STKL 10-Q Quarter ended April 5, 2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 5, 2014

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________.

Commission file number: 001-34198

SUNOPTA INC.
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]      No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]      No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [_]      No [X]

The number of the registrant’s common shares outstanding as of May 9, 2014 was 66,688,500.

Basis of Presentation

Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q (“Form 10-Q”) to the “Company”, “SunOpta”, “we”, “us”, “our” or similar words and phrases are to SunOpta Inc. and its subsidiaries, taken together.

In this report, all currency amounts are expressed in thousands of United States (“U.S.”) dollars (“$”), except per share amounts, unless otherwise stated. Amounts expressed in Canadian dollars are expressed in thousands of Canadian dollars and preceded by the symbol “Cdn $”, and amounts expressed in euros are expressed in thousands of euros and preceded by the symbol “€”. As at April 5, 2014, the closing rates of exchange for the U.S. dollar, expressed in Canadian dollars and euros, were $1.00 = Cdn $1.0981 and $1.00 = €0.7297. These rates are provided solely for convenience and do not necessarily reflect the rates used in the preparation of our financial statements.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements which are based on our current expectations and assumptions and involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and are typically accompanied by words such as “anticipate”, “estimate”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, the negatives of such terms, and words and phrases of similar impact and include, but are not limited to references to possible operational consolidation, reduction of non-core assets and operations, business strategies, plant and production capacities, revenue generation potential, anticipated construction costs, competitive strengths, goals, capital expenditure plans, business and operational growth and expansion plans, anticipated operating margins and operating income targets, gains or losses associated with business transactions, cost reductions, rationalization and improved efficiency initiatives, proposed new product offerings, and references to the future growth of the business and global markets for the Company’s products. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our interpretation of current conditions, historical trends and expected future developments, as well as other factors that we believe are appropriate in the circumstance.

Whether actual results and developments will agree with our expectations and predictions is subject to many risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from our expectations and predictions. We believe these factors include, but are not limited to, the following:

• our ability to renew our syndicated North American credit facilities when they become due on July 27, 2016;

• restrictions in our syndicated credit agreement on how we may operate our business;

• our ability to meet the covenants of our credit facilities;

• our potential additional capital needs in order to maintain current growth rates, which may not be available on favorable terms or at all;

• our customers’ ability to choose not to buy products from us;

• loss of a key customer;

• changes in and difficulty in predicting consumer preferences for natural and organic food products;

• the highly competitive industry in which we operate;

• an interruption at one or more of our manufacturing facilities;

• the loss of service of our key management;

• the effective management of our supply chain;

• volatility in the prices of raw materials and energy;

• enactment of climate change legislation;

• unfavorable growing and operating conditions due to adverse weather conditions;

• dilution in the value of our common shares through the exercise of stock options, warrants, participation in our employee stock purchase plan and issuance of additional securities;

• impairment charges in goodwill or other intangible assets;

• technological innovation by our competitors;

• our ability to protect our intellectual property and proprietary rights;

• substantial environmental regulation and policies to which we are subject;

• significant food and health regulations to which SunOpta Foods is subject;

• agricultural policies that influence our operations;

• product liability suits, recalls and threatened market withdrawals that may be brought against us;

• litigation and regulatory enforcement concerning marketing and labeling of food products;

• our ability to realize the value of our investment in Opta Minerals Inc.;

• our lack of management and operational control over Mascoma Corporation and our ability to realize the value of our investment;

• fluctuations in exchange rates, interest rates and certain commodities;

• our ability to effectively manage our growth and integrate acquired companies; and

• the volatility of our operating results and share price.

Consequently all forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that our actual results or the developments we anticipate will be realized. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013 (“Form 10-K”). For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read the risk factors under Item 1A, “Risk Factors”, of the Form 10-K.

(See accompanying notes to consolidated financial statements)

(See accompanying notes to consolidated financial statements)

Commitments and contingencies (note 11)

(See accompanying notes to consolidated financial statements)

(See accompanying notes to consolidated financial statements)

Supplemental cash flow information (note 10)

(See accompanying notes to consolidated financial statements)

1. Description of Business and Significant Accounting Policies

SunOpta Inc. (the “Company” or “SunOpta”) was incorporated under the laws of Canada on November 13, 1973. The Company operates businesses focused on a healthy products portfolio that promotes sustainable well-being. The Company operates in two industry segments, the largest being SunOpta Foods, which consists of three reportable segments—Global Sourcing and Supply, Value Added Ingredients, and Consumer Products—that operate in the natural, organic and specialty food sectors and utilize a number of integrated business models to bring cost-effective and quality products to market. In addition to SunOpta Foods, the Company owned approximately 66% of Opta Minerals Inc. (“Opta Minerals”) as at April 5, 2014 and December 28, 2013, on a non-dilutive basis. Opta Minerals is a vertically integrated provider of custom process solutions and industrial mineral products for use primarily in the steel, foundry, loose abrasive cleaning, and municipal water filtration industries. As at April 5, 2014 and December 28, 2013, the Company also had an approximate 19% equity ownership position in Mascoma Corporation (“Mascoma”), on a non-dilutive basis. Mascoma is an innovative company leveraging internally developed technologies to drive bioconversion of biomass for petroleum replacements.

Basis of Presentation

The interim consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, and in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, these condensed interim consolidated financial statements do not include all of the disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included and all such adjustments are of a normal, recurring nature. Operating results for the quarter ended April 5, 2014 are not necessarily indicative of the results that may be expected for the full year ending January 3, 2015 or for any other period. The interim consolidated financial statements include the accounts of the Company and its subsidiaries, and have been prepared on a basis consistent with the annual consolidated financial statements for the year ended December 28, 2013. For further information, refer to the consolidated financial statements, and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

2. Business Acquisition

Bulgarian Processing Operation

On December 31, 2012, the Company acquired a grains handling and processing facility located in Silistra, Bulgaria and operated as the Organic Land Corporation OOD (“OLC”). The facility is located near a protected and chemical free agricultural area, which produces organic products including sunflower, flax seed, corn, barley and soybeans. This acquisition diversified the Company’s organic sunflower processing operations and should allow it to expand its capabilities into the other organic products grown in the region following the expansion of production capabilities. The Company had been sourcing non-genetically modified sunflower kernel from OLC from late 2011 through to the date of acquisition. Since the acquisition date, the results of operations of OLC have been included in Global Sourcing and Supply.

This transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the fair values of the assets acquired and liabilities assumed, as well as the total consideration transferred to effect the acquisition of OLC as of the acquisition date.

(1) Subsequent to the acquisition date, the Company fully repaid OLC’s existing bank loans.

3. Discontinued Operations

On August 12, 2011, the Company disposed of its interest in the Colorado Sun Oil Processing LLC (“CSOP”) joint venture to Colorado Mills, LLC (“Colorado Mills”) pursuant to the outcome of related bankruptcy proceedings. CSOP operated a vegetable oil refinery adjacent to Colorado Mills’ sunflower crush plant and was formerly part of the former Grains and Foods Group operating segment. The operating results of CSOP were reclassified to discontinued operations, including legal fees and interest costs incurred in connection with a separate arbitration proceeding related to the joint venture agreement. The arbitration proceeding was settled on June 18, 2013.

4. Derivative Financial Instruments and Fair Value Measurements

The following table presents for each of the fair value hierarchies, the assets and liabilities that are measured at fair value on a recurring basis as of April 5, 2014 and December 28, 2013:

These exchange-traded commodity futures and forward commodity purchase and sale contracts are used as part of the Company’s risk management strategy, and represent economic hedges to limit risk related to fluctuations in the price of certain commodity grains, as well as the price of cocoa. These derivative instruments are not designated as hedges for accounting purposes. Gains and losses on changes in fair value of these derivative instruments are included in cost of goods sold on the consolidated statement of operations. For the quarter ended April 5, 2014, the Company recognized a loss of $625 (March 30, 2013 – loss of $743) related to changes in the fair value of these derivatives.

At April 5, 2014, the notional amounts of open commodity futures and forward purchase and sale contracts were as follows (in thousands of bushels):

5. Inventories

6. Investment

The Company accounts for its investment in Mascoma using the cost method. As at April 5, 2014 and December 28, 2013, the Company did not estimate the fair value of its investment in Mascoma, as no events or changes in circumstances were identified that may have had a significant adverse effect on the Company’s ability to recover the carrying value of its investment.

8. Other Expense (Income), Net

The components of other expense (income) are as follows:

9. Earnings Per Share

Earnings (loss) per share are calculated as follows:

For the quarter ended March 30, 2013, options to purchase 817,000 common shares were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.

10. Supplemental Cash Flow Information

As at April 5, 2014, cash and cash equivalents included $2,565 (December 28, 2013 - $4,084) that was specific to Opta Minerals and cannot be utilized by the Company for general corporate purposes.

11. Commitments and Contingencies

Various claims and potential claims arising in the normal course of business are pending against the Company. It is the opinion of management that the amount of potential liability, if any, to the Company is not determinable. Management believes the final determination of these claims or potential claims will not materially affect the financial position or results of the Company.

12. Segmented Information

In the fourth quarter of 2013, the Company implemented changes to its organizational structure to align and focus the operations of SunOpta Foods on three key “go-to-market” categories: raw material sourcing and supply; value-added ingredients; and consumer-packaged products. Consequently, the Company realigned the operating segments of SunOpta Foods to reflect the resulting changes in management reporting and accountability to the Company’s Chief Executive Officer. The Company believes this operational structure better aligns with SunOpta Foods’ integrated “field-to-table” business model and product portfolio. The segment information presented below for the quarter ended March 30, 2013 has been restated to reflect the realigned operating segments of SunOpta Foods. The Opta Minerals operating segment remained unchanged.

Effective with the realignment, the Company operates in the following four reportable segments:

• Global Sourcing and Supply aggregates the Company’s North American raw grain and sunflower operating segment and its international organic ingredient operating segment, which are focused on the procurement and sale of specialty and organic grains and seeds, raw material ingredients, and organic commodities.

• Value Added Ingredients manufactures and supplies fiber, grain and fruit ingredients focusing on cereal, bakery, dairy, snack and food service market categories.

• Consumer Products manufactures and supplies branded and private label aseptic beverages; re-sealable pouch products; individually quick frozen fruits and vegetables; premium juices; shelf stable juices and waters; and fruit- and grain-based snacks.

• Opta Minerals processes, distributes and recycles industrial minerals, silica-free abrasives, and specialty sands for use in the steel, foundry, loose abrasive cleaning, and municipal water filtration industries.

In addition, Corporate Services provides a variety of management, financial, information technology, treasury and administration services to each of the operating segments from the Company’s head office in Brampton, Ontario, and information technology and shared services from its office in Edina, Minnesota.

When reviewing the operating results of the Company’s operating segments, management uses segment revenues from external customers and segment operating income to assess performance and allocate resources. Segment operating income excludes other income or expense items and goodwill impairment losses. In addition, interest expense and income amounts, and provisions for income taxes are not allocated to operating segments.

Forward-Looking Financial Information

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the interim consolidated financial statements, and notes thereto, for the quarter ended April 5, 2014 contained under Item 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”) and in conjunction with the annual consolidated financial statements, and notes thereto, contained in the Annual Report on Form 10-K for the fiscal year ended December 28, 2013 (“Form 10-K”). Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to May 14, 2014.

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”, “intend”, “project”, “potential”, “continue”, “believe”, “expect”, “could”, “would”, “should”, “might”, “plan”, “will”, “may”, “predict”, or other similar expressions concerning matters that are not historical facts. 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 the 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 current date. 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.

All dollar amounts in this MD&A are expressed in thousands of U.S. dollars, except per share amounts, unless otherwise noted.

Calendar 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 2014 will be a 53-week period ending on January 3, 2015, with quarterly periods ending on April 5, July 5 and October 4, 2014, whereas fiscal year 2013 was a 52-week period ending on December 28, 2013, with quarterly periods ending on March 30, June 29 and September 28, 2013. As a result, the first quarter of 2014 consisted of a 14-week period, compared with a 13-week period for the first quarter of 2013. Except as otherwise noted in this MD&A, the impact of the additional week on our results of operations for the first quarter of 2014 was insignificant relative to the first quarter of 2013.

Operational Realignment

In the fourth quarter of 2013, we realigned the operating segments of SunOpta Foods to focus on three key “go-to-market” categories: raw material sourcing and supply; value-added ingredients; and consumer-packaged products. We believe this operational structure better aligns with our integrated “field to table” business model and product portfolio. In addition, we believe this structure better supports our strategy of growing our value-added packaged foods and ingredients portfolios, and leveraging our sourcing and supply capabilities and production capacity. Effective with the realignment, SunOpta Foods operates in the following three reportable segments: Global Sourcing and Supply (with incorporates our North American raw grain and sunflower operating segment and our international organic ingredient operating segment); Value Added Ingredients; and Consumer Products. The Opta Minerals operating segment remained unchanged. The segmented operations information provided in the Consolidated Financial Statements and this MD&A for the quarter ended March 30, 2013 has been restated to reflect these realigned reportable segments.

Business Development during the First Quarter of 2014

In the first quarter of 2014, we initiated a further expansion to our aseptic processing and packaging operations in Modesto, California, in order to meet committed customer demand and enable new growth opportunities. In connection with this expansion, we are adding a third processor at the Modesto facility, which is expected to be commissioned during the third quarter of 2014. We also expect to add additional aseptic filling lines at the Modesto plant over the course of 2014 in order to meet increased product demand from new and existing customers across a broad array of categories including non-dairy, nutritional beverages and dairy. The continued investment in our aseptic platform is directly aligned with our core strategies to aggressively grow our value-added ingredients and packaged foods portfolio, and to leverage our integrated platform to become a pure play natural and organic foods company.

Consolidated Results of Operations

We believe that investors’ understanding of our financial performance is enhanced by disclosing the specific items that we exclude from segment operating income. However, any measure of operating income excluding any or all of these items is not, and should not be viewed as, a substitute for operating income prepared under U.S. GAAP. These items are presented solely to allow investors to more fully understand how we assess financial performance.

Revenues for the quarter ended April 5, 2014 increased by 17.9% to $333,527 from $282,825 for the quarter ended March 30, 2013. Revenues in SunOpta Foods increased by 21.2% to $298,982 and revenues in Opta Minerals decreased by 4.6% to $34,545. Excluding the impact of changes including foreign exchange rates and commodity-related pricing, revenues increased approximately 22% on a consolidated basis and approximately 25% within SunOpta Foods. Also excluding the impact of the additional week of sales in the first quarter of 2014, revenues increased approximately 14% on a consolidated basis and approximately 16% within SunOpta Foods. Contributing to the increase in revenues within SunOpta Foods was higher sales volumes of value-added aseptically packaged beverage products; stronger sales of organic ingredients in the U.S. and Europe; and higher volumes of fruit ingredients and retail frozen foods. At Opta Minerals, the decrease in revenues reflected lower volumes of industrial mineral products due to weather-related slowdowns in North America, as well as lower pricing on certain steel products due to competitive pressures.

Gross profit increased $3,177, or 9.3%, to $37,427 for the quarter ended April 5, 2014, compared with $34,250 for the quarter ended March 30, 2013. As a percentage of revenues, gross profit for the quarter ended April 5, 2014 was 11.2% compared to 12.1% for the quarter ended March 30, 2013, a decrease of 0.9% . Within SunOpta Foods, the gross profit percentage of 10.9% for the first quarter of 2014 was virtually unchanged from 11.0% for the first quarter of 2013, which reflected the net effect of higher margins on organic ingredient sales in the U.S. and Europe, and an increased contribution from higher margin aseptic beverage products; offset by weaker margins on organic feed sales that are expected to continue into the second half of 2014, and higher operating costs due in part to adverse weather conditions in North America. The gross profit percentage at Opta Minerals declined to 14.2% in the first quarter of 2014, compared with 20.0% in the first quarter of 2013, primarily due to pricing pressure on steel products and weather-related higher operating costs.

Total segment operating income for the quarter ended April 5, 2014 increased by $1,408, or 13.2%, to $12,084, compared with $10,676 for the quarter ended March 30, 2013. As a percentage of revenue, segment operating income was 3.6% for the quarter ended April 5, 2014, compared with 3.8% for the quarter ended March 30, 2013. The increase in segment operating income reflected higher overall gross profit as described above, partially offset by a $1,627 increase in selling, general and administrative (“SG&A”) expenses, primarily related to the addition of a number of senior leadership resources in 2013 in connection with the operational realignment within SunOpta Foods, as well as increased headcount to support the growth of our international sourcing and supply operations.

Further details on revenue, gross margin and segment operating income variances are provided below under “Segmented Operations Information”.

Other income for the quarter ended April 5, 2014 of $1,141 included a gain of $1,373 on the settlement of the earn-out related to the acquisition of Edner of Nevada, Inc. in December 2010, net of employee severance and other related costs. Other expense for the quarter ended March 30, 2013 of $365 included employee severance and other costs in connection with the operational realignment within SunOpta Foods and the rationalization and integration of acquired businesses by Opta Minerals, as well as acquisition-related transaction costs.

The increase in interest expense of $458 to $2,148 for the quarter ended April 5, 2014, compared with $1,690 for the quarter ended March 30, 2013, reflected an increased margin on borrowings under Opta Minerals’ credit facilities effective October 31, 2013, as well as higher borrowings under our European credit facilities to fund the increased working capital levels of our growing international sourcing and supply operations.

The provision for income tax for the quarter ended April 5, 2014 was $4,457, or 40.2% of earnings before taxes, compared with $3,275, or 38.0% of earnings before taxes, for the quarter ended March 30, 2013. The increase reflected a discrete provision for an unrealized foreign exchange gain on certain intercompany balances for Canadian income tax purposes. Excluding discrete items, the annual effective income tax rate for fiscal 2014 is expected to be between 37% and 39%.

Loss attributable to non-controlling interests for the quarter ended April 5, 2014 was $20, compared with earnings of $163 for the quarter ended March 30, 2013. The $183 decrease reflected lower net earnings at Opta Minerals.

Earnings from continuing operations attributable to SunOpta Inc. for the quarter ended April 5, 2014 were $6,640, as compared to $5,183 for the quarter ended March 30, 2013, an increase of $1,457 or 28.1% . Diluted earnings per share from continuing operations were $0.10 for the quarter ended April 5, 2014, compared with $0.08 for the quarter ended March 30, 2013.

Loss from discontinued operations of $58 for the quarter ended March 30, 2013 reflected legal fees and interest costs in connection with arbitration proceedings related to Colorado Sun Oil Processing LLC, which was disposed of in August 2011. The arbitration proceedings were settled in June 2013.

On a consolidated basis, we realized earnings of $6,640 (diluted earnings per share of $0.10) for the quarter ended April 5, 2014, compared with earnings of $5,125 (diluted earnings per share of $0.08) for the quarter ended March 30, 2013.

Segmented Operations Information

SunOpta Foods contributed $298,982 or 89.6% of consolidated revenue for the quarter ended April 5, 2014, compared with $246,600 or 87.2% of consolidated revenues for the quarter ended March 30, 2013, an increase of $52,382 or 21.2% . Excluding the impact of changes including foreign exchange rates and commodity-related pricing, revenues increased approximately 25% in SunOpta Foods. Also excluding the additional week of sales in the first quarter of 2014, SunOpta Foods’ revenues increased approximately 16%. The table below explains the increase in revenue by reportable segment for SunOpta Foods:

Gross margin in SunOpta Foods increased by $5,515 for the quarter ended April 5, 2014 to $32,528, or 10.9% of revenues, compared with $27,013, or 11.0% of revenues for the quarter ended March 30, 2013. The table below explains the increase in gross margin by reportable segment for SunOpta Foods:

Operating income in SunOpta Foods increased by $3,717 for the quarter ended April 5, 2014 to $13,341 or 4.5% of revenues, compared with $9,624 or 3.9% of revenues for the quarter ended March 30, 2013. The table below explains the increase in operating income for SunOpta Foods:

Further details on revenue, gross margin and operating income variances within SunOpta Foods are provided in the segmented operations information that follows.

Global Sourcing and Supply contributed $143,358 in revenues for the quarter ended April 5, 2014, compared to $124,909 for the quarter ended March 30, 2013, an increase of $18,449 or 14.8% . Excluding the impact of changes including foreign exchange rates and commodity-related pricing, revenues increased approximately 23% in Global Sourcing and Supply. Also excluding the additional week of sales in the first quarter of 2014, Global Sourcing and Supply’s revenues increased approximately 14%. The table below explains the increase in revenue:

Gross margin in Global Sourcing and Supply increased by $2,148 to $11,959 for the quarter ended April 5, 2014 compared to $9,811 for the quarter ended March 30, 2013, and the gross margin percentage increased by 0.4% to 8.3% . The increase in gross margin as a percentage of revenue was primarily due to favorable sales mix on organic ingredients, improved sunflower processing yields, partially offset by lower pricing on organic feed products, lower pricing on commodity soy and corn as well as start-up costs related to our cocoa processing facility in the Netherlands. The table below explains the increase in gross margin:

Operating income in Global Sourcing and Supply increased by $1,385, or 82.8%, to $3,058 for the quarter ended April 5, 2014, compared to $1,673 for the quarter ended March 30, 2013. The table below explains the increase in operating income:

Looking forward, we believe Global Sourcing and Supply is well positioned in growing natural and organic food categories. We intend to focus our efforts on (i) growing our identity preserved, non-GMO and organic grains business; (ii) leveraging our international sourcing and supply capabilities, and forward and backward integrating where opportunities exist; (iii) expanding our processing expertise and increasing our value-added capabilities (including our new cocoa processing facility in the Netherlands and integrated grains handling and processing facility in Bulgaria); and (iv) expanding our international sales base via strategic relationships for procurement of product to drive incremental sales volume. Our long-term target for Global Sourcing and Supply is to achieve a segment operating margin of 4% to 5%, which assumes we are able to secure a consistent quantity and quality of natural and organic raw materials, improve product mix, and control costs. The statements in this paragraph are forward-looking statements. See “Forward-Looking Statements” above. Increased supply pressure in the commodity-based markets in which we operate, increased competition, volume decreases or loss of customers, unexpected delays in our expansion plans, or our inability to secure quality inputs or achieve our product mix or cost reduction goals, along with the other factors described above under “Forward-Looking Statements”, could adversely impact our ability to meet these forward-looking expectations.

Value Added Ingredients contributed $37,748 in revenues for the quarter ended April 5, 2014, compared to $31,505 for the quarter ended March 30, 2013, an increase of $6,243 or 19.8% . Excluding the additional week of sales in the first quarter of 2014, revenues increased approximately 11% in Value Added Ingredients. The table below explains the increase in revenue:

Value Added Ingredients gross margin increased by $669 to $5,629 for the quarter ended April 5, 2014 compared to $4,960 for the quarter ended March 30, 2013, and the gross margin percentage decreased by 0.8% to 14.9% . The decrease in gross margin as a percentage of revenue is due to higher operating costs and lower production volumes for fiber products and grain-based ingredients, partially offset by improved efficiencies from higher production volumes of fruit ingredients. The table below explains the increase in gross margin:

Operating income in Value Added Ingredients increased by $347, or 17.4%, to $2,347 for the quarter ended April 5, 2014, compared to $2,000 for the quarter ended March 30, 2013. The table below explains the increase in operating income:

Looking forward, we intend to concentrate on growing Value Added Ingredient’s fiber products and fruit- and grains-based ingredients portfolios and customer base through product and process innovation and diversification. We intend to continue to introduce alternative fiber offerings of our own and have recently introduced both rice and cellulose fibers. We also expect to leverage our expanded aseptic fruit ingredient line at our South Gate, California facility to drive incremental volumes and cost savings. The focus of Value Added Ingredients continues to revolve around a culture of innovation and continuous improvement, to further increase capacity utilization, reduce costs, and sustain margins. Our long-term target for Value Added Ingredients is to realize segment operating margins of 8% to 10%. The statements in this paragraph are forward-looking statements. See “Forward-Looking Statements” above. An unexpected increase in input costs, increased competition, loss of key customers, an inability to introduce new products to the market, or implement our strategies and goals relating to pricing, capacity utilization or cost reductions, along with the other factors described above under “Forward-Looking Statements”, could adversely impact our ability to meet these forward-looking expectations.

Consumer Products contributed $117,876 in revenues for the quarter ended April 5, 2014, compared to $90,186 for the quarter ended March 30, 2013, an increase of $27,690 or 30.7% . Excluding the additional week of sales in the first quarter of 2014, revenues increased approximately 21% in Consumer Products. The table below explains the increase in revenue:

Gross margin in Consumer Products increased by $2,698 to $14,940 for the quarter ended April 5, 2014 compared to $12,242 for the quarter ended March 30, 2013, and the gross margin percentage decreased by 0.9% to 12.7% . The decrease in gross margin as a percentage of revenue was due to additional plant and operating costs associated with the significant growth and expansion of the aseptic business. The table below explains the increase in gross margin:

Operating income in Consumer Products increased by $1,985, or 33.4%, to $7,936 for the quarter ended April 5, 2014, compared to $5,951 for the quarter ended March 30, 2013. The table below explains the increase in operating income:

Looking forward, we expect improvements in margins and operating income from Consumer Products through the growth of our aseptic and non-aseptic beverage, pouch, snack and frozen food offerings. We remain customer focused and continue to develop new ways to bring new value-added packaged products and processes to market, leveraging our global raw material sourcing and supply capabilities. We expect the multi-serve and single-serve fillers installed in 2013 at our Alexandria, Minnesota and Modesto, California facilities will continue to enhance our ability to serve the non-dairy alternative beverage category, with both new and innovative packaging formats and a number of new product offerings beyond non-dairy beverages including organic dairy and nutritional beverages. We also commissioned two additional flexible re-sealable pouch filling lines at our Allentown facility during 2013, increasing our total annual filling capacity to approximately 140 million pouches. Continued new product development, innovation in healthy snacks and the expansion of our integrated juice operations, combined with increasing demand for portable nutritious fruit and grain snack offerings are expected to drive growth in this business. Long term we are targeting 12% to 14% operating margins from Consumer Products. The statements in this paragraph are forward-looking statements. See “Forward-Looking Statements” above. Unfavorable shifts in consumer preferences, increased competition, volume decreases or loss of customers, unexpected delays in our expansion plans, inefficiencies in our manufacturing processes, lack of consumer product acceptance, or our inability to successfully implement the particular goals and strategies indicated above, along with the other factors described above under “Forward-Looking Statements”, could have an adverse impact on these forward-looking expectations.

Opta Minerals contributed $34,545 in revenues for the quarter ended April 5, 2014, compared to $36,225 for the quarter ended March 30, 2013, a $1,680 or a 4.6% decrease. The table below explains the decrease in revenue:

Gross margin for Opta Minerals decreased by $2,338 to $4,899 for the quarter ended April 5, 2014 compared to $7,237 for the quarter ended March 30, 2013, and the gross margin percentage decreased by 5.8% to 14.2% . The decrease in gross margin as a percentage of revenue was due to competitive pricing in a number of core product categories and higher operating costs due in part to adverse weather conditions in North America. The table below explains the decrease in gross margin:

Operating income for Opta Minerals decreased by $1,438, or 58.4%, to $1,025 for the quarter ended April 5, 2014, compared to $2,463 for the quarter ended March 30, 2013. The table below explains the decrease in operating income:

Opta Minerals is focused on leveraging its global platform to drive expansion of existing product offerings to a wider customer base and new geographies. In addition, it continues to focus on maximizing operating efficiencies and introducing new and innovative products to the markets it serves. We own approximately 66% of Opta Minerals and segment operating income is presented prior to non-controlling interest expense. The statements in this paragraph are forward-looking statements. See “Forward-Looking Statements” above. An extended period of softness in the steel and foundry industries, slowdowns in the economy, or delays in bringing new products and operations completely online, along with the other factors described above under “Forward-Looking Statements,” could have an adverse impact on these forward-looking expectations.

Operating loss at Corporate Services increased by $871 to $2,282 for the quarter ended April 5, 2014, from a loss of $1,411 for the quarter ended March 30, 2013. The table below explains the increase in operating loss:

Corporate Services provides leadership and support services across the organization including management, finance, operations, business development, information technology, human resources and administrative functions. The salaries of Corporate Services personnel and other costs of providing these services are allocated to the SunOpta operating groups based on (1) specific identification of allocable costs that represent a service provided to each group; and (2) a proportionate distribution of costs based on a weighting of factors such as revenue contribution and number of employees within each group.

Liquidity and Capital Resources

We have the following sources from which we can fund our operating cash requirements:

• Existing cash and cash equivalents;

• Available operating lines of credit;

• Cash flows generated from operating activities;

• Cash flows generated from the exercise, if any, of stock options or warrants during the year;

• Additional long-term financing; and

• Sale of non-core divisions, or assets.

On July 27, 2012, we entered into an amended and restated credit agreement with a syndicate of lenders. The amended agreement provides secured revolving credit facilities of Cdn $10,000 and $165,000, as well as an additional $50,000 in availability upon the exercise of an uncommitted accordion feature. These facilities mature on July 27, 2016, with the outstanding principal amount repayable in full on the maturity date. These facilities support our core North American food operations.

On September 25, 2012, The Organic Corporation (“TOC”) and certain of its subsidiaries entered into a credit facilities agreement with two lenders, which provides for a €45,000 revolving credit facility covering working capital needs and a €3,000 pre-settlement facility covering currency hedging requirements. The revolving credit facility and pre-settlement facility are due on demand with no set maturity date, and the credit limit can be extended or adjusted based on the needs of the business and upon approval of the lenders. On April 25, 2014, the lenders increased the amount available under the revolving credit facility to €51,000 until May 31, 2014. These facilities support the global sourcing, supply and processing capabilities of TOC. In addition, on April 29, 2014, a subsidiary of TOC entered into an amended revolving credit facility agreement to provide up to €4,500 to cover the working capital needs of TOC’s Bulgarian operations. Borrowings under this facility are repayable in full on April 30, 2015.

On April 30, 2013, Opta Minerals amended and restated its credit agreement to include a Cdn $20,000 revolving term credit facility and a Cdn $52,500 non-revolving term credit facility. The revolving term credit facility matures on August 14, 2014, with the outstanding principal amount repayable in full on the maturity date. The principal amount of the non-revolving term credit facility is repayable in equal quarterly installments of approximately Cdn $1,312. Opta Minerals may be required to make additional repayments on the non-revolving term credit facility if certain financial covenants are not met. The non-revolving term credit facility matures on May 18, 2017, with the remaining outstanding principal amount repayable in full on the maturity date. These credit facilities are specific to the operations of Opta Minerals; are standalone and separate from facilities used to finance our core food operations; and are without recourse to SunOpta Inc.

As at March 31, 2014, Opta Minerals was not in compliance with certain financial covenants under its credit agreement, which constitutes an event of default under the credit agreement. On May 8, 2014, the lenders waived compliance with these covenants for the first quarter of 2014, and amended the credit agreement to reset the covenants for the quarterly periods ending June 30, 2014 through September 30, 2015. As it is not considered probable that Opta Minerals will violate the amended covenant requirements within the next 12 months, the non-revolving term credit facility continues to be classified as non-current on the consolidated balance sheet as at April 5, 2014. Also effective May 8, 2014, the credit agreement was further amended to extend the maturity date of the revolving term credit facility to August 14, 2015, and to increase the applicable margin on borrowings up to 5.50% based on certain financial ratios of Opta Minerals.

In order to finance significant acquisitions 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 as consideration in an acquisition. There can be no assurance that these types of financing would be available or, if so, on terms that are acceptable to us.

In the event that we require additional liquidity due to market conditions, unexpected actions by our lenders, changes to our growth strategy, or other factors, our ability to obtain any additional financing on favorable terms, if at all, could be limited.

Cash Flows

Cash flows for the quarter ended April 5, 2014

Net cash and cash equivalents declined $1,900 in the first quarter of 2014 to $6,637 as at April 5, 2014, compared with $8,537 at December 28, 2013, which primarily reflected the following uses of cash:

• cash used in continuing operating activities of $12,596;

• capital expenditures of $3,224, related to expansion of our premium juice production facility; expansion of storage capacity at our Bulgarian grains handling and processing facility, operated as the Organic Land Corporation (“OLC”); and completion of our cocoa processing facility in the Netherlands;

• net repayments of long-term debt of $1,511.

All uses of cash were mostly offset by net borrowings under our credit facilities of $15,529.

Cash used in operating activities of continuing operations was $12,596 in the first quarter of 2014, compared with $6,719 in the first quarter of 2013, an increase in cash used of $5,877. In the first quarter of each fiscal year, cash used in continuing operations reflects the normal timing of cash payments to growers for crop deliveries during the fourth quarter of the prior year, which is typically the quarter with the highest level of deliveries. In addition, working capital levels increased in the first quarter of 2014 to support the growth in our international sourcing and supply operations.

Cash used in investing activities of continuing operations declined by $8,273 to $3,945 in the first quarter of 2014, compared with $12,218 in the first quarter of 2013, mainly due to a decrease in capital expenditures of $4,669, reflecting higher spending in the first quarter of 2013 related to our cocoa processing facility and an expansion of our aseptic processing and packaging operations, as well as net cash paid to acquire OLC of $3,828 in the first quarter of 2013.

Cash provided by financing activities of continuing operations was $14,585 in the first quarter of 2014, compared with $19,057 in the first quarter of 2013, a decrease of $4,472, which reflected a $5,110 decrease in borrowings under our credit facilities, due primarily to reduced capital spending in the first quarter of 2014, compared with the first quarter of 2013.

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.

Contractual Obligations

Other than the amendments to the Opta Minerals credit agreement described above under “Liquidity and Capital Resources”, there have been no material changes outside the normal course of business in our contractual obligations since December 28, 2013.

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. There have been no material changes to the critical accounting estimates disclosed under the heading “Critical Accounting Estimates” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of the Form 10-K.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”, of the Form 10-K. There have been no material changes to our exposures to market risks since December 28, 2013.

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 quarterly 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 April 5, 2014.

Changes in Internal Control Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated whether any change in our internal control over financial reporting (as such term is defined under Rule 13a-15(f) promulgated under the Exchange Act) occurred during the quarter ended April 5, 2014. Based on that evaluation, management concluded that there were no changes in our internal control over financial reporting during the quarter ended April 5, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we are involved in litigation incident to the ordinary conduct of our business. For a discussion of legal proceedings, see note 11 to the interim consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Certain risks associated with our operations are discussed in our Annual Report on Form 10-K for the year ended December 28, 2013. There have been no material changes to the previously-reported risk factors as of the date of this quarterly report. All of such previously reported risk factors continue to apply to our business and should be carefully reviewed in connection with an evaluation of our Company.

The list of exhibits in the Exhibit Index is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements 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.

EXHIBIT INDEX