Value Creation Plan

3 Months Ended

Mar. 31, 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”). 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 7). 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 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), as well as 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 planned closure of the Company’s Wahpeton, North Dakota, roasting facility. 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.

Flexible Resealable Pouch and Nutrition Bar Product Lines and Operations

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 period. Revenues from sales of these product lines were $2.6 million and $15.4 million for the quarters ended March 31, 2018 and April 1, 2017, respectively. Revenues reported from these operations for the quarter ended March 31, 2018, related to the delivery of remaining inventories to customers under existing contracts at the time of exit. Losses before income taxes from these operations were $1.3 million and $2.0 million for the quarters ended March 31, 2018 and April 1, 2017, respectively. For the quarter ended March 31, 2018, the loss before income taxes from these operations included the recognition of the remaining lease obligation of $1.3 million related to the vacated nutrition bar processing facility. These operations are included in the Consumer Products operating segment.

Costs Incurred Under the Value Creation Plan

The following table summarizes costs incurred under the Value Creation Plan for the quarters ended March 31, 2018 and April 1, 2017:

	(a)	(b)	(c)
		Employee
	Asset	recruitment,	Consulting
	impairments	retention and	fees and
	and facility	termination	temporary
	closure costs	costs	labor costs	Total
	$	$	$	$
March 31, 2018
Balance payable (receivable), December 30, 2017⁽¹⁾	(700)	4,427	-	3,727
Costs incurred and charged to expense	1,650	435	110	2,195
Cash receipts (payments), net	700	(2,883)	(110)	(2,293)
Non-cash adjustments	(339)	-	-	(339)
Balance payable, March 31, 2018⁽¹⁾	1,311	1,979	-	3,290

April 1, 2017
Balance payable, December 31, 2016	-	1,803	1,657	3,460
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

Balance payable was included in accounts payable and accrued liabilities and balance receivable was included in accounts receivable on the consolidated balance sheet.

(a) Asset impairments and facility closure costs

For the quarter ended March 31, 2018, costs incurred included the remaining lease obligation related to the vacated nutrition bar processing facility, and an additional impairment loss related to the Wahpeton roasting facility. Net cash receipts included proceeds on the sale of nutrition bar equipment. Balance payable as at March 31, 2018, represents the remaining nutrition bar facility lease obligation, which extends until December 2020. The Company is pursuing potential parties interested in assuming the facility lease.

For the quarter ended April 1, 2017, cost incurred included the early buyout of the San Bernardino equipment leases, as well as closure costs related to the San Bernardino facility prior to its disposal to the landlord. In exchange for the San Bernardino assets, the facility landlord released the Company from its remaining property lease obligation and paid proceeds of $0.2 million in December 2017.

(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.

Represents the cost for third-party consultants and temporary labor engaged to support the design and implementation of the Value Creation Plan. These efforts were substantially completed during fiscal 2017.

The following table summarizes costs incurred since the inception of the Value Creation Plan to March 31, 2018:

		Employee
	Asset	recruitment,	Consulting
	impairments	retention and	fees and
	and facility	termination	temporary
	closure costs	costs	labor costs	Total
	$	$	$	$
Costs incurred and charged to expense	34,938	14,816	20,679	70,433
Cash payments, net	(10,046)	(13,260)	(20,679)	(43,985)
Non-cash adjustments	(23,581)	423	-	(23,158)
Balance payable, March 31, 2018	1,311	1,979	-	3,290

For the quarters ended March 31, 2018 and April 1, 2017, costs incurred and charged to expense were recorded in the consolidated statement of operations as follows:

	Quarter ended
	March 31, 2018	April 1, 2017
	$	$
Cost of goods sold⁽¹⁾	100	372
Selling, general and administrative expenses⁽²⁾	313	11,438
Other expense⁽³⁾	1,782	5,473
	2,195	17,283

(1) Facility closure costs, including inventory write-downs, 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 quarter ended March 31, 2018, asset impairment, lease obligation and employee termination costs recorded in other expense were allocated as follows: Raw Material Sourcing and Supply operating segment - $0.3 million (April 1, 2017 – $nil); Consumer Products operating segment - $1.3 million (April 1, 2017 – $4.7 million); and Corporate Services - $0.1 million (April 1, 2017 – $0.8 million).