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 February 28, 1999
_____________________________
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 of 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 March 31, 1999 there were 22,828,926 shares of the
registrant's common stock outstanding.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
PART I. FINANCIAL INFORMATION Page
____
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
February 28, 1999 and November 29, 1998 3
Consolidated Statements of Operations
Quarter Ended February 28, 1999 and
March 1, 1998 5
Consolidated Statements of Cash Flows
Quarter Ended February 28, 1999 and
March 1, 1998 6
Notes to Consolidated Financial Statements
February 28, 1999 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
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PART 1
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
TCBY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
February 28, November 29,
1999 1998
________________________________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,360,943 $ 16,924,143
Short-term investments 2,337,843 2,967,135
Receivables:
Trade accounts 11,918,535 10,078,733
Notes 1,657,106 1,695,429
Allowance for doubtful accounts
and impaired notes (522,793) (439,223)
_____________ _____________
13,052,848 11,334,939
Refundable income taxes - 156,951
Deferred income taxes 1,204,197 1,204,197
Inventories 14,706,628 12,554,875
Prepaid expenses and other assets 2,300,904 1,540,971
Assets held for sale 150,000 150,000
____________ _____________
TOTAL CURRENT ASSETS 43,113,363 46,833,211
PROPERTY, PLANT, AND EQUIPMENT:
Land 2,534,307 2,534,307
Buildings 22,987,721 22,763,194
Furniture, vehicles, and equipment 46,731,873 46,637,567
Leasehold improvements 3,611,707 3,603,219
Construction in progress 95,638 -
Allowances for depreciation (40,520,614) (39,546,174)
_____________ _____________
NET PROPERTY, PLANT, AND EQUIPMENT 35,440,632 35,992,113
OTHER ASSETS:
Notes receivable, less current portion
(less allowance for doubtful and
impaired notes of $7,829,633 in 1999
and $8,029,658 in 1998) 4,468,764 4,525,970
Intangibles (less amortization of
$1,892,228 in 1999 and $2,226,511 in 1998) 4,197,638 4,250,684
Other 5,835,350 2,850,906
_____________ _____________
TOTAL OTHER ASSETS 14,501,752 11,627,560
_____________ _____________
TOTAL ASSETS $ 93,055,747 $ 94,452,884
============= =============
</TABLE>
See notes to consolidated financial statements.
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TCBY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
February 28, November 29,
1999 1998
________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,214,599 $ 2,130,430
Accrued expenses 4,047,182 6,682,371
Income taxes payable 138,978 -
Current portion of long-term debt 3,171,448 3,171,448
_____________ _____________
TOTAL CURRENT LIABILITIES 12,572,207 11,984,249
LONG-TERM DEBT, less current portion 2,150,816 2,952,634
DEFERRED INCOME TAXES 3,319,847 3,319,847
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 -
1999 - 27,760,896; 1998 - 27,759,021 2,776,090 2,775,902
Additional paid-in capital 30,109,274 30,098,602
Retained earnings 74,204,223 74,751,431
_____________ _____________
107,089,587 107,625,935
Less treasury stock, at cost (4,939,952
shares in 1999 and 4,839,952 in 1998) (32,076,710) (31,429,781)
_____________ _____________
TOTAL STOCKHOLDERS' EQUITY 75,012,877 76,196,154
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 93,055,747 $ 94,452,884
============= =============
</TABLE>
See notes to consolidated financial statements.
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TCBY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
February 28, March 1,
1999 1998
________________________________
<S> <C> <C>
Sales $ 18,276,284 $ 16,728,701
Cost of sales 13,248,891 11,292,515
_____________ _____________
GROSS PROFIT 5,027,393 5,436,186
Franchising revenues:
Initial franchise and license fees 858,581 684,980
Royalty income 1,871,138 1,794,844
_____________ _____________
2,729,719 2,479,824
_____________ _____________
7,757,112 7,916,010
Selling, general, and administrative
expenses 7,050,339 7,003,801
_____________ _____________
INCOME FROM OPERATIONS 706,773 912,209
Other income (expense):
Interest expense (105,410) (163,616)
Interest income 250,740 354,534
Other income 68,761 37,779
_____________ _____________
214,091 228,697
_____________ _____________
INCOME BEFORE INCOME TAXES 920,864 1,140,906
Income tax expense: 322,301 399,318
_____________ ______________
NET INCOME $ 598,563 $ 741,588
============= =============
Earnings per share:
Basic $ 0.03 $ 0.03
============= =============
Diluted $ 0.03 $ 0.03
============= =============
Weighted Average Shares Outstanding
Basic 22,898,535 23,468,430
============= =============
Diluted 23,328,360 24,164,665
============= =============
Cash Dividends Paid Per Share $ 0.05 $ 0.05
============= =============
</TABLE>
See notes to consolidated financial statements.
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TCBY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
February 28 March 1,
1999 1998
________________________________
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 598,563 $ 741,588
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 999,603 1,056,560
Amortization of intangibles 65,764 65,163
Provision for doubtful accounts and
impaired notes 17,684 15,699
Gain on disposal of property and equipment - (101)
Changes in operating assets and liabilities:
Receivables (1,896,919) (2,012,868)
Inventories (2,151,753) (1,535,579)
Prepaid expenses (759,933) (255,344)
Intangibles and other assets (3,022,325) 294,897
Accounts payable and accrued expenses 448,980 (209,658)
Income taxes 295,929 79,399
_____________ _____________
NET CASH USED IN OPERATING ACTIVITIES (5,404,407) (1,760,244)
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (422,959) (516,376)
Proceeds from sales of property and equipment - 7,227
Origination of notes receivable (28,277) (97,909)
Principal collected on notes receivable 246,809 556,062
Purchases of short-term investments (75,669) -
Proceeds from maturity of short-term
investments 704,961 31,791
_____________ _____________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 424,865 (19,205)
FINANCING ACTIVITIES
Proceeds from sale of Common Stock 10,860 567,586
Dividends paid (1,145,771) (1,168,981)
Purchases of treasury stock (646,929) (1,645,465)
Principal payments of long-term debt (801,818) (702,501)
_____________ _____________
NET CASH USED IN FINANCING ACTIVITIES (2,583,658) (2,949,361)
_____________ _____________
DECREASE IN CASH AND CASH EQUIVALENTS (7,563,200) (4,728,810)
Cash and cash equivalents at beginning
of period 16,924,143 19,693,693
_____________ _____________
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 9,360,943 $ 14,964,883
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page 6
TCBY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 28, 1999
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 ended February 28, 1999 are not necessarily
indicative of the results that may be expected for the year
ending November 28, 1999. For further information, refer to
the consolidated financial statements and footnotes included
in the Company's annual report on Form 10-K for the year
ended November 29, 1998.
NOTE B -- NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income."
SFAS No. 130, which is effective for fiscal 1999,
establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive
income is defined as the change in equity of a business
enterprise during a period from transactions and other
events and circumstances from non-owner sources.
Comprehensive income for the quarters ended February 28,
1999 and March 1, 1998 was equal to net income as reported.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is
effective for years beginning after June 15, 1999 and
requires that all derivatives be recognized on the balance
sheet at fair value. SFAS No. 133 establishes "special
accounting" for fair value hedges, cash flow hedges, and
hedges of foreign currency exposures of net investments in
foreign operations. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is
a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against
the change in fair value of the assets, liabilities, or firm
commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in
earnings. The ineffective portions of a derivative's change
in fair value will be immediately recognized in earnings.
The adoption of SFAS No. 133 is not expected to have a
material impact on the Company's financial condition or
results of operations.
Sequential Page 7
NOTE C -- EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
1999 1998
__________ __________
<S> <C> <C>
Numerator:
Net Income $598,563 $741,588
========== ==========
Denominator:
Denominator for basic earnings
per share -- weighted-average
shares 22,898,535 23,468,430
Potential dilutive effect of
employee stock options 429,825 696,235
__________ __________
Denominator for diluted earnings
per share -- weighted-average
shares and assumed conversions 23,328,360 24,164,665
========== ==========
Basic earnings per share $0.03 $0.03
========== ==========
Diluted earnings per share $0.03 $0.03
========== ==========
</TABLE>
During 1999 and 1998, there were outstanding options to
purchase 439,550 and 60,461 shares of common stock,
respectively, that were not included in the 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.
NOTE D -- INVENTORIES
<TABLE>
<CAPTION>
February 28, November 29,
1999 1998
___________ ___________
<S> <C> <C>
Manufacturing materials and
supplies $ 5,747,191 $ 5,088,456
Finished yogurt products and
other food products 6,185,062 4,526,777
Equipment and other products 2,774,375 2,939,642
___________ ___________
$14,706,628 $12,554,875
=========== ===========
</TABLE>
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NOTE E -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
February 28, November 29,
1999 1998
___________ ___________
<S> <C> <C>
Rent $ 584,852 $ 602,272
Compensation 1,478,517 2,234,893
Other 1,983,813 3,845,206
___________ ___________
$ 4,047,182 $ 6,682,371
=========== ===========
</TABLE>
NOTE F -- CONTINGENCIES
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 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 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's total sales for the first quarter of 1999
increased nine percent from sales in the first quarter of
1998. This increase is primarily attributed to improved
sales in the specialty products category as described below.
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)
1st Quarter 1st Quarter
1999 1998
____________________ ____________________
Sales % Sales %
________ _____ ________ _____
<S> <C> <C> <C> <C>
Food Products:
______________
TCBY(registered) frozen product
sales for distribution to TCBY
(registered) locations $ 8,311 46% $ 8,387 50%
Sales of specialty products 6,584 36% 4,549 27%
________ ____ ________ ____
14,895 82% 12,936 77%
Equipment:
__________
Sales by the Company's
equipment distributor 2,978 16% 3,408 20%
Other 403 2% 385 3%
________ ____ ________ ____
Total Sales $ 18,276 100% $ 16,729 100%
======== ==== ======== ====
</TABLE>
Sales from the Company's food products segment include (i)
wholesale sales of frozen yogurt and ice cream products to
AmeriServe Food Distribution, Inc. (formerly ProSource
Distribution Services) and other foodservice distributors,
which distribute frozen 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,
dairies, foodservice distributors, club stores, and private
label suppliers.
Wholesale sales of frozen yogurt and ice cream products
decreased one percent during the first quarter of 1999 as
compared to the first quarter of 1998. The decrease is
attributed primarily to a reduction in the number of
domestic traditional TCBY(registered) stores in operation.
This decrease was partially offset by increased purchases by
TCBY non-traditional locations. The Company continues to
develop additional TCBY(registered) non-traditional
locations with over 350 TCBY(registered) locations under
agreement for development as of February 28, 1999. Most of
Sequential Page 10
the TCBY(registered) locations under development will be
co-branded locations with other food operations.
The following table sets forth location activity for the
first quarter of 1999 and 1998 for TCBY(registered) and
Juice Works(registered) locations:
<TABLE>
<CAPTION>
NON-
FRANCHISED COMPANY INTERNATIONAL TRADITIONAL TOTAL
STORES STORES LOCATIONS LOCATIONS LOCATIONS
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
____________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the first quarter:
Locations open at
beginning of period 1,031 1,110 2 2 216 229 1,711 1,467 2,960 2,808
Opened 8 5 - - 6 4 77 78 91 87
Closed (38) (20) - - (3) (3) (38) (17) (79) (40)
____________________________________________________________________
Locations open at
end of period 1,001 1,095 2 2 219 230 1,750 1,528 2,972 2,855
====================================================================<PAGE>
</TABLE>
During the first quarter of 1999, 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. The Company believes this
trend will continue during the remainder of 1999. 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 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 new TCBY(registered)
locations; and the desire of the Company to maintain good
relationships with all franchisees in the markets under
consideration results in occasional delays in development
while those concerns are addressed. The majority of the 77
non-traditional openings in the first quarter of 1999 were
TCBY(registered) co-branded locations. During the first
quarter of 1999, 38 non-traditional locations were closed.
These locations generally purchased low volumes of product
from the Company. These closings are not expected to have a
material impact on frozen 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 quarter of 1999, a total of 38
TCBY(registered) 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 38 locations closed, 22 operated
for a portion of the first quarter of 1999, with the
remainder having originally closed for relocation in prior
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years. Therefore, some stores shown as closed did not make
any contribution to sales during the quarters presented.
Included in the franchised store information are 80 and 117
TCBY(registered) stores closed for relocation or for the
season at February 28, 1999 and March 1, 1998, respectively.
The Company is intensifying its focus on the traditional
locations and pursuing measures to improve the performance
of these stores. The Company's efforts include working with
franchisees to relocate marginal stores or pursue
co-branding to provide additional daypart sales. The
benefits experienced by other brands adding TCBY(registered)
products to their operations could be realized in
TCBY(registered) stores by adding these brands to
TCBY(registered) locations. In addition, the Company is
working with a nationally known marketing firm to evaluate
and pursue neighborhood store marketing approaches for this
year. The number of store visits by Company associates or
representatives will increase to evaluate the operational
standards of the stores. All of these efforts are occurring
to improve our customers' experience in the stores. The
above measures are being evaluated on a continual basis and
may change if the Company deems appropriate. These efforts
will require management time and financial resources during
1999. In addition, barriers may be encountered in
implementing the above strategies, including lack of
availability of co-branded partners due to existing
locations, size of TCBY(registered) store, lease
restrictions, financial capability and willingness of
existing franchisees, and limitations of corporate
resources. Even with the successful implementation of these
programs, store sales may decline and store closings may
continue.
Sales of specialty products increased 45 percent during the
first quarter of 1999 compared to the first quarter of 1998.
This increase is attributed primarily to increased sales of
private label products. The Company continues to pursue
private label opportunities at its manufacturing facility in
Dallas. The Company has capacity available for additional
manufacturing opportunities and the current capacity can be
expanded with reasonable capital investments should they be
warranted.
Sales in the Company's equipment segment include sales from
the distribution of equipment to the foodservice industry.
Sales in the equipment segment decreased 13 percent during
the first quarter of 1999 over the same period in the prior
year due to fewer sales of soft serve machines to
franchisees opening non-traditional TCBY locations.
As a percent of sales, cost of sales for the first quarter
of 1999 and 1998 for the Company and its two primary
segments are presented below:
<TABLE>
<CAPTION>
1999 1998
______________________________________________________
<S> <C> <C>
Food Products Segment 74% 66%
Equipment Segment 74% 79%
Company Total 72% 68%
</TABLE>
The increased cost of sales percentages in the first quarter
of 1999 is primarily due to lower gross margins for the food
products segment, as described below, which were partially
Sequential Page 12
offset by improved gross margins for the equipment segment
which resulted from the product mix of equipment sold during
the quarter.
The increase in the food products segment cost of sales
percentage is due to a number of factors including sales of
specialty products, which generally have a higher cost of
sales percentage than the other food segment categories,
being a larger component of the food products segment sales
in the first quarter of 1999 compared to the same period in
the prior year. (See earlier discussion related to sales
increases.) In addition, dairy prices, which are a
significant portion of the segment's cost of sales,
increased during the first quarter of 1999 to record high
levels. 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. During the first quarter, the BFP
reached historic levels, while the BFD decreased from levels
experienced in late 1998. This resulted in greater cost for
milk solids. The segment's core yogurt products utilize
high levels of milk solids, resulting in the higher cost of
sales noted above.
The Company did not change its pricing on TCBY products
during the first quarter and absorbed the higher cost of raw
materials for the TCBY locations during the quarter. This
resulted in approximately $530,000 additional cost of sales.
The Company's inventory at the end of the quarter included
product produced with higher dairy cost, which will be
absorbed in the second quarter. The Company has
historically minimized pricing adjustments to
TCBY(registered) franchisees based on short-term changes in
pricing of dairy components, however, due to the record
levels of costs incurred the Company did implement a dairy
surcharge effective March 15. This surcharge was delayed to
lessen the impact to franchisees during the low point of
their business seasonality. The surcharge is expected to
expire in the third quarter. The surcharge is expected to
offset the increases in dairy costs, however, further
increases in cost or material changes in product mix may
change this outcome. During the quarter the Company
purchased BFP milk futures to reduce its price risk on a
portion of its products that will be sold to
TCBY(registered) franchisees during the remainder of 1999.
These contracts were purchased at prices comparable to dairy
cost levels experienced in prior years. While the contracts
protect the Company on the hedged portion of its milk
purchases against increases in milk prices, it will also
prevent realization of the benefits of any future decreases
in cost of dairy if this should occur. The Company was not
significantly impacted by dairy prices for products produced
for private label customers as these higher costs were
passed on to the customers.
Sequential Page 13
On March 31, 1999 the U.S. Department of Agriculture (USDA)
released the Federal Milk Marketing Order Reform. The
reform will expand the classes of milk from three to four
and eliminate the basic formula price (BFP). The price of
each class will be determined monthly and is intended to
better reflect the value of milk components (butterfat,
nonfat solids, etc.). The reform is scheduled to be
effective October 1, 1999 but is subject to certain
approvals by producers. The Company is evaluating the
reform to determine the impact, if any, on the future cost
of dairy products.
Franchising revenues consist of initial franchise and
license fees and royalty income. In the first quarter of
1999, initial franchise and license fees and royalty income
increased four percent from the same period in 1998. This
increase in franchise and license fees results primarily
from increased initial international franchise fees. The
increase in royalty income is primarily attributable to more
non-traditional locations.
Operating expenses increased slightly in the first quarter
of 1999 compared to the same period in 1998. As a
percentage of combined sales and franchising revenues,
operating expenses were 34 percent and 36 percent for the
first quarter of 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated cash from operations
sufficient to meet its normal operating requirements.
However, the Company generally experiences a decrease in
cash and cash equivalents in the first quarter as a result
of the seasonality of its business. The Company's cash and
short-term investments decreased approximately $10.3 million
during the first quarter of 1999. This decrease resulted
primarily from (i) purchases of treasury stock, (ii) an
increase in trade accounts receivable and inventory due to
normal seasonal increases along with expansion in the
private label products, (iii) a cash dividend of five cents
per share or $1.1 million paid in January 1999, (iv)
principal payments of debt, and (v) payment of an incentive
allowance. The incentive allowance related to the signing
of a seven-year agreement with a large customer that
distributes large quantities of frozen dessert products.
The agreement contains minimum annual volumes and any
shortfalls in the volumes results in payments to the Company
including the unamortized portion of the incentive allowance
which was determined on a per unit basis. The incentive
allowance was recorded in Other Assets and will be amortized
as products are sold to the customer. 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.
In December, 1997, the Board of Directors of the Company
authorized the repurchase of two million shares of its
outstanding stock. As of February 28, 1999, 552,883 shares
have been purchased under this authorization. During first
Sequential Page 14
quarter of 1999, the Company has purchased 100,000 shares of
common stock at a cost of $646,929. 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>
February 28, November 29,
1999 1998
___________________________________________________________
<S> <C> <C>
Current Ratio 3.4 to 1.0 3.9 to 1.0
Working Capital (in millions) $30.2 $34.8
Long-Term Debt to Equity Ratio .03 to 1.0 .04 to 1.0
Tangible Net Worth (in millions) $70.8 $71.9
</TABLE>
On March 19, 1999, the Company's Board of Directors declared
a five cents per share dividend payable on April 12, 1999 to
the stockholders of record on March 30, 1999. The Company
will consider adjustments to the dividend rate after giving
consideration to return to stockholders, profitability
expectations and financing needs.
Any forward-looking statements contained herein are based on
certain assumptions regarding the U.S. and foreign economic
conditions, no significant disruptions of business due to
the Year 2000 issue, 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 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.
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 has completed 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
Sequential Page 15
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 1999. The Company currently estimates the
cost to remediate both its Year 2000 hardware and software
issues to be approximately $250,000.
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
during the second quarter of 1999. 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.
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.
Sequential Page 16
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in
interest rates and changes in commodity prices.
The primary commodities purchased by the Company are dairy
products. See earlier discussion for information regarding
the market for dairy products. As part of its risk
management strategy, the Company began purchasing exchange
traded milk future contracts during the first quarter of
1999 to manage its exposure to changes in milk prices. The
milk future contracts obligate the Company to make or
receive a payment equal to the net change in value of the
contract at its maturity. Such contracts are designated as
hedges of the Company's projected purchases, are short-term
in nature to correspond to the projection period, and are
effective in hedging the Company's exposure to changes in
milk prices during the cycle. The Company has hedged
approximately 75% of its projected milk purchases for the
remainder of 1999 for TCBY(registered) branded products.
The Company has not purchased milk future contracts for
private label products.
Milk future contracts are marked to market with unrealized
gains and losses deferred and recognized in earnings when
the contracts close as an adjustment to cost of goods sold
(the deferral accounting method). The Company does not
expect to close any contracts prior to the execution of the
underling purchase transactions, nor have any of the
underlying purchase transactions failed to occur.
This market risk discussion contains forward-looking
statements. Actual results may differ materially from this
discussion based upon general market conditions and changes
in domestic and global financial markets.
Sequential Page 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no changes from previously reported litigation.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<S> <C>
27(a) Article 5, Financial Data Schedule for the First
Quarter 1999 Form 10-Q
99(a) Press release, dated March 16, 1999, "TCBY
Reports Operating Results for First Quarter"
99(b) Press release, dated March 19, 1999, "TCBY
Declares Cash Dividend"
b) The Company did not file any Reports on Form 8-K
during the quarter ended February 28, 1999.
</TABLE>
Sequential Page 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: 04/12/99 /s/ Frank D. Hickingbotham
__________________________
Frank D. Hickingbotham,
Chairman of the Board and
Chief Executive Officer
Date: 04/12/99 /s/ Gene Whisenhunt
__________________________
Gene Whisenhunt,
Executive Vice President
Chief Financial Officer
Sequential Page 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF FEBRUARY
28, 1999 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
QUARTER ENDED FEBRUARY 28, 1999 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-28-1999
<PERIOD-END> FEB-28-1999
<CASH> 9,360,943
<SECURITIES> 2,337,843
<RECEIVABLES> 13,575,641
<ALLOWANCES> 522,793
<INVENTORY> 14,706,628
<CURRENT-ASSETS> 43,113,363
<PP&E> 75,961,246
<DEPRECIATION> 40,520,614
<TOTAL-ASSETS> 93,055,747
<CURRENT-LIABILITIES> 12,572,207
<BONDS> 2,150,816
<COMMON> 2,776,090
0
0
<OTHER-SE> 72,236,787
<TOTAL-LIABILITY-AND-EQUITY> 93,055,747
<SALES> 18,276,284
<TOTAL-REVENUES> 22,006,003
<CGS> 13,248,891
<TOTAL-COSTS> 13,248,891
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,684
<INTEREST-EXPENSE> 105,410
<INCOME-PRETAX> 920,864
<INCOME-TAX> 322,301
<INCOME-CONTINUING> 598,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 598,563
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
Exhibit 99(a)
PRESS RELEASE
FOR IMMEDIATE RELEASE
TUESDAY
MARCH 16, 1999
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
INVESTOR RELATIONS
TCBY ENTERPRISES, INC.
(501) 688-8229
TCBY REPORTS OPERATING RESULTS FOR FIRST QUARTER
LITTLE ROCK, AR - (Tuesday, March 16, 1999) - TCBY
ENTERPRISES, INC. (NYSE:TBY) today announced operating
results for the first quarter of 1999. Net income was
$598,563, or $.03 per share (basic and diluted), as
compared to $741,588, or $.03 per share (basic and
diluted), for the same period in 1998. The Company's
earnings were unfavorably impacted by approximately
$530,000 (pre-tax) during the first quarter of 1999 as the
Company absorbed incremental costs related to
TCBY(registered) products as a result of record high milk
prices. A short-term dairy surcharge was implemented by
the Company on March 15 to cover some of these dairy costs.
Sales and franchising revenues increased to $21,006,003 from
$19,208,525 for the same period last year. This nine
percent improvement resulted from continued development of
TCBY(registered) co-branded locations, increased
distribution of TCBY(registered) products in retail
channels, and expanded manufacturing of private label
products. The Company's international expansion continued
with new agreements for franchise development in Taiwan and
production in Ireland. The production of TCBY(registered)
products in Ireland is expected to begin during the second
quarter and should result in lower product costs for
franchisees throughout Europe and The Middle East.
"Our first quarter results showed continued increases in
revenue; however, record level milk prices prevented
improvement in our earnings," said Frank D. Hickingbotham,
Chairman and Chief Executive Officer. "We have responded
with a temporary price adjustment. We expect that expansion
of the TCBY(registered) brand will continue during 1999 in
both our traditional and non-traditional locations."
Hickingbotham added, "Private label manufacturing sales are
expected to continue to grow through existing and new
customers, several of which will come on line during our
second quarter. We remain committed to the long-term growth
of the TCBY(registered) brand."
The Company recently introduced to its franchisees its 1999
strategic marketing plan at five regional meetings in Las
Vegas, Dallas, Atlanta, Chicago and Newark. The plan is the
result of research by NPD Crest, a national research firm
specializing in strategic consumer research, and Fitch, an
international firm and leader in brand positioning. The
plan seeks primarily to improve the financial performance of
the Company's traditional TCBY(registered) locations and
focuses on six areas, including improving customer
experience, co-branding or relocating traditional
TCBY(registered) stores, advertising, re-imaging, new store
development and neighborhood marketing. The neighborhood
marketing program was developed and implemented utilizing
Tom Feltenstein and the Neighborhood Marketing Institute,
one of the nation's foremost marketing authorities in the
foodservice and hospitality industry. In addition, the
Company will perform media tests in selected markets
utilizing television and radio or radio and billboards at
frequency levels significantly higher than previous
programs. These efforts to improve the financial results of
the traditional stores have been well-received by the
franchise community as evidenced by the responses of the
franchisees at the 1999 Regional Meetings.
As of February 28, 1999, there were 2,972 TCBY(registered)
and Juice Works(registered) locations open, as well as
several thousand retail points of sale for TCBY(registered)
products worldwide. In addition, there were over 350
TCBY(registered) locations under agreement for development.
Most of the TCBY(registered) locations under development
will be co-branded locations with other food or petroleum
operations.
In December 1997, the Board of Directors authorized the
repurchase of up to two million shares of the Company's
outstanding common stock. To date, the Company has
purchased over 550,000 shares under this authorization. All
purchases have been made utilizing the Company's cash from
operations.
The forward-looking statements contained in this release are
based upon certain assumptions regarding U. S. and foreign
economic conditions, no significant disruptions of business
due to the Year 2000 issue, competition, cost of raw
materials (as previously announced, dairy prices have been
at historically high levels until recently), 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 on 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 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 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
February 28 March 1
1999 1998
<S> <C> <C>
Operating Results
Sales & Franchising Revenue $ 21,006 $ 19,209
Net Income $ 599 $ 742
Basic Earnings Per Share $ .03 $ .03
Average Shares Outstanding 22,899 23,468
Diluted Earnings Per Share $ .03 $ .03
Diluted Shares 23,328 24,165
Dividends Paid Per Share $ .05 $ .05
</TABLE>
<TABLE>
<CAPTION>
February 28 November 29
1999 1998
<S> <C> <C>
Financial Position
Current Assets $ 43,113 $ 46,833
Current Liabilities $ 12,572 $ 11,984
Property, Plant & Equipment, net $ 35,441 $ 35,992
Total Assets $ 93,056 $ 94,453
Long-term Debt, less current
portion $ 2,151 $ 2,953
Stockholders' Equity $107,090 $107,626
Less Treasury Stock $(32,077) $(31,430)
Total Stockholders' Equity $ 75,013 $ 76,196
</TABLE>
Exhibit 99(b)
PRESS RELEASE
FOR IMMEDIATE RELEASE
FRIDAY
MARCH 19, 1999
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
INVESTOR RELATIONS
(501) 688-8229
TCBY DECLARES CASH DIVIDEND
LITTLE ROCK, AR - Friday, March 19, 1999 - 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 April 12, 1999, to shareholders of
record as of March 30, 1999.
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.
