UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

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.)

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

		Name Of Each Exchange
Title of Each Class		On Which Registered
Common Stock, $0.001 Par Value per Share		Nasdaq Global Select Market

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

     Based on the closing price as reported on the Nasdaq Global Select Market, the aggregate market value of the Registrant’s Common Stock held by non-affiliates on April 30, 2009 (the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $162.5 million. Shares of Common Stock held by each executive officer and director and by each shareholder affiliated with a director or an executive officer have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the Registrant’s Common Stock as of November 30, 2009 was 14,504,833.

     Portions of the Registrant’s Proxy Statement for the 2010 Annual Meeting of Shareholders, which we intend to hold on April 21, 2010 are incorporated by reference into Part III of this Form 10-K. The definitive Proxy Statement will be filed within 120 days after October 31, 2009.

 

 

CAUTIONARY STATEMENT

This Annual Report on Form 10-K contains statements relating to future results of Calavo Growers, Inc. (including certain projections and business trends) that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. Forward-looking statements frequently are identifiable by the use of words such as “believe,” “anticipate,” “expect,” “intend,” “will,” and other similar expressions. Our actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to: increased competition, general economic and business conditions, energy costs and availability, 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 those set forth in Item 1A. Risk Factors and elsewhere in this Annual Report on Form 10-K 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.

PART I

Item 1. Business

General development of the 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. We procure avocados principally from California, Mexico, and Chile. Through our operating facilities in southern California, Texas, New Jersey, Arizona, and Mexico, we sort, pack, and/or ripen avocados for distribution both domestically and internationally. Additionally, we also distribute other perishable foods, such as Hawaiian grown papayas, and prepare processed avocado products. We report our operations in two different business segments: (1) fresh products and (2) processed products. See Note 11 in our consolidated financial statements for further information about our business segments.

     On October 9, 2001, we completed a series of transactions whereby common and preferred shareholders of Calavo Growers of California (the Cooperative), an agricultural marketing cooperative association, exchanged all of their outstanding shares for shares of our common stock. Concurrent with this transaction, the Cooperative was merged into us with Calavo Growers, Inc. (Calavo) emerging as the surviving entity. These transactions had the effect of converting the legal structure of the business from a non-profit cooperative to a for-profit corporation. All references herein to us for periods prior to the merger refer to the business and operations of the Cooperative.

     In August 2006, we entered into a joint venture agreement with San Rafael Distributing (SRD) for the purpose of the marketing, sale and distribution of fresh produce from the existing location of SRD at the Los Angeles Wholesale Produce Market (Terminal Market), located in Los Angeles, California. Such joint venture operates under the name of Maui Fresh International, LLC (Maui Fresh) and commenced operations in August 2006. SRD and Calavo each have an equal one-half ownership interest in Maui Fresh, but SRD has overall management responsibility for the operations of Maui Fresh at the Terminal Market. We use the equity method to account for our investment.

     In June 2007, we entered into a distribution agreement with Agricola Belher (Belher) of Mexico, a well-established quality producer of fresh vegetables, primarily tomatoes, for export to the U.S. market. Pursuant to such distribution agreement, Belher agreed, at their sole cost and expense, to harvest, pack, export, ship, and deliver tomatoes exclusively to our company, primarily our Arizona facility. In exchange, we agreed to sell and distribute such tomatoes, advance $2 million to Belher for operating purposes, provide additional advances as shipments are made during the season (subject to limitations, as defined), and return the proceeds from such tomato sales to Belher, net of our commission and aforementioned advances. The agreement also allows for us to advance additional amounts to Belher at our sole discretion. As of October 31, 2009 and 2008, we have advanced $2.0 million to Belher pursuant to this agreement, which is recorded in advances to suppliers.

     We also entered into an infrastructure agreement in June 2007 with Belher in order to significantly increase production yields and fruit quality. Pursuant to this agreement, we are to advance up to $5.0 million to be used solely for the acquisition, construction, and installation of improvements to and on certain land owned by Belher, as well as packing line equipment. Advances incur interest at 6.8% and 8.8% at October 31, 2009 and 2008. We advanced $4.2 million and $4.8 million as of October 31, 2009 and 2008 ($1.8 million and $1.2 million included in prepaid expenses and other current assets and $2.4 million and $3.6 million included in other long-term assets). Belher is to annually repay these advances in no less than 20% increments through July 2012. For fiscal 2009, a portion of the 2009 payment was not made and both parties agreed to defer the payment until 2010. For fiscal year 2008, we advanced $0.8 million to Agricola Belher pursuant to our infrastructure agreement. Agricola Belher paid $1.0 million in 2008 for net cash provided of $0.2 million. For fiscal year 2009, we have not made any infrastructure advances to Agricola Belher. Agricola Belher paid $0.5 million in fiscal year 2009 related to infrastructure advances. In addition, the agreement allows for additional $1.0 million advances to take place during the last five months of each of our fiscal years 2009 and 2010, but they are subject to certain conditions and are to be made at our sole discretion. Belher is to annually repay these advances in full on or before each of July 2010 and July 2011. For fiscal 2009, no additional advances were made to Belher. Interest is to be paid monthly or annually, as defined. Belher may prepay, without penalty, all or any portion of the advances at any time.

     In order to secure their obligations pursuant to both agreements discussed above, Belher granted us a first-priority security interest in certain assets, including cash, inventory and fixed assets, as defined.

     Effective December 2007, we entered into a consignment and marketing agreement with Maui Pineapple Company, LTD. (MPC) to market and sell Maui Gold Pineapples throughout the continental United States and Canada. MPC agreed, among other things, to source, pack and ship such pineapples to an agreed port of entry. In exchange, we agreed, among other things, to be responsible for

such product upon arrival at the port, to market and sell the related product, and to develop and implement marketing strategies aimed at building the Maui Gold brand recognition. The agreement calls for us to provide certain advances, as defined, and return the proceeds from such pineapple sales to MPC, net of our commission, fees, and incentives, if applicable. Our agreement expired in December 2009. See Note 16 in our consolidated financial statements for further information.

     In May 2008, we purchased all of the outstanding shares of Hawaiian Sweet, Inc. (“HS”) and all ownership interests of Hawaiian Pride, LLC (“HP”) from the Chairman of our Board of Directors, Chief Executive Office and President. HS and HP engage in tropical-product packing and processing operations in Hawaii. The Acquisition Agreement provides, among other things, that as a result of the Acquisition Agreement, Calavo shall make an initial purchase price payment in the aggregate amount of $3,500,000 for both entities. Calavo made the initial payment on May 20, 2008. Calavo shall also make two additional annual payments, ranging from $2,500,000 to $4,500,000, based on certain operating results (the “Earn-Out Payment(s)”), as defined. On September 23, 2009, we remitted the first annual Earn-Out payment, totaling approximately $2.4 million. This represents the minimum payment of $2.5 million, less $0.1 million of working capital shortfall. As a result of this payment, we recorded an adjustment decreasing property, plant and equipment by $0.9 million, other assets by $0.1 million, and accrued expenses by $1.0 million. Such adjustment relates to the resolution of the first deferred and contingent payment. We anticipate recording one more adjustment once the second deferred and contingent payment is determined in fiscal 2010. See Note 17 in our consolidated financial statements.

     Our principal executive offices are located at 1141-A Cummings Road, Santa Paula, California 93060; telephone (805) 525-1245.

     At October 31, 2009, we employed 1,049 employees worldwide.

Available information

     We maintain an Internet website at http://www.calavo.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and other information related to us, are available, free of charge, on our website as soon as reasonably practicable after we electronically file those documents with, or otherwise furnish them to, the Securities and Exchange Commission. Our Internet website and the information contained therein, or connected thereto, is not and is not intended to be incorporated into this Annual Report on Form 10-K.

Fresh products

     Calavo was founded in 1924 to market California avocados. In California, the growing area stretches from San Diego County to Monterey County, with the majority of the growing areas located approximately 100 miles north and south of Los Angeles County. The storage life of fresh avocados is limited. It generally ranges from one to four weeks, depending upon the maturity of the fruit, the growing methods used, and the handling conditions in the distribution chain.

     We sell avocados to a diverse group of supermarket chains, wholesalers, food service and other distributors, under the Calavo family of brand labels, as well as private labels. From time to time, some of our larger customers seek short-term sales contracts that formalize their pricing and volume requirements. Generally, these contracts contain provisions that establish a price floor and/or ceiling during the contract duration. Again, in our judgment, the shift by our customers to drafting sales contracts benefits large handlers like us, which have the ability to fulfill the terms of these contracts. During fiscal year 2009, our 5 and 25 largest fresh customers represented approximately 20% and 46% of our total consolidated revenues. During fiscal year 2008, our 5 and 25 largest fresh customers represented approximately 17% and 43% of our total consolidated revenues. During fiscal years 2009, 2008 and 2007 none of our fresh customers represented more than 10% of total consolidated revenues.

     The Hass variety is the predominant avocado variety marketed on a worldwide basis. Generally, California grown Hass avocados are available year-round, with peak production periods occurring between January through October. Other varieties have a more limited picking season and generally command a lower price. Approximately 2,000 California growers deliver avocados to us, generally pursuant to a standard marketing agreement. Over the past several years, our share of the California avocado crop has remained strong, with approximately 31% of the 2009 shipped California avocado crop handled by us, based on data published by the California Avocado Commission. We attribute our solid foothold in the California industry principally to the competitiveness of the per pound returns we pay and the communication and service we maintain with our growers.

     California avocados delivered to our packinghouses are graded, sized, packed, cooled and, at times, ripened for delivery to customers. Our ability to estimate the size, as well as the timing of the delivery of the annual avocado crop, has a substantial impact on both our costs and the sales price we receive for the fruit. To that end, our field personnel maintain direct contact with growers and farm managers and coordinate harvest plans. The feedback from our field-managers is used by our sales department to prepare sales plans used by our direct sales force.

     A significant portion of our California avocado handling costs is fixed. As a result, significant fluctuations in the volume of avocados delivered have a considerable impact on the per pound packing costs of avocados we handle. Generally, larger crops will result in a lower per pound handling cost. We believe that our cost structure is geared to optimally handle larger avocado crops. Our strategy calls for continued efforts in aggressively recruiting new growers, retaining existing growers, and procuring a larger percentage of the California avocado crop.

     California avocados delivered to us are grouped as a homogenous pool on a weekly basis based on the variety, size, and grade. The proceeds we receive from the sale of each separate avocado pool, net of a packing and marketing fee to cover our costs and a profit, are paid back to the growers once each month. The packing and marketing fee we withhold is set annually by our Board of Directors and is revised based on our estimated per pound packing and operating costs, as well as our operating profit. This fee is a fixed rate per pound. Significant competitive pressures dictate that our grower returns are set at the highest possible level to attract new and retain existing grower business. We believe that, if net proceeds paid ceased to be competitive, growers would choose to deliver their avocados to alternate competitive handlers. Consequently, we strive to deliver growers the highest return possible on avocados delivered to our packinghouses.

     The California avocado market is highly competitive with 9 major avocado handlers. A marketing order enacted by the state legislature is in effect for California grown avocados and provides the financial resource to fund generic advertising and promotional programs. Avocados handled by us are identifiable through packaging and the Calavo brand name sticker.

     We have leveraged our expertise in the handling and marketing of California avocados to our non-California sourced avocados and perishable food products. Non-California sourced avocados primarily include fruit imported from Mexico, Chile and Peru. Our strategy is to increase our market share of currently sourced avocados to all accepted marketplaces. We believe our diversified avocado sources provide a level of supply stability that may, over time, help solidify the demand for avocados among consumers in the United States and elsewhere in the world. We believe our efforts in distributing our other various commodities complement our offerings of avocados.

     We typically purchase Mexican avocados from two sources located in Mexico, growers and packers. The purchase price we pay for fruit acquired from Mexican growers is generally negotiated for substantially all the fruit in a particular grove. Once a purchase price is agreed to, the fruit is then harvested and delivered to our packinghouse located in Uruapan, Michoacán, Mexico. Once delivered, such fruit is weighed, graded, sized, packed, and cooled for shipment, primarily to the United States. Fruit purchased directly from Mexican packers, however, is already packed for shipment and, as a result, generally commands a higher purchase price, as it is already boxed and ready for shipment. In either case, the purchase price of Mexican avocados is generally based our estimated selling prices of such fruit, less anticipated packing and/or selling costs and our desired margin. We believe these two sources allow us to maximize both the timely acquisition, as well as purchase price, of Mexican fruit.

     Similar to California avocados, a significant portion of our handling costs for Mexican avocados are fixed. As a result, significant fluctuations in the volume of Mexican avocados delivered to our packinghouse can have a considerable impact on the per pound packing costs of avocados we handle. Generally, larger crops will result in a lower per pound handling cost. We believe that our cost structure for Mexican avocados is geared to optimally handle larger avocado crops.

     We believe that our continued success in marketing Mexican avocados is largely dependent upon securing a reliable, high-quality supply of avocados at reasonable prices, and keeping the handling costs low as we ship the Mexican avocados to our packinghouses. We are subject to USDA and other regulatory inspections to ensure the safety and the quality of the fruit being delivered from Mexico. The Mexican avocado harvest, which is often considerably larger than the California avocado harvest, is both complimentary and competitive with the California market, as the Mexican harvest is near year round (most significant from September to June). As a result, it is common for Mexican growers to monitor the supply of avocados for export to the United States in order to obtain higher field prices. During 2009, we packed and distributed approximately 20% of the avocados exported from Mexico into the United States and approximately 3% of the avocados exported from Mexico to countries other than the United States, based on our estimates.

     We also handle avocados from Chile and Peru, most of which are on a consignment basis with the suppliers. Our commission percentages often range from 8% to 10%. Additionally, from time to time, we may purchase Chilean sourced avocados. Pursuant to our consignment arrangements, we occasionally make advances to both Chilean and Peruvian growers. Historically, we made such advances related to both pre-harvest and post-harvest activities, but our focus during fiscal 2008 and 2009 was primarily related to post-harvest activities. Typically, we obtain collateral (i.e. fruit, fixed assets, etc.) that approximates the value at risk, prior to making such advances. Historical experience demonstrates that providing post-harvest advances results in our acquiring full market risk for the product, as it is possible (although unlikely) that our resale proceeds may be less than the amounts we paid to the grower. This is a result of the high level of volatility inherent in the avocado and perishable food markets, which are subject to significant pricing declines based on the availability of fruit in the market. In the event that we do make a pre-season advance, our ability to recover such

pre-harvest advance would be largely dependent on the growers’ ability to deliver avocados to us, as well as the inherent risks of farming, such as weather and pests.

     Chilean growers continue to increase/monitor avocado plantings to capitalize on returns available in the worldwide avocado markets. Sales of Chilean grown avocados have generally been significant during our 4^th and 1^st fiscal quarters. Additionally, with the Chilean harvesting season being complimentary to the California season (August through February), Chilean avocados are able to command competitive retail pricing in the market. During 2009, we distributed approximately 8% of the total Chilean avocados imported into the United States, based on our estimates.

     We have developed a series of marketing and sales initiatives primarily aimed at our largest customers that are designed to differentiate our products and services from those offered by our competitors. Some of these key initiatives are as follows:

•

We continue to have success with our ProRipeVIP™ avocado ripening program. This proprietary program allows us to deliver avocados evenly ripened to our customers’ specifications. We have invested in the Aweta AFS (acoustic firmness sensor) technology and equipment. ProRipeVIP™ is the next generation of selling conditioned avocados that have firmness determined via soundwaves. This technology is new to avocados. The most significant and compelling reason we invested in the Aweta systems is because the acoustic sensors measure firmness of the entire piece of fruit, as opposed to competitive mechanical tests that use pressure and calculated averages to measure firmness. We believe that ripened avocados help our customers address the consumers’ immediate needs and accelerate the sale of avocados through their stores. We currently have three Aweta systems in use in the United States, which, we believe, can effectively meet our customers’ demand for conditioned fruit.

•

We have developed various display techniques and packages that appeal to consumers and, in particular, impulse buyers. Some of our techniques include the bagging of avocados and the strategic display of the bags within the produce section of retail stores. Our research has demonstrated that consumers generally purchase a larger quantity of avocados when presented in a bag as opposed to the conventional bulk displays. We also believe that the value proposition of avocados in a bag provides for a higher level of sales to grocery stores.

•

From time to time, we market our avocados under joint promotion programs with other food manufacturers. Under these programs, we seek to increase the promotional exposure of our products by providing certain sales incentives. These incentives will be offered in conjunction with various promotional campaigns designed to advertise the products of all parties involved. We believe these programs will help us minimize our advertising costs, as they will be shared with other parties, while still achieving recognition in the marketplace.

     The acquisition of Maui Fresh International, Inc. expanded our perishable food products to include various commodities, like tomatoes, mushrooms, and pineapples. While many of these items are purchased, the majority of our sales are generated from tomatoes and pineapples, both of which are handled on a consigned basis. Commission rates for all products generally range from a flat commission rate per dollar sold to a fixed rate per-carton. Sales of our diversified products do not generally experience significant fluctuations related to seasonality.

Processed Products

     The processed product segment was originally conceived as a mechanism to stabilize the price of California avocados by reducing the volume of avocados available to the marketplace. In the 1960’s and early 1970’s, we pioneered the process of freezing avocado pulp and developed a wide variety of guacamole recipes to address the diverse tastes of consumers and buyers in both the retail and food service industries. One of the key benefits of frozen products is its long shelf-life. With the introduction of low cost processed products delivered from Mexican based processors, however, we realigned the segment’s strategy by shifting the fruit procurement and pulp processing functions to Mexico. In 1995, we invested in a processing plant in Mexicali, Mexico to derive the benefit of competitive avocado prices available in Mexico.

     Through January 2003, the primary function of our Mexicali processed operation was to produce pulp for our Santa Paula plant. Our processing facility in Santa Paula, California would receive the pulp from Mexicali, add ingredients, and package the product in various containers. The product would then be frozen for storage with shipment to warehouses and, ultimately, to our customers. From January 2003 to August 2004, however, our Mexicali processed operations became primarily focused on our individually quick frozen (IQF) avocado half product line and one of our ultra high-pressure lines. Our IQF line provides food service and retail customers with peeled avocado halves that are ripe and suitable for immediate consumption. These halves were frozen, packaged and shipped out of Mexicali to warehouses located in the U.S., and, ultimately, to our customers.

     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 (Mexicali) processing facilities and relocating these operations to a new facility in Uruapan, Michoacan, Mexico (Uruapan). This restructuring has provided for 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 ceased production in February 2003 and August 2004. Net sales of frozen products, typically sold to foodservices customers, represented approximately 53% and 56% of total processed segment sales for the years ended October 31, 2009 and 2008.

     We have two 215L ultra high pressure machines designed to “cold pasteurize” fresh guacamole. Utilizing ultra high pressure only and without the need of any additives or preservatives, this procedure substantially destroys the cells of any bacteria that could lead to spoilage or oxidation issues. Once the procedure is completed, our guacamole is cased and shipped to various retail and food service customers throughout the United States and Canada. These two 215L ultra high pressure machines are located in Uruapan and we estimate are operating at approximately 59% and 50% of the combined machines’ capacities as of October 31, 2009 and 2008. We believe the capacity provided by these two machines is reasonable given our current sales projections and expected growth. Net sales of our ultra high pressure (fresh) products, typically sold to retail customers, represented approximately 47% and 44% of total processed segment sales for the years ended October 31, 2009 and 2008.

     Sales are made principally through a commissioned nationwide broker network, which is supported by our regional sales managers. We believe that our marketing strength is distinguished by providing quality products, innovation, year-round product availability, strategically located warehouses, and market relationships. During fiscal year 2009, our 5 and 25 largest processed product customers represented approximately 7% and 12% of our total consolidated revenues. During fiscal year 2008, our 5 and 25 largest processed product customers represented approximately 6% and 11% of our total consolidated revenues. During fiscal years 2009, 2008 and 2007 none of our processed product customers represented more than 10% of total consolidated revenues.

     We believe that these ultra high pressure machines will enable our company to deliver the widest available array of prepared avocado and other products to our customers. Consequently, we believe that we are positioned to expand our ultra high pressure product line to include more avocado related products, high-end salsas, mangoes and other readily available fruit products.

Sales and Other Financial Information by Business Segment and Product Category

     Sales and other financial information by business segment are provided in Note 11 to our consolidated financial statements that are included in this Annual Report.

Patents and Trademarks

     Our trademarks include the Calavo brand name and related logos. We also utilize the following trademarks in conducting our business: Avo Fresco, Bueno, Calavo Gold, Celebrate the Taste, El Dorado, Fresh Ripe, Select, Taste of Paradise, The First Name in Avocados, Tico, Mfresh, Maui Fresh International and Triggered Avocados, and ProRipeVIP™.

Working Capital Requirements

     Generally, we make payments to our California avocado growers and other suppliers in advance of collecting all of the related accounts receivable. We generally bridge the timing between vendor payments and customer receipts by using operating cash flows and commercial bank borrowings. In addition, we provide crop loans and other advances to some of our growers, which are also funded through operating cash flows and borrowings.

     Non-California sourced avocados and perishable food products often require working capital to finance the payment of advances to suppliers and collection of accounts receivable. These working capital needs are also financed through the use of operating cash flows and bank borrowings.

     With respect to our processed products business, we require working capital to finance the production of our processed avocado products, building and maintaining an adequate supply of finished product, and collecting our accounts receivable balances. These working capital needs are financed through the use of operating cash flows and bank borrowings.

Backlog

     Our customers do not place product orders significantly in advance of the requested product delivery dates. Customers typically order perishable products two to ten days in advance of shipment, and typically order processed products within thirty days in advance of shipment.

Research and Development

     We do not undertake significant research and development efforts. Research and development programs, if any, are limited to the continuous process of refining and developing new techniques to enhance the effectiveness and efficiency of our processed products operations and the handling, ripening, storage, and packing of fresh avocados.

Compliance with Government Regulations

     The California State Department of Food and Agriculture oversees the packing and processing of California avocados and conducts tests for fruit quality and packaging standards. All of our packages are stamped with the state seal as meeting standards. Various states have instituted regulations providing differing levels of oversight with respect to weights and measures, as well as quality standards.

     As a manufacturer and marketer of processed avocado products, our operations are subject to extensive regulation by various federal government agencies, including the Food and Drug Administration (FDA), the USDA and the Federal Trade Commission (FTC), as well as state and local agencies, with respect to production processes, product attributes, packaging, labeling, storage and distribution. Under various statutes and regulations, these agencies prescribe requirements and establish standards for safety, purity and labeling. In addition, advertising of our products is subject to regulation by the FTC, and our operations are subject to certain health and safety regulations, including those issued under the Occupational Safety and Health Act. Our manufacturing facilities and products are subject to periodic inspection by federal, state and local authorities.

     As a result of our agricultural and food processing activities, we are subject to numerous environmental laws and regulations. These laws and regulations govern the treatment, handling, storage and disposal of materials and waste and the remediation of contaminated properties.

     We seek to comply at all times with all such laws and regulations and to obtain any necessary permits and licenses, and we are not aware of any instances of material non-compliance. We believe our facilities and practices are sufficient to maintain compliance with applicable governmental laws, regulations, permits and licenses. Nevertheless, there is no guarantee that we will be able to comply with any future laws and regulations or requirements for necessary permits and licenses. Our failure to comply with applicable laws and regulations or obtain any necessary permits and licenses could subject us to civil remedies including fines, injunctions, recalls or seizures, as well as potential criminal sanctions.

Employees

     As of October 31, 2009, we had 1,049 employees, of which 378 were located in the United States and 671 were located in Mexico. We do not have a significant number of United States employees covered by a collective bargaining agreement. 553 of Calavo’s Mexican employees are represented by a union. We consider the relationship with our employees to be good and we have never experienced a significant work stoppage.

     The following is a summary of the number of “salaried” and “hourly” employees as of October 31, 2009.

Location		Salaried				Hourly				Total
United States			121				257				378
Mexico			118				553				671
TOTAL			239				810				1,049

Item 1A. Risk Factors

Risks Related to Our Business

We are subject to increasing competition that may adversely affect our operating results.

     The market for avocados and processed avocado products is highly competitive and affects each of our businesses. Each of our businesses are subject to competitive pressures, including the following:

•

California avocados are impacted by an increasing volume of foreign grown avocados being imported into the United States. Recently, there have been significant plantings of avocados in Mexico, Chile, the Dominican Republic, Peru and other parts of the world, which have had, and will continue to have, the effect of increasing the volume of foreign grown avocados entering the United States market.

•

California avocados are subject to competition from other California avocado handlers. If we are unable to consistently pay California growers a competitive price for their avocados, these growers may choose to have their avocados marketed by alternate handlers.

•

Non-California sourced avocados and perishable food products are impacted by competitors operating in Mexico. Generally, handlers of Mexican grown avocados operate facilities that are substantially smaller than our facility in Uruapan, Mexico. If we are unable to pack and market a sufficient volume of Mexican grown avocados, smaller handlers will have a lower per unit cost and be able to offer Mexican avocados at a more competitive price to our customers.

•

Non-California sourced avocados and perishable food products are also subject to competition from other California avocado handlers that market Chilean grown avocados. If we are unable to consistently pay Chilean packers a competitive price for their avocados, these packers may choose to have their avocados marketed by alternate handlers.

We are subject to the risks of doing business internationally.

     We conduct a substantial amount of business with growers and customers who are located outside the United States. We purchase avocados from foreign growers and packers, sell fresh avocados and processed avocado products to foreign customers, and operate a packinghouse and a processing plant in Mexico. In the most recent years, there has been an increase in organized crime in Mexico. This has not had an impact on our operations, but this does increase the risk of doing business in Mexico. We are also subject to regulations imposed by the Mexican government, and also to examinations by the Mexican tax authorities (See Note 8 in the consolidated financial statements). Significant changes to these government regulations and to assessments by the Mexican tax authorities can have a negative impact on our operations and operating results in Mexico. For additional information about our non-California sourced fruit, see the “Business” section included in this Annual Report.

Our current international operations are subject to a number of inherent risks, including:

•

Local economic and political conditions, including disruptions in trading and capital markets;

•

Restrictive foreign governmental actions, such as restrictions on transfers of funds and trade protection measures, including export duties and quotas and customs duties and tariffs;

•

Changes in legal or regulatory requirements affecting foreign investment, loans, taxes, imports, and exports; and

Currency exchange fluctuations may impact the results of our operations.

Currency exchange rate fluctuations, depending upon the nature of the changes, may make our domestic-sourced products more expensive compared to foreign grown products or may increase our cost of obtaining foreign-sourced products. Because we do not hedge against our foreign currency exposure, our business has increased susceptibility to foreign currency fluctuations.

We and our growers are subject to the risks that are inherent in farming.

     Our results of operations may be adversely affected by numerous factors over which we have little or no control and that are inherent in farming, including reductions in the market prices for our products, adverse weather and growing conditions, pest and disease problems, and new government regulations regarding farming and the marketing of agricultural products.

Our earnings are sensitive to fluctuations in market prices and demand for our products.

     Excess supplies often cause severe price competition in our industry. Growing conditions in various parts of the world, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product.

     Fresh produce is highly perishable and generally must be brought to market and sold soon after harvest. The selling price received for each type of produce depends on all of these factors, including the availability and quality of the produce item in the market, and the availability and quality of competing types of produce.

     In addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. To the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products.

Increases in commodity or raw product costs, such as fuel, and paper, could adversely affect our operating results.

     Many factors may affect the cost and supply of fresh produce, including external conditions, commodity market fluctuations, currency fluctuations, changes in governmental laws and regulations, agricultural programs, severe and prolonged weather conditions and natural disasters. Increased costs for purchased fruit have in the past negatively impacted our operating results, and there can be no assurance that they will not adversely affect our operating results in the future.

     The price of various commodities can significantly affect our costs. Fuel and transportation cost is a significant component of the price of much of the produce that we purchase from growers, and there can be no assurance that we will be able to pass on to our customers the increased costs we incur in these respects.

     The cost of paper is also significant to us because some of our products are packed in cardboard boxes. If the price of paper increases and we are not able to effectively pass these price increases along to our customers, then our operating income will decrease.

We are subject to the risk of product liability claims.

     The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image.

We are subject to possible changing USDA and FDA regulations which govern the importation of foreign avocados into the United States and the processing of processed avocado products.

     The USDA has established, and continues to modify, regulations governing the importation of avocados into the United States. Our permits that allow us to import foreign-sourced avocados into the United States generally are contingent on our compliance with these regulations. Our results of operations may be adversely affected if we are unable to comply with existing and modified regulations and are unable to secure avocado import permits in the future.

     The FDA establishes, and continues to modify, regulations governing the production of processed avocado products. Our results of operations may be adversely affected if we are unable to comply with existing and modified regulations.

The acquisition of other businesses could pose risks to our operating income.

     We intend to review acquisition prospects that would complement our business. While we are not currently a party to any agreement with respect to any acquisitions, we may acquire other businesses in the future. Future acquisitions by us could result in accounting charges, potentially dilutive issuances of equity securities, and increased debt and contingent liabilities, any of which could have a material adverse effect on our business and the market price of our common stock. Acquisitions entail numerous risks, including the assimilation of the acquired operations, diversion of management’s attention to other business concerns, risks of entering markets in which we have limited prior experience, and the potential loss of key employees of acquired organizations. We may be unable to successfully integrate businesses or the personnel of any business that might be acquired in the future, and our failure to do so could have a material adverse effect on our business and on the market price of our common stock.

Our ability to competitively serve our customers is a function of reliable and low cost transportation. Disruption of the supply of these services and/or significant increases in the cost of these services could impact our operating income.

     We use multiple forms of transportation to bring our products to market. They include ocean, truck, and air-cargo. Disruption to the timely supply of these services or dramatic increases in the cost of these services for any reason including availability of fuel for such services, labor disputes, or governmental restrictions limiting specific forms of transportation could have an adverse effect on our ability to serve our customers and consumers and could have an adverse effect on our financial performance.

A portion of our workforce is unionized and labor disruptions could decrease our profitability.

     While we believe that our relations with our employees are good, we cannot assure you that we will be able to negotiate collective bargaining agreements on favorable terms, or at all, and without production interruptions, including labor stoppages. A prolonged labor dispute, which could include a work stoppage, could have a material adverse effect on the portion of our business affected by the dispute, which could impact our business, results of operations and financial condition.

The value of our common stock may be adversely affected by market volatility.

The trading price of our common stock fluctuates and may be influenced by many factors, including:

•

Our operating and financial performance and prospects;

•

The depth and liquidity of the market for our common stock;

•

Investor perception of us and the industry and markets in which we operate;

•

Our inclusion in, or removal from, any equity market indices;

•

Changes in earnings estimates or buy/sell recommendations by analysts; and

•

General financial, domestic, international, economic and other market conditions;

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

     We lease our corporate headquarters building from Limoneira located in Santa Paula, California. Additionally, we own two packinghouses and one distribution and ripening facility (our former processing facility) in California, lease one facility in Arizona, lease one facility in New Jersey, lease one facility in Texas, own one processing facility and own one packinghouse in Mexico.

United States Locations

     Our two California facilities handle avocados delivered to us by California, Mexican and Chilean growers. The Temecula, California facility was built in 1985 and has been improved in capacity and efficiency since then. The Santa Paula, California facility was purchased in 1955 and has had equipment improvements substantially equivalent to our Temecula facility. We believe that the combined annual capacity of the two packinghouses, under normal workweek operations, is sufficient to pack the annually budgeted volume of California avocados delivered to us by our growers.

     Our Santa Paula, California processing facility was built in 1975 and had a major expansion in 1988. In conjunction with our restructuring plan, which was approved in February 2003, this facility ceased operating as a processed product avocado processing facility and now functions primarily as a ripening, storage and shipping facility for our fresh avocado operations. Additionally, it also serves to store and ship certain processed avocado products as well. Also, effective December 2005, we sort and pack certain tropical commodities as well. We believe that the annual capacity of this facility will be sufficient to pack and ripen, if necessary, the expected annual volume of avocados and specialty commodities delivered to us.

     Our leased Nogales, Arizona facility primarily sorts, packs, ripens, and ships, tomatoes, avocados, and other tropical commodities as well. We believe that the annual capacity of this facility will be sufficient to handle our budgeted annual production needs.

     Our leased Swedesboro, New Jersey facility primarily sorts, packs, ripens, and ships avocados. Additionally, it also serves to store and ship certain tropical commodities as well. We believe that the annual capacity of this facility will be sufficient to handle our budgeted annual production needs.

     In February 2009, we ceased operating in our distribution center located in San Antonio, Texas. This location was neither leased nor owned, but rather operated pursuant to a usage agreement whereby we paid handling and distribution fees. We transferred our operations to our newly leased facility location in Garland, Texas. This facility primarily ripens, sorts, packs and ships fresh avocados. We believe that the annual capacity of this facility will be sufficient to handle our budgeted annual production needs.

     During fiscal 2008, through the acquisition of HS and HP, we now own a Hawaiian facility that primarily sorts, packs and ships papayas. We believe that the annual capacity of this facility will be sufficient to handle our budgeted annual production needs.

Mexico Locations

     Our owned processing facility in Uruapan, Michoacan, Mexico was constructed pursuant to our restructuring plan approved in February 2003. This facility commenced operations in February 2004. We believe that the annual capacity of this facility will be sufficient to process our budgeted annual production needs.

     During fiscal 2008, we purchased our previously leased fresh avocado packinghouse located in Uruapan, Michoacan, Mexico for $4.0 million, plus acquisition costs. This facility was built to our specifications. We believe that the annual capacity of this facility will be sufficient to process our budgeted annual production needs.

Item 3. Legal Proceedings

     From time to time, we become involved in legal proceedings that are related to our business operations. We are not currently a party to any legal proceedings that could have a material adverse effect upon our financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of our shareholders during the quarter ended October 31, 2009.

Executive Officers of the Registrant

     The following table sets forth the name, age and position of individuals who hold positions as executive officers of our company. There are no family relationships between any director or executive officer and any other director or executive officer of our company. Executive officers are elected by the Board of Directors and serve at the discretion of the Board.

Name		Age				Position
Lecil E. Cole			70			Chairman of the Board, Chief Executive Officer and President
Arthur J. Bruno			59			Chief Operating Officer, Chief Financial Officer and Corporate Secretary
Robert J. Wedin			60			Vice President, Sales and Fresh Marketing
Alan C. Ahmer			61			Vice President, Processed Product Sales and Production
Michael A. Browne			51			Vice President, Fresh Operations

     Lecil E. Cole has been a member of our board of directors since February 1982 and has served as Chairman of the Board since 1988. Mr. Cole has also served as our Chief Executive Officer and President since February 1999. He served as an executive of Safeway Stores from 1964 to 1976 and as Chairman of Central Coast Federal Land Bank from 1986 to 1996. Mr. Cole has served as Chairman and President of Hawaiian Sweet, Inc. and Tropical Hawaiian Products, Inc. since 1996. Mr. Cole farms approximately 4,400 acres in California on which avocados and cattle are produced and raised.

     Arthur J. Bruno has served as our Chief Financial Officer and Corporate Secretary since October 2003. During fiscal 2004, Mr. Bruno also assumed the title and responsibilities of Chief Operating Officer. From 1988 to 2003, Mr. Bruno served as the president and co-founder of Maui Fresh International, Inc. Mr. Bruno is a Certified Public Accountant.

     Robert J. Wedin has served as our Vice President since 1993. Mr. Wedin joined us in 1973 at our then Santa Barbara packinghouse. Beginning in 1990, Mr. Wedin served as a director of the California Avocado Commission for a period of ten years. Mr. Wedin currently is a board member of Producesupply.org and serves as a member of that organization’s executive committee.

     Alan C. Ahmer has served as our Vice President since 1989. Mr. Ahmer joined us in 1979 as a regional sales manager in our processed products business. In September 2003, Mr. Ahmer’s new title became Vice-President, Processed Products Sales and Production.

     Michael A. Browne has served as our Vice President since 2005. From 1997 until joining us, Mr. Browne served as the founder and co-owner of Fresh Directions International, a closely held multinational fresh produce company, which marketed fresh avocados from Mexico, Chile, and the Dominican Republic. Mr. Browne joined us in May 2005.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     In March 2002, our common stock began trading on the OTC Bulletin Board under the symbol “CVGW.” In July 2002, our common stock began trading on the Nasdaq National Market under the symbol “CVGW” and currently trades on the Nasdaq Global Select Market.

     The following tables set forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the Nasdaq Global Select Market.

Fiscal 2009		High				Low
First Quarter		$	13.34			$	5.93
Second Quarter		$	14.49			$	10.22
Third Quarter		$	20.01			$	11.82
Fourth Quarter		$	20.30			$	16.29

Fiscal 2008		High				Low
First Quarter		$	22.71			$	14.75
Second Quarter		$	20.09			$	13.53
Third Quarter		$	15.65			$	10.46
Fourth Quarter		$	13.87			$	8.42

     As of November 30, 2009, there were approximately 1,150 stockholders of record of our common stock.

     During the year ended October 31, 2009, we did not issue any shares of common stock that were not registered under the Securities Act of 1933 and we did not repurchase any shares of our common stock.

Dividend Policy

     Our dividend policy is to provide for an annual dividend payment, as determined by the Board of Directors. We anticipate paying dividends in the first quarter of our fiscal year.

     On December 11, 2009, we paid a $0.50 per share dividend in the aggregate amount of $7,252,000 to shareholders of record on December 1, 2009.

     On December 23, 2008, we paid a $0.35 per share dividend in the aggregate amount of $5,047,000 to shareholders of record on December 9, 2008.

Item 6. Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL DATA

     The following summary consolidated financial data (other than pounds information) for each of the years in the five-year period ended October 31, 2009 are derived from the audited consolidated financial statements of Calavo Growers, Inc.

     Historical results are not necessarily indicative of results that may be expected in any future period. The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto that are included elsewhere in this Annual Report.

		Fiscal Year Ended October 31,
		2009				2008				2007				2006				2005
		(In thousands, except per share data)
Income Statement Data: (1)
Net sales		$	344,765			$	361,474			$	302,984			$	273,723			$	258,822
Gross margin			44,533				33,181				31,772				29,084				21,734
Net income			13,611				7,725				7,330				5,788				3,322
Basic net income per share		$	0.94			$	0.54			$	0.51			$	0.40			$	0.24
Diluted net income per share		$	0.94			$	0.53			$	0.51			$	0.40			$	0.24
Balance Sheet Data as of End of Period:
Working capital		$	12,557			$	15,413			$	16,334			$	12,023			$	17,618
Total assets			123,216				134,686				128,018				107,563				108,482
Current portion of long-term obligations			1,366				1,362				1,307				1,308				1,313
Long-term debt, less current portion			13,908				25,351				13,106				10,406				11,719
Shareholders’ equity			69,487				65,517				74,003				58,943				64,746
Cash Flows Provided by (Used in):
Operations		$	21,997			$	5,296			$	4,629			$	7,819			$	5,568
Investing(2)(3)			(5,990	)			(7,454	)			(7,950	)			(4,663	)			(11,941	)
Financing			(16,641	)			2,700				4,238				(4,239	)			6,870
Other Data:
Dividends declared per share		$	0.50			$	0.35			$	0.35			$	0.32			$	0.32
Net book value per share		$	4.79			$	4.52			$	5.15			$	4.12			$	4.51
Pounds of California avocados sold			53,000				92,165				91,038				218,460				104,950
Pounds of non-California avocados sold			162,950				123,740				135,723				70,063				103,830
Pounds of processed avocados products sold			21,259				22,274				22,556				20,489				15,628

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated Financial Data” and our consolidated financial statements and notes thereto that appear elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those presented under “Risks related to our business” included in Item 1A and elsewhere in this Annual Report.

Overview

     We are a leader in the distribution of avocados, prepared avocado products, and other perishable food products throughout the United States. Our history and expertise in handling California grown avocados has allowed us to develop a reputation of delivering quality products, at competitive prices, while providing competitive returns to our growers. This reputation has enabled us to expand our product offerings to include avocados sourced on an international basis, prepared avocado products, and other perishable foods. We report our operations in two different business segments: (1) fresh products and (2) processed products. See Note 11 to our consolidated financial statements for further discussion. We report our financial results on a November 1 to October 31 fiscal year basis to coincide with the California avocado harvest season.

     Our Fresh Products business grades, sizes, packs, cools, and ripens (if desired) avocados for delivery to our customers. We presently operate three packinghouses in Southern California. These packinghouses handled approximately 31% of the California avocado crop during the 2009 fiscal year, based on data obtained from the California Avocado Commission. Our operating results and the returns we pay our growers are highly dependent on the volume of avocados delivered to our packinghouses, as a significant portion of our costs are fixed. Our strategy calls for continued efforts to retain and recruit growers that meet our business model. Additionally, our Fresh products business also procures avocados grown in Chile, Mexico and Peru, as well as other various commodities, including tomatoes, papayas, mushrooms, and pineapples. We operate a packinghouse in Mexico that, together with certain co-packers that we frequently purchase fruit from, handled approximately 20% of the Mexican avocado crop bound for the United States market and approximately 3% of the avocados exported from Mexico to countries other than the United States during the 2008-2009 Mexican season, based on our estimates. Additionally, during the 2008-2009 Chilean avocado season, we handled approximately 8% of the Chilean avocado crop, based on our estimates. Our strategy is to increase our market share of currently sourced avocados to all accepted marketplaces. We believe our diversified avocado sources provides a level of supply stability that may, over time, help solidify the demand for avocados among consumers in the United States and elsewhere in the world. We believe our efforts in distributing our other various commodities, such as those shown above, complement our offerings of avocados. From time to time, we continue to explore distribution of other crops that provide reasonable returns to the business.

     Our processed products business procures avocados, processes avocados into a wide variety of guacamole products, and distributes the processed product to our customers. Customers include both food service industry and retail businesses and our products primarily include both frozen and “cold pasteurized” fresh guacamole. “Cold pasteurized” fresh guacamole refers to fresh guacamole products that has been treated by one of our ultra high pressure machines. These machines utilize ultra high pressure only (i.e. without additives or preservatives) and destroy the cells of any bacteria that could lead to spoilage or oxidation issues.

     Due to the long shelf-life of our frozen processed products and the purity of our ultra high pressure guacamole, we believe that we are well positioned to address the diverse taste and needs of today’s customers. We believe our ultra high pressure machines will enable our company to deliver the widest available array of prepared avocado products to our customers. We also believe that we are positioned to expand our ultra high pressure product line to include more avocado related products, high-end salsas, mangoes and other readily available fruit products. We continue to seek to expand our relationships with major food service companies and develop alliances that will allow our products to reach a larger percentage of the marketplace.

     Net sales of frozen products represented approximately 53% and 56% of total processed segment sales for the years ended October 31, 2009 and 2008. Net sales of our ultra high pressure products represented approximately 47% and 44% of total processed segment sales for the years ended October 31, 2009 and 2008.

     Our Fresh Products business is characterized by crop volume and price changes. Furthermore, the operating results of all of our businesses, including our processed products business, have been, and will continue to be, affected by quarterly and annual fluctuations and market downturns due to a number of factors, such as pests and disease, weather patterns, changes in demand by consumers, the timing of the receipt, reduction, or cancellation of significant customer orders, the gain or loss of significant customers, market acceptance of our products, our ability to develop, introduce, and market new products on a timely basis, availability and cost of avocados and supplies from growers and vendors, new product introductions by our competitors, change in the mix of avocados and processed products we sell, and general economic conditions. We believe, however, that we are currently positioned to address these risks and deliver favorable operating results for the foreseeable future.

Recent Developments

Dividend Payment

     On December 11, 2009, we paid a $0.50 per share dividend in the aggregate amount of $7,252,000 to shareholders of record on December 1, 2009.

Contingencies

     Hacienda Suit — We are currently under examination by the Mexican tax authorities (Hacienda) for the tax years ended December 31, 2000 and December 31, 2004. We have received assessments totaling approximately $2.0 million and $4.5 million from Hacienda related to the amount of income at our Mexican subsidiary. Subsequent to that initial assessment, the Hacienda offered a settlement of approximately $400,000 related to the tax year 2000 assessment, which we declined. In the second quarter of 2009, we won our most recent appeal case for the tax year ended December 31, 2000. The Hacienda subsequently appealed that decision and the case was sent back to the tax court due to administrative error by such jurisdiction. In the second quarter of 2009, the Hacienda initiated an examination related to tax year ended December 31, 2007 as well. We are not aware of any assessments related to this examination, but we do not expect this examination to have a significant impact on our results of operations. We pledged our processed products building located in Uruapan, Michoacan, Mexico as collateral to the Hacienda in regards to these assessments.

     IRS examination— The Internal Revenue Service has concluded their examination for the year ended October 31, 2005. No changes were noted.

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

Term Revolving Credit Agreement

     In July 2009, we renewed and extended our non-collateralized, revolving credit facility with Bank of America, N.A. Under the terms of this agreement, we are advanced funds for both working capital and long-term productive asset purchases. Total credit available under the borrowing agreement is now $15.0 million, up from $10.0 million and now expires on July 1, 2011. This increase was at our request and not due to any immediate cash flows needs. The credit facility contains various financial covenants, the most significant relating to tangible net worth (as defined), and Funded Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) ratio (as defined). We were in compliance with all such covenants at October 31, 2009.

First Earn-Out Payment

     In May 2008, we purchased all of the outstanding shares of Hawaiian Sweet (HS) and all ownership interests of Hawaiian Pride (HP) from the Chairman of our Board of Directors, Chief Executive Office and President. HS and HP engage in tropical-product packing and processing operations in Hawaii. The Acquisition Agreement provides, among other things, that as a result of the Acquisition Agreement, Calavo shall make an initial purchase price payment in the aggregate amount of $3,500,000 for both entities. Calavo made the initial payment on May 20, 2008. Calavo shall also make two additional annual payments, ranging from $2,500,000 to $4,500,000, based on certain operating results (the “Earn-Out Payment(s)”), as defined. On September 23, 2009, we remitted the first annual Earn-Out payment, totaling approximately $2.4 million. This represents the minimum payment of $2.5 million, less $0.1 million of working capital shortfall. As a result of this payment, we recorded an adjustment decreasing property, plant and equipment by $0.9 million, other assets by $0.1 million, and accrued expenses by $1.0 million. Such adjustment relates to the resolution of the first deferred and contingent payment. We anticipate recording one more adjustment once the second deferred and contingent payment is determined in fiscal 2010.

Critical Accounting Estimates

     Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we re-evaluate all of our estimates, including those related to the areas of customer and grower receivables, inventories, useful lives of property, plant and equipment, promotional allowances, income taxes, retirement benefits, and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions as additional information becomes available in future periods.

     Management has discussed the development and selection of critical accounting estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting estimates in this Annual Report.

     We believe the following are the more significant judgments and estimates used in the preparation of our consolidated financial statements.

     Promotional allowances. We provide for promotional allowances at the time of sale, based on our historical experience. Our estimates are generally based on evaluating the relationship between promotional allowances and gross sales. The derived percentage is then applied to the current period’s sales revenues in order to arrive at the appropriate debit to sales allowances for the period. The offsetting credit is made to accrued liabilities. When certain amounts of specific customer accounts are subsequently identified as promotional, they are written off against this allowance. Actual amounts may differ from these estimates and such differences are recognized as an adjustment to net sales in the period they are identified. A 1% change in the derived percentage for the entire year would impact results of operations by approximately $0.5 million.

     Income Taxes. We account for deferred tax liabilities and assets for the future consequences of events that have been recognized in our consolidated financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of our assets and liabilities result in a deferred tax asset, we perform an evaluation of the probability of being able to realize the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

     As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, we record additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be.

     The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.

     Goodwill and acquired intangible assets. Goodwill, defined as unidentified asset(s) acquired in conjunction with a business acquisition, is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. Goodwill impairment testing is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test would be unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. The estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. We performed our annual assessment of goodwill and determined that no impairment existed as of October 31, 2009.

     Allowance for accounts receivable. We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Results of Operations

     The following table sets forth certain items from our consolidated statements of income, expressed as percentages of our total net sales, for the periods indicated:

		Year ended October 31,
		2009				2008				2007
Net sales			100.0	%			100.0	%			100.0	%
Gross margins			12.9	%			9.2	%			10.5	%
Selling, general and administrative			6.6	%			5.8	%			6.5	%
Operating income			6.3	%			3.4	%			4.0	%
Interest income			0.1	%			0.1	%			0.1	%
Interest expense			(0.3	)%			(0.4	)%			(0.4	)%
Other income, net			0.1	%			0.2	%			0.2	%
Net income			3.9	%			2.1	%			2.4	%

Net Sales

     We believe that the fundamentals for our products continue to be favorable. Firstly, Americans are eating more avocados. Over the last 10 years, United States (U.S.) consumption of avocados has expanded at a 9% compound annual growth rate and we do not anticipate this growth significantly changing. We believe that the healthy eating trend that has been developing in the United States contributes to such growth, as avocados, which are cholesterol and sodium free, are dense in fiber, vitamin B6, antioxidants, potassium, folate, and contain unsaturated fat, which help lower cholesterol. Also, a growing number of research studies seem to suggest that phytonutrients, which avocados are rich in, help fight chronic illnesses, such as heart disease and cancer.

     Additionally, we believe that the demographic changes in the U.S. will greatly impact the consumption of avocados and avocado-based products. The Hispanic community currently accounts for approximately 15% of the U.S. population, and the total number of Hispanics is estimated to triple by the year 2050. Avocados are considered a staple item purchased by Hispanic consumers, as the per-capita avocado consumption in Mexico is estimated to be more than seven-fold that of the U.S.

     We anticipate avocado products will further penetrate the United States marketplace driven by year-round availability of fresh avocados due to imports, a rapid growing Hispanic population, and the promotion of the health benefits of avocados. As the largest marketer of avocado products in the United States, we believe that we are well positioned to leverage this trend and to grow all segments of our business. Additionally, we also believe that avocados and avocado based products will further penetrate other marketplaces that we currently operate in, as interest in avocados continues to expand.

     In October 2002, the USDA announced the creation of a Hass Avocado Board to promote the sale of Hass variety avocados in the U.S. marketplace. This board provides a basis for a unified funding of promotional activities based on an assessment on all avocados sold in the U.S. marketplace. The California Avocado Commission, which receives its funding from California avocado growers, has historically shouldered the promotional and advertising costs supporting avocado sales. We believe that the incremental funding of promotional and advertising programs in the U.S. will, in the long term, positively impact average selling prices and will favorably impact our avocado businesses. During fiscal 2009, 2008 and 2007, on behalf of avocado growers, we remitted approximately $0.6 million, $2.2 million and $1.7 million to the California Avocado Commission. During fiscal 2009, 2008 and 2007, we remitted approximately $3.8 million, $4.2 million and $4.5 million to the Hass Avocado Board related to avocados.

     Sales of products and related costs of products sold are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. Service revenue, including freight, ripening, storage, bagging and palletization charges, is recorded when services are performed and sales of the related products are delivered. We provide for sales returns and promotional allowances at the time of shipment, based on our experience. The following table summarizes our net sales by business segment:

		2009				Change				2008				Change				2007
		(Dollars in thousands)
Net sales:
Fresh products		$	300,235				(4.9	%)		$	315,667				20.8	%		$	261,325
Processed products			44,530				(2.8	%)			45,807				10.0	%			41,659
Total net sales		$	344,765				(4.6	%)		$	361,474				19.3	%		$	302,984
As a percentage of net sales:
Fresh products			87.1	%							87.3	%							86.3	%
Processed products			12.9	%							12.7	%							13.7	%
			100.0	%							100.0	%							100.0	%

     Net sales for the year ended October 31, 2009, when compared to 2008, decreased by approximately $16.7 million, or 4.6%, principally as a result of a decrease in both our fresh products and processed products segments. The decrease in fresh product sales for the year ended October 31, 2009 was primarily related to decreased sales of California avocados, tomatoes, and pineapples. These decreases were partially offset, however, by increased sales from Mexican and Chilean sourced avocados. While the procurement of fresh avocados related to our fresh products segment is seasonal based on region, our processed products business is generally not subject to a seasonal effect. The decrease in net sales delivered by our processed products business was due primarily to a decrease in pounds sold.

     The following tables set forth sales by product category and sales incentives, by segment (dollars in thousands):

		Year ended October 31, 2009												Year ended October 31, 2008
		Fresh				Processed								Fresh				Processed
		products				products				Total				products				products				Total
Third-party sales:
Avocados		$	259,558			$	—			$	259,558			$	268,674			$	—			$	268,674
Tomatoes			14,067				—				14,067				19,666				—				19,666
Pineapples			13,341				—				13,341				16,442				—				16,442
Papayas			9,118				—				9,118				8,392				—				8,392
Other Fresh products			4,219				—				4,219				2,564				—				2,564
Processed — food service			—				36,493				36,493				—				38,919				38,919
Processed — retail and club			—				15,554				15,554				—				14,634				14,634
Total gross sales			300,303				52,047				352,350				315,738				53,553				369,291
Less sales incentives			(68	)			(7,517	)			(7,585	)			(71	)			(7,746	)			(7,817	)
Net sales		$	300,235			$	44,530			$	344,765			$	315,667			$	45,807			$	361,474

		Year ended October 31, 2008												Year ended October 31, 2007
		Fresh				Processed								Fresh				Processed
		products				products				Total				products				products				Total
Third-party sales:
Avocados		$	268,674			$	—			$	268,674			$	242,197			$	—			$	242,197
Tomatoes			19,666				—				19,666				8,837				—				8,837
Pineapples			16,442				—				16,442				24				—				24
Papayas			8,392				—				8,392				6,044				—				6,044
Other Fresh products			2,564				—				2,564				4,242				—				4,242
Processed — food service			—				38,919				38,919				—				39,006				39,006
Processed — retail and club			—				14,634				14,634				—				10,777				10,777
Total gross sales			315,738				53,553				369,291				261,344				49,783				311,127
Less sales incentives			(71	)			(7,746	)			(7,817	)			(19	)			(8,124	)			(8,143	)
Net sales		$	315,667			$	45,807			$	361,474			$	261,325			$	41,659			$	302,984

     Net sales to third parties by segment exclude value-added services billed by our Uruapan packinghouse, Uruapan processing plant and Mexicali processing plant to the parent company. For fiscal years 2009, 2008, and 2007, inter-segment sales and cost of sales for fresh products totaling$14.1 million, $13.9 million and $13.0 million were eliminated. For fiscal years 2009, 2008, and 2007, inter-segment sales and cost of sales for processed products totaling $7.8 million $9.6 million, and $8.1 million were eliminated.

     Fiscal 2009 vs. Fiscal 2008:

     Net sales delivered by the business decreased by approximately $15.4 million, or 4.9%, from fiscal 2008 to 2009. This decrease was primarily related to decreased sales of California avocados, tomatoes, and pineapples. Such decreases were partially offset, however, by increased sales from Mexican and Chilean sourced avocados. For fiscal 2009, due to the significant increase in the Mexican avocado crop, there was an increase in the volume of avocados delivered to the United States market. As a result, avocado prices industry-wide decreased for most of fiscal 2009, which primarily caused our total avocado revenues to decrease for the year.

     For fiscal year 2009, California sourced avocado sales reflect a 42.5% decrease in pounds of avocados sold, when compared to the same prior year period. This decrease in pounds sold is primarily related to the corresponding decrease in the California avocado crop for fiscal 2008/2009. Such decrease is believed to be primarily related to poor weather conditions. Our market share of California avocados increased to 31% for fiscal year 2009, when compared to a 28% market share for the same prior year period. The average selling price, on a per carton basis, of California avocados sold increased approximately 13.8% when compared to the same prior year period. We attribute some of this increase to the lower overall volume of California avocados in the marketplace.

     California avocados are primarily sold in the U.S. marketplace. We anticipate that sales of California grown avocados will significantly increase in fiscal 2010, due to a significantly larger expected avocado crop.

     Sales of tomatoes decreased $5.6 million, or 28.5%, for fiscal year 2009, when compared to the same prior year period. The decrease in sales for tomatoes is primarily due to the decrease in the average carton selling price by 38.0%. This was partially offset

by an increase in the volume of tomatoes by approximately 0.3 million cartons, or 15.3%, when compared to the same prior year period. We attribute most of this decrease in the per carton selling price to the out of season production from the U.S. east coast that increased the volume of tomatoes in the U.S. marketplace at the very beginning of the Mexican tomato season.

     Sales of pineapples decreased $3.1 million, or 18.9%, when compared to the same prior year period. The decrease in sales for pineapples is primarily due to the decrease in the per unit selling price by 12.2%, in addition to the decrease in the volume of pineapples by approximately 0.1 million units, or 7.5%, when compared to the same prior year period. We attribute some of this decrease in the per carton selling price to the volume of pineapples in the U.S. marketplace and the recession in the United States. Our agreement with Maui Pineapple Company ended December 31, 2009, and is not expected to be extended. We are actively pursuing other sources of pineapples, but the volume of pineapples is expected to decrease next year.

     Partially offsetting such decreases was an increase in sales of Mexican sourced avocados, which increased $20.1 million, or 13.5%, for fiscal year 2009, when compared to the same prior year period. The increase in Mexican sourced avocados was primarily related to an increase in the volume of Mexican fruit sold of 35.1 million pounds, or 31.1%, when compared to the same prior year period. We attribute some of this increase to the large Mexican avocado crop for fiscal 2009. Such increase was partially offset, however, by a decrease in the average carton selling price of Mexican avocados, which decreased approximately 13.4% when compared to the same prior year period. We attribute some of this decrease to the higher overall volume of Mexican avocados in the marketplace.

     Sales of Chilean sourced avocados increased $9.0 million, or 117.0% for fiscal year 2009, when compared to the same prior year period. The volume of Chilean fruit sold increased by approximately 7.0 million pounds, or 94.6%, when compared to the same prior year period. This increase was primarily related to the improvement of the Chilean avocado crop in fiscal year 2009 when compared to the disappointing crop in fiscal year 2008. In addition to the increase in pounds sold, our average selling prices, on a per carton basis, experienced an increase of 11.5% for fiscal 2009, when compared to the same prior period. We attribute some of these price fluctuations to the smaller California avocado crops, as well as the timing of the delivery of such crops, in the marketplace during fiscal 2009.

     Mexican and Chilean grown avocados are primarily sold in the U.S., Japanese, and/or European marketplace. We anticipate that the combined sales of Mexican and Chilean grown avocados will increase marginally in fiscal 2010.

     Fiscal 2008 vs. Fiscal 2007:

     Net sales delivered by the business increased by approximately $54.3 million, or 20.8%, from fiscal 2007 to 2008. This increase was primarily related to an increase in sales related to Mexico and California sourced avocados, tomatoes, and pineapples. Such increases were partially offset, however, by a decrease in Chilean avocado sales.

     Sales of Mexican sourced avocados increased $23.5 million, or 16.9%, for fiscal year 2008, when compared to the same prior year period. This increase was primarily due to an increase in the average per carton selling price of Mexican avocados. The average per carton selling price of Mexican avocados increased approximately 19.5% when compared to the same prior year period. We attribute some of this increase to the small California avocado crop in the marketplace during fiscal 2008, as well as the premium pricing related to our ProRipeVIP^TM avocado ripening program. The volume of Mexican fruit sold decreased by approximately 2.6 million pounds, or 2.2%, when compared to the same prior year period.

     Sales of pineapples and tomatoes increased $16.4 million and $10.8 million from fiscal 2007 to 2008. The volume of pineapples and tomatoes increased by approximately 1.6 million cartons, or 100.0% and 0.7 million cartons, or 59.1%, when compared to the same prior year period. These increases were primarily related to our agreements with Agricola Belher of Mexico (for the tomatoes) and our consignment and marketing agreement with Maui Pineapple Company, LTD (for the pineapples). See Notes 15 and 16 to our consolidated financial statements for further discussion of these agreements. Additionally, the average selling price, on a per carton basis, of tomatoes increased approximately 39.8% when compared to the same prior year period. We attribute some of this increase to the quality of our tomatoes in the U.S. marketplace.

     Sales of Chilean sourced avocados decreased $4.9 million for fiscal year 2008, when compared to the same prior year period. The volume of Chilean fruit sold decreased by approximately 9.4 million pounds, or 55.9%, when compared to the same prior year period. This decrease was primarily related to the smaller size of the Chilean avocado crop. Such decreased volume was partially offset, however, by an increase in our average selling prices, on a per carton basis, which experienced an increase of 39.2% for fiscal 2008, when compared to the same prior period. We attribute some of these price fluctuations to the smaller Chilean and California avocado crops, as well as the delivery of such crops, in the marketplace during fiscal 2008.

     Sales of California sourced avocados increased $8.3 million for fiscal 2008, when compared to the same prior period. This increase was primarily related to an increase in our average selling prices of 6.1%. The pounds sold of California sourced avocados remained consistent with the same prior year period. Our market share of shipped California avocados decreased to 27.7% for fiscal 2008, when compared to a 33.7% market share for the same prior year period.

     For fiscal year 2008, average selling prices, on a per carton basis, for California avocados were 6.1% higher when compared to the same prior year period. We attribute some of this increase to the small California avocado crop for the 2007/2008 season.

     Fiscal 2009 vs. Fiscal 2008:

     Net sales decreased by approximately $1.3 million, or 2.8% for fiscal 2009, when compared to the same prior period. This decrease is primarily related to a 4.4% decrease in total pounds sold for fiscal year 2009, when compared to the same prior year period. Frozen product sales are closely linked to the economic environment of the foodservice industry. Due to the economic decline in 2009, we experienced a decrease in sales for our frozen products, as fewer consumers went out to eat at restaurants. Partially offsetting this decline, however, the average net selling price per pound increased 1.9% from the corresponding prior year period. This increase is primarily related to a change in sales mix.

     We currently have two 215L ultra high pressure machines located in Uruapan and estimate we are operating at approximately 59% of the combined machines’ capacities as of October 31, 2009. We believe this combined capacity is reasonable given our current sales projections and expected growth. Net sales of our ultra high pressure products represented approximately 47% and 44% of total processed segment sales for the years ended October 31, 2009 and 2008.

     We believe that these ultra high pressure machines will enable our company to deliver the widest available array of prepared avocado and other products to our customers. Consequently, we believe that we are positioned to expand our ultra high pressure product line to include more avocado related products, high-end salsas, mangoes and other readily available fruit products. We anticipate a marginal increase in sales related to our processed products.

     Fiscal 2008 vs. Fiscal 2007:

     Net sales increased by approximately $4.1 million, or 10.0% for fiscal 2008, when compared to the same prior period. The increase in net sales is primarily attributable to an increase in the net selling price totaling $0.22 per product pound sold, or 12.0%, partially offset by a decrease of 0.3 million pounds of product sold, or 1.2%. The increase in our net average selling price primarily relates to a change in our product mix. During fiscal year 2008, the decrease in pounds sold primarily relates to a decrease in the sale of both our frozen and high-pressure guacamole products, which decreased approximately 0.9% and 1.9% when compared to the same prior year period.

     The following table summarizes our gross margins and gross profit percentages by business segment:

		2009				Change				2008				Change				2007
		(Dollars in thousands)
Gross Margins:
Fresh products		$	29,076				30.8	%		$	22,223				3.6	%		$	21,461
Processed products			15,457				41.1	%			10,958				6.3	%			10,311
Total gross margins		$	44,533				34.2	%		$	33,181				4.4	%		$	31,772
Gross profit percentages:
Fresh products			9.7	%							7.0	%							8.2	%
Processed products			34.7	%							23.9	%							24.8	%
Consolidated			12.9	%							9.2	%							10.5	%

     Our cost of sales 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 2.7% for fiscal year 2009 when compared to fiscal year 2008. Gross margins increased by approximately $11.4 million, or 34.2%, for fiscal year 2009, when compared to the same prior year period. These increases were attributable to improvements in both our fresh products and our processed products segment.

Fresh Products

     Fiscal 2009 vs. Fiscal 2008:

     During fiscal year 2009, as compared to the same prior year period, the increase in our fresh products segment gross margin percentage was primarily related to a significant decrease in fruit costs for Mexican sourced avocados, as well as a decrease in substantially all operating costs related to our Mexican operations. These decreases are primarily related to the large Mexican avocado crop, as well as the considerable strengthening of the U.S. Dollar compared to the Mexican Peso. For fiscal year 2009, when compared to the prior year period, we experienced an increase in the volume of Mexican sourced avocados sold by 35.1 million pounds or 31.1%. Combined, these had the effect of decreasing our per pound costs, which, as a result, positively impacted gross margins. Such increase was partially offset, however, by a decrease in the average carton selling price of Mexican avocados, which decreased approximately 13.4% when compared to the same prior year period. Collectively, these items positively increased gross margins generated from the sale of Mexican avocados from approximately $11.1 million in fiscal year 2008 to $22.5 million in fiscal year 2009.

     As mentioned above, the considerable strengthening of the U.S. Dollar compared to the Mexican Peso positively affected our gross margin for fiscal year 2009. In this era of economic uncertainty, it is unknown whether this favorable exchange rate will continue into fiscal year 2010. Any significant fluctuations in the strength of the U.S. Dollar compared to the Mexican Peso may have a material impact on future gross margins for our fresh and processed products segments.

     The gross margin and gross profit percentage for consignment sales, including Chilean avocados, pineapples, and tomatoes, are dependent on the volume of fruit we handle, the average selling prices, and the competitiveness of the returns that we provide to third-party growers/packers. The gross margin we earn is generally based on a commission agreed to with each party, which varies from a fixed rate per box to a percent of the overall selling price. Although we generally do not take legal title to such avocados and perishable products, we do assume responsibilities (principally assuming credit risk, inventory loss and delivery risk, and limited pricing risk) that are consistent with acting as a principal in the transaction. Accordingly, our results of operations include sales and cost of sales from the sale of avocados and perishable products procured under consignment arrangements. For fiscal years 2009, we generated gross margins of $2.8 million from the sale of fresh produce products that were packed by third parties.

     Gross margin percentages related to California avocados are largely dependent on production yields achieved at our packinghouses, current market prices of avocados, our packing and marketing fee, and the volume of avocados packed. A significant portion of our costs are fixed. As such, a lower volume of fruit going through our packinghouses will decrease our gross margin percentage. Pounds of California avocados sold decreased 42.5% in fiscal 2009 as compared to fiscal 2008. This had the effect of increasing our per pound costs, which, as a result, negatively impacted gross margins.

     Fiscal 2008 vs. Fiscal 2007:

     During fiscal year 2008, our gross margins generated from the sale of Mexican avocados decreased from approximately $14.0 million in fiscal year 2007 to $11.1 million in fiscal year 2008. Such decrease was primarily related to a 2.2% decrease in the volume of Mexican avocados sold, as well as higher fruit costs. Collectively, these items negatively affected gross margins.

     As mentioned above, the gross margin and gross profit percentage for consignment sales, including Chilean avocados, pineapples, and tomatoes, are dependent on the volume of fruit we handle, the average selling prices, and the competitiveness of the returns that we provide to third-party growers/packers. For fiscal years 2008 and 2007, we generated gross margins of $3.5 million, and $1.7 million from the sale of fresh produce products that were packed by third parties.

     For California sourced avocados, our gross margin percentage increased during fiscal year 2008 when compared to the same prior year period. Such increase is primarily related to a 1.2% increase in pounds of avocados sold, an increase in our packing and marketing fee, and a 6.1% increase in the average sales price of California avocados. Combined, these had the effect of decreasing our per pound costs, which, as a result, positively impacted gross margins.

Processed Products

     Fiscal 2009 vs. Fiscal 2008:

     Gross margin percentages for our processed products business are largely dependent on the pricing of our final product and the cost of avocados used in preparing guacamole. The processed products gross profit percentages for the fiscal year 2009, when

compared to the same prior year period, increased $4.4 million or 41.1%, primarily as a result of lower fruit and operating costs, partially offset by a decrease in total pounds sold by 4.4%. As discussed above, the large Mexican avocado crop, as well as the considerable strengthening of the U.S. Dollar compared to the Mexican Peso, significantly decreased our per pound costs. We anticipate that the gross profit percentage for our processed product segment will continue to experience fluctuations during the next fiscal year primarily due to the uncertainty of the cost of fruit that will used in the production process, and the uncertainty of the exchange rate between the U.S. Dollar and the Mexican Peso (as discussed above).

     Fiscal 2008 vs. Fiscal 2007:

     During fiscal year 2008, the processed products gross profit percentages marginally decreased primarily as a result of high fruit costs, as well as increased packaging costs, both of which had the effect of increasing our per pound costs. In addition, there was a marginal decrease in total pounds produced, which had the effect of increasing our per pound costs. These increases were partially offset, however, by a decrease in the production and sale of less profitable items.

Selling, General and Administrative

		2009				Change				2008				Change				2007
		(Dollars in thousands)
Selling, general and administrative		$	22,791				9.0	%		$	20,914				5.8	%		$	19,759
Percentage of net sales			6.6	%							5.8	%							6.5	%

     Selling, general and administrative expenses include costs of marketing and advertising, sales expenses, and other general and administrative costs. For fiscal year 2009, selling, general and administrative expenses increased $1.9 million or 9.0% when compared to the same period for fiscal 2008. This increase was primarily related to higher corporate costs, including, but not limited to, costs related to an increase in management bonuses (totaling approximately $1.7 million), an increase in salaries and benefits (totaling approximately $0.5 million), and an increase in general insurance (totaling approximately $0.3 million). Such higher corporate costs were partially offset, however, by lower broker commissions (totaling approximately $0.3 million) and lower audit fees (totaling approximately $0.3 million).

     For fiscal year 2008, selling, general and administrative expenses increased $1.2 million or 5.8% when compared to the same period for fiscal 2007. This increase was primarily related to higher corporate costs, including, but not limited to, costs related to an increase in salaries and benefits (totaling approximately $1.0 million), an increase in broker sales commissions (totaling approximately $0.4 million), and an increase in repairs and maintenance (totaling approximately $0.2 million). Such higher corporate costs were partially offset, however, by a decrease in bad debt expense (totaling approximately $0.4 million).

Interest income

		2009				Change				2008				Change				2007
		(Dollars in thousands)
Interest income		$	381				(26.2	%)		$	516				108.1	%		$	248
Percentage of net sales			0.1	%							0.1	%							0.1	%

     Interest income was primarily generated from loans to growers. The decrease in interest income in fiscal 2009 as compared to 2008 is due to the poor California avocado crop, and the resulting decreases in the balances due to us from these growers. In addition, this decrease in interest income is due to the lower interest rate charged to Agricola Belher for infrastructure advances. During fiscal year 2007, interest income includes interest accrued on notes receivable from directors and officers of approximately $0.1 million. Such notes were paid in fiscal year 2007.

Interest expense

		2009				Change				2008				Change				2007
		(Dollars in thousands)
Interest expense		$	(1,108	)			(25.4	%)		$	(1,485	)			10.3	%		$	(1,346	)
Percentage of net sales			(0.3	)%							(0.4	)%							(0.4	)%

     Interest expense is primarily generated from our line of credit borrowings, as well as our term loan agreement with Farm Credit West, PCA. For fiscal 2009, as compared to fiscal 2008, the decrease in interest expense was primarily related to a lower average outstanding balance and an overall decrease in interest rates under our non-collateralized, revolving credit facilities with Farm Credit West, PCA and Bank of America, N.A.

     For fiscal 2008, as compared to fiscal 2007, the increase in interest expense was primarily related to a higher average outstanding balance under our non-collateralized, revolving credit facilities with Farm Credit West, PCA and Bank of America, N.A

		2009				Change				2008				Change				2007
		(Dollars in thousands)
Other income, net		$	263				(63.2	%)		$	715				39.6	%		$	512
Percentage of net sales			0.1	%							0.2	%							0.2	%

     Other income, net includes dividend income, as well as certain other transactions that are outside of the normal course of operations. During fiscal 2009, 2008, and 2007, we received $0.1 million, $0.6 million, and $0.4 million as dividend income from Limoneira.

		2009				Change				2008				Change				2007
		(Dollars in thousands)
Provision for income taxes		$	8,277				81.2	%		$	4,567				6.9	%		$	4,271
Percentage of income before provision for income taxes			37.8	%							37.2	%							36.8	%

     The effective income tax rate for fiscal years 2009, 2008, and 2007 is higher than the federal statutory rate principally due to state taxes. Our effective income tax rate increased from 37.2% in fiscal year 2008 to 37.8% in fiscal year 2009 primarily due to a higher portion of the total pre-tax book income being taxed at the higher U.S. statutory rate compared to Mexico as well as an increase in our federal tax rate, partially offset by several miscellaneous reductions. Our effective income tax rate increased from 36.8% in fiscal year 2007 to 37.2% in fiscal year 2008 primarily as a result of an increase in foreign taxes, partially offset by a decrease in our average state tax rate.

     The following table presents our operating results for each of the eight fiscal quarters in the period ended October 31, 2009. The information for each of these quarters is derived from our unaudited interim financial statements and should be read in conjunction with our audited consolidated financial statements included in this Annual Report. In our opinion, all necessary adjustments, which consist only of normal and recurring accruals, have been included to fairly present our unaudited quarterly results. Historically, we receive and sell a substantially lesser number of California avocados in our first fiscal quarter. Certain items in the prior period amounts have been reclassified to conform to the current period presentation.

		Three months ended
		Oct. 31,				July 31,				Apr. 30,				Jan. 31,				Oct. 31,				July 31,				Apr. 30,				Jan. 31,
		2009				2009				2009				2009				2008				2008				2008				2008
		(in thousands, except per share amounts)
Statement of Operations Data
Net sales		$	80,942			$	106,347			$	86,829			$	70,647			$	93,553			$	96,903			$	98,777			$	72,241
Cost of sales			71,713				96,441				73,890				58,188				81,387				89,211				91,483				66,212
Gross margin			9,229				9,906				12,939				12,459				12,166				7,692				7,294				6,029
Selling, general and administrative			6,134				5,822				5,535				5,300				6,162				5,301				4,701				4,750
Operating income			3,095				4,084				7,404				7,159				6,004				2,391				2,593				1,279
Other income (expense), net			164				(22	)			75				(71	)			178				(118	)			52				(87	)
Income before provision for income taxes			3,259				4,062				7,479				7,088				6,182				2,273				2,645				1,192
Provision for income taxes			955				1,597				3,017				2,708				2,190				884				1,033				460
Net income		$	2,304			$	2,465			$	4,462			$	4,380			$	3,992			$	1,389			$	1,612			$	732
Net income per share:
Basic		$	0.16			$	0.17			$	0.31			$	0.30			$	0.28			$	0.10			$	0.11			$	0.05
Diluted		$	0.16			$	0.17			$	0.31			$	0.30			$	0.28			$	0.10			$	0.11			$	0.05
Number of shares used in per share computation:
Basic			14,505				14,457				14,423				14,419				14,408				14,405				14,403				14,375
Diluted			14,582				14,529				14,508				14,429				14,443				14,467				14,514				14,503

     Operating activities for fiscal 2009, 2008 and 2007 provided cash flows of $22.0 million, $5.3 million, and $4.6 million. Fiscal year 2009 operating cash flows reflect our net income of $13.6 million, net noncash charges (depreciation and amortization, income from unconsolidated entities, loss on disposal of fixed assets, provision for losses on accounts receivable, interest on deferred

compensation, deferred income taxes, and stock compensation expense) of $3.0 million and a net increase from changes in the non-cash components of our working capital accounts of approximately $5.4 million.

     Fiscal year 2009 increases in operating cash flows, caused by working capital changes, include a decrease in accounts receivable of $5.3 million, a decrease in inventory of $3.2 million, an increase in trade accounts payable and accrued expenses of $1.0 million and a decrease in advances to suppliers of $0.6 million, partially offset by a decrease in payable to growers of $2.0 million, an increase in prepaid expenses and other current assets of $1.5 million, an increase in income tax receivable of $1.1 million and an increase in other assets totaling $0.1 million.

     The decrease in our accounts receivable balance as of October 31, 2009, when compared to October 31, 2008, primarily reflects less California avocado sales recorded in the month of October 2009, as compared to October 2008. This is consistent to what was expected with the poor California avocado season ending earlier in the current year than in prior year. The decrease in our inventory balance is primarily related to a decrease in Mexico and California avocado inventory and processed products inventory on hand at October 31, 2009, as compared to the same prior year period. The increase in our trade accounts payable and accrued expenses primarily reflect the second Earn-Out payment that has been reclassed to a current liability and the increase in our dividend declared but not yet paid ($7.3 million in fiscal 2009, compared to $5.0 million for fiscal 2008).

     The decrease in payable to our growers primarily reflects a decrease in California fruit delivered in the month of October 2009, as compared to the month of October 2008.

     Cash used in investing activities was $6.0 million, $7.5 million, and $8.0 million for fiscal years 2009, 2008, and 2007. Fiscal year 2009 cash flows used in investing activities includes capital expenditures of $4.1 million and the first annual Earn-Out payment from the acquisition of HS and HP, totaling approximately $2.4 million. Such payments were partially offset by the collection of $0.5 million Agricola Belher, pursuant to our tomato agreements. See Note 15 and Note 17 to our consolidated financial statements.

     Cash used in financing activities was $16.6 million for fiscal year 2009. Cash provided by financing activities was $2.7 million and $4.2 million for fiscal years 2008 and 2007. Cash used during fiscal year 2009 primarily includes payments on our non-collateralized, revolving credit facilities totaling $11.2 million, the payment of a dividend totaling $5.0 million and payments related to our long-term obligations of $1.4 million. Partially offsetting these payments, however, $1.0 million in cash was provided by the exercise of stock options.

     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 October 31, 2009 and 2008 totaled $0.9 million and $1.5 million. Our working capital at October 31, 2009 was $12.6 million, compared to $15.4 million at October 31, 2008.

     We believe that cash flows from operations and available credit facilities will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, working capital and other financing requirements. We will continue to evaluate grower recruitment opportunities and exclusivity arrangements with food service companies to fuel growth in each of our business segments. Effective July 31, 2009, we entered into a new loan agreement with Bank of America, N.A. which increased our existing non-collateralized, revolving credit facility to $15.0 million, from $10.0 million. This new agreement expires July 1, 2011. Our non-collateralized, revolving credit facilities with Farm Credit West, PCA expires in February 2012. Under the terms of these agreements, we are advanced funds for both working capital and long-term productive asset purchases. Total credit available under these combined borrowing agreements was $45 million, with a weighted-average interest rate of 2.4% and 4.8% at October 31, 2009 and 2008. Under these credit facilities, we had $12.0 million and $23.1 million outstanding as October 31, 2009 and 2008, of which $6.5 million and $13.0 million was classified as a long-term liability as October 31, 2009 and 2008. These credit facilities contain various financial covenants, the most significant relating to tangible net worth (as defined), and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (as defined). We were in compliance with all such covenants at October 31, 2009.

     The following table summarizes contractual obligations pursuant to which we are required to make cash payments. The information is presented as of our fiscal year ended October 31, 2009:

						Payments due by period
Contractual Obligations		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Long-term debt obligations (including interest)		$	17,642			$	1,992			$	10,192			$	3,193			$	2,265
Revolving credit facilities			5,520				5,520				—				—				—
Defined benefit plan			283				44				88				88				63
Operating lease commitments			15,044				1,760				3,176				3,034				7,074
Total		$	38,489			$	9,316			$	13,456			$	6,315			$	9,402

     The California avocado industry is subject to a state marketing order whereby handlers are required to collect assessments from the growers and remit such assessments to the California Avocado Commission (CAC). The assessments are primarily for advertising and promotions. The amount of the assessment is based on the dollars paid to the growers for their fruit, and, as a result, is not determinable until the value of the payments to the growers has been calculated.

     With similar precision, amounts remitted to the Hass Avocado Board (HAB) in connection with their assessment program (see Item 7 for further discussion), are likewise not determinable until the fruit is actually delivered to us. HAB assessments are primarily used to fund marketing and promotion efforts.

Recently Adopted Accounting Pronouncements

     In October 2009, we adopted Financial Accounting Standards Board Accounting Standard Codification (FASB ASC) 105-10 (SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles). FASB ASC 105-10 (SFAS No. 168) establishes the FASB Accounting Standards Codification (the Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial standards in conformity with US GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. FASB ASC 105-10 (SFAS No. 168) is effective for financial statements issued by us for interim and annual periods after September 15, 2009. On the effective date of FASB ASC 105-10 (SFAS No. 168), all then-existing non-SEC accounting and reporting standards are superseded, with the exception of certain as the promulgations listed in FASB ASC 105-10 (SFAS No. 168). The adoption of FASB ASC 105-10 (SFAS No. 168) had no effect on the Company’s consolidated financial statements, since the purpose of the Codification is not to create new accounting and reporting guidance. Rather, the Codification is meant to simplify user access to all authoritative US GAAP. References to US GAAP in our published financial statements has been updated, as appropriate, to cite the Codification of FASB ASC 105-10 (SFAS No. 168).

     In July 2009, we adopted FASB ASC 855-10 (SFAS 165, Subsequent Events). FASB ASC 855-10 (SFAS 165) establishes accounting and reporting standards for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In addition, FASB ASC 855-10 (SFAS 165) requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. FASB ASC 855-10 (SFAS 165) was effective for fiscal years and interim periods ending after June 15, 2009. The adoption of FASB ASC 855-10 (SFAS 165) did not have a material impact on the Company’s consolidated financial statements.

     In March 2008, we adopted FASB ASC 815-10 (SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities). FASB ASC 815-10 (SFAS No. 161) requires expanded disclosures regarding the location and amount of derivative instruments in an entity’s financial statements, how derivative instruments and related hedged items are accounted for under FASB ASC 815-10 (SFAS No. 133) and how derivative instruments and related hedged items affect an entity’s financial position, operating results and cash flows. The adoption of FASB ASC 815-10 (SFAS No. 161) did not have an impact on our consolidated financial statements and related disclosures.

     In November 2008, we adopted FASB ASC 820-10 (SFAS No. 157, Fair Value Measurements), for our financial assets and liabilities. Our adoption of FASB ASC 820-10 (SFAS No. 157) did not have a material impact on our financial position, results of operations or liquidity.

     ASC 820-10 (SFAS No. 157) provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820-10 (SFAS No. 157) defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 (SFAS No. 157) also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that we use to measure fair value:

	•		Level 1: Quoted prices in active markets for identical assets or liabilities.
	•		Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
	•		Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

     ASC 820-10 (SFAS No. 157) requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.

     In accordance with FASB ASC 820-10 (FSP FAS No. 157-2, Effective Date of FASB Statement No. 157), we elected to defer, until November 2009, the adoption of FASB ASC 820-10 (SFAS No. 157) for all nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of FASB ASC 820-10 (SFAS No. 157) for those assets and liabilities within the scope of FASB ASC 820-10 (FSP FAS No. 157-2) is not expected to have a material impact on our financial position, results of operations, or liquidity.

     Under the FASB ASC 820-10 (SFAS No. 157) hierarchy, an entity is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The following table sets forth our financial assets (there are no liabilities requiring disclosure) as of October 31, 2009 that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:

		Level 1				Level 2				Level 3				Total
	(All amounts are presented in thousands)
Assets at Fair Value:
Investment in Limoneira Company(1)		$	24,200				—				—			$	24,200
Total assets at fair value		$	24,200			$	—			$	—			$	24,200

     In November 2008, we adopted FASB ASC 825-10 (SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115), which permits entities to choose to measure many financial instruments and certain other items at fair value. We already record our marketable securities at fair value in accordance with FASB ASC 320-10 (SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities). The adoption of FASB ASC 825-10 (SFAS No. 159) did not have an impact on our consolidated financial statements, as management did not elect the fair value option for any other financial instruments or certain other assets and liabilities.

Recently Issued Accounting Standards

     In August 2009, the FASB issued Accounting Standards Update No. 2009-5, “Measuring Liabilities at Fair Value” (“ASU No. 2009-05”). ASU 2009-05 amends Accounting Standards Codification Topic 820, “Fair Value Measurements.” Specifically, ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of Topic 820 of the Accounting Standards Codification. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. ASU 2009-05 is effective for the first reporting period after the issuance, which will require the Company to adopt these provisions in the first quarter of fiscal 2010. We do not believe that the adoption of ASU 2009-05 will have a material impact on our consolidated financial statements.

     In June 2009, the FASB issued Financial Accounting Standard No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140 (SFAS No. 166). SFAS No. 166 clarifies the information that an entity must provide in its financial statements surrounding a transfer of financial assets and the effect of the transfer on its financial position, financial performance, and cash flows. This Statement is effective as of the beginning of the annual period beginning after November 15, 2009. We do not believe that the adoption of SFAS No. 166 will have a material impact on our consolidated financial statements.

     In June 2009, the FASB issued Financial Accounting Standard No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS No. 167). SFAS No. 167 clarifies and improves financial reporting by entities involved with variable interest entities. This Statement is effective as of the beginning of the annual period beginning after November 15, 2009. We do not believe that the adoption of SFAS No. 167 will have a material impact on our consolidated financial statements.

     In April 2008, the FASB issued FASB ASC 350-30 (FSP FAS No. 142-3, Determination of the Useful Life of Intangible Assets). FASB ASC 350-30 (FSP FAS No. 142-3) amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB ASC 350-10 (SFAS No. 142). This change is intended to improve the consistency between the useful life of a recognized intangible asset under FASB ASC 350-10 (SFAS No. 142) and the period of expected cash flows used to measure the fair value of the asset under FASB ASC 805-10

(SFAS No. 141R) and other generally accepted account principles (GAAP). The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FASB ASC 350-30 (FSP FAS No. 142-3) is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, which will require us to adopt these provisions in our first quarter of fiscal 2010. We do not believe that the adoption of FASB ASC 350-30 (FSP FAS No. 142-3) will have a material impact on our consolidated financial statements.

     In December 2008, the FASB issued FASB ASC 810-10 (SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51,) which changes the accounting and reporting for minority interests. Minority interests will be re-characterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. We will adopt FASB ASC 810-10 (SFAS No. 160) no later than the first quarter of fiscal 2010. We do not believe that the adoption of FASB ASC 810-10 (SFAS No. 160) will have a material impact on our consolidated financial statements.

     In December 2008, the FASB issued FASB ASC 805-10 (SFAS No. 141R (revised 2008), Business Combinations), which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. We will adopt FASB ASC 805-10 (SFAS No. 141R) no later than the first quarter of fiscal 2010 and it will apply prospectively to business combinations completed on or after that date.

     Our financial instruments include cash and cash equivalents, accounts receivable, payable to growers, accounts payable, current and long-term borrowings pursuant to our credit facilities with financial institutions, and long-term, fixed-rate obligations. All of our financial instruments are entered into during the normal course of operations and have not been acquired for trading purposes. The table below summarizes interest rate sensitive financial instruments and presents principal cash flows in U.S. dollars, which is our reporting currency, and weighted-average interest rates by expected maturity dates, as of October 31, 2009.

		Expected maturity date October 31,
(All amounts in thousands)		2010				2011				2012				2013				2014				Thereafter				Total				Fair Value
Assets
Cash and cash equivalents (1)		$	875			$	—			$	—			$	—			$	—			$	—			$	875			$	875
Accounts receivable (1)			22,314				—				—				—				—				—				22,314				22,314
Advances to suppliers (1)			2,329				—				—				—				—				—				2,329				2,329
Liabilities
Payable to growers (1)		$	396			$	—			$	—			$	—			$	—			$	—			$	396			$	396
Accounts payable (1)			2,223				—				—				—				—				—				2,223				2,223
Current borrowings pursuant to credit facilities (1)			5,520				—				—				—				—				—				5,520				5,520
Long-term borrowings pursuant to credit facilities (2)			—				1,000				5,450				—				—				—				6,450				6,580
Fixed-rate long-term obligations (3)			1,366				1,370				1,373				1,376				1,380				1,959				8,824				9,843

 

     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 currently use any hedging or forward contracts to offset market volatility.

     Our Mexican-based operations transact business in Mexican pesos. Funds are transferred by our corporate office to Mexico on a weekly basis to satisfy domestic cash needs. Historically, the consistency of the spot rate for the Mexican peso has led to a small-to-moderate impact on our operating results. Based on the recent and significant decrease in the valuation of the Mexican peso to the U.S. dollar, however, we are currently considering the use of derivative instruments to hedge the fluctuation in the Mexican peso in our fiscal 2010. Total foreign currency gains for fiscal 2009, 2008, and 2007, net of losses, was less than $0.1 million, $0.5 million and $0.1 million.

Item 8. Financial Statements and Supplementary Data

CALAVO GROWERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

		October 31,
		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	875			$	1,509
Accounts receivable, net of allowances of $2,353 (2009) and $2,213 (2008)			22,314				27,717
Inventories, net			11,731				14,889
Prepaid expenses and other current assets			7,191				4,993
Advances to suppliers			2,329				3,089
Income taxes receivable			2,178				992
Deferred income taxes			2,728				1,826
Total current assets			49,346				55,015
Property, plant, and equipment, net			38,621				37,709
Investment in Limoneira Company			24,200				29,904
Investment in unconsolidated entities			1,382				682
Goodwill			3,591				3,591
Other assets			6,076				7,785
		$	123,216			$	134,686
Liabilities and shareholders’ equity
Current liabilities:
Payable to growers		$	396			$	2,392
Trade accounts payable			2,223				4,567
Accrued expenses			20,032				16,104
Short-term borrowings			5,520				10,130
Dividend payable			7,252				5,047
Current portion of long-term obligations			1,366				1,362
Total current liabilities			36,789				39,602
Long-term liabilities:
Long-term obligations, less current portion			13,908				25,351
Deferred income taxes			3,032				4,216
Total long-term liabilities			16,940				29,567
Commitments and contingencies
Shareholders’ equity:
Common stock ($0.001 par value, 100,000 shares authorized; 14,505 and 14,419 shares outstanding at October 31, 2009 and 2008)			14				14
Additional paid-in capital			39,714				38,626
Accumulated other comprehensive income			466				3,943
Retained earnings			29,293				22,934
Total shareholders’ equity			69,487				65,517
		$	123,216			$	134,686

See accompanying notes to consolidated financial statements.

CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

		Year Ended October 31,
		2009				2008				2007
Net sales		$	344,765			$	361,474			$	302,984
Cost of sales			300,232				328,293				271,212
Gross margin			44,533				33,181				31,772
Selling, general and administrative			22,791				20,914				19,759
Operating income			21,742				12,267				12,013
Equity in earnings from unconsolidated entities			610				279				174
Interest income			381				516				248
Interest expense			(1,108	)			(1,485	)			(1,346	)
Other income, net			263				715				512
Income before provision for income taxes			21,888				12,292				11,601
Provision for income taxes			8,277				4,567				4,271
Net income		$	13,611			$	7,725			$	7,330
Net income per share:
Basic		$	0.94			$	0.54			$	0.51
Diluted		$	0.94			$	0.53			$	0.51
Number of shares used in per share computation:
Basic			14,451				14,398				14,304
Diluted			14,503				14,481				14,435

See accompanying notes to consolidated financial statements.

CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

		Year ended
		October 31,
		2009				2008				2007
Net income		$	13,611			$	7,725			$	7,330
Other comprehensive income (loss), before tax:
Unrealized holding gains (losses) arising during period			(5,704	)			(19,058	)			15,083
Income tax benefit (expense) related to items of other comprehensive income (loss)			2,227				7,337				(5,712	)
Other comprehensive income (loss), net of tax			(3,477	)			(11,721	)			9,371
Comprehensive income (loss)		$	10,134			$	(3,996	)		$	16,701

See accompanying notes to consolidated financial statements.

CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)

														Notes				Accumulated
										Additional				Receivable				Other
		Common Stock								Paid-in				From				Comprehensive				Retained
		Shares				Amount				Capital				Shareholders				Income				Earnings				Total
Balance, October 31, 2006			14,293				14				37,109				(2,430	)			6,293				17,957				58,943
Exercise of stock options and income tax benefit of $233			78				—				943				—				—				—				943
Stock compensation expense			—				—				16				—				—				—				16
Unrealized gain on Limoneira investment, net			—				—				—				—				9,371				—				9,371
Collections on shareholder notes receivable			—				—				—				2,430				—				—				2,430
Dividend declared to shareholders			—				—				—				—				—				(5,030	)			(5,030	)
Net income			—				—				—				—				—				7,330				7,330
Balance, October 31, 2007			14,371				14				38,068				—				15,664				20,257				74,003
Exercise of stock options and income tax benefit of $147			48				—				534				—				—				—				534
Stock compensation expense			—				—				24				—				—				—				24
Unrealized loss on Limoneira investment, net			—				—				—				—				(11,721	)			—				(11,721	)
Dividend declared to shareholders			—				—				—				—				—				(5,048	)			(5,048	)
Net income			—				—				—				—				—				7,725				7,725
Balance, October 31, 2008			14,419				14				38,626				—				3,943				22,934				65,517
Exercise of stock options and income tax benefit of $261			86				—				1,044				—				—				—				1,044
Stock compensation expense			—				—				44				—				—				—				44
Unrealized loss on Limoneira investment, net			—				—				—				—				(3,477	)			—				(3,477	)
Dividend declared to shareholders			—				—				—				—				—				(7,252	)			(7,252	)
Net income			—				—				—				—				—				13,611				13,611
Balance, October 31, 2009			14,505			$	14			$	39,714			$	—			$	466			$	29,293			$	69,487

See accompanying notes to consolidated financial statements.

CALAVO GROWERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Year Ended October 31,
		2009				2008				2007
Cash Flows from Operating Activities:
Net income		$	13,611			$	7,725			$	7,330
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,054				2,657				2,391
Provision for losses on accounts receivable			106				20				473
Income from unconsolidated entities			(610	)			(279	)			(174	)
Interest on deferred consideration			152				75				—
Stock compensation expense			44				24				16
Loss on disposal of property, plant, and equipment			—				70				8
Deferred income taxes			290				940				378
Effect on cash of changes in operating assets and liabilities:
Accounts receivable			5,297				(1,400	)			(2,263	)
Inventories, net			3,158				(5,587	)			2,210
Prepaid expenses and other current assets			(1,545	)			(79	)			1,023
Advances to suppliers			598				(635	)			(886	)
Income taxes receivable			(1,072	)			461				816
Other assets			(113	)			171				92
Payable to growers			(1,996	)			(22	)			(3,920	)
Trade accounts payable and accrued expenses			1,023				1,155				(2,865	)
Net cash provided by operating activities			21,997				5,296				4,629
Cash Flows from Investing Activities:
Acquisitions of property, plant, and equipment			(4,149	)			(2,674	)			(2,950	)
Loan to Agricola Belher			—				(750	)			(5,000	)
Collections from Agricola Belher			507				1,000				—
Acquisition of Hawaiian Sweet and Pride, net of cash acquired			(2,348	)			(5,030	)			—
Net cash used in investing activities			(5,990	)			(7,454	)			(7,950	)
Cash Flows from Financing Activities:
Dividend paid to shareholders			(5,047	)			(5,031	)			(4,573	)
Proceeds (repayments) from (on) line of credit borrowings, net			(11,160	)			8,500				6,826
Payments on long-term obligations			(1,364	)			(1,389	)			(1,301	)
Proceeds from stock option exercises			783				387				710
Tax benefit of stock option exercises			147				233				146
Proceeds from collection of shareholder notes receivable			—				—				2,430
Net cash provided by (used in) financing activities			(16,641	)			2,700				4,238
Net increase (decrease) in cash and cash equivalents			(634	)			542				917
Cash and cash equivalents, beginning of year			1,509				967				50
Cash and cash equivalents, end of year		$	875			$	1,509			$	967
Supplemental Information —
Cash paid during the year for:
Interest		$	1,195			$	1,455			$	1,310
Income taxes		$	8,803			$	2,504			$	3,100
Noncash Investing and Financing Activities:
Tax receivable increase related to stock option exercise		$	261			$	147			$	233
Declared dividends payable		$	7,252			$	5,047			$	5,030
Construction in progress included in trade accounts payable and accrued expenses		$	245			$	259			$	—
Capital lease obligations		$	—			$	1,125			$	—
Fixed asset acquired with long term debt		$	—			$	4,000			$	—
Minimum earnout adjustment related to the acquisition of Hawaiian Sweet and Pride		$	902			$	—			$	—
Unrealized holding gains (losses)		$	(5,704	)		$	(19,058	)		$	15,083