NEWS FROM:
COOLBRANDS INTERNATIONAL, INC.
8300 Woodbine Avenue, 5th Floor Contact: Michael Serruya
Markham, Ontario, Canada, L3R 9Y7 Telephone: (905) 479-8762
FOR IMMEDIATE RELEASE: April 14, 2005
COOLBRANDS REPORTS OPERATING RESULTS FOR
SECOND QUARTER OF FISCAL 2005
CoolBrands International Inc. (TSX: COB.SV.A) today announced its operating
results in U.S. dollars for the second quarter of fiscal 2005, ending February
28, 2005. Revenues in the quarter were $87,549,000, a decline of 17.0% from the
prior year's quarter. Net loss for the quarter was ($3,973,000), equivalent to
($0.07) per basic and diluted share, compared with net earnings of $9,475,000 or
$0.17 per basic and diluted share for the same quarter last year.
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 since the majority of its business
is conducted in the United States, which will make 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.
David J. Stein, co-chairman and chief executive officer, said, "Our results
this quarter reflect the ongoing transition in our business to a more
diversified product base with great potential. Revenue decline during the
quarter resulted primarily from a more rapid-than expected drop-off in sales of
our discontinued Weight Watchers Smart Ones brand, as well as sales declines of
our Atkins brand, which continued to be affected by adverse "low carb" segment
trends, and our super premium pint brands, which faced increased competition
from new and existing super premium brands. At the same time, our net income was
impacted by approximately $6.2 million in write-downs, the majority of which
were related to the discontinued Weight Watchers Smart Ones business. Excluding
these write-offs, for the quarter and the six months ended February 28, 2005,
CoolBrands would have earned $0.00 and $0.04, per basic and diluted share,
respectively.
"We continue to make progress in our efforts to introduce new brands and
products in a growing number of categories. As we look forward, we are confident
that we are getting our business back on track. During the quarter, we began to
see encouraging sales of our new No Pudge! products and continued to secure
shelf authorizations for our other new products under the Crayola, Snapple, Care
Bears, Justice League and Dogsters brands. In addition, we believe there will be
further growth opportunities as we continue to develop and expand our newly
acquired Breyer's yogurt business. With good customer and consumer response for
our products, we expect to continue gaining traction for our strategy resulting
in profitable growth over time."
As a result of a previously announced change in the business arrangement
with Dreyer's Grand Ice Cream Inc. ("Dreyer's") effective September 1, 2004,
CoolBrands began accounting for 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 are still 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, except for
Dreyer's scanned based trading customers which are still delivered on a drayage
basis. 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. Drayage and other
income declined by $3,706,000 to $5,803,000 in the second quarter of fiscal 2005
as compared with $9,509,000 recognized in the second quarter of fiscal 2004 due
to the change in the business arrangement with Dreyer's. Drayage income in 2005
represents the fees paid to CoolBrands by Dreyer's for the delivery of products
invoiced by Dreyer's to its scanned based trading customers.
Gross profit declined to $4,501,000 for the quarter, compared with
$24,342,000 for the same quarter last year. Gross profit percentage for second
quarter of fiscal 2005 declined to 5.6% as compared to 25.6% for the second
quarter of fiscal 2004. This decline was due to the impact of lower margins
generated and
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by Americana Foods' manufacturing operations and Eskimo Pie Frozen
Distribution's distribution operations. In addition, the Company recorded a
write down of $3,835,000 in connection with packaging, ingredients and finished
goods inventories that will not be used or sold as a result of 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 Smart Ones
products on May 1, 2005. Due to the decline in revenues, selling, general and
administrative expenses (SG&A) for the quarter increased as a percentage of
revenues to 21.1%, compared with 17.1% for second quarter of fiscal 2004. SG&A
for the quarter were adversely impacted by approximately $2,358,000, including
the write off of deferred package design costs, primarily related to Weight
Watchers Smart Ones, and a $1,401,000 write off of certain license agreements
with General Mills.
Cash and short term investments increased to $66,024,000 at February 28,
2005 from $64,327,000 at August 31, 2004. Working capital declined to
$108,448,000 at February 28, 2005 from $121,026,000 at August 31, 2004.
CoolBrands' current ratio declined to 2.5 to 1 at February 28, 2005 from 2.6 to
1 at August 31, 2004. The declines in working capital and the current ratio were
due to the net reduction in accounts receivable and accounts payable and the
classification of certain bank debt which is due November 1, 2005 as a current
liability at February 28, 2005 as compared with the classification as a
long-term liability at August 31, 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 reduced
retained earnings at September 1, 2004 by $15,436,000 with a corresponding
increase to reported contributed surplus.
Webcast
A webcast with CoolBrands management to review the results is scheduled for
11:00 AM on Thursday, April 14, 2005. To join us for the live webcast please
visit the following website: http://www.viavid.net/detailpage.aspx?sid=00002494
The webcast will be archived at: www.coolbrandsinc.com
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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
===================================================
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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
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Total revenues 188,033 209,419 87,549 105,517
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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
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Total operating expenses 191,747 185,197 94,954 89,726
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Minority interest 1,457 (140) 815 76
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(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
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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
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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 1,697 (4,779)
short-term investments 28,011 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
============================================================================
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CoolBrands International Inc.
Summary Financial Data
- --------------------------------------------------------------------------------
(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 188,033 209,419 87,549 105,517
(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
============================================================================
Basic and diluted (loss) earnings per share: (0.02) 0.26 (0.07) 0.17
============================================================================
Weighted average number of 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
About CoolBrands International:
CoolBrands International competes 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 competes in the fast-growing "Better-for-You" ice cream category with
offerings such as fat free, non-dairy Whole Fruit Sorbet and Atkins Endulge
controlled carbohydrate super premium ice cream. New "Better-for-You" offerings
by CoolBrands include No Pudge! Branded frozen snacks and a line of
"Better-for-Kids" frozen snacks sold under the Crayola, Justice League, Snapple,
Care Bears and Trix Pops brands. CoolBrands also competes in the super premium
ice cream category with the Dreamery Ice Cream and Godiva Ice Cream brands. In
addition, CoolBrands markets a wide variety of "all family" premium ice creams
and frozen snacks under brand names including Eskimo Pie, Chipwich, Tropicana,
Welch's, Yoplait and Welch's.
CoolBrands' subsidiary, Eskimo Pie Frozen Distribution, operates a "direct store
door" (DSD) ice cream distribution system in selected markets 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, frozen snacks and other food products to well known national
retailers, food companies and restaurant chains.
CoolBrands' Foodservice Division manufactures and sells premium soft serve ice
cream and frozen yogurt to the foodservice industry. CoolBrands' Dairy
Components Division 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' Franchising Division franchises and licenses frozen dessert outlets
operated under a Family of Brands including Tropicana Smoothies, Juices & More,
Swensen's Ice Cream, I Can't Believe It's Yogurt, Yogen Fruz, Bresler's Premium
Ice Cream, Golden Swirl and Ice Cream Churn, with company owned, franchised and
non-traditional partnership locations around the world.
For more information about CoolBrands, visit www.coolbrandsinc.com.
This press release 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.