EX-99 3 ex99-2.txt EXHIBIT 99.2 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 as at February 28, 2005 and August 31, 2004 -------------------------------------------------------------------------------- (in thousands of US dollars)
February 28, 2005 August 31, 2004 (Unaudited) $ $ Assets Current assets: Cash and short term investments 66,024 64,327 Receivables 49,189 67,152 Receivables - affiliates 3,054 3,883 Inventories 47,855 49,076 Prepaid expenses 8,670 5,938 Future income taxes 6,210 4,907 ---------------------------------------------------- Total current assets 181,002 195,283 Future income taxes 3,365 3,232 Property, plant and equipment 30,067 28,730 License agreements 4,146 5,747 Intangible and other assets 6,409 6,433 Goodwill 75,094 73,336 ---------------------------------------------------- 300,083 312,761 ==================================================== Liabilities and shareholders' equity Current liabilities: Accounts payable 26,839 37,506 Payables - affiliates 190 850 Accrued liabilities 25,480 20,624 Income taxes payable 4,936 Future income taxes 3,153 1,849 Current maturities of long-term debt 16,892 8,492 ---------------------------------------------------- Total current liabilities 72,554 74,257 Long-term debt, less current portion 8,451 19,262 Other liabilities 2,817 2,758 Future income taxes 3,834 3,638 ---------------------------------------------------- Total liabilities 87,656 99,915 ---------------------------------------------------- Minority interest 6,626 8,088 ---------------------------------------------------- Shareholders' Equity: Capital stock 97,533 97,485 Contributed surplus 34,228 18,650 Cumulative translation adjustment 2,893 672 Retained earnings 71,147 87,951 ---------------------------------------------------- Total shareholders' equity 205,801 204,758 ---------------------------------------------------- 300,083 312,761 ====================================================
CoolBrands International Inc. Consolidated Statements of Earnings for the six months and three months ended February 28, 2005 and February 29, 2004 -------------------------------------------------------------------------------- (Unaudited) (in thousands of US dollars, except share data)
For the six months ended For the three months ended February 28, February 29, February 28, February 29, 2005 2004 2005 2004 $ $ $ $ Revenues: Sales 176,886 186,864 80,566 95,216 Franchising and licensing revenues: Royalty income 853 907 416 459 Franchise and license fees 485 432 387 219 Consumer products license fee 1,541 176 377 114 Drayage and other income 8,268 21,040 5,803 9,509 -------------------------------------------------------------------------- Total revenues 188,033 209,419 87,549 105,517 -------------------------------------------------------------------------- Operating expenses: Cost of goods sold 151,889 139,701 76,065 70,874 Selling, general and administrative expenses 39,005 43,123 18,471 18,069 Stock-based compensation expense 161 1,543 81 386 Interest expense 692 830 337 397 -------------------------------------------------------------------------- Total operating expenses 191,747 185,197 94,954 89,726 -------------------------------------------------------------------------- Minority interest 1,457 (140) 815 76 -------------------------------------------------------------------------- (Loss) earnings before income taxes (2,257) 24,082 (6,590) 15,867 (Benefit from) provision for income taxes (889) 9,602 (2,617) 6,392 -------------------------------------------------------------------------- Net (loss) earnings (1,368) 14,480 (3,973) 9,475 ========================================================================== (Loss) earnings per share: Basic and diluted (0.02) 0.26 (0.07) 0.17 ========================================================================== 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 For the six months ended February 28, 2005 -------------------------------------------------------------------------------- (Unaudited) (in thousands of US dollars, except share data)
Cumulative Contributed translation Retained Capital Stock surplus adjustment earnings ---------------------------------------------------------------------------------------------- Class A Class B Subordinate Multiple voting voting shares shares Amount # # $ $ $ $ ----------------------------------------- ------------------------------------------------ Balance at August 31, 2004 49,863 6,030 97,485 18,650 672 87,951 Net loss (1,368) Stock issued for options exercised 28 48 (19) Retroactive adjustment for stock-based compensation expense 15,436 (15,436) Stock-based compensation expense 161 Foreign currency translation adjustment 2,221 ----------------------------------------- ------------------------------------------------ Balance at February 28, 2005 49,891 6,030 97,533 34,228 2,893 71,147 ========================================= ================================================
CoolBrands International Inc. Consolidated Statements of Cash Flows -------------------------------------------------------------------------------- (Unaudited) (in thousands US of dollars)
For the six months ended For the three months ended 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 (1,368) 14,480 (3,973) 9,475 Items not affecting cash: Depreciation and amortization 2,374 2,244 1,180 1,149 Stock-based compensation expense 161 1,543 81 386 License agreements written off 1,401 1,401 Future income taxes (381) (2,327) (2,437) (446) Minority interest (1,454) 140 (812) (76) Allowance for doubtful accounts 123 405 98 (52) Changes in current assets and liabilities: 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 (2,732) 2,421 1,802 496 Prepaid taxes (307) (307) Other assets (63) (180) 83 (104) Accounts payable (12,026) 2,704 (16,794) 7,160 Payables - affiliates (660) (54) (209) 11 Accrued liabilities 6,215 650 753 (5,295) Income taxes payable (4,936) 4,414 (1,064) 6,859 Other liabilities 59 (52) 17 23 -------------------------------------------------------------------------- Cash provided by (used in) operating activities 6,602 14,874 (231) 13,382 -------------------------------------------------------------------------- Investing activities: Purchase of leasehold improvements and equipment (3,187) (4,579) (1,035) (2,324) Purchase of license agreements and other intangibles (17) (337) (3) (337) Repayment of notes receivable 5 18 1 16 -------------------------------------------------------------------------- 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 12,540 30 440 Capital contributions from (paid to) partnership's minority partner 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) 17,975 (3,635) 719 -------------------------------------------------------------------------- Increase (decrease) in cash flow due to changes in foreign exchange rates 675 60 124 183 -------------------------------------------------------------------------- Increase (decrease) in cash and short-term investments 1,697 28,011 (4,779) 11,639 Cash and short-term investments - beginning of period 64,327 21,760 70,803 38,132 -------------------------------------------------------------------------- Cash and short-term investments - end of period 66,024 49,771 66,024 49,771 ==========================================================================
CoolBrands International Inc. Notes to Unaudited Consolidated Interim Financial Statements February 28, 2005 and February 29, 2004 -------------------------------------------------------------------------------- (Tabular amounts are expressed in thousands) 1. Significant accounting policies The financial statements of the Company have been prepared by management in accordance with generally accepted accounting principles in Canada 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. 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 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. 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 now requires 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. The effect of this change in accounting policy reduced retained earnings at September 1, 2004 by $15,436,000 with a corresponding increase to reported contributed surplus. CoolBrands International Inc. Notes to Unaudited Consolidated Interim Financial Statements February 28, 2005 and February 29, 2004 -------------------------------------------------------------------------------- (Tabular amounts are expressed in thousands of US dollars except share data) 4. Segment information
Prepackaged Foodservice Dairy Franchising Corporate Consolidated consumer components and products licensing $ $ $ $ $ $ ------------------------------ --------------- ----------------- ---------------- --------------- -------------- -------------- For the six months ended February 28, 2005 Revenue, External 162,650 8,905 8,614 7,761 103 188,033 Intersegment Revenue 20,111 262 1,596 103 22,072 Segment (loss) earnings before income taxes (4,636) 625 1,083 958 (287) (2,257) For the six months ended February 29, 2004 Revenue, External 186,080 7,342 10,232 5,724 41 209,419 Intersegment Revenue 26,430 282 2,578 72 29,362 Segment (loss) earnings before income taxes 22,156 458 1,642 435 (609) 24,082 For the three months ended February 28, 2005 Revenue, External 75,052 4,294 3,549 4,595 59 87,549 Intersegment Revenue 8,317 147 999 60 9,523 Segment (loss) earnings before income taxes (7,615) 239 265 732 (211) (6,590) For the three months ended February 29, 2004 Revenue, External 94,669 3,428 4,617 2,781 22 105,517 Intersegment Revenue 12,162 145 1,389 31 13,727 Segment (loss) earnings before income taxes 15,113 110 709 340 (405) 15,867
CoolBrands International Inc. Notes to Unaudited Consolidated Interim Financial Statements February 28, 2005 and February 29, 2004 5. Capital stock The Company had the following equity securities and stock options outstanding as of April 7, 2005:
Class A Class B Multiple Stock Options Subordinate Voting Shares Voting Shares ----------------- ------------------- ----------------- 49,891 6,030 3,740 ================= =================== =================
6. Subsequent event On March 27, 2005, CoolBrands acquired the yogurt business of Kraft Foods, Inc. (NYSE: KFT) for approximately $57,500,000. 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., 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 $40,000,000 of the purchase price and utilized cash for the balance of the purchase price. CoolBrands estimates that this acquisition will contribute approximately $40,000,000 to $45,000,000 in revenues and net earnings of approximately $2,000,000 to $2,500,000 for the remainder of the 2005 fiscal year. Management's Discussion and Analysis of Financial Condition and Results of Operations April 14, 2005 About CoolBrands International Inc. CoolBrands is substantially unchanged from the description contained in the fiscal year 2004 MD&A, except for the acquisition of Breyer's yogurt business acquired from Kraft Foods Inc. as discussed in the subsequent events section in this MD&A. CoolBrands' Mission and Strategies CoolBrands' mission and strategies are unchanged from those disclosed in the fiscal 2004 MD&A. CoolBrands' Key Strengths CoolBrands key strengths are unchanged from those disclosed in the fiscal year MD&A. Comparison of three months ended February 28, 2005 and February 29, 2004 We manage our business based on four industry segments: Prepackaged consumer products, foodservice, dairy components, and franchising and licensing. CoolBrands adopted the U.S. dollar as its functional and reporting currency effective September 1, 2004, the commencement of fiscal 2005. CoolBrands adopted the U.S. dollar for its financial reporting because the majority of its business is conducted in U.S. dollars in the United States. This facilitates making comparisons between current and prior periods more meaningful to investors. For comparative purposes, historical financial statements have been restated into U.S. dollars in accordance with generally accepted accounting principles. Sales
Percentage of Sales ------------------- February 28, February 29, February 28, February 29, Three months ended 2005 2004 2005 2004 ---- ---- ---- ---- (000's) Prepackaged consumer products $69,257 $85,085 86.0 89.4 Foodservice 4,294 3,427 5.3 3.6 Dairy components 3,548 4,614 4.4 4.8 Franchising and licensing 3,467 2,090 4.3 2.2 ------ ------ ----- ----- Total $80,566 $95,216 100.0 100.0 ======= ======= ===== =====
Sales for the second quarter decreased to $80,566,000 as compared with $95,216,000 for the second quarter of 2004, a 15.4% decline. The decline in sales came from all of our primary consumer products brands, but principally from the Weight Watchers and Atkins, partially offset by the sales from newly introduced consumer products and the increase in distribution sales as a result of the change in the business arrangement with Dreyers. Effective September 1, 2004, CoolBrands began the distribution of Dreyer's products as an independent distributor, changing from the previously used drayage basis, Management's Discussion and Analysis of Financial Condition and Results of Operations except for Dreyer's scanned based trading customers which continue to be delivered on a drayage basis. As a result of this change, CoolBrands began purchasing products from Dreyer's and selling those products to customers at wholesale. The sales increases due to this change partially offset sales declines in our base prepackaged consumer products business. Drayage and other income Drayage and other income for the second quarter of fiscal 2005 declined by $3,706,000 or 39.0% to $5,803,000 as compared with $9,509,000 realized in the second quarter of fiscal 2004. This decline was due to the change in the business arrangement with Dreyer's discussed above. Drayage income in 2005 represents the fees paid to CoolBrands by Dreyer's for the delivery of products to Dreyer's scanned based trading customers which continue to be delivered on a drayage basis. Gross profit margin The following table presents the gross profit margin dollars and gross profit percentage for our segments:
Percentage of Sales ------------------- February 28, February 29, February 28, February 29, Three months ended 2005 2004 2005 2004 ---- ---- ---- ---- (000's) Prepackaged consumer products $1,792 $21,470 2.6 25.2 Foodservice 1,275 1,115 29.7 32.5 Dairy components 674 1,164 19.0 25.2 Franchising and licensing 760 593 21.9 28.4 ------ ------- ---- ---- Total $4,501 $24,342 5.6 25.6 ====== ======= === ====
Gross profit dollars declined to $4,501,000 for the second quarter of fiscal 2005 from $24,342,000 for the same quarter last year, an 81.5% decline. Gross profit percentage for second quarter of fiscal 2005 declined to 5.6% as compared with 25.6% for the second quarter of fiscal 2004. This decline was primarily due to the impact of lower margins generated by Americana Foods' manufacturing operations, Eskimo Pie Frozen Distribution's distribution operations and a write down of $3,835,000 in connection with packaging, ingredients and finished goods inventories which will not be used or sold resulting from the settlement of the Weight Watchers litigation and the estimated impact on packaging which will not be used due to a new labeling law which will become effective January 1, 2006. In connection with the settlement of the Weight Watchers litigation, CoolBrands agreed to discontinue the sale of all Weight Watchers products on May 1, 2005, approximately five months sooner than required by the Weight Watchers License Agreement. Management's Discussion and Analysis of Financial Condition and Results of Operations Selling, general and administrative expenses Selling, general and administrative expenses are summarized by industry segment in the following table:
Percentage of Sales ------------------- February 28, February 29, February 28, February 29, Three months ended 2005 2004 2005 2004 ---- ---- ---- ---- (000's) Prepackaged consumer products $16,261 $14,875 23.5 17.5 Foodservice 1,037 1,005 24.2 29.3 Dairy components 197 455 5.6 9.9 Franchising and licensing 629 1,263 18.1 60.4 Corporate 347 471 n/a n/a ------- ------ Total $18,471 $18,069 ======= =======
Selling, general and administrative expenses for second quarter of fiscal 2005 increased as a percentage of revenues to 21.1% as compared to 17.1% for second quarter of fiscal 2004 due to the decline in revenues. Also, selling, general and administrative expenses for the quarter ended February 28, 2005 were adversely impacted by approximately $2,358,000, including the write off of deferred package design costs, primarily related to Weight Watchers, and the write off of certain license agreements with General Mills. Stock-based compensation expense In accordance with recent changes in Canadian GAAP, the Company recognized $81,000 in stock-based compensation expense in the second quarter of fiscal 2005 representing the estimated fair value of stock options earned during the quarter. The results of the second quarter of fiscal 2004 included a non-cash pre-tax compensation charge of $386,000 relating to the fair value of stock options granted to the Company's Co-CEO and Co-Chairman during the quarter. Interest expense Interest expense was $337,000 in the second quarter of fiscal 2005 as compared with $397,000 for the same quarter of fiscal 2004. The decline in interest expense was due to the decline in the average interest rate for the period due to the expiration of an interest rate swap agreement in the third quarter of fiscal 2004 and a decrease in debt during the second quarter of fiscal 2005 as compared with the second quarter of fiscal 2004. Provision for income taxes The effective tax (benefit) rate was (39.7)% for the second quarter of fiscal 2005 and 40.3% for the second quarter of fiscal 2004. The effective tax rate differs from the Canadian Federal/Principal Statutory Rate primarily due to our operations in foreign countries with lower effective tax rates as well Management's Discussion and Analysis of Financial Condition and Results of Operations as from the effect of the second quarter losses incurred. Future effective tax rates could be adversely affected by earnings being lower than anticipated in countries that have lower statutory rates or changes in the valuation of our future income tax assets or liabilities. Net loss The net loss for the second quarter of fiscal 2005 was ($3,973,000) as compared with net earnings of $9,475,000 for the second quarter of fiscal 2004. The $13,448,000 decline in results of operations in the quarter ended February 28, 2005 versus the quarter ended February 29, 2004 is attributed to a decline in gross profit dollars due to lower sales and gross profit margins, a decrease in drayage income, offset by the reduction in income taxes. Comparison of six months ended February 28, 2005 and February 29, 2004 Sales
Percentage of Sales ------------------- February 28, February 29, February 28, February 29, Six months ended 2005 2004 2005 2004 ---- ---- ---- ---- (000's) Prepackaged consumer products $154,396 $164,913 87.3 88.3 Foodservice 8,905 7,341 5.0 3.9 Dairy components 8,614 10,230 4.9 5.5 Franchising and licensing 4,971 4,380 2.8 2.3 -------- -------- ----- ----- Total $176,886 $186,864 100.0 100.0 ======== ======== ===== =====
Sales for the six months of fiscal 2005 decreased to $176,886,000 as compared with $186,864,000 for the six months of fiscal 2004, a 5.3% decline. The decline in sales came from all of our primary consumer products brands, but principally from the Weight Watchers and Atkins, partially offset by the sales from newly introduced consumer products and the increase in distribution sales as a result of the change in the business arrangement with Dreyers. Effective September 1, 2004, CoolBrands began the distribution of Dreyer's products as an independent distributor, changing from the previously used drayage basis, except for Dreyer's scanned based trading customers which continue to be delivered on a drayage basis. As a result of this change, CoolBrands began purchasing products from Dreyer's and selling those products to customers at wholesale. The sales increases due to this change partially offset sales declines in our base prepackaged consumer products business. Management's Discussion and Analysis of Financial Condition and Results of Operations Gross profit margin The following table presents the gross profit margin dollars and gross profit percentage for our segments:
Percentage of Sales ------------------- February 28, February 29, February 28, February 29, Six months ended 2005 2004 2005 2004 ---- ---- ---- ---- (000's) Prepackaged consumer products $19,910 $40,834 12.9 24.8 Foodservice 2,821 2,552 31.7 34.8 Dairy components 1,917 2,657 22.3 26.0 Franchising and licensing 349 1,120 7.0 25.1 ------- ------- ---- ---- Total $24,997 $47,163 14.1 25.2 ======= ======= ==== ====
Gross profit dollars declined to $24,997,000 for the six months of fiscal 2005 from $47,163,000 for the six months of fiscal 2004. a 47.0% decline. Gross profit percentage for the six months of fiscal 2005 declined to 14.1% as compared with 25.2% for the six months of fiscal 2004. This decline was primarily due to the impact of lower margins generated by Americana Foods' manufacturing operations, Eskimo Pie Frozen Distribution's distribution operations and a write down of $3,835,000 recognized in the quarter ended February 28, 2005 in connection with packaging, ingredients and finished goods inventories which will not be used or sold resulting from the settlement of the Weight Watchers litigation and the estimated impact on packaging which will not be used due to a new labeling law which will become effective January 1, 2006. In connection with the settlement of the Weight Watchers litigation, CoolBrands agreed to discontinue the sale of all Weight Watchers products on May 1, 2005, approximately five months sooner than required by the Weight Watchers License Agreement. Selling, general and administrative expenses Selling, general and administrative expenses are summarized by industry segment in the following table:
Percentage of Sales ------------------- February 28, February 29, February 28, February 29, Six months ended 2005 2004 2005 2004 ---- ---- ---- ---- (000's) Prepackaged consumer products $33,883 $36,898 21.9 22.4 Foodservice 2,197 2,095 24.7 28.5 Dairy components 733 1,015 8.5 9.9 Franchising and licensing 1,670 2,367 33.6 54.0 Corporate 522 748 n/a n/a ------- ------- Total $39,005 $43,123 ======= =======
Management's Discussion and Analysis of Financial Condition and Results of Operations Selling, general and administrative expenses for the six months of fiscal 2005 remained essentially unchanged as a percentage of revenues as compared with the six months of fiscal 2004. However, selling, general and administrative expenses for the six months ended February 28, 2005 were adversely impacted by approximately $2,358,000 recognized in the quarter ended February 28, 2005, including the write off of deferred package design costs, primarily related to Weight Watchers, and the write off of certain license agreements with General Mills. Stock-based compensation expense In accordance with recent changes in Canadian GAAP, the Company recognized $161,000 in stock-based compensation expense and in the six months of fiscal 2005 representing the estimated fair value of stock options earned during the period. The results of the six months of fiscal 2004 included a non-cash pre-tax compensation charge of $1,543,000 related to the fair value of stock options granted to the Company's Co-CEO and Co-Chairman during the period. Interest expense Interest expense was $692,000 for the six months of fiscal 2005 as compared with $830,000 for the six months of fiscal 2004. The decline in interest expense was due to the decline in the average interest rate for the period due to the expiration of an interest rate swap agreement in the third quarter of fiscal 2004 and a decrease in debt during the second quarter of fiscal 2005 as compared with the second quarter of fiscal 2004. Provision for income taxes The effective tax (benefit) rate was (39.4)% for the six months of fiscal 2005 and 39.9% for the six months of fiscal 2004. The effective tax rate differs from the Canadian Federal/Principal Statutory Rate primarily due to our operations in foreign countries with lower effective tax rates as well as from the effect of the year to date and second quarter losses incurred. Future effective tax rates could be adversely affected by earnings being lower than anticipated in countries that have lower statutory rates or changes in the valuation of our future income tax assets or liabilities. Net loss The net loss for the six months of fiscal 2005 was ($1,368,000) as compared with net earnings of $14,480,000 for the six months of fiscal 2004. The $15,848 000 decline in results of operations for the six months ended February 28, 2005 versus the six months ended February 29, 2004 is attributed to a decline in gross profit dollars due to lower sales and gross profit margins, a decrease in drayage income, offset by a decrease in selling, general and administrative expenses and the reduction in income taxes. Management's Discussion and Analysis of Financial Condition and Results of Operations Summary of quarterly results The following table presents a summary of our results for the last eight quarters:
Quarter ended February 28, November 30, August 31, May 31, 2005 2004 2004 2004 $ $ $ $ ------------------------------------------------------------------------------------------------------------------------------------ Total revenues 87,549 100,484 134,303 139,129 Net earnings (loss) (3,973) 2,605 11,050 11,158 Earnings (loss) per share Basic (0.07) 0.05 0.20 0.20 Diluted (0.07) 0.05 0.20 0.20 Quarter ended February 29, November 30, August 31, May 31, 2004 2003 2003 2003 $ $ $ $ ------------------------------------------------------------------------------------------------------------------------------------ Total revenues 105,517 103,902 107,090 55,978 Net earnings 9,475 5,005 10,274 6,033 Earnings per share Basic 0.17 0.09 0.20 0.12 Diluted 0.17 0.09 0.19 0.11
The ice cream and frozen yogurt industry generally experiences its highest volume during the spring and summer months and its lowest volume in the winter months. Liquidity The following sets forth certain measures of our liquidity:
February 28, August 31, ------------ ---------- 2005 2004 ---- ---- (000's) Cash and short term investments $ 66,024 $ 64,327 Working capital $108,448 $121,026 Current ratio 2.5 to1 2.6 to 1
The decrease in working capital to $108,448,000 at February 28, 2005 from $121,026,000 at August 31, 2004 and the decline in CoolBrands' current ratio to 2.5 to 1 at February 28, 2005 from 2.6 to 1 at August 31, 2004 was primarily due to the reduction of accounts receivable and accounts payable and the reclassification of certain bank debt due November 1, 2005 as a current liability from long-term debt at August 31, 2004. We believe the combination of cash on hand and cash from operations will provide adequate liquidity to meet the requirements for our established business operations, capital expenditures and debt service for the balance of the 2005 fiscal year. Management's Discussion and Analysis of Financial Condition and Results of Operations Cash flows provided by (used in) operating activities The Company used cash flows in operating activities of ($231,000) for the three months ended February 28, 2005 as compared with cash generated from operating activities of $13,382,000 for the three months ended February 29, 2004. For the three months ended February 28, 2005, the operating cash flow activity resulted primarily from the loss, net of non - cash items, and from the reduction of changes in current assets and liabilities. For the three month period ended February 29, 2004, cash was generated by net earnings, net of non - cash items and the current income taxes payable, and from changes in current assets and liabilities related to the business improvement. The Company generated cash flows from operating activities of $6,602,000 and $14,874,000 for the six months periods ended February 28, 2005 and February 29, 2004, respectively. For the six months ended February 28, 2005, the operating cash flow activity resulted primarily from the loss, net of non - cash items, and from the reduction of changes in current assets and liabilities. The operating cash flow for the six month period ended February 29, 2004 period was due the income generated, net of non - cash items and the current income taxes payable, and from changes in current assets and liabilities related to the business improvement. Cash used in investing activities For the three months ended February 28, 2005, net cash used for investing activities deceased to $1,037,000 from $2,645,000 for the three months ended February 29, 2004. For the six months ended February 28, 2005, net cash used for investing activities deceased to $3,199,000 from $4,898,000 for the six months ended February 29, 2004. The spending in both fiscal years was primarily utilized to expand production capacity at Americana Foods Cash provided by (used in) financing activities For the three months ended February 28, 2005, $3,635,000 was used for financing activities as compared with $719,000 provided by financing activities for the three months ended February 29 2004. In the fiscal 2005 period, the financing activities included a net decrease in the secured revolving line of credit at Americana Foods of $2,623,000 and repayments of long-term debt of $1,042,000 partially offset by proceeds from the exercise of stock options of $30,000. In the fiscal 2004 period, there were net borrowings on the secured revolving line of credit of $2,524,000 and $440,000 received from the exercise of stock options which were partially offset by a repayment of $2,000,000 to the minority partner at Americana Foods and repayments of $245,000 of long term debt. For the six months ended February 28, 2005, $2,381,000 was used for financing activities as compared with $17,975,000 provided by financing activities for the six months ended February 29, 2004. In the fiscal 2005 period, the financing activities included a net decrease in the secured revolving line of credit at Americana Foods of $400,000 and repayments of long-term debt of $2,011,000 partially offset by proceeds from the exercise of stock options of $30,000. In the fiscal 2004 period, there were net borrowings on the secured revolving line of credit of $2,524,000, $12,540,000 received from the exercise of stock options and $6,908,000 provided by Americana Foods' minority partner as its share for Management's Discussion and Analysis of Financial Condition and Results of Operations the expansion of its production capacity which were partially offset by repayments of $3,997,000 of long term debt. Contractual Obligations See subsequent event disclosed below for the details on the agreement to acquire the Breyer's yogurt business from Kraft Foods Inc. that closed on March 27, 2005. Capital resources CoolBrands' requirements are substantially unchanged from the annual fiscal 2004 MD&A, except for the acquisition of the Breyer's yogurt business discussed in the subsequent event section of this MD&A. Payment requirements Payment requirements are substantially unchanged from those disclosed in the fiscal year 2004 MD&A. Subsequent event On March 27, 2005, CoolBrands acquired the yogurt business of Kraft Foods, Inc. (NYSE: KFT) for approximately $57,500,000. 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., 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 $40,000,000 of the purchase price and utilized cash for the balance of the purchase price. CoolBrands estimates that this acquisition will contribute approximately $40,000,000 to $45,000,000 in revenues and net earnings of approximately $2,000,000 to $2,500,000 for the remainder of the 2005 fiscal year. Risk factors and uncertainties Risk factors and uncertainties are unchanged from those disclosed in the fiscal year 2004 MD&A. Transactions with related parties The nature of transactions with related parties is unchanged from that disclosed in the fiscal 2004 MD&A, except for the termination of the Management Agreement with Calip Dairies, Inc. and the related elimination of the annual management fee of $1,300,000 effective January 29, 2005. Critical accounting policies The accounting policies discussed in this section are those that we consider to be particularly critical to an understanding of our financial statements because their application places the most significant demands on our ability to judge the effect of inherently uncertain matters on our financial results. Management's Discussion and Analysis of Financial Condition and Results of Operations For all of these policies, we caution that future events rarely develop exactly as forecast, and our management's best estimates may require adjustment. Management believes that the critical accounting policies are substantially unchanged from those disclosed in the fiscal 2004 MD&A, except for the new stock-based compensation accounting adopted as discussed in the section Change in accounting policy for fiscal year beginning September 1, 2004. Legal matters CoolBrands is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. CoolBrands evaluates among other things, the degree of probability of an unfavorable outcome and reasonably estimates the amount of the loss. Significant judgment is required in both the determination of the probability and as to whether an exposure can be reasonably estimated. When CoolBrands determines that it is probable that a loss has been incurred, the effect is recorded in the Consolidated Financial Statements. Although the legal outcome of these claims cannot be predicted with certainty, CoolBrands does not believe that any of the existing legal matters will have a material adverse affect on its financial condition or results of operations. However, significant changes in legal proceedings and claims or the factors considered in the evaluation of those matters could have a material adverse affect on CoolBrands business, financial condition and results of operation. Change in accounting policy for fiscal year beginning September 1, 2004 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 now requires 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. The effect of this change in accounting policy will be to reduce retained earnings at September 1, 2004 by $15,436,000 with a corresponding increase to reported contributed surplus. Annual Information Form Additional information relating to CoolBrands including CoolBrands' Annual Information Form is available on SEDAR at www.sedar.com Outstanding share data As of April 7, 2005, the Company had 49,891,068 subordinate voting shares, 6,029,865 multiple voting shares and 3,740,000 stock options outstanding. Outlook The outlook for fiscal 2005 is substantially unchanged from that disclosed in the fiscal 2004 MD&A. See "Subsequent Event" for the anticipated effect of the purchase of the Kraft Foods, Inc. yogurt business on Coolbrands' sales and results of operations. Management's Discussion and Analysis of Financial Condition and Results of Operations This management discussion and analysis includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding, among other things, statements relating to goals, plans and projections regarding the Company's financial position and business strategy. These statements may be identified by the fact that they use such words as "anticipate," "estimate," "expect," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Such forward- looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes and results to differ materially from current expectations. These factors include, among other things, market factors, competitive product development and promotional activity, the level of consumer interest in the Company's products, product costing, the weather, the performance of management, including management's ability to implement its plans as contemplated, the Company's relationship with its customers, franchisees, licensees and licensors, governmental regulations and legislation and litigation. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.