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Value Creation Plan
 6 Months Ended
Jun. 30, 2018
Restructuring And Related Activities [Abstract]  
Restructuring And Related Activities Disclosure [Text Block]

3. Value Creation Plan

Overview

On October 7, 2016, the Company entered into a strategic partnership with Oaktree Capital Management L.P., a private equity investor (together with its affiliates, “Oaktree”), and, on that date, Oaktree invested $85.0 million through the purchase of cumulative, non-participating Series A Preferred Stock (the “Preferred Stock”) of the Company’s wholly-owned subsidiary, SunOpta Foods Inc. (“SunOpta Foods”) (see note 7). Following the strategic partnership, with the assistance of Oaktree, the Company conducted a thorough review of its operations, management and governance, with the objective of maximizing the Company’s ability to deliver long-term value to its shareholders. As a product of this review, the Company developed a Value Creation Plan built on four pillars: portfolio optimization, operational excellence, go-to-market effectiveness and process sustainability. The Company engaged third-party management consulting firms to support the design and implementation of the Value Creation Plan.

In 2016, measures taken under the Value Creation Plan included the closure of the Company’s San Bernardino, California, juice facility and the Company’s soy extraction facility in Heuvelton, New York.

In 2017, further measures taken under the Value Creation Plan included the exits from flexible resealable pouch and nutrition bar product lines and operations (see below), as well as the consolidation of grain operations and related closure of a grain-handling facility in Moorhead, Minnesota, and the consolidation of roasted snack operations and related closure of the Company’s Wahpeton, North Dakota, roasting facility (which was completed in the second quarter of 2018). In addition, the Company made organizational changes within its management and executive teams, along with new leadership to many corporate, commercial and operational functions. The Company also added new employees in the areas of quality, sales, marketing, operations and engineering, and made capital investments at several of its manufacturing facilities to enhance food safety and production efficiencies.

Flexible Resealable Pouch and Nutrition Bar Product Lines and Operations

As the flexible resealable pouch and nutrition bar product lines and operations do not qualify for presentation as discontinued operations, operating results from these activities were reported in continuing operations on the consolidated statements of operations for the current and comparative periods. For the quarters ended June 30, 2018 and July 1, 2017, revenues from sales of these product lines were $0.5 million and $15.2 million, respectively, and for the two quarters ended June 30, 2018 and July 1, 2017, revenues were $3.1 million and $30.5 million, respectively. Revenues reported from these operations for the quarter and two quarters ended June 30, 2018, related to the delivery of remaining inventories to customers under existing contracts at the time of exit. For the quarter ended June 30, 2018, earnings before income taxes from these operations were $0.4 million, compared with a loss before income taxes of $2.3 million for the quarter ended July 1, 2017. For the two quarters ended June 30, 2018 and July 1, 2017, losses before income taxes from these operations were $0.9 million and $4.3 million, respectively. For the two quarters ended June 30, 2018, the loss before income taxes from these operations included the recognition of the remaining lease obligation of $1.3 million related to the vacated nutrition bar processing facility. These operations are included in the Consumer Products operating segment.

Costs Incurred Under the Value Creation Plan

The following table summarizes costs incurred under the Value Creation Plan for the two quarters ended June 30, 2018 and July 1, 2017:

(a)(b)(c)
Employee
Assetrecruitment,Consulting
impairmentsretention andfees and
and facilityterminationtemporary
closure costscostslabor costsTotal
$$$$
June 30, 2018
Balance payable (receivable), December 30, 2017(1)(700)4,427-3,727
Costs incurred and charged to expense1,8675574102,834
Cash receipts (payments), net607(4,115)(110)(3,618)
Non-cash adjustments(1,255)--(1,255)
Balance payable, June 30, 2018(1)5198693001,688
July 1, 2017
Balance payable, December 31, 2016-1,8031,6573,460
Costs incurred and charged to expense4,3576,02814,58624,971
Cash payments(3,843)(5,263)(11,312)(20,418)
Non-cash adjustments(714)327-(387)
Balance payable (receivable), July 1, 2017(200)2,8954,9317,626

(1) Balance payable was included in accounts payable and accrued liabilities and balance receivable was included in accounts receivable on the consolidated balance sheet.

(a) Asset impairments and facility closure costs

For the two quarters ended June 30, 2018, costs incurred included the remaining lease obligation related to the vacated nutrition bar processing facility, and an additional impairment loss related to the Wahpeton roasting facility to reflect net proceeds on sale of $0.7 million. Net cash receipts included proceeds on the sale of nutrition bar equipment. Balance payable as at June 30, 2018, represents the remaining nutrition bar facility lease obligation $1.2 million, which lease extends until December 2020, net of the proceeds from the sale of the Wahpeton facility, which were received in July 2018.

For the two quarters ended July 1, 2017, cost incurred included the early buyout of the San Bernardino equipment leases, as well as closure costs related to the San Bernardino facility prior to its disposal to the landlord. In exchange for the San Bernardino assets, the facility landlord released the Company from its remaining property lease obligation and paid proceeds of $0.2 million in December 2017.

(b) Employee recruitment, retention and termination costs

Represents third-party recruiting fees incurred to identify and retain new employees; reimbursement of relocation costs for new employees; retention and signing bonuses accrued for certain existing and new employees; and severance benefits, net of forfeitures of stock-based awards, and legal costs related to employee terminations. Retention bonuses were paid out in the first quarter of 2018 to employees who remained employed by the Company through December 31, 2017, or other specified dates. Certain employees were entitled to pro-rata payouts of their retention bonuses if their employment terminated earlier than their retention payment date.

(c) Consulting fees and temporary labor costs

Represents the cost for third-party consultants and temporary labor engaged to support the design and implementation of the Value Creation Plan, which efforts were substantially completed during fiscal 2017, as well as other professional fees incurred in the connection with the plan.

The following table summarizes costs incurred since the inception of the Value Creation Plan to June 30, 2018:

Employee
Assetrecruitment,Consulting
impairmentsretention andfees and
and facilityterminationtemporary
closure costscostslabor costsTotal
$$$$
Costs incurred and charged to expense35,15514,93820,97971,072
Cash payments, net(10,139)(14,492)(20,679)(45,310)
Non-cash adjustments(24,497)423-(24,074)
Balance payable, June 30, 20185198693001,688

For the quarters and two quarters ended June 30, 2018 and July 1, 2017, costs incurred and charged to expense were recorded in the consolidated statement of operations as follows:

Quarter endedTwo quarters ended
June 30, 2018July 1, 2017June 30, 2018July 1, 2017
$$$$
Cost of goods sold(1)-262100634
Selling, general and administrative expenses(2)3007,00161318,439
Other expense(3)3394252,1215,898
6397,6882,83424,971

(1) Facility closure costs, including inventory write-downs, recorded in cost of goods sold were allocated to the Consumer Products operating segment.

(2) Consulting/professional fees and temporary labor costs, and employee recruitment, relocation and retention costs recorded in selling, general and administrative expenses were allocated to Corporate Services.

(3) For the quarter ended June 30, 2018, asset impairment, lease obligation and employee termination costs recorded in other expense were allocated as follows: Raw Material Sourcing and Supply operating segment - $0.3 million (July 1, 2017 – $nil); Consumer Products operating segment - $nil (July 1, 2017 – $0.1 million); and Corporate Services - $nil (July 1, 2017 – $0.3 million). For the two quarters ended June 30, 2018, asset impairment, lease obligation and employee termination costs recorded in other expense were allocated as follows: Raw Material Sourcing and Supply operating segment - $0.7 million (July 1, 2017 – $nil); Consumer Products operating segment - $1.3 million (July 1, 2017 – $4.8 million); and Corporate Services - $0.1 million (July 1, 2017 – $1.1 million).