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 November 30,
2004.
CoolBrands International Inc.
Consolidated Balance Sheets (Restated)
as at November 30, and August 31, 2004
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(Unaudited)
(Amounts expressed in thousands of dollars)
November 30, August 31,
2004 2004
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(Unaudited)
Assets
Current assets:
Cash $ 42,753 $ 36,277
Investments 28,050 28,050
Receivables, net 66,416 67,152
Receivables - affiliates 2,934 3,883
Inventories 50,490 49,076
Prepaid expenses 2,509 1,203
Deferred income taxes 5,060 4,907
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Total current assets 198,212 190,548
Deferred income taxes 13,835 13,711
Property, plant and equipment 30,073 28,730
Intangible and other assets 12,261 12,180
Goodwill 74,779 72,088
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$329,160 $317,257
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 42,274 $ 37,506
Payables - affiliates 399 850
Accrued liabilities 24,392 20,624
Income taxes payable 2,654 4,938
Current maturities of long-term debt 20,192 8,492
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Total current liabilities 89,911 72,410
Long-term debt 8,816 19,262
Other liabilities 2,800 2,758
Deferred income taxes 3,772 3,638
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Total liabilities 105,299 98,068
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Minority interest 7,446 8,088
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Commitments and contingencies
Shareholders' Equity:
Capital stock 97,485 97,485
Additional paid-in-capital 44,574 44,494
Accumulated other comprehensive earnings (195) (1,096)
Retained earnings 74,551 70,218
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Total shareholders' equity 216,415 211,101
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$329,160 $317,257
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CoolBrands International Inc.
Consolidated Statements of Operations (Restated)
for the three months ended November 30, 2004 and 2003
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(Unaudited)
(Amounts expressed thousands of dollars, except for per share data)
For the three months ended
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November 30, November 30,
2004 2003
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Net Revenues:
Net sales 85,128 80,546
Royalties, licensing, and consumer products
license revenue 1,699 723
Drayage and other income 2,465 11,531
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Total net revenues 89,292 92,800
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Cost of goods sold 75,824 68,827
Selling, general and administrative expenses 8,226 11,741
Stock-based compensation expense 80 6,951
Interest expense 355 433
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Earnings before income taxes and minority
interest 4,807 4,848
Minority interest (642) 216
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Earnings before income taxes 5,449 4,632
Provision for income taxes 1,116 1,444
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Net earnings 4,333 3,188
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Per share data:
Earnings per share:
Basic and diluted 0.08 0.06
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Weighted average shares outstanding:
Shares used in per share calculation - basic 55,893 54,413
Shares used in per share calculation - diluted 56,109 55,891
CoolBrands International Inc.
Consolidated Statements of Shareholder's Equity (Restated)
For the three months ended November 30, 2004
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(Unaudited)
(Amounts are expressed in thousands of dollars)
Accumulated
other Total
Additional comprehensive Retained Stockholder
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:
Net earnings 4,333 4,333
Other comprehensive earnings,
net of income taxes:
Stock-based compensation expense 80 80
Currency translation adjustment 901 901
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Balance at November 30, 2004 $97,485 $44,574 $ (195) $74,551 $216,415
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CoolBrands International Inc.
Consolidated Statements of Cash Flows (Restated)
for the three months ended November 30, 2004 and 2003
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(Unaudited)
(Amounts expressed thousands of dollars)
For the three months ended
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November 30, November 30,
2004 2003
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Cash and short term investments provided by (used in):
Operating activities:
Net earnings $ 4,333 $ 3,188
Adjustments to reconcile net earnings to net cash flows
from operating activities Depreciation and amortization 1,194 1,096
Stock-based compensation expense 80 6,951
Deferred income taxes (143) (4,207)
Minority interest (642) 216
Cash effect of changes
Receivables 711 (3,930)
Receivables - affiliates 949 (441)
Allowance for doubtful accounts 25 457
Inventories (1,414) (939)
Prepaid expenses (1,306) (555)
Other assets (146) (76)
Accounts payable 4,768 (4,456)
Payables - affiliates (451) (65)
Accrued liabilities 3,768 6,991
Income taxes payable (2,284) (1,885)
Other liabilities 42 (75)
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Cash provided by operating activities 9,484 2,270
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Investing activities:
Purchase of property, plant and equipment (2,152) (2,255)
Purchase of license agreements (14)
Collection of notes receivable 4 2
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Cash used in investing activities (2,162) (2,253)
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Financing activities:
Proceeds from issuance of Class A and B shares 12,100
Capital contributions from minority interest 8,907
Change in revolving line of credit, secured 2,223
Repayment of long-term debt (969) (3,752)
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Cash provided by financing activities 1,254 17,255
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(Decrease) in cash flow due to changes in foreign exchange rates (2,100) (900)
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Increase in cash and cash equivalents 6,476 16,372
Cash and cash equivalents - beginning of period 36,277 21,760
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Cash and cash equivalents -end of period $42,753 $38,132
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CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements (Restated)
(Unaudited)
November 30, 2004 and 2003
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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 November 30, 2004 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.
CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements (Restated)
(Unaudited)
November 30, 2004 and 2003
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(Amounts are expressed in thousands of dollars)
Changes in accounting policy and restated financial statements (cont'd)
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.
Accordingly, our Consolidated Statements of Operations for the three months
ended November 30, 2004 and 2003 have been restated to reflect a reduction
in revenues and selling, general and administrative expenses of $11,192 and
$11,102, 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 three months ended
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November 30, November 30,
2004 2003
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Total net revenues in accordance with Canadian GAAP $100,484 $103,902
Less consumer and trade promotion expenses (11,192) (11,102)
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Total net revenues in accordance with U.S. GAAP $ 89,292 $ 92,800
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For the three months ended
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November 30, November 30,
2004 2003
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Total selling, general and administrative expenses in
accordance with Canadian GAAP $ 19,418 $ 22,843
Less consumer and trade promotion expenses (11,192) (11,102)
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Total selling, general and administrative expenses in
accordance with U.S. GAAP $ 8,226 $ 11,741
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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 months ended November
30, 2004 have been decreased by $923. Our reported net earnings for the
three months ended November 30, 2003 was increased by $868.
CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements (Restated)
(Unaudited)
November 30, 2004 and 2003
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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 three months ended
---------------------------
November 30, November 30,
2004 2003
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Net earnings in accordance with Canadian GAAP $5,256 $2,320
Adjustment for new product introduction expense (923) 868
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Net earnings in accordance with U.S. GAAP $4,333 $3,188
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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 months
ended November 30, 2004 and reduced earnings before income tax and minority
interest for the three months ended November 30, 2003 by $5,794 with a
corresponding increase to additional paid-in capital.
CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements (Restated)
(Unaudited)
November 30, 2004 and 2003
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(Amounts are expressed in thousands of dollars)
4. Segment information
Franchising
Frozen Dairy and
desserts Foodservice components licensing Corporate Consolidated
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For the three months
ended November 30, 2004
Revenues $76,406 $4,611 $5,065 $3,166 $ 44 $89,292
Inter-segment
revenues 11,794 115 597 44 12,550
Segment earnings
before income taxes 4,134 386 818 226 (115) 5,449
For the three months
ended November 30, 2003
Revenues $80,309 $3,914 $5,615 $2,943 $ 19 $92,800
Inter-segment
revenues 14,268 137 1,189 41 15,635
Segment earnings
before income taxes 4,309 348 933 95 (1,053) 4,632
5. Capital stock
The Company had the following equity securities and stock options
outstanding as of January 12, 2005:
Class A
Subordinate Class B Multiple
Voting Shares Voting Shares Stock Options
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49,891 6,030 3,740
6. Subsequent event
On December 22, 2004, CoolBrands announced that it entered into an
agreement to acquire the yogurt business of Kraft Foods, Inc. (NYSE: KFT)
for approximately $ 59,000. 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., will purchase 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. The transaction, which is subject to regulatory
approval, is expected to be completed in the first calendar quarter of
2005. CoolBrands expects to finance approximately $ 45,000 in bank debt and
utilize cash to pay for the remainder 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 in
the last half of fiscal 2005.