Good day, ladies and gentlemen. And welcome to the Landec Corporation Fiscal Year 2012 and Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this program is being recorded. I would now like to introduce your host for today’s program, Mr. Gary Steele, Chairman and CEO of Landec Corporation. Please go ahead, sir.

Good morning. And thank you for joining Landec’s fourth quarter and fiscal year end 2012 earnings call. I have Greg Skinner with me, Landec’s Chief Financial Officer. This call is being webcast by Thomson Reuters and can be accessed at Landec’s website at www.landec.com on the Investor Relations page. The webcast will be available for 31 days through September 1, 2012. A replay of the teleconference will be available for one-week until midnight Eastern Time, Wednesday, August 8, 2012 by calling 888-266-2081 or 703-925-2533. The access code for the replay is 1583900. During today’s call, we may make forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our filings with the Securities and Exchange Commission, including the company’s Form 10-K for fiscal year 2011. Yesterday in our earnings release we reported very good fourth quarter and fiscal year 2012 results. During fiscal year 2012, we achieved record levels of revenues and strong earnings and cash flow from operations along with substantial growth in overall unit volume sales. As reported, we finished the year strong with the fourth quarter revenues increasing 21% to $82.6 million and fourth quarter net income increasing $5.5 million to $2.8 million, compared to a loss of $2.7 million during the fourth quarter of last year. For all of fiscal year 2012, revenues increased 15% to a record $317.6 million and net income of $12.7 million or $0.49 a share. They grew 46% compared to fiscal year 2011 and after excluding the $4.8 million goodwill write-off in fiscal year 2011 of our Landec Ag, our former seed subsidiary. In addition, we increased cash flow from operations by 53% to $22.2 million. Our results reflect a shift in our strategy starting several years ago, a shift…

Thank you, Gary, and good morning, everyone. In yesterday’s news release, Landec reported that for the fourth quarter of fiscal year 2012, revenues increased 21% to $8.6 million versus revenues of $68.1 million for the fourth quarter of last year. The increase in total revenues during this year’s fourth quarter, compared to last year’s fourth quarter was primarily due to, first, $9.1 million of revenues from GreenLine; second, a $5.2 million increase in revenues Apio’s non-GreenLine value-added businesses, which include the Apio fresh-cut specialty packaged vegetable business, Apio Cooling and Apio Packaging; and third, a $1.3 million increase in revenues at Lifecore. The growth in Apio’s non-GreenLine value-added vegetable businesses resulted from a combined year-over-year 14% increase in unit volume sales. These increases in revenue were partially offset by $1.3 million decrease in revenues and our Technology Licensing business due to the termination of the Monsanto license agreement at the end of the second quarter of fiscal year 2012. For the fourth quarter of fiscal year 2012, Landec net income increased by $5.5 million to $2.8 million or $0.11 per share, compared to a net loss of $2.7 million or $0.10 per share for the fourth quarter of last year. The increase in net income during the fourth quarter of fiscal year 2012, compared to the fourth quarter last year was due to, first, a $4.8 million impairment charge during the fourth quarter fiscal year 2011 from the write-off of goodwill at Landec Ag; second, a $3.3 million increase in Apio’s operating income, which included $1.6 million from GreenLine, but excluded acquisition-related expenses of $1 million, which was recorded at Apio; and third, a $1.3 million increase in operating income of Lifecore. These increases in net income of the fourth quarter were partially offset by, first, non-recurring acquisition-related expenses of…

Yeah. Thanks, Greg. We hold market leadership positions in specialty packaged fresh-cut produce and in the supply of hyaluronic acid based materials in medical products to the ophthalmolic -- ophthalmology market. Building on our achievements in fiscal year 2012, we intend to continue advancing those market leading positions. Our integration work with GreenLine and Apio is going well, but still much work to do. We expect operating synergy savings in this acquisition to be between $1 million and $1.5 million this year, and we hope to see sales and customer synergies materializing later this fiscal year. We do recognize that our food business is subject to supply risk, related to the unpredictable development of adverse weather. We’re keeping a very close eye on the possible impact of the late spring early summer drought in the Midwest. And through July, we were doing, okay, but obviously it’s a worry for everybody. With the GreenLine acquisition, our combined customer and product placements give us 80% retail grocery store site penetration in the U.S. Since shelf space is everything in the food business, this represents a strong basis for future growth. We now have significant capacity in our food operations with five processing sites and seven distribution centers throughout U.S. We have nearly 300,000 total square feet of processing capacity for fresh-cut vegetable, and we own and sell products using the two leading fresh-cut brands, Eat Smart and GreenLine. Our branded and private labeled products used just under $100 million proprietary BreatheWay packages, packages that we have developed over the years through our R&D. We use over, the nearly $100 million packages a year to ensure high-quality products with extended shelf lives and that these get deliver to retailers, club stores and food service operators throughout North America. For our Lifecore biomaterials business,…

Certainly. (Operator Instructions) Our first question comes from the line of Tony Brenner from Roth Capital Partners. Your question, please?

Good morning, Tony.

Thank you. Good morning. I had three things I wanted to ask about. The 14% volume increase in Apio, is that a pre-sharp step up and is that an aberration, or do you see a significant strengthening in the end market?

Yeah. I -- it’s a combination of things. We definitely have seen as you know from the very difficult recession years of 2009 and ‘10, we’ve certainly seen a category growth increase and this running about 7%. Now recall, Tony, in the shock of the recession, consumer was fleeing and really struggling and it was like negative 10% growth. So we are seeing category growth. So that certainly helps the cost. But we are certainly doing better than the category growth and I think it’s just launching, we continue to launch new products and the brand, the Eat Smart brand is very strong. And as I mentioned to you, looking forward, we are in 80% of all retail grocery stores now with some formal product, now that we have GreenLine in our family. So it’s a combination.

Okay. Second, in your guidance, you suggest a much greater variance, particularly in net income than you’ve ever had before. Is that reflective of GreenLine or some other factor?

Well, I think we have to just say it is GreenLine. We have to be cautious. It’s our first -- it’s our first year of ownership. We’re learning about the business. It should be a natural for us but we just don’t have -- we don’t have enough time with them to really get the band down very narrow in terms of ranges. So it really is GreenLine.

Is GreenLine unprofitable for portions of the year?

I’m sorry.

Is GreenLine unprofitable at various times of the year?

No. It’s profitable throughout the year. Now, keep in mind, as I said, we’re watching this route very closely and we’re trying to dodge bullets back here. They have had some rain in the Ohio Valley but there were times in the recent months where farmers literally could not plant because there was no moisture in the soil. So there could be some spotty times when the product, in short, you’re buying on a spot market but they’re profitable in each quarter.

Okay. Lastly, once that farms you take the market value as calculated as I understand it on a discounted cash flow basis, is it correct that as once that farms earnings increases that market value, presumably, increases along with it?

Yeah. Tony, this is Greg. Yeah, that’s exactly, how it works. It’s on a discounting cash flow model, looking out over projections through the put call date, which is basically the end of our fiscal year ‘17. So five years from now. And yeah, as their EBITDA or if there, the value goes up, the value of the overall company goes up and we recognize 20% of that increase.

Okay. So once that -- it’s now beginning to market additional crops growing in that greenhouse, your projection seems conservative to say the least. Is that fair?

Well, their original projections are factored in there that they are going to have 64 acres of production coming out of those greenhouses in 2013. Well, certainly by 2013, even within 2012 where you’ll see an incremental pop is when the next two phases, the next 64 acres comes on line. And that began the groundwork of that, Tony. So obviously, we’ll have to update our projections when they come online. But we already anticipate it in the projections, that rollout of their volume in the first 64 acres which translates the three million square feet of greenhouse.

And so your next section comes on when?

2014, probably.

Yeah. Early -- probably early in 2014. These guys do not commit. They are moving and shaking. So they are already breaking ground for this next three million square feet of hydroponic greenhouse.

Thank you.

Thank you, Tony.

(Operator Instructions) Our next question comes from the line of Morris Ajzenman from Griffin Securities. Your question please.

Hey guys.

Good morning, Morris.

Good morning.

Question on our Lifecore Biomedical, obviously, you had some good traction there and you’ve got some approvals here most recently, projecting 50% revenue increase. Can you tell us about EBITDA margins? They are at 30% plus, any thoughts, can that be driven higher? How does that play out as these rolls out with revenues and then -- anything else in the half as far as new product offerings?

So Morris, basically over the next five years, we expect EBITDA margins at Lifecore to go up, but there will be a fairly sizable change in product mix along the way. Recall in my comments, we have added sterile filling capacity -- capability. So that -- in the old days, they would just sell a powder or they’d sell liquid and now we will be able to offer powder, liquid or we can actually fill the syringe for them and it’s -- put it in the box and it’s ready for them to ship to customers. And there are different margins between the sterile filling and the powder in the liquid. But in general, I’d say this year the EBITDA margins are going to be essentially the same as they were this last year. But over the next five years, what happens is we start to better utilize the excess capacity up there. That’s why we’ve got that tremendous pop in our first year. Recall, when we went from $2.9 million to $9.9 million of EBITDA on one year. So that’s all about capacity utilization. So better capacity utilization, change in product mix, we expect EBITDA margins year-over-year to be pretty much the same this year. But over the next five years, they are going to go up.

What is your current capacity utilization and where do you expect it to move to over next couple of years?

I couldn’t hear the second question, say it again.

Current capacity utilization and you say move up, where do you ultimately target to move up to?

Yeah. Okay. Current capacity utilization is about 50%. Ideally, you want a capacity utilization at 90% but that’s not in our plan. We want to -- if we can move it from 50% to 75%, there is a lot of incremental margin there. So that’s our goal.

Thank you.

Thank you.

(Operator Instructions) Our next question comes from the line of Will Lauber from Sterling Capital Management. Your question, please.

Good morning, Will.

Yeah. Just had a question on the finances, your accounts receivable were up quite a bit, I guess, you also had that fairly high accounts receivable, two quarters ago. What drives that?

While at the year-end, it’s the addition of GreenLine. We brought on their receivable plus May tends to be our best month for the year of value-added business. And granted, if you compare it to year-over-year, it should be comparable but our revenues were up quite a bit this year in our value-added business. So a combination of increased revenues, this May versus prior year May plus GreenLine is the reason for the increase.

Well, we’ve been blessed over the years, I think, as you know with no receivable issues. So it’s -- we work with top notch companies that are in strong positions et cetera. So fortunately receivables just had not been a worry.

Okay. I mean, I was looking at it as a percent of sales and it was up closer to 40%, I guess, as oppose to year-over-year about 33%. So that’s mainly due to the GreenLine?

Yeah.

Okay. And then your assumptions for your current guidance, could you give a little bit more color on that. I mean, do you have any -- anything baked in there for -- weather impact was drought here or unforeseen things in California?

That’s a superb question. As you know, that’s the risk in the company is weather. Yeah, we have baked it both for GreenLine and for Apio some weather-related risk but not catastrophic risk. If there is a massive floods in California or this drought were to continue for any considerable period of time that would be above and beyond what we’re anticipating. So your third question?

I guess, along with that, in the past you had talked about closing which was, I think, we referred to as the Monsanto gap. Do you have any -- in your guidance, do you have anything in there for any new deals or anything that…

Good question. No.

No?

Anything that we would do would be upfront. So the spirit of what you’re hearing today is and what you’ve been hearing for some time is a real focus on our two core businesses, plenty of growth there, investments in those two core businesses. If we were to do R&D and consummate new confirmation licensing deals that would be all upside.

And when since you brought up Monsanto just, you do the math, but just want to know this if Monsanto, we did not have the $2.7 million in FY ‘12 to just I mean obviously we did, but had we not. The growth year-over-year, excluding that $2.7 million as pre-tax obviously, in ‘12 would have been 45% to 55% guidance and so the 25% to 35% that we have in here.

And then my last question, it look like in the press release that there was a slight change what the avocados that Chiquita is now for our partner, if you can explain that a little bit further?

They have another year of exclusivity. They’ve asked -- they’ve invested a lot. They struggled with the technology work absolutely as advertised. They struggled with, since they hadn’t been on the avocado business. They struggled with sourcing in logistics and just couldn’t get it right in the timeframe that we’re talking about. So they’ve asked if they could have the flexibility to talk to some additional partners and players that could utilize the technology, where they can work together, and we would be the beneficiary of under a supply agreement. So, we’re going to give them another year, let’s see how it goes, well if its -- if its not going well, they are not making progress then the technology returns to us.

So when you say, you give them another year is that some kind of extension that you guys agree too?

Now, they pay annual minimums, Will. And they pay the minimum for this calendar year and they haven’t opportunity to step up and pay the minimum for ‘13 and as long as they pay those minimums, they have the exclusive right.

Okay. So it’s completed their option, you don’t have the option to…

That’s right. But one more year.

Okay. So that would be through calendar year 2013?

Only ‘12, we’ve signed up right now.

And they have the…

They can do it through fiscal year 2013. It was a calendar year. I’m trying to remember.

It’s calendar ‘13.

Okay. That the last option…

Yeah. That’s it.

Okay. All right. Thanks.

Thanks, Will.

Thank you. Our next question comes from the line of Rick Fetterman from Fetterman Investments. Your question, please.

Hey, Rick.

Good morning. In your estimate range for this year, the 15% increase in revenues at Lifecore, what percent -- are you assuming -- I had ask this full revenue from the two new FDA approved applications all year or six months of the year or what are your thoughts on say full year revenues from these two…

…a half a year but even if the half year market is probably even going to be a full annual rate at that point. It will definitely be a contributor. But they have to work through their current inventory from their past suppliers and once that inventories work through then we will start supply. And so think more along the lines of third to a half of the year this year. So we should get an incremental pop from those new product next year when they -- we have a full year under our belt.

Do you have any thoughts on what kind of revenues that might represent?

We have not disclosed that. We have some thoughts but at this point we rather not share those.

Okay. Regarding, royalties for INCOTEC -- the range -- do you expect anything this year, is that something that’s likely to really start playing out next year?

No, we expect at this year. They’ve taken over the Pollinator Plus business. That is a business that quotes and ship their products basically in our fourth quarter. And INCOTEC is stepping into our shoes. So they will be doing in the spring of next year what we have been doing and that should bring in royalties around 200,000. I mean that’s a $1 million business, we get 20% of that. We’re hoping is there a worldwide company that can grow that and introduce that internationally because currently its only sold in the U.S. but right now, I expect about 200,000 for FY ‘13.

And therefore, two things are going on here, Rick, one was R&D to focus we have a lot on our plate as you can tell. Secondly, we just had no way of accessing international ag market. They are well-positioned in 17 countries and they are strong in Brazil and Argentina and India and places like that. So overtime, I’d say, overtime it really represents a growth opportunity for us but this year I think they are focusing primarily on the U.S. So the numbers that Greg gave are pretty realistic.

Okay. Is the commercial testing for shipping bananas with Chiquita, they are expected to be complete in the next 12 months or does that take long?

Yeah. In the next 12 months, the testing should be complete, the business plan analysis in terms of what’s the business model, what are the economic, how does this make sense how big can this business be, should all be completed in the next 12 months, absolutely.

Do you have an expected debt level for the end of this year ‘13?

Yeah.

Yeah.

We plan to pay off our line of credit at Apio before the end of the year.

Will be zero.

So that was almost $12 million at the end of ‘12 and then the average maturities are about ‘12, I mean 10 years at Apio, four years at Lifecore, I’m trying to do the math in my head. So Lifecore will pay it down $3 million and at Apio, we should pay it down $4 million. So all total if you throw in the line, we should pay down debt somewhere around $18 million to $20 million bucks this year.

Yeah. We’re about little what $60 million?

In total, yeah.

Little under $60 million, does that give you a sense of our plan?

Yeah. Absolutely. Thank you. Last question, anything from Air Products or is that just sort of out there and kind of keep wishing and hoping?

Wishing and hoping and out there, they bought a company. No, they had their big plans that enticed us to get together once to make a big footprint acquisition of somebody that was already a worldwide player in the personal care or cosmetic supply arena. They tried a couple of times, were not able to succeed. They made a small acquisition of the German company, nothing to write home about. To be honest, for me it’s out of sight and out of mind and if they’re pleasantly surprised us when this new product that we worked on with them for couple of years, start to become get through the testing in toxicology work that customers tend to go through. If that comes out with the war, we will certainly let you know, but right now, we’re just not anticipating much.

All right. My last question is regarding estimated tax rate for this year?

That will be about 37%.

Thank you very much. Appreciate your time.

Thanks, Rick.

Thank you. Our next question comes from the line of Peter Black from Wynnefield Capital. Your question, please.

Hey, Peter.

Hey, guys. How are you doing?

Good. Good.

The last gentlemen actually ask my question. It related to Air Products. I guess, just one follow-up on that, do you have any ongoing costs associated with that licensing deal?

Zero, we -- which we are able to redirect our R&D, we spend quite a bit of time with them, as you know, they were funding it. I mean they -- it is $2.5 million upfront licensees. They funded the R&D and all that. But we’re done and we wish them the best.

Okay. All right. Thanks. Appreciate it.

Thank you.

(Operator Instructions) And I do believe this does conclude the question-and-answer session of today’s program. I would like to turn the program back to you for any further remarks.

Well, just in summary, we were very pleased with the year we just ended and quite excited about the year that we’re in. And we thank you all for being on the call today. And thank you for your ongoing support. All the best.

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.