We have already realized approximately $1.5 million of operating synergies on an annual basis as a result of general and administrative and purchasing cost savings. Going forward, we see additional cost savings from operating synergies by (a) installing new equipment, implementing additional automation and changing plant layout to improve production efficiencies, (b) utilizing GreenLine's logistical distribution capabilities for Eat Smart products, and (c) taking advantage of GreenLine's East Coast operations to process Eat Smart products. We also expect to reduce packaging and other manufacturing costs by using the combined economies of scale of the two market leaders in fresh-cut packaged vegetables and fresh-cut packaged green beans.
5) How has the weather been in California and Florida this winter?
For the non-green bean business, during December and January we experienced weather-related produce sourcing issues in California. These weather-related produce sourcing issues resulted in a reduction in gross profit of approximately $3.0 million during the third quarter due to: (1) poor harvest and production yields, (2) purchases on the open market considerably above contracted prices, (3) lost revenues and gross profit due to not being able to fully meet customer demand, (4) increased handling costs to sort poor quality produce, and (5) losses on sourcing arrangements with produce growers.
As mentioned above, for the GreenLine green bean business we have experienced significant cost increases during the month of March as a result of the freezes in southern Florida at the beginning of the month. These cost increases, coupled with a shortage of green beans, could result in a reduction of pre-tax income of up to $2.0 million during the fourth quarter of fiscal year 2013 which is reflected in our guidance.6) Other than possible weather-related produce sourcing issues, what are other key financials risk areas for Landec?
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