PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 30, 1999
_____________
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to
_____________
Commission file number 1-10046
______________
TCBY ENTERPRISES, INC.
______________________________________________________
(Exact name or registrant as specified in its charter)
Delaware 71-0552115
________________________________________________________
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 West Capitol Avenue Little Rock, Arkansas 72201
_________________________________________________________
(Address of principal executive offices) (Zip Code)
(501) 688-8229
____________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 of the
Securities Exchange Act of 1934 during the preceding 12
months, (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
On June 30, 1999 there were 22,914,925 shares of the
registrant's common stock outstanding.
Sequential Page No. 1
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
____
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
May 30, 1999 and November 29, 1998 3
Consolidated Statements of Operations
Quarter ended and six months ended
May 30, 1999 and May 31, 1998 5
Consolidated Statements of Cash Flows
Six months ended May 30, 1999 and May
31, 1998 6
Notes to Consolidated Financial Statements
May 30, 1999 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
Sequential Page No. 2
PART 1
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
TCBY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
May 30, November 29,
1999 1998
________________________________
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,685,546 $ 16,924,143
Short-term investments 2,318,610 2,967,135
Receivables:
Trade accounts 15,098,696 10,078,733
Notes 1,610,100 1,695,429
Allowance for doubtful accounts
and impaired notes (513,193) (439,223)
_____________ _____________
16,195,603 11,334,939
Refundable income taxes - 156,951
Deferred income taxes 863,207 1,204,197
Inventories 15,018,345 12,554,875
Prepaid expenses and other assets 2,265,749 1,540,971
Assets held for sale 150,000 150,000
_____________ _____________
TOTAL CURRENT ASSETS 46,497,060 46,833,211
PROPERTY, PLANT, AND EQUIPMENT:
Land 2,534,307 2,534,307
Buildings 23,258,182 22,763,194
Furniture, vehicles, and equipment 46,948,170 46,637,567
Leasehold improvements 3,611,957 3,603,219
Construction in progress 264,321 -
Allowance for depreciation (41,494,443) (39,546,174)
_____________ _____________
NET PROPERTY, PLANT, AND EQUIPMENT 35,122,494 35,992,113
OTHER ASSETS:
Notes receivable, less current portion
(less allowance for doubtful notes of
$7,807,233 in 1999 and $8,029,658
in 1998) 4,112,088 4,525,970
Intangibles (less amortization of
$1,952,555 in 1999 and $2,226,511
in 1998) 4,149,861 4,250,684
Other 5,194,457 2,850,906
_____________ _____________
TOTAL OTHER ASSETS 13,456,406 11,627,560
_____________ _____________
TOTAL ASSETS $ 95,075,960 $ 94,452,884
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 3
TCBY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
May 30, November 29,
1999 1998
________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,334,381 $ 2,130,430
Accrued expenses 4,293,255 6,682,371
Income taxes payable 1,175,079 -
Current portion of long-term debt 3,171,448 3,171,448
_____________ _____________
TOTAL CURRENT LIABILITIES 12,974,163 11,984,249
LONG-TERM DEBT, less current portion 1,357,954 2,952,634
DEFERRED INCOME TAXES 3,308,447 3,319,847
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per share;
authorized 2,000,000 shares - -
Common stock, par value $.10 per share;
authorized 50,000,000 shares;
issued - 1999 - 27,847,646;
1998 - 27,759,021 2,784,765 2,775,902
Additional paid-in capital 30,564,409 30,098,602
Retained earnings 76,238,399 74,751,431
_____________ _____________
109,587,573 107,625,935
Less treasury stock, at cost (4,951,471
shares in 1999 and 4,839,952 in 1998) (32,152,177) (31,429,781)
_____________ _____________
TOTAL STOCKHOLDERS' EQUITY 77,435,396 76,196,154
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 95,075,960 $ 94,452,884
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 4
TCBY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
May 30, May 31, May 30, May 31,
1999 1998 1999 1998
________________________________________________________________
<S> <C> <C> <C> <C>
Sales $27,711,655 $27,083,951 $ 45,987,939 $ 43,812,652
Cost of sales 18,944,183 18,139,008 32,193,074 29,431,523
____________ ____________ _____________ _____________
GROSS PROFIT 8,767,472 8,944,943 13,794,865 14,381,129
Franchising revenues:
Initial franchise and
license fees 593,375 675,875 1,451,956 1,360,855
Royalty income 2,703,519 3,137,764 4,574,657 4,932,608
____________ ____________ _____________ _____________
3,296,894 3,813,639 6,026,613 6,293,463
____________ ____________ _____________ _____________
12,064,366 12,758,582 19,821,478 20,674,592
Selling, general, and
administrative
expenses 7,392,029 7,619,643 14,442,368 14,623,444
____________ ____________ _____________ _____________
INCOME FROM
OPERATIONS 4,672,337 5,138,939 5,379,110 6,051,148
Other income (expense):
Interest expense (77,405) (141,699) (182,815) (305,315)
Interest income 181,427 263,233 432,167 617,767
Other income 109,219 66,128 177,980 103,907
____________ ____________ _____________ _____________
213,241 187,662 427,332 416,359
____________ ____________ _____________ _____________
INCOME BEFORE
INCOME TAXES 4,885,578 5,326,601 5,806,442 6,467,507
Income tax expense 1,709,955 1,799,633 2,032,256 2,198,951
____________ ____________ _____________ _____________
NET INCOME $ 3,175,623 $ 3,526,968 $ 3,774,186 $ 4,268,556
============ ============ ============= =============
Earnings per share:
Basic $ 0.14 $ 0.15 $ 0.17 $ 0.18
============ ============ ============= =============
Diluted $ 0.14 $ 0.15 $ 0.16 $ 0.18
============ ============ ============= =============
Weighted Average Shares
Outstanding:
Basic 22,845,227 23,270,022 22,871,881 23,369,225
============ ============ ============= =============
Diluted 23,228,083 24,158,257 23,278,222 24,161,460
============ ============ ============= =============
Cash Dividends Paid Per
Share $ 0.05 $ 0.05 $ 0.10 $ 0.10
============ ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page no. 5
TCBY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
May 30, May 31,
1999 1998
_______________________________
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,774,186 $ 4,268,556
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 1,999,808 2,121,816
Amortization of intangibles 126,091 130,615
Provision for doubtful accounts and
impaired notes 43,106 31,998
Deferred income taxes (benefits) 329,590 (171,437)
Tax benefit from stock options - 760,000
Loss on sales of property and equipment - 2,579
Changes in operating assets and liabilities:
Receivables (4,993,832) (6,154,006)
Inventories (2,463,470) (5,124,607)
Prepaid expenses (724,778) (166,866)
Intangibles and other assets (2,418,794) 607,651
Accounts payable and accrued expenses (185,165) 1,926,463
Income taxes 1,332,030 282,969
_____________ _____________
NET CASH USED IN OPERATING ACTIVITIES (3,181,228) (1,484,269)
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,127,090) (1,041,715)
Proceeds from sales of property and equipment 46,876 59,411
Origination of notes receivable (106,166) (206,256)
Principal collected on notes receivable 610,110 886,609
Purchases of short-term investments (665,433) (274,741)
Proceeds from maturity of short-term
investments 1,313,958 337,014
_____________ _____________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 72,255 (239,678)
FINANCING ACTIVITIES
Proceeds from sale of common stock 474,670 3,244,831
Dividends paid (2,287,218) (2,349,886)
Purchases of treasury stock (722,396) (8,675,444)
Principal payments of long-term debt (1,594,680) (1,669,288)
_____________ _____________
NET CASH USED IN FINANCING ACTIVITIES (4,129,624) (9,449,787)
_____________ _____________
DECREASE IN CASH AND
CASH EQUIVALENTS (7,238,597) (11,173,734)
Cash and cash equivalents at beginning
of period 16,924,143 19,693,693
_____________ _____________
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 9,685,546 $ 8,519,959
============= =============
</TABLE>
See notes to consolidated financial statements.
Sequential Page No. 6
TCBY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
May 30, 1999
NOTE A -- FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
quarter and six months ended May 30, 1999 are not
necessarily indicative of the results that may be expected
for the year ended November 28, 1999. For further
information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended November 29, 1998.
NOTE B -- NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income."
SFAS No. 130, which is effective for fiscal 1999,
establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive
income is defined as the change in equity of a business
enterprise during a period from transactions and other
events and circumstances from non-owner sources.
Comprehensive income for the quarters and six months ended
May 30, 1999 and May 31, 1998 was equal to net income as
reported.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is
effective for years beginning after June 15, 2000 and
requires that all derivatives be recognized on the balance
sheet at fair value. SFAS No. 133 establishes "special
accounting" for fair value hedges, cash flow hedges, and
hedges of foreign currency exposures of net investments in
foreign operations. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is
a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against
the change in fair value of the assets, liabilities, or firm
commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in
earnings. The ineffective portions of a derivative's change
in fair value will be immediately recognized in earnings.
The adoption of SFAS No. 133 is not expected to have a
material impact on the Company's financial condition or
results of operations.
Sequential Page No. 7
NOTE C -- EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
May 30, May 31, May 30, May 31,
1999 1998 1999 1998
___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 3,175,623 $ 3,526,968 $ 3,774,186 $ 4,268,556
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings
per share -- weighted-average
shares 22,845,227 23,270,022 22,871,881 23,369,225
Potential dilutive effect of
employee stock options 382,856 888,235 406,341 792,235
___________ ___________ ___________ ___________
Denominator for diluted earnings
per share -- weighted-average
shares and assumed conversions 23,228,083 24,158,257 23,278,222 24,161,460
=========== =========== =========== ===========
Basic earnings per share $0.14 $0.15 $0.17 $0.18
=========== =========== =========== ===========
Diluted earnings per share $0.14 $0.15 $0.16 $0.18
=========== =========== =========== ===========
Anti-dilutive employee stock
options excluded 439,550 68,181 439,550 64,321
=========== =========== =========== ===========
</TABLE>
NOTE D -- INVENTORIES
<TABLE>
<CAPTION>
May 30, November 29,
1999 1998
_____________ _____________
<S> <C> <C>
Manufacturing materials and
supplies $ 6,715,960 $ 5,088,456
Finished yogurt and other
food products 5,991,619 4,526,777
Equipment and other products 2,310,766 2,939,642
_____________ _____________
$ 15,018,345 $ 12,554,875
============= =============
</TABLE>
Sequential Page No. 8
NOTE E -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
May 30, November 29,
1999 1998
____________ ____________
<S> <C> <C>
Rent $ 562,772 $ 602,272
Compensation 1,571,563 2,234,893
Other 2,158,920 3,845,206
____________ ____________
$ 4,293,255 $ 6,682,371
============ ============
</TABLE>
NOTE F -- CONTINGENCIES
There is no material litigation pending against the Company.
A small number of legal and administrative proceedings are
pending against the Company which are incidental to the
business of the Company. The ultimate legal and financial
liability of the Company in connection with such proceedings
and that discussed above cannot be estimated with certainty,
but the Company believes, based upon its examination of
these matters, its experience to date, and its discussions
with legal counsel, that resolution of these proceedings
will have no material adverse effect upon the Company's
financial condition, either individually or in the
aggregate; of course, any substantial loss pursuant to any
litigation might have a material adverse impact upon results
of operations in the quarter or year in which it were to be
incurred, but the Company cannot estimate the range of any
reasonably possible loss.
Sequential Page No. 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's sales for the second quarter and first six
months of 1999 increased two percent and five percent,
respectively, over the same periods in 1998. This increase
results from improved sales of specialty products as
described below, which offset decreases of product and
equipment sales to TCBY(registered) locations. The
following table sets forth sales by category within the
Company's primary segments (food products and equipment) of
operation:
<TABLE>
<CAPTION>
(dollars in thousands)
Quarter Ended Six Months Ended
May 30, 1999 May 31, 1998 May 30, 1999 May 31, 1998
________________ ________________ _______________ _______________
Sales % Sales % Sales % Sales %
_______ ____ _______ ____ _______ ____ _______ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Food Products:
TCBY(registered)
Frozen Product
sales for
distribution to
TCBY(registered)
locations $13,987 50% $14,421 53% $22,298 48% $22,808 52%
Sales of specialty
products 9,483 34% 7,599 28% 16,067 35% 12,148 28%
_______ ____ _______ ____ _______ ____ _______ ____
23,470 84% 22,020 81% 38,365 83% 34,956 80%
Equipment:
Sales by the
Company's equip-
ment distributor 3,811 14% 4,659 17% 6,789 15% 8,067 18%
Other 431 2% 405 2% 834 2% 790 2%
_______ ____ _______ ____ _______ ____ _______ ____
Total Sales $27,712 100% $27,084 100% $45,988 100% $43,813 100%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
Sales from the Company's food products segment include (i)
wholesale sales of frozen yogurt and ice cream products to
AmeriServe Food Distribution Inc. (formerly ProSource
Distribution Services) and other foodservice distributors,
which distribute frozen yogurt, ice cream, and other
products to TCBY(registered) stores and non-traditional
locations, and sales to international master franchisees of
frozen products and proprietary ingredients for the
manufacture of frozen products in the countries that produce
locally, and (ii) sales of TCBY(registered) frozen packaged
products and other specialty dairy food products to
customers including supermarkets, convenience stores,
dairies, foodservice distributors, club stores, and private
label suppliers.
Wholesale sales of frozen yogurt and ice cream products to
TCBY(registered) locations decreased three percent and two
percent during the second quarter and first six months of
1999, due to a reduction in the number of domestic
traditional TCBY(registered) stores and a decline in yogurt
purchases by existing TCBY(registered) locations. These
decreases were partially offset by purchases of frozen
Sequential Page No. 10
products by new TCBY(registered) non-traditional locations.
The Company continues to develop additional TCBY(registered)
non-traditional locations with approximately 300
TCBY(registered) locations under agreement for development
as of May 30, 1999. Most of the TCBY(registered) locations
under development will be co-branded locations with
petroleum or other food operations. The Company continues
its effort to improve sales in existing units. These
efforts include working with a nationally known marketing
firm to develop and implement neighborhood store marketing
programs for franchisees willing to participate. Many of
these plans were executed beginning in May. In addition,
television, radio and billboard promotions began in certain
markets in late May and will run through July. These
efforts have resulted in improved sales trends in some of
those markets, but overall sales remain lower than the prior
year. The Company also continues its focus on the
operational standards of the TCBY(registered) locations
through increased store visits by Company associates or
representatives. The Company is working with a limited
number of franchisees who desire to relocate marginal stores
or pursue co-branding to provide additional daypart sales.
These efforts are intended to improve our customers'
experience in the stores and ultimately sales volume in the
TCBY(registered) locations. These measures are being
evaluated on a continual basis and may change if the Company
determines they are not working or are inappropriate. In
addition, barriers may be encountered in implementing some
of the above strategies, including financial capability and
willingness of existing franchisees to participate, lack of
availability of co-branded partners due to existing
encroachment problems within their chains, size of
TCBY(registered) store, lease restrictions, and limitations
of corporate resources. Even with the successful
implementation of these programs, store sales may decline
and store closings may continue.
The following table sets forth TCBY and Juice Works location
activity for the second quarter and first six months of 1999
and 1998.
<TABLE>
<CAPTION>
NON-
FRANCHISED COMPANY INTERNATIONAL TRADITIONAL TOTAL
STORES STORES LOCATIONS LOCATIONS LOCATIONS
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
___________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the second quarter:
Locations open at
beginning of period 1,001 1,095 2 2 219 230 1,750 1,528 2,972 2,855
Opened 10 15 - - 13 9 90 98 113 122
Closed (25) (19) - - (2) (22) (23) (21) (50) (62)
Locations transferred - - - - - - - - - -
___________________________________________________________________
Locations open at
end of period 986 1,091 2 2 230 217 1,817 1,605 3,035 2,915
===================================================================
</TABLE>
Sequential Page No. 11
<TABLE>
<CAPTION>
NON-
FRANCHISED COMPANY INTERNATIONAL TRADITIONAL TOTAL
STORES STORES LOCATIONS LOCATIONS LOCATIONS
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
___________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the first six months:
Locations open at
beginning of period 1,031 1,110 2 2 216 229 1,711 1,467 2,960 2,808
Opened 18 20 - - 19 13 167 176 204 209
Closed (63) (39) - - (5) (25) (61) (38) (129) (102)
Locations transferred - - - - - - - - - -
___________________________________________________________________
Locations open at
end of period 986 1,091 2 2 230 217 1,817 1,605 3,035 2,915
===================================================================
</TABLE>
During the first six months of 1999, significantly more
TCBY(registered) non-traditional locations than traditional
locations opened. The Company believes this trend will
continue during the remainder of 1999. The non-traditional
locations include sites at airports, travel plazas,
colleges, hospitals, theme parks, stadiums and locations in
conjunction with petroleum stores and other food concepts
(co-branded locations). The rate of development of
non-traditional locations is partially determined by
co-branding partners, who must approve each location in a
process not controlled by the Company, and in some cases,
delays have been experienced while the Company and the
prospective TCBY franchisee awaited such approval; new
development may also be slowed when existing
TCBY(registered) franchisees express their concerns
regarding new TCBY(registered) locations; and the desire of
the Company to maintain good relationships with all
TCBY(registered) franchisees in the markets under
consideration results in occasional delays in development
while those concerns are addressed. The majority of the 167
non-traditional openings in the first six months of 1999
were TCBY(registered) co-branded locations. During the
first six months of 1999, 61 non-traditional locations were
closed. Most of these locations generally purchased low
volumes of yogurt from the Company. The Company expects
that there may be additional closings of low volume
non-traditional locations as they are not efficient for the
Company to service or the customer to operate. Additional
units may be closed that do not meet the quality standards
established by the Company.
During the first six months of 1999, a total of 63
TCBY(registered) franchised stores were permanently 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, 34 operated
for a portion of the first six months of 1999, with the
remainder having originally closed for relocation in prior
years. Therefore, some stores shown as closed did not make
any contribution to sales during the periods presented.
Included in the franchised store information are 57 and 91
TCBY(registered) stores closed for relocation or for the
season at May 30, 1999 and May 31, 1998, respectively.
Sequential Page No. 12
Sales of specialty products increased 25 percent and 32
percent during the second quarter and first six months of
1999, respectively, as compared to the same periods in 1998.
These increases are attributed primarily to increased sales
of private label products. The Company continues to pursue
private label opportunities to utilize the available
capacity at its manufacturing facility in Dallas. The
Company has capacity available for additional manufacturing
opportunities and the current capacity can be expanded with
reasonable capital investments and staffing increases should
they be warranted.
Sales in the Company's equipment segment include sales from
the distribution of equipment to the foodservice industry.
Sales in the equipment segment decreased 18 percent and 16
percent during the second quarter and first six months of
1999, respectively, compared to the same periods in 1998.
The decreased sales are due to operators of new
non-traditional TCBY(registered) locations electing in some
cases to purchase equipment from other sources.
As a percent of sales, cost of sales for the second quarter
and first six months of 1999 and 1998 for the Company and
its two primary segments are presented below:
<TABLE>
<CAPTION>
Second Quarter First Six Months
______________ ________________
1999 1998 1999 1998
____________________________________________________________
<S> <C> <C> <C> <C>
Food Products Segment 68% 66% 70% 66%
Equipment Segment 78% 75% 76% 77%
Company Total 68% 67% 70% 67%
</TABLE>
The increase in the food products segment cost of sales
percentage is due to a number of factors including sales of
specialty products, which generally have a higher cost of
sales percentage than the other food segment categories,
being a larger component of the food products segment sales
in the second quarter and first six months of 1999 compared
to the same periods in the prior year. (See earlier
discussion related to sales increases.) In addition, dairy
prices, which are a significant portion of the segment's
cost of sales, increased during the first four months of
1999 to record high levels before declining to levels
traditionally experienced in past years. Dairy costs
include the value assigned to milk solids and milk fats
which are two of the components of milk utilized in most
products manufactured and sold by the segment. The cost of
these two components are currently tied to the federal milk
orders system. This market fluctuates based on supply and
demand with prices being variable from month to month. The
price paid for milk is based on the Basic Formula Price
(BFP) plus any applicable surcharge (based on the use of the
milk). Of the price paid for milk, the Butter Fat
Differential (BFD) is the market value assigned to milk fats
(used in butter, cheese, ice cream, etc.), with the
remainder of the milk price being assigned to milk solids.
During the first four months of 1999, the BFP reached
historic levels before falling, while the BFD decreased
during the first six months of 1999 from levels experienced
in late 1998. This resulted in greater cost for milk
solids. The segment's core yogurt products utilize high
Sequential Page No. 13
levels of milk solids, resulting in the higher cost of sales
noted above.
The Company has historically minimized pricing adjustments
to TCBY(registered) franchisees based on short-term changes
in pricing of dairy components, however, due to the record
levels of costs incurred the Company did implement a dairy
surcharge effective March 15 as noted above. This surcharge
was delayed to lessen the impact to franchisees during the
low point of their business seasonality. The Company plans
to discontinue the surcharge during the third quarter,
depending upon milk cost at that time. The surcharge is
expected to offset the increases in dairy costs, however,
further increases in cost or material changes in product mix
may change this outcome.
Early in 1999 the Company purchased BFP milk futures to
reduce its price risk on a portion of its products that will
be sold to TCBY(registered) franchisees during the remainder
of 1999. These contracts were purchased at prices
comparable to dairy cost levels experienced in prior years.
While the contracts protect the Company on the hedged
portion of its milk purchases against increases in milk
prices, it also prevented realization of the full benefits
of decreases in cost of dairy during the second quarter.
The Company was not significantly impacted by dairy prices
for products produced for private label customers as these
higher costs were passed on to the customers.
On March 31, 1999 the U.S. Department of Agriculture (USDA)
released the Federal Milk Marketing Order Reform. The
reform will expand the classes of milk from three to four
and eliminate the basic formula price (BFP). The price of
each class will be determined monthly and is intended to
better reflect the value of milk components (butterfat,
nonfat solids, etc.). The reform is scheduled to be
effective October 1, 1999 but is subject to certain
approvals by producers. According to USDA information, the
reform would not have resulted in significant change in
average milk cost to the Company over the past five years.
However, greater fluctuations in milk cost may be
experienced under the reform should it be implemented in the
future.
Franchising revenues consist of initial franchise and
license fees and royalty income. In the second quarter of
1999, initial franchise and license fees decreased 12
percent and royalty income decreased 14 percent from the
same period in 1998. For the first six months of 1999,
initial franchise and license fees increased seven percent
while royalty income decreased seven percent from the same
period in 1998. The fluctuations in initial franchise and
license fees is related to the timing of international
initial franchise fees. On a year-to-date basis, these fees
slightly exceed the prior year, but receipts were greater in
the first quarter than in the second. The Company has
agreements in approximately 70 countries; therefore, initial
franchise fees for international markets could decline in
future years. The decreases in royalty income are due
primarily to fewer traditional TCBY(registered) stores and
decreased purchases by those locations.
Sequential Page No. 14
Operating expenses decreased three percent in the second
quarter of 1999 and one percent for the first six months of
1999 compared to 1998. The decreases are due to a reduction
in various corporate operating costs. As a percentage of
combined sales and franchising revenues, operating expenses
were 24 percent and 25 percent for the second quarter of
1999 and 1998, respectively. For the first six months of
1999 and 1998, operating expenses as a percentage of
combined sales and franchising revenues were 28 percent and
29 percent, respectively.
In June 1999, the Company's former executive office building
being leased to third parties was sold for cash to the
Chairman and Chief Executive Officer. The sales price
approximated the Company's book value, and exceeded the
current appraised value.
The forward-looking statements included herein are based on
certain assumptions regarding U.S. and foreign economic
conditions, no significant disruptions of business due to
the Year 2000 issue, competition, costs of raw materials,
unit openings and closings, sales volumes per unit, other
manufacturing opportunities, no changes in governmental
regulation of the food industry, and no material event which
would impact the reputation of the Company's manufacturing
facility or the Company's ability to utilize that facility.
Should the Company's performance differ materially from the
assumptions regarding these areas, actual results could vary
significantly from the performance noted in the
forward-looking statements. Thus, the Company cautions
readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated cash from operations
sufficient to meet its normal operating requirements. The
Company's cash and short-term investments decreased approxi-
mately $7.9 million during the first six months of 1999.
This decrease resulted primarily from (i) an increase in
trade accounts receivable and inventory attributed to normal
seasonal increases, (ii) cash dividends, (iii) principal
payments of debt, and (iv) payment of an incentive
allowance. The incentive allowance related to the signing
of a seven-year agreement with a customer that distributes
large quantities of frozen dessert products. The agreement
contains minimum annual volumes and any shortfalls in the
volumes results in payments to the Company including the
unamortized portion of the incentive allowance which was
determined on a per unit basis. The incentive allowance was
recorded in Other Assets and will be amortized as products
are sold to the customer. The Company's foreseeable cash
needs for operations and capital expenditures are expected
to be met through cash flows from operations; however, the
Company has available a $5 million unsecured credit line to
meet seasonal cash needs.
In December, 1997, the Board of Directors of the Company
authorized the repurchase of two million shares of its
outstanding stock. As of May 30, 1999, 564,402 shares have
been purchased under this authorization. During the first
Sequential Page No. 15
six months of 1999, the Company has purchased 111,519 shares
of common stock at a cost of $722,396. All repurchases have
been funded with cash flows from operations. Future
repurchases may be funded with cash flows from operations or
long-term financing.
The following summarizes statistics related to the Company's
financial position:
<TABLE>
<CAPTION>
May 30, November 29,
1999 1998
______________ _____________
<S> <C> <C>
Current Ratio 3.6 to 1.0 3.9 to 1.0
Working Capital (in millions) $33.5 $34.8
Long-Term Debt to Equity Ratio .02 to 1.0 .04 to 1.0
Tangible Net Worth (in millions) $73.3 $71.9
</TABLE>
On June 10, 1999, the Company's Board of Directors declared
a five cents per share dividend payable on July 6, 1999 to
the stockholders of record on June 22, 1999. The Company
will consider adjustments to the dividend rate after giving
consideration to return to stockholders, profitability
expectations and financing needs.
YEAR 2000
The worldwide "Year 2000 problem" has arisen due to the fact
that many computer hardware and software systems along with
components of certain automated equipment utilize only the
last two digits of a date to refer to the year, failing to
distinguish dates within the twentieth century from those of
the twenty-first or other centuries. If not corrected,
these systems could fail or produce erroneous results with
the advent of the twenty-first century.
The Company's primary hardware platform is Year 2000
compliant. The Company has completed a review of its
inventory of personal computers (PC's) and has remediated or
replaced those PC's found not to be compliant.
Additionally, a review of automated equipment other than
computer systems has been performed. Remediation of this
equipment is substantially complete.
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 substantially complete with final
testing to be completed during the third quarter of 1999.
The Company currently estimates the cost to remediate both
its Year 2000 hardware and software issues to be
approximately $250,000.
The Year 2000 issues may have an impact on certain of the
Company's material business partners, potentially causing
disruptions in the supply of raw materials, services and/or
the ability of customers to take delivery of products which
could in turn have a material effect upon the Company's
Sequential Page No. 16
results of operation. The degree of this effect is
uncertain. The Company has developed a structured
methodology for evaluating the Year 2000 readiness of its
material business partners and expects this process to be
completed during the third quarter of 1999. Most of these
business partners indicate they are taking steps they deem
appropriate to address the Year 2000 issue; however, they
will provide no assurances in regard to the global impact of
the Year 2000. In terms of a contingency plan, the Company,
where practical, has identified alternative sources of raw
materials, packaging, and other manufacturing supplies
should the Company's primary vendors experience business
interruptions as a result of the Year 2000 issue. The
Company has no assurance the alternate vendors can meet the
supply needs on a timely basis. The Company will allow
reasonable inventory levels to provide for short-term
disruptions in the supply chain.
The forward-looking statements contained herein with regard
to the timing and overall cost estimates of the Company's
efforts to address the Year 2000 problem are based upon the
Company's experience thus far in this effort. Should the
Company encounter unforeseen difficulties either in the
continuing review of its computerized systems, their
ultimate remediation, or the responses of its business
partners, the actual results could vary significantly from
the estimates contained in these forward-looking statements.
Sequential Page No. 17
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in
interest rates and changes in commodity prices.
The primary commodities purchased by the Company are dairy
products. See earlier discussion for information regarding
the market for dairy products. As part of its risk
management strategy, the Company began purchasing exchange
traded milk future contracts during the first quarter of
1999 to manage its exposure to changes in milk prices. The
milk future contracts obligate the Company to make or
receive a payment equal to the net change in value of the
contract at its maturity. Such contracts are designated as
hedges of the Company's projected purchases, are short-term
in nature to correspond to the projection period, and are
effective in hedging the Company's exposure to changes in
milk prices during the cycle. The Company has hedged
approximately 75% of its projected milk purchases for the
remainder of 1999 for TCBY(registered) branded products.
The Company has not purchased milk future contracts for
private label products.
Milk future contracts are marked to market with unrealized
gains and losses deferred and recognized in earnings when
the contracts close as an adjustment to cost of goods sold
(the deferral accounting method). The Company does not
expect to close any contracts prior to the execution of the
underling purchase transactions, nor have any of the
underlying purchase transactions failed to occur.
This market risk discussion contains forward-looking
statements. Actual results may differ materially from this
discussion based upon general market conditions and changes
in domestic and global financial markets.
Sequential Page No. 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no changes from previously reported litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
a) The Annual Meeting of Shareholders was held April 13,
1999.
c) A total of 22,079,441 shares were present or
represented at the meeting. The first matter voted upon was
the uncontested election of directors. Abstentions and
withheld votes constituted the difference between the total
shares voted for each director and the total shares
represented in person or by proxy. All individuals
nominated to be directors of the Corporation were elected by
more than 95 percent of shares present or represented.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<S> <C>
27(a) Article 5, Financial Data Schedule for the Second
Quarter 1999 Form 10-Q
99(a) Press release, dated April 28, 1999, "TCBY
Announces Agreement for Development in Taiwan"
99(b) Press release, dated June 10, 1999, "TCBY Reports
Operating Results for First Half of 1999; Cash
Dividend Declared"
b) The Company did not file any reports on Form 8-K
during the three periods ended May 30, 1999.
</TABLE>
Sequential Page No. 19
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
TCBY ENTERPRISES, INC.
Date: 07/12/99 /s/ Frank D. Hickingbotham
___________________________
Frank D. Hickingbotham,
Chairman of the Board and
Chief Executive Officer
Date: 07/12/99 /s/ Gene H. Whisenhunt
___________________________
Gene H. Whisenhunt,
Executive Vice President
Chief Financial Officer
Sequential Page No. 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MAY 30,
1999 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
QUARTER ENDED MAY 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-28-1999
<PERIOD-END> MAY-30-1999
<CASH> 9,685,546
<SECURITIES> 2,318,610
<RECEIVABLES> 16,195,603
<ALLOWANCES> 513,193
<INVENTORY> 15,018,345
<CURRENT-ASSETS> 46,497,060
<PP&E> 76,616,937
<DEPRECIATION> 41,494,443
<TOTAL-ASSETS> 95,075,960
<CURRENT-LIABILITIES> 12,974,163
<BONDS> 1,357,954
<COMMON> 2,784,765
0
0
<OTHER-SE> 74,650,631
<TOTAL-LIABILITY-AND-EQUITY> 95,075,960
<SALES> 27,711,655
<TOTAL-REVENUES> 31,008,549
<CGS> 18,944,183
<TOTAL-COSTS> 18,944,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,422
<INTEREST-EXPENSE> 77,405
<INCOME-PRETAX> 4,885,578
<INCOME-TAX> 1,709,955
<INCOME-CONTINUING> 3,175,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,175,623
<EPS-BASIC> .14
<EPS-DILUTED> .14
</TABLE>
Exhibit 99(a)
PRESS RELEASE
FOR IMMEDIATE RELEASE
Thursday
May 6, 1999
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
CORPORATE COMMUNICATIONS
TCBY ENTERPRISES, INC.
(501) 688-8229
TCBY ANNOUNCES AGREEMENT FOR
DEVELOPMENT IN TAIWAN
LITTLE ROCK, AR - (May 6, 1999) - TCBY ENTERPRISES, INC.
(NYSE:TBY) today announced the recent signing of a Master
Franchise Agreement for development in Taiwan. The
franchisees are Gary Kei-Wei Yang, Elaine Yi-Lien Yang, and
Frank Yang.
Development will include both stores and retail distribution
of TCBY products. Two stores are scheduled to be open
within 12 months with the initial store to open in Taipei in
June. Retail distribution will include both novelty and
hardpack products and is scheduled to begin in 2001.
"We are very excited to announce this new development in
Taiwan," said Herren Hickingbotham, President TCBY
Enterprises, Inc. "We have development in many other Asian
countries, and look forward to extending the product and
brand to Taiwan. We expect TCBY(Registered) products to
be very popular with Taiwanese consumers."
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.
Exhibit 99(b)
PRESS RELEASE
FOR IMMEDIATE RELEASE
Thursday
June 10, 1999
CONTACT PERSON: STACY DUCKETT, VICE PRESIDENT
CORPORATE COMMUNICATIONS
(501) 688-8229
TCBY REPORTS OPERATING RESULTS FOR FIRST HALF OF 1999
Cash Dividend Declared
LITTLE ROCK, AR - (Thursday) June 10, 1999 - TCBY
ENTERPRISES, INC. (NYSE:TBY) today announced net income for
the first six months of 1999 was $3,774,186, or $.17 per
basic share and $.16 per diluted share, as compared to
$4,268,556, or $.18 per share (basic and diluted), for the
same period in 1998. Net income for the second quarter of
1999 was $3,175,623, or $.14 per share (basic and diluted),
as compared to $3,526,968, or $.15 per share (basic and
diluted), for the same period in 1998.
Sales and franchising revenues for the first half of 1999
were $52,014,552 as compared to $50,106,115 in 1998. Sales
and franchising revenues for the second quarter of 1999 were
$31,008,549 as compared to $30,897,590 last year. The
Company experienced increased sales and franchising revenues
from its continued development of co-branded locations and
expanded manufacturing of private label products. These
increases were offset by a decline in the sales of frozen
dessert products by existing TCBY locations.
During the quarter, the Company opened its 3000th location,
ending the quarter with 3,035 "TCBY"(Registered) and Juice
Works (Registered) locations, as well as several thousand
retail points-of-sale for "TCBY"(Registered) products worldwide.
The Company has development agreements in over 70 foreign
countries. In addition, there are approximately 300 locations
under agreement for development in the United States. Most
of the "TCBY" (Registered) locations under development will be
co-branded locations with petroleum or other food companies. The
Company continues to develop Juice Works (Registered) locations,
in airports, travel plazas, and mall food courts with Host
Marriott Services.
"Revenues continue to increase from the opening of
co-branded locations and increased manufacturing for private
label customers," said Frank D. Hickingbotham, Chairman and
CEO. "We continue to focus on improvement of sales in
existing TCBY(Registered) locations. Our 1999 media campaign
began running in 26 markets across the country in late May,
and early results indicate improved sales in those markets.
We will continue to pursue the growth opportunities afforded
us through the development of new co-branded locations and
private label manufacturing."
The Board of Directors of the Company declared a $.05 per
share cash dividend. This dividend is payable on July 6,
1999, to shareholders of record as of June 22, 1999.
The Board of Directors previously authorized the repurchase
of up to two million shares of the Company's outstanding
common stock. To date, the Company has purchased
approximately 565,000 shares under this authorization. All
purchases have been made utilizing the Company's cash from
operations.
The forward-looking statements contained in this release are
based upon certain assumptions regarding U. S. and foreign
economic conditions, no significant disruptions of business
due to the Year 2000 issue, competition, cost of raw
materials (as previously announced, dairy prices have been
at historically high levels until recently), unit openings
and closings, sales volumes per unit, other manufacturing
opportunities, no changes in governmental regulation of the
food industry, and no material event which would impact the
reputation of the Company's manufacturing facility or the
Company's ability to utilize that facility. Should the
Company's performance differ materially on the assumptions
regarding these areas, actual results could vary
significantly from the performance noted in the
forward-looking statements. Thus, the Company cautions
readers not to place undue reliance on any forward-looking
statements, which speak as of the date made.
TCBY Enterprises, Inc., through subsidiary companies,
manufactures and sells soft serve frozen yogurt and sorbet,
hardpack frozen yogurt and ice cream, and frozen novelty
products, and markets foodservice equipment. The Company,
through subsidiaries, develops locations and products under
the "TCBY"(Registered) and Juice Works(Registered) brands.
TCBY Enterprises, Inc.
Selected Financial Highlights
($000, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
May 30 May 31 May 30 May 31
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operating Results
Sales & Franchising Revenue $ 31,009 $ 30,898 $ 52,015 $ 50,106
Net Income $ 3,176 $ 3,527 $ 3,774 $ 4,269
Basic Earnings Per Share $ .14 $ .15 $ .17 $ .18
Average Shares Outstanding 22,845 23,270 22,872 23,369
Diluted Earnings Per Share $ .14 $ .15 $ .16 $ .18
Diluted Shares 23,228 24,158 23,278 24,161
Dividends Paid Per Share $ .05 $ .05 $ .10 $ .10
</TABLE>
<TABLE>
<CAPTION>
May 30 November 29
1999 1998
<S> <C> <C>
Financial Position
Current Assets $ 46,497 $ 46,833
Current Liabilities $ 12,974 $ 11,984
Property, Plant & Equipment, net $ 35,122 $ 35,992
Total Assets $ 95,076 $ 94,453
Long-term Debt, less current portion $ 1,358 $ 2,953
Stockholders' Equity $109,588 $107,626
Less Treasury Stock $(32,152) $(31,430)
Total Stockholders' Equity $ 77,435 $ 76,196
</TABLE>
