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CALAVO GROWERS INC - Quarter Report: 2005 April (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended April 30, 2005

OR

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

Commission file number: 000-33385

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)
     
California
(State of incorporation)
  33-0945304
(I.R.S. Employer Identification No.)

1141A Cummings Road
Santa Paula, California 93060

(Address of principal executive offices) (Zip code)

(805) 525-1245
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o

Registrant’s number of shares of common stock outstanding as of April 30, 2005 was 13,506,833.


 
 

 


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CAUTIONARY STATEMENT

     This Quarterly Report on Form 10-Q contains statements relating to our future results (including certain projections and business trends) that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. Forward-looking statements frequently are identifiable by the use of words such as “believe,” “anticipate,” “expect,” “intend,” “will,” and other similar expressions. Our actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to: increased competition, conducting substantial amounts of business internationally, pricing pressures on agricultural products, adverse weather and growing conditions confronting avocado growers, new governmental regulations, as well as other risks and uncertainties, including but not limited to those set forth in Part I., Item 1 under the caption “Certain Business Risks” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2004, and those detailed from time to time in our other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise.

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CALAVO GROWERS, INC.

INDEX

         
    PAGE  
       
 
       
       
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    7  
 
       
    15  
 
       
    23  
 
       
    24  
 
       
       
 
       
    25  
 
       
    25  
 
       
    26  
 
       
    27  
 Exhibit 10.1
 Exhibit 10.2
 Exhibit 10.3
 Exhibit 10.4
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(All amounts in thousands, except per share amounts)
                 
    April 30,     October 31,  
    2005     2004  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 1,058     $ 636  
Accounts receivable, net of allowances of $1,612 (2005) and $1,087 (2004)
    26,125       21,131  
Inventories, net
    13,167       11,375  
Prepaid expenses and other current assets
    4,683       4,598  
Loans to growers
    152       209  
Advances to suppliers
    160       2,413  
Income tax receivable
    214       803  
Deferred income taxes
    1,775       1,775  
 
           
Total current assets
    47,334       42,940  
Property, plant, and equipment, net
    16,868       17,427  
Building held for sale
          1,658  
Goodwill
    3,591       3,591  
Other assets
    1,482       1,782  
 
           
 
  $ 69,275     $ 67,398  
 
           
 
               
Liabilities and shareholders’ equity
               
Current liabilities:
               
Payable to growers
  $ 10,070     $ 5,789  
Trade accounts payable
    2,237       2,490  
Accrued expenses
    10,287       8,234  
Short-term borrowings
    710       2,000  
Dividend payable
          4,052  
Current portion of long-term obligations
    19       22  
 
           
Total current liabilities
    23,323       22,587  
Long-term liabilities:
               
Long-term obligations, less current portion
    18       34  
Deferred income taxes
    840       840  
 
           
Total long-term liabilities
    858       874  
Commitments and contingencies
               
Shareholders’ equity:
               
Common stock, $0.001 par value; 100,000 shares authorized; 13,507 (2005) and 13,507 (2004) issued and outstanding
    14       14  
Additional paid-in capital
    28,847       28,822  
Notes receivable from shareholders
    (2,671 )     (2,883 )
Retained earnings
    18,904       17,984  
 
           
Total shareholders’ equity
    45,094       43,937  
 
           
 
  $ 69,275     $ 67,398  
 
           

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

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CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(All amounts in thousands, except per share amounts)
                                 
    Three months ended     Six months ended  
    April 30,     April 30,  
    2005     2004     2005     2004  
Net sales
  $ 60,206     $ 76,421     $ 107,877     $ 125,464  
Cost of sales
    53,851       68,668       99,570       114,627  
 
                       
Gross margin
    6,355       7,753       8,307       10,837  
Selling, general and administrative
    4,307       3,969       8,820       7,656  
 
                       
Operating income (loss)
    2,048       3,784       (513 )     3,181  
Other income, net
    1,909       106       1,991       220  
 
                       
Income before provision for income taxes
    3,957       3,890       1,478       3,401  
Provision for income taxes
    1,490       1,556       558       1,361  
 
                       
Net income
  $ 2,467     $ 2,334     $ 920     $ 2,040  
 
                       
Net income per share:
                               
Basic
  $ 0.18     $ 0.17     $ 0.07     $ 0.15  
 
                       
Diluted
  $ 0.18     $ 0.17     $ 0.07     $ 0.15  
 
                       
Number of shares used in per share computation:
                               
Basic
    13,507       13,507       13,507       13,488  
 
                       
Diluted
    13,580       13,589       13,581       13,571  
 
                       

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

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CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    Six months ended April 30,  
    2005     2004  
Cash Flows from Operating Activities:
               
Net income
  $ 920     $ 2,040  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    1,643       1,065  
Gain on sale of building
    (1,725 )      
Stock based compensation
    25       21  
Provision for losses on accounts receivable
    1       25  
Effect on cash of changes in operating assets and liabilities:
               
Accounts receivable
    (4,995 )     (11,028 )
Inventories, net
    (1,792 )     (4,591 )
Prepaid expenses and other assets
    155       1,146  
Loans to growers
    57       62  
Advances to suppliers
    2,253       194  
Income taxes receivable
    589        
Payable to growers
    4,281       12,337  
Trade accounts payable and accrued expenses
    1,800       560  
Income taxes payable
          163  
 
           
Net cash provided by operating activities
    3,212       1,994  
Cash Flows from Investing Activities:
               
Direct costs of Maui acquisition
          (65 )
Proceeds received from sale of building
    3,383        
Acquisitions of and deposits on property, plant, and equipment
    (1,024 )     (4,611 )
 
           
Net cash provided by (used in) investing activities
    2,359       (4,676 )
Cash Flows from Financing Activities:
               
Payment of dividend to shareholders
    (4,052 )     (3,376 )
Proceeds from (payments on) short-term borrowings, net
    (1,290 )     1,000  
Collection on notes receivable from shareholders
    212       384  
Payments on long-term obligations
    (19 )     (19 )
 
           
Net cash used in financing activities
    (5,149 )     (2,011 )
 
           
Net increase (decrease) in cash and cash equivalents
    422       (4,693 )
Cash and cash equivalents, beginning of period
    636       5,375  
 
           
Cash and cash equivalents, end of period
  $ 1,058     $ 682  
 
           
Supplemental Information -
               
Cash paid during the period for:
               
Interest
  $ 45     $ 45  
 
           
Income taxes
  $ 17     $ 1,089  
 
           
Noncash Investing and Financing Activities:
               

In November 2003, the Company acquired all of the outstanding common shares of Maui Fresh International, Inc. for 576,924 shares of the Company’s common stock, valued at $4.05 million. The following table summarizes the estimated fair values of the non-cash assets acquired and liabilities assumed at the date of acquisition.

         
(in thousands)   2004  
Fixed assets
  $ 114  
Goodwill
    3,526  
Intangible assets
    867  
 
     
Total non-cash assets acquired
    4,507  
Current liabilities
    110  
Deferred tax liabilities assumed
    347  
 
     
Net non-cash assets acquired
  $ 4,050  
 
     

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

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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) procures and markets avocados and other perishable commodities and prepares and distributes processed avocado products. Our expertise in marketing and distributing avocados, processed avocados, and other perishable foods allows us to deliver a wide array of fresh and processed food products to food distributors, produce wholesalers, supermarkets, and restaurants on a worldwide basis. Through our two operating facilities in southern California and two facilities in Mexico, we sort and pack avocados procured in California and Mexico and prepare processed avocado products. Additionally, we procure avocados internationally, principally from Mexico, Chile, and the Dominican Republic, and distribute other perishable foods, such as Hawaiian grown papayas. We report these operations in three different business segments: (1) California avocados, (2) international avocados and perishable food products and (3) processed products.

     The accompanying consolidated condensed financial statements are unaudited. In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments necessary to present fairly our financial position, results of operations, and cash flows. Such adjustments consist of adjustments of a normal recurring nature. Interim results are subject to significant seasonal variations and are not necessarily indicative of the results of operations for a full year. Our operations are sensitive to a number of factors, including weather-related phenomena and their effects on industry volumes, prices, product quality, and costs. Operations are also sensitive to fluctuations in currency exchange rates in both sourcing and selling locations, as well as economic crises and security risks in developing countries. These statements should also be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2004.

Recent Accounting Standards

     In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (SFAS 151), to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be recognized as current period charges, and that fixed production overheads should be allocated to inventory based on normal capacity of production facilities. This statement is effective for the Company’s fiscal year beginning November 1, 2005. We are in the process of evaluating whether the adoption of SFAS 151 will have a significant impact on our overall results of operations or financial position.

     In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (SFAS 153). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this Statement shall be applied prospectively. We do not expect the adoption of SFAS 153 will have a significant impact on our overall results of operations or financial position.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). SFAS 123(R) requires the recognition of compensation cost relating to share-based payment transactions in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued as of the grant date, based on the estimated number of awards that are expected to vest. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), and supersedes APB Opinion No. 25, Accounting for Stock

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CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Issued to Employees (Opinion 25). SFAS 123(R) is effective November 1, 2005. As a public company, we are allowed to select from three alternative transition methods—each having different reporting implications. We have not completed our evaluation or determined the impact of adopting SFAS 123(R).

     In December 2004, the FASB issued FASB Staff Position (FSP) FAS 109-1 – Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (2004 Act). This FSP provides guidance on the application of SFAS No. 109 to the provisions of the tax deduction on qualified production activities contained within the 2004 Act. FSP 109-1 states that the manufacturers’ deduction should be accounted for as a special deduction in accordance with SFAS No. 109 and not as a tax rate reduction. We adopted the provisions of FSP 109-1 during our first fiscal quarter of 2005. Adoption of FSP 109-1 did not have a significant effect on our financial position or results of operations.

     In December 2004, the FASB issued FSP FAS 109-2 – Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004, which provides guidance for the repatriation provisions included in the 2004 Act. The 2004 Act introduced a special limited-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer. As a result, FSP 109-2 provides an exception to the SFAS No. 109 requirement to reflect the effect of a new tax law in the period of enactment. Accordingly, an entity is allowed additional time beyond the financial reporting period of enactment to evaluate the effect of the 2004 Act on its plan for repatriation of foreign earnings. We adopted the provisions of FSP 109-2 during our first fiscal quarter of 2005. Adoption of FSP 109-2 did not have a significant effect on our financial position or results of operations.

Stock Based Compensation

     As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”), which was amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” the Company accounts for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations.

     In December 2003, our Board of Directors approved the issuance of options to acquire a total of 50,000 shares of our common stock to two members of our Board of Directors. Each option to acquire 25,000 shares vests in substantially equal installments over a 3-year period, has an exercise price of $7.00 per share, and has a term of 5 years from the grant date. The market price of our common stock at the grant date was $10.01. In accordance with APB 25, we are recording compensation expense of approximately $151,000 over the vesting period of three years from the grant date. During the three and six month periods ended April 30, 2005 and April 30, 2004, we recognized $13,000, $25,000, $13,000 and $21,000 of compensation expense with respect to stock option awards pursuant to APB 25. Had compensation cost for stock option awards been determined based on the fair value of each award at its grant date, consistent with the provisions of SFAS No. 123, the Company’s pro forma net income and net income per share would have been as follows (dollars in thousands, except per share amounts):

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CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

                                 
    Three months ended     Six months ended  
    April 30,     April 30,  
    2005     2004     2005     2004  
Net Income:
                               
As reported
  $ 2,467     $ 2,334     $ 920     $ 2,040  
Add: Total stock-based compensation expense determined under APB 25 and related interpretations, net of tax effects
    8       8       16       13  
Deduct: Total stock based compensation expense determined under fair value based method for all awards, net of tax effects
    (8 )     (8 )     (16 )     (13 )
 
                       
Pro forma
  $ 2,467     $ 2,334     $ 920     $ 2,040  
 
                       
 
                               
Net income per share, as reported:
                               
Basic
  $ 0.18     $ 0.17     $ 0.07     $ 0.15  
Diluted
  $ 0.18     $ 0.17     $ 0.07     $ 0.15  
Net income per share, pro forma:
                               
Basic
  $ 0.18     $ 0.17     $ 0.07     $ 0.15  
Diluted
  $ 0.18     $ 0.17     $ 0.07     $ 0.15  

     For purposes of pro forma disclosures under SFAS No. 123, the estimated fair value of the options is assumed to be amortized to compensation expense over the options’ vesting period. The fair value of the options granted in 2004 has been estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:

         
Risk-free interest rate
    3.3 %
Expected volatility
    26.9 %
Dividend yield
    20 %
Expected life (years)
    5  
Weighted-average fair value of options granted
  $ 3.01  

     The Black-Scholes and Binary option valuation models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because options held by our directors have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of these options.

Reclassifications

     Certain prior year amounts have been reclassified to conform to the current period presentation.

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CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

2. Information regarding our operations in different segments

     We operate and track results in three reportable segments: California avocados, international avocados and perishable foods products, and processed products. These three business segments are presented based on our management structure and information used by our president to measure performance and allocate resources. The California avocados segment includes all operations that involve the distribution of avocados grown in California. The international avocados and perishable foods products segment includes both operations related to distribution of fresh avocados grown outside of California and distribution of other perishable food items. The processed products segment represents all operations related to the purchase, manufacturing, and distribution of processed avocado products. Those costs that can be specifically identified with a particular product line are charged directly to that product line. Costs that are not segment specific are generally allocated based on two-year average sales dollars. We do not allocate assets or specifically identify them to our operating segments.

                                         
            International                    
            avocados and                    
    California     perishable food     Processed     Inter-segment        
    avocados     products     products     eliminations     Total  
    (All amounts are presented in thousands)  
Six months ended April 30, 2005
                                       
Net sales
  $ 34,202     $ 68,381     $ 15,457     $ (10,163 )   $ 107,877  
Cost of sales
    31,606       64,708       13,419       (10,163 )     99,570  
 
                             
Gross margin
    2,596       3,673       2,038             8,307  
Selling, general and administrative
    3,537       2,754       2,529             8,820  
 
                             
Operating income (loss)
    (941 )     919       (491 )           (513 )
Other income, net
    1,075       691       225             1,991  
 
                             
Income (loss) before provision for income taxes
    134       1,610       (266 )           1,478  
Provision (benefit) for income taxes
    51       607       (100 )           558  
 
                             
Net income (loss)
  $ 83     $ 1,003     $ (166 )   $     $ 920  
 
                             
                                         
            International                    
            avocados and                    
    California     perishable food     Processed     Inter-segment        
    avocados     products     products     eliminations     Total  
    (All amounts are presented in thousands)  
Six months ended April 30, 2004
                                       
Net sales
  $ 54,637     $ 63,275     $ 15,338     $ (7,786 )   $ 125,464  
Cost of sales
    50,155       59,224       13,034       (7,786 )     114,627  
 
                             
Gross margin
    4,482       4,051       2,304             10,837  
Selling, general and administrative
    3,330       2,018       2,308             7,656  
 
                             
Operating income (loss)
    1,152       2,033       (4 )           3,181  
Other income, net
    168       47       5             220  
 
                             
Income before provision for income taxes
    1,320       2,080       1             3,401  
Provision for income taxes
    529       832                   1,361  
 
                             
Net income
  $ 791     $ 1,248     $ 1     $     $ 2,040  
 
                             

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CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

                                         
            International                    
            avocados and                    
    California     perishable food     Processed     Inter-segment        
    avocados     products     products     eliminations     Total  
    (All amounts are presented in thousands)  
Three months ended April 30, 2005
                                       
Net sales
  $ 25,525     $ 31,994     $ 7,955     $ (5,268 )   $ 60,206  
Cost of sales
    22,921       29,773       6,425       (5,268 )     53,851  
 
                             
Gross margin
    2,604       2,221       1,530             6,355  
Selling, general and administrative
    1,764       1,368       1,175             4,307  
 
                             
Operating income
    840       853       355             2,048  
Other income, net
    1,019       662       228             1,909  
 
                             
Income before provision for income taxes
    1,859       1,515       583             3,957  
Provision for income taxes
    700       571       219             1,490  
 
                             
Net income
  $ 1,159     $ 944     $ 364     $     $ 2,467  
 
                             
                                         
            International                    
            avocados and                    
    California     perishable food     Processed     Inter-segment        
    avocados     products     products     eliminations     Total  
    (All amounts are presented in thousands)  
Three months ended April 30, 2004
                                       
Net sales
  $ 44,409     $ 28,387     $ 8,278     $ (4,653 )   $ 76,421  
Cost of sales
    40,055       26,506       6,760       (4,653 )     68,668  
 
                             
Gross margin
    4,354       1,881       1,518             7,753  
Selling, general and administrative
    1,755       1,023       1,191             3,969  
 
                             
Operating income
    2,599       858       327             3,784  
Other income, net
    85       19       2             106  
 
                             
Income before provision for income taxes
    2,684       877       329             3,890  
Provision for income taxes
    1,074       351       131             1,556  
 
                             
Net income
  $ 1,610     $ 526     $ 198     $     $ 2,334  
 
                             

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CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

     The following table sets forth sales by product category, by segment (in thousands):

                                                                 
    Six months ended April 30, 2005     Six months ended April 30, 2004  
            International                             International              
            avocados and                             avocados and              
    California     perishable food     Processed             California     perishable food     Processed        
    avocados     products     products     Total     avocados     products     products     Total  
Third-party sales:
                                                               
California avocados
  $ 30,075     $     $     $ 30,075     $ 51,036     $     $     $ 51,036  
Imported avocados
          42,036             42,036             39,190             39,190  
Papayas
          3,423             3,423             3,302             3,302  
Specialties and Tropicals
          8,484             8,484             8,211             8,211  
Processed — food service
                12,754       12,754                   13,896       13,896  
Processed — retail and club
                2,740       2,740                   1,982       1,982  
 
                                               
Total fruit and product sales to third-parties
    30,075       53,943       15,494       99,512       51,036       50,703       15,878       117,617  
Freight and other charges
    2,621       8,915       18       11,554       3,357       7,783       172       11,312  
 
                                               
Total third-party sales
    32,696       62,858       15,512       111,066       54,393       58,486       16,050       128,929  
Less sales incentives
    (41 )           (3,148 )     (3,189 )     (62 )     (47 )     (3,356 )     (3,465 )
 
                                               
Total net sales to third-parties
    32,655       62,858       12,364       107,877       54,331       58,439       12,694       125,464  
Intercompany sales
    1,547       5,523       3,093       10,163       306       4,836       2,644       7,786  
 
                                               
Net sales before eliminations
  $ 34,202     $ 68,381     $ 15,457       118,040     $ 54,637     $ 63,275     $ 15,338       133,250  
 
                                               
Intercompany sales eliminations
                            (10,163 )                             (7,786 )
 
                                                           
Consolidated net sales
                          $ 107,877                             $ 125,464  
 
                                                           
                                                                 
    Three months ended April 30, 2005     Three months ended April 30, 2004  
            International                             International              
            avocados and                             avocados and              
    California     perishable food     Processed             California     perishable food     Processed        
    avocados     products     products     Total     avocados     products     products     Total  
Third-party sales:
                                                               
California avocados
  $ 22,530     $     $     $ 22,530     $ 41,481     $     $     $ 41,481  
Imported avocados
          17,962             17,962             15,619             15,619  
Papayas
          1,603             1,603             1,662             1,662  
Specialties and Tropicals
          5,035             5,035             4,258             4,258  
Processed — food service
                6,729       6,729                   7,342       7,342  
Processed — retail and club
                1,334       1,334                   1,032       1,032  
 
                                               
Total fruit and product sales to third-parties
    22,530       24,600       8,063       55,193       41,481       21,539       8,374       71,394  
Freight and other charges
    2,022       4,448       82       6,552       2,655       4,058       104       6,817  
 
                                               
Total third-party sales
    24,552       29,048       8,145       61,745       44,136       25,597       8,478       78,211  
Less sales incentives
    (24 )           (1,515 )     (1,539 )     (33 )     (1 )     (1,756 )     (1,790 )
 
                                               
Total net sales to third-parties
    24,528       29,048       6,630       60,206       44,103       25,596       6,722       76,421  
Intercompany sales
    997       2,946       1,325       5,268       306       2,791       1,556       4,653  
 
                                               
Net sales before eliminations
  $ 25,525     $ 31,994     $ 7,955       65,474     $ 44,409     $ 28,387     $ 8,278       81,074  
 
                                               
Intercompany sales eliminations
                            (5,268 )                             (4,653 )
 
                                                           
Consolidated net sales
                          $ 60,206                             $ 76,421  
 
                                                           

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CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

3. Inventories

     Inventories consist of the following (in thousands):

                 
    April 30,     October 31,  
    2005     2004  
Fresh fruit
  $ 6,737     $ 3,424  
Packing supplies and ingredients
    1,917       2,081  
Finished processed foods
    4,513       5,870  
 
           
 
  $ 13,167     $ 11,375  
 
           

     During the three and six month periods ended April 30, 2005 and 2004, we were not required to, and did not, record any provisions to reduce our inventories to the lower of cost or market.

4. Related party transactions

     We sell papayas obtained from an entity owned by our Chairman of the Board of Directors, Chief Executive Officer and President. Sales of papayas procured from the related entity amounted to approximately $3,423,000, and $3,302,000 for the six months ended April 30, 2005 and 2004, resulting in gross margins of approximately $249,000 and $278,000. Sales of papayas procured from the related entity amounted to approximately $1,603,000, and $1,662,000 for the three months ended April 30, 2005 and 2004, resulting in gross margins of approximately $99,000 and $175,000. Included in accrued liabilities are approximately $149,000 and $113,000 at April 30, 2005 and October 31, 2004 due to this entity.

     Certain members of our Board of Directors market avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers. During the three and six months ended April 30, 2005 and 2004, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $0.4, $0.8, $1.5, and $1.9 million.

5. Other assets

     Included in other assets in the accompanying consolidated financial statements are the following intangible assets: customer-related intangibles of $590,000 (accumulated amortization of $147,000 at April 30, 2005), brand name intangibles of $275,000 and other identified intangibles totaling $2,000 (accumulated amortization of $1,400 at April 30, 2005). The customer-related intangibles and other identified intangibles are being amortized over five and two years. The intangible asset related to the brand name currently has an indefinite remaining useful life and, as a result, is not currently subject to amortization. We anticipate recording amortization expense of approximately $60,000 for the remainder of fiscal 2005 and approximately $118,000 per annum for fiscal 2006 through fiscal 2008, with the remaining amortization expense of approximately $29,000 recorded in fiscal 2009.

6. Other events

Dividend payment

     On January 3, 2005, we paid a $0.30 per share dividend in the aggregate amount of $4,052,000 to shareholders of record on November 15, 2004.

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CALAVO GROWERS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Contingencies

     As previously reported, we are currently under examination by the Mexican tax authorities (“Hacienda”) for the tax year ended December 31, 2000. During the first quarter of fiscal 2005, we received an assessment totaling approximately $2,000,000 from Hacienda related to the amount of income at our Mexican subsidiary. Based primarily on discussions with legal counsel, we believe that Hacienda’s position has no merit and that the Company will prevail. Accordingly, no amounts have been provided in the financial statements as of April 30, 2005. We are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements.

Corporate Headquarters Building

     In March 2005, we completed the sale of our corporate headquarters building located in Santa Ana, California for $3.4 million. This transaction resulted in a pre-tax gain on sale of approximately $1.7 million. In conjunction with such sale, we relocated our corporate offices to Santa Paula, California in March 2005. Total expenses related to such relocation approximated $0.1 million.

7. Processed product segment restructuring

     In February 2003, our Board of Directors approved a plan whereby the operations of our processed products business would be relocated. The plan called for the closing of our Santa Paula, California and Mexicali, Baja California Norte processing facilities and the relocation of these operations to a new facility in Uruapan, Michoacan, Mexico. We believe that this restructuring will provide cost savings in the elimination of certain transportation costs, duplicative overhead structures, and savings in the overall cost of labor and services. The Uruapan facility commenced operations in February 2004 and the Santa Paula and Mexicali facilities were closed in February 2003 and August 2004. For the first six months of fiscal 2005, we incurred costs related to this restructuring approximating $437,000, which are recorded in our income statement as both cost of sales ($298,000) and selling, general and administrative expenses ($139,000). All the above amounts have been paid and we do not expect any additional operating costs related to this restructuring.

8. Subsequent Events

Investment in Limoneira Company

     In order to increase our market share of California avocados and increase synergies within the marketplace, we entered into a stock purchase agreement with Limoneira Company (Limoneira) in June 2005. Pursuant to such agreement, we acquired approximately 15.1% of Limoneira’s outstanding common stock for $23.45 million and Limoneira acquired approximately 6.9% of our outstanding common stock for $10 million. Additionally, such agreement also provided for: (1) Calavo to lease office space from Limoneira in Santa Paula, California for a period of 10 years at an initial annual gross rental of approximately $0.2 million (subject to annual CPI increases, as defined), (2) Calavo to market Limoneira’s avocados and (3) Calavo and Limoneira to use good faith reasonable efforts to maximize avocado packing efficiencies for both parties by consolidating their fruit packing operations. Various opportunities are currently being considered, including the use of existing packing facilities, an investment in existing vacant facilities, and/or an investment in a new consolidated facility for both parties.

     Limoneira, which generated total revenues of approximately $26 million during fiscal 2004, primarily engages in growing citrus and avocados, picking and hauling citrus, and packing lemons. The issuances of the shares discussed above are exempt from registration under federal and state securities laws. As a result of the ownership percentage acquired in Limoneira, we will account for our investment in Limoneira under the “cost” method, whereby we will recognize only dividends received from Limoneira as income. Such investment will be classified as “available-for-sale,” whereby it will be reported at fair market value and unrealized gains and losses will be reported in other comprehensive income.

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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 year ended October 31, 2004 of Calavo Growers, Inc. (we, Calavo, or the Company). Certain prior year amounts have been reclassified to conform with the current period presentation.

Recent Developments

Dividend payment

     On January 3, 2005, we paid a $0.30 per share dividend in the aggregate amount of $4,052,000 to shareholders of record on November 15, 2004.

Contingencies

     As previously reported, we are currently under examination by the Mexican tax authorities (“Hacienda”) for the tax year ended December 31, 2000. During the first quarter of fiscal 2005, we received an assessment totaling approximately $2,000,000 from Hacienda related to the amount of income at our Mexican subsidiary. Based primarily on discussions with legal counsel, we believe that Hacienda’s position has no merit and that the Company will prevail. Accordingly, no amounts have been provided in the financial statements as of April 30, 2005. We are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements.

Corporate Headquarters Building

     In March 2005, we completed the sale of our corporate headquarters building located in Santa Ana, California for $3.4 million. This transaction resulted in a pre-tax gain on sale of approximately $1.7 million. In conjunction with such sale, we relocated our corporate offices to Santa Paula, California in March 2005. Total expenses related to such relocation approximated $0.1 million.

Processed product segment restructuring

     In February 2003, our Board of Directors approved a plan whereby the operations of our processed products business would be relocated. The plan called for the closing of our Santa Paula, California and Mexicali, Baja California Norte processing facilities and the relocation of these operations to a new facility in Uruapan, Michoacan, Mexico. We believe that this restructuring will provide cost savings in the elimination of certain transportation costs, duplicative overhead structures, and savings in the overall cost of labor and services. The Uruapan facility commenced operations in February 2004 and the Santa Paula and Mexicali facilities were closed in February 2003 and August 2004. For the first six months of fiscal 2005, we incurred costs related to this restructuring approximating $437,000, which are recorded in our income statement as both cost of sales ($298,000) and selling, general and administrative expenses ($139,000). We do not expect any additional operating costs related to this restructuring.

Investment in Limoneira Company

     In order to increase our market share of California avocados and increase synergies within the marketplace, we entered into a stock purchase agreement with Limoneira Company (Limoneira) in June 2005. Pursuant to such agreement, we acquired approximately 15.1% of Limoneira’s outstanding common stock for $23.45 million and Limoneira acquired approximately 6.9% of our outstanding common stock for $10 million. Additionally, such

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agreement also provided for: (1) Calavo to lease office space from Limoneira in Santa Paula, California for a period of 10 years at an initial annual gross rental of approximately $0.2 million (subject to annual CPI increases, as defined), (2) Calavo to market Limoneira’s avocados and (3) Calavo and Limoneira to use good faith reasonable efforts to maximize avocado packing efficiencies for both parties by consolidating their fruit packing operations. Various opportunities are currently being considered, including the use of existing packing facilities, an investment in existing vacant facilities, and/or an investment in a new consolidated facility for both parties.

     Limoneira, which generated total revenues of approximately $26 million during fiscal 2004, primarily engages in growing citrus and avocados, picking and hauling citrus, and packing lemons. The issuances of the shares discussed above are exempt from registration under federal and state securities laws. As a result of the ownership percentage acquired in Limoneira, we will account for our investment in Limoneira under the “cost” method, whereby we will recognize only dividends received from Limoneira as income. Such investment will be classified as “available-for-sale,” whereby it will be reported at fair market value and unrealized gains and losses will be reported in other comprehensive income.

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Net Sales

     The following table summarizes our net sales by business segment for each of the three and six month periods ended April 30, 2005 and 2004:

                                                 
    Three months ended April 30,     Six months ended April 30,  
(in thousands)   2005     Change     2004     2005     Change     2004  
Net sales to third-parties:
                                               
California avocados
  $ 24,528       (44.4 )%   $ 44,103     $ 32,655       (39.9 )%   $ 54,331  
International avocados and perishable food products
    29,048       13.5 %     25,596       62,858       7.6 %     58,439  
Processed products
    6,630       (1.4 )%     6,722       12,364       (2.6 )%     12,694  
 
                                       
Total net sales
  $ 60,206       (21.2 )%   $ 76,421     $ 107,877       (14.0 )%   $ 125,464  
 
                                       
As a percentage of net sales:
                                               
California avocados
    40.7 %             57.7 %     30.3 %             43.3 %
International avocados and perishable food products
    48.2 %             33.5 %     58.3 %             46.6 %
Processed products
    11.1 %             8.8 %     11.4 %             10.1 %
 
                                       
 
    100.0 %             100.0 %     100.0 %             100.0 %
 
                                       

     Net sales for the second quarter of fiscal 2005, compared to fiscal 2004, decreased by $16.2 million, or 21.2%; whereas net sales for the six months ended April 30, 2005, compared to fiscal 2004, decreased by $17.6 million, or 14.0%. Consistent with the historical seasonality of the California avocado harvest season, our California avocado business generated 40.7% of our consolidated net sales for the second quarter, as compared to 57.7% for the same prior year period. For the three and six month periods, our net sales reflect an increasing percentage of our business being generated from our international avocados and perishable food products segment. This increase was primarily driven by additional sales related to increases in the volume of avocados being imported from Mexico and Chile. Such increases, however, were partially offset by decreases in the volume of avocados being imported from the Dominican Republic, as well as a decrease in our average selling prices of all imported avocados. Net sales generated by our processed products business are not subject to the seasonal effect experienced by our other operating segments. The decrease in sales to third parties delivered by our processed products business during the second quarter of fiscal 2005, as compared to fiscal 2004, was primarily due to a marginal decrease in average prices and total pounds of product sold. We anticipate that sales generated from our California avocados and international avocados and perishable food products segments will continue to represent the majority of total net sales and the percentage of total net sales generated from these segments may increase in the future.

California avocados

     Net sales delivered by this business segment decreased by approximately $19.6 million, or 44.4%, for the second quarter of fiscal 2005, when compared to the same period for fiscal 2004. The decrease in sales reflects a 34.0% decrease in pounds of avocados sold, as well as a reduction in our average selling prices when compared to the same prior year period. The decrease in pounds is consistent with the expected decrease in the overall harvest of the California avocado crop for the 2004/2005 season. Our market share of California avocados decreased to 27.1% in the second quarter of fiscal 2005, when compared to a 32.5% market share for the same prior year period. We believe that such decrease is not related to a significant decrease in growers, but rather the timing of when fruit will be delivered to us.

     Net sales delivered by this business segment decreased by approximately $21.7 million, or 39.9%, for the first six months of fiscal 2005, compared to the same fiscal 2004 period. The decrease in sales reflects a 31.0% decrease in pounds of avocados sold, as well as a reduction in our average selling prices when compared to the same prior year period. The decrease in delivered pounds was primarily due to severe winter storms, an unanticipated increase in seasonal imports of Chilean sourced fruit and the expected decrease in the overall harvest of the California

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avocado crop for the 2004/2005 season. Similar to our quarterly results, our market share of California avocados decreased, going to 30.3% for the six months ended April 30, 2005, compared to 34.6% for the same period in the prior year. We believe that such decrease is not related to a significant decrease in growers, but rather the timing of when fruit will be delivered to us.

     Average selling prices, on a per carton basis, for California avocados for the second quarter and the six months of fiscal 2005 were 17.3% and 14.1% lower when compared to the same prior year periods. This pricing structure primarily reflected the initial uncertainty over the effect/impact of the year-round introduction of Mexican avocados in the U.S. marketplace.

     We anticipate that our California avocado business will experience a seasonal increase during the third fiscal quarter of 2005. In addition, we believe that, due to seasonal availability, the absence of certain imported avocados in the U.S. marketplace will positively impact average selling prices during the third fiscal quarter of 2005.

International and perishable food products

     For the quarter ended April 30, 2005, when compared to the same period for fiscal 2004, sales to third-party customers increased by approximately $3.5 million, or 13.5%. For the six months of fiscal 2005, when compared to the same period for fiscal 2004, sales to third-party customers increased by approximately $4.4 million, or 7.6%.

     For both the quarter and six months ended April 30, 2005, as compared to the same prior year period, the increased sales to third-parties by our international and perishable food products business were primarily driven by the additional sales related to Mexican and Chilean grown avocados in the U.S., Japanese, and/or European marketplaces.

     For the quarter ended April 30, 2005, the volume of Mexican and Chilean fruit handled increased by 3.5 million pounds, or 19.8%, and 3.0 million pounds, or 406.9%, when compared to the same prior year period. Such increases, however, were partially offset by decreases in the Dominican Republic sourced fruit. For the three months ended April 30, 2005, the volume of the Dominican Republic fruit handled decreased by 3.0 million pounds, or 98.4%, when compared to the same prior year period. This decrease is primarily related to the availability and size of the harvest.

     For the six months ended April 30, 2005, the volume of Mexican and Chilean fruit handled increased by 5.2 million pounds, or 16.2%, and 8.1 million pounds, or 87.5%, when compared to the same prior year period. Such increases, however, were partially offset by decreases in the Dominican Republic sourced fruit. For the six months ended April 30, 2005, the volume of the Dominican Republic fruit handled decreased by 4.1 million pounds, or 50.8%, when compared to the same prior year period. This decrease is primarily related to the availability and size of the harvest.

     For the second fiscal quarter of 2005, average selling prices, on a per carton basis, for Chilean, Mexican, and The Dominican Republic avocados were 27.6%, 1.0%, and 34.9% lower when compared to the same prior year period. For the first six months of fiscal 2005, average selling prices, on a per carton basis, for Chilean, Mexican, and The Dominican Republic avocados were 27.8%, 2.4%, and 19.2% lower when compared to the same prior year period. These reductions were primarily the result of a significant increase in seasonal imports of Chilean sourced fruit and the initial uncertainty over the effect/impact of the year-round introduction of Mexican avocados in the U.S. marketplace.

     Despite the year-round availability of Mexican avocados in the U.S. marketplace, we anticipate that net sales for this segment will decrease in the third fiscal quarter of 2005 as compared to the second fiscal quarter of 2005. This is consistent with the seasonal nature of the availability of certain foreign sourced avocados in the U.S. marketplace.

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Processed products

     For the quarter ended April 30, 2005, when compared to the same period for fiscal 2004, sales to third-party customers decreased by approximately $0.1 million, or 1.4%. This decrease is primarily related to a marginal decrease in average prices and total pounds of product sold.

     For the first six months of fiscal 2005, when compared to the same period for fiscal 2004, sales to third-party customers decreased by approximately $0.3 million, or 2.6%. The decrease in third-party sales is primarily attributable to a decrease in average sales prices, partially offset by an increase in total pounds sold. During the first six months of fiscal 2005, we experienced deterioration in our net average selling prices of $0.09, or 4.7%. Total product pounds sold increased, however, by 0.1 million pounds, or 2.0%.

     Our ultra high pressure products continue to experience solid demand. During the second quarter of fiscal 2005, sales of high pressure product totaled approximately $1.8 million, as compared to $1.3 million for the same prior year period. We believe that the introduction of these fresh guacamole products will, in the long-term, successfully address a growing market segment.

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     Gross Margins

     The following table summarizes our gross margins and gross profit percentages by business segment for each of the three and six month periods ended April 30, 2005 and 2004:

                                                 
    Three months ended April 30,     Six months ended April 30,  
(in thousands)   2005     Change     2004     2005     Change     2004  
Gross margins:
                                               
California avocados
  $ 2,604       (40.2 )%   $ 4,354     $ 2,596       (42.1 )%   $ 4,482  
International avocados and perishable food products
    2,221       18.1 %     1,881       3,673       (9.3 )%     4,051  
Processed products
    1,530       (0.8 )%     1,518       2,038       (11.5 )%     2,304  
 
                                       
Total gross margins
  $ 6,355       (18.0 )%   $ 7,753     $ 8,307       (23.3 )%   $ 10,837  
 
                                       
Gross profit percentages:
                                               
California avocados
    10.6 %             9.9 %     7.9 %             8.2 %
International avocados and perishable food products
    7.6 %             7.3 %     5.8 %             6.9 %
Processed products
    23.1 %             22.6 %     16.5 %             18.2 %
Consolidated
    10.6 %             10.1 %     7.7 %             8.6 %

     Our cost of goods sold consists predominantly of fruit costs, packing materials, freight and handling, labor and overhead (including depreciation) associated with preparing food products and other direct expenses pertaining to products sold. Consolidated gross margin, as a percent of sales, increased 0.5% for the three month period ended April 30, 2005, but decreased 0.9% for the six month period ended April 30, 2005. The increase in the second quarter of fiscal 2005 was principally attributable to increased profitability in our California operating segment. The decrease for the six months ended April 30, 2005 was primarily related to decreased profitability in our international avocados and perishable food products and processed products segments.

     For the three months ended April 30, 2005, our California avocados segment experienced an increase in its gross profit percentage. This was primarily driven by a minor increase in our packing and marketing fee (which is charged to cover our costs and a profit). For the six months ended April 30, 2005, the gross profit percentages generated by our international avocados and perishable food products business were negatively impacted by an increase in fruit costs. These increases in fruit costs, however, were partially offset by increases in fruit volume, which had the effect of reducing our per pound packing costs. For the three and six month period ended April 30, 2005, our processed products gross profit percentages decreased primarily as a result of higher fruit costs and final costs related to the closing our Mexicali, Mexico facility. We anticipate that the gross profit percentage for our processed product segment will continue to experience significant fluctuations during the next fiscal quarter primarily due to the uncertainty of the cost of fruit that will be used in the production process.

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Selling, General and Administrative

                                                 
    Three months ended April 30,     Six months ended April 30,  
(in thousands)   2005     Change     2004     2005     Change     2004  
Selling, general and administrative
  $ 4,307       8.5 %   $ 3,969     $ 8,820       15.2 %   $ 7,656  
Percentage of net sales
    7.2 %             5.2 %     8.2 %             6.1 %

     Selling, general and administrative expenses include costs of marketing and advertising, sales expenses and other general and administrative costs. Selling, general and administrative expenses increased $0.3 million, or 8.5%, for the three months ended April 30, 2005, when compared to the same period for fiscal 2004. This increase was primarily related to higher corporate costs, including, but not limited to, costs related to implementing provisions required under Section 404 of the Sarbanes-Oxley Act (totaling approximately $0.3 million) & corporate moving expenses (totaling approximately $0.1 million). Such higher corporate costs were partially offset by a decrease in employee compensation costs (totaling approximately $0.1 million). For the first six months ended April 30, 2005 selling, general and administrative expenses increased by $1.2 million, or 15.2%, compared to the same period for fiscal 2004. This increase was primarily related to higher corporate costs, including, but not limited to, costs related to implementing provisions required under Section 404 of the Sarbanes-Oxley Act (totaling approximately $0.6 million), corporate moving expenses (totaling approximately $0.1 million) and final expenses related to the closing our Mexicali, Mexico facility (totaling approximately $0.1 million). Such higher corporate costs were partially offset by a decrease in employee compensation costs (totaling approximately $0.1 million).

Other Income, net

                                                 
    Three months ended April 30,     Six months ended April 30,  
(in thousands)   2005     Change     2004     2005     Change     2004  
Other income, net
  $ 1,909       1,700.9 %   $ 106     $ 1,991       805.0 %   $ 220  
Percentage of net sales
    3.2 %             0.1 %     1.8 %             0.2 %

     Other income, net includes the gain on the sale of our corporate facility, interest income and expense generated in connection with our financing and operating activities, and certain other transactions that are outside of the course of normal operations. For the three and six months ended April 30, 2005, the gain on the sale of our corporate facility totaled approximately $1.7 million.

Provision for Income Taxes

                                                 
    Three months ended April 30,     Six months ended April 30,  
(in thousands)   2005     Change     2004     2005     Change     2004  
Provision for income taxes
  $ 1,490       (4.2 )%   $ 1,556     $ 558       (59.0 )%   $ 1,361  
Percentage of income before provision for income taxes
    37.7 %             40.0 %     37.8 %             40.0 %

     For the first six months of fiscal 2005, our provision for income taxes was $0.6 million, as compared to $1.4 million recorded for the comparable prior year period. We expect our effective tax rate to approximate 38% during fiscal 2005.

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Liquidity and Capital Resources

     Cash provided by operating activities was $3.2 million for the six months ended April 30, 2005, compared to $2.0 million for the similar period in fiscal 2004. Operating cash flows for the six-months ended April 30, 2005 reflect our net income of $0.9 million, net non-cash charges (depreciation and amortization, stock compensation expense and provision for losses on accounts receivable) of $0.1 million and a net increase in the noncash components of our working capital of approximately $2.2 million.

     These working capital increases include an increase in payable to growers of $4.3 million, a decrease in advances to suppliers totaling $2.3 million, an increase in trade accounts payable and accrued expenses of $1.8 million, and a decrease in income tax receivable of $0.6 million, partially offset by an increase in accounts receivable of $5.0 million and an increase in inventory of $1.8 million.

     Increases in our accounts receivable balance as of April 30, 2005, when compared to October 31, 2004, primarily reflect higher sales recorded in the month of April 2005, as compared to October 2004. The amounts in inventory and payable to our growers primarily reflect an increase in fruit delivered, partially offset by a decrease in the price per pound of California avocados marketed in the month of April 2005, as compared to October 2004. The decrease in advances to suppliers is primarily related to collections during our first six months of fiscal of 2005 on previously advanced amounts.

     Cash provided by investing activities was $2.4 million for the six months ended April 30, 2005 and related principally to the sale of our corporate facility located in Santa Ana, California.

     Cash used in financing activities was $5.1 million for the six months ended April 30, 2005 related principally to $4.1 million of cash outflows from the payment of a dividend and repayments totaling $1.3 million related to our short-term borrowings.

     Our principal sources of liquidity are our existing cash reserves, cash generated from operations and amounts available for borrowing under our existing credit facilities. Cash and cash equivalents as of April 30, 2005 and October 31, 2004 totaled $1.1 million and $0.6 million. Our working capital at April 30, 2005 was $24.0 million compared to $20.4 million at October 31, 2004. The overall working capital increase primarily reflects an increase in our accounts receivable and inventory balances, partially offset by increases in our payable to growers and accrued expenses balances.

     We believe that cash flows from operations and existing and new credit facilities will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, working capital and other financing requirements. We will continue to evaluate grower recruitment opportunities and exclusivity arrangements with food service companies to fuel growth in each of our business segments. We have two short-term, non-collateralized, revolving credit facilities. These credit facilities expire in January 2006 and April 2006 and are with separate banks. Under the terms of these agreements, we are advanced funds for working capital purposes. Total credit available under the combined short-term borrowing agreements was $24 million, with a weighted-average interest rate of 3.8% and 2.9% at April 30, 2005 and October 31, 2004. Under these credit facilities, we had no balance outstanding as of April 30, 2005 and $3.5 million outstanding as of October 31, 2004. The credit facilities contain various financial covenants with which we were in compliance at April 30, 2005. In June 2005, we borrowed approximately $13.5 million to finance the transaction discussed in footnote 8.

Impact of Recently Issued Accounting Pronouncements

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our financial instruments include cash and cash equivalents, accounts receivable, loans to growers, notes receivable from shareholders, payable to growers, accounts payable, current borrowings pursuant to our credit facilities with financial institutions, and long-term, fixed-rate obligations. All of our financial instruments are entered into during the normal course of operations and have not been acquired for trading purposes. The table below summarizes interest rate sensitive financial instruments and presents principal cash flows in U.S. dollars, which is our reporting currency, and weighted-average interest rates by expected maturity dates, as of April 30, 2005.

                                                 
    Expected maturity date April 30,  
(All amounts in thousands)   2005     2006     2007     2008     Total     Fair Value  
Assets:
                                               
Cash and cash equivalents (1)
  $ 1,058     $     $     $     $ 1,058     $ 1,058  
Accounts receivable, net (1)
    26,125                         26,125       26,125  
Loans to growers (1)
    152                         152       152  
Notes receivable from shareholders (3)
          210       2,461             2,671       2,598  
Liabilities:
                                               
Payable to growers (1)
  $ 10,070     $     $     $     $ 10,070     $ 10,070  
Accounts payable (1)
    2,237                         2,237       2,237  
Current borrowings pursuant to credit facilities (1)
                                   
Fixed-rate long-term obligations (3)
    19       8       8       2       37       37  


(1)   We believe the carrying amounts of cash and cash equivalents, accounts receivable, loans to growers, payable to growers, accounts payable, and current borrowings pursuant to credit facilities approximate their fair value due to the short maturity of these financial instruments.
 
(2)   Notes receivable from shareholders bear interest at 7.0%. We believe that a portfolio of loans with a similar risk profile would currently yield a return of 8.00%. We project the impact of an increase or decrease in interest rates of 100 basis points would result in a change of fair value of approximately $71,000.
 
(3)   Fixed-rate long-term obligations bear interest rates ranging from 3.3% to 8.2% with a weighted-average interest rate of 5.2%. We believe that loans with a similar risk profile would currently yield a return of 5.0%. We project the impact of an increase or decrease in interest rates of 100 basis points would result in a change of fair value of approximately $1,000.

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

     Our Mexican-based operations transact business in Mexican pesos. Funds are transferred by our corporate office to Mexico on a weekly basis to satisfy domestic cash needs. Consequently, the spot rate for the Mexican peso has a moderate impact on our operating results. However, we do not believe that this impact is sufficient to warrant the use of derivative instruments to hedge the fluctuation in the Mexican peso. Total foreign currency gains and losses for each of the three years in the period ended October 31, 2004 do not exceed $0.1 million.

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ITEM 4. CONTROLS AND PROCEDURES

     Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. No change in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On March 21, 2005, we held the annual meeting of shareholders of Calavo Growers, Inc. at our corporate headquarters. At the meeting, the holders of our outstanding common stock acted on the following matters:

     (1) The shareholders voted on a cumulative basis for ten directors, each to serve for a term of one year. Each nominee received the following votes:

                 
    Votes     Votes  
Name of Nominee   For     Withheld  
Lecil E. Cole
    24,724,802       286,427  
George H. Barnes
    6,857,547       306,311  
Michael D. Hause
    6,849,230       257,013  
Donald M. Sanders
    7,055,943       263,310  
Fred J. Ferrazzano
    8,737,604       293,899  
Alva V. Snider
    8,199,496       353,965  
Scott Van Der Kar
    8,528,753       236,840  
J. Link Leavens
    11,537,247       339,762  
Dorcas H. McFarlane
    7,881,724       337,894  
John M. Hunt
    8,443,071       233,422  

(2) The shareholders voted for the approval of the 2005 Stock Incentive Plan of Calavo Growers, Inc. Votes cast were as follows:

         
For
    5,838,749  
Against
    845,398  
Abstain
    235,595  
Broker non-votes
    3,251,684  

(3) The shareholders voted for the ratification of the appointment of Deloitte & Touche LLP as our independent accountants for fiscal 2005. Votes cast were as follows:

         
For
    10,108,783  
Against
    26,600  
Abstain
    36,043  

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ITEM 6. EXHIBITS

  10.1   Stock Purchase Agreement between Limoneira Company and Calavo Growers, Inc.
 
  10.2   Lease Agreement between Limoneira Company and Calavo Growers, Inc.
 
  10.3   Standstill agreement among Calavo Growers, Inc., Limoneira Company and other parties.
 
  10.4   Standstill agreement among Limoneira Company, Calavo Growers Inc. and other parties.
 
  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 of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
  32.2   Certification of Principal Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 8, 2005
  By   /s/ Lecil E. Cole    
           
      Lecil E. Cole    
      Chairman of the Board of Directors,    
      Chief Executive Officer and President    
      (Principal Executive Officer)    
 
           
Date: June 8, 2005
  By   /s/ Arthur J. Bruno    
           
      Arthur J. Bruno    
      Vice President, Finance and Corporate Secretary    
      (Principal Financial Officer)    

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INDEX TO EXHIBITS

     
Exhibit    
Number   Description
10.1
  Stock Purchase Agreement between Limoneira Company and Calavo Growers, Inc.
 
   
10.2
  Lease Agreement between Limoneira Company and Calavo Growers, Inc.
 
   
10.3
  Standstill agreement among Calavo Growers, Inc., Limoneira Company and other parties.
 
   
10.4
  Standstill agreement among Limoneira Company, Calavo Growers Inc. and other parties.
 
   
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 of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2
  Certification of Principal Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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