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 August 30, 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 September 30, 1998 there were 23,119,269 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
August 30, 1998 and November 30, 1997 3
Consolidated Statements of Operations
Quarter ended and nine months ended
August 30, 1998 and August 31, 1997 5
Consolidated Statements of Cash Flows
Nine months ended August 30, 1998 and
August 31, 1997 6
Notes to Consolidated Financial Statements
August 30, 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 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
Sequential Page No. 2
PART 1
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
TCBY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
August 30, November 30,
1998 1997
________________________________
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,803,497 $ 19,693,693
Short-term investments 3,127,614 2,406,045
Receivables:
Trade accounts 14,236,729 8,750,207
Notes 2,097,285 2,127,328
Allowance for doubtful accounts
and impaired notes (810,615) (833,447)
_____________ _____________
15,523,399 10,044,088
Refundable income taxes - 12,472
Deferred income taxes 708,269 1,086,406
Inventories 13,385,718 10,679,231
Prepaid expenses and other assets 1,375,551 1,549,643
Assets held for sale 754,652 754,652
_____________ _____________
TOTAL CURRENT ASSETS 50,678,700 46,226,230
PROPERTY, PLANT, AND EQUIPMENT:
Land 2,534,307 2,866,820
Buildings 23,306,677 23,753,155
Furniture, vehicles, and equipment 45,810,329 49,987,506
Leasehold improvements 3,603,219 3,625,054
Allowance for depreciation (38,709,941) (39,891,253)
_____________ _____________
36,544,591 40,341,282
OTHER ASSETS:
Notes receivable, less current portion
(less allowance for doubtful notes of
$7,687,906 in 1998 and $7,741,180
in 1997) 4,696,650 5,495,337
Intangibles (less amortization of
$2,160,647 in 1998 and $1,964,433
in 1997) 4,303,943 4,326,193
Other 2,910,282 2,875,354
_____________ _____________
11,910,875 12,696,884
_____________ _____________
TOTAL ASSETS $ 99,134,166 $ 99,264,396
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 3
TCBY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
August 30, November 30,
1998 1997
________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,105,837 $ 1,910,414
Accrued expenses 5,705,460 6,612,146
Income taxes payable 1,879,435 -
Current portion of long-term debt 3,171,448 3,171,448
_____________ _____________
TOTAL CURRENT LIABILITIES 13,862,180 11,694,008
LONG-TERM DEBT, less current portion 3,745,496 6,298,008
DEFERRED INCOME TAXES 3,096,638 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 - 27,718,643;
1997 - 27,095,620 2,771,864 2,709,562
Additional paid-in capital 29,816,602 25,761,424
Retained earnings 75,654,406 69,216,099
_____________ _____________
108,242,872 97,687,085
Less treasury stock, at cost (4,599,374
shares in 1998 and 3,515,269 in 1997) (29,813,020) (20,261,563)
_____________ _____________
TOTAL STOCKHOLDERS' EQUITY 78,429,852 77,425,522
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 99,134,166 $ 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 Nine Months Ended
August 30, August 31, August 30, August 31,
1998 1997 1998 1997
_____________________________________________________________________________
<S> <C> <C> <C> <C>
Sales $28,791,737 $30,018,752 $ 72,604,389 $ 72,706,284
Cost of sales 18,765,675 19,782,608 48,197,198 48,495,096
____________ ____________ _____________ _____________
GROSS PROFIT 10,026,062 10,236,144 24,407,191 24,211,188
Franchising revenues:
Initial franchise and
license fees 490,986 693,625 1,851,841 2,911,711
Royalty income 3,585,705 3,425,530 8,518,313 8,175,636
____________ ____________ _____________ _____________
4,076,691 4,119,155 10,370,154 11,087,347
____________ ____________ _____________ _____________
14,102,753 14,355,299 34,777,345 35,298,535
Selling, general, and
administrative
expenses 7,797,861 7,863,239 22,421,305 23,848,287
____________ ____________ _____________ _____________
INCOME FROM
OPERATIONS 6,304,892 6,492,060 12,356,040 11,450,248
Other income (expense):
Interest expense (128,220) (189,762) (433,535) (582,663)
Interest income 254,254 284,055 872,021 830,760
Other income 2,169,178 67,721 2,273,085 150,561
____________ ____________ _____________ _____________
2,295,212 162,014 2,711,571 398,658
____________ ____________ _____________ _____________
INCOME BEFORE
INCOME TAXES 8,600,104 6,654,074 15,067,611 11,848,906
Income tax expense 2,924,037 2,328,928 5,122,988 4,147,119
____________ ____________ _____________ _____________
NET INCOME $ 5,676,067 $ 4,325,146 $ 9,944,623 $ 7,701,787
============ ============ ============= =============
Earnings per share:
Basic $ 0.25 $ 0.18 $ 0.43 $ 0.32
============ ============ ============= =============
Diluted $ 0.24 $ 0.18 $ 0.41 $ 0.32
============ ============ ============= =============
Weighted Average Shares
Outstanding
Basic 23,130,874 23,880,545 23,289,571 24,168,000
============ ============ ============= =============
Diluted 23,872,098 24,318,308 24,064,802 24,387,578
============ ============ ============= =============
Cash Dividends Paid Per
Share $ 0.05 $ 0.05 $ 0.15 $ 0.15
============ ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 5
TCBY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
August 30, August 31,
1998 1997
_______________________________
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,944,623 $ 7,701,787
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,102,444 3,798,016
Amortization of intangibles 196,214 167,048
Provision for doubtful accounts and
impaired notes 49,497 47,097
Deferred income taxes (benefits) (372,083) 962,939
Tax benefit from exercise of stock options 760,000 -
Gain on sales of property and equipment (2,140,740) (40,710)
Changes in operating assets and liabilities:
Receivables (5,514,077) (6,260,345)
Inventories (2,706,487) 683,651
Prepaid expenses 142,292 283,613
Intangibles and other assets (277,050) (705,002)
Accounts payable and accrued expenses (56,263) 2,495,970
Income taxes 1,891,907 1,838,681
_____________ _____________
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,020,277 10,972,745
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,546,343) (1,539,386)
Proceeds from sales of property and equipment 4,826,288 57,624
Origination of notes receivable (436,204) (767,194)
Principal collected on notes receivable 1,220,160 1,791,132
Purchases of short-term investments (1,455,648) (720,001)
Proceeds from maturity of short-term
investments 734,079 800,000
_____________ _____________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 3,342,332 (377,825)
FINANCING ACTIVITIES
Proceeds from sale of common stock 3,357,480 118,203
Dividends paid (3,506,316) (3,634,831)
Purchases of treasury stock (9,551,457) (3,901,872)
Principal payments of long-term debt (2,552,512) (2,378,586)
_____________ _____________
NET CASH USED IN FINANCING ACTIVITIES (12,252,805) (9,797,086)
_____________ _____________
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,890,196) 797,834
Cash and cash equivalents at beginning
of period 19,693,693 14,919,008
_____________ _____________
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 15,803,497 $ 15,716,842
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 6
TCBY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
August 30, 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 nine months ended August 30, 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 Nine Months Ended
August 30, August 31, August 30, August 31,
1998 1997 1998 1997
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 5,676,067 $ 4,325,146 $ 9,944,623 $ 7,701,787
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings
per share -- weighted-average
shares 23,130,874 23,880,545 23,289,571 24,168,000
Potential dilutive effect of
employee stock options 741,224 437,763 775,231 219,578
__________ __________ __________ __________
Denominator for diluted earnings
per share -- weighted-average
shares and assumed conversions 23,872,098 24,318,308 24,064,802 24,387,578
========== ========== ========== ==========
Basic earnings per share $0.25 $0.18 $0.43 $0.32
========== ========== ========== ==========
Diluted earnings per share $0.24 $0.18 $0.41 $0.32
========== ========== ========== ==========
</TABLE>
During the third quarters of 1998 and 1997, there were
outstanding options to purchase 59,771 and 425,185 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 nine months of 1998
and 1997, the number of shares excluded were 62,804 and
1,206,252, respectively.
NOTE C -- INVENTORIES
<TABLE>
<CAPTION>
August 30, November 30,
1998 1997
___________ ____________
<S> <C> <C>
Manufacturing materials and
supplies $ 5,338,009 $ 4,307,719
Finished food products
and other food products 4,941,178 2,929,034
Equipment and other products 3,106,531 3,442,478
___________ ____________
$13,385,718 $10,679,231
=========== ============
</TABLE>
NOTE D -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
August 30, November 30,
1998 1997
___________ ____________
<S> <C> <C>
Rent $ 607,565 $ 662,224
Compensation 2,033,549 2,534,394
Other 3,064,346 3,415,528
___________ ____________
$ 5,705,460 $ 6,612,146
=========== ============
</TABLE>
NOTE E -- CONTINGENCIES
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; however, the insurance
carrier, while offering a substantial settlement, does not
completely accept coverage and the Company has initiated
litigation to confirm coverage.
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,
Sequential Page No. 8
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 Pagne No. 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's total sales for the third quarter of 1998
decreased four percent over the same period in 1997. For
the first nine months of 1998, sales were comparable to the
same period 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 $2.5 million to a private label customer on
a one-time basis and sales of approximately $1.2 million
from Carlin Manufacturing, Inc. ("Carlin"), a TCBY
subsidiary which was sold in July, 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 Nine Months Ended
August 30, 1998 August 31, 1997 August 30, 1998 August 31, 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 $15,021 52% $15,415 51% $37,829 52% $38,841 53%
Sales of specialty
products 9,005 32% 9,786 33% 21,152 29% 20,155 28%
________ _____ ________ _____ ________ _____ ________ ____
24,026 84% 25,201 84% 58,981 81% 58,996 81%
Equipment:
Sales by the
Company's equip-
ment distributor 4,357 15% 4,345 14% 12,424 17% 11,094 15%
Sales of manufac-
tured specialty
vehicles - - 1 0% - - 1,228 2%
________ _____ ________ _____ ________ _____ ________ ____
4,357 15% 4,346 14% 12,424 17% 12,322 17%
Other 409 1% 472 2% 1,199 2% 1,388 2%
________ _____ ________ _____ ________ _____ ________ ____
Total Sales $28,792 100% $30,019 100% $72,604 100% $72,706 100%
======= ==== ======= ==== ======= ==== ======= ====
</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, ice cream, 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 supermarkets, convenience stores,
Sequential Page No. 10
dairies, foodservice distributors, club stores, and private
label suppliers.
Wholesale sales of frozen yogurt and ice cream products
decreased three percent during the third quarter and first
nine 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 August 30,
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 third quarter and first nine 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 third quarter:
Locations open at
beginning of period 1,091 1,169 2 2 217 225 1,605 1,373 2,915 2,769
Opened 10 14 - 1 8 12 108 107 126 134
Closed (31) (35) - - (8) (12) (38) (69) (77) (116)
Locations transferred - 1 - (1) - - - - - -
___________________________________________________________________
Locations open at
end of period 1,070 1,149 2 2 217 225 1,675 1,411 2,964 2,787
===================================================================
</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 nine months:
Locations open at
beginning of period 1,110 1,198 2 2 229 201 1,467 1,297 2,808 2,698
Opened 30 47 - 1 21 48 284 263 335 359
Closed (70) (97) - - (33) (24) (76) (149) (179) (270)
Locations transferred - 1 - (1) - - - - - -
___________________________________________________________________
Locations open at
end of period 1,070 1,149 2 2 217 225 1,675 1,411 2,964 2,787
===================================================================
</TABLE>
Sequential Page No. 11
During the first nine months of 1998, significantly more
"TCBY"(registered) non-traditional locations than
traditional locations opened. While the Company has placed
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; new development may also
be slowed when existing franchisees 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. 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 284
non-traditional openings in the first nine months of 1998
were co-branded. Of the 76 non-traditional locations closed
during the first nine months of 1998, 22 of the closings are
the result of the Company's joint venture partner not
retaining the rights to the foodservice operations at two
airports. The remainder of the closings are primarily
locations which purchased low volumes of yogurt from the
Company. These closings are not expected to have a material
impact on yogurt sales. 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 nine months of 1998, a total of 70
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, 56 operated for a portion of 1998,
with the remainder having originally closed for relocation
in prior years. Included in the franchised store
information are 79 and 87 "TCBY"(registered) stores closed
for relocation or for the season at August 30, 1998 and
August 31, 1997, respectively.
Sales of specialty products decreased eight percent during
the third quarter of 1998, as compared to the same period in
1997. The decrease for the quarter results from 1997 sales
including approximately $2.5 million of sales to a private
label customer on a one-time basis. Sales increased five
percent during the first nine months of 1998 as compared to
the same period in 1997. The increase for the nine month
period is attributed primarily to increased sales of private
label products even after consideration of the one-time sale
described above. The Company continues to pursue private
label opportunities to utilize the available capacity at its
manufacturing facility in Dallas.
Sequential Page No. 12
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 for the third
quarter of 1998 are virtually unchanged compared to the same
period in 1997. Sales increased one percent during the
first nine months of 1998 compared to the same period in
1997. The increased sales at the Company's equipment
distributor for the first nine months of 1998 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. This increase was
substantially offset by the sale of the Company's equipment
manufacturer, Carlin, in July, 1997. The Company had sales
from Carlin of $1.2 million during the first nine months of
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
(formally the president of Carlin under the Company's
ownership) 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 third quarter
and first nine months of 1998 and 1997 for the Company and
its two primary segments are presented below:
<TABLE>
<CAPTION>
Third Quarter First Nine Months
______________ __________________
1998 1997 1998 1997
_____________________________________________________________
<S> <C> <C> <C> <C>
Food Products Segment 64% 64% 65% 65%
Equipment Segment 76% 78% 77% 78%
Company Total 65% 66% 66% 67%
</TABLE>
The Company's cost of sales as a percentage of sales for the
third quarter and first nine months of 1998 are lower as
compared to the same periods in 1997. The lower cost of
sales percentages are primarily due to improved gross
margins for the Equipment Segment as a result of the sale of
Carlin in July 1997 which had low gross profit margins.
Within the Food Products Segment, the cost of sales
percentages for the third quarter and first nine months of
1998 were comparable to the prior year. A significant
portion of the cost of sales in this segment is dairy
products. Dairy costs include the value assigned to milk
solids and milk fats which are two of the components of milk
utilized in most products manufactured and sold by the
segment. The cost of these two components are currently
tied to the federal milk orders system. This market
fluctuates based on supply and demand with prices being
variable from month to month. The price paid for milk is
based on the Basic Formula Price (BFP) plus any applicable
surcharge (based on the use of the milk). Of the price paid
for milk, the Butter Fat Differential (BFD) is the market
value assigned to milk fats (used in butter, cheese, ice
cream, etc.), with the remainder of the milk price being
assigned to milk solids. The prices for BFP and BFD have
exceeded historical levels during 1998.
Sequential Page No. 13
Although dairy prices have increased during 1998 over the
same period in the prior year, the Food Products Segment has
not borne the full impact of the increases due to the
product mix manufactured and sold within the segment in
1998. Because the BFD prices have increased more than the
prices for BFP, the cost for milk solids have remained
comparable to or decreased from the prior year. The
segment's core yogurt products do not utilize high levels of
milk fat, which have tempered the impact of higher BFP and
BFD prices on the segment's other products which require
higher levels of milk fat such as TCBY ice cream products
offered by TCBY Treats stores. The Company has not changed
its pricing on TCBY products and has absorbed the higher
cost of ice cream products for the TCBY stores. The
increases in dairy prices have also been partially offset by
the segment's ability to pass the higher dairy prices on to
many private label customers as well as lower prices for
packaging and other non-dairy raw materials. The prices for
BFP and BFD are expected to remain higher in the fourth
quarter of 1998 than in the same period of 1997. While
these increases may impact the segment's cost of sales
during the fourth quarter of 1998, it is not currently
expected that the impact will be material. Further
increases in cost or material changes in product mix may
change this outcome.
Franchising revenues consist of initial franchise and
license fees and royalty income. In the third quarter of
1998 initial franchise and license fees decreased 29 percent
while royalty income increased five percent from the same
period in 1997. For the first nine months of 1998, initial
franchise and license fees decreased 36 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 for
the quarter and nine month period. The increases in royalty
income are primarily attributable to more non-traditional
locations. These increases were partially offset by fewer
traditional "TCBY "(registered) stores and decreased
purchases by international franchisees.
Operating expenses decreased one percent in the third
quarter of 1998 and six percent for the first nine 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 24 percent and
23 percent for the third quarter of 1998 and 1997,
respectively. For the first nine months of 1998 and 1997,
operating expenses as a percentage of combined sales and
franchising revenues were 27 percent and 28 percent,
respectively.
During the third quarter of 1998, the Company's aircraft was
sold to a third party which resulted in a gain of
approximately $2.1 million which is included in Other Income
on the Income Statement. The after-tax gain on the sale of
the Company assets was approximately $1.4 million or $.06
per share (basic and diluted). The Company
contemporaneously entered into an agreement whereunder an
aircraft owned by the Chairman and Chief Executive Officer
could be made available to the Company from time-to-time at
an hourly rate consistent with the cost of operating the
aircraft it divested; this hourly rate is substantially
Sequential Page No. 14
below the fair market rate which normally would be charged
to the Company for use of a similar aircraft. Under the new
arrangement, any use of the aircraft which is charged to the
Company is reviewed by the Board of Directors of the Company
on a regular basis.
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 $3.2 million during the first nine months of 1998.
This decrease resulted primarily from use of cash for (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. These uses of cash were partially offset by
earnings, proceeds from the exercise of stock options, and
the sale of Company assets. The increases in accounts
receivable and inventory are expected to decline somewhat in
the fourth quarter due to the seasonal nature of the
Company's business. 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
alternatives. 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 August
30, 1998, 212,305 shares have been purchased under this
authorization. During 1998, the Company has purchased
1,084,105 shares of common stock at a cost of $9,551,457.
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>
August 30, November 30,
1998 1997
______________ _____________
<S> <C> <C>
Current Ratio 3.7 to 1.0 4.0 to 1.0
Working Capital (in millions) $36.8 $34.5
Long-Term Debt to Equity Ratio .05 to 1.0 .08 to 1.0
Tangible Net Worth (in millions) $74.1 $73.1
</TABLE>
Sequential Page No. 15
On September 18, 1998, the Company's Board of Directors
declared a five cents per share dividend payable on October
9, 1998 to the stockholders of record on September 30, 1998.
The Company will consider adjustments to the dividend rate
after giving consideration to return to stockholders,
profitability expectations and financing needs.
YEAR 2000
The worldwide "Year 2000 problem" has arisen due to the fact
that many computer hardware and software systems along with
components of certain automated equipment utilize only the
last two digits of a date to refer to the year, failing to
distinguish dates within the twentieth century from those of
the twenty-first or other centuries. If not corrected,
these systems could fail or produce erroneous results with
the advent of the twenty-first century.
The Company is substantially complete in its assessment of
the Year 2000 impact on systems being utilized within the
Company. The Company's primary hardware platform is Year
2000 compliant. The Company is continuing a review of its
inventory of personal computers (PC's) and will either
remediate or replace those PC's found not to be compliant.
Additionally, a review of automated equipment other than
computer systems has been performed to ascertain if
remediation of any of this equipment is necessary. While
the Company is continuing its detailed assessment of its
automated equipment, the Company has not identified any
problems thus far that would have a material impact upon its
operations.
The Company's primary manufacturing and accounting software
is sourced from an external vendor and has been
independently certified as being Year 2000 compliant. The
Company has performed testing that supports this
certification. Software developed internally along with
other purchased software has been reviewed for compliance
and is in the process of being remediated where necessary.
This remediation effort is expected to be complete in the
second quarter of fiscal year 1999. The Company currently
estimates that the cost to remediate both its Year 2000
hardware and software issues to be less than $250,000.
Approximately $100,000 of this cost represents redeployment
of existing SG&A toward this effort.
The Year 2000 issues may have an impact on certain of the
Company's material business partners, potentially causing
disruptions in the supply of raw materials, services and/or
the ability of customers to take delivery of products which
could in turn have a material effect upon the Company's
results of operation. The degree of this effect is
uncertain. The Company has developed a structured
methodology for evaluating the Year 2000 readiness of these
business partners and expects this process to be completed
by year end. Contingency plans, where possible, will be
developed for those business partners deemed to be at an
unacceptable level of risk. A contingency plan for the
failure of the Company's overall Year 2000 remediation plan
has not been completed at this time.
Sequential Page No. 16
The forward-looking statements contained herein with regard
to the timing and overall cost estimates of the Company's
efforts to address the Year 2000 problem are based upon the
Company's experience thus far in this effort. Should the
Company encounter unforeseen difficulties either in the
continuing review of its computerized systems, their
ultimate remediation, or the responses of its business
partners, the actual results could vary significantly from
the estimates contained in these forward-looking statements.
OUTLOOK AND UNCERTAINTIES
The forward-looking statements included in this filing 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 or dairy 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.
Sequential Page No. 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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; however, the insurance
carrier, while offering a substantial settlement, does not
completely accept coverage and the Company has initiated
litigation to confirm coverage.
ITEM 5. OTHER INFORMATION
Effective June 29, 1998, the Securities and Exchange
Commission amended Rule 14a-4(c) under the Securities and
Exchange Act of 1934 (the "1934 Act") which governs the
Company's use of discretionary proxy voting authority with
respect to stockholder proposals that are not being included
in the Company's proxy solicitation materials pursuant to
Rule 14a-8 of the 1934 Act. New Rule 14a-4(c)(1) provides
that if a stockholder wishing to make a proposal fails to
notify the Company at least 45 days prior to the month and
day of mailing of the prior year's proxy statement (or by an
earlier or later date established by an overriding advance
notice provision contained in the Company's charter or
bylaws), then the management proxies named in the form of
proxy distributed in connection with the Company's proxy
statement would be allowed to use their discretionary voting
authority to address the matter submitted by the proponent,
without discussion of the matter in the proxy statement. In
addition, if a stockholder desires to include a proposal in
the Company's proxy statement for the 1999 Annual Meeting,
the proposal must be received by the Company on or before
January 13, 1999, and must comply with the requirements of
Rule 14a-8 of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<S> <C>
27(a) Article 5, Financial Data Schedule for the Third Quarter
1998 Form 10-Q
27(b) Article 5, Financial Data Schedule for the Third Quarter
1997 Form 10-Q restated for adoption of Financial Accounting
Standards Board Statement Number 128, Earnings Per Share
99(a) Press release, dated September 10, 1998, "TCBY Reports
Improved Operating Results For The First Nine Months
Of 1998"
99(b) Press release, dated September 18, "TCBY Declares Cash Dividend"<PAGE>
</TABLE>
b) The Company did not file any reports on Form
8-K during the three periods ended
August 30, 1998.
Sequential Page No. 18
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: 10/14/98 /s/ Frank D. Hickingbotham
____________________________
Frank D. Hickingbotham,
Chairman of the Board and
Chief Executive Officer
Date: 10/14/98 /s/ Gene H. Whisenhunt
____________________________
Gene H. Whisenhunt,
Executive Vice President
Chief Financial Officer
Sequential Page No. 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF AUGUST
30, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
QUARTER ENDED AUGUST 30 , 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> AUG-30-1998
<CASH> 15,803,497
<SECURITIES> 3,127,614
<RECEIVABLES> 16,334,014
<ALLOWANCES> 810,615
<INVENTORY> 13,385,718
<CURRENT-ASSETS> 50,678,700
<PP&E> 75,254,532
<DEPRECIATION> 38,709,941
<TOTAL-ASSETS> 99,134,166
<CURRENT-LIABILITIES> 13,862,180
<BONDS> 3,745,496
<COMMON> 2,771,864
0
0
<OTHER-SE> 75,657,988
<TOTAL-LIABILITY-AND-EQUITY> 99,134,166
<SALES> 28,791,737
<TOTAL-REVENUES> 32,868,428
<CGS> 18,765,675
<TOTAL-COSTS> 18,765,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,499
<INTEREST-EXPENSE> 128,220
<INCOME-PRETAX> 8,600,104
<INCOME-TAX> 2,924,037
<INCOME-CONTINUING> 5,676,067
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,676,067
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF AUGUST
31, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
QUARTER ENDED AUGUST 31, 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> AUG-31-1997
<CASH> 15,716,842
<SECURITIES> 4,172,553
<RECEIVABLES> 16,825,590
<ALLOWANCES> 1,112,957
<INVENTORY> 10,655,938
<CURRENT-ASSETS> 49,674,382
<PP&E> 80,047,345
<DEPRECIATION> 38,883,469
<TOTAL-ASSETS> 105,089,252
<CURRENT-LIABILITIES> 14,779,175
<BONDS> 7,090,870
<COMMON> 2,708,457
0
0
<OTHER-SE> 76,795,323
<TOTAL-LIABILITY-AND-EQUITY> 105,089,252
<SALES> 30,018,752
<TOTAL-REVENUES> 34,137,907
<CGS> 19,782,608
<TOTAL-COSTS> 19,782,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,699
<INTEREST-EXPENSE> 189,762
<INCOME-PRETAX> 6,654,074
<INCOME-TAX> 2,328,928
<INCOME-CONTINUING> 4,325,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,325,146
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
Exhibit 99(a)
PRESS RELEASE
FOR IMMEDIATE RELEASE
THURSDAY
SEPTEMBER 10, 1998
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
INVESTOR RELATIONS
TCBY ENTERPRISES, INC.
(501) 688-8229
TCBY REPORTS IMPROVED OPERATING RESULTS FOR
FIRST NINE MONTHS OF 1998
OVER 300 LOCATIONS UNDER DEVELOPMENT
LITTLE ROCK, AR - (Thursday, September 10,1998) - TCBY
ENTERPRISES, INC. (NYSE:TBY) today announced net income for
the first nine months of 1998 increased to $9,944,623, or
$.43 per basic share and $.41 per diluted share, from
$7,701,787, or $.32 per share (basic and diluted), for the
same period in 1997. Net income for the third quarter of
1998 increased to $5,676,067, or $.25 per basic share and
$.24 per diluted share, from $4,325,146, or $.18 per share
(basic and diluted), for the same period of 1997. These
results include an after-tax gain on the sale of Company
assets of approximately $1,385,000, or $.06 per share (basic
and diluted).
Sales and franchising revenues for the first nine months of
1998 were $82,974,543 compared to $83,793,631 in 1997.
Sales and franchising revenues for the third quarter of 1998
were $32,868,428 as compared to $34,137,907 last year. The
1997 revenues include several items that impact the
comparison of current revenues including: sales of
approximately $2.5 million to a private label customer on a
one-time basis; sales of $1.2 million from Carlin
Manufacturing, Inc., a TCBY subsidiary which was sold in
July, 1997; and a difference in initial international
development fees of $1 million. The Company continues to
realize sales and franchising benefits from its development
of co-branded locations with other food or petroleum
operations. Over 300 co-branded and traditional locations
have been opened during 1998.
"We remain committed to the expansion of the TCBY brand in
both our traditional and co-branded locations," said Frank
D. Hickingbotham, Chairman and Chief Executive Officer. "We
still face a competitive marketplace, and dairy prices have
continued to increase, thus impacting other progress that
has been made. We believe that our opportunities for growth
through both continued expansion of TCBY locations, and the
development of private label production opportunities,
remain strong."
There were 2,964 TCBY(registered) and Juice
Works(registered) locations open, as well as several
thousand retail points of sale for TCBY products worldwide,
at the conclusion of the third quarter of 1998. In
addition, there were over 300 TCBY locations under agreement
for development.
In December, 1995, the Company announced the authorization
by its Board of Directors to purchase up to 3 million shares
of its outstanding common stock. During the second quarter
of 1998, the Company completed this authorization. In
December, 1997, the Board of Directors authorized the
purchase of an additional 2 million shares of the Company's
stock. To date, the Company has purchased over 212,000
shares under this authorization. Purchases have been made
utilizing the Company's cash resources.
This release contains forward-looking statements based on
certain assumptions regarding U. S. and foreign economic
conditions, competition, cost 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.
TCBY Enterprises, Inc., through subsidiary companies,
manufactures and sells soft serve frozen yogurt and sorbet,
hardpack frozen yogurt and ice cream, and frozen novelties
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 Nine Months Ended
Aug. 30 Aug. 31 Aug. 30 Aug. 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating Results
Sales & Franchising Revenue $ 32,868 $ 34,138 $ 82,975 $ 83,794
Net Income $ 5,676 $ 4,325 $ 9,945 $ 7,702
Basic Earnings Per Share $ .25 $ .18 $ .43 $ .32
Average Shares Outstanding 23,131 23,881 23,290 24,168
Diluted Earnings Per Share $ .24 $ .18 $ .41 $ .32
Diluted Shares 23,872 24,318 24,065 24,388
Dividends Paid Per Share $ .05 $ .05 $ .15 $ .15
</TABLE>
<TABLE>
<CAPTION>
August 30 November 30
1998 1997
<S> <C> <C>
Financial Position
Current Assets $ 50,679 $ 46,226
Current Liabilities $ 13,862 $ 11,694
Property, Plant & Equipment, net $ 36,545 $ 40,341
Total Assets $ 99,134 $ 99,264
Long-term Debt, less current portion $ 3,745 $ 6,298
Stockholders' Equity $108,243 $ 97,687
Less Treasury Stock $(29,813) $(20,262)
Total Stockholders' Equity $ 78,430 $ 77,426
</TABLE>
Exhibit 99(b)
PRESS RELEASE
FOR IMMEDIATE RELEASE
FRIDAY
SEPTEMBER 18, 1998
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT,
INVESTOR RELATIONS
(501) 688-8229
TCBY DECLARES CASH DIVIDEND
LITTLE ROCK, AR - Friday, September 18, 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 October 9, 1998 to
shareholders of record as of September 30, 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.
