EX-99 7 ex99-6.txt EXHIBIT 99.6 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 -------------------------------------------------------------------------------- (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 -------- -------- 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 ======== ======== 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 -------- -------- 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 -------- -------- Total liabilities 90,776 98,068 -------- -------- 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 ======== ========
CoolBrands International Inc. Consolidated Statements of Operations (Restated) for the six months and three months ended February 28, 2005 and February 29, 2004 -------------------------------------------------------------------------------- (Unaudited) (Amounts expressed in thousands of dollars, except for per share data)
For the six months ended For the three months ended --------------------------- --------------------------- 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 -------- -------- -------- ------- (Loss) earnings before income taxes and minority interest (8,818) 19,223 (13,625) 14,375 -------- -------- -------- ------- 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 ======== ======== ======== ======= (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 -------------------------------------------------------------------------------- (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 ------- ------- ------- ------- -------- Balance at February 28, 2005 $97,533 $44,655 $ (653) $66,474 $208,009 ======= ======= ======= ======= ========
CoolBrands International Inc. Consolidated Statements of Cash Flows (Restated) for the six months and three months ended February 28, 2005 and February 29, 2004 -------------------------------------------------------------------------------- (Unaudited) (Amounts expressed in thousands 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 $ (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 -------- ------- -------- ------- 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 -------- ------- -------- ------- 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 ======== ======= ======== =======
CoolBrands International Inc. Notes to Unaudited Consolidated Interim Financial Statements (Restated) February 28, 2005 and February 29, 2004 -------------------------------------------------------------------------------- (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 -------------------------------------------------------------------------------- (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 --------------------------- --------------------------- 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) -------- -------- -------- -------- Total net revenues in accordance with U.S. GAAP $163,125 $192,746 $ 73,833 $ 99,946 ======== ======== ======== ========
For the six months ended For the three months ended --------------------------- --------------------------- February 28, February 29, February 28, February 29, 2005 2004 2005 2004 ------------ ------------ ------------ ------------ 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 ======== ======== ======== ========
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 -------------------------------------------------------------------------------- (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 --------------------------- --------------------------- 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 ------- ------- ------- ------ Net (loss) earnings in accordance with U.S. GAAP $(3,744) $11,653 $(8,077) $8,465 ======= ======= ======= ======
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 -------------------------------------------------------------------------------- (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 -------------------------------------------------------------------------------- (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 ====== ===== =====
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.