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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-33385
CALAVO GROWERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0945304
(State of incorporation) (I.R.S. Employer Identification No.)
2530 RED HILL AVENUE
SANTA ANA, CALIFORNIA 92705-5542
(Address of principal executive offices) (Zip code)
(949) 223-1111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Registrant's number of shares of common stock outstanding as of February 28,
2002 was 11,520,973.
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CALAVO GROWERS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Condensed Balance Sheets -- January 31, 2002 and October 31, 2001 3
Consolidated Condensed Statements of Income -- Three Months
Ended January 31, 2002 and 2001 4
Consolidated Condensed Statements of Cash Flows -- Three Months
Ended January 31, 2002 and 2001 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, OCTOBER 31,
2002 2001
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 450 $ 2,057
Accounts receivable, net of allowance for
doubtful accounts of $25 as of January 31, 2002 and
$9 as of October 31, 2001 .............................. 16,448 19,797
Inventories, net ........................................ 12,042 9,075
Prepaid expenses and other current assets ............... 3,805 3,209
Loans to growers ........................................ 1,644 1,119
Advances to suppliers ................................... 123 2,372
Income taxes receivable ................................. -- 144
Deferred income taxes ................................... 553 553
-------- --------
Total current assets ................................. 35,065 38,326
Property, plant, and equipment, net ........................ 9,142 9,442
Investments held to maturity ............................... 1,873 1,874
Other assets ............................................... 2,871 2,726
-------- --------
$ 48,951 $ 52,368
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to growers ...................................... $ 6,371 $ 6,909
Trade accounts payable .................................. 2,463 1,529
Accrued expenses ........................................ 3,764 3,848
Short-term borrowings ................................... 11,800 15,800
Current portion of long-term obligations ................ 171 441
-------- --------
Total current liabilities ............................ 24,569 28,527
Long-term liabilities:
Long-term obligations, less current portion ............. 3,422 3,429
Deferred income taxes ................................... 383 383
-------- --------
Total long-term liabilities .......................... 3,805 3,812
Commitments and contingencies
Shareholders' equity:
Common stock ($.001 par value, 100,000 shares
authorized; 11,521 and 10,466 shares outstanding
at January 31, 2002 and
October 31, 2001, respectively) ....................... 11 10
Additional paid-in capital .............................. 15,182 10,158
Notes receivable from shareholders ...................... (4,789) --
Retained earnings ....................................... 10,173 9,861
-------- --------
Total shareholders' equity ........................... 20,577 20,029
-------- --------
$ 48,951 $ 52,368
======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
JANUARY 31,
-----------------------
2002 2001
-------- --------
Net sales ...................................... $ 45,747 $ 39,029
Cost of sales .................................. 42,173 36,127
-------- --------
Gross margin ................................... 3,574 2,902
Selling, general and administrative ............ 3,017 2,807
-------- --------
Operating income ............................... 557 95
Other expense (income), net .................... (8) 31
-------- --------
Income before provision for income taxes ....... 565 64
Provision for income taxes ..................... 253 27
-------- --------
Net income ..................................... $ 312 $ 37
======== ========
Basic and diluted net income per share ......... $ 0.03 $ --
======== ========
Weighted-average common shares outstanding,
Basic and diluted ........................... 10,466 10,416
======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS JANUARY 31,
------------------------
2002 2001
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 312 $ 37
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................ 530 543
Provision for losses on accounts receivable .................. 20 17
Effect on cash of changes in operating assets and
liabilities:
Accounts receivable ....................................... 3,329 3,023
Inventories, net .......................................... (2,967) (3,148)
Income taxes receivable ................................... 144 --
Prepaid expenses and other assets ......................... (741) (1,462)
Advances to suppliers ..................................... 2,249 1,597
Loans to growers .......................................... (525) (517)
Payable to growers ........................................ (538) 3,135
Trade accounts payable and
accrued expenses ........................................ 850 (1,971)
------- -------
Net cash provided by operating activities .............. 2,663 1,254
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant, and equipment .................. (229) (802)
------- -------
Net cash used in investing activities .................. (229) (802)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividend to shareholders ............................. -- (4,973)
Proceeds (repayments) from/of short-term borrowings, net ........ (4,000) 3,415
Proceeds from issuance of common stock .......................... -- 64
Payments on long-term obligations ............................... (277) (276)
Exercise of stock options ....................................... 236 --
------- -------
Net cash provided by (used in) financing activities .... (4,041) (1,770)
------- -------
Net increase (decrease) in cash and cash
equivalents .................................................. (1,607) (1,318)
Cash and cash equivalents, beginning of period .................. 2,057 1,492
------- -------
Cash and cash equivalents, end of period ........................ $ 450 $ 174
======= =======
SUPPLEMENTAL INFORMATION -
Cash paid during the year for:
Interest .................................................. $ 142 $ 183
======= =======
Income taxes .............................................. $ 19 $ 1,000
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Exercise of stock options using promissory notes ................ $ 4,789 $ --
======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
BUSINESS
Calavo Growers, Inc. (Calavo or the Company) engages in the procurement and
marketing of avocados and other perishable foods and the preparation and
distribution of processed avocado products. The Company's expertise in marketing
and distributing avocados, processed avocados, and other perishable foods allows
it to deliver a wide array of fresh and processed food products to food
distributors, produce wholesalers, supermarkets, and restaurants on a world-wide
basis. Through Calavo's three operating facilities in southern California and
two facilities in Mexico, the Company sorts and packs avocados procured in
California and Mexico and prepares processed avocado products. Additionally, the
Company procures avocados internationally, principally from Chile and New
Zealand and distributes other perishable foods such as Hawaiian grown papayas.
These operations are reported by the Company in three different business
segments: California Avocados, Processed Products, and International Avocados
and Perishable Food Products.
CONVERSION TO A FOR-PROFIT CORPORATION
On October 9, 2001, the Company completed a series of transactions whereby
common and preferred shareholders of Calavo Growers of California (the
Cooperative), an agricultural marketing cooperative association, exchanged all
of their outstanding shares for shares of the Company's common stock. Concurrent
with this transaction, the Cooperative was merged into the Company, with Calavo
emerging as the surviving entity (the Merger). These transactions had the effect
of converting the legal structure of the business from a not-for-profit
cooperative to a for-profit corporation. Accordingly, the accompanying
consolidated condensed financial statements give retroactive effect, for the
three months ended January 31, 2001, to the Merger as a combination of entities
with common shareholders, accounted for in a manner similar to a pooling of
interests.
The Cooperative's historical statements of operations and member proceeds,
previously prepared on a basis consistent with practices applicable to marketing
cooperatives, have been revised to reflect the Company's new legal structure as
a commercial corporation. Accordingly, the accompanying income statements for
the three months ended January 31, 2001 reflect the reclassification of proceeds
distributed to growers and other related accounts maintained by the Cooperative
to cost of goods sold consistent with the operations of a commercial
corporation.
The accompanying consolidated condensed financial statements are unaudited. In
the opinion of management, the accompanying consolidated condensed financial
statements contain all adjustments necessary to present fairly the Company's
financial position, results of operations, and cash flows. Such adjustments
consist of adjustments of a normal recurring nature. The results of operations
for interim periods are not necessarily indicative of the results that may be
expected for a full year. These statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2001.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
period presentation.
6
CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
2. STOCK-BASED COMPENSATION
On November 20, 2001, the Board of Directors approved two new stock-based
compensation plans.
The directors stock option plan
Participation in the directors stock option plan is limited to members of the
Company's Board of Directors. The plan makes available to the Board of Directors
or a plan administrator the right to grant options to purchase up to 3,000,000
shares of common stock. In connection with the adoption of the plan the Board of
Directors approved an award of options to purchase 1,240,000 shares of common
stock at an exercise price of $5.00 per share.
The plan currently provides that the fair value of the common stock be
determined by the Board of Directors based on current trading patterns in the
common stock and other analyses of fair value. Based on its review of such data,
the Board of Directors determined that the fair value of the common stock
subject to the above awards at the date of grant was $3.95 per share.
On January 31, 2002, members of the Board of Directors elected to exercise
1,005,000 stock options. The exercise price was paid by delivery of
full-recourse promissory notes with a face value of $4,789,000 and by cash
payments of $236,000. These notes and the related security agreements provide,
among other things, that each director pledge as collateral the shares acquired
upon exercise of the stock option as well as additional Common Stock of the
Company held by the directors with a value equal to 10% of the loan amount if
the exercise price was paid by means of a full-recourse note. The notes, which
bear interest at 7% per annum, provide for annual interest payments with a final
principal payment due March 1, 2007. Directors will be allowed to withdraw
shares from the pledged pool of common stock prior to repayment of their notes
as long as the fair value of the remaining pledged shares is at least equal to
120% of the outstanding note balance. The notes have been presented as a
reduction of shareholders' equity as of January 31, 2002.
The employee stock purchase plan
The employee stock purchase plan approved by the Board of Directors is
contingent upon the approval of the shareholders of the Company, as required by
the California Department of Corporations. If approved, participation in the
employee stock purchase plan will be limited to employees of the Company. The
plan provides the Board of Directors, or a plan administrator, the right to make
available up to 2,000,000 shares of common stock at a price not less than fair
market value. If approved, the Board of Directors intends to award selected
employees the opportunity to purchase up to 471,500 shares of common stock at
the then fair market value of the common stock. The plan also provides for the
Company to advance all or some of the purchase price of the purchased stock to
the employee upon the execution of a full recourse note at prevailing interest
rates.
A summary of stock option activity follows (shares in thousands):
THREE MONTHS ENDED
JANUARY 31, 2002
-----------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
Outstanding at beginning of period ..... -- $ --
Granted during period .................. 1,240 5.00
Exercised .............................. (1,005) 5.00
Cancelled .............................. -- --
-------
Outstanding at end of period ........... 235 5.00
=======
Exercisable at end of period ........... 235 5.00
=======
7
CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes stock options outstanding at January 31, 2002
(shares in thousands):
OUTSTANDING AND EXERCISABLE
--------------------------------------------
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICE OF SHARES LIFE (YEARS) PRICE
- -------------- --------- ------------ --------
$ 5.00 235 4.8 $ 5.00
As permitted under Statements of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock-Based Compensation, the Company has elected to follow
Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for stock-based awards to
employees. Under APB 25, the Company generally recognizes no compensation
expense with respect to awards granted with exercise prices equal to or greater
than the fair value of the Company's common stock.
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by SFAS 123. This information is required to be determined as if the
Company had accounted for stock-based awards to its employees under the fair
value method of that Statement. Had compensation cost for stock option awards
been determined based on the fair value at the grant date for awards, consistent
with the provisions of SFAS 123, the Company's net loss and net loss per share
would have been the pro forma amounts indicated below (in thousands, except per
share amounts):
Pro forma net income (loss)................................. $ (973)
Pro forma net earnings (loss) per share, basic and diluted.. $(0.09)
For purposes of pro forma disclosures under SFAS 123, the estimated fair value
of the options is assumed to be amortized to expense over the options' vesting
period. The fair value of the options granted has been estimated at the date of
grant using the Black-Scholes option pricing model with the following
assumptions:
Risk-free interest rate............. 2.0%
Expected volatility................. 130%
Dividend yield...................... --
Expected life (years)............... 1.1
Weighted-average fair value
of options granted............... $1.04
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
options held by employees and directors have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the opinion
of management, the existing models do not necessarily provide a reliable single
measure of the fair value of these options.
8
CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
3. INFORMATION REGARDING THE COMPANY'S OPERATIONS IN DIFFERENT SEGMENTS
The Company operates and tracks its results in three reportable segments --
California Avocados, Processed Products, and International Avocados and
Perishable Foods Products. These three business segments are presented based on
the Company's management structure and information used by the president to
measure performance and allocate resources. The California Avocado segment
includes all operations that involve the distribution of avocados procured in
California. The Processed Products segment represents all operations related to
the purchase, manufacturing, and distribution of processed avocado products. The
International Avocados and Perishable Foods Products segment includes both
operations related to distribution of fresh avocados procured from Mexico, Chile
and New Zealand and distribution of other perishable food items. Those costs
that can be specifically identified with a particular product line are charged
directly to that product line. Costs that are not segment specific are generally
allocated based on five-year average sales dollars. The Company does not
allocate specific assets to these segments.
INTERNATIONAL
AVOCADOS AND
CALIFORNIA PERISHABLE FOOD PROCESSED INTER-SEGMENT
AVOCADOS PRODUCTS PRODUCTS ELIMINATIONS TOTAL
------------ --------------- ------------ ------------- ------------
(ALL AMOUNTS ARE PRESENTED IN THOUSANDS)
THREE MONTHS ENDED JANUARY 31, 2002
Net sales .............................. $ 17,183 $ 25,308 $ 7,160 $ (3,904) $ 45,747
Cost of sales .......................... 16,198 23,973 5,906 (3,904) 42,173
------------ ------------ ------------ ------------ ------------
Gross margin ........................... 985 1,335 1,254 -- 3,574
Selling, general and administrative .... 1,470 657 890 -- 3,017
------------ ------------ ------------ ------------ ------------
Operating income (loss) ................ (485) 678 364 -- 557
Other expense (income), net ............ (73) 16 49 -- (8)
------------ ------------ ------------ ------------ ------------
Income (loss) before provision
(benefit) for income taxes ........... (412) 662 315 -- 565
Provision (benefit) for income taxes ... (185) 297 141 -- 253
------------ ------------ ------------ ------------ ------------
Net income (loss) ...................... $ (227) $ 365 $ 174 $ -- $ 312
============ ============ ============ ============ ============
INTERNATIONAL
AVOCADOS AND
CALIFORNIA PERISHABLE FOOD PROCESSED INTER-SEGMENT
AVOCADOS PRODUCTS PRODUCTS ELIMINATIONS TOTAL
------------ --------------- ------------ ------------- ------------
(ALL AMOUNTS ARE PRESENTED IN THOUSANDS)
THREE MONTHS ENDED JANUARY 31, 2001
Net sales .............................. $ 14,365 $ 21,271 $ 7,075 $ (3,682) $ 39,029
Cost of sales .......................... 14,341 20,397 5,071 (3,682) 36,127
------------ ------------ ------------ ------------ ------------
Gross margin ........................... 24 874 2,004 -- 2,902
Selling, general and administrative .... 1,252 579 976 -- 2,807
------------ ------------ ------------ ------------ ------------
Operating income (loss) ................ (1,228) 295 1,028 -- 95
Other expense (income), net ............ 1,005 (237) (737) -- 31
------------ ------------ ------------ ------------ ------------
Income (loss) before provision
(benefit) for income taxes ........... (2,233) 532 1,765 64
Provision (benefit) for income taxes ... (963) 229 761 -- 27
------------ ------------ ------------ ------------ ------------
Net income (loss) ...................... $ (1,270) $ 303 $ 1,004 $ -- $ 37
============ ============ ============ ============ ============
9
CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The following table sets forth sales by product category for each three-month
period ended January 31 (in thousands).
2002 2001
------------ ------------
California avocados ............... $ 16,064 $ 13,451
Imported avocados ................. 19,918 17,043
Papayas ........................... 763 567
Miscellaneous ..................... 26 --
Processed -- food service ......... 5,512 6,289
Processed -- retail and club ...... 1,391 1,206
------------ ------------
Total fruit and product sales ..... 43,674 38,556
Freight and other charges ......... 3,530 1,909
------------ ------------
Total sales ....................... 47,204 40,465
Less sales incentives ............. (1,457) (1,436)
------------ ------------
Net sales ......................... $ 45,747 $ 39,029
============ ============
4. INVENTORIES
Inventories consist of the following (in thousands):
JANUARY 31, OCTOBER 31,
2002 2001
------------ ------------
Fresh fruit ............................ $ 2,979 $ 1,915
Packing supplies and ingredients ....... 1,792 1,673
Finished processed foods ............... 7,271 5,487
------------ ------------
$ 12,042 $ 9,075
============ ============
As of January 31, 2002 and October 31, 2001, the allowance for excess and
obsolete inventory approximated $40,000. The Company assesses the recoverability
of inventories through an on-going review of inventory levels in relation to
sales forecasts and product marketing plans.
5. RELATED PARTY TRANSACTIONS
Sales of papaya, on behalf of an entity owned by the Chairman of the Board of
Directors, totaled $767,000 and $564,000 for each of the 3 months ended January
31, 2002 and 2001, resulting in gross profits of $92,000 and $56,000. Included
in trade accounts payable and accrued liabilities are $295,000 and $317,000 at
January 31, 2002 and October 31, 2001, due to the above entity.
6. OTHER EVENTS
On February 15, 2002, the Company paid a 5% stock dividend to all shareholders
of record as of February 1, 2002. Common share and per common share amounts for
all periods presented have been restated to reflect the 5% stock dividend
effected on February 15, 2002 for shareholders of record as of February 1, 2002.
On January 15, 2002, the Board of Directors authorized management to commence
actions to undertake a rights offering to shareholders. It is anticipated that
the offering will make available 1,000,000 shares of common stock to
shareholders to purchase common stock at a price of $5.00 per share. Management
believes that the rights offering will commence in April or May 2002 assuming no
unexpected delays in receiving necessary legal and regulatory approvals. If
fully subscribed, the rights offering will have the effect of increasing
shareholders' equity and cash reserves by $5,000,000, less offering costs. The
Board of Directors has reserved the right to change the number of shares, price
per share, and date of the offering as deemed necessary or appropriate. The
offer of shares pursuant to the rights offering will be made only by a
prospectus that will be filed with the Securities and Exchange Commission.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information should be read in conjunction with the unaudited consolidated
condensed financial statements and the notes thereto included in this Quarterly
Report, and the audited consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Annual Report on Form 10-K for the year ended
October 31, 2001 of Calavo Growers, Inc. ("we", "Calavo", or the "Company").
On October 9, 2001, we completed a series of transactions whereby common and
preferred shareholders of Calavo Growers of California, an agricultural
marketing cooperative association (the "Cooperative"), exchanged all of their
outstanding shares for shares of our common stock. Concurrent with this
transaction, the Cooperative was merged into us with Calavo emerging as the
surviving entity (the "Merger"). These transactions had the effect of converting
the legal structure of the business from a not for-profit cooperative to a
for-profit corporation. The Merger and the conversion were approved on an
overwhelming basis by both the Cooperative's shareholders and the Board of
Directors. Prior to the Merger, the Cooperative reported results of operations
as constituting either member business (the packing and distribution of avocados
procured from either members or associate members) or non-member business
(non-member business included both the Processed Product business and the
sourcing and distribution of all crops that were not procured from the
Cooperative's members). We have realigned our businesses to combine within our
California Avocado segment the results of operations of both the California
avocados grown previously by members and those that were procured from
non-members. We believe that this presentation provides an enhanced view of the
results of our California operations and a better framework to evaluate the
results of our various operations.
NET SALES
The following table summarizes our net sales by business segment for each of the
three month periods ended January 31:
(IN THOUSANDS) 2002 CHANGE 2001
------------ ------------ ------------
Net sales:
California Avocados ............ $ 17,183 19.6% $ 14,365
Processed Products ............. 7,160 1.2% 7,075
International Avocados and
Perishable Food Products ..... 25,308 19.0% 21,271
Eliminations ................... (3,904) (3,682)
------------ ------------
Total net sales ............. $ 45,747 17.2% $ 39,029
============ ============
As a percentage of net sales:
California Avocados ............ 34.6% 33.6%
Processed Products ............. 14.4% 16.6%
International Avocados and
Perishable Food Products ..... 51.0% 49.8%
------------ ------------
100.0% 100.0%
============ ============
Net sales for the first quarter of fiscal 2002 compared to fiscal 2001 grew by
$6,718,000 or 17.2%. This net sales growth reflects an increasing percentage of
our business being generated from our California Avocados and International
Avocados and Perishable Food Products segments.
California Avocados
Net sales delivered by the business increased by approximately $2,818,000 or
19.6% for the first quarter of fiscal 2002 when compared to the same period for
fiscal 2001. The increase in sales reflects higher average California avocado
prices offset by a decrease in avocados delivered by our growers of 4.8% or
approximately 1,047,000 pounds. The decrease in the pounds delivered is
consistent with an expected decrease in the overall harvest of the California
avocado crop for the 2001/2002 season. Despite this decrease, we have continued
to build on our leadership role in packing and marketing California grown
avocados and have increased our market share to approximately 40.0% in the first
quarter of fiscal 2002 when compared to a 37.5% market share for fiscal 2001.
11
In February 2002, the Southern California growing area was impacted by adverse
weather conditions. A combination of freezing temperatures and strong winds
resulted in approximately 17 million pounds of avocados being delivered by the
industry in a one week period. The short-term effect of these conditions was to
significantly depress the average price of avocados. Furthermore, management
believes that these adverse weather conditions will have the effect of reducing
the 2001/2002 California avocado crop size by 2-3%, while increasing average
sales prices.
Processed Products
Net sales delivered by the business increased modestly by approximately $85,000
or 1.2% for the first quarter of fiscal 2002 when compared to the same period
for fiscal 2001. The increase reflects a marginal improvement on prices offset
by a decrease in the volume of processed avocado product sold of 331,000 pounds
or 9.3%.
International and Perishable Food Products
Net sales delivered by the business increased by approximately $4,037,000 or
19.0% for the first quarter of fiscal 2002 when compared to the same period for
fiscal 2001. The increase is consistent with a 4,915,000 pound or 21.2% increase
in the volume of avocados handled by the segment. This increase in pounds
marketed is attributable to the results of our Mexican operations which
increased their production by 5,673,000 pounds or 74.3% as compared to the same
period for fiscal 2001. The increases in our Mexican business were offset by
modest declines in our Chilean and New Zealand avocado marketing programs.
GROSS MARGINS
The following table summarizes our gross margins and gross profit percentages by
business segment for each of the three month periods ended January 31:
(IN THOUSANDS) 2002 CHANGE 2001
------------ ------------ ------------
Gross Margins:
California Avocados ............ $ 985 NM $ 24
Processed Products ............. 1,254 (37.4)% 2,004
International Avocados and
Perishable Food Products ..... 1,335 52.7% 874
------------ ------------
Total gross margins ......... $ 3,574 23.2% $ 2,902
============ ============
Gross Profit Percentages:
California Avocados ............ 5.7% 0.2%
Processed Products ............. 17.5% 28.3%
International Avocados and
Perishable Food Products ..... 5.3% 4.1%
Consolidated ................... 7.8% 7.4%
(NM is Not Meaningful)
Our cost of goods sold consists predominantly of fruit costs, packing materials,
freight and handling, labor and overhead (including depreciation) associated
with preparing food products and other direct expenses pertaining to products
sold. Gross margins increased by approximately $672,000 or 23.2% for the first
quarter of fiscal 2002 when compared to the same period for fiscal 2001. This
increase is principally attributable to improved profitability of our California
Avocados and International Avocados and Perishable Food Products segments. These
improvements in gross profits were partially offset by decreases in the gross
profit percentages delivered by our Processed Products segments.
Our California Avocado business generated an improved gross profit percentage
principally as a result of higher average sales prices offset by a modest
increase in per pound packing and freight costs. The gross profit percentage for
our International Avocados and Perishable Products business improved primarily
due to lower avocado prices and a reduced per pound cost of packing. This
decrease in per pound cost of packing is attributable to an additional 5,673,000
pounds of avocados packed at our Uruapan facility during the first quarter of
fiscal 2002 when compared to the same prior year period. The gross profit
percentages generated by our Processed Product segment decreased due to sales of
processed products which include avocado pulp procured at higher prices than in
prior years. We anticipate that margins for our Processed Product segment will
improve in the second part of fiscal 2002 as we begin selling product that
includes lower cost avocado pulp.
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SELLING, GENERAL AND ADMINISTRATIVE
QUARTER ENDED JANUARY 31,
--------------------------------------------------
(IN THOUSANDS) 2002 CHANGE 2001
------------ ------------ ------------
Selling, General and Administrative .... $ 3,017 7.5% $ 2,807
Percentage of net sales ................ 6.6% 7.2%
Selling, general and administrative expenses include costs of marketing and
advertising, sales expenses and other general and administrative costs. Selling,
general and administrative expenses increased by $210,000 or 7.5% for the first
quarter of fiscal 2002 when compared to the same period for fiscal 2001. The
increased general and administrative costs relate principally to higher expenses
incurred in marketing our products and additional costs incurred by our field
department.
OTHER EXPENSE (INCOME), NET
QUARTER ENDED JANUARY 31,
-------------------------------------------------
(IN THOUSANDS) 2002 CHANGE 2001
------------ ------------ ------------
Other expense (income), net ....... $ (8) NM $ 31
Percentage of net sales ........... --% --%
(NM is Not Meaningful)
Other expense (income), net includes interest income and expense generated in
connection with our financing and operating activities, as well as certain other
transactions that are outside of the course of normal operations. Other expense
(income), net is comparable for both periods presented.
PROVISION (BENEFIT) FOR INCOME TAXES
QUARTER ENDED JANUARY 31,
-------------------------------------------------
(IN THOUSANDS) 2002 CHANGE 2001
------------ ------------ ------------
Provision (benefit) for income taxes ..... $ 253 NM $ 27
Percentage of income before
provision (benefit) for income taxes ... 44.7% 42.1%
(NM is Not Meaningful)
For the first quarter of fiscal 2002, the Company's provision for income taxes
was $253,000 as compared to $27,000 recorded for the first quarter of fiscal
2001. The effective tax rate for fiscal 2001 reflects the impact from
non-deductible fines and penalties. The effective tax rate for fiscal 2002
reflects the impact of additional provisions recorded in connection with our
Mexican operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $2,663,000 for the three months ended
January 31, 2002, compared to $1,254,000 for the similar period in fiscal 2001.
Operating cash flows reflect our net income of $312,000, net non cash charges of
(depreciation and amortization and provision for losses on accounts receivable)
of $550,000 and a net increase in the non-cash components of our working capital
of approximately $1,801,000.
These working capital increases include a decrease in accounts receivable of
$3,329,000, principally due to lower first quarter sales, a decrease in advances
to suppliers of $2,249,000, an increase in trade accounts payable and accrued
expenses of $850,000, offset by an increase in inventories of $2,967,000, an
increase in prepaid expenses and other current assets of $741,000, an increase
in loans made to growers of $525,000, and a decrease in amounts payable to
growers of $538,000.
Cash used in investing activities was $229,000 for the three months ended
January 31, 2002 and related principally to the purchase of capital
expenditures.
Cash used in financing activities was $4,041,000 for the three months ended
January 31, 2002 related principally to the repayment of $4,277,000 of short
term-borrowings and debt offset by $236,000 of cash in flows from the exercise
of stock options by our directors.
13
Our principal sources of liquidity are our existing cash reserves, cash
generated from operations, anticipated cash from our forthcoming rights offering
to shareholders and amounts available for borrowing under our existing credit
facilities. Cash and cash equivalents as of January 31, 2002 and October 31,
2001, totaled $450,000 and $2,057,000. Our working capital at January 31, 2002
was $10,496,000 compared to $9,799,000 at October 31, 2001. The overall working
capital increase reflects repayment of short-term borrowings and increases in
inventory.
We believe that cash flows from operations, the rights offering to shareholders,
and available credit facilities will be sufficient to satisfy our future capital
expenditures, grower recruitment efforts, working capital and other financing
requirements. We will continue to evaluate grower recruitment opportunities and
exclusivity arrangements with food service companies to fuel growth in each of
our business segments. In order to finance such growth we may seek to obtain
additional borrowings or issue shares of our common stock. Our largest line of
credit which has a borrowing capacity of $23,500,000 is provided by an
institution that focuses its lending activities on agricultural cooperatives.
With our conversion to a for-profit corporation, this line of credit is now
subject to certain limitations. We anticipate that the rights offering to
shareholders, if fully subscribed, will generate approximately $5,000,000 in
cash, during fiscal 2002, less offering costs. However, there can be no
assurance that the rights offering will be fully subscribed or that other
financing for such growth will be available on favorable terms, or at all.
As of January 31, 2001, we have not entered into commitments to purchase any new
significant capital assets.
The following table summarizes contractual obligations pursuant to which we are
required to make cash payments. The information is presented as of our fiscal
year ended October 31, 2001:
Total Less than 1 year 1-3 years 4-5 years After 5 years
------------ ---------------- ------------ ------------ -------------
Long-term obligations .................. $ 3,870 $ 441 $ 3,423 $ 6 $ --
Operating lease commitments ............ 4,053 1,125 2,199 729 --
------------ ------------ ------------ ------------ ------------
Total contractual cash obligations ..... $ 7,923 $ 1,566 $ 5,622 $ 735 $ --
============ ============ ============ ============ ============
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 is effective immediately and SFAS No. 142 will be effective on
November 1, 2002. The new standards are not expected to have a significant
impact on our financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supersedes previous guidance on financial
accounting and reporting for the impairment or disposal of long-lived assets and
for segments of a business to be disposed of. Adoption of SFAS No. 144 is
required no later than the beginning of fiscal 2003. We do not expect the
adoption of SFAS No. 144 to have a significant impact on our financial position
or results of operations. However, future impairment reviews may result in
charges against earnings to write down the value of long-lived assets.
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains statements relating to future
results of Calavo Growers, Inc. (including certain projections and business
trends) that are "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the "safe harbor" created
by those sections. Forward-looking statements frequently are identifiable by the
use of words such as "believe," "anticipate," "expect," "intend," "will," and
other similar expressions. Our actual results may differ materially from those
projected as a result of certain risks and uncertainties. These risks and
uncertainties include, but are not limited to: increased competition, conducting
substantial amounts of business internationally, pricing pressures on
agricultural products, adverse weather and growing conditions confronting
avocado growers, new governmental regulations, as well as other risks and
uncertainties, including but not limited to those set forth in Part I., Item 1
under the caption "Certain Business Risks" in our Annual Report on Form 10-K for
the fiscal year ended October 31, 2001 and those detailed from time to time in
our other filings with the Securities and Exchange Commission. These
forward-looking statements are made only as of the date hereof, and we undertake
no obligation to update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments include cash and cash equivalents and United States
government bonds with a maturity date of August 15, 2005. The government bonds
are being held in an irrevocable trust which has been designated to be used only
to satisfy the scheduled payments of interest and principal related to our
industrial development and revenue bonds. As these securities are intended to be
held until maturity, their carrying value in our financial statements is
$1,873,000 reflecting their amortized cost. The fair value of these securities
approximates $1,967,000 as of January 31, 2002. We purchased no additional
government bonds during the three months ended January 31, 2002.
We were not a party to any derivative instruments during the fiscal year. It is
our intent not to use derivative instruments for speculative or trading
purposes.
We project the annual impact of an increase or decrease of one hundred basis
points in the prime lending rate to be $100,000, based on our average daily
borrowings. We do not use any hedging or forward contracts to offset market
volatility.
Our Mexican-based operations transact business in Mexican pesos. Funds are
transferred by our corporate office to Mexico on a weekly basis to satisfy
domestic cash needs. Consequently, the spot rate for the Mexican peso has a
moderate impact on our operating results. However, we do not believe that this
impact is sufficient to warrant the use of derivative instruments to hedge the
fluctuation in the Mexican peso. Total foreign currency gains and losses for
each of the three years ended October 31, 2001 do not exceed $50,000.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently not involved in litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
Report on Form 8-K dated March 5, 2002, reporting the Company's announcement of
the appointment of Crowell, Weedon & Co. and U.S. Stock Transfer Corporation and
amendment to Article VI of the Company's Bylaws (Items 5, 7 and 9 of Form 8-K).
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Calavo Growers, Inc.
(Registrant)
Date: March 6, 2002 By /s/ Lecil E. Cole
--------------------------------------
Lecil E. Cole
Chairman of the Board of Directors,
Chief Executive Officer and President
Date: March 6, 2002 By /s/ Egidio Carbone, Jr.
--------------------------------------
Egidio Carbone, Jr.
Vice President Finance and
Corporate Secretary
17