SunOpta Inc. - Quarter Report: 2015 July (Form 10-Q)

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 July 4, 2015

OR

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

For the transition period from to __________ 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 August 7, 2015 was 68,628,783.

SUNOPTA INC.
FORM 10-Q
For the quarterly period ended July 4, 2015

TABLE OF CONTENTS

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 July 4, 2015, the closing rates of exchange for the U.S. dollar, expressed in Canadian dollars and euros, were $1.00 = Cdn $1.2560 and $1.00 = €0.9004. 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 Sunrise Holdings (Delaware) Inc. (“Sunrise”) and Niagara Natural Fruit Snack Company Inc., including transaction value, expected closing date, future financial and operating results, plans, objectives, expectations and intentions, and other statements that are not historical facts; 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:

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 January 3, 2015 (“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 and Item 1A of this report.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SunOpta Inc.
Consolidated Statements of Operations
For the quarters and two quarters ended July 4, 2015 and July 5, 2014
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)

(See accompanying notes to consolidated financial statements)

SunOpta Inc.
Consolidated Statements of Comprehensive Earnings
For the quarters and two quarters ended July 4, 2015 and July 5, 2014
(Unaudited)
(Expressed in thousands of U.S. dollars)

(See accompanying notes to consolidated financial statements)

SunOpta Inc.
Consolidated Balance Sheets
As at July 4, 2015 and January 3, 2015
(Unaudited)
(Expressed in thousands of U.S. dollars)

Commitments and contingencies (note 11)

(See accompanying notes to consolidated financial statements)

SunOpta Inc.
Consolidated Statements of Shareholders’ Equity
As at and for the two quarters ended July 4, 2015 and July 5, 2014
(Unaudited)
(Expressed in thousands of U.S. dollars)

(See accompanying notes to consolidated financial statements)

SunOpta Inc.
Consolidated Statements of Cash Flows
For the quarters and two quarters ended July 4, 2015 and July 5, 2014
(Unaudited)
(Expressed in thousands of U.S. dollars)

(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 two reportable segments, Global Ingredients and Consumer Products, that operate in the natural, organic and specialty food sectors and utilize an integrated business model 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 July 4, 2015 and January 3, 2015, on a non-dilutive basis. Opta Minerals produces, distributes and recycles industrial minerals, silica-free abrasives and specialty sands.

Over the last several years, Opta Minerals has periodically breached certain financial covenants under its credit agreement with a syndicate of lenders, including as at June 30, 2015. As described in note 6, on August 11, 2015, Opta Minerals obtained a waiver for the June 30, 2015 breach. In connection with this waiver, certain additional covenants were added from the date of the waiver through October 2, 2015. In addition, the lenders agreed to extend the maturity of Opta Minerals’ revolving term credit facility from August 14, 2015 to October 2, 2015.

Opta Minerals will require the continued support of its current financial lenders and, effective October 3, 2015, Opta Minerals will require another extension of its revolver and an additional waiver on future covenants, if breached, or an alternative source of financing. There can be no assurance that a further extension and additional waiver will be provided or that alternative sources of financing on terms favorable to Opta Minerals could be obtained to finance its operations and meet its obligations.

Opta Minerals’ credit facilities are collateralized by a first priority security interest on substantially all of the assets of Opta Minerals, and are without recourse to SunOpta Inc.

The factors noted above may cast significant doubt as to Opta Minerals’ ability to continue as a going concern. These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported amounts of expenses and consolidated balance sheet classifications that might be necessary if Opta Minerals is unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material to the Company.

Opta Minerals ability to continue to operate as a going concern could also have a significant impact on the Company’s ability to recover the carrying value of its investment in Opta Minerals, which amounted to approximately $25,000 as at July 4, 2015.

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 and two quarters ended July 4, 2015 are not necessarily indicative of the results that may be expected for the full year ending January 2, 2016 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 January 3, 2015. 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 January 3, 2015.

Comparative Balances

Certain comparative balances have been reclassified to conform to the presentation adopted by the Company in the current fiscal year:

Fiscal Year-End

The fiscal year of the Company consists of a 52- or 53-week period ending on the Saturday closest to December 31. Fiscal year 2015 is a 52-week period ending on January 2, 2016, with quarterly periods ending on April 4, July 4 and October 3, 2015, while fiscal year 2014 was a 53-week period ending on January 3, 2015, with quarterly periods ending on April 5, July 5 and October 4, 2014.

The fiscal year of Opta Minerals ends on December 31, with its quarterly periods ending on March 31, June 30 and September 30.

Recent Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, “Inventory – Simplifying the Measurement of Inventory”, which requires entities to measure most inventory “at the lower of cost and net realizable value (“NRV”)”, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The new guidance eliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRV less a normal profit margin). The guidance defines NRV as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation”. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. The Company is assessing the impact that the adoption of this guidance will have on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs”, which requires that debt issuance costs be presented as a deduction from the corresponding debt liability. The guidance, however, does not affect the recognition and measurement of debt issuance costs. The guidance is effective on a retrospective basis for annual and interim periods beginning on or after December 15, 2015. In accordance with the new standard, the Company will reclassify financing costs recorded as deferred charges in other assets (current and long-term) on the consolidated balance sheets to bank indebtedness or long-term debt commencing with its annual consolidated financial statements for the year ended January 2, 2016.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which will supersede existing revenue recognition guidance under U.S. GAAP. Under the new standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance is effective for annual and interim periods beginning on or after December 15, 2017, and is to be applied on either a full retrospective or modified retrospective basis. Early adoption is permitted only as of annual and interim reporting periods beginning on or after December 15, 2016. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

2. Business Acquisitions

Citrusource, LLC

On March 2, 2015, the Company acquired 100% of the issued and outstanding units of Citrusource, LLC (“Citrusource”), a producer of premium not-from-concentrate private label organic and conventional orange juice and citrus products in the U.S. The acquisition of Citrusource has been accounted for as a business combination under the acquisition method of accounting. The results of Citrusource have been included in the Company’s consolidated financial statements since the date of acquisition and are reported in the Consumer Products operating segment. The acquisition of Citrusource aligns with the Company’s strategy of growing its value-added consumer products portfolio and leveraging its integrated operating platform. The following table summarizes the preliminary fair values of the consideration transferred as at the acquisition date:

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as at the acquisition date. The following amounts recognized for the assets acquired and liabilities assumed are provisional and subject to change: (i) amounts for current assets and current liabilities pending finalization of the working capital adjustment; (ii) amount and useful life of the identified intangible asset pending final evaluation of the fair value of recently awarded business prior to the acquisition date; and (iii) amount of goodwill pending the completion of the valuations of the contingent consideration arrangement and intangible asset. The Company expects to finalize these amounts no later than one year from the acquisition date.

The Company incurred $125 of acquisition-related costs that were expensed in the first quarter of 2015. These costs are included in other expenses in the consolidated statement of operation (see note 8).

Revenues of Citrusource for the period from the acquisition date to July 4, 2015 were $10,105 and earnings, net of income taxes, were $587, which included the effects of the acquisition accounting adjustments.

The following table presents unaudited pro forma consolidated results of operations for the quarters and two quarters ended July 4, 2015 and July 5, 2014, as if the acquisition Citrusource had occurred as of December 29, 2013.

The unaudited pro forma consolidated results of operations were prepared using the acquisition method of accounting and are based on unaudited historical financial information of the Company and Citrusource. Except to the extent realized, the unaudited pro forma information does not reflect any operating synergies or other benefits that the Company may achieve as a result of this acquisition, or the costs that may be necessary to achieve these operating synergies and other benefits. The unaudited pro forma information reflects primarily the following adjustments:

The unaudited pro forma information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition of Citrusource been completed on December 29, 2013. In addition, the unaudited pro forma information does not purport to project the future results of operations of the Company.

Selet Hulling PLC

On May 2, 2015, the Company paid $733 in cash to increase its ownership position in Selet Hulling PLC (“Selet”) from 35% to 76%. Selet is a joint venture located in Ethiopia focused on the sourcing and supply of organic sesame. As a result of its increased ownership in Selet, the Company also obtained full management control of the operation. The increase in the Company’s ownership position was accounted for as an equity transaction, with the difference between the cash consideration paid and the amount by which the non-controlling interest related to Selet was adjusted being recognized in additional paid-in capital.

3. Discontinued Operations

Fiber and Starch Business

On December 22, 2014, the Company completed the sale of the Fiber Business for $37,500, subject to certain closing adjustments. The Fiber Business included five facilities located in Louisville, Kentucky, Cedar Rapids, Iowa, Cambridge, Minnesota, Fosston, Minnesota, and Galesburg, Illinois. The Fiber Business was formerly part of the former Value Added Ingredients operating segment. The Company continues to operate both its integrated grain- and fruit-based ingredient businesses, which were not part of the sale, and which previously formed the remainder of the former Value Added Ingredients operating segment. The Company recognized a gain on sale of the Fiber Business in discontinued operations, net of income taxes, of $1,898 in the fourth quarter of 2014. In the second quarter of 2015, the Company recorded a loss of $134, net of income taxes, for a closing working capital adjustment.

Operating Results Reported in Discontinued Operations

The following table presents the operating results of Fiber Business reported in earnings from discontinued operations:

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 July 4, 2015 and January 3, 2015:

The Company’s derivative contracts that are measured at fair value include exchange-traded commodity futures and forward commodity purchase and sale contracts. Exchange-traded futures are valued based on unadjusted quotes for identical assets priced in active markets and are classified as level 1. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. Local market adjustments use observable inputs or market transactions for similar assets or liabilities, and, as a result, are classified as level 2. Based on historical experience with the Company’s suppliers and customers, the Company’s own credit risk, and the Company’s knowledge of current market conditions, the Company does not view non-performance risk to be a significant input to fair value for the majority of its forward commodity purchase and sale contracts.

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 prices of cocoa and coffee. 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 July 4, 2015, the Company recognized a loss of $657 (July 5, 2014 – gain of $406) and for the two quarters ended July 4, 2015, the Company recognized a loss of $554 (July 5, 2014 – loss of $219) related to changes in the fair value of these derivatives.

As at July 4, 2015, the notional amounts of open commodity futures and forward purchase and sale contracts were as follows (in thousands of bushels):

In addition, as at July 4, 2015, the Company had net open forward contracts to sell 311 lots of cocoa and 2 lots of coffee.

Grains inventory carried at fair value is determined using quoted market prices from the Chicago Board of Trade (“CBoT”). Estimated fair market values for grains inventory quantities at period end are valued using the quoted price on the CBoT adjusted for differences in local markets, and broker or dealer quotes. These assets are placed in level 2 of the fair value hierarchy, as there are observable quoted prices for similar assets in active markets. Gains and losses on commodity grains inventory are included in cost of goods sold on the consolidated statements of operations. As at July 4, 2015, the Company had 368,693 bushels of commodity corn and 513,161 bushels of commodity soybeans in inventories carried at market.

As at July 4, 2015, Opta Minerals held interest rate swaps with a notional value of Cdn $34,575 to pay fixed rates of 1.85% to 2.02%, plus a margin of 2.0% to 3.5% based on certain financial ratios of Opta Minerals, and receive a variable rate based on various reference rates including prime, bankers’ acceptances or LIBOR, plus the same margin, until May 2017. The net notional value decreases in accordance with the quarterly principal repayments on Opta Minerals’ non-revolving term credit facility.

At each period end, the Company calculates the marked-to-market fair value of the interest rate swaps using a valuation technique using quoted observable prices for similar instruments as the primary input. Based on this valuation, the previously recorded fair value is adjusted to the current marked-to-market position. The marked-to-market gain or loss is placed in level 2 of the fair value hierarchy. As the interest rate swaps are designated as a cash flow hedge for accounting purposes, gains and losses on changes in the fair value of these derivative instruments are included on the consolidated statements of comprehensive earnings. For the quarter ended July 4, 2015, a gain of $89 (July 5, 2014 – gain of $31), net of income tax expense of $22 (July 5, 2014 – income tax expense of $7) and for the two quarters ended July 4, 2015, a loss of $173 (July 5, 2014 – loss of $47), net of income tax benefit of $44 (July 5, 2014 – income tax benefit of $11) related to changes in the fair value of these derivatives.

As at July 4, 2015, the accumulated amount of the loss recorded in other comprehensive earnings/loss related to the interest rate swaps of $458, net of income tax benefit of $119, was reclassified to interest expense as it was determined that the cash flow hedge was no longer highly effective due to the breach by Opta Minerals of certain of its financial covenants (see note 6).

As part of its risk management strategy, the Company enters into forward foreign exchange contracts to reduce its exposure to fluctuations in foreign currency exchange rates. For any open forward foreign exchange contracts at period end, the contract rate is compared to the forward rate, and a gain or loss is recorded. These contracts are placed in level 2 of the fair value hierarchy, as the inputs used in making the fair value determination are derived from and are corroborated by observable market data. While these forward foreign exchange contracts typically represent economic hedges that are not designated as hedging instruments, certain of these contracts may be designated as hedges. As at July 4, 2015 the Company had open forward foreign exchange contracts with a notional value of €15,580 ($17,765). Gains and losses on changes in the fair value of these derivative instruments are included in foreign exchange loss or gain on the consolidated statement of operations. For the quarter ended July 4, 2015, the Company recognized a loss of $1,001 (July 5, 2014 – gain of $275) and for the two quarters ended July 4, 2015, the Company recognized a loss of $585 (July 5, 2014 – gain of $559) related to changes in the fair value of these derivatives.

The fair value measurement of contingent consideration arising from business acquisitions is determined using unobservable (level 3) inputs. These inputs include: (i) the estimated amount and timing of the projected cash flows on which the contingency is based; and (ii) the risk-adjusted discount rate used to present value those cash flows. The following table presents a reconciliation of contingent consideration obligations for the two quarters ended July 4, 2015:

The Company’s investment in subordinated convertible notes of Enchi includes the value of an accelerated payment option embedded in the notes, which may result in a maximum payout to the Company of $5,100. As at July 4, 2015 and January 3, 2015, the Company determined that the fair value of this embedded derivative was $3,409. Due to a lack of level 1 or level 2 observable market quotes for the notes, the Company used a discounted cash flow analysis (income approach) to estimate the original fair value of the embedded derivative based on unobservable level 3 inputs. The Company assesses changes in the fair value of the embedded derivative based on the performance of actual cash flows derived from certain royalty rights owned by Enchi, which are expected to be the primary source of funds available to settle the embedded derivative, relative to the financial forecasts used in the valuation analysis. As at July 4, 2015, there was no significant change to the expectations related to the royalty rights that would impact the fair value of the embedded derivative.

5. Inventories

6. Bank Indebtedness and Long-Term Debt

The syndicated North American credit facilities support the core North American food operations of the Company.

On July 27, 2012, the Company 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 (or the equivalent U.S. dollar amount) 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.

Interest on borrowings under the facilities accrues based on various reference rates including LIBOR, plus an applicable margin of 1.75% to 2.50%, which is set quarterly based on average borrowing availability. As at July 4, 2015, the weighted-average interest rate on the facilities was 2.05%.

The facilities are collateralized by substantially all of the assets of the Company and its subsidiaries, excluding Opta Minerals and The Organic Corporation (“TOC”).

The European credit facilities support the international sourcing and supply operations of the Global Ingredients reportable segment.

On October 14, 2014, TOC and certain of the Company’s other subsidiaries (collectively, the “Borrowers”) entered into a multipurpose facilities agreement with a syndicate of lenders (collectively, the “Lenders”), which provides for a total of €92,500 in financing via four main facilities: (i) an €80,000 revolving credit facility covering working capital needs; (ii) a €5,000 facility covering commodity hedging requirements; (iii) a €5,000 facility designated for letters of credit; and (iv) a €2,500 pre-settlement facility covering currency hedging requirements (collectively, the “Club Facility”).

The €80,000 revolving credit facility is secured by the working capital of the Borrowers. The Club Facility is due on demand with no set maturity date. Interest costs under the Club Facility accrue based on the aggregate of: (i) a fixed loan margin of 1.75%; and (ii) a variable rate based on LIBOR or EURIBOR plus an applicable spread as set by the Lenders on a periodic basis. As at July 4, 2015 and January 3, 2015, €71,581 ($79,505) and €58,205 ($69,869), respectively, of this facility had been utilized.

On April 27, 2015, a subsidiary of TOC amended its revolving credit facility agreement dated May 22, 2013, to provide up to €4,500 to cover the working capital needs of TOC’s Bulgarian operations. The facility is secured by the accounts receivable and inventories of the Bulgarian operations and is fully guaranteed by TOC. Interest accrues under the facility based on EURIBOR plus a margin of 2.75%, and borrowings under the facility are repayable in full on April 30, 2016. As of July 4, 2015 and January 3, 2015, nil and €1,934 ($2,322), respectively, was borrowed under this facility.

As at July 4, 2015, the weighted-average interest rate on the European credit facilities was 2.38%.

These credit facilities are specific to the operations of Opta Minerals, and are without recourse to SunOpta Inc.

On May 8, 2014, Opta Minerals amended and extended its credit agreement dated May 18, 2012, which provides for a Cdn $20,000 revolving term credit facility and a Cdn $52,500 non-revolving term credit facility. The revolving term credit facility is due to mature on August 14, 2015, and the non-revolving term credit facility is due to mature on May 18, 2017, unless earlier payment is required due to an event of default. The principal amount of the non-revolving term credit facility is repayable in equal quarterly installments of approximately Cdn $1,312.

As described in note 1, as at June 30, 2015, Opta Minerals was not in compliance with all of its financial covenants under its credit agreement. Failure to meet a financial covenant constitutes an event of default, unless the lenders agree to a waiver or amendment. On August 11, 2015, Opta Minerals obtained a waiver in respect of the aforementioned covenant requirements from its lenders and an extension of the maturity date of the revolving credit facility from August 14, 2015 to October 2, 2015, provided that Opta Minerals meets certain additional financial covenants. As there is no assurance that Opta Minerals will be in compliance with all its financial covenants at all measurement dates within the next 12 months, the non-revolving term credit facility has been classified as current on the consolidated balance sheet as at July 4, 2015. For the quarter ended July 4, 2015, we recorded $655 to interest expense related to the accelerated amortization of deferred financing costs on Opta Minerals’ non-revolving term credit facility.

Opta Minerals’ credit facilities are collateralized by a first priority security interest on substantially all of the assets of Opta Minerals.

Interest on the borrowings under the credit facility accrues at the borrower’s option based on various reference rates including LIBOR, plus an applicable margin of 2.00% to 5.50% based on certain financial ratios of Opta Minerals. Opta Minerals utilizes interest rate swaps to hedge the interest payments on a portion of the borrowings under the non-revolving term credit facility (see note 4). As at June 30, 2015, the weighted-average interest rate on the credit facilities was 6.38%, after taking into account the related interest rate hedging activities.

7. Stock-Based Compensation

Under the Company’s 2013 Stock Incentive Plan, the Company may grant a variety of stock-based awards including stock options, restricted stock units (“RSUs”) and performance share units (“PSUs”) to selected employees and directors of the Company.

Stock Options

For the two quarters ended July 4, 2015, the Company granted 466,696 options to employees that vest ratably on each of the first through fifth anniversaries of the grant date and expire on the tenth anniversary of the grant date. The weighted-average grant-date fair value of these options was $5.49, which is recognized on a straight-line basis over the five-year vesting period based on the number of stock options expected to vest.

The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to determine the fair value of the stock options granted:

Restricted Stock Units and Performance Share Units

For the two quarters ended July 4, 2015, the Company granted 64,487 RSUs and 112,120 PSUs to certain employees and directors of the Company.

Time-based RSUs vest ratably on each of the first through third anniversaries of the grant date. The fair value of each RSU granted was estimated to be $10.07 based on the fair market value of a share of the Company’s common stock on the date of grant. The grant-date fair value is recognized on a straight-line basis over the three-year vesting period based on the number of RSUs expected to vest.

Performance-based PSUs vest three years following the grant date. The number of PSUs that ultimately vest (up to a specified maximum) will be determined based on performance relative to predetermined performance measures of the Company. If the Company’s performance is below a specified performance level, no PSUs will vest. The fair value of each PSU granted was estimated to be $10.07 based on the fair market value of a share of the Company’s common stock on the date of grant. Each reporting period, the number of PSUs that are expected to vest is re-determined and the grant-date fair value of these PSUs is amortized on a straight-line basis over the remaining vesting period less amounts previously recognized.

Each vested RSU and PSU will be settled through the issuance of common shares of the Company and are therefore treated as equity awards.

Warrants

On January 29, 2015, the Company received proceeds of $812 on the exercise of warrants issued by the Company on February 5, 2010 to purchase 250,000 common shares at an exercise price of $3.25 per share, and, on June 4, 2015, the Company received proceeds of $3,067 on the exercise of warrants issued by the Company on June 11, 2010 to purchase 600,000 common shares at an exercise price of $5.11 per share.

8. Other Expense (Income), Net

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

For the quarter and two quarters ended July 4, 2015, employee severance costs included those related to the departure of the former President and Chief Executive Officer of Opta Minerals effective May 26, 2015.

Business development costs represent external professional and consulting fees, and other costs incurred in connection with the review of strategic opportunities to acquire or divest of businesses or assets. For the quarter and two quarters ended July 4, 2015, these costs were primarily incurred in connection with the agreement to acquire Sunrise Holdings (Delaware), Inc. (“Sunrise”) (see note 13), as well as the acquisition of the Citrusource (see note 2).

For the quarter and two quarters ended July 4, 2015, Opta Minerals incurred direct costs in connection with the closure or relocation of certain its abrasives plants.

For the two quarters ended July 5, 2014, the Company recorded a gain of $1,373 in connection with the settlement of the remaining earn-out related to the acquisition of Edner of Nevada, Inc. (“Edner”) on December 14, 2010. In addition, the Company made a payment of $800 to the former owners of Edner in connection with this settlement.

9. Earnings Per Share

Earnings (loss) per share are calculated as follows:

For the quarter ended July 4, 2015, stock options to purchase 385,616 (July 5, 2014 – nil) common shares were excluded from the calculation of potential dilutive common shares due to their anti-dilutive effect. For the two quarters ended July 4, 2015, stock options to purchase 385,616 (July 5, 2014 – 340,966) common shares were excluded from the calculation of potential dilutive common shares due to their anti-dilutive effect.

10. Supplemental Cash Flow Information

As at July 4, 2015, cash and cash equivalents included $2,232 (January 3, 2015 - $2,170) that was specific to Opta Minerals and cannot be utilized by the Company for general corporate purposes.

11. Commitments and Contingencies

Plum Dispute

Plum, PBC, a Delaware public benefit corporation (“Plum”), and SunOpta Global Organic Ingredients, Inc., a wholly-owned subsidiary of the Company (“SGOI”), are parties to a manufacturing and packaging agreement dated September 21, 2011 (the “Plum Manufacturing Agreement”). Pursuant to the Plum Manufacturing Agreement, SGOI agreed to manufacture and package certain food items for Plum at SGOI’s Allentown, Pennsylvania facility in accordance with Plum’s specifications regarding, among other things, product ingredients and packaging, manufacturing processes, and quality control standards. On November 8, 2013, Plum initiated a voluntary recall of certain products manufactured by SGOI at its Allentown facility. On February 3, 2015, Plum filed a complaint against SGOI in the Lehigh County Court of Common Pleas in Allentown, Pennsylvania. On April 13, 2015, Plum filed an amended complaint adding packaging manufacturer and supplier Cheer Pack North America as a Defendant. SGOI has asserted counterclaims against Plum and cross-claims against Cheer Pack. Plum alleges it initiated the recall in response to consumer complaints of bloated packaging and premature spoilage of certain products, which could lead to gastrointestinal symptoms and discomfort if consumed. Plum alleges that the spoilage of its products resulted from a post-processing issue at SGOI’s Allentown facility. Plum is seeking unspecified damages equal to the direct costs of the recall and handling of undistributed product, incidental and consequential damages, lost profits and attorneys’ fees. The Company disputes the allegations made by Plum against SGOI and intends to vigorously defend itself against these claims; however, the Company cannot reasonably predict the outcome of this claim, nor can it estimate the amount of loss, or range of loss, if any, that may result from this claim.

Other Claims

In addition, various claims and potential claims arising in the normal course of business are pending against the Company. It is the opinion of management that these claims or potential claims are without merit and 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 2014, following the sale of the Fiber Business (see note 3), the Company implemented changes to its organizational structure to align and focus the operations of SunOpta Foods on two key “go-to-market” categories: ingredient sourcing and supply; 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 segment information presented below for the quarter and two quarters ended July 5, 2014 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 three reportable segments:

In addition, Corporate Services provides a variety of management, financial, information technology, treasury and administration services to each of the SunOpta Foods operating segments from the Company’s offices in Brampton, Ontario and 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.

13. Subsequent Events

Sunrise Holdings (Delaware), Inc.

On July 30, 2015, the Company entered into a Purchase and Sale Agreement (the “PSA”) to acquire all of the issued and outstanding common shares of Sunrise. Sunrise, through its subsidiaries including Sunrise Growers, Inc., is engaged in the business of processing, marketing, distributing and selling conventional and organic frozen fruit. The transaction includes a cash purchase price of $287,150, subject to certain adjustments, and the assumption of indebtedness of Sunrise.

Closing of the purchase of Sunrise is expected to occur in the fall of 2015 and is subject to various closing conditions, including, among others, the absence of any injunction or other legal prohibition on the completion of the transaction, the accuracy of the representations and warranties of the parties other than inaccuracies that would not have a material adverse effect, material compliance with the parties’ obligations under the PSA, the absence of a material adverse effect with respect to Sunrise, and expiration of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The PSA provides the Company and Sunrise with customary termination rights.

The Company intends to finance the acquisition of Sunrise through a combination of debt and equity financing in an aggregate amount of up to $430,000 and borrowings under existing credit facilities. The debt and equity financings are expected to occur on or prior to the closing of the Sunrise acquisition. On July 30, 2015, the Company and its subsidiary SunOpta Foods Inc. entered into a commitment letter with certain financial institutions providing for committed bridge financing of up to $430,000 (the “Commitment”) in support of the Sunrise acquisition, consisting of $290,000 of second lien secured credit facilities of SunOpta Foods Inc. and $140,000 of unsecured senior subordinated credit facilities of the Company. The Commitment is subject to various conditions, including the consummation of the Sunrise acquisition and other customary closing conditions.

Niagara Natural Fruit Snack Company Inc.

On August 11, 2015, the Company acquired the net assets of Niagara Natural Fruit Snack Company Inc. (“Niagara Natural”), a manufacturer of non-GMO and organic fruit snacks. Niagara Natural’s operations are located in the Niagara Region of Ontario. The transaction includes a cash purchase price of approximately $6,700, subject to certain post-closing adjustments, plus potential future payments based on specific performance targets.

This transaction will be accounted for as a business combination under the acquisition method of accounting. Due to the limited time since the closing of the transaction, the valuation efforts and acquisition accounting related to the acquired net assets of Niagara Natural are incomplete at the time of filing of these consolidated financial statements. As a result, the Company is unable to provide amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including any resulting goodwill.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 July 4, 2015 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 January 3, 2015 (“Form 10-K”). Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to August 13, 2015.

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 and Item 1A of this report.

Forward-looking statements contained in this commentary are based on our current estimates, expectations and projections, which we believe are reasonable as of the date of this report. 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 2015 will be a 52-week period ending on January 2, 2016, with quarterly periods ending on April 4, July 4 and October 3, 2015, whereas fiscal year 2014 was a 53-week period ending on January 3, 2015, with quarterly periods ending on April 5, July 5 and October 4, 2014. As a result, the first two quarters of 2015 consisted of 26 weeks, compared with 27 weeks for the first two quarters of 2014. Except as otherwise noted in this MD&A, the impact of the additional week on our results of operations for the first half of 2014 was insignificant relative to the first half of 2015.

Operational Realignment

In the fourth quarter of 2014, following the sale of our fiber and starch business (the “Fiber Business”) on December 22, 2014, we implemented changes to our organizational structure to align and focus the operations of SunOpta Foods on two key “go-to-market” categories: ingredient sourcing and supply; and consumer-packaged products. Consequently, we realigned the operating segments of SunOpta Foods to reflect the resulting changes in management reporting and accountability to our Chief Executive Officer. We believe this new operational structure aligns well with SunOpta Foods’ integrated field-to-table business model and product portfolio. Effective with the realignment, the Value Added Ingredients operating segment ceased to exist and SunOpta Foods operates in the following two reportable segments: Global Ingredients, which includes the grain-based ingredients business of the former Value Added Ingredients operating segment; and Consumer Products, which includes the fruit-based ingredient business of the former Value Added Ingredients operating segment. The Opta Minerals operating segment remained unchanged. The segmented operations information provided in the consolidated financial statements and this MD&A for the quarter and two quarters ended July 5, 2014 has been restated to reflect these realigned reportable segments, as well as to present the Fiber Business as a discontinued operation.

Succession of Chief Executive Officer

On July 7, 2015, we announced the appointment of Hendrik Jacobs, our President and Chief Operating Officer, to President and Chief Executive Officer (“CEO”), effective October 1, 2015. In conjunction with this appointment, Mr. Jacobs will also become a member of the Board of Directors, effective October 1, 2015. Mr. Jacobs will succeed current CEO, Steve Bromley, who will become Vice-Chair, effective October 1, 2015. Mr. Bromley will remain on the Board of Directors and serve as Vice-Chair until December 31, 2015.

Business Developments during the First Two Quarters of 2015

Niagara Natural Fruit Snack Company Inc.

On August 11, 2015, we acquired the net assets of Niagara Natural Fruit Snack Company Inc. (“Niagara Natural”), a manufacturer of non-GMO and organic fruit snacks. Niagara Natural’s operations are located in the Niagara Region of Ontario. Niagara Natural is a strong strategic fit within our core vertically-integrated consumer products strategy, aligning well with our focus on healthy and convenient snacking. In addition, with this acquisition, we extend our market presence in fruit snacks with manufacturing operations in both the east and west regions of North America, which is expected to generate operational and logistical synergies. The transaction includes a cash purchase price of approximately $6,700, subject to certain post-closing adjustments, plus potential future payments based on specific performance targets.

Sunrise Holdings (Delaware), Inc.

On July 30, 2015, we entered into a Purchase and Sale Agreement (the “PSA”) to acquire all of the issued and outstanding common shares of Sunrise Holdings (Delaware), Inc. (“Sunrise”). Sunrise, through its subsidiaries including Sunrise Growers, Inc., is engaged in the business of processing, marketing, distributing and selling conventional and organic frozen fruit. The acquisition of Sunrise is expected to provide us with a leadership position in frozen fruit, leveraging our integrated ‘field to table’ business model, and is aligned with our strategic focus on healthy foods. The transaction is valued at approximately $450,000, comprised of a cash purchase price of $287,150, which is subject to certain adjustments, and the assumption of indebtedness of Sunrise.

Closing of the purchase of Sunrise is expected to occur in the fall of 2015 and is subject to various closing conditions, including, among others, the absence of any injunction or other legal prohibition on the completion of the transaction, the accuracy of the representations and warranties of the parties other than inaccuracies that would not have a material adverse effect, material compliance with the parties’ obligations under the PSA, the absence of a material adverse effect with respect to Sunrise, and expiration of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The PSA provides the Company and Sunrise with customary termination rights.

We intend to finance the acquisition of Sunrise through a combination of debt and equity financing in an aggregate amount of up to $430,000 and borrowings under existing credit facilities. The debt and equity financings are expected to occur on or prior to the closing of the Sunrise acquisition. On July 30, 2015, the Company and its subsidiary SunOpta Foods Inc. entered into a commitment letter with certain financial institutions providing for committed bridge financing of up to $430,000 (the “Commitment”) in support of the Sunrise acquisition, consisting of $290,000 of second lien secured credit facilities of SunOpta Foods Inc. and $140,000 of unsecured senior subordinated credit facilities of SunOpta. The Commitment is subject to various conditions, including the consummation of the Sunrise acquisition and other customary closing conditions.

Selet Hulling PLC

On May 2, 2015, we paid $733 in cash to increase our ownership position in Selet Hulling PLC (“Selet”) from 35% to 76%. Selet is a joint venture located in Ethiopia focused on the sourcing and supply of organic sesame. As a result of our increased ownership in Selet, we also obtained full management control of the operation. Through our investment in Selet, we intend to continue the development of our sourcing for organic sesame and other organic raw materials from Ethiopia and the East-African Region.

Citrusource, LLC

On March 2, 2015, we acquired Citrusource, LLC (“Citrusource”), a producer of premium not-from-concentrate private label organic and conventional orange juice and citrus products in the U.S. We paid $13,300 in cash at closing and we may pay additional consideration based on the incremental growth in Citrusource’s base business and the value of synergies created from combining the operations of Citrusource with our premium juice facility. The preliminary fair value of the total consideration transferred to acquire Citrusource was $33,784 as at the acquisition date, which was allocated primarily to a customer relationships intangible asset ($14,000) and goodwill ($17,136). The fair values assigned to the consideration transferred and net assets acquired are provisional and subject to change. The acquisition of Citrusource aligns with our strategy of growing our value-added consumer products portfolio and leveraging our integrated operating platform. Citrusource has been included in the Consumer Products operating segment since the date of acquisition.

Opta Minerals Inc. Going Concern Uncertainty

We currently own approximately 66% of Opta Minerals Inc. (“Opta Minerals”) on a non-dilutive basis. Opta Minerals produces, distributes and recycles industrial minerals, silica-free abrasives and specialty sands. We have identified our investment in Opta Minerals as a non-core holding.

Over the last several years, Opta Minerals has periodically breached certain financial covenants under its credit agreement with a syndicate of lenders, including as at June 30, 2015. On August 11, 2015, Opta Minerals obtained a waiver for the June 30, 2015 breach. In connection with this waiver, certain additional covenants were added from the date of the waiver through October 2, 2015. In addition, the lenders agreed to extend the maturity of Opta Minerals’ revolving term credit facility from August 14, 2015 to October 2, 2015. As at June 30, 2015, Opta Minerals had borrowings of $14,077 outstanding under its revolving term credit facility and $30,651 outstanding under its non-revolving term credit facility. Opta Minerals’ credit facilities are collateralized by a first priority security interest on substantially all of the assets of Opta Minerals, and are without recourse to SunOpta Inc.

Opta Minerals will require the continued support of its current financial lenders and, effective October 3, 2015, Opta Minerals will require another extension of its revolver and an additional waiver on future covenants, if breached, or an alternative source of financing. There can be no assurance that a further extension and additional waiver will be provided or that alternative sources of financing on terms favorable to Opta Minerals could be obtained to finance its operations and meet its obligations. SunOpta Inc. has no obligation or plans to act as an alternative source of financing for Opta Minerals.

The factors noted above may cast significant doubt as to Opta Minerals’ ability to continue as a going concern. These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported amounts of expenses and consolidated balance sheet classifications that might be necessary if Opta Minerals is unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material to us.

Opta Minerals ability to continue to operate as a going concern could also have a significant impact on our ability to recover the carrying value of our investment in Opta Minerals, which amounted to approximately $25,000 as at July 4, 2015.

Consolidated Results of Operations for the quarters ended July 4, 2015 and July 5, 2014

We believe that investors’ understanding of the financial performance of our core foods business is enhanced by disclosing the specific items that we exclude from earnings attributable to SunOpta Inc. to compute adjusted earnings. However, adjusted earnings is not, and should not be viewed as, a substitute for earnings prepared under U.S. GAAP. Adjusted earnings is presented solely to allow investors to more fully understand how we assess our financial performance.

Revenues for the quarter ended July 4, 2015 decreased by 6.2% to $307,268 from $327,575 for the quarter ended July 5, 2014. Revenues in SunOpta Foods decreased by 5.0% to $277,594 and revenues in Opta Minerals decreased by 15.8% to $29,674. Excluding the impact of changes including commodity-related pricing and foreign exchange rates; and product rationalizations, revenues decreased approximately 3.2% on a consolidated basis and approximately 2.2% within SunOpta Foods. SunOpta Foods’ revenues reflected the impact of lower volumes of consumer-based aseptic beverage, snack and frozen food retail products, as well as lower sunflower volumes following the rationalization of certain facilities and product lines in the third quarter of 2014, partially offset by stronger demand for organic ingredients in the U.S. and Europe. At Opta Minerals, the decrease in revenues reflected competitive pressure in the infrastructure market and a cyclical slowdown in the steel industry in the second quarter of 2015.

Gross profit decreased $9,108, or 21.3%, to $33,710 for the quarter ended July 4, 2015, compared with $42,818 for the quarter ended July 5, 2014. As a percentage of revenues, gross profit for the quarter ended July 4, 2015 was 11.0% compared to 13.1% for the quarter ended July 5, 2014, a decrease of 2.1%. Within SunOpta Foods, the gross profit percentage was 10.7% for the second quarter of 2015, compared with 12.4% for the second quarter of 2014, which reflected lower production volumes and a higher cost base within consumer-based product categories; costs related to the retrofit of our premium juice facility; and costs associated with the expansion of our Allentown, Pennsylvania facility to add aseptic beverage processing and filling capabilities. These factors were partially offset by improved performance in our rationalized sunflower operations, and increased margin contribution from higher volumes of organic ingredients. The gross profit percentage at Opta Minerals declined to 13.7% in the second quarter of 2015, compared with 18.5% in the second quarter of 2014, primarily due to lower volumes of higher-margin steel products and increased raw material costs, as well as the impact of approximately $600 of reserves for slow-moving abrasives inventories.

Total segment operating income for the quarter ended July 4, 2015 decreased by $6,988, or 41.8%, to $9,719, compared with $16,707 for the quarter ended July 5, 2014. As a percentage of revenues, segment operating income was 3.2% for the quarter ended July 4, 2015, compared with 5.1% for the quarter ended July 5, 2014. The decrease in segment operating income reflected lower overall gross profit as described above, partially offset by a $2,021 decrease in selling, general and administrative (“SG&A”) expenses, reflecting lower employee short-term incentive accruals tied to operating performance and controlled discretionary spending.

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

Other expense for the quarter ended July 4, 2015 of $2,098 included severance costs of $1,054 mainly related to the departure of the former President and CEO of Opta Minerals; business development costs of $398, primarily incurred in connection with the agreement to acquire Sunrise and the strategic review of Opta Minerals; and plant closure costs of $285 at Opta Minerals related to the under-performance of certain of its abrasives operations.

The increase in interest expense of $1,083 to $3,093 for the quarter ended July 4, 2015, compared with $2,010 for the quarter ended July 5, 2014, was primarily due to an acceleration of the amortization of deferred financing costs related to Opta Minerals’ non-revolving term credit facility ($655) and the reclassification of the accumulated amount recorded in other comprehensive earnings/loss related to the interest rate swaps used to hedge a portion of Opta Minerals’ non-revolving term credit facility ($458), all in connection with the breach by Opta Minerals of certain of its financial covenants.

The provision for income tax for the quarter ended July 4, 2015 was $3,623, or 80.0% of earnings before taxes, compared with $5,590, or 38.4% of earnings before taxes, for the quarter ended July 5, 2014. The increase in the effective tax rate mainly reflected a valuation allowance of $1,617 recorded by Opta Minerals in connection with the current uncertainty as to its ability to realize certain deferred tax assets, partially offset by a change in the jurisdictional mix of earnings, which reflected lower pre-tax earnings within our U.S.-based consumer products operations, and increased profitability in our international sourcing and supply operations.

Losses attributable to non-controlling interests for the quarter ended July 4, 2015 were $1,278, compared with earnings of $289 for the quarter ended July 5, 2014, which primarily reflected lower net earnings at Opta Minerals.

On a consolidated basis, we recognized earnings of $2,049 (diluted earnings per share of $0.03) for the quarter ended July 4, 2015, compared with earnings of $8,708 (diluted earnings per share of $0.13) for the quarter ended July 5, 2014.

Excluding the results of non-core operations, as well as severance and acquisition related expenses, adjusted earnings were $5,206 or $0.08 per diluted share for the quarter ended July 4, 2015, as compared to adjusted earnings of $8,587 or $0.13 per diluted share for the quarter ended July 5, 2014. Adjusted earnings is a non-GAAP financial measure. See footnote (2) to the table above for a reconciliation of “adjusted earnings” from “earnings attributable to SunOpta Inc.”, which we consider to be the most directly comparable U.S. GAAP financial measure.

Segmented Operations Information

SunOpta Foods contributed $277,594 or 90.3% of consolidated revenue for the quarter ended July 4, 2015, compared with $292,332 or 89.2% of consolidated revenues for the quarter ended July 5, 2014, a decrease of $14,738 or 5.0%. The table below explains the decrease in revenue by reportable segment for SunOpta Foods:

Gross margin in SunOpta Foods decreased by $6,652, or 18.3%, for the quarter ended July 4, 2015 to $29,653, or 10.7% of revenues, compared to $36,305, or 12.4% of revenues for the quarter ended July 5, 2014. The table below explains the decrease in gross margin by reportable segment for SunOpta Foods:

Operating income in SunOpta Foods decreased by $7,113, or 39.3%, for the quarter ended July 4, 2015 to $11,003 or 4.0% of revenues, compared to $18,116 or 6.2% of revenues for the quarter ended July 5, 2014. The table below explains the decrease 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.