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 January 2, 2021December 30, 2023
☐ 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)
| Not Applicable | |
| (Jurisdiction of Incorporation) |
2233 Argentia7078 Shady Oak Road Suite 401
Mississauga, Ontario L5N 2X7, CanadaEden Prairie, Minnesota, 55344
(Address of Principal Executive Offices)
(905) 821-9669(952) 820-2518
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares | STKL | The Nasdaq Stock Market LLC |
Common Shares | SOY |
|
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 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 has filed a report on and attestation to its management’smanagement' s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officer during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 of $6.69 as reported on the NASDAQ Global Select Market for the registrant's common shares on June 27, 2020,July 1, 2023, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $325$650 million.
The number of shares of the registrant's common stock outstanding as of February 26, 202123, 2024 was 103,256,454.
Documents Incorporated by Reference: Portions of the SunOpta Inc. Definitive Proxy Statement for the 20212024 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
FORM 10-K
For the year ended January 2, 2021December 30, 2023
TABLE OF CONTENTS
| SUNOPTA INC. | 1 |
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Except where the context otherwise requires, all references in this Annual Report on Form 10-K for the fiscal year ended January 2, 2021December 30, 2023 ("Form 10-K") to "SunOpta," the "Company," "we," "us," "our" or similar words and phrases are to SunOpta Inc. and its subsidiaries, taken together.
In this report, all currency amounts presented are expressed in thousands of United States ("U.S.") dollars ("$"), 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 | Closing | Average | Closing | Average | Closing | Average | ||||||
| 2020 | 0.7854 | 0.7463 | 1.2251 | 1.1413 | 0.0501 | 0.0468 | ||||||
| 2019 | 0.7646 | 0.7534 | 1.1172 | 1.1193 | 0.0531 | 0.0519 | ||||||
| 2018 | 0.7332 | 0.7723 | 1.1446 | 1.1812 | 0.0503 | 0.0520 | ||||||
This Form 10-K contains forward-looking statements that 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," "predict," "continue," "believe," "expect," "can," "could," "would," "should," "may," "might," "plan," "will," "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; changes in customer demand resulting from or related to the COVID-19 pandemic, as well as supply chain, logistics and other disruptions; fluctuations in foreign currency exchange rates and commodity pricing, and general economic and political conditions globally and in the markets in which we do business; our plans to expand capacity in our plant-based food and beverage business, and timing to complete expansion projects; our expectation that the divestiture of Tradin Organic will enable the acceleration of our expansion plans; our assessment of the interest savings from the reduction in our indebtedness following the divestiture of Tradin Organic; our expectations regarding profitability in our frozen fruit business, including our assessment of the margin improvement and cost savings to be realized from our frozen fruit productivity, network optimization and portfolio rationalization initiatives; our expectations regarding the availabilityfuture profitability of our business, including anticipated results of operations, revenue trends, and commodity pricing for frozen strawberry supply, and potential impacts to our revenues and margins; our intent to diversify our fruit supplier base and our assessmentgross margin profile; the expected impact of the anticipated benefits;inflationary cost environment on our business, including raw material, packaging, labor, energy, fuel and transportation costs; the expected impact of pricing actions on sales volumes and gross margins; the expected impact of cost containment measures and productivity initiatives; our expectations regarding customer demand, consumer preferences, competition, sales pricing, and availability and pricing of raw material inputs; other expectations relatedinputs, and timing and cost to complete capital expansion projects; our businesses, includingability to successfully execute on our capital investment plans, and the viability of those plans; disruptions or inefficiencies in the supply chain; the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing; the anticipated resultssufficiency of operations, operational growthfuture cash flows to enable the payments of interest and expansion plans, plansrepayment of debt, working capital needs, planned capital expenditures; and our ability to reduce costs and improve profitability;obtain additional financing or issue additional debt or equity securities; our intentions related to the potential sale of selected businesses, operations, or assets; liquidity constraintsour estimates for losses and related insurance recoveries associated with the availabilityrecall of alternative financing sources;specific frozen fruit products initiated in the second quarter of 2023; the outcome of litigation to which we may, from time to time, be a party; 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:
| other risks described herein under Part I, Item 1A "Risk Factors."
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| SUNOPTA INC. | December 30, 2023 Form 10-K |
The Company
SunOpta a corporationInc. was organized under the laws of Canada in 1973,1973. We operate as a manufacturer for leading natural and private label brands and also produce our own propriety brands, including SOWN®, Dream® and West Life™. The core of our product portfolio is a leading company focused on the manufacturerange of plant-based beverages, including oat, almond, soy, coconut and fruit-basedrice milks and creamers, which have a favorable climate profile relative to traditional dairy milks in terms of lower carbon emissions and water usage. Our plant-based offerings include non-genetically modified ("non-GMO"), organic, and gluten-free products. Our consumer products portfolio also includes protein shakes, teas, broths, and fruit snacks. In October 2023, we completed the divestiture of our commodity-based frozen fruit business ("Frozen Fruit"), in order to focus on value-add products in plant-based and healthy snack categories (see below - "Divestiture of Frozen Fruit").
We sell our products through various distribution channels including private label products to retail customers; branded products under co-manufacturing agreements to other branded food companies for their distribution; and our own branded products to retail and foodservice customers. In addition, we also produce liquid and dry ingredients for internal use and for sale to other food and beverage products for sale to retail customers, foodservice distributors, branded food companies, and food manufacturers.
Our employees and assets, which include 14 processingproduction facilities are principally located in the U.S., as well as MexicoCanada. Our corporate headquarters is located in Eden Prairie, Minnesota, together with our innovation center and Canada. pilot plant.
Operating Segments and Principal ProductsDivestiture of Frozen Fruit
The following is a description of the principal activities and products that comprise our two continuing operating segments:
Plant-Based Foods and Beverages- We offer a full line of plant-based beverages and liquid and dry ingredients (utilizing almond, soy, coconut, oat, hemp, and other bases), as well as broths, teas, and nutritional beverages. In addition, we package dry- and oil-roasted inshell sunflower and sunflower kernels, as well as corn-, soy- and legume-based roasted snacks, and we process and sell raw sunflower inshell and kernel for food and feed applications.
Fruit-Based Foods and Beverages- We offer individually quick frozen ("IQF") fruit for retail (including strawberries, blueberries, mango, pineapple, blends, and other berries), IQF and bulk frozen fruit for foodservice (including purées, fruit cups and smoothies), and custom fruit preparations for industrial use. In addition, we offer fruit snacks, including bars, twists, ropes, and bite-sized varieties.
In 2020, we derived 53% of our revenues from the sale of plant-based foods and beverages, and 47% from the sale of fruit-based foods and beverages.
Until December 2020, we had a third operating segment referred to as Global Ingredients. The Global Ingredients operating segment was comprised of our organic ingredient sourcing and production business, Tradin Organic, and our soy and corn business, which were sold in December 2020 and February 2019, respectively, as discussed below under "Divestitures."
Additional information regarding our segments is presented in note 24 to the consolidated financial statements at Item 15 of this Form 10-K.
Divestitures
Tradin Organic
On December 30, 2020,October 12, 2023, we completed the sale of our organic ingredient sourcingcertain assets and production business, Tradin Organic,liabilities of Frozen Fruit, which included its global organicowned facilities of Frozen Fruit located in Edwardsville, Kansas, and non-GMO ingredient sourcing operations, together with its consumer-packaged premium juice co-manufacturing business, and ingredient processing facilities.Jacona, Mexico. In addition, Tradin Organic included approximately 500 employees who transferred to the purchaser. The divestiture of Tradin Organic for cash consideration of approximately $374 million allowed us to significantly reduce our debt and refinance our credit facility (as described below under "Credit Refinancing"), enabling us to accelerate expansion plans for our core plant-based food and beverage platform. Additional financial information related to this transaction can be found in note 3 to the consolidated financial statements at Item 15 of this Form 10-K.
Soy and Corn Business
On February 22, 2019,December 2023, we completed the saleliquidation of our specialty and organic soy and corn business, which was engaged in seed and grain conditioning and corn milling at five processing facilitiesa leased frozen fruit facility located in Oxnard, California. These transactions represent our exit from the U.S. The saleprocessing, packaging and selling of the soyindividually quick frozen fruit for retail, foodservice and corn business was completed to simplifyindustrial applications and completes our business and exit product lines where we were not effectively positioned to drive long-term profitable growth. Additional information related to this transaction can be found in note 4 to the consolidated financial statements at Item 15 of this Form 10-K.
Credit Refinancing
In conjunction withstrategic optimization plan for our non-core, commodity-based businesses, which included the divestiture of Tradin Organic, we were able to reduce our debt by approximately $355 million, including the early redemptionsunflower business ("Sunflower") in October 2022. Frozen Fruit and retirement of the $223.5 million outstanding principal amount of our 9.5% senior secured second lien notes due October 2022, and the repayment of approximately $132 million of the outstanding borrowings under our former revolving credit facility. On December 31, 2020, we entered into a new five-year credit agreement comprised of a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $250 million, subject to borrowing base capacity, and a five-year, $75 million delayed draw term loan, to be used for capital expenditures. Additional information related to the new credit agreement can be found in note 14 to the consolidated financial statements at Item 15 of this Form 10-K.Sunflower have been classified as discontinued operations.
Customers and competitionCompetition
We sell our plant-based and fruit-based food and beverage products through various distribution channels, including largefoodservice operators, grocery retailers and club stores, branded food companies, foodservice distributors, quick service and casual dining restaurants, and food manufacturers, located principally in the U.S. We generally conduct our business with customers based on purchase orders or pursuant to contracts that are generally terminable onby either party following a designated notice ranging from three to 12 months.period. However, some of our contracts may extend for several years and/or include volume purchase commitments. A relatively limited number of customers account for a large percentage of our revenues. In 2020,2023, our ten largest customers accounted for approximately 67%80% of our consolidated revenues approximately 69% of our Plant-Based Foods and Beverages segment revenues, and approximately 65% of our Fruit-Based Foods and Beverages segment revenues. from continuing operations.
Our plant-based and fruit-based food and beverage operationsWe compete with major branded and private-label food manufacturers. Our customers do not typically commit to buy predetermined amounts of productsmanufacturers that have significantly greater resources and many customers utilize bidding procedures to select vendors. As a result, price is often a key competitive factor in winning bids and retaining customers, along with product quality, food safety, innovation, and customer service. Webrand recognition than we do. However, we believe that the strategic locations of our access to an established network of growersmanufacturing and suppliers, combined withdistribution facilities, our in-house processing and packaging capabilities, providesand our innovation center and pilot plant, allows us with a low-cost advantage over manyto compete effectively. For sales of private label and co-manufactured products, the principal competitive factors are product quality, reliability of service, innovation, and price. For sales of our competitors.own branded products, the principal competitive factors are consumer brand recognition and loyalty, product quality, promotion, and price.
Raw Materials
Our raw materials primarily consist of agricultural ingredients and packaging materials. We utilize an established network of growers and suppliers for raw materialPrincipal ingredients to support our plant-based and fruit-based food and beverage processing operations. The ingredient used most in the products we produce in our operations is strawberries. Freshproducts include oats, almonds, soybeans, coconut, apple and frozen berriessugar. For critical raw materials, we identify and qualify alternate sources of supply, where possible. Ingredients are sourced directly from a large number of suppliers throughout the U.S., Mexicosubject to fluctuations in market price caused by weather, growing and South America. Our scale and location close to growing areas in California and Mexico make us an attractive customer for fruit growers. Because weatherharvesting conditions, market conditions, including inflationary cost increases, and other factors can limit the availabilitybeyond our control. Where possible, we mitigate market price volatility by entering into annual purchase arrangements with our suppliers and by incorporating pass-through pricing adjustment clauses into our contracts with customers. The costs of raw materials in a specific geography, we continue to focus on expanding fruit sourcing outside of North America to ensure supply in years when local production is below normal levels.
In conjunction with the divestiture of Tradin Organic, we entered into a five-year supply agreement (renewable for one-year periods thereafter), whereby we may continue to purchase specified organic ingredients from Tradin Organic for useused in our plant-basedproducts also fluctuate due to energy costs, fuel prices, labor availability, and fruit-based operations. This long-term supply agreement provides us withfreight and storage demand. Volatility in the benefitcost of continued accessour raw materials can adversely affect our performance, as price changes may lag behind changes in costs, and we are not always able to Tradin Organic's global network of organic ingredients. adjust our pricing to reflect changes in raw material costs due to competitive pressures.
| SUNOPTA INC. | 3 | December 30, 2023 Form 10-K |
We rely on our packaging suppliers to ensure delivery of often unique, portable, and convenient consumer packaging formats. In our plant-based beverage processing facilities, we specialize in the use of Tetra Pak processing and packaging equipment in a variety of packpackage sizes, with a varietyand an array of opening types and extended shelf-life options. Over 95% of our packaging by weight is recyclable, and we are committed to working with our suppliers to innovate and develop new packaging technologies to further reduce the impact on the environment, while maintaining the quality and safety of our products.
Natural gas and electricity are the primary sources of energy used to power our plants and processing equipment, and water is the principal ingredient in many of our products and is essential to our production processes.
Diesel fuel is used in connection with the distribution of our products, and we rely on third-party transportation providers to deliver raw materials, as well as our products to our customers.
Seasonality
We experience seasonality in the procurement, transportation, and processing of strawberries, mainly related to the peak California and Mexico production seasons, which generally occur during the first two quarters of the year. Similarly, we purchase the bulk of our annual sunflower crop requirements from North American growers following the harvest in the fall of each year. As a result, our financing needs are generally highest in those periods due to crop inventory builds, while cash inflows are typically highest in the fourth quarter as inventories are drawn down. Overall, the demand for most of our products does not typically fluctuate significantly in any particular season; however, broth sales of broth are generally higher in the first and fourth quarter.quarters of each year.
Research andProduct Development
Our 24,000 square foot innovation center and pilot plant located in Edina,Eden Prairie, Minnesota, supports our product development team of 21 highly trained and experienced food scientists and technologists that are dedicated to the research and development of innovative food and beverage offerings and 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.
Trademarks
We do not extensively market our own consumer brands under trademarks that we own, including SOWN, Dream and West Life. While we consider these trademarks to be valuable to the marketing and sale of our proprietary brands, we do not consider any trademark to be of such material importance to our business or eitherthat its absence would cause a material disruption of our operating segments.business.
Human Capital
Our Human Capital Management strategy is based on our goal of "Putting the YOU in SunOpta." We develop employee programs, benefits, and compensation to align with the four pillars of well-being: physical, financial, social, and emotional. Examples of these initiatives are:
Offering a competitive compensation and benefit package that includes "choices" for each employee to select which works best for them. Our comprehensive benefits package includes health insurance, company-paid life, accident, and disability insurance, 401(k), employee stock purchase plan, paid time off, paid parental and maternity leave programs, flexible schedules, and a tuition reimbursement
programprogram. In 2023, we implemented two additional paid personal holidays for our regular, full-time employees called "You Days," which can be taken in recognition of an employee's birthday and work anniversary date. In addition, we added a mental health benefit that provides faster access toname a few.care at the individual level of need for employees and their families. As part of our focus on financial wellness, we announced expedited access to our 401(k) plan, beginning in 2024 so employees can realize the benefits of planning for retirement with employer match earlier in their tenure.
We believe it is key to give back to the communities in which we live and work as evidenced by
"SunOpta Cares",our community service and volunteerismprogram.program, which we refer to as "SunOpta Cares." This program provides 24 hours of paid time off for our employees to volunteer with community programs that align with their values. Throughout the year, employees have several opportunities to donate talent and gifts to local charitable organizations.
Talent management and growth is instrumental in developing a sustainable workforce. We provide various opportunities for our employees to learn and grow within SunOpta through individual development plans, on-the-job training, special project assignments, monthly safety training and regular leader led learning sessions. In 2023, we expanded the Foundational Manager Program to all of our plant locations. This offering was created for managers and supervisors with a focus on cross-functional leadership, effective communication, leading through change, influencing with integrity, negotiating, and creative problem solving. We are committed to identifying and developing the talents of our next generation leaders. On an annual basis, we conduct talent assessments across the organization and succession planning for our most critical roles within the organization to identify high potential employees, gaps in capabilities or skills, and bench strength. In 2023, we had the first cohort of the Leadership Impact Program. Participants at the SVP and VP level gathered quarterly throughout the year to focus on leadership skills, strategy, professional growth and completed capstone projects to further the business.
| SUNOPTA INC. | 4 | December 30, 2023 Form 10-K |
- We believe in the power of diversity.
To increase awareness,We provide training regarding diversity, equity and inclusionwas held companywidefor employees to better understand how we can all work together, and be better, by embracing our differences. We foster inclusion by recognizing and supporting activities and initiatives representative of our workforce such as celebrations of Black History month, Hispanic Heritage month, PRIDE, National Native American Heritage month, and our Women's Leadership Program. We continue to foster our Hispanic and Women's Employee Resource Groups by offering programming for awareness, education and collaboration.
OurWe encourage our employees areto be guided by our MVB'sMVBs (Most Valued Behaviors) of speed, dedication, problem solving, passion, entrepreneurship, and customer centricity. We have a peer recognition program which allows employees to recognize others who are demonstrating our MVB's.MVBs. Our leaders also recognize employees through our quarterly awards program. SunOpta conducts an organizational health survey threetwo times during theeach year to check the pulse of our workforce and look for areas of improvement through the lens of all our employees. By enhancingWe engage in communication efforts such as quarterly town halls and monthly all-company huddles that we believe help employees feel they are a part of SunOpta as a whole, not just their individual department or location. These initiatives led to an overall increase in employee engagement.
As of December 31, 2020,2023, we employed 1,4511,174 full-time employees and 430 seasonal employees in North America. Our average employee has sevenover four years of service andservice. In 2023, our annual voluntary turnover of employees at the director level or above was 5.5%. In 2020, we accomplished our goal of voluntary turnover of less than 15%, ending the year at 14.6%20% (down from 22% in 2022) across the Company. Except for our employees at our Jacona, Mexico facility, none of our employees are represented by a collective bargaining group. We continue to focus on increasing employee retention by implementing retention programs and initiatives to increase employee engagement. Employee health and safety is paramount to our success. In addition to our safety training and initiatives at our manufacturing facilities, we track our Total Recordable Incident Rate (TRIR) which ended the year at 1.55,1.02, compared to a goal of 1.68.1.3.
2020 was an unprecedented year in many ways, most notably dueEnvironmental, Social and Governance
We are committed to the COVID-19 global pandemic. We have been successful in mitigating the effectincorporating environmental, social and governance ("ESG") principles into our business strategies and organizational culture. The Corporate Governance Committee of our Board of Directors provides oversight on ESG matters. Details on our employees by proactively implementing measures earlyESG commitments and thoroughlyprogress are set out in our most recent ESG report (available at sunopta.com/sustainability), which shall not be deemed to be a part of this Form 10-K or incorporated into any of our other filings made with the U.S. Securities and keeping up to date on recommendations and guidance from the Centers for Disease Control and Prevention (CDC), state, provincial, and local health departments. Commencing in March 2020, we implemented daily health screening questionnaires, temperature screening, social distancing and mask requirements for all employees and visitors at our locations. Our management team held regular meetings to discuss health and safety protocols, best practices, and address employee concerns. We increased our cleaning protocols, personal protective equipment, and cleaning supplies across all locations. Modifications to workspaces and physical barriers in work areas were established where needed and non-essential travel was restricted. An internal internet site was developed to house information on COVID-19 and employee assistance resources. Employees who could perform their jobs from home were moved to a remote working arrangement. In addition, we implemented special pay and leave policies and made emergency assistance grants available to mitigate financial implications to our employees impacted by COVID-19Exchange Commission (the "SEC") or childcare issues.Canadian Securities Administrators (the "CSA").
Regulations
We are subject to a wide range of governmental regulations and policies in the U.S., Canada, and Mexico.Canada. 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 agricultural products; the processing, packaging, and sale of food and beverages, 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 governmental agencies, including the Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Environmental Protection Agency ("EPA"), the U.S. Department of Agriculture ("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:
- agricultural management practices intended to promote and enhance ecosystem health;
| SUNOPTA INC. | 5 | December 30, 2023 Form 10-K |
ingredients produced without 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 potential 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 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, and state emergency response agencies to identify potential hazardous chemicals being used in our U.S. facilities.
- Storm-water - all of our 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.
| SUNOPTA INC. | 6 | December 30, 2023 Form 10-K |
Canadian and Other Non-U.S. Regulations
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 that 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 SFCR requirements vary by food, activity, and size of the food business.
- 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 in 2016. In
2020,2022, the Government of Canada, with support from the Canadian Food Inspection Agency (the "CFIA")announced that in connection with its, amended the Food and Drug Regulations to update the requirements for labelling pre-packaged food products. The amendments to the Food and Drug Regulations are part of the CFIA's initiative todevelop a more modernmodernize Canada's food labellingsystem, it will be moving forward with additional provisions that facilitate innovation and remove duplicative requirements.system.
- Canadian Food Inspection Agency Act ("CFIAA") - the CFIAA grants power to 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.
- 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.
In Mexico, our frozen fruit processing facility isEnvironmental Compliance
As described above, we are subject to Mexicanenvironmental regulations including regulations regarding processing, packagingin the U.S. and sales of food products, labor relationsCanada. Our business also requires that we have certain permits from various state, provincial and profit-sharing with employees.local authorities related to air quality, water consumption and treatment, stormwater discharge, solid waste, land spreading and hazardous waste. We are committed to meeting all applicable environmental compliance requirements.
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.
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 namestrademarks 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 maintaining confidentiality agreements with outside parties and employees.
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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.
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. SecuritiesSEC and Exchange Commission (the "SEC")the CSA.
Additionally, the SEC and applicable Canadian Securities Administrators (the "CSA"). CSA maintain internet sites that contain reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and CSA, which can be found at http://www.sec.gov and http://www.sedarplus.ca, respectively.
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Our business, operationsfinancial condition and financial conditionresults of operations 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, as well as our cash flows, liquidity, stock price and/or reputation, and could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Any such adverse effect could cause the trading price of our common stock to 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 Our Company, Business and Operations
The COVID-19 pandemic has significantly impacted worldwideDeterioration of global economic conditions, an economic recession, periods of inflation, or economic uncertainty in our key markets may adversely affect customer and could have a material adverse effect on our business and financial results
Our business and financial results may be negatively impacted by the 2019 novel coronavirus (COVID-19) pandemic, which could cause significant volatility in customerconsumer spending, as well as demand for our products
Global economic conditions can be uncertain and volatile. Our business and results of operations have in the past been, and may continue to be, adversely affected by changes in consumer behavior and preference, disruptions in our supply chain operations, disruptions to our business expansion plans, limitations on our employees' ability to work and travel, significant changes in theglobal economic conditions in markets in which we operateincluding inflation, interest rates, consumer spending rates, energy availability and related currency and commodity volatility, and pressure on our liquidity. In addition, while we have not experienced any material interruptions in our plant operations to date, and our facilities have largely been exempt from government closure orders where applicable, it is possible duringcosts, the pandemic that we could experience employee absences that cause interruptions in our plant operations, and we may not be exempt from future government closure orders depending on the specific circumstances. Despite our efforts to manage thesenegative impacts they also depend on factors beyond our knowledge or control, including the duration and severity ofcaused by public health crises, such as the COVID-19 pandemic, actions taken to contain its spread and mitigate its public health effects,as well as the potential impacts of geopolitical events, and the availabilityeffect of vaccinesgovernmental initiatives to manage economic conditions. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer spending also remain unpredictable and their effectiveness against new variants ofsubject to reductions due to credit constraints and uncertainties about the virus. As a result, we cannot reasonably estimate the negative impact of the COVID-19 pandemic on our business and financial results, but the impact could be material and last for an extended period.
Product liability suits, recalls and threatened market withdrawals, could have a material adverse effect on our business
Manyfuture. Most 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, tamperingpurchased by unauthorized third parties, faulty packaging materials, product contamination, or spoilage. Under certain circumstances, our customers or webased on end-user demand from consumers. Some of the factors that may be required to recall or withdraw products, whichinfluence consumer spending include general economic conditions, high levels of unemployment, health crises, higher consumer debt levels, reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, fluctuating commodity prices, inflationary pressure, tax rates, and general uncertainty regarding the overall future economic environment. Unfavorable economic conditions 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 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 products 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 recallconsumers to delay 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 anyreduce purchases 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 the result of our actions or omissions, could cause negative publicity about us or our products, 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 claims 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 if not merited, class claims, actions by the FTC or state attorneys general enforcement actions could be expensive to defend and could adversely affectpresent challenges in collecting our reputation with existing and potential customers and consumers and our corporate and brand image, which could haveaccount receivables on 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 the U.S., Canada, and Mexico. These laws and regulations are implemented at the national level (including, among others, federal laws and regulations in the U.S. and Canada) and by local subdivisions (including, among others, state laws in the U.S. and provincial laws in Canada).
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 agricultural 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" certification 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 a 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 of the ability to sell certain products, any of which could materially and adversely affect our business, financial condition and results of operations.
We may not realize some or all of the anticipated benefits of our capital investment or restructuring plans in the anticipated time frame or at all
We depend on our ability to evolve and grow, and as changes in our business environments occur, we may adjust our strategic business plans, from time to time, to meet these changes. Capital investment and restructuring programs often require a substantial amount of management, operational, and financial resources, which may divert our attention and resources from existing core businesses, potentially disrupting our operations and adversely affecting our relationships with suppliers and customers. In addition, delays and unexpected costs or changes in demand and pricing may occur that could result in our not realizing all or any of the anticipated benefits on our expected timetable or at all, and there can be no assurance that any benefits we realize from these capital investments or restructuring efforts will be sufficient to offset the costs that we may incur.
Our operations are subject to the general risks associated with acquisitions and divestitures
We have made several acquisitions and divestitures in recent years that align with our strategic initiative of delivering long-term value to shareholders. We regularly review strategic opportunities to grow through acquisitions and to divest non-strategic assets. Potential risks associated with these transactions include the inability to consummate a transaction on favorable terms, the diversion of management's attention from other business concerns, the potential loss of key employees and customers of current or acquired companies, the inability to integrate or divest operations successfully, the possible assumptions of unknown liabilities, potential disputes with buyers or sellers, potential impairment charges if purchase assumptions are not achieved, and the inherent risks in entering markets or lines of business in which the Company has limited or no prior experience. Any or all of these risks could impact our financial results and business reputation. In addition, acquisitions outside the U.S. or Canada may present unique challenges and increase our exposure to the risks associated with foreign 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 significant 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 may not be able to continue to fund internal growth and/or acquire complementary businesses without continued access to capital resources.
Impairment charges related to long-lived assets or goodwill could adversely impact our financial condition and results of operations
As a result of past business acquisitions, a significant portion of our total assets is comprised of property, plant and equipment and intangible assets. In addition, prior to fiscal 2019 we had recognized accumulated impairment losses of $213.8 million related to goodwill. We are required to perform impairment tests of our long-lived assets and goodwill 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 long-lived assets and goodwill. If the financial performance of the acquired businesses does not meet our expectations, we could be required to record significant impairments to long-lived assets and/or goodwill, which could materially and adversely impact our business, financial condition and results of operations.
We operate in a highly competitive industry
We operate businesses in the highly competitive food industry in the U.S., Canada and Mexico. We compete with large U.S. and international food ingredient and consumer-packaged food companies. These competitors may have financial resources 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 decreasedtimely basis. Customer demand for our products may not reach our business, financial conditiontargets or may decline as distributors and results of operations may be materially and adversely affected.
Our customers generally are not obligatedretailers seek 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,reduce inventory positions if there is an economic downturn 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. Decreaseseconomic uncertainty in our customers' sales volumes or orders for products supplied by uskey markets. Economic cycles and related fluctuations in customer demand may have a material adverse effect on our business, financial condition, and results of operations.
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Loss of a key customer could materially reduce revenuesWe may not be able to increase prices to fully offset inflationary pressures on costs, such as raw and earnings
Our relationships with our key customers are critical to the success of our businesspackaging materials, labor, energy, fuel and our results of operations. Our ten largest customers accounted for approximately 67% of consolidated revenues for the year ended January 2, 2021. The loss, decrease or cancellation of business with any of our large customers could materially and adversely affectdistribution costs, which may impact our business, financial condition, and results of operations.operations
Consumer food preferences are difficult to predictIn recent years, we have experienced elevated commodity and may change
Our success depends, in part, on our abilitysupply chain costs, including the costs of raw materials, packaging, labor, energy, fuel, freight and our customers' ability to offer products that anticipateother inputs necessary for the tastesproduction and dietary habitsdistribution 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 failureand we expect elevated levels of inflation to maintain our current market position, could reduce our salescontinue in 2024. Many of these materials and harm our business. Consumer trends change based oncosts are subject to price fluctuations from a number of factors, including, nutritional values, a changebut not limited to, market conditions, geopolitical events, demand for raw materials, weather, growing and harvesting conditions, energy and fuel costs, currency fluctuations, and other factors beyond our control.
Our attempts to offset these cost pressures, such as through increases in consumer preferences or general economic conditions. Additionally, there is a growing focus amongthe selling prices of some consumers to buy local foodof our products, in an attempt to reduce the carbon footprint associated with transporting food products from longer distances, which couldmay not be successful. Higher product prices may result in lower sales volumes. Consumers may shift to lower priced product offerings, or may forego some purchases altogether, during an economic downturn or times of increased inflationary pressure. To the extent that our efforts to offset cost inflation through price increases, and/or through cost containment measures and productivity initiatives, are not sufficient to offset these increased costs adequately or in a decreasetimely manner, and/or if they result 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 trustsignificant decreases in the organic certification of foods. These changes could lead to, among other things, reduced demand and price decreases, which could have a material adverse effect onsales volume, our business, financial condition and results of operations.operations may be materially and adversely affected.
If we do not manage our supply chain effectively, our operating results may be adversely affected
Our supply chain is complex.complex and critical to our ability to manufacture, move, and sell products. We rely on third-party suppliers for our raw materials and forpackaging, as well as the 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 continuouslycontinually monitor our inventory and product sales mix against forecasted demand to reduce the risk of not having adequate supplies to meet consumer demand or the risk of having too much inventory that may reach its expiration date. General macroeconomic and conditions, geopolitical events and health crises have increased the challenges of managing our supply chain, and these factors could continue to cause unpredictable supply chain interruptions or other adverse effects on our supply chain. If we are unable to manage our supply chain effectively and ensure that our products are available to meet consumer demand, our operating costs could increase and our margins could fall,decline, which could have a material adverse effect on our business, financial condition, and results of operations.
Some of our operations are subject to seasonal supply fluctuations. For example, we purchase strawberries and other fruit from growers in California and Mexico during the peak 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 lawsIf we face labor shortages 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 ourlabor costs, and adversely affect our business, financial condition, and results of operations.
Volatility in the prices of raw materials, packaging, freight, fuel and energyoperations could increase our cost of sales and reduce our gross marginsbe adversely affected
Raw materials representLabor is a significant portionprimary component of operating our business. Our ability to achieve our operating goals depends on our ability to identify, hire, train, and retain qualified employees. We compete with other companies both within and outside of our costindustry for talented employees. If we are unable to hire and retain employees capable of sales.performing at a high-level, our ability to efficiently operate our manufacturing facilities and overall business could be adversely affected. Our costability to purchase raw materials,meet our labor needs while controlling labor costs is subject to external factors, such as fruitsemployment levels, prevailing wage rates, minimum wage legislation, changing demographics, health and other commodities, packaging, freight, fuel,insurance costs, and energy, can fluctuate depending on many factors, including weather patterns, economicgovernmental labor and political conditions, and pricing volatility.employment requirements. In addition, we must compete for limited supplies of these raw materials and inputs with competitors having greater resources than we have. Ifa sustained labor shortage or increased turnover rates within our input costs increase dueemployee base could lead to any of the above factors, we may not be able to pass along the increased costs, such as increased overtime to our customers,meet demand, costs to hire and train new employees, and increased wage rates and employee benefits to attract and retain employees. An overall labor shortage, lack of skilled labor, increased turnover, labor inflation, and changes in applicable employment laws and regulations, could lead to increased labor costs and/or reduced operating efficiencies, which could have a material adverse effectimpact 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
Raw materials for our products are vulnerable to adverse weather conditions and natural disasters, including windstorms, hurricanes, earthquakes, floods, droughts, fires, and temperature and precipitation extremes, some of which are common but difficult to predict, as well as crop disease and infestation. Severe weather conditions may occur with higher frequency or may be less predictable in the future due to the effects of climate change. Unfavorable growing conditions could reduce both crop size and crop quality. In extreme cases, entire harvests may be lost in some geographic areas. Adverse weather conditions or natural disasters may adversely affect our supply of one or more food products or prevent or impair our ability to ship products as planned. These factors can increase acquisition and production 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. 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,health crises (such as the COVID-19 pandemic), 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, our business continuityplan might not 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 epidemicshealth crises prevent us from producing and/or 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
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Our customers generally are not obligated to continue purchasing products from us
Many of our customers buy from us under short-term, binding purchase orders. As a result, these customers are not committed to maintain or increase their sales volumes or orders for the products supplied by us. Decreases in our labor force at onecustomers' sales volumes or more of our facilities, we could experience delays in production or delivery of ourorders for products which could alsosupplied by us may have a material adverse effect on our business, financial condition and results of operations.
Technology failures could disrupt In addition, some customer buying decisions are based on a periodic bidding process. Our sales volume may decrease if our operationsoffer is too high and negatively impactrejected. Alternatively, we risk reducing our business
In the normal coursemargins if our offer is successful but less than our desired price point. Either 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 ofthese outcomes may adversely affect our results of operations. Furthermore,
Loss of a significant portion ofkey customer could materially reduce revenues and earnings
Our relationships with our key customers are critical to the communications between, and storage of personal datasuccess of our personnel,business and our results of operations. For the year ended December 30, 2023, our ten largest customers accounted for approximately 80% of revenues from continuing operations. 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.
We operate in a highly competitive industry
We operate businesses in the highly competitive food industry in North America. We compete with large U.S. and international food ingredient and consumer-packaged food companies. These competitors may have financial resources larger than ours and may be able to benefit from economies of scale, pricing advantages, long-standing customer relationships, and greater resources for product innovation, and marketing and promotional activities. In addition, we may have to compete for limited supplies of certain raw materials with competitors having greater resources and stronger supplier relationships than we have. 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.
Product innovations by our competitors could make our food products less competitive
Our competitors include major food manufacturers and consumer-packaged food companies. Many of these companies are engaged in the development of food ingredients and packaged food products and frequently introduce new products into the market. If our competitors introduce products that are more appealing to the tastes and dietary habits of consumers or considered to be of higher quality or value than our products, our sales and market share could decline, which may have a material adverse effect on our profitability.
Consumer food preferences are difficult to predict and may change
Our success depends, in part, on our ability to predict, identify, and interpret the tastes and dietary habits of consumers and suppliers, dependsto offer products to our customers that appeal to those preferences on information technology.a timely and affordable basis. Consumer preferences and trends change based on a number of factors, including product taste and nutrition, food allergies, sustainability values, and animal welfare concerns. Our information technology systems may be vulnerablefailure to anticipate and respond to changing consumer preferences on 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 eventstimely basis could compromise our confidential information, impede, or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss of revenue, litigationreduced demand and reputational damage.
Our reputation andprice decreases for 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 systems of third parties we use in our operations. If a breach or other breakdown results in the 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, our controls and other preventative actions 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 personsproducts, which could have a material adverse effect on our business, financial condition, and results of operations.
Changes in laws and regulations of privacy and protection of user data could adversely affect our business
We may not realize some or all of the anticipated benefits of our capital investment plans in the anticipated time frame or at all
We have recently completed the largest capital expansion in our company's history, which included the construction of our new plant-based beverage facility in Midlothian, Texas. Our capital investment plans often require a substantial amount of management, operational, and financial resources, which may divert our attention and resources from existing businesses, potentially disrupting our operations and adversely affecting our relationships with customers and suppliers. In addition, delays and unexpected costs in connection with the completion of capital expansion projects, or changes in demand and pricing for our products may occur that could result in us not realizing all or any of the anticipated benefits of our capital investment plans on our expected timetable or at all, and there can be no assurance that any benefits we realize from our capital investments will be sufficient to offset the costs that we may incur.
| SUNOPTA INC. | 10 | December 30, 2023 Form 10-K |
Our operations are subject to data privacythe general risks associated with acquisitions and protection lawsdivestitures
We regularly review strategic opportunities to grow our business through acquisitions of complementary businesses or assets. Additionally, we have made several significant divestitures in recent years that aligned with our strategic priority of optimizing our non-core, commodity-based businesses and regulations that applyfocusing on value-add opportunities. Potential risks associated with these transactions include the inability to consummate a transaction on favorable terms, the diversion of management's attention from other business concerns, the potential loss of key employees and customers of current or acquired companies, the inability to integrate or divest operations successfully, the possible assumptions of unknown liabilities, potential disputes with buyers or sellers, potential impairment charges, and the inherent risks in entering markets or lines of business in which the Company has limited or no prior experience. Any or all of these risks could have a material and adverse impact on our business, financial condition, and results of operations. In addition, acquisitions outside the U.S. or Canada may present unique challenges and increase our exposure to the collection, transmission, storagerisks associated with foreign operations.
In October 2023, we completed the sale of certain assets and useliabilities of proprietary informationFrozen Fruit to Natures Touch Mexico, S. de R.L. de C.V. and personally-identifying information, includingNature's Touch Frozen Fruits, LLC (the "Purchasers") for an estimated aggregate purchase price of approximately $141 million. The estimated aggregate purchase price is subject to post-closing adjustments based on a determination of the California Consumer Privacy Actfinal net working capital as of 2018. The regulatory environment surrounding information security and data privacy variesthe closing date of the transaction on October 12, 2023. Our estimate of the final net working capital allocation, which is recognized as part of the loss 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 actionsdiscontinued operations in the eventconsolidated statement of a security breach, and/or change our current or planned business models.
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, weoperations for the year ended December 30, 2023, may be subject to penaltieschange, which could be material, as the parties are currently in the process of reconciling the final aggregate purchase price, including the resolution of certain disputed items, in accordance with the procedures set forth in the Asset Purchase Agreement. A change in the aggregate purchase price could have a material impact on our consolidated results of operations, financial condition and fines, and may need to expend significant resources to implement additional data protection measures. cash flows.
In addition, a portion of the aggregate purchase price was in the form of secured seller promissory notes due in three years and with a stated principal amount of $20.0 million in the aggregate (the "Seller Promissory Notes") that the Company entered into with the Purchasers and Nature's Touch Frozen Foods, LLC (collectively the "Loan Parties"). The Seller Promissory Notes are secured by a second-priority lien on certain assets of Frozen Fruit acquired by the Purchasers. While we mayassessed the Seller Promissory Notes to be collectible as at December 30, 2023, a deterioration in the liquidity of the Loan Parties could impact the collectability of the Seller Promissory Notes.
Impairment charges related to long-lived assets or goodwill could adversely impact our financial condition and results of operations
As at December 30, 2023, we had $319.9 million of property, plant and equipment, $105.9 million of operating lease right-of-use assets, and $21.9 million of intangible assets, as well as $4.0 million of goodwill. In addition, prior to fiscal 2019, we recognized accumulated impairment losses of $213.8 million related to goodwill that arose from business acquisitions.
We perform impairment assessments for our long-lived assets annually, or at any time when events occur that could affect the value of these assets. If the results of such assessments were to show that the carrying value of our long-lived assets was not recoverable and the fair value of these assets was less than the carrying value, we would be required to modifyrecognize a charge for impairment, and the featuresamount of the impairment charge could be material. Factors which could result in an impairment of a long-lived assets include, but are not limited to, reduced demand or pricing for our products due to increased competition, the loss of a significant customer or market share, or a current expectation that, more likely than not, a long-lived asset may be disposed of before the end of its previously estimated useful life.
Likewise, we perform an annual impairment test for goodwill, or at any time when events occur that could indicate that more likely than not the carrying value of a reporting unit exceeds its fair value. Indicators of goodwill impairment include, but are not limited to, a decline in general economic conditions, an increased competitive environment in which a reporting unit operates, a negative trend in the financial performance and functionalitycash flows of our system offerings inthe reporting unit, and a way that is less attractive to customers.more-likely-than-not expectation of selling or disposing of all, or a portion, of a reporting unit.
For the year ended December 30, 2023, on a continuing operations basis, we did not recognize any impairment charges related to our long-lived assets or goodwill. Within discontinued operations, we incurred a pre-tax loss on the sale of Frozen Fruit of $119.8 million, of which a significant portion was comprised of the carrying value of the long-lived assets of the business.
Future impairments of long-lived assets and/or goodwill could materially and adversely impact our business, financial condition, and results of operations.
| SUNOPTA INC. | 11 | December 30, 2023 Form 10-K |
If we lose the services of our key executives, 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 and motivate key management personnel. We do not typically carry key person life insurance on our executive officers. If we lose the services of our key executives or fail to identify, recruit, and retain key management 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
LaborFailure of our internal control over financial reporting could harm our business and financial results
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a significant componentprocess to provide reasonable assurance regarding the reliability of the costfinancial reporting for external purposes in accordance with United States generally accepted accounting principles. Because of operatingits inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our business. Ourfinancial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to meetreport our labor needs while controlling labor costs is subjectfinancial results accurately and in a timely manner, or to external factors, such as employment levels, prevailing wage rates, minimum wage legislation, changing demographics, healthdetect and other insurance costs and governmental labor and employment requirements. Inprevent fraud. A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and/or a decline in the event of increasing wage rates, if we fail to increase our wages competitively, the qualitymarket price of our workforce couldstock. In connection with the preparation of our consolidated financial statements as of and for the fiscal year ended December 31, 2022, we identified a material weakness in our internal control over financial reporting. This material weakness was remediated during the fiscal year ended December 30, 2023. The identified material weakness and associated remediation efforts are further described in Part II, Item 9A of this Form 10-K. Even after any identified material weaknesses have been remediated, investors may lose confidence in our reported financial information and the market price of our common shares may decline. 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 competitiveRisks Related to Litigation and Government Regulations
Our competitors include major food ingredientProduct recalls and consumer-packaged food companies that also engage in the developmentwithdrawals 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, whichproduct liability claims could have a material adverse effect on our business
We sell products for human consumption, which involves risks such as product contamination or spoilage, misbranding, product tampering, and other adulteration of food products. Consumption of a contaminated, spoiled, tampered, or adulterated product may result in personal illness or injury. Under certain circumstances, we may be required to recall or withdraw products, which may be costly and time consuming, and may require the competitivenessdiversion of management's time and resources from business operations. The costs of a recall or withdrawal may include product destruction costs, temporary plant closings, and compliance or remediation costs. In addition, a product 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. Further, we could be subject to claims or lawsuits relating to an actual or alleged illness or injury, and we could incur liabilities that are not insured or that exceed our insurance coverage. Even if product liability claims against us are not successful or fully pursued, these claims could be costly and time consuming to defend against, and the negative publicity surrounding any such claims could adversely affect our reputation. Any of these events could have a material and adverse effect on our business, results of operations, financial condition and cash flows.
In the second quarter of 2023, we announced our subsidiary, Sunrise Growers Inc., had issued a voluntary recall of specific frozen fruit products linked to pineapple provided by a third-party supplier due to possible contamination by Listeria monocytogenes. To date, we have recognized losses of $7.3 million related to this recall, net of estimated insurance recoveries of $4.8 million. We may incur additional losses related to this recall that are unforeseen at this time and we may need to revise our insurance estimate as we work with our insurance providers to substantiate the losses incurred to date. In addition, in the third quarter of 2023, we withdrew specific batches of aseptically-packaged product from a customer due to the discovery of a faulty seal that was traced to an equipment misconfiguration by a third-party service provider. The equipment issue was identified and resolved in the third quarter of 2023, and none of the withdrawn product made it into the consumer marketplace. We have recognized losses of $3.4 million related to the withdrawal, net of expected recoveries from the service provider. Our recovery estimate may need to be revised as we work with the service provider to substantiate our losses.
Potential liabilities and costs from litigation could adversely affect our business
We are, or may become, party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to commercial contracts, product recalls, product liability, the marketing and labeling of products, employment matters, environmental matters, data protection, intellectual property, and other aspects of our productsbusiness. There is no guarantee that we will be successful in defending ourselves in these actions and we could incur substantial costs and fees in defending ourselves or in asserting our business.rights in these actions. The results of litigation and other legal proceedings are inherently unpredictable and resolutions or dispositions of lawsuits and claims by settlement or otherwise could have a material adverse effect on our business, results of operations, financial condition and cash flows.
| SUNOPTA INC. | 12 | December 30, 2023 Form 10-K |
New laws or regulations or changes in existing laws or regulations could adversely affect our business
The food industry is subject to a variety of federal, state, local, and foreign laws and regulations, including, but not limited to, those related to food safety, food labeling, and environmental matters. Governmental regulations also affect taxes and levies, healthcare costs, energy usage, and labor issues, all of which may have a direct or indirect effect on our business or those of our customers or suppliers. Changes in these laws or regulations, or the introduction of new laws or regulations, 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.
Risks Related to Intellectual Property and Information Technology
We rely on protection of our intellectual property and proprietary rights
Our success depends in part on our ability to protect our intellectual property rights. We rely primarily on patent, copyright, trademark, and trade secret laws to protect our proprietary technologies. Our policy is to protect our technology by, among other things, filing patent applications for technology relating to the development of our business in the U.S. and in selected foreign jurisdictions.
Our trademarks and brand names are registered in the U.S., Canada, and other jurisdictions. We intend to keep these filings current and seek protection for new trademarks to the extent consistent with business needs. We also rely on trade secrets and proprietary know-how and confidentiality agreements to protect certain of the technologies and processes that we use.
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 revenues and/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.
Tax laws are dynamicmargins and subject to change as new laws are passed and new interpretations of the law are issued or applied. In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. 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.
WeOur business operations could be disrupted if our information technology systems fail to perform adequately or are subject to substantial environmental regulation and policiesbreached
The efficient operation of our business depends on our information technology systems to process, transmit, and store electronic information. We rely on our information technology systems, including the internet, to effectively manage our business data, supply chain, order entry and fulfillment, and other business processes. Information technology systems are also integral to our internal and expect to continue to be, subject to substantial federal, state, provincial and local environmental regulations. Someexternal financial reporting. Furthermore, a significant portion of the key environmental regulationscommunications between, and storage of personal data of, our personnel, customers and suppliers depends on information technology. Our information technology systems, some of which are dependent on services provided by third parties, may be susceptible to physical or electronic break-in, damage, disruption, or shutdown due to computer viruses, hacker attacks, and other cybersecurity risks, hardware failures, telecommunications failures, user errors or malfeasance, catastrophic events, natural disasters, fires, or other factors which may be beyond our control. Furthermore, the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks. If we are subject include air quality regulationsunable to anticipate, prevent, or adequately respond to and resolve these failures, disruptions or breaches, our business may be materially disrupted, and we may suffer other adverse consequences such as significant data loss, financial or reputational damage or penalties, legal claims or proceedings, remediation costs, or loss 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, stormwater 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, stormwater discharge, solid waste, land spreading and hazardous waste.
If our safety procedures for handling and disposing of potentially hazardous materials in certainrevenues or customers. Consequently, any failure or breach of our businesses were to fail, weinformation technology systems could be held liable for any damages that result,have a material adverse effect on our business, financial condition 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 costresults of those operations.
The foregoing environmental regulations,Risks Related to Weather, Climate Change, and Other External Factors
Adverse weather conditions and natural disasters could impose costs on our business
Ingredients for our products are vulnerable to adverse weather conditions and natural disasters, including windstorms, hurricanes, earthquakes, floods, droughts, fires, and temperature and precipitation extremes, some of which are recurring but difficult to predict, as well as others commoncrop disease and infestation. Severe weather conditions may occur with higher frequency or may be less predictable in the future due to the industrieseffects of climate change. Unfavorable growing and harvesting conditions could reduce both crop size and crop quality. In extreme cases, entire harvests may be lost in which we participate, can present delays and costs that cansome geographic areas. Adverse weather conditions or natural disasters may adversely affect business developmentour supply of raw materials or prevent or impair our ability to ship products as planned. These factors may increase raw material acquisition and growth. If we failproduction costs, decrease our sales volumes and revenues, and lead to comply with applicable laws and regulations, we may be subjectadditional charges to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions,earnings, 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.
| SUNOPTA INC. | 13 | December 30, 2023 Form 10-K |
Climate change, laws could have an impact onor legal, regulatory or market measures to address climate change, may negatively affect our business, financial condition and results of operations
LegislativeLong-term climate change impacts on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters may negatively impact the price or availability of ingredients and packaging materials (such as corrugated cardboard) that are necessary for our products. We may also be subjected to decreased availability of and/or less favorable pricing for water, which could adversely impact our manufacturing operations.
There is an increased focus by U.S. federal, state and local regulatory authorities in the U.S., Canada and internationally will likely continue to consider numerous measures relatedlegislative bodies, as well as foreign bodies, regarding environmental policies relating 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 ofregulating greenhouse gas emissions, energy policies, and globalsustainability. Increased compliance costs and expenses due to the impacts of climate change and additional legal or regulatory requirements regarding climate change may resultcause disruptions in, environmental taxes, charges, regulatory schemes, assessments, or penalties, which could restrict or negatively impactan increase in the costs associated with, the running of our operations,manufacturing facilities and our business, as well as thoseincrease distribution and supply chain costs. In addition, compliance with any such legal or regulatory requirements may require us to make significant changes in our business operations and strategy, which will likely require us to devote substantial time and attention to these matters and cause us to incur additional costs. Even if we make changes to align ourselves with such legal or regulatory requirements, we may still be subject to significant penalties or potential litigation if such laws and regulations are interpreted and applied in a manner inconsistent with our practices. The effects of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations.
Additionally, we might fail to effectively address increased attention from customers, consumers, investors, activists and other stakeholders on climate change and related environmental sustainability matters. Such failure, or the perception that we have failed to act responsibly regarding climate change, whether or not valid, could result in adverse publicity and negatively affect our business and reputation. In addition, customers and consumers may choose to stop purchasing our products or purchase products from another company or a competitor, and our business, financial condition and results of operations may be materially and adversely affected.
Furthermore, we may from time to time establish and publicly announce goals and commitments to reduce our impact on the environment. Our ability to achieve any stated goal or commitment is subject to numerous factors and conditions, many of which are outside of our suppliers, who would likely pass allcontrol. Examples of such factors include evolving regulatory requirements affecting sustainability standards or disclosures, the development of new environmental technologies to address climate change, and the availability of financing to support climate-related projects. In addition, we may determine that it is in the best interest of our company and our shareholders to prioritize other business investments over the achievement of our current environmental goals and commitments based on economic conditions, changes in our business strategy, or pressure from investors or other stakeholders. If we fail to achieve or are perceived to have failed or been delayed in achieving, or improperly report our progress toward achieving our goals and commitments, it could negatively affect customer and consumer preference for our products or investor confidence in our business, as well as expose us to enforcement actions and litigation.
Our business may be adversely affected by the availability of non-GMO and organic commodities and ingredients
Our ability to ensure a portioncontinuing supply of their costs alongnon-GMO and organic ingredients at competitive prices depends on many factors beyond our control, including the number and size of farms that grow non-GMO and organic crops. The non-GMO and organic raw materials that we use in the production of our products, including, among others grains, nuts, fruits, sweeteners, and flavorings, are vulnerable to us. Weadverse weather conditions and natural disasters, such as floods, droughts, water scarcity, temperature extremes, frosts, earthquakes, and pestilences. Natural disasters and adverse weather conditions can reduce crop size and crop quality, which in turn could reduce our supplies of and/or increase the price of non-GMO and organic raw materials. If our supplies of non-GMO and organic raw materials are reduced, we may not be able to pass any resulting cost increases alongfind enough supplemental supply sources on favorable terms, if at all, which could impact our ability to supply product 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 materiallycustomers and adversely affect our business, financial condition, and results of operations.
Risks Related to Our Indebtedness and Liquidity
FluctuationsIncreases in exchange rates, interest rates may negatively impact our cost of borrowing and commodity pricesaccess to capital financing
To address inflation, the U.S. Federal Reserve implemented tighter monetary policies beginning in 2022, causing interest rates to rise significantly, which negatively impacted the cost of borrowing on our variable rate debt beginning in 2022. As at December 30, 2023, we had approximately $212 million of variable rate debt outstanding under our credit agreement. We expect interest rates to remain at elevated levels in 2024, and we continue to be exposed to further changes in interest rates, which could adversely affecthave a material negative impact on our business, financial condition, results of operations or liquidityand cash flows.
| SUNOPTA INC. | 14 | December 30, 2023 Form 10-K |
We are exposed to foreign exchange rate fluctuations as our non-U.S.-based operations purchase raw materials and incur operating costs in local currencies. 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. 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 foreign operations and suppliers expose us to additional risks
Our operations and raw material suppliers outside of the U.S. and Canada expose us to certain risks inherent in doing business abroad, including exposure to local laws and regulations, political and civil unrest, and economic conditions. For example, our frozen fruit processing facility in Mexico is located in the State of Michoacán, near areas where there have been incidents of unrest. If we grow our business globally, we may have difficulty anticipating and effectively managing these and other risks, which may adversely impact our business, financial condition and results of operations.
Risks Related to Our Indebtedness
Our level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations
An increaseAs at December 30, 2023, we have a significant amount of indebtedness outstanding as a result of the capital investments we have made in therecent years. The level of our indebtedness and the degree to which we are leveraged could adversely affect our business, financial condition, and results of operations, including, without limitation, increasing our exposure to interest rate fluctuations and impairing our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, or other general corporate purposes. In addition, we may have to use a substantial portion of our cash flow to pay principal premium (if any) and interest on our indebtedness, which may 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 investmentsexpenditures, or seeking to raise additional capital. A high level of indebtedness and leverage could 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.
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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 or preferred equity, 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 could be materially and adversely affected if we are unable to meet the financial covenantcovenants of our credit agreement
Our credit agreement requires us to maintain a minimum fixed charge coverage ratio if excess availability is below certain thresholds.and a maximum consolidated total net leverage ratio. Our ability to comply with the financial covenantcovenants under the credit 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 covenantcovenants and terms of the credit agreement. Failure to comply with the financial covenantcovenants and other terms could result in an event of default and the acceleration of amounts owing under the credit agreement unless we are able to negotiate a waiver. The lenders could condition any such waiver on an amendment to the credit agreement on terms, (including,including, but not limited to, the payment of consent fees) thatfees, which may be unfavorable to us. If we fail to comply with the financial covenantcovenants and we are unable to negotiate a covenant waiver or replace or refinance the credit agreement on favorable terms, our business, financial condition and results of operations willcould be materially and adversely impacted.
We may require additional capital, which may not be available on favorable terms or at all
Our working capital requirements, capital investment plans, and our ability to acquire complementary businesses or assets often require significant financial resources. Our ability to raise capital, through debt or equity financing, is directly related to our ability to both continue to grow our revenues and improve the profitability of our operations. Debt or equity financing may not be available to us on favorable terms or at all. In addition, any potential debt financing could adversely affect our financial condition and increase our exposure to interest rate changes, while any potential 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.
Our ability to maintain current levels of working capital may be adversely affected if we are unable to utilize supply chain financing ("SCF") programs to accelerate payment terms for certain customers
To improve working capital efficiency, we utilize SCF programs offered by some of our major customers that allow us to monetize our receivables from those customers earlier than our payment terms would provide. To the extent that these various SCF programs were terminated, our financial condition, cash flows, and liquidity could be adversely affected by higher working capital levels due to delays in collecting accounts receivables. If working capital is negatively impacted by the termination of these programs, and we are unable to secure alternative financing sources, we may have to increase our debt borrowings, along with the associated interest expense.
| SUNOPTA INC. | 15 | December 30, 2023 Form 10-K |
Risks Related to Significant Investors and Shareholder Activism
Our significant investorsinvestor may have interests that conflict with those of our debtholders and other stakeholders
As at January 2, 2021,December 30, 2023, Oaktree Capital Management L.P., a private equity investor (together with its affiliates, "Oaktree") held an approximately 19.0%20% voting interest in the Company and has nominated two members of our Board of Director. In addition, as at January 2, 2021, Engaged Capital, LLC (together with its affiliates, "Engaged Capital") held an approximately 14.5% voting interest in the Company and has nominated one member of our Board.
Directors. The interests of Oaktree and Engaged Capital may differ from the interests of our other stakeholders in material respects. For example, Oaktree and Engaged Capital 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. Oaktree and Engaged Capital areis 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. TheyOaktree 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.
Our other large investors do not have specific rights beyond those of smaller holders of our common shares. However, 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 is 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.
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Risks Related to Ownership of our Common Shares
Our share price is subject to significant volatility
Our share price may be highly volatile compared to larger public companies, which increases the chance of larger than normal price swings that could reduce predictability in the price of our common shares and 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. Weshares, and we do not currently 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. Thefuture. Any future payment of dividends will be dependent on factors such as covenant restrictions, cash on hand, or achieving and maintaining profitability, the financial requirements to fund growth, our general financial condition, and other factors we 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, and any return will depend on the ability to sell their shares at a price higher than they paid to acquire them.
| SUNOPTA INC. | 16 | December 30, 2023 Form 10-K |
The future issuance of additional common shares in connection with the exchange of convertible preferred stock, exercisevesting of stock options,equity-based awards, 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 theour Board of Directors in its sole discretion.
The exchange of outstanding convertible preferred stock, exercisevesting of stock-basedequity-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, exercisevesting of stock-basedequity-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.
On February 22, 2021, Oaktree exchanged all of their shares of Series A Preferred Stock for 12,633,427 shares of our common stock, representing 12.3% of our issued and outstanding common shares on a post-exchange basis.
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.
|
A portion of our assets and certain of our 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 directors
A portion of our assets and certain of our 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 and certain of our directors. Particularly, our stakeholders may not be able to:
- effect service of process within the U.S. on us or certain of our directors;
- enforce judgments obtained in U.S. courts against us or certain of 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.
None.
Item 1C. Cybersecurity
Our cybersecurity program is strategically crafted to achieve the paramount goals of identifying, protecting, detecting, and responding to all potential risks and threats. Employing a defense-in-depth strategy, we proactively identify, investigate, and resolve vulnerabilities and security incidents in a timely manner.
Continuous improvement is integral to our cybersecurity approach. Regular assessments, conducted with the expertise of external security firms against international standards, allow us to quantify our program's effectiveness. The insights gained from these assessments serve as a foundation for continuous improvement efforts. Outcomes are reported to our Audit Committee for transparency and accountability. We rely on services from a variety of third-party providers to supply things such as cloud storage and networks. On an annual basis, we review these providers to assess their risk profiles. We rely on these third parties to have their own cybersecurity programs commensurate with their risk, and we cannot ensure in all circumstances that their efforts will be successful.
Despite facing directed attacks, our systems have withstood such challenges without material interruptions to our business operations. Recognizing the potential impact of significant disruptions, we remain steadfast in our commitment to fortify our systems against evolving threats. Any significant disruption to our ability to transact business could adversely affect our business performance as well as our reputation. Refer to Item 1A "Risk Factors - Our business operations could be disrupted if our information technology systems fail to perform adequately or are breached."
Heading our cybersecurity program is our Chief Information Officer ("CIO"). Our CIO has over 30 years of experience in Software Engineering and Information Technology/Cybersecurity and is supported by skilled professionals from our Information Technology team. This seasoned team provides regular updates to our Enterprise Risk Management Steering Committee (the "ERM"), composed of our Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, and other members of our senior leadership. Our Audit Committee and Board of Directors receive regular reports from the ERM, as well as directly from our CIO on a quarterly basis. These reports cover various cybersecurity matters, including risk assessments, mitigation strategies, areas of emerging risks, incidents and industry trends, and other areas of importance.
Furthermore, our Board of Directors takes a proactive stance in overseeing our annual enterprise risk assessment. This comprehensive evaluation encompasses key risks, including those associated with security, technology, and cybersecurity threats, demonstrating our commitment to robust governance and risk management.
Item 2. Properties
Our leased executive offices, innovation center and pilot plant are located in Eden Prairie, Minnesota. The following table below lists the location, description and ownership our production facilities. We believe our owned and segment ofleased facilities are suitable for our principal properties:operations and provide sufficient capacity to meet our requirements for the foreseeable future.
| Location | Owned/Leased | Noncancellable Lease Date | ||
| Aseptic beverage processing | ||||
| Owned | ||||
| Alexandria, Minnesota | Ingredient processing | Owned | ||
| Allentown, Pennsylvania | Aseptic beverage processing | Leased | April 2027(1) | |
| Leased | ||||
| Omak, Washington | Fruit snack processing | Leased | May 2027 | |
| St. David's, Ontario | Fruit snack processing | |||
Executive Offices(1) Lease includes two five-year renewal options.
Our executive head office is located at 2233 Argentia Road, Suite 401, Mississauga, Ontario. (2) Lease includes three five-year renewal options.
For a discussion of legal proceedings, see note 2317 of the consolidated financial statements atincluded in Item 15 of this Form 10-K.
Not Applicable.
| SUNOPTA INC. | December 30, 2023 Form 10-K |
Our common shares tradeare listed in U.S. dollars on The NASDAQ Global SelectNasdaq Stock Market LLC under the symbol "STKL," and in Canadian dollars on the TSXToronto Stock Exchange ("TSX") under the symbol "SOY."
As at January 2, 2021,December 30, 2023, we had approximately 365332 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,results of operations, financial condition and capital requirements, restrictions of debt and financial condition, requirements of the financialequity agreements to which we are then a party, and other factors considered relevant by our Board of Directors. 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 January 2, 2021, with respect to our common shares that may be issued under the Company's stock incentive and employee share purchase plans:
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||
| (a) | (b) | (c) | ||||||
| Equity compensation plans approved by | ||||||||
| securities holders: | ||||||||
| 2013 Stock Incentive Plan | 5,822,754 (1) | $6.95 (3) | 4,987,863 | |||||
| Employee Stock Purchase Plan | — | 700,916 | ||||||
| Equity compensation plans not approved by | ||||||||
| securities holders: | ||||||||
| CEO Plan | 3,204,103 (2) | $3.15 (3) | — | |||||
| Total | 9,026,857 | $5.58 (3) | 5,688,779 | |||||
(1)Represents common shares of the Company issuable in respect of 2,170,780 stock options, 647,299 restricted stock units ("RSUs") and 3,004,675 performance share units ("PSUs") granted to selected employees and directors of the Company.
(2)Represents common shares of the Company issuable in respect of 1,222,243 stock options, 560,292 RSUs and 1,421,568 PSUs granted to the Chief Executive Officer and Chief Financial 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.
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 January 1, 2016.December 31, 2018.
| 12/31/2018 | 12/31/2019 | 12/30/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | |
| SunOpta Inc. | 100.00 | 64.84 | 303.91 | 180.99 | 219.79 | 142.45 |
| Nasdaq Industrial Index | 100.00 | 127.77 | 194.05 | 211.15 | 137.14 | 176.82 |
| S&P/TSX Composite Index | 100.00 | 120.72 | 122.58 | 149.23 | 136.30 | 147.37 |
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||
| SunOpta Inc. | 100.00 | 103.07 | 113.30 | 56.14 | 36.40 | 170.61 | |||||
| Nasdaq Industrial Index | 100.00 | 108.38 | 134.45 | 130.64 | 166.92 | 253.51 | |||||
| S&P/TSX Composite Index | 100.00 | 117.51 | 124.59 | 109.32 | 131.96 | 134.00 |
Assumes that $100.00 was invested in our common shares and in each index on January 1, 2016.December 31, 2018.
Item 6. [Reserved]
| SUNOPTA INC. |
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 at Item 15 of this Form 10-K, as well as the discussion in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Due to the divestiture of Tradin Organic on December 30, 2020, Tradin Organic qualified for reporting as discontinued operations under U.S. GAAP. The information set forth below has been recast on a continuing operations basis for each of the years presented. For additional information regarding discontinued operations, see note 3 to the consolidated financial statements contained at Item 15 of this Form 10-K.
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||
| $ | $ | $ | $ | $ | |||||
| Revenues | 789,213 | 721,596 | 783,972 | 835,763 | 916,307 | ||||
| Loss from continuing operations | (47,302)(3) | (13,080)(5) | (127,470)(6) | (150,632)(7) | (54,415)(8) | ||||
| Loss from continuing operations attributable to common shareholders(1) | (57,630)(3) | (21,102)(5) | (135,379)(6) | (158,441)(7) | (56,227)(8) | ||||
| Basic and diluted loss per share from continuing operations | (0.65) | (0.24) | (1.55) | (1.83) | (0.66) | ||||
| Total assets | 585,615 | 923,359 | 896,738 | 982,173 | 1,129,558 | ||||
| Bank indebtedness | - (4) | 241,666 | 276,776 | 230,501 | 199,282 | ||||
| Long-term debt | 69,723 | 238,332 | 223,002 | 222,699 | 228,717 | ||||
| Operating lease liabilities(2) | 37,332 | 66,741 | — | — | — | ||||
| Long-term liabilities | 200 | 5,268 | 5,304 | 12,402 | 19,678 |
(1)Loss from continuing operations attributable to common shareholders includes dividends and accretion on preferred stock of $10.3 million, $8.0 million, $7.9 million, $7.8 million and $1.8 million in 2020, 2019, 2018, 2017 and 2016, respectively.
(2)Effective the beginning of fiscal 2019, we adopted ASC Topic 842, Leases, which resulted in the recognition of right-of-use assets and lease liabilities for leases classified as operating leases. As permitted, we elected not to apply the guidance to periods prior to 2019.
(3)Includes a loss of $12.7 million on a foreign currency economic hedge of the euro-denominated cash consideration from the sale of Tradin Organic, a loss of $8.9 million on the early redemption and retirement of our 9.5% senior secured second lien notes due October 2022, and long-lived asset impairment charges of $9.8 million mainly related to the exit from our leased frozen fruit processing facility in Santa Maria, California, and shutdown of a roasting line located at our facility in Crookston, Minnesota.
(4)On December 31, 2020, we entered into a new five-year credit agreement, amending and restating our existing credit agreement that was set to expire on March 31, 2022. Borrowings under the new agreement have been classified under long-term debt.
(5)Includes a gain on sale of our soy and corn business of $44.0 million.
(6)Includes a goodwill impairment charge of $81.2 million related to our Frozen Fruit operations.
(7)Includes a goodwill impairment charge of $115.0 million related to our Frozen Fruit operations, and a charge of $15.0 million for the impairment of long-lived assets associated with the exit from flexible resealable pouch and nutrition bar product lines and operations.
(8)Includes a goodwill impairment charge of $17.5 million related to our sunflower operations, as well as a charge of $1.9 million for the impairment of long-lived assets associated with the closure of a soy extraction facility located in Heuvelton, New York.
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 January 2, 2021December 30, 2023 and includes information available to March 3, 2021,February 28, 2024, 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," "predict," "continue," "believe," "expect," "can," "could," "would," "should," "may," "might," "plan," "will," "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. Forward-looking statements are not guarantees of future performance or events. You should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Other than as required under securities laws, we do not undertake to update any forward-looking information at any particular time. Neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements, and we hereby qualify all our forward-looking statements by these cautionary statements.
Unless otherwise noted herein, all currency amounts in this MD&A are expressed in U.S. dollars. All tabular dollar amounts are expressed in thousands of U.S. dollars, except per share amounts.
Overview
We areoperate as a manufacturer for leading company focused on the manufacture of plant-basednatural and fruit-based foodsprivate label brands and beverage products for sale to retail, foodservicealso produce our own brands, including SOWN®, Dream® and branded food customers. The composition of our two continuing operating segments is as follows:
Plant-Based Foods and Beverages- We offer a full line ofWest LifeTM. Our consumer product portfolio includes plant-based beverages and creamers, protein shakes, teas, and broths packaged in shelf-stable formats, together with fruit snacks and smoothie bowls, which are sold through retail and foodservice channels. We also produce liquid and dry ingredients(utilizing almond, soy, coconut, oat, hemp,for internal use and for sale to otherbases), as well as broths, teas, and nutritional beverages. In addition, we package dry- and oil-roasted inshell sunflower and sunflower kernels, as well as corn-, soy- and legume-based roasted snacks, and we process and sell raw sunflower inshell and kernel forfood andfeed applications.beverage manufacturers.
Fruit-Based Foods and Beverages- We offer individually quick frozen ("IQF") fruit for retail (including strawberries, blueberries, mango, pineapple, blends, and other berries), IQF and bulk frozen fruit for foodservice (including purées, fruit cups and smoothies), and custom fruit preparations for industrial use. In addition,On February 23, 2024, weoffer fruit snacks, including bars, twists, ropes, and bite-sized varieties.
Until December 2020, we had a third operating segment referredentered into an agreement to as Global Ingredients. The Global Ingredients operating segment was comprised ofsell the assets related to our organic ingredient sourcing and production business, Tradin Organic, and our soy and corn business,smoothie bowl product line, which were sold in December 2020 and February 2019, respectively, as discussed below under "Recent Developments."
The segment information in this MD&A is presentedexpected to close on a continuing operations basis, with prior period information recast to reflect the reporting of Tradin Organic as discontinued operations. March 4, 2024.
Fiscal Year
We operate on a fiscal calendar that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to December 31. Fiscal year 2020 was a 53-week period ending on January 2, 2021. Fiscal years 20192023, 2022 and 20182021 were each 52-week periods ending on December 28, 201930, 2023, December 31, 2022 and December 29, 2018,January 1, 2022, respectively. Except as otherwise noted in this MD&A, the impact of the additional week on our results of operations for the current period was insignificant relative to the prior period.
| SUNOPTA INC. | 20 | December 30, 2023 Form 10-K |
Recent Developments
Sale of Tradin Organic
Divestiture of Frozen Fruit
On December 30, 2020,October 12, 2023, we completed the sale of Tradin Organic,certain assets and liabilities of our frozen fruit business ("Frozen Fruit") for an aggregate purchase price of approximately $141 million, subject to closing working capital adjustments. This transaction represents our exit from the processing, packaging and selling of individually quick frozen fruit for retail, foodservice and industrial applications. The divestiture of Frozen Fruit completes our strategic optimization plan for our non-core, commodity-based businesses, which included its global organicthe divestiture of our sunflower business ("Sunflower") in October 2022, in order to focus on value-add products in plant-based and non-GMO ingredient sourcinghealthy snack categories. Beginning in the third quarter of 2023, Frozen Fruit and Sunflower met the criteria for reporting as discontinued operations. As a result, the information in this MD&A is presented on a continuing operations togetherbasis, with its consumer-packaged premium juice co-manufacturing business,all periods presented recast to reflect the reporting of Frozen Fruit and ingredient processing facilities. Sunflower as discontinued operations. For further information regarding the divestiture of Frozen Fruit and discontinued operations, see note 2 to the consolidated financial statements included in Item 15 of this Form 10-K.
We received cash consideration from the sale of $373.7 million (€305.1 million), net of cash acquired and debt assumed by the purchaser and subject to post-closing adjustments, and realized a cash loss of $12.7 million on a foreign currency forward contract that was entered into to economically hedge the euro-denominated cash consideration. We recognized a pre-tax gain on sale of $111.8 million, which is included in the earnings from discontinued operations for the year ended January 2, 2021.Segment Change
In conjunctionconnection with the divestiture of Tradin Organic,Frozen Fruit and the management changes described below, we were ablechanged our internal organization and reporting structures beginning in the third quarter of 2023 and began operating as one segment. As a result, the information in this MD&A is presented on a consolidated basis for all periods presented. For further information regarding the change in our segment structure, see note 1 to reducethe consolidated financial statements included in Item 15 of this Form 10-K.
Management Changes
Effective October 9, 2023 and October 13, 2023, respectively, Michael Buick, Senior Vice President and General Manager of Plant-Based Foods and Beverages and Scott Huckins, Chief Financial Officer ("CFO") and General Manager of Fruit-Based Foods and Beverages left the Company. With their departures, we eliminated the position of General Manager and adopted a centralized functional structure reporting directly to the Chief Executive Officer ("CEO"). Effective October 13, 2023, Greg Gaba, our debt by approximately $355 million, includingformer Vice President Corporate Finance and Deputy CFO, was appointed CFO of the redemption andCompany.
Effective January 2, 2024, Brian Kocher was appointed CEO of the Company in connection with the retirement of the $223.5 million outstanding principal amount of our 9.5% senior secured second lien notes due October 2022, and repayment of approximately $132 million of the outstanding borrowings under our former GlobalCEO, Joseph Ennen.
New Credit Facility (asAgreement
As described below under the heading "Liquidity and Capital Resources.Resources," on December 8, 2023, we entered into a new credit agreement providing for a new $180 million term loan credit facility and a new $85 million revolving credit facility (the "New Credit Agreement"). The New Credit Agreement has a term of five years and replaces our former asset-based credit facilities.
For further information regarding the sale of Tradin Organic, see note 3Global Economic Conditions and Inflationary Cost Environment
Our businesses continue to be exposed to the consolidated financial statements at Item 15effects of the current global macroeconomic environment, including elevated inflation, higher interest rates, and shifts in consumer demand.
- Inflation - Inflation in 2023 declined from the highs in 2022 but remained elevated. We expect this
Form 10-K.Saleinflationary environment to continue throughout 2024. We believe that we will be able to continue to mitigate the impact ofSoyinflationary cost increases for raw materials, packaging, labor, energy, fuel, andCorn BusinessOn February 22, 2019,transportation through pricing actions wecompletedtook with our customers in 2022 that mostly remained in effect in 2023, and further pricing actions that we may implement as needed. However, thesaleeffect of ourspecialtycustomers passing on higher prices to end consumers has impacted andorganic soy and corn business for cash considerationmay continue to impact the level of$66.5 million, which resulted in a pre-tax gain on sale of $44.0 million recognized in other income in 2019. The soy and corn business engaged in seed and grain conditioning and corn milling at five processing facilities located in the U.S. The net proceeds from this transaction were used to repay borrowings under the Global Credit Facility.For further information regarding the sale of the soy and corn business, see note 4 to the consolidated financial statements at Item 15 of this Form 10-K.Value Creation PlanEstablished in 2016, our Value Creation Plan has been a multi-year, broad-based initiative focused on increasing shareholder value through structural investments in people, processes and assets, together with restructuring activities to streamline operations. In 2020, actions taken under the Value Creation Plan included the consolidation of manufacturing assets in our frozen fruit operations, including the exit from our Santa Maria, California, leased frozen fruit processing facility (completed February 1, 2021), and the consolidationconsumption of ourcorporate office functions into Minneapolis, Minnesota. In 2019 and 2018, measures taken under the Value Creation Plan included the sale of our soy and corn business in 2019 (as described above), and the consolidation of roasted snack operations and related disposal of our former roasting facility in Wahpeton, North Dakota, in 2018. In addition, over the course of the Value Creation Plan, we made a series of organizational changes to our executive and senior management teams, including new Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") appointments, and implemented a number of cost-saving measures and workforce reductions.We consider that the measures taken in 2020 mark the substantial completion of the Value Creation Plan. In the first quarter of 2021, we expect to incur approximately $1.5 million of additional costs to complete the exit from the Santa Maria facility and transfer production to our other frozen fruit processing facilities. Going forward, our intention is to build on the foundation of the Value Creation Plan to expand the capabilities and capacity within our plant-based food and beverage operations, and to enhance the sales and margin performance of our fruit-based food and beverage operations, while continuing to focus on operational excellence and enhanced food safety and quality.SUNOPTA INC.27January 2, 2021 10-KThe following table summarizes costs incurred by type under the Value Creation Plan that were charged to expense for the years ended January 2, 2021, December 28, 2019 and December 29, 2018:Employee Asset recruitment, impairments retention and and facility termination Professional closure costs costs fees Total $ $ $ $ 2020 Selling, general and administrative expenses — 645 1,004 1,649 Other expense 6,367 1,881 — 8,248 Earnings from discontinued operations 365 418 — 783 Total 6,732 2,944 1,004 10,680 2019 Selling, general and administrative expenses — 2,203 1,353 3,556 Other expense 308 5,548 — 5,856 Earnings from discontinued operations — 237 — 237 Total 308 7,988 1,353 9,649 2018 Cost of goods sold 100 — — 100 Selling, general and administrative expenses — 203 410 613 Other expense 1,264 397 — 1,661 Total 1,364 600 410 2,374 For more information regarding the Value Creation Plan, see note 5 to the consolidated financial statements at Item 15 of this Form 10-K.Impact of COVID-19We are actively addressing the impacts of the COVID-19 pandemic on our operations. We began to experience impacts to our business and results of operations late in the first quarter of 2020, and these impacts continued throughout the remainder of fiscal 2020.products. As a result, wesaw significant shiftscontinue to identify opportunities to improve our own operational efficiencies and achieve cost savings in order to offset inflationary impacts and maintain our profit margins.
- Interest Rates - Loans under our credit agreement bear interest at a variable rate, and the
mix ofinterest rate on ourbusiness, resulting in lower demand for our food and beverage products from the foodservice channel due to the full or partial closure of many foodservice outlets, and an increase in demand from retail customersoutstanding indebtedness has increased asconsumers increased their at-home food and beverage consumption. We saw a return towards normalized levelsmarket interest rates have risen, starting in the second half of2020, as more foodservice outlets reopened,2022. These higher interest rates have led to an increase in our interest expense in 2023, which we expect will continue in 2024.
- Consumer Demand - Current economic conditions have reduced household savings and
consumers adaptedresulted in changes in consumer spending patterns, with a shift to lower-cost retailers and product alternatives, together with a streamlining of purchases. As a result, some of theevolving environment. However, overall foodservicecategories we serve have experienced a softening of demand,forwhich negatively impacted ourproducts remained below 2019 volume levelssales volumes andshort of our initial expectations for 2020. We expect foodservice demand tomix in 2023. These consumption trends may continue tobe affected by the pandemic until efforts to mitigate the pandemic permit normal operations of the foodservice channel.To date, wehavenot experienced any material interruptions in our plant operations due to employee absences, or to our supply chains as a result of the pandemic. Our facilities have been exempt from government closure orders where applicable. In 2020, we incurred incremental costs of approximately $2 million to provide wage premiums and personal protective equipment for our plant employees, and to implement additional cleaning and disinfecting protocols at our facilities.In March 2020, we experienced a significant foreign exchange impact from a more than 20% depreciation of the Mexican peso against the U.S. dollar. Subsequently, we entered into a combination of foreign currency put and call option contracts (a zero-cost collar) to economically hedge our exposure to fluctuations in the Mexican peso on fruit inventory purchases and operating costs in Mexico.To date, COVID-19 has not had a significantan impact on ourliquidity, cash flows or capital resources.business.
| SUNOPTA INC. | December 30, 2023 Form 10-K |
Overall, based on information available to us asFiscal 2024 Outlook
For fiscal 2024, we are projecting higher revenues driven by organic volume growth from our beverages and snacks categories, partially offset by the impact of the date of this MD&A, we believe that we will continue to be able to deliver our products to our customersplanned exit from smoothie bowls. We anticipate an improved gross margin profile on a timelyreported basis, while meetingreflecting higher production volumes and plant utilization to support sales, together with lower start-up costs and improved operating efficiencies at our financial obligations. However, we cannot reasonably estimate the durationMidlothian, Texas, facility. The resulting increase in gross profit, together with stable SG&A spending as a percentage of revenue, is expected to drive operating income growth and severity of the COVID-19 pandemic or its ultimate impact on the global economy and our business. improved cash flows.
Consolidated Results of Operations for Fiscal Years 20202023 and 20192022
| January 2, 2021 | December 28, 2019 | Change | Change | ||
| $ | $ | $ | % | ||
| Revenues | |||||
| Plant-Based Foods and Beverages | 415,164 | 361,398 | 53,766 | 14.9% | |
| Fruit-Based Foods and Beverages | 374,049 | 349,852 | 24,197 | 6.9% | |
| Global Ingredients | — | 10,346 | (10,346) | -100.0% | |
| Total revenues | 789,213 | 721,596 | 67,617 | 9.4% | |
| Gross Profit | |||||
| Plant-Based Foods and Beverages | 80,497 | 58,812 | 21,685 | 36.9% | |
| Fruit-Based Foods and Beverages | 28,580 | 6,499 | 22,081 | 339.8% | |
| Global Ingredients | — | 192 | (192) | -100.0% | |
| Total gross profit | 109,077 | 65,503 | 43,574 | 66.5% | |
| Segment operating income (loss)(1) | |||||
| Plant-Based Foods and Beverages | 50,780 | 29,476 | 21,304 | 72.3% | |
| Fruit-Based Foods and Beverages | (7,321) | (26,873) | 19,552 | 72.8% | |
| Global Ingredients | — | (187) | 187 | 100.0% | |
| Corporate Services | (31,151) | (26,471) | (4,680) | -17.7% | |
| Total segment operating income (loss) | 12,308 | (24,055) | 36,363 | 151.2% | |
| Other expense (income), net | 23,393 | (40,639) | 64,032 | 157.6% | |
| Earnings (loss) from continuing operations before the following | (11,085) | 16,584 | (27,669) | -166.8% | |
| Interest expense, net | 30,042 | 32,765 | (2,723) | -8.3% | |
| Loss on retirement of debt | 8,915 | — | 8,915 | — | |
| Recovery of income taxes | (2,740) | (3,101) | 361 | 11.6% | |
| Loss from continuing operations(2),(3) | (47,302) | (13,080) | (34,222) | -261.6% | |
| Earnings from discontinued operations | 124,820 | 12,322 | 112,498 | 913.0% | |
| Net earnings (loss) | 77,518 | (758) | 78,276 | 10326.6% | |
| Dividends and accretion on preferred stock | (10,328) | (8,022) | (2,306) | -28.7% | |
| Earnings (loss) attributable to common shareholders(4) | 67,190 | (8,780) | 75,970 | 865.3% | |
| December 30, 2023 | December 31, 2022 | Change | Change | |||||||||
| For the year ended | $ | $ | $ | % | ||||||||
| Revenues | 630,297 | 591,395 | 38,902 | 6.6% | ||||||||
| Cost of goods sold | 541,680 | 491,665 | 50,015 | 10.2% | ||||||||
| Gross profit | 88,617 | 99,730 | (11,113 | ) | -11.1% | |||||||
| Gross margin(1) | 14.1% | 16.9% | -2.8% | |||||||||
| Operating expenses | ||||||||||||
| Selling, general and administrative expenses | 78,000 | 78,469 | (469 | ) | -0.6% | |||||||
| Intangible asset amortization | 1,784 | 1,784 | - | 0.0% | ||||||||
| Other expense, net | 455 | 1,651 | (1,196 | ) | -72.4% | |||||||
| Foreign exchange loss (gain) | 110 | (107 | ) | 217 | * | |||||||
| Total operating expenses | 80,349 | 81,797 | (1,448 | ) | -1.8% | |||||||
| Operating income | 8,268 | 17,933 | (9,665 | ) | -53.9% | |||||||
| Interest expense, net | 26,909 | 13,156 | 13,753 | 104.5% | ||||||||
| Earnings (loss) from continuing operations before income taxes | (18,641 | ) | 4,777 | (23,418 | ) | * | ||||||
| Income tax expense | 3,269 | 896 | 2,373 | 264.8% | ||||||||
| Earnings (loss) from continuing operations | (21,910 | ) | 3,881 | (25,791 | ) | * | ||||||
| Loss from discontinued operations | (153,108 | ) | (8,722 | ) | (144,386 | ) | -1,655.4% | |||||
| Net loss(2),(3) | (175,018 | ) | (4,841 | ) | (170,177 | ) | -3515.3% | |||||
| Dividends and accretion on preferred stock | (1,981 | ) | (3,109 | ) | 1,128 | 36.3% | ||||||
| Loss attributable to common shareholders(4) | (176,999 | ) | (7,950 | ) | (169,049 | ) | -2126.4% |
* Percentage not meaningful due to figures being positive and negative.
(1) When assessingGross margin is a measure of gross profit (equal to revenues less cost of goods sold) as a percentage of revenues. We use a measure of adjusted gross margin that excludes non-capitalizable start-up costs included in cost of goods sold that are incurred in connection with capital expansion projects. In recent years, we have undergone the financial performancelargest capital expansion in our company's history, including the construction of our operating segments, we use an internalnew plant-based beverage facility in Midlothian, Texas. As a result, start-up costs have had a significant impact on the comparability of reported gross margins in 2023 and 2022, which may obscure trends in our margin performance. Additionally, our measure of operating income/lossadjusted gross margin may exclude other unusual items that excludes other income/expense itemsare identified and goodwill impairments determined in accordance with U.S. GAAP. Thisevaluated 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 use the measure is the basis on which management, including the CEO, assessesof adjusted gross margin to evaluate the underlying performanceprofitability of our operating segments.
revenue-generating activities within each reporting period. We believe that disclosing this non-GAAP measure assistsprovides investors in comparing financial performance across reporting periods onwith a meaningful, consistent basis by excluding items that are not indicativecomparison of our operating performance.profitability measure for the periods presented. However, the non-GAAP measure of operating income/lossadjusted gross margin should not be considered in isolation or as a substitute for performance measuresgross margin calculated based on gross profit determined in accordance with U.S. GAAP. The following table presents a reconciliation of segment operating income/loss to "earnings/lossadjusted gross margin from continuing operations before the following," which we consider to be the most directly comparablereported gross margin calculated in accordance with U.S. GAAP financial measure.GAAP.
| SUNOPTA INC. | December 30, 2023 Form 10-K |
| Plant-Based | Fruit-Based | ||||||||||||||
| Foods and | Foods and | Global | Corporate | ||||||||||||
| Beverages | Beverages | Ingredients | Services | Consolidated | |||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| January 2, 2021 | |||||||||||||||
| Segment operating income (loss) | 50,780 | (7,321 | ) | — | (31,151 | ) | 12,308 | ||||||||
| Other income (expense), net | (2,721 | ) | (8,652 | ) | — | (12,020 | ) | (23,393 | ) | ||||||
| Earnings (loss) from continuing operations before the following | 48,059 | (15,973 | ) | — | (43,171 | ) | (11,085 | ) | |||||||
| December 28, 2019 | |||||||||||||||
| Segment operating income (loss) | 29,476 | (26,873 | ) | (187 | ) | (26,471 | ) | (24,055 | ) | ||||||
| Other income (expense), net | (518 | ) | (1,028 | ) | 43,990 | (1,805 | ) | 40,639 | |||||||
| Earnings (loss) from continuing operations before the following | 28,958 | (27,901 | ) | 43,803 | (28,276 | ) | 16,584 |
| For the year ended | December 30, 2023 | December 31, 2022 | |||||||
| Reported gross margin | 14.1% | 16.9% | |||||||
| Start-up costs(a) | 3.0% | 1.0% | |||||||
| Product withdrawal costs(b) | 0.5% | - | |||||||
| Adjusted gross margin | 17.6% | 17.8% | |||||||
We believe that investors' understandingNote: percentages may not add due to rounding.
(a)Represents incremental direct costs incurred in connection with plant expansion projects and new product introductions before the project or product reaches normal production levels, including costs for the hiring and training of additional personnel, fees for outside services, travel costs, and plant- and production-related expenses. For 2023, start-up costs included in cost of goods sold related to the ramp-up of production at our financial performance is enhanced by disclosingnew plant-based beverage facility in Midlothian, Texas, and the specific items that we exclude from segment operating income/loss. However, any measurestart-up of operating income/loss excluding any or allnew extrusion and high-speed packaging lines at our fruit snacks facility in Omak, Washington. For 2022, start-up costs included in cost of these items is not,goods sold related to the hiring and should not be viewed as, a substitutetraining of new employees for operating income/loss prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.the Midlothian facility, together with the integration of the acquired Dream and West Life brands.
(b)Reflects costs, net of expected recoveries, related to the withdrawal of specific batches of aseptically-packaged product due to a faulty seal caused by an equipment misconfiguration by a third-party service provider. The equipment issue was identified and resolved in the third quarter of 2023, and none of the withdrawn product made it into the consumer marketplace.
(2) When assessing our financial performance, we use an internal measure of netadjusted earnings/loss determined in accordance with U.S. GAAP that excludes specific items recognized in other income/income or 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 the analysis of ourthe financial performance of our business when comparing those operating results between periods, as we do not consider these items to be reflective of normal business operations.
The following table presents a reconciliation of adjusted earnings/lossearnings (loss) from net earnings/loss,earnings (loss), which we consider to be the most directly comparable U.S. GAAP financial measure. In addition, we have prepared this table in a columnar format to present the effects of discontinued operations on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the financial performance of our continuing operations.
| SUNOPTA INC. | December 30, 2023 Form 10-K |
| Continuing | Discontinued | |||||||||||||||||
| Operations | Operations | Consolidated | ||||||||||||||||
| Per Share | Per Share | Per Share | ||||||||||||||||
| For the year ended | $ | $ | $ | $ | $ | $ | ||||||||||||
| December 30, 2023 | ||||||||||||||||||
| Net loss | (21,910 | ) | (153,108 | ) | (175,018 | ) | ||||||||||||
| Dividends and accretion on preferred stock | (1,981 | ) | - | (1,981 | ) | |||||||||||||
| Loss attributable to common shareholders | (23,891 | ) | (0.21 | ) | (153,108 | ) | (1.34 | ) | (176,999 | ) | (1.55 | ) | ||||||
| Adjusted for: | ||||||||||||||||||
| Loss on divestiture of discontinued operations(a) | - | 119,821 | 119,821 | |||||||||||||||
| Start-up costs(b) | 20,249 | - | 20,249 | |||||||||||||||
| Frozen fruit inventory reserves(c) | - | 12,900 | 12,900 | |||||||||||||||
| Exit from frozen fruit processing facility(d) | - | 10,014 | 10,014 | |||||||||||||||
| Product withdrawal and recall costs(e) | 3,440 | 2,500 | 5,940 | |||||||||||||||
| Business development costs(f) | 2,390 | - | 2,390 | |||||||||||||||
| Loss on extinguishment of debt(g) | 1,584 | - | 1,584 | |||||||||||||||
| Severance costs(h) | 897 | 1,016 | 1,913 | |||||||||||||||
| Other(i) | 471 | 1,136 | 1,607 | |||||||||||||||
| Net income tax on adjusting items(j) | - | - | - | |||||||||||||||
| Change in valuation allowance for deferred tax assets(k) | 3,978 | - | 3,978 | |||||||||||||||
| Adjusted earnings (loss) | 9,118 | 0.08 | (5,721 | ) | (0.05 | ) | 3,397 | 0.03 | ||||||||||
| Continuing | Discontinued | |||||||||||||||||
| Operations | Operations | Consolidated | ||||||||||||||||
| Per Share | Per Share | Per Share | ||||||||||||||||
| For the year ended | $ | $ | $ | $ | $ | $ | ||||||||||||
| December 31, 2022 | ||||||||||||||||||
| Net earnings (loss) | 3,881 | (8,722 | ) | (4,841 | ) | |||||||||||||
| Dividends and accretion on preferred stock | (3,109 | ) | - | (3,109 | ) | |||||||||||||
| Earnings (loss) attributable to common shareholders | 772 | 0.01 | (8,722 | ) | (0.08 | ) | (7,950 | ) | (0.07 | ) | ||||||||
| Adjusted for: | ||||||||||||||||||
| Loss on divestiture of discontinued operations(a) | - | 31,468 | 31,468 | |||||||||||||||
| Start-up costs(b) | 6,028 | - | 6,028 | |||||||||||||||
| Sale of frozen fruit processing facility(l) | - | (2,544 | ) | (2,544 | ) | |||||||||||||
| Business development costs(f) | 1,170 | - | 1,170 | |||||||||||||||
| Exit from fruit ingredient processing facility(m) | 577 | - | 577 | |||||||||||||||
| Other(i) | 1,074 | (202 | ) | 872 | ||||||||||||||
| Net income tax on adjusting items(j) | (2,326 | ) | (18,303 | ) | (20,629 | ) | ||||||||||||
| Adjusted earnings | 7,295 | 0.07 | 1,697 | 0.02 | 8,992 | 0.08 | ||||||||||||
| Continuing Operations | Discontinued Operations | Consolidated | |||||||||||||||||
| Per Share | Per Share | Per Share | |||||||||||||||||
| For the years ended | $ | $ | $ | $ | $ | $ | |||||||||||||
| January 2, 2021 | |||||||||||||||||||
| Net earnings (loss) | (47,302 | ) | 124,820 | 77,518 | |||||||||||||||
| Dividends and accretion on preferred stock | (10,328 | ) | — | (10,328 | ) | ||||||||||||||
| Earnings (loss) attributable to common shareholders | (57,630 | ) | (0.65 | ) | 124,820 | 1.40 | 67,190 | 0.75 | |||||||||||
| Adjusted for: | |||||||||||||||||||
| Gain on sale of discontinued operations(a) | — | (111,818 | ) | (111,818 | ) | ||||||||||||||
| Contingent consideration settlement(b) | — | (2,286 | ) | (2,286 | ) | ||||||||||||||
| Loss on foreign currency forward contract(c) | 12,658 | — | 12,658 | ||||||||||||||||
| Costs related to Value Creation Plan(d) | 9,897 | 783 | 10,680 | ||||||||||||||||
| Loss on retirement of debt(e) | 8,915 | — | 8,915 | ||||||||||||||||
| Long-lived asset impairments(f) | 2,676 | 771 | 3,447 | ||||||||||||||||
| Plant expansion costs(g) | 1,883 | — | 1,883 | ||||||||||||||||
| Other(h) | (189 | ) | (50 | ) | (239 | ) | |||||||||||||
| Net income tax effect(i) | 255 | 8,809 | 9,064 | ||||||||||||||||
| Adjusted earnings (loss) | (21,535 | ) | (0.24 | ) | 21,029 | 0.24 | (506 | ) | (0.01 | ) | |||||||||
| December 28, 2019 | |||||||||||||||||||
| Net earnings (loss) | (13,080 | ) | 12,322 | (758 | ) | ||||||||||||||
| Dividends and accretion on preferred stock | (8,022 | ) | — | (8,022 | ) | ||||||||||||||
| Earnings (loss) attributable to common shareholders | (21,102 | ) | (0.24 | ) | 12,322 | 0.14 | (8,780 | ) | (0.10 | ) | |||||||||
| Adjusted for: | |||||||||||||||||||
| Gain on sale of soy and corn business(j) | (44,027 | ) | — | (44,027 | ) | ||||||||||||||
| Costs related to Value Creation Plan(k) | 9,412 | 237 | 9,649 | ||||||||||||||||
| Plant expansion costs(l) | 311 | 298 | 609 | ||||||||||||||||
| Contract manufacturer transition costs(m) | — | 448 | 448 | ||||||||||||||||
| Product withdrawal and recall costs(n) | 260 | — | 260 | ||||||||||||||||
| Other(o) | (2,728 | ) | 195 | (2,533 | ) | ||||||||||||||
| Net income tax effect(p) | 12,394 | (397 | ) | 11,997 | |||||||||||||||
| Adjusted earnings (loss) | (45,480 | ) | (0.52 | ) | 13,103 | 0.15 | (32,377 | ) | (0.37 | ) | |||||||||
(a) ReflectsFor 2023, reflects the pre-tax gainloss on salethe divestiture of Tradin OrganicFrozen Fruit, which is recorded in earningsloss from discontinued operations.
(b)Reflects For 2022, reflects the pre-tax loss on the divestiture of Sunflower of $23.2 million, together with a gainloss of $8.2 million on the settlement of the remaining earn-out obligationpurchase price allocation related to a prior acquisitionthe 2020 divestiture of a premium juiceour global ingredients business, Tradin Organic, which wasare recorded in earningsloss from discontinued operations.
(c)Reflects a loss on a foreign currency forward contract to economically hedge the cash consideration from the sale of Tradin Organic, which was recorded in other expense.
(d)(b) Reflects professional feesFor 2023, start-up costs included the ramp-up of $1.0 millionproduction at our new plant-based beverage facility in Midlothian, Texas, the start-up of new extrusion and employee retention costs of $0.6 million recorded in SG&A expenses; and long-lived asset impairment and facility closure costs of $6.7 million, and employee termination costs of $3.2 million (offset by the reversal of $0.9 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees), which were recorded in other expense and earnings from discontinued operations.
(e)Reflects the premium paid ($5.3 million) and write-off of unamortized debt issuance costs ($3.6 million) on the redemption and retirement of our second lien notes, which was recorded in non-operating expenses.
(f)Reflects the write-down of owned and right-of-use assets related to the consolidation of roastinghigh-speed packaging lines at our Crookston, Minnesota,fruit snacks facility and the write-off of obsolete cocoa processing equipment at Tradin Organic, with was recorded in other expense and earnings from discontinued operations.
(g)Reflects start-up costs related to expansion projects within our plant-based ingredient extraction and beverage operations, which were recorded in cost of goods sold.
(h)Other includes a loss of $2.4 million on the settlement of a customer claim related to the recall of certain sunflower products in 2016, net of gains of $2.2 million on the settlement of unrelated matters, and reversal of previously accrued costs related to the withdrawal of certain consumer-packaged products, which was recorded in other income/expense.
(i)Reflects estimated income tax attributable to the gain on sale of Tradin Organic, together with the tax effect of the other preceding adjustments to earnings based on an overall estimated annual effective tax rate of approximately 30% for 2020.
(j)Reflects the gain on sale of the soy and corn business, which was recorded in other income.
(k)Reflects employee retention and relocation costs of $2.2 million,Omak, Washington, and professional fees of $1.4 million recorded in SG&A expenses; and employee termination costs of $8.6 million (offset by the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees), CEO and CFO recruitment costs of $1.3 million, and facility closure costs of $0.3 million,productivity initiatives within our manufacturing operations, which was recorded in other expense and earnings from discontinued operations.
(l)Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of Tradin Organic's avocado oil facility in Ethiopia, which wereare recorded in cost of goods sold ($18.7 million) and earningsSG&A expenses ($1.5 million). For 2022, start-up costs mainly related to the hiring and training of new employees for the Midlothian facility, and the integration of the Dream and West Life brands, which are recorded in cost of goods sold ($5.7 million) and SG&A expenses ($0.3 million).
| SUNOPTA INC. | 24 | December 30, 2023 Form 10-K |
(c)For 2023, reflects inventory reserves recognized in connection with the divestiture of Frozen Fruit, which are recorded in loss from discontinued operations.
(m)(d) ReflectsFor 2023, reflects asset impairment charges and contract cancellation costs related to the transitionexit from our Oxnard, California, frozen fruit processing facility in connection with the divestiture of Tradin Organic's premium juice production activities to new contract manufacturers,Frozen Fruit, which wereare recorded in earningsloss from discontinued operations.
(n)(e) ReflectsFor 2023, reflects costs, net of expected recoveries, of $3.4 million related to the withdrawal of specific batches of aseptically-packaged product withdrawal and recall costs that were not eligible for reimbursementdue to a faulty seal caused by an equipment misconfiguration by a third-party service provider, which are recorded in cost of goods sold, as well as the self-insured retention amount of $2.5 million under our insurance policies or exceeded the limits of those policies, including costs related to the recall of certain sunflower kernelspecific frozen fruit products initiated in 2016,the second quarter of 2023, which wereis recorded in loss from discontinued operations.
(f)Represents third-party costs associated with business development activities, which are inclusive of costs related to the evaluation, execution, and integration of external acquisitions and divestitures, internal expansion projects, and other strategic initiatives. For 2023, business development costs related to the divestiture of Frozen Fruit, and, for 2022, these costs related to the divestitures of Frozen Fruit and Sunflower, together with our inaugural Investor Day held in June 2022. These costs are recorded in SG&A expenses.
(g)For 2023, we recognized a loss on the extinguishment of debt in connection with the refinancing of our credit agreement in December 2023, which is recorded in interest expense, net.
(h)For 2023, reflects employee severance costs of $0.9 million recognized in connection with the consolidation of our continuing operations following the divestiture of Frozen Fruit, which are recorded in SG&A expenses, as well as severance costs of $1.0 million for employees of Frozen Fruit that did not transfer as part of the divestiture, which are recorded in loss from discontinued operations.
(i)For 2023, other includes a $0.4 million loss on a foreign exchange hedge in connection with the divestiture of Frozen Fruit, which is recorded in other expense.
(o)Other includes For 2023 and 2022, other also reflects reserves for legal settlements and gains and losses on the settlement of certain legal matters and a project cancellation, partially offset by losses on disposal of assets, insurance deductibles, and business development costs, which wereare recorded in other income/expenseexpense/income and earningsloss from discontinued operations.
(p)(j) Consolidated reflectsReflects the tax effect of the preceding adjustments to earnings andcalculated based on the statutory tax rates applicable in the tax jurisdiction of the underlying adjustment, net of deferred tax valuation allowances. In addition, for 2022, includes $12.9 million of tax benefits resulting from the settlement of the purchase price allocation related to the divestiture of Tradin Organic.
(k)For 2023, reflects an overall estimated annual effectiveincrease to the valuation allowance for U.S. deferred tax rateassets recognized in the second quarter of approximately 27% for 2019.2023, based on an assessment of the future realizability of the related tax benefits.
(l)For 2022, reflects the gain on sale of a previously owned frozen fruit processing facility, net of exit costs, which is recorded in loss from discontinued operations.
(m)For 2022, reflects exit costs related to a former fruit ingredient processing facility, which are recorded in other expense.
We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude to compute adjusted earnings/loss.earnings (loss). However, adjusted earnings/lossearnings (loss) is not, and should not be viewed as, a substitute for net earnings (loss) prepared under U.S. GAAP. Adjusted earnings/lossearnings (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, and 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. We define adjusted EBITDA as segment operating income/loss plusnet earnings (loss) before interest, income taxes, depreciation, amortization, and non-cash stock-based compensation, and excluding other unusual items as identified in the determination of adjusted earnings (loss) (refer above to footnote (2)). The following table presents a reconciliation of segment operating income/loss and adjusted EBITDA from net earnings/loss,earnings (loss), which we consider to be the most directly comparable U.S. GAAP financial measure. In addition, as described above in footnote (2), we have prepared this table in a columnar format to present the effecteffects of discontinued operations on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the financial performance of our continuing operations.
| Continuing Operations | Discontinued Operations | Consolidated | ||||||||
| For the years ended | $ | $ | $ | |||||||
| January 2, 2021 | ||||||||||
| Net earnings (loss) | (47,302 | ) | 124,820 | 77,518 | ||||||
| Loss attributable to non-controlling interests(a) | — | (301 | ) | (301 | ) | |||||
| Gain on sale of discontinued operations(b) | — | (111,818 | ) | (111,818 | ) | |||||
| Provision for (recovery of) income taxes | (2,740 | ) | 15,885 | 13,145 | ||||||
| Loss on retirement of debt(c) | 8,915 | — | 8,915 | |||||||
| Interest expense, net | 30,042 | 2,409 | 32,451 | |||||||
| Other expense (income), net | 23,393 | (782 | ) | 22,611 | ||||||
| Total segment operating income (loss) | 12,308 | 30,213 | 42,521 | |||||||
| Depreciation and amortization | 30,308 | 4,661 | 34,969 | |||||||
| Stock-based compensation(d) | 12,570 | 540 | 13,110 | |||||||
| Costs related to Value Creation Plan(e) | 1,649 | — | 1,649 | |||||||
| Plant expansion costs(f) | 1,883 | — | 1,883 | |||||||
| Adjusted EBITDA | 58,718 | 35,414 | 94,132 | |||||||
| December 28, 2019 | ||||||||||
| Net earnings (loss) | (13,080 | ) | 12,322 | (758 | ) | |||||
| Earnings attributable to non-controlling interests(a) | — | 154 | 154 | |||||||
| Provision for (recovery of) income taxes | (3,101 | ) | 6,322 | 3,221 | ||||||
| Interest expense, net | 32,765 | 1,912 | 34,677 | |||||||
| Other expense (income), net | (40,639 | ) | 591 | (40,048 | ) | |||||
| Total segment operating income (loss) | (24,055 | ) | 21,301 | (2,754 | ) | |||||
| Depreciation and amortization | 29,266 | 4,686 | 33,952 | |||||||
| Stock-based compensation(d) | 10,471 | 1,145 | 11,616 | |||||||
| Costs related to Value Creation Plan(e) | 3,556 | — | 3,556 | |||||||
| Plant expansion costs(g) | 311 | 298 | 609 | |||||||
| Contract manufacturer transition costs(h) | — | 289 | 289 | |||||||
| Adjusted EBITDA | 19,549 | 27,719 | 47,268 | |||||||
| SUNOPTA INC. | 25 | December 30, 2023 Form 10-K |
| Continuing | Discontinued | ||||||||
| Operations | Operations | Consolidated | |||||||
| For the year ended | $ | $ | $ | ||||||
| December 30, 2023 | |||||||||
| Net loss | (21,910 | ) | (153,108 | ) | (175,018 | ) | |||
| Income tax expense (benefit) | 3,269 | (167 | ) | 3,102 | |||||
| Interest expense, net | 26,909 | 554 | 27,463 | ||||||
| Depreciation and amortization | 31,039 | 8,886 | 39,925 | ||||||
| Stock-based compensation | 11,778 | - | 11,778 | ||||||
| Adjusted for: | |||||||||
| Loss on divestiture of discontinued operations(a) | - | 119,821 | 119,821 | ||||||
| Start-up costs(b) | 20,249 | - | 20,249 | ||||||
| Frozen fruit inventory reserves(c) | - | 12,900 | 12,900 | ||||||
| Exit from frozen fruit processing facility(d) | - | 10,014 | 10,014 | ||||||
| Product withdrawal and recall costs(e) | 3,440 | 2,500 | 5,940 | ||||||
| Business development costs(f) | 2,390 | - | 2,390 | ||||||
| Severance costs(h) | 897 | 1,016 | 1,913 | ||||||
| Other(i) | 471 | 1,136 | 1,607 | ||||||
| Adjusted EBITDA | 78,532 | 3,552 | 82,084 |
| Continuing | Discontinued | ||||||||
| Operations | Operations | Consolidated | |||||||
| For the year ended | $ | $ | $ | ||||||
| December 31, 2022 | |||||||||
| Net earnings (loss) | 3,881 | (8,722 | ) | (4,841 | ) | ||||
| Income tax expense (benefit) | 896 | (16,154 | ) | (15,258 | ) | ||||
| Interest expense, net | 13,156 | 1,578 | 14,734 | ||||||
| Depreciation and amortization | 23,047 | 14,626 | 37,673 | ||||||
| Stock-based compensation | 13,830 | - | 13,830 | ||||||
| Adjusted for: | |||||||||
| Loss on divestiture of discontinued operations(a) | - | 31,468 | 31,468 | ||||||
| Start-up costs(b) | 6,028 | - | 6,028 | ||||||
| Sale of frozen fruit processing facility(l) | - | (2,544 | ) | (2,544 | ) | ||||
| Business development costs(f) | 1,170 | - | 1,170 | ||||||
| Exit from fruit ingredient processing facility(m) | 577 | - | 577 | ||||||
| Other(i) | 1,074 | (202 | ) | 872 | |||||
| Adjusted EBITDA | 63,659 | 20,050 | 83,709 |
(a) Reflects non-controlling interests in the earnings/loss of certain subsidiaries of Tradin Organic, which is included in earnings from discontinued operations.-(m) Refer to footnote (2) above.
(b)Reflects the pre-tax gain on sale of Tradin Organic recorded in earnings from discontinued operations.
(c)Reflects the premium paid ($5.3 million) and write-off of unamortized debt issuance costs ($3.6 million) on the redemption and retirement of our second lien notes, which was recorded in non-operating expenses.
(d)For 2020 and 2019, consolidated stock-based compensation of $13.1 million and $11.6 million, respectively, was recorded in SG&A expenses and earnings from discontinued operations, and the reversal of $0.9 million and $4.1 million, respectively, of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees was recognized in other income.
(e)For 2020, reflects professional fees of $1.0 million (2019 - $1.4 million) and employee retention costs of $0.6 million (2019 - $2.2 million) recorded in SG&A expenses.
(f)Reflects start-up costs related to expansion projects within our plant-based ingredient extraction and beverage operations, which were recorded in cost of goods sold.
(g)Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of Tradin Organic's avocado oil facility in Ethiopia, which were recorded in cost of goods sold and earnings from discontinued operations.
(h)Reflects costs related to the transition of Tradin Organic's premium juice production activities to new contract manufacturers, which were recorded in earnings from discontinued operations.
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
theinterest expense, or the cash requirements necessary to service interest payments on our indebtedness;
- adjusted EBITDA does not include the
recovery/payment or recovery of income taxes, which is a necessary element of our operations;
| SUNOPTA INC. | 26 | December 30, 2023 Form 10-K |
- 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/income, net earnings/loss, earnings and adjusted earnings/loss to measure our operating performance. Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as an alternative to our results of operations or cash flows from operations determined in accordance with U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable to the calculation of a similarly titled measure reported by other companies.
(4) In order to evaluate our results of operations, we use certain non-GAAP measures that we believe enhance an investor's ability to derive meaningful period-over-period comparisons and trends from our results of operations. In particular,For example, as described above under footnote (1), we evaluate our revenuesadjusted gross margins on a basis that excludes the effectsimpact of fluctuations in commodity pricingstart-up costs and the impacts of business acquisitions and divestitures.other unusual items. 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 January 2, 2021December 30, 2023 increased by 9.4%6.6% to $789.2$630.3 million from $721.6$591.4 million for the year ended December 28, 2019. Excluding31, 2022. The change in revenues from 2022 to 2023 was due to the impact on revenues of changes in commodity-related pricing (anfollowing:
| $ | % | |||||
| 2022 revenues | 591,395 | |||||
| Price | 17,841 | 3.0% | ||||
| Volume/Mix | 21,061 | 3.6% | ||||
| 2023 revenues | 630,297 | 6.6% |
For the year ended December 30, 2023, the 6.6% increase in revenues of $12.4 million) and the 53rd week of sales in fiscal 2020 (anreflected a 3.6% increase in revenuespricing mainly reflecting the wrap-around benefit of $6.2 million)pricing actions taken with customers in 2022 to offset inflationary cost increases, together with a favorable volume/mix impact of 3.0%. The favorable volume/mix impact reflected sales volume growth for plant-based milks and creamers (oat, coconut and soy flavors), partially offset by the sale of the soy330-milliliter protein shakes, and corn business (a net decrease in revenues of $10.3 million), revenues increased by 8.1% in 2020, comparedteas, together with 2019. The increase in revenues on an adjusted basis reflected the expansion of plant-based beveragehigher sales volumes for fruit snacks and broth offerings for retail customers, growth in plant-based ingredient extraction volumes, and increased retail volumes of frozen fruit,smoothie bowls. These factors were partially offset by lower volumesexternal ingredient sales due to a customer transferring part of plant-based beverage, frozen fruitits business to a second-source supplier and fruit ingredient products sold into the foodservice channel.increased internal demand for oat base, together with softer demand for almond and rice milks, and lower broth volumes.
Gross profit increased $43.6decreased $11.1 million, or 66.5%11.1%, to $109.1 million for the year ended January 2, 2021, compared with $65.5$88.6 million for the year ended December 28, 2019. As a percentage of revenues, gross profit for the year ended January 2, 2021 was 13.8% compared to 9.1% for the year ended December 28, 2019, an increase of 470 basis points.
Gross profit for the Plant-Based Foods and Beverages segment increased $21.7 million to $80.5 million for the year ended January 2, 2021,30, 2023, compared with $58.8$99.7 million for the year ended December 28, 2019, and gross profit as31, 2022. Gross margin for the year ended December 30, 2023 was 14.1% compared to 16.9% for the year ended December 31, 2022, a percentagedecrease of revenues increased to 19.4% in 2020 from 16.3% in 2019. The gross profit percentage would have been 19.8% in 2020 and 16.4% in 2019, excluding plant expansion280 basis points.
For the year ended December 30, 2023, we incurred start-up costs of $1.9 million and $0.3 million recordedincluded in cost of goods sold of $18.7 million (3.0% gross margin impact) related to our new plant in 2020Midlothian, Texas, and 2019, respectively. The 340-basis point increasenew extrusion and high-speed packaging lines at our fruit snacks facility in Omak, Washington, compared with $5.8 million (1.0% gross margin impact) of start-up costs incurred in 2022. Additionally, in 2023, we incurred incremental costs, net of expected recoveries, of $3.4 million (0.5% gross margin impact) related to the withdrawal of specific batches of aseptically-packaged product due to a faulty seal caused by an equipment misconfiguration by a third-party service provider. Excluding the impact of these costs, adjusted gross profit percentage on an adjusted basis reflected higher sales and production volumes of plant-based beverages, broths and plant-based ingredients, and improved plant utilization and productivity-driven cost savings.
Gross profit for the Fruit-Based Foods and Beverages segment increased $22.1 million to $28.6 millionmargin for the year ended January 2, 2021,December 30, 2023 was 17.6% compared to 17.8% for the year ended December 31, 2022, a decrease of 20 basis points. See footnote (1) to the "Consolidated Results of Operations for Fiscal Years 2023 and 2022" table for a reconciliation of adjusted gross margin from gross margin calculated in accordance with $6.5U.S. GAAP.
The 20-basis point decrease in adjusted gross margin reflected the impact of incremental depreciation of new production equipment for capital expansion projects ($8.5 million or 1.3% gross margin impact) and higher manufacturing costs, largely offset by the wrap-around benefit of pricing actions taken in 2022 to recover input cost inflation, together with a favorable mix shift in our ingredient operations, with increased internal use of oat base to support our beverage business and lower external sales.
| SUNOPTA INC. | 27 | December 30, 2023 Form 10-K |
Operating income decreased $9.6 million to $8.3 million for the year ended December 28, 2019, and gross profit as a percentage of revenues increased to 7.6% in 2020 from 1.9% in 2019. The increase in gross profit and 570-basis point increase in gross profit percentage reflected increased sales pricing and a favorable mix of higher-margin retail sales of frozen fruit, and lower processing costs and productivity improvements for frozen fruit, together30, 2023, compared with increased sales and production volumes, and plant utilization for fruit snacks.
Gross profit for the Global Ingredients segment of $0.2$17.9 million for the year ended December 28, 2019, reflected the contribution from the soy and corn business prior to its sale31, 2022. The decrease in February 2019.
For the year ended January 2, 2021, we realized total segment operating income of $12.3 million, compared with a total segment operating loss of $24.1 million for the year ended December 28, 2019. The $36.4 million increase in total segment operating income reflected higherlower gross profit, as described above, together with a year-over-year favorable foreign exchange impacthigher business development and employee severance costs in connection with the divestiture of $1.5 million, mainlyFrozen Fruit and related to mark-to-market gains on Mexican peso hedging activities,consolidation of our continuing operations, partially offset by an $8.9 million increase in SG&A expenses mainly due to higher employee-relatedlower employee incentive compensation accruals and variable stock-based compensation and benefit costs, and reserves for credit losses due to a weaker economic outlook, partially offset by the benefit from headcount reductions and other cost savings measures taken in 2019, together with lower travel costs due to COVID-19 restrictions. expense based on performance.
(Further details on the changes in revenue, gross profit and segment operating income/loss variancesincome are provided below under "Segmented Operations Information."in the rollforward tables below.)
OtherNet interest expense of $23.4increased by $13.7 million for the year ended January 2, 2021, mainly reflected a $12.7 million loss on the foreign currency economic hedge of the cash consideration from the sale of Tradin Organic, together with $8.2 million of employee termination and facility closure costs, and asset impairments, mainly related to the exit from our Santa Maria, California, frozen fruit processing facility, and $2.7 million of other asset impairment charges mainly related to the consolidation of roasting lines at our Crookston, Minnesota, facility. Other income of $40.6$26.9 million for the year ended December 28, 2019, mainly reflected a pre-tax gain on sale of the soy and corn business of $44.0 million, the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees, and legal settlement and project cancellation gains of $3.1 million. These other income amounts were offset mainly by employee termination and recruitment costs of $9.7 million associated with the Value Creation Plan, including costs related to our new CEO and CFO appointments, sale of the soy and corn business, and corporate office consolidation.
Net interest expense decreased by $2.8 million to $30.0 million for the year ended January 2, 2021,30, 2023, compared with $32.8$13.2 million for the year ended December 28, 2019. Interest expense included31, 2022, resulting from an increase in average outstanding debt to finance capital expansion projects, together with the amortizationimpact of debt issuance costs of $4.1 million and $2.7 million in 2020 and 2019, respectively. The year-over-year decrease in nethigher interest rates. Additionally, interest expense, reflected lower average borrowings and weighted-average interest rates under our revolving credit facilities, together with interest income received onnet, includes a tax refund in the first quarter of 2020.
On December 31, 2020, we redeemed in full the $223.5 million outstanding principal amount of our second lien notes. We recognized an $8.9 million loss on the retirementextinguishment of debt of $1.6 million recognized in connection with the refinancing of our credit agreement in December 2023. Interest expense capitalized as part of the notes, including a premium paidconstruction cost of $5.3property, plant and equipment was $0.3 million and the write-off of the remaining $3.6$1.2 million of unamortized debt issuance costs.in 2023 and 2022, respectively.
We recognized a recovery of income tax of $2.7 million for the year ended January 2, 2021, compared with $3.1 million forFor the year ended December 28, 2019. Excluding30, 2023, we recognized income tax expense of $3.3 million on a pre-tax loss of $18.6 million, reflecting the impactrecognition of non-deductible stock-based and executive compensation from pre-tax earnings, together with a change in the amount offull valuation allowance recorded against certainU.S. deferred tax assets andin the second quarter of 2023, based on our assessment that the related tax benefits were no longer more likely than not to be realized in the future. For the year ended December 31, 2022, we recognized in 2020 related to the net operating loss carryback provisionsincome tax expense of the CARES Act, our effective tax rate was 26.7% in 2020, compared with 31.3% in 2019.$0.9 million on pre-tax earnings of $4.8 million.
Loss from continuing operations for the year ended January 2, 2021December 30, 2023 was $47.3$21.9 million, which was inclusive of the $12.7 million loss on the foreign currency economic hedge of the cash consideration from the Tradin Organic sale, and $8.9 million loss on the retirement of the second lien notes, compared with a lossearnings of $13.1$3.9 million for the year ended January 2, 2021, which was inclusive of the $44.0 million gain on the sale of the soy and corn business.December 31, 2022. Diluted loss per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.65 for the year ended January 2, 2021, compared with a loss per share $0.24$0.21 for the year ended December 28, 2019.
Earnings from the discontinued operations of Tradin Organic were $124.8 million for the year ended January 2, 2021, inclusive of a pre-tax gain on sale of $111.8 million,30, 2023, compared with a diluted earnings per share of $12.3 million$0.01 for the year ended December 28, 2019. Revenues and gross profit31, 2022.
We recognized a loss from discontinued operations of Tradin Organic were $503.0$153.1 million and $61.8 million, respectively, for the year ended January 2, 2021, compared with $468.4 million and $49.8 million, respectively,(diluted loss per share of $1.34) for the year ended December 28, 2019.30, 2023, compared with a loss of $8.7 million (diluted loss per share of $0.08) for the year ended December 31, 2022. The year-over-year increase in revenues reflected increased sales volumes of certain organic ingredients and higher sales volumes and pricing for premium juice products, partially offset by the exit from certain bulk categories of organic ingredients, and decreased commodity pricing. The year-over-year increase in gross profit reflected increased pricing spreads and higher-margin product mix within certain categories of organic ingredients, and increased production volumes and manufacturing efficiencies in Tradin Organic’s cocoa and sunflower operations, together with higher volumes and pricing and lower bottling costs for premium juice products. Earningsloss from discontinued operations for 2020 includedreflected a gainpre-tax loss on the divestiture of $2.3Frozen Fruit of $119.8 million in 2023, compared with a pre-tax loss on the divestiture of Sunflower of $23.2 million in 2022, together with an $8.2 million loss recognized in 2022 on the settlement of the purchase price allocation related to the 2020 divestiture of our global ingredients business, Tradin Organic. Before the losses on divestitures, the loss from discontinued operations was $33.5 million in 2023, compared with earnings of $6.6 million in 2022, which mainly reflected a remaining earn-out obligation that arose fromyear-over-year decrease in the gross profit of Frozen Fruit prior to the divestiture due to lower sales and production volumes as a prior acquisitionresult of a premium juice business.softer retail consumption trends and lost foodservice distribution. Additionally, in connection with the divestiture we recognized frozen fruit inventory reserves of $12.8 million and exit costs of $10.0 million related to the former Oxnard, California, facility of Frozen Fruit.
OnWe realized a consolidated basis, we realized earnings attributable to common shareholders of $67.2 million (diluted earnings per share of $0.75) for the year ended January 2, 2021, compared with loss attributable to common shareholders of $8.8$177.0 million (diluted loss per share of $0.10)$1.55) for the year ended December 28, 2019.
For the year ended January 2, 2021, adjusted loss was $0.5 million, or $0.01 per diluted share, on a consolidated basis,30, 2023, compared with an adjusteda loss attributable to common shareholders of $32.4$8.0 million or $0.37(diluted loss per diluted share on a consolidated basisof $0.07) for the year ended December 28, 2019. For31, 2022. Loss attributable to common shareholders included dividends and accretion on our Series B-1 preferred stock of $2.0 million and $3.1 million in 2023 and 2022, respectively.
On a consolidated basis, adjusted earnings for the year ended January 2, 2021, adjusted loss from continuing operationsDecember 30, 2023 was $21.5$3.4 million, or $0.24$0.03 earnings per diluted share, compared with an adjusted loss from continuing operationsearnings of $45.5$9.0 million, or $0.52$0.08 earnings per diluted share, for the year ended December 28, 2019.
Adjusted EBITDA31, 2022. For the year ended December 30, 2023, adjusted earnings from continuing operations were $9.1 million, or $0.08 earnings per diluted share, compared with adjusted earnings of $7.3 million, or $0.07 earnings per diluted share, for the year ended January 2, 2021 was $94.1 million onDecember 31, 2022.
On a consolidated basis, compared with $47.3adjusted EBITDA was $82.1 million for the year ended December 28, 2019. Adjusted EBITDA from continuing operations for the year ended January 2, 2021 was $58.7 million,30, 2023, compared with $19.5$83.7 million for the year ended December 28, 2019. 31, 2022. Adjusted EBITDA from continuing operations increased $14.8 million, or 23.4%, to $78.5 million for the year ended December 30, 2023, compared with $63.7 million for the year ended December 31, 2022.
|
Adjusted lossearnings (loss) and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the "Consolidated Results of Operations for Fiscal Years 2023 and 2022" table above for a reconciliation of adjusted lossearnings (loss) and adjusted EBITDA from net earnings/loss,earnings (loss), which we consider to be the most directly comparable U.S. GAAP financial measure.
| SUNOPTA INC. | 28 | December 30, 2023 Form 10-K |
Rollforward of Revenue, Gross Profit and Operating Income
| For the year ended | December 30, 2023 | December 31, 2022 | Change | % Change | ||||||||
| Revenues | $ | 630,297 | $ | 591,395 | $ | 38,902 | 6.6% | |||||
| Gross profit | 88,617 | 99,730 | (11,113 | ) | -11.1% | |||||||
| Gross margin | 14.1% | 16.9% | -2.8% | |||||||||
| Operating income | $ | 8,268 | $ | 17,933 | $ | (9,665 | ) | -53.9% | ||||
| Operating margin | 1.3% | 3.0% | -1.7% |
Revenues
Segmented Operations Information
| Plant-Based Foods and Beverages | January 2, 2021 | December 28, 2019 | Change | % Change | ||||||||
| Revenues | $ | 415,164 | $ | 361,398 | $ | 53,766 | 14.9% | |||||
| Gross profit | 80,497 | 58,812 | 21,685 | 36.9% | ||||||||
| Gross profit % | 19.4% | 16.3% | 3.1% | |||||||||
| Operating income | $ | 50,780 | $ | 29,476 | $ | 21,304 | 72.3% | |||||
| Operating income % | 12.2% | 8.2% | 4.0% |
Plant-Based Foods and Beverages contributed $415.2The table below explains the $38.9 million increase in revenues for the year ended January 2, 2021, compared to $361.4from $591.4 million for the year ended December 28, 2019, an increase of $53.831, 2022 to $630.3 million or 14.9%. Excludingfor the impact on revenues of changes in sunflower commodity-related pricing (an increase in revenues of $5.1 million) and the 53rd week of sales in fiscal 2020 (an increase in revenues of $3.6 million), Plant-Based Foods and Beverages revenues increased approximately 12.5%. The table below explains the increase in reported revenues:year ended December 30, 2023:
| Revenues for the year ended December | $ | |
| Higher sales volumes for fruit snacks and smoothie bowls | ||
| Lower external ingredient sales due to a customer transferring part of its business to a second-source supplier and increased internal demand for oat base | ||
| Revenues for the year ended | $ | |
Gross Profit
GrossThe table below explains the $11.1 million decrease in gross profit in Plant-Based Foods and Beverages increased by $21.7 million to $80.5 million for the year ended January 2, 2021, compared to $58.8from $99.7 million for the year ended December 28, 2019, and31, 2022 to $88.6 million for the gross profit percentage increased by 310 basis points to 19.4%. The increase in the gross profit percentage reflected strong production volumes, improved plant utilization and productivity-driven cost savings within our plant-based beverage and ingredient extraction operations, and improved margin performance within our sunflower and roasting operations. The table below explains the increase in gross profit:year ended December 30, 2023:
| Gross profit for the year ended December | $ | |
| Increase in start-up costs related to capital expansion projects | ||
| Incremental depreciation related to capital expansion projects | (8,494) | |
| Incremental costs, net of expected recoveries, related to the withdrawal of specific batches of aseptically-packaged product due to a faulty seal caused by an equipment misconfiguration by a third-party service provider | (3,430) | |
| Higher sales | ||
| Gross profit for the year ended | $ | |
| SUNOPTA INC. | December 30, 2023 Form 10-K |
Operating Income
The table below explains the $9.6 million decrease in operating income in Plant-Based Foods and Beverages increased by $21.3 million to $50.8 million for the year ended January 2, 2021, compared to $29.5from $17.9 million for the year ended December 28, 2019. The table below explains31, 2022 to $8.3 million for the increase in operating income:
| Operating income for the year ended December | $ | |
Looking forward, we expect significant growth in revenues and gross profit from our Plant-Based Foods and Beverages segment in fiscal year 2021, driven by the completion of three major capital projects to increase our plant-based beverage processing and ingredient extraction capacity and capabilities. We expect the gross margin profile of our plant-based operations in 2021 to be comparable to 2020, with planned productivity measures expected to offset the initial underutilization of the capital project assets as we fill the added capacity with new business. 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 the impact of the ongoing COVID-19 pandemic, unexpected delays in executing on our capital projects, less than anticipated benefits from productivity measures, as well as unforeseen customer actions, consumer behaviors, competitive pressures, and general economic and political conditions in North America, along with the other factors described above under "Forward-Looking Statements."
| Fruit-Based Foods and Beverages | January 2, 2021 | December 28, 2019 | Change | % Change | ||||||||
| Revenues | $ | 374,049 | $ | 349,852 | $ | 24,197 | 6.9% | |||||
| Gross profit | 28,580 | 6,499 | 22,081 | 339.8% | ||||||||
| Gross profit % | 7.6% | 1.9% | 5.7% | |||||||||
| Operating loss | $ | (7,321 | ) | $ | (26,873 | ) | $ | 19,552 | 72.8% | |||
| Operating loss % | -2.0% | -7.7% | 5.7% |
Fruit-Based Foods and Beverages contributed $374.0 million in revenues for the year ended January 2, 2021, compared to $349.9 million for the year ended December 28, 2019, an increase of $24.2 million, or 6.9%. Excluding the impact on revenues of changes in raw fruit commodity-related pricing (an increase in revenues of $9.0 million) and the impact of the 53rd week of sales in fiscal 2020 (an increase in revenues of $2.6 million), Fruit-Based Foods and Beverages revenues increased approximately 3.6%. The table below explains the increase in reported revenues:
Operating loss in Fruit-Based Foods and Beverages decreased by $19.6 million to $7.3 million for the year ended January 2, 2021, compared to $26.9 million for the year ended December 28, 2019. The table below explains the decrease in operating loss:
Looking forward, we expect gross margin improvement in our Fruit-Based Foods and Beverages segment in 2021, driven by ongoing automation and productivity efforts, together with cost savings from our frozen fruit network optimization projects, including the exit from our leased Santa Maria, California, facility in February 2021, and the start-up of production at our other facilities in advance of the California strawberry crop season. In addition, we intend to pursue pass-through contract pricing with more of our customers, while evaluating marginally profitable customers and products, which may lead to some customer and product rationalization. However, the profitability of our frozen fruit business remains largely dependent on the quality and quantity of the California strawberry supply for the frozen market, and the related impacts on the commodity pricing for available fruit. In that regard, we intend to take measures to further diversify our supplier base to include a larger proportion of strawberries, and other fruit varieties, from Mexico and South America, with the aim of improving the stability of our supply. 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 the ongoing COVID-19 pandemic, our assessment of the margin improvement and cost savings to be realized from productivity, network optimization and portfolio rationalization initiatives, the outcome of pricing actions with customers, the availability and commodity pricing for fruit, our intent to diversify our supplier base and our assessment of the anticipated benefits, as well as unforeseen customer actions, consumer behaviors, competitive pressures, and general economic and political conditions in North America, along with the other factors described above under "Forward-Looking Statements."
| Global Ingredients | January 2, 2021 | December 28, 2019 | Change | % Change | ||||||||
| Revenues | $ | — | $ | 10,346 | $ | (10,346 | ) | -100.0% | ||||
| Gross profit | — | 192 | (192 | ) | -100.0% | |||||||
| Gross profit % | — | 1.9% | -1.9% | |||||||||
| Operating loss | $ | — | $ | (187 | ) | $ | 187 | -100.0% | ||||
| Operating loss % | — | -1.8% | 1.8% |
The table below explains the decrease in reported revenues in Global Ingredients:
The table below explains the decrease in gross profit in Global Ingredients:
The table below explains the decrease in operating loss in Global Ingredients:
| Decrease in gross profit, as explained above | ||
| Higher business development and employee severance costs in connection with the divestiture of Frozen Fruit and related consolidation of our continuing operations, together with a $0.4 million loss on a foreign exchange hedge in connection with the divestiture of Frozen Fruit, partially offset by lower employee incentive compensation accruals based on performance, together with lower reserves for legal settlements and losses on asset disposals | ||
| Corporate Services | January 2, 2021 | December 28, 2019 | Change | % Change | ||||||||
| Operating loss | $ | (31,151 | ) | $ | (26,471 | ) | $ | (4,680 | ) | -17.7% |
Operating loss at Corporate Services increased by $4.7 million to $31.2 million for the year ended January 2, 2021, compared to a loss of $26.5 million for the year ended December 28, 2019. The table below explains the increase in operating loss:
| Operating | $ | |
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 the number of people employed within each segment.
Consolidated Results of Operations for Fiscal Years 20192022 and 20182021
| December 28, 2019 | December 29, 2018 | Change | Change | ||||||||||
| $ | $ | $ | % | ||||||||||
| Revenues | |||||||||||||
| Plant-Based Foods and Beverages | 361,398 | 314,076 | 47,322 | 15.1% | |||||||||
| Fruit-Based Foods and Beverages | 349,852 | 365,469 | (15,617 | ) | -4.3% | ||||||||
| Global Ingredients | 10,346 | 104,427 | (94,081 | ) | -90.1% | ||||||||
| Total revenues | 721,596 | 783,972 | (62,376 | ) | -8.0% | ||||||||
| Gross Profit | |||||||||||||
| Plant-Based Foods and Beverages | 58,812 | 40,477 | 18,335 | 45.3% | |||||||||
| Fruit-Based Foods and Beverages | 6,499 | 21,744 | (15,245 | ) | -70.1% | ||||||||
| Global Ingredients | 192 | 8,310 | (8,118 | ) | -97.7% | ||||||||
| Total gross profit | 65,503 | 70,531 | (5,028 | ) | -7.1% | ||||||||
| Segment operating income (loss)(1) | |||||||||||||
| Plant-Based Foods and Beverages | 29,476 | 10,766 | 18,710 | 173.8% | |||||||||
| Fruit-Based Foods and Beverages | (26,873 | ) | (16,029 | ) | (10,844 | ) | -67.7% | ||||||
| Global Ingredients | (187 | ) | 2,245 | (2,432 | ) | -108.3% | |||||||
| Corporate Services | (26,471 | ) | (18,433 | ) | (8,038 | ) | -43.6% | ||||||
| Total segment operating loss | (24,055 | ) | (21,451 | ) | (2,604 | ) | -12.1% | ||||||
| Other expense (income), net | (40,639 | ) | 5,242 | (45,881 | ) | -875.3% | |||||||
| Goodwill impairment | — | 81,222 | (81,222 | ) | -100.0% | ||||||||
| Earnings (loss) from continuing operations before the following | 16,584 | (107,915 | ) | 124,499 | 115.4% | ||||||||
| Interest expense, net | 32,765 | 33,121 | (356 | ) | -1.1% | ||||||||
| Recovery of income taxes | (3,101 | ) | (13,566 | ) | 10,465 | 77.1% | |||||||
| Loss from continuing operations(2),(3) | (13,080 | ) | (127,470 | ) | 114,390 | 89.7% | |||||||
| Earnings from discontinued operations | 12,322 | 18,265 | (5,943 | ) | -32.5% | ||||||||
| Net loss | (758 | ) | (109,205 | ) | 108,447 | 99.3% | |||||||
| Dividends and accretion on preferred stock | (8,022 | ) | (7,909 | ) | (113 | ) | -1.4% | ||||||
| Loss attributable to common shareholders(4) | (8,780 | ) | (117,114 | ) | 108,334 | 92.5% | |||||||
| December 31, 2022 | January 1, 2022 | Change | Change | |||||||||
| For the year ended | $ | $ | $ | % | ||||||||
| Revenues | 591,395 | 496,455 | 94,940 | 19.1% | ||||||||
| Cost of goods sold | 491,665 | 415,311 | 76,354 | 18.4% | ||||||||
| Gross profit | 99,730 | 81,144 | 18,586 | 22.9% | ||||||||
| Gross margin(1) | 16.9% | 16.3% | 0.6% | |||||||||
| Operating expenses | ||||||||||||
| Selling, general and administrative expenses | 78,469 | 64,778 | 13,691 | 21.1% | ||||||||
| Intangible asset amortization | 1,784 | 1,286 | 498 | 38.7% | ||||||||
| Other expense, net | 1,651 | 6,745 | (5,094 | ) | -75.5% | |||||||
| Foreign exchange loss (gain) | (107 | ) | 94 | (201 | ) | * | ||||||
| Total operating expenses | 81,797 | 72,903 | 8,894 | 12.2% | ||||||||
| Operating income | 17,933 | 8,241 | 9,692 | 117.6% | ||||||||
| Interest expense, net | 13,156 | 7,552 | 5,604 | 74.2% | ||||||||
| Earnings from continuing operations before income taxes | 4,777 | 689 | 4,088 | 593.3% | ||||||||
| Income tax expense (benefit) | 896 | (4,854 | ) | 5,750 | * | |||||||
| Earnings from continuing operations | 3,881 | 5,543 | (1,662 | ) | -30.0% | |||||||
| Loss from discontinued operations | (8,722 | ) | (6,715 | ) | (2,007 | ) | -29.9% | |||||
| Net loss(2),(3) | (4,841 | ) | (1,172 | ) | (3,669 | ) | -313.1% | |||||
| Dividends and accretion on preferred stock | (3,109 | ) | (4,197 | ) | 1,088 | 25.9% | ||||||
| Loss attributable to common shareholders(4) | (7,950 | ) | (5,369 | ) | (2,581 | ) | -48.1% |
* Percentage not meaningful due to figures being positive and negative.
(1) The following table presents a reconciliation of segment operating income/loss to "earnings/lossadjusted gross margin from continuing operations before the following," which we consider to be the most directly comparablereported gross margin calculated in accordance with U.S. GAAP financial measure (refer to footnote (1) to the "Consolidated Results of Operations for Fiscal Years 20202023 and 2019"2022" table regarding the use of this non-GAAP measure).
| SUNOPTA INC. | December 30, 2023 Form 10-K |
| For the year ended | December 31, 2022 | January 1, 2022 | |||||||
| Reported gross margin | 16.9% | 16.3% | |||||||
| Start-up costs(a) | 1.0% | 0.1% | |||||||
| Adjusted gross margin | 17.8% | 16.5% | |||||||
| Plant-Based | Fruit-Based | ||||||||||||||
| Foods and | Foods and | Global | Corporate | ||||||||||||
| Beverages | Beverages | Ingredients | Services | Consolidated | |||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| December 28, 2019 | |||||||||||||||
| Segment operating income (loss) | 29,476 | (26,873 | ) | (187 | ) | (26,471 | ) | (24,055 | ) | ||||||
| Other income (expense), net | (518 | ) | (1,028 | ) | 43,990 | (1,805 | ) | 40,639 | |||||||
| Earnings (loss) from continuing operations before the following | 28,958 | (27,901 | ) | 43,803 | (28,276 | ) | 16,584 | ||||||||
| December 29, 2018 | |||||||||||||||
| Segment operating income (loss) | 10,766 | (16,029 | ) | 2,245 | (18,433 | ) | (21,451 | ) | |||||||
| Other expense, net | (2,151 | ) | (388 | ) | (91 | ) | (2,612 | ) | (5,242 | ) | |||||
| Goodwill impairment | — | (81,222 | ) | — | — | (81,222 | ) | ||||||||
| Earnings (loss) from continuing operations before the following | 8,615 | (97,639 | ) | 2,154 | (21,045 | ) | (107,915 | ) |
Note: percentages may not add due to rounding.
(a)Represents incremental direct costs incurred in connection with plant expansion projects and new product introductions before the project or product reaches normal production levels, including costs for the hiring and training of additional personnel, fees for outside services, travel costs, and plant- and production-related expenses. For 2022, start-up costs included in cost of goods sold related to the hiring and training of new employees for our new plant-based beverage facility in Midlothian, Texas, together with the integration of the acquired Dream and West Life brands. For 2021, these costs mainly related to expansion projects within our plant-based beverage operations, as well as the introduction of fruit smoothie bowls.
(2) The following table presents a reconciliation of adjusted earnings/lossearnings (loss) from net earnings/loss,earnings (loss), which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (2) to the "Consolidated Results of Operations for Fiscal Years 20202023 and 2019"2022" table regarding the use of this non-GAAP measure). In addition, we have prepared this table in
| Continuing | Discontinued | |||||||||||||||||
| Operations | Operations | Consolidated | ||||||||||||||||
| Per Share | Per Share | Per Share | ||||||||||||||||
| For the year ended | $ | $ | $ | $ | $ | $ | ||||||||||||
| December 31, 2022 | ||||||||||||||||||
| Net earnings (loss) | 3,881 | (8,722 | ) | (4,841 | ) | |||||||||||||
| Dividends and accretion on preferred stock | (3,109 | ) | - | (3,109 | ) | |||||||||||||
| Earnings (loss) attributable to common shareholders | 772 | 0.01 | (8,722 | ) | (0.08 | ) | (7,950 | ) | (0.07 | ) | ||||||||
| Adjusted for: | ||||||||||||||||||
| Loss on divestiture of discontinued operations(a) | - | 31,468 | 31,468 | |||||||||||||||
| Start-up costs(b) | 6,028 | - | 6,028 | |||||||||||||||
| Sale of frozen fruit processing facility(c) | - | (2,544 | ) | (2,544 | ) | |||||||||||||
| Business development costs(d) | 1,170 | - | 1,170 | |||||||||||||||
| Exit from fruit ingredient processing facility(e) | 577 | - | 577 | |||||||||||||||
| Other(f) | 1,074 | (202 | ) | 872 | ||||||||||||||
| Net income tax on adjusting items(g) | (2,326 | ) | (18,303 | ) | (20,629 | ) | ||||||||||||
| Adjusted earnings | 7,295 | 0.07 | 1,697 | 0.02 | 8,992 | 0.08 | ||||||||||||
| SUNOPTA INC. | 31 | December 30, 2023 Form 10-K |
| Continuing | Discontinued | |||||||||||||||||
| Operations | Operations | Consolidated | ||||||||||||||||
| Per Share | Per Share | Per Share | ||||||||||||||||
| For the year ended | $ | $ | $ | $ | $ | $ | ||||||||||||
| January 1, 2022 | ||||||||||||||||||
| Net earnings (loss) | 5,543 | (6,715 | ) | (1,172 | ) | |||||||||||||
| Dividends and accretion on preferred stock | (4,197 | ) | - | (4,197 | ) | |||||||||||||
| Earnings (loss) attributable to common shareholders | 1,346 | 0.01 | (6,715 | ) | (0.06 | ) | (5,369 | ) | (0.05 | ) | ||||||||
| Adjusted for: | ||||||||||||||||||
| Business development costs(d) | 6,209 | - | 6,209 | |||||||||||||||
| Exit from fruit ingredient processing facility(e) | 5,504 | - | 5,504 | |||||||||||||||
| Exit from frozen fruit processing facility(h) | - | 1,432 | 1,432 | |||||||||||||||
| Facility closure costs(i) | 1,063 | - | 1,063 | |||||||||||||||
| Start-up costs(b) | 745 | - | 745 | |||||||||||||||
| Workforce reduction charges(j) | - | 499 | 499 | |||||||||||||||
| Other(f) | 47 | 214 | 261 | |||||||||||||||
| Net income tax on adjusting items(g) | (5,032 | ) | (795 | ) | (5,827 | ) | ||||||||||||
| Adjusted earnings (loss) | 9,882 | 0.09 | (5,365 | ) | (0.05 | ) | 4,517 | 0.04 | ||||||||||
(a)For 2022, reflects the pre-tax loss on the divestiture of Sunflower of $23.2 million, together with a columnar formatloss of $8.2 million on the settlement of the purchase price allocation related to present the effects of discontinued operations on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the financial performance2020 divestiture of our continuing operations.
| Continuing Operations | Discontinued Operations | Consolidated | |||||||||||||||||
| Per Share | Per Share | Per Share | |||||||||||||||||
| For the years ended | $ | $ | $ | $ | $ | $ | |||||||||||||
| December 28, 2019 | |||||||||||||||||||
| Net earnings (loss) | (13,080 | ) | 12,322 | (758 | ) | ||||||||||||||
| Dividends and accretion on preferred stock | (8,022 | ) | — | (8,022 | ) | ||||||||||||||
| Earnings (loss) attributable to common shareholders | (21,102 | ) | (0.24 | ) | 12,322 | 0.14 | (8,780 | ) | (0.10 | ) | |||||||||
| Adjusted for: | |||||||||||||||||||
| Gain on sale of soy and corn business(a) | (44,027 | ) | — | (44,027 | ) | ||||||||||||||
| Costs related to Value Creation Plan(b) | 9,412 | 237 | 9,649 | ||||||||||||||||
| Plant expansion costs(c) | 311 | 298 | 609 | ||||||||||||||||
| Contract manufacturer transition costs(d) | — | 448 | 448 | ||||||||||||||||
| Product withdrawal and recall costs(e) | 260 | — | 260 | ||||||||||||||||
| Other(f) | (2,728 | ) | 195 | (2,533 | ) | ||||||||||||||
| Net income tax effect(g) | 12,394 | (397 | ) | 11,997 | |||||||||||||||
| Adjusted earnings (loss) | (45,480 | ) | (0.52 | ) | 13,103 | 0.15 | (32,377 | ) | (0.37 | ) | |||||||||
| December 29, 2018 | |||||||||||||||||||
| Net earnings (loss) | (127,470 | ) | 18,265 | (109,205 | ) | ||||||||||||||
| Dividends and accretion on preferred stock | (7,909 | ) | — | (7,909 | ) | ||||||||||||||
| Earnings (loss) attributable to common shareholders | (135,379 | ) | (1.55 | ) | 18,265 | 0.21 | (117,114 | ) | (1.34 | ) | |||||||||
| Adjusted for: | |||||||||||||||||||
| Goodwill impairment(h) | 81,222 | — | 81,222 | ||||||||||||||||
| Inventory write-downs(i) | 3,101 | — | 3,101 | ||||||||||||||||
| Equipment start-up costs(j) | 2,730 | 183 | 2,913 | ||||||||||||||||
| New product commercialization costs(k) | 2,641 | 88 | 2,729 | ||||||||||||||||
| Costs related to Value Creation Plan(l) | 2,374 | — | 2,374 | ||||||||||||||||
| Reserve for notes receivable(m) | 2,232 | — | 2,232 | ||||||||||||||||
| Product withdrawal and recall costs(n) | 1,456 | — | 1,456 | ||||||||||||||||
| Other(o) | (107 | ) | 403 | 296 | |||||||||||||||
| Fair value adjustment on contingent consideration(p) | — | (2,821 | ) | (2,821 | ) | ||||||||||||||
| Recovery of product withdrawal costs(q) | (1,200 | ) | — | (1,200 | ) | ||||||||||||||
| Reversal of stock-based compensation(r) | (152 | ) | (30 | ) | (182 | ) | |||||||||||||
| Net income tax effect(g) | (61 | ) | 566 | 505 | |||||||||||||||
| Adjusted earnings (loss) | (41,143 | ) | (0.47 | ) | 16,654 | 0.19 | (24,489 | ) | (0.28 | ) | |||||||||
(a)Reflects the gain on sale of the soy and cornglobal ingredients business, Tradin Organic, which wasare recorded in other income.
(b)Reflects employee retention and relocation costs of $2.2 million, and professional fees of $1.4 million recorded in SG&A expenses; and employee termination costs of $8.6 million (net of the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees), CEO and CFO recruitment costs of $1.3 million, and facility closure costs of $0.3 million, which were recorded in other expense and earningsloss from discontinued operations.
(c)(b) ReflectsFor 2022, start-up costs mainly related to the expansionhiring and training of our Allentown, Pennsylvania, plant-based beveragenew employees for the Midlothian facility, and start-upthe integration of Tradin Organic's avocado oil facility in Ethiopia,the Dream and West Life brands, which wereare recorded in cost of goods sold ($5.7 million) and earningsSG&A expenses ($0.3 million). For 2021, start-up costs mainly related to expansion projects within our plant-based beverage operations, as well as the introduction of fruit smoothie bowls, which are recorded in cost of goods sold.
(c)For 2022, reflects the gain on sale in August 2022 of a previously owned frozen fruit processing facility, net of exit costs, which is recorded in loss from discontinued operations.
(d) ReflectsFor 2022, business development costs related to the transitiondivestitures of Tradin Organic's premium juice production activities to new contract manufacturers,Frozen Fruit and Sunflower, together with our inaugural Investor Day held in June 2022, which wereare recorded in earnings from discontinued operations.SG&A expenses. For 2021, these costs are mainly related to the integration of the Dream and West Life brands and project development activities related to our new plant in Midlothian, Texas, which are recorded in cost of goods sold ($0.6 million) and SG&A expenses ($4.9 million), together with professional fees incurred in connection with post-closing matters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which are recorded in other expense ($0.7 million).
(e) Reflects product withdrawal and recall costs that were not eligible for reimbursement under insurance policies or exceeded the limits of those policies, includingexit costs related to the recall of certain sunflower kernel products initiated in 2016, which werea former fruit ingredient processing facility. For 2022, these costs are recorded in other expense.expense, and, for 2021, these costs are recorded in cost of goods sold ($0.8 million) and other expense ($4.9 million).
(f) OtherFor 2022 and 2021, other includes reserves for legal settlements and gains and loss on the settlement of certain legal matters and a project cancellation, partially offset by losses on disposal of assets, insurance deductibles, and business development costs, which wereare recorded in other income/expense and earningsloss from discontinued operations.
(g) Reflects the tax effect of the preceding adjustments to earnings and reflects an overall estimated annual effectivecalculated based on the statutory tax raterates applicable in the tax jurisdiction of approximately 27%the underlying adjustment, net of deferred tax valuation allowances. In addition, for 2019 (2018 - 27%) on adjusted earnings/loss before tax.
(h)Reflects2022, includes $12.9 million of tax benefits resulting from the impairmentsettlement of goodwill related to our frozen fruit operations.
(i)Reflects the write-down of certain frozen fruit inventory items, 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.
(j)Reflects costspurchase price allocation related to the start-updivestiture of new roasting equipment for grains, seeds and legumes at our Crookston, Minnesota,Tradin Organic.
(h)For 2021, reflects costs to complete the exit from a former frozen fruit processing facility, as well as the start-up of a second processing line at Tradin Organic's cocoa facility in the Netherlands, which wereare recorded in cost of goods sold and earningsloss from discontinued operations.
(k)(i) ReflectsFor 2021, facility closure costs for development, production trials and start-up costs, incremental freight charges, and employee trainingmainly related to the commercializationrelocation of new consumer products,our executive office and innovation center into Eden Prairie, Minnesota, and the vacating of our former leased facility, which were recorded in cost of goods sold, SG&A expenses and earnings from discontinued operations.
(l)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 millionare recorded in other expense.
| SUNOPTA INC. | 32 | December 30, 2023 Form 10-K |
(m)(j) Reflects a bad debt reserve for notes receivable associated with a previously sold business, which was recorded in other expense.
(n)Reflects product withdrawal and recall costs that were not eligible for reimbursement under insurance policies or exceeded the limits of those policies, includingFor 2021, represents employee termination costs related to the sunflower recall,workforce reduction actions in Frozen Fruit, which wereare recorded in other expense.
(o)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 and earnings from discontinued operations.
(p)Reflects a fair value adjustment to reduce the contingent consideration obligation related to a prior acquisition of a premium juice business, based on the results for the business in fiscal 2018, which was recorded in earnings from discontinued operations.
(q)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 2016.
(r)Reflects the reversal of previously recognized stock-based compensation related to performance share units granted to certain employees as the performance conditions were not achieved, which was recorded in SG&A expenses and earnings from discontinued operations.
(3) The following table presents a reconciliation of segment operating income/loss and adjusted EBITDA from net earnings (loss), which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (2)(3) to the "Consolidated Results of Operations for Fiscal Years 20202023 and 2019"2022" table regarding the use of this non-GAAP measure). In addition, as described above in
| Continuing | Discontinued | ||||||||
| Operations | Operations | Consolidated | |||||||
| For the year ended | $ | $ | $ | ||||||
| December 31, 2022 | |||||||||
| Net earnings (loss) | 3,881 | (8,722 | ) | (4,841 | ) | ||||
| Income tax expense (benefit) | 896 | (16,154 | ) | (15,258 | ) | ||||
| Interest expense, net | 13,156 | 1,578 | 14,734 | ||||||
| Depreciation and amortization | 23,047 | 14,626 | 37,673 | ||||||
| Stock-based compensation | 13,830 | - | 13,830 | ||||||
| Adjusted for: | |||||||||
| Loss on divestiture of discontinued operations(a) | - | 31,468 | 31,468 | ||||||
| Sale of frozen fruit processing facility(b) | - | (2,544 | ) | (2,544 | ) | ||||
| Start-up costs(c) | 6,028 | - | 6,028 | ||||||
| Business development costs(d) | 1,170 | - | 1,170 | ||||||
| Exit from fruit ingredient processing facility(e) | 577 | - | 577 | ||||||
| Other(f) | 1,074 | (202 | ) | 872 | |||||
| Adjusted EBITDA | 63,659 | 20,050 | 83,709 |
| Continuing | Discontinued | ||||||||
| Operations | Operations | Consolidated | |||||||
| For the year ended | $ | $ | $ | ||||||
| January 1, 2022 | |||||||||
| Net earnings (loss) | 5,543 | (6,715 | ) | (1,172 | ) | ||||
| Income tax benefit | (4,854 | ) | (1,574 | ) | (6,428 | ) | |||
| Interest expense, net | 7,552 | 1,217 | 8,769 | ||||||
| Depreciation and amortization | 18,627 | 16,014 | 34,641 | ||||||
| Stock-based compensation | 9,100 | - | 9,100 | ||||||
| Adjusted for: | |||||||||
| Business development costs(d) | 6,209 | - | 6,209 | ||||||
| Exit from fruit ingredient processing facility(e) | 5,504 | - | 5,504 | ||||||
| Exit from frozen fruit processing facility(h) | - | 1,432 | 1,432 | ||||||
| Facility closure costs(i) | 1,063 | - | 1,063 | ||||||
| Start-up costs(c) | 745 | - | 745 | ||||||
| Workforce reduction charges(j) | - | 499 | 499 | ||||||
| Other(f) | 47 | 214 | 261 | ||||||
| Adjusted EBITDA | 49,536 | 11,087 | 60,623 |
(a)-(j) Refer to footnote (2), we have prepared this table in a columnar format to present the effect of discontinued operations on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the financial performance of our continuing operations. above.
| Continuing Operations | Discontinued Operations | Consolidated | ||||||||
| For the years ended | $ | $ | $ | |||||||
| December 28, 2019 | ||||||||||
| Net earnings (loss) | (13,080 | ) | 12,322 | (758 | ) | |||||
| Earnings attributable to non-controlling interests(a) | — | 154 | 154 | |||||||
| Provision for (recovery of) income taxes | (3,101 | ) | 6,322 | 3,221 | ||||||
| Interest expense, net | 32,765 | 1,912 | 34,677 | |||||||
| Other expense (income), net | (40,639 | ) | 591 | (40,048 | ) | |||||
| Total segment operating income (loss) | (24,055 | ) | 21,301 | (2,754 | ) | |||||
| Depreciation and amortization | 29,266 | 4,686 | 33,952 | |||||||
| Stock-based compensation(b) | 10,471 | 1,145 | 11,616 | |||||||
| Costs related to Value Creation Plan(c) | 3,556 | — | 3,556 | |||||||
| Plant expansion costs(d) | 311 | 298 | 609 | |||||||
| Contract manufacturer transition costs(e) | — | 289 | 289 | |||||||
| Adjusted EBITDA | 19,549 | 27,719 | 47,268 | |||||||
| December 29, 2018 | ||||||||||
| Net earnings (loss) | (127,470 | ) | 18,265 | (109,205 | ) | |||||
| Earnings attributable to non-controlling interests(a) | — | 62 | 62 | |||||||
| Provision for (recovery of) income taxes | (13,566 | ) | 8,188 | (5,378 | ) | |||||
| Interest expense, net | 33,121 | 1,285 | 34,406 | |||||||
| Other expense (income), net | 5,242 | (2,417 | ) | 2,825 | ||||||
| Goodwill impairment | 81,222 | — | 81,222 | |||||||
| Total segment operating income (loss) | (21,451 | ) | 25,383 | 3,932 | ||||||
| Depreciation and amortization | 28,159 | 4,629 | 32,788 | |||||||
| Stock-based compensation | 6,773 | 1,166 | 7,939 | |||||||
| Inventory write-downs(f) | 3,101 | — | 3,101 | |||||||
| Equipment start-up costs(g) | 2,730 | 183 | 2,913 | |||||||
| New product commercialization costs(h) | 2,641 | 88 | 2,729 | |||||||
| Costs related to Value Creation Plan(c) | 713 | — | 713 | |||||||
| Recovery of product withdrawal costs(i) | (1,200 | ) | — | (1,200 | ) | |||||
| Adjusted EBITDA | 21,466 | 31,449 | 52,915 | |||||||
(a) Reflects non-controlling interests in the earnings of certain subsidiaries of Tradin Organic, which is included in earnings from discontinued operations.
(b) For 2019, consolidated stock-based compensation of $11.6 million was recorded in SG&A expenses and earnings from discontinued operations, and the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees was recognized in other income.
(c)For 2019, reflects employee retention and relocation costs of $2.2 million, and professional fees of $1.4 million recorded in SG&A expenses. For 2018, reflects the write-down of remaining flexible resealable pouch and nutrition bar inventories of $0.1 million recorded in cost of goods sold; and professional and consulting fees, and employee recruitment and relocation costs of $0.6 million recorded in SG&A expenses.
(d)Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of Tradin Organic's avocado oil facility in Ethiopia, which were recorded in cost of goods sold and earnings from discontinued operations.
(e)Reflects costs related to the transition of Tradin Organic's premium juice production activities to new contract manufacturers, which were recorded in earnings from discontinued operations.
(f)Reflects the write-down of certain frozen fruit inventory items , 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.
(g)Reflects costs related to the start-up of new roasting equipment for grains, seeds and legumes at our Crookston, Minnesota, facility, as well as the start-up of a second processing line at Tradin Organic's cocoa facility in the Netherlands, which were recorded in cost of goods sold and earnings from discontinued operations.
(h)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, SG&A expenses and earnings from discontinued operations.
(i)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 2016.
(4) Refer to footnote (4) to the "Consolidated Results of Operations for Fiscal Years 20202023 and 2019"2022" table regarding the use of certain other non-GAAP measures in the discussion of our results of operations below.
| SUNOPTA INC. | 33 | December 30, 2023 Form 10-K |
Revenues for the year ended December 28, 2019 decreased31, 2022 increased by 8.0%19.1% to $721.6$591.4 million from $784.0$496.5 million for the year ended January 1, 2022. The change in revenues from 2021 to 2022 was due to the following:
| $ | % | |||||
| 2021 revenues | 496,455 | |||||
| Price | 52,403 | 10.6% | ||||
| Volume/Mix | 64,855 | 13.1% | ||||
| Acquisition of Dream and West Life brands | 3,735 | 0.8% | ||||
| Rationalization of fruit-based ingredients | (26,053 | ) | -5.2% | |||
| 2022 revenues | 591,395 | 19.1% |
Note: percentages may not add due to rounding.
For the year ended December 31, 2022, the 19.1% increase in revenues reflected a 10.6% increase in pricing, a favorable volume/mix impact of 13.1%, and 0.8% of incremental revenue in the first quarter of 2022 related to the acquisition of the Dream and West Life brands in April 2021, partially offset by the impact of the rationalization of lower-margin fruit-based ingredients in July 2021. The increase in pricing was driven by pricing actions taken with customers to offset inflationary cost increases, while volume/mix was favorable mainly due to growth from our oat-based product offerings, almond beverages, and teas, together with strong demand for fruit snacks and the introduction of smoothie bowls, partially offset by lower broth demand.
Gross profit increased $18.6 million, or 22.9%, to $99.7 million for the year ended December 29, 2018.31, 2022, compared with $81.1 million for the year ended January 1, 2022. Gross margin for the year ended December 31, 2022 was 16.9% compared to 16.3% for the year ended January 1, 2022, an increase of 60 basis points.
For the year ended December 31, 2022, we incurred start-up costs included in cost of goods sold of $5.8 million (1.0% gross margin impact) mainly related to our new plant in Midlothian, Texas, and integration of the acquired Dream and West Life brands, compared with $0.7 million (0.1% gross margin impact) of start-up costs incurred for the year ended January 1, 2022. Excluding the impact on revenuesof these costs, adjusted gross margin for the year ended December 31, 2022 was 17.8% compared to 16.5% for the year ended January 1, 2022, an increase of 130 basis points. See footnote (1) to the "Consolidated Results of Operations for Fiscal Years 2022 and 2021" table for a reconciliation of adjusted gross margin from gross margin calculated in accordance with U.S. GAAP.
The 130-basis point increase in adjusted gross margin reflected the benefit of the salerationalization of fruit-based ingredients beginning in the soysecond half of 2021, including the closure of our fruit ingredient processing facility, together with higher production volumes and corn business in 2019 and the exit from flexible resealable pouch and nutrition bar product lines in 2018 (a decrease in revenues of $97.2 million), a profit-neutral change to a co-manufacturing agreement with a customer (a decrease in revenues of $9.8 million), and changes in commodity-related pricing (an increase in revenues of $7.2 million), revenues increased by 5.5% in 2019, compared with 2018. The increase in revenues on an adjusted basis reflected the expansion ofplant utilization within our plant-based beverage and broth offerings and growth in plant-based ingredient extraction volumes,fruit snack operations. These factors were partially offset by declines in sales volumes for frozen fruit, netthe dilutive effect of pass-through pricing to recover cost inflation on raw materials and packaging, together with the impacts of higher labor and utility costs, increased pricing,inventory reserves, and reduced demand for fruit ingredients. higher depreciation expense.
Gross profit decreased $5.0Operating income increased $9.7 million or 7.1%, to $65.5$17.9 million for the year ended December 28, 2019,31, 2022, compared with $70.5$8.2 million for the year ended January 1, 2022. The increase in operating income reflected higher gross profit, as described above, together with lower facility closure and employee severance costs related to the exit from our former fruit ingredient processing facility in 2021. These factors were partially offset by higher employee compensation costs, including incremental 2022 incentive plan accruals based on performance, and a one-time bonus of $1.6 million recognized in the first quarter of 2022 to reward employees for improved performance, partially offset by lower business development costs.
(Further details on the changes in revenue, gross profit and operating income are provided in the rollforward tables below.)
Net interest expense increased by $5.6 million to $13.2 million for the year ended December 29, 2018. As a percentage of revenues, gross profit31, 2022, compared with $7.6 million for the year ended December 28, 2019 was 9.1% compared to 9.0% for the year ended December 29, 2018,January 1, 2022, reflecting an increase in outstanding debt to finance capital expansion projects and fund working capital requirements, together with the impact of 10 basis points. higher interest rates. Interest expense capitalized as part of the construction cost of property, plant and equipment was $1.2 million in 2022 and immaterial 2021.
Gross profit for the Plant-Based Foods and Beverages segment increased $18.3We recognized income tax expense of $0.9 million to $58.8on pre-tax earnings from continuing operations of $4.8 million for the year ended December 28, 2019,31, 2022, compared with $40.5an income tax benefit of $4.9 million on pre-tax earnings from continuing operations of $0.7 million for the year ended December 29, 2018, and gross profit as a percentage of revenues increased to 16.3% in 2019 from 12.9% in 2018. For 2019, the gross profit percentage would have been 16.4%, excluding plant expansion costs of $0.3 million, compared with a gross profit percentage of 14.5% for 2018, excluding equipment start-up and product introduction costs of $5.1 million. The increase in the gross profit percentage on an adjusted basisJanuary 1, 2022, which reflected the favorable impactrecognition of higher sales and production volumes of plant-based beverages, broths and plant-based ingredients, together with improved plant utilization and productivity-driven cost savings.
Gross profit forexcess tax benefits on the Fruit-Based Foods and Beverages segment decreased $15.2 million to $6.5 million for the year ended December 28, 2019, compared with $21.7 million for the year ended December 29, 2018, and gross profit as a percentage of revenues decreased to 1.9% in 2019 from 5.9% in 2018. For 2018, the gross profit percentage would have been 6.5%, excluding $3.1 million of inventory write-downs for certain frozen fruit inventory items, partially offset by the recovery of $1.2 million of previously incurred product withdrawal costs from a third-party supplier. The decline in the gross profit percentage on an adjusted basis was largely due to the impact of a shortfall of frozen strawberry supply in 2019 due to poor weather conditions in both central Mexico and California, which resulted in higher fruit purchase prices and reduced production volumes and related inefficiencies for our frozen fruit operations. The negative impact to gross profit from the strawberry shortfall was estimated to be approximately $17.7 million in 2019.
Gross profit for the Global Ingredients segment was $0.2 million for the year ended December 28, 2019, compared with $8.3 million for the year ended December 29, 2018, reflecting the sale of the soy and corn business in February 2019.
For the year ended December 28, 2019, we realized a total segment operating loss of $24.1 million, compared with a loss of $21.5 million for the year ended December 29, 2018, which reflected lower overall gross profit, as described above, partially offset by a $1.9 million reduction SG&A expenses. The decline in SG&A expenses reflected the elimination of expenses associated with the sale of the soy and corn business, together with workforce reductions and other cost-saving initiatives taken in 2019, partially offset by increased stock-based compensation costs related to the adoption of an equity-based bonus plan in 2019 ($3.7 million), together with higher third-party professional fees and employee recruitment, relocation and retention costs associated with the Value Creation Plan ($2.9 million).
Further details on revenues, gross profit and segment operating income/loss variances are provided below under "Segmented Operations Information."
Other income of $40.6 million for the year ended December 28, 2019 mainly reflected a pre-tax gain on sale of the soy and corn business of $44.0 million, the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees, and legal settlement and project cancellation gains of $3.1 million. These other income amounts were offset mainly by employee termination and recruitment costs of $9.7 million associated with the Value Creation Plan, including costs related to our new CEO and CFO appointments, sale of the soy and corn business, and corporate office restructuring. Other expense of $5.2 million for the year ended December 29, 2018, mainly reflected a bad debt reserve of $2.2 million for notes receivable associated with a previously sold business, facility closure costs and asset impairment charges of $1.3 million related to the closure of our nutrition bar facility and the sale of our former roasted snack facility, together with $0.4 million of associated employee termination costs, as well as $1.5 million of product withdrawal and recall costs.
In 2018, we recognized a non-cash impairment charge of $81.2 million to write-off the remaining goodwill related to our frozen fruit operation. This charge was recorded in the Fruit-Based Foods and Beverages segment.
Net interest expense decreased by $0.4 million to $32.8 million for the year ended December 28, 2019, compared with $33.1 million for the year ended December 29, 2018. Interest expense included the amortization of debt issuance costs of $2.7 million and $2.5 million in 2019 and 2018, respectively.
We recognized a recovery of income tax of $3.1 million for the year ended December 28, 2019, compared with a recovery of $13.6 million for the year ended December 29, 2018. Excluding the impactvesting of stock-based compensation, goodwill impairment and other non-deductible amounts from pre-tax earnings, our effective tax rate was 31.3% in 2019, compared with 27.5% in 2018.awards.
| SUNOPTA INC. | December 30, 2023 Form 10-K |
LossEarnings from continuing operations for the year ended December 28, 2019 was $13.131, 2022 were $3.9 million, which was inclusive of the $44.0 million gain on the sale of the soy and corn business, compared with a loss of $127.5$5.5 million for the year ended December 29, 2018, which was inclusive of the $81.2 million goodwill impairment.January 1, 2022. Diluted lossearnings per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.24were $0.01 for each of the years ended December 31, 2022 and January 1, 2022.
We recognized a loss from discontinued operations of $8.7 million (diluted loss per share of $0.08) for the year ended December 28, 2019,31, 2022, compared with a loss of $6.7 million (diluted loss per share $1.55of $0.06) for the year ended January 1, 2022. The loss from discontinued operations for the year ended December 29, 2018.
Earnings from31, 2022 included a pre-tax loss on the discontinued operationsdivestiture of Tradin Organic were $12.3Sunflower of $23.2 million, fortogether with an $8.2 million loss on the year ended December 28, 2019, compared with earningssettlement of $18.3 million for the year ended December 29, 2018. Revenues and gross profit of Tradin Organic were $468.4 million and $49.8 million, respectively, for the year ended December 28, 2019, compared with $476.9 million and $52.9 million, respectively, for the year ended December 29, 2018. The year-over-year decrease in revenues reflected reduced commodity pricing and an unfavorable foreign exchange impact on euro-denominated sales, partially offset by increased volumes for certain organic ingredients. The year-over-year decrease in gross profit reflected reduced pricing spreads for certain organic ingredients, manufacturing inefficiencies within Tradin Organic’s cocoa and sunflower processing operations, and start-up costspurchase price allocation related to the 2020 divestiture of our global ingredients business, Tradin Organic’s organic avocado oil facility, partially offset by a favorable foreign exchange result in 2019Organic. Before the losses on raw material purchase contracts. In addition,divestitures, earnings from discontinued operations were $6.6 million in 2022, compared with a loss of $8.3 million in 2021, which reflected an improved margin profile for 2018 includedFrozen Fruit in 2022 from portfolio rationalizations, a gain of $2.8 million related to the reduction in the remaining contingent consideration obligation that arose from a prior acquisition of a premium juice business.reduced manufacturing cost base, and higher pricing for retail customers.
On a consolidated basis, weWe realized a loss attributable to common shareholders of $8.8$8.0 million (diluted loss per share of $0.10)$0.07) for the year ended December 28, 2019,31, 2022, compared with a loss attributable to common shareholders of $117.1$5.4 million (diluted loss per share of $1.34)$0.05) for the year ended January 1, 2022. The loss attributable to common shareholders included dividends and accretion on preferred stock of $3.1 million and $4.2 million in 2022 and 2021, respectively. The decline in preferred stock dividends and accretion reflected the exchange of all of the shares of Series A preferred stock for shares of our common stock in February 2021. Outstanding preferred stock since February 2021 consists entirely of our Series B-1 preferred stock.
On a consolidated basis, adjusted earnings for the year ended December 29, 2018.
For the year ended December 28, 2019, adjusted loss was $32.731, 2022 were $9.0 million, or $0.37 per diluted share, on a consolidated basis, compared with an adjusted loss of $24.5 million, or $0.28 per diluted share, on a consolidated basis for the year ended December 29, 2018. For the year ended December 28, 2019, adjusted loss from continuing operations was $45.5 million, or $0.52$0.08 earnings per diluted share, compared with an adjusted loss from continuing operationsearnings of $41.1$4.5 million, or $0.47$0.04 earnings per diluted share, for the year ended January 1, 2022. For the year ended December 29, 2018. 31, 2022, adjusted earnings from continuing operations were $7.3 million, or $0.07 earnings per diluted share, compared with adjusted earnings of $9.9 million, or $0.09 earnings per diluted share, for the year ended January 1, 2022.
AdjustedOn a consolidated basis, adjusted EBITDA increased $23.1 million, or 38.1%, for the year ended December 28, 2019 was $47.331, 2022 to $83.7 million, on a consolidated basis, compared with $52.9$60.6 million on a consolidated basis for the year ended December 29, 2018.January 1, 2022. Adjusted EBITDA from continuing operations for the year ended December 28, 2019 was $19.5increased $14.1 million, compared with $21.5or 28.5%, to $63.7 million for the year ended December 29, 2018. 31, 2022, compared with $49.5 million for the year ended January 1, 2022.
Adjusted earnings (loss) and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the "Consolidated Results of Operations for Fiscal Years 2022 and 2021" table above for a reconciliation of adjusted lossearnings (loss) and adjusted EBITDA from net earnings/loss,earnings (loss), which we consider to be the most directly comparable U.S. GAAP financial measure.
Segmented Operations InformationRollforward of Revenue, Gross Profit and Operating Income
| Plant-Based Foods and Beverages | December 28, 2019 | December 29, 2018 | Change | % Change | ||||||||||||||||||||
| For the year ended | December 31, 2022 | January 1, 2022 | Change | % Change | ||||||||||||||||||||
| Revenues | $ | 361,398 | $ | 314,076 | $ | 47,322 | 15.1% | $ | 591,395 | $ | 496,455 | $ | 94,940 | 19.1% | ||||||||||
| Gross profit | 58,812 | 40,477 | 18,335 | 45.3% | 99,730 | 81,144 | 18,586 | 22.9% | ||||||||||||||||
| Gross profit % | 16.3% | 12.9% | 3.4% | |||||||||||||||||||||
| Gross margin | 16.9% | 16.3% | 0.6% | |||||||||||||||||||||
| Operating income | $ | 29,476 | $ | 10,766 | $ | 18,710 | 173.8% | $ | 17,933 | $ | 8,241 | $ | 9,692 | 117.6% | ||||||||||
| Operating income % | 8.2% | 3.4% | 4.8% | |||||||||||||||||||||
| Operating margin | 3.0% | 1.7% | 1.3% | |||||||||||||||||||||
| SUNOPTA INC. | 35 | December 30, 2023 Form 10-K |
Revenues
Plant-Based Foods and Beverages contributed $361.4The table below explains the $94.9 million increase in revenues from $496.5 million for the year ended December 28, 2019, comparedJanuary 1, 2022 to $314.1$591.4 million for the year ended December 29, 2018, an increase of $47.3 million, or 15.1%. Excluding the impact on revenues of a profit-neutral change to a co-manufacturing agreement with a customer (a decrease in revenues of $9.8 million), sales of flexible resealable pouch and nutrition bar products (a decrease in revenues of $3.1 million), and changes in sunflower commodity-related pricing (an increase in revenues of $3.6 million), Plant-Based Foods and Beverages revenues increased approximately 18.2%. The table below explains the increase in reported revenues:31, 2022:
| Benefit of pricing actions taken to offset input cost inflation, together with sales volume growth for oat-based product offerings, almond beverages, and teas, partially offset by lower broth demand | 88,417 | |
| Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls | 28,841 | |
| Incremental revenue in the first quarter of 2022 related to the acquisition of the Dream and West Life brands in April 2021 | 3,735 | |
| Impact of the rationalization of fruit-based ingredients in 2021 | (26,053) | |
| Revenues for the year ended December | $ | |
Gross Profit
GrossThe table below explains the $18.6 million increase in gross profit in Plant-Based Foods and Beverages increased by $18.3from $81.1 million for the year ended January 1, 2022 to $58.8$99.7 million for the year ended December 28, 2019, compared to $40.5 million for the year ended December 29, 2018, and the gross profit percentage increased by 340 basis points to 16.3%. The increase in the gross profit percentage reflected strong production volumes, improved plant utilization and productivity-driven cost savings within our plant-based beverage and ingredient extraction operations. The table below explains the increase in gross profit:31, 2022:
| $81,144 | |
| Higher volumes and pricing for plant-based beverages and ingredients, including the incremental contribution in the first quarter of 2022 from the acquisition of the Dream and West Life brands in April 2021, partially offset by higher manufacturing plant spend due to inflationary pressures on wage costs and utility rates, together with higher inventory reserves, and incremental depreciation of new production equipment for capital expansion projects | 14,818 |
| Impact of the rationalization of fruit-based ingredients in 2021, including the closure of our fruit ingredient processing facility | 4,407 |
| Higher sales volumes and pricing for fruit snacks, together with increased production volumes and plant efficiencies in our fruit snack operations | 4,394 |
| Increase in start-up costs related to our new plant in Midlothian, Texas, together with the integration of the Dream and West Life brands | (5,033) |
| Gross profit for the year ended December | $ |
| SUNOPTA INC. | ||
Operating Income
OperatingThe table below explains the $9.7 million increase in operating income in Plant-Based Foods and Beverages increased by $18.7from $8.2 million for the year ended January 1, 2022 to $29.5$17.9 million for the year ended December 28, 2019, compared to $10.8 million for the year ended December 29, 2018. The table below explains the increase in operating income:31, 2022:
| $8,241 | ||
| Increase in gross profit, as explained above | 18,586 | |
| Decrease in facility closure and employee severance costs related to the exit from our former fruit ingredients processing facility in 2021 | 5,094 | |
| Higher employee compensation costs, including incremental 2022 incentive plan accruals based on improved performance, together with costs related to our inaugural 2022 Investor Day, partially offset by lower business development costs | (9,258) | |
| Higher variable stock-based compensation expense based on improved performance | (4,730) | |
| Operating income for the year ended December | $ | |
| Fruit-Based Foods and Beverages | December 28, 2019 | December 29, 2018 | Change | % Change | ||||||||
| Revenues | $ | 349,852 | $ | 365,469 | $ | (15,617 | ) | -4.3% | ||||
| Gross profit | 6,499 | 21,744 | (15,245 | ) | -70.1% | |||||||
| Gross profit % | 1.9% | 5.9% | -4.0% | |||||||||
| Operating loss | $ | (26,873 | ) | $ | (16,029 | ) | $ | (10,844 | ) | -67.7% | ||
| Operating loss % | -7.7% | -4.4% | -3.3% |
Fruit-Based Foods and Beverages contributed $349.9 million in revenues for the year ended December 28, 2019, compared to $365.5 million for the year ended December 29, 2018, a decrease of $15.6 million, or 4.3%. Excluding the impact on revenues of changes in raw fruit commodity-related pricing (an increase in revenues of $3.6 million), Fruit-Based Foods and Beverages revenues decreased approximately 5.3%. The table below explains the decrease in reported revenues:
Gross profit in Fruit-Based Foods and Beverages decreased by $15.2 million to $6.5 million for the year ended December 28, 2019, compared to $21.7 million for the year ended December 29, 2018, and the gross profit percentage decreased by 400 basis points to 1.9%. The decrease in the gross profit percentage primarily reflected the impact of higher commodity pricing for frozen fruit due to the shortage of strawberries, together with unfavorable production variances within our frozen fruit operations due to lower plant utilization and rework of bulk inventories to meet customer demand, together with lower volumes and plant utilization for fruit ingredients. The weather-related impact to gross profit from frozen fruit was estimated to be approximately $17.7 million in 2019, or approximately a negative 5% impact on the gross profit percentage. These factors were partially offset by strong production volumes and productivity-driven cost savings within our fruit snacks operations. The table below explains the decrease in gross profit:
Operating loss in Fruit-Based Foods and Beverages increased by $10.8 million to $26.9 million for the year ended December 28, 2019, compared to $16.0 million for the year ended December 29, 2018. The table below explains the increase in operating loss:
| Global Ingredients | December 28, 2019 | December 29, 2018 | Change | % Change | ||||||||
| Revenues | $ | 10,346 | $ | 104,427 | $ | (94,081 | ) | -90.1% | ||||
| Gross profit | 192 | 8,310 | (8,118 | ) | -97.7% | |||||||
| Gross profit % | 1.9% | 8.0% | -6.1% | |||||||||
| Operating income (loss) | $ | (187 | ) | $ | 2,245 | $ | (2,432 | ) | -108.3% | |||
| Operating income (loss) % | -1.8% | 2.1% | -0.7% |
The table below explains the decrease in reported revenues in Global Ingredients:
The table below explains the decrease in gross profit in Global Ingredients:
The table below explains the decrease in operating income in Global Ingredients:
| Corporate Services | December 28, 2019 | December 29, 2018 | Change | % Change | ||||||||
| Operating loss | $ | (26,471 | ) | $ | (18,433 | ) | $ | (8,038 | ) | -43.6% |
Operating loss at Corporate Services increased by $8.0 million to $26.5 million for the year ended December 28, 2019, compared to a loss of $18.4 million for the year ended December 29, 2018. The table below explains the increase in operating loss:
Liquidity and Capital Resources
In conjunction withUtilizing the net cash proceeds from the divestiture of Tradin Organic,Frozen Fruit, we reducedwere able to reduce our debt by approximately $355$78 million includingin the redemptionfourth quarter of 2023. The divestiture of the commodity-based frozen fruit business also serves to significantly reduce our working capital needs, particularly in the first half of $223.5each fiscal year due to crop inventory builds. As a result, on December 8, 2023, we refinanced and extended our credit facilities with our existing syndicate of lenders to provide a structure that aligns with our more capital efficient value-add business model and the significant capital investments we have made in recent years.
The New Credit Agreement provides for a $180.0 million outstanding principal amountterm loan credit facility (the "New Term Loan Credit Facility") and an $85.0 million revolving credit facility (the "New Revolving Credit Facility") (collectively, the "New Credit Facilities"). We used initial proceeds from the New Credit Facilities of $141.9 million to repay in full the amounts owing under our second lien notesformer asset-based revolving and repaymentterm loan credit facilities, and $56.0 million to repay and terminate certain finance lease obligations. The New Credit Facilities have a term of approximately $132five years and replace the former asset-based credit facilities. As at December 30, 2023, the $180 million New Term Loan Credit Facility was fully drawn and we had utilized $37.7 million of the outstanding borrowings under our former Global Credit Facility. Together with our entry into a new five-year credit agreement (discussed below), the reduction in our indebtedness significantly improves our leverage and provides financial flexibility for future operating and investing needs, including our plans to expand our plant-based beverage platform. In addition, the retirement of the second lien notes results in cash interest savings of approximately $21$85 million on an annual basis.
On December 31, 2020, we entered into a five-year credit agreement for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $250 million, subject to borrowing base capacity. In addition, the credit agreement provides a five-year, $75 million delayed draw term loan, to be used for capital expenditures. The delayed draw term loan can be borrowed within 18 months from closing. The new credit facility replaces our previous GlobalNew Revolving Credit Facility, that was set to expire on March 31, 2022, and will be used to support our operational objective and capital expenditures for the next five years, as well as our working capital and general corporate needs. As at January 2, 2021, we had outstanding borrowings of $47.3including $5.9 million and available borrowing capacity of approximately $116 million under the revolving credit facility, after giving effect to $10.3 million of outstandingin letters of credit, and the weighted-average interest rate on all borrowings under the revolving credit facility was 2.42%.
credit. For more information on the new credit agreement,our New Credit Facilities, including maturity dates, see note 14(1)10 to the consolidated financial statements atincluded in Item 15 of this Form 10-K.
On October 7, 2016,In connection with our U.S. subsidiary, SunOpta Foods Inc. ("SunOpta Foods"), issued 85,000 sharesefforts to extend payment terms with our major suppliers to enhance cash flows, we are financing certain purchases of Series A Preferred Stock (the "Series A Preferred Stock")goods and services through extended payables facilities, by which third-party intermediaries settle the supplier invoice on the contractual due date and issue us a short-term note payable for $85.0 million. On February 22, 2021, funds managed by Oaktree Capital Management, L.P., the holdersface amount of the Series A Preferred Stock, exchangedinvoice, which we repay, together with interest, at a later date. For the year ended December 30, 2023, we had principal borrowings of $102.0 million under these facilities, of which $17.6 million principal amount remained outstanding as at December 30, 2023. With the flexibility provided by our New Credit Facilities, our intention is to reduce our reliance on these facilities in 2024 and to settle all of their shares of Series A Preferred Stock for 12,633,427 sharesremaining outstanding notes payable.
From time to time, as part of our common stock, representing 12.3%ongoing efforts to improve working capital efficiency, we utilize, at our sole discretion, supply chain finance ("SCF") programs offered by some of our issued and outstanding common sharesmajor customers that allows us to sell our receivables from the customers to such customers' financial institutions, on a post-exchange basis. The numbernon-recourse basis, in order to be paid earlier than our payment terms with the customer provide at a discount rate that leverages those customers' favorable credit ratings. Utilizing our customers' SCF programs reduces our accounts receivable balances, improves our cash flows, and reduces the cost of common shares issuedservicing these receivables with our revolving credit facility. All operating cash flows from accounts receivable are reported consistently in exchange for the Series A Preferred Shares was determined by dividing the aggregate liquidation preferenceour consolidated statements of the Series A Preferred Stockcash flows regardless of $88,434,000 by the exchange price of $7.00. Following the exchange,whether they are associated with a SCF program.
As at December 30, 2023, we will no longer be required to pay the 8.0% per year dividend on the Series A Preferred Stock, representinghad approximately $7.1$86.3 million of annual dividend savings.purchase commitments related to inventories to be used in our production processes over the next 12 months, which we intend to fund through operating cash flows, supplemented from time to time with short-term borrowings under our New Revolving Credit Facility.
| SUNOPTA INC. | December 30, 2023 Form 10-K |
On April 24, 2020, SunOpta Foods issued 30,000 shares of Series B-1 Preferred Stock (the "Series B-1 Preferred Stock") for $30.0 million. The Series B-1 Preferred Stock currently has a liquidation preferenceWe estimate additional capital expenditures in 2024 of approximately $1,015 per share$15 million for other discretionary investments in growth and is exchangeable into shares of our common stock at an exchange price of $2.50 per share. Cumulative preferred dividends accrue daily on the Series B-1 Preferred Stock at an annualized rate of 8.0% of the liquidation preference priorproductivity projects, and approximately $10 million to September 30, 2029, which presently equates to quarterly dividend distributions of approximately $0.6 million, and 10.0% of the liquidation preference thereafter.
For more information on the Series A and Series B-1 Preferred Stock, see note 15 to the consolidated financial statements at Item 15 of this Form 10-K.
We have commitments under certain master lease agreements that provide for up to approximately $45$15 million of financing in the aggregate related tonon-discretionary maintenance projects. We also anticipate the addition of new plant-based beverage andapproximately $25 million of finance lease right-of-use assets related to an expansion of our ingredient extraction processing and packaging equipment. Asoperations at January 2, 2021, approximately $40 million of theour Modesto, California, facility. For 2024, our estimated capital expenditures directly related finance leases hadto environmental projects are not commenced. The assets underlying these leases are expected to be available for use in 2021.material. We intend to fund our cash capital expenditures using operating cash flows and the New Revolving Credit Facility.
We believe that our operating cash flows, including the selective use of customer SCF programs to improve collection terms, together with our new revolvingNew Credit Facilities and term loan facilities,access to committed lease financing, will be adequate to meet our operating, investing, and financing needs infor the foreseeable future.future, including the 12-month period following the issuance of our financial statements. However, in order to finance significant investments in our existing businesses, or significant business 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. There can be no assurance that these types of financing would be available at all or, if so, on terms that are acceptable to us. In addition, we may explore the sale of selected non-core businessesoperations or assets from time to time to improve our profitability, reduce our indebtedness, and/or improve our position to obtain additional financing.
Cash Flows
Summarized cash flow information for the years ended December 30, 2023, December 31, 2022 and January 1, 2022 is as follows:
| Change | |||||||||||||||
| December 30, 2023 | December 31, 2022 | January 1, 2022 | 2022 to 2023 | 2021 to 2022 | |||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| Net cash flows provided by (used in): | |||||||||||||||
| Continuing operations: | |||||||||||||||
| Operating activities | 3,575 | 30,746 | 38,207 | (27,171 | ) | (7,461 | ) | ||||||||
| Investing activities | (46,519 | ) | (120,957 | ) | (77,390 | ) | 74,438 | (43,567 | ) | ||||||
| Financing activities | (48,337 | ) | 96,534 | 52,762 | (144,871 | ) | 43,772 | ||||||||
| Discontinued operations | 99,356 | (5,871 | ) | (13,603 | ) | 105,227 | 7,732 | ||||||||
Operating Cash Flows fromActivities of Continuing Operations
Cash provided by operating activities of continuing operations was $52.7decreased $27.2 million for the year ended January 2, 2021, compared with cash used of $17.0 million for the year ended December 28, 2019, an increase in cash provided of $69.7 million,from 2022 to 2023, which reflected the period-over-period increase inimpact of start-up costs related to our operating results, including the growth in our plant-based operationsMidlothian, Texas, facility, higher cash interest expense on borrowings to finance capital expenditures, and improved performance in our frozen fruit operations, together with working capital improvements in 2020unrecovered product withdrawal and cost savings from headcount reductions and other measures taken in 2019.recall costs.
Cash used inprovided by operating activities of continuing operations was $17.0decreased $7.5 million for the year ended December 28, 2019, compared with cash provided of $6.0 million for the year ended December 29, 2018,from 2021 to 2022, which reflected an increase in cash used of $23.0 million. The decreasenet working capital in cash provided reflected a decline in the profitability of our frozen fruit operations2022, due to the shortfalltiming of frozen strawberry supplypayables and higher inventory levels to support the growth in 2019, and an increaseour fruit snacks operations, partially offset by improved operating performance in cash payments for costs incurred under the Value Creation Plan in 2019, together with reduced working capital efficiency.2022.
Investing Cash Flows fromActivities of Continuing Operations
Cash used in investing activities of continuing operations relateddecreased $74.4 million from 2022 to capital expenditures was $24.8 million for the year ended January 2, 2021,2023, which reflected spending on the completion of certain major capital projects, including the construction of our new plant-based beverage and ingredient expansion projects, together with the addition of new automation at our frozen fruit facilities, compared with capital expenditures of $28.4 million for the year ended December 28, 2019. The year-over-year decreasefacility in capital expenditures reflect an increased use of leasing arrangements to support certain capital projects. In 2020, we paid $12.7 million to settle the foreign currency economic hedge of the cash consideration from the sale of Tradin Organic. Net proceeds from the sale of the soy and corn business were $63.3 million in 2019.Midlothian, Texas.
Excluding net proceeds from the sale of the soy and corn business of $63.3 million, cashCash used in investing activities of continuing operations was $28.4increased $43.6 million forfrom 2021 to 2022, reflecting the year ended December 28, 2019, comparedramp-up of construction activities at the Midlothian facility, together with cash used of $24.0 million for the year ended December 29, 2018, an increase in cash used of $4.4 million. Cash used in 2018 related to capital expenditures to expand our plant-based beverage capacity and increase automation in our frozen fruit operations. Cash used in 2018 reflected capital expenditures of $26.9 million, related to the expansioncompletion of our plant-based beverage, roasted snackexecutive office and frozen fruit processing capabilities, together with company-wide information technology enhancements, partially offset by $2.7innovation center in Eden Prairie, Minnesota in 2022. In addition, investing cash outflows in 2021 included $25.1 million frompaid to acquire the sale of non-core businessesDream and West Life brand name intangible assets.
| SUNOPTA INC. | December 30, 2023 Form 10-K |
Financing Cash Flows fromActivities of Continuing Operations
Cash used in financing activities of continuing operations was $386.6increased $144.9 million for the year ended January 2, 2021, compared with cash used of $18.6 million for the year ended December 28, 2019, an increase in cash used of $368.0 million,from 2022 to 2023, which reflected the repayment of approximately $355$78 million of indebtednessdebt following the saledivestiture of Tradin Organic,Frozen Fruit in 2023, together with other reductionsreduced levels of new borrowings in revolver borrowings through cash generated from operations and use of2023 as major capital projects, including the net proceeds of $26.8 million from the issuance of Series B-1 Preferred Stock in 2020. Midlothian facility, were completed.
Cash used inprovided by financing activities of continuing operation was $18.6operations increased $43.8 million for the year ended December 28, 2019, compared with cash provided of $17.8 million for the year ended December 29, 2018, an increase in cash used of $36.4 million,from 2021 to 2022, which mainly reflected the use of the net proceeds from the sale of the soy and corn business to repay revolverhigher borrowings in 2019.2022 to fund the ramp-up in construction activities related to major capital projects.
Cash Flows from Discontinued Operations
Net cash provided by discontinued operations was $369.9increased $105.2 million forfrom 2022 to 2023, which mainly reflected net cash consideration of approximately $92 million received from the year ended January 2, 2021,divestiture of Frozen Fruit in the fourth quarter of 2023, compared with netcash paid of $6.3 million in 2022 to settle the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of Tradin Organic.
Net cash used of $1.1in discontinued operations decreased $7.7 million for the year ended December 28, 2019, an increase in net cash provided of $371.0 million,from 2021 to 2022, which reflected the cash consideration received from$6.3 million settlement of the sale of Tradin Organic togetherclosing matters in 2022, compared with an improved operating performance bythe payment of $13.4 million of transaction costs in 2021 related to the Tradin Organic and reduced inventories of organic ingredients, offset by the repayment of revolver borrowings. divestiture.
Net cash used by discontinued operations was $1.1 million for the year ended December 28, 2019, compared with net cash provided of $0.3 million for the year ended December 29, 2018, an increase in net cash used of $1.4 million, which reflected the net effect of a repayment of revolver borrowings in 2019 through the reduction of inventories of organic ingredients, compared with an increase in revolver borrowings in 2018 to support the expansion of Tradin Organic's cocoa processing operations.
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 January 2, 2021:
| Payments due by Period | |||||
| Total | 2021 | 2022-2023 | 2024-2025 | Thereafter | |
| $ | $ | $ | $ | $ | |
| Long-term debt | 72,679 | 4,219 | 11,494 | 55,127 | 1,839 |
| Interest on long-term debt(1) | 5,890 | 1,314 | 2,288 | 2,288 | — |
| Purchase commitments(2) | 97,305 | 97,305 | — | — | — |
| Operating leases | 42,981 | 13,084 | 18,095 | 8,189 | 3,613 |
| Long-term liabilities | 200 | 200 | — | — | — |
| 219,055 | 116,122 | 31,877 | 65,604 | 5,452 | |
(1)Interest on long-term debt is calculated based on scheduled repayments over the periods as indicated, using applicable interest rates at January 2, 2021.
(2)Purchase obligations primarily represent open purchase orders for raw materials used in our production processes.
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 controlLoss on Divestiture 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 a 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. Frozen Fruit
ConsiderationThe estimated aggregate purchase price recognized in connection with the divestiture of Frozen Fruit is typically determinedsubject to post-closing adjustments based on a fixed unit pricedetermination of the final net working capital as of the closing date of the transaction on October 12, 2023. As at December 30, 2023, we recognized a $0.5 million post-closing adjustment based on our estimate of the final net working capital allocation, which is recognized as part of the loss from discontinued operations in the consolidated statement of operations for the quantity of product transferred. Certain of our revenue contractsyear ended December 30, 2023. This estimate may give risebe subject to an element of variable considerationchange, which could be material, as the parties are currently in the formprocess of rebates or discounts; however, variable consideration has historically been immaterialreconciling the final aggregate purchase price, including the resolution of certain disputed items, in accordance with the procedures set forth in the contextAsset Purchase Agreement. A change in the aggregate purchase price could have a material impact on our consolidated results 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.operations and financial condition.
Revenue 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.
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 credit losses is provided for as an estimate of losses that could result from customers defaulting on their obligations to us. In assessing the amount of allowance 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 allowance is an estimate, the actual amount collected could differ from the carrying value of the amount receivable. Note 7 of the consolidated financial statements at Item 15 of this Form 10-K provides a summary of the changes in the allowance for credit losses.
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. 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, including expected business plans and market conditions. As a result, the actual amount received on sale could differ from our estimated value of inventory. Note 8 of the consolidated financial statements at Item 15 of this Form 10-K provides a summary of the movements in the inventory reserve.
Leases
Lease assets and liabilities are recognized and measured based on the present value of future lease payments over the lease term. In measuring lease assets and liabilities, critical estimates and assumptions include the amount and timing of the future lease payments based on the expected lease term, and the discount rate to apply to those future lease payments. We generally use initial noncancelable lease term when determining the lease asset and liability. The discount rate used to determine the present value of the future lease payments is the implicit rate in the lease if readily determinable. When that rate is not readily determinable, we use our incremental borrowing rate, which we estimate using relevant interest rate yield curves and credit spreads derived from available market data and our corporate credit rating.
data. See note 106 of the consolidated financial statements atincluded in Item 15 of this Form 10-K for disclosures related to leases.leases, including weighted-average remaining lease terms and discount rates.
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 is tested for impairment at the reporting unit level, which is defined as an operating segment or one level below. Goodwill impairment charges are recognized based on the excess of a reporting unit's carrying amount over its estimated fair value. Long-Lived Assets
We can elect to qualitatively assess goodwill for impairment if it is more likely than not that the fair value of a reporting unit exceeds its carrying value. If we elect to quantitatively assess goodwill, or it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, we estimate the fair values of each of our reporting units. Fair value is 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 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.
For the year ended January 2, 2021 and December 28, 2019, we performed a qualitative assessment of goodwill and determined that the fair values of the Tradin Organic and Fruit Snacks reporting units with goodwill significantly exceeded their carrying values. As a result, we concluded that goodwill was not impaired in 2020 or 2019. Based on the results of quantitative testing performed for the year ended December 29, 2018, we recognized a goodwill impairment charge of $81.2 million (accumulated $196.2 million) to fully write-off the goodwill associated with the Frozen Fruit reporting unit, which is included in the Fruit-Based Foods and Beverages segment.
Intangible Assets
We evaluate amortizablelong-lived assets, comprising property, plant and equipment, intangible assets acquired through business combinationsand operating lease right-of-use assets, 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;asset, the loss of a significant customer;customer, current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset;asset, the introduction of a competing product that results in a significant loss of market share;share, and a current expectation that, more likely than not, an intangiblea long-lived 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.
| SUNOPTA INC. | 39 | December 30, 2023 Form 10-K |
Impairment exists when the carrying amount of an amortizable intangiblea long-lived 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,flow to be generated from the use of the long-lived asset and its eventual disposal, 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 intangiblea long-lived 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.forecasts. In connection with an impairment evaluation, we also reassess the remaining useful life of the intangiblean amortizable long-lived asset and modify it, as appropriate.
Based on our impairment assessment as of December 30, 2023, we did not identify any facts or circumstances that would indicate that the carrying amounts of any of the long-lived assets related to our continuing operations were not recoverable.
Contingencies
We make estimates for payments that are contingent on the outcome of uncertain future events. These contingencies include accrued but unpaid bonuses;bonuses, tax-related matters;matters, product recall-related claims and recoveries, and other claims or litigation. In establishing our estimates, we consider historical experience with similar contingencies and the progress of each contingency, as well as the recommendations of internal and external advisors and legal counsel. We re-evaluate all contingencies as additional information becomes available; however, given the inherent uncertainties, the ultimate amount paid could differ from our estimates.
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Income Taxes
We are liable for income taxes in the U.S., Canada, and Mexico. Our effective tax rate differsmay differ from the statutory tax raterates in the jurisdiction in which we operate and willmay 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 1914 of the consolidated financial statements atincluded in Item 15 of this Form 10-K provides an analysis of the changes in the valuation allowance and the components of our deferred tax assets.
While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could differ from our accrued position. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is provided in note 1 of the consolidated financial statements atincluded in Item 15 of this Form 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 January 2, 2021,December 30, 2023, we had $50.9approximately $212 million of variable rate debt, mainly comprised of our revolving credit facility,New Credit Facilities, and $18.8approximately $53 million principal amount of fixed rate debt, comprised of finance leases.lease obligations. A one percent, or 100 basis-point, change in interest rates would have a pre-tax effect of approximately $0.5$2.1 million on our earningsresults of operations and cash flows, based on current outstanding borrowings of variable rate debt, and the fair value of the fixed-rate finance leaseslease liabilities would increase or decrease by approximately $3.0$0.9 million.
Foreign currency risk
Following the divestiture of Frozen Fruit with its Mexican operations, our remaining operations, assets and customers are principally located in the U.S. 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 currencyand reporting currencies of our smaller Canadian and Mexican operations isare the U.S. dollar. As at January 2, 2021,December 30, 2023, a 10% change in foreign exchange rates would not have a material impact on our consolidated financial position, results of operations, or cash flows.
Our operations based in the In addition, U.S. and CanadaCanadian operations have limited exposure to other currenciesforeign currency transactions since almost all sales and purchases are predominately made in U.S. dollars. Our Mexican operations are exposed to fluctuations in the Mexican peso on purchases of fruit inventory and operating costs in Mexico. As at January 2, 2021, we held a combination of foreign currency put and call option contracts (a zero-cost collar), with a total notional amount of approximately $12 million, to economically hedge our exposure to the Mexican peso. The collar has a ceiling rate of 24.00 Mexican pesos to the U.S. dollar and a floor rate of 21.14 Mexican pesos to the U.S. dollar. If the spot rate is between the ceiling and floor rates on the date of maturity of each of the contracts, then we do not recognize any gain or loss under these contracts. If the spot rate goes below the floor rate of the collar, we will recognize a foreign exchange gain, and if the spot rate goes above the ceiling rate of the collar, we will recognize a foreign exchange loss. As at January 2, 2021, these contracts were marked-to-market resulting in an unrealized gain of $0.8 million.
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Price risk
Certain agricultural commodities and ingredients we use in the production of our products are exposed to market price risk, including fruit varietiesgrains, nuts, sweeteners, and sunflower seeds.flavorings. In addition, other inputs, such as packaging materials, energy, fuel, energy, storage, and freight, are exposed to price fluctuations due to weather conditions, regulations, industry and general U.S. and global economic conditions, energy costs, fuel prices, energy costs, transportation and storage demands, or other factors that are beyond our control. In addition, as described above under "Recent Events," the impacts of global macroeconomic conditions have contributed to higher commodity inflation and input costs over the past few years. We currently do not utilize derivative contracts to hedge our exposure to fluctuations in input prices.
Changes in the prices of our products may lag changes in the costs to produce and ship our products due to contractual limitationrestrictions in our revenue contracts with customers, or competitive pressures. If we are unable to increase our prices to offset increasing costs, our gross margins, operating results, and cash flows could be materially affected.
The consolidated financial statements required by this item are set forth immediately following the signature page to this Form 10-K beginning on page F1 and are incorporated herein by reference.
None.
| SUNOPTA INC. |
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 January 2, 2021.December 30, 2023.
Management's Annual Report on Internal Control Over Financial Reporting
Our managementManagement is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) underfor the Exchange Act.
Our internalCompany. Internal control framework and processes areover financial reporting is a process designed to provide reasonable assurance to management and our Board of Directors regarding the reliability of the Company's financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with accounting principlesUnited States generally accepted in the United States of America.
All internal control systems, no matter how well designed, have inherent limitations.accounting principles. Because of theseits 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. ProjectionsAlso, 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. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Management assessedconducted an evaluation of the effectiveness of ourthe internal control over financial reporting as of January 2, 2021. In making this assessment, management usedDecember 30, 2023, using the criteria set forth by the Committee onof Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-IntegratedControl - Integrated Framework (2013).
Based on its assessment, ourthe evaluation performed, management concluded that our internal control over financial reporting was effective as of January 2, 2021,December 30, 2023 based on those criteria.
The effectiveness of ourOur internal control over financial reporting as of January 2, 2021December 30, 2023 has been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, that also audited our consolidated financial statements for the year ended January 2, 2021, as stated in their reportsits report which appearcontains an unqualified opinion on the effectiveness of our internal control over financial reporting. This report appears herein.
Changes in Internal Control Over Financial Reporting
ThereIn the fourth quarter of 2022, management determined that we had a material weakness in our internal control over financial reporting and disclosure controls and procedures related to the preparation and review of our consolidated income tax provision and recognition of deferred tax assets in our financial statements for the year ended January 1, 2022. During fiscal 2023, we improved our policies and procedures relating to enhancing our disclosure controls and procedures and internal controls related to the accumulation and communication of information necessary to the accurate preparation of our consolidated income tax provision and recognition of deferred tax assets, as well as strengthening our review controls over the reporting of income taxes and our financial statements. During the fourth quarter of 2023, we successfully completed the testing necessary to conclude that the remedial controls are operating effectively, and the material weakness has been remediated.
Except as noted above, there were no changes in our internal control over financial reporting during the quarter ended January 2, 2021December 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| SUNOPTA INC. |
Report of Independent Registered Public Accounting Firm
Opinion on Internal Control overOver Financial Reporting
WeWe have audited SunOpta Inc.'s’s internal control over financial reporting as of January 2, 2021,December 30, 2023, based on criteria established in Internal Control-IntegratedControl—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 January 2, 2021,December 30, 2023, 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 2020 consolidated financialbalance sheets of the Company as of December 30, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the Companythree years in the period ended December 30, 2023 and the related notes and our report dated March 3, 2021February 28, 2024 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 ControlsControl 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.
| SUNOPTA INC. | 43 | December 30, 2023 Form 10-K |
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 AccountantsMinneapolis, Minnesota
Licensed Public AccountantsFebruary 28, 2024
Toronto, Canada
March 3, 2021
None.Insider Trading Arrangements
During the quarter ended December 30, 2023, none of our directors or officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable.
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The information required under this item is incorporated herein by reference to our Definitive Proxy Statement for the 2024 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission not later than 120 days after January 2, 2021December 30, 2023 (the "2021"2024 Proxy Statement").
The information required under this item is incorporated herein by reference from the 20212024 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
The following table provides information as at December 30, 2023, with respect to our common shares that may be issued under the Company's stock incentive and employee share purchase plans:
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||||
| (a) | (b) | (c) | ||||||||
| Equity compensation plans approved by securities holders: | ||||||||||
| 2013 Stock Incentive Plan | 4,545,342 (1 | ) | $ | 6.55(3 | ) | 3,619,054 | ||||
| Employee Stock Purchase Plan | - | 425,566 | ||||||||
| Equity compensation plans not approved by securities holders | 960,061 (2 | ) | $ | 3.36(3 | ) | - | ||||
| Total | 5,505,403 | $ | 5.63(3 | ) | 4,044,620 |
| SUNOPTA INC. | 44 | December 30, 2023 Form 10-K |
(1) Represents common shares of the Company issuable in respect of 2,388,042 stock options, 599,724 restricted stock units and 1,557,576 performance share units granted under the Company's 2013 Stock Incentive Plan.
(2) Represents common shares of the Company issuable in respect of a special one-time grant of stock options in connection with the appointment of Joseph D. Ennen as Chief Executive Officer of the Company on April 1, 2019.
(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.
The information related to the security ownership of certain beneficial owners and management required under this item is incorporated herein by reference from the 2024 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 20212024 Proxy Statement.
The information required under this item is incorporated herein by reference from the 20212024 Proxy Statement.
The information required under this item is incorporated herein by reference from the 2021 Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules
The following documents are being filed as part of this annual report.
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.
Item 16. Form 10-K Summary
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.
EXHIBIT INDEX
| SUNOPTA INC. | 45 | December 30, 2023 Form 10-K |
| Exhibits | Description |
| SUNOPTA INC. | 46 | December 30, 2023 Form 10-K |
| SUNOPTA INC. | 47 | December 30, 2023 Form 10-K |
| XBRL | |
| Inline XBRL Taxonomy Extension | |
| Inline XBRL Taxonomy Extension | |
| Inline XBRL Taxonomy Extension |
| SUNOPTA INC. | 48 | December 30, 2023 Form 10-K |
| Exhibits | Description |
| Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
+ 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. | December 30, 2023 Form 10-K |
SIGNATURES
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.
SUNOPTA INC. |
/s/ Greg Gaba |
|
|
| Chief Financial Officer |
|
Date: |
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 | Title | Date |
/s/ | Chief Executive Officer and Director |
|
/s/ | Chief Financial Officer (Principal Financial and Accounting Officer) |
|
/s/ Dean Hollis Dean Hollis | Chair of the Board and Director |
|
/s/ Albert Bolles | Director |
|
| ||
| /s/ Rebecca Fisher Rebecca Fisher | Director |
|
/s/ Katrina Houde | Director |
|
/s/ Leslie Starr Leslie Starr | Director |
|
/s/ Diego Reynoso | Director |
|
SunOpta Inc.
Index to Consolidated Financial Statements
Page | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | F2 |
| Consolidated Statements of Operations For | |
| Consolidated Statements of Comprehensive For | |
| Consolidated Balance Sheets As | |
| Consolidated Statements of Shareholders' Equity As | |
| Consolidated Statements of Cash Flows For | |
| Notes to Consolidated Financial Statements For the years ended January 2, 2021, December 28, 2019 and December 29, 2018 |
| -F1- |
To the Shareholders and the Board of Directors of SunOpta Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SunOpta Inc. (the "Company")Company) as of January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, the related consolidated statements of operations, comprehensive income (loss),loss, shareholders' equity and cash flows for each of the three years in the period ended January 2, 2021December 30, 2023, 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 January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021,December 30, 2023, 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 January 2, 2021,December 30, 2023, 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 March 3, 2021February 28, 2024 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accountingBasis for leases in 2019 due to the adoption of ASU No. 2016-012, Leases (ASC 842).
Basis of 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 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| SUNOPTA INC. | -F2- | December 30, 2023 Form 10-K |
| ||
| Description of the Matter | As
| |
How We Addressed the Matter in Our Audit | We |
To test the adequacy of the Company’s assessment, our audit procedures included, among others, assessing the methodologies used and testing the significant assumptions, including the completeness and accuracy of the underlying data used by the Company. For example, we compared the significant assumptions used by management to current industry and economic trends, historical financial results and other relevant factors such as customers attrition rate and historical results by revenue streams and margins.
/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company's auditor since 2018.2021.
Toronto, CanadaMinneapolis, Minnesota
March 3, 2021February 28, 2024
| SUNOPTA INC. | -F3- |