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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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| 94-3025618 | ||||
| (State or other jurisdiction of incorporation or organization) |
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5201 Great America Parkway, Suite 232
Santa Clara, California 95054
| 2811 Airpark Drive | ||||||||
| Santa Maria, | California | 93455 | ||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant's telephone number, including area code:
(650) 306-1650
code)
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Common | LNDC | The NASDAQ Global Select | ||||||
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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| Large Accelerated Filer | ☐ | Accelerated Filer | ☒ | Emerging Growth Company | ☐ | ||||||||||||
| Non Accelerated Filer | ☐ | Smaller Reporting Company | |||||||||||||||
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November 26, 2017 | May 28, 2017 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 4,369 | $ | 5,409 | ||||
Accounts receivable, less allowance for doubtful accounts | 56,356 | 47,083 | ||||||
Inventories | 30,836 | 25,290 | ||||||
Prepaid expenses and other current assets | 4,426 | 3,498 | ||||||
Total Current Assets | 95,987 | 81,280 | ||||||
Investment in non-public company, fair value | 65,800 | 63,600 | ||||||
Property and equipment, net | 135,271 | 133,220 | ||||||
Goodwill | 54,779 | 54,779 | ||||||
Trademarks/tradenames, net | 16,028 | 16,028 | ||||||
Customer relationships, net | 6,291 | 6,783 | ||||||
Other assets | 5,152 | 2,918 | ||||||
Total Assets | $ | 379,308 | $ | 358,608 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 37,483 | $ | 25,868 | ||||
Accrued compensation | 7,624 | 8,211 | ||||||
Other accrued liabilities | 8,471 | 9,125 | ||||||
Deferred revenue | 1,673 | 310 | ||||||
Line of credit | 10,000 | 3,000 | ||||||
Current portion of long-term debt | 4,940 | 4,940 | ||||||
Total Current Liabilities | 70,191 | 51,454 | ||||||
Long-term debt | 39,829 | 42,299 | ||||||
Capital lease obligation, less current portion | 3,688 | 3,731 | ||||||
Deferred taxes, net | 26,028 | 24,581 | ||||||
Other non-current liabilities | 6,863 | 8,391 | ||||||
Total Liabilities | 146,599 | 130,456 | ||||||
Stockholders’ Equity: | ||||||||
Common stock, $0.001 par value; 50,000 shares authorized; 27,534 and 27,499 shares issued and outstanding at November 26, 2017 and May 28, 2017, respectively | 28 | 27 | ||||||
Additional paid-in capital | 143,490 | 141,680 | ||||||
Retained earnings | 87,103 | 84,470 | ||||||
Accumulated other comprehensive income | 568 | 432 | ||||||
Total Stockholders’ Equity | 231,189 | 226,609 | ||||||
Non-controlling interest | 1,520 | 1,543 | ||||||
Total Equity | 232,709 | 228,152 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 379,308 | $ | 358,608 | ||||
value)
| February 28, 2021 | May 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 2,248 | $ | 360 | |||||||
| Accounts receivable, less allowance for credit losses | 69,577 | 76,206 | |||||||||
| Inventories | 76,779 | 66,311 | |||||||||
| Prepaid expenses and other current assets | 14,323 | 14,230 | |||||||||
| Total Current Assets | 162,927 | 157,107 | |||||||||
| Investment in non-public company, fair value | 45,100 | 56,900 | |||||||||
| Property and equipment, net | 168,693 | 192,338 | |||||||||
| Operating leases | 23,528 | 25,321 | |||||||||
| Goodwill | 69,386 | 69,386 | |||||||||
| Trademarks/tradenames, net | 25,328 | 25,328 | |||||||||
| Customer relationships, net | 11,288 | 12,777 | |||||||||
| Other assets | 3,573 | 2,156 | |||||||||
| Total Assets | $ | 509,823 | $ | 541,313 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 56,323 | $ | 51,647 | |||||||
| Accrued compensation | 11,218 | 9,034 | |||||||||
| Other accrued liabilities | 11,186 | 9,978 | |||||||||
| Current portion of lease liabilities | 4,027 | 4,423 | |||||||||
| Deferred revenue | 1,595 | 352 | |||||||||
| Line of credit | 41,000 | 77,400 | |||||||||
| Current portion of long-term debt, net | 0 | 11,554 | |||||||||
| Total Current Liabilities | 125,349 | 164,388 | |||||||||
| Long-term debt, net | 145,051 | 101,363 | |||||||||
| Long-term lease liabilities | 24,430 | 26,378 | |||||||||
| Deferred taxes, net | 6,608 | 13,588 | |||||||||
| Other non-current liabilities | 3,761 | 4,552 | |||||||||
| Total Liabilities | 305,199 | 310,269 | |||||||||
| Stockholders’ Equity: | |||||||||||
| Common stock, $0.001 par value; 50,000 shares authorized; 29,323 and 29,224 shares issued and outstanding at February 28, 2021 and May 31, 2020, respectively | 29 | 29 | |||||||||
| Additional paid-in capital | 164,865 | 162,578 | |||||||||
| Retained earnings | 41,446 | 71,245 | |||||||||
| Accumulated other comprehensive loss | (1,716) | (2,808) | |||||||||
| Total Stockholders’ Equity | 204,624 | 231,044 | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | 509,823 | $ | 541,313 | |||||||
Three Months Ended | Six Months Ended | |||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | |||||||||||||
Product sales | $ | 136,457 | $ | 135,865 | $ | 259,814 | $ | 268,259 | ||||||||
Cost of product sales | 120,705 | 116,912 | 224,776 | 228,162 | ||||||||||||
Gross profit | 15,752 | 18,953 | 35,038 | 40,097 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 3,372 | 1,965 | 6,091 | 3,903 | ||||||||||||
Selling, general and administrative | 12,934 | 13,724 | 26,979 | 27,460 | ||||||||||||
Total operating costs and expenses | 16,306 | 15,689 | 33,070 | 31,363 | ||||||||||||
Operating (loss) income | (554 | ) | 3,264 | 1,968 | 8,734 | |||||||||||
Dividend income | 412 | 412 | 825 | 825 | ||||||||||||
Interest income | 42 | 4 | 74 | 7 | ||||||||||||
Interest expense | (480 | ) | (380 | ) | (884 | ) | (1,032 | ) | ||||||||
Loss on debt refinancing | — | (1,233 | ) | — | (1,233 | ) | ||||||||||
Other income | 1,300 | — | 2,200 | — | ||||||||||||
Net income before taxes | 720 | 2,067 | 4,183 | 7,301 | ||||||||||||
Income tax expense | (207 | ) | (693 | ) | (1,458 | ) | (2,582 | ) | ||||||||
Consolidated net income | 513 | 1,374 | 2,725 | 4,719 | ||||||||||||
Non-controlling interest expense | (26 | ) | (48 | ) | (92 | ) | (81 | ) | ||||||||
Net income applicable to common stockholders | $ | 487 | $ | 1,326 | $ | 2,633 | $ | 4,638 | ||||||||
Basic net income per share | $ | 0.02 | $ | 0.05 | $ | 0.10 | $ | 0.17 | ||||||||
Diluted net income per share | $ | 0.02 | $ | 0.05 | $ | 0.09 | $ | 0.17 | ||||||||
Shares used in per share computation | ||||||||||||||||
Basic | 27,518 | 27,249 | 27,512 | 27,234 | ||||||||||||
Diluted | 27,875 | 27,618 | 27,866 | 27,572 | ||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Change in net unrealized gains on interest rate swap (net of tax effect of $140, $192, $85, and $192) | $ | 239 | $ | 327 | $ | 136 | $ | 327 | ||||||||
Other comprehensive income, net of tax | 239 | 327 | 136 | 327 | ||||||||||||
Total comprehensive income | $ | 726 | $ | 1,653 | $ | 2,769 | $ | 4,965 | ||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| February 28, 2021 | February 23, 2020 | February 28, 2021 | February 23, 2020 | ||||||||||||||||||||
Product sales | $ | 137,782 | $ | 152,928 | $ | 404,328 | $ | 434,235 | |||||||||||||||
Cost of product sales | 118,093 | 132,881 | 347,657 | 383,338 | |||||||||||||||||||
| Gross profit | 19,689 | 20,047 | 56,671 | 50,897 | |||||||||||||||||||
| Operating costs and expenses: | |||||||||||||||||||||||
| Research and development | 2,562 | 2,747 | 7,643 | 8,390 | |||||||||||||||||||
| Selling, general and administrative | 15,220 | 18,783 | 49,227 | 54,000 | |||||||||||||||||||
| Legal settlement charge | 0 | 0 | 1,763 | 0 | |||||||||||||||||||
| Restructuring costs | 2,700 | 13,528 | 12,766 | 13,934 | |||||||||||||||||||
| Total operating costs and expenses | 20,482 | 35,058 | 71,399 | 76,324 | |||||||||||||||||||
| Operating loss | (793) | (15,011) | (14,728) | (25,427) | |||||||||||||||||||
| Dividend income | 281 | 281 | 844 | 843 | |||||||||||||||||||
| Interest income | 13 | 46 | 31 | 96 | |||||||||||||||||||
| Interest expense, net | (4,178) | (2,211) | (10,326) | (6,455) | |||||||||||||||||||
| Loss on debt refinancing | (1,110) | 0 | (1,110) | 0 | |||||||||||||||||||
| Other income (expense), net | 72 | 67 | (11,736) | 61 | |||||||||||||||||||
| Net loss before tax | (5,715) | (16,828) | (37,025) | (30,882) | |||||||||||||||||||
| Income tax benefit | 217 | 5,310 | 7,226 | 7,840 | |||||||||||||||||||
| Net loss | $ | (5,498) | $ | (11,518) | $ | (29,799) | $ | (23,042) | |||||||||||||||
| Net loss per common share: | |||||||||||||||||||||||
| Basic | $ | (0.19) | $ | (0.39) | $ | (1.02) | $ | (0.79) | |||||||||||||||
| Diluted | $ | (0.19) | $ | (0.39) | $ | (1.02) | $ | (0.79) | |||||||||||||||
| Shares used in per share computation: | |||||||||||||||||||||||
| Basic | 29,323 | 29,170 | 29,282 | 29,155 | |||||||||||||||||||
| Diluted | 29,323 | 29,170 | 29,282 | 29,155 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Net unrealized gain (loss) on interest rate swaps (net of tax effect of $(99), $124, $(327), and $305) | $ | 387 | $ | (411) | $ | 1,092 | $ | (896) | |||||||||||||||
| Other comprehensive income (loss), net of tax | 387 | (411) | 1,092 | (896) | |||||||||||||||||||
| Total comprehensive loss | $ | (5,111) | $ | (11,929) | $ | (28,707) | $ | (23,938) | |||||||||||||||
Common Stock | Additional Paid-in | Retained | Accumulated Other Comprehensive | Total Stockholders’ | Non-controlling | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income | Equity | Interest | ||||||||||||||||||||||
Balance at May 28, 2017 | 27,499 | $ | 27 | $ | 141,680 | $ | 84,470 | $ | 432 | $ | 226,609 | $ | 1,543 | |||||||||||||||
Issuance of common stock at $5.63 to $6.66 per share, net of taxes paid by Landec on behalf of employees | 1 | — | — | — | — | — | — | |||||||||||||||||||||
Issuance of common stock for vested restricted stock units (“RSUs”) | 34 | 1 | — | — | — | 1 | — | |||||||||||||||||||||
Taxes paid by Company for employee stock plans | — | — | (256 | ) | — | — | (256 | ) | — | |||||||||||||||||||
Stock-based compensation | — | — | 2,066 | — | — | 2,066 | — | |||||||||||||||||||||
Payments to non-controlling interest | (115 | ) | ||||||||||||||||||||||||||
Net income | — | — | — | 2,633 | — | 2,633 | 92 | |||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 136 | 136 | — | |||||||||||||||||||||
Balance at November 26, 2017 | 27,534 | $ | 28 | $ | 143,490 | $ | 87,103 | $ | 568 | $ | 231,189 | $ | 1,520 | |||||||||||||||
See accompanying notes.
| Three and Nine Months Ended February 28, 2021 | |||||||||||||||||||||||||||||||||||
| Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at May 31, 2020 | 29,224 | $ | 29 | $ | 162,578 | $ | 71,245 | $ | (2,808) | $ | 231,044 | ||||||||||||||||||||||||
| Issuance of stock under stock plans | 18 | — | — | — | — | 0 | |||||||||||||||||||||||||||||
| Taxes paid by Company for employee stock plans | — | — | (82) | — | — | (82) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 892 | — | — | 892 | |||||||||||||||||||||||||||||
| Net loss | — | — | — | (11,000) | — | (11,000) | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 304 | 304 | |||||||||||||||||||||||||||||
| Balance at August 30, 2020 | 29,242 | 29 | 163,388 | 60,245 | (2,504) | 221,158 | |||||||||||||||||||||||||||||
| Issuance of stock under stock plans | 81 | — | — | — | — | 0 | |||||||||||||||||||||||||||||
| Taxes paid by Company for employee stock plans | — | — | (215) | — | — | (215) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 895 | — | — | 895 | |||||||||||||||||||||||||||||
| Net loss | — | — | — | (13,301) | — | (13,301) | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 401 | 401 | |||||||||||||||||||||||||||||
| Balance at November 29, 2020 | 29,323 | 29 | 164,068 | 46,944 | (2,103) | 208,938 | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 797 | — | — | 797 | |||||||||||||||||||||||||||||
| Net loss | — | — | — | (5,498) | — | (5,498) | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 387 | 387 | |||||||||||||||||||||||||||||
| Balance at February 28, 2021 | 29,323 | $ | 29 | $ | 164,865 | $ | 41,446 | $ | (1,716) | $ | 204,624 | ||||||||||||||||||||||||
LANDEC CORPORATION
Consolidated StatementS of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended | ||||||||
November 26, 2017 | November 27, 2016 | |||||||
Cash flows from operating activities: | ||||||||
Consolidated net income | $ | 2,725 | $ | 4,719 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 5,934 | 5,110 | ||||||
Stock-based compensation expense | 2,066 | 1,773 | ||||||
Deferred taxes | 1,364 | 2,317 | ||||||
Loss on early debt extinguishment | — | 1,233 | ||||||
Change in investment in non-public company, fair value | (2,200 | ) | — | |||||
Net (gain) loss on disposal of property and equipment | (45 | ) | 57 | |||||
Changes in current assets and current liabilities: | ||||||||
Accounts receivable, net | (9,273 | ) | (3,603 | ) | ||||
Inventories | (5,546 | ) | (2,435 | ) | ||||
Prepaid expenses and other current assets | (904 | ) | 666 | |||||
Accounts payable | 11,615 | (4,990 | ) | |||||
Accrued compensation | (497 | ) | 236 | |||||
Other accrued liabilities | (2,272 | ) | 802 | |||||
Deferred revenue | 1,363 | (358 | ) | |||||
Net cash provided by operating activities | 4,330 | 5,527 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (7,431 | ) | (4,738 | ) | ||||
Issuance of note receivable | (2,099 | ) | — | |||||
Proceeds from sales of fixed assets | 73 | 14 | ||||||
Net cash used in investing activities | (9,457 | ) | (4,724 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of common stock | 1 | 193 | ||||||
Taxes paid by Company for employee stock plans | (256 | ) | (272 | ) | ||||
Proceeds from long-term debt | — | 50,000 | ||||||
Payments on long-term debt | (2,543 | ) | (54,697 | ) | ||||
Proceeds from lines of credit | 14,500 | 1,500 | ||||||
Payments on lines of credit | (7,500 | ) | (3,500 | ) | ||||
Payments for debt issuance costs | — | (897 | ) | |||||
Payments for early debt extinguishment penalties | — | (233 | ) | |||||
Payments to non-controlling interest | (115 | ) | (166 | ) | ||||
Other, net | — | (59 | ) | |||||
Net cash provided by (used in) financing activities | 4,087 | (8,131 | ) | |||||
Net decrease in cash and cash equivalents | (1,040 | ) | (7,328 | ) | ||||
Cash and cash equivalents at beginning of period | 5,409 | 9,894 | ||||||
Cash and cash equivalents at end of period | $ | 4,369 | $ | 2,566 | ||||
Three and Nine Months Ended February 23, 2020 Common Stock Shares Amount Balance at May 26, 2019 29,102 $ 29 $ 160,341 $ 109,710 $ 64 $ 270,144 ASC 842 transition adjustment — — — (274) — (274) Issuance of stock under stock plans 44 — — — — 0 Taxes paid by Company for employee stock plans — — (55) — — (55) Stock-based compensation — — 528 — — 528 Net loss — — — (4,784) — (4,784) Other comprehensive loss, net of tax — — — — (612) (612) Balance at August 25, 2019 29,146 29 160,814 104,652 (548) 264,947 Issuance of stock under stock plans 17 — 30 — — 30 Taxes paid by Company for employee stock plans — — (75) — — (75) Stock-based compensation — — 787 — — 787 Net loss — — — (6,740) — (6,740) Other comprehensive income, net of tax — — — — 127 127 Balance at November 24, 2019 29,163 29 161,556 97,912 (421) 259,076 Issuance of stock under stock plans 19 — — — — 0 Taxes paid by Company for employee stock plans — — (45) — — (45) Stock-based compensation — — 566 — — 566 Net loss — — — (11,518) — (11,518) Other comprehensive loss, net of tax — — — — (411) (411) Balance at February 23, 2020 29,182 $ 29 $ 162,077 $ 86,394 $ (832) $ 247,668 notes.notes to the consolidated financial statements.
| Nine Months Ended | |||||||||||
| February 28, 2021 | February 23, 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Consolidated net loss | (29,799) | (23,042) | |||||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation, amortization of intangibles, debt costs, and right-of-use assets | 14,808 | 13,800 | |||||||||
| Loss on debt refinancing | 1,110 | 0 | |||||||||
| Stock-based compensation expense | 2,584 | 1,881 | |||||||||
| Provision (benefit) for expected credit losses | 451 | (225) | |||||||||
| Deferred taxes | (7,307) | (7,881) | |||||||||
| Change in investment in non-public company, fair value | 11,800 | (200) | |||||||||
| Net loss on disposal of property and equipment held and used | 39 | 135 | |||||||||
| Loss on disposal of property and equipment related to restructuring, net | 7,881 | 11,518 | |||||||||
| Other, net | (12) | 139 | |||||||||
| Pacific Harvest note receivable reserve | 0 | 1,202 | |||||||||
| Change in contingent consideration liability | 0 | (500) | |||||||||
| Changes in current assets and current liabilities: | |||||||||||
| Accounts receivable, net | 6,178 | 27 | |||||||||
| Inventories | (10,468) | (12,927) | |||||||||
| Prepaid expenses and other current assets | 350 | 551 | |||||||||
| Accounts payable | 6,372 | 11,791 | |||||||||
| Accrued compensation | 2,184 | (2,230) | |||||||||
| Other accrued liabilities | 3,186 | 1,504 | |||||||||
| Deferred revenue | 1,243 | 119 | |||||||||
| Net cash provided by (used in) operating activities | 10,600 | (4,338) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sales of property and equipment | 12,885 | 2,432 | |||||||||
| Purchases of property and equipment | (11,383) | (22,118) | |||||||||
| Proceeds from collections of notes receivable | 0 | 364 | |||||||||
| Net cash provided by (used in) investing activities | 1,502 | (19,322) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from long term debt | 150,000 | 27,500 | |||||||||
| Payments on lines of credit | (119,400) | (77,900) | |||||||||
| Payments on long-term debt | (114,095) | (8,094) | |||||||||
| Proceeds from lines of credit | 83,000 | 84,400 | |||||||||
| Payments for debt issuance costs | (9,615) | (766) | |||||||||
| Taxes paid by Company for employee stock plans | (297) | (175) | |||||||||
| Proceeds from sale of common stock | 0 | 30 | |||||||||
| Net cash (used in) provided by financing activities | (10,407) | 24,995 | |||||||||
| Net increase in cash and cash equivalents | 1,695 | 1,335 | |||||||||
| Cash and cash equivalents, beginning of period | 553 | 1,465 | |||||||||
| Cash and cash equivalents, end of period | $ | 2,248 | $ | 2,800 | |||||||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||||||
| Purchases of property and equipment on trade vendor credit | $ | 1,124 | $ | 1,793 | |||||||
|
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Basis of Presentation,
and Summary of Significant Accounting PoliciesThe Company’s technologies, along with its customer relationshipscompany categorizes revenue in three categories, Fresh packaged salads and tradenames,vegetables, Avocado Products, and Technology which reports revenues for BreatheWay patented supply chain solutions. Included in the Curation Foods segment and fresh packaged salads and vegetables revenue disaggregation is O Olive Oil & Vinegar (“
Landec’s share of the change in the fair market value of the Company’s 26.9% investment ownership, of Windset, a leading edge grower of hydroponically grown produce.
Presentation
31, 2020 (the “Annual Report”).
Use of Estimates
compensation.
| (In thousands) | February 28, 2021 | May 31, 2020 | February 23, 2020 | May 26, 2019 | |||||||||||||||||||
| Cash and cash equivalents | $ | 2,248 | $ | 360 | $ | 2,607 | $ | 1,080 | |||||||||||||||
| Restricted cash | 0 | 193 | 193 | 385 | |||||||||||||||||||
| Cash, cash equivalents and restricted cash | $ | 2,248 | $ | 553 | $2,800 | $ | 1,465 | ||||||||||||||||
November 26, 2017 | May 28, 2017 | |||||||
Raw materials | $ | 13,229 | $ | 10,158 | ||||
Work in progress | 4,702 | 3,447 | ||||||
Finished goods | 12,905 | 11,685 | ||||||
Total | $ | 30,836 | $ | 25,290 | ||||
following:
| (In thousands) | February 28, 2021 | May 31, 2020 | |||||||||
| Finished goods | $ | 41,533 | $ | 35,177 | |||||||
| Raw materials | 26,855 | 25,856 | |||||||||
| Work in progress | 8,391 | 5,278 | |||||||||
| Total | $ | 76,779 | $ | 66,311 | |||||||
| Balance at beginning of period | Provisions for expected credit losses | Write offs, net of recoveries | Balance at end of period | ||||||||||||||||||||
| Nine months ended February 28, 2021 | $ | 438 | $ | 451 | $ | (607) | $ | 282 | |||||||||||||||
Loss
Unrealized Gains on Cash Flow Hedge | ||||
Accumulated OCI, net, as of May 28, 2017 | $ | 432 | ||
Other comprehensive income before reclassifications, net of tax effect | 136 | |||
Amounts reclassified from OCI | — | |||
Accumulated OCI, net, as of November 26, 2017 | $ | 568 | ||
follows:
| (In thousands) | AOCL | ||||
| Balance as of May 31, 2020 | $ | (2,808) | |||
| Other comprehensive loss before reclassifications, net of tax effect | (344) | ||||
| Amounts reclassified from OCI | 1,436 | ||||
| Other comprehensive income, net | $ | 1,092 | |||
| Balance as of February 28, 2021 | $ | (1,716) | |||
Partial Self-Insurance on Employee Health and Workers Compensation Plans
The Company provides health insurance benefits to eligible employees under self-insured plans whereby the Company pays actual medical claims subject to certain stop loss limits and self-insures its workers compensation claims. The Company records self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Any projection of losses concerning the Company's liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors such as inflation rates, changes in severity, benefit level changes, medical costs, and claims settlement patterns. This self-insurance liability is included in Other accrued liabilities in the accompanying Consolidated Balance Sheets and represents management's best estimate of the amounts that have not been paid as of November 26, 2017 and May 28, 2017. It is reasonably possible that the expense the Company ultimately incurs could differ and adjustments to future reserves may be necessary.
Fair Value Measurements
2020, respectively. The fair market value of Ontario (classified as an asset held for sale) as of May 31, 2020, was based on third-party valuations, which primarily used the market approach, and the inputs utilized were comparable sales of similar assets, which are generally unobservable and are supported by little or no market data, and therefore were classified within Level 3.
At November 26, 2017 | At May 28, 2017 | |||||||
Revenue growth rates | 4% | 4% | ||||||
Expense growth rates | 4% | 4% | ||||||
Income tax rates | 15% | 15% | ||||||
Discount rates | 12% | 12% | ||||||
| February 28, 2021 Range (Weighted Average) | May 31, 2020 Range (Weighted Average) | ||||||||||
| Revenue growth rates | 7% (6.9)% | 6% to 7% (6.4)% | |||||||||
| Expense growth rates | 0% to 8% (5.5)% | 6% to 8% (6.6)% | |||||||||
| Discount rates | 10% | 12% | |||||||||
The revenue growth,and expense growth, and income tax rate assumptions are considered to be the Company's best estimate of the trends in those items over the discount period. The discount rate assumption takes into account the risk-free rate of return, the market equity risk premium, and the company’s specific risk premium and then applies an additional discount for lack of liquidity of the underlying securities. The discounted cash flow valuation model used by the Company has the following sensitivity to changes in inputs and assumptions (in thousands):
Impact on value of investment in Windset as of November 26, 2017 | ||||
10% increase in revenue growth rates | $ | 7,400 | ||
10% increase in expense growth rates | $ | (2,000 | ) | |
10% increase in income tax rates | $ | (500 | ) | |
10% increase in discount rates | $ | (4,500 | ) | |
assumptions:
| (In thousands) | Impact on value of investment in Windset as of February 28, 2021 | ||||
| 10% increase in revenue growth rates | $ | 6,000 | |||
| 10% increase in expense growth rates | $ | (3,200) | |||
| 10% increase in discount rates | $ | (1,300) | |||
Fair Value at November 26, 2017 | Fair Value at May 28, 2017 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Assets: | ||||||||||||||||||||||||
Interest rate swap (1) | $ | — | $ | 909 | $ | — | $ | — | $ | 688 | $ | — | ||||||||||||
Investment in non-public company | — | — | 65,800 | — | — | 63,600 | ||||||||||||||||||
Total | $ | — | $ | 909 | $ | 65,800 | $ | — | $ | 688 | $ | 63,600 | ||||||||||||
| (In thousands) | Fair Value at February 28, 2021 | Fair Value at May 31, 2020 | |||||||||||||||||||||||||||||||||
| Assets: | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||
| Assets held for sale - nonrecurring | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,607 | |||||||||||||||||||||||
| Investment in non-public company | 0 | 0 | 45,100 | 0 | 0 | 56,900 | |||||||||||||||||||||||||||||
| Total assets | $ | 0 | $ | 0 | $ | 45,100 | $ | 0 | $ | 0 | $ | 59,507 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Interest rate swap contracts | $ | 0 | $ | 2,174 | $ | 0 | $ | 0 | $ | 3,578 | $ | 0 | |||||||||||||||||||||||
| Total liabilities | $ | 0 | $ | 2,174 | $ | 0 | $ | 0 | $ | 3,578 | $ | 0 | |||||||||||||||||||||||
|
| ||||||||||
| (In thousands) | Windset Investment | ||||||||||
| Balance as of May 31, 2020 | $ | 56,900 | |||||||||
| Fair value change | (11,800) | ||||||||||
| Balance as of February 28, 2021 | $ | 45,100 | |||||||||
See Note 9 – Business Segment Reporting,
Revenue from product salesreturns, is recognized when thereor as the Company satisfies its performance obligations under a contract and control of the product is persuasive evidence that an arrangement exists, title has transferred to the price is fixed and determinable, and collectability is reasonably assured. Allowances are established for estimated uncollectible amounts, product returns, and discounts based on specific identification and historical losses.
Apio’s Packaged Fresh Vegetables revenues generally consistcustomer.
In addition, Packaged Fresh Vegetables 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, and from the sale of BreatheWay® packaging to license partners. Revenue is recognized on the vegetable cooling operations as cooling and storage services are provided to Apio’s customers. Sales of BreatheWay packaging are recognized when shipped to Apio’s customers.
Apio’s Food Export revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products to Asia through its subsidiary, Cal-Ex Trading Company (“Cal-Ex”). As most Cal-Ex customers are in countries outsidecontext of the U.S., title transfers andcontract. Lifecore recognizes revenue is generally recognized upon arrival offor these products at the shipmentpoint in the foreign port. Apio records revenue equal to the sale price to third parties because it takestime when legal title to the product while in transit.
Lifecore’s Biomaterials business principally generates revenue throughis transferred to the salecustomer, which is at the time that shipment is made or upon delivery of products containing HA. Lifecore primarily sells products to customers in three medical areas: (1) Ophthalmic, which represented approximately 65% of Lifecore’s revenues in fiscal year 2017, (2) Orthopedic, which represented approximately 15% of Lifecore’s revenues in fiscal year 2017, and (3) Other/Non-HA products, which represented approximately 20% of Lifecore’s revenues in fiscal year 2017. The vast majority of Lifecore’s revenues are recognized upon shipment.
Lifecore’s business development revenues, a portion of which are included in all three medical areas, are related to contract research and development (“R&D”) services and multiple element arrangement services with customers where the Company provides products and/or services in a bundled arrangement.
Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 November 26, 2017 November 27, 2016 Recorded upon shipment Recorded upon acceptance in foreign port Revenue from multiple element arrangements Revenue from license fees, R&D contracts and royalties/profit sharing Total end consumer markets. payment. Pronouncements Level 3 investment. On February 15, 2011, The change in the fair market value of the Company's investment in Windset for the nine months ended February 28, 2021 was primarily due to changes in the financial assumptions relating to EBITDA, non-productive assets, and debt levels. The following table summarizes Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 November 26, 2017 November 27, 2016 Options RSUs Total stock-based compensation Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 November 26, 2017 November 27, 2016 Cost of sales Research and development Selling, general and administrative Total stock-based compensation item: Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 November 26, 2017 November 27, 2016 Numerator: Net income applicable to Common Stockholders Denominator: Weighted average shares for basic net income per share Effect of dilutive securities: Stock options and restricted stock units Weighted average shares for diluted net income per share Diluted net income per share November 26, 2017 May 28, 2017 Term loan with JPMorgan Chase Bank (“JPMorgan”), BMO Harris Bank N,A. (“BMO”), and City National Bank; due in quarterly principal and interest payments of $1,250 beginning December 1, 2016 through September 23, 2021 with the remainder due on maturity, with interest based on the Company’s leverage ratio at a per annum rate of the Eurodollar rate plus a spread of between 1.25% and 2.25% Total principal amount of long-term debt Less: unamortized debt issuance costs ) ) Total long-term debt, net of unamortized debt issuance costs Less: current portion of long-term debt, net ) ) Long-term debt, net On July 14, 2010, America except for its Yucatan production facility located in Mexico. Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 November 26, 2017 November 27, 2016 Canada Taiwan Belgium China Indonesia Japan Philippines All Other Countries Three Months Ended November 26, 2017 Packaged Fresh Vegetables Food Export Biomaterials Other Total Net sales International sales Gross profit Net income (loss) ) Depreciation and amortization Dividend income Interest income Interest expense, net Income tax expense (benefit) ) ) Three Months Ended November 27, 2016 Net sales International sales Gross profit Net income (loss) ) ) Depreciation and amortization Dividend income Interest income Interest expense (benefit), net ) Income tax expense (benefit) ) Six Months Ended November 26, 2017 Net sales International sales Gross profit Net income (loss) ) ) Depreciation and amortization Dividend income Interest income Interest expense, net Income tax expense (benefit) ) Six Months Ended November 27, 2016 Net sales International sales Gross profit Net income (loss) ) Depreciation and amortization Dividend income Interest income Interest expense, net Income tax expense following: otherwise, except as otherwise required by law. pronouncements and is incorporated herein by reference. retail. Most vegetable products packaged in offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials. It is involved in the manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) in bulk form as well as formulated and filled syringes and vials for injectable products used in treating a broad spectrum of medical conditions and procedures. Lifecore uses its fermentation process and aseptic formulation and filling expertise to be a leader in the development of HA-based products for intends to continue to make adjustments to its responses accordingly. Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 Change November 26, 2017 November 27, 2016 Change Packaged Fresh Vegetables % % Food Export %) %) Total Apio %) %) Biomaterials % % Other % % Total Revenues % %) demand during the COVID-19 pandemic. related shipments. related shipments. Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 Change November 26, 2017 November 27, 2016 Change Packaged Fresh Vegetables %) %) Food Export %) %) Total Apio %) %) Biomaterials % %) Corporate % %) Total Gross Profit %) %) fiscal 2020. profits primarily driven by the decrease in revenues from our planned shift away from non-strategic fresh packaged salads and vegetables segment revenue streams, primarily packaged vegetables in bags and trays, (2) the decrease in gross profits driven by a decrease in royalty revenue of $1.6 million due to nonrecurring royalty transactions, and (3) business interruption insurance recoveries received in fiscal year 2020. as well as a favorable sales mix. Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 Change November 26, 2017 November 27, 2016 Change Research and Development: Apio % % Lifecore % % Other % % Total R&D % % Selling, General and Administrative: Apio %) %) Lifecore % % Other % % Total SG&A %) %) Expenses: increased headcount. Three Months Ended Six Months Ended November 26, 2017 November 27, 2016 Change November 26, 2017 November 27, 2016 Change Dividend Income Interest Income Interest Expense Loss on Debt Refinancing N/M N/M Other Income N/M N/M Income Tax Expense Non-controlling Interest Expense at February 28, 2021 compared to February 23, 2020. in December 2020. (Expense) The decrease in other income (expense) for the nine months ended February 28, 2021, compared to the same periods last year, was primarily a result of the decrease in fair value of our investment in Windset of $11.8 million. 31, 2020. Based on all available current information, the Company believes the combination of its cash and cash equivalents and availability under the New Credit Agreements (defined below) will be sufficient to support its operations for at least the next twelve months. deferred taxes. payment, partially offset by a $10.5 million increase in inventory driven by our strategy to build inventory during the peak avocado season. businesses. Cash Flow from Financing Activities debt issuance costs. nine On October 25, 2019, the Company entered into the Sixth Amendment to the Credit Agreement, which among other things, increased the Term Loan to $120.0 million. ended May 31, 2020 filed with the SEC on August 14, 2020. Form 10-K for the fiscal year ended May 31, 2020, as supplemented by our Quarterly Report on Form 10-Q for the fiscal period ended February 28, 2021. Exhibit Title XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation XBRL Taxonomy Extension Definition XBRL Taxonomy Extension Labels XBRL Taxonomy Extension Presentation (Principal Financial and Accounting Officer) O Olive’s business, whichacquiredhas an enforceable right to payment for the performance completed to date for its costs incurred in satisfying the performance obligation plus a reasonable profit margin. For each of the development activities performed by Lifecore as described above, labor is the primary input (i.e., labor costs represent the majority of the costs incurred in the completion of the services). The Company determined that labor hours are the best measure of progress as it most accurately depicts the effort extended to satisfy the performance obligation over time.March 1, 2017, sells premier California specialty olive oilshow it markets its products and wine vinegarsservices and reviews results of operations. The following tables disaggregate segment revenue by major product lines and services (in thousands):(In thousands) Three Months Ended Nine Months Ended Curation Foods: February 28, 2021 February 23, 2020 February 28, 2021 February 23, 2020 Fresh packaged salads and vegetables $ 94,739 $ 110,884 $ 283,341 $ 325,628 Avocado products 15,378 14,517 47,107 44,738 Technology 440 2,081 1,632 3,540 Total $ 110,557 $ 127,482 $ 332,080 $ 373,906 (In thousands) Three Months Ended Nine Months Ended Lifecore: February 28, 2021 February 23, 2020 February 28, 2021 February 23, 2020 Contact development and manufacturing organization $ 18,628 $ 14,004 $ 53,374 $ 43,118 Fermentation 8,597 11,442 18,874 17,211 Total $ 27,225 $ 25,446 $ 72,248 $ 60,329 O brand to natural food, conventional grocerycontract. The Company’s contract liabilities as of February 28, 2021 and mass retail stores, primarily inMay 31, 2020, were $1.1 million and $0.0 million, respectively. Revenue recognized during the United Statesthree and Canada. The revenues of O Olive arenine months ended February 28, 2021, that was included in the Other segment. O Olive’s revenue is generally recognized upon shipmentcontract liability balance at the beginning of its productsfiscal year 2021, was $0.0 million.customers. The Company takes title to all products it trades and/or packages,third-party customers for shipping and therefore, records revenueshandling are included as a component of revenues. Shipping and handling costs incurred are included as a component of cost of sales at gross amounts inproducts sold and represent costs incurred to ship product from the accompanying Consolidated Statements of Comprehensive Income.Contract R&D revenue is recorded as earned, based on the performance requirements of the contract. Non-refundable contract fees for which no further performance obligations exist, and there is no continuing involvement by the Company, are recognized on the earlier of when the payment is receivedprocessing facility or collectability is reasonably assured.For sales arrangements that contain multiple elements, the Company splits the arrangement into separate units of accounting if the individually delivered elements have valuedistribution center to the customer on a standalone basis. The Company also evaluates whether multiple transactions with the same customer or related party should be considered part of a multiple element arrangement, whereby the Company assesses, among other factors, whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of each other. The Company then allocates revenue to each element based on a selling price hierarchy. The relative selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price, if neither VSOE nor TPE is available. The Company then recognizes revenue on each deliverable in accordance with its policies for product and service revenue recognition. The Company is not typically able to determine VSOE or TPE, and; therefore, uses the estimated selling price to allocate revenue between the elements of an arrangement.The Company limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services or future performance obligations or subject to customer-specific cancellation rights. The Company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value, and for an arrangement that includes a general right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is considered probable and is substantially controlled by the Company. The Company considers a deliverable to have stand-alone value if the product or service is sold separately by the Company or another vendor or could be resold by the customer. Further, the revenue arrangements generally do not include a general right of return relative to delivered products. Where the aforementioned criteria for a separate unit of accounting are not met, the deliverable is combined with the undelivered element(s) and treated as a single unit of accounting for the purposes of allocation of the arrangement consideration and revenue recognition. The Company allocates the total arrangement consideration to each separable element of an arrangement based upon the relative selling price of each element. Allocation of the consideration is determined at arrangement inception on the basis of each unit’s relative selling price. In instances where the Company has not established fair value for any undelivered element, revenue for all elements is deferred until delivery of the final element is completed and all recognition criteria are met.For licensing revenue, the initial license fees are deferred and amortized to revenue over the period of the agreement when a contract exists, the fee is fixed and determinable, and collectability is reasonably assured. Noncancellable, nonrefundable license fees are recognized over the period of the agreement, including those governing R&D activities and any related supply agreement entered into concurrently with the license when the risk associated with commercialization of a product is non-substantive at the outset of the arrangement.From time to time, the Company offers customers sales incentives, which include volume rebates and discounts. These amounts are estimated on a quarterly basis and recorded as a reduction of revenue.A summary of revenues by type of arrangement as described above is as follows (in thousands): $ 118,634 $ 107,987 $ 231,908 $ 214,152 13,996 25,701 21,572 49,040 2,132 1,683 3,701 3,268 1,695 494 2,633 1,799 $ 136,457 $ 135,865 $ 259,814 $ 268,259 adjustedadjusted to reflect the impacts of negotiations, estimateestimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.-10-ApioCuration Foods has been the target of a union organizing campaign which has included two3 unsuccessful attempts to unionize Apio'sCuration Foods’ Guadalupe, California processing plant. The campaign has involved a union and over 100 former and current employees of Pacific Harvest, Inc. and Rancho Harvest, Inc. (collectively "Pacific Harvest"), Apio'sCuration Foods’ former labor contractors at its Guadalupe, California processing facility, bringing legal actions before various state and federal agencies, the California Superior Court, and initiating over 100 individual arbitrations against ApioCuration Foods and Pacific Harvest.consistconsisted of three main typesvarious claims, all of claims: (1) Unfair Labor Practice claims ("ULPs") before the National Labor Relations Board (“NLRB”), (2) discrimination/wrongful termination claims before state and federal agencies andwhich were settled in individual arbitrations, and (3) wage and hour claims asfiscal year 2017. As part of two Private Attorney General Act (“PAGA”) cases in state court and in over 100 individual arbitrations.Athe settlement agreement, Pacific Harvest agreed to pay the Company one half of the ULPs amongrequired settlement payments. As of union, Apio, and Pacific Harvest that were pending beforeoutstanding balance of the NLRBreceivable was approved on December 27, 2016 for $310,000. Apio was responsible for half of this settlement, or $155,000. On May 5, 2017, the parties$1.2 million. The Company makes ongoing estimates relating to the remaining actions executedcollectability of receivables. A reserve is established for any note when there is reasonable doubt that the principal or interest will be collected in full. The Company may write-off uncollectable receivables after collection efforts are exhausted. During the fiscal year 2020, the Company’s review for collectability concluded that a settlement agreement concerning the discrimination/wrongful termination claims and the wage and hour claims which covers all non-exempt employeesreceivable reserve of $1.2 million would be recorded. The Company's conclusion regarding collectability changed as a result of Pacific Harvest workingcommunicating their refusal to pay combined with their bringing claims against the Company. As of February 28, 2021, the reserve balance remained at $1.2 million.Apio's Guadalupe,the Tanok facility in Mexico. The Company subsequently disclosed to the SEC and the U.S. Department of Justice (“DOJ”) the conduct under investigation, and these agencies have commenced an investigation. The Company has also disclosed the conduct under investigation to the Mexican Attorney General’s Office, which has commenced an investigation, and to Mexican regulatory agencies. The Company is cooperating in the government investigations and requests for information. The conduct at issue began prior to the Yucatan Acquisition, and the agreement for the Yucatan Acquisition provides the Company with certain indemnification rights that may allow the Company to recover the cost of a portion of the liabilities that have been and may be incurred by the Company in connection with these compliance matters. On September 2, 2020, one of the former owners of Yucatan filed a lawsuit against the Company in Los Angeles County Superior Court for breach of employment agreement, breach of contract, breach of holdback agreement, declaratory relief and accounting, and related claims. The Plaintiff seeks over $10 million in damages, including delivery of shares of his stock held in escrow for the indemnification claims described above. On November 3, 2020, the Company filed an answer and cross-complaint against the Plaintiff and other parties for fraud, indemnification, and other claims, and seeking no less than $80 million in damages.processing facility from September 2011 throughUnfair Competition Law, fraud, defamation, violation of California Usury Law, breach of fiduciary duty, and declaratory relief regarding the parties’ rights and obligations under certain of the parties’ contracts. The Landec Parties have not yet responded to the complaint, and the parties have filed stipulations to continue the time for allowing Pacific and Rancho to file an amended complaint. Subsequent to the third quarter of fiscal year 2021, on March 15, 2021, the Company executed a settlement date. Underagreement related to this matter. The loss contingency of approximately $1.8 million that was realized is after considering the total settlement amount and insurance recoveries, and this amount is included in Legal settlement charge in the Consolidated Statements of Comprehensive (Loss) Income for the nine months ended February 28, 2021, and is consistent with the estimated amounts recorded during the second quarter of fiscal 2021. The Company expects that the final settlement amount will be paid to the plaintiffs by Curation Foods (and separately by its co-defendants and insurers) by April 14, 2021. Pursuant to the settlement agreement, the plaintiffs are expected to request that the case be paid $6.0 million in three installments: $2.4 million, which was paid on July 3, 2017, $1.8 million which was paid on November 22, 2017 and $1.8 million which is due in July 2018. The Company and Pacific Harvest have each agreed to pay one halfdismissed within five days of receiving the settlement payments. The Company paid the entire first two installments of $4.2 million and will be reimbursed by Pacific Harvest for its $2.1 million portion which is included in Other assets in the accompanying Consolidated Balance Sheets. This receivable will be repaid through monthly payments until fully paid, which the Company expects to occur by December 2020. The Company and Pacific Harvest will both make one half of the third installment in July 2018. The Company’s recourse against non-payment by Pacific Harvest is its security interest in assets owned by Pacific Harvest.As of November 26, 2017 and May 28, 2017, the Company had accrued $1.0 million and $3.2 million, respectively, related to these actions, which is included in Other accrued liabilities in the accompanying Consolidated Balance Sheets. Not YetRevenue RecognitionMay 2014,August 2018, the FASB issued ASU 2014-09,2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”), which createsrequires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Accounting Standards Update generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. The Company adopted ASU 2018-15 on June 1, 2020, and the adoption of this standard did not have an impact on the Company’s consolidated financial statements.ASC Topic 606, Revenue from Contracts with Customers and supersedes ASC Topic 605, Revenue Recognitionissued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2014-09”2018-13”). The guidance replaces industry-specific guidanceeliminates, adds, and establishes a single five-step modelmodifies certain disclosure requirements for fair value measurements. Entities will no longer have to identifydisclose the amount of and recognize revenue. The core principlereasons for transfers between Level 1 and Level 2 of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects tofair value hierarchy, but will be entitled in exchange for those goods or services. Additionally, the guidance requires the entityrequired to disclose further quantitativethe range and qualitative information regarding the natureweighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. Since its original issuance, the FASB has issued several additional related ASUs to address implementation concerns and to further clarify certain guidanceinterim periods within ASU 2014-09.those fiscal years, beginning after December 15, 2019. The Company will adopt these updates beginning with the first quarter of its fiscal year 2019adopted ASU 2018-13 on June 1, 2020, and anticipates doing so using the full retrospective method, which will require restatement of each prior reporting period presented.Currently, the Company is in the process of evaluating the impact of the adoption of this standard did not have an impact on the Company’s consolidated financial statements. As required by ASU 2014-09. As a result,2018-13, the Company has initially identified the following core revenue streams from its contracts with customers:●Finished goods product sales (Packaged Fresh Vegetables and O Olive);●Shipping and handling (Packaged Fresh Vegetables and O Olive);●Buy-sell product sales (Food Export);●Product development and contract manufacturing arrangements (Biomaterials).The Company’s assessment efforts to date have included reviewing current accounting policies, processes, and systems requirements, as well assigning internal resources and third-party consultants to assist in the process. Additionally, the Company has begun to review historical contracts and other arrangements to identify potential differences that could arise from the adoption of ASU 2014-09. Most notably, the Company is evaluating its current conclusions with respect to gross versus net revenue reporting for its Food Export business, as well as the timing of revenue recognition for its product development contract manufacturing arrangements in its Biomaterials business, to determine whether the application of ASU 2014-09 necessitates changes to such reporting. Beyond its core revenue streams, and the items listed above, the Company is also evaluating the impact of ASU 2014-09 on certain ancillary transactions and other arrangements.-11-Currently,Company cannot reasonably estimateFair Value Measurement section related to the impactrange and weighted average rates used to develop significant inputs for the application of ASU 2014-09 will have upon its consolidated financial statements. The Company continues to assess the impact of ASU 2014-09, along with industry trends and additional interpretive guidance, on its core revenue streams, and as a result of the continued assessment, the Company may modify its plan of adoption accordingly.LeasesFebruaryJune 2016, the FASB issuedissued ASU 2016-02, LeasesNo. 2016-13, Financial Instruments —Credit Losses (Topic 842) (“326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-02”2016-13”), which requires companies to generally recognizemeasurement and recognition of expected credit losses for financial assets held. Effective June 1, 2020, the Company adopted ASC 326 using the transition method introduced by ASU 2016-13. The adoption of ASC 326 did not have a material impact on the balance sheet operating and financing lease liabilities and corresponding right-of-use-assets. ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The Company will adopt ASU 2016-02 beginning in the first quarter of fiscal year 2020 on a modified retrospective basis.The Company is currently in the process of evaluating the impact that ASU 2016-02 will have upon itsour consolidated financial statements and related disclosures. The Company’sstatements.efforts to date have included:●Reviewing the provisions of ASU 2016-02;●Gathering information to evaluate its lease population and portfolio;●Evaluating the nature of its real and personal property and other arrangements that may meet the definition of a lease; and●Evaluating systems’ readiness.As a resultcomprised of these efforts, the Company currently anticipates that the adoption of ASU 2016-02 will have a significant impact to its long-termtrade accounts receivable, contract assets, and liabilities, as, at a minimum, virtually all of its leases designated as operating leases are expected to be reported on deposits. See consolidated balance sheets. The pattern of recognitionAccounts Receivable and Sales Returns and Allowance for operating leasesCredit Losses section within the consolidated statements of comprehensive income is not anticipated to significantly change.2.Acquisition of O OliveOn MarchNote 1 2017, the Company purchased substantially allfor further discussion of the assets of O OliveCompany's accounting for $2.5 millioncredit losses.cash plus contingent consideration of up to $7.5 million over the next three years based upon O Olive achieving certain EBITDA targets. All accounting for this acquisition is final.The potential earn out payment up to $7.5 million is based on O Olive’s cumulative EBITDA over the Company’s fiscal years 2018 through 2020. At the end of each fiscal year, beginning in fiscal year 2018, the former owners of O Olive will earn the equivalent of the EBITDA achieved by O Olive for that fiscal year up to $4.6 million over the three year period. The former owners can also earn an additional $2.9 million on a dollar for dollar basis for exceeding $6.0 million of cumulative EBITDA over the three year period. During the second quarter of fiscal year 2018, theNon-public Company performed, with the assistance of a third party appraiser, an analysis of O Olive’s projected EBITDA over the earnout period. Based on this analysis the Company has recorded a contingent consideration liability, included in Other non-current liabilities, of $5.4 million and $5.9 million as of November 26, 2017 and May 28, 2017, respectively, representing the present value of the expected earn out payments. The $500,000 reduction in the contingent consideration liability was recorded as a reduction to SG&A in the accompanying Consolidated Statements of Comprehensive Income. For this analysis, the Company assumed that the maximum earn out of $7.5 million would be paid over the three year period with over half being earned in fiscal year 2020. The operating results of O Olive are included in the Company’s financial statements beginning March 1, 2017, in the Other segment.Intangible AssetsThe Company identified two intangible assets in connection with the O Olive acquisition: trade names and trademarks valued at $1.6 million, which are considered to be indefinite lived intangible assets and therefore, will not be amortized; and customer relationships valued at $700,000 with an eleven year useful life. The Company recorded $16,000 and $48,000 of amortization expense from the amortization of the customer relationships intangible during the three and six months ended November 26, 2017, respectively. The trade name/trademark intangible asset was valued using the relief from royalty valuation method and the customer relationship intangible asset was valued using the excess earnings method.3.Investment in Non-public Company Apio Curation Foods entered into a share purchase agreement (the “Windset Purchase Agreement”) with Windset. Pursuant to the Windset Purchase Agreement, ApioCuration Foods purchased from Windset 150,000 Senior A preferred shares for $15$15.0 million and 201 common shares for $201. On July 15, 2014, ApioCuration Foods increased its investment in Windset by purchasing from the Newell Capital Corporation an additional 68 common shares and 51,211 junior preferred shares of Windset for $11$11.0 million. After this purchase, the Company’s common shares represent a 26.9% ownership interest in Windset. The Senior A preferred shares yield a cash dividend of 7.5% annually. The dividend is payable within 90 days of each anniversary of the execution of the Windset Purchase Agreement. The non-voting junior preferred stock does not yield a dividend unless declared by the Board of Directors of Windset and no0 such dividend has been declared.ApioCuration Foods and Windset, as amended on March 15, 2017, includes a put and call option (the “Put and Call Option”), which can be exercised on or after March 31, 2022, whereby ApioCuration Foods can exercise the put to sell its common, Senior A preferred shares, and junior preferred shares to Windset, or Windset can exercise the call to purchase those shares from Apio,Curation Foods, in either case, at a price equal to 26.9% of the fair market value of Windset’s common shares, plus the liquidation value of the preferred shares of $20.1 million ($1515.0 million for the Senior A preferred shares and $5.1 million for the junior preferred shares). Under the terms of the arrangement with Windset, the Company is entitled to designate one of five members on the Board of Directors of Windset.On October 29, 2014, Apio further increased its investment in Windset by purchasing 70,000 shares of Senior B preferred shares for $7 million. Senior B preferred shares pay an annual dividend of 7.5% on the amount outstanding at each anniversary date of the Windset Purchase Agreement. The Senior B preferred shares purchased by Apio have a put feature whereby Apio can sell back to Windset $1.5 million of shares on the first anniversary, an additional $2.75 million of shares on the second anniversary, and the remaining $2.75 million on the third anniversary. After the third anniversary, Apio may at any time put any or all of the shares not previously sold back to Windset. At any time on or after February 15, 2017, Windset has the right to call any or all of the outstanding common shares, but at such time must also call the same proportion of Senior A preferred shares, Senior B preferred shares, and junior preferred shares owned by Apio. Windset’s partial call provision is restricted such that a partial call cannot result in Apio holding less than 10% of Windset’s common shares outstanding.The investment in Windset does not qualify for equity method accounting as the investment does not meet the criteria of in-substance common stock due to returns through the annual dividend on the non-voting senior preferred shares that are not available to the common stock holders.stockholders. As the put and call options require all of the various shares to be put or called in equal proportions, the Company has deemed that the investment, in substance, should be treated as a single security for purposes of accounting.Company’sCompany’s investment in Windset was determined utilizing the Windset Purchase Agreement’s put/put and call calculation for value and a discounted cash flow model based on projections developed by Windset that were reviewed by Landec, and considers the put and call conversion options. These features impact the duration of the cash flows utilized to derive the estimated fair values of the investment. These two discounted cash flow models’ estimate for fair value are then weighted. Assumptions included in these discounted cash flow models will be evaluated quarterly based on Windset’s actual and projected operating results to determine the change in fair value.each of the three month periodsmonths ended November 26, 2017February 28, 2021 and November 27, 2016,February 23, 2020, the Company recorded $412,000$0.3 million and $0.3 million, respectively, in dividend income. During each of the six month periodsnine months ended November 26, 2017February 28, 2021 and November 27, 2016,February 23, 2020, the Company recorded $825,000$0.8 million and $0.8 million, respectively, in dividend incomeincome. The increasechange in the fair market value of the Company’s investment in Windset for the six month periodsthree months ended November 26, 2017February 28, 2021 and November 27, 2016February 23, 2020, was $2.2$0.0 million and $0,$0.0 million, respectively. The change in the fair market value of the Company’s investment in Windset for the nine months ended February 28, 2021 and February 23, 2020, was a decrease of $11.8 million and an increase of $0.2 million, respectively, and is included in Other income (expense) in the accompanying Consolidated Statements of Comprehensive (Loss) Income.4.Stock-Based Compensation’s uses the straight-line method to recognize the fair value of stock-based compensation arrangements.datesdate and is recognized over the required service periods,period, generally the vesting period. the stock-based compensation for options and RSUs (in thousands): $ 354 $ 307 $ 678 $ 599 762 659 1,388 1,174 $ 1,116 $ 966 $ 2,066 $ 1,773 The following table summarizes the stock-based compensation by income statement line item (in thousands): $ 137 $ 124 $ 261 $ 237 23 23 42 46 956 819 1,763 1,490 $ 1,116 $ 966 $ 2,066 $ 1,773 The estimated fair value for stock options, which determines the Company’s calculation of stock-based compensation expense, is based on the Black-Scholes option pricing model. RSUs are valued at the closing market price of the Company’s common stock on the date of grant. The Company uses the straight-line method to recognize the fair value of stock-based compensation arrangements.Three Months Ended Nine Months Ended (In thousands) February 28, 2021 February 23, 2020 February 28, 2021 February 23, 2020 Cost of sales $ 107 $ (14) $ 289 $ 42 Research and development 49 10 175 88 Selling, general and administrative 641 570 2,120 1,751 Total stock-based compensation $ 797 $ 566 $ 2,584 $ 1,881 November 26, 2017,February 28, 2021, there was $6.2$4.1 million of total unrecognized compensation expense related to unvested equity compensation awards granted under the Landec incentive stock plans. Total expense is expected to be recognized over the weighted-average period of 2.52.24 years for stock options and 2.01.56 years for restricted stock unit awards.5.Diluted Net Income Per ShareThe following table sets forth the computation of diluted net income per share (in thousands, except per share amounts): $ 487 $ 1,326 $ 2,633 $ 4,638 27,518 27,249 27,512 27,234 357 369 354 338 27,875 27,618 27,866 27,572 $ 0.02 $ 0.05 $ 0.09 $ 0.17 For the three and six months ended November 26, 2017 the computation of the diluted net income per share excludes the impact of options to purchase 1.5 million and 1.4 million shares, respectively of Common RSUs.as such impacts would be antidilutive for this period.6.Income TaxesThe provision for income taxes for the six months ended November 26, 2017 was $1.5 million. The effective tax rate for the six months ended November 26, 2017 and November 27, 2016 was 36% and 34%, respectively. The effective tax rate for the six months ended November 26, 2017 was higher than the statutory federal income tax rate of 35% primarily due to state income taxes and incentive stock option expense; partially offset by the domestic manufacturing deduction and research and development credits. There are no significant discrete tax benefits included in the effective tax rate for the six months ended November 26, 2017.As of November 26, 2017 and May 28, 2017, the Company had unrecognized tax benefits of approximately $535,000 and $537,000, respectively. Included in the balance of unrecognized tax benefits as of November 26, 2017 and May 28, 2017 is approximately $433,000 and $419,000, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next twelve months.The Company has elected to classify interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company has accrued an insignificant amount of interest and penalties relating to the income tax on the unrecognized tax benefits as of November 26, 2017 and May 28, 2017.Due to tax attribute carryforwards, the Company is subject to examination for tax years 2013 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years 2012 forward, none of which were individually material.Our estimated annual effective tax rate may be subject to further uncertainty due to the recent changes in U.S. tax rates and tax laws.7.DebtLong-term debt, net consists of the following (in thousands): $ 45,000 $ 47,500 45,000 47,500 (231 (261 44,769 47,239 (4,940 (4,940 $ 39,829 $ 42,299 On September 23, 2016, the Company entered into a Credit Agreement with JPMorgan, BMO, and City National Bank, as lenders (collectively, the “Lenders”), and JPMorgan as administrative agent, pursuant to which the Lenders provided the Company with a $100 million revolving line of credit (the “Revolver”) and a $50 million term loan facility (the “Term Loan”), guaranteed by each of the Company’s direct and indirect subsidiaries and secured by substantially all of the Company’s assets, with the exception of the Company’s investment in Windset.Both the Revolver and the Term Loan mature in five years (on September 23, 2021), with the Term Loan providing for quarterly principal payments of $1.25 million commencing December 1, 2016, with the remainder due at maturity.Interest on both the Revolver and the Term Loan is based on either the prime rate or Eurodollar rate, at the Company’s discretion, plus a spread based on the Company’s leverage ratio (generally defined as the ratio of the Company’s total indebtedness on such date to the Company’s consolidated EBITDA for the period of four consecutive fiscal quarters ended on or most recently prior to such date). The spread is at a per annum rate of (i) between 0.25% and 1.25% if the prime rate is elected or (ii) between 1.25% and 2.25% if the Eurodollar rate is elected.The Credit Agreement provides the Company the right to increase the Revolver commitments and/or the Term Loan commitments by obtaining additional commitments either from one or more of the Lenders or another lending institution at an amount of up to $75 million.The Credit Agreement contains customary financial covenants and events of default under which the obligation could be accelerated and/or the interest rate increased. The Company was in compliance with all financial covenants as of November 26, 2017.On November 1, 2016, the Company entered into an interest rate swap agreement (“Swap”) with BMO at a notional amount of $50 million. The Swap has the effect of changing the Company’s Term Loan obligation from a variable interest rate to a fixed 30-day LIBOR rate of 1.22%. As of November 26, 2017, the interest rate on the Term Loan was 3.00%. For further discussion regarding the Company’s use of derivative instruments, see the Financial Instruments section of Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies.In connection with the Credit Agreement, the Company incurred lender and third-party debt issuance costs of $897,000, of which $598,000 and $299,000 was allocated to the Revolver and Term Loan, respectively.As of November 26, 2017, $10 million was outstanding on the Revolver. As of November 26, 2017, the interest rate on the Revolver was 3.00% for the $6 million under the Libor option, and 4.25% for the $4 million under the Alternative Base Rate (Prime) option.. 8.Stockholders’ EquityDuring the three months ended November 26, 2017, the Company granted options to purchase 393,000 shares of common stock and awarded 131,000 RSUs. During the six months ended November 26, 2017, the Company granted options to purchase 498,000 shares of common stock and awarded 200,000 RSUs.As of November 26, 2017, the Company has reserved 3.2 million shares of Common Stock for future issuance under its current and former equity plans. the Company announced that the Board of Directors of the Company had approved the establishment of a stock repurchase plan, authorizingwhich allows for the repurchase of up to $10$10.0 million of the Company’sCompany’s common stock. The Company may still repurchase up to $3.8 million of the Company’s common stock under the Company’s stock repurchase plan. The Company may repurchase its common stock from time to time in open market purchases or in privately negotiated transactions. The timing and actual number of shares repurchased is at the discretion of management of the Company and will depend on a variety of factors, including stock price, corporate and regulatory requirements, market conditions, the relative attractiveness of other capital deployment opportunities and other corporate priorities. The stock repurchase program does not obligate Landec to acquire any amount of its common stock and the program may be modified, suspended or terminated at any time at the Company's discretion without prior notice. During the fiscal year ended May 28, 2017 and the sixnine months ended November 26, 2017,February 28, 2021, the Company did not0t purchase any shares on the open market.9.Business Segment ReportingThree Months Ended Nine Months Ended (In thousands, except per share amounts) February 28, 2021 February 23, 2020 February 28, 2021 February 23, 2020 Numerator: Net loss applicable to Common Stockholders $ (5,498) $ (11,518) $ (29,799) $ (23,042) Denominator: Weighted average shares for basic net loss per share 29,323 29,170 29,282 29,155 Effect of dilutive securities: Stock options and restricted stock units 0 0 0 0 Weighted average shares for diluted net loss per share 29,323 29,170 29,282 29,155 Diluted net loss per share $ (0.19) $ (0.39) $ (1.02) $ (0.79) managesdoes not expect its business operations through three strategic business unitsunrecognized tax benefits to change significantly within the next twelve months.Other segment. Basedinsignificant amount of interest and penalties related to the income tax on the unrecognized tax benefits as of February 28, 2021 and May 31, 2020.(In thousands) February 28, 2021 May 31, 2020 Term loan $ 150,000 $ 114,000 Total principal amount of long-term debt 150,000 114,000 Less: unamortized debt issuance costs (4,949) (1,083) Total long-term debt, net of unamortized debt issuance costs 145,051 112,917 Less: current portion of long-term debt, net 0 (11,554) Long-term debt, net $ 145,051 $ 101,363 information reportedCompany’s average availability, at a per annum rate of either (i) LIBOR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375%. Interest on the Refinance Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBOR rate plus a spread of 8.50%.who is(“CODM”), manages the Chief Executive Officer,business: the Company has the following reportable segments: the Packaged Fresh VegetablesCuration Foods segment, the Food ExportLifecore segment, and the BiomaterialsOther segment.Packaged Fresh VegetablesCuration Foods segment marketsincludes (i) 4 natural food brands, including activities to market and packspack specialty packaged whole and fresh-cut fruitfruits and vegetables under the majority of which incorporate the BreatheWay specialty packaging for the retail grocery, club store and food services industry. In addition, the Packaged Fresh Vegetables segment sells BreatheWay packaging to partners for fruit and vegetable products. The Food Export segment consists of revenues generated from the purchase andEat Smart or various private labels, sale of primarily whole commodity fruitpremium olive oil and vegetablevinegars under the O Olive Oil & Vinegar label, and the sale of avocado products predominantlyunder the Yucatan Foods and Cabo Fresh labels, (ii) BreatheWay® activities, and (iii) activity related to Asia. our 26.9% investment in Windset.BiomaterialsLifecore segment sells products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellular matrix of connective tissues in both animals and humans, and non-HA products for medical use primarily in the Ophthalmic, Orthopedic and other markets. Other includes licensing and R&D activities from Landec’s Intelimer polymers for agricultural products, personal care products and other industrial products and from the operations of the O Olive business which was acquired on March 1, 2017. also includes corporate general and administrative expenses non-Packaged Fresh Vegetables(which includes costs associated with legal claims, including the Tanok compliance matters and non-Biomaterialsrelated litigation, and Pacific and Rancho litigation matter), non-Curation Foods and non-Lifecore interest expense, interest income, and income tax expenses. Corporate overhead is allocated between segments based on actual utilization and relative size. of the Company are located within the United States of America.Company’sCompany’s international sales by geography are based on the billing address of the customer and were as follows (in millions): $ 17.5 $ 16.3 $ 35.7 $ 34.0 $ 7.5 $ 11.1 $ 11.3 $ 24.9 $ 0.5 $ 1.6 $ 2.7 $ 6.9 $ 1.1 $ 6.3 $ 1.3 $ 11.4 $ 2.6 $ 3.6 $ 3.8 $ 5.1 $ 1.6 $ 2.9 $ 3.2 $ 4.9 $ 0.4 $ 0.7 $ 1.0 $ 1.3 $ 3.2 $ 3.5 $ 4.7 $ 5.7 Three Months Ended Nine Months Ended (In millions) February 28, 2021 February 23, 2020 February 28, 2021 February 23, 2020 Canada $ 14.8 $ 19.6 $ 45.6 $ 58.8 Belgium 6.0 9.3 12.6 12.4 Czech Republic 0.8 2.1 2.5 2.1 Switzerland 1.6 0.3 2.4 1.6 United Kingdom 1.2 0.2 2.4 0.7 Ireland 0.3 0 1.5 1.9 All Other Countries 1.8 0.1 2.7 1.0 -16-following (in thousands): $ 107,152 $ 13,992 $ 14,113 $ 1,200 $ 136,457 $ 17,708 $ 13,992 $ 2,675 $ 41 $ 34,416 $ 9,445 $ 826 $ 5,217 $ 264 $ 15,752 $ (270 ) $ 110 $ 1,260 $ (613 $ 487 $ 1,958 $ — $ 910 $ 112 $ 2,980 $ 412 $ — $ — $ — $ 412 $ 18 $ — $ — $ 24 $ 42 $ — $ — $ — $ 480 $ 480 $ (95 $ 31 $ 374 $ (103 $ 207 $ 97,978 $ 25,701 $ 11,931 $ 255 $ 135,865 $ 16,422 $ 25,701 $ 3,831 $ — $ 45,954 $ 12,001 $ 1,850 $ 4,938 $ 164 $ 18,953 $ (250 $ 733 $ 1,312 $ (469 $ 1,326 $ 1,792 $ 2 $ 719 $ 37 $ 2,550 $ 412 $ — $ — $ — $ 412 $ 4 $ — $ — $ — $ 4 $ 122 $ — $ (90 $ 348 $ 380 $ (142 $ 207 $ 388 $ 240 $ 693 $ 209,720 $ 21,568 $ 26,277 $ 2,249 $ 259,814 $ 35,850 $ 21,568 $ 6,174 $ 73 $ 63,665 $ 24,460 $ 1,310 $ 8,739 $ 529 $ 35,038 $ 3,513 $ (48 $ 1,105 $ (1,937 $ 2,633 $ 3,930 $ — $ 1,775 $ 229 $ 5,934 $ 825 $ — $ — $ — $ 825 $ 29 $ — $ — $ 45 $ 74 $ — $ — $ — $ 884 $ 884 $ 1,002 $ (14 $ 347 $ 123 $ 1,458 $ 193,923 $ 49,040 $ 24,263 $ 1,033 $ 268,259 $ 34,266 $ 49,040 $ 10,873 $ — $ 94,179 $ 26,407 $ 2,878 $ 10,060 $ 752 $ 40,097 $ 2,073 $ 928 $ 2,555 $ (918 $ 4,638 $ 3,612 $ 3 $ 1,431 $ 64 $ 5,110 $ 825 $ — $ — $ — $ 825 $ 7 $ — $ — $ — $ 7 $ 671 $ — $ 13 $ 348 $ 1,032 $ 513 $ 262 $ 738 $ 1,069 $ 2,582 (In thousands) Curation Foods Lifecore Other Total Three Months Ended February 28, 2021 Net sales $ 110,557 $ 27,225 $ 0 $ 137,782 Gross profit 8,128 11,561 0 19,689 Net (loss) income (5,615) 5,104 (4,987) (5,498) Depreciation and amortization 2,994 1,385 22 4,401 Dividend income 281 0 0 281 Interest income 0 0 13 13 Interest expense 1,375 0 2,803 4,178 Income tax (benefit) expense (1,773) 1,612 (56) (217) Corporate overhead allocation 1,275 1,102 (2,377) 0 Nine Months Ended February 28, 2021 Net sales $ 332,080 $ 72,248 $ 0 $ 404,328 Gross profit 29,635 27,036 0 56,671 Net (loss) income (26,268) 9,708 (13,239) (29,799) Depreciation and amortization 9,310 4,055 76 13,441 Dividend income 844 0 0 844 Interest income 0 0 31 31 Interest expense 4,127 0 6,199 10,326 Income tax (benefit) expense (8,296) 3,066 (1,996) (7,226) Corporate overhead allocation 4,533 3,668 (8,201) 0 Three Months Ended February 23, 2020 Net sales $ 127,482 $ 25,446 $ 0 $ 152,928 Gross profit 9,162 10,885 0 20,047 Net (loss) income (12,636) 4,910 (3,792) (11,518) Depreciation and amortization 3,356 1,272 22 4,650 Dividend income 281 0 0 281 Interest income 0 0 46 46 Interest expense 1,376 0 835 2,211 Income tax (benefit) expense (4,901) 1,467 (1,876) (5,310) Corporate overhead allocation 1,401 1,043 (2,444) 0 Nine Months Ended February 23, 2020 Net sales $ 373,906 $ 60,329 $ 0 $ 434,235 Gross profit 28,874 22,023 0 50,897 Net (loss) income (23,154) 6,974 (6,862) (23,042) Depreciation and amortization 9,704 3,705 69 13,478 Dividend income 843 0 0 843 Interest income 31 0 65 96 Interest expense 4,128 0 2,327 6,455 Income tax (benefit) expense (7,210) 1,920 (2,550) (7,840) Corporate overhead allocation 4,510 2,979 (7,489) 0 sixnine months ended November 26, 2017February 28, 2021 and November 27, 2016,February 23, 2020, sales to the Company’s top five customers accounted for 45%50% and 44%, respectively, of sales.sales, respectively. The Company’s top two customers, Walmart Stores, Inc. and Costco Wholesale Corporation, and Wal-Mart Stores, Inc., from the Packaged Fresh VegetablesCuration Foods segment, accounted for 16% and 15%, respectively, of revenues for the nine months ended February 28, 2021, and 18% and 17% of revenues,15%, respectively, for the sixnine months ended November 26, 2017,February 23, 2020.17%redesign the organization to be the appropriate size to compete and 13% respectively,thrive. This includes a reduction-in-force, a reduction in leased office spaces, and the sale of non-strategic assets.sixfirst quarter of fiscal year 2021, the Company sold its interest in Ontario. The Company received net cash proceeds of $4.9 million in connection with the sale, and recorded a gain of $2.8 million.November 27, 2016. The Company expects that, for the foreseeable future, a limited number of customers may continueFebruary 28, 2021, other restructuring costs primarily related to account for a significant portion of its revenues.10.Subsequent EventsOn December 22, 2017, the U.S. Government enacted the reconciled tax reform bill, commonly known as the Tax Cuts and Jobs Act of 2017 (the “TCJA”), which became effective on January 1, 2018. Among other tax related changes,consulting costs to execute the Company’s federal statutory tax rate willrestructuring plan to drive enhanced profitability, focus the business on its strategic assets, and redesign the organization to be reduced from 35%,the appropriate size to an average rate of 29% forcompete and thrive.fiscal year ended May 27, 2018, and then 21% for fiscal years thereafter. Additionally, as of November 26, 2017, the Company had a deferred tax liability of $26.0 million based on a U.S. federal tax rate of 35%. Given the reduction in the U.S. corporate statutory tax rate, the Company will remeasure its deferred tax liability and anticipates a $7 million to $9 million benefit to its income tax expense with a corresponding reduction to its deferred tax liability. This impact will berestructuring costs recognized in the Company’s third fiscal quarterConsolidated Statements of 2018, which is the period the TCJA was enacted.(Loss) Income, by Business Segment:(in thousands) Curation Foods Lifecore Other Total Three Months Ended February 28, 2021 Asset write-off costs $ 1,877 $ 0 $ 0 $ 1,877 Employee severance and benefit costs 315 0 0 315 Lease costs 0 0 0 0 Other restructuring costs 393 0 115 508 Total restructuring costs $ 2,585 $ 0 $ 115 $ 2,700 -17-Curation Foods Lifecore Other Total Nine Months Ended February 28, 2021 Asset write-off costs $ 7,882 $ 0 $ 0 $ 7,882 Employee severance and benefit costs 1,430 0 0 1,430 Lease costs 0 0 0 0 Other restructuring costs 2,536 0 918 3,454 Total restructuring costs $ 11,848 $ 0 $ 918 $ 12,766 Curation Foods Lifecore Other Total (in thousands) Asset write-off costs, net $ 20,544 $ 0 $ 418 $ 20,962 Employee severance and benefit costs 2,899 0 784 3,683 Lease costs 392 0 26 418 Other restructuring costs 3,559 0 1,429 4,988 Total restructuring costs $ 27,394 $ 0 $ 2,657 $ 30,051 accompanyingaccompanying notes included in Part I, Item 1, of this Form 10-Q and the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Landec’s Annual Report on Form 10-K for the fiscal year ended May 28, 2017.Except for the historical information contained herein, the matters discussed in this report are31, 2020.withinregarding future events and our future results that are subject to the meaningsafe harbor created under the Private Securities Litigation Reform Act of Section 21E1995 and other safe harbors under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934. These1934, as amended (the “Exchange Act”). Words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and similar expressions are used to identify forward-looking statements. All forward-looking statements involve certainare subject to risks and uncertainties that couldmay cause actual results to differ materially from those in the forward-looking statements.that we expected. Potential risks and uncertainties include, without limitation, the timing and expenses associated with operations, the ability to achieve acceptance of our new products in the market place, weather conditions that can affect the supply and price of produce, government regulations affecting our business, uncertainties related to COVID-19 and the impact of our responses to it, the timing of regulatory approvals, the ability to successfully integrate Yucatan Foods into the Curation Foods business, the mix between domestic and international sales, and those other risks mentioned in this Form 10-Qreport and those mentioned in Landec’sour Annual Report on Form 10-K for the fiscal year ended May 28, 2017. Landec undertakes31, 2020.statements in order to reflectstatement as a result of new information, future events or circumstances that may arise after the date of this report.which are included and describeduse of estimates from those disclosed in the Company’s Form 10-K for thethe fiscal year ended May 28, 2017 filed with31, 2020. For a discussion of our critical accounting policies and use of estimates, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates in Part II, Item 7 of the Securities and Exchange CommissionCompany’s Annual Report on August 10, 2017.SeeForm 10-K for the fiscal year ended May 31, 2020.for a discussionwhich is contained in Part I, Item 1 of recentthis Quarterly Report on Form 10-Q, describes these new accounting guidance not yet adopted.Landec”Landec,” the “Company”, "we" or the “Company”"us") design, develop, manufacture, and sell differentiated health and wellness products for food and biomaterials markets. There continuesmarkets, and license technology applications to be a dramatic shift in consumer behaviorpartners.healthier eating habitsretail, club and preventive wellnessfoodservice channels throughout North America. Curation Foods is able to improve quality of life. In our Apio, Inc. (“Apio”) Packaged Fresh Vegetable business, we are committed to offering healthy, fresh produce products conveniently packaged to consumers. Apio also exports whole fruit and vegetables, predominantly to Asiamaximize product freshness through its subsidiary, Cal-Ex Trading Company (“Cal-Ex”). In ourgeographically dispersed family of growers, refrigerated supply chain and patented BreatheWay® packaging technology. biomaterials, is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 35 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.we commercialize products that enable people to staysegments – Curation Foods, Lifecore and Other, which are described below.active as they grow older. In our recently acquired natural food brands, O Olive Oil Inc.& Vinegar® (“O Olive””) business acquired on March 1, 2017, we sell premium California sourced specialty olive oilsproducts, and wine vinegarYucatan® and Cabo Fresh authentic guacamole and avocado products.Landec’s Packaged Fresh Vegetables The major distinguishing characteristics of Curation Foods that provide a competitive advantage are its insight-driven product innovation, diversified fresh food supply chain, refrigerated supply chain and Biomaterials businesses utilize polymer chemistry technology,customer reach. We believe that Curation Foods is well positioned as a key differentiating factor. Both businesses focus on business-to-business selling such as selling directly tosingle source supplier of a broad range of products. Curation Foods also has three East Coast processing facilities and five East Coast distribution centers for nationwide delivery of its packaged salads and vegetable products. As of May 31, 2020, our products were available in over 86% of retail grocery store chains and club stores across North America.Apioits Curation Foods segment in order to improve the Company’s overall profitability by launching Project SWIFT, a value creation program designed to transform the Curation Foods business by simplifying the business, realigning its resources and directlyseeking to partnersimprove the Company’s balance sheet through three strategic priorities - optimizing its operations networks, maximizing strategic assets and redesigning the organization to be more competitive.medical deviceUnited States and pharmaceutical markets, with a concentration in ophthalmology for Lifecore.Landec has three operating segments – Packaged Fresh Vegetables, Food Export and Biomaterials, each of which is described below and an Other segment. The results of the O Olive business are included in the Other segment in fiscal year 2018 because they are not significant to Landec’s overall results for fiscal year 2018. Financial information concerning each of these segments is summarized in Note 9 – Business Segment Reporting.Apio operates the Packaged Fresh Vegetables business, which combines our proprietary BreatheWay® food packaging technology with the capabilities of a large national food supplier and value-added produce processor which sells products underCanada. Within the Eat Smart®Smart brand, to consumers and the GreenLine® brand to foodservice operators, as well as under private labels. In Apio’s Packaged Fresh Vegetables operations, produce is processed by trimming, washing, sorting, blending, and packaging into bags and traystrays.in most cases incorporate Landec’sgenerally exhibit less sourcing volatility. The Company manufactures and sells Yucatan and Cabo Fresh guacamole and avocado food products primarily to the U.S. grocery channel, but also to the U.S. mass retail, Canadian grocery retail and foodservice channels.technology.technology establishes a beneficial packaging atmosphere adapting to changing fresh product respiration and temperature in order to extend freshness naturally. The BreatheWay membrane increasessupply chain packaging technology extends shelf-life and reduces shrink (waste) for retailers and helps to ensure that consumers receive fresh produce by the time the product makes its way through the distribution chain. Apio alsochain to the consumer. The Company generates revenue from the sale to and/or use of its BreatheWay patented packaging technology by partners such as ChiquitaBrands International, Inc. (“Chiquita”)Windset, for packaging and distribution of bananas and berries and Windset Holding 2010 Ltd., a Canadian corporation (“Windset”), for packaging ofits greenhouse grown cucumbers and peppers.Apio also operates the Food Export business. The Food Export business purchases and sells wholeproduct ensuring more marketable fruit and vegetable commodities predominantly to Asian markets.Lifecore operates our Biomaterials business and is involved in the development and manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) products and providing contract development and aseptic manufacturing services. Sodium hyaluronate is a naturally occurring polysaccharide that is widely distributed in the extracellular matrix in animals and humans. Based upon Lifecore’s expertise working with highly viscous HA, the Company specializes in fermentation and aseptic formulation, filling, and packaging services, as a contract development and manufacturing organization (“CDMO”), for difficult to handle (viscous) medicines filled in finished dose vials and syringes.O Olive was acquired on March 1, 2017. O Olive, founded in 1995, is based in Petaluma, California, and is a premier producer of California specialty olive oils and wine vinegars. Its products are sold in over 4,600 natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.Landec was incorporated in California on October 31, 1986 and reincorporated as a Delaware corporation on November 6, 2008. Our common stock is listed on The NASDAQ Global Select Market under the symbol “LNDC”. The Company’s principal executive offices are locatedvegetables at 5201 Great America Parkway, Suite 232, Santa Clara, California 95054, and the telephone number is (650) 306-1650.Description of Core BusinessLandec operates its business in three core business segments: Packaged Fresh Vegetables, Food Export and Biomaterials, and it has an Other segment. Packaged Fresh Vegetables BusinessBased in Guadalupe, California, Apio’s primary business is fresh-cut and whole vegetable products primarily packaged in proprietary BreatheWay packaging. The Packaged Fresh Vegetables business markets a variety of fresh-cut and whole vegetables to the top retail grocery chains, club stores, and food service operators. During the fiscal year ended May 28, 2017, Apio shipped approximately 26 million cartons of produce to its customers throughout North America, primarily in the United States.There are four major distinguishing characteristics of Apio that provide competitive advantages in the Packaged Fresh Vegetables market:(1)Packaged Vegetables Supplier: Apio has structured its business as a marketer and seller of branded and private label blended, fresh-cut and whole vegetable products. It is focused on selling products primarily under its Eat Smart brand, with some sales under its GreenLine brand and private label brands. As retail grocery chains, club stores and food service operators consolidate, Apio is well positioned as a single source of a broad range of products.(2)Nationwide Processing and Distribution: Apio has strategically invested in its Packaged Fresh Vegetables business. Apio’s largest processing plant is in Guadalupe, CA, and is automated with state-of-the-art vegetable processing equipment in one of the lowest cost, growing regions in California, the Santa Maria Valley. With the acquisition of GreenLine in 2012, Apio added three East Coast processing facilities and five East Coast distribution centers for nationwide delivery of all of its packaged vegetable products in order to meet the next-day delivery needs of customers.(3)Expanded Product Line Using Technology and Unique Blends: Apio, through the use of its BreatheWay packagingtechnology, is introducing new packaged vegetable products each year. These new product offerings range from various sizes of fresh-cut bagged products, to vegetable trays, to whole produce, to vegetable salads and to snack packs.(4)Products Currently in Approximately 70% of North American Retail Grocery Stores: Apio has products in approximately 70% of all North American retail grocery stores. This gives Apio the opportunity to sell new products to existing customers and to increase distribution of its approximately 120 unique products within those customers.Apio’s BreatheWay packaging have an approximate 17 day shelf-life. In addition to packaging innovation, Apio has developed innovative blends and combinations of vegetables that are sold in flexible film bags or rigid trays. More recently, Apio has launched a family of salad kits that are comprised of “superfood” mixtures of vegetables with healthy toppings and dressings. The first salad kit to launch under the Eat Smart® brand was Sweet Kale Salad, which now has significant distribution throughout club and retail stores in North America. Additionally, we have launched under the Eat Smart brand several other superfood salad kits including Wild Greens and Quinoa, Beets and Greens, Southwest Salad, and Asian Sesame and more recently a new line of single serve salads under our new Salad Shake-Ups!™ brand. The Company’s expertise includes accessing leading culinary experts and nutritionists nationally to help in the new product development process. We believe that the Company’s new products are “on trend” and strong market acceptance supports this belief. Recent statistics show that more than two-thirds of adults are considered to be overweight or obese and more than one-third of adults are considered to be obese. More and more consumers are beginning to make better food choices in their schools, homes, and in restaurants and that is where the superfood products can fit into consumers’ daily healthy food choices.In addition to proprietary packaging technology and a strong new product development pipeline, the Company has strong channels of distribution throughout North America with retail grocery store chains and club stores. Landec has one or more of its products in approximately 70% of all retail and club store sites in the U.S. giving it a strong platform for introducing new products.The Company sells its products under its nationally-known brand Eat Smart to retail and club stores and its GreenLine brand to foodservice operators. The Company also periodically licenses its BreatheWay packaging technology to partners such as Chiquita for packaging bananas and berries, and Windset for packaging peppers and cucumbers that are grown hydroponically in greenhouses.achieve a shelf-life of approximately 17 days. These packaging license relationships generate revenues either from product sales or royalties once commercialized. The Company is engaged in the testing and development of other BreatheWay products. LandecThe Company manufactures its BreatheWay packaging through selected qualified contract manufacturers.hydroponically-grown produce using Windset’sWindset’s know-how and growing practices of hydroponically grown produce will result in higher yields with competitive growing costs that will provide dependable year-round supply to Windset’s customers. In addition, the produce grown in Windset’s greenhouses uses significantly less water than field grown crops and has a very high safety profile as no soil is used in the growing process. Windset owns and operates greenhouses in British Columbia, Canada and in Nevada and California. In addition to growing produce in its own greenhouses, Windset has numerous marketing arrangements with other greenhouse growers and utilizes buy/sell arrangements to meet fluctuation in demand from their customers.On March 15, 2017, The Curation Foods segment operating results include the Companydividends and Windset agreed to extend their relationship through March 31, 2022.See Note 3 – Investment in Non-public CompanyLandec’s share of the Notes to Consolidated Financial Statements for a discussion about the Company’s 26.9% minority ownership interestchange in Windset.Food Export BusinessFood Export revenues consistfair market value of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products primarily to Asia through Apio’s export company, Cal-Ex. The Food Export businessits investment in Windset.buy/sell businessfully integrated CDMO that realizes an average gross margin from 5-10%.Biomaterials Businessmultiplemultiple applications and to take advantage of non-HA device and drug opportunities which leverage its expertise in manufacturing and aseptic syringe filling capabilities. Elementsstrategy includeability to:following:(1)Establish strategic relationships with market leaders:Lifecore will continue to develop applications for products with partners who have strong marketing, sales, and distribution capabilities to end-user markets. Through its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has been able to establish long-term relationships with the market leading ophthalmic surgical companies, and leverages those partnerships to attract new relationships in other medical markets.(2)Expand medical applications for HA: Due to the growing knowledge of the unique characteristics of HA, and the role it plays in normal physiology, Lifecore continues to identify opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, device coatings, and through pharmaceutical sales to academic and corporate research customers.
growing knowledge of the unique characteristics of HA and Lifecore’s unique strength and history as a trusted manufacturer of pharmaceutical injectable grade HA products, Lifecore continues to identify and pursue opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, next generation orthopedics and device coatings, and through sales to academic and corporate research customers. Further applications may involve expanding process development activity and/or additional licensing of technology.(3)Utilize manufacturing infrastructure to pursue contract aseptic filling and fermentation opportunities: Lifecore has made strategic capital investments in its contract manufacturing and development business focusing on extending its aseptic filling capacity and capabilities. It is investing in this segment to meet increasing partner demand and attract new contract filling opportunities. Lifecore is using its manufacturing capabilities to provide contract manufacturing and development services to its partners in the area of sterile pre-filled syringes and fermentation and purification requirements.-20-(4)Maintain flexibility in product development and supply relationships:Lifecore’s vertically integrated development and manufacturing capabilities allow it to establish a variety of contractual relationships with global corporate partners. Lifecore’s role in these relationships extends from supplying HA raw materials to providing tech transfer and development services to manufacturing aseptically-packaged, finished sterile products, and to assuming full supply chain responsibilities.O Olive.administrative expenses, non-Curation Foods and non-Lifecore interest income and income tax expenses.acquired O Olive on March 1, 2017. O Olive, founded in 1995, is based in Petaluma, California,expects to continue to assess the evolving impact of the COVID-19 pandemic, and is the premier producer of California specialty olive oils and wine vinegars. Its products are sold in over 4,600 natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.(in thousands): $ 107,152 $ 97,978 9 $ 209,720 $ 193,923 8 13,992 25,701 (46 21,568 49,040 (56 121,144 123,679 (2 231,288 242,963 (5 14,113 11,931 18 26,277 24,263 8 1,200 255 371 2,249 1,033 118 $ 136,457 $ 135,865 0 $ 259,814 $ 268,259 (3 Packaged Fresh Vegetables (Apio)Apio’s Packaged Fresh VegetablesApio’smost cases in the Company’s proprietary BreatheWay packaging and sold primarily under the Eat Smart and GreenLine brandsbrand and various private labels.labels, (2) O Olive oils and wine vinegars, and (3) Yucatan and Cabo Fresh branded guacamole and avocado products. In addition, the Packaged Fresh Vegetables revenues includeCuration Foods reportable business segment includes the revenues generated from Apio Cooling, LP, a vegetable cooling operation in which Apio is the general partner with a 60% ownership position and from the sale of BreatheWay packaging to license partners.(In thousands) Three Months Ended Change Nine Months Ended Change February 28, 2021 February 23, 2020 Amount % February 28, 2021 February 23, 2020 Amount % Curation Foods $ 110,557 $ 127,482 $ (16,925) (13) % $ 332,080 $ 373,906 $ (41,826) (11) % Lifecore 27,225 25,446 1,779 7 % 72,248 60,329 11,919 20 % Total Revenues $ 137,782 $ 152,928 $ (15,146) (10) % $ 404,328 $ 434,235 $ (29,907) (7) % increasedecrease in Apio’s Packaged Fresh VegetablesCuration Foods’ revenues for the three and six months ended November 26, 2017February 28, 2021, compared to the same periodsperiod last year, was primarily due to a 5% increase$16.2 million decrease in unit volume sales with all of the increasefresh packaged salads and vegetables segment, which is primarily due to a (1) $10.5 million planned shift away from non-strategic revenue streams, including packaged vegetables in bags and trays, and (2) a $4.1 million decrease in green bean revenues comingdriven by a decrease in demand from increased sales of our salad products which are higher priced products compared tofood service customers during the Company’s lower priced core products whose sales were essentially flatCOVID-19 pandemic.three and sixnine months ended November 26, 2017February 28, 2021, compared to the same periods last year.Food Export (Apio)Apio’s Food Export revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products to Asia by Cal-Ex. Apio records revenue equal to the sale price to third parties because it takes title to the product while in transit.The decrease in Apio’s Food Export revenues for the three and six months ended November 26, 2017 compared to the same periodsperiod last year, was primarily due to a 49% and 58%, respectively,$42.3 million decrease in unit volume salesthe fresh packaged salads and vegetables segment, which is primarily due to the Company’s strategic decision during fiscal year 2017 to discontinue its lower-margin export fruit business, a large majority of which is typically sold(1) $24.1 million planned shift away from non-strategic revenue streams, including packaged vegetables in bags and trays, (2) a $11.6 million decrease in green bean revenues driven by a decrease in demand from food service customers during the first half of our fiscal year.Biomaterials (Lifecore)Lifecore principally generates revenue through the sale of products containing HA. Lifecore primarily sells products to customers in three medical areas: (1) Ophthalmic, which represented approximately 65% of Lifecore’s revenues in fiscal year 2017, (2) Orthopedic, which represented approximately 15% of Lifecore’s revenues in fiscal year 2017,COVID-19 pandemic, and (3) Other/Non-HA products, which represented approximately 20% of Lifecore’sa $3.2 million decrease in salad revenues driven by a decrease in fiscal year 2017.November 26, 2017February 28, 2021, compared to the same period last year, was due to a $1.8$4.6 million increase in business developmentCDMO revenues primarily from new customers and a $830,000an increase in aseptic filling revenues due to new commercial aseptic business and an increase in sales toshipments, resulting from increased demand from existing customers, partially offset by a $489,000$2.8 million decrease in fermentation sales primarily due primarily to the timing of shipments withincustomer orders and the fiscal year.sixnine months ended November 26, 2017February 28, 2021, compared to the same period last year, was due to a $2.2$10.2 million increase in business developmentCDMO revenues primarily from new customers and a $3.5 millionan increase in aseptic filling revenues due to new commercial aseptic business and an increase in sales toshipments, resulting from increased demand from existing customers, partially offset byand a $3.7$1.7 million decreaseincrease in fermentation sales primarily due primarily to the timing of shipments withincustomer orders and the fiscal year.OtherOther revenues for the three and six months ended November 27, 2016 are generated from the licensing agreements with corporate partners and for the three and six months ended November 26, 2017 from the sale of olive oils and vinegars by O Olive.The increase in Other revenues for the three and six months ended November 26, 2017 compared to the same periods last year was due to $1.2 million and $2.2 million, respectively, of revenues from O Olive that was acquired on March 1, 2017 compared to $255,000 and 1.0 million, respectively, in revenues for the three and six months ended November 27, 2016 from two license agreements that were completed in August 2016 and December 2016, respectively.(in thousands): $ 9,445 $ 12,001 (21 $ 24,460 $ 26,407 (7 826 1,850 (55 1,310 2,878 (54 10,271 13,851 (26 25,770 29,285 (12 5,217 4,938 6 8,739 10,060 (13 264 164 61 529 752 (30 $ 15,752 $ 18,953 (17 $ 35,038 $ 40,097 (13 Generalwithwith other factors. The Company includes in cost of sales all of the costs related to the sale of products in accordance with GAAP. These costs include the following:following costs: raw materials (including produce, seeds, packaging, syringes and fermentation and purification supplies), direct labor, overhead (including indirect labor, depreciation, and facility-related costs) and shipping and shipping-related costs. The following are the primary reasons for the changes in gross profit for the three and six months ended November 26, 2017 compared to the same period last year as outlined in the table above.Packaged Fresh Vegetables (Apio)The decrease in gross profit for Apio’s Packaged Fresh Vegetables business for the three and six months ended November 26, 2017 compared to the same periods last year was primarily due to $3.9 million of incremental produce sourcing costs during the second fiscal quarter of 2018 resulting from hurricanes and tropical storms which negatively impacted produce yields and quality. These incremental produce sourcing costs were partially offset by gross profit on higher salad sales.-22-(In thousands) Three Months Ended Change Nine Months Ended Change February 28, 2021 February 23, 2020 Amount % February 28, 2021 February 23, 2020 Amount % Curation Foods $ 8,128 $ 9,162 $ (1,034) (11) % $ 29,635 $ 28,874 $ 761 3 % Lifecore 11,561 10,885 676 6 % 27,036 22,023 5,013 23 % Total Gross Profit $ 19,689 $ 20,047 $ (358) (2) % $ 56,671 $ 50,897 $ 5,774 11 % Food Export (Apio)Apio’s Food Export business is a buy/sell business that realizes an average gross margin from 5-10%. Apio’s Food Exportthe Curation Foods business during the three and six months ended November 26, 2017 compared to the same periods last year was primarily due to a 46% and 56%, respectively, decrease in revenues due to transitioning away from low-margin export fruit business.Biomaterials (Lifecore)The increase in Lifecore’s gross profit for the three months ended November 26, 2017February 28, 2021, compared to the same period last year, was lower than the 18% increase in revenues primarily due to the timinga decrease in royalty revenue of production within the$1.6 million due to nonrecurring royalty transactions, which was partially offset by an increase in gross profits from avocado products due to lower avocado costs in fiscal year which resulted in the absorption of overhead into inventory being lower in the second quarter of fiscal year 20182021 compared to the same period last year.decreaseincrease in Lifecore’s gross profit for the sixCuration Foods business for the nine months ended November 26, 2017February 28, 2021, compared to the same period last year, was a result ofprimarily due to an unfavorable product mix changeincrease in gross profits from avocado products due to a higher percentage of revenues coming fromselling products in fiscal 2021 produced with lower margin aseptically filled product sales than from higher margin fermentation sales during the same period last year. Gross profit also decreased because of the timing of production and thus overhead absorption within thecost avocados compared to fiscal year. These decreases were2020, which was partially offset by (1) the decrease in gross profit realized on higher revenues.Other Other gross profit for the Lifecore business for the three and nine months ended November 26, 2017February 28, 2021, compared to the same period last year, was due primarily to the $264,000 of gross profit for the three months ended November 26, 2017 from O Olive (which was acquired on March 1, 2017) being more than the gross profit from two license agreements for the same period last year because one of the licensing agreements was completed in the first quarter (August) of last year and therefore generated noincreased revenue, during the second quarter of last year and the other was completed during early in the third quarter (December) of last year.The decrease in Other gross profit for the six months ended November 26, 2017 compared to the same period last year was due to the $529,000 of gross profit for the six months ended November 26, 2017 from O Olive (which was acquired on March 1, 2017) being less than the gross profit from two license agreements for the same period last year which were completed in August 2016 and December 2016, respectively.Expenses (in thousands): $ 1,457 $ 286 409 $ 2,466 $ 523 372 1,334 1,333 0 2,702 2,665 1 581 346 68 923 715 29 3,372 1,965 72 6,091 3,903 56 8,505 9,788 (13 17,340 19,349 (10 1,428 1,304 10 2,943 2,710 9 3,001 2,632 14 6,696 5,401 24 $ 12,934 $ 13,724 (6 $ 26,979 $ 27,460 (2 Landec’s Research and Development (“&D”) consisted&D expenses consist primarily of product development and commercialization initiatives. R&D efforts at Apioexpenses in our Curation Foods business are primarily focused on newinnovating our current product innovationlines and on the Company’s proprietary BreatheWay membranes used for packaging produce, with a focus on extending the shelf-life of sensitive vegetables and fruit. In the Lifecore business, the R&D effortsexpenses are focused on new products and applications for HA-based and non-HA biomaterials. For Other, the R&D effortsexpenses are primarily focused on supporting the developmentcreating and commercializationdeveloping new innovative lines of new products and new technologies in the Company’s new natural food business.products.-23-(In thousands) Three Months Ended Change Nine Months Ended Change February 28, 2021 February 23, 2020 Amount % February 28, 2021 February 23, 2020 Amount % Curation Foods $ 1,052 $ 1,240 $ (188) (15) % $ 3,123 $ 4,047 $ (924) (23) % Lifecore 1,510 1,507 3 — % 4,520 4,295 225 5 % Other — — — — % $ — $ 48 (48) (100) % Total R&D $ 2,562 $ 2,747 $ (185) (7) % $ 7,643 $ 8,390 $ (747) (9) % Company’s ability to compete successfully depends heavily upon its ability to ensure a continual and timely flow of innovative and competitive products, services, and technologies to the marketplace. The Company continues to develop new products and to expand the range of its product offerings through R&D.R&D expenses include expenditures for new product and manufacturing process innovation, or a significant improvement to an existing product or process, which consist of expenses incurred in performing R&D activities, including compensation and benefits for R&D employees, facilities expenses, overhead expenses, cost of laboratory and innovation supplies, third-party formulation expenses, fees paid to contract research organizations and other consultants, stock-based compensation for R&D employees, and other outside expenses.The increasedecrease in R&D expenses for the three and sixnine months ended November 26, 2017February 28, 2021, compared to the same periods last year, was primarily due to a significant increase inlower professional service expenses related to brand restage initiatives and new product development in the salad kit and avocado products product lines at Curation Foods which took place during fiscal year 2020, and decreases in our Other segment primarily due to discontinuation of R&D activities at ApioCorporate. These decreases were partially offset by higher salary and benefits expenses at Lifecore driven primarily from the hiring of a VP of Innovation and R&D during the fourth quarter of fiscal year 2017 and the subsequent staff hiring in that department, coupled withby an increase in product development activities in Apio’s marketing department.Selling, general and administrative (“SG&A”)(In thousands) Three Months Ended Change Nine Months Ended Change February 28, 2021 February 23, 2020 Amount % February 28, 2021 February 23, 2020 Amount % Curation Foods $ 9,509 $ 10,260 $ (751) (7) % $ 29,612 $ 34,923 $ (5,311) (15) % Lifecore 2,233 1,958 275 14 % 6,075 5,855 220 4 % Other 3,478 6,565 (3,087) (47) % 13,540 13,222 318 2 % Total SG&A $ 15,220 $ 18,783 $ (3,563) (19) % $ 49,227 $ 54,000 $ (4,773) (9) % and six months ended November 26, 2017February 28, 2021, compared to the same periodsperiod last year, was due to a $3.1 million decrease in SG&A at Apio as a result of (1)our Other segment due to a decrease in marketing expenses, (2) legal fees from compliance and legal settlement costs incurred during the three and six months ended November 27, 2016 of last year from the labor-related lawsuits settled during fiscal year 2017 and (3)other litigation matters, including a reversal ofrelated insurance recovery, combined with a portion of the annual bonus at the end of the second quarter of fiscal 2018$0.8 million decrease in our Curation Foods business primarily due to actual year-to-date results beingcost savings driven by our restructuring efforts associated with Project SWIFT and lower than budget. salary expenses compared to the same period last year.at Apio was partially offset by an increase in SG&A expenses in Other resulting from an increase in stock-based compensation from equity grants during the first six months of fiscal 2018, from new business development activities and from $343,000 and $729,000, respectively, oftotal SG&A expenses for the three and sixnine months ended November 26, 2017 incurredFebruary 28, 2021, compared to the same period last year, was due to a $5.3 million decrease in our Curation Foods business primarily due to cost savings driven by O Olive which was acquired on March 1, 2017. These increases in SG&A in Other was partially offset by a $500,000 reduction in SG&A from a reduction in the contingent consideration liabilityour restructuring efforts associated with Project SWIFT and lower salary expenses compared to the O Olive acquisition.Other (same period last year. The decrease was also partly due to a reserve reported in thousands)fiscal year 2020 for the note receivable from Pacific Harvest. $ 412 $ 412 0 % $ 825 $ 825 0 % 42 4 950 % 74 7 957 % (480 ) (380 ) 26 % (884 ) (1,032 ) (14% ) — (1,233 ) — (1,223 ) 1,300 — 2,200 — (207 ) (693 ) (70% ) (1,458 ) (2,582 ) (44% ) (26 ) (48 ) (46% ) (92 ) (81 ) 14 % (In thousands) Three Months Ended Change Nine Months Ended Change February 28, 2021 February 23, 2020 Amount % February 28, 2021 February 23, 2020 Amount % Dividend Income $ 281 $ 281 $ — — % $ 844 $ 843 $ 1 —% Interest Income $ 13 $ 46 $ (33) (72) % $ 31 $ 96 $ (65) (68) % Interest Expense $ (4,178) $ (2,211) $ (1,967) 89 % $ (10,326) $ (6,455) $ (3,871) 60 % Loss on Debt Refinancing $ (1,110) $ — $ (1,110) (100) % $ (1,110) $ — $ (1,110) (100) % Other Income (Expense) $ 72 $ 67 $ 5 N/M $ (11,736) $ 61 $ (11,797) N/M Income Tax Benefit $ 217 $ 5,310 $ (5,093) (96) % $ 7,226 $ 7,840 $ (614) (8) % $22$15.0 million seniorSenior A preferred stock investment in Windset, which yields a cash dividend of 7.5% annually. There was no change in dividend income for the three and six months ended November 26, 2017 compared to the same periods last year.increasedecrease in interest income for the three and sixnine months ended November 26, 2017February 28, 2021, compared to the same periods last year, was not significant.November 26, 2017February 28, 2021, compared to the same period last year, was primarily due to lower capitalizationthe result of (i) an increased interest for long-term capital projects during the second quarter of fiscal year 2018 compared to the second quarter of fiscal year 2017.The decrease in interest expense for the six months ended November 26, 2017 compared to the same period last year was primarilyrate, due to the Company's increased Total Leverage Ratio (as defined Credit Agreement), combined with our debt refinancing ofin December 2020 at higher interest rates, (ii) an increase in deferred financing costs from those incurred in connection with the Company’sCompany's amendments to the Credit Agreement since November 24, 2019 combined with our debt during the second quarter of fiscal year 2017 which resultedrefinancing in a lower average interest rate on the Company’sDecember 2020, and (iii) an increase in total outstanding debt since then.for the three and six months ended November 27, 2016 wasprimarily due to the one-timea write-off of unamortized debt issuance costs and earlyin connection with the Company refinancing its debt extinguishment prepayment penalties on the Company’s then existing debt as of September 23, 2016.and six months ended November 26, 2017 compared to the same periods last year was a result of the change in the fair value of the Company’s investment in Windset which increased $1.3 million and $2.2 million, respectively, for the three and six months ended November 26, 2017.Income TaxesThe decrease in the income tax expense during the three and six months ended November 26, 2017 compared to the same periods last year was due to a 65% and 43%, respectively, decrease in pre-tax income for the three and six months ended November 26, 2017 compared to the same periods last year.Non-controlling InterestThe non-controlling interest consists of the limited partners’ equity interest in the net income of Apio Cooling, LP. The change in the non-controlling interest for the three and six months ended November 26, 2017February 28, 2021, compared to the same periods last year, was not significant.November 26, 2017,February 28, 2021, the Company had cash and cash equivalents of $4.4$2.2 million, a net decreaseincrease of $1.0$1.9 million from $5.4$0.6 million as of May 28, 2017.Landec generatedfrom operating activities during the six months ended November 26, 2017, compared to $5.5 million of net cash generated fromused in operating activities for the same period last year.nine months ended February 23, 2020. The primary sources of net cash fromprovided by operating activities during the sixnine months ended November 26, 2017February 28, 2021 were from (1) $2.7$18.5 million of net income, (2) $8.0 million of depreciation/depreciation and amortization, and stock based compensation expenses,expense, and loss on debt refinancing, (2) an $11.8 million decrease in the Company's estimated fair value of Windset due to changes in the financial assumptions relating to EBITDA, non-productive assets, and debt levels, (3) a $1.4$9.5 million net increasedecrease in deferred tax liabilities.working capital, and (4) $7.9 million from the non-cash restructuring and impairment of assets charges. These sources of cash were offset by (1) a $2.2$29.8 million increasenet loss, and (2) a $7.3 million reduction in the fair market value of the Company’s Windset investment, a non-cash increase to income and from a net increase of $5.4 million in working capital.which increased workingfor the decrease in working capital during the first sixnine months of fiscal year 2018ended February 28, 2021, were (1) a $9.3 million increase in accounts receivable due to a $6.5 million increase in accounts receivable at Apio due to sales in November 2017 being $5.9 million higher than May 2017 and a $3.0 million increase in accounts receivable at Lifecore due to sales in November 2017 being $1.5 million higher than May 2017 and the timing of collections at the end of the second quarter of fiscal year 2017, (2) a $5.5 million increase in inventories due primarily to a $2.4 million increase at Apio from an increase in raw materials for expected increases in salad sales during the third quarter and from a $2.7 million increase at Lifecore as it builds its inventory for a large volume of shipments during the third quarter of fiscal year 2018, and (3) a $2.3 million decrease in other accrued liabilities due to legal settlement payments made during the first six months of fiscal year 2018. The increases in working capital were partially offset by a $11.6$6.4 million increase in accounts payable due primarily to the timing of payments, (2) a $10.8$6.2 million increase at Apiodecrease in accounts receivable due to the timing of customer payment receipts, and (3) a $8.6$3.2 million increase in cost of sales in November 2017 comparedother accrued liabilities due primarily to May of 2017 and from the timing of payments. six months ended November 26, 2017 was $9.5 million compared to $4.7 million for the same period last year. The primary uses ofNet cash inprovided by investing activities during the first sixnine months ended February 28, 2021, was primarily due to the net proceeds of fiscal year 2018 were for$12.9 million related to the sale of the Company's Ontario, California and Hanover, Pennsylvania facilities, offset by the purchase of $7.4$11.4 million of equipment primarily to support the growth of the Apio Packaged Fresh VegetablesCompany’s Curation Foods and Lifecore businesses and from the issuance of a $2.1 million note receivable. cash provided by financing activities for the six months ended November 26, 2017 was $4.1 million compared to net cash used in financing activities of $8.1during the nine months ended February 28, 2021 was $10.4 million compared to $25.0 million provided by financing activities for the same period last year. The net cash provided byused in financing activities during the first sixnine months of fiscal year 2018ended February 28, 2021, was primarily due to $7.0the $9.6 million payment of net borrowings under the Company’s line of credit. These borrowings were partially offset by $2.5 million of payments on the Company’s long-term debt.sixnine months ended November 26, 2017,February 28, 2021, Landec incurred $11.4 million of capital expenditures, which was primarily represented by facility expansions and purchased equipment to support the growth of the Apio Packaged Fresh VegetablesLifecore and Lifecore businesses. These expenditures represented the majority of the $7.4 million ofCuration Foods businesses, compared to capital expenditures inof $22.1 million for the period.“Lenders”“Lenders”), and JPMorgan as administrative agent, pursuant to which the Lenders provided the Company with a $100$100.0 million revolving line of credit (the “Revolver”) and a $50$50.0 million term loan facility (the “Term Loan”), guaranteed by each of the Company’s direct and indirect subsidiaries and secured by substantially all of the Company’s assets, with the exception of the Company’s investment in Windset.in five years (onon September 23, 2021),2021, with the Term Loan providing forrequiring quarterly principal payments of $1.25$3.0 million and the remainder continuing to be due at maturity. The Credit Agreement contained customary financial covenants and events of default under which the obligation could be accelerated and/or the interest rate increased.December 1, 2016,on March 30, 2023, with the remainder due at maturity.See Note 7 – Debtmaturity.Notes to Consolidated Financial Statements for further discussionNew Credit Agreements, the Company repaid all outstanding borrowings under the current Credit Agreement, and terminated the Credit Agreement. In connection with the repayment of borrowings under the Credit Agreement, the Company recognized a loss in its third quarter of fiscal year 2021 of $1.1 million, as a result of the Company’snon-cash write-off of unamortized debt arrangements.Landec believes that its cash from operations, alongissuance costs related to the refinancing under the New Credit Agreements.existing cashall financial covenants and cash equivalents will be sufficient to finance its operational and capital requirements for at leasthad no events of default under the next twelve months.AboutAbout Market RiskCompany's market risk duringinformation provided under Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" which is included and described in the first six months ofForm 10-K for the fiscal year 2018.Managementtheour Chief Executive Officer and theour Chief Financial Officer, the effectiveness of the Company’sour disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.procedures. Based on this evaluation, theour Chief Executive Officer and our Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission,SEC, and are effective in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.controlscontrol over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended November 26, 2017February 28, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.-26-PartThe Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred For further discussion, see the disclosures contained in Note 1 - Organization, Basis of Presentation, and the amountSummary of the loss can be reasonably estimated. These provisionsSignificant Accounting Policies - Legal Contingencies, which are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimate settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.Apio has been the target of a union organizing campaign which has included two unsuccessful attempts to unionize Apio's Guadalupe, California processing plant. The campaign has involved a union and over 100 former and current employees of Pacific Harvest, Inc. and Rancho Harvest, Inc. (collectively "Pacific Harvest"), Apio's labor contractors at its Guadalupe, California processing facility, bringing legal actions before various state and federal agencies, the California Superior Court, and initiating over 100 individual arbitrations against Apio and Pacific Harvest.The legal actions consist of three main types of claims: (1) Unfair Labor Practice claims ("ULPs") before the National Labor Relations Board (“NLRB”), (2) discrimination/wrongful termination claims before state and federal agencies and in individual arbitrations, and (3) wage and hour claims as part of two Private Attorney General Act (“PAGA”) cases in state court and in over 100 individual arbitrations.A settlement of the ULPs among the union, Apio, and Pacific Harvest that were pending before the NLRB was approved on December 27, 2016 for $310,000. Apio was responsible for half of this settlement, or $155,000. On May 5, 2017, the parties to the remaining actions executed a settlement agreement concerning the discrimination/wrongful termination claims and the wage and hour claims which covers all non-exempt employees of Pacific Harvest working at Apio's Guadalupe, California processing facility from September 2011 through the settlement date. Under the settlement agreement, the plaintiffs are to be paid $6.0 million in three installments: $2.4 million, which was paid on July 3, 2017, $1.8 million which was paid on November 22, 2017 and $1.8 million which is due in July 2018. The Company and Pacific Harvest have each agreed to pay one half of the settlement payments. The Company paid the entire first two installments of $4.2 million and will be reimbursedincorporated herein by Pacific Harvest for its $2.1 million portion which is included in Other assets in the accompanying Consolidated Balance Sheets. This receivable will be repaid through monthly payments until fully paid, which the Company expects to occur by December 2020. The Company and Pacific Harvest will both make one half of the third installment in July 2018. The Company’s recourse against non-payment by Pacific Harvest is its security interest in assets owned by Pacific Harvest.As of November 26, 2017 and May 28, 2017, the Company had accrued $1.0 million and $3.2 million, respectively, related to these actions, which is included in Other accrued liabilities in the accompanying Consolidated Balance Sheets.Our estimated annual effective tax rate may be subject to further uncertainty due torecent changes in U.S. tax rates and tax laws. Other than this item, there have been no significant changes to the Company's risk factors which are included andrisks described in the Form10-KItem 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended May 31, 2020, as supplemented by our Quarterly Report on Form 10-Q for the fiscal period ended February 28, 2017 filed with2021, as our business, financial condition and results of operations could be adversely affected by any of the Securitiesrisks and Exchange Commissionuncertainties described therein and herein. There have been no material changes to our risk factors as previously disclosed in our Annual Report on August 10, 2017.There were no unregistered sales of equity securities or shares repurchased by the Company during the fiscal quarter ended on November 26, 2017.None.applicableapplicable.-27-ExhibitNumberExhibit Title31.1+
Number31.2+32.1+32.2+101.INS+ XBRL Instance 101.INS**XBRL Instance101.SCH**101.CAL+ 101.CAL**101.DEF+ 101.DEF**101.LAB+ 101.LAB**101.PRE+ 101.PRE**+ Filed herewith. +FiledFurnished herewith.** XBRLinformation is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.-28-Registrantregistrant has duly caused this Reportreport to be signed on its behalf by the undersigned thereunto duly authorized.LANDEC CORPORATIONLANDEC CORPORATION By:/s/ Gregory S. SkinnerBy: Gregory S. SkinnerVice President Finance and John MorbergChief Financial Officer January 5, 2018-29-