FinanceLooker

Excrept from filing document 2024-10-31

Based on the closing price as reported on The Nasdaq Global Select Market the aggregate market value of the registrant s common stock held by non affiliates on April 30 2024 the last business day of the registrant s most recently completed second fiscal quarter was approximately 0 5 billion 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 registrant s common stock as of December 31 2024 was 17 837 351
This Annual Report on Form 10 K including Management s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 contains statements relating to future events and results of Calavo Growers Inc and its consolidated subsidiaries collectively Calavo the Company we us or our including certain projections and business trends that are forward looking statements as defined in the Private Securities Litigation Reform Act of 1995 that involve risks uncertainties and assumptions These statements are based on our current expectations and are not promises or guarantees If any of the risks or uncertainties materialize or the assumptions prove incorrect the results of Calavo may differ materially from those expressed or implied by such forward looking statements and assumptions All statements other than statements of historical fact are statements that could be deemed forward looking statements including but not limited to any projections of revenue gross profit expenses income loss from unconsolidated entities earnings earnings per share tax provisions cash flows and currency exchange rates the impact of acquisitions or debt or equity investments or other financial items any statements of the plans strategies and objectives of management for future operations including execution of restructuring and integration including information technology systems integration plans any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Calavo and its financial performance statements regarding pending internal or external investigations legal claims or tax disputes and any statements of expectation or belief any statements about future risks associated with doing business internationally including possible restrictive U S and foreign governmental actions such as restrictions on transfers of funds restrictions as a result of trade protection measures such as import export customs duties tariffs and or quotas
Calavo Growers Inc referred to in this report as Calavo the Company we us or our is a global leader in the avocado industry and a provider of value added fresh food Our expertise in marketing and distributing avocados prepared avocado products and other perishable foods allows us to deliver a wide array of fresh and prepared food products to retail grocery foodservice club stores mass merchandisers food distributors and wholesalers worldwide We procure avocados from California Mexico and other growing regions around the world Through our various operating facilities we i sort pack and or ripen avocados tomatoes and or Hawaiian grown papayas and ii process and package guacamole We distribute our products both domestically and internationally
We report our operations in two different business segments Grown and Prepared The Grown segment consists of fresh avocados tomatoes and papayas The Prepared segment consists of guacamole sold at retail and foodservice as well as avocado pulp sold to foodservice See Note 10 in our consolidated financial statements included elsewhere in this Annual Report on Form 10 K for further information about our business segments Our principal executive offices are located at 1141 A Cummings Road Santa Paula California 93060 and our telephone number is 805 525 1245
We completed the sale of our Fresh Cut business formerly RFG and related real estate on August 15 2024 for 83 0 million Proceeds from the sale totaled 81 1 million net of 1 9 million of transaction costs The Fresh Cut business represents substantially all of the business of the Prepared segment other than the guacamole business which was retained
The financial results of the Fresh Cut business have been classified as discontinued operations in the statements of operations and its assets and liabilities have been classified as held for sale in the balance sheets included herein Unless otherwise noted amounts and disclosures in this section relate to our continuing operations except for the Liquidity and Capital Resources section
Prior to the decision to divest our Fresh Cut business our Prepared reporting segment included the Fresh Cut business unit and our guacamole business As a result of the divestiture the Fresh Cut business unit is no longer included in our Prepared business segment All segment information included herein reflect these changes See Note 16 of the consolidated financial statements for further information
Founded in 1924 to market California avocados Calavo now sources avocados from various locations including California Mexico Peru and Colombia and distributes them to a diverse group of retail grocers foodservice operators club stores mass merchandisers food distributors and wholesalers Products are sold under the Calavo family of brand labels as well as private labels Many of our customers seek a consistent year round supply from multiple sourcing locations along with just in time deliveries tailored to their desired ripeness and a variety of packaging and display options We believe these needs favor large handlers like us who can leverage diverse sourcing relationships value added packaging and bagging capabilities ripening assets and a robust distribution infrastructure to serve large nationwide accounts Over time we have built strong long term customer relationships that form a solid foundation for our business
The Hass avocado is the predominant variety marketed globally In California growing regions extend from San Diego County to Monterey County with most production concentrated within 100 miles north and south of Los Angeles County California grown Hass avocados are generally available from April through September with peak production occurring from May through August
In fiscal 2022 the United States Department of Agriculture USDA approved the export of Jalisco avocados to the United States As such we source fruit from both the Michoacán and Jalisco regions in Mexico Mexico s avocado harvest tends to be year round with Michoacán s peak season running from September to June while Jalisco s peak season runs from June to January We also source avocados from other key growing regions including Peru and Colombia
Fresh avocados have a limited storage life once picked from the tree typically three to six weeks depending on factors such as fruit maturity cultivation methods and handling conditions throughout the distribution chain This includes the use of controlled atmosphere technologies during transport to preserve quality
Avocados delivered to our packinghouses are graded sized packed and cooled The size and timing of the annual avocado crop significantly impact both our costs and the prices we receive for the fruit To help manage this our field personnel work closely with growers and farm managers to coordinate harvest plans Feedback from our field managers is shared with our sales department to help develop sales strategies for our direct sales force Industry associations in Mexico employ crop estimators to provide an annual crop estimate No less than three updates are executed throughout the crop year
The process for purchasing avocados varies across sourcing regions In California growers receive daily field quotes priced per pound based on variety size and grade These quotes are calculated by estimating expected sales prices less anticipated costs and desired margins Payments to California growers are settled monthly
In Mexico the crop typically produces three to four blooms per year Prices are typically negotiated daily for most fruit harvested that day Once a daily price is agreed upon the fruit is harvested and delivered to one of our Mexican packinghouses Final settlements based on fruit size and quality are completed approximately 14 to 21 days after harvest We also source fruit directly from third party Mexican packers copackers to balance inventory or fulfill priority sizes and grades While this fruit usually is packed in Calavo branded cartons all the fruit we source from third parties is packed at certified packinghouses to meet Calavo quality and food safety standards before being shipped to our facilities and customers
Avocados sourced from Peru are primarily handled on a consignment basis Payments are generally calculated as a percentage of the net selling price less charges for distribution and value added service or alternatively at a flat per carton rate Avocados from Colombia are primarily handled on an FOB Colombia basis with price guidelines strict quality specification and inspections upon arrival to the United States
Aside from fruit costs packing materials and freight costs which are generally passed on to our customers a significant portion of our avocado handling costs are fixed Consequently fluctuations in delivery volumes can have a notable impact on our per pound packing costs Typically larger crop volumes result in lower per pound handling costs
We believe our investments in packing house equipment distribution centers with value added ripening and packing capabilities and skilled personnel position us to efficiently manage larger avocado crops Our ongoing success in marketing avocados depends largely on maintaining a reliable high quality supply at reasonable prices while keeping handling costs low as fruit moves through our facilities and to our customers
The avocado market is highly competitive with numerous marketers and importers sourcing avocados from independent USDA certified growers in Mexico Peru Colombia Chile and the Dominican Republic among others Based on data from various industry sources we believe we are consistently among the largest avocado marketers in the United States in terms of both volume and sales
We attribute our leadership position to our competitive sourcing strategies and the strong communication and service we maintain with our growers driven by upper and middle management teams with decades of avocado experience Additionally we believe our diversified fresh product offerings consistent product quality and value added programs give us a distinct advantage in serving retail and foodservice customers
For consignment sales our gross profit is typically based on a commission agreed upon with each party usually calculated as a percentage of the total selling price The gross profit percentage for these sales depends on the volume of fruit handled average selling prices and the competitiveness of returns offered to third party growers and packers
Our Prepared segment focuses on our prepared avocado products guacamole division We use ultra high pressure technology a cold pasteurization process on all guacamole products to safeguard food without requiring preservatives This process effectively eliminates bacteria that could cause spoilage food safety concerns or oxidation issues while preserving the product s taste profile After processing our guacamole can be frozen for extended shelf life or shipped fresh to customers in the U S and internationally
The perishable food industry including the avocado tomato papaya and prepared foods markets in which we operate is highly competitive Competition is intensified by the perishable nature of our products and the need to meet evolving consumer preferences We compete on several factors including price product quality brand recognition customer loyalty consistency supply reliability marketing effectiveness and our ability to provide value added services such as ripening packaging regional distribution and logistics
Our avocado business faces competition from both large multinational producers and distributors as well as regional and local growers and importers Supply fluctuations driven by seasonality weather conditions and pests among other geopolitical factors can impact pricing and availability particularly given the year round demand for avocados We believe our diverse sourcing regions including California Mexico Peru and Colombia as well as our long standing grower relationships and state of the art ripening and packing facilities provide a competitive advantage
In the prepared avocado products segment we face competition from local and international food processors offering both branded and private label guacamole and avocado products Consumer preferences particularly for natural preservative free products drive differentiation in this market Our use of ultra high pressure processing technology to deliver high quality preservative free guacamole with extended shelf life helps position us as a leader in this category Additionally our ability to ship fresh or frozen products enhances our flexibility and reach across retail and foodservice markets in the U S and abroad
While barriers to entry in the avocado tomato and produce markets are relatively low we believe our scale infrastructure and reputation for quality and service differentiate us from smaller competitors Our customer focused approach combined with our global sourcing capabilities and value added services position us to maintain and grow our market share in this competitive industry
Our research and development for new and improved products generally originates from customer requests customer and market research and innovative ideas generated by our own team of experts with food processing and culinary backgrounds We solicit customer and supplier input review process and product trends and conduct sensory and shelf life testing in order to expand the category and drive new sales for our customers Research and development costs are charged to expense when incurred Total research and development costs for fiscal years 2024 2023 and 2022 were approximately 0 1 million 0 1 million and 0 1 million
As a purchaser manufacturer distributor marketer and advertiser of food products our operations are subject to extensive regulation by various federal government agencies including the U S Food and Drug Administration the FDA the USDA and the Federal Trade Commission 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 the distribution safety purity and labeling of food products In addition our operations are subject to certain employment health and safety regulations including those issued under the Occupational Safety and Health Act Our packinghouse facilities and products are subject to periodic inspection by federal state and local authorities including the FDA and the California Department of Food and Agriculture which oversees weights measures compliance at our California facilities All of our US facilities are also in compliance with the FDA s Food Safety Modernization Act In addition our operations in Mexico are subject to US and Mexican regulations through the USDA APHIS and the Mexican Secretary of Agriculture Secretariat of Agriculture and Rural
As a purchaser and manufacturer of perishable agricultural commodities we are subject to and compliant with the USDA s Perishable Agricultural Commodities Act Certain agricultural commodities sold by Calavo are subject to additional specific government acts or regulations including the Hass Avocado Promotion Research and Information Act of 2000 for our avocados and the federal suspension agreement guidelines which govern tomato imports to the U S
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
Employees Our employees are our greatest asset and are directly responsible for our success in delivering fresh quality products to consumers As of October 31 2024 we had 2 106 employees of which 317 were in the US and 1 789 were in Mexico While we have certain operations in Hawaii that are represented by a union we do not have a significant number of US employees covered by a collective bargaining agreement Substantially all our Mexican employees however are represented by a union We consider the relationship with our employees to be good and we have never experienced a significant work stoppage
We compensate all workers with wages overtime premiums and benefits that meet or exceed local legal standards local industry standards or collective agreements whichever are highest We have a grade and pay band structure in place for all U S positions which is reviewed and updated no less than annually We provide our employees with competitively fixed and or variable pay and for eligible employees we provide access to health and retirement benefits
We have a framework for whistleblowing that allows employees to freely communicate their concerns about illegal or unethical practices without fear of retaliation or reprisal and which designates the Audit committee to oversee whistleblowing reports that are investigated by relevant departments Our whistleblower policy is intended to promote the highest standards of fair treatment and personal ethics in the conduct of company business and practices
Diversity Equity and Inclusion We strive to foster a culture of diversity equity and inclusion so all employees feel respected and no employee feels discriminated against We are proud of the diversity throughout our organization and feel this contributes to a positive and respectful working environment It also helps foster innovation creativity and a wider range of perspectives to help us achieve even greater success
Engagement and Opportunities Evolving our culture to increase employee engagement and productivity is a primary focus of our strategic plan as we believe an engaged workforce leads to a more innovative productive and profitable company Our employees are supported with training and development opportunities to pursue their careers and support compliance with our policies We support employee growth and development through our partnership with LinkedIn Learning and other platforms offering access to a comprehensive library of work related topics certifications and training resources Additionally our enhanced HRIS system provides employees with a user friendly dashboard accessible via mobile devices or workstations allowing convenient access to company communications personal information and organizational resources
Health We are committed to providing a safe and healthy work environment where all employees are treated with dignity and respect We uphold fundamental human rights and adhere to established labor standards not only for our own workforce but also for those employed by our suppliers and the communities impacted by our operations
Our goal is to maintain a workplace free of preventable hazards while complying with all applicable laws and regulations related to health and safety To support this commitment we conduct monthly safety training for operational employees and enforce the use of personal protective equipment required for their roles Additionally all employees participate in annual compliance training to ensure adherence to regulatory standards
We strive to make life better for everyone in line with our vision of nourishing families with quality products We support the health and well being of our employees by offering a comprehensive package of salaries and fringe benefits for employees which we believe is a generous package for agri industrial workers Employees enjoy benefits which include
Safety We are committed to building a culture of safety with the goal of zero incidents Our approach prioritizes the health and well being of our employees through proactive training programs strict compliance with safety regulations and continuous improvement initiatives We implement comprehensive safety protocols across all facilities regularly conduct safety audits and provide ongoing training to ensure employees are equipped to recognize and mitigate risks We also emphasize incident prevention through behavior based safety programs and open communication channels encouraging employees to report potential hazards without fear of retaliation To reinforce accountability we track key safety metrics such as recordable incident rates and lost time injury rates benchmarking our performance against industry standards Our safety culture extends beyond compliance focusing on engagement education and empowerment to ensure every employee takes ownership of workplace safety
of the Company s website http ir calavo com financial information annual reports and proxy statements as soon as practicable after such material is electronically filed with or furnished to the SEC Material contained on our website is not incorporated by reference in this report Our executive officers are located at 1141 A Cummings Road Santa Paula CA 93060 The SEC also maintains an internet website that contains reports and other information regarding issuers that file electronically with the SEC located at http www sec gov
You should carefully consider the following risks and other information in this Form 10 K Any of the following risks could materially and adversely affect our results of operations or financial condition The following risk factors should be read in conjunction with Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes in Part II Item 8 Financial Statements and Supplementary Data of this Form 10 K
The successful transition and carve out of operations after the Fresh Cut business divestiture involves operational strategic and financial risks These include the reallocation of resources and focus on our remaining business segments which could divert management s attention and impact efficiency and profitability
Outbreaks of contagious diseases sporadic pest challenges and other adverse public health and environmental developments in the countries and states where we operate have had and may continue to have a material adverse effect on our business financial condition and operations These challenges can create operational disruptions in the manufacturing of our products and in the supply chains that support our ability to deliver products to consumers The potential effects include negative impacts on the availability of key personnel disruptions to our facilities or the facilities of our business partners customers suppliers third party service providers or other vendors and interruptions to domestic and global supply chains distribution channels and financial markets Restrictions on or disruptions to transportation border controls and closures as well as other impacts on supply chains and distribution channels could increase costs for raw materials and commodities limit our ability to meet customer demand or otherwise materially and adversely affect our business financial condition operating results or cash flows
In June 2023 Calavo and certain subsidiaries entered into a credit agreement the Credit Agreement by and among Calavo certain subsidiaries of Calavo as guarantors and Wells Fargo Bank National Association as agent and lender This credit facility currently bears interest at a variable rate which will generally change as interest rates change We also have various leases and may enter into future equipment leases with costs that increase as interest rates increase We bear
the risk that the rates we are charged under the Credit Agreement and by lessors will increase faster than the earnings and cash flow of our business which could reduce profitability adversely affect our ability to service our obligations or cause us to breach covenants contained in the Credit Agreement or leases which could materially adversely affect our business financial condition and results of operations
Additionally the trading price of our common stock may be affected by the dividend yield on our common stock relative to market interest rates When market interest rates rise the yield on our common stock may become less attractive relative to other available securities As a result prospective purchasers may decide to purchase other securities rather than shares of our common stock which would reduce the demand for and potentially result in a decline in the market price of shares of our common stock
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 factors such as the availability and quality of the product in the market and the availability and quality of competing types of produce
In addition public perceptions regarding the quality safety or health risks associated with particular food products could reduce demand and prices for some of our products Food safety warnings advisories notices and recalls such as those administered by the FDA CDC other federal state government agencies and or suppliers of various agricultural products could also reduce demand and or prices for some of our products To the extent that consumers stop purchasing products that we produce due to health food safety or other reasons and we are unable to modify our products or to develop products that satisfy new consumer preferences there could be a decreased demand for our products
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 the war in Ukraine or conflict elsewhere 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 may adversely affect our operating results in the future
If we lose machinery or facilities due to natural disasters or mechanical failure we may not be able to operate at a sufficient capacity to meet our production needs and we may incur significant costs or delays in any effort to restore lost capacity Our production capacity for guacamole products is consolidated in a single manufacturing plant in the state of Michoacán Mexico Any significant production disruptions at this manufacturing site could result in a limitation of the availability of some or all our guacamole products Any disruptions in our infrastructure could have a material adverse effect on our business results of operations and financial condition
In coordination with our suppliers our ability to make move and sell products is critical to our success Our inability to maintain sufficient internal production capacity or our inability to enter into co packing agreements on reasonable terms could have an adverse effect on our business Failure to adequately handle increasing production costs and complexity turnover of manufacturing personnel or production capability and efficiency issues could materially impact our ability to produce our products in a cost effective manner and meet customer demand
Additionally damage or disruption to our collective manufacturing or distribution capabilities resulting from weather any potential effects of climate change natural disaster disease crop spoilage fire or explosion terrorism organized crime pandemics strikes repairs or enhancements at our facilities or other reasons could impair our ability to manufacture or sell our products For example our production capacity for guacamole products is consolidated in a single manufacturing plant in the state of Michoacán Mexico Any significant production disruptions at this manufacturing site could result in a limitation of the availability of some or all our guacamole products Failure to take adequate steps to mitigate the likelihood or potential impact of such events or to effectively manage such events if they occur could adversely affect our business financial condition and results of operations and may require additional resources to restore our supply chain
We use multiple forms of transportation to bring our products to market including truck ocean 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 governmental regulation or governmental restrictions limiting specific forms of transportation could have an adverse effect on our business financial condition and results of operations
We intend to review acquisition prospects that would complement our business While we are not currently a party to any definitive 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 involve numerous risks including the integration of the acquired operations diversion of management s 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 Management s attention or other resources may be diverted if we fail to successfully complete or integrate business combinations or investment transactions
Our information technology networks could be compromised by cyber attacks resulting in misappropriation of our confidential information or that of third parties system disruptions or system shutdowns For example in 2019 certain of our computer systems were encrypted by ransomware which prevented them from operating for a period of time Attackers may be able to develop and deploy viruses worms and other malicious software programs that infiltrate our systems or otherwise exploit any security vulnerabilities In addition sophisticated hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture including bugs and other problems that could unexpectedly interfere with the operation of the system The costs to us to eliminate or alleviate cyber or other security problems bugs viruses worms malicious software programs and security vulnerabilities could be significant and our efforts to address these problems may not be successful and could result in interruptions delays cessation of service and loss of existing or potential customers that may impede our sales manufacturing distribution or other critical functions We carry insurance including cyber insurance commensurate with our size and the nature of our operations although there is no certainty that such insurance will in all cases be sufficient to fully reimburse us for all losses incurred in connection with the occurrence of any of these system security risks data protection breaches cyber attacks or other events
Our information technology systems may also experience interruptions delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time We may not be successful in implementing new systems and transitioning data which could cause business disruptions and be more expensive time consuming disruptive and resource intensive Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes
Sales to Walmart our largest customer amounted to approximately 12 of our total net sales in 2024 We expect that a significant portion of our revenues will continue to be derived from a relatively small number of customers We believe these customers make purchase decisions based on a combination of price product quality consumer demand customer service performance desired inventory levels and other factors that may be important to them at the time the purchase decisions are made Changes in our customers strategies or purchasing patterns including a reduction in the number of brands they carry may adversely affect our sales Additionally our customers may face financial or other difficulties which may impact their operations and cause them to reduce their level of purchases from us which could adversely affect our results of operations Customers also may respond to any price increase that we may implement by reducing their purchases from us resulting in reduced sales of our products If sales of our products to one or more of our largest customers decrease the impact may have a material adverse effect on our business financial condition and results of operations Any bankruptcy or other business disruption involving one of our significant customers also could similarly adversely affect our business financial condition and results of operations
We are dependent on our long term relationships with independent growers in California and Mexico to obtain and maintain our supply of avocados in the United States Deterioration of our relationships with our key growers could adversely affect our Grown business in the U S which could have an adverse effect on our business financial condition and results of operations
Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive or require us to pay dividends Our Board of Directors may in its sole discretion decrease the level of dividends relative to those paid in the past including entirely discontinuing the payment of dividends Future dividends
with respect to shares of our capital stock if any depend on among other things our results of operations cash requirements financial condition contractual restrictions including restrictions in our Credit Agreement business opportunities provisions of applicable law including certain provisions of the California Corporations Code and other factors that our Board of Directors may deem relevant
Our ability to pay dividends is subject to restrictions contained in our Credit Agreement Additionally although our Credit Agreement contains covenants that restrict our ability to incur debt as long as we meet these covenants we will be able to incur additional indebtedness The degree to which we are leveraged on a consolidated basis could have important consequences to the holders of our securities including
Increasingly regulators consumers customers investors employees and other stakeholders are focusing on ESG matters and related disclosures These changing rules public disclosure regulations and stakeholder expectations have resulted in and are likely to continue to result in increased management time and attention spent complying with or meeting such regulations and expectations For example developing and acting on initiatives within the scope of ESG and collecting measuring and reporting ESG related information and metrics can be costly difficult and time consuming and is subject to evolving reporting standards including the SEC s proposed climate related reporting requirements and similar proposals by other international regulatory bodies This rapidly changing environment may result in increased general and administrative expenses
We may also communicate certain initiatives and goals regarding environmental diversity and other ESG related matters These initiatives and goals could be difficult and expensive to implement and we could be criticized for the accuracy adequacy or completeness of the disclosure Further statements about our ESG related initiatives and goals and progress against those goals may be based on standards for measuring progress that are still developing internal controls and processes that continue to evolve and assumptions that are subject to change in the future In addition we could be criticized for the scope or nature of such initiatives or goals or for any revisions to these goals If our ESG related data processes and reporting are incomplete or inaccurate or if we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis or at all our reputation business results of operations and financial condition could be adversely impacted
We have recently transitioned new personnel into executive leadership positions and our future success will depend in part on our ability to manage this transition successfully Management and key personnel changes may disrupt our operations and we may have difficulty attracting and retaining qualified replacements
We have experienced changes in management and other key personnel in critical functions across our organization including our chief financial officer and other members of our accounting department Changes in management and other key personnel have the potential to disrupt our business and any such disruption could adversely affect our operations programs growth financial condition and results of operations Further new members of management may have different perspectives on programs and opportunities for our business which may cause us to focus on new business opportunities or reduce or change emphasis on our existing business programs
Our success is dependent upon our ability to attract and retain qualified management and key personnel in a highly competitive environment Qualified individuals are in high demand and we may incur significant costs to attract them particularly at the executive level We may face difficulty in attracting retaining and compensating key talent for various reasons including competitive market conditions the effect of recent company performance on the achievement of performance compensation conditions and the need to align the vision of a new executive team with our Board s vision for our Company We cannot assure you that we will be able to hire or retain the personnel necessary to achieve our strategic vision that personnel we do recruit will be successful or that the loss of any such personnel will not have a material impact on our financial condition and results of operations
Replacing departing executives can involve organizational disruption and uncertainty We have paid in the past and we may in the future pay significant severance to departed executives If we fail to manage transitions successfully we could experience significant delays or difficulty in the achievement of our development and strategic objectives and our business financial condition and results of operations could be materially and adversely affected
While we believe that our relations with our employees and labor unions are good we cannot ensure 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
We utilize high quality co packers to produce a portion of our retail and foodservice products If we are unable to utilize quality co packers effectively we may not be able to meet our production needs for our expected growth Similarly if an existing co packer is no longer able or willing to produce products for us there are no assurances that we will be able to immediately replace them with our own production capacity or that of another co packer operating in the same region and at the same level of quality We closely monitor and audit the quality of our co packers and our co packers are required to maintain insurance We however remain subject to risks related to the production of fresh and prepared foods
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
In the event that such climate change has a negative effect on agricultural productivity we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products As a result of climate change we may also be subjected to decreased availability of water deteriorated quality of water or less favorable pricing for water which could adversely impact our manufacturing and distribution operations
Consumer preferences for food products are subject to fluctuations over time Our ability to market and sell our products successfully depends in part on our ability to identify changing consumer preferences and respond to those changes by offering products that appeal broadly to consumers Shifts in consumer preferences that can impact demand for our products can arise from various factors including dietary trends attention to particular nutritional aspects of our products concerns regarding the health effects of particular ingredients attention given to ingredient sourcing practices and general public perception of food safety risks Consumer demand for our products also may be impacted by any public commentary that consumers or certain regulatory bodies including federal or state agencies involved in
monitoring food safety may make regarding our products or similar products Consumer demand for our products also may be impacted by changes in the level of advertising or promotional support employed by i us ii our retail foodservice customers iii relevant industry groups or iv third parties that provide competing products If consumer preferences trend negatively with respect to any one or more of our products our sales volumes may decline as a result
We rely on independent third party certifications such as certifications of our products as organic Non GMO or kosher to differentiate our products from others We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified organic For example we can lose our organic certification if a manufacturing plant becomes contaminated with non organic materials or if it is not properly cleaned after a production run In addition all raw materials must be certified organic Similarly we can lose our kosher certification if a manufacturing plant and raw materials do not meet the requirements of the appropriate kosher supervisory organization The loss of any independent certifications could adversely affect our market position as an organic and natural products company which could harm our business
Climate change could increase both the frequency and severity of natural disasters that may affect our business operations Moreover there has been a broad range of proposed and promulgated state national and international regulation aimed at reducing the effects of climate change Such regulations apply or could apply in countries where we have interests or could have interests in the future In the United States there is a significant possibility that some form of regulation will be enacted at the federal level to address the effects of climate change Such regulation could take several forms that could result in additional costs in the form of taxes the restriction of output investments of capital to maintain compliance with laws and regulations or required acquisition or trading of emission allowances Climate change regulation continues to evolve and it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation
A number of companies have been subject to private litigation and governmental action involving a diverse set of claims ranging from allegedly false environmental compliance and sustainability disclosures social issues such as modern slavery in supply chains and governance issues involving corporate audits and reporting Like many companies we publish an annual sustainability report covering topics including energy and emissions fair labor and sustainable agriculture While we believe the disclosures in our sustainability reports and elsewhere concerning ESG are accurate we could still be subject to litigation involving ESG claims Such litigation even if without merit could negatively impact our reputation take management time and attention away from other company business require changes in operations and or adversely affect our business financial condition and results of operations In addition the actions of growers and other industry partners on ESG matters could negatively impact our reputation or involve us in legal or regulatory proceedings concerning their conduct Additionally any perceived failures to operate in accordance with domestic and international laws and regulations could cause consumers to no longer associate our company and our brands with high quality and safety products may adversely affect the value of our brands and the demand for our products
We are also subject to the examination of our tax returns and other tax matters by the U S Internal Revenue Service the SAT and other tax authorities We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes There can be no assurance that we will accurately predict the outcomes of any audits and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision net income and cash flows If our effective tax rates were to increase or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued our financial condition operating results and cash flows could be adversely affected
In July 2018 a local office of the SAT issued a final tax assessment the 2013 Assessment totaling approximately 2 6 billion Mexican pesos which includes annual adjustments for inflation and equals approx 128 9 million USD at October 31 2024 related to a fiscal 2013 tax audit This amount has been adjusted for inflation as of October 31 2024 to the amount of 3 billion Mexican pesos approx 148 8 million USD Additionally the tax authorities have determined that we owe our employees profit sharing liability totaling approximately 118 million Mexican pesos approx 5 9 million USD at October 31 2024
We filed an Administrative Appeal in August 2018 which was denied in March 2021 and liens were placed on CDM s fixed assets and bank accounts Court rulings later removed the liens and restored access to funds Subsequent legal actions including an Annulment Suit and Injunction Suit challenged the SAT s findings and process While courts have ruled favorably on some procedural matters the core tax assessment remains unresolved and litigation is ongoing
In March 2022 we secured an Administrative Guaranty to safeguard CDM assets during the ongoing legal proceedings In October 2022 the Tax Court ruled in favor of CDM granting a definitive suspension of all collection actions instructing the SAT to lift all liens on CDM s fixed assets and bank accounts and acknowledging that the 3 1 billion pesos assessment exceeds CDM s economic capacity While we continue to believe the assessment is without merit we recorded a provision of 11 0 million in fiscal 2021 to account for estimated penalties interest and inflationary adjustments Based on legal counsel from our tax advisory firm we and our tax advisory firm have concluded that the provision remains reasonable as of October 31 2024
As of October 31 2024 and October 31 2023 CDM s IVA receivables net of our estimated provision for uncollectable amounts totaled 48 7 million 976 0 million Mexican pesos and 49 9 million 913 6 million Mexican pesos Historically CDM received IVA refunds from the Mexican tax authorities in a timely manner However since fiscal 2014 and continuing into fiscal 2024 the tax authorities have challenged refund requests and supporting documentation that were previously deemed acceptable They have also questioned refunds related to IVA paid to certain suppliers alleged to have failed to meet their own tax obligations These factors among others have contributed to delays in processing IVA claims
We believe our operations in Mexico are properly documented and our internationally recognized tax advisors support our position that there are legal grounds to prevail in recovering the IVA amounts Accordingly we have recorded no provision related to these refunds However there is no assurance that we will be able to collect the full amounts recorded in our financial statements
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 prepared 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 Such failures could also cause reputational damage to our business
We are subject to the United States Foreign Corrupt Practices Act FCPA and other anti corruption laws and regulations that generally prohibit companies and their intermediaries from making improper payments to government officials and or other persons for the purpose of obtaining or retaining business Our policies mandate compliance with these anti bribery laws We operate in Mexico which is recognized as having a greater potential for governmental and commercial corruption
Recent years have seen a substantial increase in anti bribery law enforcement activity by U S regulators with more frequent and aggressive investigations and enforcement proceedings by both the SEC and the Department of Justice DOJ increased enforcement activity by non U S regulators and increases in criminal and civil proceedings brought against companies and individuals
On January 16 2024 the Company announced that its internal audit process had identified to the Audit Committee of the Board of Directors certain matters that the Board of Directors determined after fiscal year end merited enhanced evaluation A Special Committee of the Board of Directors the Special Committee was established to commence an investigation with the assistance of external legal counsel and external forensic accountants The Special Committee determined that certain of those matters related to the Company s operations in Mexico raised potential issues under the FCPA The Company voluntarily disclosed this ongoing investigation to the SEC and the DOJ and the Company intends to fully cooperate with the SEC and the DOJ in connection with these matters
Any determination that the Company s operations or activities are not or were not in compliance with laws including the FCPA could result in a broad range of civil and criminal sanctions against the Company and certain of its personnel including injunctive relief disgorgement substantial fines or penalties imprisonment interruptions of business loss of supplier vendor or other third party relationships termination of necessary licenses and permits and other legal or equitable sanctions Other internal or government investigations or legal or regulatory proceedings including lawsuits brought by private litigants may also follow as a consequence Violations of these laws may result in criminal or civil sanctions which could disrupt our business and result in a material adverse effect on our reputation business results of operations or financial condition Moreover our ongoing internal investigation and cooperating with and responding to the SEC and the DOJ in connection with potential investigations they may undertake as well as responding to any future U S or foreign governmental investigations or whistleblower lawsuits have resulted in and may continue to result in substantial expenses and have diverted and may continue to divert management s attention from other business concerns and could have a material adverse effect on our business and financial condition and growth prospects
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 prepared avocado products to foreign customers and operate packinghouses and a processing plant in Mexico Mexico is the largest source of our supply of avocados and our operations are affected by events in that country In recent years there has been an increase in organized crime in Mexico which could in the future affect avocado farming packing and shipment activities and increase the costs and risks of doing business in Mexico We are also subject to regulations imposed by the Mexican government and to examinations by the Mexican tax authorities 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 Importing avocados from Mexico to the U S depends on our border remaining open which has closed for trading in the past
In November 2022 the Mexican Secretary of Labor and Social Welfare issued criteria for subcontracting inspections noting that companies engaged in farming packing distribution and export of fruit would have to internalize picking and hauling services In response to that criteria and subsequent fines we are appealing the applicability of the criteria to our operations in Mexico as well as disputing the notification received An adverse result of this appeal could have an adverse effect on our operations in Mexico which rely to some extent on external picking and hauling services
The Hamas Israel and Russia Ukraine conflicts other areas of geopolitical tension around the world or the worsening of those conflicts or tensions and any related challenging macroeconomic conditions globally and in various countries in which we and our customers operate may materially adversely affect our customers vendors and partners and the duration and extent to which these factors may impact our future business and operations results of operations financial condition and cash flows remain uncertain
The Hamas Israel and Russia Ukraine conflicts or other areas of geopolitical tension around the world or any worsening or spread of those conflicts or geopolitical tensions and any related challenging macroeconomic conditions globally could decrease the spending of our existing and potential new customers adversely affect demand for our products cause one or more of our customers vendors and partners to file for bankruptcy protection or go out of business impact expected spending and pricing levels from existing and potential new customers and negatively impact collections of accounts receivable all of which could adversely affect our business results of operations and financial condition
Any of the negative impacts of the Hamas Israel and Russia Ukraine conflicts other areas of geopolitical tension around the world or any worsening of those conflicts or geopolitical tensions and any related challenging macroeconomic conditions may have a material adverse effect on our business and operations results of operations financial condition and cash flows Any of these negative impacts alone or in combination with others also could exacerbate many of the other risk factors discussed in this report including volatility in the trading prices of our common
stock The full extent to which these factors will negatively affect our business and operations results of operations financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted including the scope severity and duration of the Hamas Israel and Russia Ukraine conflicts other areas of geopolitical tension around the world and any economic downturns and the actions taken by governmental authorities and other third parties in response
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 These foreign currency fluctuations also affect the ultimate realization of foreign currency denominated assets and liabilities in U S dollar terms While hedging instruments may help reduce the volatility associated with currency rate changes hedging instruments may not be readily available may be too expensive or may be ineffective for the respective reduction in volatility desired To date the Company has not hedged against foreign currency exposure and we may not hedge against foreign currency exposure in the future which could increase our susceptibility to foreign currency fluctuations
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 expenses and could result in covenants that would restrict our operations We may not be able to obtain additional financing if required in amounts or on terms acceptable to us or at all
The Credit Agreement originally provided for a revolving credit facility of up to 90 0 million along with a capex credit facility of up to 10 0 million On August 15 2024 in conjunction with the sale of the Fresh Cut business the Credit Agreement was amended to among other things reduce revolving commitments thereunder to 75 0 million from 90 0 million Later in August 2024 the capex credit facility also known as the Term Loan was fully repaid with proceeds from the sale of the Fresh Cut business See Note 6 of the consolidated financial statements for further information regarding the August 15 2024 amendment
The Credit Agreement imposes significant operating and financial restrictions on us These restrictions prohibit or limit our ability to incur indebtedness grant liens on assets enter into certain investments consummate fundamental change transactions engage in mergers or acquisitions or dispose of assets enter into certain transactions with affiliates make changes to our fiscal year enter into certain restrictive agreements and make certain restricted payments including for dividends Each of these limitations are subject to various conditions The Credit Agreement also contains a springing fixed charge coverage ratio financial covenant that is tested if the amount of the Revolving Loans available to borrow under the Credit Facility is less than 10 of the total revolving credit facility
Our ability to comply with the ratios or tests may be affected by events beyond our control including prevailing economic financial and industry conditions A breach of any of these covenants or failure to meet or maintain ratios or tests could result in a default under the Credit Agreement Certain events of default under the Credit Agreement would prohibit us from paying dividends on our common stock In addition upon the occurrence of an event of default under the Credit Agreement the lenders could elect to declare all amounts outstanding under the Credit Agreement together with accrued interest to be immediately due and payable If we were unable to repay those amounts the Credit Agreement lenders could proceed against the security granted to them to secure that indebtedness If the lenders accelerate the payment of the indebtedness our assets may not be sufficient to repay in full this indebtedness and our other indebtedness
Our ownership in unconsolidated subsidiaries our loans notes or advances to unconsolidated subsidiaries and other future debt or equity investments that we may make in unconsolidated subsidiaries present risks and challenges that could have a material adverse effect on our business financial position and results of operations
Any loans notes or advances that we make to unconsolidated entities such as the existing advances to Don Memo may at some point in the future be deemed uncollectible and as such may materially and negatively impact our financial results in the period such determination is made As noted earlier we do not control the operations of Don Memo and their future operating performance and or their future ability to raise capital from other third parties could negatively impact our ability to collect on our loans notes or advances
An overall decline in economic activity could adversely impact our business and financial results Economic uncertainty may reduce consumer spending as consumers make decisions on what to include in their food budgets This could also result in a shift in consumer preference Shifts in consumer spending could result in increased pressure from competitors or customers that may require us to increase promotional spending or reduce the prices of some of our products and or limit our ability to increase or maintain prices which could lower our revenue and profitability Instability in financial markets may impact our ability or increase the cost to enter into new credit agreements in the
future Additionally it may weaken the ability of our customers suppliers third party distributors banks insurance companies and other business partners to perform their obligations in the normal course of business which could expose us to losses or disrupt the supply of inputs we rely upon to conduct our business If one or more of our key business partners fail to perform as expected or contracted for any reason our business could be negatively impacted
While we believe that the extent of our insurance coverage is consistent with industry practice such coverage does not cover all losses we may incur even in areas for which we have coverage Our insurance policies are subject to coverage exclusions deductibles and caps and any claim we make under our insurance policies may be subject to such limitations Any claim we make may not be honored fully in a timely manner or at all and we may not have purchased sufficient insurance to cover all losses incurred If we were to incur substantial liabilities or if our business operations were interrupted for a substantial period of time we could incur costs and suffer losses Additionally in the future insurance coverage may not be available to us at commercially acceptable premiums or at all
Our cybersecurity risk management program is integrated with our overall enterprise risk management program and shares common methodologies reporting channels and governance processes that apply across functions to other legal compliance strategic operational and financial risk areas This integration ensures a holistic approach to risk management enabling us to address cybersecurity risks in the context of broader organizational risks
We build and evaluate our cybersecurity risk management program based on the National Institute of Standards and Technology Cybersecurity Framework NIST CSF The NIST CSF offers a thorough set of guidelines and best practices to help us establish a strong cybersecurity posture Utilizing the NIST CSF enables us to systematically identify assess and manage cybersecurity risks pertinent to our business operations However it s important to highlight that using the NIST CSF as a guide does not imply that our cybersecurity program meets any specific technical standards specifications or requirements
In evaluating the risks identified as a part of the annual assessment process our information technology team considers the likelihood and severity of the respective risk and the potential impact of the risk including any potential impact on our customers and our employees These risks are then prioritized and monitored by the information technology team
We conduct periodic testing of software hardware defensive capabilities and other information security systems to assess our cybersecurity readiness and maturity of the cybersecurity program Tests are conducted by the information technology team and reputable third party consultants and auditors In developing and evaluating the testing procedures we consider both our individual risks and industry standards
The cybersecurity risk management program includes an incident response plan with a cross functional team comprised of designated members of the information technology department senior management and other appropriate individuals The team is responsible for assessing and managing the cybersecurity incident response process as outlined within the incident response plan and taking necessary corrective actions to mitigate and eliminate the issue
As of the date of this report we are not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect us including our business strategy results of operations or financial condition that are required to be reported in this Form 10 K For further discussion of the risks associated with cybersecurity incidents and potential impact on us see the cybersecurity risk factor within Item 1A Risk Factors in this Form 10 K
The information technology department led by our Director of Information Technology Services IT Director is responsible for our cybersecurity program The IT Director along with a third party provider with significant cybersecurity experience manages information security infrastructure and compliance This collaboration ensures that our cybersecurity practices are aligned with industry standards and best practices
The Board of Directors considers cybersecurity risk as part of its overall risk oversight function The Audit Committee receives briefings from the IT Director regarding our cybersecurity risk management program at least annually These briefings include updates on our cybersecurity risks and threats the status of projects to strengthen the information security systems assessments of the information security program and the emerging cybersecurity threat landscape
Our corporate headquarters is located in Santa Paula California in a leased building Our RFG Business leased a corporate office in Rancho Cordova California which the lease expired in November 2024 We also operate numerous facilities across the United States and maintain three facilities in Mexico See the following table for a summary of our locations
Primarily ripens sorts packs and ships fresh avocados Additionally it also serves to store and ship certain other fresh products as well as prepared foods and prepared guacamole products We believe that the annual capacity of this facility will be sufficient to handle its forecasted annual production needs
On January 31 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on January 26 2024 On April 29 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on April 1 2024 On July 30 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on July 2 2024 On October 30 2024 we paid a dividend of 0 20 per share or an aggregate of 3 6 million to shareholders of record on October 2 2024
The following graph compares the performance of our common stock with the performance of the Nasdaq Market Index and a Peer Group of major diversified companies in our industry for approximately the 60 month period beginning October 31 2019 and ending October 31 2024 In making this comparison we have assumed an investment of 100 in Calavo Growers Inc common stock the Nasdaq Market Index the Peer Group Index as of October 31 2019 We have also assumed the reinvestment of all dividends Our Peer Group Index includes the companies of Andersons Inc B G Foods Inc Boston Beer Company Inc Fresh Del Monte Produce Inc Hain Celestial Group Inc J J Snack Foods Corp John B Sanfilippo Son Inc and Landec Corp
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and notes thereto that appear elsewhere in this Annual Report This discussion and analysis contain forward looking statements that involve risks uncertainties and assumptions Actual results may differ materially from those anticipated in these forward looking statements because of various factors including but not limited to those presented under Business and Operational Risks included in Item 1A and elsewhere in this Annual Report
We are a leading marketer processor and distributor of avocados and other value added fresh foods serving customers worldwide Our expertise in marketing and distributing avocados as well as developing and manufacturing prepared avocado products and other value added fresh foods enables us to deliver a diverse range of products to retail grocery stores foodservice providers club stores mass merchandisers food distributors and wholesalers primarily in the United States
We report our operations in two different business segments Grown and Prepared The Grown segment consists of fresh avocados tomatoes and papayas The Prepared segment consists of guacamole sold at retail and foodservice companies as well as avocado pulp sold to foodservice companies See Note 10 in our consolidated financial statements included elsewhere in this Annual Report on Form 10 K for further information about our business segments
Our Grown products business grades sizes packs cools and when requested ripens avocados for delivery to our customers In fiscal 2024 we operated three packinghouses and five regional distribution facilities all of which perform value added operations that handle avocados for distribution to our customers
We believe our continued success in marketing avocados depends on maintaining a reliable high quality supply at reasonable prices while controlling handling costs as we ship fruit through our packinghouses and distribution centers Our diverse sourcing network including California Mexico Peru and Colombia enhances supply stability which we believe supports long term growth in the availability and demand for avocados in the United States and global markets
Because fluctuations in avocado volumes impact per pound handling costs larger crops generally result in lower unit costs Our investments in packinghouse equipment value added ripening and packing capabilities and skilled personnel position us to efficiently handle larger volumes and optimize cost structures
Prepared products include guacamole sold at retail and foodservice as well as avocado pulp sold to foodservice Prepared products are marketed under Calavo owned brands as well as store brand and private label programs Our Prepared business maintains relationships with foodservice companies and food retailers We continue to seek to expand our relationships with major foodservice companies and food retailers and develop alliances that will allow our products to reach more consumers
The operating results of our business are and will continue to be influenced by quarterly and annual fluctuations as well as market declines due to various factors These include but are not limited to pests and diseases weather patterns shifts in consumer demand food safety advisories timing reduction or cancellation of significant customer orders gains or losses of key customers market acceptance of our products and our ability to develop introduce and market new products in a timely manner
On January 31 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on January 26 2024 On April 29 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on April 1 2024 On July 30 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on July 2 2024 On October 30 2024 we paid a dividend of 0 20 per share or an aggregate of 3 6 million to shareholders of record on October 2 2024
We completed the sale of our Fresh Cut business Fresh Cut formerly RFG and related real estate on August 15 2024 for 83 million subject to various closing adjustments The Fresh Cut business represented substantially all of the business of the Prepared segment other than the guacamole business which was retained For more information see Note 16 and 17 of the consolidated financial statements
The financial results of the Fresh Cut business have been classified as discontinued operations in the statements of operations and its assets and liabilities have been classified as held for sale in the balance sheets included herein Unless otherwise noted amounts and disclosures in this section relate to our continuing operations except for the Liquidity and Capital Resources section
Prior to the decision to divest our Fresh Cut business our Prepared reporting segment included the Fresh Cut business unit and our guacamole business As a result of the divestiture the Fresh Cut business unit is no longer included in our Prepared business segment All segment information included herein reflect these changes See Note 10 of the consolidated financial statements for further information
As a result of the Fresh Cut business being classified as held for sale and discontinued operations goodwill related to our Prepared segment was allocated between our Fresh Cut and Guacamole businesses based on the relative fair value of the disposal group and the portion of the reporting unit to be retained as of the date of the assets held for sale determination The relative fair value was determined based on a discounted cash flow analysis which included estimates and assumptions such as the weighted average cost of capital revenue growth rates and profitability Prior to the goodwill reallocation an impairment assessment was performed which indicated no impairment to the Company s reporting units During our fiscal third quarter given the sale of our Fresh Cut business was pending we evaluated whether it was more likely than not that the carrying value of the Fresh Cut business exceeded its fair value We performed an impairment analysis in which the fair value was estimated based on the arm s length sale price Accordingly the Company recorded a goodwill impairment charge of 9 3 million during the quarter ended July 31 2024 as a result of the ongoing negotiations and finalization of the sale price See Note 16 of the consolidated financial statements for further information
In fiscal 2024 and 2023 the Company performed a qualitative assessment for its Grown reporting unit by reviewing macroeconomic conditions industry and market conditions cost factors and overall performance compared with prior projections and other relevant entity specific events and performed a quantitative assessment for its Prepared reporting
unit The quantitative assessment of the Company s Prepared reporting unit was determined using a combination of valuation techniques including a discounted cash flow methodology To corroborate the discounted cash flow analysis a market approach was utilized using observable market data such as comparable companies in similar lines of business that are publicly traded Other than the goodwill impairment charge of 9 3 million as discussed above the Company concluded based on quantitative assessment tests that no goodwill impairment existed in the fiscal years ended October 31 2024 and 2023 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 which include forecasted cash flow 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
On January 16 2024 the Company announced that its internal audit process had identified to the Audit Committee of the Board of Directors certain matters that the Board of Directors determined merited enhanced evaluation The Special Committee was established to commence an investigation with the assistance of external legal counsel and external forensic accountants The Special Committee determined that certain of those matters related to the Company s operations in Mexico raised potential issues under the FCPA The Company has voluntarily disclosed this ongoing internal investigation to the SEC and the DOJ and the Company intends to fully cooperate with the SEC and the DOJ in connection with these matters Any determination that the Company s operations or activities were not in compliance with laws including the FCPA could result in the imposition of material fines and penalties and the imposition of equitable remedies See Risk Factors included in this Annual Report The Company cannot currently predict the timing of completion or the outcome of its internal investigation or of any actions that may be taken by the SEC the DOJ or Mexican authorities in connection with the matters under investigation and the Company cannot currently estimate the amount or range of loss or potential impact on its consolidated financial statements associated with these matters
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 The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets liabilities revenues and expenses On an ongoing basis we re evaluate our estimates including those related to the areas of customer and grower receivables IVA tax receivables inventories useful lives of property plant and equipment promotional allowances equity income losses and impairment analysis from unconsolidated entities loans to unconsolidated entities income taxes retirement benefits and commitments and contingencies We base our estimates on historical experience and on various other assumptions that we believe 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 Additionally we frequently engage third party valuation experts to assist us with estimates described below Actual results may materially differ from these estimates under different assumptions or conditions as additional information becomes available in future periods
As discussed in Notes 7 and 14 in the consolidated financial statements our accounting for Mexican tax matters including the 2013 tax assessment and IVA receivables involves significant judgment and estimation uncertainty These estimates require management to evaluate complex tax regulations assess the probability of outcomes and determine the appropriate accounting treatment for potential liabilities and asset recoverability
As discussed in Notes 7 and 14 in the consolidated financial statements our accounting for Mexican tax matters including the 2013 tax assessment and IVA receivables involves significant judgment and estimation uncertainty These estimates require management to evaluate complex tax regulations assess the probability of outcomes and determine the appropriate accounting treatment for potential liabilities and asset recoverability
We have recorded a provision of 11 0 million representing our best estimate of the potential outcome related to the 2013 tax assessment This estimate incorporates assumptions regarding non deductible expenses penalties interest inflationary adjustments and other potential miscellaneous factors Future changes in legal interpretations court rulings or settlement negotiations could have a material impact on this provision
We have recognized IVA receivables totaling 48 7 million as of October 31 2024 Our estimate assumes that the supporting documentation for our tax structure will be upheld and that administrative appeals or legal processes will ultimately result in collection of these receivables However delays in the appeals process adverse rulings or changes in tax enforcement practices could materially impact the timing and amount of recovery
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 Additionally when a business within a reporting unit is disposed of goodwill is allocated to the disposed business using the relative fair value method Relative fair value is estimated using a combination of a discounted cash flow analysis and market valuation approach We perform a goodwill impairment test on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable When evaluating goodwill for impairment we may first perform a qualitative assessment step zero of the impairment test to determine whether it is more likely than not that a reporting unit is impaired If we decide not to perform a qualitative assessment or if we determine that it is more likely than not the carrying amount of a reporting unit exceeds its fair value then we perform a quantitative assessment step one of the impairment test and calculate the estimated fair value of the reporting unit To the extent the carrying amount of the reporting unit s allocated goodwill exceeds the unit s fair value we recognize an impairment of goodwill for the excess up to the amount of goodwill of that reporting unit
As a result of the Fresh Cut business being classified as held for sale and discontinued operations goodwill related to our Prepared segment was allocated between our Fresh Cut and Guacamole businesses based on the relative fair value of the disposal group and the portion of the reporting unit to be retained as of the date of the assets held for sale determination The relative fair value was determined based on a discounted cash flow analysis which included
estimates to assumptions such as the weighted average cost of capital revenue growth rates and profitability assumptions Prior to the goodwill reallocation an impairment assessment was performed which indicated no impairment to the Company s reporting units During our fiscal third quarter given the sale of our Fresh Cut business was pending we evaluated whether it was more likely than not that the carrying value of the Fresh Cut business exceeded its fair value We performed an impairment analysis in which the fair value was estimated based on the arm s length sale price Accordingly the Company recorded a goodwill impairment charge of 9 3 million during the quarter ended July 31 2024 as a result of the ongoing negotiations and finalization of the sale price
In fiscal 2024 and 2023 the Company performed a qualitative assessment for its Grown reporting unit by reviewing macroeconomic conditions industry and market conditions cost factors overall performance compared with prior projections and other relevant entity specific events and performed a quantitative assessment for its Prepared reporting unit The quantitative assessment of the Company s Prepared reporting unit was determined using a combination of valuation techniques including a discounted cash flow methodology To corroborate the discounted cash flow analysis a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded Other than the goodwill impairment charge of 9 3 million as discussed above the Company concluded based on quantitative assessment tests that no goodwill impairment existed in the fiscal years ended October 31 2024 and 2023 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 which include forecasted cash flow 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
The following table sets forth our unaudited quarterly statements of operations for the most recent eight quarters The information for each quarter has been prepared on a basis consistent with our consolidated financial statements and reflects in the opinion of management all adjustments of a normal recurring nature that are necessary for a fair presentation of the financial information contained in those statements This quarterly schedule is provided due to the sale of our Fresh Cut business which resulted in amounts related to discontinued operations being reclassified to reflect only continuing operations in the prior year The following quarterly financial data should be read in conjunction with our consolidated financial statements in 000s except share and per share amounts
We believe that the fundamental consumption trends for our products continue to be favorable First U S avocado demand continues to grow with per capita consumption in 2023 2024 per USDA reaching 9 2 pounds per person and approximately 64 higher than the estimate from a decade ago We believe that the healthy eating trend that has been developing in the U S contributes to such growth as avocados are cholesterol and sodium free dense in fiber vitamin B6 antioxidants potassium folate and contain unsaturated fat which helps lower cholesterol
Additionally we believe that demographic changes in the U S will impact the consumption of avocados and avocado based products The Hispanic community currently accounts for approximately 20 of the U S population and the total number of Hispanics is estimated to double by the year 2050 Avocados are considered a staple item purchased by Hispanic consumers as the per capita avocado consumption in Mexico is significantly higher than that of the US
We anticipate avocado products will further penetrate the United States marketplace driven by year round availability of imported fresh avocados a growing Hispanic population and the promotion of the health benefits of avocados As one of the largest marketers of avocado products in the United States we believe that we are well positioned to leverage this trend and to grow our avocado and guacamole products business Additionally we also believe that avocados and avocado based products will further penetrate other markets that we currently operate in as interest in avocados continues to expand
In October 2002 the USDA established the Hass Avocado Board to promote the sale of Hass avocados in the U S market This board created a framework for unified funding of promotional activities through assessments on all avocados sold in the United States Historically the California Avocado Commission funded by California avocado growers has borne the costs of promotional and advertising efforts to support avocado sales We believe that the incremental funding for promotional and advertising programs in the U S will have a positive long term impact on average selling prices and will benefit our avocado business During fiscal 2024 2023 and 2022 we remitted approximately 2 0 million 0 5 million and 1 5 million to the California Avocado Commission on behalf of avocado growers Additionally we remitted approximately 5 6 million 8 0 million and 8 1 million to the Hass Avocado Board in support of these activities Similarly in 2013 Avocados From Mexico AFM was formed as the marketing arm of the Mexican Hass Avocados Importers Association MHAIA and the Association of Growers and Packers of Avocados From Mexico APEAM During fiscal 2024 2023 and 2022 we remitted approximately 4 3 million 5 5 million and 4 2 million to APEAM primarily for marketing activities related to Mexican avocados
We also believe that our other Grown products primarily tomatoes are positioned for future growth The tomato is the fourth most popular fresh market vegetable though a fruit scientifically speaking tomatoes are often considered a vegetable behind potatoes lettuce and onions in the U S Over the past few decades per capita consumption of
tomatoes has been on the rise due primarily to the enduring popularity of salads salad bars and submarine sandwiches Perhaps of greater importance has been the introduction of new and improved tomato varieties the increased development of hot house grown tomatoes such as those grown by our ADM affiliate heightened consumer interest in a wider range of tomatoes a surge of new immigrants who eat vegetable intensive diets and expanding national emphasis on health and nutrition
Our Prepared segment sources avocados processes them into a wide variety of guacamole products and distributes the finished products to foodservice retail and industrial accounts All prepared avocado products undergo cold pasteurization and include both frozen and fresh guacamole options We believe the extended shelf life of our frozen guacamole and the freshness and purity of our fresh guacamole position us well to meet the diverse preferences and needs of today s consumers Our customer base spans foodservice providers retail businesses and industrial accounts We are actively working to strengthen relationships with major foodservice companies expand partnerships with retail and industrial clients and develop strategic alliances to broaden our market reach and increase product visibility
For the year ended October 31 2024 the increase in Grown product sales was primarily due to an increase in price per unit of avocados partially offset by decreased sales volume in avocados and tomatoes For the year ended October 31 2024 the decrease in Prepared product sales was due primarily to a change in product mix described further below
Net sales for the Grown products business increased by approximately 70 2 million or 13 for the year ended October 31 2024 compared to the prior year period The increase in Grown product sales during the year ended October 31 2024 was primarily related to higher sales prices for avocados partially offset by a decrease in sales of tomatoes
Sales of avocados increased 68 0 million or 15 for the year ended October 31 2024 compared to the prior year period The average avocado sales price per carton increased 24 compared to the prior year period The increase in the sales price per carton was mainly due higher market values for avocados The volume of avocados sold for the year ended October 31 2024 decreased by 8 compared to the prior year period
Sales of avocados decreased 177 9 million or 28 for the year ended October 31 2023 compared to the prior year period The average avocado sales price per carton decreased 30 compared to the prior year period The decrease in the sales price per carton was mainly due to an increased industry supply of avocados The volume of avocados sold for the year ended October 31 2023 increased 3 compared to the prior year period
Net sales for guacamole products decreased 2 0 million or 3 for the year ended October 31 2024 compared to the corresponding period in fiscal 2024 During fiscal 2024 compared to fiscal 2023 the volume of frozen products sold as a percentage of total sales increased Frozen products typically have lower sales prices than their unfrozen counterparts
Net sales for the Prepared products business decreased by approximately 4 8 million or 7 for the year ended October 31 2023 compared to the corresponding period in fiscal 2022 This decrease in Prepared product sales during the year ended October 31 2023 was primarily related to lower sales volume of guacamole products
Our cost of goods sold consists predominantly of ingredient costs primarily fruit and other whole foods packing materials freight and handling labor and overhead including depreciation associated with preparing food products and other direct expenses pertaining to products sold Gross profit increased by approximately 5 2 million or 8 for the year ended October 31 2024 compared to the same period in fiscal 2023 This growth was primarily driven by higher gross profits in both the Grown and Prepared segments
For the year ended October 31 2024 compared to the prior year our Grown products segment gross profit increased by 4 7 million or 9 Gross profit percentages for avocados remained strong at approximately 10 for both fiscal 2024 and 2023 However tomato gross profits declined to 3 6 million from 4 5 million While the majority of our tomato sales are made on a consignment basis we also purchase some tomatoes on the spot market to fulfill specific customer requests The decrease in tomato gross profit was primarily attributable to higher sales of tomatoes sourced from the spot market which were less profitable than our traditional consignment tomato sales We expect to source less volume from the spot market in fiscal 2025 relative to consignment sales
For the year ended October 31 2023 we generated gross profit of 4 5 million from tomato sales up from 3 5 million in the prior year period The majority of our tomato sales are made on a consignment basis in which the gross profit we earn is generally based on a commission agreed to with each party which usually is a percent of the overall selling price We however also purchase some tomatoes on the spot market to meet specific customer requests and have certain fixed overhead costs associated with our tomato operations which impact the overall gross profit realized from tomato sales The gross profit percentage for consignment sales 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 decrease in tomato gross profit was due primarily to an increase in sales of tomatoes from third party growers packers As discussed above even though a majority of our tomato sales are made on a consignment basis we had lower gross profit from third party growers packers compared to the prior year
The increase in our Prepared products gross profit for the year ended October 31 2022 was the result of increased profit in guacamole products Guacamole products gross profit percentage for the year ended October 31 2023 was 18 1 compared to a gross profit of 5 7 for the prior year period The increase in gross profit percentage for the year ended October 31 2023 in guacamole products was primarily due to lower raw product fruit costs and manufacturing improvements
Selling general and administrative expenses of 50 0 million for the year ended October 31 2024 include costs of marketing and advertising sales expenses including broker commissions and other general and administrative costs Selling general and administrative expenses increased by 2 8 million or 6 for the year ended October 31 2024 compared to the prior year period This increase was primarily due to 7 4 million in professional fees related to our internal investigation and a 1 0 million employee incentive accrual Partially offsetting these increases is a reduction in severance cost of 1 6 million and 3 0 million in stock based compensation from the prior year related to the departure of our former Chief Executive Officer and other executives
Selling general and administrative expenses of 47 2 million for the year ended October 31 2023 include costs of marketing and advertising sales expenses including broker commissions and other general and administrative costs Selling general and administrative expenses increased by 0 7 million or 2 for the year ended October 31 2023 compared to the prior year period This increase was primarily due to 2 9 million paid in severance and other costs and 1 6 million in stock based compensation related to executive departures Partially offsetting these increases is a reduction in our short term incentive accrual of 2 3 million
Our operations in Mexico are subject to exchange rate fluctuations and foreign currency transaction costs The functional currency of our foreign subsidiaries in Mexico is the United States dollar As a result monetary assets and liabilities are remeasured into U S dollars at exchange rates as of the balance sheet date and non monetary assets liabilities and equity are remeasured at historical rates Sales and expenses are remeasured using a weighted average exchange rate for the period
Due to the change in the Mexican peso to the U S dollar exchange rates foreign currency remeasurement losses net of gains for the year ended October 31 2024 and 2022 were 5 8 million and 1 0 million respectively Foreign currency remeasurements gains net of losses for the year ended October 31 2023 were 1 4 million
The increase in interest income in fiscal 2024 as compared to 2023 is primarily due to interest earned on the net proceeds from the sale of the Fresh Cut business The increase in interest income in fiscal 2023 as compared to 2022 is primarily due to the increase in the amount owed from our tomato growers from loans and infrastructure advances
Interest expense is primarily generated from our line of credit borrowings with Wells Fargo For fiscal 2024 as compared to fiscal 2023 the increase in interest expense was due to higher interest rates as well as a higher average debt balance and amortization of debt issuance cost For fiscal 2023 as compared to fiscal 2022 the increase in interest expense was due to higher interest rates as well as a higher average debt balance
Other income net includes transactions that are outside of the normal course of operations For fiscal 2024 as compared to fiscal 2023 the increase in other income net was due to a 0 3 million recovery of non CDM Mexican IVA tax For fiscal 2023 as compared to fiscal 2022 the decrease in other income net was due to 0 6 million received as dividend income from Limoneira in 2022 At the end of fiscal 2022 we sold our investment in Limoneira and therefore received no dividends from Limoneira in fiscal 2024 and fiscal 2023
For fiscal 2024 continuing operation we incurred 0 5 million return to provision discrete taxable items These discrete items were primarily related the lack of deductibility of certain Mexican tax expenses In addition we recognized 0 7 million of income tax provision benefit during fiscal 2024 related to the other permanent differences and release of valuation allowances
For fiscal 2023 continuing operation we incurred 0 2 million return to provision discrete taxable items These discrete items were primarily related the lack of deductibility of certain Mexican tax expenses In addition we recognized 3 1 million of additional income tax provision expenses during fiscal 2023 related to the other permanent differences
Cash provided by operating activities was 24 4 million and 50 2 million for fiscal year 2024 and 2022 Cash used in operating activities for fiscal 2023 was 14 5 million Fiscal year 2024 operating cash flows reflect our net loss of 1 0 million net increase of noncash charges depreciation and amortization stock based compensation expense goodwill impairment losses from unconsolidated entities deferred taxes loss on disposal of property plant and equipment reserve for Mexican IVA receivables gain on the sale of the Temecula packinghouse gain on sale of the Fresh Cut business operating lease expense and amortization of debt issuance costs of 15 7 million and a net increase from changes in the non cash components of our working capital accounts of approximately 10 2 million
The increase in operating cash flows was caused by working capital changes including an increase in payable to growers of 3 6 million a decrease in other assets of 2 8 million an increase in income tax payables of 2 9 million a decrease in prepaid expenses and other current assets of 1 6 million a decrease in advances to suppliers of 0 7 million a decrease in income tax receivable of 0 2 million and a net increase in accounts payable and accrued expenses of 7 0 million partially offset by an increase in accounts receivables of 6 5 million and an increase in inventories of 1 9 million
The increase in accounts payable accrued expenses and other liabilities is primarily related to the timing of payments The decrease in other assets as of October 31 2024 when compared to the prior year period is primarily due to repayments of infrastructure loans The increase in payable to growers is mostly due to higher sales prices for avocados The decrease in our prepaid and other current assets is primarily due to the release of the temporary deposit for collateral in connection with our workers compensation policies in place at October 31 2023 which has been replaced by a letter of credit The increase in our accounts receivable is due to an increase in sales prices for avocados Advances to suppliers reflect preseason advances paid to our consignment growers at the start of the tomato season and such amounts are relatively flat year over year The increase in our inventory as of October 31 2024 when compared to the prior year period is primarily due to higher inventory of Mexican avocados offset by a decrease in inventory of guacamole products The decrease in income taxes receivable and increase in income taxes payable are due to the gain on disposal of discontinued operations offset by cash payments made during the year
Cash provided by investing activities was 80 1 million and 8 7 million for fiscal year 2024 and 2022 Cash used by investing activities was 10 7 million for fiscal year 2023 Fiscal year 2024 cash flows provided by investing activities include the proceeds from the sale of the Fresh Cut business of 83 0 million partially offset by the purchases of property plant and equipment of 2 9 million
Cash used in financing activities was 50 4 million and 58 6 million for fiscal years 2024 and 2022 Cash provided by financing activities was 24 9 million for fiscal year 2023 Cash used during fiscal year 2024 primarily relates to the net payments to our credit facility totaling 35 0 million dividend payments of 9 0 million payment of the Term Loan of 4 1 million long term obligation payments of 1 5 million the payment of minimum withholding taxes on net share settlement of equity awards of 0 7 million and the payment of debt issuance costs of 0 2 million
Our principal sources of liquidity are cash generated from operations and amounts available for borrowing under our Credit Facility Restricted cash cash and cash equivalents as of October 31 2024 and 2023 totaled 57 0 million and 2 9 million respectively Our working capital at October 31 2024 was 85 4 million compared to 51 6 million at October 31 2023
We believe that cash flows from operations borrowings available under our Credit Facility and other sources will be sufficient to satisfy our future capital expenditures working capital and other financing requirements for at least the next twelve months We will continue to pursue grower recruitment opportunities and expand relationships with retail and or foodservice customers to fuel growth in each of our business segments
On June 26 2023 Calavo and certain subsidiaries entered into the Credit Agreement by and among Calavo certain subsidiaries of Calavo as guarantors and Wells Fargo Bank National Association as agent and lender Agent The Credit Agreement provides for a revolving credit facility of up to 90 0 million the Revolving Loans along with a capex credit facility of up to 10 0 million the Term Loan and together with the Revolving Loans the Credit Facility
On August 15 2024 in conjunction with its sale of the Fresh Cut business Calavo and certain of its subsidiaries collectively the Borrower entered into a First Amendment to Credit Agreement and Consent as amended the Credit Agreement with Agent whereby i the Credit Agreement was amended to A reduce the revolving commitments thereunder from 90 0 million to 75 0 million and B reduce the machinery and equipment subline of the loans from 6 8 million to 1 7 million and to reduce the related monthly amortization on such subline from 80 952 38 to 24 335 37 and ii the Borrower obtained consent from Agent for entry into the Asset Purchase Agreement and Purchase and Sale Agreement
Borrowings of the Revolving Loans under the Credit Agreement are asset based and subject to a borrowing base calculation that includes a certain percentage of eligible accounts receivable inventory and equipment of Calavo less any reserves implemented by Agent in its permitted discretion provided that the equipment based portion of such borrowing base calculation reduces monthly following the Closing Date
Borrowings under the Credit Agreement bear interest at a rate per annum equal to an applicable margin plus at Calavo s option either a base rate or a secured overnight financing rate SOFR term rate which includes a spread adjustment of 0 10 and is subject to a floor of 0 00 The applicable margin is i for Revolving Loans 0 50 for base rate borrowings and 1 50 for SOFR term rate borrowings and ii for Term Loan 1 00 for base rate borrowings and 2 00 for SOFR term rate borrowings The Credit Facility matures on June 26 2028
The weighted average interest rate under the Credit Facility was 7 2 for the fiscal year ended October 31 2024 Under the Credit Facility as of October 31 2024 we had no amounts outstanding related to the Revolving Loans or Term Loan During August 2024 we fully repaid the Term Loan with the proceeds from the sale of the Fresh Cut business Amounts are no longer available to be drawn from such Term Loan and we will accordingly have no further amortization of this Term Loan
The commodities we rely on such as fruits ingredients packaging materials transportation as well as electricity and natural gas can experience price volatility due to various external factors including market fluctuations availability weather currency fluctuations and changes in governmental regulations and agricultural programs Such events may lead to reduced supplies of these materials increased supply costs or disruptions to our production schedules
The principal effect of inflation in both commodity and consumer prices on our operating results is to increase costs both for products sold and selling general and administrative expenses Although we may attempt to offset these cost increases by increasing selling prices for our products consumers may not have the buying power to cover these increased costs and may reduce their volume of purchases of those products In that event selling price increases may not be sufficient to completely offset our cost increases
A substantial portion of our business operations are based in Mexico Consequently a considerable share of our costs and expenses are denominated in Mexican pesos To meet foreign cash requirements funds are transferred weekly from our corporate office to Mexico Currently we do not utilize derivative instruments to hedge fluctuations in the Mexican peso MXN to U S dollar USD exchange rates However management periodically evaluates the feasibility of employing such instruments Total foreign currency remeasurement losses for fiscal 2024 and 2022 net of gains were 5 8 million and 1 0 million respectively Total foreign currency remeasurements gains for fiscal 2023 net of losses were 1 4 million
Fluctuations in exchange rates between MXN and the USD can have complex and at times conflicting impacts on our financial results A strengthening USD or a weaker MXN generally benefits cash flow by reducing the amount of USD we need to transfer to Mexico to fund daily operations However a strengthening USD or weaker MXN results in higher noncash foreign currency translation remeasurement expense For further information please see Note 2 Foreign Currency Translation and Remeasurement in our consolidated financial statements and the discussion under the heading Foreign currency gain loss contained in Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations which are included elsewhere in this Annual Report on Form 10 K These impacts do not necessarily offset one another and introduce significant complexity to our financial results and their interpretation
Calavo Growers Inc referred to in this report as Calavo the Company we us or our is a global leader in the avocado industry and a provider of value added fresh food Our expertise in marketing and distributing avocados prepared avocados and other perishable foods allows us to deliver a wide array of fresh and prepared food products to retail grocery foodservice club stores mass merchandisers food distributors and wholesalers worldwide We procure avocado products from California Mexico and other growing regions around the world Through our various operating facilities we i sort pack and or ripen avocados tomatoes and or Hawaiian grown papayas and ii process and package guacamole We distribute our products both domestically and internationally We report our operations in two different business segments Grown and Prepared
During the year ended October 31 2024 management concluded that the Fresh Cut business meets the requirements to be classified as held for sale and discontinued operations As a result the financial results of that business are reported as discontinued operations in the accompanying statements of operations and its assets and liabilities are reflected as amounts held for sale in the accompanying balance sheets The Company s reporting segments have also been changed for the effects of the divestiture as described in Note 10 For more information see Note 16
We completed the sale of our Fresh Cut business and related real estate on August 15 2024 for 83 0 million subject to various closing adjustments The Fresh Cut business represents substantially all of the business of the Prepared segment other than the guacamole business which has been retained following the Transaction For more information see Note 17
Our consolidated financial statements include the accounts of i Calavo Growers Inc ii our wholly owned subsidiaries Calavo de Mexico S A de C V Calavo de Mexico Calavo Growers de Mexico S de R L de C V Calavo Growers de Mexico Maui Fresh International Inc Maui Hawaiian Sweet Inc HS CW Hawaii Pride LLC HP and RFG 2D LLC formerly known as Renaissance Food Group LLC or RFG including its wholly owned subsidiaries and iii Avocados de Jalisco S A P I de C V Avocados de Jalisco in which we have an 83 ownership interest All intercompany accounts and transactions have been eliminated in consolidation
The preparation of financial statements in conformity with accounting principles generally accepted in the U S 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 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
As of October 31 2023 in connection with the Credit Facility we had temporarily posted cash collateral to satisfy certain collateral requirements related to our transition between banks providing letters of credit related to our workers compensation insurance policies Accordingly as of October 31 2023 we recorded 0 8 million in restricted cash and 3 0 million of prepaid and other current assets related to this transition As of October 31 2024 we no longer have restricted cash nor prepaid and other current assets related to our workers compensation insurance policies outstanding Both have been replaced by standby letters of credit
Prepaid expenses and other current assets consist primarily of non trade receivables infrastructure advances and prepaid expenses Non trade receivables were 4 2 million and 5 9 million at October 31 2024 and 2023 respectively Included in non trade receivables are 2 0 million and 2 7 million related to the current portion of non CDM Mexican IVA i e value added taxes at October 31 2024 and 2023 See Note 14 Infrastructure advances are discussed below Prepaid expenses totaling 3 5 million and 4 2 million at October 31 2024 and 2023 respectively are primarily for insurance rent and other items
Trade accounts receivable are reported at amounts due from customers net of an allowance for estimated credit losses and customer deductions accounted for as variable consideration The Company performs credit evaluations of customers and evaluates the need for allowances for potential credit losses based on historical experience as well as current and expected general economic conditions
Inventories are stated at the lower of cost or net realizable value Cost is computed on a monthly 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 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 10 years Significant repairs and maintenance that increase the value or extend the useful life of our fixed asset are capitalized Ongoing maintenance and repairs are charged to expense
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 Additionally when a business
within a reporting unit is disposed of goodwill is allocated to the disposed business using the relative fair value method Relative fair value is estimated using a combination of a discounted cash flow analysis and market valuation approach We perform a goodwill impairment test on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable When evaluating goodwill for impairment we may first perform a qualitative assessment step zero of the impairment test to determine whether it is more likely than not that a reporting unit is impaired If we decide not to perform a qualitative assessment or if we determine that it is more likely than not the carrying amount of a reporting unit exceeds its fair value then we perform a quantitative assessment step one of the impairment test and calculate the estimated fair value of the reporting unit To the extent the carrying amount of the reporting unit s allocated goodwill exceeds the unit s fair value we recognize an impairment of goodwill for the excess up to the amount of goodwill of that reporting unit
As a result of the Fresh Cut business being classified as held for sale and discontinued operations goodwill related to our Prepared segment was allocated between our Fresh Cut and Guacamole businesses based on the relative fair value of the disposal group and the portion of the reporting unit to be retained as of the date of the assets held for sale determination The relative fair value was determined based on a discounted cash flow analysis which included estimates to assumptions such as the weighted average cost of capital revenue growth rates and profitability assumptions Prior to the goodwill reallocation an impairment assessment was performed which indicated no impairment to the Company s reporting units During our fiscal third quarter given the sale of our Fresh Cut business was pending we evaluated whether it was more likely than not that the carrying value of the Fresh Cut business exceeded its fair value We performed an impairment analysis in which the fair value was estimated based on the arm s length sale price Accordingly the Company recorded a goodwill impairment charge of 9 3 million during the quarter ended July 31 2024 as a result of the ongoing negotiations and finalization of the sale price See Note 16
In fiscal 2024 and 2023 the Company performed a qualitative assessment for its Grown reporting unit by reviewing macroeconomic conditions industry and market conditions cost factors overall performance compared with prior projections and other relevant entity specific events and performed a quantitative assessment for its Prepared reporting unit The quantitative assessment of the Company s Prepared reporting unit was determined using a combination of valuation techniques including a discounted cash flow methodology To corroborate the discounted cash flow analysis a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded Other than the goodwill impairment charge of 9 3 million as discussed above the Company concluded based on quantitative assessment tests that no goodwill impairment existed in the fiscal years ended October 31 2024 and 2023 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 which include forecasted cash flow 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
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 than 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 For fiscal years 2024 and 2023 we performed our annual assessment of long lived assets and determined that no impairment existed as of October 31 2024 and 2023
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
In December 2014 Calavo formed a wholly owned subsidiary Calavo Growers De Mexico S de R L de C V Calavo Sub In July 2015 Calavo Sub entered into a Shareholder Agreement with Grupo Belo del Pacifico S A de C V Belo a Mexican company owned by Agricola Belher and Agricola Don Memo S A de C V Don Memo Don Memo a Mexican corporation formed in July 2013 is engaged in the business of owning and improving land in Jalisco Mexico for the growing and sale of tomatoes and other produce Belo and Calavo Sub have an equal one half ownership interest in Don Memo Pursuant to a management service agreement Belo through its officers and employees shall have day to day power and authority to manage the operations This investment contribution represents Calavo Sub s 50 ownership in Don Memo which is included in investment in unconsolidated entities on our balance sheet We use the equity method to account for this investment As of October 31 2024 and 2023 we have an investment of 2 4 million and 2 9 million respectively in Don Memo
We advance funds to third party growers primarily in 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 2024 and 2023
Pursuant to our distribution agreement with Agricola Belher Belher of Mexico a producer of fresh vegetables primarily tomatoes for export to the U S market Belher agreed at their sole cost and expense to harvest pack export ship and deliver tomatoes exclusively to our Company primarily to the facility we use in Arizona In exchange we agreed to sell and distribute such tomatoes make advances 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 These advances will be collected through settlements typically by the end of each year As of October 31 2024 and 2023 we have total advances offset by tomato liabilities of 5 1 million and 5 4 million respectively to Belher pursuant to this agreement respectively which are recorded in advances to suppliers
Similar to Belher we make advances to Don Memo for operating purposes provide additional advances as shipments are made during the season and return the proceeds from such tomato sales to Don Memo net of our commission and aforementioned advances As of October 31 2024 and 2023 we have total advances net of tomato liabilities of 7 7 million and 7 3 million respectively to Don Memo which is recorded in advances to suppliers offset by tomato liabilities from the sales of tomatoes per the tomato marketing agreement
In October 2020 we entered into an infrastructure loan agreement with Don Memo for 2 4 million secured by Don Memo s property and equipment This infrastructure loan accrues interest at 7 25 In October 2020 we advanced 0 7 million related to this loan agreement We advanced an additional 0 7 million and 0 6 million in the first and second
In July 2021 we made a bridge loan of 3 5 million to Belher This loan is secured by certain farmland in Mexico and accrues interest at 10 In the first quarter of fiscal 2024 this loan was amended to be due with installments of 0 6 million on July 31 2024 0 6 million on July 31 2025 and 0 5 million on July 31 2026 As part of this amended loan agreement we can withhold payments on both the infrastructure advances and the bridge loan through the netting the amount due against the grower payable due to Belher For each the years ended October 31 2024 and 2023 we withheld 0 6 million and 0 9 million respectively from payments to Belher to offset the bridge loan repayments As of October 31 2024 the remaining bridge loan has been recorded as 0 6 million in prepaid expenses and other current assets and 0 5 million in other assets As of October 31 2023 the remaining bridge loan was recorded as 1 7 million was recorded in prepaid expenses and other current assets
Right of use assets represent the Company s right to use an underlying asset for the lease term and lease liabilities represent the Company s obligation to make lease payments arising from the lease The Company makes a determination if an arrangement constitutes a lease at inception and categorizes the lease as either an operating or finance lease
Right of use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term For finance leases we recognize interest expense and amortization of the right of use asset and for operating leases we recognize lease expense on a straight line basis over the lease term The interest expense amortization component of the finance lease liabilities is recorded within interest expense on the consolidated statements of operations
When available we use the rate implicit in the lease to discount lease payments to present value however most of our leases do not provide a readily determinable implicit rate We estimated our incremental borrowing rate based upon a synthetic credit rating and yield curve analysis As a result the incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments
We have elected the short term lease recognition exemption for all leases that qualify under one year term meaning we will recognize expense on a straight line basis and will not include the recognition of a right of use asset or lease liability We will account for lease and non lease components as a single lease component for all leases
The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied generally this occurs with the transfer of control of its products Revenue is measured as the amount of net consideration expected to be received in exchange for transferring products Revenue from product sales is governed primarily by customer pricing and related purchase orders contracts which specify shipping terms and certain aspects of the transaction price including variable considerations such as rebates discounts and other sales incentives Contracts are at standalone pricing The performance obligation in these contracts is determined by each of the individual purchase orders and the respective stated quantities with revenue being recognized at a point in time when obligations under the terms of the agreement are satisfied This generally occurs with the transfer of control of our products to the customer and the product is delivered The Company s customers have an implicit and explicit right to return non conforming products A provision for payment discounts and product return allowances which is estimated is recorded as a reduction of sales in the same period that the revenue is recognized
The Company routinely offers sales incentives and discounts through various regional and national programs to our customers and consumers These programs include product discounts or allowances product rebates product returns one time or ongoing trade promotion programs with customers and consumer coupon programs that require the Company to estimate the expected costs of such programs The costs associated with these activities are accounted for as reductions to the transaction price of the Company s products and are therefore recorded as reductions to gross sales at the time of sale The Company bases its estimates of incentive costs on historical trend experience with similar programs actual incentive terms per customer contractual obligations and expected levels of performance of trade promotions utilizing customer and sales organization inputs The Company maintains liabilities at the end of each period for the estimated incentive costs incurred but unpaid for these programs Differences between estimated and actual incentive costs are generally not material and are recognized in earnings in the period such differences are determined Reserves for product returns accrued rebates and promotional accruals are included in the consolidated balance sheets as part of accounts receivable
Our estimates for promotional allowances are recorded at the time of sale and are generally based on evaluating the historical relationship between promotional allowances and gross sales The derived percentage is then applied to the current period s sales revenues in order to arrive at the appropriate debit to sales allowances for the period The offsetting credit is made to an allowance on accounts receivable 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
We frequently enter into consignment arrangements with avocado and tomato growers and packers located outside of the U S and growers of certain perishable products in the U S We evaluate whether the performance obligation is a promise to transfer services to the customer as the principal or to arrange for services to be provided by another party as the agent using a control model This evaluation determined that the Company is in control of establishing the transaction price managing all aspects of the shipments process and taking the risk of loss for delivery collection and returns Based on the Company s evaluation of the control model it determined that all of the Company s major businesses act as the principal rather than the agent within their revenue arrangements and such revenues are reported on a gross basis
We sell to retail grocery foodservice club stores mass merchandisers food distributors and wholesale customers Our top ten customers accounted for approximately 50 60 and 50 of our consolidated net sales in fiscal years 2024 2023 and 2022 respectively Sales to our largest customer Walmart including its affiliates represented approximately 12 12 and 14 of net sales in each of fiscal years 2024 2023 and 2022 respectively Kroger represented approximately 10 of net sales in fiscal year 2023 No other single customer accounted for more than 10 of our net sales in any of the last three fiscal years
We frequently enter into consignment arrangements with avocado and tomato growers and packers located outside of the U S and growers of certain perishable products in the U S 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 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 2024 2023 and 2022 in the financial statements pursuant to consignment arrangements are as follows in thousands
For the year ended October 31 2022 we recorded 2 8 million of consulting expenses included in selling general and administrative expenses related to an enterprise wide strategic business review conducted for the purpose of restructuring to improve the profitability of the organization and efficiency of our operations We also recorded 1 0 million 5 5 million and 2 0 million for the years ended October 31 2024 2023 and 2022 respectively of management recruiting and severance costs related to this restructuring initiative
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
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 management s estimates which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities
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 and contingent consideration Diluted earnings per share is calculated using the weighted average number of common shares outstanding during the period after consideration of the dilutive effect of stock options and the effect of contingent consideration shares
We account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in our 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
For the years ended October 31 2024 2023 and 2022 we recognized compensation expense of 2 2 million 5 2 million and 3 1 million related to stock based compensation respectively See Note 12 For our restricted stock awards the value of the stock based compensation was determined from quoted market prices at the date of the grant For our stock option awards we measure the fair value of our stock options awards using the Black Scholes Merton and lattice based option valuation models
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 U S dollar As a result monetary assets and liabilities are remeasured 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 measured using a weighted average exchange rate for the period Total foreign currency remeasurement losses for fiscal 2024 and 2022 net of gains was 5 8 million and 1 0 million respectively Total foreign currency remeasurements gains for fiscal 2023 net of losses was 1 4 million
We believe that the carrying amounts of cash and cash equivalents accounts receivable accounts payable and short term borrowings approximate fair value based on either their short term nature or on terms currently available to the Company in financial markets Due to current market rates we believe that our fixed rate long term obligations and finance leases have nearly the same fair value and carrying value of approximately 5 1 million and 5 5 million as of October 31 2024 and 2023 respectively
In November 2023 the Financial Standards Accounting Board issued Accounting Standards Update 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which expands annual and interim disclosure requirements for reportable segments primarily through enhanced disclosures about significant segment expenses ASU 2023 07 is effective for annual periods beginning after December 15 2023 and interim periods within fiscal years beginning after December 15 2024 with early adoption permitted The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures
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 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 prepared 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
On June 26 2023 Calavo and certain subsidiaries entered into a credit agreement the Credit Agreement by and among Calavo certain subsidiaries of Calavo as guarantors and Wells Fargo Bank National Association as agent and lender Agent The Credit Agreement provided for a revolving credit facility of up to 90 0 million the Revolving Loans along with a capex credit facility of up to 10 0 million the Term Loan and together with the Revolving Loans the Credit Facility
On August 15 2024 in conjunction with its sale of the RFG Business Calavo and certain of its subsidiaries collectively the Borrower entered into a First Amendment to Credit Agreement and Consent as amended the Credit Agreement with Wells Fargo Bank National Association as agent and lender Agent whereby i the Credit Agreement was amended to A reduce the revolving commitments thereunder from 90 0 million to 75 0 million and B reduce the machinery and equipment subline of the loans from 6 8 million to 1 7 million and to reduce the related monthly amortization on such subline from 80 952 38 to 24 335 37 and ii the Borrower obtained consent from Agent for entry into the Asset Purchase Agreement and Purchase and Sale Agreement
Borrowings of the Revolving Loans under the Credit Agreement are asset based and are subject to a borrowing base calculation that includes a certain percentage of eligible accounts receivable inventory and equipment of Calavo less any reserves implemented by Agent in its permitted discretion provided that the equipment based portion of such borrowing base calculation will reduce monthly following the Closing Date
Borrowings under the Credit Agreement bear interest at a rate per annum equal to an applicable margin plus at Calavo s option either a base rate or a secured overnight financing rate SOFR term rate which includes a spread adjustment of 0 10 and is subject to a floor of 0 00 The applicable margin is i for Revolving Loans 0 50 for base rate borrowings and 1 50 for SOFR term rate borrowings and ii for Term Loan 1 00 for base rate borrowings and 2 00 for SOFR term rate borrowings The Credit Facility matures on June 26 2028 the Maturity Date Calavo may voluntarily prepay loans under the Credit Facility in whole or in part without premium or penalty Subject to the terms and conditions set forth in the Credit Agreement Calavo may be required to make certain mandatory prepayments prior to the Maturity Date
The Credit Agreement contains negative covenants that among other things limit Calavo s ability to incur indebtedness grant liens on its assets enter into certain investments consummate fundamental change transactions engage in mergers or acquisitions or dispose of assets enter into certain transactions with affiliates make changes to its fiscal year enter into certain restrictive agreements and make certain restricted payments including for dividends Each of these limitations are subject to various conditions The Credit Agreement also contains a springing fixed charge coverage ratio financial covenant that is tested if the amount of the Revolving Loans available for Calavo to borrow under the Credit Facility is less than 10 of the total revolving credit facility
The weighted average interest rate under the Credit Facility was 7 2 for fiscal year ended October 31 2024 Under the Credit Facility as of October 31 2024 we had no amounts outstanding related to the Revolving Loans or Term Loan In August 2024 we fully repaid the Term Loan with proceeds from the sale of the Fresh Cut business Amounts are no longer available to be drawn from such Term Loan and we will accordingly have no further amortization of this Term Loan
As of October 31 2023 in connection with the Credit Facility we had temporarily posted cash collateral to satisfy certain collateral requirements related to our transition between banks providing letters of credit related to our workers compensation insurance policies Accordingly as of October 31 2023 we had 0 8 million in restricted cash and 3 0 million of prepaid and other current assets related to this transition As of October 31 2024 we no longer have restricted cash nor prepaid and other current assets related to our workers compensation insurance policies outstanding Both have been replaced by standby letters of credit
In conjunction with the sale of the Fresh Cut business on August 15 2024 the Company assigned leases resulting in the Company being relieved of its primary obligation under these leases As a result of these lease assignments the buyer is the primary obligor under the leases with the Company secondarily liable as a guarantor If the buyer should fail to perform under a lease the Company could be liable to fulfill any remaining lease obligation The leases had a remaining average term of 5 3 years as of October 31 2024 The resulting maximum exposure includes 32 0 million of undiscounted future minimum lease payments plus 13 3 million of potential additional payments to satisfy common area maintenance taxes insurance and other requirements for the remainder of the lease terms The Company does not believe it is probable that it will be responsible for the obligations under these leases
On January 16 2024 the Company announced that its internal audit process had identified to the Audit Committee of the Board of Directors certain matters that the Board of Directors determined merited enhanced evaluation A Special Committee of the Board of Directors the Special Committee was established to commence an investigation with the assistance of external legal counsel and external forensic accountants The Special Committee determined that certain of those matters related to the Company s operations in Mexico raised potential issues under the Foreign Corrupt Practices Act FCPA The Company has voluntarily disclosed this ongoing internal investigation to the SEC and the
Department of Justice DOJ and the Company intends to fully cooperate with the SEC and the DOJ in connection with these matters Any determination that the Company s operations or activities were not in compliance with laws including the FCPA could result in the imposition of material fines and penalties and the imposition of equitable remedies The Company cannot currently predict the timing of completion or the outcome of its internal investigation or of any actions that may be taken by the SEC the DOJ or Mexican authorities in connection with the matters under investigation and the Company cannot currently estimate the amount or range of loss or potential impact on its consolidated financial statements associated with these matters
We conduct business both domestically and internationally and as a result one or more of our subsidiaries files income tax returns in U S federal U S state and certain foreign jurisdictions Accordingly in the normal course of business we are subject to examination by taxing authorities primarily in Mexico and the United States
In January 2017 we received preliminary observations from the Servicio de Administracion Tributaria in Mexico the SAT related to an audit for fiscal year 2013 outlining certain proposed adjustments primarily related to intercompany funding deductions for services from certain vendors suppliers and IVA We provided a written rebuttal to these preliminary observations during our second fiscal quarter of 2017
In July 2018 the SAT s local office in Uruapan issued to CDM a final tax assessment the 2013 Assessment totaling approximately 2 6 billion Mexican pesos which includes annual adjustments for inflation and equals approximately 128 9 million USD at October 31 2024 related to income tax flat rate business tax and value added tax related to this fiscal 2013 tax audit This amount has been adjusted for inflation as of October 31 2024 to the amount of 3 billion Mexican pesos approximately 148 8 million USD Additionally the tax authorities have determined that we owe our employees profit sharing liability totaling approximately 118 million Mexican pesos approximately 5 9 million USD at October 31 2024 In August 2018 we filed an Administrative Appeal on the 2013 Assessment appealing our case to the SAT s central legal department in Michoacan
On June 25 2021 we became aware that the Administrative Appeal had been resolved by the SAT against CDM on March 12 2021 and that we had allegedly failed to timely respond to and challenge the SAT s notification of such resolution therefore rendering the 2013 Assessment as definitive Consequently the SAT placed liens on the fixed assets of CDM with a net book value of approximately 26 million USD and on bank accounts of CDM totaling approximately 1 million USD in order to guaranty the 2013 Assessment Based on legal counsel from our tax advisory firm we and our tax advisory firm have concluded that the March notification was not legally communicated
On August 20 2021 we filed an Annulment Suit the Annulment Suit with the Federal Tax Court which among other things strongly contends that the notifications made by the SAT to CDM and its designated advisors of the resolution of the Administrative Appeal in March 2021 were not legally communicated In addition the Annulment Suit asserts the same matters central to the Reconsideration as described above as wrongly concluded in the resolution of the Administrative Appeal
On November 14 2023 the Tax Court acknowledged the admission of the extension to the lawsuit Additionally in November 2024 the Administrative Reconsideration and related Injunction action were finalized The tax authority determined that the filing of the Administrative Reconsideration was not legally viable citing the existence of a concurrent legal remedy the Nullity Petition Furthermore the SAT noted a presumption that the Nullity Petition was filed within the required timeframe as evidenced by its admission by the Tax Court
These resolutions can be used as supervening evidence to support the arguments that the Nullity Petition should be admitted The resolutions will contribute to demonstrate that SAT considers that the Nullity Petition was filed on time This is a statement made within a formal procedure that contradicts what SAT had been arguing within the reconsideration procedure
While we continue to believe that the 2013 Assessment is completely without merit and that we will prevail on the Annulment Suit in the Tax Court we also believe that it is in the best interest of CDM and the Company to settle the 2013 Assessment as quickly as possible Furthermore we believe that the above actions taken by CDM will encourage the SAT to agree to reach a settlement In accordance with our cumulative probability analysis on uncertain tax positions our settlements made by the SAT in other cases the 2011 Assessment settlement reached by CDM with the MFM and the value of CDM assets we recorded a provision of 11 0 million in the third quarter of fiscal 2021 The provision includes estimated penalties interest and inflationary adjustments We believe that this provision remains appropriate as of October 31 2024 based on our cumulative probability analysis We incurred 1 0 million of related professional fees for the year ended October 31 2024 which have been recorded in Expenses related to Mexican Tax matters on the consolidated statements of operations
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 We do not believe that the outcome of any of our current legal proceedings will have a material adverse impact on our business financial condition and results of operations
Certain members of our Board of Directors market California avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter with other growers During the years ended October 31 2024 2023 and 2022 the aggregate value of avocados procured from entities owned or controlled by members of our Board of Directors was 5 8 million 2 7 million and 7 5 million respectively We did not have any amounts due to Board members as of October 31 2024 and 2023 For the year ended October 31 2024 and 2023 we have purchased 13 2 million and 3 1 million of avocados from entities affiliated with our Chief Executive Officer respectively
In December 2014 Calavo formed a wholly owned subsidiary Calavo Growers De Mexico S de R L de C V Calavo Sub In July 2015 Calavo Sub entered into a Shareholder Agreement with Belo a Mexican company owned by Agricola Belher and formed Agricola Don Memo S A de C V Belo and Calavo Sub have an equal one half ownership
interest in Don Memo in exchange for 2 million each Pursuant to a management service agreement Belo through its officers and employees has day to day power and authority to manage the operations Therefore Don Memo is accounted for on the equity method as an unconsolidated entity Belo is entitled to a management fee payable annually in July of each year Additionally Calavo Sub is entitled to commission for the sale of produce in Mexico the U S Canada and any other overseas market
As of October 31 2024 2023 and 2022 we have an investment of 2 4 million 2 9 million and 3 8 million respectively representing Calavo Sub s 50 ownership in Don Memo which is included as an investment in unconsolidated entities on our balance sheet We make advances to Don Memo for operating purposes provide additional advances as shipments are made during the season and return the proceeds from tomato sales under our marketing program to Don Memo net of our commission and aforementioned advances As of October 31 2024 2023 and 2022 we had outstanding advances of 7 7 million 7 3 million and 7 0 million respectively to Don Memo As of October 31 2024 2023 and 2022 we had a tomato liability of 3 1 million 1 5 million and 1 9 million respectively to Don Memo During the year ended October 31 2024 2023 and 2022 we purchased 14 4 million 15 8 million and 13 7 million respectively of tomatoes from Don Memo pursuant to our consignment agreement
In October 2020 we entered into an infrastructure loan agreement with Don Memo for up to 2 4 million secured by certain property and equipment of Don Memo This infrastructure loan accrues interest at 7 25 The total outstanding balance related to this infrastructure loan agreement at October 31 2024 was 1 6 million included in prepaids and other current assets The total outstanding balance related to this infrastructure loan agreement at October 31 2023 was 1 6 million included in prepaids and other current assets
We make advances to Belher for operating purposes provide additional advances as shipments are made during the season and return the proceeds from tomato sales under our marketing program to Belher net of our commission and aforementioned advances We had grower advances due from Belher of 5 1 million 5 4 million and 4 5 million as of October 31 2024 2023 and 2022 respectively
In July 2021 we made a bridge loan of 3 5 million to Belher This loan is secured by certain farmland in Mexico and accrues interest at 10 In the first quarter of fiscal 2024 this loan was amended to be due with installments of 0 6 million on July 31 2024 0 6 million on July 31 2025 and 0 5 million on July 31 2026 As part of this amended loan agreement we can withhold payments on both the infrastructure advances and the bridge loan through the netting against the grower payable due to Belher For the years ended October 31 2024 2023 and 2022 we withheld 0 6 million 0 9 million and 1 1 million respectively from payments to Belher to offset the bridge loan repayments As of October 31 2024 the balance of the bridge loan has been recorded as 0 6 million in prepaid expenses and 0 5 million in other assets As of October 31 2023 the balance of the bridge loan has been recorded as 1 7 million in prepaid expenses and other current assets During the year ended October 31 2024 2023 and 2022 we purchased 29 0 million 16 2 million and 19 4 million respectively of tomatoes from Belher pursuant to our consignment agreement
In August 2015 we entered into a Shareholder s Agreement with various partners to form Avocados de Jalisco which is a Mexican corporation engaged in procuring packing and selling avocados This entity is approximately 83 owned by Calavo and is consolidated in our financial statements Avocados de Jalisco built a packinghouse located in Jalisco Mexico and it began operations in June of 2017 As of October 31 2023 and 2022 we have made an insignificant amount of preseason advances to various partners of Avocados de Jalisco During the year ended October 31 2024 2023 and 2022 we purchased approximately 0 8 million 8 1 million and 7 0 million respectively of avocados from the partners of Avocados de Jalisco
As of October 31 2024 and 2023 the Company had a federal net operating loss carryforward of none and 6 6 million respectively As of October 31 2024 and 2023 the Company has gross state net operating loss carryforwards of approximately 10 8 million and 13 4 million respectively with carryforward periods primarily ranging from 20 years to indefinite As of October 31 2024 and 2023 the Company has gross foreign net operating loss carryforwards of approximately 6 1 million and 6 3 million respectively with carryforward periods 10 years from generation
The Company records a valuation allowance against deferred tax assets when determined that all or a portion of the deferred tax assets are not more likely than not to be realized based on all available evidence During the fourth quarter of the year ended October 31 2024 the Company completed the sale of the Fresh Cut business which generated taxable income and as a result the Company was able to utilize all its federal net operating losses and a portion of its state net operating losses The Company s domestic continuing operations have generated cumulative operating income for the last three years and the Company expects the profitability trend to continue Based on this evaluation the Company determined that it is more likely than not for the Company to realize a majority of the deferred tax assets with the exception of the federal and state capital loss carryforwards and state tax credits As of October 31 2024 and 2023 there is a valuation allowance of 1 8 million and 4 9 million respectively against the deferred tax assets that are more likely not to be realized During the year ended October 31 2024 the Company decreased the valuation allowance against deferred income tax assets by 3 1 million During the year ended October 31 2023 the Company increased the valuation allowance against deferred income tax assets by 3 1 million
Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes settlement activities expirations of statutes of limitations or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months The Company accounts for income taxes regarding uncertain tax positions and recognized interest and penalties related to uncertain tax positions in income tax benefit expense in the consolidated statements of operations
We are subject to U S federal income tax as well as income of multiple state tax and foreign tax jurisdictions We are no longer subject to U S income tax examinations for the fiscal years prior to October 31 2021 and are no longer subject to state income tax examinations for fiscal years prior to October 31 2020
The Company determined that certain foreign earnings to be indefinitely reinvested outside the United States Our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate the cash to fund our U S operations However if these funds were repatriated we would be required to accrue and pay applicable United States taxes if any and withholding taxes payable to foreign tax authorities
In 2021 the Organization for Economic Cooperation and Development announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax which calls for the taxation of large multinational corporations at a minimum rate of 15 Subsequently multiple sets of administrative guidance have been issued Pillar Two is not expected to materially impact our effective tax rate or cash flows in the next
Prior to the decision to divest our Fresh Cut business formerly RFG the Company s Prepared reporting segment included the Fresh Cut business unit and our Guacamole business As a result of the divestiture the Fresh Cut business unit is no longer included in our Prepared business segment and is not included in the tables below All segment information included herein reflects these changes See Note 16 for further information
We report our operations in two different business segments Grown and Prepared The Grown segment consists of fresh avocados tomatoes and papayas The Prepared segment consists of our guacamole products sold to retailers and foodservice companies as well as avocado pulp sold to foodservice companies These two business segments are presented based on how information is used by our Chief Executive Officer to measure performance and allocate resources 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
In April 2021 our shareholders approved the Calavo Growers Inc 2020 Equity Incentive Plan the 2020 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 2020 Plan This is a five year plan with up to 1 500 000 shares issuable through December 9 2025
The total recognized stock based compensation expense for restricted stock awards was less than 0 1 million and 2 3 million for the year ended October 31 2024 and 2023 As of October 31 2024 there was no unrecognized stock based compensation costs related to non vested RSAs All RSAs are vested as of October 31 2024
The total recognized stock based compensation expense for RSUs was 1 4 million and 1 6 million for the year ended October 31 2024 and 2023 As of October 31 2024 there was 0 3 million of unrecognized stock based compensation costs related to non vested RSUs which the Company expects to recognize over a weighted average period of 0 3 years
At the end of each reporting period the Company will adjust compensation expense for the PRSUs based on its best estimate of attainment of the specified performance targets The cumulative effect on current and prior periods of a change in the estimated number of PRSUs that are expected to be earned will be recognized as an adjustment in the period of the adjustment As of October 31 2024 the Company determined that it was not probable that any of the PRSUs for the 2022 or 2023 three year cumulative performance grant would vest The Company did not recognize any stock based compensation expense for PRSUs for the year ended October 31 2024 The total recognized stock based compensation expense for PRSUs was 0 2 million for the year ended October 31 2023
In June 2024 our Board of Directors approved the grant of 10 000 options of our common stock to a new member of our Board of Directors Such grant vests in equal increments over a five year period and has an exercise price of 25 84 per share Vested options have an exercise period of five years from the vesting date The market price of our common stock at the grant date was 25 84 The estimated fair market value of such option grant was approximately 0 1 million which will be recognized over the remaining service period of 60 months The total recognized stock based compensation expense for these options was insignificant for the year ended October 31 2024
Stock options are granted with exercise prices of not less than the fair market value at grant date generally vest over one to five years and generally expire two to five years after the vest date We settle stock option exercises with newly issued shares of common stock We measure compensation cost for all stock based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest We measure the fair value of our stock based compensation awards on the date of grant
The value of each option award is estimated using a lattice based 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
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
The total recognized stock based compensation expense for options was 0 7 million and 1 3 million for the years ended October 31 2024 and 2023 respectively As of October 31 2024 there was 0 2 million of unrecognized stock based compensation costs related to options which the Company expects to recognize over a weighted average period of 2 6 years
On January 31 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on January 26 2024 On April 29 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on April 1 2024 On July 30 2024 we paid a dividend of 0 10 per share or an aggregate of 1 8 million to shareholders of record on July 2 2024 On October 30 2024 we paid a dividend of 0 20 per share or an aggregate of 3 6 million to shareholders of record on October 2 2024
Included in other assets are tax receivables due from the Mexican government for value added taxes IVA paid in advance CDM is charged IVA by vendors on certain expenditures in Mexico which insofar as they relate to the exportation of goods translate into IVA amounts receivable from the Mexican government
As of October 31 2024 and October 31 2023 CDM IVA receivables net of our estimated provision for uncollectable amounts totaled 48 7 million 976 0 million Mexican pesos and 49 9 million 913 6 million Mexican pesos Historically CDM received IVA refund payments from the Mexican tax authorities on a timely basis Beginning in fiscal 2014 and continuing into fiscal 2024 however the tax authorities began carrying out more detailed reviews of our refund requests and our supporting documentation Additionally they are also questioning the refunds requested attributable to IVA paid to certain suppliers that allegedly did not fulfill their own tax obligations We believe these factors and others have contributed to delays in the processing of IVA claims by the Mexican tax authorities Currently we are in the process of collecting such balances primarily through regular administrative processes but these amounts may ultimately need to be recovered through Administrative Appeals and or legal means
During the first quarter of fiscal 2017 the tax authorities informed us that their internal opinion based on the information provided by the local SAT office considers that CDM is not properly documented relative to its declared tax structure and therefore CDM cannot claim the refundable IVA balance CDM has strong arguments and supporting documentation to sustain its declared tax structure for IVA and income tax purposes CDM started an Administrative Appeal for the IVA related to the request of the months of July August and September of 2015 the 2015 Appeal in order to assert its argument that CDM is properly documented and to therefore change the SAT s internal assessment In August 2018 we received a favorable ruling from the SAT s Legal Administration in Michoacan on the 2015 Appeal indicating that they believe CDM s legal interpretation of its declared tax structure is indeed accurate While favorable on this central matter of CDM s declared tax structure the ruling however still does not recognize the taxpayers right to a full refund for the IVA related to the months of July August and September 2015 Therefore in October 2018 CDM filed a substance over form Annulment Suit in the Federal Tax Court to recover its full refund for IVA over the subject period which is currently pending resolution
We believe that our operations in Mexico are properly documented and our internationally recognized tax advisors believe that there are legal grounds to prevail in collecting the corresponding IVA amounts With assistance from our internationally recognized tax advisory firm as of October 31 2024 CDM has filed Administrative Appeals for months for which IVA refunds have been denied by the SAT and will continue filing such appeals for any months for which refunds are denied in the future Therefore it is probable that the Mexican tax authorities will ultimately authorize the refund of the remaining IVA amounts
We lease property and equipment under finance and operating leases For leases with terms greater than 12 months we record the related asset and obligation at the present value of lease payments over the term Many of our leases include rental escalation clauses renewal options and or termination options that are factored into our determination of lease payments when appropriate
We also lease certain property plant and equipment including office facilities under operating leases The lease term consists of the noncancellable period of the lease and the periods covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options The Company s lease agreements do not contain any residual value guarantees
We completed the sale of our Fresh Cut business formerly RFG and related real estate on August 15 2024 for 83 0 million subject to various closing adjustments The Fresh Cut business represents substantially all of the business of the Prepared segment other than the guacamole business which was retained For more information see Note 17
During the year ended October 31 2024 we concluded that the Fresh Cut business met the requirements to be classified as held for sale and discontinued operations As a result the financial results of that business are reported as discontinued operations in the accompanying statements of operations and its assets and liabilities are reflected as amounts held for sale in the accompanying balance sheets Our reporting segments have also been changed for the effects of the divestiture as described in Note 10
During the third quarter of fiscal 2024 as a result of ongoing negotiations and finalization of the sales price of our Fresh Cut business we evaluated whether it was more likely than not that the carrying value of the Fresh Cut business exceeded its fair value and performed an impairment analysis Accordingly the Company recorded a goodwill impairment charge of 9 3 million during this period
On August 15 2024 we including various of our subsidiaries the Seller Parties F S Produce Co Inc a New Jersey corporation and a co packing partner of the Company F S and F S Produce West LLC a Delaware limited liability company and a wholly owned subsidiary of F S Buyer entered into an Asset Purchase Agreement the Asset Purchase Agreement whereby the Buyer i purchased and acquired from the applicable Seller Parties certain assets of the Seller Parties related to the prepared food business of the Seller Parties and their subsidiaries relating to the processing and packaging of fresh foods including fresh cut fruit and vegetables and prepared foods including sandwiches salads parfaits and ready to eat snack items sold to retailers and foodservice companies but excluding the guacamole or other avocado derivative product business the RFG Business ii purchased and acquired from the applicable Seller Parties the RFG Business as a going concern and iii assumed certain specified liabilities of the Seller Parties related to the RFG Business as set forth in the Asset Purchase Agreement
Additionally Buyer assumed leasehold interests in certain real property and related improvements leased by certain of the Seller Parties and used in the RFG Business the RFG Leases pursuant to leasehold assignment and assumption agreements and related documents between Buyer the applicable Seller Parties who are the lessees under the RFG Leases and the applicable landlords under the RFG Leases
Concurrently with the transaction contemplated by the Asset Purchase Agreement the Transaction Mid Eastern West LLC a California limited liability company and an affiliate of F S entered into a Purchase and Sale Agreement with Force 1730 Eastridge LLC a California limited liability company and a subsidiary of the Company to purchase the real property located at 1730 Eastridge Ave Riverside CA 92507 for 31 0 million
In addition pursuant to the Asset Purchase Agreement the purchase price for the Purchased Assets as defined in the Asset Purchase Agreement was 52 0 million for a total of 83 0 million Proceeds from the sale totaled 81 1 million net of 1 9 million of transaction costs Subsequent to the goodwill impairment of 9 3 million recorded during the quarter ended July 31 2024 a gain of 0 2 million was recognized in the results of discontinued operations
On August 15 2024 we entered into a First Amendment to Credit Agreement and Consent as amended the Credit Agreement with Wells Fargo Bank National Association as agent and lender Agent whereby i the Credit Agreement was amended to reduce the revolving commitments thereunder from 90 0 million to 75 0 million among other minor adjustments to align the borrowing base with our current asset base excluding the Fresh Cut business and ii we obtained consent from Agent for entry into the Asset Purchase Agreement and Purchase and Sale Agreement
We have audited the accompanying consolidated balance sheets of Calavo Growers Inc and subsidiaries the Company as of October 31 2024 and 2023 the related consolidated statements of operations shareholders equity and cash flows for each of the three years in the period ended October 31 2024 and the related notes collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of October 31 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended October 31 2024 in conformity with accounting principles generally accepted in the United States of America
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of October 31 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 14 2025 expressed an unqualified opinion on the Company s internal control over financial reporting
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matters below providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate
As of October 31 2024 the Company s subsidiary Calavo de Mexico CDM has a value added taxes IVA receivable of 48 7 million due from the Mexican government Historically CDM received IVA refund payments from the Mexican tax authorities on a timely basis Beginning in fiscal 2014 and continuing into fiscal 2024 there have been delays in the processing of the IVA claims by the Mexican tax authorities The Mexican authorities informed the Company that CDM is not properly documented relative to its declared tax structure and therefore CDM cannot claim the refundable IVA balance Mexican authorities also questioned refunds requested attributable to IVA paid to certain suppliers that allegedly did not fulfill their own tax obligations
Given the significant judgments made by management to determine the Company s ability to recover the IVA taxes receivable performing audit procedures to evaluate the Company s interpretation and compliance with international tax laws involved significant auditor judgment and use of tax specialists with specialized skills and knowledge which we have determined to be a critical audit matter
With the assistance of our tax specialists we evaluated the recoverability of the IVA receivable by evaluating the technical merits and the Company s interpretation of international tax law including substantiating that the Company s declared tax structure is in compliance with Mexican tax regulations
The Company is under audit by the Mexican tax authorities relating to the Company s 2013 fiscal year The Mexican tax authorities have assessed the Company in connection with the audit for the 2013 fiscal year outlining certain proposed adjustments primarily related to intercompany funding deductions for services from certain vendors suppliers and IVA The assessment including the effect of inflation and penalties amounted to 3 billion Mexican pesos approximately 148 8 million USD as of October 31 2024 The Company has filed an administrative reconsideration and an annulment suit to dismiss the assessment made by the Mexican tax authorities While the Company believes the assessment is completely without merit and that the Company will prevail on the annulment suit in tax court the Company believes it is in the best interest to settle the 2013 tax matter Therefore in accordance with a cumulative probability analysis the Company concluded that a provision of 11 million remains appropriate as of October 31 2024
Given the significant judgments made by management in determining its analysis and accounting for the Company s uncertain tax position for the 2013 tax matter performing audit procedures to evaluate the Company s interpretation and compliance with international tax laws involved significant auditor judgment and use of tax specialists with specialized skills and knowledge which we have determined to be a critical audit matter
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 2024
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 2013 framework
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 2024 Our internal control over financial reporting as of October 31 2024 has been audited by Deloitte Touche LLP an independent registered public accounting firm as stated in their report which is included herein
We have audited the internal control over financial reporting of Calavo Growers Inc and subsidiaries the Company as of October 31 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of October 31 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by COSO
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements as of and for the year ended October 31 2024 of the Company and our report dated January 14 2025 expressed an unqualified opinion on those financial statements
The Company 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 Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB 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 company s 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 company s 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 company s 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
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
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 our board of directors and serve at the discretion of the board
Lecil Cole served as our Chairman of the Board of Directors Chief Executive Officer and President from 1999 until his retirement in 2020 He retired as a director of the Company in 2021 In March 2023 the Company reinstated Mr Cole as our Chief Executive Officer Prior to joining Calavo Mr Cole served as an executive of Safeway Stores and as the Chairman of Central Coast Federal Land Bank Mr Cole farms a total of approximately 4 400 acres in California on which avocados and cattle are produced and raised
James Snyder has served as our Chief Financial Officer since December 2024 Prior to his appointment as Chief Financial Officer Mr Snyder served as Corporate Controller and Chief Accounting Officer at Gem Pack Berries in Irvine California since April 2024 Prior to that Mr Snyder served in a similar role for Nano Banc of Irvine from March 2020 to April 2024 Previously he served as Calavo s Corporate Controller and Chief Accounting Officer from mid 2003 to March 2020 after beginning work for Calavo in December 2001
Mike Browne returned to Calavo June 2023 as the Vice President Executive Sales and Operations He served as our Vice President from May 2005 to December 2019 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 From December 2019 to September 2021 Mr Browne was the Chief Operating Officer of Mission Produce
Ronald Araiza returned to Calavo as our Vice President of Prepared Foods in June 2023 after a brief hiatus He served as a Vice President of Calavo from January 2017 until October 2022 Mr Araiza has approximately twenty years of experience as a Vice President at Mission Produce and Del Rey Avocado Mr Araiza is also a past alternate board member of the California Avocado Commission
We have adopted a Code of Business Conduct and Ethics Policy Code of Ethics that applies to our principal executive officer principal financial officer and principal accounting officer as well as all our directors other officers and employees Our Code of Ethics can be found on our website at www calavo com
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 incorporated by reference to Exhibit 2 2 to the Annual Report on Form 10 K filed by the Registrant on January 23 2004
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 incorporated by reference to Exhibit 2 1 to the Current Report on Form 8 K filed by the Registrant on May 29 2008
Amended and Restated Limited Liability Company Agreement for Calavo Salsa Lisa LLC dated February 8 2010 among Calavo Growers Inc Calavo Salsa Lisa LLC Lisa s Salsa Company Elizabeth Nicholson and Eric Nicholson portions of this agreement have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment incorporated by reference to Exhibit 10 3 to the Quarterly Report on Form 10 Q filed by the Registrant on March 11 2010
Agreement and Plan of Merger dated May 25 2011 among Calavo Growers Inc CG Mergersub LLC Renaissance Food Group LLC and Liberty Fresh Foods LLC Kenneth Catchot Cut Fruit LLC James Catchot James Gibson Jose O Castillo Donald L Johnson and RFG Nominee Trust1 certain portions of the exhibit have been omitted based upon a request for confidential treatment filed by the Registrant with the Securities and Exchange Commission The omitted portions of the exhibit have been separately filed by the Registrant with the Securities and Exchange Commission incorporated by reference to Exhibit 2 1 to the Current Report on Form 8 K A filed by the Registrant on January 10 2012
Amendment No 1 to Agreement and Plan of Merger dated July 31 2013 among Calavo Growers Inc Renaissance Food Group LLC and Liberty Fresh Foods LLC Kenneth Catchot Cut Fruit LLC James Catchot James Gibson Jose O Castillo Donald L Johnson and RFG Nominee Trust incorporated by reference to Exhibit 10 1 to the Current Report on Form 8 K filed by the Registrant on September 4 2013
Amendment No 2 to Agreement and Plan of Merger dated as of October 1 2013 among Calavo Growers Inc Renaissance Food Group LLC and Liberty Fresh Foods LLC Kenneth J Catchot Cut Fruit LLC James S Catchot James Gibson Jose O Castillo Donald L Johnson and the RFG Nominee Trust incorporated by reference to Exhibit 10 1 to the Current Report on Form 8 K filed by the Registrant on November 16 2023
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 incorporated by reference to Exhibit 10 4 to the Registration Statement on Form S 4 File No 333 59418 filed by the Registrant on April 24 2001

Company Name	CALAVO GROWERS INC Vist SEC web-site
Category	AGRICULTURE SERVICES
Trading Symbol	CVGW