Attached files
file | filename |
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EX-32 - EXHIBIT 32 - SunOpta Inc. | exhibit32.htm |
EX-31.1 - EXHIBIT 31.1 - SunOpta Inc. | exhibit31-1.htm |
EX-31.2 - EXHIBIT 31.2 - SunOpta Inc. | exhibit31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
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.) |
2838 Bovaird Drive West | |
Brampton, Ontario L7A 0H2, Canada | (905) 455-1990 |
(Address of principal executive offices) | (Registrants 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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [X] |
Non-accelerated filer [ ] | Smaller reporting company [ ] |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of the registrants common shares outstanding as of August 3, 2012 was 65,940,351.
SUNOPTA INC.
FORM 10-Q
For the quarterly period ended June 30, 2012
TABLE OF
CONTENTS
PART I | FINANCIAL INFORMATION | |
Item 1. | Financial Statements (unaudited) | |
Consolidated Statements of Operations for the quarter and two quarters ended June 30, 2012 and July 2, 2011 | 4 | |
Consolidated Statements of Comprehensive Earnings for the quarter and two quarters ended June 30, 2012 and July 2, 2011 | 5 | |
Consolidated Balance Sheets as at June 30, 2012 and December 31, 2011 | 6 | |
Consolidated Statements of Shareholders Equity as at and for the two quarters ended June 30, 2012 and July 2, 2011 | 7 | |
Consolidated Statements of Cash Flows for the quarter and two quarters ended June 30, 2012 and July 2, 2011 | 8 | |
Notes to Consolidated Financial Statements | 9 | |
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 28 |
Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 58 |
Item 4 | Controls and Procedures | 58 |
PART II | OTHER INFORMATION | |
Item 1 | Legal Proceedings | 59 |
Item 1A | Risk Factors | 59 |
Item 6 | Exhibits | 60 |
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 are expressed in thousands of United States (U.S.) dollars ($), except per share amounts, unless otherwise stated. Amounts expressed in Canadian dollars are preceded by the symbol Cdn $ and amounts expressed in euros are preceded by the symbol €. As at June 30, 2012, the closing rates of exchange for the U.S. dollar, expressed in Canadian dollars and euro, were $1.00 = Cdn $1.0181 and $1.00 = €0.7901. These rates are provided solely for convenience and do not necessarily reflect the rates used by us in the preparation of our financial statements.
Forward-Looking Statements
This Form 10-Q contains forwardlooking statements which are based on our current expectations and assumptions and involve a number of risks and uncertainties. Generally, forwardlooking statements do not relate strictly to historical or current facts and are typically accompanied by words such as anticipate, estimate, intend, project, potential, continue, believe, expect, could, would, should, might, plan, will, may, the negatives of such terms, and words and phrases of similar impact and include, but are not limited to references to possible operational consolidation, reduction of noncore assets and operations, business strategies, plant and production capacities, revenue generation potential, anticipated construction costs, competitive strengths, goals, capital expenditure plans, business and operational growth and expansion plans, anticipated operating margins and operating income targets, gains or losses associated with business transactions, cost reductions, rationalization and improved efficiency initiatives, proposed new product offerings, and references to the future growth of the business and global markets for the Companys products. These forwardlooking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forwardlooking statements are based on certain assumptions 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 circumstance.
SUNOPTA INC. |
1 |
June 30, 2012 10-Q |
Whether actual results and developments will agree with our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are or will be 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:
-
our ability to renew our syndicated credit facilities when they become due of July 27, 2016;
-
restrictions in our syndicated credit agreement on how we may operate our business;
-
our inability to meet the covenants of our credit facilities;
-
our potential additional capital needs in order to maintain current growth rates, which may not be available on favorable terms or at all;
-
our customers’ ability to choose not to buy products from us;
-
loss of a key customer;
-
changes in and difficulty in predicting consumer preferences for natural and organic food products;
-
the highly competitive industry in which we operate;
-
an interruption at one or more of our manufacturing facilities;
-
the loss of service of our key management;
-
the effective management of our supply chain;
-
volatility in the prices of raw materials and energy;
-
enactment of climate change legislation;
-
unfavorable growing conditions due to adverse weather conditions;
-
dilution in the value of our common shares through the exercise of stock options, participation in our employee stock purchase plan and issuance of additional securities;
-
impairment charges in goodwill or other intangible assets;
-
technological innovation by our competitors;
-
our ability to protect our intellectual property and proprietary rights;
-
substantial environmental regulation and policies to which we are subject;
-
significant food and health regulations to which SunOpta Foods is subject;
-
agricultural policies that influence our operations;
-
product liability suits, recalls and threatened market withdrawals that may be brought against us;
-
litigation and regulatory enforcement concerning marketing and labeling of food products;
-
our lack of management and operational control over Mascoma Corporation;
-
fluctuations in exchange rates, interest rates and certain commodities;
-
our ability to effectively manage our growth and integrate acquired companies; and
SUNOPTA INC. |
2 |
June 30, 2012 10-Q |
- the volatility of our operating results and share price.
Consequently all forward–looking statements made herein are qualified by these cautionary statements and there can be no assurance that our actual results or the developments we anticipate will be realized. 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 and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (“Form 10-K”). For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors under Item 1A of Part II of this Form 10-Q and under Item 1A, Risk Factors, of the Form 10-K.
SUNOPTA INC. |
3 |
June 30, 2012 10-Q |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SunOpta Inc.
Consolidated Statements of Operations
For the quarter and two quarters ended June 30, 2012 and July
2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share
amounts)
Quarter ended | Two quarters ended | |||||||||||
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | |||||||||
|
$ | $ | $ | $ | ||||||||
Revenues |
282,308 | 275,188 | 541,636 | 520,538 | ||||||||
Cost of goods sold |
245,220 | 243,209 | 470,062 | 455,926 | ||||||||
Gross profit |
37,088 | 31,979 | 71,574 | 64,612 | ||||||||
Selling, general and administrative expenses |
22,086 | 21,163 | 42,516 | 40,906 | ||||||||
Intangible asset amortization |
1,235 | 1,017 | 2,428 | 2,033 | ||||||||
Other expense (income), net (note 9) |
1,378 | (3,256 | ) | 1,742 | (2,894 | ) | ||||||
Foreign exchange (gain) loss |
(581 | ) | 19 | (499 | ) | 154 | ||||||
Earnings from continuing operations before the following |
12,970 | 13,036 | 25,387 | 24,413 | ||||||||
Interest expense, net |
2,558 | 2,520 | 5,141 | 4,504 | ||||||||
Earnings from continuing operations before income taxes |
10,412 | 10,516 | 20,246 | 19,909 | ||||||||
Provision for income taxes |
2,769 | 4,170 | 6,355 | 7,423 | ||||||||
Earnings from continuing operations |
7,643 | 6,346 | 13,891 | 12,486 | ||||||||
Discontinued operations (note 3) |
||||||||||||
Earnings (loss) from discontinued operations, net of income taxes |
214 | (1,233 | ) | 405 | (1,625 | ) | ||||||
Gain on sale of discontinued operations, net of income taxes |
676 | - | 676 | - | ||||||||
Earnings (loss) from discontinued operations, net of income taxes |
890 | (1,233 | ) | 1,081 | (1,625 | ) | ||||||
Earnings |
8,533 | 5,113 | 14,972 | 10,861 | ||||||||
Earnings attributable to non-controlling interests |
388 | 712 | 935 | 1,379 | ||||||||
Earnings attributable to SunOpta Inc. |
8,145 | 4,401 | 14,037 | 9,482 | ||||||||
Earnings (loss) per share basic (note 10) |
||||||||||||
- from continuing operations |
0.11 | 0.09 | 0.20 | 0.17 | ||||||||
- from discontinued operations |
0.01 | (0.02 | ) | 0.02 | (0.02 | ) | ||||||
|
0.12 | 0.07 | 0.21 | 0.14 | ||||||||
Earnings (loss) per share diluted (note 10) |
||||||||||||
- from continuing operations |
0.11 | 0.08 | 0.19 | 0.17 | ||||||||
- from discontinued operations |
0.01 | (0.02 | ) | 0.02 | (0.02 | ) | ||||||
|
0.12 | 0.07 | 0.21 | 0.14 |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. | 4 |
June 30, 2012 10-Q |
SunOpta Inc.
Consolidated Statements of Comprehensive Earnings
For the quarter and two quarters ended June 30, 2012 and July
2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars)
Quarter ended | Two quarters ended | |||||||||||
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | |||||||||
$ | $ | $ | $ | |||||||||
Earnings from continuing operations | 7,643 | 6,346 | 13,891 | 12,486 | ||||||||
Earnings (loss) from discontinued operations, net of income taxes | 890 | (1,233 | ) | 1,081 | (1,625 | ) | ||||||
Earnings | 8,533 | 5,113 | 14,972 | 10,861 | ||||||||
Currency translation adjustment | (1,927 | ) | 1,439 | (828 | ) | 3,497 | ||||||
Change in fair value of interest rate swap, net of taxes | (115 | ) | 103 | (155 | ) | 213 | ||||||
Other comprehensive earnings, net of income taxes | (2,042 | ) | 1,542 | (983 | ) | 3,710 | ||||||
Comprehensive earnings | 6,491 | 6,655 | 13,989 | 14,571 | ||||||||
Comprehensive earnings attributable to non-controlling interests | 167 | 665 | 779 | 1,461 | ||||||||
Comprehensive earnings attributable to SunOpta Inc. | 6,324 | 5,990 | 13,210 | 13,110 |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. |
5 |
June 30, 2012 10-Q |
SunOpta Inc.
Consolidated Balance Sheets
As at June 30, 2012 and December 31, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars)
|
June 30, 2012 | December 31, 2011 | ||||
|
$ | $ | ||||
ASSETS |
||||||
Current assets |
||||||
Cash and cash equivalents (note 11) |
3,247 | 2,378 | ||||
Accounts receivable |
107,080 | 88,898 | ||||
Inventories (note 5) |
222,712 | 228,455 | ||||
Prepaid expenses and other current assets |
18,654 | 21,378 | ||||
Current income taxes recoverable |
1,083 | 1,503 | ||||
Deferred income taxes |
4,779 | 4,773 | ||||
Current assets held for sale (note 3) |
- | 17,923 | ||||
|
357,555 | 365,308 | ||||
|
||||||
Investments (note 6) |
33,845 | 33,845 | ||||
Property, plant and equipment |
128,256 | 120,584 | ||||
Goodwill |
56,642 | 49,387 | ||||
Intangible assets |
54,255 | 48,035 | ||||
Deferred income taxes |
11,631 | 11,751 | ||||
Other assets |
1,328 | 1,854 | ||||
Non-current assets held for sale (note 3) |
- | 739 | ||||
|
||||||
|
643,512 | 631,503 | ||||
|
||||||
LIABILITIES |
||||||
Current liabilities |
||||||
Bank indebtedness (note 7) |
97,826 | 109,718 | ||||
Accounts payable and accrued liabilities |
107,555 | 114,308 | ||||
Customer and other deposits |
4,581 | 843 | ||||
Income taxes payable |
1,412 | 1,229 | ||||
Other current liabilities |
3,504 | 1,419 | ||||
Current portion of long-term debt (note 7) |
27,406 | 35,198 | ||||
Current portion of long-term liabilities |
621 | 995 | ||||
Current liabilities held for sale (note 3) |
- | 5,920 | ||||
|
242,905 | 269,630 | ||||
|
||||||
Long-term debt (note 7) |
33,905 | 17,066 | ||||
Long-term liabilities |
6,712 | 5,586 | ||||
Deferred income taxes |
30,676 | 24,273 | ||||
|
314,198 | 316,555 | ||||
|
||||||
|
||||||
EQUITY |
||||||
SunOpta Inc. shareholders equity |
||||||
Common shares, no par value, unlimited shares authorized, 65,914,891 shares issued (December 31, 2011 - 65,796,398) |
182,604 | 182,108 | ||||
Additional paid-in capital (note 8) |
15,489 | 14,134 | ||||
Retained earnings |
114,545 | 100,508 | ||||
Accumulated other comprehensive income |
196 | 2,382 | ||||
|
312,834 | 299,132 | ||||
Non-controlling interests |
16,480 | 15,816 | ||||
Total equity |
329,314 | 314,948 | ||||
|
||||||
|
643,512 | 631,503 | ||||
Commitments and contingencies (note 12) |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. |
6 |
June 30, 2012 10-Q |
SunOpta Inc.
Consolidated Statements of Shareholders Equity
As at and for
the two quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in
thousands of U.S. dollars)
Accumulated | |||||||||||||||||||||
Additional | other com- | Non- | |||||||||||||||||||
paid-in | Retained | prehensive | controlling | ||||||||||||||||||
Common shares | capital | earnings | income | interests | Total | ||||||||||||||||
000s | $ | $ | $ | $ | $ | $ | |||||||||||||||
Balance at December 31, 2011 |
65,796 | 182,108 | 14,134 | 100,508 | 2,382 | 15,816 | 314,948 | ||||||||||||||
Employee share purchase plan and compensation grants |
61 | 286 | - | - | - | - | 286 | ||||||||||||||
Exercise of options |
58 | 210 | (73 | ) | - | - | - | 137 | |||||||||||||
Stock-based compensation |
- | - | 1,428 | - | - | - | 1,428 | ||||||||||||||
Earnings from continuing operations |
- | - | - | 12,956 | - | 935 | 13,891 | ||||||||||||||
Earnings from discontinued operations, net of income taxes |
- | - | - | 1,081 | (1,359 | ) | - | (278 | ) | ||||||||||||
Currency translation adjustment |
- | - | - | - | (724 | ) | (104 | ) | (828 | ) | |||||||||||
Change in fair value of interest rate swap, net of income taxes |
- | - | - | - | (103 | ) | (52 | ) | (155 | ) | |||||||||||
Payment to non-controlling interests |
- | - | - | - | - | (115 | ) | (115 | ) | ||||||||||||
Balance at June 30, 2012 |
65,915 | 182,604 | 15,489 | 114,545 | 196 | 16,480 | 329,314 | ||||||||||||||
|
|||||||||||||||||||||
|
|||||||||||||||||||||
|
Accumulated | ||||||||||||||||||||
|
Additional | other com- | Non- | ||||||||||||||||||
|
paid-in | Retained | prehensive | controlling | |||||||||||||||||
|
Common shares | capital | earnings | income | interests | Total | |||||||||||||||
|
000s | $ | $ | $ | $ | $ | $ | ||||||||||||||
|
|||||||||||||||||||||
Balance at January 1, 2011 |
65,500 | 180,661 | 12,336 | 95,212 | 2,833 | 14,085 | 305,127 | ||||||||||||||
Employee share purchase plan and compensation grants |
129 | 339 | - | - | - | - | 339 | ||||||||||||||
Exercise of options |
55 | 489 | (81 | ) | - | - | - | 408 | |||||||||||||
Stock-based compensation |
- | - | 981 | - | - | - | 981 | ||||||||||||||
Earnings from continuing operations |
- | - | - | 11,107 | - | 1,379 | 12,486 | ||||||||||||||
Loss from discontinued operations, net of income taxes |
- | - | - | (1,625 | ) | - | (155 | ) | (1,780 | ) | |||||||||||
Currency translation adjustment |
- | - | - | - | 3,332 | 165 | 3,497 | ||||||||||||||
Change in fair value of interest rate swap, net of income taxes |
- | - | - | - | 141 | 72 | 213 | ||||||||||||||
Balance at July 2, 2011 |
65,684 | 181,489 | 13,236 | 104,694 | 6,306 | 15,546 | 321,271 |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. |
7 |
June 30, 2012 10-Q |
SunOpta Inc.
Consolidated Statements of Cash Flows
For the quarter and two quarters ended June 30, 2012 and July
2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars)
Quarter ended |
Two quarters ended | |||||||||||
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | |||||||||
$ | $ | $ | $ | |||||||||
|
||||||||||||
Cash provided by (used in) |
||||||||||||
|
||||||||||||
Operating activities |
||||||||||||
Earnings |
8,533 | 5,113 | 14,972 | 10,861 | ||||||||
Earnings (loss) from discontinued operations |
890 | (1,233 | ) | 1,081 | (1,625 | ) | ||||||
Earnings from continuing operations |
7,643 | 6,346 | 13,891 | 12,486 | ||||||||
|
||||||||||||
Items not affecting cash: |
||||||||||||
Depreciation and amortization |
5,018 | 4,439 | 9,791 | 8,857 | ||||||||
Unrealized (gain) loss on foreign exchange |
(195 | ) | 246 | (93 | ) | 969 | ||||||
Deferred income taxes |
1,630 | 3,216 | 3,716 | 4,721 | ||||||||
Stock-based compensation |
740 | 552 | 1,328 | 981 | ||||||||
Gain on sale of property, plant and equipment |
- | (3,824 | ) | - | (3,824 | ) | ||||||
Unrealized loss (gain) on derivative instruments |
1,215 | (233 | ) | 1,897 | (3,918 | ) | ||||||
Other |
368 | 322 | 709 | (66 | ) | |||||||
Changes in non-cash working capital, net of business acquired (note 11) |
12,547 | 9,720 | (9,383 | ) | (32,893 | ) | ||||||
Net cash flows from operations - continuing operations |
28,966 | 20,784 | 21,856 | (12,687 | ) | |||||||
Net cash flows from operations - discontinued operations |
(168 | ) | (303 | ) | (316 | ) | (735 | ) | ||||
|
28,798 | 20,481 | 21,540 | (13,422 | ) | |||||||
Investing activities |
||||||||||||
Acquisition of business (note 2) |
- | - | (17,530 | ) | - | |||||||
Purchases of property, plant and equipment |
(6,995 | ) | (5,297 | ) | (11,914 | ) | (9,174 | ) | ||||
Proceeds from sale of property, plant and equipment |
- | 2,773 | - | 2,773 | ||||||||
Payment of contingent consideration |
(327 | ) | - | (327 | ) | - | ||||||
Purchases of intangible assets |
- | (8 | ) | (25 | ) | (67 | ) | |||||
Other |
(129 | ) | (441 | ) | (206 | ) | (441 | ) | ||||
Net cash flows from investing activities - continuing operations |
(7,451 | ) | (2,973 | ) | (30,002 | ) | (6,909 | ) | ||||
Net cash flows from investing activities - discontinued operations |
12,147 | (16 | ) | 12,134 | (70 | ) | ||||||
|
4,696 | (2,989 | ) | (17,868 | ) | (6,979 | ) | |||||
Financing activities |
||||||||||||
Increase (decrease) under line of credit facilities (note 7) |
(29,534 | ) | (14,124 | ) | (10,526 | ) | 28,427 | |||||
Borrowings under long-term debt (note 7) |
285 | - | 19,373 | 37 | ||||||||
Proceeds from the issuance of common shares |
266 | 534 | 423 | 747 | ||||||||
Repayment of long-term debt (note 7) |
(3,793 | ) | (4,722 | ) | (10,823 | ) | (6,726 | ) | ||||
Financing costs |
(1,084 | ) | (161 | ) | (1,175 | ) | (186 | ) | ||||
Other |
(26 | ) | 793 | (29 | ) | 821 | ||||||
Net cash flows from financing activities - continuing operations |
(33,886 | ) | (17,680 | ) | (2,757 | ) | 23,120 | |||||
|
||||||||||||
Foreign exchange (loss) gain on cash held in a foreign currency |
(90 | ) | 41 | (46 | ) | 211 | ||||||
|
||||||||||||
(Decrease) increase in cash and cash equivalents in the period |
(482 | ) | (147 | ) | 869 | 2,930 | ||||||
|
||||||||||||
Discontinued operations cash activity included above: |
||||||||||||
Add: Balance included at beginning of period |
- | 212 | - | 308 | ||||||||
Less: Balance included at end of period |
- | (212 | ) | - | (212 | ) | ||||||
|
||||||||||||
Cash and cash equivalents - beginning of the period |
3,729 | 5,508 | 2,378 | 2,335 | ||||||||
|
||||||||||||
Cash and cash equivalents - end of the period |
3,247 | 5,361 | 3,247 | 5,361 | ||||||||
Supplemental cash flow information (note 11) |
(See accompanying notes to consolidated financial statements)
SUNOPTA INC. |
8 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
1. Description of business and significant accounting policies
SunOpta Inc. (the “Company” or “SunOpta”) was incorporated under the laws of Canada on November 13, 1973. The Company operates businesses focused on a healthy products portfolio that promotes sustainable well-being. The Company has two industry groups, the largest being SunOpta Foods, which consists of four operating segments that operate in the natural, organic and specialty foods sectors and utilizes a number of integrated business models to bring cost-effective and quality products to market. In addition to SunOpta Foods, the Company owned approximately 66.2% of Opta Minerals Inc. (“Opta Minerals”) as at June 30, 2012. Opta Minerals is a vertically integrated provider of custom process solutions and industrial minerals products for use primarily in the steel, foundry, loose abrasive cleaning, construction and marine/bridge cleaning industries. The Company also has an ownership position in Mascoma Corporation (“Mascoma”), an innovative biofuels company (see note 6).
Basis of presentation
The interim consolidated financial statements of the Company 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 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 two quarters ended June 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 29, 2012 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 December 31, 2011 (except as described below under “Comparative balances” and “Adoption of new accounting standards”). For further information, see the consolidated financial statements, and notes thereto, included in the Company’s Current Report on Form 8-K filed on June 25, 2012.
Comparative balances
As a result of the divestiture of the Company’s interest in Purity Life Natural Health Products (“Purity”) on June 5, 2012 (see note 3), the operating results and cash flows of Purity for the quarter and two quarters ended July 2, 2011 have been reclassified to discontinued operations. In addition, the net assets of Purity have been reclassified and reported as held for sale on the consolidated balance sheet as at December 31, 2011. Similarly, as a result of the disposal of the Company’s interest in the Colorado Sun Oil Processing LLC (“CSOP”) joint venture in August 2011 (see note 3), the operating results and cash flows of CSOP for the quarter and two quarters ended July 2, 2011 have been reclassified to discontinued operations.
As more fully described in note 13, segmented information for the quarter and two quarters ended July 2, 2011 has been restated to reflect the realignment of the Company’s operating segments within SunOpta Foods implemented during the first quarter of 2012, and the divestitures of Purity and CSOP (as noted above). The realignment of the Company’s operating segments did not change the Company’s previously reported consolidated results of operations, financial position or cash flows.
Adoption of new accounting standards
Effective January 1, 2012, the Company adopted on a prospective basis the provisions of the following new accounting standards:
- Amendments to fair value measurement and disclosure requirements.
- Guidance related to the presentation of net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive statements. The amendments did not change the components of other comprehensive income as reported in the Company’s separate statement of comprehensive earnings.
SUNOPTA INC. |
9 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
- Guidance on the accounting for goodwill that permits a qualitative approach to determining the likelihood of a goodwill impairment charge.
The adoption of these new standards did not have a significant impact on the interim consolidated financial statements.
2. Business acquisition
Babco Industrial Corp.
On February 10, 2012, Opta Minerals acquired all of the outstanding common shares of Babco Industrial Corp. (Babco), located in Regina, Saskatchewan. Babco is an industrial processor of petroleum coke. This acquisition complements Opta Minerals existing product portfolio and provides for additional product line offerings to new and existing customers in the region.
This transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, as well as the consideration transferred to effect the acquisition as of the acquisition date.
|
Amounts | ||
|
Recognized as | ||
|
of Acquisition | ||
|
Date | ||
|
$ | ||
Net assets acquired |
|||
Accounts receivable(1) |
467 | ||
Inventories |
372 | ||
Other current assets |
20 | ||
Property, plant and equipment |
4,909 | ||
Goodwill(2) |
7,675 | ||
Intangible assets(3) |
9,347 | ||
Accounts payable and accrued liabilities |
(692 | ) | |
Deferred income taxes |
(2,808 | ) | |
Long-term debt(4) |
(1,145 | ) | |
|
18,145 | ||
|
|||
Consideration |
|||
Cash consideration |
17,530 | ||
Contingent consideration(5) |
615 | ||
|
18,145 |
(1) |
The fair value of accounts receivable acquired is equal to the gross contractual amount receivable. |
(2) |
Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents (i) synergies and economies of scale expected to result from combining the operations of Opta Minerals and Babco, (ii) the value of the going-concern element of Babcos existing business (that is, the higher rate of return on the assembled net assets versus if Opta Minerals had acquired all of the net assets separately) and the value of Babcos assembled workforce that does not qualify for separate recognition as an intangible asset. |
SUNOPTA INC. |
10 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
(3) |
Intangible assets consist of acquired customer relationships, which are being amortized over their estimated useful lives of approximately 15 years. |
(4) |
In conjunction with the acquisition, Opta Minerals fully repaid Babcos existing banking facilities. |
(5) |
Represents the fair value of contingent consideration payments of up to approximately $1,300 if Babco achieves certain EBITDA targets over the next five years. The fair value of the contingent consideration was measured using a discounted cash flow analysis based on level 3 inputs, which included a forecasted EBITDA growth rate of 2.5% and a risk-adjusted discount rate of 18.0%. |
In addition to the recognition of the fair values of the assets acquired and liabilities assumed at the acquisition date, Opta Minerals determined that in connection with its subsequent amalgamation with Babco during the quarter ended June 30, 2012, it was more likely than not that the combined company would be able to realize a portion of Opta Minerals pre-existing non-capital loss carryforwards. As a result, Opta Minerals released $990 of a valuation allowance against its deferred tax assets, resulting in a corresponding deferred tax benefit (before non-controlling interest) recognized in the provision for income taxes for the quarter ended June 30, 2012.
The acquired assets (including goodwill), assumed liabilities and results of operations of Babco have been included in the Opta Minerals operating segment since the date of acquisition. The revenues and earnings of Babco attributable to SunOpta Inc. that are included in the consolidated statement of operations for the period from the acquisition date to June 30, 2012 were $5,420 and $943, respectively.
Pro forma consolidated results of operations (unaudited)
The following table presents unaudited pro forma consolidated results of operations for the quarter and two quarters ended June 30, 2012 and July 2, 2011, as if the Babco acquisition had occurred as of January 2, 2011.
|
Quarter ended | Two quarters ended | ||||||||||
|
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | ||||||||
|
$ | $ | $ | $ | ||||||||
Pro forma revenues |
282,308 | 278,701 | 543,127 | 527,310 | ||||||||
Pro forma earnings attributable to SunOpta Inc. |
8,154 | 4,562 | 14,329 | 10,159 | ||||||||
Pro forma earnings per share |
||||||||||||
Basic |
0.12 | 0.07 | 0.22 | 0.15 | ||||||||
Diluted |
0.12 | 0.07 | 0.22 | 0.15 |
The pro forma consolidated results of operations were prepared using the acquisition method of accounting and are based on unaudited historical financial information of the Company and Babco. The pro forma information reflects primarily the following pro forma adjustments:
- incremental amortization expense related to the fair value of the identifiable intangible assets acquired;
- additional depreciation expense related to the fair value adjustment to property, plant and equipment acquired;
- additional interest costs associated with an increase in borrowings under Opta Minerals non-revolving term credit facility, which were used to finance the acquisition; and
- the exclusion of acquisition-related transaction costs incurred by Opta Minerals from pro forma earnings for the quarter and two quarters ended June 30, 2012, and the inclusion of those costs in pro forma earnings for the quarter and two quarters ended July 2, 2011.
SUNOPTA INC. |
11 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
The pro forma information is not necessarily indicative of what the Companys consolidated results of operations actually would have been had the acquisition of Babco been completed on January 2, 2011. In addition, the pro forma information does not purport to project the future results of operations of the Company.
3. Divestitures
Purity Life Natural Health Products
On June 5, 2012, the Company completed the sale of Purity, its Canadian natural health products distribution business, for consideration of $13,443 (Cdn $14,000) in cash at closing, plus up to approximately $672 (Cdn $700) if Purity achieves certain earnings targets during the one-year period following the closing date. The contingent consideration will not be recognized by the Company until realized. The divestiture of Purity is consistent with the Companys strategy to focus on its core natural and organic foods sourcing and processing business. Purity was formerly part of the Companys International Foods Group operating segment.
The Company recognized the following gain on sale in discontinued operations:
Cash consideration |
$ | 13,443 | |
Transaction and related costs |
(1,254 | ) | |
Net proceeds |
12,189 | ||
Net assets sold |
12,939 | ||
Accumulated currency translation adjustment related to net assets sold |
(1,359 | ) | |
Pre-tax gain on sale |
609 | ||
Recovery of income taxes(1) |
67 | ||
Gain on sale of discontinued operations, net of income taxes |
$ | 676 |
(1) |
The divestiture resulted in a pre-tax accounting loss on sale of $750 (before giving effect to the accumulated currency translation adjustment). The Company recognized a recovery of income taxes for the associated loss for Canadian tax purposes. |
The operating results of Purity for the current and comparative periods are included within earnings (loss) from discontinued operations, net of income taxes, as follows:
|
Quarter ended | Two quarters ended | ||||||||||
|
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | ||||||||
|
$ | $ | $ | $ | ||||||||
Revenues |
11,700 | 15,365 | 26,914 | 30,604 | ||||||||
|
||||||||||||
Earnings (loss) before income taxes |
393 | (1,185 | ) | 1,054 | (1,318 | ) | ||||||
Provision for (recovery of) income taxes |
64 | (273 | ) | 305 | (298 | ) | ||||||
Earnings (loss) from discontinued operations, net of income taxes |
329 | (912 | ) | 749 | (1,020 | ) |
SUNOPTA INC. |
12 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
Colorado Sun Oil Processing LLC
CSOP was organized in 2008 under the terms of a joint venture agreement with Colorado Mills, LLC (Colorado Mills) to construct and operate a vegetable oil refinery adjacent to Colorado Mills sunflower crush plant. On August 12, 2011, the U.S. Bankruptcy Court, District of Colorado, accepted an asset purchase agreement submitted by Colorado Mills for CSOP and rejected an asset purchase agreement submitted by the Company. Based on the bankruptcy court ruling, the Company disposed of its interest in the CSOP joint venture, which was previously consolidated as a variable interest entity as part of the Grains and Foods Group. The operating results of CSOP for the current and comparative periods, which include legal fees and interest costs incurred in connection with arbitration proceedings related to the joint venture agreement (see note 12), are included within earnings (loss) from discontinued operations, net of income taxes, as follows:
|
Quarter ended | Two quarters ended | ||||||||||
|
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | ||||||||
|
$ | $ | $ | $ | ||||||||
Revenues |
- | 204 | - | 538 | ||||||||
|
||||||||||||
Loss before income taxes |
(205 | ) | (626 | ) | (564 | ) | (1,207 | ) | ||||
Recovery of income taxes |
90 | 230 | 220 | 447 | ||||||||
Loss allocated to non-controlling interests |
- | 75 | - | 155 | ||||||||
Loss from discontinued operations, net of income taxes |
(115 | ) | (321 | ) | (344 | ) | (605 | ) |
SUNOPTA INC. |
13 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
4. Derivative financial instruments and fair value measurements
The following table presents for each of the fair value hierarchies, the assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011:
|
June 30, 2012 | ||||
|
Fair value |
| |||
|
asset (liability) | Level 1 | Level 2 |
Level 3 | |
|
$ | $ | $ |
$ | |
(a) |
Commodity futures and forward contracts(1) |
| |||
|
Unrealized short-term derivative gain | 2,430 | - | 2,430 |
- |
|
Unrealized long-term derivative gain | 272 | - | 272 |
- |
|
Unrealized short-term derivative loss | (3,449) | (983) | (2,466) |
- |
|
Unrealized long-term derivative loss | (234) | - | (234) |
- |
(b) |
Inventories carried at market(2) | 19,490 | - | 19,490 |
- |
(c) |
Interest rate swaps(3) | (446) | - | (446) |
- |
(d) |
Forward foreign currency contracts(4) | 320 | - | 320 |
- |
(e) |
Contingent consideration(5) | (4,744) | - | - |
(4,744) |
|
December 31, 2011 | ||||
|
Fair value |
| |||
|
asset (liability) | Level 1 | Level 2 |
Level 3 | |
|
$ | $ | $ |
$ | |
(a) |
Commodity futures and forward contracts(1) |
| |||
|
Unrealized short-term derivative gain | 2,125 | 34 | 2,091 |
- |
|
Unrealized long-term derivative gain | 271 | - | 271 |
- |
|
Unrealized short-term derivative loss | (1,410) | - | (1,410) |
- |
|
Unrealized long-term derivative loss | (70) | - | (70) |
- |
(b) |
Inventories carried at market(2) | 12,685 | - | 12,685 |
- |
(c) |
Interest rate swaps(3) | (256) | - | (256) |
- |
(d) |
Forward foreign currency contracts(4) | (149) | - | (149) |
- |
(e) |
Contingent consideration(5) | (4,456) | - | - |
(4,456) |
(1) |
Unrealized short-term derivative gain is included in prepaid expenses and other current assets, unrealized long-term derivative gain is included in other assets, unrealized short-term derivative loss is included in other current liabilities and unrealized long-term derivative loss is included in long-term liabilities on the consolidated balance sheets. |
(2) |
Inventories carried at market are included in inventories on the consolidated balance sheets. |
(3) |
The interest rate swaps are included in long-term liabilities on the consolidated balance sheets. |
(4) |
The forward foreign currency contracts are included in accounts receivable on the consolidated balance sheets. |
(5) |
Contingent consideration obligations are included in long-term liabilities (including the current portion thereof) on the consolidated balance sheets. |
(a) |
Commodity futures and forward contracts |
The Companys derivative contracts that are measured at fair value include exchange-traded commodity futures and forward commodity purchase and sale contracts. Exchange-traded futures are valued based on unadjusted quotes for identical assets priced in active markets and are classified as level 1. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. Local market adjustments use observable inputs or market transactions for similar assets or liabilities, and, as a result, are classified as level 2. Based on historical experience with the Companys suppliers and customers, the Companys own credit risk, and the Companys knowledge of current market conditions, the Company does not view non-performance risk to be a significant input to fair value for the majority of its forward commodity purchase and sale contracts. |
SUNOPTA INC. |
14 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
These exchange-traded commodity futures and forward commodity purchase and sale contracts are used as part of the Companys risk management strategy, and represent economic hedges to limit risk related to fluctuations in the price of certain commodity grains. These derivative instruments are not designated as hedging instruments. For the quarter and two quarters ended June 30, 2012, a loss of $1,215 and a loss of $1,897, respectively, were recorded in cost of goods sold on the consolidated statement of operations related to changes in the fair value of these derivatives, compared with gains of $323 and $3,309 recorded in the corresponding periods of 2011.
At June 30, 2012, the notional amounts of open commodity futures and forward purchase and sale contracts were as follows (in thousands of bushels):
|
Number of bushels | |||||
|
purchase (sale) | |||||
|
Corn | Soybeans | ||||
Forward commodity purchase contracts |
1,259 | 1,000 | ||||
Forward commodity sale contracts |
(2,273 | ) | (894 | ) | ||
Commodity futures contracts |
161 | (749 | ) |
In addition, as at June 30, 2012, the Company also had open forward contracts to sell 139 lots of cocoa. | |
(b) |
Inventories carried at market |
Grains inventory carried at fair value is determined using quoted market prices from the Chicago Board of Trade (CBoT). Estimated fair market values for grains inventory quantities at period end are valued using the quoted price on the CBoT adjusted for differences in local markets, and broker or dealer quotes. These assets are placed in level 2 of the fair value hierarchy, as there are observable quoted prices for similar assets in active markets. Gains and losses on commodity grains inventory are included in cost of sales on the consolidated statements of operations. As at June 30, 2012, the Company had 1,099,424 bushels of commodity corn and 685,661 bushels of commodity soybeans in inventories carried at market. | |
(c) |
Interest rate swaps |
Opta Minerals utilizes interest rate swaps to minimize its exposure to interest rate risk. In 2007, Opta Minerals entered into a five-year Cdn $17,200 ($16,894) interest rate swap contract to pay a fixed rate of 5.25%, plus a margin of 2.0% to 3.5% based on certain financial ratios of Opta Minerals, and receive a variable rate based on various reference rates including prime, bankers acceptances or LIBOR, plus the same margin. In February 2012, Opta Minerals entered into a five-year Cdn $15,000 ($14,733) interest rate swap contract to pay a fixed rate of 1.85%, plus a margin of 2.0% to 3.5% based on certain financial ratios of Opta Minerals, and receive a variable rate based on various reference rates including prime, bankers acceptances or LIBOR, plus the same margin. This contract commences in August 2012, the date of expiry of the 2007 contract. Also in February 2012, in connection with an increase in borrowings under its non-revolving term credit facility (see note 7), which were used to finance the acquisition of Babco (see note 2), Opta Minerals entered into a five-year Cdn $19,000 ($18,662) interest rate swap to pay a fixed rate of 1.85%, plus a margin of 2.0% to 3.5% based on certain financial ratios of Opta Minerals, and receive a variable rate based on various reference rates including prime, bankers acceptances or LIBOR, plus the same margin. The net notional value of this contract decreases in accordance with the quarterly principal repayments on the non-revolving term credit facility. | |
At each period end, the Company calculates the mark-to-market fair value of the interest rate swaps using a valuation technique using quoted observable prices for similar instruments as the primary input. Based on this valuation, the previously recorded fair value is adjusted to the current mark-to-market position. The mark-to-market gain or loss is placed in level 2 of the fair value hierarchy. As the interest rate swaps are designated as a cash flow hedge for accounting purposes, gains and losses on changes in the fair value of these derivative instruments are included on the consolidated statements of comprehensive earnings. |
SUNOPTA INC. |
15 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
(d) |
Foreign forward currency contracts |
As part of its risk management strategy, the Company enters into forward foreign exchange contracts to reduce its exposure to fluctuations in foreign currency exchange rates. For any open forward foreign exchange contracts at period end, the contract rate is compared to the forward rate, and a gain or loss is recorded. These contracts are placed in level 2 of the fair value hierarchy, as the inputs used in making the fair value determination are derived from and are corroborated by observable market data. While these forward foreign exchange contracts typically represent economic hedges that are not designated as hedging instruments, certain of these contracts may be designated as hedges. As at June 30, 2012, the Company had open forward foreign exchange contracts with a notional value of Cdn $1,250, €1,630 and $8,165. For the quarter and two quarters ended June 30, 2012, the Company recognized an unrealized loss of $11 and an unrealized gain of $320, respectively, related to changes in the fair value of these derivatives, which was included in foreign exchange loss on the consolidated statements of operations, compared with an unrealized gain of $381 and an unrealized loss of $195 in corresponding periods of 2011. | |
(e) |
Contingent consideration |
The fair value measurement of contingent consideration arising from business acquisitions is determined using unobservable (level 3) inputs. These inputs include: (i) the estimated amount and timing of the projected cash flows on which the contingency is based; and (ii) the risk-adjusted discount rate used to present value those cash flows. For the two quarters ended June 30, 2012, the change in the fair value of the contingent consideration liability reflected the addition of the acquisition-date fair value of the contingent consideration arising from the acquisition of Babco of $617 (see note 2) and the payment of $327 to the former owners of Edner of Nevada, Inc. Adjustments to the fair value of the contingent consideration liability related to (i) changes in the probability of achievement of the factors on which the contingencies are based, (ii) the accretion of interest expense, and (iii) changes in foreign currency exchange rates were not material for the quarter and two quarters ended June 30, 2012. |
5. Inventories
|
June 30, 2012 | December 31, 2011 | ||||
|
$ | $ | ||||
Raw materials and work-in-process |
136,741 | 147,051 | ||||
Finished goods |
66,575 | 70,358 | ||||
Company-owned grain |
25,516 | 17,351 | ||||
Inventory reserves |
(6,120 | ) | (6,305 | ) | ||
|
222,712 | 228,455 |
SUNOPTA INC. |
16 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
6. Investments
Mascoma Corporation
As at June 30, 2012, the Company held an 18.65% equity ownership position in Mascoma. Mascoma is a privately-held renewable fuels company headquartered in the U.S. that has developed innovative technology for the low-cost conversion of abundant biomass. On August 31, 2010, the Company sold 100% of its ownership interest in SunOpta Bioprocess Inc. to Mascoma in exchange for its equity ownership position in Mascoma. The Company is accounting for its investment in Mascoma using the cost method, as the Company does not have the ability to exercise significant influence over the operating and financial policies of Mascoma.
Although Mascoma has a history of recurring operating losses and negative cash flows, the Company considers the value of its investment to be predicated on the future prospects for Mascomas products and technologies. Mascomas ability to continue as a going concern is dependent on a number of factors, including its ability to raise additional capital to fund its operational, capital expenditure and debt service requirements, as well as to support its product-development activities. Each reporting period, the Company evaluates whether events or changes in circumstances have occurred that may have a significant adverse effect on its ability to recover the carrying value of its investment. The Company considers the pricing of recent arms-length private offerings of Mascomas equity securities, as well as other available information relating to Mascoma to assess the commercial viability and future earnings potential of its products and technologies, as well as its ability to secure additional funding as required. On the basis of its overall assessment, the Company determined that the carrying value of its investment in Mascoma was recoverable as at June 30, 2012.
7. Bank indebtedness and long-term debt
|
June 30, 2012 | December 31, 2011 | ||||
|
$ | $ | ||||
Bank indebtedness |
||||||
Canadian line of credit facility(1) |
- | 26 | ||||
U.S. line of credit facility(1) |
30,598 | 51,617 | ||||
Opta Minerals revolving term credit facility(2) |
10,565 | - | ||||
Opta Minerals Canadian line of credit facility(2) |
- | 7,765 | ||||
TOC line of credit facilities(3) |
56,663 | 50,310 | ||||
|
97,826 | 109,718 | ||||
|
||||||
Long-term debt |
||||||
Non-revolving real estate term facility(1) |
11,699 | 12,133 | ||||
Non-revolving machinery and equipment term facility(1) |
9,378 | 11,078 | ||||
Opta Minerals non-revolving term credit facility(2) |
36,583 | - | ||||
Opta Minerals term loan facility(2) |
- | 6,392 | ||||
Opta Minerals revolving acquisition facility(2) |
- | 12,420 | ||||
Promissory notes |
2,105 | 8,744 | ||||
Other |
1,546 | 1,497 | ||||
|
61,311 | 52,264 | ||||
Less: current portion |
27,406 | 35,198 | ||||
|
33,905 | 17,066 |
(1) |
Syndicated credit facilities |
In January 2012, the Company completed amendments to its syndicated credit facilities, which included a Cdn $5,000 increase in the Canadian line of credit facility to Cdn $10,000 and a $15,000 increase in the U.S. revolving line of credit facility to $115,000, with a corresponding decrease from $30,000 to $10,000 in the amount of availability under the facilities accordion feature. There were no other material changes made to the facilities terms and conditions. The maturity date of the facilities remained October 30, 2012. The facilities were collateralized by a first priority security interest against substantially all of the Companys assets in Canada and the U.S., excluding the assets of Opta Minerals and The Organic Corporation (TOC), a wholly-owned subsidiary of the Company. |
SUNOPTA INC. |
17 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
On July 27, 2012, the Company amended and restated its syndicated credit facilities to, among other things, provide for a maturity date of July 27, 2016 (see note 14). | |
(2) |
Opta Minerals credit facilities |
On May 18, 2012, Opta Minerals amended its credit facility to include a Cdn $15,000 revolving term credit facility and a Cdn $57,000 non-revolving term credit facility. The revolving term credit facility matures on August 14, 2013, with the outstanding principal amount repayable in full on the maturity date. The first tranche of the non-revolving term credit facility is for an amount of Cdn $37,500, which was used by Opta Minerals to refinance borrowings under its existing term loan and revolving acquisition facilities. The principal is repayable in equal quarterly installments of Cdn $938. The second tranche is for an amount of Cdn $19,500 and can only be used to fund the proposed acquisition of WGI Heavy Minerals, Incorporated (WGI) (see note 14), with the principal being repayable in equal quarterly installments of Cdn $488 after the completion of the acquisition. The second tranche will be cancelled if not drawn by Opta Minerals before October 31, 2012. Opta Minerals may be required to make additional repayments on the non-revolving term credit facility if certain financial ratios are met. The non-revolving term credit facility matures on May 18, 2017, with the remaining outstanding principal amount repayable in full on the maturity date. | |
Interest on the borrowings under these facilities accrue at the borrowers option based on various reference rates including LIBOR, plus an applicable margin of 2.00% to 3.50% based on certain financial ratios of Opta Minerals. As described in note 4, Opta Minerals utilizes interest rate swaps to hedge the interest payments on a portion of the borrowings under the non-revolving term credit facility. As at June 30, 2012, the weighted-average interest rate on the amended credit facilities was 5.89%, after taking into account the related interest rate hedging activities. | |
The credit facilities are collateralized by a first priority security interest on substantially all of the assets of Opta Minerals. | |
On July 24, 2012, Opta Minerals further amended its credit facilities (see note 14). | |
(3) |
TOC line of credit facilities |
In March 2012, the TOC banking agreement was amended to provide for a €3,000 increase to the line of credit facilities. There were no other material changes made to the facilities terms and conditions. |
8. Stock-based compensation
For the two quarters ended June 30, 2012, the Company granted 1,105,000 options to employees that vest ratably on each of the first through fifth anniversary of the grant date and expire on the tenth anniversary of the grant date. These options had a weighted-average grant-date fair value of $3.49 per option. The following table summarizes the weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the options granted:
Exercise price |
$ | 5.67 | |
Dividend yield |
0% | ||
Expected volatility |
66.4% | ||
Risk-free interest rate |
1.2% | ||
Expected life of options (in years) |
6.5 |
SUNOPTA INC. |
18 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
9. Other expense (income), net
Quarter ended | Two quarters ended | ||||||||||||
|
June 30, 2012 | July 2, 2011 | June 30, 2012 |
July 2, 2011 |
|||||||||
|
$ | $ | $ |
$ |
|||||||||
(a) |
Severance and other rationalization costs | 978 | - | 1,295 |
427 |
||||||||
(b) |
Acquisition-related transaction costs | 200 | - | 401 |
- |
||||||||
(c) |
Gain on sale of assets | - | (3,048) | - |
(3,048) |
||||||||
(d) |
Legal settlements | (500) |
(500) |
||||||||||
|
Other | 200 | 292 | 46 |
227 |
||||||||
|
1,378 | (3,256) | 1,742 |
(2,894) |
(a) |
Severance and other rationalization costs |
For the quarter and two quarters ended June 30, 2012, the Company recorded employee severance and other costs in connection with the rationalization of a number of operations and functions in an effort to streamline operations. The Company incurred severance costs of $500 in total as a result of the reduction in its salaried workforce of approximately 6%. In addition, for the quarter ended June 30, 2012, the Company accrued $795 of severance payable to a former executive officer over a period of 15 months. | |
For the quarter and two quarters ended July 2, 2011, severance costs were related to employee terminations in the former Fruit Group, as well as the International Foods Group and Corporate Services. | |
(b) |
Acquisition-related transaction costs |
Represents transaction costs incurred by Opta Minerals in connection with the acquisition of Babco (see note 2) and the proposed acquisition of WGI (see note 14). | |
(c) |
Gain on sale of assets |
In the second quarter of 2011, the Company completed the sale of land, buildings and processing equipment located in Mexico for proceeds of $5,650. The gain on sale, after deducting the carrying value of the assets sold and related transaction costs, was $3,048. | |
(d) |
Legal settlement |
In the second quarter of 2011, the Company recorded a recovery of $500 in connection with the settlement of a class action lawsuit with a former employee. In fiscal 2009, the Company had accrued $1,200 related to the tentative settlement of this matter. |
SUNOPTA INC. |
19 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
10. Earnings per share
Earnings (loss) per share were calculated as follows:
|
Quarter ended | Two quarters ended | ||||||||||
|
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | ||||||||
Earnings from continuing operations attributable to SunOpta Inc. |
$ | 7,255 | $ | 5,634 | $ | 12,956 | $ | 11,107 | ||||
Loss from discontinued operations, net of income taxes |
890 | (1,233 | ) | 1,081 | (1,625 | ) | ||||||
Earnings attributable to SunOpta Inc. |
$ | 8,145 | $ | 4,401 | $ | 14,037 | $ | 9,482 | ||||
Basic weighted-average number of shares outstanding |
65,854,718 | 65,574,269 | 65,832,112 | 65,556,686 | ||||||||
Dilutive potential of the following: |
||||||||||||
Employee/director stock options |
566,949 | 935,016 | 511,094 | 931,972 | ||||||||
Warrants |
172,598 | 316,775 | 127,488 | 316,378 | ||||||||
Diluted weighted-average number of shares outstanding |
66,594,265 | 66,826,060 | 66,470,694 | 66,805,036 | ||||||||
Earnings (loss) per share - basic: |
||||||||||||
- from continuing operations |
$ | 0.11 | $ | 0.09 | $ | 0.20 | $ | 0.17 | ||||
- from discontinued operations |
0.01 | (0.02 | ) | 0.02 | (0.02 | ) | ||||||
|
$ | 0.12 | $ | 0.07 | $ | 0.21 | $ | 0.14 | ||||
Earnings (loss) per share - diluted: |
||||||||||||
- from continuing operations |
$ | 0.11 | $ | 0.08 | $ | 0.19 | $ | 0.17 | ||||
- from discontinued operations |
0.01 | (0.02 | ) | 0.02 | (0.02 | ) | ||||||
|
$ | 0.12 | $ | 0.07 | $ | 0.21 | $ | 0.14 |
For the quarter ended June 30, 2012, options to purchase 2,103,700 (July 2, 2011 - 1,193,600) common shares have been excluded from the calculation of diluted earnings per share due to their anti-dilutive effect. For the two quarters ended June 30, 2012, options to purchase 2,086,700 (July 2, 2011 - 1,193,600) common shares have been excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.
SUNOPTA INC. |
20 |
June 30, 2012 10-Q |
SunOpta Inc.
Notes to Consolidated Financial Statements
For the quarters ended June 30, 2012 and July 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)
11. Supplemental cash flow information
|
Quarter ended | Two quarters ended | ||||||||||
|
June 30, 2012 | July 2, 2011 | June 30, 2012 | July 2, 2011 | ||||||||
|
$ | $ | $ | $ | ||||||||
Changes in non-cash working capital: |
||||||||||||
Accounts receivable |
694 | (3,088 | ) | (17,904 | ) | (15,572 | ) | |||||
Inventories |
1,946 | 19,556 | 5,208 | (4,182 | ) | |||||||
Income tax recoverable |
655 | 939 | 1,497 | 715 | ||||||||
Prepaid expenses and other current assets |
2,663 | 9,089 | 2,894 | 8,542 | ||||||||
Accounts payable and accrued liabilities |
8,250 | (15,213 | ) | (4,810 | ) | (21,616 | ) | |||||
Customer and other deposits |
(1,661 | ) | (1,563 | ) | 3,732 | (780 | ) | |||||
|
12,547 | 9,720 | (9,383 | ) | (32,893 | ) |
As at June 30, 2012, cash and cash equivalents included $233 (December 31, 2011 - $698) that was specific to Opta Minerals and cannot be utilized by the Company for general corporate purposes.
12. Commitments and contingencies
Colorado Sun Oil Processors, LLC dispute
Colorado Mills and SunOpta Grains and Foods Inc. (formally Sunrich LLC, herein Grains and Foods), a whollyowned subsidiary of the Company, organized a joint venture through CSOP. The purpose of the joint venture was to construct and operate a vegetable oil refinery adjacent to Colorado Mills sunflower seed crush plant located in Lamar, Colorado. During the relationship, disputes arose between the parties concerning management of the joint venture, record-keeping practices, certain unauthorized expenses incurred on behalf of the joint venture by Colorado Mills, procurement of crude oil by Sunrich from Colorado Mills for processing at the joint venture refinery, and the contract price of crude oil offered for sale under an output term of the joint venture agreement.
The parties initiated a dispute resolution process as set forth in the joint venture agreement, which Colorado Mills aborted prematurely through the initiation of suit in Prowers County District Court, Colorado on March 16, 2010. Subsequent to the filing of that suit, Colorado Mills acted with an outside creditor of the joint venture to involuntarily place the joint venture into bankruptcy. In August 2011, as part of the bankruptcy proceeding initiated in June 2011 in the U.S. Bankruptcy Court, District of Colorado, Colorado Mills purchased substantially all of the assets of the joint venture.
A separate arbitration proceeding occurred between Grains and Foods and Colorado Mills to resolve direct claims each party asserted against the other. The case was arbitrated during the week of August 8, 2011 and proposed findings were filed on September 13, 2011. On January 4, 2012 the arbitrator entered an award denying Grains and Foods claims and awarding Colorado Mills $4,816 for its breach of contract claim and $430 for accrued interest. The Company subsequently filed a motion to vacate the arbitration award on March 30, 2012 in Prowers County District Court. Colorado Mills filed a response on April 20, 2012. The Company filed a reply on April 27, 2012. The Prowers County District Court denied the Companys motion and entered judgment on the arbitration award on July 6, 2012 in the amount of $4,816. On July 13, 2012, the Company bonded the judgment in the amount of $6,875, or approximately 125% of the judgment amount, to stay execution of the judgment pending the Companys filing of an appeal to the Colorado Court of Appeals. Although management believes the claims asserted by Colorado Mills are baseless, that the arbitrator committed prejudicial error, that vacatur of the award is warranted, and that the Companys appeal will be successful, management cannot predict whether the prospect of an
SUNOPTA INC. |
21 |
June 30, 2012 10-Q |
SunOpta Inc. |
Notes to Consolidated Financial Statements |
For the quarters ended June 30, 2012 and July 2, 2011 |
(Unaudited) |
(Expressed in thousands of U.S. dollars, except per share amounts) |
unfavorable outcome in this matter is probable. As of December 31, 2011, the Company accrued the full value of the award, pending the outcome of post-arbitration judicial proceedings.
Other claims
Various additional claims and potential claims arising in the normal course of business are pending against the Company. It is the opinion of management that the amount of potential liability, if any, to the Company is not determinable. Management believes the final determination of these claims or potential claims will not materially affect the financial position or results of the Company.
13. Segmented information
In the first quarter of 2012, the Company implemented changes to its organizational structure to align the operations of SunOpta Foods according to the type of customers and markets served, rather than by product groupings. Consequently, the Company has realigned its reportable operating segments to reflect the resulting changes in management reporting and accountability to the Companys Chief Executive Officer. With this realignment, SunOpta Foods now consists of the following four operating segments: Grains and Foods Group, Ingredients Group, Consumer Products Group and International Foods Group. This new structure is more closely aligned with the Companys integrated business models that specialize in the sourcing, processing and packaging of natural, organic and specialty food products.
As a result of this real