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Related party transactions | 9 Months Ended
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Jul. 31, 2020
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, 2020 and 2019, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $9.1 million and $10.0 million. For the nine months ended July 31, 2020 and 2019, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $15.3 million and $11.7 million. Amounts payable to these Board members were $4.1 million as of July 31, 2020. We did not have any amounts payable to these Board members as of October 31, 2019. ​ During the three months ended July 31, 2020 and 2019, we received $0.2 million and $0.1 million as dividend income from Limoneira Company (Limoneira). During the nine months ended July 31, 2020 and 2019, we received $0.4 million and $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, 2020 and 2019. We paid rent expense to Limoneira totaling $0.3 million for the nine months ended July 31, 2020 and 2019. Harold Edwards, who is a member of our Board of Directors, is the Chief Executive Officer of Limoneira Company. As of July 31, 2020, we own less than 10% of Limoneira’s outstanding shares. ​ 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, 2020 and 2019, Calavo Growers, Inc. paid fees totaling $0.1 million to TroyGould PC. During the nine months ended July 31, 2020 and 2019, Calavo Growers, Inc. paid fees totaling $0.3 million to TroyGould PC. ​ As of July 31, 2020, and October 31, 2019, we had an investment of $5.8 million and $4.9 million, representing Calavo’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, 2019, we had outstanding advances of $3.7 million to Don Memo. During the three months ended July 31, 2020 and 2019, we recorded $10.6 million and $4.8 million of cost of sales to Don Memo pursuant to our consignment agreement. During the nine months ended July 31, 2020 and 2019, we recorded $15.2 million and $10.7 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 and $4.5 million as of July 31, 2020 and October 31, 2019, which are netted against the grower payable. In addition, we had infrastructure advances due from Belher of $1.8 million and $2.6 million as of July 31, 2020 and October 31, 2019. $0.6 million and $0.8 million of these infrastructure advances were recorded as a receivable in prepaid and other current asset as of July 31, 2020 and October 31, 2019. The remaining $1.2 million and $1.8 million of these infrastructure advances were recorded in other assets. During the three months ended July 31, 2020 and 2019, we recorded $4.0 million and $1.9 million of cost of sales to Belher pursuant to our consignment agreement. During the nine months ended July 31, 2020 and 2019, we recorded $23.6 million and $19.6 million of cost of sales to Belher pursuant to our consignment agreement. ​ In August 2015, we entered into a Shareholder’s Agreement with various Mexican partners and created Avocados de Jalisco, S.A.P.I. de C.V. (“Avocados de Jalisco”). Avocados de Jalisco is a Mexican corporation created to engage in procuring, packing and selling avocados. As of July 31, 2020, this entity was approximately 83% owned by Calavo and was consolidated in our financial statements. Avocados de Jalisco built a packinghouse located in Jalisco, Mexico, which began operations in June of 2017. During the three months ended July 31, 2020 and 2019, we purchased approximately $3.5 million and $4.5 million of avocados from the partners of Avocados de Jalisco. During the nine months ended July 31, 2020 and 2019, we purchased approximately $5.4 million and $8.1 million of avocados from the partners of Avocados de Jalisco. ​ As of October 31, 2019, we have an equity investment of $5.8 million in FreshRealm, LLC (“FreshRealm”). During the quarter ended July 31, 2020, we concluded that there was no longer any value associated with our FreshRealm investment and therefore recognized a $2.8 million impairment charge to fully impair the investment. We record the amount of our investment in FreshRealm in “Investment in unconsolidated entities” on our Consolidated Condensed Balance Sheets and recognize losses in FreshRealm in “Income/ (loss) from unconsolidated entities” in our Consolidated Condensed Statement of Operations. See Note 12 and Note 18 for additional information. As of July 31, 2020, our ownership percentage in FreshRealm was approximately 37%. ​ Effective July 31, 2018, we entered into a Note and Membership Unit Purchase Agreement (“NMUPA”) with FreshRealm, pursuant to which we agreed to provide additional financing to FreshRealm, subject to certain terms and conditions. Pursuant to the NMUPA, we entered into a $12 million Senior Promissory Note and corresponding Security Agreement with FreshRealm, effective August 10, 2018. 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 the second quarter of fiscal 2019, we amended the note related to this loan, due October 31, 2019, and, among other things, included a provision whereby we have the option to extend repayment of this note to November 1, 2020. ​ During our first quarter of fiscal 2019, we loaned FreshRealm $7.5 million in unsecured notes receivable. During our second quarter of fiscal 2019, we loaned an additional $4.2 million on an unsecured basis to FreshRealm under similar terms. During our third quarter of fiscal 2019, we loaned an additional $5.4 million on an unsecured basis to FreshRealm under similar terms. During our fourth quarter of fiscal 2019, we loaned an additional $3.7 million to FreshRealm. At such time, we entered into an agreement with FreshRealm wherein all of the outstanding loan amount owed by FreshRealm to us would be secured by substantially all of the assets of FreshRealm. ​ As of November 25, 2019, we modified approximately $2.7 million of the outstanding secured loan to FreshRealm and applied it to unsecured debt as part of a convertible note round offered by FreshRealm to its existing equity holders. Such convertible note bears interest at the rate of 10% up to the time of conversion. Such $2.7 million unsecured note, along with the related accrued interest amount, was converted into additional equity of FreshRealm as of February 3, 2020. As a result of the convertible note round offered by FreshRealm our ownership percentage in FreshRealm (upon conversion on February 3, 2020) decreased to approximately 37%. ​ On April 1, 2020, we entered into another Unit Purchase and Subscription Agreement with FreshRealm, where FreshRealm raised $4.0 million of additional equity from existing members. As part of that round, we invested $0.5 million in cash and additionally converted the $1.0 million short-term advanced in February 2020 into equity. Our ownership percentage in FreshRealm remained unchanged at 37%. ​ As of July 31, 2020, and October 31, 2019, we have $34.2 million and $35.2 million in note receivables (including interest) from FreshRealm. During the quarter ended July 31, 2020, we fully reserved our note receivable balance of $34.2 million (which includes accrued interest of $4.1 million). See Note 18 for additional discussion of reserve for collectability of this note receivable. ​ On April 1, 2020, in connection with the $4.0 million capital raise previously mentioned, we entered into the 10th amendment to the FreshRealm promissory note which adjusted the interest rate on the notes receivable from 10% to 3% effective April 1, 2020. This interest rate reduction was meant to serve as inducement for other investors to participate in FreshRealm’s on-going capital raise and was contingent on FreshRealm completing that equity round. They successfully raised the full $4 million equity round by the May 15, 2020 deadline. The entire principal balance of these notes shall be due and payable in full on April 1, 2022. If FreshRealm fails to make monthly interest payments beginning October 31, 2020, then the maturity date shall be reverted to November 1, 2020. Calavo has the option for up to two additional and separate one-year extensions of April 1, 2023 and April 1, 2024. At July 31, 2020 and October 31, 2019 we have a receivable of $4.1 million and $2.4 million related to accrued interest that we have recorded with note receivables from FreshRealm on the balance sheet. As described above, we have subsequently reserved our note receivable balance (including the interest accrued). ​ One officer and five members of our board of directors have investments in FreshRealm as of July 31, 2020. 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 October 2019, our former Chairman and Chief Executive Officer invested $0.5 million in FreshRealm. In October 2019, one of our non-executive directors invested $0.2 million into FreshRealm. In April 2020, our former Chairman and Chief Executive Officer invested $0.4 million in FreshRealm, and two other members of the board of directors invested an additional $0.1 million. ​ 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 believe that we are able to fulfill our responsibility to this arrangement without significant impact on our results of operations. ​ We provide storage services to FreshRealm from select Value-Added Depots and RFG facilities. We have recorded $0.1 million and $0.2 million in storage services revenue from FreshRealm in the three months ended July 31, 2020 and 2019. We have recorded $0.4 million and $0.4 million in storage services revenue from FreshRealm in the nine months ended July 31, 2020 and 2019. For the three months ended July 31, 2020 and 2019, RFG has sold less than $0.1 million and $0.1 million of products to FreshRealm. For the nine months ended July 31, 2020 and 2019, RFG has sold $0.3 million and $2.0 million of products to FreshRealm. ​ The previous owners of RFG, one of which is currently the CEO of Calavo, have a majority ownership of certain entities that historically provided various services to RFG, specifically LIG Partners, LLC and THNC, LLC who leased property to certain RFG operating entities. In the first quarter of fiscal 2020, these facilities were sold to an unaffiliated third party and our lease has transferred to those new owners. See the following tables for the related party activity for fiscal years 2020 and 2019: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended July 31, |
(in thousands) |  | 2020 |  | 2019 |
Rent paid to LIG | ​ | $ | — | ​ | $ | 177 | ​
Rent paid to THNC, LLC | ​ | $ | — | ​ | $ | 198 | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Nine months ended July 31, |
(in thousands) |  | 2020 |  | 2019 |
Rent paid to LIG | ​ | $ | 80 | ​ | $ | 438 | ​
Rent paid to THNC, LLC | ​ | $ | 132 | ​ | $ | 595 | ​
​

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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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