TM
Global Leader in
Organic & Healthy Foods
2016
ANNUAL REPORT
FINANCIAL HIGHLIGHTS
All dollar amounts in U.S. $ millions, except per share amounts, and in accordance with U.S. GAAP
Revenue
Operating income (1)
Depreciation and amortization
Stock-based compensation
Earnings (loss) from continuing operations attributable to SunOpta Inc.
Earnings (loss) per diluted share from continuing operations attributable to SunOpta Inc.
Adjusted earnings (2)
Adjusted earnings per diluted share (2)
EBITDA (3)
Adjustments to EBITDA (4)
Adjusted EBITDA (4)
Total assets
Total debt
Shareholders' equity
Cash flows from operating activities - continuing operations
2015
2014
1,145.1
1,102.7
2016
1,346.7
14.7
34.2
3.9
(50.6)
$(0.61)
5.8
$0.07
52.8
28.9
81.7
21.3
21.0
3.5
(3.0)
$(0.04)
19.0
$0.26
45.8
16.4
62.2
1,129.6
1,219.2
432.6
366.7
0.7
482.8
421.0
26.4
41.7
15.6
3.9
19.3
$0.28
26.4
$0.38
61.2
-
61.2
641.0
83.0
340.7
17.5
(1) Operating income is defined as “Earnings from continuing operations before the following” excluding the impact of other income/expense items
and goodwill impairments as presented on our Consolidated Statement of Operations. Refer to pages 48 and 58 of the 2016 Form 10-K for a tabular
reconciliation of Operating income to the most directly comparable GAAP measure.
(2) Refer to pages 49, 50 and 59 of the 2016 Form 10-K for a tabular reconciliation of Adjusted earnings and Adjusted earnings per diluted share to the
most directly comparable GAAP measure.
(3) EBITDA is defined as “Operating income” plus depreciation, amortization and stock-based compensation.
(4) Adjusted EBITDA is defined as EBITDA excluding certain charges and gains that affect the comparability of operating performance. These adjustments
include all adjustments in the tabular reconciliation of Adjusted earnings (see (2) above) that affect cost of goods sold or selling, general and administrative
expenses.
Operating income, Adjusted earnings, Adjusted earnings per diluted share, EBITDA and Adjusted EBITDA are non-GAAP measures. The Company believes
that these non-GAAP measures assist investors in comparing performance and cash-generating ability across reporting periods on a consistent basis by
excluding items that are not indicative of the Company’s core operating performance. These non-GAAP measures should not be considered in isolation or
as a substitute for performance measures calculated in accordance with U.S. GAAP.
2016 MILESTONES
Completed the
divestiture of
Opta Minerals,
becoming a
pure-play foods
company
Announced strategic
partnership with
Oaktree, and $85M
preferred share
issuance
Announced governance
changes. Reaffirmed
mid-term targets and
introduced the Value
Creation Plan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Entered
into new
five year
Global
ABL Credit
Facility
Initiated
a strategic
review process
to maximize
shareholder
value
Converted
Bridge Facility
to Senior
Secured 9.5%
Notes due
2022
Announced
appointment of
David J. Colo
as CEO
2016 ANNUAL REPORT
TM
TO OUR SHAREHOLDERS
Renewing our focus on long term value creation…
Despite a challenging 2016, SunOpta remains well positioned to take
advantage of long-term consumer trends towards natural and organic
foods. Additionally, SunOpta’s strong portfolio of on-point products and a
broad, multi-channel customer list provides a solid foundation for long-term,
profitable growth. This combination of industry-wide tailwinds and company-
specific strengths are just some of the reasons why I was thrilled to join
SunOpta as CEO in February 2017. Our opportunity — and challenge — is to
immediately improve our operational execution, better align our portfolio with
the market, invest appropriately in the business and relentlessly improve our
execution to fully realize the value of our competitive position.
In October 2016, after conducting a thorough strategic review process to
determine the best path to value creation for our shareholders, SunOpta
entered a strategic partnership with Oaktree Capital Management. We began
to immediately focus on improving operational performance and launched
our Value Creation Plan, to enhance value for all our shareholders. The entire
organization is now focused on executing against the Value Creation Plan,
which is designed to drive long-term, sustainable, and profitable growth.
While the Value Creation Plan provides a framework to focus the organization
and improve all aspects of our performance and business, it doesn’t replace
our fundamental reason for being. Our purpose remains relevant, meaningful
and compelling: “To responsibly bring healthy food from field to table.” This
purpose will drive our business strategies going forward, so let me explain it in
more detail.
Responsibly means we will deliver products consistently and reliably to
customers, while doing what is right for the consumer. Food and employee
safety are the top priorities for everyone at SunOpta. In addition, we are
focused on product quality and delivering every customer order on-time
and in-full.
Healthy means we will focus on organic and non-GMO products, without
artificial flavors, colors or preservatives. We are in an enviable position in
rapidly growing markets and our product focus is aligned with broader
industry trends and supported by a best-in-class global organic supply
chain. We will continue to deliver packaged food solutions and expand our
innovation pipeline focused on delivering natural, organic and non-GMO
packaged foods and ingredients.
Finally, from field to table refers to our unique leadership role, having
established the world’s largest vertically integrated organic raw material
supply chain. For several years, SunOpta has been transitioning from a raw
material and ingredient supplier to a private label and contract manufacturer
of finished packaged food products. We will continue to focus on growing
our consumer products business. However, we will also be making strategic
investments into expanding sources and capabilities within our global organic
ingredient portfolio.
2016 ANNUAL REPORT
OUR
PURPOSE
is to responsibly
bring healthy food
from field to table
Four Pillars of
SunOpta’s Value Creation Plan
Portfolio
Optimization
Operational
Excellence
Go-to-Market
Effectiveness
Process
Sustainability
• Invest in the business
where structural
advantages exist
• Exit product lines
where the company
is not effectively
positioned
• Ensure food quality
and worker safety
while enhancing
operational
performance
• Drive productivity
and cost savings
in manufacturing,
procurement, and
logistics
• Optimize the
customer and
product mix in
existing channels
• Penetrate high
potential new sales
channels
• Streamline and
strengthen the
organizational
structure
• Embed best-in-class
financial, commercial
and operational tools
and processes
Simplify
Execute
Grow
Repeat
FOUR PILLARS OF VALUE
CREATION
Our Value Creation Plan is built on four pillars which
provide a framework for all our efforts to improve
operational performance and drive consistent and
profitable top-line growth, ultimately to deliver
enhanced value to our shareholders. This is the
largest and most coordinated initiative in SunOpta’s
history. It has the focus of the entire organization,
and we will provide shareholders with quarterly
updates on our progress.
Pillar One: Portfolio Optimization
Our Portfolio Optimization strategy is to identify and
fully penetrate areas of the market where we have
a strategic “right to win.” We are currently focused
on simplifying the business by investing in areas
where we have a structural advantage, while exiting
businesses or product lines where SunOpta is not,
or cannot be, effectively positioned for long-term
sustainable profitability.
As part of this pillar we recently closed a citrus
extraction and bottling facility, realigning our
premium juice operation using third-party partners
to enhance our flexibility and packaging options.
We also closed a soy extraction facility in Heuvelton,
2016 ANNUAL REPORT
N.Y., transferring production to our Alexandria,
Minn. facility while continuing to serve the existing
ingredient customer base. We have exited certain
soy and sunflower varieties, as well as a non-core
vegetable brokerage business, and have redirected
the focus of those sales teams towards our core
portfolio.
We have also launched a strategic review of our
global organic ingredients portfolio to identify
opportunities for growth in this key part of our
business. We consider our global ingredients
business to be core to our purpose. We’re focused,
more than ever, on growing our organic ingredients
business by investing in new geographies, new
products and new processing capabilities that
leverage our strengths.
We will continue to evaluate all assets in our portfolio
to optimize them via investment, consolidation, or
divestiture, while staying true to our purpose.
Pillar Two: Operational Excellence
The Operational Excellence pillar is designed to
drive improved operational performance, driven by
an unrelenting focus on food safety and product
quality, while generating significant savings in
manufacturing, procurement, and logistics.
We have rolled out the SunOpta Plant Management
System which will standardize operating procedures,
KPI’s, and continuous improvement methodologies
across our manufacturing footprint to improve
consistency of delivery and productivity. We are
committed to ensuring every plant leader has
the necessary people, processes, and tools to
enable success on their journey towards
operational excellence.
We are increasing headcount dedicated to
manufacturing, supplier, and supply chain
capabilities. We will also increase our capital
engineering, plant engineering, and process
engineering capabilities that will enhance our food
safety, product flow, and productivity performance.
We recently created a centralized supply chain team
to lead sales and operations planning, warehousing
and distribution, and we will be enhancing our
information systems to improve demand and supply
planning, which will stabilize our facilities, improve
customer service, and reduce inventory. During the
first phase of the Operational Excellence pillar we
are targeting $30 million of net annualized
operational savings, as well as $20 million of
working capital reductions to help offset our
necessary foundational investments.
Pillar Three: Go-To-Market Effectiveness
In early 2017 we kicked off a realignment of our go-
to-market approach following a detailed evaluation
of SunOpta’s customer and product mix relative
to end markets and channels. The Go-to-Market
Effectiveness pillar is designed to organize and
augment our sales force to maximize our ability to
drive increased sales volume in existing channels
while exploring opportunities across new channels to
identify and fill unmet market demand.
We have established dedicated, channel focused
sales teams to serve customers with customized
solutions that are relevant to their needs, and exploit
key white space opportunities in both retail and
foodservice. We have created a sales operation
support function to provide our sales force the
necessary tools to manage customer forecasts,
promotions, and other account management
tasks. Further, we have rolled out a sales pipeline
management tool to provide improved visibility
and control over the activities of our sales force.
We will continue to invest in our marketing
capabilities across both the Consumer Products
and Global Ingredients segments, and we will be
establishing a new customer marketing team,
which will allow us to customize product solutions
for specific customer needs. These investments in
incremental sales, marketing, and consumer insight
resources, together with our already developed
innovation capabilities, are already paying dividends
with several recent customer wins.
Pillar Four: Process Sustainability
Sustaining success is the driver of long-term value
creation for SunOpta. The Company’s excellent
products and speed to market have led to new
business wins and new product opportunities over
the years. We must ensure that future successes
deliver positive and lasting returns to our bottom
line. We kicked off the Process Sustainability pillar by
creating a Program Management Office to track and
audit all aspects of the Value Creation Plan.
Next, we undertook a comprehensive redesign of the
organization’s structure and talent, and have been
investing in new resources with the skill set needed
to drive the organization forward under a culture of
strict accountability. In 2017, we expect to add $8
million in structural investments to the business in
the areas of sales, marketing, quality, and operations.
THREE PHASES OF THE
VALUE CREATION PLAN
The implementation of our Value Creation Plan will
proceed in three phases:
Phase I – “Clean-it-Up”: The first phase is focused
on strengthening our leadership, improving our
execution, implementing processes to solidify a
sustainable foundation for future improvements and
launching productivity initiatives. Every successful
business needs a strong and committed team,
and a stable platform to build future success. We
are prudently investing in our people, assets and
capabilities. At the same time, we are finding ways
to streamline our portfolio where it makes sense,
allowing us to focus on our core business.
These foundational efforts will be the toughest part
of the program, but are also the most critical for
SunOpta’s success.
2016 ANNUAL REPORT
PHASE III
“Turn-it-Up”
PHASE II
“Tune-it-Up”
PHASE I
“Clean-it-Up”
Continuous Improvement & Sustained Profitable Growth
Realize Savings and Reinvest to Accelerate Sales
Solidify the Foundation for the Future
We will always be mindful of the return on every
dollar invested, as we make the required up front
investments and develop the organizational
foundation necessary to be successful.
Phase II – “Tune-it-Up”: During the second phase,
we will begin realizing the structural benefits that
will be driven by our foundational and productivity
initiatives. These benefits will be prudently
reinvested into our business, ensuring continued
productivity enhancements, in addition to growth
oriented investments focused on growing the
topline, thus driving incremental volume benefits.
Phase III – “Turn-it-Up”: The third phase is marked
by realizing the full benefits of our foundational,
productivity, and growth investments. Our
productivity initiatives will have taken hold by this
time, and a continuous improvement mindset will
be firmly implanted in our culture. Our operational
excellence and robust innovation pipeline will enable
accelerated and continuous topline growth, driving
sustained profit and returns on our investments.
But it all starts with the first phase, “Clean-it-Up,”
which is what the organization is intensely focused
on for 2017.
THE YEAR AHEAD: FOCUSED ON VALUE CREATION
One of the challenges with the turnaround of a public
company is balancing change while trying to deliver
near-term quarterly results. We will make decisions
with a long-term focus, even if those decisions do not
maximize near-term earnings. We will focus on food
safety, quality and execution. We will be focused and
decisive as we execute our strategic plan. We will
focus on long-term value creation.
challenges in the company as they provide the
opportunity to drive significant performance
improvement across all areas of the business.
Our leadership team and the entire organization
are committed to achieving the objectives of our
Value Creation Plan and delivering consistent and
sustainable improvement in shareholder value over
time. Thank you for your investment in SunOpta
and for your confidence and support for me and
my team.
This is not the first time I’ve been involved in a
turnaround situation. Each is different, but the
common theme is with a strong and committed
team, a well-positioned portfolio of strong assets,
consistent execution, and proper processes to
ensure repeatability, we can, and we will, deliver
sustainable results.
I made the decision to join SunOpta based on the
strong positions we have in organic and non-GMO
food ingredients, healthy beverages, healthy fruit and
healthy snacks, all categories that should continue
to have strong growth potential as consumers are
continuously seeking healthier lifestyles. I am
energized by the execution and foundational
2016 ANNUAL REPORT
Sincerely,
DAVID J. COLO
President & Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-34198
SUNOPTA INC.
(Exact Name of Registrant as Specified in Its Charter)
CANADA
(Jurisdiction of Incorporation)
Not Applicable
(I.R.S. Employer Identification No.)
2233 Argentia Drive, Suite 401
Mississauga, Ontario L5N 2X7, Canada
(Address of Principal Executive Offices)
(905) 821-9669
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Shares, no par value
The NASDAQ Stock Market, Toronto Stock Exchange
Securities registered pursuant Section to 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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. Yes
No
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). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
Aggregate market value of the common equity held by non-affiliates of the registrant, computed using the closing price as reported on the
NASDAQ Global Select Market for the registrant’s common shares on July 2, 2016, the last business day of the registrant’s most recently
completed second fiscal quarter, was approximately $360 million. The registrant’s common shares trade on the NASDAQ Global Select
Market under the symbol STKL and on the Toronto Stock Exchange under the symbol SOY.
The number of shares of the registrant’s common stock outstanding as of February 24, 2017 was 85,974,201.
Documents Incorporated by Reference: Portions of the SunOpta Inc. Definitive Proxy Statement for the 2017 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
SUNOPTA INC.
December 31, 2016 10-K
SUNOPTA INC.
FORM 10-K
For the year ended December 31, 2016
TABLE OF CONTENTS
Basis of Presentation
Forward-Looking Statements
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Item 10
Item 11
Item 12
Item 13
Item 14
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15
Exhibits, Financial Statement Schedules
2
2
5
20
33
34
35
35
36
38
39
68
69
69
70
71
72
72
72
72
72
72
SUNOPTA INC.
1
December 31, 2016 10-K
Basis of Presentation
Except where the context otherwise requires, all references in this Annual Report on Form 10-K for the fiscal year ended
December 31, 2016 (“Form 10-K”) to “SunOpta”, the “Company”, “we”, “us”, “our” or similar words and phrases are to
SunOpta Inc. and its subsidiaries, taken together.
In this report, all currency amounts are expressed in United States (“U.S.”) dollars (“$”) unless otherwise stated. All tabular
dollar amounts are expressed in thousands of U.S. dollars, except per share data, unless otherwise stated. Amounts expressed
in Canadian dollars are preceded by the symbol “C$”. Amounts expressed in euros are preceded by the symbol “€”. The
following table sets forth, for the periods indicated, the rate of exchange for the Canadian dollar and euro, expressed in U.S.
dollars, based on Bank of Canada exchange rates. These rates are provided solely for convenience, and do not necessarily
reflect the rates used by us in the preparation of our financial statements.
Canadian Dollar
Euro
Year
2016
2015
2014
Closing
0.7448
0.7225
0.8502
Average
0.7548
0.7820
0.9044
Closing
1.0553
1.0859
1.2004
Average
1.1066
1.1091
1.3263
Forward-Looking Statements
This Form 10-K contains forward-looking statements which are based on our 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”, “intend”, “project”, “potential”, “continue”,
“believe”, “expect”, “could”, “would”, “should”, “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; our ability to implement the four pillars and achieve the objectives of our strategic
Value Creation Plan, including realizing our targeted earnings before income taxes, depreciation and amortization
(“EBITDA”), annualized EBITDA enhancements, working capital efficiencies, and the amount of EBITDA improvement
expected to be generated from the closure of our San Bernardino, California facility; estimated losses and related insurance
recoveries associated with the recall of certain roasted sunflower kernel products; the expected benefits of business acquisitions
and other transactions, such as cost savings, operating synergies and growth potential; possible operational consolidation;
rationalization of assets and operations; business strategies; plant and production capacities; revenue generation potential;
anticipated construction costs; competitive strengths; goals; capital expenditure plans; business and operational growth and
expansion plans; anticipated operating margins and operating income targets; gains or losses associated with business
transactions; cost reductions; rationalization and improved efficiency initiatives; proposed new product offerings; future growth
of our business and global markets for our products; 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 agree with and meet our expectations and predictions is subject to many risks
and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially
from our expectations and predictions. We believe these factors include, but are not limited to, the following:
(cid:2)
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failure or inability to complete our ongoing operational review and implement value creation strategies in a timely
manner;
conflicts of interest between our significant investors and our other stakeholders;
product liability suits, recalls and threatened market withdrawals that may arise or be brought against us;
food safety concerns and instances of food-borne illnesses that could harm our business;
litigation and regulatory enforcement concerning marketing and labeling of food products;
SUNOPTA INC.
2
December 31, 2016 10-K
(cid:2)
(cid:2)
(cid:2)
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significant food and health regulations to which we are subject;
ability to obtain additional capital as required to maintain current growth rates;
impairment charges in goodwill or other intangible assets;
the highly competitive industry in which we operate;
that our customers may choose not to buy products from us;
loss of one or more key customers;
changes and difficulty in predicting consumer preferences for natural and organic food products;
the effective management of our supply chain;
volatility in the prices of raw materials and energy;
the availability of organic and non-genetically modified ingredients;
unfavorable growing and operating conditions due to adverse weather conditions;
an interruption at one or more of our manufacturing facilities;
technology failures that could disrupt our operations and negatively impact our business;
the loss of service of our key management;
labor shortages or increased labor costs;
technological innovation by our competitors;
ability to protect our intellectual property and proprietary rights;
changes in laws or regulations governing foreign trade or taxation;
agricultural policies that influence our operations;
substantial environmental regulation and policies to which we are subject;
the enactment of climate change laws;
fluctuations in exchange rates, interest rates and the prices of certain commodities;
exposure to our international operations;
increased vulnerability to economic downturns and adverse industry conditions due to our level of indebtedness;
restrictions under the terms of our debt and equity instruments on how we may operate our business;
our ability to renew our revolving asset-based credit facility (the “Global Credit Facility”) when it becomes due on
February 10, 2021;
ability to meet the financial covenants under the Global Credit Facility or to obtain necessary waivers from our lenders;
ability to effectively manage our growth and integrate acquired companies;
SUNOPTA INC.
3
December 31, 2016 10-K
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
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ability to achieve the estimated benefits or synergies to be realized from business acquisitions;
exposure to unknown liabilities arising from business acquisitions;
unexpected disruptions on our business resulting from business acquisitions;
ability to successfully consummate possible future divestitures of businesses;
volatility of our operating results and share price;
that we do not currently intend to, and are restricted in our ability to, pay any cash dividends on our common shares
in the foreseeable future;
dilution in the value of our common shares through the exchange of convertible preferred stock, exercise of stock
options, participation in our employee stock purchase plan and issuance of additional securities; and
impact of the publication of industry analyst research or reports about our business on the value of our common shares.
All forward-looking statements made herein are qualified by these cautionary statements, and our actual results or the
developments we anticipate may not be realized. We do not undertake any obligation to update our forward-looking statements
after the date of this report for any reason, even if new information becomes available or other events occur in the future, except
as may be required under applicable securities laws. The foregoing factors should not be construed as exhaustive and should
be read in conjunction with the other cautionary statements that are included in this report. For a more detailed discussion of
the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A, Risk
Factors, included elsewhere in this report.
SUNOPTA INC.
4
December 31, 2016 10-K
Item 1. Business
INTRODUCTION
PART I
SunOpta, a corporation organized under the laws of Canada in 1973, is a leading global company operating businesses focused
on a healthy products portfolio that promotes sustainable well-being. We are focused on sourcing non-genetically modified
(“non-GMO”) and organic ingredients, and manufacturing healthy food and beverage products. We operate an integrated
“field-to-table” business model leveraging our global ingredient sourcing platform to process and market non-GMO and
organic ingredients for retailers, food manufacturers and foodservice operators. We manufacture packaged products focused
on the high growth healthy beverages, healthy fruit and healthy snacks categories for our retail, foodservice and branded food
customers. We believe we are a North American market leader in non-dairy organic aseptic beverages, premium refrigerated
private label orange juice, individually quick frozen (“IQF”) organic fruit, healthy premium fruit snacks, and the global sourcing
and supply of non-GMO and organic raw materials and ingredients. Our scalable global sourcing platform makes us one of the
leading suppliers of non-GMO and organic raw materials and ingredients in the food industry, and provides us leading insights
into emerging food and beverage trends. Our product portfolio is strategically aligned with the fast-growing consumer demand
for high quality, healthy non-GMO and organic food and beverage products.
Our vertically integrated business model makes us a preferred partner to our retail (e.g., grocery, mass, club, natural and
specialty chains), foodservice and branded food customers. We deliver a diverse, innovative portfolio of high quality, food and
beverage products supported by our global sourcing platform, scalable operating footprint, manufacturing expertise and
commitment to innovation. This platform enables us to consistently supply our customers with a broad range of non-GMO and
organic ingredients as well as high quality healthy food and beverage products that cater to the evolving demands of today’s
consumers. As a leading supplier of non-GMO and organic ingredients to the food industry, we leverage our insights into
emerging consumer tastes and preferences to develop innovative new food and beverage products.
Our Product Portfolio
Our diverse consumer products portfolio utilizes non-GMO and organic raw materials and ingredients that are sourced primarily
by our vertically integrated global ingredients capabilities, and consists of three main commercial platforms:
(cid:2) Healthy Beverages – We offer a full line of aseptic beverages, including non-dairy beverages (e.g., soy, almond,
coconut, rice and others), nutritional beverages, dairy beverages, broths and teas. We also offer refrigerated premium
juices, shelf-stable juices and functional waters. We believe we are the leading North American provider of non-dairy
organic aseptic beverages and premium refrigerated private label organic orange juice.
(cid:2) Healthy Fruit – We offer IQF fruit for retail (e.g., strawberries, blueberries, mango, pineapple, blends and other berries
and fruit), IQF and bulk frozen fruit for foodservice (e.g., purées, fruit cups and smoothies), and custom fruit
preparations for industrial use. We believe we are the leading North American provider of private label non-GMO and
organic IQF fruit.
(cid:2) Healthy Snacks – We offer fruit snacks (including bars, twists, ropes and bite-sized varieties), roasted snacks,
nutritional bars, and re-sealable pouch products (e.g., baby food, puddings, sauces and other healthy snacks). We
believe we are a leading North American provider of premium healthy fruit snacks.
Our global ingredients platform is focused on the procurement and sale of non-GMO and organic grains and seeds (including
ancient grains and seeds), fruits, vegetables, sweeteners, coffees, nuts and other products as ingredients in both raw material
and processed ingredient forms. In addition to supplying our own healthy food and beverage product portfolio, we are a leading
supplier of raw materials and processed ingredients to a number of global food manufacturers and foodservice operators. Our
vertically integrated model allows us to leverage our scalable and diverse supply of high quality non-GMO and organic
ingredients, adding value to a product at multiple stages of the supply chain and delivering comprehensive non-GMO and
organic food ingredients and packaged goods solutions to our customers’ evolving demands. This model allows us to provide
our global ingredients customers with high quality healthy food and beverage products.
Using our vertically integrated business model, we process non-GMO and organic food ingredients into consumer packaged
products, primarily healthy beverages, healthy fruit and healthy snacks. Our food ingredients are converted from raw materials,
and our raw materials are sourced from approximately 5,000 suppliers encompassing approximately 10,000 growers in over 65
countries. Our employees and assets, which include 24 processing and packaging facilities, are principally located in North
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America and Europe with smaller sourcing and processing operations in Africa and China. Our operations and capabilities
provide the flexibility to modify our product portfolio to adapt to the changing consumer needs for non-GMO and organic food
and beverage products. As a general principle, we do not own or operate our own farms, retail stores, or extensively market
our own consumer brands.
Our commitment and proactive approach to new product development and innovation drives our ability to introduce new higher
margin food and beverage products to the market. In June 2015, we expanded our research and development platform by
opening an advanced innovation center in Edina, Minnesota. This facility supports our dedicated team of food scientists,
engineers and technicians, expands our product development capabilities, increases our speed to market and enables us to
proactively engage customers in creating and developing new products. Our innovation platform supports our leadership
position in non-GMO and organic food and strengthens our relationships with our retail, foodservice and contract
manufacturing customers.
Value Creation Plan
On June 27, 2016, we announced that we had engaged external financial and legal advisors to review our operating plan and to
evaluate a range of strategic and financial actions that we could undertake to maximize shareholder value. The strategic review
arose out of discussions with our largest shareholders, some of which had advocated that we examine value maximization
strategies. We also announced that we had engaged a global executive search firm to assist in identifying candidates who could
add additional operating, industry and capital markets experience and expertise to our Board of Directors (the “Board”). The
strategic review was concluded on October 7, 2016 with our announcement of a strategic partnership with Oaktree Capital
Management L.P., a private equity investor (together with its affiliates, “Oaktree”).
We are conducting, with the assistance of Oaktree, a thorough review of our operations, management and governance, with the
objective of maximizing our ability to deliver long-term value to our shareholders. Through this review, management and the
Board have developed a Value Creation Plan built on four pillars: portfolio optimization, operational excellence, go-to-market
effectiveness and process sustainability. The statements we make below about the expected results of the Value Creation Plan,
including expected improvements in earnings, earnings before income taxes, depreciation and amortization (“EBITDA”),
working capital efficiencies, and expected cash flows, are forward-looking statements. EBITDA is a non-GAAP measure that
management uses when assessing the performance of our operations and our ability to generate cash flows to fund our cash
requirements, including debt service and capital expenditures.
We are currently targeting implementation of $30 million of productivity-driven annualized EBITDA enhancements and $20
million of working capital efficiencies, to be implemented over the coming 12 to 18 months. In the near-term, these benefits
are expected to be offset by structural investments we are making in the areas of quality, sales, marketing, operations and
engineering resources. Additionally, during 2017 we anticipate incurring non-structural third-party consulting support,
severance, and recruiting costs. The plan also calls for increased investment in capital upgrades at several manufacturing
facilities to enhance food safety and manufacturing efficiencies. Over time, we expect these investments to yield additional
improvement in EBITDA beyond the $30 million of initial productivity-driven savings. Recent progress on each of the four
pillars of the Value Creation Plan is highlighted below.
Portfolio Optimization
The focus of the portfolio optimization pillar is to simplify the business, investing where structural advantages exist, while
exiting businesses or product lines where we are not effectively positioned. During the fourth quarter of 2016, we announced
the closing of our San Bernardino, California, juice facility, which is expected to be $4 million accretive to EBITDA in 2017.
Following that initial announcement, we continued to evaluate our portfolio which resulted in the following additional actions:
(cid:2) Closure of our soy extraction (ingredient) facility in Heuvelton, New York, transferring production to our Alexandria,
Minnesota facility.
(cid:2) Exited certain varieties of specialty soy and sunflower, as well as frozen edamame.
(cid:2) Exited a non-core vegetable brokerage operation.
(cid:2) Launched a global organic ingredients portfolio strategy review, which is identifying incremental large ingredient
categories for further investment. The incremental growth opportunities include new geographies, new products and
new processing capabilities.
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During the fourth quarter of 2016, we recognized non-cash impairment charges of $1.2 million associated with the Heuvelton
facility closure, and $3.4 million of inventory and other reserves to reflect the exit of non-core business lines. We intend to
continue to proactively manage our business portfolio to identify opportunities to drive EBITDA growth.
Operational Excellence
The focus of the operational excellence pillar is to ensure food quality and safety, coupled with improved operational
performance and efficiency. These efforts are expected to generate productivity improvements in manufacturing, procurement
and logistics. With the assistance of third-party consulting support, we have identified a number of broad-based savings
opportunities to be implemented and realized over 2017 and 2018. Recent activities include:
(cid:2) Launched network-wide upgrades to worker safety and food quality programs, with the goal of becoming the leader
in safety and quality across the healthy food industry.
(cid:2) Launched a productivity enhancement program that is systematically evaluating all manufacturing facilities, supply
chain, and procurement processes to identify productivity cost savings. As a result of these efforts, we are targeting
$30 million in annualized EBITDA improvements to be implemented over the next 12 to 18 months.
(cid:2) Rolled out the “SunOpta Plant Management System”, which consists of a standardized set of operating processes, key
performance indicators, and continuous improvement methodologies that will provide improved consistency and
productivity performance across the manufacturing network.
(cid:2) Launched a working capital optimization program that is targeting $20 million of cash flow enhancements.
Go-to-Market Effectiveness
The focus of the go-to-market effectiveness pillar is to optimize customer and product mix in existing sales channels, and
identify and penetrate new high-potential sales channels. We expect efforts under this pillar to improve revenue growth and
profitability over time. Early in 2017, we re-aligned our go-to-market approach, hiring key talent to lead foodservice and retail
sales, as well as adding new marketing resources. We also launched a sales force effectiveness program that has already started
to generate results. Recent highlights include:
(cid:2) Hired a new Senior Vice President of Foodservice Sales and a Senior Vice President of Beverages and Snacks.
(cid:2) Secured new business wins in Healthy Beverage, Healthy Fruit and Global Ingredients.
(cid:2) Selectively adjusted pricing to enhance margins.
Process Sustainability
The focus of process sustainability is to ensure we have the infrastructure, systems and skills to sustain the business
improvements and value captured from the Value Creation Plan. In February 2017, we executed an organizational redesign
focused on streamlining and simplifying the business, investing in systems and processes to ensure each function has the tools
in place to achieve our goals. Recent initiatives include:
(cid:2) Developed a plan to increase capital engineering, plant engineering, and process engineering capabilities that is
targeted to enhance food safety, product flow and productivity performance.
(cid:2) Created a centralized Consumer Products supply chain team to manage sales and operations planning (“S&OP”),
warehousing and distribution.
(cid:2) Launched a comprehensive S&OP program to improve supply/demand planning, which is expected to reduce
inventory while improving customer service.
(cid:2)
Initiated a program to push centralized cost accounting resources into manufacturing facilities to improve the accuracy
of manufacturing-related financial data.
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Governance and Management Transitions
Chief Executive Officer
Effective February 6, 2017, David Colo was appointed President and Chief Executive Officer (“CEO”) of SunOpta. In
conjunction with this appointment, Mr. Colo also became a member of the Board. Mr. Colo joined SunOpta from Diamond
Foods, Inc. where he served as Executive Vice-President, Chief Operating Officer. Mr. Colo has 30 years of leadership
experience in general management, operations and supply chain management. As Executive Vice-President, Chief Operating
Officer for Diamond Foods, Mr. Colo had direct responsibility for marketing, innovation, research and development,
operations, supply chain, procurement, quality, food safety, grower services and contract manufacturing.
On November 11, 2016, Hendrik Jacobs resigned from his positions as President, CEO, and director. Director Katrina Houde
served as interim CEO prior to the appointment of Mr. Colo. Ms. Houde will continue her position on the Board following
Mr. Colo’s appointment.
Board of Directors
On October 7, 2016, we increased the size of the Board to nine directors and appointed two Oaktree-nominated independent
directors, Dean Hollis and Al Bolles, Ph.D., to the Board. Mr. Hollis is Chairman of the Board of AdvancePierre Foods and
the former President and Chief Operating Officer of the Consumer Foods Division of ConAgra Foods and former Chairman of
Boulder Brands. Mr. Bolles most recently served as Executive Vice President, Chief Technology & Operations Officer of
ConAgra Foods. Also on October 7, 2016, Brendan Springstubb was appointed to the Board to replace Douglas Greene who
resigned as a director. Mr. Springstubb is a Principal at Engaged Capital LLC (“Engaged”), one of our largest shareholders.
On October 9, 2016, Alan Murray stepped down from the Board and was replaced as Chair of the Board by Mr. Hollis.
On January 19, 2017, Gregg Tanner was appointed to the Board to fill the vacancy created by the resignation of director Jay
Amato. Most recently, Mr. Tanner served as CEO and director for Dean Foods Company from October 2012 to December
2016.
Business Development
Issuance of Series A Preferred Stock
On October 7, 2016, Oaktree invested $85.0 million in cumulative, non-participating Series A Preferred Stock (the “Preferred
Stock”) of our wholly-owned subsidiary, SunOpta Foods Inc. (“SunOpta Foods”). The shares of Preferred Stock are
exchangeable into common shares of SunOpta Inc. in accordance with certain terms and conditions. Net proceeds from the
issuance of the Preferred Stock were used to repay $79.0 million of outstanding debt.
In connection with the Preferred Stock offering, we issued 11.3 million Special Shares, Series 1 (the “Special Voting Shares”)
of the Company to Oaktree, which entitle Oaktree to one vote per Special Voting Share on all matters submitted to a vote of
our common shareholders. As of the date of issuance, the Special Voting Shares represented an 11.7% voting interest in the
Company.
Rationalization of Soy and Juice Operations
On December 27, 2016, the Board approved closure of our soy facility in Heuvelton, New York. We determined that our
ingredients processing facility in Alexandria, Minnesota, could absorb the production volume from the Heuvelton facility,
while continuing to meet the needs of our customers.
On November 8, 2016, the Board approved the closure of our San Bernardino, California juice facility, after determining that
it would be more beneficial to transfer our juice production from the facility to contract manufacturers with whom we have
ongoing relationships, rather than make further capital investments in support of the bottling or extraction areas of the facility.
These capital investments would have been necessary to satisfy packaging format changes demanded by the facility’s largest
customer and to address shortfalls in contracting sufficient supply of raw citrus fruit for the upcoming season to allow for
effective and efficient use of the facility’s extraction capabilities.
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Sale of Opta Minerals
On February 11, 2016, Opta Minerals Inc. (“Opta Minerals”) entered into a definitive acquisition agreement, pursuant to which
an affiliate of Speyside Equity Fund I LP (“Speyside”) agreed to acquire substantially all of the issued and outstanding shares
of Opta Minerals. The acquisition of Opta Minerals by Speyside was completed on April 6, 2016, following a vote of the
shareholders of Opta Minerals in favor of the transaction on March 31, 2016.
Upon closing of the transaction, we received aggregate gross proceeds of $4.8 million (C$6.2 million). The sale of our equity
interest in Opta Minerals was consistent with our objective of divesting our non-core assets in order to become a pure-play
healthy and organic foods company. We have no significant continuing involvement with Opta Minerals.
Five-Year Global Revolving Asset-Based Credit Facility
On February 11, 2016, we entered into a five-year credit agreement for a senior secured asset-based revolving credit facility
(the “Global Credit Facility”) in the maximum aggregate principal amount of $350 million, subject to borrowing base capacity.
The Global Credit Facility supports the working capital and general corporate needs of our global operations, in addition to
funding strategic initiatives. Subject to meeting certain conditions, we may request to increase the total lending commitments
under the Global Credit Facility to a maximum aggregate principal amount not to exceed $450 million.
Sunrise Holdings (Delaware), Inc.
On October 9, 2015, we completed the acquisition of 100% of the issued and outstanding common shares of Sunrise Holdings
(Delaware), Inc. (“Sunrise”), pursuant to a Purchase and Sale Agreement dated July 30, 2015 (the “Sunrise Acquisition”), for
total consideration of $472.7 million in cash. Sunrise is a processor of conventional and organic IQF fruit in the U.S. The
acquisition of Sunrise aligned with our strategic focus on healthy and organic foods. Sunrise has been included in the Consumer
Products operating segment since the date of acquisition.
In January 2016, we initiated the consolidation of our frozen fruit processing facilities following the Sunrise Acquisition.
Consequently, we transferred all production volume from our Buena Park, California facility into Sunrise’s facilities located
in Kansas and California.
ACQUISITION HISTORY
SunOpta has been built through business acquisitions and significant internal growth. The following is a summary listing of
business operations that we have acquired and retained since the inception of SunOpta. This summary does not include
acquisitions that were subsequently divested.
Date of Acquisition Business Operations Acquired
August 3, 1999
August 15, 2000
September 18, 2000 Northern Food and Dairy, Inc.
Sunrich Inc.
Certain assets of Hoffman Aseptic
March 14, 2001
May 8, 2003
November 1, 2003
December 1, 2003
September 13, 2004
First Light Foods Inc.
Kettle Valley Dried Fruit Ltd.
SIGCO Sun Products, Inc.
Sonne Labs, Inc.
51% of the outstanding shares of Organic Ingredients, Inc. (remaining
49% of the outstanding shares were acquired on April 5, 2005)
Earthwise Processors, LLC
Cleugh’s Frozen Foods, Inc.
Pacific Fruit Processors, Inc.
Hess Food Group LLC
The Organic Corporation
Dahlgren & Company, Inc.
June 2, 2005
June 20, 2005
July 13, 2005
November 7, 2006
April 2, 2008
November 8, 2010
December 14, 2010 Assets of Edner of Nevada, Inc.
August 5, 2011
December 31, 2012 Organic Land Corporation OOD
March 2, 2015
Citrusource, LLC
Assets of Lorton’s Fresh Squeezed Juices, Inc.
Reportable Segment
Global Ingredients
Consumer Products
Consumer Products/
Global Ingredients
Consumer Products
Consumer Products
Global Ingredients
Global Ingredients
Consumer Products
Global Ingredients
Consumer Products
Consumer Products
Consumer Products
Global Ingredients
Global Ingredients
Consumer Products
Consumer Products
Global Ingredients
Consumer Products
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December 31, 2016 10-K
Date of Acquisition Business Operations Acquired
August 11, 2015
October 9, 2015
Assets of Niagara Natural Fruit Snack Company Inc.
Sunrise Holdings (Delaware), Inc.
Reportable Segment
Consumer Products
Consumer Products
SEGMENT INFORMATION
The composition of our reportable segments is as follows:
(cid:2) 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 specialty and organic
grains and seeds, raw material ingredients, value-added grain- and cocoa-based ingredients, and organic commodities.
(cid:2) Consumer Products consists of three main commercial platforms: Healthy Beverages, Healthy Fruit and Healthy
Snacks. Healthy Beverages includes aseptic packaged products including non-dairy and 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
includes fruit snacks; nutritional and protein bars; and resealable pouch products.
In addition, Corporate Services provides a variety of management, financial, legal, information technology, treasury and
administration services to each of our operating segments from our headquarters in Mississauga, Ontario and our administrative
office in Edina, Minnesota.
Financial information for each reportable segment describing revenues from external customers, a measure of profit or loss,
and total assets for the last three fiscal years, as well as financial information about geographic areas for the last three fiscal
years, is presented in note 22 of the Consolidated Financial Statements.
Global Ingredients
Operations and Product offerings—Global Ingredients
Global Ingredients aggregates our North American and international raw material sourcing and supply operating segments
focused on the procurement, processing and sale of specialty and organic grains, seeds, fruits, grain- and cocoa-based
ingredients, and other commodities, which are used primarily in applications serving the natural and organic food industry. Its
operations are centered in Amsterdam, the Netherlands; Edina, Minnesota; and Scotts Valley, California.
Global Ingredients sources products from approximately 65 countries around the world, which include:
(cid:2) Organic fruit- and vegetable-based raw materials and ingredients, sweeteners, cocoa, coffees, ancient grains, nuts,
seeds and pulses and other organic food products.
(cid:2)
Identity preserved (“IP”), non-GMO and organic seeds and grains including soy, corn and sunflower for food
applications, with control maintained at every stage of production, from seed selection and growing through storage,
processing and transportation.
(cid:2) Seed- and grain-based animal feed and pet food products that originate from select organic and non-GMO soy, corn,
sunflower and other commodities.
Global Ingredients also engages in processing and contract manufacturing services that include:
(cid:2) Seed and grain conditioning services for soy, corn and sunflower.
(cid:2) Grain milling for corn, with various granulations and batch sizing.
(cid:2) Coffee and sesame seed processing.
(cid:2) Dry and oil roasting and packaging, including in-shell sunflower and sunflower kernels, corn, soy- and legume-based
snacks.
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December 31, 2016 10-K
(cid:2) Liquid (concentrates and oil) and dried format seed, grain and cocoa based ingredients utilizing non-GMO and organic
soy, corn, sunflower, rice, and cocoa.
(cid:2) Specialty organic functional ingredients, including maltodextrins, tack blends, flavor enhancing products, including
snack coatings, cheese powders and flavor systems.
Competition—Global Ingredients
Food ingredients are considered unique niche items often sourced, developed or processed for specific customers or industry
segments. Global Ingredients competes with large seed, grain, raw material and specialty ingredient suppliers for customers and
competes with other companies active on the international commercial seed, grain and raw material procurement market for supply.
Its non-GMO and organic specialty products compete in the smaller niche commercial non-GMO and organic seed, grain and raw
material markets. Key to competing in these markets is access to transportation, supply and relationships with producers.
Competitors include major food companies with food ingredient divisions, other food ingredient and sourcing companies, and
consumer food companies that also engage in the development and sale of food ingredients. Many of these competitors have
financial and technical resources, as well as production and marketing capabilities that are greater than our own.
The international organic food industry is very competitive due primarily to the limited worldwide supply of organic raw materials.
Global Ingredients competes with worldwide brokers, traders and food processors for the limited supply of organic raw material
ingredients. In many cases, it will enter into exclusive arrangements with growers and/or processors of key strategic commodities
to control the reliability of its supply chain.
Distribution, Marketing, and Sales—Global Ingredients
As a leading provider of IP, non-GMO and organic, grains, seeds, grain- and cocoa-based ingredients, and other raw materials,
Global Ingredients has well established sales and marketing capabilities, including technically oriented sales teams strategically
located close to specific geographic sourcing and/or sales regions. Its specialty grains, seeds and other raw materials and
ingredients are sold to food manufacturers and producers worldwide, including some of the largest U.S. consumer-packaged
food companies. In addition, in our estimation, it maintains one of the largest organic raw material ingredient sourcing and
supply networks in the world, working closely to develop and manage global organic supply and link these supplies with
diverse customer needs. It also provides procurement and ingredient processing support to the Consumer Products operating
segment.
Suppliers—Global Ingredients
Global Ingredients has an extensive established IP, organic soy, corn and sunflower grower network in North America, with
many relationships existing for over 25 years. It also has a network of growers in Europe, South America, Africa and Asia.
Because weather conditions and other factors can limit the availability of raw materials in a specific geography, it continues to
focus on expanding production and sourcing capabilities to other parts of the world to ensure supply in years when local
production is below normal levels. By diversifying supply, it also has the ability to divert available product based on market
demand and customer requirements in order to maximize return.
Organic raw material ingredient suppliers include growers, processors and traders of organic fruit- and vegetable-based
ingredients, sweeteners and other food products. The diversity of our supplier base helps to ensure continual supply by
providing contra-seasonal solutions to mitigate crop and quality risks. Organic food suppliers are required to meet stringent
organic certification requirements equivalent to the U.S. Department of Agriculture (“USDA”) National Organic Program,
European Union (“EU”) standards, or others.
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December 31, 2016 10-K
Consumer Products
Operations and Product Offerings—Consumer Products
Consumer Products provides healthy and organic food products that are primarily consumer-packaged to retailers, foodservice
distributors and major global food manufacturers with a variety of branded and private label products. Consumer Products’
packaged food products are categorized into the following three main commercial platforms:
(cid:2) Healthy Beverages
(cid:2) Aseptic beverages including soy, almond, rice, coconut, sunflower and other non-dairy and alternative
beverages, as well as adjacent categories such as organic dairy and nutritional beverages, including milk,
broths and teas. Specializing in aseptic product offerings, Consumer Products produces a variety of pack
sizes, including multi-serve and single-serve formats, all shelf stable with long shelf lives.
(cid:2) Organic and conventional beverage products, including shelf stable and refrigerated juices; specialty
beverages; vitamin and electrolyte waters; and energy drinks. Consumer Products partners with third-party
fillers to provide extended shelf life refrigerated packaging formats to its customers.
(cid:2) Our Healthy Beverage platform operates from an east to west network of three facilities, as well as co-
manufacturing relationships that allow us to minimize distribution costs for our customers, maintain
redundant back-up plans, and offer reliable, year-round programs.
(cid:2) Healthy Fruit
(cid:2)
IQF natural and organic frozen fruits and vegetables, including strawberries, blueberries, raspberries,
peppers, broccoli, blends and many other items. Consumer Products produces a variety of packaging formats,
including tubs, stand-up pouches, cups and polybags to address the needs of its retail and foodservice
customers.
(cid:2) Specialty fruit toppings and bases, which are custom formulated to provide unique flavor and texture profiles
for a wide range of specialized applications. Applications include fruit bases for yogurts, ice creams, cheeses,
smoothies, shakes, frozen desserts, bakery fillings, health bars, various beverages, dressings, marinades, dips
and sauces, and fruit toppings for foodservice applications.
(cid:2) Our Healthy Fruit platform operates from five facilities that extend from central Mexico through to
California, as well as a production facility in Kansas. Strategically our north to south footprint on the west
coast allows us to maximize access to supply of fruit over the course of the full growing season, while our
operation in the Midwest serves as a lower-cost launching pad to deliver product to the east coast.
(cid:2) Healthy Snacks
(cid:2) Organic and conventional re-sealable pouch products, in a variety of pack sizes and shapes, containing a
variety of products including baby food, puddings, sauces, and healthy fruit-, vegetable- and protein-based
snacks serving the adult nutrition category.
(cid:2) Nutritious snacks including natural and organic fruit-based snacks in bar, twist, rope and bite size shapes,
with the ability to add a variety of ingredients; and baked and extruded nutrition (i.e., protein, energy and
meal replacement) bars using a wide variety of ingredients including grains, proteins and other ingredients.
(cid:2) Our Healthy Snack platform operates from an east to west network of four facilities, as well as co-
manufacturing relationships. In the case of fruit snacks, we maintain bi-coastal production which helps to
minimize delivery costs to our customers.
Competition—Consumer Products
Consumer Products’ healthy beverage and health snacks offerings compete with major food manufacturing companies, as well
as a number of other regional manufacturers. Its healthy fruit offerings face competition from both branded and private label
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December 31, 2016 10-K
fruit providers. It faces competition when securing seed, grain, fruit, vegetable and dairy raw materials; however, due to the
location of its processing facilities, it is able to source these raw materials from a number of growing regions and suppliers.
Integrated sourcing through Global Ingredients, which supplies a number of core raw materials, combined with in-house
processing and packaging capabilities, provides Consumer Products with a low-cost advantage over many of its competitors.
Distribution, Marketing and Sales—Consumer Products
Consumer Products supplies the private-label retail market, including large retailers and club stores, branded food companies,
food manufacturers, foodservice distributors, quick service and casual dining restaurants located principally in North America.
In addition, it markets branded food products under SunOpta-controlled brands, including Sunrich® Naturals, Pure Nature™
and Nature’s Finest™. Consumer Products generally conducts its business with customers on the basis of purchase orders and
price quotations, without other formal agreements related to minimum or maximum supplies or pricing.
Costco Wholesale (“Costco”) accounted for approximately 19% of revenues from our Consumer Products segment and
approximately 11% of our consolidated revenues for the year ended December 31, 2016. Costco intends to move its private
label non-dairy aseptic beverage business to another supplier commencing in the second quarter of 2017. This business
represented approximately 4% of the revenues from our Consumer Products segment and approximately 3% of our consolidated
revenues for the year ended December 31, 2016. Other than Costco, no customers accounted for more than 10% of revenues
from our Consumer Products segment for the year ended December 31, 2016.
Suppliers—Consumer Products
Consumer Products’ raw materials are subject to the availability of seed, grain, fruit, vegetable and dairy supply, which is based
on conditions that are beyond our control. Seeds and grains are sourced through Global Ingredients’ established grower
network. Fresh and frozen fruits, berries, and vegetables are sourced directly from a large number of suppliers throughout the
U.S., Mexico and globally, or through Global Ingredients. We believe our scale and location close to growing areas makes
Consumer Products’ an attractive customer for fruit growers. Organic dairy ingredients are sourced from independent
distributors.
Consumer Products also relies on its packaging suppliers to ensure delivery of often unique, portable, and convenient consumer
packaging formats. In our aseptic packaging facilities we specialize in the use of Tetra Pak equipment in a variety of pack
sizes and also offer a variety of opening types and extended shelf life (“ESL”) options. Consumer Products also partners with
third party fillers to provide ESL and refrigerated packaging formats to its customers.
Corporate Services
Our corporate headquarters is located in Mississauga, Ontario. In addition, centralized information technology, human
resources, operations, research and development, legal and financial shared services groups are located in Edina, Minnesota.
Employees of Corporate Services provide support services across the organization including management, finance, legal,
operations, business development, information technology, research and development, human resources and administrative
functions.
REGULATION
We are subject to a wide range of governmental regulations and policies in various countries and regions where we operate, including
the U.S., Canada, Mexico, the Netherlands, throughout the rest of the EU, China and Ethiopia. These laws, regulations and policies
are implemented, as applicable in each jurisdiction, on the national, federal, state, provincial and local levels. For example, we are
affected by laws and regulations related to: seed, fertilizer and pesticides; the purchasing, harvesting, transportation and warehousing
of grain and other products; the processing, packaging and sale of food, including wholesale operations; and product labeling and
marketing, food safety and food defense. We are also affected by government-sponsored price supports, acreage set aside programs
and a number of environmental regulations.
U.S. Regulations
We are required to comply with the regulations and policies promulgated by the Environmental Protection Agency (“EPA”) and
corresponding state agencies, as well as the USDA, the Grain Inspection, Packers and Stockyard Administration, the Food and Drug
Administration (“FDA”), the Federal Trade Commission (“FTC”), Occupational Safety and Health Administration (“OSHA”) and
the Commodities and Futures Trading Commission.
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December 31, 2016 10-K
USDA National Organic Program and Similar Regulations
We are involved in the sourcing, manufacturing, supplying, processing, marketing, selling and distribution of organic seed and
food products and, as such, are subject to certain organic quality assurance standards. In 1990, Congress passed the Organic
Foods Production Act mandating that the USDA develop national standards for organically produced agricultural products to
assure consumers that those products marketed as organic meet consistent, uniform standards. The Organic Foods Production
Act established the National Organic Program, a marketing program housed within the Agricultural Marketing Service of the
USDA.
In December 2000, after considering recommendations from the National Organic Standards Board, as well as private, state,
and foreign organic certification programs, USDA adopted regulations with respect to a national organic production, handling,
labeling and certification program contained within 7 CFR 205. The regulations became fully effective in October 2002. These
regulations, among other things, set forth the minimum standards producers must meet, and have reviewed by an accredited
USDA-certifying agent, in order to label their products “100% organic”, “organic”, or “made with organic ingredients” and
display the USDA organic seal. The regulations impose strict standards on the production of organic food products and limit
the use of non-organic or synthetic materials in the production of organic foods. Generally, organic food products are produced
using:
(cid:2)
(cid:2)
(cid:2)
agricultural management practices intended to promote and enhance ecosystem health;
no genetically engineered seeds or crops, sewage sludge, long-lasting pesticides, herbicides or fungicides; and
food processing practices intended to protect the integrity of the organic product and disallow irradiation, genetically
modified organisms or synthetic preservatives.
After becoming certified, organic operations must retain records concerning the production, harvesting, and handling of
agricultural products that are to be sold as organic for a period of five years. Any organic operation found to be in violation of
the USDA organic regulations is subject to enforcement actions, which can include financial penalties or suspension or
revocation of their organic certificate.
Additionally, our organic products may be subject to various state regulations. Many states have adopted their own organic
programs making the state agency responsible for enforcing USDA regulations for organic operations. However, state organic
programs may also add more restrictive requirements due to specific environmental conditions or the necessity of production
and handling practices in the state. Applicable regulatory agencies in the U.S. include the USDA, which monitors and ensures
the integrity of both the organic process and agricultural grain business, and the FDA and Department of Homeland Security
(“DHS”), which oversee the safety, security and efficacy of the food supply in the U.S.
We currently manufacture and distribute a number of organic products that are subject to the standards set forth in the Organic
Foods Production Act and the regulations adopted thereunder by the National Organic Standards Board. We believe that we
are in material compliance with the organic regulations applicable to our business, and we are continuously strengthening our
testing and verification processes.
Food-Related Regulations
As a manufacturer and distributor of food products, we are also subject to a number of federal, state and local food-related
regulations, including, but not limited to, the Federal Food, Drug and Cosmetic Act of 1938 (the “FDCA”) and regulations
promulgated thereunder by the FDA. This comprehensive regulatory framework governs the manufacture (including
composition and ingredients), labeling, packaging and safety of food in the U.S. The FDA:
(cid:2)
(cid:2)
(cid:2)
regulates manufacturing practices for foods through its current good manufacturing practices regulations;
specifies the standards of identity for certain foods, including many of the products we sell; and
prescribes the format and content of certain information required to appear on food product labels.
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Some of the key food safety and food labeling regulations in the U.S. include, but are not limited to, the following:
1. Food Safety Regulations
The FDA Food Safety Modernization Act (“FSMA”), signed into law on January 4, 2011, enables FDA to better protect public
health by strengthening the food safety system. The law provides FDA with new enforcement authorities and tools designed to
achieve higher rates of compliance with prevention- and risk-based food safety standards and to better respond to and contain
problems when they do occur.
The FDA has now finalized its rules necessary to implement FSMA including: (1) Preventive Controls for Human Food, (2)
Preventive Controls for Food for Animals, (3) Standards for the Growing, Harvesting, Packing, and Holding of Produce for
Human Consumption, (4) Foreign Supplier Verification Programs for Importers of Food for Humans and Animals, (5) Sanitary
Transportation of Human and Animal Food, (6) Mitigation Strategies to Protect Food Against Intentional Adulteration, and (7)
Accredited Third-Party Certification. The compliance dates for these rules are as follows:
Rules
Preventive Controls for Human Food
Preventive Controls for Food for Animals (Subpart B)
Preventive Controls for Food for Animals (Subpart C)
Produce Safety
Foreign Supplier Verification Program
Sanitary Transport
Food Defense
Third Party Certifications
Date Final Rule Published
9/17/2015
9/17/2015
9/17/2015
11/27/2015
11/27/2015
4/6/2016
5/27/2016
11/27/2015
Compliance Date
9/19/2016
9/19/2016
9/18/2017
1/26/2018
5/27/2017 (or later)
4/6/2017
7/26/2019
Requirements go into effect
after FDA publishes Model
Accreditation Standards
Many of the rules, particularly those relating to good manufacturing practices and preventive controls relating to food for
human consumption, sanitary transport, and foreign supplier verification and import safety, apply to us as we manufacture,
process, pack, hold and transport food for human consumption. We also work with foreign suppliers who provide us with raw
materials. In the case of preventive controls for human food, we are already required to comply with the final rule. The rule
contains certain key requirements as follows:
a. Food Safety Plan
Covered facilities must establish and implement a written food safety system that includes an analysis of hazards and risk-
based preventive controls. The hazard analysis must consider known or reasonably foreseeable biological, chemical, and
physical hazards. The preventive control measures are required to ensure that hazards requiring a preventive control will be
minimized or prevented. They include process, food allergen, and sanitation controls, as well as supply-chain controls and a
recall plan. In addition to establishing preventive controls, we must continuously ensure that the controls are effective through
monitoring and verification activities. If a control fails, prompt corrective actions must be taken to identify a problem with
preventive control implementation, to reduce the likelihood the problem will recur, evaluate affected food for safety, and
prevent it from entering commerce. All corrective actions must be documented in writing.
b. Supply Chain Management
The final rule mandates that a manufacturing facility have a risk-based supply chain program for those raw materials and other
ingredients that have an identified hazard requiring a supply-chain applied control. Accordingly, we are responsible for
ensuring that foods are received only from approved suppliers, or on a temporary basis from unapproved suppliers whose
materials are subject to verification activities before being accepted for use.
c. Current Good Manufacturing Practices
The final rule updated and clarified current good manufacturing practices (“CGMPs”). Specifically, some of the previously
nonbinding regulatory provisions, such as education and training, are now binding. Management is required to ensure that all
employees who manufacture, process, pack or hold food are qualified and properly educated to perform their assigned duties.
Now that this rule has become final, we are in the process of developing regulatory compliance programs to ensure that all
requirements of the rules applicable to us are met by the effective date.
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In addition, we are subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the
“Bioterrorism Act”) and regulations issued thereunder. The Bioterrorism Act authorizes the FDA to take the regulatory action
necessary to protect the nation’s food supply against the threat of intentional or accidental contamination. The major
components of the Bioterrorism Act include registration of food facilities with the FDA; prior notice of virtually all imported
food shipments under FDA authority; recordkeeping requirements for food facilities; FDA authority to administratively detain
food; FDA authority to institute debarment of food importers for various violations related to food importation; and creation of
a clear way to re-import previously refused foods if certain criteria are met.
We believe that we are in material compliance with the current regulations promulgated to implement FSMA that are applicable
to our business. By way of example, we reviewed and updated our CGMP and recall policies; implemented change control,
corporate supplier approval, allergen management, and environmental monitoring programs; completed food safety plans for
our covered facilities; and engaged third party consultants to assist our internal resources with onsite food safety plan reviews
at our facilities and to conduct on-site audits in order to strengthen our food safety system. We are continuing to develop
internal compliance policies and practices for those rules that have future compliance dates in order to ensure compliance by
the required deadlines.
Lastly, we are subject to numerous other federal, state and local regulations involving such matters as the licensing and
registration of manufacturing facilities, enforcement by government health agencies of standards for our products, inspection
of our facilities and regulation of our trade practices in connection with the sale of food products.
2. Food Labeling Regulations
The Company is subject to certain requirements relating to food labeling under the FDCA and corresponding FDA regulations as
well as the Fair Packaging and Labeling Act enacted in 1967 and corresponding FTC regulations. Although the FTC, FDA, and
USDA share jurisdiction over claims made by manufacturers of food products, the FDA retains primary jurisdiction over the labeling
of food products whereas the FTC regulates advertising.
The FDA and FTC require that all food products be labeled to disclose the net contents, the identity of commodity, nutrition
information, and the name and place of business of the product’s manufacturer, packer, or distributor in order to prevent consumer
deception. Both agencies also require that any claim on the product be truthful and not misleading.
On May 20, 2016, the FDA announced a new Nutrition Facts label for packaged foods to reflect new scientific information, including
the link between diet and chronic diseases such as obesity and heart disease. The FDA’s Final Rules regarding the Revision of the
Nutrition and Supplement Facts Labels and Serving Sizes require manufacturers to, among other things:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
increase the type size for “calories”, “servings per container”, and the “serving size” declaration, and bolding the number
of calories and the “Serving size” declaration to highlight this information;
declare the actual amount, in addition to percent Daily Value of vitamin D, calcium, iron and potassium;
include “added sugars”, in grams and as percent Daily Value, on the label;
display serving sizes on labels based on amounts of foods and beverages that people are actually eating, not what they
should be eating
Manufacturers will need to use the new label by July 26, 2018. We believe that we will be in material compliance with these new
food labeling regulations where applicable to our business by the compliance date.
Other state and local statutes and regulations may impose additional food labeling requirements. For instance, the California Safe
Drinking Water and Toxic Enforcement Act of 1986 (commonly referred to as “Proposition 65”) requires, with a few exceptions,
that a specific warning appear on any consumer product sold in California that contains a substance, above certain levels, listed by
that state as having been found to cause cancer or birth defects. This law exposes all food and beverage producers to the possibility
of having to provide warnings on their products.
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FDA Generally Regarded as Safe Regulations
Food ingredients can be classified into four groups including: food additives; color additives; prior sanctioned substances, and
Generally Regarded as Safe (“GRAS”) substances. In particular, a food additive is a substance, “the intended use of which results
or may reasonably be expected to result, directly or indirectly, either in their becoming a component of food or otherwise affecting
the characteristics of food.” Food additives require premarket approval under the 1958 Food Additive Amendments to the FDCA
as administered by FDA. However, in enacting those amendments, Congress recognized that many substances intentionally used
in a manner whereby they are added to food would not require a formal premarket review by FDA to assure their safety, either
because their safety had been established by a long history of use in food or by virtue of the nature of the substances, their customary
or projected conditions of use, and the information generally available to scientists about the substances. Congress thus excluded
from the definition of “food additive” substances that are generally recognized, among qualified experts, as having been adequately
shown through scientific procedures to be safe under the conditions of their intended use, or GRAS.
Companies may establish GRAS status through “self-affirmation” whereby the producer determines on its own that the ingredient
is GRAS, normally with the assistance of a panel of qualified experts. The producer may also voluntarily submit a “GRAS
Notification” to the FDA that includes the products description, conditions of use, and the basis for GRAS determination, among
other information. The FDA response to a GRAS notice, typically issued within 180 days, is not an approval and the product may
be marketed while the FDA is reviewing the information.
A food ingredient is eligible for GRAS classification based on the “views of experts qualified by scientific training and
experience to evaluate the safety” of the product. The expert’s views are either based on scientific procedures or through
experience based on common use of the material prior to 1958. If based on scientific procedures they must use the same
quantity and quality of scientific evidence as would be required for the FDA to issue a premarket approval of the sale of a food
additive. If a food ingredient is not entitled to GRAS status, premarket approval must be sought through the filing of a Food
Additive Petition.
A number of our products are being marketed pursuant to GRAS self-affirmation. We believe that a majority of products for
which we have commercial rights are GRAS. However, such status cannot be determined until actual formulations and uses
are finalized. Thereafter, we decide whether self-affirmation procedures and a GRAS notification will be appropriate. For
those components that do not qualify for GRAS, we may be required to file a Food Additive Petition. In the event that a petition
is required, we may elect to sell or license our rights to manufacture, market, and distribute the component to another party.
Environmental Regulations
The Company is also subject to various U.S. federal, state and local environmental regulations. Some of the key environmental
regulations in the U.S. include, but are not limited to, the following:
(cid:2) Air quality regulations – air quality is regulated by the EPA and certain city/state air pollution control groups.
Emission reports are filed annually.
(cid:2) Waste treatment/disposal regulations – solid waste is either disposed of by a third-party or, in some cases, we have a
permit to haul and apply the sludge to land. Agreements exist with local city sewer districts to treat waste at specified
levels of Biological Oxygen Demand (“BOD”), Total Suspended Solids (“TSS”) and other constituents. This can
require weekly/monthly reporting as well as annual inspection.
(cid:2) Sewer regulations – we have agreements with the local city sewer districts to treat waste at specified limits of BOD
and TSS. This requires weekly/monthly reporting as well as annual inspection.
(cid:2) Hazardous chemicals regulations – Various reports are filed with local city/state emergency response agencies to
identify potential hazardous chemicals being used in our facilities.
(cid:2) Storm water – all facilities are inspected annually and must comply with an approved storm water plan to protect water
supplies.
Employee Safety Regulations
We are subject to certain safety regulations, including OSHA regulations. These regulations require us to comply with certain
manufacturing safety standards to protect our employees from accidents. We believe that we are in material compliance with
all employee safety regulations applicable to our business.
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December 31, 2016 10-K
Canadian and Other Non-U.S. Regulations
Outside of the U.S., regulations concerning the sale or characterization of food ingredients vary substantially from country to
country, and we take appropriate steps to comply with such regulations.
In Canada, the sale of food is currently regulated under various federal and provincial laws, principally the federal Food and Drugs
Act (“FADA”), Canada Agricultural Products Act (“CAPA”), and the Canadian Environmental Protection Act, 1999 (“CEPA”),
along with their supporting regulations. Some of the key Canadian regulatory instruments include but are not limited to the
following:
(cid:2) Food and Drug Regulations (under the FADA) – food and drugs are subject to specific regulatory requirements, including
composition (such as food additives, fortification, and food standards), packaging, labeling, advertising and marketing,
and licensing requirements. New requirements regarding nutrition and ingredient labelling and food colour were
introduced on December 14, 2016. To the extent the new labelling requirements apply to products manufactured and sold
by the Company, we will have a five-year transitional period to adopt them. Amendments dealing with food colour
specifications and the removal of synthetic colour certification requirements came into effect immediately.
(cid:2) Organic Products Regulations, 2009 (“OPR”) (under the CAPA) – the OPR require mandatory certification to the revised
national organic standard for agricultural products that are to be represented as organic in international and inter-provincial
trade, or that bear the federal organic agricultural product legend (or federal logo). Except for certain exceptions and
conditions, a U.S.-Canada Organic Equivalence Arrangement is currently in place whereby agricultural products produced
and processed in conformity with the USDA National Organic Program are considered to be equivalent to the requirements
of the OPR.
(cid:2) Canada Consumer Product Safety Act (“CCPSA”) – the CCPSA provides oversight and regulation of consumer
products with respect to manufacturers, importers, and retailers. It includes, without limitation, the ability to require
product recalls, mandatory incident reporting, document retention requirements, increased fines and penalties, and
packaging and labeling requirements. While the CCPSA does not apply to food, it does apply to its packaging with
respect to safety. It is possible that there will be amendments introduced to the FADA, to capture the essence of the
regulatory oversight found in the CCPSA. We have no way of anticipating if and when that may occur.
(cid:2) Consumer Packaging and Labeling Act (“CPLA”) – the CPLA and its supporting regulations outline requirements for
packaging and labeling of products, including food products. The CPLA sets out labeling requirements relating to the
description of the product, net quantity and dealer information, as well as packaging standards. The CPLA also
includes a prohibition against false or misleading labeling.
(cid:2) Canada Food Inspection Agency Act (“CFIAA”) – the CFIAA grants power to the Canadian Food Inspection Agency
(the “CFIA”), which is tasked with the administration and enforcement of certain Canadian food legislation. Under
the CFIAA, the CFIA has the power to recall certain products if the Minister believes that such product poses a risk
to the public, animal or plant health.
(cid:2) Processed Products Regulations (“PPR”) (under the CAPA) – the PPR regulates the grading, packing and marking of
processed products that are produced in Canada for inter-provincial or export trade or imported into Canada. Under
the PPR, processed food products are those that are prepared to assure preservation of the food product in transport,
distribution and storage. The PPR establishes requirements with respect to the content, preparation, packing and
marking of processed food products.
In January, 2017, the Government of Canada published the second version of its proposed Safe Food for Canadians Regulations
(“SFCR”) under the authority of the Safe Food for Canadians Act (“SFCA”). Publication of the SFCR was accompanied by a
90-day public consultation period. If and when they become effective, the SFCR will consolidate 13 existing Canadian
regulations and the food labelling provisions of the CPLA, and thereby establish a comprehensive set of regulations which
govern all food sectors subject to CFIAA oversight, including federally registered sectors and food that is destined for import,
export or interprovincial trade. Principal elements of the SCFR which are likely to impact the Company include licensing
requirements for the import, export and interprovincial trade of food, traceability requirements, reporting requirements and
timelines, preventative controls, an export certificate request process, prescribed container sizes and weights for certain
products, labelling regulations and standards of identity and expansion of organic certification to service providers and
additional products. The licensing requirements will be immediate for sectors such as meat, eggs and other previously federally
registered sectors and up to three years for other sectors.
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We are subject to Dutch and European Commission (“EC”) regulations and policies. Our European subsidiary, The Organic
Corporation (“TOC”), is involved in the sourcing, supplying, processing, marketing, selling and distribution of organic food
products and, as such, is subject to standards for production, labeling and inspection of organic products contained in EC
Regulation 2092/91 (and its subsequent amendments). TOC is certified by Skal, the inspection body for the production of
organic products in the Netherlands. Products certified as organic by an EU-recognized inspection body, such as Skal, can be
marketed within the entire EU. In addition, under the terms of an equivalency arrangement between the U.S. and the EU,
organic operations certified to the USDA organic or EU organic standards may be labeled and sold as organic in both the U.S.
and EU.
TOC is also affected by general food legislation both at EU and Dutch level relating to product safety and hygiene, among
others. TOC is Hazard Analysis and Critical Control Point certified in the Netherlands and manages a fully computerized
system that manages the traceability of each product. In addition, TOC also considers and abides by EU and local legislation
with regard to packaging and packaging waste. TOC is also subject to the regulations and policies of the countries outside of
the EU in which it operates, including China and Ethiopia.
Following the Sunrise Acquisition, we operate a processing facility in Mexico and are subject to Mexican regulations, including
regulations regarding processing, packaging and sales of food products, labor relations and profit-sharing with employees.
RESEARCH AND DEVELOPMENT
Research and development and new product, process and packaging innovation are key priorities of our Company and
initiatives are focused on continuous improvement of our existing product portfolios and continuing efforts to improve
production process to reduce costs and improve efficiencies, as well as the development of innovative new products. Innovation
is a key pillar for us and a necessity in the natural and organic foods categories. We believe our commitment and proactive
approach to new product development and innovation is important to our ability to introduce new higher-margin food and
beverage products to the market.
In June 2015, we expanded our research and development platform by opening an advanced innovation center in Edina,
Minnesota. This facility supports our dedicated team of food scientists, engineers and technicians, expands our product
development capabilities, increases our speed to market and enables us to proactively engage customers in creating and
developing new products. We believe our innovation platform supports our leadership position in non-GMO and organic food
and strengthens our relationships with our retail, foodservice and contract manufacturing customers.
Our product development team includes highly trained and experienced food scientists and technologists that are dedicated to
both the development of unique new product offerings plus addressing product development opportunities for our customers
including new and custom formulations, innovations in packaging formats, and new production processes and applications.
Applications and technical support provided to our customers include all aspects of product development from concept to
commercial launch, as well as ongoing manufacturing and processing support.
We continue to develop new products to maximize the capabilities of our aseptic packaging facilities, including the development
of non-dairy based beverages that address the growing consumer demand for beverages that satisfy allergy concerns and provide
a unique nutritional profile, as well as teas, organic dairy and nutritional beverages. In addition, we continue to develop new
fruit-based beverages, fruit- and grain-based snacks, nutrition bars and fruit-based re-sealable pouch products, as well as
innovative fruit ingredient systems for the dairy, foodservice and beverage industries. We are also continually looking to
develop new value-added products for our customers that leverage our global sourcing platform.
INTELLECTUAL PROPERTY
The nature of a number of our products and processes requires that we create and maintain patents, trade secrets and trademarks.
Our policy is to protect our technology, brands and trade names by, among other things, filing patent applications for technology
relating to the development of our business in the U.S. and in selected foreign jurisdictions, registering trademarks in the U.S.,
Canada and selected foreign jurisdictions where we sell products, and maintenance of confidentiality agreements with outside
parties and employees.
Our success will depend, in part, on our ability to protect our products, trade names and technology under U.S. and international
patent laws and other intellectual property laws. We believe that we own or have sufficient rights to use all of the proprietary
technology, information and trademarks necessary to manufacture and market our products; however, there is always a risk
that patent applications relating to our products or technologies will not result in patents being issued, or, if issued, will be later
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December 31, 2016 10-K
challenged by a third party, or that current or additional patents will not afford protection against competitors with similar
technology.
We also rely on trade secrets and proprietary know-how and confidentiality agreements to protect certain technologies and
processes. Even with these steps taken, our outside partners and contract manufacturers could gain access to our proprietary
technology and confidential information. All employees are required to adhere to internal policies, which are intended to
further protect our technologies, processes and trade secrets.
PROPERTIES
We operate 24 processing facilities in 8 U.S. states, as well as Canada, Mexico, the Netherlands, Bulgaria, and Ethiopia. In
addition, we also own and lease a number of office and distribution locations in the U.S., Canada, Mexico, the Netherlands,
Ethiopia, France and China, and lease and utilize public warehouses to satisfy our storage needs. We also lease farmland that
we sublease to fruit growers. For more details see Item 2. Properties, elsewhere in this report.
ENVIRONMENTAL HAZARDS
We believe that, with respect to both our operations and real property, we are in material compliance with environmental laws
at all of our locations.
EMPLOYEES
As at December 31, 2016, we had a total of approximately 2,000 full-time employees (January 2, 2016 – 2,100, which included
270 employed at Opta Minerals). We also employ up to 2,000 seasonal employees in the U.S. and Mexico during peak fruit
seasons each year. We consider our relations with our employees to be good and have not experienced any work stoppages,
slowdowns or other serious labor problems that have materially impeded our business operations.
AVAILABLE INFORMATION
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), are
available free of charge on our website at www.sunopta.com as soon as reasonably practicable after we file such information
electronically with, or furnish it to, the U.S. Securities and Exchange Commission (the “SEC”) and applicable Canadian
Securities Administrators (the “CSA”).
Item 1A. Risk Factors
Our business, operations and financial condition are subject to various risks and uncertainties, including those described below
and elsewhere in this report. We believe the most significant of these risks and uncertainties are described below, any of which
could adversely affect our business, financial condition and results of operations and could cause actual results to differ
materially from the results contemplated by the forward-looking statements contained in this report. In such case, the trading
price of our common stock could decline, and you may lose all or part of your investment. There may be additional risks and
uncertainties not presently known to us or that we currently consider immaterial. Consequently, you should not consider the
following to be a complete discussion of all possible risks or uncertainties applicable to our business. These risk factors should
be read in conjunction with the other information in this report and in the other documents that we file from time to time with
the SEC and the CSA.
Risks Related to Our Ongoing Operational Review and Significant Investors
We are conducting a thorough review of the Company’s operations, management and governance. Both the process of
conducting this review and its outcome and implementation could pose a number of risks that could have an adverse impact
on our business, financial condition or results of operations
We are conducting a thorough review of our operations, management and governance in partnership with representatives of
Oaktree. Among other things, the Board has committed to a further review of governance and leadership with a particular
focus on continuing to add independent directors with significant expertise in the food industry and continuing to ensure that
we have the management resources to implement our strategy and the action items that emerge from our operational review.
We are also implementing a number of operational actions to improve our profitability and streamline our operations for long-
term success. These actions may include rationalization or consolidation of certain of our operations or facilities, reinvestment
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December 31, 2016 10-K
in certain of our operations or facilities, investments in personnel, processes and tools, as well as other cost saving initiatives.
These actions could consume capital resources and could also give rise to impairment and other restructuring charges that
would be both cash and non-cash in nature, and these charges could be material.
We have not yet finalized our review, but you should be aware that we may decide to take actions with a material impact on
our operations, strategy, governance, management and future prospects. In 2016, we announced the closures of our San
Bernardino, California juice facility and Heuvelton, New York soy extraction facility, resulting in the write-down of related
assets amounting to $11.5 million. Certain actions that we take may lead to additional write-downs of assets and/or charges in
future periods. In addition, we cannot predict whether the actions we take will achieve our goals of improving our profitability
and financial performance and delivering long-term value to our shareholders. Our ongoing review could expose us to a number
of other risks, including the following:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
distraction of management;
difficulties in hiring, retaining and motivating key personnel as a result of uncertainty generated by the review and the
implementation of any resulting recommendations;
difficulties in maintaining relationships or arrangements with customers, suppliers and other third parties; and
increases in general and administrative expenses associated with the need to retain and compensate business and
recruiting consultants and other advisors.
Further, we do not intend to discuss or disclose further developments during this review process unless and until the Board has
approved a specific action. Accordingly, speculation regarding any developments related to the review of our operations,
management and governance and perceived uncertainties related to our future could cause our stock price or the price of our
debt to fluctuate significantly.
The occurrence of any one or more of the above risks could have an adverse impact on our business, financial results, liquidity
and financial condition.
Our significant investors may have interests that conflict with those of our debtholders and other stakeholders
Under the agreements executed in connection with our strategic partnership with Oaktree, Oaktree initially may acquire
common stock of SunOpta Inc. representing up to 19.99% of SunOpta Inc.’s outstanding common stock. This percentage may
be increased to 27% under certain circumstances, subject to shareholder approval.
Oaktree has nominated two members of the Board and is entitled to designate two nominees for election to the Board so long
as it beneficially owns or controls at least 11.1% of SunOpta Inc.’s common stock on an as-exchanged basis. If Oaktree
beneficially owns or controls less than 11.1% but more than 5% of SunOpta Inc.’s common stock on an as-exchanged basis, it
will be entitled to designate one nominee. In addition, Engaged Capital has nominated one member of our Board.
Oaktree is participating in our ongoing review of our operations, management and governance. Oaktree’s objectives and
perspectives during this review may not always be aligned with those of other stakeholders, including our debtholders and
smaller shareholders.
The interests of Oaktree and Engaged Capital, as well as their affiliates, may differ from the interests of our other stakeholders
in material respects. For example, our large investors and their affiliates may have an interest in directly or indirectly pursuing
acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their other equity investments,
even though such transactions might involve risks to us, including risks to our liquidity and financial condition. Our large
investors and their affiliates are in the business of making or advising on investments in companies, including businesses that
may directly or indirectly compete with certain portions of our business. They may also pursue acquisition opportunities that
may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
A concentration of ownership within our large investors could potentially be disadvantageous to, or conflict with, interests of
our debtholders or smaller shareholders. In addition, if any significant shareholder were to sell or otherwise transfer all or a
large percentage of its holdings, we could find it difficult to raise capital, if needed, through the sale of additional equity
securities.
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Risks Related to Our Business
Product liability suits, recalls and threatened market withdrawals, could have a material adverse effect on our business
Many of our products are susceptible to harmful bacteria, and the sale of food products for human consumption involves the
risk of injury or illness to consumers. Such injuries may result from inadvertent mislabeling, tampering by unauthorized third
parties, faulty packaging materials, product contamination, or spoilage. Under certain circumstances, we or our customers may
be required to recall or withdraw products, which may lead to a material and adverse effect on our business, financial condition
or result of operations. Our customers may also voluntarily recall or withdraw a product we manufactured or packaged, even
without consulting us, which could increase our potential liability and costs and result in lost sales. A product recall or
withdrawal could result in significant losses due to the costs of the recall, the destruction of product inventory, and lost sales
due to the unavailability of product for a period of time. In addition, we could be forced to temporarily close one or more
production facilities. Even if a situation does not necessitate a recall or market withdrawal, product liability claims might be
asserted against us. If a product recall or withdrawal were to lead to a decline in sales of a similar or related product sold by a
customer or other third party, that party could also initiate litigation against us. While we are subject to governmental inspection
and regulations and believe our facilities and those of our co-packers comply in all material respects with all applicable laws
and regulations, if the consumption of any of our products causes, or is alleged to have caused, a health-related illness in the
future, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful
or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm could
adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image.
For example, on July 29, 2016, one of our wholly-owned subsidiaries agreed to pay $5.0 million in cash and up to $4.0 million
in rebates to one of our customers to settle litigation filed by the customer in connection with a voluntary recall of certain pouch
products manufactured at our subsidiary’s Allentown, Pennsylvania facility.
On May 3, 2016, we announced a voluntary recall of certain sunflower kernel products produced at our Crookston, Minnesota
facility that have the potential to be contaminated with Listeria monocytogenes bacteria, and a number of our customers initiated
recalls of their products that contain the affected sunflower kernels as an ingredient or component. While we have recognized
estimated losses of $40.0 million related to this recall, we may need to revise our estimates to be materially larger as we continue
to work with our customers to substantiate the claims received to date and any additional claims that may be received. We may
also incur costs that are significantly greater than our previous estimates. These revisions of our estimated losses and costs may
occur at any time as we continue this process.
Additionally, these losses do not reflect costs associated with the interruption of production at the Crookston facility for the
period from April 21, 2016 to the time regular production resumed on or about May 15, 2016, subject to a positive release
protocol, or the costs to put into place corrective and preventive actions at our roasting facilities. Our remediation efforts are
ongoing, and we expect to continue to incur related costs, which may be material. Further, we are currently unable to estimate
the full impact that this recall may have on our future sales of sunflower products or on our ongoing relationships with our
customers. The recall may cause us to lose future revenues from, or relationships with, one or more material customers, and
the impact of the recall could affect our customers’ willingness to continue to purchase other unrelated products from us or
could hinder our ability to grow our business with those customers. We may not be able to determine the full extent of the
losses related to the recall for some time and certain factors impacting these losses, such as our customers’ processes for
developing their claims, the timing of submission of any such claims and the terms of our customers’ insurance policies and
related coverage, are beyond our control.
Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution
that we may have against others. Although we maintain product liability insurance, we may incur claims or liabilities for which
we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a further
product recall could have a material and adverse effect on our business, financial condition or results of operations.
Food safety concerns and instances of food-borne illnesses caused by third parties could harm our business
Our internal processes and training may not be fully effective in preventing contamination of food products that could lead to
food-borne illnesses. We rely on third-party suppliers and distributors, which increases the risk that food-borne illness incidents
(such as e. coli, salmonella or listeria) could occur outside of our control and at multiple locations. If consumers lose confidence
in the safety and quality of our products or organic products generally, even in the absence of a recall or a product liability
case, our business, financial condition or results of operations could be materially and adversely affected. Instances of food-
borne illnesses, whether real or perceived, and whether or not traceable to our operations or a result of our actions or omissions,
could cause negative publicity about us or the products we serve, which could adversely affect sales. Food safety concerns and
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instances of food-borne illnesses and injuries caused by contaminated products sold by third parties could cause customers to
shift their preferences, even if no food-borne illnesses or injuries are traced to our products. As a result, our sales may decline.
Loss of customers as a result of these health concerns or negative publicity could harm our business.
Litigation and regulatory enforcement concerning marketing and labeling of food products could adversely affect our
business and reputation
The marketing and labeling of any food product in recent years has brought increased risk that consumers will bring class action
lawsuits and that the FTC and/or state attorneys general will bring legal action concerning the truth and accuracy of the
marketing and labeling of the product. Examples of causes of action that may be asserted in a consumer class action lawsuit
include fraud, unfair trade practices, and breach of state consumer protection statutes (such as Proposition 65 in California).
The FTC and/or state attorneys general may bring legal action that seeks removal of a product from the marketplace, and
impose fines and penalties. Even when not merited, class claims, action by the FTC or state attorneys general enforcement
actions can be expensive to defend and adversely affect our reputation with existing and potential customers and consumers
and our corporate and brand image, which could have a material and adverse effect on our business, financial condition or
results of operations.
We are subject to significant food and health regulations
We are affected by a wide range of governmental regulations in Canada, the U.S., Mexico and several countries in Europe,
among others. These laws and regulations are implemented at the national level (including, among others, federal laws and
regulation in Canada and the U.S.) and by local subdivisions (including, among others, state laws in the U.S. and provincial
laws in Canada). We are also subject to regulations of the EU and the regulatory authority of regulatory agencies in several
different countries. Examples of regulatory agencies influencing our operations include: the USDA, the FDA, the DHS, the
EPA, the CFIA, and Skal, among others.
Examples of laws and regulations that affect us include laws and regulations applicable to:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
the use of seed, fertilizer and pesticides;
the purchasing, harvesting, transportation and warehousing of seeds, grain and other products;
the processing and sale of food, including wholesale operations; and
the product labeling and marketing of food and food products, food safety and food defense.
These laws and regulations affect various aspects of our business. For example, as described in more detail under “Item 1.
Business—Regulation” of this report, certain food ingredient products manufactured by SunOpta are regulated under the
FDCA, as administered by the FDA. Under the FDCA, pre-marketing approval by the FDA is required for the sale of a food
ingredient which is a food additive unless the substance is GRAS, under the conditions of its intended use by qualified experts
in food safety. We believe that most food ingredients for which we have commercial rights are GRAS. However, this status
cannot be determined until actual formulations and uses are finalized. As a result, we may be adversely impacted if the FDA
determines that our food ingredient products do not meet the criteria for GRAS.
In addition, certain USDA regulations set forth the minimum standards producers must meet in order to have their products
labeled as “certified organic”, and we currently manufacture a number of organic products that are covered by these regulations.
While we believe our products and our supply chain are in compliance with these regulations, changes to food regulations may
increase our costs to remain in compliance. We could lose our “organic” certification if a facility becomes contaminated with
non-organic materials or if we do not use raw materials that are certified organic. The loss of our “organic” certifications could
materially and adversely affect our business, financial condition or results of operations.
Our business is subject to the Perishable Agricultural Commodities Act (“PACA”). PACA regulates fair trade standards in the
fresh produce industry and governs our purchases of fresh produce and sales of frozen produce. We source fresh produce under
licenses issued by the USDA, as required by PACA. Our failure to comply with the PACA requirements could, among other
things, result in civil penalties, suspension or revocation of our licenses to sell produce and in certain cases, criminal
prosecution, which could have a material and adverse effect on our business, financial condition or results of operations.
Changes in any government laws and regulations applicable to our operations could increase our compliance costs, negatively
affect our ability to sell certain products or otherwise adversely affect our results of operations. In addition, while we believe
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we are in material compliance with all laws and regulations applicable to our operations, we cannot assure you that we have
been, or will at all times be, in compliance with all food production and health requirements, or that we will not incur material
costs or liabilities in connection with these requirements. Our failure to comply with any laws, regulations or policies applicable
to our business could result in fines, lawsuits, enforcement actions, penalties or loss in the ability to sell certain products, any
of which could materially and adversely affect our business, financial condition or results of operations.
We may require additional capital to maintain current growth rates, which may not be available on favorable terms or at
all
We have grown via a combination of internal growth and acquisitions requiring available financial resources. Our ability to
raise capital, through equity or debt financing, is directly related to our ability to both continue to grow and improve returns
from our operations. Debt or equity financing may not be available to us on favorable terms or at all. In addition, any future
equity financing would dilute our current shareholders and may result in a decrease in our share price if we are unable to realize
adequate returns. We will not be able to maintain our growth rate and/or acquire complementary businesses within the natural
and organic food industries without continued access to capital resources.
Impairment charges in goodwill or other intangible assets could adversely impact our financial condition and results of
operations
As a result of business acquisitions, a significant portion of our total assets is comprised of intangible assets and goodwill. We
are required to perform impairment tests of our goodwill and other intangible assets annually, or at any time when events occur
that could affect the value of these assets. We may engage in additional acquisitions, which could result in our recognition of
additional intangible assets and goodwill. If the financial performance of the acquired businesses is not as strong as we
anticipate, we could be required to record significant impairments to intangible assets and/or goodwill, which could materially
and adversely impact our business, financial condition and results of operations.
We operate in a highly competitive industry
We operate businesses in highly competitive product and geographic markets in the U.S., Canada, Europe and various other
international markets. We compete with various U.S. and international commercial grain procurement marketers, major
companies with food ingredient divisions, other food ingredient companies, trading companies, and consumer-packaged food
companies that also engage in the development and sale of food ingredients and other food companies involved in natural and
organic foods. These competitors may have financial resources and staff larger than ours and may be able to benefit from
economies of scale, pricing advantages and greater resources to launch new products that compete with our offerings. We have
little control over and cannot otherwise affect these competitive factors. If we are unable to effectively respond to these
competitive factors or if the competition in any of our product markets results in price reductions or decreased demand for our
products, our business, financial condition or results of operations may be materially and adversely affected.
Our customers generally are not obligated to continue purchasing products from us
Many of our customers buy from us under purchase orders, and we generally do not have long-term agreements with or
commitments from these customers for the purchase of products. We cannot provide assurance that our customers will maintain
or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing
customer base. Decreases in our customers’ sales volumes or orders for products supplied by us may have a material adverse
effect on our business, financial condition or results of operations.
Loss of a key customer could materially reduce revenues and earnings
Our relationships with our key customers are critical to the success of our business and our results of operations. One of our
customers accounted for approximately 11% of revenues for the year ended December 31, 2016. We do not expect to receive
the same level of revenue from this customer in 2017, which could adversely affect our total revenues for the year. The loss or
cancellation of business with any of our other larger customers could materially and adversely affect our business, financial
condition or results of operations.
Consumer preferences for natural and organic food products are difficult to predict and may change
Our success depends, in part, on our ability and our customers’ ability to offer products that anticipate the tastes and dietary
habits of consumers and appeal to their preferences on a timely and affordable basis. A significant shift in consumer demand
away from our products or products that utilize our integrated foods platform, or our failure to maintain our current market
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position, could reduce our sales and harm our business. Consumer trends change based on a number of possible factors,
including nutritional values, a change in consumer preferences or general economic conditions. Additionally, there is a growing
focus among some consumers to buy local food products in an attempt to reduce the carbon footprint associated with
transporting food products from longer distances, which could result in a decrease in the demand for food products and
ingredients that we import from other countries or transport from remote processing locations or growing regions. Further,
failures by us or our competitors to deliver quality products could erode consumer trust in the organic certification of foods.
These changes could lead to, among other things, reduced demand and price decreases, which could have a material and adverse
effect on our business, financial condition or results of operations.
If we do not manage our supply chain effectively, our operating results may be adversely affected
Our supply chain is complex. We rely on suppliers for our raw materials and for the manufacturing, processing, packaging and
distribution of many of our products. The inability of any of these suppliers to deliver or perform for us in a timely or cost-
effective manner could cause our operating costs to rise and our margins to fall. Many of our products are perishable and
require timely processing and transportation to our customers. Additionally, many of our products can only be stored for a
limited amount of time before they spoil and cannot be sold. We must continuously monitor our inventory and product mix
against forecasted demand or risk having inadequate supplies to meet consumer demand as well as having too much inventory
that may reach its expiration date. If we are unable to manage our supply chain efficiently and ensure that our products are
available to meet consumer demand, our operating costs could increase and our margins could fall, which could have a material
and adverse effect on our business, financial condition or results of operations.
Some of our operations are subject to seasonal supply fluctuations. For example, we purchase strawberries and other fruit from
farmers during the peak California growing season, which occurs during the first two quarters of the year. As a result, our costs
may be higher during these periods. We may not be successful in counteracting or smoothing out the effects of seasonality, and
we expect that certain parts of our operations will continue to remain subject to significant seasonality.
Part of our supply source also depends in part on a seasonal temporary workforce comprised primarily of migrant workers.
Changes in immigration laws or policies that discourage migration to the U.S. and political or other events (such as war,
terrorism or health emergencies) that make it more difficult for individuals to immigrate to or migrate throughout the U.S.
could adversely affect the migrant worker population and reduce the workforce available for farms and production facilities in
the U.S. Additionally, increased competition from other industries for migrant workers could increase our costs and adversely
affect our business, financial condition or results of operations.
Volatility in the prices of raw materials and energy could increase our cost of sales and reduce our gross margins
Raw materials represent a significant portion of our cost of sales. Our cost to purchase services and materials, such as grains,
fruits and other commodities, processing aids, and natural gas, can fluctuate depending on many factors, including weather
patterns, economic and political conditions and pricing volatility. In addition, we must compete for limited supplies of these
raw materials and services with competitors having greater resources than us. If our cost of materials and services increases
due to any of the above factors, we may not be able to pass along the increased costs to our customers.
We enter into a number of exchange-traded commodity futures and options contracts to partially hedge our exposure to price
fluctuations on transactions to the extent considered practicable for minimizing risk from market price fluctuations. Futures
contracts used for hedging purposes are purchased and sold through regulated commodity exchanges. Our inventories,
however, may not be completely hedged, due in part to our assessment of exposure from expected price fluctuations and an
inability to hedge a number of raw materials.
Exchange purchase and sales contracts may expose us to risks that a counterparty to a transaction is unable to fulfill its
contractual obligation. We may be unable to hedge 100% of the price risk of each transaction due to timing and availability of
hedge contracts and third party credit risk. In addition, we have a risk of loss from hedge activity if a grower does not deliver
the commodity as scheduled. We also monitor the prices of natural gas and from time to time lock in a percentage of our
natural gas needs based on current prices and expected trends.
An increase in our cost of sales resulting from an increase in the price of raw materials and energy could have a material and
adverse effect on our business, financial condition or results of operations.
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Our future results of operations may be adversely affected by the availability of organic and non-GMO ingredients
Our ability to ensure a continuing supply of organic and non-GMO ingredients at competitive prices depends on many factors
beyond our control, such as the number and size of farms that grow organic and non-GMO crops, climate conditions, changes
in national and world economic conditions, currency fluctuations and forecasting adequate need of seasonal ingredients.
The organic and non-GMO ingredients that we use in the production of our products (including, among others, fruits,
vegetables, nuts and grains) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, water
scarcity, temperature extremes, frosts, earthquakes and pestilences. Natural disasters and adverse weather conditions (including
the potential effects of climate change) can lower crop yields and reduce crop size and crop quality, which in turn could reduce
our supplies of organic or non-GMO ingredients or increase the prices of organic or non-GMO ingredients. If our supplies of
organic or non-GMO ingredients are reduced, we may not be able to find enough supplemental supply sources on favorable
terms, if at all, which could impact our ability to supply product to our customers and adversely affect our business, financial
condition and results of operations.
Adverse weather conditions and natural disasters could impose costs on our business
Our various food products, from seeds and grains to ingredients, fruits, vegetables and other inputs, are vulnerable to adverse
weather conditions and natural disasters, including windstorms, hurricanes, floods, droughts, fires, temperature extremes and
earthquakes, some of which are common but difficult to predict, as well as crop disease and infestation. Severe weather
conditions may occur with higher frequency or may be less predictable in the future due to the effects of climate change.
Unfavorable growing conditions could reduce both crop size and crop quality. In extreme cases, entire harvests may be lost in
some geographic areas. Adverse weather conditions or natural disasters may adversely affect our supply of one or more food
products or prevent or impair our ability to ship products as planned. These factors can increase costs, decrease our sales
volumes and revenues and lead to additional charges to earnings, which may have a material adverse effect on our business,
financial condition and results of operations.
A significant portion of our fruit supply is sourced from California, which continued to experience severe drought conditions
for the fifth consecutive year in 2016 due to extremely low levels of rainfall. Such conditions have resulted in lost crops as
well as increased water costs for growers in California. In particular, we depend on growers in California for strawberries. In
January 2014, a drought state of emergency was declared in California and, among other actions, legislation was passed
requiring monitoring of groundwater pumping, which limits the amount of groundwater for which farmers can drill. Strawberry
growers are largely dependent on well water, and diminishing groundwater resources could lead to a reduced strawberry supply.
In April 2015, statewide mandatory water conservation measures were imposed in California, including increased water use
reporting by agricultural water users, enhancing the state’s ability to enforce against diversions and unreasonable use of water
in an effort to curtail wasteful water practices in agricultural fields. Although the drought conditions in California significantly
improved in late 2016 and early 2017, the mandatory water conservation measures remain in place. While farms have been
largely exempted from the strict water conservation measures imposed statewide, which have mostly targeted urban water use,
a worsening of drought conditions could lead to more restrictive measures aimed at the agricultural industry. Recurring drought
conditions and existing and future water conservation laws could negatively impact the agricultural industry in California and
have a material adverse effect on our business, financial condition or results of operations.
An interruption at one or more of our manufacturing facilities could negatively affect our business, and our business
continuity plan may prove inadequate
We own or lease, manage and operate a number of manufacturing, processing, packaging, storage and office facilities. We
could be rendered unable to accept and fulfill customer orders as a result of disasters, epidemics, business interruptions or other
similar events. Some of our inventory and manufacturing facilities are located in areas that are susceptible to harsh weather,
and the production of certain of our products is concentrated in a few geographic areas. In addition, we store chemicals used
in the equipment for quick freezing of fruit or used for cooling processes during ingredient processing, and our storage of these
chemicals could lead to risk of leaks, explosions or other events. Although we have a business continuity plan, we cannot
provide assurance that our business continuity plan will address all of the issues we may encounter in the event of a disaster or
other unanticipated issue. Our business interruption insurance may not adequately compensate us for losses that may occur
from any of the foregoing. In the event that a natural disaster, or other catastrophic event were to destroy any part of any of
our facilities or interrupt our operations for any extended period of time, or if harsh weather or epidemics prevent us from
delivering products in a timely manner, our business, financial condition and results of operations could be materially and
adversely affected. In addition, if we fail to maintain our labor force at one or more of our facilities, we could experience delays
in production or delivery of our products, which could also have a material adverse effect on our business, financial condition
and results of operations.
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Technology failures could disrupt our operations and negatively impact our business
In the normal course of business, we rely on information technology systems to process, transmit, and store electronic
information. For example, our production and distribution facilities and inventory management utilize information technology
to increase efficiencies and limit costs. Information technology systems are also integral to the reporting of our results of
operations. Furthermore, a significant portion of the communications between, and storage of personal data of, our personnel,
customers, consumers and suppliers depends on information technology. Our information technology systems may be
vulnerable to a variety of interruptions, as a result of updating our enterprise platform or due to events beyond our control,
including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and
other security issues. These events could compromise our confidential information, impede or interrupt our business
operations, and may result in other negative consequences, including remediation costs, loss of revenue, litigation and
reputational damage. Furthermore, if a breach or other breakdown results in disclosure of confidential or personal information,
we may suffer reputational, competitive and/or business harm. To date, we have not experienced a material breach of cyber
security. While we have implemented administrative and technical controls and taken other preventive actions to reduce the
risk of cyber incidents and protect our information technology, they may be insufficient to prevent physical and electronic
break-ins, cyber-attacks or other security breaches to our computer systems, which could have a material adverse effect on our
business, financial condition or results of operations.
If we lose the services of our key management, our business could suffer
Our prospects depend to a significant extent on the continued service of our key executives, and our continued growth depends
on our ability to identify, recruit and retain key management personnel. We are also dependent on our ability to continue to
attract, retain and motivate our personnel. We do not typically carry key person life insurance on our executive officers. If we
lose the services of our key management or fail to identify, recruit and retain key personnel, our business, financial condition
or results of operations may be materially and adversely impacted.
If we face labor shortages or increased labor costs, our results of operations and our growth could be adversely affected
Labor is a significant component of the cost of operating our business. Our ability to meet our labor needs while controlling
labor costs is subject to external factors, such as employment levels, prevailing wage rates, minimum wage legislation, changing
demographics, health and other insurance costs and governmental labor and employment requirements. In the event of
increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, while
increasing our wages could cause our earnings to decrease. If we face labor shortages or increased labor costs because of
increased competition for employees from our competitors and other industries, higher employee-turnover rates, unionization
of farm workers or increases in the federal- or state-mandated minimum wage, change in exempt and non-exempt status, or
other employee benefits costs (including costs associated with health insurance coverage or workers’ compensation insurance),
our operating expenses could increase and our business, financial condition and results of operations could be materially and
adversely affected.
Technological innovation by our competitors could make our food products less competitive
Our competitors include major food ingredient and consumer-packaged food companies that also engage in the development
and sale of food and food ingredients. Many of these companies are engaged in the development of food ingredients and other
packaged food products and frequently introduce new products into the market. Existing products or products under
development by our competitors could prove to be more effective or less costly than our products, which could have a material
adverse effect on the competitiveness of our products and our business.
We rely on protection of our intellectual property and proprietary rights
Our success depends in part on our ability to protect our intellectual property rights. We rely primarily on patent, copyright,
trademark and trade secret laws to protect our proprietary technologies. Our policy is to protect our technology by, among
other things, filing patent applications for technology relating to the development of our business in the U.S. and in selected
foreign jurisdictions.
Our trademarks and brand names are registered in the U.S., Canada and other jurisdictions. We intend to keep these filings
current and seek protection for new trademarks to the extent consistent with business needs. We also rely on trade secrets and
proprietary know-how and confidentiality agreements to protect certain of the technologies and processes that we use.
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The failure of any patents, trademarks, trade secrets or other intellectual property rights to provide protection to our technologies
would make it easier for our competitors to offer similar products, which could result in lower sales or gross margins.
Changes in laws or regulations governing foreign trade or taxation could adversely affect our business
Changes in governmental laws or regulations affecting foreign trade or taxation, or the introduction of new laws or regulations,
may have a direct or indirect effect on our business or those of our customers or suppliers. Such changes could increase the
costs of doing business for the Company, our customers, or suppliers, or restrict our actions, causing our results of operations
to be adversely affected.
On January 20, 2017, Donald J. Trump was inaugurated as the President of the United States. President Trump has expressed
an intention to change existing trade agreements, such as the North American Free Trade Agreement (“NAFTA”). Any changes
to NAFTA could impact our Mexican and Canadian operations. President Trump has also indicated an intention to request that
Congress make significant changes to U.S. tax laws. Changes in U.S. political, regulatory and economic conditions or laws
and policies governing U.S. tax laws and foreign trade with countries where we or our customers operate, in particular Canada,
Mexico and Europe, could adversely affect our operating results and our business.
Our operations are influenced by agricultural policies
We are affected by governmental agricultural policies such as price supports and acreage set aside programs and these types of
policies may affect our business. The production levels, markets and prices of the grains and other raw products that we use
in our business are materially affected by government programs, which include acreage control and price support programs of
the USDA. Revisions in these and other comparable programs, in the U.S. and elsewhere, could have a material and adverse
effect on our business, financial condition or results of our operations.
We are subject to substantial environmental regulation and policies
We are, and expect to continue to be, subject to substantial federal, state, provincial and local environmental regulation. Some
of the key environmental regulations to which we are subject include air quality regulations of the EPA and certain
city/state/provincial air pollution control groups, waste treatment/disposal regulations, sewer regulations under agreements with
local city sewer districts, regulations governing hazardous substances, storm water regulations and bioterrorism regulations.
For a more detailed summary of the environmental regulations and policies to which we are subject, see “Item 1. Business—
Regulation” of this report. Our business also requires that we have certain permits from various state, provincial and local
authorities related to air quality, storm water discharge, solid waste, land spreading and hazardous waste.
In the event that our safety procedures for handling and disposing of potentially hazardous materials in certain of our businesses
were to fail, we could be held liable for any damages that result, and any such liability could exceed our resources. We may
be required to incur significant costs to comply with environmental laws and regulations in the future. In addition, changes to
environmental regulations may require us to modify our existing plant and processing facilities and could significantly increase
the cost of those operations.
The foregoing environmental regulations, as well as others common to the industries in which we participate, can present delays
and costs that can adversely affect business development and growth. If we fail to comply with applicable laws and regulations,
we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions,
which could have a material adverse effect on our business, financial condition and results of operations. In addition, any
changes to current regulations may impact the development, manufacturing and marketing of our products, and may have a
negative impact on our future results.
Climate change laws could have an impact on our financial condition and results of operations
Legislative and regulatory authorities in the U.S., Canada and internationally will likely continue to consider numerous
measures related to climate change and greenhouse gas emissions. In order to produce, manufacture and distribute our products,
we and our suppliers use fuels, electricity and various other inputs that result in the release of greenhouse gas emissions.
Concerns about the environmental impacts of greenhouse gas emissions and global climate change may result in environmental
taxes, charges, regulatory schemes, assessments or penalties, which could restrict or negatively impact our operations, as well
as those of our suppliers, who would likely pass all or a portion of their costs along to us. We may not be able to pass any
resulting cost increases along to our customers. Any enactment of laws or passage of regulations regarding greenhouse gas
emissions or other climate change laws by the U.S., Canada or any other international jurisdiction where we conduct business
could materially and adversely affect our business, financial condition and results of operations.
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Fluctuations in exchange rates, interest rates and commodity prices could adversely affect our business, financial condition,
results of operations or liquidity
We are exposed to foreign exchange rate fluctuations as our non-U.S.-based operations are translated into U.S. dollars for
financial reporting purposes and we also sell product in currencies that are different from the currency used to purchase
materials, or process finished goods. We are exposed to changes in interest rates as a significant portion of our debt bears
interest at variable rates. We are exposed to price fluctuations on a number of commodities as we hold inventory and enter into
transactions to buy and sell products in a number of markets. Additional qualitative and quantitative disclosures about these
risks can be found in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of this report. As a result of
these exposures, fluctuations in exchange rates, interest rates and certain commodities could adversely affect our business,
financial condition, results of operations or liquidity.
Our international operations expose us to additional risks
We source our products from numerous suppliers and growers from around the world. Outside of the U.S. and Canada, we
have processing, packaging and warehousing facilities in Mexico, Europe, Africa and Asia. Our international operations and
customers expose us to certain risks inherent in doing business abroad, including:
(cid:2)
exposure to local economic conditions, expropriation and nationalization, foreign exchange rate fluctuations and
currency controls;
(cid:2) withholding and other taxes on remittances and other payments by subsidiaries;
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
investment restrictions or requirements;
export and import restrictions;
compliance with anti-corruption and anti-bribery laws, including the U.S. Foreign Corrupt Practices Act;
compliance with export controls and economic sanctions laws;
increases in working capital requirements related to long supply chains; and
disruptions in our supply chain from unforeseen events, such as natural disasters, terrorism and political and civil
unrest.
For example, we have significant operations in Mexico, including a facility in the State of Michoacán, near areas where there
have been incidents of unrest, which may heighten the risks of our international operations described above.
As we continue to expand our business globally, we may have difficulty anticipating and effectively managing these and other
risks that our international operations may face, which may adversely impact our business, financial condition and results of
operations. In addition, any acquisition of businesses with operations outside of the U.S. and Canada may exacerbate this risk.
A significant portion of our assets and certain of our executive officers and directors are located outside of the U.S.; it may
be difficult to effect service of process and enforce legal judgments upon us and certain of our executive officers and
directors
A significant portion of our assets and certain of our executive officers and directors are located outside of the U.S. As a result,
it may be difficult to effect service of process within the U.S. and enforce judgment of a U.S. court obtained against us or our
executive officers and directors. Particularly, our stakeholders may not be able to:
(cid:2)
(cid:2)
(cid:2)
effect service of process within the U.S. on us or certain of our executive officers and directors;
enforce judgments obtained in U.S. courts against us or certain of our executive officers and directors based upon
the civil liability provisions of the U.S. federal securities laws;
enforce, in a court outside of the U.S., judgments of U.S. courts based on the civil liability provisions of the U.S.
SUNOPTA INC.
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December 31, 2016 10-K
federal securities laws; or
(cid:2)
bring an original action in a court outside of the U.S. to enforce liabilities against us or any of our executive officers
and directors based upon the U.S. federal securities laws.
Risks Related to Our Indebtedness
Our level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations
Our level of indebtedness could adversely affect our business, financial condition or results of operations, including, without
limitation, impairing our ability to obtain additional financing for working capital, capital expenditures, debt service
requirements or other general corporate purposes. In addition, we will have to use a substantial portion of our cash flow to pay
principal, premium (if any) and interest on our indebtedness which will reduce the funds available to us for other purposes. If
we do not generate sufficient cash flows to satisfy our debt service obligations, we may have to undertake alternative financing
plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise
additional capital. Our level of indebtedness will also make us more vulnerable to economic downturns and adverse industry
conditions, and may compromise our ability to capitalize on business opportunities and to react to competitive pressures as
compared to our competitors.
Our debt and equity agreements restrict how we may operate our business, and our business may be materially and adversely
affected if these restrictions prevent us from implementing our business plan
The agreements governing our debt and preferred equity instruments contain restrictive covenants that limit the discretion of
our management with respect to certain business matters. These covenants place restrictions on, among other things, our ability
to obtain additional debt financing, to create other liens, to complete a merger, amalgamation or consolidation, to make certain
distributions or make certain payments, investments and guarantees and to sell or otherwise dispose of certain assets. These
restrictions may hinder our ability to execute on our growth strategy or prevent us from implementing parts of our business
plan.
Our business may be materially and adversely affected if we are unable to renew the Global Credit Facility
The Global Credit Facility matures on February 10, 2021. We may not be able to renew this facility to the same level or size,
or on terms as favorable as at present. A reduced facility may impact our ability to finance our business, requiring us to scale
back our operations and our use of working capital. Alternatively, obtaining credit on less favorable terms would have a direct
impact on our profitability and operating flexibility.
Our business could be materially and adversely affected if we are unable to meet the financial covenants of the Global
Credit Facility
Our ability to comply with the financial covenants under the Global Credit Facility agreement will depend on the success of
our businesses, our operating results, and our ability to achieve our financial forecasts. Various risks uncertainties and events
beyond our control could affect our ability to comply with the financial covenants and terms of the Global Credit Facility
agreement. Failure to comply with our financial covenants and other terms could result in an event of default and the
acceleration of amounts owing under this agreement, unless we were able to negotiate a waiver. The lenders could condition
any such waiver on an amendment to the agreement on terms (including, but not limited to, the payment of consent fees) that
may be unfavorable to us. If we are unable to negotiate a covenant waiver or replace or refinance the Global Credit Facility
agreement on favorable terms or at all, our business, financial condition or results of operations will be materially and adversely
impacted.
Risks Related to Business Acquisitions and Divestures
We may not be able to effectively manage our growth and integrate acquired companies
From time to time we may pursue acquisition opportunities that are consistent with our overall growth strategy. In 2015, we
completed the Sunrise Acquisition, which was the largest acquisition in the history of our company. Our ability to effectively
integrate Sunrise, as well as other past or future business acquisitions, including our ability to realize potentially available
marketing opportunities and cost savings in a timely and efficient manner will have a direct impact on our future results. We
may encounter problems in connection with the integration of any new businesses, such as challenges relating to the following:
SUNOPTA INC.
30
December 31, 2016 10-K
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
integration of an acquired company’s products into our product mix;
the amount of cost savings that may be realized as a result of our integration of an acquired product or business;
unanticipated quality and production issues with acquired products;
adverse effects on business relationships with suppliers and customers;
diversion of management attention;
integrating acquired operations that have management teams and company cultures that differ from our own;
difficulty with personnel and loss of key employees;
implementation of an integrated enterprise-wide accounting and information system and consolidation of back office
accounting;
compatibility of financial control and information systems;
exchange rate risk with respect to acquisitions outside the U.S.;
potential for patent and trademark claims or other litigation against or involving the acquired company;
integration of businesses that operate in new geographic areas, including difficulties in identifying and gaining access
to customers in new markets; and
in the case of foreign acquisitions, uncertainty regarding foreign laws and regulations and difficulty integrating
operations and systems as a result of cultural, systems and operational differences.
If we experience any of these problems in the integration of acquisitions, they could have a material and adverse effect on our
business, financial condition or results of operations.
We may not have accurately estimated the benefits or synergies to be realized from business acquisitions
Our expected benefits and synergies from acquired businesses may not be realized if our cash flow estimates associated with
the assets of those businesses are materially inaccurate or if we fail to identify operating problems or liabilities prior to
acquisition. We perform inspections of the assets to be acquired, which we believe to be generally consistent with industry
practices. However, the accuracy of our assessments of the assets and our estimates are inherently uncertain. There could also
be environmental or other problems that were not discovered in the course of our due diligence and inspections. If problems or
risks are identified after the closing of an acquisition, there may be limited recourse against the former owners.
Business acquisitions may expose us to unknown liabilities
We will be subject to all of the liabilities of acquired businesses, including legal and administrative proceedings. If there are
unknown liabilities or other obligations, including contingent liabilities, our business could be materially affected. Moreover,
to the extent there is indemnification against losses and liabilities in these businesses acquisition agreements, the amount of
indemnification available could be limited and may not be sufficient to cover the actual losses we may suffer.
Business acquisitions could result in unexpected disruptions of our business
In response to an acquisition, the acquired business’s customers may cease or reduce their business with the acquired business
or some of our customers may cease or reduce their business with us, which could negatively affect our combined operations.
Similarly, current or prospective employees of us or of the acquired businesses may experience uncertainty about their future
roles with the combined entity. This may adversely affect our ability to attract and retain key management, marketing and
technical personnel. In addition, the diversion of the attention of our respective management teams away from day-to-day
operations during the pendency of the business acquisition could have an adverse effect on our financial condition and operating
results.
SUNOPTA INC.
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December 31, 2016 10-K
The possible future divestiture of businesses could impact our profitability
We may, from time to time, divest businesses that are no longer a strategic fit or no longer meet our growth or profitability
targets. Our profitability may be impacted by gains or losses on the sales of such businesses, or lost operating income or cash
flows from such businesses. Additionally, we may be required to record asset impairment or restructuring charges related to
divested businesses, or indemnify buyers for liabilities, which may reduce our profitability and cash flows. We may also not
be able to negotiate such divestitures on terms acceptable to us. Such potential divestitures will require management resources
and may divert management’s attention from our day-to-day operations. If we are not successful in divesting such businesses,
our business could be harmed.
Risks Related to Ownership of our Common Shares
Our operating results and share price are subject to significant volatility
Our net sales and operating results may vary significantly from period to period due to:
(cid:2)
(cid:2)
changes in our customers and/or their demand;
changes in our operating expenses;
(cid:2) management’s ability to execute our business strategies focused on improved operating earnings;
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
organizational and personnel changes;
interruption in operations at our facilities;
product recalls or market withdrawals;
legal and administrative cases (whether civil, such as environmental or product related, or criminal), settlements,
judgments and investigations;
foreign currency fluctuations;
supply shortages or commodity price fluctuations; and
general economic conditions.
In addition, our share price may be highly volatile compared to larger public companies. Certain announcements could have a
significant effect on our share price, including announcements regarding:
(cid:2)
fluctuations in financial performance from period to period;
(cid:2) mergers, acquisitions and/or divestitures, either by us or key competitors;
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
changes in key personnel;
strategic partnerships or arrangements;
litigation and governmental inquiries;
changes in governmental regulation and policy;
patents or proprietary rights;
changes in consumer preferences and demand;
new financings; and
SUNOPTA INC.
32
December 31, 2016 10-K
(cid:2)
general market conditions.
Higher volatility increases the chance of larger than normal price swings which reduces predictability in the price of our
common shares and could impair investment decisions. In addition, price and volume trading volatility in the stock markets
can have a substantial effect on our share price, frequently for reasons other than our operating performance. These broad
market fluctuations could adversely affect the market price of our common shares.
In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class
action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in
substantial costs and a diversion of our management’s attention and resources.
Our debt instruments restrict, and our future debt instruments may restrict, our ability to pay dividends to our shareholders,
and we do not currently intend to pay any cash dividends on our common shares in the foreseeable future; therefore, our
shareholders may not be able to receive a return on their common shares until their shares are sold
We have never paid or declared any cash dividends on our common shares. We do not anticipate paying any cash dividends
on our common shares in the foreseeable future because, among other reasons, we currently intend to retain any future earnings
to finance the growth of our business. In addition, the covenants included in our debt instruments, and the covenants to be
included in our future debt instruments may restrict our ability to receive cash from our subsidiaries and pay dividends on our
common shares. The future payment of dividends will be dependent on factors such as these covenant restrictions, cash on
hand, or achieving and maintaining profitability, the financial requirements to fund growth, our general financial condition and
other factors the Board may consider appropriate in the circumstances. Until we pay dividends, which we may never do, our
shareholders will not receive a return on their common shares until their shares are sold.
The future issuance of additional common shares in connection with the exchange of convertible preferred stock, exercise
of stock options, participation in our employee stock purchase plan and issuance of additional securities could dilute the
value of our common shares
We have unlimited common shares authorized but unissued. Our articles of amalgamation authorize us to issue these common
shares, and we may also issue options, rights, warrants and appreciation rights relating to common shares for consideration and
on terms and conditions established by the Board in its sole discretion.
The exchange of convertible preferred stock, exercise of stock-based awards, participation in our employee stock purchase
plan, and issuance of additional securities in connection with acquisitions or otherwise could result in dilution in the value of
our common shares and the voting power represented thereby. Furthermore, to the extent common shares are issued pursuant
to the exchange of convertible preferred stock, exercise of stock-based awards, participation in our employee stock purchase
plan and issuance of additional securities, our share price may decrease due to the additional amount of common shares
available in the market. The subsequent sales of these shares could encourage short sales by our shareholders and others, which
could place further downward pressure on our share price. Moreover, the holders of our stock options may hedge their positions
in our common shares by short selling our common shares, which could further adversely affect our stock price.
If securities or industry research analysts do not publish or cease publishing research or reports about our business or if
they issue unfavorable commentary or downgrade our common shares, our share price and trading volume could decline
The trading market for our common shares relies in part on the research and reports that securities and industry research analysts
publish about us, our industry, our competitors and our business. We do not have any control over these analysts. Our share
price and trading volumes could decline if one or more securities or industry analysts downgrade our common shares, issue
unfavorable commentary about us, our industry or our business, cease to cover our Company or fail to regularly publish reports
about us, our industry or our business.
Item 1B. Unresolved Staff Comments
None.
SUNOPTA INC.
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December 31, 2016 10-K
Item 2. Properties
The following table lists the location, description, ownership and segment of our principal properties:
Location
Mississauga, Ontario(1)
Edina, Minnesota(1)
Hope, Minnesota(2)
Breckenridge, Minnesota(2)
Moorhead, Minnesota(2)
Crookston, Minnesota(2)
Grace City, North Dakota(2)
Wahpeton, North Dakota(2)
Wahpeton, North Dakota(2)
Blooming Prairie, Minnesota(2)
Ellendale, Minnesota(2)
Scotts Valley, California(2),(3)
Amsterdam, The Netherlands(2)
Middenmeer, The Netherlands(2) Cocoa processing
Cavaillon, France(2)
Dalian, China(2)
Dalian, China(2)
Addis Ababa, Ethiopia(2)
Humera, Ethiopia(2)
Silistra, Bulgaria(2)
Varna, Bulgaria(2)
Heuvelton, New York(2)(4)
Cresco, Iowa(2)
South Gate, California(3)
Alexandria, Minnesota(3)
Alexandria, Minnesota(3)
Alexandria, Minnesota(3)
Modesto, California(3)
San Bernardino, California(3)(5)
Allentown, Pennsylvania(3)
Facility Description
Corporate head office
Corporate administrative office and Consumer Products
head office
Grain processing and Raw Material Sourcing and Supply
head office
Grain processing and distribution
Grain processing and distribution
Grain processing, warehouse and distribution
Grain processing, warehouse and distribution
Grain processing, warehouse and distribution
Grain storage
Grain storage
Grain storage
Sales and administrative office
Sales and International Sourcing and Supply head office
Sales office
Storage
Sales office
Coffee processing and warehouse
Grain processing, warehouse and storage
Grain processing
Sales and administrative office
Ingredient processing
Grain milling
Fruit ingredient processing, warehouse and distribution
Aseptic processing and packaging
Ingredient processing
Storage
Aseptic processing and packaging
Beverage processing, warehouse and distribution
Resealable pouch and aseptic beverage processing,
packaging and distribution
Warehouse
Fruit snack processing, warehouse and distribution
Nutrition bar processing, warehouse and distribution
Fruit snack processing, warehouse and distribution
Frozen fruit processing, warehouse and distribution
Frozen fruit processing, warehouse and distribution
Frozen fruit processing, warehouse and distribution
Frozen fruit processing, warehouse and distribution
Sales and administration office
Frozen fruit processing, warehouse and distribution
Allentown, Pennsylvania(3)
Omak, Washington(3)
Carson City, Nevada(3)
St. David’s, Ontario(3)
Edwardsville, Kansas(3)
Oxnard, California(3)
Oxnard, California(3)
Santa Maria, California(3)
Placentia, California(3)
Jacona, Mexico(3)
Owned/
Leased
Leased
Leased
Lease Expiry
Date
June 2021
September 2022
Owned
February 2021
October 2022
December 2017
July 2022
November 2024
December 2024
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased March 2018
Leased May 2017
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Owned
Leased May 2019
Leased
Leased
June 2020
July 2019
February 2020
April 2027
November 2025
December 2020
December 2020
Leased
Leased May 2017
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Owned
September 2017
December 2017
January 2019
(1) Included in Corporate Services.
(2) Included in Global Ingredients.
(3) Included in Consumer Products.
(4) Heuvelton, New York, facility was closed on January 10, 2017.
SUNOPTA INC.
34
December 31, 2016 10-K
(5) San Bernardino, California, facility was closed on December 28, 2016.
Executive Offices
Our executive head office is located at 2233 Argentia Drive, Suite 401, Mississauga, Ontario.
Item 3. Legal Proceedings
Employment Matter
In April 2013, a class-action complaint, in the case titled De Jesus, et al. v. Frozsun, Inc. d/b/a Frozsun Foods, alleging various
wage and hour violations was filed against Sunrise Growers, Inc. (then named Frozsun, Inc.) in California Superior Court,
Santa Barbara County seeking damages, equitable relief and reasonable attorneys’ fees. 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 approximately 8,500 to 9,000 non-exempt hourly
employees from Sunrise’s production facilities in Santa Maria and Oxnard, California. The parties are currently engaged in
pre-class certification discovery. The Company is unable to estimate any potential liabilities relating to this proceeding, and
any such liabilities could be material.
From time to time, we are involved in litigation incident to the ordinary conduct of our business. For a discussion of certain
legal proceedings, see note 21 of the consolidated financial statements included elsewhere in this report.
Item 4. Mine Safety Disclosures
Not Applicable.
SUNOPTA INC.
35
December 31, 2016 10-K
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Equity
Securities
Our common shares trade in U.S. dollars on The NASDAQ Global Select Market under the symbol “STKL”, and in Canadian
dollars on the TSX under the symbol “SOY”.
The following table indicates the high and low sales prices for our common shares for each quarterly period during the past
two fiscal years on the NASDAQ and TSX. The prices shown are representative inter-dealer prices, do not include retail mark-
ups, markdowns or commissions and do not necessarily reflect actual transactions.
Fiscal 2016
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal 2015
First quarter
Second quarter
Third quarter
Fourth quarter
NASDAQ
TSX
High
$
Low
$
High
C$
Low
C$
6.77
5.69
7.17
7.70
12.04
11.61
11.39
7.40
4.12
3.16
4.22
5.73
9.34
9.69
4.50
4.61
9.88
7.18
9.39
10.09
15.05
14.25
14.91
9.88
5.38
4.14
5.47
7.58
11.67
11.78
5.98
6.04
As at December 31, 2016, we had approximately 450 shareholders of record. We have never paid cash dividends on our
common stock and do not anticipate paying dividends in the foreseeable future. Our future dividend policy will depend on our
earnings, capital requirements and financial condition, requirements of the financial agreements to which we are then a party
and other factors considered relevant by our board of directors. Additionally, the terms of our existing debt instruments include
covenants that restrict our ability to pay dividends to shareholders. The receipt of cash dividends by U.S. shareholders from a
Canadian corporation, such as we are, may be subject to Canadian withholding tax.
Equity Compensation Plan Information
The following table provides information as at December 31, 2016 with respect to our common shares that may be issued under
existing equity compensation plans.
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants, and
Rights
(a)
Weighted-
Average Exercise
Price of
Outstanding
Options,
Warrants and
Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
4,579,850
N/A
4,579,850
$7.12
N/A
$7.12
1,554,218
1,173,960
2,728,178
Plan Category
Equity compensation plans approved by
security holders:
Stock incentive plans
Employee share purchase plan
Total
SUNOPTA INC.
36
December 31, 2016 10-K
Shareholder Return Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by
reference into any filing of SunOpta under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be
expressly set forth by specific reference in such filing.
The following graph compares the five-year cumulative shareholder return on our common shares to the cumulative total return
of the S&P/TSX Composite and the NASDAQ Industrial Indices for the period which commenced December 31, 2011.
SunOpta Inc.
Nasdaq Industrial Index
S&P/TSX Composite Index
2011
100.00
100.00
100.00
2012
116.80
119.70
104.00
2013
207.68
171.35
113.94
2014
245.85
174.76
122.39
2015
141.91
189.15
108.82
2016
146.27
205.00
127.88
Assumes that $100.00 was invested in our common shares and in each index on December 31, 2011.
SUNOPTA INC.
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December 31, 2016 10-K
Item 6. Selected Financial Data
The following information has been derived from financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). The information set forth below is not necessarily indicative
of results of future operations, and should be read in conjunction with the consolidated financial statements and related notes
thereto prepared in accordance with U.S. GAAP contained in Item 8 of this report, as well as the discussion in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Revenues
Earnings (loss) from continuing
operations attributable to
SunOpta Inc.
Basic earnings (loss) per share
from continuing operations
Diluted earnings (loss) per share
from continuing operations
Total assets
Bank indebtedness
Long-term debt (including current
portion)
Long-term liabilities (including
current portion)
2016
$
2015(1)
$
2014
$
2013(2)
$
2012
$
1,346,731
1,145,134
1,102,745
998,660
916,892
(50,618) (3)
(2,996)
19,295 (4)
(8,396) (5)
17,118
(0.61)
(0.04)
0.29
(0.13)
(0.61)
(0.04)
1,129,558
201,494
1,219,203
159,773
0.28
640,950
78,454
(0.13)
705,935
126,274
231,087
322,995
4,581
6,139
20,854
23,052
1,086
3,205
0.26
0.26
707,310
120,312
7,066
5,457
(1) Includes the results of operations of Sunrise Holdings (Delaware), Inc. (acquired October 9, 2015), Niagara Natural Fruit Snack Company Inc. (acquired
August 11, 2015) and Citrusource, LLC (acquired March 2, 2015) from the respective dates of acquisition.
(2) Includes the results of operations of Organic Land Corporation OOD (acquired December 31, 2012) from the date of acquisition.
(3)
Includes a charge for the impairment of goodwill associated with the sunflower reporting unit of $17.5 million, as well as a charge of $13.3 million for
the impairment of long-lived assets associated with the closure of facilities located in San Bernardino and Buena Park, California and Heuvelton, New
York.
(4)
Includes a charge for the impairment of investment of $8.4 million, as well as a gain on disposal on assets of $1.3 million.
(5)
Includes a charge for the impairment of investment of $21.5 million.
SUNOPTA INC.
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December 31, 2016 10-K
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Financial Information
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section provides
analysis of our operations and financial position for the fiscal year ended December 31, 2016 and includes information available
to March 2, 2017, unless otherwise indicated herein. It is supplementary information and should be read in conjunction with
the consolidated financial statements included elsewhere in this report.
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”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”,
“will”, “may”, “predict”, or other similar expressions concerning matters that are not historical facts. 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 this Form 10-K.
Forward-looking statements contained in this commentary are based on our current estimates, expectations and projections,
which we believe are reasonable as of the current date. 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.
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
The composition of our reportable segments is as follows:
(cid:2) 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 specialty and organic
grains and seeds, raw material ingredients, value-added grain- and cocoa-based ingredients, and organic commodities.
(cid:2) Consumer Products consists of three main commercial platforms: Healthy Beverages, Healthy Fruit and Healthy
Snacks. Healthy Beverages includes aseptic packaged products including non-dairy and 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 includes fruit snacks; nutritional and protein bars; and resealable pouch products.
For a more detailed description of our operating groups and their businesses, please see the “Business” section at Item 1 of this
Form 10-K.
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 years 2016 and 2015 were each 52-week periods ending on December 31, 2016 and January 2,
2016, respectively, whereas fiscal year 2014 was a 53-week period ending on January 3, 2015. Except as otherwise noted in this
MD&A, the impact of the additional week on our results of operations for fiscal year 2014 was insignificant relative to the fiscal
years 2016 or 2015.
SUNOPTA INC.
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December 31, 2016 10-K
Recent Developments
Strategic Review
On June 27, 2016, we announced that we had engaged external financial and legal advisors to review our operating plan and to
evaluate a range of strategic and financial actions that we could undertake to maximize shareholder value. The strategic review
arose out of discussions with our largest shareholders, some of which had advocated that we examine value maximization
strategies. We also announced that we had engaged a global executive search firm to assist in identifying candidates who could
add additional operating, industry and capital markets experience and expertise to our Board of Directors (the “Board”). The
strategic review was concluded on October 7, 2016 with our announcement of a strategic partnership with Oaktree Capital
Management L.P., a private equity investor (together with its affiliates, “Oaktree”).
On October 7, 2016, Oaktree invested $85.0 million in cumulative, non-participating Series A Preferred Stock (the “Preferred
Stock”) of our wholly-owned subsidiary, SunOpta Foods Inc. (“SunOpta Foods”). The shares of Preferred Stock are
exchangeable into common shares of SunOpta Inc. in accordance with certain terms and conditions. Net proceeds from the
issuance of the Preferred Stock were used to repay $79.0 million of borrowings made under our second lien loan agreement.
Value Creation Plan
We are conducting, with the assistance of Oaktree, a thorough review of our operations, management and governance, with the
objective of maximizing our ability to deliver long-term value to our shareholders. Through this review, management and the
Board have developed a Value Creation Plan built on four pillars: portfolio optimization, operational excellence, go-to-market
effectiveness and process sustainability. The statements we make below about the expected results of the Value Creation Plan,
including expected improvements in earnings, earnings before income taxes, depreciation and amortization (“EBITDA”),
working capital efficiencies, and expected cash flows, are forward-looking statements. See “Forward-Looking Statements”
above. EBITDA is a non-GAAP measure that management uses when assessing the performance of our operations and our
ability to generate cash flows to fund our cash requirements, including debt service and capital expenditures.
We are currently targeting implementation of $30 million of productivity-driven annualized EBITDA enhancements and $20
million of working capital efficiencies, to be implemented over the coming 12 to 18 months. In the near-term, these benefits
are expected to be offset by structural investments we are making in the areas of quality, sales, marketing, operations and
engineering resources. Additionally, during 2017 we anticipate incurring non-structural third-party consulting support,
severance, and recruiting costs. The plan also calls for increased investment in capital upgrades at several manufacturing
facilities to enhance food safety and manufacturing efficiencies. Over time, we expect these investments to yield additional
improvement in EBITDA beyond the $30 million of initial productivity-driven savings. Recent progress on each of the four
pillars of the Value Creation Plan is highlighted below.
Portfolio Optimization
The focus of the portfolio optimization pillar is to simplify the business, investing where structural advantages exist, while
exiting businesses or product lines where we are not effectively positioned. During the fourth quarter of 2016, we announced
the closing of our San Bernardino, California, juice facility, which is expected to be $4 million accretive to EBITDA in 2017.
Following that initial announcement, we continued to evaluate our portfolio which resulted in the following additional actions:
(cid:2) Closure of our soy extraction (ingredient) facility in Heuvelton, New York, transferring production to our Alexandria,
Minnesota facility.
(cid:2) Exited certain varieties of specialty soy and sunflower, as well as frozen edamame.
(cid:2) Exited a non-core vegetable brokerage operation.
(cid:2) Launched a global organic ingredients portfolio strategy review, which is identifying incremental large ingredient
categories for further investment. The incremental growth opportunities include new geographies, new products and
new processing capabilities.
During the fourth quarter of 2016, we recognized non-cash impairment charges of $1.2 million associated with the Heuvelton
facility closure, and $3.4 million of inventory and other reserves to reflect the exit of non-core business lines. We intend to
continue to proactively manage our business portfolio to identify opportunities to drive EBITDA growth.
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Operational Excellence
The focus of the operational excellence pillar is to ensure food quality and safety, coupled with improved operational
performance and efficiency. These efforts are expected to generate productivity improvements in manufacturing, procurement
and logistics. With the assistance of third-party consulting support, we have identified a number of broad-based savings
opportunities to be implemented and realized over 2017 and 2018. Recent activities include:
(cid:2) Launched network-wide upgrades to worker safety and food quality programs, with the goal of becoming the leader
in safety and quality across the healthy food industry.
(cid:2) Launched a productivity enhancement program that is systematically evaluating all manufacturing facilities, supply
chain, and procurement processes to identify productivity cost savings. As a result of these efforts, we are targeting
$30 million in annualized EBITDA improvements to be implemented over the next 12 to 18 months.
(cid:2) Rolled out the “SunOpta Plant Management System”, which consists of a standardized set of operating processes, key
performance indicators, and continuous improvement methodologies that will provide improved consistency and
productivity performance across the manufacturing network.
(cid:2) Launched a working capital optimization program that is targeting $20 million of cash flow enhancements.
Go-to-Market Effectiveness
The focus of the go-to-market effectiveness pillar is to optimize customer and product mix in existing sales channels, and
identify and penetrate new high-potential sales channels. We expect efforts under this pillar to improve revenue growth and
profitability over time. Early in 2017, we re-aligned our go-to-market approach, hiring key talent to lead foodservice and retail
sales, as well as adding new marketing resources. We also launched a sales force effectiveness program that has already started
to generate results. Recent highlights include:
(cid:2) Hired a new Senior Vice President of Foodservice Sales and a Senior Vice President of Beverages and Snacks.
(cid:2) Secured new business wins in Healthy Beverage, Healthy Fruit and Global Ingredients.
(cid:2) Selectively adjusted pricing to enhance margins.
Process Sustainability
The focus of process sustainability is to ensure we have the infrastructure, systems and skills to sustain the business
improvements and value captured from the Value Creation Plan. In February 2017, we executed an organizational redesign
focused on streamlining and simplifying the business, investing in systems and processes to ensure each function has the tools
in place to achieve our goals. Recent initiatives include:
(cid:2) Developed a plan to increase capital engineering, plant engineering, and process engineering capabilities that is
targeted to enhance food safety, product flow and productivity performance.
(cid:2) Created a centralized Consumer Products supply chain team to manage sales and operations planning (“S&OP”),
warehousing and distribution.
(cid:2) Launched a comprehensive S&OP program to improve supply/demand planning, which is expected to reduce
inventory while improving customer service.
(cid:2)
Initiated a program to push centralized cost accounting resources into manufacturing facilities to improve the accuracy
of manufacturing-related financial data.
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Governance and Management Transitions
Effective February 6, 2017, David Colo was appointed President and Chief Executive Officer (“CEO”) of SunOpta. In
conjunction with this appointment, Mr. Colo also became a member of the Board. On November 11, 2016, Hendrik Jacobs
resigned from his positions as President, CEO, and director. Director Katrina Houde served as interim CEO prior to the
appointment of Mr. Colo. Ms. Houde will continue her position on the Board following Mr. Colo’s appointment.
On October 7, 2016, we increased the size of the Board to nine directors and appointed two Oaktree-nominated independent
directors, Dean Hollis and Al Bolles, Ph.D., to the Board. Also on October 7, 2016, Brendan Springstubb was appointed to the
Board to replace Douglas Greene who resigned as a director. Mr. Springstubb is a Principal at Engaged Capital LLC, one of
our largest shareholders. On October 9, 2016, Alan Murray stepped down from the Board and was replaced as Chair of the
Board by Mr. Hollis.
On January 19, 2017, Gregg Tanner was appointed to the Board to fill the vacancy created by the resignation of director Jay
Amato.
Rationalization of Soy and Juice Operations
On December 27, 2016, the Board approved the closure of our soy extraction facility in Heuvelton, New York. We determined
that our ingredients processing facility in Alexandria, Minnesota, could absorb the production volume from the Heuvelton
facility, while continuing to meet the needs of our customers. Based on the location and use of Heuvelton facility, we recorded
an impairment loss of $1.2 million in the fourth quarter of 2016, to write down the carrying value of the associated long-lived
assets to a nominal salvage value. The closure of the Heuvelton facility occurred on January 10, 2017.
In addition, one of our customers intends to move its private label soy- and rice-based aseptic beverage business to another
supplier commencing in the second quarter of 2017. This business represented approximately 4% of the revenues from our
Consumers Products segment and approximately 3% of our consolidated revenues for the year ended December 31, 2016.
On November 8, 2016, the Board approved the closure of our San Bernardino, California juice facility, after determining that
it would be more beneficial to transfer our juice production from the facility to contract manufacturers with whom we have
ongoing relationships, rather than make further capital investments in support of the bottling or extraction areas of the facility.
These capital investments would have been necessary to satisfy packaging format changes demanded by the facility’s largest
customer and to address shortfalls in contracting sufficient supply of raw citrus fruit for the upcoming season to allow for
effective and efficient use of the facility’s extraction capabilities. In the third quarter of 2016, we recorded an impairment loss
of $10.3 million to write down the carrying value of the long-lived assets associated with the facility. The closure of the San
Bernardino facility occurred on December 28, 2016. On February 28, 2017, we incurred approximately $3.0 million of
additional costs related to the early termination of equipment leases associated with the facility, which will be recognized in
other expense in the first quarter of 2017.
Recall of Certain Roasted Sunflower Kernel Products
During the second quarter of 2016, we announced a voluntary recall of certain roasted sunflower kernel products produced at
our Crookston, Minnesota facility due to potential contamination with Listeria monocytogenes bacteria. During the fourth
quarter and last three quarters of 2016, we recognized estimated losses of $12.0 million and $40.0 million, respectively, related
to this recall. Our estimates are provisional and were determined based on an assessment of the information available up to the
date of filing of this report, including a review of customer claims received as of that date and consideration of the extent of
potential additional claims that have yet to be received. We have general liability and product recall insurance policies with
aggregate limits of $47.0 million under which we are expecting to recover recall-related costs, less applicable deductibles. For
the fourth quarter and last three quarters of 2016, we recorded estimated insurance recoveries of $12.0 million and $39.4 million
for the losses recognized to-date related to the recall. However, we may not recover amounts equal to the amount of the losses
that have been or may be recognized if those losses exceed the coverage available or are excluded under the insurance policies.
As a result of the recall, we have experienced the loss of a number of customers, some of which we believe we can regain once
remediation efforts are completed at our sunflower roasting facilities. In addition, we are implementing a series of new food
safety and quality processes at these facilities that will require significant capital investment and will have an ongoing impact
on the productivity of our roasting operations. Based on an assessment of the effect on future cash flows of lower anticipated
sales demand and higher expected production and capital costs, we determined that the impact of the recall on the fair value of
our sunflower reporting unit reflected an impairment of the associated goodwill, resulting in a $17.5 million charge recorded
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December 31, 2016 10-K
in the fourth quarter of 2016. Our assessment, however, determined that the carrying values of the property, plant and
equipment and intangible assets of the sunflower reporting unit were recoverable as at December 31, 2016.
For more information regarding the recall, see note 4 to the consolidated financial statements in Item 15 of this Form 10-K.
Settlement of Plum Dispute
On July 29, 2016, we entered into a Mutual Release and Settlement Agreement (the “Settlement Agreement”) with Plum, PBC
(“Plum”), Campbell Soup Company (“Campbell”), and various other parties. The Settlement Agreement resolved the disputed
issues among the parties in connection with the litigation filed by Plum against our wholly-owned subsidiary, SunOpta Global
Organic Ingredients, Inc. (“SGOI”), which arose out of a voluntary recall by Plum of certain products manufactured at our
Allentown, Pennsylvania facility in 2013 (see Part I, Item 3 “Legal Proceedings” and note 21 to the consolidated financial
statements in Item 15 of this Form 10-K).
Pursuant to the terms of the Settlement Agreement, we paid Campbell $5.0 million in cash and will provide Campbell with
rebates of up to $4.0 million over a four-year period in connection with Plum’s purchases of pouch products and Campbell’s
purchases of aseptic broth products pursuant to manufacturing and supply agreements between the parties and their affiliates.
In order for Campbell to obtain the full $4.0 million in rebates, Plum and Campbell must order certain minimum quantities of
pouch products and aseptic broth products within each of the designated twelve-month periods over the four-year rebate period.
In connection with the Settlement Agreement, we recorded a charge of $9.0 million in the second quarter of 2016, as we believe
there is reasonable assurance that the minimum order quantities will be achieved.
Sale of Opta Minerals
On February 11, 2016, Opta Minerals entered into a definitive acquisition agreement, pursuant to which an affiliate of Speyside
Equity Fund I LP (“Speyside”) agreed to acquire substantially all of the issued and outstanding shares of Opta Minerals. The
acquisition of Opta Minerals by Speyside was completed on April 6, 2016, following a vote of the shareholders of Opta
Minerals in favor of the transaction on March 31, 2016.
Upon closing of the transaction, we received aggregate gross proceeds of $4.8 million (C$6.2 million), of which $3.2 million
(C$4.2 million) was received in cash, with the remainder received in the form of a $1.5 million (C$2.0 million) subordinated
promissory note bearing interest at 2.0% per annum that will mature on October 6, 2018. We incurred direct costs related to
the sale of Opta Minerals of $0.8 million. The sale of our equity interest in Opta Minerals was consistent with our objective of
divesting our non-core assets in order to become a pure-play healthy and organic foods company. We have no significant
continuing involvement with Opta Minerals.
In the fourth quarter of 2015, we recognized a loss on classification of Opta Minerals as a discontinued operation held for sale
of $10.5 million, or $7.7 million net of non-controlling interest, to write down the carrying value of Opta Minerals’ net assets
to fair value less cost to sell based on estimated net proceeds on sale of approximately $4.5 million as at January 2, 2016. In
the first quarter of 2016, we recognized a $0.6 million gain on classification as held for sale which reflected a $1.1 million
decline in the carrying value of Opta Minerals’ net assets, partially offset by a $0.5 million reduction in the estimated net
proceeds on sale. We have not recognized the results of operations or cash flows of Opta Minerals for the period from April
1, 2016 to the closing of the transaction on April 6, 2016, as these amounts were insignificant to our consolidated results o f
operations and cash flows. For more information regarding the sale of Opta Minerals, see note 3 to the consolidated financial
statements in Item 15 of this Form 10-K.
Five-Year Global Revolving Asset-Based Credit Facility
On February 11, 2016, we entered into 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”),
as described below under “Liquidity and Capital Resources”.
Acquisition of Sunrise Holdings (Delaware), Inc.
On October 9, 2015, we completed the acquisition of 100% of the issued and outstanding common shares of Sunrise Holding
(Delaware), Inc. (“Sunrise”), pursuant to a Purchase and Sale Agreement dated July 30, 2015 (the “Sunrise Acquisition”), for
total consideration of $472.7 million in cash. Sunrise is a processor of conventional and organic individually quick frozen fruit
in the U.S. The acquisition of Sunrise is aligned with our strategic focus on healthy and organic foods. Sunrise has been
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included in the Consumer Products operating segment since the date of acquisition. For more information regarding the Sunrise
Acquisition, see note 2 to the consolidated financial statements in Item 15 of this Form 10-K.
In January 2016, we initiated the consolidation of our frozen fruit processing facilities following the Sunrise Acquisition.
Consequently, we transferred all production volume from our Buena Park, California facility into Sunrise’s facilities located
in Kansas and California. In 2016, we recognized severance and rationalization costs of $2.4 million related to closure of the
Buena Park facility and associated corporate office located in Cerritos, California.
Acquisition of Niagara Natural Fruit Snack Company Inc.
On August 11, 2015, we acquired the net operating assets of Niagara Natural Fruit Snack Company Inc. (“Niagara Natural”),
a manufacturer of all-natural fruit snacks. Niagara Natural’s operations are located in the Niagara Region of Ontario. The
transaction included a cash purchase price of $6.5 million, subject to certain post-closing adjustments, plus contingent
consideration of up to approximately $2.8 million based on specific performance targets. The fair value of the contingent
consideration obligation was determined to be $2.3 million as at the acquisition date. Niagara Natural is a strong strategic fit
within our core consumer products strategy and has been included in the Consumer Products operating segment since the date
of acquisition. For more information regarding the acquisition of Niagara Natural, see note 2 to the consolidated financial
statements in Item 15 of this Form 10-K.
On May 5, 2016, we entered an agreement with the owners of Niagara Natural to settle the contingent consideration obligation
in exchange for a one-time cash payment of $0.6 million. In the second quarter of 2016, we recognized a gain of $1.7 million
in connection with this settlement, based on the difference between the fair value of the contingent consideration obligation of
$2.3 million as at April 2, 2016 and the cash payment.
Acquisition of Citrusource, LLC
On March 2, 2015, we acquired Citrusource, LLC (“Citrusource”), a producer of premium not-from-concentrate private label
organic and conventional orange juice and citrus products in the U.S. We paid $13.3 million in cash at closing and we may
pay additional consideration based on the incremental growth in Citrusource’s base business. The fair value of the total
consideration transferred to acquire Citrusource was $31.7 million as at the acquisition date. The acquisition of Citrusource
aligned with our strategy of growing our value-added consumer products portfolio. Citrusource has been included in the
Consumer Products operating segment since the date of acquisition. For more information regarding the acquisition of
Citrusource, see note 2 to the consolidated financial statements in Item 15 of this Form 10-K.
Sale of Fiber and Starch Business
On December 22, 2014, we completed the sale of our fiber and starch business (the “Fiber Business”) for $37.5 million, subject
to certain closing adjustments. The Fiber Business included five facilities located in Louisville, Kentucky, Cedar Rapids, Iowa,
Cambridge, Minnesota, Fosston, Minnesota, and Galesburg, Illinois, and was formerly part of the former Value Added
Ingredients operating segment. We continue to operate both our integrated grain- and fruit-based ingredient businesses, which
were not part of the sale, and which previously formed the remainder of the former Value Added Ingredients operating segment.
For more information regarding the sale of the Fiber Business, see note 3 to the consolidated financial statements in Item 15 of
this Form 10-K.
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. The use of estimates is pervasive throughout our financial statements. The
following are the accounting estimates which we believe to be most significant to our business.
Revenue Recognition
We recognize revenue at the time of delivery of the product and when all of the following have occurred: a sales agreement is
in place; price is fixed or determinable; and collection is reasonably assured. Consideration given to customers such as value
incentives, rebates, early payment discounts and other discounts are recorded as reductions to revenues at the time of sale.
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December 31, 2016 10-K
Accounts Receivable
Our accounts receivable primarily includes amounts due from our customers. The carrying value of each account is carefully
monitored with a view to assessing the likelihood of collection. An allowance for doubtful accounts is provided for as an
estimate of losses that could result from customers defaulting on their obligation to us. In assessing the amount of reserve
required, a number of factors are considered including the age of the account, the credit-worthiness of the customer, payment
terms, the customer’s historical payment history and general economic conditions. Because the amount of the reserve is an
estimate, the actual amount collected could differ from the carrying value of the amount receivable. Note 6 of the consolidated
financial statements in Item 15 of this Form 10-K provides an analysis of the changes in the allowance for doubtful accounts.
Inventory
Inventory is our largest current asset and consists primarily of raw materials and finished goods held for sale. Inventories are
valued at the lower of cost, measured on a weighted-average cost basis, or estimated net realizable value except for certain
grain inventories that are carried at market value. In order to determine the value of inventory at the balance sheet date, we
evaluate a number of factors to determine the adequacy of provisions for inventory. These factors include the age of inventory,
the amount of inventory held by type, future demand for products, and the expected future selling price we expect to realize by
selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information,
expected business plans, and expected market conditions. As a result, the actual amount received on sale could differ from our
estimated value of inventory. We perform a review of our inventory by reporting unit and product line on a quarterly basis.
Note 7 of the consolidated financial statements in Item 15 of this Form 10-K provides an analysis of the movements in the
inventory reserve.
Intangible Assets
We evaluate amortizable intangible assets acquired through business combinations for impairment if events or changes in
circumstances indicate that the carrying amounts of these assets may not be recoverable. Our evaluation is based on an
assessment of potential indicators of impairment, such as an adverse change in the business climate that could affect the value
of an asset, such as the loss of a significant customer; current or forecasted operating or cash flow losses that demonstrate
continuing losses associated with the use of an asset, such as the introduction of a competing product that results in a significant
loss of market share; and a current expectation that, more likely than not, an intangible asset will be disposed of before the end
of its previously estimated useful life, such as a plan to exit a product line or business in the near term.
Impairment exists when the carrying amount of an amortizable intangible asset is not recoverable through undiscounted future
cash flows and its carrying value exceeds its estimated fair value. A discounted cash flow analysis is typically used to determine
fair value using estimates and assumptions that market participants would apply. Some of the estimates and assumptions
inherent in a discounted cash flow model include the amount and timing of the projected future cash flows, and the discount
rate used to reflect the risks inherent in the future cash flows. A change in any of these estimates and assumptions could produce
a different fair value, which could have a material impact on our results of operations. In addition, an intangible asset's expected
useful life can increase estimation risk, as longer-lived assets necessarily require longer-term cash flow forecasts, which for
some of our long-lived assets can be in excess of 20 years. In connection with an impairment evaluation, we also reassess the
remaining useful life of the intangible asset and modify it, as appropriate.
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net
assets acquired. Goodwill is not amortized but is tested at least annually for impairment at the reporting unit level. Reporting
units are operating segments or components of operating segments for which discrete financial information is available. To
evaluate goodwill, the fair value of each reporting unit is compared to its carrying value. Where the carrying value is greater
than the fair value, the implied fair value of the reporting unit goodwill is determined by allocating the fair value of the reporting
unit to all the assets and liabilities of the reporting unit with any remainder being allocated to goodwill. The implied fair value
of the reporting unit goodwill is then compared to the carrying value of that goodwill to determine whether an impairment loss
exists. Any impairment loss is recognized in earnings.
We typically measure the fair value of each reporting unit using a discounted cash flow analysis (income approach). Because
the business is assumed to continue in perpetuity, the discounted cash flows include a terminal value. Cash flows to perpetuity
are forecasted based on projected revenue growth and our planned business strategies in future periods. Examples of planned
strategies would include a plant or line expansion at an existing facility; a reduction of working capital at a specific location;
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and price increases or cost reductions within a reporting unit. The discount rate is based on a reporting unit’s targeted weighted-
average cost of capital, which is not necessarily the same as our weighted-average cost of capital. These assumptions are
subject to change and are impacted by our ability to achieve our forecasts and by economic conditions that may impact future
results and result in projections not being attained. Each year we re-evaluate the assumptions used to reflect changes in the
business environment.
We perform our annual quantitative test for goodwill impairment in the fourth quarter of each fiscal year. Based on the results
of the quantitative test performed for the year ended December 31, 2016, we recognized a goodwill impairment charge of $17.5
million, which reflected the negative impact on future cash flows of the recall of certain roasted sunflower kernel products (as
described above under “Recent Developments – Recall of Certain Sunflower Kernel Products”). Our quantitative test for 2016
indicated that a hypothetical 10% decrease in the fair value of each of our other reporting units would not have triggered
additional impairment testing. Based on the results of the quantitative tests performed for the years ended January 2, 2016 and
January 3, 2015, we determined that none of the goodwill associated with any of our reporting units was impaired in either of
those fiscal years.
Acquisitions
Business acquisitions are accounted for by the acquisition method of accounting. Under this method, the purchase price is
allocated to the assets acquired and the liabilities assumed based on the fair value at the time of the acquisition. Any excess
purchase price over the fair value of identifiable assets acquired and liabilities assumed is recorded as goodwill. We believe
the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions; however, these
assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
The assumptions and estimates with respect to determining the fair value of customer relationship intangible assets acquired
are among the most significant in our acquisition accounting and generally require the most judgment. Key variables in
determining the fair value of customer relationships are the estimated customer attrition rate and the percentage of revenue
growth attributable to existing customers. Changes to either or both of these variables could have a significant impact on the
customer relationships intangible assets’ values, and changes to the estimated customer attrition rate could have a significant
impact on the estimated useful lives of these assets. The expected customer attrition rate assumed in the estimate of fair value
for the customer relationships intangible assets is generally supported by an analysis of historical attrition of the acquired
business’s customers and consideration of its amortization policy of previously acquired customer relationships, amortization
policies adopted for acquired customer relationships by other companies in similar transactions, and the contractual terms
between the acquired business and its customers. The percentage of revenue growth attributable to existing customers assumed
in the estimate of fair value for the customer relationships intangible assets is typically supported by an analysis of the acquired
business’s historical and forecasted revenue growth rates by customer. Changes in any of the assumptions or estimates used
in determining the fair value of the customer relationship intangible assets could have a significant impact on the amounts
assigned to goodwill in the purchase price allocation. Future net earnings can be affected as a result of changes in these
estimates resulting in an increase or decrease in amortization expense, or impairment of the intangible assets and/or goodwill.
Note 2 of the consolidated financial statements in Item 15 of this Form 10-K provide information with respect to businesses
acquired and note 9 outlines annual amortization expense relating to these intangibles.
Some acquisitions involve contingent consideration to be potentially paid based on the achievement of specified future financial
targets by the acquired business. Acquisition-related contingent consideration is initially recognized as a liability at estimated
fair value and re-measured each reporting period with changes in the estimated fair value recognized in earnings. These
estimates of fair value involve uncertainties as they include assumptions about the likelihood of achieving the specified financial
targets, projections of future financial performance, and assumed discount rates. A change in any of these assumptions could
produce a different fair value, which could impact the amounts assigned to assets and liabilities in the purchase price allocation,
or the amounts recognized in earnings to reflect subsequent changes in the carrying value of the liability. Note 5 of the
consolidated financial statements in Item 15 of this Form 10-K includes disclosures regarding the estimated fair value of
contingent consideration.
Contingencies
We make estimates for payments that are contingent on the outcome of uncertain future events. These contingencies include
accrued but unpaid bonuses; tax-related matters; and claims or litigation. In establishing our estimates, we consider historical
experience with similar contingencies and the progress of each contingency, as well as the recommendations of internal and
external advisors and legal counsel. We re-evaluate all contingencies as additional information becomes available; however,
given the inherent uncertainties, the ultimate amount paid could differ from our estimates.
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In particular, as discussed above under “Recent Developments – Recall of Certain Roasted Sunflower Kernel Products”, we
have recognized estimated losses of $40.0 million related to this recall as at December 31, 2016. These estimates are provisional
and were determined based on an assessment of the information available up to the date of filing of this report, including a
review of customer claims received as of that date and consideration of the extent of potential additional claims that have yet
to be received. We may need to revise these estimates to be materially larger as we continue to work with our customers to
substantiate the claims received to date and any additional claims that may be received.
Income Taxes
We are liable for income taxes in the U.S., Canada, and other jurisdictions where we operate. Our effective tax rate differs
from the statutory tax rate and will vary from year to year primarily as a result of numerous permanent differences, investment
and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted
statutory tax rate increases or reductions in the year, the benefit of cross-jurisdictional financing structures, changes due to
foreign exchange, changes in valuation allowance based on our recoverability assessments of deferred tax assets, and favorable
or unfavorable resolution of various tax examinations.
In making an estimate of our income tax liability, we first assess which items of income and expense are taxable in a particular
jurisdiction. This process involves a determination of the amount of taxes currently payable as well as the assessment of the
effect of temporary timing differences resulting from different treatment of items for accounting and tax purposes. These
differences in the timing of the recognition of income or the deductibility of expenses result in deferred income tax balances
that are recorded as assets or liabilities as the case may be on our balance sheet. We also estimate the amount of valuation
allowance to maintain relating to loss carry forwards and other balances that can be used to reduce future taxes payable. This
judgment is based on forecasted results in the jurisdiction and certain tax planning strategies and as a result actual results may
differ from forecasts. We assess the likelihood of the ultimate realization of these tax assets by looking at the relative size of
the tax assets in relation to the profitability of the businesses and the jurisdiction to which they can be applied, the number of
years based on management’s estimate it will take to use the tax assets and any other special circumstances. If different
judgments had been used, our income tax liability could have been different from the amount recorded. In addition, the taxing
authorities of those jurisdictions upon audit may not agree with our assessment. Note 17 of the consolidated financial
statements in Item 15 of this Form 10-K provides an analysis of the changes in the valuation allowance and the components of
our deferred tax assets.
While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could differ from
our accrued position. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be
recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
Stock-Based Compensation
We maintain a stock incentive plan under which stock options and other stock-based awards may be granted to selected
employees and directors. For grants of stock options, we are required to estimate a number of inputs at each grant date, such
as the estimated life of the option, future stock price volatility, and the forfeiture rate used in the Black-Scholes option-pricing
model to determine a fair value for the options granted to employees or non-employee directors. We determine the expected
life of a stock option using the simplified method, as we changed the vesting period of our stock option grants from five years
to three years in 2016, and the contractual term of our stock option grants from six years to 10 years in 2012 and, as a result,
we do not believe historical exercise data provides a reasonable basis upon which to estimate expected life. Future stock price
volatility is based on historical volatility of our common shares over the expected life of the stock option. Once determined at
the grant date, the fair value of the stock option award is recorded over the vesting period of the options granted. Refer to note
14 of the consolidated financial statements in Item 15 of this Form 10-K for disclosure of the inputs used to determine the fair
value of stock-based compensation.
SUNOPTA INC.
47
December 31, 2016 10-K
Consolidated Results of Operations for Fiscal Years 2016 and 2015
Revenues
Global Ingredients
Consumer Products
Total revenues
Gross Profit
Global Ingredients
Consumer Products
Total gross profit
Segment operating income (loss)(1)
Global Ingredients
Consumer Products
Corporate Services
Total segment operating income
Other expense, net
Goodwill impairment
Earnings (loss) from continuing operations before the
following
Interest expense, net
Recovery of income taxes
Loss from continuing operations
Earnings (loss) attributable to non-controlling interests
Loss from discontinued operations attributable to
SunOpta Inc.
December 31,
2016
$
January 2,
2016
$
574,295
772,436
1,346,731
610,890
534,244
1,145,134
64,374
61,578
125,952
66,461
43,901
110,362
26,787
1,206
(13,247)
14,746
28,292
17,540
(31,086)
43,275
(23,797)
(50,564)
54
28,184
3,208
(10,094)
21,298
12,151
-
9,147
15,669
(3,390)
(3,132)
(136)
Change
$
(36,595)
238,192
201,597
(2,087)
17,677
15,590
(1,397)
(2,002)
(3,153)
(6,552)
16,141
17,540
(40,233)
27,606
(20,407)
(47,432)
190
Change
%
-6.0%
44.6%
17.6%
-3.1%
40.3%
14.1%
-5.0%
-62.4%
-31.2%
-30.8%
132.8%
-
-439.8%
176.2%
-602.0%
-1514.4%
139.7%
(570)
(19,475)
18,905
97.1%
Loss attributable to SunOpta Inc.(2)
(51,188)
(22,471)
(28,717)
-127.8%
(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 U.S. GAAP. This measure is the basis on which management, including the CEO,
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 core 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) from continuing operations before the following”, which we consider to be the
most directly comparable U.S. GAAP financial measure.
December 31, 2016
Segment operating income (loss)
Other expense, net
Goodwill impairment
Earnings (loss) from continuing operations before the
following
January 2, 2016
Segment operating income (loss)
Other expense, net
Earnings (loss) from continuing operations before the
following
SUNOPTA INC.
Global
Ingredients
$
26,787
(1,753)
(17,540)
Consumer
Products
$
1,206
(25,705)
-
Corporate
Services
$
(13,247)
(834)
-
Consolidated
$
14,746
(28,292)
(17,540)
7,494
(24,499)
(14,081)
(31,086)
28,184
(1,317)
3,208
(939)
(10,094)
(9,895)
21,298
(12,151)
26,867
2,269
(19,989)
9,147
48
December 31, 2016 10-K
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 from continuing operations, net of non-controlling interests,
determined in accordance with U.S. GAAP that includes dividends and accretion on convertible preferred stock and excludes specific items recognized
in other income/expense, impairment losses on goodwill, long-lived assets and investments, 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 core business when comparing those operating results
between periods, as we do not consider these items to be reflective of normal core business operations. The following table presents a reconciliation of
“adjusted earnings” from “loss from continuing operations”, which we consider to be the most directly comparable U.S. GAAP financial measure.
Per Diluted Share
$
$
December 31, 2016
Loss from continuing operations
Less: earnings attributable to non-controlling interests
Less: dividends and accretion of Series A Preferred Stock
Loss from continuing operations available to common shareholders
Adjusted for:
Costs related to business acquisitions(a)
Goodwill impairment(b)
Asset impairments related to facility closures(c)
Legal settlement and litigation-related legal fees(d)
Product withdrawal and recall costs(e)
Costs related to strategic review and value creation plan(f)
Severance and rationalization costs(g)
Inventory reserves and liquidation sales to de-risk positions(h)
Plant start-up costs(i)
Write-off of debt issuance costs(j)
Other(k)
Gain on settlement of contingent consideration(l)
Net income tax effect on adjusted earnings(m)
Change in unrecognized tax benefits(n)
Adjusted earnings
January 2, 2016
Loss from continuing operations
Add: loss attributable to non-controlling interests
Loss from continuing operations available to common shareholders
Adjusted for:
Costs related to business acquisitions(o)
Plant expansion and start-up costs(p)
Inventory reserves and liquidation sales to de-risk positions(q)
Downtime, spoilage, and other costs due to equipment failure (r)
Demurrage, detention and other related expenses(s)
Litigation-related legal fees(d)
Reversal of stock-based compensation expense(t)
Other(u)
Net income tax effect of preceding adjustments(m)
Change in unrecognized tax benefits(n)
Adjusted earnings
(50,564)
(54)
(1,812)
(52,430)
27,802
17,540
11,522
10,850
5,693
4,041
3,679
3,428
1,565
215
726
(1,715)
(25,825)
(1,268)
5,823
(3,132)
136
(2,996)
17,192
4,081
2,367
2,219
2,038
1,709
(579)
4,384
(10,598)
(855)
18,962
(0.61)
0.07
(0.04)
0.26
(a) Reflects costs related to business combinations, including an acquisition accounting adjustment related to Sunrise’s inventory sold during the
year of $15.0 million, which is recorded in cost of goods sold; the non-cash amortization of debt issuance costs incurred in connection with
the financing related to the Sunrise Acquisition of $7.8 million, as well as $2.6 million of additional debt issuance costs expensed, which are
recorded in interest expense; and $2.4 million of integration costs related to the closure and consolidation of our frozen fruit processing
facilities following the Sunrise Acquisition, which are recorded in cost of goods sold and other expense.
(b) Reflects an impairment charge to write off the goodwill associated with the sunflower reporting unit (as described above under “Recent
Developments – Recall of Certain Sunflower Kernel Products”).
(c) Reflects an impairment of long-lived assets associated with the closure of the Heuvelton soy extraction facility and the San Bernardino juice
facility (as described above under “Recent Developments – Rationalization of Soy and Juice Operations”).
SUNOPTA INC.
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December 31, 2016 10-K
(d) Reflects the charge recorded in connection with the settlement of the Plum dispute (as described above under “Recent Developments –
Settlement of Plum Dispute”), which is recorded in other expense. Also includes $1.6 million (2015 - $1.7 million) of litigation-related legal
costs mainly associated with the Plum dispute, which are recorded in SG&A expenses.
(e) Reflects voluntary product withdrawal or recall costs of $5.7 million, net of expected insurance recoveries, related to the withdrawal of certain
consumer-packaged products for quality-related issues and the recall of certain sunflower kernel products (as described above under “Recent
Developments – Recall of Certain Sunflower Kernel Products”), of which $1.2 million is recorded in cost of goods sold and $2.8 million is
recorded in other expense. Also includes a $1.7 million adjustment for the estimated lost margin caused by the sunflower recall, which reflects
a shortfall in revenues against anticipated volumes of approximately $9.8 million, less associated cost of goods sold of approximately $8.1
million.
(f) Reflects legal and other professional advisory costs associated with the strategic review and execution of the Value Creation Plan, which are
recorded in SG&A expenses.
(g) Reflects contractual severance benefits of $1.5 million and previously unrecognized stock-based compensation of $0.2 million recognized in
connection with the departure of Mr. Jacobs as President and CEO. Also includes employee severance costs of $1.6 million incurred in
connection with certain facility closures and workforce rationalization initiatives and employee retention costs of $0.3 million, which are
recorded in other expense.
(h) Reflects aging reserves and low margin sales to reduce inventory exposures mainly related to certain grain varieties that we are exiting, which
are recorded in cost of goods sold.
(i) Plant start-up costs relate to the ramp-up of production at the Allentown facility following the completion of the addition of aseptic beverage
processing and filling capabilities in the fourth quarter of 2015, which are recorded in cost of goods sold. These start-up costs reflect the
negative gross profit reported by the facility as the facility ramped up to break-even production levels.
(j) Reflects the write-off to interest expense of $0.2 million of remaining unamortized debt issuance costs related to our North American credit
facilities, which were replaced by the Global Credit Facility.
(k) Other includes fair value adjustments related to contingent consideration arrangements and gain/loss on sale of assets, which are recorded in
other expense.
(l) Reflects the gain on settlement of the contingent consideration obligation related to Niagara Natural (as described above under “Recent
Development – Niagara Natural), which is recorded in other income.
(m) Reflects the tax effect of the preceding adjustments to earnings and reflects an overall estimated annual effective tax rate of approximately
30% on adjusted earnings before tax.
(n) Reflects the realization of previously unrecognized tax benefits, due to the expiration of the statute of limitations.
(o) Reflects costs related to business combinations, including an acquisition accounting adjustment related to Sunrise’s inventory sold subsequent
to the acquisition date of $4.0 million, which was recorded in cost of goods sold; acquisition- and integration-related costs incurred in
connection with the Sunrise Acquisition of $7.8 million, which were recorded in other expense; and the non-cash amortization of debt issuance
costs incurred in connection with the financing related to the Sunrise Acquisition of $3.4 million, as well as $2.0 million of loan commitment
fees associated with bridge financing for the Sunrise Acquisition that was not utilized, which were recorded in interest expense.
(p) Reflects costs related to the retrofit of the San Bernardino juice facility and expansion of the Allentown facility to add aseptic beverage
processing and filling capabilities, which were recorded in cost of goods sold.
(q) Reflects inventory reserves and low margin sales incurred to reduce inventory exposures in certain organic raw materials, which were recorded
in cost of goods sold.
(r) Reflects downtime and spoilage caused by equipment failures at the Allentown pouch facility, which were recorded in cost of goods sold.
(s) Reflects additional logistics costs stemming from capacity constraints on imports and exports within the Global Ingredients segment, which
were recorded in cost of goods sold.
(t) Reflects the reversal to SG&A expenses of previously recognized stock-based compensation related to performance share units granted to
certain employees as the performance conditions were not achieved.
(u) Other includes severance and costs of $2.1 million for a former CEO; fair value adjustments related to contingent consideration arrangements;
and gain/loss on disposal of assets, which were recorded in other expense.
We believe that investors’ understanding of our financial performance is enhanced by disclosing the specific items that we exclude from earnings/loss
attributable to SunOpta Inc. to compute adjusted earnings. However, adjusted earnings is not, and should not be viewed as, a substitute for earnings
prepared under U.S. GAAP. Adjusted earnings is presented solely to allow investors to more fully understand how we assess our financial performance.
(3) In order to evaluate our results of operations, we use certain non-GAAP measures that we believe enhance an investor’s ability to derive meaningful
year-over-year 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, as well as the impacts of recent business acquisitions and product rationalizations. 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 year ended December 31, 2016 increased by 17.6% to $1,346.7 million from $1,145.1 million for the year
ended January 2, 2016. Excluding the impact on revenues for the year ended December 31, 2016 of business acquisitions and
associated product rationalizations (an increase in revenues of approximately $231.0 million), changes in commodity-related
pricing and foreign exchange rates (a decrease in revenues of approximately $28.0 million), estimated impact of the recall of
certain sunflower kernel products based on shortfall against anticipated volumes (a decrease in revenues of approximately
$10.0 million), and estimated impact on west coast pouch operations as a result of a fire at a third-party facility (a decrease in
revenues of approximately $5.0 million), revenues increased 1.0% in 2016, compared with 2015. This increase in revenues on
an adjusted basis reflected higher demand for organic ingredients and growth in aseptic beverage volumes with the added output
from the Allentown facility and new product launches. These positive factors were mostly offset by lower volumes of specialty
raw materials driven by a reduction in contracted acres and lower retail market demand for frozen fruit in the fourth quarter of
the 2016.
SUNOPTA INC.
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December 31, 2016 10-K
For the fourth quarter of 2016, revenues decreased by 6.0% to $297.5 million from $316.4 million for the fourth quarter of
2015. Excluding the impact on revenues for the fourth quarter of 2016 of changes in commodity-related pricing and foreign
exchange rates (a decrease in revenues of approximately $9.0 million), estimated impact of the recall of certain sunflower
kernel products based on shortfall against anticipated volumes (a decrease in revenues of approximately $3.0 million), estimated
impact on west coast pouch operations as a result of a fire at a third-party facility (a decrease in revenues of approximately $3.0
million), and business acquisitions and associated product rationalizations (a decrease in revenues of approximately $1.0
million), revenues in the fourth quarter of 2016 decreased by 0.9%, compared with the fourth quarter of 2015. This decrease
in revenues on an adjusted basis reflected lower volumes of specialty raw materials driven by a reduction in contracted acres,
as well as a sharp decline in retail market demand for frozen fruit products. In addition, sales of aseptic beverage products and
specialty bars were flat relative to the prior year due to customer turnover and the ramp-up of new product offerings.
Gross profit increased $15.6 million, or 14.1%, to $126.0 million for the year ended December 31, 2016, compared with $110.4
million for the year ended January 2, 2016. As a percentage of revenues, gross profit for the year ended December 31, 2016
was 9.4% compared to 9.6% for the year ended January 2, 2016, a decrease of 0.2%. The gross profit percentage for 2016
would have been approximately 10.9%, excluding the impact of an acquisition accounting adjustment related to Sunrise’s
inventory sold in 2016 ($15.0 million), aging reserves and low margin sales to reduce inventory exposures mainly on specialty
grain varieties we are exiting ($3.4 million), lost margin caused by the recall of certain sunflower kernel products ($1.7 million),
start-up costs related to the ramp-up of production at the Allentown aseptic beverage facility ($1.6 million), and an inventory
reserve for certain consumer-packaged products due to quality-related issues ($1.2 million). For 2015, the gross profit
percentage would also have been approximately 10.9%, excluding the impact of costs related to the retrofit of the San
Bernardino juice facility and expansion of the Allentown facility to add aseptic beverage production capabilities ($4.1 million),
an acquisition accounting adjustment related to the Sunrise’s inventory sold subsequent to the acquisition date ($4.0 million),
aging reserves and low margin sales to reduce inventory exposures on certain organic raw materials ($2.4 million), downtime
and spoilage caused by equipment failures at the Allentown pouch facility ($2.2 million), and demurrage, detention and other
related expenses ($2.0 million). Excluding these items, the year-over-year gross profit percentage on an adjusted basis reflected
increased efficiency and lower costs at our aseptic beverage operations and improved pricing spreads on organic ingredients.
These positive factors were offset by increased raw material costs for frozen strawberries that could not be passed on
immediately to customers, as well as production inefficiencies within our frozen fruit operations in the first half of 2016 caused
by a late harvest and the resultant shortage of strawberries. In addition, we experienced lower pricing spreads on specialty corn
and soy and reduced throughput in our sunflower roasting operations with the implementation of new food safety and quality
processes.
For the fourth quarter of 2016, gross profit decreased $8.2 million, or 32.4%, to $17.0 million, compared with $25.2 million
for the fourth quarter of 2015. As a percentage of revenues, gross profit for the fourth quarter of 2016 was 5.7% compared to
8.0% for the fourth quarter of 2015, a decrease of 2.3%. The gross profit percentage for the fourth quarter of 2016 would have
been approximately 7.9%, excluding the impact of costs related to aging reserves and low margin sales to reduce inventory
exposures mainly on specialty grain varieties we are exiting ($3.4 million), the acquisition accounting adjustment related to
Sunrise’s inventory sold in the fourth quarter of 2016 ($1.6 million), an inventory reserve for certain consumer-packaged
products due to quality-related issues ($1.2 million), and lost margin caused by the recall of certain sunflower kernel products
($0.7 million). For the fourth quarter of 2015, the gross profit percentage would have been 11.3%, excluding the impact of
costs related to the acquisition accounting adjustment related to the Sunrise’s inventory sold subsequent to the acquisition date
($4.0 million), aging reserves and low margin sales to reduce inventory exposures on certain organic raw materials ($2.4
million), downtime and spoilage caused by equipment failures at the Allentown pouch facility ($2.2 million), the retrofit of the
San Bernardino juice facility and expansion of the Allentown aseptic beverage facility ($1.9 million), and demurrage, detention
and other related expenses ($0.2 million). Excluding these items, the gross profit percentage decreased 3.4% on an adjusted
basis in fourth quarter of 2016, compared with the fourth quarter of 2015, which was driven mainly by lower production
volumes across our consumer products platforms, as well as the reduced throughput in our sunflower roasting operations. In
particular, frozen fruit production was impacted by the decline in retail market demand in the fourth quarter of 2016, which
also resulted in higher storage costs due to higher inventory carry over. These negative factors were partially offset by improved
pricing spreads on organic ingredients.
Total segment operating income for the year ended December 31, 2016 decreased by $6.6 million, or 30.8%, to $14.7 million,
compared with $21.3 million for the year ended January 2, 2016. As a percentage of revenues, segment operating income was
1.1% for the year ended December 31, 2016, compared with 1.9% for the year ended January 2, 2016. The decrease in segment
operating income mainly reflected increases in SG&A expenses and intangible asset amortization, which more than offset the
higher overall gross profit as described above. The $12.9 million increase in SG&A expenses, mainly reflected incremental
expenses from acquired businesses and external advisory costs associated with the strategic review and Value Creation Plan
($4.0 million), as well as higher litigation-related legal costs mainly related to the Plum dispute ($1.9 million). As a percentage
of revenues, SG&A expenses were 7.3% in 2016, compared with 7.5% in 2015, a decrease of 0.2%. Excluding the impact of
SUNOPTA INC.
51
December 31, 2016 10-K
costs related to the strategic review, Value Creation Plan and Plum dispute, SG&A expenses on an adjusted basis as a percentage
of revenues would have been approximately 6.8% in 2016, compared with approximately 7.4% in 2015, which reflected
efficiencies gained following the Sunrise Acquisition. The year-over-year increase in intangible asset amortization of $6.3
million reflected the incremental amortization of identified intangible assets of acquired businesses. Also contributing to the
decrease in segment operating income was a foreign exchange loss of $1.2 million in 2016, compared with a foreign exchange
gain of $1.6 million in 2015, mainly reflecting the negative impact of a strengthening of the U.S. dollar relative to the peso on
our Mexican frozen fruit operations in 2016, compared with the positive impact of a strengthening of the U.S. dollar relative
to the euro in 2015.
For the fourth quarter of 2016, total segment operating loss increased by $8.2 million to $10.0 million, compared with $1.7
million for the fourth quarter of 2015. The increase in the segment operating loss reflected lower overall gross profit as
described above, as well as a $1.3 million increase in SG&A expenses, mainly reflecting external advisory costs associated
with the strategic review and Value Creation Plan of $3.6 million, partially offset by lower compensation and other
administrative costs. As a percentage of revenues, SG&A expenses were 8.8% in the fourth quarter of 2016, or approximately
7.4% excluding the impact of costs related to the strategic review and Value Creation Plan, compared with 7.8% in the fourth
quarter of 2015. Partially offsetting the increase in segment operating loss was a $1.2 million increase in foreign exchange
gains mainly due to the relative strengthening of the U.S. dollar against the euro in the fourth quarter of 2016, compared with
the corresponding period of 2015.
Further details on revenue, gross profit and segment operating income variances are provided below under “Segmented
Operations Information”.
Other expense for the year ended December 31, 2016 of $28.3 million included charges related to the impairment of long-lived
assets mainly associated with the closure of the San Bernardino juice facility and the Heuvelton soy facility ($11.5 million),
settlement of the Plum dispute ($9.0 million), severance and rationalization costs related to the departure of Mr. Jacobs as
President and CEO, certain facility closures, workforce rationalization initiatives and employee retention costs ($3.7 million),
costs related to the withdrawal of certain consumer-packaged products and the recall of certain sunflower kernel products ($2.8
million), and the consolidation of our frozen fruit processing facilities following the Sunrise Acquisition ($2.2 million). These
charges were partially offset by the $1.7 million gain on settlement of the contingent consideration obligation related to the
acquisition of Niagara Natural. Other expense for the year ended January 2, 2016 of $12.2 million included business
development costs of $7.8 million, primarily reflecting acquisition- and integration-related costs incurred in connection with
the Sunrise Acquisition; as well as severance and other rationalization costs of $2.9 million mainly related to a former CEO.
In the fourth quarter of 2016, we recognized a non-cash goodwill impairment charge of $17.5 million related to our sunflower
operations (as described above under “Recent Developments - Recall of Certain Roasted Sunflower Kernel Products”).
The increase in interest expense of $27.6 million to $43.3 million for the year ended December 31, 2016, compared with $15.7
million for the year ended January 2, 2016, primarily reflected increased costs associated with borrowings to finance the Sunrise
Acquisition. Interest expense for 2016 included $9.1 million of non-cash amortization of debt issuance costs and $2.4 million
of other costs incurred in connection with proposed alternative financing arrangements. Interest expense for 2015 included
$3.4 million of non-cash amortization of debt issuance costs and the write-off of $2.0 million of loan commitment fees
associated with bridge financing for the Sunrise Acquisition that was not utilized. For 2017, we estimate our cash interest costs
will be in the range of $29 million to $32 million.
We recognized a recovery of income tax of $23.8 million for the year ended December 31, 2016 (including the realization of
$1.3 million of previously unrecognized tax benefits), compared with a recovery of income tax of $3.4 million for the year
ended January 2, 2016. Excluding the impact of the change in unrecognized tax benefits, the effective tax rate for 2016 was
39.6% of the loss before income taxes (excluding the non-deductible goodwill impairment loss), compared with 52.0% of loss
before income taxes for 2015. The effective tax rates reflected the impact of changes in the jurisdictional mix of earnings,
mainly as the result of pre-tax losses in the U.S. in 2016 and 2015, which reflected the effect of higher cash interest and debt
issuance costs related to the financing of the Sunrise Acquisition, costs related to business acquisitions, including the acquisition
accounting adjustments to Sunrise inventory sold. In addition, for 2016, pre-tax losses in the U.S. reflected the impairment of
assets related to facility closures, and the impact of other discrete items including costs associated with the Plum legal settlement
and Value Creation Plan, as well as product withdrawal and recall costs.
Loss from continuing operations, net of non-controlling interests, for the year ended December 31, 2016 was $50.6 million,
compared with a loss of $3.0 million for the year ended January 2, 2016, an increase of $47.6 million. Diluted loss per share
from continuing operations was $0.61 for the year ended December 31, 2016, compared with diluted loss per share from
continuing operations of $0.04 for the year ended January 2, 2016.
SUNOPTA INC.
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December 31, 2016 10-K
Loss from discontinued operations of $0.6 million for the year ended December 31, 2016 reflected the loss from operations of
Opta Minerals of $2.0 million, which included an asset impairment charge of $1.2 million, partially offset by a $0.6 million
gain on classification as held for sale, net of recovery of income taxes and non-controlling interest of $0.9 million. Loss from
discontinued operations of $19.5 million for the year ended January 2, 2016 primarily reflected the results of Opta Minerals,
including an asset impairment charge of $12.4 million and loss on classification as held for sale of $10.5 million, net of non-
controlling interest of $8.8 million.
On a consolidated basis, we realized a loss of $51.2 million (diluted loss per share of $0.62) for the year ended December 31,
2016, compared with a loss of $22.5 million (diluted loss per share of $0.31) for the year ended January 2, 2016.
For the year ended December 31, 2016, adjusted earnings were $5.8 million, or $0.07 per diluted share, compared with adjusted
earnings of $19.0 million, or $0.26 per diluted share for the year ended January 2, 2016. Adjusted earnings is a non-GAAP
financial measure. See footnote (2) to the table above for a reconciliation of “adjusted earnings” from “loss from continuing
operations”, which we consider to be the most directly comparable U.S. GAAP financial measure.
Segmented Operations Information
Global Ingredients
December 31, 2016
January 2, 2016
Change
% Change
Revenue
Gross Profit
Gross Profit %
Operating Income
Operating Income %
574,295
64,374
11.2%
26,787
4.7%
610,890
66,461
10.9%
28,184
4.6%
(36,595)
(2,087)
(1,397)
-6.0%
-3.1%
0.3%
-5.0%
0.1%
Global Ingredients contributed $574.3 million in revenues for the year ended December 31, 2016, compared to $610.9 million
for the year ended January 2, 2016, a decrease of $36.6 million or 6.0%. Excluding the estimated impact on revenues of the
recall of certain sunflower kernel products and the impact of changes including foreign exchange rates and commodity-related
pricing, Global Ingredients revenues decreased approximately 0.2%. The table below explains the decrease in revenue:
Global Ingredients Revenue Changes
Revenues for the year ended January 2, 2016
Lower volumes of specialty corn and soy driven by a reduction of contracted acres, as
well as decreased volumes of organic feed, roasted and other ingredient products
Lower sunflower volumes attributed to downtime due to the impact of the recall of
roasted kernels in the second quarter of 2016, and lower throughput after restarting our
roasting operations, combined with lower export volumes of in-shell sunflower due
primarily to a strong U.S. dollar
Decreased pricing of specialty corn, soy, sunflower and organic feed
Decreased pricing for organic seeds and nuts, coffee, oils, sugar and quinoa
Higher sales volumes of internationally sourced organic ingredients including cocoa,
fruit and vegetables, coffee, and seeds and nuts
Revenues for the year ended December 31, 2016
$610,890
(36,551)
(17,301)
(14,651)
(13,458)
45,366
$574,295
Gross profit in Global Ingredients decreased by $2.1 million to $64.4 million for the year ended December 31, 2016 compared
to $66.5 million for the year ended January 2, 2016, and the gross profit percentage increased by 0.3% to 11.2%. The increase
in gross profit as a percentage of revenue was primarily due to a favorable sales mix driven by higher margin international
organic raw materials and improved mix in domestic raw materials as a result of a decline in acres contracted of low margin
seed and grain varieties, mark-to-market gains on commodity futures contracts, and improved transloading operating
efficiencies from the prior year, partially offset by the impact of the sunflower recall on operations and lower pricing spreads
on non-GMO soy, corn and organic feed. The table below explains the decrease in gross profit:
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December 31, 2016 10-K
Global Ingredients Gross Profit Changes
Gross profit for the year ended January 2, 2016
Margin loss from downtime associated with the sunflower roasted kernel recall, and as
reduced throughput following the restart of our roasting operations at our Crookston
facility as well as lower export volumes of in-shell sunflower due primarily to a strong
U.S. dollar
Lower pricing spread on specialty corn and soy, as well as inventory reserves and low
margin sales recorded against certain grain varieties that we are exiting, partially offset
by improved recoveries over the prior year related to transloading costs in the third
quarter of 2015
Favorable margin impact of mark-to-market gains related to commodity futures
contracts
Favorable impact on gross margins due to improved pricing spreads on internationally
sourced organic ingredients, partially offset by reduced yield and other operational
inefficiencies at our European sunflower operations
Gross profit for the year ended December 31, 2016
$66,461
(4,201)
(2,881)
2,707
2,288
$64,374
Operating income in Global Ingredients decreased by $1.4 million, or 5.0%, to $26.8 million for the year ended December 31,
2016, compared to $28.2 million for the year ended January 2, 2016. The table below explains the decrease in operating
income:
Global Ingredients Operating Income Changes
Operating income for the year ended January 2, 2016
Decrease in gross profit, as explained above
Decreased foreign exchange gains on forward derivative contracts
Decrease in corporate cost allocations
Decrease in SG&A expenses, primarily due to professional fees, other SG&A costs and
lower compensation costs
Operating income for the year ended December 31, 2016
$28,184
(2,087)
(2,590)
2,573
707
$26,787
Looking forward, we believe Global Ingredients is well positioned in growing non-GMO and organic food 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) leveraging our international sourcing and supply capabilities internally, and forward
and backward integrating where opportunities exist; and (iii) initiating a global desk coordination program between our North
American and International sourcing and supply operations to capitalize on global opportunities and drive incremental sales
volume. 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 expansion or desk coordination 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.
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December 31, 2016 10-K
Consumer Products
December 31, 2016
January 2, 2016
Change
% Change
Revenue
Gross Profit
Gross Profit %
Operating Income
Operating Income %
772,436
61,578
8.0%
1,206
0.2%
534,244
43,901
8.2%
3,208
0.6%
238,192
17,677
(2,002)
44.6%
40.3%
-0.2%
-62.4%
-0.4%
Consumer Products contributed $772.4 million in revenues for the year ended December 31, 2016, compared to $534.2 million
for the year ended January 2, 2016, an increase of $238.2 million or 44.6%. Excluding the impact of business acquisitions and
associated product rationalizations, as well as the estimated impact on west coast pouch operations as a result of a fire at a
third-party facility, Consumer Products revenues increased 1.6%. The table below explains the increase in revenue:
Consumer Products Revenue Changes
Revenues for the year ended January 2, 2016
Acquired revenues as a result of the acquisition of Sunrise, partially offset by the impact
of customer transition following the closure of the Buena Park processing facility in the
first quarter of 2016, as well as lower volumes in the foodservice and retail customer
markets in the latter half of the year
Higher sales of aseptic beverages including retail almond beverages and non-dairy into
the foodservice channel, along with stronger sales of shelf-stable juice as a result of new
product innovation
Acquired revenues as a result of the acquisition of Niagara Natural and increased
volumes of resealable pouch offerings as a result of new business contracted, partially
offset by lower volumes of specialty bars
Impact on revenues from closure of west coast pouch operations as a result of a fire at a
third-party facility in the third quarter
Revenues for the year ended December 31, 2016
$534,244
209,397
28,682
4,303
(4,190)
$772,436
Gross profit in Consumer Products increased by $17.7 million to $61.6 million for the year ended December 31, 2016 compared
to $43.9 million for the year ended January 2, 2016, and the gross profit percentage decreased by 0.2% to 8.0%. For the year
ended December 31, 2016, gross profit as a percentage of revenue was impacted by a $15.0 million acquisition accounting
adjustment related to Sunrise inventory sold, as well as costs associated with expansion activities at the Allentown aseptic
beverage facility ($1.6 million), and an inventory reserve for certain consumer-packaged products due to quality-related issues
($1.2 million). Excluding these costs, the gross profit percentage in Consumer Products would have been 10.3% for the year
ended December 31, 2016. The increase in gross profit percentage on an adjusted basis reflected the higher margin profile of
2015 business acquisitions, and increased facility utilization and operating costs within the beverage operations, partially offset
by higher costs within healthy fruit operations due to a delayed 2016 fruit harvest that led to increased labor costs and higher
raw material prices that were not immediately built into customer pricing. The table below explains the increase in gross profit:
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December 31, 2016 10-K
Consumer Products Gross Profit Changes
Gross profit for the year ended January 2, 2016
Margin impact of the Sunrise Acquisition and improved pricing for frozen fruit offerings
and for fruit bases and toppings
Increased contribution from sales of aseptic and non-aseptic private label beverages,
driven by increased production volumes and higher facility utilization
Margin impact from acquisition accounting adjustment related to Sunrise inventory sold
Lower volumes of fruit snacks and specialty bars, partially offset by increased volumes
of resealable pouch offerings from our east coast pouch facility as a result of new
business contracted
Gross profit for the year ended December 31, 2016
$43,901
26,551
4,763
(11,000)
(2,637)
$61,578
Operating income in Consumer Products decreased by $2.0 million, or 62.4%, to $1.2 million for the year ended December 31,
2016, compared to $3.2 million for the year ended January 2, 2016. The table below explains the decrease in operating income:
Consumer Products Operating Income Changes
Operating income for the year ended January 2, 2016
Increase in gross profit, as explained above
Increased SG&A costs due primarily to the acquisitions of Sunrise and Niagara Natural,
and increased foreign exchange losses on international operations, partially offset by
lower compensation costs
Increase in corporate cost allocations
Operating income for the year ended December 31, 2016
$3,208
17,677
(14,418)
(5,261)
$1,206
Looking forward we believe our Consumer Products segment remains well-positioned in markets with attractive growth
potential. We intend to focus our efforts on (i) investing in new sales and marketing resources creating greater channel specific
focus on retail and foodservice to bolster our pipeline of opportunities to drive incremental sales volume; (ii) investing in our
facilities to enhance quality, safety, and manufacturing efficiency to drive both incremental sales and cost reduction; (iii)
initiating 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 the Consumer Products
segment. The statements in this paragraph are forward-looking statements. See “Forward-Looking Statements” above.
Unfavorable shifts in consumer preferences, increased competition, availability of raw material supply, volume decreases or
loss of customers, unexpected delays in our expansion and integration plans, inefficiencies in our manufacturing processes,
lack of consumer product acceptance, or our inability to successfully implement the particular goals and strategies indicated
above, along with the other factors described above under “Forward-Looking Statements”, could have an adverse impact on
these forward-looking expectations.
Corporate Services
December 31, 2016
January 2, 2016
Change
% Change
Operating Loss
(13,247)
(10,094)
(3,153)
-31.2%
Operating loss at Corporate Services increased by $3.2 million to $13.2 million for the year ended December 31, 2016, from a
loss of $10.1 million for the year ended January 2, 2016. The table below explains the increase in operating loss:
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December 31, 2016 10-K
Corporate Services Operating Loss Changes
Operating loss for the year ended January 2, 2016
Increased costs associated with strategic review and Value Creation Plan
Higher compensation-related costs due to increased headcount, stock-based
compensation and health benefits
Increased information technology consulting, professional fees and costs associated
with litigation now resolved, partially offset by lower foreign exchange losses
Increase in corporate cost allocations, due in part to an increasing centralization of
services
Operating loss for the year ended December 31, 2016
$(10,094)
(3,788)
(1,856)
(197)
2,688
$(13,247)
Management fees mainly consist of salaries of corporate personnel who perform back office functions for 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. The 2016 management fee allocations reflect the additional revenues and head count added as a result of the
acquisitions of Sunrise, Citrusource, and Niagara Natural. These acquisitions added approximately $350.0 million in annualized
revenues all to the Consumer Products segment.
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December 31, 2016 10-K
Consolidated Results of Operations for Fiscal Years 2015 and 2014
Revenues
Global Ingredients
Consumer Products
Total revenues
Gross Profit
Global Ingredients
Consumer Products
Total gross profit
Segment operating income (loss)(1)
Global Ingredients
Consumer Products
Corporate Services
Total segment operating income
January 2,
2016
$
January 3,
2015
$
610,890
534,244
1,145,134
619,066
483,679
1,102,745
66,461
43,901
110,362
63,591
58,514
122,105
28,184
3,208
(10,094)
21,298
26,274
27,872
(12,449)
41,697
Change
$
(8,176)
50,565
42,389
2,870
(14,613)
(11,743)
1,910
(24,664)
2,355
(20,399)
Change
%
-1.3%
10.5%
3.8%
4.5%
-25.0%
-9.6%
7.3%
-88.5%
18.9%
-48.9%
Other expense (income), net
Earnings from continuing operations before the
following
Interest expense, net
Impairment loss on investment
Provision for (recovery of) income taxes
Earnings (loss) from continuing operations
Earnings (loss) attributable to non-controlling interests
Loss from discontinued operations
attributable to SunOpta Inc.
12,151
(2,220)
14,371
647.3%
9,147
15,669
-
(3,390)
(3,132)
(136)
43,917
3,943
8,441
12,043
19,490
195
(34,770)
11,726
(8,441)
(15,433)
(22,622)
(331)
-79.2%
297.4%
-100.0%
-128.1%
-116.1%
-169.7%
(19,475)
(6,194)
(13,281)
-214.4%
Earnings (loss) attributable to SunOpta Inc.(2)
(22,471)
13,101
(35,572)
-271.5%
(1) The following table presents a reconciliation of “segment operating income (loss)” to “earnings from continuing operations 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 Fiscal
Years 2016 and 2015” table regarding the use of non-GAAP measures).
January 2, 2016
Segment operating income (loss)
Other expense, net
Earnings (loss) from continuing operations before the following
January 3, 2015
Segment operating income (loss)
Other income (expense), net
Earnings (loss) from continuing operations before the following
Global
Ingredients
$
Consumer
Products
$
28,184
(1,317)
26,867
26,274
1,052
27,326
3,208
(939)
2,269
27,872
1,294
29,166
Corporate
Services
$
(10,094)
(9,895)
(19,989)
(12,449)
(126)
(12,575)
Consolidated
$
21,298
(12,151)
9,147
41,697
2,220
43,917
(2) The following table presents a reconciliation of “adjusted earnings” from “earnings/loss from continuing operations”, 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 Fiscal Years 2016 and 2015”
table regarding the use of non-GAAP measures).
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December 31, 2016 10-K
January 2, 2016
Loss from continuing operations
Add: loss attributable to non-controlling interests
Loss from continuing operations available to common shareholders
Adjusted for:
Costs related to business acquisitions(a)
Plant expansion and start-up costs(b)
Inventory reserves and liquidation sales to de-risk positions(c)
Downtime, spoilage, and other costs due to equipment failure(d)
Demurrage, detention and other related expenses(e)
Litigation-related legal fees(f)
Reversal of stock-based compensation expense(g)
Other(h)
Net income tax effect of preceding adjustments(i)
Change in unrecognized tax benefits(j)
Adjusted earnings
January 3, 2015
Earnings from continuing operations
Less: earnings attributable to non-controlling interests
Earnings from continuing operations available to common shareholders
Adjusted for:
Impairment loss on investment(k)
Other(l)
Net income tax effect of preceding adjustments(i)
Adjusted earnings
Per Diluted Share
$
$
(3,132)
136
(2,996)
17,192
4,081
2,367
2,219
2,038
1,709
(579)
4,384
(10,598)
(855)
18,962
19,490
(195)
19,295
8,441
(2,220)
901
26,417
(0.04)
0.26
0.19
(0.09)
0.28
0.38
(a) Reflects costs related to business combinations, including an acquisition accounting adjustment related to Sunrise’s inventory sold subsequent
to the acquisition date of $4.0 million, which was recorded in cost of goods sold; acquisition- and integration-related costs incurred in
connection with the Sunrise Acquisition of $7.8 million, which was recorded in other expense; and the non-cash amortization of debt issuance
costs incurred in connection with the financing related to the Sunrise Acquisition of $3.4 million, as well as $2.0 million of loan commitment
fees associated with bridge financing for the Sunrise Acquisition that was not utilized, which were recorded in interest expense.
(b) Reflects costs related to the retrofit of the San Bernardino juice facility and expansion of the Allentown facility to add aseptic beverage
processing and filling capabilities, which were recorded in cost of goods sold.
(c) Reflects inventory reserves and low margin sales incurred to reduce inventory exposures in certain organic raw materials, which were recorded
in cost of goods sold.
(d) Reflects downtime and spoilage caused by equipment failures at the Allentown pouch facility, which were recorded in cost of goods sold.
(e) Reflects additional logistics costs stemming from capacity constraints on imports and exports within the Global Ingredients segment, which
were recorded in cost of goods sold.
(f) Reflects litigation-related legal costs mainly associated with the Plum dispute, which are recorded in SG&A expenses.
(g) Reflects the reversal to SG&A expenses of previously recognized stock-based compensation related to performance share units granted to
certain employees as the performance conditions were not achieved.
(h) Other includes severance costs of $2.1 million for a former CEO; fair value adjustments related to contingent consideration arrangements;
and gain/loss on disposal of assets, which were recorded in other expense.
(i) To tax effect the preceding adjustments to earnings and to reflect an overall estimated annual effective tax rate of approximately 30% on
adjusted earnings before tax.
(j) Reflects the realization of previously unrecognized tax benefits, due to the expiration of the statute of limitations.
(k) Reflects an impairment loss recognized on our non-core investment in Enchi Corporation, (“Enchi”), which was recorded in impairment loss
on investment.
(l) Other includes a net gain of $1.4 million on the disposal of certain of our sunflower facilities, partially offset by severance costs for affected
employees, and a gain of $1.4 million on the settlement of a contingent consideration arrangement.
We believe that investors’ understanding of our financial performance is enhanced by disclosing the specific items that we exclude from earnings/loss
attributable to SunOpta Inc. to compute adjusted earnings. However, adjusted earnings is not, and should not be viewed as, a substitute for earnings
prepared under U.S. GAAP. Adjusted earnings is presented solely to allow investors to more fully understand how we assess our financial performance.
(3)
In order to evaluate our results of operations, we use certain non-GAAP measures that we believe enhance an investor’s ability to derive meaningful
year-over-year 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, as well as the impacts of recent business acquisitions and product rationalizations. 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 year ended January 2, 2016 increased by 3.8% to $1,145.1 million from $1,102.7 million for the year ended
January 3, 2015. Excluding the impact on revenues of business acquisitions, product rationalizations and other changes (a net
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December 31, 2016 10-K
increase in revenues of approximately $57.0 million), changes in foreign exchange rates and commodity-related pricing
(decreases in revenues of approximately $32.0 million and $7.0 million, respectively), and the impact of the additional week
of sales in fiscal 2014 (a decrease in revenues of approximately $21.0 million), revenues increased 4.1% in 2015, compared
with 2014. Revenues for the fourth quarter of 2015 were $316.4 million, an increase of $65.8 million, or 26.3%, compared
with revenues of $250.6 million for the fourth quarter of 2014. Excluding the impact on revenues for the fourth quarter of 2015
of business acquisitions, product rationalizations and other changes (an increase in revenues of approximately $56.0 million),
changes in foreign exchange rates (a decrease in revenues of approximately $6.0 million), and changes in commodity-related
pricing (an increase in revenues of approximately $2.0 million), revenues in the fourth quarter of 2015 increased by 5.5%,
compared with the fourth quarter of 2014. The increases in revenue on an adjusted basis for the full year and fourth quarter of
2015, compared with the corresponding periods of 2014, reflected stronger demand for organic ingredients in the U.S. and
Europe, offset by lower sunflower and grain-based ingredient volumes and lower volumes for consumer-based aseptic beverage
and frozen food retail products.
Gross profit decreased $11.7 million, or 9.6%, to $110.4 million for the year ended January 2, 2016, compared with $122.1
million for the year ended January 3, 2015. As a percentage of revenues, gross profit for the year ended January 2, 2016 was
9.6% compared to 11.1% for the year ended January 3, 2015, a decrease of 1.4%. The gross profit percentage for 2015 would
have been approximately 10.9%, excluding the impact of costs related to the retrofit of the San Bernardino juice facility and
expansion of the Allentown facility to add aseptic beverage production capabilities ($4.1 million), acquisition accounting
adjustment related to the Sunrise’s inventory sold subsequent to the acquisition date ($4.0 million), aging reserves and low
margin sales to reduce inventory exposures on certain organic raw materials ($2.4 million), downtime and spoilage caused by
equipment failures at the Allentown pouch facility ($2.2 million), and demurrage, detention and other related expenses ($2.0
million). The 0.2% decline in gross profit percentage year-over-year on an adjusted basis mainly reflected lower capacity
utilization and a higher cost base within consumer-based product categories due to recent expansion activities, partially offset
by improved performance in our rationalized sunflower operations and increased margin contribution from higher volumes of
organic ingredients.
Total segment operating income for the year ended January 2, 2016 decreased by $20.4 million, or 48.9%, to $21.3 million,
compared with $41.7 million for the year ended January 3, 2015. As a percentage of revenue, segment operating income was
1.9% for the year ended January 2, 2016, compared with 3.8% for the year ended January 3, 2015. The decrease in segment
operating income reflected lower overall gross profit as described above and a $5.4 million increase in SG&A expenses,
reflecting incremental expenses from acquired businesses and higher litigation-related legal costs mainly related to the Plum
dispute. Those factors were partially offset by lower employee short-term and long-term incentives tied to operating
performance, controlled discretionary spending, and the favorable impact of a stronger U.S. dollar on SG&A expenses
denominated in Canadian dollars and euros. As a percentage of revenues, SG&A expenses were 7.5% in 2015 and, excluding
the impact of higher litigation costs of $2.0 million, and lower stock-based compensation expense of $0.6 million, SG&A
expenses would have been approximately 7.4% on an adjusted basis, which is in-line with our intention of maintaining SG&A
below 8% of revenues.
Intangible asset amortization increased $2.9 million year-over-year in 2015, related to the identified intangible assets of
acquired businesses.
We recognized foreign exchange gains of $1.6 million and $2.0 million for the year ended January 2, 2016 and January 3, 2015,
respectively, mainly related to the positive impact of a strengthening of the U.S. dollar relative to the euro on open foreign
exchange contracts within our international sourcing and supply operations.
Further details on revenue, gross profit and segment operating income variances are provided below under “Segmented
Operations Information”.
Other expense for the year ended January 2, 2016 of $12.2 million included business development costs of $7.8 million,
primarily reflecting acquisition- and integration-related costs incurred in connection with the Sunrise Acquisition, as well as
severance and other rationalization costs of $2.9 million mainly related to a former CEO. Other income for the year ended
January 3, 2015 of $2.2 million included a net gain on sale of assets of $1.4 million primarily related to the disposal of certain
of our sunflower production and storage facilities in order to reduce the cost structure and improve the production capacity
utilization within our North American sunflower operations, partially offset by severance costs for employees affected by the
closure and sale of the sunflower facilities, and a gain of $1.4 million on the settlement of a contingent consideration
arrangement.
The increase in interest expense of $11.7 million to $15.7 million for the year ended January 2, 2016, compared with $3.9
million for the year ended January 3, 2015, primarily reflected increased costs associated with borrowings to finance the Sunrise
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December 31, 2016 10-K
Acquisition, which included $3.4 million of non-cash amortization of debt issuance costs and the write-off of $2.0 million of
loan commitment fees associated with bridge financing for the Sunrise Acquisition that was not utilized.
In 2014, we recognized an impairment loss of $8.4 million related to our non-core investment in Enchi, a developer of advanced
bioconversion products for the renewable fuels industry.
The recovery of income tax for the year ended January 2, 2016 was $3.4 million, or 52.0% of loss before taxes, compared with
a provision for income taxes $12.0 million, or 30.1% of earnings before taxes, for the year ended January 3, 2015 (excluding
the non-deductible impairment loss on investment in 2014, for which the related deferred tax asset is considered more likely
than not to be unrealized). The increase in the effective tax rate in 2015, compared with 2014, reflected the impact of pre-tax
losses in the U.S., due to a combination of acquisition-related costs primarily related to the Sunrise Acquisition and lower pre-
tax earnings within our U.S.-based consumer products operations, which more than offset taxable income in our European and
Canadian operations.
Loss from continuing operations, net of non-controlling interests, for the year ended January 2, 2016 was $3.0 million,
compared with earnings of $19.3 million for the year ended January 3, 2015, a decrease of $22.3 million. Diluted loss per
share from continuing operations was $0.04 for the year ended January 2, 2016, compared with diluted earnings per share from
continuing operations of $0.28 for the year ended January 3, 2015.
Loss from discontinued operations of $19.5 million for the year ended January 2, 2016 primarily reflected the results of Opta
Minerals, including an asset impairment charge of $12.4 million and loss on classification as held for sale of $10.5 million, net
of non-controlling interest of $8.8 million. Loss from discontinued operations of $8.1 million for the year ended January 3,
2015 primarily reflected the results of Opta Minerals, including asset impairment and plant closure costs of $4.2 million and a
goodwill impairment loss of $11.0 million, net of non-controlling interest of $5.2 million. In addition, we recognized a gain
on the sale of the Fiber Business, net of income taxes, of $1.9 million in the fourth quarter of 2014.
On a consolidated basis, we realized a loss of $22.5 million (diluted loss per share of $0.31) for the year ended January 2, 2016,
compared with earnings of $13.1 million (diluted earnings per share of $0.19) for the year ended January 3, 2015.
For the year ended January 2, 2016, adjusted earnings were $17.9 million or $0.25 per diluted share, compared with adjusted
earnings of $26.4 million or $0.38 per diluted share for the year ended January 3, 2015. Adjusted earnings is a non-GAAP
financial measure. See footnote (2) to the table above for a reconciliation of “adjusted earnings” from “earnings/loss from
continuing operations”, which we consider to be the most directly comparable U.S. GAAP financial measure.
Segmented Operations Information
Global Ingredients
January 2, 2016
January 3, 2015
Change
% Change
Revenue
Gross Profit
Gross Profit %
Operating Income
Operating Income %
610,890
66,461
10.9%
28,184
4.6%
619,066
63,591
10.3%
26,274
4.2%
(8,176)
2,870
1,910
-1.3%
4.5%
0.6%
7.3%
0.4%
Global Ingredients contributed $610.9 million in revenues for the year ended January 2, 2016, compared to $619.1 million for
the year ended January 3, 2015, a decrease of $8.2 million or 1.3%. Excluding the impact of changes including foreign
exchange rates, commodity-related pricing and the additional week of sales in the first quarter of 2014, Global Ingredients’
revenues increased approximately 8.8%. The table below explains the decrease in revenue:
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December 31, 2016 10-K
Global Ingredients Revenue Changes
Revenues for the year ended January 3, 2015
Unfavorable foreign exchange impact on euro denominated sales due to the stronger
U.S. dollar
Lower volumes of sunflower and grain ingredient products, partially offset by higher
volumes for non-GMO corn and soy
Impact on revenues of the additional week in fiscal 2014
Decreased pricing of non-GMO corn, soy, organic feed and sunflower, partially offset
by increased pricing of organic feed and agronomy products
Higher international sales volumes of organic fruits and vegetables, seeds, nuts, cocoa,
and oils, partially offset by lower volumes of sugar, sweeteners, and organic feed
Higher U.S. domestic sales volumes on oils, organic fruits and vegetables, and nuts,
offset partially by lower pricing for organic oranges, chia seeds, sugar, rice and cocoa
Revenues for the year ended January 2, 2016
$619,066
(31,897)
(31,038)
(11,673)
(10,792)
44,884
32,340
$610,890
Gross profit in Global Ingredients increased by $2.9 million to $66.5 million for the year ended January 2, 2016 compared to
$63.6 million for the year ended January 3, 2015, and the gross profit percentage increased by 0.6% to 10.9%. The increase in
gross profit as a percentage of revenue was primarily due to favorable sales mix of organic raw materials and improved
sunflower processing yields, partially offset by lower pricing spreads on non-GMO and specialty soy and corn. The table
below explains the increase in gross profit:
Global Ingredients Gross Profit Changes
Gross profit for the year ended January 3, 2015
Margin impact of increased volumes and favorable product mix of organic raw
ingredients, as well as improved plant efficiencies at our cocoa processing facility
Improved sunflower processing yields and operating efficiencies offset by lower
volumes
Demurrage, detention and other related costs resulting from transloading capacity
constraints experienced primarily in the third quarter as well as costs associated with
inventory reserves and liquidation sales made to decrease inventory exposures in certain
organic commodities
Unfavorable impact on gross margins due to weaker euro relative to U.S. dollar, as well
as mark to market losses related to commodity futures contracts for cocoa and other
commodities
Margin impact of lower pricing spread on non-GMO soy and grain ingredients, partially
offset by higher prices on grain snacks
Gross profit for the year ended January 2, 2016
$63,591
10,220
1,051
(4,405)
(3,352)
(644)
$66,461
Operating income in Global Ingredients increased by $1.9 million, or 7.3%, to $28.2 million for the year ended January 2,
2016, compared to $26.3 million for the year ended January 3, 2015. The table below explains the increase in operating income:
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December 31, 2016 10-K
Global Ingredients Operating Income Changes
Operating income for the year ended January 3, 2015
Increase in gross profit, as explained above
Favorable impact on expenses due to the stronger U.S. dollar relative to the euro
Increased foreign exchange gains on forward derivative contracts and decreased SG&A
expenses due to lower discretionary spending and lower short-term incentive accruals
Increase in corporate cost allocations, due in part to centralization of services
Operating income for the year ended January 2, 2016
$26,274
2,870
2,176
402
(3,538)
$28,184
Consumer Products
January 2, 2016
January 3, 2015
Change
% Change
Revenue
Gross Profit
Gross Profit %
Operating Income
Operating Income %
534,244
43,901
8.2%
3,208
0.6%
483,679
58,514
12.1%
27,872
5.8%
50,565
(14,613)
(24,664)
10.5%
-25.0%
-3.9%
-88.5%
-5.2%
Consumer Products contributed $534.2 million in revenues for the year ended January 2, 2016, compared to $483.7 million for
the year ended January 3, 2015, an increase of $50.6 million or 10.5%. Excluding the impact of changes including accretive
acquisitions in the year, and the additional week of sales in the first quarter of 2014, Consumer Products revenues decreased
approximately 1.5%. The table below explains the increase in revenue:
Consumer Products Revenue Changes
Revenues for the year ended January 3, 2015
Incremental revenues as a result of the Sunrise Acquisition on October 9, 2015
Incremental revenues as a result of the acquisitions of Citrusource on March 2, 2015,
and Niagara Natural on August 12, 2015
Lower volumes of aseptic beverages due to a change in mix and lower sales to the retail
channel, in particular almond-based beverage sales, as well as lower volumes of contract
manufactured shelf stable and refrigerated fruit-based beverages, partially offset by
increased sales of coconut based aseptic non-dairy into the food service channel
Impact on revenues of additional week in fiscal 2014
Decreased volumes of private label retail frozen food offerings, partially offset by
increased revenues of fruit toppings and bases
Decreased volumes of protein based snacks and fruit snacks, partially offset by
increased sales of re-sealable pouch products
Revenues for the year ended January 2, 2016
$483,679
52,848
30,797
(15,141)
(9,608)
(4,592)
(3,739)
$534,244
Gross profit in Consumer Products decreased by $14.6 million to $43.9 million for the year ended January 2, 2016 compared
to $58.5 million for the year ended January 3, 2015, and the gross profit percentage decreased by 3.9% to 8.2%. The decrease
in gross profit as a percentage of revenue was due to lower production volumes leading to lower plant efficiency, as well as
increased costs associated with the retrofit of our premium juice facility and expansion activities at our Allentown facility. The
table below explains the decrease in gross profit:
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December 31, 2016 10-K
Consumer Products Gross Profit Changes
Gross profit for the year ended January 3, 2015
Decreased contribution from sales of aseptic and non-aseptic private label beverages, as
fixed costs have increased from capacity expansion projects, leading to decreased
operational efficiencies in advance of volume build
Increased raw material costs and delayed price increases which were not fully
implemented until the second half of 2015, as well as lower volumes for frozen food
offerings as well as fruit bases and toppings
Costs associated with the expansion of the Allentown facility for aseptic beverage
production and costs associated with ramp-up activities at our premium juice facility in
anticipation of increased extraction and bottling volume
Costs associated with equipment failures and other mechanical issues at the Allentown
pouch and Alexandria, Minnesota, aseptic beverage facilities in the fourth quarter which
led to downtime, yield loss, spoilage, and price concessions to customers
Incremental margin as a result of the Sunrise acquisition, including the effect of
acquisition accounting adjustments related to the fair value of inventory sold subsequent
to the acquisition date
Incremental margin as a result of Citrusource acquisition, partially offset by increased
costs associated with the retrofit of our premium juice facility
Higher volumes of fruit-based snacks, incremental margin from the acquisition of
Niagara Natural, partially offset by decreased contribution from sales of protein-based
snacks, as well as lower plant efficiencies due to decreased production volumes
Gross profit for the year ended January 2, 2016
$58,514
(8,648)
(6,948)
(4,081)
(2,219)
4,737
2,109
437
$43,901
Operating income in Consumer Products decreased by $24.7 million, or 88.5%, to $3.2 million for the year ended January 2,
2016, compared to $27.9 million for the year ended January 3, 2015. The table below explains the decrease in operating income:
Consumer Products Operating Income Changes
Operating income for the year ended January 3, 2015
Decrease in gross profit, as explained above
Increase in corporate cost allocations, due in part to centralization of services
Increase in SG&A costs associated with the acquisitions of Sunrise, Niagara Natural and
Citrusource including amortization of intangible assets
Lower compensation costs and professional fees driven by the benefit of centralization
of services and lower short-term incentive accruals
Operating income for the year ended January 2, 2016
$27,872
(14,613)
(6,939)
(5,260)
2,148
$3,208
Corporate Services
January 2, 2016
January 3, 2015
Change
% Change
Operating Loss
(10,094)
(12,449)
2,355
18.9%
Operating loss at Corporate Services decreased by $2.4 million to $10.1 million for the year ended January 2, 2016, from a loss
of $12.4 million for the year ended January 3, 2015. The table below explains the decrease in operating loss:
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December 31, 2016 10-K
Corporate Services Operating Loss Changes
Operating loss for the year ended January 3, 2015
Increase in corporate cost allocations, due in part to the centralization of services
Higher compensation-related costs due to increased headcount, health and workers
compensation benefits, partially offset by lower short-term incentives
Increased information technology consulting, professional fees and other general office
spending, partially offset by favorable impact on expenses due to the stronger U.S.
dollar relative to the Canadian dollar
Increased professional fees associated with ongoing litigation
Increase in foreign exchange losses
Operating loss for the year ended January 2, 2016
Liquidity and Capital Resources
We have the following sources from which we can fund our operating cash requirements:
(cid:2) Existing cash and cash equivalents;
(cid:2) Available operating lines of credit;
$(12,449)
10,477
(3,410)
(2,503)
(1,959)
(250)
$(10,094)
(cid:2) Cash flows generated from operating activities, including working capital reduction efforts;
(cid:2) Cash flows generated from the exercise, if any, of stock options during the year;
(cid:2) Potential additional long-term financing, including the offer and sale of debt and/or equity securities; and
(cid:2) Potential sales of non-core divisions, or assets.
On February 11, 2016, we entered into a five-year, $350.0 million Global Credit Facility, which replaced our previous North
American credit facilities, which were comprised of a $165.0 million facility and a C$10.0 million facility, that were set to
expire January 27, 2017, and our €92.5 million multipurpose European credit facilities that were due on demand with no set
maturity date. The Global Credit Facility will be used to support the working capital and general corporate needs of our global
operations, in addition to funding future 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 $450.0 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. As at December 31, 2016, we had outstanding borrowings of $199.3 million and approximately
$100.0 million of available borrowing capacity under the Global Credit Facility. For more information on the Global Credit
Facility, see note 11 to the consolidated financial statements in Item 15 of this Form 10-K.
On October 9, 2015, SunOpta Foods and certain of our other subsidiaries entered into the Second Lien Loan Agreement with
a group of lenders, pursuant to which we borrowed an aggregate principal amount of $330.0 million of term loans (the “Initial
Loans”). The net proceeds of the Second Lien Loan Agreement were used to partially fund the Sunrise Acquisition. As at
October 1, 2016, we had repaid $20.0 million of the outstanding principal of the Initial Loans. On October 7, 2016, we used
the net proceeds from the issuance of the Preferred Stock to repay an additional $79.0 million principal amount of the Initial
Loans. The remaining $231.0 million aggregate principal amount of Initial Loans matured on October 9, 2016 and
automatically converted into a like principal amount of term loans (such converted loans, the “Term Loans”), with a maturity
date of October 9, 2022. The Term Loans bore interest at 9.5% per annum. On October 20, 2016, all of the outstanding Term
Loans were exchanged for a corresponding amount of 9.5% Senior Secured Second Lien Notes due October 9, 2022 (the
“Notes”) issued by SunOpta Foods. For more information on the Notes, see note 11 to the consolidated financial statements
in Item 15 of this Form 10-K. The Second Lien Loan Agreement was terminated in connection with the issuance of the Notes.
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December 31, 2016 10-K
We have an effective registration statement on file with the U.S. Securities and Exchange Commission, pursuant to which we
may offer up to $200.0 million of debt, equity and other securities. We also have a prospectus on file with Canadian securities
regulators covering the offer and sale of up to $200.0 million of debt, equity and other securities. On September 30, 2015, we
issued 16.7 million of our common shares for gross proceeds of $100.0 million under the U.S. registration statement and the
Canadian prospectus. The net proceeds from this issuance were used to partially fund the Sunrise Acquisition. The remaining
amount of $100.0 million available under U.S. registration statement and the Canadian prospectus could be used by us for a
public offering of debt, equity or other securities to raise additional capital. Our ability to conduct any such future offerings
will be subject to market conditions. The U.S. registration statement will expire in August 2017.
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 favourable terms, if at all, could be limited.
Cash Flows
Fiscal 2016 Compared to Fiscal 2015
Net cash and cash equivalents related to continuing operations decreased $1.0 million to $1.3 million as at December 31, 2016,
compared with $2.3 million at January 2, 2016, which primarily reflected the following uses of cash:
(cid:2)
(cid:2)
(cid:2)
repayment of borrowings of $320.0 million under the Second Lien Loan Agreement;
capital expenditures of $22.6 million, mainly related to the automation of frozen fruit processing and to food safety
and quality initiatives in connection with the Value Creation Plan; and
payment of $13.0 million of debt issuance costs related to the Notes and Global Credit Facility.
These uses of cash were mostly offset by the following sources of cash:
(cid:2)
(cid:2)
(cid:2)
gross proceeds of $231.0 million on the issuance of the Notes;
net proceeds of $79.0 million on the issuance of the Preferred Stock; and
net borrowings of $44.3 million under our line of credit facilities.
Cash provided by operating activities of continuing operations was $0.7 million for the year ended December 31, 2016,
compared with $26.4 million for the year ended January 2, 2016, a decrease in cash provided of $25.7 million, which reflected
lower year-over-year operating performance in the fourth quarter of 2016, resulting in reduced inventory turnover, partially
offset by the receipt of income tax refunds during 2016 related to 2015.
Cash used in investing activities of continuing operations was $21.6 million for the year ended December 31, 2016, compared
with $521.6 million for the year ended January 2, 2016, a decrease in cash used of $500.0 million, which mainly reflected total
cash paid of $490.7 million in connection with the Sunrise Acquisition, as well as upfront payments for Niagara Natural and
Citrusource in 2015. In addition, capital expenditures declined year-over-year by $8.6 million, reflecting higher spending in
2015 related to a retrofit of the San Bernardino juice facility and the expansion of the Allentown aseptic beverage facility. Cash
provided by investing activities of discontinued operations in 2016 reflected cash proceeds from the sale of Opta Minerals of
$3.2 million, net of cash sold.
Cash provided by financing activities of continuing operations was $16.8 million for the year ended December 31, 2016,
compared with cash provided of $490.0 million for the year ended January 2, 2016, a decrease in cash provided of $473.2
million, which mainly reflected debt and equity issuances in connection with the Sunrise Acquisition in 2015 for proceeds of
$408.1 million in the aggregate, net of issuance costs. In addition, net borrowings under our line of credit facilities decreased
$41.7 million in 2016, compared with 2015, reflecting borrowings of $79.2 million to finance a portion of the Sunrise
Acquisition and upfront payments for Niagara Natural and Citrusource in 2015, partially offset by the payment of $13.0 million
of debt issuance costs incurred in connection with the Notes and Global Credit Facility, and repayment of $10.0 million of
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December 31, 2016 10-K
borrowings under the Second Lien Loan Agreement and in 2016. In addition, we repaid the remaining $310.0 million
outstanding under the Second Lien Loan Agreement with gross proceeds of $231.0 million from the issuance of the Notes and
net proceeds of $79.0 million from the issuance of the Preferred Stock. In 2016, we also repaid in full outstanding borrowings
of $192.7 million under our North American and European credit facilities with new borrowings under the Global Credit
Facility.
Fiscal 2015 Compared to Fiscal 2014
Net cash and cash equivalents related to continuing operations decreased $5.5 million to $2.3 million as at January 2, 2016,
compared with $7.8 million at January 3, 2015, which primarily reflected the following uses of cash:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
cash paid in connection with business acquisitions of $490.7 million in the aggregate;
capital expenditures of $31.2 million, which included $11.5 million of maintenance capital expenditures, as well as
strategic spending related to the retrofit of the San Bernardino juice facility and expansion of the Allentown facility;
financing costs incurred primarily in connection with the Second Lien Loan Agreement of $16.0 million; and
repayments of long-term debt of $11.0 million, primarily related to the repayment of $10.0 million of borrowings
under the Second Lien Loan Agreement.
These uses of cash were mostly offset by the following sources of cash:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
borrowings of $330.0 million under the Second Lien Loan Agreement in connection with the Sunrise Acquisition;
net proceeds from the issuance of common shares of $94.1 million in connection with the Sunrise Acquisition;
net borrowings under our credit facilities of $86.0 million, mainly in connection with business acquisitions;
cash provided by continuing operating activities of $26.4 million; and
proceeds from the exercise of stock options and warrants of $7.8 million in the aggregate.
Cash provided by operating activities of continuing operations was $26.4 million for the year ended January 2, 2016, compared
with $17.5 million for the year ended January 3, 2015, an increase of $8.9 million, reflecting strong working capital cash
inflows and incremental cash flows from acquired businesses, partially offset by a decline in the year-over-year operating
performance within our existing consumer products operations. Cash provided by operating activities of discontinued
operations of $4.8 million and $7.3 million in 2015 and 2014, respectively, reflected the operations of Opta Minerals and the
Fiber Business.
Cash used in investing activities of continuing operations increased by $509.9 million to $521.6 million for the year ended
January 2, 2016, compared with $11.7 million for the year ended January 3, 2015, mainly due to the total cash paid of $490.7
million in connection with the Sunrise Acquisition, as well as the upfront payments for Niagara Natural and Citrusource. In
addition, capital expenditures increased $13.5 million year-over-year, primarily reflecting the addition of aseptic processing
and packaging capabilities at the Allentown facility. In 2014, we received cash proceeds of $5.8 million from the sale of the
sunflower facilities. Cash provided by investing activities of discontinued operations of $34.5 million in 2014 primarily
reflected the net proceeds from the sale of the Fiber Business of $36.9 million.
Cash provided by financing activities of continuing operations was $490.0 million for the year ended January 2, 2016, compared
with cash used of $39.4 million for the year ended January 3, 2015, an increase in cash provided of $529.4 million, which
mainly reflected the debt and equity issuances in connection with the Sunrise Acquisition for proceeds of $408.1 million in the
aggregate, net of issuance costs. In addition, borrowings under our credit facilities increased $126.9 million year-over-year,
including $59.2 million to finance a portion of the Sunrise Acquisition and $20.0 million to fund the Niagara Natural and
Citrusource upfront payments. In addition, the year-over-year increase in credit facility borrowings reflected the higher capital
spending in 2015, compared with 2014; repayment of $10.0 million of borrowings under the Second Lien Loan Agreement;
and proceeds from the sale of the Fiber Business in 2014, which did not similarly occur in 2015, partially offset by increased
operating cash flows and higher proceeds from the exercise of options and warrants in 2015, compared with 2014.
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December 31, 2016 10-K
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
The table below sets out our contractual obligations as at December 31, 2016:
Payments due by Period
2017
2018-2019
2020-2021
Thereafter
Bank indebtedness
Long-term debt
Interest on bank indebtedness and long-term debt(1)
Purchase commitments
Operating leases
Long-term liabilities
Total
$
201,494
239,922
138,652
218,690
107,143
21,137
$
201,494
2,079
27,811
218,690
26,959
5,500
Commodity and foreign exchange contracts
(421)
(429)
$
-
4,731
44,475
-
43,817
15,637
8
$
-
946
44,222
-
$
-
232,166
22,144
-
23,890
12,477
-
-
-
-
926,617
482,104
108,668
69,058
266,787
(1)
Interest on bank indebtedness is calculated based on scheduled repayments over the periods as indicated, using existing interest rates at December
31, 2016, as disclosed in note 11 to the consolidated financial statements included in Item 15 of this Form 10-K.
The preceding table excludes a liability for uncertain tax benefits totalling $0.5 million, as we cannot currently make a reliable
estimate of the period in which the liability will be payable, if ever.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk
Variable and fixed rate borrowings carry different types of interest rate risk. Variable rate debt gives less predictability to
earnings and cash flows as interest rates change, while the fair value of fixed rate debt is affected by changes in interest rates.
As at December 31, 2016, we had $201.5 million and $239.9 million principal amount of variable and fixed rate debt,
respectively, with weighted-average interest rates of 2.7% and 9.3%, respectively. A 100 basis-point change in interest rates
would have an after-tax effect of $1.2 million on our earnings and cash flows, based on current outstanding borrowings and
effective interest rates on our variable rate debt. While our variable-rate debt may impact earnings and cash flows as interest
rates change, it is not subject to changes in fair value.
As at December 31, 2016, most of our fixed rate debt was comprised of the Notes. If interest rates were to increase or decrease
by 100 basis-points, the fair value of the Notes was would increase or decrease by approximately $10.0 million.
Foreign currency risk
All of our U.S. subsidiaries use the U.S. dollar as their functional currency, and the U.S. dollar is also our reporting currency.
In addition, the functional currency of our Canadian and Mexican operations is the U.S. dollar. The functional currency of our
operations located in Europe are principally the euro. For these operations, gains (losses) on translation of net assets to U.S.
dollars on consolidation are recorded in accumulated other comprehensive income within shareholders’ equity. We are exposed
to foreign exchange rate fluctuations as the financial results of our European subsidiaries are translated into U.S. dollars on
consolidation. A 10% change in the exchange rates for the euro would affect the carrying value of our net assets by
approximately $5.7 million, with a corresponding impact to accumulated other comprehensive income.
The euro depreciated against the U.S. dollar during 2016, with closing rates moving from $1.0859 at January 2, 2016 to $1.0553
at December 31, 2016. The Canadian dollar appreciated relative to the U.S. dollar in 2016, with closing rates moving from
$0.7225 at January 2, 2016 to $0.7448 at December 31, 2016 for each U.S. dollar.
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December 31, 2016 10-K
Our operations based in the U.S. have limited exposure to other currencies since almost all sales and purchases are made in
U.S. dollars. The European operations are exposed to various currencies as they purchase product from a wide variety of
countries in several currencies and primarily sell into the European market. It is our intention to hold excess funds in the
currency in which the funds are likely to be used, which will from time to time potentially expose us to exchange rate
fluctuations when converted into U.S. dollars. In addition, we enter into forward foreign exchange contracts to reduce exposure
to fluctuations in foreign currency exchange rates. Open forward foreign exchange contracts were marked-to-market at
December 31, 2016, resulting in a gain of $1.0 million (January 2, 2016 - loss of $0.7 million), which is included in foreign
exchange on the consolidated statements of operations.
Commodity risk
We enter into exchange-traded commodity futures and options contracts to hedge its exposure to price fluctuations on grain
and certain other commodity transactions to the extent considered practicable for minimizing risk from market price
fluctuations. Futures contracts used for hedging purposes are purchased and sold through regulated commodity exchanges.
Inventories, however, may not be completely hedged, due in part to our assessment of our exposure from expected price
fluctuations. Exchange purchase and sales contracts may expose us to risk in the event that the counterparty to a transaction is
unable to fulfill its contractual obligation. We manage our risk by entering into purchase contracts with pre-approved growers.
We have a risk of loss from hedging activities if a grower does not deliver as scheduled. Sales contracts are entered into with
organizations of acceptable creditworthiness, as internally evaluated. All futures transactions are marked to market. Gains and
losses on futures transactions related to grain inventories are included in cost of goods sold. As at December 31, 2016, we
owned 354,699 (January 2, 2016 – 216,180) bushels of corn with a weighted-average price of $3.17 (January 2, 2016 – $3.39)
and 569,943 (January 2, 2016 – 399,985) bushels of soybeans with a weighted-average price of $10.74 (January 2, 2016 –
$9.93). As at December 31, 2016, we had a net short position on corn of 10,937 (January 2, 2016 – net short position of 12,357)
bushels and a net short position on soybeans of 43,866 (January 2, 2016 – net short position of 30,760). An increase or decrease
in commodity prices of either soy or corn of 10% would not result in a material change in the carrying value of these
commodities.
In addition, we enter into forward contracts to hedge our cocoa and coffee positions in an effort to minimize price fluctuations.
As at December 31, 2016, we had net open forward contracts to sell 142 lots of cocoa (January 2, 2016 – 144 lots) and 21 lots
of coffee (January 2, 2016 – 13 lots). A 10% change in the commodity price of cocoa and coffee would impact the fair value
of these derivative instruments by $0.2 million (January 2, 2016 – $0.4 million) and $0.1 million (January 2, 2016 – $0.1
million), respectively.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements required by this item are set forth immediately following the signature page to this Form
10-K beginning on page F-1 and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
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December 31, 2016 10-K
Item 9A - 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
Commission’s 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 and Chief Financial
Officer, 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 annual report. Based on this evaluation, our
Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective
as of December 31, 2016.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Rule 13a-15(f) under the Exchange Act.
Our internal control framework and processes are designed to provide reasonable assurance to management and our board of
directors regarding the reliability of financial reporting and the preparation of our consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making
this assessment, management used the criteria set forth by the Committee on Sponsoring Organizations of the Treadway
Commission in Internal Control—Integrated Framework (2013).
Based on its assessment, our management concluded that our internal control over financial reporting was effective as of
December 31, 2016, based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by Deloitte LLP,
Independent Registered Public Accounting Firm that also audited our consolidated financial statements for the year ended
December 31, 2016, as stated in their reports which appear herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2016 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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December 31, 2016 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of SunOpta Inc.:
We have audited the internal control over financial reporting of SunOpta Inc. and subsidiaries (the “Company”) as of December
31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying “Management’s Annual Report on Internal Control Over Financial Reporting”. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements as at and for the year ended December 31, 2016 of the Company and our report dated
March 2, 2017 expressed an unqualified opinion on those financial statements.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
March 2, 2017
Item 9B. Other Information
None.
SUNOPTA INC.
71
December 31, 2016 10-K
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required under this item is incorporated herein by reference to our Definitive Proxy Statement for the Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31,
2016 (the “2017 Proxy Statement”).
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference from the 2017 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under this item is incorporated herein by reference from the 2017 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated herein by reference from the 2017 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required under this item is incorporated herein by reference from the 2017 Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules
The following documents are being filed as part of this annual report.
PART IV
1. Financial Statements. See “Index to Consolidated Financial Statements” set forth on page F1.
2. Financial Statement Schedules. All schedules for which provision is made in the applicable accounting requirements of
the Securities and Exchange Commission are not required or the required information has been included within the
financial statements or the notes thereto.
3. Exhibits. The list of exhibits in the Exhibit Index included in this annual report is incorporated herein by reference.
Exhibits
Description
EXHIBIT INDEX
2.1+
3.1
3.2
Asset Purchase Agreement, dated August 11, 2015, among SunOpta Inc., Niagara Natural Fruit
Snack Company Inc., John Boot and Guy Armstrong (incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed on August 17, 2015).
Amalgamation of Stake Technology Ltd. and 3754481 Canada Ltd. (formerly George F. Pettinos
(Canada) Limited) (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on
Form 10-KSB for the year ended December 31, 2000).
Certificate of Amendment, dated October 31, 2003, to change the Company’s name from Stake
Technology Ltd. to SunOpta Inc. (incorporated by reference to Exhibit 3i(b) to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2003).
SUNOPTA INC.
72
December 31, 2016 10-K
Exhibits
Description
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Articles of Amalgamation of SunOpta Inc. and Sunrich Valley Inc., Integrated Drying Systems Inc.,
Kettle Valley Dried Fruits Ltd., Pro Organics Marketing Inc., Pro Organics Marketing (East) Inc.,
4157648 Canada Inc. and 4198000 Canada Ltd., dated January 1, 2004 (incorporated by reference
to Exhibit 3i(c) to the Company’s Annual Report on Form 10-K for the year ended December 31,
2003).
Articles of Amalgamation of SunOpta Inc. and 6319734 Canada Inc., 4157656 Canada Inc. Kofman-
Barenholtz Foods Limited, dated January 1, 2005 (incorporated by reference to Exhibit 3i(d) to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2004).
Articles of Amalgamation of SunOpta Inc. and 4307623 Canada Inc., dated January 1, 2006
(incorporated by reference to Exhibit 3i(e) to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2005).
Articles of Amalgamation of SunOpta Inc., 4208862 SunOpta Food Ingredients Canada Ltd.,
4406150 Canada Inc. and 4406168 Canada Inc., dated January 1, 2007 (incorporated by reference to
Exhibit 3i(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).
Articles of Amalgamation of SunOpta Inc. and 4460596 Canada Inc., dated January 1, 2008
(incorporated by reference to Exhibit 3i(g) to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007).
Amended and Restated By-law No. 14, dated May 27, 2010 (incorporated by reference to Exhibit
4.4 to the Company’s Registration Statement on Form S-3 filed on July 3, 2014).
Certificate of Amendment, dated July 10, 2013, to authorize the directors to fix the number of
directors to be elected by the shareholders and to appoint one or more directors (incorporated by
reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-3 filed on July 3, 2014).
3.10
By-Law Number 15 of SunOpta Inc. (incorporated by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on November 13, 2015).
4.1
4.2
4.3
4.4
4.5
Form of Certificate representing Common Shares, no par value (incorporated by reference to Exhibit
4.9 to the Company’s Registration Statement on Form S-8 filed on September 2, 2011).
Shareholder Rights Plan Agreement, dated November 10, 2015, between SunOpta Inc. and American
Stock Transfer & Trust Company LLC, as rights agent (incorporated by reference to Exhibit 4.1 to
the Company’s Current Report on Form 8-K filed on November 13, 2015).
Amended and Restated Shareholder Rights Plan Agreement, dated November 10, 2015, amended
and restated as of April 18, 2016, between SunOpta Inc. and American Stock Transfer & Trust
Company LLC, as rights agent (incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on April 20, 2016).
Amended and Restated Certificate of Incorporation of SunOpta Foods Inc., setting forth the terms of
its Series A Preferred Stock, which is exchangeable for Common Shares of SunOpta Inc.
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on
October 12, 2016).
Articles of Amendment of SunOpta Inc., setting forth the terms of its Special Shares, Series 1
(incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on
October 12, 2016).
SUNOPTA INC.
73
December 31, 2016 10-K
Exhibits
Description
4.6
4.7
4.8
4.9
4.10
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7
10.8†
10.9†
Indenture, dated as of October 20, 2016, among SunOpta Foods, the guarantors named therein and
U.S. Bank National Association, as trustee and notes collateral agent (incorporated by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 26, 2016).
Form of 9.5% Senior Secured Second Lien Notes due 2022 (incorporated by reference to Exhibit 4.2
to the Company’s Current Report on Form 8-K filed on October 26, 2016).
Second Lien U.S. Security Agreement, dated as of October 20, 2016, among the grantors referred
therein and the Notes Collateral Agent (incorporated by reference to Exhibit 4.3 to the Company’s
Current Report on Form 8-K filed on October 26, 2016).
Second Lien Canadian Security Agreement, dated as of October 20, 2016, among the grantors
referred therein and the Notes Collateral Agent (incorporated by reference to Exhibit 4.4 to the
Company’s Current Report on Form 8-K filed on October 26, 2016).
Amended and Restated Intercreditor Agreement, dated as of October 20, 2016, among Bank of
America, N.A. as first lien collateral agent, the Notes Collateral Agent and the grantors referred
therein (incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed
on October 26, 2016).
Employee Stock Purchase Plan amended March 4, 2013 (incorporated by reference to Exhibit 10.1
to the Company’s Annual Report on Form 10-K for the year ended December 29, 2012).
Retiring Allowance Agreement, dated March 8, 2011, between the Company and Jeremy Kendall
which terminates and supercedes the Employment Agreement dated October 1, 2001 between the
Company and Mr. Jeremy Kendall, as amended (incorporated by reference to Exhibit 10.3 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
SunOpta Inc. 2002 Stock Option Plan, Amended and Restated May 2011 (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 24, 2011).
Letter Agreement, dated October 10, 2011, by and between SunOpta Inc. and Robert McKeracher
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended October 1, 2011).
Amendment to Employment Agreement, dated May 6, 2012, between SunOpta Inc. and Steven R.
Bromley (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on May 11, 2012).
Retirement and Consulting Agreement, dated January 10, 2014, between SunOpta Grains and Foods,
Inc. and Allan G. Routh (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on January 13, 2014).
Stock Deferral Plan for Non-Employee Directors dated August 12, 2014 (incorporated by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 5, 2014).
Letter Agreement re Terms of Employment, dated October 10, 2011, by and between SunOpta Inc.
and John Ruelle (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on
Form 10-K for the year ended January 3, 2015).
Letter Agreement re Amendment of Terms of Employment, dated April 5, 2013, by and between
SunOpta Inc. and John Ruelle (incorporated by reference to Exhibit 10.14 to the Company’s Annual
Report on Form 10-K for the year ended January 3, 2015).
SUNOPTA INC.
74
December 31, 2016 10-K
Exhibits
Description
10.10†
10.11†
10.12†
10.13†
10.14
10.15+
10.16+
10.17
10.18
10.19†
10.20†
10.21†
Letter Agreement re Amendment of Terms of Employment, dated December 30, 2014, by and
between SunOpta Inc. and John Ruelle (incorporated by reference to Exhibit 10.15 to the Company’s
Annual Report on Form 10-K for the year ended January 3, 2015).
Employment Agreement, dated April 2012, by and between The Organic Corporation B.V. and
G.J.M. Versteegh (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on
Form 10-K for the year ended January 3, 2015).
Employment Agreement, dated July 6, 2015, between SunOpta Inc. and Hendrik Jacobs
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
July 7, 2015).
Separation Agreement, dated July 6, 2015, between SunOpta Inc. and Steven Bromley (incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 7, 2015).
Commitment Letter dated July 30, 2015, among SunOpta Inc., SunOpta Foods Inc., Bank of
Montreal and BMO Capital Corp. (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on August 3, 2015).
Second Lien Loan Agreement, dated October 9, 2015, among SunOpta Inc., as Holdings, SunOpta
Foods Inc., as the Borrower, Certain Subsidiaries of SunOpta Inc., as Subsidiary Guarantors and
Loan Parties, the Several Lenders from Time to Time Parties Hereto, Bank of Montreal, as
Administrative Agent and Collateral Agent, BMO Capital Markets Corp. and Coӧperatieve Centrale
Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as Joint Lead
Arrangers and Joint Bookrunners (incorporated by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended October 3, 2015).
Credit Agreement, dated as of February 11, 2016, among SunOpta Inc., SunOpta Foods Inc., The
Organic Corporation B.V., the other borrowers and guarantors party thereto, the lenders party
thereto, Bank of America, N.A., as U.S. Administrative Agent, Bank of America, N.A. (acting
through its Canada Branch), as Canadian Administrative Agent, Bank of America, N.A. (acting
through its London Branch), as Dutch Administrative Agent, and Bank of America, N.A., as
Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on February 17, 2016).
Support Agreement dated February 12, 2016, among SunOpta Inc., Wedge Acquisition Inc. and
Wedge Acquisition Holdings Inc. (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on February 18, 2016).
Second Amending Agreement, dated October 9, 2015, amending the Seventh Amended and Restated
Credit Agreement, among SunOpta Inc. and SunOpta Foods, as Borrowers, Each of the Financial
Institutions and Other Entities from Time to Time Parties Thereto, as Lenders, Certain Affiliates of
the Borrowers, as Obligors, and Bank of Montreal, as Agent (incorporated by reference to Exhibit
10.19 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2016).
Employment Agreement, dated July 6, 2015, between SunOpta Inc. and Edward Haft (incorporated
by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended
January 2, 2016).
Amended 2013 Stock Incentive Plan (incorporated by reference to Exhibit C to the Company’s
Definitive Proxy Statement on Schedule 14A filed on March 31, 2016).
Form of Incentive Stock Option Award Agreement under Amended 2013 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended July 2, 2016).
SUNOPTA INC.
75
December 31, 2016 10-K
Exhibits
Description
10.22†
10.23†
10.24†
10.25†
10.26†
10.27†
10.28†
10.29†
10.30
10.31
10.32
10.33
Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) under Amended 2013
Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended July 2, 2016).
Form of 2016 Performance Share Unit Award Agreement under 2013 Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended July 2, 2016).
Employment Agreement, dated March 17, 2013, by and between SunOpta Inc. and Michelle
Coleman (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-
Q for the quarter ended October 1, 2016).
Employment Agreement, dated August 18, 2016, by and between SunOpta Inc. and Jill E. Barnett
(incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended October 1, 2016).
Employment Agreement, dated August 18, 2016, by and between SunOpta Inc. and James P. Gratzek
(incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended October 1, 2016).
Employment Agreement Amendment, dated August 18, 2016, by and between SunOpta Inc. and
Edward Haft (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form
10-Q for the quarter ended October 1, 2016).
Employment Agreement Amendment, dated August 19, 2016, by and between The Organic
Corporation B.V. and G.J.M. Versteegh (incorporated by reference to Exhibit 10.9 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended October 1, 2016).
Separation Agreement, dated August 22, 2016, by and between SunOpta Inc. and Daniel Turney
(incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended October 1, 2016).
First Amendment, dated as of October 7, 2016, to the Credit Agreement, dated as of February 11,
2016, among SunOpta Inc., SunOpta Foods Inc., The Organic Corporation B.V., each of the other
borrowers and guarantors party thereto from time to time, the lenders party thereto from time to time,
Bank of America, N.A., as U.S. Administrative Agent, Bank of America, N.A. (acting through its
Canada Branch), as Canadian Administrative Agent, Bank of America, N.A. (acting through its
London Branch), as Dutch Administrative Agent under the Dutch, and Bank of America, N.A, as
Collateral Agent (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended October 1, 2016).
First Amendment, dated as of October 7, 2016, to the Second Lien Loan Agreement, dated as of
October 9, 2015, among SunOpta Inc., SunOpta Foods Inc., certain subsidiaries of SunOpta Inc., the
several banks and other financial institutions or entities from time to time party thereto, and Bank of
Montreal, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.12
to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2016).
Subscription Agreement, dated October 7, 2016, between SunOpta Inc., SunOpta Foods Inc. and
Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 12, 2016).
Investor Rights Agreement, dated October 7, 2016, between SunOpta Inc., SunOpta Foods Inc. and
Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (incorporated by reference
to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 12, 2016).
SUNOPTA INC.
76
December 31, 2016 10-K
Exhibits
Description
10.34
10.35
10.36†
10.37†
10.38†
10.39†
10.40†
10.41†
10.42†
10.43†
Exchange and Support Agreement, dated October 7, 2016, between SunOpta Inc., SunOpta Foods
Inc., Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. and any person that
becomes a Holder of Preferred Stock, from time to time (incorporated by reference to Exhibit 10.3
to the Company’s Current Report on Form 8-K filed on October 12, 2016).
Voting Trust Agreement, dated October 7, 2016, between SunOpta Inc., SunOpta Foods Inc., the
trustee named therein, Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. and
any other Holder of Preferred Stock, from time to time (incorporated by reference to Exhibit 10.4 to
the Company’s Current Report on Form 8-K filed on October 12, 2016).
Letter Agreement, dated November 8, 2016, between Hendrik Jacobs and SunOpta Inc. (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 15,
2016).
Letter Agreement, dated November 8, 2016, between Robert McKeracher and SunOpta Inc.
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on
November 15, 2016).
Letter Agreement, dated November 8, 2016, between John Ruelle and SunOpta Inc. (incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 15,
2016).
Letter Agreement, dated November 8, 2016, between Gerard Versteegh and SunOpta Inc.
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on
November 15, 2016).
Employment Agreement, effective February 6, 2017, between SunOpta Inc. and David J. Colo
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
February 7, 2017).
Restricted Stock Award Agreement, dated effective February 6, 2017, between SunOpta Inc. and
David J. Colo (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed on February 7, 2017).
Stock Option Award Agreement, dated effective February 6, 2017, between SunOpta Inc. and David
J. Colo (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on February 7, 2017).
Performance Share Unit Award Agreement, dated effective February 6, 2017, between SunOpta Inc.
and David J. Colo (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on February 7, 2017).
21*
List of subsidiaries.
23.1*
Consent of Deloitte LLP, Independent Registered Public Accounting Firm.
31.1*
31.2*
32*
Certification by David Colo, President and Chief Executive Officer, pursuant to Rule 13a – 14(a)
under the Securities Exchange Act of 1934, as amended.
Certification by Robert McKeracher, Vice President and Chief Financial Officer, pursuant to Rule
13a – 14(a) under the Securities Exchange Act of 1934, as amended.
Certifications by David Colo, President and Chief Executive Officer, and Robert McKeracher, Vice
President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
SUNOPTA INC.
77
December 31, 2016 10-K
Exhibits
Description
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
+ Exhibits and schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. SunOpta will
furnish copies of the omitted exhibits and schedules to the Securities and Exchange Commission upon its request.
† Indicates management contract or compensatory plan or arrangement.
* Filed herewith.
SUNOPTA INC.
78
December 31, 2016 10-K
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SUNOPTA INC.
/s/ Robert McKeracher
Robert McKeracher
Vice President and Chief Financial Officer
Date: March 2, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ David Colo
David Colo
/s/ Robert McKeracher
Robert McKeracher
/s/ Dean Hollis
Dean Hollis
/s/ Margaret Shan Atkins
Margaret Shan Atkins
/s/ Al Bolles
Al Bolles
/s/ Michael Detlefsen
Michael Detlefsen
/s/ Katrina Houde
Katrina Houde
/s/ Brendan Springstubb
Brendan Springstubb
/s/ Gregg Tanner
Gregg Tanner
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Chair of the Board and Director
Director
Director
Director
Director
Director
Director
Date
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
SUNOPTA INC.
79
December 31, 2016 10-K
SunOpta Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
Consolidated Statements of Comprehensive Earnings (Loss)
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
Consolidated Balance Sheets
As at December 31, 2016 and January 2, 2016
Consolidated Statements of Shareholders’ Equity
As at and for the years ended December 31, 2016, January 2, 2016 and January 3,
2015
Consolidated Statements of Cash Flows
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
Page
F2
F3
F4
F5
F6
F7
F9
SUNOPTA INC.
-F1-
December 31, 2016 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of SunOpta Inc.:
We have audited the accompanying consolidated balance sheets of SunOpta Inc. and subsidiaries (the “Company”) as at
December 31, 2016 and January 2, 2016, and the related consolidated statements of operations, comprehensive earnings (loss),
shareholders’ equity, and cash flows for each of the years in the three year period ended December 31, 2016. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of SunOpta
Inc. and subsidiaries as at December 31, 2016 and January 2, 2016, and the results of their operations and their cash flows for
each of the years in the three year period ended December 31, 2016, in conformity with accounting principles generally accepted
in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 2, 2017 expressed an unqualified opinion on the Company’s internal control over financial
reporting.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
March 2, 2017
SUNOPTA INC.
-F2-
December 31, 2016 10-K
SunOpta Inc.
Consolidated Statements of Operations
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
1,346,731
1,145,134
1,102,745
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense (income), net (note 15)
Goodwill impairment (note 9)
Foreign exchange loss (gain)
Earnings (loss) from continuing operations before the following
Interest expense, net (note 11)
Impairment loss on investment (note 16)
Earnings (loss) from continuing operations before income taxes
Provision for (recovery of) income taxes (note 17)
Earnings (loss) from continuing operations
Discontinued operations (note 3)
Loss from discontinued operations
Gain (loss) on classification as held for sale
Gain on sale of discontinued operation
Recovery of (provision for) income taxes
Loss from discontinued operations attributable to non-controlling
interests
Loss from discontinued operations attributable to SunOpta Inc.
Earnings (loss)
Earnings (loss) attributable to non-controlling interests
1,220,779
1,034,772
125,952
110,362
98,681
11,282
28,292
17,540
1,243
(31,086)
43,275
-
(74,361)
(23,797)
(50,564)
(1,993)
560
-
599
264
(570)
(51,134)
54
85,754
4,951
12,151
-
(1,641)
9,147
15,669
-
(6,522)
(3,390)
(3,132)
(17,377)
(10,515)
-
(402)
8,819
(19,475)
(22,607)
(136)
Earnings (loss) attributable to SunOpta Inc.
(51,188)
(22,471)
Earnings (loss) per share – basic (note 18)
-from continuing operations
-from discontinued operations
Earnings (loss) per share – diluted (note 18)
-from continuing operations
-from discontinued operations
(0.61)
(0.01)
(0.62)
(0.61)
(0.01)
(0.62)
(0.04)
(0.27)
(0.31)
(0.04)
(0.27)
(0.31)
(See accompanying notes to consolidated financial statements)
980,640
122,105
80,365
2,036
(2,220)
-
(1,993)
43,917
3,943
8,441
31,533
12,043
19,490
(15,993)
-
2,888
2,000
4,911
(6,194)
13,296
195
13,101
0.29
(0.09)
0.20
0.28
(0.09)
0.19
SUNOPTA INC.
-F3-
December 31, 2016 10-K
SunOpta Inc.
Consolidated Statements of Comprehensive Earnings (Loss)
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All dollar amounts expressed in thousands of U.S. dollars)
Earnings (loss) from continuing operations
Loss from discontinued operations attributable to SunOpta Inc.
Earnings (loss)
Change in fair value of interest rate swaps, net of income taxes
Reclassification adjustment for loss included in earnings
Unrealized gain on interest rate swap, net
Currency translation adjustment
Other comprehensive loss, net of income taxes
Comprehensive earnings (loss)
Comprehensive loss attributable to non-controlling interests
Comprehensive earnings (loss) attributable to SunOpta Inc.
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
(50,564)
(570)
(51,134)
-
-
-
(2,042)
(2,042)
(53,176)
(355)
(52,821)
(3,132)
(19,475)
(22,607)
(129)
339
210
(5,155)
(4,945)
(27,552)
(9,565)
(17,987)
19,490
(6,194)
13,296
20
-
20
(5,148)
(5,128)
8,168
(4,669)
12,837
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
-F4-
December 31, 2016 10-K
SunOpta Inc.
Consolidated Balance Sheets
As at December 31, 2016 and January 2, 2016
(All dollar amounts expressed in thousands of U.S. dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable (note 6)
Inventories (note 7)
Prepaid expenses and other current assets
Current income taxes recoverable
Current assets held for sale (note 3)
Total current assets
Property, plant and equipment (note 8)
Goodwill (note 9)
Intangible assets (note 9)
Deferred income taxes (note 17)
Other assets
Total assets
LIABILITIES
Current liabilities
Bank indebtedness (note 11)
Accounts payable and accrued liabilities (note 10)
Customer and other deposits
Income taxes payable
Other current liabilities
Current portion of long-term debt (note 11)
Current portion of long-term liabilities
Current liabilities held for sale (note 3)
Total current liabilities
Long-term debt (note 11)
Long-term liabilities
Deferred income taxes (note 17)
Total liabilities
Series A Preferred Stock (note 12)
EQUITY
SunOpta Inc. shareholders’ equity
Common shares, no par value, unlimited shares authorized,
85,743,958 shares issued (January 2, 2016 - 85,417,849) (note 13)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Non-controlling interests
Total equity
Total equity and liabilities
Commitments and contingencies (note 21)
December 31, 2016
$
January 2, 2016
$
1,251
157,369
368,482
19,794
2,801
-
549,697
162,239
223,611
183,524
1,045
9,442
2,274
117,412
371,223
20,088
21,728
64,330
597,055
176,513
241,690
195,008
958
7,979
1,129,558
1,219,203
201,494
173,745
2,543
5,661
1,016
2,079
5,500
-
392,038
229,008
15,354
44,561
680,961
79,184
300,426
25,522
53,838
(13,104)
366,682
2,731
369,413
159,773
151,831
5,322
1,720
1,521
1,773
5,243
52,486
379,669
321,222
17,809
74,324
793,024
-
297,987
22,327
106,838
(6,113)
421,039
5,140
426,179
1,129,558
1,219,203
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
-F5-
December 31, 2016 10-K
SunOpta Inc.
Consolidated Statements of Shareholders’ Equity
As at and for the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All dollar amounts expressed in thousands of U.S. dollars)
Additional
paid-in
capital
$
Accumulated
other com-
prehensive
income (loss)
$
Non-
controlling
interests
$
Retained
earnings
$
Total
$
Common shares
$
000s
Balance at December 28, 2013
66,528
186,376
19,323
116,208
3,397
17,308
342,612
Employee share purchase plan
Stock incentive plan
Stock-based compensation
Earnings from continuing operations
Loss from discontinued operations,
net of income taxes
Currency translation adjustment
Change in fair value of interest rate
swaps, net of income taxes
52
494
-
-
-
-
-
627
3,665
-
-
-
-
-
-
(1,234)
4,401
-
-
-
-
-
-
-
19,295
(6,194)
-
-
-
-
-
-
-
-
195
627
2,431
4,401
19,490
-
(5,188)
(4,911)
40
(11,105)
(5,148)
-
13
7
20
Balance at January 3, 2015
67,074
190,668
22,490
129,309
(1,778)
12,639
353,328
Issuance of common shares, net
Employee share purchase plan
Stock incentive plan
Warrants
Stock-based compensation
Loss from continuing operations
Loss from discontinued operations,
net of income taxes
Currency translation adjustment
Change in fair value of interest rate
swaps, net of income taxes
Non-controlling interest from acquisition
of business
Acquisition of non-controlling interest
16,670
55
769
850
-
-
95,654
590
5,033
6,042
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,739)
(2,163)
4,757
-
-
-
-
-
(1,018)
-
-
-
-
-
(2,996)
-
-
-
-
-
-
-
-
-
-
-
(136)
95,654
590
3,294
3,879
4,757
(3,132)
(19,475)
-
-
(4,474)
(8,819)
(681)
(28,294)
(5,155)
-
-
-
139
71
210
-
-
1,781
285
1,781
(733)
Balance at January 2, 2016
85,418
297,987
22,327
106,838
(6,113)
5,140
426,179
Employee share purchase plan
Stock incentive plan
Stock-based compensation
Dividends and accretion on Series A
Preferred Stock (note 12)
Loss from continuing operations
Loss from discontinued operations,
net of income taxes (note 3)
Disposition of discontinued operation (note 3)
Currency translation adjustment
83
243
-
-
-
-
-
-
391
2,048
-
-
(953)
4,148
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,812)
(50,618)
(570)
-
-
-
-
-
-
-
-
-
-
-
54
-
(5,094)
(1,897)
(264)
(2,054)
(145)
391
1,095
4,148
(1,812)
(50,564)
(834)
(7,148)
(2,042)
Balance at December 31, 2016
85,744
300,426
25,522
53,838
(13,104)
2,731
369,413
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
-F6-
December 31, 2016 10-K
SunOpta Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All dollar amounts expressed in thousands of U.S. dollars)
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
CASH PROVIDED BY (USED IN)
Operating activities
Earnings (loss)
Loss from discontinued operations attributable to SunOpta Inc.
Earnings (loss) from continuing operations
Items not affecting cash:
Depreciation and amortization
Acquisition accounting adjustment on inventory sold (note 2)
Amortization and write-off of debt issuance costs (note 11)
Deferred income taxes
Stock-based compensation
Unrealized loss (gain) on derivative instruments (note 5)
Fair value of contingent consideration (note 15)
Impairment of long-lived assets (note 15)
Goodwill impairment (note 9)
Impairment loss on investment (note 16)
Loss (gain) on disposal of assets (note 15)
Other
Changes in non-cash working capital, net of businesses
acquired (note 19)
Net cash flows from operating activities - continuing operations
Net cash flows from operating activities - discontinued operations
Investing activities
Purchases of property, plant and equipment
Acquisition of businesses, net of cash acquired (note 2)
Proceeds from sale of assets
Other
Net cash flows from investing activities - continuing operations
Net cash flows from investing activities - discontinued operations
Financing activities
Increase (decrease) under line of credit facilities (note 11)
Repayment of line of credit facilities (note 11)
Borrowings under long-term debt (note 11)
Repayment of long-term debt (note 11)
Issuance of Series A Preferred Stock, net (note 12)
Payment of debt issuance costs
Payment of contingent consideration (notes 1 and 5)
Proceeds from the exercise of stock options and employee
share purchases
Proceeds from the issuance of common shares, net
Proceeds from the exercise of warrants
Other
Net cash flows from financing activities - continuing operations
Net cash flows from financing activities - discontinued operations
Foreign exchange gain (loss) on cash held in a foreign currency
Increase (decrease) in cash and cash equivalents during the year
Discontinued operations cash activity included above:
Add: Balance included at beginning of year
Less: Balance included at end of year
Cash and cash equivalents - beginning of the year
Cash and cash equivalents - end of the year
(51,134)
(570)
(50,564)
34,150
15,000
11,301
(29,850)
4,148
(547)
(1,158)
13,257
17,540
-
145
190
(12,891)
721
758
1,479
(22,560)
-
254
700
(21,606)
1,754
(19,852)
236,976
(192,677)
231,430
(322,004)
78,963
(13,017)
(4,554)
1,486
-
-
168
16,771
(1,180)
15,591
52
(2,730)
1,707
-
2,274
1,251
(22,607)
(19,475)
(3,132)
21,007
4,000
5,895
(4,038)
4,366
143
884
-
-
-
251
739
(3,685)
26,430
4,814
31,244
(31,186)
(490,715)
1,138
(822)
(521,585)
(1,235)
(522,820)
85,968
-
330,135
(11,018)
-
(15,966)
(204)
3,884
94,080
3,879
(781)
489,977
(4,304)
485,673
(54)
(5,957)
2,170
(1,707)
7,768
2,274
13,296
(6,194)
19,490
15,641
-
375
(3,489)
3,906
176
(1,373)
-
-
8,441
(1,386)
27
(24,318)
17,490
7,325
24,815
(17,671)
-
5,833
188
(11,650)
34,538
22,888
(40,953)
-
-
(910)
-
(34)
(800)
3,058
-
-
244
(39,395)
(7,066)
(46,461)
159
1,401
4,084
(2,170)
4,453
7,768
SUNOPTA INC.
-F7-
December 31, 2016 10-K
SunOpta Inc.
Consolidated Statements of Cash Flows (continued)
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All dollar amounts expressed in thousands of U.S. dollars)
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
Non-cash investing and financing activities
Accrued cash dividends on Class A Preferred Stock (note 12)
Proceeds on disposition of discontinued operation,
note receivable (note 3)
Acquisition of business, working capital adjustment (note 2)
Acquisition of business, settlement of pre-existing relationship (note 2)
Acquisition of business, contingent consideration at fair value (note 2)
(1,590)
1,537
-
-
-
-
-
82
(749)
(20,330)
-
-
-
-
-
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
-F8-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(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 Company’s
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
These consolidated financial statements have been prepared by the Company in United States (“U.S.”) dollars and in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial
statements include the accounts of the Company and those of its wholly-owned and majority-owned subsidiaries. All
intercompany accounts and transactions have been eliminated on consolidation.
Comparative Balances
The Company has reclassified contingent consideration payments of $0.2 million and $0.8 million for the years ended January
2, 2016 and January 3, 2015, respectively, from investing activities to financing activities on the consolidated statements of cash
flows to conform with the presentation adopted by the Company in the current fiscal year in accordance with Accounting Standard
Update (“ASU”) 2016-15, as described below under “Recent Accounting Pronouncements”.
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 years
2016 and 2015 were each 52-week periods ending on December 31, 2016 and January 2, 2016, respectively, whereas fiscal year
2014 was a 53-week period ending on January 3, 2015. Fiscal year 2017 will be a 52-week period ending on December 30, 2017,
with quarterly periods ending on April 1, July 1 and September 30, 2017.
Use of 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 in the consolidated financial statements and accompanying notes. Areas involving
significant estimates and assumptions include: allocation of the purchase price of acquired businesses; inventory valuation
reserves; income tax liabilities and assets, and related valuation allowances; provisions for loss contingencies related to claims
and litigation; fair value of contingent consideration liabilities; useful lives of property, plant and equipment and intangible
assets; expected future cash flows used in evaluating long-lived assets for impairment; fair value of investments; and reporting
unit fair values in testing goodwill for impairment. The estimates and assumptions made require judgment on the part of
management and are based on the Company’s historical experience and various other factors that are believed to be reasonable
in the circumstances. Management continually evaluates the information that forms the basis of its estimates and assumptions
as the business of the Company and the general business environment changes.
Business Acquisitions
Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and
liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the
net assets acquired is recorded as goodwill. Acquisition-related transaction costs are accounted for as an expense in the period
in which the costs are incurred. Contingent consideration is measured at fair value and recognized as part of the consideration
transferred in exchange for the acquired businesses. Contingent consideration liabilities are remeasured to fair value at each
reporting date with the changes in fair value recognized in other expense/income on the consolidated statements of operations.
Financial Instruments
The Company’s financial instruments recognized in the consolidated balance sheets and included in working capital consist of
cash and cash equivalents, accounts receivable, derivative instruments, accounts payable and accrued liabilities, and customer
December 31, 2016 10-K
SUNOPTA INC.
-F9-
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
and other deposits. Cash and cash equivalents, inventories carried at market and derivative instruments are measured at fair
value each reporting period. The fair values of the remaining financial instruments approximate their carrying values due to
their short-term maturities.
The Company’s financial instruments exposed to credit risk include cash equivalents and accounts receivable. The Company
places its cash and cash equivalents with institutions of high creditworthiness. The Company’s trade accounts receivable are
not subject to a high concentration of credit risk. The Company routinely assesses the financial strength of its customers and
believes that its accounts receivable credit risk exposure is limited. The Company maintains an allowance for losses based on
the expected collectability of the accounts receivable.
Fair Value Measurements
The Company has various financial assets and liabilities that are measured at fair value on a recurring basis, including certain
inventories and derivatives, as well as contingent consideration. The Company also applies the provisions of fair value
measurement to various non-recurring measurements for financial and non-financial assets and liabilities measured at fair value
on a non-recurring basis.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (i.e., an exit price). Fair value measurements are estimated based on inputs
categorized as follows:
(cid:2) Level 1 inputs include quoted prices (unadjusted) for identical assets or liabilities in active markets that are observable.
(cid:2) Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or
similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the
asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation
or other means.
(cid:2) Level 3 includes unobservable inputs that reflect the Company’s own assumptions about what factors market
participants would use in pricing the asset or liability.
When measuring fair value, the Company maximizes the use of observable inputs and minimizes the use of unobservable
inputs.
Foreign Currency Translation
The assets and liabilities of the Company’s operations having a functional currency other than the U.S. dollar are translated
into U.S. dollars at the exchange rate prevailing at the balance sheet date, and at the average rate for the reporting period for
revenue and expense items. The cumulative currency translation adjustment is recorded as a component of accumulated other
comprehensive income in shareholders’ equity. Foreign currency gains and losses related to the remeasurement of the
Company’s Mexican operation into its U.S. dollar functional currency are recognized in earnings.
Exchange gains and losses on transactions occurring in a currency other than an operation’s functional currency are recognized
in earnings.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term deposits with an original maturity of 90 days or less.
SUNOPTA INC.
-F10-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Accounts Receivable
Accounts receivable includes trade receivables that are recorded at the invoiced amount and do not bear interest. The allowance
for doubtful accounts is an estimate of the amount of probable credit losses in existing accounts receivable. Account balances
are charged off against the allowance when the Company determines the receivable will not be recovered. As at December 31,
2016 and January 2, 2016, no customer’s balance represented 10% or more of the Company’s consolidated trade receivables
balance.
Inventories
Inventories (excluding commodity grains) are valued at the lower of cost and market. Cost is principally determined on a
weighted-average cost basis. Shipping and handling costs are included in cost of goods sold on the consolidated statements of
operations.
Inventories of commodity grains, which include amounts acquired under deferred pricing contracts traded on the Chicago
Board of Trade (“CBoT”), are valued at market. Grain inventory quantities at year-end are multiplied by the quoted price on
the CBoT to reflect the market value of the inventory. This market value is then adjusted for a basis factor that represents
differences in local markets, and broker and dealer quotes to arrive at market. Changes in CBoT prices or the basis factor are
included in cost of goods sold on the consolidated statements of operations.
SunOpta economically hedges its commodity grain positions to protect gains and minimize losses due to market fluctuations.
Futures contracts and purchase and sale contracts are adjusted to market price and resulting gains and losses from these
transactions are included in cost of goods sold. As the Company has a risk of loss from hedge activity if the grower does not
deliver the grain as scheduled, these transactions do not qualify as hedges under U.S. GAAP and, therefore, changes in market
value are recorded in cost of goods sold on the consolidated statements of operations.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-
line basis at rates reflecting the estimated useful lives of the assets.
Buildings
Machinery and equipment
Enterprise software
Office furniture and equipment
Vehicles
Goodwill
20 - 40 years
5 - 20 years
3 - 5 years
3 - 7 years
3 - 7 years
Goodwill represents the excess in a business combination of the purchase price over the estimated fair value of the identifiable
net assets acquired. Goodwill is not amortized but is instead tested for impairment at least annually, or whenever events or
circumstances change between the annual impairment tests that would indicate the carrying amount of goodwill may be
impaired. The Company performs its annual test for goodwill impairment in the fourth quarter of each fiscal year. The
Company performs a quantitative test for goodwill impairment by comparing the carrying amount of each reporting unit to its
estimated fair value (Step 1). If the carrying amount exceeds the reporting unit’s fair value, there is a potential impairment of
goodwill. Any impairment of goodwill is measured by comparing the implied fair value of goodwill with its carrying amount
(Step 2). The implied fair value of goodwill is determined by deducting the fair value of all the assets and liabilities of the
reporting unit from the reporting unit’s fair value as determined in Step 1.
Intangible Assets
The Company’s finite-lived intangible assets consist of customer and other relationships, patents and trademarks, and other
intangible assets. These intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:
SUNOPTA INC.
-F11-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Customer and other relationships
Patents and trademarks
Other
Impairment of Long-Lived Assets
10 - 25 years
15 years
5 - 15 years
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be recoverable through undiscounted future cash flows. If impairment exists based on
expected future undiscounted cash flows, a loss is recognized in earnings. The amount of the impairment loss is the excess of
the carrying amount of the impaired asset over the fair value of the asset, typically determined using a discounted cash flow
analysis (income approach).
Derivative Instruments
The Company is exposed to fluctuations in commodity prices and foreign currency exchange. The Company utilizes certain
derivative financial instruments to enhance its ability to manage these risks, including exchange-traded commodity futures,
commodity forward purchase and sale contracts and forward foreign exchange contracts. Derivative instruments are entered
into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures.
The Company does not enter into contracts for speculative purposes.
All derivative instruments are recognized on the consolidated balance sheets at fair value. Changes in the fair value of
derivative instruments are recorded in earnings or other comprehensive earnings, based on whether the instrument is designated
as part of a hedge transaction. Gains or losses on derivative instruments reported in accumulated other comprehensive income
are reclassified to earnings in the period in which earnings are affected by the underlying hedged item. The ineffective portion
of all hedges is recognized in earnings in the current period. As at December 31, 2016, the Company utilized the following
derivative instruments to manage commodity and foreign currency risks:
(cid:2) Exchange-traded commodity futures contracts to economically hedge its exposure to price fluctuations on grain and
cocoa transactions to the extent considered practicable for minimizing risk from market price fluctuations. Futures
contracts used for economical hedging purposes are purchased and sold through regulated commodity exchanges in
the U.S. However, inventories may not be completely hedged, due in part to the Company’s assessment of its exposure
from expected price fluctuations. Forward purchase and sale contracts may expose the Company to risk in the event
that a counterparty to a transaction is unable to fulfill its contractual obligation or if a grower does not deliver grain
as scheduled. The Company manages its risk by entering into purchase contracts with pre-approved growers and sale
contracts are entered into with organizations of acceptable creditworthiness, as internally evaluated. All futures and
forward purchase and sale contracts are marked-to-market. Gains and losses on these transactions are included in cost
of goods sold on the consolidated statements of operations.
(cid:2) Forward foreign exchange contracts to minimize exchange rate fluctuations relating to foreign currency denominated
purchase and sale contracts and accounts payable and receivable. Forward foreign exchange contracts designated as
hedges are marked-to-market with the effective portion of the gain or loss recognized in other comprehensive earnings
and subsequently recognized in earnings in the same period the hedged item affects earnings. Gains and losses on
forward exchange contracts not specifically designated as hedging instruments are included in foreign exchange
gain/loss on the consolidated statements of operations.
Debt Issuance Costs
Costs incurred in connection with obtaining debt financing are deferred and amortized over the term of the financing
arrangement using the effective interest method. Costs incurred to secure revolving lines of credit are recorded in other long-
term assets. All other debt issuance costs are recorded as a direct deduction from the related debt liability.
SUNOPTA INC.
-F12-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Customer and Other Deposits
Customer and other deposits include prepayments by customers for merchandise inventory to be purchased at a future date.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes whereby deferred income tax assets are
recognized for deductible temporary differences and operating loss carry-forwards, and deferred income tax liabilities are
recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and
liabilities recorded for income tax and financial reporting purposes.
Deferred income tax assets are recognized only to the extent that management determines that it is more likely than not that the
deferred income tax assets will be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment. The income tax expense or benefit is the income tax payable or recoverable for
the year plus or minus the change in deferred income tax assets and liabilities during the year.
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the
Company may incur additional income tax expense based upon the outcomes of such matters. In addition, when applicable,
the Company adjusts income tax expense to reflect the Company’s ongoing assessments of such matters, which requires
judgment and can materially increase or decrease its effective rate as well as impact operating results. The evaluation of tax
positions taken or expected to be taken in a tax return is a two-step process, whereby (1) the Company determines whether it
is more likely than not that the tax positions will be sustained based on the technical merits of the position, and (2) for those
tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax
benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the related tax authority.
Stock Incentive Plan
The Company maintains a stock incentive plan under which stock options and other stock-based awards may be granted to
selected employees and directors. The Company measures stock-based awards at fair value as of the date of grant.
Compensation expense is recognized on a straight-line basis over vesting period of the entire stock-based award based on the
estimated number of awards that are expected to vest. When exercised, stock-based awards are settled through the issuance of
common shares and are therefore treated as equity awards.
Revenue Recognition
Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred, the
price to the customer is fixed or determinable, and collection is reasonably assured. Revenue is recognized when title and
possession of the product has transferred to the customer. Possession is transferred to the customer at the time of shipment
from the Company’s facility or at the time of delivery to a specified destination depending on the contractual terms of the
sale. Consideration given to customers such as value incentives, rebates, early payment discounts and other discounts are
recorded as reductions to revenues at the time of sale. These reductions are estimated based on contractual sales terms with
customers and historical payment experience.
Earnings Per Share
Basic earnings per share is computed by dividing earnings available to common shareholders by the weighted-average number
of common shares outstanding during the year. Earnings available to common shareholders is computed by deducting
dividends and accretion on convertible preferred stock from earnings attributable to SunOpta Inc. The potential diluted effect
of stock options and other stock-based awards is computed using the treasury stock method whereby the weighted-average
number of common shares used in the basic earnings per share calculation is increased to include the number of additional
common shares that would have been outstanding if the potential dilutive common shares had been issued at the beginning of
the year. The potential dilutive effect of convertible preferred stock is computed using the if-converted method whereby
dividends and accretion on the convertible preferred stock are added back to the numerator, and the common shares resulting
SUNOPTA INC.
-F13-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
from the assumed conversion of the convertible preferred stock are included in the denominator of the diluted earnings per
share calculation.
Contingencies
In the normal course of business, the Company is subject to loss contingencies, such as accrued but unpaid bonuses; tax-related
matters; and claims or litigation. Accruals for loss contingencies are recorded when the Company determines that it is both
probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the estimate of the amount of
the loss is a range and some amount within the range appears to be a better estimate than any other amount within the range,
that amount is accrued as a liability. If no amount within the range is a better estimate than any other amount, the minimum
amount of the range is accrued as a liability.
The Company recognizes an asset for insurance recoveries when a loss event has occurred and recovery is considered probable,
to the extent that the potential recovery does not exceed the loss recognized.
Recent Accounting Pronouncements
In February 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, “Intangibles – Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which simplifies the accounting for goodwill impairment
by eliminating the requirement to calculate the implied fair value of goodwill (that is, Step 2 of the current goodwill impairment
test) to measure a goodwill impairment charge. Instead, companies will record an impairment charge based on the excess of a
reporting unit’s carrying amount over its fair value (that is, measure the charge based on Step 1 of the current goodwill
impairment model). The guidance is effective on a prospective basis for interim and annual goodwill impairment testing dates
after January 1, 2020; however, early adoption is permitted for testing dates after January 1, 2017. The Company is currently
assessing the impact that this standard will have on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”, which clarifies
how entities should classify certain cash receipts and cash payments on the statement of cash flow, including contingent
consideration payments made after a business combination. As permitted, the Company elected to early adopt the guidance as
at December 31, 2016 on a retrospective basis. Accordingly, the Company has classified contingent consideration payments
of $4.6 million, $0.2 million and $0.8 million for the years ended December 31, 2016, January 2, 2016 and January 3, 2015,
respectively, as financing activities on the consolidated statements of cash flows. Prior to the adoption of ASU 2016-15,
contingent consideration payments were presented by the Company as investing activities on the consolidated statements of
cash flows.
In June 2016, the 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 March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting”, which is intended to simplify the accounting for share-based payment
transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the classification
on the statement of cash flows. Under the new guidance, companies will record excess tax benefits and tax deficiencies as
income tax expense or benefit in the income statement rather than in additional paid-in capital. In addition, the guidance
permits companies to elect to recognize forfeitures of share-based payments as they occur, rather than estimating the number
of awards expected to be forfeited as is currently required. This guidance is effective for annual and interim periods beginning
after December 15, 2016. The Company has adopted ASU 2016-09 effective January 1, 2017, and has elected upon adoption
to recognize forfeitures of stock-based awards as they occur versus estimating at the time of grant. This election will be applied
on modified retrospective basis, with the cumulative effect of the transition recognized as adjustment to retained earnings as at
January 1, 2017. The adoption of other amendments to the accounting for share-based payments upon the adoption of ASU
2016-09 are not expected to result in a significant cumulative effect adjustment to retained earnings as at January 1, 2017.
SUNOPTA INC.
-F14-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Commencing January 1, 2017, the Company will recognize excess tax benefits and deficiencies in the provision for income
taxes on its consolidated statements of operations and as an operating activity on the consolidated statements of cash flows.
In February 2016, the FASB issued ASU 2016-02, “Leases”, a comprehensive new standard that amends various aspects of
existing accounting guidance for leases, including the recognition of a right of use asset and a lease liability for leases with a
duration of greater than one year. The guidance is effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that this
standard will have on its consolidated financial statements; however, the Company anticipates that upon adoption of the
standard it will recognize additional assets and corresponding liabilities related to leases on its balance sheet.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities”. ASU 2016-01 will require equity investments (except those
accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at
fair value with changes in fair value recognized in net income. The guidance provides a new measurement alternative for equity
investments that do not have readily determinable fair values and do not qualify for the net asset practical expedient. Under
this alternative, these investments can be measured at cost, less any impairment, plus or minus changes resulting from
observable price changes in orderly transactions for the identical or a similar investment with the same issuer. Additionally,
ASU 2016-01 also changes certain disclosure requirements and other aspects of current U.S. GAAP. ASU 2016-01 is effective
for interim and annual reporting periods beginning on or after December 15, 2017. The Company is currently assessing the
impact that this standard will have on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which will supersede existing
revenue recognition guidance under U.S. GAAP. Under the new standard, a company will recognize 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. ASU 2014-09 defines a five-step process to achieve this principle and, in
doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required
under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable
consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
In August 2015, the FASB issued ASU 2015-14, which defers by one year the effective date of ASU 2014-09. During 2016,
the FASB issued ASU 2016-08, ASU 2016-10, 2016-11, 2016-12 and 2016-20, all of which clarify certain implementation
guidance within ASU 2014-09. ASU 2014-09, as amended, will be effective for annual and interim periods beginning on or
after December 15, 2017, and is to be applied on either a full retrospective or modified retrospective basis. Early adoption is
permitted only as of annual and interim reporting periods beginning on or after December 15, 2016; however, the Company
has elected not to early adopt the standard.
The Company currently expects to adopt the standard using the modified retrospective approach; however, that expectation is
subject to change once the Company completes its evaluation and quantification of the impact of the guidance. With the
assistance of a third party, the Company has begun a preliminary assessment of ASU 2014-09 and has started to analyze its
significant customer relationships to determine the effects of the new guidance. Once this analysis is completed, the Company
will work towards establishing policies, updating its processes, and implementing necessary changes to be able to comply with
the new requirements.
The Company is continuing to assess the impact that the adoption of ASU 2014-09 will have on its consolidated financial
statements. In particular, the Company is assessing under the new guidance whether its existing contracts with customers to
produce private label consumer products would permit the Company to recognize revenue over time versus at a point in time,
based on whether a given product has an alternative use or not and whether there is an enforceable right to payment under the
contract for product produced to date. The Company has not completed its assessment or determined whether a change to
recognizing revenue over time, if required, would have a significant impact on the Company’s reported revenues and earnings.
SUNOPTA INC.
-F15-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
2. Business Acquisitions
Sunrise Holdings (Delaware), Inc.
On October 9, 2015, the Company completed the acquisition of 100% of the issued and outstanding common shares of Sunrise
Holdings (Delaware), Inc. (“Sunrise”), pursuant to a Purchase and Sale Agreement dated July 30, 2015 (the “Sunrise
Acquisition”). Sunrise is a processor of conventional and organic individually quick frozen (“IQF”) fruit in the U.S. and
Mexico. The acquisition of Sunrise has been accounted for as a business combination under the acquisition method of
accounting. The results of Sunrise have been included in the Company’s consolidated financial statements since the date of
acquisition and are reported in the Consumer Products operating segment. The acquisition of Sunrise is aligned with the
Company’s strategic focus on healthy and organic foods.
Total consideration for the Sunrise Acquisition was $472.7 million in cash paid at the acquisition date, which included the
repayment of all outstanding obligations under Sunrise’s senior credit facility in the amount of $171.5 million. In addition, the
total consideration included $23.0 million paid by the Company to the holders of Sunrise stock options. As all outstanding
Sunrise stock options vested upon the consummation of the Sunrise Acquisition, pursuant to the terms of Sunrise’s pre-existing
stock option agreements, the cash consideration paid to the option holders was attributed to services prior to the Sunrise
Acquisition and included as a component of the purchase price. The total consideration also included $20.9 million paid by
the Company to settle acquisition-related transaction costs incurred by Sunrise in connection with the Sunrise Acquisition. As
none of these costs were incurred by Sunrise on behalf of the Company, the cash consideration paid to settle these costs was
included as a component of the purchase price.
The following table summarizes the fair values of the assets acquired and liabilities assumed as at the acquisition date:
Cash and cash equivalents
Accounts receivable(1)
Inventories(2)
Income taxes recoverable
Other current assets
Property, plant and equipment(3)
Intangible assets(4)
Accounts payable and accrued liabilities
Long-term debt, including current portion
Deferred income taxes, net
Net identifiable assets acquired
Goodwill(5)
Non-controlling interest(6)
Net assets acquired
$
1,728
26,090
124,829
12,025
3,982
46,068
170,000
(24,169)
(7,620)
(75,193)
277,740
196,709
(1,781)
472,668
(1) The gross amount of accounts receivable acquired was $26.2 million, of which the Company expected $0.2 million to be
uncollectible.
(2) Includes an estimated fair value adjustment to inventory of $19.0 million, of which $15.0 million and $4.0 million was
recognized in costs of goods sold for inventory sold during 2016 and in the fourth quarter of 2015, respectively.
(3) Includes an estimated fair value adjustment to property, plant and equipment of $3.7 million.
(4) The identified intangible assets relate to customer relationships in existence at the acquisition date between Sunrise and
major U.S. retail and foodservice customers. The customer relationships intangible assets will be amortized over an
estimated weighted-average useful life of approximately 23 years. The estimated fair value of the intangible asset was
SUNOPTA INC.
-F16-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
determined using a discounted cash flow analysis (income approach), which applied a risk-adjusted discount rate of
approximately 12.0%.
(5) Goodwill is calculated as the difference between the acquisition-date fair values of the total consideration and the net assets
acquired. The total amount of goodwill has been assigned to the Consumer Products operating segment and is not expected
to be deductible for tax purposes. The goodwill recognized is attributable to: (i) cost savings, operating synergies, and
other benefits expected to result from combining the operations of Sunrise with those of the Company; (ii) the value of
longer-term growth prospects in the private label frozen fruit market; (iii) the value of acquiring the current capabilities
and low-cost position of the existing Sunrise business (i.e., the higher rate of return on the assembled net assets versus
acquiring all of the net assets separately); and (iv) the value of Sunrise’s assembled workforce.
(6) Represents the estimated fair value of the non-controlling interest in Sunrise’s 75%-owned Mexican subsidiary.
Niagara Natural Fruit Snack Company Inc.
On August 11, 2015, the Company acquired the net operating assets of Niagara Natural Fruit Snack Company Inc. (“Niagara
Natural”). Niagara Natural is a manufacturer of all-natural fruit snacks located in the Niagara Region of Ontario. The
acquisition of the net operating assets of Niagara Natural has been accounted for as a business combination under the acquisition
method of accounting. The results of Niagara Natural have been included in the Company’s consolidated financial statements
since the date of acquisition and are reported in the Consumer Products operating segment.
The following table summarizes the fair value of the consideration transferred as at the acquisition date:
Cash
Preliminary working capital adjustment
Contingent consideration(2)
Total consideration transferred
Provisional
Amounts
Recognized as at
the Acquisition
Date
$
6,475
237
2,330
9,042
Measurement
Period
Adjustment(1)
$
-
(292)
-
(292)
Final Amounts
Recognized as at
the Acquisition
Date
$
6,475
(55)
2,330
8,750
(1) The measurement period adjustment reflects the final determination of net working capital as at the acquisition date. This
adjustment did not have a significant impact on the Company’s consolidated results of operations.
(2) The Company agreed to pay the owners of Niagara Natural an additional amount of up to approximately $2.8 million over
a period of two years subject to adjustment based on certain performance targets. The fair value of the contingent
consideration was determined to be $2.3 million as of the acquisition date. On May 5, 2016, the Company and the owners
of Niagara Natural entered into an agreement to settle the contingent consideration obligation in exchange for a one-time
cash payment of $0.6 million. In the second quarter of 2016, the Company recognized a gain of $1.7 million in connection
with this settlement, based on the difference between the fair value of the contingent consideration obligation and the cash
payment, which is recorded in other expense on the consolidated statement of operations for the year ended December 31,
2016.
SUNOPTA INC.
-F17-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
The following table summarizes the fair values of the assets acquired and liabilities assumed as at the acquisition date:
Current assets
Machinery and equipment
Intangible assets(2)
Current liabilities
Net identifiable assets acquired
Goodwill(3)
Net assets acquired
Provisional
Amounts
Recognized as at
the Acquisition
Date
$
2,220
3,414
2,459
(687)
7,406
1,636
9,042
Measurement
Period
Adjustment(1)
$
(292)
-
-
-
(292)
-
(292)
Final Amounts
Recognized as at
the Acquisition
Date
$
1,928
3,414
2,459
(687)
7,114
1,636
8,750
(1) The measurement period adjustment reflects the final determination of net working capital as at the acquisition date.
(2) Intangible assets comprise customer relationships and non-competition arrangements, which will be amortized over an
estimated weighted-average useful life of approximately 19 years.
(3) The total amount of goodwill has been assigned to the Consumer Products operating segment.
Citrusource, LLC
On March 2, 2015, the Company acquired 100% of the issued and outstanding units of Citrusource, LLC (“Citrusource”), a
producer of premium not-from-concentrate private label organic and conventional orange juice and citrus products in the U.S.
The acquisition of Citrusource has been accounted for as a business combination under the acquisition method of accounting.
The results of Citrusource have been included in the Company’s consolidated financial statements since the date of acquisition
and are reported in the Consumer Products operating segment. The acquisition of Citrusource aligned with the Company’s
strategy of growing its value-added consumer products portfolio and leveraging its integrated operating platform.
The following table summarizes the fair value of the consideration transferred as at the acquisition date:
Cash
Working capital adjustment
Settlement of pre-existing relationship
Contingent consideration(1)
Total consideration transferred
$
13,300
(319)
749
18,000
31,730
(1) The contingent consideration arrangement with the former unitholders of Citrusource comprises two components: (i)
deferred consideration calculated based on a seven-times multiple of the incremental growth in Citrusource’s earnings
before interest, taxes, depreciation and amortization (“EBITDA”) in fiscal year 2015 versus EBITDA for fiscal year 2014;
and (ii) an earn-out calculated based on 25% of the incremental growth in the sum of Citrusource’s EBITDA and the
EBITDA of the Company’s San Bernardino, California, juice facility (the “Combined EBITDA”) in each of fiscal years
2016, 2017 and 2018 versus the Combined EBITDA for fiscal year 2015. There are no upper limits to the amount of each
of the components. The fair value measurement of the contingent consideration arrangement was determined to be
approximately $18.0 million as at the acquisition date, based on a probability-weighted present value analysis, of which
approximately $15.0 million was related to the deferred consideration and approximately $3.0 million is related to the
SUNOPTA INC.
-F18-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
earn-out. The deferred consideration is payable in four equal annual installments commencing in 2016. In the second
quarter of 2016, the Company paid the first installment in the amount of $3.9 million. Of the remaining deferred
consideration obligation, approximately $4.0 million is included in current portion of long-term liabilities and
approximately $7.0 million is included in long-term liabilities on the consolidated balance sheets as at December 31, 2016.
The earn-out obligation is also included in long-term liabilities on the consolidated balance sheet as at December 31, 2016.
The fair value of the contingent consideration arrangement is based on significant level 3 unobservable inputs, including
the following factors: (i) estimated range of EBITDA values in each of the earn-out periods; and (ii) the probability-
weighting applied to each of the EBITDA values within the estimated range for each earn-out period. The resultant
probability-weighted EBITDA values for each earn-out period were discounted at a credit risk-adjusted discount rate of
approximately 3.5%.
The terms of the earn-out component of the contingent consideration arrangement will be amended by the Company and
former unitholders of Citrusource as a consequence of the closure of the San Bernardino juice facility (see note 15). The
fair value of the amended earn-out is expected to be commensurate with the fair value measured as at December 31, 2016.
The following table summarizes the fair values of the assets acquired and liabilities assumed as at the acquisition date:
Accounts receivable
Inventories
Machinery and equipment
Customer relationships intangible asset(1)
Accounts payable and accrued liabilities
Net identifiable assets acquired
Goodwill(2)
Net assets acquired
$
2,351
1,745
164
14,000
(1,666)
16,594
15,136
31,730
(1) The customer relationships intangible asset was recognized based on contracts in existence at the acquisition date between
Citrusource and major U.S. retail customers. This intangible asset will be amortized over an estimated useful life of
approximately 12 years.
(2) Goodwill is calculated as the difference between the acquisition-date fair values of the consideration transferred and net
assets acquired. The total amount of goodwill has been assigned to the Consumer Products operating segment and is
expected to be fully deductible for tax purposes. The goodwill recognized is attributable to: (i) operating synergies
expected to result from combining the operations of Citrusource with those of the Company; and (ii) opportunities to
leverage the business experience of Citrusource’s management team to grow the Company’s existing citrus beverage
program.
3. Discontinued Operations
Opta Minerals Inc.
On February 11, 2016, Opta Minerals entered into a definitive acquisition agreement, pursuant to which Speyside Equity Fund
I LP (“Speyside”) agreed to acquire substantially all of the issued and outstanding shares of Opta Minerals, of which the
Company owned approximately 66%. The acquisition agreement was approved by Opta Minerals’ Boards of Directors, which
recommended that Opta Minerals’ shareholders approve the transaction. Also on February 11, 2016, the Company entered into
a support agreement pursuant to which it irrevocably agreed to vote all of its Opta Minerals’ shares in favor of the transaction.
The acquisition of Opta Minerals by Speyside was completed on April 6, 2016, following a vote of the shareholders of Opta
Minerals in favor of the transaction on March 31, 2016.
Upon closing of the transaction, the Company received aggregate gross proceeds of $4.8 million (C$6.2 million), of which $3.2
million (C$4.2 million) was received in cash, and $1.5 million (C$2.0 million) was received in the form of a subordinated
SUNOPTA INC.
-F19-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
promissory note bearing interest at 2.0% per annum that will mature on October 6, 2018. In the first quarter of 2016, the
Company recognized direct costs related to the sale of Opta Minerals of $0.8 million. The sale of Company’s equity interest in
Opta Minerals was consistent with its objective of divesting its non-core assets in order to become a pure-play healthy and
organic foods company. The Company has no significant continuing involvement with Opta Minerals.
In the fourth quarter of 2015, the Company recognized a loss on the classification of Opta Minerals as a discontinued operation
held for sale of $10.5 million, or $7.7 million net of non-controlling interest, to write down the carrying value of Opta Minerals’
net assets to fair value less cost to sell based on estimated net proceeds on sale of approximately $4.5 million as at January 2,
2016. In the first quarter of 2016, the Company recognized a $0.6 million gain on classification as held for sale, which reflected
a $1.1 million decline in the carrying value of Opta Mineral’s net assets, partially offset by a $0.5 million reduction in the
estimated net proceeds on sale. The Company has not recognized the results of operations or cash flows of Opta Minerals for
the period from April 1, 2016 to the closing of the transaction on April 6, 2016, as these amounts were insignificant to the
Company’s consolidated results of operations and cash flows.
As at January 2, 2016, the net assets and liabilities of Opta Minerals were reported as held for sale on the consolidated balance
sheet. The following table reconciles the major classes of assets and liabilities of Opta Minerals to the amounts reported as
held for sale:
Cash and cash equivalents
Accounts receivable
Inventories
Property, plant and equipment
Intangible assets
Other assets
Loss recognized on classification as held for sale
Total assets held for sale
Bank indebtedness
Accounts payable and accrued liabilities
Long-term debt
Other liabilities
Total liabilities held for sale
Fiber and Starch Business
$
1,707
14,676
25,869
16,019
13,194
3,380
(10,515)
64,330
12,107
9,634
25,858
4,887
52,486
On December 22, 2014, the Company completed the sale of its fiber and starch business (the “Fiber Business”) for $37.5 million,
subject to certain closing adjustments. The Fiber Business included five facilities located in Louisville, Kentucky, Cedar Rapids,
Iowa, Cambridge, Minnesota, Fosston, Minnesota, and Galesburg, Illinois. The Fiber Business was formerly part of the former
Value Added Ingredients operating segment. The Company continues to operate both its integrated grain- and fruit-based
ingredient businesses, which were not part of the sale, and which previously formed the remainder of the former Value Added
Ingredients operating segment.
SUNOPTA INC.
-F20-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
For the year ended January 3, 2015, the Company recognized the following gain on sale of the Fiber Business in discontinued
operations:
Cash consideration
Transaction and related costs
Net proceeds
Current assets
Property, plant and equipment
Goodwill
Current liabilities
Net assets sold
Pre-tax gain on sale
Provision for income taxes
Gain on sale of discontinued operations, net of income taxes
Major Components of Operating Results Reported in Discontinued Operations
$
37,500
(637)
36,863
12,139
13,045
12,030
(3,239)
33,975
2,888
(990)
1,898
The following table reconciles the major components of the results of discontinued operations to the amounts reported in the
consolidated statements of operations:
Revenues
Cost of goods sold(2)
Selling, general and administrative expenses
Intangible asset amortization
Goodwill impairment
Other expense, net(3)
Foreign exchange gain (loss)
Interest expense
Loss before income taxes
Gain (loss) on classification as held for sale before income taxes
Gain on sale before income taxes
Total pre-tax loss from discontinued operations
Recovery of (provision for) income taxes
Loss from discontinued operations
Loss from discontinued operations attributable to
non-controlling interest
Loss from discontinued operations attributable to SunOpta Inc.
December 31,
2016(1)
$
24,896
(22,133)
(3,024)
-
-
(794)
(454)
(484)
(1,993)
560
-
(1,433)
599
(834)
264
(570)
January 2, 2016
January 3, 2015
$
113,805
(99,256)
(11,170)
(1,987)
-
(15,097)
717
(4,389)
(17,377)
(10,515)
-
(27,892)
(402)
(28,294)
8,819
(19,475)
$
180,793
(154,629)
(19,108)
(2,236)
(10,975)
(4,801)
(1,216)
(3,821)
(15,993)
-
2,888
(13,105)
2,000
(11,105)
4,911
(6,194)
(1) For the year ended December 31, 2016, no depreciation or amortization was recorded on Opta Minerals’ long-lived assets
as these assets were classified as held for sale.
(2) For the year ended December 31, 2016, cost of goods sold includes a charge related to the write-down of inventory of Opta
Minerals of $0.8 million.
SUNOPTA INC.
-F21-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(3) For the years ended December 31, 2016, January 2, 2016 and January 3, 2015, other expense, net includes charges related
to the impairment of long-lived assets of Opta Minerals of $0.4 million, $12.4 million and $3.8 million, respectively.
4. Product Recall
During the second quarter of 2016, the Company announced a voluntary recall of certain roasted sunflower kernel products
produced at its Crookston, Minnesota facility due to potential contamination with Listeria monocytogenes bacteria. The
affected sunflower products originated from the Crookston facility between May 31, 2015 and April 21, 2016. For the year
ended December 31, 2016, the Company recognized estimated losses of $40.0 million related to this recall, reflecting the
estimated cost of the affected sunflower kernel products expected to be returned to or replaced by the Company and the
estimated cost to reimburse customers for costs incurred by them related to the recall of their retail products that contain the
affected sunflower kernels as an ingredient or component. However, these losses do not reflect costs associated with the
interruption of production at the Crookston facility for the period from April 21, 2016 to the time regular production resumed
on or about May 15, 2016, subject to a positive release protocol, or the costs to put into place corrective and preventive actions
at the Company’s roasting facilities. The Company’s remediation efforts are ongoing, and it expects to continue to incur related
costs, which may be material.
The Company’s estimates of the losses related to the recall are provisional and were determined based on an assessment of the
information available up to the date of filing of this report, including a review of customer claims received as of that date and
consideration of the extent of potential additional claims that have yet to be received. The Company’s estimates reflect the
amount of losses that it determined as at December 31, 2016 to be both probable and reasonably estimable. The Company may
need to revise its estimates in subsequent periods as the Company continues to work with its customers and insurance providers
to substantiate the claims received to date and any additional claims that may be received. These revisions may occur at any
time and may be material.
Based on an assessment of the effect on future cash flows of lower anticipated sales demand and higher expected production
and capital costs as a result of the recall, the Company determined that the impact of the recall on the fair value of the sunflower
reporting unit reflected an impairment of the associated goodwill, resulting in a $17.5 million charge recorded in the fourth
quarter of 2016 (see note 9). The Company’s assessment, however, determined that the carrying values of the property, plant
and equipment and intangible assets of the sunflower reporting unit were recoverable as at December 31, 2016.
The Company has general liability and product recall insurance policies with aggregate limits of $47.0 million under which it
is expecting to recover recall-related costs, less applicable deductibles. The Company recognizes expected insurance recoveries
in the period in which the recoveries are determined to be probable of realization. Accordingly, for the year ended December
31, 2016, the Company recorded estimated insurance recoveries of $39.4 million for the losses recognized to-date related to
the recall. However, the Company may not recover amounts equal to the amount of the losses that have been or may be
recognized if those losses exceed the coverage available or are excluded under the insurance policies, in which case these
excess or excluded losses would be paid by the Company and recognized as a charge to future earnings.
As at December 31, 2016, $39.8 million of the estimated recall-related costs were unsettled and were recorded in accounts
payable and accrued liabilities on the consolidated balance sheet (see note 10). These costs were offset by the corresponding
estimated insurance recoveries of $37.4 million included in accounts receivable on the consolidated balance sheet as at
December 31, 2016 (see note 6), which is net of a $2.0 million advance the Company received from its insurance providers
prior to December 31, 2016. Subsequent to December 31, 2016, the Company settled an individual customer claim for an
amount of $6.5 million, which settlement was fully funded under the Company’s general liability and product recall insurance
policies.
SUNOPTA INC.
-F22-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
5. 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 at December 31, 2016 and January 2, 2016:
(a) Commodity futures and forward contracts(1)
Unrealized short-term derivative asset
Unrealized short-term derivative liability
Unrealized long-term derivative liability
Inventories carried at market(2)
(b)
(c) Forward foreign currency contracts(3)
(d) Contingent consideration(4)
(e) Embedded derivative(5)
(a) Commodity futures and forward contracts(1)
Unrealized short-term derivative asset
Unrealized long-term derivative asset
Unrealized short-term derivative liability
Unrealized long-term derivative liability
Inventories carried at market(2)
(b)
(c) Forward foreign currency contracts(3)
(d) Contingent consideration(4)
(e) Embedded derivative(5)
December 31, 2016
Fair value
asset (liability)
$
Level 1
$
Level 2
$
787
(916)
(8)
8,231
1,345
(15,279)
2,944
43
-
-
-
-
-
-
Fair value
asset (liability)
$
Level 1
$
748
21
(1,417)
(36)
5,945
311
(21,010)
3,409
-
-
(10)
-
-
-
-
-
744
(916)
(8)
8,231
1,345
-
-
Level 2
$
748
21
(1,407)
(36)
5,945
311
-
-
Level 3
$
-
-
-
-
-
(15,279)
2,944
January 2, 2016
Level 3
$
-
-
-
-
-
-
(21,010)
3,409
(1) Unrealized short-term derivative asset is included in prepaid expenses and other current assets, unrealized long-term derivative asset is included in
other assets, unrealized short-term derivative liability is included in other current liabilities and unrealized long-term derivative liability is included
in long-term liabilities on the consolidated balance sheets.
(2) Inventories carried at market are included in inventories on the consolidated balance sheets.
(3) The forward foreign currency contracts are included in accounts receivable or accounts payable and accrued liabilities on the consolidated balance
sheets.
(4) Contingent consideration obligations are included in long-term liabilities (including the current portion thereof) on the consolidated balance sheets.
(5) The embedded derivative is included in other assets (long-term) on the consolidated balance sheets.
(a) Commodity futures and forward contracts
The Company’s derivative contracts that are measured at fair value include exchange-traded commodity futures and
forward commodity purchase and sale contracts. Exchange-traded futures are valued based on unadjusted quotes for
identical assets priced in active markets and are classified as level 1. Fair values for forward commodity purchase and sale
contracts are 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 Company’s suppliers and customers, the Company’s own credit risk, and
SUNOPTA INC.
-F23-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
the Company’s knowledge of current market conditions, the Company does not view non-performance risk to be a
significant input to fair value for the majority of its forward commodity purchase and sale contracts.
These exchange-traded commodity futures and forward commodity purchase and sale contracts are used as part of the
Company’s 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 derivative instruments are not designated as
hedges for accounting purposes. Gains and losses on changes in fair value of these derivative instruments are included in
cost of goods sold on the consolidated statement of operations. For the year ended December 31, 2016, the Company
recognized a gain of $0.5 million (January 2, 2016 – loss of $0.1 million; January 3, 2015 – loss of $0.2 million) related
to changes in the fair value of these derivatives.
As at December 31, 2016, the notional amounts of open commodity futures and forward purchase and sale contracts were
as follows (in thousands of bushels):
Forward commodity purchase contracts
Forward commodity sale contracts
Commodity futures contracts
Number of bushels purchased (sold)
Soybeans
526
(1,095)
(45)
Corn
312
(317)
(360)
In addition, as at December 31, 2016, the Company had open forward contracts to sell 142 lots of cocoa and 21 lots of
coffee.
(b) Inventories carried at market
Grains inventory carried at fair value is determined using quoted market prices from the CBoT. Estimated fair market
values for grains inventory quantities at period end are valued using the quoted price on the CBoT adjusted for differences
in local markets, and broker or dealer quotes. These assets are placed in level 2 of the fair value hierarchy, as there are
observable quoted prices for similar assets in active markets. Gains and losses on commodity grains inventory are included
in cost of goods sold on the consolidated statements of operations. As at December 31, 2016, the Company had 354,699
bushels of commodity corn and 569,943 bushels of commodity soybeans in inventories carried at market.
(c) 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 placed 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. While these forward foreign exchange contracts typically represent economic hedges that are not
designated as hedging instruments, certain of these contracts may be designated as hedges. As at December 31, 2016 the
Company had open forward foreign exchange contracts with a notional value of €35.4 million ($38.8 million). Gains and
losses on changes in the fair value of these derivative instruments are included in foreign exchange loss or gain on the
consolidated statement of operations. For the year ended December 31, 2016, the Company recognized a gain of $1.0
million (January 2, 2016 – loss of $0.7 million; January 3, 2015 – gain of $1.4 million) related to changes in the fair value
of these derivatives.
(d) 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 present value those cash flows.
SUNOPTA INC.
-F24-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
The following table presents a reconciliation of contingent consideration obligations for the years ended December 31,
2016 and January 2, 2016:
Balance, beginning of year
Issuances(1)
Fair value adjustment(2)
Payments(3)
Foreign exchange
Balance, end of year
December 31, 2016
$
(21,010)
-
1,158
4,554
19
(15,279)
January 2, 2016
$
-
(20,330)
(884)
204
-
(21,010)
(1) For the year ended January 2, 2016, reflects the fair value of the Citrusource and Niagara Natural contingent consideration arrangements as measured
at the respective acquisition dates (see note 2).
(2) For the year ended December 31, 2016, reflects the gain on settlement of the contingent consideration obligation related to the acquisition of Niagara
Natural (see note 2) and an adjustment to the contractual amount owing to a former shareholder of, as well as the accretion for the time value of
money related to the Citrusource and Niagara Natural obligations. For the year ended January 2, 2016, reflects accretion for the time value of
money related to the Citrusource and Niagara Natural obligations. In addition, includes contractual amount owing to former shareholders of Organic
Land Corporation OOD (“OLC”), which was acquired by the Company on December 31, 2012, for their share of a government subsidy obtained
in 2015. Fair value adjustments are included in other income/expense (see note 15).
(3) For the year ended December 31, 2016, reflects the first installment payment of deferred consideration to the former unitholders of Citrusource and
cash settlement of the contingent consideration obligation related to the acquisition of Niagara Natural (see note 2). For the year ended January 2,
2016, reflects payment to one of the former shareholders of OLC.
(e) Embedded derivative
On August 5, 2011 and August 29, 2014, the Company invested $0.5 million and $0.9 million, respectively, in convertible
subordinated notes issued by Enchi Corporation (“Enchi”), a developer of advanced bioconversion products for the
renewable fuels industry, of which $0.2 million principal amount remained outstanding as at January 2, 2016. The
Company’s investment in subordinated convertible notes of Enchi includes the value of an accelerated payment option
embedded in the notes, which may result in a maximum payout to the Company of $5.1 million. Due to a lack of level 1
or level 2 observable market quotes for the notes, the Company used a discounted cash flow analysis (income approach)
to estimate the original fair value of the embedded derivative based on unobservable level 3 inputs. The Company assesses
changes in the fair value of the embedded derivative based on the performance of actual cash flows derived from certain
royalty rights owned by Enchi, which are expected to be the primary source of funds available to settle the embedded
derivative, relative to the financial forecasts used in the valuation analysis. On April 15, 2016, the Company received a
distribution from Enchi of $0.7 million, which was applied to repay the remaining $0.2 million principal amount of the
convertible subordinated notes, with the balance of $0.5 million applied against the carrying value of the embedded
derivative. As at December 31, 2016 and January 2, 2016, the Company determined that the fair value of the embedded
derivative was $2.9 million and $3.4 million, respectively, based on expectations related to the remaining royalty rights.
SUNOPTA INC.
-F25-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
6. Accounts Receivable
Trade receivables
Recall-related insurance recoveries (see note 4)
Allowance for doubtful accounts
December 31, 2016
$
122,916
37,400
(2,947)
157,369
January 2, 2016
$
119,904
-
(2,492)
117,412
The change in the allowance for doubtful accounts provision for the years ended December 31, 2016 and January 2, 2016 is
comprised as follows:
Balance, beginning of year
Net additions to provision
Reserves from acquired businesses
Accounts receivable written off, net of recoveries
Effects of foreign exchange rate differences
Balance, end of year
7. Inventories
Raw materials and work-in-process
Finished goods
Company-owned grain
Inventory reserve
December 31, 2016
$
2,492
1,013
-
(536)
(22)
January 2, 2016
$
1,230
2,008
226
(947)
(25)
2,947
2,492
December 31, 2016
$
266,072
101,585
15,027
(14,202)
368,482
January 2, 2016
$
276,434
87,215
14,348
(6,774)
371,223
The change in the inventory reserve for the years ended December 31, 2016 and January 2, 2016 is comprised as follows:
Balance, beginning of year
Additions to reserve during the year
Reserves applied and inventories written off during the year
Effect of foreign exchange rate differences
Balance, end of year
December 31, 2016
$
6,774
14,029
(6,532)
(69)
January 2, 2016
$
6,144
7,186
(6,461)
(95)
14,202
6,774
SUNOPTA INC.
-F26-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
8. Property, Plant and Equipment
The major components of property, plant and equipment as at December 31, 2016 and January 2, 2016 were as follows:
Land
Buildings
Machinery and equipment
Enterprise software
Office furniture and equipment
Vehicles
Land
Buildings
Machinery and equipment
Enterprise software
Office furniture and equipment
Vehicles
Accumulated
depreciation
$
-
19,432
73,914
4,179
5,930
2,156
105,611
December 31, 2016
Net book value
$
7,165
48,582
94,206
6,666
4,261
1,359
162,239
January 2, 2016
Accumulated
depreciation
Net book value
$
-
17,078
65,413
2,225
5,603
1,831
92,150
$
7,249
54,953
102,143
5,859
4,824
1,485
176,513
Cost
$
7,165
68,014
168,120
10,845
10,191
3,515
267,850
Cost
$
7,249
72,031
167,556
8,084
10,427
3,316
268,663
As at December 31, 2016, property, plant and equipment included construction in process assets of $13.7 million (January 2,
2016 – $12.1 million), which were not being depreciated as they had not yet reached the stage of commercial viability. In
addition, as at December 31, 2016, machinery and equipment included equipment under capital leases with a cost of $11.9
million (January 2, 2016 – $12.2 million) and a net book value of $10.7 million (January 2, 2016 – $10.5 million), as well as
$6.1 million (January 2, 2016 – $5.1 million) of spare parts inventory.
Total depreciation expense included in cost of goods sold and selling, general and administrative expense on the consolidated
statements of operations related to property, plant and equipment for the year ended December 31, 2016 was $22.9 million
(January 2, 2016 – $16.1 million; January 3, 2015 – $13.6 million).
SUNOPTA INC.
-F27-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
9. Goodwill and Intangible Assets
Goodwill
Intangible assets with a finite life at cost, less accumulated
amortization of $30,989 (January 2, 2016 -
$20,156)
The following is a summary of changes in goodwill:
December 31, 2016
$
223,611
January 2, 2016
$
241,690
183,524
195,008
Balance at January 3, 2015
Acquisitions (see note 2)
Foreign exchange
Balance at January 2, 2016
Goodwill impairment(1)
Foreign exchange
Balance at December 31, 2016
Global Ingredients Consumer Products
$
2,361
213,481
(142)
215,700
-
(344)
215,356
$
26,721
-
(731)
25,990
(17,540)
(195)
8,255
Total
$
29,082
213,481
(873)
241,690
(17,540)
(539)
223,611
(1) Based on the results of the annual quantitative test for goodwill impairment performed for the year ended December 31,
2016, the Company determined that the carrying value of the goodwill associated with its sunflower reporting unit
exceeded its implied fair value, reflecting the negative impact on future cash flows related to the recall of certain roasted
sunflower kernel products in 2016 (see note 4). As a result, the Company recognized a goodwill impairment charge of
$17.5 million in the fourth quarter of 2016. Fair value was determined using a discounted cash flow analysis (income
approach).
Based on the results of the quantitative tests performed for the years ended January 2, 2016 and January 3, 2015, the
Company determined that none of the goodwill associated with any of its reporting units was impaired in either of those
fiscal years.
The major components of intangible assets as at December 31, 2016 and January 2, 2016 were as follows:
Customer relationships
Patents, trademarks and other
Customer relationships
Patents, trademarks and other
SUNOPTA INC.
-F28-
Cost
$
212,172
2,341
214,513
Cost
$
212,810
2,354
215,164
Accumulated
amortization
$
28,914
2,075
30,989
Accumulated
amortization
$
18,177
1,979
20,156
December 31, 2016
Net book value
$
183,258
266
183,524
January 2, 2016
Net book value
$
194,633
375
195,008
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
The following is a summary of changes in intangible assets:
Balance at January 3, 2015
Acquisitions (see note 2)
Amortization
Foreign exchange
Balance at January 2, 2016
Amortization
Foreign exchange
Balance at December 31, 2016
Customer Patents, trademarks
and other
$
251
208
(84)
-
375
(116)
7
266
relationships
$
13,504
186,251
(4,867)
(255)
194,633
(11,166)
(209)
183,258
Total
$
13,755
186,459
(4,951)
(255)
195,008
(11,282)
(202)
183,524
The Company estimates that the aggregate future amortization expense associated with finite-life intangible assets in each of
the next five fiscal years and thereafter will be as follows:
2017
2018
2019
2020
2021
Thereafter
$
11,401
11,322
11,033
10,515
10,345
128,908
183,524
10. Accounts Payable and Accrued Liabilities
Accounts payable
Accrued recall-related costs (see note 4)
Accrued grain liabilities
Payroll and commissions
Dividends payable on Series A Preferred Stock (see note 12)
Other accruals
December 31, 2016
$
89,034
39,750
15,254
14,262
1,590
13,855
173,745
January 2, 2016
$
110,847
-
17,122
12,302
-
11,560
151,831
SUNOPTA INC.
-F29-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
11. Bank Indebtedness and Long-Term Debt
Bank indebtedness:
Global Credit Facility(1)
North American credit facilities(1)
European credit facilities(1)
Bulgarian credit facility(2)
Long-term debt:
Senior Secured Second Lien Notes, net of unamortized debt issuance costs
of $8,835(3)
Second Lien Loans, net of unamortized debt issuance costs of nil
(January 2, 2016 - $7,757)(3)
Capital lease obligations(4)
Other
Less: current portion
(1) Global Credit Facility
December 31, 2016
$
January 2, 2016
$
199,281
-
-
2,213
201,494
222,163
-
7,454
1,470
231,087
2,079
229,008
-
70,563
87,419
1,791
159,773
-
312,243
9,245
1,507
322,995
1,773
321,222
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 replaced the Company’s previous North
American credit facilities that were set to expire January 27, 2017, and its European credit facilities that were due on
demand with no set maturity date. The Global Credit Facility is used to support the working capital and general corporate
needs of the Company’s global operations, in addition to funding future strategic initiatives. The Global Credit Facility
also includes borrowing capacity available for letters of credit and provides for borrowings on same-day notice, including
in the form of swingline loans. Subject to customary borrowing conditions and the agreement of any such lenders to
provide such increased commitments, the Company may request to increase the total lending commitments under the
Global Credit Facility to a maximum aggregate principal amount not to exceed $450.0 million. Outstanding principal
amounts under the Global Credit Facility are repayable in full on the maturity date of February 10, 2021.
Individual borrowings under the Global Credit Facility have terms of six months or less and bear interest based on various
reference rates, including prime rate and LIBOR plus an applicable margin. The applicable margin in the Global Credit
Facility ranges from 1.25% to 1.75% for loans bearing interest based on LIBOR and from 0.25% to 0.75% for loans bearing
interest based on the prime rate and, in each case, is set quarterly based on average borrowing availability for the preceding
fiscal quarter. The initial margin for the Global Credit Facility was 0.50% with respect to prime rate borrowings and 1.50%
with respect to LIBOR borrowings. As at December 31, 2016, the weighted-average interest rate on the facilities was
2.74%. The obligations under the Global Credit Facility are guaranteed by substantially all of the Company’s 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 Company’s 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.
SUNOPTA INC.
-F30-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(2) Bulgarian credit facility
On April 19, 2016, a subsidiary of The Organic Corporation (“TOC”), a wholly-owned subsidiary of the Company,
amended its revolving credit facility agreement dated May 22, 2013, to provide up to €4.5 million to cover the working
capital needs of TOC’s Bulgarian operations. The facility is secured by the accounts receivable and inventories of the
Bulgarian operations and is fully guaranteed by TOC. Interest accrues under the facility based on EURIBOR plus a margin
of 2.75%, and borrowings under the facility are repayable in full on April 30, 2017. As at December 31, 2016, the
weighted-average interest rate on the Bulgarian credit facility was 2.75%.
(3) Second Lien Borrowings
On October 9, 2015, SunOpta Foods Inc. (“SunOpta Foods”), a wholly-owned subsidiary of the Company, the Company
and certain subsidiaries of the Company, as guarantors (together with the Company, the “Guarantors”), entered into a
second lien loan agreement (the “Second Lien Loan Agreement”) with a group of lenders, pursuant to which the Company
borrowed an aggregate principal amount of $330.0 million of term loans. In connection with the Second Lien Loan
Agreement, the Company incurred $10.8 million of debt issuance costs, which were recorded as a reduction against the
principal amount of the borrowings and amortized over the one-year term of the Initial Loans (as defined below). The net
proceeds of the Second Lien Loan Agreement were used to partially fund the Sunrise Acquisition (see note 2). The Second
Lien Loan Agreement was guaranteed by the Company and the Company’s subsidiaries that guarantee the Global Credit
Facility, subject to certain exceptions, and was secured on a second-priority basis by security interests on all of SunOpta
Foods’ and Guarantors’ assets that secured the Global Credit Facility, subject to certain exceptions and permitted liens.
Interest on the term loans made under the Second Lien Loan Agreement on October 9, 2015 (the “Initial Loans”) was
determined by reference to LIBOR (subject to a 1.0% per annum floor) plus an applicable margin of 6.0% per annum. The
applicable margin increased by 0.50% at the end of each three-month period after October 9, 2015 and before October 9,
2016. In each case, the Initial Loans carried a maximum interest rate of 9.5% per annum. Giving effect to the amortization
of the debt issuance costs, the effective interest rate on the Initial Loans was approximately 11.2% per annum.
The Initial Loans could be repaid at par at any time prior to October 9, 2016. As at October 1, 2016, and January 2, 2016,
the Company had repaid $20.0 million and $10.0 million principal amount, respectively, of the Initial Loans.
On October 7, 2016, SunOpta Foods issued an aggregate of 85,000 shares of Series A Preferred Stock (the “Preferred
Stock”) for consideration in the amount of $85.0 million (see note 12). The Company used the net proceeds from the
issuance of the Preferred Stock to repay an additional $79.0 million principal amount of the Initial Loans. The remaining
$231.0 million aggregate principal amount of Initial Loans matured on October 9, 2016 and automatically converted into
a like principal amount of term loans (such converted loans, the “Term Loans”), with a maturity date of October 9, 2022.
The Term Loans bore interest at a rate of 9.5% per annum.
On October 20, 2016, all of the outstanding Term Loans were exchanged for a corresponding amount of 9.5% Senior
Secured Second Lien Notes due 2022 (the “Notes”) issued by SunOpta Foods. The Second Lien Loan Agreement was
terminated in connection with the issuance of the Notes. The Company incurred $9.1 million of debt issuance costs related
to the Notes, which are recorded as a reduction against the principal amount of the Notes and are being amortized over the
six-year term of the Notes.
Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 at a rate of 9.5% per annum,
commencing on April 15, 2017. The Notes will mature on October 9, 2022.
At any time prior to October 9, 2018, SunOpta Foods may redeem some or all of the Notes at any time and from time to
time at a “make-whole” redemption price set forth in the indenture governing the Notes. On or after October 9, 2018,
SunOpta Foods may redeem the Notes, in whole or in part, at any time at the redemption prices equal to 107.125% through
October 8, 2019, 104.750% from October 9, 2019 through October 8, 2020, 102.375% from October 9, 2020 through
October 8, 2021 and at par thereafter, plus accrued and unpaid interest, if any, to but excluding the date of redemption. In
addition, prior to October 9, 2018, SunOpta Foods may, on one or more occasions, redeem up to 35% of the aggregate
principal amount of the Notes with the proceeds of certain equity offerings at a redemption price equal to 109.500% of the
December 31, 2016 10-K
SUNOPTA INC.
-F31-
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to but excluding the date of redemption.
At any time prior to October 9, 2018, SunOpta Foods may also redeem, during each twelve-month period beginning on
October 20, 2016, up to 10% of the aggregate principal amount of the Notes at a price equal to 103% of the aggregate
principal amount of the Notes being redeemed, plus accrued and unpaid interest, if any, to but excluding the date of
redemption. In the event of a change of control, SunOpta Foods will be required to make an offer to repurchase the Notes
at 101% 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.
The Notes are subject to covenants that, among other things, limit the Company’s 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.
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.
(4) Capital lease obligations
The Company leases certain equipment under capital lease agreements. The cost and accumulated depreciation of assets
under capital lease are included in machinery and equipment.
Principal repayments of long-term debt are as follows:
2017
2018
2019
2020
2021
Thereafter
Total gross repayments
Unamortized debt issuance costs
The components of interest expense, net are as follows:
Interest expense
Amortization of debt issuance costs
Interest income
Interest expense, net
December 31, 2016
$
32,090
11,301
(116)
43,275
January 2, 2016
$
9,853
5,895
(79)
15,669
SUNOPTA INC.
-F32-
$
2,079
1,770
2,961
637
309
232,166
239,922
(8,835)
231,087
January 3, 2015
$
3,717
375
(149)
3,943
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
12. Series A Preferred Stock
On October 7, 2016 (the “Closing Date”), the Company and SunOpta Foods entered into a subscription agreement (the
“Subscription Agreement”) with Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (collectively, the
“Investors”). Pursuant to the Subscription Agreement, SunOpta Foods issued an aggregate of 85,000 shares of Preferred Stock
to the Investors for consideration in the amount of $85.0 million. In connection with the issuance of the Preferred Stock, the
Company incurred direct and incremental expenses of $6.0 million, which reduced the carrying value of the Preferred Stock.
At any time on or after the fifth anniversary of the Closing Date, SunOpta Foods may redeem all of the Preferred Stock for an
amount, per share of Preferred Stock, equal to the value of the liquidation preference at such time. The carrying value of the
Preferred Stock is being accreted to the redemption amount of $85.0 million through charges to retained earnings over the
period preceding the fifth anniversary of the Closing Date, which accretion amounted to $0.2 million for the period ended
December 31, 2016.
The proceeds from the issuance of the Preferred Stock, net of issuance costs were used to repay $79.0 million principal amount
of Initial Loans outstanding under the Second Lien Loan Agreement (see note 11).
In connection with the Subscription Agreement, the Company agreed to, among other things (i) ensure SunOpta Foods has
sufficient funds to pay its obligations under the terms of the Preferred Stock and (ii) grant each holder of Preferred Stock (the
“Holder”) the right to exchange the Preferred Stock for shares of common stock of the Company (the “Common Shares”). The
Preferred Stock is non-participating with the Common Shares in dividends and undistributed earnings of the Company.
The Preferred Stock has a stated value and initial liquidation preference of $1,000 per share. Cumulative preferred dividends
accrue daily on the Preferred Stock at an annualized rate of 8.0% prior to October 5, 2025 and 12.5% thereafter, in each case
of the liquidation preference (subject to an increase of 1.0% per quarter, up to a maximum rate of 5.0% per quarter on the
occurrence of certain events of non-compliance). Prior to October 5, 2025, SunOpta Foods may pay dividends in cash or elect,
in lieu of paying cash, to add the amount that would have been paid to the liquidation preference. After October 4, 2025, the
failure to pay dividends in cash will be an event of non-compliance. The Preferred Stock ranks senior to the shares of common
stock of SunOpta Foods with respect to dividend rights and rights on the distribution of assets on any liquidation, winding up
or dissolution of the Company or SunOpta Foods. As at December 31, 2016, the Company had accrued unpaid dividends of
$1.6 million, which were recorded in accounts payable and accrued liabilities on the 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 December 31, 2016, the aggregate shares of Preferred Stock outstanding
were exchangeable into 11,333,333 Common Shares. The Exchange Price is subject to certain anti-dilution adjustments,
including a weighted-average adjustment for issuances of Common Shares below the Exchange Price, provided that the
Exchange Price may not be lower than $7.00 (subject to adjustment in certain circumstances). SunOpta Foods may cause the
Holders to exchange all of the Preferred Stock into a number of Common Shares based on the applicable Exchange Price if (i)
fewer than 10% of the shares of Preferred Stock issued on the Closing Date remain outstanding or (ii) on or after the third
anniversary of the Closing Date, the average volume-weighted average price of the Common Shares during the then preceding
20 trading day period is greater than 200% of the Exchange Price. Prior to the receipt of applicable approval by the holders of
Common Shares, shares of Preferred Stock are not exchangeable into more than 19.99% of the number of Common Shares
outstanding immediately after giving effect to such exchange.
Upon certain events involving a change of control of the Company, SunOpta Foods must use reasonable efforts to provide the
Holders with the option to exchange shares of the Preferred Stock for a security in the surviving or successor entity that has the
same rights, preferences and privileges as the Preferred Stock as adjusted for the change of control. SunOpta Foods will also
offer to redeem the Preferred Stock at an amount per share equal to the greater of (i) the liquidation preference plus an amount
equal to the value of incremental dividends that would have accrued through to the fifth anniversary of the Closing Date and
(ii) the amount payable per Common Share in such change of control multiplied by the Exchange Rate.
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. As of the Closing Date, the Special
December 31, 2016 10-K
SUNOPTA INC.
-F33-
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Voting Shares represented an 11.7% voting interest in the Company. 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. The Special Voting Shares are not transferable and the voting rights associated with the Special Voting
Shares will terminate upon the transfer of the Preferred Stock to a third party, other than a controlled affiliate of the Investors.
The Investors are entitled to designate up to two nominees for election to the Board of Directors of the Company (the “Board”)
and have the right to designate one individual to attend meetings of the Board as a non-voting observer, subject to the Investors
maintaining certain levels of beneficial ownership of Common Shares on an as-exchanged basis. For so long as the Investors
beneficially own or control at least 50% of the Preferred Stock issued on the Closing Date, including any corresponding
Common Shares into which such Preferred Stock are exchanged, the Investors will be entitled to (i) participation rights with
respect to future equity offerings of the Company; and (ii) governance rights, including the right to approve certain actions
proposed to be taken by the Company and its subsidiaries.
13. Common Shares
The Company is authorized to issue an unlimited number of Common Shares without par value and an unlimited number of
special shares without par value.
On September 30, 2015, the Company completed a registered offering of 16,670,000 of Common Shares at a price of $6.00
per share, for aggregate gross proceeds of $100.0 million. Underwriting and other issuance costs of $4.4 million incurred in
connection with the issuance of these new Common Shares were recorded as a reduction to the gross proceeds from the offering,
net of income taxes of $1.6 million. The net proceeds from the offering were used by the Company to fund a portion of the
purchase price of the Sunrise Acquisition (see note 2).
14. Stock-Based Compensation
Stock Incentive Plan
On May 28, 2013, the Company’s shareholders approved the 2013 Stock Incentive Plan (the “2013 Plan”), which permits the
grant of a variety of stock-based awards, including stock options, restricted stock units (“RSUs”) and performance share units
(“PSUs”) to selected employees and directors of the Company. As at December 31, 2016, 1,554,218 securities remained
available for issuance under the 2013 Plan.
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015, total stock-based compensation expense
amounted to $4.1 million, $4.4 million and $3.9 million, respectively.
Stock Options
Stock options granted during the year ended December 31, 2016, vest ratably on each of the first through third anniversaries of
the grant date and expire on the tenth anniversary of the grant date. Stock options granted during the year ended January 2,
2016, vest ratably on each of the first through fifth anniversaries of the grant date and expire on the tenth anniversary of the
grant date. Options granted prior to January 1, 2012 generally vest ratably on each of the first through fifth anniversaries from
the date of grant and expire on the sixth anniversary of the grant date. Stock options granted by the Company contain an
exercise price that is equal to the closing market price of the shares on the day prior to the grant date. Any consideration paid
by employees or directors on exercise of stock options or purchase of stock is credited to capital stock.
SUNOPTA INC.
-F34-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Details of stock option activity for the year ended December 31, 2016 are as follows:
Weighted-
average
exercise price
7.42
4.25
4.70
6.92
6.47
7.12
Options
3,482,392 $
1,535,441
(125,300)
(312,683)
4,579,850 $
1,736,174 $
Weighted-
average
remaining
contractual
Aggregate
term (years)
intrinsic value
7.3 $
5.3 $
6,107
1,131
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year
The weighted-average grant-date fair values of all stock options granted in the years ended December 31, 2016, January 2,
2016 and January 3, 2015, were $1.86, $4.37 and $6.93, respectively. The weighted-average assumptions used in the Black-
Scholes option pricing model to determine the fair value of the options granted in those years were as follows:
Dividend yield(1)
Expected volatility(2)
Risk-free interest rate(3)
Expected life of options (years)(4)
December 31, 2016
0%
41.7%
1.6%
6.0
January 2, 2016
0%
50.1%
1.9%
6.5
January 3, 2015
0%
61.3%
2.2%
6.5
(1) Determined based on expected annual dividend yield at the time of grant.
(2) Determined based on historical volatility of the Company’s Common Shares over the expected life of the option.
(3) Determined based on the yield on U.S. Treasury zero-coupon issues with maturity dates equal to the expected life of the option.
(4) Determined using simplified method, as the Company changed the vesting period of its stock option grants from five years to three years in 2016,
and the contractual term of its stock option grants from six years to 10 years commencing in 2012 and, as a result, historical exercise data may not
provide a reasonable basis upon which to estimate expected life.
The fair value of the options is based on estimates of the number of options that management expects to vest, which is estimated
to be 85% of the granted amounts.
Details of stock options outstanding as at December 31, 2016 are as follows:
$
Expiry date
2017
2022
2023
2024
2025
2026
$
Exercise price range
High
7.72
5.73
8.23
13.86
11.55
6.65
Low
4.99
5.14
7.09
9.70
5.26
3.27
Vested
outstanding
options
466,750 $
643,700
402,150
136,100
87,474
-
1,736,174 $
Weighted-
average price
(vested)
7.10
5.55
7.48
11.59
10.15
-
7.12
Total
outstanding
options
487,750 $
843,400
705,250
346,503
692,368
1,504,579
4,579,850 $
Weighted-
average price
(total)
7.02
5.55
7.47
11.63
8.35
4.27
6.47
The Company realized a cash tax benefit of $0.0 million (January 2, 2016 – $0.3 million; January 3, 2015 – $0.3 million)
relating to options granted in prior years and exercised in the current year. Total compensation costs related to non-vested
SUNOPTA INC.
-F35-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
stock option awards not yet recognized as an expense was $5.6 million as at December 31, 2016, which will be amortized over
a weighted-average remaining vesting period of 1.2 years.
Restricted Stock Units and Performance Share Units
For the year ended December 31, 2016, the Company granted 135,985 RSUs and 250,345 PSUs to certain employees and
directors of the Company. Each vested RSU and PSU will be settled through the issuance of common shares of the Company
and are therefore treated as equity awards.
RSUs vest ratably on each of the first through third anniversaries of the grant date. The weighted average grant date fair values
of all RSUs granted for the year ended December 31, 2016 was estimated to be $3.87 (January 2, 2016 – $10.07) based on the
fair market value of a share of the Company’s common stock on the dates of grant. The grant-date fair value is recognized on
a straight-line basis over the three-year vesting period based on the number of RSUs expected to vest.
The following table summarizes non-vested RSU activity during the year ended December 31, 2016:
Non-vested at beginning of year
Granted
Vested
Forfeited or expired
Non-vested at end of year
Weighted-
average grant-
date fair value
10.63
3.87
9.36
10.79
6.10
RSUs
104,556 $
135,985
(50,323)
(14,358)
175,860 $
PSUs vest three years following the grant date. The number of PSUs that ultimately vest (up to a specified maximum) will be
determined based on performance relative to predetermined performance measures of the Company. If the Company’s
performance is below a specified performance level, no PSUs will vest. The weighted average grant date fair values of all
PSUs granted for the year ended December 31, 2016 was estimated to be $3.27 (January 2, 2016 – $10.15) based on the fair
market value of a share of the Company’s common stock on the dates of grant. Each reporting period, the number of PSUs
that are expected to vest is re-determined and the grant-date fair value of these PSUs is amortized on a straight-line basis over
the remaining vesting period less amounts previously recognized.
The following table summarizes non-vested PSU activity during the year ended December 31, 2016:
Non-vested at beginning of year
Granted
Forfeited or expired
Non-vested at end of year
Weighted-
average grant-
date fair value
10.60
3.27
7.31
6.75
PSUs
231,448 $
250,345
(27,368)
454,425 $
Total compensation costs related to non-vested RSU and PSU awards not yet recognized as an expense was $0.7 million and
$0.7 million, respectively, as at December 31, 2016, which will be amortized over weighted-average remaining vesting periods
of 1.5 years and 1.5 years, respectively.
SUNOPTA INC.
-F36-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
CEO Succession
Effective November 11, 2016, Hendrik Jacobs stepped down as the Company’s President and Chief Executive Officer (“CEO”).
Under the terms of his separation agreement dated November 8, 2016, Mr. Jacobs’s outstanding stock options will continue to
vest for a period of two years after November 11, 2016, and vested options may be exercised until May 11, 2019. Any stock
options unexercised as of that date will expire. In addition, under the terms of his separation agreement, all PSUs granted to
Mr. Jacobs were forfeited and cancelled as of November 11, 2016. As of November 11, 2016, the Company recognized
incremental stock-based compensation expense of $0.2 million in other expense on the consolidated statement of operations
related to the continued vesting of Mr. Jacobs’s unvested stock options, less the reversal of the previously recognized
compensation cost related to Mr. Jacobs’s forfeited PSUs.
Effective October 1, 2015, Steven Bromley resigned as the Company’s CEO and was succeeded by Mr. Jacobs. Mr. Bromley
served as Vice-Chair of the Company’s board of directors from October 1, 2015 until his resignation from the Company on
December 31, 2015. Under the terms of his separation agreement dated July 6, 2015, Mr. Bromley retains his outstanding
stock options and PSUs as of December 31, 2015 for a period of up to three years following that date, and those stock options
and PSUs will continue to vest during that three-year period. Any stock options unexercised at the end of the three-year period
will expire. As of July 6, 2015, the Company recognized incremental stock-based compensation expense of $0.9 million in
other expense on the consolidated statement of operations to reflect an increase in the fair value of Mr. Bromley’s vested and
unvested stock options and PSUs as a result of a modification to the terms of those awards to allow their continued vesting.
Employee Share Purchase Plan
The Company maintains an employee share purchase plan whereby employees can purchase common shares through payroll
deductions. In the year ended December 31, 2016, the Company’s employees purchased 82,841 common shares (January 2,
2016 – 55,024; January 3, 2015 – 51,946) for total proceeds of $0.4 million (January 2, 2016 – $0.4 million; January 3, 2015
– $0.5 million). As at December 31, 2016, 1,173,960 common shares are remaining to be granted under this plan.
Warrants
On January 29, 2015, the Company received proceeds of $0.8 million on the exercise of warrants issued by the Company on
February 5, 2010 to purchase 250,000 common shares at an exercise price of $3.25 per share, and, on June 4, 2015, the Company
received proceeds of $3.1 million on the exercise of warrants issued by the Company on June 11, 2010 to purchase 600,000
common shares at an exercise price of $5.11 per share. These warrants had been issued by the Company in exchange for
external advisory services. As at December 31, 2016 and January 2, 2016, the Company had no remaining issued and
outstanding warrants.
SUNOPTA INC.
-F37-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
15. Other Expense (Income), Net
The components of other expense (income) are as follows:
Impairment of long-lived assets(1)
Legal settlement(2)
Severance and rationalization costs(3)
Product withdrawal and recall costs(4)
Business development costs(5)
Loss (gain) on sale of assets
Increase (decrease) in fair value of contingent
consideration(6)
Other
(1) Impairment of long-lived assets
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
13,257
9,000
4,186
2,838
233
145
(1,158)
(209)
28,292
-
-
2,936
-
7,767
251
884
313
12,151
-
-
312
-
261
(1,386)
(1,373)
(34)
(2,220)
On December 27, 2016, the Board approved the closure of the Company’s soy extraction facility located in Heuvelton,
New York. The Company determined that its ingredients processing facility in Alexandria, Minnesota, could absorb the
production volume from the Heuvelton facility, while continuing to meet the needs of its customers. Based on the location
and use of the Heuvelton facility, the Company recorded an impairment loss of $1.2 million in the fourth quarter of 2016,
to write down the carrying value of the associated long-lived assets to a nominal salvage value. The closure of the
Heuvelton facility occurred on January 10, 2017. The facility is included in the Consumer Products operating segment.
On November 8, 2016, the Board approved the closure of the Company’s juice facility located in San Bernardino,
California, following a review and evaluation of commercial and operational developments that impacted the facility. In
particular, the Company identified a need for significant investment in new packaging and processing capabilities in order
to satisfy packaging format changes demanded by the facility’s largest customer. In addition, the Company was
unsuccessful in contracting sufficient supply of raw citrus fruit for the upcoming season to allow for effective and efficient
use of the facility’s extraction capabilities. This supply chain challenge is expected to continue for the foreseeable future,
and while the Company has secured sufficient supply of extracted juice to meet its production requirements, the Company
determined that it would be more beneficial to transfer its juice production from the facility to contract manufacturers with
whom the Company has ongoing relationships. Accordingly, the Company decided not to make further capital investments
in support of the bottling or extraction areas of the facility. As a result, the Company determined that the carrying value
of the long-lived assets of $10.9 million was not recoverable and that the assets were impaired. In the third quarter of
2016, the Company recorded an impairment loss of $10.3 million to write down the carrying value of these assets to their
estimated fair value. Fair value was determined based on market prices for comparable assets, which represent level 2
inputs. The closure of the San Bernardino facility occurred on December 28, 2016. On February 28, 2017, the Company
incurred approximately $3.0 million of additional costs related to the early termination of equipment leases associated with
the facility, which will be recognized in other expense in the first quarter of 2017. This facility is included in the Consumer
Products operating segment.
In the first quarter of 2016, the Company recorded an impairment loss of $1.7 million related to the write-off of leasehold
improvements at its Buena Park, California frozen fruit processing facility, following the transfer of all production volume
from this facility into Sunrise’s facilities located in Kansas and California. The Buena Park facility is included in the
Consumer Products operating segment.
SUNOPTA INC.
-F38-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(2) Legal settlement
In 2016, the Company recorded a charge of $9.0 million in connection with the settlement of a complaint filed by Plum,
PBC (“Plum”) that arose out of a voluntary recall by Plum of certain resealable pouch products manufactured at the
Company’s Allentown, Pennsylvania facility in 2013 (see note 21). In 2013, the Company had previously recorded a $5.2
million provision for the expected loss associated with this recall, which reflected at that time the amount due to the
Company for product sold to Plum that was subject to the recall, as well as the carrying value of recalled product still in
inventory at the Company. The previously recorded provision did not include any potential amounts payable in connection
with the settlement of litigation relating to the voluntary recall.
(3) Severance and rationalization costs
For the year ended December 31, 2016, severance and rationalization costs included contractual severance benefits of $1.5
million and previously unrecognized stock-based compensation expense of $0.2 million recognized in connection with the
departure of Mr. Jacobs as President and CEO effective November 11, 2016, as well as costs for employees affected by
the closures of the Company’s Heuvelton, San Bernardino and Buena Park facilities (see (1) above).
For the year ended January 2, 2016, employee severance costs included contractual severance benefits of $1.2 million and
previously unrecognized stock-based compensation expense of $0.9 million recognized in connection with the departure
of Mr. Bromley as CEO effective October 1, 2015.
(4) Product withdrawal and recall costs
For the year ended December 31, 2016, the Company recognized costs of $1.9 million related to the voluntary withdrawal
of certain consumer-packaged products due to quality-related issues, as well as $0.9 million in connection with the recall
of certain roasted sunflower kernel products (see note 4).
(5) Business development costs
For the year ended January 2, 2016, business development costs included transaction costs incurred in connection with the
acquisitions of Sunrise, Niagara Natural and Citrusource (see note 2).
(6) Fair value of contingent consideration
For the year ended December 31, 2016, the decrease in the fair value of contingent consideration reflects the gain on
settlement of the Niagara Natural obligation. For the year ended January 2, 2016, the increase in fair value reflects the
accretion for the time value of money related to the Citrusource and Niagara Natural obligations, as well as the contractual
amount owing to former shareholders of OLC. For the year ended January 3, 2015, the decrease in fair value reflects the
settlement of the earn-out related to the acquisition of Edner of Nevada, Inc., which was acquired by the Company in
December 2010.
16. Impairment Loss on Investment
On October 31, 2014, Enchi completed the sale of its yeast business in exchange for cash and certain royalty rights based on
future sales of the yeast products by the purchaser. As a consequence of this sale, the Company estimated that its investment
in equity securities of Enchi was fully impaired and that the impairment was other-than-temporary. As a result, the Company
recorded an impairment loss on investment of $11.9 million on the statement of operations in 2014, to write off the remaining
carrying value of its equity investment. The Company also estimated that the fair value of its $1.4 million investment in
convertible subordinated notes of Enchi was $4.8 million, including the value ascribed to the accelerated payment option
embedded in the notes (see note 5). As a result, the Company recognized a gain on its investment in debt securities of Enchi
of $3.4 million in 2014, which was recorded as a net amount against the impairment loss on investment on the statement of
operations.
SUNOPTA INC.
-F39-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
17. Income Taxes
The provision for (recovery of) income taxes differs from the amount that would have resulted from applying the combined
Canadian federal and provincial statutory income tax rate to earnings (loss) from continuing operations before income taxes
due to the following:
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
Earnings (loss) from continuing operations before
income taxes
Canadian statutory rate
Income tax provision (recovery) at statutory rate
Foreign tax rate differential
Change in unrecognized tax benefits
Change in valuation allowance
Goodwill impairment loss
Impact of other non-deductible expenses
Impact of changes in enacted tax rates
Impact of non-deductible acquisition expenses
Impairment loss on investment
Benefits of losses and credits not previously
recognized
U.S. domestic manufacturing deduction
Other
Provision for (recovery of) income taxes
(74,361)
26.5%
(19,706)
(11,329)
(1,268)
(267)
6,841
1,238
90
-
-
-
-
604
(23,797)
(6,522)
26.5%
(1,728)
(3,097)
(855)
4,015
-
1,190
(208)
910
(4,029)
-
-
412
(3,390)
31,533
26.5%
8,356
3,570
(335)
1,082
-
-
(161)
-
1,122
(621)
(906)
(64)
12,043
The components of earnings (loss) from continuing operations before income taxes are shown below:
Canada
U.S.
Other
December 31, 2016
$
9,811
(93,941)
9,769
(74,361)
January 2, 2016
$
6,038
(20,028)
7,468
(6,522)
January 3, 2015
$
(4,400)
31,469
4,464
31,533
SUNOPTA INC.
-F40-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
The components of the provision for (recovery of) income taxes are shown below:
Current income tax provision (recovery):
Canada
U.S.
Other
Deferred income tax provision (recovery):
Canada
U.S.
Other
Provision for (recovery of) income taxes
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
3,560
(1,293)
3,664
5,931
(12)
(29,463)
(253)
(29,728)
(23,797)
-
(1,982)
2,300
318
2,484
(5,971)
(221)
(3,708)
(3,390)
-
14,626
1,064
15,690
2,741
(6,397)
9
(3,647)
12,043
Deferred income taxes of the Company are comprised of the following:
Differences in property, plant and equipment
and intangible assets
Capital and non-capital losses
Tax benefit of scientific research expenditures
Tax benefit of costs incurred during share issuances
Inventory basis differences
Accrued interest
Other accrued reserves
Less: valuation allowance
Net deferred income tax liability
The components of the deferred income tax asset (liability) are shown below:
Canada
U.S.
Other
December 31, 2016
$
January 2, 2016
$
(87,833)
31,494
1,199
944
5,761
3,356
10,653
(34,426)
9,090
(43,516)
(91,368)
22,077
(170)
1,259
(1,712)
-
5,895
(64,019)
9,347
(73,366)
December 31, 2016
$
1,045
(43,668)
(893)
(43,516)
January 2, 2016
$
958
(73,244)
(1,080)
(73,366)
SUNOPTA INC.
-F41-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
The components of the deferred income tax valuation allowance are as follows:
Balance, beginning of year
Increase in valuation allowance
Foreign exchange
Balance, end of year
December 31, 2016
$
9,347
(267)
10
9,090
January 2, 2016
$
5,332
4,015
-
9,347
The Company has approximately $0.0 million and $0.4 million (January 2, 2016 – $0.1 million and $0.3 million) in Canadian and
U.S. federal scientific research investment tax credits and $0.8 million (January 2, 2016 – $0.7 million) in U.S. State research and
development tax credits, which will expire in varying amounts up to 2029.
The Company has U.S. federal non-capital loss carry-forwards of approximately $51.3 million as at December 31, 2016 (January
2, 2016 – $29.7 million). The Company also has state loss carry-forwards of approximately $64.2 million as at December 31,
2016 (January 2, 2016 – $10.2 million). The amounts are available to reduce future federal and provincial/state income taxes.
Non-capital loss carry-forwards attributable to the U.S. expire in varying amounts over the next 20 years.
The Company has Canadian capital losses of approximately $29.7 million as at December 31, 2016 (January 2, 2016 – $0.1
million) for which a full valuation allowance exists. These amounts are available to reduce future capital gains and do not expire.
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making
such determinations, the Company considers all available positive and negative evidence, including future reversals of existing
temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Based on this
evaluation, a valuation allowance of $9.1 million (January 2, 2016 – $9.3 million) has been recorded against certain assets to
reduce the net benefit recorded in the consolidated financial statements.
Undistributed earnings of the Company’s non-Canadian affiliates and associated companies are considered to be indefinitely
reinvested; accordingly, no provision for deferred taxes has been provided thereon.
The Company believes it has adequately examined its tax positions taken or expected to be taken in a tax return; however, amounts
asserted by taxing authorities could differ from the Company’s positions. Accordingly, additional provisions on federal, provincial,
state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are
settled or otherwise resolved. A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest
and penalties) is presented below:
Balance, beginning of year
Reductions in tax positions of prior years
Balance, end of year
December 31, 2016
$
1,720
(1,268)
452
January 2, 2016
$
2,575
(855)
1,720
The Company’s unrecognized tax benefits largely include a possible reduction to prior year losses for U.S. exposures relating
to the deductibility of certain interest amount accrued. The Company estimates that the remaining $0.5 million of the above
unrecognized tax benefits will be realized during the next 12 months. Consistent with its historical financial reporting, the
Company has classified interest and penalties related to income tax liabilities, when applicable, as part of interest expense in
its consolidated statements of operations, and with the related liability on the consolidated balance sheets. All of the
unrecognized tax benefits could impact the Company’s effective tax rate if recognized.
The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions
include Canada (including Ontario) the U.S. (including multiple states), and the Netherlands. The Company’s 2009 through
2015 tax years (and any tax year for which available non-capital loss carry-forwards were generated up to the amount of non-
December 31, 2016 10-K
SUNOPTA INC.
-F42-
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
capital loss carry-forward) remain subject to examination by the Internal Revenue Service for U.S. federal tax purposes, and
the 2009 through 2015 tax years remain subject to examination by the appropriate governmental agencies for Canadian federal
tax purposes. There are other ongoing audits in various other jurisdictions that are not considered material to the Company’s
consolidated financial statements.
18. Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share were calculated as follows (shares in thousands):
Numerator for basic earnings (loss) per share:
Earnings (loss) from continuing operations, less amounts
attributable to non-controlling interests
Less: dividends and accretion on Series A Preferred Stock
Earnings (loss) from continuing operations available to
common shareholders
Loss from discontinued operations attributable to SunOpta Inc.
Earnings (loss) available to common shareholders
Denominator for basic earnings (loss) per share:
Basic weighted-average number of shares outstanding
Basic earnings (loss) per share:
- from continuing operations
- from discontinued operations
Numerator for diluted earnings (loss) per share:
Earnings (loss) from continuing operations, less amounts
attributable to non-controlling interests
Less: dividends and accretion on Series A Preferred Stock(1)
Earnings (loss) from continuing operations available to
common shareholders
Loss from discontinued operations attributable to SunOpta Inc.
Earnings (loss) available to common shareholders
Denominator for diluted earnings (loss) per share:
Basic weighted-average number of shares outstanding
Dilutive effect of the following:
Series A Preferred Stock(1)
Stock options and warrants(2)
Diluted weighted-average number of shares outstanding
Diluted earnings (loss) per share:
- from continuing operations
- from discontinued operations
December 31,
2016
January 2, 2016
January 3, 2015
$
$
$
$
$
$
$
$
(50,618) $
(1,812)
(2,996) $
-
(52,430)
(570)
(53,000) $
(2,996)
(19,475)
(22,471) $
19,295
-
19,295
(6,194)
13,101
85,569
72,408
66,835
(0.61) $
(0.01)
(0.62) $
(0.04) $
(0.27)
(0.31) $
0.29
(0.09)
0.20
(50,618) $
(1,812)
(2,996) $
-
(52,430)
(570)
(53,000) $
(2,996)
(19,475)
(22,471) $
19,295
-
19,295
(6,194)
13,101
85,569
72,408
66,835
-
-
85,569
-
-
72,408
(0.61) $
(0.01)
(0.62) $
(0.04) $
(0.27)
(0.31) $
-
1,535
68,370
0.28
(0.09)
0.19
SUNOPTA INC.
-F43-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(1) For the year ended December 31, 2016, 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 2,670,320 Common
Shares issuable on an if-converted basis.
(2) For the years ended December 31, 2016 and January 2, 2016, stock options to purchase 66,166 and 54,316 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 years ended December 31, 2016, January 2, 2016 and January 3, 2015,
options to purchase 2,321,448, 856,492 and 63,000 Common Shares were anti-dilutive because the exercise prices of
these options were greater than the average market price.
19. Supplemental Cash Flow Information
Changes in non-cash working capital, net of
businesses acquired:
Accounts receivable
Inventories
Income tax recoverable
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Customer and other deposits
Cash paid for:
Interest
Income taxes
20. Related Party Transactions
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
(39,857)
(16,107)
22,868
(242)
23,221
(2,774)
(12,891)
28,651
1,781
17,404
(25,732)
(9,782)
(2,044)
15,242
1,227
(3,685)
10,496
10,526
(17,881)
(10,380)
3,735
(2,152)
1,842
518
(24,318)
3,725
12,351
The following table summarizes transactions between the Company and related parties:
Sales of agronomy products(1)
Purchases of fruits, grains and seeds(2)
Sales of coffee beans(3)
Rent paid(4)
December 31, 2016
$
488
14,867
1,896
976
January 2, 2016
$
906
2,340
1,395
1,002
January 3, 2015
$
276
1,106
1,274
396
(1) Represents sales of agronomy products to employees and a former director at market prices, which are included in revenues
on the consolidated statements of operations.
(2) Represents purchases of raw fruit and fruit processing services at market prices from non-controlling shareholders of
Sunrise’s Mexican subsidiary, as well as purchases of grains and seeds at market prices from employees and a former director,
which are included in cost of goods sold on the consolidated statements of operations.
(3) Represents the sale of coffee beans at market prices from TOC to a company that is owned by the non-controlling shareholder
of Trabocca B.V., a less-than-wholly-owned subsidiary of TOC. These sales are included in revenues on the consolidated
statement of operations.
SUNOPTA INC.
-F44-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(4) Represents rental payments at market rates for the lease of production, warehouse and/or office facilities from former owners
or shareholders of acquired businesses who remain employed by the Company. These payments are included in cost of goods
sold or selling, general and administrative expenses on the consolidated statements of operations.
21. Commitments and contingencies
Plum Dispute
Plum, a Delaware public benefit corporation and a subsidiary of Campbell Soup Company (“Campbell”), and SunOpta Global
Organic Ingredients, Inc., a wholly-owned subsidiary of the Company (“SGOI”), are parties to a manufacturing and packaging
agreement dated September 21, 2011 (the “Plum Manufacturing Agreement”). Pursuant to the Plum Manufacturing Agreement,
SGOI agreed to manufacture and package certain food items for Plum at SGOI’s Allentown, Pennsylvania facility in accordance
with Plum’s specifications regarding, among other things, product ingredients and packaging, manufacturing processes, and
quality control standards. On November 8, 2013, Plum initiated a voluntary recall of certain products manufactured by SGOI
at its Allentown facility. On February 3, 2015, Plum filed a complaint against SGOI in the Lehigh County Court of Common
Pleas in Allentown, Pennsylvania. On April 13, 2015, Plum filed an amended complaint adding packaging manufacturer and
supplier Cheer Pack North America (“Cheer Pack”) as a Defendant. SGOI asserted counterclaims against Plum, crossclaims
against Cheer Pack and third-party claims against Gualapack S.p.A (“Gualapack”), Hosokawa Yoko, Co. (“Hosokawa”),
Secure HY Packaging Co., Ltd. (“SHY”) and CDF Corporation (“CDF”). Cheer Pack asserted cross-claims against SGOI.
Plum alleged it initiated the recall in response to consumer complaints of bloated packaging and premature spoilage of certain
products, which could lead to gastrointestinal symptoms and discomfort if consumed. Plum alleged that the spoilage of its
products resulted from a post-processing issue at SGOI’s Allentown facility. Plum sought unspecified damages equal to the
direct costs of the recall and handling of undistributed product, incidental and consequential damages, lost profits and attorneys’
fees.
On July 29, 2016, SGOI entered into a Mutual Release and Settlement Agreement (the “Settlement Agreement”) with Plum,
Campbell, Cheer Pack, Gualapack, Hosokawa, CDF and SHY. The Settlement Agreement resolved the disputed issues among
the parties in connection with the litigation filed by Plum against SGOI, as described above. Pursuant to the terms of the
Settlement Agreement, the Company paid Campbell $5.0 million in cash and will provide Campbell with rebates of up to $4.0
million over a four-year period in connection with Plum’s purchases of pouch products and Campbell’s purchases of aseptic
broth products pursuant to manufacturing and supply agreements, as amended, between the parties and their affiliates. In order
for Campbell to obtain the full $4.0 million in rebates, Plum and Campbell must order certain minimum quantities of pouch
products and aseptic broth products within each of the designated twelve-month periods over the four-year rebate period. In
connection with the Settlement Agreement, the Company recorded a charge of $9.0 million in 2016 (see note 15), as the
Company believes there is reasonable assurance that the minimum order quantities will be achieved.
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. (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 approximately 8,500 to 9,000 non-exempt hourly
employees from Sunrise’s production facilities in Santa Maria and Oxnard, California. The parties are currently engaged in
pre-class certification discovery. The Company is unable to estimate any potential liabilities relating to this proceeding, and
any such liabilities could be material.
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.
-F45-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Environmental Laws
The Company believes that, with respect to both its operations and real property, it is in material compliance with current
environmental laws. Based on known existing conditions and the Company’s experience in complying with emerging
environmental issues, the Company is of the view that future costs relating to environmental compliance will not have a material
adverse effect on its consolidated financial position, but there can be no assurance that unforeseen changes in the laws or
enforcement policies of relevant governmental bodies, the discovery of changed conditions on the Company’s real property or
in its operations, or changes in the use of such properties and any related site restoration requirements, will not result in the
incurrence of significant costs.
Grain Held for Others
As at December 31, 2016, the Company held grain for the benefit of others in the amount of $0.5 million (January 2, 2016 –
$1.7 million). The Company is liable for any deficiencies of grade or shortage of quantity that may arise in connection with
such grain.
Letters of Credit
The Company has outstanding letters of credit at December 31, 2016 totaling $4.3 million (January 2, 2016 – $4.2 million).
Real Property Lease Commitments
The Company has entered into various leasing arrangements, which have fixed monthly rents that are adjusted annually each
year for inflation.
Minimum commitments under operating leases, principally for processing facilities, warehouse and distribution facilities, and
equipment for the next five fiscal years and thereafter are as follows:
2017
2018
2019
2020
2021
Thereafter
$
26,959
23,834
19,983
16,187
7,703
12,477
107,143
In the years ended December 31, 2016, January 2, 2016 and January 3, 2015, net minimum rents, including contingent rents and
sublease rental income, were $27.9 million, $21.6 million and $15.0 million, respectively.
22. Segmented Information
The composition of the Company’s reportable segments is as follows:
(cid:2) 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 specialty and organic
grains and seeds, raw material ingredients, value-added grain- and cocoa-based ingredients, and organic commodities.
(cid:2) Consumer Products consists of three main commercial platforms: Healthy Beverages, Healthy Fruit and Healthy
Snacks. Healthy Beverages includes aseptic packaged products including non-dairy and 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
includes fruit snacks; nutritional and protein bars; and resealable pouch products.
SUNOPTA INC.
-F46-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
In addition, Corporate Services provides a variety of management, financial, information technology, treasury and
administration services to each of the SunOpta Foods operating segments from the Company’s headquarters in Mississauga,
Ontario and administrative office in Edina, Minnesota.
When reviewing the operating results of the Company’s operating segments, management uses segment revenues from external
customers and segment operating income to assess performance and allocate resources. Segment operating income excludes
other income/expense items and goodwill impairment losses. In addition, interest expense and income amounts, and provisions
for income taxes are not allocated to the operating segments.
Segment Revenues and Operating Income
Reportable segment operating results for the years ended December 31, 2016, January 2, 2016 and January 3, 2015 were as
follows:
December 31, 2016
Segment revenues from external customers
Segment operating income
Corporate Services
Other expense, net (see note 15)
Goodwill impairment (see note 9)
Interest expense, net
Loss from continuing operations before income taxes
Segment revenues from external customers
Segment operating income
Corporate Services
Other expense, net (see note 15)
Interest expense, net
Loss from continuing operations before income taxes
Segment revenues from external customers
Segment operating income
Corporate Services
Other income, net (see note 15)
Interest expense, net
Impairment loss on investment (see note 16)
Earnings from continuing operations before income taxes
Global
Ingredients
$
574,295
26,787
Consumer
Products
$
772,436
1,206
Global
Ingredients
$
610,890
28,184
Consumer
Products
$
534,244
3,208
Global
Ingredients
$
619,066
26,274
Consumer
Products
$
483,679
27,872
Consolidated
$
1,346,731
27,993
(13,247)
(28,292)
(17,540)
(43,275)
(74,361)
January 2, 2016
Consolidated
$
1,145,134
31,392
(10,094)
(12,151)
(15,669)
(6,522)
January 3, 2015
Consolidated
$
1,102,745
54,146
(12,449)
2,220
(3,943)
(8,441)
31,533
SUNOPTA INC.
-F47-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Segment Assets
Total assets and goodwill by reportable segment as at December 31, 2016 and January 2, 2016 were as follows:
Segment assets:
Global Ingredients
Consumer Products
Total segment assets
Corporate Services
Assets held for sale
Total assets
Segment goodwill:
Global Ingredients
Consumer Products
Total segment goodwill
December 31, 2016
$
January 2, 2016
$
304,149
776,405
1,080,554
49,004
-
1,129,558
8,255
215,356
223,611
321,962
812,796
1,134,758
20,115
64,330
1,219,203
25,990
215,700
241,690
Segment Capital Expenditures, Depreciation and Amortization
Capital expenditures, depreciation and amortization by reportable segment for the years ended December 31, 2016, January 2,
2016 and January 3, 2015 were as follows:
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
Segment capital expenditures:
Global Ingredients
Consumer Products
Total segment capital expenditures
Corporate Services
Total capital expenditures
Segment depreciation and amortization:
Global Ingredients
Consumer Products
Total segment depreciation and amortization
Corporate Services
Total depreciation and amortization
4,767
14,586
19,353
3,207
22,560
6,406
25,532
31,938
2,212
34,150
5,872
21,529
27,401
3,785
31,186
6,352
12,814
19,166
1,841
21,007
6,140
8,209
14,349
3,322
17,671
6,668
7,562
14,230
1,411
15,641
SUNOPTA INC.
-F48-
December 31, 2016 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, January 2, 2016 and January 3, 2015
(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Geographic Information
The Company’s assets, operations and employees are principally located in the U.S., Canada, Europe, Mexico and Ethiopia.
Revenues from external customers are attributed to countries based on the location of the customer. Revenues from external
customers by geographic area for the years ended December 31, 2016, January 2, 2016 and January 3, 2015 were as follows:
Revenues from external customers:
U.S.
Canada
Europe and other
Total revenues from external customers
December 31, 2016
$
January 2, 2016
$
January 3, 2015
$
1,084,199
30,959
231,573
1,346,731
893,637
33,291
218,206
1,145,134
855,967
32,910
213,868
1,102,745
Long-lived assets consist of property, plant and equipment, net of accumulated depreciation, which are attributed to countries
based on the physical location of the assets. Long-lived assets by geographic area as at December 31, 2016 and January 2,
2016 were as follows:
Long-lived assets:
U.S.
Canada
Europe and other
Total long-lived assets
Major Customers
December 31, 2016
$
January 2, 2016
$
133,335
3,346
25,558
162,239
146,457
3,664
26,392
176,513
For the year ended December 31, 2016, Costco accounted for approximately 11% of consolidated revenues. Revenues from
Costco are included in the Consumer Products operating segment. The Company did not have any customers that exceeded
10% of total revenues for the years ended January 2, 2016 and January 3, 2015.
SUNOPTA INC.
-F49-
December 31, 2016 10-K
Supplemental financial information (unaudited)
Summarized below is the Consolidated Statement of Operations for the quarters ended December 31, 2016, October 1, 2016,
July 2, 2016 and April 2, 2016, as well as the fiscal 2015 quarterly comparatives.
December 31, 2016
$
Quarter ended
January 2, 2016
$
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense, net(1)
Goodwill impairment(2)
Foreign exchange gain
Loss from continuing operations before the following
Interest expense, net
Loss from continuing operations before income taxes
Recovery of income taxes
Loss from continuing operations
Loss from discontinued operations, net of income taxes and non-
controlling interest
Loss
Earnings (loss) attributable to non-controlling interests
Loss attributable to SunOpta Inc.
Loss per share - basic
-from continuing operations
-from discontinued operations
Loss per share - diluted
-from continuing operations
-from discontinued operations
297,539
280,496
17,043
26,005
2,810
5,569
17,540
(1,817)
(33,064)
8,527
(41,591)
(8,165)
(33,426)
-
(33,426)
50
(33,476)
(0.41)
-
(0.41)
(0.41)
-
(0.41)
316,378
291,148
25,230
24,723
2,846
7,758
-
(595)
(9,502)
12,498
(22,000)
(8,228)
(13,772)
(16,516)
(30,288)
(220)
(30,068)
(0.16)
(0.19)
(0.35)
(0.16)
(0.19)
(0.35)
(1) Fourth quarter of 2016 includes the impairment of long-lived assets of $1.2 million associated with closure of the Heuvelton, New York facility (see note
(2) Fourth quarter of 2016 reflects the impairment of goodwill associated with the sunflower reporting unit (see note 9 to the consolidated financial
15 to the consolidated financial statements).
statements).
SUNOPTA INC.
-F50-
December 31, 2016 10-K
Supplemental financial information (unaudited) continued
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense, net(1)
Foreign exchange loss
Earnings from continuing operations before the following
Interest expense, net
Loss from continuing operations before income taxes
Recovery of income taxes
Loss from continuing operations
Earnings from discontinued operations, net of income taxes and
non-controlling interest
Earnings (loss)
Earnings (loss) attributable to non-controlling interests
Earnings (loss) attributable to SunOpta Inc.
Earnings (loss) per share - basic
-from continuing operations
-from discontinued operations
Earnings (loss) per share - diluted
-from continuing operations
-from discontinued operations
October 1, 2016
$
Quarter ended
October 3, 2015
$
348,732
307,702
41,030
23,915
2,826
10,312
1,068
2,909
12,178
(9,269)
(5,411)
(3,858)
-
(3,858)
(503)
(3,355)
(0.04)
-
(0.04)
(0.04)
-
(0.04)
277,213
250,904
26,309
21,020
786
3,652
404
447
1,103
(656)
(568)
(88)
508
420
106
314
-
0.01
-
-
0.01
-
(1) Third quarter of 2016 includes the impairment of long-lived assets of $10.3 million associated with closure of the San Bernardino, California facility (see
note 15 to the consolidated financial statements).
SUNOPTA INC.
-F51-
December 31, 2016 10-K
Supplemental financial information (unaudited) continued
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense, net
Foreign exchange loss (gain)
Earnings from continuing operations before the following
Interest expense, net
Earnings (loss) from continuing operations before income taxes
Provision for (recovery of) income taxes
Earnings (loss) from continuing operations
Loss from discontinued operations, net of income taxes and non-
controlling interest
Earnings (loss)
Earnings attributable to non-controlling interests
Earnings (loss) attributable to SunOpta Inc.
Earnings (loss) per share - basic
-from continuing operations
-from discontinued operations
Earnings (loss) per share - diluted
-from continuing operations
-from discontinued operations
July 2, 2016
$
Quarter ended
July 4, 2015
$
348,146
312,168
35,978
24,489
2,824
8,433
(180)
412
11,548
(11,136)
(7,135)
(4,001)
-
(4,001)
123
(4,124)
(0.05)
-
(0.05)
(0.05)
-
(0.05)
277,594
247,941
29,653
19,314
694
637
653
8,355
1,141
7,214
2,385
4,829
(2,747)
2,082
33
2,049
0.07
(0.04)
0.03
0.07
(0.04)
0.03
SUNOPTA INC.
-F52-
December 31, 2016 10-K
Supplemental financial information (unaudited) continued
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense, net(1)
Foreign exchange loss (gain)
Earnings (loss) from continuing operations before the following
Interest expense, net
Earnings (loss) from continuing operations before income taxes
Provision for (recovery of) income taxes
Earnings (loss) from continuing operations
Loss from discontinued operations, net of income taxes and non-
controlling interest
Earnings (loss)
Earnings (loss) attributable to non-controlling interests
Earnings (loss) attributable to SunOpta Inc.
Earnings (loss) per share - basic
-from continuing operations
-from discontinued operations
Earnings (loss) per share - diluted
-from continuing operations
-from discontinued operations
April 2, 2016(1)
$
Quarter ended
April 4, 2015
$
352,314
320,413
31,901
24,272
2,822
3,978
2,172
(1,343)
11,022
(12,365)
(3,086)
(9,279)
(570)
(9,849)
384
(10,233)
(0.11)
(0.01)
(0.12)
(0.11)
(0.01)
(0.12)
273,949
244,779
29,170
20,697
625
104
(2,103)
9,847
927
8,920
3,021
5,899
(720)
5,179
(55)
5,234
0.09
(0.01)
0.08
0.09
(0.01)
0.08
(1) First quarter of 2016 includes the impairment of long-lived assets of $1.7 million associated with closure of the Buena Park, California facility (see note
15 to the consolidated financial statements).
SUNOPTA INC.
-F53-
December 31, 2016 10-K
LIST OF SUBSIDIARIES
Name of Company
SunOpta Foods Inc.
SunOpta Investments Ltd.
SunOpta Companies Inc.
SunOpta Grains and Foods Inc.
SunOpta Global Organic Ingredients, Inc.
SunOpta Africa (Proprietary) Limited
Cooperatie SunOpta U.A.
The Organic Corporation B.V.
Tradin Organics USA LLC
(conversion of Tradin Organics USA, Inc.)
Organic Land Corporation OOD
SunOpta Foods Bulgaria EOOD
Crown of Holland B.V.
Selet Hulling Corporation PLC
SunOpta Food (Dalian) Co., Ltd.
Trabocca B.V.
Supreme Smallholders Coffee PLC
Fogo Coffee Spirit LDA
SunOpta Foods Europe B.V.
(formerly Internamtrade B.V.)
Tradin Organic Agriculture B.V.
Servicios SunOpta, S. De R. L.De C.V.
SunOpta de Mexico, S. De R. L.De C.V.
Citrusource, LLC
Sunrise Holdings (Delaware), Inc.
Sunrise Growers, Inc.
Farm Capital Incorporated
Pacific Ridge Farms, LLC
Exhibit 21
Year of
Incorporation,
Amalgamation or
Acquisition
Jurisdiction of
Incorporation
Ownership
2010
2002
2013
2010
2007
2009
2008
2008
2013
2012
2012
2012
2007
2008
2008
2008
2013
2008
2008
2007
2007
2015
2015
2015
2015
2015
Delaware
Canada
Minnesota
Minnesota
California
South Africa
The Netherlands
The Netherlands
Delaware
Bulgaria
Bulgaria
The Netherlands
Ethiopia
China
The Netherlands
Ethiopia
Cabo Verde
The Netherlands
The Netherlands
Mexico
Mexico
Delaware
Delaware
Delaware
Delaware
Indiana
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
76%
100%
65%
52%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Name of Company
Sunrise Growers Mexico, S.R.L. de C.V.
Opus Foods Mexico, S.A. de C.V.
Enchi Corporation
(formerly Mascoma Corporation)
Year of
Incorporation,
Amalgamation or
Acquisition
2015
2015
2010
Jurisdiction of
Incorporation
Ownership
Mexico
Mexico
Delaware
100%
75%
18.7%
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-191777, 333-161662, 333-144827, 333-
124911, 333-176675 and 333-211873 on Form S-8 and Registration Statement No. 333-197235 on Form S-3 of our reports
dated March 2, 2017, relating to the consolidated financial statements of SunOpta Inc. and subsidiaries (the “Company”), and
the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of
SunOpta Inc. for the year ended December 31, 2016.
Exhibit 23.1
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
March 2, 2017
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, David Colo, certify that:
(1)
(2)
(3)
(4)
I have reviewed this Annual Report on Form 10-K of SunOpta Inc.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
(5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
/s/ David Colo
David Colo
President and Chief Executive Officer
SunOpta Inc.
Date: March 2, 2017
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Robert McKeracher, certify that:
(1)
(2)
(3)
(4)
I have reviewed this Annual Report on Form 10-K of SunOpta Inc.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
(5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
/s/ Robert McKeracher
Robert McKeracher
Vice President and Chief Financial Officer
SunOpta Inc.
Date: March 2, 2017
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the annual report of SunOpta Inc. (the “Company”) on Form 10-K for the year ended December 31, 2016,
as filed with the Securities and Exchange Commission (the “Report”), I, David Colo, President and Chief Executive Officer of
the Company, and I, Robert McKeracher, Vice President and Chief Financial Officer of the Company, certify pursuant to 18
U.S.C. Section 1350, that to our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement, or other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement, has been provided to the Company
and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: March 2, 2017
/s/ David Colo
David Colo
President and Chief Executive Officer
SunOpta Inc.
/s/ Robert McKeracher
Robert McKeracher
Vice President and Chief Financial Officer
SunOpta Inc.
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and should not
be deemed to be filed under the Exchange Act by the Company or the certifying officers.
This page intentionally left blank
EXTENSIVE GLOBAL
CAPABILITIES
Publicly Held
NASDAQ - STKL
TSX - SOY
Employees
Approximately 2,000
Headquarters
Mississauga, Ontario, Canada
Locations
Geography
Processing and Packaging: 26
Other: 14
Americas: 31
Europe: 5
Africa: 2
Far East: 2
Currently do business in
approximately 65 countries
2016 ANNUAL REPORT
DIRECTORS AND LEADERSHIP TEAM
Directors
Leadership Team
Shareholder Information
Margaret Shân Atkins (4) (5) (8)
Director
Dr. Albert Bolles (2) (4) (8)
Director
David J. Colo
President and Chief Executive Officer
Rob McKeracher
Vice President and Chief Financial Officer
David J. Colo
President, Chief Executive Officer
and Director
John Ruelle
Senior Vice President, Corporate
Development and RMSS
Gerard Versteegh
Senior Vice President, Global Ingredients
Ed Haft
Senior Vice President, Healthy Fruit
Lillian Barlett
Vice President, Risk Management and
Internal Audit
Jill Barnett
General Counsel and Corporate Secretary
Rob Duchscher
Chief Information Officer
James Gratzek
Senior Vice President, Research &
Development and Quality
Colin Smith
Chief Operating Officer, Consumer
Products
Michael Detlefsen (1) (6) (8)
Director
Dean Hollis (4) (6) (8)
Chair
Katrina Houde (2) (3) (8)
Director
Brendan Springstubb (2) (6) (8)
Director
Gregg Tanner (2) (4) (7)
Director
(1) Chair of Audit Committee
(2) Member of Audit Committee
(3) Chair of Corporate Governance Committee
(4) Member of Corporate Governance Committee
(5) Chair of Compensation Committee
(6) Member of Compensation Committee
(7) Chair of Operations Transformation Committee
(8) Member of Operations Transformation Committee
Corporate Head Office
2233 Argentia Road
Suite 401, West Tower
Mississauga, ON, Canada L5N 2X7
T: (905) 821-9669
F: (905) 819-7971
www.sunopta.com
TRANSFER AGENTS
TSX Trust Company
200 University Avenue, Suite 300
Toronto, ON, Canada M5H 4H1
T: (416) 361-0152
American Stock Transfer & Trust
Company, LLP
6201 15th Ave.
Brooklyn, NY, USA 11219
T: (800) 937-5449
CORPORATE LEGAL COUNSEL
Stoel Rives, LLP
Minneapolis, MN
Wildeboer Dellelce LLP
Toronto, ON, Canada
AUDITORS
Deloitte LLP
Toronto, ON, Canada
ANNUAL MEETING
May 24, 2017 at 4:00 pm
SunOpta Inc.
2233 Argentia Road
Suite 401, West Tower
Mississauga, ON, Canada L5N 2X7
Listed on NASDAQ: STKL and TSX: SOY
SHAREHOLDER COMMUNICATIONS
Copies of SunOpta’s Annual Report, Form
10K (Annual Information Form) and other
Regulatory filings are available on the
Company website www.sunopta.com.
Additional financial information has been
filed electronically with various securities
commissions in Canada through SEDAR
(www.sedar.com) and in the USA through
EDGAR (www.sec.gov). Paper copies are
available without charge.
Please contact:
Beth McGillivary, Senior Executive Assistant
SunOpta Inc.
2233 Argentia Road
Suite 401, West Tower
Mississauga, ON, Canada L5N 2X7
T: (905) 819-7924
F: (905) 819-7971
Email: beth.mcgillivary@sunopta.com
www.sunopta.com
2016 ANNUAL REPORT
Printed in U.S.A., on recycled paper.