Landec(LFCR) - 2019 Q3 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited consolidated financial statements, management's discussion and analysis, and market risk disclosures Item 1. Financial Statements This section presents Landec Corporation's unaudited consolidated financial statements, including the Balance Sheets, Statements of Comprehensive Income, Statement of Changes in Stockholders' Equity, and Statements of Cash Flows, along with detailed notes explaining the company's organization, accounting policies, acquisitions, investments, stock-based compensation, income taxes, debt, and business segment reporting for the fiscal quarter ended February 24, 2019 Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific fiscal dates | Metric | February 24, 2019 (unaudited) | May 27, 2018 | | :-------------------------------- | :----------------------------- | :----------- | | Total Current Assets | $114,333 | $97,063 | | Total Assets | $501,583 | $404,703 | | Total Current Liabilities | $118,943 | $88,375 | | Total Liabilities | $231,519 | $152,141 | | Total Stockholders' Equity | $270,064 | $252,562 | - Total Assets increased by $96.88 million (23.9%) from May 27, 2018, to February 24, 2019, primarily driven by increases in Property and equipment, Goodwill, Trademarks/tradenames, and Customer relationships[8] - Total Liabilities increased by $79.378 million (52.2%) over the same period, largely due to increases in Accounts payable, Line of credit, and Long-term debt[8] Consolidated Statements of Comprehensive Income This section details the company's revenues, expenses, and net income over specific fiscal periods | Metric (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Product sales | $155,687 | $144,909 | $405,267 | $383,151 | | Gross profit | $21,217 | $19,806 | $54,147 | $53,529 | | Operating income | $2,633 | $3,485 | $1,580 | $5,515 | | Net income from continuing operations | $1,067 | $16,281 | $672 | $19,050 | | Consolidated net income | $1,067 | $16,086 | $672 | $18,811 | | Basic net income per share | $0.04 | $0.58 | $0.02 | $0.68 | | Diluted net income per share | $0.04 | $0.57 | $0.02 | $0.67 | - Product sales increased by 7% for the three months and 6% for the nine months ended February 24, 2019, compared to the prior year periods[10] - Net income from continuing operations significantly decreased from $16.281 million to $1.067 million for the three months and from $19.050 million to $672 thousand for the nine months ended February 24, 2019, primarily due to a substantial income tax benefit in the prior year period related to the Tax Cuts and Jobs Act of 2017[10] Consolidated Statement of Changes in Stockholders' Equity This section outlines changes in the company's equity components, including common stock and retained earnings | Metric (in thousands) | Balance at May 27, 2018 | Balance at February 24, 2019 | | :-------------------- | :---------------------- | :--------------------------- | | Common Stock Shares | 27,702 | 29,006 | | Common Stock Amount | $28 | $29 | | Additional Paid-in Capital | $142,087 | $159,524 | | Retained Earnings | $109,299 | $109,971 | | Accumulated Other Comprehensive Income | $1,148 | $540 | | Total Stockholders' Equity | $252,562 | $270,064 | - Total Stockholders' Equity increased by $17.502 million from May 27, 2018, to February 24, 2019, primarily driven by an increase in additional paid-in capital due to the issuance of common stock in connection with the Yucatan Foods acquisition ($15.068 million) and stock-based compensation[12] Consolidated Statements of Cash Flows This section reports the cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity (in thousands) | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $17,449 | $20,300 | | Net cash used in investing activities | $(92,373) | $(22,746) | | Net cash provided by financing activities | $73,815 | $4,687 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(1,109) | $2,241 | | Cash, cash equivalents and restricted cash, end of period | $2,107 | $7,975 | - Net cash provided by operating activities decreased by $2.851 million for the nine months ended February 24, 2019, compared to the prior year[15] - Net cash used in investing activities significantly increased to $92.373 million, primarily due to the Yucatan Foods acquisition ($59.872 million) and increased purchases of property and equipment ($33.144 million)[15] - Net cash provided by financing activities substantially increased to $73.815 million, driven by proceeds from debt ($60.0 million) and lines of credit ($34.0 million) to fund the acquisition and capital expenditures[15] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. Organization, Basis of Presentation, and Summary of Significant Accounting Policies This note details Landec Corporation's business, including its food and biomaterials markets, the rebranding of its food business to Curation Foods, and the acquisition of Yucatan Foods. It outlines the basis of financial statement presentation, significant accounting policies for cash, inventories, related party transactions, debt issuance costs, financial instruments, fair value measurements, revenue recognition, and legal contingencies. The note also covers recently adopted and issued accounting pronouncements - Landec Corporation designs, develops, manufactures, and sells differentiated products for food (Curation Foods) and biomaterials (Lifecore) markets[18] - The food business, formerly Apio, Inc., was rebranded to Curation Foods, Inc. on January 11, 2019, and now includes five natural food brands: Eat Smart, O Olive Oil & Vinegar, Now Planting, Yucatan, and Cabo Fresh[20] - The Company's fiscal year ends on the last Sunday of May, with quarters ending on the last Sunday of August, November, and February, with adjustments for 14-week quarters every five or six years[24] - The Food Export business segment was discontinued in May 2018 and reclassified as a discontinued operation[25] Inventory Category (in thousands) | Inventory Category (in thousands) | February 24, 2019 | May 27, 2018 | | :-------------------------------- | :---------------- | :----------- | | Raw materials | $18,821 | $15,286 | | Work in progress | $3,385 | $3,672 | | Finished goods | $22,021 | $12,861 | | Total | $44,227 | $31,819 | - Inventories increased by $12.408 million (39%) from May 27, 2018, to February 24, 2019, primarily in finished goods and raw materials[37] Fair Value Measurement (in thousands) | Fair Value Measurement (in thousands) | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :------ | :------ | :------ | | Assets (Feb 24, 2019): | | | | | Interest rate swap contracts | $— | $992 | $— | | Investment in non-public company | $— | $— | $68,100 | | Liabilities (Feb 24, 2019): | | | | | Interest rate swap contracts | $— | $259 | $— | | Contingent consideration liability | $— | $— | $500 | - The Company adopted ASU 2016-18 (Restricted Cash) and Topic 606 (Revenue Recognition) on May 28, 2018, with no material impact on revenue recognition timing or measurement[74][78] 2. Acquisitions This note details the acquisition of Yucatan Foods on December 1, 2018, for $75.0 million, comprising cash and common stock, and its strategic rationale to strengthen the natural foods market position. It also provides an update on the contingent consideration liability related to the O acquisition, which saw a significant reduction due to lower projected EBITDA - On December 1, 2018, Landec acquired Yucatan Foods for $75.0 million, consisting of $59.9 million in cash and 1,203,360 shares of common stock valued at $15.1 million[87] - The acquisition of Yucatan Foods added $21.2 million in goodwill and identified $15.9 million in trademarks/tradenames (indefinite-lived) and $11.0 million in customer relationships (12-year useful life)[92][93] - Acquisition-related costs of $2.5 million for the nine months ended February 24, 2019, were expensed as Selling, general and administrative[94] - The contingent consideration liability for the O acquisition decreased from $4.0 million to $0.5 million as of February 24, 2019, due to a poor olive harvest and slower-than-anticipated apple vinegar sales, reducing projected EBITDA[96] 3. Investment in Non-public Company This note describes Landec's investment in Windset, a non-public company, including the types of shares held, the put and call option terms, and the accounting treatment under the fair value option. It also details the dividend income and changes in the fair market value of this investment - Landec holds a 26.9% common share ownership interest in Windset, along with Senior A and Junior preferred shares, and Senior B preferred shares[97][99] - The investment in Windset is accounted for under the fair value option, with fair value determined using a put/call calculation and discounted cash flow models[101] Investment Metrics (in thousands) | Metric (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Dividend income | $413 | $413 | $1,238 | $1,238 | | Change in fair market value (Other income) | $0 | $0 | $1,600 | $2,200 | 4. Stock-Based Compensation This note provides a summary of stock-based compensation expense for stock options and restricted stock units (RSUs), broken down by income statement line item. It also outlines the valuation methods and remaining unrecognized compensation expense Stock-Based Compensation (in thousands) | Stock-Based Compensation (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Options | $245 | $380 | $689 | $1,057 | | RSUs | $571 | $767 | $1,793 | $2,155 | | Total stock-based compensation | $816 | $1,147 | $2,482 | $3,212 | - Total stock-based compensation decreased by $331 thousand (28.9%) for the three months and $730 thousand (22.7%) for the nine months ended February 24, 2019, compared to the prior year periods[103] - As of February 24, 2019, there was $5.0 million of total unrecognized compensation expense, expected to be recognized over weighted-average periods of 1.75 years for stock options and 1.96 years for RSUs[106] 5. Diluted Net Income Per Share This note presents the computation of diluted net income per share, including the weighted average shares used and the effect of dilutive securities like stock options and restricted stock units Diluted Net Income Per Share (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income applicable to Common Stockholders | $1,067 | $16,088 | $672 | $18,721 | | Weighted average shares for basic net income per share | 28,919 | 27,547 | 28,140 | 27,524 | | Effect of dilutive securities | 232 | 371 | 259 | 360 | | Weighted average shares for diluted net income per share | 29,151 | 27,918 | 28,399 | 27,884 | | Diluted net income per share | $0.04 | $0.57 | $0.02 | $0.67 | - Diluted net income per share decreased significantly from $0.57 to $0.04 for the three months and from $0.67 to $0.02 for the nine months ended February 24, 2019, primarily due to lower net income[107] 6. Income Taxes This note discusses the impact of the Tax Cuts and Jobs Act of 2017 (TCJA) on the Company's income taxes, including the federal statutory tax rate reduction and the completion of the analysis for the Transition Tax. It provides the provision for income taxes and effective tax rates for the current and prior periods, highlighting the significant tax benefit in the prior year due to TCJA - The U.S. federal statutory tax rate for Landec was reduced from 35% to 21% for the three and nine months ended February 24, 2019, due to the TCJA[110] Income Tax Metrics (in thousands) | Metric (in thousands) | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | | :-------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $(584) | $11,352 | | Effective tax rate | 46% | 154% (benefit) | - The effective tax rate for the nine months ended February 24, 2019, was 46%, higher than the statutory 21% due to the completion of the TCJA analysis, partially offset by state taxes and R&D credits[112] - Unrecognized tax benefits increased from $479 thousand at May 27, 2018, to $618 thousand at February 24, 2019[114] 7. Debt This note details the Company's long-term debt, including the Credit Agreement with JPMorgan, BMO, and City National Bank. It highlights the Fourth Amendment to the Credit Agreement, which increased the Term Loan and Revolver facilities to fund the Yucatan Foods acquisition and other corporate purposes. The note also covers interest rate swap contracts used to manage interest rate risk Debt Metrics (in thousands) | Debt Metric (in thousands) | February 24, 2019 | May 27, 2018 | | :------------------------- | :---------------- | :----------- | | Term loan | $100,000 | $42,500 | | Total long-term debt, net | $89,637 | $37,360 | - On November 30, 2018, the Term Loan was increased to $100 million and the Revolver to $105 million via the Fourth Amendment to the Credit Agreement, primarily to fund the Yucatan Foods acquisition[119][120] - The Company was in compliance with all financial covenants as of February 24, 2019, with $44.0 million outstanding on the Revolver at an interest rate of 5.27%[124][125] - Landec uses interest rate swap contracts (2016 Swap for $50M at 1.22% fixed LIBOR, 2018 Swap for $30M at 2.74% fixed LIBOR) to manage interest rate risk on its variable-rate Term Loan[126][127] 8. Stockholders' Equity This note summarizes the Company's stock-based award activity, including options and restricted stock units granted. It also mentions the existing stock repurchase plan and confirms no repurchases occurred during the nine months ended February 24, 2019 - During the nine months ended February 24, 2019, the Company granted options to purchase 206,000 shares and awarded 263,000 RSUs[128] - As of February 24, 2019, 2.7 million shares of Common Stock were reserved for future issuance under equity plans[128] - No shares were repurchased under the $10 million stock repurchase plan during the nine months ended February 24, 2019[130] 9. Business Segment Reporting This note outlines the Company's three strategic reportable business segments: Curation Foods, Lifecore, and Other, following the discontinuation of the Food Export segment and the rebranding of Natural Foods to Curation Foods. It provides disaggregated financial information for each segment, including net sales, international sales, gross profit, and net income from continuing operations, along with key customer concentration - The Company operates in three reportable segments: Curation Foods (natural food brands, BreatheWay technology), Lifecore (HA-based and non-HA biomaterials, CDMO services), and Other (corporate G&A, non-segment interest/tax expenses)[132][133][134] Segment Net Sales (in thousands) | Segment Net Sales (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Curation Foods | $131,984 | $121,950 | $353,502 | $333,915 | | Lifecore | $23,703 | $22,959 | $51,765 | $49,236 | | Total Net Sales | $155,687 | $144,909 | $405,267 | $383,151 | Segment Gross Profit (in thousands) | Segment Gross Profit (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Curation Foods | $9,641 | $8,197 | $33,926 | $33,181 | | Lifecore | $11,576 | $11,609 | $20,221 | $20,348 | | Total Gross Profit | $21,217 | $19,806 | $54,147 | $53,529 | - Sales to the top five customers accounted for 46% of sales for the nine months ended February 24, 2019 (down from 49% in prior year), with Costco and Wal-Mart representing 17% and 16% respectively[139] 10. Discontinued Operations This note details the discontinuation of the Food Export business segment in the fourth quarter of fiscal year 2018, reclassifying its results as discontinued operations. It provides the financial impact of this reclassification on the Company's consolidated statements - The Food Export business segment was discontinued in Q4 fiscal year 2018 and its operating results were reclassified as discontinued operations[140] Discontinued Operations Metrics (in thousands) | Metric (in thousands) | Three Months Ended Feb 25, 2018 | Nine Months Ended Feb 25, 2018 | | :-------------------- | :------------------------------ | :----------------------------- | | Revenues | $4,414 | $25,986 | | Loss from discontinued operations, net of tax | $(195) | $(239) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Landec's financial condition and results of operations, discussing critical accounting policies, recent accounting pronouncements, and an overview of the Company's Curation Foods and Lifecore segments. It analyzes revenues, gross profit, R&D, SG&A, and other income/expenses, highlighting key drivers and changes for the three and nine months ended February 24, 2019. The section concludes with an assessment of liquidity and capital resources Critical Accounting Policies and Use of Estimates This section discusses the company's significant accounting policies and the judgments involved in applying them - No material changes to critical accounting policies or estimates, except for the adoption of Topic 606 (Revenue from Contracts with Customers)[144] Recently Issued Accounting Pronouncements This section outlines new accounting standards and their potential impact on the company's financial reporting - The Company is subject to several recently issued accounting pronouncements, detailed in Note 1 of the financial statements[145] The Company This section provides an overview of Landec's business model, market focus, and strategic objectives - Landec designs, develops, manufactures, and sells differentiated health and wellness products for food (Curation Foods) and biomaterials (Lifecore) markets, focusing on healthier eating and preventive wellness[146] - Both Curation Foods and Lifecore businesses utilize polymer chemistry technology and focus on business-to-business selling[147] Curation Foods This section details the Curation Foods segment, including its rebranding, product offerings, and competitive advantages - Curation Foods, formerly Apio, Inc., completed its transition to a branded, natural foods company on January 11, 2019, encompassing Eat Smart, O Olive Oil & Vinegar, Now Planting, Yucatan, and Cabo Fresh brands[149] - The segment sells specialty packaged fresh-cut vegetables and whole produce, olive oils, wine vinegars, plant-based soups, and guacamole/avocado products primarily in the US and Canada[150] - Key competitive advantages include being a single source for a broad range of products, nationwide processing and distribution, expanded product lines using BreatheWay technology, and products in approximately 67% of North American retail grocery stores[157][158] Lifecore This section describes the Lifecore biomaterials business, its products, services, and strategic initiatives - Lifecore operates the biomaterials business, focusing on pharmaceutical-grade sodium hyaluronate (HA) products and contract development and aseptic manufacturing services (CDMO)[152] - Lifecore's strategy includes establishing strategic relationships with market leaders, expanding medical applications for HA, utilizing manufacturing infrastructure for CDMO opportunities, and maintaining flexibility in product development and supply relationships[166] Results of Operations This section analyzes the company's financial performance, including revenues, gross profit, and operating expenses Revenues This section examines the drivers and changes in the company's revenue streams by segment Segment Revenues (in thousands) | Segment Revenues (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Change (%) | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | Change (%) | | :------------------------------ | :------------------------------ | :------------------------------ | :--------- | :----------------------------- | :----------------------------- | :--------- | | Curation Foods | $131,984 | $121,950 | 8% | $353,502 | $333,915 | 6% | | Lifecore | $23,703 | $22,959 | 3% | $51,765 | $49,236 | 5% | | Total Revenues | $155,687 | $144,909 | 7% | $405,267 | $383,151 | 6% | - Curation Foods' revenue increase for the three and nine months was primarily due to $12.7 million from the Yucatan Foods acquisition and higher salad sales, partially offset by decreases in green bean and tray sales[169][170] - Lifecore's revenue increase for the three and nine months was driven by a $1.6 million and $4.8 million increase in development services revenues, respectively, partially offset by timing-related decreases in fermentation and aseptic filling revenues[172][173] Gross Profit This section analyzes the gross profit performance of each business segment and its contributing factors Segment Gross Profit (in thousands) | Segment Gross Profit (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Change (%) | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | Change (%) | | :---------------------------------- | :------------------------------ | :------------------------------ | :--------- | :----------------------------- | :----------------------------- | :--------- | | Curation Foods | $9,641 | $8,197 | 18% | $33,926 | $33,181 | 2% | | Lifecore | $11,576 | $11,609 | —% | $20,221 | $20,348 | (1%) | | Total Gross Profit | $21,217 | $19,806 | 7% | $54,147 | $53,529 | 1% | - Curation Foods' gross profit increase was primarily due to $1.9 million from the Yucatan Foods acquisition and higher salad sales, partially offset by increased raw material, labor, packaging, and freight costs[176] - Lifecore's gross profit saw a slight decrease due to the timing of production and shipments, partially offset by increased development services revenues[178] Research and Development (R&D) This section details the company's R&D expenditures and their allocation across segments Segment R&D (in thousands) | Segment R&D (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Change (%) | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | Change (%) | | :------------------------- | :------------------------------ | :------------------------------ | :--------- | :----------------------------- | :----------------------------- | :--------- | | Curation Foods | $1,301 | $1,439 | (10%) | $3,833 | $3,944 | (3%) | | Lifecore | $1,271 | $1,406 | (10%) | $3,701 | $4,108 | (10%) | | Other | $169 | $268 | (37%) | $573 | $1,152 | (50%) | | Total R&D | $2,741 | $3,113 | (12%) | $8,107 | $9,204 | (12%) | - Total R&D expenses decreased by 12% for both the three and nine months ended February 24, 2019, primarily due to reduced product development activities in the Other segment and a higher percentage of Lifecore R&D personnel working on production[180] Selling, General, and Administrative (SG&A) This section reviews the trends and components of selling, general, and administrative expenses Segment SG&A (in thousands) | Segment SG&A (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Change (%) | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | Change (%) | | :-------------------------- | :------------------------------ | :------------------------------ | :--------- | :----------------------------- | :----------------------------- | :--------- | | Curation Foods | $14,072 | $8,343 | 69% | $32,687 | $25,039 | 31% | | Lifecore | $1,638 | $1,444 | 13% | $4,883 | $4,387 | 11% | | Other | $133 | $3,421 | (96%) | $6,890 | $9,384 | (27%) | | Total SG&A | $15,843 | $13,208 | 20% | $44,460 | $38,810 | 15% | - Curation Foods' SG&A increased significantly due to Yucatan Foods' SG&A ($2.4M), M&A costs ($1.7M for 3 months, $2.5M for 9 months), and increased consulting fees for Eat Smart[184][185] - The decrease in Other segment SG&A was primarily due to a $2.6 million (3 months) and $3.5 million (9 months) reduction in the O acquisition earnout liability[184][185] Other This section covers other income and expenses, including dividend income, interest, and income tax impacts Other Income/Expense (in thousands) | Other Income/Expense (in thousands) | Three Months Ended Feb 24, 2019 | Three Months Ended Feb 25, 2018 | Change (%) | Nine Months Ended Feb 24, 2019 | Nine Months Ended Feb 25, 2018 | Change (%) | | :---------------------------------- | :------------------------------ | :------------------------------ | :--------- | :----------------------------- | :----------------------------- | :--------- | | Dividend Income | $413 | $413 | 0% | $1,238 | $1,238 | 0% | | Interest Income | $34 | $87 | (61%) | $113 | $160 | (29%) | | Interest Expense | $(1,771) | $(531) | 234% | $(3,275) | $(1,415) | 131% | | Other Income | $— | $— | NM | $1,600 | $2,200 | (27%) | | Income Tax (Expense) Benefit | $(242) | $12,827 | NM | $(584) | $11,352 | NM | - Interest expense significantly increased due to additional borrowings for the Yucatan Foods acquisition and an increase in the line of credit balance[190] - The change in income tax expense/benefit is primarily due to the significant tax benefit recognized in the prior year from the TCJA[192] Liquidity and Capital Resources This section assesses the company's cash position, cash flow activities, and ability to meet its financial obligations - Cash and cash equivalents decreased by $1.2 million to $1.7 million as of February 24, 2019, from $2.9 million at May 27, 2018[193] - Net cash from operating activities was $17.4 million for the nine months ended February 24, 2019, a decrease from $20.3 million in the prior year, primarily due to changes in working capital[194][195] - Net cash used in investing activities was $92.4 million, largely driven by the $59.9 million cash payment for the Yucatan Foods acquisition and $33.1 million in equipment purchases[197] - Net cash provided by financing activities was $73.8 million, primarily from $60.0 million in term loan borrowings and a $17.0 million increase in the line of credit[198] - Landec believes its cash from operations, existing cash, and cash equivalents will be sufficient to finance operational and capital requirements for at least the next twelve months[203] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the Company's market risk during the first nine months of fiscal year 2019 - No material changes to the Company's market risk during the first nine months of fiscal year 2019[204] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures, concluding their effectiveness. It also reports the completion of remediation efforts for a previously identified material weakness in internal control over financial reporting and the exclusion of Yucatan Foods from the current assessment due to its recent acquisition - Management concluded that the Company's disclosure controls and procedures were effective as of February 24, 2019[205] - The Company completed the remediation plan for the material weakness in internal control over financial reporting identified as of May 27, 2018, by strengthening reconciliation controls for accounts payable and fixed assets, and improving the review process for cash flows from investing activities[206] - Yucatan Foods is excluded from the assessment of internal control over financial reporting for the year ending May 26, 2019, due to its recent acquisition on December 1, 2018[208] Part II. Other Information This section covers legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings This section refers to Note 1 for a discussion of the Company's involvement in various legal proceedings and claims in the ordinary course of business - The Company is involved in various legal proceedings and claims in the ordinary course of business, with further discussion in Note 1[212] Item 1A. Risk Factors This section highlights new or significantly changed risk factors, including uncertainty due to recent changes in U.S. tax rates and laws, and risks associated with doing business internationally, particularly in Mexico, such as organized crime, government regulations, and foreign currency exchange rate fluctuations - Estimated annual effective tax rate may be subject to further uncertainty due to recent changes in U.S. tax rates and laws[213] - The Company is subject to risks of doing business internationally, particularly in Mexico, including increased organized crime, changes in government regulations, and examinations by tax authorities[214] - Fluctuations in foreign currency exchange rates, especially the Mexican peso against the U.S. dollar, may adversely affect operating results and cash flows[215][216] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section refers to Note 2 for details on the acquisition of Yucatan Foods, which involved the issuance of equity securities. It also confirms that no shares were repurchased during the fiscal quarter - The acquisition of Yucatan Foods on December 1, 2018, involved unregistered sales of equity securities (common stock)[217] - No shares were repurchased by the Company during the fiscal quarter ended February 24, 2019[217] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - No defaults upon senior securities occurred[218] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine Safety Disclosures are not applicable[219] Item 5. Other Information This section states that there is no other information to report - No other information to report[219] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906) and XBRL-related documents - Exhibits include CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act) and XBRL Instance, Taxonomy Extension Schema, Calculation, Definition, Labels, and Presentation files[220] SIGNATURES This section contains the required certifications and signatures for the report Signatures This section contains the required signatures for the Form 10-Q, certifying its submission on behalf of Landec Corporation by its Vice President of Finance and Administration and Chief Financial Officer - The report was signed on behalf of Landec Corporation by Gregory S. Skinner, Vice President of Finance and Administration and Chief Financial Officer, on April 4, 2019[223]