UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
_x_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 29, 1998
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-10046
TCBY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0552115
(State of incorporation) (I.R.S. Employer Identification No.)
425 West Capitol Avenue - Suite 1200
Little Rock, Arkansas 72201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (501) 688-8229
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
___________________ _______________________________
Common stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. __x__
The registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes __x__ No ____
The aggregate market value of common stock ($.10 par value)
held by non-affiliates of the Registrant (see item 12
hereof) on January 1, 1999: $81,430,367.
The number of shares of the Registrant's Common Stock ($.10
par value) outstanding as of January 1, 1999: 22,919,069.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year
ended November 29, 1998 are incorporated by reference into
Parts I and II.
Portions of the Proxy Statement for the annual meeting of
stockholders to be held April 13, 1999 are incorporated by
reference into Part III.
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PART I
Item 1. BUSINESS
The Company manufactures and sells TCBY(registered) soft
serve frozen yogurt, hardpack frozen yogurt and ice cream,
and novelty frozen food products through Company-owned and
franchised retail stores ("TCBY(registered) stores"),
non-traditional locations (e.g., airports, schools,
hospitals, convenience stores, travel plazas, and locations
in conjunction with petroleum stores and other food concepts
which are referred to as "co-branded locations"), and the
retail grocery trade (e.g., grocery stores and wholesale
clubs). In addition, a variety of frozen packaged products
and other specialty dairy food products are sold to private
label customers. The Company sells equipment related to the
foodservice industry and develops locations under the Juice
Works(registered) brand in conjunction with the
TCBY(registered) brand. Industry segment data for the
Company's two business segments, food products and
equipment, for the three years ended November 29, 1998,
included on pages 17 through 22 and page 34 of the Company's
1998 Annual Report to Stockholders, is incorporated herein
by reference.
The Company was incorporated under the laws of the State of
Delaware on January 10, 1984 and is the successor to
businesses which opened the first Company-owned
TCBY(registered) store in September 1981 and first
franchised TCBY(registered) stores in June 1982. Unless
the context otherwise requires, the term "Company" includes
TCBY Enterprises, Inc., its predecessors and its wholly
owned consolidated subsidiaries. The Company's principal
subsidiaries are: TCBY Systems, Inc. (which franchises and
licenses domestic and international TCBY(registered)
locations (including Juice Works(registered) in some of
these locations); operates a domestic TCBY(registered)
location in Little Rock, Arkansas and sells TCBY(registered)
yogurt and novelty products to the retail grocery trade);
Americana Foods Limited Partnership (which manufactures
yogurt and other frozen dessert products for TCBY and other
private label customers); Riverport Equipment and
Distribution Company, Inc. which includes the Riverport
Division (which sells and distributes restaurant equipment
and supplies primarily to TCBY(registered) locations) and
the AIMCO Division (which sells and distributes foodservice
equipment and supplies primarily to customers outside of the
TCBY systems).
FOOD PRODUCTS SEGMENT
TCBY(registered) Locations
The Company's food products are marketed as a treat,
dessert, snack or light meal item. The domestic franchised,
Company- owned, international licensed stores, and
non-traditional domestic locations operate under the name
"TCBY," "TCBY THE COUNTRY'S BEST YOGURT," "TCBY Treats," or
related tradenames (herein referred to as "TCBY(registered)
locations").
On November 29, 1998 there were 2,938 TCBY(registered)
locations, including 1,027 domestic franchised stores, one
Company-owned store, 216 international licensed stores, and
1,694 non-traditional domestic locations. Information
regarding TCBY(registered) and Juice
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Works(registered) location activity for 1998 and 1997 is
incorporated by reference to the information contained in
the table on page 17 to the Company's 1998 Annual Report to
Stockholders.
The Company currently manufactures its TCBY(registered)
brand of premium frozen yogurt and ice cream sold
domestically and licenses its manufacturing in select
international markets. The frozen yogurt and ice cream is
served in a variety of ways, including cups, cones, sundaes,
and shakes, and with a variety of toppings.
TCBY(registered) locations also sell a changing variety of
flavors of frozen yogurt, cakes and pies, and novelties from
display freezer cases. The TCBY(registered) Treats concept
which is optional for existing locations and generally
required for new and relocated locations features
TCBY(registered) soft serve frozen yogurt, but adds
TCBY(registered) hand-dipped frozen yogurt, hand-dipped
premium ice cream, and Paradise Icetm shaved ice. Some
TCBY(registered) locations are joined with other brands
(referred to as co-branding) allowing efficiencies in labor
and real estate and maximizing daypart sales. Examples of
co-branding concepts with TCBY(registered) locations include
Subway(registered), Wall Street Deli(registered),
Blimpie(registered), Shell(registered), Texaco(registered),
Exxon(registered), Coffee Beanery(registered), and Nathan's
Famous(registered).
TCBY(registered) Domestic Franchised Stores
TCBY(registered) domestic franchised stores
("TCBY(registered) stores") are located primarily in
shopping centers, free standing locations, and shopping
malls. Generally, a TCBY(registered) store occupies 800 to
1,600 square feet and accommodates both carryout and
in-store business. The Company estimates that the total
initial investment required for the establishment of a
franchised TCBY(registered) store ranges from approximately
$113,000 to $330,200 ($54,600 to $135,700 for a mini-store
or store operated in conjunction with another concept),
excluding real property costs. These costs vary depending
upon the size and location of the store. This investment
includes construction costs and leasehold improvements,
equipment, furniture and signs, initial inventory and
supplies, opening expenses, initial working capital, and the
appropriate initial franchise fee.
Franchises for TCBY(registered) stores are usually granted
for a period of ten years with an option to renew for ten
years at then current terms being offered by the Company
(for mini-store and other concept stores, the initial term
is five years with a renewal term of five years). A
franchisee pays an initial franchise fee and an on-going
royalty fee of four percent of its net revenues. In
addition, a franchisee must contribute an amount not in
excess of three percent of its net revenues to a separate
national advertising fund ("Fund") which is used to promote
TCBY(registered) products. Substantially all franchisees
pay the continuing fees to the distributor for the TCBY
franchise system, ProSource Distribution Services (now a
division of AmeriServe Food Distribution, Inc., hereafter
referred to as "AmeriServe") a leading foodservice
distributor to restaurant chains, through a surcharge per
case on frozen yogurt and certain other food purchases.
AmeriServe remits the surcharge to the Company on a weekly
basis. The Fund may spend in any year an amount greater or
less than the aggregate contributions of TCBY(registered)
stores to the Fund in that year and the Company may make
loans to the Fund bearing reasonable interest to cover any
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deficits of the Fund and cause the Fund to invest any
surplus for future use by the Fund.
The site of a TCBY(registered) store is subject to Company
approval. All food products as well as furniture, fixtures,
and equipment used by a franchisee must conform to the
Company's specifications and standards. The Company is the
only approved supplier of frozen yogurt, ice cream, and
frozen dessert products to TCBY(registered) stores. Prior
to the opening of a TCBY(registered) store, a franchisee
must attend a seven day training program. A franchisee is
required to maintain the confidentiality of the Company's
trade secrets and is prohibited from engaging in competitive
activities during the term of the franchise agreement, and
generally for two years thereafter. The Company has the
right to terminate the franchise agreement for cause and has
the option to purchase a franchisee's store upon such
termination or upon expiration of the franchise agreement.
The Company has the right of first refusal upon any
assignment by the franchisee, as well as the right to
approve an assignee.
The Company has a field inspection program to help maintain
the high standards of quality and cleanliness required in
TCBY(registered) stores and to assist franchisees with
operational problems.
The Company has 597 domestic franchisees operating in all 50
states, of which 147 own more than one TCBY(registered)
store and 21 own five or more TCBY(registered) stores. As
of November 29, 1998, franchise agreements had been executed
for over 50 TCBY(registered) stores to be opened in the
United States, some of which may open in 1999. However,
some of these franchise agreements may terminate without the
related stores opening.
During 1998, a total of 105 TCBY(registered) stores were
closed by franchisees. Each TCBY(registered) store closed
was the result of the franchisee's evaluation of its
financial condition, cash flow, lease expiration,
profitability, and store operations, among other things.
Included in the 1,027 TCBY(registered) stores reported open
at November 29, 1998 were 87 TCBY(registered) stores closed
for relocation or the season. TCBY(registered) stores
closed for relocation have been closed with the intent to
relocate the store to a more suitable location subject to
site approval by the Company. Some of these agreements may
be terminated for failure to reopen in a timely manner.
TCBY(registered) stores closed for the season are stores
closed during winter or off-peak months, with the intent to
reopen the store during the warmer months.
Generally, the Company does not offer financing to domestic
TCBY franchisees for the purchase of the equipment,
furniture, and signage package required to open new stores.
The Company has made and may make available financing for
the purchase of existing TCBY(registered) stores, leasehold
improvements, and working capital in certain circumstances.
The Company from time to time receives inquiries from
unaffiliated financing companies to provide leasing or
financing programs for certain equipment purchases for
TCBY(registered) stores and
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TCBY(registered) non-traditional locations. These programs
would be available at the option of the franchisee or
licensee.
TCBY(registered) Non-traditional Locations
TCBY(registered) non-traditional locations include
TCBY(registered) mini-stores and TCBY(registered) stores
operated in conjunction with other concepts. Their
principal differences from a traditional domestic
TCBY(registered) store are size and initial costs, with
"other concept" stores having the presence of another
nationally or regionally recognized chain concept operated
in conjunction with the TCBY(registered) store (an example
of this would be the operator of a TCBY(registered) store
within a convenience store at a nationally recognized
branded petroleum outlet). TCBY(registered) non-traditional
locations also operate in airports, toll road travel plazas,
hospitals, office buildings, schools, sports arenas, and
other foodservice outlets. Generally, these locations offer
a limited menu as compared to a TCBY(registered) store and
serve TCBY(registered) products through small stores,
kiosks, soft serve vending carts, and counter top display
units. These non-traditional locations operate in a
"captive" location (as opposed to being open to the general
public; for example, an airport location tends to serve only
people that are physically at the airport for reasons other
than the purchase of TCBY(registered) brand soft serve
frozen yogurt and other store products). Recognizing the
uniqueness of captive locations, their generally high costs
of occupancy, and their inherent marketing value, the
Company has, in some instances, waived the requirement for
participation in local or national programs, and sometimes
assisted in the purchase of equipment for use at these
locations.
As of November 29, 1998 there were 1,694 TCBY(registered)
non-traditional locations open and over 300 TCBY(registered)
non-traditional locations under development. A total of 312
of these open locations are airport locations, toll road
travel plazas, and other foodservice outlets, operated under
a joint venture agreement with Host Marriott Services.
In 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 franchising
opportunities, the Company has experienced more
non-traditional development in the last few years. The
Company believes this trend will continue in 1999. 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.
TCBY(registered) International Locations
Generally, the Company adopts a master franchise agreement
form of relationship for its international development. A
master
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franchisee is granted the right to develop a minimum number
of TCBY(registered) locations in the defined territory
within a certain time period. The Company determines, on a
country by country basis, whether it will export frozen
products from the United States to that country or license
the production of frozen products locally (possibly to the
master franchisee). In addition, the Company may grant to
the master franchisee the distribution rights of
TCBY(registered) branded products in the defined country.
The master franchisee generally will receive subfranchising
rights within the country which is the subject of the master
franchise agreement.
As of November 29, 1998, there were 216 TCBY(registered)
international franchised locations. These locations are
generally smaller than domestic locations and produce less
sales and royalties per location. Within the licensed
countries there are several thousand retail points of sale
for TCBY(registered) packaged products. Revenues from any
single country are not expected to be material in 1999. In
the aggregate, revenues from international locations in 1999
are expected to be comparable to 1998 which represented
three percent of combined sales and franchising revenues.
Juice Works(registered) Stores
Juice Works(registered) stores sell fruit and vegetable
juices, fresh-made fruit smoothies made with frozen yogurt,
dietary supplements to add to juices and smoothies, and
lowfat/nonfat baked goods.
The Company began merging the operations of the Juice
Works(registered) concept into the TCBY(registered) concept
in 1998. TCBY franchisees are able to purchase an addendum
to their franchise agreement under which they are allowed to
operate a Juice Works(registered) store within the
TCBY(registered) store.
The Company estimates that the total additional initial
investment required to establish a Juice Works(registered)
store within or in conjunction with a TCBY(registered) store
will be $8,500 to $64,290 depending on the size of the Juice
Works(registered) portion of the TCBY(registered) store
excluding real property costs. The franchise rights granted
under a Juice Works addendum to the TCBY franchise agreement
will terminate when the related TCBY franchise agreement
ends. Royalties and contributions to the Fund due to the
Company from franchisees who have executed the Juice Works
addendum to their franchise agreement will be paid and
treated in an identical manner as under the TCBY franchise
agreement.
The Company has entered a development agreement with Host
Marriott Services Corporation. The companies will offer
Juice Works (registered) in some existing and new TCBY
(registered) locations in airports, toll roads, and mall food
courts. As of November 29, 1998, Host Marriott had 22 retail
outlets offering Juice Works (registered) products and an
additional 13 were under development.
Generally, the Company is not offering financing to
franchisees for the purchase of the equipment, furniture,
and signage package required to open new Juice
Works(registered) stores. The Company from time to time
receives inquiries from unaffiliated financing companies to
provide leasing or financing programs
Sequential Page No. 6
for certain equipment purchases for Juice Works(registered)
locations. These programs would be available at the option
of the franchisee or licensee.
For the 86 retail outlets offering Juice Works(registered)
products and the 17 under development, the Company plans
to convert as many of them as it can to the co-branded
format with TCBY. Some of these agreements may terminate.
The Company does not intend to sell Juice Works franchises
in any form other than as an addendum to TCBY franchise
agreements.
Specialty Products
The Company sells TCBY(registered) brand hardpack frozen
yogurt and frozen novelties for distribution to the retail
grocery trade for resale primarily in grocery stores and
wholesale clubs. The Company does employ a small direct
sales force; however, a broker network is the primary means
of sales and service to the retail grocery trade. The
retail grocery trade has limited retail and warehouse shelf
space and the competition for such space continues to
intensify. At November 29, 1998, the Company had
approximately 15 retail grocery trade customers.
The Company also manufactures other products such as ice
cream and frozen novelties under private label and various
trade names for distribution to supermarkets, convenience
stores, dairies, foodservice distributors, club stores, and
private label suppliers. The Company has pursued private
label opportunities to utilize available capacity at its
manufacturing facility. Private label sales were a major
contributor to the growth in revenues during 1998. The
Company continues to pursue private label opportunities at
its manufacturing facility in Dallas.
Food Products Production
The Company's frozen yogurt, ice cream, and frozen dessert
products sold in TCBY(registered) stores and non-traditional
locations as well as specialty products are produced at the
Company's manufacturing facility in Dallas, Texas. Raw
materials used in the production of the Company's products
consist primarily of fresh milk, cream, water, and
sweeteners. Each of these materials is generally available
from several sources. During 1998, raw materials were
available in adequate quantities to meet the Company's
requirements. The Company believes that raw materials will
be available from a number of suppliers to meet the
Company's anticipated requirements in the future. 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. 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. Dairy Farmers of
America is the Company's principal supplier of dairy
components.
Sequential Page No. 7
The Company's yogurt manufacturing subsidiary has not
experienced a significant backlog of orders in the past.
Trademarks
The Company claims common law rights to its service marks
"TCBY," "The Country's Best Yogurt," "TCBY The Country's
Best Yogurt," "TCBY Yogurt," "All the Pleasure. None of the
Guilt," and "Juice Works." The Company has sought to
maximize legal protection of these marks by registering them
on the Principal Register of the United States Patent and
Trademark Office. Registrations for the service marks have
been issued and the registrations have become incontestable
in most cases.
The Company has pending, or is in the process of filing,
applications for trademark registrations in a number of
foreign countries. In some of these countries it may not be
possible to register the name TCBY where the laws do not
permit the registration of acronyms. Similarly, registering
offices in some jurisdictions may refuse to register the
mark THE COUNTRY'S BEST YOGURT by taking the position that
it is merely descriptive of the product. In a few foreign
countries, unrelated third parties have filed applications
for registration of TCBY and similar trademarks. Upon
discovery of such filings, the Company routinely contests
such applications to preserve the Company's ability to
register its trademarks in those countries or to protect its
existing registrations.
EQUIPMENT SEGMENT
Riverport Equipment and Distribution Company, Inc. offers
for sale a complete equipment, furniture, and signage
package in order to assist TCBY franchisees in opening their
stores in a timely manner. TCBY(registered) store packages
cost a franchisee between $51,000 and $131,000 for a
domestic TCBY(registered) store, or between $26,000 and
$50,000 for a mini-store or store operated in conjunction
with another concept. Juice Works addendum packages cost a
franchisee between $3,000 and $30,889. The Company also
sells equipment to facilitate non-traditional location
openings when it is needed. In addition, Riverport offers
for sale replacement equipment and supplies. Riverport
operates at a relatively low gross profit margin and its
sales are tied primarily to new store and location
development.
AIMCO Equipment Company, located in Little Rock, Arkansas,
is a regional distributor of equipment to the foodservice
industry and serves customers primarily outside of the TCBY
franchise system.
SEASONALITY
Generally, sales of the Company's food products segment have
been greater in the spring, summer and fall months, and
tended to be lower in the winter months. Sales for the
equipment segment have not been as seasonal in nature. See
Note 13 of the Notes to Consolidated Financial Statements of
the Company's 1998 Annual Report to Stockholders
incorporated by reference for information regarding
unaudited consolidated quarterly results of operations for
1998 and 1997.
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COMPETITION
While the Company is one of the world's largest franchisors
and licensors of stores serving primarily soft serve frozen
yogurt, TCBY(registered) stores do compete with numerous
other frozen yogurt stores, including stores affiliated with
smaller yogurt chains and with ice cream parlors, especially
those that serve premium ice cream. TCBY(registered)
locations compete with restaurant chains and other
foodservice locations, including snack food or dessert item
restaurants. Frozen yogurt may also be offered in
supermarkets, grocery stores, and wherever convenience food
operations are conducted. Any addition of expanded menu
items currently being tested would further expand the amount
and intensity of competition with the Company's products.
Competition continues to increase in the area of airports,
theme parks, sports stadiums, etc., as some of the chains
and other frozen yogurt manufacturers market their products
in these non-traditional locations. Some of these
competitors have greater success on individual contract
bids, have greater financial resources, more outlets, or are
better known than the franchises of the Company who operate
these locations.
Juice Works(registered) stores compete with other regional
juice bar concept chains. Some of these competitors may
have greater financial resources, more outlets, or be better
known than the Company.
The specialty products category is a highly competitive
market and competition is expected to increase as new
competitors and products enter the field. The Company
competes with national suppliers, which are larger than the
Company, as well as regional suppliers. Some of these
competitors have greater financial resources, larger market
shares, broader product lines, and more experience in the
market.
Riverport competes primarily with local or regional
equipment companies (both domestic and international) that
are in close proximity to TCBY(registered) stores.
AIMCO competes primarily with other domestic competitors of
approximately equal size in the sale of equipment, fixtures,
and other necessary items to restaurants and other
foodservice operations.
EMPLOYEES
As of November 29, 1998 and November 30, 1997, the Company
employed approximately 400 full-time and 40 part-time
associates who were engaged primarily in the manufacture,
sale, and distribution of frozen yogurt products and
foodservice equipment as well as management of the Company.
None of the Company's employees are covered by collective
bargaining agreements.
RESEARCH AND DEVELOPMENT
Research and development costs were not material in the last
three years.
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REGULATION AND ENVIRONMENTAL MATTERS
Some states have statutes regulating franchise operations,
including registration and disclosure requirements in the
offer and sale of franchises and the application of
statutory standards regulating franchise relationships, such
as termination and non-renewal of franchises. The Company
is also subject to the Federal Trade Commission regulations
relating to disclosure requirements in the offer and sale of
franchises.
Each TCBY(registered) and Juice Works(registered) location
is subject to licensing and regulation by the health,
sanitation, safety, fire, and other applicable departments
of the state or municipality where it is located, as well as
the federal government in the areas of health and labeling.
The Company's frozen dessert production is also subject to
similar licensing and regulation by federal, state, and
municipal authorities at its facility in Dallas, Texas, and
in the states to which it ships its products. Difficulties
or failures in obtaining or maintaining the required
licensing or in meeting regulatory standards could result in
delays or cancellations in the opening of new locations and
could adversely affect the production of yogurt and other
frozen dessert products.
To the best of its knowledge, the Company believes that it
is presently in substantial compliance with all existing
applicable environmental laws and does not anticipate that
such compliance will have a material effect on its future
capital expenditures, earnings, or competitive position with
respect to its business.
Item 2. PROPERTIES
The Company's executive offices, which are leased pursuant
to a ten-year lease which commenced in January, 1997, occupy
approximately 53,500 square feet in the TCBY Tower, a
40-story office building located in downtown Little Rock.
The Company owns a small equity interest in the building.
The Company currently owns and leases to third parties its
former executive office building, which contains
approximately 30,000 rentable square feet of space, in
Little Rock, which is included in the industry segment
titled "Other".
Americana Foods Limited Partnership's yogurt manufacturing
facility in Dallas, Texas occupies approximately 216,000
square feet. The facility produces TCBY(registered) frozen
yogurt mix and other frozen dessert products and is
classified in the industry segment titled "Food Products".
The majority of the Company's capacity for hardpack and
novelty products may be utilized during peak periods in
producing products for TCBY(registered) locations and
private label customers during 1999. The Company is
currently utilizing under 60 percent of its overall capacity
and is actively pursuing new customers for its
TCBY(registered) products and other products to utilize the
capacity available at the facility.
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All of the Company-owned and licensed locations are operated
from premises which are leased. See Note 7 of Notes to
Consolidated Financial Statements in the Company's 1998
Annual Report to Stockholders incorporated by reference for
information regarding store rental obligations.
Riverport equipment distribution operations (relocated in
1995) are in a building which contains approximately 37,000
square feet of warehouse space and 3,000 square feet of
office space. The existing facility handles the
distribution of equipment packages for new TCBY(registered)
stores and reorders of equipment and supplies from
TCBY(registered) locations. The previous Riverport site
which contained approximately 60,000 square feet of
warehouse space and 11,000 square feet of office space was
sold in 1998. AIMCO is located in a building which
contained approximately 54,400 square feet of warehouse and
service space and 5,600 square feet of office space. These
buildings are classified in the industry segment titled
"Equipment".
The Company owns the production facility previously occupied
by Carlin Manufacturing, Inc. In July, 1997, the Company
sold a portion of the subsidiary's assets to a company
controlled by the subsidiary's president. The real property
was retained by the Company and is being leased to the
purchaser with the ultimate intent to sell the property.
The facility contains 34,000 square feet and is classified
in the industry segment titled "Equipment."
The Company believes that these facilities are well
maintained, suitably equipped, and in good operating
condition.
Item 3. LEGAL PROCEEDINGS
As of November 29, 1998, there were no material proceedings
to which the Company was a party reportable pursuant to the
requirements of Form 10-K except as set forth below.
A customer for whom Americana Foods produces private label
products asserted a claim alleging damages due to production
defects. Immediate and voluntary recalls of limited
quantities of products were undertaken in 1997. The
Company, after negotiations with the customer and the
Company's liability insurance carrier, has, with the
participation of the liability insurance carrier, settled
all claims. The relevant settlement agreement contains a
confidentiality clause; however, the amount paid by the
Company to obtain settlement exceeded prior accruals by
approximately one million dollars. While the Company
believed it had meritorious defenses to and disagreed with
the customer's claim, settlement was agreed to by the
Company in order to avoid the uncertainty of outcome, cost
of litigation, and disruption to the Company.
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
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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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth
quarter of 1998.
Sequential Page No. 12
PART II
Item 5. MARKET FOR TCBY ENTERPRISES, INC. COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock
Exchange under the symbol "TBY". The high and low sales
prices for the Common Stock and dividends paid per share in
the last two fiscal years are incorporated by reference to
the information contained on page 36 under the captions
"Common Stock" and "Dividend Policy" in the Company's 1998
Annual Report to Stockholders. As of January 31, 1999,
there were 4,408 stockholders of record.
Item 6. SELECTED FINANCIAL DATA
Selected financial data is incorporated by reference to
information set forth under the caption "Ten Year Summary of
Selected Financial Data" on page 36 in the Company's 1998
Annual Report to Stockholders.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
and Results of Operations is incorporated by reference to
pages 17 through 22 of the Company's 1998 Annual Report to
Stockholders.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS
"Quantitative and Qualitative Disclosures About Market
Risks" contained within "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
on page 22 of the Company's 1998 Annual Report to
Stockholders is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of
independent auditors are incorporated by reference to pages
23 through 35 of the Company's 1998 Annual Report to
Stockholders.
Quarterly results of operations are incorporated by
reference to page 35 (Note 13) of the Company's 1998 Annual
Report to Stockholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Sequential Page No. 13
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TCBY
ENTERPRISES, INC.
Information with respect to directors of the Company is
incorporated by reference to the information included under
the caption "Nominees For Election As Directors" in the
Company's 1999 Proxy Statement.
EXECUTIVE OFFICERS OF TCBY ENTERPRISES, INC.
The following sets forth certain information regarding
executive officers of the Company:
Frank D. Hickingbotham, age 62, has been the Chairman of the
Board and Chief Executive Officer of the Company and its
predecessors since 1970.
Herren C. Hickingbotham, age 40, has been a director of the
Company since 1982. He has been the President and Chief
Operating Officer of the Company since March 1988.
F. Todd Hickingbotham, age 35, has been a director of the
Company since 1990. He has been President of Riverport
Equipment and Distribution Company, Inc. since 1988.
Jim H. Fink, age 41, became President of Americana Foods in
June 1997 in addition to being an Executive Vice President.
He has been an Executive Vice President since December 1994.
He had been Senior Vice President, Finance and Chief
Accounting Officer since June 1991. Mr. Fink joined the
Company in March 1987.
Gene Whisenhunt, age 38, became Executive Vice President,
Treasurer, and Chief Financial Officer in December 1995. He
had been Senior Vice President and Chief Accounting Officer
since December 1994. Prior to that he was Senior Vice
President National Sales/Subsidiary Controller. Mr.
Whisenhunt joined the Company in 1989.
William P. Creasman, age 46, joined the Company as Senior
Vice President and General Counsel in 1987.
Jim Sahene, age 38, became President of TCBY Systems, Inc.
in April 1994. Prior to that he was Executive Vice
President and Chief Operating Officer of TCBY Systems, Inc.
Mr. Sahene joined the Company in 1986.
John Rogers, age 37, became Senior Vice President, Chief
Information Officer and Assistant Treasurer in December
1994. Prior to that he was Senior Vice President and
Corporate Controller. Mr. Rogers joined the Company in
1986.
All executive officers of TCBY Enterprises, Inc. were
elected to serve at the pleasure of the Board of Directors
following the annual meeting of stockholders in 1998 and
until their
Sequential Page No. 14
successors are elected and qualified; executive officers
employed by subsidiary companies were elected to serve at
the pleasure of the boards of directors of the applicable
subsidiary company. Frank D. Hickingbotham is the father of
Herren C. Hickingbotham and F. Todd Hickingbotham. No other
family relationships exist among any of the above named
individuals or among such individuals and any director of
the Company.
Item 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is
incorporated by reference to the information included under
the caption "Remuneration" in the Company's 1999 Proxy
Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information with respect to security ownership of certain
beneficial owners and management of the Company is
incorporated by reference to the information under the
caption "Principal Stockholders" and "Nominees for Election
as Directors; Security Ownership of Management" in the
Company's 1999 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and
transactions is incorporated by reference to the information
included under the caption "Remuneration" and "Certain
Transactions" in the Company's 1999 Proxy Statement.
Sequential Page No. 15
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) and (2) The response to this portion of Item
14 is submitted as a separate section of this report.
(3) The exhibits, as listed in the Exhibit Index set
forth on pages E-1 through E-5, are submitted as a
separate section of this report.
(b) The Company did not file any reports on Form 8-K
during the three months ended November 29, 1998.
(c) See Item 14 (a) (3) above.
(d) The response to this portion of Item 14 is
submitted as a separate section of this report.
Sequential Page No. 16
SIGNATURES
__________
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
BY /s/Frank D. Hickingbotham
__________________________
Frank D. Hickingbotham,
Chairman of the Board and
Chief Executive Officer
February 25, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
person on behalf of the registrant and in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
_________ _____ ____
<S> <C>
<C>
Frank D. Hickingbotham* Director, Chairman of the Board 2-25-99
and Chief Executive Officer
(Principal Executive Officer)
Herren C. Hickingbotham* Director, President and Chief 2-25-99
Operating Officer
Daniel R. Grant* Director 2-25-99
F. Todd Hickingbotham* Director, President Riverport 2-25-99
Equipment and Distribution
Company, Inc.
Marvin D. Loyd* Director 2-25-99
Hugh H. Pollard* Director 2-25-99
Don O. Kirkpatrick* Director 2-25-99
William H. Bowen* Director 2-25-99
Gene H. Whisenhunt* Executive Vice President, 2-25-99
Treasurer, and Chief Financial
Officer
(Principal Financial Officer)
</TABLE>
*BY /s/Gene H.Whisenhunt Individually and as Attorney - in - Fact
_______________________
Gene H. Whisenhunt
Sequential Page No. 17
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (1) and (2); (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED NOVEMBER 29, 1998
TCBY ENTERPRISES, INC.
LITTLE ROCK, ARKANSAS
Sequential Page No. 18
FORM 10-K -- ITEM 14 (a) (1) AND (2)
TCBY ENTERPRISES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following consolidated financial statements of TCBY
Enterprises, Inc. and subsidiaries, included in the annual
report of the registrant to its stockholders for the year
ended November 29, 1998, are incorporated by reference in
Item 8:
Consolidated balance sheets -- November 29, 1998 and
November 30, 1997
Consolidated statements of income -- Three years ended
November 29, 1998
Consolidated statements of stockholders' equity -- Three
years ended November 29, 1998
Consolidated statements of cash flows -- Three years ended
November 29, 1998
Notes to consolidated financial statements -- November 29,
1998
Information for consolidated financial statement Schedule
II--Valuation and Qualifying Accounts of TCBY Enterprises,
Inc. and subsidiaries is included in Note 1 to the
Consolidated Financial Statements.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
Sequential Page No 19
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description Page No.
- - ----------- ------------------------------------------ ---------
<S> <C> <C>
3 (i) (a) Restated Certificate of Incorporation of
TCBY Enterprises, Inc. (Incorporated by
reference to Exhibit 3(a) (vii) to the
Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1988)
(ii) (a) Amended and Restated By-Laws of TCBY Enter
prises, Inc. (Incorporated by reference to
Exhibit 3(b) of Registration Statement No.
33-8338)
(ii) (b) Article IX, Section 5 of the By-Laws of TCBY
Enterprises, Inc., as amended March 25, 1987
(Incorporated by reference to Exhibit 3(b)
(ii) to the Company's Annual Report on Form
10-K for the fiscal year ended November 30,
1987)
(ii) (c) Article II, Sections 8, 9 and 10 of the
By-Laws of TCBY Enterprises, Inc., as amend
ed December 3, 1990 (Incorporated by refer
ence to Exhibit 3(b) (iii) to the Company's
Annual Report on Form 10-K for the fiscal
year ended November 30, 1990)
(ii) (d) Article II, Section 11 of the By-Laws of
TCBY Enterprises, Inc., as amended Decem-
ber 18, 1998 ............................. Attached
4 (i) (a) Specimen Common Stock Certificate (Revised
September, 1988) (Incorporated by reference
to Exhibit 4(i) (b) to the Company's Annual
Report on Form 10-K for the fiscal year
ended November 30, 1988)
(ii)(a) Loan Agreement between TCBY Enterprises,
Inc. and Bank One, Dallas, N.A. dated June
11, 1993 for $14,610,000 to refinance four
notes payable to First Interstate Bank of
Texas, N.A. (Incorporated by reference to
Exhibit 4(ii)a of the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 31, 1993)
(ii)(b) Amended and Restated Loan Agreement between
TCBY Enterprises, Inc. and Bank One, Texas,
N.A., dated November 28, 1994 to include a
$7,500,000 term promissory note dated
November 28, 1994 (Incorporated by reference
to Exhibit 4(ii)(b) to the Company's Annual
Report on a Form 10-K for the fiscal year
ended November 30, 1994)
(ii)(c) Term promissory note between TCBY Enterprises,
Inc. and Bank One, Texas, N.A., dated
November 28, 1994 to finance expansion
E-1
of the Company's facility in Dallas, Texas
(Incorporated by reference to Exhibit
4(ii)(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended November
30, 1994)
(ii)(d) Second Amended and Restated Loan Agreement
between TCBY Enterprises, Inc. and Bank One,
Texas, N.A., dated April 7, 1995 to include
a $5,000,000 revolving credit note dated
April 7, 1995, (Incorporated by reference to
Exhibit 4(ii)(a) of the Company's Quarterly
Report on Form 10-Q for the quarter ended
February 28, 1995)
(ii)(e) First Amendment to Second Amended and Restated
Loan Agreement and Amendment to Loan
Documents. (Incorporated by reference to
Exhibit 4(ii)(a) of the Company's Quarterly
Report on Form 10-Q for the quarter ended
August 31, 1995)
10 (a) Original form of Franchise Agreement (Incor
porated by reference to Exhibit 10(a) to
Registration Statement No. 2-89398)
(b) Form of Franchise Agreement (Revised Decem
ber 1982) (Incorporated by reference to
Exhibit 10(b) to Registration Statement No.
2-89398)
(c) Form of Franchise Agreement (Revised April
1983) (Incorporated by reference to Exhibit
10(c) to Registration Statement No. 2-89398)
(d) Form of Franchise Agreement (Revised January
1984) (Incorporated by reference to Exhibit
10(d) to Registration Statement No. 2-89398)
(e) Form of Franchise Agreement (Revised July
1985) (Incorporated by reference to Exhibit
10(e) to Registration Statement No. 2-99324)
(f) Form of Franchise Agreement (Revised February1986)
Incorporated by reference to Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1986)
(g) Form of Franchise Agreement (Revised March
1987) (Incorporated by reference to Exhibit
10(g) to the Company's Annual Report on Form
10-K for the fiscal year ended November 30,
1987)
E-2
(h) Form of Franchise Agreement (Revised February
1991) (Incorporated by reference to
Exhibit 10(h) to the Company's Annual Report
on Form 10-K for the fiscal year ended
November 30, 1990)
(i) Form of Franchise Agreement (Revised July
1991) (Incorporated by reference to Exhibit
28(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31,
1991)
(j) Form of Franchise Agreement (Revised Decem
ber 1991) (Incorporated by reference to
Exhibit 10(j) to the Company's Annual Report
on Form 10-K for the fiscal year ended
November 30, 1992)
(k) Form of Executive Security Agreement entered
into with certain executives of the Company
dated December 1, 1990 (Incorporated by
reference to Exhibit 10(k) to the Company's
Annual Report on Form 10-K for the fiscal
year ended November 30, 1990)
(l) 1984 Stock Option Plan, as amended and
restated (Incorporated by reference to
Exhibit 4 to Post-Effective Amendment No. 1
to Registration Statement No. 2-97039)
(m) 1989 Stock Option Plan (Incorporated by
reference to indented paragraphs following
the caption "Approval of 1989 Stock Option
Plan" on pages 7 and 8 of the Company's
definitive Proxy Statement of February 21,
1989 for the 1989 Annual Meeting of Stock
holders)
(n) 1992 Employee Stock Option Plan (Incorporated
by reference to Exhibit I of the Company's
March 18, 1992 Proxy Statement)
(o) 1992 Nonemployee Director Stock Option Plan
(Incorporated by reference to Exhibit II of
the Company's March 18, 1992 Proxy Statement)
(p) Amendment to the 1992 Employee Stock Option
Plan (Incorporated by reference to the
Company's March 1, 1995 Proxy Statement)
(q) Lease Agreement between the Company, as
tenant, and Capitol Avenue Development
Company, a limited partnership, as landlord,
dated April 20, 1987 (Incorporated by refer
ence to Exhibit 10(q) to the Company's Annu-
E-3
al Report on Form 10-K for the fiscal year
ended November 30, 1987)
(r) Amendment to the 1992 Employee Stock Option
Plan (Incorporated by reference to the
Company's March 8, 1996 Proxy Statement)
(s) Third Addendum to Lease Agreement between the
Company, as tenant, and Capitol Avenue
Development Company, a Limited Partnership,
as landlord, dated December 12, 1996
(t) Amendment to the 1992 Employee Stock Option
Plan (Incorporated by reference to the
Company's February 24, 1997 Proxy Statement)
(u) Amendment to the 1992 Employee Stock Option
Plan (Incorporated by reference to the
Company's February 27, 1998 Proxy Statement)
13 Management's Discussion and Analysis of
Financial Condition and Results of Opera-
tions; Report of Ernst & Young LLP, Indepen-
dent Auditors; Consolidated Balance Sheets;
Consolidated Statements of Operations; Con-
solidated Statements of Stockholders' Equity;
Consolidated Statements of Cash Flows; and
Notes to the Consolidated Financial State-
ments included in the Registrant's Annual
Report for the year ended November 29,
1998......................................... Attached
21 Subsidiaries of TCBY Enterprises, Inc. ...... Attached
23 Consent of Independent Auditors ............. Attached
24 Powers of attorney .......................... Attached
27 (a) Article 5, Financial Data Schedule for the
Fiscal Year 1998 10-K ....................... Attached
27 (b) Article 5, Financial Data Schedule for the
Fiscal Year 1997 Form 10-K restated for
adoption of Financial Accounting Standards
Board Statement Number 128, Earnings Per
Share........................................ Attached
27 (c) Article 5, Financial Data Schedule for the
Fiscal Year 1996 Form 10-K restated for
adoption of Financial Accounting Standards
Board Statement Number 128, Earnings Per
Share........................................ Attached
99 (a) Press release, dated December 18, 1998, "TCBY
Declares Cash Dividend"...................... Attached
E-4
99 (b) Press release, dated January 14, 1999, "TCBY"
Announces Improved Results for 1998.......... Attached
E-5
</TABLE>
AMENDMENT TO ARTICLE II, SECTION 11 OF THE BY-LAWS OF TCBY ENTERPRISES,
INC. ON DECEMBER 18, 1998
"SECTION 11". Deadline for Submission by Stockholders of Matters to be
Included in Proxy Statements. Any matter intended to be voted upon at
an annual stockholder's meeting and to be included in the Corporation's
proxy statement for such meeting must be set forth in a notice received
by the Corporation on or before the Corporation's fiscal year end
immediately preceding any annual meeting of stockholders following the
fiscal year just ended. Such notice shall set forth a description of
the proposal, the name and address of the proponent as such appears
in the Corporation's records, and the number of shares owned by the
proponent. Such notice shall disclose any material interest of the
proponent in the proposed matter. No matter shall be considered at
an annual meeting except in accordance with this Section 11."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1998 Compared to 1997
The Company's total sales for 1998 increased four percent
over 1997. The 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 segments (food
products and equipment) of operation:
<TABLE>
<CAPTION>
(dollars in thousands)
1998 1997 1996
Sales % Sales % Sales %
_____ ___ _____ ___ _____ ___
<S> <C> <C> <C> <C> <C> <C>
Food Products:
______________
TCBY(registered) frozen
products sales for
distribution to
TCBY(registered) locations $ 46,934 50% $ 47,851 53% $ 49,705 60%
Sales of specialty products 29,284 31 25,103 28 14,973 18
Retail sales by Company-
owned stores 424 1 680 1 2,599 3
________ ____ ________ ____ ________ ____
76,642 82 73,634 82 67,277 81
Equipment:
Sales by the Company's
equipment distributor 16,062 17 14,624 16 11,779 14
Sales of manufactured
specialty vehicles - - 1,228 1 2,874 4
________ ____ ________ ____ ________ ____
16,062 17 15,852 17 14,653 18
Other 1,161 1 1,092 1 1,034 1
________ ____ ________ ____ ________ ____
Total Sales $ 93,865 100% $ 90,578 100% $ 82,964 100%
======== ==== ======== ==== ======== ====
</TABLE>
Sales from the Company's food products segment include (i)
wholesale sales of frozen yogurt and ice cream products to
ProSource Distribution Services (now a division of
AmeriServe Food Distribution, Inc.) 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,
dairies, foodservice distributors, club stores, and private
label suppliers, and (iii) retail sales of yogurt, juices,
and related food items by Company-owned stores.
Wholesale sales of frozen yogurt and ice cream products
decreased two percent during 1998 compared to 1997. The
decrease is 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 economic challenges
primarily in Asia. These decreases were partially offset by
increased purchases by TCBY(registered) non-traditional
locations.
The following table sets forth TCBY(registered) and Juice
Works(registered) location activity for 1998 and 1997:
<TABLE>
<CAPTION>
Company Non-
Franchised Owned International Traditional Total
Stores Stores Locations Locations Locations
__________ _______ _____________ ___________ _________
<S> <C> <C> <C> <C> <C>
Locations Open at
December 1, 1996 1,198 2 201 1,297 2,698
Opened 47 1 52 350 450
Closed (132) -- (24) (184) (340)
Net Stores Purchased
(Sold) Between Fran-
chisees & Company (3) (1) -- 4 --
_______ ______ _______ ________ ________
Locations Open at
November 30, 1997 1,110 2 229 1,467 2,808
Opened 30 -- 22 347 399
Closed (109) -- (35) (103) (247)
_______ ______ _______ ________ ________
Locations Open at
November 29, 1998 1,031 2 216 1,711 2,960
======= ====== ======= ======== ========
</TABLE>
During 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 in 1999. 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 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 347
non-traditional openings in 1998 were co-branded. Of the
1,711 non-traditional locations open at year-end,
approximately 800 are co-branded locations. As of November
29, 1998, there are over 300 locations under agreement, many
of which will be co-branded with petroleum or other food
operations. Co-branding has made the Company's products
available to more customers as we have opened locations with
many national or regional brands including
Subway(registered), Exxon(registered), Texaco(registered),
Wall Street Deli(registered), Blimpie(registered),
Shell(registered), and others. TCBY is a strong partner for
these brands because its products complement their
operations. During 1998, 103 non-traditional locations
closed. These locations generally 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-
TCBY Annual Report 1998 . 17
traditional locations as they are not efficient for the
Company to service or the customer to operate.
During 1998, a total of 109 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, 77 operated
for a portion of 1998, with the remainder having originally
closed for relocation in prior years. Included in the
franchised store information are 87 and 111 TCBY(registered)
stores closed for relocation or for the season at November
29, 1998 and November 30, 1997, respectively. During 1999,
the Company will continue to intensify its focus on the
traditional locations and pursue measures to improve the
performance of these stores. The Company has been working
with several research and design firms to address the
positioning of traditional stores for both the short and
long term. These efforts will require investments in 1999
that are being undertaken for the long-term benefit of the
Company and its franchise system. We will work 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 can be realized in
TCBY(registered) stores by adding these brands to
TCBY(registered) locations. In addition, marketing efforts
will be strategically targeted to maximize the benefits in
the trade area of each of our stores. The Company will be
working with a nationally known firm to evaluate and pursue
neighborhood store marketing approaches which will assist
the franchisees in their marketing planning for 1999. We
will also increase the number of store visits 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 will be evaluated on a
continual basis and may change if the Company deems
appropriate. 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. However, we believe that the programs can lay the
foundation for future success and development of traditional
TCBY(registered) franchised locations.
Average store sales (the average of sales by domestic
traditional stores open the entire year) for Company-owned
and franchised TCBY(registered) stores increased to $208,000
in 1998 from $207,000 in 1997. This increase is due to the
closing of lower volume stores as stores open at year-end
experienced a slight decline in unit volume during 1998.
Sales of specialty products increased 17 percent during 1998
as compared to 1997. The increase is attributed primarily
to increased sales of private label products even after
consideration of $2.5 million of sales in 1997 to a private
label customer on a one-time basis. The Company continues
to pursue private label opportunities at its manufacturing
facility in Dallas.
Retail sales by Company-owned stores declined in 1998 due to
the sale of a Company-owned Juice Works(registered) store
during 1997.
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. The increased sales at the Company's equipment
distributor for 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 partially 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 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
(formerly 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. Future sales in the equipment segment are
primarily dependent upon the Company's ability to develop
new TCBY(registered) locations.
As a percent of sales, cost of sales for 1998 and 1997 for
the Company and its two primary segments are presented
below:
<TABLE>
<CAPTION>
1998 1997
___________________________________________
<S> <C> <C>
Food Products Segment 67% 65%
Equipment Segment 77% 78%
Company Total 68% 67%
</TABLE>
The increased cost of sales percentages in 1998 are
primarily due to lower gross margins for the food products
segment, which were partially offset by improved gross
margins for the equipment segment as a result of the sale of
Carlin in July 1997 which had low gross profit margins.
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 1998 compared to the prior year. (See earlier discussion
related to sales increases.) In addition, dairy costs,
which are a significant portion of the segment's cost of
sales, increased during 1998 compared to 1997. 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 exceeded historical levels during
1998. The BFP has continued to increase in fiscal 1999 with
the December price reaching an all-time record high of
$17.34 per hundredweight. The BFD began to decline in early
November and has returned to more traditional levels.
TCBY Annual Report 1998 . 18
Although dairy prices have increased during 1998 over the
same period in the prior year, the food products segment did
not bear the full impact of the increases due to the product
mix manufactured and sold within the segment in 1998.
Because the BFD prices increased more than the prices for
BFP, the cost for milk solids remained comparable to the
prior year until the fourth quarter when the BFD declined
rapidly. The segment's core yogurt products do not utilize
high levels of milk fat, which tempered the impact of higher
BFP and BFD prices until the decrease of BFD in the fourth
quarter. The Company did not change its pricing on
TCBY(registered) products and has absorbed the higher cost
of products for the TCBY(registered) locations. This
resulted in additional cost of sales of approximately
$750,000 compared to 1997. 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 customer. The prices for BFP are expected
to remain above historical levels during the first half of
1999, while BFD should remain closer to historical levels.
This results in higher cost for TCBY(registered) products.
The Company is evaluating all available options for 1999 to
reduce the financial impact of the increases. These actions
will likely include price increases for TCBY(registered)
products. While the price increases are expected to offset
the increases in BFP , 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. For 1998, initial
franchise and license fees decreased 32 percent while
royalty income increased four percent from 1997. The
decrease in franchise and license fees result from fewer
initial international franchise fees. This is due in part
to the economic challenges in certain international markets,
but also due to a record level of fees experienced in 1997.
There are still new markets to enter, but international
growth will come primarily through expansion within existing
markets. The Company remains committed to long-term growth
in international markets and, during 1999, will begin local
production in Europe. This production will result in lower
costs to our franchisees in Europe and the Middle East and
should enhance our opportunity for development in future
years. The increase in royalty income is primarily
attributable to more non-traditional locations. The
increase was partially offset by fewer traditional
TCBY(registered) stores and decreased purchases by
international franchisees.
Total international revenues represented approximately three
percent of the Company's sales and franchising revenues in
1998 compared to five percent in 1997.
Operating expenses decreased two percent in 1998 compared to
1997. The decrease is due to the sale of Carlin in July,
1997, and reductions in other corporate operating costs.
For 1998 and 1997, operating expenses as a percentage of
combined sales and franchising revenues were 28 percent and
30 percent, respectively. Included in operating expenses
for 1998 is the settlement of a claim by a customer for whom
Americana Foods produces private label products, who alleged
damages due to production defects. Immediate and voluntary
recalls of limited quantities of products were undertaken in
1997. The Company, after negotiations with the customer and
the Company's liability insurance carrier, has, with the
participation of the liability insurance carrier, settled
all claims. The relevant settlement agreement contains a
confidentiality clause; however, the amount paid by the
Company to obtain settlement exceeded prior accruals by
approximately one million dollars. While the Company
believed it had meritorious defenses to and disagreed with
the customer's claim, settlement was agreed to by the
Company in order to avoid the uncertainty of outcome, cost
of litigation, and disruption to the Company.
During the third quarter of 1998, the Company's aircraft was
sold to a third party resulting in a gain of approximately
$2.1 million which is included in Other Income on the
Consolidated Statement of Income. 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
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.
Interest expense decreased approximately $214,000 in 1998
compared to 1997. This decrease is due to reductions in
outstanding debt.
Income tax expense as a percentage of pre-tax income was 34
percent and 34.5 percent in 1998 and 1997, respectively.
Assuming no significant change in federal and state tax
laws, the Company expects its future tax rate to approximate
35 percent. Deferred tax assets of $3.5 million are
expected to be realized through the offset of existing
taxable temporary differences.
1997 Compared to 1996
The Company's total sales for 1997 increased nine percent
from sales in 1996. As described below, the Company
experienced improved sales in the specialty products and
equipment distribution categories. These increases were
partially offset by decreased sales by Company-owned stores
due to the franchising of these stores during 1996; the
divestiture of Carlin Manufacturing in July, 1997; and
decreased sales to traditional TCBY (registered) stores.
The Company's total sales excluding TCBY (registered)
Company-owned units and Carlin Manufacturing increased 15
percent in 1997 compared to 1996.
Wholesale sales of frozen yogurt and ice cream products
decreased four percent in 1997 compared to 1996. The
decrease was attributed primarily to a reduction in the
number of domestic traditional TCBY(registered) stores in
operation and a decline in yogurt purchased by operating
stores during 1997 compared to 1996. This decrease was
partially offset by increased purchases by TCBY(registered)
non-traditional locations.
TCBY Annual Report 1998 . 19
During 1997, significantly more TCBY(registered)
non-traditional locations than traditional locations opened.
While the Company has placed and continues to place emphasis
upon both traditional and non-traditional locations, the
Company experienced more non-traditional development in the
last two years. While different in size and character, each
TCBY(registered) location is treated the same in the site
evaluation process, and the Company intends to avoid
approving the placement of a new TCBY(registered) location,
be it traditional or non-traditional, so close to any
existing TCBY (registered) location that sales of the two
locations would be materially impacted. 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 350
non-traditional openings in 1997 were TCBY (registered)
co-branded locations. The Company's experience was that the
volume of yogurt and ice cream at co-branded locations
exceeded that of other types of non-traditional locations
with the exception of airports. During 1997, 184
non-traditional locations were closed. These locations
generally purchased low volumes of product from the Company.
During 1997, a total of 132 TCBY(registered) franchised
stores were closed by franchisees. Each TCBY(registered)
store closed was the result of the franchisee's evaluation
of its financial condition, cash flow, lease expiration,
profitability, and store operations, among other things. Of
the 132 locations closed, 64 operated for a portion of 1997,
with the remainder having originally closed for relocation
in prior years. Included in the franchised and
Company-owned store information are 111 and 147
TCBY(registered) stores closed for relocation or for the
season at November 30, 1997 and 1996, respectively.
Average store sales for Company-owned and franchised TCBY
(registered) stores were $207,000 in 1997 and 1996.
Sales of specialty products increased 68 percent in 1997 as
compared to 1996. A majority of this increase was
attributed to increased sales of private label products.
The Company has pursued private label opportunities to
utilize available capacity at its manufacturing facility in
Dallas. Sales improvements also occurred due to the
introduction of new TCBY(registered) novelty products
primarily through club stores.
Retail sales by Company-owned stores declined in 1997 due to
the Company's implementation during 1996 of its decision to
franchise or close most of its TCBY(registered)
Company-owned stores. The Company took this action as it
believed the stores could operate more effectively with
local ownership.
Sales in the equipment segment increased eight percent in
1997 as compared to the prior year. This improvement in
sales was primarily due to the opening of non-traditional
TCBY (registered) locations, some of which purchased a
portion of their original equipment packages from the
Company's equipment distributor. The increase was partially
offset by decreased sales by the Company's equipment
manufacturer. In July, 1997, the Company sold a portion of
the equipment manufacturer's assets to a company controlled
by the subsidiary's president. The assets sold included
certain inventory, plant equipment, furniture and fixtures,
and intangibles. The transaction was partially financed by
the Company. The Company retained certain inventory items.
In addition, the real property was retained by the Company
and leased to the purchaser with the ultimate intent to sell
the property. The purchaser is assisting the Company in
marketing the remaining inventory and receives a commission
on the sale of this inventory.
As a percent of sales, cost of sales for 1997 and 1996 for
the Company and its two primary segments are presented
below:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------
<S> <C> <C>
Food Products Segment 65% 63%
Equipment Segment 78% 76%
Company Total 67% 65%
</TABLE>
The increase in the food products segment cost of sales
percentage was due to a number of factors including the
Company's decision to franchise or close most of its
TCBY(registered) Company-owned stores. These stores had a
lower cost of sales percentage than the other categories of
the food products segment noted above. Therefore, as such
stores were sold or closed, cost of sales as a percent of
sales increased in the food products segment.
In addition, sales of specialty products, which generally
have a higher cost of sales percentage than the other food
segment categories, were a larger component of the food
products segment sales during 1997 compared to the prior
year. (See earlier discussion related to these sales
increases.) Cost of sales during 1997 were favorably
impacted by a decrease in dairy prices which were a major
component of the Company's cost of sales.
The change in the equipment segment's cost of sales
percentage results from increased sales of new location
equipment packages which included large items with lower
margins than other sales components of the equipment
segment.
Franchising revenues consist of initial franchise and
license fees and royalty income. In 1997, initial franchise
and license fees increased 37 percent while royalty income
was flat compared to the prior year. The improvement in
franchise and license fees resulted primarily from increased
initial international franchise fees, increased development
of TCBY(registered) non-traditional locations, and Juice
Works(registered) locations. The flat royalty income was
primarily attributable to a decrease in domestic royalties
resulting from the decrease in the number of traditional
TCBY(registered) stores and the decline in frozen products
purchased by the operating stores. This decrease was offset
by the increase in the number of non-traditional locations
and expanded distribution in international markets.
Five percent of combined sales and franchising revenues were
generated from international activity in 1997 and 1996.
TCBY Annual Report 1998 . 20
Operating expenses decreased five percent in 1997 compared
to 1996. The decrease related to reduced operating expenses
of corporate stores due to the franchising or closing of
these units as discussed above. As a percentage of combined
sales and franchising revenues, operating expenses were 30
percent and 34 percent for 1997 and 1996, respectively.
Interest expense decreased approximately $201,000 in 1997
compared to 1996. This decrease was due to reductions in
outstanding debt.
Income tax expense as a percentage of pre-tax income was
34.5 percent and 34.6 percent in 1997 and 1996,
respectively.
Liquidity And Capital Resources
The Company has historically generated cash from operations
sufficient to meet its normal operating requirements. Cash
provided by operating activities amounted to $9.5 million in
1998 compared to $17.1 million in 1997 and $18.9 million in
1996. The decrease in 1998 is due to higher levels of
inventory and accounts receivables related to the growth in
the private label business and also due to changes in
deferred income taxes. The decrease in 1997 from 1996
results primarily from a tax refund of approximately $4.1
million and the proceeds of sales of assets held for sale of
approximately $2.4 million in 1996 which did not reoccur in
1997.
The following summarizes statistics related to the Company's
financial position:
<TABLE>
<CAPTION>
1998 1997
_____________ ____________
<S> <C> <C>
Current Ratio 3.9 to 1.0 4.0 to 1.0
Working Capital (in millions) $34.8 $34.5
Long-Term Debt to Equity Ratio .04 to 1.0 .08 to 1.0
Tangible Net Worth (in millions) $71.9 $73.1
</TABLE>
The Company's cash and cash equivalents and short-term
investments decreased approximately $2.2 million in 1998.
This decrease resulted primarily from purchases of treasury
stock (see discussion below).
Long-term debt was reduced by $3.3 million in 1998, and $3.2
million in 1997 and 1996, respectively.
Cash generated from operations has been used to finance all
capital expenditures. Purchases of property, plant, and
equipment amounted to $2.0 million, $1.9 million, and $2.4
million in 1998, 1997, and 1996, respectively. The Company
had no material commitments for capital expenditures at
November 29, 1998. The Company estimates $2.5 to $3.5
million for capital expenditures in 1999. It is expected
that operating cash flows will be used to finance these
capital expenditures, although other financing options may
be considered. In addition, 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.
Cash provided by operating activities has also been used by
the Company in the past to provide financing to franchisees
for the purpose of acquiring equipment and other fixed
assets for the development or purchase of stores. The
principal collected on notes receivable primarily from
franchisees exceeded origination of notes receivable by
approximately $1.0 million, $1.4 million, and $1.6 million
in 1998, 1997, and 1996, respectively.
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, 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 November
29, 1998, 452,883 shares have been purchased under this
authorization. During 1998, the Company has purchased
1,324,683 shares of common stock at a cost of $11,168,218.
All repurchases have been funded with cash flows from
operations. Future repurchases may be funded with cash
flows from operations or long-term financing.
Cash dividends of 20 cents per share were paid to
stockholders during 1998, 1997, and 1996. The Company will
consider adjustments to the dividend rate after giving
consideration to return to stockholders, profitability
expectations, financing and cash needs of the Company, and
other factors.
Any forward-looking statements contained herein are based on
certain assumptions regarding U.S. and foreign economic
conditions, competition, costs of raw materials, unit
openings and closings, sales volumes per unit, other
manufacturing opportunities, no changes in governmental
regulation of the food industry 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.
TCBY Annual Report 1998 . 21
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
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. 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
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.
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 Company's earnings are affected by changes in short-term
interest rates due to cash, cash equivalents, and short-term
investments held in interest earning accounts, as well as,
interest bearing notes receivable primarily from
franchisees. Cash, cash equivalents, and short-term
investments are held in accounts that have interest rates
that are fixed for less than one year. Most of the interest
bearing notes receivable reprice annually and bear interest
at market rates. If interest rates averaged one percent
less in 1999 than they did during 1998, the Company's
interest income would decrease by approximately $192,000.
In addition, earnings are affected due to notes payable to a
bank. The notes bear interest at the bank's base rate less
0.75% or at a match-funding rate of the adjusted Eurodollar
rate plus 1.0%. The notes payable balance at November 29,
1998 was $6,124,082. If interest rates averaged one percent
more in 1999 than they did during 1998, the Company's
interest expense would increase by approximately $23,000
after consideration that the interest rate on the debt was
set for approximately 180 days as of November 29, 1998. The
Company manages short- term interest rate risk on debt by
tracking projections on interest rate trends when choosing
the periodic time-frame (30 days to 180 days) for locking in
a certain interest rate on the debt.
The primary commodities purchased by the Company are dairy
products. See discussion on pages 18 and 19 for information
regarding the market for dairy products. The Company has
not used financial instruments to hedge commodity prices in
the past; however, the Company may consider such instruments
in the future.
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.
TCBY Annual Report 1998 . 22
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
TCBY Enterprises, Inc.
We have audited the accompanying consolidated balance sheets
of TCBY Enterprises, Inc. and subsidiaries as of November
29, 1998 and November 30, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended November 29,
1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of TCBY Enterprises, Inc. and
subsidiaries at November 29, 1998 and November 30, 1997, and
the consolidated results of their operations and their cash
flows for each of the three years in the period ended
November 29, 1998, in conformity with generally accepted
accounting principles.
s/ Ernst & Young LLP
January 14, 1999
Little Rock, Arkansas
TCBY Annual Report 1998 . 23
TCBY Enterprises, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
November 29 November 30
1998 1997
__________________________
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 16,924,143 $ 19,693,693
Short-term investments 2,967,135 2,406,045
Receivables:
Trade accounts 10,078,733 8,750,207
Notes 1,695,429 2,127,328
Allowance for doubtful accounts and impaired notes (439,223) (833,447)
__________________________
11,334,939 10,044,088
Refundable income taxes 156,951 12,472
Deferred income taxes 1,204,197 1,086,406
Inventories 12,554,875 10,679,231
Prepaid expenses and other assets 1,540,971 1,549,643
Assets held for sale 150,000 754,652
__________________________
Total Current Assets 46,833,211 46,226,230
Property, Plant, And Equipment:
Land 2,534,307 2,866,820
Buildings 22,763,194 23,753,155
Furniture, vehicles, and equipment 46,637,567 49,987,506
Leasehold improvements 3,603,219 3,625,054
Allowances for depreciation (39,546,174) (39,891,253)
__________________________
Net Property, Plant, and Equipment 35,992,113 40,341,282
Other Assets:
Notes receivable, less current portion (less allowance
for doubtful and impaired notes of $8,029,658 in 1998
and $7,741,180 in 1997) 4,525,970 5,495,337
Intangibles (less amortization of $2,226,511 in 1998
and $1,964,433 in 1997) 4,250,684 4,326,193
Other 2,850,906 2,875,354
__________________________
Total Other Assets 11,627,560 12,696,884
__________________________
Total Assets $ 94,452,884 $ 99,264,396
==========================
</TABLE>
See accompanying notes.
TCBY Annual Report 1998 . 24
<TABLE>
<CAPTION>
November 29, November 30
1998 1997
_________________________
<S> <C> <C>
Liabilities And Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,130,430 $ 1,910,414
Accrued expenses 6,682,371 6,612,146
Current portion of long-term debt 3,171,448 3,171,448
__________________________
Total Current Liabilities 11,984,249 11,694,008
Long-Term Debt, less current portion 2,952,634 6,298,008
Deferred Income Taxes 3,319,847 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 27,759,021 shares in
1998 and 27,095,620 shares in 1997 2,775,902 2,709,562
Additional paid-in capital 30,098,602 25,761,424
Retained earnings 74,751,431 69,216,099
__________________________
107,625,935 97,687,085
Less treasury stock, at cost (4,839,952 shares
in 1998 and 3,515,269 shares in 1997) (31,429,781) (20,261,563)
__________________________
Total Stockholders' Equity 76,196,154 77,425,522
__________________________
Total Liabilities And Stockholders' Equity $ 94,452,884 $ 99,264,396
==========================
</TABLE>
See accompanying notes.
TCBY Annual Report 1998 . 25
TCBY Enterprises, Inc.
Consolidated Statements of Income
Three Years Ended November 29
<TABLE>
<CAPTION>
1998 1997 1996
_______________________________________
<S> <C> <C> <C>
Sales $ 93,865,413 $ 90,577,654 $ 82,964,258
Cost of sales 64,098,811 60,398,466 53,548,245
_______________________________________
Gross Profit 29,766,602 30,179,188 29,416,013
Franchising revenues:
Initial franchise and license fees 2,285,646 3,347,773 2,439,125
Royalty income 10,828,217 10,406,033 10,400,873
_______________________________________
13,113,863 13,753,806 12,839,998
_______________________________________
42,880,465 43,932,994 42,256,011
Selling, general, and administrative
expenses 30,393,591 30,974,594 32,601,401
_______________________________________
Income From Operations 12,486,874 12,958,400 9,654,610
Other income (expense):
Interest expense (545,664) (759,766) (961,154)
Interest income 1,213,662 1,209,393 1,147,484
Other income 2,293,024 148,029 168,669
_______________________________________
2,961,022 597,656 354,999
_______________________________________
Income Before Income Taxes 15,447,896 13,556,056 10,009,609
Income tax expense (benefit):
Current 5,897,086 3,466,300 1,585,861
Deferred (644,802) 1,210,541 1,875,383
_______________________________________
5,252,284 4,676,841 3,461,244
_______________________________________
Net Income $ 10,195,612 $ 8,879,215 $ 6,548,365
=======================================
Earnings Per Share:
Basic $ .44 $ .37 $ .26
=======================================
Diluted $ .43 $ .36 $ .26
=======================================
Average Shares Outstanding:
Basic 23,230,863 24,061,999 25,156,994
=======================================
Diluted 23,917,772 24,339,828 25,162,825
=======================================
</TABLE>
See accompanying notes.
TCBY Annual Report 1998 . 26
TCBY Enterprises, Inc.
Consolidated Statements of
Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained Treasury
Shares Par Value Capital Earnings Stock Total
__________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1995 27,062,345 $2,706,235 $25,547,184 $63,661,235 $ (9,735,887) $ 82,178,767
Cash Dividends--$.20 per share - - - (5,044,410) - (5,044,410)
Purchase of treasury stock-
1,037,700 shares - - - - (4,462,229) (4,462,229)
Net income - - - 6,548,365 - 6,548,365
__________________________________________________________________________
Balance at November 30, 1996 27,062,345 2,706,235 25,547,184 65,165,190 (14,198,116) 79,220,493
Exercise of stock options,
including tax benefit of
$42,592 33,275 3,327 214,240 - - 217,567
Cash Dividends--$.20 per share - - - (4,828,306) - (4,828,306)
Purchase of treasury stock-
1,090,500 shares - - - - (6,063,447) (6,063,447)
Net income - - - 8,879,215 - 8,879,215
__________________________________________________________________________
Balance at November 30, 1997 27,095,620 2,709,562 25,761,424 69,216,099 (20,261,563) 77,425,522
Exercise of stock options,
including tax benefit of
$831,255 663,401 66,340 4,337,178 - - 4,403,518
Cash Dividends--$.20 per share - - - (4,660,280) - (4,660,280)
Purchase of treasury stock-
1,324,683 shares - - - - (11,168,218) (11,168,218)
Net income - - - 10,195,612 - 10,195,612
__________________________________________________________________________
Balance at November 29, 1998 27,759,021 $2,775,902 $30,098,602 $74,751,431 $(31,429,781) $76,196,154
==========================================================================
</TABLE>
See accompanying notes.
TCBY Annual Report 1998 . 27
TCBY Enterprises, Inc.
Consolidated Statements of Cash Flows
Three Years Ended November 29<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
_______________________________________
<S> <C> <C> <C>
Operating Activities
Net income $ 10,195,612 $ 8,879,215 $ 6,548,365
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 4,048,305 4,915,965 5,156,622
Amortization of intangibles 262,031 264,022 217,131
Provision for doubtful accounts and
impaired notes 72,500 48,705 88,205
Deferred income taxes (644,802) 1,210,541 1,875,383
Tax benefit from stock options 831,255 42,592 -
Gain on sales of property and
equipment (2,143,990) (51,144) (43,531)
Changes in operating assets and
liabilities:
Receivables (1,408,040) (877,273) 937,579
Inventories (1,875,644) 692,926 1,608,413
Prepaid expenses (23,128) 193,158 357,870
Assets held for disposal - - 2,413,438
Intangibles and other assets 345,211 579,951 (391,497)
Accounts payable and accrued
expenses (54,759) 916,611 (3,926,558)
Income taxes (144,479) 320,401 4,086,063
_______________________________________
Net Cash Provided By Operating
Activities 9,460,072 17,135,670 18,927,483
Investing Activities
Purchases of property, plant, and
equipment (1,982,769) (1,869,282) (2,403,694)
Purchase of business, net of cash
acquired - - (952,800)
Proceeds from sales of property and
equipment 4,901,790 139,866 325,122
Origination of notes receivable (471,443) (1,098,771) (334,551)
Principal collected on notes
receivable 1,485,499 2,508,921 1,898,270
Purchases of short-term investments (2,156,893) (1,838,338) (1,457,224)
Proceeds from maturity of short-term
investments 1,595,803 3,684,845 6,028,835
_______________________________________
Net Cash Provided By Investing
Activities 3,371,987 1,527,241 3,103,958
Financing Activities
Proceeds from exercise of Common
Stock options 3,572,263 174,975 -
Dividends paid (4,660,280) (4,828,306) (5,044,410)
Treasury stock transactions (11,168,218) (6,063,447) (4,462,229)
Principal payments on long-term debt (3,345,374) (3,171,448) (3,171,448)
_______________________________________
Net Cash Used In Financing Activities (15,601,609) (13,888,226) (12,678,087)
_______________________________________
(Decrease) Increase In Cash And Cash
Equivalents (2,769,550) 4,774,685 9,353,354
Cash and cash equivalents at beginning
of year 19,693,693 14,919,008 5,565,654
_______________________________________
Cash And Cash Equivalents At End Of Year $ 16,924,143 $ 19,693,693 $14,919,008
=======================================
</TABLE>
See accompanying notes.
TCBY Annual Report 1998 . 28
TCBY Enterprises, Inc.
Notes to Consolidated Financial Statements
November 29, 1998
1. Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Description of Business
The Company manufactures and sells soft serve frozen yogurt,
hardpack frozen yogurt and ice cream, and novelty frozen
food products through Company-owned and franchised retail
stores ("TCBY(registered) stores"), non-traditional
locations (e.g., airports, schools, hospitals, convenience
stores, and travel plazas), and the retail grocery trade
(e.g., grocery stores and wholesale clubs). In addition,
the Company sells equipment related to the foodservice
industry and develops locations under the Juice
Works(registered) brand in conjunction with the
TCBY(registered) brand.
The following summarizes the number of TCBY(registered) and
Juice Works(registered) locations:
<TABLE>
<CAPTION>
1998 1997 1996
____________________
<S> <C> <C> <C>
Franchised or licensed 1,247 1,339 1,399
Company-owned 2 2 2
Non-traditional 1,711 1,467 1,297
____________________
2,960 2,808 2,698
====================
</TABLE>
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of 90 days or less to be cash equivalents.
Short-term Investments
Short-term investments consist of certificates of deposit
and other income producing non-equity securities with an
original maturity of greater than 90 days and less than one
year. These investments are recorded at cost which
approximates market value and are intended to be held to
maturity.
Inventories
Inventories consist primarily of yogurt and ice cream
products and related manufacturing materials, and
foodservice equipment. Inventories are carried at the lower
of cost or market.
Receivables
A majority of the Company's trade accounts receivable are
due from customers throughout the United States and
internationally in the food products segment. In addition,
the Company from time to time extends credit in the form of
notes receivable to franchisees. Notes receivable from
franchisees are primarily collateralized by equipment
located in TCBY(registered) stores. Many of these notes
receivable are intended to be paid over five years and bear
interest at market rates. Notes receivable are placed on a
non-accrual status when the collectibility of principal or
interest becomes uncertain.
Also included in notes receivable are amounts due related to
the sale of the rights for the exclusive manufacturing and
distribution of the TCBY(registered) refrigerated yogurt
product line throughout the United States. Mid-America
Dairymen, Inc., now Dairy Farmers of America ("DFA"),
purchased these rights in April, 1995 and the Company's
consideration included a receivable of $10.6 million.
Subsequent to the transaction, sales of the TCBY(registered)
refrigerated yogurt line declined significantly due to
competitive factors. After further negotiations with DFA,
the Company agreed to waive certain required payments and
accordingly provided an impairment allowance in the fourth
quarter of 1995 based on the revised estimate of future
discounted cash flows. The loan balance at November 29,
1998 was $8,041,000 with an associated allowance of
$6,610,000. These balances are included in the investment
in notes considered to be impaired in the following
paragraph. During 1998, Suiza Foods Corporation acquired
the rights to the TCBY(registered) refrigerated product line
from DFA and the associated liabilities.
At November 29, 1998 and November 30, 1997, the recorded
investment in notes considered to be impaired under
Statement of Financial Accounting Standards ("SFAS") No. 114
was $11,205,000 and $10,507,000, respectively. The entire
1998 and 1997 balances were impaired notes which had
allowances for credit losses of $8,403,000 and $8,492,000,
respectively. The impairment losses are recorded in the
food products segment. The average recorded investment in
impaired notes was $10,958,000 during 1998, $11,671,000
during 1997, and $12,901,000 during 1996. The Company
recognized interest income on impaired notes of $14,000 in
1998, $19,000 in 1997, and $1,000 in 1996, using the cash
basis method of income recognition.
The following presents changes in the allowance for doubtful
accounts and impaired notes:
<TABLE>
<CAPTION>
1998 1997 1996
_______________________________________
<S> <C> <C> <C>
Balance at beginning of year $8,574,627 $9,682,024 $11,178,017
Provision for doubtful accounts and
impaired notes 72,500 48,705 88,205
Charge-offs (218,354) (1,173,093) (1,586,704)
Recoveries 40,108 16,991 2,506
_______________________________________
Balance at end of year $8,468,881 $8,574,627 $ 9,682,024
=======================================
</TABLE>
TCBY Annual Report 1998 . 29
1. Accounting Policies (continued)
Long-lived Assets
Property, plant, and equipment is recorded at cost and is
depreciated by the straight-line method for financial
reporting purposes over the estimated useful lives of the
individual assets. For tax reporting purposes, accelerated
cost recovery depreciation methods are used.
Intangibles include the cost in excess of net assets of
businesses acquired, trademarks, and non-compete agreements.
These intangibles are being amortized over the estimated
future periods benefited, ranging from 3 to 40 years.
The Company reviews long-lived assets used in operations and
impairment losses are recorded when indicators of impairment
are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying
amount. Impairment losses are recorded on long-lived assets
to be disposed of when the carrying value of the asset
exceeds the fair value (usually based on discounted cash
flows) less the estimated selling costs.
Revenue Recognition
Franchising revenues consist of initial franchise and
license fees and royalty income. Initial franchise and
license fees are recognized as revenue when the Company has
substantially completed its obligations under the franchise
or license agreement. Royalty income is earned on sales by
franchisees and is recognized as revenue when the related
sales are made.
The Company recognizes revenue from product sales upon
shipment or, for sales by Company-owned stores, when
purchased by customers.
Income Taxes
The liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, "Earnings per Share". SFAS
No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock
options. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share
calculation. All earnings per share amounts for all periods
have been presented and, where necessary, restated to
conform to SFAS No. 128 requirements.
Fair Value of Financial Instruments
The carrying amount of financial instruments including cash
and cash equivalents, accounts and notes receivable, and
accounts payable approximates fair value at November 29,
1998, because of the relatively short maturity of these
instruments or valuation allowances which have been recorded
to report the balances at fair value. The carrying amount
of long-term debt also approximates fair value due to its
variable interest rate which is adjusted every 30 to 180
days depending upon certain elections made by the Company.
Fiscal Year
Effective December 1, 1996, the Company changed its fiscal
year end from November 30 to a 52 or 53 week year ending on
the Sunday nearest November 30. All general references to
years relate to fiscal years unless otherwise noted.
Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
New Pronouncements
In June, 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997 and establishes
standards for the reporting and display of comprehensive
income and its components in a full set of financial
statements. The adoption of this statement in 1999 is not
expected to have a material effect on the Company's
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information".
Effective for fiscal years beginning after December 31,
1997, SFAS No. 131 requires companies to disclose certain
information about their operating segments, their products
and services, their major customers and the geographic areas
in which they operate. The determination of reportable
segments under SFAS No. 131 is based on material segments of
a company whose operating results are regularly reviewed by
the Company's chief operating decision maker in determining
allocation of resources between the segments and assessing
their performance. The Company is presently evaluating its
reporting requirements under this standard, but believes it
will continue reporting information for two segments -- food
products and equipment.
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
TCBY Annual Report 1998 . 30
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. As the Company had no derivatives
or hedges at November 29, 1998, the adoption of SFAS No. 133
would not have had a material impact on the Company's
financial condition or results of operations.
Reclassification
Certain amounts in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to the 1998
presentation.
2. Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
____ ____ ____
<S> <C> <C> <C>
Numerator:
Net Income $10,195,612 $ 8,879,215 $ 6,548,365
========================================
Denominator:
Denominator for basic
earnings per share --
weighted-average shares 23,230,863 24,061,999 25,156,994
Potential dilutive effect
of employee stock options 686,909 277,829 5,831
________________________________________
Denominator for diluted
earnings per share --
weighted average shares
and assumed conversions 23,917,772 24,339,828 25,162,825
========================================
Basic earnings per share $.44 $.37 $.26
========================================
Diluted earnings per share $.43 $.36 $.26
========================================
Anti-dilutive employee stock
options excluded 118,404 1,006,760 2,126,017
========================================
</TABLE>
3. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
__________________________
<S> <C> <C>
Manufacturing materials and supplies $ 5,088,456 $ 4,307,719
Finished yogurt and other food products 4,526,777 2,929,034
Equipment and other products 2,939,642 3,442,478
__________________________
$12,554,875 $10,679,231
==========================
</TABLE>
4. Long-term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
__________________________
<S> <C> <C>
Unsecured notes payable $ 6,124,082 $ 9,469,456
Less current portion 3,171,448 3,171,448
__________________________
$ 2,952,634 $ 6,298,008
==========================
</TABLE>
Two unsecured notes bear interest at the bank's base rate
less 0.75% or at a match-funding rate of the adjusted
Eurodollar rate plus 1.0%. The interest rate at November
29, 1998 was 6.20719% for both notes. The notes are due in
monthly installments of approximately $264,000 plus interest
and mature on June 1, 2000 and December 31, 2001. The loan
agreement requires, among other things, a fixed charge
coverage ratio of greater than 1.25 to 1.0 be maintained.
This ratio is defined as the sum of net income and non-cash
charges adjusted for extraordinary and nonrecurring items
divided by the sum of the current portion of long-term debt,
cash dividends paid, and capital expenditures incurred to
maintain or replace existing property, plant, and equipment.
The Company was in compliance with these covenants at
November 29, 1998.
Annual maturities of long-term debt are $3,171,448 in 1999,
$1,953,967 in 2000, and $998,667 in 2001.
The Company has available a $5 million unsecured credit
line.
No interest was capitalized in 1998, 1997, or 1996. During
1998, 1997, and 1996, the Company paid interest of
approximately $546,000, $760,000, and $961,000,
respectively.
5. Income Taxes
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
__________________________
<S> <C> <C>
Deferred tax assets:
Impairment allowance on fixed assets $ 675,128 $ 811,158
Claims settlement accrual (see Note 8) 517,500 -
Accrued expenses 959,728 973,490
Other 1,333,596 1,063,130
__________________________
Total deferred tax assets 3,485,952 2,847,778
Deferred tax liabilities:
Tax over book depreciation 3,863,828 4,182,635
Other 1,737,774 1,425,595
__________________________
Total deferred tax liabilities 5,601,602 5,608,230
__________________________
Net deferred tax liabilities $2,115,650 $2,760,452
==========================
</TABLE>
TCBY Annual Report 1998 . 31
5. Income Taxes (continued)
Significant components of the provision for income taxes are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
_______________________________________
<S> <C> <C> <C>
Current:
Federal $ 5,862,225 $ 3,443,225 $ 1,420,321
State 34,861 23,075 165,540
_______________________________________
Total current 5,897,086 3,466,300 1,585,861
Deferred (644,802) 1,210,541 1,875,383
_______________________________________
$ 5,252,284 $ 4,676,841 $ 3,461,244
=======================================
</TABLE>
The reconciliation of income tax computed at the United
States federal statutory tax rates to income tax is:
<TABLE>
<CAPTION>
1998 1997 1996
________________________________________
<S> <C> <C> <C>
Income tax at the statutory
federal rate $ 5,306,764 $ 4,644,620 $ 3,403,267
State income taxes, net of
federal benefit 22,660 14,999 (28,430)
Other, net (77,140) 17,222 86,407
________________________________________
Total income tax $ 5,252,284 $ 4,676,841 $ 3,461,244
========================================
</TABLE>
The Company made income tax payments of approximately
$5,210,000, $3,088,000, and $1,105,000 in 1998, 1997, and
1996, respectively.
6. Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997
__________________________
<S> <C> <C>
Rent $ 602,272 $ 662,224
Compensation 2,234,893 2,534,394
Other 3,845,206 3,415,528
__________________________
$ 6,682,371 $ 6,612,146
==========================
</TABLE>
Accrued expenses at November 29, 1998 and November 30, 1997
includes $.8 million and $1.0 million, respectively, of
costs primarily related to the Company's sale of
TCBY(registered) Company-owned stores and the related
restructuring of its organization in 1995. The original
balance of these reserves was $3.4 million. The remaining
liabilities will be primarily utilized over the life of the
leases for stores sold or closed where sublease payments are
less than the Company's required lease payment.
7. Lease Commitments
In 1998, 1997, and 1996, rent expense totaled approximately
$1,657,000, $1,775,000, and $2,884,000, respectively. The
future minimal rental commitments for all non-cancelable
operating leases with initial or remaining terms in excess
of one year are as follows: 1999--$1,986,000;
2000--$1,707,000; 2001--$1,585,000; 2002--$1,175,000;
2003--$1,039,000; and thereafter--$3,120,000.
Certain of the leases relating to corporate stores are
renewable for substantially the same rentals for up to five
additional years. The rental commitments (net of subleases)
for closed Company-owned locations totaled approximately
$88,000 at November 29, 1998 and are excluded from the
future minimum commitments as this amount was accrued in a
prior year. The future minimum rental commitments for
stores, which total approximately $2,181,000, relate
primarily to the remaining Company-owned stores and stores
sold where the lease commitment has been assumed by the
buyer but the Company remains on the lease as a responsible
party. These future commitments are expected to be offset
by future minimum rentals to be received under
non-cancelable subleases of approximately $1,716,000 at
November 29, 1998.
The lease commitments also include a lease for the corporate
headquarters which was renegotiated effective January 1,
1997 with a new 10-year term. The base rent escalates 3%
annually and the lease contains a 10-year renewal option at
the rental rate effective at the end of the initial term.
The rate would continue to increase 3% annually during the
renewal period.
8. 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, after negotiations with the customer and the
Company's liability insurance carrier, has, with the
participation of the liability insurance carrier, settled
all claims. The relevant settlement agreement contains a
confidentiality clause; however, the amount paid by the
Company to obtain settlement exceeded prior accruals by
approximately one million dollars. While the Company
believed it had meritorious defenses to and disagreed with
the customer's claim, settlement was agreed to by the
Company in order to avoid the uncertainty of outcome, cost
of litigation, and disruption to the Company.
TCBY Annual Report 1998 . 32
8. Contingencies (continued)
Other than as set forth above, there is no material
litigation pending against the Company. Various legal and
administrative proceedings are pending against the Company
which are incidental to the business of the Company. The
ultimate legal and financial liability of the Company in
connection with such proceedings and that discussed above
cannot be estimated with certainty, but the Company
believes, based upon its examination of these matters, its
experience to date, and its discussions with legal counsel,
that resolution of these proceedings will have no material
adverse effect upon the Company's financial condition,
either individually or in the aggregate; of course, any
substantial loss pursuant to any litigation might have a
material adverse impact upon results of operations in the
quarter or year in which it were to be incurred, but the
Company cannot estimate the range of any reasonably possible
loss.
9. Employee Benefit Plans
The Company's Stock Option Plans made available options for
the purchase of the Company's Common Stock to certain
officers, employees, and non-employee directors. The
options are exercisable in one, two, or four equal annual
installments, beginning six months or one year after the
date of grant with a 10 year life.
The Company has elected to follow Accounting Principals
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and related Interpretations in
accounting for its employee stock options versus the
alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation". Under
APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the
underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per
share is required by SFAS No. 123 and has been determined as
if the Company had accounted for its stock options under the
fair value method of that Statement. The fair value of
these options was estimated at date of grant using a
Black-Scholes option pricing model with the following
weighted-average assumptions for 1998, 1997 and 1996,
respectively: risk free interest rates of 5.71%, 6.34% and
6.22%; dividend yields of 3.0%, 3.0% and 4.0%; volatility
factors of the expected market price of the Company's common
stock of .26, .26 and .30; and the weighted-average expected
life of four years.
For purposes of pro forma disclosures, the estimated fair
value of the stock options is amortized to expense over
their respective vesting periods. Pro forma net income and
earnings per share, assuming the Company had elected to
account for its stock option grants in accordance with SFAS
No. 123 for the three years ended November 29, 1998, is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
____ ____ ____
<S> <C> <C> <C>
Pro forma net income $9,768,000 $8,603,000 $6,447,000
====================================
Pro forma earnings per share:
Basic $.42 $.36 $.26
====================================
Diluted $.41 $.36 $.26
====================================
</TABLE>
Pro forma results are not necessarily indicative of the
effect on future years.
A summary of the Company's stock option activity, and
related information for the three years ended November 29,
1998 follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Option Price
Under Option Per Share
____________________________________
<S> <C> <C>
Outstanding at December 1, 1995 2,055,263 $6.33
Granted 810,000 4.61
Terminated (467,575) 6.71
____________________________________
Outstanding at November 30, 1996 2,397,688 5.68
Granted 958,500 4.70
Exercised (33,275) 5.26
Terminated (13,472) 9.20
____________________________________
Outstanding at November 30, 1997 3,309,441 5.30
Granted 630,000 6.15
Exercised (663,401) 5.39
Terminated (129,790) 6.23
____________________________________
Outstanding at November 29, 1998 3,146,250 $5.41
====================================
</TABLE>
The number of shares exercisable was as follows: November
29, 1998 -- 1,416,058; November 30, 1997 -- 1,469,835; and
November 30, 1996 -- 773,271. The weighted-average option
price for exercisable shares as of November 29, 1998 and
November 30, 1997 and 1996 was $5.73, $5.84; and $6.59,
respectively. The weighted-average fair value of options
granted was $1.35 in 1998, $1.07 in 1997, and $1.04 in 1996.
TCBY Annual Report 1998 . 33
9. Employee Benefit Plans (continued)
The following table summarizes information concerning
outstanding and exercisable stock options as of November 29,
1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
____________________________________________________________
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
_______________ ___________ ___________ ________ ___________ ________
<S> <C> <C> <C> <C> <C>
$4.00-$ 7.44 3,068,899 7.07 $ 5.29 1,338,707 $ 5.46
8.38- 18.13 77,351 3.12 10.36 77,351 10.36
___________ ___________
3,146,250 1,416,058
=========== ===========
</TABLE>
The Company maintains a pre-tax savings plan in accordance
with the provisions of Section 401(k) of the Internal
Revenue Code (the "Plan"). Employees who have reached age
21 and fulfill the statutory minimum hours of service
(1,000) during the plan year are eligible to participate in
the Plan. Under the Plan, employees are eligible to
contribute up to the lesser of 15% of compensation or the
statutory limit, with the Company matching 50% of the first
5% of compensation contributed by the employee. The
Company's matching portion of employee contributions
resulted in expense of approximately $220,000, $251,000, and
$213,000 in 1998, 1997, and 1996, respectively.
10. Certain Transactions
In 1996, the Company paid approximately $75,000 to a
marketing consulting firm whose chief executive officer is a
shareholder and director of the Company. There were no
payments in 1998 and 1997.
In 1998, 1997, and 1996, the Company had sales totaling
approximately $183,000, $307,000, and $437,000,
respectively, to a foodservice distributor whose chief
executive officer is a director of the Company.
On October 2, 1995, nine Company-owned stores were sold to
franchisee groups which included a shareholder and director
of the Company. In addition, the franchisee groups manage
six additional stores and receive $130,000 annually for
these services; the Company retains ownership of these
stores for research and development and training purposes.
These stores are all classified as licensed units in Note 1.
In August 1998, the stockholder and director of the Company
divested his interest in the franchisee groups.
In 1998, the Company aircraft was sold. 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
below the fair market rate which normally would be charged
to the Company for use of a similar aircraft. In an
associated transaction, the Chairman and Chief Executive
Officer leased the Company's flight operations which
included personnel, equipment, and facilities. Payments
made by the Company for use of the plane totaled $99,000 in
1998. Payments received on rental of the flight operations
totaled $196,000 in 1998.
11. Operations by Industry Segment
Financial information for each of the Company's segments is
set forth below:
<TABLE>
<CAPTION>
Food
Products Equipment Other Total
_____________________________________________________
<S> <C> <C> <C> <C>
1998
____
Net sales and franchising
revenues $ 89,755,318 $ 16,062,038 $ 1,161,920 $106,979,276
Income (loss) from
operations 17,875,608 1,229,818 (6,618,552) 12,486,874
Identifiable assets 61,506,093 7,442,212 25,504,579 94,452,884
Capital expenditures 1,601,821 106,359 274,589 1,982,769
Depreciation 3,452,224 203,219 594,522 4,249,965
1997
____
Net sales and franchising
revenues $ 87,388,000 $ 15,851,821 $ 1,091,639 $104,331,460
Income (loss) from
operations 20,960,498 799,267 ( 8,801,365) 12,958,400
Identifiable assets 57,675,539 13,718,822 27,870,035 99,264,396
Capital expenditures 1,333,458 78,059 457,765 1,869,282
Depreciation 3,891,182 287,381 737,402 4,915,965
1996
____
Net sales and franchising
revenues $ 80,117,290 $ 14,651,976 $ 1,034,990 $ 95,804,256
Income (loss) from
operations 18,973,050 841,617 (10,160,057) 9,654,610
Identifiable assets 63,557,411 15,678,242 23,232,794 102,468,447
Capital expenditures 2,153,862 61,155 188,677 2,403,694
Depreciation 4,157,198 224,227 775,197 5,156,622
</TABLE>
(a) Inter-segment sales and transfers are insignificant.
(b) The Company's business segments are described and
discussed in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(c) The "Other" segment is composed of unallocated
corporate expenditures and other sundry operations.
Substantially all frozen yogurt products sold to domestic
TCBY(registered) traditional stores are distributed
exclusively by ProSource. Sales by the Company's
manufacturing subsidiary to ProSource totaled approximately
$43.0 million, $42.9 million, and $43.2 million in 1998,
1997, and 1996, respectively. Approximately $2.8 million
and $2.5 million were receivable from ProSource as of
November 29, 1998 and November 30, 1997, respectively.
TCBY Annual Report 1998 . 34
12. Acquisition/Disposition
In July, 1997, the Company sold a portion of Carlin
Manufacturing's assets to a company controlled by the
subsidiary's president. The assets sold included certain
inventory, plant equipment, furniture and fixtures, and
intangibles. The transaction was partially financed by the
Company. In the Carlin transaction, the real estate and
certain finished goods inventory were retained by the
Company. The real estate was leased to the purchaser with
the ultimate intent to sell the property. The purchaser is
assisting the Company in marketing the remaining inventory
and receives a commission on the sale of this inventory.
On September 11, 1996, the Company acquired certain assets
of Whatever Works Inc. and Juice Works International
Franchise Corporation (collectively "Juice Works"), a
Phoenix-based juice bar concept, for a purchase price of $1
million. The acquisition was accounted for as a purchase
and the results of operations of Juice Works from the date
of acquisition are reflected in the consolidated statement
of income of the Company. The results of operations of
Juice Works prior to its acquisition by the Company were not
significant. Goodwill of approximately $867,000 associated
with the purchase is being amortized on a straight-line
basis over 20 years.
13. Quarterly Results of Operations (Unaudited)
Financial results by quarter for 1998 and 1997 are
summarized below:
<TABLE>
<CAPTION>
Quarters
_____________________________________________________
First Second Third Fourth
_____________________________________________________
<S> <C> <C> <C> <C>
1998
____
Sales $16,728,701 $27,083,951 $28,791,737 $ 21,261,024
Gross profit 5,436,186 8,944,943 10,026,062 5,359,411
Franchising revenues 2,479,824 3,813,639 4,076,691 2,743,709
Net income 741,588 3,526,968 5,676,067 250,989
Net income per share:
Basic $ .03 $ .15 $ .25 $ .01
Diluted $ .03 $ .15 $ .24 $ .01
Average shares outstanding:
Basic 23,468,430 23,270,022 23,130,874 23,054,740
Diluted 24,164,665 24,158,257 23,872,098 23,476,682
1997
____
Sales $ 15,884,887 $26,802,645 $30,018,752 $ 17,871,370
Gross profit 5,201,922 8,773,122 10,236,144 5,968,000
Franchising revenues 2,586,812 4,381,380 4,119,155 2,666,459
Net income 251,651 3,124,990 4,325,146 1,177,428
Net income per share:
Basic $ .01 $ .13 $ .18 $ .05
Diluted $ .01 $ .13 $ .18 $ .05
Average shares outstanding:
Basic 24,471,597 24,148,523 23,880,545 23,742,831
Diluted 24,491,551 24,349,540 24,318,308 24,195,412
</TABLE>
TCBY Annual Report 1998 . 35
CORPORATE INFORMATION
TCBY ENTERPRISES, INC.
Corporate Offices
TCBY Enterprises, Inc.
1200 TCBY Tower, 425 West Capitol Avenue
Little Rock, Arkansas 72201
(501)688-8229
Independent Auditors
Ernst & Young LLP
Little Rock, Arkansas
Transfer Agent and Registrar
Continental Stock Transfer and Trust Co.
2 Broadway
New York, NY 10004
(212)509-4000
Investor Relations
Stacy L. Duckett
Vice President
Form 10-K
The Company's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission for the year ended
November 29, 1998, will be sent without charge to each
stockholder upon request to the Investor Relations
Department at the Corporate offices.
Business
TCBY Enterprises, Inc., through subsidiary companies,
manufactures and sells soft serve frozen yogurt and sorbet,
hardpack frozen yogurt, sorbet, 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.
Annual Meeting
The Annual Meeting of Stockholders of TCBY Enterprises,
Inc., will be held at 10:00 a.m., April 13, 1999, at the
Excelsior Hotel in Little Rock, Arkansas.
Common Stock
The Company's Common Stock is traded on the New York Stock
Exchange under the symbol TBY. The following table sets
forth, for the periods indicated, the high and low composite
sales prices.
<TABLE>
<CAPTION>
Fiscal 1998 High Low
_______________________________________________________________________________
<S> <C> <C>
First Quarter $ 9 7/16 $6
Second Quarter 10 1/8 8 1/2
Third Quarter 9 7/8 5 7/8
Fourth Quarter 7 3/4 5 5/16
Fiscal 1997 High Low
_______________________________________________________________________________
First Quarter $ 4 1/2 $4
Second Quarter 6 4 5/8
Third Quarter 6 15/16 6
Fourth Quarter 7 6 1/16
</TABLE>
As of November 29, 1998, there were 4,467 shareholders of
record of the Company's Common Stock and 27,759,021 shares
issued.
Dividend Policy
The Company will consider adjustments to the dividend rate
after giving consideration to return to stockholders,
profitability expectations, financing and cash needs of the
Company, and other factors. See Note 4 to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
Dividends Per Share 1998 1997
______________________________________________________________________________
<S>
<C> <C>
First Quarter $.05 $.05
Second Quarter .05 .05
Third Quarter .05 .05
Fourth Quarter .05 .05
____ ____
Total $.20 $.20
==== ====
</TABLE>
TEN YEAR SUMMARY OF SELECTED FINANCIAL DATA
TCBY ENTERPRISES, INC.
($000, Except Per Share Amounts)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
________________________________________________
<S> <C> <C> <C> <C> <C>
Sales $ 93,865 $ 90,578 $ 82,964 $109,808 $140,445
Franchising revenues 13,114 13,754 12,840 11,762 12,026
Net income (loss) 10,196 8,879 6,548 (21,373) 7,552
Total assets 94,453 99,264 102,468 111,625 142,280
Long-term debt 2,953 6,298 9,469 12,641 15,910
Per share:
Earnings, Basic $ .44 $ .37 $ .26 $(.83) $ .30
Earnings, Diluted .43 .36 .26 (.83) .29
Cash dividends .20 .20 .20 .20 .20
Total stockholders' equity 3.32 3.28 3.22 3.20 4.23
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
__________________________________________________
<S> <C> <C> <C> <C> <C>
Sales $109,525 $107,633 $116,679 $134,832 $131,730
Franchising revenues 10,952 11,063 12,231 16,475 19,593
Net income (loss) 6,409 5,073 8,017 19,950 29,493
Total assets 128,691 131,925 134,806 141,537 133,559
Long-term debt 11,487 14,799 17,330 19,696 21,258
Per share:
Earnings, Basic $ .25 $ .20 $ .31 $ . 75 $1.11
Earnings, Diluted .25 .20 .31 .75 1.10
Cash dividends .20 .20 .35 .18 .07
Total stockholders' equity 4.13 4.09 4.10 4.15 3.69
</TABLE>
NOTE: The 1995 results included pre-tax charges of $27.6
million, or $.72 per share net of taxes, due to the adoption
of new accounting standards, and an additional $1.4 million
dollars, or $.04 per share net of taxes, resulting from a
restructuring of the Company during the fourth quarter of
1995.
EXHIBIT 21
<TABLE>
<CAPTION>
The subsidiaries of TCBY Enterprises, Inc. and their
respective states of incorporation are as follows:
<S> <C>
American Best Care, Inc. Arkansas
Americana Foods General Partner, Inc. Arkansas
Americana Foods Limited Partnership Texas
CMI Property Holdings, Inc. Arkansas
FSL, Inc. Nevada
Riverport Equipment and
Distribution Company Arkansas
TCBY International, Inc. Arkansas
TCBY International Foreign Sales
Corporation Virgin Islands
TCBY of Georgia, Inc. Georgia
TCBY of Texas, Inc. Texas
TCBY Systems, Inc. Arkansas
TCBY of Aruba, Inc. Arkansas
TCBY of Mexico, Inc. Arkansas
TCBY of Saudi Arabia, Inc Arkansas
TCBY of Qatar, Inc. Arkansas
TCBY United Kingdom, Inc. Arkansas
TCBY of the Philippines, Inc. Arkansas
TCBY of Israel, Inc. Arkansas
TCBY of Portugal, Inc. Arkansas
TCBY of The Netherlands, Inc. Arkansas
Juice Works Development, Inc. Arkansas
TCBY of Australia, Inc. Arkansas
TCBY of Jordan, Inc. Arkansas
TCBY of Turkey, Inc. Arkansas
TCBY of Bolivia, Inc. Arkansas
TCBY of Colombia, Inc. Arkansas
TCBY of Ireland, Inc. Arkansas
TCBY of South Africa, Inc. Arkansas
For Future Use VIII, Inc. Arkansas
</TABLE>
Each of these subsidiaries does business under its
respective corporate name. All of the outstanding capital
stock of each subsidiary is owned by TCBY Enterprises, Inc.
except Americana Foods Limited Partnership which is 99%
owned by FSL, Inc. and 1% owned by Americana Foods General
Partner, Inc.; FSL, Inc. is wholly owned by Americana Foods
General Partner, Inc. TCBY International, Inc. is wholly
owned by TCBY Systems, Inc.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of TCBY Enterprises, Inc. of our report
dated January 14, 1999, included in the 1998 Annual Report
to Stockholders of TCBY Enterprises, Inc.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-37484) pertaining to
the 1989 Stock Option Plan of TCBY Enterprises, Inc. and
Form S-8 (No. 333-30827) pertaining to the 1992 Employee
Stock Option Plan of TCBY Enterprises, Inc. of our
report dated January 14, 1999, with respect to the
consolidated financial statements incorporated herein by
reference in this Annual Report (Form 10-K) of TCBY
Enterprises, Inc. for the year ended November 29, 1998.
/s/ Ernst & Young LLP
_____________________
Ernst & Young LLP
Little Rock, Arkansas
February 23, 1999
EXHIBIT 24
POWER OF ATTORNEY
_________________
The undersigned, being a director of TCBY ENTERPRISES,
INC., a Delaware corporation (the "Corporation"), does
hereby constitute and appoint FRANK D. HICKINGBOTHAM, HERREN
C. HICKINGBOTHAM and GENE H. WHISENHUNT, with full power to
each of them to act alone, as the true and lawful attorneys
and agents of the undersigned, with full power of
substitution and resubstitution to each of said attorneys,
to execute, file, electronically transmit, or deliver any
and all instruments and to do any and all acts and things
which said attorneys and agents, or any of them, deem
advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934, as amended, and any
requirements of the Securities and Exchange Commission in
respect thereto, relating to annual reports on Form 10-K,
including specifically, but without limitation of the
general authority hereby granted, the power and authority to
sign such person's name in the name and on behalf of the
Corporation to annual reports on Form 10-K or any amendments
or filings supplemental thereto; and the undersigned does
hereby fully ratify and confirm all that said attorneys and
agents, or any of them, or the substitute of any of them,
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
power of attorney on December 18, 1998.
/s/ Frank D. Hickingbotham
__________________________________
Frank D. Hickingbotham
/s/ Herren C. Hickingbotham
__________________________________
Herren C. Hickingbotham
/s/ Marvin D. Loyd
__________________________________
Marvin D. Loyd
/s/ William H. Bowen
__________________________________
William H. Bowen
/s/ Don O. Kirkpatrick
__________________________________
Don O. Kirkpatrick
/s/ Daniel R. Grant
__________________________________
Daniel R. Grant
/s/ Hugh Hart Pollard
__________________________________
Hugh Hart Pollard
/s/ F. Todd Hickingbotham
__________________________________
F. Todd Hickingbotham
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF NOVEMBER
29, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED NOVEMBER 29, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-29-1998
<PERIOD-END> NOV-29-1998
<CASH> 16,924,143
<SECURITIES> 2,967,135
<RECEIVABLES> 11,774,162
<ALLOWANCES> 439,223
<INVENTORY> 12,554,875
<CURRENT-ASSETS> 46,833,211
<PP&E> 75,538,287
<DEPRECIATION> 39,546,174
<TOTAL-ASSETS> 94,452,884
<CURRENT-LIABILITIES> 11,984,249
<BONDS> 2,952,634
<COMMON> 2,775,902
0
0
<OTHER-SE> 73,420,252
<TOTAL-LIABILITY-AND-EQUITY> 94,452,884
<SALES> 93,865,413
<TOTAL-REVENUES> 106,979,276
<CGS> 64,098,811
<TOTAL-COSTS> 64,098,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 72,500
<INTEREST-EXPENSE> 545,664
<INCOME-PRETAX> 15,447,896
<INCOME-TAX> 5,252,284
<INCOME-CONTINUING> 10,195,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,195,612
<EPS-PRIMARY> .44
<EPS-DILUTED> .43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF NOVEMBER
30, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 19,693,693
<SECURITIES> 2,406,045
<RECEIVABLES> 10,877,535
<ALLOWANCES> 833,447
<INVENTORY> 10,679,231
<CURRENT-ASSETS> 46,226,230
<PP&E> 80,232,535
<DEPRECIATION> 39,891,253
<TOTAL-ASSETS> 99,264,396
<CURRENT-LIABILITIES> 11,694,008
<BONDS> 6,298,008
<COMMON> 2,709,562
0
0
<OTHER-SE> 74,715,960
<TOTAL-LIABILITY-AND-EQUITY> 99,264,396
<SALES> 90,577,654
<TOTAL-REVENUES> 104,331,460
<CGS> 60,398,466
<TOTAL-COSTS> 60,398,466
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48,705
<INTEREST-EXPENSE> 759,766
<INCOME-PRETAX> 13,556,056
<INCOME-TAX> 4,676,841
<INCOME-CONTINUING> 8,879,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,879,215
<EPS-PRIMARY> .37
<EPS-DILUTED> .36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF NOVEMBER
30, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED NOVEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 14,919,008
<SECURITIES> 4,252,552
<RECEIVABLES> 11,050,465
<ALLOWANCES> 1,187,628
<INVENTORY> 11,321,751
<CURRENT-ASSETS> 44,705,595
<PP&E> 79,034,009
<DEPRECIATION> 35,694,982
<TOTAL-ASSETS> 102,468,447
<CURRENT-LIABILITIES> 10,777,397
<BONDS> 9,469,456
<COMMON> 2,706,235
0
0
<OTHER-SE> 76,514,258
<TOTAL-LIABILITY-AND-EQUITY> 102,468,447
<SALES> 82,964,258
<TOTAL-REVENUES> 95,804,256
<CGS> 53,548,245
<TOTAL-COSTS> 53,548,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 88,205
<INTEREST-EXPENSE> 961,154
<INCOME-PRETAX> 10,009,609
<INCOME-TAX> 3,461,244
<INCOME-CONTINUING> 6,548,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,548,365
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
Exhibit 99(a)
PRESS RELEASE
FOR IMMEDIATE RELEASE
FRIDAY
DECEMBER 18, 1998
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT,
INVESTOR RELATIONS
(501) 688-8229
TCBY DECLARES CASH DIVIDEND
LITTLE ROCK, AR - Friday, December 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 January 8, 1999 to
shareholders of record as of December 29, 1998.
TCBY Enterprises, Inc., through subsidiary companies,
manufactures and sells soft serve frozen yogurt and 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.
Exhibit 99(b)
PRESS RELEASE
FOR IMMEDIATE RELEASE
THURSDAY
JANUARY 14, 1999
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
INVESTOR RELATIONS
TCBY ENTERPRISES, INC.
(501) 688-8229
TCBY ANNOUNCES IMPROVED RESULTS FOR 1998
LITTLE ROCK, AR - (Thursday, January 14, 1999) - TCBY
ENTERPRISES, INC. (NYSE:TBY) today announced net income for
1998 increased to $10,195,612, or $.44 per basic share and
$.43 per diluted share, from $8,879,215, or $.37 per basic
share and $.36 per diluted share, for 1997. Net income for
the fourth quarter of 1998 was $250,989, or $.01 per share
(basic and diluted), compared to $1,177,428, or $.05 per
share (basic and diluted), for the same period of 1997.
These results include a pretax charge of approximately $1
million during the fourth quarter.
Sales and franchising revenues for 1998 increased to
$106,979,276 from $104,331,460 for 1997. Sales and
franchising revenues for the fourth quarter of 1998
increased to $24,004,733 from $20,537,829 for the same
period of 1997. The Company continues to realize sales and
franchising revenue growth from its development of
co-branded locations with other food or petroleum
operations. Almost 400 co-branded and traditional locations
were opened during 1998. 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 approximately $1 million.
The Company's earnings were unfavorably impacted by
approximately $750,000 (pretax) in 1998 as a result of
record high milk prices as the Company absorbed incremental
milk costs related to TCBY(registered) products. Because
milk prices continue to increase, the Company is evaluating
its options for 1999 to reduce the financial impact of the
increases. In addition, the Company reached an agreement
regarding claims by a private label customer alleging
damages due to production defects, although it had
meritorious defenses to and disagreed with the customer's
claims. A portion of the claim will be paid by insurance;
however, the Company recorded a pretax charge of
approximately $1 million during the fourth quarter in
addition to previously recorded accruals to resolve this
issue. Settlement was agreed to by the Company to avoid the
uncertainty of the outcome, the cost of litigation, and the
disruption to the Company.
There were 2,960 TCBY(registered) and Juice
Works(registered) locations at the conclusion of 1998. In
addition, there are several thousand retail points of sale
for TCBY(registered) products both domestically and abroad.
As of November 29, 1998, there were over 300 locations under
agreement for development, many of which are expected to
open in 1999.
Frank D. Hickingbotham, Chairman and Chief Executive
Officer, said, "Our 1998 results showed continued increases
in revenues and net income, even though we encountered
record high milk prices, continued economic challenges in
international markets, and a decline in the number of
traditional franchised stores, thus impacting other progress
that has been made. During 1999, the Company plans to
continue the development of locations in conjunction with
national and regional petroleum companies and to expand
co-branded locations with other national food companies.
Private label manufacturing sales are expected to continue
to grow both through existing and new customers. The
Company will focus on the performance of the traditional
franchised locations and pursue steps to improve the
financial results of these stores. While the Company
expects its results from operations to improve in 1999, such
results will depend upon the Company's ability to minimize
the impact of increases in milk costs and to improve the
performance of traditional TCBY(registered) stores."
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. The Company completed this
in May, 1998. In addition, in December, 1997, the Board
authorized the purchase of an additional 2 million shares.
To date, the Company has purchased over 450,000 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 on 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 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 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 YearEnded
Nov. 29 Nov. 30 Nov. 29 Nov. 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating Results
Sales & Franchising Revenue $ 24,005 $ 20,538 $106,979 $104,331
Net Income $ 251 $ 1,177 $ 10,196 $ 8,879
Basic Earnings Per Share $ .01 $ .05 $ .44 $ .37
Average Shares Outstanding 23,055 23,743 23,231 24,062
Diluted Earnings Per Share $ .01 $ .05 $ .43 $ .36
Diluted Shares 23,477 24,195 23,918 24,340
Dividends Paid Per Share $ .05 $ .05 $ .20 $ .20
</TABLE>
<TABLE>
<CAPTION>
November 29 November 30
1998 1997
<S> <C> <C>
Financial Position
Current Assets $ 46,833 $ 46,226
Current Liabilities $ 11,984 $ 11,694
Property, Plant & Equipment, net $ 35,992 $ 40,341
Total Assets $ 94,453 $ 99,264
Long-term Debt, less current portion $ 2,953 $ 6,298
Stockholders' Equity $107,626 $ 97,687
Less Treasury Stock $(31,430) $(20,262)
Total Stockholders' Equity $ 76,196 $ 77,426
</TABLE>
