Value Creation Plan

12 Months Ended

Dec. 29, 2018

Restructuring And Related Activities [Abstract]

Restructuring And Related Activities Disclosure [Text Block]

3. 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”), and, on that date, 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 13). 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 implemented 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, premium juice facility and the Company’s soy extraction facility in Heuvelton, New York.

In 2017, further measures taken under the Value Creation Plan included the exits from flexible resealable pouch and nutrition bar product lines and operations (see below); the consolidation of grain operations and related closure of a grain-handling facility in Moorhead, Minnesota; and the consolidation of roasted snack operations and related closure of the Company’s Wahpeton, North Dakota, roasting facility (which was completed in the second quarter of 2018). In addition, the Company made organizational changes within its management and executive teams, 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.

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 $3.1 million, $53.1 million and $59.3 million for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively. Losses before income taxes from these operations were $0.5 million, $24.4 million and $2.1 million for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively. For the year ended December 29, 2018, the loss before income taxes from these operations included the recognition of the remaining lease obligation of $0.7 million (net of sublease rentals) related to the vacated nutrition bar processing facility. 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), impairments of long-lived assets ($13.2 million), and employee termination costs ($1.7 million) related to the exit activities. 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 by year and in total since the inception of the Value Creation Plan to December 29, 2018:

		(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		(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

Fiscal 2018
Costs incurred and charged to expense		1,364	600	410	2,374
Cash receipts (payments), net		1,068	(4,591)	(410)	(3,933)
Non-cash adjustments		(1,255)	-	-	(1,255)
	Balance payable, December 29, 2018⁽¹⁾	477	436	-	913

Total
Costs incurred and charged to expense		34,652	14,981	20,979	70,612
Cash payments, net		(9,678)	(14,968)	(20,979)	(45,625)
Non-cash adjustments		(24,497)	423	-	(24,074)
	Balance payable, December 29, 2018⁽¹⁾	477	436	-	913

(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 the year ended December 29, 2018, costs incurred included the remaining lease obligation related to the vacated nutrition bar processing facility (net of sublease rentals), and an additional impairment loss related to the Wahpeton roasting facility to reflect net proceeds of $0.7 million received on the sale of the facility. Net cash receipts also included proceeds on the sale of nutrition bar equipment of $0.7 million. The balance payable as at December 29, 2018, represents the remaining nutrition bar facility lease obligation (net of sublease rentals), which extends until December 2020.

For the year ended December 30, 2017, costs incurred included 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.

For the year ended December 31, 2016, represents asset impairment losses of $11.5 million related 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 existing and new employees; and severance benefits, net of forfeitures of stock-based awards, and legal costs related to employee terminations. Retention bonuses were paid out in the first quarter of 2018 to employees who remained employed by the Company through December 31, 2017, or other specified dates. Certain employees were entitled to pro-rata payouts of their retention bonuses if their employment terminated earlier than their retention payment date. The balance payable as at December 29, 2018, will be paid in equal monthly instalments over the next 11 months.

Represents the cost for third-party consultants and temporary labor engaged to support the design and implementation of the Value Creation Plan, which efforts were substantially completed during fiscal 2017, as well as other professional fees incurred in the connection with the plan.

For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, costs incurred and charged to expense were recorded in the consolidated statement of operations as follows:

	December 29, 2018	December 30, 2017	December 31, 2016
	$	$	$
Cost of goods sold⁽¹⁾	100	3,189	-
Selling, general and administrative expenses⁽²⁾	613	22,894	4,041
Other expense⁽³⁾	1,661	23,829	14,285
	2,374	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/professional 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 29, 2018, asset impairment, lease obligation and employee termination costs recorded in other expense were allocated as follows: Raw Material Sourcing and Supply operating segment - $0.7 million; Consumer Products operating segment - $0.8 million; and Corporate Services - $0.2 million. 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.