UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON,~~Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended April 30, ~~2020~~2021

ORor

☐

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

For the transition period from ______________________ to ______________________

Commission file number: 000-33385

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)

California

33-0945304

(State or other jurisdiction of ~~incorporation)~~

incorporation or organization)

(I.R.S. Employer Identification No.)


1141-A Cummings Road, Santa Paula, California		93060
(Address of principal executive offices)		(Zip Code)

~~1141-A Cummings Road~~

~~Santa Paula~~, ~~California~~~~93060~~

~~(Address of principal executive offices) (Zip code)~~

(805) 525-1245

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CVGW	Nasdaq Global Market

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 ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated ~~filer,”~~filer”, “accelerated filer”, “smaller reporting company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller ~~Reporting Company~~reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section ~~7(a)(2)(B)~~13(a) of the ~~Securities~~Exchange Act. ☐

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

Registrant's number of shares of common stock outstanding as of April 30, ~~2020~~2021 was ~~17,638,513~~17,683,930

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains statements relating to future events and results of Calavo Growers, Inc. and its consolidated subsidiaries (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 and 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 ever 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, gain/(loss) on Limoneira shares, income/(loss) from unconsolidated entities, earnings, earnings per share, tax provisions, cash flows and currency exchange rates; the impact of COVID-19 on our business, results of operations and financial condition; 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, whether attributable to Calavo or any of its unconsolidated entities; any statements regarding pending investigations, legal claims or tax disputes; any statements of expectation or belief; any risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and COVID-19 and trade protection measures such as import/export/customs duties, tariffs and/or quotas); any risks associated with receivables from and/or equity investments in unconsolidated entities; system security risk and cyber-attacks and any statements of assumptions underlying any of the foregoing.

Risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by the forward-looking statements include, but are not limited to, the following: the impact of the COVID-19 pandemic on our business, results of operations, and financial condition, including, but not limited to, disruptions in the manufacturing of our products and the operations of the related supply chains supporting our ability to deliver our products to consumers, impacts on our employees and uncertainty regarding our ability to implement health and safety measures for our employees, uncertainties regarding consumer demand for our products in light of COVID-19, impact on our food service customers, increased costs that we must incur as a result of COVID-19, the impact of governmental trade restrictions imposed as a result of COVID-19 and the possible adverse impact of COVID-19 on our goodwill and other intangible assets; seasonality of our business; sensitivity of our business to changes in market prices of avocados and other agricultural products and other raw materials including fuel, packaging and paper; potential disruptions to our supply chain; risks associated with potential future acquisitions, including integration; potential exposure to data breaches and other cyber-attacks on our systems or those of our suppliers or customers; dependence on large customers; dependence on key personnel and the ability of our management team to work together successfully; potential for labor disputes; reliance on co-packers for a portion of our production needs; competitive pressures, including from foreign growers; risks of recalls and food-related injuries to our customers; changing consumer preferences; the impact of ~~macroeconomic trends~~environmental regulations, including those related to climate change; our ability to develop and ~~events; the competitive pressures faced by Calavo's business; the development and~~ transition of new products and services ~~(and the enhancement of~~and enhance existing products and ~~services)~~services to meet customer needs; ~~integration and other risks associated with acquisitions of other businesses; our ability to hire and retain key employees; the resolution of pending investigations, legal claims and tax disputes; the~~ risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and COVID-19 and trade protection measures such as import/export/customs duties, tariffs and/or ~~quotas)~~quotas and currency fluctuations); ~~any~~ risks associated with receivables from, loans to and/or equity investments in unconsolidated ~~entities; and potential cyber-attacks on our information technology systems or on~~entities, including FreshRealm; volatility in the ~~information technology systems~~value of our ~~suppliers or customers.~~common stock; the impact of macroeconomic trends and events; and the resolution of pending investigations, legal claims and tax disputes.

For a further discussion of these risks and uncertainties and other risks and uncertainties that we face, please see the risk factors described in our most recent Annual Report on Form 10-K for the fiscal year ended October 31, ~~2019~~2020 filed with the Securities and Exchange Commission and any subsequent updates that may be contained in our Quarterly Reports on Form 10-Q (including this Quarterly Report on Form 10-Q) and other filings with the Securities and Exchange Commission. Forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

CALAVO GROWERS, INC.

INDEX

		PAGE

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Consolidated Condensed Balance Sheets – ~~April~~April 30 ~~2020~~, 2021 and October 31, ~~2019~~2020	4

	Consolidated Condensed Statements of Operations – Three ~~and~~and Six Months Ended April 30, ~~2020~~2021 and ~~2019~~2020	5

	Consolidated Condensed Statements of Cash Flows – Three and Six Months Ended April 30, ~~2020~~2021 and ~~2019~~2020	6

	Consolidated Condensed Statements of Shareholders’ Equity – Three and Six Months Ended April 30, 2021	7

	Notes to Consolidated Condensed Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2821

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3733

Item 4.	Controls and Procedures	3733


PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3833

Item 1A.	Risk Factors	3834

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 6.	Exhibits	3935

	Signatures	4036

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(in ~~thousands, except per share amounts)~~thousands)


	April 30,		October 31,		April 30,		October 31,
	2020		2019		2021		2020

Assets
Current assets:
Cash and cash equivalents	$	3,284	$	7,973	$	5,582	$	4,055
Accounts receivable, net of allowances of $3,679 (2020) $3,366 (2019)		76,261		63,423
Accounts receivable, net of allowances of $4,338 (2021) and $3,498 (2020)						90,112		63,668
Inventories, net		46,908		36,889		53,335		41,787
Prepaid expenses and other current assets		11,118		9,027		9,418		10,733
Advances to suppliers		9		7,338		9,521		5,061
Income taxes receivable		8,850		2,865		2,419		10,591
Total current assets		146,430		127,515		170,387		135,895
Property, plant, and equipment, net		131,414		132,098		130,787		130,270
Operating lease right-of-use assets		63,678		—		58,169		60,262
Investment in Limoneira Company		22,392		31,734		30,292		23,197
Investments in unconsolidated entities		9,755		10,722		4,779		6,065
Deferred income taxes		556		3,447		2,689		2,486
Goodwill		28,077		18,262		28,653		28,568
Notes receivable from FreshRealm		33,970		35,241
Intangibles, net						9,536		10,323
Other assets		39,230		31,341		39,018		32,558
	$	475,502	$	390,360	$	474,310	$	429,624
Liabilities and shareholders' equity
Current liabilities:
Payable to growers	$	28,037	$	13,463	$	31,390	$	11,346
Trade accounts payable		7,555		17,421		14,012		9,384
Accrued expenses		33,358		39,629		42,035		36,922
Short-term borrowings		45,000		—
Borrowings pursuant to credit facilities, current						—		20,550
Dividend payable		—		19,354		—		20,343
Current portion of operating leases		6,218		—		6,726		6,443
Current portion of long-term obligations and finance leases		847		762		1,421		1,343
Total current liabilities		121,015		90,629		95,584		106,331
Long-term liabilities:
Borrowings pursuant to credit facilities, long-term						42,250		—
Long-term operating leases, less current portion		61,443		—		55,907		58,273
Long-term obligations and finance leases, less current portion		5,219		5,412		5,635		5,716
Deferred rent		—		3,681
Other long-term liabilities		3,575		4,769		3,192		3,302
Total long-term liabilities		70,237		13,862		106,984		67,291
Commitments and contingencies
Shareholders' equity:
Common stock ($0.001 par value, 100,000 shares authorized; 17,639 (2020) and 17,595 (2019) shares issued and outstanding)		18		18
Common stock ($0.001 par value, 100,000 shares authorized; 17,684 (2021) and 17,661 (2020) shares issued and outstanding)						18		18
Additional paid-in capital		163,230		161,606		166,709		165,000
Noncontrolling interest		1,496		1,688		1,385		1,472
Retained earnings		119,506		122,557		103,630		89,512
Total shareholders' equity		284,250		285,869		271,742		256,002
	$	475,502	$	390,360	$	474,310	$	429,624

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

Table of Contents

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)


	Three months ended				Six months ended				Three months ended				Six months ended
	April 30,				April 30,				April 30,				April 30,
	2020		2019		2020		2019		2021		2020		2021		2020

Net sales	$	281,166	$	286,236	$	554,516	$	544,268	$	276,821	$	281,166	$	497,399	$	554,516
Cost of sales		259,091		249,399		516,633		476,594		254,221		259,091		456,960		516,633
Gross profit		22,075		36,837		37,883		67,674		22,600		22,075		40,439		37,883
Selling, general and administrative		14,504		15,657		30,802		29,933		13,683		14,504		27,857		30,802
Gain on sale of Temecula packinghouse		54		1,927		108		1,927		54		54		108		108
Operating income		7,625		23,107		7,189		39,668		8,971		7,625		12,690		7,189
Interest expense		(342)		(365)		(529)		(619)		(191)		(342)		(365)		(529)
Other income, net		628		886		1,622		1,396		411		628		612		1,622
Unrealized and realized net gain (loss) on Limoneira shares		(10,349)		1,359		(9,343)		(3,146)
Income (loss) before provision (benefit) for income taxes and loss from unconsolidated entities		(2,438)		24,987		(1,061)		37,299
Provision (benefit) for income taxes		(1,208)		5,573		(1,858)		7,106
Unrealized net gain (loss) on Limoneira shares										3,506		(10,349)		7,095		(9,343)
Income (loss) before income taxes and loss from unconsolidated entities										12,697		(2,438)		20,032		(1,061)
Income tax (provision) benefit										(2,772)		1,208		(4,715)		1,858
Net loss from unconsolidated entities		(2,177)		(3,136)		(5,205)		(9,434)		(1,131)		(2,177)		(1,286)		(5,205)
Net income (loss)		(3,407)		16,278		(4,408)		20,759		8,794		(3,407)		14,031		(4,408)
Less: Net loss attributable to noncontrolling interest		129		67		192		73
Add: Net loss attributable to noncontrolling interest										47		129		87		192
Net income (loss) attributable to Calavo Growers, Inc.	$	(3,278)	$	16,345	$	(4,216)	$	20,832	$	8,841	$	(3,278)	$	14,118	$	(4,216)

Calavo Growers, Inc.’s net income (loss) per share:
Basic	$	(0.19)	$	0.93	$	(0.24)	$	1.19	$	0.50	$	(0.19)	$	0.80	$	(0.24)
Diluted	$	(0.19)	$	0.93	$	(0.24)	$	1.18	$	0.50	$	(0.19)	$	0.80	$	(0.24)

Number of shares used in per share computation:
Basic		17,550		17,530		17,543		17,514		17,619		17,550		17,609		17,543
Diluted		17,550		17,609		17,543		17,582		17,679		17,550		17,668		17,543

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

Table of Contents

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Six months ended April 30,

2020

2019

Cash Flows from Operating Activities:







Net income (loss)

$
(4,408)

$
20,759

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

7,646

6,770

Non-cash operating lease expense

104

—

Provision for losses on accounts receivable

—

83

Net loss from unconsolidated entities

5,205

9,435

Unrealized and realized net gain (loss) on Limoneira shares

9,343

3,146

Interest income on notes to FreshRealm

(1,489)

(980)

Stock-based compensation expense

2,717

1,826

Gain on sale of Temecula packinghouse

(108)

(1,927)

Loss on disposal of property, plant, and equipment

230

—

Effect on cash of changes in operating assets and liabilities:

Accounts receivable, net

(10,388)

(17,332)

Inventories, net

(9,327)

(14,572)

Prepaid expenses and other current assets

(1,755)

(367)

Advances to suppliers

7,329

1,419

Income taxes receivable/payable

(5,985)

3,942

Other assets

2,844

(3,657)

Payable to growers

14,574

11,631

Deferred rent

—

547

Trade accounts payable, accrued expenses and other long-term liabilities

(19,554)

5,880

Net cash provided by (used in) operating activities

(3,022)

26,603

Cash Flows from Investing Activities:

Acquisitions of and deposits on property, plant, and equipment

(5,937)

(7,467)

Acquisition of SFFI, net of cash acquired of $623

(18,396)

—

Proceeds received for repayment of San Rafael note

—

225

Proceeds received from Limoneira stock sales

—

1,154

Proceeds from sale of Temecula packinghouse

—

7,100

Investment in FreshRealm

(1,477)

—

Notes receivables advanced to FreshRealm

—

(14,700)

Net cash used in investing activities

(25,810)

(13,688)

Cash Flows from Financing Activities:

Payment of dividend to shareholders

(19,354)

(17,568)

Proceeds from revolving credit facility

126,000

140,500

Payments on revolving credit facility

(81,000)

(129,000)

Payments of minimum withholding taxes on net share settlement of equity awards

(1,179)

(1,008)

Payments on long-term obligations and finance leases

(410)

(83)

Proceeds from stock option exercises

86

85

Net cash provided by (used in) financing activities

24,143

(7,074)

Net increase (decrease) in cash and cash equivalents

(4,689)

5,841

Cash and cash equivalents, beginning of period

7,973

1,520

Cash and cash equivalents, end of period

$
3,284

$
7,361

Noncash Investing and Financing Activities:

Right of use assets obtained in exchange for new financing lease obligations

$
390

$
—

Notes receivable from FreshRealm converted to investment in FreshRealm

$
2,761

$
—

Capital lease related to Temecula packinghouse

$
—

$
3,306

Property, plant, and equipment included in trade accounts payable and accrued expenses

$
1,056

$
598


	Six months ended April 30,
	2021		2020

Cash Flows from Operating Activities:
Net income (loss)	$	14,031	$	(4,408)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization		8,371		7,646
Non-cash operating lease expense		59		104
Net loss from unconsolidated entities		1,286		5,205
Unrealized net gain on Limoneira shares		(7,095)		9,343
Interest income on notes to FreshRealm		—		(1,489)
Stock-based compensation expense		2,264		2,717
Gain on sale of Temecula packinghouse		(108)		(108)
Loss on disposal of property, plant, and equipment		—		230
Effect on cash of changes in operating assets and liabilities:
Accounts receivable, net		(26,400)		(10,388)
Inventories, net		(11,579)		(9,327)
Prepaid expenses and other current assets		2,700		(1,755)
Advances to suppliers		(4,460)		7,329
Income taxes receivable/payable		8,172		(5,985)
Other assets		(5,126)		2,844
Payable to growers		20,044		14,574
Trade accounts payable, accrued expenses and other long-term liabilities		8,264		(19,554)
Net cash provided (used) by operating activities		10,423		(3,022)
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment		(7,659)		(5,937)
Acquisition of SFFI, net of cash acquired of $623		—		(18,396)
Investment in FreshRealm		—		(1,477)
Infrastructure advance to tomato growers		(1,326)		—
Net cash used in investing activities		(8,985)		(25,810)
Cash Flows from Financing Activities:
Payment of dividend to shareholders		(20,343)		(19,354)
Proceeds from revolving credit facility		172,600		126,000
Payments on revolving credit facility		(150,900)		(81,000)
Payments of minimum withholding taxes on net share settlement of equity awards		(602)		(1,179)
Payments on long-term obligations and finance leases		(713)		(410)
Proceeds from stock option exercises		47		86
Net cash provided by financing activities		89		24,143
Net increase (decrease) in cash and cash equivalents		1,527		(4,689)
Cash and cash equivalents, beginning of period		4,055		7,973
Cash and cash equivalents, end of period	$	5,582	$	3,284

Noncash Investing and Financing Activities:
Right of use assets obtained in exchange for new financing lease obligations	$	665	$	390
Notes receivable from FreshRealm converted to investment in FreshRealm	$	—	$	2,761
Property, plant, and equipment included in trade accounts payable and accrued expenses	$	522	$	1,056

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

Table of Contents

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands)

Accumulated






Additional

Other

Common Stock

Paid-in

Comprehensive

Retained

Noncontrolling

Shares

Amount

Capital

Income

Earnings

Interest

Total

Balance, October 31, 2018

17,567

18

157,928

12,141

93,124

1,748

264,959
Exercise of stock options and income tax benefit

2

—

47

—

—

—

47
Stock compensation expense

—

—

966

—

—

—

966
Restricted stock issued

29

—

—

—

—

—

—
Unrealized gains on Limoneira investment reclassed to retained earnings

—

—

—

(12,141)

12,141

—

—
Avocados de Jalisco noncontrolling interest contribution

—

—

—

—

—

(6)

(6)
Net income attributable to Calavo Growers, Inc.

—

—

—

—

4,487

—

4,487
Balance, January 31, 2019

17,598

18

158,941

—

109,752

1,742

270,453
Exercise of stock options and income tax benefit

2

—

37

—

—

—

37
Stock compensation expense

—

—

860

—

—

—

860
Avocados de Jalisco noncontrolling interest contribution

—

—

—

—

—

(67)

(67)
Net income attributable to Calavo Growers, Inc.

—

—

—

—

16,345

—

16,345
Balance, April 30, 2019

17,600

18

159,838

—

126,097

1,675

287,628



				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total

Balance, October 31, 2019	17,595	$	18	$	161,606	$	122,557	$	1,688	$	285,869
Cumulative effect adjustment on ASC 842 related to leases	—		—		—		1,165		—		1,165
Exercise of stock options and income tax benefit	2		—		47		—		—		47
Stock compensation expense	—		—		931		—		—		931
Restricted stock issued	17		—		—		—		—		—
Avocados de Jalisco noncontrolling interest contribution	—		—		—		—		(63)		(63)
Net loss attributable to Calavo Growers, Inc.	—		—		—		(938)		—		(938)
Balance, January 31, 2020	17,614		18		162,584		122,784		1,625		287,011
Exercise of stock options and income tax benefit	2		—		39		—		—		39
Stock compensation expense	—		—		667		—		—		667
Restricted stock issued	23		—		1,119		—		—		1,119
Payments of minimum withholding taxes on net share settlement of equity awards	—		—		(1,179)		—		—		(1,179)
Avocados de Jalisco noncontrolling interest contribution	—		—		—		—		(129)		(129)
Net loss attributable to Calavo Growers, Inc.	—		—		—		(3,278)		—		(3,278)
Balance, April 30, 2020	17,639	$	18	$	163,230	$	119,506	$	1,496	$	284,250


						Accumulated
				Additional		Other											Additional
	Common Stock			Paid-in		Comprehensive		Retained		Noncontrolling				Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Income		Earnings		Interest		Total		Shares	Amount		Capital		Earnings		Interest		Total

Balance, October 31, 2019	17,595		18		161,606		—		122,557		1,688		285,869
Cumulative effect adjustment on ASC 842 related to leases	—		—		—		—		1,165		—		1,165
Balance, October 31, 2020														17,661	$	18	$	165,000	$	89,512	$	1,472	$	256,002
Exercise of stock options and income tax benefit	2		—		47		—		—		—		47	2		—		47		—		—		47
Payment of min. withholding of taxes on net share settlement of equity awards														—		—		(467)		—		—		(467)
Stock compensation expense	—		—		931		—		—		—		931	—		—		907		—		—		907
Restricted stock issued	17		—		—		—		—		—		—	23		—		—		—		—		—
Avocados de Jalisco noncontrolling interest contribution	—		—		—		—		—		(63)		(63)	—		—		—		—		(40)		(40)
Net loss attributable to Calavo Growers, Inc.	—		—		—		—		(938)		—		(938)
Balance, January 31, 2020	17,614		18		162,584		—		122,784		1,625		287,011
Net Income attributable to Calavo Growers, Inc.														—		—		—		5,277		—		5,277
Balance, January 31, 2021														17,686		18		165,487		94,789		1,432		261,726
Exercise of stock options and income tax benefit	2		—		39		—		—		—		39	—		—		—		—		—		—
Stock compensation expense	—		—		667		—		—		—		667	—		—		1,357		—		—		1,357
Restricted stock issued	23		—		1,119		—		—		—		1,119
Payments of minimum withholding taxes on net share settlement of equity awards	—		—		(1,179)		—		—		—		(1,179)	(2)		—		(135)		—		—		(135)
Avocados de Jalisco noncontrolling interest contribution	—		—		—		—		—		(129)		(129)	—		—		—		—		(47)		(47)
Net loss attributable to Calavo Growers, Inc.	—		—		—		—		(3,278)		—		(3,278)
Balance, April 30, 2020	17,639		18		163,230		—		119,506		1,496		284,250
Net Income attributable to Calavo Growers, Inc.														—		—		—		8,841		—		8,841
Balance, April 30, 2021														17,684	$	18	$	166,709	$	103,630	$	1,385	$	271,742

See accompanying notes to consolidated condensed financial statements.

Table of Contents

CALAVO GROWERS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of the business

Business

Calavo Growers, Inc. (Calavo, the Company, we, us or our), is a global leader in the avocado industry and 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 on a worldwide basis. 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, (ii) create, process and package a portfolio of healthy fresh foods including fresh-cut fruit and vegetables, and prepared foods and (iii) process and package guacamole and salsa. We distribute our products both domestically and internationally and report our operations in 3 different business segments: Fresh products, ~~Calavo Foods and~~ Renaissance Food Group (RFG). and Calavo Foods.

The accompanying unaudited consolidated condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, ~~2019.~~2020.

Recently Adopted ~~Accounting Pronouncements~~

~~In June 2018, the FASB issued an ASU~~~~, Improvements to Nonemployee Share-Based Payment Accounting~~. The FASB is issuing this update to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. This ASU was effective for us beginning the first day of our 2020 fiscal year. The adoption of the amendment did not have an impact on the Company’s consolidated financial statements.

~~In February 2018, the FASB issued an ASU,~~ ~~Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income~~, which amends Accounting Standards Codification ("ASC") 220, Income Statement — Reporting Comprehensive Income, to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, (the "Act"). In addition, under the ASU, an entity will be required to provide certain disclosures regarding stranded tax effects. This ASU was effective for us beginning the first day of our 2020 fiscal year. The adoption of the amendment did not have an impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASU's (collectively, "Topic 842"), which requires a dual approach for lease accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases result in the lessee recognizing a right of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize lease expense on a straight-line basis. See Note 14.

~~Table of Contents~~

~~Recently Issued~~ Accounting Standards

In October 2018, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU~~Accounting Standards Updated (ASU) 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. This ASU provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. ~~The new guidance is effective for fiscal years beginning after December 15, 2019.~~ This ASU ~~will be~~was effective for us beginning the first day of our 2021 fiscal year. ~~We are evaluating the impact of the~~The adoption of this ASU did not have an impact on ~~our financial condition, results of operations and cash flows, and, as such, we are not able to estimate~~ the ~~effect the adoption of the new standard will have on our~~Company’s consolidated financial statements.

~~In September 2018,~~On November 1, 2020, the ~~FASB issued~~Company adopted an ASU, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40),: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That isIs a Service Contract.This ~~ASU requires~~update provides guidance regarding the capitalization of implementation costs incurred ~~by customers~~ in a cloud computing ~~arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software~~arrangement that is a service contract. This ASU was adopted prospectively and ~~deferred over the non-cancellable term of the~~ cloud computing ~~arrangements plus any option renewal periods that~~implementation costs incurred on November 1, 2020 or later are ~~reasonably certain to be exercised by~~included in other noncurrent assets in the ~~customer~~consolidated balance sheet and are presented within operating cash flows. As of April 30, 2021, capitalized implementation costs included in other noncurrent assets were less than $0.1 million and there was no accumulated amortization or ~~for which~~amortization expense recorded during the exercise is controlled by the service provider. This ASU will be effective for us beginning the first day of our 2021 fiscal year. We are evaluating the impact of the adoption of this ASU on our financial condition, results of operationsthree and ~~cash flows, and, as such, we are not able to estimate the effect the adoption of the new standard will have on our financial statements.~~six months ended April 30, 2021.

In January 2017, the FASB issued an ASU, Simplifying the Test for Goodwill Impairment, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. The ASU permits an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU ~~will be effective for us beginning the first day of our 2021 fiscal year and is not expected to have a significant impact upon adoption.~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance~~, ASU 2018-19 in November 2018 and ASU 2019-05 in May 2019 including codification improvements to Topic 326 in ASU 2019-04. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. ASU 2019-05 provides entities that have certain instruments with an option to irrevocably elect the fair value option. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU will bewas effective for us beginning the first day of our 2021 fiscal year. ~~Early adoption is permitted. We are evaluating the impact of the~~The adoption of this ASU did not have an impact on ~~our~~the Company’s consolidated financial ~~condition, results~~statements.

Table of ~~operations~~Contents

On November 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This standard requires a financial asset to be presented at the net amount expected to be collected. The financial assets of the Company in scope of ASU 2016-13 were primarily accounts receivable. The Company estimates an allowance for expected credit losses on accounts receivable that result from the inability of customers to make required payments. In estimating the allowance for expected credit losses, consideration is given to the current aging of receivables, historical experience, and ~~cash flows, and, as such, we are not able to estimate the effect the~~a review for potential bad debts. The adoption of this ASU did not have an impact on the ~~new standard will have on our~~Company’s consolidated financial statements.

2. Information regarding our operations in different segments

We report our operations in 3 different business segments: (1) Fresh products, (2) ~~Calavo Foods,~~RFG, and (3) ~~RFG.~~Calavo Foods. These 3 business segments are presented based on how information is used by our Chief Executive Officer to measure performance and allocate resources. The Fresh products segment includes operations that involve the distribution of avocados and other fresh produce products. The RFG segment represents operations related to the manufacturing and distribution of fresh-cut fruit, fresh-cut vegetables, and prepared foods. The Calavo Foods segment represents operations related to the purchase, manufacturing, and distribution of prepared avocado products, including guacamole, and salsa. Selling, general and administrative expenses, as well as other non-operating income/expense items, are evaluated by our Chief Executive Officer in the aggregate. We do not allocate assets, or specifically identify them to, our operating segments. The ~~RFG~~Sales Data in the following tables is presented in thousands:


	Three months ended April 30, 2021								Three months ended April 30, 2020

	Fresh				Calavo				Fresh				Calavo
	products		RFG		Foods		Total		products		RFG		Foods		Total

Avocados	$	146,359	$	—	$	—	$	146,359	$	149,865	$	—	$	—	$	149,865
Tomatoes		13,433		—		—		13,433		19,331		—		—		19,331
Papayas		2,647		—		—		2,647		2,363		—		—		2,363
Other fresh income		126		—		—		126		112		—		—		112
Prepared avocado products		—		—		20,915		20,915		—		—		19,118		19,118
Salsa		—		—		696		696		—		—		609		609
Fresh-cut fruit & veg. and prepared foods		—		97,011		—		97,011		—		94,186		—		94,186
Total gross sales		162,565		97,011		21,611		281,187		171,671		94,186		19,727		285,584
Less sales incentives		(879)		(722)		(875)		(2,476)		(803)		(657)		(1,874)		(3,334)
Less inter-company eliminations		(717)		—		(1,173)		(1,890)		(234)		—		(850)		(1,084)
Net sales	$	160,969	$	96,289	$	19,563	$	276,821	$	170,634	$	93,529	$	17,003	$	281,166

Table of Contents

segment represents operations related to the manufacturing and distribution of fresh-cut fruit, fresh-cut vegetables, and prepared foods. 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. Data in the following tables is presented in thousands:

Three months ended April 30, 2020

Three months ended April 30, 2019


Fresh

Calavo





Fresh

Calavo




products

Foods

RFG

Total

products

Foods

RFG

Total

Avocados

$
149,865

$
—

$
—

$
149,865

$
134,892

$
—

$
—

$
134,892

Tomatoes

19,331

—

—

19,331

14,515

—

—

14,515

Papayas

2,363

—

—

2,363

1,809

—

—

1,809

Other fresh products

112

—

—

112

108

—

—

108

Prepared avocado products

—

19,118

—

19,118

—

23,631

—

23,631

Salsa

—

609

—

609

—

669

—

669

Fresh-cut fruit & veg. and prepared foods

—

—

94,186

94,186

—

—

114,641

114,641

Total gross sales

171,671

19,727

94,186

285,584

151,324

24,300

114,641

290,265

Less sales incentives

(803)

(1,874)

(657)

(3,334)

(112)

(2,259)

(649)

(3,020)

Less inter-company eliminations

(234)

(850)

—

(1,084)

(277)

(732)

—

(1,009)

Net sales

$
170,634

$
17,003

$
93,529

$
281,166

$
150,935

$
21,309

$
113,992

$
286,236

Six months ended April 30, 2020

Six months ended April 30, 2019


Fresh

Calavo





Fresh

Calavo




products

Foods

RFG

Total

products

Foods

RFG

Total

Avocados

$
267,749

$
—

$
—

$
267,749

$
238,886

$
—

$
—

$
238,886

Tomatoes

32,324

—

—

32,324

25,907

—

—

25,907

Papayas

5,007

—

—

5,007

4,748

—

—

4,748

Other fresh products

237

—

—

237

189

—

—

189

Prepared avocado products

—

40,919

—

40,919

—

47,883

—

47,883

Salsa

—

1,328

—

1,328

—

1,522

—

1,522

Fresh-cut fruit & veg. and prepared foods

—

—

215,653

215,653

—

—

234,182

234,182

Total gross sales

305,317

42,247

215,653

563,217

269,730

49,405

234,182

553,317

Less sales incentives

(1,259)

(3,910)

(1,190)

(6,359)

(1,069)

(4,293)

(1,126)

(6,488)

Less inter-company eliminations

(700)

(1,642)

—

(2,342)

(872)

(1,689)

—

(2,561)

Net sales

$
303,358

$
36,695

$
214,463

$
554,516

$
267,789

$
43,423

$
233,056

$
544,268

~~Table of Contents~~

Fresh

Calavo



Interco.


products

Foods

RFG

Elimins.

Total

(All amounts are presented in thousands)

Three months ended April 30, 2020

Net sales

$
170,868

$
17,853

$
93,529

$
(1,084)

$
281,166

Cost of sales

156,463

12,919

90,793

(1,084)

259,091

Gross profit

$
14,405

$
4,934

$
2,736

$
—

$
22,075

Three months ended April 30, 2019

Net sales

$
151,212

$
22,041

$
113,992

$
(1,009)

$
286,236

Cost of sales

123,388

15,495

111,525

(1,009)

249,399

Gross profit

$
27,824

$
6,546

$
2,467

$
—

$
36,837

Six months ended April 30, 2020

Net sales

$
304,058

$
38,337

$
214,463

$
(2,342)

$
554,516

Cost of sales

283,071

27,051

208,853

(2,342)

516,633

Net sales

$
20,987

$
11,286

$
5,610

$
—

$
37,883

Six months ended April 30, 2019

Net sales

$
268,661

$
45,112

$
233,056

$
(2,561)

$
544,268

Cost of sales

219,979

31,823

227,353

(2,561)

476,594

Gross profit

$
48,682

$
13,289

$
5,703

$
—

$
67,674


	Six months ended April 30, 2021								Six months ended April 30, 2020

	Fresh				Calavo				Fresh				Calavo
	products		RFG		Foods		Total		products		RFG		Foods		Total

Avocados	$	250,130	$	—	$	—	$	250,130	$	267,749	$	—	$	—	$	267,749
Tomatoes		22,619		—		—		22,619		32,324		—		—		32,324
Papayas		5,397		—		—		5,397		5,007		—		—		5,007
Other fresh income		454		—		—		454		237		—		—		237
Prepared avocado products		—		—		37,753		37,753		—		—		40,919		40,919
Salsa		—		—		1,408		1,408		—		—		1,328		1,328
Fresh-cut fruit & veg. and prepared foods		—		188,262		—		188,262		—		215,653		—		215,653
Total gross sales		278,600		188,262		39,161		506,023		305,317		215,653		42,247		563,217
Less sales incentives		(1,455)		(1,667)		(1,967)		(5,089)		(1,259)		(1,190)		(3,910)		(6,359)
Less inter-company eliminations		(1,243)		—		(2,292)		(3,535)		(700)		—		(1,642)		(2,342)
Net sales	$	275,902	$	186,595	$	34,902	$	497,399	$	303,358	$	214,463	$	36,695	$	554,516


	Fresh				Calavo		Interco.
	products		RFG		Foods		Elimins.		Total

	(All amounts are presented in thousands)
Three months ended April 30, 2021
Net sales	$	161,686	$	96,289	$	20,736	$	(1,890)	$	276,821
Cost of sales		146,678		94,001		15,432		(1,890)		254,221
Gross profit	$	15,008	$	2,288	$	5,304	$	—	$	22,600

Three months ended April 30, 2020
Net sales	$	170,868	$	93,529	$	17,853	$	(1,084)	$	281,166
Cost of sales		156,463		90,793		12,919		(1,084)		259,091
Gross profit	$	14,405	$	2,736	$	4,934	$	—	$	22,075

Six months ended April 30, 2021
Net sales	$	277,145	$	186,595	$	37,194	$	(3,535)	$	497,399
Cost of sales		248,992		184,329		27,174		(3,535)		456,960
Gross profit	$	28,153	$	2,266	$	10,020	$	—	$	40,439

Six months ended April 30, 2020
Net sales	$	304,058	$	214,463	$	38,337	$	(2,342)	$	554,516
Cost of sales		283,071		208,853		27,051		(2,342)		516,633
Gross profit	$	20,987	$	5,610	$	11,286	$	—	$	37,883

For the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, intercompany sales and cost of sales of ~~$0.2~~$0.7 million and ~~$0.4~~$0.2 million between Fresh products and RFG were eliminated. For the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, intercompany sales and cost of sales of ~~$0.7~~$1.2 million and ~~$0.9~~$0.7 million between Fresh products and RFG were eliminated. For the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, intercompany sales and cost of sales of ~~$0.8~~$1.2 million and ~~$0.7~~$0.8 million between Calavo Foods and RFG were eliminated. For the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, intercompany sales and cost of sales of ~~$1.6~~$2.3 million and ~~$1.7~~$1.6 million between Calavo Foods and RFG were eliminated.

Table of Contents

Sales to customers outside the U.S. were approximately ~~$5.8~~$8.8 million, and ~~$10.1~~$5.8 million for the three months ended April 30, ~~2020~~2021 and ~~2019.~~2020. Sales to customers outside the U.S. were approximately ~~$15.4~~$16.9 million, and ~~$19.2~~$15.4 million for the six months ended April 30, ~~2020~~2021 and ~~2019.~~2020.

Our foreign 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 (U.S. dollar). As a result, monetary assets and liabilities are translated into U.S. dollars at exchange rates as of the balance sheet date and non-monetary assets, liabilities and equity are translated at historical rates. Sales and expenses are translated using a weighted-average exchange rate for the period. Gains and losses resulting from those remeasurements and foreign currency transactions are recognized within cost of sales. ~~Due to the extraordinary foreign exchange market volatility of the Mexican peso caused primarily by the COVID-19 pandemic, we~~We recognized ~~significant~~ foreign currency remeasurement losses in the current quarter. These losses were due primarily to certain ~~significant~~ long-term net peso ~~receivables for which hedging is not economically feasible.~~receivables. The Mexican peso ~~weakened significantly~~strengthened compared to the U.S. dollar from ~~18.91~~20.22 (MX peso to U.S. dollar) at January 31, ~~2020~~2021 to ~~23.93~~20.18 (MX peso to U.S. dollar) at April 30, ~~2020.~~2021. Foreign currency remeasurement losses, net of gains, for the three months ended April 30, 2021 and 2020 ~~and 2019 were $3.4~~was $0.5 million and ~~$0.2~~$3.4 million. ~~For~~Foreign currency remeasurement gains, net of losses, for the six months ended April 30, 2021 was $0.6 million. Foreign currency remeasurement losses, net of gains, for the six months ended April 30, 2020 ~~foreign currency remeasurement losses, net of gains were~~was $3.3 million. ~~For the six months ended April 30, 2019, foreign currency remeasurement gains, net of losses was insignificant.~~

~~Table of Contents~~

Long-lived assets attributed to geographic areas as of April 30, ~~2020~~2021 and October 31, ~~2019,~~2020, are as follows (in thousands):


	United States		Mexico		Consolidated		United States		Mexico		Consolidated
April 30, 2020	$	100,247	$	31,167	$	131,414
October 31, 2019	$	98,224	$	33,874	$	132,098
April 30, 2021							$	92,668	$	38,119	$	130,787
October 31, 2020							$	95,110	$	35,160	$	130,270

3.	Inventories

Inventories consist of the following (in thousands):


	April 30,		October 31,		April 30,		October 31,
	2020		2019		2021		2020

Fresh fruit	$	19,419	$	15,874	$	27,169	$	14,677
Packing supplies and ingredients		11,366		11,370		14,315		12,540
Finished prepared foods		16,123		9,645		11,851		14,570
	$	46,908	$	36,889	$	53,335	$	41,787

Inventories are stated at the lower of cost or net realizable value. We periodically review the value of items in inventory and record any necessary write downs of inventory based on our assessment of market conditions. Inventory includes reserves of ~~$0.3~~$0.2 million in slow moving and obsolete packing supply inventory as of April 30, ~~2020~~2021 and October 31, ~~2019.~~2020. NaN additional inventory reserve was considered necessary as of April 30, ~~2020~~2021 and October 31, ~~2019.~~2020.

4.	Related party transactions

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 into with other growers. For the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was ~~$5.9~~$5.0 million and ~~$2.1~~$5.9 million. For the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was ~~$6.1~~$5.0 million and ~~$2.1~~$6.1 million. Amounts payable to these Board members were ~~$2.1~~$3.3 million as of April 30, ~~2020.~~2021. We did ~~not~~0t have any amounts payable to these Board members as of October 31, ~~2019.~~2020.

During the three ~~and six~~ months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we received $0.1 million as dividend income from Limoneira Company (Limoneira). During the six months ended April 30, 2021 and 2020, we received $0.2 million and $0.1 million as dividend income from Limoneira. In addition, we lease office space from Limoneira for our corporate

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office. We paid rent expense to Limoneira totaling $0.1 million for the three months ended April 30, ~~2020~~2021 and ~~2019.~~2020. We paid rent expense to Limoneira totaling $0.2 million for the six months ended April 30, ~~2020~~2021 and ~~2019.~~2020. Harold Edwards, who is a member of our Board of Directors, is the Chief Executive Officer of Limoneira Company. As of April 30, ~~2020,~~2021, we own ~~less than 10%~~approximately 9% of Limoneira’s outstanding shares.

We currently have a board member ~~of our Board of Directors~~ who ~~also serves~~served as a partner in the law firm of TroyGould PC, which ~~frequently represents~~has represented Calavo as legal ~~counsel.~~counsel on certain matters, until his retirement in December 2020. During the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, Calavo Growers, Inc. paid fees totaling $0.1 million to TroyGould PC. During the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, Calavo Growers, Inc. paid fees totaling $0.2 million to TroyGould PC.

~~As of April 30, 2020,~~Calavo and ~~October 31, 2019, we had~~Agricola Belher (“Belher”) have an ~~investment of $5.2 million and $4.9 million, representing Calavo Sub’s 50%~~equal one-half ownership interest in Agricola Don Memo, S.A. de C.V. (“Don Memo”),. Pursuant to a management service agreement, Belher, through its officers and employees, has day-to-day power and authority to manage the operations.

As of April 30, 2021, and October 31, 2020, we had an investment of $4.8 million and $6.0 million, representing Calavo’s 50% ownership in Don Memo, which was 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 April 30, ~~2020~~2021 and October 31, ~~2019,~~2020, we had outstanding advances of ~~$3.3~~$4.2 million and ~~$3.7~~$2.4 million to Don Memo. In October 2020, we entered into an infrastructure loan agreement with Don Memo for $2.4 million secured by certain property and equipment of Don Memo. This infrastructure loan will incur interest at 7.25%. In October 2020, we funded $0.7 million related to this loan agreement, and we funded an additional $0.7 million and $0.6 million in the first and second quarters of fiscal 2021. This infrastructure loan agreement will mature in fiscal 2024. During the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we recorded ~~$0.6~~$0.4 million and ~~$0.2 million of cost of sales to Don Memo pursuant to our~~

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~~consignment agreement. During the six months ended April 30, 2020 and 2019, we recorded $4.6 million and $5.9~~$0.6 million of cost of sales to Don Memo pursuant to our consignment agreement. During the six months ended April 30, 2021 and 2020, we recorded $3.9 million and $4.6 million of cost of sales to Don Memo pursuant to our consignment agreement.

We make advances to ~~Agricola~~ Belher ~~(“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 totaling $4.5 million as of April 30, ~~2020~~2021 and October 31, ~~2019,~~2020, which are netted against the grower payable. In addition, we had infrastructure advances due from Belher of ~~$2.6~~$1.8 million as of April 30, ~~2020~~2021 and October 31, ~~2019. $0.8~~2020. The remaining principal balance is due in $0.9 million ofinstallments on July 2021 and July 2022. Of these infrastructure advances ~~were~~$0.9 million and $0.6 million was recorded as a receivable in prepaid and other current ~~assets.~~assets as of April 30, 2021 and October 31, 2020. The remaining ~~$1.8~~$0.9 million of these infrastructure advances were recorded in other assets. During the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we recorded ~~$15.7~~$11.2 million and ~~$12.4~~$15.7 million of cost of sales to Belher pursuant to our consignment agreement. During the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we recorded ~~$19.6~~$14.5 million and ~~$17.6~~$19.6 million of cost of sales to Belher pursuant to our consignment agreement.

In August 2015, we entered into a Shareholder’s Agreement with various Mexican partners and created Avocados de Jalisco, S.A.P.I. de C.V. (“Avocados de Jalisco”). Avocados de Jalisco is a Mexican corporation created to engage in procuring, packing and selling avocados. As of April 30, ~~2020,~~2021, this entity was approximately 83% owned by Calavo and was consolidated in our financial statements. Avocados de Jalisco built a packinghouse located in Jalisco, Mexico, which began operations in June of 2017. During the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we purchased approximately ~~$1.5~~$1.0 million and ~~$1.0~~$1.5 million of avocados from the partners of Avocados de Jalisco. During the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we purchased approximately ~~$1.9~~$3.2 million and ~~$2.0~~$1.9 million of avocados from the partners of Avocados de Jalisco.

AsFreshRealm is a start-up company, engaged in activities relating to the marketing of ~~April 30, 2020,~~food products directly to consumers or other entities. On February 3, 2021, Calavo and ~~October 31, 2019, we have an equity investment of $4.6 million~~FreshRealm entered into a Limited Liability Company Member Separation and ~~$5.8 million in FreshRealm, LLC (“FreshRealm”)~~Release Agreement (the Separation Agreement). We record the amount of our investment in FreshRealm in “Investment in unconsolidated entities” on our Consolidated Condensed Balance Sheets and recognize losses in FreshRealm in “Income/ (loss) from unconsolidated entities” in our Consolidated Condensed Statement of Income. See Note 12 for ~~additional~~more information. ~~As of April 30, 2020, our ownership percentage~~Prior to the Separation Agreement, we had an equity investment in FreshRealm ~~was~~representing approximately 3737%%.

Effective July 31, 2018, we entered into a Note and Membership Unit Purchase Agreement (“NMUPA”) with FreshRealm, pursuant to which we agreed to provide additional financing to FreshRealm, subject to certain terms and conditions. Pursuant to the NMUPA, we entered into a $12 million Senior Promissory Note and corresponding Security Agreement with FreshRealm, effective August 10, 2018. ownership of FreshRealm. We ~~funded $9 million~~recorded an impairment of 100% of this loan commitment during the fourth quarter of fiscal 2018 and funded the remaining loan commitment amount of $3 million during the first quarter of fiscal 2019. During the second quarter of fiscal 2019, we amended the note related to this loan, due October 31, 2019, and, among other things, included a provision whereby we have the option to extend repayment of this note to November 1, 2020.equity investment, or

~~During our first quarter of fiscal 2019, we loaned FreshRealm $7.5~~$2.8 million, in ~~unsecured notes receivable. During our second quarter of fiscal 2019, we loaned an additional $4.2 million on an unsecured basis to FreshRealm under similar terms. During our~~the third quarter of fiscal 2019, we loaned an additional $5.4 million on an unsecured basis to FreshRealm under similar terms. During our fourth quarter of fiscal 2019, we loaned an additional $3.7 million to FreshRealm. At such time, we entered into an agreement with FreshRealm wherein all of the outstanding loan amount owed by FreshRealm to us would be secured by substantially all of the assets of FreshRealm.

As of November 25, 2019, we modified approximately $2.7 million of the outstanding secured loan to FreshRealm and applied it to unsecured debt as part of a convertible note round offered by FreshRealm to its existing equity holders. Such convertible note bears interest at the rate of 10% up to the time of conversion. Such $2.7 million unsecured note, along with the related accrued interest amount, was converted into additional equity of FreshRealm as of February 3, 2020. As a result of the convertible note round offered by FreshRealm our ownership percentage in FreshRealm (upon conversion on February 3, 2020) decreased to approximately 37%.

On April 1, 2020, we entered into another Unit Purchase and Subscription Agreement with FreshRealm, where FreshRealm raised $4.0 million of additional equity from existing members. As part of that round, we invested $0.5

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2020. We had a note receivable and trade receivables of approximately $34.5million ~~in cash and additionally converted~~at October 31, 2020 (which includes accrued interest) from FreshRealm. We recorded a reserve of $34.5 million during fiscal 2020 for which the ~~$1.0 million short-term advanced in February 2020 into equity. Our ownership percentage in FreshRealm remained unchanged at 37%.~~

Asreceivables continue to be fully reserved as of April 30, ~~2020, and October 31, 2019, we have $34.0 million and $35.2 million in note receivables (including interest) from FreshRealm.~~

~~On April 1, 2020, in connection with the $4.0 million capital raise previously mentioned, we entered into the 10~~^th ~~amendment to the FreshRealm promissory note which adjusted the interest rate on the notes receivable from 10% to 3~~% effective April 1, 2020. This interest rate reduction was meant to serve as inducement for other investors to participate in FreshRealm’s on-going capital raise and was contingent on FreshRealm completing that equity round. They successfully raised the full $4 million equity round by the May 15, 2020 deadline. The entire principal balance of these notes shall be due and payable in full on April 1, 2022. If FreshRealm fails to make monthly interest payments beginning October 31, 2020, then the maturity date shall be reverted to November 1, 2020. Calavo has the option for up to 2 additional and separate one-year extensions of April 1, 2023 and April 1, 2024. At April 30, 2020 and October 31, 2019 we have a receivable of $3.9 million and $2.4 million related to accrued interest that we have recorded with note receivables from FreshRealm on the balance sheet.2021.

NaN ~~officers~~officer and 5 members of our board of directors have investments in FreshRealm as of April 30, ~~2020. In addition, as of April 30, 2020~~2021 and October 31, ~~2019, we have a loan~~2020. Prior to ~~FreshRealm~~the Separation Agreement, three members of ~~approximately $0.2 million. In October and December 2017,~~ our former Chairman and Chief Executive Officer invested $7.0 million and $1.5 million into FreshRealm. In January 2018, 1 of our non-executive directors invested $1.8 million into FreshRealm. In the second quarter of fiscal 2018, 2 of our non-executive directors invested $1.2 million into FreshRealm. In October 2019, our former Chairman and Chief Executive Officer invested $0.5 million in FreshRealm. In October 2019, 1 of our non-executive directors invested $0.2 million into FreshRealm. In April 2020, our former Chairman and Chief Executive Officer invested $0.4 million in FreshRealm, and 2 other members of the board of directors ~~invested an additional $0.1 million.~~

~~In the first quarter~~served as board members of fiscal 2019, FreshRealm entered into a supply contract with a large multi-national, multi-channel retailer. Calavo co-signed an addendum to this agreement to provide assurance to the customer that Calavo will assume responsibility for performance, in the event that FreshRealm cannot perform, provided that the customer must work in good faith to make reasonable adjustments to logistical elements in the contract, if requested by Calavo.FreshRealm.

We provide storage services to FreshRealm from select Value-Added Depots and RFG facilities. We have recorded and received ~~$0.1~~$0.2 million and $0.1 million in storage services revenue from FreshRealm in the three months ended April 30, ~~2020~~2021 and ~~2019.~~2020. We have recorded and received $0.3 million and ~~$0.2~~$0.3 million in storage services revenue from FreshRealm in the six months ended April 30, ~~2020~~2021 and ~~2019.~~2020. For the three months ended April 30, 2020, ~~and 2019,~~ RFG has sold less than $0.1 ~~million and $0.3~~ million of products to FreshRealm. For the six months ended April 30, 2020, ~~and 2019,~~ RFG has sold $0.3 ~~million and $1.9~~ million of products to FreshRealm.

The previous owners of RFG, one of which is currently the CEO of Calavo, have a majority ownership of certain entities that historically provided various services to RFG, specifically LIG Partners, LLC and THNC, LLC who leased property to certain RFG operating entities. In the first quarter of fiscal 2020, these facilities were sold to an unaffiliated third party and our lease has transferred to those new owners. See the following tables for the related party activity for fiscal years 2020 and 2019:

Three months ended April 30,

(in thousands)

2020

2019

Rent paid to LIG

$
80

$
122

Rent paid to THNC, LLC

$
132

$
198

Six months ended April 30,

(in thousands)

2020

2019

Rent paid to LIG

$
80

$
261

Rent paid to THNC, LLC

$
132

$
397

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5.	Other assets

Other assets consist of the following (in thousands):


	April 30,		October 31,		April 30,		October 31,
	2020		2019		2021		2020
Mexican IVA (i.e. value-added) taxes receivable (see note 11)	$	24,720	$	27,592	$	34,971	$	30,126
Infrastructure advance to Agricola Belher		1,800		1,800
Intangibles, net (see note 15)		11,090		435
Infrastructure advances to Agricola Belher and Agricola Don Memo						2,541		1,215
Other		1,620		1,514		1,506		1,217
	$	39,230	$	31,341	$	39,018	$	32,558

Intangible assets consist of the following (in thousands):


		April 30, 2020						October 31, 2019							April 30, 2021						October 31, 2020
	Weighted-	Gross				Net		Gross				Net		Weighted-	Gross				Net		Gross				Net
	Average	Carrying		Accum.		Book		Carrying		Accum.		Book		Average	Carrying		Accum.		Book		Carrying		Accum.		Book
	Useful Life	Value		Amortization		Value		Value		Amortization		Value		Useful Life	Value		Amortization		Value		Value		Amortization		Value
Customer list/relationships	7 years	$	17,340	$	(7,929)	$	9,411	$	7,640	$	(7,640)	$	—	7 years	$	17,340	$	(9,315)	$	8,025	$	17,340	$	(8,613)	$	8,727
Trade names	10 years		4,060		(2,784)		1,276		2,760		(2,760)		—	11 years		4,060		(2,913)		1,147		4,060		(2,852)		1,208
Trade secrets/recipes	9.3 years		630		(502)		128		630		(470)		160	9 years		630		(541)		89		630		(517)		113
Brand name intangibles	indefinite		275		—		275		275		—		275	indefinite		275		—		275		275		—		275
Intangibles, net		$	22,305	$	(11,215)	$	11,090	$	11,305	$	(10,870)	$	435		$	22,305	$	(12,769)	$	9,536	$	22,305	$	(11,982)	$	10,323

We anticipate recording amortization expense of $0.8 million for the remainder of fiscal ~~2020, $1.6 million for fiscal year~~ 2021, $1.6 million for fiscal year 2022, $1.5 million for fiscal year 2023, $1.5 million for fiscal year 2024, and ~~$5.4~~$3.9 million thereafter.

On February 14, 2020, we completed the acquisition of SFFI. As part of this acquisition, $9.7 million has been assigned to customer relationships with a life of 7 years and $1.3 million has been assigned to trade names with a life of 10 years. Amortization recorded in fiscal 2020 related to this acquisition was $0.3 million.

~~See Note 11 for additional information related to Mexican IVA taxes receivable.~~

6.	Stock-Based Compensation

In April 2011, our shareholders approved the Calavo Growers, Inc. 2011 Management Incentive Plan (the “2011 Plan”). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2011 Plan. UpShares were issuable under the 2011 Plan through December 2020. On April 21, 2021, the shareholders of Calavo approved the Calavo Growers, Inc. 2020 equity incentive plan. This is a ten-year plan, with up to 1,500,000 shares ~~of common stock may be issued by Calavo under the 2011 Plan.~~a issuable through December 2031.

OnIn April ~~22, 2020, 3~~2021, the Board of Directors approved the vesting of all of the remaining restricted shares outstanding to our former ~~officers were granted a total 18,324 unrestricted shares, as part of their past services. The closing price of our stock on such date was $61.09. These shares were granted pursuant to our 2011 Plan. The total~~Chief Executive Officer and Board member. With this vesting, we recognized stock-based compensation ~~expense for these grants was $1.1~~of $0.7 million for the three and six months ended April 30, ~~2020.~~2021.

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On ~~January~~November 2, 2020, ~~all 12~~11 of our non-employee directors were each granted 1,500 restricted shares, as part of their annual compensation ~~each~~ (total of ~~18,000~~16,500 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was ~~$87.21~~$67.97. On January 2, ~~2021,~~2022, as long as the directors are still serving on the board, these shares lose their restriction and become non-forfeitable and transferable. These shares were granted pursuant to our 2011 Plan. The total recognized stock-based compensation expense for these grants was ~~$0.4~~$0.3 million for the three months ended April 30, ~~2020.~~2021. The total recognized stock-based compensation expense for these grants was ~~$0.5~~$0.4 million for the six months ended April 30, ~~2020.~~2021.

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On ~~December 18, 2019,~~November 2, 2020, our executive officers were granted a total of ~~31,158~~9,334 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was ~~$87.63~~$67.97. These shares vest in one~~-third~~-half increments, on an annual basis, beginning ~~December 18, 2020.~~November 2, 2021. These shares were granted pursuant to our 2011 Plan. The total recognized stock-based compensation expense for these grants was ~~$0.2~~$0.1 million for the three months ended April 30, ~~2020.~~2021. The total recognized stock-based compensation expense for these grants was ~~$0.3~~$0.2 million for the six months ended April 30, ~~2020.~~2021.

On November 2, 2020, key employees were granted a total of 2,600 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $67.97. These shares vest in one-third increments, on an annual basis, beginning November 2, 2021. These shares were granted pursuant to our 2011 Plan. The total recognized stock-based compensation expense for these grants were insignificant for the three months ended April 30, 2021. The total recognized stock-based compensation expense for these grants were insignificant for the six months ended April 30, 2021.

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

Weighted-Average

Aggregate


Number of Shares

Grant Price

Intrinsic Value

Outstanding at October 31, 2019

69

$
71.74

Vested

(51)

$
70.48

Forfeited

(14)

$
84.54

Granted

49

$
87.48

Outstanding at April 30, 2020

53

$
86.02

$
3,086


		Weighted-Average		Aggregate
	Number of Shares	Grant Price		Intrinsic Value
Outstanding at October 31, 2020	76	$	80.45
Vested	(45)	$	83.27
Granted	23	$	67.97
Outstanding at April 30, 2021	54	$	72.29	$	4,257

The total recognized stock-based compensation expense for restricted stock was ~~$1.8~~$1.4 million and ~~$0.9~~$1.8 million for the three months ended April 30, ~~2020~~2021 and ~~2019.~~2020. The total recognized stock-based compensation expense for restricted stock was ~~$2.7~~$2.3 million and ~~$1.8~~$2.7 million for the six months ended April 30, ~~2020~~2021 and ~~2019.~~2020. Total unrecognized stock-based compensation expense totaled ~~$3.4~~$3.5 million as of April 30, ~~2020~~2021 and will be amortized through fiscal year 2023.

Stock options are granted with exercise prices of not less than the fair market value at grant date, generally vest over one to five years and generally expire two to five years after the ~~grant~~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.

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

Weighted-Average

Aggregate

Number of Shares

Exercise Price

Intrinsic Value

Outstanding at October 31, 2019

2

$
19.20

Exercised

(2)

$
19.20

Outstanding at April 30, 2020

—

$
—

$
—

Exercisable at April 30, 2020

—

$
—

$
—

The total recognized and unrecognized stock-based compensation expense was insignificant for the three and six months ended April 30, 2020. The total recognized and unrecognized stock-based compensation expense was insignificant for the three and six months ended April 30, 2020.Table of Contents

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

Weighted-Average

Aggregate

Exercise

Intrinsic

Number of Shares

Price

Value

Outstanding at October 31, 2019

18

$
41.91

Exercised

(2)

$
23.48

Outstanding at April 30, 2020

16

$
44.21

$
215

Exercisable at April 30, 2020

12

$
45.59

$
145


		Weighted-Average		Aggregate
		Exercise		Intrinsic
	Number of Shares	Price		Value
Outstanding at October 31, 2020	16	$	44.21
Exercised	(2)	$	23.48
Outstanding at April 30, 2021	14	$	47.17	$	433
Exercisable at April 30, 2021	12	$	45.59	$	390

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At April 30, ~~2020,~~2021, outstanding and exercisable stock options had a weighted-average remaining contractual term of ~~3.6 years and 2.6~~3.0 years. The total recognized and unrecognized stock-based compensation expense was insignificant for the three and six months ended April 30, ~~2020~~2021 and ~~2019.~~2020.

7.	Other events

Dividend payment

On December ~~6, 2019,~~4, 2020, we paid a ~~$1.10~~$1.15 per share dividend in the aggregate amount of ~~$19.4~~$20.3 million to shareholders of record on November ~~15, 2019.~~13, 2020.

Litigation

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

Mexico tax audits

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. During our third quarter of fiscal 2016, our ~~wholly owned~~wholly-owned subsidiary, Calavo de Mexico (CDM), received a written communication from the Ministry of Finance and Administration of the government of the State of Michoacan, Mexico (MFM) containing preliminary observations related to a fiscal 2011 tax audit of such subsidiary. MFM’s preliminary observations outline certain proposed adjustments primarily related to intercompany funding, deductions for services from certain vendors/suppliers and Value Added Tax (IVA). During the period from our fourth fiscal quarter of 2016 through our first fiscal quarter of 2019, we attempted to resolve our case with the MFM through working meetings attended by representatives of the MFM, CDM and PRODECON (Local Tax Ombudsman). However, we were unable to materially resolve our case with the MFM through the PRODECON process.

As a result, in April 2019, the MFM issued a final tax assessment to CDM (the “2011 Assessment”) totaling approximately $2.2 billion Mexican pesos (approx. ~~$91.9~~$109.0 million USD at April 30, ~~2020)~~2021) related to Income Tax, Flat Rate Business Tax and Value Added Tax, corresponding to the fiscal year 2011 tax audit. We have consulted with an internationally recognized tax advisor and continue to believe this tax assessment is without merit. Therefore, we filed an administrative appeal challenging the MFM’s 2011 ~~assessment~~Assessment on June 12, 2019. The filing of an administrative appeal in Mexico is a process in which the taxpayer appeals to a different office within the Mexican tax authorities, forcing the legal office within the MFM to rule on the matter. This process preserves the taxpayer’s right to litigate in tax court if the administrative appeal process ends without a favorable or just resolution. Furthermore, in August 2018, we received a favorable ruling from Mexico’s Federal Tax Administration Service, Servicio de Administracion Tributaria’s (the “SAT”) central legal department in Mexico City on another tax matter (see footnote 11 regarding IVA refunds) indicating that they believe that our legal interpretation is accurate on a matter that is also central to the 2011 Assessment. We believe this recent ruling undermines the Assessment we received in April 2019. ~~We believe we have~~

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In February 2021, the legal division of the MFM issued a resolution in which the 2011 Assessment was declared void. As a result, the legal division ordered the MFM to issue a new tax assessment, taking into consideration arguments ~~and documentation to sustain the positions challenged~~made by the ~~MFM.~~Company in its filing of the administrative appeal. Such new tax assessment is pending.

Additionally, we also received notice from the SAT, that CDM is currently under examination related to fiscal year 2013. In January 2017, we received preliminary observations from SAT outlining certain proposed adjustments primarily related to intercompany funding, deductions for services from certain vendors/suppliers and ~~VAT.~~IVA. We provided a written rebuttal to these preliminary observations during our second fiscal quarter of 2017. During the period from our third fiscal quarter of 2017 through our third fiscal quarter of 2018, we attempted to resolve our case with the SAT through working meetings attended by representatives of the SAT, CDM and the PRODECON. However, we were unable to materially resolve our case with the SAT through the PRODECON process.

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to Income Tax, Flat Rate Business Tax, and Value Added Tax, related to this fiscal 2013 tax audit. Additionally, the tax authorities have determined that we owe anour employee’s profit-sharing liability, totaling approximately $118 million Mexican pesos (approx. ~~$4.9~~$5.8 million USD at April 30, ~~2020)~~2021).

We have consulted with both an internationally recognized tax advisor as well as a global law firm with offices throughout Mexico, and we continue to believe that this tax assessment is without merit. In August 2018, we filed an administrative appeal on the 2013 Assessment. CDM has appealed our case to the SAT’s central legal department in Mexico City. Furthermore, and as noted in the preceding paragraphs, in August 2018, we received a favorable ruling from the SAT’s central legal department in Mexico City on another tax matter (see footnote 11 regarding IVA refunds) indicating that they believe that our legal interpretation is accurate on a matter that is also central to the 2013 Assessment. We believe this recent ruling significantly undermines the 2013 Assessment we received in July 2018. ~~We believe we have~~

In light of the ~~legal arguments and documentation to sustain~~foregoing, the ~~positions challenged~~Company is currently considering its options for resolution of the two tax assessments:

In the unlikely event of an unfavorable resolution of the administrative appeal, we could file a nullification suit with the Mexican Tax Court. In order to file such suit, we would be required to post collateral or a bond for the total amount of the tax assessment (including inflation adjustments, penalties and surcharges) while the suit is in process, which could last from two to three years. If the suit results in an unfavorable ruling, there is an option to appeal to the Collegiate Circuit Court while maintaining the collateral or bond in place.

In the event of filing a nullification suit, the collateral or bonding requirement may be avoided by filing a nullification suit on substantive matters (“Juicio de Fondo”). This type of suit permits only arguments on the legal merits of the taxpayer’s case, and limits arguments on procedural matters.

The estimated time for resolution of this matter could be affected by the ~~SAT.~~

situation related to the COVID-19 pandemic.

We continue to believe that the ultimate resolution of these matters is unlikely to have a material effect on our consolidated financial ~~position, results of operations and cash flows.~~position.

8.	Fair value measurements

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

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The following table sets forth our financial assets and liabilities as of April 30, ~~2020~~2021 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

	(All amounts are presented in thousands)								(All amounts are presented in thousands)
Assets at Fair Value:
Assets at Fair Value at April 30, 2021:
Investment in Limoneira Company⁽¹⁾	$	22,392		-		-	$	22,392	$	30,292		-		-	$	30,292
Total assets at fair value	$	22,392		-		-	$	22,392	$	30,292		-		-	$	30,292

Assets at Fair Value at October 31, 2020:
Investment in Limoneira Company⁽¹⁾									$	23,197		-		-	$	23,197
Total assets at fair value									$	23,197		-		-	$	23,197

(1) The investment in Limoneira Company consists of marketable securities in the Limoneira Company common stock. We currently own ~~less than~~approximately ~~10%~~9% of Limoneira’s outstanding common stock. These securities are measured at fair value using quoted market prices. For the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we recognized gains of $3.5 million and losses of ~~$10.3 million and gains of $1.4~~$10.3 million on the consolidated condensed statement of ~~income.~~operations. For the six months ended April 30, ~~2020~~2021 and ~~2019,~~2020, we recognized gains of $7.1 million and losses of ~~$9.3 million and $3.1~~$9.3 million on the consolidated condensed statement of ~~income.~~operations.

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9.	Noncontrolling interest

The following table reconciles shareholders’ equity attributable to noncontrolling interest related to Avocados de Jalisco (in thousands).


	Three months ended April 30,				Three months ended April 30,
Avocados de Jalisco noncontrolling interest	2020		2019		2021		2020

Noncontrolling interest, beginning	$	1,625	$	1,742	$	1,432	$	1,625
Net loss attributable to noncontrolling interest of Avocados de Jalisco		(129)		(67)		(47)		(129)
Noncontrolling interest, ending	$	1,496	$	1,675	$	1,385	$	1,496



	Six months ended April 30,				Six months ended April 30,
Avocados de Jalisco noncontrolling interest	2020		2019		2021		2020

Noncontrolling interest, beginning	$	1,688	$	1,748	$	1,472	$	1,688
Net income attributable to noncontrolling interest of Avocados de Jalisco		(192)		(73)
Net loss attributable to noncontrolling interest of Avocados de Jalisco						(87)		(192)
Noncontrolling interest, ending	$	1,496	$	1,675	$	1,385	$	1,496

10.

Earnings per share

Basic and diluted net income per share is calculated as follows (data in thousands, except per share data):


		Three months ended April 30,			Six months ended April 30,					Three months ended April 30,
	2020		2019		2020		2019		2021		2020
Numerator:
Net income (loss) attributable to Calavo Growers, Inc.	$	(3,278)	$	16,345	$	(4,216)	$	20,832	$	8,841	$	(3,278)
Denominator:
Weighted average shares – Basic		17,550		17,530		17,543		17,514		17,619		17,550
Effect of dilutive securities – Restricted stock/options		—		79		—		68		60		—
Weighted average shares – Diluted		17,550		17,609		17,543		17,582		17,679		17,550
Net income (loss) per share attributable to Calavo Growers, Inc:
Basic	$	(0.19)	$	0.93	$	(0.24)	$	1.19	$	0.50	$	(0.19)
Diluted	$	(0.19)	$	0.93	$	(0.24)	$	1.18	$	0.50	$	(0.19)

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	Six months ended April 30,
	2021		2020
Numerator:
Net Income (loss) attributable to Calavo Growers, Inc.	$	14,118	$	(4,216)
Denominator:
Weighted average shares - Basic		17,609		17,543
Effect on dilutive securities – Restricted stock/options		59		—
Weighted average shares - Diluted		17,668		17,543
Net income (loss) per share attributable to Calavo Growers, Inc:
Basic	$	0.80	$	(0.24)
Diluted	$	0.80	$	(0.24)

11.

Mexican IVA taxes receivable

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 April 30, ~~2020,~~2021, and October 31, ~~2019,~~2020, CDM IVA receivables totaled ~~$24.7~~$35.0 million ~~(591.5~~(705.8 million Mexican pesos) and ~~$27.6~~$30.2 million ~~(529.6~~(640.7 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 ~~2020,~~2021, 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 through regular administrative processes, but certain amounts may ultimately need to be recovered via legal means and/or administrative appeals.

During the first quarter of fiscal 2017, 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

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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 central legal department in Mexico City 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.

In spite of the favorable ruling from the SAT’s central legal department in Mexico City, as discussed above, the local SAT office continues to believe that CDM is not properly documented relative to its declared tax structure. As a result, they believe CDM cannot claim certain refundable IVA balances, specifically regarding our IVA refunds related to January through December of 2013, 2014, and 2015, and January 2017. CDM has strong arguments and supporting documentation to sustain its declared tax structure for IVA and income tax purposes. With assistance offrom our internationally recognized tax advisory firm, as of April 30, ~~2020,~~2021, CDM has filed (or has plans to file) administrative appeals for the IVA related to the preceding months. A response to these administrative appeals is currently pending resolution.

In light of the foregoing, the Company is currently considering its options for resolution of the VAT receivables. In the unlikely event of an unfavorable resolution of the administrative appeals, we plan to file nullification suits with the

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Mexican Tax Court. If the suits result in an unfavorable ruling, there is an option to appeal to the Collegiate Circuit Court. The estimated time for the resolution of these suits could be 2 – 3 years. This estimated time could be impacted by the situation of the COVID-19 pandemic.

We believe that our operations in Mexico are properly documented. Furthermore, our internationally recognized tax advisors believe that there are legal grounds to prevail in the Federal Tax Court and that therefore, the Mexican tax authorities will ultimately authorize the refund of the corresponding IVA amounts.

12. FreshRealm Separation

~~A VIE refers to~~On February 3, 2021, Calavo and FreshRealm entered into a legal business structure in which an investor has a controlling interest, despite not having a majority of voting rights; or a structure involving equity investors that do not have sufficient resources to support the ongoing operating needs of the business. Due primarily to FreshRealm utilizing substantially more debt to finance its activities, in addition to its existing equity, we continue to believe that FreshRealm should be considered a VIE. In evaluating whether we are the primary beneficiary of FreshRealm, we considered several factors, including whether we (a) have the power to direct the activities that most significantly impact FreshRealm’s economic performanceLimited Liability Company Member Separation and (b) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. We were not the primary beneficiary of FreshRealm at April 30, 2020 because the nature of our involvement with the activities of FreshRealm does not give us the power to direct the activities that most significantly impact its economic performance. We do not have a future obligation to fund losses or debts on behalf of FreshRealm. We may, however, voluntarily contribute funds. ~~In the accompanying statements of income, we have presented the income (loss) from unconsolidated entities, subsequent to the provision for income taxes for all periods presented.~~ Release Agreement (the “Separation Agreement”) described below.

~~We record the amount of our investment~~Calavo was previously a limited liability company member in FreshRealm ~~totaling $4.6 million at April 30, 2020, in “Investment in unconsolidated entities” on our Consolidated Condensed Balance Sheets~~ and ~~recognize losses in FreshRealm in “Income/(loss) from unconsolidated entities” on our Consolidated Condensed Statement of Income.~~

For the three months ended April 30, 2020 and 2019, FreshRealm incurred losses totaling $5.1 million and $7.4 million. For the six months ended April 30, 2020 and 2019, FreshRealm incurred losses totaling $14.4 million and $18.7 million. Effective December 16, 2018, FreshRealm completedwas a ~~“check the box” tax election to change their entity classification for tax purposes~~party to that ~~of a corporation. To effect this change,~~certain FreshRealm, ~~among other things, amended its operating agreement to eliminate the appropriate language related to the flow-through tax consequences of its prior tax status (Seventh~~LLC Seventh Amended and Restated ~~LLC Agreement)~~Limited Liability Company Agreement, dated as of February 27, 2019, by and ~~checked~~among FreshRealm and its members. Calavo and FreshRealm were also parties to that certain Sixth Amended and Restated Senior Promissory Note, effective August 10, 2018, as amended (the “Prior Note”), pursuant to which Calavo loaned to FreshRealm principal plus accrued interest in the ~~appropriate box on Form 8832 which it then filed with the Internal Revenue Service (IRS). As a result, losses incurred by FreshRealm from November 1, 2018 to December 15, 2018 were recorded~~total sum of $34.5 million. This note was fully reserved in accordance with FASB Accounting Standards Codification (“ASC”) 810, ASC 323, and ASC 970, which mandate that the recognition of losses for an unconsolidated subsidiary be handled in a manner consistent with cash distributions upon liquidation of the entity when such distributions are different than the investors percentage ownership. As such, we recorded 100% of FreshRealm’s losses from November 1, 2018 through December 15, 2018 totaling $4.2 million. Losses incurred by FreshRealm from December 16, 2018 to January 31, 2019 (after the

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~~change in tax status was effective) were recorded to reflect our proportionate share of FreshRealm losses which totaled $2.7 million. As a result, we realized total losses of $6.9 million in our first~~ fiscal quarter of 2019. During our first fiscal quarter of 2020, we recorded losses of approximately $3.5 million, reflecting our proportionate share of FreshRealm losses. During our three and six months ended April 30, 2020, we recorded losses of approximately $1.9 million and $5.4 million, reflecting our proportionate share of FreshRealm losses. As a result of FreshRealm’s recent change in tax status (described above), future operating results for FreshRealm will be allocated to its owners based on ownership percentage.2020.

AsPursuant to the Separation Agreement, among other terms: (i) Calavo terminated its limited liability company interest and equity ownership in FreshRealm; (ii) Calavo and FreshRealm simultaneously entered into an Amended and Restated Senior Secured Loan Agreement and Promissory Note (the “Amended Note”), which amended and restated the Prior Note; (iii) FreshRealm issued an additional Secured Promissory Note to Calavo in the amount of ~~April 30, 2020,~~approximately $5 million that is subordinated to the Amended Note (the “Second Note”, together with the Amended Note, the “Notes”); (iv) in the event FreshRealm pays Calavo the sum of $6 million (the “Loan Payoff Amount”) by March 31, 2022 (the “Loan Payoff Period”), the Notes shall be deemed paid in full; (v) the parties agreed to a mutual release of any claims; and ~~October 31, 2019, we have note receivables~~(vi) the parties agreed to indemnify each other from ~~FreshRealm totaling $34.0 million and $35.2 million. See Note 4 for further information.~~any subsequent third party claims.

In the ~~first quarter~~event FreshRealm fails to pay the Loan Payoff Amount by the Loan Payoff Period, the Notes shall remain in full force and effect, and pursuant to a warrant issued to Calavo, Calavo shall have the right to purchase 4,207,397 equity units in Fresh Realm. The Notes have an interest rate of ~~fiscal 2019, FreshRealm entered into a supply contract~~1.46% per annum with a ~~large multinational, multi-channel retailer. Calavo co-signed an addendum~~maturity date of April 1, 2022 and are secured in all of the assets and collateral of FreshRealm pursuant to ~~this agreement to provide assurance to the customer~~ that Calavo will assume responsibility for performance, in the event that FreshRealm cannot perform, provided that the customer must work in good faith to make reasonable adjustments to logistical elements in the contract, if requested by Calavo.certain Third Amended and Restated Security Agreement dated February 3, 2021.

~~Except for~~If FreshRealm (i) pays to Calavo the ~~performance guarantee noted above (for which we are unable to quantify our current exposure, if any), our exposure~~Loan Payoff Amount within the Loan Payoff Period; and (ii) undergoes a “Success Event” in the future, including: a merger, a majority sale of FreshRealm’s assets or equity ownership interests, a private placement, or an initial public offering where FreshRealm as a company is valued at $100 million or more, FreshRealm must pay to the ~~obligations~~Company additional compensation in accordance with the following:

●

FreshRealm must pay Calavo a $10 million payment upon the closing of a Success Event if the valuation of FreshRealm at the time of the Success Event is equal to or greater than $100 million, but less than $230 million;

●

FreshRealm must pay Calavo a $20 million payment upon the closing of a Success Event if the valuation of FreshRealm at the time of the Success Event is equal to or greater than $230 million, but less than $380 million; or

●

FreshRealm must pay Calavo a $34 million payment upon the closing of a Success Event if the valuation of FreshRealm at the time of the Success Event is equal to or greater than $380 Million.

Aside from the above, if FreshRealm undergoes a sale of its business either through a merger or a majority sale of its assets or equity interests before February 3, 2022, FreshRealm ~~is generally limited~~must pay Calavo $6 million, if it hasn’t already paid the Loan Payoff Amount, plus twenty percent (20%) of the purchase price proceeds from such sale of FreshRealm. Due to ~~our interests in it. We believe our maximum exposure to loss in FreshRealm is~~ the ~~carrying value of our investment and our notes to it, which totaled $4.6 million and $34.0 million,~~substantial uncertainty, 0 amounts have been recorded on the balance sheet as of April 30, 2020. See Note 4 for more information. Our maximum exposure to loss could increase in the future if FreshRealm receives additional financing (i.e. equity or debt) from Calavo. We are under no obligation to provide FreshRealm additional financing.

~~Unconsolidated Significant Subsidiary~~

~~As described in Note 4, we own approximately 37%~~ of FreshRealm as of April 30, 2020 and October 31, 2019. In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies for interim reports on Form 10-Q, we must determine if our unconsolidated subsidiaries are considered, “significant subsidiaries”. In evaluating our investments, there are two tests utilized to determine if our subsidiaries are considered significant subsidiaries: the income test and the investment test. Rule 10-01(b)(1) of Regulation S-X requires summarized income statement information of an unconsolidated subsidiary in an interim report if either of the two tests exceed 20%. Pursuant to Rule 10-01(b)(1) of Regulation S-X, this requires summarized income statement information of FreshRealm in our first fiscal quarter Form 10-Q.

~~The following table shows summarized financial information for FreshRealm~~ ~~(in thousands)~~:

~~Income Statement:~~

Three months ended April 30,

Six months ended April 30,

2020

2019

2020

2019

Net sales

$
5,754

$
3,701

$
13,709

$
12,589

Gross loss

(507)

(1,480)

(1,759)

(4,371)

Selling, general and administrative

(3,875)

(4,525)

(8,214)

(10,528)

Other

(713)

(1,366)

(4,452)

(3,850)

Net loss

$
(5,095)

$
(7,371)

$
(14,425)

$
(18,749)

~~13. Revenue recognition~~

Effective at the beginning of our fiscal 2019, the Company adopted Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers," and all the related amendments ASC 606 using the modified retrospective method of adoption. ASC 606 consists of a comprehensive revenue recognition standard, which requires the recognition of revenue when control of promised goods are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled.2021.

2119

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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 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.

~~Sales Incentives and Other Promotional Programs~~

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 and accrue 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 condensed consolidated balance sheets as part of accrued expenses.

~~Principal vs. Agent Considerations~~

The Company frequently enters 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 evaluated whether its 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 that such revenues should be reported on a gross basis.

~~14. Leases~~13. Credit Facility

~~The impact~~On January 29, 2021, we entered into the Third Amendment to Credit Agreement (the “Third Amendment”) with Farm Credit West, PCA and Bank of ~~applying ASC 842 effective~~America, N.A. relating to our Credit Agreement dated as of ~~November 1,~~June 14, 2016, First Amendment to Credit Agreement dated as of August 29, 2016, and Second Amendment to Credit Agreement dated as of February 28, 2019 (collectively, the Credit Facility). This Third Amendment, among other things, provides for a five-year extension of the maturity date to January 29, 2026, a $20 million increase in the ~~Company’s condensed consolidated statements~~revolving commitment to $100 million (from $80 million) (for a total facility size of ~~operations~~$150 million if the $50 million accordion is exercised, up from a total size of $130 million), and ~~cash flows~~a 25 basis point increase in the interest rate. The new interest rate schedules are effective mid-June 2021. The weighted-average interest rate under the Credit Facility was ~~not significant. The major impacts to~~2.8% and 1.9% at April 30, 2021 and October 31, 2020. Under the ~~balance sheet at the effective date were 1) the addition of~~ ~~$65.7 million in operating lease assets and $69.6 million of operating lease liabilities, 2) the removal of approximately $3.7~~Credit Facility, we had $42.3 million and ~~$1.2~~$20.6 million ~~of deferred rent~~outstanding as April 30, 2021 and other long-term obligations, respectively, and 3) a cumulative-effect adjustment for the adoption of ASC 842 of $1.2 million was recorded to retained earnings, which relates to the gain previously recognized in accordance with ASC 840 on its sale and operating leaseback of the Temecula facility.

ASC 842 made changes to sale-leaseback accounting to result in the recognition of the gain on the transaction at the time of the sale instead of recognizing over the leaseback period, when the transaction is deemed to be a sale instead of a financing arrangement. ASC 842 further changes the assessment of sale accounting from a transfer of risk and rewards assessment to a transfer of control assessment.

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We utilized the modified retrospective adoption method. Therefore, the Consolidated Financial Statements for 2020 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported inOctober 31, 2020. In accordance with the ~~Company's historical accounting policy.~~

~~The standard provides a number~~extended due date, the outstanding balance of ~~optional practical expedients and policy elections in transition. We have elected~~the Credit Facility has been classified to apply the package of practical expedients under which we will not reassess under the standard our prior conclusions about lease classification and initial direct costs. 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 except building leases. Lease and non-lease components will be accounted for separately for building leases.

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. As an accounting policy election, the Company will account for lease and non-lease components as a single-lease component for all leases except building leases. Lease and non-lease components will be accounted for separately for building leases.

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. 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. When available, we use the rate implicitlong-term in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

We 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.

~~Lease Position~~

~~The following table presents the lease-related assets and liabilities recorded on the~~accompanying balance sheet as of April 30, ~~2020 (in thousands):~~

April 30,

2020

Assets




Current assets:



Operating lease assets
Operating lease right-of-use assets

$
63,678
Finance lease assets
Property, plant and equipment, net

5,900

$
69,578
Liabilities



Current liabilities:



Operating
Current portion of operating leases

$
6,218
Finance
Current portion of long-term debt and finance leases

847
Long-term obligations



Operating
Long-term operating leases, less current portion

61,443
Finance
Long-term debt and finance leases, less current portion

5,219

$
73,727

2021.

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~~Weighted-average remaining lease term:~~
~~Operating leases~~	~~10.4 years~~
~~Finance leases~~	~~9.0 years~~

~~Weighted-average discount rate:~~
~~Operating leases~~	~~2.84~~	%
~~Finance leases~~	~~3.51~~	%

~~Lease Costs~~

The ~~following table presents certain information related to the lease costs for finance and operating leases for the three and six months ended April 30, 2020 (in thousands):~~

Three months ended

Six months ended

April 30, 2020

April 30, 2020
Amortization of financing lease assets

$
251

$
469
Operating lease cost

2,063

4,125
Short-term lease cost

1,022

1,649
Interest on financing lease liabilities

57

113
Total lease cost

$
3,393

$
6,356

~~Other Information~~

~~The following table presents supplemental cash flow information related to the leases for the three and six months ended April 30, 2020 (in thousands):~~

Three months ended

Six months ended
Cash paid for amounts included in the measurement of lease liabilities

April 30, 2020

April 30, 2020
Operating cash flows for operating leases

$
2,019

$
3,931
Financing cash flows for finance leases

212

410
Operating cash flows for finance leases

57

94

~~Undiscounted Cash Flows~~

The following table reconciles the undiscounted cash flows for each of the first five years and total remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet as of April 30, 2020 (in thousands):

Operating

Finance

Leases

Leases
Remainder of 2020

$
4,064

$
478
2021

8,114

957
2022

8,000

948
2023

7,816

942
2024

7,448

666
Thereafter

43,317

3,246
Total lease payments

78,759

7,237
Less: imputed interest

11,098

1,171
Total lease liability

$
67,661

$
6,066

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~~Prior to the adoption of ASC 842, as of October 31, 2019, we were committed to make minimum cash payments under these agreements, as follows (in thousands):~~

2020

$
9,534

2021

9,007

2022

8,672

2023

8,603

2024

8,203

Thereafter

50,796

$
94,815

~~Total rent expense amounted to approximately $10.7~~ ~~million for the year ended October 31, 2019.~~

~~Prior to the adoption of ASC 842, as of October 31, 2019, capital lease payments are scheduled as follows (in thousands):~~

Total

Year ending October 31:

2020

$
907

2021

915

2022

908

2023

900

2024

548

Thereafter

3,162

Minimum lease payments

7,340

Less interest

(1,166)

Present value of future minimum lease payments

$
6,174

Present value of future minimum lease payments as of October 31, 2019 consist of $5.4 million included in long-term obligations and finance leases and $0.8 million included in current portion of long-term obligations and finance leases.

~~15. Acquisition of Simply Fresh Fruit~~

~~On January 21, 2020, we announced that our Renaissance Food Group (RFG) subsidiary has signed a definitive agreement to acquire SFFI Company, Inc. doing business as Simply Fresh Fruit (SFFI).~~ ~~In February 2020, we completed our acquisition of SFFI. We paid $18.4 million in cash for 100%~~ of SFFI (net of cash acquired). Founded in 1999 and based in Vernon, Calif., privately held SFFI is a processor and supplier of a broad line of fresh-cut fruit, principally serving the foodservice and hospitality markets. Its focus in those industries is anticipated to be highly complementary to the retail-grocery expertise of Calavo’s RFG business segment and will be included in the RFG segment going forward.

The acquisition was accounted for as a business combination using the acquisition method of accounting. The preliminary allocation of the purchase price is based on management’s analysis, including preliminary work performed by third party valuation specialists as of the acquisition date. We have determined the estimated fair values using Level 3 inputs after review and consideration of relevant information, including the projected cash flows, discount rates, customer attrition rates and other estimates made by management. The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired, and the excess was recognized as goodwill. We are in the process of completing the purchase price allocation and expect to have it finalized within the 12 month measurement period.

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~~The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):~~

~~At February 14, 2020~~

2020
Current assets (including cash of $623)

$
4,101
Property, plant, and equipment

1,413
Goodwill

9,815
Intangible assets

11,000
Total assets acquired

26,329
Current liabilities

(4,419)
Deferred taxes

(2,891)
Total liabilities acquired

(7,310)
Net assets acquired

$
19,019

~~Of the~~ $11.0 million of intangible assets, $9.7 million was assigned to customer relationships with a life of 7 years, and $1.3 million to trade names with a life of 10 years. We incurred $0.3 million in transaction costs related to the acquisition, which is included in selling, general and administrative expenses in our consolidated statements of operations for the three months ended April 30, 2020.

The financial effect of this acquisition was not material to our statement of operations, and we have not presented pro forma results of operations for the acquisition because it is not significant to our consolidated statements of operations.

~~Note 16. Credit Facility~~

We have a revolving credit facility with Bank of America as administrative agent and Merrill Lynch, Pierce, Fenner & Smith Inc. as joint lead arranger and sole bookrunner, and Farm Credit West, as joint lead arranger. Under the terms of this agreement, we are advanced funds for both working capital and long-term productive asset purchases. Total credit available under this agreement is $80 million and will expire in June 2021. Upon notice to Bank of America, we may from time to time, request an increase in the Credit Facility ~~by an amount not exceeding $50 million. For our current credit~~ agreement ~~the weighted-average interest rate was~~ ~~2.5% and 3.8% at April 30, 2020 and October 31, 2019. Under these credit facilities, we had $45.0 million outstanding as April 30, 2020. There was nothing outstanding as of October 31, 2019.~~

~~This Credit Facility~~ contains customary affirmative and negative covenants for agreements of this type, including the following financial covenants applicable to the Company and its subsidiaries on a consolidated basis: (a) a quarterly consolidated leverage ratio of not more than 2.50 to 1.00 and (b) a quarterly consolidated fixed charge coverage ratio of not less than 1.15 to 1.00. We ~~are~~were in compliance with all financial ~~covenants.~~covenants at April 30, 2021.

~~17.~~14. COVID-19 Pandemic Impact

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The COVID-19 pandemic has created challenging and unprecedented conditions for our business, and we are committed to taking action in support of a Company-wide response to the crisis. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. We believe we are ~~well positioned~~well-positioned for the future as we continue to navigate the crisis and prepare for an eventual return to a more normal operating environment. We have successfully implemented contingency plans

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~~overseen by our management teams~~ in the U.S. and in Mexico to monitor the evolving needs of our businesses in those countries, as well as those related to our Peru partner in consignment avocado sales.

The COVID-19 pandemic began to have an adverse impact on our results of operations in the month of March 2020, resulting in cancelled orders, altered customer buying patterns, delays in potential new business opportunities, losses on product unable to be sold, reductions in margins related to lower manufacturing throughput, and changes to integration plans for an acquired entity. The effects of the pandemic ~~were~~have been more pronounced in the portions of our business servicing foodservice customers ~~business~~ and to a lesser extent certain segments of our retail business, including behind-the-glass deli and grab-and-go convenience items.

We may also experience additional costs related to increased workers’ compensation claims, health and safety inspections and group health insurance expenses as a result of the COVID-19 pandemic. We may also be subject to lawsuits from employees and others exposed to COVID-19 at our production and other facilities. Our professional and general liability insurance may not cover all claims against us. In addition, our operations and financial results may be further adversely affected by federal or state laws, regulations, orders, or other governmental or regulatory actions addressing the current COVID-19 pandemic. While we have managed the pandemic well, with ~~improving results in April and~~ minimal disruption to our overall business thus far, the continuing impact of the pandemic on our future consolidated results, ~~of operations is~~financial position and cash flows are uncertain.

The recovery from the COVID-19 pandemic and the current economic climate is increasing labor costs, commodity costs and logistical costs. We are experiencing operational challenges that impact our production facilities and our logistics network; the impact of prices for petroleum-based products, packaging materials and commodity costs; and the availability of sufficient labor is increasing costs companywide.

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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 fiscal year ended October 31, ~~2019~~2020 of Calavo Growers, Inc. ~~(we, Calavo,~~(“we”, “Calavo”, or the ~~Company)~~“Company”).

Recent Developments

COVID-19 Pandemic Impact

~~Organizational changes~~COVID-19 Recovery Economic Impact

On February 1, 2020, James Gibson became Chief Executive Officer, succeeding Lecil Cole, who retired on January 31, 2020. Mr. Gibson has served as President of Calavo’s RFG division since October 26, 2017 and previously served as Chief Operating Officer and a founding member of RFG since 2003.

~~On March 10, 2020, Joel Silva was promoted to Corporate Controller~~The recovery from the COVID-19 pandemic and ~~Chief Accounting Officer, succeeding James Snyder, who resigned on March 6, 2020, to join a company in~~ the ~~financial services sector. Previously Mr. Silva was Division Controller~~current economic climate is increasing labor costs, commodity costs and logistical costs. We are experiencing operational challenges that impact our production facilities and our logistics network; the impact of prices for ~~our Fresh~~petroleum-based products, packaging materials and ~~Foods divisions.~~

On May 11, 2020, Kevin Manion became Chief Financial Officer, succeeding John Lindeman, who resigned on March 11, 2020. Mr. Manion held financial leadership positions with companies including Century Snacks, Young’s Market Company, Bolthouse Farms, Hostess Brands, Nestle USAcommodity costs; and ~~Kraft General Foods.~~

~~On February 26, 2020, Lecil Cole retired as Chairman~~the availability of ~~the Board of Directors, although he remains a director of Calavo. On February 27, 2020, Mr. Link Leavens was appointed Chairman of the Board of Directors.~~sufficient labor is increasing costs companywide.

Dividend payment

On December ~~6, 2019,~~4, 2020, we paid a ~~$1.10~~$1.15 per share dividend in the aggregate amount of ~~$19.4~~$20.3 million to shareholders of record on November ~~15, 2019.~~13, 2020.

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Litigation

From time to time, we are 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.

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Mexico tax audits

Additionally, we also received notice from the SAT, that CDM is currently under examination related to fiscal year 2013. In January 2017, we received preliminary observations from SAT outlining certain proposed adjustments primarily related to intercompany funding, deductions for services from certain vendors/suppliers, and ~~VAT.~~IVA. We provided a written rebuttal to these preliminary observations during our second fiscal quarter of 2017. During the period from our third fiscal quarter of 2017 through our third fiscal quarter of 2018, we attempted to resolve our case with the SAT through working meetings attended by representatives of the SAT, CDM and the PRODECON. However, we were unable to materially resolve our case with the SAT through the PRODECON process.

As a result, 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 (approx. ~~$108.7~~$128.8 million USD at April 30, ~~2020)~~2021) related to Income Tax, Flat Rate Business Tax, and Value Added Tax, related to this fiscal 2013 tax audit. Additionally, the tax authorities have determined that we owe anour employee’s profit-sharing liability, totaling approximately $118 million Mexican pesos (approx. ~~$4.9~~$5.8 million USD at April 30, ~~2020)~~2021).

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Assessment. We believe this recent ruling significantly undermines the 2013 Assessment we received in July 2018. ~~We believe we have~~

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In light of the ~~legal arguments and documentation to sustain~~foregoing, the ~~positions challenged~~Company is currently considering its options for resolution of the two tax assessments:

The estimated time for resolution of this matter could be affected by the ~~SAT.~~

situation related to the COVID-19 pandemic.

We continue to believe that the ultimate resolution of these matters is unlikely to have a material effect on our consolidated financial ~~position, results~~position.

FreshRealm Separation

On February 3, 2021, Calavo and FreshRealm entered into a Limited Liability Company Member Separation and Release Agreement (the “Separation Agreement”) described below.

Calavo was previously a limited liability company member in FreshRealm and was a party to that certain FreshRealm, LLC Seventh Amended and Restated Limited Liability Company Agreement, dated as of February 27, 2019, by and among FreshRealm and its members. Calavo and FreshRealm were also parties to that certain Sixth Amended and Restated Senior Promissory Note, effective August 10, 2018, as amended (the “Prior Note”), pursuant to which Calavo loaned to FreshRealm principal plus accrued interest in the total sum of $34.5 million.

Pursuant to the Separation Agreement, among other terms: (i) Calavo terminated its limited liability company interest and equity ownership in FreshRealm; (ii) Calavo and FreshRealm simultaneously entered into an Amended and Restated Senior Secured Loan Agreement and Promissory Note (the “Amended Note”), which amended and restated the Prior Note; (iii) FreshRealm issued an additional Secured Promissory Note to Calavo in the amount of approximately $5 million that is subordinated to the Amended Note (the “Second Note”, together with the Amended Note, the “Notes”); (iv) in the event FreshRealm pays Calavo the sum of $6 million (the “Loan Payoff Amount”) by March 31, 2022 (the “Loan Payoff Period”), the Notes shall be deemed paid in full; (v) the parties agreed to a mutual release of any claims; and (vi) the parties agreed to indemnify each other from any subsequent third party claims.

In the event FreshRealm fails to pay the Loan Payoff Amount by the Loan Payoff Period, the Notes shall remain in full force and effect, and pursuant to a warrant issued to Calavo, Calavo shall have the right to purchase 4,207,397 equity units in Fresh Realm. The Notes have an interest rate of 1.46% per annum with a maturity date of April 1, 2022 and are secured in all of the assets and collateral of FreshRealm pursuant to that certain Third Amended and Restated Security Agreement dated February 3, 2021.

If FreshRealm (i) pays to Calavo the Loan Payoff Amount within the Loan Payoff Period; and (ii) undergoes a “Success Event” in the future, including: a merger, a majority sale of FreshRealm’s assets or equity ownership interests, a private placement, or an initial public offering where FreshRealm as a company is valued at $100 million or more, FreshRealm must pay to the Company additional compensation in accordance with the following:

●

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●

FreshRealm must pay Calavo a $34 million payment upon the closing of a Success Event if the valuation of FreshRealm at the time of the Success Event is equal to or greater than $380 Million.

Non-GAAP Financial Measures

The below tables include non-GAAP measures EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS, which are not prepared in accordance with U.S. generally accepted accounting principles, or “GAAP.”

EBITDA is defined as net income (loss) attributable to Calavo Growers, Inc. excluding (1) interest income and expense, (2) income taxes (benefit) provision, (3) depreciation and amortization and (4) stock-based compensation expense. Adjusted EBITDA is EBITDA with further adjustments for (1) non-cash net losses (income) recognized from unconsolidated entities, (2) goodwill impairment, (3) write-off of long-lived assets, (4) acquisition-related costs, (5) restructuring and certain severance costs, (6) certain litigation and other related costs, and (7) one-time items. Adjusted EBITDA is a primary metric by which management evaluates the operating performance of the business, on which certain operating expenditures and internal budgets are based and by which, in addition to other factors, the Company’s senior management is compensated. The adjustments to calculate EBITDA and adjusted EBITDA are items recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and ~~cash flows.~~recorded.

Adjusted net income is defined as net income (loss) attributable to Calavo Growers, Inc. excluding (1) non-cash net losses (income) recognized from unconsolidated entities, (2) goodwill impairment, (3) write-off of long-lived assets, (4) acquisition-related costs, (5) restructuring and certain severance costs, (6) certain litigation and other related costs, and (7) one-time items. Adjusted net income and the related measure of adjusted diluted EPS exclude certain items that are recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. We believe adjusted net income affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the GAAP measure of net income (loss) attributable to Calavo Growers, Inc.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the financial tables below.

Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. One-time items are identified in the notes to the reconciliations in the financial tables below.

Non-GAAP information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. None of these metrics are presented as measures of liquidity. The way the Company measures EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in Company agreements.

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Adjusted Net Income (Non-GAAP, Unaudited)

The following table presents adjusted net income and adjusted diluted EPS, each a non-GAAP measure, and reconciles them to net income (loss) attributable to Calavo Growers, Inc., and Diluted EPS, which are the most directly comparable GAAP measures. See “Non-GAAP Financial Measures” above (in thousands, except per share amounts).


	Three months ended April 30,				Six months ended April 30,
	2021		2020		2021		2020
Net income (loss) attributable to Calavo Growers, Inc.	$	8,841	$	(3,278)	$	14,118	$	(4,216)
Non-GAAP adjustments:
Non-cash losses recognized from unconsolidated entities (a)		1,131		2,177		1,286		5,205
Income from FreshRealm Recovery (b)		—		—		(130)		—
Certain management transition expenses (c)		685		1,119		685		1,119
Acquisition costs (d)		—		220		262		510
Net (gain) loss on Limoneira shares (e)		(3,506)		10,349		(7,095)		9,343
RFG rent expense add back (f)		108		—		216		—
Professional expenses related to FreshRealm		50		—		141		—
Tax impact of adjustments (g)		367		(3,575)		1,166		(4,166)
Adjusted net income attributed to Calavo Growers, Inc.	$	7,676	$	7,012	$	10,649	$	7,795

Calavo Growers, Inc.’s net income (loss) per share:
Diluted EPS (GAAP)	$	0.50	$	(0.19)	$	0.80	$	(0.24)
Adjusted Diluted EPS	$	0.43	$	0.40	$	0.60	$	0.44

Number of shares used in per share computation:
Diluted		17,679		17,550		17,668		17,543

(a)

For the three months ended April 30, 2020, FreshRealm realized losses totaling $5.1 million, of which we recorded $1.9 million of non-cash losses. For the six months ended April 30, 2020, FreshRealm realized losses totaling $14.4 million, of which we recorded $5.4 million of non-cash losses. For the three and six months ended April 30, 2021, we realized losses from Agricola Don Memo totaling $1.1 million and $1.3 million. For the three months ended April 31, 2020, we realized losses from Agricola Don Memo totaling $0.3 million. For the six months ended April 31, 2020, we realized income from Agricola Don Memo totaling $0.2 million.

(b)	As part of the FreshRealm Separation Agreement (See Note 12), we received $0.1 million for previously reserved receivables.

(c)

The second quarter of fiscal 2021 includes higher stock-based compensation for the early vesting of restricted stock for the retirement of our former Chief Executive Officer and Board member. Second quarter of fiscal 2020 results include higher stock-based compensation expense related to senior management transitions, which does not impact the underlying cost structure of the company.

(d)	In the first quarter of 2021, we incurred professional service costs related to a considered but non-consummated acquisition. In the first quarter of 2020, we incurred transaction expenses related to the acquisition of SFFI Company, Inc. doing business as Simply Fresh Fruit.

(e)

For the three and six months ended April 30, 2021, we recorded $3.5 million and $7.1 million in unrealized gains related to these mark-to-market adjustments. For the three and six months ended April 30, 2020, we recorded $10.3 million and $9.3 million in unrealized losses related to these mark-to-market adjustments.

(f)	For the three and six months ended April 30, 2021, we incurred $0.1 million and $0.2 million related to rent paid for RFG corporate office space that we have vacated and plan to sublease.

(g)	Tax impact of non-GAAP adjustments are based on the prevailing year-to-date tax rates.

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Reconciliation of EBITDA and Adjusted EBITDA (Non-GAAP, Unaudited)

The following table presents EBITDA and adjusted EBITDA, each a non-GAAP measure, and reconciles them to net income (loss) attributable to Calavo Growers, Inc., which is the most directly comparable GAAP measure. See “Non-GAAP Financial Measures” above (in thousands, except per share amounts).


	Three months ended April 30,				Six months ended April 30,
	2021		2020		2021		2020
Net income (loss) attributable to Calavo Growers, Inc.	$	8,841	$	(3,278)	$	14,118	$	(4,216)
Interest Income		(17)		(688)		(89)		(1,634)
Interest Expense		191		342		365		529
Provision (benefit) for Income Taxes		2,772		(1,208)		4,715		(1,858)
Depreciation & Amortization		4,077		4,010		8,371		7,646
Stock-Based Compensation		1,357		1,787		2,264		2,717
EBITDA	$	17,221	$	965	$	29,744	$	3,184

Adjustments:
Non-cash losses recognized from unconsolidated entities (a)		1,131		2,177		1,286		5,205
Net (gain) loss on Limoneira shares (e)		(3,506)		10,349		(7,095)		9,343
Income from FreshRealm recovery (b)		—		—		(130)		—
Professional expenses related to FreshRealm		50		—		141		—
RFG rent expense add back (f)		108		—		216		—
Acquisition costs (d)		—		220		262		510
Adjusted EBITDA	$	15,004	$	13,711	$	24,424	$	18,242
Adjusted EBITDA per dilutive share	$	0.85	$	0.78	$	1.38	$	1.04

See prior page for footnote references

Net Sales

The following table summarizes our net sales by business segment for each of the three and six months ended April 30, ~~2020~~2021 and ~~2019:~~2020:


	Three months ended April 30,								Six months ended April 30,								Three months ended April 30,								Six months ended April 30,
	2020			Change		2019			2020			Change		2019			2021			Change		2020			2021			Change		2020

Gross sales:
Fresh products	$	170,868		13	%	$	151,212		$	304,058		13	%	$	268,661		$	161,686		(5)	%	$	170,868		$	277,145		(9)	%	$	304,058
RFG																		96,289		3	%		93,529			186,595		(13)	%		214,463
Calavo Foods		17,853		(19)	%		22,041			38,337		(15)	%		45,112			20,736		16	%		17,853			37,194		(3)	%		38,337
RFG		93,529		(18)	%		113,992			214,463		(8)	%		233,056
Less intercompany eliminations		(1,084)		7	%		(1,009)			(2,342)		(9)	%		(2,561)			(1,890)		74	%		(1,084)			(3,535)		51	%		(2,342)
Total net sales	$	281,166		(2)	%	$	286,236		$	554,516		2	%	$	544,268		$	276,821		(2)	%	$	281,166		$	497,399		(10)	%	$	554,516

As a percentage of sales:
Fresh products		60.5	%				52.6	%		54.6	%				49.1	%		58.0	%				60.5	%		55.3	%				54.6	%
RFG																		34.5	%				33.1	%		37.2	%				38.5	%
Calavo Foods		6.3	%				7.7	%		6.9	%				8.2	%		7.4	%				6.3	%		7.4	%				6.9	%
RFG		33.1	%				39.7	%		38.5	%				42.6	%
		100.0	%				100.0	%		100.0	%				100.0	%		100.0	%				100.0	%		100.0	%				100.0	%

Summary

Net sales for the three months ended April 30, ~~2020,~~2021, compared to the corresponding period in fiscal ~~2019,~~2020, decreased by ~~$5.1~~$4.3 million, or approximately 2%. The decrease ~~in sales, when compared~~was due to ~~the same corresponding prior year period, was primarily related to declines~~a decline in the ~~Calavo Foods and RFG segments, partially offset by an increase in~~ Fresh products segment. Net sales for

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the six months ended April 30, ~~2020,~~2021, compared to the corresponding period in fiscal ~~2019, increased~~2020, decreased by ~~$10.3~~$57.1 million, or approximately 2%10%. This ~~increase in sales~~decrease was ~~primarily related~~due to ~~gains in the Fresh products segment, partially offset by decreases in the Calavo Foods and RFG~~declines across all segments.

For the three and six months ended April 30, ~~2020, our Fresh products segment had our largest percentage increase in sales. The increase~~2021, the decrease in Fresh ~~products~~product sales was due ~~primarily~~ to ~~an increase~~declines in sales of avocados and tomatoes. ~~The~~For the six months ended April 30, 2021, the decrease in Calavo Foods was due primarily to a decrease in the sales of prepared avocado products. For the six months ended April 30, 2021, the decrease in RFG sales was due primarily to decreased sales from fresh-cut fruit & vegetables and prepared foods ~~products. The decrease in Calavo Foods was due primarily to a decrease in the sales of prepared avocado~~ products. See discussion below for further details.

All three segments of our business are subject to seasonal trends which can impact the volume and/or quality of raw materials sourced in any particular quarter. All intercompany sales are eliminated in our consolidated results of operations.

Fresh products

Second Quarter ~~2020~~2021 vs. Second Quarter ~~2019~~2020

~~Sales~~Net sales for the Fresh products business ~~increased~~decreased by approximately ~~$19.7~~$9.2 million, or ~~13%~~5%, for the second quarter of fiscal ~~2020, when~~2021 compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2019.~~2020. This ~~increase~~decrease in Fresh product sales during the second quarter of fiscal ~~2020~~2021 was primarily related to ~~increased~~decreased sales prices of ~~avocados and tomatoes.~~tomatoes due to higher supply of tomatoes in the marketplace. In addition, avocado sales decreased due to a decline in avocado sales prices.

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Sales of ~~avocados increased $14.3~~tomatoes decreased $5.9 million, or ~~11%~~31%, for the second quarter of ~~2020,~~2021, when compared to the ~~same~~prior year period. This decrease in tomato sales was primarily due to a 25% decrease in the average sales price per carton compared to the prior year period, in addition to a decrease of 8% of the number of tomato cartons sold due to a delay in the start of the growing season.

Sales of avocados decreased $3.6 million, or 2%, for the second quarter of 2021 compared to the prior year period. The average avocado sales price per carton ~~increased 15%~~decreased 10% compared to the ~~same~~ prior year period. ~~The volume~~This decrease in the sales price per carton was mainly due to an increase of supply of avocados ~~sold declined 4% during~~in the ~~period, primarily driven by a 5% lower overall industry~~marketplace. The volume of avocados sold in the US. Additionally, lower avocado demand among foodservice customers related to COVID-19, particularly in the period immediately following the implementation of stay-at-home orders, impacted avocado sales during the quarter.

~~Sales of tomatoes increased $4.8 million, or 33%, for the~~ second quarter of ~~2020, when~~2021 increased 9% compared to the ~~same~~ prior year period. This increase in tomato sales was primarily due to a 37% increase in the average sales price per carton compared to the same prior year period, partially offset by a decrease of 3% of the number of tomato cartons sold.

Six Months Ended ~~2020~~April 30, 2021 vs. Six Months Ended ~~2019~~April 30, 2020

~~Sales~~Net sales for the Fresh products business ~~increased~~decreased by approximately ~~$35.4~~$26.9 million, or ~~13%~~9%, for the six months ended April 30, ~~2020, when~~2021, compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2019.~~2020. This ~~increase in Fresh product sales during the six months ended April 30, 2020~~decrease was primarily related to ~~increased~~decreased sales prices of avocados ~~and tomatoes.~~due to higher supply of avocados in the marketplace. In addition, tomato sales decreased due to a decline of tomato sales prices.

Sales of avocados ~~increased $28.7~~decreased $17.8 million, or ~~12%~~7%, for the six months ended April 30, ~~2020, when~~2021, compared to the ~~same~~ prior year period. The average avocado sales price per carton ~~increased 7%~~decreased 11% compared to the ~~same~~ prior year period. ~~In addition,~~This decrease in the sales price per carton was mainly due to an increase of supply of avocados in the marketplace. The volume of avocados sold ~~during~~in the six months ended April 30, ~~2020~~2021 increased 5% compared to the prior year period.

Sales of tomatoes ~~increased $6.4~~decreased $9.7 million, or ~~25%~~30%, for the six months ended April 30, ~~2020, when~~2021, compared to the ~~same~~ prior year period. This ~~increase~~decrease in tomato sales was primarily due to a ~~33% increase~~25% decrease in the average sales price per carton compared to the ~~same~~ prior year period, ~~partially offset by~~in addition to a decrease of 6% of the number of tomato cartons ~~sold.~~sold due to a delay in the start of the growing season.

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RFG

Second Quarter 2021 vs. Second Quarter 2020

Net sales for RFG for the quarter ended April 30, 2021, compared to the corresponding period in fiscal 2020, increased $2.8 million, or 3%. The increase was primarily due to additional sales in regions where RFG has added manufacturing capacity. This was partially offset by a decrease due to lower sales out of the Midwest, relating to the closure of RFG’s co-packing partner in that region, which occurred in April 2020.

Six Months Ended April 30, 2021 vs. Six Months Ended April 30, 2020

Net sales for RFG for the six months end April 30, 2021, compared to the corresponding period in fiscal 2020, decreased $27.9 million, or 13%. The decrease was primarily due to lower sales out of the Midwest, relating to the closure of RFG’s co-packing partner in that region, which occurred in April 2020. This was partially offset by additional sales in regions where RFG has added manufacturing capacity. Additionally, changing consumer demand and buying patterns related to COVID-19 adversely impacted RFG’s sales during the quarter.

Calavo Foods

Second Quarter ~~2020~~2021 vs. Second Quarter ~~2019~~2020

~~Sales~~Net sales for Calavo Foods for the quarter ended April 30, ~~2020, when~~2021, compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2019, decreased $4.2~~2020, increased $2.9 million, or ~~19%~~16%. Sales of prepared avocado products increased by approximately $2.8 million, or 16%, primarily related to an increase in the total volume of pounds sold.

Six Months Ended April 30, 2021 vs. Six Months Ended April 30, 2020

Net sales for Calavo Foods for the six months ended April 30, 2021, compared to the corresponding period in fiscal 2020, decreased $1.1 million, or 3%. Sales of prepared avocado products decreased by approximately ~~$4.1~~$1.2 million, or ~~19%~~3%, primarily related to ~~a decrease~~an decreased in the total volume of pounds sold. Sales of prepared avocado products were impacted primarily by a decline in demand from foodservice customers related to COVID-19 during the ~~quarter.~~

~~Six Months Ended 2020 vs. Six Months Ended 2019~~

Sales for Calavo Foods for the six months ended April 30, 2020, when compared to the same period for fiscal 2019, decreased $6.8 million, or 15%. Sales of prepared avocado products decreased by approximately $6.6 million, or 15%, primarily related to a decrease in the total volume of pounds sold.

~~RFG~~

~~Second Quarter 2020 vs. Second Quarter 2019~~

Sales for RFG for the quarter ended April 30, 2020, when compared to the same period for fiscal 2019, decreased $20.5 million, or 18%. The decrease was primarily due to lower sales out of the Midwest, relating to the closure of RFG’s co-packing partner in that region. This was partially offset by additional sales in regions where RFG has added manufacturing capacity, most notably the Georgia facility which opened in April 2019, and from the Simply Fresh Fruit acquisition completed in February 2020. Additionally, changing consumer demand and buying patterns related to COVID-19 adversely impacted RFG’s sales during the quarter.

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~~Six Months Ended 2020 vs. Six Months Ended 2019~~

Sales for RFG for the six months ended April 30, 2020, when compared to the same period for fiscal 2019, decreased $18.6 million, or 8%. The decrease was primarily due to lower sales out of the Midwest, relating to the closure of RFG’s co-packing partner in that region. This was partially offset by additional sales in regions where RFG has added manufacturing capacity, most notably the Georgia facility which opened in April 2019, and from the Simply Fresh Fruit acquisition completed in February 2020.year.

Gross Profit

The following table summarizes our gross profit and gross profit percentages by business segment for the three and six months ended April 30, ~~2020~~2021 and ~~2019:~~2020:


	Three months ended April 30,								Six months ended April 30,								Three months ended April 30,								Six months ended April 30,
	2020			Change		2019			2020			Change		2019			2021			Change		2020			2021			Change		2020


Gross Profit:
Fresh products	$	14,405		(48)	%	$	27,824		$	20,987		(57)	%	$	48,682		$	15,008		4	%	$	14,405		$	28,153		34	%	$	20,987
RFG																		2,288		(16)	%		2,736			2,266		(60)	%		5,610
Calavo Foods		4,934		(25)	%		6,546			11,286		(15)	%		13,289			5,304		7	%		4,934			10,020		(11)	%		11,286
RFG		2,736		11	%		2,467			5,610		(2)	%		5,703
Total gross profit	$	22,075		(40)	%	$	36,837		$	37,883		(44)	%	$	67,674		$	22,600		2	%	$	22,075		$	40,439		7	%	$	37,883

Gross profit percentages:
Fresh products		8.4	%				18.4	%		6.9	%				18.1	%		9.3	%				8.4	%		10.2	%				6.9	%
RFG																		2.4	%				2.9	%		1.2	%				2.6	%
Calavo Foods		27.6	%				29.7	%		29.4	%				29.5	%		25.6	%				27.6	%		26.9	%				29.4	%
RFG		2.9	%				2.2	%		2.6	%				2.4	%
Consolidated		7.9	%				12.9	%		6.8	%				12.4	%		8.2	%				7.9	%		8.1	%				6.8	%

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Summary

Our cost of goods sold consists predominantly of ingredient costs (fruit, vegetables and other food products), 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 ~~decreased~~increased by approximately ~~$14.8~~$0.5 million, or ~~40%~~2%, for the second quarter of fiscal ~~2020, when~~2021 compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2019.~~2020. The increase was primarily attributable to gross profit improvements in the Fresh products segment and the Calavo Foods segment, partially offset by the RFG segment. Gross profit ~~decreased~~increased by approximately ~~$29.8~~$2.6 million, or ~~44%~~7%, for the six months ended April 30, ~~2020, when~~2021, compared to the ~~same~~corresponding period ~~for~~in fiscal ~~2019.~~2020. The ~~decrease~~increase was primarily attributable to gross profit ~~decreases across~~improvements in the Fresh products ~~and~~segment, partially offset by the Calavo Foods and RFG segments.

Fresh products

~~During our three months ended April 30, 2020, as compared to the same prior year period, the decrease~~The increase in our Fresh products segment gross profit percentage for the quarter ended April 30, 2021, was the result of ~~decreased~~increased gross profit for avocados. For the second quarter ~~ended April 30, 2020,~~of fiscal 2021, the gross profit percentage for avocados was ~~8.4%~~9.2% compared to ~~18.4% in~~8.4% for the second quarter of ~~2019. This decrease was primarily related~~2020. In fiscal 2021, we were able to ~~our strong performance during favorable market conditions in last year’s second quarter. In~~manage the ~~current year quarter, we also experienced losses related~~spread between the sales price and the fruit cost of avocados more effectively compared to the ~~COVID-19 crisis stemming from cancelled orders and returned shipments in late-March.~~prior year period.

~~In addition,~~Gross profit for the ~~strengthening~~quarter was also affected by the weakening of the U.S. ~~Dollar~~dollar in relation to the Mexican ~~Peso~~peso during the quarter, ~~resulted~~resulting in a ~~$3.4~~$0.5 million net loss related the remeasurement of ~~peso dominated~~peso-dominated net assets at our Mexican subsidiaries. During the same period last year, ~~this~~we had a remeasurement loss ~~totaled only $0.2~~of $3.4 million.

~~During our six months ended April 30, 2020, as compared to the same prior year period, the decrease~~The increase in our Fresh products segment gross profit percentage for the six months ended April 30, 2021 was the result of ~~decreased~~increased gross profit for avocados. For the six months ended April 30, ~~2020,~~2021, the gross profit percentage for avocados was ~~6.9%~~10.1% compared to ~~18.1% in~~6.9% for the ~~same~~ prior year ~~period of~~period. In fiscal

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~~2019. This decrease was related~~ 2021, we were able to ~~both~~manage the ~~COVID-19 related impacts noted above during Q2~~spread between the sales price and the ~~poor~~ fruit ~~quality issues described during our first quarter.~~cost of avocados more effectively compared to the prior year period.

~~In addition, remeasurement losses related~~Gross profit for the six month period was also affected by the strengthening of the U.S. dollar in relation to the Mexican peso ~~for~~during the six months ended April 30, 2021, which resulted in a $0.6 million net gain related the remeasurement of peso-dominated net assets at our Mexican ~~subsidiaries during~~subsidiaries. During the same period ~~totaled~~last year, we had a remeasurement loss of $3.3 ~~million compared to de minimis losses during the year ago period.~~million.

Note that any additional significant fluctuations in the exchange rate between the U.S. ~~Dollar~~dollar and the Mexican ~~Peso~~peso may have a material impact on future gross profits for our Fresh products segment.

~~Calavo Foods~~

Calavo Foods’ gross profit percentage for the quarter ended April 30, 2020 was 27.6%, compared to 29.7% in the same prior year period. The decrease in Calavo Foods gross profit percentage was due primarily to an increase in fruit input costs, partially offset by lower manufacturing costs relating to both the facility process improvements completed last year and the weaker Mexican Peso.

Calavo Foods’ gross profit percentage for the six months ended April 30, 2020 was 29.4%, compared to 29.5% in the same prior year period. Note that any significant fluctuation in the cost of fruit used in the production process or the exchange rate between the U.S. Dollar and the Mexican Peso may have a material impact on future gross profit for our Calavo Foods segments.

RFG

RFG’s gross profit percentage for the quarter ended April 30, ~~2020~~2021 was ~~2.9%~~2.4%, compared to ~~2.2% in~~2.9% for the ~~same~~ prior year period. ~~Gross profit and gross profit percentage generated by~~ RFG’s pre-existing manufacturing operations (facilities opened more than one year) both increased compared to the same prior year period driven by better raw material costs and improved labor efficiency, partially offset by weaker overhead absorption as a result of COVID-19 related volume declines. New production facilities generated fewer losses on both a year-over-year and sequential period basis compared to the first quarter of 2020. Sales and gross profit in one specific geographic region served by RFG were constrained during our second fiscal quarter as a result of the previously discussed closure of RFG’s co-packer servicing that region.

RFG’s gross profit percentage for the six months ended April 30, ~~2020~~2021 was ~~2.6%~~1.2%, compared to ~~2.4% in~~2.6% for the ~~same~~ prior year period. ~~Gross~~The declines in gross profit ~~increases at company operated facilities,~~for the quarter and six months ended April 30, 2021, were ~~partially offset by~~due to increased commodity costs, lack of availability of key commodities, lower ~~profits out~~supply of ~~regions served by co-pack partners during~~labor that caused increase overtime costs, and extraordinary weather events. In addition, we experienced losses due to the closure of our Midwest co-packing partner.

Calavo Foods

Calavo Foods’ gross profit percentage for the second quarter of fiscal 2021 was 25.6%, compared to 27.6% for the prior year period. Calavo Foods’ gross profit percentage for the six months ended April 30, 2021 was 26.9%, compared to 29.4% for the prior year period. The decreases in Calavo Foods gross profit percentage were due primarily to higher per pound manufacturing costs primarily related to less pounds produced. Partially offsetting these higher costs, we had declines in overall fruit costs due to a large supply of avocados in the marketplace. Any significant fluctuation in the

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cost of fruit used in the production process or the exchange rate between the U.S. dollar and the Mexican peso may have a material impact on future gross profit for our Calavo Foods segment.

Selling, General and Administrative

Three months ended April 30,

Six months ended April 30,

2020

Change

2019

2020

Change

2019

(Dollars in thousands)
(Dollars in thousands)

Selling, general and administrative

$
14,504

(7)
%
$
15,657

$
30,802

3
%
$
29,933


Percentage of net sales

5.2
%

5.5
%

5.6
%

5.5
%


	Three months ended April 30,								Six months ended April 30,
	2021			Change		2020			2021			Change		2020

	(Dollars in thousands)								(Dollars in thousands)
Selling, general and administrative	$	13,683		(6)	%	$	14,504		$	27,857		(10)	%	$	30,802
Percentage of net sales		4.9	%				5.2	%		5.6	%				5.6	%

Selling, general and administrative expenses of ~~$14.5~~$13.7 million for the three months ended April 30, ~~2020~~2021 include costs of marketing and advertising, sales expenses (including broker commissions) and other general and administrative costs. Selling, general and administrative expenses decreased by ~~$1.2~~$0.8 million, or 7%6%, for the three months ended April 30, ~~2020, when~~2021 compared to the ~~same period for fiscal 2019.~~prior year period. This decrease was primarily ~~related~~due to ~~a decrease in the accrual~~prior year stock grants for performance-based senior management bonuses ($1.8 million), and a reduction in real estate commission expense related to the sale of the Temecula packinghouse last year ($0.4 million). These impacts were offset by certain management transition expenses ~~incurred during the quarter~~ ($1.1 million), ~~an increase~~a decrease in ~~salary &~~broker commission ($0.3 million) and a decrease in salaries and benefit expense due to the eliminations of staff positions ($0.2 million). Partially offsetting these decreases was the vesting of restricted stock for the retirement of Lecil Cole, our former Chief Executive Officer and Board member ($0.7 ~~million) and an increase in accrued severance ($0.3~~ million).

Selling, general and administrative expenses of $30.8 million for the six months ended April 30, 2020 include costs of marketing and advertising, sales expenses (including broker commissions) and other general and administrative costs. Selling, general and administrative expenses increaseddecreased by ~~$0.9~~$2.9 million, or 3%10%, for the six months ended April 30, ~~2020,~~

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~~when~~2021 compared to the ~~same period for fiscal 2019.~~prior year period. This decrease was primarily ~~related~~due to a decrease in salaries and benefit expense due to the eliminations of staff positions ($2.1 million), prior year stock grants for certain management transition expenses ~~incurred during the quarter~~ ($1.1 million), ~~an increase~~and a decrease in ~~professional service fees~~broker commission ($0.6 million)~~, an increase in salary & benefit expense ($0.5 million), and approximately $0.3 million in transaction fees related to the acquisition of Simply Fresh Fruit.~~. Partially offsetting these ~~increases, is a decrease in~~decreases was the ~~accrual~~vesting of restricted stock for ~~performance-based senior management bonuses~~the retirement of Mr. Cole ($~~1.7~~0.7 million).

Loss from unconsolidated entities

Three months ended April 30,

Six months ended April 30,

2020

Change

2019

2019

Change

2018

(Dollars in thousands)

(Dollars in thousands)

Loss from unconsolidated entities

$
(2,177)

(31)
%
$
(3,136)

$
(5,205)

(45)
%
$
(9,434)


	Three months ended April 30,						Six months ended April 30,
	2021		Change		2020		2021		Change		2020

	(Dollars in thousands)						(Dollars in thousands)
Loss from unconsolidated entities	$	(1,131)	(48)	%	$	(2,177)	$	(1,286)	(75)	%	$	(5,205)

Losses from unconsolidated entities includes our ~~allocation of~~participation in earnings or losses from our investments in FreshRealm and Don Memo. For the three and six months ended April 30, 2021, we realized losses from Agricola Don Memo totaling $1.1 million and $1.3 million. For the three months ended April 31, 2020, we ~~recognized $0.3 million of~~realized losses ~~related to~~from Agricola Don Memo ~~compared to $0.5 million of losses in~~totaling $0.3 million. For the six months ended April 31, 2020, we realized income from Agricola Don Memo totaling $0.2 million. For the three months ended April 30, ~~2019.~~2020, FreshRealm realized losses totaling $5.1 million, of which we recorded $1.9 million of non-cash losses. For the six months ended April 30, 2020, ~~we recognized $0.2~~FreshRealm realized losses totaling $14.4 million, of ~~income related to Don Memo compared to $0.1~~which we recorded $5.4 million of income in the six months ended April 30, 2019. For the three months ended April 30, 2020 and 2019, we recognized $1.9 million and $2.6 million of losses related to FreshRealm. For the six months ended April 30, 2020 and 2019, we recognized $5.4 million and $9.5 million of losses related to FreshRealm. While we are unable to determine with certainty the future operating results of FreshRealm and future non-Calavo investments, if any, we anticipate recording additional non-cash losses from FreshRealm during the remainder of fiscal 2020. As a result of FreshRealm’s change in tax status on December 16, 2018, prior year results include a 100% allocation of FreshRealm losses prior to that date, with losses allocated to its owners based on ownership percentage thereafter. As has been the case since December 16, 2018, we expect that future operating results for FreshRealm will be allocated to its owners based on ownership percentage. As of April 30, 2020 our ownership was approximately 37%, and our total equity investment in and loan balance to FreshRealm were approximately $4.6 million, and $34.0 million, respectively. See Note 12 in our consolidated financial statements for more information.losses.

~~Provision (benefit) for~~ Income Taxes (Provision) Benefit

Three months ended April 30,

Six months ended April 30,

2020

Change

2019

2020

Change

2019

Provision (benefit) for income taxes

$
(1,208)

NA

$
5,573

$
(1,858)

NA

$
7,106


Effective tax rate

26.2
%

25.5
%

29.7
%

25.5
%


	Three months ended April 30,							Six months ended April 30,
	2021			Change	2020			2021			Change	2020

Income tax benefit (provision)	$	(2,772)		NA	$	1,208		$	(4,715)		NA	$	1,858
Effective tax rate		24.0	%			26.2	%		25.2	%			29.7	%

Our tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter.

For the ~~six months~~first quarter ended ~~April 30,~~in fiscal 2020, we recorded a discrete income tax benefit of approximately $0.2 million, pursuant to ASU 2016-09, Improvements to Employee Share-based Payment ~~Accounting.~~Accounting. Our effective tax rate was higher ~~for~~in the ~~six months ended April 30,~~first quarter of fiscal 2020 as a result of discrete excess tax benefits on vesting share-based compensation in

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addition to the tax benefit associated with the ~~year-to-date~~quarter-to-date loss. We recognize the effects of tax legislation in the period in which the law is enacted. Our deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years we estimate the related temporary differences to reverse.

Liquidity and Capital Resources

Cash ~~used~~provided by operating activities was ~~$3.0~~$10.4 million for the six months ended April 30, ~~2020,~~2021, compared to cash ~~provided~~used by operating activities of ~~$26.6~~$3.0 million for the ~~similar~~corresponding period in fiscal ~~2019.~~2020. Cash used by operating activities for the six months ended April 30, ~~2020~~2021 reflect primarily our net ~~loss~~income of ~~$4.4~~$14.0 million, plus add-backs for non-cash activities (depreciation and amortization, stock-based compensation expense, ~~deferred taxes,~~provision for losses on accounts receivable, losses from unconsolidated entities, net gains or losses on Limoneira shares, ~~interest income on Notes to FreshRealm,~~deferred taxes, loss on disposal of property, plant and equipment, loss on the reserve for FreshRealm and gain on the sale of the Temecula packinghouse) of ~~$23.6~~$4.8 million and a net decrease in the components of our working capital of approximately ~~$22.3~~$8.4 million.

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Decreases in operating cash flows caused by working capital changes ~~includes~~include an increase in accounts receivable of $26.4 million, an increase in inventory of $11.6 million, an increase in other assets of $5.1 million, and an increase in advances to suppliers of $4.5 million, partially offset by an increase in payable to growers of $20.0 million, a net ~~decrease~~increase in accounts payable and accrued expenses of ~~$19.6~~$8.3 million, ~~an increase in accounts receivable of $10.4 million, an increase in inventory of $9.3 million, an increase~~a decrease in income taxes ~~receivable/payable~~receivable of ~~$6.0~~$8.2 million, and an increase in prepaid expenses and other current assets of ~~$1.8 million, partially offset by,~~$2.7 million.

The increase in our accounts receivable, as of April 30, 2021 when compared to October 31, 2020, is primarily due an increase in sales in April 2021 compared to October 2020. The increase in our inventory, as of April 30, 2021 when compared to October 31, 2020, is primarily due to higher inventory of California and Mexican Avocados. The increase in other assets is primarily related to the increase in IVA receivable in fiscal 2021. The increase in advances to suppliers is mainly due to advances to our tomato growers in the first six months of fiscal 2021.The increase in payable to growers is mostly due to increased volumes and sales prices for California and Mexican avocados in the month of ~~$14.6 million, and a decrease in advances~~April 2021 compared to ~~suppliers of $7.3 million and an decrease in other assets of $2.8 million.~~

October 2020. The ~~decrease~~increase in accounts payable and accrued expenses is primarily related to ~~a decrease~~an increase in payables to RFG co-packers and a reduction in discretionary spending. The increase in our accounts receivable, as of April 30, 2020 when compared to October 31, 2019, primarily reflects higher sales recorded in the month of April 2020 (due to higher avocado volumes and pricing). The increase in inventory is related to ~~increases in both the volume and value of avocados on hand at April 30, 2020 when compared to October 31, 2019, as well as~~ an increase in the volume of ~~prepared guacamole products held in inventory. The increase in payable to growers primarily reflects an increase in our avocado grower liability related to~~ California ~~avocado volumes~~ and Mexican ~~avocado costs.~~avocados. The decrease in ~~advances to suppliers primarily reflects the re-payment of preseason advances as a result of increased tomato sales. The decrease in other assets~~income taxes receivable is due to ~~a decrease in long-term Mexican IVA tax receivables from remeasurement due to~~ the ~~weakening~~net income and the timing of estimated payments made during the ~~Mexican peso (see Note 11 to our consolidated condensed financial statements).~~six months ended April 30, 2021.

Cash used in investing activities was ~~$25.8~~$9.0 million for the six months ended April 30, ~~2020,~~2021, which primarily related to the ~~purchase of SFFI for $18.4 million net of cash received,~~ purchases of property, plant and equipment of ~~$5.9~~$7.7 million and ~~additional investments in FreshRealm of $1.5~~infrastructure advances to Don Memo for $1.3 million.

Cash provided by financing activities was ~~$24.1~~$0.1 million for the six months ended April 30, ~~2020,~~2021, which related principally to the net proceeds on our credit facilities totaling ~~$45.0~~$21.7 million, partially offset by, ~~the~~ payment of our ~~$19.4~~$20.3 million dividend, payments on long-term obligations of $0.7 million and the payment of minimum withholding taxes on net share settlement of equity awards of ~~$1.2 million, and payments of $0.4 million on our long-term debt obligations.~~$0.6 million.

Our principal sources of liquidity are our existing cash balances, cash generated from operations, ~~and~~ amounts available for borrowing under our existing Credit Facility, and our investment in Limoneira shares. Cash and cash equivalents as of April 30, ~~2020~~2021 and October 31, ~~2019~~2020 totaled ~~$3.3~~$5.6 million and ~~$8.0~~$4.1 million. Our working capital at April 30, ~~2020~~2021 was ~~$25.4~~$74.8 million, compared to ~~$36.9~~$29.6 million at October 31, ~~2019.~~2020.

We believe that cash flows from operations, ~~and~~ the available Credit Facility, and other sources will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, 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. We have a revolving credit facility with Bank of America as administrative agent ~~and Merrill Lynch, Pierce, Fenner~~ ~~& Smith Inc. as joint lead arranger and sole bookrunner,~~ and Farm Credit West as joint lead arranger. Under the terms of this agreement, we ~~are advanced~~may draw on funds for both working capital and long-term productive asset purchases. Total credit available under this agreement is ~~$80~~$100 million and ~~will expire~~it expires in ~~June 2021.~~January 2026. See Note 13 to the consolidated condensed financial statements included in this Quarterly Report for more information. Upon notice to Bank of America, we may from time to time, request an increase in the Credit Facility by an amount not exceeding $50 million. For our ~~current credit agreement,~~Credit

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Facility, the weighted-average interest rate was ~~2.5~~2.8% and ~~3.8%~~1.9% at April 30, ~~2020~~2021 and October 31, ~~2019.~~2020. Under ~~these credit facilities,~~the Credit Facility, we had ~~$45.0~~$42.3 million and $20.6 million outstanding as April 30, ~~2020. There was nothing outstanding as of~~2021 and October 31, ~~2019.~~2020.

~~This~~The Credit Facility agreement contains customary affirmative and negative covenants for agreements of this type, including the following financial covenants applicable to the Company and its subsidiaries on a consolidated basis: (a) a quarterly consolidated leverage ratio of not more than 2.50 to 1.00 and (b) a quarterly consolidated fixed charge coverage ratio of not less than 1.15 to 1.00. We ~~are~~were in compliance with all such ~~covenants.~~covenants at April 30, 2021 and at the date of this Quarterly Report.

Contractual Obligations

There have been no material changes to our contractual commitments, from those previously disclosed in our Annual Report on Form 10-K for our fiscal year ended October 31, ~~2019.~~2020. For a summary of the contractual commitments at October 31, ~~2019,~~2020, see Part II, Item 7, in our ~~2019~~2020 Annual Report on Form 10-K.

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Impact of Recently Issued Accounting Pronouncements

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments include cash and cash equivalents, accounts receivable, payable to growers, accounts payable, current and long-term borrowings pursuant to our ~~credit facilities with financial institutions,~~Credit Facility, and long-term, fixed-rate obligations. All of our financial instruments are entered into during the normal course of operations and have not been acquired for trading purposes. The table below summarizes interest rate sensitive financial instruments and presents principal cash flows in U.S. dollars, which is our reporting currency, and weighted-average interest rates by expected maturity dates, as of April 30, ~~2020.~~2021.

(All amounts in thousands)

Expected maturity date April 30,


2021

2022

2023

2024

2025

Thereafter

Total

Fair Value

Assets

Cash and cash equivalents (1)

$
3,284

$
—

$
—

$
—

$
—

$
—

$
3,284

$
3,284

Accounts receivable (1)

76,261

—

—

—

—

—

76,261

76,261

Notes receivable from FreshRealm (2)

—

33,970

—

—

—

—

33,970

33,970

Liabilities

Payable to growers (1)

$
28,037

$
—

$
—

$
—

$
—

$
—

$
28,037

$
28,037

Accounts payable (1)

7,555

—

—

—

—

—

7,555

7,555

Current borrowings pursuant to credit facilities (1)

45,000

—

—

—

—

—

45,000

45,000


(All amounts in thousands)	Expected maturity date April 30,
	2022		2023		2024		2025		2026		Thereafter		Total		Fair Value
Assets
Cash and cash equivalents (1)	$	5,582	$	—	$	—	$	—	$	—	$	—	$	5,582	$	5,582
Accounts receivable (1)		90,112		—		—		—		—		—		90,112		90,112
Advances to suppliers (1)		9,521		—		—		—		—		—		9,521		9,521

Liabilities
Payable to growers (1)	$	31,390	$	—	$	—	$	—	$	—	$	—	$	31,390	$	31,390
Accounts payable (1)		14,012		—		—		—		—		—		14,012		14,012
Borrowings pursuant to credit facilities (1)		—		—		—		—		42,250		—		—		—

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

~~(2)~~

~~On April 1, 2020, we entered into~~instruments and the 10^th ~~amendment~~carrying amount of borrowings pursuant to credit facilities approximates fair market value due to the ~~FreshRealm promissory note which adjusted the interest~~variable rate ~~on the notes receivable from 10% to 3% effective April 1, 2020. The entire principal balance~~ of these notes shall be due and payable in full on April 1, 2022. If FreshRealm fails to make monthly interest payments beginning October 31, 2020, then the maturity date shall be reverted to November 1, 2020. Calavo has the option for up to two additional and separate one-year extensions of April 1, 2023 and April 1, 2024.interest.

We were not a party to any derivative instruments during the fiscal year. It is currently our intent not to use derivative instruments for speculative or trading purposes. Additionally, we do not use any hedging or forward contracts to offset market volatility.

Our Mexican-based operations transact a significant portion of business in Mexican pesos. Funds are transferred by our corporate office to Mexico on a weekly basis to satisfy domestic cash needs. We do not currently use derivative instruments to hedge fluctuations in the Mexican peso to U.S. dollar exchange rates. Management does, however, evaluate this opportunity from time to time. Total foreign currency remeasurement losses for the three months ended April 30, ~~2020~~2021 and ~~2019,~~2020, net of gains, was ~~$3.4~~$0.5 million and ~~$0.2~~$3.4 million. Total foreign currency remeasurement gains for the six months ended April 30, 2021, net of losses, was $0.6 million. Total foreign currency remeasurement losses for the six months ended April 30, 2020, net of gains, was $3.3 million. ~~Total foreign currency remeasurement gains for the six months ended April 30, 2019, net of losses, was insignificant.~~

ITEM 4. CONTROLS AND PROCEDURES

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

~~During~~There were no changes in the three months ended January 31, 2020, we implemented a new lease accounting system and process in response to the adoption of ASU No. 2016- 02, "Leases (Topic 842)". These implementations resulted in a material change in a component of our internal control over financial reporting. The operating effectiveness of these changes to ourCompany’s internal control over financial reporting ~~will be evaluated as part of our annual assessment of~~during the ~~effectiveness of~~quarter ended April 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial ~~reporting for our 2020 fiscal year end.~~

~~Table of Contents~~

During the second quarter of fiscal 2020, we appointed a new Corporate Controller and CFO. These appointments resulted in a material change in our disclosure controls and procedures, but we have determined that these controls and procedures remained effective for the three months ended April 30, 2020.

reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are 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.

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ITEM 1A. RISK FACTORS

The risk factors set forth below update the risk factors in our Annual Report on Form 10-K for the year ended October 31, ~~2019.~~2020. In addition to the risk factors below, you should carefully consider the risk factors discussed in our most recent Form 10-K report, which could materially affect our business, financial position, results of operations and the trading price of our common stock. ~~Further note, that the~~The risks and uncertainties that we face are not limited to those set forth below and/or in the ~~2019~~2020 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock.

The recovery from the COVID-19 pandemic and ~~resulting worldwide~~the current economic ~~conditions are adversely affecting,~~climate is increasing labor costs, commodity costs and logistical costs which will likely ~~continue to~~ adversely affect our business operations, financial condition, and results of ~~operations, and cash flows until such time as a vaccine and/or effective medical treatment is developed.~~operations.

~~Manufacturing and Supply Chain Disruption—~~

We are experiencing operational challenges inthat impact our production facilities and our logistics network, the ~~manufacturing~~impact of ~~our~~prices for petroleum-based products, packaging materials and ~~the operation~~commodity costs. The availability of the related supply chains supporting our ability to deliver our products to the consumer. These challenges include the implementation of health and safety measures to protect our employees, supplementing our workforce to compensate for employees disabled or temporarily unable to perform their duties, and temporary disruptions at certain of our manufacturing facilities. These conditions could lead to more prolonged disruptions and adverse financial impact in the future.sufficient labor is increasing costs companywide.

The mandated shelter in place and social distancing measures which are we are required to follow create challenges for the successful operation of our facilities. These same measures also impact the ability of our vendors, suppliers, logistics providers, distributors, and customers, to ultimately support the delivery of our products to consumers.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Uncertain Future Consumer Demand –~~In December 2020, Calavo withheld 12,448 shares from certain officers for the payments of minimum withholding of taxes on the net share settlement of equity awards.In February 2021, Calavo withheld 1,664 shares from our chief executive officer for the payment of minimum withholding of taxes on the net share settlement of equity awards.

While we have not experienced a significant loss of demand for our products during this pandemic, continued economic deterioration in the markets in which our products are sold, including unemployment, reductions in disposable income, declining consumer confidence, and perception of our products as non-essential, could result in future declines in the demand for our products.

~~Costs to confront the Pandemic –~~

We have incurred, and may be required to continue to incur for an indeterminable period, increased costs related to overtime and sick pay, government mandated employee leave related to pandemic conditions, incremental pay for working under challenging conditions, temporary employees, temporary facility closures, sanitizing the work environment, and overall increased safety measures. Our operating results may be adversely affected if we fail to adequately manage these costs or if we experience significant unexpected costs in the future.

The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control. If we are unable to successfully manage our business through the challenges and

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~~uncertainty created by the COVID-19 pandemic, our business and operating results could be materially adversely affected.~~

~~If the COVID-19 pandemic results in a prolonged adverse impact on our operating results, our goodwill and other intangibles assets may be at risk of future impairment.~~

We have significant goodwill and intangibles balances recorded with respect to our RFG segment and the recently acquired Simply Fresh operations, which we periodically review for impairment. These assets are sensitive to any significant changes in related results of operations of the underlying businesses. The pandemic has had adverse effects on the RFG and Simply Fresh operations, although no impairment of the related goodwill and intangibles balances has occurred during the quarter ended April 30, 2020. However, we cannot predict the effects that any continued adverse conditions from the pandemic may have on the future impairment of these assets.

ITEM 6. EXHIBITS


~~10.1~~		~~Seventh Amended and Restated Limited Liability Agreement, dated February 27, 2019.~~
~~10.2~~		~~Sixth Amended and Restated Senior Promissory Note, dated as of September 18, 2019, between Calavo Growers, Inc. and FreshRealm, LLC.~~
~~10.3~~		~~Seventh Amendment to Senior Promissory Note, dated as of October 8, 2019, between Calavo Growers, Inc. and FreshRealm, LLC.~~

~~10.4~~	10.1	~~Eighth Amendment to~~2020 Equity Incentive Plan, approved by shareholders on April 21, 2021 ^*
	10.2	Limited Liability Company Member Separation and Release Agreement, dated February 3, 2021, by and between FreshRealm LLC and Calavo Growers, Inc. ⁽¹⁾
	10.3	Amended and Restated Senior Secured Loan Agreement and Promissory Note, dated ~~as of November 25, 2019,~~February 3, 2021, by and between FreshRealm LLC and Calavo Growers, Inc. ~~and FreshRealm, LLC.~~⁽¹⁾

~~10.5~~	10.4	~~Ninth Amendment to Senior~~Secured Promissory Note, dated ~~as of December 17, 2019,~~February 3, 2021, by and between FreshRealm LLC and Calavo Growers, Inc. ~~and FreshRealm, LLC.~~⁽¹⁾

~~10.6~~	10.5	~~Tenth Amendment to Senior Promissory Note,~~Warrant Agreement, dated ~~as of April 1, 2020,~~February 3, 2021, by and between FreshRealm LLC and Calavo Growers, Inc. ~~and FreshRealm, LLC.~~⁽¹⁾

~~10.7~~	10.6	~~Eleventh Amendment to Senior Promissory Note,~~Third Amended and Restated Security Agreement, dated ~~as of April 17, 2020,~~February 3, 2021, by and between FreshRealm LLC and Calavo Growers, Inc. ~~and FreshRealm, LLC.~~⁽¹⁾

	10.7	Third Amendment to Credit Agreement, dated January 29, 2021, by and between Calavo Growers, Inc., Farm Credit West, PCA and Bank of America, N.A. ⁽²⁾

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

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

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

	101	The following financial information from the Quarterly Report on Form 10-Q of Calavo Growers, Inc. for the quarter ended April 30, ~~2020,~~2021, formatted in Inline XBRL (Extensible Business Reporting Language): (1) Consolidated Condensed Balance Sheets as of April 30, ~~2020~~2021 and October 31, ~~2019;~~2020; (2) Consolidated Condensed Statements of ~~Income~~ Operationsfor the three and six months ended April 30, ~~2020~~2021 and ~~2019;~~2020; (3) Consolidated Condensed Statements of Cash Flows for the three and six months ended April 30, ~~2020~~2021 and ~~2019;~~2020; (4) Consolidated Statements of ~~Shareholders~~Shareholders’ Equity for the three and six months ended April 30, ~~2020~~2021 and ~~2019;~~2020; and (5) Notes to ~~Unaudited~~Consolidated Condensed ~~Consolidated~~ Financial Statements.

	104	Cover Page Interactive Data File (formatted as Inline XBRL).

(1)	Previously filed on February 9, 2021 as an exhibit to the Registrant’s Report on Form 8-K and incorporated herein by reference.

(2)	Previously filed on February 2, 2021 as an exhibit to the Registrant’s Report on Form 8-K and incorporated herein by reference

*	Filed with this Form 10-Q.

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SIGNATURES

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

	Calavo Growers, Inc.
	(Registrant)


Date: June ~~9, 2020~~8, 2021
	By	/s/ James Gibson
		James Gibson
		Chief Executive Officer
		(Principal Executive Officer)


Date: June ~~9, 2020~~8, 2021
	By	/s/ Kevin Manion
		Kevin Manion
		Chief Financial Officer
		(Principal Financial Officer)

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	Three months ended April 30, 2020								Three months ended April 30, 2019

	Fresh		Calavo						Fresh		Calavo
	products		Foods		RFG		Total		products		Foods		RFG		Total

Avocados	$	149,865	$	—	$	—	$	149,865	$	134,892	$	—	$	—	$	134,892
Tomatoes		19,331		—		—		19,331		14,515		—		—		14,515
Papayas		2,363		—		—		2,363		1,809		—		—		1,809
Other fresh products		112		—		—		112		108		—		—		108
Prepared avocado products		—		19,118		—		19,118		—		23,631		—		23,631
Salsa		—		609		—		609		—		669		—		669
Fresh-cut fruit & veg. and prepared foods		—		—		94,186		94,186		—		—		114,641		114,641
Total gross sales		171,671		19,727		94,186		285,584		151,324		24,300		114,641		290,265
Less sales incentives		(803)		(1,874)		(657)		(3,334)		(112)		(2,259)		(649)		(3,020)
Less inter-company eliminations		(234)		(850)		—		(1,084)		(277)		(732)		—		(1,009)
Net sales	$	170,634	$	17,003	$	93,529	$	281,166	$	150,935	$	21,309	$	113,992	$	286,236


	Six months ended April 30, 2020								Six months ended April 30, 2019

	Fresh		Calavo						Fresh		Calavo
	products		Foods		RFG		Total		products		Foods		RFG		Total

Avocados	$	267,749	$	—	$	—	$	267,749	$	238,886	$	—	$	—	$	238,886
Tomatoes		32,324		—		—		32,324		25,907		—		—		25,907
Papayas		5,007		—		—		5,007		4,748		—		—		4,748
Other fresh products		237		—		—		237		189		—		—		189
Prepared avocado products		—		40,919		—		40,919		—		47,883		—		47,883
Salsa		—		1,328		—		1,328		—		1,522		—		1,522
Fresh-cut fruit & veg. and prepared foods		—		—		215,653		215,653		—		—		234,182		234,182
Total gross sales		305,317		42,247		215,653		563,217		269,730		49,405		234,182		553,317
Less sales incentives		(1,259)		(3,910)		(1,190)		(6,359)		(1,069)		(4,293)		(1,126)		(6,488)
Less inter-company eliminations		(700)		(1,642)		—		(2,342)		(872)		(1,689)		—		(2,561)
Net sales	$	303,358	$	36,695	$	214,463	$	554,516	$	267,789	$	43,423	$	233,056	$	544,268


	Three months ended		Six months ended
Cash paid for amounts included in the measurement of lease liabilities	April 30, 2020		April 30, 2020
Operating cash flows for operating leases	$	2,019	$	3,931
Financing cash flows for finance leases		212		410
Operating cash flows for finance leases		57		94


	Operating		Finance
	Leases		Leases
Remainder of 2020	$	4,064	$	478
2021		8,114		957
2022		8,000		948
2023		7,816		942
2024		7,448		666
Thereafter		43,317		3,246
Total lease payments		78,759		7,237
Less: imputed interest		11,098		1,171
Total lease liability	$	67,661	$	6,066


2020	$	9,534
2021		9,007
2022		8,672
2023		8,603
2024		8,203
Thereafter		50,796
	$	94,815


	Total
Year ending October 31:
2020	$	907
2021		915
2022		908
2023		900
2024		548
Thereafter		3,162
Minimum lease payments		7,340
Less interest		(1,166)
Present value of future minimum lease payments	$	6,174


	2020
Current assets (including cash of $623)	$	4,101
Property, plant, and equipment		1,413
Goodwill		9,815
Intangible assets		11,000
Total assets acquired		26,329
Current liabilities		(4,419)
Deferred taxes		(2,891)
Total liabilities acquired		(7,310)
Net assets acquired	$	19,019