10-Q 1 form10q.htm FORM 10-Q SunOpta Inc.: Form 10-Q - Filed by newsfilecorp.com
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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 April 2, 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 May 6, 2022 was 107,592,925.


SUNOPTA INC.

FORM 10-Q

For the Quarterly Period Ended April 2, 2022

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION  
Item 1. Financial Statements (unaudited)  
  Consolidated Statements of Operations for the quarters ended April 2, 2022 and April 3, 2021 6
  Consolidated Balance Sheets as at April 2, 2022 and January 1, 2022 7
  Consolidated Statements of Shareholders' Equity as at and for the quarters ended April 2, 2022 and April 3, 2021 8
  Consolidated Statements of Cash Flows for the quarters ended April 2, 2022 and April 3, 2021 9
  Notes to Consolidated Financial Statements 10
     
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3 Quantitative and Qualitative Disclosures about Market Risk 30
Item 4 Controls and Procedures 30
     
PART II OTHER INFORMATION  
Item 1 Legal Proceedings 31
Item 1A Risk Factors 31
Item 6 Exhibits 31

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 direct and indirect economic effects of the COVID-19 pandemic and the Russia-Ukraine war, and the extent of the effect of these events on our operational and financial performance in future periods; fluctuations in foreign currency exchange rates and commodity pricing, and general economic and political conditions globally and in the markets in which we do business; our plans and expectations regarding capital expansion projects, including our expectation that our Midlothian, Texas, facility will be operational in late 2022; 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 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 April 2, 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 the COVID-19 pandemic and Russia-Ukraine war 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 April 2, 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. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A, Risk Factors, included elsewhere in this report and our Annual Report on Form 10-K for the fiscal year ended January 1, 2022. Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found under Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 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 April 2, 2022 Form 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SunOpta Inc.
Consolidated Statements of Operations
For the quarters ended April 2, 2022 and April 3, 2021
(Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars, except per share amounts)
 
    Quarter ended  
    April 2, 2022     April 3, 2021  
    $     $  
             
Revenues (note 11)   240,173     207,640  
Cost of goods sold   212,182     177,651  
Gross profit   27,991     29,989  
Selling, general and administrative expenses   21,935     20,874  
Intangible asset amortization   2,612     2,194  
Other expense, net (note 7)   287     1,615  
Foreign exchange loss (gain)   (472 )   836  
Earnings from continuing operations before the following   3,629     4,470  
Interest expense, net   2,530     1,660  
Earnings from continuing operations before income taxes   1,099     2,810  
Income tax expense   445     1,138  
Earnings from continuing operations   654     1,672  
Earnings from discontinued operations (note 10)   3,566     -  
Net earnings   4,220     1,672  
Dividends and accretion on preferred stock (note 5)   (755 )   (1,953 )
Earnings (loss) attributable to common shareholders   3,465     (281 )
             
Basic and diluted earnings (loss) per share (note 8)            
From continuing operations   (0.00 )   (0.00 )
From discontinued operations   0.03     -  
Basic and diluted earnings (loss) per share   0.03     (0.00 )
             
Weighted-average common shares outstanding (000s) (note 8)            
Basic   107,399     96,120  
Diluted   107,399     96,120  

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

6

April 2, 2022 Form 10-Q

 


SunOpta Inc.
Consolidated Balance Sheets
As at April 2, 2022 and January 1, 2022
(Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars)
 
    April 2, 2022     January 1, 2022  
    $     $  
             
ASSETS            
Current assets            
Cash and cash equivalents   495     227  
Accounts receivable, net of allowance for credit losses of $978 and $889, respectively   98,220     84,702  
Inventories (note 2)   217,975     220,143  
Prepaid expenses and other current assets   16,040     16,638  
Income taxes recoverable   8,130     8,259  
Total current assets   340,860     329,969  
             
Property, plant and equipment, net   245,898     219,537  
Operating lease right-of-use assets (note 3)   43,174     47,245  
Intangible assets, net   145,828     148,440  
Goodwill   3,998     3,998  
Other assets   6,057     5,930  
Total assets   785,815     755,119  
             
LIABILITIES            
Current liabilities            
Accounts payable and accrued liabilities   135,518     121,430  
Current portion of long-term debt (note 4)   17,864     9,760  
Current portion of operating lease liabilities (note 3)   10,104     12,203  
Total current liabilities   163,486     143,393  
             
Long-term debt (note 4)   231,822     214,843  
Operating lease liabilities (note 3)   37,185     39,028  
Long-term liabilities   4,034     2,241  
Deferred income taxes   10,758     22,485  
Total liabilities   447,285     421,990  
             
Series B-1 preferred stock (note 5)   28,291     28,145  
             
SHAREHOLDERS' EQUITY            
Common shares, no par value, unlimited shares authorized, 107,578,653 shares issued (January 1, 2022 - 107,359,826)   437,451     436,463  
Additional paid-in capital   24,042     23,240  
Accumulated deficit   (152,617 )   (156,082 )
Accumulated other comprehensive income   1,363     1,363  
Total shareholders' equity   310,239     304,984  
Total liabilities and shareholders' equity   785,815     755,119  
             
Commitments and contingencies (note 10)            

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

7

April 2, 2022 Form 10-Q

 

SunOpta Inc.
Consolidated Statements of Shareholders' Equity
As at and for the quarters ended April 2, 2022 and April 3, 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   31     134     -     -     -     134  
Stock incentive plan   188     854     (738 )   -     -     116  
Withholding taxes on stock-based awards   -     -     (89 )   -     -     (89 )
Stock-based compensation   -     -     1,629     -     -     1,629  
Earnings from continuing operations   -     -     -     654     -     654  
Earnings from discontinued operations   -     -     -     3,566     -     3,566  
Dividends on preferred stock   -     -     -     (609 )   -     (609 )
Accretion on preferred stock   -     -     -     (146 )   -     (146 )
Balance at April 2, 2022   107,579     437,451     24,042     (152,617 )   1,363     310,239  
 
    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 $262   12,633     87,213     -     -     -     87,213  
Employee stock purchase plan   10     126     -     -     -     126  
Stock incentive plan   775     4,938     (2,424 )   -     -     2,514  
Withholding taxes on stock-based awards   -     -     (6,071 )   -     -     (6,071 )
Stock-based compensation   -     -     3,973     -     -     3,973  
Net earnings   -     -     -     1,672     -     1,672  
Dividends on preferred stock   -     -     -     (1,651 )   -     (1,651 )
Accretion on preferred stock   -     -     -     (302 )   -     (302 )
Balance at April 3, 2021   103,612     418,822     33,340     (148,022 )   1,363     305,503  

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

8

April 2, 2022 Form 10-Q

 

SunOpta Inc.
Consolidated Statements of Cash Flows
For the quarters ended April 2, 2022 and April 3, 2021
(Unaudited)
(Expressed in thousands of U.S. dollars)
 
    Quarter ended  
    April 2, 2022     April 3, 2021  
    $     $  
             
CASH PROVIDED BY (USED IN)            
Operating activities            
Net earnings   4,220     1,672  

Earnings from discontinued operations

  3,566     -  
Earnings from continuing operations   654     1,672  
Items not affecting cash:            
Depreciation and amortization   9,413     8,043  
Amortization of debt issuance costs   375     285  
Deferred income taxes   80     837  
Stock-based compensation   1,629     3,973  
Other   111     (169 )
Changes in operating assets and liabilities (note 9)   3,281     (21,656 )
Net cash provided by (used in) operating activities of continuing operations   15,543     (7,015 )
Investing activities            
Additions to property, plant and equipment   (25,722 )   (9,297 )
Proceeds from sale of assets   1,204     1,350  
Net cash used in investing activities of continuing operations   (24,518 )   (7,947 )
Net cash used in investing activities of discontinued operations   -     (13,380 )
Net cash used in investing activities   (24,518 )   (21,327 )
Financing activities            
Increase (decrease) under revolving credit facilities (note 4)   (10,305 )   41,585  
Borrowings of long-term debt (note 3)   22,897     486  
Repayment of long-term debt (note 3)   (2,395 )   (4,085 )
Payment of debt issuance costs   (506 )   (1,828 )
Proceeds from the exercise of stock options and employee share purchases   250     2,640  
Payment of withholding taxes on stock-based awards   (89 )   (6,071 )
Payment of cash dividends on preferred stock (note 5)   (609 )   (3,420 )
Payment of share issuance costs   -     (262 )
Net cash provided by financing activities of continuing operations   9,243     29,045  
Net cash used in financing activities of discontinued operations   -     (200 )
Net cash provided by financing activities   9,243     28,845  
Increase in cash and cash equivalents in the period   268     503  
Cash and cash equivalent, beginning of the period   227     251  
Cash and cash equivalents, end of the period   495     754  
             
Non-cash investing and financing activities (notes 3 and 9)            

(See accompanying notes to consolidated financial statements)

SUNOPTA INC. 9 April 2, 2022 Form 10-Q


SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 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 ended April 2, 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

    April 2, 2022     January 1, 2022  
    $     $  
Raw materials and work-in-process   133,989     143,381  
Finished goods   89,026     81,546  
Inventory reserves   (5,040 )   (4,784 )
    217,975     220,143  

3. 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  
    April 2, 2022     April 3, 2021  
    $     $  
Lease Costs            
Operating lease cost   3,211     3,572  
Finance lease cost:            
Depreciation of right-of-use assets   1,888     1,255  
Interest on lease liabilities   773     434  
Sublease income   -     (128 )
Net lease cost   5,872     5,133  
SUNOPTA INC.

10

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 2021

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

    April 2, 2022     January 1, 2022  
    $     $  
Balance Sheet Classification            
Operating leases:            
Operating lease right-of-use assets   43,174     47,245  
             
Current portion of operating lease liabilities   10,104     12,203  
Operating lease liabilities   37,185     39,028  
Total operating lease liabilities   47,289     51,231  
             
Finance leases:            
Property, plant and equipment, gross   94,291     66,060  
Accumulated depreciation   (12,236 )   (10,348 )
Property, plant and equipment, net   82,055     55,712  
             
Current portion of long-term debt   17,676     9,760  
Long-term debt   66,127     43,034  
Total finance lease liabilities   83,803     52,794  
 
    Quarter ended  
    April 2, 2022     April 3, 2021  
    $     $  
Cash Flow Information            
Cash paid (received) for amounts included in measurement of lease liabilities:            
Operating cash flows from operating leases   3,082     3,745  
Operating cash flows from finance leases   773     527  
Financing cash flows from finance leases:            
Cash paid under finance leases(1)   2,394     3,346  
Cash received under finance leases(2)   (18,723 )   -  
             
Right-of-use assets obtained in exchange for lease liabilities:            
Operating leases   399     1,014  
Finance leases   14,680     29,906  
             
Right-of-use assets and liabilities reduced through lease terminations or modifications:            
Operating leases   (1,949 )   -  
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 that have not commenced and relate to the construction of right-of-use assets controlled by the Company, as well as cash proceeds under sale and leaseback transactions accounted for as financings, which are reported in borrowings of long-term debt on the consolidated statements of cash flows.

SUNOPTA INC.

11

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 2021

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

 

    April 2, 2022     January 1, 2022  
Other Information            
Weighted-average remaining lease term (years):            
Operating leases   7.5     7.4  
Finance leases   4.1     4.3  
             
Weighted-average discount rate:            
Operating leases   5.0%     5.0%  
Finance leases   6.3%     6.6%  

 

    Operating leases     Finance leases  
    $     $  
Maturities of Lease Liabilities            
Remainder of 2022   5,978     15,319  
2023   10,182     23,616  
2024   8,309     23,552  
2025   6,287     21,729  
2026   5,249     11,203  
Thereafter   21,639     488  
Total lease payments   57,644     95,907  
Less: imputed interest   (10,355 )   (12,104 )
Total lease liabilities   47,289     83,803  

 

4. Long-Term Debt

    April 2, 2022     January 1, 2022  
    $     $  
Asset-based credit facilities:            
Revolving credit facilities   145,158     153,293  
Term loan facility   15,780     11,606  
Total asset-based credit facilities   160,938     164,899  
Finance lease liabilities (see note 3)   83,803     52,794  
Other   4,945     6,910  
Total debt   249,686     224,603  
Less: current portion   17,864     9,760  
Total long-term debt   231,822     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.

12

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 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 quarter ended April 2, 2022, the weighted-average interest rate on all outstanding borrowings under the Asset-Based Credit Facilities was 2.42%.

As at April 2, 2022, the Company was in compliance with all covenants of the Credit Agreement.

5. Series B-1 Preferred Stock

As at April 2, 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 the first quarter of 2022, the Company paid a quarterly cash dividend of $0.6 million related to the fourth quarter of 2021. As at April 2, 2022, the Company accrued unpaid dividends of $0.6 million for the first 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 $0.1 million for the quarter ended April 2, 2022 (April 3, 2021 - $0.1 million).

6. Stock-Based Compensation

On March 31, 2022, the Company granted a total of 1,271,371 performance share units ("PSUs") to certain employees of the Company under its 2022 Short-Term Incentive Plan ("STIP"). The vesting of these PSUs is subject to the Company achieving a predetermined measure of adjusted earnings before interest, taxes, depreciation and amortization for fiscal 2022 and subject to each employee's continued employment with the Company through March 31, 2023 (the requisite service period). The weighted-average grant-date fair value of each PSU was estimated to be $5.02 based on the closing price of the Common Shares on the date of grant. As at April 2, 2022, the remaining compensation cost related to these PSUs not yet recognized as an expense was determined to be $6.3 million, which will be amortized over the remaining requisite service period.

On March 30, 2022, all outstanding 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 PSUs.

SUNOPTA INC.

13

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 2021

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

The following table summarizes PSU activity for the quarter ended April 2, 2022:

          Weighted-  
          average grant-  
    PSUs     date fair value  
Non-vested, beginning of period   670,171   $ 11.77  
Granted   1,271,371     5.02  
Vested   (58,235 )   4.91  
Cancelled   (553,706 )   13.87  
Non-vested, end of period   1,329,601   $ 5.02  

Subsequent to the first quarter of 2022, on April 8, 2022, the Company granted an additional 479,564 PSUs to certain other employees of the Company under the 2022 STIP. The vesting date and requisite service period of these PSUs are on the same basis as the PSUs above granted on March 31, 2022. The aggregate grant-date fair value of these PSUs was estimated to be $2.9 million based on a closing price of $5.95 for the Common Shares on the date of grant, which will be amortized over the requisite service period.

In addition, on May 5, 2022, the Company granted 92,877 restricted stock units ("RSUs"), 522,878 PSUs and 1,761,118 stock options to selected employees under its 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. 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 grant-date fair value of each RSU was estimated to be $5.91 based on the closing price of the Common Shares on the date of grant. A grant-date fair value of $8.48 was estimated for each PSU using a Monte Carlo valuation model, and a grant-date fair value of $3.48 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.

    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.

SUNOPTA INC.

14

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 2021

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

The aggregate grant-date fair value of the RSUs, PSUs and stock options granted under the 2022 LTIP was determined to be $11.1 million, which will be recognized on a straight-line basis over the three-year requisite service period ending May 5, 2025.

7. Other Expense, Net

The components of other expense, net were as follows:

  Quarter ended    
    April 2, 2022     April 3, 2021  
    $     $  

Asset impairment charges

  260     -  
Facility closure costs(1)   -     1,432  

Divestiture costs(2)

  -     183  
Other   27     -  
    287     1,615  

(1) Facility closure costs

For the quarter ended April 3, 2021, expense primarily relates to costs incurred in connection with the closure of the Company's Santa Maria, California, frozen fruit processing facility.

(2) Divestiture costs

For the quarter ended April 3, 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.

15

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 2021

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

8. Earnings (Loss) Per Share

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

    Quarter ended  
    April 2, 2022     April 3, 2021  
Basic Earnings (Loss) Per Share            
Numerator for basic earnings (loss) per share:            
Earnings from continuing operations $ 654   $ 1,672  
Less: dividends and accretion on preferred stock   (755 )   (1,953 )
Loss from continuing operations attributable to common shareholders   (101 )   (281 )

Earnings from discontinued operations

  3,566     -  

Earnings (loss) attributable to common shareholders

$ 3,465   $ (281 )
             
Denominator for basic earnings (loss) per share:            
Basic weighted-average number of shares outstanding   107,399     96,120  
             
Basic earnings (loss) per share:            
From continuing operations $ (0.00 ) $ (0.00 )
From discontinued operations   0.03     -  
Basic earnings per share $ 0.03   $ (0.00 )
             
Diluted Earnings (Loss) Per Share            

Numerator for diluted earnings (loss) per share:

           
Earnings from continuing operations $ 654   $ 1,672  
Less: dividends and accretion on preferred stock   (755 )   (1,953 )
Loss from continuing operations attributable to common shareholders   (101 )   (281 )
Earnings from discontinued operations   3,566     -  
Earnings (loss) attributable to common shareholders $ 3,465   $ (281 )
             
Denominator for diluted earnings (loss) per share:            
Basic weighted-average number of shares outstanding   107,399     96,120  
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   107,399     96,120  
             
Diluted earnings (loss) per share:            
From continuing operations $ (0.00 ) $ (0.00 )
From discontinued operations   0.03     -  
Diluted earnings per share $ 0.03   $ (0.00 )

(1) For the quarter ended April 2, 2022, 960,412 (April 3, 2021 - 5,764,548) potential common shares were excluded from the calculation of diluted loss per share due to their effect of reducing the loss per share from continuing operations. Dilutive potential common shares consist of stock options, RSUs, and certain contingently issuable PSUs. In addition, for the quarter ended April 2, 2022, stock options and RSUs to purchase or receive 1,122,466 (April 3, 2021 - 92,161) potential common shares were anti-dilutive because the assumed proceeds exceeded the average market price of the Common Shares for the respective periods.

SUNOPTA INC.

16

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 2021

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

(2) For the quarter ended April 2, 2022 and April 3, 2021, it was more dilutive to the loss per share from continuing operations to assume the Series B-1 preferred stock was not converted into Common Shares and, therefore, the numerator of the diluted loss per share calculation was not adjusted to add back the dividends and accretion on the Series B-1 preferred stock and the denominator was not adjusted to include 12,178,667 Common Shares issuable on an if-converted basis as at April 2, 2022 and April 3, 2021.

9. Supplemental Cash Flow Information

    Quarter ended  
    April 2, 2022     April 3, 2021  
    $     $  
Changes in Operating Assets and Liabilities            
Accounts receivable   (15,435 )   (15,503 )
Inventories   2,168     (17,594 )
Accounts payable and accrued liabilities   13,540     7,500  
Other operating assets and liabilities   3,008     3,941  
    3,281     (21,656 )
             
Non-Cash Investing and Financing Activities            
Change in additions to property, plant and equipment included in accounts payable and accrued liabilities   (5,776 )   (2,014 )

Change in accounts payable and accrued liabilities related to discontinued operations

  6,324     (13,380 )

Change in accrued dividends on preferred stock

  -     (1,769 )
Change in accrued debt issuance costs   -     (1,690 )

10. Commitments and Contingencies

Legal Proceedings

Various current and potential claims and litigation arising in the ordinary course of business are pending against the Company. The Company believes it has established adequate accruals for liabilities that are probable and reasonably estimable that may be incurred in connection with any such currently pending matter. In the Company's opinion, the eventual resolution of such matters, either individually or in the aggregate, is not expected to have a material impact on the Company's financial position, results of operations, or cash flows. However, litigation is inherently unpredictable and resolutions or dispositions of claims or lawsuits by settlement or otherwise could have an adverse impact on the Company's financial position, results of operations, and cash flows for the reporting period in which any such resolution or disposition occurs.

Arbitration Proceedings

On January 31, 2022, Amsterdam Commodities N.V. (“Acomo”) submitted a Request for Summary Arbitral Proceedings to the Netherlands Arbitration Institute, which was later amended on February 16, 2022, asserting alleged claims against the Company and its subsidiaries, Coöperatie SunOpta U.A. and SunOpta Holdings LLC, relating to a dispute regarding the allocation of the purchase price Acomo paid to acquire the shares of The Organic Corporation B.V. and the membership interests of Tradin Organics USA LLC in connection with the closing of the transactions contemplated by the Master Purchase Agreement entered into by Acomo, the Company and the aforementioned subsidiaries on November 25, 2020 (the “Transaction”). In May 2022, the Company and Acomo reached an agreement in principle to settle all outstanding matters related to the Master Purchase Agreement, which is subject to the execution of a definitive settlement agreement between the parties and dismissal of the Summary Arbitral Proceedings. For the quarter ended April 2, 2022, the Company recognized earnings from discontinued operations of $3.6 million, which reflected the estimated tax benefits resulting from the final allocation of the purchase price between the share capital of The Organic Corporation B.V. and the membership interests of Tradin Organics USA LLC, partially offset by an accrued cash payment of $5.9 million from the Company to Acomo to settle certain post-closing adjustments related to the Transaction, as well as professional fees incurred in connection with the arbitration proceedings.

SUNOPTA INC.

17

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 2021

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

11. Segment Information

The composition of the Company's operating segments is as follows:

  • Plant-Based Foods and Beverages includes plant-based beverages and liquid and powder ingredients (utilizing oat, almond, soy, coconut, rice, hemp, and other bases), as well as broths, teas, and nutritional beverages. In addition, Plant-Based Foods and Beverages includes packaged dry- and oil-roasted inshell sunflower and sunflower kernels, and the processing and sale of raw sunflower inshell and kernel for food and feed applications.
  • Fruit-Based Foods and Beverages includes individually quick frozen ("IQF") fruit for retail (including strawberries, blueberries, mango, pineapple, and other berries and blends), IQF and bulk frozen fruit for foodservice (including toppings, purées, and smoothies). In addition, Fruit-Based Foods and Beverages includes fruit snacks, including bars, twists, ropes, and bite-sized varieties, and fruit smoothie bowls.

Corporate Services provides a variety of management, financial, information technology, treasury, and administration services to each of the Company's operating segments.

When reviewing the operating results of the Company's operating segments, management uses segment revenues from external customers and segment operating income/loss to assess performance and allocate resources. Total segment operating income/loss includes general and administrative expenses incurred by Corporate Services and excludes other income/expense items. In addition, interest on corporate debt and income taxes are not allocated to the operating segments.

Segment Revenues and Operating Income

Reportable segment operating results for the quarters ended April 2, 2022 and April 3, 2021 were as follows:

    Quarter ended  
    April 2, 2022     April 3, 2021  
    $     $  
Revenues from external customers            
Plant-Based Foods and Beverages   135,511     119,451  
Fruit-Based Foods and Beverages   104,662     88,189  
Total revenues from external customers   240,173     207,640  
             
Segment operating income (loss)            
Plant-Based Foods and Beverages   8,096     13,317  
Fruit-Based Foods and Beverages   784     (1,894 )
Corporate Services   (4,964 )   (5,338 )
Total segment operating income   3,916     6,085  
             
Other expense, net (see note 7)   (287 )   (1,615 )
Interest expense, net   (2,530 )   (1,660 )
Earnings from continuing operations before income taxes   1,099     2,810  

 

SUNOPTA INC.

18

April 2, 2022 Form 10-Q

SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended April 2, 2022 and April 3, 2021

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

Disaggregation of Revenue

The following table presents a disaggregation of revenues by operating segment based on categories used by the Company to evaluate sales performance:

    Quarter ended  
    April 2, 2022     April 3, 2021  
    $     $  
Plant-Based Foods and Beverages            
Beverages and broths   108,622     95,486  
Plant-based ingredients   9,726     7,844  
Sunflower and roasted snacks   17,163     16,121  
Total Plant-Based Foods and Beverages   135,511     119,451  
             
Fruit-Based Foods and Beverages            
Frozen fruit and fruit-based ingredients   83,493     71,814  
Fruit snacks and smoothie bowls   21,169     16,375  
Total Fruit-Based Foods and Beverages   104,662     88,189  
             
Total revenues   240,173     207,640  

Segment Assets

Total assets by operating segment as at April 2, 2022 and January 1, 2022 were as follows:

    April 2, 2022     January 1, 2022  
    $     $  
Plant-Based Foods and Beverages   337,151     301,065  
Fruit-Based Foods and Beverages   364,148     368,976  
Corporate Services   84,516     85,078  
Total assets   785,815     755,119  

Segment Depreciation and Amortization

Depreciation and amortization by operating segment for the quarters ended April 2, 2022 and April 3, 2021 was as follows:

    Quarter ended  
    April 2, 2022     April 3, 2021  
    $     $  
Plant-Based Foods and Beverages   4,434     3,134  
Fruit-Based Foods and Beverages   3,681     3,769  
Corporate Services   1,298     1,140  
Total depreciation and amortization   9,413     8,043  
 
SUNOPTA INC. 19 April 2, 2022 Form 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Financial Information

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the interim consolidated financial statements, and notes thereto, for the quarter ended April 2, 2022 contained under Item 1 of this Quarterly Report on Form 10-Q and in conjunction with the annual consolidated financial statements, and notes thereto, contained in the Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (the "Form 10-K"). Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to May 12, 2022.

Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as "anticipate," "estimate," "target," "intend," "project," "potential," "predict," "continue," "believe," "expect," "can," "could," "would," "should," "may," "might," "plan," "will," "budget," "forecast," or other similar expressions concerning matters that are not historical facts, or the negative of such terms are intended to identify forward-looking statements; however, the absence of these words does not necessarily mean that a statement is not forward-looking. To the extent any forward-looking statements contain future-oriented financial information or financial outlooks, such information is being provided to enable a reader to assess our financial condition, material changes in our financial condition, our results of operations, and our liquidity and capital resources. Readers are cautioned that this information may not be appropriate for any other purpose, including investment decisions.

Forward-looking statements contained in this MD&A are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While we consider these assumptions to be reasonable based on information currently available, they may prove to be incorrect. These factors are more fully described in the "Risk Factors" section at Item 1A of the Form 10-K and Item 1A of Part II of this report.

Forward-looking statements contained in this commentary are based on our current estimates, expectations, and projections, which we believe are reasonable as of the date of this report. Forward-looking statements are not guarantees of future performance or events. You should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Other than as required under securities laws, we do not undertake to update any forward-looking information at any particular time. Neither we nor any other person assumes responsibility for the accuracy and completeness of thes