10-Q 1 form10q.htm FORM 10-Q SunOpta Inc.: Form 10-Q - Filed by newsfilecorp.com
Z40000351834--12-31false2022Q31973-11-1300-0000000 0000351834 2022-07-02 0000351834us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-07-02 0000351834us-gaap:RetainedEarningsMember 2022-07-02 0000351834us-gaap:AdditionalPaidInCapitalMember 2022-07-02 0000351834us-gaap:CommonStockMember 2022-07-02 0000351834 2022-07-03 2022-10-01 0000351834us-gaap:CommonStockMember 2022-07-03 2022-10-01 0000351834us-gaap:AdditionalPaidInCapitalMember 2022-07-03 2022-10-01 0000351834us-gaap:RetainedEarningsMember 2022-07-03 2022-10-01 0000351834 2022-10-01 0000351834us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-10-01 0000351834us-gaap:RetainedEarningsMember 2022-10-01 0000351834us-gaap:AdditionalPaidInCapitalMember 2022-10-01 0000351834us-gaap:CommonStockMember 2022-10-01 0000351834 2021-07-03 0000351834us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-07-03 0000351834us-gaap:RetainedEarningsMember 2021-07-03 0000351834us-gaap:AdditionalPaidInCapitalMember 2021-07-03 0000351834us-gaap:CommonStockMember 2021-07-03 0000351834 2021-07-04 2021-10-02 0000351834us-gaap:CommonStockMember 2021-07-04 2021-10-02 0000351834us-gaap:AdditionalPaidInCapitalMember 2021-07-04 2021-10-02 0000351834us-gaap:RetainedEarningsMember 2021-07-04 2021-10-02 0000351834 2021-10-02 0000351834us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-10-02 0000351834us-gaap:RetainedEarningsMember 2021-10-02 0000351834us-gaap:AdditionalPaidInCapitalMember 2021-10-02 0000351834us-gaap:CommonStockMember 2021-10-02 0000351834 2022-01-01 0000351834us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 0000351834us-gaap:RetainedEarningsMember 2022-01-01 0000351834us-gaap:AdditionalPaidInCapitalMember 2022-01-01 0000351834us-gaap:CommonStockMember 2022-01-01 0000351834 2022-01-02 2022-10-01 0000351834us-gaap:CommonStockMember 2022-01-02 2022-10-01 0000351834us-gaap:AdditionalPaidInCapitalMember 2022-01-02 2022-10-01 0000351834us-gaap:RetainedEarningsMember 2022-01-02 2022-10-01 0000351834 2021-01-02 0000351834us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-01-02 0000351834us-gaap:RetainedEarningsMember 2021-01-02 0000351834us-gaap:AdditionalPaidInCapitalMember 2021-01-02 0000351834us-gaap:CommonStockMember 2021-01-02 0000351834 2021-01-03 2021-10-02 0000351834us-gaap:CommonStockMember 2021-01-03 2021-10-02 0000351834us-gaap:AdditionalPaidInCapitalMember 2021-01-03 2021-10-02 0000351834us-gaap:RetainedEarningsMember 2021-01-03 2021-10-02 0000351834stkl:StockOptionsRestrictedStockUnitsAndPerformanceShareUnitsMember 2022-07-03 2022-10-01 0000351834stkl:StockOptionsRestrictedStockUnitsAndPerformanceShareUnitsMember 2021-07-04 2021-10-02 0000351834stkl:StockOptionsAndRestrictedStockUnitsMember 2022-01-02 2022-10-01 0000351834stkl:StockOptionsAndRestrictedStockUnitsMember 2021-01-03 2021-10-02 0000351834us-gaap:SeriesBPreferredStockMember 2021-01-03 2021-10-02 0000351834us-gaap:SeriesBPreferredStockMember 2022-01-02 2022-10-01 0000351834stkl:StockOptionsAndRestrictedStockUnitsMember 2021-07-04 2021-10-02 0000351834stkl:StockOptionsAndRestrictedStockUnitsMember 2022-07-03 2022-10-01 0000351834us-gaap:SeriesBPreferredStockMember 2021-07-04 2021-10-02 0000351834us-gaap:SeriesBPreferredStockMember 2022-07-03 2022-10-01 0000351834stkl:StockOptionsRestrictedStockUnitsAndPerformanceShareUnitsMember 2022-01-02 2022-10-01 0000351834stkl:StockOptionsRestrictedStockUnitsAndPerformanceShareUnitsMember 2021-01-03 2021-10-02 0000351834stkl:AmsterdamCommoditiesNvMemberstkl:TradinOrganicMember 2022-01-02 2022-10-01 0000351834exch:XCXDus-gaap:CommonStockMember 2022-01-02 2022-10-01 0000351834exch:XTSEus-gaap:CommonStockMember 2022-01-02 2022-10-01 0000351834 2022-11-04 0000351834us-gaap:PerformanceSharesMember 2022-10-01 0000351834us-gaap:EmployeeStockOptionMember 2022-01-02 2022-10-01 0000351834us-gaap:PerformanceSharesMember 2022-01-02 2022-10-01 0000351834us-gaap:EmployeeStockOptionMember 2022-10-01 0000351834stkl:LongTermIncentivePlanMember 2022-10-01 0000351834stkl:RestrictedStockUnitsMemberstkl:LongTermIncentivePlanMember 2022-01-02 2022-10-01 0000351834us-gaap:PerformanceSharesMemberstkl:LongTermIncentivePlanMember 2022-01-02 2022-10-01 0000351834us-gaap:EmployeeStockOptionMemberstkl:LongTermIncentivePlanMember 2022-01-02 2022-10-01 0000351834srt:MinimumMemberus-gaap:PerformanceSharesMember 2022-01-02 2022-10-01 0000351834srt:MaximumMemberus-gaap:PerformanceSharesMember 2022-01-02 2022-10-01 0000351834us-gaap:PerformanceSharesMemberstkl:ShortTermIncentivePlanTwentyTwentyTwoMember 2022-10-01 0000351834us-gaap:PerformanceSharesMember 2022-01-01 0000351834stkl:PlantBasedFoodsAndBeveragesMember 2022-01-01 0000351834stkl:PlantBasedFoodsAndBeveragesMember 2022-10-01 0000351834stkl:FruitBasedFoodsAndBeveragesMember 2022-01-01 0000351834stkl:FruitBasedFoodsAndBeveragesMember 2022-10-01 0000351834us-gaap:CorporateMember 2022-01-01 0000351834us-gaap:CorporateMember 2022-10-01 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:BeveragesAndBrothsMember 2021-01-03 2021-10-02 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:BeveragesAndBrothsMember 2022-01-02 2022-10-01 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:PlantBasedIngredientsMember 2021-01-03 2021-10-02 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:PlantBasedIngredientsMember 2022-01-02 2022-10-01 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:SunflowerAndRoastedSnacksMember 2021-01-03 2021-10-02 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:SunflowerAndRoastedSnacksMember 2022-01-02 2022-10-01 0000351834stkl:PlantBasedFoodsAndBeveragesMember 2021-01-03 2021-10-02 0000351834stkl:PlantBasedFoodsAndBeveragesMember 2022-01-02 2022-10-01 0000351834stkl:FruitBasedFoodsAndBeveragesMemberstkl:FrozenFruitProductsFruitBasedIngredientsMember 2021-01-03 2021-10-02 0000351834stkl:FruitBasedFoodsAndBeveragesMemberstkl:FrozenFruitProductsFruitBasedIngredientsMember 2022-01-02 2022-10-01 0000351834stkl:FruitBasedFoodsAndBeveragesMemberstkl:FruitSnacksMember 2021-01-03 2021-10-02 0000351834stkl:FruitBasedFoodsAndBeveragesMemberstkl:FruitSnacksMember 2022-01-02 2022-10-01 0000351834stkl:FruitBasedFoodsAndBeveragesMember 2021-01-03 2021-10-02 0000351834stkl:FruitBasedFoodsAndBeveragesMember 2022-01-02 2022-10-01 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:BeveragesAndBrothsMember 2021-07-04 2021-10-02 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:BeveragesAndBrothsMember 2022-07-03 2022-10-01 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:PlantBasedIngredientsMember 2021-07-04 2021-10-02 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:PlantBasedIngredientsMember 2022-07-03 2022-10-01 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:SunflowerAndRoastedSnacksMember 2021-07-04 2021-10-02 0000351834stkl:PlantBasedFoodsAndBeveragesMemberstkl:SunflowerAndRoastedSnacksMember 2022-07-03 2022-10-01 0000351834stkl:PlantBasedFoodsAndBeveragesMember 2021-07-04 2021-10-02 0000351834stkl:PlantBasedFoodsAndBeveragesMember 2022-07-03 2022-10-01 0000351834stkl:FruitBasedFoodsAndBeveragesMemberstkl:FrozenFruitProductsFruitBasedIngredientsMember 2021-07-04 2021-10-02 0000351834stkl:FruitBasedFoodsAndBeveragesMemberstkl:FrozenFruitProductsFruitBasedIngredientsMember 2022-07-03 2022-10-01 0000351834stkl:FruitBasedFoodsAndBeveragesMemberstkl:FruitSnacksMember 2021-07-04 2021-10-02 0000351834stkl:FruitBasedFoodsAndBeveragesMemberstkl:FruitSnacksMember 2022-07-03 2022-10-01 0000351834stkl:FruitBasedFoodsAndBeveragesMember 2021-07-04 2021-10-02 0000351834stkl:FruitBasedFoodsAndBeveragesMember 2022-07-03 2022-10-01 0000351834us-gaap:CorporateMember 2021-01-03 2021-10-02 0000351834us-gaap:CorporateMember 2022-01-02 2022-10-01 0000351834us-gaap:CorporateMember 2021-07-04 2021-10-02 0000351834us-gaap:CorporateMember 2022-07-03 2022-10-01 0000351834stkl:OperatingLeasesMember 2022-10-01 0000351834stkl:FinanceLeasesMember 2022-10-01 0000351834stkl:OperatingLeasesMember 2022-01-01 0000351834stkl:FinanceLeasesMember 2022-01-01 0000351834stkl:OperatingLeasesMember 2022-01-02 2022-10-01 0000351834stkl:FinanceLeasesMember 2022-01-02 2022-10-01 0000351834stkl:OperatingLeasesMember 2021-01-03 2021-10-02 0000351834stkl:FinanceLeasesMember 2021-01-03 2021-10-02 0000351834stkl:OperatingLeasesMember 2021-07-04 2021-10-02 0000351834stkl:OperatingLeasesMember 2022-07-03 2022-10-01 0000351834stkl:FinanceLeasesMember 2021-07-04 2021-10-02 0000351834stkl:FinanceLeasesMember 2022-07-03 2022-10-01 0000351834stkl:PremisesLeaseForMidlothianTexasFacilityMember 2022-10-01 0000351834stkl:PremisesLeaseForMidlothianTexasFacilityMember 2022-01-02 2022-10-01 0000351834stkl:FrozenFruitProcessingFacilityMember 2022-07-03 2022-10-01 0000351834stkl:FrozenFruitProcessingFacilityMember 2022-01-02 2022-10-01 0000351834stkl:ClosureOfSouthGateFacilityMember 2021-01-03 2021-10-02 0000351834stkl:SunoptaFoodsMemberstkl:SeriesB1PreferredStockMember 2022-10-01 0000351834stkl:SunoptaFoodsMemberstkl:SeriesB1PreferredStockMember 2022-01-02 2022-10-01 0000351834stkl:SunoptaFoodsMemberstkl:SeriesB1PreferredStockMember 2021-01-03 2021-10-02 0000351834srt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberstkl:AmendmentToCreditAgreementMember 2022-01-02 2022-10-01 0000351834srt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberstkl:AmendmentToCreditAgreementMember 2022-10-01 0000351834stkl:TermLoanFacilityMember 2022-10-01 0000351834stkl:RevolvingCreditFacilityFirstInLastOutTrancheMember 2021-04-15 0000351834stkl:RevolvingCreditFacilityFirstInLastOutTrancheMember 2021-04-01 2021-04-15 0000351834us-gaap:RevolvingCreditFacilityMember 2022-01-02 2022-10-01 0000351834us-gaap:RevolvingCreditFacilityMember 2022-10-01 0000351834stkl:AssetBackedTermLoansMember 2022-10-01 0000351834us-gaap:RevolvingCreditFacilityMember 2022-01-01 0000351834stkl:AssetBackedTermLoansMember 2022-01-01 0000351834stkl:TermLoanFacilityMember 2022-01-02 2022-10-01 0000351834stkl:RevolvingCreditFacilityFirstInLastOutTrancheMember 2022-01-02 2022-10-01 0000351834us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember 2022-01-02 2022-10-01 0000351834us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember 2022-10-01 0000351834us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember 2022-07-03 2022-10-01 0000351834us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember 2021-07-04 2021-10-02 0000351834us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember 2021-01-03 2021-10-02 0000351834us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberus-gaap:SubsequentEventMember 2022-10-11 0000351834us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberus-gaap:SubsequentEventMember 2022-10-02 2022-10-11 iso4217:USD iso4217:USDxbrli:shares xbrli:pure xbrli:shares

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended October 1, 2022
   
  OR
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from ____________to ____________.

Commission file number: 001-34198

SUNOPTA INC.

(Exact name of registrant as specified in its charter)

CANADA   Not Applicable
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
7078 Shady Oak Road
Eden Prairie, Minnesota, 55344
  (952) 820-2518
(Address of principal executive offices)   (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒ No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☒ No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒ Accelerated filer  ☐
Non-accelerated filer  ☐ Smaller reporting company  
(Do not check if a smaller reporting company) Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.             ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐ No  


Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Shares STKL The Nasdaq Stock Market
Common Shares SOY The Toronto Stock Exchange

The number of the registrant's common shares outstanding as of November 4, 2022 was 107,866,566.


SUNOPTA INC.

FORM 10-Q

For the Quarterly Period Ended October 1, 2022

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION  
Item 1. Financial Statements (unaudited)  
  Consolidated Statements of Operations for the quarters and three quarters ended October 1, 2022 and October 2, 2021 6
  Consolidated Balance Sheets as at October 1, 2022 and January 1, 2022 7
  Consolidated Statements of Shareholders' Equity as at and for the quarters and three quarters ended October 1, 2022 and October 2, 2021 8
  Consolidated Statements of Cash Flows for the quarters and three quarters ended October 1, 2022 and October 2, 2021 10
  Notes to Consolidated Financial Statements 11
     
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Item 3 Quantitative and Qualitative Disclosures about Market Risk 40
Item 4 Controls and Procedures 40
     
PART II OTHER INFORMATION  
Item 1 Legal Proceedings 41
Item 1A Risk Factors 41
Item 6 Exhibits 41

Basis of Presentation

Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q ("Form 10-Q") to the "Company," "SunOpta," "we," "us," "our" or similar words and phrases are to SunOpta Inc. and its subsidiaries, taken together.

In this report, all currency amounts presented are expressed in thousands of United States ("U.S.") dollars ("$"), except per share amounts, unless otherwise stated. Other amounts may be presented in thousands of Canadian dollars ("C$") and Mexican pesos ("M$").

Forward-Looking Statements

This Form 10-Q contains forward-looking statements that are based on management's current expectations and assumptions and involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and are typically accompanied by words such as "anticipate," "estimate," "target," "intend," "project," "potential," "predict," "continue," "believe," "expect," "can," "could," "would," "should," "may," "might," "plan," "will," "budget," "forecast," the negatives of such terms, and words and phrases of similar impact. Forward-looking statements include, but are not limited to, references to future financial and operating results, plans, objectives, expectations, and intentions; the effects of the global macroeconomic environment, including inflationary pressures and rising interest rates, on our operational and financial performance in future periods; our expectations regarding the future profitability of our plant-based and fruit-based businesses, including anticipated results of operations, revenue trends, and profit margin profiles; our expectations regarding customer demand, consumer preferences, competition, sales pricing, availability and pricing of raw material inputs, and timing and costs to complete capital expansion projects; our intentions related to the potential sale of selected businesses, operations, or assets; adequacy of existing sources of funds to meet financing needs, and availability of alternative financing sources; the outcome of litigation to which we may be a party; and other statements that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on certain assumptions, expectations and analyses we make in light of our experience and our interpretation of current conditions, historical trends and expected future developments, as well as other factors that we believe are appropriate in the circumstances.

SUNOPTA INC. 3 October 1, 2022 Form 10-Q

Whether actual results and developments will be consistent with and meet our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are important factors that could cause our actual results to differ materially from our expectations and predictions. We believe these factors include, but are not limited to, the following:

  • the impact of global macroeconomic conditions on our business and financial results;
  • product liability suits, recalls and threatened market withdrawals that may arise or be brought against us;
  • food safety concerns and instances of food-borne illnesses that could harm our business;
  • litigation and regulatory enforcement concerning marketing and labeling of food products;
  • significant food and health regulations to which we are subject;
  • ability to realize some or all of the anticipated benefits of our capital investment plans;
  • ability to successfully consummate and achieve the anticipated benefits from acquisitions and divestitures;
  • ability to obtain additional capital as required to achieve expected growth rates;
  • the potential for impairment charges for goodwill or other intangible assets;
  • the highly competitive industry in which we operate;
  • that our customers may choose not to buy products from us;
  • the potential loss of one or more key customers;
  • changes and difficulty in predicting consumer preferences;
  • our ability to effectively manage our supply chain;
  • volatility in the prices of raw materials, packaging, freight, fuel, and energy;
  • the availability of organic and non-genetically modified ingredients;
  • unfavorable growing and operating conditions due to adverse weather conditions;
  • an interruption at one or more of our manufacturing facilities;
  • technology failures that could disrupt our operations and negatively impact our business;
  • the potential for data breaches and the need to comply with data privacy and protection laws and regulations;
  • the loss of service of our key executives;
  • labor shortages or increased labor costs;
  • technological innovation by our competitors;
  • ability to protect our intellectual property and proprietary rights;
  • changes in laws or regulations governing foreign trade or taxation;
  • agricultural policies that influence our operations;
  • substantial environmental regulation and policies to which we are subject;
SUNOPTA INC. 4 October 1, 2022 Form 10-Q

  • new laws or regulations or changes in laws or regulations governing climate change;
  • fluctuations in exchange rates, interest rates and the prices of certain commodities; and
  • exposure to our foreign operations and suppliers.

All forward-looking statements made herein are qualified by these cautionary statements, and our actual results or the developments we anticipate may not be realized. Our forward-looking statements are based only on information currently available to us and speak only as of the date on which they are made. We do not undertake any obligation to publicly update our forward-looking statements, whether written or oral, after the date of this report for any reason, even if new information becomes available or other events occur in the future, except as may be required under applicable securities laws. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. A more detailed discussion of the principal factors that could cause actual results to be materially different and additional information about the material factors or assumptions underlying our forward-looking statements may be found under Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, under Item 1A. "Risk Factors" of this report, and in our other filings with the U.S. Securities and Exchange Commission and the Canadian Securities Administrators.

SUNOPTA INC. 5 October 1, 2022 Form 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SunOpta Inc.

Consolidated Statements of Operations

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars, except per share amounts)

 
    Quarter ended     Three quarters ended  
    October 1,
2022
    October 2,
2021
    October 1,
2022
    October 2,
2021
 
    $     $     $     $  
                         
Revenues (note 12)   229,665     198,479     713,369     608,392  
Cost of goods sold   198,282     175,123     619,097     528,711  
                         
Gross profit   31,383     23,356     94,272     79,681  
Selling, general and administrative expenses   20,654     16,487     66,893     60,081  
Intangible asset amortization   2,612     2,612     7,836     7,338  
Other expense, net (note 8)   20,200     1,172     22,027     7,448  
Foreign exchange loss (gain)   473     336     (126 )   533  
                         
Earnings (loss) from continuing operations before the following   (12,556 )   2,749     (2,358 )   4,281  
Interest expense, net   4,342     2,854     10,004     6,145  
                         
Loss from continuing operations before income taxes   (16,898 )   (105 )   (12,362 )   (1,864 )
Income tax expense (benefit)   (4,259 )   2,929     (2,875 )   416  
                         
Loss from continuing operations   (12,639 )   (3,034 )   (9,487 )   (2,280 )
Earnings from discontinued operations (note 11)   -     -     2,752     -  
                         
Net loss   (12,639 )   (3,034 )   (6,735 )   (2,280 )
Dividends and accretion on preferred stock (note 6)   (764 )   (748 )   (2,279 )   (3,445 )
                         
Loss attributable to common shareholders   (13,403 )   (3,782 )   (9,014 )   (5,725 )
                         
Basic and diluted earnings (loss) per share (note 9)                        
Loss from continuing operations   (0.12 )   (0.04 )   (0.11 )   (0.06 )
Earnings from discontinued operations   -     -     0.03     -  
Loss attributable to common shareholders   (0.12 )   (0.04 )   (0.08 )   (0.06 )
                         
Weighted-average common shares outstanding (000s) (note 9)                        
Basic   107,752     107,255     107,566     103,017  
Diluted   107,752     107,255     107,566     103,017  

(See accompanying notes to consolidated financial statements)

SUNOPTA INC. 6 October 1, 2022 Form 10-Q

SunOpta Inc.

Consolidated Balance Sheets

As at October 1, 2022 and January 1, 2022

(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

 
    October 1, 2022     January 1, 2022  
    $     $  
             
ASSETS            
Current assets            
Cash and cash equivalents   459     227  
Accounts receivable, net of allowance for credit losses of $579 and $889, respectively   75,460     84,702  
Inventories (note 2)   225,059     220,143  
Prepaid expenses and other current assets   16,413     16,638  
Income taxes recoverable   7,258     8,259  
Assets held for sale (note 3)   16,151     -  
Total current assets   340,800     329,969  
             
Property, plant and equipment, net   292,407     219,537  
Operating lease right-of-use assets (note 4)   78,167     47,245  
Intangible assets, net   138,092     148,440  
Goodwill   3,998     3,998  
Other assets   5,486     5,930  
Total assets   858,950     755,119  
             
LIABILITIES            
Current liabilities            
Accounts payable and accrued liabilities   117,578     121,430  
Income taxes payable   44     -  
Current portion of long-term debt (note 5)   31,374     9,760  
Current portion of operating lease liabilities (note 4)   12,601     12,203  
Liabilities held for sale (note 3)   7,005     -  
Total current liabilities   168,602     143,393  
             
Long-term debt (note 5)   274,888     214,843  
Operating lease liabilities (note 4)   71,016     39,028  
Long-term liabilities   -     2,241  
Deferred income taxes   10,585     22,485  
Total liabilities   525,091     421,990  
             
Series B-1 preferred stock (note 6)   28,597     28,145  
             
SHAREHOLDERS' EQUITY            
Common shares, no par value, unlimited shares authorized, 107,827,577 shares issued (January 1, 2022 - 107,359,826)   439,670     436,463  
Additional paid-in capital   29,325     23,240  
Accumulated deficit   (165,096 )   (156,082 )
Accumulated other comprehensive income   1,363     1,363  
Total shareholders' equity   305,262     304,984  
Total liabilities and shareholders' equity   858,950     755,119  

(See accompanying notes to consolidated financial statements)

SUNOPTA INC. 7 October 1, 2022 Form 10-Q

SunOpta Inc.

Consolidated Statements of Shareholders' Equity

As at and for the quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

 
    Common shares     Additional
paid-in capital
    Accumulated
deficit
    Accumulated
other
comprehensive
income
    Total  
    000s     $     $     $     $     $  
                                     
Balance at July 2, 2022   107,687     438,668     26,254     (151,693 )   1,363     314,592  
Employee stock purchase plan   17     152     -     -     -     152  
Stock incentive plans   124     850     (390 )   -     -     460  
Withholding taxes on stock-based awards   -     -     (631 )   -     -     (631 )
Stock-based compensation   -     -     4,092     -     -     4,092  
Net loss   -     -     -     (12,639 )   -     (12,639 )
Dividends on preferred stock   -     -     -     (609 )   -     (609 )
Accretion on preferred stock   -     -     -     (155 )   -     (155 )
Balance at October 1, 2022   107,828     439,670     29,325     (165,096 )   1,363     305,262  
                                     
    Common shares     Additional
paid-in capital
    Accumulated
deficit
    Accumulated
other
comprehensive
income
    Total  
    000s     $     $     $     $     $  
                                     
Balance at July 3, 2021   107,126     435,425     24,966     (149,684 )   1,363     312,070  
Employee stock purchase plan   18     140     -     -     -     140  
Stock incentive plans   179     654     (490 )   -     -     164  
Withholding taxes on stock-based awards   -     -     (1,576 )   -     -     (1,576 )
Stock-based compensation   -     -     1,250     -     -     1,250  
Net loss   -     -     -     (3,034 )   -     (3,034 )
Dividends on preferred stock   -     -     -     (609 )   -     (609 )
Accretion on preferred stock   -     -     -     (139 )   -     (139 )
Balance at October 2, 2021   107,323     436,219     24,150     (153,466 )   1,363     308,266  
 
SUNOPTA INC. 8 October 1, 2022 Form 10-Q

SunOpta Inc.

Consolidated Statements of Shareholders' Equity (continued)

As at and for the three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All dollar amounts expressed in thousands of U.S. dollars)

 
    Common shares     Additional
paid-in capital
    Accumulated
deficit
    Accumulated
other
comprehensive
income
    Total  
    000s     $     $     $     $     $  
                                     
Balance at January 1, 2022   107,360     436,463     23,240     (156,082 )   1,363     304,984  
Employee stock purchase plan   70     431     -     -     -     431  
Stock incentive plans   398     2,776     (2,004 )   -     -     772  
Withholding taxes on stock-based awards   -     -     (1,602 )   -     -     (1,602 )
Stock-based compensation   -     -     9,691     -     -     9,691  
Net loss   -     -     -     (6,735 )   -     (6,735 )
Dividends on preferred stock   -     -     -     (1,827 )   -     (1,827 )
Accretion on preferred stock   -     -     -     (452 )   -     (452 )
Balance at October 1, 2022   107,828     439,670     29,325     (165,096 )   1,363     305,262  
                                     
    Common shares     Additional
paid-in capital
    Accumulated
deficit
    Accumulated
other
comprehensive
income
    Total  
    000s     $     $     $     $     $  
                                     
Balance at January 2, 2021   90,194     326,545     37,862     (147,741 )   1,363     218,029  
Exchange of Series A preferred stock, net of                                    
share issuance costs of $287   12,633     87,188     -     -     -     87,188  
Employee stock purchase plan   46     473     -     -     -     473  
Stock incentive plans   4,450     22,013     (14,992 )   -     -     7,021  
Withholding taxes on stock-based awards   -     -     (8,313 )   -     -     (8,313 )
Stock-based compensation   -     -     9,593     -     -     9,593  
Net loss   -     -     -     (2,280 )   -     (2,280 )
Dividends on preferred stock   -     -     -     (2,869 )   -     (2,869 )
Accretion on preferred stock   -     -     -     (576 )   -     (576 )
Balance at October 2, 2021   107,323     436,219     24,150     (153,466 )   1,363     308,266  

(See accompanying notes to consolidated financial statements)

SUNOPTA INC. 9 October 1, 2022 Form 10-Q

SunOpta Inc.

Consolidated Statements of Cash Flows

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(Expressed in thousands of U.S. dollars)

 
    Quarter ended     Three quarters ended  
    October 1,
2022
    October 2,
2021
    October 1,
2022
    October 2,
2021
 
    $     $     $     $  
CASH PROVIDED BY (USED IN)                        
Operating activities                        
Net loss   (12,639 )   (3,034 )   (6,735 )   (2,280 )
Earnings from discontinued operations   -     -     2,752     -  
Loss from continuing operations   (12,639 )   (3,034 )   (9,487 )   (2,280 )
Items not affecting cash:                        
Depreciation and amortization   9,730     8,837     28,515     25,790  
Amortization of debt issuance costs   413     359     1,184     993  
Deferred income taxes   (2,925 )   3,315     (717 )   (179 )
Stock-based compensation   4,092     1,250     9,691     9,593  
Loss on classification of sunflower business as held for sale (note 3)   23,227     -     23,227     -  
Gain on sale of frozen fruit processing facility (note 8)   (3,779 )   -     (3,779 )   -  
Impairment of long-lived assets (note 8)   -     -     -     2,962  
Other   (149 )   (168 )   1,596     (504 )
Changes in operating assets and liabilities (note 10)   2,003     (5,494 )   (17,168 )   (77,472 )
Net cash provided by (used in) operating activities of continuing operations   19,973     5,065     33,062     (41,097 )
Investing activities                        
Additions to property, plant and equipment   (38,019 )   (18,386 )   (100,779 )   (34,989 )
Proceeds from sale of property, plant and equipment   16,111     950     20,293     2,300  
Additions to intangible assets   -     -     -     (25,073 )
Net cash used in investing activities of continuing operations   (21,908 )   (17,436 )   (80,486 )   (57,762 )
Net cash used in investing activities of discontinued operations   -     -     (6,324 )   (13,380 )
Net cash used in investing activities   (21,908 )   (17,436 )   (86,810 )   (71,142 )
Financing activities                        
Increase (decrease) in borrowings under revolving credit facilities (note 5)   (24,247 )   11,348     (3,485 )   123,177  
Borrowings of long-term debt (notes 4 and 5)   33,094     4,739     74,197     9,380  
Repayment of long-term debt (note 4)   (6,265 )   (1,849 )   (13,834 )   (11,789 )
Payment of debt issuance costs   (113 )   (181 )   (672 )   (2,552 )
Proceeds from the exercise of stock options and employee share purchases   612     304     1,203     7,494  
Payment of withholding taxes on stock-based awards   (631 )   (1,576 )   (1,602 )   (8,313 )
Payment of cash dividends on preferred stock (note 6)   (609 )   (609 )   (1,827 )   (4,638 )
Payment of share issuance costs   -     -     -     (287 )
Net cash provided by financing activities of continuing operations   1,841     12,176     53,980     112,472  
Net cash used in financing activities of discontinued operations   -     -     -     (200 )
Net cash provided by financing activities   1,841     12,176     53,980     112,272  
Increase (decrease) in cash and cash equivalents in the period   (94 )   (195 )   232     33  
Cash and cash equivalent, beginning of the period   553     479     227     251  
Cash and cash equivalents, end of the period   459     284     459     284  

Non-cash investing and financing activities (notes 4 and 10)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC. 10 October 1, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021
(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

1. Significant Accounting Policies

Basis of Presentation

These interim consolidated financial statements of SunOpta Inc. (the "Company" or "SunOpta") have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, and in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information. Accordingly, these condensed interim consolidated financial statements do not include all of the disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included and all such adjustments are of a normal, recurring nature. Operating results for the quarter and three quarters ended October 1, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2022 or for any other period. The interim consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared on a basis consistent with the annual consolidated financial statements for the year ended January 1, 2022. For further information, refer to the consolidated financial statements, and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

Fiscal Year

The fiscal year of the Company consists of a 52- or 53-week period ending on the Saturday closest to December 31. Fiscal year 2022 is a 52-week period ending on December 31, 2022, with quarterly periods ending on April 2, 2022, July 2, 2022, and October 1, 2022. Fiscal year 2021 was a 52-week period ending on January 1, 2022, with quarterly periods ending on April 3, 2021, July 3, 2021, and October 2, 2021.

2. Inventories

    October 1, 2022     January 1, 2022  
    $     $  
Raw materials and work-in-process   126,530     143,381  
Finished goods   106,523     81,546  
Inventory reserves   (7,994 )   (4,784 )
    225,059     220,143  

3. Assets and Liabilities Held for Sale

Sunflower Business

On October 11, 2022, the Company completed the sale of 100% of the assets and liabilities of its sunflower business and related roasted snacks operations, for cash consideration of $16.0 million, subject to closing debt and working capital adjustments. The sunflower business operates from three processing facilities located in Minnesota and North Dakota and is reported in the Company's Plant-Based Foods and Beverages operating segment.

As at October 1, 2022, the Company recognized a pre-tax loss of $23.2 million on the classification of the sunflower business as held for sale, including $22.3 million to write down the carrying value of the net assets sold to the fair value of the net proceeds received, and $0.9 million for accrued costs to sell. The loss on classification as held for sale is recorded in other expense, net, on the consolidated statements of operations for the quarter and three quarters ended October 1, 2022. The assets and liabilities of the sunflower business have been reclassified and reported as held for sale on the consolidated balance sheet as at October 1, 2022, as follows:

SUNOPTA INC.

11

October 1, 2022 Form 10-Q


SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

    October 1, 2022  
    $  
Accounts receivable   9,377  
Inventories   14,247  
Other current assets   109  
Property, plant and equipment, net   10,328  
Operating lease right-of-use assets   1,834  
Intangible assets, net   2,512  
Write-down on classification as held for sale   (22,256 )
Total assets held for sale   16,151  
       
Accounts payable and accrued liabilities   4,591  
Operating lease liabilities   2,414  
Total liabilities held for sale   7,005  

The disposal of the sunflower business does not have a major effect on the Company’s operations or financial results and, therefore, does not qualify for presentation as discontinued operations on a standalone basis. Revenues and earnings (loss) before income taxes of the sunflower business for the periods ended October 1, 2022 and October 2, 2021 were as follows:

    Quarter ended     Three quarters ended  
    October 1,
2022
    October 2,
2021
    October 1,
2022
    October 2,
2021
 
    $     $     $     $  
Revenues   17,309     16,102     55,774     48,510  
Earnings (loss) before income taxes(1)   (514 )   (20 )   1,025     1,230  

(1) For the quarter and three quarters ended October 1, 2022, excludes the loss on classification as held for sale. In addition, for all periods presented, excludes the allocation of corporate costs.

4. Leases

The Company leases certain manufacturing plants, warehouses, offices, machinery and equipment, and vehicles. At the lease commencement date, the Company classifies a lease as a finance lease if it has the right to obtain substantially all of the economic benefits from the right-of-use assets, otherwise the lease is classified as an operating lease.

The following tables present supplemental information related to leases:

    Quarter ended     Three quarters ended  
    October 1,
2022
    October 2,
2021
    October 1,
2022
    October 2,
2021
 
    $     $     $     $  
Lease Costs                        
Operating lease cost   3,912     3,496     10,216     10,248  
Finance lease cost:                        
Depreciation of right-of-use assets   2,527     1,555     7,092     4,366  
Interest on lease liabilities   1,678     773     3,503     2,013  
Sublease income   -     -     -     (281 )
Net lease cost   8,117     5,824     20,811     16,346  
SUNOPTA INC.

12

October 1, 2022 Form 10-Q


SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

    October 1, 2022     January 1, 2022  
    $     $  
Balance Sheet Classification            
Operating leases:            
Operating lease right-of-use assets   78,167     47,245  
             
Current portion of operating lease liabilities   12,601     12,203  
Operating lease liabilities   71,016     39,028  
Total operating lease liabilities   83,617     51,231  
             
Finance leases:            
Property, plant and equipment, gross   139,081     66,060  
Accumulated depreciation   (17,440 )   (10,348 )
Property, plant and equipment, net   121,641     55,712  
             
Current portion of long-term debt   28,255     9,760  
Long-term debt   83,728     43,034  
Total finance lease liabilities   111,983     52,794  
 
    Quarter ended     Three quarters ended  
    October 1, 2022     October 2, 2021     October 1, 2022     October 2, 2021  
    $     $     $     $  
Cash Flow Information                        
Cash paid (received) for amounts included in measurement of lease liabilities:                        
Operating cash flows from operating leases   3,909     3,127     9,954     10,079  
Operating cash flows from finance leases   1,678     588     3,503     2,013  
Financing cash flows from finance leases:                        
Cash paid under finance leases(1)   6,265     1,663     13,834     6,916  
Cash received under finance leases(2)   (15,101 )   -     (48,378 )   -  
                         
Right-of-use assets obtained in exchange for lease liabilities:                        
Operating leases(3)   42,669     8,522     43,385     25,811  
Finance leases   7,217     -     24,643     29,906  
                         
Right-of-use assets and liabilities reduced through lease terminations or modifications:                        
Operating leases   (277 )   -     (2,226 )   -  
Finance leases   -     -     -     (686 )

(1) Represents repayments under finance leases recorded as a reduction of the lease liability and reported in repayment of long-term debt on the consolidated statements of cash flows.

(2) Represents cash advances received by the Company under finance leases for the construction of right-of-use assets controlled by the Company, which related to the buildouts of the Company's plant-based beverage facility under construction in Midlothian, Texas, and the Company's executive office and innovation center located in Eden Prairie, Minnesota, as well as cash proceeds under sale and leaseback transactions accounted for as financings. Cash received under finance leases is reported in borrowings of long-term debt on the consolidated statements of cash flows.

(3) For the quarter and three quarters ended October, 1, 2022, includes the addition of a $39.9 million operating lease right-of-use asset and corresponding operating lease liability related to the premises lease for the Midlothian, Texas, facility, which commenced on October 1, 2022, following substantial completion of construction by the landlord. The noncancellable lease term is 15 years from the lease commencement date, together with three five-year extension options that the Company is reasonably certain to exercise. At the lease commencement date, the estimated lease payments, net of leasehold incentives, were discounted at the Company's estimated incremental borrowing rate applicable to the 30-year lease term of 10.3%.

SUNOPTA INC.

13

October 1, 2022 Form 10-Q


SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

    October 1, 2022     January 1, 2022  
Other Information            
Weighted-average remaining lease term (years):            
Operating leases   13.0     7.4  
Finance leases   2.7     4.3  
             
Weighted-average discount rate:            
Operating leases   8.6%     5.0%  
Finance leases   7.5%     6.6%  
    Operating leases     Finance leases  
    $     $  
Maturities of Lease Liabilities            
Remainder of 2022   2,035     5,242  
2023   11,460     37,487  
2024   11,572     36,165  
2025   10,313     31,385  
2026   9,355     19,088  
Thereafter   156,480     185  
Total lease payments   201,215     129,552  
Less: imputed interest   (117,598 )   (17,569 )
Total lease liabilities   83,617     111,983  
5. Long-Term Debt
 
    October 1, 2022     January 1, 2022  
    $     $  
Asset-based credit facilities:            
Revolving credit facilities   154,032     153,293  
Term loan facility   37,425     11,606  
Total asset-based credit facilities   191,457     164,899  
Finance lease liabilities (see note 4)   111,983     52,794  
Other   2,822     6,910  
Total debt   306,262     224,603  
Less: current portion   31,374     9,760  
Total long-term debt   274,888     214,843  

Asset-Based Credit Facilities

On December 31, 2020, the Company entered into a Second Amended and Restated Credit Agreement (the "Credit Agreement"), as amended by the First Amendment, dated as of April 15, 2021, the Second Amendment, dated as of July 2, 2021, and the Third Amendment, dated as of February 25, 2022, among the Company, SunOpta Foods Inc. ("SunOpta Foods"), the other borrowers and guarantors party thereto, and the lenders party thereto (the "Lenders"). As part of the Credit Agreement, the Lenders provided a five-year, $230 million asset-based revolving credit facility, subject to borrowing base capacity (the "Tranche A Subfacility"), a two-year, $20 million first-in-last-out tranche, subject to a separate borrowing base applicable to certain eligible accounts receivable and inventory with advance rates separate from the Tranche A Subfacility (the "Tranche B Subfacility", and together with the Tranche A Subfacility, the "Revolving Credit Facilities"), and a five-year $75 million delayed draw term loan facility which can be used for borrowings on or prior to March 31, 2023 (the "Term Loan Facility," and together with the Revolving Credit Facilities, the "Asset-Based Credit Facilities"), to finance certain capital expenditures. The Tranche A Subfacility includes borrowing capacity for letters of credit and provides for borrowings on same-day notice, including in the form of swingline loans.

SUNOPTA INC.

14

October 1, 2022 Form 10-Q


SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

The Tranche A Subfacility and Term Loan Facility mature on December 31, 2025. Commencing in March 2023, the Term Loan Facility is repayable in monthly installments equal to 1/84th of the then-outstanding principal amount of the Term Loan Facility, with the remaining amount payable at the maturity thereof. The Tranche B Subfacility matures on April 15, 2024, with amortization payments of $2.5 million, payable at the end of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2023, with the remaining amount payable at the maturity thereof. Each repayment of Tranche B Subfacility loans will result in an increase of the Lenders' commitments under the Tranche A Subfacility, provided that such increases will not cause the aggregate Lenders' commitments under the Tranche A Subfacility to exceed $250 million.

Borrowings under the Asset-Based Credit Facilities bear interest based on various reference rates, including the Secured Overnight Financing Rate, plus applicable margins, which are set quarterly based on average borrowing availability for the preceding fiscal quarter. For the three quarters ended October 1, 2022, the weighted-average interest rate on all outstanding borrowings under the Asset-Based Credit Facilities was 3.83%.

As at October 1, 2022, the Company was in compliance with all covenants of the Credit Agreement.

6. Series B-1 Preferred Stock

As at October 1, 2022, SunOpta Foods had 30,000 shares of Series B-1 preferred stock issued and outstanding, with a current liquidation preference of $1,015 per share, or $30.4 million in the aggregate. At any time, the Series B-1 preferred stock may be exchanged, in whole or in part, into the number of shares of the Company's common stock ("Common Shares") equal to, per share of Series B-1 preferred stock, the quotient of the liquidation preference divided by an exchange price of $2.50. On or after April 24, 2023, SunOpta Foods may cause the holders of the Series B-1 preferred stock to exchange all of their shares of Series B-1 preferred stock if the volume-weighted average price of the Common Shares during the then preceding 20 trading day period is greater than 200% of the exchange price then in effect. Preferred dividends accrue daily on the Series B-1 preferred stock at an annualized rate of 8.0% of the liquidation preference prior to September 30, 2029, and 10.0% of the liquidation preference thereafter. In each of the first three quarters of 2022, the Company paid quarterly cash dividends on the Series B-1 preferred stock of $0.6 million, and, as at October 1, 2022, the Company accrued unpaid dividends of $0.6 million for the third quarter of 2022, which are recorded in accounts payable and accrued liabilities on the consolidated balance sheet. At any time on or after April 24, 2025, SunOpta Foods may redeem all of the Series B-1 preferred stock for an amount per share equal to the value of the liquidation preference at such time, plus accrued and unpaid dividends. The carrying value of the Series B-1 preferred stock is being accreted to the redemption value through charges to accumulated deficit, which amounted to $0.5 million for the three quarters ended October 1, 2022 (October 2, 2021 - $0.4 million).

7. Stock-Based Compensation

During the three quarters ended October 1, 2022, 1,750,935 performance share units ("PSUs") were granted to certain employees under the Company's 2022 Short-Term Incentive Plan ("STIP"), which vest subject to the Company achieving a predetermined measure of adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") for fiscal 2022 and subject to each employee's continued employment with the Company through March 31, 2023 (the requisite service period) (the "EBITDA PSUs"). The weighted-average grant-date fair value of each EBITDA PSU was estimated to be $5.27 based on the closing price of the Common Shares on the dates of grant. As at October 1, 2022, the compensation cost related to outstanding EBITDA PSUs granted under the 2022 STIP not yet recognized as an expense was determined to be $4.2 million, which will be amortized over the remaining requisite service period.

On March 30, 2022, all outstanding EBITDA PSUs previously granted to certain employees of the Company in connection with the Company's 2021 STIP were cancelled because the fiscal year 2021 performance condition was not achieved. No compensation expense was recognized related to these EBITDA PSUs.

SUNOPTA INC.

15

October 1, 2022 Form 10-Q


SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

The following table summarizes all EBITDA PSU activity for the three quarters ended October 1, 2022:
        Weighted-  
        average grant-  
    EBITDA PSUs   date fair value  
Non-vested, beginning of period   670,171   $ 11.77  
Granted   1,750,935     5.27  
Vested   (58,235 )   4.91  
Cancelled   (715,435 )   11.87  
Non-vested, end of period   1,647,436   $ 5.07  

During the three quarters ended October 1, 2022, 117,069 restricted stock units ("RSUs"), 547,071 PSUs and 1,800,007 stock options were granted to selected employees under the Company's 2022 Long-Term Incentive Plan ("LTIP"). The RSUs vest in three equal annual installments beginning on May 5, 2023, and each vested RSU entitles the employee to receive one Common Share without payment of additional consideration. The vesting of the PSUs is dependent on the Company's total shareholder return ("TSR") performance relative to food and beverage companies in a designated index during the three-year period commencing January 1, 2022 and continuing through December 31, 2024, and the employee's continued employment with the Company through May 5, 2025. The TSR for the Company and each of the companies in the designated index will be calculated using a 20-trading day average closing price as of December 31, 2024. The percentage of vested PSUs may range from 0% to 200% based on the Company's achievement of predetermined TSR thresholds. Each vested PSU entitles the employee to receive one Common Share without payment of additional consideration, with the Board of Directors having the option to settle vested PSUs in whole or part in cash in lieu of Common Shares. As at October 1, 2022, the Company had the intent and ability to settle the PSUs in Common Shares. The stock options vest ratably on each of the first through third anniversaries of the grant date and expire on the tenth anniversary of the grant date. Each vested stock option entitles the employee to purchase one Common Share at an exercise price of $5.91, which was the closing price of the Common Shares on May 5, 2022.

The weighted-average grant-date fair value of each RSU was estimated to be $6.57 based on the closing prices of the Common Shares on the dates of grant. A grant-date fair value of $8.48 was estimated for each PSU using a Monte Carlo valuation model, and a weighted-average grant-date fair value of $3.49 was estimated for each stock option using the Black-Scholes option pricing model. The following table summarizes the assumptions used to determine the fair values of the PSUs and stock options granted under the 2022 LTIP.

    PSUs     Stock options  
Grant-date stock price $ 5.91   $ 5.91  
Exercise price   NA   $ 5.91  
Dividend yield   0%     0%  
Expected volatility(a)   67.8%     61.6%  
Risk-free interest rate(b)   2.8%     3.0%  
Expected life (in years)(c)   2.7     6.0  

(a) Determined based on the historical volatility of the Common Shares over the performance period of the PSUs and expected life of the stock options.

(b) Determined based on U.S. Treasury yields with a remaining term equal to the performance period of the PSUs and expected life of the stock options.

(c) Determined based on the performance period of the PSUs and the mid-point of vesting (three years) and expiration (ten years) for the stock options.

As at October 1, 2022, the remaining compensation cost related to outstanding RSUs, PSUs and stock options granted under the 2022 LTIP not yet recognized as an expense was determined to be $10.0 million, which will be recognized on a straight-line basis over the remaining requisite service period ending May 5, 2025.

SUNOPTA INC.

16

October 1, 2022 Form 10-Q


SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

8. Other Expense, Net

The components of other expense (income) were as follows:

    Quarter ended     Three quarters ended  
    October 1, 2022     October 2, 2021     October 1, 2022     October 2, 2021  
    $     $     $     $  
Loss on classification of sunflower business as held for sale (see note 3)   23,227     -     23,227     -  
Gain on sale of frozen fruit processing facility(1)   (3,779 )   -     (3,779 )   -  
Facility closure costs(2)   526     479     1,813     4,873  
Settlement losses, net(3)   -     -     283     163  
Employee termination costs(4)   -     499     -     1,660  
Divestiture costs(5)   -     154     -     628  
Other   226     40     483     124  
    20,200     1,172     22,027     7,448  

(1) Gain on sale of frozen fruit processing facility

For the quarter and three quarters ended October 1, 2022, the Company recognized a $3.8 million pre-tax gain on the sale of its frozen fruit processing facility located in Oxnard, California. Net cash proceeds on the sale were $16.1 million.

(2) Facility closure costs

For the quarter and three quarters ended October 1, 2022, expense primarily relates to the relocation of certain equipment from the Company's sold Oxnard facility.

For the quarter ended October 2, 2021, expense represents costs incurred to relocate inventory and equipment following the closure of the Company's former South Gate, California, fruit ingredient processing facility. For the three quarters ended October 2, 2021, facility closure costs also include asset impairment charges of $3.0 million recorded in connection with the closure of the South Gate facility and costs to complete the exit from the Company's former Santa Maria, California, frozen fruit processing facility.

(3) Settlement losses, net

For the three quarters ended October 1, 2022 and October 2, 2021, expense represents net losses incurred on the settlement of certain legal and contractual matters.

(4) Employee termination costs

For the quarter and three quarters ended October 2, 2021, expense represents termination costs for employees impacted by the closure of the Company's fruit ingredient processing facility and a workforce reduction in the Company's frozen fruit operations.

(5) Divestiture costs

For the quarter and three quarters ended October 2, 2021, expense relates to professional fees incurred in connection with post-closing matters related to the 2020 divestiture of the Company's global ingredients business, Tradin Organic.

SUNOPTA INC.

17

October 1, 2022 Form 10-Q


SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters and three quarters ended October 1, 2022 and October 2, 2021

(Unaudited)

(All tabular amounts expressed in thousands of U.S. dollars, except per share amounts)

9. Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share were calculated as follows (shares in thousands):

  Quarter ended   Three quarters ended  
    October 1,
2022
    October 2,
2021
    October 1,
2022
    October 2,
2021
 
Basic Earnings (Loss) Per Share                        
Numerator for basic earnings (loss) per share:                        
Loss from continuing operations $ (12,639 ) $ (3,034 ) $ (9,487 ) $ (2,280 )
Less: dividends and accretion on preferred stock   (764 )   (748 )   (2,279 )   (3,445 )
Loss from continuing operations attributable to common shareholders   (13,403 )   (3,782 )   (11,766 )   (5,725 )
Earnings from discontinued operations   -     -     2,752     -  
Loss attributable to common shareholders $ (13,403 ) $ (3,782 ) $ (9,014 ) $ (5,725 )
                         
Denominator for basic earnings (loss) per share:                        
Basic weighted-average number of shares outstanding   107,752     107,255     107,566     103,017  
                         
Basic earnings (loss) per share:                        
From continuing operations $ (0.12 ) $ (0.04 ) $ (0.11 ) $ (0.06 )
From discontinued operations   -     -     0.03     -  
Basic earnings (loss) per share $ (0.12 ) $ (0.04 ) $ (0.08 ) $ (0.06 )
                         
Diluted Earnings (Loss) Per Share                        
Numerator for diluted earnings (loss) per share:                        
Loss from continuing operations $ (12,639 ) $ (3,034 ) $ (9,487 ) $ (2,280 )
Less: dividends and accretion on preferred stock   (764 )   (748 )   (2,279 )   (3,445 )
Loss from continuing operations attributable to common shareholders   (13,403 )   (3,782 )   (11,766 )   (5,725 )
Earnings from discontinued operations   -     -     2,752     -  
Loss attributable to common shareholders $ (13,403 ) $ (3,782 ) $ (9,014 ) $ (5,725 )
                         
Denominator for diluted earnings (loss) per share:                        
Basic weighted-average number of shares outstanding   107,752     107,255     107,566     103,017  
Dilutive effect of the following:                        
Stock options, restricted stock units and performance share units(1)   -     -     -     -  
Preferred stock(2)   -     -     -     -  
Diluted weighted-average number of shares outstanding   107,752