--Tables and Q&A to Follow--
CONSOLIDATED CONDENSED BALANCE SHEETS
November 27, 2011
May 29, 2011
|Cash, cash equivalents and marketable securities||$||28,471||$||36,259|
|Accounts and income taxes receivable, net||29,764||22,672|
|Prepaid expenses and other current assets||8,767||6,534|
|Total Current Assets||87,177||85,626|
|Property and equipment, net||52,247||51,779|
|Intangible assets, net||52,102||52,256|
|Investments in non-public companies||17,629||16,455|
LIABILITIES AND STOCKHOLDERS' EQUITY
|Other accrued liabilities||13,301||3,581|
|Current portion of long-term debt||4,330||4,330|
|Total Current Liabilities||40,590||30,695|
|Other non-current liabilities||1,217||11,053|
|Additional paid-in capital||118,695||119,169|
|Accumulated other comprehensive loss, net of taxes||(235||)||(267||)|
|Total Stockholders' Equity||140,764||136,055|
|Non controlling interest||1,653||1,671|
|Total Liabilities and Stockholders’ Equity||$||209,408||$||206,312|
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
|Three Months Ended||Six Months Ended|
|November 27,2011||November 28,2010||November 272011||November 282010|
|Cost of revenue:|
|Cost of product sales||67,894||57,438||129,163||109,724|
|Cost of services revenues||666||875||1,448||1,725|
|Total cost of revenue||68,560||58,313||130,611||111,449|
|Operating costs and expenses:|
|Research and development||2,337||2,255||4,670||4,487|
|Selling, general and administrative||6,464||6,072||12,508||11,725|
|Total operating costs and expenses||8,801||8,327||17,178||16,212|
|Other income (expense)||1,079||(44||)||1,088||(102||)|
|Net income before taxes||5,487||3,392||8,550||7,146|
|Consolidated net income||3,438||2,183||5,391||4,585|
|Non controlling interest||(98||)||(128||)||(239||)||(226||)|
|Net income available to common stockholders||$||3,340||$||2,055||$||5,152||$||4,359|
|Diluted net income per share||$||0.13||$||0.08||$||0.20||$||0.16|
|Shares used in diluted per share computations||26,135||26,560||26,399||26,639|
LANDEC CORPORATIONSECOND QUARTER ENDED NOVEMBER 27, 2011QUESTIONS AND ANSWERS
|1)||What are your revenue and net income projections for the second half of fiscal year 2012?|
We are projecting that revenues will be approximately 5% to 10% lower in the second half of fiscal year 2012 compared to the first half due primarily to lower projected revenues in Apio’s export business, which typically realizes two-thirds of its revenues during the first half of our fiscal year because there are more fruit and vegetables to export during the summer and fall than in the winter and spring. For net income, we are projecting that both the third quarter and the fourth quarter of fiscal year 2012 will be approximately the same as the second quarter due to some high margin revenues for Lifecore that were originally anticipated in the fourth quarter, shifting to the third quarter. We expect to meet or exceed our guidance of 5% or better revenue growth and net income growth of 30% to 40%, after adding back the one-time impairment charge of $4.8 million to net income for fiscal year 2011.
Is the fresh-cut produce category returning to a growth mode and how has the weather been in California during the first part of fiscal year 2012?
We have seen produce category growth over the last six months and we are hopeful this is a trend that will continue during fiscal year 2012. The overall fresh-cut produce category experienced a 5% growth in volume during the last six months. While this growth is occurring mostly in the bagged fresh-cut vegetable category, the fresh-cut vegetable tray demand has just recently begun to show some small positive growth. For Apio, our unit volume growth over the last six months has been 13%, more than double the category growth. Weather patterns were normal during the first six months of fiscal year 2012. However, the desert area of California has experienced much higher than normal rainfall during December, which could impact production yields during January and February.
|3)||What is the status of Windset’s new Santa Maria, California operation in which Landec has a 20% ownership interest?|
Windset has completed construction on the first 64 acres of greenhouses, which equates to three million square feet, along with completion of the processing facility and the water treatment plant. All 64 acres have been planted with different varieties of tomatoes. Harvesting began on the first 32 acres in October and on the second 32 acres in December. Production performance is meeting expectations. We are very pleased with the progress Windset is making with their new California operation. In addition to the dividend on our Windset preferred stock, during the second quarter of fiscal year 2012, we recognized $1.1 million of income from our percentage of the increase in Windset’s fair market value.
|4)||Are you considering new investments or acquisition initiatives?|
Yes. Our investment search is focused on opportunities where we can accelerate growth in our core businesses of food and biomaterials while increasing our overall margins. We are focused on identifying potential investment targets that have technology and commercial products that are synergistic with our polymer technologies and/or a business that benefits from our existing channels of distribution.
|5)||How are the Chiquita programs progressing?|
The Chiquita-to-Go® banana program continues to grow and is a higher margin program for Chiquita. The Fresh and Ready® avocado program is a strategic focus for Chiquita. Landec’s BreatheWay® technology for avocados continues to demonstrate good performance in the marketplace, although customer and consumer adoption of the product is proceeding slower than we had originally expected. In connection with renewing the agreement for an additional five years, the companies have agreed to add the use of our BreatheWay technology for creating an optimal atmosphere within shipping containers in the field of global transport of bananas. Chiquita has a sizable shipping container technology business that fits well with Landec’s long-term interest in using modified atmosphere technology for preserving produce during global transport. Chiquita purchased their first order of BreatheWay membranes for containers during the second quarter of fiscal year 2012. The container program is still in the initial commercial testing phase.
|6)||What are the future plans for your seed business now that the Monsanto agreement has terminated?|
We are working with an Ag consulting firm to investigate strategic options for our Intellicoat® technology. The consulting firm is actively arranging meetings with top seed treatment and crop protection companies. Our technology team is continuing to advance our controlled release technology for agricultural applications. We should know by the end of fiscal year 2012 the future direction of our Ag business.
|7)||Why did cash and marketable securities decrease by $7.8 million during the first six months of fiscal year 2012 when the Company generated $5.2 million of net income?|
While we generated $5.2 million of net income, cash decreased because of the following: (1) cash used in financing activities included the purchase of $4.8 million of our Common Stock on the open market through our stock buy-back plan and the pay back of $2.3 million of debt, (2) the purchase of $3.0 million of equipment, and (3) cash flow from operations was reduced by a $7.4 million increase in trade receivables due to shipments of product in late November, partially offset by $5.0 million in non-cash expenses items such as depreciation and amortization and the tax benefit from stock-based compensation. Cash flow from operations is subject to variability in working capital which can shift from quarter to quarter.
|8)||What are Landec’s priorities for the next 12 to 24 months?|
Our goals are as follows: (1) grow Lifecore’s business by utilizing Lifecore’s strengths in ophthalmology, viscoelastic materials and sterile filling, (2) grow Apio’s food business and maintain Apio’s margins, (3) determine Landec Ag’s strategic direction, (4) find new applications for BreatheWay packaging technology and Intelimer polymer technology that can be commercialized through Landec’s subsidiaries or third party partners, (5) find new investment opportunities for growth and margin enhancement, and (6) maintain a strong balance sheet. We see growth opportunities and are continuing to expand our investment in R&D to take advantage of these opportunities, while continuing the shift in revenue mix to higher margin businesses.
|9)||How do the results by line of business for the three and six months ended November 27, 2011 compare with the same periods last year?|
The results are as follows (unaudited and in thousands):
| Six months
| Six months
Apio Value Added(a)
|Tech. Licensing (b)||1,413||1,462||2,875||2,989|
|Apio Value Added||4,531||3,752||10,590||10,115|
|Total Gross Profit||13,010||11,855||24,260||23,671|
|Net Income (Loss):|
Apio’s Value-Added business includes revenues and gross profit from Apio Cooling LP. and Apio Packaging.
Included in Tech. Licensing are the Intellicoat license fees from Monsanto.
Included in Other is net interest income/(expense), dividend income, change in the FMV of Windset, non-operating income/(expense) and income tax expense.