[LETTERHEAD OF COOLBRANDS INTERNATIONAL]
July 11, 2006
April Sifford
Branch Chief
Division of Corporation Finance
Mail Stop 7010
Securities and Exchange Commission
Washington, D.C. 20549-7010
Dear Ms. Sifford
We have reviewed your letter dated June 29, 2006 and are pleased to provide
you with our response to your comments. Our response contained in this letter
has been numbered to correspond to the comment contained in your letter dated
June 29, 2006 and have been addressed as follows:
1. We have incorporated your comments as you requested. Please see the
changes indicated on the attached.
We will also file the Company's response and a marked up copy of our Form
20-F on Edgar on Wednesday July 12, 2006. The Company awaits any additional
comments or questions you may have after reviewing our response. The Company
will file an amended Form 20-F after we receive your final approval.
Sincerely,
/s/ Gary P. Stevens
Gary P. Stevens
CoolBrands International Inc.
Consolidated Statements of Operations for the years ended August 31, 2005, 2004
and 2003
- --------------------------------------------------------------------------------
(Amounts expressed in thousands of dollars, except for per share data)
2005 2004 2003
Net revenues:
Net sales $ 364,686 $ 406,470 $ 199,015
Royalties, licensing, and consumer products license revenues 6,138 3,595 3,550
Drayage and other income 14,246 39,873 11,455
-----------------------------------
Total net revenues 385,070 449,938 214,020
-----------------------------------
Cost of goods sold 361,668 329,346 140,250
Selling, general and administrative expenses (Revised) 54,090 79,883 41,239
Interest expense 2,586 1,498 1,343
Asset impairment 55,525 2,788
Loss on sale of building 263
Gain on sale of building (3,634)
-----------------------------------
(Loss) earnings before income taxes and minority interest (85,165) 36,423 30,925
Minority interest (2,700) (958) 365
-----------------------------------
(Loss) earnings before income taxes (82,465) 37,381 30,560
-----------------------------------
(Recovery of) provision for income taxes:
Current (10,193) 29,183 11,832
Deferred 1,798 (15,314) (98)
-----------------------------------
(8,395) 13,869 11,734
-----------------------------------
Net (loss) earnings $ (74,070) $ 23,512 18,826
===================================
Per share data:
(Loss) earnings per share:
Basic $ (1.32) $ .42 $ .36
Diluted $ (1.32) $ .42 $ .35
===================================
Weighted average shares outstanding:
Shares used in per share calculation - basic 55,924 55,441 51,746
Shares used in per share calculation - diluted 55,924 56,329 53,992
See accompanying notes to consolidated financial statements
F-5
CoolBrands International Inc.
Consolidated Statements of Cash Flow for the years ended August 31, 2005, 2004
and 2003
- --------------------------------------------------------------------------------
(Amounts expressed in thousands of dollars)
2005 2004 2003
Cash and short-term investments provided by (used in):
Operating activities:
Net (loss) earnings $(74,070) $ 23,512 $ 18,826
Adjustments to reconcile net (loss) net earnings to net cash flows from
operating activities
Depreciation and amortization 5,042 4,526 3,239
Asset impairment 55,525 2,788
Stock-based compensation expense 1,918 30,983 1,649
Deferred income taxes 1,798 (15,314) 1,716
Gain on sale of building (3,634)
Loss on sale of asset held for sale 263
Minority interest (2,700) (958) 365
Cash effect of changes, net of the effects from businesses acquired
Receivables 13,815 (21,115) (3,734)
Receivables - affiliates 2,043 (1,464) 609
Allowance for doubtful accounts (56) 126 (785)
Inventories 4,500 (6,845) (6,545)
Prepaid expenses (2,207) 6,252 (1,179)
Income taxes recoverable (9,767)
Accounts payable 15,842 16,740 (5,398)
Payables - affiliates (230) 277 (173)
Accrued liabilities 8,744 (4,843) (1,656)
Income taxes payable (4,935) 9,319 (1,655)
Other assets (513) 53 263
Other liabilities 124 (268) (739)
-----------------------------
Cash provided by operating activities 11,239 43,769 5,066
-----------------------------
Investing activities:
Purchase of property, plant and equipment (12,409) (13,363) (4,141)
Purchase of intangible assets (76) (82)
Purchase of license agreements (26) (300) (1,070)
Proceeds from sale of building 5,434
Proceeds from asset held for sale 2,370
Increase in restricted cash (10,000)
Purchase of investments (2,500) (33,050)
Redemption of investments 23,050 5,000
Acquisitions, net of cash acquired (59,609) (9,681)
Increase in notes receivable (28) (4)
Collection of notes receivable 65 23 249
------------------------------
Cash used in investing activities (56,023) (41,766) (12,359)
------------------------------
Financing activities:
Expense from special warrants (104)
Change in revolving line of credit, secured 2,661 1,514
Change in revolving line of credit, unsecured 2,000
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 12,286 124
Repayment of short term borrowings (10,000)
Repayment of long-term debt (4,007) (5,781) (6,855)
------------------------------
Cash provided (used) by financing activities 33,264 14,926 (4,835)
------------------------------
Increase (decrease) in cash flows due to changes in foreign exchange rates (695) (2,412) (1,870)
------------------------------
(Decrease) increase in cash and cash equivalents (12,215) 14,517 (13,998)
Cash and cash equivalents - beginning of year 36,277 21,760 35,758
------------------------------
Cash and cash equivalents - end of year $ 24,062 $ 36,277 21,760
==============================
See accompanying notes to consolidated financial statements.
F-7
CoolBrands International Inc.
Notes to Consolidated Financial Statements for the years ended August 31, 2005,
2004 and 2003
- --------------------------------------------------------------------------------
(Amounts are expressed in thousands of dollars)
Note 7. Intangible and other assets and Goodwill
Definite life intangible assets are amortized over their estimated useful
lives. The Company is required to conduct an annual review of goodwill and
intangible assets for potential impairment. Goodwill impairment testing requires
a comparison between the carrying value and fair value of each reporting unit.
If the carrying value exceeds the fair value, goodwill is considered impaired.
The amount of impairment loss is measured as the difference between the carrying
value and implied fair value of goodwill, which is determined using discounted
cash flows. Impairment testing for non-amortizable intangible assets requires a
comparison between fair value and carrying value of the intangible asset. If the
carrying value exceeds fair value, the intangible asset is considered impaired
and is reduced to fair value. During the fourth quarter of 2005, the Company
completed its annual review of goodwill and intangible assets. This review
resulted in a $ 2,941 non-cash pre tax charge related to intangible asset
impairment and a non-cash pre tax charge of $52,101 related to goodwill
impairment. After receiving notification on July 28, 2004 that the license
agreement with Weight Watchers International would not be extended, the Company
evaluated certain intangible assets directly related to the Weight Watchers
license agreement. Based on this evaluation, the Company determined that these
intangible assets were fully impaired and as a result recorded an impairment
charge of approximately $2,788 during the fourth quarter ended August 31, 2004.
At August 31, 2005 and 2004 goodwill by reportable segment was as follows:
2005 2004
--------- ----------
Frozen desserts $ 3,752 $ 52,461
Yogurt 27,582
Foodservice 11,302 11,302
Dairy components 745 488
Franchising and licensing 4,446 7,837
--------- ----------
Total Goodwill $ 47,827 $ 72,088
========= ==========
Intangible assets at August 31, 2005 and 2004 were as follows:
2005 2004
----------------------- -----------------------
Gross Accumulated Gross
Carrying Amortization Carrying Accumulated
Amount Amount Amortization
-------- ------------ -------- ------------
Non-amortizable intangible assets $ 15,000 $ $ $
Amortizable intangible assets 8,126 3,362 12,567 4,305
Other assets 2,605 3,918
-------- ------------ -------- ------------
Total Intangible assets and other assets $ 25,731 $ 3,362 $ 16,485 $ 4,305
======== ============ ======== ============
Non-amortizable intangible assets are substantially comprised of trademark
rights purchased through the acquisitions. Amortizable intangible assets consist
primarily of certain trademarks, license agreements and franchise agreements and
rights. Pre-tax amortization expense for intangible assets was $745 and $872 for
the years ended August 31, 2005 and 2004 respectively. Amortization expense for
each of the next five years is currently estimated to be $745 or less.
F-20
CoolBrands International Inc.
Notes to Consolidated Financial Statements for the years ended August 31, 2005,
2004 and 2003
- --------------------------------------------------------------------------------
(Amounts are expressed in thousands of dollars)
Note 7. Intangible and other assets and Goodwill (cont'd)
The movement in goodwill and gross carrying amounts of intangible and
other assets is as follows:
2005 2004
------------------------- -------------------------
Intangible and Intangible and
Goodwill other assets Goodwill other assets
-------- -------------- -------- --------------
Balance at August 31 $ 72,088 $ 16,485 $ 71,977 $ 19,928
Changes due to:
Acquisitions 27,840 15,000 111
Goodwill impairment (52,101)
Intangible asset impairment (2,941) (2,788)
Other (2,813) (655)
-------- -------------- -------- --------------
Balance at August 31 $ 47,827 $ 25,731 $ 72,088 $ 16,485
=====================================================
Note 8. Short-term borrowings
2005
Unsecured $ 30,000
Secured 4,553
--------
$ 34,553
========
There were no short term borrowings during the year ended August 31, 2004.
Unsecured
In connection with the acquisition of the Breyer's yogurt business from
Kraft in March 2005, a U.S. subsidiary borrowed $40,000 to finance the
acquisition. The unsecured term loan requires monthly payments of interest and
repayment of the $40,000 principle balance on November 1, 2005. Interest is
payable monthly with interest rates fluctuating with changes in the prime
lending or libor rate and the ratio of funded debt to EBITDA. The interest rates
plus applicable margin are the lower of prime plus 0.5% or libor plus 2.5%
(6.02% at August 31, 2005). On August 23, 2005, the Company made a principal
payment of $10,000 in anticipation of the September 2, 2005 amendment as
discussed in Note 9. As of August 31, 2005 the term loan balance was $30,000.
Secured
On April 27, 2005 Americana Foods LP ("Americana"), which is owned 50.1%
by the Company, borrowed $4,553 to purchase a building and adjacent acreage. The
loan terms requires monthly, interest-only payments until the April 27, 2006
anniversary date of the note. The note bears interest at Prime plus 0.5% (7.0%
at August 31, 2005). The agreement provides a one-time right to extend the
maturity date by two years until April 27, 2008. Monthly payments during the two
year extension period will be based on a 25-year amortization period.
F-21