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: December 13, 2005
COOLBRANDS INTERNATIONAL INC. REPORTS
FINANCIAL RESULTS FOR THE YEAR AND FOURTH QUARTER OF FISCAL 2005
Company Announces Corporate Governance Enhancements,
Including Timetable to End Dual Class Voting Structure
CoolBrands International Inc. (TSX: COB.SV.A) today announced its operating
results for fiscal 2005 and fourth quarter ended August 31, 2005, and provided
details on enhancements to its corporate governance practices.
In 2005, the Company adopted generally accepted accounting principles in
the United States ("U.S. GAAP") and changed its reporting currency from Canadian
dollars to U.S. dollars. For comparative purposes, historical financial
statements and amounts disclosed in this press release have been restated to
reflect these changes.
Operating results
For fiscal 2005, net revenues declined to $385,070,000 as compared with
$449,938,000 for fiscal 2004, a 14.4% decrease. The net loss for fiscal 2005 was
$74,070,000 ($1.32 basic and diluted loss per share) as compared with net
earnings of $23,512,000 ($0.42 basic and diluted earnings per share) for fiscal
2004.
Net revenues for the fourth quarter of fiscal 2005 decreased to
$124,055,000 from $129,052,000 for the same quarter last year, a 3.9% decrease.
Net loss for the fourth quarter was $64,093,000 ($1.15 basic and diluted loss
per share) as compared with net earnings of $12,484,000 ($0.22 basic and diluted
earnings per share) for the same quarter last year.
The 2005 results for the fiscal year and fourth quarter were adversely
affected by the non-cash pre-tax asset impairment charge of $55,525,000 (Nil in
2004), which resulted from the impairment of goodwill and intangible assets
related to the Company's frozen dessert and franchising segments.
"Our financial performance for the quarter and full year 2005 reflected the loss
of two significant brands, as well as unfavorable industry dynamics throughout
the year," said David J. Stein, President, CEO and Co-Chairman of CoolBrands
International Inc. "Our strategy is to aggressively rebuild and refocus our
brand portfolio, including through further development of Breyers Yogurt, in
which we acquired both an established brand in a high growth category, and a
platform for further refrigerated products brand introductions."
"Our strategy is being implemented in 2006 in the refrigerated category with an
all natural reformulation of Breyers Yogurt, and in the frozen category through
the introduction of a broad range of new Godiva Ice Cream offerings, a national
rollout of Yoplait Frozen Yogurt and Cereal Bars and the launch of an exciting
new line of "better for you" frozen snacks for kids featuring popular Disney
characters under license from Disney Consumer Products, our newest licensing
partner," Mr. Stein added. "The Disney products will be in innovative forms
featuring vitamin fortification and will be introduced in early 2006 at retail
outlets nationwide in the U.S."
"As part of these rebuilding efforts," Mr. Stein further added, "CoolBrands is
evaluating the potential disposition of various non-core business assets,
including its franchising business. While the Corporation is currently in
late-stage discussions on certain such transactions, there can be no assurance
that any particular transaction will be effected."
"I am also pleased that our Company is continuing to act on the governance
recommendations of our Board of Directors. The Board's commitment to adoption of
better governance practices will help make Coolbrands better able to deliver the
best possible results for our shareholders," Mr. Stein concluded.
The decrease in net revenues for fiscal 2005 reflects the decrease in net
sales and the decreases in drayage income. Net sales for fiscal 2005 declined by
10.3% to $364,686,000 in 2005 as compared with $406,470,000 for 2004. This
decrease reflects a reduction in sales volume, as well as an increase in trade
promotion payments to customers for
promotions with consumers. The decline in net sales came principally from the
discontinuation of sales of Weight Watchers Smart Ones brand products and the
decline in sales of Atkins brand products, but declines also came from our other
frozen dessert brands. These sales declines were partially offset by sales from
newly introduced frozen dessert products, the acquisition of the Breyers Yogurt
business on March 27, 2005 and the increase in sales as a result of the change
in the business arrangement with Dreyer's Grand Ice Cream Holding, Inc.
("Dreyer's"). Effective September 1, 2004, CoolBrands began purchasing products
from Dreyer's and selling those products to customers at wholesale, instead of
delivering products to customers on a drayage basis, except for Dreyer's scanned
based trading customers which continue to be delivered on a drayage basis.
During the forth quarter, all of the foregoing factors were present, however,
net sales increased by 0.4% due to sales of $26,397 from the acquired Breyers
Yogurt business, which more than offset other declines.
Gross profit percentage for fiscal 2005 declined to 0.8% as compared to 19%
for fiscal 2004, primarily due to (1) the increase in trade promotion payments
to customers, (2) write downs for obsolete and slow moving inventories, (3) the
impact of fixed overhead costs in our manufacturing and distribution operations
resulting from the decrease in sales, and (4) product mix changes. Selling,
general and administrative expenses for fiscal 2005 increased as a percentage of
revenues to 13.6% as compared to 11.5% for fiscal 2004 primarily due to the
decline in revenues and certain write offs related to inactive or expired
license agreements. In accordance with U.S. GAAP, the Company recognized
$1,918,000 and $30,983,000 in stock-based compensation expense representing the
estimated fair value of stock options earned during 2005 and 2004, respectively.
Cash and working capital
Cash, investments and restricted cash decreased to $41,562 at August 31,
2005 from $64,327 at August 31, 2004. Working capital declined to $28,469 at
August 31, 2005 from $118,138. CoolBrands' current ratio declined to 1.2 to 1 at
August 31, 2005 from 2.6 to 1 at August 31, 2004. These changes in current
assets and current liabilities are attributable to the use of cash and short
term debt to finance the Company's acquisitions and fixed asset purchases.
CoolBrands is currently negotiating with lenders to refinance its short term
borrowings, including $40,000 due January 3, 2006 and $7,145 due January 10,
2006.
Comparability of results
The Company's 2005 financial statements reflect the March 27, 2005
acquisition of the Breyers Yogurt business. This acquisition was accounted for
under the purchase method of accounting and the 2005 Consolidated Statement of
Operations includes the results of this acquisition from the date of
acquisition. In fiscal 2005, the revenues and operating results from the Breyers
Yogurt business represent five months of activity as compared with no activity
in fiscal 2004. The third quarter of fiscal 2006, ending May 31, 2006, will be
the first quarter following this acquisition in which the Consolidated Statement
of Operations for the quarter can be directly compared with the prior-year
period.
Corporate Governance Changes
As previously announced, following the election of additional independent
directors at the last annual and special shareholders' meeting, the board of
directors of CoolBrands formed a Corporate Governance Committee consisting of
three independent directors to review CoolBrands' corporate governance practices
and to recommend changes with respect to these practices to the board of
directors.
Based on the recommendations of the Corporate Governance Committee, CoolBrands
is instituting the following changes and initiatives:
o Collapse of Dual Class Structure - CoolBrands will propose a special
resolution to its holders of multiple voting shares and holders of
subordinate voting shares at the upcoming annual and special meeting
scheduled for February 27, 2006. If passed, the special resolution will
result in the change of each multiple voting share and each subordinate
voting share into one common share on May 31, 2007, unless the independent
directors of CoolBrands unanimously determine to effect the change earlier.
Aaron Serruya, Michael Serruya, David Smith and David Stein, and entities
affiliated with them (collectively, the "Management MVS Holders"), have
each entered into a voting agreement with the Corporation pursuant to which
they each agreed to vote all of the shares that they beneficially own or
control in favour of the special resolution. The Management MVS Holders
beneficially control, in the aggregate, 5,986,043 multiple voting shares
(representing approximately 99% of the issued and outstanding multiple
voting shares) and 120,449 subordinate voting shares (representing less
than 1% of the issued and outstanding subordinate voting shares).
Currently, each multiple voting share carries 10 votes, and each
subordinate voting share carries one vote. Following the change to the
Corporation's dual class structure becoming effective, each common share
will carry one vote. The change will not result in any conversion premium
being paid to the holders of the multiple voting shares.
o Board Representation Agreement and Trust Agreement - upon the change to the
Corporation's dual class structure becoming effective, these agreements
will terminate. In the meantime, the parties have agreed that all
nominations
for membership on the board of directors of the Corporation made by the
Corporation will be made by the Corporate Governance Committee. Copies of
the Board Representation Agreement and the Trust Agreement are available on
the Internet at www.sedar.com.
o Continuance under the Canada Business Corporations Act - at its upcoming
annual and special meeting, CoolBrands will propose a special resolution to
its holders of multiple voting shares and holders of subordinate voting
shares to continue the Corporation under the Canada Business Corporations
Act. If passed, this will allow the Corporation to be governed by a more
modern corporate statute than the Nova Scotia Companies Act, under which
the Corporation is currently organized.
o Lead director - as previously announced, the Corporation has appointed
Robert E. Baker as lead director of the board of directors of CoolBrands.
The board of directors has also adopted written terms of reference for the
position of lead director and for the Co-Chairmen of the Corporation.
o Committee Charters - the board of directors has adopted written charters
for each of the Audit Committee, Compensation Committee and Corporate
Governance Committee.
o Code of Conduct - the board of directors has adopted a corporate Code of
Conduct which applies to all employees, officers and directors of the
Corporation.
As part of the Corporate Governance Committee's ongoing mandate, it will
continue to monitor the Corporation's corporate governance practices and those
of "best practices" with a view to making further recommendations from time to
time as it determines appropriate. Copies of the voting agreement entered into
by the Corporation and the Management MVS Holders, the terms of reference of the
Lead Director and the Co-Chairmen, the committee charters and CoolBrands' Code
of Conduct are all available at www.coolbrandsinc.com.
Michael Serruya, Co-Chairman of CoolBrands and a holder of a significant number
of the multiple voting shares of CoolBrands commented: "These best practice
corporate governance changes, and in particular the elimination of the dual
class share structure, are further steps in management's and the board of
directors' commitment to the partnership we are building with all our
shareholders."
Robert E. Baker, Lead Director of CoolBrands stated: "We have been listening to
our shareholders and have concluded a timetable for the ending of the dual class
structure that we believe is in the best interests of the Company and our
shareholders. Although we considered an immediate collapse of the structure, the
board of directors and management, after careful consideration over several
months, determined that an immediate action could jeopardize the Company's
ability to stabilize the business and maximize value for our shareholders, given
the several extraordinary events of the past year, including the loss of the
Weight Watchers product line, the untimely death of our former Co-Chairman
Richard Smith, and the need to refocus and reinvigorate our business plan and
strategy."
Filing Default Correction
Further to the Corporation's press release dated November 23, 2005 in which
CoolBrands stated that it would not meet the statutory filing deadline for its
audited annual financial statements, related management's discussion and
analysis and annual information form for its financial year ended August 31,
2005, the Company announces that it has today filed these items with the
applicable Canadian securities regulators and CoolBrands therefore expects that
the management cease trade order related to CoolBrands' securities and imposed
against all of the directors and certain officers CoolBrands will be lifted in
due course.
Conference Call and Webcast
The Company will hold a conference call to discuss its fourth quarter results on
December 19, 2005 at 8:30 AM Eastern time. Persons wishing to participate in the
call should telephone 1-866-862-3928 in North America; International
participants should call (416) 641-6142. The call will also be webcast live on
the following Internet site at: http://events.startcast.com/events/188/B0001 and
subsequently archived at: www.coolbrandsinc.com and
http://events.startcast.com/events/188/B001
CoolBrands International Inc.
Consolidated Balance Sheets
as at August 31, 2005 and August 31, 2004
- --------------------------------------------------------------------------------
(in thousands of dollars)
2005 2004
-------- --------
Assets
Current Assets:
Cash $ 24,062 $ 36,277
Investments 7,500 28,050
Restricted cash 10,000
Receivables, net 54,526 67,152
Receivables - affiliates 1,840 3,883
Inventories 49,955 49,076
Income taxes recoverable 9,767
Prepaid expenses 2,413 1,203
Deferred income taxes 5,148 4,907
-------- --------
Total current assets 165,211 190,548
Deferred income taxes, net of valuation allowance 14,799 13,711
Property, plant and equipment 47,639 28,730
Intangible and other assets 22,369 12,180
Goodwill 47,827 72,088
-------- --------
$297,845 $317,257
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 53,300 $ 37,506
Payables - affiliates 620 850
Accrued liabilities 30,015 20,624
Income taxes payable 4,938
Deferred income taxes 93
Short term borrowings 34,553
Current maturities of long-term debt 18,161 8,492
-------- --------
Total current liabilities 136,742 72,410
Long-term debt 8,248 19,262
Other liabilities 2,881 2,758
Deferred income taxes 6,180 3,638
-------- --------
Total liabilities 154,051 98,068
-------- --------
Minority interest 5,388 8,088
-------- --------
Commitments and contingencies
Shareholders' Equity
Capital stock 97,578 97,485
Additional paid-in capital 46,376 44,494
Accumulated other comprehensive earnings (1,696) (1,096)
Retained earnings (3,852) 70,218
-------- --------
Total shareholders' equity 138,406 211,101
-------- --------
$297,845 $317,257
======== ========
CoolBrands International Inc.
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
(Unaudited)
(in thousands of dollars, except share data)
For the year ended For the three months ended
----------------------- --------------------------
August 31, August 31, August 31, August 31,
2005 2004 2005 2004
---------- ---------- ----------- ----------
Net revenues:
Net sales $364,686 $406,470 $118,893 $118,457
Royalties, licensing, and consumer products license revenues 6,138 3,595 1,753 1,287
Drayage and other income 14,246 39,873 3,409 9,308
-------- -------- -------- --------
Total net revenues 385,070 449,938 124,055 129,052
-------- -------- -------- --------
Cost of goods sold 361,668 329,346 116,178 93,696
Selling, general and administrative expenses 52,172 51,688 19,688 17,115
Stock-based compensation expense 1,918 30,983 1,675
Interest expense 2,586 1,498 1,119 268
Asset impairment 55,525 54,124
Gain on sale of building (3,634) (3,634)
-------- -------- -------- --------
(Loss) earnings before income taxes and minority interest (85,165) 36,423 (65,095) 17,973
Minority interest (2,700) (958) (453) (1,532)
-------- -------- -------- --------
(Loss) earnings before income taxes (82,465) 37,381 (64,642) 19,505
(Recovery of) provision for income taxes: (8,395) 13,869 (549) 7,021
-------- -------- -------- --------
Net (loss) earnings $(74,070) $ 23,512 $(64,093) $ 12,484
======== ======== ======== ========
Per share data:
Basic (loss) earnings per share:
Basic and diluted $ (1.32) $ .42 $ (1.15) $ .22
======== ======== ======== ========
Weighted average shares outstanding:
Shares used in per share calculation - basic 55,924 55,441 55,947 55,890
Shares used in per share calculation - diluted 55,924 56,329 55,947 56,332
CoolBrands International Inc.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(Unaudited)
(in thousands of dollars)
For the year ended For the three months ended
August 31, August 31,
------------------- --------------------------
2005 2004 2005 2004
-------- -------- ----------- ------------
Cash and short-term investments provided by (used in):
Operating activities:
Net (loss) earnings $(74,070) $ 23,512 $(64,093) $ 12,484
Adjustments to reconcile net (loss) net earnings to net cash
flows from operating activities
Depreciation and amortization 5,042 7,314 927 4,015
Asset impairment 55,525 54,124
Stock-based compensation expense 1,918 30,983 1,675
Deferred income taxes 1,798 (15,314) 5,052 (1,615)
Gain on sale of building (3,634) (3,634)
Minority interest (2,700) (958) (453) (1,532)
Cash effect of changes, net of the effects from businesses acquired
Receivables 13,815 (21,115) 8,553 268
Receivables - affiliates 2,043 (1,464) 1,832 (267)
Allowance for doubtful accounts (56) 126 (525) (306)
Inventories 4,500 (6,845) 8,985 7,715
Prepaid expenses (2,207) 6,252 222 7,203
Income taxes recoverable (9,767) 761
Accounts payable 15,842 16,740 4,484 (13,282)
Payables - affiliates (230) 277 370 46
Accrued liabilities 8,744 (4,843) (3,904) (7,095)
Income taxes payable (4,935) 9,319 (5,584) (728)
Other assets (513) 53 (669) 180
Other liabilities 124 (268) 71 (156)
-------- -------- -------- --------
Cash provided by operating activities 11,239 43,769 8,194 6,930
-------- -------- -------- --------
Investing activities:
Purchase of property, plant and equipment (12,409) (13,363) (3,484) (4,946)
Purchase of intangible assets (76) (76)
Purchase of license agreements (26) (300) 54
Proceeds from sale of building 5,434 5,434
Increase in restricted cash (10,000) (10,000)
Purchase of investments (2,500) (33,050) (20,000)
Redemption of investments 23,050 5,000 5,000 5,000
Acquisitions, net of cash acquired (59,609)
Increase in notes receivable (28)
Collection of notes receivable 65 23 41 1
-------- -------- -------- --------
Cash used in investing activities (56,023) (41,766) (3,009) (19,967)
-------- -------- -------- --------
Financing activities:
Change in revolving line of credit, secured 2,661 1,514 1,438 1,514
Capital contributions from minority interest 8,907
Proceeds from short term borrowings 44,553
Return of capital contribution to minority interest (2,000)
Proceeds from issuance of Class A and B shares 57 12,286 23
Repayment of short term borrowings (10,000) (10,000) (4,765)
Repayment of long-term debt (4,007) (5,781) (877) (784)
-------- -------- -------- --------
Cash provided by financing activities 33,264 14,926 (9,439) (4,012)
-------- -------- -------- --------
Decrease in cash flows due to changes in foreign exchange rates (695) (2,412) 3,473 (5,126)
-------- -------- -------- --------
(Decrease) increase in cash and cash equivalents (12,215) 14,517 (781) (22,175)
Cash and cash equivalents - beginning of period 36,277 21,760 24,843 58,452
-------- -------- -------- --------
Cash and cash equivalents - end of period $ 24,062 $ 36,277 $ 24,062 $ 36,277
======== ======== ======== ========
CoolBrands International Inc.
Summary Financial Data
- --------------------------------------------------------------------------------
(in thousands of dollars, except share data):
For the year ended For the three months ended
----------------------- --------------------------
August 31, August 31, August 31, August 31,
2005 2004 2005 2004
$ $ $ $
---------- ---------- ---------- ----------
Net revenues 385,070 449,938 124,055 129,052
(Loss) earnings before income taxes (82,465) 37,381 (64,642) 19,505
(Recovery of) provision for income taxes: (8,395) 13,869 (549) 7,021
Net (loss) earnings (74,070) 23,512 (64,093) 12,484
Basic (loss) earnings per share:
Basic and diluted: $ (1.32) $ .42 $ (1.15) $ .22
Depreciation and amortization 5,042 7,314 927 4,015
Interest expense 2,586 1,498 1,119 268
Weighted average number of shares outstanding:
Shares used in per share calculation - basic 55,924 55,441 55,947 55,890
Shares used in per share calculation - diluted 55,924 56,329 55,947 56,332
About CoolBrands International: CoolBrands International is a leading marketer
of dairy based snacks in the refrigerated and frozen snack foods categories. In
the frozen snack foods category, CoolBrands manufactures and distributes such
well known brands as Godiva Ice Cream, Whole Fruit Sorbet, Eskimo Pie frozen
snacks, Tropicana Fruit Bars, Chipwich Ice Cream Cookie Sandwiches and many
others. In the refrigerated dairy category, CoolBrands manufactures and
distributes Breyer's Yogurt and Creme Savers Yogurt. CoolBrands operates a
"direct store delivery" (DSD) ice cream distribution system in selected markets
in the U.S., serving CoolBrands products and a growing family of Partner Brands
to supermarkets, convenience stores and other retail customers. CoolBrands'
50.1% owned 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.
Forward Looking Statements
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.
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