[X] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of large
accelerated filer, accelerated filer, smaller reporting company, and
emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
The number of the registrants common shares outstanding as of
August 3, 2018 was 87,162,332.
Except where the context otherwise requires, all references in
this Quarterly Report on Form 10-Q (Form 10-Q) to the Company, SunOpta,
we, us, our or similar words and phrases are to SunOpta Inc. and its
subsidiaries, taken together.
In this report, all currency amounts presented are expressed in
thousands of United States (U.S.) dollars ($), except per share amounts,
unless otherwise stated. Other amounts may be presented in thousands of Canadian
dollars (C$), euros (€), Mexican pesos (M$) and British pounds (£). As
at June 30, 2018, the closing rates of exchange for the Canadian dollar, euro,
Mexican peso and British pound, expressed in U.S. dollars, based on Bank of
Canada exchange rates, were C$0.7594, €1.1665, M$0.0503 and £1.3181. These rates
are provided solely for convenience and do not necessarily reflect the rates
used in the preparation of our financial statements.
This Form 10-Q contains forward-looking statements which are
based on managements current expectations and assumptions and involve a number
of risks and uncertainties. Generally, forward-looking statements do not relate
strictly to historical or current facts and are typically accompanied by words
such as anticipate, estimate, target, intend, project, potential,
continue, believe, expect, can, could, would, should, may,
might, plan, will, may, predict, the negatives of such terms, and
words and phrases of similar impact and include, but are not limited to
references to future financial and operating results, plans, objectives,
expectations and intentions; the anticipated benefits of our efforts to
transform our business operations, including the Value Creation Plan; our
anticipated revenue growth during the second half of 2018; the estimated amount
and timing of adjusted earnings before income taxes, depreciation and
amortization (EBITDA) enhancements attributable to improvements initiated
or implemented to date pursuant to the Value Creation Plan; the estimated cost
and increased capacity as a result of the expansion of our Allentown,
Pennsylvania, aseptic beverage facility; the estimated timeframes for reaching
the designed run-rate for our cocoa facility in the Netherlands, commissioning
of our
Crookston, Minnesota, facility, achieving overall capacity utilization of 85%
for our aseptic manufacturing facilities,
and shipping incremental frozen fruit offerings; expected productivity and
cost improvements as a result of our food safety and quality, and our
SunOpta
360
continuous improvement initiatives; sustainable business improvements
resulting from our enhanced employee health and safety, advanced aseptic
capacity planning model capabilities, and other process sustainability
initiatives; and other statements that are not historical facts. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, including Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements are based on
certain assumptions, expectations and analyses we make in light of our
experience and our interpretation of current conditions, historical trends and
expected future developments, as well as other factors that we believe are
appropriate in the circumstances.
Whether actual results and developments will be consistent with
and meet our expectations and predictions is subject to many risks and
uncertainties. Forward-looking statements by their nature involve known and
unknown risks and uncertainties and other factors that may cause actual results
and outcomes to differ materially depending on a variety of factors. We believe
these factors include, but are not limited to, the following:
All forward-looking statements made herein are qualified by
these cautionary statements, and our actual results or the developments we
anticipate may not be realized. Our forward-looking statements are based on
current industry, financial and economic information which we have assessed but
which by its nature is dynamic and subject to rapid and possibly abrupt changes.
As such, our forward-looking statements are based only on information currently
available to us and speak only as
of the date on which they are made. We do not undertake any obligation to publicly update our forward-looking statements, whether written or oral, after the date of this report for any reason, even if new information becomes available or other
events occur in the future, except as may be required under applicable securities laws. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this
report and our Annual Report on Form 10-K for the fiscal year ended December 30, 2017. Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found under Item 1A.
“Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2017, and in our other filings with the U.S. Securities and Exchange Commission and the Canadian Securities Administrators.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SunOpta Inc.
|
Consolidated Statements of Operations
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All dollar amounts expressed in thousands of U.S. dollars,
except per share amounts)
|
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
June 30,
2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues
|
|
319,308
|
|
|
336,454
|
|
|
631,960
|
|
|
666,485
|
|
Cost of goods sold
|
|
284,962
|
|
|
294,792
|
|
|
563,930
|
|
|
586,124
|
|
Gross profit
|
|
34,346
|
|
|
41,662
|
|
|
68,030
|
|
|
80,361
|
|
Selling, general and administrative expenses
|
|
26,948
|
|
|
35,039
|
|
|
55,236
|
|
|
73,311
|
|
Intangible asset amortization
|
|
2,768
|
|
|
2,809
|
|
|
5,539
|
|
|
5,612
|
|
Other expense, net (note 9)
|
|
583
|
|
|
607
|
|
|
181
|
|
|
6,050
|
|
Foreign exchange loss (gain)
|
|
(11
|
)
|
|
1,195
|
|
|
951
|
|
|
1,775
|
|
Earnings (loss) before the following
|
|
4,058
|
|
|
2,012
|
|
|
6,123
|
|
|
(6,387
|
)
|
Interest expense, net
|
|
8,474
|
|
|
7,695
|
|
|
16,694
|
|
|
15,449
|
|
Loss before income taxes
|
|
(4,416
|
)
|
|
(5,683
|
)
|
|
(10,571
|
)
|
|
(21,836
|
)
|
Recovery of income taxes
|
|
(1,290
|
)
|
|
(5,581
|
)
|
|
(2,983
|
)
|
|
(10,550
|
)
|
Net loss
|
|
(3,126
|
)
|
|
(102
|
)
|
|
(7,588
|
)
|
|
(11,286
|
)
|
Earnings (loss) attributable
to non-controlling interests
|
|
48
|
|
|
306
|
|
|
(51
|
)
|
|
520
|
|
Loss attributable to SunOpta Inc.
|
|
(3,174
|
)
|
|
(408
|
)
|
|
(7,537
|
)
|
|
(11,806
|
)
|
Dividends and accretion on
Series A Preferred Stock (note 7)
|
|
(1,974
|
)
|
|
(1,954
|
)
|
|
(3,941
|
)
|
|
(3,894
|
)
|
Loss attributable to common
shareholders
|
|
(5,148
|
)
|
|
(2,362
|
)
|
|
(11,478
|
)
|
|
(15,700
|
)
|
Loss per share
(note
10)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.06
|
)
|
|
(0.03
|
)
|
|
(0.13
|
)
|
|
(0.18
|
)
|
Diluted
|
|
(0.06
|
)
|
|
(0.03
|
)
|
|
(0.13
|
)
|
|
(0.18
|
)
|
Weighted-average common shares outstanding
(000s)
(note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
86,968
|
|
|
86,213
|
|
|
86,889
|
|
|
86,062
|
|
Diluted
|
|
86,968
|
|
|
86,213
|
|
|
86,889
|
|
|
86,062
|
|
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
6
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Consolidated Statements of Comprehensive Loss
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All dollar amounts expressed in thousands of U.S. dollars)
|
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30,
2018
|
|
|
July 1, 2017
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(3,126
|
)
|
|
(102
|
)
|
|
(7,588
|
)
|
|
(11,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
earnings, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes related to cash
flow hedges (note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses), net
|
|
(189
|
)
|
|
171
|
|
|
384
|
|
|
1,413
|
|
Reclassification of gains to earnings
|
|
(238
|
)
|
|
(1,204
|
)
|
|
(104
|
)
|
|
(1,204
|
)
|
Net
changes related to cash flow hedges
|
|
(427
|
)
|
|
(1,033
|
)
|
|
280
|
|
|
209
|
|
Currency translation
adjustment
|
|
(2,653
|
)
|
|
2,897
|
|
|
(1,197
|
)
|
|
3,495
|
|
Other
comprehensive earnings, net of income taxes
|
|
(3,080
|
)
|
|
1,864
|
|
|
(917
|
)
|
|
3,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
(6,206
|
)
|
|
1,762
|
|
|
(8,505
|
)
|
|
(7,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
attributable to non-controlling interests
|
|
66
|
|
|
47
|
|
|
87
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
attributable to SunOpta Inc.
|
|
(6,272
|
)
|
|
1,715
|
|
|
(8,592
|
)
|
|
(8,147
|
)
|
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
7
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Consolidated Balance Sheets
|
As at June 30, 2018 and December 30, 2017
|
(Unaudited)
|
(All dollar amounts expressed in thousands of U.S. dollars)
|
|
|
June 30, 2018
|
|
|
December 30, 2017
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
2,087
|
|
|
3,228
|
|
Accounts receivable
|
|
137,047
|
|
|
125,152
|
|
Inventories (note 5)
|
|
382,931
|
|
|
354,978
|
|
Prepaid expenses and
other current assets
|
|
35,958
|
|
|
33,213
|
|
Income
taxes recoverable
|
|
10,264
|
|
|
12,006
|
|
Total current assets
|
|
568,287
|
|
|
528,577
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
167,208
|
|
|
163,624
|
|
Goodwill
|
|
109,320
|
|
|
109,533
|
|
Intangible assets
|
|
166,489
|
|
|
172,059
|
|
Deferred income taxes
|
|
364
|
|
|
363
|
|
Other assets
|
|
7,163
|
|
|
8,017
|
|
|
|
|
|
|
|
|
Total assets
|
|
1,018,831
|
|
|
982,173
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Bank indebtedness (note
6)
|
|
281,523
|
|
|
234,090
|
|
Accounts
payable and accrued liabilities
|
|
166,715
|
|
|
161,364
|
|
Customer and other
deposits
|
|
4,203
|
|
|
4,901
|
|
Income
taxes payable
|
|
1,906
|
|
|
1,351
|
|
Other current liabilities
|
|
1,499
|
|
|
818
|
|
Current
portion of long-term debt (note 6)
|
|
2,086
|
|
|
2,228
|
|
Current portion of
long-term liabilities
|
|
4,505
|
|
|
5,300
|
|
Total current
liabilities
|
|
462,437
|
|
|
410,052
|
|
|
|
|
|
|
|
|
Long-term debt
(note
6)
|
|
225,476
|
|
|
225,805
|
|
Long-term liabilities
|
|
2,360
|
|
|
8,352
|
|
Deferred income taxes
|
|
13,580
|
|
|
15,850
|
|
Total liabilities
|
|
703,853
|
|
|
660,059
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
(note 7)
|
|
80,734
|
|
|
80,193
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
SunOpta Inc. shareholders
equity
|
|
|
|
|
|
|
Common shares,
no par value, unlimited shares authorized, 87,143,711 shares issued
(December 30, 2017 - 86,757,334)
|
|
312,520
|
|
|
308,899
|
|
Additional paid-in capital
|
|
28,900
|
|
|
28,006
|
|
Accumulated deficit
|
|
(100,515
|
)
|
|
(89,291
|
)
|
Accumulated other comprehensive loss (note 8)
|
|
(8,323
|
)
|
|
(7,268
|
)
|
|
|
232,582
|
|
|
240,346
|
|
Non-controlling
interests
|
|
1,662
|
|
|
1,575
|
|
Total equity
|
|
234,244
|
|
|
241,921
|
|
|
|
|
|
|
|
|
Total equity and liabilities
|
|
1,018,831
|
|
|
982,173
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(note
12)
|
|
|
|
|
|
|
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
8
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Consolidated Statements of Shareholders Equity
|
As at and for the quarters and two quarters ended June 30,
2018 and July 1, 2017
|
(Unaudited)
|
(All dollar amounts expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other com-
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
prehensive
|
|
|
controlling
|
|
|
|
|
|
|
Common shares
|
|
|
capital
|
|
|
deficit
|
|
|
loss
|
|
|
interests
|
|
|
Total
|
|
|
|
000s
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2017
|
|
86,757
|
|
|
308,899
|
|
|
28,006
|
|
|
(89,291
|
)
|
|
(7,268
|
)
|
|
1,575
|
|
|
241,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock purchase plan
|
|
48
|
|
|
308
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
308
|
|
Stock incentive plan
|
|
339
|
|
|
3,313
|
|
|
(2,808
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
505
|
|
Withholding taxes on
stock-based awards
|
|
-
|
|
|
-
|
|
|
(573
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(573
|
)
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
4,275
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,275
|
|
Dividends on Series A
Preferred Stock (note 7)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,400
|
)
|
|
-
|
|
|
-
|
|
|
(3,400
|
)
|
Accretion on Series A Preferred Stock (note
7)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(541
|
)
|
|
-
|
|
|
-
|
|
|
(541
|
)
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,537
|
)
|
|
-
|
|
|
(51
|
)
|
|
(7,588
|
)
|
Currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,335
|
)
|
|
138
|
|
|
(1,197
|
)
|
Cash flow hedges, net of
income taxes of $120 (note 4)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
280
|
|
|
-
|
|
|
280
|
|
Cumulative effect of adoption of new revenue
accounting standard (note 1)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
254
|
|
|
-
|
|
|
-
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
87,144
|
|
|
312,520
|
|
|
28,900
|
|
|
(100,515
|
)
|
|
(8,323
|
)
|
|
1,662
|
|
|
234,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other com-
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
paid-in
|
|
|
Retained
|
|
|
prehensive
|
|
|
controlling
|
|
|
|
|
|
|
Common shares
|
|
|
capital
|
|
|
earnings
|
|
|
loss
|
|
|
interests
|
|
|
Total
|
|
|
|
000s
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
85,744
|
|
|
300,426
|
|
|
25,522
|
|
|
53,838
|
|
|
(13,104
|
)
|
|
2,731
|
|
|
369,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock purchase plan
|
|
25
|
|
|
182
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
182
|
|
Stock incentive plan
|
|
698
|
|
|
6,219
|
|
|
(2,772
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,447
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
2,138
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,138
|
|
Dividends on Series A Preferred Stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,291
|
)
|
|
-
|
|
|
-
|
|
|
(3,291
|
)
|
Accretion on Series A
Preferred Stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(603
|
)
|
|
-
|
|
|
-
|
|
|
(603
|
)
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,806
|
)
|
|
-
|
|
|
520
|
|
|
(11,286
|
)
|
Currency translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,502
|
|
|
(7
|
)
|
|
3,495
|
|
Cash flow hedges, net of income taxes of $90
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
157
|
|
|
52
|
|
|
209
|
|
Acquisition of
non-controlling interest
|
|
-
|
|
|
-
|
|
|
(162
|
)
|
|
-
|
|
|
(82
|
)
|
|
244
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1,
2017
|
|
86,467
|
|
|
306,827
|
|
|
24,726
|
|
|
38,138
|
|
|
(9,527
|
)
|
|
3,540
|
|
|
363,704
|
|
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
9
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
|
|
Consolidated Statements of Cash Flows
|
|
|
For the quarters and two quarters ended June 30,
2018 and July 1, 2017
|
|
(Unaudited)
|
|
|
(Expressed in thousands of U.S. dollars)
|
|
|
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED
IN)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(3,126
|
)
|
|
(102
|
)
|
|
(7,588
|
)
|
|
(11,286
|
)
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
8,189
|
|
|
8,167
|
|
|
16,330
|
|
|
16,347
|
|
Amortization of debt issuance costs
|
|
600
|
|
|
652
|
|
|
1,208
|
|
|
1,138
|
|
Deferred income taxes
|
|
(865
|
)
|
|
(3,823
|
)
|
|
(2,151
|
)
|
|
(9,915
|
)
|
Stock-based compensation
|
|
2,104
|
|
|
1,286
|
|
|
4,275
|
|
|
2,138
|
|
Unrealized gain on
derivative contracts (note 4)
|
|
(2,764
|
)
|
|
(1,267
|
)
|
|
(1,243
|
)
|
|
(1,229
|
)
|
Fair
value of contingent consideration (note 9)
|
|
43
|
|
|
204
|
|
|
(2,373
|
)
|
|
204
|
|
Impairment of long-lived
assets (note 3)
|
|
70
|
|
|
-
|
|
|
409
|
|
|
3,723
|
|
Other
|
|
(148
|
)
|
|
(244
|
)
|
|
(147
|
)
|
|
(101
|
)
|
Changes in non-cash
working capital (note 11)
|
|
(38,324
|
)
|
|
(30,648
|
)
|
|
(35,435
|
)
|
|
(7,313
|
)
|
Net cash flows from
operations
|
|
(34,221
|
)
|
|
(25,775
|
)
|
|
(26,715
|
)
|
|
(6,294
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant
and equipment
|
|
(10,428
|
)
|
|
(7,143
|
)
|
|
(17,163
|
)
|
|
(16,167
|
)
|
Proceeds from sale of assets (note 3)
|
|
30
|
|
|
51
|
|
|
730
|
|
|
301
|
|
Other
|
|
389
|
|
|
254
|
|
|
389
|
|
|
364
|
|
Net cash flows from investing activities
|
|
(10,009
|
)
|
|
(6,838
|
)
|
|
(16,044
|
)
|
|
(15,502
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase under line of credit facilities
(note 6)
|
|
49,885
|
|
|
36,690
|
|
|
50,194
|
|
|
29,349
|
|
Repayment of long-term debt
(note 6)
|
|
(415
|
)
|
|
(589
|
)
|
|
(937
|
)
|
|
(1,116
|
)
|
Payment of cash dividends on Series A
Preferred Stock
|
|
(1,700
|
)
|
|
(1,700
|
)
|
|
(3,400
|
)
|
|
(3,291
|
)
|
Proceeds from the exercise of
stock options and employee share purchases, net of withholding taxes paid
|
|
91
|
|
|
2,535
|
|
|
240
|
|
|
3,629
|
|
Payment of contingent consideration (note 4)
|
|
(4,399
|
)
|
|
(4,330
|
)
|
|
(4,399
|
)
|
|
(4,330
|
)
|
Other
|
|
(5
|
)
|
|
(101
|
)
|
|
(45
|
)
|
|
(303
|
)
|
Net cash flows from financing activities
|
|
43,457
|
|
|
32,505
|
|
|
41,653
|
|
|
23,938
|
|
Foreign exchange gain (loss)
on cash held in a foreign currency
|
|
(64
|
)
|
|
54
|
|
|
(35
|
)
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents in the period
|
|
(837
|
)
|
|
(54
|
)
|
|
(1,141
|
)
|
|
2,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents -
beginning of the period
|
|
2,924
|
|
|
3,511
|
|
|
3,228
|
|
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents -
end of the period
|
|
2,087
|
|
|
3,457
|
|
|
2,087
|
|
|
3,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing
activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued cash dividends on Series A Preferred
Stock (note 7)
|
|
(1,700
|
)
|
|
(1,700
|
)
|
|
(1,700
|
)
|
|
(1,700
|
)
|
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
10
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
1.
|
Description of Business and Significant Accounting
Policies
|
SunOpta Inc. (the Company or SunOpta) was incorporated
under the laws of Canada on November 13, 1973. The Company operates businesses
focused on a healthy products portfolio that promotes sustainable well-being.
The Companys two reportable segments, Global Ingredients and Consumer Products,
operate in the natural, organic and specialty food sectors and utilize an
integrated business model to bring cost-effective and quality products to
market.
Basis of Presentation
The interim consolidated financial statements of the Company
have been prepared in accordance with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X promulgated under the Securities Exchange Act of 1934,
as amended, and in accordance with accounting principles generally accepted in
the United States of America (U.S. GAAP) for interim financial information.
Accordingly, these condensed interim consolidated financial statements do not
include all of the disclosures required by U.S. GAAP for annual financial
statements. In the opinion of management, all adjustments considered necessary
for fair presentation have been included and all such adjustments are of a
normal, recurring nature. Operating results for the quarter and two quarters
ended June 30, 2018 are not necessarily indicative of the results that may be
expected for the full fiscal year ending December 29, 2018 or for any other
period. The interim consolidated financial statements include the accounts of
the Company and its subsidiaries, and have been prepared on a basis consistent
with the annual consolidated financial statements for the year ended December
30, 2017, except as described below under Recent Accounting Pronouncements
Adoption of New Accounting Standards. For further information, refer to the
consolidated financial statements, and notes thereto, included in the Companys
Annual Report on Form 10-K for the fiscal year ended December 30, 2017.
Fiscal Year
The fiscal year of the Company consists of a 52- or 53-week
period ending on the Saturday closest to December 31. Fiscal year 2018 is a
52-week period ending on December 29, 2018, with quarterly periods ending on
March 31, June 30 and September 29, 2018. Fiscal year 2017 was a 52-week period
ending on December 30, 2017, with quarterly periods ending on April 1, July 1
and September 30, 2017.
Recent Accounting Pronouncements
Adoption of New Accounting Standard
As at December 31, 2017 (the first day of fiscal 2018), the
Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from
Contracts with Customers (Topic 606) (ASC Topic 606), which superseded all
previous revenue recognition guidance under U.S. GAAP. Under this new standard,
a company recognizes revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services.
The Company analyzed its significant customer contracts to
determine the effects of ASC Topic 606. In particular, the Company assessed
under the new guidance whether its contracts with customers to produce certain
consumer-packaged goods would require the Company to recognize revenue over time
versus at a point in time, based on whether the given product has an alternative
use and whether there is an enforceable right to payment under the contract for
product produced to date. Based on its assessment, the Company concluded that it
does not satisfy the criteria to recognize revenue over time. Accordingly, the
Company continues to recognize revenue at a point in time consistent with its
previous policies and processes, which is typically when title and physical
possession of the product has transferred to the customer. The Company also
transacts with certain customers on a bill-and-hold basis, whereby the Company
bills a customer for product to be delivered at a later date. Prior to the
adoption of ASC Topic 606, the Company deferred the recognition of revenue
related to these bill-and-hold arrangements, as the arrangements did not
typically include a fixed delivery schedule. As this criterion is no longer a
consideration under ASC Topic 606, these arrangements now qualify for revenue
recognition at the point in time that the customer obtains control of the goods.
With the exception of bill-and-hold arrangements, the adoption of ASC Topic 606 did not have a significant impact on the Companys
consolidated financial statements and revenue recognition practices, or its
internal controls.
SUNOPTA INC.
|
11
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
The Company adopted ASC Topic 606 using the modified
retrospective approach, which resulted in a cumulative-effect adjustment of $0.3
million to opening accumulated deficit as at December 31, 2017, related to the
recognition of $4.8 million of bill-and-hold revenue deferred under previous
U.S. GAAP. The change in the timing of the recognition of bill-and-hold revenue
did not have a material impact on the Companys consolidated statement of
operations for the quarter and two quarters ended June 30, 2018 or consolidated
balance sheet as at June 30, 2018.
See note 2 for additional disclosures under ASC Topic 606.
Recently Issued Accounting Standards, Not Adopted as at June
30, 2018
In June 2016, the Financial Accounting Standards Board (FASB)
issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments,
which requires measurement and recognition of expected versus incurred credit
losses for most financial assets. ASU 2016-13 is effective for interim and
annual periods beginning after December 15, 2019. The Company is currently
assessing the impact that this standard will have on its consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, Leases, a
comprehensive new standard that amends various aspects of existing accounting
guidance for leases, including the recognition of a right of use asset and a
lease liability for leases with a duration of greater than one year. The
guidance is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early adoption is
permitted. The Company is currently assessing the impact that this standard will
have on its consolidated financial statements. The Company anticipates that upon
adoption of ASU 2016-02, it will recognize significant additional right-to-use
assets and corresponding lease liabilities on its balance sheet, related to
existing operating leases.
The Company sources, processes and packages organic and natural
food products, including organic raw commodities and value-added ingredients,
specialty and organic grains and seeds, and consumer-ready beverage, frozen
fruit and fruit snack products. The Companys customers include retailers,
foodservice operators, branded food companies and food manufacturers.
Revenue is recognized when performance obligations under the
terms of a contract with a customer are satisfied, which is upon the transfer of
control of the contracted goods. Except for goods sold under bill-and-hold
arrangements, control is transferred when title and physical possession of the
product has transferred to the customer, which is at the point in time that
product is shipped from the Companys facilities or delivered to a specified
destination, depending on the terms of the contract, and the Company has a
present right to payment. Under bill-and-hold arrangementswhereby the Company
bills a customer for product to be delivered at a later datecontrol typically
transfers when the product is ready for physical transfer to the customer, and
the Company has a present right to payment.
A performance obligation is a promise within a contract to
transfer distinct goods to the customer. A contract with a customer may involve
multiple products and/or multiple delivery dates, with the transfer of each
product at each delivery date being considered a distinct performance
obligation, as each of the Companys products has standalone utility to the
customer. In these cases, the contracts transaction price is allocated to each
performance obligation based on relative standalone selling prices, and
recognized as revenue when each individual product is transferred to the
customer. Other promises in the contractfor example, the promise to provide
quality assurance testing to ensure the product meets specification and is fit
for its intended useare not separable from the promise to deliver goods and are
therefore not considered distinct.
Revenue is measured as the amount of consideration the Company
expects to receive in exchange for transferring the goods. Consideration is
typically determined based on a fixed unit price for the quantity of product
transferred. Certain contracts may give rise to an element of variable
consideration in the form of rebates or discounts. For contracts involving
variable consideration, the Company estimates the transaction price based on the
amount of consideration to which it expects to be entitled. These estimates are
determined based on historical experience and the expected outcome of the
variable consideration, and are updated as new information becomes
available, including actual claims paid, which indicate an estimate is not
indicative of the expected results. Changes to these estimates are recorded in
the period the adjustment is identified. The Company does not typically grant
customers a general right of return for goods transferred, but will generally
accept returns of product for quality-related issues. The cost of satisfying
this promise of quality is accounted for as an assurance-type warranty
obligation rather than variable consideration. The Companys contracts do not
typically include any significant payment terms, as payment is normally due
shortly after the time of transfer.
SUNOPTA INC.
|
12
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
Within the Companys Global Ingredients operating segment,
arrangements with customers are in the form of written sales contracts,
specifying the quantity and timing of goods to be delivered. The duration of
these sales contracts is typically one year or less based on crop-year cycles,
and may involve multiple delivery dates over the course of the contract. The
Company has elected not to disclose the value of remaining performance
obligations for contracts with an original duration of one year or less. Some
contracts may extend beyond one year; however, for these contracts, the Company
expects to satisfy substantially all of the remaining performance obligations
within the next 12 months. For contracts involving the delivery of raw
commodities or organic ingredients, the Company evaluated whether it is acting
as the principal (whereby revenues are reported on a gross basis) or agent
(whereby revenues are reported on a net basis). The Company determined that for
these contracts it is the principal, since the Company is primarily responsible
for fulfilling the promise to deliver the goods to customers. That is, the
Company controls access to the goods through purchase commitments with selected
suppliers, and bears responsibility and potential financial risk for
quality-related issues related to the delivered product. In addition, the
Company has discretion in establishing prices for the product.
Within the Companys Consumer Products operating segment,
contracts are typically represented by short-term, binding purchase orders from
customers, identifying the quantity and pricing for products to be transferred.
Customer orders may be issued under long-term master supply arrangements. On
their own, these master supply arrangements are typically not considered
contracts for purposes of revenue recognition, as they do not create enforceable
rights and obligations regarding the quantity, pricing or timing of goods to be
transferred (for example, by imposing minimum purchase obligations on the part
of the customer). Certain master supply arrangements provide for the transfer of
product on a bill-and-hold basis at the specific request of the customer. Goods
are produced under these bill-and-hold arrangements to meet individual customer
specifications, and, therefore, are identifiable as belonging to the customer
and cannot be directed to another customer.
The timing of the Companys revenue recognition, customer
billings and cash collections, does not result in significant unbilled
receivables (contract assets) or customer advances (contract liabilities) on the
consolidated balance sheet. Contract costs, such as sales commissions, are
generally expensed as incurred given the short-term nature of the associated
contracts.
The following table presents a disaggregation of the Companys
revenues based on categories used by the Company to evaluate sales
performance:
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Global Ingredients
|
|
|
|
|
|
|
|
|
|
|
|
|
Internationally-sourced organic ingredients
|
|
102,607
|
|
|
94,763
|
|
|
204,874
|
|
|
179,404
|
|
North American-sourced grains and seeds
|
|
44,078
|
|
|
51,363
|
|
|
78,142
|
|
|
93,364
|
|
Total
Global Ingredients
|
|
146,685
|
|
|
146,126
|
|
|
283,016
|
|
|
272,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage products
(1)
|
|
80,549
|
|
|
79,283
|
|
|
165,799
|
|
|
160,525
|
|
Frozen
fruit products
(2)
|
|
82,135
|
|
|
87,074
|
|
|
159,606
|
|
|
185,404
|
|
Snack products
(3)
|
|
9,939
|
|
|
23,971
|
|
|
23,539
|
|
|
47,788
|
|
Total
Consumer Products
|
|
172,623
|
|
|
190,328
|
|
|
348,944
|
|
|
393,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
319,308
|
|
|
336,454
|
|
|
631,960
|
|
|
666,485
|
|
SUNOPTA INC.
|
13
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
(1)
|
Includes aseptically-packaged products including
non-dairy beverages, broths and teas; refrigerated premium juices; and
shelf-stable juices and functional waters.
|
|
(2)
|
Includes individually quick frozen (IQF) fruit for
retail; IQF and bulk frozen fruit for foodservice; and custom fruit
preparations for industrial use.
|
|
(3)
|
Includes fruit snack offerings, as well as flexible
resealable pouch and nutrition bar products, which were exited in 2017
(see note 3).
|
Overview
On October 7, 2016, the Company entered into a strategic
partnership with Oaktree Capital Management L.P., a private equity investor
(together with its affiliates, Oaktree), and, on that date, Oaktree invested
$85.0 million through the purchase of cumulative, non-participating Series A
Preferred Stock (the Preferred Stock) of the Companys wholly-owned
subsidiary, SunOpta Foods Inc. (SunOpta Foods) (see note 7). Following the
strategic partnership, with the assistance of Oaktree, the Company conducted a
thorough review of its operations, management and governance, with the objective
of maximizing the Companys ability to deliver long-term value to its
shareholders. As a product of this review, the Company developed a Value
Creation Plan built on four pillars: portfolio optimization, operational
excellence, go-to-market effectiveness and process sustainability. The Company
engaged third-party management consulting firms to support the design and
implementation of the Value Creation Plan.
In 2016, measures taken under the Value Creation Plan included
the closure of the Companys San Bernardino, California, juice facility and the
Companys soy extraction facility in Heuvelton, New York.
In 2017, further measures taken under the Value Creation Plan
included the exits from flexible resealable pouch and nutrition bar product
lines and operations (see below), as well as the consolidation of grain
operations and related closure of a grain-handling facility in Moorhead,
Minnesota, and the consolidation of roasted snack operations and related closure
of the Companys Wahpeton, North Dakota, roasting facility (which was completed
in the second quarter of 2018). In addition, the Company made organizational
changes within its management and executive teams, along with new leadership to
many corporate, commercial and operational functions. The Company also added new
employees in the areas of quality, sales, marketing, operations and engineering,
and made capital investments at several of its manufacturing facilities to
enhance food safety and production efficiencies.
Flexible Resealable Pouch and Nutrition Bar Product Lines
and Operations
As the flexible resealable pouch and nutrition bar product
lines and operations do not qualify for presentation as discontinued operations,
operating results from these activities were reported in continuing operations
on the consolidated statements of operations for the current and comparative
periods. For the quarters ended June 30, 2018 and July 1, 2017, revenues from
sales of these product lines were $0.5 million and $15.2 million, respectively,
and for the two quarters ended June 30, 2018 and July 1, 2017, revenues were
$3.1 million and $30.5 million, respectively. Revenues reported from these
operations for the quarter and two quarters ended June 30, 2018, related to the
delivery of remaining inventories to customers under existing contracts at the
time of exit. For the quarter ended June 30, 2018, earnings before income taxes
from these operations were $0.4 million, compared with a loss before income
taxes of $2.3 million for the quarter ended July 1, 2017. For the two quarters
ended June 30, 2018 and July 1, 2017, losses before income taxes from these
operations were $0.9 million and $4.3 million, respectively. For the two
quarters ended June 30, 2018, the loss before income taxes from these operations
included the recognition of the remaining lease obligation of $1.3 million
related to the vacated nutrition bar processing facility. These operations are
included in the Consumer Products operating segment.
SUNOPTA INC.
|
14
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
Costs Incurred Under the Value Creation Plan
The following table summarizes costs incurred under the Value
Creation Plan for the two quarters ended June 30, 2018 and July 1, 2017:
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
recruitment,
|
|
|
Consulting
|
|
|
|
|
|
|
impairments
|
|
|
retention and
|
|
|
fees and
|
|
|
|
|
|
|
and facility
|
|
|
termination
|
|
|
temporary
|
|
|
|
|
|
|
closure costs
|
|
|
costs
|
|
|
labor costs
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance payable (receivable), December 30, 2017
(1)
|
|
(700
|
)
|
|
4,427
|
|
|
-
|
|
|
3,727
|
|
Costs incurred and charged to expense
|
|
1,867
|
|
|
557
|
|
|
410
|
|
|
2,834
|
|
Cash
receipts (payments), net
|
|
607
|
|
|
(4,115
|
)
|
|
(110
|
)
|
|
(3,618
|
)
|
Non-cash adjustments
|
|
(1,255
|
)
|
|
-
|
|
|
-
|
|
|
(1,255
|
)
|
Balance payable, June 30, 2018
(1)
|
|
519
|
|
|
869
|
|
|
300
|
|
|
1,688
|
|
July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance payable, December 31, 2016
|
|
-
|
|
|
1,803
|
|
|
1,657
|
|
|
3,460
|
|
Costs incurred and charged to expense
|
|
4,357
|
|
|
6,028
|
|
|
14,586
|
|
|
24,971
|
|
Cash
payments
|
|
(3,843
|
)
|
|
(5,263
|
)
|
|
(11,312
|
)
|
|
(20,418
|
)
|
Non-cash adjustments
|
|
(714
|
)
|
|
327
|
|
|
-
|
|
|
(387
|
)
|
Balance payable (receivable), July 1, 2017
|
|
(200
|
)
|
|
2,895
|
|
|
4,931
|
|
|
7,626
|
|
|
(1)
|
Balance payable was included in accounts payable and
accrued liabilities and balance receivable was included in accounts
receivable on the consolidated balance sheet.
|
(a)
|
Asset impairments and facility closure
costs
|
For the two quarters ended June 30,
2018, costs incurred included the remaining lease obligation related to the
vacated nutrition bar processing facility, and an additional impairment loss
related to the Wahpeton roasting facility to reflect net proceeds on sale of
$0.7 million. Net cash receipts included proceeds on the sale of nutrition bar
equipment. Balance payable as at June 30, 2018, represents the remaining
nutrition bar facility lease obligation $1.2 million, which lease extends until
December 2020, net of the proceeds from the sale of the Wahpeton facility, which
were received in July 2018.
For the two quarters ended July 1,
2017, cost incurred included the early buyout of the San Bernardino equipment
leases, as well as closure costs related to the San Bernardino facility prior to
its disposal to the landlord. In exchange for the San Bernardino assets, the
facility landlord released the Company from its remaining property lease
obligation and paid proceeds of $0.2 million in December 2017.
(b)
|
Employee recruitment, retention and termination
costs
|
Represents third-party recruiting fees
incurred to identify and retain new employees; reimbursement of relocation costs
for new employees; retention and signing bonuses accrued for certain existing
and new employees; and severance benefits, net of forfeitures of stock-based
awards, and legal costs related to employee terminations. Retention bonuses were
paid out in the first quarter of 2018 to employees who remained employed by the
Company through December 31, 2017, or other specified dates. Certain employees
were entitled to pro-rata payouts of their retention bonuses if their employment
terminated earlier than their retention payment date.
SUNOPTA INC.
|
15
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
(c)
|
Consulting fees and temporary labor
costs
|
Represents the cost for third-party
consultants and temporary labor engaged to support the design and implementation
of the Value Creation Plan, which efforts were substantially completed during
fiscal 2017, as well as other professional fees incurred in the connection with
the plan.
The following table summarizes costs incurred since the
inception of the Value Creation Plan to June 30, 2018:
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
recruitment,
|
|
|
Consulting
|
|
|
|
|
|
|
impairments
|
|
|
retention and
|
|
|
fees and
|
|
|
|
|
|
|
and facility
|
|
|
termination
|
|
|
temporary
|
|
|
|
|
|
|
closure costs
|
|
|
costs
|
|
|
labor costs
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Costs incurred and charged to expense
|
|
35,155
|
|
|
14,938
|
|
|
20,979
|
|
|
71,072
|
|
Cash
payments, net
|
|
(10,139
|
)
|
|
(14,492
|
)
|
|
(20,679
|
)
|
|
(45,310
|
)
|
Non-cash adjustments
|
|
(24,497
|
)
|
|
423
|
|
|
-
|
|
|
(24,074
|
)
|
Balance payable, June 30, 2018
|
|
519
|
|
|
869
|
|
|
300
|
|
|
1,688
|
|
For the quarters and two quarters ended June 30, 2018 and July
1, 2017, costs incurred and charged to expense were recorded in the consolidated
statement of operations as follows:
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cost of goods sold
(1)
|
|
-
|
|
|
262
|
|
|
100
|
|
|
634
|
|
Selling, general and administrative expenses
(2)
|
|
300
|
|
|
7,001
|
|
|
613
|
|
|
18,439
|
|
Other expense
(3)
|
|
339
|
|
|
425
|
|
|
2,121
|
|
|
5,898
|
|
|
|
639
|
|
|
7,688
|
|
|
2,834
|
|
|
24,971
|
|
|
(1)
|
Facility closure costs, including inventory write-downs,
recorded in cost of goods sold were allocated to the Consumer Products
operating segment.
|
|
(2)
|
Consulting/professional fees and temporary labor costs,
and employee recruitment, relocation and retention costs recorded in
selling, general and administrative expenses were allocated to Corporate
Services.
|
|
(3)
|
For the quarter ended June 30, 2018, asset impairment,
lease obligation and employee termination costs recorded in other expense
were allocated as follows: Raw Material Sourcing and Supply operating
segment - $0.3 million (July 1, 2017 $nil); Consumer Products operating
segment - $nil (July 1, 2017 $0.1 million); and Corporate Services -
$nil (July 1, 2017 $0.3 million). For the two quarters ended June 30,
2018, asset impairment, lease obligation and employee termination costs
recorded in other expense were allocated as follows: Raw Material Sourcing
and Supply operating segment - $0.7 million (July 1, 2017 $nil);
Consumer Products operating segment - $1.3 million (July 1, 2017 $4.8
million); and Corporate Services - $0.1 million (July 1, 2017 $1.1
million).
|
SUNOPTA INC.
|
16
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
4.
|
Derivative Financial Instruments and Fair Value
Measurements
|
The following table presents for each of the fair value
hierarchies, the assets and liabilities that are measured at fair value on a
recurring basis as of June 30, 2018 and December 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
asset (liability)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Commodity futures and forward contracts
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
2,586
|
|
|
62
|
|
|
2,524
|
|
|
-
|
|
Long-term asset
|
|
26
|
|
|
-
|
|
|
26
|
|
|
-
|
|
Current liability
|
|
(771
|
)
|
|
-
|
|
|
(771
|
)
|
|
-
|
|
Long-term liability
|
|
(104
|
)
|
|
-
|
|
|
(104
|
)
|
|
-
|
|
Inventories carried at market
(2)
|
|
3,542
|
|
|
-
|
|
|
3,542
|
|
|
-
|
|
Forward foreign currency contracts
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments
|
|
384
|
|
|
-
|
|
|
384
|
|
|
-
|
|
Designated as hedging instruments
|
|
(36
|
)
|
|
-
|
|
|
(36
|
)
|
|
-
|
|
Contingent consideration
(4)
|
|
(4,548
|
)
|
|
-
|
|
|
-
|
|
|
(4,548
|
)
|
Embedded derivative
|
|
2,532
|
|
|
-
|
|
|
-
|
|
|
2,532
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
asset (liability)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Commodity futures and forward contracts
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
738
|
|
|
-
|
|
|
738
|
|
|
-
|
|
Current liability
|
|
(240
|
)
|
|
(35
|
)
|
|
(205
|
)
|
|
-
|
|
Long-term liability
|
|
(4
|
)
|
|
-
|
|
|
(4
|
)
|
|
-
|
|
Inventories carried at market
(2)
|
|
3,838
|
|
|
-
|
|
|
3,838
|
|
|
-
|
|
Forward foreign currency contracts
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments
|
|
(1,060
|
)
|
|
-
|
|
|
(1,060
|
)
|
|
-
|
|
Designated as hedging instruments
|
|
(435
|
)
|
|
-
|
|
|
(435
|
)
|
|
-
|
|
Contingent consideration
(4)
|
|
(11,320
|
)
|
|
-
|
|
|
-
|
|
|
(11,320
|
)
|
Embedded derivative
|
|
2,690
|
|
|
-
|
|
|
-
|
|
|
2,690
|
|
(1)
|
Commodity futures and forward
contracts
|
Represents exchange-traded commodity
futures and forward commodity purchase and sale contracts. Exchange-traded
futures are fair valued based on unadjusted quotes for identical assets priced
in active markets and are classified as level 1. Fair value for forward
commodity purchase and sale contracts is estimated based on exchange-quoted
prices adjusted for differences in local markets. Local market adjustments use
observable inputs or market transactions for similar assets or liabilities, and,
as a result, are classified as level 2. Based on historical experience with the
Companys suppliers and customers, the Companys own credit risk, and the
Companys knowledge of current market conditions, the Company does not view
non-performance risk to be a significant input to fair value for the majority of
its forward commodity purchase and sale contracts.
These exchange-traded commodity futures
and forward commodity purchase and sale contracts are used as part of the
Companys risk management strategy, and represent economic hedges to limit risk
related to fluctuations in the price of certain commodity grains, as well as
the prices of cocoa and coffee. These contracts are not designated as hedges for
accounting purposes. Gains and losses on changes in fair value of these
contracts are included in cost of goods sold on the consolidated statement of
operations. For the quarter ended June 30, 2018, the Company recognized a gain
of $2.8 million (July 1, 2017 gain of $0.4 million), and for the two quarters
ended June 30, 2018, the Company recognized a gain of $1.2 million (July 1, 2017
gain of $0.4 million), related to changes in the fair value of these
contracts. Unrealized gains on short-term contracts are included in other
current assets; and unrealized losses on short-term and long-term contracts are
included in other current liabilities and long-term liabilities, respectively,
on the consolidated balance sheets.
SUNOPTA INC.
|
17
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
As at June 30, 2018, the notional
amounts of open commodity futures and forward purchase and sale contracts were
as follows (in thousands of bushels):
|
|
Number of bushels
purchased (sold)
|
|
|
|
Corn
|
|
|
Soybeans
|
|
Forward commodity purchase contracts
|
|
928
|
|
|
290
|
|
Forward commodity sale contracts
|
|
(669
|
)
|
|
(987
|
)
|
Commodity futures contracts
|
|
(700
|
)
|
|
480
|
|
In addition, as at June 30, 2018, the
Company had net open futures contracts to sell 9,030 metric tons (MT) of cocoa
(December 30, 2017 2,990 MT sold) and to purchase 136 MT of coffee (December
30, 2017 51 MT sold).
(2)
|
Inventories carried at market
|
The fair value of grain inventories
carried at market is determined using quoted market prices from the Chicago
Board of Trade (CBoT), as adjusted for differences in local markets, and
broker or dealer quotes. As at June 30, 2018, the Company had 453,896 bushels of
commodity corn and 194,529 bushels of commodity soybeans included in inventories
carried at market. The fair value of these inventories is included in level 2 of
the fair value hierarchy, as there are observable quoted prices for similar
assets in active markets. Gains and losses on these inventories are included in
cost of goods sold on the consolidated statements of operations. Inventories
carried at market are included in inventories on the consolidated balance
sheets.
(3)
|
Foreign forward currency
contracts
|
As part of its risk management
strategy, the Company enters into forward foreign exchange contracts to reduce
its exposure to fluctuations in foreign currency exchange rates. For any open
forward foreign exchange contracts at period end, the contract rate is compared
to the forward rate, and a gain or loss is recorded. These contracts are
included in level 2 of the fair value hierarchy, as the inputs used in making
the fair value determination are derived from and are corroborated by observable
market data. Certain of these forward foreign exchange contracts may be
designated as cash flow hedges for accounting purposes, while other of these
contracts represent economic hedges that are not designated as hedging
instruments.
|
(i)
|
Not designated as hedging
instruments
|
As at June 30, 2018, the Company had
open forward foreign exchange contracts to sell euros to buy U.S. dollars with a
notional value of €13.6 million ($16.5 million), and to sell British pounds to
buy euros with a notional value of £0.4 million (€0.4 million). As these
contracts were not designated as hedging instruments, gains and losses on
changes in the fair value of these contracts are included in foreign exchange
loss or gain on the consolidated statement of operations. For the quarter ended
June 30, 2018, the Company recognized a gain of $1.1 million (July 1, 2017
loss of $2.0 million), and for the two quarters ended June 30, 2018, the Company
recognized a gain of $1.4 million (July 1, 2017 loss of $2.9 million), related
to changes in the fair value of these contracts. Unrealized gains and losses on
these contracts are included in accounts receivable and accounts payable,
respectively, on the consolidated balance sheets.
SUNOPTA INC.
|
18
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
SUNOPTA INC.
|
19
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
(ii)
|
Designated as hedging instruments
|
As at June 30, 2018, the Company had
net open forward foreign exchange contracts to sell U.S. dollars to buy Mexican
pesos with a notional value of $3.5 million (M$69.4 million). These contracts
were entered into as part of a hedging program to manage the variability of cash
flows associated with a portion of forecasted purchases of raw fruit inventories
denominated in Mexican pesos. As these contracts have been designated as hedging
instruments, the effective portion of the gains and losses on changes in the
fair value of these contracts is included in other comprehensive earnings and
reclassified to cost of goods sold in the same period the hedged transaction
affects earnings, which is upon the sale of the inventories. For the quarter
ended June 30, 2018, the Company recognized a net unrealized loss in other
comprehensive earnings of $0.3 million (July 1, 2017 gain of $0.2 million),
and for the two quarters ended June 30, 2018, the Company recognized a net gain
of $0.5 million (July 1, 2017 gain of $2.0 million) related to changes in the
fair value of open contracts. For the quarter and two quarters ended June 30,
2018, the Company reclassified from other comprehensive earnings to cost of
goods sold realized gains on closed contracts of $0.3 million and $0.2 million,
respectively. For the quarter and two quarters ended July 1, 2017, the Company
reclassified from other comprehensive earnings to cost of goods sold a realized
gain on closed contracts of $0.8 million, and reclassified to foreign exchange
loss an unrealized gain of $0.9 million related to the ineffective portion of
the hedge. The Company expects to reclassify the $0.0 million amount of the
unrealized losses recorded in accumulated other comprehensive loss as at June
30, 2018, to earnings over the next two months. Unrealized gains and losses on
these contracts are included in other current assets and other current
liabilities, respectively, on the consolidated balance sheets.
(4)
|
Contingent consideration
|
The fair value measurement of
contingent consideration arising from business acquisitions is determined using
unobservable (level 3) inputs. These inputs include: (i) the estimated amount
and timing of the projected cash flows on which the contingency is based; and
(ii) the risk-adjusted discount rate used to calculate the present value of
those cash flows. The table below presents a reconciliation of contingent
consideration obligations for the quarter and two quarters ended June 30, 2018
and July 1, 2017. These obligations are included in long-term liabilities
(including the current portion thereof) on the consolidated balance sheets.
|
|
|
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, beginning of period
|
|
(8,904
|
)
|
|
(15,130
|
)
|
|
(11,320
|
)
|
|
(15,279
|
)
|
Fair value adjustments
(1)
|
|
(43
|
)
|
|
(84
|
)
|
|
2,373
|
|
|
(204
|
)
|
Payments
(2)
|
|
4,399
|
|
|
4,061
|
|
|
4,399
|
|
|
4,330
|
|
Balance, end of period
|
|
(4,548
|
)
|
|
(11,153
|
)
|
|
(4,548
|
)
|
|
(11,153
|
)
|
|
(1)
|
For the two quarters ended June 30, 2018, included an
adjustment of $2.5 million to reduce the contingent consideration that may
be payable in 2019 under an earn-out arrangement with the former
unitholders of Citrusource, LLC (acquired by the Company in March 2015)
based on the projected results for the business in fiscal 2018. In
addition, for all periods presented, reflected the accretion for the time
value of money. (See note 9.)
|
|
(2)
|
For the quarter and two quarters ended June 30, 2018,
reflected the third installment payment of deferred consideration to the
former unitholders of Citrusource. For the quarter and two quarters ended
July 1, 2017, reflected the second installment payment related to
Citrusource and payment of the remaining deferred consideration to a
former shareholder of Organic Land Corporation OOD, which was acquired by
the Company in December 2012.
|
SUNOPTA INC.
|
20
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
|
|
|
|
December 30,
|
|
|
|
June 30, 2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Raw materials and work-in-process
|
|
277,818
|
|
|
262,527
|
|
Finished goods
|
|
103,146
|
|
|
92,489
|
|
Company-owned grain
|
|
10,216
|
|
|
9,937
|
|
Inventory reserves
|
|
(8,249
|
)
|
|
(9,975
|
)
|
|
|
382,931
|
|
|
354,978
|
|
6.
|
Bank Indebtedness and Long-Term
Debt
|
|
|
|
|
|
December 30,
|
|
|
|
June 30, 2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Bank indebtedness:
|
|
|
|
|
|
|
Global Credit Facility
(1)
|
|
277,327
|
|
|
230,502
|
|
Bulgarian credit facility
|
|
4,196
|
|
|
3,588
|
|
|
|
281,523
|
|
|
234,090
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
Senior Secured Second Lien
Notes, net of unamortized debt issuance costs of $7,110 (December 30, 2017
- $7,716)
(2)
|
|
216,388
|
|
|
215,782
|
|
Asset-backed term loan
|
|
3,315
|
|
|
3,600
|
|
Capital lease obligations
|
|
4,859
|
|
|
5,651
|
|
Other
|
|
3,000
|
|
|
3,000
|
|
|
|
227,562
|
|
|
228,033
|
|
Less:
current portion
|
|
2,086
|
|
|
2,228
|
|
|
|
225,476
|
|
|
225,805
|
|
(1)
|
Global Credit Facility
|
On February 11, 2016, the Company
entered into a five-year credit agreement for a senior secured asset-based
revolving credit facility with a syndicate of banks in the maximum aggregate
principal amount of $350.0 million, subject to borrowing base capacity (the
Global Credit Facility). The Global Credit Facility is used to support the
working capital and general corporate needs of the Companys global operations,
in addition to funding future strategic initiatives. The Global Credit Facility
also includes borrowing capacity available for letters of credit and provides
for borrowings on same-day notice, including in the form of swingline loans.
Subject to customary borrowing conditions and the agreement of any such lenders
to provide such increased commitments, the Company may request to increase the
total lending commitments under the Global Credit Facility to a maximum
aggregate principal amount not to exceed $450.0 million. Outstanding principal
amounts under the Global Credit Facility are repayable in full on the maturity
date of February 10, 2021.
Individual borrowings under the Global
Credit Facility have terms of six months or less and bear interest based on
various reference rates, including prime rate and LIBOR plus an applicable
margin. The applicable margin in the Global Credit Facility ranges from 1.25% to
1.75% for loans bearing interest based on LIBOR, and from 0.25% to 0.75% for
loans bearing interest based on the prime rate and, in each case, is set
quarterly based on average borrowing availability for the preceding fiscal
quarter. As at June 30, 2018, the weighted-average interest rate on the
facilities was 4.04% .
SUNOPTA INC.
|
21
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
On September 19, 2017 (the Effective
Date), the Company entered into an amendment to the Global Credit Facility to
add an additional U.S. asset-based credit subfacility of an aggregate principal
amount of $15.0 million (the New U.S. Subfacility).
The New U.S. Subfacility was fully
drawn on the Effective Date. Amortization payments on the aggregate principal
amount of the New U.S. Subfacility are equal to $2.5 million payable at the end
of each fiscal quarter, commencing with the fiscal quarter ending March 31,
2019. Optional prepayment of borrowings under the New U.S. Subfacility are not
permitted until the first anniversary of the Effective Date and are subject to
certain availability conditions. Borrowings repaid under the New U.S.
Subfacility may not be borrowed again.
Borrowings under the New U.S.
Subfacility bear interest at a margin over various reference rates. The
applicable margin for the New U.S. Subfacility will be set quarterly based on
average borrowing availability for the preceding fiscal quarter and will range
from 2.00% to 2.50% with respect to base rate and prime rate borrowings and from
3.00% to 3.50% for eurocurrency rate and bankers acceptance rate borrowings.
The initial margin for the New U.S. Subfacility is 2.50% with respect to base
rate and prime rate borrowings and 3.50% with respect to eurocurrency rate
borrowings.
Obligations under the Global Credit
Facility are guaranteed by substantially all of the Companys subsidiaries and,
subject to certain exceptions, such obligations are secured by first priority
liens on substantially all of the assets of the Company.
The Global Credit Facility contains a
number of covenants that, among other things, restrict, subject to certain
exceptions, the Companys ability to create liens on assets; sell assets and
enter into sale and leaseback transactions; pay dividends, prepay junior lien
and unsecured indebtedness and make other restricted payments; incur additional
indebtedness and make guarantees; make investments, loans or advances, including
acquisitions; and engage in mergers or consolidations. The foregoing covenants
are subject to certain threshold amounts and exceptions as set forth in the
credit agreement.
(2)
|
Senior Secured Second Lien Notes
|
On October 20, 2016, SunOpta Foods
issued $231.0 million of 9.5% Senior Secured Second Lien Notes due 2022 (the
Notes). As at June 30, 2018, the outstanding principal amount of the Notes was
$223.5 million, following the principal repayment of $7.5 million in October
2017. Debt issuance costs are recorded as a reduction against the principal
amount of the Notes and are being amortized over the six-year term of the Notes.
Interest on the Notes is payable semi-annually in arrears on April 15 and
October 15 at a rate of 9.5% per annum, commencing on April 15, 2017. The Notes
will mature on October 9, 2022. Giving effect to the amortization of debt
issuance costs, the effective interest rate on the Notes is approximately 10.4%
per annum.
Prior to October 9, 2018, SunOpta Foods
may redeem some or all of the Notes at any time and from time to time at a
make-whole redemption price set forth in the indenture governing the Notes. On
or after October 9, 2018, SunOpta Foods may redeem the Notes, in whole or in
part, at any time at the redemption prices equal to 107.125% through October 8,
2019, 104.750% from October 9, 2019 through October 8, 2020, 102.375% from
October 9, 2020 through October 8, 2021 and at par thereafter, plus accrued and
unpaid interest, if any, to but excluding the date of redemption. In addition,
prior to October 9, 2018, SunOpta Foods may, on one or more occasions, redeem up
to 35% of the aggregate principal amount of the Notes with the proceeds of
certain equity offerings at a redemption price equal to 109.500% of the
principal amount of the Notes redeemed, plus accrued and unpaid interest, if
any, to but excluding the date of redemption. At any time prior to October 9,
2018, SunOpta Foods may also redeem, during each twelve-month period beginning
on October 20, 2016, up to 10% of the aggregate principal amount of the Notes at
a price equal to 103.000% of the aggregate principal amount of the Notes being
redeemed, plus accrued and unpaid interest, if any, to but excluding the date of
redemption. In the event of a change of control, SunOpta Foods will be required
to make an offer to repurchase the Notes at 101.000% of their principal amount,
plus accrued and unpaid interest, if any, to the date of purchase.
SUNOPTA INC.
|
22
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
The Notes are secured by
second-priority liens on substantially all of the assets that secure the credit
facilities provided under the Global Credit Facility, subject to certain
exceptions and permitted liens. The Notes are senior secured obligations and
rank equally in right of payment with SunOpta Foods existing and future senior
debt and senior in right of payment to any future subordinated debt. The Notes
are effectively subordinated to debt under the Global Credit Facility and any
future indebtedness secured on a first priority basis. The Notes are initially
guaranteed on a senior secured second-priority basis by the Company and each of
its subsidiaries (other than SunOpta Foods) that guarantees indebtedness under
the Global Credit Facility, subject to certain exceptions.
The Notes are subject to covenants
that, among other things, limit the Companys ability to (i) incur additional
debt or issue preferred stock; (ii) pay dividends and make certain types of
investments and other restricted payments; (iii) create liens; (iv) enter into
transactions with affiliates; (v) sell assets; and (vi) create restrictions on
the ability of restricted subsidiaries to pay dividends, make loans or advances
or transfer assets to the Company, SunOpta Foods or any guarantor of the Notes.
The foregoing covenants are subject to certain threshold amounts and exceptions
as set forth in the indenture governing the Notes. In addition, the indenture
provides for customary events of default (subject in certain cases to customary
grace and cure periods), which include nonpayment, breach of covenants in the
indenture, certain payment defaults or acceleration of other indebtedness, a
failure to pay certain judgments and certain events of bankruptcy and
insolvency. If an event of default occurs and is continuing, the trustee or
holders of at least 25% in principal amount of the outstanding Notes may declare
the principal of and accrued and unpaid interest on, if any, all the Notes to be
due and payable.
As at June 30, 2018, the estimated fair
value of the outstanding Notes was approximately $240 million, based on quoted
prices of the most recent over-the-counter transactions (Level 2).
7.
|
Series A Preferred Stock
|
On October 7, 2016 (the Closing Date), the Company and
SunOpta Foods entered into a subscription agreement (the Subscription
Agreement) with Oaktree Organics, L.P. and Oaktree Huntington Investment Fund
II, L.P. (collectively, the Investors). Pursuant to the Subscription
Agreement, SunOpta Foods issued an aggregate of 85,000 shares of Preferred Stock
to the Investors for consideration in the amount of $85.0 million. In connection
with the issuance of the Preferred Stock, the Company incurred direct and
incremental expenses of $6.0 million, which reduced the carrying value of the
Preferred Stock. At any time on or after the fifth anniversary of the Closing
Date, SunOpta Foods may redeem all of the Preferred Stock for an amount, per
share of Preferred Stock, equal to the value of the liquidation preference at
such time. The carrying value of the Preferred Stock is being accreted to the
redemption amount of $85.0 million through charges to retained
earnings/accumulated deficit over the period preceding the fifth anniversary of
the Closing Date, which accretion amounted to $0.3 million and $0.2 million for
the quarters ended June 30, 2018 and July 1, 2017, respectively, and $0.5
million and $0.5 million for the two quarters ended June 30, 2018 and July 1,
2017, respectively.
In connection with the Subscription Agreement, the Company
agreed to, among other things (i) ensure SunOpta Foods has sufficient funds to
pay its obligations under the terms of the Preferred Stock and (ii) grant each
holder of Preferred Stock (the Holder) the right to exchange the Preferred
Stock for shares of common stock of the Company (the Common Shares). The
Preferred Stock is non-participating with the Common Shares in dividends and
undistributed earnings of the Company.
The Preferred Stock has a stated value and initial liquidation
preference of $1,000 per share. Cumulative preferred dividends accrue daily on
the Preferred Stock at an annualized rate of 8.0% prior to October 5, 2025 and
12.5% thereafter, in each case of the liquidation preference (subject to an
increase of 1.0% per quarter, up to a maximum rate of 5.0% per quarter on the
occurrence of certain events of non-compliance). Prior to October 5, 2025,
SunOpta Foods may pay dividends in cash or elect, in lieu of paying cash, to add
the amount that would have been paid to the liquidation preference. After
October 4, 2025, the failure to pay dividends in cash will be an event of
non-compliance. The Preferred Stock ranks senior to the shares of common stock
of SunOpta Foods with respect to dividend rights and rights on the distribution
of assets on any liquidation, winding up or dissolution of the Company or
SunOpta Foods. For the quarters and two quarters ended June 30, 2018 and July 1,
2017, the Company paid cash dividends on the Preferred Stock of $1.7 million and
$3.4 million, respectively. As at June 30, 2018, the Company had accrued unpaid
dividends of $1.7 million, which were recorded in accounts payable and accrued
liabilities on the consolidated balance sheet.
SUNOPTA INC.
|
23
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
At any time, the Holders may exchange their shares of Preferred
Stock, in whole or in part, into the number of Common Shares equal to, per share
of Preferred Stock, the quotient of the liquidation preference divided by $7.50
(such price, the Exchange Price and such quotient, the Exchange Rate). As at
June 30, 2018, the aggregate shares of Preferred Stock outstanding were
exchangeable into 11,333,333 Common Shares. The Exchange Price is subject to
certain anti-dilution adjustments, including a weighted-average adjustment for
issuances of Common Shares below the Exchange Price, provided that the Exchange
Price may not be lower than $7.00 (subject to adjustment in certain
circumstances). SunOpta Foods may cause the Holders to exchange all of the
Preferred Stock into a number of Common Shares based on the applicable Exchange
Price if (i) fewer than 10% of the shares of Preferred Stock issued on the
Closing Date remain outstanding, or (ii) on or after the third anniversary of
the Closing Date, the average volume-weighted average price of the Common Shares
during the then preceding 20 trading day period is greater than 200% of the
Exchange Price.
In connection with the Subscription Agreement, the Company
issued 11,333,333 Special Shares, Series 1 (the Special Voting Shares) to the
Investors, which entitle the Investors to one vote per Special Voting Share on
all matters submitted to a vote of the holders of Common Shares, together as a
single class, subject to certain exceptions. Additional Special Voting Shares
will be issued, or existing Special Voting Shares will be redeemed, as necessary
to ensure that the aggregate number of Special Voting Shares outstanding is
equal to the number of shares of Preferred Stock outstanding from time to time
multiplied by the Exchange Rate in effect at such time. As at June 30, 2018,
11,333,333 Special Voting Shares were issued and outstanding, which represented
an approximate 11.5% voting interest in the Company. The Special Voting Shares
are not transferable and the voting rights associated with the Special Voting
Shares will terminate upon the transfer of the Preferred Stock to a third party,
other than a controlled affiliate of the Investors. The Investors are entitled
to designate up to two nominees for election to the Board of Directors of the
Company (the Board) and have the right to designate one individual to attend
meetings of the Board as a non-voting observer, subject to the Investors
maintaining certain levels of beneficial ownership of Common Shares on an
as-exchanged basis. For so long as the Investors beneficially own or control at
least 50% of the Preferred Stock issued on the Closing Date, including any
corresponding Common Shares into which such Preferred Stock are exchanged, the
Investors will be entitled to (i) participation rights with respect to future
equity offerings of the Company, and (ii) governance rights, including the right
to approve certain actions proposed to be taken by the Company and its
subsidiaries.
8.
|
Accumulated Other Comprehensive
Loss
|
Net unrealized losses recorded in accumulated other
comprehensive loss were as follows:
|
|
|
|
|
December 30,
|
|
|
|
June 30, 2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Currency translation adjustment
|
|
(8,298
|
)
|
|
(6,963
|
)
|
Cash
flow hedges, net of income taxes
|
|
(25
|
)
|
|
(305
|
)
|
|
|
(8,323
|
)
|
|
(7,268
|
)
|
9.
|
Other Expense (Income),
Net
|
The components of other expense (income) were as follows:
SUNOPTA INC.
|
24
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30,
2018
|
|
|
July 1, 2017
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Impairment of long-lived assets and facility closure
costs
(1)
|
|
217
|
|
|
-
|
|
|
1,767
|
|
|
3,723
|
|
Product withdrawal and recall costs
(2)
|
|
122
|
|
|
-
|
|
|
445
|
|
|
279
|
|
Employee termination costs
(3)
|
|
122
|
|
|
425
|
|
|
354
|
|
|
2,175
|
|
Increase (decrease) in fair value of contingent
consideration (see note 4(4))
|
|
43
|
|
|
84
|
|
|
(2,373
|
)
|
|
204
|
|
Other
|
|
79
|
|
|
98
|
|
|
(12
|
)
|
|
(331
|
)
|
|
|
583
|
|
|
607
|
|
|
181
|
|
|
6,050
|
|
SUNOPTA INC.
|
25
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
(1)
|
Impairment of long-lived assets and facility closure
costs
|
For the two quarters ended June 30,
2018, included the remaining lease obligation related to the vacated nutrition
bar processing facility, and an additional impairment loss and closure costs
related to the disposal of the Wahpeton roasting facility.
For the two quarters ended July 1,
2017, represented the loss on the disposal of the San Bernardino assets,
including the cost of the early buyout of the equipment leases.
(2)
|
Product withdrawal and recall
costs
|
For the quarters and two quarters ended
June 30, 2018 and July 1, 2017, represented product withdrawal and recall costs
that were not eligible for reimbursement under the Companys insurance policies,
including certain costs related to the voluntary recall of certain roasted
sunflower kernel products initiated by the Company during the second quarter of
2016.
(3)
|
Employee termination costs
|
For the quarters and two quarters ended
June 30, 2018 and July 1, 2017, represented severance benefits, net of
forfeitures of stock-based awards, and legal costs incurred in connection with
the Value Creation Plan (see note 3).
Basic and diluted loss per share were
calculated as follows (shares in thousands):
|
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
Numerator for basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to SunOpta Inc.
|
|
$
|
(3,174
|
)
|
$
|
(408
|
)
|
$
|
(7,537
|
)
|
$
|
(11,806
|
)
|
Less: dividends and
accretion on Series A Preferred Stock
|
|
|
(1,974
|
)
|
|
(1,954
|
)
|
|
(3,941
|
)
|
|
(3,894
|
)
|
Loss attributable to common shareholders
|
|
$
|
(5,148
|
)
|
$
|
(2,362
|
)
|
$
|
(11,478
|
)
|
$
|
(15,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average
number of shares outstanding
|
|
|
86,968
|
|
|
86,213
|
|
|
86,889
|
|
|
86,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.13
|
)
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to SunOpta Inc.
|
|
$
|
(3,174
|
)
|
$
|
(408
|
)
|
$
|
(7,537
|
)
|
$
|
(11,806
|
)
|
Less: dividends and
accretion on Series A Preferred Stock
(1)
|
|
|
(1,974
|
)
|
|
(1,954
|
)
|
|
(3,941
|
)
|
|
(3,894
|
)
|
Loss attributable to common shareholders
|
|
$
|
(5,148
|
)
|
$
|
(2,362
|
)
|
$
|
(11,478
|
)
|
$
|
(15,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average
number of shares outstanding
|
|
|
86,968
|
|
|
86,213
|
|
|
86,889
|
|
|
86,062
|
|
Dilutive effect of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
(1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Stock options and
restricted stock units
(2)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Diluted weighted-average
number of shares outstanding
|
|
|
86,968
|
|
|
86,213
|
|
|
86,889
|
|
|
86,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per
share
|
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.13
|
)
|
$
|
(0.18
|
)
|
SUNOPTA INC.
|
26
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
(1)
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017, it was more dilutive to assume the Preferred Stock was not
converted into Common Shares and, therefore, the numerator of the diluted
loss per share calculation was not adjusted to add back the dividends and
accretion on the Preferred Stock and the denominator was not adjusted to
include 11,333,333 Common Shares issuable on an if-converted
basis.
|
|
|
(2)
|
For the quarter and two quarters ended June 30, 2018,
stock options and restricted stock units to purchase or receive 574,865
(July 1, 2017 832,910) and 641,857 (July 1, 2017 761,344) Common
Shares, respectively, were excluded from the calculation of diluted loss
per share due to their anti-dilutive effect of reducing the loss per
share. In addition, for the quarter and two quarters ended June 30, 2018,
options to purchase 1,850,009 (July 1, 2017 2,530,766) and 2,032,158
(July 1, 2017 2,836,606) Common Shares, respectively, were anti-dilutive
because the exercise prices of these options were greater than the average
market price.
|
11.
|
Supplemental Cash Flow
Information
|
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2018
|
|
|
July 1, 2017
|
|
|
2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
5,398
|
|
|
18,768
|
|
|
(6,961
|
)
|
|
7,641
|
|
Inventories
|
|
(53,256
|
)
|
|
(32,271
|
)
|
|
(34,954
|
)
|
|
(5,913
|
)
|
Income tax recoverable/payable
|
|
(1,134
|
)
|
|
(3,339
|
)
|
|
2,207
|
|
|
(4,799
|
)
|
Prepaid expenses and other current
assets
|
|
4,322
|
|
|
(4,813
|
)
|
|
(1,054
|
)
|
|
(9,546
|
)
|
Accounts payable and accrued liabilities
|
|
5,650
|
|
|
(5,715
|
)
|
|
6,031
|
|
|
6,695
|
|
Customer and other deposits
|
|
696
|
|
|
(3,278
|
)
|
|
(704
|
)
|
|
(1,391
|
)
|
|
|
(38,324
|
)
|
|
(30,648
|
)
|
|
(35,435
|
)
|
|
(7,313
|
)
|
12.
|
Commitments and
Contingencies
|
Employment Matter
On April 19, 2013, a class-action complaint, in the case titled
De Jesus, et al. v. Frozsun, Inc. d/b/a Frozsun Foods, was filed against Sunrise
Growers, Inc. (Sunrise) (then named Frozsun, Inc.) in California Superior
Court, Santa Barbara County seeking damages, equitable relief and reasonable
attorneys fees for alleged wage and hour violations. This case includes claims
for failure to pay all hours worked, failure to pay overtime wages, meal and
rest period violations, waiting-time penalties, improper wage statements and
unfair business practices. The putative class includes 10,611 non-exempt hourly
employees from Sunrises production facilities in Santa Maria and Oxnard,
California. The parties attended mediation on October 12, 2017, and reached a
general agreement to resolve the matter on a class-wide basis for $5.0 million.
After negotiating the remaining details of the settlement, the parties obtained
preliminary approval of the class action settlement on May 14, 2018. Settlement
class members have until August 20, 2018, to opt out or object to the settlement
terms. A final fairness hearing is scheduled with the Court on September 17,
2018. If the settlement is granted final approval at or near the date of the
final fairness hearing, funding of the settlement is anticipated to occur before
the end of the year. The Company expects to recover the full amount payable
under the settlement through insurance coverage and an escrow account
established in connection with the Companys acquisition of Sunrise. As at June
30, 2018, the Company had accrued $5.0 million in connection with this
settlement, which is recorded in accounts payable and accrued liabilities on the
consolidated balance sheet, and recorded a receivable in the same amount for the
anticipated full recovery, which is reflected in accounts receivable on the
consolidated balance sheet.
Product Recall
On November 20, 2017, Treehouse Foods, Inc., several of its
related entities, and its insurer filed a lawsuit against the Company in the
Circuit Court of Cook County, Illinois titled Treehouse Foods, Inc. et al. v.
SunOpta Grains and Food, Inc.
SUNOPTA INC.
|
27
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
The Company was served with the Summons and Complaint on
January 24, 2018, and the plaintiffs filed an Amended Complaint on April 23,
2018. The plaintiffs allege economic damages resulting from the Companys 2016
voluntary recall of certain roasted sunflower kernel products due to the
potential for Listeria monocytogenes contamination. The case includes claims for
breach of express and implied warranty, negligence, strict liability, and
indemnity seeking $16.2 million in damages. There are no allegations of personal
injury. The Company is vigorously defending itself against these claims. The
Company cannot reasonably predict the outcome of this claim, nor can it estimate
the amount of loss, or range of loss, if any, that may result from this claim.
Other Claims
In addition, various claims and potential claims arising in the
normal course of business are pending against the Company. It is the opinion of
management that these claims or potential claims are without merit and the
amount of potential liability, if any, to the Company is not determinable.
Management believes the final determination of these claims or potential claims
will not materially affect the financial position or results of the Company.
13.
|
Segmented Information
|
The composition of the Companys reportable segments is as
follows:
|
|
Global Ingredients aggregates the Companys North
American-based Raw Material Sourcing and Supply and European-based
International Sourcing and Supply operating segments focused on the
procurement and sale of organic commodities and value-added ingredients,
and specialty and organic grains and seeds.
|
|
|
|
|
|
Consumer Products consists of three main commercial
platforms: Healthy Beverages, Healthy Fruit and Healthy Snacks. Healthy
Beverages includes aseptically-packaged products including non-dairy
beverages, broths and teas; refrigerated premium juices; and shelf-stable
juices and functional waters. Healthy Fruit includes IQF fruits for
retail; IQF and bulk frozen fruit for foodservice; and custom fruit
preparations for industrial use. Healthy Snacks is focused on fruit snack
offerings, and included flexible resealable pouch and nutrition bar
product lines, which were exited in 2017.
|
Effective the first quarter of 2018, the Company transferred
certain of its specialty ingredient operations from the Raw Material Sourcing
and Supply operating segment to the Healthy Beverages platform of the Consumer
Products operating segment. This realignment reflects a change in commercial
responsibilities for these operations, and resulting changes in reporting and
accountability to the Companys Chief Executive Officer. These operations
produce liquid bases, including for the Companys non-dairy aseptic beverage
operations, as well as spray-dried ingredients. For the quarter ended June 30,
2018, these operations generated revenues of $1.1 million (July 1, 2017 $3.3
million) and gross profit of $0.2 million (July 1, 2017 $0.5 million). For the
two quarters ended June 30, 2018, these operations generated revenues of $4.5
million (July 1, 2017 $6.9 million) and gross profit of $0.7 million (July 1,
2017 $1.0 million). The segment information presented below for the quarter
and two quarters ended July 1, 2017 has been restated to reflect this
realignment.
In addition, Corporate Services provides a variety of
management, financial, information technology, treasury and administration
services to each of the Companys operating segments from the Companys
headquarters in Mississauga, Ontario and administrative office in Edina,
Minnesota.
When reviewing the operating results of the Companys operating
segments, management uses segment revenues from external customers and segment
operating income/loss to assess performance and allocate resources. Segment
operating income/loss excludes other income/expense items. In addition, interest
expense and income taxes are not allocated to the operating segments.
SUNOPTA INC.
|
28
|
June 30,
2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and two quarters ended June 30, 2018 and
July 1, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
Global
|
|
|
Consumer
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Segment revenues from external customers
|
|
146,685
|
|
|
172,623
|
|
|
319,308
|
|
Segment operating income
|
|
2,965
|
|
|
4,762
|
|
|
7,727
|
|
Corporate Services
|
|
|
|
|
|
|
|
(3,086
|
)
|
Other
expense, net (see note 9)
|
|
|
|
|
|
|
|
(583
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
(8,474
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
(4,416
|
)
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
|
Global
|
|
|
Consumer
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Segment revenues from external customers
|
|
146,126
|
|
|
190,328
|
|
|
336,454
|
|
Segment operating income
|
|
7,913
|
|
|
4,679
|
|
|
12,592
|
|
Corporate Services
|
|
|
|
|
|
|
|
(9,973
|
)
|
Other
expense, net (see note 9)
|
|
|
|
|
|
|
|
(607
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
(7,695
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
(5,683
|
)
|
|
|
|
|
|
Two quarters ended
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
Global
|
|
|
Consumer
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Segment revenues from external customers
|
|
283,016
|
|
|
348,944
|
|
|
631,960
|
|
Segment operating income
|
|
6,067
|
|
|
8,078
|
|
|
14,145
|
|
Corporate Services
|
|
|
|
|
|
|
|
(7,841
|
)
|
Other
expense, net (see note 9)
|
|
|
|
|
|
|
|
(181
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
(16,694
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
(10,571
|
)
|
|
|
|
|
|
Two quarters ended
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
|
Global
|
|
|
Consumer
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Segment revenues from external customers
|
|
272,768
|
|
|
393,717
|
|
|
666,485
|
|
Segment operating income
|
|
12,114
|
|
|
11,177
|
|
|
23,291
|
|
Corporate Services
|
|
|
|
|
|
|
|
(23,628
|
)
|
Other expense, net (see note 9)
|
|
|
|
|
|
|
|
(6,050
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
(15,449
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
(21,836
|
)
|
SUNOPTA INC.
|
29
|
June 30,
2018 10-Q
|
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Financial Information
The following Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) should be read in conjunction
with the interim consolidated financial statements, and notes thereto, for the
quarter ended June 30, 2018 contained under Item 1 of this Quarterly Report on
Form 10-Q and in conjunction with the annual consolidated financial statements,
and notes thereto, contained in the Annual Report on Form 10-K for the fiscal
year ended December 30, 2017 (Form 10-K). Unless otherwise indicated herein,
the discussion and analysis contained in this MD&A includes information
available to August 8, 2018.
Certain statements contained in this MD&A may constitute
forward-looking statements as defined under securities laws. Forward-looking
statements may relate to our future outlook and anticipated events or results
and may include statements regarding our future financial position, business
strategy, budgets, litigation, projected costs, capital expenditures, financial
results, taxes, plans and objectives. In some cases, forward-looking statements
can be identified by terms such as anticipate, estimate, target, intend,
project, potential, continue, believe, expect, can, could,
would, should, might, plan, will, may, might, predict, or other
similar expressions concerning matters that are not historical facts, or the
negative of such terms are intended to identify forward-looking statements;
however, the absence of these words does not necessarily mean that a statement
is not forward-looking. To the extent any forward-looking statements contain
future-oriented financial information or financial outlooks, such information is
being provided to enable a reader to assess our financial condition, material
changes in our financial condition, our results of operations, and our liquidity
and capital resources. Readers are cautioned that this information may not be
appropriate for any other purpose, including investment decisions.
Forward-looking statements contained in this MD&A are based
on certain factors and assumptions regarding expected growth, results of
operations, performance, and business prospects and opportunities. While we
consider these assumptions to be reasonable, based on information currently
available, they may prove to be incorrect. Forward-looking statements are also
subject to certain factors, including risks and uncertainties that could cause
actual results to differ materially from what we currently expect. These factors
are more fully described in the Risk Factors section at Item 1A of the Form
10-K and Item 1A of Part II of this report.
Forward-looking statements contained in this commentary are
based on our current estimates, expectations and projections, which we believe
are reasonable as of the date of this report. Forward-looking statements are not
guarantees of future performance or events. You should not place undue
importance on forward-looking statements and should not rely upon this
information as of any other date. Other than as required under securities laws,
we do not undertake to update any forward-looking information at any particular
time. Neither we nor any other person assumes responsibility for the accuracy
and completeness of these forward-looking statements, and we hereby qualify all
our forward-looking statements by these cautionary statements.
Unless otherwise noted herein, all currency amounts in this
MD&A are expressed in U.S. dollars. All tabular dollar amounts are expressed
in thousands of U.S. dollars, except per share amounts.
Overview
SunOpta is a global company focused on sourcing organic and
non-genetically modified (non-GMO) ingredients, and manufacturing healthy food
and beverage products. Our global sourcing platform makes us one of the leading
suppliers of organic and non-GMO raw materials and ingredients in the food
industry. Our consumer products portfolio utilizes internally and externally
sourced raw materials and ingredients to manufacture healthy food and beverage
products for supply to retail, foodservice and branded food customers. We
operate our business in the following reportable segments:
|
|
Global Ingredients aggregates our North American-based
Raw Material Sourcing and Supply and European-based International Sourcing
and Supply operating segments focused on the procurement and sale of
organic commodities and value-added ingredients, and specialty and organic
grains and seeds.
|
|
|
|
|
|
Consumer Products consists of three main commercial
platforms: Healthy Beverages, Healthy Fruit and Healthy Snacks. Healthy
Beverages includes aseptically-packaged products including non-dairy
beverages, broths and teas; refrigerated premium juices; and shelf-stable
juices and functional waters. Healthy Fruit includes individually quick frozen (IQF) fruits for retail; IQF
and bulk frozen fruit for foodservice; and custom fruit preparations for
industrial use. Healthy Snacks is focused on fruit snack offerings, and included
flexible resealable pouch and nutrition bar product lines, which were exited in
2017.
|
SUNOPTA INC.
|
30
|
June 30,
2018 10-Q
|
Effective the first quarter of 2018, we transferred certain of
our specialty ingredient operations from the Raw Material Sourcing and Supply
operating segment to the Healthy Beverages platform of the Consumer Products
operating segment. This realignment reflects a change in commercial
responsibilities for these operations, and resulting changes in reporting and
accountability to our Chief Executive Officer. These operations produce liquid
bases, including for our non-dairy aseptic beverage operations, as well as
spray-dried ingredients. The segment information presented in this MD&A for
the comparative periods has been restated to reflect this realignment.
Fiscal Year
We operate on a fiscal calendar that results in a given fiscal
year consisting of a 52- or 53-week period ending on the Saturday closest to
December 31. Fiscal year 2018 is a 52-week period ending on December 29, 2018,
with quarterly periods ending on March 31, June 30 and September 29, 2018.
Fiscal year 2017 was a 52-week period ending on December 30, 2017, with
quarterly periods ending on April 1, July 1 and September 30, 2017.
Value Creation Plan
On October 7, 2016, we entered into a strategic partnership
with Oaktree Capital Management L.P., a private equity investor (together with
its affiliates, Oaktree), and, on that date, Oaktree invested $85.0 million
through the purchase of cumulative, non-participating Series A Preferred Stock
(the Preferred Stock) of our wholly-owned subsidiary, SunOpta Foods Inc.
(SunOpta Foods).
Following the strategic partnership, with the assistance of
Oaktree, we conducted a thorough review of our operations, management and
governance, with the objective of maximizing our ability to deliver long-term
value to our shareholders. As a product of this review our management and the
Board of Directors developed a Value Creation Plan built on four pillars:
portfolio optimization, operational excellence, go-to-market effectiveness and
process sustainability. The Value Creation Plan is a broad-based initiative
focused on increasing shareholder value through strategic investments made to
the people and assets of the Company to deliver sustained profitable growth. We
expect the Value Creation Plan to be implemented in phases, and span several
years.
We are targeting implementation of $30 million of
productivity-driven annualized enhancements to adjusted EBITDA in the first
phase of the plan, to be implemented over 2017 and 2018. For 2017, these
adjusted EBITDA benefits were offset by expenses associated with the Value
Creation Plan, including structural investments made in the areas of quality,
sales, marketing, operations and engineering resources, as well as
non-structural third-party consulting support, severance and recruiting costs.
The Value Creation Plan also calls for increased investment in capital upgrades
at several manufacturing facilities to enhance food safety and manufacturing
efficiencies. Over time, these investments are expected to yield additional
improvement in adjusted EBITDA beyond the $30 million of initial
productivity-driven savings. During the second quarter of 2018, we continued to
make progress against each of the four pillars of the Value Creation Plan, and
we believe we are on track to achieve targeted productivity enhancements, while
continuing to make the necessary structural investments we believe will
accelerate growth and drive long-term value. Since the initiation of the Value
Creation Plan, we have implemented actions that are expected to yield
approximately $23 million of annualized adjusted EBITDA benefits.
Recent progress on each of the four pillars of the Value
Creation Plan is highlighted below.
SUNOPTA INC.
|
31
|
June 30,
2018 10-Q
|
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 we are not effectively
positioned. Recent highlights include:
|
|
Initiated plans to expand aseptic processing and packaging
capacity and capabilities at our Allentown, Pennsylvania, beverage facility,
based on current growth trends and recent business wins in both the non-dairy
and broth categories. This expansion is expected to cost approximately $22
million and come on-line in mid-2019. The investment is designed to add enhanced
mixing and processing capabilities, which will enable us to bring further
innovation to the plant-based beverage market. As part of the expansion,
additional processing and filling capacity will be added, which is expected to
provide increased flexibility and cost advantages across our national network of
aseptic plants, while creating needed capacity to continue to grow with organic
and conventional broth offerings.
|
|
|
|
|
|
Advanced commercial production on the second roasting and
processing line at our organic cocoa facility in the Netherlands. During
the quarter, the facility realized yields in-line with expectation and
throughput at 80% of designed capacity. The expansion is expected to reach
its designed run-rate by the end of the third quarter of 2018. This
expansion approximately doubles cocoa processing capacity in addition to
adding new capabilities at the facility.
|
|
|
|
|
|
Continued commissioning of new roasting equipment at our
Crookston, Minnesota, facility. The new equipment is designed to increase
production efficiencies and add incremental capacity and roasting
capabilities following the closure and consolidation of a roasted snack
plant in Wahpeton, North Dakota. Certain roasting capabilities are now
on-line, and full commissioning is expected to be completed in the fourth
quarter of 2018. This initiative is expected to support further growth in
the healthy snacks portfolio serving demand for on-trend roasted grains,
seeds and legumes.
|
|
|
|
|
|
Continued commissioning efforts on a new oil
processing line at our Bulgarian sunflower facility, which is expected to
drive incremental margins through growth and production efficiency.
|
Operational Excellence
The focus of the operational excellence pillar is to ensure
food quality and safety, coupled with improved operational performance and
efficiency. We expect these efforts to generate productivity improvements and
cost savings in manufacturing, procurement and logistics. Recent highlights
include:
|
|
Continued strong operational performance across
our network of aseptic facilities. We expect overall capacity utilization
to be approximately 85% by the end of 2018, versus approximately 70% in
the second quarter of 2018.
|
|
|
|
|
|
Completed approximately 90% of the 2018 fruit
pack season at targeted fruit recovery rates, and recently implemented
sorting and handling enhancements designed to drive improved fruit
quality.
|
|
|
|
|
|
Continued advancement of food safety and quality efforts
across the entire manufacturing footprint. Third-party audit scores are
trending positively versus the prior year, and consumer complaints in the
Healthy Fruit platform are almost one-third lower than prior year.
|
|
|
|
|
|
Continued to identify productivity
opportunities through the
SunOpta 360
continuous improvement
initiative in the areas of manufacturing, purchasing and supply chain
management.
|
SUNOPTA INC.
|
32
|
June 30,
2018 10-Q
|
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. We expect efforts under this pillar
to improve revenue growth and profitability over time. Recent highlights
include:
|
|
The pipeline of commercial opportunities in
Consumer Products remains strong and the overall contract book for organic
ingredients both in Europe and the U.S. exceeds prior year levels.
|
|
|
|
|
|
Recent commercial wins include additional private label
broth into the traditional and specialty retail channels; expanded
distribution and additional SKUs of frozen fruit into the mass and grocery
channels; secured incremental frozen fruit offerings for the foodservice
channel that are expected to ship in the fourth quarter of 2018; and
increased sales of co-manufactured fruit snacks that are expected to ship
in the third quarter of 2018.
|
|
|
|
|
|
Further progress on commercialization of
approximately 100 new everyday broth and frozen fruit SKUs with large mass
and traditional retailers.
|
SUNOPTA INC.
|
33
|
June 30,
2018 10-Q
|
Process Sustainability
The focus of the process sustainability pillar is to ensure we
have the infrastructure, systems and skills to sustain the business improvements
and value captured from the Value Creation Plan. Broadening the skillset and
experience of our leadership team is a critical component to the process
sustainability pillar of the Value Creation Plan. Recent highlights include:
|
|
Implementation of a new specification system
for ingredients which is designed to drive improved food safety and
quality, in addition to improved research and development efficiencies.
|
|
|
|
|
|
Enhancements to employee health and safety
processes continued to result in a reduction in recordable incidents
year-to-date in 2018 compared to 2017.
|
|
|
|
|
|
Advanced aseptic capacity planning model
capabilities in preparation for significant business expansion expected
over the coming 12 to 18 months.
|
The statements we make in this MD&A about the expected
results of the Value Creation Plan, including the timing for completion of
measures undertaken, expected improvements in earnings, adjusted EBITDA,
expected cash flows, and expected costs, are forward-looking statements. See
Forward-Looking Statements above.
Adjusted EBITDA is a non-GAAP measure that management uses when
assessing the performance of our operations. See footnote (3) to the
Consolidated Results of Operations for the Quarters Ended June 30, 2018 and
July 1, 2017 table below for a discussion on the use of this non-GAAP measure
and for a reconciliation of adjusted EBITDA from net loss, which we consider to
be the most directly comparable U.S. GAAP financial measure.
Costs incurred to-date in connection with portfolio
optimization measures taken under the Value Creation Plan included impairment
charges and facility closure costs primarily related to the closure of certain
of our processing facilities and rationalization of our product portfolio,
including the exits from flexible resealable pouch and nutrition bar product
lines and operations in the fourth quarter of 2017, and consolidation of our
roasted snack operations at the Crookston facility. In addition, we incurred
employee recruitment, relocation, retention and severance costs related to exit
activities and organizational changes within management and executive teams, and
recruiting efforts in the areas of quality, sales, marketing, operations and
engineering. We also incurred third-party legal advisory, consulting and
temporary labor costs in support of the Value Creation Plan.
For the quarters and two quarters ended June 30, 2018 and July
1, 2017, costs incurred and charged to expense were recorded in the consolidated
statement of operations as follows:
|
|
Quarter ended
|
|
|
Two quarters ended
|
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cost of goods sold
(1)
|
|
-
|
|
|
262
|
|
|
100
|
|
|
634
|
|
Selling, general and administrative expenses
(2)
|
|
300
|
|
|
7,001
|
|
|
613
|
|
|
18,439
|
|
Other expense
(3)
|
|
339
|
|
|
425
|
|
|
2,121
|
|
|
5,898
|
|
|
|
639
|
|
|
7,688
|
|
|
2,834
|
|
|
24,971
|
|
|
(1)
|
Facility closure costs, including inventory write-downs,
recorded in cost of goods sold were allocated to the Consumer Products
operating segment.
|
|
(2)
|
Consulting/professional fees and temporary labor costs,
and employee recruitment, relocation and retention costs recorded in
selling, general and administrative expenses were allocated to Corporate
Services.
|
|
(3)
|
For the quarter ended June 30, 2018, asset impairment,
lease obligation and employee termination costs recorded in other expense
were allocated as follows: Raw Material Sourcing and Supply operating
segment - $0.3 million (July 1, 2017 $nil); Consumer Products operating
segment - $nil (July 1, 2017 $0.1 million); and Corporate Services -
$nil (July 1, 2017 $0.3 million). For the two quarters ended June 30,
2018, asset impairment, lease obligation and employee termination costs
recorded in other expense were allocated as follows: Raw Material Sourcing
and Supply operating segment - $0.7 million (July 1, 2017 $nil);
Consumer Products operating segment - $1.3 million (July 1, 2017 $4.8
million); and Corporate Services - $0.1 million (July 1, 2017 $1.1
million).
|
We currently do not expect to incur significant additional
direct costs related to the Value Creation Plan in future periods. However, it
is possible that additional costs could arise if we determine to initiate
further actions under the plan in the future.
SUNOPTA INC.
|
34
|
June 30,
2018 10-Q
|
For more information regarding the Value Creation Plan, see
note 3 to the unaudited consolidated financial statements included in this
report.
Consolidated Results of Operations for the Quarters Ended
June 30, 2018 and July 1, 2017
For the quarter ended
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Ingredients
|
|
146,685
|
|
|
146,126
|
|
|
559
|
|
|
0.4%
|
|
Consumer
Products
|
|
172,623
|
|
|
190,328
|
|
|
(17,705
|
)
|
|
-9.3%
|
|
Total revenues
|
|
319,308
|
|
|
336,454
|
|
|
(17,146
|
)
|
|
-5.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Ingredients
|
|
13,464
|
|
|
20,284
|
|
|
(6,820
|
)
|
|
-33.6%
|
|
Consumer Products
|
|
20,882
|
|
|
21,378
|
|
|
(496
|
)
|
|
-2.3%
|
|
Total gross profit
|
|
34,346
|
|
|
41,662
|
|
|
(7,316
|
)
|
|
-17.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(loss)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Ingredients
|
|
2,965
|
|
|
7,913
|
|
|
(4,948
|
)
|
|
-62.5%
|
|
Consumer
Products
|
|
4,762
|
|
|
4,679
|
|
|
83
|
|
|
1.8%
|
|
Corporate Services
|
|
(3,086
|
)
|
|
(9,973
|
)
|
|
6,887
|
|
|
69.1%
|
|
Total segment operating
income
|
|
4,641
|
|
|
2,619
|
|
|
2,022
|
|
|
77.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
583
|
|
|
607
|
|
|
(24
|
)
|
|
-4.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before the
following
|
|
4,058
|
|
|
2,012
|
|
|
2,046
|
|
|
101.7%
|
|
Interest expense, net
|
|
8,474
|
|
|
7,695
|
|
|
779
|
|
|
10.1%
|
|
Recovery of income taxes
|
|
(1,290
|
)
|
|
(5,581
|
)
|
|
4,291
|
|
|
76.9%
|
|
Net loss
(2),(3)
|
|
(3,126
|
)
|
|
(102
|
)
|
|
(3,024
|
)
|
|
-2964.7%
|
|
Earnings attributable to
non-controlling interests
|
|
48
|
|
|
306
|
|
|
(258
|
)
|
|
-84.3%
|
|
Loss attributable to SunOpta Inc.
|
|
(3,174
|
)
|
|
(408
|
)
|
|
(2,766
|
)
|
|
-677.9%
|
|
Dividends and accretion on
Series A Preferred Stock
|
|
(1,974
|
)
|
|
(1,954
|
)
|
|
(20
|
)
|
|
-1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to
common shareholders
(4)
|
|
(5,148
|
)
|
|
(2,362
|
)
|
|
(2,786
|
)
|
|
-118.0%
|
|
(1)
|
When assessing the financial performance of our operating
segments, we use an internal measure of operating income that excludes
other income/expense items and goodwill impairments determined in
accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP). This measure is the basis on which
management, including the Chief Executive Officer, assesses the underlying
performance of our operating segments.
|
|
|
|
We believe that disclosing this non-GAAP measure assists
investors in comparing financial performance across reporting periods on a
consistent basis by excluding items that are not indicative of our
operating performance. However, the non-GAAP measure of operating income
should not be considered in isolation or as a substitute for performance
measures calculated in accordance with U.S. GAAP. The following table
presents a reconciliation of segment operating income/loss to
earnings/loss before the following, which we consider to be the most
directly comparable U.S. GAAP financial
measure.
|
|
|
|
Global
|
|
|
Consumer
|
|
|
Corporate
|
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Services
|
|
|
Consolidated
|
|
|
For the quarter ended
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
2,965
|
|
|
4,762
|
|
|
(3,086
|
)
|
|
4,641
|
|
|
Other income (expense), net
|
|
(637
|
)
|
|
74
|
|
|
(20
|
)
|
|
(583
|
)
|
|
Earnings (loss) before the following
|
|
2,328
|
|
|
4,836
|
|
|
(3,106
|
)
|
|
4,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(loss)
|
|
7,913
|
|
|
4,679
|
|
|
(9,973
|
)
|
|
2,619
|
|
|
Other expense, net
|
|
(2
|
)
|
|
(265
|
)
|
|
(340
|
)
|
|
(607
|
)
|
|
Earnings (loss) before the
following
|
|
7,911
|
|
|
4,414
|
|
|
(10,313
|
)
|
|
2,012
|
|
SUNOPTA INC.
|
35
|
June 30,
2018 10-Q
|
We believe that investors
understanding of our financial performance is enhanced by disclosing the
specific items that we exclude from segment operating income. However, any
measure of operating income excluding any or all of these items is not, and
should not be viewed as, a substitute for operating income prepared under U.S.
GAAP. These items are presented solely to allow investors to more fully
understand how we assess financial performance.
(2)
|
When assessing our financial performance, we use an
internal measure of earnings attributable to common shareholders
determined in accordance with U.S. GAAP that excludes specific items
recognized in other income/expense, impairment losses on goodwill and
long-lived assets, and other unusual items that are identified and
evaluated on an individual basis, which due to their nature or size, we
would not expect to occur as part of our normal business on a regular
basis. We believe that the identification of these excluded items enhances
an analysis of our financial performance of our business when comparing
those operating results between periods, as we do not consider these items
to be reflective of normal business operations.
|
|
|
|
The following table presents a reconciliation of adjusted
earnings/loss from net loss, which we consider to be the most directly
comparable U.S. GAAP financial measure. In addition, in recognition of our
exit from flexible resealable pouch and nutrition bar product lines and
operations (as described above under Value Creation Plan), we have
prepared this table in a columnar format to present the effect of these
operations on our consolidated results for the current and comparative
periods. We believe this presentation assists investors in assessing the
results of the operations we have exited and the effect of those
operations on our financial performance.
|
|
|
Excluding
flexible
|
|
|
Flexible
|
|
|
|
|
|
|
resealable
pouch
|
|
|
resealable
pouch
|
|
|
|
|
|
|
and nutrition bar
|
|
|
and nutrition bar
|
|
|
Consolidated
|
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
For the quarter ended
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
(3,413
|
)
|
|
|
|
|
287
|
|
|
|
|
|
(3,126
|
)
|
|
|
|
Less: earnings attributable to
non-controlling interests
|
|
(48
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(48
|
)
|
|
|
|
Less: dividends and accretion
of Series A Preferred Stock
|
|
(1,974
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,974
|
)
|
|
|
|
Earnings (loss) attributable to common
shareholders
|
|
(5,435
|
)
|
|
(0.06
|
)
|
|
287
|
|
|
-
|
|
|
(5,148
|
)
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment start-up costs
(a)
|
|
730
|
|
|
|
|
|
-
|
|
|
|
|
|
730
|
|
|
|
|
Costs related to the
Value Creation Plan
(b)
|
|
669
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
639
|
|
|
|
|
Product withdrawal and recall costs
(c)
|
|
122
|
|
|
|
|
|
-
|
|
|
|
|
|
122
|
|
|
|
|
Other
(d)
|
|
122
|
|
|
|
|
|
-
|
|
|
|
|
|
122
|
|
|
|
|
Recovery of product withdrawal costs
(e)
|
|
(1,200
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,200
|
)
|
|
|
|
Net income tax
effect
(f)
|
|
(258
|
)
|
|
|
|
|
8
|
|
|
|
|
|
(250
|
)
|
|
|
|
Adjusted earnings (loss)
|
|
(5,250
|
)
|
|
(0.06
|
)
|
|
265
|
|
|
-
|
|
|
(4,985
|
)
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
1,305
|
|
|
|
|
|
(1,407
|
)
|
|
|
|
|
(102
|
)
|
|
|
|
Add: earnings attributable to
non-controlling interests
|
|
(306
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(306
|
)
|
|
|
|
Less: dividends and accretion of Series A
Preferred Stock
|
|
(1,954
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,954
|
)
|
|
|
|
Loss attributable to common
shareholders
|
|
(955
|
)
|
|
(0.01
|
)
|
|
(1,407
|
)
|
|
(0.02
|
)
|
|
(2,362
|
)
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to the
Value Creation Plan
(g)
|
|
7,688
|
|
|
|
|
|
-
|
|
|
|
|
|
7,688
|
|
|
|
|
Other
(d)
|
|
182
|
|
|
|
|
|
-
|
|
|
|
|
|
182
|
|
|
|
|
Net income tax
effect
(f)
|
|
(6,254
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(6,254
|
)
|
|
|
|
Adjusted earnings (loss)
|
|
661
|
|
|
0.01
|
|
|
(1,407
|
)
|
|
(0.02
|
)
|
|
(746
|
)
|
|
(0.01
|
)
|
|
(a)
|
Reflects costs related to the start-up of new roasting
equipment, which were recorded in cost of goods sold.
|
|
|
|
|
(b)
|
Reflects professional fees of $0.3 million recorded in
selling, general and administrative (SG&A) expenses; and asset
impairment, facility closure and employee termination costs of $0.3
million recorded in other expense, all related to the Value Creation
Plan.
|
|
|
|
|
(c)
|
Reflects product withdrawal and recall costs not eligible
for reimbursement under our insurance policies, which were recorded in
other expense.
|
|
|
|
|
(d)
|
Other included the accretion of contingent consideration
obligations and gain/loss on the sale of assets, which were recorded in
other expense/income.
|
|
|
|
|
(e)
|
Reflects the recovery from a third-party supplier of $1.2
million of costs we incurred relating to the withdrawal of certain
consumer- packaged products due to quality-related issues, which was
recorded in cost of goods sold. Costs incurred related to this withdrawal
were recognized in cost of goods sold in the fourth quarter of
2016.
|
|
|
|
|
(f)
|
Reflects the tax effect of the preceding adjustments to
earnings and reflects an overall estimated annual effective tax rate of
approximately 26% for the two quarters ended June 30, 2018 (July 1, 2017
30%) on adjusted earnings before tax.
|
SUNOPTA INC.
|
36
|
June 30,
2018 10-Q
|
|
(g)
|
Reflects facility closure costs of $0.3 million recorded
in cost of goods sold; consulting fees, temporary labor, employee
recruitment, relocation and retention costs of $7.0 million recorded in
SG&A expenses; and employee termination costs of $0.4 million recorded
in other expense, all related to the Value Creation
Plan.
|
We believe that investors
understanding of our financial performance is enhanced by disclosing the
specific items that we exclude to compute adjusted earnings/loss. However,
adjusted earnings/loss is not, and should not be viewed as, a substitute for
earnings prepared under U.S. GAAP. Adjusted earnings/loss is presented solely to
allow investors to more fully understand how we assess our financial
performance.
(3)
|
We use a measure of adjusted EBITDA when assessing the
performance of our operations, which we believe are useful to investors
understanding of our operating profitability by excluding non-operating
expenses, such as interest and income taxes, and non-cash expenses, such
as depreciation, amortization, stock-based compensation and asset
impairment charges, as well as other unusual items that affect the
comparability of operating performance. We also use these measures to
review and assess our progress under the Value Creation Plan, and to
assess operating performance in connection with our employee incentive
programs. In addition, we are subject to certain restrictions on incurring
additional indebtedness based on availability and metrics that include in
their calculation a measure of EBITDA. We define adjusted EBITDA as
segment operating income/loss plus depreciation, amortization and non-cash
stock-based compensation, and excluding other unusual items as identified
in the determination of adjusted earnings (refer above to footnote (2)).
The following table presents a reconciliation of segment operating
income/loss and adjusted EBITDA from net loss, which we consider to be the
most directly comparable U.S. GAAP financial measure. In addition, as
described above under footnote (2), we have prepared this table in a
columnar format to present the effect of flexible resealable pouch and
nutrition bar operations on our consolidated results for the current and
comparative periods. We believe this presentation assists investors in
assessing the results of the operations we have exited and the effect of
those operations on our financial performance.
|
|
|
Excluding flexible
|
|
|
Flexible
|
|
|
|
|
|
|
resealable pouch
|
|
|
resealable pouch
|
|
|
|
|
|
|
and nutrition bar
|
|
|
and nutrition bar
|
|
|
Consolidated
|
|
For the quarter ended
|
|
$
|
|
|
$
|
|
|
$
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
(3,413
|
)
|
|
287
|
|
|
(3,126
|
)
|
Recovery of income taxes
|
|
(1,391
|
)
|
|
101
|
|
|
(1,290
|
)
|
Interest expense, net
|
|
8,474
|
|
|
-
|
|
|
8,474
|
|
Other expense (income), net
|
|
613
|
|
|
(30
|
)
|
|
583
|
|
Total segment operating
income
|
|
4,283
|
|
|
358
|
|
|
4,641
|
|
Depreciation and
amortization
|
|
8,189
|
|
|
-
|
|
|
8,189
|
|
Stock-based compensation
|
|
2,104
|
|
|
-
|
|
|
2,104
|
|
Equipment start-up
costs
(a)
|
|
730
|
|
|
-
|
|
|
730
|
|
Costs
related to Value Creation Plan
(b)
|
|
300
|
|
|
-
|
|
|
300
|
|
Recovery of product
withdrawal costs
(c)
|
|
(1,200
|
)
|
|
-
|
|
|
(1,200
|
)
|
Adjusted EBITDA
|
|
14,406
|
|
|
358
|
|
|
14,764
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
1,305
|
|
|
(1,407
|
)
|
|
(102
|
)
|
Recovery of income taxes
|
|
(4,681
|
)
|
|
(900
|
)
|
|
(5,581
|
)
|
Interest expense, net
|
|
7,695
|
|
|
-
|
|
|
7,695
|
|
Other expense, net
|
|
607
|
|
|
-
|
|
|
607
|
|
Total segment operating income (loss)
|
|
4,926
|
|
|
(2,307
|
)
|
|
2,619
|
|
Depreciation and amortization
|
|
7,941
|
|
|
226
|
|
|
8,167
|
|
Stock-based
compensation
(d)
|
|
1,337
|
|
|
-
|
|
|
1,337
|
|
Costs
related to Value Creation Plan
(b)
|
|
7,263
|
|
|
-
|
|
|
7,263
|
|
Adjusted EBITDA
|
|
21,467
|
|
|
(2,081
|
)
|
|
19,386
|
|
|
(a)
|
Reflects costs related to the start-up of new roasting
equipment, which were recorded in cost of goods sold.
|
|
|
|
|
(b)
|
For the second quarter of 2018, reflects professional
fees of $0.3 million recorded in SG&A expenses. For the second quarter
of 2017, reflects facility closure costs of $0.3 million recorded in cost
of goods sold and consulting fees, temporary labor, employee recruitment,
relocation and retention costs of $7.0 million recorded in SG&A
expenses.
|
|
|
|
|
(c)
|
Reflects the recovery from a third-party supplier of $1.2
million of costs we incurred relating to the withdrawal of certain
consumer- packaged products due to quality-related issues, which was
recorded in cost of goods sold. Costs incurred related to this withdrawal
were recognized in cost of goods sold in the fourth quarter of
2016.
|
|
|
|
|
(d)
|
For the second quarter of 2017, stock-based compensation
of $1.3 million was recorded in SG&A expenses. The reversal of $0.1
million of previously recognized stock-based compensation, related to
forfeited awards of employees that were terminated in connection with the
Value Creation Plan, was recognized in other
expense.
|
Although we use adjusted EBITDA as a
measure to assess the performance of our business and for the other purposes set
forth above, this measure has limitations as analytic tools, and should not be
considered in isolation, or as a substitute for an analysis of our results of
operations as reported in accordance with U.S. GAAP. Some of these limitations
are:
|
|
adjusted EBITDA does not reflect the interest expense, or
the cash requirements necessary to service interest payments on our
indebtedness;
|
|
|
|
|
|
adjusted EBITDA does not include the recovery/payment of
taxes, which is a necessary element of our operations;
|
SUNOPTA INC.
|
37
|
June 30,
2018 10-Q
|
|
|
although depreciation and amortization are non-cash
charges, the assets being depreciated and amortized will often have to be
replaced in the future, and adjusted EBITDA does not reflect any cash
requirements for such replacements; and
|
|
|
|
|
|
adjusted EBITDA does not include non-cash stock-based
compensation, which is an important component of our total compensation
program for employees and directors.
|
Because of these limitations, adjusted
EBITDA should not be considered as a measure of discretionary cash available to
us to invest in the growth of our business. Management compensates for these
limitations by not viewing adjusted EBITDA in isolation, and specifically by
using other U.S. GAAP and non-GAAP measures, such as revenues, gross profit,
segment operating income, earnings and adjusted earnings to measure our
operating performance. Adjusted EBITDA is not a measurement of financial
performance under U.S. GAAP and should not be considered as an alternative to
our results of operations or cash flows from operations determined in accordance
with U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable to
the calculation of a similarly titled measure reported by other companies.
(4)
|
In order to evaluate our results of operations, we use
certain non-GAAP measures that we believe enhance an investors ability to
derive meaningful period-over-period comparisons and trends from our
results of operations. In particular, we evaluate our revenues on a basis
that excludes the effects of fluctuations in commodity pricing and foreign
exchange rates. In addition, we exclude specific items from our 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
above under footnote (2), and in the discussion of our results of
operations below. These non-GAAP measures are presented solely to allow
investors to more fully assess our results of operations and should not
considered in isolation of, or as substitutes for an analysis of our
results as reported under U.S. GAAP.
|
Revenues for the quarter ended June 30, 2018 decreased by 5.1%
to $319.3 million from $336.5 million for the quarter ended July 1, 2017.
Excluding the impact on revenues of sales of flexible resealable pouch and
nutrition bar products (a decrease in revenues of $14.7 million), changes in
commodity-related pricing (a decrease in revenues of $4.7 million) and foreign
exchange rates (an increase in revenues of $4.1 million), revenues decreased by
0.6% in the second quarter of 2018, compared with the second quarter of 2017.
The decrease in revenues on an adjusted basis reflected the exit from certain
domestically-sourced grain varieties in 2017, lower milled corn volumes, and a
soft sunflower market. In addition, the decrease in revenues reflected lower
sales of frozen fruit and fruit ingredient products due to lower consumer
demand, reduced distribution to certain customers, and timing of deliveries to a
significant foodservice customer. These decreases were offset by increased
demand for organic ingredients and higher volumes of beverage and fruit snack
products.
Gross profit decreased $7.3 million, or 17.6%, to $34.3 million
for the quarter ended June 30, 2018, compared with $41.7 million for the quarter
ended July 1, 2017. Global Ingredients accounted for $6.8 million of the
decrease in gross profit, which was largely due to the impact of foreign
exchange and commodity price movements on certain contracts within the
Netherlands-based operations of our international organic ingredients platform.
During the second quarter of 2018, we recognized a $4.3 million foreign exchange
loss on U.S. dollar-denominated raw material purchase contracts, compared with a
foreign exchange gain of $3.7 million in the second quarter of 2017, which
reflected a significant strengthening of the U.S. dollar versus the euro in the
second quarter of 2018, compared with a significant weakening of the U.S. dollar
versus the euro in the second quarter of 2017. Partially offsetting this, gross
profit for the second quarter of 2018 included a gain of $1.8 million on
commodity futures contracts used to hedge our organic cocoa position, compared
with a gain of $0.2 million in the second quarter of 2017. To hedge our physical
long organic cocoa position, we sell futures contracts to manage exposure to
changes in cocoa prices. The higher gain in the second quarter of 2018, compared
with the second quarter of 2017, reflected a steeper decline in the price of
cocoa, together with an increased ownership position of organic cocoa relating
to the expansion of our cocoa processing operations in the Netherlands. Consumer
Products accounted for $0.5 million of the decrease in gross profit, reflecting
lower sales volume and pricing, as well as higher costs of manufacturing in
frozen fruit. These factors were mostly offset by increased volumes and plant
efficiencies in our beverage and snack operations, as well as operational
savings from the discontinuance of flexible resealable pouch and nutrition bar
production.
As a percentage of revenues, gross profit for the quarter ended
June 30, 2018 was 10.8% compared to 12.4% for the quarter ended July 1, 2017, a
decrease of 1.6% . The gross profit percentage for the second quarter of 2018
would have been approximately 10.6%, excluding the recovery of $1.2 million of
previously-incurred product withdrawal costs from a third-party supplier,
partially offset by start-up costs of $0.7 million related to new roasting
equipment for domestically-sourced grains and seeds. The gross profit percentage
for the second quarter of 2017 would have been approximately 12.5%, excluding
the impact of facility closure costs under the Value Creation Plan of $0.3
million. On an adjusted basis, the gross profit percentage reflected the net
negative impact of the foreign exchange and commodity hedging results described
above, as well as lower pricing for frozen fruit and unfavorable costs and
utilization in manufacturing due to a later start to the strawberry pack season.
These factors were partially offset by improved margins in the healthy beverage
and snacks platforms, reflecting favorable plant utilization due to higher
production volumes to meet sales demand and productivity-driven cost savings, as
well as improved seasonal readiness and other productivity initiatives within
our frozen fruit operations. In addition, we gained operational savings
following the discontinuance of flexible resealable pouch and nutrition bar
production in the fourth quarter of 2017.
SUNOPTA INC.
|
38
|
June 30,
2018 10-Q
|
Total segment operating income for the quarter ended June 30,
2018 increased by $2.0 million, or 77.2%, to $4.6 million, compared with total
segment operating income of $2.6 million for the quarter ended July 1, 2017. The
increase in segment operating income reflected that the lower overall gross
profit, as described above, was more than offset by a $8.1 million decrease in
SG&A expenses and a decline in quarter-over-quarter foreign exchange losses
of $1.2 million (including a $3.0 million decrease mainly related to forward
currency contracts within our international organic ingredient operations, which
partially offset the foreign exchange movement within gross profit). The
decrease in SG&A expenses mainly reflected a quarter-over-quarter reduction
in consulting fees and temporary labor costs ($4.6 million), and employee
recruitment, relocation and retention costs ($2.1 million) associated with the
Value Creation Plan, as well as lower employee-related compensation costs in the
second quarter of 2018, compared with the second quarter of 2017. Excluding
SG&A costs related to the Value Creation Plan, as well as those items
identified above affecting gross profit, segment operating income as a
percentage of revenues on an adjusted basis would have been 1.4% for the second
quarter of 2018, compared with 2.9% for the second quarter of 2017.
Further details on revenue, gross profit and segment operating
income/loss variances are provided below under Segmented Operations
Information.
Other expense for the quarter ended June 30, 2018 of $0.6
million mainly reflected facility closure costs and asset impairment charges
related to the sale of our Wahpeton, North Dakota, roasted snack facility ($0.2
million) and employee termination costs ($0.1 million), all associated with the
Value Creation Plan. Other expense for the quarter ended July 1, 2017 of $0.6
mainly reflected employee termination costs associated with the Value Creation
Plan.
Interest expense increased by $0.8 million to $8.5 million for
the quarter ended June 30, 2018, compared with $7.7 million for the quarter
ended July 1, 2017. Interest expense included the amortization debt issuance
costs of $0.6 million in each of the second quarters of 2018 and 2017. The
quarter-over-quarter increase in interest expense primarily reflected higher
borrowings under our line of credit facilities to fund increased working capital
requirements and settle costs incurred under the Value Creation Plan, together
with an increase in weighted-average interest rates.
We recognized a recovery of income tax of $1.3 million for the
quarter ended June 30, 2018, compared with $5.6 million for the quarter ended
July 1, 2017. The effective tax rate was 29.2% for the second quarter of 2018,
compared with 98.2% for the second quarter of 2017. The effective tax rate for
the second quarter of 2017, reflected the impact on the jurisdictional mix of
earnings of higher than anticipated costs to be incurred in the U.S. related to
the Value Creation Plan.
On a consolidated basis, we realized a loss attributable to
common shareholders of $5.1 million (diluted loss per share of $0.06) for the
quarter ended June 30, 2018, compared with a loss attributable to common
shareholders of $2.4 million (diluted loss per share of $0.03) for the quarter
ended July 1, 2017.
For the quarter ended June 30, 2018, adjusted loss was $5.0
million, or $0.06 per diluted share, on a consolidated basis, compared with
adjusted loss of $0.7 million, or $0.01 per diluted share, on a consolidated
basis for the quarter ended July 1, 2017. Excluding flexible resealable pouch
and nutrition bar product lines and operations, adjusted loss was $5.3 million,
or $0.06 per diluted share, for the quarter ended June 30, 2018, compared with
adjusted earnings of $0.7 million, or $0.01 per diluted share, for the quarter
ended July 1, 2017. Adjusted EBITDA for the quarter ended June 30, 2018 was
$14.8 million on a consolidated basis, compared with $19.4 million on a
consolidated basis for the quarter ended July 1, 2017. Excluding flexible
resealable pouch and nutrition bar product lines and operations, adjusted EBITDA
for the quarter ended June 30, 2018 was $14.4 million, compared with $21.5
million for the quarter ended July 1, 2017. Adjusted earnings and adjusted
EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table
above for a reconciliation of adjusted earnings/loss and adjusted EBITDA from
net loss, which we consider to be the most directly comparable U.S. GAAP
financial measure.
SUNOPTA INC.
|
39
|
June 30,
2018 10-Q
|
Segmented Operations Information
Global Ingredients
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
146,685
|
|
$
|
146,126
|
|
$
|
559
|
|
|
0.4%
|
|
Gross Profit
|
|
13,464
|
|
|
20,284
|
|
|
(6,820
|
)
|
|
-33.6%
|
|
Gross Profit %
|
|
9.2%
|
|
|
13.9%
|
|
|
|
|
|
-4.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
$
|
2,965
|
|
$
|
7,913
|
|
$
|
(4,948
|
)
|
|
-62.5%
|
|
Operating Income %
|
|
2.0%
|
|
|
5.4%
|
|
|
|
|
|
-3.4%
|
|
Global Ingredients contributed $146.7 million in revenues for
the quarter ended June 30, 2018, compared to $146.1 million for the quarter
ended July 1, 2017, an increase of $0.6 million, or 0.4% . Excluding the impact
on revenues of changes including foreign exchange rates and commodity-related
pricing (an increase in revenues of $1.4 million), Global Ingredients revenues
decreased approximately 0.6% . The table below explains the increase in revenue:
Global Ingredients Revenue Changes
|
|
Revenues for the quarter ended July 1,
2017
|
$146,126
|
Increased
volumes of internationally-sourced organic ingredients including oils,
cocoa,
coffee,
fruits and vegetables, offset by decreased volumes of animal feed
|
6,449
|
Favorable
foreign exchange impact on euro-denominated sales due to a
weaker
U.S.
dollar period-over-period
|
4,074
|
Increased
commodity pricing for domestically-sourced soy, corn and feed,
partially
offset
by lower pricing for sunflower
|
24
|
Decreased
volumes of specialty soy (due to tighter supply in 2018 and exit from
certain
varieties
in 2017), lower milled corn volumes, and soft sunflower market
|
(7,309)
|
Decreased commodity pricing for internationally-sourced organic
ingredients
|
(2,679)
|
Revenues for the quarter ended June 30, 2018
|
$146,685
|
Gross profit in Global Ingredients decreased by $6.8 million to
$13.5 million for the quarter ended June 30, 2018 compared to $20.3 million for
the quarter ended July 1, 2017, and the gross profit percentage decreased by
4.7% to 9.2% . The decrease in gross profit percentage was primarily due to the
unfavorable foreign exchange impact on U.S. dollar-denominated raw material
purchase contracts within our international organic ingredients operations,
partially offset by the favorable cocoa hedging result. The decrease in gross
profit percentage also reflected reduced sunflower pricing and operating
inefficiencies within our sunflower operations due to lower production volumes,
the loss of higher margin milled corn volumes, and startup costs related to new
roasting equipment for domestically-sourced grains and seeds, partially offset
by improved margins on organic cocoa. The table below explains the decrease in
gross profit:
SUNOPTA INC.
|
40
|
June 30,
2018 10-Q
|
Global Ingredients Gross Profit
Changes
|
|
Gross profit for the quarter ended July 1,
2017
|
$20,284
|
Unfavorable
foreign exchange impact on U.S. dollar-denominated raw material purchase
contracts
within
our international organic ingredients operations partially offset by
decrease in foreign
exchange
losses
on forward currency contracts included below in operating income less a
favorable cocoa
commodity
hedging
result, due to a decrease in the market price for cocoa in the second
quarter of 2018
|
(6,488)
|
Lower
volumes and pricing for sunflower and lower volumes of higher margin
milled corn, as well as
start-up
costs
related to new roasting equipment
|
(777)
|
Higher
volumes and pricing spreads for certain internationally-sourced organic
ingredients, including
cocoa,
fruits,
vegetables, oils, nuts and coffee, partially offset by seeds and animal
feed, as well as start-up costs
related
to
the expansion of our cocoa facility in the Netherlands
|
445
|
Gross profit for the quarter ended June 30, 2018
|
$13,464
|
Operating income in Global Ingredients decreased by $4.9
million, or 62.5%, to $3.0 million for the quarter ended June 30, 2018, compared
to $7.9 million for the quarter ended July 1, 2017. The table below explains the
decrease in operating income:
Global Ingredients Operating Income
Changes
|
|
Operating income for the quarter ended
July 1, 2017
|
$7,913
|
Decrease in gross profit, as explained above
|
(6,820)
|
Unfavorable
foreign exchange impact on euro-denominated SG&A expenses and
higher
employee-related
compensation costs
|
(1,474)
|
Decrease
in foreign exchange losses primarily related to forward currency contracts
in
our
international organic ingredient operations
|
3,049
|
Decrease in corporate cost allocations
|
297
|
Operating income for the quarter ended June 30,
2018
|
$2,965
|
Looking forward, we believe Global Ingredients is well
positioned in the growing organic food and non-GMO categories. We intend to
focus our efforts on (i) growing our organic sourcing and supply capabilities,
making certified organic ingredients a larger proportion of our overall sales;
(ii) making strategic investments in key product categories that we believe will
drive higher volume ingredient solutions for our customers; and (iii) leveraging
our international sourcing and supply capabilities internally, and forward and
backward integrating where opportunities exist. In the near-term, we expect
continued softness in the sunflower category over the course of the second half
of 2018. We have also experienced delays in the operational startup of the new
roasting equipment at the Crookston facility, which could impact our ability to
meet existing customer demand for roasted products, and our ability to achieve
potential new business wins in the second half of 2018. The statements in this
paragraph are forward-looking statements. See Forward-Looking Statements
above. Increased supply pressure in the commodity-based markets in which we
operate, increased competition, volume decreases or loss of customers,
unexpected delays in our ingredient expansion plans, or our inability to secure
quality inputs or achieve our product mix or cost reduction goals, along with
the other factors described above under Forward-Looking Statements, could
adversely impact our ability to meet these forward-looking expectations.
SUNOPTA INC.
|
41
|
June 30,
2018 10-Q
|
Consumer Products
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
172,623
|
|
$
|
190,328
|
|
$
|
(17,705
|
)
|
|
-9.3%
|
|
Gross Profit
|
|
20,882
|
|
|
21,378
|
|
|
(496
|
)
|
|
-2.3%
|
|
Gross Profit %
|
|
12.1%
|
|
|
11.2%
|
|
|
|
|
|
0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
$
|
4,762
|
|
$
|
4,679
|
|
$
|
83
|
|
|
1.8%
|
|
Operating Income %
|
|
2.8%
|
|
|
2.5%
|
|
|
|
|
|
0.3%
|
|
Consumer Products contributed $172.6 million in revenues for
the quarter ended June 30, 2018, compared to $190.3 million for the quarter
ended July 1, 2017, a $17.7 million, or 9.3% decrease. Excluding the impact on
revenues of sales of flexible resealable pouch and nutrition bar products (a
decrease in revenues of $14.7 million) and changes in raw fruit
commodity-related pricing (a decrease in revenues of $2.0 million), Consumer
Products revenues decreased approximately 0.6% . The table below explains the
decrease in revenues:
Consumer Products Revenue Changes
|
|
Revenues for the quarter ended July 1,
2017
|
$190,328
|
Impact of the exit from flexible resealable pouch and nutrition bars
product lines
|
(14,703)
|
Lower
volumes and pricing of frozen fruit and fruit ingredients, reflecting
declines
in
consumer
consumption trends, lower distribution to certain customers, and the
timing
of
deliveries to a significant foodservice customer
|
(4,939)
|
Higher
volumes of non-dairy aseptic beverage products into the foodservice and
retail
channels,
partially offset by lower volumes of premium juice products
|
1,266
|
Higher volumes of fruit snack products
|
671
|
Revenues for the quarter ended June 30, 2018
|
$172,623
|
Gross profit in Consumer Products decreased by $0.5 million to
$20.9 million for the quarter ended June 30, 2018 compared to $21.4 million for
the quarter ended July 1, 2017, and the gross profit percentage increased by
0.9% to 12.1%. The increase in the gross profit percentage reflected improved
margins in the healthy beverage and snacks platforms, reflecting favorable plant
utilization, due to higher production volumes to meet sales demand, and productivity-driven cost savings, as well as improved seasonal readiness and
other productivity initiatives within our frozen fruit operations, and the
recovery of $1.2 million of previously-incurred product withdrawal costs from a
third-party supplier. In addition, we gained operational savings following the
discontinuance of flexible resealable pouch and nutrition bar production in the
fourth quarter of 2017. These factors were partially offset by lower pricing for
frozen fruit, unfavorable costs and utilization in manufacturing due to a later
start to the strawberry pack season, and higher handling, labor, storage and
freight costs. The table below explains the decrease in gross profit:
Consumer Products Gross Profit
Changes
|
|
Gross profit for the quarter ended July 1,
2017
|
$21,378
|
Lower
pricing of frozen fruit and volumes of fruit ingredients, as well as an
unfavorable
costs
and utilization in manufacturing, partially offset by productivity-driven
cost
savings
and
recovery of previously-incurred product withdrawal costs
|
(6,296)
|
Higher
sales volumes, plant utilization and productivity improvement for aseptic
beverage
and
fruit snack products, partially offset by higher processing and supply
chain costs
for
premium
juice products
|
3,480
|
Operational
savings following the discontinuance of flexible resealable pouch and
nutrition
bar
production in the fourth quarter of 2017
|
2,320
|
Gross profit for the quarter ended June 30, 2018
|
$20,882
|
SUNOPTA INC.
|
42
|
June 30,
2018 10-Q
|
Operating income in Consumer Products increased by $0.1
million, or 1.8%, to $4.8 million for the quarter ended June 30, 2018, compared
to $4.7 million for the quarter ended July 1, 2017. The table below explains the
increase in operating income:
Consumer Products Operating Income
Changes
|
|
Operating income for the quarter ended
July 1, 2017
|
$4,679
|
Decrease in gross profit, as explained above
|
(496)
|
Higher
employee-related compensation costs and unfavorable foreign exchange on
international operations
|
(1,280)
|
Decrease in corporate cost allocations
|
1,859
|
Operating income for the quarter ended June 30,
2018
|
$4,762
|
Looking forward we believe Consumer Products remains
well-positioned in markets with long-term growth potential. However, a continued
decline in consumer consumption of frozen fruit, and/or an inability to
successfully convert on our sales opportunity pipeline, could adversely affect
the near-term performance of Consumer Products. We intend to focus our efforts
on (i) leveraging our new sales and marketing resources to create greater
channel specific focus on retail and foodservice to increase opportunities to
diversify our portfolio and drive incremental sales volume; (ii) continuing to
invest in our facilities to enhance quality, safety, capacity, and manufacturing
efficiency to drive both incremental sales and cost reduction; (iii) executing
procurement and supply chain cost reduction initiatives focused on leveraging
our buying power and creating increased network efficiency in our planning and
logistics efforts; and (iv) leveraging our innovation capabilities to bring new
value-added packaged products and processes to market and to increase our
capacity utilization across Consumer Products. The statements in this paragraph
are forward-looking statements. See Forward-Looking Statements above.
Unfavorable shifts in consumer preferences, increased competition, availability
of raw material supply, volume decreases or loss of customers, unexpected delays
in our expansion and integration plans, inefficiencies in our manufacturing
processes, lack of consumer product acceptance, or our inability to successfully
implement the particular goals and strategies indicated above, along with the
other factors described above under Forward-Looking Statements, could have an
adverse impact on these forward-looking expectations.
Corporate Services
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
$
|
(3,086
|
)
|
$
|
(9,973
|
)
|
$
|
6,887
|
|
|
69.1%
|
|
Operating loss at Corporate Services decreased by $6.9 million
to $3.1 million for the quarter ended June 30, 2018, from a loss of $10.0
million for the quarter ended July 1, 2017. The table below explains the
decrease in operating loss:
Corporate Services Operating Loss Changes
|
|
Operating loss for the quarter ended July 1, 2017
|
$(9,973)
|
Lower
non-structural third-party consulting costs and employee recruitment,
relocation
and
retention costs associated with the Value Creation Plan
|
6,701
|
Lower employee-related compensation and other non-compensation costs
|
3,905
|
Decrease in corporate cost allocations to SunOpta operating segments
|
(2,156)
|
Unfavorable foreign exchange impact on foreign currency transactions
|
(796)
|
Increased
stock-based compensation costs as a result of a change in our
long-term
incentive
plan in the second quarter of 2017
|
(767)
|
Operating loss for the quarter ended June 30,
2018
|
$(3,086)
|
SUNOPTA INC.
|
43
|
June 30,
2018 10-Q
|
Corporate cost allocations mainly consist of salaries of
corporate personnel who directly support the operating segments, as well as
costs related to the enterprise resource management system. These expenses are
allocated to the operating segments based on (1) specific identification of
allocable costs that represent a service provided to each segment and (2) a
proportionate distribution of costs based on a weighting of factors such as
revenue contribution and number of people employed within each segment.
Consolidated Results of Operations for the two quarters
ended June 30, 2018 and July 1, 2017
For the two quarters ended
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Ingredients
|
|
283,016
|
|
|
272,768
|
|
|
10,248
|
|
|
3.8%
|
|
Consumer
Products
|
|
348,944
|
|
|
393,717
|
|
|
(44,773
|
)
|
|
-11.4%
|
|
Total revenues
|
|
631,960
|
|
|
666,485
|
|
|
(34,525
|
)
|
|
-5.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Ingredients
|
|
28,099
|
|
|
35,380
|
|
|
(7,281
|
)
|
|
-20.6%
|
|
Consumer Products
|
|
39,931
|
|
|
44,981
|
|
|
(5,050
|
)
|
|
-11.2%
|
|
Total gross profit
|
|
68,030
|
|
|
80,361
|
|
|
(12,331
|
)
|
|
-15.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(loss)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Ingredients
|
|
6,067
|
|
|
12,114
|
|
|
(6,047
|
)
|
|
-49.9%
|
|
Consumer
Products
|
|
8,078
|
|
|
11,177
|
|
|
(3,099
|
)
|
|
-27.7%
|
|
Corporate Services
|
|
(7,841
|
)
|
|
(23,628
|
)
|
|
15,787
|
|
|
66.8%
|
|
Total segment operating
income (loss)
|
|
6,304
|
|
|
(337
|
)
|
|
6,641
|
|
|
1970.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
181
|
|
|
6,050
|
|
|
(5,869
|
)
|
|
-97.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before the
following
|
|
6,123
|
|
|
(6,387
|
)
|
|
12,510
|
|
|
195.9%
|
|
Interest expense, net
|
|
16,694
|
|
|
15,449
|
|
|
1,245
|
|
|
8.1%
|
|
Recovery of income taxes
|
|
(2,983
|
)
|
|
(10,550
|
)
|
|
7,567
|
|
|
71.7%
|
|
Net loss
(2),(3)
|
|
(7,588
|
)
|
|
(11,286
|
)
|
|
3,698
|
|
|
32.8%
|
|
Earnings (loss) attributable
to non-controlling interests
|
|
(51
|
)
|
|
520
|
|
|
(571
|
)
|
|
-109.8%
|
|
Loss attributable to SunOpta Inc.
|
|
(7,537
|
)
|
|
(11,806
|
)
|
|
4,269
|
|
|
36.2%
|
|
Dividends and accretion on
Series A Preferred Stock
|
|
(3,941
|
)
|
|
(3,894
|
)
|
|
(47
|
)
|
|
-1.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to
common shareholders
(4)
|
|
(11,478
|
)
|
|
(15,700
|
)
|
|
4,222
|
|
|
26.9%
|
|
(1)
|
The following table presents a reconciliation of segment
operating income/loss to earnings/loss before the following, which we
consider to be the most directly comparable U.S. GAAP financial measure
(refer to footnote (1) to the Consolidated Results of Operations for the
Quarters Ended June 30, 2018 and July 1, 2017 table regarding the use of
this non-GAAP measure).
|
|
|
Global
|
|
|
Consumer
|
|
|
Corporate
|
|
|
Consol-
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Services
|
|
|
idated
|
|
For the two quarters ended
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(loss)
|
|
6,067
|
|
|
8,078
|
|
|
(7,841
|
)
|
|
6,304
|
|
Other expense, net
|
|
(1,252
|
)
|
|
1,217
|
|
|
(146
|
)
|
|
(181
|
)
|
Earnings (loss) before the
following
|
|
4,815
|
|
|
9,295
|
|
|
(7,987
|
)
|
|
6,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
12,114
|
|
|
11,177
|
|
|
(23,628
|
)
|
|
(337
|
)
|
Other expense, net
|
|
(113
|
)
|
|
(4,745
|
)
|
|
(1,192
|
)
|
|
(6,050
|
)
|
Earnings (loss) before the following
|
|
12,001
|
|
|
6,432
|
|
|
(24,820
|
)
|
|
(6,387
|
)
|
We believe that investors
understanding of our financial performance is enhanced by disclosing the
specific items that we exclude from segment operating income. However, any
measure of operating income excluding any or all of these items is not, and
should not be viewed as, a substitute for operating income prepared under U.S. GAAP. These items are
presented solely to allow investors to more fully understand how we assess
financial performance.
SUNOPTA INC.
|
44
|
June 30,
2018 10-Q
|
(2)
|
The following table presents a reconciliation of adjusted
earnings/loss from net loss, which we consider to be the most directly
comparable U.S. GAAP financial measure (refer to footnote (2) to the
Consolidated Results of Operations for the Quarters Ended June 30, 2018
and July 1, 2017 table regarding the use of this non-GAAP measure). In
addition, in recognition of our exit from flexible resealable pouch and
nutrition bar product lines and operations (as described above under
Value Creation Plan), we have prepared this table in a columnar format
to present the effect of these operations on our consolidated results for
the current and comparative periods. We believe this presentation assists
investors in assessing the results of the operations we have exited and
the effect of those operations on our financial
performance.
|
|
|
Excluding
flexible
|
|
|
Flexible
|
|
|
|
|
|
|
resealable
pouch
|
|
|
resealable
pouch
|
|
|
|
|
|
|
and nutrition bar
|
|
|
and nutrition bar
|
|
|
Consolidated
|
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
For the two quarters ended
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(6,891
|
)
|
|
|
|
|
(697
|
)
|
|
|
|
|
(7,588
|
)
|
|
|
|
Less: loss attributable to non-controlling
interests
|
|
51
|
|
|
|
|
|
-
|
|
|
|
|
|
51
|
|
|
|
|
Less: dividends and accretion
of Series A Preferred Stock
|
|
(3,941
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(3,941
|
)
|
|
|
|
Loss attributable to common shareholders
|
|
(10,781
|
)
|
|
(0.12
|
)
|
|
(697
|
)
|
|
(0.01
|
)
|
|
(11,478
|
)
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to the Value Creation Plan
(a)
|
|
1,653
|
|
|
|
|
|
1,181
|
|
|
|
|
|
2,834
|
|
|
|
|
Equipment start-up
costs
(b)
|
|
730
|
|
|
|
|
|
-
|
|
|
|
|
|
730
|
|
|
|
|
Product withdrawal and recall costs
(c)
|
|
445
|
|
|
|
|
|
-
|
|
|
|
|
|
445
|
|
|
|
|
Other
(d)
|
|
115
|
|
|
|
|
|
-
|
|
|
|
|
|
115
|
|
|
|
|
Fair
value adjustment on contingent consideration
(e)
|
|
(2,500
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
Recovery of product
withdrawal costs
(f)
|
|
(1,200
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,200
|
)
|
|
|
|
Net
income tax effect
(g)
|
|
(37
|
)
|
|
|
|
|
(307
|
)
|
|
|
|
|
(344
|
)
|
|
|
|
Adjusted earnings (loss)
|
|
(11,575
|
)
|
|
(0.13
|
)
|
|
177
|
|
|
-
|
|
|
(11,398
|
)
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(8,665
|
)
|
|
|
|
|
(2,621
|
)
|
|
|
|
|
(11,286
|
)
|
|
|
|
Add: earnings attributable to non-controlling
interests
|
|
(520
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(520
|
)
|
|
|
|
Less: dividends and accretion
of Series A Preferred Stock
|
|
(3,894
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(3,894
|
)
|
|
|
|
Loss attributable to common shareholders
|
|
(13,079
|
)
|
|
(0.15
|
)
|
|
(2,621
|
)
|
|
(0.03
|
)
|
|
(15,700
|
)
|
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to the Value Creation Plan
(h)
|
|
24,971
|
|
|
|
|
|
-
|
|
|
|
|
|
24,971
|
|
|
|
|
Product withdrawal
and recall costs
(i)
|
|
1,008
|
|
|
|
|
|
-
|
|
|
|
|
|
1,008
|
|
|
|
|
Other
(d)
|
|
(127
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(127
|
)
|
|
|
|
Net income tax
effect
(g)
|
|
(11,786
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(11,786
|
)
|
|
|
|
Adjusted earnings (loss)
|
|
987
|
|
|
0.01
|
|
|
(2,621
|
)
|
|
(0.03
|
)
|
|
(1,634
|
)
|
|
(0.02
|
)
|
|
(a)
|
Reflects the write-down of remaining flexible resealable
pouch and nutrition bar inventories of $0.1 million recorded in cost of
goods sold; professional and consulting fees, and employee recruitment and
relocation costs of $0.6 million recorded in SG&A expenses; and asset
impairment, facility closure and employee termination costs of $2.1
million recorded in other expense, all related to the Value Creation
Plan.
|
|
|
|
|
(b)
|
Reflects costs related to the start-up of new roasting
equipment, which were recorded in cost of goods sold.
|
|
|
|
|
(c)
|
Reflects product withdrawal and recall costs not eligible
for reimbursement under our insurance policies, which were recorded in
other expense.
|
|
|
|
|
(d)
|
Other included the accretion of contingent consideration
obligations and gain/loss on the sale of assets, which were recorded in
other expense/income.
|
|
|
|
|
(e)
|
Reflects a fair value adjustment of $2.5 million to
reduce the expected contingent consideration that may be payable in 2019
under an earn- out arrangement with the former unitholders of Citrusource
LLC (Citrusource) (which we acquired in March 2015), based on the
projected results for the business in fiscal 2018, which was recorded in
other income.
|
|
|
|
|
(f)
|
Reflects the recovery from a third-party supplier of $1.2
million of costs we incurred relating to the withdrawal of certain
consumer- packaged products due to quality-related issues, which was
recorded in cost of goods sold. Costs incurred related to this withdrawal
were recognized in cost of goods sold in the fourth quarter of
2016.
|
|
|
|
|
(g)
|
Reflects the tax effect of the preceding adjustments to
earnings and reflects an overall estimated annual effective tax rate of
approximately 26% for the two quarters ended June 30, 2018 (July 1, 2017
30%) on adjusted earnings before tax.
|
|
|
|
|
(h)
|
Reflects facility closure costs of $0.6 million recorded
in cost of goods sold; consulting fees, temporary labor, employee
recruitment, relocation and retention costs of $18.4 million recorded in
SG&A expenses; and asset impairment and employee termination costs of
$5.9 million recorded in other expense, all related to the Value Creation
Plan.
|
SUNOPTA INC.
|
45
|
June 30,
2018 10-Q
|
|
(i)
|
Reflects costs related to the recall of certain sunflower
kernel products initiated in the second quarter of 2016, including a $0.7
million adjustment for the estimated lost gross profit caused by the
sunflower recall, which reflected a shortfall in revenues in the first
quarter of 2017 against first quarter 2016 volumes of approximately $3.3
million, less associated cost of goods sold of approximately $2.6 million;
and $0.3 million of direct costs recorded in other expense that are not
eligible for reimbursement under our insurance
policies.
|
(3)
|
The following table presents a reconciliation of segment
operating income/loss and adjusted EBITDA from net loss, which we consider
to be the most directly comparable U.S. GAAP financial measure (refer to
footnote (3) to the Consolidated Results of Operations for the Quarters
Ended June 30, 2018 and July 1, 2017 table regarding the use of this
non-GAAP measure). In addition, as described above under footnote (2), we
have prepared this table in a columnar format to present the effect of
flexible resealable pouch and nutrition bar operations on our consolidated
results for the current and comparative periods. We believe this
presentation assists investors in assessing the results of the operations
we have exited and the effect of those operations on our financial
performance.
|
|
|
Excluding flexible
|
|
|
Flexible
|
|
|
|
|
|
|
resealable pouch
|
|
|
resealable pouch
|
|
|
|
|
|
|
and nutrition bar
|
|
|
and nutrition bar
|
|
|
Consolidated
|
|
For the two quarters ended
|
|
$
|
|
|
$
|
|
|
$
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(6,891
|
)
|
|
(697
|
)
|
|
(7,588
|
)
|
Recovery of income taxes
|
|
(2,738
|
)
|
|
(245
|
)
|
|
(2,983
|
)
|
Interest expense, net
|
|
16,694
|
|
|
-
|
|
|
16,694
|
|
Other expense (income), net
|
|
(1,000
|
)
|
|
1,181
|
|
|
181
|
|
Total segment operating
income
|
|
6,065
|
|
|
239
|
|
|
6,304
|
|
Depreciation and
amortization
|
|
16,330
|
|
|
-
|
|
|
16,330
|
|
Stock-based compensation
|
|
4,275
|
|
|
-
|
|
|
4,275
|
|
Equipment start-up
costs
(a)
|
|
730
|
|
|
-
|
|
|
730
|
|
Costs
related to Value Creation Plan
(b)
|
|
713
|
|
|
-
|
|
|
713
|
|
Recovery of product
withdrawal costs
(c)
|
|
(1,200
|
)
|
|
-
|
|
|
(1,200
|
)
|
Adjusted EBITDA
|
|
26,913
|
|
|
239
|
|
|
27,152
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2017
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(8,665
|
)
|
|
(2,621
|
)
|
|
(11,286
|
)
|
Recovery of income taxes
|
|
(8,875
|
)
|
|
(1,675
|
)
|
|
(10,550
|
)
|
Interest expense, net
|
|
15,449
|
|
|
-
|
|
|
15,449
|
|
Other expense, net
|
|
6,050
|
|
|
-
|
|
|
6,050
|
|
Total segment operating income (loss)
|
|
3,959
|
|
|
(4,296
|
)
|
|
(337
|
)
|
Depreciation and amortization
|
|
15,896
|
|
|
451
|
|
|
16,347
|
|
Stock-based
compensation
(d)
|
|
2,465
|
|
|
-
|
|
|
2,465
|
|
Costs
related to Value Creation Plan
(b)
|
|
19,073
|
|
|
-
|
|
|
19,073
|
|
Product withdrawal and
recall costs
(e)
|
|
729
|
|
|
-
|
|
|
729
|
|
Adjusted EBITDA
|
|
42,122
|
|
|
(3,845
|
)
|
|
38,277
|
|
|
(a)
|
Reflects costs related to the start-up of new roasting
equipment, which were recorded in cost of goods sold.
|
|
|
|
|
(b)
|
For the first half of 2018, reflects the write-down of
remaining flexible resealable pouch and nutrition bar inventories of $0.1
million recorded in cost of goods sold; and professional and consulting
fees, and employee recruitment and relocation costs of $0.6 million
recorded in SG&A expenses. For the first half of 2017, reflects
facility closure costs of $0.6 million recorded in cost of goods sold and
consulting fees, temporary labor, employee recruitment, relocation and
retention costs of $18.4 million recorded in SG&A expenses.
|
|
|
|
|
(c)
|
Reflects the recovery from a third-party supplier of $1.2
million of costs we incurred relating to the withdrawal of certain
consumer- packaged products due to quality-related issues, which was
recorded in cost of goods sold. Costs incurred related to this withdrawal
were recognized in cost of goods sold in the fourth quarter of
2016.
|
|
|
|
|
(d)
|
For the first half of 2017, stock-based compensation of
$2.5 million was recorded in SG&A expenses. The reversal of $0.3
million of previously recognized stock-based compensation, related to
forfeited awards of employees that were terminated in connection with the
Value Creation Plan, was recognized in other expense.
|
|
|
|
|
(e)
|
Reflects the estimated lost gross profit caused by the
recall of certain sunflower kernel products of $0.7 million, which
reflected the shortfall in revenues in the first quarter of 2017 against
first quarter 2016 volumes of approximately $3.3 million, less associated
cost of goods sold of approximately $2.6
million.
|
(4)
|
Refer to footnote (4) to the Consolidated Results of
Operations for the Quarters Ended June 30, 2018 and July 1, 2017 table
regarding the use of certain other non-GAAP measures in the discussion of
our results of operations below.
|
Revenues for the two quarters ended June 30, 2018 decreased by
5.2% to $632.0 million from $666.5 million for the two quarters ended July 1,
2017. Excluding the impact on revenues of sales of flexible resealable pouch and
nutrition bar products (a decrease in revenues of $27.4 million), changes in
commodity-related pricing (a decrease in revenues of $11.9 million) and foreign
exchange rates (an increase in revenues of $11.8 million), revenues decreased by
1.1% in the first half of 2018, compared with the first half of 2017. The
decrease in revenues on an adjusted basis reflected lower sales of frozen fruit
and fruit ingredient products due to lower consumer demand, reduced distribution
to certain customers, and timing of deliveries to a significant foodservice
customer. In addition, the decrease in revenues reflected the exit from certain
domestically-sourced grain varieties in 2017, lower milled corn
volumes, and a soft sunflower market. These decreases were offset by increased
demand for organic ingredients and higher volumes of beverage and fruit snack
products.
SUNOPTA INC.
|
46
|
June 30,
2018 10-Q
|
Gross profit decreased $12.3 million, or 15.3%, to $68.0
million for the two quarters ended June 30, 2018, compared with $80.4 million
for the two quarters ended July 1, 2017. Global Ingredients accounted for $7.3
million of the decrease in gross profit, which was largely due to the impact of
foreign exchange and commodity price movements on certain contracts within the
Netherlands-based operations of our international organic ingredients platform.
During the first half of 2018, we recognized a $4.1 million foreign exchange
loss on U.S. dollar-denominated raw material purchase contracts, compared with a
foreign exchange gain of $4.3 million in the first half of 2017, which reflected
a significant strengthening of the U.S. dollar versus the euro in the first half
of 2018, compared with a significant weakening of the U.S. dollar versus the
euro in the first half of 2017. In addition, gross profit for the first half of
2018 included a loss of $1.7 million on commodity futures contracts used to
hedge our organic cocoa position, compared with a gain of $0.3 million in the
first half of 2017. To hedge our physical long organic cocoa position, we sell
futures contracts to manage exposure to changes in cocoa prices. The loss in the
first half of 2018, compared with the gain in the first half of 2017, reflected
an increase in the market price for cocoa in the first half of 2018, together
with an increased ownership position of organic cocoa relating to the expansion
of our cocoa processing operations in the Netherlands, compared with a decline
in the market price in the first half of 2017. These factors were partially
offset within Global Ingredients by higher volumes and pricing spread on sales
of organic cocoa products. Consumer Products accounted for $5.0 million of the
decrease in gross profit, reflecting lower sales volume and pricing, as well as
higher costs of manufacturing and yield losses in frozen fruit. These factors
were partially offset by increased volumes and plant efficiencies in our
beverage and snack operations, as well as operational savings from the
discontinuance of flexible resealable pouch and nutrition bar production.
As a percentage of revenues, gross profit for the two quarters
ended June 30, 2018 was 10.8% compared to 12.1% for the two quarters ended July
1, 2017, a decrease of 1.3% . The gross profit percentage for the first half of
2018 would have been approximately 10.7%, excluding the recovery of $1.2 million
of previously-incurred product withdrawal costs from a third-party supplier,
partially offset by start-up costs of $0.7 million related to new roasting
equipment for domestically-sourced grains and seeds, and the write-down of $0.1
million of remaining flexible resealable pouch and nutrition bar inventories.
The gross profit percentage for the first half of 2017 would have been
approximately 12.2%, excluding the impact of the lost margin caused by the
sunflower recall of $0.7 million, and facility closure costs under the Value
Creation Plan of $0.6 million. The decrease in the gross profit percentage on an
adjusted basis reflected lower pricing for frozen fruit, as well as an
unfavorable costs and utilization in manufacturing due to a later start to the
strawberry pack season, as well as higher yield losses due to lower quality raw
fruit. These factors were partially offset by improved margins in the healthy
beverage and snacks platforms, reflecting favorable plant utilization due to
higher production volumes to meet sales demand, productivity-driven cost
savings, as well as improved seasonal readiness and other productivity
initiatives within our frozen fruit operations. In addition, we achieved higher
pricing spreads on sales of organic cocoa products and gained operational
savings following the discontinuance of flexible resealable pouch and nutrition
bar production in the fourth quarter of 2017.
Total segment operating income for the two quarters ended June
30, 2018 increased by $6.6 million to $6.3 million, compared with a total
segment operating loss of $0.3 million for the two quarters ended July 1, 2017.
The increase in segment operating income reflected that the lower overall gross
profit, as described above, was more than offset by a $18.1 million decrease in
SG&A expenses and a decline in year-over-year foreign exchange losses of
$0.8 million (including a $2.3 million decrease mainly related to forward
currency contracts within our international organic ingredient operations, which
partially offset the foreign exchange movement within gross profit. The decrease
in SG&A expenses mainly reflected a year-over-year reduction in consulting
fees and temporary labor costs ($14.2 million), and employee recruitment,
relocation and retention costs ($3.7 million) associated with the Value Creation
Plan, as well as lower employee-related compensation costs in the first half of
2018, compared with the first half of 2017. Excluding SG&A costs related to
the Value Creation Plan, as well as those items identified above affecting gross
profit, segment operating income as a percentage of revenues on an adjusted
basis would have been 1.0% for the first half of 2018, compared with 2.9% for
the first half of 2017.
Further details on revenue, gross profit and segment operating
income/loss variances are provided below under Segmented Operations
Information.
Other expense for the two quarters ended June 30, 2018 of $0.2
million mainly reflected by facility closure costs and asset impairment charges
related to closure of our nutrition bar facility and sale of the Wahpeton
roasted snack facility ($1.8 million) and employee termination costs ($0.4
million), all associated with the Value Creation Plan, offset by a $2.5 million
reduction to the remaining contingent consideration obligation that arose from
our acquisition of Citrusource in 2015. Other expense for the two quarters ended
July 1, 2017 of $6.1 mainly reflected asset impairments related to the closure
of our San Bernardino, California, juice facility ($3.7 million) and
employee termination costs ($2.2 million), all associated with the Value
Creation Plan.
SUNOPTA INC.
|
47
|
June 30,
2018 10-Q
|
Interest expense increased by $1.3 million to $16.7 million for
the two quarters ended June 30, 2018, compared with $15.4 million for the two
quarters ended July 1, 2017. Interest expense included the amortization debt
issuance costs of $1.2 million and $1.1 million in the first half of 2018 and
2017, respectively. The year-over-year increase in interest expense primarily
reflected higher borrowings under our line of credit facilities to fund
increased working capital requirements and settle costs incurred under the Value
Creation Plan, together with an increase in weighted-average interest rates.
We recognized a recovery of income tax of $3.0 million for the
two quarters ended June 30, 2018, compared with $10.6 million for the two
quarters ended July 1, 2017. The effective tax rate was 28.2% for the first half
of 2018, which reflected the impact of the reduction in the U.S. federal
corporate tax rate from 35% to 21% beginning in 2018, compared with 48.3% for
the first half of 2017, which reflected the impact on the jurisdictional mix of
earnings of higher than anticipated costs incurred in the U.S. related to the
Value Creation Plan.
On a consolidated basis, we realized a loss attributable to
common shareholders of $11.5 million (diluted loss per share of $0.13) for the
two quarters ended June 30, 2018, compared with a loss attributable to common
shareholders of $15.7 million (diluted loss per share of $0.18) for the two
quarters ended July 1, 2017.
For the two quarters ended June 30, 2018, adjusted loss was
$11.4 million, or $0.13 per diluted share, on a consolidated basis, compared
with adjusted loss of $1.6 million, or $0.02 per diluted share, on a
consolidated basis for the two quarters ended July 1, 2017. Excluding flexible
resealable pouch and nutrition bar product lines and operations, adjusted loss
was $11.6 million, or $0.13 per diluted share, for the two quarters ended June
30, 2018, compared with adjusted earnings of $1.0 million, or $0.01 per diluted
share, for the two quarters ended July 1, 2017. Adjusted EBITDA for the two
quarters ended June 30, 2018 was $27.2 million on a consolidated basis, compared
with $38.3 million on a consolidated basis for the two quarters ended July 1,
2017. Excluding flexible resealable pouch and nutrition bar product lines and
operations, adjusted EBITDA for the two quarters ended June 30, 2018 was $26.9
million, compared with $42.1 million for the two quarters ended July 1, 2017.
Adjusted earnings and adjusted EBITDA are non-GAAP financial measures. See
footnotes (2) and (3) to the table above for a reconciliation of adjusted
earnings/loss and adjusted EBITDA from net loss, which we consider to be the
most directly comparable U.S. GAAP financial measure.
Segmented Operations Information
Global Ingredients
|
|
|
|
|
|
|
|
|
|
|
|
|
For the two quarters ended
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
283,016
|
|
$
|
272,768
|
|
$
|
10,248
|
|
|
3.8%
|
|
Gross Profit
|
|
28,099
|
|
|
35,380
|
|
|
(7,281
|
)
|
|
-20.6%
|
|
Gross Profit %
|
|
9.9%
|
|
|
13.0%
|
|
|
|
|
|
-3.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
$
|
6,067
|
|
$
|
12,114
|
|
$
|
(6,047
|
)
|
|
-49.9%
|
|
Operating Income %
|
|
2.1%
|
|
|
4.4%
|
|
|
|
|
|
-2.3%
|
|
Global Ingredients contributed $283.0 million in revenues for
the two quarters ended June 30, 2018, compared to $272.8 million for the two
quarters ended July 1, 2017, an increase of $10.2 million, or 3.8% . Excluding
the impact on revenues of changes including foreign exchange rates and
commodity-related pricing (an increase in revenues of $5.9 million), Global
Ingredients revenues increased approximately 1.6% . The table below explains the
increase in revenue:
SUNOPTA INC.
|
48
|
June 30,
2018 10-Q
|
Global Ingredients Revenue Changes
|
|
Revenues for the two quarters ended July
1, 2017
|
$272,768
|
Increased
volumes of internationally-sourced organic ingredients including cocoa,
oils,
grains
and coffee
|
19,376
|
Favorable
foreign exchange impact on euro-denominated sales due to a weaker
U.S.
dollar
period-over-period
|
11,777
|
Decreased
volumes of specialty soy (due to tighter supply in 2018 and exit from
certain
varieties
in 2017), lower milled corn volumes, and soft sunflower market
|
(15,070)
|
Decreased commodity pricing for internationally-sourced organic
ingredients
|
(5,683)
|
Decreased
commodity pricing for domestically-sourced sunflower, partially offset
by
higher
pricing for corn, soy and feed
|
(152)
|
Revenues for the two quarters ended June 30, 2018
|
$283,016
|
Gross profit in Global Ingredients decreased by $7.3 million to
$28.1 million for the two quarters ended June 30, 2018 compared to $35.4 million
for the two quarters ended July 1, 2017, and the gross profit percentage
decreased by 3.1% to 9.9% . The decrease in gross profit percentage was
primarily due to the unfavorable foreign exchange impact on U.S.
dollar-denominated raw material purchase contracts within our international
organic ingredients operations, as well as the unfavorable cocoa hedging result.
The decrease in gross profit percentage on an adjusted basis also reflected
reduced sunflower pricing and operating inefficiencies within our sunflower
operations due to lower production volumes, the loss of higher margin milled
corn volumes, and start-up costs related to new roasting equipment for
domestically-sourced grains and seeds, partially offset by improved margins on
organic cocoa. The table below explains the decrease in gross profit:
Global Ingredients Gross Profit
Changes
|
|
Gross profit for the two quarters ended
July 1, 2017
|
$35,380
|
Unfavorable
foreign exchange impact on U.S. dollar-denominated raw material
purchase
contracts
within our international organic ingredients operations partially offset
by
decrease
in foreign exchange losses on forward currency contracts included below
in
operating
income plus an unfavorable cocoa commodity hedging result, due to
an
increase
in the market price for cocoa in the first half of 2018
|
(10,304)
|
Lower
volumes and pricing for sunflower and lower volumes of higher margin
milled
corn,
as well as start-up costs related to new roasting equipment
|
(1,532)
|
Higher
volumes and pricing spreads for certain internationally-sourced organic
ingredients,
including
cocoa, fruits, vegetables, oils, nuts and coffee, partially offset by
seeds and
animal
feed,
as well as start-up costs related to the expansion of our cocoa facility
in the Netherlands
|
4,555
|
Gross profit for the two quarters ended June 30,
2018
|
$28,099
|
Operating income in Global Ingredients decreased by $6.0
million, or 49.9%, to $6.1 million for the two quarters ended June 30, 2018,
compared to $12.1 million for the two quarters ended July 1, 2017. The table
below explains the decrease in operating income:
SUNOPTA INC.
|
49
|
June 30,
2018 10-Q
|
Global Ingredients Operating Income
Changes
|
|
Operating income for the two quarters
ended July 1, 2017
|
$12,114
|
Decrease in gross profit, as explained above
|
(7,281)
|
Unfavorable
foreign exchange impact on euro-denominated SG&A expenses and
higher
employee-related
compensation costs
|
(1,711)
|
Decrease
in foreign exchange losses primarily related to forward currency contracts
in
our
international organic ingredient operations
|
2,282
|
Decrease in corporate cost allocations
|
663
|
Operating income for the two quarters ended June
30, 2018
|
$6,067
|
Consumer Products
|
|
|
|
|
|
|
|
|
|
|
|
|
For the two quarters ended
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
348,944
|
|
$
|
393,717
|
|
$
|
(44,773
|
)
|
|
-11.4%
|
|
Gross Profit
|
|
39,931
|
|
|
44,981
|
|
|
(5,050
|
)
|
|
-11.2%
|
|
Gross Profit %
|
|
11.4%
|
|
|
11.4%
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income %
|
$
|
8,078
|
|
$
|
11,177
|
|
$
|
(3,099
|
)
|
|
-27.7%
|
|
Operating Income %
|
|
2.3%
|
|
|
2.8%
|
|
|
|
|
|
-0.5%
|
|
Consumer Products contributed $348.9 million in revenues for
the two quarters ended June 30, 2018, compared to $393.7 million for the two
quarters ended July 1, 2017, a $44.8 million, or 11.4% decrease. Excluding the
impact on revenues of sales of flexible resealable pouch and nutrition bar
products (a decrease in revenues of $27.4 million) and changes in raw fruit
commodity-related pricing (a decrease in revenues of $6.1 million), Consumer
Products revenues decreased approximately 3.1% . The table below explains the
decrease in revenues:
Consumer Products Revenue Changes
|
|
Revenues for the two quarters ended July
1, 2017
|
$393,717
|
Impact of the exit from flexible resealable pouch and nutrition bars
product lines
|
(27,446)
|
Lower
volumes and pricing of frozen fruit and fruit ingredients, reflecting
declines
in
consumer
consumption trends, lower distribution to certain customers, and the
timing
of
deliveries to a significant foodservice customer
|
(25,798)
|
Higher
volumes of non-dairy aseptic beverage products into the foodservice and
retail
channels,
partially offset by lower volumes of premium juice products
|
5,274
|
Higher volumes of fruit snack products
|
3,197
|
Revenues for the two quarters ended June 30, 2018
|
$348,944
|
Gross profit in Consumer Products decreased by $5.1 million to
$39.9 million for the two quarters ended June 30, 2018 compared to $45.0 million
for the two quarters ended July 1, 2017, and the gross profit percentage
remained unchanged at 11.4% . The gross profit percentage reflected lower
pricing for frozen fruit, as well as an unfavorable costs and utilization in
manufacturing due to a later start to the strawberry pack season, yield losses
due to lower quality raw fruit, and higher handling, labor, storage and freight
costs, partially offset by improved seasonal readiness and other productivity
initiatives within our frozen fruit operations, as well as the recovery of $1.2
million of previously-incurred product withdrawal costs from a third-party
supplier. In addition, we achieved improved margins in the healthy beverage and
snacks platforms, reflecting favorable plant utilization, due to higher
production volumes to meet sales demand, and productivity-driven cost
savings. We also gained operational savings following the discontinuance of
flexible resealable pouch and nutrition bar production in the fourth quarter of
2017. The table below explains the decrease in gross profit:
SUNOPTA INC.
|
50
|
June 30,
2018 10-Q
|
Consumer Products Gross Profit
Changes
|
|
Gross profit for the two quarters ended
July 1, 2017
|
$44,981
|
Lower
pricing of frozen fruit and volumes of fruit ingredients, as well as an
unfavorable
costs
and utilization in manufacturing, as well as higher yield losses,
partially offset
by
productivity-driven
cost savings and recovery of previously-incurred product withdrawal costs
|
(17,149)
|
Higher
sales volumes, plant utilization and productivity improvement for aseptic
beverage
and
fruit
snack products, partially offset by higher processing and supply chain
costs for premium juice products
|
8,159
|
Operational
savings following the discontinuance of flexible resealable pouch and
nutrition
bar
production in the fourth quarter of 2017
|
3,940
|
Gross profit for the two quarters ended June 30,
2018
|
$39,931
|
Operating income in Consumer Products decreased by $3.1
million, or 27.7%, to $8.1 million for the two quarters ended June 30, 2018,
compared to $11.2 million for the two quarters ended July 1, 2017. The table
below explains the decrease in operating income:
Consumer Products Operating Income
Changes
|
|
Operating income for the two quarters
ended July 1, 2017
|
$11,177
|
Decrease in gross profit, as explained above
|
(5,050)
|
Higher
employee-related compensation costs and unfavorable foreign exchange on
international operations
|
(1,767)
|
Decrease in corporate cost allocations
|
3,718
|
Operating income for the two quarters ended June
30, 2018
|
$8,078
|
Corporate Services
|
|
|
|
|
|
|
|
|
|
|
|
|
For the two quarters ended
|
|
June 30, 2018
|
|
|
July 1, 2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
$
|
(7,841
|
)
|
$
|
(23,628
|
)
|
$
|
15,787
|
|
|
66.8%
|
|
Operating loss at Corporate Services decreased by $15.8 million
to $7.8 million for the two quarters ended June 30, 2018, from a loss of $23.6
million for the two quarters ended July 1, 2017. The table below explains the
decrease in operating loss:
Corporate Services Operating Loss
Changes
|
|
Operating loss for the two quarters ended
July 1, 2017
|
$(23,628)
|
Lower
non-structural third-party consulting costs and employee recruitment,
relocation
and
retention costs associated with the Value Creation Plan
|
17,826
|
Lower employee-related compensation and other non-compensation costs
|
4,884
|
Decrease in corporate cost allocations to SunOpta operating segments
|
(4,381)
|
Increased
stock-based compensation costs as a result of a change in our
long-term
incentive
plan in the second quarter of 2017
|
(1,810)
|
Unfavorable foreign exchange impact on foreign currency transactions
|
(732)
|
Operating loss for the two quarters ended June
30, 2018
|
$(7,841)
|
SUNOPTA INC.
|
51
|
June 30,
2018 10-Q
|
Corporate cost allocations mainly consist of salaries of
corporate personnel who directly support the operating segments, as well as
costs related to the enterprise resource management system. These expenses are
allocated to the operating segments based on (1) specific identification of
allocable costs that represent a service provided to each segment and (2) a
proportionate distribution of costs based on a weighting of factors such as
revenue contribution and number of people employed within each segment.
Liquidity and Capital Resources
We have the following sources from which we can fund our
operating cash requirements:
|
|
Existing cash and cash equivalents;
|
|
|
|
|
|
Available operating lines of credit;
|
|
|
|
|
|
Cash flows generated from operating activities, including
working capital efficiency efforts;
|
|
|
|
|
|
Cash flows generated from the exercise, if any, of stock
options during the year;
|
|
|
|
|
|
Potential additional long-term financing, including the
offer and sale of debt and/or equity securities; and
|
|
|
|
|
|
Potential sales of non-core divisions, or assets.
|
On February 11, 2016, we entered a five-year credit agreement
for a senior secured asset-based revolving credit facility in the maximum
aggregate principal amount of $350 million, subject to borrowing base capacity
(the Global Credit Facility). The Global Credit Facility supports the working
capital and general corporate needs of our global operations, in addition to
funding strategic initiatives. In addition, subject to customary borrowing
conditions and the agreement of any such lenders to provide such increased
commitments, we may request to increase the total lending commitments under this
facility to a maximum aggregate principal amount not to exceed $450 million. The
applicable margin in the Global Credit Facility ranges from 1.25% to 1.75% for
loans bearing interest based on LIBOR and from 0.25% to 0.75% for loans bearing
interest based on the prime rate and, in each case, is set quarterly based on
average borrowing availability for the preceding fiscal quarter.
On September 19, 2017, we entered into an amendment to the
Global Credit Facility to add an additional U.S. asset-based credit subfacility
(the New U.S. Subfacility), which provided for borrowings in an aggregate
principal amount of $15.0 million. The principal amount of New U.S. Subfacility
is repayable in quarterly instalments of $2.5 million, commencing with the
fiscal quarter ending March 31, 2019. Borrowings repaid under the New U.S.
Subfacility may not be borrowed again. The applicable margin for the New U.S.
Subfacility ranges from 2.00% to 2.50% with respect to base rate and prime rate
borrowings and from 3.00% to 3.50% for eurocurrency rate and bankers acceptance
rate borrowings.
As at June 30, 2018, we had outstanding borrowings of $277.3
million and approximately $43 million of available borrowing capacity under the
Global Credit Facility. For more information on the Global Credit Facility, see
note 6(1) to the unaudited consolidated financial statements included in this
report.
On October 20, 2016, SunOpta Foods issued $231.0 million of
9.5% Senior Secured Second Lien Notes due October 9, 2022 (the Notes). As at
June 30, 2018, the outstanding principal amount of the Notes was $223.5 million,
following the principal repayment of $7.5 million in October 2017. For more
information on the Notes, see note 6(2) to the unaudited consolidated financial
statements included in this report.
In order to finance significant acquisitions, if any, that may
arise in the future, we may need additional sources of cash that we could
attempt to obtain through a combination of additional bank or subordinated
financing, a private or public offering of debt or equity securities, or the
issuance of common stock as consideration in an acquisition. There can be no
assurance that these types of financing would be available at all or, if so, on
terms that are acceptable to us.
In the event that we require additional liquidity due to market
conditions, unexpected actions by our lenders, changes to our growth strategy,
or other factors, our ability to obtain any additional financing on favorable
terms, if at all, could be limited.
SUNOPTA INC.
|
52
|
June 30,
2018 10-Q
|
Cash Flows
Second Quarter of 2018 Compared to Second Quarter of
2017
Net cash and cash equivalents decreased $0.8 million in the
second quarter of 2018 to $2.1 million as at June 30, 2018, compared with $2.9
million at March 31, 2018.
Cash used in operating activities was $34.2 million in the
second quarter of 2018, compared with $25.8 million in the second quarter of
2017, an increase in cash used of $8.4 million. Due to the timing of seasonal
fruit purchases, it is normal to see heavy cash use for working capital in the
second quarter of each fiscal year. In addition, the increase in cash used in
the second quarter of 2018, compared with the second quarter of 2017, reflected
larger purchases of organic cocoa to supply the second roasting and processing
line at our cocoa facility in the Netherlands, as well as the later timing of
the fruit harvest in 2018, compared with 2017.
Cash used in investing activities was $10.0 million in the
second quarter of 2018, compared with $6.8 million in the second quarter of
2017, an increase in cash used of $3.2 million. This increase reflected higher
capital expenditures in the second quarter of 2018, which included the expansion
of our aseptic beverage, roasted snack and frozen fruit processing capabilities,
as well as the completion of the second cocoa line.
Cash provided by financing activities was $43.5 million in the
second quarter of 2018, compared with $32.5 million in the second quarter of
2017, an increase in cash provided of $11.0 million. This increase mainly
reflected higher borrowings under our line of credit facilities in the second
quarter of 2018, which included borrowings to fund the increased working capital
requirements and higher capital spending.
First Half of 2018 Compared to First Half of 2017
Net cash and cash equivalents decreased $1.1 million in the
first half of 2018 to $2.1 million as at June 30, 2018, compared with $3.2
million as at December 30, 2017.
Cash used in operating activities was $26.7 million in the
first half of 2018, compared with $6.3 million in the first half of 2017, an
increase in cash used of $20.4 million. This increase reflected the higher level
of organic cocoa purchases in the first half of 2018, and later timing of the
fruit harvest in 2018 compared with 2017, as well as the immediate cash benefit
generated in the first half of 2017 from working capital efficiency initiatives
implemented under the Value Creation Plan. These increases were partially offset
by lower cash settlement of costs incurred under the Value Creation Plan in the
first half of 2018, compared with the first half of 2017.
Cash used in investing activities was $16.0 million in the
first half of 2018, compared with $15.5 million in the first half of 2017, an
increase in cash used of $0.5 million. This increase reflected higher capital
expenditures in the first half of 2018, including the expansion of our aseptic
beverage, roasted snack and frozen fruit processing capabilities, completion of
the second cocoa line, and implementation of an enterprise resource planning
system at our Mexican frozen fruit facility.
Cash provided by financing activities was $41.7 million in the
first half of 2018, compared with $23.9 million in the first half of 2017, an
increase in cash provided of $17.8 million. This increase mainly reflected
higher borrowings under our line of credit facilities in the first half of 2018,
including borrowings to fund the increased working capital requirements.
Off-Balance Sheet Arrangements
There are currently no off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future material effect on
our financial condition.
Contractual Obligations
There have been no material changes outside the normal course
of business in our contractual obligations since December 30, 2017.
SUNOPTA INC.
|
53
|
June 30,
2018 10-Q
|
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make certain estimates and assumptions that affect
the reported amounts of assets and liabilities, related revenues and expenses,
and disclosure of gain and loss contingencies at the date of the financial
statements. The estimates and assumptions made require us to exercise our
judgment and are based on historical experience and various other factors that
we believe to be reasonable under the circumstances. We continually evaluate the
information that forms the basis of our estimates and assumptions as our
business and the business environment generally changes.
There have been no material changes to the critical accounting
estimates disclosed under the heading Critical Accounting Estimates in Item 7,
Managements Discussion and Analysis of Financial Condition and Results of
Operations, of the Form 10-K. For a discussion of new accounting standards, see
note 1 to the unaudited consolidated financial statements included in this
report.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
For quantitative and qualitative disclosures about market risk,
see Part II, Item 7A, Quantitative and Qualitative Disclosures about Market
Risk, of the Form 10-K. There have been no material changes to our exposures to
market risks since December 30, 2017.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established disclosure controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized
and reported within time periods specified in the Securities and Exchange
Commissions rules and forms. Such disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to its management to
allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our
management, including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), we conducted an evaluation of our disclosure controls and
procedures (as such term is defined under Rule 13a-15(e) promulgated under the
Exchange Act) as of the end of the period covered by this quarterly report.
Based on this evaluation, our CEO and our CFO concluded that our disclosure
controls and procedures were effective as of June 30, 2018.
Changes in Internal Control Over Financial
Reporting
Our management, with the participation of our CEO and CFO, has
evaluated whether any change in our internal control over financial reporting
(as such term is defined under Rule 13a-15(f) promulgated under the Exchange
Act) occurred during the quarter ended June 30, 2018. Based on that evaluation,
management concluded that there were no changes in our internal control over
financial reporting during the quarter ended June 30, 2018 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
SUNOPTA INC.
|
54
|
June 30,
2018 10-Q
|