2018 Annual Report
OUR PURPOSE
To be the most innovative integrated
provider of organic ingredients and
healthy food solutions across multiple
channels.
KEY STRATEGIES
• Innovate in growing healthy food and
beverage categories.
• Invest in and grow efficient and inte-
grated supply chains.
• Focus on food safety & quality and
best-in-class operational performance.
FINANCIAL HIGHLIGHTS
All dollar amounts in U.S. $ millions, except per share amounts, and in accordance with U.S. GAAP
Revenue
Gross profit
Gross profit percentage
Operating income (1)
2018
2017
2016
1,260.9 1,279.6
1,346.7
123.5
9.8%
3.9
145.1
11.3%
0.8
126.0
9.4%
14.7
Loss from continuing operations attributable to SunOpta Inc.
(109.2)
(135.3)
(50.6)
Loss per share from continuing operations attributable to SunOpta Inc.
$(1.34) $(1.66)
$(0.61)
Adjusted earnings (loss) (2)
Adjusted earnings (loss) per diluted share (2)
Adjusted EBITDA (3)
Total assets
Total debt
Working capital (4)
Net cash flows from operating activities – continuing operations
(24.5)
(12.3)
$(0.28) $(0.14)
52.9
66.8
896.1
982.2
509.2
366.0
(11.1)
462.1
351.6
31.5
Net cash flows from investing activities – continuing operations
(28.8)
(40.1)
5.8
$0.07
81.7
1,129.6
432.6
360.0
0.7
(21.6)
(1)
(2)
(3)
(4)
Operating income is defined as “earnings (loss) from continuing operations before the following” excluding the
impact of other income/expense items and goodwill impairments.
Refer to pages 45, 46, 56 and 57 of the 2018 Form 10-K for a tabular reconciliation of Adjusted earnings (loss)
and Adjusted earnings (loss) per diluted share to the most directly comparable GAAP measure.
Refer to pages 47, 57 and 58 of the 2018 Form 10-K for a tabular reconciliation of Adjusted EBITDA to the most
directly comparable GAAP measure.
Working capital is defined as current assets less current liabilities, excluding cash and cash equivalents, bank
indebtedness, and current portion of long-term debt.
2018 Annual Report
TO OUR SHAREHOLDERS
We have all heard the advice a thousand times from world renowned
nutritionists and our own mothers and fathers – eat more fruits,
vegetables and other whole foods, beware of food additives and
genetic modification, eat natural and organic foods - and so it is with
great enthusiasm that I join one of the leading food companies in the
world dedicated to enabling this simple, powerful advice.
While the business has experienced challenges the opportunity in
this space is without a doubt one of the most exciting in all of food.
Put simply, we are in the business of making healthy eating more
accessible and more affordable for more people through retailer
brands, partner brands and our own brands. In joining SunOpta I join
a team of people dedicated to this mission. For decades we have
been at the forefront of developing and enabling a global ecosystem
of organic ingredient sourcing and healthy food manufacturing that
not only enables healthier eating - it creates a healthier planet. Our
Tradin Organics team sources hundreds of millions of pounds of
organic ingredients from around the world – improving farming
practices and improving the quality of life for our growers. Our
Consumer Products team is focused on making our products more
affordable, more accessible and more nutritious. It is the idea of
enabling healthier eating and a healthier planet that brought me
to SunOpta and it is through this mission that we intend to deliver
shareholder value.
At our core we understand our customers are looking for low costs to
create value for their customers, great quality to create satisfaction
and innovation to stay relevant in an ever-changing landscape. At
SunOpta we are focused on working with each of our customers
around the world to deliver on their unique business needs. We will
continue to work “bad” costs out of the system to remain a low cost
provider and we will invest in innovation and product quality so that
our customers grow because we understand the simple idea that
when they grow, we grow.
Our purpose remains unchanged “to be the most innovative,
integrated provider of organic ingredients and healthy food solutions
across multiple channels”. We are well aligned with consumer trends
towards organic and non-GMO foods, and I believe the acceleration in
growth that we delivered in the fourth quarter affirms our right-to-win
in this attractive market.
Our key strategies to accomplish our purpose are:
1. Innovate in growing and healthy food and beverage categories.
For example, we have long been a leader in the fast-growing cat-
egory of non-dairy beverages, and we expect to continue to grow
in this category with innovations such as oat and hemp milk.
2. Invest in and grow efficient and integrated supply chains. With
Tradin, our organic ingredients sourcing business, we can quickly
2018 Annual Report
identify consumer trends and leverage our sourcing expertise to deliver “field-to-table” innovations
to our consumer products customers, while benefiting from a vertically integrated supply chain.
3. Focus on food safety and quality and best-in-class operational performance. Since 2016, we have
made substantial investments in food safety and quality, which have resulted in meaningful improve-
ment to third-party audit scores of our manufacturing facilities. In addition, our productivity efforts
have taken approximately $30 million of costs out of the business since the launch of the Value
Creation Plan.
While I remain confident in our purpose and strategy, and given our success in many parts of our
portfolio, it is clear the performance of our Healthy Fruit business has not met our expectations.
Accordingly, our top priority in 2019 is to drive long-term margin improvements through our fruit margin
optimization plan. Under this plan, we intend to intensely focus on optimizing our cost base, leveraging
existing capabilities to improve mix and drive innovation in the category, all with the objective of
returning our Healthy Fruit business to historical margin performance over the next 2 crop cycles.
Before I discuss the year ahead, the following is an update on our progress under the Value Creation
Plan.
THE VALUE CREATION PLAN
The Value Creation Plan is a broad-based initiative focused on increasing shareholder value through
strategic investments made in the people and assets of the company to deliver sustained profitable
growth. It is built on four pillars which provide the framework for all our efforts to improve operational
performance and drive long-term sustainable growth and shareholder value.
Pillar One: 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.
Highlights from 2018 include:
• Completed an expansion project at our Mexican frozen fruit facility, which is expected to drive
incremental cost savings, in addition to enhanced profitability from the addition of retail bagging
capabilities while continuing to ensure high quality product and customer service. The increased
freezing and storage capacity also enables further diversification of the fruit varieties sourced from
Mexico, which is also expected to provide long-term cost advantages.
2018 Annual Report
• Completed commissioning of a second roasting and processing line at our organic cocoa facility in
the Netherlands. In addition to adding new capabilities at the facility, this expansion approximately
doubled cocoa processing capacity.
• Completed the commissioning of new roasting equipment at our Crookston, Minnesota, facility. The
new equipment is designed to increase production efficiencies and add incremental capacity and
roasting capabilities in support of demand for on-trend healthy snacks including roasted grains,
seeds and legumes.
• Progressed with the commissioning of a new oil processing line at our Bulgarian sunflower facility,
which is expected to drive incremental margins through growth and production efficiency.
• Initiated an expansion project at our Allentown, Pennsylvania, aseptic beverage facility to add
processing and packaging capacity. This investment is also designed to add enhanced mixing and
processing capabilities that should enable us to bring further innovation to the plant-based beverage
market. The additional processing and filling capacity is also expected to provide increased flexibility
and cost advantages across our network of aseptic plants, while creating needed capacity to
continue to grow our organic and conventional aseptic beverage offerings.
• Completed the sale of the organic and specialty soy and corn business. The decision to divest the
soy and corn business should enable the Company to redeploy capital and human resources to
further enhance the Company’s growing consumer products and international organic sourcing
platforms.
Pillar Two: Operational Excellence
The focus of the operational excellence pillar is to
ensure food quality and safety, coupled with
improved operational performance and efficiency.
We expect these efforts to generate productivity
improvements and cost savings in manufacturing,
procurement and logistics. Highlights from 2018
include:
• Continued to advance food safety and quality
efforts across our entire manufacturing
footprint, which have resulted in positive trends
in third party audit scores versus the prior year,
including an approximately one-third reduction
in consumer complaints in the Healthy Fruit
platform year- over-year.
• Achieved approximately $20 million of productivity-driven margin enhancements in 2018 through
our SunOpta 360 continuous improvement initiative in the areas of manufacturing, purchasing and
supply chain management.
• Invested considerable time and resources into pack plan readiness initiatives across our California
and Mexico fruit facilities in preparation for the 2018 strawberry harvest, resulting in high scores for
fruit quality from enhanced sorting and handling processes, and a rebalancing of inventory levels.
• Approved a significant capital enhancement project to bring new automation and technology to
our California fruit facilities and negotiated a long-term lease at the Santa Maria, California, location,
which will involve the construction by the landlord of an adjacent public cold storage facility. These
enhancements are designed to lower cost and increase productivity and improve quality in the
Healthy Fruit platform.
• Continued to improve operational performance across the network of aseptic facilities, with overall
capacity utilization exceeding 80% in the fourth quarter of 2018.
Pillar Three: 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. Highlights from 2018 include:
2018 Annual Report
• Achieved commercial wins including the introduction of an
innovative oat-based, non-dairy beverage into retail and industrial
channels, expanded distribution of traditional non-dairy products
into retail and broadline foodservice channels, expanded
distribution of everyday broth with a large mass retailer, a new
agreement to provide private label frozen fruit for a specialty
retailer, increased orders for private label frozen fruit items
following a category reset, and increased sales of co-manufactured
fruit snacks.
• Successfully commercialized over 100 new and refreshed everyday
broth and frozen fruit products with large mass and traditional
retailers.
• Retained a retail frozen fruit account that was being re-bid plus
a 14% increase in distribution, and secured a multi-year supply
agreement with a large foodservice operator for aseptic beverage
products.
• Maintained a strong pipeline of commercial opportunities in
Consumer Products, and grew the overall contract book for organic
ingredients both in Europe and the U.S. versus prior year levels.
Pillar Four: Process Sustainability
The focus of the process sustainability pillar is to ensure we have the
infrastructure, systems and skills to sustain the business improvements
and value captured from the Value Creation Plan. Broadening the
skillset and experience of our leadership team is a critical component
to the process sustainability pillar of the Value Creation Plan. Highlights
from 2018 include:
• Enhanced employee health and safety processes resulted in an
over 30% reduction in recordable incidents in 2018 versus the prior
year.
• Enhanced product commercialization capabilities resulted in the
launch of over 100 new and refreshed products across the Healthy
Beverage and Fruit platforms. Combined with our research and
development capabilities, these commercialization processes are
expected to aid in successfully bringing new innovation to market.
• Implemented a new demand planning system that is expected to
enhance our sales and operations planning processes.
• Implemented a new specification system for ingredients that is
designed to drive improved food safety and quality along with
improved research and development efficiencies.
• Added improved capacity planning capabilities across the frozen
fruit and aseptic beverage networks in preparation for business
expansion.
• Consolidated transactional and other support functions of the
Healthy Fruit platform into our North American shared services.
• Completed an enterprise resource planning system implementation
project at the Mexican frozen fruit facility.
THE YEAR AHEAD: FOCUSED ON OPERATIONAL
EFFICIENCY, EXPANSION & REVENUE GROWTH
Looking ahead to 2019, we intend to intensely focus on optimizing our
cost base, leveraging existing capabilities to improve mix, and driving
innovation in the category, all with the objective of returning our
Healthy Fruit business to historical margin performance over the next
2018 Annual Report
two crop cycles. We intend to continue to make the necessary strategic business decisions and structural
investments that we believe will deliver sustained profitable growth and deliver long-term value. The four
pillars of the Value Creation Plan will continue to act as the framework that guides all of our enterprise-
wide objectives. Our focus for 2019 will be in the following two key areas:
Operational Efficiency and Expansion
1. Continued execution of critical efficiency and expansion projects, including:
• New fruit margin optimization plan, which includes the installation and commissioning of new
automation and quality improvement equipment in our California fruit facilities ahead of the 2019
and 2020 strawberry pack seasons, and construction of the new public cold storage facility adjacent
to our Santa Maria facility, all designed to drive margin improvement over the 2019 and 2020 crop
seasons through lower labor and conversion costs, improved yield, and lower overall storage and
freight costs.
• Addition of new filling and processing capacity and capabilities at our Allentown beverage facility
which we expect to complete by the end of the third quarter of 2019.
• Opening of a new organic avocado oil facility located in Ethiopia planned for the second half of
2019.
2. Through the SunOpta 360 continuous improvement initiative in 2019, we are targeting $10 million of
in-year productivity-driven margin enhancement in the areas of manufacturing, purchasing and supply
chain, with a significant portion of this target coming from the fruit margin optimization plan.
2018 Annual Report
Customer Service, Revenue Growth and Margin Accretive Innovation
• Relentless focus on food safety, quality, and service including continued enhancements to our sales
and operations planning processes and capacity planning capabilities.
• Continued efforts to promote growth across the Healthy Fruit, Beverage, and Snack consumer prod-
ucts categories, with a focus on bringing margin accretive innovation to market to increase the num-
ber of value-added products we offer to our customers and targeting approximately 80% capacity
utilization inside the aseptic network by the end of 2019, which includes new capacity expected to
come online in the third quarter of 2019.
• Targeted growth in our Global Ingredients segment, driving our mix of certified organic ingredients to
represent over 80% of the sales in the portfolio, and a goal of achieving 85% capacity utilization in the
recently expanded organic cocoa processing facility by the end of the 2019.
After a short time in this role I can confidently share that the SunOpta team is focused on creating
shareholder value, focused on improving margins and focused on continuing to be a global leader in
healthy eating. Operational excellence, superior product quality, best in class customer service, food
safety and forward leaning product innovation are the priorities of the entire organization. We are
committed to the Value Creation Plan which we firmly believe will deliver shareholder value and create a
strong footing for future growth in revenue and profitability.
I would like to thank all of our shareholders for believing in our Company.
Sincerely,
Joseph D. Ennen
Chief Executive Officer
2018 Annual Report
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 29, 2018
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 every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) 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 (§ 229.405 of this chapter) 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, a smaller reporting
company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 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 June 30, 2018, the last business day of the registrant’s most recently
completed second fiscal quarter, was approximately $600 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 22, 2019 was 87,478,618.
Documents Incorporated by Reference: Portions of the SunOpta Inc. Definitive Proxy Statement for the 2019 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
SUNOPTA INC.
FORM 10-K
For the year ended December 29, 2018
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
Item 16
Exhibits, Financial Statement Schedules
Form 10-K Summary
2
2
5
17
31
32
33
33
34
36
37
67
68
68
69
70
71
71
71
71
71
71
79
SUNOPTA INC.
1
December 29, 2018 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 29, 2018 (“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 presented are expressed in thousands of United States (“U.S.”) dollars (“$”), except per
share amounts, unless otherwise stated. Other amounts may be presented in thousands of Canadian dollars (“C$”), euros (“€”)
and Mexican pesos (“M$”). The following table sets forth, for the periods indicated, the rate of exchange for the Canadian
dollar, euro, and Mexican peso, 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
Mexican Peso
Year
2018
2017
2016
Closing
0.7332
0.7971
0.7448
Average
0.7723
0.7708
0.7548
Closing
1.1446
1.1998
1.0553
Average
1.1812
1.1281
1.1066
Closing
0.0503
0.0509
0.0485
Average
0.0520
0.0530
0.0537
Forward-Looking Statements
This Form 10-K contains forward-looking statements which are based on management’s current expectations and assumptions
and involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or
current facts and are typically accompanied by words such as “anticipate”, “estimate”, “target”, “intend”, “project”, “potential”,
“continue”, “believe”, “expect”, “can”, “could”, “would”, “should”, “may”, “might”, “plan”, “will”, “may”, “predict”,
“budget”, “forecast”, 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 rationalize
certain expenses and redeploy capital to enhance our focus on growing our consumer products and international organic
sourcing platforms following the sale of our soy and corn business; the anticipated benefits of our Value Creation Plan,
including the estimated amount, timing and sustainability of adjusted earnings before income taxes, depreciation and
amortization (“EBITDA”) enhancements; our intention to implement business strategies and operational actions, and make
structural investments under the Value Creation Plan, and the associated timing and costs of these actions; our ability to drive
growth and deliver long-term value; future expectations related to our businesses, including operational growth and expansion
plans, plans to improve profitability, and the global markets for our products; the expected increased capacity utilization
resulting from our aseptic capacity expansion plan and the associated cost and timing; proposed construction of new cold
storage facility at Santa Maria, California; improved revenue growth and profitability as a result of customer and product mix
optimization efforts; and expected enhancements resulting from and timing of implementation of our new demand planning
system; and other statements that are not historical facts. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, including Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are
based on certain assumptions, expectations and analyses we make in light of our experience and our interpretation of current
conditions, historical trends and expected future developments, as well as other factors that we believe are appropriate in the
circumstances.
Whether actual results and developments will be consistent with and meet our expectations and predictions is subject to many
risks and uncertainties. Accordingly, there are 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:
•
•
•
•
•
•
failure or inability to implement our value creation strategies to achieve anticipated benefits;
conflicts of interest between our significant investors and our other stakeholders;
disruptions to our business caused by shareholder activism;
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 29, 2018 10-K
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•
•
•
•
•
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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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;
the potential for impairment charges for goodwill or other intangible assets;
the highly competitive industry in which we operate;
that our customers may choose not to buy products from us;
the potential loss of one or more key customers;
changes and difficulty in predicting consumer preferences for natural and organic food products;
our ability to effectively manage our supply chain;
volatility in the prices of raw materials, freight 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 potential for data breaches and the need to comply with data privacy and protection laws and regulations;
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;
changes in laws or regulations governing climate change;
the enactment of new 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;
SUNOPTA INC.
3
December 29, 2018 10-K
•
•
•
•
•
•
•
•
•
•
our ability to meet the financial covenants under the Global Credit Facility or to obtain necessary waivers from our
lenders;
our ability to effectively manage our growth and integrate acquired companies;
our ability to achieve the estimated benefits or synergies to be realized from business acquisitions;
exposure to unknown liabilities arising from business acquisitions;
unexpected disruptions in our business, including disruptions resulting from business acquisitions;
our 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. Our forward-looking statements are based only on information currently
available to us and speak only as of the date on which they are made. We do not undertake any obligation to publicly update
our forward-looking statements, whether written or oral, after the date of this report for any reason, even if new information
becomes available or other events occur in the future, except as may be required under applicable securities laws. The foregoing
factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are
included in this report. 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 29, 2018 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 also 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:
• Healthy Beverages – We offer a full line of aseptic beverages, comprising non-dairy beverages (including almond,
soy, coconut, oat, hemp, rice and others), broths, teas and nutritional beverages. 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.
• 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.
• Healthy Snacks – We offer fruit snacks (including bars, twists, ropes and bite-sized varieties), and roasted grain and
seed snacks. We believe we are a leading North American provider of premium healthy fruit snacks. During 2017,
we exited our flexible resealable pouch and nutrition bar product lines and operations, which were formerly part of
the Healthy Snacks platform.
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, cocoa and other products as ingredients in both raw
material and processed ingredient forms. In addition to supplying ingredients for 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 generate additional revenue from our global ingredients customers by providing them 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. Our food ingredients are converted from raw materials, and our raw materials are sourced from approximately 5,000
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suppliers encompassing approximately 10,000 growers in over 65 countries. Our employees and assets, which include 20
processing and packaging facilities, are principally located in North 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. The resources of our advanced innovation center in Edina, Minnesota,
support our product development activities, with a dedicated team of food scientists, engineers and technicians, who 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.
Sale of Specialty and Organic Soy and Corn Business
On February 22, 2019, our subsidiary, SunOpta Grains and Foods Inc., completed the sale of our specialty and organic soy and
corn business to Pipeline Foods, LLC (“Pipeline Foods”) for $66.5 million, subject to certain post-closing adjustments. The
soy and corn business engaged in seed and grain conditioning and corn milling and formed part of our North American-based
raw material sourcing and supply operating segment, included in the Global Ingredients reportable segment. The business
included five facilities located in Hope, Minnesota, Blooming Prairie, Minnesota, Ellendale, Minnesota, Moorhead, Minnesota,
and Cresco, Iowa. As part of the transaction, we entered into a multi-year supply agreement with Pipeline Foods for certain
ingredients used in our consumer products business. We will continue to operate our other North American-based sourcing
and supply operations, consisting of sunflower and roasting operations, as well as our European- and U.S.-based organic
ingredient operations, which were not part of the sale.
The sale of the soy and corn business was driven by the portfolio optimization strategy of the Value Creation Plan (see below),
which is designed to simplify our business and exit product lines where we are not effectively positioned to drive long-term
profitable growth. We intend to initially apply the net proceeds from the transaction to reduce debt, and over time redeploy
this capital to further enhance our consumer products and international organic sourcing platforms.
Additional financial information related to this transaction and the soy and corn business can be found at Item 7 of this Annual
Report on Form 10-K. The sale of the soy and corn business was completed after the end of the periods covered by this report
and did not affect our results of operations as reported herein for the fiscal year ended December 29, 2018. Unless otherwise
stated, the disclosures in this report reflect our business as it was conducted during the periods covered by this report, without
giving effect to the sale of the soy and corn business.
Value Creation Plan
On October 7, 2016, we entered into a strategic partnership with Oaktree Capital Management L.P., a private equity investor
(together with its affiliates, “Oaktree”), and, on that date, Oaktree invested $85.0 million through the purchase of cumulative,
non-participating Series A Preferred Stock (the “Preferred Stock”) of our wholly-owned subsidiary, SunOpta Foods Inc.
(“SunOpta Foods”).
Following the strategic partnership, with the assistance of Oaktree, we conducted a thorough review of our operations,
management and governance, with the objective of maximizing our ability to deliver long-term value to our shareholders. As
a product of this review our management and the Board of Directors implemented a Value Creation Plan built on four pillars:
portfolio optimization, operational excellence, go-to-market effectiveness and process sustainability. The Value Creation Plan
is a broad-based initiative focused on increasing shareholder value through strategic investments made to the people and assets
of the Company to deliver sustained profitable growth.
In the first phase of the Value Creation Plan, implemented over 2017 and 2018, we have achieved $30 million of productivity-
driven annualized enhancements to adjusted EBITDA. For 2017, the adjusted EBITDA benefits were offset by expenses
associated with the Value Creation Plan, including structural investments made in the areas of quality, sales, marketing,
operations and engineering resources, and non-structural third-party consulting support, severance and recruiting costs. For
2018, the adjusted EBITDA benefits were offset by a decline in profitability in the frozen fruit platform as a result of sales
price reductions to improve competitive positioning, and higher costs including enhancements in sales, service and quality.
The Value Creation Plan also calls for increased investment in capital upgrades at several manufacturing facilities to continue
to enhance food safety and manufacturing efficiencies and capabilities.
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During 2018, the following actions were taken under each of the four pillars of the Value Creation Plan:
Portfolio Optimization
• Completed an expansion project at our Mexican frozen fruit facility, which is expected to drive incremental cost
savings, in addition to enhanced profitability from the addition of retail bagging capabilities while continuing to ensure
high quality product and customer service. The increased freezing and storage capacity also enables further
diversification of the fruit varieties sourced from Mexico, which is also expected to provide long-term cost advantages.
• Completed commissioning of a second roasting and processing line at our organic cocoa facility in the Netherlands.
In addition to adding new capabilities at the facility, this expansion approximately doubled cocoa processing capacity.
• Completed the commissioning of new roasting equipment at our Crookston, Minnesota, facility. The new equipment
is designed to increase production efficiencies and add incremental capacity and roasting capabilities in support of
demand for on-trend healthy snacks including roasted grains, seeds and legumes.
• Progressed with the commissioning of a new oil processing line at our Bulgarian sunflower facility, which is expected
to drive incremental margins through growth and production efficiency.
•
Initiated an expansion project at our Allentown, Pennsylvania, aseptic beverage facility to add processing and
packaging capacity. This investment is also designed to add enhanced mixing and processing capabilities that should
enable us to bring further innovation to the plant-based beverage market. The additional processing and filling
capacity is also expected to provide increased flexibility and cost advantages across our network of aseptic plants,
while creating needed capacity to continue to grow our organic and conventional aseptic beverage offerings.
Operational Excellence
• Continued to advance food safety and quality efforts across our entire manufacturing footprint, which has resulted in
positive trends in third-party audit scores versus the prior year, including an approximately one-third reduction in
consumer complaints in the Healthy Fruit platform year-over-year.
• Achieved approximately $20 million of productivity-driven margin enhancements in 2018 through our SunOpta 360
continuous improvement initiative in the areas of manufacturing, purchasing and supply chain management.
•
Invested considerable time and resources into pack plan readiness initiatives across our California and Mexico fruit
facilities in preparation for the 2018 strawberry harvest, resulting in high scores for fruit quality from enhanced sorting
and handling processes, and a rebalancing of inventory levels.
• Approved a significant capital enhancement project to bring new automation and technology to our California fruit
facilities and negotiated a long-term lease at the Santa Maria, California, location, which will involve the construction
by the landlord of an adjacent public cold storage facility. These enhancements are designed to lower cost and increase
productivity and improve quality in the Healthy Fruit platform.
• Continued to improve operational performance across the network of aseptic facilities, with overall capacity utilization
exceeding 80% in the fourth quarter of 2018.
Go-To-Market Effectiveness
• Achieved commercial wins including the introduction of an innovative oat-based, non-dairy beverage into retail and
industrial channels, expanded distribution of traditional non-dairy products into retail and broadline foodservice
channels, expanded distribution of everyday broth with a large mass retailer, a new agreement to provide private label
frozen fruit for a specialty retailer, increased orders for private label frozen fruit items following a category reset, and
increased sales of co-manufactured fruit snacks.
• Successfully commercialized over 100 new and refreshed everyday broth and frozen fruit products with large mass
and traditional retailers.
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• Retained a retail frozen fruit account that was being re-bid plus a 14% increase in distribution, and secured a multi-
year supply agreement with a large foodservice operator for aseptic beverage products.
• Maintained a strong pipeline of commercial opportunities in Consumer Products, and grew the overall contract book
for organic ingredients both in Europe and the U.S. versus prior year levels.
Process Sustainability
• Enhanced employee health and safety processes resulted in an over 30% reduction in recordable incidents in 2018
versus the prior year.
• Enhanced product commercialization capabilities resulted in the launch of over 100 new and refreshed products across
the Healthy Beverage and Fruit platforms. Combined with our research and development capabilities, these
commercialization processes are expected to aid in successfully bringing new innovation to market.
•
•
Implemented a new demand planning system that is expected to enhance our sales and operations planning processes.
Implemented a new specification system for ingredients that is designed to drive improved food safety and quality
along with improved research and development efficiencies.
• Added improved capacity planning capabilities across the frozen fruit and aseptic beverage networks in preparation
for business expansion.
• Consolidated transactional and other support functions of the Healthy Fruit platform into our North American shared
services.
• Completed an enterprise resource planning system implementation project at the Mexican frozen fruit facility.
In 2019, we intend to continue to make the necessary strategic business decisions and structural investments that we believe
will deliver sustained profitable growth and deliver long-term value. The four pillars of the Value Creation Plan will continue
to be framework that guides all of our enterprise-wide objectives. Our focus for 2019 will be in the following two key areas:
Operational Efficiency and Expansion
• Continued execution of critical efficiency and expansion projects, including:
o New fruit margin optimization plan, which includes the installation and commissioning of new automation
and quality improvement equipment in our California fruit facilities ahead of the 2019 and 2020 strawberry
pack seasons, and construction of the new public cold storage facility adjacent to our Santa Maria facility, all
designed to drive margin improvement over the 2019 and 2020 crop seasons through lower labor and
conversion costs, improved yield, and lower overall storage and freight costs.
o Addition of new filling and processing capacity and capabilities at our Allentown beverage facility by the
third quarter of 2019.
o Opening of a new organic avocado oil facility located in Ethiopia during the second half of 2019.
• Through the SunOpta 360 continuous improvement initiative in 2019, we are targeting $10 million of in-year
productivity-driven margin enhancement in the areas of manufacturing, purchasing and supply chain, with a
significant portion of this target coming from the fruit margin optimization plan.
Customer Service, Revenue Growth and Margin Accretive Innovation
• Relentless focus on food safety, quality, and service including continued enhancements to our sales and operations
planning processes and capacity planning capabilities.
• Continued growth across the Healthy Fruit, Beverage, and Snack consumer products categories, with a focus on
bringing margin-accretive innovation to market to increase the number of value-added products we offer to our
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customers and targeting approximately 80% capacity utilization inside the aseptic network by the end of 2019, which
includes new capacity expected to come online in the third quarter of 2019.
• Targeted growth in our Global Ingredients segment, driving our mix of certified organic ingredients to represent over
80% of the sales in the portfolio, and achieving 85% capacity utilization in the recently expanded organic cocoa
processing facility by the end of the 2019.
The statements we make in this Form 10-K about the expected results of the Value Creation Plan, including the expected
improvements in earnings and adjusted EBITDA, as well as future actions to drive growth and deliver long-term value including
the fruit margin optimization plan, are forward-looking statements. Forward-looking statements contained in this Form 10-K
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. Adjusted EBITDA is a non-GAAP measure that management uses when
assessing the performance of our operations. See footnote (3) to the “Consolidated Results of Operations for Fiscal Years 2018
and 2017” table in management’s discussion and analysis of financial condition and results of operations at Item 7 of this Form
10-K for a discussion on the use of this non-GAAP measure and for a reconciliation of adjusted EBITDA from loss from
continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.
Changes in Directors and Executive Officers
On February 21, 2019, the Board of Directors of the Company (the “Board”) terminated David Colo as President and Chief
Executive Officer (“CEO”) of the Company. In accordance with the terms of Mr. Colo’s employment agreement, his service
as a member of the Board also terminated. On February 22, 2019, Katrina Houde, a member of the Board since December
2000, was appointed to the role of interim CEO. Ms. Houde was interim CEO for the Company from November 11, 2016
through February 6, 2017. Ms. Houde has agreed to serve in this capacity until the Board’s election of a new, permanent CEO.
The Board has initiated a search process for a permanent CEO.
Regretfully, Gregg Tanner, a member of the Board since January 2017, passed away on January 24, 2019.
ACQUISITION HISTORY
SunOpta has been built through business acquisitions and 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.
Sunrich Inc.
Certain assets of Hoffman Aseptic
Date of Acquisition Business Operations Acquired
August 3, 1999
August 15, 2000
September 18, 2000 Northern Food and Dairy, Inc.
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
Pacific Fruit Processors, Inc.
Hess Food Group LLC
The Organic Corporation
Dahlgren & Company, Inc.
June 2, 2005
July 13, 2005
November 7, 2006
April 2, 2008
November 8, 2010
December 31, 2012 Organic Land Corporation OOD
March 2, 2015
August 11, 2015
October 9, 2015
Citrusource, LLC
Assets of Niagara Natural Fruit Snack Company Inc.
Sunrise Holdings (Delaware), Inc.
Reportable Segment
Global Ingredients
Consumer Products
Consumer Products
Consumer Products
Consumer Products
Global Ingredients
Global Ingredients
Consumer Products
Global Ingredients
Consumer Products
Consumer Products
Global Ingredients
Global Ingredients
Global Ingredients
Consumer Products
Consumer Products
Consumer Products
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SEGMENT INFORMATION
The composition of our reportable segments is as follows:
• 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.
• Consumer Products consists of three main commercial platforms: Healthy Beverages, Healthy Fruit and Healthy
Snacks. Healthy Beverages includes aseptic packaged products including non-dairy beverages, broths and teas;
refrigerated premium juices; and shelf-stable juices and functional waters. Healthy Fruit includes IQF fruits for retail;
IQF and bulk frozen fruit for foodservice; and custom fruit preparations for industrial use. Healthy Snacks is focused
on fruit snack offerings, and formerly included our flexible resealable pouch and nutrition bar product lines, which we
exited in 2017.
In 2018, we transferred certain of our specialty ingredient operations from Global Ingredients to the Healthy Beverages platform
of Consumer Products. These operations produce liquid bases, including for our non-dairy aseptic beverage operations, as well
as spray-dried ingredients
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 23 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 raw materials, ingredients and certain grain-based food products from approximately 65 countries
around the world, which include:
• Organic fruit- and vegetable-based raw materials and ingredients, sweeteners, cocoa, coffees, ancient grains, nuts,
seeds and pulses and other organic food products.
•
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.
• 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:
• Seed and grain conditioning services for soy, corn and sunflower.
• Grain milling for corn, with various granulations and batch sizing.
• Cocoa, coffee and sesame seed processing.
• Dry and oil roasting and packaging, including in-shell sunflower and sunflower kernels, corn, soy- and legume-based
snacks.
• Processing of crude sunflower oil and sunflower cakes.
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Competition—Global Ingredients
Food ingredients are considered 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 in 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.
No customers accounted for more than 10% of revenues from our Global Ingredients segment in 2018.
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.
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:
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December 29, 2018 10-K
• Healthy Beverages
• Aseptic beverages including almond, soy, coconut, oat, hemp, rice and other non-dairy beverages, as well as
adjacent categories such as broths, teas and nutritional beverages. 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.
• Organic and conventional beverage products, including shelf stable and refrigerated juices, specialty
beverages, and functional waters. Consumer Products partners with third-party fillers to provide extended
shelf life refrigerated packaging formats to its customers.
• Liquid soy, oat, rice, hemp and tea bases (including for our non-dairy aseptic beverage operation); spray-
dried seed-, grain- and cocoa-based ingredients utilizing non-GMO and organic soy, corn, sunflower, rice,
and cocoa; and specialty and organic functional ingredients, including maltodextrins, tack blends, and flavor
enhancing products such as, snack coatings and cheese powders.
• Our Healthy Beverage platform operates from an east to west network of three aseptic beverage processing
facilities and one specialty ingredient facility, 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.
• Healthy Fruit
•
IQF natural and organic frozen fruits and vegetables, including strawberries, blueberries, raspberries, mango,
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.
• 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.
• Our frozen fruit operations consist of five facilities that extend from central Mexico 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. Our fruit ingredient
operations are located in California.
• Healthy Snacks
• Natural and organic fruit-based snacks in bar, twist, rope and bite size shapes, with the ability to add a variety
of ingredients.
• Our healthy snack platform maintains bi-coastal production which helps to minimize delivery costs to our
customers.
Competition—Consumer Products
Consumer Products’ healthy beverage and healthy snack 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
fruit providers. It faces competition when securing fruit and vegetable 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.
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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 and Pure
Nature™. 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.
In 2018, Starbucks Corporation and two other customers accounted for approximately 18%, 16% and 10%, respectively, of
revenues from our Consumer Products operating segment and approximately 10%, 9% and 6%, of our consolidated revenues,
respectively. No other customers accounted for more than 10% of revenues from our Consumer Products operating segment
in 2018.
Suppliers—Consumer Products
Consumer Products’ raw materials are subject to the availability of fruit and vegetable supply, which is based on conditions
that are beyond our control. 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.
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. 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. 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
Our activities in the U.S. are subject to regulation by various government agencies, including the Food and Drug Administration
(“FDA”), the Federal Trade Commission (“FTC”), the Environmental Protection Agency (“EPA”), the USDA, Occupational Safety
and Health Administration (“OSHA”), and the Departments of Commerce and Labor, as well as voluntary regulation by other
bodies. Various state and local agencies also regulate our activities.
USDA National Organic Program and Similar Regulations
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. In addition, our organic
products may be subject to various state regulations. We believe that we are in material compliance with the organic regulations
applicable to our business, and we maintain an organic testing and verification process. Generally, organic food products are
produced using:
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•
•
•
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.
Food Safety, Labeling and Packaging Regulations
As a manufacturer and distributor of food products, we are subject to the Federal Food, Drug and Cosmetic Act, the Fair
Packaging and Labeling Act and regulations promulgated thereunder by the FDA and the FTC. This regulatory framework
governs the manufacture (including composition and ingredients), labeling, packaging and safety of food in the U.S.
State and local statutes and regulations may impose additional food safety, labeling, and packaging 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. We believe we are in material
compliance with state and local statutes and regulations as they apply to our business.
Environmental Regulations
We are 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:
• Air quality regulations – air quality is regulated by the EPA and certain city/state air pollution control groups.
Emission reports are filed annually.
• 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.
• 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.
• Hazardous chemicals regulations – Various reports are filed with local city/state emergency response agencies to
identify potential hazardous chemicals being used in our U.S. facilities.
• Storm water – all U.S. 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.
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.
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In Canada, the sale of food is currently regulated under various federal and provincial laws, principally (but not limited to) the Safe
Food for Canadians Act (“SFCA”), the Food and Drugs Act (“FADA”), the Canada Consumer Product Safety Act (“CCPSA”), the
Canadian Food Inspection Agency Act (“CFIAA”) and the Canadian Environmental Protection Act, 1999 (“CEPA”), along with
their supporting regulations. The following is a brief summary of each of these statutes to the extent that they apply or potentially
apply to the Company and its operations:
•
Safe Food for Canadians Regulations (“SFCR”) (under the SFCA) – the SFCR came into effect on January 15, 2019 and
consolidated 14 sets of existing food regulations into a single set of regulations which governs all imported, exported, or
inter-provincially traded food products. Some provisions of the SFCA and SFCR also apply intra-provincially. Notably,
SFCR replaced the Organic Products Regulations, 2009, the Processed Products Regulations and, to the extent that they
related to food products, the Consumer Packaging and Labeling Act and its supporting regulations. Principal elements of
the SCFR which may impact the Company include licensing requirements, preventative controls, traceability
requirements, commodity specific requirements, reporting requirements and timelines, an export certificate request
process, packaging and labeling requirements to ensure food safety and prevent false or misleading labeling, regulation
of the use of grades and grade names, standards of identity and expansion of the certification process for organic
products, and other requirements.
Timelines for complying with the new requirements vary by food, activity, and size of the food business. Many
requirements came into effect immediately while others allow a grace period of up to three years from January 15, 2019
for compliance.
• 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 labeling and food color were introduced
on December 14, 2016. To the extent the new labeling 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 color specifications
and the removal of synthetic color certification requirements came into effect immediately.
• 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.
• Canadian 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.
By virtue of the CFIAA and the SFCA, the CFIA has the power to inspect and, if deemed necessary, recall certain
products, including fresh fruit and vegetables, processed foods and organic foods, if the Minister of Health believes
that such products pose a risk to the public, animal or plant health.
•
Substance Regulations – Various regulations under CEPA regulate the importation and use of certain substances in
Canada. For example, prior to the importation and use in products, the importer must ensure that all ingredients are
found on the Domestic Substances List (“DSL”) maintained by Environment and Climate Change Canada. In the event
that an ingredient is not found on the DSL, then subject to the amount of the substance imported into Canada and used
in products sold in Canada, a filing may become necessary under the New Substances Notification Regulations.
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 (trading
and selling) 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 BRC Agents and Brokers 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
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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.
Our frozen fruit processing facility in Mexico is 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 processes 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.
Our innovation center located in Edina, Minnesota, supports our product development team of highly trained and experienced
food scientists and technologists that are dedicated to the research and development of new product offerings, as well as
addressing product development opportunities for our customers. These opportunities include 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 broths, teas and nutritional beverages. In addition, we continue to develop new
fruit-based beverages, and fruit- and grain-based snacks, 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 continued success depends, 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 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. However, 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 20 processing facilities in seven 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, Europe, Ethiopia
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, included elsewhere in this report.
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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 29, 2018, we had a total of approximately 2,000 full-time employees (December 30, 2017 – 1,800). We also
employ up to 2,100 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 our shareholders may lose all or part of their 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 Strategic Initiatives, Significant Investors and Shareholder Activism
The implementation of our Value Creation Plan could pose a number of risks that could have an adverse impact on our
business, financial condition and results of operations
Following our strategic partnership with Oaktree, we conducted a thorough review of our operations, management and
governance, with the objective of maximizing our ability to deliver long-term value to our shareholders. As a product of this
review, our management and the Board developed a Value Creation Plan built on four pillars: portfolio optimization,
operational excellence, go-to-market effectiveness and process sustainability. The Value Creation Plan is a broad-based
initiative focused on increasing shareholder value through strategic investments made to the people and assets of the Company
to deliver sustained profitable growth. We began implementing the Value Creation Plan in 2016, and implementation is ongoing
and could span several more years. In connection with the Value Creation Plan, we will continue to implement operational
actions to improve our profitability and streamline our operations for long-term success. These actions include rationalization
or consolidation of certain of our operations or facilities, reinvestment in certain of our operations or facilities, investments in
personnel, processes and tools, as well as other cost saving initiatives. These ongoing actions could consume capital resources
and could also give rise to impairment and other restructuring charges in future periods that would be both cash and non-cash
in nature, and these charges could be material.
The implementation of the Value Creation Plan could have a material impact on our operations, strategy, governance,
management and future prospects. 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. The ongoing
implementation of our Value Creation Plan could expose us to a number of other risks, including the following:
•
•
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;
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•
•
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.
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
As at December 29, 2018, Oaktree held a 19.7% voting interest in the Company through its holdings of 11,333,333 special
voting shares and 8,092,699 common shares of the Company. Oaktree has also 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
the Company’s common stock on an as-exchanged basis, it will be entitled to designate one nominee. In addition, as at
December 29, 2018, Engaged Capital, LLC (“Engaged Capital”) beneficially owned or controlled approximately 7.8% of the
Company’s common stock and has nominated one member of our Board.
Oaktree is assisting us with our efforts to improve our operations, management and governance. Oaktree’s objectives and
perspectives as an equity investor in SunOpta 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.
Our business could be negatively impacted as a result of shareholder activism or an unsolicited takeover proposal or a proxy
contest
In recent years, proxy contests and other forms of shareholder activism have been directed against numerous public companies.
If a proxy contest or an unsolicited takeover proposal was made with respect to us, we could incur significant costs in defending
the Company, which would have an adverse effect on our financial results. Shareholder activists may also seek to involve
themselves in the governance, strategic direction and operations of the Company. Such proposals may disrupt our business
and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting
from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern
to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners,
all of which could adversely affect our business. In addition, actions of activist shareholders may cause significant fluctuations
in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the
underlying fundamentals and prospects of our business.
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 results of operations. Our customers may also voluntarily recall or withdraw a product we manufactured or packaged, even
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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, a recall or withdrawal may cause us to lose future revenues
from, or relationships with, one or more material customers, and the impact of the recall or withdrawal could affect our
customers’ willingness to continue to purchase related or unrelated products from us, or could otherwise hinder our ability to
grow our business with those customers. We could also 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.
Moreover, future 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. Further, 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 and 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 and 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
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, financial condition and
results of operations.
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 actions that seek to remove a product from the marketplace and/or
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 and
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.
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Examples of laws and regulations that affect us include laws and regulations applicable to:
•
•
•
•
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, certain food ingredient products manufactured
by SunOpta may require pre-market approval by the FDA that the ingredient is generally recognized as safe, or “GRAS.” 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 and results of operations.
Our business is also required to comply with the Food Safety Modernization Act (“FSMA”) and the FDA’s implementing
regulations. FSMA requires, among other things, that food facilities conduct contamination hazard analysis, implement risk-
based preventive controls and develop track-and-trace capabilities. If we are found to be in violation of applicable laws and
regulations in these areas, we could be subject to civil remedies, including fines, injunctions or recalls, as well as potential
criminal sanctions, any of which could have a material adverse effect on our business.
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 and 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
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 and results of operations.
We may require additional capital, 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 continue to fund internal growth 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
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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.
For example, in 2018 and 2017, we recognized goodwill impairment charges of $81.2 million and $115.0 million related to the
Healthy Fruit reporting unit of the Consumer Products operating segment, and, in 2016, we recognized a goodwill impairment
charge of $17.5 million related to the Sunflower reporting unit of the Raw Material Sourcing and Supply operating segment.
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 and 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 and 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. Our three
largest customers accounted for approximately 25% of consolidated revenues for the year ended December 29, 2018. The loss,
decrease or cancellation of business with any of our large customers could materially and adversely affect our business,
financial condition and 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 a failure to maintain our current market
position, could reduce our sales and harm our business. Consumer trends change based on a number of 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 and 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 and results of operations.
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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 and results of operations.
Volatility in the prices of raw materials, freight 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, freight, 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 we have. 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 and results of operations.
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
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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 strawberry supply is sourced from California, which has experienced severe drought conditions
from time to time, resulting in lost crops and water restrictions for growers in California. As strawberry growers are largely
dependent on well water, diminishing groundwater resources could also lead to a reduced strawberry supply. Drought
conditions are a recurring feature of California’s climate, 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 and results
of operations.
In recent years, California has experienced numerous wildfires, including the largest wildfires in recorded state history. In
addition to the potential for direct damage to agriculture from wildfires, heavy smoke from large wildfires can adversely affect
crops, delay harvests and adversely affect local agriculture in other ways. Due to recurring drought conditions, California could
continue to experience significant wildfires, which could negatively impact the agricultural industry in California and have a
material adverse effect on our business, financial condition and 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
may be 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 issues. 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.
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.
Our reputation and our relationships with customers, consumers and suppliers would be harmed if our systems are accessed
by unauthorized persons
We maintain certain personal data, including personal data regarding our personnel, customers, consumers and suppliers. This
data is maintained on our own systems as well as that of third parties we use in our operations. If a breach or other breakdown
results in disclosure of confidential or personal information, we may suffer reputational, competitive and/or business harm.
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. The costs relating to any data breach could be material, and we
currently do not carry insurance against the risk of a data breach. Any data breach or other access of our systems by unauthorized
persons could have a material adverse effect on our business, financial condition and results of operations.
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Changes in laws and regulations of privacy and protection of user data could adversely affect our business
We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use
of proprietary information and personally-identifying information. The regulatory environment surrounding information
security and data privacy varies from jurisdiction to jurisdiction and is constantly evolving and increasingly demanding. The
restrictions imposed by such laws continue to develop and may require us to incur substantial costs, adopt additional compliance
measures, such as notification requirements and corrective actions in the event of a security breach, and/or change our current
or planned business models. We are already subject to strict data privacy laws in the European Union and other jurisdictions
governing the collection, transmission, storage and use of employee data and personally-identifying information. The General
Data Protection Regulation (“GDPR”), which became effective in Europe in May 2018, creates a range of new compliance
obligations and increases financial penalties for non-compliance and extends the scope of the European Union data protection
law to all companies processing data of European Union residents, regardless of the company’s location. The GDPR and other
privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent
or conflicting requirements. Such regulations increase our compliance and administrative burden significantly. While we have
developed and are executing comprehensive plans to meet these requirements and do not currently foresee significant obstacles
that would prevent timely compliance, these plans are subject to many variables that could delay or otherwise affect
implementation.
If our current security measures and data protection policies and controls are found to be non-compliant with relevant laws or
regulations in any jurisdiction where we conduct business, we may be subject to penalties and fines, and may need to expend
significant resources to implement additional data protection measures. In addition, we may be required to modify the features
and functionality of our system offerings in a way that is less attractive to customers.
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
and 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.
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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.
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.
The current U.S. administration has expressed strong concerns about imports from countries that it perceives as engaging in
unfair trade practices, and it is possible the administration could impose import duties or other restrictions on products,
components or raw materials sourced from those countries, which may include countries from which we import components
or raw materials. Any such import duties or restrictions could have a material adverse effect on our business, results of
operations or financial condition. Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory
actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on
certain U.S. goods. Other foreign governments are considering the imposition of sanctions that will deny U.S. companies access
to critical raw materials. A “trade war” of this nature or other governmental action related to tariffs or international trade
agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or
the economic environments in which we operate and, thus, to adversely impact our businesses.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied.
In December 2017, the U.S. enacted significant tax reform, and certain provisions of the law may adversely affect our business.
In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the
European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation
and Development, are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in
countries where we do business. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could
increase, and our business, financial condition and results of operations may be adversely impacted.
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 and 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
and 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,
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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 laws or regulations regarding greenhouse gas emissions or other climate
change laws enacted 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.
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:
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exposure to local economic conditions, expropriation and nationalization, foreign exchange rate fluctuations and
currency controls;
• withholding and other taxes on remittances and other payments by subsidiaries;
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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
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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:
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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.
federal securities laws; or
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 and 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 and/or refinance
our senior secured second lien notes
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 senior secured second lien notes mature on October 9, 2022. Our
ability to refinance these notes upon maturity will depend on the capital markets and our financial condition at such time. As
a result, we may not be able to obtain refinancing on commercially reasonable terms, which could have a material and adverse
impact on our business, financial condition and results of operations. Alternatively, we may have to undertake alternative
financing plans, such as restructuring our debt, selling assets, reducing or delaying capital investments, or seeking to raise
additional capital.
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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 are 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, our business, financial condition and 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. Our ability to
effectively integrate 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:
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integration of an acquired company’s products into our product mix;
the amount of cost savings that may be realized as a result of integrating 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’s 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 and 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
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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
When we acquire a business, we often assume or otherwise become subject to liabilities of acquired businesses, including
contingent liabilities that may depend on the outcome of legal and administrative proceedings or other events. As a result, we
may become subject to liabilities that are unknown to us or that cannot be quantified at the time of the acquisition. If we
become subject to significant liabilities or other obligations as a result of an acquisition, our business could be materially
affected. Moreover, to the extent we have contractual rights to indemnification against losses and liabilities of businesses we
acquire, the amount of indemnification available could be limited and may not be sufficient to cover the actual losses we suffer.
Business acquisitions could result in unexpected disruptions of our business
In response to an acquisition, the customers may cease or reduce their business with the combined company, which could
negatively affect our business. Similarly, current or prospective employees may experience uncertainty about their future roles
with the combined company. 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.
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. For example, under
the Value Creation Plan, we recognized asset impairment and facility closure costs of $34.6 million, as well as related employee
termination costs of $8.7 million, in connection with portfolio optimization measures taken under the plan, including the exits
from flexible resealable pouch and nutrition bar product lines and operations. 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:
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changes in our customers and/or their demand;
changes in our operating expenses;
• management’s ability to execute our business strategies focused on improved operating earnings;
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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;
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foreign currency fluctuations;
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December 29, 2018 10-K
•
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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:
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fluctuations in financial performance from period to period;
• mergers, acquisitions and/or divestitures, either by us or key competitors;
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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
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.
Periods of volatility in the overall market and the market price of a company’s securities, is often followed by securities class
action litigation alleging material misstatements or omissions in disclosures provided to shareholders. 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.
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The exchange of outstanding 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 outstanding 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.
31
December 29, 2018 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)
Facility Description
Corporate head office
Corporate administrative office and Consumer Products
head office
Grain processing and Raw Material Sourcing and Supply
head office
Grain milling
Grain storage
Grain storage
Sales office
Vacant
Grain processing and distribution
Grain processing, warehouse and distribution
Warehouse
Grain processing, warehouse and distribution
Sales and administrative office
Sales and International Sourcing and Supply head office
Cresco, Iowa(2)
Blooming Prairie, Minnesota(2)
Ellendale, Minnesota(2)
Moorhead, Minnesota(2)
Moorhead, Minnesota(2)(4)
Breckenridge, Minnesota(2)
Crookston, Minnesota(2)
Crookston, Minnesota(2)
Grace City, North Dakota(2)
Scotts Valley, California(2)(3)
Amsterdam, The Netherlands(2)
Middenmeer, The Netherlands(2) Cocoa processing
Middenmeer, The Netherlands(2) Warehouse
Sales office
Cavaillon, France(2)
Sales office
Skye, Germany(2)
Warehouse and office
Dalian, China(2)
Warehouse and office
Dalian, China(2)
Grain and coffee processing and sales office
Addis Ababa, Ethiopia(2)
Grain processing
Silistra, Bulgaria(2)
Varna, Bulgaria(2)
Kenema, Sierra Leone(2)
Alexandria, Minnesota(3)
Alexandria, Minnesota(3)
Alexandria, Minnesota(3)
Heuvelton, New York(3)(5)
Modesto, California(3)
Modesto, California(3)
Allentown, Pennsylvania(3)
Allentown, Pennsylvania(3)
Omak, Washington(3)
St. David’s, Ontario(3)
Placentia, California(3)
South Gate, California(3)
Edwardsville, Kansas(3)
Oxnard, California(3)
Oxnard, California(3)
Santa Maria, California(3)
Jacona, Mexico(3)
Rogers, Arkansas(3)
Sales and administrative office
Cocoa storage
Aseptic beverage processing and packaging
Ingredient processing
Warehouse
Vacant
Aseptic beverage processing and packaging
Warehouse
Aseptic beverage processing and packaging
Warehouse
Fruit snack processing, warehouse and distribution
Fruit snack processing, warehouse and distribution
Sales and administration office
Fruit ingredient 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
Frozen fruit processing, warehouse and distribution
Sales office
Included in Corporate Services.
Included in Global Ingredients.
Included in Consumer Products.
(1)
(2)
(3)
(4) Moorhead, Minnesota, grain handling facility was closed on August 31, 2017.
(5) Heuvelton, New York, ingredient processing facility closed in January 2017.
Owned/
Leased
Leased
Leased
Lease Expiry
Date
June 2021
November 2022
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
August 2020
November 2019
February 2021
October 2022
December 2022
December 2022
July 2022
November 2020
November 2019
November 2024
October 2021
July 2019
July 2019
Leased
Leased
Owned
Owned
Owned
Owned
Leased May 2024
Leased May 2024
April 2027
Leased
November 2025
Leased
Leased May 2027
Leased
Leased
Leased
Owned
Owned
Leased
Leased
Owned
Leased
December 2020
January 2022
June 2020
December 2019
April 2035
July 2019
SUNOPTA INC.
32
December 29, 2018 10-K
Executive Offices
Our executive head office is located at 2233 Argentia Drive, Suite 401, Mississauga, Ontario.
Item 3. Legal Proceedings
For a discussion of legal proceedings, see note 22 of the consolidated financial statements included at Item 15 of this Form 10-
K.
Item 4. Mine Safety Disclosures
Not Applicable.
SUNOPTA INC.
33
December 29, 2018 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”.
As at December 29, 2018, we had approximately 402 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 29, 2018, with respect to our common shares that may be issued
under the Company’s stock incentive and employee share purchase 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)
4,658,283
-
818,386
5,476,669
$7.76 (3)
-
$7.00 (3)
$7.65
4,028,729
999,915
-
5,028,644
Plan Category
Equity compensation plans approved by
securities holders:
2013 Stock Incentive Plan(1)
Employee Stock Purchase Plan
Equity compensation plans not approved by
securities holders:
CEO Plan(2)
Total
(1) Represents common shares of the Company issuable in respect of 2,698,550 stock options, 597,837 restricted stock units (“RSUs”) and 1,361,896
performance share units (“PSUs”) granted to selected employees and directors of the Company.
(2) Represents common shares of the Company issuable in respect of 473,940 performance-based stock options, 66,666 RSUs and 277,780 PSUs
granted to the Chief Executive Officer of the Company.
(3) Vested RSUs and PSUs entitle the holder to receive one common share per unit without payment of additional consideration. Accordingly, these
units are disregarded for purposes of computing the weighted-average exercise price.
SUNOPTA INC.
34
December 29, 2018 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 28, 2013.
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
-
SunOpta Inc.
NASDAQ Industrial
S&P/TSX Composite
2013
2014
2015
2016
2017
2018
SunOpta Inc.
Nasdaq Industrial Index
S&P/TSX Composite Index
2013
2014
2015
2016
2017
100.00
100.00
100.00
118.38
101.99
107.42
68.33
110.39
95.51
70.43
119.64
112.23
77.42
148.42
119.00
2018
38.36
144.21
104.41
Assumes that $100.00 was invested in our common shares and in each index on December 28, 2013.
SUNOPTA INC.
35
December 29, 2018 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)
2018
$
2017
$
2016
$
2015(1)
$
2014
$
1,260,852
1,279,593
1,346,731
1,145,134
1,102,745
(109,205)(2)
(135,320)(3)
(50,618)(4)
(2,996)
19,295 (5)
(1.34)
(1.66)
(0.61)
(0.04)
(1.34)
896,738
280,334
(1.66)
982,173
234,090
(0.61)
(0.04)
1,129,558
201,494
1,219,203
159,773
640,950
78,454
228,863
228,033
231,087
322,995
6,365
13,652
20,854
23,052
4,581
1,086
0.29
0.28
(1) Includes the results of operations of Sunrise Holdings (Delaware), Inc. (acquired October 9, 2015), Niagara Natural Fruit Snack Company Inc.
(assets acquired August 11, 2015) and Citrusource, LLC (acquired March 2, 2015) from the respective dates of acquisition.
(2) Includes a goodwill impairment charge of $81.2 million related to the Healthy Fruit reporting unit of the Consumer Products operating segment.
(3)
Includes a goodwill impairment charge of $115.0 million related to the Healthy Fruit reporting unit of the Consumer Products operating segment,
as well as a charge of $18.2 million for the impairment of long-lived assets associated with the exit from flexible resealable pouch and nutrition bar
product lines and operations, and consolidation of roasted snack operations, as well as the closure of a juice processing facility located in San
Bernardino, California.
Includes a goodwill impairment charge of $17.5 million related to the Sunflower reporting unit of the Raw Material Sourcing and Supply operating
segment, as well as a charge of $13.3 million for the impairment of long-lived assets associated with the closure of the San Bernardino juice facility
and a soy extraction facility located in Heuvelton, New York.
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.
(4)
(5)
SUNOPTA INC.
36
December 29, 2018 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 29, 2018 and includes information available
to February 26, 2019, 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”, “target”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “can”, “could”, “would”, “should”,
“might”, “plan”, “will”, “may”, “might”, “predict”, “budget”, “forecast”, or other similar expressions concerning matters that
are not historical facts, or the negative of such terms are intended to identify forward-looking statements; however, the absence
of these words does not necessarily mean that a statement is not forward-looking. To the extent any forward-looking statements
contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to
assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital
resources. Readers are cautioned that this information may not be appropriate for any other purpose, including investment
decisions.
Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth,
results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be
reasonable, based on information currently available, they may prove to be incorrect. Forward-looking statements are also
subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we
currently expect. These factors are more fully described in the “Risk Factors” section at Item 1A of 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 date of this report. You should not place undue importance on forward-looking
statements and should not rely upon this information as of any other date. Other than as required under securities laws, we do
not undertake to update any forward-looking information at any particular time. Neither we nor any other person assumes
responsibility for the accuracy and completeness of these forward-looking statements, and we hereby qualify all our forward-
looking statements by these cautionary statements.
Unless otherwise noted herein, all currency amounts in this MD&A are expressed in U.S. dollars. All tabular dollar amounts
are expressed in thousands of U.S. dollars, except per share amounts.
Overview
SunOpta is a global company focused on sourcing organic and non-genetically modified (“non-GMO”) ingredients, and
manufacturing healthy food and beverage products. Our global sourcing platform makes us one of the leading suppliers of
organic and non-GMO raw materials and ingredients in the food industry. Our consumer products portfolio utilizes internally
and externally sourced raw materials and ingredients to manufacture healthy food and beverage products for supply to retail,
foodservice and branded food customers. We operate our business in the following reportable segments:
• Global Ingredients aggregates our North American-based Raw Material Sourcing and Supply and European-based
International Sourcing and Supply operating segments focused on the procurement and sale of organic commodities
and value-added ingredients, and specialty and organic grains and seeds.
• Consumer Products consists of three main commercial platforms: Healthy Beverages, Healthy Fruit and Healthy
Snacks. Healthy Beverages includes aseptically-packaged products including non-dairy beverages, broths and teas;
refrigerated premium juices; and shelf-stable juices and functional waters. Healthy Fruit includes individually quick
frozen (“IQF”) fruits for retail; IQF and bulk frozen fruit for foodservice; and custom fruit preparations for industrial
use. Healthy Snacks is focused on fruit snack offerings and included flexible resealable pouch and nutrition bar
product lines that were exited in 2017.
SUNOPTA INC.
37
December 29, 2018 10-K
Effective in 2018, we transferred certain of our specialty ingredient operations from Global Ingredients to the Healthy
Beverages platform of Consumer Products. These operations produce liquid bases, including for the Company’s non-dairy
aseptic beverage operations, as well as spray-dried ingredients. The segment information presented in this MD&A for years
ended December 30, 2017 and December 31, 2016 has been restated to reflect this realignment. Specifically, for the years
ended December 30, 2017 and December 31, 2016, revenues of $13.6 million and $15.5 million, respectively, and operating
income of $2.0 million and $2.0 million, respectively, generated by these operations have been reclassified from Global
Ingredients to Consumer 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 2018, 2017 and 2016 were each 52-week periods ending on December 29, 2018, December
30, 2017, and December 31, 2016, respectively.
Sale of Specialty and Organic Soy and Corn Business
On February 22, 2019, our subsidiary, SunOpta Grains and Foods Inc., completed the sale of our specialty and organic soy and
corn business to Pipeline Foods, LLC (“Pipeline Foods”) for $66.5 million, subject to certain post-closing adjustments. The
soy and corn business engaged in seed and grain conditioning and corn milling and formed part of our North American-based
raw material sourcing and supply operating segment, included in the Global Ingredients reportable segment.
As a result of available U.S. non-capital loss carryforwards, the transaction is expected to be tax efficient with net proceeds
after fees, expenses, and taxes contributing approximately $64 million in cash. The net proceeds from this transaction will
initially be used to repay borrowings under our Global Credit Facility (as described below under the heading “Liquidity and
Capital Resources”), which is expected to provide additional incremental borrowing capacity of approximately $46 million
under this facility. Taking into consideration the expected net proceeds and borrowing capacity generated from this transaction,
our total debt as at December 29, 2018 would have been approximately $445 million and the available borrowing capacity
under our Global Credit Facility would have been approximately $101 million, on a pro forma basis. Over time, we intend to
redeploy this capital to further enhance our consumer products and international organic sourcing platforms.
The results of operations of the soy and corn business for each of the three fiscal years in the period ended December 29, 2018
are summarized in the table below. These results exclude management fees charged by Corporate Services and do not reflect
the anticipated savings from other cost reduction measures taken in connection with this transaction as described following this
table.
Revenues
Gross profit
Segment operating income
Earnings before income taxes
December 29,
2018
$
104,427
8,310
6,777
6,783
December 30,
2017
$
112,336
10,449
9,047
8,885
December 31,
2016
$
116,849
8,667
7,160
7,047
On the same basis as described above, the results of operations of the soy and corn business for each of the quarters of the year
ended December 29, 2018 are summarized in the table below.
Revenues
Gross profit
Segment operating income
Earnings before income taxes
March 31,
2018
$
21,399
2,658
2,275
2,292
June 30, September 29, December 29,
2018
$
26,483
1,623
1,239
1,252
2018
$
27,002
1,251
868
817
2018
$
29,543
2,778
2,395
2,422
SUNOPTA INC.
38
December 29, 2018 10-K
The sale of the soy and corn business is expected to simplify our operations, enabling cost reductions that extend beyond the
employees and expenses that will transfer to Pipeline Foods. As a result, we expect to rationalize an additional $3.0 million of
costs and expenses that were included in our consolidated results of operations in 2018. Taking into consideration the
contribution from the soy and corn business, as well as the costs and expenses expected to be rationalized, adjusted EBITDA
would have decreased by approximately $4.6 million for the year ended December 29, 2018, on a pro forma basis, if this
transaction had occurred at the beginning of 2018. The following table presents by quarter and for the full year of fiscal 2018
a reconciliation of adjusted EBITDA in connection with this transaction from earnings before income taxes of the soy and corn
business, which we consider in this case to be the most directly comparable U.S. GAAP financial measure.
Earnings before income taxes of soy and corn
business
Depreciation
Interest income
Other expense (income)
Less costs and expenses to be rationalized
Adjusted EBITDA
March 31,
2018
$
2,292
213
(15)
(2)
(995)
1,493
Quarter ended Year ended
June 30, September 29, December 29, December 29,
2018
$
2018
$
2018
$
2018
$
2,422
217
(27)
-
(901)
1,711
817
212
(39)
91
(652)
429
1,252
205
(16)
2
(490)
953
6,783
847
(97)
91
(3,038)
4,586
Adjusted EBITDA is a non-GAAP measure that management uses when assessing the performance of our operations. See
footnote (3) to the “Consolidated Results of Operations for Fiscal Years 2018 and 2017” table below for a discussion on the
use of this non-GAAP measure.
The sale of the soy and corn business was completed after the end of the periods covered by this MD&A and did not affect our
results of operations as reported herein for the fiscal year ended December 29, 2018. Unless otherwise stated, the disclosures
in this MD&A reflect our business as it was conducted during the periods covered by this report, without giving effect to the
sale of the soy and corn business.
Value Creation Plan
On October 7, 2016, we entered into a strategic partnership with Oaktree Capital Management L.P., a private equity investor
(together with its affiliates, “Oaktree”), and, on that date, Oaktree invested $85.0 million through the purchase of cumulative,
non-participating Series A Preferred Stock (the “Preferred Stock”) of our wholly-owned subsidiary, SunOpta Foods Inc.
(“SunOpta Foods”).
Following the strategic partnership, with the assistance of Oaktree, we conducted a thorough review of our operations,
management and governance, with the objective of maximizing our ability to deliver long-term value to our shareholders. As
a product of this review, our management and the Board of Directors developed a Value Creation Plan built on four pillars:
portfolio optimization, operational excellence, go-to-market effectiveness and process sustainability. The Value Creation Plan
is a multi-year, broad-based initiative focused on increasing shareholder value through strategic investments made to the people
and assets of the Company to deliver sustained profitable growth.
Costs incurred in connection with measures taken under the Value Creation Plan included impairment charges and facility
closure costs primarily related to the closure of certain of our processing facilities and rationalization of our product portfolio,
including the exits from flexible resealable pouch and nutrition bar product lines and operations in 2017, and consolidations of
grain-handling and roasted snack operations. In addition, we incurred employee recruitment, relocation, retention and
severance costs related to exit activities and organizational changes within management and executive teams, and recruiting
efforts in the areas of quality, sales, marketing, operations and engineering. We also incurred third-party legal advisory,
consulting and temporary labor costs in support of the Value Creation Plan.
SUNOPTA INC.
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December 29, 2018 10-K
Costs incurred and charged to expense for the years ended December 29, 2018, December 30, 2017 and December 31, 2016
were recorded in the consolidated statement of operations as follows:
Cost of goods sold(1)
Selling, general and administrative expenses(2)
Other expense(3)
December 29,
2018
$
100
613
1,661
2,374
December 30,
2017
$
3,189
22,894
23,829
49,912
December 31,
2016
$
-
4,041
14,285
18,326
(1) Inventory write-downs and facility closure costs recorded in cost of goods sold were allocated to the Consumer Products operating segment.
(2) Consulting/professional fees and temporary labor costs, and employee recruitment, relocation and retention costs recorded in selling, general and
administrative expenses were allocated to Corporate Services.
(3) For the year ended December 29, 2018, asset impairment, lease obligation and employee termination costs recorded in other expense were allocated
as follows: Raw Material Sourcing and Supply operating segment - $0.7 million; Consumer Products operating segment - $0.8 million; and Corporate
Services - $0.2 million. For the year ended December 30, 2017, asset impairment and employee termination costs recorded in other expense were
allocated as follows: Raw Material Sourcing and Supply operating segment - $2.1 million; Consumer Products operating segment - $20.6 million;
and Corporate Services - $1.1 million. For the year ended December 31, 2016, asset impairment and employee termination costs recorded in other
expense were allocated as follows: Raw Material Sourcing and Supply operating segment - $1.6 million; Consumer Products operating segment -
$10.6 million; and Corporate Services - $2.1 million.
We do not expect to incur significant additional direct costs related to the Value Creation Plan in future periods. However, it
is possible that additional costs could arise if we determine to initiate further strategic actions in the future.
For more information regarding the Value Creation Plan, see note 3 to the consolidated financial statements at 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 when we transfer control of promised goods to our customers in an amount that reflects the consideration
to which we expect to be entitled to in exchange for those goods. Control is typically transferred when title and physical
possession of the product has transferred to the customer, which is at the point in time that product is shipped from our facilities
or delivered to a specified destination, depending on the terms of the contract, and we have a present right to payment.
Consideration is typically determined based on a fixed unit price for the quantity of product transferred. Certain of our revenue
contracts may give rise to an element of variable consideration in the form of rebates or discounts; however, variable
consideration has historically been immaterial in the context of the total consideration due under the contracts. We do not
typically grant customers a general right of return for goods transferred but we will generally accept returns of product for
quality-related issues. The cost of satisfying this promise of quality is accounted for as an assurance-type warranty obligation
rather than variable consideration. Our contracts do not typically include any significant payment terms, as payment is normally
due shortly after the time of transfer.
For sales of raw commodities or organic ingredients, the duration of our contracts is typically one year or less and may involve
multiple delivery dates over the course of the contract. For consumer products, contracts are typically represented by short-
term, binding purchase orders from customers. The timing of our revenue recognition, customer billings and cash collections,
does not result in significant unbilled receivables (contract assets) or customer advances (contract liabilities) on the consolidated
balance sheet. Contract costs, such as sales commissions, are generally expensed as incurred given the short-term nature of the
associated contracts.
SUNOPTA INC.
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December 29, 2018 10-K
See note 2 of the consolidated financial statements at Item 15 of this Form 10-K for disclosures related to revenue.
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 obligations 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 at 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 and 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 operation and product line on a quarterly basis. Note 7 of the consolidated financial statements at
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; 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; 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 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. We perform the annual test for goodwill impairment in the fourth quarter of each fiscal year. Goodwill impairment
charges are recognized based on the excess of a reporting unit’s carrying amount over its estimated fair value.
Goodwill is tested for impairment at the reporting unit level, which is defined as an operating segment or one level below. Our
Raw Material Sourcing and Supply operating segment comprises two reporting units, namely Grains and Sunflower. Our
International Sourcing and Supply operating segment consists of one reporting unit. Our Consumer Products operating segment
comprises three reporting units based on commercial platforms, namely Healthy Beverages, Healthy Fruit and Healthy Snacks.
The fair values of our reporting units are determined using an income approach (discounted cash flow method). We believe an
income approach provides the most reliable indication of fair value as it reflects forecasted revenues and earnings based on
SUNOPTA INC.
41
December 29, 2018 10-K
business and market conditions that are unique to each individual reporting unit, which a market approach may not fully
incorporate. 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; 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.
Based on the results of the annual impairment test performed for the years ended December 29, 2018 and December 30, 2017,
we recognized goodwill impairment charges of $81.2 million and $115.0 million respectively, to fully write-off the goodwill
related to our Healthy Fruit reporting unit. For the year ended December 31, 2016, we recognized a goodwill impairment
charge of $17.5 million to fully write-off the goodwill related to our Sunflower reporting unit. None of the goodwill balances
of our other reporting units were considered to be at risk of impairment, as the fair value of those reporting units substantially
exceeded their carrying values – that is, a hypothetical 10% decrease in the fair value of any of our other reporting units would
not have triggered a goodwill impairment. The results of our annual impairment tests for goodwill are described in note 9 of
the consolidated financial statements at Item 15 of this Form 10-K.
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 by changes in these estimates resulting
in an increase or decrease in amortization expense, or impairment of the intangible assets and/or goodwill. Note 10 of the
consolidated financial statements at Item 15 of this Form 10-K 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 at 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
SUNOPTA INC.
42
December 29, 2018 10-K
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.
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 18 of the consolidated financial
statements at 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.
SUNOPTA INC.
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December 29, 2018 10-K
Consolidated Results of Operations for Fiscal Years 2018 and 2017
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
Loss before the following
Interest expense, net
Recovery of income taxes
Net loss(2),(3)
Earnings attributable to non-controlling interests
Loss attributable to SunOpta Inc.
Dividends and accretion on Series A Preferred Stock
December 29,
2018
$
December 30,
2017
$
559,712
701,140
1,260,852
536,928
742,665
1,279,593
55,270
68,200
123,470
65,663
79,424
145,087
16,430
1,238
(13,736)
3,932
2,825
81,222
(80,115)
34,406
(5,378)
(109,143)
62
(109,205)
(7,909)
19,932
11,924
(31,089)
767
23,660
115,000
(137,893)
32,504
(35,829)
(134,568)
752
(135,320)
(7,809)
Change
$
22,784
(41,525)
(18,741)
(10,393)
(11,224)
(21,617)
(3,502)
(10,686)
17,353
3,165
(20,835)
(33,778)
57,778
1,902
30,451
25,425
(690)
26,115
(100)
Change
%
4.2%
-5.6%
-1.5%
-15.8%
-14.1%
-14.9%
-17.6%
-89.6%
55.8%
412.6%
-88.1%
-29.4%
41.9%
5.9%
85.0%
18.9%
-91.8%
19.3%
-1.3%
Loss attributable to common shareholders(4)
(117,114)
(143,129)
26,015
18.2%
(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 Chief
Executive Officer (“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 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 loss before the following, which we consider to be the most directly comparable U.S. GAAP financial measure.
December 29, 2018
Segment operating income (loss)
Other income (expense), net
Goodwill impairment
Earnings (loss) before the following
December 30, 2017
Segment operating income (loss)
Other expense, net
Goodwill impairment
Earnings (loss) before the following
Global
Ingredients
$
16,430
(2,209)
-
14,221
19,932
(2,311)
-
17,621
Consumer
Products
$
1,238
1,913
(81,222)
(78,071)
11,924
(21,093)
(115,000)
(124,169)
Corporate
Services
$
(13,736)
(2,529)
-
(16,265)
(31,089)
(256)
-
(31,345)
Consolidated
$
3,932
(2,825)
(81,222)
(80,115)
767
(23,660)
(115,000)
(137,893)
SUNOPTA INC.
44
December 29, 2018 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 attributable to common shareholders determined in accordance with
U.S. GAAP that excludes specific items recognized in other income/expense, impairment losses on goodwill and long-lived assets, and other unusual
items that are identified and evaluated on an individual basis, which due to their nature or size, we would not expect to occur as part of our normal
business on a regular basis. We believe that the identification of these excluded items enhances an analysis of our financial performance of our business
when comparing those operating results between periods, as we do not consider these items to be reflective of normal business operations.
The following table presents a reconciliation of adjusted loss from net loss, which we consider to be the most directly comparable U.S. GAAP financial
measure. In addition, in recognition of our exit from flexible resealable pouch and nutrition bar product lines and operations (as described above under
“Value Creation Plan”), we have prepared this table in a columnar format to present the effect of these operations on our consolidated results for the
periods presented. We believe this presentation assists investors in assessing the results of the operations we have exited and the effect of those operations
on our financial performance.
For the years ended
December 29, 2018
Net loss
Less: earnings attributable to non-controlling interests
Less: dividends and accretion of Series A Preferred Stock
Loss attributable to common shareholders
Adjusted for:
Goodwill impairment(a)
Inventory write-downs(b)
Equipment start-up costs(c)
New product commercialization costs(d)
Costs related to Value Creation Plan(e)
Reserve for notes receivable(f)
Product withdrawal and recall costs(g)
Other(h)
Fair value adjustment on contingent consideration(i)
Recovery of product withdrawal costs(j)
Reversal of stock-based compensation(k)
Net income tax effect(l)
Adjusted earnings (loss)
December 30, 2017
Net loss
Less: earnings attributable to non-controlling interests
Less: dividends and accretion of Series A Preferred Stock
Loss attributable to common shareholders
Adjusted for:
Goodwill impairment(m)
Costs related to the Value Creation Plan(n)
Product withdrawal and recall costs(o)
Recovery of legal settlement(p)
Reversal of stock-based compensation(k)
Other(h)
Net income tax effect(l)
Change in unrecognized tax benefits(q)
Impact of change in enacted U.S. corporate tax rates(r)
Adjusted loss
Excluding flexible
resealable pouch
and nutrition bar
Per Diluted
Share
$
$
Flexible
resealable pouch
and nutrition bar
Per Diluted
Share
$
$
Consolidated
Per Diluted
Share
$
$
(1.34)
(108,758)
(62)
(7,909)
(116,729)
81,222
3,101
2,913
2,729
1,696
2,232
1,456
296
(2,821)
(1,200)
(182)
681
(24,606)
(0.28)
(119,707)
(752)
(7,809)
(128,268)
115,000
32,160
1,142
(1,024)
(546)
442
(18,332)
(452)
(8,437)
(8,315)
(1.49)
(0.10)
(385)
-
-
(385)
-
-
-
-
678
-
-
-
-
-
-
(176)
117
(14,861)
-
-
(14,861)
-
17,752
-
-
-
-
(6,923)
-
-
(4,032)
(109,143)
(62)
(7,909)
(117,114)
-
(1.34)
81,222
3,101
2,913
2,729
2,374
2,232
1,456
296
(2,821)
(1,200)
(182)
505
-
(24,489)
(0.28)
(134,568)
(752)
(7,809)
(143,129)
115,000
49,912
1,142
(1,024)
(546)
442
(25,255)
(452)
(8,437)
(12,347)
(0.17)
(0.05)
(1.66)
(0.14)
SUNOPTA INC.
45
December 29, 2018 10-K
(a) Reflects the impairment of the remaining goodwill balance associated with the Healthy Fruit reporting unit of the Consumer Products
operating segment.
(b) Reflects the write-down of certain frozen fruit inventory items in the fourth quarter of 2018, due to a change in expected use of aged stocks,
and reduced sales pricing and high production costs, which was recorded in cost of goods sold.
(c) Reflects mainly costs related to the start-up of new roasting equipment, as well as a second cocoa processing line, which were recorded in
cost of goods sold.
(d) Reflects costs for development, production trials and start-up costs, incremental freight charges, and employee training related to the
commercialization of new consumer products, which were recorded in cost of goods sold ($2.3 million) and selling, general and administrative
(“SG&A”) expenses ($0.4 million).
(e) Reflects the write-down of inventories of $0.1 million recorded in cost of goods sold; professional and consulting fees, and employee
recruitment and relocation costs of $0.6 million recorded in SG&A expenses; and asset impairment, facility closure and employee termination
costs of $1.7 million recorded in other expense, all related to the Value Creation Plan.
(f) Reflects a bad debt reserve for notes receivable associated with a previously sold business, which was recorded in other expense.
(g) Reflects product withdrawal and recall costs that were not eligible for reimbursement under insurance policies or exceeded the limits of those
policies, including costs related to the recall of certain sunflower kernel products initiated in the second quarter of 2016, which were recorded
in other expense.
(h) Other included the accretion of contingent consideration obligations, gain/loss on the sale of assets, severance costs unrelated to the Value
Creation Plan, and settlement of a legal matter, which were recorded in other expense/income.
(i) Reflects a fair value adjustment to reduce the contingent consideration obligation related to a prior business acquisition, based on the results
for the business in fiscal 2018, which was recorded in other income.
(j) Reflects the recovery from a third-party supplier of $1.2 million of costs incurred relating to the withdrawal of certain consumer-packaged
products due to quality-related issues, which was recorded in cost of goods sold. Costs incurred related to this withdrawal were recognized
in cost of goods sold in the fourth quarter of 2016.
(k) 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.
(l) Reflects the tax effect of the preceding adjustments to earnings and reflects an overall estimated annual effective tax rate of approximately
27% for 2018 (2017 – 30%) on adjusted earnings before tax.
(m) Reflects the partial impairment of goodwill associated with the Healthy Fruit reporting unit of the Consumer Products operating segment.
(n) Reflects inventory write-downs and facility closure costs of $3.2 million recorded in cost of goods sold; consulting fees, temporary labor,
employee recruitment, relocation and retention costs, and bad debt reserves of $22.9 million recorded in SG&A expenses; and asset
impairment charges and employee termination costs of $23.8 million recorded in other expense.
(o) Reflects costs related to the recall of certain sunflower kernel products, including a $0.7 million adjustment for the estimated lost gross profit
in the first quarter of 2017 caused by the sunflower recall, which reflected a shortfall in revenues against prior year volumes of approximately
$3.3 million, less associated cost of goods sold of approximately $2.6 million; and $0.4 million of product withdrawal costs not eligible for
reimbursement under our insurance policies, which were recorded in other expense.
(p) Reflects a recovery on the early extinguishment of a rebate obligation that arose from the prior settlement in 2016 of a flexible resealable
pouch product recall dispute with a customer, which was recorded in other income.
(q) Reflects the realization of previously unrecognized tax benefits, due to the expiration of the statute of limitations.
(r) Reflects the remeasurement of deferred tax balances to reflect new U.S. corporate tax rates enacted in December 2017.
We believe that investors’ understanding of our financial performance is enhanced by disclosing the specific items that we exclude to compute adjusted
earnings/loss. However, adjusted earnings/loss is not, and should not be viewed as, a substitute for earnings prepared under U.S. GAAP. Adjusted
earnings/loss is presented solely to allow investors to more fully understand how we assess our financial performance.
(3) We use a measure of adjusted EBITDA when assessing the performance of our operations, which we believe is useful to investors’ understanding of our
operating profitability because it excludes non-operating expenses, such as interest and income taxes, and non-cash expenses, such as depreciation,
amortization, stock-based compensation and asset impairment charges, as well as other unusual items that affect the comparability of operating
performance. We also use this measure to review and assess our progress under the Value Creation Plan, and to assess operating performance in
connection with our employee incentive programs. In addition, we are subject to certain restrictions on incurring additional indebtedness based on
availability and metrics that include in their calculation a measure of EBITDA. We define adjusted EBITDA as segment operating income/loss plus
depreciation, amortization and non-cash stock-based compensation, and excluding other unusual items as identified in the determination of adjusted
earnings (refer above to footnote (2)). The following table presents a reconciliation of segment operating income/loss and adjusted EBITDA from net
loss, which we consider to be the most directly comparable U.S. GAAP financial measure. In addition, as described above under footnote (2), we have
prepared this table in a columnar format to present the effect of flexible resealable pouch and nutrition bar operations on our consolidated results for the
periods presented. We believe this presentation assists investors in assessing the results of the operations we have exited and the effect of those operations
on our financial performance.
SUNOPTA INC.
46
December 29, 2018 10-K
For the years ended
December 29, 2018
Net loss
Recovery of income taxes
Interest expense, net
Other expense, net
Goodwill impairment
Total segment operating income
Depreciation and amortization
Stock-based compensation
Inventory write-downs(a)
Equipment start-up costs(b)
New product commercialization costs(c)
Costs related to Value Creation Plan(d)
Recovery of product withdrawal costs(e)
Adjusted EBITDA
December 30, 2017
Net loss
Recovery of income taxes
Interest expense, net
Other expense, net
Goodwill impairment
Total segment operating income (loss)
Depreciation and amortization
Stock-based compensation(f)
Costs related to Value Creation Plan(d)
Product withdrawal and recall costs(g)
Adjusted EBITDA
Excluding flexible
resealable pouch
and nutrition bar
$
Flexible
resealable pouch
and nutrition bar
$
Consolidated
$
(108,758)
(5,243)
34,406
2,147
81,222
3,774
32,788
7,939
3,101
2,913
2,729
713
(1,200)
52,757
(119,707)
(26,328)
32,504
8,847
115,000
10,316
31,994
6,395
23,144
729
72,578
(385)
(135)
-
678
-
158
-
-
-
-
-
-
-
158
(14,861)
(9,501)
-
14,813
-
(9,549)
830
-
2,939
-
(5,780)
(109,143)
(5,378)
34,406
2,825
81,222
3,932
32,788
7,939
3,101
2,913
2,729
713
(1,200)
52,915
(134,568)
(35,829)
32,504
23,660
115,000
767
32,824
6,395
26,083
729
66,798
(a) Reflects the write-down of certain frozen fruit inventory items in the fourth quarter of 2018, due to a change in expected use of aged stocks,
and reduced sales pricing and high production costs, which was recorded in cost of goods sold.
(b) Reflects mainly costs related to the start-up of new roasting equipment, as well as a second cocoa processing line, which were recorded in
cost of goods sold.
(c) Reflects costs for development, production trials and start-up costs, incremental freight charges, and employee training related to the
commercialization of new consumer products, which were recorded in cost of goods sold ($2.3 million) and SG&A expenses ($0.4 million).
(d) For 2018, reflects the write-down of inventories of $0.1 million recorded in cost of goods sold; and professional and consulting fees, and
employee recruitment and relocation costs of $0.6 million recorded in SG&A expenses. For 2017, reflects inventory write-downs and facility
closure costs of $3.2 million recorded in cost of goods sold, and consulting fees, temporary labor, employee recruitment, relocation and
retention costs of $22.9 million recorded in SG&A expenses.
(e) Reflects the recovery from a third-party supplier of $1.2 million of costs incurred relating to the withdrawal of certain consumer-packaged
products due to quality-related issues, which was recorded in cost of goods sold. Costs incurred related to this withdrawal were recognized
in cost of goods sold in the fourth quarter of 2016.
(f) For 2017, stock-based compensation of $6.4 million was recorded in SG&A expenses, and the reversal of $0.7 million of previously
recognized stock-based compensation related to forfeited awards previously granted to terminated employees was recognized in other expense.
(g) Reflects the estimated lost gross profit caused by the recall of certain sunflower kernel products of $0.7 million, which reflected the shortfall
in revenues in the first quarter of 2017 against first quarter 2016 volumes of approximately $3.3 million, less associated cost of goods sold of
approximately $2.6 million.
Although we use adjusted EBITDA as a measure to assess the performance of our business and for the other purposes set forth above, this measure has
limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our results of operations as reported in
accordance with U.S. GAAP. Some of these limitations are:
•
•
•
•
adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest payments on our indebtedness;
adjusted EBITDA does not include the recovery/payment of taxes, which is a necessary element of our operations;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the
future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and
adjusted EBITDA does not include non-cash stock-based compensation, which is an important component of our total compensation program
for employees and directors.
Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our
business. Management compensates for these limitations by not viewing adjusted EBITDA in isolation, and specifically by using other U.S. GAAP and
non-GAAP measures, such as revenues, gross profit, segment operating income, earnings and adjusted earnings to measure our operating performance.
Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as an alternative to our results of
SUNOPTA INC.
47
December 29, 2018 10-K
operations or cash flows from operations determined in accordance with U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable
to the calculation of a similarly titled measure reported by other companies.
(4) In order to evaluate our results of operations, we use certain non-GAAP measures that we believe enhance an investor’s ability to derive meaningful
period-over-period comparisons and trends from our results of operations. In particular, we evaluate our revenues on a basis that excludes the effects of
fluctuations in commodity pricing and foreign exchange rates. In addition, we exclude specific items from our reported results that due to their nature
or size, we do not expect to occur as part of our normal business on a regular basis. These items are identified above under footnote (2), and in the
discussion of our results of operations below. These non-GAAP measures are presented solely to allow investors to more fully assess our results of
operations and should not be 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 29, 2018 decreased by 1.5% to $1,260.9 million from $1,279.6 million for the year
ended December 30, 2017. Excluding the impact on revenues for the year ended December 29, 2018, of sales of flexible
resealable pouch and nutrition bar products (a decrease in revenues of $50.0 million), changes in commodity-related pricing (a
decrease in revenues of $23.0 million) and foreign exchange rates (an increase in revenues of $9.7 million), revenues increased
by 3.6% in 2018, compared with 2017. The increase in revenues on an adjusted basis reflected higher demand for organic
ingredients in the U.S., and higher volumes of aseptic non-dairy beverage products and new broth offerings, as well as fruit
snack products. These increases were offset by the impact of lower pricing for frozen fruit (reflecting strategic pricing
reductions to gain distribution) and volumes of fruit ingredient products (reflecting changing consumer preferences for certain
yogurt items), and lower volumes and pricing for domestically-sourced grains and seeds, as well as lower organic ingredient
sales in Europe.
Gross profit decreased $21.6 million, or 14.9%, to $123.5 million for the year ended December 29, 2018, compared with $145.1
million for the year ended December 30, 2017. As a percentage of revenues, gross profit for the year ended December 29, 2018
was 9.8% compared to 11.3% for the year ended December 30, 2017, a decrease of 1.5%. The gross profit percentage for
2018 would have been approximately 10.8%, excluding inventory write-downs for certain frozen fruit inventory items, due to
a change in expected use of aged stocks, and reduced sales pricing and high production costs ($3.1 million), start-up costs
related to new roasting equipment and a second cocoa processing line ($2.9 million), and costs incurred for production trials
and employee training related to new product introductions ($2.4 million), as well as a non-cash foreign exchange loss on U.S.
dollar-denominated raw material purchase contracts ($4.9 million), partially offset by the recovery of $1.2 million of
previously-incurred product withdrawal costs from a third-party supplier. For 2017, the gross profit percentage would have
been 11.2%, excluding the impact of a non-cash foreign exchange gain on U.S. dollar-denominated raw material purchase
contracts ($5.2 million), mostly offset by the write-down of flexible resealable pouch and nutrition bar inventories as a result
of the exit from these product lines ($2.6 million), lost margin caused by the recall of certain sunflower kernel products initiated
in the second quarter of 2016 ($0.7 million), and facility closure costs under the Value Creation Plan ($0.6 million).
Global Ingredients accounted for $10.4 million of the decrease in gross profit, which was largely due to the impact of foreign
exchange movements on certain contracts within the Netherlands-based operations of our international organic ingredients
platform. In 2018, we recognized a $4.9 million non-cash foreign exchange loss on U.S. dollar-denominated raw material
purchase contracts, compared with a non-cash foreign exchange gain of $5.2 million in 2017, which reflected a significant
strengthening of the U.S. dollar versus the euro in 2018, compared with a significant weakening of the U.S. dollar versus the
euro in 2017. In addition, the decrease in gross profit reflected start-up costs on the new roasting equipment and a second
cocoa processing line, and lower volumes and pricing for domestically-sourced grains and seeds. These factors were partially
offset by higher volumes and pricing spreads for certain internationally-sourced organic ingredients, as well as a gain on
commodity futures contracts used to hedge our organic cocoa position of $1.3 million in 2018, compared with a gain of $0.8
million in 2017. We enter into futures contracts to manage exposure to changes in cocoa prices on our physical organic cocoa
position, which increased in 2018 versus 2017 due to the expansion of our cocoa processing operations in the Netherlands.
Excluding start-up costs, the impacts of foreign exchange and commodity pricing, and the lost margin due the sunflower recall,
the gross profit percentage for Global Ingredients would have been approximately 11.0% and 11.2% in 2018 and 2017,
respectively.
Consumer Products accounted for $10.2 million of the decrease in gross profit, reflecting lower sales pricing, unfavorable
product mix and inventory write-downs for certain frozen fruit items, and lower sales and unfavorable plant utilization for fruit
ingredients, as well as costs related to the commercialization of new beverage products. These factors were partially offset by
the favorable impact within the Healthy Beverage and Snacks platforms of higher sales volumes and improved plant utilization,
and productivity-driven cost savings across all platforms. In addition, we gained operational savings following the
discontinuance of flexible resealable pouch and nutrition bar production in the fourth quarter of 2017.
Total segment operating income for the year ended December 29, 2018 increased by $3.1 million, or 412.6%, to $3.9 million,
compared with $0.8 million for the year ended December 30, 2017. As a percentage of revenues, segment operating income
was 0.3% for the year ended December 29, 2018, compared with 0.1% for the year ended December 30, 2017. The increase in
segment operating income reflected a $19.3 million decrease in SG&A expenses and a favorable year-over-year foreign
SUNOPTA INC.
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December 29, 2018 10-K
exchange impact of $5.4 million (including a $4.8 million favorable result related to forward currency contracts within our
international organic ingredient operations, which partially offset the foreign exchange movement within gross profit). The
decrease in SG&A expenses mainly reflected a reduction in consulting fees and temporary labor costs ($16.1 million), and
employee recruitment, relocation and retention costs ($5.8 million) associated with the Value Creation Plan, partially offset by
higher employee-related compensation costs in 2018, compared with 2017. Excluding SG&A costs related to the Value
Creation Plan, new product development costs ($0.4 million), and the reversal of previously recognized stock-based
compensation for cancelled performance share units ($0.2 million), as well as those items identified above affecting gross
profit, segment operating income as a percentage of revenues on an adjusted basis would have been 1.2% in 2018, compared
with 1.6% in 2017.
Further details on revenue, gross profit and segment operating income/loss variances are provided below under “Segmented
Operations Information”.
Other expense for the year ended December 29, 2018 of $2.8 million mainly reflected a bad debt reserve for notes receivable
associated with a previously sold business ($2.2 million), facility closure costs and asset impairment charges related to the
closure of our nutrition bar facility and the sale of our former roasted snack facility ($1.3 million) and employee termination
costs ($0.4 million), all associated with the Value Creation Plan, as well as product withdrawal and recall costs ($1.5 million).
These expenses were partially offset by a $2.8 million reduction to the remaining contingent consideration obligation that arose
from a prior business acquisition. Other expense for the year ended December 30, 2017 of $23.7 million reflected the
impairment of long-lived assets related to the exits from our flexible resealable pouch and nutrition bar product lines and
operations, and consolidation of our roasted snack operations, as well as the closure of our premium juice facility ($18.2
million), and employee termination costs ($5.6 million) associated with the Value Creation Plan, partially offset by a $1.0
million recovery on the early extinguishment of a rebate obligation that arose from the prior settlement of a recall dispute with
a customer related to flexible resealable pouch products.
In 2018 and 2017, we recognized non-cash impairment charges of $81.2 million and $115.0 million, respectively, to fully write-
off the goodwill that arose from our acquisition of Sunrise Holdings (Delaware), Inc. (“Sunrise”) in October 2015. These
impairments reflected lower-than-expected sales and operating performance for the business since the acquisition of Sunrise,
as well as uncertainty of future revenue growth patterns due to potential sales pricing limitations and consumer consumption
trends, as well as an extended timeframe to reduce costs and increase profitability in the business through planned productivity
initiatives focused on plant automation and supply chain efficiency.
Interest expense increased by $1.9 million to $34.4 million for the year ended December 29, 2018, compared with $32.5 million
for the year ended December 30, 2017. Interest expense included the amortization of debt issuance costs of $2.5 million and
$2.8 million in 2018 and 2017, respectively. The year-over-year increase in cash interest expense primarily reflected higher
borrowings under our line of credit facilities to fund increased working capital requirements and settle costs incurred under the
Value Creation Plan, together with an increase in weighted-average interest rates.
We recognized a recovery of income tax of $5.4 million for the year ended December 29, 2018, compared with a recovery of
income tax of $35.8 million for the year ended December 30, 2017 (which included a $8.4 million recovery related to the
remeasurement of deferred tax balances to reflect the corporate tax rates enacted in the U.S. in December 2017, and the
realization of $0.5 million of previously unrecognized tax benefits). Excluding the impact of goodwill impairment and other
non-deductible amounts from pre-tax losses, the effective tax rates for 2018 and 2017 would have been 27.5% and 48.6%,
respectively. The effective tax rate in 2018 reflected the impact of the reduction in the U.S. federal corporate tax rate from
35% to 21%, and the effective tax rate for 2017 reflected effect of a mix of pre-tax losses in the U.S. (related to costs associated
with the Value Creation Plan) and pre-tax earnings in certain other jurisdictions.
On a consolidated basis, we realized a loss attributable to common shareholders of $117.1 million (diluted loss per share of
$1.34) for the year ended December 29, 2018, compared with a loss attributable to common shareholders of $143.1 million
(diluted loss per share of $1.66) for the year ended December 30, 2017.
For the year ended December 29, 2018, adjusted loss was $24.5 million, or $0.28 per diluted share, on a consolidated basis,
compared with an adjusted loss of $12.3 million, or $0.14 per diluted share, on a consolidated basis for the year ended December
30, 2017. Excluding flexible resealable pouch and nutrition bar product lines and operations, adjusted loss was $24.6 million,
or $0.28 per diluted share, for the year ended December 29, 2018, compared with an adjusted loss of $8.3 million, or $0.10 per
diluted share, for the year ended December 30, 2017. Adjusted EBITDA for the year ended December 29, 2018 was $52.9
million on a consolidated basis, compared with $66.8 million on a consolidated basis for the year ended December 30, 2017.
Excluding flexible resealable pouch and nutrition bar product lines and operations, adjusted EBITDA for the year ended
December 29, 2018 was $52.8 million, compared with $72.6 million for the year ended December 30, 2017. Adjusted earnings
SUNOPTA INC.
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December 29, 2018 10-K
and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of
adjusted earnings/loss and adjusted EBITDA from loss from continuing operations, which we consider to be the most directly
comparable U.S. GAAP financial measure.
Segmented Operations Information
Global Ingredients
December 29, 2018 December 30, 2017
Change
% Change
Revenue
Gross Profit
Gross Profit %
Operating Income
Operating Income %
559,712
55,270
9.9%
16,430
2.9%
536,928
65,663
12.2%
19,932
3.7%
22,784
(10,393)
(3,502)
4.2%
-15.8%
-2.3%
-17.6%
-0.8%
Global Ingredients contributed $559.7 million in revenues for the year ended December 29, 2018, compared to $536.9 million
for the year ended December 30, 2017, an increase of $22.8 million, or 4.2%. Excluding the impact on revenues of changes
including commodity-related pricing and foreign exchange rate movements (a decrease in revenues of $2.4 million), Global
Ingredients revenues increased approximately 4.7%. The table below explains the increase in revenue:
Global Ingredients Revenue Changes
Revenues for the year ended December 30, 2017
Increased volumes of internationally-sourced organic ingredients including cocoa, oils,
fruits and vegetables, and coffee, offset by lower volumes of animal feed and seeds.
Overall volumes of organic ingredients were higher in the U.S. and lower in Europe
period-over-period
Favorable foreign exchange impact on euro-denominated sales due to a weaker U.S.
dollar period-over-period
Increased commodity pricing for domestically-sourced corn, partially offset by lower
pricing for sunflower, feed and soy
Decreased domestically-sourced volumes of specialty soy (due to tighter supply in 2018
and exit from certain varieties in 2017) and milled corn, and soft domestic sunflower
market due to global competition, partially offset by higher specialty corn, organic feed
and roasted snack volumes
Decreased commodity pricing for internationally-sourced organic ingredients
Revenues for the year ended December 29, 2018
$536,928
40,235
9,730
1,049
(15,044)
(13,186)
$559,712
Gross profit in Global Ingredients decreased by $10.4 million to $55.3 million for the year ended December 29, 2018, compared
to $65.7 million for the year ended December 30, 2017, and the gross profit percentage decreased by 2.3% to 9.9%. The
decrease in gross profit percentage was primarily due to the unfavorable non-cash foreign exchange impact on U.S. dollar-
denominated raw material purchase contracts within our international organic ingredients operations. In addition, the decrease
in gross profit percentage reflected start-up costs related to new roasting equipment and a second cocoa processing line, reduced
sunflower pricing and operating inefficiencies within our sunflower operations due to lower production volumes, as well as the
loss of higher margin milled corn volumes and reduced pricing spread on organic feed. These factors were partially offset by
a favorable cocoa hedging result within our international organic ingredients operations, as well as improved pricing spreads
on organic cocoa and certain other organic ingredients. The table below explains the decrease in gross profit:
SUNOPTA INC.
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December 29, 2018 10-K
Global Ingredients Gross Profit Changes
Gross profit for the year ended December 30, 2017
Unfavorable foreign exchange impact in 2018 on U.S. dollar-denominated raw material
purchase contracts within our international organic ingredients operations, compared
with a favorable foreign exchange impact in 2017 (partially offset below in operating
income by a $4.8 million favorable reduction in losses on forward currency contracts)
Start-up costs of $2.7 million and commercial delays related to new roasting equipment,
lower volumes and pricing for sunflower inshell and kernel, lower volumes of higher
margin milled corn, and reduced pricing spread for animal feed
Higher volumes and pricing spreads for certain internationally-sourced organic
ingredients, including cocoa, fruits and vegetables, coffee and oils, partially offset by
seeds, animal feed and grains, as well as start-up costs of $0.2 million related to the
expansion of our cocoa facility in the Netherlands
Favorable cocoa commodity hedging result within our international organic ingredient
operations
Gross profit for the year ended December 29, 2018
$65,663
(10,030)
(5,869)
5,054
452
$55,270
Operating income in Global Ingredients decreased by $3.5 million, or 17.6%, to $16.4 million for the year ended December
29, 2018, compared to $19.9 million for the year ended December 30, 2017. The table below explains the decrease in operating
income:
Global Ingredients Operating Income Changes
Operating income for the year ended December 30, 2017
Decrease in gross profit, as explained above
Higher employee-related compensation costs and unfavorable foreign exchange impact
on euro-denominated SG&A expenses, partially offset by lower professional fees
Decrease in foreign exchange losses within our international organic ingredient
operations, which included a $4.8 million reduction in marked-to-market losses related
to forward currency contracts
Decrease in corporate cost allocations
Operating income for the year ended December 29, 2018
$19,932
(10,393)
(1,471)
5,561
2,801
$16,430
Looking forward, we believe Global Ingredients is well positioned in the growing organic food and non-GMO categories.
Having completed the sale of our soy and corn business, which formed part of Global Ingredient, we intend to focus our efforts
on growing our international organic sourcing and supply capabilities, and leveraging these capabilities internally with forward
and backward integration where opportunities exist. We expect global competition on price and supply in the sunflower
category to remain strong, which may continue to negatively impact the margin profile and profitability of this business. In
addition, we have experienced delays in the operational start-up of the new roasting equipment, which has impacted our ability
to meet existing customer demand for roasted products. However, the equipment has now been fully commissioned, which
should enable us to pursue new business opportunities. The statements in this paragraph are forward-looking statements. See
“Forward-Looking Statements” above. Several factors could adversely impact our ability to meet these forward-looking
expectations, including increased supply pressure in the commodity-based markets in which we operate, increased competition,
volume decreases or loss of customers, unexpected delays in our ingredient expansion plans, or our inability to secure quality
inputs or achieve our product mix or cost reduction goals, along with the other factors described above under “Forward-Looking
Statements”.
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December 29, 2018 10-K
Consumer Products
December 29, 2018
December 30, 2017
Change
% Change
Revenue
Gross Profit
Gross Profit %
Operating Income
Operating Income %
701,140
68,200
9.7%
1,238
0.2%
742,665
79,424
10.7%
11,924
1.6%
(41,525)
(11,224)
(10,686)
-5.6%
-14.1%
-1.0%
-89.6%
-1.4%
Consumer Products contributed $701.1 million in revenues for the year ended December 29, 2018, compared to $742.7 million
for the year ended December 30, 2017, a $41.5 million, or 5.6% decrease. Excluding the impact on revenues of sales of flexible
resealable pouch and nutrition bar products (a decrease in revenues of $50.0 million) and changes in raw fruit commodity-
related pricing (a decrease in revenues of $10.8 million), Consumer Products revenues increased approximately 2.8%. The
table below explains the decrease in revenues:
Consumer Products Revenue Changes
Revenues for the year ended December 30, 2017
Impact of the exit from flexible resealable pouch and nutrition bars product lines
Lower pricing (related to strategic pricing reductions to gain distribution) more than
offsetting higher volumes of frozen fruit, and lower volumes of fruit ingredients due to
declines in consumer consumption trends for certain yogurt items
Decreased commodity pricing for raw fruit
Higher volumes of non-dairy aseptic beverage products into the foodservice and retail
channels, and the introduction of new broth offerings, partially offset by lower volumes
of premium juice products
Higher volumes of fruit snack products
Revenues for the year ended December 29, 2018
$742,665
(50,039)
(12,289)
(10,836)
23,758
7,881
$701,140
Gross profit in Consumer Products decreased by $11.2 million to $68.2 million for the year ended December 29, 2018,
compared to $79.4 million for the year ended December 30, 2017, and the gross profit percentage decreased by 1.0% to 9.7%.
For the year ended December 29, 2018, the gross profit percentage primarily reflected lower sales pricing, unfavorable product
mix and inventory write-downs for certain frozen fruit items, and lower sales and unfavorable plant utilization for fruit
ingredients, as well as costs related to the commercialization of new beverage products. These factors were partially offset by
the favorable impact within the Healthy Beverage and Snacks platforms of higher sales volumes and improved plant utilization,
productivity-driven cost savings across all platforms, and operational savings following the discontinuance of flexible
resealable pouch and nutrition bar production in the fourth quarter of 2017. In addition, in 2018, we recorded a recovery of
$1.2 million of previously-incurred product withdrawal costs from a third-party supplier. The table below explains the decrease
in gross profit:
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December 29, 2018 10-K
Consumer Products Gross Profit Changes
Gross profit for the year ended December 30, 2017
Lower sales pricing, unfavorable product mix, and inventory write-downs of $3.1
million in the fourth quarter of 2018 for certain frozen fruit items, and lower volumes
and unfavorable plant utilization for fruit ingredients, partially offset by productivity-
driven cost savings and the recovery of previously-incurred product withdrawal costs of
$1.2 million
Higher sales volumes, plant utilization and productivity improvements for aseptic
beverage and fruit snack products, partially offset by higher processing and supply chain
costs for premium juice products, and new product commercialization costs of $2.4
million
Operational savings following the discontinuance of flexible resealable pouch and
nutrition bar production in the fourth quarter of 2017
Gross profit for the year ended December 29, 2018
$79,424
(33,212)
13,760
8,228
$68,200
Operating income in Consumer Products decreased by $10.7 million to $1.2 million for the year ended December 29, 2018,
compared to $11.9 million for the year ended December 30, 2017. The table below explains the decrease in operating income:
Consumer Products Operating Income Changes
Operating loss for the year ended December 30, 2017
Decrease in gross profit, as explained above
Higher employee-related compensation costs, marketing expenses and unfavorable
foreign exchange on international operations, offset by lower consulting costs
Decrease in corporate cost allocations
Operating income for the year ended December 29, 2018
$11,924
(11,224)
(4,570)
5,108
$1,238
Looking forward we believe Consumer Products remains well-positioned in markets with long-term growth potential.
However, pricing constraints for frozen fruit could continue to adversely affect the near-term revenue and margin performance
of the business. We have initiated plans to bring automation and supply chain efficiencies to our frozen fruit operations to
return the business to profitable growth, which will be phased in over the next two crop seasons. Meanwhile, we continue to
focus our efforts on (i) leveraging our sales and marketing resources to create greater channel specific focus on retail and
foodservice to increase opportunities to diversify our portfolio and drive incremental sales volume; (ii) continuing to invest in
our facilities to enhance quality, safety, capacity, and manufacturing efficiency to drive both incremental sales and cost
reduction, including a significant investment in our Allentown, Pennsylvania, aseptic beverage facility to expand capacity and
production capabilities, which is expected to come online in the third quarter of 2019; (iii) executing procurement and supply
chain cost reduction initiatives focused on leveraging our buying power and creating increased network efficiency in our
planning and logistics efforts; and (iv) leveraging our innovation capabilities to bring new value-added packaged products and
processes to market and to increase our capacity utilization across Consumer Products. The statements in this paragraph are
forward-looking statements. See “Forward-Looking Statements” above. Several factors could adversely impact our ability to
meet these forward-looking expectations, including unfavorable shifts in consumer preferences, increased competition, reduced
availability of raw material supply, volume decreases or loss of customers, unexpected delays in our expansion and integration
plans, inefficiencies in our manufacturing processes, lack of consumer product acceptance, or our inability to successfully
implement the particular goals and strategies indicated above, along with the other factors described above under “Forward-
Looking Statements”.
Corporate Services
December 29, 2018 December 30, 2017
Change
% Change
Operating Loss
(13,736)
(31,089)
17,353
55.8%
SUNOPTA INC.
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December 29, 2018 10-K
Operating loss at Corporate Services decreased by $17.4 million to $13.7 million for the year ended December 29, 2018, from
a loss of $31.1 million for the year ended December 30, 2017. The table below explains the decrease in operating loss:
Corporate Services Operating Loss Changes
Operating loss for the year ended December 30, 2017
Lower non-structural third-party consulting costs and employee recruitment, relocation
and retention costs associated with the Value Creation Plan
Lower employee-related compensation costs, professional fees and travel expenses, as
well as favorable foreign exchange impacts on foreign currency transactions and
Canadian dollar-denominated SG&A expenses, partially offset by increased product
development costs and depreciation expense
Decrease in corporate cost allocations to SunOpta operating segments
Increased stock-based compensation costs as a result of a change in our long-term
incentive plan in the second quarter of 2017
Operating loss for the year ended December 29, 2018
$(31,089)
21,897
4,907
(7,909)
(1,542)
$(13,736)
Corporate cost allocations mainly consist of salaries of corporate personnel who directly support the operating segments, as
well as costs related to the enterprise resource management system. These expenses are allocated to the operating segments
based on (1) specific identification of allocable costs that represent a service provided to each segment and (2) a proportionate
distribution of costs based on a weighting of factors such as revenue contribution and number of people employed within each
segment.
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December 29, 2018 10-K
Consolidated Results of Operations for Fiscal Years 2017 and 2016
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
Loss from continuing operations before the following
Interest expense, net
Recovery of income taxes
Loss from continuing operations(2),(3)
Earnings attributable to non-controlling interests
Loss from discontinued operations attributable to
SunOpta Inc.
Loss attributable to SunOpta Inc.
Dividends and accretion on Series A Preferred Stock
December 30,
2017
$
December 31,
2016
$
536,928
742,665
1,279,593
558,798
787,933
1,346,731
65,663
79,424
145,087
62,358
63,594
125,952
19,932
11,924
(31,089)
767
23,660
115,000
(137,893)
32,504
(35,829)
(134,568)
752
-
(135,320)
(7,809)
24,771
3,222
(13,247)
14,746
28,292
17,540
(31,086)
43,275
(23,797)
(50,564)
54
(570)
(51,188)
(1,812)
Change
$
(21,870)
(45,268)
(67,138)
3,305
15,830
19,135
(4,839)
8,702
(17,842)
(13,979)
(4,632)
97,460
(106,807)
(10,771)
(12,032)
(84,004)
698
570
(84,132)
(5,997)
Change
%
-3.9%
-5.7%
-5.0%
5.3%
24.9%
15.2%
-19.5%
270.1%
-134.7%
-94.8%
-16.4%
555.6%
-343.6%
-24.9%
-50.6%
-166.1%
1292.6%
100.0%
-164.4%
-331.0%
Loss attributable to common shareholders(4)
(143,129)
(53,000)
(90,129)
-170.1%
(1) The following table presents a reconciliation of segment operating income/loss to loss 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 2018
and 2017” table regarding the use of this non-GAAP measure).
December 30, 2017
Segment operating income (loss)
Other expense, net
Goodwill impairment
Earnings (loss) from continuing operations before the following
December 31, 2016
Segment operating income (loss)
Other expense, net
Goodwill impairment
Earnings (loss) from continuing operations before the following
Global
Ingredients
$
19,932
(2,311)
-
17,621
24,771
(1,753)
(17,540)
5,478
Consumer
Products
$
11,924
(21,093)
(115,000)
(124,169)
3,222
(25,705)
-
(22,483)
Corporate
Services
$
(31,089)
(256)
-
(31,345)
(13,247)
(834)
-
(14,081)
Consolidated
$
767
(23,660)
(115,000)
(137,893)
14,746
(28,292)
(17,540)
(31,086)
(2) 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 (refer to footnote (2) to the “Consolidated Results of Operations for Fiscal Years 2018 and 2017” table
regarding the use of this non-GAAP measure). In addition, in recognition of our exit from flexible resealable pouch and nutrition bar product lines and
operations (as described above under “Value Creation Plan”), we have prepared this table in a columnar format to present the effect of these operations
SUNOPTA INC.
55
December 29, 2018 10-K
on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the results of the operations we have
exited and the effect of those operations on our financial performance.
For the years ended
December 30, 2017
Loss from continuing operations
Less: earnings attributable to non-controlling interests
Less: dividends and accretion of Series A Preferred Stock
Loss from continuing operations attributable to common
Excluding flexible
resealable pouch
and nutrition bar
Per Diluted
Share
$
$
Flexible
resealable pouch
and nutrition bar
Per Diluted
Share
$
$
Consolidated
Per Diluted
Share
$
$
(119,707)
(752)
(7,809)
(14,861)
-
-
(134,568)
(752)
(7,809)
shareholders
(128,268)
(1.49)
(14,861)
(0.17)
(143,129)
(1.66)
Adjusted for:
Goodwill impairment(a)
Costs related to the Value Creation Plan(b)
Product withdrawal and recall costs(c)
Recovery of legal settlement(d)
Reversal of stock-based compensation(e)
Other(f)
Net income tax effect(g)
Change in unrecognized tax benefits(h)
Impact of change in enacted U.S. corporate tax rates(i)
115,000
32,160
1,142
(1,024)
(546)
442
(18,332)
(452)
(8,437)
-
17,752
-
-
-
-
(6,923)
-
-
115,000
49,912
1,142
(1,024)
(546)
442
(25,255)
(452)
(8,437)
Adjusted loss
(8,315)
(0.10)
(4,032)
(0.05)
(12,347)
(0.14)
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 attributable to common
shareholders
Adjusted for:
(49,288)
(54)
(1,812)
(1,276)
-
-
(50,564)
(54)
(1,812)
(51,154)
(0.60)
(1,276)
(0.01)
(52,430)
(0.61)
Costs related to business acquisitions(j)
Costs related to the Value Creation Plan(k)
Goodwill impairment(l)
Legal settlement and litigation-related legal fees(m)
Product withdrawal and recall costs(n)
Inventory reserves and liquidation sales to de-risk positions(o)
Plant start-up costs(p)
Write-off of debt issuance costs(q)
Other(r)
Gain on settlement of contingent consideration(s)
Net income tax effect(g)
Change in unrecognized tax benefits(h)
Adjusted earnings (loss)
27,802
18,326
17,540
10,850
5,693
3,428
1,565
215
1,642
(1,715)
(25,825)
(1,268)
7,099
-
-
-
-
-
-
-
-
-
-
-
-
(1,276)
27,802
18,326
17,540
10,850
5,693
3,428
1,565
215
1,642
(1,715)
(25,825)
(1,268)
5,823
(0.01)
0.08
0.07
(a) Reflects the impairment of goodwill associated with the Healthy Fruit reporting unit of the Consumer Products operating segment.
(b) Reflects inventory write-downs and facility closure costs of $3.2 million recorded in cost of goods sold; consulting fees, temporary labor,
employee recruitment, relocation and retention costs, and bad debt reserves of $22.9 million recorded in SG&A expenses; and asset
impairment charges and employee termination costs of $23.8 million recorded in other expense, all related to the Value Creation Plan.
(c) Reflects costs related to the recall of certain sunflower kernel products initiated in the second quarter of 2016, including a $0.7 million
adjustment for the estimated lost gross profit in the first quarter of 2017 caused by the sunflower recall, which reflected a shortfall in revenues
against prior year volumes of approximately $3.3 million, less associated cost of goods sold of approximately $2.6 million; and $0.4 million
of product withdrawal costs not eligible for reimbursement under our insurance policies, which were recorded in other expense.
(d) Reflects a recovery on the early extinguishment of a rebate obligation that arose from the prior settlement of a flexible resealable pouch
product recall dispute with a customer (see (m) below), which was recorded in other income.
(e) 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.
(f) Other included fair value adjustments related to contingent consideration arrangements; severance costs unrelated to the Value Creation Plan;
and gain/loss on the sale of assets, which were recorded in other expense.
SUNOPTA INC.
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December 29, 2018 10-K
(g) 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.
(h) Reflects the realization of previously unrecognized tax benefits, due to the expiration of the statute of limitations.
(i) Reflects the remeasurement of deferred tax balances to reflect new U.S. corporate tax rates enacted in December 2017.
(j) Reflects costs related to the acquisition of Sunrise, including an acquisition accounting adjustment related to Sunrise’s inventory sold during
the year of $15.0 million, which was recorded in cost of goods sold; the amortization and expense of debt issuance costs incurred in connection
with the initial financing related to the acquisition of Sunrise of $10.4 million, which were 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 acquisition of Sunrise, which
were recorded in cost of goods sold and other expense.
(k) Reflects legal and other professional advisory costs associated with the strategic review and execution of the Value Creation Plan of $4.0
million, which were recorded in SG&A expenses; and asset impairment charges and employee termination costs of $14.3 million recorded in
other expense.
(l) Reflects the impairment of goodwill associated with the Sunflower reporting unit of the Raw Material Sourcing and Supply operating segment.
(m) Reflects a charge of $9.0 million for the settlement of a flexible resealable pouch product recall dispute with a customer, which was recorded
in other expense, and associated legal costs, which were recorded in SG&A expenses. The settlement amount included up to $4.0 million in
rebates payable to the customer over a four-year period.
(n) Reflects costs of $4.0 million for the withdrawal of certain consumer-packaged products for quality-related issues and the sunflower recall,
of which $1.2 million was recorded in cost of goods sold and $2.8 million was recorded in other expense. Also reflects a $1.7 million
adjustment for the estimated lost gross profit 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.
(o) Reflects aging reserves and low margin sales to reduce inventory exposures mainly related to certain grain varieties that we exited, which
were recorded in cost of goods sold.
(p) Plant start-up costs relate to the ramp-up of production at our Allentown, Pennsylvania, facility following the completion of the addition of
aseptic beverage processing and filling capabilities, which were recorded in cost of goods sold. These start-up costs reflected the negative
gross profit reported by the facility as the facility ramped up to break-even production levels.
(q) Reflects the write-off to interest expense of $0.2 million of remaining unamortized debt issuance costs related to our former North American
credit facilities, which were replaced by a global asset-based credit facility in February 2016.
(r) Other includes severance costs of $0.9 million unrelated to the Value Creation Plan, and fair value adjustments related to contingent
consideration arrangements of $0.6 million, which were recorded in other expense.
(s) Reflects a gain on settlement of a contingent consideration obligation, which was recorded in other income.
(3) The following table presents a reconciliation of segment operating income/loss and adjusted EBITDA from 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 2018 and 2017” table regarding the use of this non-GAAP measure). In addition, as described above in footnote (2), we have prepared this table
in a columnar format to present the effect of flexible resealable pouch and nutrition bar operations on our consolidated results for the periods presented.
For the years ended
December 30, 2017
Loss from continuing operations
Recovery of income taxes
Interest expense, net
Other expense, net
Goodwill impairment
Total segment operating income (loss)
Depreciation and amortization
Stock-based compensation(a)
Costs related to Value Creation Plan(b)
Product withdrawal and recall costs(c)
Adjusted EBITDA
December 31, 2016
Loss from continuing operations
Recovery of income taxes
Interest expense, net
Other expense, net
Goodwill impairment
Total segment operating income (loss)
Depreciation and amortization
Stock-based compensation(a)
Costs related to business acquisitions(d)
Costs related to Value Creation Plan(b)
Inventory reserves and liquidation sales to de-risk positions(e)
Product withdrawal and recall costs(c)
Litigation-related legal fees(f)
Plant start-up costs(g)
Adjusted EBITDA
Excluding flexible
resealable pouch
and nutrition bar
$
Flexible
resealable pouch
and nutrition bar
$
Consolidated
$
(119,707)
(26,328)
32,504
8,847
115,000
10,316
31,994
6,395
23,144
729
72,578
(49,288)
(22,981)
43,275
28,292
17,540
16,838
33,320
3,885
15,150
4,041
3,428
2,855
1,850
1,565
82,932
(14,861)
(9,501)
-
14,813
-
(9,549)
830
-
2,939
-
(5,780)
(1,276)
(816)
-
-
-
(2,092)
830
-
-
-
-
-
-
-
(1,262)
(134,568)
(35,829)
32,504
23,660
115,000
767
32,824
6,395
26,083
729
66,798
(50,564)
(23,797)
43,275
28,292
17,540
14,746
34,150
3,885
15,150
4,041
3,428
2,855
1,850
1,565
81,670
SUNOPTA INC.
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December 29, 2018 10-K
(a) For 2017, stock-based compensation of $6.4 million was recorded in SG&A expenses, and the reversal of $0.7 million of previously
recognized stock-based compensation related to forfeited awards of employees that were terminated in connection with the Value Creation
Plan, was recognized in other expense. For 2016, stock-based compensation of $3.9 million was recorded in SG&A expenses.
(b) For 2017, reflects inventory write-downs and facility closure costs of $3.2 million recorded in cost of goods sold, and consulting fees,
temporary labor, employee recruitment, relocation and retention costs, and bad debt reserves of $22.9 million recorded in SG&A expenses.
For 2016, reflects legal and other professional advisory costs of $4.0 million recorded in SG&A expenses.
(c) For 2017, reflects the estimated lost gross profit caused by the recall of certain sunflower kernel products of $0.7 million, which reflected the
shortfall in revenues in the first quarter of 2017 against first quarter 2016 volumes of approximately $3.3 million, less associated cost of goods
sold of approximately $2.6 million. For 2016, reflects costs of $1.2 million for the withdrawal of certain consumer-packaged products for
quality-related issues, which was recorded in cost of goods and the estimated lost gross profit caused by the sunflower recall of $1.7 million,
which reflected a shortfall in revenues against anticipated volumes of approximately $9.8 million, less associated cost of goods sold of
approximately $8.1 million.
(d) Reflects costs related to the acquisition accounting adjustment related to Sunrise’s inventory sold in 2016 of $15.0 million, and the integration
costs related to the closure and consolidation of our frozen fruit processing operations following the acquisition of Sunrise of $0.2 million,
which were recorded in cost of goods sold.
(e) Reflects aging reserves and low margin sales to reduce inventory exposures mainly related to certain grain varieties that we exited, which
were recorded in cost of goods sold.
(f) Reflects legal costs related to the settlement of the flexible resealable pouch product recall dispute with a customer, which were recorded in
SG&A expenses
(g) Reflects the negative gross profit reported by the Allentown facility as the facility ramped up to break-even production levels.
(4) Refer to footnote (4) to the “Consolidated Results of Operations for Fiscal Years 2018 and 2017” table regarding the use of certain other non-GAAP
measures in the discussion of our results of operations below.
Revenues for the year ended December 30, 2017 decreased by 5.0% to $1,279.6 million from $1,346.7 million for the year
ended December 31, 2016. Excluding the impact on revenues for the year ended December 30, 2017 of changes in commodity-
related pricing and foreign exchange rates (a decrease in revenues of $15.0 million), all sales of flexible resealable pouch and
nutrition bar products (a decrease in revenues of $6.2 million), and estimated impact of the recall of certain sunflower kernel
products based on shortfall against prior year volumes (a decrease in revenues of $3.3 million), revenues decreased by 3.3% in
2017, compared with 2016. This decrease in revenues on an adjusted basis reflected a lower sales of frozen fruit products due
to lower consumer demand and lost customer volumes; lower raw and roasted sunflower volumes, due to global competition
and reduced customer demand following the sunflower recall; and lower sales of non-dairy aseptic beverage products related
to the loss of a significant customer. These factors were partially offset by increased volumes of premium juice products and
custom fruit ingredients.
Gross profit increased $19.1 million, or 15.2%, to $145.1 million for the year ended December 30, 2017, compared with $126.0
million for the year ended December 31, 2016. As a percentage of revenues, gross profit for the year ended December 30, 2017
was 11.3% compared to 9.4% for the year ended December 31, 2016, an increase of 2.0%. The gross profit percentage for
2017 would have been approximately 11.2%, excluding the impact of a non-cash foreign exchange gain on U.S. dollar-
denominated raw material purchase contracts ($5.2 million), mostly offset by the write-down of flexible resealable pouch and
nutrition bar inventories as a result of the plan to exit these product lines ($2.6 million), lost margin caused by the sunflower
recall ($0.7 million), and facility closure costs under the Value Creation Plan ($0.6 million). For 2016, the gross profit
percentage would have been 11.0%, 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 exited ($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), as well as a non-cash foreign exchange
gain on U.S. dollar-denominated raw material purchase contracts ($0.6 million). Excluding these items, the gross profit
percentage increased 0.2% on an adjusted basis in 2017, compared with 2016, which reflected improved operating efficiencies
and raw material pricing within our healthy fruit operations, and operational savings following the closure of our premium
juice facility, as well as a favorable foreign exchange impact on U.S. dollar-denominated raw material sourcing within our
international organic ingredient operations. These factors were partially offset by higher losses within our flexible resealable
pouch and nutrition bar operations, partially related to wind-down activities in the fourth quarter of 2017. In addition, we
experienced lower production volumes and operating efficiencies within our sunflower and roasting operations following the
recall.
Total segment operating income for the year ended December 30, 2017, decreased by $14.0 million, or 94.8%, to $0.8 million,
compared with $14.7 million for the year ended December 31, 2016. As a percentage of revenues, segment operating income
was 0.1% for the year ended December 30, 2017, compared with 1.1% for the year ended December 31, 2016. The decrease
in segment operating income reflected a $28.8 million increase in SG&A expenses that more than offset the higher overall
gross profit as described above. The increase in SG&A expenses mainly reflected incremental consulting fees and temporary
labor costs ($12.5 million), employee recruitment, relocation and retention costs ($6.0 million), and bad debt reserves related
to exited operations ($0.4 million) associated with the Value Creation Plan, partially offset by lower legal costs related to
settlement of a product recall dispute in 2016 ($1.9 million). Excluding these items, as well as those items identified above
SUNOPTA INC.
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December 29, 2018 10-K
affecting gross profit, segment operating income as a percentage of revenues on an adjusted basis would have been 1.7% in
2017, compared with 3.2% in 2016, which reflected higher employee compensation-related costs in 2017 related to structural
investments in new quality, sales, marketing, engineering and accounting resources. In addition, segment operating income
reflected a foreign exchange loss of $5.6 million in 2017, which mainly reflected the impact on our international organic
ingredient and frozen fruit operations of a weakening of U.S. dollar relative to the euro and Mexican peso, compared with a
loss of $1.2 million in 2016.
Further details on revenue, gross profit and segment operating income/loss variances are provided below under “Segmented
Operations Information”.
Other expense for the year ended December 30, 2017, of $23.7 million mainly reflected the impairment of long-lived assets
related to the exits from our flexible resealable pouch and nutrition bar product lines and operations, and consolidation of our
roasted snack operations, as well as the closure of the premium juice facility ($18.2 million), and employee termination costs
($5.6 million) associated with the Value Creation Plan, partially offset by a $1.0 million recovery on the early extinguishment
of a rebate obligation that arose from the prior settlement of a recall dispute with a customer related to flexible resealable pouch
products. Other expense for the year ended December 31, 2016, of $28.3 million reflected the impairment of long-lived assets
related to the closure of certain processing facilities ($11.5 million), and employee termination costs ($2.8 million) associated
with the Value Creation Plan, the cost of the settlement of the aforementioned flexible resealable pouch product recall dispute
with a customer ($9.0 million, which included up to $4.0 million in rebates payable to the customer over a four-year period),
as well as costs associated with product withdrawals and recalls ($2.8 million), and facility rationalization and severance costs
primarily related to the consolidation of our frozen fruit processing facilities following the acquisition of Sunrise ($2.2 million).
Other expenses in 2016 were partially offset by the $1.7 million gain on settlement of the contingent consideration obligation
related to a prior business acquisition.
In 2017, we recognized a non-cash goodwill impairment charge of $115.0 million related to write down a portion of the
goodwill that arose from our acquisition of Sunrise, due to lower-than-expected sales and operating performance for the
business since the acquisition, and uncertainty of future sales due to lost customer volumes and declining consumer
consumption trends in 2017. In 2016, we recognized a non-cash goodwill impairment charge of $17.5 million related to our
sunflower business, due to lower anticipated sales demand and higher expected production and capital costs as a result of the
sunflower recall.
Interest expense decreased by $10.8 million to $32.5 million for the year ended December 30, 2017, compared with $43.3
million for the year ended December 31, 2016. Interest expense included the amortization and expense of debt issuance costs
of $2.8 million and $11.3 million in 2017 and 2016, respectively. The year-over-year decrease in interest expense primarily
reflected the reduction in non-cash amortization following the one-year maturity of the initial second lien loans used to partially
fund the acquisition of Sunrise, and repayment of $79.0 million of second lien debt with the net proceeds from the Preferred
Stock offering in October 2016, and further extinguishment of $7.5 million of second lien debt in October 2017.
We recognized a recovery of income tax of $35.8 million for the year ended December 30, 2017 (including a $8.4 million
recovery related to the remeasurement of deferred tax balances to reflect the new corporate tax rates enacted in the U.S. in
December 2017, and the realization of $0.5 million of previously unrecognized tax benefits), compared with 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). Excluding the effects of the change the U.S. corporate tax rate and the realization of unrecognized
tax benefits, the effective tax rates for 2017 and 2016 would have been 48.6% and 39.6%, respectively, of the loss before
income taxes (excluding the non-deductible goodwill impairment losses). The effective tax rates reflected the effect of a mix
of pre-tax losses in the U.S. and pre-tax earnings in certain other jurisdictions. In fiscal 2017, pre-tax losses in the U.S. mainly
reflected costs associated with the Value Creation Plan. In fiscal 2016, pre-tax losses in the U.S. reflected costs associated with
the Value Creation Plan, as well as the acquisition of Sunrise, settlement of the product recall dispute, and product withdrawal
and recall costs. With the effect of the corporate tax law changes in the U.S. beginning in fiscal 2018, we expect our effective
tax rate will be approximately 24% to 26%, excluding discrete items.
Loss from continuing operations attributable to SunOpta Inc. for the year ended December 30, 2017 was $135.3 million,
compared with a loss of $50.6 million for the year ended December 31, 2016, a decrease of $84.7 million. Diluted loss per
share from continuing operations was $1.66 for the year ended December 30, 2017, compared with diluted loss per share from
continuing operations of $0.61 for the year ended December 31, 2016.
The loss from discontinued operations of $0.6 million in 2016 was related to our investment in Opta Minerals Inc. (“Opta
Minerals”), which we sold in April 2016.
SUNOPTA INC.
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December 29, 2018 10-K
On a consolidated basis, we realized a loss attributable to common shareholders of $143.1 million (diluted loss per share of
$1.66) for the year ended December 30, 2017, compared with a loss attributable to common shareholders of $53.0 million
(diluted loss per share of $0.62) for the year ended December 31, 2016.
For the year ended December 30, 2017, adjusted loss was $12.3 million, or $0.14 per diluted share, on a consolidated basis,
compared with adjusted earnings of $5.8 million, or $0.07 per diluted share, on a consolidated basis for the year ended
December 31, 2016. Excluding flexible resealable pouch and nutrition bar product lines and operations, adjusted loss was $8.3
million, or $0.10 per diluted share, for the year ended December 30, 2017, compared with adjusted earnings of $7.1 million, or
$0.08 per diluted share, for the year ended December 31, 2016. Adjusted EBITDA for the year ended December 30, 2017 was
$66.8 million on a consolidated basis, compared with $81.7 million on a consolidated basis for the year ended December 31,
2016. Excluding flexible resealable pouch and nutrition bar product lines and operations, adjusted EBITDA for the year ended
December 30, 2017 was $72.6 million, compared with $82.9 million for the year ended December 31, 2016. Adjusted earnings
and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of
adjusted earnings/loss and adjusted EBITDA from loss from continuing operations, which we consider to be the most directly
comparable U.S. GAAP financial measure.
Segmented Operations Information
Global Ingredients
December 30, 2017 December 31, 2016
Change
% Change
Revenue
Gross Profit
Gross Profit %
Operating Income
Operating Income %
536,928
65,663
12.2%
19,932
3.7%
558,798
62,358
11.2%
24,771
4.4%
(21,870)
3,305
(4,839)
-3.9%
5.3%
1.0%
-19.5%
-0.7%
Global Ingredients contributed $536.9 million in revenues for the year ended December 30, 2017, compared to $558.8 million
for the year ended December 31, 2016, a decrease of $21.9 million, or 3.9%. Excluding the impact on revenues of changes
including foreign exchange rates and commodity-related pricing (a decrease in revenues of $9.7 million), and the recall of
certain sunflower kernel products announced in the second quarter of 2016 (a decrease in revenues of $3.3 million), Global
Ingredients revenues decreased approximately 1.6%. The table below explains the decrease in revenue:
Global Ingredients Revenue Changes
Revenues for the year ended December 31, 2016
Lower roasted volumes due to reduced customer demand following the sunflower
recall, and lower raw sunflower volumes due to competition from global suppliers
Decreased commodity pricing for domestically-sourced specialty and organic grains
and seeds
Decreased commodity pricing for internationally-sourced organic ingredients
Decreased volumes of internationally-sourced organic ingredients including alternative
sweeteners, seeds, fruits, vegetables and coffee, offset by increased volumes of nuts,
dried fruit, animal feed and cocoa
Increased volumes of domestically-sourced specialty soy and organic feed, partially
offset by lower volumes of specialty corn and crop inputs
Favorable foreign exchange impact on euro-denominated sales due to a weaker U.S.
dollar period-over-period
Revenues for the year ended December 30, 2017
$558,798
(16,642)
(10,943)
(2,835)
(295)
4,749
4,096
$536,928
Gross profit in Global Ingredients increased by $3.3 million to $65.7 million for the year ended December 30, 2017 compared
to $62.4 million for the year ended December 31, 2016, and the gross profit percentage increased by 1.0% to 12.2%. The
increase in gross profit as a percentage of revenue was primarily due to a favorable foreign exchange impact on U.S. dollar-
SUNOPTA INC.
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December 29, 2018 10-K
denominated raw material sourcing within our international organic ingredient operations, partially offset by an unfavorable
product mix of, and reduced pricing spreads on, certain organic commodities, and reduced operating efficiencies within our
sunflower and roasting operations due to lower volumes following the recall. The table below explains the increase in gross
profit:
Global Ingredients Gross Profit Changes
Gross profit for the year ended December 31, 2016
Favorable foreign exchange impact on U.S. dollar-denominated raw material sourcing
within our international organic ingredient operations (partially offset by losses on
forward currency contracts included below in operating income), partially offset by
reduced pricing spreads and lower volumes of certain higher-margin internationally-
sourced organic ingredients
Increased specialty soy volumes and increased contribution for grain ingredients,
partially offset by reduced corn volumes and pricing spread on domestically-sourced
organic feed and reduced volumes of higher-margin crop inputs due to a reduction in
contracted acres
Lower sales volumes of raw sunflower and roasted products, and reduced operating
efficiencies due to lower production volumes
Gross profit for the year ended December 30, 2017
$62,358
4,494
1,786
(2,975)
$65,663
Operating income in Global Ingredients decreased by $4.8 million, or 19.5%, to $19.9 million for the year ended December
30, 2017, compared to $24.8 million for the year ended December 31, 2016. The table below explains the decrease in operating
income:
Global Ingredients Operating Income Changes
Operating income for the year ended December 31, 2016
Increase in gross profit, as explained above
Increase in foreign exchange losses primarily related to forward currency contracts
Increase in corporate cost allocations
Higher employee-related compensation costs due to increased headcount within our
international organic ingredient operations, partially offset by lower non-compensation-
related costs
Operating income for the year ended December 30, 2017
$24,771
3,305
(5,256)
(2,083)
(805)
$19,932
Consumer Products
December 30, 2017
December 31, 2016
Change
% Change
Revenue
Gross Profit
Gross Profit %
Operating Income
Operating Income %
742,665
79,424
10.7%
11,924
1.6%
787,933
63,594
8.1%
3,222
0.4%
(45,268)
15,830
8,702
-5.7%
24.9%
2.6%
270.1%
1.2%
Consumer Products contributed $742.7 million in revenues for the year ended December 30, 2017, compared to $787.9 million
for the year ended December 31, 2016, a $45.3 million, or 5.7% decrease. Excluding the impact on revenues of changes in raw
fruit commodity-related pricing (a decrease in revenues of $5.3 million) and removing all sales of flexible resealable pouch
and nutrition bar products, Consumer Products revenues decreased approximately 4.6%. The table below explains the decrease
in revenues:
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December 29, 2018 10-K
Consumer Products Revenue Changes
Revenues for the year ended December 31, 2016
Lower volumes of frozen fruit due to declines in consumer consumption trends and
lower distribution to certain retail customers, and the impact of lower raw fruit
commodity-related pricing passed on to customers, partially offset by increased fruit
ingredient volumes
Lower volumes of flexible resealable pouch products (including the impact on revenues
from the closure of west coast pouch operations due to the fire at a third-party facility in
the third quarter of 2016), partially offset by higher volumes of nutrition bars related to
new product offerings, prior to the exit from nutrition bar operations
Lower retail sales of non-dairy aseptic beverages, related to the loss of a significant
contract, and sales of specialty ingredients, offset by higher volumes of premium juice
and fruit snack products, as well as non-dairy aseptic beverage products into the
foodservice channel
Revenues for the year ended December 30, 2017
$787,933
(37,446)
(6,206)
(1,616)
$742,665
Gross profit in Consumer Products increased by $15.8 million to $79.4 million for the year ended December 30, 2017 compared
to $63.6 million for the year ended December 31, 2016, and the gross profit percentage increased by 2.6% to 10.7%. For the
year ended December 30, 2017, gross profit as a percentage of revenue was impacted by a write-down of flexible resealable
pouch and nutrition bar inventories as a result of the exit from these operations ($2.6 million), as well as costs associated with
the closure of our premium juice facility ($0.5 million). For the year ended December 31, 2016, gross profit as a percentage
of revenue was impacted by the acquisition accounting adjustment related to Sunrise inventory sold ($15.0 million), costs
associated with the expansion activities at our Allentown, Pennsylvania, 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 11.1% for the year ended December 30, 2017, compared
with 10.3% for the year ended December 31, 2016. The increase in gross profit percentage primarily reflected improved
operating efficiencies and raw material pricing within our healthy fruit operations and operational savings from the closure of
our premium juice facility, partially offset by higher losses within our flexible resealable pouch and nutrition bar operations.
The table below explains the increase in gross profit:
Consumer Products Gross Profit Changes
Gross profit for the year ended December 31, 2016
Acquisition accounting adjustment related to Sunrise inventory sold in 2016
Higher sales volumes of premium juice and fruit snack products, operational savings
following the closure of our premium juice facility, and increased operating efficiency
and cost reductions in aseptic as a result of the Value Creation Plan during the fourth
quarter, offset by lower sales volumes of non-dairy aseptic beverages
Increased contribution on sales of frozen fruit, based on operating efficiencies due to the
timing of the fruit harvest (which was delayed in fiscal 2016, resulting in higher labor
costs and reduced supply) and favorable pricing on sourced raw fruit, as well as
increased volumes of fruit ingredients, and productivity and cost reduction initiatives
within fruit ingredient operations
Higher losses within flexible resealable pouch and nutrition bar operations (including
the write-down of inventories related to exit activities)
Gross profit for the year ended December 30, 2017
$63,594
15,000
4,113
3,740
(7,023)
$79,424
Operating income in Consumer Products increased by $8.7 million to $11.9 million for the year ended December 30, 2017,
compared to $3.2 million for the year ended December 31, 2016. The table below explains the increase in operating income:
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December 29, 2018 10-K
Consumer Products Operating Income Changes
Operating loss for the year ended December 31, 2016
Increase in gross profit, as explained above
Lower foreign exchange losses on international operations and lower non-
compensation-related costs, partially offset by higher employee-related compensation
costs
Increase in corporate cost allocations
Operating income for the year ended December 30, 2017
$3,222
15,830
1,390
(8,518)
$11,924
Corporate Services
December 30, 2017 December 31, 2016
Change
% Change
Operating Loss
(31,089)
(13,247)
(17,842)
-134.7%
Operating loss at Corporate Services increased by $17.8 million to $31.1 million for the year ended December 30, 2017, from
a loss of $13.2 million for the year ended December 31, 2016. The table below explains the increase in operating loss:
Corporate Services Operating Loss Changes
Operating loss for the year ended December 31, 2016
Non-structural third-party consulting costs and employee recruitment, relocation and
retention costs associated with the Value Creation Plan
Higher structural employee-related compensation costs due to increased headcount, and
higher information technology costs, all in support of the Value Creation Plan
Increased stock-based compensation costs as a result of a change in our long-term
incentive plan
Decrease in foreign exchange gains on foreign currency transactions
Increase in corporate cost allocations to SunOpta reporting segments, mainly related to
structural investments in new quality, sales, marketing, engineering and accounting
resources under the Value Creation Plan
Operating loss for the year ended December 30, 2017
$(13,247)
(18,469)
(7,134)
(2,510)
(330)
10,601
$(31,089)
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.
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December 29, 2018 10-K
Liquidity and Capital Resources
We have the following sources from which we can fund our operating cash requirements:
• Existing cash and cash equivalents;
• Available operating lines of credit;
• Cash flows generated from operating activities, including working capital efficiency efforts;
• Cash flows generated from the exercise, if any, of stock options during the year;
• Potential additional long-term financing, including the offer and sale of debt and/or equity securities; and
• Potential sales of businesses or assets.
On February 11, 2016, we entered a five-year credit agreement for a senior secured asset-based revolving credit facility in the
maximum aggregate principal amount of $350 million, subject to borrowing base capacity (the “Global Credit Facility”). The
Global Credit Facility supports the working capital and general corporate needs of our global operations, in addition to funding
strategic initiatives. Subject to customary borrowing conditions and the agreement of any such lenders to provide such
increased commitments, we may request to increase the total lending commitments under this facility to a maximum aggregate
principal amount not to exceed $450 million. The applicable margin in the Global Credit Facility ranges from 1.25% to 1.75%
for loans bearing interest based on LIBOR and from 0.25% to 0.75% for loans bearing interest based on the prime rate and, in
each case, is set quarterly based on average borrowing availability for the preceding fiscal quarter.
On September 19, 2017, the Global Credit Facility was amended to add an additional $15 million U.S. asset-based credit
subfacility (the “U.S. Subfacility”). On October 22, 2018, the Global Credit Facility was further amended to increase the
commitment under the U.S. Subfacility by $5 million. The entire $20 million available for borrowing under the U.S. Subfacility
was fully drawn as of October 22, 2018. Commencing with the fiscal quarter ending March 31, 2019, amortization payments
on the aggregate principal amount of the U.S. Subfacility are equal to $3.33 million, which payments may be funded through
borrowings under the revolving facilities of the Global Credit Facility. Borrowings repaid under the U.S. Subfacility may not
be borrowed again. As at December 29, 2018, the applicable margin for the U.S. Subfacility was 3.50%.
As at December 29, 2018, we had outstanding borrowings of $276.8 million and approximately $55 million of available
borrowing capacity under the Global Credit Facility. For more information on the Global Credit Facility, see note 12(1) to the
consolidated financial statements at Item 15 of this Form 10-K.
On October 20, 2016, SunOpta Foods issued $231.0 million of 9.5% Senior Secured Second Lien Notes due October 9, 2022
(the “Notes”). As at December 29, 2018, the outstanding principal amount of the Notes was $223.5 million, reflecting the
redemption of $7.5 million principal amount by SunOpta Foods in October 2017. For more information on the Notes, see note
12(3) to the consolidated financial statements at Item 15 of this Form 10-K.
As at December 29, 2018, SunOpta Foods had outstanding Preferred Stock with an aggregate stated value and initial liquidation
preference of $85 million. Cumulative preferred dividends accrue daily on the Preferred Stock at an annualized rate of 8.0%
of the liquidation preference prior to October 5, 2025 and 12.5% of the liquidation preference thereafter (subject to an increase
of 1.0% per quarter, up to a maximum rate of 5.0% per quarter on the occurrence of certain events of non-compliance). Prior
to October 5, 2025, SunOpta Foods may pay dividends in cash or elect, in lieu of paying cash, to add the amount that would
have been paid to the liquidation preference. After October 4, 2025, any failure to pay dividends in cash will be an event of
non-compliance. SunOpta Foods paid cash dividends on the Preferred Stock of $6.8 million and $6.7 million in 2018 and
2017, respectively. As at December 29, 2018, SunOpta Foods had accrued unpaid dividends of $1.7 million. For more
information on the Notes, see note 13(3) to the consolidated financial statements at Item 15 of this Form 10-K.
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.
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December 29, 2018 10-K
In the event that we require additional liquidity due to market conditions, unexpected actions by our lenders, changes to our
growth strategy, reduced earnings, or other factors, our ability to obtain any additional financing on favorable terms, if at all,
could be limited.
Cash Flows
Fiscal 2018 Compared to Fiscal 2017
Net cash and cash equivalents increased $0.0 million to $3.3 million as at December 29, 2018, compared with $3.2 million at
December 30, 2017, which primarily reflected the following uses of cash:
•
•
•
capital expenditures of $31.6 million, mainly related including the expansion of our aseptic beverage, roasted snack
and frozen fruit processing capabilities, completion of a second cocoa processing line, and implementation of an
enterprise resource planning system at our Mexican frozen fruit facility, as well as other information technology
enhancements across the organization;
cash used in operating activities of $11.1 million; and
payment of cash dividends on preferred stock of $6.8 million.
These and other uses of cash were mostly offset by borrowings of $50.3 million under our line of credit facilities.
Cash used in operating activities was $11.1 million for the year ended December 29, 2018, compared with cash provided of
$31.5 million for the year ended December 30, 2017, an increase in cash used of $42.6 million. The increase in cash used
reflected lower year-over-year operating results and higher inventory purchases in 2018 to support the commercialization of
new consumer product offerings, the expansion of our cocoa processing operations, and volume growth across other categories
of organic ingredients. In addition, cash generated in 2017 reflected the immediate benefit from working capital-efficiency
efforts as part of the Value Creation Plan to reduce inventories, maximize purchasing terms and accelerate accounts receivable
collections. All of these factors were partially offset by a year-over-year reduction in net cash payments under the Value
Creation Plan of $34.7 million.
Cash used in investing activities was $28.8 million for the year ended December 29, 2018, compared with cash used on $40.1
million for the year ended December 30, 2017, a decrease in cash used of $11.3 million. The decrease in cash used mainly
reflected a decrease in capital expenditures related the early buyout of $11.9 million of equipment leases in 2017 associated
with the closure of our premium juice facility and exit from flexible resealable pouch operations. In addition, the decrease in
cash used reflected the receipt in 2018 of the final payment on the note receivable from the sale of Opta Minerals in April 2016,
and the acquisition of the non-controlling interest in our Mexican frozen fruit operation in 2017.
Cash provided by financing activities of continuing operations was $40.0 million for the year ended December 29, 2018,
compared with cash provided of $10.6 million for the year ended December 30, 2017, an increase in cash provided of $29.4
million. Net borrowings under our line of credit facilities increased $50.3 million in 2018, compared with an increase of $22.2
million in 2017, a year-over-year increase in net borrowings of $28.1 million. This increase in borrowings reflected an increase
in working capital requirements ($39.0 million), partially offset by a decrease in capital spending of $9.5 million and
repayments of long-term debt of $8.1 million (mainly related to a $7.5 million principal repayment on the Notes in 2017).
Fiscal 2017 Compared to Fiscal 2016
Net cash and cash equivalents increased $1.9 million to $3.2 million as at December 30, 2017, compared with $1.3 million at
December 31, 2016, which primarily reflected the following uses of cash:
•
•
•
capital expenditures of $41.1 million, mainly related to new capabilities within our aseptic beverage operations and
expansion of our Dutch cocoa processing and Mexican frozen fruit facilities, as well as food safety and production
enhancements across our manufacturing base;
repayment of $7.5 million principal amount of outstanding Notes; and
payment of cash dividends on preferred stock of $6.7 million.
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December 29, 2018 10-K
These and other uses of cash were mostly offset by the following sources of cash:
•
•
cash provided by operating activities of $31.5 million; and
borrowings of $22.2 million under our line of credit facilities.
Cash provided by operating activities of continuing operations was $31.5 million for the year ended December 30, 2017,
compared with cash provided of $0.7 million for the year ended December 31, 2016, an increase in cash provided of $30.7
million. The increase in cash provided by operating activities reflected cash generated through working capital efficiency
initiatives during 2017, partially offset by the cash payment of $38.6 million for costs incurred under the Value Creation Plan
in 2017, compared to $3.1 million in 2016.
Cash used in investing activities of continuing operations was $40.1 million for the year ended December 30, 2017, compared
with cash used on $21.6 million for the year ended December 31, 2016, an increase in cash used of $18.5 million, which mainly
reflected an increase in capital expenditures of $18.6 million, partially reflecting the early buyout of $11.9 million of juice
processing and flexible resealable pouch equipment leases.
Cash provided by financing activities of continuing operations was $10.6 million for the year ended December 30, 2017,
compared with cash provided of $16.8 million for the year ended December 31, 2016, a decrease in cash provided of $6.2
million. Net borrowings under our line of credit facilities increased $22.2 million in 2017, compared with an increase of $44.3
million in 2016, a year-over-year decrease in net borrowings under the line of credit facilities of $22.1 million. This decrease
in borrowings reflected reductions in working capital requirements ($31.6 million) and debt issuance costs related to the Notes
and Global Credit Facility ($12.6 million), partially offset by an increase in capital spending of $18.6 million and repayment
of $7.5 million principal amount of Notes in 2017.
Off – Balance Sheet Arrangements
There are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material
effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
The table below sets out our contractual obligations as at December 29, 2018:
Bank indebtedness(1)
Long-term debt
Interest on bank indebtedness and long-term debt(2)
Purchase commitments
Operating leases
Long-term liabilities
Commodity and foreign exchange contracts
Total
$
280,334
235,335
97,643
270,895
119,877
6,365
(612)
Payments due by Period
2019
2020-2021
2022-2023
Thereafter
$
273,667
1,840
33,677
270,895
19,207
4,286
(622)
$
6,667
6,878
42,574
-
31,807
2,079
10
$
-
225,151
21,012
-
$
-
1,466
380
-
21,011
47,852
-
-
-
-
1,009,837
602,950
90,015
267,174
49,698
(1)
(2)
Includes borrowings of $260.3 million under the revolving facilities of the Global Credit Facility that have terms of six months or less. Outstanding
borrowings under these revolving facilities are repayable in full on February 10, 2021. Also includes borrowings of $20.0 million under the U.S.
Subfacility that are repayable in quarterly instalments of $3.3 million beginning March 31, 2019.
Interest on bank indebtedness is calculated based on scheduled repayments over the periods as indicated, using existing interest rates at December
29, 2018, as disclosed in note 12 to the consolidated financial statements included in Item 15 of this Form 10-K.
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December 29, 2018 10-K
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 29, 2018, we had $280.3 million and $228.9 million principal amount of variable and fixed rate debt,
respectively, with weighted-average interest rates of 4.5% and 9.3%, respectively. A 100 basis-point change in interest rates
would have a pre-tax effect of $2.8 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 29, 2018, 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 would increase or decrease by approximately $7.0 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 or losses on translation of net assets to U.S.
dollars on consolidation are recorded in accumulated other comprehensive loss 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, relative to the U.S. dollar, would affect the carrying value of
our net assets by approximately $7.4 million, with a corresponding impact to accumulated other comprehensive loss.
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 29, 2018, resulting in a gain of $1.6 million (December 30, 2017 – loss of $2.4 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 our 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 29, 2018, we
owned 141,435 (December 30, 2017 – 280,588) bushels of corn with a weighted-average price of $3.75 (December 30, 2017 –
$3.55) and 217,881 (December 30, 2017 – 254,022) bushels of soybeans with a weighted-average price of $8.95 (December
30, 2017 – $9.68). As at December 29, 2018, we had a net long position on corn of 5,753 (December 30, 2017 – net long
position of 10,425) bushels and a net short position on soybeans of 2,120 (December 30, 2017 – net short position of 9,354)
bushels. 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 29, 2018, we had net open forward contracts to sell 6,730 metric tons (“MT”) of cocoa (December 30, 2017 –
2,990 MT sold) and to purchase 85 MT of coffee (December 30, 2017 – 51 MT sold). A 10% change in the commodity price
of cocoa and coffee would impact the fair value of these derivative instruments by approximately $1.6 million (December 30,
2017 – $0.1 million).
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December 29, 2018 10-K
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
On June 19, 2018, Deloitte LLP (“Deloitte”) resigned as the independent registered public accounting firm of the Company.
The Board of Directors of the Company requested Deloitte’s resignation after conducting a competitive tender process, pursuant
to which certain members of the Audit Committee of the Board of Directors and other members of the Board of Directors
evaluated multiple external firms and recommended that the Board of Directors engage a new external auditor.
Deloitte’s reports on the Company’s financial statements for the years ended December 30, 2017 and December 31, 2016,
respectively, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During the years ended December 30, 2017 and December 31, 2016, and through June 19, 2018, there were no disagreements
with Deloitte on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Deloitte, would have caused it to make reference thereto in connection
with its reports on the financial statements for such years. During the years ended December 30, 2017 and December 31, 2016,
and through June 19, 2018, there were no matters that were either the subject of a disagreement as defined in Item 304(a)(1)(iv)
of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.
On June 19, 2018, the Board of Directors of the Company engaged Ernst & Young LLP (“EY”) as the Company’s independent
registered public accounting firm and auditor to act as the principal accountant to audit the Company’s financial statements for
the 2018 fiscal year. During the Company’s fiscal years ended December 30, 2017 and December 31, 2016, and through June
19, 2018, neither the Company, nor anyone acting on its behalf, consulted with EY regarding the application of accounting
principles to a specific completed or proposed transaction or the type of audit opinion that might be rendered on the Company’s
financial statements, and no written report or oral advice was provided that EY concluded was an important factor considered
by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue.
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December 29, 2018 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 29, 2018.
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 for external
purposes in accordance with accounting principles generally accepted in the United States of America.
All internal control systems, no matter how well designed, have inherent limitations. Because of these inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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 29, 2018. 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 29, 2018, based on those criteria.
The effectiveness of our internal control over financial reporting as of December 29, 2018 has been audited by Ernst & Young
LLP, Independent Registered Public Accounting Firm, that also audited our consolidated financial statements for the year
ended December 29, 2018, 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 29, 2018 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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December 29, 2018 10-K
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of SunOpta Inc.
Opinion on Internal Control over Financial Reporting
We have audited SunOpta Inc.’s internal control over financial reporting as of December 29, 2018, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, SunOpta Inc. (the “Company”) maintained, in all material respects,
effective internal control over financial reporting as of December 29, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2018 consolidated financial statements of the Company and our report dated February 26, 2019 expressed an
unqualified opinion thereon.
Basis for Opinion
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 Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
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.
/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 26, 2019
Item 9B. Other Information
None.
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December 29, 2018 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 29,
2018 (the “2019 Proxy Statement”).
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference from the 2019 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 2019 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 2019 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required under this item is incorporated herein by reference from the 2019 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+
2.2
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).
Asset Purchase Agreement, dated as of February 22, 2019, by and between Pipeline Foods, LLC and
SunOpta Grains and Foods Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current
Report on Form 8-K filed on February 26, 2019).
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).
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December 29, 2018 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. and
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
4.6
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).
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).
SUNOPTA INC.
72
December 29, 2018 10-K
Exhibits
Description
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†
10.10†
10.11
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 U.S. Bank National Association, as 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 U.S. Bank National Association, as 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 supersedes 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).
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).
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).
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 Markets Corp. (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on August 3, 2015).
SUNOPTA INC.
73
December 29, 2018 10-K
Exhibits
Description
10.12+
10.13+
10.14
10.15
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
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 11, 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).
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).
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 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 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).
SUNOPTA INC.
74
December 29, 2018 10-K
Exhibits
Description
10.23
10.24
10.25
10.26
10.27
10.28
10.29†
10.30†
10.31†
10.32†
10.33†
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).
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).
Executive 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).
SUNOPTA INC.
75
December 29, 2018 10-K
Exhibits
Description
10.34†
10.35†
10.36
10.37†
10.38
10.39
10.40†
10.41†
10.42†
10.43†
10.44†
10.45†
Restricted Stock Award Agreement, dated effective February 6, 2017, between SunOpta Inc. and
David J. Colo (incorporated by reference to Exhibit 10.2 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 10.4 to the Company’s Current Report on
Form 8-K filed on February 7, 2017).
Second Amendment and Joinder, dated September 19, 2017, to the 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 September 22, 2017).
Separation Agreement and Full and Final Release between SunOpta Inc. and Edward Haft
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
August 28, 2017).
Consent to Purchase Shares, dated May 6, 2017, among SunOpta Inc., 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 (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on May 8, 2017).
Amendment Agreement, dated May 6, 2017, between SunOpta Inc., Oaktree Organics, L.P., Oaktree
Huntington Investment Fund II, L.P., SunOpta Foods Inc. and OCM SunOpta Trustee, LLC.
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on
May 8, 2017).
Restricted Stock Unit Award Agreement, dated effective March 9, 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 March 13, 2017, as amended).
Separation Agreement and Full and Final Release, dated March 3, 2017, by and between SunOpta
Inc. and Michelle Coleman (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended April 1, 2017).
Employment Agreement, dated March 13, 2017, by and between SunOpta Inc. and Robert Duchscher
(incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended April 1, 2017).
Employment Agreement, dated April 1, 2017, by and between SunOpta Inc. and Jeffrey Gough
(incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended April 1, 2017).
Amended 2013 Stock Incentive Plan (incorporated by reference to Exhibit A to the Company’s
Definitive Proxy Statement on Schedule 14A filed on April 13, 2017).
Form of 2017 Incentive Stock Option Award Agreement under Amended 2013 Stock Incentive Plan
(incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for
the quarterly period ended July 1, 2017).
SUNOPTA INC.
76
December 29, 2018 10-K
Exhibits
Description
10.46†
10.47†
10.48†
10.49†
10.50†
10.51†
10.52†
10.53†
10.54
Form of 2017 Restricted Stock Unit Award Agreement under Amended 2013 Stock Incentive Plan
(incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for
the quarterly period ended July 1, 2017).
Form of 2017 Performance Share Unit Award Agreement under Amended 2013 Stock Incentive Plan
(incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for
the quarterly period ended July 1, 2017).
Employment Agreement, effective January 23, 2017, by and between SunOpta Inc. and Patrick
McCoy (incorporated by reference to Exhibit 10.49 to the Company’s Annual Report on Form 10-K
for the year ended December 30, 2017, filed on March 1, 2018).
Employment Agreement, effective February 21, 2017, by and between SunOpta Inc. and Michael J.
Buick (incorporated by reference to Exhibit 10.50 to the Company’s Annual Report on Form 10-K
for the year ended December 30, 2017, filed on March 1, 2018).
Employment Agreement, effective March 6, 2017, by and between SunOpta Inc. and Robert S. Grant
(incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the
year ended December 30, 2017, filed on March 1, 2018).
Employment Agreement, effective April 10, 2017, by and between SunOpta Inc. and Christopher
Whitehair (incorporated by reference to Exhibit 10.52 to the Company’s Annual Report on Form 10-
K for the year ended December 30, 2017, filed on March 1, 2018).
Employment Agreement, effective November 1, 2017, by and between SunOpta Inc. and George
Miketa (incorporated by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K
for the year ended December 30, 2017, filed on March 1, 2018).
Letter Agreement, dated March 28, 2018, between Robert McKeracher and SunOpta Inc.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
March 30, 2018).
Third Amendment and Joinder, dated as of October 22, 2018, to the Credit Agreement, dated as of
February 11, 2016 (as amended by the First Amendment dated as of October 7, 2016 and as further
amended by the Second Amendment and Joinder dated as of September 19, 2017), 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 October 25, 2018).
10.55†*
SunOpta Inc. 2018 Short-Term Incentive Plan.
21*
List of subsidiaries.
23.1*
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
23.2*
Consent of Deloitte LLP, Independent Registered Public Accounting Firm.
31.1*
31.2*
Certification by Katrina Houde, Interim 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.
SUNOPTA INC.
77
December 29, 2018 10-K
Exhibits
Description
32*
Certifications by Katrina Houde, Interim Chief Executive Officer, and Robert McKeracher, Vice
President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
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 29, 2018 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: February 26, 2019
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/ Katrina Houde
Katrina Houde
/s/ Robert McKeracher
Robert McKeracher
/s/ Dean Hollis
Dean Hollis
/s/ Margaret Shan Atkins
Margaret Shan Atkins
/s/ Al Bolles
Al Bolles
/s/ Derek Briffett
Derek Briffett
/s/ Michael Detlefsen
Michael Detlefsen
/s/ Brendan Springstubb
Brendan Springstubb
Item 16. Form 10-K Summary
Title
Interim 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
Date
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
The Company has chosen not to include an optional summary of the information required by this Form 10-K. For a reference
to information in the Form 10-K, investors should refer to the Table of Contents to this Form 10-K.
SUNOPTA INC.
79
December 29, 2018 10-K
SunOpta Inc.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
Consolidated Statements of Operations
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
Consolidated Statements of Comprehensive Loss
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
Consolidated Balance Sheets
As at December 29, 2018 and December 30, 2017
Consolidated Statements of Shareholders’ Equity
As at and for the years ended December 29, 2018, December 30, 2017 and December 31, 2016
Consolidated Statements of Cash Flows
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
Page
F2-F3
F4
F5
F6
F7
F8
F10
SUNOPTA INC.
-F1-
December 29, 2018 10-K
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of SunOpta Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of SunOpta Inc. (the “Company”) as of December 29, 2018,
consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for the year then ended and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 29, 2018 and the results
of its operations and its cash flows for the period ended December 29, 2018, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 29, 2018, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 26, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since 2018.
Toronto, Canada
February 26, 2019
SUNOPTA INC.
-F2-
December 29, 2018 10-K
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of SunOpta Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of SunOpta Inc. and subsidiaries (the “Company”) as of
December 30, 2017, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash
flows, for the years ended December 30, 2017 and December 31, 2016, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the 2017 and 2016 financial statements, present fairly, in all material respects, the
financial position of the Company as of December 30, 2017, and the results of its operations and its cash flows for the years
ended December 30, 2017 and December 31, 2016, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 28, 2018 (February 26, 2019 as to Note 23)
We began serving as the Company’s auditor in 2008. In 2018, we became the predecessor auditor.
SUNOPTA INC.
-F3-
December 29, 2018 10-K
SunOpta Inc.
Consolidated Statements of Operations
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization (note 10)
Other expense, net (note 17)
Goodwill impairment (note 9)
Foreign exchange loss
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
1,260,852
1,279,593
1,346,731
1,137,382
1,134,506
1,220,779
123,470
108,248
11,038
2,825
81,222
252
145,087
127,507
11,195
23,660
115,000
5,618
125,952
98,681
11,282
28,292
17,540
1,243
(31,086)
43,275
(74,361)
(23,797)
(50,564)
(570)
Loss from continuing operations before the following
(80,115)
(137,893)
Interest expense, net (note 12)
34,406
32,504
Loss from continuing operations before income taxes
(114,521)
(170,397)
Recovery of income taxes (note 18)
Loss from continuing operations
(5,378)
(35,829)
(109,143)
(134,568)
Loss from discontinued operations attributable to SunOpta Inc. (note 4)
-
-
Net loss
(109,143)
(134,568)
(51,134)
Earnings attributable to non-controlling interests
62
752
Loss attributable to SunOpta Inc.
(109,205)
(135,320)
Dividends and accretion on Series A Preferred Stock (note 13)
(7,909)
(7,809)
Loss attributable to common shareholders
(117,114)
(143,129)
Basic and diluted loss per share (note 19)
From continuing operations
From discontinued operations
Basic and diluted loss per share
Weighted-average common shares outstanding (000s) (note 19)
Basic
Diluted
(1.34)
-
(1.34)
87,082
87,082
(1.66)
-
(1.66)
86,355
86,355
(See accompanying notes to consolidated financial statements)
54
(51,188)
(1,812)
(53,000)
(0.61)
(0.01)
(0.62)
85,569
85,569
SUNOPTA INC.
-F4-
December 29, 2018 10-K
SunOpta Inc.
Consolidated Statements of Comprehensive Loss
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All dollar amounts expressed in thousands of U.S. dollars)
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
Loss from continuing operations
Loss from discontinued operations attributable to SunOpta Inc.
Net loss
(109,143)
-
(109,143)
(134,568)
-
(134,568)
Other comprehensive earnings (loss), net of income taxes
Changes related to cash flow hedges (note 5)
Unrealized gains, net
Reclassification of gains to earnings
Net changes related to cash flow hedges
Currency translation adjustment
Other comprehensive earnings (loss), net of income taxes
384
(79)
305
(2,559)
(2,254)
1,263
(1,568)
(305)
6,184
5,879
(50,564)
(570)
(51,134)
-
-
-
(2,042)
(2,042)
Comprehensive loss
(111,397)
(128,689)
(53,176)
Comprehensive earnings (loss) attributable to non-controlling interests
207
713
(355)
Comprehensive loss attributable to SunOpta Inc.
(111,604)
(129,402)
(52,821)
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
-F5-
December 29, 2018 10-K
SunOpta Inc.
Consolidated Balance Sheets
As at December 29, 2018 and December 30, 2017
(All dollar amounts expressed in thousands of U.S. dollars)
December 29, 2018
$
December 30, 2017
$
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable (note 6)
Inventories (note 7)
Prepaid expenses and other current assets
Current income taxes recoverable
Total current assets
Property, plant and equipment (note 8)
Goodwill (note 9)
Intangible assets (note 10)
Deferred income taxes (note 18)
Other assets
Total assets
LIABILITIES
Current liabilities
Bank indebtedness (note 12)
Accounts payable and accrued liabilities (note 11)
Customer and other deposits
Income taxes payable
Other current liabilities
Current portion of long-term debt (note 12)
Current portion of long-term liabilities
Total current liabilities
Long-term debt (note 12)
Long-term liabilities
Deferred income taxes (note 18)
Total liabilities
Series A Preferred Stock (note 13)
EQUITY
SunOpta Inc. shareholders’ equity
Common shares, no par value, unlimited shares authorized,
87,423,280 shares issued (December 30, 2017 - 86,757,334) (note 14)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss (note 16)
Non-controlling interests
Total equity
Total equity and liabilities
Commitments and contingencies (note 22)
(See accompanying notes to consolidated financial statements)
3,280
132,131
361,957
29,024
7,029
533,421
171,032
27,959
160,975
182
3,169
896,738
280,334
155,371
1,445
2,208
862
1,840
4,286
446,346
227,023
2,079
8,149
683,597
81,302
314,357
31,796
(206,151)
(9,667)
130,335
1,504
131,839
896,738
3,228
125,152
354,978
33,213
12,006
528,577
163,624
109,533
172,059
363
8,017
982,173
234,090
161,364
4,901
1,351
818
2,228
5,300
410,052
225,805
8,352
15,850
660,059
80,193
308,899
28,006
(89,291)
(7,268)
240,346
1,575
241,921
982,173
SUNOPTA INC.
-F6-
December 29, 2018 10-K
SunOpta Inc.
Consolidated Statements of Shareholders’ Equity
As at and for the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All dollar amounts expressed in thousands of U.S. dollars)
Additional
paid-in
capital
$
Retained
earnings
(accumu-
lated deficit)
$
Accumulated
other com-
prehensive
loss
$
Non-
controlling
interests
$
Total
$
Common shares
$
000s
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 on Series A Preferred Stock (note 13)
Accretion on Series A Preferred Stock (note 13)
Loss from continuing operations
Loss from discontinued operations,
net of income taxes (note 4)
Disposition of discontinued operation (note 4)
Currency translation adjustment
83
243
-
-
-
-
-
-
-
391
2,048
-
-
-
-
-
-
-
-
(953)
4,148
-
-
-
-
-
-
-
-
-
(1,590)
(222)
(50,618)
(570)
-
-
-
-
-
-
-
-
-
-
-
-
-
54
-
(5,094)
(1,897)
(264)
(2,054)
(145)
391
1,095
4,148
(1,590)
(222)
(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
Employee share purchase plan
Stock incentive plan
Stock-based compensation
Dividends on Series A Preferred Stock (note 13)
Accretion on Series A Preferred Stock (note 13)
Net loss
Currency translation adjustment
Cash flow hedges, net of income taxes
of $130 (note 5)
Acquisition of non-controlling interests
61
952
-
-
-
-
-
-
-
409
8,064
-
-
-
-
-
-
-
-
(3,439)
5,709
-
-
-
-
-
214
-
-
-
(6,800)
(1,009)
(135,320)
-
-
-
-
-
-
-
6,223
-
-
-
-
-
752
(39)
409
4,625
5,709
(6,800)
(1,009)
(134,568)
6,184
-
-
(305)
(82)
-
(1,869)
(305)
(1,737)
Balance at December 30, 2017
86,757
308,899
28,006
(89,291)
(7,268)
1,575
241,921
Employee share purchase plan
Stock incentive plan
Withholding taxes on stock-based awards
Stock-based compensation
Dividends on Series A Preferred Stock (note 13)
Accretion on Series A Preferred Stock (note 13)
Net loss
Currency translation adjustment
Cash flow hedges, net of income taxes
of $130 (note 5)
Dividends paid by subsidiary to non-
controlling interest
Cumulative effect of adoption of new revenue
accounting standard (note 2)
112
554
-
-
-
-
-
-
-
-
-
630
4,828
-
-
-
-
-
-
-
-
-
-
(3,517)
(632)
7,939
-
-
-
-
-
-
-
-
(6,800)
(1,109)
(109,205)
-
-
-
-
-
-
254
-
-
-
-
-
-
-
(2,704)
305
-
-
-
-
-
-
62
145
-
630
1,311
(632)
7,939
(6,800)
(1,109)
(109,143)
(2,559)
305
-
-
(278)
(278)
-
254
Balance at December 29, 2018
87,423
314,357
31,796
(206,151)
(9,667)
1,504
131,839
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
-F7-
December 29, 2018 10-K
SunOpta Inc.
Consolidated Statements of Cash Flows
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All dollar amounts expressed in thousands of U.S. dollars)
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
CASH PROVIDED BY (USED IN)
Operating activities
Net loss
Loss from discontinued operations attributable to SunOpta Inc.
Loss from continuing operations
Items not affecting cash:
Depreciation and amortization
Amortization of debt issuance costs (note 12)
Deferred income taxes (note 18)
Stock-based compensation (note 15)
Unrealized loss (gain) on derivative instruments (note 5)
Goodwill impairment (note 9)
Impairment of long-lived assets (note 17)
Fair value of contingent consideration (note 17)
Reserve for notes receivable (note 17)
Acquisition accounting adjustment on inventory sold
Other
Changes in non-cash working capital (note 20)
Net cash flows from operating activities - continuing operations
Net cash flows from operating activities - discontinued operations
Investing activities
Purchases of property, plant and equipment
Proceeds from sale of assets
Payments received on note from sale of business (note 4)
Acquisition of non-controlling interests
Other
Net cash flows from investing activities - continuing operations
Net cash flows from investing activities - discontinued operations
Financing activities
Increase under line of credit facilities (note 12)
Repayment of line of credit facilities (note 12)
Borrowings under long-term debt (note 12)
Repayment of long-term debt (note 12)
Payment of cash dividends on Series A Preferred Stock (note 13)
Issuance of Series A Preferred Stock, net (note 13)
Payment of contingent consideration (note 5)
Proceeds from the exercise of stock options and employee
share purchases (note 15)
Dividends paid by subsidiary to non-controlling interest
Payment of debt issuance costs
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
(109,143)
-
(109,143)
32,788
2,536
(7,390)
7,939
465
81,222
409
(2,635)
2,232
-
(197)
(19,367)
(11,141)
-
(11,141)
(31,603)
1,437
1,236
-
159
(28,771)
-
(28,771)
50,275
-
2,029
(1,810)
(6,800)
-
(4,399)
1,309
(278)
-
(292)
40,034
-
40,034
(70)
52
-
-
3,228
3,280
(134,568)
-
(134,568)
32,824
2,825
(27,899)
5,709
(631)
115,000
18,193
371
-
-
9
19,630
31,463
-
31,463
(41,139)
2,385
307
(1,737)
62
(40,122)
-
(40,122)
22,170
-
5,176
(9,959)
(6,691)
-
(4,330)
5,034
-
(442)
(390)
10,568
-
10,568
68
1,977
-
-
1,251
3,228
(51,134)
(570)
(50,564)
34,150
11,301
(29,850)
4,148
(547)
17,540
13,257
(1,158)
-
15,000
335
(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
(4,554)
1,486
-
(13,017)
168
16,771
(1,180)
15,591
52
(2,730)
1,707
-
2,274
1,251
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
-F8-
December 29, 2018 10-K
SunOpta Inc.
Consolidated Statements of Cash Flows (Continued)
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All dollar amounts expressed in thousands of U.S. dollars)
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
Non-cash investing and financing activities
Accrued cash dividends on Class A Preferred Stock (note 13)
Proceeds on disposition of discontinued operation,
note receivable (note 4)
(1,700)
(1,700)
-
-
(1,590)
1,537
(See accompanying notes to consolidated financial statements)
SUNOPTA INC.
-F9-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar 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.
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
2018, 2017 and 2016 were each 52-week periods ending on December 29, 2018, December 30, 2017 and December 31, 2016,
respectively. Fiscal year 2019 will be a 52-week period ending on December 28, 2019, with quarterly periods ending on March
30, June 29, and September 28, 2019.
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; 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
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, accounts receivable and derivative
instruments. The Company places its cash and cash equivalents with institutions of high creditworthiness. To limit the credit
risk associated with derivative instruments, the Company contracts with counterparties that are highly-rated financial
December 29, 2018 10-K
SUNOPTA INC.
-F10-
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
institutions. 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 (that is, an exit price). Fair value measurements are estimated based on
inputs categorized as follows:
• Level 1 inputs include quoted prices (unadjusted) for identical assets or liabilities in active markets that are observable.
• 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.
• 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.
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 29,
2018 and December 30, 2017, no customer’s balance represented 10% or more of the Company’s consolidated trade receivables
balance.
SUNOPTA INC.
-F11-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Inventories
Inventories (excluding commodity grains) are valued at the lower of cost and net realizable value. 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. Goodwill
impairment charges are recognized based on the excess of a reporting unit’s carrying amount over its fair value. The fair values
of the Company’s reporting units are determined using an income approach (discounted cash flow method). The results of the
Company annual impairment tests for goodwill are described in note 9.
Intangible Assets
The Company’s finite-lived intangible assets consist of customer 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:
Customer 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
SUNOPTA INC.
-F12-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
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 29, 2018, the Company utilized the following
derivative instruments to manage commodity and foreign currency risks:
• 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.
• 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.
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.
SUNOPTA INC.
-F13-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
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
number of awards that ultimately 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 recognized when the Company transfers control of promised goods to its customers in an amount that reflects the
consideration to which the Company expects to be entitled to in exchange for those goods.
See note 2 for further disclosures related to revenue.
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
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.
SUNOPTA INC.
-F14-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
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
Adoption of New Accounting Standards
As at December 31, 2017 (the first day of fiscal 2018), the Company adopted Accounting Standards Update (“ASU”) 2014-09,
“Revenue from Contracts with Customers (Topic 606)” (“ASC Topic 606”), which superseded all previous revenue recognition
guidance under U.S. GAAP. Under this new standard, a company recognizes revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for
those goods or services.
The Company analyzed its significant customer contracts to determine the effects of ASC Topic 606. In particular, the
Company assessed under the new guidance whether its contracts with customers to produce certain consumer-packaged goods
would require the Company to recognize revenue over time versus at a point in time, based on whether the given product has
an alternative use and whether there is an enforceable right to payment under the contract for product produced to date. Based
on its assessment, the Company concluded that it does not satisfy the criteria to recognize revenue over time. Accordingly, the
Company continues to recognize revenue at a point in time consistent with its previous policies and processes, which is typically
when title and physical possession of the product has transferred to the customer. The Company also transacts with certain
customers on a bill-and-hold basis, whereby the Company bills a customer for product to be delivered at a later date. Prior to
the adoption of ASC Topic 606, the Company deferred the recognition of revenue related to these bill-and-hold arrangements,
as the arrangements did not typically include a fixed delivery schedule. As this criterion is no longer a consideration under
ASC Topic 606, these arrangements now qualify for revenue recognition at the point in time that the customer obtains control
of the goods. With the exception of bill-and-hold arrangements, the adoption of ASC Topic 606 did not have a significant
impact on the Company’s consolidated financial statements and revenue recognition practices, or its internal controls.
The Company adopted ASC Topic 606 using the modified retrospective approach, which resulted in a cumulative-effect
adjustment of $0.3 million to opening accumulated deficit as at December 31, 2017, related to the recognition of $4.8 million
of bill-and-hold revenue deferred under previous U.S. GAAP. The change in the timing of the recognition of bill-and-hold
revenue did not have a material impact on the Company’s consolidated statement of operations for the year ended December
29, 2018 or consolidated balance sheet as at December 29, 2018.
Recently Issued Accounting Standards, Not Adopted as at December 29, 2018
In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASC Topic 842”), which amends various aspects of legacy
accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability for leases with a duration
of greater than one year. The guidance is effective on a modified retrospective basis for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU 2018-11 to provide a
transition option for entities to apply the new guidance at the adoption date by recognizing a cumulative-effect adjustment to
the opening balance of retained earnings in the period of adoption rather than in the earliest period presented in the financial
statements. Under this transition option, entities will continue to apply the legacy accounting guidance for leases, including
disclosure requirements, in the comparative periods presented in the year they adopt the new leases standard. The Company
will adopt ASC Topic 842, as amended, effective the first quarter of 2019, using the transition option provided under ASU
2018-11. The Company has also elected to apply the practical expedients available under the new guidance to not reassess its
prior conclusions about lease identification, lease classification and initial direct costs. The Company currently expects that
the impact of the adoption of ASC Topic 842 will result in the recognition of additional right-of-use assets and lease liabilities
estimated in the range of $75 million to $85 million. ASC Topic 842 is not expected to have any significant impact on the
Company’s consolidated results of operations or 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
SUNOPTA INC.
-F15-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
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.
2. Revenue
The Company sources, processes and packages organic and natural food products, including organic raw commodities and value-
added ingredients, specialty and organic grains and seeds, and consumer-ready beverage, frozen fruit and fruit snack products.
The Company’s customers include retailers, foodservice operators, branded food companies and food manufacturers.
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which is upon
the transfer of control of the contracted goods. Except for goods sold under bill-and-hold arrangements, control is transferred
when title and physical possession of the product has transferred to the customer, which is at the point in time that product is
shipped from the Company’s facilities or delivered to a specified destination, depending on the terms of the contract, and the
Company has a present right to payment. Under bill-and-hold arrangements—whereby the Company bills a customer for product
to be delivered at a later date—control typically transfers when the product is ready for physical transfer to the customer, and the
Company has a present right to payment.
A performance obligation is a promise within a contract to transfer distinct goods to the customer. A contract with a customer
may involve multiple products and/or multiple delivery dates, with the transfer of each product at each delivery date being
considered a distinct performance obligation, as each of the Company’s products has standalone utility to the customer. In these
cases, the contract’s transaction price is allocated to each performance obligation based on relative standalone selling prices, and
recognized as revenue when each individual product is transferred to the customer. Other promises in the contract—for example,
the promise to provide quality assurance testing to ensure the product meets specification and is fit for its intended use—are not
separable from the promise to deliver goods and are therefore not considered distinct.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the goods.
Consideration is typically determined based on a fixed unit price for the quantity of product transferred. Certain contracts may
give rise to an element of variable consideration in the form of rebates or discounts. For contracts involving variable
consideration, the Company estimates the transaction price based on the amount of consideration to which it expects to be entitled.
These estimates are determined based on historical experience and the expected outcome of the variable consideration, and are
updated as new information becomes available, including actual claims paid, which indicate an estimate is not indicative of the
expected results. Changes to these estimates are recorded in the period the adjustment is identified. The Company does not
typically grant customers a general right of return for goods transferred, but will generally accept returns of product for quality-
related issues. The cost of satisfying this promise of quality is accounted for as an assurance-type warranty obligation rather than
variable consideration. The Company’s contracts do not typically include any significant payment terms, as payment is normally
due shortly after the time of transfer.
Within the Company’s Global Ingredients operating segment, arrangements with customers are in the form of written sales
contracts, specifying the quantity and timing of goods to be delivered. The duration of these sales contracts is typically one year
or less based on crop-year cycles, and may involve multiple delivery dates over the course of the contract. The Company has
elected not to disclose the value of remaining performance obligations for contracts with an original duration of one year or less.
Some contracts may extend beyond one year; however, for these contracts, the Company expects to satisfy substantially all of
the remaining performance obligations within the next 12 months. For contracts involving the delivery of raw commodities or
organic ingredients, the Company evaluated whether it is acting as the principal (whereby revenues are reported on a gross basis)
or agent (whereby revenues are reported on a net basis). The Company determined that for these contracts it is the principal,
since the Company is primarily responsible for fulfilling the promise to deliver the goods to customers. That is, the Company
controls access to the goods through purchase commitments with selected suppliers, and bears responsibility and potential
financial risk for quality-related issues related to the delivered product. In addition, the Company has discretion in establishing
prices for the product.
Within the Company’s Consumer Products operating segment, contracts are typically represented by short-term, binding
purchase orders from customers, identifying the quantity and pricing for products to be transferred. Customer orders may be
issued under long-term master supply arrangements. On their own, these master supply arrangements are typically not considered
SUNOPTA INC.
-F16-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
contracts for purposes of revenue recognition, as they do not create enforceable rights and obligations regarding the quantity,
pricing or timing of goods to be transferred (for example, by imposing minimum purchase obligations on the part of the
customer). Certain master supply arrangements provide for the transfer of product on a bill-and-hold basis at the specific request
of the customer. Goods are produced under these bill-and-hold arrangements to meet individual customer specifications, and,
therefore, are identifiable as belonging to the customer and cannot be directed to another customer.
The timing of the Company’s revenue recognition, customer billings and cash collections, does not result in significant unbilled
receivables (contract assets) or customer advances (contract liabilities) on the consolidated balance sheet. Contract costs, such
as sales commissions, are generally expensed as incurred given the short-term nature of the associated contracts.
The following table presents a disaggregation of the Company’s revenues based on categories used by the Company to evaluate
sales performance:
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
Global Ingredients
Internationally-sourced organic ingredients
North American-sourced grains and seeds
Total Global Ingredients
Consumer Products
Beverage products(1)
Frozen fruit products(2)
Snack products(3)
Total Consumer Products
Total revenues
403,988
155,724
559,712
332,568
322,247
46,325
701,140
367,209
169,719
536,928
308,810
345,372
88,483
742,665
366,243
192,555
558,798
312,741
382,818
92,374
787,933
1,260,852
1,279,593
1,346,731
(1)
(2)
(3)
Includes aseptically-packaged products including non-dairy beverages, broths and teas; refrigerated premium juices; and shelf-stable juices and
functional waters.
Includes individually quick frozen (“IQF”) fruit for retail; IQF and bulk frozen fruit for foodservice; and custom fruit preparations for industrial
use.
Includes fruit snack offerings, as well as flexible resealable pouch and nutrition bar products, which were exited in 2017 (see note 3).
3. Value Creation Plan
Overview
On October 7, 2016, the Company entered into a strategic partnership with Oaktree Capital Management L.P., a private equity
investor (together with its affiliates, “Oaktree”), and, on that date, Oaktree invested $85.0 million through the purchase of
cumulative, non-participating Series A Preferred Stock (the “Preferred Stock”) of the Company’s wholly-owned subsidiary,
SunOpta Foods Inc. (“SunOpta Foods”) (see note 13). Following the strategic partnership, with the assistance of Oaktree, the
Company conducted a thorough review of its operations, management and governance, with the objective of maximizing the
Company’s ability to deliver long-term value to its shareholders. As a product of this review, the Company implemented a
Value Creation Plan built on four pillars: portfolio optimization, operational excellence, go-to-market effectiveness and process
sustainability. The Company engaged third-party management consulting firms to support the design and implementation of
the Value Creation Plan.
In 2016, measures taken under the Value Creation Plan included the closure of the Company’s San Bernardino, California,
premium juice facility and the Company’s soy extraction facility in Heuvelton, New York.
SUNOPTA INC.
-F17-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
In 2017, further measures taken under the Value Creation Plan included the exits from flexible resealable pouch and nutrition
bar product lines and operations (see below); the consolidation of grain operations and related closure of a grain-handling
facility in Moorhead, Minnesota; and the consolidation of roasted snack operations and related closure of the Company’s
Wahpeton, North Dakota, roasting facility (which was completed in the second quarter of 2018). In addition, the Company
made organizational changes within its management and executive teams, along with new leadership to many corporate,
commercial and operational functions. The Company also added new employees in the areas of quality, sales, marketing,
operations and engineering, and made capital investments at several of its manufacturing facilities to enhance food safety and
production efficiencies.
As the flexible resealable pouch and nutrition bar product lines and operations do not qualify for presentation as discontinued
operations, operating results from these activities were reported in continuing operations on the consolidated statements of
operations for the current and comparative periods. Revenues from sales of these product lines were $3.1 million, $53.1 million
and $59.3 million for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively. Losses
before income taxes from these operations were $0.5 million, $24.4 million and $2.1 million for the years ended December 29,
2018, December 30, 2017 and December 31, 2016, respectively. For the year ended December 29, 2018, the loss before income
taxes from these operations included the recognition of the remaining lease obligation of $0.7 million (net of sublease rentals)
related to the vacated nutrition bar processing facility. For the year ended December 30, 2017, the loss before income taxes
from these operations included write-offs of accounts receivable and inventory ($2.9 million), impairments of long-lived assets
($13.2 million), and employee termination costs ($1.7 million) related to the exit activities. These operations were included in
the Consumer Products operating segment.
Continuity of Costs Incurred Under the Value Creation Plan
The following table summarizes costs incurred by year and in total since the inception of the Value Creation Plan to December
29, 2018:
SUNOPTA INC.
-F18-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(a)
Asset
impairments
and facility
closure costs
$
(b)
Employee
recruitment,
retention and
termination
costs
$
(c)
Consulting
fees and
temporary
labor costs
$
11,522
-
(11,522)
-
21,766
(10,746)
(11,720)
(700)
1,364
1,068
(1,255)
477
34,652
(9,678)
(24,497)
477
2,763
(694)
(266)
1,803
11,618
(9,683)
689
4,427
600
(4,591)
-
436
4,041
(2,384)
-
1,657
16,528
(18,185)
-
-
410
(410)
-
-
14,981
(14,968)
423
436
20,979
(20,979)
-
-
Total
$
18,326
(3,078)
(11,788)
3,460
49,912
(38,614)
(11,031)
3,727
2,374
(3,933)
(1,255)
913
70,612
(45,625)
(24,074)
913
Fiscal 2016
Costs incurred and charged to expense
Cash payments
Non-cash adjustments
Balance payable, December 31, 2016(1)
Fiscal 2017
Costs incurred and charged to expense
Cash payments, net
Non-cash adjustments
Balance payable (receivable), December 30, 2017(1)
Fiscal 2018
Costs incurred and charged to expense
Cash receipts (payments), net
Non-cash adjustments
Balance payable, December 29, 2018(1)
Total
Costs incurred and charged to expense
Cash payments, net
Non-cash adjustments
Balance payable, December 29, 2018(1)
(1) Balance payable was included in accounts payable and accrued liabilities and balance receivable was included in accounts receivable on the
consolidated balance sheets.
(a) Asset impairments and facility closure costs
For the year ended December 29, 2018, costs incurred included the remaining lease obligation related to the vacated
nutrition bar processing facility (net of sublease rentals), and an additional impairment loss related to the Wahpeton
roasting facility to reflect net proceeds of $0.7 million received on the sale of the facility. Net cash receipts also included
proceeds on the sale of nutrition bar equipment of $0.7 million. The balance payable as at December 29, 2018, represents
the remaining nutrition bar facility lease obligation (net of sublease rentals), which extends until December 2020.
For the year ended December 30, 2017, costs incurred included an additional asset impairment loss of $3.7 million on the
disposal of the San Bernardino assets, and facility closure costs of $0.6 million incurred by the Company for rent and
maintenance of the San Bernardino facility prior to its disposal. In addition, includes asset impairment losses related to
the exits from flexible resealable pouch and nutrition bar operations of $16.1 million, and consolidation of the Company’s
roasted snack operations of $1.3 million. Cash payments in 2017 related to the early buy-outs of the San Bernardino and
flexible resealable pouch equipment leases, net of proceeds on the disposal of those assets, as well as on the sale of the
nutrition bar equipment.
SUNOPTA INC.
-F19-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
For the year ended December 31, 2016, represents asset impairment losses of $11.5 million related to the closures of the
San Bernardino and Heuvelton facilities.
(b) Employee recruitment, retention and termination costs
Represents third-party recruiting fees incurred to identify and retain new employees; reimbursement of relocation costs for
new employees; retention and signing bonuses accrued for certain existing and new employees; and severance benefits,
net of forfeitures of stock-based awards, and legal costs related to employee terminations. Retention bonuses were paid
out in the first quarter of 2018 to employees who remained employed by the Company through December 31, 2017, or
other specified dates. Certain employees were entitled to pro-rata payouts of their retention bonuses if their employment
terminated earlier than their retention payment date. The balance payable as at December 29, 2018, will be paid in equal
monthly instalments over the next 11 months.
(c) Consulting fees and temporary labor costs
Represents the cost for third-party consultants and temporary labor engaged to support the design and implementation of
the Value Creation Plan, which efforts were substantially completed during fiscal 2017, as well as other professional fees
incurred in the connection with the plan.
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, costs incurred and charged to expense
were recorded in the consolidated statement of operations as follows:
Cost of goods sold(1)
Selling, general and administrative expenses(2)
Other expense(3)
December 29, 2018 December 30, 2017 December 31, 2016
$
-
4,041
14,285
18,326
$
3,189
22,894
23,829
49,912
$
100
613
1,661
2,374
(1) Inventory write-downs and facility closure costs recorded in cost of goods sold were allocated to the Consumer Products operating segment.
(2) Consulting/professional fees and temporary labor costs, and employee recruitment, relocation and retention costs recorded in selling, general and
administrative expenses were allocated to Corporate Services.
(3) For the year ended December 29, 2018, asset impairment, lease obligation and employee termination costs recorded in other expense were allocated
as follows: Raw Material Sourcing and Supply operating segment - $0.7 million; Consumer Products operating segment - $0.8 million; and Corporate
Services - $0.2 million. For the year ended December 30, 2017, asset impairment and employee termination costs recorded in other expense were
allocated as follows: Raw Material Sourcing and Supply operating segment - $2.1 million; Consumer Products operating segment - $20.6 million;
and Corporate Services - $1.1 million. For the year ended December 31, 2016, asset impairment and employee termination costs recorded in other
expense were allocated as follows: Raw Material Sourcing and Supply operating segment - $1.6 million; Consumer Products operating segment -
$10.6 million; and Corporate Services - $2.1 million.
4. Discontinued Operations
On April 6, 2016, the Company completed the sale of its 66% holding of common shares of Opta Minerals Inc. (“Opta
Minerals”) to Speyside Equity Fund I LP for 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 promissory
note bearing interest at 2.0% per annum that matured on October 6, 2018. 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 organic and healthy
foods company. The Company has no continuing involvement with Opta Minerals.
The following table reconciles the major components of the results of discontinued operations to the amounts reported in the
consolidated statement of operations for the year ended December 31, 2016:
SUNOPTA INC.
-F20-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Revenues
Cost of goods sold
Selling, general and administrative expenses
Foreign exchange and other expense, net
Interest expense
Loss before income taxes
Gain on classification as held for sale before income taxes
Total pre-tax loss from discontinued operations
Recovery of income taxes
Loss from discontinued operations
Loss from discontinued operations attributable to non-controlling interest
Loss from discontinued operations attributable to SunOpta Inc.
5. Derivative Financial Instruments and Fair Value Measurements
$
24,896
(22,133)
(3,024)
(1,248)
(484)
(1,993)
560
(1,433)
599
(834)
264
(570)
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 29, 2018 and December 30, 2017:
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)
Forward foreign currency contracts(3)
Not designated as hedging instruments
Contingent consideration(4)
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)
Forward foreign currency contracts(3)
Not designated as hedging instruments
Designated as hedging instruments
Contingent consideration(4)
Fair value
asset (liability)
$
Level 1
$
Level 2
$
Level 3
$
December 29, 2018
620
7
(581)
(17)
3,239
583
(4,286)
-
-
(94)
-
-
-
-
Fair value
asset (liability)
$
Level 1
$
738
(240)
(4)
3,838
(1,060)
(435)
(11,320)
-
(35)
-
-
-
-
-
620
7
(487)
(17)
3,239
583
-
-
-
-
-
-
-
(4,286)
December 30, 2017
Level 2
$
738
(205)
(4)
3,838
(1,060)
(435)
-
Level 3
$
-
-
-
-
-
-
(11,320)
SUNOPTA INC.
-F21-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(1) Commodity futures and forward contracts
Represents exchange-traded commodity futures and forward commodity purchase and sale contracts. Exchange-traded
futures are fair valued based on unadjusted quotes for identical assets priced in active markets and are classified as level
1. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted
for differences in local markets. Local market adjustments use observable inputs or market transactions for similar assets
or liabilities, and, as a result, are classified as level 2. Based on historical experience with the Company’s suppliers and
customers, the Company’s own credit risk, and 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 contracts are not designated as hedges for
accounting purposes. Gains and losses on changes in fair value of these contracts are included in cost of goods sold on the
consolidated statement of operations. For the year ended December 29, 2018, the Company recognized a loss of $0.5
million (December 30, 2017 – gain of $0.6 million; December 31, 2016 – gain of $0.5 million) related to changes in the
fair value of these derivatives. Unrealized gains on short-term contracts are included in other current assets; and unrealized
losses on short-term and long-term contracts are included in other current liabilities and long-term liabilities, respectively,
on the consolidated balance sheets.
As at December 29, 2018, 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
129
(704)
355
Corn
447
(393)
(190)
In addition, as at December 29, 2018, the Company had open forward contracts to sell 6,730 metric tons (“MT”) of cocoa
(December 30, 2017 – 2,990 MT sold) and to purchase 85 MT of coffee (December 30, 2017 – 51 MT sold).
(2) 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 29, 2018, the Company had 141,435
bushels of commodity corn and 217,881 bushels of commodity soybeans in inventories carried at market. Inventories
carried at market are included in inventories on the consolidated balance sheets.
(3) Foreign forward currency contracts
As part of its risk management strategy, the Company enters into forward foreign exchange contracts to reduce its exposure
to fluctuations in foreign currency exchange rates. For any open forward foreign exchange contracts at period end, the
contract rate is compared to the forward rate, and a gain or loss is recorded. These contracts are included in level 2 of the
fair value hierarchy, as the inputs used in making the fair value determination are derived from and are corroborated by
observable market data. Certain of these forward foreign exchange contracts may be designated as cash flow hedges for
accounting purposes, while other of these contracts represent economic hedges that are not designated as hedging
instruments.
SUNOPTA INC.
-F22-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(a) Not designated as hedging instruments
As at December 29, 2018, the Company had open forward foreign exchange contracts to sell euros to buy U.S. dollars
with a notional value of €13.3 million ($16.0 million). As these contracts were not designated as hedging instruments,
gains and losses on changes in the fair value of the derivative instruments are included in foreign exchange loss or
gain on the consolidated statement of operations. For the year ended December 29, 2018, the Company recognized a
gain of $1.6 million (December 30, 2017 – loss of $2.4 million; December 31, 2016 – gain of $1.0 million) related to
changes in the fair value of these derivatives. Unrealized gains and losses on these contracts are included in accounts
receivable and accounts payable, respectively, on the consolidated balance sheets.
(b) Designated as hedging instruments
From time to time, the Company enters into forward foreign exchange contracts to sell U.S. dollars to buy Mexican
pesos, as part of a hedging program to manage the variability of cash flows associated with a portion of forecasted
purchases of raw fruit inventories denominated in Mexican pesos. As these contracts are designated as hedging
instruments, the effective portion of the gains and losses on changes in the fair value of these contracts is included in
other comprehensive earnings and reclassified to cost of goods sold in the same period the hedged transaction affects
earnings, which is upon the sale of the inventories. For the year ended December 29, 2018, the Company recognized
a net gain of $0.5 million (December 30, 2017 – gain of $1.8 million) in other comprehensive earnings related to
changes in the fair value of open contracts. For the year ended December 29, 2018, the Company reclassified from
other comprehensive earnings to cost of goods sold a realized gain on closed contracts of $0.1 million (December 30,
2017 – gain of $1.4 million). In addition, for the year ended December 30, 2017, the Company reclassified to foreign
exchange loss an unrealized gain of $0.9 million related to the ineffective portion of the hedge. As at December 29,
2018, the Company had no open Mexican peso forward foreign exchange contracts.
(4) Contingent consideration
The fair value measurement of contingent consideration arising from business acquisitions is determined using
unobservable (level 3) inputs. These inputs include: (i) the estimated amount and timing of the projected cash flows on
which the contingency is based; and (ii) the risk-adjusted discount rate used to present value those cash flows. The
following table presents a reconciliation of contingent consideration obligations for the years ended December 29, 2018
and December 30, 2017. These obligations are included in long-term liabilities (including the current portion thereof) on
the consolidated balance sheets.
Balance, beginning of year
Fair value adjustment(1)
Payments(2)
Balance, end of year
December 29, 2018 December 30, 2017
$
(15,279)
(371)
4,330
(11,320)
$
(11,320)
2,635
4,399
(4,286)
(1) For the year ended December 29, 2018, included an adjustment of $2.8 million to reduce the final contingent consideration obligation payable in
2019 under an earn-out arrangement with the former unitholders of Citrusource, LLC (“Citrusource”) based on the results for the business in fiscal
2018. Citrusource was acquired by the Company in March 2015. In addition, for all periods presented, reflected the accretion for the time value
of money. (See note 17.)
(2) For the year ended December 29, 2018, reflected the third installment payment of deferred consideration to the former unitholders of Citrusource.
For the year ended December 30, 2017, reflected the second installment payment related to Citrusource and payment of the remaining deferred
consideration to a former shareholder of Organic Land Corporation OOD, which was acquired by the Company in December 2012.
SUNOPTA INC.
-F23-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
6. Accounts Receivable
Trade receivables
Product recall-related insurance recoveries(1)
Allowance for doubtful accounts
December 29, 2018 December 30, 2017
$
125,408
2,656
(2,912)
125,152
$
132,301
2,421
(2,591)
132,131
(1) Represents the remaining expected insurance recoveries related to the voluntary recall of certain roasted sunflower kernel products initiated by the
Company in the second quarter of 2016.
The change in the allowance for doubtful accounts provision for the years ended December 29, 2018 and December 30, 2017
is comprised as follows:
Balance, beginning of year
Net additions to provision
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 29, 2018 December 30, 2017
$
2,947
491
(596)
70
$
2,912
416
(717)
(20)
2,591
2,912
December 29, 2018 December 30, 2017
$
262,527
92,489
9,937
(9,975)
354,978
$
278,038
83,225
10,155
(9,461)
361,957
The change in the inventory reserve for the years ended December 29, 2018 and December 30, 2017 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 29, 2018 December 30, 2017
$
14,202
10,278
(14,367)
(138)
$
9,975
12,169
(12,612)
(71)
9,461
9,975
SUNOPTA INC.
-F24-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar 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 29, 2018 and December 30, 2017 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
$
-
24,059
94,920
8,878
8,472
2,180
138,509
December 29, 2018
Net book value
$
7,075
49,733
98,062
12,118
3,033
1,011
171,032
December 30, 2017
Accumulated
depreciation
Net book value
$
-
21,784
84,525
6,651
7,834
2,350
123,144
$
7,124
48,599
94,235
8,178
4,229
1,259
163,624
Cost
$
7,075
73,792
192,982
20,996
11,505
3,191
309,541
Cost
$
7,124
70,383
178,760
14,829
12,063
3,609
286,768
As at December 29, 2018 property, plant and equipment included construction in process assets of $19.4 million (December
30, 2017 – $23.7 million), which were not being depreciated as they had not yet reached the stage of commercial viability. In
addition, as at December 29, 2018, machinery and equipment included equipment under capital leases with a cost of $10.1
million (December 30, 2017 – $11.9 million) and a net book value of $3.4 million (December 30, 2017 – $5.4 million), as well
as $4.9 million (December 30, 2017 – $5.0 million) of spare parts inventory.
Total depreciation expense included in cost of goods sold and selling, general and administrative expenses on the consolidated
statements of operations related to property, plant and equipment for the year ended December 29, 2018 was $21.9 million
(December 30, 2017 – $21.7 million; December 31, 2016 – $22.9 million).
SUNOPTA INC.
-F25-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
9. Goodwill
The following is a summary of changes in goodwill:
Balance at December 31, 2016
Goodwill impairment
Foreign exchange
Balance at December 30, 2017
Goodwill impairment
Foreign exchange
Balance at December 29, 2018
Goodwill Impairments
Global Ingredients Consumer Products
$
215,356
(115,000)
-
100,356
(81,222)
-
19,134
$
8,255
-
922
9,177
-
(352)
8,825
Total
$
223,611
(115,000)
922
109,533
(81,222)
(352)
27,959
Based on the results of the annual impairment tests performed for the years ended December 29, 2018 and December 30, 2017,
the Company determined that the carrying value of the Healthy Fruit reporting unit of the Consumer Products operating segment
exceeded its fair value. As a result, the Company recognized goodwill impairment charges of $81.2 million and $115.0 million
in 2018 and 2017, respectively, to fully write-off the goodwill that arose from the Company’s acquisition of Sunrise Holdings
(Delaware), Inc. (“Sunrise”) in October 2015. These impairments reflected lower-than-expected revenues and operating
performance for the business since the acquisition of Sunrise, reflecting weaker-than-expected consumption trends and lower
sales pricing introduced over the past two fiscal years to regain or maintain distribution volumes, as well as uncertainty of
future revenue growth patterns and gross margin profile due to these market conditions and sales pricing limitations. In
addition, while the Company has identified certain productivity measures to be initiated to reduce costs and increase
profitability in the business, the ultimate timing and outcome of these measures are not fully certain.
Based on the results of the annual impairment test performed for the year ended December 31, 2016, the Company determined
that the carrying value of the goodwill associated with the Sunflower reporting unit of the Raw Material Sourcing and Supply
operating segment exceeded its implied fair value, reflecting lower anticipated sales demand and higher expected production
and capital costs as a result of a voluntary recall of certain roasted sunflower kernel products initiated by the Company in
second quarter of 2016. As a result, the Company recognized a goodwill impairment charge of $17.5 million in 2016.
SUNOPTA INC.
-F26-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
10. Intangible Assets
The major components of intangible assets as at December 29, 2018 and December 30, 2017 were as follows:
Customer relationships
Patents, trademarks and other
Customer relationships
Patents, trademarks and other
The following is a summary of changes in intangible assets:
Balance at December 31, 2016
Amortization
Impairment
Foreign exchange
Balance at December 30, 2017
Amortization
Foreign exchange
Balance at December 29, 2018
Cost
$
210,845
1,919
212,764
Cost
$
211,176
1,919
213,095
Accumulated
amortization
$
49,937
1,852
51,789
Accumulated
amortization
$
39,274
1,762
41,036
December 29, 2018
Net book value
$
160,908
67
160,975
December 30, 2017
Net book value
$
171,902
157
172,059
Customer Patents, trademarks
and other
$
266
(109)
-
-
157
(90)
-
67
relationships
$
183,258
(11,086)
(456)
186
171,902
(10,948)
(46)
160,908
Total
$
183,524
(11,195)
(456)
186
172,059
(11,038)
(46)
160,975
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:
Amortization expense
2019
$
11,013
2020
$
10,382
2021
$
10,112
2022
$
10,112
2023 Thereafter
$
109,244
$
10,112
Total
$
160,975
SUNOPTA INC.
-F27-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
11. Accounts Payable and Accrued Liabilities
Accounts payable
Payroll and commissions
Accrued grain liabilities
Accrued product recall-related costs(1)
Accrued interest
Dividends payable on Series A Preferred Stock (see note 13)
Accrued product recall settlement
Other accruals
December 29, 2018 December 30, 2017
$
94,992
15,161
15,039
6,980
5,496
1,700
2,250
19,746
161,364
$
115,297
8,817
15,322
3,792
5,346
1,700
-
5,097
155,371
(1) Represents the provision for remaining unsettled customer claims related to the voluntary recall of certain roasted sunflower kernel products initiated
by the Company in the second quarter of 2016.
12. Bank Indebtedness and Long-Term Debt
Bank indebtedness:
Global Credit Facility(1)
Bulgarian credit facility(2)
Long-term debt:
Senior Secured Second Lien Notes, net of unamortized debt issuance costs
of $6,472 (December 30, 2017 - $7,716)(3)
Asset-backed term loan(4)
Capital lease obligations(5)
Other
Less: current portion
(1) Global Credit Facility
December 29, 2018 December 30, 2017
$
$
276,776
3,558
280,334
217,026
3,103
3,706
5,028
228,863
1,840
227,023
230,502
3,588
234,090
215,782
3,600
5,651
3,000
228,033
2,228
225,805
On February 11, 2016, the Company entered into a five-year credit agreement for a senior secured asset-based revolving
credit facility with a syndicate of banks in the maximum aggregate principal amount of $350.0 million, subject to
borrowing base capacity (the “Global Credit Facility”). The Global Credit Facility is used to support the working capital
and general corporate needs of the 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
SUNOPTA INC.
-F28-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
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 29, 2018, the weighted-average interest rate on the facilities was 4.45%.
On September 19, 2017, the Company entered into an amendment to the Global Credit Facility to add a $15.0 million U.S.
asset-based credit subfacility (the “U.S. Subfacility”). On October 22, 2018, the Global Credit Facility was further
amended to increase the commitment under the U.S. Subfacility by $5.0 million. The entire $20.0 million available for
borrowing under the U.S. Subfacility was fully drawn as of October 22, 2018. Commencing with the fiscal quarter ending
March 31, 2019, amortization payments on the aggregate principal amount of the U.S. Subfacility are equal to $3.33
million, which payments may be funded through borrowings under the revolving facilities of the Global Credit Facility.
Borrowings repaid under the U.S. Subfacility may not be borrowed again. Borrowings under the U.S. Subfacility bear
interest at a margin over various reference rates. The applicable margin for the U.S. Subfacility is set quarterly based on
average borrowing availability for the preceding fiscal quarter ranges from 2.00% to 2.50% with respect to base rate and
prime rate borrowings and from 3.00% to 3.50% for eurocurrency rate and bankers’ acceptance rate borrowings. As at
December 29, 2018, the applicable margin was 3.50%.
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. The
foregoing covenants are subject to certain threshold amounts and exceptions as set forth in the credit agreement.
(2) Bulgarian credit facility
On July 27, 2018, a subsidiary of The Organic Corporation B.V. (“TOC”), a wholly-owned subsidiary of the Company,
extended 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 May 31, 2019. As at December 29, 2018, the weighted-
average interest rate on the Bulgarian credit facility was 2.75%.
(3) Senior Secured Second Lien Notes
On October 20, 2016, SunOpta Foods issued $231.0 million of 9.5% Senior Secured Second Lien Notes due 2022 (the
“Notes”). As at December 29, 2018, the outstanding principal amount of the Notes was $223.5 million, reflecting the
redemption of $7.5 million principal amount by SunOpta Foods in October 2017. Debt issuance costs are recorded as a
reduction against the principal amount of the Notes and are being amortized over the six-year term of the Notes. Interest
on the Notes is payable semi-annually in arrears on April 15 and October 15 at a rate of 9.5% per annum. The Notes will
mature on October 9, 2022. Giving effect to the amortization of debt issuance costs, the effective interest rate on the Notes
is approximately 10.4% per annum.
At any time after October 9, 2018, SunOpta Foods may redeem the Notes, in whole or in part, at a redemption price equal
to 107.125% through October 8, 2019, 104.750% from October 9, 2019 through October 8, 2020, 102.375% from October
9, 2020 through October 8, 2021 and at par thereafter, plus accrued and unpaid interest, if any, to but excluding the date
of redemption. Certain additional redemption rights were applicable prior to October 9, 2018. In the event of a change of
control, SunOpta Foods will be required to make an offer to repurchase the Notes at 101.000% of their principal amount,
plus accrued and unpaid interest, if any, to the date of purchase.
The Notes are secured by second-priority liens on substantially all of the assets that secure the credit facilities provided
under the Global Credit Facility, subject to certain exceptions and permitted liens. The Notes are senior secured obligations
SUNOPTA INC.
-F29-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
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
of the Notes. The foregoing covenants are subject to certain threshold amounts and exceptions as set forth in the indenture
governing the Notes. In addition, the indenture provides for customary events of default (subject in certain cases to
customary grace and cure periods), which include nonpayment, breach of covenants in the indenture, certain payment
defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and
insolvency. If an event of default occurs and is continuing, the trustee or holders of at least 25% in principal amount of
the outstanding Notes may declare the principal of and accrued and unpaid interest on, if any, all the Notes to be due and
payable.
As at December 29, 2018, the estimated fair value of the outstanding Notes was approximately $240 million, based on
quoted prices of the most recent over-the-counter transactions (Level 2).
(4) Asset-backed term loans
On December 28, 2017, TOC entered into a €3.0 million asset-backed term loan. Interest on this loan accrues at an
effective rate of 3.06% and the loan matures on December 28, 2027. Principal and accrued interest is repayable in equal
monthly installments. On January 8, 2019, TOC entered into a second asset-backed term loan for €1.6 million, which
accrues interest at an effective rate of 3.42% and matures on December 28, 2027. Principal and accrued interest on these
loans are repayable in equal monthly installments. These loans are secured by a first priority lien on equipment owned
by TOC for the second cocoa processing line at its facility in the Netherlands and are fully guaranteed by TOC.
(5) 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:
2019
2020
2021
2022
2023
Thereafter
Total gross repayments
Unamortized debt issuance costs
$
1,840
4,280
2,598
224,635
516
1,466
235,335
(6,472)
228,863
SUNOPTA INC.
-F30-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
The components of interest expense, net are as follows:
Interest expense
Amortization of debt issuance costs
Interest income
Interest expense, net
13. Series A Preferred Stock
December 29, 2018 December 30, 2017 December 31, 2016
$
32,090
11,301
(116)
43,275
$
29,771
2,825
(92)
32,504
$
32,155
2,536
(285)
34,406
On October 7, 2016, the Company and SunOpta Foods entered into a subscription agreement (the “Subscription Agreement”)
with Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (collectively, the “Investors”). Pursuant to the
Subscription Agreement, SunOpta Foods issued an aggregate of 85,000 shares of Preferred Stock to the Investors for
consideration in the amount of $85.0 million. In connection with the issuance of the Preferred Stock, the Company incurred
direct and incremental expenses of $6.0 million, which reduced the carrying value of the Preferred Stock. At any time on or
after October 7, 2021, SunOpta Foods may redeem all of the Preferred Stock for an amount, per share of Preferred Stock, equal
to the value of the liquidation preference at such time. The carrying value of the Preferred Stock is being accreted to the
redemption amount of $85.0 million through charges to retained earnings/accumulated deficit over the period preceding
October 7, 2021, which accretion amounted to $1.1 million, $1.0 million and $0.2 million for the year ended December 29,
2018, December 30, 2017 and December 31, 2016, respectively.
In connection with the Subscription Agreement, the Company agreed to, among other things (i) ensure SunOpta Foods has
sufficient funds to pay its obligations under the terms of the Preferred Stock and (ii) grant each holder of Preferred Stock (the
“Holder”) the right to exchange the Preferred Stock for shares of common stock of the Company (“Common Shares”). The
Preferred Stock is non-participating with the Common Shares in dividends and undistributed earnings of the Company.
The Preferred Stock has a stated value and initial liquidation preference of $1,000 per share. Cumulative preferred dividends
accrue daily on the Preferred Stock at an annualized rate of 8.0% of the liquidation preference prior to October 5, 2025 and
12.5% of the liquidation preference thereafter (subject to an increase of 1.0% per quarter, up to a maximum rate of 5.0% per
quarter on the occurrence of certain events of non-compliance). Prior to October 5, 2025, SunOpta Foods may pay dividends
in cash or elect, in lieu of paying cash, to add the amount that would have been paid to the liquidation preference. After October
4, 2025, the failure to pay dividends in cash will be an event of non-compliance. The Preferred Stock ranks senior to the shares
of common stock of SunOpta Foods with respect to dividend rights and rights on the distribution of assets on any liquidation,
winding up or dissolution of the Company or SunOpta Foods. For the year ended December 29, 2018 and December 30, 2017,
SunOpta Foods paid cash dividends on the Preferred Stock of $6.8 million and $6.7 million, respectively. As at December 29,
2018, SunOpta Foods had accrued unpaid dividends of $1.7 million, which were recorded in accounts payable and accrued
liabilities on the Company’s 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 29, 2018, the aggregate shares of Preferred Stock outstanding
were exchangeable into 11,333,333 Common Shares. The Exchange Price is subject to certain anti-dilution adjustments,
including a weighted-average adjustment for issuances of Common Shares below the Exchange Price, provided that the
Exchange Price may not be lower than $7.00 (subject to adjustment in certain circumstances). SunOpta Foods may cause the
Holders to exchange all of the Preferred Stock into a number of Common Shares based on the applicable Exchange Price if (i)
fewer than 10% of the shares of Preferred Stock issued on October 7, 2016 remain outstanding, or (ii) on or after October 7,
2019, the average volume-weighted average price of the Common Shares during the then preceding 20 trading day period is
greater than 200% of the Exchange Price.
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
SUNOPTA INC.
-F31-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
the holders of Common Shares, together as a single class, subject to certain exceptions. Additional Special Voting Shares will
be issued, or existing Special Voting Shares will be redeemed, as necessary to ensure that the aggregate number of Special
Voting Shares outstanding is equal to the number of shares of Preferred Stock outstanding from time to time multiplied by the
Exchange Rate in effect at such time. As at December 29, 2018, 11,333,333 Special Voting Shares were issued and outstanding,
which represented an approximate 11.5% voting interest in the Company. The Special Voting Shares are not transferable, and
the voting rights associated with the Special Voting Shares will terminate upon the transfer of the Preferred Stock to a third
party, other than a controlled affiliate of the Investors. The Investors are entitled to designate up to two nominees for election
to the Board of Directors of the Company (the “Board”) and have the right to designate one individual to attend meetings of
the Board as a non-voting observer, subject to the Investors maintaining certain levels of beneficial ownership of Common
Shares on an as-exchanged basis. For so long as the Investors beneficially own or control at least 50% of the Preferred Stock
issued on October 7, 2016, including any corresponding Common Shares into which such Preferred Stock are exchanged, the
Investors will be entitled to (i) participation rights with respect to future equity offerings of the Company, and (ii) governance
rights, including the right to approve certain actions proposed to be taken by the Company and its subsidiaries.
14. 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.
15. 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 29, 2018, 4,028,729 securities remained
available for issuance under the 2013 Plan.
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, total stock-based compensation expense
amounted to $7.9 million, $5.7 million and $4.1 million, respectively.
Stock Options
Stock options granted to selected employees during the three-year period ended December 29, 2018 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
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.
-F32-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
The following table summarizes stock option activity for the year ended December 29, 2018:
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
Stock options
3,306,728 $
58,000
(222,880)
(443,298)
2,698,550 $
1,264,902 $
Weighted-
average
exercise price
7.51
7.56
4.11
7.76
7.76
7.18
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic value
6.67 $
5.04 $
210
127
The following table summarizes non-vested stock option activity during the year ended December 29, 2018:
Non-vested, beginning of year
Granted
Vested
Forfeited
Non-vested, end of year
Stock options
2,149,221 $
58,000
(524,657)
(248,916)
1,433,648 $
Weighted-
average grant-
date fair value
3.57
3.31
3.19
3.22
3.74
The weighted-average grant-date fair values of all stock options granted in the years ended December 29, 2018, December 30,
2017 and December 31, 2016, were $3.31, $4.12 and $1.86, respectively. The weighted-average assumptions used in the Black-
Scholes option pricing model to determine the fair value of the stock options granted in those years were as follows:
Grant-date stock price
Dividend yield(1)
Expected volatility(2)
Risk-free interest rate(3)
Expected life of options (years)(4)
$
$
December 29, 2018 December 30, 2017 December 31, 2016
4.25
0%
41.7%
1.6%
6.0
7.56
0%
41.1%
2.9%
6.0
9.29
0%
42.1%
2.0%
6.4
$
(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, as a result, historical exercise data may not provide a reasonable basis upon which to estimate expected life.
SUNOPTA INC.
-F33-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
The following table summarizes stock options outstanding and exercisable as at December 29, 2018:
$
$
Exercise price range
High
5.50
7.28
9.35
9.60
13.86
Low
3.27
5.51
7.29
9.36
9.61
Outstanding
options
468,550
527,377
578,999
687,445
436,179
2,698,550
Weighted-
average
remaining
(years)
Weighted-
contractual life average exercise
price
3.68
6.24
8.03
9.50
10.85
7.76
6.85 $
5.76
6.48
8.40
5.14
6.67 $
Weighted-
Exercisable average exercise
price
3.75
5.91
7.67
9.45
10.92
7.18
options
297,447 $
302,043
333,502
1,667
330,243
1,264,902 $
Total compensation costs related to non-vested stock option awards not yet recognized as an expense was $2.8 million as at
December 29, 2018, which will be amortized over a weighted-average remaining vesting period of 1.4 years.
Restricted Stock Units
RSUs granted to employees vest ratably on each of the first through third anniversaries of the grant date. RSUs granted to
directors vest 100% on the first anniversary of the grant date. Each vested RSU will entitle the employee or director to receive
one common share of the Company. The weighted-average grant-date fair values of all RSUs granted in the years ended
December 29, 2018, December 30, 2017 and December 31, 2016, were $7.65, $9.18 and $3.87, respectively.
The following table summarizes non-vested RSU activity during the year ended December 29, 2018:
Non-vested, beginning of year
Granted
Vested
Forfeited
Non-vested, end of year
Weighted-
average grant-
date fair value
8.85
7.65
8.96
9.50
8.46
RSUs
775,356 $
154,711
(314,326)
(17,904)
597,837 $
Total compensation costs related to non-vested RSU awards not yet recognized as an expense was $3.1 million as at December
29, 2018, which will be amortized over a weighted-average remaining vesting period of 1.4 years.
Performance Share Units
For the year ended December 30, 2017, the Company granted 1,560,535 PSUs to selected employees. No additional PSUs
were granted in the year ended December 29, 2018. The vesting of the PSUs is subject to the satisfaction of certain stock price
performance conditions during a three-year performance period ending May 24, 2020. One-third of the PSUs will vest upon
achieving a stock price of $11.00, one-third will vest upon achieving a stock price of $14.00, and one-third will vest upon
achieving a stock price of $18.00, in each case for 20 consecutive trading days and subject to the employee’s continued
employment throughout the performance period. Each vested PSU will entitle the employee to receive one common share of
the Company without payment of additional consideration.
For the year ended December 30, 2017, the fair value of the PSUs granted was estimated using a Monte Carlo valuation model,
which simulates the potential outcomes for the Company’s stock price performance and determines the payouts that would
SUNOPTA INC.
-F34-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
occur under each scenario. Fair value is based on the average of those results. The grant-date weighted-average fair value of
the PSUs was determined to be $5.64, based on the following inputs to the valuation model:
Grant-date stock price
Dividend yield
Expected volatility(1)
Risk-free interest rate(2)
Expected life (in years)(3)
$
December 30, 2017
9.33
0%
42.2%
1.5%
3.0
(1) Determined based on the historical volatility of the Common Shares over 6.5 years, which is consistent with the volatility assumption for stock
options granted to employees.
(2) Determined based on U.S. Treasury yields with a remaining term equal to the expected life of the PSUs.
(3) Determined based on vesting for the PSUs.
The following table summarizes non-vested PSU activity during the year ended December 29, 2018:
Non-vested, beginning of year
Forfeited or cancelled
Non-vested, end of year
Weighted-
average grant-
date fair value
5.68
6.41
5.60
PSUs
1,519,752 $
(157,856)
1,361,896 $
Total compensation costs related to non-vested PSU awards not yet recognized as an expense was $3.6 million as at December
29, 2018, which will be amortized over a weighted-average remaining vesting period of 1.4 years.
CEO Plan
On February 6, 2017, David Colo was appointed President and Chief Executive Officer (“CEO”) of the Company. In
connection with his appointment, for the year ended December 30, 2017, the Company granted Mr. Colo 473,940 performance-
based stock options (the “Special Stock Options”) and 277,780 PSUs. In addition, Mr. Colo was granted 100,000 RSUs, of
which 50,000 were contingent on Mr. Colo purchasing Common Shares with an aggregate value of $1.0 million in the open
market.
The vesting of the Special Stock Options and PSUs is subject to: (i) Mr. Colo’s continued employment with the Company
during a three-year performance period ending February 6, 2020; and (ii) the satisfaction of certain stock price performance
conditions during the performance period. One-third of the Special Stock Options and PSUs will vest upon achieving a stock
price of $11.00, one-third will vest upon achieving a stock price of $14.00, and one-third will vest upon achieving a stock price
of $18.00, in each case for 20 consecutive trading days and subject to Mr. Colo’s continued employment through the
performance period. Each vested Special Stock Option will entitle Mr. Colo to purchase one common share of the Company
at an exercise price of $7.00, which was equal to the closing price of the Common Shares as at February 6, 2017. Each vested
PSU will entitle Mr. Colo to receive one common share of the Company without payment of additional consideration.
For the year ended December 29, 2018, the grant-date weighted-average fair values of the Special Stock Options and PSUs
were estimated using a Monte Carlo valuation model and determined to be $1.84 and $2.79, respectively, based on the following
inputs to the valuation model:
SUNOPTA INC.
-F35-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Grant-date stock price
Exercise price
Dividend yield
Expected volatility(1)
Risk-free interest rate(2)
Expected life (in years)(3)
December 30, 2017
$
$
Special Stock
Options
7.00 $
7.00
0%
42.0%
2.2%
6.5
PSUs
7.00
NA
0%
42.0%
1.5%
3.0
(1) Determined based on the historical volatility of the Common Shares over the expected life of the Special Stock Options.
(2) Determined based on U.S. Treasury yields with a remaining term equal to the respective expected lives of the Special Stock Options and PSUs.
(3) Determined using the simplified method for the Special Stock Options, based on the mid-point of vesting (three years) and expiration (ten years).
Determined based on vesting for the PSUs.
Total compensation costs related to the non-vested Special Stock Options and PSUs awarded to Mr. Colo not yet recognized
as an expense was $0.6 million as at December 29, 2018, which will be amortized over a weighted-average remaining vesting
period of 1.1 years.
The RSUs granted to Mr. Colo vest in three equal installments beginning on February 6, 2018. Each vested RSU will entitle
Mr. Colo to receive one common share of the Company. The grant-date fair value of the RSUs was estimated to be $7.00 based
on the stock price of the Common Shares as of the date of grant. Total compensation costs related to the non-vested RSUs
awarded to Mr. Colo not yet recognized as an expense was $0.3 million as at December 29, 2018, which will be amortized over
a weighted-average remaining vesting period of 1.1 years.
On February 21, 2019, the Board of Directors terminated Mr. Colo as President and CEO of the Company.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan whereby employees can purchase common shares through payroll
deductions. For the year ended December 29, 2018, the Company’s employees purchased 112,158 common shares (December
30, 2017 – 61,796; December 31, 2016 – 82,841) for total proceeds of $0.6 million (December 30, 2017 – $0.4 million;
December 31, 2016 – $0.4 million). As at December 29, 2018, 999,915 common shares are remaining to be granted under this
plan.
SUNOPTA INC.
-F36-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
16. Accumulated Other Comprehensive Loss
Net unrealized losses recorded in accumulated other comprehensive loss were as follows:
Currency translation adjustment
Cash flow hedges, net of income taxes
17. Other Expense (Income), Net
The components of other expense (income) are as follows:
December 29,
2018
$
(9,667)
-
(9,667)
December 30,
2017
$
(6,963)
(305)
(7,268)
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
Reserve for notes receivable(1)
Product withdrawal and recall costs(2)
Impairment of long-lived assets and facility closure
costs(3)
Employee termination costs(4)
Increase (decrease) in fair value of contingent
consideration (see note 5(4))
Legal settlement(5)
Business acquisition costs
Other
(1) Reserve for notes receivable
2,232
1,504
1,264
397
(2,635)
-
-
63
2,825
-
413
18,193
5,636
371
(1,024)
-
71
23,660
-
2,838
13,257
4,186
(1,158)
9,000
233
(64)
28,292
For the year ended December 29, 2018, represents a bad debt reserve for notes receivable associated with a previously sold
business. The face amount of the notes was $1.4 million, which represented the Company’s cash investment in the notes.
The notes had accelerated payment terms that entitled the Company to a multiple-times payout of the face amount of the
notes. The accelerated payment terms were originally fair-valued at $3.4 million. The Company has received cash
payments on the notes of $2.2 million through December 29, 2018 and has estimated that it will receive $0.3 million of
the remaining balance related to the accelerated payment terms.
(2) Product withdrawal and recall costs
For the years ended December 29, 2018 and December 30, 2017, represents product withdrawal and recall costs that were
not eligible for reimbursement under the Company’s insurance policies or exceeded the limits of those policies, including
certain costs related to the voluntary recall of certain roasted sunflower kernel products initiated by the Company in the
second quarter of 2016.
For the year ended December 31, 2016, represents costs related to the voluntary withdrawal of certain consumer-packaged
products due to quality-related issues, as well as certain direct costs and insurance deductibles related to the sunflower
recall.
SUNOPTA INC.
-F37-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(3) Impairment of long-lived assets and facility closure costs
For the year ended December 29, 2018, included the remaining lease obligation (net of sublease rentals) related to the
vacated nutrition bar processing facility, and an additional impairment loss and closure costs related to the disposal of the
Wahpeton roasting facility.
For the year ended December 30, 2017, represents the impairment of assets associated with the exits from flexible
resealable pouch and nutrition bar products lines and operations, and consolidation of roasted snack operations, as well as
the early buyout of the San Bernardino equipment leases.
For the year ended December 31, 2016, represents the impairment of assets associated with the closures of the San
Bernardino and Heuvelton facilities. In addition, includes the impairment of leasehold improvements at the Company’s
Buena Park, California, facility on the consolidation of Company’s frozen fruit processing operations following the
acquisition of Sunrise.
(4) Employee termination costs
For the year ended December 29, 2018, represents severance benefits, net of forfeitures of stock-based awards, incurred in
connection with the Value Creation Plan.
For the year ended December 30, 2017, represents severance benefits, net of forfeitures of stock-based awards, and legal
costs incurred in connection with the Value Creation Plan, including employees affected by the exits from flexible
resealable pouch and nutrition bar product lines and operations, and consolidation of roasted snack operations.
For the year ended December 31, 2016, represents contractual severance benefits and previously unrecognized stock-based
compensation expense recognized in connection with the departure of a former CEO, as well as costs for employees
affected by the closures of the Company’s San Bernardino, Heuvelton and Buena Park facilities.
(5) Legal settlement
In 2016, the Company recorded a charge of $9.0 million related to the settlement of a product recall dispute with a customer
involving certain flexible resealable pouch products manufactured by the Company in 2013. The settlement amount
included up to $4.0 million in rebates payable to the customer over a four-year period. In connection with the exit from
the flexible resealable pouch product lines and operations, the Company agreed to an upfront cash settlement of the
remaining rebate obligation, resulting in a recovery of $1.0 million recognized in 2017.
SUNOPTA INC.
-F38-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
18. Income Taxes
The 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 loss from continuing operations before income taxes due to the following:
Loss from continuing operations before income taxes
Canadian statutory rate
Income tax recovery at statutory rate
Impact of changes in enacted tax rates
Foreign tax rate differential
Change in unrecognized tax benefits
Goodwill impairment loss
Impact of stock-based compensation and other non-
deductible expenses
Change in valuation allowance
Other
Recovery of income taxes
December 29, 2018 December 30, 2017 December 31, 2016
$
(74,361)
26.5%
(19,706)
90
(11,329)
(1,268)
6,841
$
(114,521)
26.5%
(30,348)
1,976
2,562
-
22,239
$
(170,397)
26.5%
(45,155)
(8,437)
(9,324)
(452)
30,475
2,019
(3,717)
(109)
(5,378)
1,590
72
(4,598)
(35,829)
1,238
(267)
604
(23,797)
The components of loss from continuing operations before income taxes are shown below:
Canada
U.S.
Other
December 29, 2018 December 30, 2017 December 31, 2016
$
9,811
(93,941)
9,769
(74,361)
$
(13,408)
(107,068)
5,955
(114,521)
$
(3,286)
(178,033)
10,922
(170,397)
The components of the provision for (recovery of) income taxes are shown below:
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
Current income tax provision (recovery):
Canada
U.S.
Other
Deferred income tax provision (recovery):
Canada
U.S.
Other
Recovery of income taxes
(1,334)
(3,655)
3,394
(1,595)
547
(4,226)
(104)
(3,783)
(5,378)
(658)
(10,346)
3,074
(7,930)
642
(28,606)
65
(27,899)
(35,829)
3,560
(1,293)
3,664
5,931
(12)
(29,463)
(253)
(29,728)
(23,797)
SUNOPTA INC.
-F39-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
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
Inventory basis differences
Interest expense limitation (163j)
Other accrued reserves
Less: valuation allowance
Net deferred income tax liability
The components of the net deferred income tax asset (liability) are shown below:
Canada
U.S.
Other
The components of the deferred income tax valuation allowance are as follows:
Balance, beginning of year
Increase (decrease) in valuation allowance
Balance, end of year
December 29, 2018 December 30, 2017
$
$
(54,841)
25,169
2,004
3,755
20,025
1,366
(2,522)
5,445
(7,967)
(51,093)
22,144
1,871
5,193
10,311
5,249
(6,325)
9,162
(15,487)
December 29, 2018 December 30, 2017
$
362
(14,892)
(957)
(15,487)
$
(148)
(7,147)
(672)
(7,967)
December 29, 2018 December 30, 2017
$
9,090
72
9,162
$
9,162
(3,717)
5,445
As at December 29, 2018, the Company had approximately $1.1 million (December 30, 2017 – $0.4 million) in U.S. federal
scientific research investment tax credits and $0.9 million (December 30, 2017 – $0.9 million) in U.S. State research and
development tax credits, which will expire in varying amounts up to 2029.
As at December 29, 2018, the Company had U.S. federal non-capital loss carry-forwards of approximately $72.0 million
(December 30, 2017 – $46.0 million). In addition, the Company had state loss carry-forwards of approximately $15.1 million as
at December 29, 2018 (December 30, 2017 – $62.6 million). These amounts are available to reduce future federal and state income
taxes.
As at December 29, 2018, the Company had Canadian capital losses of approximately $29.7 million (December 30, 2017 – $27.7
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, as at December 29, 2018, a valuation allowance of $5.4 million (December 30, 2017 – $9.2 million) had been recorded
against certain assets to reduce the net benefit recorded in the consolidated financial statements.
SUNOPTA INC.
-F40-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
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 29, 2018 December 30, 2017
$
452
(452)
-
$
-
-
-
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.
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 2010 through
2017 tax years (and any tax year for which available non-capital loss carry-forwards were generated up to the amount of non-
capital loss carry-forward) remain subject to examination by the Internal Revenue Service for U.S. federal tax purposes, and
the 2010 through 2017 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.
SUNOPTA INC.
-F41-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
19. Loss Per Share
Basic and diluted loss per share were calculated as follows (shares in thousands):
Numerator for basic loss per share:
Loss from continuing operations, less amounts attributable
to non-controlling interests
Less: dividends and accretion on Series A Preferred Stock
Loss from continuing operations attributable to SunOpta Inc.
Loss from discontinued operations attributable to SunOpta Inc.
Loss attributable to common shareholders
Denominator for basic loss per share:
Basic weighted-average number of shares outstanding
Basic loss per share:
From continuing operations
From discontinued operations
Basic loss per share
Numerator for diluted loss per share:
Loss from continuing operations, less amounts attributable
to non-controlling interests
Less: dividends and accretion on Series A Preferred Stock (1)
Loss from continuing operations attributable to SunOpta Inc.
Loss from discontinued operations attributable to SunOpta Inc.
Loss attributable to common shareholders
Denominator for diluted loss per share:
Basic weighted-average number of shares outstanding
Dilutive effect of the following:
Series A Preferred Stock (1)
Stock options (2)
Diluted weighted-average number of shares outstanding
Diluted loss per share:
From continuing operations
From discontinued operations
Diluted loss per share
December 29,
2018
December 30,
2017
December 31,
2016
$
$
$
$
$
$
$
$
(109,205) $
(7,909)
(117,114)
-
(117,114) $
(135,320) $
(7,809)
(143,129)
-
(143,129) $
(50,618)
(1,812)
(52,430)
(570)
(53,000)
87,082
86,355
85,569
(1.34) $
-
(1.34) $
(1.66) $
-
(1.66) $
(0.61)
(0.01)
(0.62)
(109,205) $
(7,909)
(117,114)
-
(117,114) $
(135,320) $
(7,809)
(143,129)
-
(143,129) $
(50,618)
(1,812)
(52,430)
(570)
(53,000)
87,082
86,355
85,569
-
-
87,082
-
-
86,355
(1.34) $
-
(1.34) $
(1.66) $
-
(1.66) $
-
-
85,569
(0.61)
(0.01)
(0.62)
(1) For the years ended December 29, 2018, December 30, 2017 and 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 11,333,333, 11,333,333 and 2,670,320 Common Shares issuable on an if-converted basis for the years
ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively.
SUNOPTA INC.
-F42-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
(2) For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, stock options to purchase 452,316,
815,952 and 66,166 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 29, 2018, December
30, 2017 and December 31, 2016, options to purchase 2,384,249, 2,540,189 and 2,321,448 Common Shares were anti-
dilutive because the exercise prices of these options were greater than the average market price.
20. Supplemental Cash Flow Information
Changes in non-cash working capital:
Accounts receivable
Inventories
Income tax recoverable/payable
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Customer and other deposits
Cash paid for:
Interest
Income taxes
21. Related Party Transactions
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
(3,059)
(16,032)
5,744
3,662
(6,225)
(3,457)
(19,367)
32,020
2,936
35,773
27,475
(13,515)
(11,994)
(20,437)
2,328
19,630
29,683
4,150
(39,857)
(16,107)
22,868
(242)
23,221
(2,774)
(12,891)
28,651
1,781
The following table summarizes transactions between the Company and related parties:
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
Purchases and sales:
Purchases of fruits, grains and seeds(1)
Sales of agronomy products(2)
Sales of coffee beans(3)
Rent and other
Grower loans(4)
19,975
1,136
1,626
59
1,500
18,487
1,141
1,954
220
-
14,867
488
1,896
976
-
(1) Represents purchases of raw fruit, and fruit processing and freight services from companies related to the Managing Director
of the Company’s Mexican operations, as well as purchases of grains and seeds from employees of the Company, which are
included in cost of goods sold on the consolidated statements of operations.
(2) Represents sales of agronomy products to employees of the Company, which are included in revenues on the consolidated
statements of operations.
(3) Represents the sale of coffee beans 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.
(4) Represents loans made to the Managing Director of the Company’s Mexican operations, to provide operating funds for farms
owned by the director. These loans are secured by the crops grown on the farms. As at December 29, 2018, $1.5 million of
these loans were outstanding, which are repayable in full on June 30, 2019.
SUNOPTA INC.
-F43-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
22. Commitments and Contingencies
Employment Matter
On April 19, 2013, a class-action complaint, in the case titled De Jesus, et al. v. Frozsun, Inc. d/b/a Frozsun Foods, was filed
against Sunrise Growers, Inc. (“Sunrise”) (then named Frozsun, Inc.) in California Superior Court, Santa Barbara County
seeking damages, equitable relief and reasonable attorneys’ fees for alleged wage and hour violations. This case included 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 included 10,611 non-exempt hourly employees
from Sunrise’s production facilities in Santa Maria and Oxnard, California. The parties attended mediation on October 12, 2017
and reached a general agreement to resolve the matter on a class-wide basis for $5.0 million. After negotiating the remaining
details of the settlement, the parties obtained preliminary approval of the class action settlement on May 14, 2018. Settlement
class members had until August 20, 2018, to opt out or object to the settlement terms. A final fairness hearing with the Court
was held on September 17, 2018 and the settlement was granted final approval. Full payment of the settlement amount was
made to the third-party settlement administrator in October 2018. The Company recovered the full amount paid under the
settlement through insurance coverage and an escrow account established in connection with the Company’s acquisition of
Sunrise.
Product Recall
On November 20, 2017, Treehouse Foods, Inc., several of its related entities, and its insurer filed a lawsuit against the Company
in the Circuit Court of Cook County, Illinois titled Treehouse Foods, Inc. et al. v. SunOpta Grains and Food, Inc. The Company
was served with the Summons and Complaint on January 24, 2018. After the Company removed the case to the United States
District Court for the Northern District of Illinois, the plaintiffs filed an Amended Complaint on April 23, 2018 and a second
Amended Complaint on October 12, 2018. The plaintiffs allege economic damages resulting from the Company’s 2016
voluntary recall of certain roasted sunflower kernel products due to the potential for Listeria monocytogenes contamination.
The case includes claims for breach of contract, express and implied warranties and product guarantees, negligence, strict
liability, and indemnity seeking $16.2 million in damages. There are no allegations of personal injury. The Company is
vigorously defending itself against these claims. The Company cannot reasonably predict the outcome of this claim, nor can
it estimate the amount of loss, or range of loss, if any, that may result from this claim.
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.
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.
SUNOPTA INC.
-F44-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Grain Held for Others
As at December 29, 2018, the Company held grain for the benefit of others in the amount of $0.2 million (December 30, 2017
– $0.4 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 29, 2018 totaling $10.9 million (December 30, 2017 – $9.4 million).
Real Property Lease Commitments
The Company has entered into various leasing arrangements, which have recurring monthly rents that may be adjusted annually
to give effect to inflation.
Minimum commitments under operating leases, principally related to manufacturing plants, warehouses, office facilities,
machinery and equipment, and farmland, for the next five fiscal years and thereafter are as follows:
Operating lease obligations
2019
$
19,207
2020
$
17,356
2021
$
14,451
2022
$
12,622
2023 Thereafter
$
47,852
$
8,389
Total
$
119,877
In the years ended December 29, 2018, December 30, 2017 and December 31, 2016, rental expense related to operating leases,
including charges under certain real estate leases for common area maintenance, utilities, insurance and real estate taxes, was
$22.7 million, $28.0 million and $27.9 million, respectively.
23. Segmented Information
The composition of the Company’s reportable segments is as follows:
• Global Ingredients aggregates the Company’s North American-based Raw Material Sourcing and Supply and
European-based International Sourcing and Supply operating segments focused on the procurement and sale of organic
commodities and value-added ingredients, and specialty and organic grains and seeds.
• Consumer Products consists of three main commercial platforms: Healthy Beverages, Healthy Fruit and Healthy
Snacks. Healthy Beverages includes aseptically-packaged products including non-dairy beverages, broths and teas;
refrigerated premium juices; and shelf-stable juices and functional waters. Healthy Fruit includes IQF fruits for retail;
IQF and bulk frozen fruit for foodservice; and custom fruit preparations for industrial use. Healthy Snacks is focused
on fruit snack offerings and included flexible resealable pouch and nutrition bar product lines that were exited in 2017.
In 2018, the Company transferred certain of its specialty ingredient operations from the Raw Material Sourcing and Supply
operating segment to the Healthy Beverages platform of the Consumer Products operating segment. This realignment reflects
a change in commercial responsibilities for these operations and resulting changes in reporting and accountability to the
Company’s Chief Executive Officer. These operations produce liquid bases, including for the Company’s non-dairy aseptic
beverage operations, as well as spray-dried ingredients. The segment information presented below for years ended December
30, 2017 and December 31, 2016 has been restated to reflect this realignment. Specifically, for the years ended December 30,
2017 and December 31, 2016, revenues of $13.6 million and $15.5 million, respectively, and operating income of $2.0 million
and $2.0 million, respectively, generated by these operations have been reclassified from Global Ingredients to Consumer
Products.
SUNOPTA INC.
-F45-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar 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 Company’s 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/loss to assess performance and allocate resources. Segment operating income/loss
excludes other income/expense items. In addition, interest expense and income taxes are not allocated to the operating
segments.
Segment Revenues and Operating Income
Reportable segment operating results for the years ended December 29, 2018, December 30, 2017 and December 31, 2016
were as follows:
Segment revenues from external customers
Segment operating income
Corporate Services
Other expense, net (see note 17)
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 17)
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 17)
Goodwill impairment (see note 9)
Interest expense, net
Loss from continuing operations before income taxes
December 29, 2018
Global
Ingredients
$
559,712
16,430
Consumer
Products
$
701,140
1,238
Consolidated
$
1,260,852
17,668
(13,736)
(2,825)
(81,222)
(34,406)
(114,521)
December 30, 2017
Global
Ingredients
$
536,928
19,932
Consumer
Products
$
742,665
11,924
Consolidated
$
1,279,593
31,856
(31,089)
(23,660)
(115,000)
(32,504)
(170,397)
December 31, 2016
Global
Ingredients
$
558,798
24,771
Consumer
Products
$
787,933
3,222
Consolidated
$
1,346,731
27,993
(13,247)
(28,292)
(17,540)
(43,275)
(74,361)
SUNOPTA INC.
-F46-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
____________________________________________________________________________________________________
Segment Assets
Total assets and goodwill by reportable segment as at December 29, 2018 and December 30, 2017 were as follows:
Segment assets:
Global Ingredients
Consumer Products
Total segment assets
Corporate Services
Total assets
Segment goodwill:
Global Ingredients
Consumer Products
Total segment goodwill
December 29, 2018 December 30, 2017
$
$
364,454
458,224
822,678
74,060
896,738
8,825
19,134
27,959
347,971
588,542
936,513
45,660
982,173
9,177
100,356
109,533
Segment Capital Expenditures, Depreciation and Amortization
Capital expenditures, depreciation and amortization by reportable segment for the years ended December 29, 2018, December
30, 2017 and December 31, 2016 were as follows:
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
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
7,904
15,314
23,218
8,385
31,603
6,704
22,111
28,815
3,973
32,788
9,060
27,054
36,114
5,025
41,139
6,464
23,666
30,130
2,694
32,824
4,767
14,586
19,353
3,207
22,560
6,406
25,532
31,938
2,212
34,150
SUNOPTA INC.
-F47-
December 29, 2018 10-K
SunOpta Inc.
Notes to Consolidated Financial Statements
For the years ended December 29, 2018, December 30, 2017 and December 31, 2016
(All tabular dollar 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 29, 2018, December 30, 2017 and December 31, 2016 were as
follows:
December 29, 2018 December 30, 2017 December 31, 2016
$
$
$
Revenues from external customers:
U.S.
Canada
Europe and other
Total revenues from external customers
984,122
29,055
247,675
1,260,852
1,001,417
27,929
250,247
1,279,593
1,084,199
30,959
231,573
1,346,731
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 29, 2018 and December 30,
2017 were as follows:
Long-lived assets:
U.S.
Canada
Europe and other
Total long-lived assets
Major Customers
December 29, 2018 December 30, 2017
$
$
134,598
2,787
33,647
171,032
128,367
3,094
32,163
163,624
For the year ended December 29, 2018, Starbucks Corporation (“Starbucks”) accounted for approximately 10% of our
consolidated revenues. For the years ended December 30, 2017 and December 31, 2016, Costco Wholesale (“Costco”)
accounted for approximately 10% and 11%, respectively, of our consolidated revenues. Revenues from Starbucks and Costco
are included in the Consumer Products operating segment.
24. Subsequent Event
Sale of Specialty and Organic Soy and Corn Business
On February 22, 2019, the Company’s subsidiary, SunOpta Grains and Foods Inc., completed the sale of its specialty and
organic soy and corn business to Pipeline Foods, LLC (“Pipeline Foods”) for $66.5 million, subject to certain post-closing
adjustments. The soy and corn business engaged in seed and grain conditioning and corn milling and formed part of the
Company’s North American-based raw material sourcing and supply operating segment, included in the Global Ingredients
reportable segment. The business included five facilities located in Hope, Minnesota, Blooming Prairie, Minnesota, Ellendale,
Minnesota, Moorhead, Minnesota, and Cresco, Iowa.
The net assets of the soy and corn business that were sold did not meet the criteria for presentation as held for sale as at
December 29, 2018. The net proceeds from the sale exceeded the carrying value of the net assets as of that date. The Company
will measure and record a gain on sale as at the transaction date in the first quarter of 2019.
SUNOPTA INC.
-F48-
December 29, 2018 10-K
Supplemental financial information (unaudited)
Summarized below is the Consolidated Statement of Operations for the quarters ended December 29, 2018, September 29,
2018, June 30, 2018 and March 31, 2018, as well as the fiscal 2017 quarterly comparatives.
Revenues(1)
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense, net(2)
Goodwill impairment(3)
Foreign exchange loss (gain)
Loss before the following
Interest expense, net
Loss before income taxes
Recovery of income taxes
Net loss
Earnings attributable to non-controlling interests
Loss attributable to SunOpta Inc.
Basic and diluted loss per share
Quarter ended
December 29, 2018 December 30, 2017
$
$
320,521
299,209
21,312
25,792
2,745
1,508
81,222
(331)
292,395
264,124
28,271
28,094
2,766
11,638
115,000
1,268
(89,624)
(130,495)
8,920
(98,544)
(1,525)
(97,019)
43
8,684
(139,179)
(21,780)
(117,399)
88
(97,062)
(117,487)
(1.13)
(1.38)
(1) Fourth quarter of 2017 included revenues from exited flexible resealable pouch and nutrition bar product lines of $9.1 million.
(2) Fourth quarter of 2017 included an asset impairment charge of $10.0 million associated with the Value Creation Plan (see note 3 to the consolidated
financial statements).
(3) Fourth quarters of 2018 and 2017 reflected the impairment of goodwill associated with the Healthy Fruit reporting unit (see note 9 to the
consolidated financial statements).
SUNOPTA INC.
-F49-
December 29, 2018 10-K
Supplemental financial information (unaudited) continued
Revenues(1)
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense, net(2)
Foreign exchange loss (gain)
Earnings (loss) before the following
Interest expense, net
Loss before income taxes
Recovery of income taxes
Net loss
Earnings attributable to non-controlling interests
Loss attributable to SunOpta Inc.
Basic and diluted loss per share
Quarter ended
September 29 2018 September 30, 2017
$
$
308,371
274,243
34,128
27,220
2,754
1,136
(368)
3,386
8,792
(5,406)
(870)
(4,536)
70
(4,606)
(0.08)
320,713
284,258
36,455
26,102
2,817
5,972
2,575
(1,011)
8,371
(9,382)
(3,499)
(5,883)
144
(6,027)
(0.09)
(1) Third quarter of 2017 included revenues from exited flexible resealable pouch and nutrition bar product lines of $13.5 million.
(2) Third quarter of 2017 included an asset impairment charge of $4.5 million associated with the Value Creation Plan (see note 3 to the consolidated
financial statements).
SUNOPTA INC.
-F50-
December 29, 2018 10-K
Supplemental financial information (unaudited) continued
Revenues(1)
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense, net
Foreign exchange loss (gain)
Earnings before the following
Interest expense, net
Loss before income taxes
Recovery of income taxes
Net loss
Earnings attributable to non-controlling interests
Loss attributable to SunOpta Inc.
Basic and diluted loss per share
June 30, 2018
$
319,308
284,962
34,346
Quarter ended
July 1, 2017
$
336,454
294,792
41,662
26,948
2,768
583
(11)
4,058
8,474
(4,416)
(1,290)
(3,126)
48
(3,174)
(0.06)
35,039
2,809
607
1,195
2,012
7,695
(5,683)
(5,581)
(102)
306
(408)
(0.03)
(1) Second quarters of 2018 and 2017 included revenues from exited flexible resealable pouch and nutrition bar product lines of $0.5 million and $15.2
million, respectively.
SUNOPTA INC.
-F51-
December 29, 2018 10-K
Supplemental financial information (unaudited) continued
Revenues(1)
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Intangible asset amortization
Other expense (income), net(2)
Foreign exchange loss
Earnings (loss) from continuing operations before the following
Interest expense, net
Loss from continuing operations before income taxes
Recovery of income taxes
Net loss
Earnings (loss) attributable to non-controlling interests
Loss attributable to SunOpta Inc.
Basic and diluted loss per share
March 31, 2018
$
Quarter ended
April 1, 2017
$
312,652
278,968
33,684
28,288
2,771
(402)
962
2,065
8,220
(6,155)
(1,693)
(4,462)
(99)
(4,363)
(0.07)
330,031
291,332
38,699
38,272
2,803
5,443
580
(8,399)
7,754
(16,153)
(4,969)
(11,184)
214
(11,398)
(0.16)
(1) First quarters of 2018 and 2017 included revenues from exited flexible resealable pouch and nutrition bar product lines of $2.6 million and $15.4
million, respectively.
(2) First quarter of 2017 included an asset impairment charge of $3.7 million associated the Value Creation Plan (see note 3 to the consolidated financial
statements).
SUNOPTA INC.
-F52-
December 29, 2018 10-K
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, Katrina Houde, 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/ Katrina Houde
Katrina Houde
Interim Chief Executive Officer
SunOpta Inc.
Date: February 26, 2019
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: February 26, 2019
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 29, 2018,
as filed with the Securities and Exchange Commission (the “Report”), I, Katrina Houde, Interim 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: February 26, 2019
/s/ Katrina Houde
Katrina Houde
Interim 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.
EXTENSIVE GLOBAL CAPABILITIES
Publicly Held NASDAQ - STKL
TSX - SOY
Employees Approximately 2,000
Headquarters Mississauga, Ontario, Canada
Locations Processing and Packaging: 20
Other: 22
Geography Americas: 31 locations
Europe: 7 locations
Africa: 2 locations
Asia: 2 locations
Currently doing business in
approximately 65 countries
2018 Annual Report
DIRECTORS AND LEADERSHIP TEAM
Directors
Leadership Team
Shareholder Information
Margaret Shân Atkins (5)
Independent Director
Joseph D. Ennen
Chief Executive Officer
Dr. Albert Bolles (4)(6)
Independent Director
Derek Briffett (1)(6)
Independent Director
Michael Detlefsen (2)(4)
Independent Director
Joseph D. Ennen
Chief Executive Officer and
Director
R. Dean Hollis (4)(6)
Chair
Kathy Houde (3)
Independent Director
Brendan Springstubb (2)(6)
Independent 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
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
Rob McKeracher
Vice President and Chief Financial
Officer
Gerard Versteegh
Senior Vice President, Global
Ingredients
Chris Whitehair
Senior Vice President, Operations
Jill Barnett
General Counsel and Corporate
Secretary
George Miketa
Chief Customer Officer
TRANSFER AGENTS
TSX Trust Company
100 Adelaide Street West, Suite 301
Toronto, ON, Canada M5H 4H1
T: (416) 361-0930
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
Michael Buick
Senior Vice President and General
Manager, Consumer Products
AUDITORS
Ernst & Young LLP
Toronto, ON, Canada
Rob Duchscher
Chief Information Officer
James Gratzek
Senior Vice President, Research &
Development and Quality
Rob Grant
Senior Vice President, Supply Chain
Jeff Gough
Chief Human Resource Officer
ANNUAL MEETING
May 30, 2019 at 3:00 pm Eastern
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
2018 Annual Report