UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 25, 2012
SUNOPTA INC.
(Exact name of
registrant as specified in its charter)
Canada | 001-34198 | Not Applicable |
(State or other jurisdiction of | (Commission File Number) | (IRS Employer Identification |
incorporation) | No.) |
2838 Bovaird Drive West
Brampton, Ontario,
L7A 0H2, Canada
(Address of Principal Executive Offices)
(905) 455-1990
(Registrant's telephone number,
including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
ITEM 8.01. OTHER EVENTS
SunOpta Inc. (the Company) has filed this Current Report on Form 8-K in order to update the historical financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations (the revised MD&A) for all periods presented in the Companys Annual Report on Form 10-K (the Form 10-K) for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (the Commission) on March 7, 2012, to reflect the changes described below.
In February 2012, the Company announced that a process to streamline the operations and organizational structure of SunOpta Foods had been undertaken in order to drive efficiencies and better align product innovation and commercial activities. During the first quarter of 2012, operating segments within SunOpta Foods were re-aligned according to the type of customers and markets served, rather than by product groupings. As a result, the former Fruit Group was eliminated and a new Consumer Products Group was created to focus on non-grains based consumer packaged goods. The Consumer Products Group is comprised of the Frozen Foods and Healthy Snacks operations which were part of the former Fruit Group, and the Food Solutions operations which were formerly part of the International Foods Group. The Fruit Ingredient operation of the former Fruit Group was merged with the existing Ingredients Group. Following the realignment, the International Foods Group comprises the Companys international sourcing and supply operations (Tradin Organic) and the operations of Purity Life Health Products. The Grains and Foods Group remained unchanged. With this realignment, SunOpta Foods now consists of four operating segments: Grains and Foods Group, Ingredients Group, Consumer Products Group and International Foods Group.
The Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 already reflects the change in segment reporting. The Company is providing in this Form 8-K reclassified applicable segment information in the footnotes to the financial statements and revised MD&A for each of the prior periods reported in the Form 10-K because those items are being incorporated by reference into a filing with the Commission under the Securities Act of 1933, as amended.
The information included in this Form 8-K is presented for informational purposes only in connection with the above-described segment reporting change. There is no change to the Company's previously reported consolidated net operating results, financial position or cash flows. This report does not reflect events occurring subsequent to the filing of the Form 10-K with the Commission on March 7, 2012, and does not modify or update the disclosures therein in any way, other than as required to reflect the change in segments as described above and set forth in Exhibits 99.1 and 99.3 attached hereto. For information on developments regarding the Company since the filing of the Form 10-K, please refer to the Company's reports filed with the Commission, including the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
Exhibit No. | Description |
23.1* | Consent of Deloitte & Touche LLP |
99.1* | Managements Discussion and Analysis of Financial Condition and Results of Operations |
99.2* | Controls and Procedures |
99.3* | Financial Statements and Supplementary Data |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* |
Filed herewith. |
|
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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. | ||
By: | /s/ Robert McKeracher | |
Robert McKeracher | ||
Vice President and Chief Financial Officer | ||
Date: | June 25, 2012 |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement Nos. 333-161662, 333-144827, 333-124911, and 333-176675 on Form S-8 of our report dated March 7, 2012 (June 25, 2012 as to Note 21) relating to the consolidated financial statements of SunOpta Inc., and our report dated March 7, 2012 relating to the effectiveness of SunOpta Inc.’s internal control over financial reporting, appearing in this Current Report on Form 8-K of SunOpta Inc. dated June 25, 2012.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Licensed Public Accountants
Toronto, Canada
June 25, 2012
Exhibit 99.1
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Financial Information
This Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section provides analysis of our operations and financial position for the fiscal period ended December 31, 2011 and includes information available to March 7, 2012, unless otherwise indicated herein. It is supplementary information and should be read in conjunction with our 2011 Consolidated Financial Statements, including the accompanying notes, and the auditors report included elsewhere in this report.
Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as may, will, should, expect, plan, anticipate, believe, intend, estimate, predict, potential, continue, or other similar expressions concerning matters that are not historical facts.
To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition and our results of operations, including liquidity and capital resources for the fiscal period ended December 31, 2011, compared with the fiscal period ended January 1, 2011. Readers are cautioned that this information may be not appropriate for any other purpose, including investment decisions.
Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be reasonable, based on information currently available, they may prove to be incorrect.
Forward-looking statements are also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors are more fully described in the Risk Factors section at Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the Form 10-K).
Forward-looking statements contained in this commentary are based on our current estimates, expectations and projections, which we believe are reasonable as of the current date. You should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Other than as required under securities laws, we do not undertake to update any forward-looking information at any particular time.
Overview
The 2011 Consolidated Financial Statements include the results of our two principal industry segments:
SunOpta Foods, which accounted for approximately 91% of fiscal 2011 revenues, sources, processes, packages, markets and distributes a wide range of natural, organic, and specialty food products and ingredients with a focus on soy, corn, sunflower, fruit, fiber and other natural and organic foods and natural health products; and
Opta Minerals, which accounted for approximately 9% of fiscal 2011 revenues, processes, distributes and recycles silica-free loose abrasives, roofing granules, industrial minerals and specialty sands for the foundry, loose abrasives cleaning, steel, roofing shingles and bridge and ship-cleaning industries.
Both of our industry segments are growth oriented, ethical businesses, focused on environmental responsibility and the health and wellbeing of the communities they serve. For a more detailed description of our operating groups and their businesses, please see the Business section at Item 1 of the Form 10-K.
The MD&A detailed below is presented in the following parts: Segment Realignment and Rationalization Efforts, Recent Acquisitions, Strategic Divestitures, Critical Accounting Estimates, Results of Operations for fiscal 2011 versus 2010 and fiscal 2010 versus 2009; Liquidity and Capital Resources; Cash Flows; Business and Financial Outlook; Off-balance Sheet Arrangements; and Contractual Obligations. Dollar amounts in this MD&A are presented in thousands of U.S. dollars, except for per share amounts, unless otherwise noted.
SUNOPTA INC. | 39 | December 31, 2011 10-K |
Segment Realignment and Rationalization Efforts
In February 2012, we announced that a process to streamline the operations and organizational structure of SunOpta Foods had been undertaken in order to drive efficiencies and better align product innovation and commercial activities. During the first quarter of 2012, operating segments within SunOpta Foods were re-aligned according to the type of customers and markets served, rather than by product groupings. As a result, the former Fruit Group was eliminated and a new Consumer Products Group was created to focus on non-grains based consumer packaged goods. The Consumer Products Group is comprised of the Frozen Foods and Healthy Snacks operations which were part of the former Fruit Group, and the Food Solutions operations which were formerly part of the International Foods Group. The Fruit Ingredient operation of the former Fruit Group has been merged with the existing Ingredients Group. Following the realignment, the International Foods Group comprises our international sourcing and supply operations (Tradin Organic) and the operations of Purity Life Health Products. The Grains and Foods Group remains unchanged. With this realignment, SunOpta Foods now consists of four operating segments: Grains and Foods Group, Ingredients Group, Consumer Products Group and International Foods Group. The segmented operations information provided in this MD&A for the current and comparative periods reflects these new operating segments.
In hand with these efforts, we also announced the rationalization of a number of operations and functions which led to a 6% reduction of our salaried workforce. Once fully implemented, and after approximately $500 in severance charges, this rationalization is expected to reduce annual costs by approximately $3,000 before tax.
Recent Acquisitions
Babco Industrial Corp.
In February 2012, Opta Minerals acquired all of the outstanding common shares of Babco Industrial Corp. (Babco) located in Regina, Saskatchewan for cash at closing of approximately $17,600, subject to customary post-closing purchase price adjustments, plus contingent consideration of up to $1,300 based on the achievement of certain EBITDA targets over the next five years. Babco is an industrial processor and supplier of petroleum coke, synthetic slag, ladle sand and crushed graphite. This acquisition complements Opta Minerals existing product portfolio and provides for additional product line offerings to new and existing customers in the region.
Inland RC, LLC
In November 2011, Opta Minerals acquired the members' interest in Inland RC, LLC, (Inland) a manufacturer of pre-cast refractory shapes, injection lances and electric furnace deltas for cash consideration of $658 plus contingent consideration based on the achievement of certain future targets. Inlands business is complementary with current Opta Minerals product offerings and has capacity for growth and significant synergy opportunities.
Lorton's Fresh Squeezed Juices, Inc.
In August 2011, we completed the acquisition of the assets and business of Lortons Fresh Squeezed Juices, Inc. (Lortons) for cash consideration and amounts payable for additional working capital of $2,602, plus an earn-out based on predetermined earnings targets over a four-year period. Lortons is a vertically integrated producer of a variety of citrus based products in both industrial and packaged formats. This acquisition expands our vertically integrated operations into the extracting, processing and packaging of citrus-based ingredients through consumer packaged products, and provides increased capacity for future growth and expansion. Lortons operations are included in the Consumer Products Group.
Edner of Nevada, Inc.
In December 2010, we completed the acquisition of the assets and business of Edner of Nevada, Inc. (Edner) for cash consideration and amounts payable for additional working capital of $4,198, plus an earn-out based on pre-determined revenue targets over a five-year period. Edner produces a wide variety of nutritious portable foods such as nutrition bars and grains and fruit-based snack bars serving the fast growing wholesome and convenient healthy snacks category from its 104,000 square foot facility, located in Carson City, Nevada. Edners operations are included in the Consumer Products Group.
SUNOPTA INC. | 40 | December 31, 2011 10-K |
Dahlgren & Company Inc.
In November 2010, we completed the acquisition of Dahlgren & Company Inc. (Dahlgren) for cash consideration and amounts payable for additional working capital of $46,303, plus an earn-out based on pre-determined revenue targets over a two-year period. Dahlgren is an integrated processor and global supplier of confection sunflower seed products including inshell and kernel products, roasted sunflower and soy nuts, bird food, hybrid seed and other products. Dahlgren serves customers in the U.S. and Canada, as well as Europe, Asia, Australia and South America. Dahlgrens operations are included in the Grains and Foods Group.
Strategic Divestitures
Sale of frozen fruit processing assets
In June 2011, we completed the sale of land and buildings in Irapuato, Mexico to parties related to Fruvemex Mexicali, S.A. de C.V. (Fruvemex). In addition, in April 2011, we sold our frozen fruit processing assets in Rosarito and Irapuato, Mexico to Fruvemex. As part of this transaction we also entered into a strategic raw material supply agreement with Fruvemex. These assets were included in the Consumer Products Group. Aggregate consideration related to these transactions amounted to $5,650, of which $1,000 was received on closing and the balance due in installments over the following 12 months. In May 2011, the Consumer Products Group completed the sale of frozen fruit processing equipment located in Salinas, California to Cal Pacific Specialty Foods, LLC for cash consideration of $1,773.
SunOpta BioProcess Inc.
In August 2010, we completed the sale of SunOpta BioProcess Inc. (SunOpta BioProcess) to Mascoma Canada Inc., a wholly owned subsidiary of Mascoma Corporation ("Mascoma"), in exchange for a combination of preferred shares, common shares and warrants of Mascoma valued at $50,925 and net value of $33,345 after settling the preferred share liability with former SunOpta BioProcess shareholders. The combination of the two companies brings together SunOpta BioProcess' fiber preparation and pretreatment technology with Mascoma's consolidated bioprocessing technology, to create a company with comprehensive capabilities for converting nonfood cellulose (wood chips, energy crops and organic solid waste) into ethanol and high value coproducts. SunOpta BioProcess represented the former SunOpta BioProcess segment.
Canadian Food Distribution
In June 2010, we completed the sale of our Canadian Food Distribution assets to UNFI Canada, Inc., a wholly-owned subsidiary of United Natural Foods, Inc., for cash consideration of $65,809 (Cdn $68,000). The divestiture of the Canadian Food Distribution assets was an important step in our strategy to focus on our core food manufacturing platform, further strengthening our balance sheet and positioning SunOpta for the future. The Canadian Food Distribution assets formed part of the former SunOpta Distribution Group.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. The estimates and assumptions made require us to exercise our judgment and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes. The use of estimates is pervasive throughout our financial statements. The following are the accounting estimates which we believe to be most important to our business.
Revenue recognition
We recognize 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. Consideration given to customers such as value incentives, rebates, early payment discounts and other discounts are recorded as reductions to revenues at the time of sale.
SUNOPTA INC. | 41 | December 31, 2011 10-K |
Accounts receivable
Our accounts receivable primarily includes amounts due from our customers. The carrying value of each account is carefully monitored with a view to assessing the likelihood of collection. An allowance for doubtful accounts is provided for as an estimate of losses that could result from customers defaulting on their obligation to us. In assessing the amount of reserve required, a number of factors are considered including the age of the account, the credit-worthiness of the customer, payment terms, the customers historical payment history and general economic conditions. Because the amount of the reserve is an estimate, the actual amount collected could differ from the carrying value of the amount receivable. Note 5 of the Consolidated Financial Statements provides an analysis of the changes in the allowance for doubtful accounts.
Inventory
Inventory is our largest current asset. Our inventory consists primarily of raw materials and finished goods held for sale. Inventories are valued at the lower of cost, valued on a weighted-average cost basis, or estimated net realizable value except for certain grain inventories that are carried at market value. Depending on market conditions, the actual amount received on sale could differ from our estimated value of inventory when provisions to record inventory at market are necessary. In order to determine the value of inventory at the balance sheet date, we evaluate a number of factors to determine the adequacy of provisions for inventory. These factors include the age of inventory, the amount of inventory held by type, future demand for products and the expected future selling price we expect to realize by selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions. We perform a review of our inventory by reporting unit and product line on a quarterly basis. Note 6 of the Consolidated Financial Statements provides an analysis of the movements in inventory reserve.
Prepaid and other current assets
Prepaid and other current assets include amounts paid in cash and recorded as a current asset prior to consumption. The balance also includes advances to growers required to secure future delivery of product (net of provisions). An allowance against realizing these advances is recorded when it is determined that we will not recover the advances, due to default on scheduled repayment terms, or general economic or market conditions. Advances to growers are typically made at the start of the growing season. We monitor our advances to growers by monitoring adherence to agreed upon terms as well as evaluating general economic and market conditions, and assessing the status of the crops being grown in order to determine if the collection of the advance is at risk.
Intangible assets
We evaluate amortizable intangible assets acquired through business combinations for impairment annually, and more frequently if events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. Our evaluation is based on an assessment of potential indicators of impairment, such as: an adverse change in the business climate that could affect the value of an asset, e.g., the loss of a significant customer; current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset, e.g., the introduction of a competing product that results in a significant loss of market share; and a current expectation that, more likely than not, an intangible asset will be disposed of before the end of it previously estimated useful life, e.g., a plan to exit a product line or business in the near term.
Impairment exists when the carrying amount of an amortizable intangible asset is not recoverable and its carrying value exceeds its estimated fair value. A discounted cash flow analysis is typically used to determine fair value using estimates and assumptions that market participants would apply. Some of the estimates and assumptions inherent in a discounted cash flow model include the amount and timing of the projected future cash flows, and the discount rate used to reflect the risks inherent in the future cash flows. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on our results of operations. In addition, an intangible asset's expected useful life can increase estimation risk, as longer-lived assets necessarily require longer-term cash flow forecasts, which for some of our intangible assets can be in excess of 20 years. In connection with an impairment evaluation, we also reassess the remaining useful life of the intangible asset and modify it, as appropriate.
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested at least annually for impairment at the reporting unit level.
SUNOPTA INC. | 42 | December 31, 2011 10-K |
Reporting units are operating segments or components of operating segments for which discrete financial information is available. To evaluate goodwill, the fair value of each reporting unit is compared to its carrying value. Where the carrying value is greater than the fair value, the implied fair value of the reporting unit goodwill is determined by allocating the fair value of the reporting unit to all the assets and liabilities of the reporting unit with any remainder being allocated to goodwill. The implied fair value of the reporting unit goodwill is then compared to the carrying value of that goodwill to determine whether an impairment loss exists. Any impairment loss is recognized in income.
We measure the fair value of reporting units using discounted cash flows. Because the business is assumed to continue in perpetuity, the discounted future cash flow includes a terminal value. The first year or base year in the calculation of the discounted cash flow model is based on actual results in each component, adjusted for unusual and non-recurring items. Future years cash flows to perpetuity are forecasted based on projected revenue growth, and our planned business strategies in future periods that would impact actual cash flows reported in the base year. Examples of planned strategies would include a plant or line expansion at an existing facility, a reduction of working capital at a specific location, and price increases or cost reductions within business units. The revenue growth and planned business strategies for future periods incorporated into the discounted cash flow model reflect our long-term view of the market. The discount rate is based on a segments targeted weighted-average cost of capital, which is not necessarily the same as our weighted-average cost of capital. These assumptions are subject to change and are also impacted by our ability to achieve our forecasts and by economic conditions which may impact future results and result in projections not being attained. Each year we re-evaluate the assumptions used to reflect changes in the business environment.
There was no indication of goodwill impairment based on the testing done for the year ended December 31, 2011. In the year ended January 1, 2011, we recorded an impairment charge of $1,654 related to goodwill in our natural health reporting unit, which is part of the International Foods Group segment. In the year ended December 31, 2009, Opta Minerals recorded an impairment charge of $8,341 to write down goodwill in certain of its mill and foundry and abrasive products reporting units, and we recorded a $500 impairment charge related to goodwill in the Consumer Products Group. Note 8 of the Consolidated Financial Statements provides a summary of the critical assumptions used in the fiscal 2010 and 2009 annual impairment tests.
Purchase price allocation
Business acquisitions are accounted for by the acquisition method of accounting. Under this method, the purchase price is allocated to the assets acquired and the liabilities assumed based on the fair value at the time of the acquisition. Any excess purchase price over the fair value of identifiable assets acquired and liabilities assumed is recorded as goodwill. The assumptions and estimates with respect to determining the fair value of intangible assets acquired generally requires the most judgment, and include estimates of future profitability, and/or customer and supplier based attrition, income tax rates and discount rates. Changes in any of the assumptions or estimates used in determining the fair value of the acquired assets and liabilities assumed could impact the amounts assigned to assets, liabilities and goodwill in the purchase price allocation. Future net earnings can be affected as a result of changes in these estimates resulting in an asset or goodwill impairment. In addition, amortization periods are subjective based on expected useful lives and chosen rates. We determine the useful lives of intangible assets based on a number of factors, such as legal, regulatory, or contractual provisions that may limit useful life, and the effects of obsolescence, anticipated demand, existence or absence of competition, and other economic factors on useful life. Note 2 of the Consolidated Financial Statements provide information with respect to businesses acquired and note 8 outlines annual amortization expense relating to these intangibles.
Accrued expenses and other assets
We make estimates of future payments and receipts which relate to current and future accounting periods. These estimates cover items such as accrued but unpaid wages and bonuses, estimates of taxes and estimates of amounts payable or receivable under legal suits. In establishing appropriate accruals and receivable balances, we must make judgments regarding the amount of the disbursement or receipts that will ultimately be incurred or received. In making such assessments, we use historical experience as well as any other special circumstances surrounding a particular item. The actual amount paid or received could differ from our estimates.
Income taxes
We are liable for income taxes in the U.S., Canada, and other jurisdictions where we operate. Our effective tax rate differs from the statutory tax rate and will vary from year to year primarily as a result of numerous permanent differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory tax rate increases or reductions in the year, the benefit of cross-jurisdictional financing structures, changes due to foreign exchange, changes in valuation allowance based on our recoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations.
SUNOPTA INC. | 43 | December 31, 2011 10-K |
In making an estimate of our income tax liability, we first assess which items of income and expense are taxable in a particular jurisdiction. This process involves a determination of the amount of taxes currently payable as well as the assessment of the effect of temporary timing differences resulting from different treatment of items for accounting and tax purposes. These differences in the timing of the recognition of income or the deductibility of expenses result in deferred income tax balances that are recorded as assets or liabilities as the case may be on our balance sheet. We also estimate the amount of valuations allowance to maintain relating to loss carry forwards and other balances that can be used to reduce future taxes payable. This judgment is based on forecasted results in the jurisdiction and certain tax planning strategies and as a result actual results may differ from forecasts. We assess the likelihood of the ultimate realization of these tax assets by looking at the relative size of the tax assets in relation to the profitability of the businesses and the jurisdiction to which they can be applied to, the number of years based on managements estimate it will take to use the tax assets and any other special circumstances. If different judgments had been used, our income tax liability could have been different from the amount recorded. In addition, the taxing authorities of those jurisdictions upon audit may not agree with our assessment. Note 13 of the Consolidated Financial Statements provides an analysis of the changes in the valuation allowance and the components of our deferred tax assets.
While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could differ from accrued position. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
Stock-based compensation
We maintain a stock option plan under which incentive stock options may be granted to employees and non-employee directors. At each grant date, we are required to estimate a number of inputs, such as the estimated life of the option, future stock price volatility, and the forfeiture rate used in the Black-Scholes option-pricing model to determine a fair value for the options granted to employees or non-employee directors. The expected life and forfeiture rate of a stock option is based on historical exercise and forfeiture patterns. Future stock price volatility is based on historical volatility of our common shares over the expected life of the stock option. Once determined at the grant date, the fair value of the stock option award is recorded over the vesting period of the options granted. Refer to note 13 of the Consolidated Financial Statements for disclosure of the inputs used to determine the fair value of stock-based compensation granted in fiscal 2011, 2010 and 2009.
SUNOPTA INC. | 44 | December 31, 2011 10-K |
Results of 2011 Operations Compared With
Results of 2010 Operations
(Expressed in thousands
of U.S dollars, except per share amount)
|
December 31, 2011 | January 1, 2011 | Change | Change | ||||||||
|
$ | $ | $ | % | ||||||||
Revenue |
||||||||||||
SunOpta Foods |
988,956 | 817,441 | 171,515 | 21.0% | ||||||||
Opta Minerals |
93,120 | 80,868 | 12,252 | 15.2% | ||||||||
Total Revenue |
1,082,076 | 898,309 | 183,767 | 20.5% | ||||||||
|
||||||||||||
Gross Profit |
||||||||||||
SunOpta Foods |
110,985 | 121,454 | (10,469 | ) | -8.6% | |||||||
Opta Minerals |
20,746 | 20,037 | 709 | 3.5% | ||||||||
Total Gross Profit |
131,731 | 141,491 | (9,760 | ) | -6.9% | |||||||
|
||||||||||||
Segment Operating Income (Loss)(1) |
||||||||||||
SunOpta Foods |
33,386 | 46,442 | (13,056 | ) | -28.1% | |||||||
Opta Minerals |
7,577 | 7,753 | (176 | ) | -2.3% | |||||||
Corporate Services |
(7,769 | ) | (11,213 | ) | 3,444 | -30.7% | ||||||
Total Segment Operating Income |
33,194 | 42,982 | (9,788 | ) | -22.8% | |||||||
|
||||||||||||
Other expense, net |
5,097 | 10,945 | (5,848 | ) | -53.4% | |||||||
Goodwill impairment |
- | 1,654 | (1,654 | ) | -100.0% | |||||||
Earnings from continuing operations before the following |
28,097 | 30,383 | (2,286 | ) | -7.5% | |||||||
Interest expense, net |
8,839 | 9,749 | (910 | ) | -9.3% | |||||||
Provision for income taxes |
8,047 | 6,058 | 1,989 | 32.8% | ||||||||
Earnings from continuing operations |
11,211 | 14,576 | (3,365 | ) | 23.1% | |||||||
Earnings attributable to non-controlling interests |
1,636 | 1,368 | 268 | 19.6% | ||||||||
Loss from discontinued operations, net of taxes |
(4,350 | ) | (15,092 | ) | 10,742 | -71.2% | ||||||
Gain on sale of discontinued operations, net of taxes |
71 | 62,950 | (62,879 | ) | -99.9% | |||||||
Earnings attributable to SunOpta Inc. |
5,296 | 61,066 | (55,770 | ) | -91.3% |
(1) |
When assessing the financial performance of our operating segments, we use an internal measure of operating income that excludes other income/expense items and goodwill impairment charges determined in accordance with U.S. generally accepted accounting principles (GAAP). This measure is the basis on which management, including the Chief Executive Officer, assesses the underlying performance of our operating segments. We believe that disclosing this non-GAAP measure assists investors in comparing financial performance across reporting periods on a consistent basis by excluding items that are not indicative of our core operating performance. However, this non-GAAP measure of operating income should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP. The tables following present a reconciliation of segment operating income (loss) to earnings (loss) from continuing operations before the following, which we consider to be the most directly comparable U.S. GAAP financial measure. |
SUNOPTA INC. | 45 | December 31, 2011 10-K |
Grains | Consumer | International | ||||||||||||||||||||||
and Foods | Ingredients | Products | Foods | SunOpta | Opta | Corporate | Consol- | |||||||||||||||||
Group | Group | Group | Group | Foods | Minerals | Services | idated | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||
December 31, 2011 |
||||||||||||||||||||||||
Segment operating income (loss) |
22,813 | 7,083 | (3,978 | ) | 7,468 | 33,386 | 7,577 | (7,769 | ) | 33,194 | ||||||||||||||
Other income (expense), net |
114 | (54 | ) | 2,887 | (7,929 | ) | (4,982 | ) | - | (115 | ) | (5,097 | ) | |||||||||||
Earnings (loss) from continuing operations before the following |
22,927 | 7,029 | (1,091 | ) | (461 | ) | 28,404 | 7,577 | (7,884 | ) | 28,097 | |||||||||||||
|
||||||||||||||||||||||||
January 1, 2011 |
||||||||||||||||||||||||
Segment operating income (loss) |
28,003 | 18,870 | (1,302 | ) | 871 | 46,442 | 7,753 | (11,213 | ) | 42,982 | ||||||||||||||
Other expense, net |
(118 | ) | (163 | ) | (9,153 | ) | (636 | ) | (10,070 | ) | (435 | ) | (440 | ) | (10,945 | ) | ||||||||
Goodwill impairment |
- | - | - | (1,654 | ) | (1,654 | ) | - | - | (1,654 | ) | |||||||||||||
Earnings (loss) from continuing operations before the following |
27,885 | 18,707 | (10,455 | ) | (1,419 | ) | 34,718 | 7,318 | (11,653 | ) | 30,383 |
We believe that investors understanding of our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income. However, any measure of operating income excluding any or all of these items is not, and should not be viewed as, a substitute for operating income prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.
Revenues for the year ended December 31, 2011 increased by 20.5% to $1,082,076 from $898,309 for the year ended January 1, 2011. Revenues in SunOpta Foods increased by 21.0% to $988,956 and revenues in Opta Minerals increased by 15.2% to $93,120. Excluding the impact of acquisitions made late in 2010 and in the third quarter of 2011, revenues increased 11.6% compared to the prior year. The acquisitions of Dahlgren, Edner, and Lortons added incremental revenues of $80,921. The underlying base growth rate for the business was approximately 7.1% after accounting for changes including movements in foreign exchange and commodity prices. The increase in revenue was due primarily to the changes in sales volume and pricing described below in Segmented Operations Information.
Gross profit decreased $9,760, or 6.9%, for the year ended December 31, 2011 to $131,731 from $141,491 for the year ended January 1, 2011. As a percentage of revenues, gross profit for the year ended December 31, 2011 was 12.2% compared to 15.8% for the year ended January 1, 2011, a decrease of 3.6% . Within SunOpta Foods, gross profit was negatively impacted by decreased demand and unfavorable commodity prices in our sunflower operations, due mainly to competition in the international marketplace. In addition, volume declines at our frozen foods operation, fiber and fruit ingredients operations, and natural health products operation all contributed to the decline in gross profit compared to the prior year. Partially offsetting these negative impacts were a combination of higher volumes and improved efficiencies at our aseptic, healthy snacks, and international foods operations. In addition, the acquisitions of Dahlgren, Edner and Lorton's contributed incremental gross profit of $3,280.
Selling, general and administrative costs (SG&A) including intangible asset amortization decreased $2,571 to $97,590 for the year ended December 31, 2011 compared to $100,161 for the year ended January 1, 2011. The acquisitions of Dahlgren, Edner and Lorton's added an incremental $4,176 of SG&A, and the stronger Canadian dollar and euro relatively to the U.S. dollar led to a $1,771 increase in SG&A on foreign denominated costs compared to the prior year. Excluding these impacts, SG&A spending within our base business decreased $5,802, reflecting lower marketing costs in support of our branded natural health products, lower overall compensation costs due in part to headcount reductions made in 2010 at our frozen foods and natural health products operations, and reductions in stock-based compensation, bonuses and professional fees. Offsetting these decreases were headcount increases in our international foods and healthy snacks operations in support of business growth. As a percentage of revenues, SG&A and intangible asset amortization costs were 9.0% for the year ended December 31, 2011 compared to 11.1% for the year ended January 1, 2011.
Foreign exchange losses were $947 for the year ended December 31, 2011 as compared to gains of $1,652 for the year ended January 1, 2011. The decrease was primarily due to unfavorable exchange rate movements for the Canadian dollar and euro relative to the U.S. dollar.
SUNOPTA INC. | 46 | December 31, 2011 10-K |
Total segment operating income for the year ended December 31, 2011 decreased by $9,788 to $33,194 compared to total segment operating income of $42,982 for the year ended January 1, 2011 due to the factors noted above. As a percentage of revenue, total segment operating income was 3.1% for the year ended December 31, 2011, compared to 4.8% for the year ended January 1, 2011. Further details on revenue, gross margins and segment operating income variances are provided below under Segmented Operations Information.
Other expense for the year ended December 31, 2011 of $5,097 reflected primarily a non-cash long-lived asset impairment charge recorded in our natural health products operation of $7,510, partially offset by gains recognized on the sales of our frozen foods assets located in Mexico and a reduction in accrued contingent consideration relating to the acquisition of Dahlgren. Other expense for the year ended January 1, 2011 of $10,945 included long-lived asset impairment and severance charges of $7,549 and $1,805, respectively, primarily related to rationalization efforts at our frozen food and natural health products operations.
Interest expense for the year ended December 31, 2011 was $8,839 compared to $9,749 for the year ended January 1, 2011, a $910 decrease. Borrowing costs were lower for the year ended December 31, 2011 due to lower debt levels outstanding on our real estate and machinery and equipment term loan facilities, a lower base interest rate on borrowed funds as compared to the prior year, and a reduction of non-cash amortization of deferred financing fees, partially offset by higher borrowings on our other credit lines.
Income tax provision for the year ended December 31, 2011 was $8,047 compared to a provision of $6,058 for the year ended January 1, 2011. The increase in income taxes was due to an increase in the valuation allowance against current year losses that may not be realized in the future, as compared to a decrease in the valuation allowance in the prior year due to the Canadian Food Distribution asset sale and the disposition of SunOpta BioProcess. We also recognized the benefit of certain state and federal tax credits in the U.S., which reduced the income tax provision.
Earnings from continuing operations decreased $3,365 to $11,211 for the year ended December 31, 2011, compared to $14,576 for the year ended January 1, 2011. Basic and diluted earnings per share from continuing operations were $0.15 and $0.14, respectively, for the year ended December 31, 2011, compared to $0.20 and $0.20, respectively, for the year ended January 1, 2011.
Earnings attributable to non-controlling interest for the year ended December 31, 2011 were $1,636 compared to earnings of $1,368 for the year ended January 1, 2011. The $268 increase is due to higher net earnings in our less than wholly-owned subsidiaries.
Losses from discontinued operations, net of income taxes of $4,350 for the year ended December 31, 2011 reflects the results of operations of Colorado Sun Oil Processing LLC ("CSOP"), including a pre-tax settlement loss of $5,246 reflecting an adverse arbitration ruling relating to our joint venture with Colorado Mills LLC. Loss from discontinued operations, net of income taxes for the year ended January 1, 2011, reflect the results of operations from the Canadian Food Distribution business and SunOpta BioProcess, which were divested on June 11, 2010 and August 31, 2010, respectively.
Gain on the sale of discontinued operations of $71 represents the after tax gains realized on the disposal of our interest in CSOP. Gain on sale of discontinued operations, net of taxes of $62,950 for the year ended January 1, 2011 represents the gains realized on the sale of the Canadian Food Distribution business and the disposition of SunOpta BioProcess.
On a consolidated basis, earnings and basic and diluted earnings per share were $5,296, $0.08 and $0.08, respectively, for the year ended December 31, 2011, compared to $61,066, $0.94 and $0.92, respectively, for the year ended January 1, 2011.
SUNOPTA INC. | 47 | December 31, 2011 10-K |
Adjusted Earnings from Continuing Operations
During the year ended December 31, 2011, we recognized certain charges and gains against earnings that we do not believe are reflective of normal business operations. As a result, we believe it is useful to eliminate these charges and gains to compute an Adjusted earnings from continuing operations(1) amount for the year ended December 31, 2011 which we believe is more reflective of normal business operations. Adjusted earnings from continuing operations per diluted share(1) for the year ended December 31, 2011 were $0.30.
Following is a calculation of our Adjusted earnings from continuing operations (1) and Adjusted earnings from continuing operations per diluted share (1) for the year ended December 31, 2011:
Per Diluted | ||||||
Share(2 | ) | |||||
Earnings attributable to SunOpta Inc. | $ | 5,296 | $ | 0.08 | ||
Loss from discontinued operations, net of taxes | 4,279 | 0.06 | ||||
Earnings from continuing operations attributable to SunOpta Inc. |
$ | 9,575 | $ | 0.14 | ||
|
||||||
Adjusted for: |
||||||
Write-down of intangible and other long-lived assets at Purity Life Health Products, net of taxes of $1,615 |
5,895 | 0.09 | ||||
Other severance, rationalization, de-listing and acquisition-related costs, net of taxes of $741 |
1,939 | 0.03 | ||||
Costs to curtail and retrofit facilities in the Ingredients Group, as well as integration costs at Lorton`s, net of taxes of $1,103 |
1,952 | 0.03 | ||||
Write-down of certain inventory and long-lived assets at Frozen Foods operations, offset by gains on sale of Mexican processing assets, net of taxes of $859 |
1,235 | 0.02 | ||||
Costs to fill expeller pressed oil contracts at a loss due to dispute with Colorado Mills, net of taxes of $486 |
861 | 0.01 | ||||
Reduction of fair value of contingent consideration liability for Dahlgren and Edner |
(1,235 | ) | (0.02 | ) | ||
Adjusted earnings from continuing operations(1) |
$ | 20,222 | $ | 0.30 |
During the year ended December 31, 2011, we recorded a non-cash write-down of intangible and other long-lived assets at our Purity Life Health Products operation, as the cash flows expected to be generated from these assets did not support their carrying values (see Note 14 of the Consolidated Financial Statements). Also during 2011, we incurred severance and rationalization costs as we reduced headcount at certain operations; costs related to de-listing of products at a Canadian retailer; and professional, legal and other costs related to our acquisition of Lortons and Inland. Due to the loss of a significant customer and new product development efforts in our Ingredients Group, we incurred costs to curtail and retofit certain of our manufacturing facilities throughout 2011. In addition, we incurred business integration costs related to our acquisition of Lortons. As part of our rationalization of the Frozen Foods operation, we recorded a non-cash write-down on certain inventories where the carrying value was less than net realizable value, and wrote off long-lived assets that could not be recovered through future cash flows. Partially offsetting these rationalization charges at Frozen Foods was a gain realized on the sale of land, building and processing assets located in Mexico. We also incurred excessive raw material and crushing costs in order to fulfil expeller pressed oil contracts at negative gross margins. Non-cash gains were recorded due to a decrease in the estimated fair value of contingent consideration liabilities owing to the former owners of Dahlgren and Edner, as pre-determined targets to achieve the contingent consideration were not attained. We believe that Earnings from continuing operations attributable to SunOpta Inc. is the performance measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to Adjusted earnings from continuing operations(1), and that Earnings per share from continuing operations attributable to SunOpta Inc. is the performance measure calculated and presented in accordance with GAAP that is most directly comparable to Adjusted earnings per share from continuing operations(1).
The table above reconciles Earnings from continuing operations
attributable to SunOpta Inc. to Adjusted earnings from continuing
operations(1) and reconciles Earnings per share from continuing
operations attributable to SunOpta Inc. to Adjusted earnings per share from
continuing operations(1), in each case for the year ended December
31, 2011.
(1) |
Adjusted earnings from continuing operations and Adjusted earnings per share from continuing operations are non-GAAP financial measures. We believe these non-GAAP measures, which have been adjusted for the impact of the items listed in the table above, assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Adjusted earnings from continuing operations and Adjusted earnings per share from continuing operations should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. |
(2) |
The diluted weighted-average number of shares outstanding for the year ended December 31, 2011 is 66,583,149 (see Note 16 of the Consolidated Financial Statements). |
SUNOPTA INC. | 48 | December 31, 2011 10-K |
Segmented Operations Information
SunOpta Foods | ||||||||||||
For the year ended | December 31, 2011 | January 1, 2011 | Change | % Change | ||||||||
Revenue | 988,956 | 817,441 | 171,515 | 21.0% | ||||||||
Gross Margin | 110,985 | 121,454 | (10,469 | ) | -8.6% | |||||||
Gross Margin % | 11.2% | 14.9% | -3.7% | |||||||||
Operating Income | 33,386 | 46,442 | (13,056 | ) | -28.1% | |||||||
Operating Income % | 3.4% | 5.7% | -2.3% |
SunOpta Foods contributed $988,956 or 91.4% of consolidated revenue for the year ended December 31, 2011 compared to $817,441 or 91.0% of consolidated revenues for the year ended January 1, 2011, an increase of $171,515. The increase in revenue reflects internal growth of 13.1% and acquisition related revenues of $80,921. Internal growth includes growth on the base business plus growth on acquisitions from the date of acquisition over the previous year in addition to the impact of foreign exchange movements on the translation of foreign denominated revenues to U.S. dollars and commodity related price movements. Excluding the impact of foreign exchange and commodity related price movements, revenue in SunOpta Foods increased approximately 6.4% over the prior year. The table below explains the increase in revenue by group:
SunOpta Foods Revenue Changes |
|
||
Revenue for the year ended January 1, 2011 |
$ |
817,441 | |
Increase in the Grains and Foods Group |
|
114,290 | |
Decrease in the Ingredients Group |
|
(25,455 | ) |
Increase in the Consumer Products Group |
|
30,471 | |
Increase in the International Foods Group |
|
52,209 | |
Revenue for the year ended December 31, 2011 |
$ |
988,956 |
Gross margin in SunOpta Foods decreased by $10,469 for the year ended December 31, 2011 to $110,985, or 11.2% of revenues, compared to $121,454, or 14.9% of revenues for the year ended January 1, 2011. The table below explains the decrease in gross margin by group:
SunOpta Foods Gross Margin Changes |
|
||
Gross Margin for the year ended January 1, 2011 |
$ |
121,454 | |
Decrease in the Grains and Foods Group |
|
(1,102 | ) |
Decrease in the Ingredients Group |
|
(13,170 | ) |
Decrease in the Consumer Products Group |
|
(3,623 | ) |
Increase in the International Foods Group |
|
7,426 | |
Gross Margin for the year ended December 31, 2011 |
$ |
110,985 |
SUNOPTA INC. | 49 | December 31, 2011 10-K |
Operating income in SunOpta Foods decreased by $13,056 for the year ended December 31, 2011 to $33,386 or 3.4% of revenues, compared to $46,442 or 5.7% of revenues for the year ended January 1, 2011. The table below explains the decrease in operating income:
SunOpta Foods Operating Income Changes |
|
||
Operating Income for the year ended January 1, 2011 |
$ |
46,442 | |
Decrease in gross margin, as noted above |
|
($10,469 | ) |
Decrease in foreign exchange gains |
|
(1,742 | ) |
Increase in SG&A costs |
|
(845 | ) |
Operating Income for the year ended December 31, 2011 |
$ |
33,386 |
Further details on revenue, gross margin and operating income variances within SunOpta Foods are provided in the segmented operations information that follows.
Grains and Foods Group | December 31, 2011 | January 1, 2011 | Change | % Change | ||||||||
Revenue | 479,195 | 364,905 | 114,290 | 31.3% | ||||||||
Gross Margin | 45,999 | 47,101 | (1,102 | ) | -2.3% | |||||||
Gross Margin % | 9.6% | 12.9% | -3.3% | |||||||||
Operating Income | 22,813 | 28,003 | (5,190 | ) | -18.5% | |||||||
Operating Income % | 4.8% | 7.7% | -2.9% |
The Grains and Foods Group contributed $479,195 in revenues for the year ended December 31, 2011, compared to $364,905 for the year ended January 1, 2011, a $114,290 or 31.3% increase. The table below explains the increase in revenue:
Grains and Foods Group Revenue Changes |
|
||
Revenue for the year ended January 1, 2011 |
$ |
364,905 | |
Incremental revenue from the acquisition of Dahlgren on November 8, 2010 |
|
65,052 | |
Increase in price for commodity corn and soy, as well as organic grains, partially offset by lower price for grain-based food ingredients |
|
35,397 | |
Increased volume and pricing from aseptically packaged soymilk and alternative beverages due to new product launches, new customer contracts and continued growth from existing customers |
|
11,796 | |
Higher volume due primarily to commodity corn, grain-based food ingredients and organic grains, partially offset by lower volumes of commodity soy |
|
10,690 | |
Incremental revenue generated from our South African soy base operation |
|
395 | |
Decrease in volume and price for in-shell sunflower products, combined with lower demand for bakery kernel and other sunflower based products, partially offset by higher pricing for bakery kernel and bird seed |
|
(9,040 | ) |
Revenue for the year ended December 31, 2011 |
$ |
479,195 |
Gross margin in the Grains and Foods Group decreased by $1,102 to $45,999 for the year ended December 31, 2011 compared to $47,101 for the year ended January 1, 2011, and the gross margin percentage decreased by 3.3% to 9.6% .. The decrease in gross margin as a percentage of revenue is primarily due to unfavorable pricing in the sunflower market caused by increasing commodity costs and a large, low-cost supply of sunflower coming out of South America and decreased plant efficiencies due to lower bakery kernel and in-shell volumes, partially offset by efficiencies at our aseptic processing and packaging facilities and roasted grains operation due in part to increased volumes. The table below explains the decrease in gross margin:
SUNOPTA INC. | 50 | December 31, 2011 10-K |
Grains and Foods Group Gross Margin Changes |
|
||
Gross Margin for the year ended January 1, 2011 |
$ |
47,101 | |
Decreased demand for in-shell, bakery kernel and other sunflower products, combined with decreased plant efficiencies and pricing pressure for in-shell and kernel products in international markets, partially offset by improved pricing on bird seed |
|
(6,612 | ) |
Increased raw material and crushing costs for specialty sunflower oils |
|
(958 | ) |
Incremental gross margin from the acquisition of Dahlgren on November 8, 2010, partially offset by higher cost of raw materials |
|
3,043 | |
Increased customer demand for aseptically packaged soymilk and alternative beverage products, as well as improved plant efficiencies |
|
2,861 | |
Increased volumes of grain-based food ingredients and organic grains, higher margins in our south African operation and improved efficiencies in our roasted grain operation |
|
564 | |
Gross Margin for the year ended December 31, 2011 |
$ |
45,999 |
Operating income in the Grains and Foods Group decreased by $5,190 or 18.5% to $22,813 for the year ended December 31, 2011, compared to $28,003 for the year ended January 1, 2011. The table below explains the decrease in operating income:
Grains and Foods Group Operating Income Changes |
|
||
Operating Income for the year ended January 1, 2011 |
$ |
28,003 | |
Decrease in gross margin, as explained above |
|
(1,102 | ) |
Incremental SG&A from the acquisition of Dahlgren on November 8, 2010 |
|
(2,980 | ) |
Increased corporate allocations due primarily to Dahlgren acquisition |
|
(1,924 | ) |
Decrease in compensation costs, primarily due to lower bonus and benefit costs, combined with lower professional fees, partially offset by higher spending on utilities, insurance and general office costs |
|
377 | |
Higher foreign exchange gains |
|
439 | |
Operating Income for the year ended December 31, 2011 |
$ |
22,813 |
Looking forward, we believe the Grains and Foods business is well positioned in growing natural and organic food categories. We expect our recently announced aseptic processing and packaging expansion at our U.S. west coast facility to continue to enhance our capacity to manufacture aseptic soy and alternative beverages. We also intend to focus our efforts on growing our identity preserved, non-genetically modified ("non-GMO") and organic grains business, expanding revenues from natural and organic grains based ingredients and continuing to focus on value-added ingredient and packaged product offerings. We intend to pursue internal growth and acquisition opportunities that are aligned with the Groups core vertically integrated grain business model. Additionally, the international expansion of our sales base via strategic relationships for procurement of product is expected to drive incremental sales volume. Our long-term target for the Grains and Foods Group is to achieve a segment operating margin of 6% to 8% which assumes we are able to secure a consistent quantity and quality of grains and sunflower stocks, improve product mix, and control costs. The statements in this paragraph are forward-looking statements. See Forward-Looking Statements above. Increased supply pressure in the commodity-based markets in which we operate, increased competition, volume decreases or loss of customers, unexpected delays in our expansion plans, or our inability to secure quality inputs or achieve our product mix or cost reduction goals, along with the other factors described above under Forward-Looking Statements, could adversely impact our ability to meet these forward-looking expectations.
SUNOPTA INC. | 51 | December 31, 2011 10-K |
Ingredients Group | December 31, 2011 | January 1, 2011 | Change | % Change | ||||||||
Revenue | 91,074 | 116,529 | (25,455 | ) | -21.8% | |||||||
Gross Margin | 17,451 | 30,621 | (13,170 | ) | -43.0% | |||||||
Gross Margin % | 19.2% | 26.3% | -7.1% | |||||||||
Operating Income | 7,083 | 18,870 | (11,787 | ) | -62.5% | |||||||
Operating Income % | 7.8% | 16.2% | -8.4% |
The Ingredients Group contributed $91,074 in revenues for the year ended December 31, 2011, compared to $116,529 for the year ended January 1, 2011, a $25,455 or 21.8% decrease. The table below explains the decrease in revenue:
Ingredients Group Revenue Changes |
|
||
Revenue for the year ended January 1, 2011 |
$ |
116,529 | |
Lower volume of industrial fruit ingredients due primarily to decreased demand and the loss of a significant customer |
|
(13,448 | ) |
Lower customer demand for oat and soy fiber, primarily due to the loss of a significant customer in the first quarter of 2011, as well as pricing reductions due to competitive pressures |
|
(11,541 | ) |
Lower customer demand for blended food ingredients, partially offset by improved pricing on dairy blends and bran products, as well as increased customer demand for starches and brans |
|
(346 | ) |
Lower volume in contract manufacturing, partially offset by higher pricing |
|
(120 | ) |
Revenue for the year ended December 31, 2011 |
$ |
91,074 |
Gross margin in the Ingredients Group decreased by $13,170 to $17,451 for the year ended December 31, 2011 compared to $30,621 for the year ended January 1, 2011, and the gross margin percentage decreased by 7.1% to 19.2% . The decrease in gross margin as a percentage of revenue was due to lower customer demand, primarily as a result of the loss of two significant customers, and the resultant decrease in efficiencies from lower production levels. The table below explains the decrease in gross margin:
Ingredients Group Gross Margin Changes |
|
||
Gross Margin for the year ended January 1, 2011 |
$ |
30,621 | |
Lower customer demand for oat and soy fiber products and reduced selling prices in response to market pressures, combined with plant inefficiencies due to lower production volumes, increased raw materials and input costs |
|
(7,557 | ) |
Reduced volume at our Fruit Ingredients operation due in part to the loss of a significant customer |
|
(3,765 | ) |
Costs associated with the idling of fiber manufacturing facilities during 2011 |
|
(1,199 | ) |
Decrease in customer demand for blended food ingredients, as well as an increase in raw material costs and lower manufacturing costs absorbed |
|
(522 | ) |
Lower contribution due to lower sales volumes on contract manufacturing, partially offset by higher production volumes and costs absorbed |
|
(127 | ) |
Gross Margin for the year ended December 31, 2011 |
$ |
17,451 |
SUNOPTA INC. | 52 | December 31, 2011 10-K |
Operating income in the Ingredients Group decreased by $11,787, or 62.5%, to $7,083 for the year ended December 31, 2011, compared to $18,870 for the year ended January 1, 2011. The table below explains the decrease in operating income:
Ingredients Group Operating Income Changes |
|
||
Operating Income for the year ended January 1, 2011 |
$ |
18,870 | |
Decrease in gross margin, as explained above |
|
(13,170 | ) |
Increased spending on research and development projects and higher bad debt expense on a customer bankruptcy, partially offset by lower spending on professional fees |
|
(318 | ) |
Decrease in compensation costs, primarily bonus expense |
|
1,165 | |
Reduced consulting and product development costs in our Fruit Ingredients operation |
|
536 | |
Operating Income for the year ended December 31, 2011 |
$ |
7,083 |
Looking forward, we intend to continue to concentrate on growing the Ingredients Groups fruit, fiber and specialty ingredients portfolio and customer base through product and process innovation and diversification. The Group is focused on replacing the volume lost early in 2011 as a result of a significant customer changing to an alternative fiber product. We intend to also focus on maintaining the continuous improvement culture of the Ingredients Group to further increase capacity utilization, reduce costs, and sustain margins. Our new aseptic packaging line in our Fruit Ingredient operation is expected to increase capacity and drive incremental volumes and cost savings in 2012. Our long-term target for the Ingredients Group is to realize segment operating margins of 12% to 15%. The statements in this paragraph are forward-looking statements. See Forward-Looking Statements above. An unexpected increase in input costs, increased competition, loss of key customers, an inability to introduce new products to the market, or implement our strategies and goals relating to pricing, capacity utilization or cost reductions, along with the other factors described above under Forward-Looking Statements, could adversely impact our ability to meet these forward-looking expectations.
SUNOPTA INC. | 53 | December 31, 2011 10-K |
Consumer Products Group | December 31, 2011 | January 1, 2011 | Change | % Change | ||||||||
Revenue | 165,239 | 134,768 | 30,471 | 22.6% | ||||||||
Gross Margin | 11,336 | 14,959 | (3,623 | ) | -24.2% | |||||||
Gross Margin % | 6.9% | 11.1% | -4.2% | |||||||||
Operating Income | (3,978 | ) | (1,302 | ) | (2,676 | ) | -205.5% | |||||
Operating Income % | -2.4% | -1.0% | -1.4% |
The Consumer Products Group contributed $165,239 in revenues for the year ended December 31, 2011, compared to $134,768 for the year ended January 1, 2011, a $30,471 or 22.6% increase. The table below explains the increase in revenue:
Consumer Products Group Revenue Changes |
|
||
Revenue for the year ended January 1, 2011 |
$ |
134,768 | |
Incremental revenue from the acquisition of Edner on December 14, 2010 |
|
13,419 | |
Increased volume of consumer packaged products driven primarily by our beverage category including low-calorie lemonade, electrolyte water and orange juice |
|
11,232 | |
Higher volume as a result of new customers, increased demand and improved sales efforts in our Healthy Snacks operations, partially offset by reduced pricing to drive volume gains |
|
8,128 | |
Incremental revenue due to the acquisition of Lorton's on August 8, 2011 |
|
2,450 | |
Lower volumes of retail, industrial and food service offerings in our Frozen Foods operation, partially offset by improved pricing on retail offerings |
|
(4,389 | ) |
Decrease in brokerage commissions due to lower volume |
|
(369 | ) |
Revenue for the year ended December 31, 2011 |
$ |
165,239 |
Gross margins in the Consumer Products Group decreased by $3,623 to $11,336 for the year ended December 31, 2011 compared to $14,959 for the year ended January 1, 2011, and the gross margin percentage decreased by 4.2% to 6.9% . The decrease in gross margin as a percentage of revenue was due to the rationalization of legacy industrial format inventory in our Frozen Foods operation, higher raw material and labor costs in our Healthy Snacks operations, higher material costs for consumer packaged products, and negative contribution from Lortons, slightly offset by lower storage costs from lower inventory levels of frozen product. The table below explains the decrease in gross margin:
Consumer Products Group Gross Margin Changes |
|
||
Gross Margin for the year ended January 1, 2011 |
$ |
14,959 | |
Lower volumes, reduced plant efficiencies, and increased inventory rationalization costs, partially offset by lower storage, freight, and brokerage costs in our Frozen Foods operation |
|
(6,737 | ) |
Lower brokerage volumes and commissions |
|
(413 | ) |
Incremental gross margin losses due to the acquisition of Lortons on August 8, 2011 |
|
(317 | ) |
Higher contribution due to increased volumes in our Healthy Snacks operations |
|
2,051 | |
Increased volume of consumer packaged products primarily in our beverage category |
|
1,239 | |
Incremental gross margin from acquisition of Edner on December 14, 2010 |
|
554 | |
Gross Margin for the year ended December 31, 2011 |
$ |
11,336 |
SUNOPTA INC. | 54 | December 31, 2011 10-K |
Operating loss in the Consumer Products Group increased by $2,676, or 205.5%, to $3,978 for the year ended December 31, 2011, compared to $1,302 for the year ended January 1, 2011. The table below explains the increase in operating loss:
Consumer Products Group Operating Loss Changes |
|||
Operating Loss for the year ended January 1, 2011 |
($1,302 | ) | |
Decrease in gross margin, as explained above |
(3,623 | ) | |
Incremental SG&A expense from the acquisition of Edner on December 14, 2010 |
(747 | ) | |
Incremental SG&A expense from the acquisition of Lorton's on August 8, 2011 |
(449 | ) | |
Decrease in SG&A due to the closure of the brokerage office located in Chicago, Illinois |
1,087 | ||
Lower compensation costs due to staff reductions in our Frozen Foods operation, partially offset by increased headcount and bonuses in our Healthy Snacks operations |
1,003 | ||
Decrease in other SG&A spending |
53 | ||
Operating Loss for the year ended December 31, 2011 |
($3,978 | ) |
Looking forward, we expect improvements in margins and operating income from the Consumer Products Group through the growth of our Food Solutions and Healthy Snacks operations, and from continued efforts to streamline and focus the Frozen Foods operation. We believe the sale of our Mexican frozen fruit assets and the decision to enter into a strategic raw material supply agreement to service our value added retail offerings will help enhance margins. We remain customer focused and continue to explore new ways to bring value added product offerings and processes to market. We will also continue to explore opportunities to improve operating efficiencies. Continued new product development and innovation in our Healthy Snacks operation combined with increasing demand for portable nutritious fruit offerings are expected to drive growth in that business. We intend to continue to expand our operating platform into the processing and manufacturing of products in order to enhance value to our customer base, including the installation of two flexible re-sealable pouch filling lines on the U.S. west coast and plans for two more flexible pouch filling lines on the U.S. east coast to be operational in the third quarter of 2012. Long term we are targeting 8% to 10% operating margins from the Consumer Products Group. The statements in this paragraph are forward-looking statements. See Forward-Looking Statements above. Unexpected declines in volumes, shifts in consumer preferences, inefficiencies in our manufacturing processes, lack of consumer product acceptance, or our inability to successfully implement the particular goals and strategies indicated above, along with the other factors described above under Forward-Looking Statements, could have an adverse impact on these forward-looking expectations.
SUNOPTA INC. | 55 | December 31, 2011 10-K |
International Foods Group | ||||||||||||
For the year ended | December 31, 2011 | January 1, 2011 | Change | % Change | ||||||||
Revenue | 253,448 | 201,239 | 52,209 | 25.9% | ||||||||
Gross Margin | 36,199 | 28,773 | 7,426 | 25.8% | ||||||||
Gross Margin % | 14.3% | 14.3% | -% | |||||||||
Operating Income | 7,468 | 871 | 6,597 | 757.4% | ||||||||
Operating Income % | 2.9% | 0.4% | 2.5% |
The International Foods Group contributed $253,448 in revenues for the year ended December 31, 2011, compared to $201,239 for the year ended January 1, 2011, a $52,209 or a 25.9% increase. The table below explains the increase in revenue:
International Foods Group Revenue Changes |
|
||
Revenue for the year ended January 1, 2011 |
$ |
201,239 | |
Higher customer demand for natural and organic commodities such as fruits, vegetables, sweeteners, nuts and coffee beans |
|
39,965 | |
Favorable impact on revenues due to the stronger Canadian dollar and euro relative to the U.S. dollar |
|
12,216 | |
Increased commodity prices for sweeteners, coffee beans, cocoa, seeds, nuts, fruits and vegetables |
|
6,897 | |
Decline in volume of shipments of both branded and distributed natural health products to the food, drug and mass channel due to the delisting of certain products and lost distribution |
|
(6,869 | ) |
Revenue for the year ended December 31, 2011 |
$ |
253,448 |
Gross margins in the International Foods Group increased by $7,426 to $36,199 for the year ended December 31, 2011 compared to $28,773 for the year ended January 1, 2011, and the gross margin percentage remain unchanged at 14.3% . The margin rate reflected improved commodity pricing for organic ingredients, offset by reduced sales of higher margin branded natural health products. The table below explains the increase in gross margin:
International Foods Group Gross Margin Changes |
|
||
Gross Margin for the year ended January 1, 2011 |
$ |
28,773 | |
Higher volumes and pricing for natural and organic commodities such as fruits, vegetables, sweeteners, nuts and coffee beans |
|
7,446 | |
Favorable impact on margin due to the stronger Canadian dollar and euro relative to the U.S. dollar |
|
1,734 | |
Lower volumes of both branded and distributed natural health products, partially offset by reduced listing fees |
|
(1,754 | ) |
Gross Margin for the year ended December 31, 2011 |
$ |
36,199 |
SUNOPTA INC. | 56 | December 31, 2011 10-K |
Operating income in the International Foods Group increased by $6,597, or 757.4%, to $7,468 for the year ended December 31, 2011, compared to $871 for the year ended January 1, 2011. The table below explains the increase in operating income:
International Foods Group Operating Income Changes |
|
||
Operating Income for the year ended January 1, 2011 |
$ |
871 | |
Increase in gross margin, as explained above |
|
7,426 | |
Lower marketing and advertising costs primarily in our Natural Health Products operation |
|
1,454 | |
Decrease in other SG&A spending including travel, utilities and insurance |
|
485 | |
Unfavorable impact of a stronger Canadian dollar and euro relative to the U.S. dollar, on foreign denominated SG&A |
|
(1,202 | ) |
Higher compensation expense primarily in our European operations, partially offset by savings in our natural health products operation from restructuring initiatives in 2011 and 2010 |
|
(803 | ) |
Increased foreign exchange losses |
|
(763 | ) |
Operating Income for the year ended December 31, 2011 |
$ |
7,468 |
Looking forward, the International Foods Group is focused on leveraging its sourcing, supply, processing and distribution expertise to grow its portfolio of organic ingredients as well as expand its range of natural health product offerings. Long-term group operating margins are targeted at 5% to 6% of revenues, which are expected to be achieved through a combination of sourcing, pricing and product development strategies. We also intend to strive to foster an environment of continuous improvement to help forward and backward integrate where opportunities exist, expand our processing expertise and increase our value-added capabilities. The statements in this paragraph are forward-looking statements. See Forward-Looking Statements above. Unfavorable fluctuations in foreign exchange, reduced demand for natural and organic ingredients, increased competition, delayed synergies, as well as our inability to realize our particular strategic expansion goals, along with the other factors described above under Forward-Looking Statements, could have an adverse impact on these forward-looking expectations.
SUNOPTA INC. | 57 | December 31, 2011 10-K |
Opta Minerals | December 31, 2011 | January 1, 2011 | Change | % Change | ||||||||
Revenue | 93,120 | 80,868 | 12,252 | 15.2% | ||||||||
Gross Margin | 20,746 | 20,037 | 709 | 3.5% | ||||||||
Gross Margin % | 22.3% | 24.8% | -2.5% | |||||||||
Operating Income | 7,577 | 7,753 | (176 | ) | -2.3% | |||||||
Operating Income % | 8.1% | 9.6% | -1.5% |
Opta Minerals contributed $93,120 in revenues for the year ended December 31, 2011, compared to $80,868 for the year ended January 1, 2011, a $12,252 or 15.2% increase. The table below explains the increase in revenue:
Opta Minerals Revenue Changes |
|
||
Revenue for the year ended January 1, 2011 |
$ |
80,868 | |
Increased volume of mill and foundry products as a result of global increase in demand for steel and new customers and applications |
|
14,994 | |
Decreased volumes of abrasive products and other industrial mineral products and services |
|
(2,742 | ) |
Revenue for the year ended December 31, 2011 |
$ |
93,120 |
Gross margin for Opta Minerals increased by $709 to $20,746 for the year ended December 31, 2011 compared to $20,037 for the year ended January 1, 2011, and the gross margin percentage decreased by 2.5% to 22.3% . The decrease in gross margin as a percentage of revenue was driven by changes to product mix, an increase in plant costs and higher labor costs related to higher sales volume. The table below explains the increase in gross margin:
Opta Minerals Gross Margin Changes |
|
||
Gross Margin for the year ended January 1, 2011 |
$ |
20,037 | |
Increased contribution from steel and related products due to higher demand, partially offset by higher labor costs due to the increased volume |
|
2,788 | |
Impact of reduced volume and increased raw material and plant costs in abrasive products |
|
(2,079 | ) |
Gross Margin for the year ended December 31, 2011 |
$ |
20,746 |
Operating income for Opta Minerals decreased by $176, or 2.3%, to $7,577 for the year ended December 31, 2011, compared to $7,753 for the year ended January 1, 2011. The table below explains the decrease in operating income:
Opta Minerals Operating Income Changes |
|
||
Operating Income for the year ended January 1, 2011 |
$ |
7,753 | |
Increase in gross margin, as explained above |
|
709 | |
Decrease in foreign exchange gains |
|
(698 | ) |
Increase in general office costs |
|
(187 | ) |
Operating Income for the year ended December 31, 2011 |
$ |
7,577 |
Opta Minerals is focused on near-term growth opportunities, including the recent acquisitions of Inland in November 2011 and Babco in February 2012. We believe Opta Minerals is well positioned for continued expansion based on additional acquisition opportunities and a number of internal growth opportunities which are currently in development. We own 66.2% of Opta Minerals and segment operating income is presented prior to non-controlling interest expense. The statements in this paragraph are forward-looking statements. See Forward-Looking Statements above. An extended period of softness in the steel and foundry industries, slowdowns in the economy, or delays in bringing new products and operations completely online, along with the other factors described above under Forward-Looking Statements, could have an adverse impact on these forward-looking expectations.
SUNOPTA INC. | 58 | December 31, 2011 10-K |
Corporate Services | December 31, 2011 | January 1, 2011 | Change | % Change | ||||||||
Operating Loss | (7,769 | ) | (11,213 | ) | 3,444 | 30.7% |
Operating loss at Corporate Services decreased by $3,444 to $7,769 for the year ended December 31, 2011, from costs of $11,213 for the year ended January 1, 2011. The table below explains the decrease in operating loss:
Corporate Services Operating Loss Changes |
|||
Operating Loss for the year ended January 1, 2011 |
($11,213 | ) | |
Increase in corporate management fees that are allocated to SunOpta operating groups |
2,754 | ||
Decrease in compensation expense, primarily due to lower bonus expense and stock- based compensation |
1,226 | ||
Decreased legal fees primarily due to a reduction in legal costs related to the restatement of financial statements included in the quarterly reports for the first three quarters of 2007 |
1,167 | ||
Lower workers compensation costs due to expectation of claims to be settled |
598 | ||
Lower depreciation expense due to certain corporate assets reaching the end of their estimated useful lives |
319 | ||
Decrease in foreign exchange gains |
(1,616 | ) | |
Increase in SG&A costs due to the impact of a stronger Canadian dollar relative to the U.S. dollar |
(569 | ) | |
Increase in professional fees, primarily due to increased tax and IT consulting, and higher recruitment fees, partially offset by reduction in general office costs |
(435 | ) | |
Operating Loss for the year ended December 31, 2011 |
($7,769 | ) |
Management fees mainly consist of salaries of corporate personnel who perform back office functions for divisions, as well as costs related to the enterprise resource management system used within several of the divisions. These expenses are allocated to the groups based on (1) specific identification of allocable costs that represent a service provided to each division and (2) a proportionate distribution of costs based on a weighting of factors such as revenue contribution and number of people employed within each division.
SUNOPTA INC. | 59 | December 31, 2011 10-K |
Results of 2010 Operations Compared With
Results of 2009 Operations
(Expressed in thousands
of U.S dollars, except per share amount)
|
January 1, 2011 | December 31, 2009 | Change | Change | ||||||||
|
$ | $ | $ | % | ||||||||
Revenue |
||||||||||||
SunOpta Foods |
817,441 | 756,508 | 60,933 | 8.1% | ||||||||
Opta Minerals |
80,868 | 62,523 | 18,345 | 29.3% | ||||||||
Total Revenue |
898,309 | 819,031 | 79,278 | 9.7% | ||||||||
|
||||||||||||
Gross Profit |
||||||||||||
SunOpta Foods |
121,454 | 92,028 | 29,426 | 32.0% | ||||||||
Opta Minerals |
20,037 | 13,081 | 6,956 | 53.2% | ||||||||
Total Gross Profit |
141,491 | 105,109 | 36,382 | 34.6% | ||||||||
|
||||||||||||
Segment Operating Income (Loss)(1) |
||||||||||||
SunOpta Foods |
46,442 | 18,100 | 28,342 | 156.6% | ||||||||
Opta Minerals |
7,753 | 1,161 | 6,592 | 567.8% | ||||||||
Corporate Services |
(11,213 | ) | (6,614 | ) | (4,599 | ) | 69.5% | |||||
Total Segment Operating Income |
42,982 | 12,647 | 30,335 | 239.9% | ||||||||
|
||||||||||||
Other expense, net |
10,945 | 2,245 | 8,700 | 387.5% | ||||||||
Goodwill impairment |
1,654 | 8,841 | (7,187 | ) | -81.3% | |||||||
Earnings from continuing operations before the following |
30,383 | 1,561 | 28,822 | n/m | ||||||||
Interest expense, net |
9,749 | 13,839 | (4,090 | ) | -29.6% | |||||||
Provision for (recovery of) income taxes |
6,058 | (3,038 | ) | 9,096 | -299.4% | |||||||
Earnings (loss) from continuing operations |
14,576 | (9,240 | ) | 23,816 | -257.7% | |||||||
Earnings (loss) attributable to non-controlling interests |
1,368 | (2,807 | ) | 4,175 | -148.7% | |||||||
Loss from discontinued operations, net of taxes |
(15,092 | ) | (330 | ) | (14,762 | ) | n/m | |||||
Gain on sale of discontinued operations, net of taxes |
62,950 | - | 62,950 | n/m | ||||||||
Earnings (loss) attributable to SunOpta Inc. |
61,066 | (6,763 | ) | 67,829 | n/m |
(1) |
The tables following present a reconciliation of segment operating income (loss) to earnings (loss) from continuing operations before the following, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to page 45, note (1) regarding the use of non-GAAP measures). |
SUNOPTA INC. | 60 | December 31, 2011 10-K |
Grains | Consumer | International | ||||||||||||||||||||||
and Foods | Ingredients | Products | Foods | SunOpta | Opta | Corporate | Consol- | |||||||||||||||||
Group | Group | Group | Group | Foods | Minerals | Services | idated | |||||||||||||||||
|
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
January 1, 2011 |
||||||||||||||||||||||||
Segment operating income (loss) |
28,003 | 18,870 | (1,302 | ) | 871 | 46,442 | 7,753 | (11,213 | ) | 42,982 | ||||||||||||||
Other expense, net |
(118 | ) | (163 | ) | (9,153 | ) | (636 | ) | (10,070 | ) | (435 | ) | (440 | ) | (10,945 | ) | ||||||||
Goodwill impairment |
- | - | - | (1,654 | ) | (1,654 | ) | - | - | (1,654 | ) | |||||||||||||
Earnings (loss) from continuing operations before the following |
27,885 | 18,707 | (10,455 | ) | (1,419 | ) | 34,718 | 7,318 | (11,653 | ) | 30,383 | |||||||||||||
|
||||||||||||||||||||||||
December 31, 2009 |
||||||||||||||||||||||||
Segment operating income (loss) |
18,484 | 12,257 | (10,327 | ) | (2,314 | ) | 18,100 | 1,161 | (6,614 | ) | 12,647 | |||||||||||||
Other expense, net |
(802 | ) | (13 | ) | (2,595 | ) | 16 | (3,394 | ) | 1,257 | (108 | ) | (2,245 | ) | ||||||||||
Goodwill impairment |
- | - | (500 | ) | - | (500 | ) | (8,341 | ) | - | (8,841 | ) | ||||||||||||
Earnings (loss) from continuing operations before the following |
17,682 | 12,244 | (13,422 | ) | (2,298 | ) | 14,206 | (5,923 | ) | (6,722 | ) | 1,561 |
Revenues for the year ended January 1, 2011 increased by 9.7% to $898,309 from $819,031 for the year ended December 31, 2009. Revenues in SunOpta Foods increased by 8.1% to $817,441 and revenues in Opta Minerals increased by 29.3% to $80,868. The increased revenue is based on consolidated internal growth of 8.6% and acquisition related revenues of $13,076. Internal growth includes growth on the base business plus growth on acquisitions from the date of acquisition over the previous year in addition to the impact of foreign exchange movements on the translation of foreign denominated revenue to U.S. dollars and commodity related price movements. Excluding the impact of foreign exchange and commodity related price movements, revenues increased approximately 10.6% over the prior year. The acquisitions of Dahlgren and Edner. added incremental acquisition revenues of $13,031 and $45, respectively. The increase in revenue was due primarily to the changes in sales volume and pricing described below in Segmented Operations Information.
Gross profit increased $36,382, or 34.6%, for the year ended January 1, 2011 to $141,491 from $105,109 for the year ended December 31, 2009. As a percentage of revenues, gross profit for the year ended January 1, 2011 was 15.8% compared to 12.8% for the year ended December 31, 2009, an increase of 3.0% . For the year ended January 1, 2011, we experienced increased gross profit in all of our operating segments. Within SunOpta Foods, higher volumes of fiber, fruit ingredient products, grains, consumer products and plant efficiencies all contributed to the increased gross profit. Also contributing to the increase in gross profit was a rebound in the steel and abrasive markets for Opta Minerals. The improvement in gross profit was due primarily to a lower overall cost of goods sold, as a percentage of revenues, as a result of the variances described below under Segmented Operations Information.
SG&A costs including intangible asset amortization increased $7,176 to $100,161 for the year ended January 1, 2011 compared to $92,985 for the year ended December 31, 2009. The combination of a stronger Canadian dollar and a weaker euro for the year ended January 1, 2011 led to a $3,049 increase in SG&A on foreign denominated costs. Additional SG&A costs of $6,844 relating to higher compensation costs, the acquisition of Dahlgren, non-cash stock-based compensation, professional fees and general overhead expenses were offset by a $2,029 reduction in costs relating to brand re-launch initiatives at our natural health products operation and severance and facility rationalizations in our Frozen Foods operation. As a percentage of revenues, SG&A costs and intangible asset amortization costs were 11.1% for the year ended January 1, 2011 compared to 11.3% for the year ended December 31, 2009.
Foreign exchange gains were $1,652 for the year ended January 1, 2011 as compared to gains of $523 for the year ended December 31, 2009. The increase is primarily due to favorable exchange rate movements for the euro and Canadian dollar relative to the U.S. dollar.
Total segment operating income for the year ended January 1, 2011 increased by $30,335 to $42,982 compared to total segment operating income of $12,647 for the year ended December 31, 2009 due to the factors noted above. As a percentage of revenue, total segment operating income was 4.8% for the year ended January 1, 2011, compared to 1.5% for the year ended December 31, 2009. Further details on revenue, gross margins and segment operating income variances are provided below under Segmented Operations Information.
SUNOPTA INC. | 61 | December 31, 2011 10-K |
Other expense for the year ended January 1, 2011 of $10,945 reflects non-cash long-lived asset impairment and severance charges of $7,549 and $1,805, respectively, primarily related to rationalization efforts in our frozen foods operation that began in fiscal 2009 and continued into 2010, as well as the rationalization efforts at our natural health products operation which began in the second quarter of 2010. In addition, there were other expenses relating to acquisition costs of $547, non-cash stock compensation expense of $435 at Opta Minerals, non-cash pension curtailment expense of $588 and other charges totaling $537 relating primarily to the Consumer Products Group. In 2009, other expense of $2,245 related to facility rationalization costs, the settlement of a labor related class action lawsuit, and the elimination of certain long-term liabilities at Opta Minerals.
Goodwill impairment of $1,654 reflects a non-cash impairment charge recorded as the Company determined that the carrying value of goodwill in the International Foods Group and specifically its natural health products reporting unit exceeded its fair value. In 2009, goodwill impairment charges were recorded for $8,341 at Opta Minerals and $500 in the Consumer Products Group.
Interest expense for the year ended January 1, 2011 was $9,749 compared to $13,839 for the year ended December 31, 2009, a $4,090 decrease. Borrowing costs were lower for the year ended January 1, 2011 due to lower debt levels, due in part to the proceeds received on the sale of the Canadian Food Distribution assets, lower LIBOR rates, improved positioning on our interest rate pricing grid due to stronger operating results, and as a result of $1,800 of non-cash interest charges incurred in 2009 related to the waiver and amendment of our credit facilities, which occurred on April 30, 2009.
Income tax provision for the year ended January 1, 2011 was $6,058 compared to a recovery of $3,038 for the year ended December 31, 2009, due to the higher consolidated earnings before tax in the current period.
Earnings from continuing operations for the year ended January 1, 2011 were $14,576 as compared to a loss of $9,240 for the year ended December 31, 2009, a $23,816 increase. Basic and diluted earnings per share from continuing operations were $0.20 and $0.20, respectively, for the year ended January 1, 2011 compared to losses of $0.09 and $0.09, respectively, for the year ended December 31, 2009.
Earnings attributable to non-controlling interest for the year ended January 1, 2011 were $1,368 compared to losses of $2,807 for the year ended December 31, 2009. The $4,175 increase is due to higher net earnings in our less-than-wholly-owned subsidiaries.
Losses from discontinued operations, net of income taxes, were $15,092 for the year ended January 1, 2011 compared to losses of $330 for the year ended December 31, 2009. The $14,762 increase in losses from discontinued operations is due to $15,280 relating to stock-based and other compensation costs that were realized upon the sale of SunOpta BioProcess, and costs of $1,289 incurred as a result of the sale of the Canadian Food Distribution assets including retention bonuses, severances and mandatory interest payments, offset by $1,807 of higher operating margins from discontinued operations.
Gain on the sale of discontinued operations of $62,950 represents the after tax gains realized on the dispositions of the Canadian Food Distribution assets and the shares of SunOpta BioProcess.
On a consolidated basis, earnings and basic and diluted earnings per share were $61,066, $0.94 and $0.92 respectively, for the year ended January 1, 2011, compared to losses of $6,763, $0.10 and $0.10, respectively, for the year ended December 31, 2009.
SUNOPTA INC. | 62 | December 31, 2011 10-K |
Adjusted Earnings from Operations
During the year ended January 1, 2011, we recognized gains and recorded specific expenses against net earnings that we do not believe are reflective of normal business operations. As a result, we believe it is useful to eliminate these gains and expenses to compute an adjusted earnings from operations(1) amount for the year ended January 1, 2011 which we believe is more reflective of normal business operations. Adjusted earnings from operations per diluted share(1) for the year ended January 1, 2011 were $0.33.
Following is a calculation of our Adjusted earnings from operations(1) and Adjusted earnings from operations per diluted share(1) for the year ended January 1, 2011:
Per Diluted | ||||||
Share (2 | ) | |||||
Earnings attributable to SunOpta Inc. |
$ | 61,066 | $ | 0.92 | ||
Adjusted for: |
||||||
Gain on sale of discontinued operations, net of taxes |
(62,950 | ) | (0.95 | ) | ||
Gain on dilution of SunOpta BioProcess ownership position in Xylitol Canada |
(1,242 | ) | (0.02 | ) | ||
Reversal of tax valuation allowance at SunOpta Inc., net of valuation allowance recorded at Opta Minerals |
(350 | ) | (0.01 | ) | ||
Costs included in discontinued operations as a result of the sale of the Canadian Food Distribution assets and shares of SunOpta BioProcess, net of tax recovery of $388 |
16,183 | 0.25 | ||||
Impairment of long-lived assets and goodwill, net of taxes of $2,321 |
6,367 | 0.10 | ||||
Severance and closure costs at our natural health products operation and our brokerage operation, net of taxes of $345 |
662 | 0.01 | ||||
Non-cash pension curtailment expense |
588 | 0.01 | ||||
Costs incurred to complete acquisitions of Dahlgren and Edner |
547 | 0.01 | ||||
Non-cash compensation costs related to cancelled stock options recorded at Opta Minerals, net of $146 allocated to non-controlling interests |
289 | - | ||||
Adjusted earnings from operations(1) |
$ | 21,160 | $ | 0.32 |
During the year ended January 1, 2011, we recorded gains on the sales of the Canadian Food Distribution assets and the sale of SunOpta BioProcess (see Note 3 of the Consolidated Financial Statements). Losses from discontinued operations, net of income taxes, include costs incurred as a result of the sales including stock-based and other compensation rewards that were triggered upon closing of the sales, severances and mandatory interest payments. We also executed a restructuring plan at our natural health products operation as a result of market conditions and the sale of the Canadian Food Distribution assets, which triggered severance costs. As a result of its dilution in ownership in an investment prior to being sold, SunOpta BioProcess recorded a non-taxable dilution gain in the second quarter of 2010. We also recorded asset write-downs relating to property, plant and equipment and intangible assets within the Consumer Products Group, recognized a goodwill impairment charge relating to our natural health products division, and reversed a tax valuation allowance relating to a tax position that is no longer uncertain. In addition, we incurred professional, legal and other costs related to our fourth quarter of 2010 acquisitions of Dahlgren and the assets of Edner, as well as non-cash compensation related to cancelled stock options at our less-than-wholly-owned subsidiary. We believe that earnings attributable to SunOpta Inc. is the performance measure calculated and presented in accordance with GAAP that is most directly comparable to Adjusted earnings from operations(1), and that earnings per share is the performance measure calculated and presented in accordance with GAAP that is most directly comparable to Adjusted earnings from operations per diluted share (1).
The table above reconciles earnings attributable to SunOpta Inc. to Adjusted earnings from operations(1) and reconciles earnings per share to Adjusted earnings from operations per diluted share(1), in each case for the year ended January 1, 2011.
(1) |
Adjusted earnings from operations per diluted share and Adjusted earnings from operations are non-GAAP financial measures. We believe these non-GAAP measures, which have been adjusted for the impact of the items listed in the table above, assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Adjusted earnings from operations per diluted share and Adjusted earnings from operations should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. |
(2) |
The diluted weighted average number of shares outstanding for the year ended January 1, 2011 was 66,028,278 (see Note 16 of the Consolidated Financial Statements). |
SUNOPTA INC. | 63 | December 31, 2011 10-K |
Segmented Operations Information
SunOpta Foods | ||||||||||||
For the year ended | January 1, 2011 | December 31, 2009 | Change | % Change | ||||||||
Revenue | 817,441 | 756,508 | 60,933 | 8.1% | ||||||||
Gross Margin | 121,454 | 92,028 | 29,426 | 32.0% | ||||||||
Gross Margin % | 14.9% | 12.2% | 2.7% | |||||||||
Operating Income | 46,442 | 18,100 | 28,342 | 156.6% | ||||||||
Operating Income % | 5.7% | 2.4% | 3.3% |
SunOpta Foods contributed $817,441 or 91.0% of consolidated revenue for the year ended January 1, 2011 compared to $756,508 or 92.4% of consolidated revenues for the year ended December 31, 2009, an increase of $60,933. The increased revenue is based on SunOpta Foods internal growth of 6.9% and acquisition revenues of $13,076. Internal growth includes growth on the base business plus growth on acquisitions from the date of acquisition over the previous year in addition to the impact of foreign exchange movements on the translation of foreign denominated revenue to U.S. dollars and commodity related price movements. Excluding the impact of foreign exchange and commodity related price movements, revenues in SunOpta Foods increased approximately 9.1% over the prior year. The acquisition of Dahlgren and Edner added incremental acquisition related revenues of $13,031 and $45, respectively. The table below explains the increase in revenue by group:
SunOpta Foods Revenue Changes |
|
||
Revenue for the year ended December 31, 2009 |
$ |
756,508 | |
Increase in the Grains and Foods Group |
|
39,876 | |
Increase in the Ingredients Group |
|
10,616 | |
Increase in the Consumer Products Group |
|
1,604 | |
Increase in the International Foods Group |
|
8,837 | |
Revenue for the year ended January 1, 2011 |
$ |
817,441 |
Gross margin in SunOpta Foods increased by $29,426 for the year ended January 1, 2011 to $121,454, or 14.9% of revenues, compared to $92,028, or 12.2% of revenues for the year ended December 31, 2009. The table below explains the increase in gross margin by group:
SunOpta Foods Gross Margin Changes |
|
||
Gross Margin for the year ended December 31, 2009 |
$ |
92,028 | |
Increase in the Grains and Foods Group |
|
10,531 | |
Increase in the Ingredients Group |
|
7,336 | |
Increase in the Consumer Products Group |
|
6,447 | |
Increase in the International Foods Group |
|
5,112 | |
Gross Margin for the year ended January 1, 2011 |
$ |
121,454 |
SUNOPTA INC. | 64 | December 31, 2011 10-K |
Operating income in SunOpta Foods increased by $28,342 for the year ended January 1, 2011 to $46,442 or 5.7% of revenues, compared to $18,100 or 2.4% of revenues for the year ended December 31, 2009. The table below explains the increase in operating income:
SunOpta Foods Operating Income Changes |
|
||
Operating Income for the year ended December 31, 2009 |
$ |
18,100 | |
Increase in gross margin, as noted above |
|
29,426 | |
Increase in foreign exchange gains |
|
805 | |
Increase in SG&A costs |
|
(1,889 | ) |
Operating Income for the year ended January 1, 2011 |
$ |
46,442 |
Further details on revenue, gross margin and operating income variances within SunOpta Foods are provided in the segmented operations information that follows.
Grains and Foods Group | January 1, 2011 | December 31, 2009 | Change | % Change | ||||||||
Revenue | 364,905 | 325,029 | 39,876 | 12.3% | ||||||||
Gross Margin | 47,101 | 36,570 | 10,531 | 28.8% | ||||||||
Gross Margin % | 12.9% | 11.3% | 1.6% | |||||||||
Operating Income | 28,003 | 18,484 | 9,519 | 51.5% | ||||||||
Operating Income % | 7.7% | 5.7% | 2.0% |
The Grains and Foods Group contributed $364,905 in revenues for the year ended January 1, 2011, compared to $325,029 for the year ended December 31, 2009, a $39,876 or 12.3% increase. The table below explains the increase in revenue:
Grains and Foods Group Revenue Changes |
|
||
Revenue for the year ended December 31, 2009 |
$ |
325,029 | |
Higher volume of commodity grains and grain-based food ingredients and incremental revenue generated from our South African soy base operation |
|
25,946 | |
Higher soymilk and alternate beverage sales due to growth in volumes from existing and new customer contracts and the commencement of aseptically packaged natural broth and soup products at our Alexandria, Minnesota facility |
|
22,715 | |
Incremental revenue from the acquisition of Dahlgren on November 8, 2010 |
|
13,031 | |
Increased sunflower product sales as a result of higher bakery kernel and by-product volume, offset by lower volume of in-shell products and by price declines due in part to the weakening euro |
|
608 | |
Volume increase at our roasted grain operation as a result of the launch of our Sunrich |
|
||
Naturals brand roasted snack product |
|
597 | |
Decline in price for commodity soy and corn as well as organic grains and grain-based ingredients |
|
(14,076 | ) |
Loss of significant customer for extended shelf life soy milk products in the third quarter of 2009 |
|
(8,945 | ) |
Revenue for the year ended January 1, 2011 |
$ |
364,905 |
Gross margin in the Grains and Foods Group increased by $10,531 to $47,101 for the year ended January 1, 2011 compared to $36,570 for the year ended December 31, 2009, and the gross margin percentage increased by 1.6% to 12.9% . The increase in gross margin as a percentage of revenue is primarily due to a favorable shift in sales mix, as soymilk and alternative beverages as well as packaged sunflower products have higher inherent margins than our grain-based sales. Improved efficiencies at our West Coast aseptic packaging facility which was being commissioned during the first half of 2009 also helped to increase the gross margin rate. The table below explains the increase in gross margin:
SUNOPTA INC. | 65 | December 31, 2011 10-K |
Grains and Foods Group Gross Margin Changes |
|
||
Gross Margin for the year ended December 31, 2009 |
$ |
36,570 | |
Higher volumes of soymilk, alternate beverages and broth products |
|
5,239 | |
Increased volume for bakery kernel products combined with plant efficiencies and improved in-shell pricing |
|
3,621 | |
Pre-opening costs incurred in 2009 at our aseptic packaging facility in Modesto, California which became operational late in the second quarter of 2009 |
|
2,464 | |
Incremental margin from the acquisition of Dahlgren on November 8, 2010 |
|
2,048 | |
Increased volumes in our roasted grain operation as a result of launch of Sunrich |
|
||
Naturals brand roasted product, and production efficiencies |
|
49 | |
Loss of significant customer for extended shelf life soy milk products in the third quarter of 2009 |
|
(1,994 | ) |
Business interruption insurance proceeds not received in 2010 |
|
(577 | ) |
Unfavorable pricing of our non-GMO and organic grains and grain-based foods due to market pricing of specialty grains and crop quality, offset by increased volumes |
|
(319 | ) |
Gross Margin for the year ended January 1, 2011 |
$ |
47,101 |
Operating income in the Grains and Foods Group increased by $9,519 or 51.5% to $28,003 for the year ended January 1, 2011, compared to $18,484 for the year ended December 31, 2009. The table below explains the increase in operating income:
Grains and Foods Group Operating Income Changes |
|
||
Operating Income for the year ended December 31, 2009 |
$ |
18,484 | |
Increase in gross margin, as explained above |
|
10,531 | |
Lower foreign exchange losses |
|
207 | |
Incremental SG&A from the acquisition of Dahlgren on November 8, 2010 |
|
(563 | ) |
Increased office, travel, marketing and R&D costs due to facility expansions and international strategy initiatives, partially offset by lower compensation costs |
|
(521 | ) |
Increased professional fees and reserves |
|
(135 | ) |
Operating Income for the year ended January 1, 2011 |
$ |
28,003 |
SUNOPTA INC. | 66 | December 31, 2011 10-K |
Ingredients Group | January 1, 2011 | December 31, 2009 | Change | % Change | ||||||||
Revenue | 116,529 | 105,913 | 10,616 | 10.0% | ||||||||
Gross Margin | 30,621 | 23,285 | 7,336 | 31.5% | ||||||||
Gross Margin % | 26.3% | 22.0% | 4.3% | |||||||||
Operating Income | 18,870 | 12,257 | 6,613 | 54.0% | ||||||||
Operating Income % | 16.2% | 11.6% | 4.6% |
The Ingredients Group contributed $116,529 in revenues for the year ended January 1, 2011, compared to $105,913 for the year ended December 31, 2009, a $10,616 or 10.0% increase. The table below explains the increase in revenue:
Ingredients Group Revenue Changes |
|
||
Revenue for the year ended December 31, 2009 |
$ |
105,913 | |
Higher volume due to the increased demand at our fruit ingredient operations for industrial and food service products and new product offerings as well as improved pricing |
|
6,910 | |
Increased oat and soy fiber volumes due to customer demands, slightly offset by price decreases |
|
3,567 | |
Improved pricing in contract manufacturing |
|
1,735 | |
Decrease in blended food ingredients due to lower volume and the partial sale of our product portfolio during the fourth quarter of 2009, as well as lower pricing in the dairy blends market |
|
(1,256 | ) |
Decrease in bran sales due to lower volumes in corn as well as the overall bran market |
|
(340 | ) |
Revenue for the year ended January 1, 2011 |
$ |
116,529 |
Gross margin in the Ingredients Group increased by $7,336 to $30,621 for the year ended January 1, 2011 compared to $23,285 for the year ended December 31, 2009, and the gross margin percentage increased by 4.3% to 26.3% . The increase in gross margin as a percentage of revenue is due to continued process improvements implemented in our manufacturing facilities coupled with higher volumes leading to improved production efficiencies, as well as lower raw material costs. The table below explains the increase in gross margin:
Ingredients Group Gross Margin Changes |
|
||
Gross Margin for the year ended December 31, 2009 |
$ |
23,285 | |
Increase due to oat and soy fiber volume and plant efficiencies |
|
3,802 | |
Impact of improved pricing and higher volumes in our fruit ingredient operations which, in addition to process improvements, contributed to manufacturing efficiencies |
|
2,426 | |
Increase in volume and pricing in contract manufacturing |
|
1,158 | |
Lower manufacturing costs in dairy blends and other blended products, partially offset by lower volumes |
|
288 | |
Decrease in starch and brans due primarily to lower volume |
|
(338 | ) |
Gross Margin for the year ended January 1, 2011 |
$ |
30,621 |
SUNOPTA INC. | 67 | December 31, 2011 10-K |
Operating income in the Ingredients Group increased by $6,613, or 54.0%, to $18,870 for the year ended January 1, 2011, compared to $12,257 for the year ended December 31, 2009. The table below explains the increase in operating income:
Ingredients Group Operating Income Changes |
|
||
Operating Income for the year ended December 31, 2009 |
$ |
12,257 | |
Increase in gross margin, as explained above |
|
7,336 | |
Decrease in bad debt expense |
|
253 | |
Increase in compensation costs |
|
(537 | ) |
Higher professional fees, increased travel expense and higher general office costs and corporate allocations, offset by a decrease in foreign exchange losses |
|
(439 | ) |
Operating Income for the year ended January 1, 2011 |
$ |
18,870 |
Consumer Products Group | January 1, 2011 | December 31, 2009 | Change | % Change | ||||||||
Revenue | 134,768 | 133,164 | 1,604 | 1.2% | ||||||||
Gross Margin | 14,959 | 8,512 | 6,447 | 75.7% | ||||||||
Gross Margin % | 11.1% | 6.4% | 4.7% | |||||||||
Operating Loss | (1,302 | ) | (10,327 | ) | 9,025 | 87.4% | ||||||
Operating Loss % | -1.0% | -7.8% | 6.8% |
The Consumer Products Group contributed $134,768 in revenues for the year ended January 1, 2011, compared to $133,164 for the year ended December 31, 2009, a $1,604 or 1.2% increase. The table below explains the increase in revenue:
Consumer Products Group Revenue Changes |
|
||
Revenue for the year ended December 31, 2009 |
$ |
133,164 | |
Increased volume at Food Solutions, primarily driven by new products, including low- calorie lemonades and electrolyte water products |
|
4,379 | |
Higher volume as a result of new customers and increased demand in our healthy snacks operation, partially offset by reduced contract pricing to certain customers |
|
2,477 | |
Decrease in brokerage operations due to lower volumes and lost customers |
|
(3,179 | ) |
Volume declines on industrial and food service offerings along with retail price decreases in the Frozen Foods operation, partially offset by higher retail volumes and price increases for industrial products |
|
(2,073 | ) |
Revenue for the year ended January 1, 2011 |
$ |
134,768 |
SUNOPTA INC. | 68 | December 31, 2011 10-K |
Gross margins in the Consumer Products Group increased by $6,447 to $14,959 for the year ended January 1, 2011 compared to $8,512 for the year ended December 31, 2009, and the gross margin percentage increased by 4.7% to 11.1% . The increase in gross margin as a percentage of revenue is due to liquidation and rationalization costs incurred in 2009 that did not reoccur in 2010, as well as improved production efficiencies at our frozen foods operations, cost benefits realized from process improvement initiatives implemented in our healthy snacks operations, and new higher margin product offerings in the Food Solutions operations. The table below explains the increase in gross margin:
Consumer Products Gross Margin Changes |
|
||
Gross Margin for the year ended December 31, 2009 |
$ |
8,512 | |
Costs incurred in 2009 to liquidate inventories and rationalize product offerings in the frozen foods operation |
|
3,238 | |
Introduction of new, high margin, products offerings at Food Solutions in addition to improved pricing on existing products, as well as lower warehousing costs and a decrease in inventory reserves as a result of lower inventory levels |
|
1,492 | |
Positive impact of the elimination of fresh fruit processing at our Buena Park facility via reduced storage and less costly Mexican fruit, coupled with increased retail volumes and lower brokerage costs, slightly offset by higher transportation costs |
|
1,484 | |
Impact of higher volumes, process improvement initiatives and cost reductions implemented at our healthy snacks operations, offset by costs related to the consolidation of two manufacturing facilities |
|
1,265 | |
Decline in volume at our brokerage operations |
|
(1,032 | ) |
Gross Margin for the year ended January 1, 2011 |
$ |
14,959 |
Operating loss in the Consumer Products Group decreased by $9,025, or 87.4%, to $1,302 for the year ended January 1, 2011, compared to a loss of $10,327 for the year ended December 31, 2009. The table below explains the decrease in operating loss:
Consumer Products Group Operating Loss Changes |
|||
Operating Loss for the year ended December 31, 2009 |
($10,327 | ) | |
Increase in gross margin, as explained above |
6,447 | ||
Decrease in compensation related costs and other general office expenses as a result of reduced headcount |
2,540 | ||
Severance and related costs incurred in the first quarter of 2009 associated with the rationalization of a facility |
545 | ||
Increase in professional fees related to ongoing legal matters |
(329 | ) | |
Increase in marketing expense in support of new product offerings and expanded sales efforts |
(178 | ) | |
Operating Loss for the year ended January 1, 2011 |
($1,302 | ) |
SUNOPTA INC. | 69 | December 31, 2011 10-K |
International Foods Group | ||||||||||||
For the year ended | January 1, 2011 | December 31, 2009 | Change | % Change | ||||||||
Revenue | 201,239 | 192,402 | 8,837 | 4.6% | ||||||||
Gross Margin | 28,773 | 23,661 | 5,112 | 21.6% | ||||||||
Gross Margin % | 14.3% | 12.3% | 2.0% | |||||||||
Operating Income | 871 | (2,314 | ) | 3,185 | 137.6% | |||||||
Operating Income % | 0.4% | -1.2% | 1.6% |
The International Foods Group contributed $201,239 in revenues for the year ended January 1, 2011, compared to $192,402 for the year ended December 31, 2009, an $8,837 or a 4.6% increase. The table below explains the increase in revenue:
International Foods Group Revenue Changes |
|
||
Revenue for the year ended December 31, 2009 |
$ |
192,402 | |
Higher customer demand for natural and organic commodities such as processed fruits and vegetables, cocoa products, sweeteners, and coffee beans, partially offset by lower demand for feed ingredients |
|
12,606 | |
Improved pricing for sweeteners, coffee beans and agave, and market pricing for cocoa, which continues to trade at or near record pricing, partially offset by lower contract pricing on grains, seeds and frozen fruits and vegetables |
|
4,109 | |
Decline in volume of shipments of both branded and distributed natural health products due to increased competition in the Canadian market and lower demand for health and beauty aids and health food products, slightly offset by increased demand in international markets for our natural health products |
|
(7,350 | ) |
Unfavorable net impact on revenues due to the weakened euro relative to the U.S. dollar, partially offset by the stronger Canadian dollar relative to the U.S. dollar compared to the 2009 period |
|
(528 | ) |
Revenue for the year ended January 1, 2011 |
$ |
201,239 |
SUNOPTA INC. | 70 | December 31, 2011 10-K |
Gross margins in the International Foods Group increased by $5,112 to $28,773 for the year ended January 1, 2011 compared to $23,661 for the year ended December 31, 2009, and the gross margin percentage increased by 2.0% to 14.3% . The increase in margin rate was due to improved contract pricing on certain organic ingredients at The Organic Corporation and lower spending in support of our branded natural health products. The table below explains the increase in gross margin:
International Foods Group Gross Margin Changes |
|
||
Gross Margin for the year ended December 31, 2009 |
$ |
23,661 | |
Higher volumes of natural and organic commodities, as well as improved contract pricing on coffee beans, sweeteners, agave and cocoa |
|
6,159 | |
Reduced spending on a brand re-launch initiative that was undertaken in 2009 in support of certain of our branded natural health products |
|
1,714 | |
Favorable net impact on gross margins due to the stronger Canadian dollar relative to the U.S. dollar, partially offset by weakened euro relative to the U.S. dollar versus the 2009 period |
|
618 | |
Lower shipment volumes of both branded products and distributed products, partially offset by improved pricing on distributed products and reduced trade spending in our natural health products operations |
|
(3,379 | ) |
Gross Margin for the year ended January 1, 2011 |
$ |
28,773 |
Operating income in the International Foods Group increased by $3,185, or 137.6%, to $871 for the year ended January 1, 2011, compared to a loss of $2,314 for the year ended December 31, 2009. The table below explains the increase in operating income:
International Foods Group Operating Income Changes |
|
||
Operating Loss for the year ended December 31, 2009 |
|
($2,314 | ) |
Increase in gross margins, as explained above |
|
5,112 | |
Lower marketing costs related to a brand re-launch initiative that was undertaken in 2009 in support of certain of our branded natural health products |
|
1,484 | |
Foreign exchange gains on forward foreign exchange contracts entered into by The |
|
||
Organic Corporation, mostly related to U.S. denominated contracts |
|
627 | |
Increase in compensation and other related costs due to higher headcount at The Organic |
|
||
Corporation to support higher sales and the sourcing of raw material products, as well as higher reserve for bad debts, partially offset by lower compensation related costs in our natural and health products operations due to headcount reductions in 2010 |
|
(2,088 | ) |
Negative impact on Canadian borne SG&A spending due to higher Canadian dollar relative to the U.S., partially offset by euro borne SG&A spending due to the lower euro relative to the U.S. dollar as compared to the 2009 period |
|
(1,560 | ) |
Higher corporate management fees |
|
(390 | ) |
Operating Income for the year ended January 1, 2011 |
$ |
871 |
SUNOPTA INC. | 71 | December 31, 2011 10-K |
Opta Minerals | January 1, 2011 | December 31, 2009 | Change | % Change | ||||||||
Revenue | 80,868 | 62,523 | 18,345 | 29.3% | ||||||||
Gross Margin | 20,037 | 13,081 | 6,956 | 53.2% | ||||||||
Gross Margin % | 24.8% | 20.9% | 3.9% | |||||||||
Operating Income | 7,753 | 1,161 | 6,592 | 567.8% | ||||||||
Operating Income % | 9.6% | 1.9% | 7.7% |
Opta Minerals contributed $80,868 in revenues for the year ended January 1, 2011, compared to $62,523 for the year ended December 31, 2009, an $18,345 or 29.3% increase. The table below explains the increase in revenue:
Opta Minerals Revenue Changes |
|
||
Revenue for the year ended December 31, 2009 |
$ |
62,523 | |
Increased volume as a result of a global increase in demand for steel and related products |
|
11,568 | |
Higher volume of abrasive products as a result of increased demand for abrasive slag in the Southern U.S. |
|
3,626 | |
Incremental sales from new production facilities located in Freeport, Texas and Tampa Bay, Florida which did not start to come online until the fourth quarter of 2009 |
|
3,151 | |
Revenue for the year ended January 1, 2011 |
$ |
80,868 |
Gross margin for Opta Minerals increased by $6,956 to $20,037 for the year ended January 1, 2011 compared to $13,081 for the year ended December 31, 2009, and the gross margin percentage increased by 3.9% to 24.8% . The table below explains the increase in gross margin:
Opta Minerals Gross Margin Changes |
|
||
Gross Margin for the year ended December 31, 2009 |
$ |
13,081 | |
Increased volume of steel and related products due to higher demand, combined with cost reduction measures that were implemented during 2009 |
|
5,369 | |
Incremental gross margin from new production facilities located in Freeport, Texas and Tampa Bay, Florida which did not start to come online until the fourth quarter of 2009 |
|
821 | |
Higher volume of abrasive products and lower costs due to cost reduction measures that were implemented during 2009 |
|
766 | |
Gross Margin for the year ended January 1, 2011 |
$ |
20,037 |
SUNOPTA INC. | 72 | December 31, 2011 10-K |
Operating income for Opta Minerals increased by $6,592, or 567.8%, to $7,753 for the year ended January 1, 2011, compared to $1,161 for the year ended December 31, 2009. The table below explains the increase in operating income:
Opta Minerals Operating Income Changes |
|
||
Operating Income for the year ended December 31, 2009 |
$ |
1,161 | |
Increase in gross margin, as explained above |
|
6,956 | |
Increase in foreign exchange gains |
|
805 | |
Decrease in depreciation and amortization |
|
170 | |
Decrease in professional fees due to fewer legal matters |
|
155 | |
Increase in compensation costs |
|
(975 | ) |
Increase in bad debt, office and occupancy costs, and storage and freight, offset by lower marketing and other SG&A costs |
|
(519 | ) |
Operating Income for the year ended January 1, 2011 |
$ |
7,753 |
Corporate Services | January 1, 2011 | December 31, 2009 | Change | % Change | ||||||||
Operating Loss | (11,213 | ) | (6,614 | ) | (4,599 | ) | -69.5% |
Operating loss at Corporate Services increased by $4,599 to $11,213 for the year ended January 1, 2011, from costs of $6,614 for the year ended December 31, 2009. The table below explains the increase in operating loss:
Corporate Services Operating Loss Changes |
|||
Operating Loss for the year ended December 31, 2009 |
($6,614 | ) | |
Increased compensation costs due to higher bonus accruals and increased workers compensation expense |
(2,508 | ) | |
Increase in SG&A costs due to the strengthened Canadian dollar in 2010 on translating Canadian borne expenses into U.S. dollars |
(1,489 | ) | |
Higher stock compensation expense as a result of warrants that were issued pursuant to an advisory services agreement with a financial advisory firm, as well as consulting costs |
(640 | ) | |
Increase in other corporate overhead costs mainly due to higher insurance premiums, increased IT related communication and hosting expenses and increased bank charges under our asset based lending facility, offset by lower depreciation expense |
(613 | ) | |
Decrease in foreign exchange gains |
(410 | ) | |
Increase in corporate management fees that are allocated to SunOpta operating groups |
683 | ||
Decreased professional fees primarily due to a reduction in legal costs related to the restatement of financial statements for the three quarters of 2007 |
378 | ||
Operating Loss for the year ended January 1, 2011 |
($11,213 | ) |
Management fees mainly consist of salaries of corporate personnel who perform back office functions for divisions, as well as costs related to the enterprise resource management system used within several of the divisions. These expenses are allocated to the groups based on (1) specific identification of allocable costs that represent a service provided to each division and (2) a proportionate distribution of costs based on a weighting of factors such as revenue contribution and number of people employed within each division. As a result of the sale of the Canadian Food Distribution business and SunOpta BioProcess, a portion of the corporate management fees previously charged to these groups was reallocated as an expense of the Corporate Services operating segment. The operating loss for Corporate Services for the year ended December 31, 2009 has been adjusted to reflect this change.
SUNOPTA INC. | 73 | December 31, 2011 10-K |
Liquidity and Capital Resources
We have the following sources from which we can fund our operating cash requirements:
As at December 31, 2011, we have availability under certain lines of credit of approximately $50,415 (January 1, 2011 $63,181).
In January 2012, we completed amendments to our syndicated banking facilities, which increased availability on our Canadian revolving credit facility from Cdn $5,000 to Cdn $10,000, and the U.S. revolving credit facility from $100,000 to $115,000, with a corresponding decrease in the amount of availability under the facilities accordion feature from $30,000 to $10,000. The remaining terms of the facilities did not change. These syndicated credit facilities mature on October 30, 2012. As the renewal date approaches, we intend to review all sources of credit available to us. We will need to renew or replace these facilities in order to support our future capital and working capital needs to grow our business.
In February 2012, in connection with its acquisition of Babco, Opta Minerals' credit agreement was amended to increase the borrowing amount available under the revolving acquisition facility by Cdn $19,000 (U.S. - $18,682).
In order to finance significant acquisitions that may arise in the future, we may need additional sources of cash that we could attempt to obtain through a combination of additional bank or subordinated financing, a private or public offering, or the issuance of common stock as consideration in an acquisition. There can be no assurance that these types of financing would be available or, if so, on terms that are acceptable to us.
Included in cash and cash equivalents at December 31, 2011 is $698 (January 1, 2011 - $495) that is specific to Opta Minerals that cannot be utilized by the Company for general corporate purposes, and is maintained in separate bank accounts of Opta Minerals.
We intend to maintain a total debt to equity ratio of 0.50 - 0.70 to 1.00 versus our current position of 0.54 to 1.00 (January 1, 2011 0.48 to 1.00) .
In the event that we require additional liquidity due to market conditions, unexpected actions by our lenders, changes to our growth strategy, or other factors, our ability to obtain any additional financing on favorable terms, if at all, could be limited.
Cash flows Year Ended December 31, 2011 Compared to the Year Ended January 1, 2011
Net cash and cash equivalents increased by $43 during the year ended December 31, 2011 (year ended January 1, 2011 increased by $583) to $2,378 at December 31, 2011. The increase in cash and cash equivalents was primarily the result of net borrowings on our credit facilities of $23,360, offset by net capital expenditures of $12,784, $3,158 of cash used for the acquisitions of Lortons and Inland, $2,303 of cash used for the working capital adjustment on the Dahlgren acquisition, and cash used in continuing operations of $3,874.
SUNOPTA INC. | 74 | December 31, 2011 10-K |
Cash used in operating activities from continuing operations was $3,874 during fiscal 2011, a decrease of $14,151 compared to cash provided by operating activities from continuing operations of $10,277 during 2010. The primary reason for the decrease in cash provided by operating activities from continuing operations was a $10,103 increase in cash used to fund working capital in 2011, due mainly to cash of $26,953 used to fund accounts payable and accrued liabilities, $5,681 used to fund inventories, cash used for income tax instalments of $2,452 and a decrease in cash from customer deposits of $3,959, partially offset by $15,105 more cash provided by prepaid expenses and other current assets and $13,837 in cash from the collection of accounts receivable. Cash used for accounts payable and accrued liabilities include the payment of previously accrued bonuses in the second quarter of 2011 and payment for 2011 crop inventories received in the Grains and Foods Group in the fourth quarter of 2010. Cash used to fund inventories was due to carrying higher levels of commodity corn and soybeans in the Grains and Foods Group, as well as certain commodities at The Organic Corporation, into the current crop season in order to improve gross margins by contracting less acres of more costly 2012 crops. Cash used for income tax instalments represents payments in tax jurisdictions that do not have loss carryforwards that can be applied against earnings generated. The reduction in cash provided from customer deposits is due to contracting less acres for planting, resulting in lower deposits received from our growers to purchase commodities. Cash provided from prepaid expenses and other current assets represents primarily the change in realized positions on derivatives instruments in place to reduce risk on corn and soybean positions. Cash provided by accounts receivable reflects improved collection times compared to the fourth quarter of 2010. Earnings from continuing operations for 2011 and items not affecting cash provided cash of $40,823 in 2011 compared to $44,871 in 2010, a decrease of $4,048, due to lower earnings from continuing operations of $3,365, a gain on the sale of property, plant and equipment in Mexico of $3,201, and a reduction of non-cash impairments in 2011 of $1,770, partially offset by increased depreciation and amortization of $1,605 primarily related to acquisitions in 2010, an increase in unrealized losses on derivative instruments of $2,342 and lower unrealized foreign exchange gains of $709.
Cash used in investing activities from continuing operations was $19,508 in 2011, compared to $64,819 in 2010. The decrease in cash used of $45,311 is primarily due to $43,761 of cash used in the acquisitions of Dahlgren and Edner in 2010, compared to $3,158 used in 2011 to fund the acquisitions of Lortons and Inland, as well as a $2,303 payment for working capital related to the Dahlgren acquisition. In addition, we used net cash of $12,784 for purchases of property, plant and equipment in 2011, compared to $19,336 in 2010. In 2011, we received cash proceeds of $4,528 from the sale of land, building and processing assets in Mexico and processing assets in California, as we rationalized our business model in the Frozen Foods operations. During 2011, spending on property, plant and equipment included the purchase of land and a building in the U.S. by Opta Minerals, maintenance and capacity enhancement at our aseptic beverage and ingredient facilities in Alexandria, Minnesota, as well as a retail polybag renovation at our Frozen Foods operation in California, combined with other plant-specific improvement projects and general maintenance spending across the organization. Cash used in investing activities from discontinued operations of $308 in 2011 related primarily to purchases of property, plant and equipment, whereas cash provided by investing activities from discontinued operations of $51,972 in 2010 included $65,809 of cash proceeds received on the sale of the Canadian Food Distribution assets, offset by $12,142 of cash sold in the divesture of SunOpta BioProcess, as well as purchases of property, plant and equipment made within the discontinued operations.
Financing activities generated cash of $25,245 in 2011 compared to a use of cash of $6,806 in 2010. In 2011, we had net borrowings on our credit facilities of $23,360, to fund working capital, expenditures on property, plant and equipment and two acquisitions noted above, compared to net repayments on our credit facilities of $7,878 in 2010, primarily from the funds received on the sale of the Canadian Food Distribution assets, less spending on working capital, property, plant and equipment and acquisitions in 2010.
Cash flows Year Ended January 1, 2011 Compared to the Year Ended December 31, 2009
Net cash and cash equivalents increased $583 during the year-ended January 1, 2011 (year ended December 31, 2009 decreased by $126) to $2,335 at January 1, 2011. The increase in cash and cash equivalents was primarily the result of net proceeds of $65,809 on the sale of the Canadian Food Distribution assets and cash provided by operating activities from continuing operations of $10,277, offset by cash used in the acquisitions of Dahlgren and Edner for $43,761, $19,372 of net capital expenditures, and $7,878 in net borrowings on our credit facilities.
Cash provided by operating activities from continuing operations was $10,277 during fiscal 2010, a decrease of $47,191 compared to cash provided by operating activities from continuing operations of $57,468 during 2009. The primary reason for the decrease in cash provided by operating activities was due to a $78,088 increase in cash used to fund working capital in 2010, due mainly to a $70,420 increase in cash to fund inventories, a $19,963 increase in cash to fund accounts receivable, a $12,322 increase in cash used to fund prepaid expense and other current assets, offset by a $21,599 increase in cash provided from an increase in accounts payable and accrued liabilities.
Inventory levels increased year over year in the Grains and Foods Group due to higher quantities on hand to support new customer contracts, as well as an increase in the commodity price for corn and soybeans. Also, inventory in the International Foods Group increased year over year in response to increased demand expected for 2011, as well as higher commodity prices. In contrast to the $35,861 of cash used to build inventory levels in 2010, inventory reductions in 2009, as a result of lower volumes and economic uncertainty, provided cash of $34,559. The $19,963 in cash used to fund accounts receivable is due to higher sales volumes in the fourth quarter of 2010 compared to 2009, and increased collection times. The $12,322 increase in cash used to fund prepaid expenses and other current assets is primarily due to increased short-term derivative gains on forward grain contracts as well as higher levels of supplier advances to secure product in our International Foods Group. Offsetting these uses of cash is a $21,599 increase in cash provided from accounts payable and accrued liabilities due primarily to increased inventory purchases. Earnings from continuing operations for 2010 and items not affecting cash provided cash of $44,871 compared to $13,974 in 2009, an increase of $30,897, due to improved earnings from continuing operations of $23,816, non-cash movements of $4,535 in deferred income taxes, and an increase of $1,339 in stock based compensation, partially offset by $1,003 lower asset and goodwill impairments in 2010.
SUNOPTA INC. | 75 | December 31, 2011 10-K |
Cash used in investing activities of continuing operations was $64,819 in 2010, compared to $11,535 in 2009. The increase in cash used of $53,284 is primarily due to $43,761 of cash used in the acquisitions of Dahlgren and Edner, and $19,372 used for purchases of property, plant and equipment compared to $10,798 in 2009. During 2010, spending on property, plant and equipment included the expansion of our fiber facility in Cedar Rapids to increase processing capacity, spending on our new aseptic packaging line at our Fruit Ingredient operation, a methane extraction project at our Cambridge oat fiber ingredient facility, and other plant-specific improvement projects and general maintenance spending across the organization. Cash provided by investing activities of discontinued operations of $51,972 in 2010 includes $65,809 of cash proceeds received on the sale of the Canadian Food Distribution assets, offset by $12,142 of cash sold in the divestiture of SunOpta BioProcess, as well as purchases of property, plant and equipment made within the discontinued operations. Cash used in investing activities of discontinued operations in 2009 related primarily to purchases of property, plant and equipment.
Financing activities used $6,806 in 2010 compared to $35,739 in 2009. In 2010, net debt repayments on our line of credit and long-term debt facilities were $7,878 compared to $34,363 in 2009, due to borrowings on our line of credit facilities to support the working capital increases noted above.
Business and Financial Outlook
The purpose of this Business and Financial Outlook section is to provide shareholders, prospective investors and other readers of the Form 10-K with information regarding management's current plans and expectations including expectations regarding future revenues and earnings. This Outlook has been prepared for this purpose only and readers are cautioned that it may not be appropriate for any other purpose. Readers are also cautioned that this Outlook is subject to the assumptions, risks and uncertainties discussed below and elsewhere in the Form 10-K, that actual results may vary from those presented and therefore they should not place undue reliance on it. This Outlook reflects our current expectations and judgments based on circumstances existing as of February 29, 2012. We disclaim any intention or obligation to update or revise this Business and Financial Outlook, whether as a result of new information, future events or otherwise, except as required by law. The statements in this Outlook are forward-looking statements. See Forward-Looking Statements.
Management believes that consumer demand for high quality natural and organic foods and natural health products has grown rapidly over the past decade as global awareness of the benefits of healthy eating continues to proliferate. The global market for organic products was valued at $59 billion in 2010 according to the Organic Monitor, a specialist research firm focusing on the organic industry, with historical growth rates between 10% and 20% depending on product line and country. We believe long-term trends for growth remain in place. While a large number of companies compete within specific segments of the market, we believe there are relatively few companies as well positioned as SunOpta to take advantage of this growing market. We believe that our vertically integrated seed to table business model built over the past 12 years has positioned SunOpta as a global leader in the natural and organic foods and natural health products markets.
For 2012, we believe we will realize revenue and unit growth compared to 2011, resulting from new product offerings, new and expanding customer relationships and incremental sales of nutritious portable. We believe that consumers will continue to focus on health conscious natural, organic and specialty foods and natural health products as concerns over disease, obesity and well-being are center of mind and we feel SunOpta is well positioned to meet the needs of these growing markets.
We believe that our net earnings for 2012 will improve versus 2011 as a result of improved volumes, pricing and product mix; increased capacity, cost reduction and rationalization initiatives, many of which have now been implemented; fixed cost leverage; and the avoidance of certain asset impairment charges recorded in 2011 which are not expected to reoccur in 2012. Our primary focus for 2012 remains the improvement of operating margins and returns on assets employed. Consistent with 2011, as a direct result of continually changing world-wide macroeconomic conditions, we have decided to take a cautious and responsible approach with regard to providing guidance, and in doing so, will not provide specific revenue and net earnings guidance for 2012 at this time.
Our overall objective of realizing profitable growth through an effective balance of internal growth and acquisitions in support of our vertically integrated seed to table strategy remains unchanged. We continue to look for ways to exploit strategic synergies across SunOpta Foods, vertically integrating wherever possible. Initiatives to improve the productivity of operations include our performance excellence through people programs, product rationalization, 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 in Item 1 of the Form 10-K.
SUNOPTA INC. | 76 | December 31, 2011 10-K |
Maintaining liquidity and having available sources of cash will be imperative to continue our growth. As at December 31, 2011, we had $2,378 in cash, of which $698 may only be used within Opta Minerals. We also had approximately $50,415 in unused bank lines for a total of $52,793 in cash and borrowings available. Our remaining cash and unused lines plus cash generated from operations are expected to be sufficient to finance 2012 capital spending estimated to be $30,000 to $35,000, 2012 debt service of $35,198 and payment of the current portion of long-term liabilities of $995. In addition, depending on the outcome of pending legal proceedings related to the Colorado Sun Oil Processors dispute, we may be required to fund a settlement payment to Colorado Mills during 2012. At December 31, 2012 we had accrued $5,246 for this contingency. Adjustments to the accrued amount may be made in future periods depending on the outcome of our appeal. We believe additional sources of cash could be obtained through a combination of additional bank or subordinated financing, a private or public offering, the issuance of shares or through a divestiture. However, there can be no assurance that such financing or transactions would be available or, if so, on terms that are acceptable to us.
Off Balance Sheet Arrangements
There are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition.
Contractual Obligations
The table(a) below sets out our contractual obligations with respect to long-term debt, operating and capital leases including interest costs, commitments to purchase grains, commodity and foreign exchange derivative contracts and long term liabilities, at December 31, 2011:
|
|
|
|
|
Payments due by Period |
| |||||||||
Contractual Obligations |
|
Total |
|
|
2012 |
|
|
2013-2014 |
|
|
2015-2016 |
|
|
Thereafter |
|
Long-term debt obligations |
|
52,227 |
|
|
35,161 |
|
|
6,648 |
|
|
5,690 |
|
|
4,728 |
|
Capital lease obligations |
|
37 |
|
|
37 |
|
|
- |
|
|
- |
|
|
- |
|
Grain purchase commitments |
|
46,190 |
|
|
46,190 |
|
|
- |
|
|
- |
|
|
- |
|
Other commitments |
|
2,720 |
|
|
2,720 |
|
|
- |
|
|
- |
|
|
- |
|
Operating leases |
|
44,074 |
|
|
10,515 |
|
|
18,196 |
|
|
10,533 |
|
|
4,830 |
|
Interest on long-term debt |
|
5,395 |
|
|
2,505 |
|
|
1,687 |
|
|
938 |
|
|
265 |
|
Commodity and foreign exchange contracts |
|
1,738 |
|
|
1,668 |
|
|
70 |
|
|
- |
|
|
- |
|
Long-term liabilities |
|
6,581 |
|
|
995 |
|
|
5,586 |
|
|
- |
|
|
- |
|
Interest rate swap |
|
256 |
|
|
256 |
|
|
- |
|
|
- |
|
|
- |
|
|
|
159,218 |
|
|
100,047 |
|
|
32,187 |
|
|
17,161 |
|
|
9,823 |
|
(a) |
This table does not include certain contingent consideration related to acquisitions completed prior to December 31, 2008 that may become payable if predetermined profit targets are achieved. The estimated fair values of contingent consideration liabilities related to acquisitions completed after January 1, 2009 are reflected in the table above. | |
Also not included in this table is approximately $8,300 in equipment financing expected to be converted to operating leases subsequent to December 31, 2011. | ||
(b) |
Interest is calculated based on scheduled repayments over the periods as indicated, using existing interest rates at December 31, 2011, as disclosed in note 11 to the Consolidated Financial Statements. |
SUNOPTA INC. | 77 | December 31, 2011 10-K |
Exhibit 99.2
Item 9A - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commissions rules and forms. Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the period covered by this annual report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.
Managements Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
Our internal control framework and processes are designed to provide reasonable assurance to management and our Board of Directors regarding the reliability of financial reporting and the preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth by the Committee on Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework.
Based on its assessment, our management concluded that, as of December 31, 2011, our internal control over financial reporting is effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm that also audited the Companys Consolidated Financial Statements for the year ended December 31, 2011, as stated in their report attestation which appears herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
SUNOPTA INC. | 81 | December 31, 2011 10-K |
Report of Independent Registered Chartered Accountants
To the Board of Directors and Shareholders of SunOpta Inc.:
We have audited the internal control over financial reporting of SunOpta Inc. and subsidiaries (the "Company") as of December 31, 2011, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit 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. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Financial Statements as of and for the year ended December 31, 2011 of the Company and our report dated March 7, 2012 (June 25, 2012 as to Note 21) expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Licensed
Public Accountants
Toronto, Canada
March 7, 2012
SUNOPTA INC. | 82 | December 31, 2011 10-K |
Exhibit 99.3
SunOpta Inc.
Index to Consolidated Financial Statements
(expressed in thousands of U.S. dollars, unless otherwise noted)
Page | |
Report of Independent Registered Chartered Accountants | F2 |
Consolidated Statements of
Operations For the Years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
F3 |
Consolidated Statements of Comprehensive
Earnings For the Years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
F4 |
Consolidated Balance
Sheets As at December 31, 2011 and January 1, 2011 |
F5 |
Consolidated Statements of Shareholders
Equity For the Years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
F6 |
Consolidated Statements of Cash
Flows For the Years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
F7 |
Notes to Consolidated Financial
Statements For the Years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
F8 |
SUNOPTA INC. | -F1- | December 31, 2011 10-K |
Report of Independent Registered Chartered Accountants
To the Board of Directors and Shareholders of SunOpta Inc.:
We have audited the accompanying consolidated balance sheets of SunOpta Inc. and subsidiaries (the "Company") as of December 31, 2011 and January 1, 2011, and the related consolidated statements of operations, comprehensive earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. 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 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of SunOpta Inc. and subsidiaries as of December 31, 2011 and January 1, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2012 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Licensed
Public Accountants
Toronto, Canada
March 7, 2012 (June 25, 2012 as to
Note 21)
SUNOPTA INC. | -F2- | December 31, 2011 10-K |
SunOpta Inc. |
Consolidated Statements of Operations |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
|
(see note 3 | ) | (see note 3 | ) | |||||
|
|||||||||
Revenues |
1,082,076 | 898,309 | 819,031 | ||||||
|
|||||||||
Cost of goods sold |
950,345 | 756,818 | 713,922 | ||||||
|
|||||||||
Gross profit |
131,731 | 141,491 | 105,109 | ||||||
|
|||||||||
Selling, general and administrative expenses |
92,078 | 95,486 | 88,337 | ||||||
Intangible asset amortization |
5,512 | 4,675 | 4,648 | ||||||
Other expense, net (note 14) |
5,097 | 10,945 | 2,245 | ||||||
Goodwill impairment (note 8) |
- | 1,654 | 8,841 | ||||||
Foreign exchange loss (gain) |
947 | (1,652 | ) | (523 | ) | ||||
|
|||||||||
Earnings from continuing operations before the following |
28,097 | 30,383 | 1,561 | ||||||
|
|||||||||
Interest expense, net (note 11) |
8,839 | 9,749 | 13,839 | ||||||
|
|||||||||
Earnings (loss) from continuing operations before income taxes |
19,258 | 20,634 | (12,278 | ) | |||||
|
|||||||||
Provision for (recovery of) income taxes (note 15) |
8,047 | 6,058 | (3,038 | ) | |||||
|
|||||||||
Earnings (loss) from continuing operations |
11,211 | 14,576 | (9,240 | ) | |||||
|
|||||||||
Discontinued operations (note 3) |
|||||||||
Loss from discontinued operations, net of income taxes |
(4,350 | ) | (15,092 | ) | (330 | ) | |||
Gain on sale of discontinued operations, net of income taxes |
71 | 62,950 | - | ||||||
|
|||||||||
(Loss) earnings from discontinued operations, net of income taxes |
(4,279 | ) | 47,858 | (330 | ) | ||||
|
|||||||||
Earnings (loss) |
6,932 | 62,434 | (9,570 | ) | |||||
|
|||||||||
Earnings (loss) attributable to non-controlling interests |
1,636 | 1,368 | (2,807 | ) | |||||
|
|||||||||
Earnings (loss) attributable to SunOpta Inc. |
5,296 | 61,066 | (6,763 | ) | |||||
|
|||||||||
Earnings (loss) per share basic (note 16) |
|||||||||
-from continuing operations |
0.15 | 0.20 | (0.10 | ) | |||||
-from discontinued operations |
(0.07 | ) | 0.73 | - | |||||
|
0.08 | 0.94 | (0.10 | ) | |||||
|
|||||||||
Earnings (loss) per share diluted (note 16) |
|||||||||
-from continuing operations |
0.14 | 0.20 | (0.10 | ) | |||||
-from discontinued operations |
(0.06 | ) | 0.72 | - | |||||
|
0.08 | 0.92 | (0.10 | ) |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. | -F3- | December 31, 2011 10-K |
SunOpta Inc. |
Consolidated Statements of Comprehensive Earnings |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
|
|||||||||
|
(see note 3 | ) | (see note 3 | ) | |||||
|
|||||||||
Earnings (loss) from continuing operations |
11,211 | 14,576 | (9,240 | ) | |||||
(Loss) earnings from discontinued operations, net of income taxes |
(4,279 | ) | 47,858 | (330 | ) | ||||
Earnings (loss) |
6,932 | 62,434 | (9,570 | ) | |||||
|
|||||||||
Currency translation adjustment |
(796 | ) | (3,002 | ) | 10,442 | ||||
Change in fair value of interest rate swap, net of income taxes of $195 |
440 | 351 | 415 | ||||||
Adjustments due to pensions |
- | 588 | (78 | ) | |||||
Other comprehensive (loss) earnings, net of income taxes |
(356 | ) | (2,063 | ) | 10,779 | ||||
|
|||||||||
Comprehensive earnings |
6,576 | 60,371 | 1,209 | ||||||
|
|||||||||
Comprehensive earnings (loss) attributable to non-controlling interests |
1,731 | 779 | (2,841 | ) | |||||
|
|||||||||
Comprehensive earnings attributable to SunOpta Inc. |
4,845 | 59,592 | 4,050 |
SUNOPTA INC. | -F4- | December 31, 2011 10-K |
SunOpta Inc. |
Consolidated Balance Sheets |
As at December 31, 2011 and January 1, 2011 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
|
||||||
Assets |
(see note 3 | ) | ||||
|
||||||
Current assets |
||||||
Cash and cash equivalents (note 17) |
2,378 | 2,335 | ||||
Accounts receivable (note 5) |
94,177 | 98,777 | ||||
Inventories (note 6) |
240,852 | 200,278 | ||||
Prepaid expenses and other current assets (note 4) |
21,625 | 30,023 | ||||
Current income taxes recoverable |
1,503 | - | ||||
Deferred income taxes (note 15) |
4,773 | 870 | ||||
Current assets held for sale (note 3) |
- | 424 | ||||
|
365,308 | 332,707 | ||||
|
||||||
Investments (note 3) |
33,845 | 33,345 | ||||
Property, plant and equipment (note 7) |
120,734 | 115,200 | ||||
Goodwill (note 8) |
49,387 | 48,174 | ||||
Intangible assets (note 8) |
48,624 | 60,200 | ||||
Deferred income taxes (note 15) |
11,751 | 11,889 | ||||
Other assets |
1,854 | 2,930 | ||||
Non-current assets held for sale (note 3) |
- | 4,855 | ||||
|
||||||
|
631,503 | 609,300 | ||||
|
||||||
Liabilities |
||||||
|
||||||
Current liabilities |
||||||
Bank indebtedness (note 10) |
109,718 | 75,910 | ||||
Accounts payable and accrued liabilities (note 9) |
120,228 | 122,743 | ||||
Customer and other deposits |
843 | 2,858 | ||||
Income taxes payable |
1,229 | 973 | ||||
Other current liabilities (note 4) |
1,419 | 7,674 | ||||
Current portion of long-term debt (note 11) |
35,198 | 22,247 | ||||
Current portion of long-term liabilities |
995 | 493 | ||||
Current liabilities held for sale (note 3) |
- | 1,028 | ||||
|
269,630 | 233,926 | ||||
|
||||||
Long-term debt (note 11) |
17,066 | 42,485 | ||||
Long-term liabilities |
5,586 | 6,596 | ||||
Deferred income taxes (note 15) |
24,273 | 20,808 | ||||
Non-current liabilities held for sale (note 3) |
- | 358 | ||||
|
316,555 | 304,173 | ||||
|
||||||
|
||||||
Equity |
||||||
SunOpta Inc. shareholders equity |
||||||
Capital Stock (note 13) |
182,108 | 180,661 | ||||
65,796,398 common shares (January 1, 2011 - 65,500,091) |
||||||
Additional paid-in capital (note 13) |
14,134 | 12,336 | ||||
Retained earnings |
100,508 | 95,212 | ||||
Accumulated other comprehensive income |
2,382 | 2,833 | ||||
|
299,132 | 291,042 | ||||
Non-controlling interest |
15,816 | 14,085 | ||||
Total equity |
314,948 | 305,127 | ||||
|
||||||
|
631,503 | 609,300 | ||||
Commitments and contingencies (note 20) |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. | -F5- | December 31, 2011 10-K |
SunOpta Inc. |
Consolidated Statements of Shareholders Equity |
As at and for the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
Accumulated | |||||||||||||||||
|
Additional | other | Non- | |||||||||||||||
|
Capital | paid-in | Retained | comprehensive | controlling | Total | ||||||||||||
|
stock | capital | earnings | income | interest | equity | ||||||||||||
|
$ | $ | $ | $ | $ | $ | ||||||||||||
|
||||||||||||||||||
Balance at December 31, 2008 |
177,858 | 6,778 | 40,909 | 1,266 | 15,102 | 241,913 | ||||||||||||
|
||||||||||||||||||
Employee stock purchase plan and compensation grants |
836 | - | - | - | - | 836 | ||||||||||||
Stock-based compensation, including tax benefit of $6 |
- | 1,435 | - | - | - | 1,435 | ||||||||||||
Equity transaction |
- | (279 | ) | - | - | 279 | - | |||||||||||
Loss from continuing operations |
- | - | (6,433 | ) | - | (2,807 | ) | (9,240 | ) | |||||||||
Loss from discontinued operations |
- | - | (330 | ) | - | (220 | ) | (550 | ) | |||||||||
Currency translation adjustment |
- | - | - | 10,615 | (173 | ) | 10,442 | |||||||||||
Non-controlling interest contributions |
- | - | - | - | 1,338 | 1,338 | ||||||||||||
Change in fair value of interest rate swap, net of income taxes of $182 |
- | - | - | 276 | 139 | 415 | ||||||||||||
Adjustment due to pensions |
- | - | - | (78 | ) | - | (78 | ) | ||||||||||
|
||||||||||||||||||
Balance at December 31, 2009 |
178,694 | 7,934 | 34,146 | 12,079 | 13,658 | 246,511 | ||||||||||||
|
||||||||||||||||||
Employee stock purchase plan and compensation grants |
760 | - | - | - | - | 760 | ||||||||||||
Options exercised |
1,207 | (84 | ) | - | - | - | 1,123 | |||||||||||
Issuance of warrants (note 13) |
- | 2,163 | - | - | - | 2,163 | ||||||||||||
Stock-based compensation, including tax benefit of $42 |
- | 2,323 | - | - | - | 2,323 | ||||||||||||
Earnings from continuing operations |
- | - | 13,208 | - | 1,368 | 14,576 | ||||||||||||
Earnings from discontinued operations, net of income taxes |
- | - | 47,858 | (7,772 | ) | (487 | ) | 39,599 | ||||||||||
Currency translation adjustment |
- | - | - | (2,295 | ) | (707 | ) | (3,002 | ) | |||||||||
Non-controlling interest contributions |
- | - | - | - | 243 | 243 | ||||||||||||
Change in fair value of interest rate swap, net of income taxes of $145 |
- | - | - | 233 | 118 | 351 | ||||||||||||
Non-current liabilities held for sale (note 3) |
- | - | - | - | (108 | ) | (108 | ) | ||||||||||
Adjustment due to pensions |
- | - | - | 588 | - | 588 | ||||||||||||
|
||||||||||||||||||
Balance at January 1, 2011 |
180,661 | 12,336 | 95,212 | 2,833 | 14,085 | 305,127 | ||||||||||||
|
||||||||||||||||||
Employee stock purchase plan and compensation grants |
626 | - | - | - | - | 626 | ||||||||||||
Options exercised |
821 | (292 | ) | - | - | - | 529 | |||||||||||
Stock-based compensation, including tax benefit of $86 |
- | 2,090 | - | - | - | 2,090 | ||||||||||||
Earnings from continuing operations |
- | - | 9,575 | - | 1,636 | 11,211 | ||||||||||||
Loss from discontinued operations, net of income taxes |
- | - | (4,279 | ) | - | - | (4,279 | ) | ||||||||||
Currency translation adjustment |
- | - | - | (743 | ) | (53 | ) | (796 | ) | |||||||||
Change in fair value of interest rate swap, net of income taxes of $195 |
- | - | - | 292 | 148 | 440 | ||||||||||||
|
||||||||||||||||||
Balance at December 31, 2011 |
182,108 | 14,134 | 100,508 | 2,382 | 15,816 | 314,948 |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. | -F6- | December 31, 2011 10-K |
SunOpta Inc. |
Consolidated Statements of Cash Flows |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
|
(see note 3 | ) | (see note 3 | ) | |||||
Cash provided by (used in) |
|||||||||
|
|||||||||
Operating activities |
|||||||||
Earnings (loss) |
6,932 | 62,434 | (9,570 | ) | |||||
(Loss) earnings from discontinued operations |
(4,279 | ) | 47,858 | (330 | ) | ||||
Earnings (loss) from continuing operations |
11,211 | 14,576 | (9,240 | ) | |||||
Items not affecting cash: |
|||||||||
Depreciation and amortization |
19,447 | 17,842 | 17,030 | ||||||
Unrealized gain on foreign exchange |
(268 | ) | (977 | ) | (1,022 | ) | |||
Deferred income taxes |
2,144 | 2,448 | (2,087 | ) | |||||
Stock-based compensation |
2,090 | 2,764 | 1,425 | ||||||
Goodwill impairment (note 8) |
- | 1,654 | 8,841 | ||||||
Impairment of long-lived assets (note 14) |
7,868 | 7,984 | 1,800 | ||||||
Unrealized loss (gain) on derivative instruments |
839 | (1,503 | ) | (2,265 | ) | ||||
(Gain) loss on disposal of property, plant and equipment |
(3,201 | ) | 59 | (122 | ) | ||||
Other |
693 | 24 | (386 | ) | |||||
Changes in non-cash working capital, net of businesses acquired (note 17) |
(44,697 | ) | (34,594 | ) | 43,494 | ||||
Net cash flows from operations - continuing operations |
(3,874 | ) | 10,277 | 57,468 | |||||
Net cash flows from operations - discontinued operations |
(1,718 | ) | (8,969 | ) | (12,580 | ) | |||
|
(5,592 | ) | 1,308 | 44,888 | |||||
Investing activities |
|||||||||
Acquisition of businesses, net of cash acquired (note 2) |
(5,461 | ) | (43,761 | ) | - | ||||
Purchases of property, plant and equipment |
(17,312 | ) | (19,372 | ) | (10,798 | ) | |||
Proceeds from the sale of long-lived assets |
4,528 | 36 | 1,076 | ||||||
Purchases of patents, trademarks and other intangible assets |
(81 | ) | (662 | ) | (216 | ) | |||
Payment of deferred purchase consideration |
(233 | ) | (1,388 | ) | (1,856 | ) | |||
Other |
(949 | ) | 328 | 259 | |||||
Cash flow from investing activities - continuing operations |
(19,508 | ) | (64,819 | ) | (11,535 | ) | |||
Cash flow from investing activities - discontinued operations |
(308 | ) | 51,972 | (2,597 | ) | ||||
|
(19,816 | ) | (12,847 | ) | (14,132 | ) | |||
Financing activities |
|||||||||
Increase (decrease) in line of credit facilities |
36,503 | 14,328 | (5,644 | ) | |||||
Borrowings under long-term debt |
4,825 | 30,217 | 719 | ||||||
Proceeds from the issuance of common shares |
1,155 | 1,883 | 836 | ||||||
Repayment of long-term debt |
(17,968 | ) | (52,423 | ) | (29,438 | ) | |||
Deferred financing costs |
(186 | ) | (642 | ) | (2,198 | ) | |||
Other |
916 | (169 | ) | (14 | ) | ||||
Cash flow from financing activities - continuing operations |
25,245 | (6,806 | ) | (35,739 | ) | ||||
Foreign exchange (loss) gain on cash held in a foreign currency |
(102 | ) | 265 | 951 | |||||
Decrease in cash and cash equivalents during the year |
(265 | ) | (18,080 | ) | (4,032 | ) | |||
Discontinued operations cash activity included above: |
|||||||||
Add: Balance included at beginning of year |
308 | 18,971 | 22,877 | ||||||
Less: Balance included at end of year |
- | (308 | ) | (18,971 | ) | ||||
|
|||||||||
Cash and cash equivalents - beginning of the year |
2,335 | 1,752 | 1,878 | ||||||
|
|||||||||
Cash and cash equivalents - end of the year |
2,378 | 2,335 | 1,752 | ||||||
|
|||||||||
Supplemental cash flow information (notes 17) |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. | -F7- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
1. |
Description of business and significant accounting policies |
SunOpta Inc. (the Company or SunOpta) was incorporated under the laws of Canada on November 13, 1973. The Company operates businesses focused on a healthy products portfolio that promotes the health and well-being of its communities combined with environmental responsibility. The Company has two industry groups divided into six operating segments, the largest being SunOpta Foods, accounting for approximately 91% of fiscal 2011 consolidated revenues. SunOpta Foods operates in the natural, organic and specialty foods and natural health product sectors and utilizes a number of vertically integrated business models to bring cost-effective and quality products to market. In addition to SunOpta Foods, the Company owns approximately 66.2% of Opta Minerals Inc. (Opta Minerals) as at December 31, 2011 (January 1, 2011 - 66.4%) . Opta Minerals, representing approximately 9% of fiscal 2011 consolidated revenues, is a vertically integrated provider of customer process solutions and industrial minerals products for use primarily in the steel, foundry, loose abrasive cleaning, roof shingle, construction and marine/bridge cleaning industries. The Companys assets, operations and employees as at December 31, 2011 are primarily located in the United States ("U.S."), Canada, Europe, China and Ethiopia.
Basis of presentation
These consolidated financial statements have been prepared by the Company in U.S. dollars and in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries, including Opta Minerals. In addition, the accounts of all variable interest entities ("VIEs") for which the Company has been determined to be the primary beneficiary are included in these consolidated financial statements from the date such determination was made (see note 19). All significant intercompany accounts and transactions have been eliminated on consolidation.
The Company's investment in Opta Minerals is controlled and therefore is consolidated. The non-controlling interest on the consolidated balance sheets and consolidated statements of operations and comprehensive earnings (loss) includes the non-controlling shareholders interest in Opta Minerals.
The Company's investment in Mascoma Corporation ("Mascoma") is being accounted for under the cost method of accounting, based on a 18.65% ownership position as at December 31, 2011 (January 1, 2011 - 19.61%), and the inability of the Company to exert significant influence over the operations of Mascoma.
As a result of the discontinued operations described in note 3, comparative amounts shown in the notes to the consolidated financial statements have been adjusted to exclude the carrying amounts of assets and liabilities classified as held for sale, and the revenues and expenses of the discontinued operations.
Fiscal year-end
Commencing for fiscal 2010, the fiscal year of the Company ends on the Saturday closest to December 31, based on a 52 week calendar, wherein every fiscal quarter is comprised of 13 weeks or 91 days. The fiscal year of Opta Minerals ends on December 31, and its quarterly periods end on March 31, June 30 and September 30.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Areas involving significant estimates and assumptions include: inventory valuation reserves; income tax liabilities and assets, and related valuation allowances; allocation of the purchase price of acquired businesses; fair value of contingent consideration; expected future cash flows used in evaluating intangible assets for impairment; and reporting unit fair values in testing goodwill for impairment. The estimates and assumptions made require judgment on the part of management and are based on the Companys historical experience and various other factors that are believed to be reasonable in the circumstances. Management continually evaluates the information that forms the basis of its estimates and assumptions as the business of the Company and the business environment generally changes.
SUNOPTA INC. | -F8- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Business acquisitions
Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquisition-related transaction costs are accounted for as expenses in the periods in which the costs are incurred. Contingent consideration is measured at fair value and recognized as part of the consideration transferred in exchange for the acquired businesses. Contingent consideration liabilities are remeasured to fair value at each reporting date with the changes in fair value recognized in earnings.
Variable interest entities
The Company consolidates the financial results of VIEs in which it holds a controlling financial interest. The Company performs a qualitative analysis to determine whether it holds a controlling financial interest (i.e., is the primary beneficiary) in the VIE. The analysis identifies the primary beneficiary of a VIE as the entity that has both the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.
Financial instruments
The Companys 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 values due to their short-term maturities. The fair values of long-term debt and long-term liabilities as at December 31, 2011 are considered not to be materially different from the carrying amounts.
The Companys financial instruments exposed to credit risk include cash equivalents and accounts receivable. The Company places its cash and cash equivalents with institutions of high creditworthiness. The Companys 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.
Fair value measurements
The Company has various financial assets and liabilities that are measured at fair value on a recurring basis, including certain inventories and derivatives, as well as contingent consideration. The Company also applies the provisions of fair value measurement to various non-recurring measurements for financial and non-financial assets and liabilities measured at fair value on a non-recurring basis.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Fair value measurements are estimated based on inputs categorized as follows:
Level 1 inputs include quoted prices (unadjusted) for identical assets or liabilities in active markets that are observable.
Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 includes unobservable inputs that reflect the Company's own assumptions about what factors market participants would use in pricing the asset or liability.
When measuring fair value, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
SUNOPTA INC. | -F9- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Foreign currency translation
The functional currency of all operations located in the U.S., as well the corporate head office which is located in Canada, is the U.S. dollar. The functional currencies of other operations located in Canada and Europe are the Canadian dollar and euro, respectively.
The assets and liabilities of the Companys operations, as well as monetary assets of the corporate head office, are translated at exchange rates in effect at the dates of the consolidated balance sheets. 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 related to the remeasurement of the corporate head office from Canadian to U.S. dollars are recognized in earnings. Unrealized gains or losses resulting from translating other operations into U.S. dollars are accumulated and reported as a currency translation adjustment in shareholders equity and are disclosed as part of accumulated other comprehensive income. Gains and losses from foreign currency transactions are included in earnings.
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term deposits with an original maturity of 90 days or less. Certain cash and cash equivalents can only be used by subsidiaries and are consolidated for financial reporting purposes due to the Companys ownership (see note 17).
Accounts receivable
Trade receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is an estimate of the amount of probable credit losses in existing accounts receivable. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. As at December 31, 2011 and January 1, 2011, no customers balance represented 10% or more of the Companys consolidated trade receivables balance.
Inventories
Inventories (excluding commodity grains) are valued at the lower of cost and market (net realizable value). Cost is principally determined on a weighted-average cost basis. Shipping and handling costs are included in cost of goods sold on the consolidated statements of operations.
Inventories of commodity grains, which includes amounts acquired under deferred pricing contracts traded on the Chicago Board of Trade (CBoT), are valued at net realizable value. Grain inventory quantities at year-end are multiplied by the quoted price on the CBoT to reflect the market value of the inventory. This market value is then adjusted for a basis factor that represents differences in local markets, and broker and dealer quotes to arrive at net realizable value. Changes in CBoT prices or the basis factor are included in cost of goods sold on the consolidated statements of operations and comprehensive earnings (loss). The Company also has other grain inventories consisting of sunflowers and certain specialty and organic soybeans, which are valued at the lower of cost and estimated net realizable value.
SunOpta Foods economically hedges its commodity grain positions to protect gains and minimize losses due to market fluctuations. Futures contracts and purchase and sale contracts are adjusted to market price and resulting gains and losses from these transactions are included in cost of goods sold. The Company has a risk of loss from hedge activity if the grower does not deliver the grain as scheduled. These transactions do not qualify as hedges under U.S. GAAP and, therefore, changes in market value are recorded in the consolidated statements of operations.
Prepaid expenses and other current assets
Prepaid expenses and other current assets include amounts paid in cash and recorded by the Company as a current asset prior to consumption.
SUNOPTA INC. | -F10- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line basis at rates reflecting the estimated useful lives of the assets.
Buildings |
20 - 40 years |
Machinery and equipment |
10 - 20 years |
Enterprise software |
5 years |
Office furniture and equipment |
3 - 7 years |
Vehicles |
5 years |
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is instead tested for impairment at least annually during the fourth quarter, or whenever events or circumstances change between the annual impairment tests that would indicate the carrying amount of goodwill may be impaired. Impairment is tested at the reporting unit level by comparing the reporting units carrying amount to its fair value. If the carrying amount exceeds the reporting units fair value, there is a potential impairment in goodwill. Any impairment in goodwill is measured by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and comparing the notional goodwill from the fair value allocation to the carrying value of the goodwill.
Intangible assets
The Companys finite-lived intangible assets consist of customer and other relationships, patents and trademarks and other intangible assets. These intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:
Customer and other relationships |
2 - 23 years |
Patents and trademarks |
8 - 20 years |
Other |
4 - 15 years |
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable through undiscounted future cash flows. If impairment exists based on expected future undiscounted cash flows, a loss is recognized in income. The amount of the impairment loss is the excess of the carrying amount of the impaired asset over the fair value of the asset, typically based on discounted future cash flows.
Other assets
Costs incurred in connection with obtaining financing are deferred and amortized over the term of the financing agreement, using the effective interest rate method.
Derivative instruments
The Company is exposed to fluctuations in interest rates, commodities and foreign currency exchange. The Company utilizes certain derivative financial instruments to enhance its ability to manage these risks, including interest rate swaps, exchange-traded commodity futures, commodity forward purchase and sale contracts and forward foreign exchange contracts. Derivative instruments are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes.
All derivative instruments are recognized on the consolidated balance sheets at fair value. Changes in the fair value of derivative instruments are recorded in earnings or other comprehensive earnings, based on whether the instrument is designated as part of a hedge transaction. Gains or losses on derivative instruments reported in accumulated other comprehensive income are reclassified to earnings in the period in which earnings are affected by the underlying hedged item. The ineffective portion of all hedges is recognized in earnings in the current period. As at December 31, 2011, the Company utilized the following derivative instruments:
SUNOPTA INC. | -F11- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
(a) |
Interest rate swaps |
Opta Minerals utilizes an interest rate swap to manage its exposure to interest rate risks. The fair value of this contract is included in accounts payable and accrued liabilities. Changes in the fair value of the contract are included in accumulated other comprehensive income to the extent that the cash flow hedge continues to be effective. The amounts included in accumulated other comprehensive income amounts are allocated to earnings in the same period in which the hedged item affects earnings. To the extent that the cash flow hedge is not considered to be effective by completely offsetting the change in fair value of the hedged item, the ineffective portion of the hedging relationship is recorded immediately in earnings and is classified as interest expense on the consolidated statements of operations. | |
(b) |
Exchange-traded commodity futures and forward contracts |
SunOpta Foods enters into exchange-traded commodity futures contracts to economically hedge its exposure to price fluctuations on grain and cocoa transactions to the extent considered practicable for minimizing risk from market price fluctuations. Futures contracts used for economical hedging purposes are purchased and sold through regulated commodity exchanges in the U.S. Inventories, however, may not be completely hedged, due in part to the Companys assessment of its exposure from expected price fluctuations. Forward purchase and sale contracts may expose the Company to risk in the event that a counterparty to a transaction is unable to fulfill its contractual obligation or if a grower does not deliver grain as scheduled. The Company manages its risk by entering into purchase contracts with pre-approved growers and sale contracts are entered into with organizations of acceptable creditworthiness, as internally evaluated. All futures and forward purchase and sale contracts are marked-to-market. Gains and losses on these transactions are included in cost of goods sold on the consolidated statements of operations. For the years ended December 31, 2011, January 1, 2011 and December 31, 2009, the gains included in cost of goods sold were $661, $7,838 and $621, respectively. | |
(c) |
Forward foreign exchange contracts |
The Company enters into forward foreign exchange contracts to minimize exchange rate fluctuations relating to foreign currency denominated sales contracts and accounts receivable. Forward foreign exchange contracts designated as hedges are marked-to-market with the effective portion of the gain or loss recognized in other comprehensive earnings and subsequently recognized in earnings in the same period the hedged item affects earnings. Gains and losses on forward exchange contracts not specifically designated as hedging instruments are included in foreign exchange (gain) loss on the consolidated statements of operations. |
Customer and other deposits
Customer and other deposits include prepayments by customers of the Grains and Foods Group and the International Foods Group for merchandise inventory to be purchased at a future date.
Income taxes
The Company follows the asset and liability method of accounting for income taxes whereby deferred income tax assets are recognized for deductible temporary differences and operating loss carry-forwards, and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and liabilities recorded for income tax and financial reporting purposes.
Deferred income tax assets are recognized only to the extent that management determines that it is more likely than not that the deferred income tax assets will be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The income tax expense or benefit is the income tax payable or recoverable for the year plus or minus the change in deferred income tax assets and liabilities during the year.
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional income tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts income tax expense to reflect the Companys ongoing assessments of such matters, which requires judgment and can materially increase or decrease its effective rate as well as impact operating results. The evaluation of tax positions taken or expected to be taken in a tax return is a two-step process, whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the related tax authority.
SUNOPTA INC. | -F12- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Defined benefit pension plan
The Company has a defined benefit pension plan covering certain employees. The net periodic benefit cost, which is included in selling, general and administrative expenses on the consolidated statements of operations, represents the cost of benefits earned by employees as services are rendered. The cost reflects managements best estimates of the pension plan's expected investment returns, wage and salary escalation, mortality of members, terminations and the ages at which members will retire. Changes in these assumptions could impact future pension expense. The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the fair value of plan assets at the beginning of the year is amortized over the average remaining service lives of the members.
Stock option plan
The Company maintains a stock option plan under which incentive stock options may be granted to employees and non-employee directors. The Company recognizes stock-based compensation at fair value. The grant-date fair value of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the stock option vesting period of the entire award based on the estimated number of stock options that are expected to vest. When exercised, stock options are settled through the issuance of shares and are therefore treated as equity awards.
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, the price is fixed or determinable, and collection is reasonably assured. Details of specific recognition by industry group are as follows:
(a) |
SunOpta Foods |
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 Companys facility or at the time of delivery to a specified destination depending on the terms of the sale. All other SunOpta Foods revenues are recognized when title is transferred upon the shipment of product or at the time the service is provided to the customer. Consideration given to customers such as value incentives, rebates, early payment discounts and other discounts are recorded as reductions to revenues at the time of sale. | |
(b) |
Opta Minerals |
Revenues from the sale of silica-free loose abrasives, industrial minerals, specialty sands and related products are recognized upon the shipment to the customer of materials and transfer of title. |
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 potential dilutive common shares had been issued at the beginning of the year.
SUNOPTA INC. | -F13- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Comparative balances
The Company has reclassified comparative balances on the consolidated statement of operations for the years ended January 1, 2011 and December 31, 2009 to conform to the current years presentation. The comparative balances for cost of goods sold have been increased by $3,703 and $4,223 for the years ended January 1, 2011 and December 31, 2009, respectively, reflecting the amount of warehousing and distribution (W&D) expenses that were previously disclosed on a separate line item on the consolidated statement of operations. Total W&D costs for the year ended December 31, 2011 was $4,515. The comparative reclassification did not have an impact on earnings, net assets, shareholders' equity or cash and cash equivalents.
Recent accounting pronouncements
The Company will adopt the provisions of the following new accounting standards effective January 1, 2012:
Guidance that results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards. The amendments change some fair value measurement principles and disclosure requirements under U.S. GAAP. The adoption of this new guidance is not expected to have a material impact on the Company's consolidated financial statements.
Guidance requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The amendments do not change the components of other comprehensive income or the calculation of earnings per share. As the guidance relates only to the presentation of other comprehensive income, the adoption of this accounting standard will not have a significant impact on the Company's consolidated financial statements.
Guidance intended to simplify goodwill impairment testing, by allowing an entity the option to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. The adoption of this new guidance is not expected to have a material impact on the Company's consolidated financial statements.
SUNOPTA INC. | -F14- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
2. |
Business acquisitions |
Fiscal 2011
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, as well as the consideration transferred to effect the acquisitions, as of the respective acquisition dates for acquisitions completed during fiscal 2011. These acquisitions are subject to post-closing adjustments in accordance with the respective purchase and sale and asset purchase agreements.
|
Acquisitions during fiscal 2011 | ||||||||
|
Lorton's Fresh | ||||||||
|
Inland RC, LLC | Squeezed Juices Inc. | Total | ||||||
|
$ | $ | $ | ||||||
Net assets acquired |
|||||||||
|
|||||||||
Current Assets |
470 | 1,672 | 2,142 | ||||||
Property, plant and equipment |
508 | 1,221 | 1,729 | ||||||
Goodwill |
661 | 572 | 1,233 | ||||||
Intangible assets |
249 | 469 | 718 | ||||||
Current liabilities |
(560 | ) | (821 | ) | (1,381 | ) | |||
Deferred income tax liability |
(130 | ) | - | (130 | ) | ||||
|
1,198 | 3,113 | 4,311 | ||||||
|
|||||||||
Consideration |
|||||||||
|
|||||||||
Cash consideration |
658 | 2,500 | 3,158 | ||||||
Due to former shareholders |
- | 102 | 102 | ||||||
Contingent consideration |
540 | 511 | 1,051 | ||||||
|
1,198 | 3,113 | 4,311 |
(a) |
Inland RC, LLC |
On November 10, 2011, Opta Minerals acquired the outstanding members' interest of Inland RC, LLC (Inland) for total consideration of $1,198. Included as part of the total consideration was contingent consideration of $540 based on future earnings targets as defined in the asset purchase agreement. | |
Intangible assets, which consist of acquired customer relationships, are deductible for tax purposes and are being amortized over their estimated useful lives of approximately 15 years. | |
Operating in Elyria, Ohio, Inland is a manufacturer of pre-cast refractory shapes, injection lances, stirring lances and electric furnace deltas. Inland's results of operations have been included in the Opta Minerals operating segment since the date of acquisition. | |
(b) |
Lortons Fresh Squeezed Juices, Inc. |
On August 5, 2011, a wholly-owned subsidiary of the Company completed the acquisition of the assets and business of Lortons Fresh Squeezed Juices, Inc. (Lortons) for total consideration of $3,113. Included as part of the total consideration was cash of $2,500, contingent consideration of $511 based on future earnings targets as defined in the asset purchase agreement, and a working capital adjustment of $102 as a result of working capital exceeding pre- determined targets at the acquisition date. |
SUNOPTA INC. | -F15- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Intangible assets, which consist of acquired customer relationships, are deductible for tax purposes and are being amortized over their estimated useful lives of approximately seven years.
Lortons is a vertically integrated producer of a variety of citrus-based products in both industrial and packaged formats. The acquisition expands the Companys operations into the extracting, processing and packaging of citrus-based ingredients through consumer packaged products, and provides increased capacity for future growth and expansion. Lorton's results of operations have been included in the Consumer Products Group since the date of acquisition.
Fiscal 2010
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, as well as the consideration transferred to effect the acquisitions, as of the respective acquisition dates for acquisitions completed during fiscal 2010.
|
Acquisitions during fiscal 2010 | ||||||||
|
Dahlgren & | Edner of Nevada, | |||||||
|
Company, Inc. | Inc. | Total | ||||||
|
$ | $ | $ | ||||||
Net assets acquired |
|||||||||
|
|||||||||
Cash |
4,239 | - | 4,239 | ||||||
Current Assets |
23,231 | 2,376 | 25,607 | ||||||
Property, plant and equipment |
12,402 | 1,418 | 13,820 | ||||||
Goodwill |
15,940 | 2,346 | 18,286 | ||||||
Intangible assets |
11,013 | 1,823 | 12,836 | ||||||
Other long-term assets |
624 | - | 624 | ||||||
Current liabilities |
(12,288 | ) | (449 | ) | (12,737 | ) | |||
Deferred income tax liability |
(7,670 | ) | - | (7,670 | ) | ||||
|
47,491 | 7,514 | 55,005 | ||||||
|
|||||||||
Consideration |
|||||||||
|
|||||||||
Cash consideration |
44,000 | 4,000 | 48,000 | ||||||
Due to former shareholders |
2,303 | 198 | 2,501 | ||||||
Contingent consideration |
1,188 | 3,316 | 4,504 | ||||||
|
47,491 | 7,514 | 55,005 |
(c) |
Dahlgren & Company, Inc. |
On November 8, 2010, a wholly-owned subsidiary of the Company acquired 100% of the outstanding shares of Dahlgren & Company, Inc. (Dahlgren) for total consideration of $47,491. Included as part of the total consideration was cash of $44,000, contingent consideration of $1,188 based on future earnings targets as defined in the purchase and sale agreement, and a working capital adjustment of $2,303 as a result of working capital exceeding pre-determined targets at the acquisition date. The $2,303 working capital adjustment was paid in cash on January 3, 2011 to the former Dahlgren shareholders. During fiscal 2011, management re-measured the fair value of the contingent consideration, and reduced the fair value of this liability by $1,098 (see notes 4 and 14). | |
Intangible assets, consisting of a sales order backlog and customer relationships, acquired in this acquisition are not deductible for tax purposes and are being amortized over their estimated useful lives of one year and 12 years, respectively. |
SUNOPTA INC. | -F16- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Dahlgren is an integrated processor and global supplier of confection sunflower seed products including in-shell and kernel products, roasted sunflower and soy seeds, bird food, hybrid seed and other products. Dahlgren serves the snack food, bakery, food ingredients and bird feed industries. Dahlgrens products are marketed internationally to customers in Europe, Asia, Australia, Canada and South America, as well as in the U.S. The results of operations for Dahlgren have been consolidated since the November 8, 2010 acquisition date, and are included in the Grains and Foods Group. | |
(d) |
Edner of Nevada, Inc. |
On December 14, 2010, a wholly-owned subsidiary of the Company acquired the operating assets of Edner of Nevada, Inc. (Edner) for total consideration of $7,514. Consideration included $4,000 of cash, contingent consideration of $3,316 based on future revenue targets in the asset purchase agreement and a working capital adjustment of $198 as a result of working capital exceeding pre-determined targets at the acquisition date. In the third quarter of 2011, the Company and the former owners of Edner agreed to an adjustment in the total purchase consideration, due to factors that existed at the acquisition date. As a result, the previously recorded working capital adjustment and contingent consideration were reduced by $260 and $124, respectively, with a corresponding decrease of $384 in acquired goodwill. The consolidated balance sheet as at January 1, 2011 has been adjusted to reflect this change. | |
Intangible assets, consisting of customer relationships acquired in this acquisition are deductible for tax purposes and are being amortized over their estimated useful lives of approximately nine years. Goodwill acquired in this acquisition is deductible for tax purposes. Edner produces a variety of nutritious portable foods such as nutrition bars and grains and fruit based snack bars from its 104,000 square foot facility located in Carson City, Nevada. This acquisition has been consolidated since its December 14, 2010 acquisition date, and is included in the Consumer Products Group. During fiscal 2011, management re-measured the fair value of the contingent consideration, and reduced the fair value of this liability by $137 (see notes 4 and 14). |
Pro-forma consolidated results of operations (unaudited)
The following table presents unaudited pro-forma consolidated results of operations for the years ended December 31, 2011 and January 1, 2011, as if the Inland and Lorton's acquisitions had occurred as of January 1, 2010, and the Dahlgren and Edner acquisitions had occurred as of January 1, 2009.
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
Pro-forma revenue |
1,089,626 | 990,054 | ||||
Pro-forma earnings attributable to SunOpta Inc. |
5,477 | 65,405 | ||||
Pro-forma earnings per share |
||||||
Basic |
0.08 | 1.00 | ||||
Diluted |
0.08 | 0.99 |
The pro-forma consolidated results of operations were prepared using the acquisition method of accounting and are based on the historical financial information of the Company and the acquired businesses. The pro-forma information is not necessarily indicative of what the Company's consolidated results of operations actually would have been had the acquisitions been completed on January 1, 2010 and January 1, 2009. In addition, the pro-forma information does not purport to project the future results of operations of the Company.
SUNOPTA INC. | -F17- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
3. |
Discontinued operations |
| |
(a) |
Divestiture of assets in the Consumer Products Group |
| |
On June 30, 2011, the Company completed a transaction to sell land and buildings located in Irapuato, Mexico to parties related to Fruvemex Mexicali, S.A. de C.V. (Fruvemex). In addition, on April 29, 2011, the Company completed a transaction to sell certain assets related to fruit processing plants located in Mexico to Fruvemex. Total consideration for these transactions was $5,650, with $1,000 received in cash upon closing of the applicable transaction. The remaining consideration of $4,650 is to be received by the Company through instalment payments over the following 12 months. The land, buildings and processing assets sold have been reclassified and are presented as non-current assets held for sale on the consolidated balance sheet as at January 1, 2011. For the year ended December 31, 2011, the Company recorded a gain of $3,824, before transaction and related costs. | |
| |
On May 24, 2011, the Company completed the sale of frozen fruit processing equipment located in Salinas, California to Cal Pacific Specialty Foods, LLC (Cal Pacific). The assets, which were previously leased to Cal Pacific, were sold for their book value of $1,773, paid in cash on closing of the transaction. The frozen fruit processing equipment sold has been reclassified and is presented as non-current assets held for sale on the consolidated balance sheet as at January 1, 2011. | |
| |
(b) |
Colorado Sun Oil Processing LLC |
| |
Colorado Sun Oil Processing LLC (CSOP) was organized in 2008 under the terms of a joint venture agreement with Colorado Mills, LLC (Colorado Mills) to construct and operate a vegetable oil refinery adjacent to Colorado Mills' sunflower seed crush plant. On August 12, 2011, the U.S. Bankruptcy Court, District of Colorado, accepted an asset purchase agreement submitted by Colorado Mills for CSOP and rejected an asset purchase agreement submitted by the Company. Concurrent with its decision, the Court ordered Colorado Mills to settle previously owed balances to the Company under a lease agreement, along with interest and penalties. Based on the bankruptcy court ruling, the Company disposed of its interest in the CSOP joint venture, which was previously consolidated as a VIE. As a result of the disposal, and realizing the interest and penalties on aged balances owed to the Company, a gain on disposal was recorded in discontinued operations on the consolidated statement of operations for the year ended December 31, 2011. The following is a summary of the CSOP transaction: |
|
$ | ||
Cash received, including interest and penalties, to settle balances owing |
1,122 | ||
Application of cash against balances owing |
(1,045 | ) | |
Disposal of net liabilities |
36 | ||
Pre-tax gain on sale |
113 | ||
Provision for income taxes |
(42 | ) | |
Gain on sale of discontinued operations, net of income taxes |
71 |
SUNOPTA INC. | -F18- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The operating results of the CSOP business are included within (loss) earnings from discontinued operations, net of income tax, on the consolidated statement of operations. The operating results for the year ended December 31, 2011 include a pre-tax charge of $5,246 related to an arbitration ruling against the Company and in favor of Colorado Mills (see note 20(b)). The summary comparative financial results of discontinued operations related to the CSOP business were as follows:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
Revenues |
648 | 622 | 9 | ||||||
|
|||||||||
Loss before income taxes from discontinued operations up to the date of sale |
(510 | ) | (973 | ) | (440 | ) | |||
Costs allocated to discontinued operations as a result of sale |
(1,464 | ) | (632 | ) | - | ||||
Arbitration ruling against the Company |
(5,246 | ) | - | - | |||||
Loss from discontinued operations before income taxes |
(7,220 | ) | (1,605 | ) | (440 | ) | |||
Recovery of income taxes |
2,616 | 595 | 163 | ||||||
Loss allocated to non-controlling interests |
254 | 487 | 220 | ||||||
|
(4,350 | ) | (523 | ) | (57 | ) |
The assets disposed of in the CSOP transaction were part of the Grains and Foods Group segment. | |
(c) |
Divestiture of Canadian Food Distribution business |
On June 11, 2010, the Company sold its Canadian Food Distribution ("CFD") assets to UNFI Canada Inc., a wholly-owned subsidiary of United Natural Foods Inc., for cash consideration of $65,809 (Cdn $68,000). | |
The following is a summary of the CFD transaction: |
Cash consideration |
$ | 65,809 | |
Transaction and related costs |
(4,937 | ) | |
Net proceeds |
60,872 | ||
Net assets sold |
(51,655 | ) | |
Accumulated other comprehensive income related to assets sold |
7,772 | ||
Pre-tax gain on sale |
16,989 | ||
Provision for income taxes |
(4,193 | ) | |
Gain on sale of discontinued operations, net of income taxes |
$ | 12,796 |
The gain on sale of discontinued operations has been recorded in discontinued operations on the consolidated statements of operations.
SUNOPTA INC. | -F19- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The operating results of the CFD business are included within (loss) earnings from discontinued operations, net of income tax, on the consolidated statement of operations. The operating results for the year ended January 1, 2011 reflect the operating results from January 1, 2010 through to the date of the sale, June 11, 2010. The summary comparative financial results of discontinued operations related to the CFD business were as follows:
|
January 1, 2011 | December 31, 2009 | ||||
|
$ | $ | ||||
|
||||||
Revenues |
82,859 | 169,573 | ||||
|
||||||
Earnings before taxes from discontinued operations up to the date of sale |
2,168 | 4,524 | ||||
Costs allocated to discontinued operations as a result of sale |
(1,289 | ) | - | |||
Earnings from discontinued operations before taxes |
879 | 4,524 | ||||
Provision for income taxes |
265 | 1,439 | ||||
|
614 | 3,085 |
The assets sold in the CFD transaction were part of the former Distribution Group segment. | |
(d) |
Divestiture of SunOpta BioProcess Inc. |
On August 31, 2010, the Company completed a transaction to sell its ownership interest in SunOpta BioProcess Inc. (SBI) to Mascoma Canada Inc., a wholly-owned subsidiary of Mascoma Corporation (Mascoma). As consideration for selling all the outstanding common shares of SBI, the Company received non-cash consideration through a combination of preferred and common shares, as well as warrants, valued at $50,925. The non-cash consideration included 11,268,868 series D preferred shares, 3,756,290 common shares and 1,000,000 warrants to purchase common shares of Mascoma. In conjunction with the sale, the Company settled the preferred share liability of SBI with the former SBI preferred shareholders, through the transfer of 4,688,000 of the series D preferred shares received. In addition, as a result of the change in control of SBI, the vesting of previously issued SBI stock options were accelerated, and the 800,000 restricted stock units (RSU) were settled in cash at a value of $4.49 per RSU. The fair value of consideration received, net of the settlement to the former SBI preferred shareholders, resulted in a $33,345 investment in Mascoma, which is presented as a non-current asset on the Companys balance sheet. As at December 31, 2011, the Companys ownership interest was 18.65% (January 1, 2011 - 19.61%). | |
On August 3, 2011, the Company purchased a $500 convertible subordinated note issued by Mascoma. The note earns 8% interest over a five-year period, and is convertible into common shares of Mascoma upon an initial public offering, or qualified external financing received by Mascoma. | |
The following is a summary of the SBI transaction: |
Net fair value assigned to non-cash consideration applicable to SunOpta Inc. |
$ | 33,345 | |
Transaction and related costs |
(3,205 | ) | |
Net liabilities sold |
11,376 | ||
Release of additional paid in capital recorded from accelerated vesting of stock options related to SBI |
11,025 | ||
Pre-tax gain on sale |
52,541 | ||
Provision for income taxes |
(2,387 | ) | |
Gain on sale of discontinued operations, net of income taxes |
$ | 50,154 |
SUNOPTA INC. | -F20- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The gain on sale of discontinued operations has been recorded in discontinued operations on the consolidated statements of operations.
The operating results of SBI are included within (loss) earnings from discontinued operations, net of income tax, on the consolidated statement of operations. The operating results for the year ended January 1, 2011, reflect the operating results through to the date of sale, August 31, 2010. The summary comparative financial results of discontinued operations related to SBI were as follows:
|
January 1, 2011 | December 31, 2009 | ||||
|
$ | $ | ||||
|
||||||
Revenues |
4,005 | 519 | ||||
|
||||||
Loss before taxes from discontinued operations up to the date of sale |
(14,916 | ) | (3,358 | ) | ||
Costs allocated to discontinued operations as a result of sale |
(267 | ) | - | |||
Loss from discontinued operations before taxes |
(15,183 | ) | (3,358 | ) | ||
Provision for income taxes |
- | - | ||||
|
(15,183 | ) | (3,358 | ) |
Included in loss before income taxes from discontinued operations in the year ended January 1, 2011 is $15,280 of stock- based and other compensation awards that were triggered upon the change in control of SBI. | |
The business sold represented the former SunOpta BioProcess segment. | |
(e) |
Summary of assets held for sale |
The assets and liabilities related to the Consumer Products Group asset sales and CSOP disposal have been reclassified as assets and liabilities held for sale on the Company's balance sheet as at January 1, 2011 as follows: |
|
Mexico | California | CSOP | Held for Sale | ||||||||
|
$ | $ | $ | $ | ||||||||
|
||||||||||||
Cash and cash equivalents |
- | - | 308 | 308 | ||||||||
Accounts receivable |
- | - | 98 | 98 | ||||||||
Prepaid expenses and other current assets |
- | - | 18 | 18 | ||||||||
Current assets held for sale |
- | - | 424 | 424 | ||||||||
|
||||||||||||
Property, plant and equipment |
1,927 | 1,879 | 1,049 | 4,855 | ||||||||
Non-current assets held for sale |
1,927 | 1,879 | 1,049 | 4,855 | ||||||||
|
||||||||||||
Accounts payable and accrued liabilities |
- | - | 1,028 | 1,028 | ||||||||
Current liabilities held for sale |
- | - | 1,028 | 1,028 | ||||||||
|
||||||||||||
Long-term debt |
- | - | 250 | 250 | ||||||||
Non-controlling interest |
- | - | 108 | 108 | ||||||||
Non-current liabilities held for sale |
- | - | 358 | 358 |
SUNOPTA INC. | -F21- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
4. |
Derivative financial instruments and fair value measurement |
The following table presents for each of the fair value hierarchies, the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011 and January 1, 2011:
December 31, 2011 | |||||||||||||
Fair value | |||||||||||||
asset | |||||||||||||
(liability) | Level 1 | Level 2 | Level 3 | ||||||||||
$ | $ | $ | $ | ||||||||||
(a) | Commodity futures and forward contracts (1) | ||||||||||||
Unrealized short-term derivative gain | 2,125 | 34 | 2,091 | - | |||||||||
Unrealized long-term derivative gain | 271 | - | 271 | - | |||||||||
Unrealized short-term derivative loss | (1,410 | ) | - | (1,410 | ) | - | |||||||
Unrealized long-term derivative loss | (70 | ) | - | (70 | ) | - | |||||||
(b) | Inventories carried at market (2) | 12,685 | - | 12,685 | - | ||||||||
(c) | Interest rate swap (3) | (256 | ) | - | (256 | ) | - | ||||||
(d) | Forward foreign currency contracts (4) | (149 | ) | - | (149 | ) | - | ||||||
(e) | Contingent consideration(5) | (4,456 | ) | - | - | (4,456 | ) |
January 1, 2011 | |||||||||||||
Fair value | |||||||||||||
asset | |||||||||||||
(liability) | Level 1 | Level 2 | Level 3 | ||||||||||
$ | $ | $ | $ | ||||||||||
(a) | Commodity futures and forward contracts (1) | ||||||||||||
Unrealized short-term derivative gain | 9,093 | - | 9,093 | - | |||||||||
Unrealized long-term derivative gain | 342 | - | 342 | - | |||||||||
Unrealized short-term derivative loss | (7,674 | ) | (6,083 | ) | (1,591 | ) | - | ||||||
Unrealized long-term derivative loss | (6 | ) | - | (6 | ) | - | |||||||
(b) | Inventories carried at market (2) | 17,353 | - | 17,353 | - | ||||||||
(c) | Interest rate swap (3) | (891 | ) | - | (891 | ) | - | ||||||
(d) | Forward foreign currency contracts (4) | 569 | - | 569 | - | ||||||||
(e) | Contingent consideration (5) | (4,504 | ) | - | - | (4,504 | ) |
(1) |
Unrealized short-term derivative gain is included in prepaid expenses and other current assets, unrealized long-term derivative gain is included in other assets, unrealized short-term derivative loss is included in other current liabilities and unrealized long-term derivative loss is included in long-term liabilities on the consolidated balance sheets. | |
(2) |
Inventories carried at market are included in inventories on the consolidated balance sheets. | |
(3) |
The interest rate swap is included in long-term liabilities on the consolidated balance sheets. | |
(4) |
The forward foreign currency contracts are included in accounts receivable on the consolidated balance sheets. | |
(5) |
Contingent consideration obligations are included in long-term liabilities (including the current portion thereof) on the consolidated balance sheets. |
(a) |
Commodity futures and forward contracts |
The Companys derivative contracts that are measured at fair value include exchange-traded commodity futures and forward commodity purchase and sale contracts. Exchange-traded futures are valued based on unadjusted quotes for identical assets priced in active markets and are classified as level 1. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. Local market adjustments use observable inputs or market transactions for similar assets or liabilities, and, as a result, are classified as level 2. Based on historical experience with the Companys suppliers and customers, the Companys own credit risk, and the Companys knowledge of current market conditions, the Company does not view non-performance risk to be a significant input to fair value for the majority of its forward commodity purchase and sale contracts. |
SUNOPTA INC. | -F22- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
These exchange-traded commodity futures and forward commodity purchase and sale contracts are used as part of the Companys risk management strategy, and represent economic hedges to limit risk related to fluctuations in the price of certain commodity grains, as well as the price of cocoa. These derivative instruments are not designated as hedges for accounting purposes. An $838 loss for the year ended December 31, 2011 and a gain of $1,503 for the year ended January 1, 2011 were recorded in cost of goods sold on the consolidated statements of operations related to changes in the fair value of these derivatives.
At December 31, 2011, the notional amounts of open corn and soybean commodity futures and forward purchase and sale contracts were as follows (in thousands of bushels):
|
Number of bushels | |||||
|
purchase (sale) | |||||
|
Corn | Soybeans | ||||
Forward commodity purchase contracts |
866 | 523 | ||||
Forward commodity sale contracts |
(659 | ) | (854 | ) | ||
Commodity futures contracts |
(379 | ) | (348 | ) |
In addition, as at December 31, 2011, the Company had open forward contracts to sell 56 lots of cocoa. | |
(b) |
Inventories carried at market |
Grains inventory carried at fair value is determined using quoted market prices from the CBoT. Estimated fair market values for grains inventory quantities at period end are valued using the quoted price on the CBoT adjusted for differences in local markets, and broker or dealer quotes. These assets are placed in level 2 of the fair value hierarchy, as there are observable quoted prices for similar assets in active markets. Gains and losses on commodity grains inventory are included in cost of sales on the consolidated statements of operations. At December 31, 2011, the Company had 230,737 bushels of commodity corn and 678,100 bushels of commodity soybeans, in inventories carried at market. | |
(c) |
Interest rate swap |
Opta Minerals utilizes an interest rate swap contract to minimize its exposure to interest rate risk. A notional amount of Cdn $17,200 (U.S. - $16,912) of floating rate debt was effectively converted to fixed rate debt at a rate of 5.25% for the period August 2008 to August 2012. At each period end, management calculates the mark-to-market fair value using a valuation technique using quoted observable prices for similar instruments as the primary input. Based on this valuation, the previously recorded fair value is adjusted to the current mark-to-market position. The mark-to-market gain or loss is placed in level 2 of the fair value hierarchy. The interest rate swap is designated as a cash flow hedge for accounting purposes and accordingly, gains and losses on changes in the fair value of the interest rate swap are included in other comprehensive income on the consolidated statements of operations. For the year ended December 31, 2011, a $635 gain, net of income taxes of $195, has been recorded in other comprehensive earnings due to the change in fair value for this derivative. | |
(d) |
Foreign forward currency contracts |
As part of its risk management strategy, the Company enters into forward foreign exchange contracts to reduce its exposure to fluctuations in foreign currency exchange rates. For any open forward foreign exchange contracts at period end, the contract rate is compared to the forward rate, and a gain or loss is recorded. These contracts are placed in level 2 of the fair value hierarchy, as the inputs used in making the fair value determination are derived from and are corroborated by observable market data. While these forward foreign exchange contracts typically represent economic hedges that are not designated as hedging instruments, certain of these contracts may be designated as hedges. At December 31, 2011 the Company had open forward foreign exchange contracts with a notional value of €6,492, Cdn $3,695 and U.S. $11,156 that resulted in an unrealized loss of $149 which is included in foreign exchange gain on the consolidated statements of operations. |
SUNOPTA INC. | -F23- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
(e) |
Contingent consideration |
The fair value measurement of contingent consideration arising from business acquisitions (see note 2) is determined using unobservable (level 3) inputs. These inputs include (i) the estimated amount and timing of the projected cash flows on which the contingency is based; and (ii) the risk-adjusted discount rate used to present value those cash flows. | |
The following table presents a reconciliation of contingent consideration liabilities measured on a recurring basis for the year ended December 31, 2011. |
|
Balance, | Balance, | |||||||||||||
|
January 1, | Fair value | December 31, | ||||||||||||
|
2011 | Additions(1) | adjustments(2) | Accretion(3) | 2011 | ||||||||||
|
$ | $ | $ | $ | $ | ||||||||||
Contingent consideration |
(4,504 | ) | (1,051 | ) | 1,235 | (136 | ) | (4,456 | ) |
(1) |
Represents acquisition-date fair value (see note 2). | |
(2) |
Amount reflects changes in the probability of achievement of the factors on which the contingencies are based, which amount is included in other expense, net on the consolidated statements of operations (see notes 2 and 14). | |
(3) |
Represents accretion of interest expense, which is included in interest expense, net on the consolidated statements of operations. |
5. |
Accounts receivable |
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
Trade receivables |
95,824 | 100,336 | ||||
Allowance for doubtful accounts |
(1,647 | ) | (1,559 | ) | ||
|
94,177 | 98,777 |
The change in the allowance for doubtful accounts provision for the years ended December 31, 2011 and January 1, 2011 is comprised as follows:
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
Balance, beginning of year |
1,559 | 1,953 | ||||
Net additions to provision |
870 | 985 | ||||
Accounts receivable written off, net of recoveries |
(675 | ) | (1,181 | ) | ||
Effects of foreign exchange rate differences |
(107 | ) | (198 | ) | ||
Balance, end of year |
1,647 | 1,559 |
SUNOPTA INC. | -F24- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
6. |
Inventories |
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
Raw materials and work-in-process |
147,051 | 98,140 | ||||
Finished goods |
83,222 | 84,529 | ||||
Company-owned grain |
17,351 | 21,897 | ||||
Inventory reserve |
(6,772 | ) | (4,288 | ) | ||
|
240,852 | 200,278 |
The change in the inventory reserve for the years ended December 31, 2011 and January 1, 2011 is comprised as follows:
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
Balance, beginning of year |
4,288 | 9,799 | ||||
Additions to reserve during the year |
7,365 | 2,570 | ||||
Reserves applied and inventories written off during the year |
(4,844 | ) | (8,062 | ) | ||
Effect of foreign exchange rate differences |
(37 | ) | (19 | ) | ||
Balance, end of year |
6,772 | 4,288 |
7. |
Property, plant and equipment |
|
December 31, 2011 | ||||||||
|
Accumulated | ||||||||
|
Cost | depreciation | Net book value | ||||||
|
|||||||||
|
$ | $ | $ | ||||||
Land |
6,256 | - | 6,256 | ||||||
Buildings |
47,498 | 13,044 | 34,454 | ||||||
Machinery and equipment |
135,692 | 61,325 | 74,367 | ||||||
Enterprise software |
6,818 | 5,220 | 1,598 | ||||||
Office furniture and equipment |
6,238 | 4,163 | 2,075 | ||||||
Vehicles |
5,352 | 3,368 | 1,984 | ||||||
|
207,854 | 87,120 | 120,734 |
|
January 1, 2011 | ||||||||
|
Accumulated | ||||||||
|
Cost | depreciation | Net book value | ||||||
|
|||||||||
|
$ | $ | $ | ||||||
Land |
4,995 | - | 4,995 | ||||||
Buildings |
42,769 | 8,865 | 33,904 | ||||||
Machinery and equipment |
124,751 | 53,623 | 71,128 | ||||||
Enterprise software |
6,862 | 5,083 | 1,779 | ||||||
Office furniture and equipment |
7,012 | 5,006 | 2,006 | ||||||
Vehicles |
4,857 | 3,469 | 1,388 | ||||||
|
191,246 | 76,046 | 115,200 |
SUNOPTA INC. | -F25- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Included in machinery and equipment as at December 31, 2011 is $8,016 (January 1, 2011 - $4,281) representing construction in process assets which were not being depreciated as they had not yet reached the stage of commercial viability. Also included in machinery and equipment is equipment under capital leases with a cost of $1,266 (January 1, 2011 - $431) and a net book value of $956 (January 1, 2011 - $172). In addition, machinery and equipment includes $2,618 (January 1, 2011 - $2,477) of spare parts inventory.
Total depreciation expense included in cost of goods sold and selling, general and administrative expense on the consolidated statements of operations related to property, plant and equipment for the year ended December 31, 2011 was $13,935 (January 1, 2011 - $13,167, December 31, 2009 - $12,382).
8. | Goodwill and intangible assets |
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
|
||||||
Goodwill |
49,387 | 48,174 | ||||
|
||||||
Intangible assets with a finite life at cost, less accumulated amortization of $24,048 (January 1, 2011 - $18,988) |
48,624 | 60,200 |
The following is a summary of changes in goodwill:
|
$ | ||
Balance at December 31, 2009 |
31,431 | ||
|
|||
Acquisitions during the year |
18,286 | ||
Additions during the year(1) |
667 | ||
Goodwill impairment |
(1,654 | ) | |
Impact of foreign exchange |
(556 | ) | |
Balance at January 1, 2011 |
48,174 | ||
|
|||
Acquisitions during the year |
1,233 | ||
Additions during the year(1) |
249 | ||
Impact of foreign exchange |
(269 | ) | |
Balance at December 31, 2011 |
49,387 |
(1) |
During the years ended December 31, 2011 and January 1, 2011, the Company recorded contingent consideration payments of $667 and $249, respectively, as an increase to goodwill relating to business combinations that occurred prior to January 1, 2009, based on the related acquired companies achieving predetermined earnings or other operational results as defined in the respective purchase and sale agreements. |
There was no indication of goodwill impairment based on the testing done for the year ended December 31, 2011.
For the year ended January 1, 2011, the Company determined that there were external market conditions and other circumstances that suggested the carrying value of the natural health products reporting unit, which is part of the International Foods segment, may exceed its fair value. These external market conditions and other circumstances included reduced sales levels, increased competition leading to price concessions and decreased market share, shift in product mix causing lower gross margins, and product de-listing at certain retailers. As a result of completing the test for goodwill impairment, the Company determined that the carrying value of goodwill in its natural health reporting unit exceeded its fair value, and recorded a non-cash goodwill impairment charge of $1,654.
SUNOPTA INC. | -F26- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The fair values calculated in these impairment tests are determined using discounted cash flow models involving various assumptions. The following table summarizes the critical assumptions that were used in estimating fair value for the natural health product reporting unit:
|
|
Estimated cumulative average operating income growth (2011 - 2015) |
47.4% |
Projected long-term annual operating income growth (a) |
2.5% |
Weighted-average discount rate (b) |
15.0% |
(a) |
Represents the operating income growth rate used to determine terminal value. |
Represents the targeted weighted-average discount rate of 11% plus the impact of a specific reporting unit risk | |
(b) |
premium to account for the estimated additional uncertainty associated with future cash flows. |
For the year ended December 31, 2009, the result of the annual goodwill impairment test indicated that the fair value of the Grains and Foods Group, the Ingredients Group and the International Foods Group exceeded their carrying values, and as a result, no impairment charge was recorded. After recording a $500 increase to goodwill as a result of contingent consideration earned at December 31, 2009, the Company tested the Consumer Products Group and determined that its carrying value exceeded its fair value. As a result, the $500 of goodwill added in 2009 was written off through a charge to goodwill impairment.
During the quarter ended September 30, 2009, Opta Minerals determined that there were external market conditions and other circumstances that suggested the carrying value of certain reporting units in Opta Minerals may exceed their fair value. These external market conditions and other circumstances included continued operating losses and extended periods of facility under-utilization due to continued weakness in the steel, abrasives and foundry markets. As a result of completing a test for goodwill impairment, Opta Minerals determined that the carrying value of goodwill in certain of its mill and foundry and abrasive products reporting units exceeded their fair value, and recorded a non-cash impairment charge of $8,341. The Company recorded this charge in its Opta Minerals operating segment.
The following table summarizes the critical assumptions that were used in estimating fair value in the 2009 impairment tests for segments where an impairment was determined:
|
|
Estimated cumulative average operating income growth (2010 - 2014) |
5.0% |
Projected long-term annual operating income growth (a) |
2.0% - 7.0% |
Weighted-average discount rate (b) |
15.0% |
(a) |
Represents the operating income growth rate used to determine terminal value. |
Represents the targeted weighted-average discount rate of 9.9% plus the impact of a specific reporting unit risk | |
(b) |
premium to account for the estimated additional uncertainty associated with future cash flows. |
SUNOPTA INC. | -F27- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The following is a summary of changes in intangible assets:
|
Customer and other | Patents and | ||||||||||
|
relationships | trademarks | Other | Total | ||||||||
|
$ | $ | $ | $ | ||||||||
|
||||||||||||
Balance at December 31, 2009 |
47,533 | 5,620 | 2,076 | 55,229 | ||||||||
|
||||||||||||
Business acquisitions |
12,592 | - | 244 | 12,836 | ||||||||
Additions |
- | 101 | 561 | 662 | ||||||||
Impairments(1) |
(2,808 | ) | (135 | ) | (24 | ) | (2,967 | ) | ||||
Amortization |
(3,642 | ) | (662 | ) | (371 | ) | (4,675 | ) | ||||
Impact of foreign exchange |
(1,316 | ) | 230 | 201 | (885 | ) | ||||||
Balance at January 1, 2011 |
52,359 | 5,154 | 2,687 | 60,200 | ||||||||
|
||||||||||||
Business acquisitions |
718 | - | - | 718 | ||||||||
Additions |
- | - | 81 | 81 | ||||||||
Impairments(1) |
(2,024 | ) | (4,000 | ) | (271 | ) | (6,295 | ) | ||||
Amortization |
(4,257 | ) | (529 | ) | (726 | ) | (5,512 | ) | ||||
Impact of foreign exchange |
(478 | ) | (79 | ) | (11 | ) | (568 | ) | ||||
Balance at December 31, 2011 |
46,318 | 546 | 1,760 | 48,624 |
(1) |
See note 14. |
The Company estimates that the aggregate future amortization expense associated with finite-life intangible assets in each of the next five fiscal years and thereafter will be as follows:
|
$ | ||
2012 |
4,658 | ||
2013 |
4,619 | ||
2014 |
4,127 | ||
2015 |
3,959 | ||
2016 |
3,715 | ||
Thereafter |
27,546 | ||
|
48,624 |
SUNOPTA INC. | -F28- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
9. |
Accounts payable and accrued liabilities |
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
|
||||||
Accounts payable |
81,919 | 74,931 | ||||
Payroll and commissions |
9,405 | 14,782 | ||||
Accrued grain liabilities |
14,616 | 20,467 | ||||
Other accruals |
14,288 | 12,563 | ||||
|
120,228 | 122,743 |
10. |
Bank indebtedness |
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
Canadian line of credit facility (a) |
26 | - | ||||
U.S. line of credit facility (b) |
51,617 | 41,790 | ||||
Opta Minerals Canadian line of credit facility (c) |
7,765 | 3,546 | ||||
TOC line of credit facilities (d) |
50,310 | 30,574 | ||||
|
109,718 | 75,910 |
(a) |
Canadian line of credit facility |
The Company has a Canadian line of credit of Cdn $5,000 (U.S. $4,916), which matures on October 30, 2012. As at December 31, 2011, $4,058 (January 1, 2011 - nil) of this facility was utilized, representing $4,032 (January 1, 2011 - nil) committed through letters of credit. Interest on borrowings under this facility accrues at the borrowers 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. As at December 31, 2011, the interest rate on this facility was 5.50% (January 1, 2011 5.00%), calculated as Canadian prime plus a premium of 2.50%. The maximum availability of this line is based on a borrowing base which includes certain accounts receivables and inventories of the Companys Canadian business as defined in the credit agreement. As at December 31, 2011, the borrowing base supported draws up to $4,916. As at December 31, 2011, the Company incurs standby fees equal to 0.75% of the undrawn balances on this facility. | |
(b) |
U.S. line of credit facility |
The Company has a U.S. line of credit of $100,000, which matures on October 30, 2012. As at December 31, 2011, $60,359 (January 1, 2011 - $44,254) of this facility was utilized, including $8,742 (January 1, 2011 - $2,464) committed through letters of credit. Interest on borrowings under this facility accrues at the borrowers option based on various reference rates including U.S. bank prime, or U.S. LIBOR, plus a margin based on certain financial ratios. At December 31, 2011, the weighted-average interest rate on this facility was 3.80% (January 1, 2011 3.26%), based on LIBOR plus a premium of 3.50%. The maximum availability of this line is based on a borrowing base which includes certain accounts receivables and inventories of the Companys U.S. business as defined in the credit agreement. As at December 31, 2011, the borrowing base supported draws to $100,000. As at December 31, 2011, the Company incurs standby fees equal to 0.75% of the undrawn balances on this facility. | |
The Canadian and U.S. line of credit facilities above, as well as certain long-term debt balances (see note 11) are collateralized by a first priority security against substantially all of the Companys assets in Canada and the U.S., excluding the assets of Opta Minerals and The Organic Corporation ("TOC"). | |
In January 2012, the Company completed amendments to its syndicated banking facilities, which included increases in the Canadian line of credit facility from Cdn $5,000 to Cdn $10,000 and the U.S. revolving line of credit facility from $100,000 to $115,000, with a corresponding decrease from $30,000 to $10,000 in the amount of availability under the facilities' accordion feature. The facilities maturity date of October 30, 2012 did not change. |
SUNOPTA INC. | -F29- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
(c) |
Opta Minerals Canadian line of credit facility |
Opta Minerals has a line of credit facility of Cdn $15,000 (U.S. $14,710). As at December 31, 2011 and December 31, 2010, Cdn $9,089 (U.S. - $8,913) and Cdn $4,713 (U.S. $4,712), respectively, of this facility has been utilized, including letters of credit in the amount of Cdn $1,171 (U.S. - $1,148) and Cdn $1,166 (U.S. $1,166), respectively. Interest on borrowings under this facility accrues at the borrowers option based on various reference rates including prime, U.S. dollar base rate, bankers acceptances or LIBOR plus a margin based on certain financial ratios of the Company. At December 31, 2011, the weighted-average interest rate on this facility was 5.77% (December 31, 2010 6.93%). | |
Opta Minerals line of credit facility, along with its unused portion of the revolving acquisition facility (see note 11(c)), are subject to annual extensions, which were extended on November 3, 2011 to August 15, 2012. | |
(d) |
TOC line of credit facilities |
TOC has a line of credit facility of € 35,000 (U.S. - $45,402). As at December 31, 2011 and January 1, 2011, €33,666 (U.S. - $43,671) and € 22,589 (U.S. $30,249), respectively, of this facility had been utilized, including letters of credit in the amount of € 977 (U.S. $1,267) and € 181 (U.S. $243), respectively. Interest on borrowings under this facility accrues at the borrowers option based on various reference rates including U.S. LIBOR and euro LIBOR plus a premium of 1.85%. At December 31, 2011, the weighted-average interest rate on this facility was 2.86%. The maximum availability of this line is based on a borrowing base which includes certain accounts receivables and inventories of TOC and its subsidiaries. At December 31, 2011 and January 1, 2011, the borrowing base securing this facility supported draws to € 35,000 (U.S. $45,402) and € 22,938 (U.S. $30,716), respectively. | |
On July 4, 2011, the banking agreement that includes the TOC line of credit facility was modified to increase the availability under the facility by up to an additional €11,000 (U.S. - $14,736) to fund operations. Borrowings under this modified facility are secured through a letter of credit drawn on the Companys U.S. line of credit facility. On July 8, 2011, the Company provided a letter of credit in the amount of €5,000 (U.S. - $6,486). As at December 31, 2011, that amount of additional availability had been fully utilized by TOC. | |
In the first quarter of 2011, a wholly-owned subsidiary of TOC entered into a line of credit facility with capacity of € 5,000 (U.S. $6,486). As at December 31, 2011, this line is guaranteed through a $1,200 letter of credit issued by the Company on its U.S. line of credit facility. As at December 31, 2011, € 857 (U.S. $1,112) of this facility had been used. Interest on borrowings under this facility accrues at the Chinese central banks interest rate, as published by the Peoples Bank of China, multiplied by 125%, or 8.20% at December 31, 2011. | |
A less-than-wholly-owned subsidiary of TOC has line of credit facilities with availability of $308 (January 1, 2011 - $1,297) which are fully guaranteed by TOC. As at December 31, 2011, $308 (January 1, 2011 - $568) of these facilities had been used. Interest on borrowings under the facility accrues at a fixed rate of 9.75%. | |
All of the line of credit facilities described above are due on demand with no fixed maturity date. |
SUNOPTA INC. | -F30- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
11. |
Long-term debt |
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
|
||||||
Syndicated Lending Agreement: |
||||||
Non-revolving real estate term facility (a) |
12,133 | 13,000 | ||||
Non-revolving machinery and equipment term facility (b) |
11,078 | 17,000 | ||||
|
||||||
Other Long-Term Debt: |
||||||
Opta Minerals term loan facility (c) |
6,392 | 7,766 | ||||
Opta Minerals revolving acquisition facility (d) |
12,420 | 11,419 | ||||
Subordinated debt to former shareholders of TOC (e) |
- | 4,569 | ||||
Promissory notes (f) |
8,744 | 10,590 | ||||
Other long-term debt (g) |
711 | 264 | ||||
Term loans payable and capital lease obligations (h) |
786 | 124 | ||||
|
52,264 | 64,732 | ||||
Less: current portion |
35,198 | 22,247 | ||||
|
17,066 | 42,485 |
(a) |
Non-revolving real estate term facility |
The non-revolving real estate term facility has a maximum available borrowing amount of $13,000. This facility matures on October 30, 2012, and has quarterly minimum repayments of approximately $217. As at December 31, 2011, $12,133 (January 1, 2011 - $13,000) was drawn on this facility, and the weighted-average interest rate was 4.30% (January 1, 2011 - 3.76%), based on the level of borrowings, and a credit spread based on either U.S. prime or LIBOR rates. | |
(b) |
Non-revolving machinery and equipment term facility |
The non-revolving machinery and equipment term facility has a maximum available borrowing amount of $17,000. This facility matures on October 30, 2012, and has quarterly minimum repayments of approximately $850. As at December 31, 2011, $11,078 (January 1, 2011 - $17,000) was drawn on this facility, and the weighted-average interest rate was 4.30% (January 1, 2011 - 3.76%), based on the level of borrowings, and a credit spread based on either U.S. prime or LIBOR rates. As a result of the sale of property, plant and equipment in the second quarter of 2011 (see note 3(a)), an additional $2,523 was repaid on this facility, in accordance with the credit agreement. | |
The above term facilities, and the Canadian and U.S. line of credit facility (see note 10(a), (b)), are collateralized by a first priority security against substantially all of the Companys assets in Canada and the U.S., excluding the assets of Opta Minerals and TOC. | |
(c) |
Opta Minerals term loan facility |
The term loan facility has a maximum available borrowing amount of Cdn $6,518 (U.S. - $6,392). This facility matures on August 30, 2012, is renewable at the option of the lender and Opta Minerals, and has quarterly principal repayments of Cdn $312 (U.S. - $306). At December 31, 2011 and December 31, 2010, the term loan facility was fully drawn. As at December 31, 2011, the weighted-average interest rate on this facility was 7.33% (December 31, 2010 7.61%). | |
(d) |
Opta Minerals revolving acquisition facility |
The revolving acquisition facility has a maximum available borrowing amount of Cdn $14,043 (U.S. - $13,772) to finance future acquisitions and capital expenditures. Principal is payable quarterly equal to 1/40 of the drawdown amount. Any remaining outstanding principal under this facility is due upon maturity. The facility is revolving for one year, with a five year term-out option. The outstanding balances on the revolving acquisition facility at December 31, 2011 and 2010 were Cdn $12,665 (U.S. - $12,420) and Cdn $11,421 (U.S. - $11,419), respectively. At December 31, 2011, the weighted-average interest rate on this facility was 5.62% (December 31, 2010 - 7.05%). |
SUNOPTA INC. | -F31- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
In February 2012, in connection with its acquisition of Babco Industrial Corp. ("Babco") (see note 22), Opta Minerals' credit agreement was amended to increase the borrowing amount available under the revolving acquisition facility by Cdn $19,000 (U.S. - $18,682). | |
The Opta Minerals credit facilities described above are collateralized by a first priority security interest on substantially all of the Opta Minerals assets in both Canada and the U.S. | |
In 2007, Opta Minerals entered into an interest rate swap contract to exchange a notional amount of Cdn $17,200 (U.S. - $16,912) from a floating rate to a fixed rate of 5.25% from August 2008 to August 2012. The estimated fair value of the interest rate swap at December 31, 2011 was a loss of $256 (December 31, 2010 - loss of $891). As this contract has been designated a cash flow hedge, the incremental gain in fair value of $635, net of income taxes of $195, has been recorded in other comprehensive earnings for the period. The fair value liability is included in long-term liabilities on the consolidated balance sheets. In February 2012, Opta Minerals entered into a Cdn $15,000 (U.S. - $14,749) interest rate swap commencing in August 2012, the date of expiry of the existing contract. On the same day, Opta Minerals also entered into a Cdn $19,000 (U.S. - $18,682) interest rate swap. The combined interest rate swap will expire in February 2017. | |
(e) |
Subordinated debt to former shareholders of TOC |
In conjunction with the acquisition of TOC on April 2, 2008, its former shareholders provided a subordinated loan to TOC in the amount of €3,000 (U.S. - $4,019). The loan bore interest at 7% payable to the former shareholders on a semi-annual basis. The subordinated loan, including all accrued interest, which was originally repayable in full on March 31, 2011 was extended to July 8, 2011, and paid in full during 2011. | |
(f) |
Promissory Notes |
Promissory notes consist of notes issued to former shareholders as a result of business acquisitions. As consideration in the acquisition of TOC, the Company issued a total of €9,000 (U.S. - $11,675) in promissory notes which are secured by a pledge of the common shares of TOC. Of the amount issued, €1,000 (U.S. - $1,436) was paid in cash on April 5, 2010 and €2,000 (U.S. - $2,672) was paid in cash on October 7, 2011. The remaining €6,000 (U.S. - $7,783) will be repaid in three €2,000 tranches on January 6, 2012, April 6, 2012 and July 6, 2012. The outstanding balance accrues interest at 5% per annum. The former shareholders can demand full repayment of the remaining amount owing. Due to TOCs opening balance sheet not meeting pre-determined working capital targets, and an undisclosed liability that existed prior to the Companys April 2, 2008 acquisition, € 528 (U.S. - $685) of the promissory notes extended above will not be paid. Accordingly, the balance of the promissory notes at December 31, 2011 is €5,472 (U.S. - $7,098). Subsequent to year end, the balance owing as of January 6, 2012, including accrued interest, was paid to the former shareholders. | |
During fiscal 2011, the former shareholders of TOC advanced $1,380 to TOC to fund working capital. The loan accrues interest at 7% per annum, and is repayable no later than July 21, 2012. As at December 31, 2011, the full amount remains outstanding. In addition, $266 remains owing to various former shareholders at a weighted-average interest of 6.73%. | |
All of the outstanding promissory notes described above, totaling $8,744 as at December 31, 2011, are due in the next 12 months, or on demand. | |
(g) |
Other long-term debt |
As at December 31, 2011, a less-than-wholly-owned subsidiary of TOC borrowed Ethiopian birr in an amount equivalent to $711 (January 1, 2011 - $264). At December 31, 2011, the weighted-average interest rate on borrowed funds was 10.3% (January 1, 2011 - 10.3%). |
SUNOPTA INC. | -F32- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
(h) |
Term loans payable and capital lease obligations |
Term loans payable bear a weighted-average interest rate of 5.1% (January 1, 2011 5.3%) due in varying instalments through 2013 with principal payments of $215 due in the next 12 months. | |
Capital lease obligations are due in monthly payments, with a weighted-average interest rate of 7.2% (January 1, 2011 - 6.9%). |
The long-term debt and capital leases described above require the following repayments during the next five fiscal years and thereafter:
|
$ | ||
2012 |
35,198 | ||
2013 |
3,744 | ||
2014 |
2,904 | ||
2015 |
2,873 | ||
2016 |
2,817 | ||
Thereafter |
4,728 | ||
|
52,264 |
Interest expense on long-term debt for the year ended December 31, 2011 was $2,525 (January 1, 2011 - $5,438; December 31, 2009 - $7,047). Interest on bank indebtedness and other debt was $6,561 (January 1, 2011 - $4,294; December 31, 2009 - $6,087).
Interest expense and interest income include:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
Interest expense before accretion on TOC debt |
9,086 | 9,732 | 13,134 | ||||||
Accretion on long-term debt due to TOC acquisition |
- | 218 | 875 | ||||||
Interest expense |
9,086 | 9,950 | 14,009 | ||||||
Interest income |
(247 | ) | (201 | ) | (170 | ) | |||
Interest expense, net |
8,839 | 9,749 | 13,839 |
12. |
Employee future benefits |
TOC maintains a defined benefit pension plan for its employees. Contributions made to the plan by TOC and its employees totaled $302 and $170 for the years ended December 31, 2011 and January 1, 2011, respectively. As at December 31, 2011, the fair value of the plan assets amounted to $761 (January 1, 2011 - $550) and the projected benefit obligation of the plan totaled $1,267 (January 1, 2011 - $944). As at December 31, 2011, the future service lives of plan participants was estimated to be 31 years. The net pension liabilities of $506 and $394 as of December 31, 2011 and January 1, 2011, respectively, are included in long-term liabilities on the consolidated balance sheets. The net periodic benefit cost of the plan amounted to $217, $173 and $209 in the years ended December 31, 2011, January 1, 2011 and December 31, 2009, respectively.
SUNOPTA INC. | -F33- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
13. |
Capital stock |
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 (of which none are outstanding).
The following is a summary of changes in the Companys capital stock:
|
Warrants and rights | Common shares | Total | ||||||||||||
|
Number | $ | Number | $ | $ | ||||||||||
Balance at December 31, 2008 |
- | - | 64,493,320 | 177,858 | 177,858 | ||||||||||
Employee share purchase plan |
- | - | 487,148 | 823 | 823 | ||||||||||
Treasury |
- | - | 2,500 | 13 | 13 | ||||||||||
Balance at December 31, 2009 |
- | - | 64,982,968 | 178,694 | 178,694 | ||||||||||
Options exercised |
- | - | 315,720 | 1,207 | 1,207 | ||||||||||
Employee share purchase plan |
- | - | 198,903 | 747 | 747 | ||||||||||
Treasury |
- | - | 2,500 | 13 | 13 | ||||||||||
Warrants issued |
850,000 | 2,163 | - | - | 2,163 | ||||||||||
Balance at January 1, 2011 |
850,000 | 2,163 | 65,500,091 | 180,661 | 182,824 | ||||||||||
Options exercised |
- | - | 177,279 | 821 | 821 | ||||||||||
Employee share purchase plan |
- | - | 119,028 | 626 | 626 | ||||||||||
Balance at December 31, 2011 |
850,000 | 2,163 | 65,796,398 | 182,108 | 184,271 |
Employee/director option plans
The Company grants options to employees and directors from time to time under employee/director stock option plans. On May 19, 2011, the Companys shareholders approved an amendment to the Companys 2002 Amended and Restated Stock Option Plan to increase the number of common shares reserved for issuance upon the exercise of options granted thereunder from 5,000,000 to 7,500,000 common shares. The amendment had been approved by the Companys Board of Directors on March 8, 2011, based on a recommendation of the Compensation Committee. As at December 31, 2011, 2,838,241 (January 1, 2011 - 823,480) options are remaining to be granted under this plan.
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/directors on exercise of stock options or purchase of stock is credited to capital stock. Option grants generally vest 20% on each of the first through fifth anniversaries from the date of grant and expire on the sixth anniversary of the grant date. The Company uses reserved and unissued common shares to satisfy option exercises under the plan.
Details of changes in employee/director stock options are as follows:
|
Weighted | |||||||||||
|
Weighted- | average | ||||||||||
|
average | remaining | Aggregate | |||||||||
|
exercise price | contractual term | intrinsic value | |||||||||
|
Options | $ | (Years) | $ | ||||||||
Outstanding at beginning of year |
2,348,100 | 4.89 | ||||||||||
Granted |
941,500 | 7.06 | ||||||||||
Exercised |
(177,279 | ) | 2.98 | |||||||||
Forfeited or expired |
(456,261 | ) | 6.49 | |||||||||
Outstanding at end of year |
2,656,060 | 5.51 | 4.5 | 2,277 | ||||||||
Exercisable at end of year |
732,060 | 6.32 | 3.1 | 707 |
SUNOPTA INC. | -F34- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The weighted-average grant-date fair values of all stock options granted in fiscal 2011, 2010 and 2009 were $4.36, $2.79 and $1.05, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the options granted in the years ended December 31, 2011, January 1, 2011 and December 31, 2009 were as follows:
|
December 31, 2011 |
January 1, 2011 |
December 31, 2009 |
Dividend yield(1) |
0% |
0% |
0% |
Expected volatility(2) |
68.0% |
68.2% |
71.0% |
Risk-free interest rate(3) |
1.8% |
2.3% |
2.0% |
Expected life of options (in years)(4) |
6 |
6 |
6 |
(1) |
Determined based on expected annual dividend yield at the time of grant. | |
(2) |
Determined based on historical volatility of the Company's common shares over the expected life of the option. | |
(3) |
Determined based on the yield on U.S. Treasury zero-coupon issues with maturity dates equal to the expected life of the option. | |
(4) |
Determined based on historical exercise and forfeiture patterns. |
The fair value of the options is based on estimates of the number of options that management expects to vest, which is estimated to be 85% of the granted amounts.
Details of employee/director stock options outstanding as at December 31, 2011 are as follows:
|
Vested | Weighted | Total | Weighted | |||||||||||
|
Exercise | outstanding | average price | outstanding | average price | ||||||||||
Expiry date |
price range | options | (vested) | options | (total) | ||||||||||
|
$ | $ | |||||||||||||
2012 |
$10.86 to $11.66 | 93,000 | 11.23 | 93,000 | 11.23 | ||||||||||
2013 |
$12.31 to $13.75 | 136,800 | 12.55 | 171,000 | 12.55 | ||||||||||
2014 |
$4.06 to $13.35 | 184,700 | 5.59 | 329,700 | 5.58 | ||||||||||
2015 |
$0.91 to $1.92 | 212,760 | 1.66 | 661,260 | 1.66 | ||||||||||
2016 |
$4.45 to $5.62 | 94,800 | 4.49 | 531,600 | 4.49 | ||||||||||
2017 |
$4.88 to $7.72 | 10,000 | 5.17 | 869,500 | 7.04 | ||||||||||
|
732,060 | 6.32 | 2,656,060 | 5.51 |
Earnings from continuing operations for the year ended December 31, 2011 includes $2,090 (January 1, 2011 - $2,136; December 31, 2009 - $1,435) of stock compensation expense related to the Companys stock-based compensation arrangements, including $354 (January 1, 2011 - $777; December 31, 2009 - $285) in stock-based compensation for the options issued by Opta Minerals to its employees. The Company also realized a cash tax benefit of $86 (January 1, 2011 - $42; December 31, 2009 - $6) relating to options granted in prior years and exercised in the current year, which was recorded as an increase in additional paid-in capital. Total compensation costs related to non-vested awards not yet recognized as an expense is $5,098 as at December 31, 2011, which will be amortized over a weighted-average remaining vesting period of 2.1 years.
Employee share purchase plan / compensation grants
The Company maintains an employee share purchase plan whereby employees can purchase common shares through payroll deductions. In the year ended December 31, 2011, the Companys employees purchased 119,028 common shares (January 1, 2011 - 198,903; December 31, 2009 - 487,148) for total proceeds of $626 (January 1, 2011 - $760; December 31, 2009 - $836). As at December 31, 2011, 1,555,064 (January 1, 2011 - 1,674,092) common shares are remaining to be granted under this plan.
SUNOPTA INC. | -F35- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Warrants
On February 5, 2010 (the First Tranche) and June 11, 2010 (the Second Tranche), the Company issued warrants pursuant to an Advisory Services Agreement. A fair value of $441 and $1,722, respectively, was assigned to these warrants, using the Black-Scholes option pricing model, and were expensed in full during the quarter of issuance with the offset recorded as an increase to additional paid-in capital. The Second Tranche of warrants were issued following the consummation of the sale of the CFD business (see note 3(c)) and the cost was included as part of the gain on sale of discontinued operations. As at December 31, 2011, the First Tranche and Second Tranche of warrants have not been exercised.
14. |
Other expense (income), net |
December 31, | December 31, | |||||||||
2011 | January 1, 2011 | 2009 | ||||||||
$ | $ | $ | ||||||||
(a) | Long-lived asset impairment charges | 7,868 | 7,549 | - | ||||||
(b) | Severance and other rationalization costs | 924 | 1,805 | 1,182 | ||||||
(c) | Acquisition-related transaction costs | 467 | 547 | - | ||||||
(d) | Gain on sale of assets | (2,872 | ) | - | - | |||||
(e) | Adjustment to fair value of contingent consideration | (1,235 | ) | - | - | |||||
(f) | Legal settlements | (512 | ) | - | 1,425 | |||||
(g) | Wind-up of defined benefit pension plan | - | 588 | - | ||||||
Other | 457 | 456 | (362 | ) | ||||||
5,097 | 10,945 | 2,245 |
(a) |
Long-lived asset impairment charges |
In the fourth quarter of 2011, the Company evaluated whether the carrying amounts of tangible and intangible long-lived assets of its Purity Life Natural Health Products operation were recoverable based on the estimated undiscounted future cash flows from their remaining use. This evaluation indicated that these cash flows were not sufficient to recover the carrying amount of those assets and that impairment charges of $6,025 and $1,485 were required to write down intangible assets and property, plant and equipment of Purity Life, respectively. In addition, the Company reduced the weighted-average useful life of the remaining Purity Life tangible and intangible long-lived assets to two years. Purity Life is part of the International Foods. Also in the fourth quarter of 2011, the Company wrote off certain long-lived tangible and intangible assets of its Frozen Foods operation in the amounts of $88 and $270, respectively. The Frozen Foods operation is part of the Consumer Products Group. | |
In fiscal 2010, the Company recorded an asset impairment charge of $4,224 against the carrying value of property, plant and equipment within the Mexican and California fruit processing operations. Following managements decision to rationalize these operations, the carrying value of the property, plant and equipment was written down to its fair value. A supplier relationship intangible asset in the amount of $454 was also written off, as the rationalization plan impaired all future value of the relationship. In addition, the Company identified and wrote off $516 of obsolete equipment at its Healthy Snacks operation. The Company also recorded an intangible assets impairment charge of $2,355 in connection with the closure of its brokerage operation in Chicago, Illinois. All of these impairments charges were related to the Consumer Products Group and totaled $7,549. | |
(b) |
Severance and other rationalization costs |
In fiscal 2011, the Company recorded employee severance and other rationalization costs mainly in connection with the divestiture of fruit processing operations in Mexico and California (see note 3(a)) and headcount reductions at a Purity Life distribution facility in Acton, Ontario. In fiscal 2010, these costs were related to the rationalization of operations at the Purity Life distribution facility in response to market conditions, and the closure of the Chicago-based brokerage operation. In fiscal 2009, the Company consolidated certain manufacturing operations to Omak, Washington and ceased fruit processing at a leased facility in Buena Park, California. |
SUNOPTA INC. | -F36- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
(c) |
Acquisition-related transaction costs |
Represents acquisition-related transaction costs incurred in connection with the fiscal 2011 acquisitions of Inland and Lortons and the fiscal 2010 acquisitions of Dahlgren and Edner (see note 2). | |
(d) |
Gain on sale of assets |
During the second quarter of 2011, the Company completed the sales of processing equipment and land and buildings located in Mexico to Fruvemex for proceeds of $5,650 (see note 3(a)). The Company recorded a gain on sale of $2,872, after deducting the carrying value of the assets and related transaction costs. | |
(e) |
Adjustments to fair value of contingent consideration |
In fiscal 2011, the Company remeasured the fair value of the contingent consideration related to the acquisitions of Dahlgren (see note 2(b)) and Edner (see note 2(c)), which resulted in a $1,235 reduction in the related contingent consideration liabilities. | |
(f) |
Legal settlements |
In fiscal 2011, the Company recorded a recovery of $512 in connection with the settlement of the Vargas Class Action (see note 20(a)). In fiscal 2009, the Company had accrued $1,200 related to the tentative settlement of this matter. In addition, in fiscal 2009, the Company settled a claim related to commissions with a former business partner for $225. | |
(g) |
Wind-up of defined benefit pension plan |
As a result of the wind-up of a defined benefit plan in 2010, the Company recognized a non-cash charge of $588 that was previously recorded in accumulated other comprehensive income on the consolidated balance sheet. |
SUNOPTA INC. | -F37- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
15. |
Income taxes |
The provision for (recovery of) income taxes from continuing operations differs from the amount that would have resulted by applying the combined Canadian federal and provincial statutory income tax rate to earnings (loss) before income taxes due to the following:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
Income tax provision (recovery) at combined statutory rate |
5,392 | 6,992 | (3,925 | ) | |||||
|
|||||||||
Income (decrease) by the effects of: |
|||||||||
Impact of foreign exchange |
194 | (138 | ) | (2,171 | ) | ||||
Change in valuation allowance |
(1,054 | ) | (3,708 | ) | 2,123 | ||||
Foreign tax rate differential |
824 | 849 | (800 | ) | |||||
Impact of enacted tax rates |
1,036 | (298 | ) | 1,743 | |||||
Benefit of cross-jurisdictional financing structures |
(1,231 | ) | (1,483 | ) | (3,126 | ) | |||
Impact of capital gains and losses |
- | 2,227 | (1,052 | ) | |||||
Impact of goodwill and intangible asset impairments |
606 | 264 | 2,625 | ||||||
Change in unrecognized tax benefits |
- | (549 | ) | (455 | ) | ||||
SRED and other ITCs carried forward in the year |
(988 | ) | - | (456 | ) | ||||
Expiring non-capital losses and R&D credits plus a change in Cdn capital losses |
2,002 | - | - | ||||||
Other |
1,266 | 1,902 | 2,456 | ||||||
Provision for (recovery of) income taxes |
8,047 | 6,058 | (3,038 | ) |
The components of earnings (loss) from continuing operations before income taxes are shown below:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
Canada |
(10,063 | ) | (9,505 | ) | (8,980 | ) | |||
U.S. |
17,136 | 24,645 | (2,077 | ) | |||||
Other |
12,185 | 5,494 | (1,221 | ) | |||||
|
19,258 | 20,634 | (12,278 | ) |
SUNOPTA INC. | -F38- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The components of the provision (recovery) of income taxes are shown below:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
Current income tax provision (recovery): |
|||||||||
Canada |
(468 | ) | 2,546 | 3,568 | |||||
U.S. |
3,534 | 1 | (705 | ) | |||||
Other |
2,724 | 1,103 | (884 | ) | |||||
|
5,790 | 3,650 | 1,979 | ||||||
|
|||||||||
Deferred income tax provision (recovery): |
|||||||||
Canada |
(1,236 | ) | (4,730 | ) | (6,339 | ) | |||
U.S. |
3,121 | 8,397 | 128 | ||||||
Other |
372 | (1,259 | ) | 1,194 | |||||
|
2,257 | 2,408 | (5,017 | ) | |||||
Provision for (recovery of) income taxes |
8,047 | 6,058 | (3,038 | ) |
Deferred income taxes of the Company are comprised of the following:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
Differences in property, plant and equipment and intangible assets |
(29,088 | ) | (30,998 | ) | (25,082 | ) | |||
Capital and non-capital losses |
16,240 | 26,651 | 30,303 | ||||||
Tax benefit of scientific research expenditures |
4,908 | 3,513 | 3,575 | ||||||
Tax benefit of costs incurred during share issuances |
191 | (2,072 | ) | 390 | |||||
Inventory basis differences and reserves |
2,423 | 3,020 | 4,530 | ||||||
Other accrued reserves |
2,124 | (2,283 | ) | 1,468 | |||||
|
(3,202 | ) | (2,169 | ) | 15,184 | ||||
Less: valuation allowance |
4,547 | 5,880 | 7,178 | ||||||
Net deferred income tax (liability) asset |
(7,749 | ) | (8,049 | ) | 8,006 |
The components of the deferred income tax asset (liability) are shown below:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
Canada |
11,278 | 10,451 | 12,107 | ||||||
U.S. |
(16,009 | ) | (16,136 | ) | (806 | ) | |||
Other |
(3,018 | ) | (2,364 | ) | (3,295 | ) | |||
|
(7,749 | ) | (8,049 | ) | 8,006 |
SUNOPTA INC. | -F39- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The components of the deferred income tax valuation allowance are as follows:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
$ | $ | $ | ||||||
Balance, beginning of year |
5,880 | 7,178 | 4,153 | ||||||
Increase (decrease) in valuation allowance |
(1,054 | ) | (3,708 | ) | 2,123 | ||||
Adjustments to valuation allowance as a result of acquisitions and foreign exchange |
(279 | ) | 2,410 | 902 | |||||
Balance, end of year |
4,547 | 5,880 | 7,178 |
The Company has approximately $10,628 (January 1, 2011 - $10,867) in Canadian scientific expenditures, which can be carried forward indefinitely to reduce future years taxable income. The Company also has approximately $1,003 and $390 (January 1, 2011 $1,026 and $657) in Canadian and U.S. scientific research investment tax credits and $166 (January 1, 2011 - $202) in Massachusetts research and development tax credits, which will expire in varying amounts up to 2029.
The Company has Canadian and U.S. federal non-capital loss carry-forwards of approximately $25,790 and $7,743, respectively, as at December 31, 2011 (January 1, 2011 - $29,598 and $31,598, respectively). The Company also has state loss carry-forwards of approximately $8,842 as at December 31, 2011 (January 1, 2011 - $15,872). The amounts are available to reduce future federal and provincial/state income taxes. Non-capital loss carry-forwards attributable to Canada and the U.S. expire in varying amounts over the next 20 years.
The Company has Canadian capital losses of approximately $655 as at December 31, 2011 (January 1, 2011 - $370) for which a full valuation allowance exists. These amounts are available to reduce future capital gains and do not expire.
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determinations, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Based on this evaluation, a valuation allowance of $4,547 (January 1, 2011 - $5,880) has been recorded against certain assets to reduce the net benefit recorded in the consolidated financial statements.
The Company has not provided Canadian deferred taxes on cumulative earnings of non-Canadian affiliates and associated companies that have been reinvested indefinitely. Deferred taxes are provided for earnings of non-Canadian affiliates and associated companies when the Company determines that such earnings are no longer indefinitely reinvested.
The Company believes it has adequately examined its tax positions taken or expected to be taken in a tax return; however, amounts asserted by taxing authorities could differ from the Companys positions. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is presented below.
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
Balance, beginning of year |
2,568 | 3,117 | ||||
Reductions resulting from lapse of applicable statute of limitations |
- | (549 | ) | |||
Balance, end of year |
2,568 | 2,568 |
The Companys unrecognized tax benefits largely include a possible reduction to prior year losses for U.S. exposures relating to the deductibility of certain interest amount accrued. The Company believes that it is reasonably possible that a decrease in unrecognized tax benefits related to tax exposures in the U.S. may be necessary as statute limitations lapse beginning in 2015.
Consistent with its historical financial reporting, the Company has classified interest and penalties related to income tax liabilities, when applicable, as part of interest expense in its consolidated statements of operations. The Company recognized $nil in potential interest and penalties associated with unrecognized tax benefits for the year ended December 31, 2011 (January 1, 2011 - $nil). The unrecognized tax benefits have been recorded as a reduction of long-term deferred tax assets. All of the unrecognized tax benefits could impact the Company's effective tax rate if recognized.
SUNOPTA INC. | -F40- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The number of years with open tax audits varies depending on the tax jurisdiction. The Companys major taxing jurisdictions include Canada, Ontario, the U.S. (including multiple states), and the Netherlands. The Companys 2007 through 2011 tax years (and any tax year for which available non-capital loss carry-forwards were generated up to the amount of non-capital loss carry-forward) remain subject to examination by the Internal Revenue Service for U.S. federal tax purposes, and the 2005 through 2011 tax years remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are other ongoing audits in various other jurisdictions that are not considered material to the Companys consolidated financial statements.
16. |
Earnings (loss) per share |
Earnings (loss) per share were calculated as follows:
|
December 31, 2011 | January 1, 2011 | December 31, 2009 | ||||||
|
|||||||||
Earnings (loss) from continuing operations attributable to SunOpta Inc. |
$ | 9,575 | $ | 13,208 | $ | (6,433 | ) | ||
(Loss) earnings from discontinued operations, net of taxes |
(4,279 | ) | 47,858 | (330 | ) | ||||
Earnings (loss) attributable to SunOpta Inc. |
$ | 5,296 | $ | 61,066 | $ | (6,763 | ) | ||
|
|||||||||
Weighted average number of shares used in basic earnings per share |
65,644,372 | 65,179,067 | 64,770,614 | ||||||
Dilutive potential of the following: |
|||||||||
Employee/director stock options |
705,332 | 663,506 | - | ||||||
Warrants |
233,445 | 185,705 | - | ||||||
Diluted weighted average number of shares outstanding |
66,583,149 | 66,028,278 | 64,770,614 | ||||||
|
|||||||||
Earnings (loss) per share - basic: |
|||||||||
-from continuing operations |
$ | 0.15 | $ | 0.20 | $ | (0.10 | ) | ||
-from discontinued operations |
$ | (0.07 | ) | $ | 0.73 | - | |||
|
$ | 0.08 | $ | 0.94 | $ | (0.10 | ) | ||
|
|||||||||
Earnings (loss) per share - diluted: |
|||||||||
-from continuing operations |
$ | 0.14 | $ | 0.20 | $ | (0.10 | ) | ||
-from discontinued operations |
$ | (0.06 | ) | $ | 0.72 | - | |||
|
$ | 0.08 | $ | 0.92 | $ | (0.10 | ) |
For the years ended December 31, 2011 and January 1, 2011, options to purchase 1,355,700 and 837,900 common shares, respectively, have been excluded from the calculations of diluted earnings per share due to their anti-dilutive effect. Due to the loss attributable to SunOpta Inc. for the year ended December 31, 2009, options to purchase 2,480,425 common shares were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.
SUNOPTA INC. | -F41- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
17. |
Supplemental cash flow information |
December 31, 2011 | January 1, 2011 | December 31, 2009 | |||||||
$ | $ | $ | |||||||
Changes in non-cash working capital, net of businesses acquired: |
|||||||||
Accounts receivable | 5,386 | (8,451 | ) | 11,512 | |||||
Inventories | (41,542 | ) | (35,861 | ) | 34,559 | ||||
Income tax recoverable | (1,247 | ) | 1,205 | 153 | |||||
Prepaid expenses and other current assets | 4,492 | (10,613 | ) | 1,709 | |||||
Accounts payable and accrued liabilities | (9,643 | ) | 17,310 | (4,289 | ) | ||||
Customer and other deposits | (2,143 | ) | 1,816 | (150 | ) | ||||
(44,697 | ) | (34,594 | ) | 43,494 | |||||
Cash paid for: |
|||||||||
Interest | 7,632 | 8,993 | 11,268 | ||||||
Income taxes | 7,256 | 2,105 | 1,240 |
Included in cash and cash equivalents is $698 as at December 31, 2011 (January 1, 2011 - $495) that is specific to Opta Minerals that cannot be utilized by the Company for general corporate purposes, and is maintained in separate bank accounts of Opta Minerals.
SUNOPTA INC. | -F42- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
18. |
Related party transactions and balances |
December 31, | December 31, | |||||||||
2011 | January 1, 2011 | 2009 | ||||||||
$ | $ | $ | ||||||||
Purchases and sales at market rates |
||||||||||
(a) | President of Grains and Foods Group - purchases | 469 | 502 | 494 | ||||||
(a) | President of Grains and Foods Group - sales | 174 | 104 | 134 | ||||||
(b) | Employees of Grains and Foods Group - purchases | 1,352 | 823 | 1,151 | ||||||
(b) | Employees of Grains and Foods Group - sales | 335 | 217 | 308 | ||||||
(c) | Minority partner at Trabocca B.V. | 700 | 381 | 237 | ||||||
Rent paid to former owners or shareholders |
||||||||||
(d) | Warehouses and administration facility | 553 | 472 | 426 | ||||||
(e) | Production facility | - | - | 155 | ||||||
(f) | Production, warehouse and office facility | 512 | 430 | 439 | ||||||
Other transactions |
||||||||||
(g) | Employment contract of former CEO | 248 | 380 | 343 | ||||||
(h) | Payment of promissory note at Opta Minerals | - | - | 1,500 | ||||||
(i) | Contingent consideration at Opta Minerals | 233 | 447 | - | ||||||
(j) | Amounts due to/from officers and directors | 97 | 2 | 2 | ||||||
(k) | Interest on subordinated debt | 180 | 320 | 429 | ||||||
(l) | Interest on working capital advance | 46 | - | - | ||||||
Discontinued operations |
||||||||||
(m) | Warehouse and administration facility | - | 163 | 355 | ||||||
(m) | Warehouse and administration facility | - | 64 | 136 | ||||||
(m) | Sale of organic product | - | - | 2,973 | ||||||
(m) | Rent at Opta Minerals from an affiliated company | - | 24 | 22 |
In addition to transactions disclosed elsewhere in these consolidated financial statements, the Company entered into the following related party transactions:
(a) |
Represents purchases of agronomy products from the Company at market rates, as well as the sale of organic corn and soybeans at market rates to the Company, which are included in revenues and cost of sales, respectively, on the consolidated statement of operations. |
(b) |
Represents purchases of agronomy products from the Company at market rates, as well as the sale of organic corn and soybeans at market rates to the Company, which are included in revenues and cost of sales, respectively, on the consolidated statement of operations. |
(c) |
Represents the sale of coffee beans, at market prices, from TOC to a company that is owned by the non-controlling shareholder of Trabocca B.V., a less than wholly owned subsidiary of TOC. The sales are included in revenues on the consolidated statement of operations. |
(d) |
Pursuant to the acquisition of Purity Life, the Company leased Purity Lifes Acton, Ontario, warehouses and administration facilities from a company controlled by the former owners, one of whom was in a senior management position within the International Foods Group until September 2011. The lease was at market rates at inception and expired in 2011. The lease payments are included in selling, general and administrative expenses on the consolidated statement of operations. |
SUNOPTA INC. | -F43- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
(e) |
Pursuant to the acquisition of Neo-Nutritionals, Inc., the Company leased the Brantford, Ontario production facilities from a company controlled by a former owner, who was an employee of the Company to December 2009. The lease was at market rates and expired in 2010. The lease payments are included in selling, general and administrative expenses on the consolidated statement of operations. |
(f) |
Pursuant to the acquisition of Pacific Fruit Processors, the Company leases a production, warehouse and office facility from a related party to the former President, who remains in a senior management position in the Consumer Products Group. The lease was at market rates at inception and is for a 60-month term with two five-year renewal periods expiring in June 2020. The lease payments are included in selling, general and administrative expenses on the consolidated statement of operations. |
(g) |
Represents the amount owed to the Companys former Chief Executive Officer (former CEO) under an employment contract, which is included in long-term liabilities on the consolidated balance sheets. On February 1, 2007, the former CEO of the Company stepped down and remained Chairman of the Board at a reduced level of compensation subject to a contract expiring on February 26, 2020. The contract, amended on March 8, 2011, provides for consulting fees of $50 per year declining to $25 per year, to be paid on a sliding scale over time until February 26, 2020. Subsequent to the year 2012, the former CEO is no longer required to provide services to the Company although payments will continue. In the event that the former CEO passes away before February 26, 2020, any remaining amount payable under the contract will be paid to his surviving spouse until February 26, 2020. |
(h) |
Represents long-term debt on the consolidated balance sheet to the former shareholders of Magnesium Technologies Corporation, which was a 2006 acquisition by Opta Minerals. The final $1,500 instalment related to this debt was paid in 2010. As a result of the appointment of a new director to Opta Minerals on May 12, 2008, the director received 26.5% of the total payments, based on his previous shareholdings. |
(i) |
Pursuant to Opta Minerals purchase of the outstanding shares of Bimac Inc. (Bimac), contingent consideration not to exceed $3,850 may be payable to the former shareholders based on the achievement of certain pre-determined earnings targets to September 2016. Based on the earnings of Bimac for the year ended September 30, 2011, Opta Minerals recorded, and subsequently paid, $233 (2010 - $447, 2009 - $nil) of contingent consideration to the former shareholders, with an offsetting increase to goodwill. As a result of the appointment of a director to Opta Minerals in May 12, 2008, the director received 61.7% of the contingent consideration payment, based on his previous shareholdings. |
(j) |
Represents amounts due to/from officers/directors of the Company included in accounts receivable on the consolidated balance sheets. |
(k) |
Represents semi-annual interest payments on the subordinated debt paid to former shareholders of TOC (who remain in a senior management position) (see note 11(f)). |
(l) |
Represents interest payments on the working capital advance paid to a former shareholder of TOC (who remains in a senior management position) (see note 11(f)). |
(m) |
Due to the sale of the CFD assets and SBI (see note 3), the following related party transactions have been reclassified on the consolidated statement of operations to earnings (loss) from discontinued operations: |
Pursuant to the Pro Organics acquisition, the Company leased its Vancouver, British Columbia, warehouse and administration facility from a company controlled by a former owner. The lease was at market rates at inception and was for a five-year term with two five-year renewal periods, expiring in 2018.
Pursuant to the acquisition of Les Importations Cacheres Hahamovitch Inc., the Company leased its Montreal, Quebec, warehouse and administration facility from the former owner. The lease was at market rates at inception and was renewable annually for a 12-month term through 2014.
SUNOPTA INC. | -F44- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The former President of the Distribution Group (who was an employee until March 2009) sold organic product from his family farming operation, at market rates, to the former Distribution Group.
Opta Minerals rents a facility to SBI, a former affiliated company, and received rental revenue.
19. | Variable interest entities |
(a) |
The joint venture in CSOP, previously held by the Grains and Foods Group and consolidated as a VIE, was disposed of in the third quarter of 2011 (see note 3(b)). |
| |
(b) |
TOC holds an investment in a joint venture in Ethiopia related to hulling of organic sesame seeds. TOC purchases all of the output from the joint venture, and sells the product through its existing sales and marketing channels. TOC holds 35% of the voting common shares and consolidates its variable interest in the joint venture, as it has been determined to be the primary beneficiary. |
| |
The liabilities of the VIE consolidated by the Company represent claims against the specific assets of the VIE, and not additional claims on the Companys general assets. There is no recourse available to the creditors of the VIE against the Company. The impact of consolidating the investment in the joint venture on the consolidated balance sheet is as follows: |
|
December 31, 2011 | January 1, 2011 | ||||
|
$ | $ | ||||
Current assets |
718 | 859 | ||||
Property, plant and equipment |
1,361 | 1,767 | ||||
Current liabilities |
414 | 1,221 | ||||
Long-term debt |
711 | 264 | ||||
Long-term liabilities |
330 | 178 | ||||
Non-controlling interest |
(36 | ) | 424 | |||
Net investment by the Company |
(660 | ) | (539 | ) |
20. |
Commitments and contingencies |
(a) |
Vargas Class Action |
In September 2008, a single plaintiff and a former employee filed a wage and hour dispute, against the Company and SunOpta Fruit Group, Inc., as a class action alleging various violations of Californias labor laws (the Vargas Class Action). A tentative settlement of all claims was reached at mediation on January 15, 2010 and the parties executed a settlement agreement resolving all claims of the class. On February 15, 2011, the terms of the proposed settlement were preliminarily approved by the court. As a result of the tentative settlement, $1,200 was accrued for a common fund to pay claims. Claim Forms totaling $315 were submitted against the common fund. Disbursements of $688 were made from the common fund to claimants to pay timely claims and to plaintiffs counsel and others to pay statutory attorneys fees, costs and administrative expenses. Thereafter, $512 of the original common fund was returned to the Company, resulting in a recapture gain (see note 14(f)). | |
(b) |
Colorado Sun Oil Processors, LLC dispute |
Colorado Mills and SunOpta Grains and Foods Inc. (formally Sunrich LLC, herein Grains and Foods), a wholly owned subsidiary of the Company, organized a joint venture in 2008 to construct and operate a vegetable oil refinery adjacent to Colorado Mills sunflower seed crush plant located in Lamar, Colorado. During the relationship, disputes arose between the parties concerning management of the joint venture, recordkeeping practices, certain unauthorized expenses incurred on behalf of the joint venture by Colorado Mills, procurement of crude oil by Sunrich from Colorado Mills for processing at the joint venture refinery, and the contract price of crude oil offered for sale under an output term of the joint venture agreement. |
SUNOPTA INC. | -F45- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The parties initiated a dispute resolution process as set forth in the joint venture agreement, which Colorado Mills aborted prematurely through the initiation of suit in Colorado State Court. Subsequent to the filing of that suit, Colorado Mills acted with an outside creditor of the joint venture to involuntarily place the joint venture into bankruptcy. As part of the bankruptcy proceeding, Colorado Mills purchased substantially all of the assets of the joint venture (see note 3(d)). | |
A separate arbitration proceeding occurred between Grains and Foods and Colorado Mills to resolve direct claims each party asserted against the other. The case was arbitrated during the week of August 8, 2011 and proposed findings were filed on September 13, 2011. On January 4, 2012 the arbitrator entered an award denying Grains and Foods claims and awarding Colorado Mills $4,816 for its breach of contract claim and $430 for accrued interest. The Company subsequently filed a Notice of intent to move the supervising Court to vacate the arbitration award. The hearing on that motion will likely occur during the second quarter of 2012. Although management believes the claims asserted by Colorado Mills are baseless, that the arbitrator committed prejudicial error warranting vacatur of the award, and that vacatur is warranted, management cannot conclude whether the prospect of an unfavorable outcome in this matter is probable. An accrual for the full value of the award has been made pending the outcome of post-arbitration judicial proceedings. | |
(c) |
Other claims |
In addition, various claims and potential claims arising in the normal course of business are pending against the Company. It is the opinion of management that these claims or potential claims are without merit and the amount of potential liability, if any, to the Company is not determinable. Management believes the final determination of these claims or potential claims will not materially affect the financial position or results of the Company. | |
(d) |
Environmental laws |
The Company believes that, with respect to both its operations and real property, it is in material compliance with current environmental laws. Based on known existing conditions and the Companys experience in complying with emerging environmental issues, the Company is of the view that future costs relating to environmental compliance will not have a material adverse effect on its consolidated financial position, but there can be no assurance that unforeseen changes in the laws or enforcement policies of relevant governmental bodies, the discovery of changed conditions on the Companys real property or in its operations, or changes in the use of such properties and any related site restoration requirements, will not result in the incurrence of significant costs. | |
(e) |
Grain, sunflower and other commitments |
In the normal course of business, SunOpta Foods 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. SunOpta Foods also has commitments to purchase $46,190 (January 1, 2011 - $49,337) of grains and sunflowers in the normal course of business. In addition, the Consumer Products Group has entered into a number of commitments in the amount of $2,720 (December 31, 2011 - $10,188) related to supplier and purchase commitments. | |
(f) |
Letters of credit |
The Company has outstanding letters of credit at December 31, 2011 totaling $15,189 (January 1, 2011 - $3,873). | |
(g) |
Real property lease commitments |
The Company has entered into various leasing arrangements, which have fixed monthly rents that are adjusted annually each year for inflation. |
SUNOPTA INC. | -F46- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
Minimum commitments under operating leases(a), principally for processing facilities, warehouse and distribution facilities, and equipment for the next five fiscal years and thereafter are as follows:
|
$ | ||
2012 |
10,515 | ||
2013 |
9,860 | ||
2014 |
8,336 | ||
2015 |
6,339 | ||
2016 |
4,194 | ||
Thereafter |
4,830 | ||
|
44,074 |
(a) |
This table does not include approximately $8,300 in equipment financing expected to be converted to operating leases subsequent to December 31, 2011. |
In the years ended December 31, 2011, January 1, 2011 and December 31, 2009, net minimum rents, including contingent rents and sublease rental income, were $10,211, $11,049 and $9,006, respectively. | |
21. |
Segmented information |
As described in note 22, in the first quarter of 2012, the Company implemented changes to its organizational structure to align the operations of SunOpta Foods according to the type of customers and markets served, rather than by product groupings. Consequently, the Company has realigned its reportable operating segments to reflect the resulting changes in management reporting and accountability to the Companys Chief Executive Officer. With this realignment, SunOpta Foods now consists of the following four operating segments: Grains and Foods Group, Ingredients Group, Consumer Products Group and International Foods Group. This new structure is more closely aligned with the Companys integrated business models that specialize in the sourcing, processing and packaging of natural, organic and specialty food products.
As a result of this realignment, the former Fruit Group was eliminated and the new Consumer Products Group was created to focus on non-grains based consumer packaged goods and is comprised of the Frozen Foods and Healthy Snacks operations which were part of the former Fruit Group, and the Food Solutions operations which were formerly part of the International Foods Group. The Fruit Ingredient operation of the former Fruit Group has been merged with the existing Ingredients Group. The Grains and Foods Group remains unchanged.
Effective with the realignment, the Company operates in two industries divided into six operating segments as follows:
(a) |
SunOpta Foods sources, processes, packages, markets and distributes a wide range of natural, organic and specialty food products and ingredients with a focus on soy, corn, sunflower, fruit, fiber and other natural and organic food and natural health products. There are four operating segments within SunOpta Foods: |
i. |
Grains and Foods Group is focused on vertically integrated sourcing, processing, packaging and marketing of grains, grain-based ingredients and packaged products; | |
ii. |
Ingredients Group is focused primarily on insoluble oat and soy fiber products, and specialty fruit ingredients, and works closely with its customers to identify product formulation, cost and productivity opportunities aimed at transforming raw materials into value-added food ingredient solutions; | |
iii. |
Consumer Products Group provides natural and organic consumer packaged food products to major global food manufacturers, distributors and supermarket chains with a variety of branded and private label non-grains based products; and | |
iv. |
International Foods Group comprises European and North American based operations which source raw material ingredients and trade organic commodities. In addition, this group manufactures, packages and distributes retail natural health products, primarily in the Canadian marketplace. |
SUNOPTA INC. | -F47- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
(b) |
Opta Minerals processes, distributes and recycles silica-free loose abrasives, roofing granules, industrial minerals and specialty sands for the foundry, steel, and bridge and ship-cleaning industries. |
(c) |
Corporate Services provide a variety of management, financial, information technology, treasury and administration services to the operating segments from the head office in Brampton, Ontario, and information and shared services in Minnesota. |
The Companys assets, operations and employees are principally located in the U.S., Canada, Europe, China and Ethiopia. Revenues are allocated to the U.S., Canada and Europe and other external markets based on the location of the customer. Other expense (income) net, interest expense, net, and provision for (recovery of) income taxes are not allocated to the segments.
The following segmented information for the year ended December 31, 2011 is provided on the basis of the Companys new operating segments alignment:
|
December 31, 2011 | |||||||||||
|
SunOpta | Opta | Corporate | |||||||||
|
Foods | Minerals | Services | Consolidated | ||||||||
|
$ | $ | $ | $ | ||||||||
External revenues by market: |
||||||||||||
U.S. |
705,043 | 63,708 | - | 768,751 | ||||||||
Canada |
93,662 | 15,277 | - | 108,939 | ||||||||
Europe and other |
190,251 | 14,135 | - | 204,386 | ||||||||
Total revenues from external customers |
988,956 | 93,120 | - | 1,082,076 | ||||||||
|
||||||||||||
Segment operating income (loss) |
33,386 | 7,577 | (7,769 | ) | 33,194 | |||||||
|
||||||||||||
Other expense, net |
5,097 | |||||||||||
Interest expense, net |
8,839 | |||||||||||
Provision for income taxes |
8,047 | |||||||||||
Earnings from continuing operations |
11,211 | |||||||||||
|
||||||||||||
Identifiable assets |
484,185 | 92,812 | 54,506 | 631,503 | ||||||||
Depreciation and amortization |
14,465 | 4,207 | 775 | 19,447 | ||||||||
Goodwill |
42,161 | 7,226 | - | 49,387 | ||||||||
Expenditures on property, plant and equipment |
14,469 | 4,901 | 636 | 20,006 |
Other expense for the year ended December 31, 2011 includes impairments of long-lived assets in the International Foods Group of $7,510 and Consumer Products Group of $358 (see note 14(a)).
SUNOPTA INC. | -F48- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
SunOpta Foods has the following segmented reporting for the year ended December 31, 2011, provided on the basis of the Companys new operating segments alignment:
|
December 31, 2011 | ||||||||||||||
|
Consumer | ||||||||||||||
|
Grains and | Ingredients | Products | International | SunOpta | ||||||||||
|
Foods Group | Group | Group | Foods Group | Foods | ||||||||||
|
$ | $ | $ | $ | $ | ||||||||||
External revenues by market: |
|||||||||||||||
U.S. |
396,279 | 80,861 | 161,339 | 66,564 | 705,043 | ||||||||||
Canada |
14,167 | 6,957 | 3,057 | 69,481 | 93,662 | ||||||||||
Europe and other |
68,749 | 3,256 | 843 | 117,403 | 190,251 | ||||||||||
Total revenues from external customers |
479,195 | 91,074 | 165,239 | 253,448 | 988,956 | ||||||||||
|
|||||||||||||||
Segment operating income (loss) |
22,813 | 7,083 | (3,978 | ) | 7,468 | 33,386 | |||||||||
|
|||||||||||||||
Identifiable assets |
235,563 | 61,426 | 64,818 | 122,378 | 484,185 | ||||||||||
Depreciation and amortization |
6,894 | 2,454 | 2,478 | 2,639 | 14,465 | ||||||||||
Goodwill |
19,066 | 12,030 | 2,934 | 8,131 | 42,161 | ||||||||||
Expenditures on property, plant and equipment |
9,182 | 1,985 | 2,940 | 362 | 14,469 |
SUNOPTA INC. | -F49- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The following segmented information for the year ended January 1, 2011 is provided on the basis of the Companys new operating segments alignment:
|
January 1, 2011 | |||||||||||
|
SunOpta | Opta | Corporate | |||||||||
|
Foods | Minerals | Services | Consolidated | ||||||||
|
$ | $ | $ | $ | ||||||||
External revenues by market: |
||||||||||||
U.S. |
582,948 | 54,713 | - | 637,661 | ||||||||
Canada |
86,395 | 14,867 | - | 101,262 | ||||||||
Europe and other |
148,098 | 11,288 | - | 159,386 | ||||||||
Total revenues from external customers |
817,441 | 80,868 | - | 898,309 | ||||||||
|
||||||||||||
Segment operating income (loss) |
46,442 | 7,753 | (11,213 | ) | 42,982 | |||||||
|
||||||||||||
Other expense, net |
10,945 | |||||||||||
Goodwill impairment |
1,654 | |||||||||||
Interest expense, net |
9,749 | |||||||||||
Provision for income taxes |
6,058 | |||||||||||
Earnings from continuing operations |
14,576 | |||||||||||
|
||||||||||||
Identifiable assets |
472,473 | 87,853 | 48,974 | 609,300 | ||||||||
Depreciation and amortization |
12,642 | 4,099 | 1,101 | 17,842 | ||||||||
Goodwill |
41,842 | 6,332 | - | 48,174 | ||||||||
Expenditures on property, plant and equipment |
15,214 | 1,580 | 856 | 17,650 |
Other expense for the year ended January 1, 2011 includes impairments of long-lived assets in the Consumer Products Group of $7,549 (see note 14(a)). The goodwill impairment charge of $1,654 for the year ended January 1, 2011 is related to the International Foods Group (see note 8).
SUNOPTA INC. | -F50- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
SunOpta Foods has the following segmented reporting for the year ended January 1, 2011, provided on the basis of the Companys new operating segments alignment:
|
January 1, 2011 | ||||||||||||||
|
Consumer | ||||||||||||||
|
Grains and | Ingredients | Products | International | SunOpta | ||||||||||
|
Foods Group | Group | Group | Foods Group | Foods | ||||||||||
|
$ | $ | $ | $ | $ | ||||||||||
External revenues by market: |
|||||||||||||||
U.S. |
302,073 | 104,745 | 129,240 | 46,890 | 582,948 | ||||||||||
Canada |
6,474 | 8,492 | 4,551 | 66,878 | 86,395 | ||||||||||
Europe and other |
56,358 | 3,292 | 977 | 87,471 | 148,098 | ||||||||||
Total revenues from external customers |
364,905 | 116,529 | 134,768 | 201,239 | 817,441 | ||||||||||
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Segment operating income (loss) |
28,003 | 18,870 | (1,302 | ) | 871 | 46,442 | |||||||||
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Identifiable assets |
234,522 | 59,846 | 71,307 | 106,798 | 472,473 | ||||||||||
Depreciation and amortization |
4,894 | 2,159 | 3,291 | 2,298 | 12,642 | ||||||||||
Goodwill |
19,066 | 12,030 | 2,346 | 8,400 | 41,842 | ||||||||||
Expenditures on property, plant and equipment |
6,038 | 7,754 | 939 | 483 | 15,214 |
SUNOPTA INC. | -F51- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
The following segmented information for the year ended December 31, 2009 is provided on the basis of the Companys new operating segments alignment:
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December 31, 2009 | |||||||||||
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SunOpta | Opta | Corporate | |||||||||
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Foods | Minerals | Services | Consolidated | ||||||||
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$ | $ | $ | $ | ||||||||
External revenues by market: |
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U.S. |
484,379 | 40,019 | - | 524,398 | ||||||||
Canada |
91,475 | 13,155 | - | 104,630 | ||||||||
Europe and other |
180,654 | 9,349 | - | 190,003 | ||||||||
Total revenues from external customers |
756,508 | 62,523 | - | 819,031 | ||||||||
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Segment operating income (loss) |
18,100 | 1,161 | (6,614 | ) | 12,647 | |||||||
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Other expense, net |
2,245 | |||||||||||
Goodwill impairment |
8,841 | |||||||||||
Interest expense, net |
13,839 | |||||||||||
Recovery of income taxes |
(3,038 | ) | ||||||||||
Loss from continuing operations |
(9,240 | ) | ||||||||||
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Identifiable assets |
350,284 | 85,998 | 25,748 | 462,030 | ||||||||
Depreciation and amortization |
11,974 | 3,851 | 1,205 | 17,030 | ||||||||
Goodwill |
25,412 | 6,019 | - | 31,431 | ||||||||
Expenditures on property, plant and equipment |
8,754 | 2,488 | 54 | 11,296 |
Of the total goodwill impairment charge of $8,841, $8,341 related to the Opta Minerals segment and $500 related to the Consumer Products Group segment (see note 8).
SUNOPTA INC. | -F52- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
SunOpta Foods has the following segmented reporting for the year ended December 31, 2009, provided on the basis of the Companys new operating segments alignment:
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December 31, 2009 | ||||||||||||||
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Consumer | ||||||||||||||
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Grains and | Ingredients | Products | International | SunOpta | ||||||||||
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Foods Group | Group | Group | Foods Group | Foods | ||||||||||
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$ | $ | $ | $ | $ | ||||||||||
External revenues by market: |
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U.S. |
226,477 | 94,347 | 124,198 | 39,357 | 484,379 | ||||||||||
Canada |
10,805 | 7,508 | 6,996 | 66,166 | 91,475 | ||||||||||
Europe and other |
87,747 | 4,058 | 1,970 | 86,879 | 180,654 | ||||||||||
Total revenues from external customers |
325,029 | 105,913 | 133,164 | 192,402 | 756,508 | ||||||||||
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Segment operating income (loss) |
18,484 | 12,257 | (10,327 | ) | (2,314 | ) | 18,100 | ||||||||
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Identifiable assets |
126,680 | 49,674 | 82,340 | 91,590 | 350,284 | ||||||||||
Depreciation and amortization |
4,072 | 2,042 | 3,870 | 1,990 | 11,974 | ||||||||||
Goodwill |
2,936 | 12,030 | - | 10,446 | 25,412 | ||||||||||
Expenditures on property, plant and equipment |
5,843 | 2,020 | 694 | 197 | 8,754 |
Geographic segments
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December 31, 2011 | |||||||||||
|
U.S. | Canada | Europe and Other | Total | ||||||||
|
$ | $ | $ | $ | ||||||||
Property, plant and equipment |
108,326 | 8,917 | 3,491 | 120,734 | ||||||||
Goodwill |
41,256 | - | 8,131 | 49,387 | ||||||||
Total assets |
288,767 | 227,380 | 115,356 | 631,503 |
|
January 1, 2011 | |||||||||||
|
U.S. | Canada | Europe and Other | Total | ||||||||
|
$ | $ | $ | $ | ||||||||
Property, plant and equipment |
101,065 | 10,838 | 3,297 | 115,200 | ||||||||
Goodwill |
39,774 | - | 8,400 | 48,174 | ||||||||
Total assets |
247,390 | 270,666 | 91,244 | 609,300 |
Other includes operations in Europe, China and Ethiopia as part of the International Foods Group and operations in France and Slovakia as part of Opta Minerals.
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009, the Company did not have any customers that exceeded 10% of total revenues.
SUNOPTA INC. | -F53- | December 31, 2011 10-K |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the years ended December 31, 2011, January 1, 2011 and December 31, 2009 |
(Expressed in thousands of U.S. dollars, except per share amounts) |
22. |
Subsequent events |
Segment realignment and rationalization efforts
On February 27, 2012, the Company announced that a process had been undertaken in an effort to streamline operations, drive efficiencies and better align product innovation and commercial activities. In connection with this process, the operating segments within SunOpta Foods will be re-aligned to better reflect the markets and customers serviced, rather than by product groupings. As a result, the former Fruit Group will be eliminated and a new Consumer Products Group will be created to focus on non-grains based consumer packaged goods and will be comprised of the Frozen Foods and Healthy Snacks operations which were part of the former Fruit Group, and the Food Solutions operations which were formerly part of the International Foods Group. The Fruit Ingredient operation of the former Fruit Group will be merged with the existing Ingredients Group. Following the re-alignment, the International Foods Group will comprise the Company's international sourcing and supply operations (Tradin Organic) and the operations of Purity Life Health Products. The Grains and Foods Group will remain unchanged. With this realignment, SunOpta Foods will consist of four operating segments: Grains and Foods, Ingredients, Consumer Products and International Foods. The Company began reporting segmented information based on its new operating segments for the quarter ending March 31, 2012.
The Company also announced the rationalization of a number of operations and functions, including a reduction of its salaried workforce by approximately 6%. One-time severance costs of approximately $500 before tax are expected to be incurred as a result of these reductions during the first half of fiscal 2012.
Acquisition of Babco Industrial Corp.
On February 10, 2012, Opta Minerals acquired all of the outstanding common shares of Babco, located in Regina, Saskatchewan. Babco is an industrial processor and supplier of petroleum coke, synthetic slag, ladle sand and crushed graphite. This acquisition complements Opta Minerals existing product portfolio and provides for additional product line offerings to new and existing customers in the region. As consideration for the acquisition of the Babco shares, Opta Minerals paid approximately $17,600 in cash on closing, subject to customary post-closing purchase price adjustments, and may be required to pay up to an additional $1,300 in cash pursuant to a contingent five-year earn-out.
This transaction will be accounted for as a business combination under the acquisition method of accounting. The purchase price will be allocated to the Babcos tangible and intangible assets based on their estimated fair values as of the acquisition date. Due to the limited time since the closing of the transaction, the valuation efforts and related acquisition accounting are incomplete at the time of filing of these consolidated financial statements. As a result, the Company is unable to provide amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including goodwill. In addition, the Company is unable to provide the supplemental pro forma revenue and earnings of the combined entity, as the pro forma adjustments are expected to include estimates for the amortization of identifiable intangible assets and related income tax effects, which will result from the purchase price allocation and determination of the fair values for the assets acquired and liabilities assumed.
SUNOPTA INC. | -F54- | December 31, 2011 10-K |
Supplemental cash flow information
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12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2011
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Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Flow Supplemental Disclosures Text Block | 17. Supplemental cash flow information
Included in cash and cash equivalents is $698 as at December 31, 2011 (January 1, 2011 - $495) that is specific to Opta Minerals that cannot be utilized by the Company for general corporate purposes, and is maintained in separate bank accounts of Opta Minerals. |
Description of business and significant accounting policies
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2011
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Basis Of Presentation Fiscal Year End And New Accounting Pronouncements Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization Consolidation And Presentation Of Financial Statements Disclosure Text Block | 1. Description of business and significant accounting policies
SunOpta Inc. (the “Company” or “SunOpta”) was incorporated under the laws of Canada on November 13, 1973. The Company operates businesses focused on a healthy products portfolio that promotes the health and well-being of its communities combined with environmental responsibility. The Company has two industry groups divided into six operating segments, the largest being SunOpta Foods, accounting for approximately 91% of fiscal 2011 consolidated revenues. SunOpta Foods operates in the natural, organic and specialty foods and natural health product sectors and utilizes a number of vertically integrated business models to bring cost-effective and quality products to market. In addition to SunOpta Foods, the Company owns approximately 66.2% of Opta Minerals Inc. (“Opta Minerals”) as at December 31, 2011 (January 1, 2011 - 66.4%). Opta Minerals, representing approximately 9% of fiscal 2011 consolidated revenues, is a vertically integrated provider of customer process solutions and industrial minerals products for use primarily in the steel, foundry, loose abrasive cleaning, roof shingle, construction and marine/bridge cleaning industries. The Company's assets, operations and employees as at December 31, 2011 are primarily located in the United States ("U.S."), Canada, Europe, China and Ethiopia.
Basis of presentation
These consolidated financial statements have been prepared by the Company in U.S. dollars and in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries, including Opta Minerals. In addition, the accounts of all variable interest entities ("VIEs") for which the Company has been determined to be the primary beneficiary are included in these consolidated financial statements from the date such determination was made (see note 19). All significant intercompany accounts and transactions have been eliminated on consolidation.
The Company's investment in Opta Minerals is controlled and therefore is consolidated. The non-controlling interest on the consolidated balance sheets and consolidated statements of operations and comprehensive earnings (loss) includes the non-controlling shareholders' interest in Opta Minerals.
The Company's investment in Mascoma Corporation ("Mascoma") is being accounted for under the cost method of accounting, based on a 18.65% ownership position as at December 31, 2011 (January 1, 2011 - 19.61%), and the inability of the Company to exert significant influence over the operations of Mascoma.
As a result of the discontinued operations described in note 3, comparative amounts shown in the notes to the consolidated financial statements have been adjusted to exclude the carrying amounts of assets and liabilities classified as held for sale, and the revenues and expenses of the discontinued operations.
Fiscal year-end
Commencing for fiscal 2010, the fiscal year of the Company ends on the Saturday closest to December 31, based on a 52 week calendar, wherein every fiscal quarter is comprised of 13 weeks or 91 days. The fiscal year of Opta Minerals ends on December 31, and its quarterly periods end on March 31, June 30 and September 30.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Areas involving significant estimates and assumptions include: inventory valuation reserves; income tax liabilities and assets, and related valuation allowances; allocation of the purchase price of acquired businesses; fair value of contingent consideration; expected future cash flows used in evaluating intangible assets for impairment; and reporting unit fair values in testing goodwill for impairment. The estimates and assumptions made require judgment on the part of management and are based on the Company's historical experience and various other factors that are believed to be reasonable in the circumstances. Management continually evaluates the information that forms the basis of its estimates and assumptions as the business of the Company and the business environment generally changes.
Business acquisitions
Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquisition-related transaction costs are accounted for as expenses in the periods in which the costs are incurred. Contingent consideration is measured at fair value and recognized as part of the consideration transferred in exchange for the acquired businesses. Contingent consideration liabilities are remeasured to fair value at each reporting date with the changes in fair value recognized in earnings.
Variable interest entities
The Company consolidates the financial results of VIEs in which it holds a controlling financial interest. The Company performs a qualitative analysis to determine whether it holds a controlling financial interest (i.e., is the primary beneficiary) in the VIE. The analysis identifies the primary beneficiary of a VIE as the entity that has both the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.
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 values due to their short-term maturities. The fair values of long-term debt and long-term liabilities as at December 31, 2011 are considered not to be materially different from the carrying amounts.
The Company's financial instruments exposed to credit risk include 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.
Fair value measurements
The Company has various financial assets and liabilities that are measured at fair value on a recurring basis, including certain inventories and derivatives, as well as contingent consideration. The Company also applies the provisions of fair value measurement to various non-recurring measurements for financial and non-financial assets and liabilities measured at fair value on a non-recurring basis.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Fair value measurements are estimated based on inputs categorized as follows:
When measuring fair value, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
Foreign currency translation
The functional currency of all operations located in the U.S., as well the corporate head office which is located in Canada, is the U.S. dollar. The functional currencies of other operations located in Canada and Europe are the Canadian dollar and euro, respectively.
The assets and liabilities of the Company's operations, as well as monetary assets of the corporate head office, are translated at exchange rates in effect at the dates of the consolidated balance sheets. 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 related to the remeasurement of the corporate head office from Canadian to U.S. dollars are recognized in earnings. Unrealized gains or losses resulting from translating other operations into U.S. dollars are accumulated and reported as a currency translation adjustment in shareholders' equity and are disclosed as part of accumulated other comprehensive income. Gains and losses from foreign currency transactions are included in earnings.
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term deposits with an original maturity of 90 days or less. Certain cash and cash equivalents can only be used by subsidiaries and are consolidated for financial reporting purposes due to the Company's ownership (see note 17).
Accounts receivable
Trade receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is an estimate of the amount of probable credit losses in existing accounts receivable. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. As at December 31, 2011 and January 1, 2011, no customer's balance represented 10% or more of the Company's consolidated trade receivables balance.
Inventories
Inventories (excluding commodity grains) are valued at the lower of cost and market (net realizable value). Cost is principally determined on a weighted-average cost basis. Shipping and handling costs are included in cost of goods sold on the consolidated statements of operations.
Inventories of commodity grains, which includes amounts acquired under deferred pricing contracts traded on the Chicago Board of Trade (“CBoT”), are valued at net realizable value. Grain inventory quantities at year-end are multiplied by the quoted price on the CBoT to reflect the market value of the inventory. This market value is then adjusted for a basis factor that represents differences in local markets, and broker and dealer quotes to arrive at net realizable value. Changes in CBoT prices or the basis factor are included in cost of goods sold on the consolidated statements of operations and comprehensive earnings (loss). The Company also has other grain inventories consisting of sunflowers and certain specialty and organic soybeans, which are valued at the lower of cost and estimated net realizable value.
SunOpta Foods economically hedges its commodity grain positions to protect gains and minimize losses due to market fluctuations. Futures contracts and purchase and sale contracts are adjusted to market price and resulting gains and losses from these transactions are included in cost of goods sold. The Company has a risk of loss from hedge activity if the grower does not deliver the grain as scheduled. These transactions do not qualify as hedges under U.S. GAAP and, therefore, changes in market value are recorded in the consolidated statements of operations.
Prepaid expenses and other current assets
Prepaid expenses and other current assets include amounts paid in cash and recorded by the Company as a current asset prior to consumption.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line basis at rates reflecting the estimated useful lives of the assets.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is instead tested for impairment at least annually during the fourth quarter, or whenever events or circumstances change between the annual impairment tests that would indicate the carrying amount of goodwill may be impaired. Impairment is tested at the reporting unit level by comparing the reporting unit's carrying amount to its fair value. If the carrying amount exceeds the reporting unit's fair value, there is a potential impairment in goodwill. Any impairment in goodwill is measured by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and comparing the notional goodwill from the fair value allocation to the carrying value of the goodwill.
Intangible assets
The Company's finite-lived intangible assets consist of customer and other relationships, patents and trademarks and other intangible assets. These intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable through undiscounted future cash flows. If impairment exists based on expected future undiscounted cash flows, a loss is recognized in income. The amount of the impairment loss is the excess of the carrying amount of the impaired asset over the fair value of the asset, typically based on discounted future cash flows.
Other assets
Costs incurred in connection with obtaining financing are deferred and amortized over the term of the financing agreement, using the effective interest rate method.
Derivative instruments
The Company is exposed to fluctuations in interest rates, commodities and foreign currency exchange. The Company utilizes certain derivative financial instruments to enhance its ability to manage these risks, including interest rate swaps, exchange-traded commodity futures, commodity forward purchase and sale contracts and forward foreign exchange contracts. Derivative instruments are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes.
All derivative instruments are recognized on the consolidated balance sheets at fair value. Changes in the fair value of derivative instruments are recorded in earnings or other comprehensive earnings, based on whether the instrument is designated as part of a hedge transaction. Gains or losses on derivative instruments reported in accumulated other comprehensive income are reclassified to earnings in the period in which earnings are affected by the underlying hedged item. The ineffective portion of all hedges is recognized in earnings in the current period. As at December 31, 2011, the Company utilized the following derivative instruments:
The Company enters into forward foreign exchange contracts to minimize exchange rate fluctuations relating to foreign currency denominated sales contracts and accounts receivable. Forward foreign exchange contracts designated as hedges are marked-to-market with the effective portion of the gain or loss recognized in other comprehensive earnings and subsequently recognized in earnings in the same period the hedged item affects earnings. Gains and losses on forward exchange contracts not specifically designated as hedging instruments are included in foreign exchange (gain) loss on the consolidated statements of operations.
Customer and other deposits
Customer and other deposits include prepayments by customers of the Grains and Foods Group and the International Foods Group for merchandise inventory to be purchased at a future date.
Income taxes
The Company follows the asset and liability method of accounting for income taxes whereby deferred income tax assets are recognized for deductible temporary differences and operating loss carry-forwards, and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and liabilities recorded for income tax and financial reporting purposes.
Deferred income tax assets are recognized only to the extent that management determines that it is more likely than not that the deferred income tax assets will be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The income tax expense or benefit is the income tax payable or recoverable for the year plus or minus the change in deferred income tax assets and liabilities during the year.
The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional income tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts income tax expense to reflect the Company's ongoing assessments of such matters, which requires judgment and can materially increase or decrease its effective rate as well as impact operating results. The evaluation of tax positions taken or expected to be taken in a tax return is a two-step process, whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the related tax authority.
Defined benefit pension plan
The Company has a defined benefit pension plan covering certain employees. The net periodic benefit cost, which is included in selling, general and administrative expenses on the consolidated statements of operations, represents the cost of benefits earned by employees as services are rendered. The cost reflects management's best estimates of the pension plan's expected investment returns, wage and salary escalation, mortality of members, terminations and the ages at which members will retire. Changes in these assumptions could impact future pension expense. The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the fair value of plan assets at the beginning of the year is amortized over the average remaining service lives of the members.
Stock option plan
The Company maintains a stock option plan under which incentive stock options may be granted to employees and non-employee directors. The Company recognizes stock-based compensation at fair value. The grant-date fair value of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the stock option vesting period of the entire award based on the estimated number of stock options that are expected to vest. When exercised, stock options are settled through the issuance of shares and are therefore treated as equity awards.
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, the price is fixed or determinable, and collection is reasonably assured. Details of specific recognition by industry group are as follows:
(a) SunOpta Foods
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. All other SunOpta Foods revenues are recognized when title is transferred upon the shipment of product or at the time the service is provided to the customer. Consideration given to customers such as value incentives, rebates, early payment discounts and other discounts are recorded as reductions to revenues at the time of sale.
(b) Opta Minerals
Revenues from the sale of silica-free loose abrasives, industrial minerals, specialty sands and related products are recognized upon the shipment to the customer of materials and transfer of title.
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 potential dilutive common shares had been issued at the beginning of the year.
Comparative balances
The Company has reclassified comparative balances on the consolidated statement of operations for the years ended January 1, 2011 and December 31, 2009 to conform to the current year's presentation. The comparative balances for cost of goods sold have been increased by $3,703 and $4,223 for the years ended January 1, 2011 and December 31, 2009, respectively, reflecting the amount of warehousing and distribution (“W&D”) expenses that were previously disclosed on a separate line item on the consolidated statement of operations. Total W&D costs for the year ended December 31, 2011 was $4,515. The comparative reclassification did not have an impact on earnings, net assets, shareholders' equity or cash and cash equivalents.
Recent accounting pronouncements
The Company will adopt the provisions of the following new accounting standards effective January 1, 2012:
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