EXHIBIT 99.2
Third Quarter 2004 Fiscal Year
To Our Shareholders ...
CoolBrands International is pleased to announce that revenues for the three
months ended May 31, 2004 increased by 128.5% to $187,170,000 from $81,908,000
for the same period last year. Net earnings for the three months ended May 31,
2004 increased by 113.5% to $19,126,000 ($0.34 basic and diluted earnings per
share) as compared with net earnings of $8,957,000 ($0.17 basic and diluted
earnings per share) for the same period last year.
The growth in revenues for the three months ended May 31, 2004 reflected
increased sales of prepackaged consumer products, including incremental sales
from Americana Foods, Eskimo Pie Frozen Distribution and from the Dreamery'r'
and Whole Fruit'TM' brands and the Godiva'r' brand license that were acquired in
July 2003 and drayage income.
Sales for the three months ended May 31, 2004 increased by 119.4% to
$173,247,000 as compared with $78,978,000 for the same period last year. Drayage
and other income increased to $12,854,000 for the three months ended May 31,
2004. Drayage income represents the fees paid to CoolBrands by Dreyer's/Nestle
to deliver products invoiced to customers by Dreyer's/Nestle.
Gross profit dollars increased to $44,204,000 for the three months ended May 31,
2004 from $33,864,000 for the period last year, a 30.5% increase. Gross profit
percentage for the three months ended May 31, 2004 decreased to 25.5% as
compared to 42.9% for the same period last year. Gross profit decreased for the
three months ended May 31, 2004 due to the impact of lower margins generated by
Americana Foods' manufacturing operations and Eskimo Pie Frozen Distribution's
distribution operations and due to the impact of increased cost of butterfat.
Selling, general and administrative expenses for three months ended May 31, 2004
declined as a percentage of revenues to 13.5% as compared to 27.1% for the same
period last year.
Cash and short-term investments increased to $97,486,000 at May 31, 2004 from
$30,140,000 at August 31, 2003. Working capital improved to $149,835,000 at May
31, 2004 from $85,734,000 at August 31, 2003. CoolBrands' current ratio improved
to 2.2 to 1 at May 31, 2004 from 2.1 to 1 at August 31, 2003.
Our results for the third quarter continue to reflect the successful integration
of the assets and businesses we acquired in 2003 and the ongoing growth of our
base business. Our expanded portfolio of brands, as well as our new distribution
and manufacturing operations, all contributed to the dramatic increase in the
size and profitability of CoolBrands during the quarter.
On July 28, 2004, the Company announced that, as a result of the inability of
Weight Watchers International and CoolBrands to conclude an extension of their
existing license agreement on mutually agreeable terms, the license agreement
will end on September 28, 2004. CoolBrands has the right to continue to market
Smart Ones frozen desserts using the Weight Watchers name on its packaging for
approximately the next one year and two months until September 28, 2005.
Thereafter, the Company intends to continue marketing its line of low fat and
fat free "better for you" frozen desserts under an alternative brand licensing
arrangement currently under discussion.
The Company's Weight Watchers Smart Ones business is expected to contribute
approximately 16% of its revenues and 32% of its net earnings in fiscal 2004.
Weight Watchers Smart Ones is the Company's strongest single product line.
CoolBrands had expected these percentages to moderate in 2005, due to the fact
that this business line is mature and should be expected to grow in
mid-single-digit rates, while significant new revenue sources such as Yoplait
Breakfast Novelties and Dogsters should be expected to contribute to higher
levels of overall revenue growth for the Company. For fiscal 2005, prior to the
impact of the license termination, CoolBrands estimated
Weight Watchers Smart Ones Revenues would form 14% of revenues and 28% of net
earnings.
CoolBrands will continue to sell its current line during the remainder of fiscal
2004 and all of fiscal 2005, and is not likely to face significant risk of
competition from the new competing Weight Watchers line until the next reset
season during the third quarter of fiscal 2005. CoolBrands does not expect that
a material impact will be felt on revenues or earnings before the time when the
Company implements the new branding solution in fiscal 2006 for its "better for
you" frozen desserts. At that point, assuming conservatively that the Company
will lose 35% of this business, the impact of that loss would translate to a 4%
decline in the Company's revenues and a 10% decline in earnings.
CoolBrands International is a leader in the consumer products and franchising
segments of the frozen dessert industry, marketing a diverse range of frozen
dessert products under nationally and internationally recognized brand names.
CoolBrands is the pre-eminent company in the fast-growing "better-for-you" ice
cream category with offerings such as fat free, non-dairy Whole Fruit 'TM'
Sorbet, Weight Watchers'r' Smart Ones'r' low-fat and fat-free frozen desserts
and new Atkins'r' Endulge'TM' controlled carbohydrate super premium ice cream.
CoolBrands also competes in the super premium ice cream category with the
Dreamery'r' Ice Cream and Godiva'r' Ice Cream brands. In addition, CoolBrands
markets a wide variety of "all family" premium ice creams, frozen novelties and
frozen desserts under the Eskimo Pie'r', Chipwich'r', Tropicana'r', Welch's'r',
Yoplait'r', Betty Crocker'r' and Trix'r' brand names.
CoolBrands' subsidiary, Eskimo Pie Frozen Distribution, operates the second
largest "direct store delivery" (DSD) ice cream distribution system in the U.S.,
serving these CoolBrands products and a growing family of Partner Brands to
supermarkets, convenience stores and other retail customers.
CoolBrands' subsidiary, Americana Foods, is a leading U.S. manufacturer and
supplier of soft serve mixes, packaged ice cream, frozen yogurt and sorbet
products and frozen novelties to well known national retailers, food companies
and restaurant chains. Americana Foods also manufactures and sells products for
the foodservice channel, which are extensively used to standardize quality and
reduce labor costs in on-site food preparation.
Coolbrands' Foodservice Division manufactures and sells premium soft serve ice
cream and frozen yogurt to the foodservice industry. CoolBrands also
manufactures and sells a full line of quality flavours, chocolate coatings,
fudge sauces, powders for chocolate milk, egg nog bases and other ingredients
and flexible packaging products for use in private label dairy products in
addition to the Company's brands.
CoolBrands also franchises and licenses frozen dessert outlets operated under a
Family of Brands including Tropicana'r' Smoothies, Juices & More, Swensen's'r'
Ice Cream, I Can't Believe It's Yogurt'r', Yogen Fruz'r', Bresler's'r' Premium
Ice Cream, Golden Swirl'r' and Ice Cream Churn'r', with company-owned,
franchised and non-traditional partnership locations around the world.
Again, we thank all of our employees and franchisees for their hard work and
commitment, and all of our shareholders for their continued faith in the
Company.
On Behalf of the Board of Directors,
"David Stein"
David J. Stein
President, Co-CEO and Director
CoolBrands International Inc.
CoolBrands International Inc.
Consolidated Balance Sheets
as at May 31, 2004 and August 31, 2003
- ----------------------------------------------------------------------------------------
(in thousands of dollars)
May 31, August 31,
2004 2003
(Unaudited)
$ $
- ----------------------------------------------------------------------------------------
Assets
- ------
Current assets:
Cash and short term investments 97,486 30,140
Receivables 88,401 60,807
Receivables - affiliates 4,768 3,185
Inventories 74,584 55,604
Prepaid expenses 8,393 9,722
Future income taxes 3,056 1,930
-------------------------------------
Total current assets 276,688 161,388
Future income taxes 4,462 2,977
Property, plant and equipment 34,017 28,349
License agreements 11,771 12,357
Intangible and other assets 8,931 9,084
Goodwill 98,656 99,695
-------------------------------------
434,525 313,850
=====================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable 67,842 27,339
Payables - affiliates 1,057 754
Accrued liabilities 32,425 33,530
Income taxes payable 7,248 5,204
Future income taxes 2,273 3,144
Revolving loan - secured 10,544
Current maturities of long-term debt 5,464 5,683
-------------------------------------
Total current liabilities 126,853 75,654
Long-term debt 27,335 38,671
Other liabilities 3,769 3,984
Future income taxes 4,936 4,722
-------------------------------------
Total liabilities 162,893 123,031
-------------------------------------
Minority interest 13,121 2,968
-------------------------------------
Shareholders' Equity:
Capital stock 138,883 122,406
Contributed surplus 15,720
Cumulative translation adjustment (9,929) (8,904)
Retained earnings 113,837 74,349
-------------------------------------
Total shareholders' equity 258,511 187,851
-------------------------------------
434,525 313,850
=====================================
CoolBrands International Inc.
Consolidated Statements of Earnings
- --------------------------------------------------------------------------------------------------------------
(Unaudited)
(in thousands of dollars, except share data)
For the nine months ended For the three months ended
May 31, May 31, May 31, May 31,
2004 2003 2004 2003
$ $ $ $
- --------------------------------------------------------------------------------------------------------------
Revenues:
Sales 420,354 197,356 173,247 78,978
Franchising and licensing revenues:
Royalty income 1,916 2,034 716 721
Franchise and license fees 807 1,446 236 352
Consumer products license fee 350 436 117 241
Drayage and other income 40,700 1,987 12,854 1,616
---------------------------------------------------------
Total revenues 464,127 203,259 187,170 81,908
---------------------------------------------------------
Operating expenses:
Cost of goods sold 313,792 117,016 129,043 45,114
Selling, general and administrative expenses 82,296 57,843 25,194 22,163
Interest expense 1,638 1,451 540 373
---------------------------------------------------------
Total operating expenses 397,726 176,310 154,777 67,650
---------------------------------------------------------
Minority interest 765 577
---------------------------------------------------------
Earnings before income taxes 65,636 26,949 31,816 14,258
Provision for income taxes 26,148 10,081 12,690 5,301
---------------------------------------------------------
Net earnings 39,488 16,868 19,126 8,957
=========================================================
Earnings per share:
Basic 0.71 0.33 0.34 0.17
=========================================================
Diluted 0.70 0.32 0.34 0.17
=========================================================
Weighted average shares outstanding:
Shares used in per share calculation - basic 55,291 51,740 55,777 51,757
Shares used in per share calculation - diluted 56,337 53,492 56,880 53,946
CoolBrands International Inc.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------------------------------------
(Unaudited)
(in thousands of dollars)
For the nine months ended For the three months ended
May 31, May 31, May 31, May 31,
2004 2003 2004 2003
$ $ $ $
- --------------------------------------------------------------------------------------------------------------
Cash and short term investments
provided by (used in):
Operating activities:
Net earnings 39,488 16,868 19,126 8,957
Items not affecting cash:
Depreciation and amortization 4,392 3,726 1,461 1,196
Future income taxes (1,673) 1,342 627 675
Loss of asset held for sale 403 403
Minority interest 765 577
Contributed surplus 15,720 4,333
Changes in current assets and liabilities:
Receivables (27,488) 2,554 (21,532) (3,644)
Receivables - affiliates (1,546) (2,155) (1,549) (2,882)
Allowance for doubtful accounts 514 (711) 106 (159)
Inventories (18,539) (9,839) (13,621) (1,730)
Prepaid income taxes 406
Prepaid expenses 1,299 399 (2,216) 1,597
Accounts payable 39,559 3,090 36,859 936
Payables - affiliates 296 1,458 392 1,788
Accrued liabilities (1,080) (3,456) (866) (1,774)
Income taxes payable 2,002 (7,081) 7,026 (300)
Other assets 128 659 (24) 622
Other liabilities (210) (929) (12) (429)
---------------------------------------------------------
Cash provided by operating activities 53,627 6,328 31,093 5,256
---------------------------------------------------------
Investing activities:
Increase in notes receivable (1)
Repayment of notes receivable 30 305 6 60
Purchase of intangible assets (70) (21)
Purchase of license agreements (393) 4
Purchase of leasehold improvements and
equipment (10,946) (3,853) (4,891) (970)
Proceeds from the sale of asset held for sale 3,396 3,396
---------------------------------------------------------
Cash (used in) provided by investing activities (11,379) (153) (4,902) 2,486
---------------------------------------------------------
Financing activities:
Expenses for special warrants (144)
Proceeds from issuance of Class A and B shares 16,477 64 199
Capital contributions from (repayment to)
Partnership's minority partner 8,891 (18)
Change in revolving loan - secured 6,344 2,742 3,006 2,742
Repayment of long-term debt (6,652) (7,543) (1,366) (3,393)
---------------------------------------------------------
Cash provided by (used in) financing activities 25,060 (4,881) 1,821 (651)
---------------------------------------------------------
Increase (decrease) in cash flow due to
changes in foreign exchange rates 38 (10,418) 2,776 (8,054)
---------------------------------------------------------
Increase (decrease) in cash and
short-term investments 67,346 (9,124) 30,788 (963)
Cash and short-term investments -
beginning of period 30,140 47,086 66,698 38,925
---------------------------------------------------------
Cash and short-term investments -
end of period 97,486 37,962 97,486 37,962
=========================================================
CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements
(Unaudited)
May 31, 2004 and 2003
-----------------------------------------------------------------------
(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, 2003. 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. Segment information
Prepackaged Foodservice Dairy Franchising Corporate Consoli-
consumer components and licensing dated
products
$
$ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------
For the nine months ended May 31, 2004
Revenue,
external 411,469 16,989 22,925 12,604 140 464,127
Intersegment
revenue 55,147 620 6,814 149 62,730
Segment earnings
before income taxes 60,933 1,035 3,884 794 (1,010) 65,636
For the nine months ended May 31, 2003
Revenue,
external 140,248 17,676 30,620 14,683 32 203,259
Intersegment
revenue 43 695 2,121 148 3,007
Segment earnings
before income taxes 20,479 1,471 4,462 1,822 (1,285) 26,949
CoolBrands International Inc.
Consolidated Notes to Interim Financial Statements
(Unaudited)
May 31, 2004 and 2003
- --------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars)
3. Segment information (cont'd)
Prepackaged Foodservice Dairy Franchising Corporate Consoli-
consumer components and licensing dated
products
$
$ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------
For the three months ended May 31, 2004
Revenue,
external 165,396 7,274 9,382 5,033 85 187,170
Intersegment
revenue 20,171 248 3,407 53 23,879
Segment earnings
before income taxes 29,665 426 1,711 220 (206) 31,816
For the three months ended May 31, 2003
Revenue,
external 59,470 6,590 10,322 5,515 11 81,908
Intersegment
revenue 4 242 752 51 1,049
Segment earnings
before income taxes 10,260 878 2,279 965 (124) 14,258
4. Contributed surplus
Contributed surplus represents the reduction in income taxes payable
resulting from the exercise of non-qualified stock options by employees
of a U.S. subsidiary.
5. Capital stock
The Company had the following equity securities and stock options
outstanding as of July 09, 2004:
Class A Class B Multiple Stock Options
Subordinate Voting Shares
Voting Shares
------------------ ------------------- -----------------
49,863 6,030 3,786
================== =================== =================
CERTIFICATION OF INTERIM FILINGS DURING TRANSITION PERIOD
I, David J. Stein, President and Co-CEO, certify that:
1. I have reviewed the interim filings (as this term is defined in Multilateral
Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim
Filings of CoolBrands International Inc., (the issuer) for the interim period
ending May 31, 2004;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated or that is necessary to make a statement not misleading in light of the
circumstances under which it was made, with respect to the period covered by the
interim filings; and
3. Based on my knowledge, the interim financial statements together with the
other financial information included in the interim filings fairly present in
all material respects the financial condition, results of operations and cash
flows of the issuer, as of the date and for the periods presented in the interim
filings.
"David J. Stein"
- ----------------
David J. Stein
President and Co-CEO
CERTIFICATION OF INTERIM FILINGS DURING TRANSITION PERIOD
I, Gary Stevens, Chief Financial Officer, certify that:
1. I have reviewed the interim filings (as this term is defined in Multilateral
Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim
Filings of CoolBrands International Inc., (the issuer) for the interim period
ending May 31, 2004;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated or that is necessary to make a statement not misleading in light of the
circumstances under which it was made, with respect to the period covered by the
interim filings; and
3. Based on my knowledge, the interim financial statements together with the
other financial information included in the interim filings fairly present in
all material respects the financial condition, results of operations and cash
flows of the issuer, as of the date and for the periods presented in the interim
filings.
"Gary Stevens"
- --------------
Gary Stevens
Chief Financial Officer
CORPORATE INFORMATION
---------------------
Canadian Head Office:
CoolBrands International Inc.
8300 Woodbine Avenue, 5th Floor
Markham, Ontario, L3R 9Y7 Canada
Telephone: (905) 479-8762
www.yogenfruz.com
yogenfruz@yogenfruz.com
U.S.A. Head Office:
4175 Veterans Highway, 3rd Floor
Ronkonkoma, New York, 11779, U.S.A.
Telephone: (631) 737-9700
www.coolbrandsinc.com
International Head Office:
Kayla Foods Int'l (Barbados) Inc.
27 Pine Road, Belleville,
St. Michael, Barbados, W.I.
Telephone: (246) 228-9505
info@kaylafoodsintl.com
Toronto Stock Exchange (Trading Symbol: COB.A)