使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Good day, ladies and gentlemen, and welcome to the Landec third-quarter fiscal year 2012 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.
Gary Steele - President, CEO
Good morning, and thank you for joining Landec's third-quarter fiscal year 2012 earnings call.
I have with me today Greg Skinner, our Chief Financial Officer.
This call is being webcast by Thomson Reuters and can be accessed at Landec's website at www.landec.com on our Investor Relations page.
The webcast will be available for 30 days through April 25, 2012.
A replay of the teleconference will be available for one week until midnight Eastern Time Tuesday, April 3, 2012 by calling 888-266-2081 or 703-925-2533.
The access code for the replay is 1571046.
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 another good quarter, with revenues up 9% to $80.1 million and net income up 107% to $4.8 million.
Earnings per share for the quarter was $0.18 per share compared to $0.09 per share for last year's third quarter.
The actual net income results for the third quarter are higher than we had anticipated due to a timing shift for the recognition of the increase in the fair market value of our investment in Windset Farms.
Recall that we own 20% of Windset.
Based on a recent annual appraisal of Windset's fair market value, we were required to record much of the remaining full-year increase in our share of the fair market value change in the third quarter instead of the fourth quarter.
The timing shift does not alter or affect our outlook, which remains strong for this fiscal year.
We are increasing our fiscal year 2012 guidance for revenue growth to 9% to 10% increase compared to our original guidance of 5% or better growth, and for guiding our year-over-year net income growth to approximately 40%, after adding back the one-time impairment charge of $4.8 million to net income for fiscal year 2011.
And that is compared to our original guidance of 30% to 40% increase.
We continue to focus on growing our two core businesses, our food business and our biomedical materials business, and we are benefiting from this focus.
During the third quarter, the Apio value-added food business increased revenues $8.7 million, based on a 24% increase in unit volume sales.
The fresh-cut produce industry category unit volume continues to improve, and the industry category is growing at 6.2% over the last nine months, while Apio's unit volume has grown 19% over the last nine months, more than triple the category growth.
Apio's food business growth is based on continued and successful efforts in adding customers and introducing new products, as well as from its competitive advantages in technology, customer service and product quality.
In our food business, we are also benefiting from our strategic relationship with Windset Farms, a leading grower of hydroponic greenhouse fruits and vegetables.
Windset Farms is a partner and customer of our BreatheWay fresh-cut food packaging technology, and they have hydroponic growing facilities in Canada, Nevada and Santa Maria, California, very near our Apio food operations.
The Windset Santa Maria facility is a newly-constructed, 3 million square feet state-of-the-art greenhouse facility which is fully up and running now, and is currently exceeding plan for producing and selling high-end premium-priced tomatoes, which includes Camparis, grapes and cherry tomatoes.
Based on Windset's operating performance, the recent annual fair market value appraisal of Windset results in the value of our investment increasing by $5.8 million for all of fiscal year 2012.
Of that $5.8 million increase, $1.2 million was recognized in the first half of our fiscal year, $3.5 million was recognized in the third quarter, and the remaining $1.1 million is to be recognized in our fourth quarter.
Windset's hydroponic growing operations represent important departures from and key advantages versus traditional growing methods.
First, there is no soil used at all, and with its 64 acres of hydroponic greenhouses, Windset produces the same amount of tomatoes that otherwise would require 5000 acres of soil-grown tomatoes.
And secondly, Windset's hydroponic growing operations uses only 1/28th of the water for soil-grown tomatoes.
We are pleased with this investment.
In addition to the change in fair market value of our investment, on a quarterly basis, we also recognized a 7.5% annual preferred dividend on our original $15 million preferred stock investment.
And that dividend amounts to $1.125 million per year, which is accrued at roughly $281,000 per quarter.
Lifecore Biomedical continues to generate excellent margins from biomedical material sales for applications in ophthalmology, orthopedics and veterinary medicine.
Even though revenues are expected to grow 5% for fiscal year 2012 instead of our 10% plan, pretax income is expected to grow, as planned, at over 10% due to favorable product mix in fiscal year 2012.
We like this business and its growth prospects.
As mentioned in prior earnings conference call, Lifecore is focused on adding new customers with new products, primarily in the high-margin ophthalmology segment.
Each new product typically requires an FDA submission process, and we have experienced a longer-than-anticipated FDA process with a key new program.
We can now see the light at the end of the tunnel with this program that is before the FDA, and we expect Lifecore to return to double-digit revenue growth in our new fiscal year 2013.
We will give you more specifics concerning our fiscal year 2013 projections across our businesses during our fourth-quarter results release.
Outside of our two core food and biomedical materials businesses, we are evaluating several new business opportunities.
We will comment on these programs as they progress.
We are also looking at our agricultural seed-coating business to determine what parts of this business we should sell and what parts we should continue.
More on this in the next quarter or two.
Our balance sheet remains strong, with the generation of $8.5 million in cash flow from operations during the first nine months of fiscal year 2012, and cash and marketable security balances were $37.6 million at the end of our third fiscal quarter.
Let me turn a discussion of financial results now over to Greg.
Greg Skinner - VP of Administration, CFO
Thank you, Gary.
Good morning, everyone.
In yesterday's news release, Landec reported that for the third quarter of fiscal year 2012, revenues increased 9% to $80.1 million versus revenues of $73.5 million for the third quarter of last year.
The increase in total revenues during this year's third quarter compared to last year's third quarter was primarily due to an $8.7 million increase in revenues in Apio's value-added business, which includes the fresh-cut specialty packaged vegetable business, Apio Cooling and Apio Packaging.
The growth in Apio's value-added vegetable business resulted from a year over year 24% increase in unit volume sales, which were facilitated by new distribution gains and normal weather patterns during this year's third quarter compared to very poor weather conditions during the third quarter of last year, which resulted in significant produce sourcing issues last year.
These increases in revenue were partially offset by a $1.1 million decrease in revenues at Lifecore due to the timing of shipments compared to the third quarter of last year and a $1.3 million decrease in revenues in our technology licensing business, primarily due to the termination of the Monsanto license agreement at the end of the second quarter of fiscal year 2012.
For the third quarter of fiscal year 2012, Landec's net income increased 107% to $4.8 million, or $0.18 per share, compared to $2.3 million, or $0.09 per share, for the third quarter of last year.
The increase in net income during the third quarter of fiscal year 2012 compared to the third quarter of last year was due to a $1.7 million increase in pretax income from Apio's value-added business and a $3.8 million increase in pretax income from our investment in Windset Farms.
These increases were partially offset by a $1.3 million reduction in license fee from the termination of the Monsanto license agreement and a $1.6 million increase in the income tax expense due to higher pretax income.
For the first nine months of fiscal year 2012, revenues increased 13% to $234.9 million versus revenues of $208.6 million for the same period a year ago.
The increase in revenues during the first nine months of fiscal year 2012 compared to the first nine months of fiscal year 2011 was due to first, a $17.6 million or 14% increase in Apio's value-added business; second, a $9.7 million or 20% increase in Apio's export business; and third, a $458,000 or 2% increase in Lifecore's biomaterials business.
These increases in revenue were partially offset by a $1.4 million decrease in revenues in our technology licensing business, primarily due to the termination of the Monsanto licensing agreement at the end of the second quarter of fiscal year 2012.
For the first nine months of fiscal year 2012, net income increased 49% or $9.9 million or $0.38 per share compared to net income of $6.7 million or $0.25 per share for the same period last year.
The increase in net income during the first nine months of fiscal year 2012 compared to the same period last year was due to a $5.6 million increase in pretax income from our investment in Windset Farms and due to a $1.9 million increase in pretax income from Apio's value-added and export businesses.
These increases were partially offset by, first, a $1.5 million decrease in pretax income in our technology licensing business, primarily due to the termination of the Monsanto license agreement; second, a $2.2 million increase in the income tax expense due to higher pretax income; and third, a $463,000 decrease in pretax income at Lifecore due to changes in product mix to higher-sales, lower-margin products, primarily during the first six months of fiscal year 2012.
Turning to Landec's financial position, during the first nine months of fiscal year 2012, cash and marketable securities increased by $1.4 million.
The increases in cash were from generating $9.9 million of net income and from $11.1 million of non-cash expense items, such as depreciation and amortization, stock-based compensation and the tax benefit from stock-based compensation.
These increases in cash were partially offset by, first, the purchase of $5 million of our common stock on the open market through our stock buyback plan; second, the $4.7 million increase in our investment in Windset Farms; third, the payback of $3.3 million of debt; fourth, the purchase of $3.9 million of equipment; and fifth, a $2.5 million increase in working capital.
The change in our investment in Windset Farms during the three and nine months ended February 26, 2012 is due to the Company electing fair market value accounting for this investment, which requires us to mark to market the investment each quarter.
In addition, the Company must obtain an annual appraisal and adjust the fair market value of our investment in Windset to the appraised amount.
We had originally intended to do the appraisal during our fourth fiscal quarter, and thus adjust our investment at that time.
But at the recommendation of Ernst & Young, our auditors, we performed the appraisal during the third quarter.
The appraised value is based on the discounting cash flow model derived from Windset's five-year projections through a pre-agreed put-call date in early 2017.
The appraisal determined that the fair market value of our investment increased from $15.7 million at the end of fiscal year 2011 to $21.5 million at the end of fiscal year 2012, or a change of $5.8 million.
Discounting this $5.8 million change from May 27, 2012 to February 26, 2012 resulted in an increase in our investment of $4.7 million for the first nine months of fiscal year 2012.
Through the first six month of fiscal year 2012, we recorded an increase in our investment of $1.2 million, so during the third quarter, we recorded an increase in our investment of $3.5 million to get to the $4.7 million increase through the first nine months of fiscal year 2012.
The remaining $1.1 million will be recorded in our fourth fiscal quarter.
In summary, our original $15 million investment in Windset is increasing in value each quarter, and the value of that investment at the time of the put-call date in 2017 will be paid to Landec in cash, which we will use that to invest in other business opportunities or to reinvest in new Windset projects.
Gary.
Gary Steele - President, CEO
Thanks, Greg.
So what are our growth drivers going forward?
Our focus is on growing and building our two core businesses, the Apio food business and the Lifecore Biomedical materials business.
In addition, we are very selectively -- and I repeat very selectively -- looking at licensing opportunities which include either out-licensing or in-licensing of technology.
We plan to grow our food business by introducing numerous new products starting this spring and by adding new customers.
We are also interested in finding synergistic opportunities that build on our excellent access to retail and club store produce buyers in North America.
Anything that we can do to broaden our specialty packaged food product line, fill trucks, add new customers and expand the use of our packaging technology is of great interest to us.
Regarding our BreatheWay packaging technology, we want to capitalize on Chiquita's expanding interest in transporting and packaging bananas in our BreatheWay technology, and we want to find new applications in general for our BreatheWay packaging.
Regarding Windset as part of our food business, we are working on developing new ways to work with Windset and become a bigger part of their rapid growth.
Going forward, we will be discussing with them how we can work together to expand the Santa Maria hydroponic greenhouse operations, as well as identifying new targets for hydroponic greenhouse growing.
For our Lifecore Biomedical materials business, our primary goal is to increase the volume of our hyaluronic acid materials that we make up there in Chaska, Minnesota.
And essentially, we want to increase the capacity utilization of our fermentation and filling operations.
Most of our facility is at roughly a 50% utilization rate right now, so there is plenty of opportunity for adding highly profitable business, as we demonstrated last year.
Our shareholders need to remember that in almost every case, our injectable biomaterials programs will go through an FDA review, and it is very difficult to predict, especially in today's environment, how long the FDA review process will take.
Once approved, our products are then specked into our customers' final product formulations, thus providing a significant barrier to competition.
Somewhat further down the road, we are investigating how our Lifecore materials can be used as adjuvants in human therapeutics, as well as aesthetic materials, as well as veterinary medicines and as coatings for medical devices.
In summary, through our first three quarters, we are tracking well with our plans and guidance, and we look forward to continued growth in revenues and income.
We are now available for your questions.
Operator
(Operator Instructions) Tony Brenner, ROTH Capital Partners.
Tony Brenner - Analyst
I have two questions.
First of all, regarding your guidance for revenues for the year and for the quarter, your range of 9% to 10% implies possibly lower year-over-year revenues in the fourth quarter to up maybe 1% or 1.5%.
And if you break out by division, to do your 5% increase to the year, Lifecore would have to have a little better than a 20% revenue increase in the fourth quarter.
Apio value-added should have, it sounds, like a pretty good increase against a depressed result a year ago because of weather.
So I'm wondering what the offset to those gains are.
Or are you just (multiple speakers)?
Gary Steele - President, CEO
Remember, we don't have Monsanto this year, so there is $1.4 million that (multiple speakers).
Tony Brenner - Analyst
I understand.
Gary Steele - President, CEO
-- fourth quarter.
And export, you know, it is always -- it is a source-based revenue business, and if the source is there.
And so it is always hard to predict it.
But your numbers are in the ball park.
I mean, what we said, we thought we would be higher in the fourth quarter this year than we were last year, slightly higher.
And I think if you do the math based on where we were through the first three quarters, we are in that 9% to 10% range for the year.
Tony Brenner - Analyst
Could you do the math -- 9% implies a down fourth quarter.
Your export business would pretty much have to disappear to get that number, wouldn't it?
Greg Skinner - VP of Administration, CFO
No, no.
Obviously, you don't want to give the high end of every range.
We're factoring in -- things still happen in the produce industry.
So we are comfortable that we are going to fall in that 9% to 10% range for the year.
Tony Brenner - Analyst
I see.
Gary Steele - President, CEO
Maybe off-line, Tony, we could go into more detail.
Tony Brenner - Analyst
Okay.
Secondly, regarding the fair market value of Windset Farms, will you value that again at the end of the year or not?
Greg Skinner - VP of Administration, CFO
No, no.
Because their projections are based on the period June 2012 through May 2017, there is nothing going to happen in the next two months that is going to change their five-year projections.
And the entire value, that $5.8 million increase, is based on that five-year projection discounted back to the present day -- discounted back to June 1, 2012.
Tony Brenner - Analyst
So then in recording fair market value changes in fiscal 2013 quarter by quarter, you do it basically on a -- flat with the 5.8?
Greg Skinner - VP of Administration, CFO
What we will end up doing -- and this is let's just say an agreement with Ernst & Young -- this is our first year, obviously, having to go through this -- is we are going to estimate when we think the fair market value is based on either the current five-year projections from Windset or a revised one.
And then pretend we are a year from now, doing the same analysis, so it is kind of like a what-if, and discount it back to May of 2013.
And then that number, which would be whatever the difference is between 21.5 and that calculation, we will then record on a quarterly basis next year.
So we will be in full agreement at the beginning of the year what we will be recording, absent any significant changes in their operations.
Gary Steele - President, CEO
Do you do an annual appraisal?
Greg Skinner - VP of Administration, CFO
Yes.
Tony Brenner - Analyst
So that requires a higher number, doesn't it?
Greg Skinner - VP of Administration, CFO
Well, we haven't run the numbers yet, but in theory, yes, because you are discounting it back less years.
Tony Brenner - Analyst
Okay, that's all I had.
Thank you.
Operator
[Nelson Obis, Winfield.]
Nelson Obis - Analyst
Just a couple things from your press release.
I can't say I have been focusing to a great degree on Pollinator Plus, but I am a little bit astounded that this is a product that, quote, will be used on approximately 25% of the seed corn production acres in the US and we only get $1 million of revenues.
Gary Steele - President, CEO
It is inbred -- it is the -- it is a very small niche market, Nelson.
This is not commercial corn.
This is just the inbred corn, and it is 640,000 acres in total.
So this is the acreage that the Pioneers and the Monsantos and the Dows and the Syngentas plant in terms of imparting their new genetics.
So it is not a big market.
It is only 640,000 acres.
Nelson Obis - Analyst
What do you think the value of that market is, though?
This is the seed corn, sure.
Gary Steele - President, CEO
Maximum $10 million a year.
Nelson Obis - Analyst
Okay.
Just a little update on why the BreatheWay packaging in the avocado program has had operational struggles and adaptation --.
I mean, I thought it was going pretty well, and it is a little bit of a disappointment, when we have some positive expectations in one quarter, and then, you know, we do 180 in the next.
It's (multiple speakers) little bit of Monsanto.
Gary Steele - President, CEO
No.
The difference in my mind is that in the banana business, when we licensed the technology, we were working with the world market leader.
They knew the banana business.
They had the sourcing, they knew the operations, et cetera, et cetera.
Avocado is brand-new for them.
All I can tell you is they've been struggling operationally.
Our technology works exactly as advertised.
We picked a partner that was new to avocados, and it has just been a real struggle operationally for them.
So that's all I can tell you at this point.
But it has been disappointing.
They front-end loaded a lot of orders late last year.
And they just haven't worked through that inventory.
So I agree with you, disappointing.
Nelson Obis - Analyst
All right, so the problem is really all on Chiquita's side.
Gary Steele - President, CEO
Well, you hate to put the monkey on somebody else's back, but we are -- our technology works.
It works just (multiple speakers).
Nelson Obis - Analyst
Okay.
Same extension of shelf life.
Gary Steele - President, CEO
Yes.
No, no --- and you get the shelf-life extension, which you do, the biggest value is that it gives you the opportunity to fully ripen your avocados, hold them in that ripened, ready-to-eat state for 11 days.
It works just as we said it would work.
And we are dependent.
And anytime we do licensing deals -- and you know this -- you are dependent on your partner to exploit and perform, and it has been a real struggle for them.
Nelson Obis - Analyst
Well, this is a delicate question.
I could be wrong, but I do believe the prior messaging in terms of the whole project was somewhat positive, including initial sell-through.
Am I wrong about that?
Gary Steele - President, CEO
No, you're not wrong about it.
They were -- the prior messaging was that they were very excited about this, wanted to make a big run at it.
Secondly, they ordered a lot of product from us.
And third, the initial trials were showing very good results in terms of what is called retail velocity and low shrink.
So all that is fine and dandy, but if you are struggling operationally and you are not finding that it is profitable while you're doing that, it has got to be a problem for Chiquita.
And therefore, we are tied to them.
We are joined at the hip.
Nelson Obis - Analyst
Okay, fine.
Thanks.
Operator
Chris Krueger, Northland Capital.
Chris Krueger - Analyst
In your comments, you stated that one of the growth drivers for your Apio business was new products.
I was wondering if you could give us a few examples of what types of products those are.
Gary Steele - President, CEO
Well, boy, since they haven't been released to the marketplace and not announced, I would prefer not, Chris, from a competitive point of view.
But they use BreatheWay technology, and they are -- and our specialty packaging technology.
They are in -- they generally include mixtures of vegetables.
We also will be using in some cases Windset Farms' tomatoes, which are really very premium, high-value products.
So if you would allow us to not disclose anything more on that, I think that would be better for us.
But it is -- every quarter we have a rollout, and we have products not only for the retail stores, but we also have some specialty products for the club stores.
So we are going to start that this spring.
We've already been meeting initially with some of the produce buyers, and so far the reception is positive.
So we haven't disclosed the specifics of the exact products.
Chris Krueger - Analyst
Okay.
And for the Apio segment, your SG&A expenses have been somewhat elevated really throughout this nine-month period versus the last couple of years.
Can you remind us what is causing them?
Greg Skinner - VP of Administration, CFO
The primary increase, Chris, is a year ago, we obviously had all the produce sourcing issues.
Gary Steele - President, CEO
Because of weather.
Greg Skinner - VP of Administration, CFO
Because of weather.
And as a result, the bonuses that were originally planned at the beginning of the year, they weren't accrued because they weren't hitting their numbers.
Whereas this year, as you can see, they are doing very well, especially year-over-year.
They are meeting and exceeding their plan.
And as a result, we are accruing bonuses this year.
We want to pay them their bonuses.
That is by far the biggest reason for the increase.
There is also some consulting, legal, some of these new products that Gary was talking about, we've gone out and hired some third-party consultants to assist us on, and so on and so forth.
So all the rest of it is a combination of a little bit here, a little bit there.
Chris Krueger - Analyst
Okay.
Last question for Windset.
I apologize if you talked about this on the call.
But have they stated any plans for adding more acres?
I know you have capacity with the water treatment facility to double the acreage at that site.
Gary Steele - President, CEO
We are in the process of discussing this possibility with them.
Let me just remind you that they've built 3 million square feet on 64 acres.
They own 221 acres.
So there is room to expand.
But that is a discussion that we will have with them over the next quarter.
And as we decide collectively to expand, we'll let you know.
But right now, we just haven't met with them to do that yet.
They were very busy getting up and running in the first phase.
It has gone very well for them.
They are selling out the plant, obviously.
And so it is -- I would say in the next quarter or two, we will be making decisions as to where to go next.
Chris Krueger - Analyst
Okay, thank you.
That's all I've got.
Operator
(Operator Instructions) Warrick Jervis, Trailhead Asset Management.
Warrick Jervis - Analyst
I wonder if you could give us a little more color on what is going on with the Personal Care licensing and how those products are doing.
Gary Steele - President, CEO
If you recall, we have this agreement with Air Products; we get 40% of the direct gross profits.
We have been working with them for several years.
There is about 50 products, I believe, that use our materials.
We need Air Products to greatly, greatly expand the volume and the customer base.
They have been adding people to do that.
They've recently made an acquisition in Germany, a small one in the cosmetic field, that hopefully might give better traction in Europe.
There is a major program that we've worked on with them that is in testing.
It was launched -- it was announced in Milan last year.
It generally takes one to two years when you have a new product platform to get that through the valuation process of customers.
They have to take it through toxicology.
They have to get it specked, et cetera, et cetera.
They have to test it.
So we are really in that mode where we are waiting for this new product platform to really get some traction and get some results.
But that is probably -- I'm guessing that is about four quarters away, before that new platform is launched.
And so it is a real slow as you go kind of a deal with Air Products.
We are curious to see how this acquisition of this company in Europe might affect us.
Because we've been wanting them to put more feet on the ground, have more formulators, have more salespeople.
Maybe this is the catalyst that will make some changes.
But so far, it has been pretty slow going, and that is all I could tell you at this point.
Warrick Jervis - Analyst
Thank you.
Have you got any update for us in the pharmaceuticals side?
Gary Steele - President, CEO
Our interest in the pharmaceutical side is largely related to what we might be able to do with some of our materials at Lifecore Biomedical.
This is -- it is called hyaluronic acid.
And we have -- we are investigating one or two programs there that we've met with medical advisors recently, and got some positive feedback and results.
All I can tell you is anything that is on the pharmaceuticals side is a long process.
Don't count on anything in the short term here.
But we think these materials called hyaluronic acid, which we use for ophthalmology and orthopedics and things like that, we think those materials have bigger and broader uses in the human body.
Why are they there?
Why do you find them in epithelial cells?
Why do find them in various parts of the body?
Why do they seem to have something to do with the immune system?
So that is where our corporate R&D team is starting to focus, to better understand that and to collaborate with university and research institutions that are leaders in the field of studying these materials.
So we are very deeply interested in it.
It is a longer-term program for us.
Our current core businesses can drive growth for the next few years, but we want to invest in some of these longer-term opportunities as well.
So it is still early.
Warrick Jervis - Analyst
Okay, but what is happening with the timed release on pharmaceuticals, nothing?
Gary Steele - President, CEO
Nothing.
Warrick Jervis - Analyst
Okay.
Thank you.
Operator
Morris Ajzenman, Griffin Securities.
Morris Ajzenman - Analyst
Just to follow up on the earlier question on the avocado, I clearly took the answer to be understanding that there is just operational difficulties, et cetera, with Chiquita being a new player in this market.
But then in the Q&A in back of the release there, you say something about struggling operationally with the adoption of the product by customers and consumers.
Customers, I presume to be Chiquita.
But consumers -- I want to make sure that (multiple speakers) --
Gary Steele - President, CEO
Customers would be buyers at grocery stores.
Morris Ajzenman - Analyst
Okay.
Gary Steele - President, CEO
Partner is Chiquita; customer or buyers, consumers are the people who buy from the retail stores.
Morris Ajzenman - Analyst
All right.
But I thought the issue was, again, Chiquita getting their hands around this being a new player.
Are there any pushbacks by the supermarkets and the actual buyers of the avocado, based on the new packaging, the new increased shelf life, that they are resisting?
Is there anything you're finding at this point?
Gary Steele - President, CEO
The issue, as we see it, is that you get to buy the product in one format, which comes in a large, 10-pound package.
The avocados are taken out of our package, they are put on display.
And so you, Morris, would have difficulty knowing that it came in our technology.
And as a result, if you do it that way, there can be struggles in terms of how do you command a premium price.
Because you are trying to represent that it came in technology, and it is ripe and ready-to-eat, but it is difficult to see that as a consumer.
So that is what we meant in that press release, is that they are having to work out some of those issues.
And we don't know if they are going to work out those issues.
So it is kind of a big question mark, and all we can tell our shareholders is that they are struggling operationally.
Morris Ajzenman - Analyst
Understand.
Thank you.
And on the positive side, you talk about Chiquita making a sizable quantity purchase [for] the membranes for the containers in this quarter.
Can you talk about that a little more?
And then you go on to note that, so we know early commercial testing phase.
But what is it in this quarter that help?
Is it one time in nature?
Can you just put a little more color on that?
Gary Steele - President, CEO
Hard to know, but we are doing shipping trials globally.
These containers are traveling all over the world.
They are refrigerated containers.
They are kludgy in terms of what they do today in terms of shipping with CO2 and oxygen bottles and stuff like that.
Instead, we can put one very sizable very large membrane or several in the container, change the atmosphere so that it slows down the respiration rate of the produce, allowing the shipments to deliver produce globally in good shape.
And Chiquita owns a company called TransFresh, which is a market leader in helping produce people ship products around the world.
And we are really stepping up this activity, and it's something we're excited about, and it could be material down the road for us.
Right now, it is just you have to do all the testing and ship things from South Africa to Europe and from South America to the US, et cetera, et cetera.
So we are in that phase and it is going well.
It works.
Morris Ajzenman - Analyst
Thank you.
Operator
Rick Fetterman, Fetterman Investments.
Rick Fetterman - Analyst
Could you -- it sounds like with Lifecore that there was maybe an unusually large amount of the lower-margin, the syringes shipped this quarter.
Is that something that is trend or just happened to be unique to this quarter?
Because I think normally you said the first and -- usually, you've said the first and fourth quarters were the lower-margin product and second and third were the higher-margin powder.
Greg Skinner - VP of Administration, CFO
Yes, it is a matter of timing for this year.
We expect the fourth quarter of this year to be better than the fourth quarter of last year.
And consequently, the third quarter was slightly less than the third quarter a year ago from a bottom-line standpoint.
We plan to make that up and then some in the fourth quarter, because on a year-to-date basis, they are down about 400 and something thousand.
We expect them to be up for this year when all is said and done.
So with Lifecore, on a quarter-to-quarter basis, it is really difficult to estimate what those quarters are going to be, because it is all based on customer orders, POs, that we fill.
And so we are dependent on those orders.
On an annual basis, Lifecore is very good at predicting.
And we expect to be slightly under in revenues from our original plan but over in pretax income.
Rick Fetterman - Analyst
Okay, regarding the operating margin of the Company, is it likely to be in the 5% range, pending another acquisition that has considerably higher margins, such as Lifecore?
Gary Steele - President, CEO
Do you mean this year, or are you talking about long-term?
Rick Fetterman - Analyst
Well, this year and looking into next year.
I mean, it has been around 5% for the last year and a half or so.
Greg Skinner - VP of Administration, CFO
Are you including our investment in -- are you just looking at operating margin; you are not including the investment in Windset?
Rick Fetterman - Analyst
Yes, that's correct Sorry, I wasn't clear.
Greg Skinner - VP of Administration, CFO
Well, for this year, I would say it is going to be in that 5% range.
Going forward, we are just in the process of putting our plan together.
Obviously one of our goals is to move to higher-margin product.
We are hoping to improve that going forward.
We could report on that a lot better when we get to the fourth quarter and we are done with our FY 13 plan and our revised five-year plan.
Rick Fetterman - Analyst
So it can be higher without an acquisition?
Gary Steele - President, CEO
Yes.
And I kind of referenced that when I said that Lifecore has had a 50% capacity utilization in certain parts of its facilities.
And so if we can add -- if we get more volume through that facility, that is very high incremental margin.
Rick Fetterman - Analyst
My last question is just a balance sheet.
Can you remind me what the growth in accrued liabilities of about $9 million this fiscal year has been?
Greg Skinner - VP of Administration, CFO
Yes, when we acquired Lifecore, part of the acquisition was an earnout.
That earnout was based on financial results for calendar 2011.
We had -- from that date -- I won't go into the detail.
Let's just say they earned their earnout, and we will be paying it either late April or early May.
And that is what it is.
Rick Fetterman - Analyst
All right.
Thank you very much.
That's all I've got.
Let me ask one more quick one.
Is there anything new on the Clearly Fresh Bags in terms of timing -- you know, when the tests will be complete?
Gary Steele - President, CEO
No, nothing new to report.
Rick Fetterman - Analyst
All right.
Thanks a lot.
Operator
Warwick Jervis, Trailhead Asset Management.
Warrick Jervis - Analyst
Yes, I wonder if you could follow up -- do you have any point-of-sale displays for those bags that would be usable at a place like Whole Foods?
Gary Steele - President, CEO
Are you talking about the Clearly Fresh Bags?
Warrick Jervis - Analyst
Yes.
Gary Steele - President, CEO
We do.
And we are not -- but they are not in Whole Foods.
There is part of our challenge here with Clearly Fresh is that produce buyers are not used to putting that packaging on display in their produce aisles.
So they say, go over to the center aisle, where baggies and ziplocs and things like that are sold.
That is not the market we know.
We don't call on those buyers.
So we are encouraging, so to speak, enticing, encouraging produce buyers to put these things on display.
There are little stands, put them near the banana display, et cetera, et cetera.
So we are not only testing the product, but we are learning how to sell this product, which has not been a trivial, because of this little center aisle versus produce aisle dilemma.
We are also working it through the Internet.
So yes, we do have those displays.
Warrick Jervis - Analyst
Can you give us any idea of what stores they would be in?
Gary Steele - President, CEO
It is stores down in the Southwest.
And I'd have to get back to you with some of the details of that.
But it is limited trials down in the Texas area.
Warrick Jervis - Analyst
Terrific.
We'll look forward to seeing those.
Operator
(Operator Instructions) It does appear that this does conclude the question-and-answer session of today's program.
Gary Steele - President, CEO
In summary, we want to thank everybody for being with us on the call today.
Really appreciate your being with us, and we look forward to keeping you apprised of our plans and progress.
Many thanks.
Operator
Thank you, ladies and gentlemen, for your participation in today's conference.
This does conclude the program.
You may now disconnect.
Good day.