[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
November 2, 2018 was 87,375,667.
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 (€) and Mexican pesos (M$). As at September 29, 2018,
the closing rates of exchange for the Canadian dollar, euro and Mexican peso,
expressed in U.S. dollars, based on Bank of Canada exchange rates, were
C$0.7725, €1.1602 and M$0.0532. 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 Value Creation
Plan, including the estimated amount and timing of adjusted earnings before
income taxes, depreciation and amortization (EBITDA) enhancements; our
intention to exit businesses or product lines where we are not effectively
positioned; the expected increased capacity resulting from our aseptic capacity
expansion at our Allentown, Pennsylvania, aseptic beverage facility, and the
associated cost and timing; the expected completion date of commissioning and
increased capacity from our new roasting equipment at Crookston, Minnesota;
proposed construction of new cold storage facility at Santa Maria, California;
improved revenue growth and profitability as a result of our customer and
product mix optimization efforts; expected enhancements resulting from and
timing of implementation of our new demand planning system; the estimated
timeframe for achieving overall capacity utilization of 85% for our aseptic
manufacturing facilities; the ability to remain on track to deliver additional
new products in the fourth quarter; 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:
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SunOpta Inc.
Consolidated Statements of
Operations
For the quarters and three quarters ended September 29, 2018 and
September 30, 2017
(Unaudited)
(All dollar amounts expressed in
thousands of U.S. dollars, except per share amounts)
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenues
|
|
308,371
|
|
|
320,713
|
|
|
940,331
|
|
|
987,198
|
|
Cost of goods sold
|
|
274,243
|
|
|
284,258
|
|
|
838,173
|
|
|
870,382
|
|
Gross profit
|
|
34,128
|
|
|
36,455
|
|
|
102,158
|
|
|
116,816
|
|
Selling, general and administrative expenses
|
|
27,220
|
|
|
26,102
|
|
|
82,456
|
|
|
99,413
|
|
Intangible asset amortization
|
|
2,754
|
|
|
2,817
|
|
|
8,293
|
|
|
8,429
|
|
Other expense, net (note 9)
|
|
1,136
|
|
|
5,972
|
|
|
1,317
|
|
|
12,022
|
|
Foreign exchange loss (gain)
|
|
(368
|
)
|
|
2,575
|
|
|
583
|
|
|
4,350
|
|
Earnings (loss) before the following
|
|
3,386
|
|
|
(1,011
|
)
|
|
9,509
|
|
|
(7,398
|
)
|
Interest expense, net
|
|
8,792
|
|
|
8,371
|
|
|
25,486
|
|
|
23,820
|
|
Loss before income taxes
|
|
(5,406
|
)
|
|
(9,382
|
)
|
|
(15,977
|
)
|
|
(31,218
|
)
|
Recovery of income taxes
|
|
(870
|
)
|
|
(3,499
|
)
|
|
(3,853
|
)
|
|
(14,049
|
)
|
Net loss
|
|
(4,536
|
)
|
|
(5,883
|
)
|
|
(12,124
|
)
|
|
(17,169
|
)
|
Earnings attributable to
non-controlling interests
|
|
70
|
|
|
144
|
|
|
19
|
|
|
664
|
|
Loss attributable to SunOpta Inc.
|
|
(4,606
|
)
|
|
(6,027
|
)
|
|
(12,143
|
)
|
|
(17,833
|
)
|
Dividends and accretion on
Series A Preferred Stock (note 7)
|
|
(1,981
|
)
|
|
(1,954
|
)
|
|
(5,922
|
)
|
|
(5,848
|
)
|
Loss attributable to common
shareholders
|
|
(6,587
|
)
|
|
(7,981
|
)
|
|
(18,065
|
)
|
|
(23,681
|
)
|
Loss per share
(note
10)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.08
|
)
|
|
(0.09
|
)
|
|
(0.21
|
)
|
|
(0.27
|
)
|
Diluted
|
|
(0.08
|
)
|
|
(0.09
|
)
|
|
(0.21
|
)
|
|
(0.27
|
)
|
Weighted-average common shares outstanding
(000s)
(note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
87,168
|
|
|
86,541
|
|
|
86,982
|
|
|
86,232
|
|
Diluted
|
|
87,168
|
|
|
86,541
|
|
|
86,982
|
|
|
86,232
|
|
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
6
|
September 29, 2018 10-Q
|
SunOpta Inc.
Consolidated Statements of
Comprehensive Loss
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
(Unaudited)
(All dollar amounts expressed in
thousands of U.S. dollars)
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(4,536
|
)
|
|
(5,883
|
)
|
|
(12,124
|
)
|
|
(17,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
earnings (loss), net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes related to cash
flow hedges (note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains, net
|
|
-
|
|
|
155
|
|
|
384
|
|
|
1,568
|
|
Reclassification of net losses (gains) to earnings
|
|
25
|
|
|
(107
|
)
|
|
(79
|
)
|
|
(1,311
|
)
|
Net changes related to cash flow hedges
|
|
25
|
|
|
48
|
|
|
305
|
|
|
257
|
|
Currency translation
adjustment
|
|
(639
|
)
|
|
1,459
|
|
|
(1,836
|
)
|
|
4,954
|
|
Other
comprehensive earnings (loss), net of income taxes
|
|
(614
|
)
|
|
1,507
|
|
|
(1,531
|
)
|
|
5,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
(5,150
|
)
|
|
(4,376
|
)
|
|
(13,655
|
)
|
|
(11,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
attributable to non-controlling interests
|
|
72
|
|
|
52
|
|
|
159
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
attributable to SunOpta Inc.
|
|
(5,222
|
)
|
|
(4,428
|
)
|
|
(13,814
|
)
|
|
(12,575
|
)
|
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
7
|
September 29, 2018 10-Q
|
SunOpta Inc.
Consolidated Balance Sheets
As at September 29, 2018 and December 30, 2017
(Unaudited)
(All
dollar amounts expressed in thousands of U.S. dollars)
|
|
September 29, 2018
|
|
|
December 30, 2017
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
1,857
|
|
|
3,228
|
|
Accounts receivable
|
|
131,924
|
|
|
125,152
|
|
Inventories (note 5)
|
|
378,758
|
|
|
354,978
|
|
Prepaid expenses and
other current assets
|
|
27,026
|
|
|
33,213
|
|
Income
taxes recoverable
|
|
11,545
|
|
|
12,006
|
|
Total current assets
|
|
551,110
|
|
|
528,577
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
168,889
|
|
|
163,624
|
|
Goodwill
|
|
109,281
|
|
|
109,533
|
|
Intangible assets
|
|
163,731
|
|
|
172,059
|
|
Deferred income taxes
|
|
362
|
|
|
363
|
|
Other assets
|
|
5,786
|
|
|
8,017
|
|
|
|
|
|
|
|
|
Total assets
|
|
999,159
|
|
|
982,173
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Bank indebtedness (note
6)
|
|
278,688
|
|
|
234,090
|
|
Accounts
payable and accrued liabilities
|
|
158,918
|
|
|
161,364
|
|
Customer and other
deposits
|
|
789
|
|
|
4,901
|
|
Income
taxes payable
|
|
3,093
|
|
|
1,351
|
|
Other current liabilities
|
|
1,485
|
|
|
818
|
|
Current
portion of long-term debt (note 6)
|
|
2,003
|
|
|
2,228
|
|
Current portion of
long-term liabilities
|
|
4,505
|
|
|
5,300
|
|
Total current
liabilities
|
|
449,481
|
|
|
410,052
|
|
|
|
|
|
|
|
|
Long-term debt
(note
6)
|
|
225,007
|
|
|
225,805
|
|
Long-term liabilities
|
|
2,202
|
|
|
8,352
|
|
Deferred income taxes
|
|
11,862
|
|
|
15,850
|
|
Total liabilities
|
|
688,552
|
|
|
660,059
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
(note 7)
|
|
81,015
|
|
|
80,193
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
SunOpta Inc. shareholders
equity
|
|
|
|
|
|
|
Common shares,
no par value, unlimited shares authorized, 87,200,239 shares issued
(December 30, 2017 - 86,757,334)
|
|
312,970
|
|
|
308,899
|
|
Additional paid-in capital
|
|
30,929
|
|
|
28,006
|
|
Accumulated deficit
|
|
(107,102
|
)
|
|
(89,291
|
)
|
Accumulated other comprehensive loss (note 8)
|
|
(8,939
|
)
|
|
(7,268
|
)
|
|
|
227,858
|
|
|
240,346
|
|
Non-controlling
interests
|
|
1,734
|
|
|
1,575
|
|
Total equity
|
|
229,592
|
|
|
241,921
|
|
|
|
|
|
|
|
|
Total equity and liabilities
|
|
999,159
|
|
|
982,173
|
|
Commitments and contingencies
(note 12)
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
8
|
September 29, 2018 10-Q
|
SunOpta Inc.
Consolidated Statements of
Shareholders Equity
As at and for the quarters and three quarters ended
September 29, 2018 and September 30, 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
|
|
75
|
|
|
483
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
483
|
|
Stock incentive plan
|
|
368
|
|
|
3,588
|
|
|
(2,898
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
690
|
|
Withholding taxes on
stock-based awards
|
|
-
|
|
|
-
|
|
|
(574
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(574
|
)
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
6,395
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,395
|
|
Dividends on Series A
Preferred Stock (note 7)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,100
|
)
|
|
-
|
|
|
-
|
|
|
(5,100
|
)
|
Accretion on Series A Preferred Stock (note
7)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(822
|
)
|
|
-
|
|
|
-
|
|
|
(822
|
)
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(12,143
|
)
|
|
-
|
|
|
19
|
|
|
(12,124
|
)
|
Currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,976
|
)
|
|
140
|
|
|
(1,836
|
)
|
Cash flow hedges, net of
income taxes of $130 (note 4)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
305
|
|
|
-
|
|
|
305
|
|
Cumulative effect of adoption of new revenue
accounting standard (note 1)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
254
|
|
|
-
|
|
|
-
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2018
|
|
87,200
|
|
|
312,970
|
|
|
30,929
|
|
|
(107,102
|
)
|
|
(8,939
|
)
|
|
1,734
|
|
|
229,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
40
|
|
|
281
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
281
|
|
Stock incentive plan
|
|
889
|
|
|
7,612
|
|
|
(3,212
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,400
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
4,133
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,133
|
|
Dividends on Series A Preferred Stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,100
|
)
|
|
-
|
|
|
-
|
|
|
(5,100
|
)
|
Accretion on Series A
Preferred Stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(748
|
)
|
|
-
|
|
|
-
|
|
|
(748
|
)
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(17,833
|
)
|
|
-
|
|
|
664
|
|
|
(17,169
|
)
|
Currency translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,001
|
|
|
(47
|
)
|
|
4,954
|
|
Cash flow hedges, net of income taxes of $110
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
257
|
|
|
-
|
|
|
257
|
|
Acquisition of
non-controlling interests
|
|
-
|
|
|
-
|
|
|
214
|
|
|
-
|
|
|
(82
|
)
|
|
(1,869
|
)
|
|
(1,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30,
2017
|
|
86,673
|
|
|
308,319
|
|
|
26,657
|
|
|
30,157
|
|
|
(7,928
|
)
|
|
1,479
|
|
|
358,684
|
|
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
|
9
|
September 29, 2018 10-Q
|
SunOpta Inc.
Consolidated Statements of Cash Flows
For the quarters and three quarters ended September 29, 2018 and September
30, 2017
(Unaudited)
(Expressed in thousands of U.S. dollars)
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED
IN)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(4,536
|
)
|
|
(5,883
|
)
|
|
(12,124
|
)
|
|
(17,169
|
)
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
8,171
|
|
|
8,254
|
|
|
24,501
|
|
|
24,601
|
|
Amortization of debt issuance costs
|
|
598
|
|
|
613
|
|
|
1,806
|
|
|
1,751
|
|
Deferred income taxes
|
|
(1,706
|
)
|
|
(3,425
|
)
|
|
(3,857
|
)
|
|
(13,340
|
)
|
Stock-based compensation
|
|
2,120
|
|
|
1,995
|
|
|
6,395
|
|
|
4,133
|
|
Unrealized loss (gain) on
derivative contracts (note 4)
|
|
2,110
|
|
|
754
|
|
|
867
|
|
|
(475
|
)
|
Fair
value of contingent consideration (note 9)
|
|
25
|
|
|
83
|
|
|
(2,348
|
)
|
|
287
|
|
Impairment of long-lived
assets (note 3)
|
|
-
|
|
|
4,467
|
|
|
409
|
|
|
8,190
|
|
Other
|
|
36
|
|
|
55
|
|
|
(111
|
)
|
|
(46
|
)
|
Changes in non-cash
working capital (note 11)
|
|
3,664
|
|
|
(18,006
|
)
|
|
(31,771
|
)
|
|
(25,319
|
)
|
Net cash flows from
operations
|
|
10,482
|
|
|
(11,093
|
)
|
|
(16,233
|
)
|
|
(17,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant
and equipment
|
|
(7,758
|
)
|
|
(6,527
|
)
|
|
(24,921
|
)
|
|
(22,694
|
)
|
Proceeds from sale of assets (note 3)
|
|
707
|
|
|
475
|
|
|
1,437
|
|
|
776
|
|
Payments received on note
from sale of business
|
|
1,006
|
|
|
39
|
|
|
1,236
|
|
|
39
|
|
Acquisition of non-controlling interests
|
|
-
|
|
|
(1,737
|
)
|
|
-
|
|
|
(1,737
|
)
|
Other
|
|
-
|
|
|
(34
|
)
|
|
159
|
|
|
330
|
|
Net cash flows from investing activities
|
|
(6,045
|
)
|
|
(7,784
|
)
|
|
(22,089
|
)
|
|
(23,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) under line of credit
facilities (note 6)
|
|
(2,716
|
)
|
|
19,222
|
|
|
47,478
|
|
|
48,571
|
|
Borrowings under long-term
debt (note 6)
|
|
-
|
|
|
417
|
|
|
-
|
|
|
417
|
|
Repayment of long-term debt (note 6)
|
|
(557
|
)
|
|
(564
|
)
|
|
(1,494
|
)
|
|
(1,680
|
)
|
Payment of cash dividends on
Series A Preferred Stock (note 7)
|
|
(1,700
|
)
|
|
(1,700
|
)
|
|
(5,100
|
)
|
|
(4,991
|
)
|
Proceeds from the exercise of stock options
and employee share purchases, net of withholding taxes paid
|
|
359
|
|
|
1,052
|
|
|
599
|
|
|
4,681
|
|
Payment of debt issuance
costs
|
|
-
|
|
|
(206
|
)
|
|
-
|
|
|
(206
|
)
|
Payment of contingent consideration (note 4)
|
|
-
|
|
|
-
|
|
|
(4,399
|
)
|
|
(4,330
|
)
|
Other
|
|
(44
|
)
|
|
13
|
|
|
(89
|
)
|
|
(290
|
)
|
Net cash flows from financing activities
|
|
(4,658
|
)
|
|
18,234
|
|
|
36,995
|
|
|
42,172
|
|
Foreign exchange gain (loss)
on cash held in a foreign currency
|
|
(9
|
)
|
|
41
|
|
|
(44
|
)
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents in the period
|
|
(230
|
)
|
|
(602
|
)
|
|
(1,371
|
)
|
|
1,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents -
beginning of the period
|
|
2,087
|
|
|
3,457
|
|
|
3,228
|
|
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents -
end of the period
|
|
1,857
|
|
|
2,855
|
|
|
1,857
|
|
|
2,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 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 three quarters
ended September 29, 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
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 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 three quarters ended September 29, 2018 or
consolidated balance sheet as at September 29, 2018.
See note 2 for additional disclosures under ASC Topic 606.
Recently Issued Accounting Standards, Not Adopted as at
September 29, 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 legacy 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 on a modified retrospective basis for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal
years. In July 2018, the FASB issued ASU 2018-11 to provide a transition option
for entities to apply the new guidance at the adoption date by recognizing a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption rather than in the earliest period presented in the financial
statements. Under this transition option, entities will continue to apply the
legacy accounting guidance for leases, including disclosure requirements, in the
comparative periods presented in the year they adopt the new leases standard.
The Company will adopt ASU 2016-02, as amended, as at December 30, 2018 (the
first day of fiscal 2019) and intends to elect the transition option provided
under ASU 2018-11. With the assistance of a third party, the Company is in the
process of compiling the required information from its significant operating
lease contracts to determine the opening balances of the right-to-use assets and
corresponding lease liabilities.
2. Revenue
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.
SUNOPTA INC.
|
12
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
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.
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:
SUNOPTA INC.
|
13
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Global Ingredients
|
|
|
|
|
|
|
|
|
|
|
|
|
Internationally-sourced organic ingredients
|
|
97,499
|
|
|
96,038
|
|
|
302,373
|
|
|
275,442
|
|
North American-sourced grains and seeds
|
|
39,255
|
|
|
41,216
|
|
|
117,397
|
|
|
134,580
|
|
Total
Global Ingredients
|
|
136,754
|
|
|
137,254
|
|
|
419,770
|
|
|
410,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage products
(1)
|
|
76,530
|
|
|
71,678
|
|
|
242,329
|
|
|
232,203
|
|
Frozen
fruit products
(2)
|
|
80,446
|
|
|
88,768
|
|
|
240,052
|
|
|
274,172
|
|
Snack products
(3)
|
|
14,641
|
|
|
23,013
|
|
|
38,180
|
|
|
70,801
|
|
Total
Consumer Products
|
|
171,617
|
|
|
183,459
|
|
|
520,561
|
|
|
577,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
308,371
|
|
|
320,713
|
|
|
940,331
|
|
|
987,198
|
|
|
(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).
|
3. Value Creation Plan
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); 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.
SUNOPTA INC.
|
14
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
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 September 29, 2018 and September 30, 2017,
revenues from sales of these product lines were $0.0 million and $13.5 million,
respectively, and for the three quarters ended September 29, 2018 and September
30, 2017, revenues were $3.1 million and $44.1 million, respectively. Revenues
reported from these operations for the quarter and three quarters ended
September 29, 2018, related to the delivery of remaining inventories to
customers under existing contracts at the time of exit. For the quarters ended
September 29, 2018 and September 30, 2017, losses before income taxes from these
operations were $0.0 million and $8.6 million, respectively. For the three
quarters ended September 29, 2018 and September 30, 2017, losses before income
taxes from these operations were $1.0 million and $12.9 million, respectively.
For the three quarters ended September 29, 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. For
the quarter and three quarters ended September 30, 2017, losses before income
taxes from these operations included impairment charges for inventory ($1.3
million) and long-lived assets ($4.5 million) related to the exit activities, as
well as employee termination costs of $1.4 million. These operations are
included in the Consumer Products operating segment.
Costs Incurred Under the Value Creation Plan
The following table summarizes costs incurred under the Value
Creation Plan for the three quarters ended September 29, 2018 and September 30,
2017:
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
recruitment,
|
|
|
Consulting
|
|
|
|
|
|
|
impairments
|
|
|
retention and
|
|
|
fees and
|
|
|
|
|
|
|
and facility
|
|
|
termination
|
|
|
temporary
|
|
|
|
|
|
|
closure costs
|
|
|
costs
|
|
|
labor costs
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
September 29, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance payable (receivable), December 30, 2017
(1)
|
|
(700
|
)
|
|
4,427
|
|
|
-
|
|
|
3,727
|
|
Costs incurred and charged to expense
|
|
1,867
|
|
|
600
|
|
|
410
|
|
|
2,877
|
|
Cash
receipts (payments), net
|
|
1,191
|
|
|
(4,447
|
)
|
|
(110
|
)
|
|
(3,366
|
)
|
Non-cash adjustments
|
|
(1,255
|
)
|
|
-
|
|
|
-
|
|
|
(1,255
|
)
|
Balance payable, September 29, 2018
(1)
|
|
1,103
|
|
|
580
|
|
|
300
|
|
|
1,983
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance payable, December 31, 2016
|
|
-
|
|
|
1,803
|
|
|
1,657
|
|
|
3,460
|
|
Costs incurred and charged to expense
|
|
10,111
|
|
|
9,312
|
|
|
15,804
|
|
|
35,227
|
|
Cash
payments
|
|
(3,843
|
)
|
|
(7,324
|
)
|
|
(17,276
|
)
|
|
(28,443
|
)
|
Non-cash adjustments
|
|
(6,468
|
)
|
|
567
|
|
|
-
|
|
|
(5,901
|
)
|
Balance payable (receivable), September 30, 2017
|
|
(200
|
)
|
|
4,358
|
|
|
185
|
|
|
4,343
|
|
|
(1)
|
Balance payable was included in accounts payable and
accrued liabilities and balance receivable was included in accounts
receivable on consolidated balance sheet.
|
(a)
|
Asset impairments and facility closure
costs
|
For the three quarters ended September
29, 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 of $0.7
million received on the sale of the facility. Net cash receipts also included
proceeds on the sale of nutrition bar equipment of $0.7 million. Balance
payable as at September 29, 2018, represents the remaining nutrition bar
facility lease obligation, which extends until December 2020.
SUNOPTA INC.
|
15
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
For the three quarters ended September
30, 2017, costs incurred included the impairment charges for inventory and
long-lived assets related to the exit from flexible resealable pouch and
nutrition bar product lines and operations (as described above), as well as $3.7
million paid in the aggregate for the early buyout of the San Bernardino
equipment leases and 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.
(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 September 29, 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
|
|
|
14,981
|
|
|
20,979
|
|
|
71,115
|
|
Cash
payments, net
|
|
(9,555
|
)
|
|
(14,824
|
)
|
|
(20,679
|
)
|
|
(45,058
|
)
|
Non-cash adjustments
|
|
(24,497
|
)
|
|
423
|
|
|
-
|
|
|
(24,074
|
)
|
Balance payable, September 29, 2018
|
|
1,103
|
|
|
580
|
|
|
300
|
|
|
1,983
|
|
For the quarters and three quarters ended September 29, 2018
and September 30, 2017, costs incurred and charged to expense were recorded in
the consolidated statement of operations as follows:
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cost of goods sold
(1)
|
|
-
|
|
|
1,287
|
|
|
100
|
|
|
1,921
|
|
Selling, general and administrative expenses
(2)
|
|
-
|
|
|
2,400
|
|
|
613
|
|
|
20,839
|
|
Other expense
(3)
|
|
43
|
|
|
6,569
|
|
|
2,164
|
|
|
12,467
|
|
|
|
43
|
|
|
10,256
|
|
|
2,877
|
|
|
35,227
|
|
SUNOPTA INC.
|
16
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
(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 September 29, 2018, asset
impairment, lease obligation and employee termination costs recorded in
other expense were allocated as follows: Raw Material Sourcing and Supply
operating segment - $nil (September 30, 2017 $0.2 million); Consumer
Products operating segment - $nil (September 30, 2017 $6.4 million); and
Corporate Services - $0.0 (September 30, 2017 $0.0 million). For the
three quarters ended September 29, 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 (September 30, 2017 $0.2 million); Consumer Products
operating segment - $1.3 million (September 30, 2017 $11.2 million); and
Corporate Services - $0.2 million (September 30, 2017 $1.1
million).
|
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 September 29, 2018 and December 30, 2017:
|
|
September 29, 2018
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
asset (liability)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Commodity futures and forward contracts
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
1,109
|
|
|
-
|
|
|
1,109
|
|
|
-
|
|
Long-term asset
|
|
4
|
|
|
-
|
|
|
4
|
|
|
-
|
|
Current liability
|
|
(1,485
|
)
|
|
(387
|
)
|
|
(1,098
|
)
|
|
-
|
|
Long-term liability
|
|
(1
|
)
|
|
-
|
|
|
(1
|
)
|
|
-
|
|
Inventories carried at market
(2)
|
|
1,700
|
|
|
-
|
|
|
1,700
|
|
|
-
|
|
Forward foreign currency contracts
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments
|
|
561
|
|
|
-
|
|
|
561
|
|
|
-
|
|
Contingent consideration
(4)
|
|
(4,573
|
)
|
|
-
|
|
|
-
|
|
|
(4,573
|
)
|
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.
SUNOPTA INC.
|
17
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
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 September 29, 2018, the Company recognized a
loss of $2.1 million (September 30, 2017 loss of $0.1 million), and for the
three quarters ended September 29, 2018, the Company recognized a loss of $0.9
million (September 30, 2017 gain of $0.3 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.
As at September 29, 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
|
|
702
|
|
|
166
|
|
Forward commodity sale contracts
|
|
(609
|
)
|
|
(705
|
)
|
Commodity futures contracts
|
|
(230
|
)
|
|
485
|
|
In addition, as at September 29, 2018,
the Company had net open futures contracts to purchase 1,130 metric tons (MT)
of cocoa (December 30, 2017 2,990 MT sold) and to purchase 238 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 September 29, 2018, the Company had 156,924
bushels of commodity corn and 73,953 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.
SUNOPTA INC.
|
18
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
(i)
|
Not designated as hedging
instruments
|
As at September 29, 2018, the Company
had open forward foreign exchange contracts to sell euros to buy U.S. dollars
with a notional value of €17.0 million ($20.5 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 September 29, 2018,
the Company recognized a gain of $0.2 million (September 30, 2017 gain of $0.3
million), and for the three quarters ended September 29, 2018, the Company
recognized a gain of $1.6 million (September 30, 2017 loss of $2.6 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.
|
(ii)
|
Designated as hedging instruments
|
From time to time, the Company enters
into forward foreign exchange contracts to sell U.S. dollars to buy Mexican
pesos, 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 are 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 September 29, 2018, no amount (September 30, 2017 gain of $0.2 million)
was recognized in other comprehensive earnings related to changes in the fair
value of open contracts. For the three quarters ended September 29, 2018, the
Company recognized a net gain of $0.5 million (September 30, 2017 gain of $2.3
million) in other comprehensive earnings related to changes in the fair value of
open contracts. The Company reclassified from other comprehensive earnings to
cost of goods sold realized losses on closed contracts of $0.0 million for the
quarter ended September 29, 2018 and realized gains of $0.1 million for the
three quarters ended September 29, 2018. For the quarter and three quarters
ended September 30, 2017, the Company reclassified from other comprehensive
earnings to cost of goods sold realized gains on closed contracts of $0.2
million and $1.0 million, respectively. In addition, in the first three quarters
of 2017, the Company reclassified to foreign exchange loss an unrealized gain of
$0.9 million related to the ineffective portion of the hedge. As at September
29, 2018, the Company had no open Mexican peso forward foreign exchange
contracts.
(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 three quarters ended September 29,
2018 and September 30, 2017. These obligations are included in long-term
liabilities (including the current portion thereof) on the consolidated balance
sheets.
SUNOPTA INC.
|
19
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, beginning of period
|
|
(4,548
|
)
|
|
(11,153
|
)
|
|
(11,320
|
)
|
|
(15,279
|
)
|
Fair value adjustments
(1)
|
|
(25
|
)
|
|
(83
|
)
|
|
2,348
|
|
|
(287
|
)
|
Payments
(2)
|
|
-
|
|
|
-
|
|
|
4,399
|
|
|
4,330
|
|
Balance, end of period
|
|
(4,573
|
)
|
|
(11,236
|
)
|
|
(4,573
|
)
|
|
(11,236
|
)
|
|
(1)
|
For the three quarters ended September 29, 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 (Citrusource) based on the projected
results for the business in fiscal 2018. Citrusource was acquired by the
Company in March 2011. In addition, for all periods presented, reflected
the accretion for the time value of money. (See note 9.)
|
|
(2)
|
For the three quarters ended September 29, 2018,
reflected the third installment payment of deferred consideration to the
former unitholders of Citrusource. For the three quarters ended September
30, 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
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
5. Inventories
|
|
September 29,
|
|
|
December 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Raw materials and work-in-process
|
|
273,745
|
|
|
262,527
|
|
Finished goods
|
|
108,596
|
|
|
92,489
|
|
Company-owned grain
|
|
6,112
|
|
|
9,937
|
|
Inventory reserves
|
|
(9,695
|
)
|
|
(9,975
|
)
|
|
|
378,758
|
|
|
354,978
|
|
6. Bank Indebtedness and Long-Term Debt
|
|
September 29,
|
|
|
December 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Bank indebtedness:
|
|
|
|
|
|
|
Global Credit Facility
(1)
|
|
274,278
|
|
|
230,502
|
|
Bulgarian credit facility
|
|
4,410
|
|
|
3,588
|
|
|
|
278,688
|
|
|
234,090
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
Senior Secured Second Lien
Notes, net of unamortized debt issuance costs of $6,795 (December 30, 2017
- $7,716)
(2)
|
|
216,703
|
|
|
215,782
|
|
Asset-backed term loan
|
|
3,221
|
|
|
3,600
|
|
Capital lease obligations
|
|
4,086
|
|
|
5,651
|
|
Other
|
|
3,000
|
|
|
3,000
|
|
|
|
227,010
|
|
|
228,033
|
|
Less:
current portion
|
|
2,003
|
|
|
2,228
|
|
|
|
225,007
|
|
|
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 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 September 29, 2018, the weighted-average interest rate on the
facilities was 4.32% .
SUNOPTA INC.
|
21
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
On September 19, 2017, the Company
entered into an amendment to the Global Credit Facility to add a $15.0 million
U.S. asset-based credit subfacility (the U.S. Subfacility). On October 22,
2018, the Global Credit Facility was further amended to increase the commitment
under the U.S. Subfacility by $5.0 million. The entire $20.0 million available
for borrowing under the U.S. Subfacility was fully drawn as of October 22, 2018.
Amortization payments on the aggregate
principal amount of the U.S. Subfacility, as amended, are equal to $3.3 million
payable at the end of each fiscal quarter, commencing with the fiscal quarter
ending March 31, 2019. Optional prepayment of borrowings under the 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
U.S. Subfacility may not be borrowed again.
Borrowings under the U.S. Subfacility
bear interest at a margin over various reference rates. The applicable margin
for the U.S. Subfacility is set quarterly based on average borrowing
availability for the preceding fiscal quarter 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 September 29,
2018, the applicable margin was 3.50% .
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 September 29, 2018, the outstanding principal amount of the
Notes was $223.5 million, reflecting the redemption of $7.5 million principal
amount by SunOpta Foods 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. 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.
At any time after October 9, 2018,
SunOpta Foods may redeem the Notes, in whole or in part, at a redemption price
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. Certain additional redemption rights were applicable prior
to October 9, 2018.
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.
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.
SUNOPTA INC.
|
22
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
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 September 29, 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 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
October 7, 2021, 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 October 7, 2021, which
accretion amounted to $0.3 million and $0.3 million for the quarters ended
September 29, 2018 and September 30, 2017, respectively, and $0.8 million and
$0.7 million for the three quarters ended September 29, 2018 and September 30,
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% of the liquidation preference
prior to October 5, 2025 and 12.5% of the liquidation preference thereafter
(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 quarter and three quarters ended September 29, 2018,
SunOpta Foods paid cash dividends on the Preferred Stock of $1.7 million and
$5.1 million, respectively, and, for the quarter and three quarters ended
September 30, 2017, SunOpta Foods paid cash dividends on the Preferred Stock of
$1.7 million and $5.0 million, respectively. As at September 29, 2018, SunOpta
Foods had accrued unpaid dividends of $1.7 million, which were recorded in
accounts payable and accrued liabilities on the Companys consolidated balance
sheet.
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
September 29, 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 October 7, 2016 remain outstanding, or (ii) on or
after October 7, 2019, 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.
SUNOPTA INC.
|
23
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
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 September 29,
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 October 7, 2016,
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:
|
|
September 29,
|
|
|
December 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Currency translation adjustment
|
|
(8,939
|
)
|
|
(6,963
|
)
|
Cash
flow hedges, net of income taxes
|
|
-
|
|
|
(305
|
)
|
|
|
(8,939
|
)
|
|
(7,268
|
)
|
SUNOPTA INC.
|
24
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
9. Other Expense (Income), Net
The components of other expense (income) were as follows:
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
|
29, 2018
|
|
|
30, 2017
|
|
|
29, 2018
|
|
|
30, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Impairment of long-lived assets and facility closure
costs
(1)
|
|
-
|
|
|
4,467
|
|
|
1,767
|
|
|
8,190
|
|
Product withdrawal and recall costs
(2)
|
|
1,010
|
|
|
134
|
|
|
1,455
|
|
|
413
|
|
Employee termination costs
(3)
|
|
43
|
|
|
2,052
|
|
|
397
|
|
|
4,227
|
|
Increase (decrease) in fair value of contingent consideration
(see note 4(4))
|
|
25
|
|
|
83
|
|
|
(2,348
|
)
|
|
287
|
|
Legal settlement
(4)
|
|
-
|
|
|
(1,024
|
)
|
|
-
|
|
|
(1,024
|
)
|
Other
|
|
58
|
|
|
260
|
|
|
46
|
|
|
(71
|
)
|
|
|
1,136
|
|
|
5,972
|
|
|
1,317
|
|
|
12,022
|
|
(1)
|
Impairment of long-lived assets and facility closure
costs
|
For the three quarters ended September
29, 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 quarter ended September 30,
2017, represented the impairment of long-lived assets associated with the exit
from flexible resealable pouch and nutrition bar product lines and operations.
For the three quarters ended September 30, 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 three quarters ended September
29, 2018 and September 30, 2017, represented product withdrawal
and recall costs that were not eligible for reimbursement under
the Companys insurance policies or exceeded the limits of those 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 three quarters
ended September 29, 2018 and September 30, 2017, represented severance benefits,
net of forfeitures of stock-based awards, and legal costs incurred in connection
with the Value Creation Plan.
In the second quarter of 2016, the
Company recorded a charge of $9.0 million related to the settlement of a product
recall dispute with a customer involving certain flexible resealable pouch
products manufactured by the Company in 2013. The settlement amount included up
to $4.0 million in rebates payable to the customer over a four-year period. In
connection with the Companys exit from its flexible resealable pouch product
lines and operations, the Company and the customer agreed to an upfront cash
settlement of the remaining rebate obligation, resulting in a recovery of $1.0
million recognized in the third quarter of 2017.
SUNOPTA INC.
|
25
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
10. Loss Per Share
Basic and diluted loss per share were calculated as follows
(shares in thousands):
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
|
29, 2018
|
|
|
30, 2017
|
|
|
29, 2018
|
|
|
30, 2017
|
|
Numerator for basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to SunOpta Inc.
|
$
|
(4,606
|
)
|
$
|
(6,027
|
)
|
$
|
(12,143
|
)
|
$
|
(17,833
|
)
|
Less: dividends and accretion on
Series A Preferred Stock
|
|
(1,981
|
)
|
|
(1,954
|
)
|
|
(5,922
|
)
|
|
(5,848
|
)
|
Loss attributable to common shareholders
|
$
|
(6,587
|
)
|
$
|
(7,981
|
)
|
$
|
(18,065
|
)
|
$
|
(23,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of
shares outstanding
|
|
87,168
|
|
|
86,541
|
|
|
86,982
|
|
|
86,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
$
|
(0.08
|
)
|
$
|
(0.09
|
)
|
$
|
(0.21
|
)
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to SunOpta Inc.
|
$
|
(4,606
|
)
|
$
|
(6,027
|
)
|
$
|
(12,143
|
)
|
$
|
(17,833
|
)
|
Less: dividends and accretion on
Series A Preferred Stock
(1)
|
|
(1,981
|
)
|
|
(1,954
|
)
|
|
(5,922
|
)
|
|
(5,848
|
)
|
Loss attributable to common shareholders
|
$
|
(6,587
|
)
|
$
|
(7,981
|
)
|
$
|
(18,065
|
)
|
$
|
(23,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of
shares outstanding
|
|
87,168
|
|
|
86,541
|
|
|
86,982
|
|
|
86,232
|
|
Dilutive effect of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
(1)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Stock
options and restricted stock units
(2)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Diluted weighted-average number of
shares outstanding
|
|
87,168
|
|
|
86,541
|
|
|
86,982
|
|
|
86,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
$
|
(0.08
|
)
|
$
|
(0.09
|
)
|
$
|
(0.21
|
)
|
$
|
(0.27
|
)
|
(1)
|
For the quarters and three quarters ended September 29,
2018 and September 30, 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 three quarters ended September 29,
2018, stock options and restricted stock units to purchase or receive
625,167 (September 30, 2017 917,702) and 575,776 (September 30, 2017
850,013) 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 three quarters ended
September 29, 2018, options to purchase 1,864,830 (September 30, 2017
1,518,129) and 1,986,406 (September 30, 2017 2,488,826) Common Shares,
respectively, were anti-dilutive because the exercise prices of these
options were greater than the average market
price.
|
SUNOPTA INC.
|
26
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
11. Supplemental Cash Flow Information
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
|
29, 2018
|
|
|
30, 2017
|
|
|
29, 2018
|
|
|
30, 2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
4,353
|
|
|
5,113
|
|
|
(2,608
|
)
|
|
12,754
|
|
Inventories
|
|
3,777
|
|
|
15,100
|
|
|
(31,177
|
)
|
|
9,187
|
|
Income tax recoverable/payable
|
|
(94
|
)
|
|
(552
|
)
|
|
2,113
|
|
|
(5,351
|
)
|
Prepaid expenses and other current
assets
|
|
7,404
|
|
|
(6,695
|
)
|
|
6,350
|
|
|
(16,241
|
)
|
Accounts payable and accrued liabilities
|
|
(8,367
|
)
|
|
(30,455
|
)
|
|
(2,336
|
)
|
|
(23,760
|
)
|
Customer and other deposits
|
|
(3,409
|
)
|
|
(517
|
)
|
|
(4,113
|
)
|
|
(1,908
|
)
|
|
|
3,664
|
|
|
(18,006
|
)
|
|
(31,771
|
)
|
|
(25,319
|
)
|
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 had until August 20, 2018, to opt out or object to the settlement
terms. A final fairness hearing with the Court was held on September 17, 2018
and the settlement was granted final approval. Full payment of the settlement
amount was made to the third-party settlement administrator in October 2018. The
settlement amount was recorded in accounts payable and accrued liabilities on
the consolidated balance sheet as at September 29, 2018. The Company recovered
the full amount paid under the settlement through insurance coverage and an
escrow account established in connection with the Companys acquisition of
Sunrise.
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. The Company was served with the Summons and
Complaint on January 24, 2018, and the plaintiffs filed an Amended Complaint on
April 23, 2018 and a second Amended Complaint on October 12, 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
contract, express and implied warranties and product guarantees, 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.
SUNOPTA INC.
|
27
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
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.
SUNOPTA INC.
|
28
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
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 that 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 and three
quarters ended September 30, 2017, these operations generated revenues of $3.3
million and $10.2 million, respectively, and gross profit of $0.4 million and
$1.4 million, respectively. The segment information presented below for the
quarter and three quarters ended September 30, 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.
|
29
|
September 29, 2018 10-Q
|
SunOpta Inc.
|
Notes to Consolidated Financial Statements
|
For the quarters and three quarters ended September 29,
2018 and September 30, 2017
|
(Unaudited)
|
(All tabular
amounts expressed in thousands of U.S. dollars, except per share amounts)
|
|
|
Quarter ended
|
|
|
|
|
|
|
September 29, 2018
|
|
|
|
Global
|
|
|
Consumer
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Segment revenues from external customers
|
|
136,754
|
|
|
171,617
|
|
|
308,371
|
|
Segment operating income
|
|
5,304
|
|
|
3,319
|
|
|
8,623
|
|
Corporate Services
|
|
|
|
|
|
|
|
(4,101
|
)
|
Other
expense, net (see note 9)
|
|
|
|
|
|
|
|
(1,136
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
(8,792
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
(5,406
|
)
|
|
|
Quarter ended
|
|
|
|
September 30, 2017
|
|
|
|
Global
|
|
|
Consumer
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Segment revenues from external customers
|
|
137,254
|
|
|
183,459
|
|
|
320,713
|
|
Segment operating income
|
|
4,846
|
|
|
4,947
|
|
|
9,793
|
|
Corporate Services
|
|
|
|
|
|
|
|
(4,832
|
)
|
Other
expense, net (see note 9)
|
|
|
|
|
|
|
|
(5,972
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
(8,371
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
(9,382
|
)
|
|
|
Three quarters ended
|
|
|
|
September 29, 2018
|
|
|
|
Global
|
|
|
Consumer
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
$
|
|
$
|
$
|
|
|
$
|
|
Segment revenues from external customers
|
|
419,770
|
|
|
520,561
|
|
|
940,331
|
|
Segment operating income
|
|
11,371
|
|
|
11,397
|
|
|
22,768
|
|
Corporate Services
|
|
|
|
|
|
|
|
(11,942
|
)
|
Other
expense, net (see note 9)
|
|
|
|
|
|
|
|
(1,317
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
(25,486
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
(15,977
|
)
|
|
|
Three quarters ended
|
|
|
|
September 30, 2017
|
|
|
|
Global
|
|
|
Consumer
|
|
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Segment revenues from external customers
|
|
410,022
|
|
|
577,176
|
|
|
987,198
|
|
Segment operating income
|
|
16,960
|
|
|
16,124
|
|
|
33,084
|
|
Corporate Services
|
|
|
|
|
|
|
|
(28,460
|
)
|
Other
expense, net (see note 9)
|
|
|
|
|
|
|
|
(12,022
|
)
|
Interest expense, net
|
|
|
|
|
|
|
|
(23,820
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
(31,218
|
)
|
SUNOPTA INC.
|
30
|
September 29, 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 September 29, 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 November 7, 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 that were exited in
2017.
|
SUNOPTA
INC.
|
31
|
September 29, 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.
For 2018, these adjusted EBITDA benefits are expected to be offset by a decline
in profitability for frozen fruit as a result of sales price reductions and
higher costs. The Value Creation Plan also calls for increased investment in
capital upgrades at several manufacturing facilities to continue 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 third 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 drive growth and deliver long-term value. Since the initiation of
the Value Creation Plan, we have implemented actions that are expected to yield
approximately $28 million of annualized adjusted EBITDA benefits.
Recent progress on each of the four pillars of the Value
Creation Plan is highlighted below.
Portfolio Optimization
The focus of the portfolio optimization pillar is to simplify
the business, investing where structural advantages exist, while exiting
businesses or product lines where we are not effectively positioned. We have
exited three lines of business and closed or consolidated five facilities since
the launch of the Value Creation Plan, and we are continually evaluating our
portfolio to ensure all businesses are strategically positioned to drive
long-term value. Recent highlights include:
SUNOPTA
INC.
|
32
|
September 29, 2018 10-Q
|
|
|
Completed commissioning of the second roasting and
processing line at our organic cocoa facility in the Netherlands,
contributing to strong sales growth and increased gross margins in the
quarter. This expansion approximately doubled cocoa processing capacity in
addition to adding new capabilities at the facility.
|
|
|
|
|
|
Continued to make progress with an aseptic expansion
project to add processing and packaging capacity and capabilities to our
Allentown, Pennsylvania, beverage facility. This investment is designed to
add enhanced mixing and processing capabilities which will enable us to
bring further innovation to the plant-based beverage market. The
additional processing and filling capacity is expected to provide
increased flexibility and cost advantages across the network of aseptic
plants, while creating needed capacity to continue to grow our organic and
conventional aseptic beverage offerings. The project is expected to cost
approximately $22 million and is on track to come online in mid-2019.
|
|
|
|
|
|
Continued the commissioning of new roasting equipment at
our Crookston, Minnesota, facility, which is expected to be completed
during the fourth quarter. The new equipment is designed to increase
production efficiencies and add incremental capacity and roasting
capabilities in support of demand for on-trend healthy snacks including
roasted grains, seeds and legumes.
|
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:
|
|
Completed the 2018 fruit pack season with high scores for fruit quality as a result of enhanced
sorting and handling processes. During the quarter, we approved a
significant capital enhancement project to bring new automation and
technology to our California frozen fruit processing facilities and also
negotiated a new long-term lease at the Santa Maria, California, location,
which will include the construction of a new cold storage facility. These
enhancements are an important step in the margin optimization plan
designed to lower cost and increase productivity in the Healthy Fruit
platform.
|
|
|
|
|
|
Continued strong operational performance across the
network of aseptic facilities. We expect overall capacity utilization to
be approximately 85% by the end of 2018.
|
|
|
|
|
|
Continued to identify productivity opportunities through
the
SunOpta 360
continuous improvement initiative in the areas of
manufacturing, purchasing and supply chain management.
|
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:
|
|
Successfully commercialized approximately 100 new everyday broth and frozen fruit products with large mass and
traditional retailers during the third quarter, with volume building late
in the quarter and additional products on track for delivery in the fourth
quarter.
|
|
|
|
|
|
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 innovative oat-based,
non-dairy beverage into retail and industrial channels, traditional
non-dairy products into retail and broadline foodservice channels,
expanded distribution of everyday broth with a large mass retailer,
private label frozen fruit for a specialty retailer, and increased orders
for private label frozen fruit items following a category reset
|
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:
SUNOPTA
INC.
|
33
|
September 29, 2018 10-Q
|
|
|
Significant advancement made with a new demand planning
system that is expected to enhance our sales and operations planning
processes. The new tool is expected to go live during the fourth quarter
of 2018.
|
|
|
|
|
|
Improved capacity planning capabilities across the frozen
fruit network.
|
|
|
|
|
|
New product commercialization capabilities were enhanced
and demonstrated success during the third quarter, as evidenced by the
approximately 100
new products commercialized across the Healthy Beverage and Fruit
platforms. Combined with our research and development capabilities, the
enhanced commercialization processes are expected to aid in successfully
bringing new innovation to market in the categories they serve.
|
|
|
|
|
|
Enhancements to employee health and safety processes
continued to result in a reduction in recordable incidents year-to-date in
2018 compared to 2017.
|
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 September 29, 2018
and September 30, 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 three quarters ended September 29, 2018
and September 30, 2017, costs incurred and charged to expense were recorded in
the consolidated statement of operations as follows:
|
|
|
|
|
Quarter ended
|
|
|
Three quarters
ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cost of goods sold
(1)
|
|
-
|
|
|
1,287
|
|
|
100
|
|
|
1,921
|
|
Selling, general and administrative expenses
(2)
|
|
-
|
|
|
2,400
|
|
|
613
|
|
|
20,839
|
|
Other expense
(3)
|
|
43
|
|
|
6,569
|
|
|
2,164
|
|
|
12,467
|
|
|
|
43
|
|
|
10,256
|
|
|
2,877
|
|
|
35,227
|
|
|
(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 September 29, 2018, asset
impairment, lease obligation and employee termination costs recorded in
other expense were allocated as follows: Raw Material Sourcing and Supply
operating segment - $nil (September 30, 2017 $0.2 million); Consumer
Products operating segment - $nil (September 30, 2017 $6.4 million); and
Corporate Services - $0.0 (September 30, 2017 $0.0 million). For the
three quarters ended September 29, 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 (September 30, 2017 $0.2 million); Consumer Products
operating segment - $1.3 million (September 30, 2017 $11.2 million); and
Corporate Services - $0.2 million (September 30, 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.
For more information regarding the Value Creation Plan, see
note 3 to the unaudited consolidated financial statements included in this
report.
SUNOPTA
INC.
|
34
|
September 29, 2018 10-Q
|
Consolidated Results of Operations for the Quarters Ended
September 29, 2018 and September 30, 2017
|
|
September 29,
|
|
|
September 30,
|
|
|
|
|
|
|
|
For the quarter ended
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Ingredients
|
|
136,754
|
|
|
137,254
|
|
|
(500
|
)
|
|
-0.4%
|
|
Consumer Products
|
|
171,617
|
|
|
183,459
|
|
|
(11,842
|
)
|
|
-6.5%
|
|
Total revenues
|
|
308,371
|
|
|
320,713
|
|
|
(12,342
|
)
|
|
-3.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Ingredients
|
|
14,477
|
|
|
15,645
|
|
|
(1,168
|
)
|
|
-7.5%
|
|
Consumer
Products
|
|
19,651
|
|
|
20,810
|
|
|
(1,159
|
)
|
|
-5.6%
|
|
Total gross profit
|
|
34,128
|
|
|
36,455
|
|
|
(2,327
|
)
|
|
-6.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(loss)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Ingredients
|
|
5,304
|
|
|
4,846
|
|
|
458
|
|
|
9.5%
|
|
Consumer Products
|
|
3,319
|
|
|
4,947
|
|
|
(1,628
|
)
|
|
-32.9%
|
|
Corporate
Services
|
|
(4,101
|
)
|
|
(4,832
|
)
|
|
731
|
|
|
15.1%
|
|
Total segment operating income
|
|
4,522
|
|
|
4,961
|
|
|
(439
|
)
|
|
-8.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
1,136
|
|
|
5,972
|
|
|
(4,836
|
)
|
|
-81.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before the following
|
|
3,386
|
|
|
(1,011
|
)
|
|
4,397
|
|
|
434.9%
|
|
Interest expense, net
|
|
8,792
|
|
|
8,371
|
|
|
421
|
|
|
5.0%
|
|
Recovery of income taxes
|
|
(870
|
)
|
|
(3,499
|
)
|
|
2,629
|
|
|
75.1%
|
|
Net loss
(2),(3)
|
|
(4,536
|
)
|
|
(5,883
|
)
|
|
1,347
|
|
|
22.9%
|
|
Earnings attributable to non-controlling
interests
|
|
70
|
|
|
144
|
|
|
(74
|
)
|
|
-51.4%
|
|
Loss attributable to
SunOpta Inc.
|
|
(4,606
|
)
|
|
(6,027
|
)
|
|
1,421
|
|
|
23.6%
|
|
Dividends and accretion on Series A Preferred
Stock
|
|
(1,981
|
)
|
|
(1,954
|
)
|
|
(27
|
)
|
|
-1.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to common
shareholders
(4)
|
|
(6,587
|
)
|
|
(7,981
|
)
|
|
1,394
|
|
|
17.5%
|
|
(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
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
September 29, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(loss)
|
|
5,304
|
|
|
3,319
|
|
|
(4,101
|
)
|
|
4,522
|
|
|
Other expense, net
|
|
(1,047
|
)
|
|
(37
|
)
|
|
(52
|
)
|
|
(1,136
|
)
|
|
Earnings (loss) before the
following
|
|
4,257
|
|
|
3,282
|
|
|
(4,153
|
)
|
|
3,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
4,846
|
|
|
4,947
|
|
|
(4,832
|
)
|
|
4,961
|
|
|
Other income (expense), net
|
|
(233
|
)
|
|
(5,969
|
)
|
|
230
|
|
|
(5,972
|
)
|
|
Earnings (loss) before the following
|
|
4,613
|
|
|
(1,022
|
)
|
|
(4,602
|
)
|
|
(1,011
|
)
|
SUNOPTA
INC.
|
35
|
September 29, 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
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
September 29, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(4,500
|
)
|
|
|
|
|
(36
|
)
|
|
|
|
|
(4,536
|
)
|
|
|
|
|
Less: earnings attributable to
non-controlling interests
|
|
(70
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
Less: dividends and accretion
of Series A Preferred Stock
|
|
(1,981
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,981
|
)
|
|
|
|
|
Loss attributable to common shareholders
|
|
(6,551
|
)
|
|
(0.08
|
)
|
|
(36
|
)
|
|
-
|
|
|
(6,587
|
)
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
start-up costs
(a)
|
|
1,500
|
|
|
|
|
|
-
|
|
|
|
|
|
1,500
|
|
|
|
|
|
Product withdrawal
and recall costs
(b)
|
|
1,011
|
|
|
|
|
|
-
|
|
|
|
|
|
1,011
|
|
|
|
|
|
New product
commercialization costs
(c)
|
|
360
|
|
|
|
|
|
-
|
|
|
|
|
|
360
|
|
|
|
|
|
Costs related to the
Value Creation Plan
(d)
|
|
43
|
|
|
|
|
|
-
|
|
|
|
|
|
43
|
|
|
|
|
|
Other
(e)
|
|
83
|
|
|
|
|
|
-
|
|
|
|
|
|
83
|
|
|
|
|
|
Net
income tax effect
(f)
|
|
(243
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(243
|
)
|
|
|
|
|
Adjusted loss
|
|
(3,797
|
)
|
|
(0.04
|
)
|
|
(36
|
)
|
|
-
|
|
|
(3,833
|
)
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(639
|
)
|
|
|
|
|
(5,244
|
)
|
|
|
|
|
(5,883
|
)
|
|
|
|
|
Less: earnings attributable
to non-controlling interests
|
|
(144
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(144
|
)
|
|
|
|
|
Less: dividends and accretion of Series A
Preferred Stock
|
|
(1,954
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,954
|
)
|
|
|
|
|
Loss attributable to common
shareholders
|
|
(2,737
|
)
|
|
(0.03
|
)
|
|
(5,244
|
)
|
|
(0.06
|
)
|
|
(7,981
|
)
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to the
Value Creation Plan
(g)
|
|
3,050
|
|
|
|
|
|
7,206
|
|
|
|
|
|
10,256
|
|
|
|
|
|
Product
withdrawal and recall costs
(b)
|
|
134
|
|
|
|
|
|
-
|
|
|
|
|
|
134
|
|
|
|
|
|
Recovery of legal settlement
(h)
|
|
(1,024
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,024
|
)
|
|
|
|
|
Other
(e)
|
|
293
|
|
|
|
|
|
-
|
|
|
|
|
|
293
|
|
|
|
|
|
Net
income tax effect
(f)
|
|
(774
|
)
|
|
|
|
|
(2,810
|
)
|
|
|
|
|
(3,584
|
)
|
|
|
|
|
Adjusted loss
|
|
(1,058
|
)
|
|
(0.01
|
)
|
|
(848
|
)
|
|
(0.01
|
)
|
|
(1,906
|
)
|
|
(0.02
|
)
|
|
(a)
|
Reflects costs related to the start-up of new roasting
equipment at the Crookston facility, which were recorded in cost of goods
sold.
|
|
(b)
|
Reflects product withdrawal and recall costs that were
not eligible for reimbursement under insurance policies or exceeded the
limits of those policies, including costs related to the recall of certain
sunflower kernel products initiated in the second quarter of 2016, which
were recorded in other expense.
|
|
(c)
|
Reflects costs of production trials and employee training
related to the commercialization of new consumer products, which were
recorded in cost of goods sold.
|
|
(d)
|
Reflects employee termination costs recorded in other
expense, related to the Value Creation Plan.
|
|
(e)
|
Other included the accretion of contingent consideration
obligations, gain/loss on the sale of assets, and settlement of a legal
matter in the third quarter of 2018, which were recorded in other
expense/income.
|
|
(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 three quarters ended September 29, 2018
(September 30, 2017 30%) on adjusted earnings before
tax.
|
SUNOPTA
INC.
|
36
|
September 29, 2018 10-Q
|
|
(g)
|
Reflects inventory write-downs of $1.3 million recorded
in cost of goods sold; and consulting fees, temporary labor, employee
recruitment, relocation and retention costs of $2.4 million recorded in
selling, general and administrative (SG&A) expenses; and asset
impairment charges and employee termination costs of $6.6 million recorded
in other expense, all related to the Value Creation Plan.
|
|
(h)
|
Reflects the recovery on the early extinguishment of a
rebate obligation that arose from the settlement in fiscal 2016 of a
flexible resealable pouch product recall dispute with a customer, which
was recorded in other income.
|
|
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
|
|
$
|
|
|
$
|
|
|
$
|
|
|
September 29, 2018
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(4,500
|
)
|
|
(36
|
)
|
|
(4,536
|
)
|
|
Recovery of income taxes
|
|
(858
|
)
|
|
(12
|
)
|
|
(870
|
)
|
|
Interest expense, net
|
|
8,792
|
|
|
-
|
|
|
8,792
|
|
|
Other expense, net
|
|
1,136
|
|
|
-
|
|
|
1,136
|
|
|
Total segment operating
income (loss)
|
|
4,570
|
|
|
(48
|
)
|
|
4,522
|
|
|
Depreciation and
amortization
|
|
8,171
|
|
|
-
|
|
|
8,171
|
|
|
Stock-based compensation
|
|
2,120
|
|
|
-
|
|
|
2,120
|
|
|
Equipment start-up costs
(a)
|
|
1,500
|
|
|
-
|
|
|
1,500
|
|
|
New
product commercialization costs
(b)
|
|
360
|
|
|
-
|
|
|
360
|
|
|
Adjusted EBITDA
|
|
16,721
|
|
|
(48
|
)
|
|
16,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(639
|
)
|
|
(5,244
|
)
|
|
(5,883
|
)
|
|
Recovery of income taxes
|
|
(146
|
)
|
|
(3,353
|
)
|
|
(3,499
|
)
|
|
Interest expense, net
|
|
8,371
|
|
|
-
|
|
|
8,371
|
|
|
Other expense, net
|
|
53
|
|
|
5,919
|
|
|
5,972
|
|
|
Total segment operating
income (loss)
|
|
7,639
|
|
|
(2,678
|
)
|
|
4,961
|
|
|
Depreciation and
amortization
|
|
8,055
|
|
|
199
|
|
|
8,254
|
|
|
Stock-based compensation
(c)
|
|
2,235
|
|
|
-
|
|
|
2,235
|
|
|
Costs related to Value
Creation Plan
(d)
|
|
2,400
|
|
|
1,287
|
|
|
3,687
|
|
|
Adjusted EBITDA
|
|
20,329
|
|
|
(1,192
|
)
|
|
19,137
|
|
|
(a)
|
Reflects costs related to the start-up of new roasting
equipment at the Crookston facility, which were recorded in cost of goods
sold.
|
|
(b)
|
Reflects costs of production trials and employee training
related to the commercialization of new consumer products, which were
recorded in cost of goods sold.
|
|
(c)
|
For the third quarter of 2017, stock-based compensation
of $2.2 million was recorded in SG&A expenses, and the reversal of
$0.2 million of previously recognized stock-based compensation related to
forfeited awards previously granted to terminated employees was recognized
in other expense.
|
|
(d)
|
Reflects inventory write-downs of $1.3 million recorded
in cost of goods sold and consulting fees, temporary labor, employee
recruitment, relocation and retention costs of $2.4 million recorded in
SG&A expenses.
|
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
|
September 29, 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 September 29, 2018 decreased by
3.8% to $308.4 million from $320.7 million for the quarter ended September 30,
2017. Excluding the impact on revenues of sales of flexible resealable pouch and
nutrition bar products (a decrease in revenues of $13.5 million), changes in
commodity-related pricing (a decrease in revenues of $4.6 million) and foreign
exchange rates (an increase in revenues of $0.5 million), revenues increased by
2.0% in the third quarter of 2018, compared with the third quarter of 2017. The
increase in revenues on an adjusted basis reflected higher volumes of aseptic
beverage and fruit snack products, and increased demand for organic ingredients
in the U.S. These increases were offset by lower sales of frozen fruit and fruit
ingredient products, lower volumes and pricing for domestically-sourced grains
and seeds, and lower organic ingredient sales in Europe.
Gross profit decreased $2.3 million, or 6.4%, to $34.1 million
for the quarter ended September 29, 2018, compared with $36.5 million for the
quarter ended September 30, 2017. As a percentage of revenues, gross profit for
the quarter ended September 29, 2018 was 11.1% compared to 11.4% for the quarter
ended September 30, 2017, a decrease of 0.3% . The gross profit percentage for
the third quarter of 2018 would have been approximately 11.7%, excluding
start-up costs related to the new roasting equipment at the Crookston facility
($1.5 million) and costs incurred for production trials and employee training
related to new product introductions ($0.4 million). The gross profit percentage
for the third quarter of 2017 would have been approximately 11.8%, excluding the
impact of a $1.3 million write-down of flexible resealable pouch and nutrition
bar inventories.
Global Ingredients accounted for $1.2 million of the decrease
in gross profit, which was largely due to start-up costs on the new roasting
equipment, and lower volumes and pricing for domestically-sourced grains and
seeds, as well as the impact of foreign exchange movements on certain contracts
within the Netherlands-based operations of our international organic ingredients
platform. During the third quarter of 2018, we recognized a $0.7 million foreign
exchange loss on U.S. dollar-denominated raw material purchase contracts,
compared with a foreign exchange gain of $0.7 million in the third quarter of
2017, which reflected a strengthening of the U.S. dollar versus the euro in the
third quarter of 2018, compared with a weakening of the U.S. dollar versus the
euro in the third quarter of 2017. These factors were partially offset by higher
volumes and pricing spreads for certain internationally-sourced organic
ingredients, as well as a gain on commodity futures contracts used to hedge our
organic cocoa position of $2.6 million in the third quarter of 2018, compared
with a loss of $0.1 million in the third quarter of 2017. We enter into futures
contracts to manage exposure to changes in cocoa prices on our physical organic
cocoa position, which has increased due to the expansion of our cocoa processing
operations in the Netherlands.
Consumer Products accounted for $1.2 million of the decrease in
gross profit, reflecting lower sales pricing and unfavorable product mix for
frozen fruit, in addition to unfavorable plant utilization and higher
manufacturing and supply chain costs within the Healthy Fruit platform, as well
as costs related to the introduction of new beverage and frozen fruit products.
These factors were partially offset by the favorable impact within the Healthy
Beverage and Snacks platforms of improved plant utilization due to higher
production volumes to meet sales demand, and productivity-driven cost savings.
In addition, we 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 quarter ended September
29, 2018 decreased by $0.5 million, or 8.8%, to $4.5 million, compared with
total segment operating income of $5.0 million for the quarter ended September
30, 2017. The decrease in segment operating income reflected the lower
overall gross profit, as described above, and a $1.1 million increase in
SG&A expenses, partially offset by a favorable quarter-over-quarter foreign
exchange impact of $2.9 million (including a $1.2 million favorable result
related to forward currency contracts within our international organic
ingredient operations, which mostly offset the foreign exchange movement within
gross profit). The increase in SG&A expenses mainly reflected higher
employee-related compensation costs, reflecting the reversal in the third
quarter of 2017 of short-term incentive accruals tied to fiscal 2017 operating
performance, partially offset by a reduction in consulting fees and temporary
labor costs ($1.2 million), and employee recruitment, relocation and retention
costs ($1.2 million) associated with the Value Creation Plan. 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 2.1% for the third quarter of
2018, compared with 2.7% for the third quarter of 2017.
SUNOPTA
INC.
|
38
|
September 29, 2018 10-Q
|
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 September 29, 2018 of $1.1
million included product withdrawal and recall costs of $1.0 million that were
mainly related to the voluntary recall of certain roasted sunflower kernel
products initiated in 2016. Other expense for the quarter ended September 30,
2017 of $6.0 million reflected charges related to the Value Creation Plan,
including the impairment of long-lived assets ($4.5 million) and employee
termination costs ($2.1 million), partially offset by a $1.0 million recovery in
the third quarter of 2017 on the early extinguishment of a rebate
obligation.
Interest expense increased by $0.4 million to $8.8 million for
the quarter ended September 29, 2018, compared with $8.4 million for the quarter
ended September 30, 2017. Interest expense included the amortization of debt
issuance costs of $0.6 million in each of the third 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, together with an increase in weighted-average interest rates.
We recognized a recovery of income tax of $0.9 million for the
quarter ended September 29, 2018, compared with $3.5 million for the quarter
ended September 30, 2017. The effective tax rate was 16.1% for the third quarter
of 2018, compared with 37.3% for the third quarter of 2017, which reflected the
impact of the reduction in the U.S. federal corporate tax rate from 35% to 21%
beginning in 2018.
On a consolidated basis, we realized a loss attributable to
common shareholders of $6.6 million (diluted loss per share of $0.08) for the
quarter ended September 29, 2018, compared with a loss attributable to common
shareholders of $8.0 million (diluted loss per share of $0.09) for the quarter
ended September 30, 2017.
For the quarter ended September 29, 2018, adjusted loss was
$3.8 million, or $0.04 per diluted share, on a consolidated basis, compared with
adjusted loss of $1.9 million, or $0.02 per diluted share, on a consolidated
basis for the quarter ended September 30, 2017. Excluding flexible resealable
pouch and nutrition bar product lines and operations, adjusted loss was $3.8
million, or $0.04 per diluted share, for the quarter ended September 29, 2018,
compared with adjusted earnings of $1.1 million, or $0.01 per diluted share, for
the quarter ended September 30, 2017. Adjusted EBITDA for the quarter ended
September 29, 2018 was $16.7 million on a consolidated basis, compared with
$19.1 million on a consolidated basis for the quarter ended September 30, 2017.
Excluding flexible resealable pouch and nutrition bar product lines and
operations, adjusted EBITDA for the quarter ended September 29, 2018 was $16.7
million, compared with $20.3 million for the quarter ended September 30, 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
|
|
September 29,
|
|
|
September 30,
|
|
|
|
|
|
|
|
For the quarter ended
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
136,754
|
|
$
|
137,254
|
|
$
|
(500
|
)
|
|
-0.4%
|
|
Gross Profit
|
|
14,477
|
|
|
15,645
|
|
|
(1,168
|
)
|
|
-7.5%
|
|
Gross Profit %
|
|
10.6%
|
|
|
11.4%
|
|
|
|
|
|
-0.8%
|
|
Operating Income
|
$
|
5,304
|
|
$
|
4,846
|
|
$
|
458
|
|
|
9.5%
|
|
Operating Income %
|
|
3.9%
|
|
|
3.5%
|
|
|
|
|
|
0.4%
|
|
SUNOPTA
INC.
|
39
|
September 29, 2018 10-Q
|
Global Ingredients contributed $136.8 million in revenues for
the quarter ended September 29, 2018, compared to $137.3 million for the quarter
ended September 30, 2017, a decrease of $0.5 million, or 0.4% . Excluding the
impact on revenues of changes including commodity-related pricing and foreign
exchange rate movements (a decrease in revenues of $1.7 million), Global
Ingredients revenues increased approximately 0.9% . The table below explains the
decrease in revenue:
Global Ingredients Revenue Changes
|
|
Revenues for the quarter ended September 30, 2017
|
$137,254
|
Decreased volumes of specialty soy (due to tighter supply
in 2018 and exit from certain varieties in 2017), lower milled corn and
organic feed volumes, and soft sunflower market
|
(3,961)
|
Decreased commodity pricing for internationally-sourced
organic ingredients
|
(3,243)
|
Unfavorable foreign exchange impact on euro-denominated
sales due to a stronger U.S. dollar period-over-period
|
(463)
|
Increased volumes of internationally-sourced organic
ingredients including cocoa, oils, fruits and vegetables, and coffee,
offset by lower volumes of nuts, grains and animal feed. Overall volumes
of organic ingredients were higher in the U.S. and lower in Europe
period-over-period
|
5,167
|
Increased commodity pricing for domestically-sourced corn
and feed, partially offset by lower pricing for sunflower and soy
|
2,000
|
Revenues for the quarter ended September 29, 2018
|
$136,754
|
Gross profit in Global Ingredients decreased by $1.2 million to
$14.5 million for the quarter ended September 29, 2018 compared to $15.6 million
for the quarter ended September 30, 2017, and the gross profit percentage
decreased by 0.8% to 10.6% . The decrease in gross profit percentage was
primarily due to start-up costs related to the new roasting equipment at the
Crookston facility, and an unfavorable foreign exchange impact on U.S.
dollar-denominated raw material purchase contracts within our international
organic ingredients operations. In addition, the decrease in gross profit
percentage reflected reduced sunflower pricing and operating inefficiencies
within our sunflower operations due to lower production volumes, as well as the
loss of higher margin milled corn volumes and reduced pricing spread on organic
feed. These factors were partially offset by a favorable cocoa hedging result
within our international organic ingredients operations, as well as improved
pricing spreads on organic cocoa and certain other organic ingredients. The
table below explains the decrease in gross profit:
Global Ingredients Gross Profit Changes
|
|
Gross profit for the quarter ended September 30, 2017
|
$15,645
|
Start-up costs related to new roasting equipment, lower
volumes and pricing for sunflower inshell and kernel, lower volumes of
higher margin milled corn, and reduced volumes and pricing spread for
animal feed
|
(3,420)
|
Unfavorable foreign exchange impact on U.S.
dollar-denominated raw material purchase contracts within our
international organic ingredients operations (partially offset below in
operating income by a $1.2 million favorable foreign exchange result on
forward currency contracts)
|
(1,414)
|
Favorable cocoa commodity hedging result within our
international organic ingredient operations
|
2,683
|
Higher volumes and pricing spreads for certain
internationally-sourced organic ingredients, including cocoa, fruits and
vegetables, and coffee, partially offset by grains, nuts, seeds and animal feed, as well as start-up costs
related to the expansion of our cocoa facility in the Netherlands
|
983
|
Gross profit for the quarter ended September 29, 2018
|
$14,477
|
SUNOPTA
INC.
|
40
|
September 29, 2018 10-Q
|
Operating income in Global Ingredients increased by $0.5
million, or 9.5%, to $5.3 million for the quarter ended September 29, 2018,
compared to $4.8 million for the quarter ended September 30, 2017. The table
below explains the increase in operating income:
Global Ingredients Operating Income Changes
|
|
Operating income for the quarter ended September 30, 2017
|
$4,846
|
Favorable foreign exchange impact within our international
organic ingredient operations, including a $1.2 million favorable result
related to forward currency contracts
|
2,110
|
Decrease in corporate cost allocations
|
337
|
Decrease in gross profit, as explained above
|
(1,168)
|
Higher employee-related compensation costs, offset by
favorable foreign exchange impact on euro-denominated SG&A expenses
|
(821)
|
Operating income for the quarter ended September 29, 2018
|
$5,304
|
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. In addition, we have also
experienced delays in the operational start-up of the new roasting equipment at
the Crookston facility, which has impacted our ability to meet existing customer
demand for roasted products and could impact our ability to achieve potential
new business wins in the near term. 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.
Consumer Products
|
|
September 29,
|
|
|
September 30,
|
|
|
|
|
|
|
|
For the quarter ended
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
171,617
|
|
$
|
183,459
|
|
$
|
(11,842
|
)
|
|
-6.5%
|
|
Gross Profit
|
|
19,651
|
|
|
20,810
|
|
|
(1,159
|
)
|
|
-5.6%
|
|
Gross Profit %
|
|
11.5%
|
|
|
11.3%
|
|
|
|
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
$
|
3,319
|
|
$
|
4,947
|
|
$
|
(1,628
|
)
|
|
-32.9%
|
|
Operating Income %
|
|
1.9%
|
|
|
2.7%
|
|
|
|
|
|
-0.8%
|
|
Consumer Products contributed $171.6 million in revenues for
the quarter ended September 29, 2018, compared to $183.5 million for the quarter
ended September 30, 2017, a $11.8 million, or 6.5% decrease. Excluding the
impact on revenues of sales of flexible resealable pouch and nutrition bar
products (a decrease in revenues of $13.5 million) and changes in raw fruit
commodity-related pricing (a decrease in revenues of $3.4 million), Consumer
Products revenues increased approximately 3.0% . The table below explains the
decrease in revenues:
SUNOPTA
INC.
|
41
|
September 29, 2018 10-Q
|
Consumer Products Revenue Changes
|
|
Revenues for the quarter ended September 30, 2017
|
$183,459
|
Impact of the exit from flexible resealable pouch and
nutrition bars product lines
|
(13,494)
|
Lower pricing of frozen fruit and volumes of fruit
ingredients, reflecting decreased commodity pricing for raw fruit, lower
distribution to certain customers, and declines in consumer consumption
trends impacting certain product categories
|
(8,322)
|
Higher volumes of fruit snack products
|
5,122
|
Higher volumes of non-dairy aseptic beverage products into
the foodservice and retail channels, as well as the introduction of new
broth offerings, partially offset by lower volumes of premium juice
products
|
4,852
|
Revenues for the quarter ended September 29, 2018
|
$171,617
|
Gross profit in Consumer Products decreased by $1.2 million to
$19.7 million for the quarter ended September 29, 2018 compared to $20.8 million
for the quarter ended September 30, 2017, and the gross profit percentage
increased by 0.2% to 11.5% . The increase in the gross profit percentage
primarily reflected favorable plant utilization within the Healthy Beverage and
Snacks platforms, due to higher production volumes to meet sales demand, as well
as productivity-driven cost savings across all platforms, and 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 sales pricing and unfavorable product mix for frozen fruit, in
addition to unfavorable plant utilization and higher manufacturing and supply
chain costs within the Healthy Fruit platform, due to lower production volumes
and increased raw material, handling and freight costs. The table below explains
the decrease in gross profit:
Consumer Products Gross Profit Changes
|
|
Gross profit for the quarter ended September 30, 2017
|
$20,810
|
Lower sales pricing and unfavorable product mix for frozen
fruit and lower volumes of fruit ingredients, in addition to unfavorable
plant utilization and higher manufacturing and supply chain costs within
the Healthy Fruit platform, partially offset by productivity-driven cost
savings
|
(9,248)
|
Higher sales volumes, plant utilization and productivity
improvements for aseptic beverage and fruit snack products, partially
offset by higher processing and supply chain costs for premium juice
products, and new product commercialization costs
|
5,709
|
Operational savings following the discontinuance of
flexible resealable pouch and nutrition bar production in the fourth
quarter of 2017
|
2,380
|
Gross profit for the quarter ended September 29, 2018
|
$19,651
|
Operating income in Consumer Products decreased by $1.6
million, or 32.9%, to $3.3 million for the quarter ended September 29, 2018,
compared to $4.9 million for the quarter ended September 30, 2017. The table
below explains the decrease in operating income:
SUNOPTA
INC.
|
42
|
September 29, 2018 10-Q
|
Consumer Products Operating Income Changes
|
|
Operating income for the quarter ended September 30, 2017
|
$4,947
|
Higher employee-related compensation costs and unfavorable
foreign exchange on international operations
|
(2,322)
|
Decrease in gross profit, as explained above
|
(1,159)
|
Decrease in corporate cost allocations
|
1,853
|
Operating income for the quarter ended September 29, 2018
|
$3,319
|
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, reduced
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
|
|
September 29,
|
|
|
September 30,
|
|
|
|
|
|
|
|
For the quarter ended
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
$
|
(4,101
|
)
|
$
|
(4,832
|
)
|
$
|
731
|
|
|
15.1%
|
|
Operating loss at Corporate Services decreased by $0.7 million
to $4.1 million for the quarter ended September 29, 2018, compared to a loss of
$4.8 million for the quarter ended September 30, 2017. The table below explains
the decrease in operating loss:
Corporate Services Operating Loss Changes
|
|
Operating loss for the quarter ended September 30, 2017
|
$(4,832)
|
Lower non-structural third-party consulting costs and
employee recruitment, relocation and retention costs associated with the
Value Creation Plan
|
2,400
|
Favorable foreign exchange impact on foreign currency
transactions
|
799
|
Decrease in corporate cost allocations to SunOpta operating
segments
|
(2,190)
|
Higher employee-related compensation costs (reflecting the
reversal in the third quarter of 2017 of short-term incentive accruals
tied to fiscal 2017 operating performance), offset by lower professional
fees and favorable foreign exchange impact on Canadian dollar-denominated
SG&A expenses
|
(278)
|
Operating loss for the quarter ended September 29, 2018
|
$(4,101)
|
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.
SUNOPTA
INC.
|
43
|
September 29, 2018 10-Q
|
Consolidated Results of Operations for the three quarters
ended September 29, 2018 and September 30, 2017
|
|
September 29,
|
|
|
September 30,
|
|
|
|
|
|
|
|
For the three quarters ended
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Ingredients
|
|
419,770
|
|
|
410,022
|
|
|
9,748
|
|
|
2.4%
|
|
Consumer Products
|
|
520,561
|
|
|
577,176
|
|
|
(56,615
|
)
|
|
-9.8%
|
|
Total revenues
|
|
940,331
|
|
|
987,198
|
|
|
(46,867
|
)
|
|
-4.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Ingredients
|
|
42,576
|
|
|
51,025
|
|
|
(8,449
|
)
|
|
-16.6%
|
|
Consumer
Products
|
|
59,582
|
|
|
65,791
|
|
|
(6,209
|
)
|
|
-9.4%
|
|
Total gross profit
|
|
102,158
|
|
|
116,816
|
|
|
(14,658
|
)
|
|
-12.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(loss)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Ingredients
|
|
11,371
|
|
|
16,960
|
|
|
(5,589
|
)
|
|
-33.0%
|
|
Consumer Products
|
|
11,397
|
|
|
16,124
|
|
|
(4,727
|
)
|
|
-29.3%
|
|
Corporate
Services
|
|
(11,942
|
)
|
|
(28,460
|
)
|
|
16,518
|
|
|
58.0%
|
|
Total segment operating income (loss)
|
|
10,826
|
|
|
4,624
|
|
|
6,202
|
|
|
134.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
1,317
|
|
|
12,022
|
|
|
(10,705
|
)
|
|
-89.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before the following
|
|
9,509
|
|
|
(7,398
|
)
|
|
16,907
|
|
|
228.5%
|
|
Interest expense, net
|
|
25,486
|
|
|
23,820
|
|
|
1,666
|
|
|
7.0%
|
|
Recovery of income taxes
|
|
(3,853
|
)
|
|
(14,049
|
)
|
|
10,196
|
|
|
72.6%
|
|
Net loss
(2),(3)
|
|
(12,124
|
)
|
|
(17,169
|
)
|
|
5,045
|
|
|
29.4%
|
|
Earnings attributable to non-controlling
interests
|
|
19
|
|
|
664
|
|
|
(645
|
)
|
|
-97.1%
|
|
Loss attributable to
SunOpta Inc.
|
|
(12,143
|
)
|
|
(17,833
|
)
|
|
5,690
|
|
|
31.9%
|
|
Dividends and accretion on Series A Preferred
Stock
|
|
(5,922
|
)
|
|
(5,848
|
)
|
|
(74
|
)
|
|
-1.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to common
shareholders
(4)
|
|
(18,065
|
)
|
|
(23,681
|
)
|
|
5,616
|
|
|
23.7%
|
|
(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 September 29, 2018 and September 30, 2017 table regarding
the use of this non-GAAP measure).
|
|
|
|
Global
|
|
|
Consumer
|
|
|
Corporate
|
|
|
Consol-
|
|
|
|
|
Ingredients
|
|
|
Products
|
|
|
Services
|
|
|
idated
|
|
|
For the three quarters ended
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
September 29, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(loss)
|
|
11,371
|
|
|
11,397
|
|
|
(11,942
|
)
|
|
10,826
|
|
|
Other income (expense), net
|
|
(2,299
|
)
|
|
1,180
|
|
|
(198
|
)
|
|
(1,317
|
)
|
|
Earnings (loss) before the
following
|
|
9,072
|
|
|
12,577
|
|
|
(12,140
|
)
|
|
9,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
16,960
|
|
|
16,124
|
|
|
(28,460
|
)
|
|
4,624
|
|
|
Other expense, net
|
|
(346
|
)
|
|
(10,714
|
)
|
|
(962
|
)
|
|
(12,022
|
)
|
|
Earnings (loss) before the following
|
|
16,614
|
|
|
5,410
|
|
|
(29,422
|
)
|
|
(7,398
|
)
|
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
|
September 29, 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 September 29,
2018 and September 30, 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 three quarters ended
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
September 29, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(11,391
|
)
|
|
|
|
|
(733
|
)
|
|
|
|
|
(12,124
|
)
|
|
|
|
|
Less: earnings attributable to
non-controlling interests
|
|
(19
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
Less: dividends and accretion
of Series A Preferred Stock
|
|
(5,922
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(5,922
|
)
|
|
|
|
|
Loss attributable to common shareholders
|
|
(17,332
|
)
|
|
(0.20
|
)
|
|
(733
|
)
|
|
(0.01
|
)
|
|
(18,065
|
)
|
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to
the Value Creation Plan
(a)
|
|
1,696
|
|
|
|
|
|
1,181
|
|
|
|
|
|
2,877
|
|
|
|
|
|
Equipment start-up costs
(b)
|
|
2,230
|
|
|
|
|
|
-
|
|
|
|
|
|
2,230
|
|
|
|
|
|
Product
withdrawal and recall costs
(c)
|
|
1,456
|
|
|
|
|
|
-
|
|
|
|
|
|
1,456
|
|
|
|
|
|
New
product commercialization costs
(d)
|
|
360
|
|
|
|
|
|
-
|
|
|
|
|
|
360
|
|
|
|
|
|
Other
(e)
|
|
198
|
|
|
|
|
|
-
|
|
|
|
|
|
198
|
|
|
|
|
|
Fair value adjustment
on contingent consideration
(f)
|
|
(2,500
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
Recovery of
product withdrawal costs
(g)
|
|
(1,200
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,200
|
)
|
|
|
|
|
Net
income tax effect
(h)
|
|
(280
|
)
|
|
|
|
|
(307
|
)
|
|
|
|
|
(587
|
)
|
|
|
|
|
Adjusted earnings (loss)
|
|
(15,372
|
)
|
|
(0.18
|
)
|
|
141
|
|
|
-
|
|
|
(15,231
|
)
|
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(9,304
|
)
|
|
|
|
|
(7,865
|
)
|
|
|
|
|
(17,169
|
)
|
|
|
|
|
Less: earnings attributable
to non-controlling interests
|
|
(664
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(664
|
)
|
|
|
|
|
Less: dividends and accretion of Series A
Preferred Stock
|
|
(5,848
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(5,848
|
)
|
|
|
|
|
Loss attributable to common
shareholders
|
|
(15,816
|
)
|
|
(0.18
|
)
|
|
(7,865
|
)
|
|
(0.09
|
)
|
|
(23,681
|
)
|
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to the
Value Creation Plan
(i)
|
|
28,021
|
|
|
|
|
|
7,206
|
|
|
|
|
|
35,227
|
|
|
|
|
|
Product
withdrawal and recall costs
(j)
|
|
1,142
|
|
|
|
|
|
-
|
|
|
|
|
|
1,142
|
|
|
|
|
|
Recovery of legal settlement
(k)
|
|
(1,024
|
)
|
|
|
|
|
-
|
|
|
|
|
|
(1,024
|
)
|
|
|
|
|
Other
(d)
|
|
166
|
|
|
|
|
|
-
|
|
|
|
|
|
166
|
|
|
|
|
|
Net
income tax effect
(h)
|
|
(12,560
|
)
|
|
|
|
|
(2,810
|
)
|
|
|
|
|
(15,370
|
)
|
|
|
|
|
Adjusted loss
|
|
(71
|
)
|
|
-
|
|
|
(3,469
|
)
|
|
(0.04
|
)
|
|
(3,540
|
)
|
|
(0.04
|
)
|
|
(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 $2.2
million recorded in other expense, all related to the Value Creation
Plan.
|
|
(b)
|
Reflects costs related to the start-up of new roasting
equipment at the Crookston facility, which were recorded in cost of goods
sold.
|
|
(c)
|
Reflects product withdrawal and recall costs that were
not eligible for reimbursement under insurance policies or exceeded the
limits of those policies, including costs related to the recall of certain
sunflower kernel products initiated in the second quarter of 2016, which
were recorded in other expense.
|
|
(d)
|
Reflects costs of production trials and employee training
related to the commercialization of new consumer products, which were
recorded in cost of goods sold.
|
|
(e)
|
Other included the accretion of contingent consideration
obligations, gain/loss on the sale of assets, severance costs unrelated to
the Value Creation Plan, and settlement of a legal matter in the third
quarter of 2018, which were recorded in other expense/income.
|
|
(f)
|
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), based on the projected results for the business in
fiscal 2018, which was recorded in other income.
|
|
(g)
|
Reflects the recovery from a third-party supplier of $1.2
million of costs 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.
|
|
(h)
|
Reflects the tax effect of the preceding adjustments to
earnings and reflects an overall estimated annual effective tax rate of
approximately 26% for the three quarters ended September 29, 2018
(September 30, 2017 30%) on adjusted earnings before
tax.
|
SUNOPTA
INC.
|
45
|
September 29, 2018 10-Q
|
|
(i)
|
Reflects inventory write-downs and facility closure costs
of $1.9 million recorded in cost of goods sold; consulting fees, temporary
labor, employee recruitment, relocation and retention costs of $20.8
million recorded in SG&A expenses; and asset impairment charges and
employee termination costs of $12.5 million recorded in other expense, all
related to the Value Creation Plan.
|
|
(j)
|
Reflects costs related to sunflower recall, including a
$0.7 million adjustment for the estimated lost gross profit caused by the
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 $0.4
million of direct costs recorded in other expense that are not eligible
for reimbursement under our insurance policies.
|
|
(k)
|
Reflects the recovery on the early extinguishment of a
rebate obligation that arose from the settlement in fiscal 2016 of a
flexible resealable pouch product recall dispute with a customer, which
was recorded in other income.
|
(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 September 29, 2018 and September 30, 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 three quarters ended
|
|
$
|
|
|
$
|
|
|
$
|
|
|
September 29, 2018
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(11,391
|
)
|
|
(733
|
)
|
|
(12,124
|
)
|
|
Recovery of income taxes
|
|
(3,596
|
)
|
|
(257
|
)
|
|
(3,853
|
)
|
|
Interest expense, net
|
|
25,486
|
|
|
-
|
|
|
25,486
|
|
|
Other expense (income), net
|
|
136
|
|
|
1,181
|
|
|
1,317
|
|
|
Total segment operating
income
|
|
10,635
|
|
|
191
|
|
|
10,826
|
|
|
Depreciation and
amortization
|
|
24,501
|
|
|
-
|
|
|
24,501
|
|
|
Stock-based compensation
|
|
6,395
|
|
|
-
|
|
|
6,395
|
|
|
Equipment start-up costs
(a)
|
|
2,230
|
|
|
-
|
|
|
2,230
|
|
|
Costs
related to Value Creation Plan
(b)
|
|
713
|
|
|
-
|
|
|
713
|
|
|
New product
commercialization costs
(c)
|
|
360
|
|
|
-
|
|
|
360
|
|
|
Recovery
of product withdrawal costs
(d)
|
|
(1,200
|
)
|
|
-
|
|
|
(1,200
|
)
|
|
Adjusted EBITDA
|
|
43,634
|
|
|
191
|
|
|
43,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(9,304
|
)
|
|
(7,865
|
)
|
|
(17,169
|
)
|
|
Recovery of income taxes
|
|
(9,021
|
)
|
|
(5,028
|
)
|
|
(14,049
|
)
|
|
Interest expense, net
|
|
23,820
|
|
|
-
|
|
|
23,820
|
|
|
Other expense, net
|
|
6,103
|
|
|
5,919
|
|
|
12,022
|
|
|
Total segment operating
income (loss)
|
|
11,598
|
|
|
(6,974
|
)
|
|
4,624
|
|
|
Depreciation and
amortization
|
|
23,951
|
|
|
650
|
|
|
24,601
|
|
|
Stock-based compensation
(e)
|
|
4,700
|
|
|
-
|
|
|
4,700
|
|
|
Costs related to Value
Creation Plan
(b)
|
|
21,473
|
|
|
1,287
|
|
|
22,760
|
|
|
Product
withdrawal and recall costs
(f)
|
|
729
|
|
|
-
|
|
|
729
|
|
|
Adjusted EBITDA
|
|
62,451
|
|
|
(5,037
|
)
|
|
57,414
|
|
|
(a)
|
Reflects costs related to the start-up of new roasting
equipment at the Crookston facility, which were recorded in cost of goods
sold.
|
|
(b)
|
For the first three quarters 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 three
quarters of 2017, reflects inventory write-downs and facility closure
costs of $1.9 million recorded in cost of goods sold, and consulting fees,
temporary labor, employee recruitment, relocation and retention costs of
$20.8 million recorded in SG&A expenses.
|
|
(c)
|
Reflects costs of production trials and employee training
related to the commercialization of new consumer products, which were
recorded in cost of goods sold.
|
|
(d)
|
Reflects the recovery from a third-party supplier of $1.2
million of costs 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.
|
|
(e)
|
For the first three quarters of 2017, stock-based
compensation of $4.7 million was recorded in SG&A expenses, and the
reversal of $0.6 million of previously recognized stock-based compensation
related to forfeited awards previously granted to terminated employees was
recognized in other expense.
|
|
(f)
|
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 September 29, 2018 and September 30,
2017 table regarding the use of certain other non-GAAP measures in the
discussion of our results of operations below.
|
SUNOPTA
INC.
|
46
|
September 29, 2018 10-Q
|
Revenues for the three quarters ended September 29, 2018
decreased by 4.7% to $940.3 million from $987.2 million for the three quarters
ended September 30, 2017. Excluding the impact on revenues of sales of flexible
resealable pouch and nutrition bar products (a decrease in revenues of $40.9
million), changes in commodity-related pricing (a decrease in revenues of $16.6
million) and foreign exchange rates (an increase in revenues of $11.3 million),
revenues decreased by 0.1% in the first three quarters of 2018, compared with
the first three quarters of 2017. The decrease in revenues on an adjusted basis
reflected lower sales of frozen fruit and fruit ingredient products, lower
volumes and pricing for domestically-sourced grains and seeds, and lower organic
ingredient sales in Europe. These decreases were mostly offset by increased
demand for organic ingredients in the U.S., and higher volumes of beverage and
fruit snack products.
Gross profit decreased $14.7 million, or 12.5%, to $102.2
million for the three quarters ended September 29, 2018, compared with $116.8
million for the three quarters ended September 30, 2017. As a percentage of
revenues, gross profit for the three quarters ended September 29, 2018 was 10.9%
compared to 11.8% for the three quarters ended September 30, 2017, a decrease of
1.0% . The gross profit percentage for the first three quarters of 2018 would
have been approximately 11.0%, excluding start-up costs related to the new
roasting equipment at the Crookston facility ($2.2 million) and costs incurred
for production trials and employee training related to new product introductions
($0.4 million), partially offset by the recovery of $1.2 million of
previously-incurred product withdrawal costs from a third-party supplier. The
gross profit percentage for the first three quarters of 2017 would have been
approximately 12.1%, excluding the impact of the write-down of flexible
resealable pouch and nutrition bar inventories ($1.3 million), lost margin
caused by the sunflower recall ($0.7 million), and facility closure costs under
the Value Creation Plan ($0.6 million).
Global Ingredients accounted for $8.4 million of the decrease
in gross profit, which was largely due to the impact of foreign exchange
movements on certain contracts within the Netherlands-based operations of our
international organic ingredients platform. During the first three quarters of
2018, we recognized a $4.8 million foreign exchange loss on U.S.
dollar-denominated raw material purchase contracts, compared with a foreign
exchange gain of $5.0 million in the first three quarters of 2017, which
reflected a significant strengthening of the U.S. dollar versus the euro in the
first three quarters of 2018, compared with a significant weakening of the U.S.
dollar versus the euro in the first three quarters of 2017. In addition, the
decrease in gross profit reflected start-up costs on the new roasting equipment,
and lower volumes and pricing for domestically-sourced grains and seeds. These
factors were partially offset by higher volumes and pricing spreads for certain
internationally-sourced organic ingredients, as well as a gain on commodity
futures contracts used to hedge our organic cocoa position of $0.9 million in
the first three quarters of 2018, compared with a gain of $0.2 million in the
first three quarters of 2017. We enter into futures contracts to manage exposure
to changes in cocoa prices on our physical organic cocoa position, which has
increased due to the expansion of our cocoa processing operations in the
Netherlands.
Consumer Products accounted for $6.2 million of the decrease in
gross profit, reflecting lower sales pricing and unfavorable product mix for
frozen fruit, in addition to unfavorable plant utilization and higher
manufacturing and supply chain costs within the Healthy Fruit platform, as well
as costs related to the introduction of new beverage and frozen fruit products.
These factors were partially offset by the favorable impact within the Healthy
Beverage and Snacks platforms of improved plant utilization due to higher
production volumes to meet sales demand, and productivity-driven cost savings.
In addition, we 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 three quarters ended
September 29, 2018 increased by $6.2 million to $10.8 million, compared with
total segment operating income of $4.6 million for the three quarters ended
September 30, 2017. The increase in segment operating income reflected that the
lower overall gross profit, as described above, was more than offset by a $17.0
million decrease in SG&A expenses and a favorable year-over-year foreign
exchange impact of $3.8 million (including a $4.1 million favorable result
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
reduction in consulting fees and temporary labor costs ($15.3 million), and
employee recruitment, relocation and retention costs ($4.9 million) associated
with the Value Creation Plan, partially offset by higher employee-related
compensation costs in the first three quarters of 2018, compared with the first
three quarters 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 first three quarters of 2018, compared with 2.8% for the first
three quarters of 2017.
Further details on revenue, gross profit and segment operating
income/loss variances are provided below under Segmented Operations
Information.
SUNOPTA
INC.
|
47
|
September 29, 2018 10-Q
|
Other expense for the three quarters ended September 29, 2018
of $1.3 million mainly reflected facility closure costs and asset impairment
charges related to the closure of our nutrition bar facility and the sale of the
Wahpeton roasted snack facility ($1.8 million) and employee termination costs
($0.4 million), all associated with the Value Creation Plan, as well as product
withdrawal and recall costs of $1.5 million that were mainly related to the
voluntary recall of certain roasted sunflower kernel products initiated in 2016.
These expenses were partially 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 three quarters ended September 30,
2017 of $12.0 million reflected the impairment of long-lived assets related to
the exit from flexible resealable pouch and nutrition bar product lines and
operations and closure of our San Bernardino, California, juice facility ($8.2
million), and employee termination costs ($4.2 million), all associated with the
Value Creation Plan, partially offset by a $1.0 million recovery on the early
extinguishment of a rebate obligation that arose from the settlement in fiscal
2016 of a recall dispute with a customer related to flexible resealable pouch
products.
Interest expense increased by $1.7 million to $25.5 million for
the three quarters ended September 29, 2018, compared with $23.8 million for the
three quarters ended September 30, 2017. Interest expense included the
amortization of debt issuance costs of $1.8 million and $1.7 million in the
first three quarters 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 $3.9 million for the
three quarters ended September 29, 2018, compared with $14.0 million for the
three quarters ended September 30, 2017. The effective tax rate was 24.1% for
the first three quarters 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 45.0% for the first three quarters 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, including asset impairment charges
and employee termination costs related to the exit from flexible resealable
pouch and nutrition bar product lines and operations, and closure of the San
Bernardino facility.
On a consolidated basis, we realized a loss attributable to
common shareholders of $18.1 million (diluted loss per share of $0.21) for the
three quarters ended September 29, 2018, compared with a loss attributable to
common shareholders of $23.7 million (diluted loss per share of $0.27) for the
three quarters ended September 30, 2017.
For the three quarters ended September 29, 2018, adjusted loss
was $15.2 million, or $0.18 per diluted share, on a consolidated basis, compared
with adjusted loss of $3.5 million, or $0.04 per diluted share, on a
consolidated basis for the three quarters ended September 30, 2017. Excluding
flexible resealable pouch and nutrition bar product lines and operations,
adjusted loss was $15.4 million, or $0.18 per diluted share, for the three
quarters ended September 29, 2018, compared with adjusted earnings of $0.1
million, or $0.00 per diluted share, for the three quarters ended September 30,
2017. Adjusted EBITDA for the three quarters ended September 29, 2018 was $43.8
million on a consolidated basis, compared with $57.4 million on a consolidated
basis for the three quarters ended September 30, 2017. Excluding flexible
resealable pouch and nutrition bar product lines and operations, adjusted EBITDA
for the three quarters ended September 29, 2018 was $43.6 million, compared with
$62.5 million for the three quarters ended September 30, 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
|
|
September 29,
|
|
|
September 30,
|
|
|
|
|
|
|
|
For the three quarters ended
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
419,770
|
|
$
|
410,022
|
|
$
|
9,748
|
|
|
2.4%
|
|
Gross Profit
|
|
42,576
|
|
|
51,025
|
|
|
(8,449
|
)
|
|
-16.6%
|
|
Gross Profit %
|
|
10.1%
|
|
|
12.4%
|
|
|
|
|
|
-2.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
$
|
11,371
|
|
$
|
16,960
|
|
$
|
(5,589
|
)
|
|
-33.0%
|
|
Operating Income %
|
|
2.7%
|
|
|
4.1%
|
|
|
|
|
|
-1.4%
|
|
SUNOPTA
INC.
|
48
|
September 29, 2018 10-Q
|
Global Ingredients contributed $419.8 million in revenues for
the three quarters ended September 29, 2018, compared to $410.0 million for the
three quarters ended September 30, 2017, an increase of $9.7 million, or 2.4% .
Excluding the impact on revenues of changes including commodity-related pricing
and foreign exchange rate movements (an increase in revenues of $4.2 million),
Global Ingredients revenues increased approximately 1.3% . The table below
explains the increase in revenue:
Global Ingredients Revenue Changes
|
|
Revenues for the three quarters ended September 30, 2017
|
$410,022
|
Increased volumes of internationally-sourced organic
ingredients including cocoa, oils, coffee, and fruits and vegetables,
offset by lower volumes of animal feed and seeds. Overall volumes of
organic ingredients were higher in the U.S. and lower in Europe
period-over-period
|
24,543
|
Favorable foreign exchange impact on euro-denominated sales
due to a weaker U.S. dollar period-over-period
|
11,314
|
Increased commodity pricing for domestically-sourced corn
and feed, partially offset by lower pricing for sunflower and soy
|
1,848
|
Decreased volumes of specialty soy (due to tighter supply
in 2018 and exit from certain varieties in 2017), lower milled corn and
organic feed volumes, and soft sunflower market
|
(19,031)
|
Decreased commodity pricing for internationally-sourced
organic ingredients
|
(8,926)
|
Revenues for the three quarters ended September 29, 2018
|
$419,770
|
Gross profit in Global Ingredients decreased by $8.4 million to
$42.6 million for the three quarters ended September 29, 2018 compared to $51.0
million for the three quarters ended September 30, 2017, and the gross profit
percentage decreased by 2.3% to 10.1% . 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. In addition, the decrease in gross profit
percentage reflected start-up costs related to the new roasting equipment at the
Crookston facility, reduced sunflower pricing and operating inefficiencies
within our sunflower operations due to lower production volumes, as well as the
loss of higher margin milled corn volumes and reduced pricing spread on organic
feed. These factors were partially offset by a favorable cocoa hedging result
within our international organic ingredients operations, as well as improved
pricing spreads on organic cocoa and certain other organic ingredients. The
table below explains the decrease in gross profit:
Global Ingredients Gross Profit Changes
|
|
Gross profit for the three quarters ended September 30,
2017
|
$51,025
|
Unfavorable foreign exchange impact on U.S.
dollar-denominated raw material purchase contracts within our
international organic ingredients operations (partially offset below in
operating income by a $4.1 million favorable foreign exchange result on
forward currency contracts)
|
(9,760)
|
Start-up costs related to new roasting equipment, lower
volumes and pricing for sunflower inshell and kernel, lower volumes of
higher margin milled corn, and reduced volumes and pricing spread for
animal feed
|
(4,952)
|
Higher volumes and pricing spreads for certain
internationally-sourced organic ingredients, including cocoa, fruits and
vegetables, oils, and coffee, partially offset by seeds, grains and animal
feed, as well as start-up costs related to the expansion of our cocoa
facility in the Netherlands
|
5,538
|
Favorable cocoa commodity hedging result within our
international organic ingredient operations
|
725
|
Gross profit for
the three quarters ended September 29, 2018
|
$42,576
|
SUNOPTA
INC.
|
49
|
September 29, 2018 10-Q
|
Operating income in Global Ingredients decreased by $5.6
million, or 33.0%, to $11.4 million for the three quarters ended September 29,
2018, compared to $17.0 million for the three quarters ended September 30, 2017.
The table below explains the decrease in operating income:
Global Ingredients Operating Income Changes
|
|
Operating income for the three quarters ended September 30,
2017
|
$16,960
|
Decrease in gross profit, as explained above
|
(8,449)
|
Higher employee-related compensation costs and unfavorable
foreign exchange impact on euro-denominated SG&A expenses
|
(2,532)
|
Favorable foreign exchange impact within our international
organic ingredient operations, including a $4.1 million favorable result
related to forward currency contracts
|
4,392
|
Decrease in corporate cost allocations
|
1,000
|
Operating income for the three quarters ended September 29,
2018
|
$11,371
|
Consumer Products
|
|
September 29,
|
|
|
September 30,
|
|
|
|
|
|
|
|
For the three quarters ended
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
520,561
|
|
$
|
577,176
|
|
$
|
(56,615
|
)
|
|
-9.8%
|
|
Gross Profit
|
|
59,582
|
|
|
65,791
|
|
|
(6,209
|
)
|
|
-9.4%
|
|
Gross Profit %
|
|
11.4%
|
|
|
11.4%
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income %
|
$
|
11,397
|
|
$
|
16,124
|
|
$
|
(4,727
|
)
|
|
-29.3%
|
|
Operating Income %
|
|
2.2%
|
|
|
2.8%
|
|
|
|
|
|
-0.6%
|
|
Consumer Products contributed $520.6 million in revenues for
the three quarters ended September 29, 2018, compared to $577.2 million for the
three quarters ended September 30, 2017, a $56.6 million, or 9.8% decrease.
Excluding the impact on revenues of sales of flexible resealable pouch and
nutrition bar products (a decrease in revenues of $40.9 million) and changes in
raw fruit commodity-related pricing (a decrease in revenues of $9.5 million),
Consumer Products revenues decreased approximately 1.1% . The table below
explains the decrease in revenues:
Consumer Products Revenue Changes
|
|
Revenues for the three quarters ended September 30, 2017
|
$577,176
|
Impact of the exit from flexible resealable pouch and
nutrition bars product lines
|
(40,940)
|
Lower pricing of frozen fruit and volumes of fruit
ingredients, reflecting decreased commodity pricing for raw fruit, lower
distribution to certain customers, and declines in consumer consumption
trends impacting certain product categories
|
(34,120)
|
Higher volumes of non-dairy aseptic beverage products into
the foodservice and retail channels, as well as the introduction of new
broth offerings, partially offset by lower volumes of premium juice
products
|
10,126
|
Higher volumes of fruit snack products
|
8,319
|
Revenues for the three quarters ended September 29, 2018
|
$520,561
|
SUNOPTA
INC.
|
50
|
September 29, 2018 10-Q
|
Gross profit in Consumer Products decreased by $6.2 million to
$59.6 million for the three quarters ended September 29, 2018 compared to $65.8
million for the three quarters ended September 30, 2017, and the gross profit
percentage remained unchanged at 11.4% . The gross profit percentage primarily
reflected lower sales pricing and unfavorable product mix for frozen fruit, in
addition to unfavorable plant utilization and higher manufacturing and supply
chain costs within the Healthy Fruit platform, due to lower production volumes
and increased raw material, handling and freight costs. These factors were
partially offset by favorable plant utilization within the Healthy Beverage and
Snacks platforms due to higher production volumes to meet sales demand, as well
as productivity-driven cost savings across all platforms, and operational
savings following the discontinuance of flexible resealable pouch and nutrition
bar production in the fourth quarter of 2017. In addition, in the second quarter
of 2018, we recorded a recovery of $1.2 million of previously-incurred product
withdrawal costs from a third-party supplier. The table below explains the
decrease in gross profit:
Consumer Products Gross Profit Changes
|
|
Gross profit for the three quarters ended September 30,
2017
|
$65,791
|
Lower sales pricing and unfavorable product mix for frozen
fruit and lower volumes of fruit ingredients, in addition to unfavorable
plant utilization and higher manufacturing and supply chain costs within
the Healthy Fruit platform, partially offset by productivity-driven cost
savings and the recovery of previously-incurred product withdrawal costs
|
(26,397)
|
Higher sales volumes, plant utilization and productivity
improvements for aseptic beverage and fruit snack products, partially
offset by higher processing and supply chain costs for premium juice
products, and new product commercialization costs
|
13,868
|
Operational savings following the discontinuance of
flexible resealable pouch and nutrition bar production in the fourth
quarter of 2017
|
6,320
|
Gross profit for the three quarters ended September 29,
2018
|
$59,582
|
Operating income in Consumer Products decreased by $4.7
million, or 29.3%, to $11.4 million for the three quarters ended September 29,
2018, compared to $16.1 million for the three quarters ended September 30, 2017.
The table below explains the decrease in operating income:
Consumer Products Operating Income Changes
|
|
Operating income for the three quarters ended September 30,
2017
|
$16,124
|
Decrease in gross profit, as explained above
|
(6,209)
|
Higher employee-related compensation costs and unfavorable
foreign exchange on international operations
|
(4,089)
|
Decrease in corporate cost allocations
|
5,571
|
Operating income for the three quarters ended September 29,
2018
|
$11,397
|
Corporate Services
|
|
September 29,
|
|
|
September 30,
|
|
|
|
|
|
|
|
For the three quarters ended
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
$
|
(11,942
|
)
|
$
|
(28,460
|
)
|
$
|
16,518
|
|
|
58.0%
|
|
Operating loss at Corporate Services decreased by $16.5 million
to $11.9 million for the three quarters ended September 29, 2018, compared to a
loss of $28.5 million for the three quarters ended September 30, 2017. The table
below explains the decrease in operating loss:
SUNOPTA
INC.
|
51
|
September 29, 2018 10-Q
|
Corporate Services Operating Loss Changes
|
|
Operating loss for the three quarters ended September 30,
2017
|
$(28,460)
|
Lower non-structural third-party consulting costs and
employee recruitment, relocation and retention costs associated with the
Value Creation Plan
|
20,226
|
Lower employee-related compensation costs and favorable
foreign exchange impact on foreign currency transactions, offset by
unfavorable foreign exchange impact on Canadian dollar-denominated
SG&A expenses
|
4,458
|
Decrease in corporate cost allocations to SunOpta operating
segments
|
(6,571)
|
Increased stock-based compensation costs as a result of a
change in our long-term incentive plan in the second quarter of 2017
|
(1,695)
|
Operating loss for the three quarters ended September 29,
2018
|
$(11,942)
|
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, the Global Credit Facility was amended
to add an additional $15 million U.S. asset-based credit subfacility (the U.S.
Subfacility). On October 22, 2018, the Global Credit Facility was further
amended to increase the commitment under the U.S. Subfacility by $5 million. The
entire $20 million available for borrowing under the U.S. Subfacility was fully
drawn as of October 22, 2018. The principal amount of U.S. Subfacility is
repayable in quarterly instalments of $3.33 million, commencing with the fiscal
quarter ending March 31, 2019. Borrowings repaid under the U.S. Subfacility may
not be borrowed again. The applicable margin for the 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.
SUNOPTA
INC.
|
52
|
September 29, 2018 10-Q
|
As at September 29, 2018, we had outstanding borrowings of
$274.3 million and approximately $60 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
September 29, 2018, the outstanding principal amount of the Notes was $223.5
million, reflecting the redemption of $7.5 million principal amount by SunOpta
Foods in October 2017. For more information on the Notes, see note 6(2) to the
unaudited consolidated financial statements included in this report.
SunOpta Foods has outstanding Preferred Stock with an aggregate
stated value and initial liquidation preference of $85 million. Cumulative
preferred dividends accrue daily on the Preferred Stock at an annualized rate of
8.0% of the liquidation preference prior to October 5, 2025 and 12.5% of the
liquidation preference thereafter (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. For the quarter and three
quarters ended September 29, 2018, SunOpta Foods paid cash dividends on the
Preferred Stock of $1.7 million and $5.1 million, respectively, and, for the
quarter and three quarters ended September 30, 2017, SunOpta Foods paid cash
dividends on the Preferred Stock of $1.7 million and $5.0 million, respectively.
As at September 29, 2018, SunOpta Foods had accrued unpaid dividends of $1.7
million. For more information on the Preferred Stock, see note 7 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.
Cash Flows
Third Quarter of 2018 Compared to Third Quarter of
2017
Net cash and cash equivalents decreased $0.2 million in the
third quarter of 2018 to $1.9 million as at September 29, 2018, compared with
$2.1 million at June 30, 2018.
Cash provided by operating activities was $10.5 million in the
third quarter of 2018, compared with cash used of $11.1 million in the third
quarter of 2017, an increase in cash provided of $21.6 million. This increase in
cash provided mainly reflected the relative timing of payments for fruit
purchases, as well as a quarter-over-quarter reduction in net cash payments
under the Value Creation Plan of $8.3 million.
Cash used in investing activities was $6.0 million in the third
quarter of 2018, compared with $7.8 million in the third quarter of 2017, an
decrease in cash used of $1.8 million. The decrease in cash used reflected the
final cash receipt of $1.0 million in the third quarter of 2018 on the note
receivable from the sale of Opta Minerals Inc. (Opta Minerals) in April 2016,
and the cash payment of $1.7 million in the third quarter of 2017 for the
acquisition of the non-controlling interest in our Mexican frozen fruit
operation. These factors were partially offset by higher capital expenditures in
the third quarter of 2018, which included the expansion of our aseptic beverage,
roasted snack and frozen fruit processing capabilities, completion of the second
cocoa line in the Netherlands, and information technology enhancements across
the organization.
Cash used in financing activities was $4.7 million in the third
quarter of 2018, compared with cash provided of $18.2 million in the third
quarter of 2017, an increase in cash used of $22.9 million. The increase in cash
used mainly reflected repayments under our line of credit facilities of $2.7
million in the third quarter of 2018, compared with borrowings of $19.2 million
in the third quarter of 2017, which corresponded to the quarter-over-quarter
reduction in working capital requirements.
SUNOPTA
INC.
|
53
|
September 29, 2018 10-Q
|
First Three Quarters of 2018 Compared to First Three
Quarters of 2017
Net cash and cash equivalents decreased $1.4 million in the
first three quarters of 2018 to $1.9 million as at September 29, 2018, compared
with $3.2 million as at December 30, 2017.
Cash used in operating activities was $16.2 million in the
first three quarters of 2018, compared with $17.4 million in the first three
quarters of 2017, a decrease in cash used of $1.2 million. This decrease in cash
used reflected a year-over-year reduction in net cash payments under the Value
Creation Plan of $25.1 million, which was largely offset by lower year-over-year
operating results, and higher inventory purchases in the first three quarters of
2018 to support the commercialization of new consumer product offerings, and the
expansion of our cocoa processing operations in the Netherlands.
Cash used in investing activities was $22.1 million in the
first three quarters of 2018, compared with $23.3 million in the first three
quarters of 2017, a decrease in cash used of $1.2 million. The decrease in cash
used reflected the collection of the Opta Minerals note receivable in the third
quarter of 2018, and the acquisition of the non-controlling interest in our
Mexican frozen fruit operation in the third quarter of 2017. These factors were
partially offset by higher capital expenditures in the first three quarters of
2018, including the expansion of our aseptic beverage, roasted snack and frozen
fruit processing capabilities, completion of the second cocoa line in the
Netherlands, and implementation of an enterprise resource planning system at our
Mexican frozen fruit facility, as well as other information technology
enhancements across the organization.
Cash provided by financing activities was $37.0 million in the
first three quarters of 2018, compared with $42.2 million in the first three
quarters of 2017, an decrease in cash provided of $5.2 million. The decrease in
cash provided mainly reflected a $4.1 million reduction in proceeds from
employee stock option exercises, partially offset by lower borrowings under our
line of credit facilities in the first three quarters of 2018, compared with the
first three quarters of 2017.
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.
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.
SUNOPTA
INC.
|
54
|
September 29, 2018 10-Q
|
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 September 29, 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 September 29, 2018. Based on that
evaluation, management concluded that there were no changes in our internal
control over financial reporting during the quarter ended September 29, 2018
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
SUNOPTA
INC.
|
55
|
September 29, 2018 10-Q
|