EX-99 2 ex99-1.txt EXHIBIT 99.1 COOLBRANDS INTERNATIONAL, INC. 8300 Woodbine Avenue, 5th Floor Contact: David J. Stein Markham, Ontario, Canada, L3R 9Y7 Telephone: (631) 737-9700(x216) FOR IMMEDIATE RELEASE: December 13, 2005 COOLBRANDS INTERNATIONAL INC. REPORTS FINANCIAL RESULTS FOR THE YEAR AND FOURTH QUARTER OF FISCAL 2005 Company Announces Corporate Governance Enhancements, Including Timetable to End Dual Class Voting Structure CoolBrands International Inc. (TSX: COB.SV.A) today announced its operating results for fiscal 2005 and fourth quarter ended August 31, 2005, and provided details on enhancements to its corporate governance practices. In 2005, the Company adopted generally accepted accounting principles in the United States ("U.S. GAAP") and changed its reporting currency from Canadian dollars to U.S. dollars. For comparative purposes, historical financial statements and amounts disclosed in this press release have been restated to reflect these changes. Operating results For fiscal 2005, net revenues declined to $385,070,000 as compared with $449,938,000 for fiscal 2004, a 14.4% decrease. The net loss for fiscal 2005 was $74,070,000 ($1.32 basic and diluted loss per share) as compared with net earnings of $23,512,000 ($0.42 basic and diluted earnings per share) for fiscal 2004. Net revenues for the fourth quarter of fiscal 2005 decreased to $124,055,000 from $129,052,000 for the same quarter last year, a 3.9% decrease. Net loss for the fourth quarter was $64,093,000 ($1.15 basic and diluted loss per share) as compared with net earnings of $12,484,000 ($0.22 basic and diluted earnings per share) for the same quarter last year. The 2005 results for the fiscal year and fourth quarter were adversely affected by the non-cash pre-tax asset impairment charge of $55,525,000 (Nil in 2004), which resulted from the impairment of goodwill and intangible assets related to the Company's frozen dessert and franchising segments. "Our financial performance for the quarter and full year 2005 reflected the loss of two significant brands, as well as unfavorable industry dynamics throughout the year," said David J. Stein, President, CEO and Co-Chairman of CoolBrands International Inc. "Our strategy is to aggressively rebuild and refocus our brand portfolio, including through further development of Breyers Yogurt, in which we acquired both an established brand in a high growth category, and a platform for further refrigerated products brand introductions." "Our strategy is being implemented in 2006 in the refrigerated category with an all natural reformulation of Breyers Yogurt, and in the frozen category through the introduction of a broad range of new Godiva Ice Cream offerings, a national rollout of Yoplait Frozen Yogurt and Cereal Bars and the launch of an exciting new line of "better for you" frozen snacks for kids featuring popular Disney characters under license from Disney Consumer Products, our newest licensing partner," Mr. Stein added. "The Disney products will be in innovative forms featuring vitamin fortification and will be introduced in early 2006 at retail outlets nationwide in the U.S." "As part of these rebuilding efforts," Mr. Stein further added, "CoolBrands is evaluating the potential disposition of various non-core business assets, including its franchising business. While the Corporation is currently in late-stage discussions on certain such transactions, there can be no assurance that any particular transaction will be effected." "I am also pleased that our Company is continuing to act on the governance recommendations of our Board of Directors. The Board's commitment to adoption of better governance practices will help make Coolbrands better able to deliver the best possible results for our shareholders," Mr. Stein concluded. The decrease in net revenues for fiscal 2005 reflects the decrease in net sales and the decreases in drayage income. Net sales for fiscal 2005 declined by 10.3% to $364,686,000 in 2005 as compared with $406,470,000 for 2004. This decrease reflects a reduction in sales volume, as well as an increase in trade promotion payments to customers for promotions with consumers. The decline in net sales came principally from the discontinuation of sales of Weight Watchers Smart Ones brand products and the decline in sales of Atkins brand products, but declines also came from our other frozen dessert brands. These sales declines were partially offset by sales from newly introduced frozen dessert products, the acquisition of the Breyers Yogurt business on March 27, 2005 and the increase in sales as a result of the change in the business arrangement with Dreyer's Grand Ice Cream Holding, Inc. ("Dreyer's"). Effective September 1, 2004, CoolBrands began purchasing products from Dreyer's and selling those products to customers at wholesale, instead of delivering products to customers on a drayage basis, except for Dreyer's scanned based trading customers which continue to be delivered on a drayage basis. During the forth quarter, all of the foregoing factors were present, however, net sales increased by 0.4% due to sales of $26,397 from the acquired Breyers Yogurt business, which more than offset other declines. Gross profit percentage for fiscal 2005 declined to 0.8% as compared to 19% for fiscal 2004, primarily due to (1) the increase in trade promotion payments to customers, (2) write downs for obsolete and slow moving inventories, (3) the impact of fixed overhead costs in our manufacturing and distribution operations resulting from the decrease in sales, and (4) product mix changes. Selling, general and administrative expenses for fiscal 2005 increased as a percentage of revenues to 13.6% as compared to 11.5% for fiscal 2004 primarily due to the decline in revenues and certain write offs related to inactive or expired license agreements. In accordance with U.S. GAAP, the Company recognized $1,918,000 and $30,983,000 in stock-based compensation expense representing the estimated fair value of stock options earned during 2005 and 2004, respectively. Cash and working capital Cash, investments and restricted cash decreased to $41,562 at August 31, 2005 from $64,327 at August 31, 2004. Working capital declined to $28,469 at August 31, 2005 from $118,138. CoolBrands' current ratio declined to 1.2 to 1 at August 31, 2005 from 2.6 to 1 at August 31, 2004. These changes in current assets and current liabilities are attributable to the use of cash and short term debt to finance the Company's acquisitions and fixed asset purchases. CoolBrands is currently negotiating with lenders to refinance its short term borrowings, including $40,000 due January 3, 2006 and $7,145 due January 10, 2006. Comparability of results The Company's 2005 financial statements reflect the March 27, 2005 acquisition of the Breyers Yogurt business. This acquisition was accounted for under the purchase method of accounting and the 2005 Consolidated Statement of Operations includes the results of this acquisition from the date of acquisition. In fiscal 2005, the revenues and operating results from the Breyers Yogurt business represent five months of activity as compared with no activity in fiscal 2004. The third quarter of fiscal 2006, ending May 31, 2006, will be the first quarter following this acquisition in which the Consolidated Statement of Operations for the quarter can be directly compared with the prior-year period. Corporate Governance Changes As previously announced, following the election of additional independent directors at the last annual and special shareholders' meeting, the board of directors of CoolBrands formed a Corporate Governance Committee consisting of three independent directors to review CoolBrands' corporate governance practices and to recommend changes with respect to these practices to the board of directors. Based on the recommendations of the Corporate Governance Committee, CoolBrands is instituting the following changes and initiatives: o Collapse of Dual Class Structure - CoolBrands will propose a special resolution to its holders of multiple voting shares and holders of subordinate voting shares at the upcoming annual and special meeting scheduled for February 27, 2006. If passed, the special resolution will result in the change of each multiple voting share and each subordinate voting share into one common share on May 31, 2007, unless the independent directors of CoolBrands unanimously determine to effect the change earlier. Aaron Serruya, Michael Serruya, David Smith and David Stein, and entities affiliated with them (collectively, the "Management MVS Holders"), have each entered into a voting agreement with the Corporation pursuant to which they each agreed to vote all of the shares that they beneficially own or control in favour of the special resolution. The Management MVS Holders beneficially control, in the aggregate, 5,986,043 multiple voting shares (representing approximately 99% of the issued and outstanding multiple voting shares) and 120,449 subordinate voting shares (representing less than 1% of the issued and outstanding subordinate voting shares). Currently, each multiple voting share carries 10 votes, and each subordinate voting share carries one vote. Following the change to the Corporation's dual class structure becoming effective, each common share will carry one vote. The change will not result in any conversion premium being paid to the holders of the multiple voting shares. o Board Representation Agreement and Trust Agreement - upon the change to the Corporation's dual class structure becoming effective, these agreements will terminate. In the meantime, the parties have agreed that all nominations for membership on the board of directors of the Corporation made by the Corporation will be made by the Corporate Governance Committee. Copies of the Board Representation Agreement and the Trust Agreement are available on the Internet at www.sedar.com. o Continuance under the Canada Business Corporations Act - at its upcoming annual and special meeting, CoolBrands will propose a special resolution to its holders of multiple voting shares and holders of subordinate voting shares to continue the Corporation under the Canada Business Corporations Act. If passed, this will allow the Corporation to be governed by a more modern corporate statute than the Nova Scotia Companies Act, under which the Corporation is currently organized. o Lead director - as previously announced, the Corporation has appointed Robert E. Baker as lead director of the board of directors of CoolBrands. The board of directors has also adopted written terms of reference for the position of lead director and for the Co-Chairmen of the Corporation. o Committee Charters - the board of directors has adopted written charters for each of the Audit Committee, Compensation Committee and Corporate Governance Committee. o Code of Conduct - the board of directors has adopted a corporate Code of Conduct which applies to all employees, officers and directors of the Corporation. As part of the Corporate Governance Committee's ongoing mandate, it will continue to monitor the Corporation's corporate governance practices and those of "best practices" with a view to making further recommendations from time to time as it determines appropriate. Copies of the voting agreement entered into by the Corporation and the Management MVS Holders, the terms of reference of the Lead Director and the Co-Chairmen, the committee charters and CoolBrands' Code of Conduct are all available at www.coolbrandsinc.com. Michael Serruya, Co-Chairman of CoolBrands and a holder of a significant number of the multiple voting shares of CoolBrands commented: "These best practice corporate governance changes, and in particular the elimination of the dual class share structure, are further steps in management's and the board of directors' commitment to the partnership we are building with all our shareholders." Robert E. Baker, Lead Director of CoolBrands stated: "We have been listening to our shareholders and have concluded a timetable for the ending of the dual class structure that we believe is in the best interests of the Company and our shareholders. Although we considered an immediate collapse of the structure, the board of directors and management, after careful consideration over several months, determined that an immediate action could jeopardize the Company's ability to stabilize the business and maximize value for our shareholders, given the several extraordinary events of the past year, including the loss of the Weight Watchers product line, the untimely death of our former Co-Chairman Richard Smith, and the need to refocus and reinvigorate our business plan and strategy." Filing Default Correction Further to the Corporation's press release dated November 23, 2005 in which CoolBrands stated that it would not meet the statutory filing deadline for its audited annual financial statements, related management's discussion and analysis and annual information form for its financial year ended August 31, 2005, the Company announces that it has today filed these items with the applicable Canadian securities regulators and CoolBrands therefore expects that the management cease trade order related to CoolBrands' securities and imposed against all of the directors and certain officers CoolBrands will be lifted in due course. Conference Call and Webcast The Company will hold a conference call to discuss its fourth quarter results on December 19, 2005 at 8:30 AM Eastern time. Persons wishing to participate in the call should telephone 1-866-862-3928 in North America; International participants should call (416) 641-6142. The call will also be webcast live on the following Internet site at: http://events.startcast.com/events/188/B0001 and subsequently archived at: www.coolbrandsinc.com and http://events.startcast.com/events/188/B001 CoolBrands International Inc. Consolidated Balance Sheets as at August 31, 2005 and August 31, 2004 -------------------------------------------------------------------------------- (in thousands of dollars)
2005 2004 -------- -------- Assets Current Assets: Cash $ 24,062 $ 36,277 Investments 7,500 28,050 Restricted cash 10,000 Receivables, net 54,526 67,152 Receivables - affiliates 1,840 3,883 Inventories 49,955 49,076 Income taxes recoverable 9,767 Prepaid expenses 2,413 1,203 Deferred income taxes 5,148 4,907 -------- -------- Total current assets 165,211 190,548 Deferred income taxes, net of valuation allowance 14,799 13,711 Property, plant and equipment 47,639 28,730 Intangible and other assets 22,369 12,180 Goodwill 47,827 72,088 -------- -------- $297,845 $317,257 ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 53,300 $ 37,506 Payables - affiliates 620 850 Accrued liabilities 30,015 20,624 Income taxes payable 4,938 Deferred income taxes 93 Short term borrowings 34,553 Current maturities of long-term debt 18,161 8,492 -------- -------- Total current liabilities 136,742 72,410 Long-term debt 8,248 19,262 Other liabilities 2,881 2,758 Deferred income taxes 6,180 3,638 -------- -------- Total liabilities 154,051 98,068 -------- -------- Minority interest 5,388 8,088 -------- -------- Commitments and contingencies Shareholders' Equity Capital stock 97,578 97,485 Additional paid-in capital 46,376 44,494 Accumulated other comprehensive earnings (1,696) (1,096) Retained earnings (3,852) 70,218 -------- -------- Total shareholders' equity 138,406 211,101 -------- -------- $297,845 $317,257 ======== ========
CoolBrands International Inc. Consolidated Statements of Operations -------------------------------------------------------------------------------- (Unaudited) (in thousands of dollars, except share data)
For the year ended For the three months ended ----------------------- -------------------------- August 31, August 31, August 31, August 31, 2005 2004 2005 2004 ---------- ---------- ----------- ---------- Net revenues: Net sales $364,686 $406,470 $118,893 $118,457 Royalties, licensing, and consumer products license revenues 6,138 3,595 1,753 1,287 Drayage and other income 14,246 39,873 3,409 9,308 -------- -------- -------- -------- Total net revenues 385,070 449,938 124,055 129,052 -------- -------- -------- -------- Cost of goods sold 361,668 329,346 116,178 93,696 Selling, general and administrative expenses 52,172 51,688 19,688 17,115 Stock-based compensation expense 1,918 30,983 1,675 Interest expense 2,586 1,498 1,119 268 Asset impairment 55,525 54,124 Gain on sale of building (3,634) (3,634) -------- -------- -------- -------- (Loss) earnings before income taxes and minority interest (85,165) 36,423 (65,095) 17,973 Minority interest (2,700) (958) (453) (1,532) -------- -------- -------- -------- (Loss) earnings before income taxes (82,465) 37,381 (64,642) 19,505 (Recovery of) provision for income taxes: (8,395) 13,869 (549) 7,021 -------- -------- -------- -------- Net (loss) earnings $(74,070) $ 23,512 $(64,093) $ 12,484 ======== ======== ======== ======== Per share data: Basic (loss) earnings per share: Basic and diluted $ (1.32) $ .42 $ (1.15) $ .22 ======== ======== ======== ======== Weighted average shares outstanding: Shares used in per share calculation - basic 55,924 55,441 55,947 55,890 Shares used in per share calculation - diluted 55,924 56,329 55,947 56,332
CoolBrands International Inc. Consolidated Statements of Cash Flows -------------------------------------------------------------------------------- (Unaudited) (in thousands of dollars)
For the year ended For the three months ended August 31, August 31, ------------------- -------------------------- 2005 2004 2005 2004 -------- -------- ----------- ------------ Cash and short-term investments provided by (used in): Operating activities: Net (loss) earnings $(74,070) $ 23,512 $(64,093) $ 12,484 Adjustments to reconcile net (loss) net earnings to net cash flows from operating activities Depreciation and amortization 5,042 7,314 927 4,015 Asset impairment 55,525 54,124 Stock-based compensation expense 1,918 30,983 1,675 Deferred income taxes 1,798 (15,314) 5,052 (1,615) Gain on sale of building (3,634) (3,634) Minority interest (2,700) (958) (453) (1,532) Cash effect of changes, net of the effects from businesses acquired Receivables 13,815 (21,115) 8,553 268 Receivables - affiliates 2,043 (1,464) 1,832 (267) Allowance for doubtful accounts (56) 126 (525) (306) Inventories 4,500 (6,845) 8,985 7,715 Prepaid expenses (2,207) 6,252 222 7,203 Income taxes recoverable (9,767) 761 Accounts payable 15,842 16,740 4,484 (13,282) Payables - affiliates (230) 277 370 46 Accrued liabilities 8,744 (4,843) (3,904) (7,095) Income taxes payable (4,935) 9,319 (5,584) (728) Other assets (513) 53 (669) 180 Other liabilities 124 (268) 71 (156) -------- -------- -------- -------- Cash provided by operating activities 11,239 43,769 8,194 6,930 -------- -------- -------- -------- Investing activities: Purchase of property, plant and equipment (12,409) (13,363) (3,484) (4,946) Purchase of intangible assets (76) (76) Purchase of license agreements (26) (300) 54 Proceeds from sale of building 5,434 5,434 Increase in restricted cash (10,000) (10,000) Purchase of investments (2,500) (33,050) (20,000) Redemption of investments 23,050 5,000 5,000 5,000 Acquisitions, net of cash acquired (59,609) Increase in notes receivable (28) Collection of notes receivable 65 23 41 1 -------- -------- -------- -------- Cash used in investing activities (56,023) (41,766) (3,009) (19,967) -------- -------- -------- -------- Financing activities: Change in revolving line of credit, secured 2,661 1,514 1,438 1,514 Capital contributions from minority interest 8,907 Proceeds from short term borrowings 44,553 Return of capital contribution to minority interest (2,000) Proceeds from issuance of Class A and B shares 57 12,286 23 Repayment of short term borrowings (10,000) (10,000) (4,765) Repayment of long-term debt (4,007) (5,781) (877) (784) -------- -------- -------- -------- Cash provided by financing activities 33,264 14,926 (9,439) (4,012) -------- -------- -------- -------- Decrease in cash flows due to changes in foreign exchange rates (695) (2,412) 3,473 (5,126) -------- -------- -------- -------- (Decrease) increase in cash and cash equivalents (12,215) 14,517 (781) (22,175) Cash and cash equivalents - beginning of period 36,277 21,760 24,843 58,452 -------- -------- -------- -------- Cash and cash equivalents - end of period $ 24,062 $ 36,277 $ 24,062 $ 36,277 ======== ======== ======== ========
CoolBrands International Inc. Summary Financial Data -------------------------------------------------------------------------------- (in thousands of dollars, except share data):
For the year ended For the three months ended ----------------------- -------------------------- August 31, August 31, August 31, August 31, 2005 2004 2005 2004 $ $ $ $ ---------- ---------- ---------- ---------- Net revenues 385,070 449,938 124,055 129,052 (Loss) earnings before income taxes (82,465) 37,381 (64,642) 19,505 (Recovery of) provision for income taxes: (8,395) 13,869 (549) 7,021 Net (loss) earnings (74,070) 23,512 (64,093) 12,484 Basic (loss) earnings per share: Basic and diluted: $ (1.32) $ .42 $ (1.15) $ .22 Depreciation and amortization 5,042 7,314 927 4,015 Interest expense 2,586 1,498 1,119 268 Weighted average number of shares outstanding: Shares used in per share calculation - basic 55,924 55,441 55,947 55,890 Shares used in per share calculation - diluted 55,924 56,329 55,947 56,332
About CoolBrands International: CoolBrands International is a leading marketer of dairy based snacks in the refrigerated and frozen snack foods categories. In the frozen snack foods category, CoolBrands manufactures and distributes such well known brands as Godiva Ice Cream, Whole Fruit Sorbet, Eskimo Pie frozen snacks, Tropicana Fruit Bars, Chipwich Ice Cream Cookie Sandwiches and many others. In the refrigerated dairy category, CoolBrands manufactures and distributes Breyer's Yogurt and Creme Savers Yogurt. CoolBrands operates a "direct store delivery" (DSD) ice cream distribution system in selected markets in the U.S., serving CoolBrands products and a growing family of Partner Brands to supermarkets, convenience stores and other retail customers. CoolBrands' 50.1% owned subsidiary, Americana Foods, is a leading U.S. manufacturer and supplier of soft serve mixes, packaged ice cream, frozen yogurt and sorbet products, frozen snacks and other food products to well known national retailers, food companies and restaurant chains. CoolBrands' Foodservice Division manufactures and sells premium soft serve ice cream and frozen yogurt to the foodservice industry. CoolBrands' Dairy Components Division manufactures and sells a full line of quality flavours, chocolate coatings, fudge sauces, powders for chocolate milk, egg nog bases and other ingredients and flexible packaging products for use in private label dairy products in addition to the Company's brands. CoolBrands' Franchising Division franchises and licenses frozen dessert outlets operated under a Family of Brands including Tropicana Smoothies, Juices & More, Swensen's Ice Cream, I Can't Believe It's Yogurt, Yogen Fruz, Bresler's Premium Ice Cream, Golden Swirl and Ice Cream Churn, with company owned, franchised and non-traditional partnership locations around the world. For more information about CoolBrands, visit www.coolbrandsinc.com. Forward Looking Statements This press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding, among other things, statements relating to goals, plans and projections regarding the Company's financial position and business strategy. These statements may be identified by the fact that they use such words as "anticipate," "estimate," "expect," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes and results to differ materially from current expectations. These factors include, among other things, market factors, competitive product development and promotional activity, the level of consumer interest in the Company's products, product costing, the weather, the performance of management, including management's ability to implement its plans as contemplated, the Company's relationship with its customers, franchisees, licensees and licensors, governmental regulations and legislation and litigation. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. -30-