Menlo Park, California
March 12, 2002
Landec Corporation (Nasdaq: LNDC), a developer and marketer
of technology-based polymer products for food, agricultural and
licensed partner applications, today reported results for the
first quarter ended January 27, 2002.
Total revenues for the quarter were $40.3 million versus $44.7
million in the first quarter of fiscal year 2001. Landec
reported a net loss applicable to common shareholders of $3.6
million, or $0.22 per share, compared with a net loss of $3.9
million, or $0.24 per share, for the same quarter in fiscal year
2001.
The results for the first quarter of fiscal year 2002 include
the impact of the change in accounting for the amortization of
goodwill and other identified intangible assets. Under the new
accounting pronouncement FAS 142, Goodwill and Other Intangible
Assets, adopted by the Company at the beginning of fiscal year
2002, goodwill and intangible assets deemed to have an
indefinite life are no longer amortized. The implementation of
this change reduced the current quarter loss by approximately
$600,000, or $0.04 per share.
Results for our first quarter reflect the seasonality of
Landec's business and were in line with expectations. The first
quarter is, and historically has been, the weakest quarter in
the fiscal year due to three primary seasonal factors: (1)
significantly higher produce sourcing costs at Apio during the
winter months, (2) lower produce volumes in the winter months
resulting in lower revenues at Apio, and (3) losses at Landec Ag
due to high sales and marketing costs incurred to generate
revenues
that will not be realized until the second quarter.
The first seasonal factor, produce sourcing costs for Apio in
the winter months, consists of two major components:
First are the potential losses from investment in farming
activities in the desert areas of Southern California and
Arizona. During 2001, the Company decreased its risk of losses
by significantly reducing investments in farming activities
during the winter months, while still maintaining acreage for
approximately the same volume of produce. As a result, the
Company reduced its farming investment losses during the first
fiscal quarter by 85% and is expecting to realize a small
farming profit by the time the winter season is completed in
March 2002.
The second major component of Apio's increased costs for produce
sourcing in the winter months is related to the impact of
adverse weather conditions on the primary winter growing areas
of Southern California and Arizona. During the Company's first
fiscal quarter, the produce industry in California was impacted
by cold, harsh weather in both December and January. Because of
this very unusual cold weather, there were severe shortages of
produce, which forced Apio to purchase produce on the open
market at high prices in order to meet demand for its
value-added products.
The second seasonal factor, lower produce volumes in the winter
months, resulted from severe shortages of produce and caused
significantly reduced volumes and revenues in Apio's
"fee-for-service" whole produce business. Revenues for Apio's
"fee-for-service" whole produce business were further reduced by
the restructuring of that business, which was initiated during
the second half of fiscal year 2001. The restructuring focused
primarily on exiting the cash, labor and equipment-intensive
field harvesting and packing operations portion of that
business, in order to improve the margins in the balance of the
"fee-for-service" business. The combination of the produce
shortages and the short-term effects of the restructuring
resulted in a significant decrease in Apio's "fee-for-service"
revenues to $6.9 million in the first quarter of fiscal year
2002 from $12.9 million in the first quarter of fiscal year
2001.
Notably, due to the Company's initiatives, and despite the $6.0
million decrease in "fee-for-service" revenue, gross profits for
the "fee-for-service" business were consistent with gross
profits in the first quarter of last fiscal year and gross
margins as a percentage of revenues for the "fee-for-service"
business doubled to 22% in the first quarter of fiscal 2002
compared to 11% in the first quarter of fiscal 2001.
To mitigate the impact in the future of the volume and cost
issues associated with the winter produce sourcing problems,
Landec is working with growers and processors in new geographic
regions to develop alternate sources of produce, primarily for
the winter months, but also throughout the year.
The third seasonal factor contributing to first quarter losses
results from the fact that Landec Ag incurs high sales and
marketing costs in the first fiscal quarter to generate revenues
generally not realized until the second quarter. The losses from
Landec Ag during the first fiscal quarter will continue in
future first quarters, given the nature of the seed business and
the fact that virtually all of Landec Ag's revenues and profits
are recognized in the second fiscal quarter upon product
shipment.
"We are pleased that we have
started realizing benefits from the initiatives we put in place
last fiscal year. These benefits have, and will continue to
improve our cost structure at the same time that we are
experiencing increased demand for our technology-based
products," commented Gary Steele, President and CEO of Landec.
"During the first fiscal quarter of fiscal year 2002, our
value-added specialty packaging products grew nearly 30%
compared to the prior quarter, and despite not being able to
meet demand due to produce shortages, remained flat with the
first quarter of fiscal year 2001. Our goal is to continue to
grow Apio's value-added technology-based products, which have
historically been less affected by commodity market
fluctuations, while working to expand and grow our
"fee-for-service" produce marketing and sales business with
higher margins and lower costs."
"Further, the expansion of the iceless packaging product line
has the potential to generate substantial revenues for Apio over
the coming quarters. In addition, the Company has successfully
completed numerous banana shipping and ripening trials using
Intellipac technology, and more recently, retail trials. The
Company anticipates that increased commercial sales of bananas
will begin in the next few weeks. Also in fiscal 2002, Landec Ag
will be expanding its field trials and commercial sales. Landec
Ag is already in its new sales year and seed sales are currently
on plan and substantially ahead of last year," continued Steele.
"For the remainder of fiscal year 2002, we expect to increase
revenues and gross margins, decrease operating expenses,
generate positive earnings and significantly strengthen our
balance sheet. Our priorities are to focus on the operating
results from our food and agricultural businesses while
strengthening our cash position by (1) selling non-strategic
assets, such as Dock Resins and Apio's fruit processing
facility, (2) entering into selective license agreements with
upfront cash payments,
(3) increasing our cash flow from operations, (4) selectively
using bank lines for seasonal swings in volume, and (5)
completing a small private placement to help fund the launch of
our banana technology. We expect these liquidity actions to take
place over the next 12 months, and to result in approximately
$15 to $20 million in new and previously unavailable cash
resources," concluded Steele.
Operating Highlights and Outlook
Apio expands iceless products and completes successful banana
retail trials
During the first quarter of fiscal year 2002, Apio's iceless
packaging product line continued to experience
accelerating growth. Apio now has six iceless products utilizing
our Intellipac case liner technology, including bunch and crown
broccoli, eighteen pound cartons of loose broccoli florets,
Asian cut broccoli crowns, export cut broccoli crowns and green
onions. The expansion of the iceless packaging product line has
the potential to generate substantial revenues for Apio over the
coming quarters.
In addition, the Company has successfully completed numerous
banana shipping and ripening trials using Intellipac technology
for bananas, and more recently has successfully completed retail
trials. The Company anticipates that increased commercial sales
of bananas will begin in the next few weeks. Apio is also in the
process of preparing for more retail banana trials with five of
the top fifteen retailers in the U.S., starting by the end of
the second fiscal quarter of 2002. Bananas are a $4 to $4.5
billion annual worldwide market for distributors, which in turn,
is a $9 to $10 billion annual worldwide market for retailers.
Bananas are the nation's leading produce item, contributing
approximately nine to ten percent of produce department sales in
the United States.
Landec Ag accelerates sales and trials of technology products
Landec Ag, the Company's Intellicoat(R) seed coating subsidiary,
will be expanding its field trials and commercial sales during
fiscal year 2002 for its new Early Plant(TM) hybrid corn and
Relay(TM) Intercropping of wheat and coated soybean. The new
products join the existing line-up of Fielder's Choice Direct(R)
hybrid corn and Intellicoat coated Pollinator Plus(TM) seed corn
coatings.
Pollinator Plus seed coatings are applied to inbred seed corn to
delay seed germination and extend the pollination window thus
reducing risks and increasing yields for the seed companies.
Pollinator Plus is already being used by 30 major seed companies
in the production of hybrid seed corn. In 2001, Pollinator Plus
was planted on more than 20,000 acres. Seed companies are
rapidly increasing their use of this technology and the Company
expects this product line to be planted on over 50,000 acres in
2002.
Early Plant hybrid corn is designed to allow corn farmers to
safely and reliably plant hybrid corn two to three weeks earlier
than normal, since Landec's proprietary Intellicoat coating
delays germination until the soil reaches the optimal soil
germination temperature. Otherwise, planting two to three weeks
earlier in cold, wet soil could cause poor or no germination to
occur. Allowing the farmer to have a wider planting window
lowers costs, reduces risks and potentially increases yields.
The program for Early Plant hybrid corn will be expanded to
approximately 20,000 acres this spring from 3,000 acres in 2001.
In addition, eight of the top U.S. seed companies will conduct
separate evaluations of the Intellicoat Early Plant hybrid corn
technology on their own hybrids during 2002. Successful results
could lead to licensed partnerships as early as 2003.
Landec Ag also directly markets and sells seed products using a
sophisticated telephonic and electronic call center
headquartered in Monticello, Indiana. Last spring, Landec Ag
introduced a new Harvestar(TM) product line, which offers high
performance alfalfa and nutrient enhanced hybrid seed corn.
These products will be sold to new and existing customers who
have expressed interest in these types of seeds.
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(R) 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.
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