CoolBrands International Inc.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In accordance with National Instrument 51-102 released by the Canadian
Securities Administrators, the Company discloses that its auditors have not
reviewed the unaudited financial statements for the period ended May 31, 2005.
CoolBrands International Inc.
Consolidated Balance Sheets (Restated)
as at May 31, 2005 and August 31, 2004
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(Amounts expressed in thousands of dollars)
May 31, 2005 August 31, 2004
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(Unaudited)
Assets
Current assets:
Cash $ 24,843 $ 36,277
Investments 12,500 28,050
Receivables 63,555 67,152
Receivables - affiliates 3,672 3,883
Inventories 58,939 49,076
Income taxes recoverable 10,528
Prepaid expenses 3,632 1,203
Deferred income taxes 6,376 4,907
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Total current assets 184,045 190,548
-------- --------
Deferred income taxes 13,832 13,711
Property, plant and equipment 64,627 28,730
Intangible and other assets 10,195 12,180
Goodwill 97,930 72,088
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$370,629 $317,257
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 48,775 $ 37,506
Payables - affiliates 250 850
Accrued liabilities 33,272 20,624
Income taxes payable 4,289 4,938
Short term borrowings 34,553
Current maturities of long-term debt 23,044 8,492
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Total current liabilities 144,183 72,410
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Long-term debt, less current portion 12,804 19,262
Other liabilities 2,810 2,758
Deferred income taxes 3,896 3,638
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Total liabilities 163,693 98,068
-------- --------
Minority interest 5,841 8,088
-------- --------
Commitments and contingencies
Shareholders' Equity:
Capital stock 97,560 97,485
Additional paid-in-capital 44,737 44,494
Accumulated other comprehensive earnings (1,443) (1,096)
Retained earnings 60,241 70,218
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Total shareholders' equity 201,095 211,101
-------- --------
$370,629 $317,257
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CoolBrands International Inc.
Consolidated Statements of Operations (Restated)
for the nine months and three months ended May 31, 2005 and May 31, 2004
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(Unaudited)
(Amount expressed in thousands of dollars, except for per share data)
For the nine months ended For the three months ended
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May 31, 2005 May 31, 2004 May 31, 2005 May 31, 2004
------------ ------------ ------------ ------------
Net Revenues:
Net sales $245,793 $288,013 $ 93,815 $117,822
Royalties, licensing, and consumer products
license revenues 4,385 2,308 1,506 793
Drayage and other income 10,837 30,565 2,569 9,525
-------- -------- -------- --------
Total net revenues 261,015 320,886 97,890 128,140
-------- -------- -------- --------
Cost of goods sold 245,490 235,650 93,601 95,949
Selling, general and administrative expenses 32,484 34,573 14,684 10,736
Stock-based compensation expense 243 30,983 82 21,828
Interest expense 1,467 1,230 775 400
Asset impairment 1,401
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(Loss) earnings before income taxes and
minority interest (20,070) 18,450 (11,252) (773)
-------- -------- -------- --------
Minority interest (2,247) 574 (790) 434
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(Loss) earnings before income taxes (17,823) 17,876 (10,462) (1,207)
(Recovery of) Provision for income taxes (7,846) 6,848 (4,229) 582
-------- -------- -------- --------
Net (loss) earnings $ (9,977) $ 11,028 $ (6,233) $ (625)
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(Loss) earnings per share:
Basic and diluted $ (0.18) $ 0.20 $ (0.11) $ (0.01)
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Weighted average shares outstanding:
Shares used in per share calculation - basic 55,916 55,291 55,935 55,777
Shares used in per share calculation - diluted 55,916 56,337 55,935 56,880
CoolBrands International Inc.
Consolidated Statements of Shareholders' Equity (Restated)
For the nine months ended May 31, 2005
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(Unaudited)
(Amounts expressed in thousands of US dollars, except share data)
Accumulated
other Total
Capital Additional comprehensive Retained stockholder
Stock paid-in-capital (losses)earning earnings equity
------- --------------- --------------- -------- -----------
Balance at August 31, 2004 $97,485 $44,494 $(1,096) $70,218 $211,101
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Comprehensive earnings (loss):
Net earnings (loss): (9,977) (9,977)
Other comprehensive earnings,
net of income taxes
Stock issued for options exercised 75 75
Stock-based compensation expense 243 243
Currency translation adjustment (347) (347)
------- ------- ------- ------- --------
Balance at May 31, 2005 $97,560 $44,737 $(1,443) $60,241 $201,095
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CoolBrands International Inc.
Consolidated Statements of Cash Flows (Restated)
for the nine months and three months ended May 31, 2005 and May 31, 2004
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(Unaudited)
(Amounts expressed in thousands of dollars)
For the nine months ended For the three months ended
-------------------------- ---------------------------
May 31, 2005 May 31, 2004 May 31, 2005 May 31, 2004
------------ ------------ ------------ ------------
Cash and short term investments
provided by (used in):
Operating activities:
Net (loss) earnings $ (9,977) $ 11,028 $ (6,233) $ (625)
Adjustments to reconcile net earnings to net
cash flows from operating activities
Depreciation and amortization 4,115 3,299 1,741 1,054
Stock-based compensation expense 243 30,983 82 21,828
Asset impairment 1,401
Deferred income taxes (3,254) (13,699) (1,630) (8,316)
Minority interest (2,247) 574 (790) 434
Allowance for doubtful accounts 469 432 346 27
Cash effect of changes, net of the effects
from businesses acquired
Receivables 5,262 (21,383) (12,577) (15,317)
Receivables - affiliates 211 (1,197) (618) (1,122)
Inventories (4,485) (14,560) (5,709) (9,494)
Prepaid expenses (2,429) (951) (286) (759)
Income taxes recoverable (10,528) (10,528) 307
Other assets 156 (127) 219 53
Accounts payable 11,358 30,022 23,384 27,318
Payables - affiliates (600) 231 60 285
Accrued liabilities 12,648 2,252 1,518 1,230
Income taxes payable 649 10,047 5,711 4,749
Other liabilities 53 (112) (6) (60)
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Cash (used in) provided by operating activities 3,045 36,839 (5,316) 21,592
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Investing activities:
Acquisition, net of cash acquired (59,609) (59,609)
Purchase of property, plant and equipment (8,925) (8,417) (5,738) (3,838)
Purchase of license agreements (26) (354) (9) (17)
Purchase of investments (2,500) (13,050) (2,500) (13,050)
Redemption of investments 18,050 18,050
Collection of notes receivable (4) 22 (9) 4
-------- -------- -------- --------
Cash used in investing activities (53,014) (21,799) (49,815) (16,901)
-------- -------- -------- --------
Financing activities:
Proceeds from issuance of Class A and B shares 57 12,263 27 70
Proceeds from bank loan 44,553 44,553
Capital contributions from minority interest 8,907
Return of capital contributions to
partnership's minority partner (2,000)
Change in revolving line of credit, secured 1,223 4,765 1,623 2,241
Repayment of long-term debt (3,130) (4,997) (1,119) (1,000)
-------- -------- -------- --------
Cash provided by financing activities 42,703 18,938 45,084 1,311
-------- -------- -------- --------
(Decrease) increase in cash flow due to changes
in foreign exchange rates (4,168) 2,714 (3,084) 2,679
-------- -------- -------- --------
(Decrease) increase in cash and cash equivalents (11,434) 36,692 (13,131) 8,681
Cash and cash equivalents - beginning of period 36,277 21,760 37,974 49,771
-------- -------- -------- --------
Cash and cash equivalents - end of period $ 24,843 $ 58,452 $ 24,843 $ 58,452
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CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements (Restated)
May 31, 2005 and May 31, 2004
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(Amounts are expressed in thousands of dollars)
1. Significant accounting policies
The financial statements of the Company have been prepared by management in
accordance with generally accepted accounting principles in the United
States of America for interim financial statements. The financial
statements have, in management's opinion, been properly prepared using
judgment within reasonable limits of materiality. These interim financial
statements do not include all the note disclosures required for annual
financial statements and therefore they should be read in conjunction with
the company's audited financial statements for the year ended August 31,
2004. The significant accounting policies follow those disclosed in the
most recently reported annual financial statements.
Certain amounts have been reclassified to conform with the August 31, 2005
presentation. Certain auction rate securities have been reclassified from
cash to investments. Auction rate securities are variable rate bonds tied
to short-term interest rates with maturities on the face of the securities
in excess of 90 days. The Company historically classified these instruments
as cash if the period between interest rate resets was 90 days or less,
which was based on the Company's ability to either liquidate its holdings
or roll the investment over to the next reset period. The Company has
classified its auction rate securities at May 31, 2005 and August 31, 2004,
$12,500 and $28,050 respectively, as investments. In addition, "Purchase of
investments" and "Redemption of investments" included in the accompanying
consolidated statements of cash flows, have been revised to reflect the
purchase and sale of auction rate securities for the three and nine months
ended May 31, 2005 and 2004.
2. Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimated.
3. Changes in accounting policy and restated financial statements
The Company adopted the U.S dollar as its functional and reporting currency
effective September 1, 2004, the commencement of fiscal 2005. The Company
adopted the U.S. dollar for its financial reporting since the majority of
its business is conducted in the United States and to make comparisons
between current and prior periods more meaningful to investors. For
comparative purposes, historical financial statements and notes have been
restated into U.S. dollars in accordance with generally accepted accounting
principals.
During the fourth quarter of 2005, the Company adopted, on a retroactive
basis, accounting principles generally accepted in the United States of
America. Previously the Company prepared its annual and interim
consolidated financial statements in accordance with generally accepted
accounting principals in Canada ("Cnd GAAP"). As a result, the following
adjustments have been made to previously issued Consolidated Financial
Statements.
The Company promotes its products with advertising, consumer incentive and
trade promotions. Such programs include, but are not limited to,
cooperative advertising, promotional discounts, coupons, rebates, in-store
display incentives, volume based incentives and product introductory
payments (i.e. slotting fees). Such consumer and trade promotion activities
have been historically accounted for as selling, general and administrative
expenses. In accordance with EITF No. 01-09 "Accounting for Consideration
Given by a Vendor to a Customer or Reseller of the Vendors Products"
certain payments made to customers by the Company, including promotional
sales allowances, cooperative advertising and product introductory expenses
must be deducted from revenue.
CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements (Restated)
(Unaudited)
May 31, 2005 and May 31, 2004
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(Amounts are expressed in thousands)
Changes in accounting policy and restated financial statements (cont'd)
Accordingly, our Consolidated Statements of Operations for the three and
nine months ended May 31, 2005 have been restated to reflect a reduction in
revenues and selling, general and administrative expenses of $21,795 and
$46,703, respectively. Our Consolidated Statements of Operations for the
three and nine months ended May 31, 2004 have been restated to reflect a
reduction in revenues and selling, general and administrative expenses of
$10,989 and $27,662, respectively.
The following summarizes the impact of restatement for the change from Cnd
to US GAAP for consumer trade promotion expenses in our Consolidated
Statements of Operations:
For the nine months ended For the three months ended
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May 31, May 31, May 31, May 31,
2005 2004 2005 2004
-------- -------- -------- --------
Total net revenues in accordance with
Canadian GAAP $307,718 $348,548 $119,685 $139,129
Less consumer and trade promotion expenses (46,703) (27,662) (21,795) (10,989)
-------- -------- -------- --------
Total net revenues in accordance with U.S.
GAAP $261,015 $320,886 $ 97,890 $128,140
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For the nine months ended For the three months ended
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May 31, May 31, May 31, May 31,
2005 2004 2005 2004
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Total selling, general and administrative
expenses in accordance with Canadian GAAP $ 79,187 $ 62,235 $ 36,479 $ 21,725
Less consumer and trade promotion expenses (46,703) (27,662) (21,795) (10,989)
-------- -------- -------- --------
Total selling, general and administrative
expenses in accordance with U.S. GAAP $ 32,484 $ 34,573 $ 14,684 $ 10,736
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Product introduction expenses (i.e. slotting fees) incurred by the Company
have been historically recognized as expense by amortizing the slotting fees
over the twelve months subsequent to the actual acceptance of product
introduction offers by our customers. Under U.S. GAAP, such expenses are
recognized as expenses at the time product introduction offers are accepted by
our customers, which for measurement purposes is at the time of the first
shipment of the product to each customer. As a result of this change, Retained
Earnings as of August 31, 2003 has been reduced to reflect the cumulative effect
of this change through that date by $3,644. Our previously reported Net loss for
the three months ended May 31, 2005 has been decreased by $465 and our
previously reported Net loss for the nine months ended May 31, 2005 has been
increased by $3,687. Our previously reported Net earnings for the three months
ended May 31, 2004 have been decreased by $1,877 and our previously reported Net
earnings for the nine months ended May 31, 2004 have been decreased by $521.
CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements (Restated)
(Unaudited)
May 31, 2005 and May 31, 2004
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(Amounts are expressed in thousands)
Changes in accounting policy and restated financial statements (cont'd)
The following summarizes the impact of restatement for the change from Cnd
to US GAAP for new product introduction expenses (slotting fees) in our
Consolidated Statement of Operations:
For the nine months ended For the three months ended
------------------------- --------------------------
May 31, May 31, May 31, May 31,
2005 2004 2005 2004
------- ------- ------- -------
Net (loss) earnings in accordance with
Canadian GAAP $(6,290) $11,549 $(6,698) $ 1,252
Adjustment for new product introduction
expense (3,687) (521) 465 (1,877)
------- ------- ------- -------
Net (loss) earnings in accordance with
U.S. GAAP $(9,977) $11,028 $(6,233) $ (625)
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On September 1, 2005, the Company adopted, on a retroactive basis without
restatement, the recommendation of CICA Handbook Section 3870, "Stock-based
compensation and other stock-based payments", which required companies to
adopt the fair value based method for all stock-based awards granted on or
after September 1, 2002. Previously, the Company was required to disclose
only the pro-forma effect of stock options issued to employees and employee
directors in the notes to the financial statements.
As a result of adopting U.S. GAAP during the fourth quarter of 2005, as
previously discussed, the Company adopted, on a modified prospective basis,
the recommendations of Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 "Accounting for Stock Based Compensation." This statement
superseded Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and amends FASB Statement No. 95,
"Statement of Cash Flows".
The adoption of this accounting policy had no effect for the three and nine
months ended May 31, 2005 and reduced earnings before income tax and
minority interest for the three and nine months ended May 31, 2004 by
$16,658 and $24,270, respectively with a corresponding increase to
additional paid-in capital.
CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements (Restated)
May 31, 2005 and May 31, 2004
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(Amounts are expressed in thousands of dollars)
4. Segment information
Franchising
Frozen Dairy and
desserts Yogurt Foodservice components licensing Corporate Consolidated
-------- ------- ----------- ---------- ----------- --------- ------------
For the nine months
ended May 31, 2005
Revenues $203,375 $17,610 $ 14,959 $ 13,787 $11,119 $ 165 $261,015
Inter-segment
Revenues 29,950 440 2,500 165 33,055
Segment (loss)
earnings before
income taxes (22,493) 200 1,390 1,760 1,503 (183) (17,823)
For the nine months
ended May 31,2004
Revenues 281,342 12,758 17,216 9,465 105 320,886
Inter-segment
Revenues 41,414 466 5,117 112 47,109
Segment earnings
(loss) before income
taxes 14,882 777 2,917 596 (1,296) 17,876
For the three months
ended May 31,2005
Revenues 65,633 17,610 6,054 5,173 3,358 62 97,890
Inter-segment
Revenues 9,839 178 904 62 10,983
Segment (loss)
earnings before
income taxes (12,753) 200 765 677 545 104 (10,462)
For the three months
ended May 31, 2004
Revenues 111,935 5,416 6,984 3,741 64 128,140
Inter-segment
Revenues 14,984 184 2,539 40 17,747
Segment (loss)
earnings before
income taxes (2,710) 319 1,275 161 (252) (1,207)
CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements (Restated)
May 31, 2005 and May 31, 2004
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5. Capital stock
The Company had the following equity securities and stock options
outstanding as of July 4, 2005:
Class A
Subordinate Class B Multiple
Voting Shares Voting Shares Stock Options
- ------------- ---------------- -------------
49,918 6,030 3,941
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6. Acquisition
On March 27, 2005, CoolBrands acquired the yogurt business of Kraft
Foods, Inc. (NYSE: KFT) for approximately $57,500. The acquired brands
include Breyers Fruit on the Bottom, Light and Creme Savers cup yogurt
varieties and Creme Savers Smoothie drinkable yogurts. Pursuant to the
agreement, CoolBrands' wholly owned subsidiary, Integrated Brands,
Inc., purchased substantially all of Kraft's assets related to its
yogurt business, including a license for the Breyers trademark, a
license for the Creme Savers trademark, a license for the Light 'n
Lively trademark and Kraft's manufacturing facility in North Lawrence,
New York. CoolBrands obtained short term bank financing for
approximately $40,000 of the purchase price and utilized cash for the
balance of the purchase price.