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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended February 23, 2020, or
[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period for _________ to _________.
Commission file number: 0-27446
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware94-3025618
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
5201 Great America Parkway, Suite 232
Santa Clara, California 95054
(Address of principal executive offices)
Registrant's telephone number, including area code:
(650) 306-1650
Securities registered pursuant to Section 12(b) of the Act:
 Title of each class 
Trading Symbol
 Name of each exchange on which registered
Common Stock
LNDC
The NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   X    No ___

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   X    No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ___Accelerated Filer   X   Emerging Growth Company ___
Non Accelerated Filer ___   Smaller Reporting Company ___ 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ___
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No   X  
As of March 27, 2020, there were 29,182,178 shares of Common Stock outstanding.




Table of Contents
LANDEC CORPORATION
FORM 10-Q
For the Fiscal Quarter Ended February 23, 2020

INDEX
Page

i

Table of Contents
LANDEC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
February 23, 2020May 26, 2019
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents
$2,607  $1,080  
Accounts receivable, less allowance for doubtful accounts
69,763  69,565  
Inventories
67,059  54,132  
Prepaid expenses and other current assets
9,382  8,264  
Total Current Assets
148,811  133,041  
Investment in non-public company, fair value
61,300  61,100  
Property and equipment, net
191,782  200,027  
Operating leases
25,187  —  
Goodwill
77,246  76,742  
Trademarks/tradenames, net
29,928  29,928  
Customer relationships, net
13,782  15,319  
Other assets
2,024  2,934  
Total Assets
$550,060  $519,091  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
$63,660  $53,973  
Accrued compensation
8,458  10,687  
Other accrued liabilities
11,111  10,001  
Current portion of lease liabilities
3,900  75  
Deferred revenue
618  499  
Line of credit
58,500  52,000  
Current portion of long-term debt, net
11,723  9,791  
Other current liabilities, discontinued operations
  65  
Total Current Liabilities
157,970  137,091  
Long-term debt, net
104,539  87,193  
Long-term lease liabilities
26,757  3,532  
Deferred taxes, net
11,662  19,393  
Other non-current liabilities
1,464  1,738  
Total Liabilities
302,392  248,947  
Stockholders’ Equity:
Common stock, $0.001 par value; 50,000 shares authorized; 29,182 and 29,102 shares issued and outstanding at February 23, 2020 and May 26, 2019, respectively29  29  
Additional paid-in capital
162,077  160,341  
Retained earnings
86,394  109,710  
Accumulated other comprehensive (loss) income
(832) 64  
Total Stockholders’ Equity
247,668  270,144  
Total Liabilities and Stockholders’ Equity
$550,060  $519,091  
See accompanying notes to the consolidated financial statements.
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LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND LOSS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
Nine Months Ended
February 23, 2020February 24, 2019February 23, 2020February 24, 2019
Product sales
$152,928  $155,554  $434,235  $404,779  
Cost of product sales
132,881  133,985  383,338  349,988  
Gross profit
20,047  21,569  50,897  54,791  
Operating costs and expenses:
Research and development
2,747  2,739  8,390  8,005  
Selling, general and administrative
18,783  15,588  54,000  43,791  
Restructuring costs13,528    13,934    
Total operating costs and expenses
35,058  18,327  76,324  51,796  
Operating (loss) income
(15,011) 3,242  (25,427) 2,995  
Dividend income
281  413  843  1,238  
Interest income
46  34  96  113  
Interest expense
(2,211) (1,771) (6,455) (3,275) 
Other income, net67    61  1,600  
Net (loss) income from continuing operations before tax
(16,828) 1,918  (30,882) 2,671  
Income tax benefit (expense)
5,310  (385) 7,840  (917) 
Net (loss) income from continuing operations
$(11,518) $1,533  $(23,042) $1,754  
Discontinued operations:
Loss from discontinued operations
$  $(609) $  $(1,415) 
Income tax benefit
  143    333  
Loss from discontinued operations, net of tax
  (466)   (1,082) 
Net (loss) income applicable to common stockholders$(11,518) $1,067  $(23,042) $672  
Basic net loss per share:
(Loss) income from continuing operations
$(0.39) $0.05  $(0.79) $0.06  
Loss from discontinued operations
  (0.02)   (0.04) 
Total basic net (loss) income per share$(0.39) $0.03  $(0.79) $0.02  
Diluted net loss per share:
(Loss) income from continuing operations
$(0.39) $0.05  $(0.79) $0.06  
Loss from discontinued operations
  (0.01)   (0.04) 
Total diluted net (loss) income per share$(0.39) $0.04  $(0.79) $0.02  
Shares used in per share computation
Basic
29,170  28,919  29,155  28,140  
Diluted
29,170  29,151  29,155  28,399  
Other comprehensive loss, net of tax:
Net unrealized losses on interest rate swaps (net of tax effect of $124, $215, $305, $190)$(411) $(595) $(896) $(608) 
Other comprehensive loss, net of tax(411) (595) (896) (608) 
Total comprehensive (loss) income$(11,929) $472  $(23,938) $64  
See accompanying notes to the consolidated financial statements.
-2-

Table of Contents
LANDEC CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except per share amounts)

Three and Nine Months Ended February 23, 2020
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Common Stock
Shares
Amount
Balance at May 26, 201929,102  $29  $160,341  $109,710  $64  $270,144  
ASC 842 transition adjustment
—  —  —  (274) —  (274) 
Issuance of stock under stock plans
44  —  —  —  —    
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, 201929,146  $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, 201929,163  $29  $161,556  $97,912  $(421) $259,076  
Issuance of stock under stock plans
19  —  —  —  —  —  
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, 202029,182  $29  $162,077  $86,394  $(832) $247,668  
See accompanying notes to the consolidated financial statements.
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Table of Contents
Three and Nine Months Ended February 24, 2019
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
Common Stock
Shares
Amount
Balance at May 27, 201827,702  $28  $142,087  $109,299  $1,148  $252,562  
Issuance of stock under stock plans47  —  —  —  —    
Taxes paid by Company for employee stock plans—  —  (10) —  —  (10) 
Stock-based compensation—  —  728  —  —  728  
Net income—  —  —  190  —  190  
Other comprehensive loss, net of tax—  —  —  —  (89) (89) 
Balance at August 26, 201827,749  $28  $142,805  $109,489  $1,059  $253,381  
Issuance of stock under stock plans36  —  —  —  —    
Taxes paid by Company for employee stock plans—  —  (237) —  —  (237) 
Stock-based compensation—  —  938  —  —  938  
Net loss—  —  —  (585) —  (585) 
Other comprehensive income, net of tax—  —  —  —  76  76  
Balance at November 25, 201827,785  $28  $143,506  $108,904  $1,135  $253,573  
Issuance of stock under stock plans18  —  230  —  —  230  
Issuance of common stock in connection with Yucatan Foods acquisition1,203  1  15,067  —  15,067  
Taxes paid by Company for employee stock plans—  —  (95) —  (95) 
Stock-based compensation—  —  816  —  816  
Net income—  —  —  1,067  1,067  
Other comprehensive loss, net of tax—  —  —  —  (595) (595) 
Balance at February 24, 201929,006  $29  $159,524  $109,971  $540  $270,064  
See accompanying notes to the consolidated financial statements.
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LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
February 23, 2020February 24, 2019
Cash flows from operating activities:
Consolidated net (loss) income$(23,042) $672  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, amortization of intangibles and amortization of debt costs
13,800  10,506  
Stock-based compensation expense
1,881  2,482  
Deferred taxes
(7,881) 540  
Change in investment in non-public company, fair value
(200) (1,600) 
Change in contingent consideration liability
(500) (3,500) 
Net loss (gain) on disposal of property and equipment135  (24) 
Pacific Harvest note receivable reserve
1,202    
Non-cash restructuring and impairment of assets charges11,518    
Other, net
139    
Changes in current assets and current liabilities:
Accounts receivable, net
(198) 315  
Inventories
(12,927) (1,024) 
Prepaid expenses and other current assets
551  1,066  
Accounts payable
11,791  11,912  
Accrued compensation
(2,230) (3,061) 
Other accrued liabilities
1,504  755  
Deferred revenue
119  (1,590) 
Net cash (used in) provided by operating activities
(4,338) 17,449  
Cash flows from investing activities:
Purchases of property and equipment
(22,118) (33,144) 
Acquisition of Yucatan Foods (Note 2), net of cash acquired  (59,872) 
Proceeds from collections of notes receivable
364  404  
Proceeds from sales of fixed assets
2,432  239  
Net cash used in investing activities
(19,322) (92,373) 
Cash flows from financing activities:
Proceeds from sale of common stock
30  230  
Taxes paid by Company for employee stock plans
(175) (342) 
Proceeds from debt
27,500  60,000  
Payments on long-term debt
(8,094) (2,564) 
Proceeds from lines of credit
84,400  34,000  
Payments on lines of credit
(77,900) (17,000) 
Payments for debt issuance costs
(766) (509) 
Net cash provided by financing activities
24,995  73,815  
Net increase (decrease) in cash, cash equivalents and restricted cash
1,335  (1,109) 
Cash, cash equivalents and restricted cash, beginning of period
1,465  3,216  
Cash, cash equivalents and restricted cash, end of period
$2,800  $2,107  
Supplemental disclosure of non-cash investing activities:
Purchases of property and equipment on trade vendor credit
$1,793  $3,035  
Pacific Harvest note receivable reserve
$1,202  $  
See accompanying notes to the consolidated financial statements.
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LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
1. Organization, Basis of Presentation, and Summary of Significant Accounting Policies
Organization
Landec Corporation and its subsidiaries (“Landec” or the “Company”) design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.
The Company sells specialty packaged branded Eat Smart® and private label fresh-cut vegetables and whole produce to retailers, club stores, and food service operators, primarily in the United States and Canada. The Company also sells premier specialty olive oils and wine vinegars under its O Olive Oil & Vinegar® (“O”) brand to natural food, conventional grocery and mass retail stores primarily in the United States and Canada. The majority of Yucatan® and Cabo Fresh® branded guacamole and avocado products are sold in the U.S. grocery channel, but they are also sold in U.S. mass retail, Canadian grocery retail and foodservice channels.
Landec sells its food products through its subsidiary, Curation Foods, Inc. (“Curation Foods”), which serves as the corporate umbrella for a portfolio of four natural food brands, including the Company’s flagship brand Eat Smart as well as three emerging natural food brands, consisting of O olive oil and vinegar products, and its two new brands, Yucatan and Cabo Fresh authentic guacamole and avocado products, acquired by the Company through the acquisition of Yucatan Foods on December 1, 2018. O, Yucatan and Cabo Fresh are referred to collectively as “Emerging Brands”. See Note 2 - Acquisitions for more details.
The Company has two proprietary polymer technology platforms: 1) Intelimer® polymers, and 2) hyaluronan (“HA”) biopolymers.
The Company sells HA-based and non-HA biomaterials and related services through its Lifecore Biomedical, Inc. (“Lifecore”) subsidiary, which are used for multiple applications, including the manufacture of pharmaceutical-grade sodium hyaluronate in bulk form as well as formulated and filled syringes and vials for injectable products. The Company’s HA biopolymers and non-HA materials are proprietary in that they are specially formulated for specific customers to meet strict regulatory requirements.
The Company’s technologies, along with its customer relationships and tradenames, are the foundation and key differentiating advantages upon which Landec has built its business.
Basis of Presentation
The accompanying unaudited consolidated financial statements of Landec have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company at February 23, 2020, and the results of operations and cash flows for all periods presented. Although Landec believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements and related footnotes prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. The accompanying financial data should be reviewed in conjunction with the audited financial statements and accompanying notes included in Landec's Annual Report on Form 10-K for the fiscal year ended May 26, 2019.
The Company’s fiscal year is the 52- or 53-week period that ends on the last Sunday of May with quarters within each year ending on the last Sunday of August, November, and February; however, in instances where the last Sunday would result in a quarter being 12-weeks in length, the Company’s policy is to extend that quarter to the following Sunday. A 14th week is included in the fiscal year every five or six years to realign the Company’s fiscal quarters with calendar quarters. The Company's fiscal year 2020 is a 53-week period and the fourth quarter of fiscal year 2020 is a 14-week period.
In May 2019, the Company discontinued the Now Planting business. As a result, the Now Planting business, which was launched during the second quarter of fiscal year 2019, has been reclassified as a discontinued operation under the provisions of Accounting Standards Codification ("ASC") 205-20, Presentation of Financial Statements - Discontinued Operations ("ASC 205-20") for the three and nine months ended February 24, 2019.
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The results of operations for the nine months ended February 23, 2020 are not necessarily indicative of the results that may be expected for an entire fiscal year because there is some seasonality in Curation Foods’ business and the order patterns of Lifecore’s customers which may lead to significant fluctuations in Landec’s quarterly results of operations.
Basis of Consolidation
The consolidated financial statements are presented on the accrual basis of accounting in accordance with GAAP and include the accounts of Landec Corporation and its subsidiaries, Curation Foods and Lifecore. All intercompany transactions and balances have been eliminated. The financial results of Yucatan Foods have been included in the Company's consolidated financial statements from the date of acquisition on December 1, 2018.
Arrangements that are not controlled through voting or similar rights are reviewed under the guidance for variable interest entities (“VIEs”). A company is required to consolidate the assets, liabilities, and operations of a VIE if it is determined to be the primary beneficiary of the VIE.
An entity is a VIE and subject to consolidation, if by design: a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders, or b) as a group the holders of the equity investment at risk lack any one of the following three characteristics: (i) the power, through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity. The Company reviewed the consolidation guidance and concluded that the equity investment in the non-public company are not VIEs.
Reclassifications
Certain reclassifications have been made to prior year financial statements to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition; loss contingencies; sales returns and allowances; inventories; self-insurance liabilities; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived assets including intangible assets and inventory; the valuation of investments; and the valuation and recognition of stock-based compensation.
These estimates involve the consideration of complex factors and require management to make judgments. The analysis of historical and future trends can require extended periods of time to resolve and are subject to change from period to period. The actual results may differ from management’s estimates.
Cash and Cash Equivalents
The Company records all highly liquid securities with three months or less from date of purchase to maturity as cash equivalents. Cash equivalents consist mainly of money market funds. The market value of cash equivalents approximates their historical cost given their short-term nature.
Reconciliation of Cash and Cash Equivalents and Restricted Cash as presented on the Statements of Cash Flows
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:

(In thousands)February 23,
2020
May 26,
2019
February 24,
2019
May 27,
2018
Cash and cash equivalents$2,607  $1,080  $1,722  $2,899  
Restricted cash193  385  385  325  
Cash, discontinued operations      (8) 
Cash, cash equivalents and restricted cash$2,800  $