Value Creation Plan

6 Months Ended

Jul. 01, 2017

Restructuring And Related Activities [Abstract]

Restructuring And Related Activities Disclosure [Text Block]

2.Value Creation Plan

On October 7, 2016, the Company entered into a strategic partnership with Oaktree Capital Management L.P., a private equity investor (together with its affiliates, “Oaktree”). On October 7, 2016, Oaktree invested $85.0 million through the purchase of cumulative, non-participating Series A Preferred Stock (the “Preferred Stock”) of the Company’s wholly-owned subsidiary, SunOpta Foods Inc. (“SunOpta Foods”) (see note 8). The Company conducted, with the assistance of Oaktree, a thorough review of its operations, management and governance, with the objective of maximizing the Company’s ability to deliver long-term value to its shareholders. Through this review, the Company developed a Value Creation Plan built on four pillars: portfolio optimization, operational excellence, go-to-market effectiveness and process sustainability. The Company engaged management consulting firms to support the design and implementation of the Value Creation Plan.

In the fourth quarter of 2016, measures taken under the Value Creation Plan included the closure of the Company’s San Bernardino, California, juice facility and the Company’s soy extraction facility in Heuvelton, New York. In addition, effective November 11, 2016, Hendrik Jacobs stepped down as the Company’s President and Chief Executive Officer (“CEO”). In the first two quarters of 2017, further measures were taken, including the exit from the San Bernardino facility and equipment leases. In addition, the Company made organizational changes within its management and executive teams, including the appointment of David Colo as President and CEO effective February 6, 2017, and the recruitment of new employees in the areas of quality, sales, marketing, operations and engineering. In the first half of 2017, the Company also made capital investments at several of its manufacturing facilities to enhance food safety and production efficiencies.

The following table summarizes actual costs incurred since the inception of the Value Creation Plan to July 1, 2017:

		(a)	(b)	(c)
		Impairment of	Employee
		long-lived assets	recruitment,	Consulting fees
		and facility	retention and	and temporary
		closure costs	termination costs	labor costs	Total
		$	$	$	$
Fiscal 2016
Costs incurred and charged to expense		11,522	2,763	4,041	18,326
Cash payments		-	(694)	(2,384)	(3,078)
Non-cash adjustments		(11,522)	(266)	-	(11,788)
	Balance payable, December 31, 2016	-	1,803	1,657	3,460
Fiscal 2017
Costs incurred and charged to expense		4,095	3,478	9,710	17,283
Cash payments		(3,581)	(2,578)	(1,774)	(7,933)
Non-cash adjustments		(714)	276	-	(438)
	Balance payable (receivable), April 1, 2017	(200)	2,979	9,593	12,372
Costs incurred and charged to expense		262	2,550	4,876	7,688
Cash payments		(262)	(2,685)	(9,538)	(12,485)
Non-cash adjustments		-	51	-	51
	Balance payable (receivable), July 1, 2017	(200)	2,895	4,931	7,626

(a) Impairment of long-lived assets and facility closure costs

Represents asset impairment losses of $10.3 million and $1.2 million in the fourth quarter of 2016 related to the closures of the San Bernardino and Heuvelton facilities, respectively, and an additional asset impairment loss of $3.7 million in the first quarter of 2017 on the disposal of the San Bernardino assets, which included $3.2 million paid in the first quarter of 2017 for the early buyout of the San Bernardino equipment leases. In exchange for the San Bernardino assets, the facility landlord agreed to release the Company from its remaining property lease obligation and to pay proceeds of $0.2 million on December 31, 2017. Facility closure costs reflect $0.4 million incurred by the Company for rent and maintenance of the San Bernardino facility prior to its disposal to the landlord.

(b) Employee recruitment, retention and termination costs

Represents third-party recruiting fees incurred to identify and retain new employees;reimbursement of relocation costs for new employees; retention and signing bonuses accrued for certain existingand new employees; and severance benefits, net of forfeitures of stock-based awards, and legal costs related to employee terminations. Some employee termination costs will be paid out in periods after termination. Retention bonuses will be paid out to employees who remain employed by the Company through specified retention dates. Certain employees will be entitled to pro-rata payouts of their retention bonuses if their employment terminates earlier than their retention payment date.

(c) Consulting fees and temporary labor costs

Represents the cost for third-party consultants and temporary labor engaged to support the design and implementation of the Value Creation Plan. A portion of the consulting fees incurred in fiscal 2016 were related to external financial and legal advisors engaged to review the Company’s operating plan and evaluate a range of strategic and financial actions that the Company could take to maximize shareholder value, which concluded with the strategic partnership with Oaktree.

For the quarter and two quarters endedJuly 1, 2017, costs incurred and charged to expense were recorded in the consolidated statement of operations as follows:

	Quarter ended	Two quarters ended
	July 1, 2017	July 1, 2017
	$	$
Cost of goods sold(1)	262	634
Selling, general and administrative expenses(2)	7,001	18,439
Other expense(3)	425	5,898
	7,688	24,971

(1) Facility closure costs recorded in cost of goods sold were allocated to the Consumer Products operating segment.

(2)Consulting fees and temporary labor costs, and employee recruitment, relocation and retention costs recorded in selling, general and administrative expenses were allocated to Corporate Services.

(3)Asset impairment and employee termination costs recorded in other expense were not allocated to the Company’s operating segments or Corporate Services.

The Company estimates remaining third-party consulting, and employee recruitment, retention and termination costs related to the Value Creation Plan to be incurred and expensed during the second half of fiscal 2017 will be approximately $4 million.This estimate does not include currently unforeseen asset impairment charges or employee-related costs that may arise from future actions taken under the Value Creation Plan. Costs incurred through the second quarter of 2017 related to the Value Creation Plan were higher than expected, due to the extended support of third-party consultants to assist with certain initiatives, including food safety and quality, procurement, and enhancements to our enterprise resource planning systems.

In the fourth quarter of 2017, the Company intends to discontinue flexible resealable pouch products as part of the Value Creation Plan and to sell the related production equipment(see note 16). The Company expects to incur a loss of $8.0 million to $9.0 million related to the sale of the flexible resealable pouch assets.