Provides update on Value Creation
Plan
Highlights board and senior management team
additions
SunOpta Inc. (“SunOpta”) (NASDAQ:STKL) (TSX:SOY), a leading
global company focused on organic, non-genetically modified and
specialty foods, today announced financial results for the fourth
quarter and fiscal year ended December 31, 2016.
“Significant progress has been made identifying the immediate
strategic actions that support our Value Creation Plan,” said David
Colo, President and Chief Executive Officer. “We have worked
diligently evaluating all aspects of the business, defining initial
actions and building the team and processes to execute our
strategic plan to drive long-term shareholder value. As we
implement the four pillars of our strategic plan, we will refine
our product portfolio, improve execution, broaden our sales effort
and build a sustainable platform for profitable growth. We believe
SunOpta is well positioned to benefit from the growing trend for
healthier foods and we are building the platform for long-term
achievement of our strategic goals and increased returns for
shareholders.”
Colo continued, “Fourth quarter results were below our
expectations, driven by the exit of non-core business lines,
impairment charges, and sales softness in beverage and fruit that
also impacted production volumes. We believe these results are not
in any way reflective of the true earnings power of our Company.
Through our Value Creation Plan, we are taking aggressive action to
improve our operating performance and deliver improved results in
2017 and beyond.”
All amounts are expressed in U.S. dollars and results are
reported in accordance with U.S. GAAP, except where specifically
noted.
Fourth Quarter 2016 Highlights:
- Revenues of $297.5 million for the
fourth quarter of 2016, versus $316.4 million in the fourth quarter
of 2015, a decrease of 6.0% versus the prior year period.
- Loss from continuing operations of
$33.5 million or $0.41 per diluted common share in the fourth
quarter of 2016, compared to a loss from continuing operations of
$13.6 million or $0.16 per diluted common share in the fourth
quarter of 2015.
- Adjusted loss1 of $7.3 million or $0.08
per diluted common share during the fourth quarter of 2016,
compared to adjusted earnings of $2.4 million or $0.03 per diluted
common share during the fourth quarter of 2015.
- Adjusted EBITDA¹ of $9.4 million or
3.2% of revenues for the fourth quarter of 2016, versus $18.2
million or 5.8% of revenues in the fourth quarter of 2015.
Fiscal 2016 Highlights
- Revenues of $1,346.7 million for fiscal
2016, versus $1,145.1 million in fiscal 2015, an increase of
17.6%.
- Loss from continuing operations of
$50.6 million or $0.61 per diluted common share, compared to loss
from continuing operations of $3.0 million or $0.04 per diluted
common share during the same period in 2015.
- Adjusted earnings1 per diluted common
share were $5.8 million or $0.07 per diluted common share for
fiscal 2016, compared to $19.0 million or $0.26 per diluted common
share during fiscal 2015.
- Adjusted EBITDA¹ of $81.7 million, or
6.1% of revenues for the full year, versus $62.2 million, or 5.4%
of revenues in the same period of 2015.
Recent Board of Directors and Senior Management Enhancements
Highlighted
The Company has made significant progress enhancing corporate
governance and the senior management team. On January 23, 2017, the
Company announced that veteran industry executive Gregg Tanner
joined the Board of Directors. Additionally, on February 6, 2017,
the Company announced the appointment of David Colo as President
and Chief Executive Officer. The Company has also named Colin Smith
to the position of Chief Operating Officer for the Consumer
Products segment.
Value Creation Plan Update
As announced on October 7, 2016, SunOpta, with the assistance of
Oaktree, is conducting a thorough review of the Company’s
operations, management and governance, with the objective of
maximizing the Company’s ability to deliver long-term value to its
shareholders. Through this review, management and the Board have
developed a Value Creation Plan built on four pillars: portfolio
optimization, operational excellence, go-to-market effectiveness
and process sustainability.
The Company is currently targeting implementation of $30 million
of productivity driven annualized EBITDA1 enhancements and $20
million of working capital efficiencies to be implemented over the
coming 12 to 18 months. In the near-term, we expect these benefits
to be offset by structural investments the Company is making in the
areas of quality, sales, marketing, operations and engineering
resources. Additionally, during 2017, the Company anticipates
incurring non-structural third-party consulting support, severance,
and recruiting costs. The plan also calls for increased investment
in capital upgrades at several manufacturing facilities to enhance
food safety and manufacturing efficiencies. Over time, the Company
expects these investments to yield additional improvement in
EBITDA1 beyond the $30 million of initial productivity-driven
savings. Recent progress on each of the four pillars of the Value
Creation Plan is highlighted below:
Portfolio Optimization
The focus of the portfolio optimization pillar is to simplify
the business, investing where structural advantages exist, while
exiting businesses or product lines where the Company is not
effectively positioned. During the fourth quarter of 2016, the
Company announced the closing of its San Bernardino, California
juice facility, which is expected to be $4 million accretive to
EBITDA1 in 2017. Following that initial announcement, the Company
continued to evaluate its portfolio which resulted in the following
additional actions:
- Closure of the Company’s soy extraction
(ingredient) facility in Heuvelton, New York, transferring
production to the Company’s Alexandria, Minnesota facility
- Exited certain varieties of specialty
soy and sunflower, as well as frozen edamame
- Exited a non-core vegetable brokerage
operation
- Launched a global organic ingredients
portfolio strategy review, which is identifying incremental large
ingredient categories for further investment. The incremental
growth opportunities include new geographies, new products and new
processing capabilities.
During the fourth quarter the Company recognized non-cash
impairment charges of $1.2 million associated with the Heuvelton
facility closure, and $3.4 million of inventory and other reserves
to reflect the exit of non-core business lines. The Company intends
to continue to proactively manage its business portfolio to
identify opportunities to drive EBITDA1 growth.
Operational Excellence
The focus of the operational excellence pillar is to ensure food
quality and safety, coupled with improved operational performance
and efficiency. These efforts are expected to generate productivity
improvements in manufacturing, procurement and logistics. With the
assistance of third-party consulting support, the Company has
identified a number of broad-based savings opportunities we expect
to implement and realize over 2017 and 2018. Recent activities
include:
- Launched network-wide upgrades to
worker safety and food quality programs, with the goal of becoming
the leader in safety and quality across the healthy food
industry
- Launched a productivity enhancement
program that is systematically evaluating all manufacturing
facilities, supply chain, and procurement processes to identify
productivity cost savings opportunities. As a result of these
efforts, the Company is targeting $30 million in annualized EBITDA1
improvements to be implemented over the next 12 to 18 months.
- Rolled out the “SunOpta Plant
Management System,” which consists of a standardized set of
operating processes, KPIs, and continuous improvement methodologies
that will provide improved consistency and productivity performance
across the manufacturing network
- Launched a working capital optimization
program that is targeting $20 million of cash flow
enhancements
Go-to-Market Effectiveness
The focus of the Go-to-Market effectiveness pillar is to
optimize customer and product mix in existing sales channels, and
identify and penetrate new high-potential sales channels. The
Company expects efforts under this pillar to improve revenue growth
and profitability over time. Early in 2017, the Company re-aligned
its go-to-market approach, hiring key talent to lead foodservice
and retail sales, as well as adding new marketing resources. The
Company also launched a sales force effectiveness program that has
already started to generate results. Recent highlights include:
- Hired a new SVP of Foodservice Sales
and a SVP of Beverages and Snacks
- Secured new business wins in Healthy
Beverage, Healthy Fruit and Global Ingredients
- Selectively adjusted pricing to enhance
margins
Process Sustainability
The focus of process sustainability is to ensure the Company has
the infrastructure, systems and skills to sustain the business
improvements and value captured from the Value Creation Plan. In
February 2017, the Company initiated an organizational redesign
focused on streamlining and simplifying the business, investing in
systems and processes to ensure each function has the tools in
place to achieve its goals. Recent initiatives include:
- Developed a plan to increase capital
engineering, plant engineering, and process engineering
capabilities that is targeted to enhance food safety, product flow
and productivity performance
- Created a centralized Consumer Products
supply chain team to manage sales and operations planning
(“S&OP”), warehousing, and distribution
- Launched a comprehensive S&OP
program to improve supply/demand planning, which is expected to
reduce inventory while improving customer service
- Initiated a program to push centralized
cost accounting resources into manufacturing facilities to improve
the accuracy of manufacturing-related financial data
Fourth Quarter 2016 Results
Revenues for the fourth quarter of 2016 were $297.5 million, a
decrease of 6.0% compared to $316.4 million in the fourth quarter
of 2015. Excluding the impact on revenues for the fourth quarter of
2016 of changes in commodity-related pricing and foreign exchange
rates, estimated impact of the recall of certain sunflower kernel
products based on shortfall against anticipated volumes, estimated
impact on west coast pouch operations as a result of a fire at a
third-party facility, and business acquisitions and associated
product rationalizations, revenues in the fourth quarter of 2016
decreased by 0.9% compared with the fourth quarter of 2015. This
decrease in revenues reflected lower volumes of specialty raw
materials driven by a reduction in contracted acres, as well as a
sharp decline in retail market demand for frozen fruit products. In
addition, sales of aseptic beverage products and specialty bars
were consistent with the prior year due to customer turnover and
the ramp-up of new product offerings.
The Consumer Products segment generated revenues from external
customers of $164.9 million during the fourth quarter of 2016, a
decrease of 4.6% compared to $172.9 million in the fourth quarter
of 2015. Excluding the impact of business acquisitions and
associated product rationalizations and the fire at a third-party
facility, revenues in Consumer Products decreased 2.2% compared to
the fourth quarter of 2015 largely reflecting an 8.2% decline in
sales of frozen fruit.
The Global Ingredients segment generated revenues from external
customers of $132.6 million, a decline of 7.6% compared to $143.5
million in the fourth quarter of 2015. Excluding the impact on
revenues of changes in commodity-related pricing and foreign
exchange rates, Global Ingredients revenue increased 0.7% in the
fourth quarter of 2016, compared with the fourth quarter of 2015
reflecting a 4.1% decline in domestic sourcing from lower volumes
of specialty raw materials driven by a planned reduction in
contracted acres and lower sales, offset by 3.7% growth in
internationally sourced organic ingredients.
Gross profit was $17.0 million for the fourth quarter of 2016,
compared to $25.2 million for the fourth quarter of 2015. As a
percentage of revenues, gross profit for the fourth quarter of 2016
was 5.7% compared to 8.0% in the fourth quarter of 2015. The gross
profit percentage for the fourth quarter of 2016 would have been
approximately 7.9%, excluding the impact of costs related to aging
reserves and low margin sales to reduce inventory exposures mainly
on specialty grain varieties the Company is exiting, an inventory
reserve for certain consumer-packaged products due to
quality-related issues, the acquisition accounting adjustment
related to Sunrise’s inventory sold in the fourth quarter of 2016,
and lost margin caused by the recall of certain sunflower kernel
products.
Operating loss¹ was $10.0 million, or 3.3% of revenues, compared
to an operating loss of $1.7 million, or 0.6% of revenues in the
fourth quarter of 2015. The increase in operating loss
year-over-year is attributable to lower gross profit, as well as a
$1.3 million increase in selling, general and administrative
expenses (“SG&A”), mainly reflecting external advisory costs
associated with the strategic review and Value Creation Plan of
$3.6 million, partially offset by lower compensation and other
administrative costs. The operating income percentage for the
fourth quarter of 2016 would have been approximately 0.2%,
excluding the items mentioned above that impacted gross profit, and
costs associated with the strategic review and Value Creation
Plan.
During the fourth quarter of 2016, the Company recognized a
non-cash goodwill impairment charge of $17.5 million, related to
its sunflower operations.
Adjusted EBITDA¹ was $9.4 million or 3.2% of revenues in the
fourth quarter of 2016, compared to $18.2 million or 5.8% of
revenues in the fourth quarter of 2015.
The Company reported a loss from continuing operations for the
fourth quarter of 2016 of $33.5 million, or $0.41 per diluted
common share, compared to a loss from continuing operations of
$13.6 million, or $0.16 per diluted common share during the fourth
quarter of 2015. Adjusted loss¹ in the fourth quarter was $7.3
million or $0.08 per diluted common share, compared to Adjusted
earnings¹ of $2.4 million or $0.03 per diluted common share in the
fourth quarter of 2015. Please refer to the discussion and table
below under “Non-GAAP Measures - Adjusted Earnings and Adjusted
Loss”.
Fiscal 2016 Results
Revenues for fiscal 2016 were $1,346.7 million, up 17.6%
compared to fiscal 2015 mainly due to the acquisition of Sunrise.
Revenue was negatively impacted by approximately $14.9 million
during fiscal 2016 due to the recall of certain sunflower products
and a fire at a third-party contract manufacturing facility.
Excluding the impact on revenues for the year ended December 31,
2016 of business acquisitions and associated product
rationalizations, changes in commodity-related pricing and foreign
exchange rates, the estimated impact of the sunflower recall and
estimated impact of the fire on west coast pouch operations,
revenues increased 1.0% in 2016, compared with 2015. This increase
in revenues reflected higher demand for organic ingredients and
growth in aseptic beverage volumes with the added output from the
Company’s Allentown, Pennsylvania facility and new product
launches, partially offset by lower volumes of specialty raw
materials driven by a reduction in contracted acres and lower
retail market demand for frozen fruit in the fourth quarter of
2016.
The Consumer Products segment generated revenues from external
customers of $772.4 million during fiscal 2016, an increase of
44.6% compared to $534.2 million in fiscal 2015. Excluding the
impact of business acquisitions and associated product
rationalizations and the fire at a third-party facility, revenues
in Consumer Products increased 1.6% compared to fiscal 2015 largely
reflecting growth within the Healthy Beverages platform.
The Global Ingredients segment generated revenues from external
customers of $574.3 million, a decline of 6.0% compared to $610.9
million in fiscal 2015. Excluding the impact on revenues of changes
in commodity-related pricing and foreign exchange rates, Global
Ingredients revenue increased 0.2% in fiscal 2016, compared to
fiscal 2015 reflecting a 15.9% decline in domestic sourcing from
lower volumes of specialty raw materials driven by a planned
reduction in contracted acres and lower sales, offset by 13.6%
growth in internationally sourced organic ingredients.
Gross profit was $126.0 million for fiscal 2016, compared with
$110.4 million for fiscal 2015. As a percentage of revenues, gross
profit for fiscal 2016 was 9.4% compared to 9.6% in 2015. The gross
profit percentage for fiscal 2016 would have been approximately
10.9%, excluding the impact of an acquisition accounting adjustment
related to Sunrise inventory sold in fiscal 2016, aging reserves
and low margin sales to reduce inventory exposures mainly on
specialty grain varieties the Company is exiting, an inventory
reserve for certain consumer-packaged products due to
quality-related issues, start-up costs related to the ramp-up of
production at the Company’s Allentown aseptic facility, and lost
margin caused by the recall of certain sunflower kernel
products.
Operating income¹ in fiscal 2016 was $14.7 million, or 1.1% of
revenues, compared to $21.3 million, or 1.9% of revenues in fiscal
2015. The operating income percentage for fiscal 2016 would have
been approximately 3.2%, excluding the items mentioned above that
impacted gross profit, and the impact of legal costs mainly related
to the Plum dispute, which totaled $1.9 million year to date, and
external advisory costs associated with the strategic review and
Value Creation Plan.
Other expense in fiscal 2016 includes an asset impairment charge
of $11.5 million associated with the Company’s decision to exit the
San Bernardino juice facility and the Heuvelton soy facility, $9.0
million reflecting the settlement of the Plum dispute, $2.2 million
related to consolidation of the Company’s frozen fruit processing
facilities following the Sunrise acquisition, $3.7 million of
severance and rationalization costs related to the departure of Rik
Jacobs as President and CEO in November 2016, certain facility
closures, workforce rationalization initiatives and employee
retention costs, and $2.8 million reflecting the voluntary
withdrawal of certain consumer-packaged products and voluntary
recall of certain sunflower kernel products. These charges were
partially offset by the $1.7 million gain on settlement of the
contingent consideration obligation related to the acquisition of
Niagara Natural in 2015.
Adjusted EBITDA¹ was $81.7 million or 6.1% of revenues in fiscal
2016, compared to $62.2 million or 5.4% of revenues in fiscal
2015.
The Company reported a loss from continuing operations for
fiscal 2016 of $50.6 million, or $0.61 per diluted common share,
compared to a loss from continuing operations of $3.0 million, or
$0.04 per diluted common share during fiscal 2015. Adjusted
earnings were $5.8 million or $0.07 per diluted common share for
fiscal 2016, compared to $19.0 million or $0.26 per diluted common
share during fiscal 2015. Please refer to the discussion and table
below under “Non-GAAP Measures - Adjusted Earnings and Adjusted
Loss”.
Balance Sheet
At December 31, 2016 SunOpta’s balance sheet reflected total
assets of $1,129.6 million and total debt of $432.6 million. Total
debt declined approximately $113.7 million from the end of the
third quarter of 2016 as a result of $79.0 million in net proceeds
generated from the issuance of preferred stock, as well as
approximately $36.0 million in cash generated from operations. At
December 31, 2016 leverage was approximately 5 times Adjusted
EBITDA¹ on a trailing four quarter adjusted basis, after
eliminating the negative impact on EBITDA from the San Bernardino
juice facility.
During the second quarter of 2016, the Company announced a
voluntary recall of certain roasted sunflower kernel products
produced at its Crookston, Minnesota facility. For fiscal 2016,
estimated losses of $40.0 million were recognized in relation to
the recall reflecting the amount of losses that have been
determined to-date to be both probable and reasonably estimable.
The Company carries general liability and product recall insurance
with aggregate limits of $47.0 million, and it expects to recover
recall-related costs through these policies, less applicable
deductibles and subject to coverage limits. As the Company
continues to work with its customers and insurance providers to
substantiate claims received, it may need to revise its estimates
in subsequent periods.
Conference Call with accompanying presentation
SunOpta plans to host a conference call at 9:00 A.M. Eastern
time on Wednesday, March 1, 2017, to discuss the fourth quarter
financial results. After opening remarks, there will be a question
and answer period. This conference call can be accessed via a link
on SunOpta’s website at www.sunopta.com under the “Investors”
section. To listen to the live call over the Internet, please go to
SunOpta’s website at least 15 minutes early to register, download
and install any necessary audio software. Additionally, the call
may be accessed with the toll free dial-in number 1 (877) 312-9198
or International dial-in number 1 (631) 291-4622. If you are unable
to listen live, the conference call will be archived and can be
accessed for approximately 90 days on the Company’s website.
¹ See discussion of non-GAAP measures
About SunOpta Inc.
SunOpta Inc. is a leading global company focused on organic,
non-genetically modified (“non-GMO”) and specialty foods. SunOpta
specializes in the sourcing, processing and packaging of organic
and non-GMO food products, integrated from seed through packaged
products; with a focus on strategic vertically integrated business
models. SunOpta’s organic and non-GMO food operations revolve
around value-added grain, seed, fruit and vegetable based product
offerings, supported by a global sourcing and supply
infrastructure.
Forward-Looking Statements
Certain statements included in this press release may be
considered “forward-looking statements” within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities legislation, which are based on
information available to us on the date of this release. These
forward-looking statements include, but are not limited to, our
ability to implement the four pillars and achieve the objectives of
our strategic Value Creation Plan, $30 million of annualized EBITDA
enhancements and $20 million of cash flow from working capital
optimization over the next 12 to 18 months, the amount of EBITDA
improvement expected to be generated from the closure of our San
Bernardino, CA facility and the anticipated insurance recoveries
associated with the sunflower recall. Generally, forward-looking
statements do not relate strictly to historical or current facts
and are typically accompanied by words such as “will”, “believe”,
“continue”, “expects”, “intend”, “becoming”, “anticipate”,
“confident”, “can”, “should”, “would”, “may”, “plans”, “estimate”,
“project”, “potential”, “intention”, “might”, “predict” or other
similar terms and phrases intended to identify these forward
looking statements. Forward looking statements are based on
information available to us on the date of this release and are
based on estimates and assumptions made by the Company in light of
its experience and its perception of historical trends, current
conditions and expected future developments as well as other
factors the Company believes are appropriate in the circumstances
including, but not limited to, general economic conditions,
continued consumer interest in health and wellness, ability to
maintain product pricing levels, current customer demand, planned
facility and operational expansions, closures and divestitures,
competitive intensity, cost rationalization, product development
initiatives, and alternative potential uses for our capital
resources. Whether actual timing and results will agree with
expectations and predications of the Company is subject to many
risks and uncertainties including, but not limited to, risks
associated with acquisitions generally such as the failure to
retain key management and employees, issues or delays in the
successful integration of the operations, systems and personnel of
recently acquired businesses with those of the Company, incurring
or experiencing unanticipated costs and/or delays or difficulties,
future levels of revenues being lower than expected, costs being
higher than expected, inability to realize synergies to the extent
anticipated and conditions affecting the frozen fruit industry
generally; failure or inability to implement growth strategies in a
timely manner; changes in the level of capital investment; local
and global political and economic conditions; consumer spending
patterns and changes in market trends; decreases in customer
demand; delayed or unsuccessful product development efforts;
potential product recalls; working capital management and
continuous improvement initiatives; availability and pricing of raw
materials and supplies; potential covenant breaches under our
credit facilities; and other risks described from time to time
under “Risk Factors” in the Company’s Annual Report on Form 10-K
and its Quarterly Reports on Form 10-Q (available at www.sec.gov).
Consequently, all forward-looking statements made herein are
qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by
the Company will be realized. The Company undertakes no obligation
to publicly correct or update the forward looking statements in
this document, in other documents, or on its website to reflect
future events or circumstances, except as may be required under
applicable securities laws.
SunOpta Inc. Consolidated Statements of Operations
For the quarters and years ended December 31, 2016 and January 2,
2016 (Unaudited) (Expressed in thousands of U.S. dollars, except
per share amounts)
Quarter ended
Year ended December 31, 2016 January 2, 2016
December 31, 2016 January 2, 2016
$ $
$ $
Revenues 297,539 316,378
1,346,731 1,145,134
Cost of goods sold 280,496
291,148
1,220,779 1,034,772
Gross profit 17,043 25,230
125,952 110,362 Selling, general and administrative
expenses
26,005 24,723
98,681 85,754 Intangible asset
amortization
2,810 2,846
11,282 4,951 Other expense,
net
5,569 7,758
28,292 12,151 Goodwill impairment
17,540 -
17,540 - Foreign exchange loss (gain)
(1,817 ) (595 )
1,243
(1,641 )
Earnings (loss) from continuing
operations before the following (33,064 ) (9,502
)
(31,086 ) 9,147 Interest expense, net
8,527 12,498
43,275
15,669
Loss from continuing
operations before income taxes (41,591 ) (22,000
)
(74,361 ) (6,522 ) Recovery of income taxes
(8,165 ) (8,228 )
(23,797
) (3,390 )
Loss from continuing
operations (33,426 ) (13,772 )
(50,564
) (3,132 )
Loss from discontinued operations, net of
income taxes and non-controlling interest
- (16,516 )
(570 )
(19,475 )
Loss (33,426 ) (30,288 )
(51,134 ) (22,607 ) Earnings (loss)
attributable to non-controlling interests
50
(220 )
54 (136 )
Loss
attributable to SunOpta Inc. (33,476 )
(30,068 )
(51,188 ) (22,471 )
Loss per share – basic - from continuing operations
(0.41 ) (0.16 )
(0.61 ) (0.04 ) - from
discontinued operations
- (0.19 )
(0.01 ) (0.27 )
(0.41 )
(0.35 )
(0.62 ) (0.31 )
Loss
per share – diluted - from continuing operations
(0.41
) (0.16 )
(0.61 ) (0.04 ) - from discontinued
operations
- (0.19 )
(0.01
) (0.27 )
(0.41 ) (0.35 )
(0.62 ) (0.31 )
SunOpta Inc.
Consolidated Balance Sheets As at December 31, 2016 and January 2,
2016 (Unaudited) (Expressed in thousands of U.S. dollars)
December 31, 2016 January 2, 2016
$ $
ASSETS Current assets
Cash and cash equivalents
1,251 2,274 Accounts receivable
157,369 117,412 Inventories
368,482 371,223 Prepaid
expenses and other current assets
19,794 20,088 Current
income taxes recoverable
2,801 21,728 Current assets held
for sale
- 64,330
Total current
assets 549,697 597,055
Property, plant and
equipment 162,239 176,513
Goodwill 223,611
241,690
Intangible assets 183,524 195,008
Deferred
income taxes 1,045 958
Other assets 9,442
7,979
Total assets
1,129,558 1,219,203
LIABILITIES Current liabilities Bank indebtedness
201,494 159,773 Accounts payable and accrued liabilities
173,745 151,831 Customer and other deposits
2,543
5,322 Income taxes payable
5,661 1,720 Other current
liabilities
1,016 1,521 Current portion of long-term debt
2,079 1,773 Current portion of long-term liabilities
5,500 5,243 Current liabilities held for sale
-
52,486
Total current liabilities
392,038 379,669
Long-term debt 229,008
321,222
Long-term liabilities 15,354 17,809
Deferred income taxes 44,561 74,324
Total liabilities 680,961 793,024
Series A Preferred Stock 79,184 -
EQUITY SunOpta Inc. shareholders’ equity Common
shares
300,426 297,987 Additional paid-in capital
25,522 22,327 Retained earnings
53,838 106,838
Accumulated other comprehensive loss
(13,104 )
(6,113 )
366,682 421,039
Non-controlling interests
2,731 5,140
Total equity
369,413 426,179
Total equity
and liabilities 1,129,558 1,219,203
SunOpta Inc. Consolidated
Statements of Cash Flows For the quarters and years ended December
31, 2016 and January 2, 2016 (Unaudited) (Expressed in thousands of
U.S. dollars)
Quarter ended Year ended
December 31, 2016 January 2, 2016
December 31, 2016
January 2, 2016
$ $
$
$
CASH PROVIDED BY (USED IN)
Operating activities Loss
(33,426 ) (30,288 )
(51,134 ) (22,607 ) Loss from discontinued operations
attributable to SunOpta Inc.
- (16,516 )
(570 ) (19,475 ) Loss from continuing
operations
(33,426 ) (13,772 )
(50,564
) (3,132 ) Items not affecting cash: Depreciation and
amortization
8,195 8,268
34,150 21,007 Acquisition
accounting adjustment on inventory sold
1,596 4,000
15,000 4,000 Amortization and write-off of debt issuance
costs
1,091 5,895
11,301 5,895 Deferred income taxes
(10,090 ) (4,735 )
(29,850 ) (4,038 )
Stock-based compensation
975 534
4,148 4,366
Unrealized loss (gain) on derivative instruments
717 677
(547 ) 143 Fair value of contingent consideration
123 646
(1,158 ) 884 Impairment of long-lived
assets
1,222 -
13,257 - Goodwill impairment
17,540 -
17,540 - Other
(8 ) (626 )
335 990
Changes in non-cash working capital, net
of businesses acquired
48,052 25,180
(12,891
) (3,685 ) Net cash flows from operations -
continuing operations
35,987 26,067
721 26,430 Net
cash flows from operations - discontinued operations
-
(603 )
758 4,814
35,987 25,464
1,479
31,244
Investing activities
Purchases of property, plant and equipment
(7,757 )
(9,345 )
(22,560 ) (31,186 ) Acquisition of
businesses, net of cash acquired
- (470,994 )
-
(490,715 ) Other
254 (144 )
954
316 Net cash flows from investing activities -
continuing operations
(7,503 ) (480,483 )
(21,606 ) (521,585 ) Net cash flows from investing
activities - discontinued operations
- (11 )
1,754 (1,235 )
(7,503 )
(480,494 )
(19,852 ) (522,820 )
Financing activities Increase (decrease) under line
of credit facilities
(21,499 ) 54,718
236,976
85,968 Repayment of line of credit facilities
- -
(192,677 ) - Borrowings under long-term debt
230,998 330,135
231,430 330,135 Repayment of
long-term debt
(310,475 ) (10,296 )
(322,004
) (11,018 ) Issuance of Series A Preferred Stock, net
78,963 -
78,963 - Payment of debt issuance costs
(7,472 ) (13,778 )
(13,017 ) (15,966 )
Payment of contingent consideration
- (204 )
(4,554
) (204 )
Proceeds from the exercise of stock
options and employee share purchases
572 406
1,486 3,884 Proceeds from the issuance of
common shares, net
- (1,264 )
- 94,080 Proceeds from
the exercise of warrants
- -
- 3,879 Other
294
(323 )
168 (781 ) Net
cash flows from financing activities - continuing operations
(28,619 ) 359,394
16,771 489,977 Net cash
flows from financing activities - discontinued operations
-
668
(1,180 )
(4,304 )
(28,619 ) 360,062
15,591 485,673 Foreign exchange
gain (loss) on cash held in a foreign currency
(253 )
(40 )
52 (54 ) Decrease
in cash and cash equivalents in the period
(388 )
(95,008 )
(2,730 ) (5,957 ) Discontinued
operations cash activity included above: Add: Balance included at
beginning of period
- 1,626
1,707 2,170 Less: Balance
included at end of period
- (1,707 )
- (1,707 )
Cash and cash equivalents - beginning of the period
1,639 97,363
2,274
7,768 Cash and cash equivalents - end of the
period
1,251 2,274
1,251
2,274
SunOpta Inc. Segmented
Information For the quarters and years ended December 31, 2016 and
January 2, 2016 Unaudited (Expressed in thousands of U.S. dollars)
Quarter ended Year ended
December 31, 2016 January 2, 2016
December
31, 2016 January 2, 2016
$ $
$ $
Segment revenues from external customers:
Global Ingredients
132,601 143,485
574,295 610,890
Consumer Products
164,938 172,893
772,436 534,244 Total segment
revenues from external customers
297,539
316,378
1,346,731 1,145,134
Segment gross margin: Global Ingredients
9,658 13,236
64,374 66,461 Consumer Products
7,385 11,994
61,578
43,901 Total segment gross margin
17,043 25,230
125,952
110,362
Segment operating income
(loss): Global Ingredients
2,531 4,250
26,787
28,184 Consumer Products
(5,783 ) (1,907 )
1,206 3,208 Corporate Services
(6,703 )
(4,087 )
(13,247 ) (10,094 ) Total
segment operating income (loss)
(9,955 )
(1,744 )
14,746 21,298
Segment gross margin percentage: Global Ingredients
7.3 % 9.2 %
11.2 % 10.9 % Consumer
Products
4.5 % 6.9 %
8.0 % 8.2 % Total
segment gross margin
5.7 % 8.0 %
9.4 %
9.6 %
Segment operating income percentage: Global
Ingredients
1.9 % 3.0 %
4.7 % 4.6 %
Consumer Products
-3.5 % -1.1 %
0.2 %
0.6 % Total segment operating income
-3.3 % -0.6 %
1.1 % 1.9 %
Non-GAAP Measures
In addition to reporting financial results in accordance with
U.S. GAAP, the Company provides information regarding segment
operating income, Adjusted earnings, earnings before interest,
taxes, depreciation and amortization (“EBITDA”), and Adjusted
EBITDA as additional information about its operating results, which
are not measures in accordance with U.S. GAAP. We believe that
segment operating income and Adjusted earnings assist investors in
comparing performance across reporting periods on a consistent
basis by excluding items that are not indicative of the Company’s
core operating performance. We use EBITDA and Adjusted EBITDA when
assessing the performance of the Company’s operations and its
ability to generate cash flows to fund its cash requirements,
including debt service and capital expenditures. The non-GAAP
measures of segment operating income, Adjusted earnings, EBITDA and
Adjusted EBITDA should not be considered in isolation or as a
substitute for performance measures calculated in accordance with
U.S. GAAP.
In order to evaluate the Company’s results of operations, we use
certain other non-GAAP measures that we believe enhance an
investor’s ability to derive meaningful year-over-year comparisons
and trends from the results of operations. In particular, we
evaluate the Company’s revenues on a basis that excludes the
effects of fluctuations in commodity pricing and foreign exchange
rates, as well as the impacts of recent business acquisitions and
product rationalizations. In addition, we exclude specific items
from the Company’s reported results that due to their nature or
size, we do not expect to occur as part of our normal business on a
regular basis. These items are identified in the tables below.
These non-GAAP measures are presented solely to allow investors to
more fully assess the Company’s results of operations and should
not considered in isolation of, or as substitutes for an analysis
of the Company’s results as reported under U.S. GAAP.
Adjusted Earnings and Adjusted
Loss
When assessing our financial performance, we use an internal
measure that excludes the results of discontinued operations as
well as other charges and gains that we believe are not reflective
of normal operations. This information is provided in order to
allow investors to make meaningful comparisons of the Company's
operating performance between periods and to view the Company’s
business from the same perspective as Company management. Adjusted
earnings/loss and Adjusted earnings/loss per diluted share should
not be considered in isolation or as a substitute for performance
measures calculated in accordance with U.S. GAAP.
For the quarter and year ended December 31, 2016, the Company
recognized other expenses related primarily to business
acquisitions, goodwill and asset impairments, legal settlement
costs and litigation-related legal fees, product withdrawal and
recall costs, costs associated with the strategic review process
and execution of Value Creation Plan, severance and rationalization
costs, inventory reserves and liquidation sales to de-risk
positions, plant start-up costs related to our east coast aseptic
facility, the write-off of debt issuance costs, gains on settlement
of contingent consideration and changes in unrecognized tax
benefits. We do not believe these charges and gains are reflective
of normal business operations. These charges and gains have been
excluded to arrive at Adjusted earnings/loss and Adjusted
earnings/loss per diluted share.
The following is a tabular presentation of Adjusted
earnings/loss and Adjusted earnings/loss per diluted share,
including a reconciliation to U.S. GAAP loss from continuing
operations and U.S. GAAP loss from continuing operations on a per
diluted share basis, which the Company believes to be the most
directly comparable U.S. GAAP financial measure.
Per Diluted Share
For the quarter ended
$ $
December 31, 2016 Loss from continuing operations
(33,426 ) Less: earnings attributable to non-controlling interests
(50 ) Less: dividends and accretion of Series A Preferred Stock
(1,812 ) Loss from continuing operations available to
common shareholders (35,288 ) (0.41 ) Adjusted for: Goodwill
Impairment(a) 17,540 Costs related to strategic review and Value
Creation Plan(b) 3,558 Inventory reserves and liquidation sales to
de-risk positions(c) 3,428 Severance and rationalization costs(d)
3,033 Product withdrawal and recall costs(e) 3,013 Costs related to
business acquisitions(f) 1,871 Asset impairments related to
facility closures(g) 1,222 Other(h) 173 Net income tax effect on
adjusted earnings(i) (5,840 ) Adjusted loss (7,290 ) (0.08 )
January 2, 2016 Loss from continuing operations
(13,772 ) Add: loss attributable to non-controlling interests 220
Loss from continuing operations available to
common shareholders (13,552 ) (0.16 ) Adjusted for: Costs
related to business acquisitions(j) 15,620 Plant expansion and
start-up costs(k) 1,861 Inventory reserves and liquidation sales to
de-risk positions(l) 2,367 Downtime, spoilage, and other costs due
to equipment failure(m) 2,219 Demurrage, detention and other
related expenses(n) 180 Litigation-related legal fees(o) 532
Reversal of stock-based compensation expense(p) (579 ) Other(q)
1,563 Net income tax effect of preceding adjustments(i) (6,940 )
Change in unrecognized tax benefits(r) (855 ) Adjusted earnings
2,416 0.03
(a)
Reflects the impairment charge to write off the
goodwill associated with the sunflower reporting unit. (b) Reflects
legal and other professional advisory costs associated with the
strategic review and execution of the Value Creation Plan, which
are recorded in SG&A expenses. (c) Reflects aging reserves and
low margin sales to reduce inventory exposures related to certain
grain varieties the Company is exiting, which were recorded in cost
of goods sold. (d) Reflects contractual severance benefits of $1.5
million and previously unrecognized stock-based compensation of
$0.2 million recognized in connection with the departure of Mr.
Jacobs as CEO. Includes employee severance costs of $0.9 million
incurred in connection with certain facility closures and workforce
rationalization initiatives and employee retention costs of $0.3
million, which are recorded in other expense. (e) Reflects
voluntary product withdrawal or recall costs of $3.0 million, net
of expected insurance recoveries, related to the withdrawal of
certain consumer-packaged products and the recall of certain
sunflower kernel products, of which $1.2 million is recorded in
cost of goods sold and $1.1 million is recorded in other expense.
Also includes a $0.7 million adjustment for the estimated lost
margin caused by the sunflower recall, which reflects a shortfall
in revenues against anticipated volumes of approximately $3.4
million, less associated cost of goods sold of approximately $2.7
million. (f) Reflects costs related to business combinations,
including an acquisition accounting adjustment related to Sunrise’s
inventory sold during the quarter of $1.6 million, which is
recorded in cost of goods sold; and $0.3 million of debt issuance
costs, which are recorded in interest expense. (g) Reflects the
impairment of long-lived assets associated with the closure of the
Heuvelton, New York soy extraction facility. (h) Other includes
fair value adjustments related to contingent consideration
arrangements and gain/loss on sale of assets, which are recorded in
other expense. (i) To tax effect the preceding adjustments to
earnings and to reflect an overall estimated annual effective tax
rate of approximately 30% on adjusted earnings before tax. (j)
Reflects costs related to business combinations, including an
acquisition accounting adjustment related to Sunrise’s inventory
sold subsequent to the acquisition date of $4.0 million, which was
recorded in cost of goods sold; acquisition- and
integration-related costs incurred in connection with the Sunrise
Acquisition of $6.2 million, which were included in other expense;
and the non-cash amortization of debt issuance costs incurred in
connection with the financing related to the Sunrise Acquisition of
$5.4 million, which were recorded in interest expense. (k) Reflects
costs related to the retrofit of the San Bernardino, California
juice facility and expansion of the Allentown, Pennsylvania
facility to add aseptic beverage processing and filling
capabilities, which were recorded in cost of goods sold. (l)
Reflects inventory reserves and low margin sales incurred to reduce
inventory exposures in certain organic raw materials, which were
recorded in cost of goods sold. (m) Reflects downtime and spoilage
caused by equipment failures at the Allentown, Pennsylvania
resealable pouch facility, which were recorded in cost of goods
sold. (n) Reflects additional logistics costs stemming from
capacity constraints on imports and exports within the Global
Ingredients segment, which were recorded in cost of goods sold. (o)
Reflects litigation-related legal costs mainly associated with the
settlement of the Plum dispute, which were recorded in SG&A
expenses. (p) Reflects the reversal to SG&A expenses of
previously recognized stock-based compensation related to
performance share units granted to certain employees as the
performance conditions were not achieved. (q) Other includes
severance and rationalization costs, fair value adjustments related
to contingent consideration arrangements and gain/loss on disposal
of assets, which were recorded in other expense. (r) Reflects the
realization of previously unrecognized tax benefits due to the
expiration of the statute of limitations. Per Diluted
Share
For the year ended $ $
December 31,
2016 Loss from continuing operations (50,564 ) Less: earnings
attributable to non-controlling interests (54 ) Less: dividends and
accretion of Series A Preferred Stock (1,812 ) Loss
from continuing operations available to common shareholders (52,430
) (0.61 ) Adjusted for: Costs related to business
acquisitions(a) 27,802 Goodwill Impairment(b) 17,540 Asset
impairments related to facility closures(c) 11,522 Legal settlement
and litigation-related legal fees(d) 10,850 Product withdrawal and
recall costs(e) 5,693 Costs related to strategic review and Value
Creation Plan(f) 4,041 Severance and rationalization costs(g) 3,679
Inventory reserves and liquidation sales to de-risk positions(h)
3,428 Plant start-up costs(i) 1,565 Write-off of debt issuance
costs(j) 215 Other(k) 726 Gain on settlement of contingent
consideration(l) (1,715 ) Net income tax effect on adjusted
earnings(m) (25,825 ) Change in unrecognized tax benefits(n) (1,268
) Adjusted earnings 5,823 0.07
January 2, 2016 Loss from continuing operations (3,132 )
Add: loss attributable to non-controlling interests 136
Loss from continuing operations available to common
shareholders (2,996 ) (0.04 ) Adjusted for: Costs related to
business acquisitions(o) 17,192 Plant expansion and start-up
costs(p) 4,081 Inventory reserves and liquidation sales to de-risk
positions(q) 2,367 Downtime, spoilage, and other costs due to
equipment failure(r) 2,219 Demurrage, detention and other related
expenses(s) 2,038 Litigation-related legal fees(d) 1,709 Reversal
of stock-based compensation expense(t) (579 ) Other(u) 4,384 Net
income tax effect of preceding adjustments(m) (10,598 ) Change in
unrecognized tax benefits(n) (855 ) Adjusted earnings 18,962
0.26 (a)
Reflects costs related to business combinations, including an
acquisition accounting adjustment related to Sunrise’s inventory
sold during the year of $15.0 million, which is recorded in cost of
goods sold; the non-cash amortization of debt issuance costs
incurred in connection with the financing related to the Sunrise
acquisition of $7.8 million, as well as $2.6 million of additional
debt issuance costs expensed, which are recorded in interest
expense; and $2.4 million of integration costs related to the
closure and consolidation of our frozen fruit processing facilities
following the Sunrise acquisition, which are recorded in cost of
goods sold and other expense. (b) Reflects the impairment charge to
write off the goodwill associated with the sunflower reporting
unit. (c) Reflects the impairment of long-lived assets associated
with the closure of the San Bernardino juice facility and the
Heuvelton soy extraction facility. (d) Reflects the charge recorded
in connection with the settlement of the Plum dispute, which is
recorded in other expense. Also includes $1.6 million (2015 - $1.7
million) of litigation-related legal costs mainly associated with
the Plum dispute, which are recorded in SG&A expenses. (e)
Reflects voluntary product withdrawal or recall costs of $5.7
million, net of expected insurance recoveries, related to the
withdrawal of consumer-packaged products for quality-related issues
and the recall of certain sunflower kernel products, of which $1.2
million is recorded in cost of goods sold and $2.8 million is
recorded in other expense. Also includes a $1.7 million adjustment
for the estimated lost margin caused by the sunflower recall, which
reflects a shortfall in revenues against anticipated volumes of
approximately $9.8 million, less associated cost of goods sold of
approximately $8.1 million. (f) Reflects legal and other
professional advisory costs associated with the strategic review
and execution of the Value Creation Plan, which are recorded in
SG&A expenses. (g) Reflects contractual severance benefits of
$1.5 million and previously unrecognized stock-based compensation
of $0.2 million recognized in connection with the departure of Mr.
Jacobs as CEO. Also includes employee severance costs of $1.6
million incurred in connection with certain facility closures and
workforce rationalization initiatives and employee retention costs
of $0.3 million, which are recorded in other expense. (h) Reflects
aging reserves and low margin sales to reduce inventory exposures
mainly related to certain grain varieties the Company is exiting,
which were recorded in cost of goods sold. (i) Plant start-up costs
relate to the ramp-up of production at our Allentown facility
following the completion of the addition of aseptic beverage
processing and filling capabilities in the fourth quarter of 2015,
which are recorded in cost of goods sold. These start-up costs
reflect the negative gross margin reported by the facility as the
facility ramped up to break-even production levels. (j) Reflects
the write-off to interest expense of $0.2 million of remaining
unamortized debt issuance costs related to our North American
credit facilities, which were replaced by a Global Credit Facility.
(k) Other includes fair value adjustments related to contingent
consideration arrangements and gain/loss on sale of assets, which
are recorded in other expense. (l) Reflects the gain on settlement
of the contingent consideration obligation related to Niagara
Natural, which was recorded in other income. (m) To tax effect the
preceding adjustments to earnings and to reflect an overall
estimated annual effective tax rate of approximately 30% on
adjusted earnings before tax. (n) Reflects the realization of
previously unrecognized tax benefits due to the expiration of the
statute of limitations. (o) Reflects costs related to business
combinations, including an acquisition accounting adjustment
related to Sunrise’s inventory sold subsequent to the acquisition
date of $4.0 million, which was recorded in cost of goods sold;
acquisition- and integration-related costs incurred in connection
with the Sunrise Acquisition of $7.8 million, which were recorded
in other expense; and the non-cash amortization of debt issuance
costs incurred in connection with the financing related to the
Sunrise acquisition of $6.4 million, as well as $2.0 million of
loan commitment fees associated with bridge financing for the
Sunrise acquisition that was not utilized, which were recorded in
interest expense. (p) Reflects costs related to the retrofit of the
San Bernardino juice facility and expansion of the Allentown
facility to add aseptic beverage processing and filling
capabilities, which were recorded in cost of goods sold. (q)
Reflects inventory reserves and low margin sales incurred to reduce
inventory exposures in certain organic raw materials, which were
recorded in cost of goods sold. (r) Reflects downtime and spoilage
caused by equipment failures at the Allentown pouch facility, which
were recorded in cost of goods sold. (s) Reflects additional
logistics costs stemming from capacity constraints on imports and
exports within the Global Ingredients segment, which were recorded
in cost of goods sold. (t) Reflects the reversal to SG&A
expenses of previously recognized stock-based compensation related
to performance share units granted to certain employees as the
performance conditions were not achieved. (u) Other includes
severance and rationalization costs, fair value adjustments related
to contingent consideration arrangements and gain/loss on disposal
of assets, which were recorded in other expense.
Segment Operating Income, EBITDA, and
Adjusted EBITDA
The Company defines segment operating income/loss as “earnings
(loss) from continuing operations before the following” excluding
the impact of other income/expense items and goodwill impairments;
EBITDA as segment operating income plus depreciation and
amortization; and Adjusted EBITDA as EBITDA excluding certain
charges and gains that affect the comparability of operating
performance. The following is a tabular presentation of segment
operating income (loss), EBITDA and Adjusted EBITDA, including a
reconciliation to loss from continuing operations, which the
Company believes to be the most directly comparable U.S. GAAP
financial measure:
Quarter ended
Year ended December 31, 2016 January 2,
2016
December 31, 2016 January 2, 2016
$ $
$ $
Loss
from continuing operations (33,426 ) (13,772 )
(50,564 ) (3,132 ) Recovery of income taxes
(8,165 ) (8,228 )
(23,797 ) (3,390 )
Interest expense, net
8,527 12,498
43,275 15,669
Other expense, net
5,569 7,758
28,292 12,151 Goodwill
impairment
17,540 -
17,540 - Total segment operating income
(loss)
(9,955 ) (1,744 )
14,746 21,298
Depreciation and amortization
8,195 8,268
34,150
21,007 Stock based compensation
712 534
3,885 3,512 EBITDA
(1,048
) 7,058
52,781
45,817 Adjustments (a) Costs related to business
acquisitions
1,596 4,000
15,150 4,000 Product
withdrawal and recall costs
1,872 -
2,855 - Costs
related to strategic review and Value Creation Plan
3,558 -
4,041 - Inventory reserves and liquidation sales to de-risk
positions
3,428 2,367
3,428 2,367 Litigation-related
legal fees
- 532
1,850 1,709 Plant expansion and
start-up costs
- 1,861
1,565 4,081 Downtime,
spoilage, and other costs due to equipment failure
- 2,219
- 2,219 Demurrage, detention and other related expenses
- 180
-
2,038 Adjusted EBITDA
9,406 18,217
81,670 62,231 (a)
The adjustments include all adjustments in the table
“Reconciliation of GAAP Results to Adjusted Earnings and Adjusted
earnings per diluted share” that affect cost of goods sold and
SG&A.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170301005600/en/
ICRScott Van Winkle, 617-956-6736scott.vanwinkle@icrinc.com
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