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SEC 2285 PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF
FORM (11-2002) INFORMATION CONTAINED IN THIS ARE NOT REQUIRED TO RESPOND
UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER.
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OMB APPROVAL
------------------------
OMB NUMBER: 3235-0381
------------------------
EXPIRES: MARCH 31, 2003
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ESTIMATED AVERAGE
BURDEN
HOURS PER RESPONSE .0.5
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 40-F/A
(CHECK ONE)
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE
ACT OF 1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2002
COMMISSION FILE NUMBER
----------------------------------------------------------
COOLBRANDS INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Province of Nova Scotia, Canada
(PROVINCE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
8300 Woodbine Avenue, 5th Floor
Markham, Ontario
Canada L3R 9Y7
(905) 479-8762
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
INTEGRATED BRANDS, INC.
4175 VETERANS HIGHWAY
RONKONKOMA, NY 11775
ATTN: GARY P. STEVENS
(631) 737-9700
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT
FOR SERVICE OF PROCESS IN UNITED STATES)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Not Applicable
----------------------------- ---------------------------------------
----------------------------- ---------------------------------------
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT.
Not Applicable
--------------------------------------------------------------------------
(TITLE OF CLASS)
--------------------------------------------------------------------------
(TITLE OF CLASS)
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
OF THE ACT.
Subordinate Voting Shares
Multiple Voting Shares
--------------------------------------------------------------------------
(TITLE OF CLASS)
FOR ANNUAL REPORTS, INDICATE BY CHECK, MARK THE INFORMATION FILED WITH THIS
FORM:
|X| ANNUAL INFORMATION FORM |X| AUDITED ANNUAL FINANCIAL STATEMENTS
INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT.
Subordinate Voting Shares: 45,497,185
Multiple Voting Shares: 6,208,539
INDICATE BY CHECK MARK WHETHER THE REGISTRANT BY FILING THE INFORMATION
CONTAINED IN THIS FORM IS ALSO THEREBY FURNISHING THE INFORMATION TO THE
COMMISSION, PURSUANT TO RULE 12g3-2(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
(THE "EXCHANGE ACT"). IF "YES" IS MARKED, INDICATE THE FILING NUMBER ASSIGNED TO
THE REGISTRANT IN CONNECTION WITH SUCH RULE.
Yes 82- No X
---- ----- -----
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PRECEDING 12
MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90
DAYS. |X| YES |_| NO
The following materials are filed with this Form 40-F:
(1) Annual Information Statement for the fiscal year ended August 31, 2002; and
(2) Audited Financial Statements for the fiscal years ended August 31, 2002 and
August 31, 2001 together with the reconciliation of Canadian Generally Accepted
Accounting Principles to United States Generally Accepted Accounting Principles
and Management's Discussion and Analysis for the fiscal years ended August 31,
2002 and August 31, 2001.
Sarbanes-Oxley Act
(a) Evaluation of disclosure controls and procedures. Based on the evaluation of
the Company's disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90
days of the filing date of this Annual Report on Form 40-F, the Company's
co-chief executive officers and its chief financial officer have concluded that
the disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the U.S. Securities and Exchange Commission and are operating in an effective
manner.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their most recent evaluation.
ANNUAL INFORMATION FORM
OF
COOLBRANDS INTERNATIONAL INC.
Fiscal Year Ended August 31, 2002
January 17, 2003
TABLE OF CONTENTS
ITEM 1: CORPORATE STRUCTURE 1
ITEM 2: GENERAL DEVELOPMENT OF THE BUSINESS 2
ITEM 3: NARRATIVE DESCRIPTION OF THE BUSINESS 4
ITEM 4: SELECTED CONSOLIDATED FINANCIAL INFORMATION 13
ITEM 5: MANAGEMENT DISCUSSION AND ANALYSIS 15
ITEM 6: MARKET FOR SECURITIES 15
ITEM 7: DIRECTORS AND OFFICERS 15
ITEM 8: ADDITIONAL INFORMATION 19
ITEM 1: CORPORATE STRUCTURE
The Corporation was formed under the Business Corporations Act
(Ontario) by articles of amalgamation dated September 7, 1994 under the name
Yogen Fruz World-Wide Inc. On March 18, 1998, the Corporation was continued
under the Companies Act (Nova Scotia) and reorganized its share capital to
provide for multiple voting shares and subordinate voting shares. On March 15,
2000, the Corporation amended its articles to change its name to CoolBrands
International Inc. ("CoolBrands" or the "Corporation"). The principal office of
the Corporation is located at 8300 Woodbine Avenue, 5th Floor, Markham, Ontario,
L3R 9Y7. The registered address of the Corporation is Suite 800, 1959 Upper
Water Street, Halifax, Nova Scotia, Canada, B3J 2X2.
Corporate Chart
The following chart illustrates all of the principal wholly-owned
subsidiaries and other entities of the Corporation, their jurisdiction of
incorporation and the percentage ownership by the Corporation of the voting and
non-voting securities of each subsidiary or other entity.
-----------------------------
CoolBrands International Inc.
(Nova Scotia)
-----------------------------
|
---------------------|---------------------------
| 100% | 100% | 100%
- ------------- ----------------- -----------------
INTEGRATED YOGEN FRUZ YOGEN FRUZ ---------------------
BRANDS INC CANADA INC. ACQUISITIONS INC. |
(New Jersey) (Ontario) (Nevada) |
- ------------- ----------------- ----------------- |
| | | |
| 100% | -------------------------------------------- |
| ----------------- 100% | 100% | 100% | 100% | |
| KAYLA FOODS INT'L ------------ -------- ------------- ------------ |
| (Barbados) INC. BRESLER'S KALA NOTHERN GOLDEN SWIRL |
| (Barbados) INDUSTRIES FOODS LIGHTS FROZEN FROZEN |
| ----------------- INC. INC. DESSERTS INC. YOGURT |
| (Illinois) (Texas) (Utah) (Utah) |
| ------------ -------- ------------- ------------ |
| 100% 99% | |
- ------------ ------------ |
ESKIMO PIE I CAN'T |
CORPORATION BELIEVE IT'S 1% |
(Virginia) YOGURT LTD. -----------------------------------
- ------------ (Texas)
------------
1
ITEM 2: GENERAL DEVELOPMENT OF THE BUSINESS
The Corporation markets Eskimo Pie(R), Chipwich(R) and
Fruit-A-Freeze(R) branded frozen novelties and frozen dessert products. Eskimo
Pie(R) created the frozen novelty industry in 1921 when founder, Christian K.
Nelson, invented the chocolate-coated ice cream bar. Today, 80 years later,
Eskimo Pie(R) remains one of the best-known and most widely distributed of all
frozen novelty brands. The Corporation also markets a broad range of frozen
novelties and frozen dessert products under the Tropicana(R), Welch's(R), Weight
Watchers(R) Smart Ones(R), Betty Crocker(R), Trix(R), Yoplait(R), Colombo(R) and
Yoo Hoo(R) brand names, pursuant to long-term licensing agreements. The
Corporation produces soft serve frozen yogurt and ice cream mixes at its
production facility in Russellville, Arkansas. Eskimo Pie(R) Foodservice is a
leading manufacturer and supplier of premium soft serve ice cream, frozen
yogurt, custard and smoothies to the foodservice industry. The Corporation 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 Corporation's brands. The Corporation is the world's largest
franchisor and licensor of stores and other locations serving primarily frozen
yogurt. As of August 31, 2002, the Corporation had franchise operations and
strategic partnerships in approximately 80 countries. The Corporation franchises
and licenses a Family of Brands under the names Yogen Fruz(R), I Can't Believe
It's Yogurt(R), Bresler's(R) Ice Cream and Premium Frozen Yogurt, Swensen's(R)
Ice Cream, Ice Cream Churn(R), Paradise(R), Golden Swirl(R) and certain other
names. The Corporation also franchises and licenses gourmet coffee shop outlets
in 22 countries under the name Java Coast(R) Fine Coffees.
The predecessor of the Corporation commenced operations in August
1986 with the opening of the first Yogen Fruz(R) store in Vaughan, Ontario. The
store served yogurt as a frozen dessert under a unique concept pursuant to which
individually packaged portions of frozen yogurt were blended with fresh frozen
fruit in front of the customer. The Yogen Fruz(R) concept was developed by the
Corporation's founders, Michael Serruya, Co-Chairman of the Board of the
Corporation, and his brother, Aaron Serruya, Executive Vice-President of the
Corporation.
The first Yogen Fruz(R) store experienced immediate success,
prompting the Corporation to commence a franchising program. The first
franchised Yogen Fruz(R) store opened in London, Ontario in August 1987 with an
additional 62 stores opening in Canada over the next four years. The expansion
of the Corporation's operations was further accelerated by the establishment of
an international master franchise program in June 1991, when a regional
franchise was granted in Latin America.
The Corporation's operations have been significantly expanded
through a series of strategic acquisitions and through the development of
strategic partnerships. In June 1991, Yogen Fruz Canada Inc., a subsidiary of
the Corporation through which all of the Corporation's operations were then
carried on, acquired its largest competitor in Canada, Yogurty's Yogurt
Discovery, from Silcorp Limited. Strategic partnerships were recently
established by the Corporation with National Amusements Inc. and Wal-Mart Stores
Inc. in the United States, Tricon Global Restaurants (Canada) Inc. in Ontario,
Canada and internationally by master franchisees with such chains as Dunkin
Donuts, Kentucky Fried Chicken, KLM Dutch Airlines and Esso. In July 1995, the
Corporation completed the acquisition of Bresler's Industries, Inc., an
established U.S. franchisor and licensor of ice cream and frozen yogurt outlets.
In March 1996, the Corporation completed the acquisition of I Can't Believe Its
Yogurt, then the second largest franchisor and licensor of frozen yogurt outlets
in the United States and a significant franchisor of frozen yogurt outlets
outside North America. In June 1997, the Corporation completed the acquisition
of Golden Swirl Frozen Yogurt Inc. and GS Associates Inc., the sole partners of
Golden Swirl Management Company, an owner and operator of a chain of frozen
yogurt stores in Utah, California, Nevada, and Arizona under the name Golden
Swirl. In January 1998, the Corporation acquired the business of U.S.-based Ice
Cream Churn Inc. and Ice Cream Churn Enterprises, which have the right to
operate outlets in Wal-Mart Stores Inc. stores. In March 1998, the Corporation
acquired Integrated Brands Inc. ("Integrated Brands") which markets, sells and
distributes Tropicana(R) frozen desserts, as well as a variety of other branded
frozen dessert products under the Betty Crocker(R), Yoplait(R), Colombo(R),
Trix(R), Lucky Charms(R) and Yoo Hoo(R)
2
brand names pursuant to long-term exclusive license agreements. Integrated
Brands, directly and through subsidiaries, also operates, franchises and
licenses Swensen's(R) Ice Cream, Steve's(R) Ice Cream and triple trademark
frozen dessert stores throughout the United States and certain foreign
countries. In May 1999, the Corporation acquired specific assets of Greater
Pacific Foods, Inc., including the Honey Hill Farms trademarks. The Honey Hill
Farms business consists of marketing and distributing Honey Hill Farms soft
serve frozen yogurt and ice cream mixes to outlets located primarily in the
western United States.
Early in fiscal 1999, the Corporation began to explore the opportunity to
invest in Eskimo Pie Corporation ("Eskimo Pie") in order to benefit from Eskimo
Pie's strong brand names and U.S. based manufacturing facilities. On October 6,
2000, the acquisition of Eskimo Pie was completed by purchasing the 2.9 million
shares not owned by the Corporation for U.S.$10.25 a share or U.S.$29.7 million.
Integrated Brands Inc. borrowed U.S.$30 million to finance the acquisition.
Eskimo Pie created the frozen novelty industry in 1921 with the invention
of the Eskimo Pie ice cream bar. Eskimo Pie's strengths include national brand
recognition, quality products and the management of complex sales and
distribution networks. Eskimo Pie's growth has come primarily as a result of the
development and introduction of Eskimo Pie brand frozen dessert products, the
development and marketing of frozen dessert products under the licensing of
other well-known national brands and the use of a select group of
quality-oriented manufacturers who provide a cost effective means to manufacture
products. Integrated Brands then markets, sells and distributes the products.
Today, Integrated Brands markets a broad range of frozen novelties, ice cream
and sorbet products under the Eskimo Pie, Welch's and Weight Watchers Smart Ones
brand names. The Corporation engages in product/concept development, and
advertising and sales promotion expense generally includes trade promotion and
introductory costs, price-off and feature price promotions, regional consumer
promotion, couponing and other trial purchase generating programs.
Certain key ingredients (such as chocolate coatings and powders) and
wrappers used in the manufacture of Eskimo Pie and other licensed frozen
novelties and ice cream products are produced at the Corporation's owned
facilities located in New Berlin, Wisconsin and Bloomfield, New Jersey. In
addition to products manufactured for use in its business, the Corporation sells
various other ingredients to the dairy industry produced at its New Berlin,
Wisconsin facility. This business involves blending, cooking and processing
basic flavours and fruits to produce products which subsequently are used by
customers to flavour frozen desserts, ice cream novelties and fluid dairy
products. The Corporation also manufactures flexible packaging, such as private
label ice cream novelty wraps, at its Bloomfield, New Jersey plant. These
products are sold to the dairy industry, including many of the Corporation's
manufacturers.
The Corporation also manufactures soft serve yogurt and premium ice cream
mixes in a leased facility in Russelville, Arkansas. Soft serve mix is sold
under the Eskimo Pie brand name to broad-line foodservice distributors, yogurt
shops and other foodservice establishments which, in turn, sell soft serve ice
cream and yogurt products to consumers. The sale of soft serve yogurt and ice
cream mixes, is managed by a separate sales force working within Eskimo Pie's
wholly-owned subsidiary, Sugar Creek Foods, Inc.
Concurrently with the acquisition in March 1998 of Integrated Brands,
CoolBrands continued under the laws of Nova Scotia and reorganized its share
capital. As a result, the share capital of CoolBrands consists of Multiple
Voting Shares (10 votes per share) and Subordinate Voting Shares (1 vote per
share). The Subordinate Voting Shares trade on The Toronto Stock Exchange under
the symbol "COB.A".
3
ITEM 3: NARRATIVE DESCRIPTION OF THE BUSINESS
Overview
CoolBrands' operations consist of four distinct segments: (1) the
sale and distribution of pre-packaged frozen dessert products under the Eskimo
Pie(R) trademark and under the Tropicana(R), Welch's(R), Weight Watchers Smart
Ones(R), Betty Crocker(R), Yoplait(R), Colombo(R), Trix(R) trademarks and a
variety of other trademarks, pursuant to exclusive long-term license agreements
(the "Consumer Products Business"); (2) the franchising and licensing of Yogen
Fruz(R), I Can't Believe It's Yogurt(R), Bresler's(R), Swensen's(R), Ice Cream
Churn(R), Java Coast(R) Fine Coffees and Golden Swirl(R) outlets and other
activities related thereto, including the operation of company-owned ice cream
and yogurt stores (the "Franchising and Licensing Business"); (3) the
manufacture of soft serve yogurt and ice cream mixes sold primarily to
foodservice distributors, yogurt shops and other foodservice establishments (the
"Foodservice Business"); and (4) the manufacture of flavours, ingredients and
packaging sold primarily to frozen novelty manufacturers and the dairy industry
(the "Dairy Components Business").
The following table sets forth the contribution to revenue of each
of the above-described segments by geographic region:
Revenue by Industry Segments and Classes of Product and Services
Year ended August 31, 2002 (in thousands of dollars)
Revenue Source Prepackaged Franchising Foodservice Dairy Corporate
consumer and licensing compo-
products nents
$ $ $ $ $
----------- ------------- ----------- ------- ---------
United States 154,863 16,239 26,285 37,743
Canada 1,570 4,472 286
International 904 3,991
Inter-segment revenues (122) (92) (1,218) (3,133) (235)
Other revenues 380 245 44
-------- ------ ------ ------ ----
Total Consolidated revenues 157,595 24,855 25,067 34,610 95
======== ====== ====== ====== ====
Year ended August 31, 2001 (in thousands of dollars)
Revenue Source Prepackaged Franchising Foodservice Dairy Corporate
consumer and licensing compo-
products nents
$ $ $ $ $
----------- ------------- ----------- ------- ---------
United States 100,828 19,648 23,856 27,347
Canada 2,509 4,222 299
International 764 4,120
Inter-segment revenues (680) (1,869) (4,400) (248)
Other revenues 539 558 117
-------- ------ ------ ------ ----
Total Consolidated revenues 103,960 28,548 21,987 22,947 168
======== ====== ====== ====== ====
4
The Prepackaged Consumer Products Segment
The Corporation sells a variety of pre-packaged frozen dessert
products to distributors and various retail establishments, throughout Canada
and the United States, including supermarkets, grocery stores, club stores,
gourmet shops, delicatessens and convenience stores.
The Corporation's products for wholesale sale include: Tropicana(R)
frozen novelties and frozen dessert specialties; Eskimo Pie(R) frozen novelties
and frozen dessert specialities, Welch's(R) frozen novelties and frozen dessert
specialties Betty Crocker(R) frozen novelties and frozen dessert specialties,
Yoplait(R) ready to eat frozen yogurt products; Colombo(R) ready to eat frozen
yogurt and sorbet products, Trix(R) and Yoo Hoo(R) frozen novelties, and a
variety of other novelties, including those sold under the "Great American",
"Tropical", "Chilly Things" and "Bullet" trademarks. Many of the Welch's(R),
Weight Watcher Smart Ones(R), Betty Crocker(R), Yoplait(R), Colombo(R) and Yoo
Hoo(R) products appeal to the healthier consumer lifestyle and eating trends
toward lower and no fat and lower and no cholesterol products. The marketing,
distribution and sale of prepackaged frozen dessert products under the
Tropicana(R), Welch's(R), Weight Watcher Smart-Ones(R), Betty Crocker(R),
Yoplait(R), Colombo(R), Trix(R) and Yoo Hoo(R) trademarks is accomplished
pursuant to exclusive long-term license agreements. The Corporation, through its
subsidiary, Integrated Brands has the right to develop and on an on-going basis
is developing additional products under the foregoing trademarks. Integrated
Brands incurs significant expenses to obtain shelf space in connection with the
introduction of its new products.
Integrated Brands purchases packaging and ingredients for its
products directly from unaffiliated suppliers. Integrated Brands then sells the
packaging and ingredients to unaffiliated manufacturers. Certain of these
manufacturers also manufacture other ice cream and related frozen dessert
products for other companies, including companies affiliated with Richard E.
Smith, who is a significant CoolBrands shareholder and Co-Chairman of the
CoolBrands board of directors and Co-Chief Executive Officer of the Corporation.
The manufacturers produce Integrated Brands' products according to Integrated
Brands' specifications and formulas under quality control supervision by
Integrated Brands. Integrated Brands then purchases the finished products from
the manufacturers at a formula price based upon the manufacturers' actual cost
of ingredients and packaging plus an agreed upon processing fee which includes a
profit for the manufacturers. Integrated Brands believes there are many
alternative ice cream and novelty manufacturers available on comparable terms.
Calip Dairies, Inc. ("Calip"), of which Richard E. Smith is Chairman
of the Board and Mr. Smith and his family are the sole stockholders, has the
exclusive right to distribute products of Integrated Brands and its
subsidiaries, affiliates and associates in the State of New Jersey and certain
areas in the State of New York, and the State of Connecticut pursuant to a
distribution agreement with Integrated Brands. The distribution agreement is to
remain in effect as long as the Smith family controls Calip, unless Calip gives
notice that it will not renew the agreement. The Corporation has agreed to
guarantee the performance of the agreement.
5
The Franchising and Licensing Segment
A full franchising program has been developed for each of the Yogen
Fruz(R), Bresler's(R), Swensen's(R), Java Coast(R) Fine Coffees and Golden
Swirl(R) chains. Although developed separately, each of the programs (except for
Golden Swirl(R)) is substantially similar and is organized on two levels: master
franchising, pursuant to which master franchises are sold for specific regions,
countries or other geographical areas; and retail franchising and licensing,
pursuant to which franchises are sold, and licenses are granted, by master
franchisees to retail outlet operators in the master franchisee's territory.
Generally, retail franchising is used for larger locations such as traditional
stores or kiosks, which offer a full range of products. Licensing is used
primarily for smaller locations such as mini-counters or carts, which are
located within the premises of strategic partners and typically offer a more
limited selection of products.
Master franchisees and franchisees are selected on the basis of
their financial resources, operational skills and business experience. Master
franchisees and franchisees are required to complete in-depth training programs.
The training programs typically include instruction relating to business
management, accounting, operations, ordering, store opening and closing
procedures and staff hiring. Franchisees are also provided with detailed
operating procedures and marketing, construction, employee and management
manuals. Generally, preliminary layouts and plans for all new sites are reviewed
and representatives of CoolBrands are sent to the opening of each new location.
Representatives of CoolBrands also make visits to sites around the world. Local
master franchisees are required to visit each site in their franchise area.
Yogen Fruz Canada Inc. acts as its own master franchisee in the U.S.
and Canada (except for Yogen Fruz franchises in British Columbia).
The Company-Owned Stores Segment
The Corporation owns and operates corporate stores in Canada and the
United States. Generally, it is the Corporation's policy to own and operate a
limited number of corporate stores and are used to test market new products and
train new franchisees. At August 31, 2002, there were one and four company-owned
stores operating in Canada and the United States, respectively.
Master Franchising and Strategic Partnership Arrangements
Master franchise agreements generally authorize master franchisees
to franchise and license Yogen Fruz(R), I Can't Believe It's Yogurt(R),
Bresler's(R) , Swensen's(R) or Java Coast(R) Fine Coffees outlets in the
territory covered by their respective master franchises. In certain instances,
such as where the territory covered by the master franchises is comprised of
more than one country, master franchisees may also be allowed to grant master
franchises for portions of their territory.
Master franchisees are generally subject to substantially all of the
requirements imposed on retail franchisees and are obliged to enforce those
requirements in respect of their own franchisees. In addition, master
franchisees are usually required to open a minimum number of outlets each year.
Master franchises are generally granted for periods varying between
ten and twenty years, and are usually renewable for an additional period of ten
to twenty years. Master franchisees pay CoolBrands an initial fee for their
master franchise as well as, in the case of Yogen Fruz(R), Bresler's(R) ,
Swensen's(R) and Java Coast(R) Fine Coffees master franchisees, additional fees
for each franchise sold or license granted by them, and a portion of the
royalties earned by them from their franchisees. The initial fee for a master
franchise varies depending on a number of different factors, including the size
of the territory covered by the master franchise.
6
CoolBrands, through its subsidiaries and master franchisees, has entered
into strategic partnership arrangements with a number of retail chains both in
North America and internationally. These arrangements are usually structured as
license agreements pursuant to which CoolBrands or its master franchisee
licenses the strategic partner to install Yogen Fruz(R), I Can't Believe It's
Yogurt(R), Bresler's(R), Java Coast(R) Fine Coffees and/or Golden Swirl(R)
mini-counters in some or all of its locations. Similarly, a strategic partner
may license CoolBrands to offer that partner's products at Yogen Fruz(R), I
Can't Believe It's Yogurt(R), Bresler's(R) and/or Java Coast(R) Fine Coffees
and/or Golden Swirl(R) outlets. The mutual offering of products is sometimes
referred to as "cross-branding". CoolBrands views these forms of arrangements as
strategic since they typically exploit the complementary name of the Yogen
Fruz(R), I Can't Believe It's Yogurt(R), Bresler's(R), Java Coast(R) and Golden
Swirl(R) Businesses with the business of the strategic partners and result in
incremental business for both parties.
CoolBrands has established a co-branding program between I Can't Believe
It's Yogurt(R) and Bresler's(R) outlets in the United States. As a result of
this program, 30 I Can't Believe It's Yogurt(R) outlets now feature a limited
selection of Bresler's(R) ice cream and 39 Bresler's(R) outlets feature a
limited selection of I Can't Believe It's Yogurt(R) frozen yogurt.
CoolBrands formed a partnership for its I Can't Believe It's Yogurt(R)
brand when the Corporation's Master Franchisee in Amsterdam signed an agreement
with KLM Dutch Airlines. As a result, the Corporation's I Can't Believe It's
Yogurt(R) frozen dessert is now served as a complimentary dessert on all KLM
flights along its European and Intercontinental routes.
During fiscal 1998, CoolBrands strengthened its alliance with National
Amusements Inc., an international entertainment company operating 1,180 motion
picture screens in the U.S., Great Britain and Latin America. A five year
co-marketing pact was signed whereby the Bresler's(R) and Yogen Fruz(R) mix-in
frozen yogurt brands were introduced to more than 50 theatres throughout the
U.S. and Great Britain.
The Corporation expanded its relationship with Wal-Mart during fiscal
1998. The Corporation acquired American-based Ice Cream Churn in January 1998.
At the time, Ice Cream Churn had 22 outlets in Wal-Mart stores throughout the
Southern U.S. Further inroads were made in February, 1998, when the Corporation
signed a deal with American retailer Sam's Club, a division of Wal-Mart, to roll
out the Bresler's(R) yogurt line in 440 Sam's Club locations throughout the U.S.
During fiscal 2001, sales to Sam's Club was converted to Eskimo Pie's soft serve
ice cream product.
CoolBrands signed an agreement with Tricon Global Restaurants
(Canada) Inc. to place I Can't Believe It's Yogurt(R) on the menu of its 250
Pizza Hut restaurants across Canada. Beginning in June, 2000, I Can't Believe
It's Yogurt(R) was served as the centerpiece of a widely publicized launch of
Pizza Hut's dessert bar.
Retail Franchising Arrangements
CoolBrands, either directly or through a master franchisee, enters
into a franchise agreement with each franchisee for each location. The franchise
agreement authorizes the franchisee to operate the location under the Yogen
Fruz(R), Bresler's(R), Swensen's(R), Java Coast(R) Fine Coffees or Golden
Swirl(R) name and trademarks in accordance with such methods, standards,
specifications and procedures as CoolBrands may prescribe from time to time.
Only products approved by CoolBrands may be sold at the location and the
franchisee must buy such products solely from CoolBrands or from suppliers and
manufacturers designated by it. The franchisee must pay the costs of leasehold
improvements and must purchase the necessary equipment to operate the location
from CoolBrands or suppliers designated by it. Generally, Yogen Fruz(R),
Bresler's(R), Swensen's(R), Java Coast(R) Fine Coffees or Golden Swirl(R)
franchisees are required to devote their full time and best efforts to their
franchise.
7
Except for Bresler's(R) franchises, which are granted for as long as
the franchisee holds a lease for the franchise location, franchises are granted
for a specific term and are usually renewable if certain conditions are
satisfied, including, in some instances, the achievement of minimum sales
levels. Yogen Fruz(R) franchises are granted for periods varying between five
and ten years (often corresponding to the term of the lease for the location of
the franchise) and are usually renewable for an additional period of five years.
Franchisees must pay their master franchisee an initial franchise
fee as well as royalties based on their gross sales. In addition, a renewal fee
is usually paid on the renewal of the franchise. The franchise fee for a Yogen
Fruz(R) store franchise in Canada is $25,000. Internationally, franchise fees
are set by master franchisees and, for a Yogen Fruz(R) store, typically vary
between U.S.$10,000 and U.S.$25,000. All Yogen Fruz(R) franchisees must pay
royalties to their master franchisee equal to 6% of their gross sales.
Canada
The principal product served, at the retail locations of franchisees
and the Corporation's corporate store, is hardpack frozen yogurt which is
blended with fresh frozen fruit in front of the customer and served in a cup or
cone. Products served include frozen yogurt shakes, cakes and pies, fresh juices
and hot and cold non-alcoholic beverages. Yogen Fruz has also developed new
flavours, combinations and tastes of Smoothies, which have rapidly won wide
consumer appeal. Yogen Fruz Smoothies are made in dairy and non-dairy versions,
with non-fat Yogen Fruz or I Can't Believe It's Yogurt frozen yogurt and
Tropicana juices. The Yogen Fruz Concept is simple, easy to operate, and can be
implemented in a variety of different formats. In addition, Yogen Fruz outlets
generally require less space and equipment to operate, and a smaller investment
by franchisees than outlets of other competing frozen yogurt store chains. The
cost of construction of a Yogen Fruz store varies depending upon its size and on
the level of leasehold improvement allowances received. The typical estimated
required investment for a franchisee in Canada for an average size in-line store
in a shopping mall is approximately $100,000, inclusive of franchise fees.
8
United States
Products served, at the retail locations of franchisees and the
Corporation's corporate stores, include premium ice creams, frozen yogurts,
sherbets, sorbets and ices. The standard menu includes hard-packed and dipped
ice cream, soda fountain products, ice cream specialty items, yogurt products
and non-alcoholic beverages. Certain corporate stores have developed a strong
relationship with various major supermarket chains in the Southwestern United
States, most notably with Smith's, Von's, Ralph's and Albertson's. Under these
arrangements, some corporate stores operate mini locations within certain
supermarkets. The related supermarket lease agreements allow the flexibility for
these mini locations to franchise these locations. The cost of construction of a
corporate store varies depending upon its size and on the level of leasehold
improvement allowances received. The typical estimated required investment for a
franchisee in the United States for a traditional single trademark store varies
between U.S.$131,000 and U.S.$224,000 and for a combination store (ice cream and
yogurt) varies between U.S.$161,000 and U.S.$340,800, inclusive of franchise
fees.
The price of yogurt sold to United States franchisees of I Can't
Believe It's Yogurt(R), includes charges for support and other services instead
of charging ongoing royalties on gross sales. The royalty fees paid by
franchisees to their master franchisees outside the United States vary between
0% and 3% of gross sales.
Franchisees of Bresler's(R), Golden Swirl(R) and Swensen's(R) stores
in the United States pay an initial franchise fee of U.S.$15,000, U.S.$15,000
and U.S.$10,000, respectively. Bresler's(R) and Swensen's(R) franchisees also
pay royalties equal to 6% and 3% of their gross sales, respectively. Golden
Swirl(R) franchisees have to pay royalties equal to U.S.$4.40 per 4 gallon case
of frozen yogurt purchased from the Corporation's designated distributors.
There are currently no Java Coast(R) Fine Coffees franchises in the
United States. Internationally, franchise fees for Java Coast(R) Fine Coffees
franchises are set by master franchisees.
Licensing Arrangements
CoolBrands, either directly or through master franchisees, enters
into a license agreement with each licensee for each location. The license
agreement authorizes the licensee to operate a Yogen Fruz(R), I Can't Believe
It's Yogurt(R), Bresler's(R) or Java Coast(R) Fine Coffees mini-counter or
similar outlet within the licensee's place of business. The licensee must
operate the outlet in accordance with the methods, standards, specifications and
procedures prescribed by CoolBrands. Generally, the licensee must purchase
products used within the outlet from CoolBrands or from suppliers and
manufacturers designated by it.
As in the case of franchises, licenses are granted for a specific
term and are usually renewable if certain conditions are satisfied. Licensees
are usually charged an initial license fee or a charge for start-up and support
services, but, are not usually required to pay royalty fees, except outside of
North America.
The Foodservice Segment
In addition to products manufactured for use in its business, the
Corporation manufactures soft serve yogurt and premium ice cream mixes in a
leased facility in Russellville, Arkansas. Soft serve mix is sold under the
Eskimo Pie brand name to broad-line foodservice distributors, yogurt shops and
other foodservice establishments which, in turn, sell soft serve ice cream and
yogurt products to consumers. The sale of soft serve yogurt and ice cream mixes,
is managed by a separate sales force working within Eskimo Pie's wholly-owned
subsidiary, Sugar Creek Foods, Inc.
9
The Dairy Component Segment
In addition to products manufactured for use in its business, the
Corporation sells various other ingredients to the dairy industry produced at
its New Berlin, Wisconsin facility. This business involves blending, cooking and
processing basic flavours and fruits to produce products, which subsequently are
used by customers to flavour frozen desserts, ice cream novelties and fluid
dairy products. The Corporation also manufactures flexible packaging, such as
private label ice cream novelty wraps, at its Bloomfield, New Jersey plant.
These products are sold to the dairy industry, including many of the
Corporation's manufacturers.
Trademarks
CoolBrands relies upon copyright, trademark and trade secret laws to
protect its proprietary rights in its trademarks and products. CoolBrands has
obtained registrations for a number of trademarks in Canada, the United States
and internationally, including registrations for the trademarks and related
symbols Eskimo Pie(R), Yogen Fruz(R), I Can't Believe It's Yogurt(R), Honey
Hill(R), Bresler's(R), Swensen's(R), Steve's(R), Java Coast(R) Fine Coffees and
Golden Swirl(R). The Java Coast(R) Fine Coffees trademark and related symbols
are owned in the United States by Superior Coffee and Foods, a division of Sara
Lee Corporation, and used by I Can't Believe It's Yogurt pursuant to a trademark
and license agreement providing for, among other things, a royalty-free license
of such trademark and related symbols in the United States for an unlimited
period of time (subject to termination upon the occurrence of certain events
such as bankruptcy). CoolBrands also plans to register the Yogen Fruz(R), I
Can't Believe It's Yogurt(R), Bresler's(R), Java Coast(R) Fine Coffees
trademarks in all countries where Yogen Fruz(R), I Can't Believe It's Yogurt(R),
Bresler's(R), and Java Coast(R) Fine Coffees outlets operate and where local
laws permit trademark registration. Integrated Brands holds long-term trademark
license agreements for use in certain countries of the Tropicana(R), Welch's(R),
Weight Watchers Smart Ones(R), Betty Crocker(R), Yoplait(R), Trix(R),
Colombo(R), Lucky Charms(R) and Yoo Hoo(R) trademarks in connection with the
manufacture, sale and distribution of frozen novelties and other frozen dessert
products. In countries lacking trademark and/or service mark legislation,
CoolBrands utilizes alternative measures available to it, including the
publication of cautionary notices, to protect its intellectual property
interests.
Regulation
Some states in the United States and the Provinces of Alberta and
Ontario have statutes regulating franchise operations, including registration
and disclosure requirements in the offer and sale of franchises and the
application of statutory standards regulating franchise relationships, such as
termination and non-renewal of franchises. CoolBrands is also subject to the
U.S. Federal Trade Commission regulations relating to disclosure requirements in
the offer and sale of franchises in the United States. In addition, CoolBrands'
frozen yogurt and ice cream products are also subject to licensing and
regulation (including good manufacturing practices) by federal, state and
municipal authorities at its facility in Russellville, Arkansas and in the
states to which it ships its products.
Seasonality
The industry in which the Corporation operates is highly seasonal
with more frozen yogurt and ice cream consumed in warmer months. The
Corporation's fourth quarter, during the summer, has historically been the
strongest quarter of the year. The fourth quarter accounted for 35.7% and 43.4%
of the Corporation's total revenues and net earnings, respectively, for the
fiscal year ended August 31, 2002 and 35.2% and 48.2% of the total revenues and
net earnings, respectively, for the fiscal year ended August 31, 2001. See "Item
4: Selected Consolidated Financial Information" for a comparison of seasonal and
quarterly results.
10
Competition
CoolBrands competes in the frozen dessert retail market and the gourmet
coffee retail market against a large number of competitors. In North America,
competitors of CoolBrands include a number of large chains such as
Baskin-Robbins Inc., International Dairy Queen, Inc., Ben & Jerry's Homemade
Inc. and Haagen-Dazs Company Inc., owned by The Pillsbury Company, TCBY Systems
Inc. ("TCBY"), Freshens Premium Yogurt as well as independent retailers. In
addition, both ice cream and frozen yogurt have been added as menu items by
certain North American fast food restaurant chains and in recent years there has
been an overall increase in the number of food service locations serving frozen
yogurt, including snack food or dessert item restaurants. Frozen yogurt and ice
cream are also offered in supermarkets, grocery stores and wherever convenience
food operations are conducted. In the novelty market, Integrated Brands faces
substantial competition in connection with the marketing and sales of its
products. Among its competitors are Haagen-Dazs, Inc., Klondike, Popsicle,
Breyer's, Good Humor and Sealtest, owned by Unilever PLC and Nestle's.
Integrated Brands' products may also be considered to be competing with all ice
cream and other frozen desserts for discretionary food dollars. In the gourmet
coffee retail market, the Corporation competes against a number of well
established chains such as Starbucks, Second Cup and Timothy's as well as a
large number of other smaller chains and independent coffee shops and other
outlets serving coffee.
In the frozen dessert retail market, the level of competition is
highest in the United States where I Can't Believe It's Yogurt(R), Bresler's(R)
, Swensen's(R), Steve's(R) and Yogen Fruz(R) outlets not only compete with other
frozen yogurt and ice cream chains but, in certain instances, also with each
other. In Canada, Yogen Fruz(R) outlets experience lower competition given the
absence of any other significant frozen yogurt chain. Although in certain
countries Yogen Fruz(R) and I Can't Believe It's Yogurt(R) outlets compete with
TCBY outlets and with each other, markets outside of North America, and
particularly in Asia and Latin America, tend to be in their initial stages of
development resulting in CoolBrands' outlets facing little direct competition.
In the United States, Bresler's(R) Industries and I Can't Believe
It's Yogurt also sell some of their products for in-premises consumption at the
locations of various retail food outlets.
While the ice cream and frozen yogurt manufacturing and distribution
business is relatively easy to enter due to low entry costs, achieving wide
distribution may be more difficult because of the high cost of a national
marketing program and limitations on space available in retail freezer
compartments.
Employees
As of August 31, 2002, CoolBrands had 253 full-time and part-time
employees. Of these, 12 full-time and 31 part-time employees were employed in
CoolBrands owned/operated stores. CoolBrands believes that its employee
relations are good.
Facilities
CoolBrands headquarters are located at 8300 Woodbine Avenue, 5th
Floor, Markham, Ontario, Canada, L3R 9Y7 in 6,212 square feet of leased space.
Rental payments are $141,196 per annum. The lease expires on August 31, 2005.
CoolBrands' U.S. office is located at 4175 Veterans Highway,
Ronkonkoma, New York, 11779, U.S.A., in 8,545 square feet of leased space.
Rental payments are U.S.$82,556 per annum. The lease expires on April 30, 2004.
CoolBrands' international head office is located at 27 Pine Road,
Belleville, St. Michael, Barbados, W.I. in 1,850 square feet of leased space.
Rental payments are U.S.$40,200 per annum. The lease expires on May 1, 2005.
11
Integrated Brands' executive offices are located at 4175 Veterans
Highway, Ronkonkoma, New York, 11779. The offices are provided to Integrated
Brands at no additional cost by Calip pursuant to the terms of a Management
Agreement between Integrated Brands and Calip.
Integrated Brands' subsidiary, CoolBrands Manufacturing Inc., leases
a 25,000 square foot production and storage facility located in Norwalk,
California. Rental payments are U.S. $179,000 per annum. The lease expires
November 30, 2003.
Integrated Brands owns a building in Paradise Valley, Arizona. The
building is subject to a ground lease, which expires on December 31, 2005 and
contains four five-year renewal options. The premises are leased to an unrelated
third party. The remaining three Integrated Brands company operated stores are
leased for terms ranging through 2007.
Eskimo Pie Corporation owns an office building in the Moorefield
Office Park in Richmond, Virginia. The building consists of approximately 32,496
square feet on 3.4 acres, which served as Eskimo Pie's executive and
administrative offices and the new product development and quality control
facility prior to the acquisition by CoolBrands. Approximately 8,500 square feet
of the building is leased to outside parties at rates consistent with local
market conditions. The Corporation intends to sell this building.
Eskimo Pie Corporation owns an ingredients manufacturing plant in
New Berlin, Wisconsin which consists of approximately 73,820 square feet on 4.0
acres. Eskimo Pie expanded its New Berlin plant by 18,000 square feet in 1990
and purchased certain new equipment at that time. Eskimo Pie completed $800,000
of capital improvements in the New Berlin facility during 1998 (consisting
primarily of equipment additions) in connection with the consolidation of its
flavours production at the New Berlin facility which was completed in 1997.
Eskimo Pie Corporation owns a printing and packaging plant in
Bloomfield, New Jersey, which consists of approximately 71,583 square feet on
2.0 acres. The Bloomfield plant was expanded and modernized in 1985 with a
35,000 square foot addition.
Eskimo Pie Corporation's subsidiary, Sugar Creek Foods, Inc., is leasing
from the former owner of the business a soft serve yogurt and ice cream mix
production facility, consisting of approximately 23,805 square feet, and a
packaging facility, consisting of approximately 16,000 square feet, both located
in Russellville, Arkansas. Rental payments under these leases are U.S.$238,000
per annum. In addition, Sugar Creek Foods. Inc. owns a freezer facility,
consisting of approximately 5,013 square feet, adjacent to the production
facility in Russellville. In 1999, Eskimo Pie purchased a small parcel of land
adjacent to the freezer facility for future potential expansion of the freezer
facility.
Eskimo Pie Corporation owns virtually all of its equipment and replacement
parts for all manufacturing equipment which are readily available.
Several CoolBrands subsidiaries hold master store leases or have
guaranteed store leases, expiring at varying dates to 2006 covering franchised
locations. Where a subsidiary holds the master lease, these premises have been
subleased to franchisees under terms and rental rates substantially the same as
those in master leases. In a majority of these instances, franchisees make all
lease payments directly to the landlords. These leases had an aggregate future
base rental liability, without regard to percentage rentals or consumer price
index increases of approximately $11,329,000 at August 31, 2002. CoolBrands'
current policy is not to lease or sublease premises nor to provide guarantees on
leases in any manner with respect to its franchisees and it has not done so
except for renewals or in special circumstances.
12
Legal Proceedings
With the exception of certain legal proceedings to which certain
subsidiaries of the Corporation are parties and which are described below, the
Corporation is not a party to, nor is any of its property subject to, any legal
proceeding that may be material to it and no such proceeding is known to be
contemplated.
The Honeycrest Litigation
This is an action filed in March 1998 and pending in the Supreme
Court of the State of New York, County of Queens, captioned Honeycrest Holdings
Ltd., Plaintiff against Integrated Brands Inc., Defendant ("Integrated").
The plaintiff is an exclusive territory licensee of Integrated. The
plaintiff purchases Steve's Homemade Ice Cream and other frozen dessert products
from Integrated for sale in the United Kingdom. Plaintiff sought a preliminary
injunction restraining Integrated from replacing it as the distributor of such
dessert products with another distributor in the U.K. Integrated has denied
taking any such action, and the court denied the preliminary injunction.
Plaintiff also seeks damages alleging that Integrated sold it substandard and
defective products, failed to supply it with new products, and failed to deliver
recipes, technology and know how as provided for in the license agreement.
Integrated denies that the products were substandard or defective, and in its
counterclaims seeks termination of the license agreement and damages by reason
of plaintiff's being in default of the license agreement in failing to open the
required number of stores in the U.K. and in failing to pay certain royalties
due to Integrated. Integrated also maintains that as a result of such breaches,
plaintiff is not entitled to the recipes, technology or know how. The action is
in the final stages of discovery. The Corporation believes that it is unlikely
that the outcome of this litigation will have a material adverse affect on the
Corporation's financial position.
ITEM 4: SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical consolidated
financial data of CoolBrands, including the accounts of all companies acquired,
for the periods indicated. These companies, all of which were acquired in
transactions accounted for as purchases during the past five (5) years, are
included from their respective dates of acquisition. The selected historical
consolidated financial data for CoolBrands as of and for the five years ended
August 31, 2002 is derived from the audited Consolidated Financial Statements of
CoolBrands.
The selected consolidated financial information for the year ended
August 31, 2001 reflects to the acquisition of Eskimo Pie Corporation which
occurred October 6, 2000. The selected consolidated financial information for
the year ended August 31, 2000 reflects $26,513,000 of non-cash special charges.
These transactions affect the comparability of the information of these years
with the corresponding prior year.
13
Statement of Operations Data:
(000 omitted)
For the Year Ended August 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Revenues $242,222 $177,610 $ 97,488 $112,607 $ 89,979
Net Earnings (loss) $ 20,984 $ 11,128 ($27,826) $ 3,184 $ 12,941
Earnings (loss) Per Share
- Basic $ 0.44 $ 0.24 ($ 0.61) $ 0.07 $ 0.33
- Diluted $ 0.42 $ 0.24 ($ 0.61) $ 0.07 $ 0.31
Balance Sheet Data:
(000 omitted)
As At August 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Working Capital $ 57,354 $ 43,408 $ 30,053 $ 36,109 $ 46,464
Total Assets $283,662 $225,876 $142,300 $172,686 $171,788
Total Long-Term Liabilities $ 38,469 $ 42,710 $ 1,158 $ 4,244 $ 5,210
Shareholders' Equity $170,708 $132,637 $114,091 $140,174 $136,587
14
Historical Review of the Last Eight Quarters Ending on August 31, 2002
(000 omitted)
The chart below identifies the selected financial information concerning the
last eight quarters.
August 31, May 31, February 28, November 30,
2002 2002 2002 2001
------- ------- ------- -------
Revenues $86,365 $67,989 $41,081 $46,787
Net Earnings $ 9,101 $ 6,826 $ 3,646 $ 1,411
Earnings Per Share
- Basic $ 0.18 $ 0.14 $ 0.08 $ 0.03
- Diluted $ 0.17 $ 0.13 $ 0.08 $ 0.03
August 31, May 31, February 28, November 30,
2001 2001 2001 2000
------- ------- ------- -------
Revenues $62,445 $54,903 $33,384 $26,878
Net Earnings $ 5,366 $ 3,651 $ 1,837 $ 274
Earnings Per Share
- Basic $ 0.12 $ 0.08 $ 0.04 $ 0.01
- Diluted $ 0.11 $ 0.08 $ 0.04 $ 0.01
Dividend Policy
Determinations to pay future dividends and the amount thereof will
be made by the Board of Directors and will depend on future earnings, capital
requirements, financial condition and other relevant factors. The Corporation
intends to retain future earnings to support current operations and to provide
funds for future acquisitions and therefore does not anticipate paying dividends
in the foreseeable future.
ITEM 5: MANAGEMENT DISCUSSION AND ANALYSIS
Reference is made to the information under the heading "Management's
Discussion and Analysis" on pages 17 to 20 of the Corporation's 2002 Annual
Report to Shareholders for management's discussion and analysis of the
Corporation for the fiscal year ended August 31, 2002, which discussion and
analysis are specifically incorporated herein by reference.
ITEM 6: MARKET FOR SECURITIES
The Subordinate Voting Shares of the Corporation are listed and
posted for trading on The Toronto Stock Exchange, under the trading symbol
COB.a.
ITEM 7: DIRECTORS AND OFFICERS
The following table sets forth the name, municipality of residence,
position held with the Corporation and principal occupation of each of the
officers and directors of the Corporation.
Each director holds office until the close of business of the annual
meeting of shareholders of the Corporation following his election unless his
office is earlier vacated in accordance with the Corporation's articles of
association.
15
Name and
Municipality of Residence Positions with the Corporation Principal Occupation(1)
- ------------------------- ------------------------------ --------------------
Michael Serruya(2)(3) Co-Chairman and Director Co-Chairman of the Board of
Thornhill, Ontario the Corporation
Richard E. Smith (2)(3) Co-Chairman, Co-Chief Executive Officer of the Corporation
Southampton, New York Officer and Director
David J. Stein(4) President, Co-Chief Executive Officer of the Corporation
Southampton, New York Officer and Director
Aaron Serruya Executive Vice-President, Officer of the Corporation
Thornhill, Ontario Secretary and Director
David M. Smith(2)(3) Executive Vice-President and Officer of the Corporation
Manhasset, New York Director
Romeo DeGasperis(2)(3)(4) Director Vice President, Con-Drain
Toronto, Ontario Company Ltd.
Gary P. Stevens Chief Financial Officer Officer of the Corporation
Setauket, New York
Stephen Bogyay Executive Vice-President, Officer of the Corporation
Barbados, West Indies International Operations
John R. Welty, Jr. Vice-President, Franchising and Officer of the Corporation
Northport, New York Foodservice
Timothy Timm Vice-President, Manufacturing Officer of the Corporation
Green Bay, Wisconsin and Quality Assurance
John M. Kaczynski Senior Vice-President, Sales Officer of the Corporation
Marshfield, Massachusetts
William J. Weiskopf President, Value America Officer of the Corporation
Midlothian, Virginia Flavors and Ingredients
Paul C. Samuel Vice-President, Sam-Pack Officer of the Corporation
Randolph, New Jersey Flexible Packaging
V. Stephen Kangisser Vice-President, Sales Officer of the Corporation
Midlothian, Virginia
Fred J. Fullerton, Jr. Vice-President, Officer of the Corporation
Russellville, Arkansas Sales-Foodservice
John R. LeSauvage Vice-President, Marketing Officer of the Corporation
Chappaqua, New York
(1) The employment history of the above-noted directors and officers is
disclosed below.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
(4) Member of Corporate Governance Committee.
16
Michael Serruya - Co-Chairman of the Board and Director of the Corporation. Mr.
Michael Serruya is a co-founder of the Corporation and has been actively
involved in its development since its inception in 1986. Mr. Michael Serruya has
been a Director of the Corporation since 1994 when the Corporation first went
public. Mr. Serruya is primarily involved in the identification of potential
acquisitions and review of the Corporation's business plan. Michael Serruya was
the co-recipient in 1992 and 1993 of the Academy of Collegiate Entrepreneurs
Award for North America. Michael Serruya is the brother of Aaron Serruya.
Richard E. Smith - Co-Chairman, Co-Chief Executive Officer and Director of the
Corporation. Mr. Richard E. Smith was Chairman of the Board, Chief Executive
Officer and a Director of Integrated Brands Inc. from October 1985 until the
acquisition of Integrated Brands Inc. by a wholly owned subsidiary of the
Corporation in March 1998. Mr. Richard E. Smith has been a Director of the
Corporation since March 1998. Together with Mr. David Stein, he is responsible
for development of the Corporation's business plan. Mr. Richard E. Smith has
also been the Chairman of the Board, Secretary and a Director of Calip Dairies,
Inc. for more than the past five years. Calip Dairies, Inc. owns the trademark
and trade names of Dolly Madison Ice Cream. Mr. Smith was the founder of Frusen
Gladje Ltd. in 1980 and was its Chairman of the Board and Chief Executive
Officer until the sale of Frusen Gladje to Kraft, Inc. in 1985.
David J. Stein - President, Co-Chief Executive Officer and Director of the
Corporation. Mr. David J. Stein is also Vice Chairman and Chief Operating
Officer of Integrated Brands, and has been a Vice President of Integrated Brands
Inc. since December 1989. Mr. David J. Stein has been a Director of the
Corporation since March 1998. Together with Mr. Richard E. Smith, he is
responsible for development and execution of the Corporation's business plan.
Mr. David J. Stein is also involved in acquisitions by the Corporation.
Aaron Serruya - Executive Vice President and Director of the Corporation. Mr.
Aaron Serruya is a co-founder of the Corporation and has been actively involved
in its development since its inception in 1986. Mr. Aaron Serruya has been a
Director of the Corporation since 1994 when the Corporation first went public.
His day-to-day responsibilities include selling all new franchises and resales,
finding new locations, and research and development. Aaron Serruya was the
co-recipient in 1992 and 1993 of the Academy of Collegiate Entrepreneurs Award
for North America. Aaron Serruya is the brother of Michael Serruya.
David M. Smith - Executive Vice President and Director of the Corporation. Mr.
David M. Smith has been a Vice President of Integrated Brands since December
1989, and a Director of Integrated Brands Inc. since September 1993. Mr. David
M. Smith has been a Director of the Corporation since March 1998. Mr. David M.
Smith manages the information systems for the Corporation and is involved in the
marketing, new product development, sales and distribution functions of the
Corporation. Mr. David M. Smith is Mr. Richard E. Smith's son.
Romeo DeGasperis is Vice President of Con-Drain Company Ltd., a family business
in which he has worked for over 18 years. Mr. Romeo DeGasperis manages the
operations and personnel of the company and is responsible for tendering new
projects as well as all the networking and communications for the company. Mr.
Romeo DeGasperis has been a Director of the Corporation since 2000.
17
Gary P. Stevens - Chief Financial Officer of the Corporation. Mr. Stevens has
been President of Integrated Brands Inc. since June 1990 and Treasurer and Chief
Financial Officer since April 1989. He was a Vice Chairman of the Board of
Integrated Brands from August 1988 until June 1990. Mr. Stevens became a
Director of Swensen's Inc. in October 1987 and served as President of Swensen's
Inc. from October 1987 until June 1990. He joined Swensen's in August 1986 as
Senior Executive Vice President - Finance and Administration.
Stephen Bogyay - Executive Vice-President, International Operations. Mr. Bogyay
has served as Executive Vice-President and Chief Operating Officer and Director
of Kayla Foods Int'l (Barbados) Inc. since 1996. Mr. Bogyay was President and
Director of Bresler's (Barbados) Inc. from 1995 to 1996. Mr. Bogyay served as
Vice President and Director of Yogen Fruz (Barbados) Inc. from 1994 to 1996.
John R. Welty Jr. - Vice-President, Franchising and Foodservice. Mr. Welty
became Vice-President, Eskimo Pie Foodservice in October 2000 and
Vice-President, CoolBrands Franchise in May 1998. Mr. Welty has been President
of Swensen's since July 1990. Prior to 1990, Mr. Welty held various executive
positions with Swensen's.
Timothy Timm - Vice-President, Manufacturing and Quality Assurance. Mr. Timm has
been Vice-President, Manufacturing and Quality Assurance since March 1998. He
was Vice-President of Manufacturing with Integrated Brands Inc. since 1988.
Prior to 1988, Mr. Timm held various manufacturing relations positions in the
ice cream industry.
John M. Kaczynski - Senior Vice-President, Sales. Mr. Kaczynski has been Senior
Vice-President, Sales since March 1998. From 1997 to 1998, Mr. Kaczynski was
Vice-President, Sales for Integrated Brands. From 1988 to 1998, Mr. Kaczynski
was Division Sales Manager with Nestle.
William J. Weiskopf - President, Value American Flavors and Ingredients. Mr.
Weiskopf became President of Value American Flavors and Ingredients in October
2000. Since August 1997, Mr. Weiskopf was Vice-President and General Manager,
Flavors Division of Eskimo Pie Corporation. From November 1995 to August 1997,
Mr. Weiskopf was National Sales Manager, Flavors.
Paul C. Samuel - Vice-President, Sam-Pack Flexible Packaging. Mr. Samuel has
been Vice-President, Sam-Pack Flexible Packaging since October 2000. Since July
1988, Mr. Samuel was Plant/General Manager of the packaging operation.
V. Stephen Kangisser - Vice-President, Sales. Mr. Kangisser became
Vice-President, Sales in October 2000. From August 1998 to October 2000, he was
Vice-President, Sales with Eskimo Pie Corporation and from May 1996 to July 1998
he was Vice-President, Marketing with Eskimo Pie Corporation.
Fred J. Fullerton, Jr. - Vice-President, National Accounts for Eskimo Pie
Foodservice. Mr. Fullerton became Vice-President of National Accounts for Eskimo
Pie Foodservice in October 2000 and is responsible for multiple unit chain
account sales. In 1994, Mr. Fullerton became Director of Business Development
for Eskimo Pie Foodservice.
John R. LeSauvage - Vice-President, Marketing. Mr. LeSauvage has been
Vice-President, Marketing since June 1999, when he joined the Corporation. Since
1974, Mr. LeSauvage has held various sales and marketing related positions in
the frozen dessert industry.
The Corporation does not have an executive committee of its Board of
Directors.
18
As of August 31, 2002, all directors and officers of the
Corporation, as a group beneficially own or exercise control of approximately
56% of the votes attaching to all outstanding shares of the Corporation,
comprised of the following: 155,031 multiple voting shares held directly by The
Serruya Family Trust and 4,078,301 multiple voting shares held by 1082272
Ontario Inc., a wholly-owned subsidiary of The Serruya Family Trust; 1,419,467
multiple voting shares held by Richard E. Smith, 288,106 multiple voting shares
held by David M. Smith and 45,138 multiple voting shares held by David J. Stein;
225,827 subordinate voting shares held by Gary Stevens, Chief Financial Officer
of the Corporation. In addition, Michael Serruya owns 56,000 subordinate voting
shares, Aaron Serruya owns 50,749 subordinate voting shares and Richard E. Smith
owns 20,000 subordinate voting shares.
ITEM 8: ADDITIONAL INFORMATION
The Corporation will provide upon request to the Secretary of the
Corporation:
(a) when the securities of the Corporation are in the course of a
distribution pursuant to a short form prospectus or a
preliminary short form prospectus has been filed in respect of
a distribution of its securities,
(i) one copy of this Annual Information Form, together with one copy of
any document, or the pertinent pages of any document, incorporated
by reference in this Annual Information Form;
(ii) one copy of the comparative consolidated financial statements of the
Corporation for its most recently completed fiscal financial year
together with the accompanying report of the auditor and one copy of
any interim consolidated financial statements of the Corporation
subsequent to the consolidated financial statements for its most
recently completed financial year;
(iii) one copy of the information circular of the Corporation in respect
of its most recent Annual Meeting of Shareholders that involved the
election of directors or one copy of any annual filing prepared in
lieu of that information circular, as appropriate; and
(iv) one copy of any documents that are incorporated by reference into
the preliminary short form prospectus or the short form prospectus
and are not required to be provided under (i) to (iii) above; or
(b) at any other time, one copy of any other documents referred to
in (a)(i), (ii) and (iii) above.
Additional information including directors' and officers'
remuneration and indebtedness, principal holders of the Corporation's
securities, options to purchase securities and interests of insiders in material
transactions, where applicable, is contained in the Corporation's information
circular for its most recent annual meeting of shareholders that involved the
election of directors, and additional financial information is provided in the
Corporation's comparative financial statements for its most recently completed
financial year.
The Board of Directors has approved the contents of this Annual
Information Form.
19
AUDITORS' REPORT
To the Directors of CoolBrands International Inc.:
We have audited the consolidated balance sheets of CoolBrands International Inc.
as at August 31, 2002 and 2001 and the consolidated statements of earnings,
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian and U.S. generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at August 31, 2002
and 2001 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
BDO DUNWOODY LLP
"BDO DUNWOODY LLP"
Chartered Accountants
Toronto, Ontario
November 1, 2002
F-1
================================================================================
Comments by Auditor for U.S. Readers
On Canada-U.S. Reporting Difference
- --------------------------------------------------------------------------------
In the United States, reporting standard for auditors require the addition of an
explanatory paragraph (following the opinion paragraph) when there is a change
in accounting principles that has a material effect on the comparability of the
Company's financial statements, such as the change described in Note 2 (a) of
the financial statements. Our report to the Directors dated November 1, 2002 is
expressed in accordance with Canadian reporting standards which do not require a
reference to such a change in accounting principles in the Auditors' Report when
the change is properly accounted for and adequately disclosed in the financial
statements.
"BDO DUNWOODY LLP"
Chartered Accountants
Toronto, Ontario
November 1, 2002
F-1A
CoolBrands International Inc.
Consolidated Balance Sheets as at August 31, 2002 and 2001
(in thousands of dollars)
2002 2001
$ $
Assets
Current Assets:
Cash and short term investments 47,086 31,568
Receivables (note 4) 43,001 32,123
Receivables - affiliates (note 13) 3,792 2,875
Inventories 25,361 16,539
Prepaid expenses 6,752 4,420
Asset held for sale 3,432 3,407
Future income taxes (note 9) 2,415 3,005
------- -------
Total current assets 131,839 93,937
Future income taxes (note 9) 3,433 1,383
Property, plant and equipment (note 5) 19,710 14,881
License agreements, net of accumulated amortization of
$3,711 (2001 - $2,603) 13,438 14,423
Intangible and other assets (note 6) 7,332 6,972
Goodwill (note 1) 107,910 94,280
------- -------
283,662 225,876
======= =======
See accompanying notes to consolidated financial statements.
F-2
CoolBrands International Inc.
Consolidated Balance Sheets as at August 31, 2002 and 2001
(in thousands of dollars)
2002 2001
$ $
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable 24,399 24,068
Payables - affiliates (note 13) 978 723
Accrued liabilities 32,880 17,377
Income taxes payable 7,347 2,799
Future income taxes (note 9) 2,566 904
Current maturities of long-term debt (note 7) 6,315 4,658
------- -------
Total current liabilities 74,485 50,529
Long-term debt (note 7) 29,279 35,381
Other liabilities 5,240 5,221
Future income taxes (note 9) 3,950 2,108
------- -------
Total liabilities 112,954 93,239
------- -------
Commitments and contingencies (notes 11 and 12)
Shareholders' Equity
Capital stock (note 8) 122,378 105,573
Cumulative translation adjustment 5,685 5,403
Retained earnings 42,645 21,661
------- -------
Total shareholders' equity 170,708 132,637
------- -------
283,662 225,876
======= =======
See accompanying notes to consolidated financial statements.
Approved by the Board,
"David J. Stein"
_____________________________________, Director
"Romeo DeGasperis"
_____________________________________, Director
F-3
CoolBrands International Inc.
Consolidated Statements of Earnings
for the years ended August 31, 2002 and 2001
(in thousands, except for earnings per share data)
2002 2001
$ $
Revenues:
Sales 236,028 170,549
Franchising and licensing revenues:
Royalty income 3,070 3,326
Franchise and license fees 1,213 1,349
Consumer products license fees 904 764
Net rental and other income 1,007 1,622
------- -------
Total revenues 242,222 177,610
------- -------
Operating expenses:
Cost of goods sold 129,246 98,190
Selling, general and administrative expenses 77,558 58,699
Interest expense 2,544 3,456
------- -------
209,348 160,345
------- -------
Earnings before income taxes 32,874 17,265
------- -------
Provision for income taxes (note 9):
Current 9,715 2,712
Future 2,175 3,425
------- -------
11,890 6,137
------- -------
Net earnings 20,984 11,128
======= =======
Earnings per share:
Basic 0.44 0.24
Diluted 0.42 0.24
Weighted average shares outstanding:
Shares used in per-share calculation - basic 48,050 45,834
Shares used in per-share calculation - diluted 50,346 46,457
See accompanying notes to consolidated financial statements.
F-4
CoolBrands International Inc.
Consolidated Statements of Retained Earnings
for the years ended August 31, 2002 and 2001
(in thousands of dollars)
2002 2001
$ $
Retained earnings as originally stated
Beginning of year 21,661 6,514
Adjustment to reflect adoption of asset and liability
method of accounting for future income taxes (note 2) 4,019
------- -------
Restated retained earnings
Beginning of year 21,661 10,533
Net earnings for the year 20,984 11,128
------- -------
Retained earnings - end of year 42,645 21,661
======= =======
See accompanying notes to consolidated financial statements.
F-5
CoolBrands International Inc.
Consolidated Statements of Cash Flows
for the years ended August 31, 2002 and 2001
(in thousands of dollars)
2002 2001
$ $
Cash and short term investments provided by (used in):
Operating activities:
Net earnings 20,984 11,128
Items not affecting cash
Depreciation and amortization 4,646 6,908
(Gain) loss on disposal of equipment 290
Future income taxes 2,175 3,425
Changes in current assets and liabilities, net of
businesses acquired
Receivables (8,156) (11,451)
Receivables - affiliates (927) (1,248)
Allowance for doubtful accounts (980) 2,010
Inventories (7,500) (1,850)
Prepaid expenses (2,285) (1,700)
Accounts payable 58 6,286
Payables - affiliates 257 (56)
Accrued liabilities 11,520 (6,861)
Income taxes payable 4,587 1,297
Other assets (336) (39)
Other liabilities 19 478
------- -------
Cash provided by operating activities 24,062 8,617
------- -------
Investing activities:
Increase in notes receivable (44) (136)
Repayment of notes receivable 91 291
Purchase of leasehold improvements and equipment (6,338) (3,700)
Purchase of intangible assets (260) (94)
Proceeds on sale of equipment 528
Acquisitions, net of cash acquired (8,628) (41,175)
------- -------
Cash used in investing activities (15,179) (44,286)
------- -------
Financing activities:
Proceeds from special warrants 13,908
Proceeds from borrowing of long-term debt 45,852
Proceeds from issuance of Class A and B shares 2,507 104
Repayment of long-term debt (6,662) (14,344)
------- -------
Cash provided by financing activities 9,753 31,612
------- -------
(Decrease) increase in cash flows due to changes in
foreign exchange rates
(3,118) 262
------- -------
Increase (decrease) in cash and short term investments 15,518 (3,795)
Cash and short term investments - beginning of year 31,568 35,363
------- -------
Cash and short term investments - end of year 47,086 31,568
======= =======
See accompanying notes to consolidated financial statements.
F-6
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
1. Description of business and summary of significant accounting policies
CoolBrands International Inc. (the "Company") markets, distributes,
sub-licenses and sells a variety of branded frozen dessert products to
supermarkets, grocery stores, club stores, convenience stores, gourmet
shops and delicatessens in Canada, the United States and certain foreign
countries and also franchises frozen yogurt and ice cream stores, dip
shops and family style restaurants throughout Canada, the United States
and over 80 foreign countries. The Company also manufactures and sells
soft serve frozen yogurt and ice cream mixes, a variety of flavours and
ingredients and flexible packaging.
Basis of presentation
The consolidated financial statements are prepared by management using
accounting principles generally accepted in Canada and include all wholly
and majority owned subsidiaries. All significant intercompany transactions
of consolidated subsidiaries are eliminated. Acquisitions recorded as
purchases are included in the statement of earnings from the date of
acquisition. All amounts are reported in Canadian dollars unless otherwise
indicated.
Use of estimates
The preparation of consolidated 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 and accompanying notes. Actual results could differ
from those estimated.
Cash and short term investments
All highly liquid commercial paper purchased with maturities of three
months or less is classified as a cash equivalent. Cash equivalents are
stated at cost, which approximates market value.
Inventories
Inventories consist primarily of ice cream, frozen yogurt and frozen
dessert products, food supplies and packaging. Inventories are valued at
the lower of cost and net realizable value, with cost determined
principally by the first-in, first-out (FIFO) method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation of buildings and leasehold improvements and
equipment is provided by the straight-line or declining balance methods,
using the estimated useful lives of the assets, principally 25 to 38 years
and 3 to 10 years, respectively. Store leasehold improvements are
amortized on a straight-line basis over the terms of the leases,
principally 5 to 10 years.
Trademarks, license agreements and franchise agreements and rights
Trademarks, license agreements and franchise agreements and rights are
stated at cost less accumulated amortization. Amortization is provided by
the straight-line method using the terms of the agreements, which range
from 3 to 20 years.
F-7
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
1. Description of business and summary of significant accounting policies
(cont'd)
Goodwill
Goodwill represents the excess of cost over the fair market value of the
acquired business' net assets, less accumulated amortization through
August 31, 2001. Goodwill was amortized on a straight-line basis over
twenty to forty years, the period of expected benefit, prior to September
1, 2001. As of September 1, 2001 the Company adopted the new
recommendations of the Canadian Institute of Chartered Accountants on
accounting for goodwill and other intangible assets. As a result of this
change, goodwill is no longer amortized.
Goodwill is evaluated annually for possible impairment. The Company uses
an estimate of the related reporting units' discounted future cash flows
in determining if the fair value of the reporting units' is recoverable.
Any permanent impairment in the value of goodwill would be written off
against earnings. Based on the impairment tests performed, there was no
impairment of goodwill in fiscal 2002. As a result of the Company's
evaluation and review of goodwill and intangible assets in 2002 the
Company classified $5,339,000 as License Agreements which had been
previously included as goodwill in connection with the acquisition of
Eskimo Pie Corporation. There can be no assurance that future goodwill
impairment tests will not result in a charge to earnings.
Revenue recognition
Revenue from sales of the Company's products is recognized at the time of
sale, which is generally when products are shipped to customers.
Revenue from sales by Company-owned and operated stores is recognized when
products are purchased by customers.
Master franchise fee revenues are recognized at the time the Company has
received the deposit specified in the master franchise agreement, has
substantially performed all significant services to be provided in
accordance with the terms of the agreement and when collectibility is
reasonably determinable.
Single store franchise fees are recognized as revenue when the franchise
application is approved, cash payments are received, and the Company has
performed substantially all services required under the agreement.
Continuing franchise royalties are based on a percentage of gross sales as
reported by the franchisees or gross products purchased by the
franchisees. These fees are recognized on an accrual basis as they are
earned.
Advertising
The Company spends a significant amount of its advertising dollars with
its supermarket customers in the form of co-operative advertising in the
chains' weekly circulars. The remainder of the Company's advertising is
spent on media and other direct advertising. All advertising costs are
expensed as incurred. The Company spent $5,991,000 on advertising for the
year ended August 31, 2002 (2001 - $3,550,000).
Product introductory costs
The Company capitalizes certain product introductory placement costs (i.e.
slotting fees) paid to customers, which are incurred to develop new
markets for new and existing products sold for the first time. The payment
of such fees is common in the industry. These costs are expensed over a
twelve month period. Product introductory expense was $6,700,000 for the
year ended August 31, 2002 (2001 - $2,683,000).
Fair value of financial instruments
The carrying amount of financial instruments including cash and short term
investments, receivables, receivables - affiliates, accounts payable,
payables - affiliates and accrued liabilities approximates fair value at
August 31, 2002, because of the relatively short maturity of these
instruments.
F-8
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
1. Description of business and summary of significant accounting policies
(cont'd)
Concentration of credit risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and short-term
investments and receivables. The Company attempts to minimize credit risk
with respect to receivables by reviewing customers' credit history before
extending credit, and by regularly monitoring customers' credit exposure.
The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical
trends and other information.
Earnings per share
Effective September 1, 2001 the Company adopted the new recommendations of
the Canadian Institute of Chartered Accountants on earnings per share,
which requires the use of the treasury stock method to determine the
dilutive effect of stock options as opposed to the previously used imputed
earnings approach in the calculation of diluted earnings per share.
Earnings per share data for the year ended August 31, 2001 has been
calculated using the new recommendations.
Foreign currency translation
Translation gains or losses of accounts of foreign subsidiaries considered
financially and operationally self-sustaining are deferred as a separate
component of shareholders' equity until there has been a realized
reduction in the net investment.
Foreign currencies are translated into Canadian dollars using the average
exchange rate for the year for items included in the consolidated
statements of operations. Foreign currencies are translated into Canadian
dollars using the current rate for assets and liabilities included in the
consolidated balance sheets except for earnings reinvested in the
business, which are translated at historical rates.
Income taxes
Income taxes are calculated using the asset and liability method of
accounting for income taxes. Under this method, current income taxes are
recognized for the estimated income taxes payable for the current period.
Future income tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities, and are measured using the substantially enacted tax rates
and laws that will be in effect when the differences are expected to
reverse.
Stock Option Plan
The Company has a stock option plan for directors, officers, consultants
and key employees. No compensation expense is recognized in accounting for
stock options in the Company's Consolidated Statements of Earnings because
the exercise price of the Company's granted stock options equals the
market price of the underlying stock on the date of grant. When options
are exercised the amount received is credited to share capital.
Reclassification
Certain 2001 amounts have been reclassified to conform with the 2002
presentation.
F-9
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
2. Change in accounting policies
a. Goodwill
Effective September 1, 2001, the Company adopted the new recommendations
of The Canadian Institute of Chartered Accountants relating to accounting
for goodwill. Under the new standard, goodwill and other intangible assets
with indefinite lives are not amortized, but are tested for impairment at
least annually as well as on adoption of the new standard. The effect of
this change is to increase earnings by $1,669,000 or $.04 per share in
fiscal 2001 as noted in the following table.
Year Ended
August 31
2002 2001
---- ----
$ $
Reported net earnings 20,984 11,128
Goodwill amortization 1,669
-------- --------
Adjusted net earnings 20,984 12,797
======== ========
Basic earnings per share:
Reported net earnings $ 0.44 $ 0.24
Goodwill amortization 0.04
-------- --------
Adjusted net earnings $ 0.44 $ 0.28
======== ========
Diluted earnings per share:
Reported net earnings $ 0.42 $ 0.24
Goodwill amortization 0.04
-------- --------
Adjusted net earnings $ 0.42 $ 0.28
======== ========
b. Earnings Per Share
The effect of adopting the Treasury Method, as described in Note 1, was to
increase diluted earnings per share in fiscal 2001 by $.01.
b. Income Taxes
In fiscal 2001, the Company adopted the recommendations of the Canadian
Institute of Chartered Accountants (the "CICA") with respect to accounting
for income taxes. Under the recommendations, the asset and liability
method of income tax allocation is used, based on differences between
financial reporting and tax bases of assets and liabilities. Previously,
the deferral method of income tax allocation was used, based on
differences in the timing of reporting income and expenses in financial
statements and tax returns, and measured at the tax rate in effect in the
year the difference originated. The new method was applied retroactively
without restatement of the 2000 financial statements. The effect of the
recommendations on the opening 2001 financial statements, was to increase
net future income tax assets on the balance sheet by $4,019,000 with an
offsetting increase in retained earnings.
F-10
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
3. Acquisitions
a. 2002 Acquisitions
On June 30, 2002, the Company acquired the business and assets of
Fruit-a-Freeze, Incorporated. Fruit-a-Freeze, Incorporated began making
frozen fruit bars in 1977, and was a pioneer in establishing the market
for frozen novelties made from whole fruit and all natural ingredients. In
its home market in Southern California, Fruit-a-Freeze products are
consistently top ranked sellers among frozen novelties.
The acquisition included the Fruit-a-Freeze leased frozen novelty
manufacturing facility in Norwalk, CA, and Fruit-a-Freeze's frozen
distribution center and direct store delivery route distribution system,
operated out of a frozen storage warehouse located at the Norwalk
facility. The Fruit-a-Freeze distribution system services supermarket
chains, club stores, independent grocers, convenience stores and
independent distributors throughout Southern California.
The following is a summary of the assets acquired and the fair value
assigned thereto, and the purchase consideration given:
Fair value acquired: $ Purchase consideration: $
Current assets 2,814 Cash 137
Equipment 970 Future payment
Other assets 23 contingent upon year
Intangible assets 153 one sales 2,280
Goodwill 4,921
-----
8,881
Less: Liabilities 6,464
----- -----
2,417 2,417
===== =====
In addition to the $2,280,000 cash payment contingent upon sales in year
one, the Agreement specifies additional payments contingent upon the sales
of Fruit-a-Freeze branded products in excess of U.S. $11,173,000 in both
years two and three. However, since it is unlikely that any additional
payments will be required for years two and three, the Company has not
recorded a liability for such additional contingent consideration
payments.
F-11
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
3. Acquisitions (cont'd)
On August 16, 2002, the Company purchased the business and assets of
Chipwich, Inc., maker of the Chipwich Ice Cream Cookie Sandwich. A
Chipwich is premium ice cream sandwiched between two specially formulated
chocolate chip cookies and rolled in pure chocolate chips. When it was
introduced in 1981, Chipwich created the adult premium ice cream novelty
category. Since then, Chipwich has established itself as one of the
best-known brand names for frozen novelties.
The following is a summary of the assets acquired and the fair value
assigned thereto, and the purchase consideration given:
Fair value acquired: $ Purchase consideration: $
Current assets 379 Cash 8,491
Plant equipment 550 Cash payment, Due:
Intangible assets 156 January 15, 2003,
Goodwill 8,187 subject to certain
potential adjustments 391
Warrants issued 390
----- ------
9,272 9,272
===== ======
b. 2001 Acquisition
On October 6, 2000, the Company completed the acquisition of Eskimo Pie
Corporation by purchasing the 2.9 million shares not owned by the Company
for U.S.$10.25 a share or U.S.$29.7 million. In connection with the
acquisition, a U.S. subsidiary borrowed U.S.$30 million to finance the
acquisition.
Eskimo Pie created the frozen novelty industry in 1921 with the invention
of the Eskimo Pie ice cream bar. Today, the Company markets a broad range
of frozen novelties, ice cream and frozen dessert products under the
Eskimo Pie, Welch's and Weight Watchers Smart Ones brand names.
In addition to products manufactured for use in its business, the Company
sells various other ingredients to the dairy industry produced at its New
Berlin, Wisconsin facility. The business involves blending, cooking and
processing basic flavours and fruits to produce products, which
subsequently are used by customers to flavour frozen desserts, ice cream
novelties and fluid dairy products. The Company also manufactures flexible
packaging, such as private label ice cream novelty wraps, at its
Bloomfield, New Jersey plant. These products are sold to the dairy
industry, including many of the Company's manufacturers.
F-12
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
In addition to products manufactured for use in its business, the Company
also manufacturers soft serve yogurt and premium ice cream mixes in a
leased facility in Russellville, Arkansas. Soft serve mix is sold under
the Eskimo Pie brand name to broad-line foodservice distributors, yogurt
shops and other foodservice establishments which, in turn, sell soft serve
ice cream and yogurt products to consumers.
The following is a summary of the assets and liabilities acquired
and the fair value assigned thereto, and the purchase consideration
given:
Fair value acquired: $ Purchase consideration: $
Current assets 20,420 Cash 54,941
Property, plant and equipment 8,164 Acquisition costs 454
Asset held for sale 3,303
License agreements 5,339
Intangible assets 2,268
Goodwill 45,827
------
85,321
Less: Liabilities 29,926
------ ------
55,395 55,395
====== ======
4. Receivables
2002 2001
$ $
Trade accounts receivable 45,502 34,814
Franchise and license fees receivable 2,326 3,159
Notes receivable, current maturities 196 145
------ ------
48,024 38,118
Less: Allowance for doubtful accounts 5,023 5,995
------ ------
43,001 32,123
====== ======
5. Property, plant and equipment
2002 2001
$ $
Land 1,032 1,025
Buildings 4,651 4,462
Machinery and equipment 19,438 12,962
Leasehold improvements 2,629 1,820
------ ------
27,750 20,269
Less: Accumulated depreciation and amortization
Buildings 641 263
Machinery and equipment 6,612 4,567
Leasehold improvements 787 558
------ ------
19,710 14,881
====== ======
F-13
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
6. Intangible and other assets
2002 2001
$ $
Trademarks 4,857 4,508
Franchise agreements and rights 825 821
Territorial agreements 479 475
Notes receivable 538 636
Other 2,374 2,017
------ ------
9,073 8,457
Less: Accumulated amortization
Trademarks 1,103 985
Franchise agreements and rights 256 191
Territorial agreements 382 309
------ ------
7,332 6,972
====== ======
7. Long-term debt
2002 2001
$ $
Term loan, unsecured 33,516 39,853
Term loans, secured 507
Revolving line of credit 1,052
Capitalized leases 519 186
------ ------
35,594 40,039
Less: Current maturities 6,315 4,658
------ ------
29,279 35,381
====== ======
In connection with the acquisition of Eskimo Pie Corporation, a U.S.
subsidiary borrowed U.S. $30,000,000, to finance the acquisition. The
unsecured term loan is payable in monthly installments of U.S. $250,000,
with the remaining principal balance due November 1, 2005. Interest is
payable monthly on the unpaid principal balance with interest rates
fluctuating with changes in the prime lending or labor rate and the ratio
of funded debt to EBITDA. The interest rates, plus applicable margins were
fixed through August 31, 2001 at the lower of prime plus 1/2% or labor
plus 2 1/2%. As of August 31, 2002, the term loan balance was U.S.
$21,500,000.
All borrowings under the above unsecured term loan agreement are
guaranteed by the Company. The agreement contains restrictions relating to
the payment of dividends, rental obligations, liens, indebtedness,
dispositions of property, change in the nature of its business, change in
ownership and requires that the net proceeds from the sale (other than in
the ordinary course of business) of any assets of Eskimo Pie Corporation
must be utilized to reduce the then outstanding principal balance of the
term loan. In addition, the Company must maintain certain financial ratios
and limit capital expenditures to U.S. $5 million during any fiscal year.
The U.S. based subsidiary entered into an interest rate protection
agreement on April 1, 2001 covering $15,000,000 of the then outstanding
principal balance of the senior unsecured term loan with a fixed labor
interest rate of 5.18%, plus applicable margin. This interest rate
protection agreement terminates on April 1, 2004. At August 31, 2002, the
fair value of this interest rate protection agreement was $593,000 in
favor of the bank and is not reflected in the Consolidated Financial
Statements.
F-14
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
The subsidiary also has a U.S. $10 million unsecured revolving credit
facility. The revolving credit facility is available for general corporate
purposes and has a maturity date of December 31, 2002. Interest is payable
monthly on the unpaid principal balance of borrowings under this facility
with an interest rate of labor plus 2%. The subsidiary agreed to pay a fee
of 1/4% per annum on the unused portion of the commitment. As of August
31, 2002, the subsidiary has $U.S.10 million of available credit under the
revolving credit facility.
Certain term loans, a U.S. $750,000 revolving line of credit and
capitalized leases were assumed by a U.S. subsidiary in connection with
the acquisition of the business and assets of Fruit-A-Freeze, Inc. The
secured term loans are payable in monthly installments of U.S. $21,521.
Interest at prime plus 1% is payable monthly on the unpaid principal
balance with interest rates fluctuating with changes in the prime lending
rate. The U.S. $750,000 revolving line of credit is available for general
corporate purposes and has a maturity date of June 1, 2003. Interest is
payable monthly on the unpaid principal balance with an interest rate of
prime plus 1%. As of August 31, 2002, $675,000 is outstanding under the
revolving line of credit.
Repayments of long-term debt due in each of the next five years are as
follows:
$
2003 6,315
2004 4,996
2005 4,709
2006 19,526
2007 48
------
35,594
======
Interest paid during the year ended August 31, 2002 was $2,472,000 (2001 -
$3,271,000).
8. Capital stock
Authorized number of shares:
Class A Subordinate voting shares 200,000,000
Class B Multiple voting shares 200,000,000
Class A subordinate voting shares have a preferential right to receive
cash dividends when, as and if declared by the Board of Directors. Class B
multiple voting shares can be converted at any time into an equivalent
number of Class A subordinate voting shares. The Class A subordinate
voting shares are entitled to one vote per share and the Class B multiple
voting shares are entitled to ten votes per share.
F-15
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
8. Capital stock (cont'd)
The Company had the following share transactions during the years ended
August 31, 2002 and 2001:
Class A Class B
subordinate multiple
voting shares voting shares Warrants Amount
# # # $
---------------- -------------- ------------ -----------
Balance at August 31, 2000 39,518 6,308 105,469
Shares issued for cash for stock options
exercised 14 49 104
Multiple voting shares converted to
Subordinate voting shares 117 (117)
---------------- -------------- -----------
Balance at August 31, 2001 39,649 6,240 105,573
Shares issued upon the exercise of special
warrants 3,750 13,908
Shares issued for cash for stock options
exercised 1,894 173 2,507
Multiple voting shares converted to
Subordinate voting shares 204 (204)
Warrants issued in connection with
acquisition 100 390
---------------- -------------- ------------ -----------
Balance at August 31, 2002 45,497 6,209 100 122,378
================ ============== ============ ===========
Paid-in-balance $104,604 $17,384 $390
================ ============== ============
The Company has granted options to purchase subordinate and multiple
voting shares to directors, officers, consultants and key employees under
the Company's stock option plans. A summary of the activity of the
Company's stock option plans for the years ended August 31, 2002 and 2001
is summarized below:
1998 Stock Integrated Brands Stock 1995
Option Option Plan Stock Option
Plan Plan
-------------- ------------------------- -------------
Subordinate Multiple Subordinate Subordinate Weighted
Voting Voting Voting Voting Average
Shares Shares Shares Shares Exercise
Price
------------- ------------------------ ------------- -----------
Outstanding at August 31, 2000 2,897 349 254 28 4.31
Granted 2,918 1.19
Exercised (49) (14) 1.66
Expired (4) (28) 1.89
Cancelled (1,008) 4.55
----------- ----------------------- ----------- ----------
Outstanding at August 31, 2001 4,807 300 236 2.57
Granted 55 1.24
Exercised (1,658) (173) (236) 1.21
Cancelled (28) 1.24
----------- ----------------------- ----------- ----------
Outstanding at August 31, 2002 3,176 127 3.41
=========== ======================= =========== ==========
Options exercisable at August 31, 2002 2,767 127 3.71
=========== ======================= =========== ==========
F-16
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
8. Capital stock (cont'd)
Stock options outstanding at August 31, 2002, aggregating 3,303,000
shares, have a weighted-average contractual life of 2.9 years and a
weighted-average exercise price of $3.41 per share. Stock options
exercisable at August 31, 2002 have a weighted-average exercise price of
$3.71 per share. The price range was $1.15 to $1.35 (1,624,000 outstanding
and 1,215,000 exercisable), $4.30 (1,015,000 options exercisable), $5.72
(127,000 exercisable) and $7.80 (537,000 options exercisable) at August
31, 2002. Stock options reserved for future grant at August 31, 2002
aggregated 166,000.
On November 1, 2002, the Company's shareholders approved the 2002 Stock
Option Plan, which reserved 5.17 million options for issuance and limited
the number of options that may be granted in any one fiscal year to 2.5%
of outstanding shares.
9. Income taxes
The effective income tax rate on earnings is affected from year to year by
the geographic mix of the consolidated earnings before income taxes. The
following table reconciles income taxes computed by applying the combined
Canadian federal/provincial statutory rate with the actual income tax
provision:
2002 2001
% %
Combined basic Canadian Federal and Provincial income
tax rate 44.62 44.62
Impact of operating in foreign countries with lower
effective rates (9.63) (11.06)
Permanent differences 1.18 1.98
------- -------
36.17 35.54
======= =======
The Company's subsidiaries have operating loss carry-forwards for income
tax purposes amounting to approximately $5,393,000 (2001 - $7,639,000).
These losses expire in various amounts through the year 2019.
Significant components of the Company's future tax assets and liabilities
as of August 31, 2002 are as follows:
Future Tax Assets $ Future Tax Liabilities $
----------------- ----------------------
Tax amortization in excess of book
Non-capital loss carry-forwards 2,000 amortization 2,652
Tax depreciation in excess of book
Accounting allowances not deducted for tax 1,579 depreciation 377
Other 2,269 Other 3,487
----- -----
Total Future Tax Assets 5,848 Total Future Tax Liabilities 6,516
===== =====
Income taxes paid during the year ended August 31, 2002 were $4,739,000
(2001 - $248,000).
F-17
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
10. Retirement Plans
Eskimo Pie Corporation had maintained two defined benefit pensions plans
covering substantially all salaried employees. Upon the acquisition of
Eskimo Pie Corporation by the Company all future participation and all
benefits under the plans were frozen. These plans provide retirement
benefits based primarily on employee compensation and years of service up
to the acquisition of Eskimo Pie Corporation by the Company. The above
mentioned plans are referred to as the "Pension Benefits".
In addition, Eskimo Pie Corporation entered into an agreement with
Reynolds Metals Company to indemnify the cost of retiree health care and
life insurance benefits for salaried employees of Eskimo Pie Corporation
who had retired prior to April 1992. Under this agreement, Eskimo Pie
Corporation may elect to prepay its remaining obligation. Eskimo Pie
Corporation did not provide postretirement health and life insurance
benefits for employees who retired subsequent to April 1992. This
indemnity agreement is referred to as the "Other Benefits".
The following table reconciles the changes in benefit obligations and plan
assets in 2002, and reconciles the funded status to accrued benefit cost
at August 31, 2002:
Pension Benefits Other Benefits
---------------- --------------
$ $
Benefit Obligation
Beginning balance 2,956 2,755
Interest cost 204 225
Actuarial loss 28
Lump sum purchase of obligations (105)
Benefit payments (110) (146)
------ ------
Ending balance 2,973 2,834
====== ======
Plan assets - Basic value
Beginning balance 3,201
Actual return on plan assets (296)
Contributions 117
Benefit payments (216)
------ ------
Ending balance 2,806
====== ======
F-18
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
10. Retirement Plans (cont'd)
The funded status for the post retirement health and life insurance
benefits is as follows:
Other Benefits
--------------
$
Benefit obligations in excess of Plan assets 2,834
=====
Accrued benefit cost 2,834
=====
The accrued benefit cost of $2,834,000 is included in Other liabilities at
August 31, 2002.
The following table provides the components of the net periodic benefit
cost:
Pension Benefits Other Benefits
---------------- --------------
$ $
Interest cost 204 225
Expected return on Plan assets (254)
Recognized net actuarial gain (1)
---- ---
Net period benefit cost (income) (51) 225
==== ===
The assumptions used in the measurement of the Eskimo Pie Corporation's
benefit obligations are as follows:
Pension Benefits Other Benefits
---------------- --------------
Benefit obligation, beginning of year 7.0% 7.75%
Expected return on plan assets, during the year 8.0%
The weighted average annual assumed rate of increase in the per capita
cost of covered benefits (i.e. health care cost trend rate) is 6.5% for
2002 and is assumed to decrease to 5% by 2003 and remain at that level
thereafter. A one percentage point increase or decrease in the assumed
health care cost trend rate would change the accumulated postretirement
benefit obligation by approximately $232,500 and the net periodic
postretirement benefit cost by approximately $23,250.
11. Commitments
The majority of store and office facility leases are under non-cancelable
leases. Substantially all of the leases are net leases, which require the
payment of property taxes, insurance and maintenance costs in addition to
minimum rental payments. Certain store leases provide for additional
rentals based on a percentage of sales and have renewal options for one or
more periods from five to twenty years.
F-19
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
11. Commitments (cont'd)
At August 31, 2002 the future minimum lease payments under operating
leases with rental terms of more than one year amounted to:
Fiscal year ending: $
2003 1,182
2004 847
2005 570
2006 284
2007 124
Later years 660
-----
Total minimum obligations 3,667
=====
Total rental expense relating to all operating leases (including those
with terms less than one year) was $1,302,000 (2001 - $1,544,000).
12. Contingencies
The Company is a party to legal proceedings and disputes with franchisees,
former franchisees and others, which arise in the ordinary course of
business. In the opinion of the Company, it is unlikely that the
liabilities, if any, arising from the legal proceedings and disputes will
have a material adverse effect on the consolidated financial position of
the Company or its operations.
Several subsidiaries hold master store leases or have guaranteed store
leases covering franchised locations. Such leases expire at varying dates
to 2012. Where a subsidiary holds the master lease, these premises have
been subleased to franchisees under terms and rental rates substantially
the same as those in master leases. In a majority of these instances,
franchisees make all lease payments directly to the landlords. The Company
provides an estimated liability for lease terminations in the event of a
default by a franchisee based on the expected costs of releasing or
settlement with the landlord. The liability was $610,000 at August 31,
2002. Aggregate minimum future rental payments under these leases
approximated $11,329,000 at August 31, 2002 (2001 - $14,111,000).
13. Related party transactions and amounts
Receivables - affiliates consist of $266,000 (2001 - $255,000) in advances
which are unsecured, non-interest bearing and due on demand. The
affiliates include directors and officers of the Company.
Calip Dairies, Inc. ("Calip"), an ice cream distributor owned by an
officer, director and shareholder of the Company, has a management
agreement with Integrated Brands Inc., which the Company acquired in March
1998. This agreement terminates on December 31, 2007 and thereafter shall
automatically renew December 31 of each year for an additional one year
term, unless terminated under certain conditions. Under the agreement,
Calip provides management services to Integrated Brands for an annual fee
of U.S.$1,000,000. Such management fees incurred for the year ended August
31, 2002 were $1,559,000 (U.S.$1,000,000) (2001 - $1,528,000
(U.S.$1,000,000)). At August 31, 2002, the $978,000 (2001 - $723,000)
balance of payables - affiliates represents payables to Calip.
Integrated Brands Inc., also has a distribution agreement with Calip for
distribution of the Company's products in the New York Metropolitan Area,
Fairfield County in the state of Connecticut, and New Jersey. The
distribution agreement continues until December 31, 2007 and thereafter
shall automatically renew on December 31st of each year while the
agreement is in effect for an additional one year term. The distribution
agreement is terminable by either party on sixty days notice. Sales of
products to Calip were $11,709,000 for the year ending August 31, 2002
(2001 - $8,965,000). At August 31, 2002, $3,526,000 of the receivables -
affiliates represent receivables from Calip (2001 - $2,620,000). The
transactions with Calip occur in the normal course of operations and are
measured at the amount of consideration established and agreed to by the
related parties.
F-20
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
14. Segment information
CoolBrands International's reportable segments are Prepackaged consumer
products, Foodservice, Dairy components and Franchising and licensing,
including Company-owned stores.
Revenues and profits in the Prepackaged consumer products segment are
generated from selling a variety of prepackaged frozen dessert products to
distributors and various retail establishments including supermarkets,
grocery stores, club stores, gourmet shops, delicatessens and convenience
stores.
Revenues and profits in the Foodservice segment are generated from
manufacturing and selling soft serve yogurt and premium ice cream mixes to
broad-line foodservice distributors, yogurt shops and other foodservice
establishments which, in turn, sell soft serve ice cream and yogurt
products to consumers.
Revenues and profits in the Dairy components segment are generated from
the manufacturing and selling of various ingredients to the dairy industry
and from the manufacturing and selling of flexible packaging, such as
private label ice cream novelty wraps.
Revenues and profits in the Franchising and licensing segment are
generated by franchising activities, which generate initial and recurring
revenues and the manufacture and sale of proprietary products to
franchisees and licensees and from Company-owned stores selling ice cream
and soft serve yogurt out of company-owned stores and outlets.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies". As discussed in Note 1,
the Company no longer amortizes goodwill. Accordingly, amortization of
goodwill is not reflected in the segment information for 2001 to conform
with the 2002 segment information. CoolBrands International Inc. evaluates
the performance of its segments and allocates resources to them based on
their operating contribution, which represents segment revenues, less
direct costs of operation, excluding the allocation of corporate expenses.
F-21
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
14. Segment information (cont'd)
Year Ended August 31, 2002
INDUSTRY SEGMENTS: Prepackaged Foodservice Dairy Franchising Corporate Consolidated
consumer components and
products licensing
$ $ $ $ $ $
------------ ----------- ----------- ----------- ---------- ------------
Revenues 157,337 26,285 37,743 24,702 286 246,353
Interest income 380 245 44 669
Inter-segment
revenues (122) (1,218) (3,133) (92) (235) (4,800)
------------ ----------- ----------- ----------- ---------- ------------
Net revenues 157,595 25,067 34,610 24,855 95 242,222
------------ ----------- ----------- ----------- ---------- ------------
Segment earnings 26,101 2,289 4,077 3,867 95 36,429
General corporate
expenses (1,011) (1,011)
Interest expense (2,526) (18) (2,544)
------------ ----------- ----------- ----------- ---------- ------------
Earnings before
income taxes 23,575 2,289 4,077 3,849 (916) 32,874
============ =========== =========== =========== ==========
Provision for
income taxes 11,890
------------
Net earnings 20,984
============
Assets 176,937 15,249 44,118 42,070 5,288 283,662
Capital expenditures 5,236 397 78 627 6,338
Depreciation and
amortization 2,212 823 492 1,119 4,646
F-22
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
14. Segment information (cont'd)
Year Ended August 31, 2001
INDUSTRY SEGMENTS: Prepackaged Foodservice Dairy Franchising Corporate Consolidated
consumer components and
products licensing
$ $ $ $ $ $
----------- ------------ ----------- ----------- --------- ----------
Revenues 104,101 23,856 27,347 27,990 299 183,593
Interest income 539 558 117 1,214
Inter-segment revenues (680) (1,869) (4,400) (248) (7,197)
----------- ------------ ----------- ----------- --------- ----------
Net revenues 103,960 21,987 22,947 28,548 168 177,610
----------- ------------ ----------- ----------- --------- ----------
Segment earnings (loss) 14,205 (76) 2,434 5,141 168 21,872
General corporate
expenses (1,151) (1,151)
Interest expense (3,443) (13) (3,456)
----------- ------------ ----------- ----------- --------- ----------
Earnings (loss) before
income taxes 10,762 (76) 2,434 5,128 (983) 17,265
=========== ============ =========== =========== =========
Provision for
income taxes 6,137
----------
Net earnings 11,128
==========
Assets 120,520 11,377 46,341 44,165 3,473 225,876
Capital expenditures 1,372 1,613 37 678 3,700
Depreciation and
amortization 2,093 210 512 1,137 287 4,239
F-23
CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
14. Segment information (cont'd)
Year Ended August 31, 2002
GEOGRAPHIC SEGMENTS:
Canada United States International Consolidated
$ $ $ $
-------- ------------- ------------- ------------
Revenues 6,328 235,130 4,895 246,353
Interest income 72 559 38 669
Inter-segment revenues (316) (4,484) -- (4,800)
-------- ------------- ------------- ------------
Net revenues 6,084 231,205 4,933 242,222
-------- ------------- ------------- ------------
Segment earnings 1,033 33,280 2,116 36,429
General corporate expenses (1,011) (1,011)
Interest expense (2,544) (2,544)
-------- ------------- ------------- ------------
Earnings before income taxes 22 30,736 2,116 32,874
======== ============= =============
Provision for income taxes 11,890
------------
Net earnings 20,984
============
Assets 9,202 265,512 8,948 283,662
Capital expenditures 134 6,204 6,338
Depreciation and amortization 218 4,195 233 4,646
Year Ended August 31, 2001
GEOGRAPHIC SEGMENTS:
Canada United States International Consolidated
$ $ $ $
-------- ------------- ------------- ------------
Revenues 7,030 171,679 4,884 183,593
Interest income 145 907 162 1,214
Inter-segment revenues (381) (6,816) (7,197)
-------- ------------- ------------- ------------
Net revenues 6,794 165,770 5,046 177,610
-------- ------------- ------------- ------------
Segment earnings 142 18,129 3,601 21,872
General corporate expenses (1,151) (1,151)
Interest expense (3,456) (3,456)
-------- ------------- ------------- ------------
Earnings (loss) before income
taxes (1,009) 14,673 3,601 17,265
======== ============= =============
Provision for income taxes 6,137
-------------
Net earnings 11,128
=============
Assets 6,900 212,919 6,057 225,876
Capital expenditures 3,697 3 3,700
Depreciation and amortization 287 3,746 206 4,239
F-24
CoolBrands International Inc.
Notes to Consolidated Financial Statements
For the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
15. Differences between Canadian and United States generally accepted
accounting principles
The consolidated financial statements of the Company have been prepared in
accordance with Canadian GAAP. The following adjustments and/or additional
disclosures, would be required in order to present the financial
statements in accordance with U.S. GAAP, as required by the United States
Securities Exchange Commission ("SEC").
(a) Accounting for income taxes
Under Statement of Financial Accounting Standards No. 109 (SFAS 109)
"Accounting for Income Taxes", the provision for income taxes under
U.S. GAAP for the year ended August 31, 2001 would be $2,855,000.
The Company was recording income taxes using the deferral method of
income tax allocation until August 31, 2001. As a result, for the
years ended prior to August 31, 2001 the realization of the
unrecognized tax benefits acquired in a business combination were
reported as a reduction in the current tax provision, whereas SFAS
109 would require the realization of the benefit to be applied to
reduce goodwill. For the year ended August 31, 2001 the Company
determined that it was more likely than not that the benefits of the
loss carry forwards would be realized. Under SFAS 109 the reversal
of the valuation allowance would reduce the income tax provision by
$3,282,000.
Under U.S. GAAP, the net earnings for the year ended August 31, 2001
would be adjusted as follows:
Net Earnings
------------
2002 2001
---- ----
$ $
Canadian GAAP 20,984 11,128
Adjustment to income tax provision 3,282
------ ------
U.S. GAAP 20,984 14,410
====== ======
Earnings per share:
Basic 0.44 0.31
Diluted 0.42 0.31
(b) Comprehensive income
Under United States GAAP, comprehensive income must be presented for
certain items that are required by U.S. GAAP to be recognized
directly in stockholders' equity rather than net income.
2002 2001
---- ----
$ $
Net earnings 20,984 14,410
Foreign currency translation (net
of income taxes of $104 in 2002
and $1,219 in 2001) 178 2,076
------ ------
Comprehensive earnings 21,162 16,486
====== ======
F-25
CoolBrands International Inc.
Notes to Consolidated Financial Statements
For the years ended August 31, 2002 and 2001
(Tabular amounts are expressed in thousands of dollars)
15. Differences between Canadian and United States generally accepted
accounting principles (cont'd)
(c) Accounting for consideration given by a vendor to a customer or
reseller of the vendor's products
In accordance with EITF No. 01-09 "Accounting for Consideration
Given by a Vendor to a Customer or Reseller of the Vendors Products"
certain payments made to customers by the Company, including
promotional sales allowances, cooperative advertising and product
introductory expenses classified as selling, general and
adminstrative expenses, must be deducted from reveune. The
reclassification for the year ended August 31, 2002 would be
$26,979,000 (2001 - $17,410,000).
Under U.S. GAAP, Total revenues and Selling, General and
Administrative Expenses for the years ended August 31, 2002 and 2001
would be classified as follows:
Total revenues
--------------
2002 2001
---- ----
$ $
Canadian GAAP Revenues 242,222 177,610
Adjustment to Total revenues (26,979) (17,410)
------- -------
U.S. GAAP Revenues 215,243 160,200
======= =======
Under U.S. GAAP, Selling, general and administrative expenses the
years ended August 31, 2002 and 2001 would be classified as follows:
Selling, general and
Administrative expenses
-----------------------
2002 2001
---- ----
$ $
Canadian GAAP 77,558 58,699
Adjustment to Selling, general
and adminstrative expenses (26,979) (17,410)
------- -------
U.S. GAAP 50,579 41,289
======= =======
F-26
CoolBrands International Inc.
Notes to Consolidated Financial Statements
For the years ended August 31, 2002 and 2001
15. Differences between Canadian and United States generally accepted
accounting principles (cont'd)
(d) Stock based compensation
Under United States GAAP, the Company accounts for stock options
granted to employees under the intrinsic value method whereby
compensation expense is recognized to the extent the market price
exceeds the exercise price at the date of grant. Stock options
grants to nonemployees are recorded at fair value. The amounts
involved are not material.
(e) Outlets
The following is a schedule summarizing the number of franchised,
licensed and other outlets and company-owned outlets:
Franchised, Company-owned Total
Licensed and Outlets Outlets
Other Outlets
------------- ------------- -------------
Outlets - August 31, 2000 4,497 11 4,508
Outlets converted to franchised outlets 2 (2)
Outlets opened (closed) (41) (4) (45)
------------- ------------- -------------
Outlets - August 31, 2001 4,458 5 4,463
Outlets converted to franchised outlets
Outlets opened (closed) (34) (34)
------------- ------------- -------------
Outlets - August 31, 2002 4,424 5 4,429
============= ============= =============
The number of outlets opened are net of those closed. Certain
franchised outlets are subject to master area franchise agreements.
The Company does not have the same control over licensed and other
outlets as it does with franchised and company-owned outlets.
(f) Other items
In June 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 142 requires, among
other things, that the Company no longer amortize goodwill, but
instead test goodwill for impairment at least annually. In addition,
SFAS No. 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill,
reassess the useful lives of other existing recognized intangible
assets, and cease amortization of intangible assets with an
indefinite useful life. An intangible asset with an indefinite
useful life should be tested for impairment in accordance with the
guidance in SFAS No. 142. Effective September 1, 2001, the Company
adopted this pronouncement and as a result ceased to record
amortization expense on goodwill.
F-27
CoolBrands International Inc.
Notes to Consolidated Financial Statements
For the years ended August 31, 2002 and 2001
15. Differences between Canadian and United States generally accepted
accounting principles (cont'd)
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS 143 requires that obligations associated
with the retirement of a tangible long-lived asset to be recorded as a
liability when those obligations are incurred, with the amount of the
liability initially measured at fair value. SFAS 143 will be effective for
financial statements for fiscal years beginning after June 15, 2002 with
earlier application encouraged. The Company has not yet determined the
impact, if any, on the reconciliation to U.S. GAAP.
In August 2001, the FASB issued SFAS No. 144 " Accounting for the
Impairment or Disposal of Long-Lived Assets", that is applicable to
financial statements issued for fiscal years beginning after December 15,
2001. The FASB's new rules on asset impairment supersede SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and portions of Accounting Principles Bulletin
Opinion 30, "Reporting the Results of Operations". This new standard
provides a single accounting model for long-lived assets to be disposed of
and significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. Classification as held-for-sale is an
important distinction since such assets are not depreciated and are stated
at the lower of fair value and carrying amount. This new standard also
requires expected future operating losses from discountinued operations to
be displayed in the period(s) in which the losses are incurred, rather
than as of the measurement date as previously required. The Company has
not yet determined the impact of this pronouncement, if any, on the
reconciliation to U.S. GAAP.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishement of Debt," and an amendment of that statement,
SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers," and
SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." This statement amends SFAS No. 13, "Accounting for Leases,"
to eliminate inconsistencies between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. Also, this statement amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicablility under changed
conditions. The Company does not believe that this pronouncement will have
a material impact on the reconciliation to U.S. GAAP.
In June 2002, the FASB issued SFAS No. 146, " Accounting for Costs
Associated with Exit or Disposal Activities". This statement covers
restructuring type activities beginning with plans initiated after
December 31, 2002. The Company has not yet determined the impact of this
pronouncement, if any, on the reconciliation to U.S. GAAP.
F-28
In December 2002, the FASB issued SFAS No. 148, " Accounting for
Stock-Based Compensation-Transition and Disclosure- an amendment of FASB
Statement No. 123". This statement amends SFAS No. 123, "Accounting for
Stock-Based Compensation", to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in both annual and interim financial statements about the method of
accounting for stock-based employee compensations and the effect of the
method used on reported results. The Company intends to continue to
account for stock-based compensation using the intrinsic value method.
F-29
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Comparison of 2002 and 2001
We manage our business based on four industry segments: Prepackaged consumer
products, foodservice, dairy components and franchising and licensing, including
Company-owned stores.
Sales
Sales for each segment are summarized in the following table:
Amount Percentage of Sales
------ -------------------
Year Ended August 31, 2002 2001 2002 2001
$ $ % %
Prepackaged consumer
products 156,691 103,196 66.4 60.5
Foodservice 25,067 21,987 10.6 12.9
Dairy components 34,610 22,947 14.7 13.5
Franchising and licensing 19,660 22,419 8.3 13.1
------- ------- ------- -------
Total 236,028 170,549 100.0 100.0
======= ======= ======= =======
Sales in fiscal 2002 increased by $65,479,000 or 38.4% from $170,549,000 in
fiscal 2001 to $236,028,000. This increase was primarily related to an increase
in sales of new prepackaged consumer products introduced for sale in fiscal
2002, higher sales resulting from the conversion from Eskimo Pie's licensing
model to the Company's co-packing model, expanded sales and distribution of our
foodservice and dairy components products, and the full year impact of the
acquisition of Eskimo Pie Corporation which occurred in October, 2000.
Gross profit margin
The following table presents the gross profit margin dollars by industry segment
and gross profit percentage for each industry segment:
Amount Percentage of Sales
------ -------------------
Year Ended August 31, 2002 2001 2002 2001
$ $ % %
Prepackaged consumer
products 83,030 54,542 53.0 52.8
Foodservice 10,297 6,265 41.1 28.5
Dairy components 7,135 4,833 20.6 21.1
Franchising and licensing 6,320 6,719 32.2 30.0
------- ------- ------- -------
Total 106,782 72,359 45.2 42.4
======= ======= ======= =======
Gross profit dollars increased due to the increased sales in 2002 versus 2001
and the gross profit percentage improvement in foodservice. Foodservice's gross
profit percentage improvement from 28.5% in fiscal 2001 to 41.1% in fiscal 2002
was due primarily to lower cost of butterfat in fiscal 2002 and the synergistic
benefits of consolidating all soft serve ice cream and yogurt production in the
Russelville, Arkansas plant, including a reduction in plant loss factors from
4.8% in 2001 to 1.8% in 2002.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Selling, general and administrative expenses
Selling, general and administrative expenses are summarized by industry segment
in the following table:
Amount Percentage of Sales
------ -------------------
Year Ended August 31, 2002 2001 2002 2001
$ $ % %
Prepackaged consumer
products 58,500 41,875 37.3 40.6
Foodservice 8,008 6,341 32.0 28.8
Dairy components 3,058 2,399 8.8 10.5
Franchising and licensing 6,981 6,933 35.5 30.9
Corporate 1,011 1,151 n/a n/a
------- -------
Total 77,558 58,699
======= =======
Selling, general and administrative expenses increased by $18,859,000 from
$58,699,000 in 2001 to $77,558,000 in 2002 due primarily to the increase in
selling, general and administrative expenses in the prepackaged consumer
products segment. Prepackaged consumer products selling, general and
administrative expenses increased as a result of increased spending on
promotions, marketing and advertising and an increase in product introductory
expenses (slotting) associated with the sale of new products introduced in 2002.
However, prepackaged consumer products selling, general and administrative
expenses declined as a percentage of sales to 37.3% from 40.6%.
Interest expense
Interest expense was $2,544,000 in fiscal 2002 compared with $3,456,000 in
fiscal 2001. The decrease in interest expense was primarily due to the reduction
in long-term debt.
Provision for income taxes
The effective tax rate was 36.2% in fiscal 2002 and 35.6% for fiscal 2001. The
effective tax rate differs from the Canadian Federal/Principal Statutory Rate
primarily due to our operations in foreign countries with lower effective tax
rates. Our future effective tax rates could be adversely affected by earnings
being lower than anticipated in countries where we have lower statutory rates or
changes in the valuation of our future income tax assets or liabilities.
Liquidity and capital resources
Working capital at August 31, 2002 was $57,354,000 compared with $43,408,000 at
August 31, 2001. The increase was primarily due to increases in cash of
$15,518,000, in receivables of $10,878,000 and inventory of $8,822,000, offset
by increases in accrued liabilities of $15,503,000, and income taxes payable of
$4,548,000. The Company believes its working capital plus internally generated
funds and the funds available from a U.S.$10 million revolving credit facility
will be sufficient to meet its cash and working capital requirements for its
established operations for the current fiscal year.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and capital resources (cont'd)
At August 31, 2001 the Company had $47,086,000 of cash and short-term
investments as compared with $31,568,000 at August 31, 2001. The cash generating
ability of the Company from operating activities before working capital changes
was $27,805,000 for the year ended August 31, 2002 as compared with $21,751,000
for the year ended August 31, 2001.
Payment requirements
In connection with the acquisition of Eskimo Pie Corporation, a U.S. subsidiary
borrowed U.S. $30 million to finance the acquisition. The loan is payable in
monthly installments of U.S. $250,000, which began December 1, 2000, with the
remaining principal balance due on November 1, 2005. Interest on the term loan
is payable monthly on the unpaid principal balance. All borrowings under the
above loan agreement are guaranteed by the Company and all of its significant
subsidiaries. The principal balance outstanding at August 31, 2002 was
$21,500,000.
Certain term loans, a U.S. $750,000 revolving line of credit and capitalized
leases were assumed by a U.S. subsidiary in connection with the acquisition of
the business and assets of Fruit-A-Freeze, Inc. The secured term loans are
payable in monthly installments of U.S. $21,521.
Impact of inflation
Inflation can significantly impact ice cream and frozen yogurt ingredients,
including butterfat and packaging costs. In 2001 and 2002, the Company passed on
ingredient, energy and freight cost increases by raising prices on selected
product lines. In 2003, the Company believes that it will be able to pass on any
cost increases, if any, in the normal course of business within a relatively
short period of time. However, the ability of the Company to pass on cost
increases will depend, to some extent, on whether its competitors have also done
so. The Company believes that, in the past, its competitors have passed on cost
increases in a relatively short period of time.
Risk factors and uncertainties
CoolBrands products are ultimately purchased by the global retail consumer,
whose tastes and preferences are subject to variation and change. Although
carefully monitored, these changes cannot be controlled and are difficult to
predict. Management believes that CoolBrands' family of products is based on
well established brand names and is easily adaptable to meet changes in consumer
tastes and demands.
CoolBrands operates in some countries that are subject to potential political
and economic uncertainty. Such factors, beyond the control of CoolBrands, are
lessened because of international diversification and the sharing of risks with
Master and Sub-franchisees.
CoolBrands is subject to currency exchange risks since most of its subsidiaries
report and transact in U.S. dollars. Risks are minimized by the subsidiaries
transacting purchases and recording the related sales in the same currency. From
time to time, the Company has also used forward exchange contracts to minimize
exchange risk exposure.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Risk factors and uncertainties (cont'd)
The Corporation derives a substantial portion of its revenues from its
operations in the United States. The U.S. market for frozen desserts is highly
competitive. As competitors introduce new products or revise their supply or
pricing strategies, the Corporation may encounter additional and more intense
competition. Such competitors have greater name recognition and more extensive
financial, technological, marketing and personnel resources than the
Corporation. In addition, the Corporation may experience increased competition
in its other markets as its competitors expand their international operations.
The Corporation is subject to risks with respect to its cost of raw materials,
some of which are subject to changes in commodity prices, particularly the cost
of butterfat, which is used to produce ice cream products. From time to time,
the Corporation has used hedging contracts to reduce its exposure to such risks
with respect to its raw material costs.
Seasonality
The ice cream and frozen yogurt industry generally experiences its highest
volume during the spring and summer months and its lowest volume in the winter
months.
Outlook
In the past year, the Company acted through acquisition, internal expansion and
pursuit of new strategic relationships to insure future profitable growth. The
Company's growth outlook continues to be based on the strength of its Family of
Brands, and the Company took steps to add new brands to its portfolio, including
Chipwich and Fruit-A-Freeze in the fourth quarter of fiscal 2002 and to increase
its returns on its brand equity through vertical integration of our supply chain
and increased leveraging of its Brands across the Company's core competencies.
Management believes that the gains in revenues and earnings realized in 2002
continued to build a foundation to support continued profitable growth in 2003.
Management will continue to monitor and assess its systems, controls and
personnel to execute the Company's growth strategy and maximize returns.
A. Undertaking
The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to: the securities registered pursuant to Form 40-F; the securities in
relation to which the obligation to file an annual report on Form 40-F arises;
or transactions in said securities.
B. Consent to Service of Process
The Registrant is hereby concurrently filing with the Commission a Form F-X in
connection with the Subordinate Voting Shares and Multiple Voting Shares.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant hereby
certifies that it meets all of the requirements for filing on Form 40-F and that
it has duly caused this annual report to be signed on its behalf by the
undersigned, thereto duly authorized.
COOLBRANDS INTERNATIONAL INC.
(Registrant)
By: /s/ David J. Stein
------------------------------------------------
Name: David J. Stein
Title: President and Co-Chief Executive Officer
Date: September 29, 2003
EXHIBITS
The following exhibits are filed with this Amendment to the Annual Report:
31.1 Certification of President and Co-Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Co-Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.3 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Joint Certification of David J. Stein, Co-Chief Executive Officer, Richard
E. Smith, Co-Chief Executive Officer and Gary P. Stevens, Chief Financial
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002