Apio's gross margin for the third quarter of fiscal year 2013 was lower than the third quarter of last year due to weather-related produce sourcing issues in California which reduced gross profit by $3.0 million this quarter (see Question 5 below). In addition, in GreenLine's business, the normal and expected sourcing pattern for green beans during the third quarter winter months, when green beans are almost exclusively grown in southern Florida, historically result in the lowest gross margin for the year and low to negative profitability for those months depending on the supply and market prices of green beans. During this year's third quarter winter months, although the sourcing of green beans for GreenLine was more favorable than normal, the realized gross margin for GreenLine further lowered Apio's overall gross margin during the quarter.
2) Is the fresh-cut produce category continuing to grow?
For the twelve months ended December 2012, the fresh-cut produce category grew by 8.4% according to A.C. Nielsen, compared to Apio's unit volume growth of 24% for the same period.
3) How is the integration of GreenLine into Apio progressing?The integration is going well and is ahead of our original plan. We now have a single integrated ERP system in place that will result in significant efficiencies in the upcoming quarters. After a pause during the busy holiday season, we have resumed further integration efforts with the primary focus on cross selling efforts since our new integrated ERP system now allows us to offer "one stop shopping" to our customers. We expect the new system capabilities to lead to new sales of Eat Smart® products to GreenLine customers and new sales of GreenLine products to Eat Smart customers. 4) Regarding the recent acquisition of GreenLine, what are the future annual savings from already realized operating synergies? What are potential other future savings for operating synergies?
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