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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 March 31, 2012

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)

CANADA	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2838 Bovaird Drive West
Brampton, Ontario L7A 0H2, Canada	(905) 455-1990
(Address of principal executive offices)	(Registrant’s telephone number, including area code)

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):

Large accelerated filer [  ]	Accelerated filer [X]
Non-accelerated filer [  ]	Smaller reporting company [  ]
(Do not check if a smaller reporting company)

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 2, 2012 was 65,838,047.

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SUNOPTA INC.

FORM 10-Q

For the quarterly period ended March 31, 2012

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Operations for the quarters ended March 31, 2012 and April 2, 2011	4
	Consolidated Statements of Comprehensive Earnings for the quarters ended March 31, 2012 and April 2, 2011	5
	Consolidated Balance Sheets as at March 31, 2012 and December 31, 2011	6
	Consolidated Statements of Shareholders’ Equity as at and for the quarters ended March 31, 2012 and April 2, 2011	7
	Consolidated Statements of Cash Flows for the quarters ended March 31, 2012 and April 2, 2011	8
	Notes to Consolidated Financial Statements	9
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4	Controls and Procedures	38
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	39
Item 1A	Risk Factors	39
Item 6	Exhibits	39

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 preceded by the symbol “Cdn $” and amounts expressed in euros are preceded by the symbol “€”. The closing rate of exchange for the U.S. dollar on March 31, 2012 was $1.00 = Cdn $0.9975.

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”, 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:

SUNOPTA INC.

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March 31, 2012 10-Q

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• our ability to renew our credit facilities when they become due on October 30, 2012;
   
• restrictions in our syndicated credit agreement on how we may operate our business;
   
• our inability 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 conditions due to adverse weather conditions;
   
• dilution in the value of our common shares through the exercise of stock options, 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 lack of management and operational control over Mascoma Corporation;
   
• 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.

SUNOPTA INC.

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March 31, 2012 10-Q

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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 31, 2011 (“Form 10-K”). For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A, Risk Factors, included in the Form 10-K.

SUNOPTA INC.

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March 31, 2012 10-Q

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SunOpta Inc.
Consolidated Statements of Operations
For the quarters ended March 31, 2012 and April 2, 2011
(Unaudited)
(Expressed in thousands of U.S. dollars, except per share amounts)

		Quarter ended March 31, 2012			Quarter ended April 2, 2011
Revenues	$	274,542		$	260,589
Cost of goods sold		237,204			225,055
Gross profit		37,338			35,534
Selling, general and administrative expenses		22,549			22,405
Intangible asset amortization		1,273			1,385
Other expense, net (note 8)		368			362
Foreign exchange loss		71			135
Earnings from continuing operations before the following		13,077			11,247
Interest expense, net		2,583			1,984
Earnings from continuing operations before income taxes		10,494			9,263
Provision for income taxes		3,831			3,224
Earnings from continuing operations		6,663			6,039
Loss from discontinued operations, net of income taxes (note 1)		(224	)		(291	)
Earnings		6,439			5,748
Earnings attributable to non-controlling interests		547			667
Earnings attributable to SunOpta Inc.	$	5,892		$	5,081
Earnings (loss) per share – basic (note 9)
- from continuing operations	$	0.09		$	0.08
- from discontinued operations		-			-
	$	0.09		$	0.08
Earnings (loss) per share – diluted (note 9)
- from continuing operations	$	0.09		$	0.08
- from discontinued operations		-			-
	$	0.09		$	0.08

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Consolidated Statements of Comprehensive Earnings

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars)

		Quarter ended March 31, 2012			Quarter ended April 2, 2011
Earnings from continuing operations	$	6,663		$	6,039
Loss from discontinued operations, net of income taxes		(224	)		(291	)
Earnings		6,439			5,748
Currency translation adjustment		1,099			2,058
Change in fair value of interest rate swap, net of taxes		(40	)		110
Other comprehensive earnings, net of income taxes		1,059			2,168
Comprehensive earnings		7,498			7,916
Comprehensive earnings attributable to non-controlling interests		612			796
Comprehensive earnings attributable to SunOpta Inc.	$	6,886		$	7,120

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Consolidated Balance Sheets

As at March 31, 2012 and December 31, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars)

		March 31, 2012			December 31, 2011
ASSETS
Current assets
Cash and cash equivalents (note 10)	$	3,729		$	2,378
Accounts receivable		113,221			94,177
Inventories (note 4)		237,965			240,852
Prepaid expenses and other current assets		21,437			21,625
Current income taxes recoverable		1,501			1,503
Deferred income taxes		4,834			4,773
		382,687			365,308
Investments		33,845			33,845
Property, plant and equipment		126,066			120,734
Goodwill		57,276			49,387
Intangible assets		57,214			48,624
Deferred income taxes		10,875			11,751
Other assets		1,360			1,854
	$	669,323		$	631,503
LIABILITIES
Current liabilities
Bank indebtedness (note 5)	$	130,368		$	109,718
Accounts payable and accrued liabilities		104,459			120,228
Customer and other deposits		6,225			843
Income taxes payable		2,067			1,229
Other current liabilities		1,181			1,419
Current portion of long-term debt (note 6)		32,444			35,198
Current portion of long-term liabilities		890			995
		277,634			269,630
Long-term debt (note 6)		33,383			17,066
Long-term liabilities		6,518			5,586
Deferred income taxes		28,597			24,273
		346,132			316,555
EQUITY
SunOpta Inc. shareholders’ equity
Common shares, no par value, unlimited shares authorized, 65,835,327 shares issued (December 31, 2011 - 65,796,398)		182,269			182,108
Additional paid-in capital (note 7)		14,718			14,134
Retained earnings		106,400			100,508
Accumulated other comprehensive income		3,376			2,382
		306,763			299,132
Non-controlling interests		16,428			15,816
Total equity		323,191			314,948
	$	669,323		$	631,503
Commitments and contingencies (note 11)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Consolidated Statements of Shareholders’ Equity

As at and for the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars)

														Accumulated
								Additional						other com-			Non-
								paid-in			Retained			prehensive			controlling
		Common shares						capital			earnings			income			interests			Total
		000s			$			$			$			$			$			$
Balance at December 31, 2011		65,796			182,108			14,134			100,508			2,382			15,816			314,948
Employee share purchase plan compensation grants		32			144			-			-			-			-			144
Exercise of options		7			17			(4	)		-			-			-			13
Stock-based compensation		-			-			588			-			-			-			588
Earnings from continuing operations		-			-			-			6,116			-			547			6,663
Loss from discontinued operations, net of income taxes		-			-			-			(224	)		-			-			(224	)
Currency translation adjustment		-			-			-			-			1,020			79			1,099
Change in fair value of interest rate swap, net of income taxes		-			-			-			-			(26	)		(14	)		(40	)
Balance at March 31, 2012		65,835			182,269			14,718			106,400			3,376			16,428			323,191
														Accumulated
								Additional						other com-			Non-
								paid-in			Retained			prehensive			controlling
		Common shares						capital			earnings			income			interests			Total
		000s			$			$			$			$			$			$
Balance at January 1, 2011		65,500			180,661			12,336			95,212			2,833			14,085			305,127
Employee share purchase plan and compensation grants		29			169			-			-			-			-			169
Exercise of options		10			51			(7	)		-			-			-			44
Stock-based compensation		-			-			429			-			-			-			429
Earnings from continuing operations		-			-			-			5,372			-			667			6,039
Loss from discontinued operations, net of income taxes		-			-			-			(291	)		-			(75	)		(366	)
Currency translation adjustment		-			-			-			-			1,966			92			2,058
Change in fair value of interest rate swap, net of income taxes		-			-			-			-			73			37			110
Balance at April 2, 2011		65,539			180,881			12,758			100,293			4,872			14,806			313,610

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Consolidated Statements of Cash Flows

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars)

		Quarter ended March 31, 2012			Quarter ended April 2, 2011
Cash provided by (used in)
Operating activities
Earnings	$	6,439		$	5,748
Loss from discontinued operations		(224	)		(291	)
Earnings from continuing operations		6,663			6,039
Items not affecting cash:
Depreciation and amortization		4,853			4,833
Unrealized loss on foreign exchange		102			723
Deferred income taxes		2,331			1,476
Stock-based compensation		588			429
Unrealized loss (gain) on derivative instruments		682			(3,685	)
Other		341			(389	)
Changes in non-cash working capital, net of business            acquired (note 10)		(22,657	)		(42,844	)
Net cash flows from operations - continuing operations		(7,097	)		(33,418	)
Net cash flows from operations - discontinued operations		(161	)		(485	)
		(7,258	)		(33,903	)
Investing activities
Acquisition of business (note 2)		(17,530	)		-
Purchases of property, plant and equipment		(4,932	)		(3,909	)
Purchases of patents, trademarks and other intangible assets		(25	)		(81	)
Other		(77	)		-
Cash from investing activities - continuing operations		(22,564	)		(3,990	)
Financing activities
Increase under line of credit facilities (note 5)		19,008			42,551
Borrowings under long-term debt (note 6)		19,088			37
Proceeds from the issuance of common shares		157			213
Repayment of long-term debt		(7,030	)		(2,004	)
Financing costs		(91	)		(25	)
Other		(3	)		28
Cash from financing activities - continuing operations		31,129			40,800
Foreign exchange gain on cash held in a foreign currency		44			170
Increase in cash and cash equivalents in the period		1,351			3,077
Discontinued operations cash activity included above:
Add: Balance included at beginning of period		-			308
Less: Balance included at end of period		-			(212	)
Cash and cash equivalents - beginning of the period		2,378			2,335
Cash and cash equivalents - end of the period	$	3,729		$	5,508
Supplemental cash flow information (note 10)

(See accompanying notes to consolidated financial statements)

SUNOPTA INC.

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

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 has two industry groups divided into six operating segments, the largest being SunOpta Foods, which operates in the natural, organic and specialty foods and natural health product sectors and utilizes a number of integrated business models to bring cost-effective and quality products to market. In addition to SunOpta Foods, the Company owned approximately 66.2% of Opta Minerals Inc. (“Opta Minerals”) as at March 31, 2012. Opta Minerals is a vertically integrated provider of customer process solutions and industrial minerals products for use primarily in the steel, foundry, loose abrasive cleaning, construction and marine/bridge cleaning industries. The Company also has an 18.65% ownership position in Mascoma Corporation, an innovative biofuels company.

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 March 31, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 29, 2012 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 31, 2011 (except as described below under “Comparative balances” and “Adoption of new accounting standards”). For further information, see the consolidated financial statements, and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Comparative balances

As a result of the disposal of the Company’s interest in the Colorado Sun Oil Processing LLC (“CSOP”) joint venture in August 2011 (see note 11), the revenues and expenses related to CSOP for the quarter ended April 2, 2011 have been reclassified to discontinued operations. Previously, CSOP had been consolidated as a variable interest entity.

As more fully described in note 12, segmented information for the quarter ended April 2, 2011 has been restated to reflect the realignment of the Company’s operating segments within SunOpta Foods implemented during the first quarter of 2012, and the disposal of CSOP noted above. The realignment of the Company’s operating segments did not change the Company’s previously reported consolidated results of operations, financial position or cash flows.

Adoption of new accounting standards

Effective January 1, 2012, the Company adopted on a prospective basis the provisions of the following new accounting standards:

• Amendments to fair value measurement and disclosure requirements.
   
• Guidance related to the presentation of net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive statements. The amendments did not change the components of other comprehensive income as reported in the Company’s separate statement of comprehensive earnings.
   
• Guidance on the accounting for goodwill that permits a qualitative approach to determining the likelihood of a goodwill impairment charge.

The adoption of these new standards did not have a significant impact on the interim consolidated financial statements.

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

2. Business acquisition

Babco Industrial Corp.

On February 10, 2012, Opta Minerals acquired all of the outstanding common shares of Babco Industrial Corp. (“Babco”), located in Regina, Saskatchewan. Babco is an industrial processor of petroleum coke. This acquisition complements Opta Minerals’ existing product portfolio and provides for additional product line offerings to new and existing customers in the region.

This transaction has been accounted for as a business combination under the acquisition method of accounting. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, as well as the consideration transferred to effect the acquisition as of the acquisition date. The recognized amounts for identifiable intangible assets and goodwill are provisional, pending the final valuation. The Company will finalize these amounts no later than one year from the acquisition date.

(1)	The fair value of accounts receivable acquired is equal to the gross contractual amount receivable.
(2)	Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. None of the goodwill is expected to be deductible for tax purposes. The goodwill recorded represents (i) synergies and economies of scale expected to result from combining the operations of Opta Minerals and Babco, (ii) the value of the going-concern element of Babco’s existing business (that is, the higher rate of return on the assembled net assets versus if Opta Minerals had acquired all of the net assets separately) and the value of Babco’s assembled workforce that does not qualify for separate recognition as an intangible asset.
(3)	Intangible assets consist of acquired customer relationships, which are being amortized over their estimated useful lives of approximately 15 years.
(4)	In conjunction with the acquisition, Opta Minerals fully repaid Babco’s existing banking facilities.

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

(5)

Represents the fair value of contingent consideration payments of up to approximately $1,300 if Babco achieves certain EBITDA targets over the next five years. The fair value of the contingent consideration was measured using a discounted cash flow analysis based on level 3 inputs, which included a forecasted EBITDA growth rate of 2.5% and a risk-adjusted discount rate of 18.0%.

The acquired assets (including goodwill), assumed liabilities and results of operations of Babco have been included in the Opta Minerals operating segment since the date of acquisition. The revenues and earnings of Babco attributable to SunOpta Inc. that are included in the consolidated statement of operations for the period from the acquisition date to March 31, 2012 were $1,981 and $334, respectively.

Pro forma consolidated results of operations (unaudited)

The following table presents unaudited pro forma consolidated results of operations for the quarters ended March 31, 2012 and April 2, 2011, as if the Babco acquisition had occurred as of January 2, 2011.

The 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 Babco. The pro forma information reflects primarily the following pro forma adjustments:

• incremental amortization expense related to the fair value of the identifiable intangible assets acquired;
   
• additional depreciation expense related to the fair value adjustment to property, plant and equipment acquired;
   
• additional interest costs associated with an increase in borrowings under Opta Minerals’ revolving acquisition facility, which were used to finance the acquisition (see note 6); and
   
• the exclusion of acquisition-related transaction costs incurred by Opta Minerals (see note 8) from pro forma earnings for the quarter ended March 31, 2012, and the inclusion of those costs in pro forma earnings for the quarter ended April 2, 2011.

The pro forma information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition of Babco been completed on January 2, 2011. In addition, the pro forma information does not purport to project the future results of operations of the Company.

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

3. 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 March 31, 2012 and December 31, 2011:

	(1)	Unrealized short-term derivative gain is included in prepaid expenses and other current assets, unrealized long-term derivative gain is included in other assets, unrealized short-term derivative loss is included in other current liabilities and unrealized long-term derivative loss is included in long-term liabilities on the consolidated balance sheets.
	(2)	Inventories carried at market are included in inventories on the consolidated balance sheets.
	(3)	The interest rate swaps are included in long-term liabilities on the consolidated balance sheets.
	(4)	The forward foreign currency contracts are included in accounts receivable on the consolidated balance sheets.
	(5)	Contingent consideration obligations are included in long-term liabilities (including the current portion thereof) on the consolidated balance sheets.
(a)	Commodity futures and forward contracts
	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.

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

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. These derivative instruments are not designated as hedging instruments. For the quarter ended March 31, 2012, a loss of $682 (April 2, 2011 - gain of $2,985) was recorded in cost of goods sold on the consolidated statement of operations related to changes in the fair value of these derivatives.

At March 31, 2012, the notional amounts of open commodity futures and forward purchase and sale contracts were as follows (in thousands of bushels):

	In addition, as at March 31, 2012, the Company also had open forward contracts to sell 140 lots of cocoa.
(b)	Inventories carried at market
	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 sales on the consolidated statements of operations. As at March 31, 2012, the Company had 332,531 bushels of commodity corn and 758,851 bushels of commodity soybeans in inventories carried at market.
(c)	Interest rate swaps
	Opta Minerals utilizes interest rate swaps to minimize its exposure to interest rate risk. In 2007, Opta Minerals entered into a five-year Cdn $17,200 ($17,243) interest rate swap contract to pay a fixed rate of 5.25%, 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. In February 2012, Opta Minerals entered into a five-year Cdn $15,000 ($15,038) interest rate swap contract to pay a fixed rate of 1.85%, 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. This contract commences in August 2012, the date of expiry of the 2007 contract. Also in February 2012, in connection with an increase in borrowings under its revolving acquisition facility (see note 6), which were used to finance the acquisition of Babco (see note 2), Opta Minerals entered into a five-year Cdn $19,000 ($19,088) interest rate swap to pay a fixed rate of 1.85%, 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. The net notional value of this contract decreases in accordance with the quarterly principal repayments on the revolving acquisition facility.
	At each period end, the Company calculates the mark-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 mark-to-market position. The mark-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 in other comprehensive earnings. For the quarter ended March 31, 2012, a loss of $43, net of income taxes of $3 (April 2, 2011 - gain of $157, net of income taxes of $47) was recorded in other comprehensive earnings due to the change in fair value of these instruments.

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

(d)	Foreign forward currency contracts
	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 March 31, 2012 the Company had open forward foreign exchange contracts with a notional value of Cdn $1,815, € 4,075 and $9,318. For the quarter ended March 31, 2012, the Company recognized an unrealized gain of $331 (April 2, 2011 - loss of $576) related to changes in the fair value of these derivatives, which was included in foreign exchange loss on the consolidated statements of operations.
(e)	Contingent consideration
	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. For the quarter ended March 31, 2012, the increase in the fair value of the contingent consideration liability reflected the addition of the acquisition-date fair value of the contingent consideration arising from the acquisition of Babco (see note 2). Adjustments to the fair value of the contingent consideration liability related to (i) changes in the probability of achievement of the factors on which the contingencies are based, (ii) the accretion of interest expense, and (iii) changes in foreign currency exchange rates were not material for the quarter ended March 31, 2012.

4. Inventories

		March 31, 2012			December 31, 2011
		$			$
Raw materials and work-in-process		145,892			147,051
Finished goods		75,053			83,222
Company-owned grain		23,064			17,351
Inventory reserves		(6,044	)		(6,772	)
		237,965			240,852

5. Bank indebtedness

		March 31, 2012			December 31, 2011
		$			$
Canadian line of credit facility(1)		-			26
U.S. line of credit facility(1)		66,081			51,617
Opta Minerals Canadian line of credit facility		10,027			7,765
TOC line of credit facilities(2)		54,260			50,310
		130,368			109,718

(1)	Canadian and U.S. line of credit facilities
	In January 2012, the Company completed amendments to its syndicated banking facilities, which included a Cdn $5,000 increase in the Canadian line of credit facility to Cdn $10,000 ($10,025) and a $15,000 increase in the U.S. revolving line of credit facility to $115,000, with a corresponding decrease from $30,000 to $10,000 in the amount of availability under the facilities’ accordion feature. There were no other material changes made to the facilities’ terms and conditions. The maturity date of the facilities remains October 30, 2012. As at March 31, 2012, the borrowing base supported draws (including $15,631 committed through letters of credit) of up to the maximum availability under the lines of credit.

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

	The Canadian and U.S. line of credit facilities are collateralized by a first priority security against substantially all of the Company’s assets in Canada and the U.S., excluding the assets of Opta Minerals and The Organic Corporation (“TOC”), a wholly-owned subsidiary of the Company.
(2)	TOC line of credit facilities
	In March 2012, the TOC banking agreement was amended to provide for a €3,000 ($3,991) increase to the line of credit facilities. There were no other material changes made to the facilities’ terms and conditions.

6. Long-term debt

		March 31, 2012			December 31, 2011
		$			$
Non-revolving real estate term facility		11,916			12,133
Non-revolving machinery and equipment term facility		10,228			11,078
Opta Minerals term loan facility		6,224			6,392
Opta Minerals revolving acquisition facility(1)		31,237			12,420
Promissory notes		4,864			8,744
Other		1,358			1,497
		65,827			52,264
Less: current portion		32,444			35,198
		33,383			17,066

(1)	Opta Minerals revolving acquisition facility
	In February 2012, in connection with the acquisition of Babco (see note 2), Opta Minerals’ credit agreement was amended to increase the borrowing amount available under the revolving acquisition facility by Cdn $19,000 ($19,088). The facility is repayable in quarterly installments of 1/40 of the principal amount, with the remaining outstanding principal due on the maturity date. Interest on the borrowings under the revolving acquisition facility accrue at the borrower’s option based on various reference rates including prime, bankers’ acceptances or LIBOR, plus a margin of 2.0% to 3.5% based on certain financial ratios of Opta Minerals. As described in note 3, Opta Minerals entered into an interest rate swap to hedge the interest payments on 100% of the increase in borrowings under this facility for a five-year term. At March 31, 2012, the weighted-average interest rate on this facility was 5.34% after taking into account all of the related interest rate hedging activities. The revolving acquisition facility was due to mature in August 2012; however, in December 2011, Opta Minerals obtained a commitment from the lender to amend and restate its existing credit agreement. The amended and restated credit agreement will replace Opta Minerals’ existing credit facilities, including the revolving acquisition facility. The borrowings under the revolving acquisition facility will be converted into borrowings under a five-year non-revolving term facility upon execution of an amended and restated credit agreement. The banking facilities of Opta Minerals are collateralized by a first priority security interest on substantially all of Opta Minerals’ assets in both Canada and the U.S.

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

7. Stock-based compensation

For the quarter ended March 31, 2012, the Company granted 122,500 options to employees that vest ratably on each of the first through fifth anniversary of the grant date and expire on the tenth anniversary of the grant date. These options had a weighted-average grant-date fair value of $3.02 per option. The following table summarizes the weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the options granted:

		Quarter ended
		March 31, 2012
Exercise price	$	5.15
Dividend yield		0%
Expected volatility		65.3%
Risk-free interest rate		0.9%
Expected life of options (in years)		6.5

8. Other expense, net

			Quarters ended
			March 31, 2012			April 2, 2011
			$			$
(a)	Severance and other rationalization charges		320			427
(b)	Acquisition-related transaction costs		201			-
	Other		(153	)		(65	)
			368			362

(a)	Severance and other rationalization costs
	For the quarter ended March 31, 2012, the company recorded employee severance and other costs in connection with the rationalization of a number of operations and functions in an effort to streamline operations. The Company expects to incur severance costs of approximately $500 in total as a result of a planned reduction in its salaried workforce of approximately 6%. The majority of the remaining severance costs of approximately $180 are expected to be incurred during the second and third quarters of 2012.
	For the quarter ended April 2, 2011, severance costs were related to employee terminations in the former Fruit Group and Corporate Services.
(b)	Acquisition-related transaction costs
	Represents transaction costs incurred by Opta Minerals in connection with the acquisition of Babco (see note 2).

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

9. Earnings per share

Earnings (loss) per share were calculated as follows:

		Quarters ended
		March 31, 2012			April 2, 2011
Earnings from continuing operations       attributable to SunOpta Inc.		$ 6,116			$ 5,372
Loss from discontinued operations,       net of income taxes		(224	)		(291	)
Earnings attributable to SunOpta Inc.	$	5,892		$	5,081
Basic weighted-average number of       shares outstanding		65,809,505			65,516,643
Dilutive potential of the following:
Employee/director stock options		484,398			997,397
Warrants		87,657			314,472
Diluted weighted-average number of       shares outstanding		66,381,560			66,828,512
Earnings (loss) per share - basic:
- from continuing operations	$	0.09		$	0.08
- from discontinued operations		-			-
	$	0.09		$	0.08
Earnings (loss) per share - diluted:
- from continuing operations	$	0.09		$	0.08
- from discontinued operations		-			-
	$	0.09		$	0.08

For the quarter ended March 31, 2012, options to purchase 1,485,100 (April 2, 2011 - 606,600) common shares and warrants to purchase 600,000 (April 2, 2011 - nil) common shares have been excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.

SUNOPTA INC.

17

March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

10. Supplemental cash flow information

		Quarters ended
		March 31, 2012			April 2, 2011
		$			$
Changes in non-cash working capital:
Accounts receivable		(17,978	)		(12,992	)
Inventories		4,833			(25,179	)
Income tax recoverable		840			(227	)
Prepaid expenses and other current assets		310			(538	)
Accounts payable and accrued liabilities		(16,055	)		(4,691	)
Customer and other deposits		5,393			783
		(22,657	)		(42,844	)

As at March 31, 2012, cash and cash equivalents included $1,429 (December 31, 2011 - $698) that is specific to Opta Minerals and cannot be utilized by the Company for general corporate purposes.

11. Commitments and contingencies

Colorado Sun Oil Processors, LLC dispute

Colorado Mills, LLC (“Colorado Mills”) and SunOpta Grains and Foods Inc. (formally Sunrich LLC, herein “Grains and Foods”), a wholly–owned subsidiary of the Company, organized a joint venture through CSOP. The purpose of the joint venture was to construct and operate a vegetable oil refinery adjacent to Colorado Mills’ sunflower seed crush plant located in Lamar, Colorado. During the relationship, disputes arose between the parties concerning management of the joint venture, record–keeping practices, certain unauthorized expenses incurred on behalf of the joint venture by Colorado Mills, procurement of crude oil by Sunrich from Colorado Mills for processing at the joint venture refinery, and the contract price of crude oil offered for sale under an output term of the joint venture agreement.

The parties initiated a dispute resolution process as set forth in the joint venture agreement, which Colorado Mills aborted prematurely through the initiation of suit in Prowers County District Court, Colorado on March 16, 2010. Subsequent to the filing of that suit, Colorado Mills acted with an outside creditor of the joint venture to involuntarily place the joint venture into bankruptcy. In August 2011, as part of the bankruptcy proceeding initiated in June 2011 in the U.S. Bankruptcy Court, District of Colorado, Colorado Mills purchased substantially all of the assets of the joint venture.

A separate arbitration proceeding occurred between Grains and Foods and Colorado Mills to resolve direct claims each party asserted against the other. The case was arbitrated during the week of August 8, 2011 and proposed findings were filed on September 13, 2011. On January 4, 2012 the arbitrator entered an award denying Grains and Foods’ claims and awarding Colorado Mills $4,816 for its breach of contract claim and $430 for accrued interest. The Company subsequently filed a motion to vacate the arbitration award on March 30, 2012. Colorado Mills filed a response on April 20, 2012. The Company filed a reply on April 27, 2012. The Court has indicated that it will allow a hearing on the vacatur motion. A hearing on that motion will likely occur toward the end of the second quarter of 2012. Although management believes the claims asserted by Colorado Mills are baseless, that the arbitrator committed prejudicial error warranting vacatur of the award, and that vacatur is warranted, management cannot predict whether the prospect of an unfavorable outcome in this matter is probable. As of December 31, 2011, the Company accrued the full value of the award, pending the outcome of post-arbitration judicial proceedings. Legal expenses, net of tax, related to the motion to vacate the arbitration award are included in loss from discontinued operations, net of income taxes, on the consolidated statement of operations.

SUNOPTA INC.

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

Other claims

Various additional 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 first quarter of 2012, the Company implemented changes to its organizational structure to align the operations of SunOpta Foods according to the type of customers and markets served, rather than by product groupings. Consequently, the Company has realigned its reportable operating segments to reflect the resulting changes in management reporting and accountability to the Company’s Chief Executive Officer. With this realignment, SunOpta Foods now consists of the following four operating segments: Grains and Foods Group, Ingredients Group, Consumer Products Group and International Foods Group. This new structure is more closely aligned with the Company’s integrated business models that specialize in the sourcing, processing and packaging of natural, organic and specialty food products.

As a result of this realignment, the former Fruit Group was eliminated and the new Consumer Products Group was created to focus on non-grains based consumer packaged goods and is comprised of the Frozen Foods and Healthy Snacks operations which were part of the former Fruit Group, and the Food Solutions operations which were formerly part of the International Foods Group. The Fruit Ingredient operation of the former Fruit Group has been merged with the existing Ingredients Group. The Grains and Foods Group remains unchanged.

Effective with the realignment, the Company operates in two industries divided into six operating segments as follows:

(a)	SunOpta Foods sources, processes, packages, markets and distributes a wide range of natural, organic and specialty food products and ingredients with a focus on soy, corn, sunflower, fruit, fiber and other natural and organic food and natural health products. There are four operating segments within SunOpta Foods:
	i.	Grains and Foods Group is focused on vertically integrated sourcing, processing, packaging and marketing of grains, grain-based ingredients and packaged products;
	ii.	Ingredients Group is focused primarily on insoluble oat and soy fiber products, and specialty fruit ingredients, and works closely with its customers to identify product formulation, cost and productivity opportunities aimed at transforming raw materials into value-added food ingredient solutions;
	iii.	Consumer Products Group provides natural and organic consumer packaged food products to major global food manufacturers, distributors and supermarket chains with a variety of branded and private label non-grains based products; and
	iv.	International Foods Group comprises non-U.S. based operations which source raw material ingredients and trade organic commodities. In addition, this group manufactures, packages and distributes retail natural health products, primarily in the Canadian marketplace.
(b)	Opta Minerals processes, distributes and recycles silica-free loose abrasives, roofing granules, industrial minerals and specialty sands for the foundry, steel, and bridge and ship-cleaning industries.
(c)	Corporate Services provide a variety of management, financial, information technology, treasury and administration services to the operating segments from the head office in Brampton, Ontario, and information and shared services in Minnesota.

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

The following segmented information for the quarter ended March 31, 2012 is provided on the basis of the Company’s new operating segments alignment and the disposal of CSOP (see note 1):

		Quarter ended
		March 31, 2012
		SunOpta			Opta			Corporate
		Foods			Minerals			Services			Consolidated
		$			$			$			$
External revenues by market:
U.S.		182,656			18,042			-			200,698
Canada		23,947			6,272			-			30,219
Europe and other		39,607			4,018			-			43,625
Total revenues from external customers		246,210			28,332			-			274,542
Segment earnings (loss) from continuing
operations before the following:		12,011			3,081			(1,647	)		13,445
Other expense, net											368
Interest expense, net											2,583
Provision for income taxes											3,831
Earnings from continuing operations											6,663

SunOpta Foods had the following segmented reporting for the quarter ended March 31, 2012:

		Quarter ended
		March 31, 2012
		Grains and						Consumer			International			SunOpta
		Foods			Ingredients			Products			Foods			Foods
		$			$			$			$			$
External revenues by market:
U.S.		104,448			19,304			43,919			14,985			182,656
Canada		4,465			1,671			678			17,133			23,947
Europe and other		12,262			674			555			26,116			39,607
Total revenues from external customers		121,175			21,649			45,152			58,234			246,210
Segment earnings (loss) from continuing
operations		8,386			1,229			(175	)		2,571			12,011

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March 31, 2012 10-Q

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SunOpta Inc.

Notes to Consolidated Financial Statements

For the quarters ended March 31, 2012 and April 2, 2011

(Unaudited)

(Expressed in thousands of U.S. dollars, except per share amounts)

The following segmented information for the quarter ended April 2, 2011 has been restated to reflect the Company’s new operating segment alignment:

		Quarter ended
		April 2, 2011
		SunOpta			Opta			Corporate
		Foods			Minerals			Services			Consolidated
		$			$			$			$
External revenues by market:
U.S.		169,667			14,732			-			184,399
Canada		22,559			3,272			-			25,831
Europe and other		46,757			3,602			-			50,359
Total revenues from external customers		238,983			21,606			-			260,589
Segment earnings (loss) from continuing
operations before the following:		11,044			2,451			(1,886	)		11,609
Other expense, net											362
Interest expense, net											1,984
Provision for income taxes											3,224
Earnings from continuing operations											6,039

SunOpta Foods had the following segmented reporting for the quarter ended April 2, 2011:

		Quarter ended
		April 2, 2011
		Grains and						Consumer			International			SunOpta
		Foods			Ingredients			Products			Foods			Foods
		$			$			$			$			$
External revenues by market:
U.S.		96,959			22,857			35,006			14,845			169,667
Canada		2,768			2,454			735			16,602			22,559
Europe and other		15,540			625			203			30,389			46,757
Total revenues from external customers		115,267			25,936			35,944			61,836			238,983
Segment earnings (loss) from continuing
operations		6,288			2,966			(478	)		2,268			11,044

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March 31, 2012 10-Q

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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 March 31, 2012 contained under Item 1 of this Quarterly Report on Form 10-Q and in conjunction with the annual consolidated financial statements, and notes thereto, contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (“2011 Form 10-K”).

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 “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue”, 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 under Part I, Item 1A of the 2011 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.

Unless otherwise indicated herein, the discussion and analysis contained in this MD&A includes information available to May 9, 2012. All dollar amounts in this MD&A are expressed in thousands of U.S. dollars, except per share amounts, unless otherwise noted.

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March 31, 2012 10-Q

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Segment Realignment and Rationalization Efforts

In February 2012, we announced that a process to streamline the operations and organizational structure of SunOpta Foods had been undertaken in order to drive efficiencies and better align product innovation and commercial activities. During the first quarter of 2012, operating segments within SunOpta Foods were re-aligned according to the type of customers and markets served, rather than by product groupings. As a result, the former Fruit Group was eliminated and a new Consumer Products Group was created to focus on non-grains based consumer packaged goods. The Consumer Products Group is comprised of the Frozen Foods and Healthy Snacks operations which were part of the former Fruit Group, and the Food Solutions operations which were formerly part of the International Foods Group. The Fruit Ingredient operation of the former Fruit Group has been merged with the existing Ingredients Group. Following the realignment, the International Foods Group comprises our international sourcing and supply operations (Tradin Organic) and the operations of Purity Life Health Products. The Grains and Foods Group remains unchanged. With this realignment, SunOpta Foods now consists of four operating segments: Grains and Foods, Ingredients, Consumer Products and International Foods. The segmented operations information provided in this MD&A for the current and comparative periods reflects these new operating segments.

In hand with these efforts, we also announced the rationalization of a number of operations and functions which we expect to result in a reduction of approximately 6% of our salaried workforce. Once fully implemented, and after approximately $500 in severance charges, this rationalization is expected to reduce annual costs by approximately $3,000 before tax.

Business Developments

Acquisition of Babco Industrial Corp.

In February 2012, Opta Minerals acquired all of the outstanding common shares of Babco Industrial Corp. (“Babco”) located in Regina, Saskatchewan for cash at closing of $17,530 plus contingent consideration of up to $1,300 based on the achievement of certain EBITDA targets over the next five years. Babco is an industrial processor of petroleum coke. This acquisition complements Opta Minerals existing product portfolio and provides for additional product line offerings to new and existing customers in the region.

Inland RC, LLC

In November 2011, Opta Minerals acquired the members’ interest in Inland RC, LLC, (“Inland”) a manufacturer of pre-cast refractory shapes, injection lances and electric furnace deltas for cash consideration of $658 plus contingent consideration based on the achievement of certain future targets. Inland’s business is complementary with current Opta Minerals product offerings and has capacity for growth and significant synergy opportunities.

Lorton’s Fresh Squeezed Juices, Inc.

In August 2011, we completed the acquisition of the assets and business of Lorton’s Fresh Squeezed Juices, Inc. (“Lorton’s”) for cash consideration and amounts payable for additional working capital of $2,602, plus an earn-out based on predetermined earnings targets over a four-year period. Lorton’s is a vertically integrated producer of a variety of citrus based products in both industrial and packaged formats. This acquisition expanded our vertically integrated operations into the extracting, processing and packaging of citrus-based ingredients through consumer packaged products, and provides increased capacity for future growth and expansion. Lorton’s operations are included in the Consumer Products Group.

Colorado Sun Oil Processing LLC

In August 2011, we disposed of our interest in the Colorado Sun Oil Processing, LLC (“CSOP”) joint venture, pursuant to bankruptcy proceedings. As a result, the revenues and expenses related to CSOP (including legal fees incurred in connection with arbitration proceedings underway in respect of the related joint venture agreement) for the quarters ended March 31, 2012 and April 2, 2011 have been reclassified to discontinued operations.

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March 31, 2012 10-Q

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Consolidated Results of Operations

For the quarter ended		March 31, 2012			April 2, 2011			Change			Change
		$			$			$			%
Revenues
SunOpta Foods		246,210			238,983			7,227			3.0%
Opta Minerals		28,332			21,606			6,726			31.1%
Total revenues		274,542			260,589			13,953			5.4%
Gross profit
SunOpta Foods		31,091			30,383			708			2.3%
Opta Minerals		6,247			5,151			1,096			21.3%
Total gross profit		37,338			35,534			1,804			5.1%
Operating income (loss)
SunOpta Foods		12,011			11,044			967			8.8%
Opta Minerals		3,081			2,451			630			25.7%
Corporate Services		(1,647	)		(1,886	)		239			12.7%
Total operating income		13,445			11,609			1,836			15.8%
Other expense, net		368			362			6			1.7%
Interest expense, net		2,583			1,984			599			30.2%
Provision for income taxes		3,831			3,224			607			18.8%
Earnings from continuing operations		6,663			6,039			624			10.3%
Earnings attributable to non-controlling interests		547			667			(120	)		-18.0%
Loss from discontinued operations, net of taxes		(224	)		(291	)		67			23.0%
Earnings attributable to SunOpta Inc.		5,892			5,081			811			16.0%

(Operating Income is defined as “Earnings from continuing operations before the following” excluding the impact of “Other expense, net”)

Revenues for the quarter ended March 31, 2012 increased by 5.4% to $274,542 from $260,589 for the quarter ended April 2, 2011. Incremental revenues related to the acquisitions of Babco, Inland and Lorton’s of $3,674 accounted for 1.4% of the revenue growth. Revenues in SunOpta Foods increased by 3.0% to $246,210 and revenues in Opta Minerals increased by 31.1% to $28,332. Excluding the impact of changes including foreign exchange rates, commodity-related pricing, acquisitions and rationalized product lines, revenues increased approximately 7.0% on a consolidated basis, due primarily to higher sales volumes of value-added aseptic and other consumer packaged goods at SunOpta Foods and mill and foundry products at Opta Minerals, partially offset by lower sales volumes and pricing at SunOpta Foods for fiber and fruit ingredient products and certain commodities (including fruits, vegetables, orange juice, cocoa and coffee) of The Organic Corporation (“TOC”).

As a result of the overall increase in sales volume, gross profit increased $1,804, or 5.1%, to $37,338 for the quarter ended March 31, 2012, compared with $35,534 for the quarter ended April 2, 2011. As a percentage of revenues, gross profit for each of the quarters ended March 31, 2012 and April 2, 2011 was 13.6% .

Operating income for the quarter ended March 31, 2012 increased by $1,836 to $13,445, compared with $11,609 for the quarter ended April 2, 2011. As a percentage of revenue, operating income was 4.9% for the quarter ended March 31, 2012, compared with 4.5% for the quarter ended April 2, 2011. Overall, the increase in operating income at SunOpta Foods reflected the strong performance of the aseptic processing and packaging operations, as well as improved results in the frozen fruit, sunflower and natural health products categories. Those factors were partially offset by lower efficiencies in the fiber and fruit ingredients operations due to reduced sales and production volumes, and losses in our juice extraction and packaging operations due to lost co-processing business and high raw material costs in the current off-season. The increase in operating income at Opta Minerals reflected higher mill and foundry product sales, including the contribution from Babco since the acquisition date.

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

Other expense for the quarter ended March 31, 2012 of $368 included employee severance and other costs incurred in connection with rationalization efforts undertaken during the first quarter of 2012 to streamline operations and improve efficiencies within SunOpta Foods, as well as transaction costs incurred by Opta Minerals in connection with the acquisition of Babco.

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March 31, 2012 10-Q

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The increase in interest expense of $599 to $2,583 for the quarter ended March 31, 2012, compared with $1,984 for the quarter ended April 2, 2011, reflected an increase in term debt at Opta Minerals in connection with the Babco acquisition, as well as higher borrowings under our credit line facilities to finance higher working capital levels.

The provision for income tax for the quarter ended March 31, 2012 was $3,831, or 36.5% of earnings before taxes, compared with $3,224, or 34.8%, for the quarter ended April 2, 2011. The expected annual effective income tax rate for 2012 is between 36% and 38%.

Earnings from continuing operations for the quarter ended March 31, 2012 were $6,663, as compared to $6,039 for the quarter ended April 2, 2011, an increase of $624 or 10.3% . Basic and diluted earnings per share from continuing operations were $0.09 for the quarter ended March 31, 2012, compared with $0.08 for the quarter ended April 2, 2011.

Earnings attributable to non-controlling interests for the quarter ended March 31, 2012 were $547, compared with earnings of $667 for the quarter ended April 2, 2011. The $120 decrease was due to lower net earnings in the speciality coffee operation of a less-than-wholly-owned subsidiary of TOC.

Loss from discontinued operations, net of taxes of $224 and $291 for the quarters ended March 31, 2012 and April 2, 2011, respectively, reflects the results of operations of CSOP, including legal expenses incurred in connection with arbitration proceedings related to the joint venture agreement.

On a consolidated basis, we realized earnings of $5,892 (basic and diluted earnings per share of $0.09) for the quarter ended March 31, 2012, compared with earnings of $5,081 (basic and diluted earnings per share of $0.08) for the quarter ended April 2, 2011.

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March 31, 2012 10-Q

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Segmented Operations Information

SunOpta Foods
For the quarter ended		March 31, 2012			April 2, 2011			Change			% Change
Revenues	$	246,210		$	238,983		$	7,227			3.0%
Gross margin		31,091			30,383			708			2.3%
Gross margin %		12.6%			12.7%						-0.1%
Operating income	$	12,011		$	11,044		$	967			8.8%
Operating income %		4.9%			4.6%						0.3%

(Operating Income is defined as “Earnings from continuing operations before the following” excluding the impact of “Other expense, net”)

SunOpta Foods contributed $246,210 or 89.7% of consolidated revenue for the quarter ended March 31, 2012, compared with $238,983 or 91.7% of consolidated revenues for the quarter ended April 2, 2011, an increase of $7,227. Revenues in SunOpta Foods increased 3.0% compared to the quarter ended April 2, 2011, with incremental revenues related to the acquisition of Lorton’s accounting for $1,194 or 0.5% of this growth. Excluding the impact of changes including foreign exchange rates, commodity-related pricing, acquisitions and rationalized product lines, revenues increased approximately 6.0% in SunOpta Foods, driven by strong growth in integrated packaged food product categories, offset by decreased fiber, fruit, and other ingredient volumes. The table below explains the increase in revenue by group for SunOpta Foods:

Gross margin in SunOpta Foods increased by $708 for the quarter ended March 31, 2012 to $31,091, or 12.6% of revenues, compared with $30,383, or 12.7% of revenues for the quarter ended April 2, 2011. The table below explains the increase in gross margin by group for SunOpta Foods:

SunOpta Foods Gross Margin Changes
Gross margin for the quarter ended April 2, 2011	$	30,383
Increase in the Grains and Foods Group		2,336
Decrease in the Ingredients Group		(1,690	)
Increase in the Consumer Products Group		400
Decrease in the International Foods Group		(338	)
Gross margin for the quarter ended March 31, 2012	$	31,091

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March 31, 2012 10-Q

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Operating income in SunOpta Foods increased by $967 for the quarter ended March 31, 2012 to $12,011 or 4.9% of revenues, compared with $11,044 or 4.6% of revenues for the quarter ended April 2, 2011. The table below explains the increase in operating income for SunOpta Foods:

SunOpta Foods Operating Income Changes
Operating income for the quarter ended April 2, 2011	$	11,044
Increase in gross margin, as explained above		708
Decrease in SG&A costs		359
Increase in foreign exchange losses		(100	)
Operating income for the quarter ended March 31, 2012	$	12,011

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

Grains and Foods Group
For the quarter ended		March 31, 2012			April 2, 2011			Change			% Change
Revenues	$	121,175		$	115,267		$	5,908			5.1%
Gross margin		14,338			12,002			2,336			19.5%
Gross margin %		11.8%			10.4%						1.4%
Operating income	$	8,386		$	6,288		$	2,098			33.4%
Operating income %		6.9%			5.5%						1.4%

(Operating Income is defined as “Earnings from continuing operations before the following” excluding the impact of “Other expense, net”)

The Grains and Foods Group contributed $121,175 in revenues for the quarter ended March 31, 2012, compared to $115,267 for the quarter ended April 2, 2011, a $5,908 or 5.1% increase. The table below explains the increase in revenue:

Grains and Foods Group Revenue Changes
Revenues for the quarter ended April 2, 2011	$	115,267
Increased volume of aseptically packaged beverages, in part due to the launch of a new
rice beverage, partially offset by lower volume of food ingredients		4,259
Increased volume of sunflower planting seeds into international markets		2,293
Higher volume of commodity soy and higher pricing for organic grains, partially offset
by lower volume of commodity corn and lower pricing for organic grains		1,930
Transfer of dairy blended food ingredient business from Ingredients Group		1,009
Lower volume of export bakery kernel, as well as lower volume of bird feed and other
sunflower products		(2,519	)
Lower volume of in-shell sunflower products due to soft customer demand in North
America, offset by increased volume of roasted products		(1,064	)
Revenues for the quarter ended March 31, 2012	$	121,175

Gross margin in the Grains and Foods Group increased by $2,336 to $14,338 for the quarter ended March 31, 2012 compared to $12,002 for the quarter ended April 2, 2011, and the gross margin percentage increased by 1.4% to 11.8% . The increase in gross margin as a percentage of revenue was primarily due to lower export bakery kernel sales into the European market, increased sales of higher margin hybrid seeds into international markets, and production efficiencies at our aseptic processing and packaging facilities. The gross margin percentage for the Grains and Foods Group was adversely affected in the first quarter of 2011 due to export bakery kernel sales sold at a loss and negative margins on expeller pressed oil contracts. The table below explains the increase in gross margin:

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March 31, 2012 10-Q

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Grains and Foods Group Gross Margin Changes
Gross margin for the quarter ended April 2, 2011		$	12,002
	Lower volume of export bakery kernel that were sold at a loss in the prior year, partially offset by lower plant efficiencies and reduced by-product contribution due to lower volumes		893
	Increased volume of aseptically packaged beverages, combined with improved plant efficiencies and improved margins from specialty sunflower oils, partially offset by increased raw materials costs		633
	Improved pricing on corn and organic grains, partially offset by lower margins from commodity soy		419
	Increased volume of sunflower planting seeds and improved roasting margins from higher volumes		391
Gross margin for the quarter ended March 31, 2012		$	14,338

Operating income in the Grains and Foods Group increased by $2,098, or 33.4%, to $8,386 for the quarter ended March 31, 2012, compared to $6,288 for the quarter ended April 2, 2011. The table below explains the increase in operating income:

Grains and Foods Group Operating Income Changes
Operating income for the quarter ended April 2, 2011		$	6,288
	Increase in gross margin, as explained above		2,336
	Decrease in compensation costs, primarily due to headcount reductions that occurred in the first quarter of 2012		222
	Decrease in foreign exchange gains		(242	)
	Increase in corporate cost allocations		(118	)
	Increase in professional fees, utilities and insurance costs		(100	)
Operating income for the quarter ended March 31, 2012		$	8,386

Looking forward, we believe the Grains and Foods business is well positioned in growing natural and organic food categories. We expect our recently announced aseptic processing and packaging expansion at our U.S. west coast facility to continue to enhance our capacity to manufacture aseptic soy and alternative beverages. We also intend to focus our efforts on growing our identity preserved, non-genetically modified ("non-GMO") and organic grains business, expanding revenues from natural and organic grains based ingredients and continuing to focus on value-added ingredient and packaged product offerings. We intend to pursue internal growth and acquisition opportunities that are aligned with the Group’s core vertically integrated grain business model. Additionally, the international expansion of our sales base via strategic relationships for procurement of product is expected to drive incremental sales volume. Our long-term target for the Grains and Foods Group is to achieve a segment operating margin of 6% to 8% which assumes we are able to secure a consistent quantity and quality of grains and sunflower stocks, 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.

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March 31, 2012 10-Q

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Ingredients Group
For the quarter ended		March 31, 2012			April 2, 2011			Change			% Change
Revenues	$	21,649		$	25,936		$	(4,287	)		-16.5%
Gross margin		3,800			5,490			(1,690	)		-30.8%
Gross margin %		17.6%			21.2%						-3.6%
Operating income	$	1,229		$	2,966		$	(1,737	)		-58.6%
Operating income %		5.7%			11.4%						-5.7%

(Operating Income is defined as “Earnings from continuing operations before the following” excluding the impact of “Other expense, net”)

The Ingredients Group contributed $21,649 in revenues for the quarter ended March 31, 2012, compared to $25,936 for the quarter ended April 2, 2011, a $4,287 or 16.5% decrease. The table below explains the decrease in revenue:

Ingredients Group Revenue Changes
Revenues for the quarter ended April 2, 2011		$	25,936
	Decrease in customer demand for oat and soy fiber ingredients, as well as fruit ingredient products to the food service channel		(2,486	)
	Decrease in fiber volumes due to a loss of a significant customer in the first quarter of 2011		(1,089	)
	Transfer of non-dairy blended food ingredient business to the Grains and Foods Group		(1,009	)
	Increase in customer demand for starches and other blended food ingredients		183
	Improved pricing for industrial and food service fruit ingredients products as well as contract manufacturing, partially offset by price concessions granted on fiber ingredients in the Canadian market during 2011 due to competitive pressures		114
Revenues for the quarter ended March 31, 2012		$	21,649

The Ingredients Group gross margin decreased by $1,690 to $3,800 for the quarter ended March 31, 2012 compared to $5,490 for the quarter ended April 2, 2011, and the gross margin percentage decreased by 3.6% to 17.6% .. Lower customer demand for fiber, due in part to the loss of a significant customer in the first quarter of 2011, decreased production efficiencies due to the lower volumes and competitive pricing pressure in the fiber market contributed to the decrease in gross margin rate. The table below explains the decrease in gross margin:

Ingredients Group Gross Margin Changes
Gross margin for the quarter ended April 2, 2011		$	5,490
	Lower customer demand for oat and soy fiber as well as food service fruit ingredient offerings, combined with an increase in raw material and other input costs including organic sugar		(1,551	)
	Loss of a significant customer in the first quarter of 2011		(351	)
	Price concessions granted on fiber ingredients in the Canadian market due to competitive pressures		(192	)
	Increased contribution from higher volumes of starches and other blended food ingredients		404
Gross margin for the quarter ended March 31, 2012		$	3,800

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March 31, 2012 10-Q

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Operating income in the Ingredients Group decreased by $1,737, or 58.6%, to $1,229 for the quarter ended March 31, 2012, compared to $2,966 for the quarter ended April 2, 2011. The table below explains the decrease in operating income:

Ingredients Group Operating Income Changes
Operating income for the quarter ended April 2, 2011		$	2,966
	Decrease in gross margin, as explained above		(1,690	)
	Decrease in corporate cost allocations		70
	Decrease in compensation costs, primarily due to headcount rationalization that occurred in the first quarter of 2012		104
	Increased spending on research and development projects, primarily related to rice fiber, cellulose and roll dried starch		(76	)
	Increased spending on general office and related costs, including higher utility and insurance costs, and a prior year recovery of previously written-off bad debt		(145	)
Operating income for the quarter ended March 31, 2012		$	1,229

Looking forward, we intend to continue to concentrate on growing the Ingredients Group’s fruit, fiber and specialty ingredients portfolio and customer base through product and process innovation and diversification. We are focused on replacing the volume lost early in 2011 as a result of a significant customer changing to an alternative fiber product. We intend to introduce alternative fiber offerings of our own. We also expect our recently commissioned aseptic fruit ingredient line at our Southgate, California facility to increase capacity and drive incremental volumes and cost savings over the balance of 2012. The focus of the Ingredients Group continues to revolve around a culture of continuous improvement, to further increase capacity utilization, reduce costs, and sustain margins. Our long-term target for the Ingredients Group is to realize segment operating margins of 12% to 15%. 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.

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March 31, 2012 10-Q

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Consumer Products Group
For the quarter ended		March 31, 2012			April 2, 2011			Change			% Change
Revenues	$	45,152		$	35,944		$	9,208			25.6%
Gross margin		3,779			3,379			400			11.8%
Gross margin %		8.4%			9.4%						-1.0%
Operating loss	$	(175	)	$	(478	)	$	303			63.4%
Operating loss %		-0.4%			-1.3%						0.9%

(Operating Income is defined as “Earnings from continuing operations before the following” excluding the impact of “Other expense, net”)

The Consumer Products Group contributed $45,152 in revenues for the quarter ended March 31, 2012, compared to $35,944 for the quarter ended April 2, 2011, a $9,208 or 25.6% increase. The table below explains the increase in revenue:

Consumer Products Group Revenue Changes
Revenues for the quarter ended April 2, 2011		$	35,944
	Higher volume as a result of increases in the healthy fruit snack category and increased volume to existing and new customers for nutrition bar offerings		4,519
	Increased volumes at Food Solutions due to the roll out of two flexible pouch filling lines in the fourth quarter of 2011 on the U.S. west coast and continued growth in our beverage categories		4,340
	Incremental revenue due to the acquisition of Lorton's on August 8, 2011		1,193
	Decreased volume as we wind down all industrial and food service product lines in our Frozen Foods operations, partially offset by higher volumes on retail offerings		(844	)
Revenues for the quarter ended March 31, 2012		$	45,152

Gross margin in the Consumer Products Group increased by $400 to $3,779 for the quarter ended March 31, 2012 compared to $3,379 for the quarter ended April 2, 2011, and the gross margin percentage decreased by 1.0% to 8.4% . The decrease in gross margin as a percentage of revenue was due to negative contributions from Lorton’s due to seasonality, pre-production costs related to our U.S. east coast expansion project and higher production costs at our Healthy Snacks operation. The table below explains the increase in gross margin:

Consumer Products Group Gross Margin Changes
Gross margin for the quarter ended April 2, 2011		$	3,379
	Higher volume and margin realized on retail format frozen food sales and decreased storage costs as a result of lower inventory levels		698
	Increased volume and margin due to sales of our new flexible pouch offerings and continued growth in the beverage category including juices and electrolyte water		341
	Impact of higher sales volumes in our Healthy Snacks operation, partially offset by increased production costs as facilities are expanded		180
	Incremental gross margin loss at Lorton's due to seasonality of juice extraction business		(669	)
	Facility start-up costs related to the expansion of consumer packaged processing capabilities on the U.S. east coast		(150	)
Gross margin for the quarter ended March 31, 2012		$	3,779

Operating loss in the Consumer Products Group decreased by $303, or 63.4%, to $175 for the quarter ended March 31, 2012, compared to $478 for the quarter ended April 2, 2011. The table below explains the decrease in operating loss:

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March 31, 2012 10-Q

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Consumer Products Group Operating Loss Changes
Operating loss for the quarter ended April 2, 2011		$	(478	)
	Increase in gross margin, as explained above		400
	SG&A savings primarily due to reduced headcount at our Frozen Foods operation		291
	Incremental SG&A expenses from the acquisition of Lorton's		(242	)
	Increase in corporate cost allocations		(146	)
Operating loss for the quarter ended March 31, 2012		$	(175	)

Looking forward, we expect improvements in margins and operating income from the Consumer Products Group through the growth of our Food Solutions and Healthy Snacks operations, and from a streamlined and focused Frozen Foods operation. We remain customer focused and continue to explore new ways to bring value-added product offerings and processes to market. We intend to continue to expand our operating platform into the processing and manufacturing of products in order to enhance value to our customer base. These efforts include the operation of two flexible re-sealable pouch filling lines on the U.S. west coast, which commenced operations during 2011, and the installation of two more flexible pouch filling lines on the U.S. east coast, both of which are expected to commence operations during the third quarter of 2012. Continued new product development and innovation in our Healthy Snacks operation combined with increasing demand for portable nutritious fruit offerings are expected to drive growth in this business. Long term we are targeting 8% to 10% operating margins from the Consumer Products Group. The statements in this paragraph are forward-looking statements. See “Forward-Looking Statements” above. Unexpected declines in volumes, shifts in consumer preferences, 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.

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March 31, 2012 10-Q

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International Foods Group
For the quarter ended		March 31, 2012			April 2, 2011			Change			% Change
Revenues	$	58,234		$	61,836		$	(3,602	)		-5.8%
Gross margin		9,174			9,512			(338	)		-3.6%
Gross margin %		15.8%			15.4%						0.4%
Operating income	$	2,571		$	2,268		$	303			13.4%
Operating income %		4.4%			3.7%						0.7%

(Operating Income is defined as “Earnings from continuing operations before the following” excluding the impact of “Other expense, net”)

The International Foods Group contributed $58,234 in revenues for the quarter ended March 31, 2012, compared to $61,836 for the quarter ended April 2, 2011, a $3,602 or 5.8% decrease. The table below explains the decrease in revenue:

International Foods Group Revenue Changes
Revenues for the quarter ended April 2, 2011		$	61,836
	Lower volumes of natural and organic commodities such as frozen fruits and vegetables, orange juice, cocoa and coffee beans		(4,166	)
	Unfavorable impact on revenues due to the weaker Canadian dollar and euro relative to the U.S. dollar		(2,177	)
	Increased commodity prices for natural and organic commodities such as sweeteners and coffee beans		2,521
	Higher sales of natural health products into the health food store channel		220
Revenues for the quarter ended March 31, 2012		$	58,234

Gross margin in the International Foods Group decreased by $338 to $9,174 for the quarter ended March 31, 2012 compared to $9,512 for the quarter ended April 2, 2011. Gross margin as a percentage of revenues was higher by 0.4% due to improved commodity pricing for organic ingredients partially offset by lower overall margins for natural health products. The table below explains the decrease in gross margin:

International Foods Gross Margin Changes
Gross margin for the quarter ended April 2, 2011		$	9,512
	Lower margin on reduced volumes of natural and organic commodities such as frozen fruits and vegetables, orange juice, cocoa and coffee beans		(458	)
	Unfavorable impact on gross margin due to the weaker Canadian dollar and euro relative to the U.S. dollar		(333	)
	Improved margin on sweeteners in part due to favorable market pricing as a result of a larger carryover of inventory from 2011		453
Gross margin for the quarter ended March 31, 2012		$	9,174

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March 31, 2012 10-Q

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Operating income in the International Foods Group increased by $303, or 13.4%, to $2,571 for the quarter ended March 31, 2012, compared to $2,268 for the quarter ended April 2, 2011. The table below explains the increase in operating income:

International Foods Group Operating Income Changes
Operating income for the quarter ended April 2, 2011		$	2,268
	Decrease in gross margin, as explained above		(338	)
	Lower depreciation and amortization expense related to our natural health products operation		288
	Lower marketing and advertising costs for natural health products		223
	Favorable impact on Canadian and euro borne SG&A spending due to the weaker Canadian dollar and euro relative to the U.S. dollar		199
	Foreign exchange gains on forward foreign exchange contracts entered into on U.S. dollar contracts		123
	Higher compensation and corporate allocations at our European operations		(192	)
Operating income for the quarter ended March 31, 2012		$	2,571

Looking forward, the International Foods Group is focused on leveraging its sourcing, supply, processing and distribution expertise to grow its portfolio of organic ingredients. Long-term group operating margins are targeted at 5% to 6% of revenues, which are expected to be achieved through a combination of sourcing, pricing and product development strategies. We also intend to forward and backward integrate where opportunities exist, expand our processing expertise and increase our value-added capabilities. The statements in this paragraph are forward-looking statements. See “Forward-Looking Statements” above. Unfavorable fluctuations in foreign exchange, reduced demand for natural and organic ingredients, increased competition, delayed synergies, as well as our inability to realize our particular strategic expansion goals, along with the other factors described above under “Forward-Looking Statements”, could have an adverse impact on these forward-looking expectations.

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March 31, 2012 10-Q

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Opta Minerals
For the quarter ended		March 31, 2012			April 2, 2011			Change			% Change
Revenues	$	28,332		$	21,606		$	6,726			31.1%
Gross margin		6,247			5,151			1,096			21.3%
Gross margin %		22.0%			23.8%						-1.8%
Operating income	$	3,081		$	2,451		$	630			25.7%
Operating income %		10.9%			11.3%						-0.4%

(Operating Income is defined as “Earnings from continuing operations before the following” excluding the impact of “Other expense, net”)

Opta Minerals contributed $28,332 in revenues for the quarter ended March 31, 2012, compared to $21,606 for the quarter ended April 2, 2011, a $6,726 or 31.1% increase. The table below explains the increase in revenue:

Opta Minerals Revenue Changes
Revenues for the quarter ended April 2, 2011		$	21,606
	Increased volumes of mill and foundry products as a result of increased demand for metallic, magnesium, chromite and lime blends		3,742
	Incremental revenue due to the acquisition of Inland on November 10, 2011 and Babco on February 10, 2012		2,480
	Increased volumes of abrasive products and other industrial mineral products and services		504
Revenues for the quarter ended March 31, 2012		$	28,332

Gross margin for Opta Minerals increased by $1,096 to $6,247 for the quarter ended March 31, 2012 compared to $5,151 for the quarter ended April 2, 2011, and the gross margin percentage decreased by 1.8% to 22.0% . The decrease in gross margin as a percentage of revenue is largely driven by changes in product mix from mill and foundry products. The table below explains the increase in gross margin:

Opta Minerals Gross Margin Changes
Gross margin for the quarter ended April 2, 2011		$	5,151
	Incremental gross margin due to the acquisitions of Inland and Babco		703
	Impact of increased volume of abrasive products and other industrial mineral products and services		214
	Impact of increased volume of mill and foundry products due to higher demand		179
Gross margin for the quarter ended March 31, 2012		$	6,247

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March 31, 2012 10-Q

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Operating income for Opta Minerals increased by $630, or 25.7%, to $3,081 for the quarter ended March 31, 2012, compared to $2,451 for the quarter ended April 2, 2011. The table below explains the increase in operating income:

Opta Minerals Operating Income Changes
Operating income for the quarter ended April 2, 2011		$	2,451
	Increase in gross margin, as explained above		1,096
	Decrease in foreign exchange gains		(222	)
	Incremental SG&A due to the acquisitions of Inland and Babco		(109	)
	Increased stock compensation expense and other general overhead costs		(135	)
Operating income for the quarter ended March 31, 2012		$	3,081

Opta Minerals continues to develop and introduce new products into the marketplace, and is focused on leveraging the global platform that has been put in place both to drive these new products and to improve efficiencies. Opta Minerals continues to expand in core North American and European markets through a combination of internal growth and successfully integrating strategic acquisitions. We own 66.2% 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.

Corporate Services
For the quarter ended		March 31, 2012			April 2, 2011			Change			% Change
Operating loss	$	(1,647	)	$	(1,886	)	$	239			12.7%

(Operating loss is defined as “Earnings from continuing operations before the following” excluding the impact of “Other (income) expense, net”

Operating loss at SunOpta Corporate Services decreased by $239 to $1,647 for the quarter ended March 31, 2012, from a loss of $1,886 for the quarter ended April 2, 2011. The table below explains the decrease in operating loss:

Corporate Services Operating Loss Changes
Operating loss for the quarter ended April 2, 2011		$	(1,886	)
	Decrease in foreign exchange losses		387
	Increase in corporate management fees that are allocated to SunOpta operating groups		261
	Decrease in corporate overhead costs, including a reduction in legal fees and insurance costs		101
	Higher group health and benefits costs due to increased claims		(253	)
	Higher compensation related costs, due primarily to increased short-term incentive and stock-based compensation expenses, plus the impact of a retiring allowance reduction in the prior year, partially offset by reduced headcount		(207	)
	Increase in SG&A costs due to the strengthened Canadian Dollar causing Canadian borne expenses to be more costly when translated into U.S. Dollars		(50	)
Operating loss for the quarter ended March 31, 2012		$	(1,647	)

Management fees mainly consist of salaries of corporate personnel who perform back office functions for divisions, as well as costs related to the enterprise resource management system used within several of the divisions. These expenses are allocated to the groups based on (1) specific identification of allocable costs that represent a service provided to each operating group, and (2) a proportionate distribution of costs based on a weighting of factors such as revenue contribution and number of people employed within each division.

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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, including the remaining $10,000 on the accordion feature noted below.
• 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.
• Sale of non-core divisions, or assets.

In January 2012, we completed amendments to our syndicated banking facilities, which increased the availability on our Canadian revolving credit facility from Cdn $5,000 to Cdn $10,000, and the U.S. revolving credit facility from $100,000 to $115,000, with a corresponding decrease in the amount of availability under the facilities’ accordion feature from $30,000 to $10,000. There were no other material changes made to the facilities’ terms and conditions. At March 31, 2012, under these banking facilities, $66,081 was outstanding on our U.S. revolving credit facility and $22,144 was owed on our non-revolving real estate and machinery and equipment term facilities. The maturity date of all these facilities is October 30, 2012. As the renewal date approaches, we have initiated efforts to renew or replace these banking facilities. To date, we have entered into discussions with our current syndicate of lenders to extend the term of these facilities and to increase the amount of available credit under the facilities. We have also held discussions with other potential lenders who may have interest in joining the syndicate. Based on these discussions, we have not identified significant challenges or uncertainties that would prevent us from renewing or replacing these facilities, and we believe that we will be able to renew or replace these facilities in their entirety in advance of the maturity date. However, we cannot be certain that we will be able to successfully renew or replace these facilities prior to the maturity date, or that we will be able to do so on terms that are acceptable to both us and the lenders. If we fail to renew or replace our banking facilities prior to the maturity date, it will have a material adverse effect on our results of operations and financial position. The statements in this paragraph are forward-looking statements. See "Forward-Looking Statements" above.

In February 2012, in connection with its acquisition of Babco, Opta Minerals’ credit agreement was amended to increase the borrowing amount available under the revolving acquisition facility by Cdn $19,000 ($19,088). At March 31, 2012, this credit agreement included $37,461 of outstanding term debt (including the revolving acquisition facility) and $10,027 owing on a line of credit facility. These credit facilities were due to mature in August 2012; however, in December 2011, Opta Minerals obtained a commitment from the lender to amend and restate its existing credit agreement. The amended and restated credit agreement will replace Opta Minerals’ existing term debt and line of credit facilities. The existing term debt borrowings will be converted into borrowings under a five-year non-revolving term facility upon execution of an amended and restated credit agreement. We have no reason to believe that Opta Minerals will not be able to complete the amended and restated credit agreement prior to the maturity date. However, we cannot be certain that Opta Minerals will be able to successfully renew or replace its existing credit facilities prior to the maturity date or that Opta Minerals will be able to do so on terms that are acceptable to it or its lenders. The failure of Opta Minerals to renew or replace its existing credit facilities prior to the maturity date could have a material adverse effect on its results of operations and financial position which, in turn, could have a material adverse effect on our results of operation and financial position. The statements in this paragraph are forward-looking statements. See "Forward-Looking Statements" above.

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, 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

Net cash and cash equivalents increased $1,351 in the first quarter of 2012 to $3,729 at March 31, 2012, compared with $2,378 as at December 31, 2011, which reflected the following sources of cash:

• increased borrowings under line of credit facilities of $19,008 used to finance higher working capital levels; and
   
• increased term debt of $19,088 in connection with the acquisition of Babco.

Mostly offset by the following uses of cash:

• cash consideration paid to acquire Babco of $17,530;
   
• cash used in operating activities of $7,258;
   
• repayments of long-term debt of $7,030; and
   
• capital expenditures of $4,932, primarily to expand our aseptic production capacity.

Cash used in operating activities from continuing operations was $7,258 in the first quarter of 2012, compared with $33,903 in the first quarter of 2011, reflecting a decline of $26,645, primarily due to significantly lower purchases of grain commodities including sunflower and soy, due to a decision to carry over inventory from the 2011 crop year, and contract less acres in 2012, in order to realize the benefit from increasing commodity prices. In addition, this decline reflected reduced purchases of fruit-based commodities due to streamlining our Frozen Foods operation.

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Cash used in investing activities of continuing operations was $22,564 in the first quarter of 2012, compared with $3,990 in the first quarter of 2011, reflecting an increase of $18,574, primarily due to cash paid of $17,530 to acquire Babco.

Cash provided by financing activities of continuing operations was $31,129 in the first quarter of 2012, compared with $40,800 in the first quarter of 2011, reflecting a decrease of $9,671, primarily due to a decrease of $23,543 in borrowings under lines of credit, reflecting reduced inventory purchases in the first quarter of 2012, which was partially offset by a $19,051 increase in term debt mainly related to the Babco acquisition facility.

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

With the exception of an increase in long-term debt obligations related to the acquisition of Babco, there have been no material changes outside the normal course of business in our contractual obligations since December 31, 2011. Amounts borrowed under Opta Minerals’ revolving acquisition facility in connection with the Babco acquisition are repayable in quarterly installments equal to 1/40 of the principal amount, with the remaining outstanding principal due on maturity.

Adoption of New Accounting Standards

Information regarding the adoption of new accounting standards is contained in note 1 to the interim consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

For quantitative and qualitative disclosures about market risks, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks”, of the 2011 Form 10-K. There have been no material changes to our exposures to market risks since December 31, 2011.

Item 4. Controls and Procedures

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 March 31, 2012.

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 first quarter of fiscal 2012. Based on that evaluation, management concluded that there were no changes in our internal control over financial reporting during the first quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Colorado Sun Oil Processors, LLC dispute

Colorado Mills, LLC (“Colorado Mills”) and SunOpta Grains and Foods Inc. (formally Sunrich LLC, herein “Grains and Foods”), a wholly–owned subsidiary of the Company, organized a joint venture through Colorado Sun Oil Processors, LLC. The purpose of the joint venture was to construct and operate a vegetable oil refinery adjacent to Colorado Mills’ sunflower seed crush plant located in Lamar, Colorado. During the relationship, disputes arose between the parties concerning management of the joint venture, record–keeping practices, certain unauthorized expenses incurred on behalf of the joint venture by Colorado Mills, procurement of crude oil by Sunrich from Colorado Mills for processing at the joint venture refinery, and the contract price of crude oil offered for sale under an output term of the joint venture agreement.

The parties initiated a dispute resolution process as set forth in the joint venture agreement, which Colorado Mills aborted prematurely through the initiation of suit in Prowers County District Court, Colorado on March 16, 2010. Subsequent to the filing of that suit, Colorado Mills acted with an outside creditor of the joint venture to involuntarily place the joint venture into bankruptcy. In August 2011, as part of the bankruptcy proceeding initiated in June 2011 in the U.S. Bankruptcy Court, District of Colorado, Colorado Mills purchased substantially all of the assets of the joint venture.

A separate arbitration proceeding occurred between Grains and Foods and Colorado Mills to resolve direct claims each party asserted against the other. The case was arbitrated during the week of August 8, 2011 and proposed findings were filed on September 13, 2011. On January 4, 2012 the arbitrator entered an award denying Grains and Foods’ claims and awarding Colorado Mills $4,816 for its breach of contract claim and $430 for accrued interest. The Company subsequently filed a motion to vacate the arbitration award on March 30, 2012. Colorado Mills filed a response on April 20, 2012. The Company filed a reply on April 27, 2012. The Court has indicated that it will allow a hearing on the vacatur motion. A hearing on that motion will likely occur toward the end of the second quarter of 2012. Although management believes the claims asserted by Colorado Mills are baseless, that the arbitrator committed prejudicial error warranting vacatur of the award, and that vacatur is warranted, management cannot predict whether the prospect of an unfavorable outcome in this matter is probable.

From time to time, we are involved in litigation incident to the ordinary conduct of our business. For a discussion of other 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.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. All of such previously identified risk factors continue to apply to our business and should be carefully reviewed in connection with an evaluation of our Company.

Item 6. Exhibits

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

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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.

	SUNOPTA INC.
Date: May 9, 2012	/s/ Robert McKeracher
	Robert McKeracher
	Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
31.1*	Certification by Steven Bromley, President and Chief Executive Officer, pursuant to Rule 13a – 14(a) under the Securities Exchange Act of 1934, as amended.
31.2*	Certification by Robert McKeracher, Vice President and Chief Financial Officer, pursuant to Rule 13a – 14(a) under the Securities Exchange Act of 1934, as amended.
32*	Certifications by Steven Bromley, President and Chief Executive Officer, and Robert McKeracher, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
101.INS†	XBRL Instance Document
101.SCH†	XBRL Taxonomy Extension Schema Document
101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†	XBRL Taxonomy Extension Label Linkbase Document
101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith
†	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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