e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Quarter Ended February 26, 2006, or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Transition period from _________ to .
Commission file number: 0-27446
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
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California
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94-3025618 |
(State or other jurisdiction of
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(IRS Employer |
incorporation or organization)
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Identification Number) |
3603 Haven Avenue
Menlo Park, California 94025
(Address of principal executive offices)
Registrants telephone number, including area code:
(650) 306-1650
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for at
least the past 90 days.
Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer o Accelerated Filer þ Non Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes
o No þ
As of March 20, 2006, there were 24,869,423 shares of Common Stock outstanding.
LANDEC CORPORATION
FORM 10-Q for the Fiscal Quarter Ended February 26, 2006
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDEC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
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February 26, |
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May 29, |
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2006 |
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2005* |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
20,095 |
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$ |
12,871 |
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Marketable securities |
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1,968 |
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Accounts receivable, less allowance for
doubtful accounts of $314 and $313 at
February 26, 2006 and May 29, 2005 |
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12,957 |
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15,405 |
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Accounts receivable, related party |
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297 |
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476 |
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Inventory |
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20,899 |
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9,917 |
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Notes and advances receivable |
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536 |
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419 |
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Notes receivable, related party |
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35 |
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89 |
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Prepaid expenses and other current assets |
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1,876 |
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2,042 |
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Assets held for sale |
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1,190 |
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Total Current Assets |
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56,695 |
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44,377 |
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Property and equipment, net |
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17,500 |
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17,275 |
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Goodwill, net |
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29,694 |
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25,987 |
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Trademarks, net |
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13,270 |
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11,570 |
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Other intangibles, net |
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173 |
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58 |
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Notes receivable |
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631 |
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426 |
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Notes receivable, related party |
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7 |
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Other assets |
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1,059 |
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375 |
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Total Assets |
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$ |
119,022 |
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$ |
100,075 |
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Current Liabilities: |
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Accounts payable |
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$ |
15,100 |
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17,513 |
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Related party payables |
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94 |
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793 |
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Accrued compensation |
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2,413 |
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1,907 |
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Other accrued liabilities |
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2,085 |
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2,141 |
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Deferred revenue |
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17,591 |
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557 |
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Current maturities of long term debt |
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155 |
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548 |
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Total Current Liabilities |
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37,438 |
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23,459 |
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Long term debt, less current maturities |
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1,949 |
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2,540 |
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Other liabilities |
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550 |
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Minority interest |
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1,549 |
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1,466 |
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Total Liabilities |
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40,936 |
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28,015 |
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Shareholders Equity: |
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Common stock, $0.001 par value;
50,000,000 shares authorized; 24,869,423
and 24,086,368 shares issued and
outstanding at February 26, 2006 and May
29, 2005, respectively |
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126,019 |
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121,950 |
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Accumulated deficit |
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(47,933 |
) |
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(49,890 |
) |
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Total Shareholders Equity |
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78,086 |
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72,060 |
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Total Liabilities and Shareholders Equity |
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$ |
119,022 |
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$ |
100,075 |
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* |
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Amounts as of May 29, 2005 are derived from the May 29, 2005 audited consolidated financial
statements. |
See accompanying notes.
-3-
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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February 26, |
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February 27, |
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February 26, |
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February 27, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenues: |
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Product sales |
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$ |
55,170 |
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$ |
50,605 |
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$ |
156,058 |
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$ |
145,858 |
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Services revenue, related party |
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690 |
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754 |
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2,783 |
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2,792 |
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License fees |
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1,321 |
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22 |
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1,616 |
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66 |
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Royalty revenues, related party |
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54 |
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54 |
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187 |
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182 |
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Research, development and royalty revenues |
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14 |
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96 |
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22 |
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159 |
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Total revenues |
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57,249 |
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51,531 |
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160,666 |
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149,057 |
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Cost of revenue: |
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Cost of product sales |
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44,697 |
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40,678 |
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130,404 |
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121,914 |
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Cost of product sales, related party |
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714 |
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1,176 |
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3,543 |
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4,571 |
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Cost of services revenue |
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422 |
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379 |
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1,624 |
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1,538 |
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Total cost of revenue |
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45,833 |
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42,233 |
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135,571 |
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128,023 |
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Gross profit |
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11,416 |
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9,298 |
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25,095 |
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21,034 |
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Operating costs and expenses: |
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Research and development |
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701 |
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705 |
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2,280 |
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2,195 |
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Selling, general and administrative |
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7,195 |
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6,158 |
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20,530 |
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17,478 |
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Total operating costs and expenses |
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7,896 |
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6,863 |
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22,810 |
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19,673 |
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Operating income |
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3,520 |
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2,435 |
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2,285 |
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1,361 |
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Interest income |
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145 |
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88 |
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395 |
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107 |
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Interest expense |
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(112 |
) |
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(127 |
) |
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(362 |
) |
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(332 |
) |
Minority interest expense |
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(80 |
) |
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(103 |
) |
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(397 |
) |
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(343 |
) |
Other income |
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41 |
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36 |
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Net income |
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$ |
3,514 |
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$ |
2,293 |
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$ |
1,957 |
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$ |
793 |
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Basic net income per share |
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$ |
0.14 |
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$ |
0.10 |
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$ |
0.08 |
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$ |
0.03 |
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Diluted net income per share |
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$ |
0.13 |
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$ |
0.09 |
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$ |
0.06 |
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$ |
0.02 |
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Shares used in per share computation: |
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Basic |
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24,849 |
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23,990 |
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24,438 |
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23,594 |
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Diluted |
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25,719 |
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24,928 |
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25,315 |
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24,492 |
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See accompanying notes.
-4-
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Nine Months Ended |
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February 26, |
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February 27, |
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2006 |
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2005 |
|
Cash flows from operating activities: |
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Net income |
|
$ |
1,957 |
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$ |
793 |
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Adjustments to reconcile net income to net cash provided by operating
activities: |
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Depreciation and amortization |
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|
2,336 |
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|
2,723 |
|
(Gain) loss on sale of property and equipment |
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(129 |
) |
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|
214 |
|
Minority interest |
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|
397 |
|
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|
343 |
|
Changes in current assets and current liabilities, net of effects
of acquisition of assets of Heartland Hybrids, Inc.: |
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Accounts receivable, net |
|
|
2,976 |
|
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|
3,692 |
|
Inventory |
|
|
(10,064 |
) |
|
|
(3,180 |
) |
Issuance of notes and advances receivable |
|
|
(1,531 |
) |
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|
(231 |
) |
Collection of notes and advances receivable |
|
|
1,472 |
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|
783 |
|
Prepaid expenses and other current assets |
|
|
192 |
|
|
|
(444 |
) |
Accounts payable |
|
|
(4,650 |
) |
|
|
(3,737 |
) |
Related party payables |
|
|
(699 |
) |
|
|
(92 |
) |
Accrued compensation |
|
|
506 |
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|
|
(23 |
) |
Other accrued liabilities |
|
|
(93 |
) |
|
|
463 |
|
Deferred revenue |
|
|
16,484 |
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|
10,774 |
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Net cash provided by operating activities |
|
|
9,154 |
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|
12,078 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
|
|
(2,359 |
) |
|
|
(3,050 |
) |
Purchase of marketable securities |
|
|
(991 |
) |
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|
Proceeds from maturities of marketable securities |
|
|
2,959 |
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|
|
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|
Issuance of notes and advances receivable |
|
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(425 |
) |
|
|
(453 |
) |
Collection of notes and advances receivable |
|
|
223 |
|
|
|
388 |
|
Proceeds from the sale of property and equipment |
|
|
1,350 |
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|
|
22 |
|
Acquisition of assets of Heartland Hybrids, Inc., net of cash acquired |
|
|
(3,630 |
) |
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|
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|
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|
Net cash used in investing activities |
|
|
(2,873 |
) |
|
|
(3,093 |
) |
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|
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Cash flows from financing activities: |
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|
|
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|
|
Proceeds from sale of common stock |
|
|
3,109 |
|
|
|
4,964 |
|
Increase in other assets |
|
|
(802 |
) |
|
|
(47 |
) |
Borrowings on lines of credit |
|
|
14,904 |
|
|
|
59,441 |
|
Payments on lines of credit |
|
|
(14,904 |
) |
|
|
(63,901 |
) |
Payments on long term debt |
|
|
(1,050 |
) |
|
|
(1,651 |
) |
Proceeds from issuance of long term debt |
|
|
|
|
|
|
1,200 |
|
Distributions to minority interest |
|
|
(314 |
) |
|
|
(550 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
943 |
|
|
|
(544 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
7,224 |
|
|
|
8,441 |
|
Cash and cash equivalents at beginning of period |
|
|
12,871 |
|
|
|
6,458 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
20,095 |
|
|
$ |
14,899 |
|
|
|
|
|
|
|
|
Supplemental schedule of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Sale of assets and services for notes receivable |
|
$ |
|
|
|
$ |
425 |
|
|
|
|
Purchase of asset for a liability |
|
$ |
|
|
|
$ |
813 |
|
|
|
|
Preferred shares received under license agreement |
|
$ |
900 |
|
|
$ |
|
|
|
|
|
See accompanying notes.
-5-
LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Landec Corporation and its subsidiaries (Landec or the Company) design, develop,
manufacture, and sell temperature-activated and other specialty polymer products for a variety of
food products, agricultural products, and licensed partner applications. The Company directly
markets and distributes hybrid corn seed to farmers through its Landec Ag, Inc. (Landec Ag)
subsidiary and specialty packaged fresh-cut vegetables and whole produce to retailers and club
stores, primarily in the United States and Asia through its Apio, Inc. (Apio) subsidiary.
The accompanying unaudited consolidated financial statements of Landec have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal recurring accruals) have been made
which are necessary to present fairly the financial position at February 26, 2006 and the results
of operations and cash flows for all periods presented. Although Landec believes that the
disclosures in these financial statements are adequate to make the information presented not
misleading, certain information normally included in financial statements and related footnotes
prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted per the rules and regulations of the Securities and Exchange Commission. The
accompanying financial data should be reviewed in conjunction with the audited financial statements
and accompanying notes included in Landecs Annual Report on Form 10-K for the fiscal year ended
May 29, 2005.
The results of operations for the three and nine months ended February 26, 2006 are not
necessarily indicative of the results that may be expected for an entire fiscal year. For
instance, due to the cyclical nature of the corn seed industry, a significant portion of Landec Ag
revenues and profits will be concentrated over a few months during the spring planting season
(generally during Landecs third and fourth fiscal quarters). In addition, Landec Ag purchases
corn seed and collects cash deposits from farmers in advance of shipping the corn during the
Companys third and fourth quarters. The increased levels of inventory and deferred revenue at
February 26, 2006 compared to May 29, 2005 reflect the seasonal nature of Landec Ags seed
business.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported results of operations during
the reporting period. Actual results could differ materially from those estimates.
For instance, the carrying value of notes and advances receivable, are impacted by current
market prices for the related crops, weather conditions and the fair value of the underlying
security obtained by the Company, such as, liens on property and crops. The Company recognizes
losses when it estimates that the fair value of the related crops or security is insufficient to
cover the advance or note receivable.
Investments
Equity investments in non-public companies with no readily available market value are carried on
the balance sheet at cost as adjusted for impairment losses, if any. If reductions in the market
value of the investments to an amount that is below cost are deemed by management to be other than
temporary, the reduction in market value will be realized, with the resulting loss in market value
reflected on the income statement.
Recent Accounting Pronouncements
In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment, or
SFAS No. 123R, which is a revision of SFAS No. 123, and supersedes APB Opinion 25. SFAS 123R
requires all share-based payments to employees and directors, including grants of stock options, to
be recognized in the statement of operations
based on their fair values. On April 14, 2005, the SEC adopted a new rule that amended the
compliance dates for SFAS
-6-
123R such that the Company is now allowed to adopt the new standard
effective at the beginning of fiscal year 2007. The pro forma disclosures previously permitted
under SFAS 123 will no longer be an alternative to financial statement recognition. As permitted by
SFAS 123, the Company currently accounts for share-based payments to employees using APB Opinion
25s intrinsic value method and, as such, recognizes no compensation cost for employee stock
options.
Under SFAS 123R, the Company must determine the appropriate fair value model and related
assumptions to be used for valuing share-based payments, the amortization method for compensation
cost and the transition method to be used at the date of adoption. The transition methods include
modified prospective and retroactive adoption options. Under the retroactive option, prior periods
may be restated either as of the beginning of the year of adoption or for all periods presented.
The modified prospective method requires that compensation expense be recorded for all unvested
stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R,
while the retroactive method would record compensation expense for all unvested stock options and
restricted stock beginning with the first period restated. The Company is currently evaluating the
requirements of SFAS 123R as well as option valuation methodologies related to its stock option
plans. Although the Company has not yet determined the method of adoption or the effect of adopting
SFAS 123R, the Company expects that the adoption of SFAS 123R may have a material impact on the
Companys consolidated results of operations. The impact of adoption of SFAS 123R cannot be
estimated at this time because it will depend on, among other things, the levels of share-based
payments granted in the future, the method of adoption and the option valuation method used. SFAS
123R also requires the benefits of tax deductions in excess of recognized compensation costs to be
reported as a financing cash flow, rather than as an operating cash flow as required under current
literature. This requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption.
Reclassifications
Certain reclassifications have been made to prior period financial statements to conform to
the current period presentation.
2. |
|
Purchase of Heartland Hybrids Assets |
On August 29, 2005, Landec Corporation, through its agricultural seed subsidiary, Landec Ag,
Inc., acquired the assets of Heartland Hybrids, Inc. (Heartland), which is based in Dassel, MN,
for $6.0 million. The consideration at closing consisted of 152,186 shares of Landec Common Stock
valued at $1.0 million and cash of $3.65 million. In addition, the agreement provides for future
payments to the former owners of Heartland of up to $1.35 million. These payments consist of a
cash earn-out of $1.2 million based on Heartland achieving certain financial targets for fiscal
years 2006 and 2007 and a $150,000 holdback for any post closing adjustments. Any amounts
remaining in the holdback reserve will be paid out in May 2006. Heartland operations are included
in Landecs consolidated results of operations commencing August 29, 2005. The purchase price has
been allocated to the acquired assets and liabilities based on their relative fair market values,
subject to final adjustments predominantly related to earn-out payments. These allocations are
based on independent valuations and other studies.
The following is a summary of the purchase price allocation (in thousands):
|
|
|
|
|
Net assets and liabilities |
|
$ |
(757 |
) |
Customer base |
|
|
800 |
|
Trademark |
|
|
1,700 |
|
Goodwill |
|
|
2,907 |
|
|
|
|
|
|
|
$ |
4,650 |
|
Under Statements of Financial Accounting Standards No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets (SFAS 142), goodwill and intangible assets deemed to have
indefinite lives are no longer amortized but are subject to annual impairment tests in accordance
with the Statements. No pro forma information is deemed necessary as the operations of Heartland
Hybrids are immaterial to Landecs annual revenues and results of operations.
On December 23, 2005, Landec entered into an exclusive licensing agreement with a medical
device company. This company paid Landec an upfront license fee of $250,000 for the exclusive
rights to use Landecs IntelimerÒ
-7-
materials technology in a specific device field worldwide.
Landec will also receive royalties on the sale of products incorporating Landecs technology. In
addition, the Company received shares of preferred stock valued at $900,000 which represents a
16.7% ownership interest in the medical device company. Landecs ownership interest could increase
to as high as 19.9% based on certain milestones being achieved. The $1.15 million of value
received under this agreement is recorded as licensing revenue in the accompanying Consolidated
Statements of Operations since Landec has no further obligations under this agreement.
4. |
|
Net Income Per Diluted Share |
The following table sets forth the computation of diluted net income for the periods with net
income (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
February 26, |
|
|
February 27, |
|
|
February 26, |
|
|
February 27, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,514 |
|
|
$ |
2,293 |
|
|
$ |
1,957 |
|
|
$ |
793 |
|
Less: Minority interest in income of subsidiary |
|
|
(165 |
) |
|
|
(127 |
) |
|
|
(390 |
) |
|
|
(211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for diluted net income per share |
|
$ |
3,349 |
|
|
$ |
2,166 |
|
|
$ |
1,567 |
|
|
$ |
582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic net income
per share |
|
|
24,849 |
|
|
|
23,990 |
|
|
|
24,438 |
|
|
|
23,594 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
870 |
|
|
|
938 |
|
|
|
877 |
|
|
|
898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted net income
per share |
|
|
25,719 |
|
|
|
24,928 |
|
|
|
25,315 |
|
|
|
24,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.13 |
|
|
$ |
0.09 |
|
|
$ |
0.06 |
|
|
$ |
0.02 |
|
Options to purchase 442,962 and 552,812 shares of Common Stock at a weighted average exercise
price of $6.49 and $6.90 per share were outstanding during the three months ended February 26, 2006
and February 27, 2005, respectively, but were not included in the computation of diluted net income
per share because the options exercise price were greater than the average market price of the
Common Stock and, therefore, the effect would be antidilutive.
Options to purchase 480,709 and 2,564,247 shares of Common Stock at a weighted average
exercise price of $6.49 and $5.63 per share were outstanding during the nine months ended February
26, 2006 and February 27, 2005, respectively, but were not included in the computation of diluted
net income per share because the options exercise price were greater than the average market price
of the Common Stock and, therefore, the effect would be antidilutive.
5. |
|
Stock-Based Compensation |
As permitted by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123), as amended by Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, (SFAS 148), the
Company elected to continue to apply the provisions of Accounting Principle Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25) and related interpretations in accounting for
its employee stock option and stock purchase plans. The Company is not required under APB 25 and
related interpretations to recognize compensation expense in connection with its employee stock
option and stock purchase plans, unless the exercise price of the Companys employee stock options
is less than the market price of the underlying stock at the date of grant.
Pro forma information regarding net income and net income per share is required by SFAS 148
and has been determined as if the Company had accounted for its employee stock options under the
fair value method prescribed by SFAS 123. The fair value for these options was estimated at the
date of grant using the Black-Scholes option valuation model with the following weighted average
assumptions: risk-free interest rates ranging from 4.31% to 4.72% for the three months ended
February 26, 2006, 3.60% to 3.76% for the three months February 27, 2005; 3.69% to 4.72% for the
-8-
nine months ended February 26, 2006, and 3.35% to 3.93% for the nine months ended February 27,
2005; a dividend yield of 0.0% for the three and nine months ended February 26, 2006 and February
27, 2005; a volatility factor of the expected market price of the Companys common stock of 0.53
and 0.59 as of February 26, 2006 and February 27, 2005, respectively; and a weighted average
expected life of the options of 4.82 years and 4.39 years for the three and nine months ended
February 26, 2006 and February 27, 2005, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to
expense over the vesting period of the options using the straight-line method. The Companys pro
forma information follows (in thousands except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
February 26, 2006 |
|
|
February 27, 2005 |
|
|
February 26, 2006 |
|
|
February 27, 2005 |
|
Net income |
|
$ |
3,514 |
|
|
$ |
2,293 |
|
|
$ |
1,957 |
|
|
$ |
793 |
|
Deduct: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based employee expense
determined under SFAS 123 |
|
|
(230 |
) |
|
|
(222 |
) |
|
|
(894 |
) |
|
|
(849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Pro forma net income (loss) |
|
|
3,284 |
|
|
|
2,071 |
|
|
|
1,063 |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Minority interest in income
of subsidiary |
|
|
(165 |
) |
|
|
(127 |
) |
|
|
(390 |
) |
|
|
(211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma net income (loss) |
|
$ |
3,119 |
|
|
$ |
1,944 |
|
|
$ |
673 |
|
|
$ |
(267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net
income per share as
reported |
|
$ |
0.14 |
|
|
$ |
0.10 |
|
|
$ |
0.08 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net
income per share as
reported |
|
$ |
0.13 |
|
|
$ |
0.09 |
|
|
$ |
0.06 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma net income (loss)
per share |
|
$ |
0.13 |
|
|
$ |
0.09 |
|
|
$ |
0.04 |
|
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma net income
(loss) per share |
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
$ |
0.03 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including the expected stock
price volatility. These amounts do not necessarily represent the effects of employee stock options
on reported net income (loss) for future years.
6. |
|
Goodwill and Other Intangibles |
The Company is required under SFAS 142 to review goodwill and indefinite lived intangible
assets at least annually. During the nine months ended February 26, 2006, the Company completed
its annual impairment review. The review is performed by grouping the net book value of all
long-lived assets for reporting entities, including goodwill and other intangible assets, and
comparing this value to the related estimated fair value. The determination of fair value is based
on estimated future discounted cash flows related to these long-lived assets. The discount rate
used was based on the risks associated with the reporting entities. The determination of fair
value was performed by management using the services of an independent appraiser. The review
concluded that the fair value of the reporting entities exceeded the carrying value of their net
assets and thus no charge was warranted as of February 26, 2006.
Inventories are stated at the lower of cost (first-in, first-out method) or market and
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 26, |
|
|
May 29, |
|
|
|
2006 |
|
|
2005 |
|
Finished goods |
|
$ |
15,875 |
|
|
$ |
6,132 |
|
Raw material |
|
|
5,024 |
|
|
|
3,655 |
|
Work in process |
|
|
|
|
|
|
130 |
|
|
|
|
|
|
|
|
Total |
|
$ |
20,899 |
|
|
$ |
9,917 |
|
|
|
|
|
|
|
|
-9-
8. |
|
Purchase and Sale of Fruit Land |
On January 14, 2005, the Company entered into an agreement to purchase approximately 155 acres
of fruit land from an individual for $812,500. This amount was paid to the seller through the
funding of an escrow account on March 23, 2005. In a separate unrelated transaction, on January
31, 2005, the Company entered into an agreement to sell approximately 45 acres of grape land to an
individual for $452,500. Upon entering into the agreement, the Company received $28,000 in cash
and promissory notes receivable for $424,500. The sale closed on January 3, 2006. As of February
26, 2006, payments on the notes receivable totaled $56,000 with the remaining balance to be paid
from net profits from the sale of grapes produced from this property with a final payment due on
December 31, 2009, if not previously paid off. Interest accrues at the prime rate and is payable
quarterly. In another transaction which closed on January 17, 2006, the Company sold to an
individual the remaining 110 acres for $936,000 in cash, net of sales commissions. The Company
recorded a gain of $160,000 during the three months ended February 26, 2006 on these sales.
On November 1, 2005, Apio amended its revolving line of credit that was scheduled to expire on
August 31, 2006, with Wells Fargo Bank N.A. The line was reduced from $10.0 million to $7.0 million
and outstanding amounts under the line of credit now bear interest at either the prime rate less
0.25% or the LIBOR adjustable rate plus 1.75% (6.36% at February 26, 2006). The line of credit
contains certain restrictive covenants, which require Apio to meet certain financial tests
including minimum levels of net income, maximum leverage ratio, minimum net worth and maximum
capital expenditures. The line of credit also affects the ability of Landec to receive payments on
debt owed by Apio to Landec. Landec has pledged substantially all of the assets of Apio to secure
the line with Wells Fargo Bank. At February 26, 2006, no amounts were outstanding under Apios line
of credit.
10. |
|
Licensing and Supply Agreement |
In July 2005, the Company amended the supply agreement with Alcon, Inc. to change the
expiration date of the agreement from November 1, 2012 to May 28, 2006. As a result, all of the
deferred revenue has been reclassified to current liabilities in the accompanying Consolidated
Balance Sheets. In addition, in accordance with Staff Accounting Bulletin No. 104, Revenue
Recognition (a replacement of SAB 101), the entire amount of the deferred revenue of $638,000 as
of May 29, 2005, will be recognized as recycled revenue during fiscal year 2006. For the three
and nine months ended February 26, 2006, $172,000 and $466,000, respectively, of the related
deferred revenue was recognized as recycled license revenue.
Apio provides cooling and distributing services for farms in which the Chief Executive Officer
of Apio (the Apio CEO) has a financial interest and purchases produce from those farms. Apio
also purchases produce from Beachside Produce LLC (formerly known as Apio Fresh) for sale to third
parties. Beachside Produce is owned by a group of entities and persons that supply produce to
Apio. One of the owners of Beachside Produce is the Apio CEO. Revenues, cost of product sales and
the resulting payable and the note receivable from advances for ground lease payments, crop and
harvesting costs, are classified as related party in the accompanying financial statements as of
February 26, 2006 and May 29, 2005 and for the three and nine months ended February 26, 2006 and
February 27, 2005.
Apio leases, for approximately $429,000 on an annual basis, agricultural land that is either
owned, controlled or leased by the Apio CEO. Apio, in turn, subleases that land at cost to growers
who are obligated to deliver product from that land to Apio for value added products. There is
generally no net statement of operations impact to Apio as a result of these leasing activities but
Apio creates a guaranteed source of supply for the value added business. Apio has loss exposure on
the leasing activity to the extent that it is unable to sublease the land. For the three and nine
months ended February 26, 2006 the Company subleased all of the land leased from the Apio CEO and
received sublease income of $115,000 and $436,000, respectively, which is equal to the amount the
Company paid to lease that land for the period.
Apios domestic commodity vegetable business was sold to Beachside Produce, effective June 30,
2003. The Apio CEO is a 12.5% owner in Beachside Produce. During the three and nine months ended
February 26, 2006, the Company recognized revenues of $16,000 and $86,000, respectively, from the
sale of products to Beachside Produce
-10-
and royalty revenue of $54,000 and $187,000, respectively,
from the use by Beachside Produce of Apios trademarks. The related accounts receivable from
Beachside Produce are classified as related party in the accompanying financial statements as of
February 26, 2006 and May 29, 2005.
In addition, the Apio CEO has a 6% ownership interest in Apio Cooling LP, a limited
partnership in which Apio is the general partner with a 60% ownership interest. Included in the
minority interest liability as of February 26, 2006 and May 29, 2005 is $218,000 and $201,000,
respectively, owed to the Apio CEO.
All related party transactions are monitored quarterly by the Company and approved by the
Audit Committee of the Board of Directors.
The comprehensive income of Landec is the same as the net income.
During the three and nine months ended February 26, 2006, 485,469 and 630,869 shares of Common
Stock, respectively, were issued upon the exercise of options under the Companys stock option
plans and the Companys Employee Stock Purchase Plan. In addition, the Company issued to the
former owners of Heartland 152,186 shares of Landec Common Stock on August 29, 2005 in connection
with the purchase of Heartland assets (see Note 2).
On October 14, 2005, following shareholder approval at the Annual Meeting of Shareholders of
the Company, the 2005 Stock Incentive Plan (the Plan) became effective and replaced the Companys
four then existing equity plans. Employees (including officers), consultants and directors of the
Company and its subsidiaries and affiliates are eligible to participate in the Plan.
The Plan provides for the grant of stock options (both nonstatutory and incentive stock
options), stock grants, stock units and stock appreciation rights. Awards under the Plan will be
evidenced by an agreement with the Plan participant. Under the Plan 861,038 shares of the
Companys Common Stock (Shares) are available for awards. Under the Plan no recipient may be
awarded any of the following during any fiscal year: (i) stock options covering in excess of
500,000 Shares; (ii) stock grants and stock units covering in excess of 250,000 Shares in the
aggregate; or (iii) stock appreciation rights covering more than 500,000 Shares. In addition,
awards to non-employee directors are discretionary. However, a non-employee director may not be
granted awards covering in excess of 30,000 Shares in the aggregate during any fiscal year.
-11-
14. |
|
Business Segment Reporting |
Landec operates in two business segments: the Food Products Technology segment and the
Agricultural Seed Technology segment. The Food Products Technology segment markets and packs
specialty packaged whole and fresh-cut vegetables that incorporate the BreatheWay specialty
packaging for the retail grocery, club store and food services industry. The Agricultural Seed
Technology segment markets and distributes hybrid seed corn and seed coatings using Landecs
patented Intellicoat® seed coatings to the farming industry. The Food Products Technology and
Agricultural Seed Technology segments include charges for corporate services allocated from the
Corporate and Other segment. Corporate and other amounts include non-core operating activities and
corporate operating costs. All of the assets of the Company are located within the United States
of America.
Operations by Business Segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural |
|
|
|
|
|
|
Food Products |
|
Seed |
|
Corporate |
|
|
Three months ended February 26, 2006 |
|
Technology |
|
Technology |
|
and Other |
|
TOTAL |
Net revenues |
|
$ |
47,435 |
|
|
$ |
8,353 |
|
|
$ |
1,461 |
|
|
$ |
57,249 |
|
International sales |
|
$ |
6,272 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
6,272 |
|
Gross profit |
|
$ |
7,391 |
|
|
$ |
2,621 |
|
|
$ |
1,404 |
|
|
$ |
11,416 |
|
Net income (loss) |
|
$ |
3,154 |
|
|
$ |
(751 |
) |
|
$ |
1,111 |
|
|
$ |
3,514 |
|
Interest expense |
|
$ |
79 |
|
|
$ |
33 |
|
|
$ |
¾ |
|
|
$ |
112 |
|
Interest income |
|
$ |
126 |
|
|
$ |
1 |
|
|
$ |
18 |
|
|
$ |
145 |
|
Depreciation and amortization |
|
$ |
717 |
|
|
$ |
65 |
|
|
$ |
28 |
|
|
$ |
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended February 27, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
41,650 |
|
|
$ |
9,722 |
|
|
$ |
159 |
|
|
$ |
51,531 |
|
International sales |
|
$ |
5,943 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
5,943 |
|
Gross profit |
|
$ |
5,299 |
|
|
$ |
3,859 |
|
|
$ |
140 |
|
|
$ |
9,298 |
|
Net income |
|
$ |
1,170 |
|
|
$ |
978 |
|
|
$ |
145 |
|
|
$ |
2,293 |
|
Interest expense |
|
$ |
90 |
|
|
$ |
37 |
|
|
$ |
¾ |
|
|
$ |
127 |
|
Interest income |
|
$ |
62 |
|
|
$ |
12 |
|
|
$ |
14 |
|
|
$ |
88 |
|
Depreciation and amortization |
|
$ |
809 |
|
|
$ |
119 |
|
|
$ |
27 |
|
|
$ |
955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended February 26, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
150,336 |
|
|
$ |
8,373 |
|
|
$ |
1,957 |
|
|
$ |
160,666 |
|
International sales |
|
$ |
42,914 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
42,914 |
|
Gross profit |
|
$ |
20,720 |
|
|
$ |
2,640 |
|
|
$ |
1,735 |
|
|
$ |
25,095 |
|
Net income (loss) |
|
$ |
7,436 |
|
|
$ |
(6,063 |
) |
|
$ |
584 |
|
|
$ |
1,957 |
|
Interest expense |
|
$ |
227 |
|
|
$ |
134 |
|
|
$ |
1 |
|
|
$ |
362 |
|
Interest income |
|
$ |
324 |
|
|
$ |
27 |
|
|
$ |
44 |
|
|
$ |
395 |
|
Depreciation and amortization |
|
$ |
1,917 |
|
|
$ |
344 |
|
|
$ |
75 |
|
|
$ |
2,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended February 27, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
138,920 |
|
|
$ |
9,827 |
|
|
$ |
310 |
|
|
$ |
149,057 |
|
International sales |
|
$ |
42,126 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
42,126 |
|
Gross profit |
|
$ |
16,820 |
|
|
$ |
3,955 |
|
|
$ |
259 |
|
|
$ |
21,034 |
|
Net income (loss) |
|
$ |
3,978 |
|
|
$ |
(3,376 |
) |
|
$ |
191 |
|
|
$ |
793 |
|
Interest expense |
|
$ |
223 |
|
|
$ |
109 |
|
|
$ |
¾ |
|
|
$ |
332 |
|
Interest income |
|
$ |
76 |
|
|
$ |
14 |
|
|
$ |
17 |
|
|
$ |
107 |
|
Depreciation and amortization |
|
$ |
2,294 |
|
|
$ |
351 |
|
|
$ |
78 |
|
|
$ |
2,723 |
|
During the nine months ended February 26, 2006 and February 27, 2005, sales to the Companys
top five customers accounted for approximately 45% and 41%, respectively, of revenues, with the
Companys top customers from the Food Products Technology segment, Costco Wholesale Corp.,
accounting for approximately 16% and 15%, respectively, and Sams Club, accounting for
approximately 10% and 9%, respectively of revenues. The Company expects that, for the foreseeable
future, a limited number of customers may continue to account for a significant portion of its net
revenues. Virtually all of the Companys international sales are to Asia.
-12-
On March 14, 2006, Landec entered into an exclusive license and research and development
agreement with Air Products and Chemicals, Inc. Landec received an upfront licensing fee of
$800,000 at close and will receive up to an additional $1.6 million of license payments that will
be paid in quarterly installments of $200,000 each during years two and three of the agreement for
the exclusive rights to use Landecs Intelimer materials technology in specific fields worldwide.
In addition, Landec received at close $100,000 for technology transfer work to be performed by
Landec during Landecs fourth quarter of fiscal year 2006. Landec will provide research and
development support to Air Product for three years with a mutual option for two additional years.
The license fees will be recognized as license revenue over a three year period beginning March
2006. In addition, in accordance with the agreement, occurring after March 14, 2007, Landec will
receive 40% of the gross profits generated from the sale of products by Air Products that
incorporate Landecs Intelimer materials.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited consolidated
financial statements and accompanying notes included in Part IItem 1 of this Form 10-Q and the
audited consolidated financial statements and accompanying notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations included in Landecs Annual Report on
Form 10-K for the fiscal year ended May 29, 2005.
Except for the historical information contained herein, the matters discussed in this report
are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934. These forward-looking statements involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking statements. Potential risks
and uncertainties include, without limitation, those mentioned in this report and, in particular
the factors described below under Additional Factors That May Affect Future Results, and those
mentioned in Landecs Annual Report on Form 10-K for the fiscal year ended May 29, 2005. Landec
undertakes no obligation to update or revise any forward-looking statements in order to reflect
events or circumstances that may arise after the date of this report.
Critical Accounting Policies and Use of Estimates
There have been no material changes to the Companys critical accounting policies which are
included and described in the Form 10-K for the fiscal year ended May 29, 2005 filed with the
Securities and Exchange Commission on August 2, 2005.
The Company
Landec Corporation and its subsidiaries (Landec or the Company) design, develop,
manufacture and sell temperature-activated and other specialty polymer products for a variety of
food products, agricultural products, and licensed partner applications. This proprietary polymer
technology is the foundation, and a key differentiating advantage, upon which Landec has built its
business.
Landecs core polymer products are based on its patented proprietary Intelimerâ
polymers, which differ from other polymers in that they can be customized to abruptly change their
physical characteristics when heated or cooled through a pre-set temperature switch. For instance,
Intelimer polymers can change within the range of one or two degrees Celsius from a non-adhesive
state to a highly tacky, adhesive state; from an impermeable state to a highly permeable state; or
from a solid state to a viscous state. These abrupt changes are repeatedly reversible and can be
tailored by Landec to occur at specific temperatures, thereby offering substantial competitive
advantages in Landecs target markets.
Landec has two core businesses Food Products Technology and Agricultural Seed Technology, in
addition to our Technology Licensing/Research and Development business which is included in
Corporate and Other for segment disclosure purposes (see note 14).
Our Food Products Technology business is operated through a subsidiary, Apio, Inc., and
combines our proprietary food packaging technology with the capabilities of a large national food
supplier and value-added produce
processor. Value-added processing incorporates Landecs proprietary packaging technology with
produce that is
-13-
processed by washing, and in some cases cutting and mixing, resulting in packaged
produce to achieve increased shelf life and reduced shrink (waste) and to eliminate the need for
ice during the distribution cycle. This combination was consummated in December 1999 when
the Company acquired Apio, Inc. and certain related entities (collectively, Apio).
Our Agricultural Seed Technology business is operated through a subsidiary, Landec Ag, Inc.,
(Landec Ag) and combines our proprietary Intellicoat® seed coating technology with our unique
e-commerce, direct marketing and consultative selling capabilities which we obtained when we
acquired Fielders Choice Direct (Fielders Choice), a direct marketer of hybrid seed corn, in
September 1997.
In addition to our two core businesses, the Company also operates a Technology
Licensing/Research and Development business that licenses and/or supplies products outside of our
core businesses to industry leaders such as Akzo Nobel and LOreal of Paris.
Landec was incorporated in California on October 31, 1986. The Company completed its initial
public offering in 1996 and the Common Stock is listed on the Nasdaq National Market under the
symbol LNDC. The principal executive offices are located at 3603 Haven Avenue, Menlo Park,
California 94025 and our telephone number is (650) 306-1650.
Description of Core Business
Landec participates in two core business segments Food Products Technology and Agricultural
Seed Technology. In addition to these two core segments, we license technology and conduct ongoing
research and development through our Technology Licensing/Research and Development Business.
Food Products Technology Business
The Company began marketing in early 1996 our proprietary Intelimer-based specialty packaging
for use in the fresh-cut produce market, one of the fastest growing segments in the produce
industry. Our proprietary packaging technology, when combined with produce that is processed by
washing, and in some cases cut and mixed, results in packaged produce with increased shelf life,
reduced shrink (waste) and without the need for ice during the distribution cycle, which we refer
to as our value-added products. In December 1999, we acquired Apio, our largest customer at that
time in the Food Products Technology business and one of the nations leading marketers and packers
of produce and specialty packaged fresh-cut vegetables. Apio provides year-round access to
produce, utilizes state-of-the-art fresh-cut produce processing technology and distributes products
to the top U.S. retail grocery chains and major club stores and, has recently begun expanding its
product offerings to the foodservice industry. Our proprietary Intelimer-based packaging business
has been combined with Apio into a wholly owned subsidiary that retains the Apio, Inc. name. This
vertical integration within the Food Products Technology business gives Landec direct access to the
large and growing fresh-cut produce market.
Based in Guadalupe, California, Apio, when acquired in December 1999, consisted of two major
businesses first, the fee-for-service selling and marketing of whole produce and second, the
specialty packaged fresh-cut and whole value-added processed products that are washed and packaged
in our proprietary BreatheWay packaging.
The fee-for-service business historically included field harvesting and packing, cooling and
marketing of vegetables and fruit on a contract basis for growers in Californias Santa Maria, San
Joaquin and Imperial Valleys as well as in Arizona and Mexico. The Company exited this business
and certain assets associated with the business were sold in June 2003 to Beachside Produce, LLC
(formerly known as Apio Fresh). Beachside Produce is owned by a group of entities and
-14-
persons that
supply produce to Apio, including Nicholas Tompkins, Apios President and Chief Executive Officer.
Under the terms of the sale, Beachside Produce purchased certain equipment and carton inventory
from Apio in exchange for approximately $410,000. In connection with the sale, Beachside Produce
pays Apio an on-going royalty fee per carton sold for the use of Apios brand names and Beachside
Produce and its growers entered into a long-term supply agreement with Apio to supply produce to
Apio for its fresh-cut value-added products. The fresh-cut value-added processed products business
markets a variety of fresh-cut and whole vegetables to the top retail grocery chains and club
stores. During the fiscal year ended May 29, 2005, Apio shipped more than sixteen million cartons
of produce to leading supermarket retailers, wholesalers, foodservice suppliers and club stores
throughout the United States and internationally, primarily in Asia.
There are five major distinguishing characteristics of Apio that provide competitive
advantages for its Food Products Technology business:
|
|
|
Value-Added Supplier: Apio has structured its business as a marketer and seller of
fresh-cut and whole value-added produce. It is focused on selling products under its Eat
Smart® brand and other brands for its fresh-cut and whole value-added products. As retail
grocery and club store chains consolidate, Apio is well positioned as a single source of a
broad range of products. |
|
|
|
|
Reduced Farming Risks: Apio reduces its farming risk by not taking ownership of
farmland, and instead, contracts with growers for produce. The year-round sourcing of
produce is a key component to the fresh-cut and whole value-added processing business. |
|
|
|
|
Lower Cost Structure: Apio has strategically invested in the rapidly growing fresh-cut
and whole value-added business. Apios 60,000 square foot value-added processing plant is
automated with state-of-the-art vegetable processing equipment. Virtually all of Apios
value-added products utilize Apios proprietary BreatheWay packaging technology. Apios
strategy is to operate one large central processing facility in one of Californias
largest, lowest cost growing regions (Santa Maria Valley) and use packaging technology to
allow for the nationwide delivery of fresh produce products. |
|
|
|
|
Export Capability: Apio is uniquely positioned to benefit from the growth in export
sales to Asia and Europe over the next decade with its export business, CalEx. Through
CalEx, Apio is currently one of the largest U.S. exporters of broccoli to Asia and is
selling its iceless products to Asia using proprietary BreatheWay packaging technology. |
|
|
|
|
Expanded Product Line Using Technology: Apio, through the use of its BreatheWay
packaging technology, is introducing on average twelve new value-added products each year.
These new product offerings range from various sizes of fresh-cut bagged products, to
vegetable trays, to whole produce products. During the last twelve months, Apio has
introduced 15 new products. |
Agricultural Seed Technology Business
Landec Ags strategy is to build a vertically integrated seed technology company based on
Intellicoat seed coating technology and its e-commerce, direct marketing and consultative selling
capabilities.
For the coating technology the strategy is to develop a patented, functional polymer coating
technology that will be broadly licensed to the seed industry. The company will initially
commercialize products for the corn and soybean markets and then broaden its applications to other
seed crops. Landec Ag will use its Fielders Choice Direct marketing and sales company to launch
its applications for corn to build awareness for this technology and then broadly license its
applications to the rest of the industry.
Landec Ags Intellicoat seed coating applications are designed to control seed germination
timing, increase crop yields, reduce risks and extend crop-planting windows. These coatings are
currently available on hybrid corn,
soybeans and male inbred corn used for seed production. In fiscal year 2000, Landec Ag launched its
first commercial product, Pollinator Plusâ coatings, which is a coating application used by
seed companies as a method for spreading pollination to increase yields and reduce risk in the
production of hybrid seed corn. There are approximately 650,000 acres of seed production in the
United States and in 2005 Pollinator Plus was used by 38 seed companies on approximately 15% of the
seed production acres in the U.S.
-15-
In 2003, Landec Ag commercialized Early Plantâ corn by selling the product directly to
farmers through its Fielders Choice Directâ brand. This application allows farmers to plant
into cold soils without the risk of chilling injury, and enables farmers to plant as much as four
weeks earlier than normal. With this capability, farmers are able to utilize labor and equipment
more efficiently, provide flexibility during the critical planting period and avoid yield losses
caused by late planting. In 2005, nine seed companies offered Intellicoat on their hybrid seed
corn offerings and sales increased by 20% over 2004.
The third commercial application is the RelayÔ Cropping system of wheat and Intellicoat
coated soybeans, which allows farmers to plant and harvest two crops in the same year on the same
ground in geographic areas where double cropping is not possible. This provides significant
financial benefit especially to farmers in the corn belt who grow wheat as a single crop.
Based in Monticello, Indiana, Fielders Choice Direct offers a comprehensive line of corn
hybrids and alfalfa to more than 12,000 farmers in over forty states through direct marketing
programs. The success of Fielders Choice comes, in part, from its expertise in selling directly
to the farmer, bypassing the traditional and costly farmer-dealer system. We believe that this
direct channel of distribution provides up to a 35% cost advantage compared to the farmer-dealer
system.
In order to support its direct marketing programs, Fielders Choice has developed a
proprietary e-commerce, direct marketing, and consultative selling information technology that
enables state-of-the-art methods for communicating with a broad array of farmers. This proprietary
direct marketing information technology includes a current database of over 104,000 farmers.
On August 29, 2005, Landec Ag closed the acquisition of Heartland Hybrids, Inc., the second
largest direct marketer of seed corn after Landec Ags Fielders Choice Direct brand. With
complementary strengths in geographic areas and sales channels, the new combined organization has
the opportunity to develop the most efficient and effective sales, marketing and distribution
system in the seed industry, expanding Landec Ags sales of both uncoated seed and Intellicoat
coated seed.
Due to the cyclical nature of the corn seed industry, a significant portion of Landec Ag
revenues and profits will be concentrated over a few months during the spring planting season
(generally during Landecs third and fourth fiscal quarters). In addition, Landec Ag purchases
corn seed and collects cash deposits from farmers in advance of shipping the corn during the
Companys third and fourth quarters.
Technology Licensing/Research and Development Businesses
We believe our technology has commercial potential in a wide range of industrial, consumer and
medical applications beyond those identified in our core businesses. For example, our core
patented technology, Intelimer materials, can be used to trigger the release of small molecule
drugs, catalysts, insecticides or fragrances just by changing the temperature of the Intelimer
materials or to activate adhesives through controlled temperature change. In order to exploit
these opportunities, we have entered into and will enter into licensing and collaborative corporate
agreements for product development and/or distribution in certain fields. However, given the
infrequency and unpredictability of when the Company may enter into any such licensing and research
and development arrangements, the Company is unable to disclose its financial expectations in
advance of entering into such arrangements.
Results of Operations
Revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Three months ended |
|
|
|
|
|
|
Nine months |
|
|
Nine months |
|
|
|
|
|
|
ended 2/26/06 |
|
|
2/27/05 |
|
|
Change |
|
|
ended 2/26/06 |
|
|
ended 2/27/05 |
|
|
Change |
|
|
|
|
Apio Value Added |
|
$ |
39,517 |
|
|
$ |
33,977 |
|
|
|
16 |
% |
|
$ |
99,653 |
|
|
$ |
89,201 |
|
|
|
12 |
% |
Apio Trading |
|
|
7,415 |
|
|
|
7,673 |
|
|
|
(3 |
%) |
|
|
50,093 |
|
|
|
49,719 |
|
|
|
1 |
% |
Apio Tech |
|
|
503 |
|
|
|
¾ |
|
|
|
N/M |
|
|
|
590 |
|
|
|
¾ |
|
|
|
N/M |
|
|
|
|
Total Apio |
|
|
47,435 |
|
|
|
41,650 |
|
|
|
14 |
% |
|
|
150,336 |
|
|
|
138,920 |
|
|
|
8 |
% |
Landec Ag |
|
|
8,353 |
|
|
|
9,722 |
|
|
|
(14 |
%) |
|
|
8,373 |
|
|
|
9,827 |
|
|
|
(15 |
%) |
Corporate |
|
|
1,461 |
|
|
|
159 |
|
|
|
819 |
% |
|
|
1,957 |
|
|
|
310 |
|
|
|
531 |
% |
|
|
|
Total Revenues |
|
$ |
57,249 |
|
|
$ |
51,531 |
|
|
|
11 |
% |
|
$ |
160,666 |
|
|
$ |
149,057 |
|
|
|
8 |
% |
-16-
Apio Value Added
Apios value-added revenues consist of revenues generated from the sale of specialty packaged
fresh-cut and whole value-added processed vegetable products that are washed and packaged in our
proprietary packaging and sold under Apios Eat Smart brand and various private labels. In
addition, value-added revenues include the revenues generated from Apio Cooling, LP, a vegetable
cooling operation in which Apio is the general partner with a 60% ownership position.
The increase in Apios value-added revenues for the three and nine months ended February 26,
2006 compared to the same periods last year is due to increased product offerings, increased sales
to existing customers, the addition of new customers and product mix changes to higher priced
products. Specifically, sales of Apios value-added 12-ounce specialty packaged retail product
line grew 20% and 15%, respectively, during the three and nine months ended February 26, 2006
compared to the same periods last year. In addition, sales of Apios value-added vegetable tray
products grew 24% and 23%, respectively, during the three and nine months ended February 26, 2006
compared to the same periods last year. Overall value-added unit sales volume increased 13% during
the third quarter of fiscal year 2006 compared to the same period last year and 7% for the nine
months ended February 26, 2006 compared to the same period of the prior year.
Apio Trading
Apio trading revenues consist of revenues generated from the purchase and sale of primarily
whole commodity fruit and vegetable products to Asia through Apios export company, Cal Ex, and
from the purchase and sale of whole commodity fruit and vegetable products domestically to
Wal-Mart. The export portion of trading revenues for the three and nine months ended February 26,
2006 were $6.3 million and $42.9 million, respectively, or 85% and 86%, respectively, of total
trading revenues.
The decrease in revenues in Apios trading business for the three ended February 26, 2006
compared to the same period last year was primarily due to a 40% decrease in buy/sell commodity
volumes sold to Wal-Mart partially offset by an increase in export unit volumes of 7%. The
increase in revenues in Apios trading business for the nine months ended February 26, 2006
compared to the same period last year was primarily due to a 2% increase in export unit volumes.
Apio Tech
Apio Tech consists of Apios packaging technology business using its BreatheWay membrane
technology. The first commercial application included in Apio Tech is our banana
packaging technology. Virtually all of the revenues currently generated from Apio Tech are
revenues derived from our banana packaging program with Chiquita.
The increase in revenues at Apio Tech during the three and nine months ended February 26, 2006
compared to the same periods last year was not material to consolidated Landec revenues.
Landec Ag
Landec Ag revenues consist of revenues generated from the sale of hybrid seed corn to farmers
under the Fielders Choice Direct brand and from the sale of hybrid seed corn and soybeans under
the Heartland Hybrids® brand and from the sale of Intellicoat coated corn and soybean seeds to
farmers and seed companies. Virtually all of Landec Ags revenues are generated during the
Companys third and fourth quarters.
The decrease in revenues at Landec Ag during the three and nine months ended February 26, 2006
compared to the same periods last year was due to Landec Ag shipping only 24% of projected fiscal
year 2006 sales during this years third quarter compared to shipping 38% of fiscal year 2005 sales
during last years third quarter.
Corporate
Corporate revenues consist of revenues generated from partnering with others under research
and development agreements and supply agreements and from fees for licensing our proprietary
Intelimer technology to others and from the corresponding royalties from these license agreements.
-17-
The increase in Corporate revenues for the three and nine months ended February 26, 2006
compared to the same periods of the prior year was due to the $1.15 million in revenues received
from the license of our Intelimer technology in a specific field to a medical device company in
December 2005.
Gross Profit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Three months |
|
|
|
|
|
|
Nine months |
|
|
Nine months |
|
|
|
|
|
|
ended 2/26/06 |
|
|
ended 2/27/05 |
|
|
|
Change |
|
|
ended 2/26/06 |
|
|
ended 2/27/05 |
|
|
|
Change |
|
|
|
|
Apio Value Added |
|
$ |
6,435 |
|
|
$ |
4,880 |
|
|
|
32 |
% |
|
$ |
17,436 |
|
|
$ |
14,118 |
|
|
|
24 |
% |
Apio Trading |
|
|
455 |
|
|
|
419 |
|
|
|
9 |
% |
|
|
2,721 |
|
|
|
2,702 |
|
|
|
1 |
% |
Apio Tech |
|
|
501 |
|
|
|
¾ |
|
|
|
N/M |
|
|
|
563 |
|
|
|
¾ |
|
|
|
N/M |
|
|
|
|
Total Apio |
|
|
7,391 |
|
|
|
5,299 |
|
|
|
39 |
% |
|
|
20,720 |
|
|
|
16,820 |
|
|
|
23 |
% |
Landec Ag |
|
|
2,621 |
|
|
|
3,859 |
|
|
|
(32 |
%) |
|
|
2,640 |
|
|
|
3,955 |
|
|
|
(33 |
%) |
Corporate |
|
|
1,404 |
|
|
|
140 |
|
|
|
903 |
% |
|
|
1,735 |
|
|
|
259 |
|
|
|
570 |
% |
|
|
|
Total Gross Profit |
|
$ |
11,416 |
|
|
$ |
9,298 |
|
|
|
23 |
% |
|
$ |
25,095 |
|
|
$ |
21,034 |
|
|
|
19 |
% |
General
There are numerous factors that can influence gross profits including product mix, customer
mix, manufacturing costs, volume, sales discounts and charges for excess or obsolete inventory, to
name a few. Many of these factors influence or are interrelated with other factors. Therefore, it
is difficult to precisely quantify the impact of each item individually. The Company includes in
cost of sales all the costs related to the sale of products in accordance with generally accepted
accounting principles. These costs include the following: raw materials (including produce, seeds
and packaging), direct labor, overhead (including indirect labor, depreciation, and facility
related costs) and shipping and shipping related costs. The following discussion surrounding gross
profits includes managements best estimates of the reasons for the changes for the three and nine
months ended February 26, 2006, compared to the same periods last year as outlined in the table
above.
Apio Value-Added
The increase in gross profits for Apios value-added specialty packaged vegetable business for
the three and nine months ended February 26, 2006 compared to the same periods last year was due to
(1) the increase in value-added sales which increased 16% for the quarter and 12% for the first
nine months of fiscal year 2006, (2) product mix changes to higher margin products and (3) improved
operational efficiencies driven largely by improved raw material quality during the first nine
months of fiscal year 2006 compared to the same period last year.
Apio Trading
Apios trading business is a buy/sell business that realizes a commission-based margin in the
4-6% range. The increase in gross profits during the three and nine months ended February 26, 2006
compared to the same periods last year was primarily due to a mix change to higher margin vegetable
exports from lower margin fruit exports and lower margin domestic commodity sales to Wal-Mart.
Apio Tech
The increase in gross profits for Apio Tech for the three and nine months ended February 26,
2006 compared to the same periods last year was due to the revenues received from our banana
packaging agreement with Chiquita.
Landec Ag
The decrease in gross profits for Landec Ag for the three and nine months ended February 26,
2006 compared to the same periods last year was due to (1) a decrease in revenues of 14% during the
third quarter and 15% for the first nine months of fiscal year 2006 compared to the same periods
last year due to a delay in corn shipments this year and (2) the increase in promotional discounts
offered this year in order to remain competitive in the industry which experienced unusually high
discounts this selling season as compared to past seasons.
-18-
Corporate
The increase in gross profits for Corporate for the three and nine months ended February 26,
2006 compared to the same periods last year was due to $1.15 million of gross profits from the
medical device licensing agreement entered into in December 2005.
Operating Expenses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Three months |
|
|
|
|
|
|
Nine months |
|
|
Nine months |
|
|
|
|
|
|
ended 2/26/06 |
|
|
ended 2/27/05 |
|
|
|
Change |
|
|
ended 2/26/06 |
|
|
Ended 2/27/05 |
|
|
|
Change |
|
|
|
|
Research and
Development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
$ |
193 |
|
|
$ |
230 |
|
|
|
(16 |
%) |
|
$ |
733 |
|
|
$ |
773 |
|
|
|
(5 |
%) |
Landec Ag |
|
|
163 |
|
|
|
194 |
|
|
|
(16 |
%) |
|
|
470 |
|
|
|
613 |
|
|
|
(23 |
%) |
Corporate |
|
|
345 |
|
|
|
281 |
|
|
|
23 |
% |
|
|
1,077 |
|
|
|
809 |
|
|
|
33 |
% |
|
|
|
Total R&D |
|
$ |
701 |
|
|
$ |
705 |
|
|
|
(1 |
%) |
|
$ |
2,280 |
|
|
$ |
2,195 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General
and Administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
$ |
3,406 |
|
|
$ |
3,039 |
|
|
|
12 |
% |
|
$ |
10,324 |
|
|
$ |
9,537 |
|
|
|
8 |
% |
Landec Ag |
|
|
2,704 |
|
|
|
2,350 |
|
|
|
15 |
% |
|
|
6,920 |
|
|
|
5,719 |
|
|
|
21 |
% |
Corporate |
|
|
1,085 |
|
|
|
769 |
|
|
|
41 |
% |
|
|
3,286 |
|
|
|
2,222 |
|
|
|
48 |
% |
|
|
|
Total S,G&A |
|
$ |
7,195 |
|
|
$ |
6,158 |
|
|
|
17 |
% |
|
$ |
20,530 |
|
|
$ |
17,478 |
|
|
|
17 |
% |
Research and Development
Landecs research and development expenses consist primarily of expenses involved in the
development and process scale-up initiatives. Research and development efforts at Apio are focused
on the Companys proprietary BreatheWay membranes used for packaging produce, with recent focus on
extending the shelf life of bananas and other shelf-life sensitive vegetables and fruit. At Landec
Ag, the research and development efforts are focused on the Companys proprietary Intellicoat
coatings for seeds, primarily corn seed. At Corporate, the research and development efforts are
focused on uses for the proprietary Intelimer polymers outside of food and agriculture.
The change in research and development expenses for the three months and nine months ended
February 26, 2006 compared to the same periods last year was not material.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of sales and marketing expenses
associated with Landecs product sales and services, business development expenses and staff and
administrative expenses.
The increase in selling, general and administrative expenses for the three months and nine
months ended February 26, 2006 compared to the same periods last year was primarily due to (1)
increases in selling and marketing expenses at Apio and Landec Ag to generate current and future
increases in revenues, (2) selling, general and administrative expenses of $658,000 and $1.2
million, respectively, at Heartland Hybrids which was acquired at the beginning of the second
fiscal quarter, (3) accrued bonuses at Apio and Corporate based on meeting or exceeding our plan
which is currently being exceeded (whereas in the prior fiscal year, bonuses were not recorded
until the end of the fiscal year due to uncertainty) and (4) an increase in general and
administrative expenses at Corporate for business development consulting fees, legal fees and
Sarbanes-Oxley related accounting fees.
-19-
Other (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Three months |
|
|
|
|
|
|
Nine months |
|
|
Nine months |
|
|
|
|
|
|
ended 2/26/06 |
|
|
ended 2/27/05 |
|
|
|
Change |
|
|
ended 2/26/06 |
|
|
ended 2/27/05 |
|
|
|
Change |
|
|
|
|
Interest Income |
|
$ |
145 |
|
|
$ |
88 |
|
|
|
65 |
% |
|
$ |
395 |
|
|
$ |
107 |
|
|
|
269 |
% |
Interest Expense |
|
|
(112 |
) |
|
|
(127 |
) |
|
|
(12 |
%) |
|
|
(362 |
) |
|
|
(332 |
) |
|
|
9 |
% |
Minority Int. Exp |
|
|
(80 |
) |
|
|
(103 |
) |
|
|
(22 |
%) |
|
|
(397 |
) |
|
|
(343 |
) |
|
|
16 |
% |
Other Income |
|
|
41 |
|
|
|
|
|
|
|
N/M |
|
|
|
36 |
|
|
|
|
|
|
|
N/M |
|
|
|
|
Total Other |
|
$ |
(6 |
) |
|
$ |
(142 |
) |
|
|
(96 |
%) |
|
$ |
(328 |
) |
|
$ |
(568 |
) |
|
|
(42 |
%) |
Interest Income
The increase in interest income for the three and nine month periods ended February 26, 2006
compared to the same periods last year was due to the increase in cash available for investing and
higher average interest rates on those investments.
Interest Expense
The change in interest expense during the three and nine months ended February 26, 2006
compared to the same periods last year was not material.
Minority Interest Expense
The minority interest expense consists of the minority interest associated with the limited
partners equity interest in the net income of Apio Cooling, LP.
The change in the minority interest for the three months and nine months ended February 26,
2006 compared to the same periods last year was not material.
Other Income
Other consists of non-operating income and expenses.
The change in other income for the three months and nine months ended February 26, 2006
compared to the same periods last year was not material.
Liquidity and Capital Resources
As of February 26, 2006, the Company had cash and cash equivalents of $20.1 million, a net
increase of $7.2 million from $12.9 million at May 29, 2005.
Cash Flow from Operating Activities
Landec generated $9.2 million of cash flow from operating activities during the nine months
ended February 26, 2006 compared to $12.1 million from operating activities for the nine months
ended February 27, 2005. The primary sources of cash during the nine months ended February 26,
2006 were from (1) net income and non-cash items, such as depreciation, of $4.6 million and (2) an
increase in deferred revenue of $16.5 million as a result of cash deposits for seed corn to be
shipped during our fourth fiscal quarter. The primary uses of cash in operating activities were
from (1) the purchase of inventory, primarily seed corn, by Landec Ag, of $10.1 million and (2) a
$4.7 million reduction in accounts payable due to the seasonality of our businesses.
Cash Flow from Investing Activities
Net cash used in investing activities for the nine months ended February 26, 2006 was $2.9
million compared to $3.1 million for the same period last year. The primary source of cash from
investing activities during the nine months ended February 26, 2006 was from the net maturities of
$2.0 million of marketable securities. The primary uses of cash from investing activities during
the first nine months of fiscal year 2006 were for the purchase of the assets
of Heartland Hybrids for $3.6 million and the purchase of $2.4 million of property and equipment
primarily for the further automation of Apios value-added facility.
-20-
Cash Flow from Financing Activities
Net cash provided by financing activities for the nine months ended February 26, 2006 was
$943,000 compared to net cash used in financing activities of $544,000 for the same period last
year. The cash provided by financing activities during the first nine months of fiscal year 2006
was from the sale of $3.1 million of common stock to employees upon the exercise of stock options.
The primary use of cash from financing activities during the first nine months of fiscal year 2006
was from the pay down of $1.1 million of long-term debt.
Capital Expenditures
During the nine months ended February 26, 2006, Landec purchased vegetable processing
equipment to support the expansion of Apios value added business. These expenditures represented
the majority of the $2.4 million of equipment purchased.
Debt
On November 1, 2005, Apio amended its revolving line of credit with Wells Fargo Bank N.A. that
was scheduled to expire on August 31, 2006. The line was reduced from $10.0 million to $7.0
million and outstanding amounts under the line of credit now bear interest at either the prime rate
less .25% or the LIBOR adjustable rate plus 1.75% (6.36% at February 26, 2006). The revolving line
of credit, the equipment line of credit and the term note with Wells Fargo (collectively, the Loan
Agreement) contains certain restrictive covenants, which require Apio to meet certain financial
tests, including minimum levels of net income, maximum leverage ratio, minimum net worth and
maximum capital expenditures. Landec has pledged substantially all of the assets of Apio to secure
the lines with Wells Fargo. At February 26, 2006, no amounts were outstanding under the revolving
line of credit or the equipment line of credit. Apio has been in compliance with all loan
covenants in the Loan Agreement since the inception of this loan.
Landec Ag has a revolving line of credit which allows for borrowings of up to $7.5 million,
based on Landec Ags inventory levels. The interest rate on the revolving line of credit is the
prime rate plus 0.375% (7.875% at February 26, 2006). The line of credit contains certain
restrictive covenants, which, among other things, restrict the ability of Landec Ag to make
payments on debt owed by Landec Ag to Landec. Landec Ag was in compliance with all of the loan
covenants during the first nine months of fiscal year 2006. Landec has pledged substantially all
of the assets of Landec Ag to secure the line of credit. At February 26, 2006, no amounts were
outstanding under Landec Ags revolving line of credit.
At February 26, 2006, Landecs total debt, including current maturities and capital lease
obligations, was $2.1 million and the total debt to equity ratio was 3% compared to 4% at May 29,
2005. This debt was comprised of term debt and capital lease obligations of $2.1 million, $2.0
million of which is mortgage debt on Apios manufacturing facilities. The amount of debt
outstanding on the Companys revolving lines of credit fluctuates over time. Borrowings on
Landecs lines of credit are expected to vary with seasonal requirements of the Companys
businesses.
-21-
Contractual Obligation
The Companys material contractual obligations for the next five years and thereafter as of
February 26, 2006, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in Fiscal Year Ended May |
|
|
|
|
|
|
|
Remainder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation |
|
Total |
|
|
of 2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Thereafter |
|
Lines of Credit |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-term Debt |
|
|
2,049 |
|
|
|
81 |
|
|
|
111 |
|
|
|
119 |
|
|
|
127 |
|
|
|
136 |
|
|
|
1,475 |
|
Capital Leases |
|
|
55 |
|
|
|
7 |
|
|
|
22 |
|
|
|
23 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
1,106 |
|
|
|
141 |
|
|
|
136 |
|
|
|
127 |
|
|
|
120 |
|
|
|
111 |
|
|
|
471 |
|
Operating Leases |
|
|
1,635 |
|
|
|
181 |
|
|
|
473 |
|
|
|
445 |
|
|
|
361 |
|
|
|
172 |
|
|
|
3 |
|
Licensing Obligation |
|
|
600 |
|
|
|
0 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
200 |
|
Purchase Commitments |
|
|
1,409 |
|
|
|
423 |
|
|
|
986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,854 |
|
|
$ |
833 |
|
|
$ |
1,828 |
|
|
$ |
814 |
|
|
$ |
711 |
|
|
$ |
519 |
|
|
$ |
2,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense was determined based on the assumption that the Company has no future
borrowings under its lines of credit and that the interest expense on long term notes and lease
obligations is based on the payment schedules and interest rates from the relevant agreements.
Landec is not a party to any agreements with, or commitments to, any special purpose entities
that would constitute material off-balance sheet financing other than the operating lease
commitments listed above.
Landecs future capital requirements will depend on numerous factors, including the progress
of its research and development programs; the development of commercial scale manufacturing
capabilities; the development of marketing, sales and distribution capabilities; the ability of
Landec to establish and maintain new collaborative and licensing arrangements; any decision to
pursue additional acquisition opportunities; weather conditions that can affect the supply and
price of produce; the timing and amount, if any, of payments received under licensing and research
and development agreements; the costs involved in preparing, filing, prosecuting, defending and
enforcing intellectual property rights; the ability to comply with regulatory requirements; the
emergence of competitive technology and market forces; the effectiveness of product
commercialization activities and arrangements; and other factors. If Landecs currently available
funds, together with the internally generated cash flow from operations are not sufficient to
satisfy its capital needs, Landec would be required to seek additional funding through other
arrangements with collaborative partners, additional bank borrowings or public or private sales of
its securities. There can be no assurance that additional funds, if required, will be available to
Landec on favorable terms if at all.
Landec believes that its debt facilities, cash from operations, along with existing cash, cash
equivalents and existing borrowing capacities will be sufficient to finance its operational and
capital requirements through at least the next twelve months.
-22-
Additional Factors That May Affect Future Results
Landec desires to take advantage of the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995 and of Section 21E and Rule 3b-6 under the Securities Exchange Act of
1934. Specifically, Landec wishes to alert readers that the following important factors, as well
as other factors including, without limitation, those described elsewhere in this report, could in
the future affect, and in the past have affected, Landecs actual results and could cause Landecs
results for future periods to differ materially from those expressed in any forward-looking
statements made by or on behalf of Landec. Landec assumes no obligation to update such
forward-looking statements.
Our Future Operating Results Are Likely to Fluctuate Which May Cause Our Stock Price to Decline
In the past, our results of operations have fluctuated significantly from quarter to quarter
and are expected to continue to fluctuate in the future. Historically, our direct marketer of
hybrid corn seed, Landec Ag, has been the primary source of these fluctuations, as its revenues and
profits are concentrated over a few months during the spring planting season (generally during our
third and fourth fiscal quarters). In addition, Apio can be heavily affected by seasonal and
weather factors which have impacted quarterly results, such as the high cost of sourcing product in
December 2003, January 2004 and March/April 2005 due to a shortage of essential value-added produce
items. Our earnings may also fluctuate based on our ability to collect accounts receivables from
customers and note receivables from growers. Our earnings from our Food Products Technology
business are sensitive to price fluctuations in the fresh vegetables and fruits markets. Excess
supplies can cause intense price competition. Other factors that affect our food and/or
agricultural operations include:
|
|
|
the seasonality of our supplies; |
|
|
|
|
our ability to process produce during critical harvest periods; |
|
|
|
|
the timing and effects of ripening; |
|
|
|
|
the degree of perishability; |
|
|
|
|
the effectiveness of worldwide distribution systems; |
|
|
|
|
total worldwide industry volumes; |
|
|
|
|
the seasonality of consumer demand; |
|
|
|
|
foreign currency fluctuations; and |
|
|
|
|
foreign importation restrictions and foreign political risks. |
As a result of these and other factors, we expect to continue to experience fluctuations in
quarterly operating results.
We May Not Be Able to Achieve Acceptance of Our New Products in the Marketplace
Our success in generating significant sales of our products will depend in part on the ability
of us and our partners and licensees to achieve market acceptance of our new products and
technology. The extent to which, and rate at which, we achieve market acceptance and penetration
of our current and future products is a function of many variables including, but not limited to:
|
|
|
price; |
|
|
|
|
safety; |
|
|
|
|
efficacy; |
|
|
|
|
reliability; |
|
|
|
|
conversion costs; |
|
|
|
|
marketing and sales efforts; and |
|
|
|
|
general economic conditions affecting purchasing patterns. |
We may not be able to develop and introduce new products and technologies in a timely manner
or new products and technologies may not gain market acceptance. We are in the early stage of
product commercialization of certain
-23-
Intelimer-based specialty packaging, Intellicoat seed coatings
and other Intelimer polymer products and many of our potential products are in development. We
believe that our future growth will depend in large part on our ability to develop and market new
products in our target markets and in new markets. In particular, we expect that our ability to
compete effectively with existing food products, agricultural, industrial and medical companies
will depend substantially on successfully developing, commercializing, achieving market acceptance
of and reducing the cost of producing our products. In addition, commercial applications of our
temperature switch polymer technology are relatively new and evolving. Our failure to develop new
products or the failure of our new products to achieve market acceptance would have a material
adverse effect on our business, results of operations and financial condition.
We Face Strong Competition in the Marketplace
Competitors may succeed in developing alternative technologies and products that are more
effective, easier to use or less expensive than those which have been or are being developed by us
or that would render our technology and products obsolete and non-competitive. We operate in
highly competitive and rapidly evolving fields, and new developments are expected to continue at a
rapid pace. Competition from large food products, agricultural, industrial and medical companies
is expected to be intense. In addition, the nature of our collaborative arrangements may result in
our corporate partners and licensees becoming our competitors. Many of these competitors have
substantially greater financial and technical resources and production and marketing capabilities
than we do, and may have substantially greater experience in conducting clinical and field trials,
obtaining regulatory approvals and manufacturing and marketing commercial products.
We Have a Concentration of Manufacturing in One Location for Apio and May Have to Depend on Third
Parties to Manufacture Our Products
Any disruptions in our primary manufacturing operation would reduce our ability to sell our
products and would have a material adverse effect on our financial results. Additionally, we may
need to consider seeking collaborative arrangements with other companies to manufacture our
products. If we become dependent upon third parties for the manufacture of our products, our
profit margins and our ability to develop and deliver those products on a timely basis may be
affected. Failures by third parties may impair our ability to deliver products on a timely basis
and impair our competitive position. We may not be able to continue to successfully operate our
manufacturing operations at acceptable costs, with acceptable yields, and retain adequately trained
personnel.
Our Dependence on Single-Source Suppliers and Service Providers May Cause Disruption in Our
Operations Should Any Supplier Fail to Deliver Materials
We may experience difficulty acquiring materials or services for the manufacture of our
products or we may not be able to obtain substitute vendors. We may not be able to procure
comparable materials or hybrid corn varieties at similar prices and terms within a reasonable time.
Several services that are provided to Apio are obtained from a single provider. Several of the
raw materials we use to manufacture our products are currently purchased from a single source,
including some monomers used to synthesize Intelimer polymers and substrate materials for our
breathable membrane products. In addition, a majority of the hybrid corn varieties sold by Landec
Ag are grown under contract by a single seed producer. Any interruption of our relationship with
single-source suppliers or service providers could delay product shipments and materially harm our
business.
We May Be Unable to Adequately Protect Our Intellectual Property Rights
We may receive notices from third parties, including some of our competitors, claiming
infringement by our products of patent and other proprietary rights. Regardless of their merit,
responding to any such claim could be time-consuming, result in costly litigation and require us to
enter royalty and licensing agreements which may not be offered or available on terms acceptable to
us. If a successful claim is made against us and we fail to develop or license a substitute
technology, we could be required to alter our products or processes and our business, results of
operations or financial position could be materially adversely affected. Our success depends in
large part on our ability to obtain patents, maintain trade secret protection and operate without
infringing on the proprietary rights of third parties. Any pending patent applications we file may
not be approved and we may not be able to develop additional proprietary products that are
patentable. Any patents issued to us may not provide us with competitive advantages or may be
challenged by third parties. Patents held by others may prevent the commercialization of products incorporating our
technology. Furthermore, others may independently develop similar products, duplicate our products
or design around our patents.
-24-
Our Operations Are Subject to Regulations that Directly Impact Our Business
Our food packaging products are subject to regulation under the Food, Drug and Cosmetic Act
(the FDC Act). Under the FDC Act, any substance that when used as intended may reasonably be
expected to become, directly or indirectly, a component or otherwise affect the characteristics of
any food may be regulated as a food additive unless the substance is generally recognized as safe.
We believe that food packaging materials are generally not considered food additives by the FDA
because these products are not expected to become components of food under their expected
conditions of use. We consider our breathable membrane product to be a food packaging material not
subject to regulation or approval by the FDA. We have not received any communication from the FDA
concerning our breathable membrane product. If the FDA were to determine that our breathable
membrane products are food additives, we may be required to submit a food additive petition for
approval by the FDA. The food additive petition process is lengthy, expensive and uncertain. A
determination by the FDA that a food additive petition is necessary would have a material adverse
effect on our business, operating results and financial condition.
Federal, state and local regulations impose various environmental controls on the use,
storage, discharge or disposal of toxic, volatile or otherwise hazardous chemicals and gases used
in some of the manufacturing processes. Our failure to control the use of, or to restrict
adequately the discharge of, hazardous substances under present or future regulations could subject
us to substantial liability or could cause our manufacturing operations to be suspended and changes
in environmental regulations may impose the need for additional capital equipment or other
requirements.
Our agricultural operations are subject to a variety of environmental laws including, the Food
Quality Protection Act of 1966, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Comprehensive
Environmental Response, Compensation and Liability Act. Compliance with these laws and related
regulations is an ongoing process. Environmental concerns are, however, inherent in most
agricultural operations, including those we conduct. Moreover, it is possible that future
developments, such as increasingly strict environmental laws and enforcement policies could result
in increased compliance costs.
The Company is subject to the Perishable Agricultural Commodities Act (PACA) law. PACA
regulates fair trade standards in the fresh produce industry and governs all the products sold by
Apio. Our failure to comply with the PACA requirements could among other things, result in civil
penalties, suspension or revocation of a license to sell produce, and in the most egregious cases,
criminal prosecution, which could have a material adverse affect on our business.
Adverse Weather Conditions and Other Acts of God May Cause Substantial Decreases in Our Sales
and/or Increases in Our Costs
Our Food Products and Agricultural Seed Technology businesses are subject to weather
conditions that affect commodity prices, crop yields, and decisions by growers regarding crops to
be planted. Crop diseases and severe conditions, particularly weather conditions such as floods,
droughts, frosts, windstorms, earthquakes and hurricanes, may adversely affect the supply of
vegetables and fruits used in our business, which could reduce the sales volumes and/or increase
the unit production costs. Because a significant portion of the costs are fixed and contracted in
advance of each operating year, volume declines due to production interruptions or other factors
could result in increases in unit production costs which could result in substantial losses and
weaken our financial condition.
We Depend on Strategic Partners and Licenses for Future Development
Our strategy for development, clinical and field testing, manufacture, commercialization and
marketing for some of our current and future products includes entering into various collaborations
with corporate partners, licensees and others. We are dependent on our corporate partners to
develop, test, manufacture and/or market some of our products. Although we believe that our
partners in these collaborations have an economic motivation to succeed in performing their
contractual responsibilities, the amount and timing of resources to be devoted to these activities
are not within our control. Our partners may not perform their obligations as expected or we may
not derive any additional revenue from the arrangements. Our partners may not pay any additional
option or license fees to us or may not develop, market or pay any royalty fees related to products
under the agreements. Moreover, some of the collaborative agreements provide that they may be
terminated at the discretion of the corporate partner, and some of the collaborative agreements
provide for termination under other circumstances. Our partners may pursue existing or alternative
technologies in preference to our technology. Furthermore, we may not be able to negotiate additional collaborative arrangements in
the future on acceptable terms, if at all, and our collaborative arrangements may not be
successful.
-25-
Both Domestic and Foreign Government Regulations Can Have an Adverse Effect on Our Business
Operations
Our products and operations are subject to governmental regulation in the United States and
foreign countries. The manufacture of our products is subject to periodic inspection by regulatory
authorities. We may not be able to obtain necessary regulatory approvals on a timely basis or at
all. Delays in receipt of or failure to receive approvals or loss of previously received approvals
would have a material adverse effect on our business, financial condition and results of
operations. Although we have no reason to believe that we will not be able to comply with all
applicable regulations regarding the manufacture and sale of our products and polymer materials,
regulations are always subject to change and depend heavily on administrative interpretations and
the country in which the products are sold. Future changes in regulations or interpretations
relating to matters such as safe working conditions, laboratory and manufacturing practices,
environmental controls, and disposal of hazardous or potentially hazardous substances may adversely
affect our business.
We are subject to USDA rules and regulations concerning the safety of the food products
handled and sold by Apio, and the facilities in which they are packed and processed. Failure to
comply with the applicable regulatory requirements can, among other things, result in:
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fines, injunctions, civil penalties, and suspensions, |
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withdrawal of regulatory approvals, |
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product recalls and product seizures, including cessation of manufacturing and sales, |
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operating restrictions, and |
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criminal prosecution. |
We may be required to incur significant costs to comply with the laws and regulations in the
future which may have a material adverse effect on our business, operating results and financial
condition.
Our International Operations and Sales May Expose Our Business to Additional Risks
For the nine months ended February 26, 2006, approximately 27% of our total revenues were
derived from product sales to international customers. A number of risks are inherent in
international transactions. International sales and operations may be limited or disrupted by any
of the following:
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regulatory approval process, |
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government controls, |
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export license requirements, |
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political instability, |
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price controls, |
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trade restrictions, |
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changes in tariffs, or |
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difficulties in staffing and managing international operations. |
Foreign regulatory agencies have or may establish product standards different from those in
the United States, and any inability to obtain foreign regulatory approvals on a timely basis could
have a material adverse effect on our international business, and our financial condition and
results of operations. While our foreign sales are currently priced in dollars, fluctuations in
currency exchange rates, may reduce the demand for our products by increasing the price of our
products in the currency of the countries to which the products are sold. Regulatory, geopolitical
and other factors may adversely impact our operations in the future or require us to modify our
current business practices.
-26-
Cancellations or Delays of Orders by Our Customers May Adversely Affect Our Business
During the first nine months of fiscal year 2006, sales to our top five customers accounted
for approximately 45% of our revenues, with our largest customers, Costco Wholesale Corp. and Sams
Club, accounting for approximately 16% and 10%, respectively of our revenues. We expect that, for
the foreseeable future, a limited number of customers may continue to account for a substantial
portion of our net revenues. We may experience changes in the composition of our customer base, as
Apio and Landec Ag have experienced in the past. We do not have long-term purchase agreements with
any of our customers. The reduction, delay or cancellation of orders from one or more major
customers for any reason or the loss of one or more of our major customers could materially and
adversely affect our business, operating results and financial condition. In addition, since some
of the products processed by Apio at its Guadalupe, California facility are sole sourced to its
customers, our operating results could be adversely affected if one or more of our major customers
were to develop other sources of supply. Our current customers may not continue to place orders,
orders by existing customers may be canceled or may not continue at the levels of previous periods
or we may not be able to obtain orders from new customers.
Our Sale of Some Products May Increase Our Exposure to Product Liability Claims
The testing, manufacturing, marketing, and sale of the products we develop involves an
inherent risk of allegations of product liability. If any of our products were determined or
alleged to be contaminated or defective or to have caused a harmful accident to an end-customer, we
could incur substantial costs in responding to complaints or litigation regarding our products and
our product brand image could be materially damaged. Either event may have a material adverse
effect on our business, operating results and financial condition. Although we have taken and
intend to continue to take what we believe are appropriate precautions to minimize exposure to
product liability claims, we may not be able to avoid significant liability. We currently maintain
product liability insurance with limits in the amount of $41.0 million per occurrence and $42.0
million in the annual aggregate. Our coverage may not be adequate or may not continue to be
available at an acceptable cost, if at all. A product liability claim, product recall or other
claim with respect to uninsured liabilities or in excess of insured liabilities could have a
material adverse effect on our business, operating results and financial condition.
Our Stock Price May Fluctuate in Accordance with Market Conditions
Over the past several years the stock market has experienced extreme price and volume
fluctuations. The following events may cause the market price of our common stock to fluctuate
significantly:
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technological innovations applicable to our products, |
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our attainment of (or failure to attain) milestones in the commercialization of our technology, |
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our development of new products or the development of new products by our competitors, |
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new patents or changes in existing patents applicable to our products, |
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our acquisition of new businesses or the sale or disposal of a part of our businesses, |
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development of new collaborative arrangements by us, our competitors or other parties, |
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changes in government regulations applicable to our business, |
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changes in investor perception of our business, |
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fluctuations in our operating results and |
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changes in the general market conditions in our industry. |
These broad fluctuations may adversely affect the market price of our common stock.
Since We Order Cartons and Film for Our Products from Suppliers in Advance of Receipt of Customer
Orders for Such Products, We Could Face a Material Inventory Risk
As part of our inventory planning, we enter into negotiated orders with vendors of cartons and
film used for packing our products in advance of receiving customer orders for such products.
Accordingly, we face the risk of ordering too many cartons and film since orders are generally
based on forecasts of customer orders rather than actual orders. If we cannot change or be
released from the orders, we may incur costs as a result of inadequately predicting
cartons and film orders in advance of customer orders. Because of this, we may currently have
an oversupply of cartons
-27-
and film and face the risk of not being able to sell such inventory and
our anticipated reserves for losses may be inadequate if we have misjudged the demand for our
products. Our business and operating results could be adversely affected as a result of these
increased costs.
Our Seed Products May Fail to Germinate Properly and We May Be Subject to Claims for Reimbursement
or Damages for Losses from Customers Who Use Such Products
Farmers plant seed products sold by Landec Ag with the expectation that they will germinate
under normal growing conditions. If our seed products do not germinate at the appropriate time or
fail to germinate at all, our customers may incur significant crop losses and seek reimbursement or
bring claims against us for such damages. Although insurance is generally available to cover such
claims, the costs for premiums of such policies are prohibitively expensive and we currently do not
maintain such insurance. Any claims brought for failure of our seed products to properly germinate
could materially and adversely affect our operating and financial results.
Recently Enacted Changes in Securities Laws and Regulations Are Likely to Increase Our Costs
The Sarbanes-Oxley Act of 2002 (the Act) that became law in July 2002 requires changes in
some of our corporate governance, public disclosure and compliance practices. In addition, Nasdaq
has made revisions to its requirements for companies, such as Landec, that are listed on the
NASDAQ. We expect these developments to increase our legal and financial compliance costs. These
changes could make it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced coverage or incur substantially
higher costs to obtain coverage. These developments could make it more difficult for us to attract
and retain qualified members for our board of directors, particularly to serve on our audit
committee.
Our Controlling Shareholders Exert Significant Influence over Corporate Events that May Conflict
with the Interests of Other Shareholders
Our executive officers and directors and their affiliates own or control approximately 24% of
our common stock (including options exercisable within 60 days). Accordingly, these officers,
directors and shareholders may have the ability to exert significant influence over the election of
our Board of Directors, the approval of amendments to our articles and bylaws and the approval of
mergers or other business combination transactions requiring shareholder approval. This
concentration of ownership may have the effect of delaying or preventing a merger or other business
combination transaction, even if the transaction or amendments would be beneficial to our other
shareholders. In addition, our controlling shareholders may approve amendments to our articles or
bylaws to implement anti-takeover or management friendly provisions that may not be beneficial to
our other shareholders.
Terrorist Attacks and Risk of Contamination May Negatively Impact All Aspects of Our Operations,
Revenues, Costs and Stock Price
The September 2001 terrorist attacks in the United States, as well as future events occurring
in response or connection to them, including, future terrorist attacks against United States
targets, rumors or threats of war, actual conflicts involving the United States or its allies, or
trade disruptions impacting our domestic suppliers or our customers, may impact our operations and
may, among other things, cause decreased sales of our products. More generally, these events have
affected, and are expected to continue to affect, the general economy and customer demand for our
products. While we do not believe that our employees, facilities, or products are a target for
terrorists, there is a remote risk that terrorist activities could result in contamination or
adulteration of our products. Although we have systems and procedures in place that are designed
to prevent contamination and adulteration of our products, a disgruntled employee or third party
could introduce an infectious substance into packages of our products, either at our manufacturing
plants or during shipment of our products. Were our products to be tampered with, we could
experience a material adverse effect in our business, operations and financial condition.
We May Be Exposed to Employment Related Claims and Costs that Could Materially Adversely Affect Our
Business
We have been subject in the past, and may be in the future, to claims by employees based on
allegations of discrimination, negligence, harassment and inadvertent employment of illegal aliens
or unlicensed personnel, and we may be subject to payment of workers compensation claims and other
similar claims. We could incur substantial costs and our
management could spend a significant amount of time responding to such complaints or litigation
regarding employee claims, which may have a material adverse effect on our business, operating
results and financial condition.
-28-
We Are Dependent on Our Key Employees and if One or More of Them Were to Leave, We Could Experience
Difficulties in Replacing Them and Our Operating Results Could Suffer
The success of our business depends to a significant extent upon the continued service and
performance of a relatively small number of key senior management, technical, sales, and marketing
personnel. The loss of any of our key personnel would likely harm our business. In addition,
competition for senior level personnel with knowledge and experience in our different lines of
business is intense. If any of our key personnel were to leave, we would need to devote
substantial resources and management attention to replace them. As a result, management attention
may be diverted from managing our business, and we may need to pay higher compensation to replace
these employees.
We May Issue Preferred Stock with Preferential Rights that Could Affect Your Rights
Our Board of Directors has the authority, without further approval of our shareholders, to fix
the rights and preferences, and to issue shares, of preferred stock. In November 1999, we issued
and sold shares of Series A Convertible Preferred Stock and in October 2001 we issued and sold
shares of Series B Convertible Preferred Stock. The Series A Convertible Preferred Stock was
converted into 1,666,670 shares of Common Stock on November 19, 2002 and the Series B Convertible
Preferred Stock was converted into 1,744,102 shares of Common Stock on May 7, 2004.
The issuance of new shares of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding stock, and the holders of such
preferred stock could have voting, dividend, liquidation and other rights superior to those of
holders of our Common Stock.
We Have Never Paid any Dividends on Our Common Stock
We have not paid any cash dividends on our Common Stock since inception and do not expect to
do so in the foreseeable future. Any dividends may be subject to preferential dividends payable on
any preferred stock we may issue.
Our Profitability Could Be Materially And Adversely Affected if it Is Determined that the Book
Value of Goodwill is Higher than Fair Value
Our balance sheet includes an amount designated as goodwill that represents a portion of our
assets and our shareholders equity. Goodwill arises when an acquirer pays more for a business
than the fair value of the tangible and separately measurable intangible net assets. Under
Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets,
beginning in fiscal year 2002, the amortization of goodwill has been replaced with an impairment
test which requires that we compare the fair value of goodwill to its book value at least annually
and more frequently if circumstances indicate a possible impairment. If we determine at any time
in the future that the book value of goodwill is higher than fair value then the difference must be
written-off, which could materially and adversely affect our profitability.
-29-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following table presents information about the Companys debt obligations and derivative
financial instruments that are sensitive to changes in interest rates. The table presents
principal amounts and related weighted average interest rates by year of expected maturity for the
Companys debt obligations. The carrying value of the Companys debt obligations approximates the
fair value of the debt obligations as of February 26, 2006.
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Remainder |
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There- |
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of 2006 |
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2007 |
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2008 |
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2009 |
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2010 |
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after |
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Total |
Liabilities (in 000s) |
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Lines of Credit |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Avg. Int. Rate |
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Long term debt,
including current
portion |
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Variable Rate |
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$ |
88 |
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$ |
133 |
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$ |
142 |
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$ |
130 |
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$ |
136 |
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$ |
1,475 |
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$ |
2,104 |
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Avg. Int. Rate |
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6.93 |
% |
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6.98 |
% |
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6.99 |
% |
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7.16 |
% |
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7.20 |
% |
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7.11 |
% |
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7.10 |
% |
Item 4. Controls and Procedures
(a) |
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Based on their evaluation as of the end of the period covered by this Quarterly Report on
Form 10-Q (the Evaluation Date), Landecs principal executive officer and principal
financial officer concluded that, as of the Evaluation Date, Landecs disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the Exchange Act), were effective and designed to ensure that information
required to be disclosed by Landec in reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. |
(b) |
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There was no change in Landecs internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that has materially affected,
or is reasonably likely to materially affect, such internal control over financial reporting. |
-30-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit |
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Number |
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Exhibit Title: |
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31.1+
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CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2+
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CFO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1+
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CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2+
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CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
-31-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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LANDEC CORPORATION
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By: |
/s/ Gregory S. Skinner
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Gregory S. Skinner |
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Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) |
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Date: April 4, 2006
-32-
Exhibit Index
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Exhibit
Number
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Exhibit Title: |
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31.1+
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CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2+
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CFO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1+
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CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2+
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CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
+ Filed herewith.
exv31w1
Exhibit 31.1
CERTIFICATION
I, Gary T. Steele, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Landec Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in
this quarterly report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this quarterly report based on such
evaluation, and
(d) disclosed in this quarterly report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial reporting;
and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: April 4, 2006
/s/ Gary T. Steele
Gary T. Steele
Chief Executive Officer
exv31w2
Exhibit 31.2
CERTIFICATION
I, Gregory S. Skinner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Landec Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in
this quarterly report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles ;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this quarterly report based on such
evaluation; and
(d) disclosed in this quarterly report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial reporting;
and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: April 4, 2006
/s/ Gregory S. Skinner
Gregory S. Skinner
Chief Financial Officer
exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Landec Corporation (the Company) on Form 10-Q for
the period ending February 26, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Gary T. Steele, Chief Executive Officer and President of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
Date: April 4, 2006
/s/ Gary T. Steele
Gary T. Steele
Chief Executive Officer and President
(Principal Executive Officer)
|
* |
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The foregoing certification is being furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63
of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as
a separate disclosure document. |
exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Landec Corporation (the Company) on Form 10-Q for
the period ending February 26, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Gregory S. Skinner, Vice President of Finance and Adminstration and
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
Date: April 4, 2006
/s/ Gregory S. Skinner
Gregory S. Skinner
Vice President and Chief Financial Officer
(Principal Accounting Officer)
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The foregoing certification is being furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63
of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as
a separate disclosure document. |