EDGAR 10-K Filing

Company CIK: 351834
Filing Year: 2021
Filename: 351834_10-K_2021_0001062993-21-002279.json

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ITEM 1. BUSINESS
Item 1. Business
The Company
SunOpta, a corporation organized under the laws of Canada in 1973, is a leading company focused on the manufacture of plant-based and fruit-based food and beverage products for sale to retail customers, foodservice distributors, branded food companies, and food manufacturers. Our employees and assets, which include 14 processing facilities, are principally located in the U.S., as well as Mexico and Canada.
Operating Segments and Principal Products
The following is a description of the principal activities and products that comprise our two continuing operating segments:
Plant-Based Foods and Beverages - We offer a full line of plant-based beverages and liquid and dry ingredients (utilizing almond, soy, coconut, oat, hemp, and other bases), as well as broths, teas, and nutritional beverages. In addition, we package dry- and oil-roasted inshell sunflower and sunflower kernels, as well as corn-, soy- and legume-based roasted snacks, and we process and sell raw sunflower inshell and kernel for food and feed applications.
Fruit-Based Foods and Beverages - We offer individually quick frozen ("IQF") fruit for retail (including strawberries, blueberries, mango, pineapple, blends, and other berries), IQF and bulk frozen fruit for foodservice (including purées, fruit cups and smoothies), and custom fruit preparations for industrial use. In addition, we offer fruit snacks, including bars, twists, ropes, and bite-sized varieties.
In 2020, we derived 53% of our revenues from the sale of plant-based foods and beverages, and 47% from the sale of fruit-based foods and beverages.
Until December 2020, we had a third operating segment referred to as Global Ingredients. The Global Ingredients operating segment was comprised of our organic ingredient sourcing and production business, Tradin Organic, and our soy and corn business, which were sold in December 2020 and February 2019, respectively, as discussed below under "Divestitures."
Additional information regarding our segments is presented in note 24 to the consolidated financial statements at Item 15 of this Form 10-K.
Divestitures
Tradin Organic
On December 30, 2020, we completed the sale of our organic ingredient sourcing and production business, Tradin Organic, which included its global organic and non-GMO ingredient sourcing operations, together with its consumer-packaged premium juice co-manufacturing business, and ingredient processing facilities. In addition, Tradin Organic included approximately 500 employees who transferred to the purchaser. The divestiture of Tradin Organic for cash consideration of approximately $374 million allowed us to significantly reduce our debt and refinance our credit facility (as described below under "Credit Refinancing"), enabling us to accelerate expansion plans for our core plant-based food and beverage platform. Additional financial information related to this transaction can be found in note 3 to the consolidated financial statements at Item 15 of this Form 10-K.
Soy and Corn Business
On February 22, 2019, we completed the sale of our specialty and organic soy and corn business, which was engaged in seed and grain conditioning and corn milling at five processing facilities located in the U.S. The sale of the soy and corn business was completed to simplify our business and exit product lines where we were not effectively positioned to drive long-term profitable growth. Additional information related to this transaction can be found in note 4 to the consolidated financial statements at Item 15 of this Form 10-K.
SUNOPTA INC. 5 January 2, 2021 10-K
Credit Refinancing
In conjunction with the divestiture of Tradin Organic, we were able to reduce our debt by approximately $355 million, including the early redemption and retirement of the $223.5 million outstanding principal amount of our 9.5% senior secured second lien notes due October 2022, and the repayment of approximately $132 million of the outstanding borrowings under our former revolving credit facility. On December 31, 2020, we entered into a new five-year credit agreement comprised of a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $250 million, subject to borrowing base capacity, and a five-year, $75 million delayed draw term loan, to be used for capital expenditures. Additional information related to the new credit agreement can be found in note 14 to the consolidated financial statements at Item 15 of this Form 10-K.
Customers and competition
We sell our plant-based and fruit-based food and beverage products through various distribution channels, including large retailers and club stores, branded food companies, foodservice distributors, quick service and casual dining restaurants, and food manufacturers, located principally in the U.S. We generally conduct our business with customers based on purchase orders or pursuant to contracts that are generally terminable on notice ranging from three to 12 months. In 2020, our ten largest customers accounted for approximately 67% of our consolidated revenues, approximately 69% of our Plant-Based Foods and Beverages segment revenues, and approximately 65% of our Fruit-Based Foods and Beverages segment revenues.
Our plant-based and fruit-based food and beverage operations compete with major branded and private-label food manufacturers. Our customers do not typically commit to buy predetermined amounts of products and many customers utilize bidding procedures to select vendors. As a result, price is often a key competitive factor in winning bids and retaining customers, along with product quality, food safety, innovation, and customer service. We believe that our access to an established network of growers and suppliers, combined with our in-house processing and packaging capabilities, provides us with a low-cost advantage over many of our competitors.
Raw Materials
Our raw materials primarily consist of agricultural ingredients and packaging materials. We utilize an established network of growers and suppliers for raw material ingredients to support our plant-based and fruit-based food and beverage processing operations. The ingredient used most in the products we produce in our operations is strawberries. Fresh and frozen berries are sourced directly from a large number of suppliers throughout the U.S., Mexico and South America. Our scale and location close to growing areas in California and Mexico make us an attractive customer for fruit growers. Because weather conditions and other factors can limit the availability of raw materials in a specific geography, we continue to focus on expanding fruit sourcing outside of North America to ensure supply in years when local production is below normal levels.
In conjunction with the divestiture of Tradin Organic, we entered into a five-year supply agreement (renewable for one-year periods thereafter), whereby we may continue to purchase specified organic ingredients from Tradin Organic for use in our plant-based and fruit-based operations. This long-term supply agreement provides us with the benefit of continued access to Tradin Organic's global network of organic ingredients.
We rely on our packaging suppliers to ensure delivery of often unique, portable, and convenient consumer packaging formats. In our plant-based beverage processing facilities, we specialize in the use of Tetra Pak equipment in a variety of pack sizes, with a variety of opening types and extended shelf-life options.
Seasonality
We experience seasonality in the procurement, transportation, and processing of strawberries, mainly related to the peak California and Mexico production seasons, which generally occur during the first two quarters of the year. Similarly, we purchase the bulk of our annual sunflower crop requirements from North American growers following the harvest in the fall of each year. As a result, our financing needs are generally highest in those periods due to crop inventory builds, while cash inflows are typically highest in the fourth quarter as inventories are drawn down. Overall, the demand for most of our products does not typically fluctuate significantly in any particular season; however, sales of broth are generally higher in the fourth quarter.
SUNOPTA INC. 6 January 2, 2021 10-K
Research and Development
Our innovation center located in Edina, Minnesota, supports our product development team of highly trained and experienced food scientists and technologists that are dedicated to the research and development of innovative food and beverage offerings and addressing product development opportunities for our customers. These opportunities include new and custom formulations, innovations in packaging formats, and new production processes and applications. Applications and technical support provided to our customers include all aspects of product development from concept to commercial launch, as well as ongoing manufacturing and processing support.
Trademarks
We do not extensively market our own consumer brands under trademarks that we own, and we do not consider any trademark to be of material importance to our business or either of our operating segments.
Human Capital
Our Human Capital Management strategy is based on our goal of "Putting the YOU in SunOpta." We develop employee programs, benefits, and compensation to align with the four pillars of well-being: physical, financial, social, emotional. Examples of these initiatives are:
Offering a competitive compensation and benefit package that includes "choices" for each employee to select which works best for them. Our comprehensive benefits package includes health insurance, company-paid life, accident, and disability insurance, 401(k), employee stock purchase plan, paid time off, paid parental and maternity leave programs, flexible schedules, and a tuition reimbursement program to name a few.
We believe it is key to give back to the communities in which we live and work as evidenced by "SunOpta Cares", our community service and volunteerism program. This program provides 24 hours of paid time off for our employees to volunteer with community programs that align with their values. Throughout the year, employees have several opportunities to donate talent and gifts to local charitable organizations.
Talent management and growth is instrumental in developing a sustainable workforce. We provide various opportunities for our employees to learn and grow within SunOpta through individual development plans, on-the-job training, special project assignments, monthly safety training and leader led learning sessions. We are committed to identifying and developing the talents of our next generation leaders. On an annual basis, we conduct talent assessments across the organization and succession planning for our most critical roles within the organization to identify high potential employees, gaps in capabilities or skills and bench strength.
We believe in the power of diversity. To increase awareness, training regarding diversity, equity and inclusion was held companywide for employees to better understand how we can all work together, and be better, by embracing our differences. We foster inclusion by recognizing and supporting activities and initiatives representative of our workforce such as celebrations of Hispanic Heritage month, PRIDE, and our Women's Leadership Program.
Our employees are guided by our MVB's (Most Valued Behaviors) of speed, dedication, problem solving, passion, entrepreneurship, and customer centricity. We have a peer recognition program which allows employees to recognize others who are demonstrating our MVB's. Our leaders also recognize employees through our quarterly awards program. SunOpta conducts an organizational health survey three times during the year to check the pulse of our workforce and look for areas of improvement through the lens of all our employees. By enhancing communication efforts such as quarterly town halls and monthly all-company huddles, employees feel a part of SunOpta as a whole, not just their individual department or location. These initiatives led to an overall increase in employee engagement.
As of December 31, 2020, we employed 1,451 full-time employees and 430 seasonal employees in North America. Our average employee has seven years of service and our annual voluntary turnover of employees at the director level or above was 5.5%. In 2020, we accomplished our goal of voluntary turnover of less than 15%, ending the year at 14.6% across the Company. Except for our employees at our Jacona, Mexico facility, none of our employees are represented by a collective bargaining group. We continue to focus on increasing employee retention by implementing retention programs and initiatives to increase employee engagement. Employee health and safety is paramount to our success. In addition to our safety training and initiatives at our manufacturing facilities, we track our Total Recordable Incident Rate (TRIR) which ended the year at 1.55, compared to a goal of 1.68.
SUNOPTA INC. 7 January 2, 2021 10-K
2020 was an unprecedented year in many ways, most notably due to the COVID-19 global pandemic. We have been successful in mitigating the effect on our employees by proactively implementing measures early and thoroughly and keeping up to date on recommendations and guidance from the Centers for Disease Control and Prevention (CDC), state, provincial, and local health departments. Commencing in March 2020, we implemented daily health screening questionnaires, temperature screening, social distancing and mask requirements for all employees and visitors at our locations. Our management team held regular meetings to discuss health and safety protocols, best practices, and address employee concerns. We increased our cleaning protocols, personal protective equipment, and cleaning supplies across all locations. Modifications to workspaces and physical barriers in work areas were established where needed and non-essential travel was restricted. An internal internet site was developed to house information on COVID-19 and employee assistance resources. Employees who could perform their jobs from home were moved to a remote working arrangement. In addition, we implemented special pay and leave policies and made emergency assistance grants available to mitigate financial implications to our employees impacted by COVID-19 or childcare issues.
Regulations
We are subject to a wide range of governmental regulations and policies in the U.S., Canada, and Mexico. These laws, regulations and policies are implemented, as applicable in each jurisdiction, on the national, federal, state, provincial and local levels. For example, we are affected by laws and regulations related to seed, fertilizer, and pesticides; the purchasing, harvesting, transportation and warehousing of agricultural products; the processing, packaging, and sale of food and beverages, including wholesale operations; and product labeling and marketing, food safety and food defense. We are also affected by government-sponsored price supports, acreage set aside programs and a number of environmental regulations.
U.S. Regulations
Our activities in the U.S. are subject to regulation by various governmental agencies, including the Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Environmental Protection Agency ("EPA"), the U.S. Department of Agriculture ("USDA"), Occupational Safety and Health Administration ("OSHA"), and the Departments of Commerce and Labor, as well as voluntary regulation by other bodies. Various state and local agencies also regulate our activities.
USDA National Organic Program and Similar Regulations
We currently manufacture and distribute a number of organic products that are subject to the standards set forth in the Organic Foods Production Act and the regulations adopted thereunder by the National Organic Standards Board. In addition, our organic products may be subject to various state regulations. We believe that we are in material compliance with the organic regulations applicable to our business, and we maintain an organic testing and verification process. Generally, organic food products are produced using:
agricultural management practices intended to promote and enhance ecosystem health;
ingredients produced without genetically engineered seeds or crops, sewage sludge, long-lasting pesticides, herbicides, or fungicides; and
food processing practices intended to protect the integrity of the organic product and disallow irradiation, genetically modified organisms, or synthetic preservatives.
After becoming certified, organic operations must retain records concerning the production, harvesting, and handling of agricultural products that are to be sold as organic for a period of five years. Any organic operation found to be in violation of the USDA organic regulations is subject to potential enforcement actions, which can include financial penalties or suspension or revocation of their organic certificate.
Food Safety, Labeling and Packaging Regulations
As a manufacturer and distributor of food products, we are subject to the Federal Food, Drug and Cosmetic Act, the Fair Packaging and Labeling Act and regulations promulgated thereunder by the FDA and the FTC. This regulatory framework governs the manufacture (including composition and ingredients), labeling, packaging, and safety of food in the U.S.
SUNOPTA INC. 8 January 2, 2021 10-K
State and local statutes and regulations may impose additional food safety, labeling, and packaging requirements. For instance, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly referred to as "Proposition 65") requires, with a few exceptions, that a specific warning appear on any consumer product sold in California that contains a substance, above certain levels, listed by that state as having been found to cause cancer or birth defects. We believe we are in material compliance with state and local statutes and regulations as they apply to our business.
Environmental Regulations
We are also subject to various U.S. federal, state, and local environmental regulations. Some of the key environmental regulations in the U.S. include, but are not limited to, the following:
Air quality regulations - air quality is regulated by the EPA and certain city/state air pollution control groups. Emission reports are filed annually.
Waste treatment/disposal regulations - solid waste is either disposed of by a third-party or, in some cases, we have a permit to haul and apply the sludge to land. Agreements exist with local city sewer districts to treat waste at specified levels of Biological Oxygen Demand ("BOD"), Total Suspended Solids ("TSS") and other constituents. This can require weekly/monthly reporting as well as annual inspection.
Sewer regulations - we have agreements with the local city sewer districts to treat waste at specified limits of BOD and TSS. This requires weekly/monthly reporting as well as annual inspection.
Hazardous chemicals regulations - various reports are filed with local, city, and state emergency response agencies to identify potential hazardous chemicals being used in our U.S. facilities.
Storm-water - all of our U.S. facilities are inspected annually and must comply with an approved storm-water plan to protect water supplies.
Employee Safety Regulations
We are subject to certain safety regulations, including OSHA regulations. These regulations require us to comply with certain manufacturing safety standards to protect our employees from accidents. We believe that we are in material compliance with all employee safety regulations applicable to our business.
Canadian and Other Non-U.S. Regulations
In Canada, the sale of food is currently regulated under various federal and provincial laws, principally (but not limited to) the Safe Food for Canadians Act ("SFCA"), the Food and Drugs Act ("FADA"), the Canada Consumer Product Safety Act ("CCPSA"), the Canadian Food Inspection Agency Act ("CFIAA") and the Canadian Environmental Protection Act, 1999 ("CEPA"), along with their supporting regulations. The following is a brief summary of each of these statutes to the extent that they apply or potentially apply to the Company and its operations:
Safe Food for Canadians Regulations ("SFCR") (under the SFCA) - the SFCR came into effect on January 15, 2019, and consolidated 14 sets of existing food regulations into a single set of regulations which governs all imported, exported, or inter-provincially traded food products. Some provisions of the SFCA and SFCR also apply intra-provincially. Notably, SFCR replaced the Organic Products Regulations, 2009, the Processed Products Regulations and, to the extent that they related to food products, the Consumer Packaging and Labeling Act and its supporting regulations. Principal elements of the SCFR that may impact the Company include licensing requirements, preventative controls, traceability requirements, commodity-specific requirements, reporting requirements and timelines, an export certificate request process, packaging and labeling requirements to ensure food safety and prevent false or misleading labeling, regulation of the use of grades and grade names, standards of identity and expansion of the certification process for organic products, and other requirements. Timelines for complying with the SFCR requirements vary by food, activity, and size of the food business.
Food and Drug Regulations (under the FADA) - food and drugs are subject to specific regulatory requirements, including composition (such as food additives, fortification, and food standards), packaging, labeling, advertising and marketing, and licensing requirements. New requirements regarding nutrition and ingredient labeling and food color were introduced in 2016. In 2020, the Canadian Food Inspection Agency (the "CFIA") announced that in connection with its initiative to develop a more modern food labelling system, it will be moving forward with additional provisions that facilitate innovation and remove duplicative requirements.
SUNOPTA INC. 9 January 2, 2021 10-K
Canadian Food Inspection Agency Act ("CFIAA") - the CFIAA grants power to the CFIA, which is tasked with the administration and enforcement of certain Canadian food legislation. By virtue of the CFIAA and the SFCA, the CFIA has the power to inspect and, if deemed necessary, recall certain products, including fresh fruit and vegetables, processed foods and organic foods, if the Minister of Health believes that such products pose a risk to the public, animal or plant health.
Substance Regulations - various regulations under CEPA regulate the importation and use of certain substances in Canada. For example, prior to the importation and use in products, the importer must ensure that all ingredients are found on the Domestic Substances List ("DSL") maintained by Environment and Climate Change Canada. In the event that an ingredient is not found on the DSL, then subject to the amount of the substance imported into Canada and used in products sold in Canada, a filing may become necessary under the New Substances Notification Regulations.
Canada Consumer Product Safety Act ("CCPSA") - the CCPSA provides oversight and regulation of consumer products with respect to manufacturers, importers, and retailers. It includes, without limitation, the ability to require product recalls, mandatory incident reporting, document retention requirements, increased fines and penalties, and packaging and labeling requirements. While the CCPSA does not apply to food, it does apply to its packaging with respect to safety. It is possible that there will be amendments introduced to the FADA, to capture the essence of the regulatory oversight found in the CCPSA. We have no way of anticipating if and when that may occur.
In Mexico, our frozen fruit processing facility is subject to Mexican regulations, including regulations regarding processing, packaging and sales of food products, labor relations and profit-sharing with employees.
Environmental Hazards
We believe that, with respect to both our operations and real property, we are in material compliance with environmental laws at all of our locations.
Intellectual Property
The nature of a number of our products and processes requires that we create and maintain patents, trade secrets and trademarks. Our policy is to protect our technology, brands, and trade names by, among other things, filing patent applications for technology relating to the development of our business in the U.S. and in selected foreign jurisdictions, registering trademarks in the U.S., Canada and selected foreign jurisdictions where we sell products, and maintaining confidentiality agreements with outside parties and employees.
Our continued success depends, in part, on our ability to protect our products, trade names and technology under U.S. and international patent laws and other intellectual property laws. We believe that we own or have sufficient rights to use all of the proprietary technology, information and trademarks necessary to manufacture and market our products; however, there is always a risk that patent applications relating to our products or technologies will not result in patents being issued, or, if issued, will be later challenged by a third party, or that current or additional patents will not afford protection against competitors with similar technology.
We also rely on trade secrets and proprietary know-how and confidentiality agreements to protect certain technologies and processes. However, even with these steps taken, our outside partners and contract manufacturers could gain access to our proprietary technology and confidential information. All employees are required to adhere to internal policies, which are intended to further protect our technologies, processes, and trade secrets.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), are available free of charge on our website at www.sunopta.com as soon as reasonably practicable after we file such information electronically with, or furnish it to, the U.S. Securities and Exchange Commission (the "SEC") and applicable Canadian Securities Administrators (the "CSA").
SUNOPTA INC. 10 January 2, 2021 10-K

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Our business, operations and financial condition are subject to various risks and uncertainties, including those described below and elsewhere in this report. We believe the most significant of these risks and uncertainties are described below, any of which could adversely affect our business, financial condition and results of operations and could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Any such adverse effect could cause the trading price of our common stock to decline, and our shareholders may lose all or part of their investment. There may be additional risks and uncertainties not presently known to us or that we currently consider immaterial. Consequently, you should not consider the following to be a complete discussion of all possible risks or uncertainties applicable to our business. These risk factors should be read in conjunction with the other information in this report and in the other documents that we file from time to time with the SEC and the CSA.
Risks Related to Our Business
The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our business and financial results
Our business and financial results may be negatively impacted by the 2019 novel coronavirus (COVID-19) pandemic, which could cause significant volatility in customer demand for our products, changes in consumer behavior and preference, disruptions in our supply chain operations, disruptions to our business expansion plans, limitations on our employees' ability to work and travel, significant changes in the economic conditions in markets in which we operate and related currency and commodity volatility, and pressure on our liquidity. In addition, while we have not experienced any material interruptions in our plant operations to date, and our facilities have largely been exempt from government closure orders where applicable, it is possible during the pandemic that we could experience employee absences that cause interruptions in our plant operations, and we may not be exempt from future government closure orders depending on the specific circumstances. Despite our efforts to manage these impacts, they also depend on factors beyond our knowledge or control, including the duration and severity of the COVID-19 pandemic, actions taken to contain its spread and mitigate its public health effects, and the availability of vaccines and their effectiveness against new variants of the virus. As a result, we cannot reasonably estimate the negative impact of the COVID-19 pandemic on our business and financial results, but the impact could be material and last for an extended period.
Product liability suits, recalls and threatened market withdrawals, could have a material adverse effect on our business
Many of our products are susceptible to harmful bacteria, and the sale of food products for human consumption involves the risk of injury or illness to consumers. Such injuries may result from inadvertent mislabeling, tampering by unauthorized third parties, faulty packaging materials, product contamination, or spoilage. Under certain circumstances, our customers or we may be required to recall or withdraw products, which may lead to a material and adverse effect on our business, financial condition or results of operations. Our customers may also voluntarily recall or withdraw a product we manufactured or packaged, even without consulting us, which could increase our potential liability and costs and result in lost sales. A product recall or withdrawal could result in significant losses due to the costs of the recall, the destruction of product inventory, and lost sales due to the unavailability of products for a period of time. In addition, a recall or withdrawal may cause us to lose future revenues from, or relationships with, one or more material customers, and the impact of the recall or withdrawal could affect our customers' willingness to continue to purchase related or unrelated products from us or could otherwise hinder our ability to grow our business with those customers. We could also be forced to temporarily close one or more production facilities.
Even if a situation does not necessitate a recall or market withdrawal, product liability claims might be asserted against us. If a product recall or withdrawal were to lead to a decline in sales of a similar or related product sold by a customer or other third party, that party could also initiate litigation against us. While we are subject to governmental inspection and regulations and believe our facilities and those of our co-packers comply in all material respects with all applicable laws and regulations, if the consumption of any of our products causes, or is alleged to have caused, a health-related illness in the future, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm could adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image.
Moreover, future claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. Further, we may incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a further product recall could have a material and adverse effect on our business, financial condition and results of operations.
SUNOPTA INC. 11 January 2, 2021 10-K
Food safety concerns and instances of food-borne illnesses caused by third parties could harm our business
Our internal processes and training may not be fully effective in preventing contamination of food products that could lead to food-borne illnesses. We rely on third-party suppliers and distributors, which increases the risk that food-borne illness incidents (such as e.coli, salmonella, or listeria) could occur outside of our control and at multiple locations. If consumers lose confidence in the safety and quality of our products or organic products generally, even in the absence of a recall or a product liability case, our business, financial condition and results of operations could be materially and adversely affected. Instances of food-borne illnesses, whether real or perceived, and whether or not traceable to our operations or the result of our actions or omissions, could cause negative publicity about us or our products, which could adversely affect sales. Food safety concerns and instances of food-borne illnesses and injuries caused by contaminated products sold by third parties could cause customers to shift their preferences, even if no food-borne illnesses or injuries are traced to our products. As a result, our sales may decline. Loss of customers as a result of these health concerns or negative publicity could harm our business, financial condition and results of operations.
Litigation and regulatory enforcement concerning marketing and labeling of food products could adversely affect our business and reputation
The marketing and labeling of any food product in recent years has brought increased risk that consumers will bring class action lawsuits and that the FTC and/or state attorneys general will bring legal action concerning the truth and accuracy of the marketing and labeling of the product. Examples of claims that may be asserted in a consumer class action lawsuit include fraud, unfair trade practices, and breach of state consumer protection statutes (such as Proposition 65 in California). The FTC and/or state attorneys general may bring legal actions that seek to remove a product from the marketplace and/or impose fines and penalties. Even if not merited, class claims, actions by the FTC or state attorneys general enforcement actions could be expensive to defend and could adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image, which could have a material and adverse effect on our business, financial condition and results of operations.
We are subject to significant food and health regulations
We are affected by a wide range of governmental regulations in the U.S., Canada, and Mexico. These laws and regulations are implemented at the national level (including, among others, federal laws and regulations in the U.S. and Canada) and by local subdivisions (including, among others, state laws in the U.S. and provincial laws in Canada).
Examples of laws and regulations that affect us include laws and regulations applicable to:
the use of seed, fertilizer and pesticides;
the purchasing, harvesting, transportation and warehousing of agricultural products;
the processing and sale of food, including wholesale operations; and
the product labeling and marketing of food and food products, food safety and food defense.
These laws and regulations affect various aspects of our business. For example, certain food ingredient products manufactured by SunOpta may require pre-market approval by the FDA that the ingredient is "generally recognized as safe," or "GRAS." We believe that most food ingredients for which we have commercial rights are GRAS. However, this status cannot be determined until actual formulations and uses are finalized. As a result, we may be adversely impacted if the FDA determines that our food ingredient products do not meet the criteria for GRAS.
In addition, certain USDA regulations set forth the minimum standards producers must meet in order to have their products labeled as "certified organic", and we currently manufacture a number of organic products that are covered by these regulations. While we believe our products and our supply chain are in compliance with these regulations, changes to food regulations may increase our costs to remain in compliance. We could lose our "organic" certification if a facility becomes contaminated with non-organic materials or if we do not use raw materials that are certified organic. The loss of our "organic" certification could materially and adversely affect our business, financial condition and results of operations.
Our business is also required to comply with the Food Safety Modernization Act ("FSMA") and the FDA's implementing regulations. FSMA requires, among other things, that food facilities conduct a contamination hazard analysis, implement risk-based preventive controls and develop track-and-trace capabilities. If we are found to be in violation of applicable laws and regulations in these areas, we could be subject to civil remedies, including fines, injunctions or recalls, as well as potential criminal sanctions, any of which could have a material adverse effect on our business.
SUNOPTA INC. 12 January 2, 2021 10-K
Our business is subject to the Perishable Agricultural Commodities Act ("PACA"). PACA regulates fair trade standards in the fresh produce industry and governs our purchases of fresh produce and sales of frozen produce. We source fresh produce under licenses issued by the USDA, as required by PACA. Our failure to comply with the PACA requirements could, among other things, result in civil penalties, suspension or revocation of our licenses to sell produce, and in certain cases, criminal prosecution, which could have a material and adverse effect on our business, financial condition and results of operations.
Changes in any government laws and regulations applicable to our operations could increase our compliance costs, negatively affect our ability to sell certain products or otherwise adversely affect our results of operations. In addition, while we believe we are in material compliance with all laws and regulations applicable to our operations, we cannot assure you that we have been, or will at all times be, in compliance with all food production and health requirements, or that we will not incur material costs or liabilities in connection with these requirements. Our failure to comply with any laws, regulations or policies applicable to our business could result in fines, lawsuits, enforcement actions, penalties or loss of the ability to sell certain products, any of which could materially and adversely affect our business, financial condition and results of operations.
We may not realize some or all of the anticipated benefits of our capital investment or restructuring plans in the anticipated time frame or at all
We depend on our ability to evolve and grow, and as changes in our business environments occur, we may adjust our strategic business plans, from time to time, to meet these changes. Capital investment and restructuring programs often require a substantial amount of management, operational, and financial resources, which may divert our attention and resources from existing core businesses, potentially disrupting our operations and adversely affecting our relationships with suppliers and customers. In addition, delays and unexpected costs or changes in demand and pricing may occur that could result in our not realizing all or any of the anticipated benefits on our expected timetable or at all, and there can be no assurance that any benefits we realize from these capital investments or restructuring efforts will be sufficient to offset the costs that we may incur.
Our operations are subject to the general risks associated with acquisitions and divestitures
We have made several acquisitions and divestitures in recent years that align with our strategic initiative of delivering long-term value to shareholders. We regularly review strategic opportunities to grow through acquisitions and to divest non-strategic assets. Potential risks associated with these transactions include the inability to consummate a transaction on favorable terms, the diversion of management's attention from other business concerns, the potential loss of key employees and customers of current or acquired companies, the inability to integrate or divest operations successfully, the possible assumptions of unknown liabilities, potential disputes with buyers or sellers, potential impairment charges if purchase assumptions are not achieved, and the inherent risks in entering markets or lines of business in which the Company has limited or no prior experience. Any or all of these risks could impact our financial results and business reputation. In addition, acquisitions outside the U.S. or Canada may present unique challenges and increase our exposure to the risks associated with foreign operations.
We may require additional capital, which may not be available on favorable terms or at all
We have grown via a combination of internal growth and acquisitions requiring significant financial resources. Our ability to raise capital, through equity or debt financing, is directly related to our ability to both continue to grow and improve returns from our operations. Debt or equity financing may not be available to us on favorable terms or at all. In addition, any future equity financing would dilute our current shareholders and may result in a decrease in our share price if we are unable to realize adequate returns. We may not be able to continue to fund internal growth and/or acquire complementary businesses without continued access to capital resources.
Impairment charges related to long-lived assets or goodwill could adversely impact our financial condition and results of operations
As a result of past business acquisitions, a significant portion of our total assets is comprised of property, plant and equipment and intangible assets. In addition, prior to fiscal 2019 we had recognized accumulated impairment losses of $213.8 million related to goodwill. We are required to perform impairment tests of our long-lived assets and goodwill annually, or at any time when events occur that could affect the value of these assets. We may engage in additional acquisitions, which could result in our recognition of additional long-lived assets and goodwill. If the financial performance of the acquired businesses does not meet our expectations, we could be required to record significant impairments to long-lived assets and/or goodwill, which could materially and adversely impact our business, financial condition and results of operations.
SUNOPTA INC. 13 January 2, 2021 10-K
We operate in a highly competitive industry
We operate businesses in the highly competitive food industry in the U.S., Canada and Mexico. We compete with large U.S. and international food ingredient and consumer-packaged food companies. These competitors may have financial resources larger than ours and may be able to benefit from economies of scale, pricing advantages and greater resources to launch new products that compete with our offerings. We have little control over and cannot otherwise affect these competitive factors. If we are unable to effectively respond to these competitive factors or if the competition in any of our product markets results in price reductions or decreased demand for our products, our business, financial condition and results of operations may be materially and adversely affected.
Our customers generally are not obligated to continue purchasing products from us
Many of our customers buy from us under purchase orders, and we generally do not have long-term agreements with, or commitments from, these customers for the purchase of products. We cannot provide assurance that our customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Decreases in our customers' sales volumes or orders for products supplied by us may have a material adverse effect on our business, financial condition and results of operations.
Loss of a key customer could materially reduce revenues and earnings
Our relationships with our key customers are critical to the success of our business and our results of operations. Our ten largest customers accounted for approximately 67% of consolidated revenues for the year ended January 2, 2021. The loss, decrease or cancellation of business with any of our large customers could materially and adversely affect our business, financial condition and results of operations.
Consumer food preferences are difficult to predict and may change
Our success depends, in part, on our ability and our customers' ability to offer products that anticipate the tastes and dietary habits of consumers and appeal to their preferences on a timely and affordable basis. A significant shift in consumer demand away from our products or products that utilize our integrated foods platform, or a failure to maintain our current market position, could reduce our sales and harm our business. Consumer trends change based on a number of factors, including nutritional values, a change in consumer preferences or general economic conditions. Additionally, there is a growing focus among some consumers to buy local food products in an attempt to reduce the carbon footprint associated with transporting food products from longer distances, which could result in a decrease in the demand for food products and ingredients that we import from other countries or transport from remote processing locations or growing regions. Further, failures by us or our competitors to deliver quality products could erode consumer trust in the organic certification of foods. These changes could lead to, among other things, reduced demand and price decreases, which could have a material adverse effect on our business, financial condition and results of operations.
If we do not manage our supply chain effectively, our operating results may be adversely affected
Our supply chain is complex. We rely on suppliers for our raw materials and for the packaging and distribution of many of our products. The inability of any of these suppliers to deliver or perform for us in a timely or cost-effective manner could cause our operating costs to rise and our margins to fall. Many of our products are perishable and require timely processing and transportation to our customers. Additionally, many of our products can only be stored for a limited amount of time before they spoil and cannot be sold. We must continuously monitor our inventory and product mix against forecasted demand to reduce the risk of not having adequate supplies to meet consumer demand or the risk of having too much inventory that may reach its expiration date. If we are unable to manage our supply chain effectively and ensure that our products are available to meet consumer demand, our operating costs could increase and our margins could fall, which could have a material adverse effect on our business, financial condition and results of operations.
Some of our operations are subject to seasonal supply fluctuations. For example, we purchase strawberries and other fruit from growers in California and Mexico during the peak growing season, which occurs during the first two quarters of the year. As a result, our costs may be higher during these periods. We may not be successful in counteracting or smoothing out the effects of seasonality, and we expect that certain parts of our operations will continue to remain subject to significant seasonality.
Part of our supply source also depends in part on a seasonal, temporary workforce comprised primarily of migrant workers. Changes in immigration laws or policies that discourage migration to the U.S. and political or other events (such as war, terrorism or health emergencies) that make it more difficult for individuals to immigrate to or migrate throughout the U.S. could adversely affect the migrant worker population and reduce the workforce available for farms and production facilities in the U.S. Additionally, increased competition from other industries for migrant workers could increase our costs and adversely affect our business, financial condition and results of operations.
SUNOPTA INC. 14 January 2, 2021 10-K
Volatility in the prices of raw materials, packaging, freight, fuel and energy could increase our cost of sales and reduce our gross margins
Raw materials represent a significant portion of our cost of sales. Our cost to purchase raw materials, such as fruits and other commodities, packaging, freight, fuel, and energy, can fluctuate depending on many factors, including weather patterns, economic and political conditions, and pricing volatility. In addition, we must compete for limited supplies of these raw materials and inputs with competitors having greater resources than we have. If our input costs increase due to any of the above factors, we may not be able to pass along the increased costs to our customers, which could have a material adverse effect on our business, financial condition and results of operations.
Our future results of operations may be adversely affected by the availability of organic and non-GMO ingredients
Our ability to ensure a continuing supply of organic and non-GMO ingredients at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow organic and non-GMO crops, climate conditions, changes in national and world economic conditions, currency fluctuations and forecasting adequate need of seasonal ingredients.
The organic and non-GMO ingredients that we use in the production of our products (including, among others, fruits, vegetables, nuts, and grains) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, water scarcity, temperature extremes, frosts, earthquakes and pestilences. Natural disasters and adverse weather conditions (including the potential effects of climate change) can lower crop yields and reduce crop size and crop quality, which in turn could reduce our supplies of organic or non-GMO ingredients or increase the prices of organic or non-GMO ingredients. If our supplies of organic or non-GMO ingredients are reduced, we may not be able to find enough supplemental supply sources on favorable terms, if at all, which could impact our ability to supply product to our customers and adversely affect our business, financial condition and results of operations.
Adverse weather conditions and natural disasters could impose costs on our business
Raw materials for our products are vulnerable to adverse weather conditions and natural disasters, including windstorms, hurricanes, earthquakes, floods, droughts, fires, and temperature and precipitation extremes, some of which are common but difficult to predict, as well as crop disease and infestation. Severe weather conditions may occur with higher frequency or may be less predictable in the future due to the effects of climate change. Unfavorable growing conditions could reduce both crop size and crop quality. In extreme cases, entire harvests may be lost in some geographic areas. Adverse weather conditions or natural disasters may adversely affect our supply of one or more food products or prevent or impair our ability to ship products as planned. These factors can increase acquisition and production costs, decrease our sales volumes and revenues, and lead to additional charges to earnings, which may have a material adverse effect on our business, financial condition and results of operations.
A significant portion of our strawberry supply is sourced from California, which has experienced severe drought conditions from time to time, resulting in lost crops and water restrictions for growers in California. As strawberry growers are largely dependent on well water, diminishing groundwater resources could also lead to a reduced strawberry supply. Drought conditions are a recurring feature of California's climate, and existing and future water conservation laws could negatively impact the agricultural industry in California and have a material adverse effect on our business, financial condition and results of operations.
In recent years, California has experienced numerous wildfires. In addition to the potential for direct damage to agriculture from wildfires, heavy smoke from large wildfires can adversely affect crops, delay harvests, and adversely affect local agriculture in other ways. Due to recurring drought conditions, California could continue to experience significant wildfires, which could negatively impact the agricultural industry in California and have a material adverse effect on our business, financial condition and results of operations.
An interruption at one or more of our manufacturing facilities could negatively affect our business, and our business continuity plan may prove inadequate
We own or lease, manage and operate a number of manufacturing, processing, packaging, storage and office facilities. We may be unable to accept and fulfill customer orders as a result of disasters, epidemics, business interruptions or other similar events. Some of our inventory and manufacturing facilities are located in areas that are susceptible to harsh weather, and the production of certain of our products is concentrated in a few geographic areas. In addition, we store chemicals used in the equipment for quick freezing of fruit or used for cooling processes during ingredient processing, and our storage of these chemicals could lead to risk of leaks, explosions or other events. Although we have a business continuity plan, our business continuity might not address all of the issues we may encounter in the event of a disaster or other unanticipated issues. Our business interruption insurance may not adequately compensate us for losses that may occur from any of the foregoing. In the event that a natural disaster, or other catastrophic event were to destroy any part of any of our facilities or interrupt our operations for any extended period of time, or if harsh weather or epidemics prevent us from delivering products in a timely manner, our business, financial condition and results of operations could be materially adversely affected. In addition, if we fail to maintain our labor force at one or more of our facilities, we could experience delays in production or delivery of our products, which could also have a material adverse effect on our business, financial condition and results of operations.
SUNOPTA INC. 15 January 2, 2021 10-K
Technology failures could disrupt our operations and negatively impact our business
In the normal course of business, we rely on information technology systems to process, transmit, and store electronic information. For example, our production and distribution facilities and inventory management utilize information technology to increase efficiencies and limit costs. Information technology systems are also integral to the reporting of our results of operations. Furthermore, a significant portion of the communications between, and storage of personal data of, our personnel, customers, consumers, and suppliers, depends on information technology. Our information technology systems may be vulnerable to a variety of interruptions as a result of updating our enterprise platform or due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues. These events could compromise our confidential information, impede, or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss of revenue, litigation and reputational damage.
Our reputation and our relationships with customers, consumers and suppliers would be harmed if our systems are accessed by unauthorized persons
We maintain certain personal data, including personal data regarding our personnel, customers, consumers, and suppliers. This data is maintained on our own systems as well as systems of third parties we use in our operations. If a breach or other breakdown results in the disclosure of confidential or personal information, we may suffer reputational, competitive and/or business harm. While we have implemented administrative and technical controls and taken other preventive actions to reduce the risk of cyber incidents and protect our information technology, our controls and other preventative actions may be insufficient to prevent physical and electronic break-ins, cyber-attacks or other security breaches to our computer systems. The costs relating to any data breach could be material, and we currently do not carry insurance against the risk of a data breach. Any data breach or other access of our systems by unauthorized persons could have a material adverse effect on our business, financial condition and results of operations.
Changes in laws and regulations of privacy and protection of user data could adversely affect our business
We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of proprietary information and personally-identifying information, including the California Consumer Privacy Act of 2018. The regulatory environment surrounding information security and data privacy varies from jurisdiction to jurisdiction and is constantly evolving and increasingly demanding. The restrictions imposed by such laws continue to develop and may require us to incur substantial costs, adopt additional compliance measures, such as notification requirements and corrective actions in the event of a security breach, and/or change our current or planned business models.
If our current security measures and data protection policies and controls are found to be non-compliant with relevant laws or regulations in any jurisdiction where we conduct business, we may be subject to penalties and fines, and may need to expend significant resources to implement additional data protection measures. In addition, we may be required to modify the features and functionality of our system offerings in a way that is less attractive to customers.
If we lose the services of our key executives, our business could suffer
Our prospects depend to a significant extent on the continued service of our key executives, and our continued growth depends on our ability to identify, recruit, and retain and motivate key management personnel. We do not typically carry key person life insurance on our executive officers. If we lose the services of our key executives or fail to identify, recruit, and retain key management personnel, our business, financial condition and results of operations may be materially and adversely impacted.
SUNOPTA INC. 16 January 2, 2021 10-K
If we face labor shortages or increased labor costs, our results of operations and our growth could be adversely affected
Labor is a significant component of the cost of operating our business. Our ability to meet our labor needs while controlling labor costs is subject to external factors, such as employment levels, prevailing wage rates, minimum wage legislation, changing demographics, health and other insurance costs and governmental labor and employment requirements. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline. Increasing our wages could cause our earnings to decrease. If we face labor shortages or increased labor costs because of increased competition for employees from our competitors and other industries, higher employee-turnover rates, unionization of farm workers or increases in the federal- or state-mandated minimum wage, change in exempt and non-exempt status, or other employee benefits costs (including costs associated with health insurance coverage or workers' compensation insurance), our operating expenses could increase and our business, financial condition and results of operations could be materially and adversely affected.
Technological innovation by our competitors could make our food products less competitive
Our competitors include major food ingredient and consumer-packaged food companies that also engage in the development and sale of food and food ingredients. Many of these companies are engaged in the development of food ingredients and other packaged food products and frequently introduce new products into the market. Existing products or products under development by our competitors could prove to be more effective or less costly than our products, which could have a material adverse effect on the competitiveness of our products and our business.
We rely on protection of our intellectual property and proprietary rights
Our success depends in part on our ability to protect our intellectual property rights. We rely primarily on patent, copyright, trademark, and trade secret laws to protect our proprietary technologies. Our policy is to protect our technology by, among other things, filing patent applications for technology relating to the development of our business in the U.S. and in selected foreign jurisdictions.
Our trademarks and brand names are registered in the U.S., Canada and other jurisdictions. We intend to keep these filings current and seek protection for new trademarks to the extent consistent with business needs. We also rely on trade secrets and proprietary know-how and confidentiality agreements to protect certain of the technologies and processes that we use.
The failure of any patents, trademarks, trade secrets or other intellectual property rights to provide protection to our technologies would make it easier for our competitors to offer similar products, which could result in lower sales or gross margins.
Changes in laws or regulations governing foreign trade or taxation could adversely affect our business
Changes in governmental laws or regulations affecting foreign trade or taxation, or the introduction of new laws or regulations, may have a direct or indirect effect on our business or those of our customers or suppliers. Such changes could increase the costs of doing business for the Company, our customers, or suppliers, or restrict our actions, causing our results of operations to be adversely affected.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition and results of operations may be adversely impacted.
Our operations are influenced by agricultural policies
We are affected by governmental agricultural policies such as price supports and acreage set aside programs, and these types of policies may affect our business. The production levels, markets and prices of the grains and other raw products that we use in our business are materially affected by government programs, which include acreage control and price support programs of the USDA. Revisions in these and other comparable programs, in the U.S. and elsewhere, could have a material and adverse effect on our business, financial condition and results of our operations.
We are subject to substantial environmental regulation and policies
We are, and expect to continue to be, subject to substantial federal, state, provincial and local environmental regulations. Some of the key environmental regulations to which we are subject include air quality regulations of the EPA and certain city, state and provincial air pollution control groups, waste treatment/disposal regulations, sewer regulations under agreements with local city sewer districts, regulations governing hazardous substances, stormwater regulations and bioterrorism regulations. For a more detailed summary of the environmental regulations and policies to which we are subject, see "Item 1. Business-Regulation" of this report. Our business also requires that we have certain permits from various state, provincial and local authorities related to air quality, stormwater discharge, solid waste, land spreading and hazardous waste.
SUNOPTA INC. 17 January 2, 2021 10-K
If our safety procedures for handling and disposing of potentially hazardous materials in certain of our businesses were to fail, we could be held liable for any damages that result, and any such liability could exceed our resources. We may be required to incur significant costs to comply with environmental laws and regulations in the future. In addition, changes to environmental regulations may require us to modify our existing plant and processing facilities and could significantly increase the cost of those operations.
The foregoing environmental regulations, as well as others common to the industries in which we participate, can present delays and costs that can adversely affect business development and growth. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, financial condition and results of operations. In addition, any changes to current regulations may impact the development, manufacturing, and marketing of our products, and may have a negative impact on our future results.
Climate change laws could have an impact on our financial condition and results of operations
Legislative and regulatory authorities in the U.S., Canada and internationally will likely continue to consider numerous measures related to climate change and greenhouse gas emissions. In order to produce, manufacture and distribute our products, we and our suppliers use fuels, electricity and various other inputs that result in the release of greenhouse gas emissions. Concerns about the environmental impacts of greenhouse gas emissions and global climate change may result in environmental taxes, charges, regulatory schemes, assessments, or penalties, which could restrict or negatively impact our operations, as well as those of our suppliers, who would likely pass all or a portion of their costs along to us. We may not be able to pass any resulting cost increases along to our customers. Any laws or regulations regarding greenhouse gas emissions or other climate change laws enacted by the U.S., Canada, or any other international jurisdiction where we conduct business could materially and adversely affect our business, financial condition and results of operations.
Fluctuations in exchange rates, interest rates and commodity prices could adversely affect our business, financial condition, results of operations or liquidity
We are exposed to foreign exchange rate fluctuations as our non-U.S.-based operations purchase raw materials and incur operating costs in local currencies. We are exposed to changes in interest rates as a significant portion of our debt bears interest at variable rates. We are exposed to price fluctuations on a number of commodities as we hold inventory. Additional qualitative and quantitative disclosures about these risks can be found in "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" of this report. As a result of these exposures, fluctuations in exchange rates, interest rates, and certain commodities could adversely affect our business, financial condition, results of operations or liquidity.
Our foreign operations and suppliers expose us to additional risks
Our operations and raw material suppliers outside of the U.S. and Canada expose us to certain risks inherent in doing business abroad, including exposure to local laws and regulations, political and civil unrest, and economic conditions. For example, our frozen fruit processing facility in Mexico is located in the State of Michoacán, near areas where there have been incidents of unrest. If we grow our business globally, we may have difficulty anticipating and effectively managing these and other risks, which may adversely impact our business, financial condition and results of operations.
Risks Related to Our Indebtedness
Our level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations
An increase in the level of our indebtedness and the degree to which we are leveraged could adversely affect our business, financial condition and results of operations, including, without limitation, impairing our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, or other general corporate purposes. In addition, we may have to use a substantial portion of our cash flow to pay principal, premium (if any) and interest on our indebtedness, which may reduce the funds available to us for other purposes. If we do not generate sufficient cash flows to satisfy our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing, or delaying capital investments or seeking to raise additional capital. A high level of indebtedness and leverage could also make us more vulnerable to economic downturns and adverse industry conditions and may compromise our ability to capitalize on business opportunities, and to react to competitive pressures as compared to our competitors.
SUNOPTA INC. 18 January 2, 2021 10-K
Our debt and equity agreements restrict how we may operate our business, and our business may be materially and adversely affected if these restrictions prevent us from implementing our business plan
The agreements governing our debt and preferred equity instruments contain restrictive covenants that limit the discretion of our management with respect to certain business matters. These covenants place restrictions on, among other things, our ability to obtain additional debt financing, to create other liens, to complete a merger, amalgamation, or consolidation, to make certain distributions or make certain payments, investments and guarantees and to sell or otherwise dispose of certain assets. These restrictions may hinder our ability to execute on our growth strategy or prevent us from implementing parts of our business plan.
Our business could be materially and adversely affected if we are unable to meet the financial covenant of our credit agreement
Our credit agreement requires us to maintain a minimum fixed charge coverage ratio if excess availability is below certain thresholds. Our ability to comply with the financial covenant under the credit agreement will depend on the success of our businesses, our operating results, and our ability to achieve our financial forecasts. Various risks, uncertainties and events beyond our control could affect our ability to comply with the financial covenant and terms of the credit agreement. Failure to comply with the financial covenant and other terms could result in an event of default and the acceleration of amounts owing under the credit agreement unless we are able to negotiate a waiver. The lenders could condition any such waiver on an amendment to the credit agreement on terms (including, but not limited to, the payment of consent fees) that may be unfavorable to us. If we fail to comply with the financial covenant and we are unable to negotiate a covenant waiver or replace or refinance the credit agreement on favorable terms, our business, financial condition and results of operations will be materially and adversely impacted.
Risks Related to Significant Investors and Shareholder Activism
Our significant investors may have interests that conflict with those of our debtholders and other stakeholders
As at January 2, 2021, Oaktree Capital Management L.P., a private equity investor (together with its affiliates, "Oaktree") held an approximately 19.0% voting interest in the Company and has nominated two members of our Board of Director. In addition, as at January 2, 2021, Engaged Capital, LLC (together with its affiliates, "Engaged Capital") held an approximately 14.5% voting interest in the Company and has nominated one member of our Board.
The interests of Oaktree and Engaged Capital may differ from the interests of our other stakeholders in material respects. For example, Oaktree and Engaged Capital may have an interest in directly or indirectly pursuing acquisitions, divestitures, financings, or other transactions that, in their judgment, could enhance their other equity investments, even though such transactions might involve risks to us, including risks to our liquidity and financial condition. Oaktree and Engaged Capital are in the business of making or advising on investments in companies, including businesses that may directly or indirectly compete with certain portions of our business. They may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
Our other large investors do not have specific rights beyond those of smaller holders of our common shares. However, a concentration of ownership within our large investors could potentially be disadvantageous to, or conflict with, interests of our debtholders or smaller shareholders. In addition, if any significant shareholder were to sell or otherwise transfer all or a large percentage of its holdings, we could find it difficult to raise capital, if needed, through the sale of additional equity securities.
Our business could be negatively impacted as a result of shareholder activism or an unsolicited takeover proposal or a proxy contest
In recent years, proxy contests and other forms of shareholder activism have been directed against numerous public companies. If a proxy contest or an unsolicited takeover proposal is made with respect to us, we could incur significant costs in defending the Company, which would have an adverse effect on our financial results. Shareholder activists may also seek to involve themselves in the governance, strategic direction, and operations of the Company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
SUNOPTA INC. 19 January 2, 2021 10-K
Risks Related to Ownership of our Common Shares
Our share price is subject to significant volatility
Our share price may be highly volatile compared to larger public companies, which increases the chance of larger than normal price swings that could reduce predictability in the price of our common shares and impair investment decisions. In addition, price and volume trading volatility in the stock markets can have a substantial effect on our share price, frequently for reasons other than our operating performance. These broad market fluctuations could adversely affect the market price of our common shares.
Periods of volatility in the overall market and the market price of a company's securities, is often followed by securities class action litigation alleging material misstatements or omissions in disclosures provided to shareholders. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.
Our debt instruments restrict, and our future debt instruments may restrict, our ability to pay dividends to our shareholders, and we do not currently intend to pay any cash dividends on our common shares in the foreseeable future; therefore, our shareholders may not be able to receive a return on their common shares until their shares are sold
We have never paid or declared any cash dividends on our common shares. We do not anticipate paying any cash dividends on our common shares in the foreseeable future because, among other reasons, we currently intend to retain any future earnings to finance the growth of our business. The future payment of dividends will be dependent on factors such as covenant restrictions, cash on hand, or achieving and maintaining profitability, the financial requirements to fund growth, our general financial condition, and other factors we may consider appropriate in the circumstances. Until we pay dividends, which we may never do, our shareholders will not receive a return on their common shares until their shares are sold, and any return will depend on the ability to sell their shares at a price higher than they paid to acquire them.
The future issuance of additional common shares in connection with the exchange of convertible preferred stock, exercise of stock options, participation in our employee stock purchase plan and issuance of additional securities could dilute the value of our common shares
We have unlimited common shares authorized but unissued. Our articles of amalgamation authorize us to issue these common shares, and we may also issue options, rights, warrants and appreciation rights relating to common shares for consideration and on terms and conditions established by the Board in its sole discretion.
The exchange of outstanding convertible preferred stock, exercise of stock-based awards, participation in our employee stock purchase plan, and issuance of additional securities in connection with acquisitions or otherwise could result in dilution in the value of our common shares and the voting power represented thereby. Furthermore, to the extent common shares are issued pursuant to the exchange of outstanding convertible preferred stock, exercise of stock-based awards, participation in our employee stock purchase plan and issuance of additional securities, our share price may decrease due to the additional amount of common shares available in the market. The subsequent sales of these shares could encourage short sales by our shareholders and others, which could place further downward pressure on our share price. Moreover, the holders of our stock options may hedge their positions in our common shares by short selling our common shares, which could further adversely affect our stock price.
On February 22, 2021, Oaktree exchanged all of their shares of Series A Preferred Stock for 12,633,427 shares of our common stock, representing 12.3% of our issued and outstanding common shares on a post-exchange basis.
If securities or industry research analysts do not publish or cease publishing research or reports about our business or if they issue unfavorable commentary or downgrade our common shares, our share price and trading volume could decline
The trading market for our common shares relies in part on the research and reports that securities and industry research analysts publish about us, our industry, our competitors and our business. We do not have any control over these analysts. Our share price and trading volumes could decline if one or more securities or industry analysts downgrade our common shares, issue unfavorable commentary about us, our industry or our business, cease to cover our Company or fail to regularly publish reports about us, our industry or our business.
SUNOPTA INC. 20 January 2, 2021 10-K
A portion of our assets and certain of our directors are located outside of the U.S.; it may be difficult to effect service of process and enforce legal judgments upon us and certain of our directors
A portion of our assets and certain of our directors are located outside of the U.S. As a result, it may be difficult to effect service of process within the U.S. and enforce judgment of a U.S. court obtained against us and certain of our directors. Particularly, our stakeholders may not be able to:
effect service of process within the U.S. on us or certain of our directors;
enforce judgments obtained in U.S. courts against us or certain of directors based upon the civil liability provisions of the U.S. federal securities laws;
enforce, in a court outside of the U.S., judgments of U.S. courts based on the civil liability provisions of the U.S. federal securities laws; or
bring an original action in a court outside of the U.S. to enforce liabilities against us or any of our executive officers and directors based upon the U.S. federal securities laws.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
The following table lists the location, description, ownership and segment of our principal properties:
Location
Facility Description Owned/
Leased Lease Expiry Date
Plant-Based Foods and Beverages
Modesto, California Aseptic beverage processing Leased May 2024
Modesto, California Warehouse Leased May 2024
Alexandria, Minnesota Aseptic beverage processing Owned
Alexandria, Minnesota Ingredient processing Owned
Alexandria, Minnesota Warehouse Owned
Allentown, Pennsylvania Aseptic beverage processing Leased April 2027
Allentown, Pennsylvania Warehouses (2) Leased November 2025
Breckenridge, Minnesota Sunflower processing Owned
Crookston, Minnesota Sunflower processing and roasting operations Owned
Crookston, Minnesota Warehouse Leased September 2022
Grace City, North Dakota Sunflower processing Owned
Fruit-Based Foods and Beverages
Edwardsville, Kansas Frozen fruit processing Owned
Oxnard, California Frozen fruit processing Owned
Oxnard, California Frozen fruit processing Leased December 2029
Jacona, Mexico Frozen fruit processing Owned
Santa Maria, California Frozen fruit processing Leased Exited February 1, 2021
South Gate, California Fruit ingredient processing Leased Monthly
Omak, Washington Fruit snack processing Leased May 2027
St. David's, Ontario Fruit snack processing Leased Monthly
SUNOPTA INC. 21 January 2, 2021 10-K
Corporate Services
Mississauga, Ontario Corporate head office Leased June 2021
Edina, Minnesota Corporate administrative office Leased November 2022
Executive Offices
Our executive head office is located at 2233 Argentia Road, Suite 401, Mississauga, Ontario.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
For a discussion of legal proceedings, see note 23 of the consolidated financial statements at Item 15 of this Form 10-K.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not Applicable.
SUNOPTA INC. 22 January 2, 2021 10-K
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common shares trade in U.S. dollars on The NASDAQ Global Select Market under the symbol "STKL," and in Canadian dollars on the TSX under the symbol "SOY."
As at January 2, 2021, we had approximately 365 shareholders of record. We have never paid cash dividends on our common stock and do not anticipate paying dividends in the foreseeable future. Our future dividend policy will depend on our earnings, capital requirements, and financial condition, requirements of the financial agreements to which we are then a party, and other factors considered relevant by our Board of Directors. The receipt of cash dividends by U.S. shareholders from a Canadian corporation, such as we are, may be subject to Canadian withholding tax.
Equity Compensation Plan Information
The following table provides information as at January 2, 2021, with respect to our common shares that may be issued under the Company's stock incentive and employee share purchase plans:
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
(a) (b) (c)
Equity compensation plans approved by
securities holders:
2013 Stock Incentive Plan 5,822,754 (1) $6.95 (3) 4,987,863
Employee Stock Purchase Plan - 700,916
Equity compensation plans not approved by
securities holders:
CEO Plan 3,204,103 (2) $3.15 (3) -
Total 9,026,857 $5.58 (3) 5,688,779
(1) Represents common shares of the Company issuable in respect of 2,170,780 stock options, 647,299 restricted stock units ("RSUs") and 3,004,675 performance share units ("PSUs") granted to selected employees and directors of the Company.
(2) Represents common shares of the Company issuable in respect of 1,222,243 stock options, 560,292 RSUs and 1,421,568 PSUs granted to the Chief Executive Officer and Chief Financial Officer of the Company.
(3) Vested RSUs and PSUs entitle the holder to receive one common share per unit without payment of additional consideration. Accordingly, these units are disregarded for purposes of computing the weighted-average exercise price.
SUNOPTA INC. 23 January 2, 2021 10-K
Shareholder Return Performance Graph
This performance graph shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing of SunOpta under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
The following graph compares the five-year cumulative shareholder return on our common shares to the cumulative total return of the S&P/TSX Composite and the NASDAQ Industrial Indices for the period which commenced January 1, 2016.
2015 2016 2017 2018 2019 2020
SunOpta Inc. 100.00 103.07 113.30 56.14 36.40 170.61
Nasdaq Industrial Index 100.00 108.38 134.45 130.64 166.92 253.51
S&P/TSX Composite Index 100.00 117.51 124.59 109.32 131.96 134.00
Assumes that $100.00 was invested in our common shares and in each index on January 1, 2016.
SUNOPTA INC. 24 January 2, 2021 10-K

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
The following information has been derived from financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with the consolidated financial statements and related notes thereto prepared in accordance with U.S. GAAP contained at Item 15 of this Form 10-K, as well as the discussion in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Due to the divestiture of Tradin Organic on December 30, 2020, Tradin Organic qualified for reporting as discontinued operations under U.S. GAAP. The information set forth below has been recast on a continuing operations basis for each of the years presented. For additional information regarding discontinued operations, see note 3 to the consolidated financial statements contained at Item 15 of this Form 10-K.
2020 2019 2018 2017 2016
$ $ $ $ $
Revenues 789,213 721,596 783,972 835,763 916,307
Loss from continuing operations (47,302)(3) (13,080)(5) (127,470)(6) (150,632)(7) (54,415)(8)
Loss from continuing operations attributable to common shareholders(1) (57,630)(3) (21,102)(5) (135,379)(6) (158,441)(7) (56,227)(8)
Basic and diluted loss per share from continuing operations (0.65) (0.24) (1.55) (1.83) (0.66)
Total assets 585,615 923,359 896,738 982,173 1,129,558
Bank indebtedness - (4) 241,666 276,776 230,501 199,282
Long-term debt 69,723 238,332 223,002 222,699 228,717
Operating lease liabilities(2) 37,332 66,741 - - -
Long-term liabilities 200 5,268 5,304 12,402 19,678
(1) Loss from continuing operations attributable to common shareholders includes dividends and accretion on preferred stock of $10.3 million, $8.0 million, $7.9 million, $7.8 million and $1.8 million in 2020, 2019, 2018, 2017 and 2016, respectively.
(2) Effective the beginning of fiscal 2019, we adopted ASC Topic 842, Leases, which resulted in the recognition of right-of-use assets and lease liabilities for leases classified as operating leases. As permitted, we elected not to apply the guidance to periods prior to 2019.
(3) Includes a loss of $12.7 million on a foreign currency economic hedge of the euro-denominated cash consideration from the sale of Tradin Organic, a loss of $8.9 million on the early redemption and retirement of our 9.5% senior secured second lien notes due October 2022, and long-lived asset impairment charges of $9.8 million mainly related to the exit from our leased frozen fruit processing facility in Santa Maria, California, and shutdown of a roasting line located at our facility in Crookston, Minnesota.
(4) On December 31, 2020, we entered into a new five-year credit agreement, amending and restating our existing credit agreement that was set to expire on March 31, 2022. Borrowings under the new agreement have been classified under long-term debt.
(5) Includes a gain on sale of our soy and corn business of $44.0 million.
(6) Includes a goodwill impairment charge of $81.2 million related to our Frozen Fruit operations.
(7) Includes a goodwill impairment charge of $115.0 million related to our Frozen Fruit operations, and a charge of $15.0 million for the impairment of long-lived assets associated with the exit from flexible resealable pouch and nutrition bar product lines and operations.
(8) Includes a goodwill impairment charge of $17.5 million related to our sunflower operations, as well as a charge of $1.9 million for the impairment of long-lived assets associated with the closure of a soy extraction facility located in Heuvelton, New York.
SUNOPTA INC. 25 January 2, 2021 10-K

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Financial Information
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section provides analysis of our operations and financial position for the fiscal year ended January 2, 2021 and includes information available to March 3, 2021, unless otherwise indicated herein. It is supplementary information and should be read in conjunction with the consolidated financial statements included elsewhere in this report.
Certain statements contained in this MD&A may constitute forward-looking statements as defined under securities laws. Forward-looking statements may relate to our future outlook and anticipated events or results and may include statements regarding our future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives. In some cases, forward-looking statements can be identified by terms such as "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. Forward-looking statements are also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what we currently expect. These factors are more fully described in the "Risk Factors" section at Item 1A of this Form 10-K.
Forward-looking statements contained in this commentary are based on our current estimates, expectations and projections, which we believe are reasonable as of the 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 these forward-looking statements, and we hereby qualify all our forward-looking statements by these cautionary statements.
Unless otherwise noted herein, all currency amounts in this MD&A are expressed in U.S. dollars. All tabular dollar amounts are expressed in thousands of U.S. dollars, except per share amounts.
Overview
We are a leading company focused on the manufacture of plant-based and fruit-based foods and beverage products for sale to retail, foodservice and branded food customers. The composition of our two continuing operating segments is as follows:
Plant-Based Foods and Beverages - We offer a full line of plant-based beverages and liquid and dry ingredients (utilizing almond, soy, coconut, oat, hemp, and other bases), as well as broths, teas, and nutritional beverages. In addition, we package dry- and oil-roasted inshell sunflower and sunflower kernels, as well as corn-, soy- and legume-based roasted snacks, and we process and sell raw sunflower inshell and kernel for food and feed applications.
Fruit-Based Foods and Beverages - We offer individually quick frozen ("IQF") fruit for retail (including strawberries, blueberries, mango, pineapple, blends, and other berries), IQF and bulk frozen fruit for foodservice (including purées, fruit cups and smoothies), and custom fruit preparations for industrial use. In addition, we offer fruit snacks, including bars, twists, ropes, and bite-sized varieties.
Until December 2020, we had a third operating segment referred to as Global Ingredients. The Global Ingredients operating segment was comprised of our organic ingredient sourcing and production business, Tradin Organic, and our soy and corn business, which were sold in December 2020 and February 2019, respectively, as discussed below under "Recent Developments."
SUNOPTA INC. 26 January 2, 2021 10-K
The segment information in this MD&A is presented on a continuing operations basis, with prior period information recast to reflect the reporting of Tradin Organic as discontinued operations.
Fiscal Year
We operate on a fiscal calendar that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to December 31. Fiscal year 2020 was a 53-week period ending on January 2, 2021. Fiscal years 2019 and 2018 were each 52-week periods ending on December 28, 2019 and December 29, 2018, respectively. Except as otherwise noted in this MD&A, the impact of the additional week on our results of operations for the current period was insignificant relative to the prior period.
Recent Developments
Sale of Tradin Organic
On December 30, 2020, we completed the sale of Tradin Organic, which included its global organic and non-GMO ingredient sourcing operations, together with its consumer-packaged premium juice co-manufacturing business, and ingredient processing facilities.
We received cash consideration from the sale of $373.7 million (€305.1 million), net of cash acquired and debt assumed by the purchaser and subject to post-closing adjustments, and realized a cash loss of $12.7 million on a foreign currency forward contract that was entered into to economically hedge the euro-denominated cash consideration. We recognized a pre-tax gain on sale of $111.8 million, which is included in the earnings from discontinued operations for the year ended January 2, 2021.
In conjunction with the divestiture of Tradin Organic, we were able to reduce our debt by approximately $355 million, including the redemption and retirement of the $223.5 million outstanding principal amount of our 9.5% senior secured second lien notes due October 2022, and repayment of approximately $132 million of the outstanding borrowings under our former Global Credit Facility (as described below under the heading "Liquidity and Capital Resources.")
For further information regarding the sale of Tradin Organic, see note 3 to the consolidated financial statements at Item 15 of this Form 10-K.
Sale of Soy and Corn Business
On February 22, 2019, we completed the sale of our specialty and organic soy and corn business for cash consideration of $66.5 million, which resulted in a pre-tax gain on sale of $44.0 million recognized in other income in 2019. The soy and corn business engaged in seed and grain conditioning and corn milling at five processing facilities located in the U.S. The net proceeds from this transaction were used to repay borrowings under the Global Credit Facility.
For further information regarding the sale of the soy and corn business, see note 4 to the consolidated financial statements at Item 15 of this Form 10-K.
Value Creation Plan
Established in 2016, our Value Creation Plan has been a multi-year, broad-based initiative focused on increasing shareholder value through structural investments in people, processes and assets, together with restructuring activities to streamline operations. In 2020, actions taken under the Value Creation Plan included the consolidation of manufacturing assets in our frozen fruit operations, including the exit from our Santa Maria, California, leased frozen fruit processing facility (completed February 1, 2021), and the consolidation of our corporate office functions into Minneapolis, Minnesota. In 2019 and 2018, measures taken under the Value Creation Plan included the sale of our soy and corn business in 2019 (as described above), and the consolidation of roasted snack operations and related disposal of our former roasting facility in Wahpeton, North Dakota, in 2018. In addition, over the course of the Value Creation Plan, we made a series of organizational changes to our executive and senior management teams, including new Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") appointments, and implemented a number of cost-saving measures and workforce reductions.
We consider that the measures taken in 2020 mark the substantial completion of the Value Creation Plan. In the first quarter of 2021, we expect to incur approximately $1.5 million of additional costs to complete the exit from the Santa Maria facility and transfer production to our other frozen fruit processing facilities. Going forward, our intention is to build on the foundation of the Value Creation Plan to expand the capabilities and capacity within our plant-based food and beverage operations, and to enhance the sales and margin performance of our fruit-based food and beverage operations, while continuing to focus on operational excellence and enhanced food safety and quality.
SUNOPTA INC. 27 January 2, 2021 10-K
The following table summarizes costs incurred by type under the Value Creation Plan that were charged to expense for the years ended January 2, 2021, December 28, 2019 and December 29, 2018:
Employee
Asset recruitment,
impairments retention and
and facility termination Professional
closure costs costs fees Total
$ $ $ $
Selling, general and administrative expenses - 645 1,004 1,649
Other expense 6,367 1,881 - 8,248
Earnings from discontinued operations 365 418 - 783
Total 6,732 2,944 1,004 10,680
Selling, general and administrative expenses - 2,203 1,353 3,556
Other expense 308 5,548 - 5,856
Earnings from discontinued operations - 237 - 237
Total 308 7,988 1,353 9,649
Cost of goods sold 100 - - 100
Selling, general and administrative expenses - 203 410 613
Other expense 1,264 397 - 1,661
Total 1,364 600 410 2,374
For more information regarding the Value Creation Plan, see note 5 to the consolidated financial statements at Item 15 of this Form 10-K.
Impact of COVID-19
We are actively addressing the impacts of the COVID-19 pandemic on our operations. We began to experience impacts to our business and results of operations late in the first quarter of 2020, and these impacts continued throughout the remainder of fiscal 2020. As a result, we saw significant shifts in the mix of our business, resulting in lower demand for our food and beverage products from the foodservice channel due to the full or partial closure of many foodservice outlets, and an increase in demand from retail customers as consumers increased their at-home food and beverage consumption. We saw a return towards normalized levels in the second half of 2020, as more foodservice outlets reopened, and consumers adapted to the evolving environment. However, overall foodservice demand for our products remained below 2019 volume levels and short of our initial expectations for 2020. We expect foodservice demand to continue to be affected by the pandemic until efforts to mitigate the pandemic permit normal operations of the foodservice channel.
To date, we have not experienced any material interruptions in our plant operations due to employee absences, or to our supply chains as a result of the pandemic. Our facilities have been exempt from government closure orders where applicable. In 2020, we incurred incremental costs of approximately $2 million to provide wage premiums and personal protective equipment for our plant employees, and to implement additional cleaning and disinfecting protocols at our facilities.
In March 2020, we experienced a significant foreign exchange impact from a more than 20% depreciation of the Mexican peso against the U.S. dollar. Subsequently, we entered into a combination of foreign currency put and call option contracts (a zero-cost collar) to economically hedge our exposure to fluctuations in the Mexican peso on fruit inventory purchases and operating costs in Mexico.
To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources.
SUNOPTA INC. 28 January 2, 2021 10-K
Overall, based on information available to us as of the date of this MD&A, we believe that we will continue to be able to deliver our products to our customers on a timely basis, while meeting our financial obligations. However, we cannot reasonably estimate the duration and severity of the COVID-19 pandemic or its ultimate impact on the global economy and our business.
Consolidated Results of Operations for Fiscal Years 2020 and 2019
January 2, 2021 December 28, 2019 Change Change
$ $ $ %
Revenues
Plant-Based Foods and Beverages 415,164 361,398 53,766 14.9%
Fruit-Based Foods and Beverages 374,049 349,852 24,197 6.9%
Global Ingredients - 10,346 (10,346) -100.0%
Total revenues 789,213 721,596 67,617 9.4%
Gross Profit
Plant-Based Foods and Beverages 80,497 58,812 21,685 36.9%
Fruit-Based Foods and Beverages 28,580 6,499 22,081 339.8%
Global Ingredients - 192 (192) -100.0%
Total gross profit 109,077 65,503 43,574 66.5%
Segment operating income (loss)(1)
Plant-Based Foods and Beverages 50,780 29,476 21,304 72.3%
Fruit-Based Foods and Beverages (7,321) (26,873) 19,552 72.8%
Global Ingredients - (187) 187 100.0%
Corporate Services (31,151) (26,471) (4,680) -17.7%
Total segment operating income (loss) 12,308 (24,055) 36,363 151.2%
Other expense (income), net 23,393 (40,639) 64,032 157.6%
Earnings (loss) from continuing operations before the following (11,085) 16,584 (27,669) -166.8%
Interest expense, net 30,042 32,765 (2,723) -8.3%
Loss on retirement of debt 8,915 - 8,915 -
Recovery of income taxes (2,740) (3,101) 361 11.6%
Loss from continuing operations(2),(3) (47,302) (13,080) (34,222) -261.6%
Earnings from discontinued operations 124,820 12,322 112,498 913.0%
Net earnings (loss) 77,518 (758) 78,276 10326.6%
Dividends and accretion on preferred stock (10,328) (8,022) (2,306) -28.7%
Earnings (loss) attributable to common shareholders(4) 67,190 (8,780) 75,970 865.3%
(1) When assessing the financial performance of our operating segments, we use an internal measure of operating income/loss that excludes other income/expense items and goodwill impairments determined in accordance with U.S. GAAP. This measure is the basis on which management, including the CEO, assesses the underlying performance of our operating segments.
We believe that disclosing this non-GAAP measure assists investors in comparing financial performance across reporting periods on a consistent basis by excluding items that are not indicative of our operating performance. However, the non-GAAP measure of operating income/loss should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP. The following table presents a reconciliation of segment operating income/loss to "earnings/loss from continuing operations before the following," which we consider to be the most directly comparable U.S. GAAP financial measure.
SUNOPTA INC. 29 January 2, 2021 10-K
Plant-Based Fruit-Based
Foods and Foods and Global Corporate
Beverages Beverages Ingredients Services Consolidated
$ $ $ $ $
January 2, 2021
Segment operating income (loss) 50,780 (7,321 ) - (31,151 ) 12,308
Other income (expense), net (2,721 ) (8,652 ) - (12,020 ) (23,393 )
Earnings (loss) from continuing operations before the following 48,059 (15,973 ) - (43,171 ) (11,085 )
December 28, 2019
Segment operating income (loss) 29,476 (26,873 ) (187 ) (26,471 ) (24,055 )
Other income (expense), net (518 ) (1,028 ) 43,990 (1,805 ) 40,639
Earnings (loss) from continuing operations before the following 28,958 (27,901 ) 43,803 (28,276 ) 16,584
We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income/loss. However, any measure of operating income/loss excluding any or all of these items is not, and should not be viewed as, a substitute for operating income/loss prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.
(2) When assessing our financial performance, we use an internal measure of net earnings/loss determined in accordance with U.S. GAAP that excludes specific items recognized in other income/expense, impairment losses on goodwill and long-lived assets, and other unusual items that are identified and evaluated on an individual basis, which due to their nature or size, we would not expect to occur as part of our normal business on a regular basis. We believe that the identification of these excluded items enhances the analysis of our financial performance of our business when comparing those operating results between periods, as we do not consider these items to be reflective of normal business operations.
The following table presents a reconciliation of adjusted earnings/loss from net earnings/loss, which we consider to be the most directly comparable U.S. GAAP financial measure. In addition, we have prepared this table in a columnar format to present the effects of discontinued operations on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the financial performance of our continuing operations.
SUNOPTA INC. 30 January 2, 2021 10-K
Continuing Operations Discontinued Operations Consolidated
Per Share Per Share Per Share
For the years ended $ $ $ $ $ $
January 2, 2021
Net earnings (loss) (47,302 ) 124,820 77,518
Dividends and accretion on preferred stock (10,328 ) - (10,328 )
Earnings (loss) attributable to common shareholders (57,630 ) (0.65 ) 124,820 1.40 67,190 0.75
Adjusted for:
Gain on sale of discontinued operations(a) - (111,818 ) (111,818 )
Contingent consideration settlement(b) - (2,286 ) (2,286 )
Loss on foreign currency forward contract(c) 12,658 - 12,658
Costs related to Value Creation Plan(d) 9,897 783 10,680
Loss on retirement of debt(e) 8,915 - 8,915
Long-lived asset impairments(f) 2,676 771 3,447
Plant expansion costs(g) 1,883 - 1,883
Other(h) (189 ) (50 ) (239 )
Net income tax effect(i) 255 8,809 9,064
Adjusted earnings (loss) (21,535 ) (0.24 ) 21,029 0.24 (506 ) (0.01 )
December 28, 2019
Net earnings (loss) (13,080 ) 12,322 (758 )
Dividends and accretion on preferred stock (8,022 ) - (8,022 )
Earnings (loss) attributable to common shareholders (21,102 ) (0.24 ) 12,322 0.14 (8,780 ) (0.10 )
Adjusted for:
Gain on sale of soy and corn business(j) (44,027 ) - (44,027 )
Costs related to Value Creation Plan(k) 9,412 237 9,649
Plant expansion costs(l) 311 298 609
Contract manufacturer transition costs(m) - 448 448
Product withdrawal and recall costs(n) 260 - 260
Other(o) (2,728 ) 195 (2,533 )
Net income tax effect(p) 12,394 (397 ) 11,997
Adjusted earnings (loss) (45,480 ) (0.52 ) 13,103 0.15 (32,377 ) (0.37 )
(a) Reflects the pre-tax gain on sale of Tradin Organic recorded in earnings from discontinued operations.
(b) Reflects a gain on the settlement of the remaining earn-out obligation related to a prior acquisition of a premium juice business, which was recorded in earnings from discontinued operations.
(c) Reflects a loss on a foreign currency forward contract to economically hedge the cash consideration from the sale of Tradin Organic, which was recorded in other expense.
(d) Reflects professional fees of $1.0 million and employee retention costs of $0.6 million recorded in SG&A expenses; and long-lived asset impairment and facility closure costs of $6.7 million, and employee termination costs of $3.2 million (offset by the reversal of $0.9 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees), which were recorded in other expense and earnings from discontinued operations.
(e) Reflects the premium paid ($5.3 million) and write-off of unamortized debt issuance costs ($3.6 million) on the redemption and retirement of our second lien notes, which was recorded in non-operating expenses.
(f) Reflects the write-down of owned and right-of-use assets related to the consolidation of roasting lines at our Crookston, Minnesota, facility, and the write-off of obsolete cocoa processing equipment at Tradin Organic, with was recorded in other expense and earnings from discontinued operations.
(g) Reflects start-up costs related to expansion projects within our plant-based ingredient extraction and beverage operations, which were recorded in cost of goods sold.
(h) Other includes a loss of $2.4 million on the settlement of a customer claim related to the recall of certain sunflower products in 2016, net of gains of $2.2 million on the settlement of unrelated matters, and reversal of previously accrued costs related to the withdrawal of certain consumer-packaged products, which was recorded in other income/expense.
(i) Reflects estimated income tax attributable to the gain on sale of Tradin Organic, together with the tax effect of the other preceding adjustments to earnings based on an overall estimated annual effective tax rate of approximately 30% for 2020.
(j) Reflects the gain on sale of the soy and corn business, which was recorded in other income.
(k) Reflects employee retention and relocation costs of $2.2 million, and professional fees of $1.4 million recorded in SG&A expenses; and employee termination costs of $8.6 million (offset by the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees), CEO and CFO recruitment costs of $1.3 million, and facility closure costs of $0.3 million, which was recorded in other expense and earnings from discontinued operations.
(l) Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of Tradin Organic's avocado oil facility in Ethiopia, which were recorded in cost of goods sold and earnings from discontinued operations.
(m) Reflects costs related to the transition of Tradin Organic's premium juice production activities to new contract manufacturers, which were recorded in earnings from discontinued operations.
(n) Reflects product withdrawal and recall costs that were not eligible for reimbursement under insurance policies or exceeded the limits of those policies, including costs related to the recall of certain sunflower kernel products initiated in 2016, which were recorded in other expense.
SUNOPTA INC. 31 January 2, 2021 10-K
(o) Other includes gains on the settlement of certain legal matters and a project cancellation, partially offset by losses on disposal of assets, insurance deductibles, and business development costs, which were recorded in other income/expense and earnings from discontinued operations.
(p) Consolidated reflects the tax effect of the preceding adjustments to earnings and reflects an overall estimated annual effective tax rate of approximately 27% for 2019.
We believe that investors' understanding of our financial performance is enhanced by disclosing the specific items that we exclude to compute adjusted earnings/loss. However, adjusted earnings/loss is not, and should not be viewed as, a substitute for earnings prepared under U.S. GAAP. Adjusted earnings/loss is presented solely to allow investors to more fully understand how we assess our financial performance.
(3) We use a measure of adjusted EBITDA when assessing the performance of our operations, which we believe is useful to investors' understanding of our operating profitability because it excludes non-operating expenses, such as interest and income taxes, and non-cash expenses, such as depreciation, amortization, stock-based compensation and asset impairment charges, as well as other unusual items that affect the comparability of operating performance. We also use this measure to review and assess our progress under the Value Creation Plan and to assess operating performance in connection with our employee incentive programs. We define adjusted EBITDA as segment operating income/loss plus depreciation, amortization, and non-cash stock-based compensation, and excluding other unusual items as identified in the determination of adjusted earnings (refer above to footnote (2)). The following table presents a reconciliation of segment operating income/loss and adjusted EBITDA from net earnings/loss, which we consider to be the most directly comparable U.S. GAAP financial measure. In addition, as described above in footnote (2), we have prepared this table in a columnar format to present the effect of discontinued operations on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the financial performance of our continuing operations.
Continuing Operations Discontinued Operations Consolidated
For the years ended $ $ $
January 2, 2021
Net earnings (loss) (47,302 ) 124,820 77,518
Loss attributable to non-controlling interests(a) - (301 ) (301 )
Gain on sale of discontinued operations(b) - (111,818 ) (111,818 )
Provision for (recovery of) income taxes (2,740 ) 15,885 13,145
Loss on retirement of debt(c) 8,915 - 8,915
Interest expense, net 30,042 2,409 32,451
Other expense (income), net 23,393 (782 ) 22,611
Total segment operating income (loss) 12,308 30,213 42,521
Depreciation and amortization 30,308 4,661 34,969
Stock-based compensation(d) 12,570 540 13,110
Costs related to Value Creation Plan(e) 1,649 - 1,649
Plant expansion costs(f) 1,883 - 1,883
Adjusted EBITDA 58,718 35,414 94,132
December 28, 2019
Net earnings (loss) (13,080 ) 12,322 (758 )
Earnings attributable to non-controlling interests(a) - 154 154
Provision for (recovery of) income taxes (3,101 ) 6,322 3,221
Interest expense, net 32,765 1,912 34,677
Other expense (income), net (40,639 ) 591 (40,048 )
Total segment operating income (loss) (24,055 ) 21,301 (2,754 )
Depreciation and amortization 29,266 4,686 33,952
Stock-based compensation(d) 10,471 1,145 11,616
Costs related to Value Creation Plan(e) 3,556 - 3,556
Plant expansion costs(g) 311 298 609
Contract manufacturer transition costs(h) - 289 289
Adjusted EBITDA 19,549 27,719 47,268
(a) Reflects non-controlling interests in the earnings/loss of certain subsidiaries of Tradin Organic, which is included in earnings from discontinued operations.
(b) Reflects the pre-tax gain on sale of Tradin Organic recorded in earnings from discontinued operations.
(c) Reflects the premium paid ($5.3 million) and write-off of unamortized debt issuance costs ($3.6 million) on the redemption and retirement of our second lien notes, which was recorded in non-operating expenses.
(d) For 2020 and 2019, consolidated stock-based compensation of $13.1 million and $11.6 million, respectively, was recorded in SG&A expenses and earnings from discontinued operations, and the reversal of $0.9 million and $4.1 million, respectively, of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees was recognized in other income.
(e) For 2020, reflects professional fees of $1.0 million (2019 - $1.4 million) and employee retention costs of $0.6 million (2019 - $2.2 million) recorded in SG&A expenses.
(f) Reflects start-up costs related to expansion projects within our plant-based ingredient extraction and beverage operations, which were recorded in cost of goods sold.
(g) Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of Tradin Organic's avocado oil facility in Ethiopia, which were recorded in cost of goods sold and earnings from discontinued operations.
(h) Reflects costs related to the transition of Tradin Organic's premium juice production activities to new contract manufacturers, which were recorded in earnings from discontinued operations.
Although we use adjusted EBITDA as a measure to assess the performance of our business and for the other purposes set forth above, this measure has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our results of operations as reported in accordance with U.S. GAAP. Some of these limitations are:
SUNOPTA INC. 32 January 2, 2021 10-K
adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest payments on our indebtedness;
adjusted EBITDA does not include the recovery/payment of taxes, which is a necessary element of our operations;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and
adjusted EBITDA does not include non-cash stock-based compensation, which is an important component of our total compensation program for employees and directors.
Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing adjusted EBITDA in isolation, and specifically by using other U.S. GAAP and non-GAAP measures, such as revenues, gross profit, segment operating income/loss, earnings and adjusted earnings/loss to measure our operating performance. Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as an alternative to our results of operations or cash flows from operations determined in accordance with U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable to the calculation of a similarly titled measure reported by other companies.
(4) In order to evaluate our results of operations, we use certain non-GAAP measures that we believe enhance an investor's ability to derive meaningful period-over-period comparisons and trends from our results of operations. In particular, we evaluate our revenues on a basis that excludes the effects of fluctuations in commodity pricing and the impacts of business acquisitions and divestitures. In addition, we exclude specific items from our reported results that due to their nature or size, we do not expect to occur as part of our normal business on a regular basis. These items are identified above under footnote (2), and in the discussion of our results of operations below. These non-GAAP measures are presented solely to allow investors to more fully assess our results of operations and should not be considered in isolation of, or as substitutes for an analysis of our results as reported under U.S. GAAP.
Revenues for the year ended January 2, 2021 increased by 9.4% to $789.2 million from $721.6 million for the year ended December 28, 2019. Excluding the impact on revenues of changes in commodity-related pricing (an increase in revenues of $12.4 million) and the 53rd week of sales in fiscal 2020 (an increase in revenues of $6.2 million), partially offset by the sale of the soy and corn business (a net decrease in revenues of $10.3 million), revenues increased by 8.1% in 2020, compared with 2019. The increase in revenues on an adjusted basis reflected the expansion of plant-based beverage and broth offerings for retail customers, growth in plant-based ingredient extraction volumes, and increased retail volumes of frozen fruit, partially offset by lower volumes of plant-based beverage, frozen fruit and fruit ingredient products sold into the foodservice channel.
Gross profit increased $43.6 million, or 66.5%, to $109.1 million for the year ended January 2, 2021, compared with $65.5 million for the year ended December 28, 2019. As a percentage of revenues, gross profit for the year ended January 2, 2021 was 13.8% compared to 9.1% for the year ended December 28, 2019, an increase of 470 basis points.
Gross profit for the Plant-Based Foods and Beverages segment increased $21.7 million to $80.5 million for the year ended January 2, 2021, compared with $58.8 million for the year ended December 28, 2019, and gross profit as a percentage of revenues increased to 19.4% in 2020 from 16.3% in 2019. The gross profit percentage would have been 19.8% in 2020 and 16.4% in 2019, excluding plant expansion costs of $1.9 million and $0.3 million recorded in cost of goods sold in 2020 and 2019, respectively. The 340-basis point increase in the gross profit percentage on an adjusted basis reflected higher sales and production volumes of plant-based beverages, broths and plant-based ingredients, and improved plant utilization and productivity-driven cost savings.
Gross profit for the Fruit-Based Foods and Beverages segment increased $22.1 million to $28.6 million for the year ended January 2, 2021, compared with $6.5 million for the year ended December 28, 2019, and gross profit as a percentage of revenues increased to 7.6% in 2020 from 1.9% in 2019. The increase in gross profit and 570-basis point increase in gross profit percentage reflected increased sales pricing and a favorable mix of higher-margin retail sales of frozen fruit, and lower processing costs and productivity improvements for frozen fruit, together with increased sales and production volumes, and plant utilization for fruit snacks.
Gross profit for the Global Ingredients segment of $0.2 million for the year ended December 28, 2019, reflected the contribution from the soy and corn business prior to its sale in February 2019.
For the year ended January 2, 2021, we realized total segment operating income of $12.3 million, compared with a total segment operating loss of $24.1 million for the year ended December 28, 2019. The $36.4 million increase in total segment operating income reflected higher gross profit, as described above, together with a year-over-year favorable foreign exchange impact of $1.5 million, mainly related to mark-to-market gains on Mexican peso hedging activities, partially offset by an $8.9 million increase in SG&A expenses mainly due to higher employee-related variable compensation and benefit costs, and reserves for credit losses due to a weaker economic outlook, partially offset by the benefit from headcount reductions and other cost savings measures taken in 2019, together with lower travel costs due to COVID-19 restrictions.
Further details on revenue, gross profit and segment operating income/loss variances are provided below under "Segmented Operations Information."
SUNOPTA INC. 33 January 2, 2021 10-K
Other expense of $23.4 million for the year ended January 2, 2021, mainly reflected a $12.7 million loss on the foreign currency economic hedge of the cash consideration from the sale of Tradin Organic, together with $8.2 million of employee termination and facility closure costs, and asset impairments, mainly related to the exit from our Santa Maria, California, frozen fruit processing facility, and $2.7 million of other asset impairment charges mainly related to the consolidation of roasting lines at our Crookston, Minnesota, facility. Other income of $40.6 million for the year ended December 28, 2019, mainly reflected a pre-tax gain on sale of the soy and corn business of $44.0 million, the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees, and legal settlement and project cancellation gains of $3.1 million. These other income amounts were offset mainly by employee termination and recruitment costs of $9.7 million associated with the Value Creation Plan, including costs related to our new CEO and CFO appointments, sale of the soy and corn business, and corporate office consolidation.
Net interest expense decreased by $2.8 million to $30.0 million for the year ended January 2, 2021, compared with $32.8 million for the year ended December 28, 2019. Interest expense included the amortization of debt issuance costs of $4.1 million and $2.7 million in 2020 and 2019, respectively. The year-over-year decrease in net interest expense reflected lower average borrowings and weighted-average interest rates under our revolving credit facilities, together with interest income received on a tax refund in the first quarter of 2020.
On December 31, 2020, we redeemed in full the $223.5 million outstanding principal amount of our second lien notes. We recognized an $8.9 million loss on the retirement of the notes, including a premium paid of $5.3 million and the write-off of the remaining $3.6 million of unamortized debt issuance costs.
We recognized a recovery of income tax of $2.7 million for the year ended January 2, 2021, compared with $3.1 million for the year ended December 28, 2019. Excluding the impact of non-deductible stock-based and executive compensation from pre-tax earnings, together with a change in the amount of valuation allowance recorded against certain deferred tax assets and benefits recognized in 2020 related to the net operating loss carryback provisions of the CARES Act, our effective tax rate was 26.7% in 2020, compared with 31.3% in 2019.
Loss from continuing operations for the year ended January 2, 2021 was $47.3 million, which was inclusive of the $12.7 million loss on the foreign currency economic hedge of the cash consideration from the Tradin Organic sale, and $8.9 million loss on the retirement of the second lien notes, compared with a loss of $13.1 million for the year ended January 2, 2021, which was inclusive of the $44.0 million gain on the sale of the soy and corn business. Diluted loss per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.65 for the year ended January 2, 2021, compared with a loss per share $0.24 for the year ended December 28, 2019.
Earnings from the discontinued operations of Tradin Organic were $124.8 million for the year ended January 2, 2021, inclusive of a pre-tax gain on sale of $111.8 million, compared with earnings of $12.3 million for the year ended December 28, 2019. Revenues and gross profit of Tradin Organic were $503.0 million and $61.8 million, respectively, for the year ended January 2, 2021, compared with $468.4 million and $49.8 million, respectively, for the year ended December 28, 2019. The year-over-year increase in revenues reflected increased sales volumes of certain organic ingredients and higher sales volumes and pricing for premium juice products, partially offset by the exit from certain bulk categories of organic ingredients, and decreased commodity pricing. The year-over-year increase in gross profit reflected increased pricing spreads and higher-margin product mix within certain categories of organic ingredients, and increased production volumes and manufacturing efficiencies in Tradin Organic’s cocoa and sunflower operations, together with higher volumes and pricing and lower bottling costs for premium juice products. Earnings from discontinued operations for 2020 included a gain of $2.3 million on the settlement of a remaining earn-out obligation that arose from a prior acquisition of a premium juice business.
On a consolidated basis, we realized earnings attributable to common shareholders of $67.2 million (diluted earnings per share of $0.75) for the year ended January 2, 2021, compared with loss attributable to common shareholders of $8.8 million (diluted loss per share of $0.10) for the year ended December 28, 2019.
For the year ended January 2, 2021, adjusted loss was $0.5 million, or $0.01 per diluted share, on a consolidated basis, compared with an adjusted loss of $32.4 million, or $0.37 per diluted share, on a consolidated basis for the year ended December 28, 2019. For the year ended January 2, 2021, adjusted loss from continuing operations was $21.5 million, or $0.24 per diluted share, compared with an adjusted loss from continuing operations of $45.5 million, or $0.52 per diluted share, for the year ended December 28, 2019.
Adjusted EBITDA for the year ended January 2, 2021 was $94.1 million on a consolidated basis, compared with $47.3 million for the year ended December 28, 2019. Adjusted EBITDA from continuing operations for the year ended January 2, 2021 was $58.7 million, compared with $19.5 million for the year ended December 28, 2019.
SUNOPTA INC. 34 January 2, 2021 10-K
Adjusted loss and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of adjusted loss and adjusted EBITDA from net earnings/loss, which we consider to be the most directly comparable U.S. GAAP financial measure.
Segmented Operations Information
Plant-Based Foods and Beverages January 2, 2021 December 28, 2019 Change % Change
Revenues $ 415,164 $ 361,398 $ 53,766 14.9%
Gross profit 80,497 58,812 21,685 36.9%
Gross profit % 19.4% 16.3% 3.1%
Operating income $ 50,780 $ 29,476 $ 21,304 72.3%
Operating income % 12.2% 8.2% 4.0%
Plant-Based Foods and Beverages contributed $415.2 million in revenues for the year ended January 2, 2021, compared to $361.4 million for the year ended December 28, 2019, an increase of $53.8 million, or 14.9%. Excluding the impact on revenues of changes in sunflower commodity-related pricing (an increase in revenues of $5.1 million) and the 53rd week of sales in fiscal 2020 (an increase in revenues of $3.6 million), Plant-Based Foods and Beverages revenues increased approximately 12.5%. The table below explains the increase in reported revenues:
Plant-Based Foods and Beverages Revenue Changes
Revenues for the year ended December 28, 2019 $361,398
Higher retail sales volumes of plant-based beverages and everyday broth offerings, including output from additional aseptic processing capacity that came on-line in the third quarter of 2019, as well as increased sales of plant-based ingredients, partially offset by reduced sales volumes of plant-based beverage products to foodservice customers 51,222
Increased commodity pricing for sunflower 5,111
Lower volumes of sunflower inshell and kernel, and roasted ingredients, partially offset by higher volumes of birdfeed and roasted snacks (2,567)
Revenues for the year ended January 2, 2021 $415,164
Gross profit in Plant-Based Foods and Beverages increased by $21.7 million to $80.5 million for the year ended January 2, 2021, compared to $58.8 million for the year ended December 28, 2019, and the gross profit percentage increased by 310 basis points to 19.4%. The increase in the gross profit percentage reflected strong production volumes, improved plant utilization and productivity-driven cost savings within our plant-based beverage and ingredient extraction operations, and improved margin performance within our sunflower and roasting operations. The table below explains the increase in gross profit:
Plant-Based Foods and Beverages Gross Profit Changes
Gross profit for the year ended December 28, 2019 $58,812
Higher sales volumes, plant utilization and productivity improvements within our plant-based beverage and ingredient extraction operations 20,646
Higher sales volumes of birdfeed and roasted snacks and improved plant utilization within our sunflower and roasting operations, partially offset by lower volumes of sunflower inshell and kernel, and roasted ingredients 1,039
Gross profit for the year ended January 2, 2021 $80,497
SUNOPTA INC. 35 January 2, 2021 10-K
Operating income in Plant-Based Foods and Beverages increased by $21.3 million to $50.8 million for the year ended January 2, 2021, compared to $29.5 million for the year ended December 28, 2019. The table below explains the increase in operating income:
Plant-Based Foods and Beverages Operating Income Changes
Operating income for the year ended December 28, 2019 $29,476
Increase in gross profit, as explained above 21,685
Lower employee compensation costs due to headcount reductions and reduced travel costs, partially offset by higher product development and sales and marketing spending, and employee-related variable compensation 302
Increase in corporate cost allocations (683)
Operating income for the year ended January 2, 2021 $50,780
Looking forward, we expect significant growth in revenues and gross profit from our Plant-Based Foods and Beverages segment in fiscal year 2021, driven by the completion of three major capital projects to increase our plant-based beverage processing and ingredient extraction capacity and capabilities. We expect the gross margin profile of our plant-based operations in 2021 to be comparable to 2020, with planned productivity measures expected to offset the initial underutilization of the capital project assets as we fill the added capacity with new business. The statements in this paragraph are forward-looking statements. See "Forward-Looking Statements" above. Several factors could adversely impact our ability to meet these forward-looking expectations, including the impact of the ongoing COVID-19 pandemic, unexpected delays in executing on our capital projects, less than anticipated benefits from productivity measures, as well as unforeseen customer actions, consumer behaviors, competitive pressures, and general economic and political conditions in North America, along with the other factors described above under "Forward-Looking Statements."
Fruit-Based Foods and Beverages January 2, 2021 December 28, 2019 Change % Change
Revenues $ 374,049 $ 349,852 $ 24,197 6.9%
Gross profit 28,580 6,499 22,081 339.8%
Gross profit % 7.6% 1.9% 5.7%
Operating loss $ (7,321 ) $ (26,873 ) $ 19,552 72.8%
Operating loss % -2.0% -7.7% 5.7%
Fruit-Based Foods and Beverages contributed $374.0 million in revenues for the year ended January 2, 2021, compared to $349.9 million for the year ended December 28, 2019, an increase of $24.2 million, or 6.9%. Excluding the impact on revenues of changes in raw fruit commodity-related pricing (an increase in revenues of $9.0 million) and the impact of the 53rd week of sales in fiscal 2020 (an increase in revenues of $2.6 million), Fruit-Based Foods and Beverages revenues increased approximately 3.6%. The table below explains the increase in reported revenues:
Fruit-Based Foods and Beverages Revenue Changes
Revenues for the year ended December 28, 2019 $349,852
Increased volumes of frozen fruit into the retail channel, partially offset by lower demand for frozen fruit and fruit preparations from foodservice customers, together with sales volume constraints due to a short supply of frozen strawberries from California, as a larger portion of the 2020 crop went to the fresh market to meet COVID-19-driven demand 10,002
Increased commodity pricing for raw fruit 9,040
Higher sales volumes of fruit snacks products 5,155
Revenues for the year ended January 2, 2021 $374,049
SUNOPTA INC. 36 January 2, 2021 10-K
Gross profit in Fruit-Based Foods and Beverages increased by $22.1 million to $28.6 million for the year ended January 2, 2021, compared to $6.5 million for the year ended December 28, 2019, and the gross profit percentage increased by 570 basis points to 7.6%. The increase in the gross profit percentage reflected increased sales pricing and a favorable mix of higher-margin retail sales of frozen fruit. In addition, automation and productivity initiatives in our frozen fruit manufacturing facilities have generated higher yields and throughput, while allowing these facilities to operate at a lower cost and with fewer seasonal workers. The increase in the gross profit percentage also reflected strong fruit snack production volumes and plant utilization. These positive factors were partially offset by lower production volumes and plant utilization within our fruit ingredient operations. The table below explains the increase in gross profit:
Fruit-Based Foods and Beverages Gross Profit Changes
Gross profit for the year ended December 28, 2019 $6,499
Higher sales volumes and pricing for frozen fruit, including a favorable mix of higher-margin retail versus foodservice sales, together with lower processing costs and productivity improvements for frozen fruit, partially offset by lower sales volumes and plant utilization for fruit ingredients 20,297
Sales volume growth for fruit snacks, together with increased production volumes and plant utilization 1,784
Gross profit for the year ended January 2, 2021 $28,580
Operating loss in Fruit-Based Foods and Beverages decreased by $19.6 million to $7.3 million for the year ended January 2, 2021, compared to $26.9 million for the year ended December 28, 2019. The table below explains the decrease in operating loss:
Fruit-Based Foods and Beverages Operating Loss Changes
Operating loss for the year ended December 28, 2019 $(26,873)
Increase in gross profit, as explained above 22,081
Decrease in corporate cost allocations 1,840
Impact of increased reserves for credit losses due to weaker economic conditions and increased employee compensation related to new management hires and higher employee-related variable compensation, together with higher sales and marketing support for new products and unfavorable foreign exchange impact on our frozen fruit operations in Mexico (4,369)
Operating loss for the year ended January 2, 2021 $(7,321)
Looking forward, we expect gross margin improvement in our Fruit-Based Foods and Beverages segment in 2021, driven by ongoing automation and productivity efforts, together with cost savings from our frozen fruit network optimization projects, including the exit from our leased Santa Maria, California, facility in February 2021, and the start-up of production at our other facilities in advance of the California strawberry crop season. In addition, we intend to pursue pass-through contract pricing with more of our customers, while evaluating marginally profitable customers and products, which may lead to some customer and product rationalization. However, the profitability of our frozen fruit business remains largely dependent on the quality and quantity of the California strawberry supply for the frozen market, and the related impacts on the commodity pricing for available fruit. In that regard, we intend to take measures to further diversify our supplier base to include a larger proportion of strawberries, and other fruit varieties, from Mexico and South America, with the aim of improving the stability of our supply. The statements in this paragraph are forward-looking statements. See "Forward-Looking Statements" above. Several factors could adversely impact our ability to meet these forward-looking expectations, including the ongoing COVID-19 pandemic, our assessment of the margin improvement and cost savings to be realized from productivity, network optimization and portfolio rationalization initiatives, the outcome of pricing actions with customers, the availability and commodity pricing for fruit, our intent to diversify our supplier base and our assessment of the anticipated benefits, as well as unforeseen customer actions, consumer behaviors, competitive pressures, and general economic and political conditions in North America, along with the other factors described above under "Forward-Looking Statements."
SUNOPTA INC. 37 January 2, 2021 10-K
Global Ingredients January 2, 2021 December 28, 2019 Change % Change
Revenues $ - $ 10,346 $ (10,346 ) -100.0%
Gross profit - 192 (192 ) -100.0%
Gross profit % - 1.9% -1.9%
Operating loss $ - $ (187 ) $ 187 -100.0%
Operating loss % - -1.8% 1.8%
The table below explains the decrease in reported revenues in Global Ingredients:
Global Ingredients Revenue Changes
Revenues for the year ended December 28, 2019 $10,346
Impact of the sale of the soy and corn business (10,346)
Revenues for the year ended January 2, 2021 $-
The table below explains the decrease in gross profit in Global Ingredients:
Global Ingredients Gross Profit Changes
Gross profit for the year ended December 28, 2019 $192
Impact of the sale of the soy and corn business (192)
Gross profit for the year ended January 2, 2021 $-
The table below explains the decrease in operating loss in Global Ingredients:
Global Ingredients Operating Loss Changes
Operating loss for the year ended December 28, 2019 $(187)
Decrease in gross profit, as explained above (192)
SG&A reductions from the sale of the soy and corn business 379
Operating loss for the year ended January 2, 2021 $-
Corporate Services January 2, 2021 December 28, 2019 Change % Change
Operating loss $ (31,151 ) $ (26,471 ) $ (4,680 ) -17.7%
Operating loss at Corporate Services increased by $4.7 million to $31.2 million for the year ended January 2, 2021, compared to a loss of $26.5 million for the year ended December 28, 2019. The table below explains the increase in operating loss:
SUNOPTA INC. 38 January 2, 2021 10-K
Corporate Services Operating Loss Changes
Operating loss for the year ended December 28, 2019 $(26,471)
Higher employee-related variable compensation and benefit costs, partially offset by the impact of headcount reductions and reduced travel costs, together with realized and unrealized mark-to-market gains on Mexican peso hedging activities, and favorable foreign exchange impact on Canadian dollar-denominated SG&A expenses (3,331)
Increased stock-based compensation costs related to equity-based annual bonus and long-term incentive plans for certain employees (2,099)
Decrease in corporate cost allocations to SunOpta operating segments, as a result of lower corporate headcount and overhead costs (1,157)
Lower employee retention costs associated with the Value Creation Plan, partially offset by higher professional fees 1,907
Operating loss for the year ended January 2, 2021 $(31,151)
Corporate cost allocations mainly consist of salaries of corporate personnel who directly support the operating segments, as well as costs related to the enterprise resource management system. These expenses are allocated to the operating segments based on (1) specific identification of allocable costs that represent a service provided to each segment and (2) a proportionate distribution of costs based on a weighting of factors such as revenue contribution and the number of people employed within each segment.
SUNOPTA INC. 39 January 2, 2021 10-K
Consolidated Results of Operations for Fiscal Years 2019 and 2018
December 28, 2019 December 29, 2018 Change Change
$ $ $ %
Revenues
Plant-Based Foods and Beverages 361,398 314,076 47,322 15.1%
Fruit-Based Foods and Beverages 349,852 365,469 (15,617 ) -4.3%
Global Ingredients 10,346 104,427 (94,081 ) -90.1%
Total revenues 721,596 783,972 (62,376 ) -8.0%
Gross Profit
Plant-Based Foods and Beverages 58,812 40,477 18,335 45.3%
Fruit-Based Foods and Beverages 6,499 21,744 (15,245 ) -70.1%
Global Ingredients 192 8,310 (8,118 ) -97.7%
Total gross profit 65,503 70,531 (5,028 ) -7.1%
Segment operating income (loss)(1)
Plant-Based Foods and Beverages 29,476 10,766 18,710 173.8%
Fruit-Based Foods and Beverages (26,873 ) (16,029 ) (10,844 ) -67.7%
Global Ingredients (187 ) 2,245 (2,432 ) -108.3%
Corporate Services (26,471 ) (18,433 ) (8,038 ) -43.6%
Total segment operating loss (24,055 ) (21,451 ) (2,604 ) -12.1%
Other expense (income), net (40,639 ) 5,242 (45,881 ) -875.3%
Goodwill impairment - 81,222 (81,222 ) -100.0%
Earnings (loss) from continuing operations before the following 16,584 (107,915 ) 124,499 115.4%
Interest expense, net 32,765 33,121 (356 ) -1.1%
Recovery of income taxes (3,101 ) (13,566 ) 10,465 77.1%
Loss from continuing operations(2),(3) (13,080 ) (127,470 ) 114,390 89.7%
Earnings from discontinued operations 12,322 18,265 (5,943 ) -32.5%
Net loss (758 ) (109,205 ) 108,447 99.3%
Dividends and accretion on preferred stock (8,022 ) (7,909 ) (113 ) -1.4%
Loss attributable to common shareholders(4) (8,780 ) (117,114 ) 108,334 92.5%
(1) The following table presents a reconciliation of segment operating income/loss to "earnings/loss from continuing operations before the following," which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (1) to the "Consolidated Results of Operations for Fiscal Years 2020 and 2019" table regarding the use of this non-GAAP measure).
SUNOPTA INC. 40 January 2, 2021 10-K
Plant-Based Fruit-Based
Foods and Foods and Global Corporate
Beverages Beverages Ingredients Services Consolidated
$ $ $ $ $
December 28, 2019
Segment operating income (loss) 29,476 (26,873 ) (187 ) (26,471 ) (24,055 )
Other income (expense), net (518 ) (1,028 ) 43,990 (1,805 ) 40,639
Earnings (loss) from continuing operations before the following 28,958 (27,901 ) 43,803 (28,276 ) 16,584
December 29, 2018
Segment operating income (loss) 10,766 (16,029 ) 2,245 (18,433 ) (21,451 )
Other expense, net (2,151 ) (388 ) (91 ) (2,612 ) (5,242 )
Goodwill impairment - (81,222 ) - - (81,222 )
Earnings (loss) from continuing operations before the following 8,615 (97,639 ) 2,154 (21,045 ) (107,915 )
(2) The following table presents a reconciliation of adjusted earnings/loss from net earnings/loss, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (2) to the "Consolidated Results of Operations for Fiscal Years 2020 and 2019" table regarding the use of this non-GAAP measure). In addition, we have prepared this table in a columnar format to present the effects of discontinued operations on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the financial performance of our continuing operations.
Continuing Operations Discontinued Operations Consolidated
Per Share Per Share Per Share
For the years ended $ $ $ $ $ $
December 28, 2019
Net earnings (loss) (13,080 ) 12,322 (758 )
Dividends and accretion on preferred stock (8,022 ) - (8,022 )
Earnings (loss) attributable to common shareholders (21,102 ) (0.24 ) 12,322 0.14 (8,780 ) (0.10 )
Adjusted for:
Gain on sale of soy and corn business(a) (44,027 ) - (44,027 )
Costs related to Value Creation Plan(b) 9,412 237 9,649
Plant expansion costs(c) 311 298 609
Contract manufacturer transition costs(d) - 448 448
Product withdrawal and recall costs(e) 260 - 260
Other(f) (2,728 ) 195 (2,533 )
Net income tax effect(g) 12,394 (397 ) 11,997
Adjusted earnings (loss) (45,480 ) (0.52 ) 13,103 0.15 (32,377 ) (0.37 )
December 29, 2018
Net earnings (loss) (127,470 ) 18,265 (109,205 )
Dividends and accretion on preferred stock (7,909 ) - (7,909 )
Earnings (loss) attributable to common shareholders (135,379 ) (1.55 ) 18,265 0.21 (117,114 ) (1.34 )
Adjusted for:
Goodwill impairment(h) 81,222 - 81,222
Inventory write-downs(i) 3,101 - 3,101
Equipment start-up costs(j) 2,730 183 2,913
New product commercialization costs(k) 2,641 88 2,729
Costs related to Value Creation Plan(l) 2,374 - 2,374
Reserve for notes receivable(m) 2,232 - 2,232
Product withdrawal and recall costs(n) 1,456 - 1,456
Other(o) (107 ) 403 296
Fair value adjustment on contingent consideration(p) - (2,821 ) (2,821 )
Recovery of product withdrawal costs(q) (1,200 ) - (1,200 )
Reversal of stock-based compensation(r) (152 ) (30 ) (182 )
Net income tax effect(g) (61 ) 566 505
Adjusted earnings (loss) (41,143 ) (0.47 ) 16,654 0.19 (24,489 ) (0.28 )
(a) Reflects the gain on sale of the soy and corn business, which was recorded in other income.
(b) Reflects employee retention and relocation costs of $2.2 million, and professional fees of $1.4 million recorded in SG&A expenses; and employee termination costs of $8.6 million (net of the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees), CEO and CFO recruitment costs of $1.3 million, and facility closure costs of $0.3 million, which were recorded in other expense and earnings from discontinued operations.
SUNOPTA INC. 41 January 2, 2021 10-K
(c) Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of Tradin Organic's avocado oil facility in Ethiopia, which were recorded in cost of goods sold and earnings from discontinued operations.
(d) Reflects costs related to the transition of Tradin Organic's premium juice production activities to new contract manufacturers, which were recorded in earnings from discontinued operations.
(e) Reflects product withdrawal and recall costs that were not eligible for reimbursement under insurance policies or exceeded the limits of those policies, including costs related to the recall of certain sunflower kernel products initiated in 2016, which were recorded in other expense.
(f) Other includes gains on the settlement of certain legal matters and a project cancellation, partially offset by losses on disposal of assets, insurance deductibles, and business development costs, which were recorded in other income/expense and earnings from discontinued operations.
(g) Reflects the tax effect of the preceding adjustments to earnings and reflects an overall estimated annual effective tax rate of approximately 27% for 2019 (2018 - 27%) on adjusted earnings/loss before tax.
(h) Reflects the impairment of goodwill related to our frozen fruit operations.
(i) Reflects the write-down of certain frozen fruit inventory items, due to a change in expected use of aged stocks, and reduced sales pricing and high production costs, which was recorded in cost of goods sold.
(j) Reflects costs related to the start-up of new roasting equipment for grains, seeds and legumes at our Crookston, Minnesota, facility, as well as the start-up of a second processing line at Tradin Organic's cocoa facility in the Netherlands, which were recorded in cost of goods sold and earnings from discontinued operations.
(k) Reflects costs for development, production trials and start-up costs, incremental freight charges, and employee training related to the commercialization of new consumer products, which were recorded in cost of goods sold, SG&A expenses and earnings from discontinued operations.
(l) Reflects the write-down of inventories of $0.1 million recorded in cost of goods sold; professional and consulting fees, and employee recruitment and relocation costs of $0.6 million recorded in SG&A expenses; and asset impairment, facility closure and employee termination costs of $1.7 million recorded in other expense.
(m) Reflects a bad debt reserve for notes receivable associated with a previously sold business, which was recorded in other expense.
(n) Reflects product withdrawal and recall costs that were not eligible for reimbursement under insurance policies or exceeded the limits of those policies, including costs related to the sunflower recall, which were recorded in other expense.
(o) Other included the accretion of contingent consideration obligations, gain/loss on the sale of assets, severance costs unrelated to the Value Creation Plan, and settlement of a legal matter, which were recorded in other expense/income and earnings from discontinued operations.
(p) Reflects a fair value adjustment to reduce the contingent consideration obligation related to a prior acquisition of a premium juice business, based on the results for the business in fiscal 2018, which was recorded in earnings from discontinued operations.
(q) Reflects the recovery from a third-party supplier of $1.2 million of costs incurred relating to the withdrawal of certain consumer-packaged products due to quality-related issues, which was recorded in cost of goods sold. Costs incurred related to this withdrawal were recognized in cost of goods sold in 2016.
(r) Reflects the reversal of previously recognized stock-based compensation related to performance share units granted to certain employees as the performance conditions were not achieved, which was recorded in SG&A expenses and earnings from discontinued operations.
(3) The following table presents a reconciliation of segment operating income/loss and adjusted EBITDA, which we consider to be the most directly comparable U.S. GAAP financial measure (refer to footnote (2) to the "Consolidated Results of Operations for Fiscal Years 2020 and 2019" table regarding the use of this non-GAAP measure). In addition, as described above in footnote (2), we have prepared this table in a columnar format to present the effect of discontinued operations on our consolidated results for the periods presented. We believe this presentation assists investors in assessing the financial performance of our continuing operations.
SUNOPTA INC. 42 January 2, 2021 10-K
Continuing Operations Discontinued Operations Consolidated
For the years ended $ $ $
December 28, 2019
Net earnings (loss) (13,080 ) 12,322 (758 )
Earnings attributable to non-controlling interests(a) - 154 154
Provision for (recovery of) income taxes (3,101 ) 6,322 3,221
Interest expense, net 32,765 1,912 34,677
Other expense (income), net (40,639 ) 591 (40,048 )
Total segment operating income (loss) (24,055 ) 21,301 (2,754 )
Depreciation and amortization 29,266 4,686 33,952
Stock-based compensation(b) 10,471 1,145 11,616
Costs related to Value Creation Plan(c) 3,556 - 3,556
Plant expansion costs(d) 311 298 609
Contract manufacturer transition costs(e) - 289 289
Adjusted EBITDA 19,549 27,719 47,268
December 29, 2018
Net earnings (loss) (127,470 ) 18,265 (109,205 )
Earnings attributable to non-controlling interests(a) - 62 62
Provision for (recovery of) income taxes (13,566 ) 8,188 (5,378 )
Interest expense, net 33,121 1,285 34,406
Other expense (income), net 5,242 (2,417 ) 2,825
Goodwill impairment 81,222 - 81,222
Total segment operating income (loss) (21,451 ) 25,383 3,932
Depreciation and amortization 28,159 4,629 32,788
Stock-based compensation 6,773 1,166 7,939
Inventory write-downs(f) 3,101 - 3,101
Equipment start-up costs(g) 2,730 183 2,913
New product commercialization costs(h) 2,641 88 2,729
Costs related to Value Creation Plan(c) 713 - 713
Recovery of product withdrawal costs(i) (1,200 ) - (1,200 )
Adjusted EBITDA 21,466 31,449 52,915
(a) Reflects non-controlling interests in the earnings of certain subsidiaries of Tradin Organic, which is included in earnings from discontinued operations.
(b) For 2019, consolidated stock-based compensation of $11.6 million was recorded in SG&A expenses and earnings from discontinued operations, and the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees was recognized in other income.
(c) For 2019, reflects employee retention and relocation costs of $2.2 million, and professional fees of $1.4 million recorded in SG&A expenses. For 2018, reflects the write-down of remaining flexible resealable pouch and nutrition bar inventories of $0.1 million recorded in cost of goods sold; and professional and consulting fees, and employee recruitment and relocation costs of $0.6 million recorded in SG&A expenses.
(d) Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of Tradin Organic's avocado oil facility in Ethiopia, which were recorded in cost of goods sold and earnings from discontinued operations.
(e) Reflects costs related to the transition of Tradin Organic's premium juice production activities to new contract manufacturers, which were recorded in earnings from discontinued operations.
(f) Reflects the write-down of certain frozen fruit inventory items , due to a change in expected use of aged stocks, and reduced sales pricing and high production costs, which was recorded in cost of goods sold.
(g) Reflects costs related to the start-up of new roasting equipment for grains, seeds and legumes at our Crookston, Minnesota, facility, as well as the start-up of a second processing line at Tradin Organic's cocoa facility in the Netherlands, which were recorded in cost of goods sold and earnings from discontinued operations.
(h) Reflects costs for development, production trials and start-up costs, incremental freight charges, and employee training related to the commercialization of new consumer products, which were recorded in cost of goods sold, SG&A expenses and earnings from discontinued operations.
(i) Reflects the recovery from a third-party supplier of $1.2 million of costs incurred relating to the withdrawal of certain consumer-packaged products due to quality-related issues, which was recorded in cost of goods sold. Costs incurred related to this withdrawal were recognized in cost of goods sold in 2016.
(4) Refer to footnote (4) to the "Consolidated Results of Operations for Fiscal Years 2020 and 2019" table regarding the use of certain other non-GAAP measures in the discussion of our results of operations below.
Revenues for the year ended December 28, 2019 decreased by 8.0% to $721.6 million from $784.0 million for the year ended December 29, 2018. Excluding the impact on revenues of the sale of the soy and corn business in 2019 and the exit from flexible resealable pouch and nutrition bar product lines in 2018 (a decrease in revenues of $97.2 million), a profit-neutral change to a co-manufacturing agreement with a customer (a decrease in revenues of $9.8 million), and changes in commodity-related pricing (an increase in revenues of $7.2 million), revenues increased by 5.5% in 2019, compared with 2018. The increase in revenues on an adjusted basis reflected the expansion of plant-based beverage and broth offerings and growth in plant-based ingredient extraction volumes, partially offset by declines in sales volumes for frozen fruit, net of increased pricing, and reduced demand for fruit ingredients.
SUNOPTA INC. 43 January 2, 2021 10-K
Gross profit decreased $5.0 million, or 7.1%, to $65.5 million for the year ended December 28, 2019, compared with $70.5 million for the year ended December 29, 2018. As a percentage of revenues, gross profit for the year ended December 28, 2019 was 9.1% compared to 9.0% for the year ended December 29, 2018, an increase of 10 basis points.
Gross profit for the Plant-Based Foods and Beverages segment increased $18.3 million to $58.8 million for the year ended December 28, 2019, compared with $40.5 million for the year ended December 29, 2018, and gross profit as a percentage of revenues increased to 16.3% in 2019 from 12.9% in 2018. For 2019, the gross profit percentage would have been 16.4%, excluding plant expansion costs of $0.3 million, compared with a gross profit percentage of 14.5% for 2018, excluding equipment start-up and product introduction costs of $5.1 million. The increase in the gross profit percentage on an adjusted basis reflected the favorable impact of higher sales and production volumes of plant-based beverages, broths and plant-based ingredients, together with improved plant utilization and productivity-driven cost savings.
Gross profit for the Fruit-Based Foods and Beverages segment decreased $15.2 million to $6.5 million for the year ended December 28, 2019, compared with $21.7 million for the year ended December 29, 2018, and gross profit as a percentage of revenues decreased to 1.9% in 2019 from 5.9% in 2018. For 2018, the gross profit percentage would have been 6.5%, excluding $3.1 million of inventory write-downs for certain frozen fruit inventory items, partially offset by the recovery of $1.2 million of previously incurred product withdrawal costs from a third-party supplier. The decline in the gross profit percentage on an adjusted basis was largely due to the impact of a shortfall of frozen strawberry supply in 2019 due to poor weather conditions in both central Mexico and California, which resulted in higher fruit purchase prices and reduced production volumes and related inefficiencies for our frozen fruit operations. The negative impact to gross profit from the strawberry shortfall was estimated to be approximately $17.7 million in 2019.
Gross profit for the Global Ingredients segment was $0.2 million for the year ended December 28, 2019, compared with $8.3 million for the year ended December 29, 2018, reflecting the sale of the soy and corn business in February 2019.
For the year ended December 28, 2019, we realized a total segment operating loss of $24.1 million, compared with a loss of $21.5 million for the year ended December 29, 2018, which reflected lower overall gross profit, as described above, partially offset by a $1.9 million reduction SG&A expenses. The decline in SG&A expenses reflected the elimination of expenses associated with the sale of the soy and corn business, together with workforce reductions and other cost-saving initiatives taken in 2019, partially offset by increased stock-based compensation costs related to the adoption of an equity-based bonus plan in 2019 ($3.7 million), together with higher third-party professional fees and employee recruitment, relocation and retention costs associated with the Value Creation Plan ($2.9 million).
Further details on revenues, gross profit and segment operating income/loss variances are provided below under "Segmented Operations Information."
Other income of $40.6 million for the year ended December 28, 2019 mainly reflected a pre-tax gain on sale of the soy and corn business of $44.0 million, the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees, and legal settlement and project cancellation gains of $3.1 million. These other income amounts were offset mainly by employee termination and recruitment costs of $9.7 million associated with the Value Creation Plan, including costs related to our new CEO and CFO appointments, sale of the soy and corn business, and corporate office restructuring. Other expense of $5.2 million for the year ended December 29, 2018, mainly reflected a bad debt reserve of $2.2 million for notes receivable associated with a previously sold business, facility closure costs and asset impairment charges of $1.3 million related to the closure of our nutrition bar facility and the sale of our former roasted snack facility, together with $0.4 million of associated employee termination costs, as well as $1.5 million of product withdrawal and recall costs.
In 2018, we recognized a non-cash impairment charge of $81.2 million to write-off the remaining goodwill related to our frozen fruit operation. This charge was recorded in the Fruit-Based Foods and Beverages segment.
Net interest expense decreased by $0.4 million to $32.8 million for the year ended December 28, 2019, compared with $33.1 million for the year ended December 29, 2018. Interest expense included the amortization of debt issuance costs of $2.7 million and $2.5 million in 2019 and 2018, respectively.
We recognized a recovery of income tax of $3.1 million for the year ended December 28, 2019, compared with a recovery of $13.6 million for the year ended December 29, 2018. Excluding the impact of stock-based compensation, goodwill impairment and other non-deductible amounts from pre-tax earnings, our effective tax rate was 31.3% in 2019, compared with 27.5% in 2018.
SUNOPTA INC. 44 January 2, 2021 10-K
Loss from continuing operations for the year ended December 28, 2019 was $13.1 million, which was inclusive of the $44.0 million gain on the sale of the soy and corn business, compared with a loss of $127.5 million for the year ended December 29, 2018, which was inclusive of the $81.2 million goodwill impairment. Diluted loss per share from continuing operations attributable to common shareholders (after dividends and accretion on preferred stock) was $0.24 for the year ended December 28, 2019, compared with a loss per share $1.55 for the year ended December 29, 2018.
Earnings from the discontinued operations of Tradin Organic were $12.3 million for the year ended December 28, 2019, compared with earnings of $18.3 million for the year ended December 29, 2018. Revenues and gross profit of Tradin Organic were $468.4 million and $49.8 million, respectively, for the year ended December 28, 2019, compared with $476.9 million and $52.9 million, respectively, for the year ended December 29, 2018. The year-over-year decrease in revenues reflected reduced commodity pricing and an unfavorable foreign exchange impact on euro-denominated sales, partially offset by increased volumes for certain organic ingredients. The year-over-year decrease in gross profit reflected reduced pricing spreads for certain organic ingredients, manufacturing inefficiencies within Tradin Organic’s cocoa and sunflower processing operations, and start-up costs related to Tradin Organic’s organic avocado oil facility, partially offset by a favorable foreign exchange result in 2019 on raw material purchase contracts. In addition, earnings from discontinued operations for 2018 included a gain of $2.8 million related to the reduction in the remaining contingent consideration obligation that arose from a prior acquisition of a premium juice business.
On a consolidated basis, we realized a loss attributable to common shareholders of $8.8 million (diluted loss per share of $0.10) for the year ended December 28, 2019, compared with a loss attributable to common shareholders of $117.1 million (diluted loss per share of $1.34) for the year ended December 29, 2018.
For the year ended December 28, 2019, adjusted loss was $32.7 million, or $0.37 per diluted share, on a consolidated basis, compared with an adjusted loss of $24.5 million, or $0.28 per diluted share, on a consolidated basis for the year ended December 29, 2018. For the year ended December 28, 2019, adjusted loss from continuing operations was $45.5 million, or $0.52 per diluted share, compared with an adjusted loss from continuing operations of $41.1 million, or $0.47 per diluted share, for the year ended December 29, 2018.
Adjusted EBITDA for the year ended December 28, 2019 was $47.3 million on a consolidated basis, compared with $52.9 million on a consolidated basis for the year ended December 29, 2018. Adjusted EBITDA from continuing operations for the year ended December 28, 2019 was $19.5 million, compared with $21.5 million for the year ended December 29, 2018.
Adjusted earnings and adjusted EBITDA are non-GAAP financial measures. See footnotes (2) and (3) to the table above for a reconciliation of adjusted loss and adjusted EBITDA from net earnings/loss, which we consider to be the most directly comparable U.S. GAAP financial measure.
Segmented Operations Information
Plant-Based Foods and Beverages December 28, 2019 December 29, 2018 Change % Change
Revenues $ 361,398 $ 314,076 $ 47,322 15.1%
Gross profit 58,812 40,477 18,335 45.3%
Gross profit % 16.3% 12.9% 3.4%
Operating income $ 29,476 $ 10,766 $ 18,710 173.8%
Operating income % 8.2% 3.4% 4.8%
Plant-Based Foods and Beverages contributed $361.4 million in revenues for the year ended December 28, 2019, compared to $314.1 million for the year ended December 29, 2018, an increase of $47.3 million, or 15.1%. Excluding the impact on revenues of a profit-neutral change to a co-manufacturing agreement with a customer (a decrease in revenues of $9.8 million), sales of flexible resealable pouch and nutrition bar products (a decrease in revenues of $3.1 million), and changes in sunflower commodity-related pricing (an increase in revenues of $3.6 million), Plant-Based Foods and Beverages revenues increased approximately 18.2%. The table below explains the increase in reported revenues:
SUNOPTA INC. 45 January 2, 2021 10-K
Plant-Based Foods and Beverages Revenue Changes
Revenues for the year ended December 29, 2018 $314,076
Higher sales volumes of plant-based beverages and everyday broth offerings, including output from additional aseptic processing capacity that came on-line in the third quarter of 2019, as well as increased demand for plant-based ingredients 59,477
Increased commodity pricing for domestically-sourced sunflower 3,589
Lower revenues due to a profit-neutral change to a co-manufacturing agreement with a customer (9,828)
Impact of the exit from flexible resealable pouch and nutrition bars product lines (3,103)
Lower volumes of sunflower inshell and kernel, partially offset by higher volumes of retail birdfeed and roasted snacks and ingredients (2,813)
Revenues for the year ended December 28, 2019 $361,398
Gross profit in Plant-Based Foods and Beverages increased by $18.3 million to $58.8 million for the year ended December 28, 2019, compared to $40.5 million for the year ended December 29, 2018, and the gross profit percentage increased by 340 basis points to 16.3%. The increase in the gross profit percentage reflected strong production volumes, improved plant utilization and productivity-driven cost savings within our plant-based beverage and ingredient extraction operations. The table below explains the increase in gross profit:
Plant-Based Foods and Beverages Gross Profit Changes
Gross profit for the year ended December 29, 2018 $40,477
Higher sales volumes, plant utilization and productivity improvements within our plant-based beverage and ingredient extraction operations 18,266
Improved margin performance for roasted snacks and ingredients, partially offset by lower sales and production volumes of sunflower inshell and kernel 69
Gross profit for the year ended December 28, 2019 $58,812
Operating income in Plant-Based Foods and Beverages increased by $18.7 million to $29.5 million for the year ended December 28, 2019, compared to $10.8 million for the year ended December 29, 2018. The table below explains the increase in operating income:
Plant-Based Foods and Beverages Operating Income Changes
Operating income for the year ended December 29, 2018 $10,766
Increase in gross profit, as explained above 18,335
Impact of workforce reductions and other cost savings initiatives 3,219
Increase in corporate cost allocations due to the realignment of Corporate Services following the sale of the soy and corn business (2,844)
Operating income for the year ended December 28, 2019 $29,476
SUNOPTA INC. 46 January 2, 2021 10-K
Fruit-Based Foods and Beverages December 28, 2019 December 29, 2018 Change % Change
Revenues $ 349,852 $ 365,469 $ (15,617 ) -4.3%
Gross profit 6,499 21,744 (15,245 ) -70.1%
Gross profit % 1.9% 5.9% -4.0%
Operating loss $ (26,873 ) $ (16,029 ) $ (10,844 ) -67.7%
Operating loss % -7.7% -4.4% -3.3%
Fruit-Based Foods and Beverages contributed $349.9 million in revenues for the year ended December 28, 2019, compared to $365.5 million for the year ended December 29, 2018, a decrease of $15.6 million, or 4.3%. Excluding the impact on revenues of changes in raw fruit commodity-related pricing (an increase in revenues of $3.6 million), Fruit-Based Foods and Beverages revenues decreased approximately 5.3%. The table below explains the decrease in reported revenues:
Fruit-Based Foods and Beverages Revenue Changes
Revenues for the year ended December 29, 2018 $365,469
Reduced volumes of frozen fruit mainly into the foodservice channel, together with a modest decline in demand for fruit ingredients from yogurt producers, partially offset by increased sales pricing for frozen fruit (16,187)
Higher sales volumes of fruit snack products 570
Revenues for the year ended December 28, 2019 $349,852
Gross profit in Fruit-Based Foods and Beverages decreased by $15.2 million to $6.5 million for the year ended December 28, 2019, compared to $21.7 million for the year ended December 29, 2018, and the gross profit percentage decreased by 400 basis points to 1.9%. The decrease in the gross profit percentage primarily reflected the impact of higher commodity pricing for frozen fruit due to the shortage of strawberries, together with unfavorable production variances within our frozen fruit operations due to lower plant utilization and rework of bulk inventories to meet customer demand, together with lower volumes and plant utilization for fruit ingredients. The weather-related impact to gross profit from frozen fruit was estimated to be approximately $17.7 million in 2019, or approximately a negative 5% impact on the gross profit percentage. These factors were partially offset by strong production volumes and productivity-driven cost savings within our fruit snacks operations. The table below explains the decrease in gross profit:
Fruit-Based Foods and Beverages Gross Profit Changes
Gross profit for the year ended December 29, 2018 $21,744
Impact of the strawberry shortage due to higher commodity pricing and costs associated with reduced plant utilization and rework of bulk inventories (approximately $17.7 million), and lower volumes and plant utilization for fruit ingredients, together with the impact of a claim recovery from a supplier in 2018 for $1.2 million, partially offset by higher sales pricing for frozen fruit (15,843)
Higher sales volumes, plant utilization and productivity improvements within our fruit snack operations 598
Gross profit for the year ended December 28, 2019 $6,499
Operating loss in Fruit-Based Foods and Beverages increased by $10.8 million to $26.9 million for the year ended December 28, 2019, compared to $16.0 million for the year ended December 29, 2018. The table below explains the increase in operating loss:
SUNOPTA INC. 47 January 2, 2021 10-K
Fruit-Based Foods and Beverages Operating Loss Changes
Operating loss for the year ended December 29, 2018 $(16,029)
Decrease in gross profit, as explained above (15,245)
Increase in corporate cost allocations due to the realignment of Corporate Services resources following the sale of the soy and corn business (674)
Impact of headcount reductions due in part to the centralization of transactional and other support functions, and other cost savings initiatives, together with a favorable foreign exchange impact on our frozen fruit operations in Mexico 5,075
Operating loss for the year ended December 28, 2019 $(26,873)
Global Ingredients December 28, 2019 December 29, 2018 Change % Change
Revenues $ 10,346 $ 104,427 $ (94,081 ) -90.1%
Gross profit 192 8,310 (8,118 ) -97.7%
Gross profit % 1.9% 8.0% -6.1%
Operating income (loss) $ (187 ) $ 2,245 $ (2,432 ) -108.3%
Operating income (loss) % -1.8% 2.1% -0.7%
The table below explains the decrease in reported revenues in Global Ingredients:
Global Ingredients Revenue Changes
Revenues for the year ended December 29, 2018 $104,427
Impact of the sale of the soy and corn business (94,081)
Revenues for the year ended December 28, 2019 $10,346
The table below explains the decrease in gross profit in Global Ingredients:
Global Ingredients Gross Profit Changes
Gross profit for the year ended December 29, 2018 $8,310
Impact of the sale of the soy and corn business (8,118)
Gross profit for the year ended December 28, 2019 $192
The table below explains the decrease in operating income in Global Ingredients:
Global Ingredients Operating Income Changes
Operating income for the year ended December 29, 2018 $2,245
Decrease in gross profit, as explained above (8,118)
Decrease in corporate cost allocations due to the sale of the soy and corn business 4,531
SG&A reductions from the sale of the soy and corn business 1,155
Operating loss for the year ended December 28, 2019 $(187)
SUNOPTA INC. 48 January 2, 2021 10-K
Corporate Services December 28, 2019 December 29, 2018 Change % Change
Operating loss $ (26,471 ) $ (18,433 ) $ (8,038 ) -43.6%
Operating loss at Corporate Services increased by $8.0 million to $26.5 million for the year ended December 28, 2019, compared to a loss of $18.4 million for the year ended December 29, 2018. The table below explains the increase in operating loss:
Corporate Services Operating Loss Changes
Operating loss for the year ended December 29, 2018 $(18,433)
Increased stock-based compensation costs related to the initiation of an equity-based annual bonus plan for certain employees in 2019 (3,698)
Higher non-structural third-party professional fees and employee recruitment, relocation and retention costs associated with the Value Creation Plan (2,943)
Decrease in corporate cost allocations to SunOpta operating segments (1,013)
Higher employee-related variable compensation, and salary increases, partially offset by reductions in travel and other discretionary spending, and favorable foreign exchange impact on Canadian dollar-denominated SG&A expenses (384)
Operating loss for the year ended December 28, 2019 $(26,471)
Liquidity and Capital Resources
In conjunction with the divestiture of Tradin Organic, we reduced our debt by approximately $355 million, including the redemption the of $223.5 million outstanding principal amount of our second lien notes and repayment of approximately $132 million of the outstanding borrowings under our former Global Credit Facility. Together with our entry into a new five-year credit agreement (discussed below), the reduction in our indebtedness significantly improves our leverage and provides financial flexibility for future operating and investing needs, including our plans to expand our plant-based beverage platform. In addition, the retirement of the second lien notes results in cash interest savings of approximately $21 million on an annual basis.
On December 31, 2020, we entered into a five-year credit agreement for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $250 million, subject to borrowing base capacity. In addition, the credit agreement provides a five-year, $75 million delayed draw term loan, to be used for capital expenditures. The delayed draw term loan can be borrowed within 18 months from closing. The new credit facility replaces our previous Global Credit Facility that was set to expire on March 31, 2022, and will be used to support our operational objective and capital expenditures for the next five years, as well as our working capital and general corporate needs. As at January 2, 2021, we had outstanding borrowings of $47.3 million and available borrowing capacity of approximately $116 million under the revolving credit facility, after giving effect to $10.3 million of outstanding letters of credit, and the weighted-average interest rate on all borrowings under the revolving credit facility was 2.42%.
For more information on the new credit agreement, see note 14(1) to the consolidated financial statements at Item 15 of this Form 10-K.
On October 7, 2016, our U.S. subsidiary, SunOpta Foods Inc. ("SunOpta Foods"), issued 85,000 shares of Series A Preferred Stock (the "Series A Preferred Stock") for $85.0 million. On February 22, 2021, funds managed by Oaktree Capital Management, L.P., the holders of the Series A Preferred Stock, exchanged all of their shares of Series A Preferred Stock for 12,633,427 shares of our common stock, representing 12.3% of our issued and outstanding common shares on a post-exchange basis. The number of common shares issued in exchange for the Series A Preferred Shares was determined by dividing the aggregate liquidation preference of the Series A Preferred Stock of $88,434,000 by the exchange price of $7.00. Following the exchange, we will no longer be required to pay the 8.0% per year dividend on the Series A Preferred Stock, representing approximately $7.1 million of annual dividend savings.
SUNOPTA INC. 49 January 2, 2021 10-K
On April 24, 2020, SunOpta Foods issued 30,000 shares of Series B-1 Preferred Stock (the "Series B-1 Preferred Stock") for $30.0 million. The Series B-1 Preferred Stock currently has a liquidation preference of approximately $1,015 per share and is exchangeable into shares of our common stock at an exchange price of $2.50 per share. Cumulative 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, which presently equates to quarterly dividend distributions of approximately $0.6 million, and 10.0% of the liquidation preference thereafter.
For more information on the Series A and Series B-1 Preferred Stock, see note 15 to the consolidated financial statements at Item 15 of this Form 10-K.
We have commitments under certain master lease agreements that provide for up to approximately $45 million of financing in the aggregate related to the addition of new plant-based beverage and ingredient extraction processing and packaging equipment. As at January 2, 2021, approximately $40 million of the related finance leases had not commenced. The assets underlying these leases are expected to be available for use in 2021.
We believe that our operating cash flows, together with our new revolving and term loan facilities, will be adequate to meet our operating, investing, and financing needs in the foreseeable future. However, in order to finance significant investments in our existing businesses, or significant business acquisitions, if any, that may arise in the future, we may need additional sources of cash that we could attempt to obtain through a combination of additional bank or subordinated financing, a private or public offering of debt or equity securities, or the issuance of common stock. There can be no assurance that these types of financing would be available at all or, if so, on terms that are acceptable to us. In addition, we may explore the sale of selected non-core businesses or assets from time to time to reduce our indebtedness and/or improve our position to obtain additional financing.
Cash Flows
Operating Cash Flows from Continuing Operations
Cash provided by operating activities of continuing operations was $52.7 million for the year ended January 2, 2021, compared with cash used of $17.0 million for the year ended December 28, 2019, an increase in cash provided of $69.7 million, which reflected the period-over-period increase in our operating results, including the growth in our plant-based operations and improved performance in our frozen fruit operations, together with working capital improvements in 2020 and cost savings from headcount reductions and other measures taken in 2019.
Cash used in operating activities of continuing operations was $17.0 million for the year ended December 28, 2019, compared with cash provided of $6.0 million for the year ended December 29, 2018, an increase in cash used of $23.0 million. The decrease in cash provided reflected a decline in the profitability of our frozen fruit operations due to the shortfall of frozen strawberry supply in 2019, and an increase in cash payments for costs incurred under the Value Creation Plan in 2019, together with reduced working capital efficiency.
Investing Cash Flows from Continuing Operations
Cash used in investing activities of continuing operations related to capital expenditures was $24.8 million for the year ended January 2, 2021, which reflected spending on the plant-based beverage and ingredient expansion projects, together with the addition of new automation at our frozen fruit facilities, compared with capital expenditures of $28.4 million for the year ended December 28, 2019. The year-over-year decrease in capital expenditures reflect an increased use of leasing arrangements to support certain capital projects. In 2020, we paid $12.7 million to settle the foreign currency economic hedge of the cash consideration from the sale of Tradin Organic. Net proceeds from the sale of the soy and corn business were $63.3 million in 2019.
Excluding net proceeds from the sale of the soy and corn business of $63.3 million, cash used in investing activities of continuing operations was $28.4 million for the year ended December 28, 2019, compared with cash used of $24.0 million for the year ended December 29, 2018, an increase in cash used of $4.4 million. Cash used in 2018 related to capital expenditures to expand our plant-based beverage capacity and increase automation in our frozen fruit operations. Cash used in 2018 reflected capital expenditures of $26.9 million, related to the expansion of our plant-based beverage, roasted snack and frozen fruit processing capabilities, together with company-wide information technology enhancements, partially offset by $2.7 million from the sale of non-core businesses and assets.
SUNOPTA INC. 50 January 2, 2021 10-K
Financing Cash Flows from Continuing Operations
Cash used in financing activities of continuing operations was $386.6 million for the year ended January 2, 2021, compared with cash used of $18.6 million for the year ended December 28, 2019, an increase in cash used of $368.0 million, which reflected the repayment of approximately $355 million of indebtedness following the sale of Tradin Organic, together with other reductions in revolver borrowings through cash generated from operations and use of the net proceeds of $26.8 million from the issuance of Series B-1 Preferred Stock in 2020.
Cash used in financing activities of continuing operation was $18.6 million for the year ended December 28, 2019, compared with cash provided of $17.8 million for the year ended December 29, 2018, an increase in cash used of $36.4 million, which reflected the use of the net proceeds from the sale of the soy and corn business to repay revolver borrowings in 2019.
Cash Flows from Discontinued Operations
Net cash provided by discontinued operations was $369.9 million for the year ended January 2, 2021, compared with net cash used of $1.1 million for the year ended December 28, 2019, an increase in net cash provided of $371.0 million, which reflected the cash consideration received from the sale of Tradin Organic, together with an improved operating performance by Tradin Organic and reduced inventories of organic ingredients, offset by the repayment of revolver borrowings.
Net cash used by discontinued operations was $1.1 million for the year ended December 28, 2019, compared with net cash provided of $0.3 million for the year ended December 29, 2018, an increase in net cash used of $1.4 million, which reflected the net effect of a repayment of revolver borrowings in 2019 through the reduction of inventories of organic ingredients, compared with an increase in revolver borrowings in 2018 to support the expansion of Tradin Organic's cocoa processing operations.
Off - Balance Sheet Arrangements
There are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
The table below sets out our contractual obligations as at January 2, 2021:
Payments due by Period
Total 2021 2022-2023 2024-2025 Thereafter
$ $ $ $ $
Long-term debt 72,679 4,219 11,494 55,127 1,839
Interest on long-term debt(1) 5,890 1,314 2,288 2,288 -
Purchase commitments(2) 97,305 97,305 - - -
Operating leases 42,981 13,084 18,095 8,189 3,613
Long-term liabilities 200 200 - - -
219,055 116,122 31,877 65,604 5,452
(1) Interest on long-term debt is calculated based on scheduled repayments over the periods as indicated, using applicable interest rates at January 2, 2021.
(2) Purchase obligations primarily represent open purchase orders for raw materials used in our production processes.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. The estimates and assumptions made require us to exercise our judgment and are based on historical experience and various other factors that we believe to be reasonable under the circumstances. We continually evaluate the information that forms the basis of our estimates and assumptions as our business and the business environment generally changes. The use of estimates is pervasive throughout our financial statements. The following are the accounting estimates which we believe to be most significant to our business.
SUNOPTA INC. 51 January 2, 2021 10-K
Revenue Recognition
We recognize revenue when we transfer control of promised goods to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods. Control is typically transferred when title and physical possession of the product has transferred to the customer, which is at the point in time that a product is shipped from our facilities or delivered to a specified destination, depending on the terms of the contract, and we have a present right to payment.
Consideration is typically determined based on a fixed unit price for the quantity of product transferred. Certain of our revenue contracts may give rise to an element of variable consideration in the form of rebates or discounts; however, variable consideration has historically been immaterial in the context of the total consideration due under the contracts. We do not typically grant customers a general right of return for goods transferred, but we will generally accept returns of product for quality-related issues. The cost of satisfying this promise of quality is accounted for as an assurance-type warranty obligation rather than variable consideration. Our contracts do not typically include any significant payment terms, as payment is normally due shortly after the time of transfer.
Revenue contracts are typically represented by short-term, binding purchase orders from customers. The timing of our revenue recognition, customer billings and cash collections, does not result in significant unbilled receivables (contract assets) or customer advances (contract liabilities) on the consolidated balance sheet. Contract costs, such as sales commissions, are generally expensed as incurred given the short-term nature of the associated contracts.
See note 2 of the consolidated financial statements at Item 15 of this Form 10-K for disclosures related to revenue.
Accounts Receivable
Our accounts receivable primarily includes amounts due from our customers. The carrying value of each account is carefully monitored with a view to assessing the likelihood of collection. An allowance for credit losses is provided for as an estimate of losses that could result from customers defaulting on their obligations to us. In assessing the amount of allowance required, a number of factors are considered including the age of the account, the credit-worthiness of the customer, payment terms, the customer's historical payment history, and general economic conditions. Because the amount of the allowance is an estimate, the actual amount collected could differ from the carrying value of the amount receivable. Note 7 of the consolidated financial statements at Item 15 of this Form 10-K provides a summary of the changes in the allowance for credit losses.
Inventory
Inventory is our largest current asset and consists primarily of raw materials and finished goods held for sale. Inventories are valued at the lower of cost and estimated net realizable value. In order to determine the value of inventory at the balance sheet date, we evaluate a number of factors to determine the adequacy of provisions for inventory. These factors include the age of inventory, the amount of inventory held by type, future demand for products, and the expected future selling price we expect to realize by selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information, including expected business plans and market conditions. As a result, the actual amount received on sale could differ from our estimated value of inventory. Note 8 of the consolidated financial statements at Item 15 of this Form 10-K provides a summary of the movements in the inventory reserve.
Leases
Lease assets and liabilities are recognized and measured based on the present value of future lease payments over the lease term. In measuring lease assets and liabilities, critical estimates and assumptions include the amount and timing of the future lease payments based on the expected lease term, and the discount rate to apply to those future lease payments. We generally use initial noncancelable lease term when determining the lease asset and liability. The discount rate used to determine the present value of the future lease payments is the implicit rate in the lease if readily determinable. When that rate is not readily determinable, we use our incremental borrowing rate, which we estimate using relevant interest rate yield curves and credit spreads derived from available market data and our corporate credit rating.
See note 10 of the consolidated financial statements at Item 15 of this Form 10-K for disclosures related to leases.
SUNOPTA INC. 52 January 2, 2021 10-K
Goodwill
Goodwill represents the excess in a business combination of the purchase price over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is instead tested for impairment at least annually, or whenever events or circumstances change between the annual impairment tests that would indicate the carrying amount of goodwill may be impaired. We perform the annual test for goodwill impairment in the fourth quarter of each fiscal year. Goodwill is tested for impairment at the reporting unit level, which is defined as an operating segment or one level below. Goodwill impairment charges are recognized based on the excess of a reporting unit's carrying amount over its estimated fair value.
We can elect to qualitatively assess goodwill for impairment if it is more likely than not that the fair value of a reporting unit exceeds its carrying value. If we elect to quantitatively assess goodwill, or it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, we estimate the fair values of each of our reporting units. Fair value is determined using an income approach (discounted cash flow method). We believe an income approach provides the most reliable indication of fair value as it reflects forecasted revenues and earnings based on business and market conditions that are unique to each individual reporting unit, which a market approach may not fully incorporate. Because the business is assumed to continue in perpetuity, the discounted cash flows include a terminal value. Cash flows to perpetuity are forecasted based on projected revenue growth and our planned business strategies in future periods. Examples of planned strategies would include a plant or line expansion at an existing facility; a reduction of working capital at a specific location; and price increases or cost reductions within a reporting unit. The discount rate is based on a reporting unit's targeted weighted-average cost of capital, which is not necessarily the same as our weighted-average cost of capital. These assumptions are subject to change and are impacted by our ability to achieve our forecasts and by economic conditions that may impact future results and result in projections not being attained. Each year we re-evaluate the assumptions used to reflect changes in the business environment.
For the year ended January 2, 2021 and December 28, 2019, we performed a qualitative assessment of goodwill and determined that the fair values of the Tradin Organic and Fruit Snacks reporting units with goodwill significantly exceeded their carrying values. As a result, we concluded that goodwill was not impaired in 2020 or 2019. Based on the results of quantitative testing performed for the year ended December 29, 2018, we recognized a goodwill impairment charge of $81.2 million (accumulated $196.2 million) to fully write-off the goodwill associated with the Frozen Fruit reporting unit, which is included in the Fruit-Based Foods and Beverages segment.
Intangible Assets
We evaluate amortizable intangible assets acquired through business combinations for impairment if events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. Our evaluation is based on an assessment of potential indicators of impairment, such as an adverse change in the business climate that could affect the value of an asset; the loss of a significant customer; current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset; the introduction of a competing product that results in a significant loss of market share; and a current expectation that, more likely than not, an intangible asset will be disposed of before the end of its previously estimated useful life, such as a plan to exit a product line or business in the near term.
Impairment exists when the carrying amount of an amortizable intangible asset is not recoverable through undiscounted future cash flows and its carrying value exceeds its estimated fair value. A discounted cash flow analysis is typically used to determine fair value using estimates and assumptions that market participants would apply. Some of the estimates and assumptions inherent in a discounted cash flow model include the amount and timing of the projected future cash flows, and the discount rate used to reflect the risks inherent in the future cash flows. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on our results of operations. In addition, an intangible asset's expected useful life can increase estimation risk, as longer-lived assets necessarily require longer-term cash flow forecasts, which for some of our long-lived assets can be in excess of 20 years. In connection with an impairment evaluation, we also reassess the remaining useful life of the intangible asset and modify it, as appropriate.
Contingencies
We make estimates for payments that are contingent on the outcome of uncertain future events. These contingencies include accrued but unpaid bonuses; tax-related matters; and claims or litigation. In establishing our estimates, we consider historical experience with similar contingencies and the progress of each contingency, as well as the recommendations of internal and external advisors and legal counsel. We re-evaluate all contingencies as additional information becomes available; however, given the inherent uncertainties, the ultimate amount paid could differ from our estimates.
SUNOPTA INC. 53 January 2, 2021 10-K
Income Taxes
We are liable for income taxes in the U.S., Canada, and Mexico. Our effective tax rate differs from the statutory tax rate and will vary from year to year primarily as a result of numerous permanent differences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory tax rate increases or reductions in the year, the benefit of cross-jurisdictional financing structures, changes due to foreign exchange, changes in valuation allowance based on our recoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations.
In making an estimate of our income tax liability, we first assess which items of income and expense are taxable in a particular jurisdiction. This process involves a determination of the amount of taxes currently payable as well as the assessment of the effect of temporary timing differences resulting from different treatment of items for accounting and tax purposes. These differences in the timing of the recognition of income or the deductibility of expenses result in deferred income tax balances that are recorded as assets or liabilities as the case may be on our balance sheet. We also estimate the amount of valuation allowance to maintain relating to loss carry forwards and other balances that can be used to reduce future taxes payable. This judgment is based on forecasted results in the jurisdiction and certain tax planning strategies and as a result actual results may differ from forecasts. We assess the likelihood of the ultimate realization of these tax assets by looking at the relative size of the tax assets in relation to the profitability of the businesses and the jurisdiction to which they can be applied, the number of years based on management's estimate it will take to use the tax assets and any other special circumstances. If different judgments had been used, our income tax liability could have been different from the amount recorded. In addition, the taxing authorities of those jurisdictions upon audit may not agree with our assessment. Note 19 of the consolidated financial statements at Item 15 of this Form 10-K provides an analysis of the changes in the valuation allowance and the components of our deferred tax assets.
While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could differ from our accrued position. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is provided in note 1 of the consolidated financial statements at Item 15 of this Form 10-K.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk
Variable and fixed rate borrowings carry different types of interest rate risk. Variable rate debt gives less predictability to earnings and cash flows as interest rates change, while the fair value of fixed rate debt is affected by changes in interest rates. As at January 2, 2021, we had $50.9 million of variable rate debt, mainly comprised of our revolving credit facility, and $18.8 million principal amount of fixed rate debt, comprised of finance leases. A one percent, or 100 basis-point, change in interest rates would have a pre-tax effect of approximately $0.5 million on our earnings and cash flows, based on current outstanding borrowings of variable rate debt, and the fair value of the fixed-rate finance leases would increase or decrease by approximately $3.0 million.
Foreign currency risk
All of our U.S. subsidiaries use the U.S. dollar as their functional currency, and the U.S. dollar is also our reporting currency. In addition, the functional currency of our Canadian and Mexican operations is the U.S. dollar. As at January 2, 2021, a 10% change in foreign exchange rates would not have a material impact on our consolidated financial position, results of operations, or cash flows.
Our operations based in the U.S. and Canada have limited exposure to other currencies since almost all sales and purchases are made in U.S. dollars. Our Mexican operations are exposed to fluctuations in the Mexican peso on purchases of fruit inventory and operating costs in Mexico. As at January 2, 2021, we held a combination of foreign currency put and call option contracts (a zero-cost collar), with a total notional amount of approximately $12 million, to economically hedge our exposure to the Mexican peso. The collar has a ceiling rate of 24.00 Mexican pesos to the U.S. dollar and a floor rate of 21.14 Mexican pesos to the U.S. dollar. If the spot rate is between the ceiling and floor rates on the date of maturity of each of the contracts, then we do not recognize any gain or loss under these contracts. If the spot rate goes below the floor rate of the collar, we will recognize a foreign exchange gain, and if the spot rate goes above the ceiling rate of the collar, we will recognize a foreign exchange loss. As at January 2, 2021, these contracts were marked-to-market resulting in an unrealized gain of $0.8 million.
SUNOPTA INC. 54 January 2, 2021 10-K
Price risk
Certain commodities we use in the production of our products are exposed to market price risk, including fruit varieties and sunflower seeds. In addition, other inputs, such as packaging materials, fuel, energy, storage, and freight, are exposed to price fluctuations due to weather conditions, regulations, industry and general U.S. and global economic conditions, fuel prices, energy costs, transportation and storage demands, or other factors that are beyond our control. We currently do not utilize derivative contracts to hedge our exposure to fluctuations in input prices. Changes in the prices of our products may lag changes in the costs to produce our products due to contractual limitation or competitive pressures. If we are unable to increase our prices to offset increasing costs, our gross margins, operating results, and cash flows could be materially affected.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements required by this item are set forth immediately following the signature page to this Form 10-K beginning on page and are incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
SUNOPTA INC. 55 January 2, 2021 10-K

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission's rules and forms. Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the period covered by this annual report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of January 2, 2021.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
Our internal control framework and processes are designed to provide reasonable assurance to management and our Board of Directors regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
All internal control systems, no matter how well designed, have inherent limitations. Because of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of January 2, 2021. In making this assessment, management used the criteria set forth by the Committee on Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).
Based on its assessment, our management concluded that our internal control over financial reporting was effective as of January 2, 2021, based on those criteria.
The effectiveness of our internal control over financial reporting as of January 2, 2021 has been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, that also audited our consolidated financial statements for the year ended January 2, 2021, as stated in their reports which appear herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended January 2, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
SUNOPTA INC. 56 January 2, 2021 10-K
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of SunOpta Inc.
Opinion on Internal Control over Financial Reporting
We have audited SunOpta Inc.'s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, SunOpta Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated March 3, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
March 3, 2021
SUNOPTA INC. 57 January 2, 2021 10-K

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
SUNOPTA INC. 58 January 2, 2021 10-K
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated herein by reference to our Definitive Proxy Statement for the Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission not later than 120 days after January 2, 2021 (the "2021 Proxy Statement").

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference from the 2021 Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under this item is incorporated herein by reference from the 2021 Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated herein by reference from the 2021 Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information required under this item is incorporated herein by reference from the 2021 Proxy Statement.
SUNOPTA INC. 59 January 2, 2021 10-K
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
The following documents are being filed as part of this annual report.
1. Financial Statements. See "Index to Consolidated Financial Statements" set forth on page.
2. Financial Statement Schedules. All schedules for which provision is made in the applicable accounting requirements of the Securities and Exchange Commission are not required or the required information has been included within the financial statements or the notes thereto.
3. Exhibits. The list of exhibits in the Exhibit Index included in this annual report is incorporated herein by reference.
EXHIBIT INDEX
Exhibits Description
2.1 Asset Purchase Agreement, dated as of February 22, 2019, by and between Pipeline Foods, LLC and SunOpta Grains and Foods Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 26, 2019).
2.2 Signing Protocol, dated November 10, 2020, by and among Coöperatie SunOpta U.A., SunOpta Inc., SunOpta Holdings, LLC, and Amsterdam Commodities N.V. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on November 12, 2020).
2.3 Master Purchase Agreement, dated November 25, 2020, by and among Coöperatie SunOpta U.A., SunOpta Inc., SunOpta Holdings, LLC, and Amsterdam Commodities N.V. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on November 30, 2020).
3.1 Amalgamation of Stake Technology Ltd. and 3754481 Canada Ltd. (formerly George F. Pettinos (Canada) Limited) (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000).
3.2 Certificate of Amendment, dated October 31, 2003, to change the Company's name from Stake Technology Ltd. to SunOpta Inc. (incorporated by reference to Exhibit 3i(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003).
3.3 Articles of Amalgamation of SunOpta Inc. and Sunrich Valley Inc., Integrated Drying Systems Inc., Kettle Valley Dried Fruits Ltd., Pro Organics Marketing Inc., Pro Organics Marketing (East) Inc., 4157648 Canada Inc. and 4198000 Canada Ltd., dated January 1, 2004 (incorporated by reference to Exhibit 3i(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003).
3.4 Articles of Amalgamation of SunOpta Inc. and 6319734 Canada Inc., 4157656 Canada Inc. and Kofman-Barenholtz Foods Limited, dated January 1, 2005 (incorporated by reference to Exhibit 3i(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 2004).
3.5 Articles of Amalgamation of SunOpta Inc. and 4307623 Canada Inc., dated January 1, 2006 (incorporated by reference to Exhibit 3i(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 2005).
3.6 Articles of Amalgamation of SunOpta Inc., 4208862 SunOpta Food Ingredients Canada Ltd., 4406150 Canada Inc. and 4406168 Canada Inc., dated January 1, 2007 (incorporated by reference to Exhibit 3i(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 2007).
SUNOPTA INC. 60 January 2, 2021 10-K
Exhibits Description
3.7 Articles of Amalgamation of SunOpta Inc. and 4460596 Canada Inc., dated January 1, 2008 (incorporated by reference to Exhibit 3i(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 2007).
3.8 Amended and Restated By-law No. 14, dated May 27, 2010 (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 filed on July 3, 2014).
3.9 Certificate of Amendment, dated July 10, 2013, to authorize the directors to fix the number of directors to be elected by the shareholders and to appoint one or more directors (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-3 filed on July 3, 2014).
3.10 By-Law Number 15 of SunOpta Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 13, 2015).
4.1 Form of Certificate representing Common Shares, no par value (incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-8 filed on September 2, 2011).
4.2 Shareholder Rights Plan Agreement, dated November 10, 2015, between SunOpta Inc. and American Stock Transfer & Trust Company, LLC, as rights agent (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on November 13, 2015).
4.3 Amended and Restated Shareholder Rights Plan Agreement, dated November 10, 2015, amended and restated as of April 18, 2016, between SunOpta Inc. and American Stock Transfer & Trust Company, LLC, as rights agent (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 20, 2016).
4.4 Amended and Restated Certificate of Incorporation of SunOpta Foods Inc., setting forth the terms of its Series A Preferred Stock, which is exchangeable for Common Shares of SunOpta Inc. (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 12, 2016).
4.5 Articles of Amendment of SunOpta Inc., setting forth the terms of its Special Shares, Series 1 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on October 12, 2016).
4.6 Indenture, dated as of October 20, 2016, among SunOpta Foods, the guarantors named therein and U.S. Bank National Association, as trustee and notes collateral agent (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 26, 2016).
4.7 Form of 9.5% Senior Secured Second Lien Notes due 2022 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on October 26, 2016).
4.8 Second Lien U.S. Security Agreement, dated as of October 20, 2016, among the grantors referred therein and U.S. Bank National Association, as notes collateral agent (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed on October 26, 2016).
4.9 Second Lien Canadian Security Agreement, dated as of October 20, 2016, among the grantors referred therein and U.S. Bank National Association, as notes collateral agent (incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K filed on October 26, 2016).
4.10 Amended and Restated Intercreditor Agreement, dated as of October 20, 2016, among Bank of America, N.A. as first lien collateral agent, the Notes Collateral Agent and the grantors referred therein (incorporated by reference to Exhibit 4.5 to the Company's Current Report on Form 8-K filed on October 26, 2016).
SUNOPTA INC. 61 January 2, 2021 10-K
Exhibits Description
4.11 Second Amended and Restated Certificate of Incorporation of SunOpta Foods Inc., setting forth the terms of its Series B Preferred Stock, which is exchangeable for Common Shares of SunOpta Inc. (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 28, 2020).
4.12 Articles of Amendment of SunOpta Inc., setting forth the terms of its Special Shares, Series 2 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on April 28, 2020).
4.13* Description of Registrant's Securities Registered Under Section 12 of the Securities Exchange Act of 1934.
10.1† SunOpta Inc. 2002 Stock Option Plan, Amended and Restated May 2011 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 24, 2011).
10.2 Stock Deferral Plan for Non-Employee Directors dated August 12, 2014 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 5, 2014).
10.3+ Second Lien Loan Agreement, dated October 9, 2015, among SunOpta Inc., as Holdings, SunOpta Foods Inc., as the Borrower, Certain Subsidiaries of SunOpta Inc., as Subsidiary Guarantors and Loan Parties, the Several Lenders from Time to Time Parties Hereto, Bank of Montreal, as Administrative Agent and Collateral Agent, BMO Capital Markets Corp. and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Joint Lead Arrangers and Joint Bookrunners (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 3, 2015).
10.4+ Credit Agreement, dated as of February 11, 2016, among SunOpta Inc., SunOpta Foods Inc., The Organic Corporation B.V., the other borrowers and guarantors party thereto, the lenders party thereto, Bank of America, N.A., as U.S. Administrative Agent, Bank of America, N.A. (acting through its Canada Branch), as Canadian Administrative Agent, Bank of America, N.A. (acting through its London Branch), as Dutch Administrative Agent, and Bank of America, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 17, 2016).
10.5 Second Amending Agreement, dated October 9, 2015, amending the Seventh Amended and Restated Credit Agreement, among SunOpta Inc. and SunOpta Foods, as Borrowers, Each of the Financial Institutions and Other Entities from Time to Time Parties Thereto, as Lenders, Certain Affiliates of the Borrowers, as Obligors, and Bank of Montreal, as Agent (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended January 2, 2016).
10.6 First Amendment, dated as of October 7, 2016, to the Credit Agreement, dated as of February 11, 2016, among SunOpta Inc., SunOpta Foods Inc., The Organic Corporation B.V., each of the other borrowers and guarantors party thereto from time to time, the lenders party thereto from time to time, Bank of America, N.A., as U.S. Administrative Agent, Bank of America, N.A. (acting through its Canada Branch), as Canadian Administrative Agent, Bank of America, N.A. (acting through its London Branch), as Dutch Administrative Agent under the Dutch, and Bank of America, N.A, as Collateral Agent (incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 2016).
10.7 First Amendment, dated as of October 7, 2016, to the Second Lien Loan Agreement, dated as of October 9, 2015, among SunOpta Inc., SunOpta Foods Inc., certain subsidiaries of SunOpta Inc., the several banks and other financial institutions or entities from time to time party thereto, and Bank of Montreal, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 2016).
SUNOPTA INC. 62 January 2, 2021 10-K
Exhibits Description
10.8 Subscription Agreement, dated October 7, 2016, between SunOpta Inc., SunOpta Foods Inc. and Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 12, 2016).
10.9 Investor Rights Agreement, dated October 7, 2016, between SunOpta Inc., SunOpta Foods Inc. and Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 12, 2016).
10.10 Exchange and Support Agreement, dated October 7, 2016, between SunOpta Inc., SunOpta Foods Inc., Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. and any person that becomes a Holder of Preferred Stock, from time to time (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on October 12, 2016).
10.11 Voting Trust Agreement, dated October 7, 2016, between SunOpta Inc., SunOpta Foods Inc., the trustee named therein, Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. and any other Holder of Preferred Stock, from time to time (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on October 12, 2016).
10.12 Second Amendment and Joinder, dated September 19, 2017, to the Credit Agreement, dated as of February 11, 2016, among SunOpta Inc., SunOpta Foods Inc., The Organic Corporation B.V., the other borrowers and guarantors party thereto, the lenders party thereto, Bank of America, N.A., as U.S. Administrative Agent, Bank of America, N.A. (acting through its Canada Branch), as Canadian Administrative Agent, Bank of America, N.A. (acting through its London Branch), as Dutch Administrative Agent, and Bank of America, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 22, 2017).
10.13 Consent to Purchase Shares, dated May 6, 2017, among SunOpta Inc., Oaktree Organics, L.P., and Oaktree Huntington Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 8, 2017).
10.14 Amendment Agreement, dated May 6, 2017, between SunOpta Inc., Oaktree Organics, L.P., Oaktree Huntington Investment Fund II, L.P., SunOpta Foods Inc. and OCM SunOpta Trustee, LLC. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 8, 2017).
10.15 Third Amendment and Joinder, dated as of October 22, 2018, to the Credit Agreement, dated as of February 11, 2016 (as amended by the First Amendment dated as of October 7, 2016 and as further amended by the Second Amendment and Joinder dated as of September 19, 2017), among SunOpta Inc., SunOpta Foods Inc., The Organic Corporation B.V., the other borrowers and guarantors party thereto, the lenders party thereto, Bank of America, N.A., as U.S. Administrative Agent, Bank of America, N.A. (acting through its Canada Branch), as Canadian Administrative Agent, Bank of America, N.A. (acting through its London Branch), as Dutch Administrative Agent, and Bank of America, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 25, 2018).
10.16† Employment Agreement, effective March 29, 2019, between SunOpta Inc. and Joseph D. Ennen (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 2, 2019).
10.17† Restricted Stock Award Agreement, dated effective April 1, 2019, between SunOpta Inc. and Joseph D. Ennen (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 2, 2019).
SUNOPTA INC. 63 January 2, 2021 10-K
Exhibits Description
10.18† Stock Option Award Agreement, dated effective April 1, 2019, between SunOpta Inc. and Joseph D. Ennen (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 2, 2019).
10.19† Performance Share Unit Award Agreement, dated effective April 1, 2019, between SunOpta Inc. and Joseph D. Ennen (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on April 2, 2019).
10.20† Employment Agreement, dated August 30, 2019, between SunOpta Inc. and Scott E. Huckins (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 5, 2019).
10.21† Restricted Stock Award Agreement, dated effective September 3, 2019, between SunOpta Inc. and Scott Huckins (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on September 5, 2019).
10.22† Stock Option Award Agreement, dated effective September 3, 2019, between SunOpta Inc. and Scott Huckins (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on September 5, 2019).
10.23† Performance Share Unit Award Agreement, dated effective September 3, 2019, between SunOpta Inc. and Scott Huckins (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on September 5, 2019).
10.24 Subscription Agreement, dated April 15, 2020, between SunOpta Inc., SunOpta Foods Inc., Oaktree Organics, L.P., Oaktree Huntington Investment Fund II, L.P., Engaged Capital, LLC, Engaged Capital Flagship Master Fund, LP and Engaged Capital Co-Invest IV-A, LP. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 20, 2020).
10.25 Exchange and Support Agreement, dated April 24, 2020, between SunOpta Inc., SunOpta Foods Inc., Engaged Capital Flagship Master Fund, LP, Engaged Capital, LLC and Engaged Capital Co-Invest IV-A, LP, Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. and any person that becomes a Holder of Preferred Stock, from time to time (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 28, 2020).
10.26 Voting Trust Agreement, dated April 24, 2020, between SunOpta Inc., SunOpta Foods Inc., the trustee named therein, Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. and any other Holder of Preferred Stock, from time to time (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 28, 2020).
10.27 Voting Trust Agreement, dated April 24, 2020, between SunOpta Inc., SunOpta Foods Inc., the trustee named therein, Engaged Capital Flagship Master Fund, LP, Engaged Capital, LLC and Engaged Capital Co-Invest IV-A, LP and any other Holder of Preferred Stock, from time to time (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on April 28, 2020).
10.28 Amended and Restated Investor Rights Agreement, dated April 24, 2020, between SunOpta Inc., SunOpta Foods Inc. and Oaktree Organics, L.P. and Oaktree Huntington Investment Fund II, L.P. (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed on April 28, 2020).
10.29 Amended and Restated Observer Governance and Confidentiality Agreement, dated April 24, between SunOpta Inc. and Zachary Serebrenik (incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed on April 28, 2020).
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Exhibits Description
10.30 Investor Rights Agreement, dated April 24, 2020, between SunOpta Inc., SunOpta Foods Inc. and Engaged Capital Flagship Master Fund, LP, Engaged Capital, LLC and Engaged Capital Co-Invest IV-A, LP (incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K filed on April 28, 2020).
10.31 Fourth Supplemental Indenture, dated April 23, 2020, between SunOpta Foods Inc., SunOpta Inc., the other guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K filed on April 28, 2020).
10.32† Amended 2013 Stock Incentive Plan (incorporated by reference to Exhibit A to the Company's Definitive Proxy Statement on Schedule 14A filed on May 1, 2020).
10.33+ Restatement Agreement, dated as of January 28, 2020, amending and restating the Credit Agreement, dated as of February 11, 2016 (as amended by the First Amendment dated as of October 7, 2016, Second Amendment and Joinder dated as of September 19, 2017 and as further amended by the Third Amendment and Joinder dated as of October 22, 2018), among SunOpta Inc., SunOpta Foods Inc., The Organic Corporation B.V., the other borrowers and guarantors party thereto, the lenders party thereto, Bank of America, N.A., as U.S. Administrative Agent, Bank of America, N.A. (acting through its Canada Branch), as Canadian Administrative Agent, Bank of America, N.A. (acting through its London Branch), as Dutch Administrative Agent, and Bank of America, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 30, 2020).
10.34† SunOpta Inc. 2020 Short Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 2020).
10.35† SunOpta Inc. 2020 Long Term Incentive Plan Summary (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 2020).
10.36+ Second Restatement Agreement, dated as of December 31, 2020, amending and restating the Existing Credit Agreement, dated as of February 11, 2016 (as amended by (i) the First Amendment dated as of October 7, 2016, (ii) the Second Amendment and Joinder dated as of September 19, 2017, (iii) the Third Amendment and Joinder dated as of October 22, 2018, and as amended and restated by the Restatement Agreement, dated as of January 28, 2020), among SunOpta Inc., SunOpta Foods Inc., the other borrowers and guarantors party thereto, the lenders party thereto, Bank of America, N.A., as administrative agent, collateral agent, an issuing bank and the swingline lender, and JPMorgan Chase Bank, N.A., as term loan administrative agent (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 5, 2021).
21* List of subsidiaries.
23.1* Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1* Certification by Joseph D. Ennen, Chief Executive Officer, pursuant to Rule 13a - 14(a) under the Securities Exchange Act of 1934, as amended.
31.2* Certification by Scott Huckins, Chief Financial Officer, pursuant to Rule 13a - 14(a) under the Securities Exchange Act of 1934, as amended.
32* Certifications by Joseph D. Ennen, Chief Executive Officer, and Scott Huckins, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
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Exhibits Description
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+ Exhibits and schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. SunOpta will furnish copies of the omitted exhibits and schedules to the Securities and Exchange Commission upon its request.
† Indicates management contract or compensatory plan or arrangement.
* Filed herewith.
SUNOPTA INC. 66 January 2, 2021 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUNOPTA INC.
/s/ Scott Huckins
Scott Huckins
Chief Financial Officer
Date: March 3, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Joseph D. Ennen
Joseph D. Ennen Chief Executive Officer and Director
(Principal Executive Officer) March 3, 2021
/s/ Scott Huckins
Scott Huckins Chief Financial Officer
(Principal Financial and Accounting Officer) March 3, 2021
/s/ Dean Hollis
Dean Hollis Chair of the Board and Director March 3, 2021
/s/ Albert Bolles
Albert Bolles Director March 3, 2021
/s/ Derek Briffett
Derek Briffett Director March 3, 2021
/s/ Rebecca Fisher
Rebecca Fisher Director March 3, 2021
/s/ Katrina Houde
Katrina Houde Director March 3, 2021
/s/ Leslie Starr Keating
Leslie Starr Keating Director March 3, 2021
/s/ Ken Kempf
Ken Kempf Director March 3, 2021