CALAVO GROWERS INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - CALAVO GROWERS INC	Financial_Report.xls
EX-31.2 - EX-31.2 - CALAVO GROWERS INC	d710167dex312.htm
EX-31.1 - EX-31.1 - CALAVO GROWERS INC	d710167dex311.htm
EX-32.1 - EX-32.1 - CALAVO GROWERS INC	d710167dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended April 30, 2014

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

Commission file number: 000-33385

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)


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

1141-A Cummings Road

Santa Paula, California 93060

(Address of principal executive offices) (Zip code)

(805) 525-1245

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

Registrant’s number of shares of common stock outstanding as of April 30, 2014 was 15,760,405

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Calavo Growers, Inc. and its consolidated subsidiaries (Calavo, the Company, we, us or our) may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, currency exchange rates, the impact of acquisitions or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration plans; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Calavo and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic trends and events; the competitive pressures faced by Calavo’s businesses; the development and transition of new products and services (and the enhancement of existing products and services) to meet customer needs; integration and other risks associated with business combinations; the hiring and retention of key employees; the resolution of pending investigations, claims and disputes; and other risks that are described herein, including, but not limited to, the items discussed in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended October 31, 2013, and those detailed from time to time in our other filings with the Securities and Exchange Commission. Calavo assumes no obligation and does not intend to update these forward-looking statements.

CALAVO GROWERS, INC.

INDEX


		PAGE

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Consolidated Condensed Balance Sheets – April 30, 2014 and October 31, 2013		4

	Consolidated Condensed Statements of Income – Three Months and Six Months Ended April 30, 2014 and 2013		5

	Consolidated Condensed Statements of Comprehensive Income (Loss) – Three Months and Six Months Ended April 30, 2014 and 2013		6

	Consolidated Condensed Statements of Cash Flows – Six Months Ended April 30, 2014 and 2013		7

	Notes to Consolidated Condensed Financial Statements		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25

Item 4.	Controls and Procedures		25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		26

Item 1A.	Risk Factors		26

Item 6.	Exhibits		26

	Signatures		27

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)


	April 30,			October 31,
	2014			2013
Assets
Current assets:
Cash and cash equivalents	$	19,914		$	8,019
Accounts receivable, net of allowances of $2,789 (2014) and $1,697 (2013)		64,093			55,060
Inventories, net		32,261			28,673
Prepaid expenses and other current assets		13,528			10,757
Advances to suppliers		39			3,213
Income taxes receivable		773			2,013
Deferred income taxes		1,995			1,995

Total current assets		132,603			109,730
Property, plant, and equipment, net		55,568			52,649
Investment in Limoneira Company		39,705			45,531
Investment in unconsolidated entities		1,533			1,420
Goodwill		18,262			18,262
Other assets		11,436			12,347

	$	259,107		$	239,939

Liabilities and shareholders’ equity
Current liabilities:
Payable to growers	$	19,117		$	14,490
Trade accounts payable		15,850			11,699
Accrued expenses		22,568			20,939
Short-term borrowings		41,030			33,990
Dividend payable		—			11,004
Current portion of long-term obligations		5,321			5,258

Total current liabilities		103,886			97,380
Long-term liabilities:
Long-term obligations, less current portion		5,801			7,792
Deferred income taxes		3,922			6,194

Total long-term liabilities		9,723			13,986
Commitments and contingencies
Noncontrolling interest, Calavo Salsa Lisa		(104	)		121
Shareholders’ equity:
Common stock, $0.001 par value, 100,000 shares authorized; 15,760 (2014) and 15,720 (2013) shares issued and outstanding		15			15
Additional paid-in capital		65,358			59,376
Accumulated other comprehensive income		9,861			13,414
Noncontrolling interest, FreshRealm		4,031			(6	)
Retained earnings		66,337			55,653

Total shareholders’ equity		145,602			128,452

	$	259,107		$	239,939

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

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)


	Three months ended April 30,						Six months ended April 30,
	2014			2013			2014			2013
Net sales	$	194,894		$	166,336		$	363,059		$	305,835
Cost of sales		175,917			154,800			330,392			281,175

Gross margin		18,977			11,536			32,667			24,660
Selling, general and administrative		9,111			8,190			17,383			17,011

Operating income		9,866			3,346			15,284			7,649
Interest expense		(292	)		(317	)		(548	)		(569	)
Other income, net		270			235			405			373

Income before provision for income taxes		9,844			3,264			15,141			7,453
Provision for income taxes		3,432			1,071			5,254			2,579

Net income		6,412			2,193			9,887			4,874
Add: Net loss attributable to noncontrolling interest		298			20			798			46

Net income attributable to Calavo Growers, Inc.	$	6,710		$	2,213		$	10,685		$	4,920

Calavo Growers, Inc.’s net income per share:
Basic	$	0.43		$	0.15		$	0.68		$	0.33

Diluted	$	0.43		$	0.15		$	0.68		$	0.33

Number of shares used in per share computation:
Basic		15,755			14,819			15,740			14,827

Diluted		15,764			14,839			15,750			14,846

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

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)


	Three months ended April 30,						Six months ended April 30,
	2014			2013			2014			2013
Net income	$	6,412		$	2,193		$	9,887		$	4,874

Other comprehensive income (loss), before tax:
Unrealized holding income (loss) on available for sales investments arising during period		3,803			(5,393	)		(5,825	)		(6,638	)
Income tax benefit (expense) related to items of other comprehensive income (loss)		(1,483	)		2,103			2,272			2,589

Other comprehensive income (loss), net of tax		2,320			(3,290	)		(3,553	)		(4,049	)

Comprehensive income (loss)		8,732			(1,097	)		6,334			825

Add: Net loss – noncontrolling interest		298			20			798			46

Comprehensive income (loss) – Calavo Growers, Inc.	$	9,030		$	(1,077	)	$	7,132		$	871

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

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six months ended April 30,
	2014			2013
Cash Flows from Operating Activities:
Net income	$	9,887		$	4,874
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,378			3,293
Income from unconsolidated entities		12			—
Interest on contingent consideration		18			84
Revalue adjustment on contingent consideration		—			1,444
Stock-based compensation expense		303			191
Effect on cash of changes in operating assets and liabilities:
Accounts receivable		(9,033	)		(20,479	)
Inventories, net		(3,588	)		(2,486	)
Prepaid expenses and other current assets		(2,771	)		(1,349	)
Advances to suppliers		3,174			2,338
Income taxes receivable		1,415			(113	)
Other assets		78			143
Payable to growers		4,628			10,516
Trade accounts payable and accrued expenses		5,762			5,027

Net cash provided by operating activities		13,263			3,483
Cash Flows from Investing Activities:
Acquisitions property, plant, and equipment		(5,464	)		(3,092	)
Investment in unconsolidated entity		(125	)		—

Net cash used in investing activities		(5,589	)		(3,092	)
Cash Flows from Financing Activities:
Payment of dividend to shareholders		(11,005	)		(9,646	)
Proceeds on revolving credit facilities, net		7,040			14,970
Payments on long-term obligations		(1,928	)		(1,611	)
Retirement of common stock		—			(4,788	)
Proceeds from issuance of FreshRealm stock		10,000			—
Exercise of stock options		114			700

Net cash provided by (used in) financing activities		4,221			(375	)

Net increase in cash and cash equivalents		11,895			16
Cash and cash equivalents, beginning of period		8,019			7,103

Cash and cash equivalents, end of period	$	19,914		$	7,119

Noncash Investing and Financing Activities:
Tax benefit related to stock based compensation	$	175		$	208

Collection on Beltran Infrastructure Advance	$	—		$	1,690

Unrealized investment holding losses	$	(5,825	)	$	(6,638	)

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

1. Description of the business

Business

Calavo Growers, Inc. (Calavo, the Company, we, us or our), is a global leader in the avocado industry and an expanding provider of value-added fresh food. Our expertise in marketing and distributing avocados, prepared avocados, and other perishable foods allows us to deliver a wide array of fresh and prepared food products to food distributors, produce wholesalers, supermarkets, and restaurants on a worldwide basis. We procure avocados principally from California, Mexico, and Chile. Through our various operating facilities, we sort, pack, and/or ripen avocados, tomatoes, pineapples and/or Hawaiian grown papayas. Additionally, we also produce salsa and prepare ready-to-eat produce and deli products.

The accompanying unaudited consolidated condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2013.

Recently Adopted Accounting Pronouncements

In February 2013, the FASB issued a standard that revised the disclosure requirements for items reclassified out of accumulated other comprehensive income and requires entities to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2012. The adoption of this standard had no impact on our financial statements.

In July 2013, the FASB issued a standard permitting the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the United States Treasury rate and London Interbank Offered Rate (“LIBOR”). In addition, the restriction on using different benchmark rates for similar hedges is removed. The Company is required to adopt these provisions prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. The adoption of this standard had no impact on our financial statements.

Recently Issued Accounting Standards

In March 2013, the FASB issued a standard which requires the release of a Company’s cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This guidance is effective for annual reporting periods beginning after December 15, 2013. The adoption of this amendment will not have a material effect on our financial statements.

In July 2013, the FASB issued a standard to clarify the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists as of the reporting date. This guidance is effective for annual reporting periods beginning after December 15, 2013. The adoption of this amendment will not have a material effect on our financial statements.

2. Information regarding our operations in different segments

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


	Three months ended April 30, 2014												Three months ended April 30, 2013
	Fresh products			Calavo Foods			RFG			Total			Fresh products			Calavo Foods			RFG			Total
Third-party sales:
Avocados	$	106,713		$	—		$	—		$	106,713		$	95,203		$	—		$	—		$	95,203
Tomatoes		12,590			—			—			12,590			12,375			—			—			12,375
Papayas		3,139			—			—			3,139			3,146			—			—			3,146
Pineapples		1,858			—			—			1,858			2,152			—			—			2,152
Other fresh products		80			—			—			80			150			—			—			150
Food service		—			12,674			—			12,674			—			10,578			—			10,578
Retail and club		—			5,533			56,339			61,872			—			4,311			42,388			46,699

Total gross sales		124,380			18,207			56,339			198,926			113,026			14,889			42,388			170,303
Less sales incentives		(428	)		(3,090	)		(514	)		(4,032	)		(538	)		(2,685	)		(744	)		(3,967	)

Net sales	$	123,952		$	15,117		$	55,825		$	194,894		$	112,488		$	12,204		$	41,644		$	166,336


	Six months ended April 30, 2014												Six months ended April 30, 2013
	Fresh products			Calavo Foods			RFG			Total			Fresh products			Calavo Foods			RFG			Total
Third-party sales:
Avocados	$	196,077		$	—		$	—		$	196,077		$	169,285		$	—		$	—		$	169,285
Tomatoes		19,096			—			—			19,096			19,336			—			—			19,336
Papayas		6,424			—			—			6,424			6,380			—			—			6,380
Pineapples		2,755			—			—			2,755			3,171			—			—			3,171
Other fresh products		144			—			—			144			213			—			—			213
Food service		—			22,645			—			22,645			—			20,502			—			20,502
Retail and club		—			11,055			112,872			123,927			—			8,971			85,666			94,637

Total gross sales		224,496			33,700			112,872			371,068			198,385			29,473			85,666			313,524
Less sales incentives		(822	)		(5,727	)		(1,460	)		(8,009	)		(830	)		(5,339	)		(1,520	)		(7,689	)

Net sales	$	223,674		$	27,973		$	111,412		$	363,059		$	197,555		$	24,134		$	84,146		$	305,835


	Fresh products		Calavo Foods		RFG		Total
Three months ended April 30, 2014
Net sales	$	123,952	$	15,117	$	55,825	$	194,894
Cost of sales		114,269		11,294		50,354		175,917

Gross margin	$	9,683	$	3,823	$	5,471	$	18,977

Three months ended April 30, 2013
Net sales	$	112,488	$	12,204	$	41,644	$	166,336
Cost of sales		108,422		7,901		38,477		154,800

Gross margin	$	4,066	$	4,303	$	3,167	$	11,536

For the three months ended April 30, 2014 and 2013, inter-segment sales and cost of sales for Fresh products totaling $8.6 million and $8.8 million were eliminated. For the three months ended April 30, 2014 and 2013, inter-segment sales and cost of sales for Calavo Foods totaling $3.9 million and $3.4 million were eliminated.


	Fresh products		Calavo Foods		RFG		Total
Six months ended April 30, 2014
Net sales	$	223,674	$	27,973	$	111,412	$	363,059
Cost of sales		207,783		21,558		101,051		330,392

Gross margin	$	15,891	$	6,415	$	10,361	$	32,667

Six months ended April 30, 2013
Net sales	$	197,555	$	24,134	$	84,146	$	305,835
Cost of sales		186,720		16,743		77,712		281,175

Gross margin	$	10,835	$	7,391	$	6,434	$	24,660

For the six months ended April 30, 2014 and 2013, inter-segment sales and cost of sales for Fresh products totaling $17.6 million and $18.5 million were eliminated. For the six months ended April 30, 2014 and 2013, inter-segment sales and cost of sales for Calavo Foods totaling $7.6 million and $6.5 million were eliminated.

3. Inventories

Inventories consist of the following (in thousands):


	April 30, 2014		October 31, 2013
Fresh fruit	$	18,216	$	13,928
Packing supplies and ingredients		6,249		5,511
Finished prepared foods		7,796		9,234

	$	32,261	$	28,673

During the three and six-month periods ended April 30, 2014, we recorded $0.3 million in provisions to reduce our inventories to the lower of cost or market. During the three and six-month periods ended April 30, 2013, we were not required to and did not record any provisions to reduce our inventories to the lower of cost or market.

4. Related party transactions

Certain members of our Board of Directors market avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers. During the three months ended April 30, 2014 and 2013, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $0.8 million and $6.1 million. During the six months ended April 30, 2014 and 2013, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $1.2 million and $6.4 million. Amounts payable to these board members were $0.6 million and $3.3 million as of April 30, 2014 and October 31, 2013.

During the three and six months ended April 30, 2014 and 2013, we received $0.1 million as dividend income from Limoneira Company (Limoneira).

The three previous owners and current executives of RFG have a majority ownership of certain entities that provide various services to RFG. RFG’s California operating facility leases a building from LIG partners, LLC (LIG) pursuant to an operating lease. LIG is majority owned by an entity owned by such three executives of RFG. For the three months ended April 30, 2014 and 2013, total rent paid to LIG was $0.1 million. For the six months ended April 30, 2014 and 2013, total rent paid to LIG was $0.3 million. RFG’s Texas operating facility leases a building from THNC, LLC (THNC) pursuant to an operating lease. THNC is majority owned by an entity owned by such three executives of RFG. For the three months ended April 30, 2014 and 2013, total rent paid to THNC was $0.1 million. For the six months ended April 30, 2014 and 2013, total rent paid to THNC was $0.2 million. Additionally, RFG sells cut produce and purchases raw materials, obtains transportation services, and shares costs for certain utilities with Third Coast Fresh Distribution (Third Coast). Third Coast is majority owned by an entity owned by such three executives of RFG. For the three months ended April 30, 2014 and 2013, total sales made to Third Coast were $0.3 million and $0.6 million. For the six months ended April 30, 2014 and 2013, total sales made to Third Coast were $0.5 million and $1.6 million. For the three months April 30, 2014 and 2013, total purchases made from Third Coast were less than $0.1 million and $0.2 million. For the six months April 30, 2014 and 2013, total purchases made from Third Coast were $0.1 million and $1.0 million. Amounts due from Third Coast were $0.3 million and $1.0 million at April 30, 2014 and October 31, 2013. Amounts due to Third Coast were less than $0.1 million at April 30, 2014 and October 31, 2013.

5. Other assets

Other assets consist of the following (in thousands):


	April 30, 2014		October 31, 2013
Intangibles, net	$	6,587	$	7,272
Grower advances		790		938
Loan to Agricola Belher		1,690		1,690
Loan to FreshRealm members		290		283
Notes receivable from San Rafael		1,441		1,594
Other		638		570

	$	11,436	$	12,347

Intangible assets consist of the following (in thousands):


	April 30, 2014									October 31, 2013
	Weighted- Average Useful Life		Gross Carrying Value		Accum. Amortization			Net Book Value		Gross Carrying Value		Accum. Amortization			Net Book Value
Customer list/relationships		8.0 years	$	7,640	$	(2,843	)	$	4,797	$	7,640	$	(2,364	)	$	5,276
Trade names		8.4 years		2,760		(1,768	)		992		2,760		(1,636	)		1,124
Trade secrets/recipes		12.6 years		630		(190	)		440		630		(137	)		493
Brand name intangibles		indefinite		275		—			275		275		—			275
Non-competition agreements		5.0 years		267		(184	)		83		267		(163	)		104

Intangibles, net			$	11,572	$	(4,985	)	$	6,587	$	11,572	$	(4,300	)	$	7,272

We anticipate recording amortization expense of approximately $0.7 million for the remainder of fiscal 2014, with $1.3 million of amortization expense for fiscal year 2015, $1.2 million for fiscal year 2016, $1.1 million for each of the fiscal years 2017 and 2018, and $0.9 million for years thereafter, through fiscal year 2023.

6. Stock-Based Compensation

In April 2011, our shareholders approved the Calavo Growers, Inc. 2011 Management Incentive Plan (the “2011 Plan”). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2011 Plan. Up to 1,500,000 shares of common stock may be issued by Calavo under the 2011 Plan.

On January 9, 2014, all 12 of our non-employee directors were granted 1,750 restricted shares each (total of 21,000 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $32.49. On January 1, 2015, as long as the directors are still serving on the board, these shares lose their restriction and become non-forfeitable and transferable. These shares were granted pursuant to our 2011 Management Incentive Plan.

On January 27, 2014, our executive officers were granted a total of 10,774 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $30.50. These shares vest in one-third increments, on an annual basis, beginning January 1, 2015.

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

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

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


	Number of Shares			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at October 31, 2013		27		$	15.79		—
Exercised		(8	)	$	14.58		—

Outstanding at April 30, 2014		19		$	16.28	$	606

Exercisable at April 30, 2014		15		$	15.59	$	482

At April 30, 2014, outstanding stock options had a weighted-average remaining contractual term of 4.1 years. At April 30, 2014, exercisable stock options had a weighted-average remaining contractual term of 3.7 years. The total recognized stock-based compensation expense was insignificant for the three months ended April 30, 2014.

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


	Number of Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at October 31, 2013		20	$	22.64		—
Outstanding at April 30, 2014		20	$	22.64	$	169

Exercisable at April 30, 2014		6	$	22.36	$	52

At April 30, 2014, outstanding stock options had a weighted-average remaining contractual term of 6.1 years. At April 30, 2014, exercisable stock options had a weighted-average remaining contractual term of 4.2 years. The total recognized stock-based compensation expense was $0.2 million and $0.3 million for the three and six months ended April 30, 2014.

7. Other events

Dividend payment

On December 12, 2013, we paid a $0.70 per share dividend in the aggregate amount of $11.0 million to shareholders of record on November 29, 2013.

Contingencies

From time to time, we are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements.

8. Fair value measurements

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

The following table sets forth our financial assets and liabilities as of April 30, 2014 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:


	Level 1		Level 2		Level 3		Total
	(All amounts are presented in thousands)
Assets at Fair Value:
Investment in Limoneira Company⁽¹⁾	$	39,705	$	—	$	—	$	39,705

Total assets at fair value	$	39,705	$	—	$	—	$	39,705

(1)

The investment in Limoneira Company consists of marketable securities in the Limoneira Company stock. We currently own approximately 12% of Limoneira’s outstanding common stock. These securities are measured at fair value by quoted market prices. Limoneira’s stock price at April 30, 2014 and October 31, 2013 equaled $22.97 per share and $26.34 per share. Unrealized gains and losses are recognized through other comprehensive income. Unrealized investment holding income arising during the three months ended April 30, 2014 was $3.8 million. Unrealized investment holding losses arising during the six months ended April 30, 2014 was $5.8 million.


	Level 1		Level 2		Level 3		Total
	(All amounts are presented in thousands)
Liabilities at fair value:
Salsa Lisa contingent consideration⁽²⁾	$	—	$	—	$	694	$	694

Total liabilities at fair value	$	—	$	—	$	694	$	694

(2)

Each period we revalue the contingent consideration obligations to their fair value and record increases or decreases in the fair value into selling, general and administrative expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period. No revalue adjustments were necessary during the three and six months ended April 30, 2014.

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


	Balance at October 31, 2013		Interest		Revalue Adjustment		Balance April 30, 2014
	(All amounts are presented in thousands)
Salsa Lisa contingent consideration	$	676	$	18	$	—	$	694

Total	$	676	$	18	$	—	$	694

9. Noncontrolling interest

The following table reconciles shareholders’ equity attributable to noncontrolling interest related to the Salsa Lisa acquisition and FreshRealm, LLC (in thousands).


Salsa Lisa noncontrolling interest	Three months ended April 30, 2014			Three months ended April 30, 2013
Noncontrolling interest, beginning	$	(69	)	$	331
Net loss attributable to noncontrolling interest		(35	)		(20	)

Noncontrolling interest, ending	$	(104	)	$	311


	Six months ended April 30, 2014			Six months ended April 30, 2013
Noncontrolling interest, beginning	$	121		$	357
Net loss attributable to noncontrolling interest		(225	)		(46	)

Noncontrolling interest, ending	$	(104	)	$	311


FreshRealm noncontrolling interest	Three months ended April 30, 2014			Three months ended April 30, 2013
Noncontrolling interest, beginning	$	(316	)	$	—
New member contribution		4,610			—
Loss attributable to noncontrolling interest of FreshRealm		(263	)		—

Noncontrolling interest, ending	$	4,031		$	—


	Six months ended April 30, 2014			Six months ended April 30, 2013
Noncontrolling interest, beginning	$	(6	)	$	—
New member contribution		4,610			—
Loss attributable to noncontrolling interest of FreshRealm		(573	)		—

Noncontrolling interest, ending	$	4,031		$	—

Since it has not commenced principal operations, FreshRealm is currently considered in its development stage. For the three and six months ended April 30, 2014, FreshRealm has incurred $0.5 million and $1.0 million in expenses, which has been recorded in selling, general and administrative. For the three and six months ended April 30, 2013, FreshRealm has incurred $0.6 million in expenses. Since its creation, FreshRealm has had $2.9 million in cumulative losses. See Note 10 for a discussion about a change in the ownership percentage and the allocation of noncontrolling interest.

10. FreshRealm, LLC

As of April 30, 2014, we entered into a Second Amended and Restated Limited Liability Company Agreement (Agreement) by and among FreshRealm, and the ownership members of FreshRealm. With this agreement, Impermanence, LLC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million to FreshRealm for approximately 28.2% ownership. With this contribution, and a new noncontrolling ownership percentage, $4.6 million of this contribution was attributed to noncontrolling interest.

As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.5% to 50.8%.

Effective April 1, 2014, with this agreement, the first $10.0 million of losses will be allocated solely to Impermanence. As a result, all losses from FreshRealm effective April 1, 2014, will be considered losses attributed to noncontrolling members, and not attributed to Calavo.

FreshRealm is currently considered in its development stage, as planned, principal operations have not commenced. As a result, the company has no sales, or cost of sales. When principal operations commence, FreshRealm is expected to become our fourth segment. For the three and six months ended April 30, 2014, FreshRealm has incurred $0.5 million and $1.0 million in expenses, which has been recorded in selling, general and administrative. For the three and six months ended April 30, 2013, FreshRealm has incurred $0.6 million in expenses.

11. Subsequent events

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

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with the unaudited consolidated condensed financial statements and the notes thereto included in this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K for the year ended October 31, 2013 of Calavo Growers, Inc. (we, Calavo, or the Company).

Recent Developments

Dividend payment

On December 12, 2013, we paid a $0.70 per share dividend in the aggregate amount of $11.0 million to shareholders of record on November 29, 2013.

Contingencies

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.

FreshRealm

As a result of the admission of Impermanence, Calavo’s ownership was reduced from 71.5% to 50.8%.

Net Sales

The following table summarizes our net sales by business segment for each of the three and six-month periods ended April 30, 2014 and 2013:


	Three months ended April 30,									Six months ended April 30,
(in thousands)	2014			Change			2013			2014			Change			2013
Net sales to third-parties:
Fresh products	$	123,952			10.2	%	$	112,488		$	223,674			13.2	%	$	197,555
Calavo Foods		15,117			23.9	%		12,204			27,973			15.9	%		24,134
RFG		55,825			34.1	%		41,644			111,412			32.4	%		84,146

Total net sales	$	194,894			17.2	%	$	166,336		$	363,059			18.7	%	$	305,835

As a percentage of net sales:
Fresh products		63.6	%					67.7	%		61.6	%					64.6	%
Calavo Foods		7.8	%					7.3	%		7.7	%					7.9	%
RFG		28.6	%					25.0	%		30.7	%					27.5	%

		100.0	%					100.0	%		100.0	%					100.0	%

Summary

Net sales for the three months ended April 30, 2014, compared to fiscal 2013, increased by $28.6 million, or 17.2%. Net sales for the six months ended April 30, 2014, compared to fiscal 2013, increased by $57.2 million, or 18.7%. The increases in sales, when compared to the same corresponding prior year periods, are related to increases in sales from all segments. We experienced an increase in RFG sales during the second quarter of fiscal 2014 and the six months ended April 30, 2014, which was due primarily to increased sales from cut fruit and vegetables platters, as well as an increase in sales of deli products. We experienced an increase in Fresh product sales during the second quarter of fiscal 2014 and the six months ended April 30, 2014, which was due primarily to increased sales of Mexican and Chilean sourced avocados. Partially offsetting this increase in Fresh product sales, however, was a decrease in sales of California sourced avocados. We experienced an increase in our Calavo Foods segment during the second quarter of fiscal 2014 and the six months ended April 30, 2014, which was due primarily to an increase in the sales of our guacamole products. While the procurement of fresh avocados related to our Fresh products segment is very seasonal, our Calavo Foods business is generally not subject to a seasonal effect.

Net sales to third parties by segment exclude value-added services billed by our Uruapan packinghouse and our Uruapan processing plant to the parent company. All intercompany sales are eliminated in our consolidated results of operations.

Fresh products

Second Quarter 2014 vs. Second Quarter 2013

Net sales delivered by the Fresh products business increased by approximately $11.5 million, or 10.2%, for the second quarter of fiscal 2014, when compared to the same period for fiscal 2013. As discussed above, this increase in Fresh product sales during the second quarter of fiscal 2014 was primarily related to increased sales of Mexican and Chilean sourced avocados, partially offset by a decrease in sales from California sourced avocados. See details below.

Sales of Mexican sourced avocados increased $22.5 million, or 32.8%, for the second quarter of 2014, when compared to the same prior year period. The increase in Mexican sourced avocados was primarily due to an increase in the sales price per carton. The increase for the sales price per carton for Mexican sourced avocados increased by approximately 38.0%. We attribute much of this change to a higher demand for avocados and a lower supply in the marketplace. Partially offsetting this increase, however, was a decrease in the pounds sold, which decreased by approximately 2.8 million pounds of avocados sold, or 3.8%, when compared to the same prior year period.

Sales of Chilean sourced avocados increased $1.0 million for the second quarter of 2014, when compared to the same prior year period. The increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increase of 0.9 million pounds of avocados sold, when compared to the same prior year period. This increase in sales is due to the lower availability of other avocado sources, and an increased focus on obtaining an increased supply of avocados from more diversified sources.

Partially offsetting such increases was a decrease in sales of California sourced avocados, which decreased $11.9 million, or 45.9%, for the second quarter of 2014, when compared to the same prior year period. The decrease in California sourced avocados was due to a decrease in pounds sold. California sourced avocados sales reflect a decrease in 14.1 million pounds of avocados sold, or 56.0%, when compared to the same prior year period. We attribute most of this decrease in volume to the cyclically smaller California avocado crop for fiscal 2014. Partially offsetting this decrease, however, was the increase in the sales price per carton, which increased by approximately 23.0%. We attribute this increase primarily to a lower overall volume of avocados in the marketplace and an overall increase in the demand of avocados.

Six Months Ended 2014 vs. Six Months Ended 2013

Net sales delivered by the Fresh products business increased by approximately $26.1 million, or 13.2%, for the six months ended April 30, 2014, when compared to the same period for fiscal 2013. As discussed above, this increase in Fresh product sales during the six months ended April 30, 2014, was primarily related to increased sales of Mexican and Chilean sourced avocados, partially offset by a decrease in sales from California sourced avocados. See details below.

Sales of Mexican sourced avocados increased $37.7 million, or 27.0%, for the six months ended April 30, 2014, when compared to the same prior year period. The increase in Mexican sourced avocados was primarily due to an increase in the sales price per carton, which increased by approximately 31.3%. We attribute this increase primarily to a lower overall volume of avocados in the marketplace, and an overall increase in the demand of avocados. Partially offsetting this increase, however, was a decrease in the pounds sold, which decreased by approximately 5.0 million pounds of avocados sold, or 3.3%, when compared to the same prior year period.

Sales of Chilean sourced avocados increased $2.5 million for the six months ended April 30, 2014, when compared to the same prior year period. The increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increase of 2.3 million pounds of avocados sold, when compared to the same prior year period. This increase in sales is due to the lower availability of other avocado sources, and an increased focus on obtaining an increased supply of avocados from more diversified sources.

Partially offsetting such increases was a decrease in sales of California sourced avocados, which decreased $13.4 million, or 46.1% for the six months ended April 30, 2014, when compared to the same prior year period. The decrease in California sourced avocados was due to a decrease in pounds sold. California sourced avocados sales reflect a decrease in 16.0 million pounds of avocados sold, or 56.1%, when compared to the same prior year period. We attribute most of this decrease in volume to the cyclically smaller California avocado crop for fiscal 2014. Partially offsetting this decrease, however, was the increase in the sales price per carton, which increased by approximately 22.7%. We attribute this increase primarily to a lower overall volume of avocados in the marketplace and an overall increase in the demand of avocados.

We anticipate that California avocado sales will experience an increase during our third fiscal quarter of 2014 as compared to the second quarter of 2014. We believe that the sales volume of California grown avocados will decrease in the third quarter of fiscal 2014, when compared to the same prior year period. This decrease is due primarily to a smaller expected California avocado crop.

We anticipate that net sales related to Mexican sourced avocados and tomatoes will decrease during our third fiscal quarter of 2014, as compared to the second fiscal quarter of 2014.

Calavo Foods

Second Quarter 2014 vs. Second Quarter 2013

Sales for Calavo Foods for the quarter ended April 30, 2014, when compared to the same period for fiscal 2013, increased $2.9 million, or 23.9%. This increase is due to an increase in sales of prepared guacamole products which increased approximately $3.0 million, or 25.3%, in the second quarter of fiscal year 2014, when compared to the same prior year period. The increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 1.7 million pounds, or 34.1%, partially offset by a decrease in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products of approximately 4.3%, primarily due to a change in the product mix.

Six Months Ended 2014 vs. Six Months Ended 2013

Sales for Calavo Foods for the six months ended April 30, 2014, when compared to the same period for fiscal 2013, increased $3.8 million, or 15.9%. This increase is due to an increase in sales of prepared guacamole products which increased approximately $4.1 million, or 17.9%, for the six months ended April 30, 2014, when compared to the same prior year period. The increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 2.6 million pounds, or 26.6%, partially offset by a decrease in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products of approximately 6.4%, primarily due to a change in the product mix.

RFG

Second Quarter 2014 vs. Second Quarter 2013

Sales for RFG for the quarter ended April 30, 2014, when compared to the same period for fiscal 2013, increased $14.2 million, or 34.1%. This increase is due primarily to increased sales from cut fruit and vegetable platters, as well as an increase in sales of deli products. The overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 4.8 million units, or 28.0%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative products that we offer.

Six Months Ended 2014 vs. Six Months Ended 2013

Sales for RFG for the six months ended April 30, 2014, when compared to the same period for fiscal 2013, increased $27.3 million, or 32.4%. This increase is due primarily to increased sales from cut fruit and vegetable platters, as well as an increase in sales of deli products. The overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 9.8 million units, or 28.8%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative products that we offer.

Gross Margins

The following table summarizes our gross margins and gross profit percentages by business segment for each of the three and six-month periods ended April 30, 2014 and 2013:


	Three months ended April 30,									Six months ended April 30,
(in thousands)	2014			Change			2013			2014			Change			2013
Gross margins:
Fresh products	$	9,683			138.1	%	$	4,066		$	15,891			46.7	%	$	10,835
Calavo Foods		3,823			(11.2	)%		4,303			6,415			(13.2	)%		7,391
RFG		5,471			72.8	%		3,167			10,361			61.0	%		6,434

Total gross margins	$	18,977			64.5	%	$	11,536		$	32,667			32.5	%	$	24,660

Gross profit percentages:
Fresh products		7.8	%					3.6	%		7.1	%					5.5	%
Calavo Foods		25.3	%					35.3	%		22.9	%					30.6	%
RFG		9.8	%					7.6	%		9.3	%					7.6	%
Consolidated		9.7	%					6.9	%		9.0	%					8.1	%

Summary

Our cost of goods sold consists predominantly of fruit costs, packing materials, freight and handling, labor and overhead (including depreciation) associated with preparing food products and other direct expenses pertaining to products sold. Gross margins increased by approximately $7.4 million, or 64.5%, for the second quarter of fiscal 2014, when compared to the same period for fiscal 2013. Gross margins increased by approximately $8.0 million, or 32.5%, for the first six months of fiscal 2014 when compared to the same period for fiscal 2013. These increases were attributable to gross margin increases in our Fresh products and RFG segments, partially offset by a decrease in our Calavo Foods segment.

Fresh products

During our three and six months ended April 30, 2014, as compared to the same prior year periods, the increase in our Fresh products segment gross margin percentage was primarily the result of significantly higher Mexican sourced avocado fruit costs in the prior year that uncharacteristically increased at a pace faster than anticipated in the latter part of March 2013 and remained higher than expected through April 2013. In the prior year, the average sales price of Mexican sourced avocados increased 3.2%, yet average fruit costs increased 31.8% from the first quarter of fiscal 2013 to the second quarter of fiscal 2013. In the current year, we were able to manage the spread between the sales price and the fruit cost of Mexican sourced avocados more effectively, as average sales prices increased 16.8%, while average fruit costs increased 18.4% from the first quarter of fiscal 2014 to the second quarter of fiscal 2014.

Calavo Foods

The Calavo Foods segment gross margin percentage during our three and six months ended April 30, 2014, when compared to the same prior year periods, decreased primarily due to an increase in fruit costs. Fruit costs increased during our three and six months ended April 30, 2014, by approximately 46.5% and 44.0%. In addition, gross margins decreased due to an increase in sales of frozen, high volume but low margin customers. Partially offsetting these decreases to the gross margin percentage was the strengthening of the U.S. Dollar compared to the Mexican Peso, which decreased many of our per pound costs. We anticipate that the gross margin percentage for our Calavo Foods segment will continue to experience significant fluctuations during this fiscal year primarily due to the uncertainty of the cost of fruit that will be used in the production process. In addition, any significant fluctuation in the exchange rate between the U.S. Dollar and the Mexican Peso may have a material impact on future gross margins for our Fresh products and Calavo Foods segments.

RFG

RFG’s improved gross-margin is reflective of certain economies of scale resulting from significant sales growth (see discussion above), improved labor utilization and improved raw-material quality and yield. Benefits from superior fruit quality/yield extend beyond just lower fruit costs, but also reduce other costs, including the labor needed to process such fruit.

Selling, General and Administrative


	Three months ended April 30,									Six months ended April 30,
(in thousands)	2014			Change			2013			2014			Change			2013
Selling, general and administrative	$	9,111			11.2	%	$	8,190		$	17,383			2.2	%	$	17,011
Percentage of net sales		4.7	%					4.9	%		4.8	%					5.6	%

Selling, general and administrative expenses include costs of marketing and advertising, sales expenses and other general and administrative costs. Selling, general and administrative expenses increased $0.9 million, or 11.2%, for the three months ended April 30, 2014, when compared to the same period for fiscal 2013. This increase was primarily related to higher corporate costs, including, but not limited to, general and administrative costs related to management bonuses (approximately $0.8 million), salaries (approximately $0.2 million), accounting fees (approximately $0.2 million), stock option expense (approximately $0.1 million), and bad debt expense (approximately $0.1 million), partially offset by decreases in the RFG revalue adjustment of contingent consideration (approximately $0.2 million), the start-up operations of FreshRealm (approximately $0.1 million), legal fees (approximately $0.1 million) and promotions and advertising (approximately $0.1 million).

Selling, general and administrative expenses increased $0.4 million, or 2.2%, for the six months ended April 30, 2014, when compared to the same period for fiscal 2013. This increase was primarily related to higher corporate costs, including, but not limited to, general and administrative costs related to management bonuses (approximately $0.8 million), the start-up operations of FreshRealm (approximately $0.4 million), salaries (approximately $0.3 million), and accounting fees (approximately $0.2 million), partially offset by a decrease in the RFG revalue adjustment of contingent consideration (approximately $1.4 million).

Provision for Income Taxes


	Three months ended April 30,									Six months ended April 30,
(in thousands)	2014			Change			2013			2014			Change			2013
Provision for income taxes	$	3,432			220.4	%	$	1,071		$	5,254			103.7	%	$	2,579
Percentage of income before provision for income taxes		34.9	%					32.8	%		34.7	%					34.6	%

For the second quarter of fiscal 2014, our provision for income taxes was $3.4 million, as compared to $1.1 million recorded for the comparable prior year period.

For the first six months of fiscal 2014, our provision for income taxes was $5.3 million, as compared to $2.6 million recorded for the comparable prior year period. We expect our effective tax rate to approximate 34.7% during fiscal 2014.

Liquidity and Capital Resources

Cash provided by operating activities was $13.3 million for the six months ended April 30, 2014, compared to $3.5 million provided by operations for the similar period in fiscal 2013. Operating cash flows for the six months ended April 30, 2014 reflect our net income of $9.9 million, net non-cash (depreciation and amortization, stock compensation expense, interest on deferred consideration and income from unconsolidated entities) of $3.7 million and a net decrease in the noncash components of our operating capital of approximately $0.3 million.

Our operating capital decrease includes a net increase in accounts receivable of $9.0 million, an increase in inventory of $3.6 million, and an increase in prepaid expenses and other current assets of $2.8 million, partially offset by a net increase in trade accounts payable and accrued expenses of $5.8 million, an increase in payable to growers of $4.6 million, a decrease in advances to suppliers of $3.2 million, a decrease in income tax receivable of $1.4 million and a decrease in other assets of $0.1 million.

The increase in our accounts receivable, as of April 30, 2014, when compared to October 31, 2013, primarily reflects higher sales recorded in the month of April 2014, as compared to October 2013. The increase in inventory is primarily related to higher fruit costs for avocados at April 2014, as compared to October 2013. The increase in payable to growers primarily reflects an increase in California fruit delivered in the month of April 2014, as compared to October 2013. The decrease in advances to suppliers primarily reflects fewer advances made to Agricola Belher related to the receipt of tomatoes in April 2014, compared to October 2013.

Cash used in investing activities was $5.6 million for the six months ended April 30, 2014 and related primarily to the purchase of property, plant and equipment items.

Cash provided by financing activities was $4.2 million for the six months ended April 30, 2014, which related principally to proceeds received for the issuance of FreshRealm stock of $10.0 million (see Note 10 in the consolidated financial statements for more information), proceeds from our credit facilities totaling $7.0 million and exercises of stock options of $0.1 million, partially offset by the payment of our $11.0 million dividend, and payments on long-term obligations of $1.9 million

Our principal sources of liquidity are our existing cash balances, cash generated from operations and amounts available for borrowing under our existing credit facilities. Cash and cash equivalents as of April 30, 2014 and October 31, 2013 totaled $19.9 million and $8.0 million. Our working capital at April 30, 2014 was $28.7 million, compared to $12.4 million at October 31, 2013.

We believe that cash flows from operations and available credit facilities will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, working capital and other financing requirements. We will continue to evaluate grower recruitment opportunities and exclusivity arrangements with food service companies to fuel growth in each of our business segments. Our non-collateralized, revolving credit facilities with Farm Credit West, PCA and Bank of America, N.A. expire in February 2016. Under the terms of these agreements, we are advanced funds for both working capital and long-term productive asset purchases. Total credit available under these combined borrowing agreements was $65 million, with a weighted-average interest rate of 1.7% at April 30, 2014 and October 31, 2013. Under these credit facilities, we had $41.0 million and $34.0 million outstanding as April 30, 2014 and October 31, 2013. These credit facilities contain various financial covenants, the most significant relating to Tangible Net Worth (as defined), Current Ratio (as defined), and Fixed Charge Coverage Ratio (as defined). We were in compliance with all such covenants at April 30, 2014.

Contractual Obligations

There have been no material changes to our contractual commitments from those previously disclosed in our Annual Report on Form 10-K for our fiscal year ended October 31, 2013. For a summary of the contractual commitments at October 31, 2013, see Part II, Item 7, in our 2013 Annual Report on Form 10-K.

Impact of Recently Issued Accounting Pronouncements

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments include cash and cash equivalents, accounts receivable, payable to growers, accounts payable, current and long-term borrowings pursuant to our credit facilities with financial institutions, and long-term, fixed-rate obligations. All of our financial instruments are entered into during the normal course of operations and have not been acquired for trading purposes. The table below summarizes interest rate sensitive financial instruments and presents principal cash flows in U.S. Dollars, which is our reporting currency, and weighted-average interest rates by expected maturity dates, as of April 30, 2014.


(All amounts in thousands)	Expected maturity date April 30,
	2014		2015		2016		2017		2018		Thereafter		Total		Fair Value
Assets
Cash and cash equivalents⁽¹⁾	$	19,914	$	—	$	—	$	—	$	—	$	—	$	19,914	$	19,914
Accounts receivable⁽¹⁾		64,093		—		—		—		—		—		64,093		64,093
Advances to suppliers⁽¹⁾		39		—		—		—		—		—		39		39

Liabilities
Payable to growers⁽¹⁾	$	19,117	$	—	$	—	$	—	$	—	$	—	$	19,117	$	19,117
Accounts payable⁽¹⁾		15,850		—		—		—		—		—		15,850		15,850
Current borrowings pursuant to credit facilities⁽¹⁾		41,030		—		—		—		—		—		41,030		41,030
Fixed-rate long-term obligations⁽²⁾		5,321		4,688		617		98		92		306		11,122		11,307

(1)	We believe the carrying amounts of cash and cash equivalents, accounts receivable, advances to suppliers, payable to growers, accounts payable, and current borrowings pursuant to credit facilities approximate their fair value due to the short maturity of these financial instruments.

(2)

Fixed-rate long-term obligations bear interest rates ranging from 1.7% to 5.7% with a weighted-average interest rate of 3.0%. 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 $185,000.

Except as disclosed with the acquisition of Calavo Salsa Lisa and RFG (and related amendments), 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 2014. Total foreign currency gains for the three months ended April 30, 2014, net of losses, was less than $0.1 million. Total foreign currency losses for the three months ended April 30, 2013, net of gains, was $0.1 million. Total foreign currency losses for the six months ended April 30, 2014 and 2013, net of gains, was $0.1 million.

ITEM 4.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective.

There were no changes in the Company’s internal control over financial reporting during the quarter ended April 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

ITEM 1A.

RISK FACTORS

For a discussion of our risk factors, see Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended October 31, 2013. There have been no material changes from the risk factors set forth in such Annual Report on Form 10-K. However, the risks and uncertainties that we face are not limited to those set forth in the 2013 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock.

ITEM 6.

EXHIBITS


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

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

32.1		Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.

101		The following financial information from the Quarterly Report on Form 10-Q of Calavo Growers, Inc. for the quarter ended April 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Condensed Balance Sheets as of April 30, 2014 and October 31, 2013; (2) Consolidated Condensed Statements of Income for the three and six months ended April 30, 2014 and 2013; (3) Consolidated Condensed Statements of Comprehensive Income for the three and six months ended April 30, 2014 and 2013; (4) Consolidated Condensed Statements of Cash Flows for the six months ended April 30, 2014 and 2013; and (5) Notes to Unaudited Condensed Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Calavo Growers, Inc. (Registrant)

Date: June 6, 2014	By	/s/ Lecil E. Cole
		Lecil E. Cole
		Chairman of the Board of Directors, Chief Executive Officer and President
		(Principal Executive Officer)

Date: June 6, 2014	By	/s/ Arthur J. Bruno
		Arthur J. Bruno
		Chief Operating Officer, Chief Financial Officer and Corporate Secretary
		(Principal Financial Officer)

INDEX TO EXHIBITS


Exhibit Number		Description

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

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

32.1		Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.

101		The following financial information from the Quarterly Report on Form 10-Q of Calavo Growers, Inc. for the quarter ended April 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Condensed Balance Sheets as of April 30, 2014 and October 31, 2013; (2) Consolidated Condensed Statements of Income for the three and six months ended April 30, 2014 and 2013; (3) Consolidated Condensed Statements of Comprehensive Income for the three and six months ended April 30, 2014 and 2013; (4) Consolidated Condensed Statements of Cash Flows for the six months ended April 30, 2014 and 2013; and (5) Notes to Unaudited Condensed Financial Statements.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company