EXHIBIT 99.1
NEWS FROM:
COOLBRANDS INTERNATIONAL INC.
8300 Woodbine Avenue, 5th Floor Contact: David J. Stein
Markham, Ontario, Canada, L3R 9Y7 Telephone: (631) 737 -9700 (x216)
FOR IMMEDIATE RELEASE: July 14, 2005
COOLBRANDS REPORTS OPERATING RESULTS FOR
THIRD QUARTER OF FISCAL 2005
CoolBrands International Inc. (TSX: COB.SV.A) today announced its operating
results in U.S. dollars for the third quarter of fiscal 2005, ending May 31,
2005.
Operating Results
Revenues in the quarter were $119,685,000, a decline of 14% from the prior
year's quarter. Net loss for the quarter was ($6,889,000), equivalent to ($0.12)
per basic and diluted share, compared with net earnings of $11,158,000 or $0.20
per basic and diluted share for the same quarter last year.
David J. Stein, co-chairman and chief executive officer, said, "Our
financial results for the third quarter continue to reflect the evolving
foundation of our business. The investments we are making in new brands - while
adversely affecting our current results - are necessary in order to establish
brands that can provide a strong base of recurring revenue, and generate future
returns over the long-term. Although it is early and success cannot be assured,
we are already starting to see positive results from this strategy with No
Pudge!, which became our best selling brand during the third quarter and is
currently performing well in most accounts where we have distribution."
The declines in revenues and earnings during the third quarter were due
primarily to the non-renewal of the Company's license for Weight Watchers Smart
Ones frozen snacks, which was announced on July 28, 2004, as well as declining
sales of Atkins Endulge frozen snacks due to the generally reduced popularity of
"low carb" products. These two brands were CoolBrands' most profitable product
lines a year ago and accounted for 53.3% of total branded frozen dessert sales
during last year's third quarter as compared with 19.5% during the quarter just
ended. Consistent with its strategy for growth, CoolBrands announced during last
year's fourth quarter that it would implement an aggressive new products
introduction program in the frozen snacks segment centered on a new brand
license for No Pudge! frozen snacks, as well as licenses for other brands,
including Snapple, Crayola, Care Bears and Justice League.
The costs incurred to introduce and support these new brands during the
introduction phase contributed meaningfully and materially to the loss for the
quarter. In addition, an exceptionally difficult competitive environment in the
U.S. ice cream category adversely affected volume and profit margins on all of
the Company's products, as every economic measure of the ice cream category
showed negative trends for sales volume, margins and retail pricing, with total
dollar sales down 4%, unit sales down 2.9%, percentage of volume sold on
promotion up 2.7% and average promoted price per unit lower by 1.0%, as
manufacturer's launched the largest number of new products in the category's
history and competed aggressively for market share during a period of heightened
price sensitivity on the part of consumers. (Source: IRI - Total U.S. - Food
for March, April, May 2005)
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 third quarter decreased to $115,610,000 as
compared with $128,811,000 for the third quarter of 2004, a 10.3% decline.
Drayage and other income declined by $6,956,000 to $2,569,000 in the third
quarter of fiscal 2005 as compared with $9,525,000 recognized in the third
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 $22,009,000 for the quarter, compared with
$32,862,000 for the same quarter last year. Gross profit percentage for third
quarter of fiscal 2005 declined to 19% as compared to 25.5% for the third
quarter of fiscal 2004. This decline was primarily the result of the impact of
lower margins generated by Americana Foods' manufacturing operations and Eskimo
Pie Frozen Distribution's distribution operations, respectively, and the impact
of lower margins generated by CoolBrands Dairy's yogurt operations acquired in
March 2005 as compared with margins generated by the Company's historical
business. Due to the decline in revenues and the increases in promotion and
advertising expenses in our prepackaged consumer products segment, selling,
general and administrative expenses (SG&A) for the quarter increased as a
percentage of revenues to 31.3%, compared with 13.4% for third quarter of fiscal
2004.
Balance Sheet
CoolBrands' balance sheet changed significantly at the end of the third
quarter as compared with the end of the last fiscal year end, primarily as the
result of the acquisition of the Breyer's Yogurt business from Kraft in March
2005 for which the Company paid $57,500,000, utilizing $17,500,000 of cash and
$40,000,000 of debt, and by its significant expenditures for new product
introductions. Cash and short term investments decreased to $37,343,000 at May
31, 2005 from $64,327,000 at August 31, 2004. Working capital declined to
$46,420,000 at May 31, 2005 from $121,026,000 at August 31, 2004. CoolBrands'
current ratio declined to 1.3 to 1 at May 31, 2005 from 2.6 to 1 at August 31,
2004. The declines in working capital and the current ratio were primarily due
to the classification of the $40,000,000 of debt used to acquire Breyer's
Yogurt, and $10,000,000 of debt under the Company's existing credit facility
previously classified as a long-term liability, as current liabilities, all of
which are due November 1, 2005. The Company has commenced discussions with its
existing lenders and various alternative sources with respect to refinancing the
$50,000,000 of bank debt which is due November 1, 2005.
Accounting Changes
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.
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, July 14th, 2005. To join us for the live webcast please
visit the following website: http://viavid.net/detailpage.aspx?sid=000026BE
The webcast will be archived at: www.coolbrandsinc.com
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CoolBrands International Inc.
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
as at May 31, 2005 and August 31, 2004
(in thousands of US dollars)
- -------------------------------------------------------------------------------------------
May 31, 2005 August 31, 2004
(Unaudited)
$ $
Assets
Current assets:
Cash and short term investments ........... 37,343 64,327
Receivables ............................... 63,555 67,152
Receivables - affiliates .................. 3,672 3,883
Inventories ............................... 58,939 49,076
Income taxes recoverable .................. 10,528
Prepaid expenses .......................... 10,890 5,938
Future income taxes ....................... 6,376 4,907
--------------------------
Total current assets ....... 191,303 195,283
--------------------------
Future income taxes ......................... 3,354 3,232
Property, plant and equipment ............... 64,627 28,730
License agreements .......................... 4,037 5,747
Intangible and other assets ................. 6,158 6,433
Goodwill .................................... 99,178 73,336
--------------------------
368,657 312,761
==========================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable ............................ 48,775 37,506
Payables - affiliates ....................... 250 850
Accrued liabilities ......................... 29,702 20,624
Income taxes payable ........................ 4,936
Future income taxes ......................... 8,559 1,849
Current maturities of long-term debt ........ 57,597 8,492
--------------------------
Total current liabilities ................... 144,883 74,257
--------------------------
Long-term debt, less current portion 12,804 19,262
Other liabilities ........................... 2,810 2,758
Future income taxes ......................... 3,896 3,638
--------------------------
Total liabilities ........................... 164,393 99,915
--------------------------
Minority interest ........................... 5,841 8,088
--------------------------
Shareholders' Equity:
Capital stock ........... 97,560 97,485
Contributed surplus ......................... 34,294 18,650
Cumulative translation adjustment ........... 2,311 672
Retained earnings ........................... 64,258 87,951
--------------------------
Total shareholders' equity .... 198,423 204,758
--------------------------
368,657 312,761
==========================
CoolBrands International Inc.
Consolidated Statements of Earnings
for the nine months and three months ended May 31, 2005 and 2004
- --------------------------------------------------------------------------------
(Unaudited)
(in thousands of US dollars, except share data)
For the nine months ended For the three months ended
May 31, 2005 May 31, 2004 May 31, 2005 May 31, 2004
$ $ $ $
Revenues:
Sales ........................................ 292,496 315,675 115,610 128,811
Franchising and licensing revenues:
Royalty income ............................. 1,347 1,439 494 532
Franchise and license fees ................. 602 606 117 174
Consumer products license fees ............. 2,436 263 895 87
Drayage and other income ..................... 10,837 30,565 2,569 9,525
------------------------------------------------------------
Total revenues ........... 307,718 348,548 119,685 139,129
------------------------------------------------------------
Operating expenses:
Cost of goods sold ........................... 245,490 235,650 93,601 95,949
Selling, general and administrative expenses . 76,445 61,801 37,440 18,678
Stock-based compensation expense ............. 243 6,713 82 5,170
Interest expense ............................. 1,467 1,230 775 400
------------------------------------------------------------
Total operating expenses ...... 323,645 305,394 131,898 120,197
------------------------------------------------------------
Minority interest ......... (2,247) 574 (790) 434
------------------------------------------------------------
(Loss) earnings before income taxes (13,680) 42,580 (11,423) 18,498
(Benefit from) provision for income taxes (5,423) 16,942 (4,534) 7,340
------------------------------------------------------------
Net (loss) earnings ........ (8,257) 25,638 (6,889) 11,158
============================================================
(Loss) earnings per share:
Basic and diluted ........................... (0.15) 0.46 (0.12) 0.20
============================================================
Weighted average shares outstanding:
Shares used in per share calculation - basic . 55,916 55,291 55,935 55,777
Shares used in per share calculation - diluted 55,916 56,337 55,935 56,880
CoolBrands International Inc.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(Unaudited)
(in thousands of US dollars)
For the nine months ended For the three months ended
May 31, 2005 May 31, 2004 May 31, 2005 May 31, 2004
$ $ $ $
Cash and short term investments
provided by (used in):
Operating activities:
Net (loss) earnings ................................. (8,257) 25,638 (6,889) 11,158
Items not affecting cash:
Depreciation and amortization ................... 4,115 3,299 1,741 1,054
Stock-based compensation expense ........ 243 6,713 82 5,170
License agreements written off ......... 1,401
Future income taxes .............. 5,405 (3,951) 5,786 (1,624)
Minority interest ............... (2,247) 574 (790) 434
Allowance for doubtful accounts ........ 469 432 346 27
Changes in current assets and liabilities:
Receivables ..................................... 4,123 (21,383) (13,716) (15,317)
Receivables - affiliates ............ 211 (1,197) (618) (1,122)
Inventories .................. (4,554) (14,560) (5,775) (9,494)
Prepaid expenses ................ (4,952) 863 (2,220) (1,558)
Income taxes recoverable ............ (10,528) (10,528) 307
Other assets .................. 156 (127) 219 53
Accounts payable ................ 11,269 30,022 23,295 27,318
Payables - affiliates ............. (600) 231 60 285
Accrued liabilities .............. 8,427 (424) 2,212 (1,074)
Income taxes payable .............. (4,937) 10,394 (1) 5,980
Other liabilities ............... 53 (112) (6) (60)
----------------------------------------------------
Cash provided by (used in) operating activities ..... (203) 36,412 (6,802) 21,537
----------------------------------------------------
Investing activities:
Acquisition, net of cash acquired ................... (57,500) (57,500)
Purchase of leasehold improvements and equipment .... (9,005) (8,417) (5,818) (3,838)
Purchase of license agreements and other intangibles (26) (354) (9) (17)
Change in notes receivable .......................... (4) 22 (9) 4
----------------------------------------------------
Cash used in investing activities ................... (66,535) (8,749) (63,336) (3,851)
----------------------------------------------------
Financing activities:
Proceeds from issuance of Class A and B shares ...... 57 12,687 27 147
Proceeds from bank loan ............................. 44,553 44,553
Capital contributions from partnership's minority
partner ......................................... 8,907
Return of capital contributions to partnership's
minority partner ................................ (2,000)
Change in revolving line of credit, secured ......... 1,223 4,765 1,623 2,241
Repayment of long-term debt ......................... (3,130) (4,997) (1,119) (1,000)
----------------------------------------------------
Cash provided by financing activities ............... 42,703 19,362 45,084 1,388
----------------------------------------------------
(Decrease) increase in cash flow due to changes in
foreign exchange rates .............. (2,949) 2,717 (3,627) 2,657
----------------------------------------------------
(Decrease) increase in cash and
short-term investments .............. (26,984) 49,742 (28,681) 21,731
Cash and short-term investments - beginning of period
64,327 21,760 66,024 49,771
----------------------------------------------------
Cash and short-term investments -
end of period ...................................... 37,343 71,502 37,343 71,502
=====================================================
CoolBrands International Inc.
Summary Financial Data
- --------------------------------------------------------------------------------
(in thousands of US dollars, except share data):
For the nine months ended For the three months ended
May 31 May 31
2005 2004 2005 2004
$ $ $ $
Revenues 307,718 348,548 119,685 139,129
(Loss) earnings before income taxes (13,680) 42,580 (11,423) 18,498
(Benefit from) provision for income taxes (5,423) 16,942 (4,534) 7,340
-----------------------------------------------
Net (loss) earnings (8,257) 25,638 (6,889) 11,158
===============================================
Basic and diluted (loss) earnings per share: (0.15) 0.46 (0.12) 0.20
===============================================
Weighted average number of shares outstanding:
Shares used in per share calculation - basic 55,916 55,291 55,935 55,777
Shares used in per share calculation - diluted 55,916 56,337 55,935 56,880
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,
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' subsidiary, CoolBrands Dairy Inc. manufactures, markets and sells
fresh yogurt products, including Breyer's Fruit on the Bottom, Light and Creme
Savers cup yogurt varieties and Creme Savers Smoothie drinkable yogurts.
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.