The Company obtains its short term financing through a combination of cash generated from operating activities, cash and cash equivalents, and available operating lines of credit. At December 31, 2005, the Company has availability under certain lines of credit of approximately $27,200,000. Revolving acquisition lines are also available for SunOpta and Opta Minerals with maximum draws up to $10,000,000 and Cdn $5,000,000 respectively.
The Company obtains its long term financing through its credit agreement with a syndicate of lenders. The Company may expand this credit agreement, and/or obtain additional long term financing for internal expansion uses, acquisitions or other strategic purposes as required.
The Company has the following sources from which it can fund its operating 2006 cash requirements:
In order to finance significant acquisitions, the Company may need additional sources of cash which could be obtained through a combination of additional bank or subordinated financing, a private or public offering, or the issuance of shares in relation to an acquisition or a divestiture. The Company intends to maintain a target long term debt to equity ratio of approximately 0.60 to 1.00 versus the current position of 0.37 to 1.00.
The Company anticipates being able to obtain long term financing in view of its current financial position and past experience in the capital markets.
In February, 2005 the Company amended its credit agreement for the primary purpose of releasing all secured collateral relating to Opta Minerals in anticipation of Opta Minerals Inc.’s initial public offering.
In May, 2005 Opta Minerals entered into an agreement with a Canadian chartered bank that has provided Opta Minerals with a line of credit facility up to Cdn $5,000,000 and a revolving term facility for up to Cdn $7,000,000 to be used to finance future acquisitions and capital expenditures.
In December, 2005 the Company converted $45,000,000 of variable interest debt to fixed rate debt with a five year interest rate of 6.44%, subject to certain debt to EBITDA ratios. The debt is due in a lump sum at the end of the five year term. This debt replaced existing term debt of approximately $40,000,000 and bank indebtedness of approximately $5,000,000.
The Company’s existing bankers will continue as agents for SunOpta’s overall debt syndication structure. Several Life Insurance Companies have been added to the syndication which provided the $45,000,000 in term debt. As part of this transaction the Company has also increased its U.S line of credit facility from $22,500,000 to $25,000,000.
In September 2005, Opta Minerals amended and restated its credit agreement and banking facilities to establish a term loan facility of Cdn $8,000,000. Opta Minerals also increased its line of credit facility from Cdn $5,000,000 to Cdn $7,500,000 and reduced its revolving term facility from Cdn $7,000,000 to Cdn $5,000,000. Opta Minerals used the funds of the term loan to repay SunOpta for certain debt owed by Opta Minerals.
Other debt facilities and promissory notes were entered into during the year including debt issued or assumed in connection with the acquisitions of Cleugh’s, Pacific Fruit and Hahamovitch plus certain capital leases. Included within these facilities is a $20,000,000 line of credit facility, the availability of which is based on the levels of accounts receivable and inventory, specifically for the Cleugh’s operation.
Cash flows – 2005 compared to 2004
Net cash and cash equivalents decreased ($2,626,000) during fiscal 2005 (2004 – $13,909,000) to $5,455,000 as at December 31, 2005 (2004 - $8,081,000).
Cash provided by operations after working capital changes was a deficit of $7,525,000 for the year ended December 31, 2005 (2004 – increase of $10,756,000), including the use of funds for non-cash working capital of $26,006,000 (2004 – $10,170,000). This utilization consists principally of an increase in accounts receivable of $11,184,000 and an increase in inventories of $16,641,000. The increase in accounts receivable is primarily due to the growth in sales in 2005.. Overall accounts receivable as a percentage of revenues has increased from 12.5% to 13.5%. This increase can be attributable to timing of large payments received by the Ingredients Group in early January 2006 and a large receivable balance for the BioProcess Group due to timing of payments related to its current equipment contract.
Inventory has increased from 16.2% to 20.7% as a percentage of revenues. This increase is primarily from the Grains and Foods Group which has increased inventories by approximately $7,000,000 due to the timing of grain deliveries and excellent crops in the fall of 2005 and the impact of frozen fruit inventories as a result of product mix versus 2004.. Opta Minerals has increased by $6,000,000 due to the commissioning of additional facilities and timing of large inventories of materials sourced internationally.
Accounts payable and accrued liabilities increased by $1,141,000 (2004 - $5,962,000), far less than the increase in inventory. After the acquisition of Cleughs approximately $4,000,000 was paid to vendors to bring accounts payable into normal terms. All other working capital changes net to an increase of $678,000 (2004 – decrease of $1,936,000).
Cash used in investment activities of $34,703,000 in 2005 (2004 – $44,039,000), reflects cash used to complete acquisitions, net of cash acquired and payments for contingent consideration, of $20,920,000 (2004 – $27,289,000), net acquisitions of property, plant and equipment of $13,509,000 (2004 – $13,260,000) and an increase in other assets of $274,000 (2004 - $3,495,000).
Cash provided by (used in) financing activities was $39,309,000 in the year ended December 31, 2005 (2004 – $18,828,000), consisting primarily of net proceeds from the issuance of common shares of Opta Minerals of $14,294,000 (2004 - $nil), and a net increase in borrowings under long-term debt of $18,619,000 (2004 – $10,197,000), net increase in operating lines of credit of $7,461,000 (2004 – $nil) proceeds from the issuance of common shares of $946,000 (2004 - $9,125,000) and other payments of $2,011,000 (2004 - $494,000).
Cash flows – 2004 compared to 2003
Net cash and cash equivalents decreased ($13,909,000) during fiscal 2004 (2003 – increase of $14,978,000) to $8,081,000 as at December 31, 2004 (2003 - $21,990,000).
Cash provided by operations after working capital changes was $10,756,000 for the year ended December 31, 2004 (2003 – $1,926,000), including the use of funds for non-cash working capital of ($10,170,000) (2003 – ($11,992,000)). This utilization consisted principally of an increase in accounts receivable of $7,466,000, an increase in inventories of $6,730,000, an increase in prepaid expenses and other current assets of $275,000 and income taxes recoverable of $314,000 and a decrease in customer and other deposits of $1,347,000, offset by a an increase in accounts payable and accrued liabilities of $5,962,000. The usage of cash flows to fund working capital in 2004 reflected the increase in working capital requirements required to fund the rapid growth in operations.
Cash used in investment activities of $44,039,000 in 2004 (2003 – $21,624,000), reflected cash used to complete acquisitions, net of cash acquired, of $27,284,000 (2003 – $17,594,000), net acquisitions of property, plant and equipment of $13,260,000 (2003 – $7,139,000) and an increase in other assets of $3,495,000 (2003 - $nil), offset in the prior year by decreases in short-term investments and payment received on a note receivable totalling $3,109,000 (2004 - $nil).
Cash provided by (used in) financing activities was $18,828,000 in the year ended December 31, 2004 (2003 – $34,187,000), consisted primarily of net proceeds from the issuance of common shares of $9,125,000 (2003 - $56,601,000), from the exercise of stock options and warrants during the year and a net increase in borrowings
SunOpta Inc. 54 December 31, 2005 – 10-K
under long-term debt of $10,197,000 (2003 – net decrease of $15,791,000), net decrease in operating lines of credit of $nil (2003 – $5,531,000), payment of deferred purchase consideration to the former owner of Virginia Materials of $260,000 (2003 – $602,000), and payments under other financing activities of $234,000 (2003 – $490,000).
Business and Financial Outlook
The natural and organic foods industries are fast growing via continued common interest in healthy eating. The North American market for organic foods is currently estimated by Management to be in excess of $15 billion growing at a rate of 10 to 20% annually with the natural market also large and growing. While a large number of companies compete within specific segments of the market, there are relatively few companies as well positioned as SunOpta to take advantage of this rapidly growing market.
Managements strategic objective is to grow the business to an exit rate of $1 billion in revenues by 2007, through a combination of continued internal growth and acquisitions. The Company expects to achieve revenues of $540,000,000 to $550,000,000 in 2006, an increase of 27% to 29% versus 2005. The increase is based on a combination of expected 20% internal growth and the annualized revenues of acquisitions completed in 2005. The Company expects to earn $0.26 - $0.30 diluted earnings per common share in 2006, excluding any special items or acquisitions that may be completed during the year. This guidance assumes an effective tax rate of 31%. In addition, the Company’s business plan includes strategies and initiatives designed to improve the underlying performance of the operations and the quality and predictability of earnings. Specifically, the Company is looking to continue to improve the strategic synergies across its Food operations, vertically integrating wherever possible. Initiatives to improve the productivity of the operations include, plant and warehouse rationalization programs, continued training and development of employees, consolidated procurement, supply chain and internal services programs and consolidated information and accounting systems to provide better analysis and timely decision-making. A more fulsome discussion of key strategies is included within Item 1 of this report.
The Company expects to continue its rapid growth through an effective balance of internal growth and acquisitions, all in support of its vertically integrated field to table strategy. Maintaining liquidity and having available sources of cash will be imperative if the Company is to continue to grow. At December 31, 2005 the Company had $5,455,000 in cash and approximately $27,200,000 in unused bank lines for a total of $32,655,000 in cash and borrowings availability. The Company, including Opta Minerals, also has unused acquisition lines totalling $14,300,000. The Company’s remaining cash and unused lines plus cash generated from operations are sufficient to finance capital maintenance estimated at $4,500,000 - $6,000,000, annual debt service of $3,518,000 and payment of the remaining current portion of long-term payables of $723,000, plus finance targeted internal growth and acquisitions. Additional sources of cash could be obtained through a combination of additional bank or subordinated financing, a private or public offering, or the issuance of shares in relation to an acquisition or a divestiture. The Company intends to maintain a target long term debt to equity ratio of approximately 0.6 to 1 versus the current position of 0.37 to 1.
The table below sets out the Company’s obligation under its long-term debt, long term payables, operating and capital leases at December 31, 2005:
| 2006 | 2007 | 2008 | 2009 | 2010 and thereafter | Total |
Long term debt & capital leases | 3,518,000 | 4,096,000 | 1,738,000 | 1,568,000 | 48,136,000 | 59,056,000 |
Operating leases | 6,473,000 | 5,277,000 | 3,718,000 | 3,035,000 | 7,629,000 | 26,132,000 |
Long-term payables | 723,000 | 402,000 | 70,000 | - | - | 1,195,000 |
| 10,714,000 | 9,775,000 | 5,526,000 | 4,603,000 | 55,765,000 | 86,383,000 |
This table does not include certain contingent consideration related to acquisitions that may become payable if predetermined profit target are achieved. The total amount of contingent consideration payable is not determinable as certain agreements have no maximum.
Item 7A – Quantitative and Qualitative Disclosures about Market Risk
The primary objective of our investment activities is to preserve principal and limit risk. To achieve this objective, the company maintains its portfolio in a variety of securities, including both government and corporate obligations and
SunOpta Inc. 55 December 31, 2005 – 10-K
money market funds. These securities are generally classified as cash and cash equivalents or short-term investments and are recorded on the balance sheet at fair value with unrealized gains or losses reported through profit and loss. As at December 31, 2005 all of SunOpta’s excess funds were held in cash and cash equivalents with a maturity less than 90 days.
Debt in both fixed rate and floating rate interest carry different types of interest rate risk. Fixed rate debt may have their fair market value adversely affected by a decline in interest rates. In general, longer date debts are subject to greater interest rate risk than shorter dated securities. Floating rate term debt gives less predictability to cash flows as interest rates change. As at December 31, 2005, the weighted average interest rate of the fixed rate term debt was 6.4% (2004 – 4.5%) and $50,039,000 (2004 - $2,422,000) of the Company’s outstanding term debt is at fixed interest rates. Variable rate term debt of $19,451,000 (2004 - $33,400,000) at an interest rate of 6.1% (2004 – 3.7%) is partially hedged by variable rate cash equivalent investments. The Company looks at varying factors to determine the percentage of debt to hold at fixed rates including, the interest rate spread between variable and fixed (swap rates), the Company’s view on interest rate trends, the percent of offset to variable rate debt through holding variable rate investments and the companies ability to manage with interest rate volatility and uncertainty. For every 1% increase (decrease) in interest rates the Company’s after tax earnings would (decrease) increase by approximately ($136,000) (2004 – ($200,000)).
Foreign currency risk
All U.S. subsidiaries use the U.S. dollar as their functional currency and the United States dollar is also the Company’s reporting currency. The Company is exposed to foreign exchange rate fluctuations as the financial results of the Company and its Canadian subsidiaries are translated into U.S. dollars on consolidation. Since 2004, the Canadian dollar has appreciated significantly against the U.S. dollar with closing rates moving from Cdn $1.2020 at January 1, 2004 to Cdn $1.1630 at December 31, 2005 for each U.S. dollar. The net effect of this appreciation has been a $1,341,000 (2004 - $565,000) exchange gain and a $3,017,000 (2004 - $4,571,000) increase in net assets. A 10% movement in the levels of foreign currency exchange rates in favour of (against) the Canadian dollar with all other variables held constant would result in an increase (decrease) in the fair value of the Company’s net assets by $6,495,000 (2004 - $4,808,000).
The functional currency of all operations, located in Canada, is the Canadian dollar. For these operations all transaction gains or losses in relation to the U.S. dollar are recorded as Foreign Exchange gain (loss) in the Consolidated Statement of Earnings while gains (losses) on translation of net assets to U.S. dollars on consolidation are recorded in the Currency Translation Adjustment account within Shareholders’ Equity. The functional currency of the corporate head office is the Canadian dollar. Transaction gains or losses as well as translation gains and losses on monetary assets and liabilities are recorded within Foreign Exchange gains (losses) on the Consolidated Statement of Earnings. U.S. based Food Group operations have limited exposure to other currencies since almost all sales and purchases are made in U.S. dollars. It is the Company’s intention to hold excess funds in the currency in which the funds are likely to be used, which will from time to time; potentially expose the Company to exchange rate fluctuations when converted into U.S. dollars.
Commodity risk
The Food Group enters into exchange-traded commodity futures and options contracts to hedge its exposure to price fluctuations on grain transactions to the extent considered practicable for minimizing risk from market price fluctuations. Futures contracts used for hedging purposes are purchased and sold through regulated commodity exchanges. Inventories, however, may not be completely hedged, due in part to the Company’s assessment of its exposure from expected price fluctuations. Exchange purchase and sales contracts may expose the Company to risk in the event that a counter-party to a transaction is unable to fulfill its contractual obligation. The Company manages its risk by entering into purchase contracts with pre-approved producers.
The Company has a risk of loss from hedge activity if a grower does not deliver the grain as scheduled. Sales contracts are entered into with organizations of acceptable creditworthiness, as internally evaluated. All futures transactions are marked to market. Gains and losses on futures transactions related to grain inventories are included in cost of goods sold. At December 31, 2005 the Company owned 672,443 (2004 – 111,885) bushels of corn with a weighted average price of $1.85 (2004 - $2.48) and 235,637 (2004 – 38,361) bushels of soy beans with a weighted average price of $13.63 (2004 - $11.69). The Company has at December 31, 2005 net long positions on soy beans of 79,488 (2004 – 52,954) and a net long/(short) position on corn of 4,286 (2004 –(153,983)) bushels. An increase/decrease in commodity prices of either soy or corn of 10% would not be material
SunOpta Inc. 56 December 31, 2005 – 10-K
to the Company. There are no futures contracts in the other SunOpta Food Group segments, Opta Minerals, the StakeTech Steam Explosion Group or related to Corporate office activities.
Item 8. Financial Statements and Supplementary Data
Financial statements are set forth on pages F-1 through F-42 of this Report and are incorporated herein by reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure | - None |
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(e). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005. This evaluation excludes the June 20th acquisition of Cleugh’s Frozen Foods, Inc, the July 13th acquisition of Pacific Fruit Processors, Inc. and the December 22, 2005 acquisition of Les Importations Cacheres Hahamovitch Inc. that collectively represent $47,596,000 of consolidated total assets and $742,000 of consolidated net earnings of SunOpta Inc. in its Consolidated Financial Statements as of and for the year ended December 31, 2005.
Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control Over Financial Reporting
SunOpta’s management, with the participation of SunOpta’s Chief Executive Officer and Chief Financial Officer, has evaluated whether any change in SunOpta’s internal control over financial reporting occurred during the fourth quarter of fiscal 2005. Based on that evaluation, management concluded that there has been no change in SunOpta’s internal control over financial reporting during the fourth quarter of fiscal 2005 that has materially affected or is reasonably likely to materially affect, SunOpta’s internal control over financial reporting.
Item 9B. Other Information - None
SunOpta Inc. 57 December 31, 2005 – 10-K
PART III
Item 10. Directors and Executive Officers of the Registrant
| (a) | Directors and Executive Officers |
The information with respect to directors required by this item is incorporated herein by reference from the section entitled “Election of Directors” in the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held May 17, 2006 (the “2006 Proxy Statement”), to be filed with the Securities and Exchange Commission not later than April 11, 2006.
The following table shows certain information with respect SunOpta’s Executive Officers as of December 31, 2005:
Name | Executive Officers of SunOpta |
Jeremy N. Kendall | Chairman of the Board, CEO and Director |
Steven R. Bromley | President and Chief Operating Officer |
John H. Dietrich | Vice President and Chief Financial Officer |
Allan Routh | Director, President, SunOpta Grains and Foods Group |
Arthur J. McEvily | President, SunOpta Ingredients Group |
Jeremy Kendall has served as a Director of the Company since September 1978. In June 1983, he was appointed Chairman of the Board and Chief Executive Officer of the Company. He is also currently the Chairman of Opta Minerals Inc. a subsidiary of the Company listed on the TSX (“OPM”), and Chairman of Jemtec Inc. (6/91 to present), a distributor of electronic home incarceration equipment listed on the TSX Venture Exchange (the “TSXV”), and Easton Minerals Ltd. (1/95 to present) a mineral exploration company listed on the TSXV. Mr. Kendall has served on the following Boards of Directors: BI Inc. (9/81 to 11/00), a producer of electronic home incarceration equipment listed on Nasdaq; Brigdon Resources Inc. (06/93 to 02/99) an oil and gas exploration company; Redaurum Ltd. (06/95 to 03/02), a provider of wireless electronic equipment and services listed on the TSX; and Wisper Inc. (6/95 to 3/02), a provider of wireless electronic equipment and services listed on the TSXV. Mr. Kendall is also a Director of a number of private and charitable organizations.
Steven Bromley is a Certified General Accountant and joined SunOpta in June 2001 and was appointed President, and Chief Operating Officer in December 2004. Prior to this appointment, Mr. Bromley held various other positions with the Company including Executive Vice President and Chief Operating Officer, Executive Vice President and Chief Financial Officer and Vice President, Finance. Prior to joining the Company, Mr. Bromley was VP, Finance at Bridge2Market Inc. from July 2000 to May 2001. Prior to this, Mr Bromley spent over 13 years in the Canadian dairy industry in a wide range of financial and operational roles with both Natrel Inc. and Ault Foods Limited. From 1997 to 1999 he served on the Board of Directors of Natrel, Inc. Mr. Bromley is a Director of Opta Minerals Inc., a subsidiary of the Company listed on the TSX (“OPM”).
John Dietrich is a Chartered Accountant and Chartered Financial Analyst. He joined the Company in January 2002 as Vice President and Treasurer. The Board of Directors appointed Mr. Dietrich as Vice President and Chief Financial Officer in September, 2003. Prior to joining SunOpta, Mr. Dietrich held finance roles at Natrel Inc., including Director of Business Development. Mr. Dietrich has not served on any reporting issuers Board of Directors.
Allan Routh was elected to the Board of Directors in September 1999. Mr. Routh is President of the Company’s Grains and Soy Products Group and prior to March 2003 was President and Chief Executive Officer of the SunRich Food Group, LLC., a wholly-owned subsidiary of the Company. Mr. Routh has been involved in the soy industry since 1984. Mr. Routh is presently serving a term on the Board of Directors of the Soyfoods Association of North America and served as its President between 1999 and 2000. In the past 5 years, Mr. Routh has not served on any other reporting issuers Board of Directors.
SunOpta Inc. 58 December 31, 2005 – 10-K
Arthur McEvily was appointed President of SunOpta Ingredients Group in April 2003. Mr. McEvily previously held the position of President and Chief Executive Officer of Opta Food Ingredients which he obtained in February 2000. Prior to that, he was named Executive Vice President in January 1999, Senior Vice President, Commercial Development in December 1997 and served as Vice President Applications, Technical Service and New Product Commercialization from August 1996 to December 1997. He served as Vice President Sales and Business Development of Opta from December 1993 to July 1996. Mr. McEvily received a B.Sc. in Biochemistry from Marlboro College, Marlboro, Vermont and a Ph.D. in chemistry at the University of North Carolina at Chapel Hill. He was a postdoctoral fellow at Harvard Medical School.
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference from the section entitled “Executive Compensation” in the 2006 Proxy Statement for the annual meeting of shareholders to be held on May 17, 2006.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by item 403 of Regulation S-K is incorporated herein by reference from the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the 2006 Proxy Statement.
The information required by item 201(d) of Regulation S-K regarding the Company’s equity compensation plans is set out in the table below. All such plans have received shareholder approval.
| Number of Securities to be Issued on Exercise | Weighted Average Exercise Price of Outstanding Options | Number of Securities Available for Future Issuance |
Equity compensation plans approved by shareholders | 2,706,440 | $5.72 | nil |
Item 13. Certain Relationships and Related Transactions |
SunOpta has completed many acquisitions of privately held companies over the last five years. Many of the former owners continue to be employed by SunOpta and continue to manage the companies which they have sold to us. In certain circumstances there continues to be commercial relationships between the acquired company and the employee or a company controlled by the employee. These relationships include facilities leased by SunOpta and purchases and sales of product. All transactions are at commercial rates and fully described in note 14 related party transactions and balances of the Consolidated Financial Statements.
Item 14 - Principal Accountant Fees and Services
Information with respect to principal accountant fees and services may be found under the caption “Independent Auditor Fees” in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 17, 2006, such information is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this Report | Page |
1. Consolidated Financial Statements | F-1 |
| |
Independent Auditors’ Report | F-2 |
| |
Consolidated Statements of Earnings and Comprehensive Income | |
For the Years ended December 31, 2005, 2004 and 2003 | F-4 |
| |
Consolidated Balance Sheets | |
As at December 31, 2005 and 2004 | F-5 |
| |
SunOpta Inc. 59 December 31, 2005 – 10-K
Consolidated Statements of Shareholders Equity | |
For the Years ended December 31, 2005, 2004 and 2003 | F-6 |
| |
Consolidated Statements of Cash Flows | |
For the Years ended December 31, 2005, 2004 and 2003 | F-7 |
| |
Notes to Consolidated Financial Statements | |
For the Years ended December 31, 2005 and 2004 | F-8–F-42 |
3. Exhibits
2A. | Agreement and Plan of Merger dated as of October 25, 2002 among Opta Food Ingredients, Inc., SunOpta Inc. and Stake Acquisition Corp. (incorporated herein by reference to the Company’s Form 8-K, SEC file No. 0-9989, filed November 6, 2002, Exhibit 2.1). |
| |
| |
3i (a) | Amalgamation of Stake Technology Ltd and 3754481 Canada Ltd. (formerly George F. Pettinos (Canada) Limited) (incorporated herein by reference to the Company’s Form 10-KSB, SEC file No. 0-9989, for the year ended December 31, 2000, Exhibit 3.1). |
| |
| |
3i (b) | Certificate of Amendment dated October 31, 2003 to change the Company’s name from Stake Technology Ltd. to SunOpta Inc. (incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2004, SEC file No. 0-9989). |
| |
| |
3i (c) | Articles of Amalgamation of SunOpta Inc. and Sunrich Valley Inc., Integrated Drying Systems Inc., Kettle Valley Dried Fruits Ltd., Pro Organics Marketing Inc., Pro Organics Marketing (East) Inc., 4157648 Canada Inc. and 4198000 Canada Ltd. dated January 1, 2004. (incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2004, SEC file No. 0-9989). |
| |
3i (d) | Articles of Amalgamation of SunOpta Inc. and 6319734 Canada Inc., 4157656 Canada Inc. Kofman-Barenholtz Foods Limited dated January 1, 2005. ** |
| |
3i (e) | Articles of Amalgamation of SunOpta Inc. and 4307623 Canada Inc. dated January 1, 2006. ** |
| |
3ii | Bylaw No. 14 approved by shareholders – June 17, 1997 (incorporated herein by |
| reference to the Company’s Form 10-KSB for the year ended December 31 1997, SEC file No. 0-9989, Exhibit 3.3) |
| |
10A. | 1993 Employee/Director Stock Option Plan dated May 19, 1993 (incorporated herein by |
| reference to the Company’s Form 10-KSB for the year ended December 31, 1995, SEC file No. 0-9989, Exhibit 10.18). |
| |
10B. | 1996 Employee/Director Stock Option Plan dated September 27, 1996 (incorporated |
| herein by reference to the Company’s Form 10-KSB for the year ended December 31, 1996, SEC file No. 0-9989, Exhibit 10.22). |
| |
10C. | 1998 Stock Option Plan dated December 12, 1997 (incorporated herein by reference to the Company’s Form 10-KSB for the year ended December 31, 1998, SEC file No. 0-9989, Exhibit 10.16). |
| |
10D. | 1999 Stock Option Plan dated February 18, 1999 (incorporated herein by reference to the Company’s Form 10-KSB for the year ended December 31, 1999, SEC file No. 0-9989, Exhibit 10.19). |
| |
10E. | 2001 Stock Option Plan dated March 13, 2001 (incorporated herein by reference to the Company’s Form 10-KSB for the year ended December 31, 2001, SEC file No. 0-9989, Exhibit 10.14). |
SunOpta Inc. 60 December 31, 2005 – 10-K
3. Exhibits (continued)
| 10F. | 2002 Stock Option Plan dated March 26, 2002 (previously filed with Form 10-K for the year ended December 31, 2003, SEC file No. 0-9989 filed on March 31, 2003, Exhibit 10.1(f)). |
| 10G. | Employment Agreement dated October 1, 2001 between the Company and Mr. Jeremy Kendall (incorporated by reference to the Company’s Form 10-K/ A-3 for the year ended December 31, 2003, SEC file No. 0-9989, filed on July 2, 2003. |
| 10H. | Employment Agreement dated August 2, 1999 between Sunrich, Inc (a wholly-owned subsidiary of the Company) and Mr. Allan Routh (incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2003, SEC file No. 0-9989, filed on July 2, 2003. |
| 10I. | Employment Agreement dated January 26, 2001 between Opta Food Ingredients, Inc. (now SunOpta Ingredients Inc., a wholly-owned subsidiary of the Company) and Mr. Arthur McEvily (incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2003, SEC file No. 0-9989, filed on July 2, 2003. |
| 10J. | Third Amended and Restated Credit Agreement dated December 9, 2005 among SunOpta Inc. (the “Company”), certain affiliates of the Company, Bank of Montreal, as Agent and Harris Trust and Savings Bank as U.S. Security Agent and other Lenders within the lending group. * / ** |
| 10K. | Employee Stock Purchase Plan dated May 7, 2003 for 1,000,000 common shares. |
| 21 | List of subsidiaries - Exhibit 21 ** |
| 23.1 | Consent of Independent Registered Public Accounting Firm – Exhibit 23.1 ** |
| 24 | Powers of Attorney - Exhibit 24 ** |
| 31.1 | Certification by Jeremy Kendall, Chief Executive Officer pursuant to SEC Release No. 33-8238 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ** |
| 31.2 | Certification by John Dietrich, Chief Financial Officer pursuant to SEC Release No. 33-8238 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ** |
| 32 | Certification by Jeremy Kendall, Chief Executive Officer and John Dietrich, Chief Financial Officer pursuant to Section 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** |
| * | This exhibit does not include the Schedules thereto as listed in its table of contents. The Company undertakes to furnish any Schedules to the Securities and Exchange Commission upon its request. |
SunOpta Inc. 61 December 31, 2005 – 10-K
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SUNOPTA INC.
John Dietrich | /s/ John Dietrich |
Vice President and Chief Financial Officer
Date: February 17, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | | Title | Date |
| | | |
* | | | |
Jeremy N. Kendall | | Chairman, Chief Executive Officer | February 17, 2006 |
| | and Director (Principal Executive Officer) | |
| | | |
/s/ John Dietrich | | | |
John Dietrich | | Vice President and Chief Financial | February 17, 2006 |
| | Officer (Principal Financial and Accounting Officer) | |
| | | |
* | | | |
Cyril A. Ing | | Director | February 17, 2006 |
| | | |
* | | | |
Joseph Riz | | Director | February 17, 2006 |
| | | |
* | | | |
Jim Rifenbergh | | Director | February 17, 2006 |
| | | |
* | | | |
Allan Routh | | Director | February 17, 2006 |
| | | |
* | | | |
Katrina Houde | | Director | February 17, 2006 |
* | | | |
Camillo Lisio | | Director | February 17, 2006 |
* | | | |
Stephen Bronfman | | Director | February 17, 2006 |
* | | | |
Robert Fetherstonhaugh | | Director | February 17, 2006 |
| | | |
* | | | |
Steven Townsend | | Director | February 17, 2006 |
( By his signature set forth below, John Dietrich, pursuant to a duly executed power of attorney filed with the Securities and Exchange Commission as an exhibit to this report, has signed this report on behalf of and as Attorney-In-Fact for this person.
John Dietrich | /s/ John Dietrich | |
Vice President and Chief Financial Officer | Attorney -In-Fact |
SunOpta Inc. 62 December 31, 2005 – 10-K
SunOpta Inc.
Consolidated Financial Statements
(expressed in U.S. dollars)
- F1 -
Report of Independent Registered Public Accounting Firm
To the Shareholders of SunOpta Inc.
We have completed integrated audits of SunOpta Inc.’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated Financial statements
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings and comprehensive income, of shareholders’ equity and cash flows present fairly, in all material respects, the financial position of SunOpta Inc. at December 31, 2005 and December 31, 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
- F2 -
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Cleugh’s Frozen Foods, Inc., Pacific Fruit Processors, Inc., Les Importations Cacheres Hahamovitch Inc. from its assessment of internal control over financial reporting as of December 31, 2005 as they were acquired by the Company during 2005. We have also excluded these acquisitions from our audit of internal control over financial reporting. These acquisitions collectively represent $48 million of consolidated total assets and $0.7 million of consolidated net earnings of SunOpta Inc. as of and for the year ended December 31, 2005.
(Signed) “PricewaterhouseCoopers LLP”
Mississauga, Ontario
February 15, 2006
- F3 -
|
SunOpta Inc. |
Consolidated Statements of Earnings and Comprehensive Income |
For the years ended December 31, 2005, 2004 and 2003 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | $ | | | $ | | | $ | |
| | | | | | | | | | |
Revenues | | | 426,101 | | | 306,251 | | | 199,099 | |
| | | | | | | | | | |
Cost of goods sold | | | 354,603 | | | 247,812 | | | 163,421 | |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Gross profit | | | 71,498 | | | 58,439 | | | 35,678 | |
| | | | | | | | | | |
Warehousing and distribution expenses | | | 10,659 | | | 6,016 | | | 2,365 | |
Selling, general and administrative expenses | | | 45,632 | | | 37,225 | | | 23,065 | |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Earnings before the following | | | 15,207 | | | 15,198 | | | 10,248 | |
| | | | | | | | | | |
Interest expense, net | | | (3,417 | ) | | (1,522 | ) | | (1,942 | ) |
Other income (expense), net (note 19) | | | 3,571 | | | (12 | ) | | 585 | |
Foreign exchange | | | 1,341 | | | 565 | | | 1,076 | |
| | |
|
|
|
|
|
|
|
|
| | | 1,495 | | | (969 | ) | | (281 | ) |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Earnings before income taxes | | | 16,702 | | | 14,229 | | | 9,967 | |
| | | | | | | | | | |
Provision for income taxes(note 12) | | | 2,566 | | | 3,139 | | | 1,001 | |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net earnings before minority interest | | | 14,136 | | | 11,090 | | | 8,966 | |
| | | | | | | | | | |
Minority interest | | | 578 | | | 74 | | | — | |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net earnings for the year | | | 13,558 | | | 11,016 | | | 8,966 | |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Change in foreign currency translation adjustment | | | 1,644 | | | 4,006 | | | 3,019 | |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Comprehensive income | | | 15,202 | | | 15,022 | | | 11,985 | |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Earnings per share for the year (note 11) | | | | | | | | | | |
| | | | | | | | | | |
Basic | | | 0.24 | | | 0.20 | | | 0.19 | |
| | |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Diluted | | | 0.24 | | | 0.20 | | | 0.18 | |
| | |
|
|
|
|
|
|
|
|
(See accompanying notes to consolidated financial statements)
- F4 -
|
SunOpta Inc. |
Consolidated Balance Sheets |
As at December 31, 2005 and 2004 |
(Expressed in thousands of U.S. dollars) |
|
|
| | | | | | | |
| | | 2005 | | | 2004 | |
| | | $ | | | $ | |
Assets (Note 9) | | | | | | | |
| | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | | 5,455 | | | 8,081 | |
Accounts receivable (note 3) | | | 57,608 | | | 38,446 | |
Inventories (note 4) | | | 88,340 | | | 49,537 | |
Prepaid expenses and other current assets (note 5) | | | 4,194 | | | 4,472 | |
Current income taxes recoverable | | | 1,847 | | | 2,000 | |
Deferred income taxes (note 12) | | | 691 | | | 421 | |
| |
|
|
|
|
|
|
| | | 158,135 | | | 102,957 | |
| | | | | | | |
Assets held for sale (note 6) | | | — | | | 208 | |
Property, plant and equipment(note 6) | | | 77,257 | | | 62,411 | |
Goodwill and intangibles (note 7) | | | 58,262 | | | 43,934 | |
Deferred income taxes (note 12) | | | 4,473 | | | 6,831 | |
Other assets(note 15a) | | | 3,355 | | | 3,831 | |
| |
|
|
|
|
|
|
| | | 301,482 | | | 220,172 | |
| |
|
|
|
|
|
|
Liabilities | | | | | | | |
| | | | | | | |
Current liabilities | | | | | | | |
Bank indebtedness (note 9) | | | 20,799 | | | — | |
Accounts payable and accrued liabilities (note 8) | | | 50,688 | | | 35,668 | |
Customer and other deposits | | | 544 | | | 431 | |
Current portion of long-term debt (note 9) | | | 3,518 | | | 4,819 | |
Current portion of long-term payables | | | 723 | | | 1,548 | |
| |
|
|
|
|
|
|
| | | 76,272 | | | 42,466 | |
| | | | | | | |
Long-term debt (note 9) | | | 55,538 | | | 31,003 | |
Long-term payables | | | 472 | | | 1,232 | |
| |
|
|
|
|
|
|
| | | 132,282 | | | 74,701 | |
| |
|
|
|
|
|
|
| | | | | | | |
Minority Interest (note 2) | | | 9,116 | | | 1,378 | |
| | | | | | | |
Shareholders’ Equity | | | | | | | |
| | | | | | | |
Capital stock (note 10) | | | 106,678 | | | 105,794 | |
Authorized
Unlimited common shares without par value | | | | | | | |
Issued
56,587,671 (December 31, 2004 – 56,220,212) common shares | | | | | | | |
Contributed surplus | | | 3,235 | | | 3,330 | |
Retained earnings | | | 40,379 | | | 26,821 | |
Cumulative other comprehensive income | | | 9,792 | | | 8,148 | |
| |
|
|
|
|
|
|
| | | 160,084 | | | 144,093 | |
| |
|
|
|
|
|
|
| | | 301,482 | | | 220,172 | |
| |
|
|
|
|
|
|
Commitments and contingencies (note 15) | | | | | | | |
(See accompanying notes to consolidated financial statements)
- F5 -
|
SunOpta Inc. |
Consolidated Statements of Shareholders’ Equity |
For the years ended December 31, 2005, 2004 and 2003 |
(Expressed in thousands of U.S. dollars) |
|
|
|
| | | | | | | | | | | | | | | | |
| | | Capital
stock | | Contributed
surplus | | Retained
earnings | | Cumulative
other
comprehensive
income | | | Total | |
| | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2002 | | | 37,966 | | | 3,330 | | | 6,839 | | | 1,123 | | | 49,258 | |
| | | | | | | | | | | | | | | | |
Warrants exercised and issued | | | 1,861 | | | — | | | — | | | — | | | 1,861 | |
Compensation warrants exercised | | | 761 | | | — | | | — | | | — | | | 761 | |
Options exercised | | | 2,257 | | | — | | | — | | | — | | | 2,257 | |
Shares issued under equity offerings | | | 53,004 | | | — | | | — | | | — | | | 53,004 | |
Shares issued to acquire Kettle Valley | | | 821 | | | — | | | — | | | — | | | 821 | |
Net earnings for the year | | | — | | | — | | | 8,966 | | | — | | | 8,966 | |
Currency translation adjustment | | | — | | | — | | | — | | | 3,019 | | | 3,019 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Balance at December 31, 2003 | | | 96,670 | | | 3,330 | | | 15,805 | | | 4,142 | | | 119,947 | |
| | | | | | | | | | | | | | | | |
Warrants exercised and issued | | | 7,908 | | | — | | | — | | | — | | | 7,908 | |
Options exercised | | | 777 | | | — | | | — | | | — | | | 777 | |
Employee stock purchase plan | | | 439 | | | — | | | — | | | — | | | 439 | |
Net earnings for the year | | | — | | | — | | | 11,016 | | | — | | | 11,016 | |
Currency translation adjustment | | | — | | | — | | | — | | | 4,006 | | | 4,006 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Balance at December 31, 2004 | | | 105,794 | | | 3,330 | | | 26,821 | | | 8,148 | | | 144,093 | |
| | | | | | | | | | | | | | | | |
Options exercised | | | 370 | | | — | | | — | | | — | | | 370 | |
Employee stock purchase plan | | | 576 | | | — | | | — | | | — | | | 576 | |
Share purchase buy back | | | (62 | ) | | (95 | ) | | — | | | — | | | (157 | ) |
Net earnings for the year | | | — | | | — | | | 13,558 | | | — | | | 13,558 | |
Currency translation adjustment | | | — | | | — | | | — | | | 1,644 | | | 1,644 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Balance at December 31, 2005 | | | 106,678 | | | 3,235 | | | 40,379 | | | 9,792 | | | 160,084 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(See accompanying notes to consolidated financial statements)
- F6 -
SunOpta Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2005, 2004 and 2003
(Expressed in thousands of U.S. dollars)
| | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | $ | | | $ | | | $ | |
| | | | | | | | | | |
Cash provided by (used in) | | | | | | | | | | |
| | | | | | | | | | |
Operating activities | | | | | | | | | | |
Net earnings for the year | | | 13,558 | | | 11,016 | | | 8,966 | |
Items not affecting cash; | | | | | | | | | | |
Amortization | | | 8,141 | | | 7,119 | | | 5,126 | |
Deferred income taxes | | | 776 | | | 900 | | | (475 | ) |
Dilution gain, net (note19(a)) | | | (6,516 | ) | | — | | | — | |
Common shares granted to Opta Mineral employees | | | 234 | | | — | | | — | |
Write-down of trademarks | | | 185 | | | 2,250 | | | — | |
Minority interest | | | 578 | | | 74 | | | — | |
Other | | | 1,525 | | | (433 | ) | | 301 | |
Changes in non-cash working capital, net of businesses acquired (note 13) | | | (26,006 | ) | | (10,170 | ) | | (11,992 | ) |
| |
|
| | | (7,525 | ) | | 10,756 | | | 1,926 | |
| |
|
| | | | | | | | | | |
Investing activities | | | | | | | | | | |
Decrease in short-term investments | | | — | | | — | | | 2,038 | |
Acquisition of companies, net of cash acquired | | | (20,920 | ) | | (27,284 | ) | | (17,594 | ) |
Purchases of property, plant and equipment | | | (14,165 | ) | | (19,810 | ) | | (7,476 | ) |
Proceeds from sale of property, plant and equipment | | | 656 | | | 6,550 | | | 337 | |
Proceeds from notes receivable | | | — | | | — | | | 1,071 | |
Other | | | (274 | ) | | (3,495 | ) | | — | |
| |
|
| | | (34,703 | ) | | (44,039 | ) | | (21,624 | ) |
| |
|
| | | | | | | | | | |
Financing activities | | | | | | | | | | |
Increase (decrease) in line of credit facilities | | | 7,461 | | | — | | | (5,531 | ) |
Proceeds from Opta Minerals share issuance (note 19(a)) | | | 14,294 | | | — | | | — | |
Borrowings under long-term debt and tender facility | | | 25,221 | | | 16,705 | | | 8,907 | |
Repayment of long-term debt | | | (6,602 | ) | | (6,508 | ) | | (24,698 | ) |
Repayment of deferred purchase consideration | | | (1,027 | ) | | (260 | ) | | (602 | ) |
Proceeds from the issuance of common shares, net of issuance costs | | | 946 | | | 9,125 | | | 56,601 | |
Other | | | (984 | ) | | (234 | ) | | (490 | ) |
| |
|
| | | 39,309 | | | 18,828 | | | 34,187 | |
| |
|
| | | | | | | | | | |
Foreign exchange gain on cash held in foreign currency | | | 293 | | | 546 | | | 489 | |
| |
|
| | | | | | | | | | |
Increase (decrease) in cash and cash equivalents during the year | | | (2,626 | ) | | (13,909 | ) | | 14,978 | |
| | | | | | | | | | |
Cash and cash equivalents - beginning of year | | | 8,081 | | | 21,990 | | | 7,012 | |
| |
|
| | | | | | | | | | |
Cash and cash equivalents - end of year | | | 5,455 | | | 8,081 | | | 21,990 | |
| |
|
See note 13 for supplemental cash flow information
(See accompanying notes to consolidated financial statements)
- F7 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
1. | Description of business and significant accounting policies |
| |
| SunOpta Inc. (the “Company” or “SunOpta”) was incorporated under the laws of Canada on November 13, 1973. Formerly operating as Stake Technology Ltd., the Company changed its name to SunOpta Inc. on October 31, 2003. The new corporate name combines the names of two of the Company’s historical operating food groups, the Sunrich Food Group and Opta Food Ingredients. The change reflects the Company’s commitment to environmental responsibility and to the natural and organic food markets. The Company conducts business in three main industries, the SunOpta Food Group (Food Group) processes, packages and distributes a wide range of natural, organic, kosher and specialty food products via its vertically integrated operations with a focus on soy, oat fiber and other natural and organic food products. Opta Minerals Inc. (Opta Minerals) processes, distributes and recycles silica free loose abrasives, industrial minerals, specialty sands and related products. The SunOpta BioProcess Group (formerly the StakeTech Steam Explosion Group) markets proprietary bio process technology systems for the pulp, bio-fuel and food processing industries. The Company’s assets, operations and employees at December 31, 2005 are located in the United States and Canada. |
| |
| As of January 1, 2004, SunOpta Inc. changed the basis of financial statement preparation from generally accepted accounting principles in Canada (Canadian GAAP) to those generally accepted in the United States (U.S. GAAP), including the rules and regulations of the U.S. Securities and Exchange Commission. This change was made as a majority of the Company’s operations and shareholders are located in the U.S. As a result of this change, all comparative financial statement balances and related notes have been amended to reflect the change to U.S. GAAP. The Company’s significant accounting policies are presented below and conform in all material respects to those in Canada, except as indicated in note 17. |
| |
| Basis of presentation |
| |
| The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned except for Opta Minerals Inc. which is 70.6% owned. All significant intercompany accounts and transactions have been eliminated on consolidation. |
| |
| All subsidiaries, except Opta Minerals which is owned 70.6% (see note 19), are 100% owned at December 31, 2005. Organic Ingredients, Inc. was owned 50.1% at December 31, 2004 (refer to note 2(d)) until April 5, 2005, when the remaining 49.9% minority interest was acquired by SunOpta Inc. The investment in Opta Minerals represents control and therefore is recorded using the consolidation method, whereby revenues and expenses are consolidated with the results of the Company as of December 31, 2005. The minority interest balance, on the Consolidated Balance Sheet as at December 31, 2005 represents the non-controlling shareholders’ interest in Opta Minerals Inc. As at December 31, 2004 the minority interest balance included only that of Organic Ingredients, Inc. which as noted above was acquired during the year. Minority interest includes the non-controlling equity component as at the date of the public offering or acquisition and income attributable to the minority interest shareholders since that date. |
| |
| Cash and cash equivalents |
| |
| Cash and cash equivalents consist of unrestricted cash and short-term deposits with an original maturity of less than 90 days. |
| |
| Inventories |
| |
| Raw materials and finished goods inventories (excluding commodity grains) are valued at the lower of cost and estimated net realizable value. Cost is determined on a first-in, first-out basis. |
| |
| Inventories of commodity grain are valued at market. Changes in market value are included in cost of goods sold. The Food Group generally follows a policy of hedging its grain transactions to protect gains and minimize losses due to market fluctuations. Futures and purchase and sale contracts are adjusted to market price and gains and losses from such transactions are included in cost of goods sold. The Company has a risk of loss from hedge activity if the grower does not deliver the grain as scheduled. The Company also has |
- F8 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
| other grain inventories consisting of sunflowers and specialty soy beans which are valued at the lower of cost and estimated net realizable value. |
| |
| Property, plant and equipment |
| |
| Property, plant and equipment are stated at cost, less accumulated amortization. Amortization is provided on property, plant and equipment using the straight-line basis at rates reflecting the estimated useful lives of the assets. Effective January 1, 2005, the estimated useful lives of all asset categories were revised to standardize and better reflect the estimated useful lives for all wholly owned subsidiaries in the following ranges: |
| |
Buildings | 20 - 40 years |
Machinery & equipment | 10 - 20 years |
Enterprise software | 5 years |
Office furniture & equipment | 3 - 7 years |
Vehicles | 5 years |
| |
| Amortization is calculated from the time the asset is put into use. Amortization expense would have been approximately $8,041 (actual amortization was $6,801) for the year ended December 31, 2005 if the change to estimated useful lives had not taken place. |
| |
| Goodwill and intangibles |
| |
| Goodwill represents the excess of the purchase price over the assigned value of net assets acquired. Goodwill is not amortized. The Company has assessed the carrying value of goodwill for possible impairment, and has determined that no such impairment exists as at December 31, 2005. The Company’s finite life intangible assets consist of customer lists, grower relationships, trademarks and distribution agreements and are amortized on a straight line basis over their estimated useful lives, ranging from 2 to 15 years. |
| |
| Other assets |
| | |
| i) | Deferred financing costs |
| | |
| | Costs incurred in connection with obtaining long-term financing are deferred and amortized over the term of the financing agreement. |
| | |
| ii) | Investments |
| | |
| | The Company has a 32% (2004 – 32%) investment in Easton Minerals Limited (“Easton”). This investment is considered impaired and the carrying value at December 31, 2005 is $nil (2004 - $nil). The investment was accounted for using the equity method of accounting. The Company does not have any guaranteed obligations with respect to Easton or any commitment to provide further financial support, and therefore it is not anticipated that further losses will be recorded on this investment. |
| |
| Revenue recognition |
| |
| The Company recognizes revenue at the time of delivery of the product or service and when all of the following have occurred: a sales agreement is in place, price is fixed or determinable, and collection is reasonably assured. Details of specific recognition by group are as follows: |
| |
| i) SunOpta Food Group |
| |
| Grain revenues are recorded when title and possession of the product is transferred to the customer. Possession is transferred to the customer at the time of shipment from the Company’s facility or at the time of delivery to a specified destination depending on the terms of the sale. Revenues from custom processing services are recorded upon provision of services and completion of quality testing. All other Food Group revenues are recognized when title is transferred upon the shipment of product or at the time the service is provided to the customer. |
- F9 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
1. | Description of business and significant accounting policies continued |
| |
| ii) Opta Minerals |
| |
| Revenues from the sale of silica free loose abrasives, industrial minerals, specialty sands and related products are recognized upon the sale and shipment of the related minerals. Revenues from recycling activities are recognized upon the sale and shipment or the disposal of non-hazardous material received. |
| |
| iii) SunOpta BioProcess Group |
| |
| The percentage of completion method is used to account for significant contracts when related costs can be reasonably estimated. The Company uses costs or hours incurred to date as a percentage of total expected costs or hours to measure the extent of progress towards completion. License fees related to the right to sell the Company’s technologies are recorded as revenues over the term of the license, when collectibility is reasonably assured. |
| |
| Foreign currency translation |
| |
| The Company’s operations are self-sustaining operations, with the exception of the corporate head office, which is considered to be fully integrated with the Company’s US operations. The assets and liabilities of the self-sustaining operations as well as monetary assets of the corporate head office are translated at exchange rates in effect at the balance sheet date. Non-monetary assets of the corporate head office are translated at their historical rates. Revenues and expenses are translated at average exchange rates prevailing during the period. Unrealized gains or losses resulting from translating self-sustaining operations are accumulated and reported as a currency translation adjustment in Shareholders’ Equity and are disclosed as part of cumulative other comprehensive income. Gains and losses resulting from translating the corporate head office are included in net earnings for the year. |
| |
| The functional currency of all operations located in the United States and the corporate head office is the United States dollar. The functional currency of all operations located in Canada is the Canadian dollar. |
| |
| Customer and other deposits |
| |
| Customer and other deposits at December 31, 2005 principally include prepayments by the Food Group’s customers for merchandise inventory to be purchased during the spring planting season. |
| |
| Income taxes |
| |
| The Company follows the asset and liability method of accounting for income taxes whereby deferred income tax assets are recognized for deductible temporary differences and operating loss carry-forwards, and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and liabilities recorded for income tax and financial reporting purposes. |
| |
| Deferred income tax assets are recognized only to the extent that management determines that it is more likely than not that the deferred income tax assets will be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The income tax expense or benefit is the income tax payable or refundable for the year plus or minus the change in deferred income tax assets and liabilities during the year. |
| |
| Stock Option Plan |
| |
| The Company maintains several stock option plans under which incentive stock options may be granted to employees and non-employee directors. SunOpta accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, because the grant price equals the market price on the date of grant, no compensation expense is recognized by the Company for stock options issued to employees. |
- F10 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
1. | Description of business and significant accounting policies continued |
| |
| Had compensation costs for the Company’s stock options been recognized based upon the estimated fair value on the grant date under the fair value methodology allowed by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure,” the Company’s net earnings and earnings per share would have been as follows: |
| |
| Pro-forma net earnings reflecting stock compensation expense for 2005, 2004 and 2003 are as follows: |
| | | | | | | | | | |
| | 2005 | | 2004 | | 2003 | |
| | | | | | | | | | |
Number of options granted | | | 832,625 | | | 588,775 | | | 1,152,450 | |
| |
|
| | | | | | | | | | |
| | | $ | | | $ | | | $ | |
Total fair value of options granted | | | 2,266 | | | 2,061 | | | 3,328 | |
| |
|
| | | | | | | | | | |
Net earnings for the year as reported | | | 13,558 | | | 11,016 | | | 8,966 | |
| | | | | | | | | | |
Stock compensation expense: | | | | | | | | | | |
Options expense from current year grants | | | 2,239 | | | 532 | | | 664 | |
Options expense from prior years grants, including the accelerated vesting of certain options | | | 3,520 | | | 833 | | | 241 | |
| |
|
| | | 5,759 | | | 1,365 | | | 905 | |
| |
|
| | | | | | | | | | |
Pro-forma net earnings for the year | | | 7,799 | | | 9,651 | | | 8,061 | |
| |
|
| | | | | | | | | | |
Pro-forma net earnings per common share | | | | | | | | | | |
- Basic | | | 0.14 | | | 0.18 | | | 0.17 | |
| |
|
- Diluted | | | 0.14 | | | 0.18 | | | 0.16 | |
| |
|
| | |
| | The fair value of the options granted during the year were estimated using the Black-Scholes option-pricing model with the assumptions of a dividend yield of 0% (2004 – 0%, 2003 – 0%), an expected volatility of 54% (2004 – 54%, 2003 – 55%), a risk-free interest rate of 4% (2004 – 3%, 2003 – 3%), and an expected life of four to six years. These options vest at various dates ranging from the date of the grants to December 8, 2010 and expire four to five years subsequent to the grant date. |
| | |
| (a) | During the year, the Company modified the terms of all outstanding and unvested options whose exercise prices were greater than $5.00. As a result of the modification, 1,284,972 stock options vested immediately resulting in the disclosure of an additional proforma expense of $3,884 in the year. Under the accounting guidance of APB 25, the accelerated vesting did not result in any compensation to be recognized as these stock options had no intrinsic value. Without this modification, the Company would have incurred $1,735 in additional compensation expense in 2006 that would have been required to be recognized under SFAS 123R, which the Company will implement beginning January 1, 2006. |
| |
| Derivative instruments |
| |
| The Food Group enters into exchange-traded commodity futures and options contracts to hedge its exposure to price fluctuations on grain transactions to the extent considered practicable for minimizing risk from market price fluctuations. Futures contracts used for hedging purposes are purchased and sold through regulated commodity exchanges. Inventories, however, may not be completely hedged, due in part to the Company’s assessment of its exposure from expected price fluctuations. Exchange purchase and revenue contracts may expose the Company to risk in the event that a counter party to a transaction is unable to fulfill its contractual obligation or if a grower does not deliver the grain as scheduled. The Company manages its risk by entering into purchase contracts with pre-approved growers and revenue contracts are entered into |
- F11 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
| with organizations of acceptable creditworthiness, as internally evaluated. All futures and options transactions are marked to market. Gains and losses on these transactions related to grain inventories are included in cost of goods sold. |
| |
| The SunOpta Food and SunOpta BioProcess Groups enter into forward foreign exchange contracts to minimize exchange rate fluctuations relating to Euro denominated sales contracts and accounts receivable. All forward exchange contracts are marked to market. Gain and losses on these transactions are included in foreign exchange in the Consolidated Statements of Earnings. |
| |
| Financial Instruments |
| |
| The Company’s financial instruments recognized in the consolidated balance sheets and included in working capital consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and customer and other deposits. The fair values of these instruments approximate their carrying value due to their short-term maturities. The fair value of long- term debt and long-term payables as at December 31, 2005 is considered to not be materially different from the carrying amount. |
| |
| The Company’s financial instruments exposed to credit risk include cash and cash equivalents, and accounts receivable. The Company places its cash and cash equivalents with institutions of high creditworthiness. The Company’s trade accounts receivable are not subject to a high concentration of credit risk. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its accounts receivable credit risk exposure is limited. The Company maintains an allowance for losses based on the expected collectibility of the accounts. |
| |
| Earnings per share |
| |
| Basic earnings per share is computed by dividing the earnings available for common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed using the treasury stock method whereby the weighted average number of common shares used in the basic earnings per share calculation is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued at the beginning of the year. |
| |
| Use of estimates |
| |
| The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. |
| |
| New Accounting Pronouncements |
| |
| The FASB issued Statement of Financial Accounting Standards (SFAS) Number 123 (revised 2004), Share-Based Payment , which is a revision of SFAS Number 123, Accounting for Stock-Based Compensation , and amends SFAS Number 95, Statement of Cash Flows. SFAS Number 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. Effective January 1, 2004, the Company adopted the fair value recognition provisions of SFAS Number 123 which requires the note disclosure of the company’s earnings if stock options expense was recorded. The adoption of SFAS Number 123(R) on January 1, 2006 will result in the recognition of stock compensation expense within the statement of earnings. The Company expects that the impact of this pronouncement, based on grants up to and including December 31, 2005, will be $223 for the year ended December 31, 2006. An additional expense will also be recognized for the vested portion of new options granted during the coming year, the impact of these grants will be known as they occur. |
- F12 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
2. | Business acquisitions |
| |
| During the year ended December 31, 2005, the Company acquired five businesses and the remaining 49.9% minority interest of Organic Ingredients. In 2004 the Company acquired seven businesses. All of these acquisitions have been accounted for using the purchase method and the consolidated financial statements include the results of operations for these businesses from the date of acquisition less minority interest when the Company owned less than 100% of the acquired company. |
| |
| The purchase price allocation of the net assets acquired and consideration given is summarized below: |
| |
| 2005 Acquisitions |
| | | | | | | | | | | | | | | | |
| | | Pacific
Fruit
Processors,
Inc.
(a)
$ | | | Cleughs
Frozen
Foods,
Inc.
(b)
$ | | | Earthwise
Processors,
LLC
(c)
$ | | | Other
(d)
$ | | | Total
$ | |
| |
|
Net assets acquired: | | | | | | | | | | | | | | | | |
Non-cash working capital | | | 1,030 | | | 98 | | | 1,148 | | | 812 | | | 3,088 | |
Property, plant and equipment | | | 1,095 | | | 3,764 | | | 2,300 | | | 252 | | | 7,411 | |
Other assets | | | 339 | | | 356 | | | — | | | — | | | 695 | |
Goodwill | | | 4,226 | | | 522 | | | — | | | 2,174 | | | 6,922 | |
Intangible assets – finite life | | | 4,014 | | | 930 | | | 525 | | | 1,687 | | | 7,156 | |
Deferred income tax liability | | | (1,676 | ) | | — | | | — | | | (475 | ) | | (2,151 | ) |
Debt and other liabilities | | | — | | | (4,574 | ) | | — | | | — | | | (4,574 | ) |
Minority interest | | | — | | | — | | | — | | | 1,482 | | | 1,482 | |
| |
|
| | | | | | | | | | | | | | | | |
| | | 9,028 | | | 1,096 | | | 3,973 | | | 5,932 | | | 20,029 | |
| |
|
| | | | | | | | | | | | | | | | |
Consideration, net of cash acquired | | | 7,928 | | | 490 | | | 3,973 | | | 4,122 | | | 16,513 | |
Notes payable | | | 1,100 | | | 606 | | | — | | | 1,500 | | | 3,206 | |
Contingent consideration | | | — | | | — | | | — | | | 310 | | | 310 | |
| |
|
| | | | | | | | | | | | | | | | |
| | | 9,028 | | | 1,096 | | | 3,973 | | | 5,932 | | | 20,029 | |
| |
|
| |
2. | Business acquisitions continued |
| |
(a) | Pacific Fruit Processors, Inc. |
| |
| On July 13, 2005, SunOpta acquired 100% of the outstanding shares of Pacific Fruit Processors, Inc. (“Pacific”), for total consideration of $9,028 including acquisition costs and a note payable of $1,100. Additional consideration may be payable based on the achievement of certain pre-determined earnings targets between August 1, 2005 and December 31, 2007. This additional consideration is based on Pacific achieving a predetermined amount of earnings before interest and taxes calculated annually, commencing on August 1, 2005 and ending on December 31, 2007. Any amount paid will be recorded as goodwill when the outcome of the contingency becomes determinable. |
| |
| Pacific is a manufacturer of value-added fruit products with a focus on fruit-based ingredients for the dairy, bakery and beverage industries. Pacific operates from a 60,000 square foot facility in California that houses conventional and aseptic processing capabilities, dry and frozen warehousing space and laboratory facilities. The acquisition of Pacific augments SunOpta’s vertically integrated fruit operations by adding further capabilities to the Company’s existing fruit-based operations. This acquisition has been included in the newly formed SunOpta Fruit Group segment within the Food Group. |
- F13 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
(b) | Cleugh’s Frozen Foods, Inc. |
| |
| On June 20, 2005, SunOpta purchased 100% of the outstanding shares of Cleugh’s Frozen Foods, Inc. (“Cleugh’s”) for $490 in cash consideration including acquisition costs and notes payable of $606 plus the assumption of debt of $4,574. Additional consideration may be payable based on the achievement of pre-determined earnings before interest and taxes between January 1, 2006 and December 31, 2007. The maximum amount of contingent consideration payable is $4,000, which will be recorded as additional goodwill when the amount and outcome of the contingency become determinable. |
| |
| Cleugh’s processes natural and organic frozen fruits and vegetables for the retail private label, food service and industrial markets. Cleugh’s operates two processing facilities in Buena Park and Salinas, California, with combined production, packaging and warehousing space of approximately 60,000 square feet. Cleugh’s has been grouped under the newly formed SunOpta Fruit Group segment within the Food Group. |
| |
(c) | Earthwise Processors, LLC |
| |
| On June 2, 2005, SunOpta purchased the inventory, property, plant and equipment and the business of Earthwise Processors, LLC (“Earthwise”) for $3,973 including acquisition costs. Additional contingent consideration may be payable upon the achievement of certain pre-determined earnings levels between January 1, 2006 and December 31, 2008. The maximum amount of contingent consideration payable is $750, which will be recorded as additional goodwill when the amount and outcome of the contingency becomes determinable. |
| |
| Earthwise is located in Moorehead, Minnesota and is a vertically integrated producer of organic and identity preserved non-genetically modified grains, primarily focused on soy. Strategically this acquisition provides SunOpta with an expanded and diversified grower base, expansion of soy product offerings and entrance into other markets such as organic flax and organic wheat, plus ongoing operating synergies. Earthwise has been included in the Grains and Foods Group segment within the Food Group. |
| |
(d) | Other Acquisitions: |
| |
| Les Importations Cacheres Hahamovitch Inc. |
| |
| On December 22, 2005, SunOpta acquired 100% of the outstanding shares of 4307623 Canada Inc. (“Hahamovitch”) consisting of the business, operating assets and liabilities except for the warehouse facility of Les Importations Cacheres Hahamovitch Inc. for $1,303 (Cdn $1,520) in cash consideration including acquisition costs and notes payable of $1,500 (Cdn $1,750). Additional consideration may be payable based on the achievement of pre-determined earnings targets between January 1, 2006 and December 31, 2008. In conjunction with the acquisition the company entered into a long-term operating lease with the vendor for the warehouse facility at market rates for the period ending June 30, 2007. |
| |
| Hahamovitch is a Montreal based distributor of kosher and specialty foods. Hahamovitch has been in business for over 50 years. Over this time Hahamovitch has worked closely with organizations that are now key business units of the SunOpta’s Canadian Food Distribution Group. Hahamovitch operates from a 31,000 square foot facility located in Montreal, Quebec. The operations of Hahamovitch will be integrated as part of the SunOpta Canadian Food Distribution Group and will become a platform for the further development of SunOpta's organic, natural and specialty food grocery distribution business in the Province of Quebec. |
| |
| Hillcrest Abrasive Production Division |
| |
| On May 10, 2005 Opta Minerals Inc. acquired certain assets of the abrasive production division of Hillcrest Industries Inc. (“Hillcrest”) for consideration of $550 including acquisition costs. The newly formed division of Opta Minerals, Opta Minerals (Attica), will process coal-based abrasive products from power generation by-products and serve as a distribution facility for the New York, Pennsylvania and Ohio regions. |
- F14 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
2. | Business acquisitions continued |
| |
| In conjunction with the asset purchase, Opta Minerals concurrently entered into a long-term lease with Hillcrest for warehouse facilities located in Attica, and entered into a services agreement with Hillcrest for the production of material. Additional consideration may be payable on the occurrence of certain events, which could amount to $344. As at December 31, 2005, contingent consideration of $87 was payable and recorded as additional goodwill. |
| |
| Organic Ingredients, Inc. |
| |
| On April 5, 2005, SunOpta exercised its option to acquire the remaining 49.9% of the outstanding shares of Organic Ingredients, Inc. (“Organic Ingredients”) for cash consideration of $2,269. As a result the Company recorded an increase in goodwill and intangibles of $1,010 and a decrease in minority interest of $1,483. During the year, contingent consideration of $221 (2004 - $153) was earned and total contingent consideration earned to date is $374. Further additional consideration may be payable based on Organic Ingredients achieving pre-determined earnings targets during the period January 1, 2006 to December 31, 2007. |
| |
| 2004 Acquisitions |
| | | | | | | | | | | | | | | | |
| | | Kofman-
Barenholtz
(a)
$ | | | Supreme
Foods
(b)
$ | | | General
Mills
Oat Fiber
(c)
$ | | | Other
Acquisitions
(d)
$ | | | Total
$ | |
| |
|
Net assets acquired: | | | | | | | | | | | | | | | | |
Non-cash working capital | | | 1,842 | | | 2,801 | | | 725 | | | 3,262 | | | 8,630 | |
Property, plant and equipment | | | 53 | | | 174 | | | 3,098 | | | 299 | | | 3,624 | |
Goodwill | | | 1,187 | | | 3,225 | | | 8,142 | | | 1,344 | | | 13,898 | |
Intangible assets – finite life | | | 589 | | | 3,402 | | | — | | | 1,436 | | | 5,427 | |
Deferred income tax liability | | | (212 | ) | | (1,206 | ) | | — | | | (320 | ) | | (1,738 | ) |
Debt and other liabilities | | | — | | | — | | | (374 | ) | | (136 | ) | | (510 | ) |
Minority Interest | | | — | | | — | | | — | | | (1,304 | ) | | (1,304 | ) |
| |
|
| | |
| | | 3,459 | | | 8,396 | | | 11,591 | | | 4,581 | | | 28,027 | |
| |
|
| | |
Cash consideration, net of cash acquired | | | 3,459 | | | 7,806 | | | 11,591 | | | 4,428 | | | 27,284 | |
Contingent consideration | | | — | | | — | | | — | | | 153 | | | 153 | |
Note payable | | | — | | | 590 | | | — | | | — | | | 590 | |
| |
|
| | |
| | | 3,459 | | | 8,396 | | | 11,591 | | | 4,581 | | | 28,027 | |
| |
|
| | |
| (a) | Kofman-Barenholtz |
| | |
| | On September 2, 2004, SunOpta acquired 100% of the outstanding shares of Kofman-Barenholtz Foods Limited (Kofman-Barenholtz) for cash consideration including acquisition costs of $3,459 (Cdn $4,494). During 2005, the Company recorded contingent consideration of $430 (Cdn $500) in relation to the 2004 acquisition of Kofman-Barenholtz meeting certain defined targets. The additional consideration has been recorded as goodwill. Further contingent consideration of up to $344 (Cdn $400) may be payable in 2006 based upon Kofman-Barenholtz’s ability to maintain certain product line distribution requirements under the agreement, which would also be recorded as goodwill when earned. |
| | |
| | Kofman-Barenholtz, headquartered in Toronto, is an established distributor of kosher and specialty grocery products across Canada, with over 50 years of experience. Kofman-Barenholtz’s focus and strength in the kosher and specialty grocery products market further strengthens SunOpta’s |
- F15 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| | |
| | Canadian natural, organic, kosher and specialty foods distribution network. Kofman-Barenholtz has been included in the Canadian Food Distribution Group segment within the Food Group. |
| | |
| (b) | Supreme Foods |
| | |
| | On May 1, 2004, SunOpta acquired 100% of the outstanding shares of Supreme Foods Limited (Supreme) for total consideration of $8,396 (Cdn $11,572) including acquisition costs and assumption of a note payable to shareholders of $590 (Cdn $709, discounted at 5%). |
| | |
| | Supreme is a distributor of certified organic, natural, kosher and specialty grocery products across Canada, with headquarters in Toronto, Ontario. Supreme has a number of exclusive sourcing agreements as well as products marketed under its own trade names. |
| | |
| | Supreme’s focus and strength in grocery products has become the base of SunOpta’s growing natural, organic and specialty foods grocery distribution business. The combination of Supreme’s business with Kofman-Barenholtz in eastern Canada and Wild West Organic Harvest in western Canada creates a national grocery platform for SunOpta and allows for considerable expansion of product lines. Supreme Foods has been included in the Canadian Food Distribution Group segment within the Food Group. |
| | |
| (c) | General Mills Oat Fiber Facility |
| | |
| | On April 16, 2004, SunOpta acquired a General Mills Bakeries and Food Service oat fiber processing facility for total consideration of $11,591 including acquisition costs. The purchase included land, building, equipment and inventory. |
| | |
| | With the addition of this facility, the Company continued to increase its total annual oat fiber processing capacity. The Company's growth in oat fiber has been driven by the significant increase in consumer demand for healthier food offerings, and the general trend to improve the nutritional content of foods via the addition of fiber. |
| | |
| | SunOpta’s purchase of this facility has generated efficiencies in the Company's oat fiber processing operations enabling the Company to streamline oat fiber production across three facilities, lengthening run times and improving operating efficiencies. The facility is part of the SunOpta Ingredients Group segment within the Food Group. |
| | |
| (d) | Other acquisitions: |
| | |
| | Organic Ingredients |
| | |
| | On September 10, 2004, SunOpta acquired 50.1% of the outstanding shares of Organic Ingredients, Inc. (Organic Ingredients), headquartered in Aptos, California for consideration of $2,257 including acquisition costs. During 2004, contingent consideration of $153 was earned and has been reflected as goodwill in the balance sheet. |
| | |
| | Organic Ingredients is an established provider of a wide range of certified organic industrial ingredients including processed fruit and vegetable based ingredients, sweeteners, vinegars and others. The company sources and contract manufactures through exclusive arrangements with suppliers located around the world, including North America, South America, Europe and Asia. These exclusive supply arrangements enable the company to maintain a strategic advantage in the organic food ingredient market, in terms of cost and availability of supply, and positions the company to provide value added private label products to key customers. Organic Ingredients has been included within the SunOpta Fruit Group segment within the SunOpta Food Group. |
- F16 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| | |
2. | Business acquisitions continued |
| | |
| | Snapdragon Natural Foods |
| | |
| | On June 1, 2004, SunOpta acquired the inventory and the business of Snapdragon Natural Foods Inc. (Snapdragon) for $878 (Cdn $1,190). |
| | |
| | Snapdragon distributed organic groceries and frozen products to both mass market and natural food retailers throughout Canada from warehousing facilities located in Montreal, Quebec, Toronto, Ontario and Calgary, Alberta. Operations of Snapdragon were consolidated into Supreme Foods in January 2005 as part of the opening of the new Toronto based distribution centre. The Snapdragon operation further contributed to the Company’s stated objective of building Canada’s first national natural and organics food distribution network. It has been included under the Canadian Food Distribution Group segment within the Food Group. |
| | |
| | Distribution A & L |
| | |
| | On April 1, 2004, SunOpta acquired the outstanding shares of Distribution A&L for total consideration of $381 (Cdn $500) including acquisition costs. During 2005, the Company recorded contingent consideration of $40 (Cdn $46) which was earned during the twelve month period ending March 31, 2005. Further consideration of $344 (Cdn $400) may be payable based upon Distribution A&L’s ability to meet certain predetermined profit targets between April 1, 2005 and March 31, 2009, with a maximum of $86 (Cdn $100) in each twelve month period. The earned contingent consideration has been recorded to goodwill and any future contingent consideration will be recorded as goodwill when the amount and outcome of the contingency becomes determinable. |
| | |
| | Distribution A&L specializes in the distribution of specialty abrasives and related products. Distribution A&L focuses on smaller markets currently not serviced by Opta Minerals via its network of selling professionals specializing in the industrial, automotive and pool filtration industries. The skills contained within this operation are key as Opta Minerals continues to expand products and revenue capabilities. |
| | |
| | Distribue-Vie |
| | |
| | On March 1, 2004, SunOpta acquired the outstanding shares of Distribue-Vie Fruits & Legumes Biologiques Inc. (Distribue-Vie) for $911 (Cdn $1,217) including acquisition costs. |
| | |
| | Distribue-Vie specializes in the distribution of organic fresh foods with an emphasis on produce. Distribue-Vie is the dominant player in the distribution of organic produce in Quebec and operates from a warehousing facility located in Montreal, servicing the key Quebec market along with geographic reach to Eastern Ontario and the Maritime provinces. An additional $250 (Cdn $300) of contingent consideration may be payable if certain predetermined profit targets are achieved by the acquired business for both of the twelve month period ending March 31, 2006 and will be recorded as goodwill when the amount and outcome of this contingency becomes determinable. No contingent consideration was paid for the twelve month period ending March 31, 2005. |
| | |
| | The addition of Distribue-Vie to the Canadian Food Distribution Group has brought benefits to the customer base in the form of broader product lines and greater support for consumer education of organic foods through marketing and retail merchandising initiatives. |
- F17 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| | |
2. | Business acquisitions continued |
| | |
| (e) | Contingent consideration on companies acquired prior to 2004 |
| | |
| | Sigco Sun Products |
| | |
| | During the year, the Company recorded contingent consideration of $155 (2004 - $50) as an increase to goodwill. This amount was recorded in relation to Sigco Sun Products achievement of predetermined earnings targets. Further consideration of $1,217 may be payable between January 1, 2006 and December 31, 2008 based on the terms of the agreement. |
| | |
| | Sonne Labs Inc. |
| | |
| | During the year, the Company recorded contingent consideration, as an increase to goodwill, of $33 (2004 - $30) in relation to the 2003 acquisition of Sonne Labs Inc. Further consideration of $687 may be payable between January 1, 2006 and December 31, 2007 based upon their ability to meet certain predefined earning targets. |
| | |
3. | Accounts Receivable |
| | | | | | | |
| | | 2005 | | | 2004 | |
| | | $ | | | $ | |
Trade receivables | | | 58,870 | | | 39,520 | |
Allowance for doubtful accounts | | | (1,262 | ) | | (1,074 | ) |
| | |
|
| | | 57,608 | | | 38,446 | |
| | |
|
| | | | | | | |
| | | 2005 | | | 2004 | |
| | | $ | | | $ | |
Allowance for doubtful accounts | | | | | | | |
| | | | | | | |
Balance, beginning of year | | | 1,074 | | | 1,218 | |
Additions and effects of foreign exchange rate differences | | | 365 | | | 196 | |
Accounts receivable written off, net of proceeds | | | (177 | ) | | (340 | ) |
| | |
|
| | | | | | | |
Balance, end of year | | | 1,262 | | | 1,074 | |
| | |
|
| | | | | | | |
| | | 2005 | | | 2004 | |
| | | $ | | | $ | |
Raw materials and work in process | | | 35,139 | | | 15,791 | |
Finished goods | | | 49,497 | | | 32,811 | |
Grain | | | 3,704 | | | 935 | |
| | | |
| | | 88,340 | | | 49,537 | |
| | |
|
Grain inventories consist of the following: | | | | | | | |
Company owned grain | | | 4,260 | | | 1,404 | |
Unrealized gain (loss) on | | | | | | | |
Sale and purchase contracts | | | (619 | ) | | (687 | ) |
Future contracts | | | 63 | | | 218 | |
| | |
|
| | | | | | | |
| | | 3,704 | | | 935 | |
| | |
|
- F18 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
5. | Prepaid expenses and other current assets |
| |
| In 2004, prepaid expenses and other current assets included approximately $1,314 in deferred transaction and prospectus costs in relation to the initial public offering of the Company’s subsidiary, Opta Minerals Inc. This initial public offering was completed on February 17, 2005 (see note 19). There are no such costs included in the 2005 balance. |
| |
6. | Property, plant and equipment |
| | | | | | | | | | |
| | | 2005 | |
| | |
|
| | | Cost
$ | | | Accumulated
Amortization
$ | | | Net
$ | |
Land and buildings | | | 36,124 | | | 6,181 | | | 29,943 | |
Machinery and equipment | | | 63,985 | | | 23,127 | | | 40,858 | |
Enterprise software | | | 3,361 | | | 216 | | | 3,145 | |
Office furniture and equipment | | | 4,908 | | | 2,983 | | | 1,925 | |
Vehicles | | | 2,587 | | | 1,201 | | | 1,386 | |
| | |
|
| | | | | | | | | | |
| | | 110,965 | | | 33,708 | | | 77,257 | |
| | |
|
| | | | | | | | | | |
| | | 2004 | |
| | |
|
| | | Cost
$ | | | Accumulated
Amortization
$ | | | Net
$ | |
Land and buildings | | | 29,299 | | | 2,215 | | | 27,084 | |
Machinery and equipment | | | 50,621 | | | 20,237 | | | 30,384 | |
Enterprise software | | | 1,797 | | | — | | | 1,797 | |
Office furniture and equipment | | | 3,693 | | | 1,816 | | | 1,877 | |
Vehicles | | | 1,593 | | | 324 | | | 1,269 | |
| | |
|
| | | | | | | | | | |
| | | 87,003 | | | 24,592 | | | 62,411 | |
| | |
|
| |
| Included in machinery and equipment is equipment under capital lease with a cost of $521 (2004 - $327) and net book value of $481 (2004 - $322). |
| |
| Assets held for sale in 2004 included the St. Thomas, Ontario facility which had a book value of $171 (2004 - $208). The facility was sold during 2005 for proceeds of $172. |
- F19 -
SunOpta Inc.
Notes to Consolidated Financial Statements
(Expressed in thousands of U.S. dollars, except per share amounts)
| |
7. | Goodwill and intangibles |
| | | | | | | |
| | | 2005
$ | | | 2004
$ | |
Goodwill – at cost, less accumulated amortization of $1,074 (2004 -$985) | | | 42,429 | | | 34,050 | |
Trademarks and other intangibles with a finite life – at cost, less accumulated amortization $2,776 (2004 - $1,234) | | | 15,833 | | | 9,884 | |
| | |
|
| | | | | | | |
| | | 58,262 | | | 43,934 | |
| | |
|
| |
| The following is a summary of changes in goodwill and intangibles: |
| | | | | | | | | | |
| | | Goodwill
$ | | | Intangibles
$ | | | Total
$ | |
| | | |
Balance as at December 31, 2004 | | | 34,050 | | | 9,884 | | | 43,934 | |
| | | | | | | | | | |
Additions during the year | | | 8,081 | | | 7,163 | | | 15,244 | |
Amortization | | | — | | | (1,338 | ) | | (1,338 | ) |
Write-off of intangible assets and goodwill | | | (71 | ) | | (114 | ) | | (185 | ) |
Impact of foreign exchange | | | 369 | | | 238 | | | 607 | |
| | |
|
| | | | | | | | | | |
Balance as at December 31, 2005 | | | 42,429 | | | 15,833 | | | 58,262 | |
| | |
|
| |
| The Company estimates that the aggregate future amortization expense associated with finite life intangibles will be as follows: |
| | | | |
| | $ | |
| |
| |
2006 | | | 1,871 | |
2007 | | | 1,744 | |
2008 | | | 1,711 | |
2009 | | | 1,673 | |
2010 | | | 1,630 | |
Thereafter | | | 7,204 | |
| |
|
| |
| | | 15,833 | |
| |
|
| |
| |
8. | Accounts payable and accrued liabilities |
| |
| Accounts payable and accrued liabilities consist of the following: |
| | | | | | | |
| | | 2005
$ | | | 2004
$ | |
Accounts payable | | | 39,944 | | | 26,610 | |
Payroll and commissions | | | 2,850 | | | 2,676 | |
Accrued grain liabilities | | | 4,246 | | | 3,371 | |
Other accruals | | | 3,648 | | | 3,011 | |
| | |
|
| | | | | | | |
| | | 50,688 | | | 35,668 | |
| | |
|
- F20 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
9. | Long-term debt and banking facilities |
| | | | | | | | |
| | | 2005
$ | | 2004
$ | |
| Term loan (a)(i)(iv) | | | 45,000 | | | 33,400 | |
| Other long-term debt (b) | | | 14,056 | | | 2,422 | |
| | |
|
|
|
|
|
|
| | | | 59,056 | | | 35,822 | |
| Less: current portion | | | (3,518 | ) | | (4,819 | ) |
| | |
|
|
|
|
|
|
| | | | | | | | |
| | | | 55,538 | | | 31,003 | |
| | |
|
|
|
|
|
|
| | | |
| (a) | On December 9, 2005, the Company amended and restated its credit agreement with its lending syndicate as follows: |
| | |
| | i) | Term loan facility: |
| | | |
| | | The term loan facility was increased to $45,000 from $33,400 as at December 31, 2004. Principal payment as a lump sum is payable on maturity, at the end of five years. The term loan matures on December 20, 2010 and is renewable at the option of the lender and the Company. |
| | | |
| | | Interest on the term loan is payable at a fixed rate of 6.44% plus a margin of up to 50 basis points based on certain financial ratios of the Company. Interest on the 2004 term loan facility was at variable rates which was 3.7% at December 31, 2004. |
| | | |
| | ii) | $12,898 (Cdn $15,000), line of credit facility: |
| | | |
| | | As at December 31, 2005, $nil (2004 - $nil) of this facility has been utilized except for $472 (2004 - $1,700) committed through letters of credit. Interest on borrowings under this facility accrues at the borrower’s option based on various reference rates including Canadian or U.S. bank prime, or Canadian bankers’ acceptances, plus a margin based on certain financial ratios. The maximum availability of this line is based on the borrowing base which includes certain accounts receivables and inventories as defined in the credit agreement. At December 31, 2005, the line had a maximum borrowing base of $10,882 |
| | | |
| | iii) | $25,000 ($17,500 at December 31, 2004) line of credit facility: |
| | | |
| | | As at December 31, 2005, $15,195 (2004 - $nil) of this facility has been utilized. Interest on borrowings under this facility accrues at the borrower’s option based on various reference rates including U.S. bank prime, or U.S. LIBOR, plus a margin based on certain financial ratios. As at December 31, 2005, the Company could borrow the full line of credit based on the borrowing base calculations as noted above. |
| | | |
| | iv) | $10,000 revolving acquisition facility: |
| | | |
| | | The Company has an available facility to finance future acquisitions and capital expenditures. This facility is subject to certain draw restrictions. Principal is payable quarterly equal to the greater of (a) 1/20 of the initial drawdown amount of the facility, or (b) 1/20 of the outstanding principal amount as of the date of the last draw. Any remaining outstanding principal under this facility is due on October 31, 2009. |
| | | |
| | | Interest on borrowings under this facility is consistent with the term loan described in i) above. This facility was not utilized as at December 31, 2005 or December 31, 2004. |
- F21 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
9. | Long-term debt and banking facilities continued |
| | |
| | The Canadian and U.S. line of credit facilities are subject to annual extensions. |
| | |
| | All of the above facilities are collateralized by a first priority security against substantially all of the Company’s assets in both Canada and the United States. In February 2005, the Company amended its credit agreement for the primary purpose of releasing all secured collateral relating to Opta Minerals, as part of the group’s initial public offering (see note 19). |
| | |
| (b) | Other long-term debt consists of the following: |
| | | | | | | |
| | | | 2005
$ | | 2004
$ | |
| | On September 30, 2005, Opta Minerals, Inc. amended and restated its credit agreement and banking facilities to establish a term loan facility of $6,879 (Cdn $8,000) which was fully drawn upon at September 30, 2005. The loan has a term of ten years with quarterly payments of Cdn $200. The principle is payable quarterly based on a ten-year amortization. The facility matures October 31, 2010 and is renewable at the option of the lender and Opta Minerals. | | 6,879 | | — | |
| | | | | | | |
| | Promissory note of Cdn $1,750 issued to former shareholders of Les Importations Cacheres Hahamovitch Inc., bearing no interest, unsecured and to be repaid on January 2, 2007. | | 1,500 | | — | |
| | | | | | | |
| | Promissory note of $1,100, issued to former shareholders of Pacific, bearing no interest, unsecured and to be repaid in two instalments of $550 on the sixth and twelfth month anniversary of the acquisition closing date of July 13, 2005. | | 1,100 | | — | |
| | | | | | | |
| | Promissory note of $700 (originally discounted to $606) issued to certain former shareholders of Cleugh’s to be repaid in equal annual instalments of $140 over five years commencing on the first anniversary of the closing date. | | 639 | | — | |
| | | | | | | |
| | Promissory notes of $1,370 assumed on acquisition of Cleugh’s at a weighted average interest rate of 6%, unsecured and to be repaid in equal annual instalments of $274. | | 1,239 | | — | |
| | | | | | | |
| | Term debt secured by Cleugh’s property plant and equipment with various lenders at a weighted average interest rate of 5.75% and amortized over various periods not exceeding five years. | | 602 | | — | |
| | | | | | | |
| | Promissory note of Cdn $573 (December 31, 2004 – Cdn $832) issued to the former shareholders of Supreme Foods Limited., principal payable in three equal annual instalments, unsecured. | | 493 | | 692 | |
| | | | | | | |
| | Promissory note of Cdn $501 (December 31, 2004 - Cdn $701) issued to the former shareholders of Kettle Valley Dried Fruit Ltd. as part of the acquisition in 2003, interest at 5%, interest and principal payable in ten semi-annual instalments, unsecured. | | 431 | | 583 | |
| | | | | | | |
| | Capital lease obligations due in monthly payments, with a weighted average interest rate of 8.0% (December 31, 2004 – 7.7%) | | 1,099 | | 360 | |
| | | | | | | |
| | Other term debt with a weighted average interest rate of 2.0% (2004– 2.5%), due in varying instalments through July 2009. | | 74 | | 787 | |
| | | |
|
|
| |
| | | | | | | |
| | | | 14,056 | | 2,422 | |
| | | |
|
|
| |
- F22 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
9. | Long-term debt and banking facilities continued |
| | |
| (c) | The loans and capital leases detailed above require payments as follows: |
| | | | | | |
| | | | $ | |
| | 2006 | | | 3,518 | |
| | 2007 | | | 4,096 | |
| | 2008 | | | 1,738 | |
| | 2009 | | | 1,568 | |
| | 2010 | | | 46,284 | |
| | Thereafter | | | 1,852 | |
| | | |
|
| |
| | | | | | |
| | | | | 59,056 | |
| | | |
|
| |
| | | |
| (d) | Interest expense on long-term debt for the year ended December 31, 2005 was $1,991 (December 31, 2004 - $936). |
| | |
| (e) | Included in bank indebtedness on the balance sheet are lines of credit of the Company as noted in 9(a)(ii) and 9(a)(iii) above and lines of credit of its subsidiaries as follows: |
| | | |
| | i) | Opta Minerals Inc.: |
| | | |
| | In addition to the term loan facility described above, Opta Minerals, Inc. has a line of credit of $6,019 (Cdn $7,500) and a $4,299 (Cdn $5,000) facility to finance future acquisitions and capital expenditures. As of December 31, 2005 no amounts have been drawn on these facilities with the exception of committed letters of credit of $957. These facilities have been collaterized by a priority security interest against substantially all of the Opta Minerals Inc.’s assets. |
| | | |
| | ii) | Cleugh’s Frozen Foods, Inc.: |
| | | |
| | As part of the Cleughs acquisition, described in note 2 the Company assumed a line of credit facility with a maximum available draw of $20,000, based on and secured by the value of Cleugh’s accounts receivable and inventory. Interest rate is at 7.70% as at December 31, 2005 and fluctuates between LIBOR plus 2% and 2.75% based on certain financial ratios of Cleugh’s, adjusted quarterly. The line of credit has a four year term and expires in June 17, 2010. As of December 31, 2005 $10,433 was drawn on the facility |
| | | |
| | Cash on deposit with lending institutions has been netted against borrowings under the lines of credit with the same institution. |
- F23 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
| The Company is authorized to issue an unlimited number of common shares without par value and an unlimited number of special shares without par value. |
| |
| The following is a summary of changes in the Company’s capital stock: |
| | | | | | | | | | | | | | | | | |
| | | Warrants and rights | | Common shares | | Total | |
| | |
| |
| |
| |
| | | Number | | $ | | Number | | $ | | $ | |
|
| Balance as at December 31, 2002 | | | 4,703,100 | | | 2,736 | | | 41,984,118 | | | 35,230 | | | 37,966 | |
| | | | | | | | | | | | | | | | | |
| Warrants exercised (a) | | | (1,095,750 | ) | | (438 | ) | | 1,095,750 | | | 2,299 | | | 1,861 | |
| Compensation and related warrants exercised (a) | | | (366,000 | ) | | — | | | 366,000 | | | 761 | | | 761 | |
| Shares issued to acquire Kettle Valley (a) | | | — | | | — | | | 196,809 | | | 821 | | | 821 | |
| August 2003 public offering (c) | | | — | | | — | | | 7,500,000 | | | 51,004 | | | 51,004 | |
| August 2003 private placement (c) | | | | | | | | | 285,714 | | | 2,000 | | | 2,000 | |
| Options exercised (b) | | | — | | | — | | | 1,276,705 | | | 2,257 | | | 2,257 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | |
| Balance as at December 31, 2003 | | | 3,241,350 | | | 2,298 | | | 52,705,096 | | | 94,372 | | | 96,670 | |
| | | | | | | | | | | | | | | | | |
| Warrants exercised (a) | | | (3,093,850 | ) | | (2,289 | ) | | 3,093,850 | | | 9,927 | | | 7,638 | |
| Compensation and related warrants exercised (a) | | | (112,500 | ) | | — | | | 112,500 | | | 270 | | | 270 | |
| Options exercised (b) | | | — | | | — | | | 232,437 | | | 777 | | | 777 | |
| Employee Stock Purchase Plan | | | — | | | — | | | 76,329 | | | 439 | | | 439 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | |
| Balance as at December 31, 2004 | | | 35,000 | | | 9 | | | 56,220,212 | | | 105,785 | | | 105,794 | |
| | | | | | | | | | | | | | | | | |
| Options exercised (b) | | | — | | | — | | | 276,640 | | | 370 | | | 370 | |
| Employee Stock Purchase Plan | | | — | | | — | | | 123,819 | | | 576 | | | 576 | |
| Share Purchase buy back | | | — | | | — | | | (33,000 | ) | | (62 | ) | | (62 | ) |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | |
| Balance as at December 31, 2005 | | | 35,000 | | | 9 | | | 56,587,671 | | | 106,669 | | | 106,678 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | |
| (a) | Warrants |
| | |
| | During 2005, no warrants were granted or exercised. During 2004, 3,206,350 warrants including 112,500 compensation warrants were exercised for net proceeds of $7,908 (2003 – 1,461,750 warrants, $2,622). These warrants were granted as part of private placements completed in 2001. |
| | |
| | The 35,000 warrants outstanding as at December 31, 2005 are exercisable at $1.70 until February 2006. |
| | |
| | On May 1, 2003, the Company issued 196,809 common shares at a price of $4.17 per common share, in the acquisition of Kettle Valley (note 2). |
| | |
| | In conjunction with the convertible debenture issued in 2002 the Company issued 250,000 warrants with a fair value of $263, an exercise price of $3.25, and an expiry date of November 30, 2004. These warrants were exercised in 2004. |
- F24 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
10. | Capital stock continued |
| | |
| (b) | Employee/director option plans |
| | |
| | Details of changes in employee/director stock options are as follows: |
| | | | | | | | | | | | |
| | | | | 2005 | | | 2004 | | | 2003 | |
|
| | Outstanding options at beginning of year | | | 2,334,615 | | | 2,027,177 | | | 2,201,260 | |
| | Granted | | | 832,625 | | | 588,775 | | | 1,152,450 | |
| | Exercised | | | (276,640 | ) | | (232,437 | ) | | (1,276,705 | ) |
| | Retracted | | | (184,160 | ) | | (48,900 | ) | | (49,828 | ) |
| | | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | Outstanding options at end of year | | | 2,706,440 | | | 2,334,615 | | | 2,027,177 | |
| | | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | Exercisable options at year end | | | 2,510,000 | | | 1,050,255 | | | 787,907 | |
| | | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | Weighted average fair value of options granted during the year | | $ | 2.72 | | $ | 3.50 | | $ | 2.89 | |
| | | |
|
|
|
|
|
|
|
|
|
| | |
| | The Company grants options to employees and directors from time to time under employee/director stock option plans. The Board of Directors of the Company has authorized and approved 6,650,000 (2004 – 6,650,000) shares to be made available for the stock option plans. As of December 31, 2005, 244,910 remaining to be granted under these plans. |
| | |
| | The following is a summary of options granted during the year. |
| | | | | | | | | | | | | |
| Grant date | | Expiry date | | Exercise price | | Number of
options | | Number of
options vested at
Dec 31, 2005 | |
|
| January 21, 2005 | | January 21, 2010 | | $ | 6.54 | | | 125,000 | | | 125,000 | |
| March 8, 2005 | | March 8, 2010 | | $ | 6.81 | | | 34,000 | | | 34,000 | |
| May 4, 2005 | | May 4, 2010 | | $ | 4.52 | | | 17,275 | | | 3,455 | |
| August 8, 2005 | | August 8, 2010 | | $ | 5.71 | | | 269,000 | | | 269,000 | |
| November 3, 2005 | | November 3, 2010 | | $ | 5.14 | | | 94,250 | | | 94,250 | |
| December 8, 2005 | | December 8, 2010 | | $ | 5.50 | | | 293,100 | | | 293,100 | |
| | | | | | | |
|
|
|
|
|
|
| | | | | | | | | | | | | |
| | | | | | | | | 832,625 | | | 818,805 | |
| | | | | | | |
|
|
|
|
|
|
| | |
| | Employee/director stock options granted by the Company contain an exercise price, which is equal to the closing market price of the shares on the day prior to the grant date. Any consideration paid by employees on exercise of stock options or purchase of stock is credited to capital stock. |
| | |
| | During the year, the Company granted 832,625 options which vest as follows: 818,805 options vested immediately on granting in 2005, 3,455 vest per annum in 2006 to 2009. During 2005, 276,640 (2004 – 232,437) options were exercised and the equivalent number of common shares were issued for net proceeds of $370 (2004 - $777). |
- F25 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
10. | Capital stock continued |
| |
| Details of employee/director stock options outstanding as at December 31, 2005 are as follows: |
| | | | | | | | | | | | | | | | | | |
| | Expiry
Date | | | Exercise
Price
Range | | | Vested
Outstanding
Options | | Weighted
Average
Price | | Total
Outstanding
Options | | Weighted
Average Price | |
| | | | | | | | | | | | | | | | | | |
| | 2006 | | | $1.41 to $2.10 | | | 152,600 | | $ | 1.78 | | | 152,600 | | $ | 1.78 | |
| | 2007 | | | $1.80 to $3.07 | | | 230,090 | | $ | 2.78 | | | 286,610 | | $ | 2.78 | |
| | 2008 | | | $3.06 to $9.90 | | | 746,830 | | $ | 7.03 | | | 871,330 | | $ | 6.55 | |
| | 2009 | | | $5.96 to $7.69 | | | 561,675 | | $ | 7.01 | | | 561,675 | | $ | 7.01 | |
| | 2010 | | | $4.52 to $6.81 | | | 818,805 | | $ | 5.74 | | | 832,625 | | $ | 5.72 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | 2,510,000 | | $ | 5.90 | | | 2,704,840 | | $ | 5.72 | |
| | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | |
| The weighted average remaining contractual life for vested outstanding options and total outstanding options is 3.3 and 3.2 years respectively. |
| |
| (c) | Equity offerings and private placements |
| | |
| | On August 28, 2003, the Company issued 7,500,000 common shares at a price of $7.00 per common share, as part of a public offering for gross proceeds of $52,500. The Company incurred $1,496 in share issuance costs, (net of tax) in relation to this offering. |
| | |
| | On August 29, 2003, the Company issued 285,714 common shares pursuant to a private placement with a significant shareholder, for proceeds of $2,000. |
| | |
| | In addition, pursuant to 2001 private placement agreements, the Company granted to their agents: |
| | |
| i) | Compensation warrants exercisable until June 8, 2003 to purchase 144,000 option units at $2.00 per unit. If exercised in full, the Company would issue 144,000 common shares and 72,000 warrants exercisable at $2.40 to acquire 72,000 common shares, with an expiry date of March 31, 2004. |
| | |
| | During 2003, all of the above 144,000 compensation warrants were exercised and 216,000 common shares were issued for net proceeds of $461. |
| | |
| ii) | Compensation warrants exercisable until September 28, 2003 to purchase 150,000 option units at $2.00 per unit. If exercised in full, the Company would issue 150,000 common shares and 112,500 warrants exercisable at $2.40 to acquire 112,500 common shares, which expired on September 30, 2004. |
| | |
| | During 2003, the above 150,000 compensation warrants were exercised and 150,000 common shares were issued for net proceeds of $300. During 2004, the above 112,500 compensation warrants were exercised and 112,500 common shares were issued for net proceeds of $270. |
- F26 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
11. | Earnings per share |
| |
| The calculation of basic earnings per share is based on the weighted average number of shares outstanding. Diluted earnings per share reflect the dilutive effect of the potential exercise of warrants and options as disclosed in note 10. The number of shares for the diluted earnings per share was calculated as follows: |
| | | | | | | | | | | |
| | | | 2005 | | | 2004 | | | 2003 | |
| Weighted average number of shares used in basic earnings per share | | | 56,366,852 | | | 53,971,986 | | | 46,094,627 | |
| Dilutive potential of the following | | | | | | | | | | |
| Employee/director stock options | | | 355,957 | | | 862,243 | | | 840,085 | |
| Warrants | | | 24,162 | | | 27,572 | | | 2,004,201 | |
| | |
|
|
|
|
|
|
|
|
|
| Weighted average number of shares used in diluted earnings per share | | | 56,746,971 | | | 54,861,801 | | | 48,938,913 | |
| | |
|
|
|
|
|
|
|
|
|
| | | | $ | | | $ | | | $ | |
| Net earnings for the year | | | 13,558 | | | 11,016 | | | 8,966 | |
| | |
|
|
|
|
|
|
|
|
|
| Earnings per share: | | | | | | | | | | |
| - Basic | | | 0.24 | | | 0.20 | | | 0.19 | |
| | |
|
|
|
|
|
|
|
|
|
| - Diluted | | | 0.24 | | | 0.20 | | | 0.18 | |
| | |
|
|
|
|
|
|
|
|
|
| |
| Options to purchase 1,751,355 (2004 - 317,000, 2003 - 573,000) common shares have been excluded from the calculations of diluted earnings per share due to their anti-dilutive effect. |
| |
12. | Income taxes |
| |
| The Company’s effective income tax rate on consolidated earnings has been determined as follows: |
| | | | | | | | | | | |
| | | | 2005 | | 2004 | | 2003 |
|
| Canadian statutory income tax rate | | | 36.1 | % | | 36.1 | % | | 36.1 | % |
| | | | | | | | | | | |
| Increase (decrease) by the effects of: | | | | | | | | | | |
| Change in valuation allowance | | | — | | | (11.2 | %) | | (24.8 | %) |
| Differences in foreign, capital gains, manufacturing and processing and deferred income tax rates | | | (1.3 | %) | | 3.6 | % | | (2.1 | %) |
| Impact of dilution gain | | | (13.8 | %) | | — | | | — | |
| Other | | | (5.6 | %) | | (6.4 | %) | | 0.8 | % |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| Effective income tax rate | | | 15.4 | % | | 22.1 | % | | 10.0 | % |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| | | | $ | | | $ | | | $ | |
| Earnings before income taxes | | | 16,702 | | | 14,229 | | | 9,967 | |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| Provision for income taxes | | | 2,566 | | | 3,139 | | | 1,001 | |
| | |
|
|
|
|
|
|
|
|
|
- F27 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
12. | Income taxes continued |
The components of the provisions for Canada and U.S. income taxes are shown below:
| | | | | | | | | | | |
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | $ | | | $ | | | $ | |
| Current expense: | | | | | | | | | | |
| Canada | | | 525 | | | 679 | | | 370 | |
| United States | | | 617 | | | 427 | | | 433 | |
| | |
|
|
|
|
|
|
|
|
|
| | | | 1,142 | | | 1,106 | | | 803 | |
| | |
|
|
|
|
|
|
|
|
|
| Deferred (benefit) expense: | | | | | | | | | | |
| Canada | | | (1,489 | ) | | (1,051 | ) | | 50 | |
| United States | | | 2,913 | | | 3,084 | | | 148 | |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| | | | 1,424 | | | 2,033 | | | 198 | |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| Provision for income taxes | | | 2,566 | | | 3,139 | | | 1,001 | |
| | |
|
|
|
|
|
|
|
|
|
Deferred income taxes of the Company are comprised of the following:
| | | | | | | | |
| | | | 2005
$ | | | 2004
$ | |
|
| Differences in property, plant and equipment and intangible basis | | | (6,696 | ) | | (3,011 | ) |
| Capital and non-capital losses | | | 9,418 | | | 8,079 | |
| Tax benefit of scientific research expenditures | | | 2,090 | | | 2,000 | |
| Tax benefit of costs incurred during share issuance (note 10) | | | 994 | | | 834 | |
| Other | | | 562 | | | 554 | |
| | |
|
|
|
|
|
|
| | | | 6,368 | | | 8,456 | |
| Valuation allowance | | | (1,204 | ) | | (1,204 | ) |
| | |
|
|
|
|
|
|
| | | | | | | | |
| | | | 5,164 | | | 7,252 | |
| | |
|
|
|
|
|
|
The components of the deferred income taxes for Canada and U.S. are shown below:
| | | | | | | | |
| | | | 2005 | | | 2004 | |
| | | | $ | | | $ | |
| Canada | | | 5,854 | | | 3,596 | |
| United States | | | (690 | ) | | 3,656 | |
| | |
|
|
|
|
|
|
| | | | 5,164 | | | 7,252 | |
| | |
|
|
|
|
|
|
| | | | | | | | | | | |
| | | | 2005
$ | | | 2004
$ | | | 2003
$ | |
| Deferred income tax valuation allowance: | | | | | | | | | | |
| Balance, beginning of year | | | 1,204 | | | 2,803 | | | 5,350 | |
| Additions (reductions) to valuation allowance | | | — | | | (1,599 | ) | | (2,547 | ) |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| Balance, end of year | | | 1,204 | | | 1,204 | | | 2,803 | |
| | |
|
|
|
|
|
|
|
|
|
- F28 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
| The Company has approximately $5,904 and $1,000 (2004 $5,712 and $1,000) in Canadian and U.S. scientific research expenditures respectively, which can be carried forward indefinitely in Canada, and 20 years in the U.S. to reduce future years’ taxable income. The Company also has approximately $402 (2004 - $404) in U.S. state scientific research investment tax credits which will expire in varying amounts up to 2015. |
| |
| The Company has Canadian and U.S. non-capital loss carry-forwards of approximately $13,557 and $11,728 respectively, as at December 31, 2005 (2004 - $9,727 and $12,388). The Company also has State loss carry forwards of approximately $2,023 as of December 31, 2005 (2004 - $4.500). The amounts are available to reduce future federal and provincial/state income taxes. Non-capital loss carry-forwards attributable to Canada expire in varying amounts over the next ten years while non-capital loss carry-forwards attributable to the U.S. expire in varying amounts over the next 15 years. |
| |
| The Company has Canadian capital losses of approximately $1,962, as at December 31, 2005 (2004 - $1,820). The amounts are available to reduce future capital gains. Capital losses in Canada do not expire. |
| |
| A valuation allowance of $1,204 (2004 - $1,204) has been recorded to reduce the net benefit recorded in these consolidated financial statements related to the capital and non-capital loss carry-forwards and scientific research expenditures. |
| |
13. | Supplemental cash flow information |
| | | | | | | | | | | |
| | | | 2005
$ | | | 2004
$ | | | 2003
$ | |
| Changes in non-cash working capital, net of businesses acquired: | | | | | | | | | | |
| Accounts receivable | | | (11,184 | ) | | (7,466 | ) | | (3,484 | ) |
| Inventories | | | (16,641 | ) | | (6,730 | ) | | (4,976 | ) |
| Prepaid expenses and other current assets | | | 583 | | | (275 | ) | | (1,187 | ) |
| Income taxes recoverable | | | (18 | ) | | (314 | ) | | (1,543 | ) |
| Accounts payable and accrued liabilities | | | 1,141 | | | 5,962 | | | (2,159 | ) |
| Customer and other deposits | | | 113 | | | (1,347 | ) | | 1,357 | |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| | | | (26,006 | ) | | (10,170 | ) | | (11,992 | ) |
| | |
|
|
|
|
|
|
|
|
|
| Cash paid for: | | | | | | | | | | |
| Interest | | | 3,493 | | | 1,373 | | | 1,698 | |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| Income taxes | | | 2,041 | | | 1,800 | | | 2,099 | |
| | |
|
|
|
|
|
|
|
|
|
- F29 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
14. | Related party transactions and balances |
| |
| In addition to transactions disclosed elsewhere in these consolidated financial statements, the Company entered into the following related party transactions: |
| | |
| (a) | In 2004, SunOpta entered into an agreement with a company owned by the vendor of Sigco who was an employee during 2005 of the SunOpta Grains and Foods Group. As a result of this agreement, the Company has provided a guarantee for a loan in the form of a standby letter of credit to a maximum of $300 (2004 - $850) refer to note 15(d), while the other party provides the operating assets. The term of the agreement is for twelve months with an option to renew for an additional twelve months, whereby both parties operate a Hungary based sunflower business and on each anniversary receive an equal share of the adjusted earnings (loss) of the business. |
| | |
| | The Company holds an exclusive option, exercisable at anytime prior to September 30, 2006, to purchase all of the assets and specific liabilities. |
| | |
| | In the current year, this Hungarian based operation had revenue of $1,097 (2004 - $354), net income of $23 (2004 - $29) and had total assets of $1,295 (2004 - $2,112) as of December 31, 2005. |
| | |
| (b) | Pursuant to the Pro Organics acquisition the Company leased its Pro Organics Vancouver, British Columbia warehouse and administration facility from the former owners who remain as executive officers of Pro Organics and SunOpta. The lease is at market rates and is for a five year term with two five year renewal periods. The total amount payable during 2005 was $311 (2004 - $282). |
| | |
| (c) | The President of the Canadian Food Distribution Group sold $969 (2004 - $610) of organic product from his family farming operation, at market rates, to the Canadian Distribution Food Group during 2005 and was owed $97 (2004 – $35) from the Company as at December 31, 2005. The amount payable has been recorded in accounts payable and accrued liabilities. |
| | |
| (d) | The President of the SunOpta Grains and Foods Group purchased $69 (2004 - $32) of seed, fertilizer and herbicides from the Group during 2005, and had a balance receivable outstanding as at December 31, 2005 of $33 (2004 - $75). In addition, the President of the SunOpta Grains and Foods Group sold through a family farming business $178 (2004 - $224) of soybeans and corn to the SunOpta Grains and Foods Group at market rates. The balance payable by SunOpta as at December 31, 2005 was $nil (2004 - $55). |
| | |
| (e) | Other amounts due to/from officers/directors of the Company included in other current assets as at December 31, 2005 was $2 (2004 - $nil). |
| | |
| (f) | Pursuant to the acquisition of Les Importations Cacheres Hahamovitch Inc. the Company has leased Les Importations Cacheres Hahamovitch Montreal, Quebec warehouse and administration facility from the former owner who remains as a senior management of the Canadian Food Distribution Group. The lease is at market rates and is for an eighteen month term. The total amount payable at December 31, 2005 was $nil. |
| | |
| (g) | Pursuant to the acquisition of Cleugh’s the Company has leased Cleugh’s Buena Park, California production, packaging, warehouse and administration facility from the former owners who still remain as senior management of SunOpta Fruit Group. The lease is at market rates and is for a five year term. The total amount payable during 2005 was $128. The Company has also guaranteed the mortgage relating to this facility for $2,115. |
- F30 -
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
15. | Commitments and contingencies |
| | |
| (a) | One of the Company’s subsidiaries, SunRich LLC (formerly SunRich Inc.) filed a claim against a supplier for failure to adhere to the terms of a contract. On July 29, 2004 a judgement was awarded in favour of SunRich by a federal court jury in the United States District Court for the District of Oregon. The supplier countersued the Company for breach of contract however, as part of this judgement these counter-claims were dismissed. In the fall of 2005, the Court concluded on the Company’s application to recover attorney’s fees for approximately $862 including costs and awarded a sum of $175. During the fourth quarter the Company recorded a charge for the unprovided component of these fees of $400. Included within other assets is a receivable of $2,405 representing the initial, judgement, and interest and the recovery of legal fees awarded with respect to this suit. The supplier filed an appeal against this judgement which management and legal counsel believe is without merit. The appeal hearing is expected to be held in 2006. |
| | |
| | In December 2005, the Company was notified of service of a lawsuit, by an individual farmer in the State of New York, for breach of contract, and other grounds, for an amount of approximately $830. While the parties are in the process of considering mediation, management believes that the claim is grossly overstated, and is prepared to defend the lawsuit on various grounds. The Company believes that the outcome of this lawsuit will not materially affect the financial position or the results of the Company. |
| | |
| | During the year, the Company was sued by a landlord of one of its leased facilities for non-payment of rent and early lease cancellation. The company has countersued for non-performance by the landlord and damages and believes the ultimate resolution of this matter will not have a material effect on the financial statements. |
| | |
| | In addition, various claims and potential claims arising in the normal course of business are pending against the Company. It is the opinion of management that these claims or potential claims are without merit and the amount of potential liability, if any, to the Company is not determinable. Management believes the final determination of these claims or potential claims will not materially affect the financial position or results of the Company. |
| | |
| (b) | The Company believes, with respect to both its operations and real property that it is in material compliance with current environmental laws. Based on known existing conditions and the Company’s experience in complying with emerging environmental issues, the Company is of the view that future costs relating to environmental compliance will not have a material adverse effect on its financial position, but there can be no assurance that unforeseen changes in the laws or enforcement policies of relevant governmental bodies, the discovery of changed conditions on the Company’s real property or in its operations, or changes in use of such properties and any related site restoration requirements, will not result in the incurrence of significant costs. No provision has been made in these consolidated financial statements for these future costs since such costs, if any, are not determinable at this time. |
| | |
| (c) | In the normal course of business, the Food Group holds grain for the benefit of others. The Company is liable for any deficiencies of grade or shortage of quantity that may arise in connection with such grain. The Food Group also has commitments to purchase $30,942 of grains in the normal course of business. |
| | |
| (d) | Letters of credit: |
| | |
| | The Company has outstanding letters of credit at December 31, 2005 totaling $1,429 (see note 9 (a)(ii) and 9(e)(i). |
| | |
| (e) | Real property lease commitments: |
- F31 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
| The Company has entered into various leasing arrangements which have fixed monthly rents that are adjusted annually each year for inflation. |
| |
| Commitments under operating leases, principally for distribution centres, warehouse and equipment, are as follows: |
| | | | | |
| | | | $ | |
| 2006 | | | 6,473 | |
| 2007 | | | 5,277 | |
| 2008 | | | 3,718 | |
| 2009 | | | 3.035 | |
| 2010 | | | 2,059 | |
| Thereafter | | | 5,570 | |
| | |
|
| |
| | | | | |
| | | | 26,132 | |
| | |
|
| |
| | |
| In the years 2005, 2004 and 2003, net minimum rents, including immaterial contingent rents and sublease rental income, were $5,890, $3,200 and $1,766 respectively. |
| |
| (f) | As a result of acquisitions the company may be committed to pay contingent consideration for fiscal years 2006 to 2009 based on certain earning targets and thresholds. The amount is not determinable as certain agreements have no maximum on the amount which can be earned. |
| |
16. | Segmented information |
| |
| Industry segments |
| |
| The Company operates in three industry segments: (a) the SunOpta Food Group (Food Group) which processes, packages and distributes a wide range of natural, organic and specialty food products via its vertically integrated operations with a focus on soy, oat fiber, fruit and other natural and organic food products; (b) the Opta Minerals Group processes which distributes, and recycles silica free loose abrasives, industrial minerals, specialty sands and related products; and (c) the SunOpta BioProcess Group which markets proprietary bioprocess technology systems for the pulp, food processing and bio-fuel industries. During the year the Company realigned its reporting segment within the Food Group and has further defined this segment into SunOpta Grains and Foods Group, SunOpta Ingredients Group, SunOpta Fruit Group and SunOpta Canadian Food Distribution Group (which combined form the SunOpta Food Group). The SunOpta Grains and Foods Group with the exception of Kettle Valley Dried Fruit is a combination of the former Grains and Soy Products Group and the Packaged Products Group. Both of these previous Groups are under common management. Kettle Valley has been included within the SunOpta Fruit Group. The addition of these segments better reflects how management views and manages the business and is aligned with the Company’s vertically integrated model. The Company’s assets, operations and employees are located in Canada and the United States. The prior year segment has been restated to reflect this realignment. |
- F32 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
16. | Segmented information continued |
| |
| The Company has also revised the reporting of segment net earnings (loss) before interest, expense (net), income taxes and minority interest to segment net earnings (loss) before other income (expense), interest expense (net), income taxes and minority interest, as this is more aligned with assessing ongoing operating income of each group. |
| | | | | | | | | | | | | | |
| | | 2005 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | SunOpta
Food Group
$ | | | Opta Minerals
$ | | | SunOpta BioProcess
and Corporate
$ | | | Consolidated
$ | |
| External revenues by market | | | 240,052 | | | 11,131 | | | — | | | 251,183 | |
| U.S. | | | 115,970 | | | 23,528 | | | — | | | 139,498 | |
| Canada | | | 30,519 | | | — | | | 4,901 | | | 35,420 | |
| Other | | | | | | | | | | | | | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
| Total revenues from external customers | | | 386,541 | | | 34,659 | | | 4,901 | | | 426,101 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
| Segment net earnings (loss) before other income, interest expense (net), income taxes and minority interest | | | 16,245 | | | 3,808 | | | (3,505 | ) | | 16,548 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | |
| Other income | | | | | | | | | | | | 3,571 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense, net | | | | | | | | | | | | 3,417 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Provision for income taxes | | | | | | | | | | | | 2,566 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Minority interest | | | | | | | | | | | | 578 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Net earnings | | | | | | | | | | | | 13,558 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Identifiable assets | | | 246,122 | | | 41,891 | | | 13,469 | | | 301,482 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization | | | 6,466 | | | 1,225 | | | 450 | | | 8,141 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Goodwill | | | 35,878 | | | 6,551 | | | | | | 42,429 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Expenditures on property, plant and equipment | | | 9,666 | | | 2,404 | | | 2,095 | | | 14,165 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
- F33 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
The SunOpta Food Group has the following segmented reporting:
| | | | | | | | | | | | | | | | | | |
| | 2005 | | |
| |
|
|
|
|
|
|
|
|
| |
| | SunOpta
Grains &
Foods
Group
$ | | | SunOpta
Ingredients
Group
$ | | | SunOpta
Fruit
Group
$ | | Canadian
Food
Distribution
Group
$ | | | SunOpta
Food Group
$ | | |
External revenues by market | | | | | | | | | | | | | | | | | |
U.S. | | 121,752 | | | | 52,352 | | | | 65,675 | | | 273 | | | 240,052 | | |
Canada | | 5,273 | | | | 4,058 | | | | 7,036 | | | 99,603 | | | 115,970 | | |
Other | | 21,059 | | | | 7,543 | | | | 1,917 | | | — | | | 30,519 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total revenues from external customers | | 148,084 | | | | 63,953 | | | | 74,628 | | | 99,876 | | | 386,541 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Segment earnings before other income (expense), interest expense (net), income taxes and minority interest | | 8,005 | | | | 3,784 | | | | 3,165 | | | 1,291 | | | 16,245 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Identifiable assets | | 79,241 | | | | 60,783 | | | | 63,641 | | | 42,457 | | | 246,122 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Amortization | | 1,978 | | | | 2,159 | | | | 1,079 | | | 1,250 | | | 6,466 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Goodwill | | 2,158 | | | | 12,031 | | | | 7,618 | | | 14,071 | | | 35,878 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Expenditures on property, plant and equipment | | 4,154 | | | | 3,081 | | | | 874 | | | 1,557 | | | 9,666 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
| | 2004 | | |
| |
| |
| | SunOpta
Food Group
$ | | | Opta Minerals
$ | | | SunOpta
BioProcess
and Corporate
$ | | | Consolidated
$ | | |
External revenues by market | | | | | | | | | | | | | | | | |
U.S. | | 166,946 | | | | 12,878 | | | | 1,287 | | | | 181,111 | | |
Canada | | 84,134 | | | | 19,233 | | | | — | | | | 103,367 | | |
Other | | 21,642 | | | | 131 | | | | — | | | | 21,773 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Total revenues from external customers | | 272,722 | | | | 32,242 | | | | 1,287 | | | | 306,251 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Segment net earnings (loss) before other income, interest expense (net), income taxes and minority interest | | 14,625 | | | | 3,957 | | | | (2,819 | ) | | | 15,763 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | (12 | ) | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | 1,522 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Provision for income taxes | | | | | | | | | | | | | | 3,139 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| | | | | | | | | | | | | | | | |
Minority interest | | | | | | | | | | | | | | 74 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net earnings | | | | | | | | | | | | | | 11,016 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Identifiable assets | | 170,110 | | | | 26,777 | | | | 23,285 | | | | 220,172 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortization | | 6,014 | | | | 948 | | | | 157 | | | | 7,119 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Goodwill | | 27,717 | | | | 6,333 | | | | — | | | | 34,050 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expenditures on property, plant and equipment | | 16,216 | | | | 2,137 | | | | 1,457 | | | | 19,810 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
- F34 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
The SunOpta Food Group has the following segmented reporting:
| | | | | | | | | | | | | | | | | | |
| | 2004 | | |
| |
|
|
|
|
|
|
|
|
| |
| | SunOpta
Grains &
Foods
Group
$ | | | SunOpta
Ingredients
Group
$ | | | SunOpta
Fruit
Group
$ | | Canadian
Food
Distribution
Group
$ | | | SunOpta
Food Group
$ | | |
External revenues by market | | | | | | | | | | | | | | | | | | |
U.S. | | 104,466 | | | | 56,018 | | | | 6,054 | | | 408 | | | 166,946 | | |
Canada | | 1,106 | | | | 4,180 | | | | 3,310 | | | 75,538 | | | 84,134 | | |
Other | | 15,113 | | | | 6,103 | | | | 426 | | | — | | | 21,642 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total revenues from external customers | | 120,685 | | | | 66,301 | | | | 9,790 | | | 75,946 | | | 272,722 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Segment earnings before other income, interest expense (net), income taxes and minority interest | | 4,346 | | | | 6,585 | | | | 94 | | | 3,600 | | | 14,625 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Identifiable assets | | 62,737 | | | | 58,689 | | | | 13,370 | | | 35,314 | | | 170,110 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Amortization | | 2,478 | | | | 2,227 | | | | 397 | | | 912 | | | 6,014 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Goodwill | | 1,940 | | | | 12,002 | | | | 2,035 | | | 11,740 | | | 27,717 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Expenditures on property, plant and equipment | | 6,074 | | | | 8,705 | | | | 309 | | | 1,128 | | | 16,216 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
| | 2003 | | |
| |
| |
| | SunOpta
Food Group
$ | | | Opta Minerals
$ | | | SunOpta
BioProcess
and Corporate
$ | | | Consolidated
$ | | |
External revenues by market | | | | | | | | | | | | | | | | |
U.S. | | 136,298 | | | | 9,446 | | | | 461 | | | | 146,205 | | |
Canada | | 29,260 | | | | 15,202 | | | | — | | | | 44,462 | | |
Other | | 8,249 | | | | 183 | | | | — | | | | 8,432 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Total revenues from external customers | | 173,807 | | | | 24,831 | | | | 461 | | | | 199,099 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Segment net earnings (loss) before other income, interest Expense (net), income taxes and minority interest | | 12,183 | | | | 2,479 | | | | (3,338 | ) | | | 11,324 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | 585 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | 1,942 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | |
Provision for income taxes | | | | | | | | | | | | | | 1,001 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings | | | | | | | | | | | | | | 8,966 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Identifiable assets | | 117,346 | | | | 26,363 | | | | 30,047 | | | | 173,756 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortization | | 3,531 | | | | 952 | | | | 643 | | | | 5,126 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Goodwill | | 12,062 | | | | 6,120 | | | | — | | | | 18,182 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Expenditures on property, plant and equipment | | 5,698 | | | | 796 | | | | 982 | | | | 7,476 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
- F35 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
The SunOpta Food Group has the following segmented reporting:
| | | | | | | | | | | | | | | | | | |
| | 2003 | |
| |
|
|
|
|
|
|
|
|
| |
| | SunOpta
Grains &
Foods
Group
$ | | | SunOpta
Ingredients
Group
$ | | | SunOpta
Fruit
Group
$ | | Canadian
Food
Distribution
Group
$ | | | SunOpta
Food Group
$ | | |
External revenues by market | | | | | | | | | | | | | | | | | | |
U.S. | | 92,163 | | | | 42,800 | | | | 1,335 | | | — | | | 136,298 | | |
Canada | | 439 | | | | 2,473 | | | | 1,277 | | | 25,071 | | | 29,260 | | |
Other | | 2,384 | | | | 5,705 | | | | 160 | | | — | | | 8,249 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total revenues from external customers | | 94,986 | | | | 50,978 | | | | 2,772 | | | 25,071 | | | 173,807 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Segment earnings before other income, interest expense (net), income taxes and minority interest | | 6,666 | | | | 4,509 | | | | 130 | | | 878 | | | 12,183 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Identifiable assets | | 52,444 | | | | 47,201 | | | | 4,949 | | | 12,752 | | | 117,346 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Amortization | | 1,314 | | | | 1,905 | | | | 166 | | | 146 | | | 3,531 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Goodwill | | 1,890 | | | | 3893 | | | | 1,148 | | | 5,131 | | | 12,062 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Expenditures on property, plant and equipment | | 1,658 | | | | 2,884 | | | | 944 | | | 212 | | | 5,698 | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | | |
Geographic segments | | | | | | | | | | | | | |
|
| | 2005 | | 2004 | |
| |
| |
| |
| | U.S.
$ | | Canada
$ | | Total
$ | | U.S.
$ | | Canada
$ | | Total
$ | |
Property, plant and equipment | | | 63,628 | | | 13,629 | | | 77,257 | | | 50,835 | | | 11,576 | | | 62,411 | |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | | |
Goodwill | | | 25,429 | | | 17,000 | | | 42,429 | | | 18,779 | | | 15,271 | | | 34,050 | |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | | | |
Total assets | | | 212,825 | | | 88,657 | | | 301,482 | | | 141,998 | | | 78,174 | | | 220,172 | |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
| |
| Customer Concentration |
| |
| The Company has no customers in 2005 or 2004 whose purchases exceeded 10% of the Company’s total revenue. |
- F36 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| |
17. | Canadian generally accepted accounting principle differences |
| |
| These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) which conform in all material respects applicable to the Company with those in Canada (Canadian GAAP) during the years presented, except with respect to the following items: |
| | | | | | | | | | |
| | 2005
$ | | 2004
$ | | 2003
$ | |
|
Net earnings for the year - as reported | | | 13,558 | | | 11,016 | | | 8,966 | |
Pre-operating costs expensed (i) | | | — | | | — | | | (358 | ) |
Stock option compensation expense (ii) | | | (5,909 | ) | | (1,286 | ) | | — | |
Release of cumulative translation adjustment – Opta Minerals (iii) | | | 428 | | | — | | | — | |
Convertible debenture | | | — | | | — | | | (54 | ) |
Tax effect of above items | | | — | | | — | | | 143 | |
| |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net earnings for the year – Canadian GAAP | | | 8,077 | | | 9,730 | | | 8,697 | |
| |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Net earnings per share – Canadian GAAP – Basic | | | 0.14 | | | 0.18 | | | 0.19 | |
| |
|
|
|
|
|
|
|
|
|
Net earnings per share – Canadian GAAP – Diluted | | | 0.14 | | | 0.18 | | | 0.18 | |
| |
|
|
|
|
|
|
|
|
|
| | | | | | | | | |
| | | 2005
$ | | 2004
$ | | | | |
|
Retained earnings - as reported | | | 40,379 | | | 26,821 | | | | |
Accretion on convertible debenture | | | (54 | ) | | (54 | ) | | | |
Stock option compensation expense (ii) | | | (7,956 | ) | | (2,047 | ) | | | |
Release of cumulative translation adjustment – Opta Minerals (iii) | | | 428 | | | — | | | | |
| |
|
|
|
|
|
| | | |
| | | | | | | | | | |
Retained earnings – Canadian GAAP | | | 32,797 | | | 24,720 | | | | |
| |
|
|
|
|
|
| | | |
| | |
| (i) | Under Canadian GAAP, certain costs expensed in prior years under U.S. GAAP would have been deferred and amortized. Net costs incurred in the pre-operating stage of a start-up business can be deferred until the business reaches commercial operation or the passage of a certain period of time as predetermined by management. |
| | |
| | Under Canadian GAAP, the Company would have deferred pre-operating expenses of $276 in 2002 relating to the start up of an organic dairy business in Canada. Amortization of these costs on a straight line basis would have commenced in July 2002 and as at December 31, 2003 these costs would have been fully amortized. |
| | |
| | In 2000, the Company acquired Nordic Aseptic, Inc., (renamed to SunOpta Aseptic Inc.) which under Canadian GAAP would have been considered a start-up business from the date of acquisition to December 31, 2000. Certain operating costs, net of income earned during the pre-operating period totaling $482 would have been deferred. Amortization of these costs would have commenced January 1, 2001 and as of December 31, 2003 these deferred costs would have been fully amortized. |
| | |
| | Amortization of $nil in 2005 (2004 - $nil; 2003 - $358) relating to these pre-operating costs would have been expensed under Canadian GAAP. |
| | |
| (ii) | Effective January 1, 2004, Canadian GAAP requires the Company to record stock compensation expense on options granted to employees. Under the transitional provisions of this new standard, the Company would record a charge to retained earnings representing the cumulative impact of stock options granted since January 2002 and would record an expense for existing and any new options over the remaining vesting period. |
- F37 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| | |
17. | Canadian generally accepted accounting principle differences |
| | |
| | In conjunction with this standard, under Canadian GAAP, the Company would have recorded $5,909 in stock compensation expense (2004 - $1,286; 2003 - $nil). The cumulative impact of this difference is $8,372 (2004 - $2,463). Partially offsetting this balance, are stock option expenses recognized under US GAAP, not recognized under Canadian GAAP, related to a delay between when options were granted to employees and when they were approved by shareholders. An amount of $416 was recorded as an expense prior to 2003 and is a permanent difference between Canadian and US GAAP. |
| | |
| | During 2005, the Company modified the terms of outstanding and unvested options whose exercise prices were greater than $5.00. As a result of the modification, 876,590 stock options immediately vested and resulted in an additional expense for Canadian GAAP purposes of $3,004. The amount is included in the total stock compensation expense of $5,909, noted above. |
| | |
| (iii) | Under Canadian GAAP, the Company would have recorded the partial release of the cumulative translation account relating to repayment of intercompany loans by Opta Minerals, Inc., resulting in a reduction in the Company’s net investment in Opta Minerals, Inc.. Under U.S. GAAP, no reduction in the Company’s net investment in Opta Minerals has occurred as a result of the repayment of these loans. |
| | |
18. | Proforma data (unaudited) |
| | |
| Condensed proforma income statement, as if all acquisitions completed in 2005 and 2004 had occurred at the beginning of 2004, is as follows: |
| | | | | | | |
| | 2005 | | 2004 | |
| | $ | | $ | |
|
Proforma revenue | | | 474,758 | | | 428,091 | |
Proforma net earnings | | | 14,424 | | | 11,261 | |
Proforma earnings per share | | | 0.26 | | | 0.21 | |
- Basic | | | 0.25 | | | 0.21 | |
- Diluted | | | | | | | |
| |
19. | Other income (expense) |
| | | | | | | |
| | 2005 | | 2004 | |
| | $ | | $ | |
|
Dilution gain, net of related costs of $976 (a) | | | 5,540 | | | — | |
Reduction of assets (b) | | | (986 | ) | | (2,436 | ) |
Lawsuit (note (c) and 15(a)) | | | (1,010 | ) | | 2,646 | |
Other | | | 27 | | | (222 | ) |
| |
|
|
|
|
|
|
| | | 3,571 | | | (12 | ) |
| |
|
|
|
|
|
|
| | |
| (a) | Opta Minerals Inc. – Initial Public Offering |
| | |
| | On February 17, 2005, the Company’s subsidiary Opta Minerals Inc. completed its previously announced initial public offering and raised $14,294 (Cdn $17,496) in net proceeds, (gross proceeds Cdn $19,800) including an over-allotment option granted to the underwriters and exercised on March 16, 2005. The offer was for shares of Opta Minerals Inc. which consisted of the businesses and net assets that form the Opta Minerals Group segment (note 16). Immediately prior to this transaction the net assets and business of this segment were transferred into this wholly owned subsidiary Opta Minerals Inc.. The Company’s ownership was reduced to 72.6% of the outstanding common shares as a result of this transaction including the effect of gifting shares to certain employees of Opta Minerals |
- F38 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
| | |
| | Inc. in recognition of their contribution in building the Company. The Company recorded a dilution gain of $6,516 as a result of the sale of the approximate 29.6% minority interest in Opta Minerals Inc. |
| | |
| | The initial public offering consisted of 4,500,000 units at an initial offering price of Cdn $4.00 per unit. Each unit consisted of one common share and one-half of a common share purchase warrant of Opta Minerals Inc.. Each whole warrant entitles the holder to purchase one common share of Opta Minerals at a price of $5.00 anytime on or before February 17, 2007. The shares and warrants are listed on the Toronto Stock Exchange under the symbols “OPM” and “OPM.WT”, respectively. |
| | |
| (b) | Reduction of assets include the write-down of business, facilities, goodwill and intangibles to net realizable value refer to note 7(a). During 2004 the Company took an impairment charge related to certain intangibles acquired as part of the First Light Foods acquisition in 2001. During 2004, revenues associated with these intangibles, trademarks fell substantially due to the Company’s decision not to pursue a brand strategy and the decision of a major customer to convert to a private label program. |
| | |
| (c) | In relation to the lawsuit awarded in 2004, a charge was taken during the year for legal fees not awarded net of established provisions (see note 15 (a)) and for additional legal fees incurred during the year in support of the judgement. |
| | |
| | |
20. | Subsequent Events |
| |
| On February 15, 2006, SunOpta’s subsidiary Opta Minerals Inc. acquired 100% of the outstanding common shares of Magnesium Technologies Corporation (Magtech) of Richfield, Ohio for consideration of $18,000 in consideration including notes payable of $6,000. |
| |
| MagTech operates its main production facility in Walkerton, Indiana and maintains a sales and head office in Richfield, Ohio. This profitable company employs approximately 70 people, and is a leader in new product development within its industry. MagTech maintains a very high level of customer specific technical service with its primary customers, through the use of onsite technicians who monitor and manage the use of its products in the desulphurization process. The addition of MagTech substantially increases Opta’s position in the industrial minerals business and further expands its current position as a key service provider to the steel industry. |
- F39 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
Supplemental Financial Information (Unaudited)
| | | | | | | | | | | | | |
| | Quarter ended
December 31, | | Quarter ended
September 30, | |
| |
|
|
|
|
| | 2005 | | 2004 | | 2005 | | 2004 | |
| | $ | | $ | | $ | | $ | |
Revenues | | | 122,070 | | | 82,663 | | | 114,950 | | | 80,140 | |
| | | | | | | | | | | | | |
Cost of goods sold | | | 103,011 | | | 68,191 | | | 96,653 | | | 64,700 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Gross profit | | | 19,059 | | | 14,472 | | | 18,297 | | | 15,440 | |
| | | | | | | | | | | | | |
Warehousing and distribution expenses | | | 2,811 | | | 1,872 | | | 2,655 | | | 1,546 | |
Selling, general and administrative expenses | | | 13,357 | | | 10,971 | | | 12,218 | | | 9,311 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Earnings (loss) before the following | | | 2,891 | | | 1,629 | | | 3,424 | | | 4,583 | |
| | | | | | | | | | | | | |
Interest expense, net | | | (1,335 | ) | | (409 | ) | | (1,186 | ) | | (668 | ) |
Other income (expense) | | | (407 | ) | | (2,335 | ) | | 146 | | | (146 | ) |
Foreign exchange | | | 823 | | | 123 | | | 438 | | | 194 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | (919 | ) | | (2,621 | ) | | (602 | ) | | (620 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Earnings before income taxes | | | 1,972 | | | (992 | ) | | 2,822 | | | 3,963 | |
| | | | | | | | | | | | | |
Provision for (recovery of) income taxes | | | 376 | | | (1,412 | ) | | 601 | | | 1,187 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Net earnings before minority interest | | | 1,596 | | | 420 | | | 2,221 | | | 2,776 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Minority interest | | | 37 | | | 67 | | | 133 | | | 7 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Net earnings for the period | | | 1,559 | | | 353 | | | 2,088 | | | 2,769 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Earnings per share for the period | | | | | | | | | | | | | |
Basic | | | 0.03 | | | 0.01 | | | 0.04 | | | 0.05 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted | | | 0.03 | | | 0.01 | | | 0.04 | | | 0.05 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
- F40 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
Supplemental Financial Information (Unaudited)
| | | | | | | | | | | | | |
| | Quarter ended
June 30, | | Quarter ended
March 31, | |
| |
|
|
|
|
| | 2005 | | 2004 | | 2005 | | 2004 | |
| | $ | | $ | | $ | | $ | |
Revenues | | | 102,858 | | | 80,946 | | | 86,223 | | | 62,502 | |
| | | | | | | | | | | | | |
Cost of goods sold | | | 84,352 | | | 64,690 | | | 70,587 | | | 50,231 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Gross profit | | | 18,506 | | | 16,256 | | | 15,636 | | | 12,271 | |
| | | | | | | | | | | | | |
Warehousing and distribution expenses | | | 2,589 | | | 1,442 | | | 2,604 | | | 1,156 | |
Selling, general and administrative expenses | | | 10,269 | | | 8,964 | | | 9,787 | | | 7,979 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Earnings before the following | | | 5,648 | | | 5,850 | | | 3,245 | | | 3,136 | |
| | | | | | | | | | | | | |
Interest expense, net | | | (594 | ) | | (152 | ) | | (302 | ) | | (208 | ) |
Other income (expense) | | | (203 | ) | | 2,499 | | | 4,035 | | | (115 | ) |
Foreign exchange | | | 45 | | | 389 | | | 35 | | | (141 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | (752 | ) | | 2,736 | | | 3,768 | | | (464 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes | | | 4,896 | | | 8,586 | | | 7,013 | | | 2,672 | |
| | | | | | | | | | | | | |
Provision for income taxes | | | 1,354 | | | 2,562 | | | 235 | | | 802 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Net earnings before minority interest | | | 3,542 | | | 6,024 | | | 6,778 | | | 1,870 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Minority interest | | | 235 | | | — | | | 173 | | | — | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Net earnings for the period | | | 3,307 | | | 6,024 | | | 6,605 | | | 1,870 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Earnings per share for the period | | | | | | | | | | | | | |
Basic | | | 0.06 | | | 0.11 | | | 0.12 | | | 0.04 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted | | | 0.06 | | | 0.11 | | | 0.12 | | | 0.03 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
- F41 -
|
SunOpta Inc. |
Notes to Consolidated Financial Statements |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
|
PART I - FINANCIAL INFORMATION
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 hereunto duly authorized.
| |
| SUNOPTA INC. |
| |
| /s/ John Dietrich |
Date: February 17, 2006 | |
| SunOpta Inc. |
| By John Dietrich |
| Vice President and Chief Financial Officer |
- F42 -
