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 February 28,
2005.
CoolBrands International Inc.
Consolidated Balance Sheets (Restated)
as at February 28, 2005 and August 31, 2004
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(Amounts expressed in thousands of dollars)
February 28, 2005 August 31, 2004
----------------- ---------------
(Unaudited)
Assets
Current assets:
Cash $ 37,974 $ 36,277
Investments 28,050 28,050
Receivables, net 49,189 67,152
Receivables - affiliates 3,054 3,883
Inventories 47,855 49,076
Prepaid expenses 3,346 1,203
Income taxes recoverable 1,422
Deferred income taxes 6,210 4,907
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Total current assets 177,100 190,548
Deferred income taxes 13,843 13,711
Property, plant and equipment 30,067 28,730
Intangible and other assets 10,555 12,180
Goodwill 73,846 72,088
-------- --------
$305,411 $317,257
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 26,839 $ 37,506
Payables - affiliates 190 850
Accrued liabilities 31,754 20,624
Income taxes payable 4,938
Current maturities of long-term debt 16,892 8,492
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Total current liabilities 75,675 72,410
Long-term debt, less current portion 8,451 19,262
Other liabilities 2,816 2,758
Deferred income taxes 3,834 3,638
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Total liabilities 90,776 98,068
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Minority interest 6,626 8,088
Commitments and contingencies
Shareholders' Equity:
Capital stock 97,533 97,485
Additional paid-in-capital 44,655 44,494
Accumulated other comprehensive earnings (653) (1,096)
Retained earnings 66,474 70,218
-------- --------
Total shareholders' equity 208,009 211,101
-------- --------
$305,411 $317,257
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CoolBrands International Inc.
Consolidated Statements of Operations (Restated)
for the six months and three months ended February 28, 2005 and
February 29, 2004
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(Unaudited)
(Amounts expressed in thousands of dollars, except for per share data)
For the six months ended For the three months ended
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February 28, February 29, February 28, February 29,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net Revenues:
Net sales $151,978 $170,191 $ 66,850 $89,645
Royalty, licensing, and consumer products
license revenue 2,879 1,515 1,180 792
Drayage and other income 8,268 21,040 5,803 9,509
-------- -------- -------- -------
Total net revenues 163,125 192,746 73,833 99,946
-------- -------- -------- -------
Cost of goods sold 151,889 139,701 76,065 70,874
Selling, general and administrative expenses 17,800 23,837 9,574 12,096
Stock-based compensation expense 161 9,155 81 2,204
Interest expense 692 830 337 397
Asset impairment 1,401 1,401
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(Loss) earnings before income taxes and
minority interest (8,818) 19,223 (13,625) 14,375
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Minority interest 1,457 (140) 815 76
-------- -------- -------- -------
(Loss) earnings before income taxes (7,361) 19,083 (12,810) 14,451
(Recovery of) provision for income taxes (3,617) 7,430 (4,733) 5,986
-------- -------- -------- -------
Net (loss) earnings $ (3,744) $ 11,653 $ (8,077) $ 8,465
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(Loss) earnings per share:
Basic and diluted $ (0.07) $ 0.21 $ (0.14) $ 0.15
-------- -------- -------- -------
Weighted average shares outstanding:
Shares used in per share calculation - basic 55,907 55,045 55,921 55,677
Shares used in per share calculation - diluted 55,907 56,198 55,921 56,445
CoolBrands International Inc.
Consolidated Statements of Shareholders' Equity (Restated)
For the six months ended February 28, 2005
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(Unaudited)
(Amounts expressed in thousands of dollars)
Accumulated other Total
Additional comprehensive Retained stockholders
Capital Stock paid-in-capital earnings Earnings equity
------------- --------------- ----------------- -------- ------------
Balance at August 31, 2004 $97,485 $44,494 $(1,096) $70,218 $211,101
Comprehensive earnings (loss):
Net loss (3,744) (3,744)
Other comprehensive earnings , net of
income taxes
Stock issued for options exercised 48 48
Stock-based compensation expense 161 161
Currency translation adjustment 443 443
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Balance at February 28, 2005 $97,533 $44,655 $ (653) $66,474 $208,009
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CoolBrands International Inc.
Consolidated Statements of Cash Flows (Restated) for the six months and three
months ended February 28, 2005 and February 29, 2004
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(Unaudited)
(Amounts expressed in thousands of dollars)
For the six months ended For the three months ended
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February 28, February 29, February 28, February 29,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Cash and short term investments
provided by (used in):
Operating activities:
Net (loss) earnings $ (3,744) $11,653 $ (8,077) $ 8,465
Adjustments to reconcile net earnings to net cash
flows from operating activities
Depreciation and amortization 2,374 2,244 1,180 1,149
Stock-based compensation expense 161 9,155 81 2,204
Asset impairment 1,401 1,401
Deferred income taxes (326) (5,383) (183) (1,176)
Minority interest (1,454) 140 (812) (76)
Allowance for doubtful accounts 123 405 98 (52)
Cash effect of changes
Receivables 17,839 (6,066) 17,128 (2,136)
Receivables - affiliates 829 (75) (120) 366
Inventories 1,221 (5,066) 2,635 (4,127)
Prepaid expenses (2,143) (192) (837) 363
Other assets (63) (180) 83 (104)
Income taxes recoverable (307) (307)
Accounts payable (12,026) 2,704 (16,794) 7,160
Payables - affiliates (660) (54) (209) 11
Accrued liabilities 11,130 1,022 7,362 (5,969)
Income taxes payable (6,360) 5,298 (4,076) 7,183
Other liabilities 59 (52) 17 23
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Cash provided by (used in) operating activities 8,361 15,246 (1,123) 12,977
-------- ------- -------- -------
Investing activities:
Purchase of property, plant, and equipment (3,187) (4,579) (1,035) (2,324)
Purchase of license agreements and other intangibles (17) (337) (3) (337)
Collection of notes receivable 5 18 1 16
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Cash used in investing activities (3,199) (4,898) (1,037) (2,645)
-------- ------- -------- -------
Financing activities:
Proceeds from issuance of Class A and B shares 30 12,193 30 93
Capital contributions from (paid to) partnership's
minority interest 6,908 (2,000)
Change in revolving line of credit, secured (400) 2,524 (2,623) 2,524
Repayment of long-term debt (2,011) (3,997) (1,042) (245)
-------- ------- -------- -------
Cash (used in) provided by financing activities (2,381) 17,628 (3,635) 372
-------- ------- -------- -------
(Decrease) increase in cash flow due to changes in
foreign exchange rates (1,084) 35 1,016 935
-------- ------- -------- -------
Increase (decrease) in cash and Cash equivalents 1,697 28,011 (4,779) 11,639
Cash and short-term investments - beginning of period 36,277 21,760 42,753 38,132
-------- ------- -------- -------
Cash and cash equivalents - end of period $ 37,974 $49,771 $ 37,974 $49,771
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CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements (Restated)
February 28, 2005 and February 29, 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 February 28, 2005 and August 31,
2004, $28,050 and $28,050 respectively, as investments.
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)
February 28, 2005 and February 29, 2004
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(Amounts are expressed in thousands of dollars)
Changes in accounting policy and restated financial statements (cont'd)
Accordingly, our Consolidated Statements of Operations for the three and
six months ended February 28, 2005 have been restated to reflect a
reduction in revenues and selling, general and administrative expenses of
$13,716 and $24,908, respectively. Our Consolidated Statements of
Operations for the three and six months ended February 28, 2004 have been
restated to reflect a reduction in revenues and selling, general and
administrative expenses of $5,571 and $16,673, 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 Earnings:
For the six months ended For the three months ended
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February 28, February 29, February 28, February 29,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Total net revenues in accordance with
Canadian GAAP $188,033 $209,419 $ 87,549 $105,517
Less consumer and trade promotion expenses (24,908) (16,673) (13,716) (5,571)
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Total net revenues in accordance with
U.S. GAAP $163,125 $192,746 $ 73,833 $ 99,946
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For the six months ended For the three months ended
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February 28, February 29, February 28, February 29,
2005 2004 2005 2004
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Total selling, general and administrative
expenses in accordance with Canadian
GAAP $ 42,708 $ 40,510 $ 23,290 $ 17,667
Less consumer and trade promotion expenses (24,908) (16,673) (13,716) (5,571)
-------- -------- -------- --------
Total selling, general and administrative
expenses in accordance with U.S.
GAAP $ 17,800 $ 23,837 $ 9,574 $ 12,096
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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 earnings for the three and six months ended
February 28, 2005 have been decreased by $3,229 and $4,152, respectively.
Our reported net earnings for three and six months ended February 29, 2004
have been increased by $488 and $1,356, respectively.
CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements (Restated)
(Unaudited)
February 28, 2005 and February 29, 2004
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(Amounts are expressed in thousands of dollars)
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 six months ended For the three months ended
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February 28, February 29, February 28, February 29,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net (loss) earnings in accordance
with Canadian GAAP $ 408 $10,297 $(4,848) $7,977
Adjustment for new product
introduction expense (4,152) 1,356 (3,229) 488
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Net (loss) earnings in accordance
with U.S. GAAP $(3,744) $11,653 $(8,077) $8,465
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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 six
months ended February 28, 2005 and reduced earnings before income tax and
minority interest for the three and six months ended February 29, 2004 by
$1,818 and $7,226, respectively with a corresponding increase to additional
paid-in capital.
CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements (Restated)
February 28, 2005 and February 29, 2004
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(Amounts are expressed in thousands of dollars)
4. Segment information
Franchising
Frozen Dairy and
desserts Foodservice components licensing Corporate Consolidated
--------- ----------- ---------- ----------- --------- ------------
For the six months ended
February 28, 2005
Revenues $137,742 $8,905 $ 8,614 $7,761 $ 103 $163,125
Inter-segment Revenues 20,111 262 1,596 103 22,072
Segment (loss) earnings
before income taxes (9,740) 625 1,083 958 (287) (7,361)
For the six months ended
February 29, 2004
Revenues $169,407 $7,342 $10,232 $5,724 $ 41 $192,746
Inter-segment Revenues 26,430 282 2,578 72 29,362
Segment (loss) earnings
before income taxes 17,592 458 1,642 435 (1,044) 19,083
For the three months
ended February 28, 2005
Revenues $ 61,336 $4,294 $ 3,549 $4,595 $ 59 $ 73,833
Inter-segment Revenues 8,317 147 999 60 9,523
Segment (loss) earnings
before income taxes (13,874) 239 265 732 (172) (12,810)
For the three months ended
February 29, 2004
Revenues $ 89,098 $3,428 $ 4,617 $2,781 $ 22 $ 99,946
Inter-segment Revenue 12,162 145 1,389 31 13,727
Segment (loss) earnings
before income taxes 13,283 110 709 340 9 14,451
CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements (Restated)
February 28, 2005 and February 29, 2004
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(Amounts are expressed in thousands of dollars)
5. Capital stock
The Company had the following equity securities and stock options
outstanding as of April 7, 2005:
Class A Subordinate Class B Multiple
Voting Shares Voting Shares Stock Options
- ------------------- ---------------- -------------
49,891 6,030 3,740
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6. Subsequent event
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
financing for $40,000 of the purchase price and utilized cash for the
balance of the purchase price. CoolBrands estimates that this acquisition
will contribute approximately $40,000 to $45,000 in revenues and net
earnings of approximately $2,000 to $2,500 for the remainder of the 2005
fiscal year.