Variable Interest Entity	9 Months Ended
Jul. 31, 2018
Variable Interest Entity
Variable Interest Entity	13. Variable Interest Entity Based on the NMUPA and related Agreements, as described in Note 4, we reconsidered whether FreshRealm is a variable interest entity (“VIE”) as of July 31, 2018. A VIE refers to a legal business structure in which an investor has a controlling interest in, despite not having a majority of voting rights; or a structure involving equity investors that do not have sufficient resources to support the ongoing operating needs of the business. Due primarily to FreshRealm utilizing substantially more debt to finance its activities, in addition to its existing equity, we believe that FreshRealm should be considered a VIE. In evaluating whether we are the primary beneficiary of FreshRealm, we considered several factors, including whether we (a) have the power to direct the activities that most significantly impact FreshRealm’s economic performance and (b) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. We were not the primary beneficiary of FreshRealm at July 31, 2018 because the nature of our involvement with the activities of FreshRealm does not give us the power to direct the activities that most significantly impact its economic performance. Except as described in Note 4, we do not have a future obligation to fund losses or debts on behalf of FreshRealm. We may, however, voluntarily contribute funds. In the accompanying statements of income, we have presented the income (loss) from unconsolidated entities, after the provision for income taxes for all periods presented. Previously, we had included such amounts, totaling $0.5 million and $0.1 million (related primarily to Don Memo), for the three and nine month periods ended July 31, 2017, in other income, net. We record the amount of our investment in FreshRealm, totaling $28.4 million at July 31, 2018, in “Investment in unconsolidated entities” on our Consolidated Condensed Balance Sheets and recognize losses in FreshRealm in “Income/(loss) in unconsolidated entities” on our Consolidated Condensed Statement of Income. For the three months ended July 31, 2018, FreshRealm incurred losses totaling $7.1 million, of which we recorded $3.5 million of non-cash losses during our third fiscal quarter of 2018. Calavo has not recorded losses from FreshRealm since Impermanence invested in FreshRealm and Calavo deconsolidated FreshRealm in fiscal 2014, as FASB Accounting Standards Codification (“ASC”) 810, ASC 323, and ASC 970 mandate that the recognition of losses for an unconsolidated subsidiary be handled in a manner consistent with cash distributions upon liquidation of the entity when such distributions are different than the investors percentage ownership. Further, the current FreshRealm LLC operating agreement mandates that losses be recognized first by other investors (“non-option investors”) with positive capital accounts and then by Calavo (the only “option investor” to date) until all such capital accounts are reduced to zero. During our third fiscal quarter of 2018, we estimated that all non-option investor capital accounts were reduced to zero and, as of July 31, 2018, we were the only investor with a remaining positive capital account balance. As of July 31, 2018, our capital account balance was approximately $10.0 million. Unless we opt to contribute additional funds (i.e. equity or debt), we estimate that our maximum exposure to loss from FreshRealm, as of July 31, 2018, is limited to our total investment balance of approximately $28.4 million, plus $12 million related to the debt Agreements, as described in Note 4.

13. Variable Interest Entity

Based on the NMUPA and related Agreements, as described in Note 4, we reconsidered whether FreshRealm is a variable interest entity (“VIE”) as of July 31, 2018. A VIE refers to a legal business structure in which an investor has a controlling interest in, despite not having a majority of voting rights; or a structure involving equity investors that do not have sufficient resources to support the ongoing operating needs of the business. Due primarily to FreshRealm utilizing substantially more debt to finance its activities, in addition to its existing equity, we believe that FreshRealm should be considered a VIE. In evaluating whether we are the primary beneficiary of FreshRealm, we considered several factors, including whether we (a) have the power to direct the activities that most significantly impact FreshRealm’s economic performance and (b) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. We were not the primary beneficiary of FreshRealm at July 31, 2018 because the nature of our involvement with the activities of FreshRealm does not give us the power to direct the activities that most significantly impact its economic performance. Except as described in Note 4, we do not have a future obligation to fund losses or debts on behalf of FreshRealm. We may, however, voluntarily contribute funds. In the accompanying statements of income, we have presented the income (loss) from unconsolidated entities, after the provision for income taxes for all periods presented. Previously, we had included such amounts, totaling $0.5 million and $0.1 million (related primarily to Don Memo), for the three and nine month periods ended July 31, 2017, in other income, net.

We record the amount of our investment in FreshRealm, totaling $28.4 million at July 31, 2018, in “Investment in unconsolidated entities” on our Consolidated Condensed Balance Sheets and recognize losses in FreshRealm in “Income/(loss) in unconsolidated entities” on our Consolidated Condensed Statement of Income.

For the three months ended July 31, 2018, FreshRealm incurred losses totaling $7.1 million, of which we recorded $3.5 million of non-cash losses during our third fiscal quarter of 2018. Calavo has not recorded losses from FreshRealm since Impermanence invested in FreshRealm and Calavo deconsolidated FreshRealm in fiscal 2014, as FASB Accounting Standards Codification (“ASC”) 810, ASC 323, and ASC 970 mandate that the recognition of losses for an unconsolidated subsidiary be handled in a manner consistent with cash distributions upon liquidation of the entity when such distributions are different than the investors percentage ownership. Further, the current FreshRealm LLC operating agreement mandates that losses be recognized first by other investors (“non-option investors”) with positive capital accounts and then by Calavo (the only “option investor” to date) until all such capital accounts are reduced to zero. During our third fiscal quarter of 2018, we estimated that all non-option investor capital accounts were reduced to zero and, as of July 31, 2018, we were the only investor with a remaining positive capital account balance. As of July 31, 2018, our capital account balance was approximately $10.0 million. Unless we opt to contribute additional funds (i.e. equity or debt), we estimate that our maximum exposure to loss from FreshRealm, as of July 31, 2018, is limited to our total investment balance of approximately $28.4 million, plus $12 million related to the debt Agreements, as described in Note 4.