Landec Corporation Reports Fourth Quarter and Fiscal Year 2006 Results; Landec Achieves Record Revenues and Net Income.MENLO PARK Menlo Park. 1 Residential city (1990 pop. 28,040), San Mateo co., W Calif.; inc. 1874. Electronic equipment and aerospace products are manufactured in the city. Menlo College and a Stanford Univ. research institute are there. 2 Uninc. , Calif. -- Landec Corporation (Nasdaq:LNDC LNDC Lesotho National Development Corporation ), today reported record results for the fourth quarter and fiscal year 2006. Revenues for fiscal year 2006 were $232.0 million versus revenues of $205.2 million for fiscal year 2005. Net income for fiscal year 2006 was $8.7 million or $0.32 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share compared to net income of $5.4 million or $0.21 per diluted share in the prior year. Revenues for the fourth quarter were $71.3 million versus revenues of $56.2 million for the same period a year ago. The Company reported net income for the quarter of $6.7 million or $0.24 per diluted share compared to net income of $4.6 million or $0.17 per diluted share for the same period last year. "With the results for fiscal year 2006, we achieved record revenues and earnings," stated Gary Steele Gary Steele is an British professional wrestler who has competed in European and North American promotions and has been a popular longtime mainstay of NWA UK Hammerlock since the mid-1990s. , Landec's President and Chief Executive Officer. "We are very pleased with our fiscal year 2006 results as we increased revenues by 13% to $232.0 million, net income by 60% to $8.7 million and earnings per share to $0.32." Included in net income for the fourth quarter and all of fiscal year 2006 was $411,000 and $1.6 million, respectively, from the licensing agreement with a medical device company announced in December December: see month. 2005. Also included in net income for fiscal year 2006 is $638,000 in license fees from Alcon, Inc. due to amending the supply agreement to terminate Terminate (terminat.exe) was a shareware modem terminal and host program for MS-DOS and compatible operating systems developed from the early to the late 1990s by the Dane Bo Bendtsen. The last release (5. on May 28, 2006 instead of November November: see month. 2012 which resulted in the acceleration acceleration, change in the velocity of a body with respect to time. Since velocity is a vector quantity, involving both magnitude and direction, acceleration is also a vector. In order to produce an acceleration, a force must be applied to the body. of $550,000 of deferred revenue. "We had five primary objectives for fiscal year 2006: (1) continue to grow our value-added val·ue-add·ed adj. Of or relating to the estimated value that is added to a product or material at each stage of its manufacture or distribution: specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. packaging food business, (2) increase the growth of our agricultural seed revenues, (3) commercially launch our banana banana, name for several species of the genus Musa and for the fruits these produce. The banana plant—one of the largest herbaceous plants—is said to be native to tropical Asia, but is now cultivated throughout the tropics. packaging technology with Chiquita Chiquita can refer to:
Commenting on the financial condition of the Company, Greg GREG Great Egg Harbor National Scenic and Recreational River (US National Park Service) Skinner Skin·ner , B(urrhus) F(rederick) 1904-1990. American psychologist. A leading behaviorist, Skinner influenced the fields of psychology and education with his theories of stimulus-response behavior. , Vice President of Finance and Chief Financial Officer of Landec stated, "During fiscal year 2006, we continued to strengthen our balance sheet. We increased our cash balance by $7.6 million during fiscal year 2006 to $20.5 million. This increase was primarily due to net cash generated from operations of $10.9 million and the sale of $3.5 million of common stock from employees exercising options, partially offset by (1) the purchase of $4.7 million of property, plant and equipment, (2) the net reduction of long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. of $1.1 million, and (3) the use of $3.9 million of cash to purchase Heartland Hybrids, Inc." Operating Highlights Apio, Inc. - Landec's Food Subsidiary Nick Tompkins Tompkins is a surname, and may refer to:
"Apio's gross profits from value-added vegetable products increased in the fourth quarter by $644,000 to $5.6 million and increased during fiscal year 2006 by $4.0 million to $23.0 million compared to the same periods in the prior year. These increases in gross profits were primarily due to a more profitable mix of products sold and improved operational efficiencies driven largely by improved produce quality compared to the fourth quarter and all of fiscal year 2005," said Tompkins. "Overall Apio revenues increased to $44.5 million during the fourth quarter and $194.8 million for fiscal year 2006 compared to $40.2 million and $179.2 million, respectively, for the year ago periods. Overall Apio net income increased to $1.7 million for the fourth quarter and $9.1 million for fiscal year 2006 compared to $1.6 million and $5.6 million, respectively, for the same periods a year ago," added Tompkins. In April 2005, Apio introduced the BreatheWay(TM) trademark on all of its products using Landec's patented packaging technology which extends the shelf life of vegetables and fruit. Apio's BreatheWay food packaging regulates the levels of oxygen and carbon dioxide carbon dioxide, chemical compound, CO2, a colorless, odorless, tasteless gas that is about one and one-half times as dense as air under ordinary conditions of temperature and pressure. within a package to maintain the optimum atmosphere in order to extend the shelf life of the produce. The versatility Versatility Franklin, Benjamin (1706–1790) American statesman, inventor, printer, author, scientist. [Am. Hist.: Benét, 366] George of the BreatheWay food packaging technology allows the Company to convert not only fresh-cut adj. 1. recently cut; - of flowers; as, a fresh-cut bouquet s>. Adj. 1. fresh-cut - cut recently; "fresh-cut flowers" fresh - recently made, produced, or harvested; "fresh bread"; "a fresh scent"; "fresh lettuce" produce but also whole produce into value-added products that bring real differentiation differentiation, in biology, series of changes that occur in cells and tissues during development, resulting in their specialization. This, in turn, permits a greater variety of organisms. to retailers and food distributors. In February February: see month. 2006, Landec announced that Chiquita Brands International, Inc. and Core-Mark International, one of the largest North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. distributors to the convenience retail industry, entered into an arrangement to distribute Chiquita bananas ba·nan·as adj. Slang Crazy: "That's the horrible thing when you're bananas using Landec's patented packaging technology to convenience stores The following is a list of convenience stores organized by geographical location. Stores are grouped by the lowest heading that contains all locales in which the brands have significant presence. throughout the Core-Mark network. Chiquita and Core-Mark intend to expand the commercial sale of BreatheWay packaged Chiquita bananas to more than 7,500 retail locations by calendar year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. 2006, up from 5,000 locations previously planned. Landec Ag, Inc. - Landec's Seed Subsidiary Tom Crowley Crowley (krou`lē), city (1990 pop. 13,983), seat of Acadia parish, SW La.; inc. 1888. It is a shipping, milling, and storage center for a large rice-growing area and has a rice experiment station. Oil and natural gas wells are located nearby. , President and CEO of Landec Ag reported, "During the fourth quarter, Landec Ag revenues grew 63% to $25.7 million compared to $15.8 million for the same period last year and gross profits were $7.8 million compared to $5.5 million during the same period a year ago. For fiscal year 2006, Landec Ag revenues increased 33% to $34.1 million compared to $25.6 million during fiscal year 2005 and gross profits increased to $10.4 million from $9.4 million last year. The majority of this growth was due to the addition of Heartland Hybrids which was acquired at the beginning of Landec's second fiscal quarter." Landec's Intelimer(R) Supply and Licensing Business The Company is working with a number of existing and potential partners to expand the use of Intelimer polymers in cosmetic cosmetic /cos·met·ic/ (koz-met´ik) 1. pertaining to cosmesis. 2. a beautifying substance or preparation. cos·met·ic n. and personal care products, as well as industrial non-food and non-agricultural products. In December 2005, Landec entered into an exclusive licensing agreement with a medical device company. Landec received an upfront license fee of $250,000 for the exclusive rights to use Landec's Intelimer materials technology in the partner's specific device field worldwide. Landec will also receive royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. on future product sales. In addition, Landec has received 2.2 million shares of preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. which currently represents a 19.9% ownership interest in the medical device company. On March 14, 2006, the Company entered into an exclusive license and research and development agreement with Air Products and Chemicals, Inc. Landec received an upfront licensing fee of $900,000 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 Landec's Intelimer materials technology in specific fields worldwide. The license fees will be recognized as license revenue over a three year period beginning March 2006. Additionally, in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the agreement, Landec will receive 40% of the gross profits occurring after March 14, 2007 that are generated from the sale of products by Air Products that incorporate Landec's Intelimer materials. Landec Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: For fiscal year 2006 net income was $8.7 million which is $3.3 million higher than the same period last year due to several factors. Items increasing net income included: (1) a $4.0 million increase in gross profits from Apio's value-added business, (2) a $1.0 million increase in gross profits at Landec Ag primarily due to the acquisition of Heartland Hybrids, (3) $1.6 million in license fees from the medical device licensing agreement and (4) a $604,000 increase in gross profits from Apio Tech compared to fiscal year 2005. Net income was decreased by a $4.6 million Company-wide increase in selling, general and administrative expenses primarily due to (1) selling, general and administrative expenses of $2.0 million at Heartland Hybrids, (2) planned increases in selling and marketing expenses at Apio and Landec Ag to generate increases in revenues, (3) an increase in general and administrative expenses at Corporate for business development consulting fees and legal fees, and (4) the accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. of bonuses for exceeding our fiscal year 2006 internal plan. Landec Fourth Quarter and Fiscal Year 2006 Earnings Conference Call A conference call will follow this release at 8:00 a.m. Pacific Time on Tuesday Tuesday: see week. , July July: see month. 25, 2006, during which senior management of Landec will present an overview of results for the fourth quarter and fiscal year 2006. Interested parties have the opportunity to listen to the conference call live on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at www.landec.com on the Investor Relations Investor relations The process by which the corporation communicates with its investors. web page. A replay of the webcast will be available for 30 days. Additionally investors can listen to the call by dialing (866) 814-8483 or (703) 639-1373 at least 5 minutes prior to the start. A replay of the call will be available through Tuesday, August 1, 2006, by calling (888) 266-2081, code #928645. Landec Corporation designs, develops, manufactures and sells temperature-activated and other specialty polymer products for a variety of food, agricultural and licensed partner applications. The Company's temperature-activated polymer products are based on its proprietary Intelimer polymers which differ from other polymers in that they can be customized to abruptly a·brupt adj. 1. Unexpectedly sudden: an abrupt change in the weather. 2. Surprisingly curt; brusque: an abrupt answer made in anger. 3. change their physical characteristics when heated or cooled through a pre-set temperature switch. For more information about the Company visit Landec's website at www.landec.com. Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that involve certain risks and uncertainties that could cause actual results to differ materially, including such factors among others, as the timing and expenses associated with expanding operations, the ability to achieve acceptance of the Company's new products in the market place, weather conditions that can affect the supply and price of produce, the amount and timing of research and development funding and license fees from the Company's collaborative col·lab·o·rate intr.v. col·lab·o·rat·ed, col·lab·o·rat·ing, col·lab·o·rates 1. To work together, especially in a joint intellectual effort. 2. partners, the timing of regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. approvals and new product introductions, the mix between pilot production of new products and full-scale full-scale adj. 1. Of actual or full size; not reduced: a full-scale model. 2. Employing all resources; not limited or partial: manufacturing of existing products, the mix between domestic and international sales, and the risk factors listed in the Company's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended May 29, 2005. (See item 7: Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial of Financial Condition and Results of Operations.) As a result of these and other factors, the Company expects to continue to experience significant fluctuations in quarterly operating results and there can be no assurance that the Company will remain consistently profitable. The Company undertakes no obligation to update or revise any forward-looking statements whether as a result of new developments or otherwise.
LANDEC CORPORATION
Consolidated Condensed Balance Sheets
(In thousands)
May 28, May 29,
ASSETS 2006 2005
------ ------------ ------------
Current Assets: (unaudited)
Cash and cash equivalents $20,519 $12,871
Marketable securities -- 1,968
Accounts receivable, net 18,198 15,881
Inventory 13,958 9,917
Notes and advances receivable 390 508
Prepaid expenses and other
current assets 1,637 2,042
Assets held for sale -- 1,190
----------- ------------
Total Current Assets 54,702 44,377
Property and equipment, net 19,014 17,275
Intangible assets, net 43,254 37,615
Other assets 2,055 808
----------- ------------
$119,025 $100,075
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $23,968 $18,306
Accrued compensation 3,303 1,907
Other accrued liabilities 2,032 2,141
Deferred revenue 884 557
Current maturities of long term
debt 2,018 548
------------ ------------
Total Current Liabilities 32,205 23,459
Non-current portion of long term debt -- 2,540
Other non-current liabilities -- 550
Minority interest 1,771 1,466
Shareholders' Equity:
Common stock 126,288 121,950
Accumulated deficit (41,239) (49,890)
----------- ------------
Total Shareholders' Equity 85,049 72,060
----------- ------------
$119,025 $100,075
============ ============
LANDEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
Three Months Ended Twelve Months Ended
----------------------- ---------------------
May 28, May 29, May 28, May 29,
2006 2005 2006 2005
----------- ----------------------- ---------
Revenues: (unaudited) (unaudited) (unaudited)
Product sales $69,345 $55,162 $225,404 $201,020
Services revenues 943 912 3,725 3,704
Research, development,
and royalty revenues 216 76 426 418
License fees 783 22 2,398 88
----------- ----------- ----------- ---------
Total revenues 71,287 56,172 231,953 205,230
Cost of revenue:
Cost of product sales 55,493 44,462 188,904 170,359
Cost of services
revenues 844 718 3,005 2,899
----------- ----------- ----------- ---------
Total cost of
revenue 56,337 45,180 191,909 173,258
Gross profit 14,950 10,992 40,044 31,972
Operating costs and
expenses:
Research and
development 762 568 3,042 2,543
Selling, general and
administrative 7,449 5,769 27,979 23,412
----------- ----------- ----------- ---------
Total operating
costs and expenses 8,211 6,337 31,021 25,955
----------- ----------- ----------- ---------
Operating income 6,739 4,655 9,023 6,017
Interest income 238 107 633 214
Interest expense (90) (82) (452) (414)
Other expense (192) (71) (553) (415)
----------- ----------- ----------- ---------
Net income $6,695 $4,609 $8,651 $5,402
=========== =========== =========== =========
Basic net income per
share $0.27 $0.19 $0.35 $0.23
=========== =========== =========== =========
Diluted net income per
share $0.24 $0.17 $0.32 $0.21
=========== =========== =========== =========
Shares used in per share
computations:
Basic 24,895 24,036 24,553 23,705
=========== =========== =========== =========
Diluted 26,067 24,963 25,657 24,614
=========== =========== =========== =========
LANDEC CORPORATION
FISCAL YEAR ENDED MAY 28, 2006
QUESTIONS AND ANSWERS
1) What are some of the key milestones Landec achieved in fiscal year
2006?
Apio, Inc. -- Landec's Food Subsidiary:
a) With Chiquita(R) Brand bananas -- entered into an arrangement
with Core-Mark International to distribute Chiquita bananas using
our packaging technology to convenience stores throughout the
Core-Mark network with the goal of being in at least 7,500
locations by calendar year end 2006.
b) Increased overall revenues by 9% to $194.8 million and net
income by 62% to $9.1 million compared to fiscal year 2005.
c) Increased value-added revenues by 13% to $136.1 million
compared to the prior year.
d) Increased value-added gross profits by 21% compared to last
year.
e) Increased the retail vegetable tray product line and the 12-ounce
specialty packaged retail product line revenues by 22% and 16%,
respectively, compared to fiscal year 2005.
f) Initiated further expansion of Apio's value-added facility for
additional space and operating efficiencies.
g) Generated $12.7 million of cash flow from Apio operations
during fiscal year 2006.
Landec Ag -- Landec's Agricultural Seed Subsidiary:
a) Purchased Heartland Hybrids, Inc., the second largest direct
marketer of seed corn to farmers behind Landec Ag's Fielder's
Choice Direct(R) brand.
b) Increased overall Ag revenues by 33% to $34.1 million and gross
profits by 10% to $10.4 million and, despite a very difficult year
in the seed corn industry, managed to generate operating income of
$353,000.
c) Based upon third party studies for the past three years, Early
Plant(R) corn increased yields on average by 21 bushels per acre
when compared to late planted corn and reduced dry down cost by
nearly $15 per acre compared to late planted corn resulting in an
overall increase in profit to the farmer of $49 per acre.
d) Introduced 37 new corn hybrids for 2006, bringing the line-up
to 121 hybrid seed varieties it currently has for sale, including
48 hybrid offerings that will be using Early Plant Intellicoat(R)
seed coating technology.
Landec Consolidated:
a) Increased overall Landec revenues by 13% to $232.0 million (or
19% excluding Apio's trading business revenues), gross profits by
25% to $40.0 million and net income by 60% to $8.7 million. In
addition, Landec improved its overall gross margin by 1.7
percentage points to 17.3% compared to fiscal year 2005.
b) Entered into a new licensing and research and development
agreement with Air Products in which the Company has received
$900,000 in licensing payments and will receive up to an
additional $1.6 million, for a total of $2.5 million in licensing
payments. In addition, the Company will receive 40% of gross
profits realized starting March 14, 2007 from the sale of Landec's
Intelimer-based products by Air Products.
c) Improved Company-wide net interest income by $381,000 compared
to fiscal year 2005.
d) Entered into a new licensing agreement with a newly established
medical device company in which Landec received an upfront
licensing payment of $250,000. In addition, the Company received
2.2 million shares of preferred stock initially valued at $1.3
million which represents a 19.9% ownership interest in the medical
device company. Landec will also receive royalties on future
product sales.
e) Amended the supply agreement with Alcon, Inc. to expire on May
28, 2006 resulting in the recognition of an additional $550,000 of
revenue and net income during fiscal year 2006.
f) Invested $4.7 million in capital expenditures to support future
growth and advance operating efficiencies.
2) What are the Company's expectations for fiscal year 2007?
Net income for fiscal year 2007 is projected to grow 30% to 40%
compared to fiscal year 2006, excluding the $638,000 of net income
from the Alcon license recognized in fiscal year 2006 and excluding in
fiscal year 2007 the impact on net income of expensing options
estimated at approximately $500,000. Overall revenues are projected to
grow 10% to 15%, excluding Apio's trading business which is projected
to decrease 8%.
Specifically the growth opportunities and the challenges we face
in fiscal year 2007 are:
Landec's growth opportunities
a) Increase Apio's value-added revenues by over 10% while maintaining
fiscal year 2006 margins.
b) More than double Apio Tech's revenues and gross profits by
increasing the sales of our banana packaging technology to
Chiquita and commercializing new uses of Apio's BreatheWay
packaging technology.
c) Increase Landec Ag's revenues by 10% or more with gross margins
of 30% or more.
d) Increase Early Plant corn and Intellicoat coating revenues by
25% to 35%.
e) Meet contractual milestone with our medical device partner
leading to Landec receiving an additional 800,000 shares currently
valued at $480,000 (our ownership interest will remain at 19.9%).
f) Work closely with Air Products to expand the use of our
Intelimer polymer technology in personal care and other licensed
fields.
Landec's challenges and risks
a) Raw material costs for produce, packaging and corn seed
(including technology and royalty fees) are expected to increase
by approximately $3.5 million in fiscal year 2007 compared to
fiscal year 2006.
b) Market share growth in our value-added vegetable business,
particularly in our tray line, will continue to be difficult since
we are the market share leader with nearly a 50% market share in
retail vegetable trays.
c) Recent annual growth in the U.S. corn seed industry has been
flat to down. To achieve our goal of growing Landec Ag revenues by
10% or more in fiscal year 2007 will require taking market share
from other seed companies and require expanding the use of our
Intellicoat coating technology.
d) The significant planned reduction in Apio's domestic commodity
buy/sell trading revenues of approximately $7.5 million coupled
with a forecasted flat year in export revenues, is projected to
result in an 8% decrease in Apio's combined trading revenues to
$53.6 million in fiscal year 2007 compared to $58.0 million in
fiscal year 2006. We expect there to be little or no impact on
consolidated net income from the reduction in trading revenues due
to the lower margins realized in the domestic commodity buy/sell
trading business.
3) How do you see the Chiquita collaboration evolving such that sales
and earnings become material?
Chiquita's collaboration with Core Mark is going well and they have
recently revised their estimate from supplying BreatheWay packaged
Chiquita bananas to over 5,000 convenience stores by calendar year end
2006 to supplying over 7,500 stores in that same timeframe. In
addition, Chiquita has at least one customer in either market trials
or early commercialization in each targeted commercial market segment
which includes convenience stores, coffee chains, quick serve
restaurants and drug stores. After Chiquita's initial focus on
non-traditional markets, we expect that Chiquita will turn its
attention to uses of our banana packaging technology for European
applications and domestic retail grocery applications. Our agreement
with Chiquita includes annual minimums which increase each year for
the first three years.
4) What other initiatives, aside from the banana program with
Chiquita, is Apio Tech currently working on?
In addition to the banana program Apio Tech has commercialized or is
in late stage development on the following initiatives:
a) Meal lines which include protein and fresh vegetables -- The
first such line is a chicken and fresh cut vegetable line in
market testing with Foster Farms, a leading U.S. supplier of
poultry products. Foster Farms is currently selling three
different variations of these microwavable meals through Costco.
Apio Tech is selling its membrane technology to Foster Farms and
is not supplying the fresh cut vegetables.
b) Forming optimal atmospheres in large packages and containers -
This initiative is in late stage development and is being tested
with a couple of potential partners. The plan is to create the
means to form an optimal atmosphere in containers ranging from a
carton size bag, to a pallet size bag, to an entire shipping
container.
In addition to these initiatives, Apio Tech is in early stage
development on other initiatives.
5) How do you plan to accelerate Landec Ag's revenue growth in fiscal
year 2007 from its fiscal year 2006 growth of 2%, excluding Heartland
Hybrids revenues in fiscal year 2006?
There are several factors that lead us to believe that Landec Ag's
accelerated growth plan in fiscal year 2007, including Heartland
Hybrids, is achievable:
a) Corn acres for 2006 were down by approximately 5% from 2005
driven by increased input costs due to high petroleum prices and
low market prices for corn. Because of the projected significant
increase in the use of ethanol, we expect the market price for
corn to increase in 2007. In addition, we expect the planted acres
of corn to increase in 2007 to levels equal to or greater than
those acres planted in 2005.
b) During 2006, the U.S. corn market experienced extremely
competitive pressures with several major corn seed suppliers
offering steep discounts and bundled deals in order to gain or
maintain market share. We do not expect these extremely
competitive pressures to represent a sustainable long-term market
strategy. We expect that price competition will return to more
normal patterns in 2007.
c) Landec Ag also has several new initiatives to help increase
sales, including: 1) new methods of leveraging our lead generation
activities to increase new business, 2) a portfolio recommendation
system for existing customers to increase retention and order
sizes and 3) a new technology that will provide seed consultants
with spatial imagery and in depth information about a customer's
farm which will give our seed consultants much more specific and
local information about our customers to enhance hybrid seed
recommendations.
6) What are the primary reasons the Company is projecting raw material
costs to increase by approximately $3.5 million in fiscal year 2007
compared to fiscal year 2006?
There are three primary reasons for the expected raw material cost
increases - produce sourcing, produce packaging and seed corn supply.
Our contracted produce sourcing costs for fiscal year 2007, excluding
weather related spikes, have increased due to increased input costs.
Although Apio has done a very good job of keeping packaging cost
increases to a minimum over the past couple of years, with oil prices
staying in the $70 per barrel range, packaging costs are increasing as
the input costs of our suppliers are increasing. As in the past, we
plan to do everything possible to keep these increases as low as
possible but as long as oil prices stay as high as they have been
recently we will be experiencing increased packaging costs.
Our cost for seed corn is increasing as our mix of hybrid seeds
changes to a higher percentage of hybrids with traits which have
higher technology and royalty fees. In addition, the costs of
obtaining the base genetics from the genetic research companies are
also increasing.
7) What levels of capital expenditures and R&D expenditures are
expected in order to grow your core businesses?
For fiscal year 2007, we expect capital expenditures to increase to
approximately $7.0 million from $4.7 million in fiscal year 2006 as we
significantly expand Apio's value-added fresh-cut vegetable processing
facility and further automate our food processing capabilities at
Apio. We expect total Company R&D expenses for fiscal year 2007 to be
slightly higher than the $3.0 million spent during fiscal year 2006 as
we focus on growing our R&D and licensing business both outside our
core food and ag business as well as within our core businesses.
8) What are the details surrounding the new agreement with Air
Products?
Our agreement with Air Products, which was concluded on March 14,
2006, is an R&D and license agreement whereby Landec will work closely
with Air Products to commercialize the Intelimer polymer technology in
specific fields. Landec will contribute technology and R&D and
technical service support while Air Products will have responsibility
for order processing, manufacturing, and sales and marketing through
its global network. The companies will focus on product development
around Landec's Intelimer technology supported by the worldwide sales
and marketing organization of the Performance Materials Division of
Air Products, an over $1 billion provider of polymers, chemicals and
intermediates. The agreement has a twenty year term with an Air
Products option to buy out Landec's interest, based on a preset
formula, anytime after the tenth year. Landec will receive up to $2.5
million in license fees over the next three years and will be entitled
to 40% of gross profits from sales of products that incorporate
Landec's Intelimer materials starting in March 2007.
There are four specified fields in the agreement which Air Products
has exclusive rights to exploit as long as certain minimums are
achieved:
1) Personal Care - This market area will expand our developing
product sales to L'Oreal and extend the use of Intelimer polymers
in the cosmetics and personal care industries. Landec has
developed several recently patented polymer systems for use in
thickening and rheology control for use in formulations - lotions,
creams, gels, sticks, etc - for skin care and color care products
and for use in hair styling and restyling products using its
patented temperature switch technology for hair care products.
2) Thermoset Latent Catalysts - Landec has developed and is
selling small quantities of patented latent curing epoxy catalysts
and polyester latent accelerator products. These products and
other possible future latent Intelimer polymer bound catalysts for
polyurethanes will be developed in this collaboration with Air
Products based on its strong position today in epoxy and
polyurethanes curing and catalyst systems.
3) Household, Industrial and Institutional Cleaning Products -
Similar polymer products to those Intelimer materials now being
developed for personal care use will be adapted for use in
household, institutional and industrial cleaning products using
the temperature switch and patented associative thickening
properties of the Intelimer technology.
4) Disposable Non-Wovens - The Intelimer technology will be
examined to develop polymers for use in this area of expertise at
Air Products.
Excluded from this agreement are uses of Landec's Intelimer technology
in medical devices, drug/pharmaceutical applications and adhesives.
9) Why doesn't the diluted EPS based on the Company's net income
divided by weighted average diluted shares outstanding agree to
the disclosed diluted EPS of $0.32?
Because Apio and Landec Ag have issued subsidiary options to
employees, under GAAP accounting for diluted EPS, for those
subsidiaries with net income, the portion of subsidiary net income
allocable to subsidiary option holders is deducted from consolidated
net income before calculating diluted EPS. Because Landec Ag had a net
loss it is not considered in the calculation. For Apio, which reported
net income for fiscal year 2006, approximately 6% of Apio's net
income, or $556,000, was deducted from Landec's consolidated net
income before calculating diluted EPS. Therefore, $8,651,000 in
consolidated net income less $556,000 equals $8,095,000 divided by
25,657,000 weighted average diluted shares outstanding equals $0.32
per diluted share.
10) How do the results by line of business for the three and twelve
months ended May 28, 2006 compare with the same periods last year?
The results are as follows (unaudited and in thousands):
Three Three Twelve Twelve
months months months months
ended ended ended ended
5/28/06 5/29/05 5/28/06 5/29/05
---------- ---------- ---------- ---------
Revenues:
Apio Value Added(a) $36,485 $31,244 $136,141 $120,445
Apio Trading (b) 7,900 8,941 57,990 58,660
Apio Tech (c) 95 52 685 52
---------- ---------- ---------- ---------
Total Apio 44,480 40,237 194,816 179,157
Landec Ag 25,723 15,821 34,096 25,648
Corporate 1,084 114 3,041 425
---------- ---------- ---------- ---------
Total Revenues 71,287 56,172 231,953 205,230
Gross Profit:
Apio Value Added 5,586 4,942 23,022 19,062
Apio Trading 491 416 3,212 3,118
Apio Tech 56 15 619 15
---------- ---------- ---------- ---------
Total Apio 6,133 5,373 26,853 22,195
Landec Ag 7,800 5,549 10,439 9,448
Corporate 1,017 70 2,752 329
---------- ---------- ---------- ---------
Total Gross Profit 14,950 10,992 40,044 31,972
R&D:
Apio 375 206 1,108 831
Landec Ag -- 106 470 647
Corporate 387 256 1,464 1,065
---------- ---------- ---------- ---------
Total R&D 762 568 3,042 2,543
S,G&A:
Apio 3,310 2,748 13,633 12,354
Landec Ag 2,696 2,126 9,616 7,857
Corporate 1,443 895 4,730 3,201
---------- ---------- ---------- ---------
Total S,G&A 7,449 5,769 27,979 23,412
Other (d):
Apio (756) (861) (2,984) (3,389)
Landec Ag (428) (257) (1,740) (1,260)
Corporate 1,140 1,072 4,352 4,034
---------- ---------- ---------- ---------
Total Other (44) (46) (372) (615)
Net Income (Loss):
Apio 1,692 1,558 9,128 5,621
Landec Ag (e) 4,676 3,060 (1,387) (316)
Corporate 327 (9) 910 97
---------- ---------- ---------- ---------
Net Income $6,695 $4,609 $8,651 $5,402
---------- ---------- ---------- ---------
Net Income Per
Diluted Share $0.24 $0.17 $0.32 $0.21
========== ========== ========== =========
a) Apio's value-added business includes service revenues and gross
profits from Apio Cooling LP.
b) Apio's trading business includes its commission-based commodity
export business and its commission-based domestic commodity
buy/sell business.
c) Apio Tech includes the BreatheWay trademark for banana
packaging, packaging technology for other shelf life sensitive
vegetables and fruit, plus other unique packaging solutions.
d) Included in Other is net interest income/(expense),
non-operating income/(expense) and corporate management fees
charged to Apio and Landec Ag by Corporate.
e) Virtually all of Landec Ag's revenues and profits are realized
in the Company's third and fourth fiscal quarters with the
majority being realized in the fourth fiscal quarter.
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