or prior to the tenth anniversary of the
Effective Date will continue in effect after such tenth anniversary subject to the terms of the
Plan and of the Award Agreements pertaining to such Awards.
Section 1.4
Awards Under Other Company Plans
.
Following approval of the Plan by the
Companys shareholders, no new awards shall be made under the Companys 2005 Stock Incentive Plan
or 2002 Stock Purchase Plan for Officers and Employees, provided that outstanding awards under such
plans will continue in effect.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
Section 2.1
Definitions
.
As used in the Plan, the following terms shall have the
meanings set forth below:
(a)
Affiliate
means (1) any Subsidiary of the Company or other entity that, directly
or indirectly, is controlled by, controls or is under common control with, the Company or (2) any
other entity in which the Company has a significant equity ownership interest, in either case as
determined by the Committee.
(b)
Annual Individual Plan Share Limit
has the meaning set forth in Section 4.1(b).
(c)
Award
means any award that is permitted under Article V and granted under the
Plan.
(d)
Award Agreement
means any written or electronic agreement or other instrument or
document evidencing any Award, which may (but need not) require execution or acknowledgment by a
Participant.
(e)
Beneficial Owner
(including all variations of such term) has the meaning set
forth in Rule 13d-3 under the Exchange Act.
(f)
Board
means the Board of Directors of the Company.
(g)
Cash Incentive Award
means an Award (1) which is granted pursuant to Section
10.1, (2) which may be settled only in cash, and (3) the potential value of which is set by the
Committee and is not calculated based on the Fair Market Value of a Share.
(h)
Change of Control
has the meaning set forth in Section 13.1.
(i)
Code
means the Internal Revenue Code of 1986, as amended from time to time, or
any successor statute, and the Treasury Regulations promulgated under the Code.
(j)
Committee
means the Compensation Committee of the Board. The Committee shall
consist of two or more members of the Board who are appointed to the Committee by the Board,
subject to the power of the Board to remove Committee members and to appoint new Committee members.
Each member of the Committee shall be (1) an outside director within the meaning of Section
162(m) of the Code, (2) a non-employee director within the meaning of Rule 16b-3 under the
Exchange Act, and (3) an independent director under applicable rules and regulations of NASDAQ or
any other national securities exchange which may subsequently serve as the primary trading market
for the Shares. In addition, each member of the Committee must be independent under any rules
and regulations governing the composition of compensation committees that may be adopted after the
Effective Date by the SEC or by NASDAQ (or any other national securities exchange which may
subsequently serve as the primary trading market for the Shares) pursuant to Section 10C(a) of the
Exchange Act. The failure of the Committee to be comprised in the manner described in the two
preceding sentences shall not, however, affect the validity of any action of the Committee
(including the grant of any Award) that otherwise complies with the terms of the Plan.
(k)
Company
means Calavo Growers, Inc., a California corporation, together with any
successor under applicable laws, rules and regulations to Calavo Growers, Inc. by reason of a
merger, consolidation or other transaction.
(l)
Effective Date
has the meaning set forth in Section 1.2.
(m)
Exchange Act
means the Securities Exchange Act of 1934, as amended from time to
time, or any successor statute, and the rules and regulations promulgated under the Exchange Act.
(n)
Exercise Price
means (1) in the case of each Option, the price specified in the
applicable Award Agreement as the price-per-Share at which Shares may be purchased pursuant to such
Option or (2) in the case of each SAR, the price specified in the applicable
2
Award Agreement as the reference price-per-Share used to calculate the amount payable to the
applicable Participant pursuant to such SAR.
(o)
Fair Market Value
means, except as otherwise provided in the applicable Award
Agreement, (1) with respect to any property other than Shares, the fair market value of such
property determined by such methods or procedures as shall be established from time to time by the
Committee and (2) with respect to Shares as of any date, (x) the closing per-share sales price of
the Shares as reported by NASDAQ for such date (or, if the Shares are listed on any other national
stock exchange or traded in the over-the-counter market, as reported by such other stock exchange
or over-the-counter market for such date) or, if there were no sales on such date, on the closest
preceding date on which there were sales of Shares, or (y) in the event there is no public market
for the Shares on such date, the fair market value of the Shares as determined in good faith by the
Committee.
(p)
Incentive Stock Option
means an option to purchase Shares from the Company that
(1) is granted under Section 6.1 of the Plan and (2) is intended to qualify for special federal
income tax treatment pursuant to Sections 421 and 422 of the Code, and which is so designated in
the applicable Award Agreement.
(q)
NASDAQ
means the NASDAQ Stock Market.
(r)
Nonqualified Stock Option
means an option to purchase Shares from the Company
that (1) is granted under Section 6.1 of the Plan and (2) is not an Incentive Stock Option.
(s)
Option
means an Incentive Stock Option or a Nonqualified Stock Option or both,
as the context requires.
(t)
Participant
means any director, officer, employee or consultant (including any
prospective director, officer, employee or consultant) of the Company or any Affiliate who is
eligible for an Award under Section 5.1 and who is selected by the Committee to receive an Award
under the Plan or who receives a Substitute Award pursuant to Section 4.2(c).
(u)
Performance Award
means any Award designated by the Committee as a Performance
Award pursuant to Section 11.1 of the Plan.
(v)
Performance Criteria
means the criterion or criteria that the Committee selects
for purposes of establishing the Performance Goal(s) for a Performance Period with respect to any
Performance Award under the Plan.
(w)
Performance Formula
means, for a Performance Period, the one or more objective
formulas applied against the relevant Performance Goal to determine, with regard to the Performance
Award of a particular Participant, whether all, some portion but less than all, or none of such
Award has been earned for the Performance Period.
(x)
Performance Goal
means, for a Performance Period, the one or more goals
established by the Committee for the Performance Period based upon the Performance Criteria.
3
(y)
Performance Period
means the one or more Company fiscal years or other shorter
or longer periods of time as the Committee may select over which the attainment of one or more
Performance Goals shall be measured for the purpose of determining a Participants right to a
Performance Award.
(z)
Person
means an individual, corporation, limited liability company, partnership,
trust, unincorporated organization or other entity.
(aa)
Plan
means this 2011 Management Incentive Plan, as it may be amended from time
to time.
(bb)
Plan ISO Limit
has the meaning set forth in Section 4.1(a).
(cc)
Plan Share Limit
has the meaning set forth in Section 4.1(a).
(dd)
Restricted Share
means a Share that is granted under Section 8.1 of the Plan
that is subject to certain transfer restrictions, forfeiture provisions and/or other terms
specified in the Plan or in the applicable Award Agreement.
(ee)
Restricted Stock Unit
means a restricted stock unit Award that is granted under
Section 8.1 of the Plan and is designated as such in the applicable Award Agreement and that
represents an unfunded and unsecured promise to deliver Shares, cash, other securities, other
Awards or other property in accordance with the terms of the applicable Award Agreement.
(ff)
SAR
means a stock appreciation right Award that is granted under Section 7.1 of
the Plan and that represents an unfunded and unsecured promise to deliver Shares, cash, other
securities, other Awards or other property equal in value to the excess, if any, of the Fair Market
Value per Share over the Exercise Price per Share of the SAR, subject to the terms of the
applicable Award Agreement.
(gg)
SEC
means the Securities and Exchange Commission or any successor to the SEC
and includes the staff of the SEC.
(hh)
Shares
means shares of common stock of the Company, $0.001 par value, or such
other securities of the Company (1) into which such shares shall be changed by reason of a
recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar
transaction or (2) as may be determined by the Committee pursuant to Section 4.2.
(ii)
Subsidiary
means any entity in which the Company, directly or indirectly,
possesses fifty percent or more of the total combined voting power of all classes of its stock or
other securities.
(jj)
Substitute Awards
has the meaning set forth in Section 4.2(c).
(kk)
Treasury Regulations
means all proposed, temporary and final regulations
promulgated under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
4
Section 2.2
Construction
.
In any interpretation of a provision of the Plan, the
masculine gender may include the feminine, and the singular may include the plural, and vice versa.
Headings are given to the Sections and subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision of the Plan. Whenever the words
include, includes or including are used in the Plan, they shall be deemed to be followed by
the words but not limited to.
ARTICLE III
PLAN ADMINISTRATION
Section 3.1
Administration of the Plan
.
The Plan shall be administered by the
Committee, except to the limited extent provided in Sections 3.5 and 3.6.
Section 3.2
Authority of the Committee
.
Subject to the terms of the Plan and
applicable laws, rules and regulations, and in addition to the other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have full authority to
administer the Plan, including the authority to (a) designate Participants, (b) determine the type
or types of Awards to be granted to each Participant, (c) determine the number of Shares to be
covered by, or with respect to which payments, rights or other matters are to be calculated in
connection with, Awards, (d) determine the terms of Awards, (e) determine the vesting schedules of
Awards and, if certain performance criteria must be attained in order for an Award to vest or be
settled or paid, establish such performance criteria and certify whether, and to what extent, such
performance criteria have been attained, (f) determine whether, to what extent and under what
circumstances, Awards may be settled or exercised in cash, Shares, other securities, other Awards
or other property, or canceled, forfeited or suspended and the method or methods by which Awards
may be settled, exercised, canceled, forfeited or suspended, (g) determine whether, to what extent
and under what circumstances, cash, Shares, other securities, other Awards, other property and
other amounts payable with respect to an Award shall be deferred either automatically or at the
election of the holder of the Award or of the Committee, (h) interpret, administer, reconcile any
inconsistency in, correct any default in and/or supply any omission in, the Plan, any Award or any
Award Agreement, (i) establish, amend, suspend or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the administration of the Plan, (j) accelerate the vesting
or exercisability of, payment for or lapse of restrictions on, Awards, and (k) make any other
determination and take any other action that the Committee deems necessary or desirable for the
administration of the Plan.
Section 3.3
Committee Decisions
.
Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions under or with respect to the Plan
or any Award shall be within the discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon all Persons, including the Company, any Affiliate, any
Participant, any holder or beneficiary of any Award and any shareholder of the Company. Each
designation, determination, interpretation or other decision by the Committee shall require the
affirmative vote or consent of a majority of the members of the Committee.
Section 3.4
Indemnification
.
Each Board and Committee member shall be indemnified and
held harmless by the Company from and against (a) any loss, cost, liability or
5
expense (including attorneys fees) that may be imposed upon or incurred by such Person in
connection with or resulting from any action, suit or proceeding to which such Person may be a
party or in which such Person may be involved by reason of any action taken or omitted to be taken
under the Plan or any Award Agreement and (b) any and all amounts paid by such Person, with the
Companys approval, in settlement of such action, suit or proceeding, or paid by such Person in
satisfaction of any judgment in any such action, suit or proceeding against such Person. The
Company shall have the right, at its own expense, to assume and defend any such action, suit or
proceeding, and, once the Company gives notice of its intent to assume the defense, the Company
shall have sole control over such defense with counsel of the Companys choice. The foregoing
right of indemnification shall not be available to a Board or Committee member to the extent that a
court of competent jurisdiction in a final judgment or other final adjudication, in either case not
subject to further appeal, determines that the acts or omissions of such Person giving rise to the
indemnification claim resulted from such Persons bad faith, gross misconduct, fraud or willful
criminal act or omission or that such right of indemnification is otherwise prohibited by
applicable laws, rules or regulations or by the Companys Articles of Incorporation or Bylaws, in
each case as may be amended from time to time. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which Board or Committee members may be
entitled under the Companys Articles of Incorporation or Bylaws or under applicable laws, rules
and regulations.
Section 3.5
Delegation of Authority
.
The Committee may delegate to the Companys
Chief Executive Officer, on such terms as the Committee determines in its discretion, the authority
to make grants of Awards to officers, employees and consultants of the Company and its Affiliates
(including any prospective officer, employee or consultant) and all necessary and appropriate
decisions and determinations with respect to such grants of Awards. Notwithstanding the preceding
sentence, the Chief Executive Officer shall under no circumstances have the authority to make
Awards to any officer or employee who is (or who is expected to be) (a) subject to Section 16 of
the Exchange Act or (b) a covered employee within the meaning of Section 162(m) of the Code. The
Committee may revoke any such delegation of authority at any time.
Section 3.6
Awards by the Board to Non-Employee Directors
.
Notwithstanding anything
to the contrary contained in the Plan, the Board may, in its discretion, at any time and from time
to time, grant Awards to directors who are not employees of the Company or any of its Affiliates or
administer the Plan with respect to such Awards. In any such case, the Board shall have all of the
authority granted to the Committee under the Plan with respect to such Awards and references in the
Plan to the Committee shall instead refer to the Board with respect to such Awards to non-employee
directors.
6
ARTICLE IV
SHARES AND CASH SUBJECT TO THE PLAN
Section 4.1
Shares and Cash Available for Awards
.
(a) Subject to adjustment as provided in Section 4.2, the maximum aggregate number of Shares
that may be delivered pursuant to Awards granted under the Plan shall be equal to one million five
hundred thousand (1,500,000) (the
Plan Share Limit
), of which one million five hundred
thousand (1,500,000) Shares may be delivered pursuant to Incentive Stock Options granted under the
Plan (the
Plan ISO Limit
). Subject to adjustment as provided in Section 4.2, each Share
with respect to which an Award that can be settled in Shares is granted under the Plan shall reduce
the Plan Share Limit by one Share. Awards that are required to be settled in cash shall not reduce
the Plan Share Limit. If any Award granted under the Plan is forfeited (or otherwise expires,
terminates or is canceled without the delivery of all Shares subject to the Award) or is settled
other than wholly by delivery of Shares (including cash settlement), then, in any such case, any
number of Shares subject to such Award that were not issued with respect to such Award shall not be
treated as issued for purposes of this Section 4.1 and the Plan Share Limit shall be increased by
such number of Shares. If Shares issued upon exercise, vesting or settlement of an Award, or
Shares owned by a Participant, are surrendered or tendered to the Company in payment of the
Exercise Price of an Award or any taxes required to be withheld in respect of an Award, in each
case in accordance with the terms of the Plan and any applicable Award Agreement, the Plan Share
Limit shall be increased by such number of surrendered or tendered Shares; provided that the Plan
ISO Limit shall not increase as a result of such surrender or tendering.
(b) Subject to adjustment as provided in Section 4.2, (1) in the case of Awards that are
settled in Shares, the maximum aggregate number of Shares with respect to which Awards may be
granted to any Participant in any fiscal year of the Company under the Plan shall be one hundred
fifty thousand (150,000) (the
Annual Individual Plan Share Limit
), and (2) in the case of
Awards that are settled in cash based on the Fair Market Value of a Share, the maximum aggregate
amount of cash that may be paid pursuant to Awards granted to any Participant in any fiscal year of
the Company under the Plan shall be equal to the per-Share Fair Market Value as of the relevant
vesting, payment or settlement date multiplied by the Annual Individual Plan Share Limit. In the
case of all Awards other than those described in the preceding sentence, the maximum aggregate
amount of cash and other property (valued at its Fair Market Value) other than Shares that may be
paid or delivered pursuant to Awards under the Plan to any Participant in any fiscal year of the
Company shall be equal to four million dollars ($4,000,000).
Section 4.2
Adjustments for Changes in Capitalization and Similar Events
.
(a) In the event of any extraordinary dividend or other extraordinary distribution (whether in
the form of cash, Shares, other securities or other property), recapitalization, rights offering,
stock split, reverse stock split, split-up or spin-off, the Committee shall, in the manner
determined by the Committee to be appropriate or desirable, adjust any or all of (1) the number of
Shares or other securities of the Company (or number and kind of other securities or property) with
respect to which Awards may be granted, including the
7
Plan Share Limit, the Plan ISO Limit and the Annual Individual Plan Share Limit, and (2) the
terms of any outstanding Award, including the number of Shares or other securities of the Company
(or number and kind of other securities or property) subject to outstanding Awards or to which
outstanding Awards relate and the Exercise Price, if applicable, with respect to any Award. The
Companys annual or quarterly cash dividend on Shares shall not be considered an extraordinary
dividend or other distribution that requires an adjustment described in the preceding sentence.
(b) In the event that the Committee determines that any reorganization, merger, consolidation,
combination, repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event (including any Change of Control) affects the Shares such that an
adjustment is determined by the Committee in its discretion to be appropriate or desirable, then
the Committee may (1) in such manner as it may deem appropriate or desirable, adjust any or all of
(x) the number of Shares or other securities of the Company (or number and kind of other securities
or property) with respect to which Awards may be granted, including the Plan Share Limit, the Plan
ISO Limit and the Annual Individual Plan Share Limit, and (y) the terms of any outstanding Award,
including the number of Shares or other securities of the Company (or number and kind of other
securities or property) subject to outstanding Awards or to which outstanding Awards relate and the
Exercise Price, if applicable, with respect to any Award, (2) if deemed appropriate or desirable by
the Committee, make provision for a cash payment to the holder of an outstanding Award in
consideration for the cancellation of such Award, including, in the case of an outstanding Option
or SAR, a cash payment to the holder of such Option or SAR in consideration for the cancellation of
such Option or SAR in an amount equal to the excess, if any, of the Fair Market Value (as of a date
specified by the Committee) of the Shares subject to such Option or SAR over the aggregate Exercise
Price of such Option or SAR, and (3) if deemed appropriate or desirable by the Committee, cancel
and terminate any Option or SAR having a per-Share Exercise Price equal to, or in excess of, the
Fair Market Value of a Share subject to such Option or SAR without any payment or consideration
therefor.
(c) Awards may, in the discretion of the Committee, be granted under the Plan in assumption
of, or in substitution for, outstanding awards previously granted by the Company or any of its
Affiliates or an entity acquired by the Company or any of its Affiliates or with which the Company
or any of its Affiliates combines (
Substitute Awards
). However, in no event may any
Substitute Award be granted in a manner that would violate the prohibitions on repricing of Options
and SARs, as set forth in Section 12.2. The number of Shares underlying any Substitute Awards
shall be counted against the Plan Share Limit.
ARTICLE V
ELIGIBILITY AND TYPES OF AWARDS
Section 5.1
Eligibility
.
Any director, officer, employee or consultant (including any
prospective director, officer, employee or consultant) of the Company or any of its Affiliates
shall be eligible to be designated as a Participant.
Section 5.2
Types of Awards
.
Awards may be made under the Plan in the form of (a)
Options, (b) SARs, (c) Restricted Shares, (d) Restricted Stock Units, (e) other equity-based or
8
equity-related Awards that the Committee determines are consistent with the purpose of the
Plan and the interests of the Company, (f) Cash Incentive Awards, and (g) Performance Awards.
Awards may be granted in tandem with other Awards. No Incentive Stock Option (other than an
Incentive Stock Option that may be assumed or issued by the Company in connection with a
transaction to which Section 424(a) of the Code applies) may be granted to a person who is
ineligible to receive an Incentive Stock Option under the Code.
ARTICLE VI
OPTIONS
Section 6.1
Grant
.
Subject to the provisions of the Plan, the Committee shall have
discretion to determine (a) the Participants to whom Options shall be granted, (b) subject to
Section 4.1, the number of Shares subject to each Option to be granted to each Participant, (c)
whether each Option shall be an Incentive Stock Option or a Nonqualified Stock Option, and (d) the
terms of each Option, including the vesting criteria, term, methods of exercise and methods and
form of settlement. In the case of Incentive Stock Options, the terms of such grants shall be
subject to and comply with such rules as may be prescribed by Section 422 of the Code, including
applicable Treasury Regulations and including the requirement that the recipient of an Incentive
Stock Option must be an employee of the Company or a Subsidiary. Each Option granted under the
Plan shall be a Nonqualified Stock Option unless the applicable Award Agreement expressly states
that the Option is intended to be an Incentive Stock Option. If an Option is intended to be an
Incentive Stock Option, and if, for any reason, such Option (or any portion of such Option) shall
not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option
(or portion of such Option) shall be regarded as a Nonqualified Stock Option appropriately granted
under the Plan, provided that such Option (or portion of such Option) otherwise complies with the
Plans requirements relating to Nonqualified Stock Options.
Section 6.2
Exercise Price
.
The Exercise Price of each Share covered by each Option
shall be not less than 100% of the Fair Market Value of such Share (determined as of the date the
Option is granted). However, in the case of each Incentive Stock Option granted to an employee
who, at the time of the grant of such Option, owns stock representing more than 10% of the voting
power of all classes of stock of the Company, the per-Share Exercise Price shall be no less than
110% of the Fair Market Value per Share on the date of the grant. Each Option is, unless otherwise
specified by the Committee, intended to qualify as performance-based compensation under Section
162(m) of the Code.
Section 6.3
Vesting and Exercise
.
Each Option shall be vested and exercisable at such
times, in such manner and subject to such terms as the Committee may, in its discretion, specify in
the applicable Award Agreement. Except as otherwise specified by the Committee in the applicable
Award Agreement, each Option may only be exercised to the extent that it has already vested at the
time of exercise. Except as otherwise specified by the Committee in the applicable Award
Agreement, each Option shall become vested and exercisable with respect to twenty percent of the
Shares subject to such Option on each of the first five anniversaries of the date of grant. Each
Option shall be deemed to be exercised when written or electronic notice of such exercise has been
given to the Company in accordance with the terms of the Award by the person entitled to exercise
the Award and full payment pursuant to Section 6.4 for the Shares with respect to which the Award
is exercised has been received by the Company. Exercise of
9
each Option in any manner shall result in a decrease in the number of Shares that thereafter
may be available for sale under the Option. The Committee may impose such conditions with respect
to the exercise of each Option, including any conditions relating to the application of federal or
state securities laws, rules and regulations, as it may deem necessary or advisable.
Section 6.4
Payment
.
(a) No Shares shall be delivered pursuant to any exercise of an Option until payment in full
of the aggregate Exercise Price of the Shares is received by the Company and the Participant has
paid to the Company (or the Company has withheld in accordance with Section 14.12) an amount equal
to any federal, state, local and foreign income and employment taxes required to be withheld. Such
payments may be made in cash or by check payable to the order of the Company or, in the Committees
discretion, (1) by exchanging Shares owned by the Participant (which are not the subject of any
pledge or other security interest), (2) if there shall be a public market for the Shares at such
time, subject to such rules as may be established by the Committee, through delivery of irrevocable
instructions to a broker to sell the Shares otherwise deliverable upon the exercise of the Option
and to deliver cash promptly to the Company (commonly referred to as a broker-assisted cashless
Option exercise), (3) by having the Company withhold Shares from the Shares otherwise issuable
pursuant to the exercise of the Option, or (4) through any other method (or combination of methods)
as approved by the Committee; provided that the combined value of all cash and cash equivalents and
the Fair Market Value of any such Shares so tendered to the Company, together with any Shares
withheld by the Company in accordance with this Section 6.4 or Section 14.12, as of the date of
such tender, is at least equal to such aggregate Exercise Price and the amount of any federal,
state, local or foreign income or employment taxes required to be withheld, if applicable.
(b) Wherever in the Plan or any Award Agreement a Participant is permitted to pay the Exercise
Price of an Option or taxes relating to the exercise of an Option by delivering Shares, the
Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery
requirement by presenting proof of beneficial ownership of such Shares, in which case the Company
shall treat the Option as exercised without further payment and shall withhold such number of
Shares from the Shares acquired by the exercise of the Option.
Section 6.5
Termination
.
Except as otherwise set forth in the applicable Award
Agreement, each Option shall automatically terminate, and shall cease to be exercisable, upon the
earlier of (a) the tenth anniversary of the date the Option is granted and (b) ninety days after
the date the Participant who is holding the Option ceases for any reason to be a director, officer,
employee or consultant of the Company or one of its Affiliates, and vesting of the Option shall
automatically terminate as of the date that the Participants service as a director, officer,
employee or consultant terminates. In no event may an Option be exercisable after the tenth
anniversary of the date the Option is granted.
Section 6.6
Requirement of Notification Upon Disqualifying Disposition Under Section
4
21(b)
of the Code
.
If any Participant shall make any disposition of Shares delivered pursuant
to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of
the Code (relating to certain disqualifying dispositions), such Participant shall notify the
Company of such disposition within ten days after the disposition.
10
ARTICLE VII
STOCK APPRECIATION RIGHTS
Section 7.1
Grant
.
Subject to the provisions of the Plan, the Committee shall have
discretion to determine (a) the Participants to whom SARs shall be granted, (b) subject to Section
4.1, the number of SARs to be granted to each Participant, (c) the Exercise Price of the SARs, (d)
whether the SARs will be granted in tandem with other Awards, and (e) the terms of each SAR,
including the vesting criteria, term, methods of exercise and methods and form of settlement.
Section 7.2
Exercise Price
.
The Exercise Price of each Share covered by an SAR shall
be not less than 100% of the Fair Market Value of such Share (determined as of the date the SAR is
granted). Each SAR is, unless otherwise specified by the Committee, intended to qualify as
performance-based compensation under Section 162(m) of the Code.
Section 7.3
Vesting and Exercise
.
Each SAR shall entitle the Participant to receive
an amount upon exercise equal to the excess, if any, of the Fair Market Value of a Share on the
date of exercise of the SAR over the Exercise Price of the SAR. The Committee shall determine, in
its discretion, whether an SAR shall be settled in cash, Shares, other securities, other Awards,
other property or a combination of any of the foregoing. Each SAR shall be vested and exercisable
at such times, in such manner and subject to such terms as the Committee may, in its discretion,
specify in the applicable Award Agreement or thereafter. Except as otherwise specified by the
Committee in the applicable Award Agreement, each SAR shall become vested with respect to twenty
percent of the Shares subject to such SAR on each of the first five anniversaries of the date of
grant.
Section 7.4
Termination
.
Except as otherwise set forth in the applicable Award
Agreement, each SAR shall automatically terminate, without any payment, upon the earlier of (a) the
tenth anniversary of the date the SAR is granted and (b) ninety days after the date the Participant
who is holding the SAR ceases for any reason to be a director, officer, employee or consultant of
the Company or one of its Affiliates. In no event may an SAR be exercisable after the tenth
anniversary of the date the SAR is granted.
ARTICLE VIII
RESTRICTED SHARES AND RESTRICTED STOCK UNITS
Section 8.1
Grant
.
Subject to the provisions of the Plan, the Committee shall have
discretion to determine (a) the Participants to whom Restricted Shares and Restricted Stock Units
shall be granted, (b) subject to Section 4.1, the number of Restricted Shares and Restricted Stock
Units to be granted to each Participant, (c) the duration of the period during which, and the
conditions, if any, under which, the Restricted Shares and Restricted Stock Units may vest or may
be forfeited to the Company, and (d) the terms of each such Award, including the vesting criteria,
term, methods of exercise and methods and form of settlement.
Section 8.2
Transfer Restrictions
.
No Restricted Share may be sold, assigned,
transferred, pledged or otherwise encumbered except as provided in the Plan or as may be provided
in the applicable Award Agreement. Each Restricted Share may be evidenced in such
11
manner as the
Committee shall determine. If certificates representing Restricted
Shares are registered in the name of the applicable Participant, such certificates must bear an
appropriate legend referring to the terms and restrictions applicable to such Restricted Shares,
and the Company may, at its discretion, retain physical possession of such certificates until such
time as all applicable restrictions lapse.
Section 8.3
Payment and Lapse of Restrictions
.
(a) Each Restricted Stock Unit shall be granted with respect to a specified number of Shares
(or a number of Shares determined pursuant to a specified formula) or shall have a value equal to
the Fair Market Value of a specified number of Shares (or a number of Shares determined pursuant to
a specified formula). Restricted Stock Units shall be paid in cash, Shares, other securities,
other Awards or other property, as determined in the discretion of the Committee, upon the lapse of
applicable restrictions, or otherwise in accordance with the applicable Award Agreement. Except as
otherwise specified by the Committee in the applicable Award Agreement, Restricted Shares and
Restricted Stock Units shall become vested with respect to twenty percent of the Shares subject to
such Awards on each of the first five anniversaries of the date of grant. If a Restricted Share or
a Restricted Stock Unit is intended to qualify as performance-based compensation under Section
162(m) of the Code, all requirements set forth in Article XI must be satisfied in order for the
applicable restrictions to lapse.
(b) Except as otherwise set forth in the applicable Award Agreement, (1) each Restricted Share
and Restricted Stock Unit shall cease to vest on the date that the Participant who holds the
Restricted Share or Restricted Stock Unit ceases for any reason to be a director, officer, employee
or consultant of the Company or one of its Affiliates, and (2) the Participants rights with
respect to the unvested portion of each Restricted Share or Restricted Stock Unit shall terminate
automatically terminate as of the date that the Participants service as a director, officer,
employee or consultant terminates.
Section 8.4
Requirement of Consent and Notification of Election Under
Section 83(b)
of the
Code
.
No election under Section 83(b) of the Code (to include in gross income in the year of
transfer the amounts specified in Section 83(b) of the Code) or under a similar provision of law
may be made unless expressly permitted by the terms of the applicable Award Agreement or by action
of the Committee in writing prior to the making of such election. If an Award recipient, in
connection with the acquisition of Shares under the Plan or otherwise, is expressly permitted under
the terms of the applicable Award Agreement or by such Committee action to make such an election
and the Participant makes the election, the Participant shall notify the Committee of such election
within ten days after filing notice of the election with the Internal Revenue Service (or any
successor) or other governmental authority, in addition to any filing and notification required
pursuant to rules and regulations issued under Section 83(b) of the Code or any other applicable
provision.
12
ARTICLE IX
OTHER STOCK-BASED AWARDS; DIVIDENDS AND DIVIDEND EQUIVALENTS
Section 9.1
Other Stock-Based Awards
. Subject to the provisions of the Plan, the
Committee shall have discretion to grant to Participants other equity-based or equity-related
Awards (including both fully vested Shares and unfunded and unsecured covenants by the Company
to deliver Shares in accordance with the terms of the applicable Award Agreements, and whether
payable in cash, equity or otherwise) in such amounts and subject to such terms as the Committee
shall determine. If such other equity-based or equity-related Awards are intended to qualify as
performance-based compensation under Section 162(m) of the Code, all requirements set forth in
Article XI must be satisfied with respect to such Awards.
Section 9.2
Dividends and Dividend Equivalents
.
In the discretion of the Committee,
an Award Agreement pertaining to Restricted Shares, Restricted Stock Units or any other Award
(excluding an Option, an SAR or a Cash Incentive Award) may provide the Participant with the right
to receive dividends or dividend equivalents, payable in cash, Shares, other securities, other
Awards or other property, on a current or deferred basis, on such terms as may be specified in the
Award Agreement, including, (a) payment directly to the Participant, (b) withholding of such
amounts by the Company subject to vesting of the Award, or (c) reinvestment in additional Shares,
Restricted Shares or other Awards.
ARTICLE X
CASH INCENTIVE AWARDS
Section 10.1
Grant
.
Subject to the provisions of the Plan, the Committee shall have
discretion to determine (a) the Participants to whom Cash Incentive Awards shall be granted, (b)
subject to Section 4.1, the amount of cash that is payable under the Cash Incentive Award granted
to each Participant, (c) the duration of the period during which, and the conditions, if any, under
which, the Cash Incentive Awards may vest or may be forfeited to the Company, and (d) the other
terms of the Cash Incentive Awards. The Committee may, in its discretion, set performance goals or
other payment conditions that, depending on the extent to which they are met during a specified
performance period, shall determine the amount of cash that shall be paid to each Participant under
his or her Cash Incentive Award.
Section 10.2
Earning of Cash Incentive Awards
.
Subject to the provisions of the Plan,
after any applicable vesting or performance period has ended, the holder of a Cash Incentive Award
shall be entitled to receive a payment of the amount of cash earned by the Participant over the
specified vesting or performance period, to be determined by the Committee in its discretion, as a
function of the extent to which the corresponding performance goals or other conditions to payment
have been achieved.
Section 10.3
Treatment of Cash Incentive Awards as Performance Awards
.
Each Cash
Incentive Award that is intended to qualify as performance-based compensation under Section
162(m) of the Code must satisfy the Performance Award requirements set forth in Article XI in order
for a Participant to be entitled to payment with respect to the Cash Incentive Award.
13
ARTICLE XI
PERFORMANCE AWARDS
Section 11.1
General
.
(a) Unless otherwise specified by the Committee, each Cash Incentive Award shall be intended
by the Committee to qualify as performance-based compensation under Section 162(m) of the Code
and all requirements set forth in this Article XI for a Performance Award must be satisfied in
order for a Participant to be entitled to payment with respect to a Cash Incentive Award. The
Committee has discretion to specify at the time of the grant of a Cash Incentive Award that it is
not intended to qualify as performance-based compensation under Section 162(m) of the Code, in
which event the requirements of Article XI shall not apply to the Cash Incentive Award.
(b) The Committee shall have the authority, at the time of grant of any Award other than a
Cash Incentive Award, to designate such Award as a Performance Award in order for such Award to
qualify as performance-based compensation under Section 162(m) of the Code, in which event the
requirements set forth in this Article XI must be satisfied with respect to such Award.
Notwithstanding the preceding sentence, in accordance with Section 162(m) of the Code, including
applicable Treasury Regulations, Options and SARs granted under the Plan shall not be required to
satisfy the requirements of this Article XI that are applicable to Performance Awards.
Section 11.2
Eligibility
.
The Committee shall, in its discretion, designate within
the first ninety days of a Performance Period (or, if shorter, within the maximum period allowed
under Section 162(m) of the Code) which Participants shall be eligible to receive Performance
Awards in respect of such Performance Period. Designation of a Participant as being eligible to
receive a Performance Award for a particular Performance Period shall not require designation of
such Participant as being eligible to receive a Performance Award in any subsequent Performance
Period, and designation of one Person as a Participant eligible to receive a Performance Award
shall not require designation of any other Person as a Participant eligible to receive a
Performance Award in such period or in any other period.
Section 11.3
Discretion of the Committee with Respect to Performance Awards
.
With
regard to a particular Performance Period, the Committee shall have discretion to select (a) the
length of such Performance Period, (b) the type(s) of Performance Awards to be issued, (c) the
Performance Criteria that shall be used to establish the Performance Goal(s), (d) the kind(s)
and/or level(s) of the Performance Goal(s) that is (are) to apply to the Company or any of its
Subsidiaries, Affiliates, divisions or operational units, or any combination of the foregoing, and
(e) the Performance Formula. Within the first ninety days of a Performance Period (or, if shorter,
within the maximum period allowed under Section 162(m) of the Code), the Committee shall, with
regard to the Performance Awards to be issued for such Performance Period, exercise its discretion
with respect to each of the matters enumerated in the immediately preceding sentence and record the
same in writing.
Section 11.4
Performance Criteria
.
The Performance Criteria that shall be used to
establish the Performance Goal(s) with respect to Performance Awards shall be based on the
14
attainment of specific levels of performance of the Company or any of its Subsidiaries, Affiliates,
divisions or operational units, or any combination of the foregoing, calculated over a period of
one fiscal year or any other shorter or longer period specified by the Committee, and shall be
limited to the following: (a) net income; (b) income before income taxes; (c) net income per
Share; (d) earnings before interest, taxes, depreciation and/or amortization; (e) increases in
Share price; (f) sales (including specified types or categories of sales); (g) gross or net
margin; (h) operating income; (i) reductions in costs and expenses (including specified types or
categories of costs and expenses); (j) cash flow (including specified types or categories of cash
flow); (k) return on shareholders equity or invested capital; (l) return on assets or sales; (m)
working capital; (n) objective measures of productivity or operating efficiency; (o) market share
(in the aggregate or by segment); (p) amount or performance of business acquisitions; (q) market
capitalization; and (r) book value. Such Performance Criteria may be applied on an absolute basis,
be relative to one or more peer companies of the Company or indices or any combination thereof or,
if applicable, be computed on an accrual or cash accounting basis. To the extent required under
Section 162(m) of the Code, the Committee shall, within the first ninety days of the applicable
Performance Period (or, if shorter, within the maximum period allowed under Section 162(m) of the
Code), define in an objective manner the method of calculating the Performance Criteria it selects
to use for such Performance Period.
Section 11.5
Modification of Performance Goals
.
The Committee is authorized at any
time during the first ninety days of a Performance Period (or, if shorter, within the maximum
period allowed under Section 162(m) of the Code), or any time thereafter (but only to the extent
the exercise of such authority after such ninety-day period, or such shorter period, if applicable,
would not cause the Performance Awards granted to any Participant for the Performance Period to
fail to qualify as performance-based compensation under Section 162(m) of the Code), in its
discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period
to the extent permitted under Section 162(m) of the Code (a) in the event of, or in anticipation
of, any unusual or extraordinary corporate item, transaction, event or development affecting the
Company, or any of its Affiliates, Subsidiaries, divisions or operating units (to the extent
applicable to such Performance Goal) or (b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company or any of its Affiliates, Subsidiaries,
divisions or operating units (to the extent applicable to such Performance Goal), or the financial
statements of the Company or any of its Affiliates, Subsidiaries, divisions or operating units (to
the extent applicable to such Performance Goal), or of changes in applicable rules, rulings,
regulations or other requirements of any governmental body or securities exchange, accounting
principles, law or business conditions.
Section 11.6
Payment of Performance Awards
.
(a)
Condition to Receipt of Payment
. Unless otherwise specified in the applicable
Award Agreement, a Participant must be employed by the Company or one of its Subsidiaries on the
last day of a Performance Period to be eligible for any payment in respect of a Performance Award
for such Performance Period. Notwithstanding the foregoing and to the extent permitted by Section
162(m) of the Code, in the discretion of the Committee, a full or partial Performance Award may be
paid to a Participant who has retired, or has terminated his or her employment due to a long-term
disability, in accordance with Company policies prior to the
15
last day of the Performance Period for
which a Performance Award is made or to the designee or estate of a Participant who has died prior
to the last day of a Performance Period.
(b)
Limitation
. Except as otherwise permitted by Section 162(m) of the Code, a
Participant shall be eligible to receive payments in respect of a Performance Award only to the
extent that (1) the Performance Goal(s) for the relevant
Performance Period is achieved and certified by the Committee in accordance with Section 11.6(c) and (2) the Performance Formula
as applied against such Performance Goal(s) determines that all or some portion of such
Participants Performance Award has been earned for such Performance Period.
(c)
Certification
. Following the completion of a Performance Period and prior to the
payment of any Performance Awards, the Committee shall certify in writing whether, and to what
extent, the Performance Goals for the Performance Period have been achieved and, if so, certify in
writing that amount of the Performance Awards earned for the period based upon the Performance
Formula. The Committee shall then determine the actual amount of each Participants Performance
Award for the Performance Period and, in so doing, may apply negative discretion as authorized by
Section 11.6(d).
(d)
Negative Committee Discretion
. In determining the actual amount of an individual
Performance Award for a Performance Period, the Committee may, in its discretion, reduce or
eliminate the amount of the Award earned in the Performance Period, even if applicable Performance
Goals have been attained, so long as the exercise of such discretion by the Committee would not
cause the Performance Award to fail to qualify as performance-based compensation under Section
162(m) of the Code.
(e)
Other Committee Discretion
. Except as otherwise permitted by Section 162(m) of
the Code, in no event shall any discretionary authority granted to the Committee by the Plan be
used to (1) grant or provide payment in respect of Performance Awards for a Performance Period if
the Performance Goals for such Performance Period have not been attained, (2) increase a
Performance Award for any Participant at any time after the first ninety days of the Performance
Period (or, if shorter, the maximum period allowed under Section 162(m) of the Code, or (3)
increase the amount of a Performance Award above the maximum amount payable under Section 4.1(b) of
the Plan.
(f)
Timing of Performance Award Payments; Shareholder Approval Required
.
(i) The Performance Awards earned for a Performance Period shall be paid to Participants as
soon as administratively possible following completion of the certification required by Section
11.6(c). However, in no event shall any Performance Award granted for a Performance Period be paid
later than the fifteenth day of the third month following the end of the Performance Period.
(ii) Notwithstanding the foregoing provisions of this Article XI, no Performance Award shall
be paid to any Participant unless and until the approval by the Companys shareholders regarding
the Plan that is required by Section 162(m) of the Code has been obtained.
16
ARTICLE XII
AMENDMENTS AND TERMINATION
Section 12.1
Amendment or Termination of the Plan
.
The Plan (or any portion of it)
may be amended, suspended or terminated by the Board without the approval of the shareholders of
the Company, except that shareholder approval shall be required for any
amendment that would (a) increase the Plan Share Limit or increase the maximum number of
Shares that may be delivered pursuant to Incentive Stock Options granted under the Plan, provided,
however, that any adjustment under Section 4.2 shall not constitute an increase for purposes of
this Section 12.1, (b) change the eligibility requirements set forth in Section 5.1 for
participation in the Plan, (c) result in an amendment, cancellation or other action described in
clause (a), (b) or (c) of the second sentence of Section 12.2, or (d) amend the Plan in any other
manner that requires shareholder approval under Section 162(m) of the Code, under the rules of
NASDAQ (or any successor exchange or quotation system on which the Shares may be listed or quoted)
or under any other applicable laws, rules or regulations. No amendment or termination of the Plan
may, without the consent of the Participant to whom any Award shall have been granted, materially
and adversely affect the rights of such Participant under such Award, unless otherwise provided by
the Committee in the applicable Award Agreement.
Section 12.2
Amendments to Awards; No Repricing of Awards
.
The Committee may waive
any conditions or rights under, amend any terms or conditions of, or alter, suspend, discontinue,
cancel or terminate any Award that has been granted under the Plan, prospectively or retroactively;
provided, however, that, except as set forth in the Plan or the applicable Award Agreement, any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that
would materially and adversely impair the rights of the Participant who holds the Award shall not
to that extent be effective without the consent of the Participant. Notwithstanding the preceding
sentence, in no event may any Option or SAR (a) be amended to decrease the Exercise Price of the
Option or SAR, (b) be cancelled at a time when its Exercise Price exceeds the Fair Market Value of
the underlying Shares in exchange for another Option or SAR or any Restricted Share, Restricted
Stock Unit, other equity-based Award, award under any other equity-compensation plan or any cash
payment, or (c) be subject to any action that would be treated, for accounting purposes, as a
repricing of such Option or SAR, unless such amendment, cancellation or action is approved by the
Companys shareholders. For the avoidance of doubt, an adjustment to the Exercise Price of an
Option or SAR that is made in accordance with Section 4.2 or Section 13.2 shall not be considered a
reduction in the Exercise Price or a repricing of such Option or SAR.
ARTICLE XIII
CHANGE OF CONTROL OF THE COMPANY
Section 13.1
Definition
.
Change of Control
means the occurrence of any of
the following events, unless a different definition of Change of Control is set forth in the
applicable Award Agreement:
(a) The completion of a merger or consolidation of the Company with any other corporation or
entity, excluding a merger or consolidation which results in the voting securities of the Company
outstanding immediately prior to the completion of such merger or
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consolidation continuing to
represent (either by remaining outstanding or by being converted into voting securities of the
surviving corporation or other entity or its parent) more than fifty percent of the total voting
power represented by the voting securities of the Company or such surviving corporation or other
entity or its parent outstanding immediately after the completion of the merger or consolidation;
(b) The completion of the sale or other disposition of all, or substantially all, of the
Companys assets (in one or a series of related transactions) to any corporation or other entity or
Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
excluding any sale or other disposition of the Companys assets in a merger or consolidation
described in paragraph (a) above that does not constitute a Change of Control; or
(c) Any Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act), other than the Company, becomes the Beneficial Owner of outstanding securities of
the Company representing more than fifty percent of the total voting power of the then-outstanding
voting securities of the Company if, within two years after such fifty percent ownership threshold
has been exceeded, a merger or consolidation of the Company with or into such Person or group (or
with or into an Affiliate of such Person or group) is completed, with the date of the Change of
Control for purposes of this paragraph (c) to be the date of the completion of such merger or
consolidation.
Section 13.2
Effect of a Change of Control
.
Unless otherwise provided in the
applicable Award Agreements or unless otherwise determined by the Committee, if a Change of Control
occurs and if the agreements entered into by the Company with respect to the Change of Control do
not provide for, on a basis determined by the Committee to be appropriate, (x) the continuation in
full force and effect of the applicable Awards that are outstanding as of the Change of Control,
(y) the assumption in full by the Companys successor in the Change of Control of such Awards that
are outstanding as of the Change of Control, or (z) the substitution by the Companys successor in
the Change of Control for such Awards of new awards with substantially similar terms, including
securities of the successor corporation or its parent corporation (as defined in Section 424(e)
of the Code) with appropriate adjustments as to the number and kinds of securities and exercise
prices with respect to Options, SARs, Restricted Shares and Restricted Stock Units, then:
(a) Any outstanding Options or SARs then held by Participants that are unexercisable or
otherwise unvested shall automatically be deemed exercisable or otherwise vested, as the case may
be, as of five days prior to the Change of Control and shall terminate on the date of the Change of
Control;
(b) All Awards designated as Performance Awards shall be paid out as if the date of the Change
of Control were the last day of the applicable Performance Period and target performance levels
had been attained; provided, however, that the Committee shall have discretion to cancel, without
payment and effective as of the Change of Control, any or all outstanding Incentive Cash Awards
that constitute Performance Awards if the Change of Control occurs prior to the completion of at
least fifty percent of the Performance Period governing such Incentive Cash Awards; and
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(c) All other outstanding Awards (i.e., other than Options, SARs and Awards designated as
Performance Awards) then held by Participants that are unexercisable, unvested or still subject to
restrictions or forfeiture, shall automatically be deemed exercisable and vested and all
restrictions and forfeiture provisions related to such Awards shall lapse immediately prior to the
Change of Control.
Section 13.3
Dissolution of the Company
.
If the Companys shareholders approve the
dissolution of the Company, all then-outstanding Awards under the Plan shall terminate on the date
that the Company files a certificate of dissolution with the California Secretary of State pursuant
to Section 1905 of the California General Corporation Law. At any time after the Companys
shareholders approve the dissolution of the Company but prior to the filing of the certificate of
dissolution, the Committee shall have discretion to make such adjustments to the terms of any or
all outstanding Awards as it determines are appropriate, including providing that (a) any or all
outstanding but unvested Options and SARs shall become vested and exercisable in full for a period
specified by the Committee and (b) any or all outstanding but unvested Restricted Shares and
Restricted Stock Units shall become vested in full.
ARTICLE XIV
GENERAL PROVISIONS
Section 14.1
Award Agreements
.
Each Award under the Plan shall be evidenced by an
Award Agreement, in a form approved by the Committee and which shall be delivered to the
Participant and shall specify the terms of the Award including, if so desired by the Committee, the
effect on such Award of the death, disability or termination of employment or service of a
Participant and the effect, if any, of such other events as may be determined by the Committee.
Each Award Agreement shall be subject to, and governed by, all of the terms of the Plan.
Section 14.2
Share Certificates
.
All certificates for Shares or other securities of
the Company or any Affiliate delivered under the Plan pursuant to any Award or the exercise of any
Award shall be subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan, the applicable Award Agreement or the rules, regulations and other
requirements of the SEC, NASDAQ or any other stock exchange or quotation system upon which such
Shares or other securities are then listed or quoted and any applicable federal or state laws,
rules and regulations, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
Section 14.3
Nontransferability
.
Except as otherwise specified in the applicable
Award Agreement, during a Participants lifetime each Award (and any rights and obligations under
the Award) shall be exercisable only by the Participant or, if permissible under applicable laws,
rules and regulations, by the Participants legal guardian or representative, and no Award (or any
rights and obligations under the Award) may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of
descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate;
provided that (a) the designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance, and (b) the Board or the Committee may adopt
rules permitting the transfer, solely as gifts during the Participants
19
lifetime, of Awards to (x)
members of a Participants immediate family or to trusts, family partnerships or similar entities
for the benefit of such immediate family members (such term meaning the Participants spouse,
parent, child, stepchild, grandchild and the spouses of such family members) and (y) charitable
institutions. However, Incentive Stock Options granted under the Plan shall not be transferable in
any way that would violate applicable Treasury Regulations and in no event may any Award (or any
rights and obligations under the Award) be transferred in
any way in exchange for value. All terms of the Plan and all Award Agreements shall be
binding upon any permitted successors and assigns.
Section 14.4
Other Laws; Restrictions on Transfer of Shares
.
The Committee may refuse
to issue or transfer any Shares or other consideration under an Award if, acting in its discretion,
it determines that the issuance or transfer of such Shares or such other consideration might
violate any applicable law, rule or regulation or entitle the Company to recover a Participants
profits under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a
Participant, other holder or beneficiary in connection with the exercise of such Award shall be
promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the
generality of the foregoing, no Award granted under the Plan shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and until the Committee
in its discretion has determined that any such offer, if made, would be in compliance with all
applicable requirements of federal and state securities laws, rules and regulations.
Section 14.5
No Rights to Awards
.
No Participant or other Person shall have any claim
to be granted any Award, and there is no obligation for uniformity of treatment of Participants or
holders or beneficiaries of Awards. The terms of Awards and the Committees determinations and
interpretations with respect to Awards need not be the same with respect to each Participant and
may be made selectively among Participants, whether or not such Participants are similarly
situated.
Section 14.6
No Right to Employment
.
The grant of an Award shall not be construed as
giving a Participant the right to be retained as a director, officer, employee or consultant of or
to the Company or any Affiliate. Furthermore, the Company or an Affiliate may at any time dismiss
a Participant from employment or discontinue any directorship or consulting relationship, free from
any liability or any claim under the Plan, unless otherwise expressly provided in the applicable
Award Agreement.
Section 14.7
Rights as a Shareholder
.
No Participant or holder or beneficiary of any
Award shall have any rights as a shareholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares. In connection with each grant of
Restricted Shares, except as provided in the applicable Award Agreement, the Participant shall be
entitled to the rights of a shareholder (including the right to vote) in respect of such Restricted
Shares. Except as otherwise provided in Section 4.2 or the applicable Award Agreement, no
adjustments shall be made for dividends or distributions on (whether ordinary or extraordinary, and
whether in cash, Shares, other securities or other property), or other events relating to, Shares
subject to an Award for which the record date is prior to the date such Shares are delivered.
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Section 14.8
No Trust or Fund Created
.
Neither the Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary relationship between the
Company or any Affiliate, on the one hand, and a Participant or any other Person, on the other. To
the extent that any Person acquires a right to receive payments from the Company or any Affiliate
pursuant to an Award, such right shall be no greater than the right of any unsecured general
creditor of the Company or such Affiliate.
Section 14.9
No Fractional Shares
.
No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities
or other property shall be paid or transferred in lieu of any fractional Shares or whether such
fractional Shares or any rights to fractional Shares shall be canceled, terminated or otherwise
eliminated.
Section 14.10
No Limit on Other Compensation Arrangements
.
Except as provided in
Section 1.4, nothing contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other compensation arrangements, which may, but need not, provide for the
grant of options, restricted stock, shares, other types of equity-based awards and cash incentive
awards (subject to shareholder approval if such approval is required), and such arrangements may be
either generally applicable or applicable only in specific cases.
Section 14.11
Recoupment of Awards
.
(a) If, due to the material noncompliance of the Company with any financial reporting
requirement of the United States securities laws, rules and regulations, the Company is required to
prepare an accounting restatement of its financial statements, the Company shall take the following
actions with respect to each Award that was granted under the Plan during the three-year period
preceding the date on which the Company becomes required to prepare such restatement, regardless as
to whether such restatement is attributable to any Participants or other Persons negligence,
fraud or other misconduct:
(i) If an Award is unpaid, unvested or unexercised, the Company shall cancel all or a portion
of the Award, if and to the extent that the Committee determines that the Award to the Participant
was based upon erroneous data contained in the Companys financial statements and was in excess of
the Award that the Participant would have received based upon the Companys restated financial
statements;
(ii) If any Shares have been issued by the Company to the Participant under the Award and have
vested, the Participant shall be required to transfer to the Company, for no consideration, all or
a portion of such Shares or a cash amount equal to the Fair Market Value of such Shares as of the
date of the restated financial statements, if and to the extent that the Committee determines that
the Award of such Shares received by the Participant was based upon erroneous data contained in the
Companys financial statements and was in excess of the Shares that the Participant would have
received based upon the Companys restated financial statements; and
(iii) If an Award has been paid in cash by the Company to the Participant under the Award, the
Participant shall be required to return to the Company, for no
21
consideration, all or a portion of
such cash, if and to the extent that the Committee determines that the Award of such cash payment
received by the Participant was based upon erroneous data contained in the Companys financial
statements and was in excess of the cash payment that the Participant would have received based
upon the Companys restated financial statements.
(b) After taking into account any proposed or final rules and regulations that may be issued
by the SEC under Section 10D of the Exchange Act regarding the recovery of
erroneously awarded compensation, the Board shall have the discretion to adopt a written
policy that implements, interprets and enforces the Awards recoupment requirements set forth in
Section 14.11(a), and all Awards made under the Plan shall be subject to any such written policy
that is adopted by the Board. The Board is also authorized to amend any or all of the terms of
Section 14.11(a) following its review of such proposed or final SEC rules and regulations under
Section 10D of the Exchange Act.
(c) An Award Agreement may include restrictive covenants, including non-competition,
non-disparagement and confidentiality conditions or restrictions, that the Participant must comply
with during employment by the Company or an Affiliate or for a specified period thereafter as a
condition to the Participants receipt or retention of all or any portion of an Award.
Section 14.12
Withholding
.
(a)
Authority to Withhold
. A Participant may be required to pay to the Company or any
Affiliate, and the Company or any Affiliate shall have the right and is authorized to withhold from
any Award, from any payment due or transfer made under any Award or under the Plan or from any
compensation or other amount owing to a Participant, the amount (in cash, Shares, other securities,
other Awards or other property) of any applicable withholding taxes in respect of an Award, its
exercise or any payment or transfer under an Award or under the Plan and to take such other action
as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for
the payment of such taxes.
(b)
Alternative Ways to Satisfy Withholding Liability
. Without limiting the
generality of Section 14.12(a), subject to the Committees discretion, a Participant may satisfy,
in whole or in part, the foregoing withholding liability by delivery of Shares owned by the
Participant (which are not subject to any pledge or other security interest) having a Fair Market
Value equal to such withholding liability or by having the Company withhold from the number of
Shares otherwise issuable pursuant to the exercise of the Option or SAR, or the lapse of the
restrictions on any other Award (in the case of SARs and other Awards, if such SARs and other
Awards are settled in Shares), a number of Shares having a Fair Market Value equal to such
withholding liability.
Section 14.13
Compliance with Section 409A of the Code
.
(a) It is intended that the provisions of the Plan shall comply with Section 409A of the Code,
and all provisions of the Plan shall be construed and interpreted in a manner consistent with the
requirements for avoiding taxes or penalties under Section 409A of the Code.
22
(b) No Participant or the creditors or beneficiaries of a Participant shall have the right to
subject any deferred compensation (within the meaning of Section 409A of the Code) payable under
the Plan to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred
compensation (within the meaning of Section 409A of the Code) payable to any Participant or for the
benefit of any Participant under the Plan may not be reduced by, or offset against, any amount
owing by any such Participant to the Company or any of its Affiliates.
(c) If, at the time of a Participants separation from service (within the meaning of Section
409A of the Code), (1) such Participant shall be a specified employee (within the meaning of
Section 409A of the Code and using the identification methodology selected by the Company from time
to time) and (2) the Company shall make a good faith determination that an amount payable pursuant
to an Award constitutes deferred compensation (within the meaning of Section 409A of the Code) the
payment of which is required to be delayed pursuant to the six-month delay rule set forth in
Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then
the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay
it on the first business day after such six-month period. Such amount shall be paid without
interest, unless otherwise determined by the Committee, in its discretion, or as otherwise provided
in any applicable employment agreement between the Company and the relevant Participant.
(d) Notwithstanding any provision of the Plan to the contrary, in light of the uncertainty
with respect to the proper application of Section 409A of the Code, the Committee reserves the
right to make amendments to any Award as the Committee deems necessary or desirable to avoid the
imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant shall
be solely responsible and liable for the satisfaction of all taxes and penalties that may be
imposed on such Participant or for such Participants account in connection with an Award
(including any taxes and penalties under Section 409A of the Code), and neither the Company nor any
of its Affiliates shall have any obligation to indemnify or otherwise hold such Participant
harmless from any or all of such taxes or penalties.
Section 14.14
Severability; Successor Statutes
.
(a) If any provision of the Plan or any Award is or becomes or is deemed to be invalid,
illegal or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the
Plan or any Award under any law, rule or regulation deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to the applicable law, rule or
regulation, or if it cannot be construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award, such provision shall be
construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
(b) References in the Plan to specific sections of, or rules or regulations under, the Code,
the Exchange Act or any other statute include such sections, rules and regulations as they may be
amended after the Effective Date and include any successor provisions to such cited sections, rules
and regulations.
23
Section 14.15
Governing Law
.
The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be determined in
accordance with the internal laws of the State of California, without giving effect to the conflict
of laws provisions of the State of California.
24