Landec Corporation F4Q09 (Qtr End 05/31/09) Earnings Call Transcript

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2009-07-29 13:13:18.0

Tags: East Coast, Call Transcript, Earnings, Research & Development, Business Structures, Business Operations, Finance, Seeking Alpha, Landec Corp.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Tony Brenner with Roth Capital.

Gary Steele

Good morning, Tony.

Tony Brenner -- Roth Capital

Good morning. A couple of questions, first of all, the planned decline in you buy/sell business in fiscal 2010 is – will that be in your export business or in your domestic Wal-Mart business?

Gary Steele

It’s on the domestic side of things. We had a key customer ask us to help them in a very specific produce category and we did. And it – so we gave him the help. We are done, it’s over with, and it was very marginally profitable for us and so that will reduce revenues by about $4 million without affecting margins. And we are just glad it’s done. So, we helped them out, it was a key customer, and that’s over.

Tony Brenner -- Roth Capital

Okay. The expansion of Apio’s processing facility, the 40,000 square feet, as I recall one of your priorities had been to obtain distribution capacity and possibly processing capacity on the east coast. Is that no longer true?

Gary Steele

That is – that’s still a strategic goal of ours. We’d rather I mean use this extra, we’d rather rent versus build on the east coast, and this is really just to deal with a certain segment of the market that we are not addressing today, which we call the next day delivery market. So this expansion in California does not in any way diminish our interest in having a toehold on the east coast to deal with that next day delivery. And we’ll talk about the steps that we will take to deal with the east coast situation in the next couple of quarters, Tony. So, it does not change our thinking at all.

Tony Brenner -- Roth Capital

Okay. But you are still looking for that--?

Gary Steele

Yes.

Tony Brenner -- Roth Capital

--rental space service?

Gary Steele

Yes.

Tony Brenner -- Roth Capital

Okay, last question. Could you explain why in your partnership agreements contractual minimum amounts declined rather with an increase over time particularly as your partners have exclusive use of technology in their relationship areas? It’s intuitively, one would think that it’s an incentive to improve, other reasons the opposite would be true.

Gary Steele

You want to--?

Greg Skinner

Yes. May be we’ll both address this. For – let’s talk about Air Products. The minimums were kind of tied to our involvement on the R&D side. So as we were contractually obligated to support them to a certain level the increase in their payments or the minimums kind of tracked with that contractual obligation. And after the third year, once license fees were over, our obligation from an R&D standpoint decreased and the minimums decreased accordingly. Now, at the time we entered into the agreement three years ago, we assumed that by the time we got to year four we’d be exceeding minimums, but we couldn’t forecast the decline in the worldwide economy. So, at this point, we are just saying let’s -- for conservatism reasons let’s assume that they will get their minimums next year, which are $0.5 million lower than they were in fiscal 2009.

 

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