Value Creation Plan

12 Months Ended

Dec. 30, 2017

Restructuring And Related Activities [Abstract]

Restructuring And Related Activities Disclosure [Text Block]

4.Value Creation Plan

Overview

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 14). Following the strategic partnership, with the assistance of Oaktree, the Company conducted 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. As a product of 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 third-party management consulting firms to support the design and implementation of the Value Creation Plan.

In 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 2017, further measures were taken under the Value Creation Plan, including the exits from flexible resealable pouch and nutrition bar product lines and operations (as described below), as well as the consolidation of grain operations and related closure of a grain-handling facility in Moorhead, Minnesota, and the planned consolidation of roasted snack operations and related closure of the Company’s Wahpeton, North Dakota, roasting facility. 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, along with new leadership to many corporate, commercial and operational functions. The Company also added new employees in the areas of quality, sales, marketing, operations and engineering, and made capital investments at several of its manufacturing facilities to enhance food safety and production efficiencies.

Exit from Flexible Resealable Pouch and Nutrition Bar Product Lines and Operations

On July 26, 2017, SunOpta Foods entered an agreement with Skjodt-Barrett Contract Packaging LLC to sell equipment used in the production of flexible resealable pouches at the Company’s Allentown, Pennsylvania facility for gross proceeds of $2.0 million ($1.3 million net of costs to sell). The transaction closed on November 3, 2017. The Company continued to produce flexible resealable pouch products for existing customers until the closing date. The Company’s aseptic beverage operations were not affected by the sale of assets, and the Company will continue to produce aseptic beverages at its Allentown facility.

On September 27, 2017, the Company announced its intention to exit its nutrition bar product lines and operations in Carson City, Nevada, with final production for customers ending on December 20, 2017. On November 21, 2017, the Company entered into an agreement to sell the nutrition bar equipment for gross proceeds of $0.9 million, of which $0.2 million was received on signing and $0.7 million was received at closing on January 3, 2018. The Company is pursuing potential parties interested assuming the facility lease.

As the flexible resealable pouch and nutrition bar product lines and operations do not qualify for presentation as discontinued operations, operating results from these activities were reported in continuing operations on the consolidated statements of operations for the current and comparative periods. Revenues from sales of these product lines were $53.1 million, $59.3 million and $58.1 million for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. Losses before income taxes from these operations were $24.4 million, $2.1 million and $2.8 million for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. For the year ended December 30, 2017, the loss before income taxes from these operations included write-offs of accounts receivable and inventory ($2.9 million) and impairments of long-lived assets ($13.2 million) related to the exit activities, as well as employee termination costs of $1.7 million. These operations were included in the Consumer Products operating segment.

Continuity of Costs Incurred Under the Value Creation Plan

The following table summarizes costs incurred since the inception of the Value Creation Plan to December 30, 2017:

		(a)	(b)	(c)
			Employee
		Asset	recruitment,	Consulting
		impairments	retention and	fees and
		and facility	termination	temporary
		closure costs	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)	-	1,803	1,657	3,460
Fiscal 2017
Costs incurred and charged to expense		21,766	11,618	16,528	49,912
Cash payments, net of proceeds on disposal of assets		(10,746)	(9,683)	(18,185)	(38,614)
Non-cash adjustments		(11,720)	689	-	(11,031)
	Balance payable (receivable), December 30, 2017(1)	(700)	4,427	-	3,727

(1)Balance payable was included in accounts payable and accrued liabilities and balance receivable was included in accounts receivable on the consolidated balance sheets.

(a) Asset impairments and facility closure costs

For 2017, includes an additional asset impairment loss of $3.7 million on the disposal of the San Bernardino assets, and facility closure costs of $0.6 million incurred by the Company for rent and maintenance of the San Bernardino facility prior to its disposal. In addition, includes asset impairment losses related to the exits from flexible resealable pouch and nutrition bar operations of $16.1 million, and consolidation of the Company’s roasted snack operations of $1.3 million. Cash payments in 2017 related to the early buy-outs of the San Bernardino and flexible resealable pouch equipment leases, net of proceeds on the disposal of those assets, as well as on the sale of the nutrition bar equipment. Balance receivable as at December 30, 2017, represents remaining proceeds on the sale of the nutrition bar equipment received on January 3, 2018.

For 2016, represents asset impairment losses of $11.5 millionrelated to the closures of the San Bernardino and Heuvelton facilities.

(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. In addition, consulting fees incurred in the third quarter of 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 years endedDecember 30, 2017 and December 31, 2016, costs incurred and charged to expense were recorded in the consolidated statement of operations as follows:

	December 30, 2017	December 31, 2016
	$	$
Cost of goods sold(1)	3,189	-
Selling, general and administrative expenses(2)	22,894	4,041
Other expense(3)	23,829	14,285
	49,912	18,326

(1) Inventory write-downs and 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)For the year ended December 30, 2017, asset impairment and employee termination costs recorded in other expense were allocated as follows: Raw Material Sourcing and Supply operating segment - $2.1 million; Consumer Products operating segment - $20.6 million; and Corporate Services - $1.1 million. For the year ended December 31, 2016, asset impairment and employee termination costs recorded in other expense were allocated as follows: Raw Material Sourcing and Supply operating segment - $1.6 million; Consumer Products operating segment - $10.6 million; and Corporate Services - $2.1 million.