UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
_______________
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 1-10046
_________
TCBY ENTERPRISES, INC.
______________________________________________________________
(Exact name or registrant as specified in its charter)
Delaware 71-0552115
______________________________________________________________
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 West Capitol Avenue Little Rock, Arkansas 72201
______________________________________________________________
(Address of principal executive offices) (Zip Code)
(501) 688-8229
______________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
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.
Yes _X_ No ___
On June 30, 1998 there were 23,111,324 shares of the registrant's common stock
outstanding.
Sequential Page No. 1
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
May 31, 1998 and November 30, 1997 3
Consolidated Statements of Operations
Quarter ended and six months ended
May 31, 1998 and June 1, 1997 5
Consolidated Statements of Cash Flows
Six months ended May 31, 1998 and June
1, 1997 6
Notes to Consolidated Financial Statements
May 31, 1998 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
Sequential Page No. 2
PART 1
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
TCBY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
________________________________
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,519,959 $ 19,693,693
Short-term investments 2,343,772 2,406,045
Receivables:
Trade accounts 14,914,152 8,750,207
Notes 2,132,332 2,127,328
Allowance for doubtful accounts
and impaired notes (828,071) (833,447)
_____________ _____________
16,218,413 10,044,088
Refundable income taxes - 12,472
Deferred income taxes 842,086 1,086,406
Inventories 15,803,838 10,679,231
Prepaid expenses and other assets 1,716,509 1,549,643
Assets held for sale 754,652 754,652
_____________ _____________
TOTAL CURRENT ASSETS 46,199,229 46,226,230
PROPERTY, PLANT, AND EQUIPMENT:
Land 2,866,820 2,866,820
Buildings 24,419,623 23,753,155
Furniture, vehicles, and equipment 50,202,507 49,987,506
Leasehold improvements 3,629,885 3,625,054
Allowance for depreciation (41,878,091) (39,891,253)
_____________ _____________
39,240,744 40,341,282
OTHER ASSETS:
Notes receivable, less current portion
(less allowance for doubtful notes of
$7,728,638 in 1998 and $7,741,180
in 1997) 4,762,667 5,495,337
Intangibles (less amortization of
$2,095,048 in 1998 and $1,964,433
in 1997) 4,323,615 4,326,193
Other 2,098,113 2,875,354
_____________ _____________
11,184,395 12,696,884
_____________ _____________
TOTAL ASSETS $ 96,624,368 $ 99,264,396
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 3
TCBY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,079,447 $ 1,910,414
Accrued expenses 5,369,576 6,612,146
Income taxes payable 270,497 -
Current portion of long-term debt 3,171,448 3,171,448
_____________ _____________
TOTAL CURRENT LIABILITIES 13,890,968 11,694,008
LONG-TERM DEBT, less current portion 4,628,720 6,298,008
DEFERRED INCOME TAXES 3,431,101 3,846,858
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per share;
authorized 2,000,000 shares - -
Common stock, par value $.10 per share;
authorized 50,000,000 shares;
issued - 1998 - 27,700,223;
1997 - 27,095,620 2,770,022 2,709,562
Additional paid-in capital 29,705,795 25,761,424
Retained earnings 71,134,769 69,216,099
_____________ _____________
103,610,586 97,687,085
Less treasury stock, at cost (4,499,374
shares in 1998 and 3,515,269 in 1997) (28,937,007) (20,261,563)
_____________ _____________
TOTAL STOCKHOLDERS' EQUITY 74,673,579 77,425,522
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 96,624,368 $ 99,264,396
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 4
TCBY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
May 31, June 1, May 31, June 1,
1998 1997 1998 1997
________________________________________________________________
<S> <C> <C> <C> <C>
Sales $27,083,951 $26,802,645 $ 43,812,652 $ 42,687,532
Cost of sales 18,139,008 18,029,523 29,431,523 28,712,488
____________ ____________ _____________ _____________
GROSS PROFIT 8,944,943 8,773,122 14,381,129 13,975,044
Franchising revenues:
Initial franchise and
license fees 675,875 1,456,711 1,360,855 2,218,086
Royalty income 3,137,764 2,924,669 4,932,608 4,750,106
___________ ___________ ____________ _____________
3,813,639 4,381,380 6,293,463 6,968,192
____________ ____________ _____________ _____________
12,758,582 13,154,502 20,674,592 20,943,236
Selling, general, and
administrative
expenses 7,619,643 8,457,652 14,623,444 15,985,048
------------ ------------ ------------- -------------
INCOME FROM
OPERATIONS 5,138,939 4,696,850 6,051,148 4,958,188
Other income (expense):
Interest expense (141,699) (189,931) (305,315) (392,901)
Interest income 263,233 243,620 617,767 546,705
Other income 66,128 57,139 103,907 82,840
____________ ____________ _____________ _____________
187,662 110,828 416,359 236,644
____________ ____________ _____________ _____________
INCOME BEFORE
INCOME TAXES 5,326,601 4,807,678 6,467,507 5,194,832
Income tax expense 1,799,633 1,682,688 2,198,951 1,818,191
____________ ____________ _____________ _____________
NET INCOME $ 3,526,968 $ 3,124,990 $ 4,268,556 $ 3,376,641
============ ============ ============= =============
Earnings per share:
Basic $ 0.15 $ 0.13 $ 0.18 $ 0.14
============ ============ ============= =============
Diluted $ 0.15 $ 0.13 $ 0.18 $ 0.14
============ ============ ============= =============
Weighted Average Shares
Outstanding
Basic 23,270,022 24,148,523 23,369,225 24,310,943
============ ============ ============= =============
Diluted 24,158,257 24,349,540 24,161,460 24,421,428
============ ============ ============= =============
Cash Dividends Paid Per
Share $ 0.05 $ 0.05 $ 0.10 $ 0.10
============ ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 5
TCBY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
May 31, June 1,
1998 1997
_______________________________
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,268,556 $ 3,376,641
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation 2,121,816 2,585,820
Amortization of intangibles 130,615 108,587
Provision for doubtful accounts and
impaired notes 31,998 31,398
Deferred income taxes (benefits) (171,437) -
Tax benefit from exercise of stock options 760,000 -
Loss on sales of property and equipment 2,579 978
Changes in operating assets and liabilities:
Receivables (6,154,006) (7,975,188)
Inventories (5,124,607) (1,406,196)
Prepaid expenses (166,866) (68,989)
Intangibles and other assets 607,651 935,473
Accounts payable and accrued expenses 1,926,463 2,016,471
Income taxes 282,969 1,694,586
_____________ _____________
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (1,484,269) 1,299,581
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,041,715) (1,063,024)
Proceeds from sales of property and equipment 59,411 25,731
Origination of notes receivable (206,256) (388,349)
Principal collected on notes receivable 886,609 735,703
Purchases of short-term investments (274,741) (720,000)
Proceeds from maturity of short-term
investments 337,014 800,000
_____________ _____________
NET CASH USED IN INVESTING ACTIVITIES (239,678) (609,939)
FINANCING ACTIVITIES
Proceeds from sale of common stock 3,244,831 4,000
Dividends paid (2,349,886) (2,440,988)
Purchases of treasury stock (8,675,444) (3,901,872)
Principal payments of long-term debt (1,669,288) (1,585,724)
_____________ _____________
NET CASH USED IN FINANCING ACTIVITIES (9,449,787) (7,924,584)
_____________ _____________
DECREASE IN CASH AND
CASH EQUIVALENTS (11,173,734) (7,234,942)
Cash and cash equivalents at beginning
of period 19,693,693 14,919,008
_____________ _____________
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 8,519,959 $ 7,684,066
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 6
TCBY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
May 31, 1998
NOTE A -- FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
quarter and six months ended May 31, 1998 are not
necessarily indicative of the results that may be expected
for the year ended November 29, 1998. For further
information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended November 30, 1997.
NOTE B -- EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
May 31, June 1, May 31, June 1,
1998 1997 1998 1997
________ ________ ________ ________
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 3,526,968 $ 3,124,990 $ 4,268,556 $ 3,376,641
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings
per share -- weighted-average
shares 23,270,022 24,148,523 23,369,225 24,310,943
Potential dilutive effect of
employee stock options 888,235 201,017 792,235 110,485
__________ __________ __________ __________
Denominator for diluted earnings
per share -- weighted-average
shares and assumed conversions 24,158,257 24,349,540 24,161,460 24,421,428
========== ========== ========== ==========
Basic earnings per share $0.15 $0.13 $0.18 $0.14
========== ========== ========== ==========
Diluted earnings per share $0.15 $0.13 $0.18 $0.14
========== ========== ========== ==========
</TABLE>
During the second quarters of 1998 and 1997, there were
outstanding options to purchase 68,181 and 1,095,883 shares
of common stock, respectively, that were not included in the
Sequential Page No. 7
computation of diluted earnings per share because the
options' exercise prices were greater than the average
market price of the common shares, therefore, the effect
would be antidilutive. For the first six months of 1998 and
1997, the number of shares excluded were 64,321 and
1,597,286, respectively.
NOTE C -- INVENTORIES
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
___________ ____________
<S> <C> <C>
Manufacturing materials and
supplies $ 6,700,040 $ 4,307,719
Finished food products
and other food products 5,692,653 2,929,034
Equipment and other products 3,411,145 3,442,478
____________ ____________
$15,803,838 $10,679,231
=========== ============
</TABLE>
NOTE D -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
___________ ___________
<S> <C> <C>
Rent $ 642,003 $ 662,224
Compensation 1,692,278 2,534,394
Other 3,035,295 3,415,528
___________ ___________
$ 5,369,576 $ 6,612,146
=========== ============
</TABLE>
NOTE E -- CONTINGENCIES
A purported investor in a former franchisee claimed
approximately $26 million in trebled damages plus costs and
prejudgment interest from the former franchisee for alleged
fraudulent acts. The compensatory damages requested were
$8.7 million. The Company was also named in this suit as a
defendant. In April, 1997, summary judgment was granted by
the trial court in favor of the Company on the basis that as
a matter of law the Company could not be liable to the
purported investor; the plaintiff appealed the summary
judgement order, and in April, 1998, summary judgement in
favor of the Company was upheld by the District Court of
Appeal, Fifth District, Florida.
A customer for whom Americana Foods produces private label
products has asserted a claim alleging damages due to
production defects. Immediate and voluntary recalls of
limited quantities of product were undertaken in 1997. The
Company believes sufficient insurance coverage is in place
to cover any potential damages over the uninsured portion
which was accrued in fiscal 1997.
Sequential Page No. 8
Other than as set forth above, there is no material
litigation pending against the Company. Various legal and
administrative proceedings are pending against the Company
which are incidental to the business of the Company. The
ultimate legal and financial liability of the Company in
connection with such proceedings and that discussed above
cannot be estimated with certainty, but the Company
believes, based upon its examination of these matters, its
experience to date, and its discussions with legal counsel,
that resolution of these proceedings will have no material
adverse effect upon the Company's financial condition,
either individually or in the aggregate; of course, any
substantial loss pursuant to any litigation might have a
material adverse impact upon results of operations in the
quarter or year in which it were to be incurred, but the
Company cannot estimate the range of any reasonably possible
loss.
Sequential Page No. 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's total sales for the second quarter and first
six months of 1998 increased one percent and three percent,
respectively, over the same periods in 1997. The Company
has realized sales benefits from its continued development
of co-branded locations. However, 1997 sales include
several items that impact the comparison to current
revenues, including: sales of approximately $1.2 million
from Carlin Manufacturing, Inc. ("Carlin"), a TCBY
subsidiary which was sold in July, 1997 and the introduction
of a new product line in retail channels during the second
quarter of 1997. The following table sets forth sales by
category within the Company's primary segments (food
products and equipment) of operation:
<TABLE>
<CAPTION>
(dollars in thousands)
Quarter Ended Six Months Ended
May 31, 1998 June 1, 1997 May 31, 1998 June 1, 1997
________________ ________________ _______________ _______________
Sales % Sales % Sales % Sales %
________ _____ ________ _____ ________ _____ ________ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Food Products:
"TCBY"(registered)
Frozen Product sales
for distribution to
"TCBY"(registered)
locations $14,421 53% $14,796 55% $22,808 52% $23,427 55%
Sales of specialty
products 7,599 28% 7,345 27% 12,148 28% 10,369 24%
________ _____ ________ _____ ________ _____ ________ _____
22,020 81% 22,141 82% 34,956 80% 33,796 79%
Equipment:
Sales by the
Company's equip-
ment distributor 4,659 17% 3,749 14% 8,067 18% 6,749 16%
Sales of manufac-
tured specialty
vehicles - - 433 2% - - 1,227 3%
________ _____ ________ _____ ________ _____ ________ _____
4,659 17% 4,182 16% 8,067 18% 7,976 19%
Other 405 2% 480 2% 790 2% 916 2%
________ _____ ________ _____ ________ _____ ________ _____
Total Sales $27,084 100% $26,803 100% $43,813 100% $42,688 100%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
Sales from the Company's food products segment include (i)
wholesale sales of frozen yogurt and ice cream products to
ProSource Distribution Services and other foodservice
distributors, which distribute yogurt and other products to
"TCBY"(registered) stores and non-traditional locations, and
sales to international master franchisees of frozen products
and proprietary ingredients for the manufacture of frozen
products in the countries that produce locally, and (ii)
sales of "TCBY"(registered) frozen packaged products and
other specialty dairy food products to customers including
Sequential Page No. 10
supermarkets, convenience stores, dairies, foodservice
distributors, club stores, and private label suppliers.
Wholesale sales of frozen yogurt and ice cream products
decreased three percent during the second quarter and first
six months of 1998, compared to the same periods in 1997.
These decreases are attributed primarily to a reduction in
the number of domestic traditional "TCBY"(registered) stores
in operation and to a lesser extent decreased sales to
international franchisees due to the economic situation in
Asia. Total international revenues represented approximately
five percent of the Company's sales and franchising revenues
in 1997. These decreases were partially offset by increased
purchases by "TCBY"(registered) non-traditional locations.
The Company continues to develop additional "TCBY"(registered)
non-traditional locations with over 300 "TCBY"(registered)
locations under agreement for development as of May 31,
1998. Most of the "TCBY"(registered) locations under
development will be co-branded locations with petroleum or
other food operations.
The following table sets forth TCBY and Juice Works location
activity for the second quarter and first six months of 1998
and 1997.
<TABLE>
<CAPTION>
NON-
FRANCHISED COMPANY INTERNATIONAL TRADITIONAL TOTAL
STORES STORES LOCATIONS LOCATIONS LOCATIONS
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
___________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the second quarter:
Locations open at
beginning of period 1,095 1,193 2 2 230 210 1,528 1,320 2,855 2,725
Opened 15 20 - - 9 25 98 86 122 131
Closed (19) (44) - - (22) (10) (21) (33) (62) (87)
Locations transferred - - - - - - - - - -
___________________________________________________________________
Locations open at
end of period 1,091 1,169 2 2 217 225 1,605 1,373 2,915 2,769
===================================================================
</TABLE>
<TABLE>
<CAPTION>
NON-
FRANCHISED COMPANY INTERNATIONAL TRADITIONAL TOTAL
STORES STORES LOCATIONS LOCATIONS LOCATIONS
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
___________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the first six months:
Locations open at
beginning of period 1,110 1,198 2 2 229 201 1,467 1,297 2,808 2,698
Opened 20 33 - - 13 36 176 156 209 225
Closed (39) (62) - - (25) (12) (38) (80) (102) (154)
Locations transferred - - - - - - - - - -
___________________________________________________________________
Locations open at
end of period 1,091 1,169 2 2 217 225 1,605 1,373 2,915 2,769
===================================================================
</TABLE>
During the first six months of 1998, significantly more
"TCBY"(registered) non-traditional locations than
traditional locations opened. While the Company has placed
Sequential Page No. 11
and continues to place equal emphasis upon both traditional
and non-traditional locations, the Company has experienced
more non-traditional development in the last few years. The
Company believes this trend will continue for the remainder
of 1998. The rate of development of non-traditional
locations is partially determined by co-branding partners,
who must approve each location in a process not controlled
by the Company, and in some cases, delays have been
experienced while the Company and the prospective TCBY
franchisee awaited such approval; existing franchisees
within the TCBY system may also slow the rate of new
development when they express their concerns regarding
franchisees new to the TCBY system, and the desire of the
Company to maintain good relationships with all franchisees
results in occasional delays in development while those
concerns are addressed. While different in size and
character, each TCBY location is treated the same. The
non-traditional locations include sites at airports, travel
plazas, colleges, hospitals, theme parks, stadiums and
locations in conjunction with petroleum stores and other
food concepts (co-branded locations). The majority of the
176 non-traditional openings in the first six months of 1998
were co-branded. During the first six months of 1998, 38
non-traditional locations were closed. These locations
generally purchased low volumes of yogurt from the Company.
The Company expects that there may be additional closings of
low volume non-traditional locations as they are not
efficient for the Company to service or the customer to
operate.
During the first six months of 1998, a total of 39
franchised stores were closed by franchisees. Each store
closed is the result of the franchisee's evaluation of its
financial condition, cash flow, lease expiration,
profitability and store operations, among other things. Of
the locations closed, 29 operated for a portion of the first
six months of 1998, with the remainder having originally
closed for relocation in prior years. Included in the
franchised store information are 91 and 105
"TCBY"(registered) stores closed for relocation or for the
season at May 31, 1998 and June 1, 1997, respectively.
Sales of specialty products increased three percent and 17
percent during the second quarter and first six months of
1998, respectively, as compared to the same periods in 1997.
These increases are attributed primarily to increased sales
of private label products. The Company has pursued private
label opportunities to utilize the available capacity at its
manufacturing facility in Dallas. The increases in private
label sales were partially offset by decreases in sales of
TCBY branded products to the retail market as 1997 included
the introduction of a new product line in retail channels
during the second quarter.
Sales in the Company's equipment segment include (i) sales
from the distribution of equipment to the foodservice
industry and (ii) 1997 sales of manufactured mobile kitchens
and other specialty vehicles primarily to businesses and
governments. Sales in the equipment segment increased 11
percent and one percent during the second quarter and first
six months of 1998, respectively, as compared to the same
periods in 1997. The increased sales at the Company's
Sequential Page No. 12
equipment distributor are due to the opening of non-
traditional "TCBY" (registered) locations, some of which
purchased a portion of their original equipment packages
from the Company. These increases were partially offset by
decreased sales to international franchisees as well as the
sale of Carlin in July, 1997. In the Carlin transaction,
the real estate and certain finished goods inventory were
retained by the Company. The real estate was leased to the
purchaser with the ultimate intent to sell the property.
The purchaser is assisting the Company in marketing the
remaining inventory and receives a commission on the sale
of this inventory.
As a percent of sales, cost of sales for the second quarter
and first six months of 1998 and 1997 for the Company and
its two primary segments are presented below:
<TABLE>
<CAPTION>
Second Quarter First Six Months
_______________ _________________
1998 1997 1998 1997
_____________________________________________________________
<S> <C> <C> <C> <C>
Food Products Segment 66% 66% 66% 66%
Equipment Segment 75% 76% 77% 77%
Company Total 67% 67% 67% 67%
</TABLE>
Cost of sales as a percentage of sales for the second
quarter and first six months of 1998 are comparable to the
same periods in 1997. Dairy prices, which are a major
component of the Company's cost of sales, have exceeded
historical levels during 1998. The increases in dairy cost
have been partially offset by lower prices for packaging and
other non-dairy raw ingredients. The cost of dairy
components is currently tied to the federal milk orders
system. This market fluctuates based on supply and demand
with prices being variable from month to month. Increases
in the price for milk fat (used in butter, cheese, ice
cream, etc.) have resulted from shortages in the supply of
butter caused primarily by large export sales of butter at
subsidized prices under the federal government's Dairy
Export Incentive Program over the last year. Also,
increases have occurred in the Basic Formula Price (BFP) of
whole milk compared to the prior year. While the BFP for
whole milk has declined early in the third quarter, increases
are expected beginning in August. The Company's core
yogurt products do not utilize high levels of milk fat;
however, the TCBY Treats stores do offer ice cream products
which require higher levels of milk fat. The Company has
not changed its pricing on TCBY products. Many private
label customers absorb the higher dairy prices.
Franchising revenues consist of initial franchise and
license fees and royalty income. In the second quarter of
1998 initial franchise and license fees decreased 54 percent
while royalty income increased seven percent from the same
period in 1997. For the first six months of 1998, initial
franchise and license fees decreased 39 percent while
royalty income increased four percent from the same period
in 1997. These decreases in franchise and license fees
result from fewer initial international franchise fees as
record level fees were realized during the second quarter of
1997. The increases in royalty income are primarily
attributable to more non-traditional locations. These
increases were partially offset by fewer traditional
Sequential Page No. 13
"TCBY"(registered) stores and decreased purchases by
international franchisees.
Operating expenses decreased 10 percent in the second
quarter of 1998 and nine percent for the first six months of
1998 compared to 1997. The decreases are due to the sale of
Carlin in July, 1997, and a reduction in other corporate
operating costs. As a percentage of combined sales and
franchising revenues, operating expenses were 25 percent and
27 percent for the second quarter of 1998 and 1997,
respectively. For the first six months of 1998 and 1997,
operating expenses as a percentage of combined sales and
franchising revenues were 29 percent and 32 percent,
respectively.
The forward-looking statements included herein are based on
certain assumptions regarding U.S. and foreign economic
conditions, competition, costs of raw materials, unit
openings and closings, sales volumes per unit, other
manufacturing opportunities, no changes in governmental
regulation of the food industry, and no material event which
would impact the reputation of the Company's manufacturing
facility or the Company's ability to utilize that facility.
Should the Company's performance differ materially from the
assumptions regarding these areas, actual results could vary
significantly from the performance noted in the
forward-looking statements. Thus, the Company cautions
readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated cash from operations
sufficient to meet its normal operating requirements. The
Company's cash and short-term investments decreased approxi-
mately $11.2 million during the first six months of 1998.
This decrease resulted primarily from (i) purchases of
treasury stock (see discussion below), (ii) an increase in
trade accounts receivable attributed to normal seasonal
increases, (iii) an increase in inventory due to seasonality
and additional raw goods and packaging materials related to
increased private label products, and (iv) cash dividends.
The Company's foreseeable cash needs for operations and
capital expenditures are expected to be met through cash
flows from operations; however, the Company has available a
$5 million unsecured credit line to meet seasonal cash
needs.
From time to time, the Company may evaluate strategic alter-
natives. Any acquisition may require the use of operating
cash flows, short or long term financing, issuance of equity,
or other financing sources in order to consummate such
acquisition or to fund operating and capital expenditures of
any acquired business.
In December 1995, the Company was authorized to repurchase
up to three million shares of its outstanding common stock.
The final repurchases under this authorization were
completed during the second quarter of 1998. In December,
1997, the Company was authorized to repurchase an additional
two million shares of its outstanding stock. As of May 31,
1998, 112,305 shares have been purchased under this
Sequential Page No. 14
authorization. All repurchases have been funded with cash
flows from operations. Future repurchases may be funded
with cash flows from operations or long-term financing.
The following summarizes statistics related to the Company's
financial position:
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
______________ _____________
<S> <C> <C>
Current Ratio 3.3 to 1.0 4.0 to 1.0
Working Capital (in millions) $32.3 $34.5
Long-Term Debt to Equity Ratio .06 to 1.0 .08 to 1.0
Tangible Net Worth (in millions) $70.3 $73.1
</TABLE>
On June 12, 1998, the Company's Board of Directors declared
a five cents per share dividend payable on July 3, 1998 to
the stockholders of record on June 23, 1998. The Company
will consider adjustments to the dividend rate after giving
consideration to return to stockholders, profitability
expectations and financing needs.
Sequential Page No. 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A purported investor in a former franchisee claimed
approximately $26 million in trebled damages plus costs and
prejudgment interest from the former franchisee for alleged
fraudulent acts. The compensatory damages requested were
$8.7 million. The Company was also named in this suit as a
defendant. In April, 1997, summary judgment was granted by
the trial court in favor of the Company on the basis that as
a matter of law the Company could not be liable to the
purported investor; the plaintiff appealed the summary
judgement order, and in April, 1998, summary judgement in
favor of the Company was upheld by the District Court of
Appeal, Fifth District, Florida.
A customer for whom Americana Foods produces private label
products has asserted a claim alleging damages due to
production defects. Immediate and voluntary recalls of
limited quantities of product were undertaken in 1997. The
Company believes sufficient insurance coverage is in place
to cover any potential damages over the uninsured portion
which was accrued in fiscal 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
a) The Annual Meeting of Shareholders was held April 16,
1998.
c) A total of 21,471,739 shares were present or represented
at the meeting. The first matter voted upon was the
uncontested election of directors. Abstentions and
withheld votes constituted the difference between the
total shares voted for each director and the total
shares represented in person or by proxy. All
individuals nominated to be directors of the Corporation
were elected with the following number of votes:
Frank D. Hickingbotham 21,387,479
Herren C. Hickingbotham 21,379,740
William H. Bowen 21,377,844
Daniel R. Grant 21,377,256
F. Todd Hickingbotham 21,383,584
Don O'Neal Kirkpatrick 21,386,186
Marvin D. Loyd 21,379,744
Hugh H. Pollard 21,377,415
The second matter voted upon was a request to amend the
1992 Employee Stock Option Plan of TCBY Enterprises, Inc.
(the "Plan") which would increase the number of shares
available under the Plan by 1,000,000 shares. A total of
19,424,122 shares voted "for" the amendment and 1,963,046
voted "against" the amendment. Abstentions and withheld
votes constituted the difference between the total shares
voted and the total shares represented in person or by
proxy.
Sequential Page No. 16
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<S> <C>
27(a) Article 5, Financial Data Schedule for the Second
Quarter 1998 Form 10-Q
27(b) Article 5, Financial Data Schedule for the Second
Quarter 1997 Form 10-Q restated for adoption of
Financial Accounting Standards Board Statement
Number 128, Earnings Per Share
99(a) Press release, dated April 29, 1998, "TCBY Helps
You Say 'Thanks, Mom' Two Promotions Launched For
Mother's Day"
99(b) Press release, dated June 11, 1998, "TCBY Reports
Improved Operating Results For First Half of 1998"
99(c) Press release, dated June 12, 1998, "TCBY
Declares Cash Dividend"
</TABLE>
b) The Company did not file any reports on Form 8-K
during the three periods ended May 31, 1998.
Sequential Page No. 17
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
TCBY ENTERPRISES, INC.
Date: 07/14/98 /s/ Frank D. Hickingbotham
____________________________
Frank D. Hickingbotham,
Chairman of the Board and
Chief Executive Officer
Date: 07/14/98 /s/ Gene H. Whisenhunt
____________________________
Gene H. Whisenhunt,
Executive Vice President
Chief Financial Officer
Sequential Page No. 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MAY 31,
1998 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
QUARTER ENDED MAY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-29-1998
<PERIOD-END> MAY-31-1998
<CASH> 8,519,959
<SECURITIES> 2,343,772
<RECEIVABLES> 17,046,484
<ALLOWANCES> 828,071
<INVENTORY> 15,803,838
<CURRENT-ASSETS> 46,199,229
<PP&E> 81,118,835
<DEPRECIATION> 41,878,091
<TOTAL-ASSETS> 96,624,368
<CURRENT-LIABILITIES> 13,890,968
<BONDS> 4,628,720
<COMMON> 2,770,022
0
0
<OTHER-SE> 71,903,557
<TOTAL-LIABILITY-AND-EQUITY> 96,624,368
<SALES> 27,083,951
<TOTAL-REVENUES> 30,897,590
<CGS> 18,139,008
<TOTAL-COSTS> 18,139,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16,299
<INTEREST-EXPENSE> 141,699
<INCOME-PRETAX> 5,326,601
<INCOME-TAX> 1,799,633
<INCOME-CONTINUING> 3,526,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,526,968
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 1,
1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
QUARTER ENDED JUNE 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> JUN-1-1997
<CASH> 7,684,066
<SECURITIES> 4,172,552
<RECEIVABLES> 18,706,723
<ALLOWANCES> 1,050,733
<INVENTORY> 12,744,300
<CURRENT-ASSETS> 46,274,540
<PP&E> 79,918,689
<DEPRECIATION> 37,944,109
<TOTAL-ASSETS> 101,298,688
<CURRENT-LIABILITIES> 14,155,581
<BONDS> 7,883,732
<COMMON> 2,706,335
0
0
<OTHER-SE> 73,551,939
<TOTAL-LIABILITY-AND-EQUITY> 101,298,688
<SALES> 26,802,645
<TOTAL-REVENUES> 31,184,025
<CGS> 18,029,523
<TOTAL-COSTS> 18,029,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,699
<INTEREST-EXPENSE> 189,931
<INCOME-PRETAX> 4,807,678
<INCOME-TAX> 1,682,688
<INCOME-CONTINUING> 3,124,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,124,990
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
Exhibit 99(a)
PRESS RELEASE
FOR IMMEDIATE RELEASE
WEDNESDAY
APRIL 29, 1998
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
CORPORATE COMMUNICATIONS
TCBY ENTERPRISES, INC.
(501) 688-8229
TCBY HELPS YOU SAY "THANKS, MOM"
Two Promotions Launched for Mother's Day
LITTLE ROCK, AR - WEDNESDAY (APRIL 29, 1998) - TCBY
ENTERPRISES, INC. (NYSE:TBY) will help you say "Thanks, Mom"
on Mothers' Day. Just bring your Mother in to a
participating store for her free Waffle Cone. The promotion
will run nationwide on Sunday, May 10.
In addition, with every Mother's Day Cake purchase, you will
receive a free phone card. This card is good for 10 minutes
of long distance calls. Mother's Day Cakes will be featured
in a May 3 free standing insert in newspapers across the
country. A phone card will also be available with the
purchase of any Father's Day Cake in June.
"Mothers are so special to all of us," said Jim Sahene,
President of TCBY Systems, Inc. "TCBY wanted to recognize
this, and provide our customers with several ways to say
'Thanks' to their Mothers this year."
As part of the Mother's Day promotion, TCBY is awarding a
new 1998 Volkswagen Beetle to a team member. Each time a
team member sells ten pies or cakes, his or her name will be
entered in a nationwide drawing. One name will be drawn to
win the car. This contest runs April 27-May 10. The winner
will be announced in July.
TCBY Enterprises, Inc., through subsidiary companies,
manufactures and sells soft serve frozen yogurt, hardpack
frozen yogurt, hardpack ice cream, and frozen novelty
products, and markets foodservice equipment. The Company is
the world's largest manufacturer-franchisor of frozen
yogurt. The Company, through subsidiaries, develops
locations and products under the "TCBY"(registered) and
Juice Works(registered) brands.
-30-
Exhibit 99(b)
PRESS RELEASE
FOR IMMEDIATE RELEASE
THURSDAY
JUNE 11, 1998
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
CORPORATE COMMUNICATIONS
(501) 688-8229
TCBY REPORTS IMPROVED OPERATING
RESULTS FOR FIRST HALF OF 1998
LITTLE ROCK, AR - (Thursday) JUNE 11, 1998 - TCBY
ENTERPRISES, INC. (NYSE:TBY) today announced net income for
the first six months of 1998 increased to $4,268,556, or
$.18 per share (basic and diluted), from $3,376,641, or $.14
per share (basic and diluted), for the same period in 1997.
Net income for the second quarter of 1998 increased to
$3,526,968, or $.15 per share (basic and diluted), from
$3,124,990, or $.13 per share (basic and diluted), for the
same period in 1997. These results represent the best
second quarter earnings performance experienced by the
Company since 1991.
Sales and franchising revenues for the first half of 1998
increased to $50,106,115 from $49,655,724 in 1997. Sales
and franchising revenues for the second quarter of 1998 were
$30,897,590 as compared to $31,184,025 last year. The
Company has realized sales and franchising revenues benefits
from its continued development of co-branded locations.
However, 1997 revenues included several items that impact
the comparison to current revenues, including: sales of
approximately $1.2 million from Carlin Manufacturing, Inc.,
a TCBY subsidiary which was sold in July, 1997; record
initial international development fees in the second quarter
of 1997; and the introduction of a new product line in
retail channels during the second quarter of 1997. In
addition, sales and franchising revenues were adversely
impacted by the economic challenges in Asia, which are
expected to continue throughout 1998.
There were 2,915 "TCBY"(registered) and Juice
Works(registered) locations open, as well as several
thousand retail points-of-sale for "TCBY"(registered)
products worldwide, at the conclusion of the second quarter
of 1998. In addition, there were over 300 locations under
agreement for development. Most of the "TCBY"(registered)
locations under development will be co-branded locations
with other food or petroleum operations. Most of the Juice
Works(registered) locations under development will be
co-branded with existing "TCBY"(registered) operations.
Juice Works(registered) locations also continue to be opened
in airports, travel plazas, and mall food courts by Host
Marriott.
"We are pleased with our second quarter results and the
continued improvements we are experiencing," said Frank D.
Hickingbotham, Chairman and Chief Executive Officer. "We
have faced challenges in dairy prices and the Asian markets,
but despite this, have maintained our continued improvements
in earnings. The strategy of expanding the sale of TCBY
products through co-branded locations continues to
contribute positively to our results."
The above quote contains forward-looking statements based on
certain assumptions regarding U.S. and foreign economic
conditions, competition, costs of raw materials (as
previously announced, dairy prices during 1998 have exceeded
historical levels), unit openings and closings, sales
volumes per unit, other manufacturing opportunities, no
changes in governmental regulation of the food industry, and
no material event which would impact the reputation of the
Company's manufacturing facility or the Company's ability to
utilize that facility. Should the Company's performance
differ materially from the assumptions regarding these
areas, actual results could vary significantly from the
performance noted in the forward-looking statements. Thus,
the Company cautions readers not to place undue reliance on
any forward-looking statements, which speak only as of the
date made.
In December, 1995, the Company announced the authorization
by its Board of Directors to purchase up to three million
shares of its outstanding common stock. During the second
quarter, the Company completed this authorization. In
December, 1997, the Board of Directors authorized the
purchase of an additional two million shares of the
Company's stock. To date, the Company has purchased over
112,000 shares under this authorization. Purchases have
been made utilizing the Company's cash resources.
TCBY Enterprises, Inc., through subsidiary companies,
manufactures and sells soft serve frozen yogurt and sorbet,
hardpack frozen yogurt and ice cream, and frozen novelty
products, and markets foodservice equipment. The Company,
through subsidiaries, develops locations and products under
the "TCBY"(registered) and Juice Works(registered) brands.
TCBY Enterprises, Inc.
Selected Financial Highlights
($000, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
May 31 June 1 May 31 June 1
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating Results
Sales & Franchising Revenue $ 30,898 $ 31,184 $ 50,106 $ 49,656
Net Income $ 3,527 $ 3,125 $ 4,269 $ 3,377
Basic Earnings Per Share $ .15 $ .13 $ .18 $ .14
Average Shares Outstanding 23,270 24,149 23,369 24,311
Diluted Earnings Per Share $ .15 $ .13 $ .18 $ .14
Diluted Shares 24,158 24,350 24,161 24,421
Dividends Paid Per Share $ .05 $ .05 $ .10 $ .10
</TABLE>
<TABLE>
<CAPTION>
May 31 November 30
1998 1997
<S> <C> <C>
Financial Position
Current Assets $ 46,199 $ 46,226
Current Liabilities $ 13,891 $ 11,694
Property, Plant & Equipment, net $ 39,241 $ 40,341
Total Assets $ 96,624 $ 99,264
Long-term Debt, less current portion $ 4,629 $ 6,298
Stockholders' Equity $103,611 $ 97,687
Less Treasury Stock $(28,937) $(20,262)
Total Stockholders' Equity $ 74,674 $ 77,426
</TABLE>
Exhibit 99(c)
PRESS RELEASE
FOR IMMEDIATE RELEASE
FRIDAY
JUNE 12, 1998
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
CORPORATE COMMUNICATIONS
(501) 688-8229
TCBY DECLARES CASH DIVIDEND
LITTLE ROCK, AR - Friday, June 12, 1998 - TCBY ENTERPRISES,
INC. (NYSE:TBY) today announced the Board of Directors of
the Company declared a $.05 per share cash dividend. This
dividend is payable on July 3, 1998 to shareholders of
record as of June 23, 1998.
TCBY Enterprises, Inc., through subsidiary companies,
manufactures and sells soft serve frozen yogurt, hardpack
frozen yogurt and ice cream, and frozen novelty products,
and markets foodservice equipment. The Company, through
subsidiaries, develops locations and products under the
"TCBY"(registered) and Juice Works(registered) brands.
-30-
