☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July | |
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to __________ |
Commission file number: 001-34198
SUNOPTA INC.
(Exact name of registrant as specified in its charter)
| Not Applicable | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
7078 Shady Oak Road Eden Prairie, Minnesota, 55344 | ||
| ||
(Address of principal executive offices) | (Registrant's telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☐
(Do not check if a smaller reporting company) Emerging growth company ☐
| Large accelerated filer ☒ | Accelerated filer ☐ |
| Non-accelerated filer ☐ | Smaller reporting company ☐ |
| (Do not check if a smaller reporting company) | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
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 |
Common Shares | SOY | The Toronto Stock Exchange |
The number of the registrant's common shares outstanding as of August 6, 20215, 2022 was 107,228,522.107,725,647.
SUNOPTA INC.
FORM 10-Q
For the Quarterly Period Ended July 3, 20212, 2022
TABLE OF CONTENTS
Basis of Presentation
Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q ("Form 10-Q") to the "Company," "SunOpta," "we," "us," "our" or similar words and phrases are to SunOpta Inc. and its subsidiaries, taken together.
In this report, all currency amounts presented are expressed in thousands of United States ("U.S.") dollars ("$"), except per share amounts, unless otherwise stated. Other amounts may be presented in thousands of Canadian dollars ("C$") and Mexican pesos ("M$"). As at July 3, 2021, the closing rates of exchange for the Canadian dollar and Mexican peso, expressed in U.S. dollars, based on Bank of Canada exchange rates, were C$0.8095 and M$0.0505. These rates are provided solely for convenience and do not necessarily reflect the rates used in the preparation of our financial statements.
Forward-Looking Statements
This Form 10-Q 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 andimpact. Forward-looking statements 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 tothe direct and indirect effects of the current global macroeconomic environment, including supply chain and labor challenges, inflation, and rising interest rates, as well as potential impacts of the COVID-19 pandemic as well as supply chain, logistics and other disruptions;the Russia-Ukraine war, and the extent of the effect of these events on our operational and financial performance in future periods; 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 expectationsplans and intentions regarding the Dream® and WestSoy® brands; our plans to expand capacity in our plant-based food and beverage business, and timing to complete expansion projects; our expectations regarding profitability in our frozen fruit business,capital expansion projects, including our assessment of the margin improvement and cost savings toexpectation that our Midlothian, Texas, facility will be realized from our frozen fruit productivity, network optimization and portfolio rationalization initiatives;operational in late 2022; our expectations regarding the availabilityfuture profitability of fruit supply,our plant-based and potential impacts to our revenues;fruit-based businesses, including anticipated results of operations, revenue trends, and profit margin profiles; our expectations regarding customer demand, consumer preferences, competition, sales pricing, and availability and pricing of raw material inputs; other expectations relatedinputs, and timing and costs to our businesses, including anticipated results of operations, operational growth andcomplete capital expansion plans, plans to reduce costs and improve profitability;projects; our intentions related to potential sale of selected businesses, operations, or assets; liquidity constraintsour expectations regarding the sale of our Oxnard, California, frozen fruit processing facility, including timing to close and theproceeds on sale; adequacy of existing sources of funds to meet financing needs, and availability of alternative financing sources;the outcome of litigation to which we may 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.
| SUNOPTA INC. | 3 | July |
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:
| SUNOPTA INC. | 4 | July 2, 2022 Form 10-Q |
All forward-looking statements made herein are qualified by these cautionary statements, and our actual results or the developments we anticipate may not be realized. Our forward-looking statements are based only on information currently available to us and speak only as of the date on which they are made. We do not undertake any obligation to publicly update our forward-looking statements, whether written or oral, after the date of this report for any reason, even if new information becomes available or other events occur in the future, except as may be required under applicable securities laws. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A, Risk Factors, included elsewhere in this report and our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.1, 2022. Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found under Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021,1, 2022, under Item 1A. "Risk Factors" of this report, and in our other filings with the U.S. Securities and Exchange Commission and the Canadian Securities Administrators.
| SUNOPTA INC. | 5 | July 2, 2022 Form 10-Q |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SunOpta Inc.
Consolidated Statements of Operations
For the quarters and two quarters ended July 2, 2022 and July 3, 2021
(Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
| Quarter ended | Two quarters ended | |||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||
| $ | $ | $ | $ | |||||||
| Revenues (note 12) | 243,531 | 202,273 | 483,704 | 409,913 | ||||||
| Cost of goods sold | 208,633 | 175,937 | 420,815 | 353,588 | ||||||
| Gross profit | 34,898 | 26,336 | 62,889 | 56,325 | ||||||
| Selling, general and administrative expenses | 24,304 | 22,720 | 46,239 | 43,594 | ||||||
| Intangible asset amortization | 2,612 | 2,532 | 5,224 | 4,726 | ||||||
| Other expense, net (note 8) | 1,540 | 4,661 | 1,827 | 6,276 | ||||||
| Foreign exchange loss (gain) | (127) | (639) | (599) | 197 | ||||||
| Earnings (loss) from continuing operations before the following | 6,569 | (2,938 | ) | 10,198 | 1,532 | |||||
| Interest expense, net | 3,132 | 1,631 | 5,662 | 3,291 | ||||||
| Earnings (loss) from continuing operations before income taxes | 3,437 | (4,569 | ) | 4,536 | (1,759 | ) | ||||
| Income tax expense (benefit) | 939 | (3,651 | ) | 1,384 | (2,513 | ) | ||||
| Earnings (loss) from continuing operations | 2,498 | (918 | ) | 3,152 | 754 | |||||
| Earnings (loss) from discontinued operations (note 11) | (814) | - | 2,752 | - | ||||||
| Net earnings (loss) | 1,684 | (918 | ) | 5,904 | 754 | |||||
| Dividends and accretion on preferred stock (note 6) | (760) | (744 | ) | (1,515 | ) | (2,697 | ) | |||
| Earnings (loss) attributable to common shareholders | 924 | (1,662 | ) | 4,389 | (1,943 | ) | ||||
| Basic and diluted earnings (loss) per share (note 9) | ||||||||||
| From continuing operations | 0.02 | (0.02 | ) | 0.02 | (0.02 | ) | ||||
| From discontinued operations | (0.01) | - | 0.03 | - | ||||||
| Basic and diluted earnings (loss) per share | 0.01 | (0.02 | ) | 0.04 | (0.02 | ) | ||||
| Weighted-average common shares outstanding (000s) (note 9) | ||||||||||
| Basic | 107,622 | 105,676 | 107,510 | 100,898 | ||||||
| Diluted | 108,667 | 105,676 | 108,495 | 100,898 | ||||||
(See accompanying notes to consolidated financial statements)
| SUNOPTA INC. | 6 | July 2, 2022 Form 10-Q |
Consolidated Balance Sheets
As at July 2, 2022 and January 1, 2022
(Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars)
| July 2, 2022 | January 1, 2022 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and cash equivalents | 553 | 227 | ||||
| Accounts receivable, net of allowance for credit losses of $902 and $889, respectively | 83,804 | 84,702 | ||||
| Inventories (note 2) | 261,899 | 220,143 | ||||
| Prepaid expenses and other current assets | 17,493 | 16,638 | ||||
| Income taxes recoverable | 9,861 | 8,259 | ||||
| Assets held for sale (note 3) | 11,591 | - | ||||
| Total current assets | 385,201 | 329,969 | ||||
| Property, plant and equipment, net | 264,690 | 219,537 | ||||
| Operating lease right-of-use assets (note 4) | 40,990 | 47,245 | ||||
| Intangible assets, net | 143,216 | 148,440 | ||||
| Goodwill | 3,998 | 3,998 | ||||
| Other assets | 5,827 | 5,930 | ||||
| Total assets | 843,922 | 755,119 | ||||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 143,102 | 121,430 | ||||
| Income taxes payable | 711 | - | ||||
| Current portion of long-term debt (note 5) | 23,055 | 9,760 | ||||
| Current portion of operating lease liabilities (note 4) | 9,933 | 12,203 | ||||
| Total current liabilities | 176,801 | 143,393 | ||||
| Long-term debt (note 5) | 273,493 | 214,843 | ||||
| Operating lease liabilities (note 4) | 37,084 | 39,028 | ||||
| Long-term liabilities | - | 2,241 | ||||
| Deferred income taxes | 13,510 | 22,485 | ||||
| Total liabilities | 500,888 | 421,990 | ||||
| Series B-1 preferred stock (note 6) | 28,442 | 28,145 | ||||
| SHAREHOLDERS' EQUITY | ||||||
| Common shares, 0 par value, unlimited shares authorized, | ||||||
| 107,686,953 shares issued (January 1, 2022 - 107,359,826) | 438,668 | 436,463 | ||||
| Additional paid-in capital | 26,254 | 23,240 | ||||
| Accumulated deficit | (151,693 | ) | (156,082 | ) | ||
| Accumulated other comprehensive income | 1,363 | 1,363 | ||||
| Total shareholders' equity | 314,592 | 304,984 | ||||
| Total liabilities and shareholders' equity | 843,922 | 755,119 |
(See accompanying notes to consolidated financial statements)
| SUNOPTA INC. |
| July |
Consolidated Statements of Shareholders' Equity
As at and for the quarters ended July 2, 2022 and July 3, 2021
(Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars)
| Accumulated | ||||||||||||||||||
| other | ||||||||||||||||||
| Additional | Accumulated | comprehensive | ||||||||||||||||
| Common shares | paid-in capital | deficit | income | Total | ||||||||||||||
| 000s | $ | $ | $ | $ | $ | |||||||||||||
| Balance at April 2, 2022 | 107,579 | 437,451 | 24,042 | (152,617 | ) | 1,363 | 310,239 | |||||||||||
| Employee stock purchase plan | 22 | 145 | - | - | - | 145 | ||||||||||||
| Stock incentive plans | 86 | 1,072 | (876 | ) | - | - | 196 | |||||||||||
| Withholding taxes on stock-based awards | - | - | (882 | ) | - | - | (882 | ) | ||||||||||
| Stock-based compensation | - | - | 3,970 | - | - | 3,970 | ||||||||||||
| Net earnings | - | - | - | 1,684 | - | 1,684 | ||||||||||||
| Dividends on preferred stock | - | - | - | (609 | ) | - | (609 | ) | ||||||||||
| Accretion on preferred stock | - | - | - | (151 | ) | - | (151 | ) | ||||||||||
| Balance at July 2, 2022 | 107,687 | 438,668 | 26,254 | (151,693 | ) | 1,363 | 314,592 | |||||||||||
| Accumulated | ||||||||||||||||||
| other | ||||||||||||||||||
| Additional | Accumulated | comprehensive | ||||||||||||||||
| Common shares | paid-in capital | deficit | income | Total | ||||||||||||||
| 000s | $ | $ | $ | $ | $ | |||||||||||||
| Balance at April 3, 2021 | 103,612 | 418,822 | 33,340 | (148,022 | ) | 1,363 | 305,503 | |||||||||||
| Share issuance costs | - | (25 | ) | - | - | - | (25 | ) | ||||||||||
| Employee stock purchase plan | 18 | 207 | - | - | - | 207 | ||||||||||||
| Stock incentive plans | 3,496 | 16,421 | (12,078 | ) | - | - | 4,343 | |||||||||||
| Withholding taxes on stock-based awards | - | - | (666 | ) | - | - | (666 | ) | ||||||||||
| Stock-based compensation | - | - | 4,370 | - | - | 4,370 | ||||||||||||
| Net loss | - | - | - | (918 | ) | - | (918 | ) | ||||||||||
| Dividends on preferred stock | - | - | - | (609 | ) | - | (609 | ) | ||||||||||
| Accretion on preferred stock | - | - | - | (135 | ) | - | (135 | ) | ||||||||||
| Balance at July 3, 2021 | 107,126 | 435,425 | 24,966 | (149,684 | ) | 1,363 | 312,070 | |||||||||||
| SUNOPTA INC. | 8 | July 2, 2022 Form 10-Q |
SunOpta Inc.
Consolidated Statements of Shareholders' Equity (continued)
As at and for the two quarters ended July 2, 2022 and July 3, 2021
(Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars)
| Accumulated | ||||||
| other | ||||||
| Additional | Accumulated | comprehensive | ||||
| Common shares | paid-in capital | deficit | income | Total | ||
| 000s | $ | $ | $ | $ | $ | |
| Balance at January 1, 2022 | 107,360 | 436,463 | 23,240 | (156,082) | 1,363 | 304,984 |
| Employee stock purchase plan | 53 | 279 | - | - | - | 279 |
| Stock incentive plans | 274 | 1,926 | (1,614) | - | - | 312 |
| Withholding taxes on stock-based awards | - | - | (971) | - | - | (971) |
| Stock-based compensation | - | - | 5,599 | - | - | 5,599 |
| Net earnings | - | - | - | 5,904 | - | 5,904 |
| Dividends on preferred stock | - | - | - | (1,218) | - | (1,218) |
| Accretion on preferred stock | - | - | - | (297) | - | (297) |
| Balance at July 2, 2022 | 107,687 | 438,668 | 26,254 | (151,693) | 1,363 | 314,592 |
| Accumulated | ||||||
| other | ||||||
| Additional | Accumulated | comprehensive | ||||
| Common shares | paid-in capital | deficit | income | Total | ||
| 000s | $ | $ | $ | $ | $ | |
| Balance at January 2, 2021 | 90,194 | 326,545 | 37,862 | (147,741) | 1,363 | 218,029 |
| Exchange of Series A preferred stock, net of share issuance costs of $287 | 12,633 | 87,188 | - | - | - | 87,188 |
| Employee stock purchase plan | 28 | 333 | - | - | - | 333 |
| Stock incentive plans | 4,271 | 21,359 | (14,502) | - | - | 6,857 |
| Withholding taxes on stock-based awards | - | - | (6,737) | - | - | (6,737) |
| Stock-based compensation | - | - | 8,343 | - | - | 8,343 |
| Net earnings | - | - | - | 754 | - | 754 |
| Dividends on preferred stock | - | - | - | (2,260) | - | (2,260) |
| Accretion on preferred stock | - | - | - | (437) | - | (437) |
| Balance at July 3, 2021 | 107,126 | 435,425 | 24,966 | (149,684) | 1,363 | 312,070 |
(See accompanying notes to consolidated financial statements)
| SUNOPTA INC. | 9 | July 2, 2022 Form 10-Q |
Consolidated Statements of Cash Flows For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Expressed in thousands of U.S. dollars) Non-cash investing and financing activities (notes 4 and 10) (See accompanying notes to consolidated financial statements)
(Unaudited) Quarter ended Two quarters ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 $ $ $ $ CASH PROVIDED BY (USED IN) Operating activities Net earnings (loss) 1,684 (918) 5,904 754 Earnings (loss) from discontinued operations (814) - 2,752 - Earnings (loss) from continuing operations 2,498 (918) 3,152 754 Items not affecting cash: Depreciation and amortization 9,372 8,910 18,785 16,953 Amortization of debt issuance costs 396 349 771 634 Deferred income taxes 2,128 (4,331) 2,208 (3,494) Stock-based compensation 3,970 4,370 5,599 8,343 Impairment of long-lived assets (note 8) - 2,962 - 2,962 Other 1,634 (167) 1,745 (336) Changes in operating assets and liabilities (note 10) (22,452) (50,322) (19,171) (71,978) Net cash provided by (used in) operating activities of continuing operations (2,454) (39,147) 13,089 (46,162) Investing activities Additions to property, plant and equipment (37,038) (7,306) (62,760) (16,603) Proceeds from sale of assets 2,978 - 4,182 1,350 Additions to intangible assets - (25,073) - (25,073) Net cash used in investing activities of continuing operations (34,060) (32,379) (58,578) (40,326) Net cash used in investing activities of discontinued operations (6,324) - (6,324) (13,380) Net cash used in investing activities (40,384) (32,379) (64,902) (53,706) Financing activities Increase in borrowings under revolving credit facilities (note 5) 31,067 70,244 20,762 111,829 Borrowings of long-term debt (note 4) 18,206 4,155 41,103 4,641 Repayment of long-term debt (note 4) (5,174) (5,855) (7,569) (9,940) Payment of debt issuance costs (53) (543) (559) (2,371) Proceeds from the exercise of stock options and employee share purchases 341 4,550 591 7,190 Payment of withholding taxes on stock-based awards (882) (666) (971) (6,737) Payment of cash dividends on preferred stock (note 6) (609) (609) (1,218) (4,029) Payment of share issuance costs - (25) - (287) Net cash provided by financing activities of continuing operations 42,896 71,251 52,139 100,296 Net cash used in financing activities of discontinued operations - - - (200) Net cash provided by financing activities 42,896 71,251 52,139 100,096 Increase (decrease) in cash and cash equivalents in the period 58 (275) 326 228 Cash and cash equivalent, beginning of the period 495 754 227 251 Cash and cash equivalents, end of the period 553 479 553 479
| SUNOPTA INC. | 10 | July 2, 2022 Form 10-Q |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the quarters and two quarters ended July 2, 2022 and July 3, 2021 |
(All |
| Quarter ended | Two quarters ended | ||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||
| $ | $ | $ | $ | ||||||||||
| (note 1) | (note 1) | ||||||||||||
| Revenues (note 2) | 202,273 | 184,401 | 409,913 | 391,998 | |||||||||
| Cost of goods sold | 175,937 | 161,142 | 353,588 | 341,566 | |||||||||
| Gross profit | 26,336 | 23,259 | 56,325 | 50,432 | |||||||||
| Selling, general and administrative expenses | 22,720 | 21,880 | 43,594 | 41,813 | |||||||||
| Intangible asset amortization | 2,532 | 2,272 | 4,726 | 4,543 | |||||||||
| Other expense (income), net (note 10) | 4,661 | (835 | ) | 6,276 | (280 | ) | |||||||
| Foreign exchange loss (gain) | (639 | ) | (517 | ) | 197 | 1,693 | |||||||
| Earnings (loss) from continuing operations before the following | (2,938 | ) | 459 | 1,532 | 2,663 | ||||||||
| Interest expense, net | 1,631 | 7,413 | 3,291 | 15,078 | |||||||||
| Loss from continuing operations before income taxes | (4,569 | ) | (6,954 | ) | (1,759 | ) | (12,415 | ) | |||||
| Income tax benefit | (3,651 | ) | (1,821 | ) | (2,513 | ) | (3,318 | ) | |||||
| Earnings (loss) from continuing operations | (918 | ) | (5,133 | ) | 754 | (9,097 | ) | ||||||
| Earnings from discontinued operations (note 4) | 0 | 6,140 | 0 | 13,465 | |||||||||
| Net earnings (loss) | (918 | ) | 1,007 | 754 | 4,368 | ||||||||
| Dividends and accretion on preferred stock (note 8) | (744 | ) | (2,604 | ) | (2,697 | ) | (4,629 | ) | |||||
| Loss attributable to common shareholders | (1,662 | ) | (1,597 | ) | (1,943 | ) | (261 | ) | |||||
| Basic and diluted earnings (loss) per share (note 11) | |||||||||||||
| From continuing operations | (0.02 | ) | (0.09 | ) | (0.02 | ) | (0.15 | ) | |||||
| From discontinued operations | 0 | 0.07 | 0 | 0.15 | |||||||||
| Basic and diluted loss per share | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.00 | ) | |||||
| Weighted-average common shares outstanding (000s) (note 11) | |||||||||||||
| Basic | 105,676 | 89,089 | 100,898 | 88,625 | |||||||||
| Diluted | 105,676 | 89,089 | 100,898 | 88,625 | |||||||||
(See accompanying notes to consolidated financial statements)
|
| Quarter ended | Two quarters ended | |||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||
| $ | $ | $ | $ | |||||||||
| (note 1) | (note 1) | |||||||||||
| Earnings (loss) from continuing operations | (918 | ) | (5,133 | ) | 754 | (9,097 | ) | |||||
| Earnings from discontinued operations | 0 | 6,140 | 0 | 13,465 | ||||||||
| Net earnings (loss) | (918 | ) | 1,007 | 754 | 4,368 | |||||||
| Currency translation adjustment | 0 | 417 | 0 | 108 | ||||||||
| Comprehensive earnings (loss) | (918 | ) | 1,424 | 754 | 4,476 | |||||||
(See accompanying notes to consolidated financial statements)
|
| July 3, 2021 | January 2, 2021 | ||||||
| $ | $ | ||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | 479 | 251 | |||||
| Accounts receivable, net of allowance for credit losses of $862 and $1,257, respectively | 83,109 | 72,724 | |||||
| Inventories (note 6) | 229,856 | 147,748 | |||||
| Prepaid expenses and other current assets | 15,793 | 21,665 | |||||
| Income taxes recoverable | 7,088 | 6,935 | |||||
| Total current assets | 336,325 | 249,323 | |||||
| Property, plant and equipment | 187,226 | 158,048 | |||||
| Operating lease right-of-use assets | 46,886 | 35,172 | |||||
| Goodwill | 3,998 | 3,998 | |||||
| Intangible assets | 153,664 | 133,317 | |||||
| Deferred income taxes | 8,328 | 0 | |||||
| Other assets | 5,819 | 5,757 | |||||
| Total assets | 742,246 | 585,615 | |||||
| LIABILITIES | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued liabilities | 115,841 | 118,592 | |||||
| Income taxes payable | 1,371 | 1,431 | |||||
| Current portion of long-term debt (note 7) | 7,597 | 3,478 | |||||
| Current portion of operating lease liabilities | 13,017 | 12,750 | |||||
| Current portion of long-term liabilities | 0 | 200 | |||||
| Total current liabilities | 137,826 | 136,451 | |||||
| Long-term debt (note 7) | 198,602 | 66,245 | |||||
| Operating lease liabilities | 35,644 | 24,582 | |||||
| Deferred income taxes | 30,242 | 25,408 | |||||
| Total liabilities | 402,314 | 252,686 | |||||
| Series A Preferred Stock (note 8) | 0 | 87,305 | |||||
| Series B-1 Preferred Stock (note 8) | 27,862 | 27,595 | |||||
| EQUITY | |||||||
| SunOpta Inc. shareholders' equity | |||||||
| Common shares, 0 par value, unlimited shares authorized, | |||||||
| 107,125,928 shares issued (January 2, 2021 - 90,194,220) | 435,425 | 326,545 | |||||
| Additional paid-in capital | 24,966 | 37,862 | |||||
| Accumulated deficit | (149,684 | ) | (147,741 | ) | |||
| Accumulated other comprehensive income | 1,363 | 1,363 | |||||
| Total equity | 312,070 | 218,029 | |||||
| Total equity and liabilities | 742,246 | 585,615 | |||||
| Commitments and contingencies (note 13) | |||||||
(See accompanying notes to consolidated financial statements)
|
| Common shares | Additional paid-in capital | Accumulated deficit | Accumulated other com-prehensive income | Non-controlling interests | Total | ||||||||||||||||
| 000s | $ | $ | $ | $ | $ | $ | |||||||||||||||
| Balance at April 3, 2021 | 103,612 | 418,822 | 33,340 | (148,022 | ) | 1,363 | 0 | 305,503 | |||||||||||||
| Share issuance costs (note 8) | - | (25 | ) | - | - | - | - | (25 | ) | ||||||||||||
| Employee stock purchase plan | 18 | 207 | - | - | - | - | 207 | ||||||||||||||
| Stock incentive plan | 3,496 | 16,421 | (12,078 | ) | - | - | - | 4,343 | |||||||||||||
| Withholding taxes on stock-based awards | - | - | (666 | ) | - | - | - | (666 | ) | ||||||||||||
| Stock-based compensation | - | - | 4,370 | - | - | - | 4,370 | ||||||||||||||
| Loss from continuing operations | - | - | - | (918 | ) | - | - | (918 | ) | ||||||||||||
| Dividends on preferred stock | - | - | - | (609 | ) | - | - | (609 | ) | ||||||||||||
| Accretion on preferred stock | - | - | - | (135 | ) | - | - | (135 | ) | ||||||||||||
| Balance at July 3, 2021 | 107,126 | 435,425 | 24,966 | (149,684 | ) | 1,363 | 0 | 312,070 | |||||||||||||
| Common shares | Additional paid-in capital | Accumulated deficit | Accumulated other com-prehensive loss | Non-controlling interests | Total | ||||||||||||||||
| 000s | $ | $ | $ | $ | $ | $ | |||||||||||||||
| Balance at March 28, 2020 | 88,225 | 318,958 | 37,813 | (213,595 | ) | (11,580 | ) | 1,877 | 133,473 | ||||||||||||
| Employee stock purchase plan | 26 | 95 | - | - | - | - | 95 | ||||||||||||||
| Stock incentive plan | 1,152 | 4,359 | (4,105 | ) | - | - | - | 254 | |||||||||||||
| Withholding taxes on stock-based awards | - | - | (1,030 | ) | - | - | - | (1,030 | ) | ||||||||||||
| Stock-based compensation | - | - | 1,932 | - | - | - | 1,932 | ||||||||||||||
| Loss from continuing operations | - | - | - | (5,133 | ) | - | - | (5,133 | ) | ||||||||||||
| Earnings from discontinued operations | - | - | - | 6,140 | - | (230 | ) | 5,910 | |||||||||||||
| Dividends on preferred stock | - | - | - | (2,181 | ) | - | - | (2,181 | ) | ||||||||||||
| Accretion on preferred stock | - | - | - | (423 | ) | - | - | (423 | ) | ||||||||||||
| Currency translation adjustment | - | - | - | - | 417 | (10 | ) | 407 | |||||||||||||
| Balance at June 27, 2020 | 89,403 | 323,412 | 34,610 | (215,192 | ) | (11,163 | ) | 1,637 | 133,304 | ||||||||||||
|
| Common shares | Additional paid-in capital | Accumulated deficit | Accumulated other com-prehensive loss | Non-controlling interests | Total | ||||||||||||||||
| 000s | $ | $ | $ | $ | $ | $ | |||||||||||||||
| Balance at January 2, 2021 | 90,194 | 326,545 | 37,862 | (147,741 | ) | 1,363 | 0 | 218,029 | |||||||||||||
| Exchange of Series A Preferred Stock, net of share issuance costs of $287 (note 8) | 12,633 | 87,188 | - | - | - | - | 87,188 | ||||||||||||||
| Employee stock purchase plan | 28 | 333 | - | - | - | - | 333 | ||||||||||||||
| Stock incentive plan | 4,271 | 21,359 | (14,502 | ) | - | - | - | 6,857 | |||||||||||||
| Withholding taxes on stock-based awards | - | - | (6,737 | ) | - | - | - | (6,737 | ) | ||||||||||||
| Stock-based compensation | - | - | 8,343 | - | - | - | 8,343 | ||||||||||||||
| Earnings from continuing operations | - | - | - | 754 | - | - | 754 | ||||||||||||||
| Dividends on preferred stock | - | - | - | (2,260 | ) | - | - | (2,260 | ) | ||||||||||||
| Accretion on preferred stock | - | - | - | (437 | ) | - | - | (437 | ) | ||||||||||||
| Balance at July 3, 2021 | 107,126 | 435,425 | 24,966 | (149,684 | ) | 1,363 | 0 | 312,070 | |||||||||||||
| Common shares | Additional paid-in capital | Accumulated deficit | Accumulated other com-prehensive loss | Non-controlling interests | Total | ||||||||||||||||
| 000s | $ | $ | $ | $ | $ | $ | |||||||||||||||
| Balance at December 28, 2019 | 88,090 | 318,456 | 35,767 | (214,931 | ) | (11,271 | ) | 1,888 | 129,909 | ||||||||||||
| Employee stock purchase plan | 73 | 195 | - | - | - | - | 195 | ||||||||||||||
| Stock incentive plan | 1,240 | 4,761 | (4,385 | ) | - | - | - | 376 | |||||||||||||
| Withholding taxes on stock-based awards | - | - | (1,151 | ) | - | - | - | (1,151 | ) | ||||||||||||
| Stock-based compensation | - | - | 4,379 | - | - | - | 4,379 | ||||||||||||||
| Loss from continuing operations | - | - | - | (9,097 | ) | - | - | (9,097 | ) | ||||||||||||
| Earnings from discontinued operations | - | - | - | 13,465 | - | (244 | ) | 13,221 | |||||||||||||
| Dividends on preferred stock | - | - | - | (3,881 | ) | - | - | (3,881 | ) | ||||||||||||
| Accretion on preferred stock | - | - | - | (748 | ) | - | - | (748 | ) | ||||||||||||
| Currency translation adjustment | - | - | - | - | 108 | (7 | ) | 101 | |||||||||||||
| Balance at June 27, 2020 | 89,403 | 323,412 | 34,610 | (215,192 | ) | (11,163 | ) | 1,637 | 133,304 | ||||||||||||
|
| Quarter ended | Two quarters ended | ||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||
| $ | $ | $ | $ | ||||||||||
| (note 1) | (note 1) | ||||||||||||
| CASH PROVIDED BY (USED IN) | |||||||||||||
| Operating activities | |||||||||||||
| Net earnings (loss) | (918 | ) | 1,007 | 754 | 4,368 | ||||||||
| Earnings from discontinued operations | 0 | 6,140 | 0 | 13,465 | |||||||||
| Earnings (loss) from continuing operations | (918 | ) | (5,133 | ) | 754 | (9,097 | ) | ||||||
| Items not affecting cash: | |||||||||||||
| Depreciation and amortization | 8,910 | 7,655 | 16,953 | 15,380 | |||||||||
| Amortization of debt issuance costs | 349 | 1,065 | 634 | 2,004 | |||||||||
| Deferred income taxes | (4,331 | ) | 2,855 | (3,494 | ) | 3,199 | |||||||
| Stock-based compensation | 4,370 | 1,779 | 8,343 | 3,990 | |||||||||
Impairment of long-lived assets (note 10) | 2,962 | 0 | 2,962 | 0 | |||||||||
| Other | (167 | ) | (25 | ) | (336 | ) | (27 | ) | |||||
| Changes in operating assets and liabilities (note 12) | (50,322 | ) | (7,714 | ) | (71,978 | ) | 8,710 | ||||||
| Net cash provided by (used in) operating activities of continuing operations | (39,147 | ) | 482 | (46,162 | ) | 24,159 | |||||||
| Net cash provided by operating activities of discontinued operations | 0 | 2,183 | 0 | 13,255 | |||||||||
| Net cash provided by (used in) operating activities | (39,147 | ) | 2,665 | (46,162 | ) | 37,414 | |||||||
| Investing activities | |||||||||||||
| Additions to intangible assets (note 3) | (25,073 | ) | 0 | (25,073 | ) | 0 | |||||||
| Additions to property, plant and equipment | (7,306 | ) | (5,905 | ) | (16,603 | ) | (14,927 | ) | |||||
| Proceeds from sale of assets | 0 | 0 | 1,350 | 0 | |||||||||
| Other | 0 | 41 | 0 | 41 | |||||||||
| Net cash used in investing activities of continuing operations | (32,379 | ) | (5,864 | ) | (40,326 | ) | (14,886 | ) | |||||
| Net cash used in investing activities of discontinued operations (note 4) | 0 | (465 | ) | (13,380 | ) | (1,132 | ) | ||||||
| Net cash used in investing activities | (32,379 | ) | (6,329 | ) | (53,706 | ) | (16,018 | ) | |||||
| Financing activities | |||||||||||||
| Increase (decrease) under revolving credit facilities (note 7) | 70,244 | (19,469 | ) | 111,829 | (29,882 | ) | |||||||
| Borrowings of long-term debt (note 7) | 4,155 | 0 | 4,641 | 0 | |||||||||
| Repayment of long-term debt (note 7) | (5,855 | ) | (617 | ) | (9,940 | ) | (1,078 | ) | |||||
| Payment of debt issuance costs | (543 | ) | (415 | ) | (2,371 | ) | (2,488 | ) | |||||
| Proceeds from the exercise of stock options and employee share purchases | 4,550 | 470 | 7,190 | 571 | |||||||||
| Payment of withholding taxes on stock-based awards | (666 | ) | (1,151 | ) | (6,737 | ) | (1,151 | ) | |||||
| Payment of cash dividends on preferred stock (note 8) | (609 | ) | 0 | (4,029 | ) | (1,700 | ) | ||||||
| Payment of share issuance costs (note 8) | (25 | ) | 0 | (287 | ) | 0 | |||||||
| Proceeds from issuance of preferred stock, net of issuance costs (note 8) | 0 | 26,804 | 0 | 26,804 | |||||||||
| Other | 0 | 0 | 0 | (4 | ) | ||||||||
| Net cash provided by (used in) financing activities of continuing operations | 71,251 | 5,622 | 100,296 | (8,928 | ) | ||||||||
| Net cash used in financing activities of discontinued operations (note 4) | 0 | (3,015 | ) | (200 | ) | (12,337 | ) | ||||||
| Net cash provided by (used in) financing activities | 71,251 | 2,607 | 100,096 | (21,265 | ) | ||||||||
| Increase (decrease) in cash and cash equivalents in the period | (275 | ) | (1,057 | ) | 228 | 131 | |||||||
| Cash and cash equivalents of discontinued operations: | |||||||||||||
| Balance at beginning of period | 0 | 2,437 | 0 | 1,370 | |||||||||
| Foreign exchange gain (loss) on cash and cash equivalents | 0 | 12 | 0 | (4 | ) | ||||||||
| Less: balance at end of period | 0 | (1,152 | ) | 0 | (1,152 | ) | |||||||
| Cash and cash equivalent, beginning of the period | 754 | 233 | 251 | 128 | |||||||||
| Cash and cash equivalents, end of the period | 479 | 473 | 479 | 473 | |||||||||
| Non-cash investing and financing activities (note 12) | |||||||||||||
(See accompanying notes to consolidated financial statements)
|
1. Significant Accounting Policies
Basis of Presentation
These interim consolidated financial statements of SunOpta Inc. (the "Company" or "SunOpta") have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, and in accordance with accounting principlesUnited States ("U.S.") generally accepted in the United States of Americaaccounting principles ("U.S. GAAP") for interim financial information. Accordingly, these condensed interim consolidated financial statements do not include all of the disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included and all such adjustments are of a normal, recurring nature. Operating results for the quarter and two quarters ended July 3, 20212, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending January 1,December 31, 2022 or for any other period. The interim consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared on a basis consistent with the annual consolidated financial statements for the year ended January 2, 2021.1, 2022. For further information, refer to the consolidated financial statements, and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021.1, 2022.
Discontinued Operations
As described in note 4, on December 30, 2020, the Company completed the divestiture of its organic ingredient sourcing and production business, Tradin Organic. With the divestiture, Tradin Organic qualified for reporting as discontinued operations in the consolidated financial statements of the Company. Accordingly, the operating results and cash flows of Tradin Organic for the quarter and two quarters ended June 27, 2020 have been reclassified to discontinued operations on the consolidated statements of operations and cash flows. In addition, unless otherwise indicated, the information disclosed below in these notes to the consolidated financial statements is presented on a continuing operations basis, with the comparative period information recast to reflect Tradin Organic as discontinued operations.
Fiscal Year
The fiscal year of the Company consists of a 52- or 53-week period ending on the Saturday closest to December 31. Fiscal year 2022 is a 52-week period ending on December 31, 2022, with quarterly periods ending on April 2, 2022, July 2, 2022, and October 1, 2022. Fiscal year 2021 iswas a 52-week period ending on January 1, 2022, with quarterly periods ending on April 3, 2021, July 3, 2021, and October 2, 2021. Fiscal year 2020 was a 53-week period ending on January 2, 2021, with quarterly periods ending on March 28, 2020, June 27, 2020, and September 26, 2020.
Recent Accounting Pronouncements
In March 2020 and January 2021, the Financial Accounting Standards Board issued Accounting Standard Updates 2020-04 and 2021-01, Reference Rate Reform (Topic 848), that provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the transition away from LIBOR and other reference rates that are expected to be discontinued. The guidance in Topic 848 is effective upon issuance and can be applied prospectively for contract modifications and hedging relationships through December 31, 2022. The Company is currently evaluating the impact of the guidance and does not expect it will have a material effect on the Company’s consolidated financial statements.
2. Inventories
| July 2, 2022 | January 1, 2022 | |||||
| $ | $ | |||||
| Raw materials and work-in-process | 162,331 | 143,381 | ||||
| Finished goods | 107,791 | 81,546 | ||||
| Inventory reserves | (8,223 | ) | (4,784 | ) | ||
| 261,899 | 220,143 |
3. Assets Held for Sale
On July 6, 2022, the Company finalized an agreement to sell its frozen fruit processing facility located in Oxnard, California, for gross proceeds of $16.5 million, payable in cash on the closing of the transaction, which is expected to occur in the third quarter of 2022. As at July 2, 2022, the carrying value of the related property, plant and equipment assets of $11.6 million has been reclassified and reported as held for sale on the consolidated balance sheet. In the third quarter of 2022, the Company expects to recognize a pre-tax gain on the sale of the facility of approximately $4 million, net of estimated costs to sell.
4. Leases
The Company leases certain manufacturing plants, warehouses, offices, machinery and equipment, and vehicles. At the lease commencement date, the Company classifies a lease as a finance lease if it has the right to obtain substantially all of the economic benefits from the right-of-use assets, otherwise the lease is classified as an operating lease.
| SUNOPTA INC. | 11 | July 2, 2022 Form 10-Q |
SunOpta Inc. Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
The following tables present supplemental information related to leases:
| Quarter ended | Two quarters ended | |||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Lease Costs | ||||||||||||
| Operating lease cost | 3,093 | 3,180 | 6,304 | 6,752 | ||||||||
| Finance lease cost: | ||||||||||||
| Depreciation of right-of-use assets | 2,677 | 1,556 | 4,565 | 2,811 | ||||||||
| Interest on lease liabilities | 1,052 | 806 | 1,825 | 1,240 | ||||||||
| Sublease income | - | (153 | ) | - | (281 | ) | ||||||
| Net lease cost | 6,822 | 5,389 | 12,694 | 10,522 | ||||||||
| July 2, 2022 | January 1, 2022 | |||||
| $ | $ | |||||
| Balance Sheet Classification | ||||||
| Operating leases: | ||||||
| Operating lease right-of-use assets | 40,990 | 47,245 | ||||
| Current portion of operating lease liabilities | 9,933 | 12,203 | ||||
| Operating lease liabilities | 37,084 | 39,028 | ||||
| Total operating lease liabilities | 47,017 | 51,231 | ||||
| Finance leases: | ||||||
| Property, plant and equipment, gross | 116,764 | 66,060 | ||||
| Accumulated depreciation | (14,912 | ) | (10,348 | ) | ||
| Property, plant and equipment, net | 101,852 | 55,712 | ||||
| Current portion of long-term debt | 22,114 | 9,760 | ||||
| Long-term debt | 73,815 | 43,034 | ||||
| Total finance lease liabilities | 95,929 | 52,794 |
| Quarter ended | Two quarters ended | |||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Cash Flow Information | ||||||||||||
| Cash paid (received) for amounts included in measurement of lease liabilities: | ||||||||||||
| Operating cash flows from operating leases | 2,963 | 3,207 | 6,045 | 6,952 | ||||||||
| Operating cash flows from finance leases | 1,052 | 898 | 1,825 | 1,425 | ||||||||
| Financing cash flows from finance leases: | ||||||||||||
| Cash paid under finance leases(1) | 5,175 | 1,907 | 7,569 | 5,253 | ||||||||
| Cash received under finance leases(2) | (14,554 | ) | - | (33,277 | ) | - | ||||||
| Right-of-use assets obtained in exchange for lease liabilities: | ||||||||||||
| Operating leases | 317 | 16,275 | 716 | 17,289 | ||||||||
| Finance leases | 2,746 | - | 17,426 | 29,906 | ||||||||
| Right-of-use assets and liabilities reduced through lease | ||||||||||||
| terminations or modifications: | ||||||||||||
| Operating leases | - | - | (1,949 | ) | - | |||||||
| Finance leases | - | - | - | (686 | ) | |||||||
| SUNOPTA INC. | 12 | July |
2. Revenue
The Company procures, processes, and packages plant-based and fruit-based foods and beverages. The Company's customers include retailers, foodservice operators, branded food companies, and food manufacturers.
The following table presents a disaggregation of the Company's revenues based on categories used by the Company to evaluate sales performance:
| Quarter ended | Two quarters ended | |||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||
| $ | $ | $ | $ | |||||||||
| Plant-Based Foods and Beverages | ||||||||||||
| Beverages and broths | 87,494 | 68,451 | 182,980 | 155,221 | ||||||||
| Plant-based ingredients | 7,578 | 6,284 | 15,422 | 12,196 | ||||||||
| Sunflower and roasted snacks | 16,287 | 16,970 | 32,408 | 30,530 | ||||||||
| Total Plant-Based Foods and Beverages | 111,359 | 91,705 | 230,810 | 197,947 | ||||||||
| Fruit-Based Foods and Beverages | ||||||||||||
| Frozen fruit | 64,076 | 75,079 | 127,531 | 150,286 | ||||||||
| Fruit-based ingredients | 11,000 | 7,946 | 19,359 | 19,838 | ||||||||
| Fruit snacks | 15,838 | 9,671 | 32,213 | 23,927 | ||||||||
| Total Fruit-Based Foods and Beverages | 90,914 | 92,696 | 179,103 | 194,051 | ||||||||
| Total revenues | 202,273 | 184,401 | 409,913 | 391,998 | ||||||||
3. Acquisition of Dream® and WestSoy® Brands
On April 15, 2021, the Company acquired the Dream and WestSoy plant-based beverage brands and related private label products in North America from The Hain Celestial Group, Inc. for a cash purchase price of $33 million, subject to a closing inventory adjustment. The final purchase price amounted to $31.7 million, including $0.4 million of direct transaction costs. The acquired assets included all inventories, trademarks, product formulations, and other intellectual property related to the Dream and WestSoy brands and did not include other working capital, property, plant and equipment, or employees. The transaction has been accounted for as an asset acquisition. The purchase price was allocated to the acquired inventories ($6.6 million) and brand name intangible assets ($25.1 million). The intangible assets will be amortized over their estimated useful life of approximately 15 years. Revenues and expenses related to the acquired Dream and WestSoy brands are included in the Company's consolidated financial statements from the acquisition date and are reported within the Plant-Based Foods and Beverages operating segment.
As described in note 7, the Company entered into an amendment to its Credit Agreement on April 15, 2021, to allocate $20 million of the Lenders' revolving commitments to a two-year, first-in-last-out tranche, which was drawn in full to finance a portion of the purchase price for the Dream and WestSoy acquisition.
| Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
4. Discontinued Operations(1)
Tradin Organic
On December 30, 2020, the Company completed the divestiture of its organic ingredient sourcing and production business, Tradin Organic, by selling allRepresents repayments under finance leases recorded as a reduction of the Company's interestslease liability and rights in The Organic Corporation B.V. and Tradin Organics USA LLC to Amsterdam Commodities N.V. (the "Purchaser") for cash consideration of $373.7 million (€305.1 million), net of cash acquired and debt assumed by the Purchaser and subject to certain post-closing adjustments (the "Transaction"). The global operations of Tradin Organic included its organic and non-GMO ingredient sourcing operations centered in Amsterdam, The Netherlands, and Scott's Valley, California, together with its consumer-packaged premium juice co-manufacturing business, and its cocoa, sunflower, sesame, and avocado ingredient processing facilities located in the Netherlands, Bulgaria, and Ethiopia. Prior to its divestiture, Tradin Organic comprised the Company's former Global Ingredients operating segment.
The following table reconciles the major components of the results of discontinued operations to the amount reported in the consolidated statementrepayment of operations for the quarter and two quarters ended June 27, 2020:
| Quarter ended | Two quarters ended | |||||
| June 27, 2020 | June 27, 2020 | |||||
| $ | $ | |||||
| Revenues | 126,543 | 254,895 | ||||
| Cost of goods sold | 110,110 | 221,915 | ||||
| Selling, general and administrative expenses(1) | 6,419 | 13,692 | ||||
| Intangible asset amortization | 333 | 783 | ||||
| Other expense (income), net | 502 | (1,351 | ) | |||
| Foreign exchange loss | 473 | 597 | ||||
| Interest expense(2) | 523 | 1,138 | ||||
| Earnings before gain of sale | 8,183 | 18,121 | ||||
| Earnings from discontinued operations before income taxes | 8,183 | 18,121 | ||||
| Provision for income taxes | 2,273 | 4,900 | ||||
| Loss attributable to non-controlling interests | (230 | ) | (244 | ) | ||
| Earnings from discontinued operations | 6,140 | 13,465 |
(1) Selling, general and administrative expenses exclude management fees charged by SunOpta Corporate Services and include stock-based compensation expense attributable to employees of Tradin Organic.
(2) Interest expense reflects interest onlong-term debt directly attributable to Tradin Organic including borrowings by Tradin Organic under the Dutch subfacility of the Company's former Global Credit Facility.
During the first half of 2021, the Company paid $13.4 million to settle accrued transaction costs related to the Tradin Organic divestiture and paid $0.2 million to settle the final contingent consideration obligation related to a prior acquisition of a premium juice business included in the disposed operations of Tradin Organic. These payments were recorded as cash used in investing and financing activities of discontinued operations, respectively, on the consolidated statement of cash flows for the two quarters ended July 3, 2021.
|
5. Derivative Financial Instruments and Fair Value Measurements
Foreign currency forward contracts
As part of its risk management strategy, from time to time the Company enters into foreign currency forward contracts to reduce its exposure to fluctuations in foreign currency exchange rates. For any open contracts at period end, the contract rate is compared to the forward rate, and a gain or loss is recorded. These contracts are included in level 2 of the fair value hierarchy, as the inputs used in making the fair value determination are derived from and are corroborated by observable market data. The Company has not designated these contracts as accounting hedges.
As at July 3, 2021, the Company held a combination of foreign currency put and call option contracts (a zero-cost collar) to economically hedge its exposure to fluctuations in the Mexican peso related to purchases of fruit inventory and operating costs in Mexico. The aggregate notional amount of these contracts was $11.8 million at inception. As at July 3, 2021, contracts with a notional amount of $1.1 million remained open, which matured in July 2021. 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 the Company does not recognize any gain or loss under these contracts. If the spot rate goes below the floor rate of the collar, the Company recognizes a foreign exchange gain, and if the spot rate goes above the ceiling rate of the collar, the Company recognizes a foreign exchange loss. As at July 3, 2021 and January 2, 2021, unrealized gains of $0.1 million and $0.8 million, respectively, related to these contracts were included in other current assets on the consolidated balance sheets. For the quarter and two quarters ended July 3, 2021, the Company recognized unrealized losses of $0.3 million and $0.7 million, respectively, and realized gains of $0.3 million and $0.5 million, respectively, related to these contracts, which were included in foreign exchange on the consolidated statements of operations.cash flows.
As at June 27, 2020,(2)Represents cash advances received by the Company had $11.5 million notional amountunder finance leases related to the construction of open Mexican peso foreign currency forward put and call contracts. For the quarter and two quarters ended June 27, 2020,right-of-use assets controlled by the Company, recognized realized gainsas well as cash proceeds under sale and leaseback transactions accounted for as financings, which are reported in borrowings of $0.2 million related to these contracts and did not recognize any amountlong-term debt on the consolidated statements of unrealized gains or losses.cash flows.
| July 2, 2022 | January 1, 2022 | |||||
| Other Information | ||||||
| Weighted-average remaining lease term (years): | ||||||
| Operating leases | 7.6 | 7.4 | ||||
| Finance leases | 3.4 | 4.3 | ||||
| Weighted-average discount rate: | ||||||
| Operating leases | 5.0% | 5.0% | ||||
| Finance leases | 7.5% | 6.6% |
6. Inventories
| July 3, 2021 | January 2, 2021 | |||||
| $ | $ | |||||
| Raw materials and work-in-process | 135,892 | 78,210 | ||||
| Finished goods | 98,848 | 75,280 | ||||
| Inventory reserves | (4,884 | ) | (5,742 | ) | ||
| 229,856 | 147,748 |
7. Long-Term Debt
| July 3, 2021 | January 2, 2021 | |||||
| $ | $ | |||||
| Asset-Based Credit Facilities(1) | 159,106 | 47,277 | ||||
| Finance lease liabilities(2) | 42,899 | 18,813 | ||||
| Other | 4,194 | 3,633 | ||||
| 206,199 | 69,723 | |||||
| Less: current portion | 7,597 | 3,478 | ||||
| 198,602 | 66,245 |
| Operating leases | Finance leases | |||||
| $ | $ | |||||
| Maturities of Lease Liabilities | ||||||
| Remainder of 2022 | 5,054 | 12,628 | ||||
| 2023 | 10,185 | 29,173 | ||||
| 2024 | 8,312 | 29,109 | ||||
| 2025 | 6,290 | 26,881 | ||||
| 2026 | 5,247 | 13,539 | ||||
| Thereafter | 21,643 | 492 | ||||
| Total lease payments | 56,731 | 111,822 | ||||
| Less: imputed interest | (9,714 | ) | (15,893 | ) | ||
| Total lease liabilities | 47,017 | 95,929 |
| ||||||
| July 2, 2022 | January 1, 2022 | |||||
| $ | $ | |||||
| Asset-based credit facilities: | ||||||
| Revolving credit facilities | 176,715 | 153,293 | ||||
| Term loan facility | 19,432 | 11,606 | ||||
| Total asset-based credit facilities | 196,147 | 164,899 | ||||
| Finance lease liabilities (see note 4) | 95,929 | 52,794 | ||||
| Other | 4,472 | 6,910 | ||||
| Total debt | 296,548 | 224,603 | ||||
| Less: current portion | 23,055 | 9,760 | ||||
| Total long-term debt | 273,493 | 214,843 |
(1) Asset-Based Credit Facilities
On December 31, 2020, the Company entered into a second amendedSecond Amended and restated credit agreementRestated Credit Agreement (the "Credit Agreement"), as amended by the First Amendment, dated as of April 15, 2021, the Second Amendment, dated as of July 2, 2021, and the Third Amendment, dated as of February 25, 2022, among the Company, SunOpta Foods Inc. ("SunOpta Foods"), the other borrowers and guarantors party thereto, and the lenders party thereto (the "Lenders"). As part of the Credit Agreement, the Lenders provided a five-year, $250$230 million asset-based revolving credit facility, subject to borrowing base capacity (the "Tranche A Subfacility"), a two-year, $20 million first-in-last-out tranche, subject to a separate borrowing base applicable to certain eligible accounts receivable and inventory with advance rates separate from the Tranche A Subfacility" (the "Tranche B Subfacility", and together with the Tranche BA Subfacility, defined below, the "Revolving Credit Facilities"), and a five-year $75 million delayed draw term loan facility which can be used for borrowings on or prior to June 30, 2022March 31, 2023 (the "Term Loan Facility," and together with the Revolving Credit Facilities, the "Asset-Based Credit Facilities"), to finance certain capital expenditures. The Tranche A Subfacility includes borrowing capacity for letters of credit and provides for borrowings on same-day notice, including in the form of swingline loans.
| SUNOPTA INC. | 13 | July 2, 2022 Form 10-Q |
SunOpta Inc. Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
The Tranche A Subfacility and Term Loan Facility mature on December 31, 2025.
On April 15, 2021, Commencing in March 2023, the Company entered into a first amendmentTerm Loan Facility is repayable in monthly installments equal to the Credit Agreement to allocate $20 million1/84th of the Lenders' commitments under the Tranche A Subfacility to a two-year, first-in-last-out tranche (the "Tranche B Subfacility"), which was drawn in full to finance a portionthen-outstanding principal amount of the purchase price for the Dream and WestSoy brands (see note 3). The material terms governingTerm Loan Facility, with the remaining $230 million ofamount payable at the Lenders' commitments under the Tranche A Subfacility remain unchanged.maturity thereof. The Tranche B Subfacility is subject to a separate borrowing base applicable to certain eligible accounts receivable and inventorymatures on April 15, 2024, with advance rates separate from the Tranche A Subfacility.
Amortizationamortization payments on the aggregate principal amount of the Tranche B Subfacility are equal to $2.5 million, payable at the end of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2022,March 31, 2023, with the remaining amount payable at the maturity thereof. Borrowings repaid under the Tranche B Subfacility may not be borrowed again. Each repayment of Tranche B Subfacility loans will result in an increase of the Lenders' commitments under the Tranche A Subfacility, provided that such increases will not cause the aggregate Lenders' commitments under the Tranche A Subfacility to exceed $250 million.
On July 2, 2021, the Company entered into a second amendment to the Credit Agreement to increase the customer concentration limit included in the borrowing base calculation under the Revolving Credit Facilities.
All obligations under the Asset-Based Credit Facilities are guaranteed by substantially all of the Company's direct and indirect wholly-owned material restricted subsidiaries organized in the U.S. and Canada (the "Guarantors") and, subject to certain exceptions, such obligations are secured by first priority liens on substantially all assets of the Company and the other borrowers and Guarantors.
Borrowings under the Asset-Based Credit Facilities bear interest based on various reference rates, including LIBORthe Secured Overnight Financing Rate, plus an applicable margin. With respect to loans under the Tranche A Subfacility, the applicable margin ismargins, which are set quarterly based on average borrowing availability for the preceding fiscal quarter and will range from 0.50% to 1.00% for base rate borrowings and from 1.50% to 2.00% for eurocurrency rate, bankers' acceptance rate and European base rate borrowings, with a reduction of 0.25% when the Company's total leverage ratio is less than a specific threshold on or after the one-year anniversary of the closing date of the Asset-Based Credit Facilities. Borrowings under the Tranche B Subfacility bear interest based on various reference rates including LIBOR plus an applicable margin ranging from 2.50% to 3.00%, with a reduction of 0.25% when the Company's total leverage ratio is less than a specific threshold on or after the one-year anniversary of the closing date of the Asset-Based Credit Facilities. With respect to loans under the Term Loan Facility, the applicable margin will be set quarterly based on average borrowing availability for the preceding fiscal quarter and will range from 1.25% to 1.75% for base rate borrowings and from 2.25% to 2.75% for eurocurrency rate, bankers' acceptance rate and European base rate borrowings. In addition to paying interest on outstanding principal under the Asset-Based Credit Facilities, the Company is required to pay commitment fees quarterly, in arrears, equal to (i) 0.25% of the average daily undrawn portion of the Revolving Credit Facilities and (ii) 0.375% of the undrawn portion of the Term Loan Facility.quarter. For the two quarters ended July 3, 2021,2, 2022, the weighted-average interest rate on all outstanding borrowings under the RevolvingAsset-Based Credit Facilities was 2.21%2.99%.
The Asset-Based Credit Facilities are subject to a number of covenants that, among other things, restrict the Company's ability to create liens on assets; sell assets and enter in sale and leaseback transactions; pay dividends, prepay junior lien and unsecured indebtedness and make other restricted payments; incur additional indebtedness, including finance lease obligations in excess of $150 million, and make guarantees; make investments, loans or advances, including acquisitions; and engage in mergers or consolidations. In addition, the Company and its restricted subsidiaries are required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 if excess availability is less than the greater of (i) $15.0 million or (ii) 10% of the lesser of (x) the aggregate commitments under the Revolving Credit Facilities and (y) the aggregate borrowing base. As at July 3, 2021,2, 2022, the Company was in compliance with all covenants of the Credit Agreement.
|
(2) Finance lease liabilities
During the first quarter of 2021, the Company recognized additional finance lease liabilities of $29.9 million in the aggregate, together with a corresponding amount of right-of-use assets recorded in property, plant and equipment, related to the addition of new plant-based beverage and ingredient extraction processing and packaging equipment. The finance leases have implicit rates of interest of 8.08% to 8.85% and lease terms of five years.
8. Preferred Stock
Series A Preferred Stock
On October 7, 2016, the Company and SunOpta Foods entered into a subscription agreement (the "Series A Subscription Agreement") with Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (collectively, "Oaktree"). Pursuant to the Series A Subscription Agreement, SunOpta Foods issued an aggregate of 85,000 shares of Series A Preferred Stock (the "Series A Preferred Stock") to Oaktree for consideration in the amount of $85.0 million. In connection with the issuance of the Series A Preferred Stock, the Company incurred direct and incremental expenses of $6.0 million, which reduced the carrying value of the Series A Preferred Stock. The carrying value of the Series A Preferred Stock was being accreted through charges to accumulated deficit over the period preceding October 7, 2021, the date on or after which SunOpta Foods may have redeemed all the Series A Preferred Stock.
On February 22, 2021 (the "Exchange Date"), Oaktree exchanged all of their shares of6. Series AB-1 Preferred Stock for 12,633,427 shares of common stock of the Company ("Common Shares") at an exchange price of $7.00. Prior to the exchange, the Series A Preferred Stock provided for a cumulative dividend of 8.0% per year. On the Exchange Date, the Company paid cash dividends of $1.0 million on the Series A Preferred Stock for the period January 1, 2021 to February 22, 2021. In addition, in the first quarter of 2021, the Company paid cash dividends of $1.8 million on Series A Preferred Stock related to the fourth quarter of 2020. Subsequent to the Exchange Date, the Company is no longer required to pay dividends on the Series A Preferred Stock.
As at the Exchange Date, the carrying amount of the Series A Preferred Stock was $87.5 million, comprised of the initial liquidation preference of $85.0 million in the aggregate, together with $3.4 million of dividends paid in kind for the first and second quarters of 2020, less remaining unamortized issuance costs of $0.9 million. As at the Exchange Date, the Company derecognized the carrying amount of the Series A Preferred Stock and recognized a corresponding amount for the Common Shares issued on exchange, net of share issuance costs of $0.3 million.
In connection with the exchange of the Series A Preferred Stock, all 12,633,427 Special Shares, Series 1 previously issued to Oaktree were redeemed by the Company. The Special Shares, Series 1 entitled Oaktree to one vote per Special Share, Series 1 on all matters submitted to a vote of the holders of Common Shares.
Series B-1 Preferred StockOn April 15, 2020, the Company andJuly 2, 2022, SunOpta Foods entered into a subscription agreement (the "Series B Subscription Agreement") with Oaktree and Engaged Capital, LLC, Engaged Capital Flagship Master Fund, LP and Engaged Capital Co-Invest IV-A, LP (collectively, "Engaged"), On April 24, 2020, pursuant to the Series B Subscription Agreement, SunOpta Foods issued 15,000had 30,000 shares of Series B-1 Preferred Stock to each of Oaktreepreferred stock issued and Engaged for aggregate consideration of $30.0 million and 30,000 shares total (the "Series B-1 Preferred Stock"). In connectionoutstanding, with the issuance of the Series B-1 Preferred Stock, the Company incurred direct and incremental expenses of $3.2 million, which reduced the carrying value of the Series B-1 Preferred Stock. The carrying value of the Series B-1 Preferred Stock is being accreted through charges to accumulated deficit over the period preceding April 24, 2025. For the quarter and two quarters ended July 3, 2021, these accretion charges amounted to $0.1 million (June 27, 2020 - $0.1 million) and $0.3 million (June 27, 2020 - $0.1 million), respectively.
The Series B-1 Preferred Stock had an initial stated value anda current liquidation preference of $1,000$1,015 per share, which is adjusted for any non-cash dividends declared on the Series B-1 Preferred Stock (the "Series B-1 Liquidation Preference"). Cumulative preferred dividends accrue daily on the Series B-1 Preferred Stock at an annualized rate of 8.0% of the Series B-1 Liquidation Preference prior to September 30, 2029, and 10.0% of the liquidation preference thereafter (subject to an increase of 1.0% per quarter, up to a maximum rate of 5.0% per quarter on the occurrence of certain events of non-compliance). Prior to September 30, 2029, SunOpta Foods may pay dividends in cash or elect, in lieu of paying cash, to add the amount that would have been paid to the Series B-1 Liquidation Preference. The failure to pay dividends in cash for any quarter ending after September 30, 2029 will be an event of non-compliance. For the second quarter of 2020, SunOpta Foods elected to declare dividends on the Series B-1 Preferred Stock to be paid in kind and, as a result, the aggregate Series B-1 Liquidation Preference increased by $0.4 million to $30.4 million or approximately $1,015 per share. For each ofin the third and fourth quarters of 2020, and the first quarter of 2021, the Company paid cash dividends of $0.6 million on the Series B-1 Preferred Stock. As at July 3, 2021, the Company accrued unpaid dividends of $0.6 million for the second quarter of 2021, which are recorded in accounts payable and accrued liabilities on the consolidated balance sheet.
|
aggregate. At any time, the Series B-1 Preferred Stockpreferred stock may be exchanged, in whole or in part, into the number of shares of the Company's common stock ("Common SharesShares") equal to, per share of Series B-1 Preferred Stock,preferred stock, the quotient of the Series B Liquidation Preferenceliquidation preference divided by $2.50 (suchan exchange price the "Series B-1 Exchange Price" and such quotient, the "Series B-1 Exchange Rate"). As at July 3, 2021, the aggregate shares of Series B-1 Preferred Stock outstanding were exchangeable into 12,178,667 Common Shares. The Series B-1 Exchange Price is subject to certain anti-dilution adjustments, including a weighted-average adjustment for issuances of Common Shares below the Series B-1 Exchange Price, provided that the Series B-1 Exchange Price may not be lower than $2.00 (subject to adjustment in certain circumstances).
$2.50. On or after April 24, 2023, SunOpta Foods may cause the holders of the Series B-1 Preferred Stockpreferred stock to exchange all of their shares of Series B-1 Preferred Stock into a number of Common Shares equal topreferred stock if the number of shares of Series B-1 Preferred Stock outstanding multiplied by the Series B-1 Exchange Rate if (i) fewer than 10% of the shares of Series B-1 Preferred Stock issued on April 24, 2020 remain outstanding, or (ii) on or after April 24, 2023, the average volume-weighted average price of the Common Shares during the then preceding 20 trading day period is greater than 200% of the Series B-1 Exchange Priceexchange price then in effect.
At any time, if a holder of Preferred dividends accrue daily on the Series B-1 Preferred Stock elects to exchange, or SunOpta Foods causespreferred stock at an exchangeannualized rate of Series B Preferred Stock, the number of Common Shares delivered to each applicable holder may not cause such holder's beneficial ownership to exceed 19.99%8.0% of the Common Shares that would be outstanding immediately following such exchange (the "Seriesliquidation preference prior to September 30, 2029, and 10.0% of the liquidation preference thereafter. In each of the first two quarters of 2022, the Company paid quarterly cash dividends on the Series B-1 Exchange Cap").
preferred stock of $0.6 million, and, as at July 2, 2022, the Company accrued unpaid dividends of $0.6 million for the second quarter of 2022, which are recorded in accounts payable and accrued liabilities on the consolidated balance sheet. At any time on or after April 24, 2025, SunOpta Foods may redeem all of the Series B-1 Preferred Stockpreferred stock for an amount per share equal to the value of the Series B-1 Liquidation Preferenceliquidation preference at such time, plus accrued and unpaid dividends.
Oaktree and Engaged are entitled to vote The carrying value of the Series B-1 Preferred Stock with the Common Shares on an as-exchanged basis, subject to a permanent 19.99% voting cap. As a result of the voting cap, each of Oaktree and Engaged will only be able to vote its Series B-1 Preferred Stockpreferred stock is being accreted to the extent that, when taken together with any other voting securities each investor controls, such votes do not exceed 19.99% ofredemption value through charges to accumulated deficit, which amounted to $0.3 million for the votes eligible to be cast by all security holders of the Company. On April 24, 2020, the Company designated Special Shares, Seriestwo quarters ended July 2, to serve as the mechanism for attaching exchanged voting rights to the Series B-1 Preferred Stock. The Special Shares, Series 2 entitle the holder thereof to one vote per Special Share, Series 2 on all matters submitted to a vote of the holders of Common Shares, voting together as a single class, subject to certain exceptions. The Special Shares, Series 2 are not transferrable and the voting rights associated with the Special Shares, Series 2 will terminate upon the transfer of the shares of Series B-1 Preferred Stock to a third party, other than an affiliate of Oaktree or Engaged, as applicable. As at July2022 (July 3, 2021 6,089,333 Special Shares, Series 2 were issued to Engaged, equal to the number of Common Shares issuable to Engaged on the exchange of all of the shares of Series B-1 Preferred Stock held by it, and no Special Shares, Series 2 were issued to Oaktree, as Oaktree was subject to the Series B-1 Exchange Cap.- $0.3 million).
9.7. Stock-Based Compensation
Short-Term Incentive Plan
In connection withDuring the vesting of outstandingtwo quarters ended July 2, 2022, 1,750,935 performance share units ("PSUs") previouslywere granted to certain employees under the Company's 20202022 Short-Term Incentive Plan the Company issued 2,742,469 Common Shares during the second quarter of 2021,("STIP"), which included 1,177,397 Common Shares sold to cover the statutory income tax withholding requirements on behalf of the employees.
On March 30, 2021, the Company granted a total of 612,947 PSUs to certain employees of the Company under its 2021 Short-Term Incentive Plan. The vesting of these PSUs isvest subject to the Company achieving a predetermined measure of adjusted EBITDAearnings before interest, taxes, depreciation and amortization ("EBITDA") for fiscal 20212022 and subject to each employee's continued employment with the Company through March 30, 202231, 2023 (the requisite service period) (the "EBITDA PSUs"). The aggregateweighted-average grant-date fair value of these PSUseach EBITDA PSU was estimated to be $8.7 million$5.27 based on athe closing price of $14.25 for the Common Shares on the datedates of grant. Each reporting period, the number of PSUs that are expected to vest is redetermined and the aggregate grant-date fair value of the redetermined number of PSUs is amortized on a straight-line basis over the remaining requisite service period less amounts previously recognized. For the quarter endedAs at July 3, 2021, the Company recognized compensation expense of $2.2 million related to the number of these PSUs expected to vest, and2, 2022, the remaining compensation cost related to these EBITDA PSUs not yet recognized as an expense was determined to be $6.1$6.7 million, as at July 3, 2021.which will be amortized over the remaining requisite service period.
| SUNOPTA INC. |
| July 2, 2022 Form 10-Q |
SunOpta Inc. Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
Long-Term Incentive PlanOn March 30, 2022, all outstanding EBITDA PSUs previously granted to certain employees of the Company in connection with the Company's 2021 STIP were cancelled because the fiscal year 2021 performance condition was not achieved. No compensation expense was recognized related to these EBITDA PSUs.
On April 15, 2021,The following table summarizes all EBITDA PSU activity for the Company granted 26,305 Restricted Stock Unitstwo quarters ended July 2, 2022:
| Weighted- | ||||||
| average grant- | ||||||
| EBITDA PSUs | date fair value | |||||
| Non-vested, beginning of period | 670,171 | $ | 11.77 | |||
| Granted | 1,750,935 | 5.27 | ||||
| Vested | (58,235) | 4.91 | ||||
| Cancelled | (619,357 | ) | 12.93 | |||
| Non-vested, end of period | 1,743,514 | $ | 5.06 |
During the two quarters ended July 2, 2022, 92,877 restricted stock units ("RSUs"), 70,513522,878 PSUs and 135,6681,761,118 stock options were granted to selected employees under its 2021the Company's 2022 Long-Term Incentive Plan.Plan ("LTIP"). The RSUs vest in three equal annual installments beginning on April 15, 2022,May 5, 2023, and each vested RSU entitles the recipientemployee to receive one Common Share without payment of additional consideration. The vesting of the PSUs is dependent on the Company's total shareholder return (the "TSR"("TSR") performance relative to food and beverage companies in a designated index during the three-year period commencing January 1, 20212022 and continuing through December 31, 2023,2024, and the recipient'semployee's continued employment with the Company through April 15, 2024.May 5, 2025. The TSR for the Company and each of the companies in the designated index will be calculated using a 20-trading day average closing price as of December 31, 2023.2024. The percentage of vested PSUs may range from 0% to 200% based on the Company's achievement of predetermined TSR thresholds. Each vested PSU entitles the recipientemployee to receive one Common Share without payment of additional consideration.consideration, with the Board of Directors having the option to settle vested PSUs in whole or part in cash in lieu of Common Shares. As at July 2, 2022, the Company had the intent and ability to settle the PSUs in Common Shares. The stock options vest ratably on each of the first through third anniversaries of the grant date and expire on the tenth anniversary of the grant date. Each vested stock option entitles the recipientemployee to purchase one Common Share at an exercise price of $14.77,$5.91, which was the closing price of the Common Shares on April 15, 2021. May 5, 2022.
The grant-date fair value of the RSUseach RSU was estimated to be $14.77$5.91 based on the closing price of the Common Shares on the date of grant. A grant-date fair value of $23.40$8.48 was estimated for the PSUseach PSU using a Monte Carlo valuation model, and a grant-date fair value of $8.33$3.48 was estimated for theeach stock optionsoption using the Black-Scholes option pricing model. The following table summarizes the assumptions used to determine the fair values of the PSUs and stock options granted.granted under the 2022 LTIP.
| PSUs | Stock options | ||||||||
| Grant-date stock price | $ | 14.77 | $ | 14.77 | |||||
| Exercise price | NA | $ | 14.77 | ||||||
| Dividend yield | 0% | 0% | |||||||
| Expected volatility(1) | 76.9% | 61.7% | |||||||
| Risk-free interest rate(2) | 0.3% | 1.0% | |||||||
| Expected life (in years)(3) | 2.71 | 6.00 | |||||||
| PSUs | Stock options | ||||
| Grant-date stock price | $ | 5.91 | $ | 5.91 | |
| Exercise price | NA | $ | 5.91 | ||
| Dividend yield | 0% | 0% | |||
| Expected volatility(a) | 67.8% | 61.6% | |||
| Risk-free interest rate(b) | 2.8% | 3.0% | |||
| Expected life (in years)(c) | 2.7 | 6.0 |
(1) (a)Determined based on the historical volatility of the Common Shares over the performance period of the PSUs and expected life of the stock options.
(2) (b)Determined based on U.S. Treasury yields with a remaining term equal to the performance period of the PSUs and expected life of the stock options.
(3) (c)Determined based on the performance period of the PSUs and the mid-point of vesting (three years) and expiration (ten years) for the stock options.
| SUNOPTA INC. | 15 | July 2, 2022 Form 10-Q |
SunOpta Inc. Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
10.8. Other Expense, Net
The components of other expense (income) were as follows:
| Quarter ended | Two quarters ended | |||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||
| $ | $ | $ | $ | |||||||||
| Facility closure and related costs(1) | 2,962 | 0 | 4,394 | 0 | ||||||||
| Employee termination costs (recovery)(2) | 1,161 | (377 | ) | 1,161 | 193 | |||||||
| Divestiture costs(3) | 291 | 0 | 474 | 0 | ||||||||
| Settlement loss, net(4) | 163 | 0 | 163 | 0 | ||||||||
| Product withdrawal recovery(5) | 0 | (322 | ) | 0 | (322 | ) | ||||||
| Other | 84 | (136 | ) | 84 | (151 | ) | ||||||
| 4,661 | (835 | ) | 6,276 | (280 | ) | |||||||
| Quarter ended | Two quarters ended | |||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Facility closure costs(1) | 1,287 | 2,962 | 1,287 | 4,394 | ||||||||
| Settlement losses, net(2) | 283 | 163 | 283 | 163 | ||||||||
| Asset impairment charges | - | - | 260 | - | ||||||||
| Employee termination costs(3) | - | 1,161 | - | 1,161 | ||||||||
| Divestiture costs(4) | - | 291 | - | 474 | ||||||||
| Other | (30 | ) | 84 | (3 | ) | 84 | ||||||
| 1,540 | 4,661 | 1,827 | 6,276 | |||||||||
(1)Facility closure costs |
(1) Facility closureFor the quarter and two quarters ended July 2, 2022, expense primarily relates to the relocation of certain equipment from the Company's held-for-sale Oxnard, California, fruit processing facility to its Mexican facility.
For the quarter and two quarters ended July 3, 2021, expense represents asset impairment charges related to the exit from the Company's South Gate, California, fruit ingredient processing facility. In addition, for the two quarters ended July 3, 2021, expense includes costs to complete the exit from the Company's Santa Maria, California, frozen fruit processing facility.
(2)Settlement losses, net
For the quarter and two quarters ended July 2, 2022 and July 3, 2021, expense represents net losses incurred on the settlement of certain legal and contractual matters.
(3)Employee termination costs
For the quarter and two quarters ended July 3, 2021, the Company recognized asset impairment charges of $3.0 million in connection with its decision to exit its leased South Gate, California, fruit ingredient processing facility in July 2021. In addition, for the two quarters ended July 3, 2021, facility closure costs include costs to complete the exit from the Company's Santa Maria, California, frozen fruit processing facility that commenced in the fourth quarter of 2020 and was substantially completed by February 2021.
(2) Employeeexpense represents termination costs (recovery)
For the quarter ended July 3, 2021, expense represents employee termination costs of $1.2 million for the approximately 60 employees impacted by the closure of the Company's fruit ingredient processing facility.
For the quarter and two quarters ended June 27, 2020, expense includes severance benefits of $0.1 million and $1.1 million, respectively, for employees terminated in connection with the consolidation of the Company's corporate office functions into Minneapolis, Minnesota, net of reversal of $0.4 million and $0.9 million, respectively, of previously recognized stock-based compensation expense related to forfeited awards previously granted to terminated employees.(4)
(3) Divestiture costs
For the quarter and two quarters ended July 3, 2021, expense relates to professional fees incurred in connection with post-closingpost- closing matters related to the 2020 divestiture of the Company's global ingredients business, Tradin Organic.
(4) Settlement loss, net
For the quarter and two quarters ended July 3, 2021, expense represents a $0.5 million loss on the settlement of an employment-related legal matter, partially offset by a gain related to a project cancellation.
(5) Product withdrawal recovery
For the quarter and two quarters ended June 27, 2020, income represents the reversal of previously accrued costs related to a withdrawal of certain consumer-packaged products. These costs were recognized in other expense in 2016.
| SUNOPTA INC. |
| July 2, 2022 Form 10-Q |
SunOpta Inc. Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
11.9. Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share were calculated as follows (shares in thousands):
| Quarter ended | Two quarters ended | |||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||
| Basic Earnings (Loss) Per Share | ||||||||||||
| Numerator for basic earnings (loss) per share: | ||||||||||||
| Earnings (loss) from continuing operations | $ | (918 | ) | $ | (5,133 | ) | $ | 754 | $ | (9,097 | ) | |
| Less: dividends and accretion on Series A Preferred Stock | 0 | (2,066 | ) | (1,212 | ) | (4,091 | ) | |||||
| Less: dividends and accretion on Series B-1 Preferred Stock | (744 | ) | (538 | ) | (1,485 | ) | (538 | ) | ||||
| Loss from continuing operations attributable to common shareholders | (1,662 | ) | (7,737 | ) | (1,943 | ) | (13,726 | ) | ||||
| Earnings from discontinued operations | 0 | 6,140 | 0 | 13,465 | ||||||||
| Loss attributable to common shareholders | $ | (1,662 | ) | $ | (1,597 | ) | $ | (1,943 | ) | $ | (261 | ) |
| Denominator for basic earnings (loss) per share: | ||||||||||||
| Basic weighted-average number of shares outstanding | 105,676 | 89,089 | 100,898 | 88,625 | ||||||||
| Basic earnings (loss) per share: | ||||||||||||
| From continuing operations | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.02 | ) | $ | (0.15 | ) |
| From discontinued operations | 0 | 0.07 | 0 | 0.15 | ||||||||
| Basic loss per share | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.00 | ) |
| Diluted Earnings (Loss) Per Share | ||||||||||||
| Numerator for diluted earnings (loss) per share: | ||||||||||||
| Earnings (loss) from continuing operations | $ | (918 | ) | $ | (5,133 | ) | $ | 754 | $ | (9,097 | ) | |
| Less: dividends and accretion on Series A Preferred Stock | 0 | (2,066 | ) | (1,212 | ) | (4,091 | ) | |||||
| Less: dividends and accretion on Series B-1 Preferred Stock | (744 | ) | (538 | ) | (1,485 | ) | (538 | ) | ||||
Loss from continuing operations attributable to common shareholders | (1,662 | ) | (7,737 | ) | (1,943 | ) | (13,726 | ) | ||||
| Earnings from discontinued operations | 0 | 6,140 | 0 | 13,465 | ||||||||
| Loss attributable to common shareholders | $ | (1,662 | ) | $ | (1,597 | ) | $ | (1,943 | ) | $ | (261 | ) |
| Denominator for diluted earnings (loss) per share: | ||||||||||||
| Basic weighted-average number of shares outstanding | 105,676 | 89,089 | 100,898 | 88,625 | ||||||||
| Dilutive effect of the following: | ||||||||||||
Stock options, restricted stock units and performance share units(1) | 0 | 0 | 0 | 0 | ||||||||
| Series B-1 Preferred Stock(2) | 0 | 0 | 0 | 0 | ||||||||
| Series A Preferred Stock(3) | 0 | 0 | 0 | 0 | ||||||||
| Diluted weighted-average number of shares outstanding | 105,676 | 89,089 | 100,898 | 88,625 | ||||||||
| Diluted earnings (loss) per share: | ||||||||||||
| From continuing operations | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.02 | ) | $ | (0.15 | ) |
| From discontinued operations | 0 | 0.07 | 0 | 0.15 | ||||||||
| Diluted loss per share | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.00 | ) |
| Quarter ended | Two quarters ended | |||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||
| Basic Earnings (Loss) Per Share | ||||||||||||
| Numerator for basic earnings (loss) per share: | ||||||||||||
| Earnings (loss) from continuing operations | $ | 2,498 | $ | (918 | ) | $ | 3,152 | $ | 754 | |||
| Less: dividends and accretion on preferred stock | (760 | ) | (744 | ) | (1,515 | ) | (2,697 | ) | ||||
Earnings (loss) from continuing operations attributable to common shareholders | 1,738 | (1,662 | ) | 1,637 | (1,943 | ) | ||||||
| Earnings (loss) from discontinued operations | (814 | ) | - | 2,752 | - | |||||||
| Earnings (loss) attributable to common shareholders | $ | 924 | $ | (1,662 | ) | $ | 4,389 | $ | (1,943 | ) | ||
| Denominator for basic earnings (loss) per share: | ||||||||||||
| Basic weighted-average number of shares outstanding | 107,622 | 105,676 | 107,510 | 100,898 | ||||||||
| Basic earnings (loss) per share: | ||||||||||||
| From continuing operations | $ | 0.02 | $ | (0.02 | ) | $ | 0.02 | $ | (0.02 | ) | ||
| From discontinued operations | (0.01 | ) | - | 0.03 | - | |||||||
| Basic earnings (loss) per share | $ | 0.01 | $ | (0.02 | ) | $ | 0.04 | $ | (0.02 | ) | ||
| Diluted Earnings (Loss) Per Share | ||||||||||||
| Numerator for diluted earnings (loss) per share: | ||||||||||||
| Earnings (loss) from continuing operations | $ | 2,498 | $ | (918 | ) | $ | 3,152 | $ | 754 | |||
| Less: dividends and accretion on preferred stock | (760 | ) | (744 | ) | (1,515 | ) | (2,697 | ) | ||||
Earnings (loss) from continuing operations attributable to common shareholders | 1,738 | (1,662 | ) | 1,637 | (1,943 | ) | ||||||
| Earnings (loss) from discontinued operations | (814 | ) | - | 2,752 | - | |||||||
| Earnings (loss) attributable to common shareholders | $ | 924 | $ | (1,662 | ) | $ | 4,389 | $ | (1,943 | ) | ||
| Denominator for diluted earnings (loss) per share: | ||||||||||||
| Basic weighted-average number of shares outstanding | 107,622 | 105,676 | 107,510 | 100,898 | ||||||||
| Dilutive effect of the following: | ||||||||||||
Stock options, restricted stock units and performance share units(1) | 1,045 | - | 985 | - | ||||||||
| Preferred stock(2) | - | - | - | - | ||||||||
| Diluted weighted-average number of shares outstanding | 108,667 | 105,676 | 108,495 | 100,898 | ||||||||
| Diluted earnings (loss) per share: | ||||||||||||
| From continuing operations | $ | 0.02 | $ | (0.02 | ) | $ | 0.02 | $ | (0.02 | ) | ||
| From discontinued operations | (0.01 | ) | - | 0.03 | - | |||||||
| Diluted earnings (loss) per share | $ | 0.01 | $ | (0.02 | ) | $ | 0.04 | $ | (0.02 | ) | ||
(1) For the quarter and two quarters ended July 2, 2022, stock options and RSUs to purchase or receive 2,544,112 (July 3, 2021 - 263,134) and 2,551,746 (July 3, 2021 - 260,634) potential common shares, respectively, were anti-dilutive because the assumed proceeds exceeded the average market price of the Common Shares for the respective periods. In addition, for the quarter and two quarters ended July 3, 2021, 2,764,865 (June 27, 2020 - 753,645) and 4,317,118 (June 27, 2020 - 876,593) potential common shares, respectively, were excluded from the calculation of diluted loss per share due to their effect of reducing the loss per share from continuing operations.share. Dilutive potential common shares consist of stock options, RSUs, and certain contingently issuable PSUs. In addition, for the quarter and two quarters ended July 3, 2021, stock options and RSUs to purchase or receive 263,134 (June 27, 2020 - 2,629,179) and 260,634 (June 27, 2020 - 3,079,418) potential common shares, respectively, were anti-dilutive because the assumed proceeds exceeded the average market price of the Common Shares for the respective periods.
| SUNOPTA INC. | 17 | July 2, 2022 Form 10-Q |
| Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
(2)For the quarter and two quarters ended July 2, 2022 and July 3, 2021, and June 27, 2020, it was more dilutive to assume the Series B-1 Preferred Stockpreferred stock was not converted into Common Shares and, therefore, the numerator of the diluted earnings (loss) per share calculation was not adjusted to add back the dividends and accretion on the Series B-1 Preferred Stockpreferred stock and the denominator was not adjusted to include 12,178,667 and 12,000,000 Common Shares issuable on an if-converted basis as at July 3, 20212, 2022 and June 27, 2020, respectively.
(3) As described in note 8, on February 22, 2021, all shares of Series A Preferred Stock were exchanged for 12,633,427 Common Shares, representing 12.3% of the Company's issued and outstanding Common Shares on a post-exchange basis as at February 22, 2021. For the quarter and two quarters ended June 27, 2020, it was more dilutive to assume the Series A Preferred Stock was not converted into Common Shares and, therefore, the numerator of the diluted earnings per share calculation was not adjusted to add back the dividends and accretion on the Series A Preferred Stock and the denominator was not adjusted to include 12,385,714 Common Shares issuable on an if-converted basis as at June 27, 2020.
12. Supplemental Cash Flow Information
| Quarter ended | Two quarters ended | ||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||
| $ | $ | $ | $ | ||||||||||
| Changes in Operating Assets and Liabilities | |||||||||||||
| Accounts receivable | 5,118 | 17,612 | (10,385 | ) | (251 | ) | |||||||
| Inventories | (64,514 | ) | (33,858 | ) | (82,108 | ) | (727 | ) | |||||
| Accounts payable and accrued liabilities | 7,420 | 7,827 | 14,920 | 1,543 | |||||||||
| Other operating assets and liabilities | 1,654 | 705 | 5,595 | 8,145 | |||||||||
| (50,322 | ) | (7,714 | ) | (71,978 | ) | 8,710 | |||||||
| Non-Cash Investing and Financing Activities | |||||||||||||
| Right-of-use assets obtained in exchange for lease liabilities: | |||||||||||||
| Operating leases(1) | 16,275 | 116 | 17,289 | 193 | |||||||||
| Finance leases (see note 7(2)) | 0 | 0 | 29,906 | 0 | |||||||||
| Change in accrued additions to property, plant and equipment | 1,397 | 3,229 | (617 | ) | 2,502 | ||||||||
| Change in accrued dividends on preferred stock | 0 | 481 | (1,769 | ) | 481 | ||||||||
| Dividends paid in kind on preferred stock | 0 | 1,700 | 0 | 1,700 | |||||||||
Change in accrued transaction costs related to the divestiture of Tradin Organic(2) | 0 | 0 | (13,380 | ) | 0 | ||||||||
| Change in accrued debt issuance costs | 0 | 0 | (1,690 | ) | 0 | ||||||||
(1) For the quarter and two quarters ended July 3, 2021, the Company recognized additional operating right-of-use assets of $16.3 million and $17.3 million, respectively, together with a corresponding amount of operating lease liabilities, mainly related to the addition of a new warehouse facility and related equipment to support the Company's plant-based food and beverage operations. The initial term of the warehouse facility lease is approximately 10 years, and the operating lease liability was measured using the Company's incremental borrowing rate of approximately 4.50%.
(2) For the two quarters ended July 3, 2021, the settlement of transaction costs related to the divestiture of Tradin Organic is included in investing activities of discontinued operations on consolidated statements of cash flows.2021.
|
13.10. Supplemental Cash Flow Information
| Quarter ended | Two quarters ended | |||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Changes in Operating Assets and Liabilities | ||||||||||||
| Accounts receivable | 14,416 | 5,118 | (1,019) | (10,385) | ||||||||
| Inventories | (43,924 | ) | (64,514 | ) | (41,756 | ) | (82,108 | ) | ||||
| Accounts payable and accrued liabilities | 13,571 | 7,420 | 27,111 | 14,920 | ||||||||
| Other operating assets and liabilities | (6,515 | ) | 1,654 | (3,507 | ) | 5,595 | ||||||
| (22,452 | ) | (50,322 | ) | (19,171 | ) | (71,978 | ) | |||||
| Non-Cash Investing and Financing Activities | ||||||||||||
Change in additions to property, plant and equipment included in accounts payable and accrued liabilities | 337 | 1,397 | (5,439 | ) | (617 | ) | ||||||
Change in accounts payable and accrued liabilities related to discontinued operations | (6,324 | ) | - | - | (13,380 | ) | ||||||
| Change in accrued dividends on preferred stock | - | - | - | (1,769 | ) | |||||||
| Change in accrued debt issuance costs | - | - | - | (1,690 | ) | |||||||
11. Commitments and Contingencies
Legal Proceedings
Various claimscurrent and potential claims and litigation arising in the normalordinary course of business are pending against the Company. It isThe Company believes it has established adequate accruals for liabilities that are probable and reasonably estimable that may be incurred in connection with any such currently pending matter. In the Company's opinion, the eventual resolution of management that these claimssuch matters, either individually or potential claims are without merit andin the amount of potential liability, if any, to the Companyaggregate, is not determinable. Management believesexpected to have a material impact on the final determination of these claims or potential claims will not materially affect theCompany's financial position, or results of operations, or cash flows. However, litigation is inherently unpredictable and resolutions or dispositions of claims or lawsuits by settlement or otherwise could have an adverse impact on the Company's financial position, results of operations, and cash flows for the reporting period in which any such resolution or disposition occurs.
Arbitration Proceedings
On January 31, 2022, Amsterdam Commodities N.V. ("Acomo") submitted a Request for Summary Arbitral Proceedings to the Netherlands Arbitration Institute, which was later amended on February 16, 2022, asserting alleged claims against the Company and its subsidiaries, Coöperatie SunOpta U.A. and SunOpta Holdings LLC, relating to a dispute regarding the allocation of the Company. purchase price Acomo paid to acquire the shares of The Organic Corporation B.V. and the membership interests of Tradin Organics USA LLC in connection with the closing of the transactions contemplated by the Master Purchase Agreement entered into by Acomo, the Company and the aforementioned subsidiaries on November 25, 2020 (the "Transaction"). On May 25, 2022, the parties entered into a definitive Settlement Agreement to resolve all outstanding matters related to the Master Purchase Agreement, following which the Request for Summary Arbitral Proceedings was withdrawn. In connection with the Settlement Agreement, the Company recognized a loss from discontinued operations of $0.8 million for the quarter ended July 2, 2022 and earnings of $2.8 million for the two quarters ended July 2, 2022, which reflected the estimated tax benefits resulting from the final allocation of the purchase price between the share capital of The Organic Corporation B.V. and the membership interests of Tradin Organics USA LLC, partially offset by a cash payment of $5.9 million from the Company to Acomo to settle certain post-closing adjustments related to the Transaction, as well as professional fees incurred in connection with the arbitration proceedings.
| SUNOPTA INC. | 18 | July 2, 2022 Form 10-Q |
SunOpta Inc. Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
14. Segmented12. Segment Information
The segment information below is presented on a continuing operations basis, with prior period information recast to reflect the reporting of Tradin Organic as discontinued operations. Following the divestiture of Tradin Organic, the composition of the Company's two continuing operating segments is as follows:
Corporate Services provides a variety of management, financial, information technology, treasury, and administration services to each of the Company's operating segments.
When reviewing the operating results of the Company's operating segments, management uses segment revenues from external customers and segment operating income/loss to assess performance and allocate resources. Total segment operating income/loss includes general and administrative expenses incurred by Corporate Services and excludes other income/expense items and goodwill impairments.items. In addition, interest on corporate debt and income taxes are not allocated to the operating segments.
|
Segment Revenues and Operating Income
Reportable segment operating results for the quarters and two quarters ended July 2, 2022 and July 3, 2021 were as follows:
| Quarter ended | Two quarters ended | |||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenues from external customers | ||||||||||||
| Plant-Based Foods and Beverages | 145,912 | 111,359 | 281,423 | 230,810 | ||||||||
| Fruit-Based Foods and Beverages | 97,619 | 90,914 | 202,281 | 179,103 | ||||||||
| Total revenues from external customers | 243,531 | 202,273 | 483,704 | 409,913 | ||||||||
| Segment operating income (loss) | ||||||||||||
| Plant-Based Foods and Beverages | 12,196 | 8,641 | 20,292 | 21,958 | ||||||||
| Fruit-Based Foods and Beverages | 3,211 | (1,447) | 3,995 | (3,341) | ||||||||
| Corporate Services | (7,298 | ) | (5,471 | ) | (12,262 | ) | (10,809 | ) | ||||
| Total segment operating income | 8,109 | 1,723 | 12,025 | 7,808 | ||||||||
| Other expense, net (see note 8) | (1,540 | ) | (4,661 | ) | (1,827 | ) | (6,276 | ) | ||||
| Interest expense, net | (3,132 | ) | (1,631 | ) | (5,662 | ) | (3,291 | ) | ||||
| Earnings (loss) from continuing operations before | ||||||||||||
| income taxes | 3,437 | (4,569 | ) | 4,536 | (1,759 | ) | ||||||
| SUNOPTA INC. | 19 | July 2, 2022 Form 10-Q |
SunOpta Inc. Notes to Consolidated Financial Statements For the quarters and two quarters ended July 2, 2022 and July 3, 2021 (Unaudited) |
Disaggregation of Revenue
The following table presents a disaggregation of revenues by operating segment based on categories used by the Company to evaluate sales performance:
| Quarter ended | Two quarters ended | |||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Plant-Based Foods and Beverages | ||||||||||||
| Beverages and broths | 114,898 | 87,494 | 223,520 | 182,980 | ||||||||
| Plant-based ingredients | 9,712 | 7,578 | 19,438 | 15,422 | ||||||||
| Sunflower and roasted snacks | 21,302 | 16,287 | 38,465 | 32,408 | ||||||||
| Total Plant-Based Foods and Beverages | 145,912 | 111,359 | 281,423 | 230,810 | ||||||||
| Fruit-Based Foods and Beverages | ||||||||||||
| Frozen fruit and fruit-based ingredients | 74,164 | 75,076 | 157,657 | 146,890 | ||||||||
| Fruit snacks and smoothie bowls | 23,455 | 15,838 | 44,624 | 32,213 | ||||||||
| Total Fruit-Based Foods and Beverages | 97,619 | 90,914 | 202,281 | 179,103 | ||||||||
| Total revenues | 243,531 | 202,273 | 483,704 | 409,913 | ||||||||
Segment Assets
Total assets by operating segment as at July 2, 2022 and June 27, 2020January 1, 2022 were as follows:
| July 2, 2022 | January 1, 2022 | |||||
| $ | $ | |||||
| Plant-Based Foods and Beverages | 370,417 | 301,065 | ||||
| Fruit-Based Foods and Beverages | 378,798 | 368,976 | ||||
| Corporate Services | 83,116 | 85,078 | ||||
| Assets held for sale (note 3) | 11,591 | - | ||||
| Total assets | 843,922 | 755,119 |
| Quarter ended | Two quarters ended | |||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||
| $ | $ | $ | $ | |||||||||
| Segment revenues from external customers | ||||||||||||
| Plant-Based Foods and Beverages | 111,359 | 91,705 | 230,810 | 197,947 | ||||||||
| Fruit-Based Foods and Beverages | 90,914 | 92,696 | 179,103 | 194,051 | ||||||||
| Total revenues from external customers | 202,273 | 184,401 | 409,913 | 391,998 | ||||||||
| Segment operating income (loss) | ||||||||||||
| Plant-Based Foods and Beverages | 8,641 | 10,484 | 21,958 | 24,337 | ||||||||
| Fruit-Based Foods and Beverages | (1,447 | ) | (2,016 | ) | (3,341 | ) | (6,718 | ) | ||||
| Corporate Services | (5,471 | ) | (8,844 | ) | (10,809 | ) | (15,236 | ) | ||||
| Total segment operating income (loss) | 1,723 | (376 | ) | 7,808 | 2,383 | |||||||
| Other income (expense), net (see note 10) | (4,661 | ) | 835 | (6,276 | ) | 280 | ||||||
| Interest expense, net | (1,631 | ) | (7,413 | ) | (3,291 | ) | (15,078 | ) | ||||
Loss from continuing operations before income taxes | (4,569 | ) | (6,954 | ) | (1,759 | ) | (12,415 | ) | ||||
Depreciation and amortization by reportableoperating segment for the quarters and two quarters ended July 2, 2022 and July 3, 2021 and June 27, 2020 was as follows:
| Quarter ended | Two quarters ended | |||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Plant-Based Foods and Beverages | 4,572 | 3,881 | 9,006 | 7,015 | ||||||||
| Fruit-Based Foods and Beverages | 3,380 | 3,861 | 7,061 | 7,630 | ||||||||
| Corporate Services | 1,420 | 1,168 | 2,718 | 2,308 | ||||||||
| Total depreciation and amortization | 9,372 | 8,910 | 18,785 | 16,953 | ||||||||
| SUNOPTA INC. | 20 | July 2, 2022 Form 10-Q |
| Quarter ended | Two quarters ended | |||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||
| $ | $ | $ | $ | |||||||||
| Plant-Based Foods and Beverages | 3,881 | 2,380 | 7,015 | 4,748 | ||||||||
| Fruit-Based Foods and Beverages | 3,861 | 4,110 | 7,630 | 8,246 | ||||||||
| Corporate Services | 1,168 | 1,165 | 2,308 | 2,386 | ||||||||
| Total depreciation and amortization | 8,910 | 7,655 | 16,953 | 15,380 | ||||||||
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Financial Information
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the interim consolidated financial statements, and notes thereto, for the quarter ended July 3, 20212, 2022 contained under Item 1 of this Quarterly Report on Form 10-Q and in conjunction with the annual consolidated financial statements, and notes thereto, contained in the Annual Report on Form 10-K for the fiscal year ended January 2, 2021 ("Form1, 2022 (the "Form 10-K"). Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to August 11, 2021. 2022.
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. These factors are more fully described in the "Risk Factors" section at Item 1A of the Form 10-K and Item 1A of Part II of this report.
Forward-looking statements contained in this commentary are based on our current estimates, expectations, and projections, which we believe are reasonable as of the date of this report. Forward-looking statements are not guarantees of future performance or events. You should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Other than as required under securities laws, we do not undertake to update any forward-lookingforward- 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 procure, process, and package plant-based and fruit-based food and beverage products for sale to retailers, foodservice operators, branded food companies, and food manufacturers. The composition of our two operating segments is as follows:
•Plant-Based Foods and Beverages - We offer a full line of plant-based beverages and liquid and drypowder ingredients (utilizing oat, almond, rice, soy, coconut, rice, 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, and other berries and blends), and IQF and bulk frozen fruit for foodservice (including toppings, purées, and smoothies). In addition, we offer fruit snacks, including bars, twists, ropes, and bite-sized varieties. Prior to the exit from ourvarieties, as well as fruit ingredient processing facility in July 2021 (as described below under "Recent Developments"), we also produced custom fruit preparations for industrial use.smoothie bowls.
| SUNOPTA INC. |
| July |
Until December 2020, we had a third operating segment referred to as Global Ingredients that comprised our organic ingredient sourcing and production business, Tradin Organic, which we sold on December 30, 2020. The segment information presented in this MD&A for the quarter and two quarters ended June 27, 2020 has been recast to reflect the reporting of Tradin Organic as discontinued operations.
Acquisition of Dream® and WestSoy® Brands
On April 15, 2021, we acquired the Dream and WestSoy plant-based beverage brands and related private label products in North America from The Hain Celestial Group, Inc. The Dream brand comprises shelf-stable, plant-based milks, including rice, soy, almond, coconut, and oat varieties, and the WestSoy brand comprises shelf-stable soy beverages that are organic certified. Together, the Dream and WestSoy brands generated revenues from external customers of approximately $40 million in 2020. We currently produce approximately one-half of the Dream product line and all of the WestSoy products. We intend to bring production of the remaining Dream products in-house over the 12-month period following the date of acquisition. We expect these acquired brands will complement our core private label and co-manufacturing plant-based beverage business, while providing a platform for marketing our own plant-based product innovations.
The $33 million base purchase price for the Dream and WestSoy brands was partially funded by a new $20 million first-in-last-out ("FILO") term loan under our revolving credit facility (as described below under "Liquidity and Capital Resources.")
Exit from Fruit Ingredient Processing Facility
On April 12, 2021, we finalized our decision to exit our leased South Gate, California, fruit ingredient processing facility in July 2021. We will be transferring production of fruit-based toppings to our Jacona, Mexico, processing facility, while exiting the preparation of fruit-based yogurt and bakery applications. In the second quarter of 2021, we recognized $3.0 million of asset impairment charges and $1.2 million of employee termination costs in connection with this closure.
Impact of COVID-19Current Macroeconomic Conditions
We continue to actively addressbe exposed to macroeconomic pressures including supply chain and labor challenges, inflation, and rising interest rates, as well as potential impacts from the impactspersistent COVID-19 pandemic and the Russia-Ukraine war. We have been successful, however, in mitigating the effects of the COVID-19 global pandemic onsupply chain and labor issues that adversely affected the efficiency of our operations. We began to experience impacts to our business and results of operations late in the second half of 2021 and first quarter of 2020, and these impacts continued throughout the remainder of fiscal 2020. As a result, during the last nine months of 2020, we saw significant shifts in the mix of our business,2022, resulting in lower demand for our foodimproved plant utilization 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 customers as consumers increased their at-home food and beverage consumption. With the easing of COVID-19 restrictions, we saw overall higher foodservice demand and lower retail volumesproduction output in the second quarter of 2021, compared with2022, and enabling us to alleviate the same period last year,shortfall in our customer order fulfillment. In addition, through the pricing actions we took to offset inflation pressures on raw materials and packaging, as more foodservice outlets reopenedwell as fuel costs and consumer buying patterns adaptedfreight rates, we effectively passed-through most of these higher input costs to our customers during the evolving environment. second quarter of 2022. We were also able to largely absorb other inflationary impacts on labor costs and utility rates, as well as any remaining unrecovered raw material cost inflation, through the improved efficiency of our manufacturing plant operations. However, despite the actions we have taken to date, we may continue to experience further supply chain and labor challenges, and inflation impacts on our operations in future periods. In addition, the current economic inflation is impacting purchasing behaviors, as consumers reduce discretionary spending and shift to lower priced product alternatives. As a result, we have experienced a softening of demand for certain of our products and from certain of our customers, mainly within our frozen fruit business, which has had, and may continue to have, a negative impact on our results of operations. In addition, recent changes to U.S. monetary policy, including higher interest rates, have increased our current cost of borrowing and may limit our access to additional sources of financing to support our operations and investment plans.
To date, we have not experienced any material interruptions in our plant operations due to employee absences, or to our supply chains as a result of the pandemic. However, we have seen significant increases in transportation costs due to disruptions caused by or related to the pandemic.Assets Held for Sale
To date,On July 6, 2022, we finalized an agreement to sell our frozen fruit processing facility located in Oxnard, California, for gross proceeds of $16.5 million, payable in cash on the impactsclosing of the COVID-19 pandemic ontransaction, which is expected to occur in the third quarter of 2022. The sale of the Oxnard facility was facilitated by our efforts to expand the production capacity and capabilities of our frozen fruit operations have not had a significant impact onin Mexico, including the relocation of certain equipment from the Oxnard facility to Mexico, together with the diversification of our liquidity, cash flows or capital resources. fruit sourcing from California to Central and South America.
| SUNOPTA INC. |
| July |
Consolidated Results of Operations for the Quarters Ended July 2, 2022 and July 3, 2021 and June 27, 2020
| July 3, 2021 | June 27, 2020 | Change | Change | ||||||||||
| For the quarter ended | $ | $ | $ | % | |||||||||
| Revenues | |||||||||||||
| Plant-Based Foods and Beverages | 111,359 | 91,705 | 19,654 | 21.4% | |||||||||
| Fruit-Based Foods and Beverages | 90,914 | 92,696 | (1,782 | ) | -1.9% | ||||||||
| Total revenues | 202,273 | 184,401 | 17,872 | 9.7% | |||||||||
| Gross Profit | |||||||||||||
| Plant-Based Foods and Beverages | 19,896 | 16,731 | 3,165 | 18.9% | |||||||||
| Fruit-Based Foods and Beverages | 6,440 | 6,528 | (88 | ) | -1.3% | ||||||||
| Total gross profit | 26,336 | 23,259 | 3,077 | 13.2% | |||||||||
| Segment operating income (loss)(1) | |||||||||||||
| Plant-Based Foods and Beverages | 8,641 | 10,484 | (1,843 | ) | -17.6% | ||||||||
| Fruit-Based Foods and Beverages | (1,447 | ) | (2,016 | ) | 569 | 28.2% | |||||||
| Corporate Services | (5,471 | ) | (8,844 | ) | 3,373 | 38.1% | |||||||
| Total segment operating income (loss) | 1,723 | (376 | ) | 2,099 | 558.2% | ||||||||
| Other expense (income), net | 4,661 | (835 | ) | 5,496 | 658.2% | ||||||||
| Earnings (loss) from continuing operations before the following | (2,938 | ) | 459 | (3,397 | ) | -740.1% | |||||||
| Interest expense, net | 1,631 | 7,413 | (5,782 | ) | -78.0% | ||||||||
| Income tax benefit | (3,651 | ) | (1,821 | ) | (1,830 | ) | -100.5% | ||||||
| Loss from continuing operations(2),(3) | (918 | ) | (5,133 | ) | 4,215 | 82.1% | |||||||
| Earnings from discontinued operations | - | 6,140 | (6,140 | ) | -100.0% | ||||||||
| Net earnings (loss) | (918 | ) | 1,007 | (1,925 | ) | -191.2% | |||||||
| Dividends and accretion on preferred stock | (744 | ) | (2,604 | ) | 1,860 | 71.4% | |||||||
| Loss attributable to common shareholders(4) | (1,662 | ) | (1,597 | ) | (65 | ) | -4.1% | ||||||
| July 2, 2022 | July 3, 2021 | Change | Change | ||||||||||
| For the quarter ended | $ | $ | $ | % | |||||||||
| Revenues | |||||||||||||
| Plant-Based Foods and Beverages | 145,912 | 111,359 | 34,553 | 31.0% | |||||||||
| Fruit-Based Foods and Beverages | 97,619 | 90,914 | 6,705 | 7.4% | |||||||||
| Total revenues | 243,531 | 202,273 | 41,258 | 20.4% | |||||||||
| Gross Profit | |||||||||||||
| Plant-Based Foods and Beverages | 23,940 | 19,896 | 4,044 | 20.3% | |||||||||
| Fruit-Based Foods and Beverages | 10,958 | 6,440 | 4,518 | 70.2% | |||||||||
| Total gross profit | 34,898 | 26,336 | 8,562 | 32.5% | |||||||||
| Gross Margin | |||||||||||||
| Plant-Based Foods and Beverages | 16.4% | 17.9% | -1.5% | ||||||||||
| Fruit-Based Foods and Beverages | 11.2% | 7.1% | 4.1% | ||||||||||
| Total gross margin | 14.3% | 13.0% | 1.3% | ||||||||||
| Segment operating income (loss)(1) | |||||||||||||
| Plant-Based Foods and Beverages | 12,196 | 8,641 | 3,555 | 41.1% | |||||||||
| Fruit-Based Foods and Beverages | 3,211 | (1,447) | 4,658 | 321.9% | |||||||||
| Corporate Services | (7,298 | ) | (5,471 | ) | (1,827 | ) | -33.4% | ||||||
| Total segment operating income | 8,109 | 1,723 | 6,386 | 370.6% | |||||||||
| Other expense, net | 1,540 | 4,661 | (3,121 | ) | -67.0% | ||||||||
| Earnings (loss) before the following | 6,569 | (2,938 | ) | 9,507 | 323.6% | ||||||||
| Interest expense, net | 3,132 | 1,631 | 1,501 | 92.0% | |||||||||
| Income tax expense (benefit) | 939 | (3,651 | ) | 4,590 | 125.7% | ||||||||
| Earnings (loss) from continuing operations(2),(3) | 2,498 | (918 | ) | 3,416 | 372.1% | ||||||||
| Loss from discontinued operations | (814 | ) | - | (814 | ) | - | |||||||
| Net earnings (loss) | 1,684 | (918 | ) | 2,602 | 283.4% | ||||||||
| Dividends and accretion on preferred stock | (760 | ) | (744 | ) | (16 | ) | -2.2% | ||||||
| Earnings (loss) attributable to common shareholders(4) | 924 | (1,662 | ) | 2,586 | 155.6% | ||||||||
(1)When assessing the financial performance of our operating segments, we use an internal measure of operating income/loss that excludes other income/expense items and goodwill impairments determined in accordance with U.S. GAAP. This measure is the basis on which management, including the CEO, assesses the underlying performance of our operating segments.
We believe that disclosing this non-GAAP measure assists investors in comparing financial performance across reporting periods on a consistent basis by excluding items that are not indicative of our operating performance. However, the non-GAAP measure of operating incomeincome/loss should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP. The following table presents a reconciliation of segment operating income/loss to "earnings/loss from continuing operations"earnings (loss) before the following," which we consider to be the most directly comparable U.S. GAAP financial measure.
| Plant-Based | Fruit-Based | ||||||||||||
| Foods and | Foods and | Corporate | |||||||||||
| Beverages | Beverages | Services | Consolidated | ||||||||||
| For the quarter ended | $ | $ | $ | $ | |||||||||
| July 2, 2022 | |||||||||||||
| Segment operating income (loss) | 12,196 | 3,211 | (7,298) | 8,109 | |||||||||
| Other expense, net | (203 | ) | (1,145 | ) | (192 | ) | (1,540 | ) | |||||
| Earnings (loss) before the following | 11,993 | 2,066 | (7,490 | ) | 6,569 | ||||||||
| July 3, 2021 | |||||||||||||
| Segment operating income (loss) | 8,641 | (1,447 | ) | (5,471 | ) | 1,723 | |||||||
| Other income (expense), net | 219 | (4,112 | ) | (768 | ) | (4,661 | ) | ||||||
| Earnings (loss) before the following | 8,860 | (5,559 | ) | (6,239 | ) | (2,938 | ) |
| Plant-Based | Fruit-Based | |||||||||||
| Foods and | Foods and | Corporate | ||||||||||
| Beverages | Beverages | Services | Consolidated | |||||||||
| For the quarter ended | $ | $ | $ | $ | ||||||||
| July 3, 2021 | ||||||||||||
| Segment operating income (loss) | 8,641 | (1,447 | ) | (5,471 | ) | 1,723 | ||||||
| Other income (expense), net | 219 | (4,112 | ) | (768 | ) | (4,661 | ) | |||||
| Earnings (loss) from continuing operations before the following | 8,860 | (5,559 | ) | (6,239 | ) | (2,938 | ) | |||||
| June 27, 2020 | ||||||||||||
| Segment operating income (loss) | 10,484 | (2,016 | ) | (8,844 | ) | (376 | ) | |||||
| Other income (expense), net | 1 | 479 | 355 | 835 | ||||||||
| Earnings (loss) from continuing operations before the following | 10,485 | (1,537 | ) | (8,489 | ) | 459 |
| SUNOPTA INC. | 23 | July 2, 2022 Form 10-Q |
We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income/loss. However, any measure of operating income/loss excluding any or all of these items is not, and should not be viewed as, a substitute 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.
|
(2)When assessing our financial performance, we use an internal measure of earnings/loss from continuing operationsnet earnings determined in accordance with U.S. GAAP that includes dividends and accretion on preferred stock and excludes specific items recognized in other income/expense, asset impairment charges, 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 the 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 from lossearnings (loss) from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.
| July 3, 2021 | June 27, 2020 | ||||||||||||
| Per Share | Per Share | ||||||||||||
| For the quarter ended | $ | $ | $ | $ | |||||||||
| Loss from continuing operations | (918 | ) | (5,133 | ) | |||||||||
| Dividends and accretion on preferred stock | (744 | ) | (2,604 | ) | |||||||||
| Loss from continuing operations attributable to common shareholders | (1,662 | ) | (0.02 | ) | (7,737 | ) | (0.09 | ) | |||||
| Adjusted for: | |||||||||||||
| Costs related to exit from fruit ingredient processing facility(a) | 4,123 | - | |||||||||||
| Acquisition, divestiture, and related costs(b) | 1,434 | - | |||||||||||
| Plant expansion costs(c) | - | 92 | |||||||||||
| Costs related to Value Creation Plan(d) | - | 78 | |||||||||||
| Other(e) | 247 | (457 | ) | ||||||||||
| Net income tax effect(f) | (4,022 | ) | 170 | ||||||||||
| Adjusted earnings (loss) | 120 | 0.00 | (7,854 | ) | (0.09 | ) | |||||||
| July 2, 2022 | July 3, 2021 | |||||||||||
| Per Share | Per Share | |||||||||||
| For the quarter ended | $ | $ | $ | $ | ||||||||
| Earnings (loss) from continuing operations | 2,498 | (918) | ||||||||||
| Dividends and accretion on preferred stock | (760) | (744) | ||||||||||
| Earnings (loss) from continuing operations attributable to common shareholders | 1,738 | 0.02 | (1,662) | (0.02) | ||||||||
| Adjusted for: | ||||||||||||
| Facility closure costs(a) | 1,287 | - | ||||||||||
| Business development costs(b) | 616 | 1,434 | ||||||||||
| Start-up costs(c) | 281 | - | ||||||||||
| Costs related to exit from fruit ingredient processing facility(d) | - | 4,123 | ||||||||||
| Other(e) | 253 | 247 | ||||||||||
| Net income tax effect(f) | (640 | ) | (4,022 | ) | ||||||||
| Adjusted earnings | 3,535 | 0.03 | 120 | 0.00 |
(a) Reflects asset impairment charges of $3.0 million and employee terminationFacility closure costs of $1.2 millionmainly related to the exitrelocation of certain equipment from our held-for-sale Oxnard, California, frozen fruit ingredient processing facility to our Mexican facility, which were recorded in the other expense.
(b)Represents third-party costs associated with completed or potential acquisitions and divestitures,business development activities, including costs related to the evaluation, execution, and integration of external acquisitions or completionand divestitures, internal expansion projects, and other strategic initiatives. For the second quarter of divestitures.2022, these costs related to our inaugural Investor Day held in June 2022 ($0.5 million), as well as specific business transactions under consideration, which were recorded in SG&A expenses. For the second quarter of 2021, these costs were mainly related to the transition and integration of the acquired Dream and WestSoy brands, acquired in April 2021, and the assessment ofprofessional fees incurred in connection with post-closing adjustmentsmatters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which were recorded in SG&A expenses ($1.1 million) and other expense ($0.3 million).
(c) ReflectsRepresents 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 the second quarter of 2022, start-up costs mainly related to the expansion ofnew employee hires for our plant-based extraction capabilities,beverage facility under construction in Midlothian, Texas, which were recorded in cost of goods sold.sold ($0.2 million) and SG&A expenses ($0.1 million).
(d) Reflects professional fees of $0.2 million and employee retention costs of $0.2 million recorded in SG&A expenses, and employee termination costs of $0.1 million recorded in other expense, partially offset by a $0.4 million reversal of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees recorded in other income.
(e) For the second quarter of 2021, other mainly reflects a $0.5 million loss on the settlement of employment-related legal matter, partially offset by a gainrepresents asset impairment charges and employee termination costs related to a project cancellation,the exit from our South Gate, California, fruit ingredient processing facility, which were recorded in other expense/income. expense.
(e)For the second quarterquarters of 2020,2022 and 2021, other includesmainly reflects the reversal of previously accrued costs related to the withdrawalsettlement of certain consumer-packaged products in 2016, which was recorded in other income.legal and contractual matters.
(f)Reflects the tax effect of the preceding adjustments to earnings calculated based on our estimated annual effectivethe statutory tax rate.rates applicable in the tax jurisdiction of the underlying adjustment.
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. However, adjusted earnings/lossearnings is not, and should not be viewed as, a substitute for net earnings prepared under U.S. GAAP. Adjusted earnings/lossearnings is presented solely to allow investors to more fully understand how we assess our financial performance.
(3)We use a measure of adjusted EBITDAearnings before interest, taxes, depreciation and amortization ("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 assess operating performance in connection with our employee incentive programs. We define adjusted EBITDA as segment operating income/lossincome plus depreciation, amortization, and non-cash stock-based compensation, and excluding other unusual items as identified in the determination of adjusted earnings/lossearnings (refer above to footnote (2)). The following table presents a reconciliation of segment operating income/lossincome and adjusted EBITDA from lossearnings (loss) from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.
| SUNOPTA INC. |
| July |
| July 3, 2021 | June 27, 2020 | ||||||
| For the quarter ended | $ | $ | |||||
| Loss from continuing operations | (918 | ) | (5,133 | ) | |||
| Income tax benefit | (3,651 | ) | (1,821 | ) | |||
| Interest expense, net | 1,631 | 7,413 | |||||
| Other expense (income), net | 4,661 | (835 | ) | ||||
| Total segment operating income (loss) | 1,723 | (376 | ) | ||||
| Depreciation and amortization | 8,910 | 7,655 | |||||
| Stock-based compensation(a) | 4,370 | 2,215 | |||||
| Acquisition, divestiture, and related costs(b) | 1,143 | - | |||||
| Costs related to Value Creation Plan(c) | - | 456 | |||||
| Plant expansion costs(d) | - | 92 | |||||
| Adjusted EBITDA | 16,146 | 10,042 | |||||
| July 2, 2022 | July 3, 2021 | |||||
| For the quarter ended | $ | $ | ||||
| Earnings (loss) from continuing operations | 2,498 | (918 | ) | |||
| Income tax expense (benefit) | 939 | (3,651 | ) | |||
| Interest expense, net | 3,132 | 1,631 | ||||
| Other expense, net | 1,540 | 4,661 | ||||
| Total segment operating income | 8,109 | 1,723 | ||||
| Depreciation and amortization | 9,372 | 8,910 | ||||
| Stock-based compensation | 3,970 | 4,370 | ||||
| Business development costs(a) | 616 | 1,143 | ||||
| Start-up costs(b) | 281 | - | ||||
| Adjusted EBITDA | 22,348 | 16,146 |
(a) ForBusiness development activities were related to our Investor Day and the exploration of potential strategic opportunities in the second quarter of 2020, stock-based compensation of $2.2 million was recorded in SG&A expenses2022, and the reversalintegration of $0.4 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees was recognizedthe Dream and WestSoy brands in other income.
(b) For the second quarter of 2021, acquisition, divestiture, and relatedwhich costs were mainly related to the transition and integration of the acquired Dream and WestSoy brands, which were recorded in SG&A expenses.
(c) Reflects professional fees of $0.2 million and employee retention costs of $0.2 million recorded in SG&A expenses.
(d) Reflects(b)For the second quarter of 2022, start-up costs mainly related to the expansion ofnew employee hires for our plant-based extraction capabilities,beverage facility under construction in Midlothian, Texas, which were recorded in cost of goods sold.
Although we use adjusted EBITDA as a measure to assess the performance of our business and for the other purposes set forth above, this measure has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our results of operations as reported in accordance with U.S. GAAP. Some of these limitations are:
•adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest payments on our indebtedness;
•adjusted EBITDA does not include the recovery/payment of taxes, which is a necessary element of our operations;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and
•adjusted EBITDA does not include non-cash stock-based compensation, which is an important component of our total compensation program for employees and directors.
Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing adjusted EBITDA in isolation, and specifically by using other U.S. GAAP and non-GAAP measures, such as revenues, gross profit, segment operating income/loss, net earnings, and adjusted earnings/lossearnings 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, we evaluate our revenues on a basis that excludes the effects of fluctuations in commodity pricing. 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 quarter ended July 3, 20212, 2022 increased by 9.7%20.4% to $202.3$243.5 million from $184.4$202.3 million for the quarter ended June 27, 2020. ExcludingJuly 3, 2021, reflecting 31.0% revenue growth in the impact of incremental revenues fromPlant-Based Foods and Beverages segment and 7.4% revenue growth in the acquisition of the DreamFruit-Based Foods and WestSoy brands (an increaseBeverages segment. The change in revenues of $4.7 million) and changes in commodity-related pricing (an increase in revenues of $2.1 million), revenues increased by 6.0% infrom the second quarter of 2021 compared withto the second quarter of 2020. 2022 was due to the following:
| Plant-Based | Fruit-Based | |||||||||||||||||
| Foods and Beverages | Foods and Beverages | Consolidated | ||||||||||||||||
| $ | % | $ | % | $ | % | |||||||||||||
| 2021 revenues | 111,359 | 90,914 | 202,273 | |||||||||||||||
| Price | 15,289 | 13.7% | 9,477 | 10.4% | 24,766 | 12.2% | ||||||||||||
| Volume/Mix | 19,264 | 17.3% | (2,772 | ) | -3.0% | 16,492 | 8.2% | |||||||||||
| 2022 revenues | 145,912 | 31.0% | 97,619 | 7.4% | 243,531 | 20.4% | ||||||||||||
Note: percentages may not add due to rounding.
For the quarter ended July 3, 2021,2, 2022, the 31.0% increase in revenues for the Plant-Based Foods and Beverages segment revenues increased by 21.4% to $111.4 million from $91.7 million for the quarter ended June 27, 2020.reflected a 13.7% overall increase in pricing and a favorable volume/mix impact of 17.3%. The increase in plant-based product revenues reflected strong salespricing was driven by certain pricing actions taken with customers to offset inflationary cost increases, together with the pass-through effect of higher sunflower commodity pricing. Volume/mix was favorable mainly due to growth forfrom our oat-based product offerings, together with increased foodservice demand forand other varieties of plant-based beverages due to the easing of COVID-19 restrictions and incremental revenues from the acquisition of the Dream and WestSoy brands,teas, including strength in our branded portfolio, partially offset by softer retail volumes of plant-based beverages and everyday broth offerings as at-home consumption levels continued to normalize.sunflower.
| SUNOPTA INC. | 25 | July 2, 2022 Form 10-Q |
For the quarter ended July 3, 2021,2, 2022, the 7.4% increase in revenues for the Fruit-Based Foods and Beverages segment revenuesreflected a 10.4% overall increase in pricing, reflecting the benefit of pricing actions taken in the second half of 2021 and first quarter of 2022 to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses. The increase in pricing was partially offset an unfavorable volume/mix impact of 3.0%, which reflected decreased consumer demand for retail frozen fruit due to higher prices resulting from inflation, together with lower volumes due to our portfolio rationalization efforts, partially offset by strong demand for fruit snacks and the introduction of smoothie bowls.
Consolidated gross profit increased $8.6 million, or 32.5%, to $34.9 million for the quarter ended July 3, 2021 decreased by 1.9% to $90.9 million from $92.7 million for the quarter ended June 27, 2020. The decrease in fruit-based product revenues reflected lower volumes of retail frozen fruit due to the continued normalization of at-home consumption, together2, 2022, compared with the rationalization of marginally profitable customers and products, and the impact of supply constraints for certain fruit varieties on blended frozen fruit offerings. These declines were partially offset by strong growth in fruit snacks, driven by returning consumer demand for portable snacks and new business development, together with increased foodservice demand for fruit-based toppings.
|
Gross profit increased $3.1 million, or 13.2%, to $26.3 million for the quarter ended July 3, 2021, compared with $23.3 million2021. Consolidated gross margin for the quarter ended June 27, 2020. As a percentage of revenues, gross profitJuly 2, 2022 was 14.3% compared to 13.0% for the quarter ended July 3, 2021, was 13.0% compared to 12.6% for the quarter ended June 27, 2020, an increase of 40130 basis points.
Gross profit for the Plant-Based Foods and Beverages segment increased $3.2$4.0 million to $23.9 million for the quarter ended July 2, 2022, compared with $19.9 million for the quarter ended July 3, 2021, compared with $16.7 million for the quarter ended June 27, 2020, while gross profit as a percentagemargin decreased to 16.4% in the second quarter of revenues decreased to2022 from 17.9% in the second quarter of 2021 from 18.2% in the second quarter of 2020.2021. The 30-basis150-basis point decrease in the plant-based gross profit percentagemargin mainly reflected incremental depreciation expense relatedan estimated 215 basis-point decline due to new plant-based processing capacity,the dilutive effect of pass-through pricing to recover cost inflation on raw materials and packaging, together with unrecovered raw material cost inflation due to the lag in pricing adjustments, together with higher labor and utility costs, increased transportation costs. Theseinventory reserves and higher depreciation expense. In addition, we incurred start-up costs of $0.2 million (0.2% gross margin impact) in connection with our plant expansion in Midlothian, Texas. All of these factors were partially offset by strongabsorbed through higher production volumes and productivity improvements withinplant utilization in our plant-based beverage and ingredient extraction operations, and improved plant utilization and cost reductions within our sunflower and roasting operations.
Gross profit for the Fruit-Based Foods and Beverages segment decreased $0.1increased $4.5 million to $11.0 million for the quarter ended July 2, 2022, compared with $6.4 million for the quarter ended July 3, 2021, compared with $6.5 million forand gross margin increased to 11.2% in the second quarter ended June 27, 2020, while gross profit as a percentage of revenues increased to2022 from 7.1% in the second quarter of 2021, from 7.0% in the second quarter of 2020. The 10-basis point increase in the gross profit percentage reflected strong fruit snack and fruit ingredient volumes, together with increased pass-through sales pricing, rationalization of marginally profitable business, and productivity-driven cost savings in our frozen fruit operations. These factors were mostly offset by the impacts of higher strawberry commodity prices, a higher cost of fruit inventory from Mexicodespite an estimated 70 basis-point decline due to the impactdilutive effect of pass-through pricing to recover commodity cost inflation. Excluding this pricing effect, fruit-based gross margin reflected the benefits of portfolio rationalizations for frozen fruit and manufacturing cost savings from the consolidation of our fruit processing facilities in 2021, partially offset by increases in freight and storage rates, a strengthening Mexican peso,higher mix of low-margin fruit juice sales, and increased transportation costs.frozen fruit inventory losses due to excess spoilage during handling.
For the quarter ended July 3, 2021,2, 2022, we realized total segment operating income of $1.7$8.1 million, compared with a total segment operating loss of $0.4$1.7 million for the quarter ended June 27, 2020.July 3, 2021. The $2.1$6.4 million increase in total segment operating income mainly reflected higher gross profit, as described above, partially offset by a $0.8$1.6 million increase in SG&A expenses. The increase in SG&A expenses primarilywas mainly due to incremental third-party consulting2022 incentive plan accruals based on performance, partially offset by lower employee compensation costs related to the transitionheadcount reductions in our frozen fruit operations in August 2021 and integration oflower business development expenses related to costs incurred to acquire the recently acquired Dream and WestSoy brands together with increased stock-based compensation expense, partially offset by lower employee-related variable compensation costs.in April 2021. In addition, in the second quarter of 2021, we recorded $0.3 million of incremental amortization expenserecognized an unfavorable year-over- year foreign exchange impact related to the acquired Dream and WestSoy brand name intangible assets. our Mexican operations of $0.5 million.
Further details on revenue, gross profit and segment operating income/loss variances are provided below under "Segmented Operations"Operating Segment Information."
Other expense was $1.5 million for the quarter ended July 2, 2022, compared with other expense of $4.7 million for the quarter ended July 3, 2021. Other expense in the second quarter of 2022 mainly reflected costs to relocate certain equipment from our held-for-sale Oxnard, California, frozen fruit processing facility to our Mexican facility, while other expense in the second quarter of 2021 mainly reflected asset impairment charges and employee terminationplant closure costs related to the exit from our fruit ingredient processing facility. Other income of $0.8 million for the quarter ended June 27, 2020 mainly reflected the reversal of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees and the reversal of costs that remained accrued related to the withdrawal of certain consumer-packaged products in 2016.
Net interest expense decreasedincreased by $5.8$1.5 million to $3.1 million for the quarter ended July 2, 2022, compared with $1.6 million for the quarter ended July 3, 2021, compared with $7.4resulting from an increase in outstanding debt to finance capital expansion projects and fund working capital requirements.
Income tax expense was $0.9 million on pre-tax earnings from continuing operations of $3.4 million for the quarter ended June 27, 2020, which mainly reflected reduced cash interest payments as a result of a reduction in outstanding debt following the divestiture of Tradin Organic in December 2020.
We recognizedJuly 2, 2022, compared with an income tax benefit of $3.7 million on a pre-tax loss from continuing operations of $4.6 million for the quarter ended July 3, 2021, compared with $1.8 million for the quarter ended June 27, 2020. 2021.
LossEarnings from continuing operations for the quarter ended July 3, 2021 was $0.92, 2022 were $2.5 million, compared with a loss of $5.1$0.9 million for the quarter ended June 27, 2020.July 3, 2021. Diluted lossearnings per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.02 for the quarter ended July 3, 2021,2, 2022, compared with a loss per share $0.09$0.02 for the quarter ended June 27, 2020. July 3, 2021.
| SUNOPTA INC. | 26 | July 2, 2022 Form 10-Q |
EarningsWe recognized a loss from the discontinued operations of Tradin Organic were $6.1$0.8 million for the quarter ended June 27, 2020.July 2, 2022, which was related to the settlement of the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of our global ingredients business, Tradin Organic (see note 11 to the unaudited consolidated financial statements included in this report.)
|
On a consolidated basis, weWe realized earnings attributable to common shareholders of $0.9 million (diluted earnings per share of $0.01) for the quarter ended July 2, 2022, compared with a loss attributable to common shareholders of $1.7 million (diluted loss per share of $0.02) for the quarter ended July 3, 2021, compared with loss attributable to common shareholderswhich included dividends and accretion on our Series B-1 preferred stock of $1.6$0.8 million (diluted loss per share of $0.02) for the quarter ended June 27, 2020. The loss attributable to common shareholders forand $0.7 million in the second quarters of 2022 and 2021, and 2020 reflected dividends and accretion on preferred stock of $0.7 million and $2.6 million, 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.
For the quarter ended July 3, 2021,2, 2022, adjusted earnings were $3.5 million, or $0.03 per diluted share, compared with adjusted earnings of $0.1 million, or $0.00 per diluted share compared with an adjusted loss of $7.9 million, or $0.09 per diluted share for the quarter ended June 27, 2020.July 3, 2021. Adjusted EBITDA for the quarter ended July 3, 20212, 2022 was $16.1$22.3 million, compared with $10.0$16.1 million for the quarter ended June 27, 2020.July 3, 2021. Adjusted lossearnings and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of adjusted lossearnings and adjusted EBITDA from earnings/lossearnings (loss) from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.
Segmented OperationsOperating Segment Information
| Plant-Based Foods and Beverages | ||||||||||||
| For the quarter ended | July 3, 2021 | June 27, 2020 | Change | % Change | ||||||||
| Revenues | $ | 111,359 | $ | 91,705 | $ | 19,654 | 21.4% | |||||
| Gross profit | 19,896 | 16,731 | 3,165 | 18.9% | ||||||||
| Gross profit % | 17.9% | 18.2% | -0.3% | |||||||||
| Operating income | $ | 8,641 | $ | 10,484 | $ | (1,843 | ) | -17.6% | ||||
| Operating income % | 7.8% | 11.4% | -3.6% |
| Plant-Based Foods and Beverages | ||||||||||||
| For the quarter ended | July 2, 2022 | July 3, 2021 | Change | % Change | ||||||||
| Revenues | $ | 145,912 | $ | 111,359 | $ | 34,553 | 31.0% | |||||
| Gross profit | 23,940 | 19,896 | 4,044 | 20.3% | ||||||||
| Gross margin | 16.4% | 17.9% | -1.5% | |||||||||
| Operating income | $ | 12,196 | $ | 8,641 | $ | 3,555 | 41.1% | |||||
| Operating margin | 8.4% | 7.8% | 0.6% |
Plant-Based Foods and Beverages contributed $111.4$145.9 million in revenues for the quarter ended July 3, 2021,2, 2022, compared to $91.7$111.4 million for the quarter ended June 27, 2020,July 3, 2021, an increase of $19.7$34.6 million, or 21.4%. Excluding the impact on revenues of incremental revenues from the acquisition of the Dream and WestSoy brands (an increase in revenues of $4.7 million) and changes in sunflower commodity-related pricing (a decrease in revenues of $0.8 million), Plant-Based Foods and Beverages revenues increased approximately 17.2%31.0%. The table below explains the increase in reported revenues:
| Plant-Based Foods and Beverages Revenue Changes | |||
| Revenues for the quarter ended July 3, 2021 | $ | 111,359 | |
| Sales volume growth for oat-based product offerings, and other varieties of plant-based beverages and teas, including strength in our branded portfolio, together with the benefit of certain pricing actions taken to offset input cost inflation | 29,538 | ||
| Increased commodity pricing for sunflower, partially offset by lower volumes | 5,015 | ||
| Revenues for the quarter ended July 2, 2022 | $ | 145,912 |
Gross profit in Plant-Based Foods and Beverages increased by $3.2$4.0 million to $23.9 million for the quarter ended July 2, 2022, compared to $19.9 million for the quarter ended July 3, 2021, compared to $16.7 million for the quarter ended June 27, 2020, while the gross profit percentage decreased by 30 basis points to 17.9%. The decrease in the gross profit percentage reflected incremental depreciation expense and increased transportation costs. These factors were partially offset by strong volumes within our plant-based beverage and ingredient extraction operations, and improved plant utilization and cost reductions within our sunflower and roasting operations.2021. The table below explains the increase in gross profit:
|
| Plant-Based Foods and Beverages Gross Profit Changes | |||
| Gross profit for the quarter ended July 3, 2021 | $ | 19,896 | |
| Higher volumes and pricing for plant-based beverages and ingredients, partially offset by increased manufacturing plant spend, including unrecovered inflationary increases in raw material costs and utility and freight rates, and higher wages to retain employees and costs to hire and train new employees, together with higher inventory reserves, incremental depreciation of new production equipment for capital expansion projects, and start-up costs incurred for our plant expansion in Midlothian, Texas | 3,336 | ||
| Higher pricing spreads for sunflower, partially offset by lower volumes | 708 | ||
| Gross profit for the quarter ended July 2, 2022 | $ | 23,940 |
Operating income in Plant-Based Foods and Beverages decreasedincreased by $1.9$3.6 million to $12.2 million for the quarter ended July 2, 2022, compared to $8.6 million for the quarter ended July 3, 2021, compared to $10.5 million for the quarter ended June 27, 2020.2021. The table below explains the decreaseincrease in operating income:
| Plant-Based Foods and Beverages Operating Income Changes | |||
| Operating income for the quarter ended July 3, 2021 | $ | 8,641 | |
| Increase in gross profit, as explained above | 4,044 | ||
| Lower third-party consulting costs related to the acquisition of the Dream and WestSoy brands in April 2021, partially offset by increased travel, and brand marketing and advertising expenses | 553 | ||
| Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees | (1,042 | ) | |
| Operating income for the quarter ended July 2, 2022 | $ | 12,196 |
Building on the strong performance in the first half of 2021,Looking forward, assuming economic conditions, including inflation pressures, do not significantly worsen, we expect continuedanticipate revenue growth in revenues and gross profit fromfor our Plant-Based Foods and Beverages operating segment in the second half of 2022, compared with the second half of 2021, driven by the completion of three major capital projects in the fourth quarter of 2020, which significantly increasedhigher expected output from our plant-based beverage processing and ingredient extraction capacity and capabilities. In addition, the Dream and WestSoy brands are expected to contribute approximately $40 million of annual revenues, of which $15 million to $20 million is incremental given that we produced of all of the WestSoy products, and approximately one-half of the Dream products prior to acquiring the brands. Assuming conditions associatedmanufacturing facilities, together with the COVID-19 pandemic do not significantly worsen during the second halfexpected benefit of 2021, we anticipate a continuation of the trends experienced in the first half of 2021, with strengthening foodservice demand offsetting a normalization of retail volumes.customer pricing actions taken to offset input cost inflation. We expect thethese pricing actions, together with an anticipated improvement in plant operating performance, to drive a year-over-year gross margin profile ofimprovement in our plant-based operations in 20212022, excluding the impact of start-up costs related to be comparableour new 285,000 square foot plant-based beverage facility under construction in Midlothian, Texas. Despite challenges due to 2020, as planned productivity measures aresupply chain issues, we believe we remain largely on track with our original estimate to begin operations at this facility in late 2022, with the ramp-up of commercial production expected to offset incremental depreciation expense and increased transportation costs.commence in the first quarter of 2023. 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 extent and duration of inflation headwinds; our ability to continue to pass through price increases to our customers to offset inflationary pressures; the impact of the ongoing COVID-19 pandemic, unexpected delays in executingprice inflation on consumer buying behavior and demand for plant-based beverage alternatives to dairy; our ability to successfully execute on our capital expansion projects, less than anticipated contribution fromincluding our ability to commence commercial production at our Midlothian, Texas, facility in the Dreamfirst quarter of 2023, and WestSoy brands, less than anticipated benefits from productivity measures, further increases in transportation costs,the viability of those projects; and 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 | ||||||||||||
| For the quarter ended | July 3, 2021 | June 27, 2020 | Change | % Change | ||||||||
| Revenues | $ | 90,914 | $ | 92,696 | $ | (1,782 | ) | -1.9% | ||||
| Gross profit | 6,440 | 6,528 | (88 | ) | -1.3% | |||||||
| Gross profit % | 7.1% | 7.0% | 0.1% | |||||||||
| Operating loss | $ | (1,447 | ) | $ | (2,016 | ) | $ | 569 | 28.2% | |||
| Operating loss % | -1.6% | -2.2% | 0.6% |
| Fruit-Based Foods and Beverages | ||||||||||||
| For the quarter ended | July 2, 2022 | July 3, 2021 | Change | % Change | ||||||||
| Revenues | $ | 97,619 | $ | 90,914 | $ | 6,705 | 7.4% | |||||
| Gross profit | 10,958 | 6,440 | 4,518 | 70.2% | ||||||||
| Gross margin | 11.2% | 7.1% | 4.1% | |||||||||
| Operating income (loss) | $ | 3,211 | $ | (1,447 | ) | $ | 4,658 | 321.9% | ||||
| Operating margin | 3.3% | -1.6% | 4.9% |
| SUNOPTA INC. |
| July |
Fruit-Based Foods and Beverages contributed $90.9$97.6 million in revenues for the quarter ended July 3, 2021,2, 2022, compared to $92.7$90.9 million for the quarter ended June 27, 2020, a decreaseJuly 3, 2021, an increase of $1.8$6.7 million, or 1.9%. Excluding the impact on revenues of changes in raw fruit commodity-related pricing (an increase in revenues of $2.9 million), Fruit-Based Foods and Beverages revenues decreased approximately 5.0%7.4%. The table below explains the decreaseincrease in reported revenues:
| Fruit-Based Foods and Beverages Revenue Changes | |||
| Revenues for the quarter ended July 3, 2021 | $ | 90,914 | |
| Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls | 7,617 | ||
| Lower retail sales of frozen fruit due to the impact of higher prices on consumer demand, together with lower volumes due to our portfolio rationalization efforts, partially offset by the benefit of pricing actions taken to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses | (912 | ) | |
| Revenues for the quarter ended July 2, 2022 | $ | 97,619 |
Gross profit in Fruit-Based Foods and Beverages decreasedincreased by $0.1$4.5 million to $11.0 million for the quarter ended July 2, 2022, compared to $6.4 million for the quarter ended July 3, 2021, compared2021. The table below explains the increase in gross profit:
| Fruit-Based Foods and Beverages Gross Profit Changes | |||
| Gross profit for the quarter ended July 3, 2021 | $ | 6,440 | |
| Improved margin profile from portfolio rationalizations and reduced manufacturing cost base within our frozen fruit operations, together with higher pricing for retail frozen fruit, partially offset by lower sales volumes, together with increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling | 3,220 | ||
| Higher sales, production volumes, and pricing for fruit snacks | 1,298 | ||
| Gross profit for the quarter ended July 2, 2022 | $ | 10,958 |
Operating income in Fruit-Based Foods and Beverages increased by $4.7 million to $6.5$3.2 million for the quarter ended June 27, 2020, and the gross profit percentage increased by 10 basis pointsJuly 2, 2022, compared to 7.1%. The slight increase in the gross profit percentage reflected strong fruit snack and fruit ingredient volumes, together with increased pass-through sales pricing, rationalizationan operating loss of marginally profitable business, and productivity-driven cost savings in our frozen fruit operations. These factors were mostly offset by the impacts of higher strawberry commodity prices, unfavorable foreign exchange impacts, and increased transportation costs. The table below explains the decrease in gross profit:
Operating loss in Fruit-Based Foods and Beverages decreased by $0.6 million to $1.4 million for the quarter ended July 3, 2021, compared to $2.0 million for the quarter ended June 27, 2020.2021. The table below explains the decreaseincrease in operating loss:income:
| Fruit-Based Foods and Beverages Operating Income Changes | |||
| Operating loss for the quarter ended July 3, 2021 | $ | (1,447 | ) |
| Increase in gross profit, as explained above | 4,518 | ||
| Lower employee compensation costs due to a workforce reduction in August 2021, partially offset by an unfavorable foreign exchange impact within our frozen fruit operations in Mexico | 274 | ||
| Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees | (134 | ) | |
| Operating income for the quarter ended July 2, 2022 | $ | 3,211 |
|
AssumingLooking forward, assuming economic conditions, associated with the COVID-19 pandemicincluding inflationary pressures, do not significantly worsen, duringwe expect that the pricing actions taken on frozen fruit to offset commodity inflation and inflationary impacts to operating expenses, together with the benefit of a reduced manufacturing cost base within our frozen fruit operations (including cost savings and efficiencies expected to be achieved following the sale of our Oxnard, California, frozen fruit processing facility), will result in gross margin improvement in our Fruit-Based Foods and Beverages operating segment in the second half of 2021,2022, compared with the second half of 2021. However, we anticipate a continuationthat higher prices and inflationary headwinds may continue to impact overall retail demand for frozen fruit in the second half of 2022. We have successfully completed our 2022 prime fruit seasons in Mexico and California with the trends experiencedoverall results comparing favorably to 2021 in terms of volumes and pricing. Within our fruit snacks operations, we expect strong revenue and profit growth in the second half of 2022, compared with the same period in 2021, driven by volume gains and pricing actions for core fruit snack products, and further commercialization of our smoothie bowl line. However, while capital expansion projects are underway in our fruit snacks operations to meet current unfilled demand, we expect that existing capacity constraints will limit the growth potential for this business through the first half of 2021, with the continued normalization of at-home frozen fruit consumption. We expect this trend, together with the continuing short supply of certain fruit varieties, is expected to have a negative impact on frozen fruit sales volumes for the remainder of the year, partially offset by anticipated strong fruit snack demand. We completed the exit from our Santa Maria, California, facility in February 2021, and began realizing the resulting cost savings and operational efficiencies in the second quarter of 2021. In addition, we exited our South Gate, California, fruit ingredient processing facility in July 2021, with the relocation of remaining fruit ingredient production to our Mexican operations expected to be completed in the third quarter of 2021. Overall, we expect a similar gross margin profile within our fruit-based operations in fiscal 2021, compared to fiscal 2020, driven by profitable fruit snack volumes, together with a reduced manufacturing cost structure and product portfolio rationalization initiatives in frozen fruit and fruit ingredients, offsetting the impacts of lower frozen fruit sales volumes, increased commodity costs, unfavorable foreign exchange impacts, and higher transportation costs.2023. 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, fruit availabilityextent and related impactsduration of inflation headwinds, and the impact on commodity pricing, our assessment of the margin improvementconsumer buying behavior and cost savings to be realized from network optimization and portfolio rationalization initiatives, unexpected costs and delays in the relocation of our remaining fruit ingredient production to Mexico,overall demand for frozen fruit; the outcome of our pricing actions with customers, further increasesincluding the softening of consumer demand due to higher retail prices; our ability to achieve the anticipated cost savings and efficiencies from our manufacturing network consolidation; our ability to successfully commercialize our smoothie bowl product line; our assessment of future capacity requirements in transportation costs,fruit snacks operations; our ability to successfully execute on our capital expansion projects and unforeseen customer actions, consumer behaviors, competitive pressures,the viability of those projects; and general economic and political conditions in North America, along with the other factors described above under "Forward-Looking"Forward- Looking Statements."
| Corporate Services | ||||||||||||
| For the quarter ended | July 3, 2021 | June 27, 2020 | Change | % Change | ||||||||
| Operating loss | $ | (5,471 | ) | $ | (8,844 | ) | $ | 3,373 | 38.1% |
| Corporate Services | ||||||||||||
| For the quarter ended | July 2, 2022 | July 3, 2021 | Change | % Change | ||||||||
| Operating loss | $ | (7,298 | ) | $ | (5,471 | ) | $ | (1,827 | ) | -33.4% |
Operating loss at Corporate Services decreasedincreased by $3.4$1.8 million to $7.3 million for the quarter ended July 2, 2022, compared to a loss of $5.5 million for the quarter ended July 3, 2021, compared to a loss of $8.8 million for the quarter ended June 27, 2020.2021. The table below explains the decreaseincrease in operating loss:
| Corporate Services Operating Loss Changes | |||
| Operating loss for the quarter ended July 3, 2021 | $ | (5,471 | ) |
| Incremental 2022 incentive plan accruals based on performance, together with costs related to our 2022 Investor Day of $0.5 million | (3,459 | ) | |
| Increase in corporate cost allocations, mainly related to the portion of the incremental 2022 incentive plan accruals allocable to operating segment employees | 1,176 | ||
| Lower variable stock-based compensation, related to the timing of annual grants under our incentive plans | 456 | ||
| Operating loss for the quarter ended July 2, 2022 | $ | (7,298 | ) |
Corporate cost allocations mainly consist of salaries of corporate personnel who directly support the operating segments, as well as costs related to theour 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.
| SUNOPTA INC. |
| July |
Consolidated Results of Operations for the two quarters ended July 2, 2022 and July 3, 2021 and June 27, 2020
| July 3, 2021 | June 27, 2020 | Change | Change | ||||||||||
| For the two quarters ended | $ | $ | $ | % | |||||||||
| Revenues | |||||||||||||
| Plant-Based Foods and Beverages | 230,810 | 197,947 | 32,863 | 16.6% | |||||||||
| Fruit-Based Foods and Beverages | 179,103 | 194,051 | (14,948 | ) | -7.7% | ||||||||
| Total revenues | 409,913 | 391,998 | 17,915 | 4.6% | |||||||||
| Gross Profit | |||||||||||||
| Plant-Based Foods and Beverages | 43,054 | 37,802 | 5,252 | 13.9% | |||||||||
| Fruit-Based Foods and Beverages | 13,271 | 12,630 | 641 | 5.1% | |||||||||
| Total gross profit | 56,325 | 50,432 | 5,893 | 11.7% | |||||||||
| Segment operating income (loss)(1) | |||||||||||||
| Plant-Based Foods and Beverages | 21,958 | 24,337 | (2,379 | ) | -9.8% | ||||||||
| Fruit-Based Foods and Beverages | (3,341 | ) | (6,718 | ) | 3,377 | 50.3% | |||||||
| Corporate Services | (10,809 | ) | (15,236 | ) | 4,427 | 29.1% | |||||||
| Total segment operating income | 7,808 | 2,383 | 5,425 | 227.7% | |||||||||
| Other expense (income), net | 6,276 | (280 | ) | 6,556 | 2341.4% | ||||||||
| Earnings from continuing operations before the following | 1,532 | 2,663 | (1,131 | ) | -42.5% | ||||||||
| Interest expense, net | 3,291 | 15,078 | (11,787 | ) | -78.2% | ||||||||
| Income tax benefit | (2,513 | ) | (3,318 | ) | 805 | 24.3% | |||||||
| Earnings (loss) from continuing operations(2),(3) | 754 | (9,097 | ) | 9,851 | 108.3% | ||||||||
| Earnings from discontinued operations | - | 13,465 | (13,465 | ) | -100.0% | ||||||||
| Net earnings (loss) | 754 | 4,368 | (3,614 | ) | -82.7% | ||||||||
| Dividends and accretion on preferred stock | (2,697 | ) | (4,629 | ) | 1,932 | 41.7% | |||||||
| Loss attributable to common shareholders(4) | (1,943 | ) | (261 | ) | (1,682 | ) | -644.4% | ||||||
| July 2, 2022 | July 3, 2021 | Change | Change | |||||||||
| For the two quarters ended | $ | $ | $ | % | ||||||||
| Revenues | ||||||||||||
| Plant-Based Foods and Beverages | 281,423 | 230,810 | 50,613 | 21.9% | ||||||||
| Fruit-Based Foods and Beverages | 202,281 | 179,103 | 23,178 | 12.9% | ||||||||
| Total revenues | 483,704 | 409,913 | 73,791 | 18.0% | ||||||||
| Gross Profit | ||||||||||||
| Plant-Based Foods and Beverages | 43,920 | 43,054 | 866 | 2.0% | ||||||||
| Fruit-Based Foods and Beverages | 18,969 | 13,271 | 5,698 | 42.9% | ||||||||
| Total gross profit | 62,889 | 56,325 | 6,564 | 11.7% | ||||||||
| Gross Margin | ||||||||||||
| Plant-Based Foods and Beverages | 15.6% | 18.7% | -3.1% | |||||||||
| Fruit-Based Foods and Beverages | 9.4% | 7.4% | 2.0% | |||||||||
| Total gross margin | 13.0% | 13.7% | -0.7% | |||||||||
| Segment operating income (loss)(1) | ||||||||||||
| Plant-Based Foods and Beverages | 20,292 | 21,958 | (1,666 | ) | -7.6% | |||||||
| Fruit-Based Foods and Beverages | 3,995 | (3,341 | ) | 7,336 | 219.6% | |||||||
| Corporate Services | (12,262 | ) | (10,809 | ) | (1,453 | ) | -13.4% | |||||
| Total segment operating income | 12,025 | 7,808 | 4,217 | 54.0% | ||||||||
| Other expense, net | 1,827 | 6,276 | (4,449 | ) | -70.9% | |||||||
| Earnings from continuing operations before the following | 10,198 | 1,532 | 8,666 | 565.7% | ||||||||
| Interest expense, net | 5,662 | 3,291 | 2,371 | 72.0% | ||||||||
| Income tax expense (benefit) | 1,384 | (2,513 | ) | 3,897 | 155.1% | |||||||
| Earnings from continuing operations(2),(3) | 3,152 | 754 | 2,398 | 318.0% | ||||||||
| Earnings from discontinued operations | 2,752 | - | 2,752 | - | ||||||||
| Net earnings | 5,904 | 754 | 5,150 | 683.0% | ||||||||
| Dividends and accretion on preferred stock | (1,515 | ) | (2,697 | ) | 1,182 | 43.8% | ||||||
| Earnings (loss) attributable to common shareholders(4) | 4,389 | (1,943 | ) | 6,332 | 325.9% |
(1)The following table presents a reconciliation of segment operating income/loss to "earnings/loss"earnings (loss) from continuing operations before the following," which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (1) to the "Consolidated Results of Operations for the Quarters Ended July 2, 2022 and July 3, 2021 and June 27, 2020"2021" table regarding the use of this non-GAAP measure).
| Plant-Based | Fruit-Based | Plant-Based | Fruit-Based | |||||||||||||||||||||
| Foods and | Foods and | Corporate | Foods and | Foods and | Corporate | |||||||||||||||||||
| Beverages | Beverages | Services | Consolidated | Beverages | Beverages | Services | Consolidated | |||||||||||||||||
| For the two quarters ended | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| July 2, 2022 | ||||||||||||||||||||||||
| Segment operating income (loss) | 20,292 | 3,995 | (12,262 | ) | 12,025 | |||||||||||||||||||
| Other expense, net | (246 | ) | (1,155 | ) | (426 | ) | (1,827 | ) | ||||||||||||||||
| Earnings (loss) from continuing operations before the following | 20,046 | 2,840 | (12,688 | ) | 10,198 | |||||||||||||||||||
| July 3, 2021 | ||||||||||||||||||||||||
| Segment operating income (loss) | 21,958 | (3,341 | ) | (10,809 | ) | 7,808 | 21,958 | (3,341 | ) | (10,809 | ) | 7,808 | ||||||||||||
| Other income (expense), net | (80 | ) | (5,477 | ) | (719 | ) | (6,276 | ) | ||||||||||||||||
| Other expense, net | (80 | ) | (5,477 | ) | (719 | ) | (6,276 | ) | ||||||||||||||||
| Earnings (loss) from continuing operations before the following | 21,878 | (8,818 | ) | (11,528 | ) | 1,532 | 21,878 | (8,818 | ) | (11,528 | ) | 1,532 | ||||||||||||
| June 27, 2020 | ||||||||||||||||||||||||
| Segment operating income (loss) | 24,337 | (6,718 | ) | (15,236 | ) | 2,383 | ||||||||||||||||||
| Other income (expense), net | 8 | (441 | ) | 713 | 280 | |||||||||||||||||||
| Earnings (loss) from continuing operations before the following | 24,345 | (7,159 | ) | (14,523 | ) | 2,663 | ||||||||||||||||||
We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income. However, any measure of operating income excluding any or all of these items is not, and should not be viewed as, a substitute for operating income prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.
| SUNOPTA INC. |
| July |
(2)The following table presents a reconciliation of adjusted lossearnings from earnings/lossearnings from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (2) to the "Consolidated Results of Operations for the Quarters Ended July 2, 2022 and July 3, 2021 and June 27, 2020"2021" table regarding the use of this non-GAAP measure).
| July 3, 2021 | June 27, 2020 | ||||||||||||
| Per Share | Per Share | ||||||||||||
| For the two quarters ended | $ | $ | $ | $ | |||||||||
| Earnings (loss) from continuing operations | 754 | (9,097 | ) | ||||||||||
| Dividends and accretion on preferred stock | (2,697 | ) | (4,629 | ) | |||||||||
| Loss from continuing operations attributable to common shareholders | (1,943 | ) | (0.02 | ) | (13,726 | ) | (0.15 | ) | |||||
| Adjusted for: | |||||||||||||
| Costs related to exit from fruit ingredient processing facility(a) | 4,123 | - | |||||||||||
| Acquisition, divestiture, and related costs(b) | 1,786 | - | |||||||||||
| Costs related to Value Creation Plan(c) | 1,432 | 1,175 | |||||||||||
| Plant expansion costs(d) | - | 92 | |||||||||||
| Other(e) | 247 | (472 | ) | ||||||||||
| Net income tax effect(f) | (4,262 | ) | (368 | ) | |||||||||
| Adjusted earnings (loss) | 1,383 | 0.01 | (13,299 | ) | (0.15 | ) | |||||||
| July 2, 2022 | July 3, 2021 | |||||||||||
| Per Share | Per Share | |||||||||||
| For the two quarters ended | $ | $ | $ | $ | ||||||||
| Earnings from continuing operations | 3,152 | 754 | ||||||||||
| Dividends and accretion on preferred stock | (1,515 | ) | (2,697 | ) | ||||||||
| Earnings (loss) from continuing operations attributable to common shareholders | 1,637 | 0.02 | (1,943 | ) | (0.02 | ) | ||||||
| Adjusted for: | ||||||||||||
| Facility closure costs(a) | 1,287 | - | ||||||||||
| Business development costs(b) | 799 | 1,786 | ||||||||||
| Start-up costs(c) | 721 | - | ||||||||||
| Costs related to exit from fruit ingredient processing facility(d) | - | 4,123 | ||||||||||
| Restructuring costs(e) | - | 1,432 | ||||||||||
| Other(f) | 540 | 247 | ||||||||||
| Net income tax effect(g) | (879 | ) | (4,262 | ) | ||||||||
| Adjusted earnings | 4,105 | 0.04 | 1,383 | 0.01 | ||||||||
(a) Reflects asset impairment charges of $3.0 million and employee terminationFacility closure costs of $1.2 millionmainly related to the exitrelocation of certain equipment from our held-for-sale Oxnard, California, frozen fruit ingredient processing facility to our Mexican facility, which were recorded in the other expense.
(b)Represents third-party costs associated with completed or potential acquisitions and divestitures,business development activities, including costs related to the evaluation, execution, and integration of external acquisitions or completionand divestitures, internal expansion projects, and other strategic initiatives. For the first two quarters of divestitures.2022, these costs related to our inaugural Investor Day held in June 2022 ($0.5 million), as well as specific business transactions under consideration, which were recorded in SG&A expenses. For the first two quarters of 2021, these costs were mainly related to the transition and integration of the acquired Dream and WestSoy brands, acquired in April 2021, and the assessment ofprofessional fees incurred in connection with post-closing adjustmentsmatters related to the 2020 divestiture of our global ingredients business, Tradin Organic, which were recorded in SG&A expenses ($1.3 million) and other expense ($0.5 million).
(c)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 the first two quarters of 2022, start-up costs mainly related to new employee hires for our plant-based beverage facility under construction in Midlothian, Texas, and the integration of the Dream and WestSoy brands, which were recorded in cost of goods sold ($0.6 million) and SG&A expenses ($0.1 million).
(d)For the first two quarters of 2021, represents asset impairment charges and employee termination costs related to the exit from our South Gate, California, fruit ingredient processing facility, which were recorded in other expense.
(e)For the first two quarters of 2021, represents costs to complete the exit from our Santa Maria, California, frozen fruit processing facility, which were recorded in other expense.
(f)For the first two quarters of 2020,2022, other mainly reflects professional feesthe settlement of $0.5 millioncertain legal and employee retention costs of $0.5 million recorded in SG&A expenses; and employee termination costs of $1.1 million mainly related to the consolidation of our corporate office functions, partially offset by a $0.9 million reversal of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees recorded in other income.
(d) Reflects costs related to the expansion of our plant-based extraction capabilities, which were recorded in cost of goods sold.
(e)contractual matters, together with asset impairment charges. For the first two quarters of 2021, other mainly reflects a $0.5 million loss on the settlement of employment-relatedcertain legal matter, partially offset by a gain related to a project cancellation, which were recorded in other expense/income. For the first two quarters of 2020, other includes the reversal of previously accrued costs related to the withdrawal of certain consumer-packaged products in 2016, which was recorded in other income.and contractual matters.
(f) (g)Reflects the tax effect of the preceding adjustments to earnings calculated based on our estimated annual effectivethe statutory tax rate.rates applicable in the tax jurisdiction of the underlying adjustment.
(3)The following table presents a reconciliation of segment operating income/lossincome and adjusted EBITDA from earnings/lossearnings from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (3) to the "Consolidated Results of Operations for the Quarters Ended July 2, 2022 and July 3, 2021 and June 27, 2020"2021" table regarding the use of this non-GAAP measure).
| July 3, 2021 | June 27, 2020 | July 2, 2022 | July 3, 2021 | ||||||||||
| For the two quarters ended | For the two quarters ended | $ | $ | $ | $ | ||||||||
| Earnings (loss) from continuing operations | 754 | (9,097 | ) | ||||||||||
| Income tax benefit | (2,513 | ) | (3,318 | ) | |||||||||
| Earnings from continuing operations | 3,152 | 754 | |||||||||||
| Income tax expense (benefit) | 1,384 | (2,513 | ) | ||||||||||
| Interest expense, net | Interest expense, net | 3,291 | 15,078 | 5,662 | 3,291 | ||||||||
| Other expense (income), net | 6,276 | (280 | ) | ||||||||||
| Other expense, net | 1,827 | 6,276 | |||||||||||
| Total segment operating income | Total segment operating income | 7,808 | 2,383 | 12,025 | 7,808 | ||||||||
| Depreciation and amortization | 16,953 | 15,380 | |||||||||||
| Stock-based compensation(a) | 8,343 | 4,885 | |||||||||||
| Acquisition, divestiture, and related costs(b) | 1,312 | - | |||||||||||
| Costs related to Value Creation Plan(c) | - | 983 | |||||||||||
| Plant expansion costs(d) | - | 92 | |||||||||||
| Depreciation and amortization | 18,785 | 16,953 | |||||||||||
| Stock-based compensation | 5,599 | 8,343 | |||||||||||
| Business development costs(a) | 799 | 1,312 | |||||||||||
| Start-up costs(b) | 721 | - | |||||||||||
| Adjusted EBITDA | Adjusted EBITDA | 34,416 | 23,723 | 37,929 | 34,416 | ||||||||
(a) ForBusiness development activities were related to our Investor Day and the exploration of potential strategic opportunities in the first two quarters of 2020, stock-based compensation of $4.9 million was recorded in SG&A expenses2022, and the reversalintegration of $0.9 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees was recognizedthe Dream and WestSoy brands in other income.
(b) For the first two quarters of 2021, acquisition, divestiture, and relatedwhich costs were mainly related to the transition and integration of the acquired Dream and WestSoy brands, which were recorded in SG&A expenses.
(c) Reflects professional fees of $0.5 million and employee retention costs of $0.5 million recorded in SG&A expenses.
(d) Reflects(b)For the first two quarters of 2022, start-up costs mainly related to the expansion ofnew employee hires for our plant-based extraction capabilities,beverage facility under construction in Midlothian, Texas, and the integration of the Dream and WestSoy brands acquired in April 2021, which were recorded in cost of goods sold.
| SUNOPTA INC. |
| July |
(4)Refer to footnote (4) to the "Consolidated Results of Operations for the Quarters Ended July 2, 2022 and July 3, 2021 and June 27, 2020"2021" table regarding the use of certain other non-GAAP measures in the discussion of our results of operations below.
Revenues for the two quarters ended July 3, 20212, 2022 increased by 4.6%18.0% to $409.9$483.7 million from $392.0$409.9 million for the two quarters ended June 27, 2020. ExcludingJuly 3, 2021, reflecting 21.9% revenue growth in the impact of incremental revenues fromPlant-Based Foods and Beverages segment and 12.9% revenue growth in the acquisition of the DreamFruit-Based Foods and WestSoy brands (an increaseBeverages segment. The change in revenues of $4.7 million) and changes in commodity-related pricing (an increase in revenues of $4.4 million), revenues increased by 2.2% infrom the first two quarters of 2021 compared withto the first two quarters of 2020. 2022 was due to the following:
| Plant-Based | Fruit-Based | |||||||||||||||||
| Foods and Beverages | Foods and Beverages | Consolidated | ||||||||||||||||
| $ | % | $ | % | $ | % | |||||||||||||
| 2021 revenues | 230,810 | 179,103 | 409,913 | |||||||||||||||
| Price | 24,917 | 10.8% | 20,682 | 11.5% | 45,599 | 11.1% | ||||||||||||
| Volume/Mix | 21,961 | 9.5% | 2,496 | 1.4% | 24,457 | 6.0% | ||||||||||||
| Acquisition | 3,735 | 1.6% | - | - | 3,735 | 0.9% | ||||||||||||
| 2022 revenues | 281,423 | 21.9% | 202,281 | 12.9% | 483,704 | 18.0% | ||||||||||||
Note: percentages may not add due to rounding.
For the two quarters ended July 3, 2021,2, 2022, the 21.9% increase in revenues for the Plant-Based Foods and Beverages segment revenues increased by 16.6%reflected a 10.8% overall increase in pricing, a favorable volume/mix impact of 9.5%, and 1.6% of incremental revenue in the first quarter of 2022 related to $230.8 million from $197.9 million for the two quarters ended June 27, 2020.acquisition of the Dream and WestSoy brands in April 2021. The increase in plant-based product revenues reflected strong salespricing was driven by certain pricing actions taken with customers to offset inflationary cost increases, together with the pass-through effect of higher sunflower commodity pricing. Volume/mix was favorable mainly due to growth forfrom our oat-based product offerings, together with increased foodservice demand forand other varieties of plant-based beverages due to the easing of COVID-19 restrictions,and teas, including strength in our branded portfolio, partially offset by softer retail volumes of plant-based beverages as at-home consumption levels continued to normalize.sunflower.
For the two quarters ended July 3, 2021,2, 2022, the 12.9% increase in revenues for the Fruit-Based Foods and Beverages segment revenuesreflected an 11.5% overall increase in pricing and a favorable volume/mix impact of 1.4%. The favorability in price reflected the benefit of pricing actions taken in the second half of 2021 and first quarter of 2022 to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses. The favorable volume/mix impact reflected strong demand for fruit snacks and the introduction of smoothie bowls, partially offset by decreased consumer demand for retail frozen fruit due to higher prices resulting from inflation, together with lower volumes due to our portfolio rationalization efforts.
Consolidated gross profit increased $6.6 million, or 11.7%, to $62.9 million for the two quarters ended July 3, 2021 decreased by 7.7% to $179.1 million from $194.1 million for the two quarters ended June 27, 2020. The decrease in fruit-based product revenues reflected lower volumes of retail frozen fruit due to the continued normalization of at-home consumption, together2, 2022, compared with the rationalization of marginally profitable customers and products, and the impact of supply constraints for certain fruit varieties on blended frozen fruit offerings. These declines were partially offset by strong growth in fruit snacks, driven by returning consumer demand for portable snacks and new business development.
Gross profit increased $5.9 million, or 11.7%, to $56.3 million for the two quarters ended July 3, 2021, compared with $50.4 million2021. Consolidated gross margin for the two quarters ended June 27, 2020. As a percentage of revenues, gross profitJuly 2, 2022 was 13.0% compared to 13.7% for the two quarters ended July 3, 2021, was 13.7% compared to 12.9% for the two quarters ended June 27, 2020, an increasea decrease of 8070 basis points.
Gross profit for the Plant-Based Foods and Beverages segment increased $5.3$0.9 million to $43.9 million for the two quarters ended July 2, 2022, compared with $43.1 million for the two quarters ended July 3, 2021, compared with $37.8 million forwhile gross margin decreased to 15.6% in the first two quarters ended June 27, 2020, while gross profit as a percentage of revenues decreased to2022 from 18.7% in the first two quarters of 2021 from 19.1% in the first two quarters of 2020.2021. The 40-basis310-basis point decrease in the plant- based gross profit percentagemargin included an estimated 180 basis-point decline due to the dilutive effect of pass-through pricing to recover cost inflation on raw materials and packaging. The remaining gross margin impact reflected incremental depreciation expense relatedunrecovered raw material cost inflation due to new plant-based processing capacity,the lag in pricing adjustments, together with higher labor and utility costs, increased transportation costs.inventory reserves and higher depreciation expense. In addition, the reported plant-based gross margin was negatively impacted by start-up costs of $0.6 million (0.2% gross margin impact) incurred in connection with our plant expansion in Midlothian, Texas, and the integration of the Dream and WestSoy brands. These negative factors were partially offset by stronghigher production volumes and productivity improvements withinplant utilization in our plant-based beverage and ingredient extraction operations, and improved plant utilization and cost reductions within our sunflower and roasting operations.
Gross profit for the Fruit-Based Foods and Beverages segment increased $0.6$5.7 million to $19.0 million for the two quarters ended July 2, 2022, compared with $13.3 million for the two quarters ended July 3, 2021, compared with $12.6 million forand gross margin increased 200 basis points to 9.4% in the first two quarters ended June 27, 2020, while gross profit as a percentage of revenues increased to2022 from 7.4% in the first two quarters of 2021, from 6.5% in the first two quarters of 2020. The 90-basis point increase in the gross profit percentage reflected strong fruit snack and fruit ingredient volumes, together with increased pass-through sales pricing, rationalization of marginally profitable business, and productivity-driven cost savings in our frozen fruit operations. These factors were mostly offset by the impacts of higher strawberry commodity prices, a higher cost of fruit inventory from Mexicodespite an estimated 80 basis-point decline due to the impactdilutive effect of pass-through pricing to recover commodity cost inflation. Excluding this pricing effect, fruit-based gross margin reflected the benefits of portfolio rationalizations for frozen fruit and manufacturing cost savings from the consolidation of our fruit processing facilities in 2021, partially offset by increases in freight and storage rates, a strengthening Mexican peso,higher mix of low-margin fruit juice sales, and increased transportation costs.frozen fruit inventory losses due to excess spoilage during handling.
| SUNOPTA INC. | 33 | July 2, 2022 Form 10-Q |
For the two quarters ended July 3, 2021,2, 2022, we realized total segment operating income of $7.8$12.0 million, compared with $2.4$7.8 million for the two quarters ended June 27, 2020.July 3, 2021. The $5.4$4.2 million increase in total segment operating income mainly reflected higher gross profit, as described above, together with a $1.5 million decrease in foreign exchange losses within our frozen fruit operations in Mexico, partially offset by a $1.8$2.6 million increase in SG&A expenses primarily due to incremental third-party consulting costs related to the transition and integration of the recently acquired Dream and WestSoy brands, together with higher stock-based compensation costs, partially offset by lower employee-related variable compensation costs and reduced reserves for credit losses due to improving economic conditions within the foodservice sector. In addition,a $0.5 million increase in the first two quarters of 2021, we recorded $0.3 million of incremental amortization expense related to our acquisition of the acquired Dream and WestSoy brand name intangible assets. assets in April 2021. The increase in SG&A expenses was mainly due to a special one-time recognition bonus of $1.6 million to reward employees for improved performance in the first quarter of 2022, together with incremental 2022 incentive plan accruals based on performance. These factors were partially offset by a $2.1 million reduction in variable stock-based compensation because the performance condition under our 2021 incentive plan was not achieved, together with lower employee compensation costs related to headcount reductions in our frozen fruit operations in August 2021, and lower business development expenses related to costs incurred to acquire the Dream and WestSoy brands in April 2021. In addition, we recognized a favorable year-over- year foreign exchange impact related to our Mexican operations of $0.8 million.
Further details on revenue, gross profit and segment operating income/loss variances are provided below under "Segmented Operations"Operating Segment Information."
Other expense was $1.8 million for the two quarters ended July 2, 2022, compared with other expense of $6.3 million for the two quarters ended July 3, 20212021. Other expense in the first two quarters of 2022 mainly reflected asset impairment charges and employee termination costs related to the exitrelocate certain equipment from our fruit ingredient processing facility, together with costs to complete the exit from our Santa Maria,held-for-sale Oxnard, California, frozen fruit processing facility to our Mexican facility, while other expense in the first quartertwo quarters of 2021. Other income2021 mainly reflected plant closure costs related to the consolidation of $0.3our fruit processing facilities.
Net interest expense increased by $2.4 million to $5.7 million for the two quarters ended June 27, 2020 mainly reflected the reversal of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees and the reversal of costs that remained accrued related to the withdrawal of certain consumer-packaged products in 2016, partially offset by employee termination costs associated the consolidation of our corporate office functions into Minneapolis, Minnesota.
|
Net interest expense decreased by $11.8 million toJuly 2, 2022, compared with $3.3 million for the two quarters ended July 3, 2021, compared with $15.1resulting from an increase in outstanding debt to finance capital expansion projects and fund working capital requirements.
Income tax expense was $1.4 million on pre-tax earnings from continuing operations of $4.5 million for the two quarters ended June 27, 2020, which mainly reflected reduced cash interest payments as a result of a reduction in outstanding debt following the divestiture of Tradin Organic in December 2020.
We recognized anJuly 2, 2022, compared with income tax benefit of $2.5 million on a pre-tax loss from continuing operations of $1.8 million for the two quarters ended July 3, 2021, compared with $3.3 million for the two quarters ended June 27, 2020. Our reported tax rates were 142.9% and 26.7% for the first two quarters of 2021 and 2020, respectively.2021. Excluding the impact of stock-based compensation and other non-deductible stock-based and executive compensation fromexpenses included in pre-tax earnings, our effective tax rate was 27.5% in the first two quarters of 2022, compared with 24.9% in the first two quarters of 2021, compared with 27.7% in the first two quarters of 2020.2021.
Earnings from continuing operations for the two quarters ended July 3, 2021 was $0.82, 2022 were $3.2 million, compared with a lossearnings of $9.1$0.8 million for the two quarters ended July 3, 2021.2, 2022. Diluted lossearnings per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.02 for the two quarters ended July 3, 2021,2, 2022, compared with a loss per share $0.15$0.02 for the two quarters ended June 27, 2020. July 3, 2021.
Earnings from the discontinued operations of Tradin Organic were $13.5$2.8 million for the two quarters ended June 27, 2020.July 2, 2022, were related to the settlement of the purchase price allocation and other post-closing matters in connection with the 2020 divestiture of our global ingredients business, Tradin Organic (see note 11 to the unaudited consolidated financial statements included in this report.).
On a consolidated basis, weWe realized earnings attributable to common shareholders of $4.4 million (diluted earnings per share of $0.04) for the two quarters ended July 2, 2022, compared with a loss attributable to common shareholders of $1.9 million (diluted loss per share of $0.02) for the two quarters ended July 3, 2021, compared with loss attributable to common shareholders of $0.3 million (diluted loss per share of $0.00) for the two quarters ended June 27, 2020. The loss attributable to common shareholders for the first two quarters of 2021 and 2020which reflected dividends and accretion on preferred stock of $1.5 million and $2.7 million in the first two quarters of 2022 and $4.6 million,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.
For the two quarters ended July 3, 2021,2, 2022, adjusted earnings were $1.4$4.1 million, or $0.01$0.04 per diluted share, compared with an adjusted lossearnings of $13.3$1.4 million, or $0.15$0.01 per diluted share for the two quarters ended June 27, 2020.July 3, 2021. Adjusted EBITDA for the two quarters ended July 3, 20212, 2022 was $34.4$37.9 million, compared with $23.7$34.4 million for the two quarters ended June 27, 2020.July 3, 2021. Adjusted lossearnings and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of adjusted lossearnings and adjusted EBITDA from earnings/lossearnings from continuing operations, which we consider to be the most directly comparable U.S. GAAP financial measure.
| SUNOPTA INC. | 34 | July 2, 2022 Form 10-Q |
Segmented Operations Information
| Plant-Based Foods and Beverages | ||||||||||||
| For the two quarters ended | July 3, 2021 | June 27, 2020 | Change | % Change | ||||||||
| Revenues | $ | 230,810 | $ | 197,947 | $ | 32,863 | 16.6% | |||||
| Gross profit | 43,054 | 37,802 | 5,252 | 13.9% | ||||||||
| Gross profit % | 18.7% | 19.1% | -0.4% | |||||||||
| Operating income | $ | 21,958 | $ | 24,337 | $ | (2,379 | ) | -9.8% | ||||
| Operating income % | 9.5% | 12.3% | -2.8% |
| Plant-Based Foods and Beverages | ||||||||||||
| For the two quarters ended | July 2, 2022 | July 3, 2021 | Change | % Change | ||||||||
| Revenues | $ | 281,423 | $ | 230,810 | $ | 50,613 | 21.9% | |||||
| Gross profit | 43,920 | 43,054 | 866 | 2.0% | ||||||||
| Gross margin | 15.6% | 18.7% | -3.1% | |||||||||
| Operating income | $ | 20,292 | $ | 21,958 | $ | (1,666 | ) | -7.6% | ||||
| Operating margin | 7.2% | 9.5% | -2.3% |
Plant-Based Foods and Beverages contributed $230.8$281.4 million in revenues for the two quarters ended July 3, 2021,2, 2022, compared to $197.9$230.8 million for the two quarters ended June 27, 2020,July 3, 2021, an increase of $32.9$50.6 million, or 16.6%. Excluding the impact on revenues of incremental revenues from the acquisition of the Dream and WestSoy brands (an increase in revenues of $4.7 million) and changes in sunflower commodity-related pricing (a decrease in revenues of $0.4 million), Plant-Based Foods and Beverages revenues increased approximately 14.4%21.9%. The table below explains the increase in reported revenues:
|
| Plant-Based Foods and Beverages Revenue Changes | |||
| Revenues for the two quarters ended July 3, 2021 | $ | 230,810 | |
| Sales volume growth for oat-based product offerings, and other varieties of plant-based beverages and teas, including strength in our branded portfolio, together with the benefit of certain pricing actions taken to offset input cost inflation | 40,821 | ||
| Increased commodity pricing for sunflower, partially offset by lower volumes | 6,057 | ||
| Incremental revenue in the first quarter of 2022 related to the acquisition of the Dream and WestSoy brands in April 2021 | 3,735 | ||
| Revenues for the two quarters ended July 2, 2022 | $ | 281,423 |
Gross profit in Plant-Based Foods and Beverages increased by $5.3$0.9 million to $43.9 million for the two quarters ended July 2, 2022, compared to $43.1 million for the two quarters ended July 3, 2021, compared to $37.8 million for the two quarters ended June 27, 2020, while the gross profit percentage decreased by 40 basis points to 18.7%. The decrease in the gross profit percentage reflected incremental depreciation expense and increased transportation costs. These factors were partially offset by strong volumes within our plant-based beverage and ingredient extraction operations, and improved plant utilization and cost reductions within our sunflower and roasting operations.2021. The table below explains the increase in gross profit:
| Plant-Based Foods and Beverages Gross Profit Changes | |||
| Gross profit for the two quarters ended July 3, 2021 | $ | 43,054 | |
| 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 WestSoy brands in April 2021, partially offset by increased manufacturing plant spend, including unrecovered inflationary increases in raw material costs and utility and freight rates, and higher wages to retain employees and costs to hire and train new employees, together with higher inventory reserves and incremental depreciation of new production equipment for capital expansion projects, and start-up costs incurred for our plant expansion in Midlothian, Texas | 737 | ||
| Higher pricing spreads for sunflower, partially offset by lower volumes | 129 | ||
| Gross profit for the two quarters ended July 2, 2022 | $ | 43,920 |
Operating income in Plant-Based Foods and Beverages decreased by $2.3$1.7 million to $20.3 million for the two quarters ended July 2, 2022, compared to $22.0 million for the two quarters ended July 3, 2021, compared to $24.3 million for the two quarters ended June 27, 2020.2021. The table below explains the decrease in operating income:
|
| Fruit-Based Foods and Beverages | ||||||||||||
| For the two quarters ended | July 3, 2021 | June 27, 2020 | Change | % Change | ||||||||
| Revenues | $ | 179,103 | $ | 194,051 | $ | (14,948 | ) | -7.7% | ||||
| Gross profit | 13,271 | 12,630 | 641 | 5.1% | ||||||||
| Gross profit % | 7.4% | 6.5% | 0.9% | |||||||||
| Operating loss | $ | (3,341 | ) | $ | (6,718 | ) | $ | 3,377 | 50.3% | |||
| Operating loss % | -1.9% | -3.5% | 1.6% |
| Plant-Based Foods and Beverages Operating Income Changes | ||||
| Operating income for the two quarters ended July 3, 2021 | $ | 21,958 | ||
| Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees | (2,084 | ) | ||
| Incremental amortization of the acquired Dream and WestSoy brand name intangible assets in the first quarter of 2022, together with increased brand marketing and advertising, and travel expenses, partially offset by lower third-party consulting costs related to the acquisition of the Dream and WestSoy brands in April 2021 | (448 | ) | ||
| Increase in gross profit, as explained above | 866 | |||
| Operating income for the two quarters ended July 2, 2022 | $ | 20,292 | ||
| Fruit-Based Foods and Beverages | ||||||||||||
| For the two quarters ended | July 2, 2022 | July 3, 2021 | Change | % Change | ||||||||
| Revenues | $ | 202,281 | $ | 179,103 | $ | 23,178 | 12.9% | |||||
| Gross profit | 18,969 | 13,271 | 5,698 | 42.9% | ||||||||
| Gross margin | 9.4% | 7.4% | 2.0% | |||||||||
| Operating income (loss) | $ | 3,995 | $ | (3,341 | ) | $ | 7,336 | 219.6% | ||||
| Operating margin | 2.0% | -1.9% | 3.9% |
Fruit-Based Foods and Beverages contributed $179.1$202.3 million in revenues for the two quarters ended July 3, 2021,2, 2022, compared to $194.1$179.1 million for the two quarters ended June 27, 2020, a decreaseJuly 3, 2021, an increase of $14.9$23.2 million, or 7.7%. Excluding the impact on revenues of changes in raw fruit commodity-related pricing (an increase in revenues of $4.8 million), Fruit-Based Foods and Beverages revenues decreased approximately 10.2%12.9%. The table below explains the decreaseincrease in reported revenues:
| Fruit-Based Foods and Beverages Revenue Changes | |||
| Revenues for the two quarters ended July 3, 2021 | $ | 179,103 | |
| Higher sales volumes and pricing for fruit snacks and incremental revenue from the introduction of smoothie bowls | 12,411 | ||
| Benefit of pricing actions taken to offset commodity inflation incurred on fruit inventories and inflationary impacts to operating expenses, partially offset by lower retail sales of frozen fruit due to the impact of higher prices on consumer demand, together with lower volumes due to our portfolio rationalization efforts | 10,767 | ||
| Revenues for the two quarters ended July 2, 2022 | $ | 202,281 |
Gross profit in Fruit-Based Foods and Beverages increased by $0.7$5.7 million to $19.0 million for the two quarters ended July 2, 2022, compared to $13.3 million for the two quarters ended July 3, 2021, compared to $12.6 million for the two quarters ended June 27, 2020, and the gross profit percentage increased by 90 basis points to 7.4%. The increase in the gross profit percentage reflected strong fruit snack and fruit ingredient volumes, together with increased pass-through sales pricing, rationalization of marginally profitable business, and productivity-driven cost savings in our frozen fruit operations. These factors were mostly offset by the impacts of higher strawberry commodity prices, unfavorable foreign exchange impacts, and increased transportation costs.2021. The table below explains the increase in gross profit:
| Fruit-Based Foods and Beverages Gross Profit Changes | |||
| Gross profit for the two quarters ended July 3, 2021 | $ | 13,271 | |
| Improved margin profile from portfolio rationalizations and reduced manufacturing cost base within our frozen fruit operations, together with higher pricing for retail frozen fruit, partially offset by lower sales volumes, together with increases in freight and storage rates, a higher mix of low-margin fruit juice sales, and frozen fruit inventory losses due to excess spoilage during handling | 5,075 | ||
| Higher sales, production volumes, and pricing for fruit snacks | 623 | ||
| Gross profit for the two quarters ended July 2, 2022 | $ | 18,969 |
|
Operating lossincome in Fruit-Based Foods and Beverages decreasedincreased by $3.4$7.3 million to $4.0 million for the quarter ended July 2, 2022, compared to an operating loss of $3.3 million for the quarter ended July 3, 2021. The table below explains the increase in operating income:
| Fruit-Based Foods and Beverages Operating Income Changes | |||
| Operating loss for the two quarters ended July 3, 2021 | $ | (3,341 | ) |
| Increase in gross profit, as explained above | 5,698 | ||
| Lower employee compensation costs due to a workforce reduction in August 2021, together with a favorable foreign exchange impact within our frozen fruit operations in Mexico | 1,905 | ||
| Increase in corporate cost allocation, mainly related to incremental 2022 incentive plan accruals allocable to operating segment employees | (267 | ) | |
| Operating income for the two quarters ended July 2, 2022 | $ | 3,995 |
| Corporate Services | |||||||||||||
| For the two quarters ended | July 2, 2022 | July 3, 2021 | Change | % Change | |||||||||
| Operating loss | $ | (12,262 | ) | $ | (10,809 | ) | $ | (1,453 | ) | -13.4% | |||
Operating loss at Corporate Services increased by $1.5 million to $12.3 million for the two quarters ended July 3, 2021,2, 2022, compared to $6.7 million for the two quarters ended June 27, 2020. The table below explains the decrease in operating loss:
| Corporate Services | ||||||||||||
| For the two quarters ended | July 3, 2021 | June 27, 2020 | Change | % Change | ||||||||
| Operating loss | $ | (10,809 | ) | $ | (15,236 | ) | $ | 4,427 | 29.1% |
Operatinga loss at Corporate Services decreased by $4.4 million toof $10.8 million for the two quarters ended July 3, 2021, compared to a loss of $15.2 million for the two quarters ended June 27, 2020.2021. The table below explains the decreaseincrease in operating loss:
| Corporate Services Operating Loss Changes | |||
| Operating loss for the two quarters ended July 3, 2021 | $ | (10,809 | ) |
| Incremental 2022 incentive plan accruals based on performance, and one-time recognition bonus of $1.6 million recognized in the first quarter of 2022 to reward employees for improved performance, together with costs related to our 2022 Investor Day of $0.5 million | (6,548 | ) | |
| Lower variable stock-based compensation, mainly because the performance condition under our 2021 incentive plan was not achieved | 2,744 | ||
| Increase in corporate cost allocations, mainly related to the portion of the incremental 2022 incentive plan accruals allocable to operating segment employees | 2,351 | ||
| Operating loss for the two quarters ended July 2, 2022 | $ | (12,262 | ) |
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.
Liquidity and Capital Resources
On December 31, 2020, we entered into a five-year credit agreement, as amended, 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,As at July 2, 2022, we had outstanding borrowings under the revolving credit facility of $176.7 million (January 1, 2022 - $153.3 million), and available borrowing capacity of approximately $71 million (January 1, 2022 - $67 million). The credit agreement also provides a five-year, $75 million delayed draw term loan, to be used for capital expenditures. The delayed draw term loan canexpenditures, which may be borrowed within 18 months from closing.drawn upon up to March 31, 2023. As at July 3, 2021,2, 2022, we had outstanding borrowings of $159.1$19.4 million (January 2, 2021 - $47.3 million), includingdrawn on the FILO term loan discussed below, and available borrowing capacity of approximately $42 million (January 2, 2021 - $116 million) under the revolving credit facility. The $111.8 million increase in outstanding borrowings since the prior year-end reflected the seasonal build of fruit inventory, together with the acquisition of the Dream and WestSoy brands. The weighted-average interest rate on all outstanding borrowings was 2.21% in the first two quarters of 2021.
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On April 15, 2021, we entered into a first amendment to the credit agreement for a two-year, $20 million FILO term loan at LIBOR plus 250 to 300 basis points, which was drawn in fullfacility mainly to finance a portion of the purchase priceof equipment for the acquisition of the Dream and WestSoy brands. Amortization payments on the aggregate principal amount of the FILO term loan are equal to $2.5 million, payable at the end of each fiscal quarter, commencing with the second quarter of 2022, with the remaining amount payable at the maturity thereof on April 15, 2023. On July 2, 2021, we entered into a second amendment to the credit agreement to increase the customer concentration limit included in the borrowing base calculation under the revolving creditour new Midlothian, Texas, facility.
For more information on theour asset-based credit agreement and FILO term loan,facilities see note 7(1)5 to the unaudited consolidated financial statements included in this report.
During the first two quarters of 2021,2022, we recognized additional finance lease liabilities of $29.9 million in the aggregateamount of $50.7 million, mainly related to the buildouts of our Midlothian, Texas, facility, and our executive office and innovation center located in Eden Prairie, Minnesota, together with the addition of new processing equipment at our Allentown, Pennsylvania, plant-based beverage facility, and ingredient extraction processingplant improvements at our Alexandria, Minnesota, plant-based beverage facility. For more information on our operating and packaging equipment. These leases have implicit interest rates of 8.08%finance lease obligations, including maturity dates, see note 4 to 8.85% and lease terms of five years. the unaudited consolidated financial statements included in this report.
| SUNOPTA INC. | 37 | July 2, 2022 Form 10-Q |
As at July 3, 2021, we had commitments under certain master lease agreements that provide for up to approximately $10 million of additional financing.
On February 22, 2021, all shares of Series A Preferred Stock issued by2, 2022, our subsidiary, SunOpta FoodFoods Inc. ("SunOpta Foods") were exchanged by the holders for 12,633,427 shares of our common stock, representing 12.3% of our issued and outstanding common shares on a post-exchange basis. Following the exchange, we are no longer required to pay the 8.0% per year dividend on the Series A Preferred Stock, representing approximately $7.1 million of annual dividend savings.
On April 24, 2020, SunOpta Foods issued, had 30,000 shares of Series B-1 Preferred Stock (the "Series B-1 Preferred Stock") for $30.0 million.preferred stock issued and outstanding. The Series B-1 Preferred Stockpreferred stock currently has a current liquidation preference of approximately $1,015 per share 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 Stockpreferred stock at an annualized rate of 8.0% of the liquidation preference prior 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,preferred stock, see note 86 to the unaudited consolidated financial statements included in this report.
There have been no material changes outside the normal course of business in the nature of our contractual obligations since January 1, 2022.
We believe that our operating cash flows and expected net proceeds from the sale of our Oxnard, California, frozen fruit processing facility, together with our revolving and term loan credit facilities, and access to 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 periods ended July 2, 2022 and July 3, 2021 is as follows:
| For the quarter ended | For the two quarters ended | |||||||||||||||||
| July 2, 2022 $ | July 3, 2021 $ | Change $ | July 2, 2022 $ | July 3, 2021 $ | Change $ | |||||||||||||
| Net cash flows provided by (used in): | ||||||||||||||||||
| Operating activities of continuing operations | (2,454 | ) | (39,147 | ) | 36,693 | 13,089 | (46,162 | ) | 59,251 | |||||||||
| Investing activities of continuing operations | (34,060 | ) | (32,379 | ) | (1,681 | ) | (58,578 | ) | (40,326 | ) | (18,252 | ) | ||||||
| Financing activities of continuing operations | 42,896 | 71,251 | (28,355 | ) | 52,139 | 100,296 | (48,157 | ) | ||||||||||
| Discontinued operations | (6,324 | ) | - | (6,324 | ) | (6,324 | ) | (13,580 | ) | 7,256 | ||||||||
Operating cash flowsActivities of Continuing Operations
CashThe decrease in cash used in operating activities of continuing operations was $39.1of $36.7 million for the quarter ended July 2, 2022, compared with the quarter ended July 3, 2021, and $46.2 millionthe increase in cash provided by operating activities of continuing operations of $59.3 for the two quarters ended July 2, 2022, compared with the two quarters ended July 3, 2021, reflected a normalization of frozen fruit inventory purchases in the second quarter and first halfcurrent year periods, compared with a need to replenish those inventories in the corresponding periods of 2021, respectively, compared with cash provided of $0.5 million and $24.2 million in the second quarter and first half of 2020, respectively. The period-over-period increases in cash used of $39.6 million and $70.4 million in the second quarter and first half of 2021, respectively, mainly reflected increases in seasonal fruit purchases, reflectingfollowing a shortfall in frozen strawberry supply in 2020 related to COVID-19-driven demand for fresh fruit, together with the impacts of higher commodity prices and lower retail sales demand for frozen fruit in 2021.2020. In addition, we acquired $6.6 millionhave improved working capital efficiency through the selective use of Dreamearly payment programs offered by some of our major customers, and WestSoy inventories in connectionimproved payment terms with the closingcertain of the brand acquisition.our suppliers. These inventory impactsfactors were partially offset by the period-over-period increases inyear-over-year impact of higher commodity prices for frozen fruit and sunflower seeds, and higher inventory levels required to support the growth of our operating results.plant-based beverage and fruit snacks platforms.
| SUNOPTA INC. | 38 | July 2, 2022 Form 10-Q |
Cash used in investing activities of continuing operations increased $1.7 million and $18.3 million for the quarter and two quarters ended July 2, 2022, respectively, compared with the corresponding periods of 2021. Investing cash flows reflected additions to property, plant and equipment of $37.0 million and $62.8 million in the second quarter and first halftwo quarters of 2022, compared with additions of $7.3 million and $16.6 million in the corresponding periods of 2021. Capital expenditures in 2022 were mainly related to the construction of our Midlothian, Texas, facility, the completion of our executive office and innovation center, and expansion projects within our plant-based and fruit snacks operations. Investing cash flows for the quarter and two quarters ended July 3, 2021, included $25.1 million relatedpaid to acquire the acquired Dream and WestSoy brand name intangible assets. Capital expenditures were $7.3 million and $16.6 million in the second quarter and first half
Financing Activities of 2021, respectively, net of proceeds of $1.4 million in the first quarter of 2021 from the disposal of frozen fruit processing equipment from our exited Santa Maria, California, facility, compared with capital expenditures of $5.9 million and $14.9 million in the second quarter and first half of 2020, respectively. Capital expenditures to-date in 2021 have been mainly related to capacity expansion projects within our plant-based operations. Cash used in investing activities of discontinued operations was $13.4 million in the first half of 2021, which was related to the settlement of accrued transaction costs incurred in connection with the divestiture of Tradin Organic in December 2020.
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Financing cash flowsContinuing Operations
Cash provided by financing activities of continuing operations was $71.3decreased $28.4 million and $100.3$48.2 million infor the second quarter and first half of 2021,two quarters ended July 2, 2022, respectively, compared with cash providedthe corresponding periods of $5.6 million in the second quarter of 2020 and cash used of $8.9 million in the first half of 2020.2021. The period-over-period increasesdecreases in cash provided mainly reflected reduced levels of $65.7 million and $109.2 millionincremental revolver borrowings required to fund changes in working capital in the second quarter and first halfcurrent year periods, partially offset by increased borrowings of 2021, respectively, mainly reflected increases in revolver borrowings, including the FILOlong-term debt related to term loan and lease financing for capital projects.
Discontinued Operations
Cash used in investing activities of discontinued operations of $6.3 million for the quarter ended July 2, 2022, related to fund seasonal inventory purchases and the acquisitionsettlement of the Dreampurchase price allocation and WestSoy brands. In addition, revolver borrowingsother post-closing matters in connection with the first half2020 divestiture of 2021 wereTradin Organic, while cash used in investing activities of discontinued operations of $13.4 million for the two quarters ended July 2, 2022, related to settlethe settlement of transaction costs accrued in connection with the Tradin Organic transaction costs and the payment of tax withholdings on certain vested stock-based awards. sale.
Off-Balance Sheet Arrangements
There are currently no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition.
Contractual Obligations
There have been no material changes outside the normal course of business in our contractual obligations since January 2, 2021.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. The estimates and assumptions made require us to exercise our judgment and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes.
There have been no material changes to the critical accounting estimates disclosed under the heading "Critical Accounting Estimates" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Form 10-K. For a discussion of new accounting standards, see note 1 to the unaudited consolidated financial statements included in this report.
For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of the Form 10-K. There have been no material changes to our exposures to market risks since January 2, 2021.1, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange 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 our management to allow timely decisions regarding required disclosure.
| SUNOPTA INC. |
| July |
Under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we conducted an evaluation of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the period covered by this quarterly report. Based on this evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of July 3, 2021.2, 2022.
Changes in Internal Control Over Financial Reporting
Our management, with the participation of our CEO and CFO, has evaluated whether any change in our internal control over financial reporting (as such term is defined under Rule 13a-15(f) promulgated under the Exchange Act) occurred during the quarter ended July 3, 2021.2, 2022. Based on that evaluation, management concluded that there were no changes in our internal control over financial reporting during the quarter ended July 3, 20212, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| SUNOPTA INC. |
| July |
Item 1. Legal Proceedings
For a discussion of legal proceedings, see note 1311 to the unaudited consolidated financial statements included under Part I, Item 1 of this report.
Item 1A. Risk Factors
Certain risks associated with our operations are discussed in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended January 2, 2021.1, 2022. There have been no material changes to the previously reported risk factors as of the date of this quarterly report. Our previously reported risk factors should be carefully reviewed in connection with an evaluation of our Company.
Item 6. Exhibits
The following exhibits are included as part of this report.
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+ 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. |
| July |
SIGNATURES
Pursuant to the requirements 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. | |
| Date: August 11, | /s/ Scott Huckins |
| Scott Huckins | |
| Chief Financial Officer | |
| (Authorized Signatory and Principal Financial Officer) |
| SUNOPTA INC. |
| July |