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Related party transactions | 9 Months Ended
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Jul. 31, 2019
Related-Party Transactions |
Related party transactions |
4. | Related party transactions
​ Certain members of our Board of Directors market California avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers. For the three months ended July 31, 2019 and 2018, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $10.0 million and $9.2 million. During the nine months ended July 31, 2019 and 2018, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $11.7 million and $11.2 million. Amounts payable to these Board members were $3.4 million as of July 31, 2019. We did not have any amounts payable to these Board members as of October 31, 2018. ​ During the three months ended July 31, 2019 and 2018, we received $0.1 million as dividend income from Limoneira Company (Limoneira). During the nine months ended July 31, 2019 and 2018, we received $0.3 million as dividend income from Limoneira. In addition, we lease office space from Limoneira for our corporate office. We paid rent expense to Limoneira totaling $0.1 million for the three months ended July 31, 2019 and 2018. We paid rent expense to Limoneira totaling $0.2 million for the nine months ended July 31, 2019 and 2018. Harold Edwards, who is a member of our Board of Directors, is the Chief Executive Officer of Limoneira Company. As of July 31, 2019, we own less than 10% of Limoneira’s outstanding shares. Effective December 2018, our Chief Executive Officer retired from Limoneira’s Board of Directors. ​ We currently have a member of our Board of Directors who also serves as a partner in the law firm of TroyGould PC, which frequently represents Calavo as legal counsel. During the three months ended July 31, 2019 and 2018, Calavo Growers, Inc. paid fees totaling $0.2 million and $0.1 million to TroyGould PC. During the nine months ended July 31, 2019 and 2018, Calavo Growers, Inc. paid fees totaling $0.3 million and $0.1 million to TroyGould PC. ​ As of July 31, 2019, and October 31, 2018, we had an investment of $4.8 million and $4.9 million, representing Calavo Sub’s 50% ownership in Agricola Don Memo, S.A. de C.V. (Don Memo), which was included as an investment in unconsolidated entities on our balance sheet. We make advances to Don Memo for operating purposes, provide additional advances as shipments are made during the season, and return the proceeds from tomato sales under our marketing program to Don Memo, net of our commission and aforementioned advances. As of October 31, 2018, we had outstanding advances of $2.5 million to Don Memo. During the three months ended July 31, 2019 and 2018, we recorded $4.8 million and $3.4 million of cost of sales to Don Memo pursuant to our consignment agreement. During the nine months ended July 31, 2019 and 2018, we recorded $10.7 million and $7.2 million of cost of sales to Don Memo pursuant to our consignment agreement. ​ We make advances to Agricola Belher (Belher) for operating purposes, provide additional advances as shipments are made during the season, and return the proceeds from tomato sales under our marketing program to Belher, net of our commission and aforementioned advances. We had grower advances due from Belher totaling $2.5 million as of July 31, 2019 and October 31, 2018, which are netted against the grower payable. In addition, we had infrastructure advances due from Belher of $2.6 million as of July 31, 2019 and October 31, 2018. $0.8 million of these infrastructure advances were recorded as a receivable in prepaid and other current assets. The remaining $1.8 million of these infrastructure advances were recorded in other assets. During the three months ended July 31, 2019 and 2018, we recorded $1.9 million and $1.5 million of cost of sales to Belher pursuant to our consignment agreement. During the nine months ended July 31, 2019 and 2018, we recorded $19.6 million and $14.1 million of cost of sales to Belher pursuant to our consignment agreement. ​ In August 2015, we entered into Shareholder’s Agreement with various partners and created Avocados de Jalisco, S.A.P.I. de C.V. (“Avocados de Jalisco”). Avocados de Jalisco is a Mexican corporation created to engage in procuring, packing and selling avocados. As of July 31, 2019, this entity was approximately 83% owned by Calavo and was consolidated in our financial statements. Avocados de Jalisco built a packinghouse located in Jalisco, Mexico, which began operations in June of 2017. As of July 31, 2019, and October 31, 2018, we have made preseason advances of approximately $0.2 million to various partners of Avocados de Jalisco. During the three months ended July 31, 2019 and 2018, we purchased approximately $4.5 million and $0.9 million of avocados from the partners of Avocados de Jalisco. During the nine months ended July 31, 2019 and 2018, we purchased approximately $8.1 million and $1.1 million of avocados from the partners of Avocados de Jalisco. In January 2018, we transferred $1.0 million of interest to the Avocados de Jalisco noncontrolling members. ​ As of July 31, 2019, and October 31, 2018, we had an investment of $8.0 million and $19.9 million in FreshRealm, LLC (“FreshRealm”). We record the amount of our investment in FreshRealm in “Investment in unconsolidated entities” on our Consolidated Condensed Balance Sheets and recognize losses in FreshRealm in “Income/ (loss) in unconsolidated entities” in our Consolidated Condensed Statement of Income. See Note 13 for additional information. ​ Effective July 31, 2018, we entered into a Note and Membership Unit Purchase Agreement (“NMUPA”) with FreshRealm, pursuant to which we agreed to provide additional financing, subject to certain terms and conditions. Pursuant to such NMUPA, we entered into a Subscription Agreement, whereby we purchased $3.5 million of equity units in FreshRealm, on July 31, 2018. FreshRealm concurrently entered into subscription agreements with certain third-party investors for an additional $3.5 million of equity investments. As of July 31, 2019, our ownership percentage in FreshRealm was approximately 37%. Additionally, pursuant to the NMUPA, we entered into a $12 million Senior Promissory Note and corresponding Security Agreement (collectively, the “Agreements”) with FreshRealm, effective August 10, 2018. We funded $9 million of this loan commitment during the fourth quarter of fiscal 2018 and funded the remaining loan commitment amount of $3 million during the first quarter of fiscal 2019. During our second quarter of fiscal 2019, we amended the note related to this loan, due October 31, 2019, and, among other things, included a provision whereby we have the option to extend repayment of this note to November 1, 2020. ​ During our first quarter of fiscal 2019 we loaned FreshRealm $7.5 million, in unsecured notes receivable due October 31, 2019 with an option to extend repayment of this note to November 1, 2020. During our second quarter of fiscal 2019, we lent an additional $4.2 million on an unsecured basis to FreshRealm under similar terms. During our third quarter of fiscal 2019, we lent an additional $5.4 million on an unsecured basis to FreshRealm under similar terms. As of July 31, 2019, and October 31, 2018, we have note receivables from FreshRealm totaling $30.7 million and $9.0 million. At October 31, 2018, note receivables from FreshRealm of $9.0 million was included in prepaids and other current assets. These notes to FreshRealm bear interest at 10% which is due by the final maturity date. At July 31, 2019 we have a receivable of $1.6 million related to interest that we have recorded with Note receivables to FreshRealm on the balance sheet. See Note 13 for further information. ​ Three officers and five members of our board of directors have investments in FreshRealm. In addition, as of July 31, 2019 and October 31, 2018, we have a loan to FreshRealm members of approximately $0.2 million and $0.3 million. In October and December 2017, our Chairman and Chief Executive Officer invested $7.0 million and $1.5 million into FreshRealm. In January 2018, one of our non-executive directors invested $1.8 million into FreshRealm. In the second quarter of fiscal 2018, two of our non-executive directors invested $1.2 million into FreshRealm. ​ In the first quarter of fiscal 2019, FreshRealm entered into a supply contract with a large multi-national, multi-channel retailer. Calavo co-signed an addendum to this agreement to provide assurance to the customer that Calavo will assume responsibility for performance, in the event that FreshRealm cannot perform, provided that the customer must work in good faith to make reasonable adjustments to logistical elements in the contract, if requested by Calavo. ​ We provide storage services to FreshRealm from select Value-Added Depots and RFG facilities. We have received $0.2 million and $0.1 million in storage services revenue from FreshRealm in the three months ended July 31, 2019 and 2018. We have received $0.4 million and $0.2 million in storage services revenue from FreshRealm in the nine months ended July 31, 2019 and 2018. For the three months ended July 31, 2019 and 2018, RFG has sold $0.1 million and $3.6 million of products to FreshRealm. For the nine months ended July 31, 2019 and 2018, RFG has sold $2.0 million and $7.4 million of products to FreshRealm. ​ The previous owners of RFG, one of which is currently an officer of Calavo, have a majority ownership of certain entities that provide various services to RFG, specifically LIG Partners, LLC and THNC, LLC. One of RFG’s California operating entities leases a building from LIG Partners, LLC (LIG) pursuant to an operating lease. This lease with LIG was renewed in April 2019, through May 2026. RFG’s Texas operating entity leases a building from THNC, LLC (THNC) pursuant to an operating lease. See the following tables for the related party activity for the three and nine months ended July 31, 2019 and 2018: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended July 31, |
(in thousands) |  | 2019 |  | 2018 |
Rent paid to LIG | ​ | $ | 177 | ​ | $ | 139 | ​
Rent paid to THNC, LLC | ​ | $ | 198 | ​ | $ | 199 | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Nine months ended July 31, |
(in thousands) |  | 2019 |  | 2018 |
Rent paid to LIG | ​ | $ | 438 | ​ | $ | 417 | ​
Rent paid to THNC, LLC | ​ | $ | 595 | ​ | $ | 597 | ​
​

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 + Details
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