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 November 30, 2005. CoolBrands International Inc. Consolidated Balance Sheets as at November 30, and August 31, 2005 --------------------------------------------------------------------------------
(Unaudited) (Amounts expressed in thousands of dollars) November 30, August 31, 2005 2005 (Unaudited) Assets Current assets: Cash $ 20,745 $ 24,062 Investments 7,500 Restricted cash 10,000 10,000 Receivables, net 39,196 54,526 Receivables - affiliates 1,745 1,840 Inventories 45,683 49,955 Income taxes recoverable 9,279 9,767 Prepaid expenses 1,693 2,413 Deferred income taxes 6,475 5,148 -------------------------------------- Total current assets 134,816 165,211 Deferred income taxes, net of valuation allowance 14,839 14,799 Property, plant and equipment 46,852 47,639 Intangible and other assets 22,578 22,369 Goodwill 47,827 47,827 -------------------------------------- $266,912 $297,845 ====================================== Liabilities and shareholders' equity Current liabilities: Accounts payable $ 33,665 $ 53,300 Payables - affiliates 555 620 Accrued liabilities 26,500 30,015 Deferred income taxes 93 93 Short term borrowings 34,553 34,553 Current maturities of long-term debt 16,621 18,161 -------------------------------------- Total current liabilities 111,987 136,742 Long-term debt 8,111 8,248 Other liabilities 2,687 2,881 Deferred income taxes 6,244 6,180 -------------------------------------- Total liabilities 129,029 154,051 -------------------------------------- Minority interest 3,618 5,388 -------------------------------------- Commitments and contingencies Shareholders' equity: Capital stock 97,727 97,578 Additional paid-in-capital 46,582 46,376 Accumulated other comprehensive earnings (1,788) (1,696) Retained earnings (8,256) (3,852) -------------------------------------- Total shareholders' equity 134,265 138,406 -------------------------------------- $266,912 $297,845 ======================================
CoolBrands International Inc. Consolidated Statements of Operations for the three months ended November 30, 2005 and 2004 --------------------------------------------------------------------------------
(Unaudited) (Amounts expressed thousands of dollars, except for per share data) For the three months ended November 30, November 30, 2005 2004 Net revenues: Net sales $ 89,103 $ 85,128 Royalties, licensing, and consumer products license revenue 1,208 1,699 Drayage and other income 1,217 2,465 ----------------------------------------- Total net revenues 91,528 89,292 ----------------------------------------- Cost of goods sold 85,294 75,824 Selling, general and administrative expenses 13,722 8,226 Stock-based compensation expense 263 80 Interest expense 1,297 355 ----------------------------------------- (Loss) earnings before income taxes and minority interest (9,048) 4,807 Minority interest (1,770) (642) ----------------------------------------- (Loss) earnings before income taxes (7,278) 5,449 (Recovery of) provision for income taxes (2,874) 1,116 ---------------------------------------- Net (loss) earnings $ (4,404) $ 4,333 ========================================= Per share data: (Loss) earnings per share: Basic and diluted $ (0.08) $ 0.08 ========================================= Weighted average shares outstanding: Shares used in per share calculation - basic 56,012 55,893 Shares used in per share calculation - diluted 56,012 56,109
CoolBrands International Inc. Consolidated Statements of Shareholders' Equity For the three months ended November 30, 2005 --------------------------------------------------------------------------------
(Unaudited) (Amounts expressed in thousands of dollars) Accumulated other Total Capital Additional comprehensive Retained stockholder stock paid-in-capital earnings earnings equity ------------------------------------------------------------------------------------------ Balance at August 31, 2005 $97,578 $46,376 $(1,696) $(3,852) $138,406 Comprehensive loss: Net loss (4,404) (4,404) Other comprehensive earnings (loss), net of income taxes: Stock-based compensation expense 263 263 Currency translation adjustment (92) (92) --------- Total other comprehensive earnings 171 --------- Total comprehensive loss (4,233) Issuance of shares for stock options exercised 149 (57) 92 ------------------------------------------------------------------------------------------ Balance at November 30, 2005 $97,727 $46,582 $(1,788) $(8,256) $134,265 ==========================================================================================
CoolBrands International Inc. Consolidated Statements of Cash Flows for the three months ended November 30, 2005 and 2004 --------------------------------------------------------------------------------
(Unaudited) (Amounts expressed thousands of dollars) For the three months ended November 30, November 30, 2005 2004 Cash and short term investments provided by (used in): Operating activities: Net (loss) earnings $ (4,404) $ 4,333 Adjustments to reconcile net earnings to net cash flows from operating activities Depreciation and amortization 1,617 1,194 Stock-based compensation expense 263 80 Excess tax benefits from stock-based compensation (104) Deferred income taxes (1,303) (143) Minority interest (1,770) (642) Cash effect of changes Receivables 15,432 711 Receivables - affiliates 96 949 Allowance for doubtful accounts (160) 25 Inventories 4,271 (1,414) Income taxes recoverable 488 Prepaid expenses 720 (1,306) Accounts payable (19,632) 4,768 Payables - affiliates (65) (451) Accrued liabilities (3,514) 3,768 Income taxes payable (2,284) Other assets (338) (146) Other liabilities (194) 42 -------------------------- Cash (used in) provided by operating activities (8,597) 9,484 -------------------------- Investing activities: Purchase of property, plant and equipment (705) (2,152) Purchase of license agreements (14) Redemption of investments 7,500 Increase in notes receivable (8) Collection of notes receivable 66 4 -------------------------- Cash provided by (used in) investing activities 6,853 (2,162) -------------------------- Financing activities: Proceeds from issuance of Class A and B shares 92 Change in revolving line of credit, secured (770) 2,223 Repayment of long-term debt (907) (969) Excess tax benefits from stock-based compensation 104 -------------------------- Cash (used in) provided by financing activities (1,481) 1,254 -------------------------- (Decrease) in cash flow due to changes in foreign exchange rates (92) (2,100) -------------------------- (Decrease) increase in cash and cash equivalents (3,317) 6,476 Cash and cash equivalents - beginning of period 24,062 36,277 -------------------------- Cash and cash equivalents - end of period $ 20,745 $ 42,753 ==========================
CoolBrands International Inc. Consolidated Notes to Interim Financial Statements (Unaudited) November 30, 2005 and 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, 2005. The significant accounting policies follow those disclosed in the most recently reported annual financial statements. Certain amounts have been reclassified in the November 30, 2004 financial statements to conform to the presentation used at November 30, 2005. 2. Accounting estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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 Adoption of U.S. GAAP 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 expenditures must be deducted from revenue. CoolBrands International Inc. Consolidated Notes to Interim Financial Statements (Unaudited) November 30, 2005 and 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 months ended November 30, 2004 have been restated to reflect a reduction in revenues and selling, general and administrative expenses of $11,192. Our Consolidated Statements of Operations for the three months ended November 30, 2005 reflects a decrease in revenue and selling, general administrative expenses of $13,549. The following summarizes the impact of restatement for the change from Cnd to U.S. GAAP for consumer trade promotion expenditures in our Consolidated Statements of Operations:
For the three months ended November 30, November 30, 2005 2004 Total net revenues in accordance with Canadian GAAP $ 105,077 $ 100,484 Less consumer and trade promotion expenditures (13,549) (11,192) ---------------------------------------------- Total net revenues in accordance with U.S. GAAP $ 91,528 $ 89,292 ============================================== For the three months ended November 30, November 30, 2005 2004 Total selling, general and administrative expenses in accordance with Canadian GAAP $ 27,271 $ 19,418 Less consumer and trade promotion expenditures (13,549) (11,192) ---------------------------------------------- Total selling, general and administrative expenses in accordance with U.S. GAAP $ 13,722 $ 8,226 ==============================================
Product introduction expenditures (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 expenditures 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, our previously reported net earnings for the three months ended November 30, 2004 have been decreased by $923 when compared with the net income that would have been reported using our historical accounting principles. Our reported net loss for the three months ended November 30, 2005 has been decreased by $1,725. CoolBrands International Inc. Consolidated Notes to Interim Financial Statements (Unaudited) November 30, 2005 and 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 expenditures (slotting fees) in our Consolidated Statement of Operations:
For the three months ended November 30, November 30, 2005 2004 Net (loss) earnings in accordance with Canadian GAAP $ (6,129) $ 5,256 Adjustment for new product introduction expenditures 1,725 (923) ------------------------------------------- Net (loss) earnings in accordance with U.S. GAAP $ (4,404) $ 4,333 ===========================================
Stock-based compensation On 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 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 on the Consolidated Statement of Operations for the three months ended November 30, 2004. On September 1, 2005 the Company adopted ("SFAS 123R"), Share-Based Payment, using the modified prospective application transition method. Because the fair value recognition provisions of SFAS No. 123, Stock-Based Compensation, and SFAS No. 123(R) were materially consistent under our equity plans, the adoption of SFAS No. 123(R) did not have a significant impact on our financial position or our results of operations. Prior to our adoption of SFAS No. 123(R), benefits of tax deductions in excess of recognized compensation costs were reported as operating cash flows. SFAS No. 123(R) requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. Our net income for the three months ended November 30, 2005 includes $263 of compensation costs and $104 of income tax benefits related to stock-based compensation arrangements. Our net income for the three months ended November 30, 2004 included $80 of compensation costs and $16 of income tax benefits related to our stock-based compensation arrangements. CoolBrands International Inc. Consolidated Notes to Interim Financial Statements (Unaudited) November 30, 2005 and 2004 -------------------------------------------------------------------------------- (Amounts are expressed in thousands of dollars) 4. Segment information
Frozen Dairy Franchising dessert Yogurt Foodservice components and licensing Corporate Consolidated For the three months Ended November 30, 2005 Net revenues $53,254 $25,850 $4,209 $5,383 $ 2,814 $ 18 $91,528 Inter-segment revenues 6,674 58 549 39 7,320 Segment (loss) earnings before income taxes (8,326) 1,631 (230) 798 87 (1,238) (7,278) For the three months ended November 30, 2004 Net revenues $76,406 $4,611 $5,065 $ 3,166 $ 44 $89,292 Inter-segment revenues 11,794 115 597 44 12,550 Segment (loss) earnings before income taxes 4,134 386 818 226 (115) 5,449
5. Capital stock The Company had the following equity securities and stock options outstanding as of January 6, 2006:
Class A Subordinate Class B Multiple Voting Shares Voting Shares Stock Options ------------------------ --------------------- ----------------------- 50,005 6,028 4,034 ======================== ===================== =======================
6. Subsequent events Effective December 23, 2005 the Company sold substantially all of its franchising and licensing segment to International Franchise Corp. for cash consideration of U.S. $8 million. International Franchise Corp. is a company controlled by Mr. Aaron Serruya, a director of CoolBrands and the senior executive who was responsible for the franchising division at CoolBrands. Mr. Serruya resigned as executive vice president of CoolBrands as a result of this transaction, but continues as a director. The sale transaction was reviewed and unanimously recommended to the board of directors of CoolBrands by a committee of independent directors of CoolBrands, and was unanimously approved by the board of directors of CoolBrands. CoolBrands International Inc. Consolidated Notes to Interim Financial Statements (Unaudited) November 30, 2005 and 2004 -------------------------------------------------------------------------------- Subsequent events (cont'd) As a part of their review of the transaction, the independent committee and the board of directors received a fairness opinion from Duff & Phelps, LLC who acted as exclusive financial advisor to CoolBrands and who assisted CoolBrands in marketing the division to potential buyers. In connection with the sale of the franchising and licensing segment, the Company was required to pay down $3,612 of its short term borrowings and long-term debt from the cash consideration received. Effective December 31, 2005 the Company obtained an extension of its existing credit facilities with JP Morgan Chase Bank. The maturity date of the existing facilities has been extended from January 3, 2006 to April 3, 2006. All other terms and conditions of the existing facilities remain the same.