UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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: January 2, 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: 333-45179
MRS. FIELDS' ORIGINAL COOKIES, INC.
(Exact name of registrant specified in its charter)
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DELAWARE 87-0552899
- --------------------------------------------------- --------------------------------------------------
(State or other jurisdiction of incorporation or (IRS employer identification no.)
organization)
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121-7050
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(Address of principal executive offices) (Zip Code)
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(801) 736-5600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether 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 (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.
X yes no
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 Company had 400 shares of common stock outstanding at March 31,
1999.
Documents incorporated by reference: NONE
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MRS. FIELDS' ORIGINAL COOKIES, INC.
TABLE OF CONTENTS
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PART I.
Item 1. Business........................................................................................3
Item 2. Properties......................................................................................12
Item 3. Legal Proceedings...............................................................................12
Item 4. Submission of Matters to a Vote of Security Holders.............................................12
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...........................13
Item 6. Selected Financial Data.........................................................................13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................25
Item 8. Financial Statements and Supplementary Data.....................................................26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............67
PART III.
Item 10. Directors and Executive Officers of the Registrant..............................................67
Item 11. Executive Compensation..........................................................................69
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................71
Item 13. Certain Relationships and Related Transactions...................................................72
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................74
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PART I
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements based on our
current expectations and projections about future events, developed from the
information currently available to us. The forward-looking statements include,
among other things, our expectations and estimates about Mrs. Fields' Original
Cookies, Inc. ("Mrs. Fields) future financial performance, including growth in
net sales and earnings, cash flows from operations, capital expenditures, the
ability to refinance indebtedness, and the sale of assets.
These forward-looking statements are subject to risks, uncertainties
and assumptions, including the following:
o Our ability to combine the businesses of companies acquired during the year
with Mrs. Fields and to realize the expected benefits and cost savings from
our acquisitions;
o Performance by franchisees and licensees;
o Difficulties or delays in developing and introducing anticipated new
products or failure of customers to accept new product offerings;
o Changes in consumer preferences and our ability to adequately anticipate
such changes;
o The seasonal nature of our operations;
o Changes in general economic and business conditions;
o Actions by competitors, including new product offerings and marketing and
promotional successes;
o Claims which might be made against Mrs. Fields, including product liability
claims;
o Changes in business strategy, new product lines, changes in raw ingredient
and employee labor costs;
o Changes in our relationships with our franchisees and licensees;
o Changes in mall customer traffic and
o The inability of our vendors, service providers and financial institutions
to resolve Year 2000 issues in a timely manner.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report may not occur.
Item 1. Business
HISTORY
Mrs. Fields' Original Cookies, Inc. was formed in September 1996 in
connection with the acquisitions of Mrs. Fields, Inc., The Original Cookie
Company, Inc. ("Original Cookie Company") and Hot Sam's Inc,. ("Hot Sam") by
Mrs. Fields' Holding Company, Inc. ("Mrs. Fields' Holding"), a subsidiary of
Capricorn Investors II, L.P. ("Capricorn"). Capricorn retained Mr. Hodges as
Chief Executive Officer of Mrs. Fields and as of January 2, 1999, Capricorn had
invested more than $28 million in Mrs. Fields through Mrs. Fields' Holding.
In November 1997, Mrs. Fields received as a contribution from Mrs. Fields'
Holding, all of the common stock of The Mrs. Fields' Brand, Inc. ("Mrs. Fields'
Brand"). On the same date Mrs. Fields' Holding also contributed the business of
Mrs. Fields' Pretzel Concepts and 56% of the shares of common stock of Pretzel
Time, Inc. ("Pretzel Time"). In January, June and December 1998, Mrs. Fields
acquired an additional 4%, 10% and the final 30%, respectively, of Pretzel
Time's common stock.
In August 1998, Mrs. Fields consummated an offering of 10 1/8% Series C
Senior Notes due 2004 resulting in net proceeds of $35.4 million and received a
capital contribution from Mrs. Fields' Holding of $29.1 million, which were all
of the net proceeds of a concurrent offering of notes by Mrs. Fields' Holding.
Mrs. Fields used the proceeds from the offering, the capital contribution and
other available cash to:
o finance the acquisition of Cookies USA, Inc., the parent of Great American
Cookie Company, Inc. ("Great American")
o finance the acquisition of the stock of two Great American franchisees, Deblan
and Chocolate Chip
o finance a tender offer and consent solicitation for all the outstanding $40
million in total principal amount of Great American's 10 7/8% Senior Secured
Notes due 2001
In September 1998, Mrs. Fields, in connection with the purchase of
Great American, purchased eight additional Great American franchised stores
("Karp") for $1.9 million.
In October 1998, Mrs. Fields purchased all the retail cookie and
related business and operations of eleven Great American franchised stores
("Cookie Conglomerate") for $2.8 million.
In November 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. ("Pretzelmaker") for approximately $5.4
million and assumed indebtedness of approximately $1.6 million.
GENERAL
Today, Mrs. Fields is one of the largest retailers in the premium
snack-food industry (based on number of units), with cookies and pretzels as its
major product lines. Mrs. Fields is the largest retailer of baked on-premises
cookies (based on the number of units) and the second largest retailer of baked
on-premises pretzels (based on the number of units) in the United States. In
addition, Mrs. Fields is one of the most widely recognized and respected brand
names in the premium cookie industry. Mrs. Fields' operates in two industry
segments determined by revenue source: (1) company-owned stores and (2)
franchised and licensed stores
BUSINESS STRATEGY. Our objective is to increase sales and profitability at our
continuing company-owned and franchised stores by implementing the key elements
of our long-term business strategy. By the end of fiscal 2000, we plan to close
or franchise approximately 59 company-owned cookie stores and 23 company-owned
pretzel stores that do not meet certain financial and geographical criteria
established by management. The key elements of this business strategy are as
follows:
o Build the Mrs. Fields Brand in other Retail Venues
o Grow concept and product licensing
o Enhance Quality of Company-Owned Store Base
o Improve Productivity of Continuing Company-Owned Stores
o Capitalize on the Strong "Mrs. Fields" and "Pretzel Time" Brand Names
o Develop the Great American Brand Name
o Develop New Company-Owned and Franchised Stores
o Pursue Further Strategic Acquisitions of Related Businesses
o Perpetuate franchise growth in all core concepts
PRODUCT OFFERINGS. Our product offerings consist primarily of (1) fresh baked
cookies, brownies, muffins, and other baked goods and (2) fresh baked sweet
dough and "Bavarian" style pretzels. During fiscal year 1998, our revenue mix
consisted of the following:
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Cookies and Brownies.............................................................56%.
Pretzels.........................................................................21%
Beverages........................................................................22%
Other.............................................................................1%
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Baked products are made using only pure, high quality, vanilla, chocolate,
raisins, nuts and other ingredients. To maintain product quality and consistency
at both company-owned and franchised stores, Mrs. Fields and Original Cookie
stores use centrally manufactured frozen dough, which is manufactured by outside
suppliers according to our proprietary formulas. Great American stores use
refrigerated batter that is shipped daily from our Atlanta production facility.
Pretzel Time uses a dry mix batter that is shipped to the stores from selected
distributors. All products must pass strict quality assurance and control steps
at both the manufacturing plants and the stores.
Mrs. Fields continually reviews its product mix in an effort to
maximize its offerings and profitability. For example, new muffin flavors,
bagels, croissants and a revitalized coffee program were introduced to enhance
morning offerings, as cookies begin selling primarily after mid-day.
PRODUCT DEVELOPMENT. We maintain a product development department which
continually creates and tests new products to attract new customers and
revitalize the interest of current customers. Once a new product is identified,
we develop prototypes to determine the initial formula. Once the product has
been successfully produced, ingredient specifications, formulas, manufacturing
processes, finished product specifications, shelf life, storage and distribution
procedures are established. The new product is either immediately launched
throughout the system, as in the case of seasonal items or simple line
extensions, or test marketed in a limited number of stores. After a trial period
to evaluate both consumer response and store operations' ability to handle the
new product, it is fully commercialized, modified or discontinued.
Our product development efforts for the cookie stores are currently focused
on a fresh-baked, sugar-free cookie dough and other products, such as cheesecake
brownies, reduced-fat cookies and seasonal items that are designed to capitalize
on consumer trends and draw interest to Mrs. Fields' store locations.
Development efforts for the pretzel stores include jalapeno, cinnamon raisin and
garlic pretzels with a sweet dough base.
MARKETING AND ADVERTISING. Our in-house marketing department markets products
emphasizing product sampling, local store marketing and brand name
identification. We advertise at the store level, using the aroma of fresh-baked
cookies and the attractive arrangement of finished products to create a store
ambiance that is conducive to sales. We cultivate local customer loyalty by
offering regular 20% discounts to employees in malls where stores are located
and occasional other discounts. We historically have spent relatively little on
paid advertising, relying mainly on in-store signage, promotions and the public
relations of Debbi Fields, who makes store visits and local media appearances
throughout the country and internationally for Mrs. Fields. In addition to
posters and displays of products, we promote products by offering special
packaging and selling other promotional items. We are currently working on
developing catered corporate accounts for both company-owned and franchised
stores and will be building awareness of products geared toward corporate
accounts at the store level for the local market area and through catalogue
sales. We also promote our products as gifts, particularly at holiday time.
STORE OPERATIONS
COOKIES. We operate and franchise 1,020 retail cookie stores: 580 under the Mrs.
Fields brand, 120 under the Original Cookie brand, and 320 under the Great
American brand. The Great American stores are concentrated in the southeastern
and south central states and Mrs. Fields and Original Cookie stores are strongly
represented in the western, midwestern and eastern states. There is little
overlap between Mrs. Fields, Original Cookie and Great American stores with a
dual presence in 31 malls. These stores offer over 50 different types of
cookies, brownies and muffins, which are baked continuously and served fresh
throughout the day.
Management believes that Mrs. Fields and Great American have more
well-recognized brand names than Original Cookie. As a result, we intend to
continue selectively converting our Original Cookie stores to the Mrs. Fields
and Great American brand stores. We will also test the success of converting
selected Great American company-owned stores to Mrs. Fields brand stores. In
addition, any Great American franchisee will have the option to convert its
stores to Mrs. Fields brand franchise stores at its sole expense in areas where
there is no overlap with existing Mrs. Fields brand franchise stores.
PRETZELS. We operate and franchise 518 retail pretzel stores: 233 under the
Pretzel Time name, 77 under the Hot Sam name and 208 under the Pretzelmaker
name. Pretzel Time and Pretzelmaker's primary product is an all natural,
hand-rolled soft pretzel, freshly baked at each store location. The Hot Sam
pretzel stores specialize in the Bavarian style pretzel. This product has
declined in popularity in recent years as sweet dough pretzel sales have grown
dramatically. We intend to continue selectively converting Hot Sam stores to
Pretzel Time or Pretzelmaker stores, which we believe will result in an increase
in net sales, comparable store sales and store contribution.
The retail pretzel business has grown more quickly than the retail
cookie business in recent years. We believe that the retail pretzel business
has similar operating characteristics to the retail cookie business that will
permit some co-branding of our products.
Taking the impulse nature of our business into consideration,
locational possibilities include any high pedestrian traffic areas, including
second locations within malls, airport concourses, office building lobbies,
hospitals, universities, stadiums, and supermarket foyers, with easy proximity
to pedestrian traffic flow
CONFIGURATION. We have developed a number of retail configurations, which have
wide application and adaptability to a variety of retail environments. In
addition to the stores that have been designed for prime mall locations, we have
developed other formats intended to extend its presence within and beyond mall
locations.
All of the retail store configurations are executed to include the same
high-quality marketing, merchandising and design features which customers have
come to expect from Mrs. Fields. The store designs are bright with high-profile
trademark identity. All products are baked throughout the day on the premises
with ovens located in full view of the customer to support the "fresh-baked"
image. All cookie stores are uniformly designed in accordance with the Mrs.
Fields, Original Cookie or Great American prototype. All pretzel stores are
uniformly designed in accordance with the Pretzel Time or Pretzelmaker
prototype. Mrs. Fields and its franchisees also operate cookie kiosks and carts
in certain malls on a year-round basis. Through licensed locations, we also
operate kiosks and carts at airports, universities, stadiums, hospitals and
office building lobbies. Because of their small size, carts and other kiosks do
not have baking equipment, and are supplied cookie products by a fully equipped
store usually located in the same mall.
Average store size based on square footage is as follows:
Store Type Average Square Footage
Cookie Store .........350 - 800
Typical Company Owned Cookie Store .........600 - 700
Pretzel Store 500
Kiosks 100 - 250
Carts 30 - 92
STORE BASE. As of January 2, 1999, Mrs. Fields' store portfolio consisted of 566
company-owned stores, 695 domestic franchised locations, 113 international
franchised locations and 164 licensed locations. By product, the stores are
distributed as follows:
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Company-Owned
To be To be Domestic International
Continuing Closed Franchised Franchised Franchised Licensed Total
Mrs. Fields............... 135 5 7 187 82 164 580
Original Cookie.......... 92 11 17 --- --- --- 120
Great American............ 65 43 11 201 --- --- 320
-- -- -- --- --- --- ---
Cookie Subtotal........... 292 59 35 388 82 164 1,020
--- -- -- --- -- --- -----
Pretzel Time.............. 85 9 --- 139 --- --- 233
Pretzelmaker.............. 2 7 --- 168 31 --- 208
Hot Sam................... 58 7 12 --- --- --- 77
-- - -- ---- --- --- --
Pretzel Subtotal.......... 145 23 12 307 31 --- 518
--- -- -- --- -- --- ---
Totals.................... 437 82 47 695 113 164 1,538
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As of January 2, 1999, our domestic stores were located in 48 states, Guam
and Washington DC as follows:
Mrs. Fields' Original Cookies, Inc.
Store Geography List
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% of
Company- Retail
State Owned Franchised Licensed Total Outlets
----- ----- ---------- -------- ----- -------
California................................. 80 85 15 180 12.6%
Texas...................................... 47 58 5 110 7.7%
Florida.................................... 27 41 14 82 5.8%
New York................................... 39 22 16 77 5.4%
Ohio....................................... 53 9 11 73 5.1%
Illinois................................... 32 21 12 65 4.6%
Michigan................................... 33 14 3 50 3.5%
Georgia.................................... 17 25 3 45 3.2%
Missouri................................... 6 34 1 41 2.9%
Colorado................................... 9 23 8 40 2.8%
Pennsylvania............................... 17 11 12 40 2.8%
Virginia................................... 20 17 3 40 2.8%
Arizona.................................... 14 17 5 36 2.5%
Utah ..................................... 7 26 1 34 2.4%
North Carolina............................. 7 23 3 33 2.3%
New Jersey................................. 11 13 7 31 2.2%
Indiana.................................... 14 11 4 29 2.0%
Iowa...................................... 4 24 -- 28 2.0%
Tennessee.................................. 4 21 3 28 2.0%
Washington................................. 9 15 -- 24 1.7%
Louisiana.................................. 12 9 2 23 1.6%
Maryland................................... 10 9 4 23 1.6%
Massachusetts.............................. 11 7 5 23 1.6%
Wisconsin.................................. 17 6 -- 23 1.6%
Connecticut................................ 7 10 5 22 1.5%
Alabama.................................... -- 18 3 21 1.5%
Minnesota................................. 4 17 -- 21 1.5%
South Carolina............................. 12 7 2 21 1.5%
Nevada.................................... 3 7 7 17 1.2%
Kansas.................................... 5 9 1 15 1.1%
Oklahoma.................................. 5 6 2 13 0.9%
Kentucky.................................. 3 8 1 12 0.8%
Nebraska................................... 5 7 -- 12 0.8%
West Virginia.............................. 4 7 1 12 0.8%
Oregon.................................... 1 8 -- 9 0.6%
Hawaii.................................... 1 7 -- 8 0.6%
Idaho..................................... 3 5 -- 8 0.6%
Arkansas.................................. 4 3 -- 7 0.5%
North Dakota.............................. -- 7 -- 7 0.5%
New Hampshire............................. 1 6 -- 7 0.5%
New Mexico................................ 2 3 2 7 0.5%
South Dakota.............................. 1 5 -- 6 0.4%
Alaska.................................... -- 2 3 5 0.4%
Mississippi............................... -- 4 -- 4 0.3%
Delaware.................................. 2 1 -- 3 0.2%
Guam...................................... -- 2 -- 2 0.4%
Maine...................................... 1 1 -- 2 0.1%
Montana.................................... -- 2 -- 2 0.1%
Washington DC.............................. -- 2 -- 2 0.1%
Wyoming.................................... 1 -- -- 1 0.1%
- -- -- -
Subtotal 565 695 164 1,424 100.0%
International Locations 1 113 -- 114
- --- -- ---
TOTAL 566 808 164 1,538
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INGREDIENTS, SUPPLIES AND DISTRIBUTION
INGREDIENTS AND SUPPLIES. We rely primarily on outside suppliers and
distributors for the ingredients used in our products as well as other items
used in our stores. Mrs. Fields' stores receive frozen products, made according
to our proprietary recipes, from our primary supplier, Pennant Food Corporation
who currently supplies approximately 98% of Mrs. Fields and Original Cookie
frozen bakery product. The majority of our Hot Sam stores receive frozen pretzel
dough from J&J Foods, Inc. Pennant and J&J use stringent quality controls in
testing ingredients and manufacturing, and products are not released for
distribution unless they pass all quality control steps, including an evaluation
of the finished baked product. Pennant's contract for making frozen products for
Mrs. Fields is renewable every three years. We have identified alternative
suppliers for frozen dough at Mrs. Fields, Original Cookie and Hot Sam.
Pretzel Time stores buy a proprietary dry mix from selected
distributors and mix and bake pretzels at individual stores. Franchisees buy
from various distributors. Pretzelmaker receives frozen pretzel dough from two
separate suppliers.
Great American stores receive "ready to bake" refrigerated batter from
our batter facility in Atlanta, which we acquired in the Great American
acquisition. The batter, which has a shelf life of about 90 days, is stored at
the batter facility for an average of one to three weeks, depending on demand,
before being shipped.
Most supplies other than dough (such as beverages and paper products)
are ordered from distributors by either Mrs. Fields or the franchisee and are
directly shipped to the store. We sell exclusively Coca Cola soft drinks in our
stores under an agreement with Coca-Cola USA Fountain.
DISTRIBUTION. Regional distributors handle distribution of perishable and
non-perishable items to Mrs. Fields and Original Cookie stores weekly. The
regional distributors own and maintain all of the inventory, but are authorized
to purchase inventory items only from authorized vendors at prices that have
been negotiated by Mrs. Fields. Hot Sam and Pretzelmaker distribute perishable
and non-perishable items weekly to stores through selected distribution
companies. Great American stores receive batter from the Atlanta batter facility
by refrigerated common carrier and Pretzel Time and Pretzelmaker franchisees
receive items from a variety of distributors. We ship equipment related items,
including smallwares equipment and oven parts, directly from public warehouses.
STORE MANAGEMENT
MANAGEMENT STRUCTURE. We monitor all company-owned and franchised stores with a
regionally based staff of regional sales managers. District sales managers are
responsible for monitoring all cookie and pretzel stores in their territory.
Each regional sales manager is responsible for overseeing approximately 30
company-owned or franchised cookie and pretzel stores within his or her region
and reports to one of the four regional vice-presidents of store operations. The
field staff is also responsible for introducing new products and processes to
the stores, ensuring proper implementation and quality control. Each store has
an on-site management team consisting of a manager and an assistant manager. The
store manager is responsible for hiring, training and motivating store
personnel.
MANAGEMENT INCENTIVES. Each manager of a company-owned store is eligible for
salary increases and bonuses based upon the performance of his or her store,
including sales, profits and store appearance. We believe that our incentive and
other programs for management have achieved a strong retention rate for
managers, 72% of Mrs. Fields' regional sales managers have been with Mrs. Fields
for at least four years (67% for over five years), and 51% of Mrs. Fields' store
managers have been with Mrs. Fields for at least four years (40% for over five
years).
TRAINING. We believe store managers are a critical component in creating an
effective retail environment, and accordingly have developed ongoing programs to
improve the quality and effectiveness of our store managers and to increase
retention rates. New store managers are required to attend a two-week training
program at our Salt Lake City training facility and ongoing training courses in
new products, standards, and procedures are available throughout the year to all
our personnel. New franchisees and store managers of Great American are required
to attend a one-week training program at Great American's Atlanta training
facility, known as "Cookie University." In addition, training courses are
available throughout the year to all Great American and franchisee personnel.
FRANCHISE OPERATIONS
In accordance with our business strategy, we have been selling, and
expect to continue to sell, selected company-owned stores to franchisees to
reduce costs, increase profitability and provide for liquidity and development
of additional stores in the future. We are also actively seeking to franchise
new stores.
COOKIES. Each franchisee pays Mrs. Fields an initial licensing fee of $25,000
per Mrs. Fields and Great American store location and is responsible for funding
the building-out of the new store and purchasing initial dough inventory and
supplies, at a total cost of approximately $200,000 and $164,000, respectively
(including the initial franchise fee), although the cost of opening a new store
can vary based on individual operating and location costs. Mrs. Fields also
charges franchisees a fee to handle equipment purchases and to provide other
assistance in helping the franchisee to set up operations. After a store is set
up, a Mrs. Fields franchisee pays royalty fees to us of 6% of the franchised
store's annual gross sales, and a marketing fee of 1% of annual gross sales.
Great American franchisees pay royalty fees of 7% of the franchised store's
annual gross sales. We do not currently anticipate franchising Original Cookie
stores.
Franchisees come from a wide variety of business backgrounds and bring
with them different operating styles and business objectives. Among our
franchisees are full-time store operators, passive investors, retired
professionals and people seeking a second source of income. The majority of our
franchisees own one store. As of January 2, 1999, the 22 largest Mrs. Fields
franchisees operated 164 stores, and the largest Mrs. Fields franchisee operated
14 stores.
PRETZELS. Each franchisee pays Pretzel Time an initial licensing fee of $25,000
per new Pretzel Time store location and is responsible for funding the
building-out of the new store and supplies, at a total cost of approximately
$190,000 to $240,000 (including the initial franchise fee), although the cost of
opening a new store can vary based on individual operating and location costs.
Pretzel Time also charges franchisees a fee to handle equipment purchases and to
provide other assistance in helping the franchisee to set up operations. After a
store is set up, a franchisee pays royalty fees to Pretzel Time of 7% of the
franchised store's annual gross sales, and a marketing fee of 1% of annual gross
sales.
Each Pretzelmaker franchisee pays an initial licensing fee of $20,000
per store location and is responsible for funding the building-out of the new
store and supplies, at a total cost of approximately $90,000 to $208,000
(including the initial franchise fee), although the cost of opening a new store
can vary based on individual operating and location costs. After a store is set
up, a franchisee pays royalty fees of 5% of the franchised store's annual gross
sales, and a marketing fee of 1 1/2% of annual gross sales.
We do not franchise Hot Sam stores.
FRANCHISEE RECRUITING AND TRAINING. We have been successful in recruiting
franchisees and completing franchise transactions and believe we will continue
to realize significant cash flow from franchising by (1) emphasizing the use of
proprietary dough that minimizes product quality issues and ensures a consistent
product across all outlets, (2) frequent quality, service and cleanliness
evaluations of franchised stores by operations support staff and (3) initial and
continuing training of franchisees to improve their financial and retail sales
skills.
We believe our franchisees are a critical component in creating an
effective retail environment, and accordingly make our ongoing training programs
available to franchisees to improve their quality and effectiveness. Franchisees
are required to attend a two-week training program at our Salt Lake City or
Atlanta training facilities and ongoing training courses in new products,
standards, and procedures are available throughout the year to all franchisee
personnel.
LICENSING
In the past few years, we have utilized a "branding" strategy which has
capitalized on the highly-recognized Mrs. Fields brand to build traffic, expand
sales, improve market share, and to increase profits through cultivating
alternative channels of distribution. The following is A list of branding
options, with examples of current licensees within Mrs. Fields' system:
CONCEPT LICENSING. We have developed a licensing program for non-mall retail
outlets that enables us to enter difficult-to-reach markets and facilitate brand
exposure through "presence" and "prestige" marketing. Our licensees duplicate
the Mrs. Fields store concept and purchase dough from our various distributors.
Several of these licensees are contract management companies that manage and
operate food service in host locations. Our licensees and their respective
distribution channels include Host Marriott (airports and travel plazas),
ARAMark (stadiums and convention centers) and Holiday Inn Worldwide (hotels).
RETAIL LICENSING. We plan to capitalize on our brand awareness and the
perception of quality among consumers to expand the product line to include
products sold in other retail environments, including refrigerated dough,
dry-mix and non-food products, and other applications outside the original scope
of our retail cookie store concept. A current example is Legacy Brands, which
has the exclusive North American rights to retail frozen dough and offers Mrs.
Fields cookies throughout the supermarket industry. Another licensee is Wham-O,
Inc., which has a license to market the Mrs. Fields Baking Oven for children
sold in most toy stores and through mass merchandisers.
SUPPLY LICENSING. We currently have an agreement with United Airlines under
which our mail order division sells cookies to the airlines and allows the
airlines to promote the Mrs. Fields brand and products to its first-class
customers. We are pursuing similar relationships to compete with other
manufacturers' brands selling in this channel of business.
MAIL ORDER BUSINESS
Our mail order division markets a variety of fresh-baked and other gift
items through its mail order gift catalogue using toll free telephone numbers,
including "1-800-COOKIES." We believe that there is significant potential in the
mail order business and are developing this division by targeting both corporate
customers and individuals with a history of purchases at Mrs. Fields stores. The
mail order division had $5.2 million in revenues in fiscal year 1998
representing an increase of approximately 35.5% over sales for fiscal year 1997.
TRADEMARKS
We are the holder of numerous trademarks that have been federally
registered in the United States and in other countries located throughout the
world. We are a party to disputes with respect to trademarks none of which, in
the opinion of management of Mrs. Fields, is material to Mrs. Fields' business,
financial condition or results of operations.
COMPETITION
We compete for both leasing opportunities and customers with other
cookie and pretzel retailers, as well as other confectionery, sweet snack and
specialty food retailers, including cinnamon rolls, yogurt, ice cream, baked
goods and candy shops. The specialty retail food and snack industry is highly
competitive with respect to price, service, location and food quality, and there
are many well-established competitors with greater resources than those of Mrs.
Fields. We compete with these retailers on the basis of price, quality, location
and service. We face competition from a wide variety of sources, including such
companies as Cinnabon, Inc., TCBY Yogurt Inc., Auntie Anne's Soft Pretzels and
Baskin-Robbins 31 Flavors.
EMPLOYEES
As of January 2, 1999, we had approximately 6,614 employees in
company-owned stores, of whom approximately 943 were store managers and
assistant store managers, 58 were full-time sales assistants and 5,613 were
part-time sales assistants. Our typical store employs 5 to 13 employees. During
the period from November through February, we may hire as many as 750 additional
part-time employees to handle additional mall traffic. Most employees are paid
on an hourly basis, except store managers. Our employees are not unionized. We
have never experienced any significant work stoppages and believe that our
employee relations are good.
Many of our employees are paid hourly rates based upon the federal
minimum wage. As of January 2, 1999, 1,636 of our 6,614 employees in
company-owned stores earned the federal minimum wage. Minimum wage increases are
expected to negatively impact our labor costs, but management believes this
impact can be negated in the long-term through increased efficiencies in its
operations and, as necessary, through retail price increases.
SEASONALITY
Our sales and profitability in both the cookie business and the pretzel
business are subject to seasonal fluctuation and are traditionally higher during
the Thanksgiving and Christmas holiday seasons and other gift-giving holidays
due to increased mall traffic and holiday gift purchases.
MANAGEMENT INFORMATION SYSTEMS
We have made a substantial investment in developing a customized,
sophisticated point-of-sale management information system, which gathers
information transmitted daily to corporate headquarters from most of the Mrs.
Fields brand continuing company-owned stores. The system tracks sales from the
point of purchase through a central mid-range computer to store, district and
corporate management, allowing management to track performance data and react
quickly to developments at the store level. We are upgrading our back-office
system to a Windows NT environment and are currently upgrading all our stores to
Pentium 333 machines. Completion of the upgrades is targeted for August 1999.
We have assessed the Year 2000 issue and determined that all internal
information technology systems including financial software, corporate networks,
the AS400 system and all other systems are Year 2000 compliant with the
exception of: (1) systems used for collecting and communicating sales data from
retail locations, and (2) internally developed plant production and distribution
software. This assessment was based primarily on independent, third party
verification from our information technology vendors and suppliers.
We are currently replacing our sales collection systems with software
and hardware that is Year 2000 compliant. Programming and development of the
software is complete and has been installed in approximately 10% of our stores.
We project installation will be complete by August 1999. The estimated cost of
this project is $1.9 million and includes software development and new store
computers and is included in the Mrs. Fields' 1999 budget. Funding for this
project is being provided by internal cash flow and by a lease finance company.
Upgrades of the plant production and distribution software will take
place in the first and second quarters of 1999 at an estimated cost of $10,000.
To date, approximately 50% of the upgrades have been implemented, we are
confident that this timetable will be met. No information technology projects
have been deferred as a result of our Year 2000 efforts.
We are neither dependent on the proper operation of the sales
collection systems nor the plant production and distribution software to run the
day-to-day operations of the business. Therefore, failure or malfunction of
these systems due to untimely or incomplete remediation would not have a
material adverse effect on Mrs. Fields' results of operations.
We are in the process of assessing Year 2000 issues with respect to our
significant vendors and financial institutions as to their compliance plans and
whether any Year 2000 issues will impede the ability of such vendors to continue
providing goods and services to Mrs. Fields. Failure of our key suppliers to
remedy their own Year 2000 issues could delay shipments of essential products,
thereby disrupting our operations. Furthermore, we rely on various service
providers, such as utility and telecommunication service companies, which are
beyond our control. This assessment is approximately 60% complete with final
completion anticipated by the second quarter of 1999. Based upon the results of
the assessment to date, we are not aware of any Year 2000 issues relating to our
significant vendors, financial institutions or our non-information technology
systems.
We do not have a contingency plan in place to address untimely or
incomplete remediation of Year 2000 issues, but we intend to develop such a plan
during the first half of 1999. These contingency plans are expected to address
issues related to significant vendors and financial institutions.
GOVERNMENT REGULATION
Mrs. Fields' stores and products are subject to regulation by numerous
governmental authorities, including, without limitation, federal, state and
local laws and regulations governing health, sanitation, environmental
protection, safety and hiring and employment practices.
Item 2. Properties
As of January 2, 1999, Mrs. Fields leased 997 retail stores, of which
391 were subleased to franchisees under terms which cover all obligations of
Mrs. Fields thereunder. Under its franchise agreements, Mrs. Fields has certain
rights to gain control of a retail site in the event of default under the lease
or the franchise agreement. Most of Mrs. Fields' operating leases provide for
the payment of lease rents plus real estate taxes, utilities, insurance, common
area charges and certain other expenses, as well as contingent rents which
generally range from 8% to 10% of net retail store sales in excess of stipulated
amounts.
Mrs. Fields currently leases approximately 50,000 square feet of office
space in Salt Lake City, Utah for its corporate headquarters, product
development, training and mail order operations. Mrs. Fields also owns a 40,000
square foot batter facility in Atlanta, Georgia. Substantially all of the
equipment used in company-owned retail outlets, the batter facility and the
corporate headquarters are owned by Mrs. Fields.
Item 3. Legal Proceedings
In the ordinary course of business, Mrs. Fields is involved in routine
litigation, including franchise disputes and trademark disputes. Mrs. Fields is
not a party to any legal proceedings which, in the opinion of management of Mrs.
Fields, after consultation with legal counsel, is material to its business,
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information and Number of Stockholders. Mrs. Fields' Original
Cookies, Inc. is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc.
("Mrs. Fields' Holding"). There is no established trading market for Mrs.
Fields or Mrs. Fields' Holding's common stock.
Dividends. For the period from inception (September 18, 1996) to
December 28, 1996, and for the fiscal years ended January 3, 1998 and January 2,
1999, Mrs. Fields did not declare or pay cash dividends. Mrs. Fields has no
history of declaring and paying cash dividends to its common stockholders and
has no intention of declaring such dividends into the foreseeable future.
Item 6. Selected Financial Data
The following table presents historical financial data for Mrs. Fields'
Original Cookies, Inc. and subsidiaries and its predecessors; namely, Mrs.
Fields Inc. and subsidiaries, The Original Cookie Company, Incorporated and the
pretzel business of Hot Sam, Inc. as of the dates and for the periods indicated.
The results of operations for the periods December 31, 1995 through September
17, 1996 and September 18, 1996 through December 28, 1996 are not indicative of
the results for the full fiscal year. The selected historical financial data has
been derived from the audited financial statements of Mrs. Fields and its
predecessors. Due to the acquisitions of the net assets of Mrs. Fields Inc.,
Original Cookie and Hot Sam on September 17, 1996, the financial data is not
comparable for all periods. However, in order for the presentations to be
meaningful for the periods presented, certain statement of operations
information for the predecessors has been reclassified to be consistent with the
Mrs. Fields historical financial statement presentation. The selected historical
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
financial statements and the related notes to it, contained elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
Predecessors
The Original Cookie
Company, Incorporated
and the Carved-out Portion of Hot
Mrs. Fields Inc. and Sam Company, Inc. (Combined)(1)
Subsidiaries(1)
<S> <C> <C> <C> <C> <C> <C>
December December
31, 1995 31, 1995
52 Weeks Ended(2) through 52 Weeks Ended(2) through
December December September December December September
31, 1994 30, 1995 17,1996(2) 31, 1994 30, 1995 17,1996(2)
---------- ---------- ------------ --------- ---------- ----------
Statement of Operations Data: (Dollars in thousands)
Net store and food sales............... $ 87,863 $ 59,956 $ 31,115 $ 89,648 $ 85,581 $ 54,366
Net store contribution(3).............. 8,083 6,591 3,747 13,912 13,063 5,854
Franchising and licensing, net........ 7,241 5,993 3,836 -- -- --
General and administrative expenses.... 16,379 15,612 8,984 12,546 9,216 7,538
Income (loss) from operations.......... (1,691) (3,526) (1,742) (750) 2,435 (2,772)
Net loss............................... (5,320) (2,368) (2,304) (5,355) (2,096) (5,645)
Other Data:
Interest expense....................... 2,155 51 80 4,381 4,356 2,895
Total depreciation and amortization.... 4,415 3,525 1,911 7,423 6,902 4,937
Capital expenditures................... 4,895 4,146 1,054 3,779 568 1,200
Store contribution for stores in the
process of $ 319 $ (802) $ (695) $ (542) $ (1,542) $ (1,751)
being closed or franchised(3)........
Ratio of earnings to fixed charges(4). -- -- -- -- -- --
Balance Sheet Data:
Working capital (deficit).............. $ (1,067) $ (3,114) $ (21,704) $ (46) $ 128 $ (3,640)
Total assets........................... 30,128 23,033 19,144 74,490 66,282 59,024
Debt and capital lease obligations,
including 22,850 21,226 21,224 36,956 32,357 30,977
current portion......................
Total stockholders' equity (deficit)... (25,419) (28,017) (30,318) 24,684 22,588 16,943
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields(1)
<S> <C> <C> <C>
September 18, 53 Weeks 52 Weeks
1996 through Ended Ended
December 28, January 3, January 2,
1996(2) 1998(2) 1999(2)
--------- -------- -------
(Dollars in thousands)
Statement of Operations Data:
Net store and food sales....................................... $ 40,849 $ 127,845 $ 140,235
Net store contribution(3)...................................... 9,707 25,044 20,166
Franchising and licensing, net................................. 1,267 6,563 14,001
General and administrative expenses............................ 4,035 16,192 19,017
Store closure provision........................................ -- 538 7,303
Income (loss) from operations.................................. 5,649 8,415 (5,389)
Net income (loss).............................................. 1,961 (974) (19,143)
Other Data:
Interest expense............................................... 1,867 7,830 13,197
Total depreciation and amortization............................ 2,344 10,403 19,820
Capital expenditures........................................... 1,638 4,678 8,235
Store contribution for stores in the process of being closed or $ 513 $ (1,798) $ (2,054)
franchised(3)..................................................
Ratio of earnings to fixed charges(4).......................... 2.85x -- --
Balance Sheet Data:
Working capital (deficit)...................................... $ (2,889) $ 13,133 $ (12,727)
Total assets................................................... 110,055 149,684 231,906
Mandatorily redeemable cumulative preferred stock of subsidiaries 3,597 902 1,261
.
Debt and capital lease obligations, including current portion. 67,563 101,081 150,989
Total stockholder's equity..................................... 16,961 30,765 40,678
</TABLE>
(1) On September 17, 1996, Mrs. Fields completed the acquisitions of
substantially all of the assets and assumed certain liabilities of the
predecessors. As a result of purchase accounting adjustments related to the
acquisitions, the Mrs. Fields financial statements are not directly
comparable to the predecessors' financial statements.
(2) Mrs. Fields and its predecessors operate using a 52/53-week year ending near
December 31.
(3) Store contribution is determined by subtracting all store operating expenses
including depreciation from net store sales. Management uses store
contribution information to measure operating performance at the store
level. Store contribution for stores in the process of being closed or
franchised as a separate caption is not in accordance with generally
accepted accounting principles. Store contribution may not be comparable to
other similarly titled measures.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued and
net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable cumulative preferred stock
multiplied by a fraction, the numerator of which is one and the denominator
of which is one minus the current combined federal, state and local
statutory tax rate. For fiscal years 1994 and 1995 and the period December
31, 1995 through September 17, 1996, Mrs. Fields Inc. and subsidiaries'
earnings were insufficient to cover fixed charges by $5,129,000, $2,127,000
and $2,099,000, respectively. For fiscal years 1994 and 1995 and the period
December 31, 1995 through September 17, 1996, Original Cookie and Hot Sam
(combined) earnings were insufficient to cover fixed charges by $5,131,000,
$1,833,000 and $5,645,000, respectively. For the 53 weeks ended January 3,
1998, and the 52 weeks ended January 2, 1999, Mrs. Fields' earnings were
insufficient to cover fixed charges by $319,000 and $18,827,000,
respectively.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
In 1996, an investor group led by Capricorn Investors II, L.P. formed Mrs.
Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc. as subsidiaries
of Mrs. Fields' Holding Company, Inc.
On September 17, 1996, Mrs. Fields initiated operations when it purchased
substantially all of the assets and assumed certain liabilities of Mrs. Fields
Inc. and subsidiaries, The Original Cookie Company, Incorporated and the pretzel
business of Hot Sam Company, Inc.
Mrs. Fields set out to increase sales and profitability of its cookie and
pretzel operations by implementing key elements of its business plan coupled
with strategic acquisitions. A key element of the business plan is closing or
franchising certain company-owned stores that do not meet specific financial and
geographical criteria established by management. Implementation of this element
of the business plan is expected to result in enhanced operating margins as
these stores are franchised or closed. In some of our tables we refer to stores
not planned to be franchised or closed as "core" stores, meaning continuing
company-owned stores. Continuing company-owned stores will be operated by Mrs.
Fields into the foreseeable future. As a result of converting certain stores to
franchises, royalty revenues are expected to increase and net store sales and
overhead expenses associated with operating those stores are expected to be
reduced.
As Mrs. Fields exits stores it has identified for closure through
closing or franchising, results from operations are expected to improve on both
a short-term and long-term basis. With respect to these specific stores both
ongoing operating losses and negative cash flows are expected to cease.
Cash payments to landlords for early lease termination costs negatively
impact our immediate liquidity position. However, our overall financial position
is expected to be strengthened over time as cash flows from operating activities
increase. As cash is used to fund the store closure plans, corresponding store
closure reserves are reduced which has a neutral impact on working capital and
financial position. Should Mrs. Fields' cost estimates for exiting the remaining
stores not prove sufficient, it would have a negative impact on both liquidity
and results of operations.
Mrs. Fields believes that it has sufficient liquidity to complete its store
closure plans. A complete analysis of Mrs. Fields' store closure plans are
included in Note 5 to the Consolidated Financial Statements.
Mrs. Fields is pursuing growth in both its cookie and pretzel businesses
through strategic acquisitions. Management expects that significant operating
synergies, expense leveraging and geographic market share can be achieved
through targeted acquisitions. On July 25, 1997, a subsidiary of Mrs. Fields'
Holding, Mrs. Fields' Pretzel Concepts, Inc., acquired substantially all of the
assets and assumed certain liabilities of H&M Concepts Ltd. Co., the largest
franchisee of Pretzel Time, Inc. On September 2, 1997, Mrs. Fields' Holding
acquired 56% of the common stock of Pretzel Time, the franchisor of the Pretzel
Time concept.
On November 26, 1997, Mrs. Fields received as a contribution from Mrs.
Fields' Holding all of the common stock of The Mrs. Fields' Brand, Inc., the
business of Mrs. Fields' Pretzel Concepts and 56% of the shares of common stock
of Pretzel Time. On January 2, 1998 and June 12, 1998, Mrs. Fields acquired an
additional 4% and 10%, respectively, of Pretzel Time common stock, bringing its
total ownership to 70%. On December 9, 1998, Mrs. Fields purchased three percent
of Pretzel Time common stock for $0.5 million in cash and on December 30, 1998
Mrs. Fields completed the acquisition of the remaining outstanding common stock
of Pretzel Time under a stock purchase agreement, for a purchase price of
approximately $4.7 million.
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital
stock and subordinated indebtedness of Cookies USA, the parent company of Great
American Cookie Company, Inc., for a total purchase price of $18.4 million. Mrs.
Fields also retired approximately $38.9 million of outstanding Great American
notes. Concurrently, Cookies USA was merged with and into Mrs. Fields, at which
time Great American became a wholly owned subsidiary of Mrs. Fields. At the same
time Mrs. Fields also purchased the stock of two Great American franchisees,
Deblan Corporation and Chocolate Chip Cookies of Texas, Inc., together owning
and operating 29 Great American franchised stores, for total consideration of
$14.4 million. Deblan and Chocolate Chip were merged with and into Great
American at that time. On September 9, 1998, Mrs. Fields acquired eight Great
American franchise stores (Karp) from a Great American franchisee, for a
purchase price of $1.9 million.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American franchise stores
(Cookie Conglomerate) from a Great American franchisee for a total purchase
price of $2.8 million.
On November 19, 1998, Mrs. Fields, under a stock purchase agreement among
Pretzelmaker Holdings, Inc., holders of all outstanding capital stock of
Pretzelmaker, and Mrs. Fields, acquired all of the outstanding capital stock of
Pretzelmaker for $5.4 million and assumed liabilities of $1.6 million related to
severance payments in lieu of outstanding stock options and other liabilities.
YEAR 2000
Management has assessed the Year 2000 issue and has determined that all
internal information technology systems including financial software, corporate
networks, the AS400 system and all other systems are Year 2000 compliant with
the exception of:
(1) systems used for collecting and communicating sales data from
retail locations, and
(2) internally developed plant production and distribution software.
This assessment was based primarily on independent, third-party
verification from our vendors and suppliers.
We are currently replacing our sales collection systems with software and
hardware that is Year 2000 compliant. Programming and development of the
software is complete and has been installed in approximately 20% of our stores.
We project installation will be complete by August 1999. The estimated cost of
this project is $1.9 million and includes software development and new store
computers and registers. The costs to complete this project are included in Mrs.
Fields' 1999 budget. Funding for this project is being provided by internal cash
flow and by a lease finance company.
Upgrades of the plant production and distribution software will take place
in the first and second quarters of 1999 at an estimated cost of $10,000. To
date, approximately 50% of the upgrades have been implemented. We are confident
that this time table will be met. No information technology projects have been
deferred as a result of our Year 2000 efforts.
We are neither dependent on the proper operation of the sales collection
systems nor the plant production and distribution software to run the day-to-day
operations of the business. Therefore, failure or malfunction of these systems
due to untimely or incomplete remediation would not have a material adverse
effect on our results of operations.
We are in the process of assessing Year 2000 issues with respect to our
significant vendors and financial institutions as to their compliance plans and
whether any Year 2000 issues will impede the ability of such vendors to continue
providing goods and services to us. Failure of our key suppliers to remedy their
own Year 2000 issues could delay shipments of essential products, thereby
disrupting our operations. Furthermore, we rely on various service providers,
such as utility and telecommunication service companies, which are beyond our
control. This assessment is approximately 60% complete with final completion
anticipated by the end of the second quarter of 1999. Based upon the results of
the assessment to date, we are not aware of any Year 2000 issues relating to our
significant vendors, financial institutions or our non-information technology
systems.
We do not have a contingency plan in place to address untimely or
incomplete remediation of Year 2000 issues, but we intend to develop such plans
during the first half of 1999. These contingency plans are expected to address
issues related to significant vendors and financial institutions.
RESULTS OF OPERATIONS OF MRS. FIELDS AND ITS PREDECESSORS
The following table sets forth, for the periods indicated, certain
information relating to the operations of Mrs. Fields and its predecessors
expressed in thousands of dollars and percentage changes from period to period.
Annual data in the table reflects the combined results of the predecessors (for
the period December 31, 1995 through September 17, 1996) and Mrs. Fields (for
the period September 18, 1996 through December 28, 1996) and the consolidated
results of Mrs. Fields for the 53 weeks ended January 3, 1998 ("fiscal year
1997") and for the 52 weeks ended January 2, 1999 ("fiscal year 1998"). In order
for the presentations to be comparable, certain historical financial statement
information for the predecessors has been reclassified to be consistent with the
Mrs. Fields historical financial statement presentation.
<TABLE>
<S> <C> <C> <C> <C> <C>
For the 53 % of % of
For the 52 Weeks Change For the 52 Change
Weeks Ended Ended from Weeks Ended from
December 28, January 3, 1996 to January 2, 1997 to
1996 1998 1997 1999 1998
------------- ----------- -------- ----------- ------
STATEMENT OF OPERATIONS DATA: (dollars in thousands)
Revenues:
Net store and food sales............................ $ 126,330 $ 127,845 1.2% $140,235 9.7%
Franchising, net.................................... 3,447 4,535 31.6 12,464 174.8
Licensing, net...................................... 1,656 2,028 22.5 1,537 (24.2)
----------- ---------- -------------
Total revenues.................................... 131,433 134,408 2.3 154,236 14.8
Operating costs and expenses:
Selling and store occupancy costs................... 69,209 66,832 (3.4) 75,003 12.2
Cost of sales....................................... 31,340 32,028 2.2 38,482 20.2
General and administrative expenses................. 20,557 16,192 (21.2) 19,017 17.4
Store closure provision............................. --- 538 --- 7,303 1257.4
Depreciation and amortization....................... 9,192 10,403 13.2 19,820 90.5
----------- ---------- -------------
Total operating costs and expenses................ 130,298 125,993 (3.3) 159,625 26.7
Interest expense...................................... (4,842) (7,830) 61.7 (13,197) 68.5
Interest income....................................... 141 246 74.4 623 153.3
Other income (expense)................................ (2,422) (1,805) (25.5) (1,180) (34.6)
------------ ----------- --------------
Net loss.............................................. $ (5,988) $ (974) (83.7)% $(19,143) 1865.4%
============ =========== ==============
SUPPLEMENTAL INFORMATION:
CONTINUING COMPANY-OWNED STORES:
Net store and food sales............................ $ 95,635 $ 108,174 13.1% $ 122,713 13.4%
----------- ---------- ----------------
Operating costs and expenses:
Selling and store occupancy costs................... 44,963 50,858 13.1 60,900 19.7
Cost of sales....................................... 24,499 26,578 8.5 33,621 26.5
Depreciation and amortization....................... 4,932 3,896 (21.0) 5,972 53.3
----------- ---------- -------------
Total operating costs and expenses................ 74,394 81,332 9.3 100,493 23.6
----------- ---------- -------------
Continuing company-owned store contribution........... $ 21,241 $ 26,842 26.4% $ 22,220 (17.2)%
=========== =========== =============
STORES IN THE PROCESS OF BEING CLOSED OR FRANCHISED:
Net store and food sales............................. $ 30,695 $ 19,671 (35.9)%$ 17,522 (10.9)%
----------- ----------- -------------
Operating costs and expenses:
Selling and store occupancy costs................... 24,246 15,974 (34.1) 14,103 (11.7)
Cost of sales....................................... 6,841 5,450 (20.3) 4,861 (10.8)
Depreciation and amortization....................... 1,541 45 (97.1) 612 1260.0
----------- ---------- -------------
Total operating costs and expenses................ 32,628 21,469 (34.2) 19,576 (8.8)
Stores in the process of being closed or franchised loss $ (1,933) $ (1,798) (7.0) $ (2,054) 14.2%
=========== =========== =============
</TABLE>
<PAGE>
52 Weeks Ended January 2, 1999 Compared to the 53 Weeks Ended January 3, 1998
Company-owned and Franchised or Licensed Store Activity
As of January 2, 1999, there were 566 company-owned stores and 972
franchised or licensed stores in operation. The store activity for the 53 weeks
ended January 3, 1998 ("fiscal 1997") and the 52 weeks ended January 2, 1999
("fiscal 1998") is summarized as follows:
<TABLE>
Fiscal 1997 Fiscal 1998
---------------------- ----------------------
<S> <C> <C> <C> <C>
Company- Franchised Company- Franchised
owned or Licensed Owned or Licensed
Stores open as of the beginning of the fiscal year............. 482 418 481 553
Stores opened (including relocations and acquisitions)......... 86 217 128 504
Stores closed (including relocations).......................... (7) (89) (20) (78)
Non-continuing company-owned (exit plan) stores closed
(September 18, 1996 forward)................................ (73) -- (30) --
Stores sold to franchisees..................................... (3) 3 (11) 11
Non-continuing company-owned (exit plan) stores franchised
(September 18, 1996 forward)................................ (9) 9 (15) 15
Stores acquired from franchisees............................... 5 (5) 33 (33)
---------- ----------- ---------- -----------
Stores open as of the end of the fiscal year................... 481 553 566 972
========== ========== ========== ==========
</TABLE>
REVENUES
NET STORE AND FOOD SALES. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $12,390,000, or 9.7%,
from $127,845,000 to $140,235,000 for the 52 weeks ended January 2, 1999
compared to the 53 weeks ended January 3, 1998.
Net store sales from continuing company-owned stores and mail order
increased $14,539,000, or 13.4%, from $108,174,000 to $122,713,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The
increase in net store sales from continuing company-owned stores was primarily
attributable to:
(1) the operation of 85 Pretzel Time continuing company-owned stores
acquired in connection with the acquisition of H&M and Pretzel
Time in July 1997,
(2) the operation of 65 Great American stores acquired in connection
with the acquisitions of Great American, Deblan, Chocolate Chip,
and Karp in August and September 1998,
(3) a 35.5% increase in mail order sales.
This increase in net store sales from continuing company-owned stores was
offset in part by the negative effect of a calendar shift. Mrs. Fields' year end
was December 28 in 1996 and January 3, 1998 in 1997. As a result, the New Year's
holiday week fell in the first quarter of fiscal 1997 and again in the fourth
quarter of fiscal 1997. The first quarter of 1998 did not benefit from the New
Year's holiday sales.
The increase in net store sales was also offset in part by negative same
store sales. Based on stores that have been open for at least two years
(adjusted for the calendar shift), system-wide continuing company-owned store
sales were down 1.8% during the 52 weeks ended January 2, 1999 compared to the
same period in fiscal 1997. Additionally, there were only 52 weeks in fiscal
1998 compared to 53 weeks in fiscal 1997.
Net store sales from stores in the process of being closed or franchised
decreased $2,149,000, or 10.9%, from $19,671,000 to $17,522,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This
decrease results from closing or franchising 45 stores during the 52 weeks ended
January 2, 1999 and the effect of closing or franchising 82 stores during the 53
weeks ended January 3, 1998.
FRANCHISING REVENUES. Franchising revenues increased $7,929,000, or 174.8%,
from $4,535,000 to $12,464,000 for the 52 weeks ended January 2, 1999 compared
to the 53 weeks ended January 3, 1998. The increase in franchising revenues was
primarily attributable to royalties earned from 141 Pretzel Time franchised
stores obtained in connection with the acquisition of H&M and Pretzel Time in
1997, the 211 Great American franchised stores obtained in connection with the
acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and
September 1998 and the 199 Pretzelmaker franchised stores acquired in November
1998.
LICENSING REVENUES. Licensing revenues decreased $491,000, or 24.2%, from
$2,028,000 to $1,537,000 for the 52 weeks ended January 2, 1999 compared to the
53 weeks ended January 3, 1998. The decrease in licensing revenues was primarily
attributable to reduced concept licensing royalties.
TOTAL REVENUES. Total revenues increased by $19,828,000, or 14.8%, from
$134,408,000 to $154,236,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998 due to the reasons discussed above.
OPERATING COSTS AND EXPENSES
SELLING AND STORE OCCUPANCY COSTS. Total selling and store occupancy costs
increased $8,171,000, or 12.2%, from $66,832,000 to $75,003,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.
Selling and store occupancy costs for continuing company-owned stores
increased by $10,042,000, or 19.7%, from $50,858,000 to $60,900,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.
Within this overall increase, selling expenses for continuing company-owned
stores increased by $4,836,000, or 21.9%, from $22,094,000 to $26,930,000 for
the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3,
1998. The increase in selling expenses was primarily attributable to the 85
Pretzel Time continuing company-owned stores acquired in connection with the
acquisitions of H&M and Pretzel Time in 1997, the 65 Great American continuing
company-owned stores acquired in connection with the acquisitions of Great
American, Deblan, Chocolate Chip and Karp in August and September 1998, the 2
Pretzelmaker stores acquired in November 1998, and the effect of the minimum
wage increasing to $5.15 from $4.75 on September 1, 1997. Store occupancy costs
for continuing company-owned stores increased $5,206,000, or 18.1%, from
$28,764,000 to $33,970,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998. The increase in store occupancy costs was
primarily attributable to the increase in the number of stores discussed above,
Mrs. Fields' reacquiring 33 continuing company-owned stores from franchisees
during the 52 weeks ended January 2, 1999, rent escalations in existing leases
and lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $1,871,000, or 11.7%, from $15,974,000 to $14,103,000
for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3,
1998. This decrease was primarily the result of closing or franchising 45 stores
during the 52 weeks ended January 2, 1999 and the effect of closing or
franchising 82 stores during the 53 weeks ended January 3, 1998.
COST OF SALES. Total cost of sales increased $6,454,000, or 20.2%, from
$32,028,000 to $38,482,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998.
Cost of sales for continuing company-owned stores increased $7,043,000, or
26.5%, from $26,578,000 to $33,621,000 for the 52 weeks ended January 2, 1999.
This increase was primarily the result of the addition of 85 Pretzel Time
continuing company-owned stores in July 1997, 65 Great American continuing
company-owned stores acquired in connection with the acquisitions of Great
American, Deblan, Chocolate Chip and Karp in August and September 1998 and 2
Pretzelmaker stores acquired in November 1998. Cost of sales also increased due
to the addition of the Great American batter facility in August 1998 which
produces batter for the Great American stores, food costs associated with
increased mail order sales and the increasing cost of butter. Butter is one of
the main ingredients in a variety of our products and is a condiment for other
products. The price of butter has increased from $0.78/lb. at the beginning of
fiscal 1997 to a peak of $2.92/lb. in September 1998. Additionally, distribution
costs increased during the 52 weeks ended January 2, 1999 as Mrs. Fields'
changed distributors to improve product availability and the reliability of
service to the stores.
Cost of sales for stores in the process of being closed or franchised
decreased $589,000, or 10.8%, from $5,450,000 to $4,861,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This
decrease was primarily the result of closing or franchising 45 stores during the
52 weeks ended January 2, 1999 and the effect of closing or franchising 82
stores during the 53 weeks ended January 3, 1998.
GENERAL AND ADMINISTRATIVE Expenses. General and administrative expenses
increased $2,825,000, or 17.4%, from $16,192,000 to $19,017,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The
increase in general and administrative expenses was primarily attributable to
the acquisitions of H&M and Pretzel Time in 1997, the acquisitions of Great
American, Deblan, Chocolate Chip, Karp and Pretzelmaker in 1998.
STORE CLOSURE PROVISION. During the fourth quarter of 1998, management
reassessed its strategy with respect to acceptable levels of contribution from
certain existing stores. This resulted in management setting out a plan to close
or franchise 54 existing stores. The Company recorded an additional $7,303,000
in store closure reserves to cover early lease termination costs. Management
believes that the level of store closure reserves is adequate to provide for all
closure costs for these stores.
DEPRECIATION AND AMORTIZATION EXPENSE. Total depreciation and amortization
expense increased by $9,417,000, or 90.5%, from $10,403,000 to $19,820,000 for
the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3,
1998. This increase was primarily attributable to increased goodwill
amortization from the acquisitions of H&M and Pretzel Time in fiscal 1997 and
the acquisitions of Great American, Deblan, Chocolate Chip and Pretzelmaker in
fiscal 1998.
For stores with negative contribution that were determined to be closed or
franchised, the Company wrote down the related long-lived assets to net
realizable value. This expense is included in depreciation and amortization in
the 1998 statement of operations and totaled $3,098,000. The Company also
assessed the realization of goodwill associated with these stores and recorded
an impairment of goodwill totaling $1,033,000 during fiscal 1998.
Depreciation and amortization expense for continuing company-owned stores
increased $ 2,076,000, or 53.3%, from $3,896,000 to $5,972,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This
increase in depreciation and amortization expense was primarily attributable to
the addition of 85 Pretzel Time continuing company-owned stores in July 1997, 65
Great American continuing company-owned stores in August and September 1998 and
the acquisition of 2 Pretzelmaker continuing company-owned stores in 1998.
TOTAL OPERATING COSTS AND EXPENSES. Total operating costs and expenses
increased by $33,632,000, or 26.7%, from $125,993,000 to $159,625,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998, for
the reasons discussed above.
INTEREST EXPENSE. Interest expense increased $5,367,000, or 68.5%, from
$7,830,000 to $13,197,000 for the 52 weeks ended January 2, 1999 compared to the
53 weeks ended January 3, 1998. This increase was primarily attributable to
interest expense on the $100,000,000 senior notes that were placed in November
1997 and the $40,000,000 senior notes placed in August 1998.
INTEREST INCOME. Interest income increased $377,000, or 153.3%, from
$246,000 to $623,000 for the 52 weeks ended January 2, 1999 compared to the 53
weeks ended January 3, 1998. This increase was primarily the result of interest
earned on excess cash provided by the $100,000,000 senior notes that were placed
in November 1997 and the $40,000,000 senior notes placed in August 1998.
OTHER EXPENSES. Other expenses decreased $625,000, or 34.6%, from
$1,805,000 to $1,180,000 for the 52 weeks ended January 2, 1999 compared to the
53 weeks ended January 3, 1998. This decrease was primarily attributable to
minority interest from the acquisitions of H&M and Pretzel Time in 1997 and a
decrease in the income tax provision during the 52 weeks ended January 2, 1999.
NET LOSS. The net loss increased by $18,169,000, or 1865.4%, from $974,000
to $19,143,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998 due to the combination of factors described above.
INCOME FROM CONTINUING COMPANY-OWNED STORES. Income from continuing
company-owned stores decreased by $4,622,000, or 17.2%, from $26,842,000 to
$22,220,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998. Income from continuing company-owned stores was
negatively impacted by a 1.8% decline in sales from stores that have been open
at least two years and by the increases in selling and store occupancy costs,
food cost of sales and depreciation and amortization described above. Income
from continuing company-owned stores was also negatively impacted by a calendar
shift whereby Mrs. Fields' year end was December 28 for fiscal 1996 and January
3, 1998 for fiscal 1997. As a result, the New Year's holiday week fell in the
first quarter of 1997 and again in the fourth quarter fiscal 1997. The first
quarter of fiscal 1998 did not benefit from the New Year's holiday sales.
Additionally, there were only 52 weeks in fiscal year 1998 compared to 53 weeks
in fiscal 1997.
LOSS FROM STORES IN THE PROCESS OF BEING CLOSED OR FRANCHISED. The loss
from stores in the process of being closed or franchised increased by $256,000,
or 14.2%, from $1,798,000 to $2,054,000 for the 52 weeks ended January 2, 1999
compared to the 53 weeks ended January 3, 1998. The increased loss was primarily
attributable to the addition of 65 stores from the acquisitions of Great
American, Deblan, Chocolate Chip and Karp in August and September 1998, offset
in part by closing or franchising 45 stores during the 52 weeks ended January 2,
1999.
53 Weeks Ended January 3, 1998 ("Fiscal Year 1997") Compared to the 52 Weeks
Ended December 28, 1996 ("Fiscal Year 1996") (Comprised of the Mrs. Fields Inc.,
Original Cookie and Hot Sam Pre-Acquisition Period of December 31, 1995 through
September 17, 1996 and the Mrs. Fields Post-Acquisition Period of September 18,
1996 through December 28, 1996)
COMPANY-OWNED AND FRANCHISED OR LICENSED STORE ACTIVITY
As of January 3, 1998, there were 481 company-owned stores and 553
franchised or licensed stores in operation. The store activity for the 52 weeks
ended December 28, 1996 and the 53 weeks ended January 3, 1998 is summarized as
follows:
<TABLE>
Fiscal 1996 Fiscal 1997
<S> <C> <C> <C> <C>
Company- Franchised Company- Franchised
owned or Licensed owned or Licensed
Stores open as of the beginning of the fiscal year............ 540 415 482 418
Stores opened (including relocations)......................... 5 118 3 76
Stores acquired through business acquisitions................. -- -- 83 141
Stores closed (including relocations)......................... (39) (122) (7) (89)
Non-continuing company-owned (exit plan) stores closed
(September 18, 1996 forward)............................... (17) -- (73) --
Stores sold to franchisees.................................... (9) 9 (3) 3
Non-continuing company-owned (exit plan) stores franchised
(September 18, 1996 forward)............................... (3) 3 (9) 9
Stores acquired from franchisees.............................. 5 (5) 5 (5)
--------- ---------- ---------- ----------
Stores open as of the end of the fiscal year.................. 482 418 481 553
========= ========== ========= ==========
</TABLE>
REVENUES
NET STORE AND FOOD SALES. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $1,515,000, or 1.2%,
from $126,330,000 to $127,845,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996.
Net store sales from continuing company-owned stores and mail order
increased $12,539,000, or 13.1%, from $95,635,000 to $108,174,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
The increase in net store sales from continuing company-owned stores was
primarily attributable to the operation of Pretzel Time continuing company-owned
stores obtained in connection with the acquisitions of H&M and Pretzel Time in
July 1997 and an increase in average transaction amounts resulting from the
introduction of product line extensions and aggressive marketing initiatives,
offset in part by declining transaction counts in certain concepts. Also, three
new continuing company-owned stores were opened and five stores were acquired
from franchises during the 53 weeks ended January 3, 1998.
Based on stores that have been open for at least two years (adjusted for
the calendar shift), system-wide continuing company-owned store sales were up
0.8% during the 53 weeks ended January 3, 1998 compared to the 52 weeks ended
December 28, 1996.
Net store sales from stores in the process of being closed or franchised
decreased $11,024,000, or 35.9%, from $30,695,000 to $19,671,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
This decrease results from the partial year effect of closing 73 stores and
franchising 7 (net) stores during fiscal year 1997 and the full year effect of
closing 56 stores and franchising 7 (net) stores during fiscal year 1996.
FRANCHISING REVENUES. Franchising revenues increased $1,088,000, or 31.6%,
from $3,447,000 to $4,535,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996. The increase in franchising revenues was
primarily attributable to royalties earned from Pretzel Time franchised stores
obtained in connection with the acquisitions of H&M and Pretzel Time coupled
with new franchise openings in fiscal year 1997 and the full year effect of new
franchise openings in fiscal year 1996.
LICENSING REVENUES. Licensing revenues increased $372,000, or 22.5%, from
$1,656,000 to $2,028,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. The increase in licensing revenues is
primarily attributable to licensing fees earned on new license agreements
entered into during the 53 weeks ended January 3, 1998, and increased royalties
received from existing licensees.
TOTAL REVENUES. Total revenues increased by $2,975,000, or 2.3%, from
$131,433,000 to $134,408,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996, for the reasons discussed above.
OPERATING COSTS AND EXPENSES
SELLING AND STORE OCCUPANCY COSTS. Total selling and store occupancy costs
decreased $2,377,000, or 3.4%, from $69,209,000 to $66,832,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Selling and store occupancy costs for continuing company-owned stores
increased by $5,895,000, or 13.1%, from $44,963,000 to $50,858,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Within this overall increase, selling expenses increased by $4,029,000, or
15.7%, from $25,650,000 to $29,679,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The increase in selling
expenses was primarily attributable to an increase in the minimum wage during
the third quarter of 1996 from $4.15 to $4.75 an hour and an increase in labor
hours to support the increase in sales. Store occupancy costs increased
$1,866,000, or 9.7%, from $19,313,000 to $21,179,000 for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase
in store occupancy costs was primarily attributable to the addition of Pretzel
Time continuing company-owned stores in July 1997, and the opening of three
continuing company-owned stores and acquiring five stores from franchises during
the 53 weeks ended January 3, 1998 coupled with lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $8,272,000, or 34.1%, from $24,246,000 to $15,974,000
for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December
28, 1996. This decrease is primarily the result of closing 73 stores and
franchising seven (net) stores during fiscal year 1997 and the full year effect
of closing 56 stores and franchising seven (net) stores during fiscal year 1996.
COST OF SALES. Total cost of sales increased $688,000, or 2.2%, from
$31,340,000 to $32,028,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996.
Cost of sales for continuing company-owned stores increased $2,079,000, or
8.5%, from $24,499,000 to $26,578,000 for the 53 weeks ended January 3, 1998.
This increase is primarily the result of the addition in July 1997 of Pretzel
Time continuing company-owned stores, offset by an aggressive product waste
control program which was uniformly applied to all product lines early in the
year. Additionally, Mrs. Fields re-negotiated certain vendor contracts to
capitalize on Mrs. Fields' economies of scale.
Cost of sales for stores in the process of being closed or franchised
decreased $1,391,000, or 20.3%, from $6,841,000 to $5,450,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This
decrease is primarily the result of closing 73 stores and franchising seven
(net) stores during fiscal year 1997 and the full year effect of closing 56
stores and franchising seven (net) stores during fiscal year 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $4,365,000, or 21.2%, from $20,557,000 to $16,192,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The
decrease in expenses was primarily attributable to the cost savings achieved by
combining the operations of Mrs. Fields Inc. and subsidiaries, Original Cookie,
Hot Sam and Pretzel Time which resulted in:
(1) reduced headcount with corresponding decreases in administrative
salaries and benefits;
(2) decreased professional service fees, including
legal and accounting services; and
(3) decreased corporate office expenditures, including general insurance,
repairs and maintenance and utilities as a direct result of closing
the Original Cookie and Hot Sam headquarters in Cleveland, Ohio, the
Pretzel Time headquarters in Harrisburg, Pennsylvania and the H&M
headquarters in Boise, Idaho.
DEPRECIATION AND AMORTIZATION EXPENSe. Total depreciation and amortization
expense increased by $1,211,000, or 13.2%, from $9,192,000 to $10,403,000 for
the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28,
1996.
Depreciation and amortization expense for continuing company-owned stores
decreased $1,036,000, or 21.0%, from $4,932,000 to $3,896,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The
decrease in depreciation and amortization expense was primarily attributable to
Mrs. Fields recording the acquired assets of Mrs. Fields Inc. and subsidiaries,
Original Cookie and Hot Sam at their fair values at the time of purchase on
September 17, 1996, resulting in an overall reduction to the store asset base
and the corresponding depreciation. This decrease is partially offset by
additional depreciation expense resulting from the addition of Pretzel Time
continuing company-owned stores in July 1997, three newly opened continuing
company-owned stores and five stores acquired from franchises in fiscal year
1997.
TOTAL OPERATING COSTS AND EXPENSES. Total operating costs and expenses
decreased by $4,305,000, or 3.3%, from $130,298,000 to $125,993,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996,
for the reasons discussed above.
INTEREST EXPENSE. Interest expense increased $2,988,000, or 61.7%, from
$4,842,000 to $7,830,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. This increase is primarily attributable to an
increase in interest expense as a result of the debt incurred to fund the
purchase of the assets of Mrs. Fields Inc. and subsidiaries, Original Cookie and
Hot Sam on September 17, 1996.
OTHER EXPENSES. Other expenses decreased $617,000, or 25.5%, from
$2,422,000 to $1,805,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. This decrease was primarily attributable to a
decrease in income tax provision, offset in part by an increase in accretion and
dividends on preferred stock of subsidiaries.
NET LOSS. The net loss decreased by $5,014,000, or 83.7%, from $5,988,000
to $974,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996. The net loss equaled 0.7% of total revenues during the
53 weeks ended January 3, 1998 compared to 4.6% of total revenues during the 52
weeks ended December 28, 1996. The decrease in net loss is primarily due to cost
savings achieved by combining the operations of Mrs. Fields Inc. and
subsidiaries, Original Cookie and Hot Sam, cost savings associated with the
acquisitions of H&M and Pretzel Time and improved store operations.
INCOME FROM CONTINUING COMPANY-OWNED STORES. The income from continuing
company-owned stores increased by $5,601,000, or 26.4%, from $21,241,000 to
$26,842,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996 due to the combination of the factors described above.
LOSS FROM STORES IN THE PROCESS OF BEING CLOSED OR FRANCHISED. The loss
from stores in the process of being closed or franchised decreased by $135,000,
or 7.0%, from $1,933,000 to $1,798,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The decrease in negative
income was primarily attributable to closing 73 stores and franchising seven
(net) stores during fiscal year 1997 and the full year effect of closing 56
stores and franchising seven (net) stores during fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Mrs. Fields' principal sources of liquidity are cash flows from operations,
cash on hand and available borrowings under Mrs. Fields' existing revolving
credit facility. At January 2, 1999, Mrs. Fields had $4,751,000 of cash and cash
equivalents and $15,000,000 of available borrowings under its credit facility.
However, at January 2, 1999, this availability was limited by the bond indenture
to $4,777,000. It is expected that Mrs. Fields' principal uses of cash will be
to provide working capital, finance capital expenditures, including acquisitions
and store closure costs, meet debt service requirements and other general
corporate purposes. Mrs. Fields is highly leveraged. Based on current operations
and anticipated cost savings, Mrs. Fields believes that its sources of liquidity
will be adequate to meet its anticipated requirements for working capital,
capital expenditures and store closure costs, scheduled debt service
requirements and other general corporate purposes. There can be no assurance,
however, that Mrs. Fields' business will continue to generate cash flows at or
above current levels or that cost savings can be achieved. In addition, given
borrowing restrictions on the bond indenture and maintenance covenants in the
revolving credit facility, the ability for Mrs. Fields to make additional
borrowings is limited. Accordingly, Mrs. Fields may choose to defer capital
expenditure plans and extend vendor payments for additional cash flow
flexibility.
JANUARY 2, 1999 COMPARED TO JANUARY 3, 1998
As of January 2, 1999, Mrs. Fields had liquid assets (cash and cash
equivalents and accounts receivable) of $13,962,000, a decrease of 30.2%, or
$6,036,000, from January 3, 1998 when liquid assets were $19,998,000. Cash and
cash equivalents decreased $11,536,000, or 70.8%, to $4,751,000 at January 2,
1999 from $16,287,000 at January 3, 1998. This decrease was primarily the result
of cash used for the acquisitions of Great American, Deblan and Chocolate Chip,
and Karp in August and September 1998, the acquisition of Pretzelmaker in
November 1998, the acquisition of 30% of Pretzel Time's common stock in November
and December 1998, capital expenditures of $8,235,000 relating to store remodels
and renovations and interest payments of $12,440,000 primarily relating to the
$140,000,000 total principal amount of senior notes, offset in part, by $623,000
in interest income earned during the year from excess cash investments.
Current assets decreased by $4,480,000 or 15.5%, to $24,343,000 at January
2, 1999 from $28,823,000 at January 3, 1998. This decrease was primarily the
result of a decrease in cash and cash equivalents of $11,536,000, offset by an
increase in accounts receivable of $5,500,000, an increase in inventories of
$2,403,000 and a decrease in the current portion of deferred income tax assets.
Long-term assets increased $86,702,000, or 71.1%, to $207,563,000 at
January 2, 1999 from $120,861,000 at January 3, 1998. This increase was
primarily the result of an increase in property and equipment and goodwill
related to the acquisitions of Great American, Deblan, Chocolate Chip, Karp and
Pretzelmaker.
Current liabilities increased by $21,380,000, or 136.3%, to $37,070,000 at
January 2, 1999 from $15,690,000 at January 3, 1998. This increase is due to an
increase in accounts payable, accrued interest payable, current portion of
long-term debt, accrued salaries, wages and benefits, store closure reserves and
accrued liabilities offset by a decrease in deferred income.
Mrs. Fields' working capital decreased by $25,860,000, or 196.9%, to a
negative $12,727,000 at January 2, 1999 from $13,133,000 at January 3, 1998, for
the reasons described above.
Mrs. Fields generated $9,429,000 of cash from operating activities during
the 52 weeks ended January 2, 1999, primarily from store sales and franchising
and licensing revenues less costs and expenses incurred to generate the store
sales and franchising and licensing revenues, and less interest paid on the
$140,000,000 senior notes.
Mrs. Fields utilized $40,894,000 of cash from investing activities during
the 52 weeks ended January 2, 1999, primarily for the acquisition of Great
American, Deblan, Chocolate Chip, Karp and Pretzelmaker and capital expenditures
relating to store remodels and renovations.
Mrs. Fields generated $19,929,000 of cash from financing activities during
the 52 weeks ended January 2, 1999, primarily from the issuance of new senior
notes and a capital contribution from Mrs. Fields' Holding, net of principal
payments to retire Great American long-term debt and payment of acquisition
costs.
The specialty cookie and pretzel businesses do not require the maintenance
of significant receivables or inventories; however, Mrs. Fields continually
invests in its business by upgrading and remodeling stores and adding new
stores, carts, and kiosks as opportunities arise. Investments in these long-term
assets, which are key to generating current sales, reduce Mrs. Fields' working
capital. During the 52 weeks ended January 2, 1999, Mrs. Fields expended
$8,235,000 for capital assets and expects to expend approximately $7,000,000 for
all of 1999. Management anticipates that these expenditures will be funded with
cash generated from operations and short-term borrowings under its credit
facility as needed. As of March 31, 1999, the Company had drawn $3,000,000 on
its credit facility leaving $5,700,000 available for future use.
INFLATION
The impact of inflation on the earnings of the business has not been
significant in recent years. Most of Mrs. Fields' leases contain escalation
clauses. However, such leases are accounted for on a straight-line basis as
required by generally accepted accounting principles which minimizes
fluctuations in operating income. In addition, many of Mrs. Fields' employees
are paid hourly wages at the Federal minimum wage level. Minimum wage increases
will negatively impact Mrs. Fields' payroll costs in the short term, but
management believes such impact can be offset in the long term through
operational efficiency gains and, if necessary, through product price increases.
SEASONALITY
Mrs. Fields' sales and income from store operations are highly seasonal
given the significant impact of its mall-based locations. Mrs. Fields' sales
tend to mirror customer traffic flow trends in malls which increase
significantly during the fourth quarter, primarily between Thanksgiving and the
end of the calendar year. Holiday gift purchases are also a significant factor
in increased sales in the fourth quarter.
The seasonality effect on income from store operations is even more
significant than the effect on sales. The impact on income from store operations
is more significant due to the fixed nature of certain store level costs, such
as occupancy costs and store manager salaries. Once these fixed costs are
covered by store sales, the flow through of sales to income from store
operations becomes greater. Accordingly, the fourth quarter is a key determinant
to overall profitability for the year.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's major market risk exposure is changing interest rates. The
Company does not hedge against changes in interest rates. The table below
provides information about the Company's financial instruments that are
sensitive to changes in interest rates including principal cash flows and
related weighted average interest rates by year of expected maturity dates. The
table does not include non-interest bearing notes totaling $4,740,000 and
unamortized discount of $566,000.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 Thereafter Total Fair Value
($ in thousands) As of 1/2/99
Long-term debt, including
current portion (fixed rate) $3,336 $638 $529 $573 $443 $140,000 $145,519 $140,619
Weighted average interest rate 10.58% 9.84% 9.18% 9.17% 9.17% 10.13% 10.12%
</TABLE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
Mrs. Fields' Original Cookies, Inc. and subsidiaries
<TABLE>
<S> <C>
Page
Report of Independent Public Accountants................................................................... 27
Consolidated Balance Sheets as of January 3, 1998 and January 2, 1999...................................... 28
Consolidated Statements of Operations for the period from inception (September 18, 1996) to December 28, 1996
and for the years ended January 3, 1998 and January 2, 1999................................................ 30
Consolidated Statements of Stockholder's Equity for the period from inception (September 18, 1996) to
December 28, 1996 and for the years ended January 3, 1998 and January 2, 1999.............................. 31
Consolidated Statements of Cash Flows for the period from inception (September 18, 1996) to December 28, 1996
and for the years ended January 3, 1998 and January 2, 1999................................................ 32
Notes to Consolidated Financial Statements................................................................. 35
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields' Original Cookies, Inc.:
We have audited the accompanying consolidated balance sheets of Mrs. Fields'
Original Cookies, Inc. (a Delaware corporation) and subsidiaries as of January
3, 1998 and January 2, 1999, and the related consolidated statements of
operations, stockholder's equity and cash flows for the period from inception
(September 18, 1996) to December 28, 1996 and for each of the two years in the
period ended January 2, 1999. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mrs.
Fields' Original Cookies, Inc. and subsidiaries as of January 3, 1998 and
January 2, 1999, and the consolidated results of their operations and their cash
flows for the period from inception (September 18, 1996) to December 28, 1996
and for each of the two years in the period ended January 2, 1999 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
April 1, 1999
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
ASSETS
<TABLE>
<S> <C> <C>
January 3, January 2,
1998 1999
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 16,287 $ 4,751
Accounts receivable, net of allowance for doubtful accounts of $32 and $74,
respectively.................................................................... 1,535 3,208
Amounts due from franchisees and licensees, net of allowance for doubtful
accounts of $582 and $1,078, respectively....................................... 2,176 6,003
Inventories........................................................................ 3,100 5,503
Prepaid rent and other............................................................. 2,960 4,017
Deferred income tax assets......................................................... 2,765 861
---------- ---------
Total current assets.......................................................... 28,823 24,343
----------- ----------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements............................................................. 21,099 29,914
Equipment and fixtures............................................................. 14,100 17,108
Land . 128 240
----------- ----------
35,327 47,262
Less accumulated depreciation and amortization..................................... (6,125) (15,465)
------------ ----------
Net property and equipment.................................................... 29,202 31,797
----------- ----------
DEFERRED INCOME TAX ASSETS.............................................................. 734 2,638
----------- ----------
GOODWILL, net of accumulated amortization of $4,980 and $11,231, respectively........... 68,501 145,782
----------- ----------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated amortization of
$1,409 and $2,615, respectively...................................................... 15,193 14,296
---------- ----------
DEFERRED LOAN COSTS, net of accumulated amortization of $70 and $1,320,
respectively......................................................................... 5,906 11,718
----------- ---------
OTHER ASSETS .......................................................................... 1,325 1,332
----------- ----------
$ 149,684 $ 231,906
=========== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C> <C>
January 3, January 2,
1998 1999
CURRENT LIABILITIES:
Current portion of long-term debt...................................................... $ 472 $ 8,046
Current portion of capital lease obligations........................................... 142 299
Accounts payable....................................................................... 3,805 10,723
Bank overdraft......................................................................... -- 4,133
Accrued liabilities.................................................................... 2,826 3,597
Current portion of store closure reserve............................................... 3,664 4,577
Accrued salaries, wages and benefits................................................... 1,891 3,155
Accrued interest payable............................................................... 1,082 1,260
Sales taxes payable.................................................................... 937 962
Deferred credits....................................................................... 871 318
----------- ----------
Total current liabilities......................................................... 15,690 37,070
LONG-TERM DEBT, net of current portion and discount......................................... 100,284 141,647
STORE CLOSURE RESERVE, net of current portion............................................... 1,802 10,134
CAPITAL LEASE OBLIGATIONS, net of current portion........................................... 183 997
----------- ----------
Total liabilities................................................................. 117,959 189,848
--------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 7 and 8)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of Pretzel Time
(a wholly owned subsidiary), aggregate liquidation preference of $1,437 and $1,495,
respectively............................................................................. 902 1,261
----------- ----------
MINORITY INTEREST........................................................................... 58 119
----------- ----------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized and 400 shares outstanding
(pledged as collateral for parent company debt)..................................... -- --
Additional paid-in capital............................................................. 30,843 59,899
Accumulated deficit.................................................................... (78) (19,221)
------------ ---------
Total stockholder's equity........................................................ 30,765 40,678
------------ ---------
$149,684 $231,906
=========== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
Inception 53 52
(September 18, Weeks Weeks
1996) to Ended Ended
December 28, January 3, January 2,
1996 1998 1999
----- ------ ----
REVENUES:
Net store and food sales........................................... $ 40,849 $127,845 $140,235
Franchising, net................................................... 503 4,535 12,464
Licensing, net..................................................... 764 2,028 1,537
------------ --------- ---------
Total revenues................................................ 42,116 134,408 154,236
------------ --------- ---------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.................................. 19,492 66,832 75,003
Cost of sales...................................................... 10,596 32,028 38,482
General and administrative......................................... 4,035 16,192 19,017
Store closure provision............................................ -- 538 7,303
Depreciation and amortization...................................... 2,344 10,403 19,820
------------ ---------- ---------
Total operating costs and expenses............................ 36,467 125,993 159,625
------------ ---------- ---------
Income (loss) from operations............................ 5,649 8,415 (5,389)
------------ ---------- -----------
OTHER INCOME (EXPENSE), net:
Interest expense................................................... (1,867) (7,830) (13,197)
Interest income.................................................... 74 246 623
Other expense...................................................... -- (368) (409)
------------- ----------- -----------
Total other expense, net...................................... (1,793) (7,952) (12,983)
------------ ---------- ---------
Income (loss) before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority interest... 3,856 463 (18,372)
PROVISION FOR INCOME TAXES.............................................. (1,798) (655) (316)
------------ ---------- ----------
Income (loss) before preferred stock accretion and dividends of
subsidiaries and minority interest.............................. 2,058 (192) (18,688)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES......................................................... (97) (644) (444)
MINORITY INTEREST ...................................................... -- (138) (11)
------------ ---------- ----------
Net income (loss)............................................. $ 1,961 $ (974) $ (19,143)
============= ========== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Retained
Earnings
Common Stock Additional (Accumulated
Shares Amount Paid-in Capital Deficit) Total
BALANCE, September 18, 1996.................................. -- $ -- $ -- $ -- $ --
Issuance of common stock for cash....................... 400 -- 15,000 -- 15,000
Net income.............................................. -- -- -- 1,961 1,961
------- ---------- ------- -------- ---------
BALANCE, December 28, 1996................................... 400 -- 15,000 1,961 16,961
Parent contribution of investment in Pretzel Time....... -- -- 4,200 -- 4,200
Parent contribution of note receivable due from
Pretzel Time's minority stockholder and founder...... -- -- 500 -- 500
Parent contribution of investment in Mrs. Fields' Brand -- -- 6,500 -- 6,500
Conversion to equity of note payable to parent.......... -- -- 4,643 -- 4,643
Dividend paid to parent................................. -- -- -- (1,065) (1,065)
Net loss................................................ -- -- -- (974) (974)
-------- ---------- --------- ------- ---------
BALANCE, January 3, 1998..................................... 400 -- 30,843 (78) 30,765
Parent equity infusion.................................. -- -- 29,056 -- 29,056
Net loss................................................ -- -- -- (19,143) (19,143)
-------- ---------- -------- -------- ---------
BALANCE, January 2, 1999..................................... 400 $ -- $59,899 $ (19,221) $ 40,678
======== ====== ======= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
Inception
(September 53 Weeks 52 Weeks
18, 1996) to Ended Ended
December 28, January 3, January 2,
1996 1998 1999
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 1,961 $ (974) $(19,143)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities, net of effects from acquisitions:
Depreciation and amortization............................................ 2,344 10,403 19,820
Amortization of discount on notes........................................ -- -- 1,250
Amortization of deferred loan costs...................................... -- -- 32
Loss on disposition of assets............................................ -- 368 409
Deferred income taxes.................................................... 1,511 210 --
In-kind interest expense on note payable to stockholder.................. 97 338 --
Preferred stock accretion and dividends of subsidiaries.................. 97 644 444
Minority interest........................................................ -- 234 11
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable.................................................... (294) (353) (1,673)
Amounts due from franchisees and licensees............................. (339) (514) (866)
Inventories............................................................ (159) 136 (822)
Prepaid rent and other................................................. (31) (895) 932
Other assets........................................................... 39 427 1,437
Accounts payable and accrued liabilities............................... 239 (6,651) 2,769
Store closure reserve.................................................. (305) (1,666) 5,196
Accrued salaries, wages and benefits................................... 212 80 1,264
Accrued interest payable............................................... 1,668 (586) (713)
Sales taxes payable.................................................... 542 261 (80)
Deferred credits....................................................... 27 (543) (838)
----------- --------- --------
Net cash provided by operating activities............................ 7,609 919 9,429
------------ --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions and related costs........................... (19,508) (10,949) (32,835)
Purchase of property and equipment, net of effects from acquisitions....... (1,638) (4,678) (8,235)
Proceeds from the sale of assets........................................... 15 122 176
------------- -------- ---------
Net cash used in investing activities................................ (21,131) (15,505) (40,894)
------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................................... -- 108,250 39,400
Principal payments on long-term debt....................................... (1,769) (77,009) (41,257)
Payment of debt financing costs............................................ -- (5,976) (7,062)
Cash advance from Mrs. Fields' Holding..................................... -- 1,500 --
Repayment of cash advance to Mrs. Fields' Holding.......................... -- (1,500) --
Payment of cash dividend to Mrs. Fields' Holding........................... -- (1,065) --
Equity infusion from Mrs. Fields' Holding.................................. -- -- 29,056
Principal payments on capital lease obligations............................ -- (36) (123)
Proceeds from the issuance of common stock................................. 15,000 -- --
Proceeds from the issuance of mandatorily redeemable cumulative
preferred stock of subsidiary............................................ 3,500 -- --
Reduction in preferred stock of Pretzel Time............................... -- -- (85)
Proceeds from the issuance of note payable to related party................ 3,500 -- --
------------ -------- --------
Net cash provided by financing activities............................ 20,231 24,164 19,929
------------ ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 6,709 9,578 (11,536)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD......................... -- 6,709 16,287
------------ -------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD............................... $ 6,709$ 16,287 $ 4,751
============ ======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-- (Continued)
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest was approximately $28, $8,416, and $12,440 for the
period ended December 28, 1996, and for the years ended January 3, 1998 and
January 2, 1999, respectively.
Cash paid for income taxes was approximately $0, $217, and $209 for the
period ended December 28, 1996, and for the years ended January 3, 1998 and
January 2, 1999, respectively.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On September 18, 1996, the Company acquired certain assets and assumed
certain liabilities of Mrs. Fields Inc., Mrs. Fields Development Corporation,
Mrs. Fields Cookies, The Original Cookie Company, Incorporated and Hot Sam
Company, Inc. In conjunction with the acquisitions, the following net
liabilities were assumed. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired................................................... $93,494
Net cash paid................................................................... (19,508)
Notes payable issued............................................................ (65,735)
-------
Liabilities assumed........................................................ $ 8,251
=======
</TABLE>
On November 26, 1997, Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") converted to common equity of the Company $4,643 total principal
amount of convertible subordinated notes and contributed to the Company all of
the common equity of Mrs. Fields' Brands after converting its preferred stock
interests totaling $3,935 to common equity.
On July 25, 1997, certain assets were acquired and certain liabilities were
assumed of H & M Concepts Ltd. Co. by Mrs. Fields' Pretzel Concepts, Inc.
("Pretzel Concepts") as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired.................................................. $15,780
Net cash paid.................................................................. (5,750)
Notes payable issued........................................................... (8,000)
-------
Liabilities assumed....................................................... $ 2,030
=======
</TABLE>
On September 2, 1997, 56 percent of the shares of common stock of Pretzel
Time, Inc. ('Pretzel Time") were acquired by Mrs. Fields' Holding as follows.
Additionally, in connection with the purchase accounting, certain other accruals
were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired................................................. $8,311
. Net cash paid................................................................. (4,200)
-------
Liabilities assumed...................................................... $4,111
======
</TABLE>
On November 26, 1997, Mrs. Fields' Holding contributed all of the assets
and liabilities of Pretzel Concepts, Mrs. Fields' Holding's 56 percent of the
shares of common stock of Pretzel Time and a $500 note receivable from Pretzel
Time's founder and minority stockholder to the Company. Mrs. Fields' Holding
also contributed all of the common stock of Mrs. Fields' Brands to Mrs.
Fields.
The accompanying notes to consolidated financial statements are
an integral part of these statements.
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
During the period from the acquisition of the majority ownership of Pretzel
Time (September 2, 1997) to January 2, 1999, Pretzel Time increased its
mandatorily redeemable cumulative preferred stock liquidation preference by
approximately $212, in lieu of paying cash dividends. In addition, for the same
period, Pretzel Time 's mandatorily redeemable cumulative preferred stock was
increased by approximately $538 for the accretion required over time to amortize
the original issue discount.
In August 1998, the Company acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, Inc. ("Cookies USA") for a total
purchase price of approximately $18,400. During August and September 1998, the
Company also entered into agreements with three franchisees of Cookies USA (the
"Great American Franchisees") under which the Company purchased a total of 37
Great American Cookies franchises for a total purchase price of $16,328. The
total purchase price for all of these acquisitions of $34,728 was allocated, on
a preliminary basis, as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired................................................ $77,410
Net cash paid................................................................ (27,771)
--------
Liabilities assumed..................................................... $49,639
=======
</TABLE>
In October 1998, the Company acquired the assets of the Cookie
Conglomerate, Inc. ("Cookie Conglomerate") for a total purchase price of $2,800.
The total purchase price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired .............................................. $2,800
Net cash paid............................................................... --
------
Liabilities assumed..................................................... $2,800
======
</TABLE>
In November 1998, the Company acquired all of the outstanding stock of
Pretzelmaker Holdings, Inc. ("Pretzelmaker") for $5,419. The total purchase
price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired ............................................ $ 8,519
Net cash paid............................................................. (1,100)
--------
Liabilities assumed.............................................. $ 7,419
========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Mrs. Fields' Original Cookies, Inc. (the "Company"), a Delaware corporation,
is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc.. Mrs. Fields'
Holding is a majority owned subsidiary of Capricorn Investors II, L.P.
("Capricorn"). The Company has eight wholly owned operating subsidiaries;
namely, Great American Cookie Company, Inc., The Mrs. Fields' Brand, Inc.,
Pretzel Time, Inc., Pretzelmaker Holdings, Inc., Mrs. Fields' Cookies Australia,
Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of Canada; and
three partially owned subsidiaries.
The Company primarily operates retail stores which sell freshly baked
cookies, brownies, pretzels and other food products through six specialty retail
chains. As of January 2, 1999, the Company owned and operated 147 Mrs. Fields
Cookies stores, 120 Original Cookie Company stores, 119 Great American Cookies
stores, 77 Hot Sam Pretzels stores, 93 Pretzel Time stores, 9 Pretzelmaker
stores in the United States and one Pretzel Time store in Canada. Additionally,
the Company has franchised or licensed 859 stores in the United States and 113
stores in several other countries. As of January 2, 1999, the Company owned and
operated 437 core stores and 129 stores which are in the process of being closed
or franchised. All of the stores in the process of being closed or franchised
are expected to be closed or franchised by the end of fiscal year 2000.
The Company holds legal title to certain trademarks for the "Mrs. Fields"
name and logo and licenses the uses of these trademarks to third parties for the
establishment and operation of Mrs. Fields' cookie and bakery operations and
other merchandising activities. In connection with these licensing activities,
the Company authorizes third-party licensees to use certain business formats,
systems, methods, procedures, designs, layouts, specifications, trade names and
trademarks in the United States and other countries. Additionally, the Company
markets and distributes its products through catalogs, other print media and
mail order.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the fourth quarter. Because the Company's stores are heavily concentrated in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls.
Business Combinations
Mrs. Fields, Inc. and Affiliates and Original Cookie Company and Affiliates
The Company began operations on September 18, 1996, following the
completion of two simultaneous but separate asset purchase transactions wherein
the Company (i) acquired certain assets and assumed certain liabilities of Mrs.
Fields Inc., Mrs. Fields Development Corporation and Mrs. Fields Cookies in
accordance with two Asset Purchase Agreements dated August 7, 1996, among these
parties and Capricorn, and (ii) acquired certain assets and assumed certain
liabilities of The Original Cookie Company, Incorporated and Hot Sam Company,
Inc. in accordance with an Asset Purchase Agreement dated August 7, 1996, as
amended by the First Amendment dated as of September 17, 1996, among these
parties and Capricorn.
The combined purchase price for the acquired net assets was
approximately $85,243,000. The Company paid net cash of $19,508,000 and issued
approximately $65,735,000 in senior and subordinated notes to the selling
shareholders. The acquisitions were accounted for as purchases. The total
purchase price was allocated to the net assets acquired, based on their
estimated fair values. The organization of the Company and the acquisitions
resulted in the recording of intangible assets of approximately $49,942,000
principally made up of goodwill, trademarks and organization costs. An
additional $17,680,000 of goodwill and $4,520,000 of deferred income tax assets
(net of valuation allowances) were recorded in connection with the Company
recording certain other accruals totaling
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$11,300,000 and providing reserves totaling $10,921,000 for impaired property
and equipment (see Note 5) at Company-owned stores the Company intends to exit
through closing or franchising. Goodwill and trademarks are amortized using the
straight-line method over 15 years. The $11,300,000 of accruals established at
the date of the acquisitions consisted of $5,060,000 for obligations incident to
store closures (see Note 5), $2,450,000 for contingent legal and lease
obligations that were firmed up before December 28, 1996, $3,135,000 for
transaction and finders' fees and $655,000 for severance and related costs. The
Company terminated all of the Original Cookie Company and Affiliates corporate
employees as planned.
As of January 2, 1999, approximately $2,068,000 of the $2,450,000 accrual
for legal and lease obligations has been utilized. The remaining amount as of
January 2, 1999 of approximately $382,000 is expected to be utilized by the end
of 1999. All of the $3,135,000 accrual established for transaction and finders'
fees and the $655,000 accrual for severance and related costs associated with
the acquisitions were fully utilized for the purposes intended during fiscal
1997.
H & M Concepts Ltd. Co.
On July 25, 1997, Mrs. Fields' Pretzel Concepts, Inc., a wholly owned
subsidiary of Mrs. Fields' Holding, acquired substantially all of the assets and
assumed certain liabilities of H & M Concepts Ltd. Co. and subsidiaries ("H &
M"). H & M owned and operated stores which engage in retail sales of pretzels,
toppings and beverages under a franchise agreement with Pretzel Time, Inc. The
total consideration of $13,750,000 consisted of (i) $5,750,000 of cash, financed
through an advance from Mrs. Fields' Holding of $1,500,000 and a $4,250,000 bank
loan to Pretzel Concepts, (ii) a $4,000,000 principal amount bridge note of
Pretzel Concepts and (iii) a $4,000,000 principal amount subordinated note of
Mrs. Fields' Holding retained by the sellers (all such debt collectively
referred to as the "H & M Debt"). The acquisition was accounted for using the
purchase method of accounting (based on the estimated fair values of the net
assets acquired) and resulted in recording approximately $9,618,000 of goodwill
that is being amortized using the straight-line method over 15 years.
Effective November 26, 1997, Mrs. Fields' Holding contributed all of the
assets and liabilities of Pretzel Concepts to the Company and, in consideration
thereof, the Company assumed the H & M Debt, including all accrued but unpaid
interest. Pretzel Concepts and the Company merged on the same date with the
Company being the surviving entity. The contribution was accounted for in a
manner similar to that of pooling-of-interests accounting. There was no step-up
in the historical basis of Pretzel Concepts ' assets or liabilities. Beginning
with July 25, 1997, the Company has included Pretzel Concepts ' results of
operations in the Company's consolidated results of operations.
Pretzel Time, Inc.
On September 2, 1997, Mrs. Fields' Holding acquired 56 percent of the
shares of common stock of Pretzel Time for an total cash purchase price of
$4,200,000, $750,000 of which was paid to Pretzel Time for working capital
purposes, and the balance of which was paid to the selling shareholders. In
connection with the acquisition, Mrs. Fields' Holding extended a $500,000 loan
to the founder of Pretzel Time who continued to own 44 percent of the shares of
common stock of Pretzel Time. The note bears interest at an annual rate of ten
percent (see Note 8). Pretzel Time is a franchisor of hand rolled soft pretzel
outlets located in North America. The outlets are primarily located in shopping
malls. The acquisition was accounted for using the purchase method of accounting
(based on the estimated fair values of the net assets acquired) and resulted in
recording approximately $5,882,000 of goodwill that is being amortized using the
straight-line method over 15 years. The goodwill recorded was $1,682,000 more
than the purchase price as the Company assumed more liabilities than it acquired
in assets at their fair values. Additionally, severance and legal accruals were
established in accordance with EITF 95-3.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Effective November 26, 1997, Mrs. Fields' Holding contributed its 56
percent of the shares of common stock of Pretzel Time to the Company. Mrs.
Fields' Holding also contributed to the Company the $500,000 note due from
Pretzel Time's founder and minority stockholder. The contribution was accounted
for in a manner similar to that of pooling-of-interests accounting. There was no
step-up in the book basis of Pretzel Time's assets or liabilities.
On January 2, 1998, the Company purchased an additional four percent of the
shares of common stock of Pretzel Time from the founder for $300,000 in cash.
The purchase was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets acquired) and resulted in recording
approximately $311,000 of goodwill. In June 1998, the Company acquired an
additional ten percent of the shares of common stock of Pretzel Time from the
founder for $875,000 in cash. On December 9, 1998, Mrs. Fields purchased three
shares of Pretzel Time common stock for $500,000 in cash. On December 30, 1998,
Mrs. Fields completed the acquisition of the remaining outstanding common stock
of Pretzel Time under a stock purchase agreement dated December 30, 1998, for a
purchase price of approximately $4,700,000, $2,500,000 of which was paid in cash
on January 5, 1999 and $2,000,000 of which is payable on or before December 30,
1999. The Company has included the appropriate percentage of Pretzel Time's
results of operations for each respective period in its consolidated results of
operations.
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, Mrs. Fields' Holding owned 50.1 percent of the
shares of the common stock of Mrs. Fields' Brand. Mrs. Fields' Brand holds legal
title to certain trademarks for the "Mrs. Fields" name and logo and licenses the
use of these trademarks to third parties for the establishment and operation of
Mrs. Fields' cookie and bakery operations and other merchandising activities. In
connection with these licensing activities, Mrs. Fields' Brand authorizes
third-party licensees to use certain business formats, systems, methods,
procedures, designs, layouts, specifications, trade names and trademarks in the
United States and other countries.
On November 26, 1997, Mrs. Fields' Holding acquired the remaining 49.9
percent of the shares of the common stock of Mrs. Fields' Brand from Harvard
Private Capital Holdings, Inc. for approximately $2,565,000. The consideration
consisted of $1,065,000 in cash and $1,500,000 in rights to common equity of
Mrs. Fields' Holding. Mrs. Fields' Holding 's Board of Directors determined the
value of Harvard's rights to the common equity based on a fair value analysis.
This analysis appropriately considered a discount for lack of controlling
interest and marketability as Mrs. Fields' Holding 's common equity is not
publicly traded. The acquisition was accounted for using the purchase method of
accounting (based on the estimated fair values of the net assets acquired) and
resulted in recording approximately $2,565,000 of intangible assets (primarily
goodwill) that are being amortized using the straight-line method over 15 years.
Effective November 26, 1997, Mrs. Fields' Holding contributed all of the
common stock of Mrs. Fields' Brand to the Company. As a result of this capital
contribution, Mrs. Fields' Brand became a wholly owned subsidiary of the
Company. The contribution was accounted for in a manner similar to that of
pooling-of-interests accounting. There was no step-up in the book basis of Mrs.
Fields' Brand 's assets or liabilities. Although the Company owned 50.1 percent
of Mrs. Fields' Brand until November 25, 1997, the Company has included 100
percent of Mrs. Fields' Brand 's results of operations with the Company's
consolidated results of operations for all periods presented as a result of Mrs.
Fields' Brand incurring net losses for these periods.
Great American Cookie Company, Inc.
On August 24, 1998, the Company acquired all of the outstanding capital
stock and subordinated indebtedness of Cookies USA, Inc., the sole stockholder
of Great American Cookie Company, Inc., for a total purchase price of
$18,400,000. Great American is an operator and franchisor of mall-based
specialty retail cookie outlets and a manufacturer of cookie batter which is
distributed to Great American operated retail stores and sold to franchised
retail stores. Concurrently with the acquisition of Cookies USA, the Company
entered into agreements with two
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Great American franchisees under which the Company purchased a total of 29 Great
American franchises for a total purchase price of $14,430,000. The Company
acquired the franchises through the acquisition of 100 percent of the capital
stock of the two corporations through which the franchises operated. On
September 9, 1998, the Company acquired eight additional Great American
franchised retail stores from a Great American franchisee, under an asset
purchase agreement, for a total purchase price of $1,898,000. These acquisitions
will be collectively referred to as the "Great American Acquisitions."
The Great American Acquisitions have been accounted for using the purchase
method of accounting (based on preliminary estimates of fair values of the net
assets acquired) and resulted in recording approximately $69,390,000 of goodwill
that is being amortized using the straight-line method over 15 years.
Additionally, the Company caused Cookies USA to be merged with and into the
Company and caused the acquired franchisees corporations and/or net assets to be
merged with and into Great American. Great American became a wholly owned
subsidiary of the Company. The acquired entities' results of operations have
been included with those of the Company since the applicable dates of
acquisition.
The Great American Acquisitions were financed by (i) the net proceeds from
the Company issuing $40,000,000 Series C Senior Notes; (ii) the contribution of
the net proceeds totaling $29,056,000 from a Mrs. Fields' Holding offering to
the Company; and (iii) existing cash of the Company.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement among The Cookie
Conglomerate, Inc., The Cookie Conglomerate, LLP and two individuals who were
the partners of Cookie Conglomerate, LLP and the shareholders of Cookie
Conglomerate, Inc. The sellers were franchisees of Great American. The sellers'
rights under franchise agreements and subleases with Great American were
terminated upon closing of the transaction. The acquisition was funded through
borrowings.
Pretzelmaker Holdings, Inc.
On November 19, 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel retail company. The purchase price was approximately
$5,400,000 and Mrs. Fields assumed indebtedness, including severance payments,
totaling approximately $1,600,000.
1-800-Cookies
On October 10, 1997, the Company acquired substantially all of the net
assets of R&R Bourbon Street, Inc. dba 1-800-Cookies for $653,000 in cash. The
acquisition was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets acquired) and resulted in recording
$600,000 of goodwill and $53,000 of other assets. The goodwill is being
amortized using the straight-line method over 15 years.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma information for the period from inception
(September 18, 1996) to December 28, 1996, and for the years ended January 3,
1998 and January 2, 1999, presents the results of operations of the Company
assuming the H & M, Pretzel Time and Mrs. Fields' Brand acquisitions and the
Refinancing, as defined in Note 3, had occurred at the date of inception
(September 18, 1996) and that the Great American Acquisitions, Cookie
Conglomerate acquisition, Pretzelmaker acquisition and related financing had
occurred at December 29, 1996. The results of operations give effect to certain
adjustments, including amortization of intangible assets and interest expense on
acquisition debt. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted or the results which may occur in the future.
<TABLE>
<S> <C> <C> <C>
Inception
(September 18,
1996) to December 53 Weeks Ended 52 Weeks Ended
28, 1996 January 3, 1998 January 2, 1999
----------------- --------------- ---------------
(Unaudited)
Total revenues.................. $48,090,000 $200,574,000 $190,184,000
Store closure provision......... --- (538,000) (7,303,000)
Depreciation and amortization... (9,192,000) (19,405,000) (25,053,000)
Income (loss) from operations... 6,718,000 12,738,000 (4,380,000)
Net income (loss)............... 1,029,000 (3,638,000) (21,339,000)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
four suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of January
2, 1999, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation. As of
January 2, 1999, the Company had restricted cash of $225,000.
Inventories
Inventories consist of food, beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.
Pre-Opening Costs
Pre-opening costs associated with new Company-owned stores are charged to
expense as incurred. These amounts were not significant for the periods
presented in the accompanying consolidated financial statements. Pre-opening
costs associated with new franchised stores are the responsibility of the
franchisee.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are recorded in current operations.
Intangible Assets
Intangible assets consist primarily of goodwill and trademarks and are
amortized using the straight-line method over 15 years. Other intangible assets
such as covenants not to compete are not significant and are being amortized
using the straight-line method over two to five years.
Deferred Loan Costs
Deferred loan costs totaling $13,038,000 resulted from the sale of
$100,000,000 total principal amount of 101/8 percent Series A Senior Notes (the
"Series A Senior Notes") on November 26, 1997 and the sale of $40,000,000 total
principal amount of 101/8 percent Series C Senior Notes (the "Series C Senior
Notes") on August 24, 1998. These costs are being amortized to interest expense
over the approximate seven-year life of the Series A Notes and the approximate
six-year life of the Series C Senior Notes (see Note 3).
Discount on Series C Senior Notes
The Series C Senior Notes were issued at a discount which is being
amortized to interest expense over the approximate six-year life of the related
notes.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets
The Company reviews for impairment of long-lived assets when events or
changes in circumstances indicate that the book value of an asset may not be
recoverable. The Company evaluates, at each balance sheet date, whether events
and circumstances have occurred that indicate possible impairment. The Company
uses an estimate of future undiscounted net cash flows of the related asset or
group of assets over the remaining life in measuring whether the assets are
recoverable. The Company assesses impairment of long-lived assets at the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets.
During the year ended January 2, 1999, the Company wrote down
approximately $4,131,000 of impaired long-lived assets. The write-down included
approximately $3,098,000 of equipment and leasehold improvements at
company-owned stores that the Company intends to close or franchise (see Note 5)
and approximately $1,033,000 of goodwill that had been allocated to the impaired
assets. These assets have been written-down to their estimated net realizable
value. The impairment provision was included in depreciation and amortization in
the accompanying fiscal year 1998 statement of operations.
Store Closure Reserve
The Company accrues an estimate for the costs associated with closing a
nonperforming store in the period the determination is made to close the store.
The accruals are for estimated store lease termination costs (see Note 5).
Revenue Recognition
Revenues generated from company-owned stores are recognized at the point of
sale. Initial franchising and licensing fee revenues are recognized when all
material services or conditions relating to the sale have been substantially
performed or satisfied. Franchise and license royalties, which are based on a
percentage of gross store sales, are recognized as earned. Revenues from the
sale of batter that the Company produces and sales to franchisees are recognized
at the time of shipment and are classified in franchising revenue. The Company
receives rebates or other payments from suppliers based (directly or indirectly)
on sales to franchisees and company-owned stores. Rebates related to franchisees
are recorded as franchising revenue when earned. Rebates related to
company-owned stores are recorded as a reduction to cost of sales when earned.
Leases
The Company has various operating lease commitments on both company-owned
and franchised store locations and equipment. Expenses of operating leases with
escalating payment terms, including leases underlying subleases with
franchisees, are recognized on a straight-line basis over the lives of the
related leases. The Company accrues contingent rental expense on a monthly basis
for those retail stores where contingent rental expense is probable.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred income tax
assets or liabilities are determined based upon the difference between the
financial and income tax bases of assets and liabilities using enacted tax rates
expected to apply when differences are expected to be settled or realized.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
The balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars using the applicable balance sheet date exchange
rates, while revenues and expenses are translated using the average exchange
rates for the periods presented.
Translation gains or losses are insignificant for the periods presented.
Fair Value of Financial Instruments
The Company estimates that the total fair market value of its Series A/B
Senior Notes and Series C Senior Notes (see Note 3) was approximately
$101,250,000 and $135,100,000 as of January 3, 1998 and January 2, 1999,
respectively. These estimates are based on quoted market prices. The book values
of the Company's other financial instruments, including cash, accounts
receivable, accounts payable, accrued liabilities and other long-term debt
obligations, approximate fair values at the respective balance sheet dates.
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. This statement is effective for fiscal years beginning after June 15, 1999
and is not expected to have a material impact on the Company's consolidated
financial statements.
Reclassifications
Certain reclassifications have been made to the prior periods' consolidated
financial statements to conform with the current period presentation.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<S> <C> <C>
January 3, 1998 January 2, 1999
Series A/B senior unsecured notes, interest at 101/8 percent payable
semi-annually in arrears on June 1 and December 1, commencing June 1,
1998, due December 1, 2004................................................. $100,000,000 $100,000,000
Series C senior unsecured notes, interest at 101/8 percent payable semi-
annually in arrears on June 1 and December 1, commencing December
1, 1998, due December 1, 2004.............................................. -- 40,000,000
Discount related to the issuance of $40,000,000 Series C senior unsecured
notes, net of accumulated amortization of $0 and $33,000, respectively..... -- (566,000)
Notes payable to individuals or corporations with interest terms ranging
from non-interest bearing to 15 percent, due at various dates from 1999
through 2001, requiring monthly payments................................... 756,000 10,259,000
--------------- -------------
100,756,000 149,693,000
Less current portion.......................................................... (472,000) (8,046,000)
--------------- -------------
$100,284,000 $141,647,000
=============== =============
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 26, 1997, the Company issued $100,000,000 total principal
amount of Series A Senior Notes due December 1, 2004 pursuant to an indenture
between the Company and the Bank of New York (the "Indenture"). The Series A
Senior Notes were issued pursuant to a private transaction that was not subject
to the registration requirements of the Securities Act of 1933. On June 12,
1998, a majority of the Series A Senior Notes were exchanged for 10 1/8% Series
B Senior Notes due December 1, 2004 (collectively, the "Series A/B Senior
Notes"), which were registered under the Securities Act.
On August 24, 1998, the Company issued $40,000,000 total principal amount
of Series C Senior Notes due December 1, 2004 in connection with the Great
American Acquisitions. The Series C Senior Notes were issued under the Indenture
which also governs the terms of the Series A/B Senior Notes in a private
transaction that was not subject to the registration requirements of the
Securities Act. The Series A/B Senior Notes and the Series C Senior Notes will
be collectively referred to as the "Senior Notes."
In connection with the issuance of the Series C Senior Notes, the Company
recorded a discount of approximately $600,000. This discount is being amortized
to interest expense over the approximate six-year life of the Series C Senior
Notes.
The Senior Notes are general unsecured obligations of the Company, rank
senior in right of payment to all subordinated indebtedness of the Company and
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company.
The Senior Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after December 1, 2001 in cash at redemption prices
defined in the Indenture, plus accrued and unpaid interest. In addition, at any
time prior to December 1, 2001, the Company may redeem up to a total of 35
percent of the principal amount at a redemption price equal to 110.125 percent
of the principal, plus accrued and unpaid interest.
The Senior Notes contain certain covenants that limit, among other things,
the ability of the Company and its subsidiaries to: (i) declare or pay dividends
or make any other payment or distribution on account of the Company's or any of
its subsidiaries' equity interest (including without limitation, any payment in
connection with any merger or consolidation involving the Company); (ii)
purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Company) any equity interest of the Company or any direct or indirect parent of
the Company or other affiliate of the Company; (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any indebtedness that is subordinated to the Senior Notes, except as
payment of interest or principal at stated maturity; or (iv) make any restricted
investments except under conditions provided for in the Indenture.
The total amount of principal maturities of debt at January 2, 1999 are as
follows:
Fiscal Year
1999........................................................ $ 8,046,000
2000........................................................ 648,000
2001........................................................ 539,000
2002........................................................ 583,000
2003........................................................ 443,000
Thereafter.................................................. 140,000,000
-----------
$150,259,000
============
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Line of Credit
On February 28, 1998, the Company entered into an amended and restated
line of credit agreement with a commercial bank which provides for a maximum
commitment of up to $15,000,000 secured by essentially all of the assets of the
Company. The availability under the line of credit was limited by the Company's
Indenture to $4,777,000 as of January 2, 1999. Borrowings under the agreement
bear interest, at the Company's option, at either the bank's prime rate or the
applicable LIBOR rate plus two percent, with interest payable monthly in
arrears. The Company is also obligated to pay the bank a commitment fee in the
amount of one quarter of one percent of the unused portion of the revolving loan
commitment. As of January 2, 1999, the Company had no outstanding borrowings
under the agreement, which expires March 31, 2001. The agreement requires the
Company to maintain certain financial ratios including a minimum debt service
coverage ratio. At January 2, 1999, the Company was in compliance with the terms
of the agreement.
Capital Lease Obligations
Future minimum lease payments for equipment held under capital lease
arrangements as of January 2, 1999 are as follows:
Fiscal Year
1999.................................................... $ 415,000
2000.................................................... 357,000
2001.................................................... 358,000
2002.................................................... 287,000
2003.................................................... 182,000
---------
Total future minimum lease payments.......................... 1,599,000
Less amount representing interest............................ (303,000)
----------
1,296,000
Less current portion......................................... (299,000)
----------
$ 997,000
As of January 3, 1998 and January 2, 1999, total assets held under capital
lease arrangements were approximately $376,000 and $1,024,000 with accumulated
amortization of approximately $59,000 and $108,000, respectively.
4. INCOME TAXES
The components of the provision for income taxes for the years ended
January 3, 1998 and January 2, 1999 are as follows:
<TABLE>
<S> <C> <C> <C>
December 28, 1996 January 3, 1998 January 2, 1999
Current:
Federal . $ 207,000 $70,000 $ ---
State ................................. 75,000 228,000 245,000
Foreign . 5,000 57,000 71,000
Deferred:
Federal . 1,112,000 367,000 (3,021,000)
State ................................. 277,000 55,000 (469,000)
Change in valuation allowance............ 122,000 (122,000) 3,490,000
---------- -------- ----------
Total provision for income taxes.... $1,798,000 $655,000 $ 316,000
========== ======== ==========
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The differences between income taxes at the statutory federal income tax
rate and income taxes reported in the consolidated statements of operations are
as follows for the period ended December 28, 1996 and for the years ended
January 3, 1998 and January 2, 1999:
<TABLE>
<S> <C> <C>
December 28, 1996 January 3, 1998
Federal statutory income tax rate................. 34.0% 34.0%
Dividends paid by subsidiary................. --- 34.5
Amortization of non-deductible goodwill...... --- 12.3
Net operating losses utilized................ --- (3.9)
State income taxes, net of federal benefit... 5.3 5.3
State franchise minimum taxes................ --- 44.0
Foreign taxes................................ --- 12.3
Change in valuation allowance................ 3.2 (26.3)
Other........................................ 4.1 29.3
---- ----
Effective income tax rate......................... 46.6% 141.5%
==== =====
</TABLE>
No rate reconciliation is provided for the year ending January 2, 1999 due
to the fact that the Company incurred a net loss before income taxes but
incurred a tax provision due to state franchise minimum taxes and foreign taxes.
The significant components of the Company's deferred income tax assets and
liabilities at January 3, 1998 and January 2, 1999 are as follows:
<TABLE>
<S> <C> <C> <C>
December 28, 1996 January 3, 1998 January 2, 1999
Deferred income tax assets:
Property and equipment reserve........................... $3,501,000 $2,014,000 $ 3,311,000
Store closure reserve.................................... 1,868,000 2,202,000 5,845,000
Transaction cost accrual................................. 789,000 565,000 514,000
Net operating loss carryforward.......................... 782,000 4,875,000 12,268,000
Legal reserve............................................ 470,000 302,000 150,000
Lease accrual............................................ 403,000 92,000 ---
Other reserves........................................... --- 81,000 388,000
Accrued expenses......................................... 334,000 230,000 529,000
Alternative minimum tax credit carryforward.............. 207,000 207,000 215,000
------------- ------------ ------------
Total deferred income tax assets...................... 8,354,000 10,568,000 23,220,000
Valuation allowance...................................... (4,482,000) (5,160,000) (15,560,000)
------------ ------------ -------------
Deferred income tax assets net of valuation allowance 3,872,000 5,408,000 7,660,000
------------ ------------ ------------
Deferred income tax liabilities:
Accumulated depreciation and amortization................ (850,000) (1,548,000) (3,464,000)
Other . (13,000) (361,000) (697,000)
------------ ------------ ------------
Total deferred income tax liabilities................. (863,000) (1,909,000) (4,161,000)
------------ ------------ ------------
Net deferred income tax assets........................ $3,009,000 $3,499,000 $ 3,499,000
============ ============ ============
</TABLE>
Management has provided valuation allowances on portions of the deferred
income tax assets arising from the Company's business combinations. The
valuation allowances established in connection with purchase accounting are not
recorded through the provision for income taxes, but rather, as an increase to
goodwill. During the years ended January 3, 1998 and January 2, 1999, valuation
allowances of $800,000 and $6,910,000, respectively, were recorded in connection
with accounting for business combinations. As of January 2, 1999, the Company
had net operating losses of $31,232,000 that can be carried forward to reduce
federal income taxes. If not utilized, the tax net operating loss carryforwards
begin to expire in 2009. As defined in Section 382 of the Internal Revenue Code,
the Company has acquired companies which have had a greater than 50 percent
ownership change. Consequently, a certain amount of these companies' tax net
operating loss carryforwards available to offset future taxable income in
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
any one year may be limited. The maximum amount of carryforwards available in a
given year is limited to the product of these companies' value on the date of
ownership change and the federal long-term tax-exempt rate, plus any limited
carryforwards not utilized in prior years. Although realization of the net
deferred income tax assets of $3,499,000 is not assured, management believes
that it is more likely than not that these assets will be realized. The amount
of net deferred tax assets considered realizable, however, could be reduced in
the near term based on changing conditions.
5. STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES
The Company's management reviews the historical and projected operating
performance of its stores on a periodic basis to identify underperforming stores
for impairment of net property investment or for targeted closing. The Company's
policy is to recognize a loss for that portion of the net property investment
determined to be impaired. Additionally, when a store is identified for targeted
closing, the Company's policy provides for the costs of closing the store, which
are predominantly estimated lease termination costs. Lease termination costs
include both one-time settlement payments and continued contractual payments
over time under the original lease agreements where no settlement can be
resolved with the landlord. No operating losses are accrued for. If and when a
reserve that was established as part of purchase accounting is not fully
utilized, the Company reduces the reserve to zero and goodwill is adjusted for
the corresponding amount.
Mrs. Fields Inc. and Affiliates and Original Cookie Company and Affiliates
In connection with the Mrs. Fields Inc. and Original Cookie Company
acquisitions (see Note 1), the Company formulated a plan to exit certain stores
that did not meet certain financial and geographical criteria. In general the
plan entailed closing stores that were not profitable and franchising stores
that were profitable but contributed less than $50,000 in store annual cash
contribution for cookie stores and less than $35,000 in annual store cash
contribution for pretzel stores. Management identified 138 stores to be closed
(13 of these stores were closed prior to the acquisition but had continuing
lease obligations) and 64 stores to be franchised. As of January 2, 1999, there
were 23 stores remaining to be exited. The timing to implement the plan was
developed based on discussions and relationships with major shopping mall
developers.
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3 ("EITF 95-3"), the Company established a store closure reserve
of $5,060,000 for the 138 stores the Company intended to close. The reserve was
established to provide for estimated early lease termination costs and
penalties. There was no reserve established related to the 64 stores to be
franchised. Management continued to refine the plan for closing the stores after
the date of the acquisitions which entailed further analysis of lease agreements
and meeting with developers to assess timing and estimated lease termination
costs.
Management finalized the store closure plan in early September 1997, within
one year of the date of the acquisitions. At that time, the Company recorded an
additional $1,357,000 to the store closure reserve to reflect the finalized plan
estimates of lease termination costs and adjusted goodwill by a comparable
amount under the provisions of purchase accounting. The increase in the reserve
related solely to the 138 stores originally identified to be closed. During the
year ended January 2, 1999, the Company reassessed the adequacy of the store
closure reserve related to the remaining stores left to be closed and recorded
an additional $1,693,000 to the reserve. This portion of the store closure
reserve was expensed in the Company's statement of operations for the fiscal
year ended January 2, 1999 as the decision to increase the reserve was made
subsequent to finalization of the original plan.
No other significant changes have been made to the plan.
Pursuant to the exit plan, at the date of the acquisitions, the Company
established an impairment reserve of $10,921,000 against the property and
equipment of the stores the Company planned to exit, in order to record those
assets at net realizable value. The property and equipment of 117 of the total
stores to be closed were recorded at net values of zero. The property and
equipment of 54 of the total stores to be franchised were recorded at the
estimated net realizable amount recoverable through a franchise sale. The
property and equipment of the remainder of the stores to be closed or franchised
had already been reduced to net realizable value prior to the acquisitions.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
H&M
In connection with the H&M acquisition (see Note 1), the Company formulated
a plan to exit certain pretzel stores that did not meet certain financial and
geographical criteria. Management identified 11 stores to be closed. All of the
stores identified for closure are planned to be closed by the end of fiscal year
1999. The timing to implement the plan was developed based on discussions and
relationships with major shopping mall developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $1,000,000 for the 11 stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties. Additionally, the Company established an
impairment reserve of $2,500,000 against the property and equipment of the
stores the Company planned to exit, in order to record those assets at net
realizable value.
Pretzel Time
In connection with the Pretzel Time acquisition (see Note 1), the Company
formulated a plan to exit certain pretzel stores that did not meet certain
financial and geographical criteria. Management identified four stores to be
closed. All of the stores identified for closure are planned to be closed by the
end of fiscal year 1999. The timing to implement the plan was developed based on
discussions and relationships with major shopping mall developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the four stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties.
Great American
In connection with the Great American Acquisitions (see Note 1), the
Company formulated a plan to exit certain cookie stores that did not meet
certain financial and geographical criteria. Management identified 54 stores to
be closed and 11 stores to be franchised. All of the stores identified for
closure are planned to be closed by the end of fiscal year 2000. The timing to
implement the plan was developed based on discussions and relationships with
major shopping mall developers.
At the date of the acquisitions, in accordance with EITF 95-3, the Company
established a store closure reserve of $3,548,000 for the 54 stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties. There was no reserve established related
to the 11 stores to be franchised. The Company established an impairment reserve
of $2,150,000 against the property and equipment of the stores the Company
planned to exit, in order to record those assets at net realizable value.
Pretzelmaker
In connection with the Pretzelmaker acquisition (see Note 1), the Company
formulated a plan to exit certain pretzel stores that did not meet certain
financial and geographical criteria. Management identified seven stores to be
closed. All of the stores identified for closure are planned to be closed by the
end of fiscal year 2000. The timing of implementation of the plan was developed
based on discussion and relationships with major shopping mall developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the seven stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties. Additionally, the Company established an
impairment reserve of $327,000 against the property and equipment of the stores
the Company planned to exit in order to record those assets at net realizable
value.
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Store Closure Reserves Established for Continuing Company-Owned and Franchised
Stores
During the fiscal year ended January 3, 1998, the Company increased its
store closure reserve by $538,000 for seven continuing company-owned stores that
were closed during fiscal year 1997 and for three continuing company-owned
stores targeted for closure. This portion of the store closure reserve was
expensed in the Company's consolidated statement of operations for the year
ended January 3, 1998, as these stores were not identified for closure as part
of any of the Company's store closure plans associated with the business
combinations.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit 41 stores across all
concepts that are not meeting certain financial and geographical criteria. The
plan also committed the Company to exit 13 underperforming franchised stores
that the Company determined to disenfranchise as of January 2, 1999. The
identified stores to be exited under this plan are not part of the stores
in the process of being closed in connection with the various business
combination exit plans discussed above. These stores were originally
identified as continuing company-owned stores at the date of acquisition,
however, the stores have not performed as expected. The Company intends to exit
the stores primarily through closing and franchising. In connection with this
plan, the Company increased the store closure reserve by $5,610,000. The
charge was included in the store closure provision in the accompanying
consolidated statement of operations for the year ended January 2, 1999.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated Analysis
The following table presents a summary of the activity in the store closure
reserve for the periods indicated for stores to be closed and franchised:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Mrs. Fields
Inc. and
Original Pretzel Great
Cookie Co. H&M Time American Pretzelmaker Consolidated
Inception, September 18, 1996............. $5,060,000 $ $ -- $ -- $ -- $ 5,060,000
--
Utilization from inception (September 18,
1996)to January 3, 1998................... (305,000) -- -- -- -- (305,000)
---------- --------- ------- ---------- --------- -----------
Balance, December 28, 1996................ 4,755,000 -- -- -- -- 4,755,000
To record obligations related to stores
identified for closure upon
acquisition, July 25, 1997............. -- 1,000,000 -- -- -- 1,000,000
To record obligations related to stores
identified for closure upon
acquisition, September 2, 1997......... -- -- 500,000 -- -- 500,000
Finalization of store closure plan for
obligations related to stores
originally identified.................. 1,357,000 -- -- -- -- 1,357,000
Provision for continuing company-owned
operating stores targeted for closure 538,000 -- -- -- -- 538,000
Utilization from December 28, 1996 to
January 3, 1998........................ (2,683,000) -- (1,000) -- -- (2,684,000)
------------ --------- -------- --------- --------- -----------
Balance, January 3, 1998.................. 3,967,000 1,000,000 499,000 -- 5,466,000
To record obligations related to stores
identified for closure upon
acquisition, August 24, 1998........... -- -- -- 3,548,000 -- 3,548,000
To record obligations related to stores
identified for closure upon
acquisition, November 19, 1999......... -- -- -- -- 500,000 500,000
Additional reserves for stores originally
identified for closure, January 2, 1999 1,693,000 -- -- -- -- 1,693,000
Additional reserves for continuing company-
owned and franchised stores targeted for
closure, January 2, 1999............... 4,674,000 367,000 264,000 305,000 -- 5,610,000
Utilization for the 52 weeks ended
January 2, 1999........................ (1,932,000) (19,000) (6,000) (149,000) -- (2,106,000)
---------- --------- ----- ---------- -------- ---------
Balance, January 2, 1999.................. $8,402,000 $1,348,000 $757,000 $3,704,000 $500,000 $14,711,000
========== ========== ======== ========== ======== ===========
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of activity for stores originally
identified to be closed or franchised in connection with the applicable business
combination for the periods indicated:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mrs. Fields Inc.
and
Original Cookie H&M Pretzel Time Great American Pretzelmaker Consolidated
To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised
Stores identified
for closure or
franchise at
inception, September
18, 1996 138 64 -- -- -- -- -- -- -- -- 138 64
Stores closed prior
to Inception (13) -- -- -- -- -- -- -- -- -- (13) --
Stores closed or
franchised from
Inception
(September 18, 1996)
to December 28, 1996 (17) (3) -- -- -- -- -- -- -- -- (17) (3)
---- ---- ----- ----- ---- ---- ---- ---- ----- ----- ------ ---
Balance, December
28, 1996 108 61 -- -- -- -- -- -- -- -- 108 61
Stores identified
for Closure or
franchise Upon
acquisition, July
25, 1997 -- -- 11 -- -- -- -- -- -- -- 11 --
Stores identified
for Closure or
franchise upon
acquisition, -- -- -- -- 4 -- -- -- -- -- 4 --
September 2,1997
Stores closed or
franchised from
December 28,
1996 to January
3, 1998......... (70) (9) (3) -- -- -- -- -- -- -- (73) (9)
---- ---- ----- ----- ------ ------ ----- ----- ---- ----- ---- ---
Balance, January 3,
1998............ 38 52 8 -- 4 -- -- -- -- -- 50 52
Stores identified
for closure or
franchise upon
acquisition, -- -- -- -- -- -- 54 11 -- -- 54 11
August 24, 1998.
Stores identified
for closure or
franchise upon
acquisition,
November 19, 1998 -- -- -- -- -- -- -- -- 7 -- 7 --
Stores closed or
franchised for
the 52 weeks ended (15) (16) (2) -- (1) -- (11) -- -- -- (29) (16)
January 2, 1999 ---- ----- --- ----- --- ----- ---- ---- ---- ----- ----- ----
Balance, January 2,
1999 23 36 6 -- 3 -- 43 11 7 -- 82 47
====== ===== ===== ===== === ===== ==== ==== ==== ===== ===== =====
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of changes in the property and
equipment impairment reserves that were established in connection with the
applicable business combination for the periods indicated for stores to be
closed and franchised:
<TABLE>
<S> <C> <C> <C> <C> <C>
Mrs. Fields,
Inc. and Great
Original H&M American Pretzelmaker Consolidated
Cookie Co.
Inception, September 18, 1996....................... $10,921,000 $ -- $ -- $ -- $10,921,000
Utilization from inception (September 18, 1996) to
December 28, (854,000) -- -- -- (854,000)
1996 related to stores to be closed...............
Utilization from inception (September 18, 1996) to
December 28, 1996 related to stores to be franchised (215,000) -- -- -- (492,000)
------------ --------- --------- ---------- -----------
Balance, December 28, 1996.......................... 9,852,000 -- -- -- 9,852,000
To record property and equipment impairment upon
acquisition, July 25, 1997........................ -- 2,500,000 -- -- 2,500,000
Utilization from December 28, 1996 to January 3, 1998
related to stores to be closed.................... (3,299,000) (208,000) -- -- (3,507,000)
Utilization from December 28, 1996 to January 3, 1998
related to stores to be franchised................ (492,000) -- -- -- (492,000)
------------ --------- --------- ---------- ---------
Balance, January 3, 1998............................ 6,061,000 2,292,000 -- -- 8,353,000
To record property and equipment impairment upon
acquisition, August 24, 1998...................... -- -- 2,150,000 -- 2,150,000
To record property and equipment impairment upon
acquisition, September 9, 1998.................... -- -- 973,000 -- 973,000
To record property and equipment impairment upon
acquisition, November 19, 1998.................... -- -- -- 327,000 327,000
Utilization for the 52 weeks ended January 2, 1999
related to (1,782,000) (93,000) (246,000) -- (2,121,000)
stores to be closed...............................
Utilization for the 52 weeks ended January 2, 1999
related to stores to be franchised................ (435,000) (819,000) -- -- (1,254,000)
----------- ----------- ---------- ---------- -----------
Balance, January 2, 1999............................ $ 3,844,000 $1,380,000 $2,877,000 $327,000 $8,428,000
=========== ========== ========== ======== ===========
</TABLE>
6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PRETZEL TIME, INC.
The mandatorily redeemable cumulative preferred stock of Pretzel Time (the
" Pretzel Time Preferred Stock") is nonvoting and the preferred stockholders are
entitled to cumulative preferred dividends of ten percent for three years,
accrued and payable upon redemption. The Pretzel Time Preferred Stock must be
redeemed at $10,000 per share, plus unpaid and accumulated dividends, on
September 1, 1999. The excess of the redemption price over the carrying value is
being accreted over the period from issuance to September 1, 1999, using the
effective interest method and is being charged to the accumulated deficit of
Pretzel Time. In the event of a liquidation or sale of Pretzel Time, the
preferred stockholders are entitled to receive payment of $10,000 per share,
plus accumulated dividends.
During the period from the acquisition of a majority ownership in Pretzel
Time (September 2, 1997) to January 2, 1999, Pretzel Time increased the
liquidation preference of the Pretzel Time Preferred Stock by $212,000, in lieu
of paying cash dividends. In addition, the Pretzel Time Preferred Stock was
increased by $538,000, for the accretion required over time to amortize the
original issue discount incurred at the time of issuance. As of January 2, 1999,
accrued dividends of $339,000, were unpaid.
During the period from September 2, 1997 to January 2, 1999, Pretzel Time
repurchased 17.5 shares of the Pretzel Time Preferred Stock for an total of
$175,000 in cash, or $10,000 per share, plus accrued dividends totaling
approximately $20,200. As of January 2, 1999, there are 127 shares of Pretzel
Time Preferred Stock issued and outstanding with a total liquidation preference
of approximately $1,495,000.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. COMMITMENTS AND CONTINGENCIES
Stock Pledged as Collateral
Mrs. Fields' Holding has pledged all of the Company's capital stock as
collateral for Mrs. Fields' Holding's 14 percent Senior Secured Discount Notes
due December 1, 2005 (the " Mrs. Fields' Holding Discount Notes"). Mrs. Fields'
Holding issued the Mrs. Fields' Holding Discount Notes on August 24, 1998, in
connection with the Great American Acquisitions and the Mrs. Fields' Holding
Equity Infusion (see Note 1). In connection with the issuance of the $55,000,000
principal amount at maturity of Mrs. Fields' Holding Discount Notes, Mrs.
Fields' Holding recorded an total original issue discount of approximately
$24,136,000. The principal amount of the Mrs. Fields' Holding Discount Notes
will accrete at a rate of 14 percent compounded semi-annually to a total
principal amount of $55,000,000 at December 1, 2002. Thereafter, the Mrs.
Fields' Holding Discount Notes will accrue interest at the annual rate of 14
percent, payable semi-annually on June 1 and December 1 of each year, commencing
June 1, 2003.
Mrs. Fields' Holding is a holding company and does not have separate
operations from which it can generate cash flows. Under the circumstances, Mrs.
Fields' Holding would likely be dependent on its owners' and the Company's cash
flows to make principal and interest payments when due. Interest payments
totaling $7,700,000 per year will commence in 2003. The Company has not
guaranteed, nor is it obligated to make principal or interest payments related
to the Mrs. Fields' Holding Discount Notes. However, in accordance with the
Company's Indenture, the Company may pay dividends to Mrs. Fields' Holding, in
order for Mrs. Fields' Holding to service the debt, if no default or event of
default occurs under the Indenture and certain fixed charge coverage ratios and
consolidated net income tests are met. The Mrs. Fields' Holding Discount Notes
are effectively subordinated to the Company's Senior Notes.
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. Management, after consultation with legal
counsel, believes that the potential liability to the Company under any such
actions is adequately accrued for or will not materially affect the Company's
consolidated financial position or results of operations.
Operating Leases
The Company leases retail store facilities, office space and equipment
under long-term noncancelable operating lease agreements with remaining terms of
one to ten years. Certain of the retail store leases provide for contingent
rentals based on gross revenues. Additionally, as part of the Company's
franchising program, certain locations have been subleased to franchisees.
Rent expense was as follows for the periods presented:
<TABLE>
<S> <C> <C> <C>
Inception (September
18, 1996) to 53 Weeks Ended 52 Weeks Ended
December 28, 1996 January 3, 1998 January 2, 1999
----------------- ---------------- ---------------
Minimum rentals..................................... $8,216,000 $30,654,000 $36,834,000
Contingent rentals. ................................ 105,000 432,000 553,000
Sub-lease rentals. ................................. (2,220,000) (8,756,000) (12,550,000)
---------- ----------- -----------
$6,101,000 $22,330,000 $24,837,000
==========- =========== ===========
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of January 2, 1999, the future minimum lease payments due under
operating leases (including future minimum lease payments for stores in the
process of being closed or franchised), which include required lease payments
for those stores that have been subleased, are as follows:
Fiscal Year
1999.................................................... $37,686,000
2000.................................................... 32,337,000
2001.................................................... 27,066,000
2002.................................................... 23,033,000
2003.................................................... 18,246,000
Thereafter.............................................. 33,504,000
----------
$171,872,000
As of January 2, 1999, the future minimum sublease payments due to the
Company under these leases are as follows:
Fiscal Year
1999.................................................... $ 12,550,000
2000.................................................... 10,676,000
2001.................................................... 8,741,000
2002.................................................... 7,277,000
2003.................................................... 5,716,000
Thereafter.............................................. 8,717,000
------------
$ 53,677,000
Contractual Arrangements
The Company entered into a supply agreement to buy frozen dough products
through 2000. The agreement stipulates minimum annual purchase commitments of
not less than 23,000,000 pounds of the products each year through the end of the
contract. The Company also entered into two supply agreements to buy chocolate
products through August 1999 and January 2000. The agreements stipulate minimum
purchase commitments of which 1.9 million and 1.5 million pounds, respectively,
had not been purchased as of January 2, 1999. The terms the frozen dough and
chocolate purchase agreements include certain volume incentives and penalties.
Under each, the Company and the supplier may terminate the supply agreement if
the other party defaults on any of the performance covenants. The Company also
entered into several other immaterial purchase agreements to buy products.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at January 3, 1998 and January 2, 1999 were approximately
$550,000 and $295,000, respectively. Under the terms of the agreement, the
Company is required to assume any franchisee obligations which are in default as
defined. As of January 2, 1999, the Company has assumed obligations totaling
approximately $54,000, respectively, which are included in capital lease
obligations.
The Company recorded deferred credits of approximately $1,204,000 as of
September 18, 1996. The deferred credits represent volume rebates associated
with the assumption of a long-term marketing and supply agreement with a
supplier in connection with the Mrs. Fields Inc. and affiliates and Original
Cookie Company and affiliates business combinations discussed in Note 1. Under
terms of the agreement, the Company is obligated to purchase a minimum amount of
product from the supplier. The supplier periodically prepays rebates to the
Company for anticipated purchases. The Company records the prepayments as
deferred credits and amortizes them
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ratably as purchases are made from the supplier. This agreement was amended in
January 1997 and an additional $600,000 in deferred credits were recorded. The
amended agreement expires on the later of December 31, 2003 or when the Company
has met its revised purchase commitment. In conjunction with this amendment,
certain minimum commitments from the previous agreement were carried forward and
others were forgiven. Additionally, in November 1997, Pretzel Time entered into
a long-term marketing and supply agreement with a supplier. Under terms of the
agreement, the Company is obligated to purchase a minimum amount of product from
the supplier. An additional $437,000 in deferred credits were recorded under
this agreement. The termination date of this agreement will be the later of
December 31, 2003 or when Pretzel Time has met its purchase commitment. Under
these agreements, the Company recognized approximately $1,393,000, and
$812,000 primarily as a reduction to food cost of sales during the years ended
January 3, 1998 and January 2, 1999.
In November 1996, the Company entered into a consulting agreement (the
"Consulting Agreement") with Debbi Fields, a director of the Company, under
which Debbi Fields travels and performs public relations and advertising
activities on behalf of the Company for at least 50 days a year for a fee of
$250,000 per year, with an option to perform these services for 20 additional
days a year for additional pay of $5,000 per day. The compensation increases by
10 percent a year beginning on January 1, 1999. The Consulting Agreement expires
on December 31, 1999. Under the Consulting Agreement, Debbi Fields may not
disclose any confidential information of the Company, such as recipes and trade
secrets, and may not, without the prior written consent of the Company, compete
with the Company.
The Company has entered into employment agreements with five key officers
with terms of two to three years. The agreements are for a total annual base
salary of $1,095,000. If the Company terminates employment without cause, or the
employee terminates employment with good reason, the employee can receive in
severance pay the amount equal to the product of his or her then current
semi-monthly base salary by the greater of the number of semi-monthly periods
from the notice of termination or 36 to 48 semi-monthly periods, plus a portion
of any discretionary bonus that would otherwise have been payable. The
agreements have customary provisions for other benefits and also include
noncompetition clauses.
8. RELATED-PARTY TRANSACTIONS
As of January 3, 1998 and January 2, 1999, the Company had receivables due
from franchisees and licensees, primarily related to prepaid rent which the
Company had paid on behalf of franchisees, totaling approximately $2,176,000 and
$6,003,000, respectively. These amounts are included in amounts due from
franchisees and affiliates and are net of allowance for doubtful accounts
totaling $582,000 and $1,078,000, respectively.
As of January 3, 1998 and January 2, 1999, the Company had net payables of
approximately $105,000 and $150,000, respectively, due to Mrs. Fields' Holding.
The amounts due to or from Mrs. Fields' Holding are recorded in prepaid rent and
other in the accompanying consolidated balance sheets.
During the years ended January 3, 1998 and January 2, 1999, the Company
accrued approximately $441,000 and $0, respectively, of interest expense due to
Mrs. Fields' Holding related to the convertible subordinated notes Mrs. Fields'
Holding purchased. As part of the Refinancing, Mrs. Fields' Holding converted
all of the $4,643,000 convertible subordinated notes to equity and the notes
were cancelled (see Note 3).
The Company paid fees to Korn/Ferry International ("Korn/Ferry") totaling
approximately $157,000 and $70,600, during the years ended January 3, 1998 and
January 2, 1999, respectively. Korn/Ferry is an executive search firm of which
one of the Company's directors is the Chairman.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A director of the Company is a consultant and an advisor to Dillon Read &
Co., Inc. ("Dillon Read"). In 1997, the Company paid to Dillon Read a fee of
approximately $707,000 in connection with the restructuring of the Company in
September 1996. The director's company did not receive a fee from the Company
during the fiscal year ended January 2, 1999. The Company believes that the
arrangements were on terms that could have been obtained from an unaffiliated
third party.
As of January 2, 1999, the Company has a loan due from the founder and
minority stockholder of Pretzel Time totaling $567,000. The note bears interest
at an annual rate of ten percent and is payable in monthly installments of
principal and interest beginning January 1998 by setoff of, and to the extent
of, the founder's bonus payments and dividends received by the founder in his
Pretzel Time stock; provided that in any calendar year no more than $100,000 may
be so offset. In addition, as of January 2, 1999, the Company is due
approximately $526,000 from the founder in connection with certain lease
payments related to the purchase of Pretzel Time for which the Company is
indemnified. These amounts are recorded in accounts receivable and other assets
in the accompanying consolidated balance sheets.
The Company and Mrs. Fields' Holding expect to enter into a tax-sharing
arrangement but as of the date of these financial statements no such agreement
has been finalized.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields' Original Cookies, Inc. 401(k)
Retirement Savings Plan (the "Plan") for all eligible employees. Under the terms
of the Plan, employees may make contributions to the Plan, a portion of which is
matched by contributions from the Company. The total Company contributions to
the Plan for the years ended January 3, 1998 and January 2, 1999 were
approximately $97,900 and $171,000, respectively.
10. REPORTABLE SEGMENTS
Operating segments are components of the Company for which separate
financial information is available that is evaluated regularly by the Chief
Operating decision maker in deciding how to allocate resources and in assessing
performance. This information is reported on the basis that it is used
internally for evaluating segment performance. Mrs. Fields has two reportable
operating segments; namely, company-owned stores and related activity and
franchising and licensing activity. The segments are determined by revenue
source; direct sales or royalties and license fees. The company-owned stores
segment consists of both cookie and pretzel stores owned and operated by Mrs.
Fields. The franchising and licensing segment consists of cookie and pretzel
stores, which are owned and operated by third parties who pay Mrs. Fields an
initial franchise or license fee and monthly royalties based on a percentage of
gross sales and other licensing activity not related to cookie or pretzel
stores. The accounting policies for the segments are discussed in the summary of
significant accounting policies (see Note 2). Sales and transfers between
segments are eliminated in consolidation.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mrs. Fields evaluates performance of each segment based on contribution
margin. Mrs. Fields does not allocate any interest income, interest expense,
depreciation and amortization or assets to its reportable operating segments.
Segment revenue and contribution margin are presented in the following table.
<TABLE>
<S> <C> <C> <C>
Company-owned Stores Franchising and Licensing Total
Period ended December 28, 1996
Revenue $ 40,849,000 $1,267,000 $42,116,000
Contribution Margin 10,761,000 1,267,000 12,028,000
Fiscal 1997
Revenue 127,845,000 1,563,000 134,408,000
Contribution Margin 28,985,000 6,563,000 35,548,000
Fiscal 1998
Revenue 140,235,000 14,001,000 154,236,000
Contribution Margin 30,337,000 10,414,000 40,751,000
</TABLE>
The reconciliation of contribution margin to net income (loss) is as
follows:
<TABLE>
<S> <C> <C> <C>
Period Ended
December 28, 1996 Fiscal 1997 Fiscal 1998
----------------- ----------- -----------
Contribution margin $ 12,028,000 $35,548,000 $ 40,751,000
General and
administrative expense (4,035,000) (16,192,000) (19,017,000)
Store closure provision --- (538,000) (7,303,000)
Depreciation and amortization (2,344,000) (10,403,000) (19,820,000)
Interest expense, net (1,793,000) (7,584,000) (12,574,000)
Other expense (1,895,000) (1,805,000) (1,180,000)
-------------- ------------ -------------
Net income (loss) $ 1,961,000 $ (974,000) $ (19,143,000)
============== ============= ==============
</TABLE>
Geographic segment information is as follows:
<TABLE>
<S> <C> <C> <C> <C>
International Domestic International
Domestic Company-owned Company-owned Franchising and Franchising
Stores Stores Licensing and Licensing
Revenue
Period ended December 28, 1996 $ 40,849,000 $ --- $ 1,158,000 $109,000
Fiscal 1997 127,736,000 109,000 6,150,000 413,000
Fiscal 1998 140,018,000 217,000 13,738,000 263,000
</TABLE>
Revenues from international franchising and licensing are secured from
Canada and Ausralia with no other countries having material representation.
Revenues from international company-owned stores are immaterial.
There were no customers who accounted for more than 10% of Mrs. Fields'
total revenue or either segment's revenue.
11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's obligation related to its $140,000,000 total principal amount
of Senior Notes due 2004 (see Note 3) is guaranteed on a joint and several basis
and on a senior basis by four of the Company's wholly owned subsidiaries (the
"Guarantors"). These guarantees are general unsecured obligations of the
Guarantors, rank senior in right of payment to all subordinated indebtedness of
the Guarantors and rank pari passu in right of payment with all existing and
future senior indebtedness of the Guarantors. There are no restrictions on the
Company's ability to obtain cash dividends or other distributions of funds from
the Guarantors, except those imposed by applicable law. The following
supplemental financial information sets forth, on a condensed consolidating
basis, balance sheets, statements of operations and statements of cash flows for
Mrs. Fields' Original Cookies, Inc. (the "Parent Company"), Great American
Cookie Company, Inc., The Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc.,
which are Guarantors, and Pretzel Time, Inc., which will become a Guarantor
(collectively, the "Guarantor Subsidiaries") and Mrs. Fields' Cookies Australia,
Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of Canada, and
three partially owned subsidiaries, (collectively, the "Non-guarantor
Subsidiaries"). The Company has not presented separate financial statements and
other disclosures concerning the Guarantor Subsidiaries because management has
determined that such information is not material to investors.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
NET REVENUES . $41,557 $ 559 $ -- $ -- $ 42,116
------- -------- ----------- --------- ----------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.............. 19,492 -- -- -- 19,492
Cost of sales.................................. 10,596 -- -- -- 10,596
General and administrative..................... 3,871 146 18 -- 4,035
Depreciation and amortization.................. 2,027 317 -- -- 2,344
--------- --------- ---------- --------- ----------
Total operating costs and expenses........ 35,986 463 18 -- 36,467
-------- --------- ---------- ---------- ----------
Income (loss) from operations............. 5,571 96 (18) -- 5,649
INTEREST EXPENSE AND OTHER, net..................... (1,410) (383) -- -- (1,793)
--------- --------- ---------- ---------- -----------
Income (loss) before provision for income taxes,
preferred stock accretion
and dividends of subsidiaries and equity in net
loss of consolidated subsidiaries........... 4,161 (287) (18) -- 3,856
PROVISION FOR INCOME TAXES.......................... (1,798) -- -- -- (1,798)
--------- ------- ----------- ---------- ----------
Income (loss) before preferred stock
accretion and dividends of subsidiaries and
equity in net loss of consolidated
subsidiaries................................ 2,363 (287) (18) -- 2,058
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES........................ -- (97) -- -- (97)
EQUITY IN NET LOSS OF CONSOLIDATED
SUBSIDIARIES..................................... (402) -- -- 402 --
--------- ------- ---------- ----------- ----------
NET INCOME (LOSS)................................... $ 1,961 $ (384) $ (18) $ 402 $ 1,961
======== ======== ========== =========== ==========
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiarie Eliminations Consolidated
NET CASH PROVIDED BY OPERATING
ACTIVITIES........................................... $ 6,990 $ 589 $ 30 $ -- $ 7,609
-------- ------ ----- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions and related
expenses........................................ (12,508) (7,000) -- -- (19,508)
Purchase of property and equipment, net............ (1,622) (1) (1,623)
-------- ---------- ----------- ----- -------
-- --
Net cash used in investing activities......... (14,130) (7,001) -- -- (21,131)
------- --- ------ ----------- ------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock......... 15,000 -- -- -- 15,000
Proceeds from the issuance of mandatorily
redeemable cumulative preferred stock of
subsidiary...................................... -- 3,500 -- -- 3,500
Proceeds from the issuance of note payable......... -- 3,500 -- -- 3,500
Principal payments on long-term debt............... (1,769) -- -- -- (1,769)
-------- ---------- ----------- ----------- ------
Net cash provided by financing activities.......... 13,231 7,000 -- -- 20,231
------- ---- ----- ----------- ----------- ------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................................... 6,091 588 30 -- 6,709
CASH AND CASH EQUIVALENTS, beginning of
period............................................... -- -- -- -- --
---------- ---------- ----------- ------------ ------
CASH AND CASH EQUIVALENTS, end of
period............................................... $ 6,091 $ 588 $ 30 $ -- $ 6,709
=======- ===== ===== ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid...................................... $ 28 $ -- $ -- $ -- $ 28
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1998
(Dollars in thousands)
ASSETS
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
Cash and cash equivalents....................... $14,270 $ 725 $ 1,292 $ -- $ 16,287
Accounts receivable, net........................ 1,388 -- 147 -- 1,535
Amounts due from (to) franchisees and
licensees, net............................... 1,517 659 -- -- 2,176
Inventories..................................... 3,094 -- 6 -- 3,100
Other current assets............................ 6,593 (615) (253) -- 5,725
----- ---------- ------- ------ --------
Total current assets....................... 26,862 769 1,192 -- 28,823
PROPERTY AND EQUIPMENT, net.......................... 28,907 1 294 -- 29,202
INTANGIBLES, net..................................... 59,928 17,725 6,041 -- 83,694
INVESTMENT IN SUBSIDIARIES........................... 23,089 -- -- (23,089) --
OTHER ASSETS . 7,902 -- 63 -- 7,965
-------- -------- -------- --------- ----------
$146,688 $ 18,495 $ 7,590 $(23,089) $ 149,684
======== ======== ======== ========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital
lease obligations............................ $ -- $ -- $ 614 $ -- $ 614
Accounts payable................................ 3,621 36 148 -- 3,805
Accrued liabilities............................. 10,499 25 747 -- 11,271
------ ------ ------ ----- ------
Total current liabilities.................. 14,120 61 1,509 -- 15,690
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS, net of current portion............ 100,000 -- 467 -- 100,467
OTHER ACCRUED LIABILITIES............................ 1,802 -- -- -- 1,802
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED STOCK........................ -- -- 902 -- 902
MINORITY INTEREST.................................... -- -- -- 58 58
STOCKHOLDER'S EQUITY................................. 30,766 18,434 4,712 (23,147) 30,765
-------- -------- ------- -------- ---------
$146,688 $ 18,495 $ 7,590 $(23,089) $ 149,684
======== ======== ======= ======== =========
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Parent Guanantor Non-Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
NET REVENUES . $125,991 $2,004 $ 7,077 $ (664) $ 134,408
-------- ------ ------- ------ ---------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.............. 63,765 -- 3,731 (664) 66,832
Cost of sales.................................. 31,173 -- 855 -- 32,028
General and administrative..................... 14,215 1,066 911 -- 16,192
Store closure provision........................ 538 -- -- -- 538
Depreciation and amortization.................. 8,745 1,125 533 -- 10,403
------- ------- ------- ------ --------
Total operating costs and expenses........ 118,436 2,191 6,030 (664) 125,993
------- ------- ------- ------ --------
Income (loss) from operations............. 7,555 (187) 1,047 -- 8,415
INTEREST EXPENSE AND OTHER, net..................... (6,329) (1,230) (393) -- (7,952)
------- ------- ------- ------ --------
Income (loss) before provision for income taxes,
preferred stock accretion
and dividends of subsidiaries and equity in
net loss of consolidated subsidiaries....... 1,226 (1,417) 654 -- 463
PROVISION FOR INCOME TAXES.......................... (535) (25) (95) -- (655)
------- ------ ------- ----- -------
Income (loss) before preferred stock
accretion and dividends of subsidiaries
and equity in net loss of consolidated
subsidiaries................................ 691 (1,442) 559 -- (192)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES........................ -- (338) (306) -- (644)
EQUITY IN NET LOSS OF CONSOLIDATED
SUBSIDIARIES..................................... (1,665) -- -- 1,527 (138)
------ -------- ------ ------- -------
NET INCOME (LOSS)................................... $ (974) $ (1,780) $ 253 $ 1,527 $ (974)
====== ======== ====== ======= =======
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 3, 1998
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Elimination Consolidated
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES............................. $ (766) $ 387 $ 1,298 $ -- $ 919
------ ----- ------- ------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash paid for acquisitions and related
expenses.................................... (10,949) -- -- -- (10,949)
Purchase of property and equipment, net........ (4,556) -- -- -- (4,556)
------- ---- ------- ----- -------
Net cash used in investing activities..... (15,505) -- -- -- (15,505)
------- ---- ------- ----- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of long-term debt....... 108,250 -- -- -- 108,250
Principal payments on long-term debt and
capital lease obligations................... (76,759) (250) (36) -- (77,045)
Payment of debt financing costs................ (5,976) -- -- -- (5,976)
Payment of cash dividend to Mrs. Fields' Holding (1,065) -- -- -- (1,065)
------- ----- ------ ---- --------
Net cash provided by (used in)
financing activities................... 24,450 (250) (36) -- 24,164
------- ------ ------- ---- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS...................................... 8,179 137 1,262 -- 9,578
CASH AND CASH EQUIVALENTS, beginning
of year.......................................... . 6,091 588 30 -- 6,709
------- ------- ------- ---- --------
CASH AND CASH EQUIVALENTS, end of
year ............................................ $14,270 $ 725 $ 1,292 $ -- $ 16,287
======= ===== ======= ====== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid............................. $7,607 $ 789 $ 20 $ -- $ 8,416
Taxes paid................................ 181 25 11 -- 217
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 1999
(Dollars in thousands)
ASSETS
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-
Parent Guarantor Guarantor
Company Subsidiarie Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
Cash and cash equivalents.....................$ 3,539 $ 1,134 $ 7 $ $ 4,751
Accounts receivable, net...................... 2,860 304 44 --- 3,208
Amounts due from franchisees and
licensees, net............................. 1,297 4,706 --- --- 6,003
Inventories................................... 4,631 863 9 --- 5,503
Other current assets and amounts due from
(to) affiliates, net....................... 39,368 (33,898) (592) --- 4,878
---------- ---------- ---------- ----------- -----------
Total current assets..................... 51,695 (26,891) (461) --- 24,343
PROPERTY AND EQUIPMENT, net........................ 29,900 1,654 243 --- 31,797
INTANGIBLES, net................................... 75,875 95,601 320 --- 171,796
INVESTMENT IN SUBSIDIARIES......................... 66,484 -- -- (66,484) ---
OTHER ASSETS . 3,688 252 30 --- 3,970
---------- ---------- --------- ----------- ----------
$227,642 $ 70,616 $ 132 $ (66,484) $231,906
======== =========== ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations.................. $7,141 $1,204 $ - $ -- $ 8,345
Accounts payable.............................. 14,223 564 69 -- 14,856
Accrued liabilities........................... 10,956 2,895 18 -- 13,869
------- ------ ------ ----- --------
Total current liabilities................ 32,320 4,663 87 -- 37,070
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion............. 142,367 216 61 -- 142,644
OTHER ACCRUED LIABILITIES.......................... 10,134 -- -- -- 10,134
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED STOCK...................... -- 1,261 -- -- 1,261
MINORITY INTEREST.................................. -- -- -- 119 119
STOCKHOLDERS' EQUITY............................... 42,821 64,476 (16) (66,603) 40,678
--------- -------- ----- ------- ---------
$227,642 $70,616 $132 $(66,484) $ 231,906
========= ======== ===== ======== =========
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 52 WEEKS ENDED JANUARY 2, 1999
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiarie Eliminations Consolidated
NET REVENUES . $144,057 $13,939 $ 37 $ (4,137) $154,236
---------- ------- ------------ --------- ----------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.............. 76,437 --- 334 (1,768) 75,003
Cost of sales.................................. 37,165 3,587 99 (2,369) 38,482
General and administrative..................... 21,213 5,107 --- --- 26,320
Depreciation and amortization.................. 16,624 3,196 --- --- 19,820
---------- ---------- ---------- --------- ----------
Total operating costs and expenses........ 151,439 11,890 433 (4,137) 159,625
---------- ---------- ---------- --------- -----------
(Loss) income from operations.................. (7,382) 2,049 (56) --- (5,389)
INTEREST EXPENSE AND OTHER, net..................... (13,064) 81 --- --- (12,983)
----------- ---------- ---------- --------- ----------
(Loss) income before provision for income
taxes, preferred stock accretion and
dividends of subsidiaries and equity in
net loss of consolidated subsidiaries....... (20,446) 2,130 (56) --- (18,372)
PROVISION FOR INCOME TAXES.......................... (197) (119) --- --- (316)
---------- ---------- ---------- --------- ----------
(Loss) income before preferred stock
accretion and dividends of subsidiaries
and equity in net loss of consolidated
subsidiaries................................ (20,643) 2,011 (56) --- (18,688)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES........................ --- (444) --- --- (444)
EQUITY IN NET LOSS OF CONSOLIDATED
SUBSIDIARIES..................................... 1,500 --- --- (1,511) (11)
---------- ---------- ---------- ---------- -----------
NET (LOSS) INCOME................................... $(19,143) $1,567 $ (56) $ (1,511) $ (19,143)
=========== ========== ========== ========== ==========
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED JANUARY 2, 1999
(Dollars In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiarie Eliminations Consolidated
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............................. $ (23,820 $ 33,382 $ (133)- $ --- $9,429
----------- ----------- ---------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash paid for acquisitions and related
expenses.................................... $ (39,873) 7,038 --- --- $ (32,835)
Purchase of property and equipment, net........ (8,228) (7) --- --- (8,235)
Proceeds for asset sales........................ 176 --- --- --- 176
----------- ----------- ----------- ---------- -----------
Net cash (used in) provided by
investing activities................... (47,925) 7,031 --- --- (40,894)
----------------------- ----------- ---------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term debt................... 39,400 --- --- --- 39,400
Payment of debt financing costs................ (7,062) --- --- --- (7,062)
Equity infusion from Mrs. Fields' Holding...... 29,056 --- --- --- 29,056
Principal payments on long-term debt and
capital lease obligations................... (257) (41,000) --- --- (41,257)
Capital lease repayments (123) --- --- --- (123)
Reduction in preferred stock of Pretzel Time... --- (85) --- --- (85)
----------- ----------------------- ---------- ------------
Net cash provided by (used in)
financing activities................... 61,014 (41,085) --- --- 19,929
----------- ----------------------- ---------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS............................. (10,731) (672) (133) --- (11,536)
CASH AND CASH EQUIVALENTS, beginning
of period ....................................... 14,270 1,806 211 --- 16,287
----------- ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of
Period ....................................... $ 3,539 $ 1,134 $ 78 $ -- $ 4,751
============ ======================= ========= ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid............................. $12,405 $ 35 $ -- $ -- $ 12,440
Taxes paid................................ 141 68 -- -- 209
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
PART III
Item 10. Directors and Officers of the Registrant
The following table sets forth certain information regarding the executive
officers and directors of Mrs. Fields as of January 2, 1999. The directors are
also directors of Mrs. Fields' Holding.
<TABLE>
<S> <C> <C>
Name Age Title
Larry A. Hodges............ 50 Director, President and Chief Executive Officer
L. Tim Pierce.............. 47 Senior Vice President, Chief Financial Officer and Secretary
Pat W. Knotts.............. 44 Senior Vice President of Operations
Garry Remington............ 48 Senior Vice President of Real Estate
Michael R. Ward............ 41 Vice President of Administration and Legal Department
Herbert S. Winokur, Jr..... 55 Chairman of the Board of Directors
Richard Ferry.............. 61 Director
Debbi Fields............... 42 Director
Nat Gregory................ 50 Director
Walker Lewis............... 54 Director
Peter Mullin............... 58 Director
Gilbert Osnos.............. 69 Director
</TABLE>
Mr. Hodges has been President and Chief Executive Officer of
Mrs. Fields Inc. and Mrs. Fields since March 1994, and a Director
of Mrs. Fields and Mrs. Fields' Holding since April 1993. From
1992 to 1994, Mr. Hodges was the Chief Executive Officer of Food
Barn Stores, Inc. (Kansas City, Missouri). Earlier Mr. Hodges was
a consultant to various manufacturers and retailers. For 25
years, Mr. Hodges was with American Stores Company where he
served as President of two of its subsidiaries ranging in annual
sales from $600 million to $2.3 billion. Mr. Hodges has over 32
years of experience in the retail field serving as president of
four supermarket chains and consultant and director to large food
companies. Mr. Hodges is a director of Ameristar Casinos, Inc.
and Coinstar, Inc.
Mr. Pierce has been Senior Vice President of Mrs. Fields
Inc. and Mrs. Fields since December 1991, and Chief Financial
Officer since August 1993. He was appointed Corporate Secretary
in April 1995. Since joining Mrs. Fields Inc. in 1988 and prior
to becoming Senior Vice President, Mr. Pierce had served as Vice
President of Finance. He was also an Audit Manager and a Senior
Audit Manager with Price Waterhouse in Salt Lake City, Utah, and
New York, New York. Mr. Pierce is a certified public accountant
and has also served on the Board of Directors of Mountain America
Credit Union and currently serves as a Director of Pretzel Time.
Mr. Knotts has been Senior Vice President of Mrs. Fields
since October 1996. Mr. Knotts' responsibilities include all
aspects of store operations and related support functions.
Between January 1992 and October 1996, Mr. Knotts served as
Executive Vice President of Operations for Original Cookie and
Hot Sam, where he was responsible for store operations,
marketing, purchasing, construction and store design. Mr. Knotts
also held the position of Regional Vice President of Stores for
Silo Inc., a $1 billion consumer electronics and major appliance
chain.
Mr. Remington has been Senior Vice President of Real Estate
of Mrs. Fields since July 1997. Mr. Remington's responsibilities
include all aspects of real estate, store construction, remodels
and lease negotiations. Between October 1996 and July 1997, Mr.
Remington served as Vice President of Real Estate for Sbarro,
Inc. From 1994 to 1996, Mr. Remington held the position of Senior
Vice President of Leasing for the Woolworth Corporation, with
responsibilities for Footlocker, Champ Sports, Northern
Reflections, Afterthoughts, and seven other divisions. From 1992
to 1994, Mr. Remington was Vice President and Director of Leasing
for the Woolworth Corporation, which he joined in 1972.
Mr. Ward has been Vice President of Administration for Mrs.
Fields since September 1996. Mr. Ward's responsibilities include
management of the Human Resources Department, Benefits and the
Legal Department. Between 1991 and 1996, Mr. Ward's
responsibilities were overseeing the Legal Department and the
Human Resources Department for Mrs. Fields Inc. He is admitted to
practice law in the State of Utah.
Mr. Winokur has been Chairman of the Board of Directors of
Mrs. Fields and Mrs. Fields' Holding since their inception in
September 1996. Mr. Winokur is managing member of Capricorn
Holdings, L.L.C., the General Partner of Capricorn. Mrs. Fields
is owned by Mrs. Fields' Holding, a portfolio company of
Capricorn which owns the majority of Mrs. Field's Holding's
stock. Mr. Winokur is President of Winokur Holdings, Inc. (an
investment company) and Managing General Partner of Capricorn
Investors, L.P. and Capricorn, private investment partnerships
concentrating on investments in restructure situations, organized
by Mr. Winokur in 1987 and 1994, respectively. Prior to his
current appointment, Mr. Winokur was Senior Executive Vice
President and Director of Penn Central Corporation. Mr. Winokur
is also a Director of NAC Re Corporation, The WMF Group, Ltd.,
C.C.C. Information Services Corp., Inc., DynCorp., and Enron
Corp.
Mr. Ferry has been a Director of Mrs. Fields since its
inception in September 1996. Mr. Ferry is co-founder and Chairman
of Korn/Ferry International, the world's leading executive search
firm. Mr. Ferry is on the Board of Directors of Avery Dennison,
Dole Food Company and Pacific Life Insurance Company.
Debbi Fields has been a Director of Mrs. Fields since its
inception in September 1996. Debbi Fields founded a predecessor
to Mrs. Fields in 1977 and served as President and Chief
Executive Officer until 1993. She currently serves on the Board
of several non-profit organizations and lectures throughout the
United States to Fortune 500 companies. Debbi Fields is a
director of Outback Steakhouse, Inc.
Mr. Gregory has been a Director of Mrs. Fields since its
inception in September 1996. Since 1993, Mr. Gregory has served
as Chairman and Chief Executive Officer of NATCO, an
international supplier of oilfield production equipment, which is
a portfolio company of Capricorn. Prior to that he served as
Managing Director of Smith Barney from 1991 to 1993. Mr. Gregory
is a member and managing director of Capricorn Holdings, L.L.C.,
the General Partner of Capricorn, and a director of Marine
Drilling Companies, Inc.
Mr. Lewis has been a Director of Mrs. Fields since its
inception in September 1996. Mr. Lewis is the Chairman of Devon
Value Advisers. Mr. Lewis served as Chairman of Strategic
Planning Associates, specializing in shareholder value
strategies. Mr. Lewis was a Senior Advisor at Dillon Read & Co.,
Inc. and his company, Devon Value Advisors, continues to act as a
consultant to Dillon Read. He was a Managing Director of Kidder,
Peabody & Co., Inc., President of Avon North America and
Executive Vice President of Avon Products, Inc. Mr. Lewis has
served on the Board of Directors of Owens Corning, American
Management Systems, Incorporated, Jostens, Inc., Marakon
Associates and London Fog.
Mr. Mullin has been a Director of Mrs. Fields since its
inception in September 1996. Mr. Mullin founded Mullin
Consulting, Inc. in Los Angeles in 1969, and serves as its
Chairman and Chief Executive Officer. He also co-founded
Strategic Compensation Associates and serves as Chairman of the
firm's Executive Committee. Mr. Mullin is a member of the Board
of Directors of Avery Dennison Corporation, 1st Business Bank,
Process Technology Holdings, Inc., Golden State Vintners, M Life
Insurance Company and the Board of Advisors of CMS Companies.
Mr. Osnos has been a Director of Mrs. Fields since its
inception in September 1996. Mr. Osnos has served since 1992 as
Chairman of Osnos & Company, which provides interim management to
companies. He has served as Interim President/CEO/COO to a large
array of companies in manufacturing, distribution, retailing and
service industries. In 1979 he joined the predecessor firm and
became a partner in 1981. He has been Chairman of the Turnaround
Management Association and a member of its Board since prior to
1993. He is also on the Board of Directors of Furr's/Bishop's,
Inc. and Dunham's Athleisure Corp.
<PAGE>
Item 11. Executive Compensation
The following table sets forth information with regard to compensation for
services rendered in all capacities to Mrs. Fields by its Chief Executive
Officer and the four other most highly compensated executive officers of Mrs.
Fields other than the CEO who were serving as executive officers at the end of
the last completed fiscal year. Information described in the table reflects
compensation earned by such individuals for services with Mrs. Fields or its
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long Term Compensation Awards
Other Restricted Securities
Name and Principal Annual Stock Underlying All Other
Position Year Salary Bonus Compensation Award(s) Options/SARS(7) Compensation
---------- ----- ----- -------- ------- -------- -------- ------------
($) ($) ($) ($) (#) ($)
----- ----- ----- ----- ----- ---
Larry Hodges 1998 $339,583 $ 150,000 $ 4,833 $ -- -- $471,000(8)
President and CEO 1997 300,000 185,412 2,177 50,000(6) -- --
1996 262,834 -- 1,656 -- 229,992 --
L. Tim Pierce 1998 193,430 70,000 2,634 -- -- --
Senior Vice President 1997 175,000 103,607 1,287 -- -- 71,867(8)
and CFO 1996 167,723 -- 1,107 -- 32,856 33,000(1)
Pat Knotts 1998 191,699 70,000 -- -- -- --
Senior Vice President 1997 162,500 27,321 -- -- -- 23,920(3)
Operations 1996 172,490 267,212(2) -- -- 32,856 2,912(4)
Michael Ward 1998 135,385 50.000 1,370 -- -- --
Vice President 1997 109,904 56,393 619 -- -- 39,488(8)
Legal and Administration 1996 83,020 -- 526 -- 24,642 --
Garry Remington 1998 180,000 33,945 -- -- -- --
Senior Vice President 1997 82,859 -- -- -- 24,642 46,707(5)
Real Estate 1996 -- -- -- -- -- --
</TABLE>
(1) Represents forgiveness of a loan made by Mrs. Fields Inc. in 1993.
(2) Represents payments under retention and employment agreements from Original
Cookie/Hot Sam.
(3) Represents payment of relocation expenses of $20,920 and a grant of $3,000
under the Original Cookie 401(k) plan.
(4) Represents a grant under the Original Cookie 401(k) plan.
(5) Represents payment of relocation expenses.
(6) 50% of the restricted shares vested on January 1, 1999 and the other 50%
vest on January 1, 2000.
(7) The stock options for common stock of Mrs. Fields' Holding have 10-year
terms and were granted as of September 1996, with the exception of Garry
Remington's, which were granted as of July 1997. All options have an
exercise price of $10.00 per share, with the exception of Garry
Remington's, which have an exercise price of $13.00 per share.
(8) Represents payment under Mrs. Fields Inc.'s Management Value Creation Plan.
Option Grants and Exercises
The Board of Directors of Mrs. Fields' Holding recently approved the
provisions of a director stock option plan (the "Director Stock Option Plan"),
providing for the issuance of common stock, par value $.001 per share, of Mrs.
Fields' Holding to directors of Mrs. Fields' Holding, and an employee stock
option plan (the "Employee Stock Option Plan" and, together with the Director
Stock Option Plan, the "Plans"), providing for the issuance of options to
purchase common stock of Mrs. Fields' Holding to officers and other employees of
Mrs. Fields' Holding and its subsidiaries, including Mrs. Fields. The Plans
provide for the issuance of options to purchase a total of 542,840 shares of
common stock of Mrs. Fields' Holding to directors of Mrs. Fields' Holding and
officers and employees of Mrs. Fields' Holding's subsidiaries, including Mrs.
Fields. Of the total 542,840 option shares available, 375,840 shares,
representing approximately 10% of the total common stock of Mrs. Fields' Holding
on a fully diluted basis, after giving effect to the issuance of stock under the
warrants to purchase common stock of Mrs. Fields' Holding and to issuances of
stock under options currently issued to directors and employees under the Plans,
have been issued. See "Beneficial Ownership of Capital Stock."
Board Compensation
The Board of Directors of Mrs. Fields meets regularly on a quarterly basis
and more often as required. Board members, other than officers of Mrs. Fields
and Mr. Winokur, Mr. Gregory and Ms. Fields, are compensated for services
rendered annually as follows:
(1) $12,000 cash; and
(2) grants of options to purchase common stock of Mrs. Fields'
Holding, under the Director Stock Option Plan.
The Board of Directors of Mrs. Fields' Holding approved the award of
options under the Director Stock Option Plan to purchase 3,350 shares of common
stock of Mrs. Fields' Holding to each of Messrs. Ferry, Gregory, Lewis, Osnos
and Winokur as of January 1, 1997, at an exercise price of $10.00 per share, and
the award of options to purchase 1,792 shares of common stock of Mrs. Fields'
Holding as of January 1, 1998, at an exercise price of $16.74 to each of the
same directors, with the options of Messrs. Gregory and Winokur being issued to
Capricorn.
The Board members were also offered an opportunity to acquire shares of
common stock of Mrs. Fields' Holding under a director stock purchase plan (the
"Director Stock Purchase Plan"). Such compensation in shares that would be
payable or issuable to Messrs. Winokur and Gregory will be paid to Capricorn. A
total of 51,667 vested shares of common stock of Mrs. Fields' Holding and 28,333
restricted shares of common stock of Mrs. Fields' Holding have been issued to
directors and officers of Mrs. Fields under the Director Stock Purchase Plan.
Board Committees
Three functioning committees of the Board have been organized: an Executive
Committee, a Compensation Committee and an AuditCommittee. Following is a brief
description of each of these committees.
Executive Committee. The Executive Committee is composed of Messrs.
Winokur (Chairman), Gregory and Hodges. The purpose of this committee is to act
on behalf of the entire Board of Directors between Board meetings.
Compensation Committee. The Compensation Committee is composed of Messrs.
Gregory (Chairman), Mullin and Lewis. The purpose of this committee is to ensure
that Mrs. Fields has a broad plan of executive compensation that is competitive
and motivating to the degree that it will attract, hold and inspire performance
of managerial and other key personnel of a quality and nature that will enhance
the growth and profitability of Mrs. Fields.
Audit Committee. The Audit Committee is comprised of Messrs. Ferry
(Chairman) and Osnos. The purpose of the Audit Committee is to provide oversight
and review of Mrs. Fields' accounting and financial reporting process in
consultation with Mrs. Fields' independent and internal auditors.
Indemnification and Compensation
Mrs. Fields' By-Laws authorize Mrs. Fields to indemnify its present and
former directors and officers and to pay or reimburse expenses for such
individuals in advance of the final disposition of a proceeding upon receipt
of an undertaking by or on behalf of such individuals to repay such amounts if
so required.
Employment Agreements
All of the executive officers are parties to employment agreements with
Mrs. Fields. Each employment agreement provides for a period of employment of
two years (or three years, in the case of Larry Hodges) from the date of the
agreement, subject to termination provisions and to automatic extension of the
agreement. Each employment agreement permits the employee to participate in any
incentive compensation plan adopted by Mrs. Fields to replace the Fiscal 1994
Incentive Compensation Plan of Mrs. Fields Inc., benefit plans and an
equity-based plan or arrangement. If Mrs. Fields terminates employment for cause
or if the employee terminates employment without good reason, Mrs. Fields has no
further obligation to pay the employee. If Mrs. Fields terminates employment
without cause, or the employee terminates employment with good reason, the
employee can receive in severance pay the amount equal to the product of his or
her then current semi-monthly base salary by the greater of the number of
semi-monthly periods from the notice of termination or 36 semi-monthly periods,
plus a portion of any discretionary bonus that would otherwise have been
payable. The employment agreement prohibits the employee, for a year from the
date of termination of employment under the agreement, from becoming an
employee, owner, officer, agent or director of a firm or person that directly
competes with Mrs. Fields in a line or lines of business of Mrs. Fields that
accounts for 10% or more of Mrs. Fields' gross sales, revenues or earnings
before taxes. An exception is made for investments of not more than 3% of the
equity of a company listed or traded on a national securities exchange or an
over-the-counter securities exchange. The employment agreements have customary
provisions for vacation, fringe benefits, payment of expenses and automobile
allowances. The employees who have employment agreements, and their base
salaries, are: Larry Hodges, President and Chief Executive Officer, $350,000, L.
Tim Pierce, Senior Vice President, Chief Financial Officer and Secretary,
$200,000, Pat Knotts, Senior Vice President of Operations, $215,000, Michael
Ward, Vice President of Administration and Assistant Secretary, $140,000 and
Garry Remington, Senior Vice President of Real Estate, $190,000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of the date of this report, all of the capital stock of Mrs. Fields is
owned by Mrs. Fields' Holding, whose address is 2855 East Cottonwood Parkway,
Suite 400, Salt Lake City, Utah 84121. The following table sets forth certain
information, as of January 2, 1999, believed by us to be accurate based on
information provided to us concerning the beneficial ownership of common stock
by each stockholder who is known by Mrs. Fields to own beneficially in excess of
5% of the outstanding common stock, and by each director, Mrs. Fields' Chief
Executive Officer, each of Mrs. Fields' other four most highly compensated
executive officers and all officers and directors as a group, as of January 2,
1999. The stockholders listed below are deemed beneficial owners of common stock
of Mrs. Fields as a result of their ownership of common stock of Mrs. Fields'
Holding, the owner of 100% of the capital stock of Mrs. Fields. Except as
otherwise indicated, all persons listed below have (1) sole voting power and
investment power with respect to their shares, except to the extent that
authority is shared by spouses under applicable law, and (2) record and
beneficial ownership with respect to their shares. The shares and percentages
described below include shares of common stock which were outstanding or
issuable within 60 days upon the exercise of options outstanding as of January
2, 1999 and give effect to the exercise of warrants issued by Mrs. Fields'
Holding. See "Executive Compensation" and "--Board Compensation," As of January
2, 1999, there were eight record holders of common stock of Mrs. Fields'
Holding.
<TABLE>
<S> <C> <C> <C>
Common Stock
Number of Percentage
Title of Class Name of Beneficial Owner Shares Of Class
Common stock, par Capricorn Investors II, L.P.(1)(2)(3) 3,080,094 86.1%
.
value $0.001 per share, Larry Hodges(2)(3)................... 89,141 2.5%
of Mrs. Fields' Holding Peter Mullin(2)(3)................... 17,323 0.5%
Richard Ferry(2)(3).................. 12,323 0.3%
Walker Lewis(2)(3)................... 9,823 0.3%
Gilbert Osnos(2)(3).................. 9,823 0.3%
L. Tim Pierce(3)..................... 14,785 0.4%
Pat Knotts(3)........................ 14,785 0.4%
Michael Ward(3)...................... 11,500 0.3%
Garry Remington(3)................... 6,435 0.2%
All executive officers and directors as a group (11 persons) 3,266,032 91.3%
(2)(3)(4)
</TABLE>
(1) The address of Capricorn is 30 East Elm Street, Greenwich, CT 06830.
(2) Larry Hodges, Peter Mullin, Richard Ferry, Walker Lewis and Gilbert Osnos
are directors of the Company. Herbert Winokur and Nat Gregory are managing
member and member, respectively, of Capricorn Holdings, L.L.C., the General
Partner of Capricorn, and are
directors of Mrs. Fields. See "Management."
(3) The shares and percentages include shares subject to options granted to
directors and officers of Mrs. Fields that are currently vested as of
January 2, 1999, as follows: Capricorn, 4,246 shares; Mr. Hodges, 45,998
shares; Mr. Mullin, 2,323 shares; Mr. Ferry, 2,323 shares; Mr. Lewis, 2,323
shares; Mr. Osnos, 2,323 shares; Mr. Pierce, 11,500 shares; Mr. Knotts,
11,500 shares; Mr. Ward, 9,857 shares; and Mr. Remington, 4,792 shares; all
executive officers and directors as a group, 97,185.
(4) Includes shares beneficially owned by Capricorn.
Item 13. Certain Relationships and Related Transactions
Agreements with Debbi Fields and Affiliates. In November 1996, Mrs. Fields
entered into a consulting agreement with Debbi Fields, a director of Mrs.
Fields, under which Debbi Fields travels and performs public relations and
advertising activities on behalf of Mrs. Fields for at least 50 days a year for
a fee of $250,000 per year, with an option to perform 20 additional days a year
for additional pay of $5,000 per day. The compensation increased by 10% a year
beginning on January 1, 1999. The consulting agreement expires on December 31,
1999. Mrs. Fields may terminate the consulting agreement for cause and Debbi
Fields may terminate the consulting agreement at any time. Under the consulting
agreement, Debbi Fields may not disclose any confidential information of Mrs.
Fields, such as recipes and trade secrets, and may not, without the prior
written consent of Mrs. Fields, compete with Mrs. Fields.
In addition, Mrs. Fields has a license agreement with FSG Holdings, Inc., a
Delaware Corporation, under which Debbi Fields has a nonexclusive license to use
certain trademarks, names, service marks and logos of Mrs. Fields in connection
with book and television series projects. Debbi Fields is required to pay 50
percent of any gross revenues in excess of $200,000 that she receives from the
book and television series projects to Mrs. Fields as a license fee.
Mrs. Fields leased certain office space to an entity which is owned in part
by Debbi Fields. Billings to the entity for the period from inception (September
18, 1996) to December 28, 1996, the fiscal years ended January 3, 1998 and
January 2, 1999 totaled approximately $60,000, $274,000 and $0, respectively, of
which approximately $29,000, $23,000 and $0 is included in accounts receivable
as of December 28, 1996, January 3, 1998 and January 2, 1999, respectively. The
lease was terminated in the first quarter of fiscal year 1998. Mrs. Fields
believes that the arrangements were on terms that could have been obtained from
an unaffiliated third party.
Arrangements with Walker Lewis. Mr. Lewis, a director of Mrs. Fields,
acts as a consultant and an advisor to Dillon Read. Mr. Lewis' company, Devon
Value Advisers, received a fee of $250,000, plus expenses, from Mrs. Fields in
the first quarter of 1998 under an agreement to provide advisory acquisition and
consulting services to Mrs. Fields. Mrs. Fields believes that the arrangement
was on terms that could have been obtained from an unaffiliated third party.
Korn/Ferry Agreement. Mrs. Fields has paid fees of approximately $70,600
during the year January 2, 1999 to Korn/Ferry International, an executive search
firm of which Richard Ferry, a director of Mrs. Fields, is the Chairman, in
connection with the hiring of employees for Mrs. Fields. Mrs. Fields believes
that the arrangements are on terms that could have been obtained from an
unaffiliated third party.
Arrangements With Mrs. Fields' Holding. As of December 28, 1996, January
3, 1998 and January 2, 1999, Mrs. Fields had net payables of $98,000, $105,000
and $150,000 due to Mrs. Fields' Holding, respectively. The receivables stem
primarily from goods sold and an allocation of payroll and other operating
expenses. Mrs. Fields believes that the terms of the sale and allocations are
essentially equivalent to the terms that would have been obtained from an
unaffiliated third party in a similar transaction.
Incentive Arrangements. Under a senior management value creation plan
that was adopted by Mrs. Fields Inc. and assumed by Mrs. Fields at the time of
its formation in September 1996, the following payments were made in 1998: $471,
484 to Mr. Hodges; $71,867 to Mr. Pierce; $39,488 to Mr. Ward; and $71,078 to a
vice president of Mrs. Fields Inc. Mr. Hodges used $250,000, representing
substantially all of this payment after his payment of related taxes, to
purchase 25,000 shares of common stock of Mrs. Fields' Holding at $10.00 per
share.
Director Stock Purchase Plan. Each of the directors of Mrs. Fields was
offered an opportunity to purchase common stock of Mrs. Fields' Holding under
the Director Stock Purchase Plan. Under the Director Stock Purchase Plan, shares
of common stock of Mrs. Fields' Holding, either restricted or vested, can be
issued to outside directors of Mrs. Fields' Holding and its subsidiaries,
including Mrs. Fields. Restricted shares vested 50% on January 1, 1999 and will
vest 50% on January 1, 2000, or earlier, upon a change of control of Mrs.
Fields' Holding or Mrs. Fields. A total of 51,667 vested shares of common stock
of Mrs. Fields' Holding and 28,333 restricted shares of common stock of Mrs.
Fields' Holding have been issued to directors and officers of Mrs. Fields under
the Director Stock Purchase Plan.
The Plans. Under the Employee Stock Option Plan, a committee of the Board
is authorized to administer the Employee Stock Option Plan and has the power,
among other things, to grant awards to officers and other employees of Mrs.
Fields' Holding and its subsidiaries, including Mrs. Fields, of options for
common stock of Mrs. Fields' Holding. The Employee Stock Option Plan provides
for the issuance of three types of options. Performance vested options were
deemed to be vested 20% for fiscal year 1997 and vest an additional 20% per year
for each subsequent fiscal year in which there is a 10% increase in the implied
valuation of Mrs. Fields, which is equal to the excess of 5.5 times Adjusted
EBITDA for such fiscal year over net debt at the end of such fiscal year. Time
vested options vest 25% per year on the anniversaries of the dates on which they
are granted, and vest in full upon a change of control of Mrs. Fields' Holding
or Mrs. Fields. Upside options vest upon the earlier to occur of the expiration
of such option and a change of control, in accordance with certain internal rate
of return targets:
(1) if the IRR through the vesting date is less than 20%, the option will
not vest;
(2) if the IRR is from 20% to 24.99%, the option will vest one-third;
(3) if the IRR is from 25% to 29.99%, the option will vest two-thirds; and
(4) if the IRR is at least 30%, the option will vest in full.
IRR means, as of any date, the internal rate of return, determined in
accordance with generally accepted practice, on one share of common stock of
Mrs. Fields' Holding calculated from September 18, 1996, through the date as of
which the determination is being made, using
(1) a value of $10.00 per share at September 18, 1996 (subject to certain
adjustments),
(2) if the relevant date is the date of a change of control, the value
paid under or implicit in the change of control transaction (as
determined in good faith by a committee of the Board of Directors),
and
(3) if the relevant date of determination is the expiration of such
option, the value determined in good faith based on the implied
valuation for the four most recent fiscal quarters for which financial
statements are available.
An total of 492,840 shares of common stock of Mrs. Fields' Holding have
been reserved for issuance under the Employee Stock Option Plan. Stock issued
under the Employee Stock Option Plan is subject to customary restrictions on
transfer.
Under the Director Stock Option Plan, a committee of the Board is
authorized to administer the Director Stock Option Plan and has the power, among
other things, to grant awards of options for common stock of Mrs. Fields'
Holding to outside directors of Mrs. Fields' Holding and its subsidiaries,
including Mrs. Fields. The Director Stock Option Plan provides for the issuance
of time vested options, which vest 25% per year on the anniversaries of the
dates on which they are granted, and vest in full upon a change of control of
Mrs. Fields' Holding or Mrs. Fields. A total of 50,000 shares of common stock of
Mrs. Fields' Holding are reserved for issuance under the Director Stock Option
Plan. Common stock of Mrs. Fields' Holding issued under the Director Stock
Option Plan is subject to customary restrictions on transfer. Options have been
awarded under the Director Stock Option Plan to each of Messrs. Ferry, Gregory,
Lewis, Osnos and Winokur to purchase 3,350 shares of common stock of Mrs.
Fields' Holding as of January 1, 1997, at an exercise price of $10.00 per share,
and to purchase 1,792 shares of common stock of Mrs. Fields' Holding as of
January 1, 1998, at an exercise price of $16.74 per share, with the options of
Messrs. Gregory and Winokur being issued to Capricorn.
The Stockholders' Agreement. Mrs. Fields' Holding has entered into a
stockholders' agreement with its stockholders. The stockholders' agreement gives
rights of first refusal to Mrs. Fields' Holding if any Mrs. Fields' Holding
stockholder receives an offer to purchase common stock of Mrs. Fields' Holding
and, if Mrs. Fields' Holding does not exercise its rights, gives the rights of
first refusal to other Mrs. Fields' Holding stockholders. In the event of a sale
to a third party approved by Capricorn, Capricorn has the right to require the
other Mrs. Fields' Holding stockholders to sell their common stock of Mrs.
Fields' Holding (the "Drag Along"). If Capricorn sells any common stock of Mrs.
Fields' Holding, the other Mrs. Fields' Holding stockholders will have the
opportunity to sell their common stock of Mrs. Fields' Holding in proportion to
their holdings (the "Tag Along"). The stockholders' agreement also provides for
piggyback registration rights for all Mrs. Fields' Holding stockholders, and
gives one Mrs. Fields' Holding stockholder demand registration rights. The
stockholders' agreement gives Mrs. Fields' Holding the option to purchase all of
the common stock of Mrs. Fields' Holding held by an officer or director that
holds common stock of Mrs. Fields' Holding if such officer or director is
terminated. If an officer or director is terminated other than for cause, the
officer or director has the right to sell shares to Mrs. Fields' Holding. The
stockholders' agreement provides for customary restrictions on transfer of
common stock of Mrs. Fields' Holding. The holders of warrants to purchase common
stock of Mrs. Fields' Holding will be subject to the Drag Along and benefit from
the Tag Along.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Financial Statements
(1) See Item 8 "Financial Statements and Supplementary Data" for a list of
the financial statements filed as part of this report.
(2) The following financial statement schedule for Mrs. Fields' Original
Cookies, Inc. is filed as a part of this report
Page
Schedule II - Valuation and Qualifying Accounts.....................83
(3) Exhibits Index
The exhibits filed with or incorporated by reference in this
report are listed in the Exhibit Index beginning on page 75.
(b) Reports filed on Form 8-K during the fourth quarter
Form 8-K dated October 20, 1998
Form 8-K/A dated November 4, 1998, originally filed September 8,
1998 Form 8-K/A dated November 4, 1998, originally filed October
20, 1998 Form 8-K dated December 4, 1998 Form 8-K/A dated February
1, 1999, originally filed December 4, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
Number ......... Description
- ------ -----------
2.1 Securities Purchase Agreement by and among Cookies USA, Inc., the
Individuals and Entities Identified Therein as The Sellers and Mrs.
Fields' Original Cookies, Inc., dated as of August 13, 1998, filed as
exhibit 2.1 to the Company's Registration Statement on Form S-4 (No.
333-67389) and incorporated by reference herein.
2.2 Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Jake Tortorice of Chocolate Chip Cookies of Texas, Inc. as
Seller. Filed as Exhibit 2.3 to the 8-K dated September 3, 1998, filed
as exhibit 2.1 to the Company's Registration Statement on Form S-4 (No.
333-67389) and incorporated by reference herein.
2.3 Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Lawrence J. Cohen, Mildred S. Cohen, Jerome E. Mouton, Steven
J. Bryan and Jason A. Piltzmaker, holders of all outstanding capital
stock of Deblan Corporation, as Sellers Filed as Exhibit 2.2 to the 8-K
dated September 3, 1998, filed as exhibit 2.1 to the Company's
Registration Statement on Form S-4 (No. 333-67389) and incorporated by
reference herein.
2.4 Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
ASK & MSK Family Limited Partnership-II(B), Ltd. Filed as Exhibit 2.4 to
the 8-K dated September 3, 1998, filed as exhibit 2.1 to the Company's
Registration Statement on Form S-4 (No. 333-67389) and incorporated by
reference herein.
2.5 Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Crossroads Cookies, Inc. Filed as Exhibit 2.5 to the 8-K dated September
3, 1998, filed as exhibit 2.1 to the Company's Registration Statement on
Form S-4 (No. 333-67389) and incorporated by reference herein.
2.6 Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Hot Barton and Northpark Cookies, Inc. Filed as Exhibit 2.6 to the 8-K
dated September 3, 1998, filed as exhibit 2.1 to the Company's
Registration Statement on Form S-4 (No.333-67389) and incorporated by
reference herein.
2.7 Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Northpark Cookies, Inc. Filed as Exhibit 2.7 to the 8-K dated September
3, 1998, filed as exhibit 2.1 to the Company's Registration Statement on
Form S-4 (No. 333-67389) and incorporated by reference herein.
2.8 Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Quail Springs Cookies, Inc. Filed as Exhibit 2.8 to the 8-K dated
September 3, 1998, filed as exhibit 2.1 to the Company's Registration
Statement on Form S-4 (No. 333-67389) and incorporated by reference
herein.
2.9 Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Westgate Cookies, Inc. Filed as Exhibit 2.9 to the 8-K dated September
3, 1998, filed as exhibit 2.1 to the Company's Registration Statement o
Form S-4 (No. 333-67389) and incorporated by reference herein.
3.1 By-Laws of Mrs. Fields' Original Cookies, Inc., filed as Exhibit 3.4 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
4.1 Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc., and The Bank of New York,
as Trustee, filed as Exhibit 4.1 to the Company's Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein.
4.2 Form of Notation of Guarantee (included as Exhibit E to Exhibit 4.1)
4.3 Form of Certificate of Senior Note (included as Exhibit A to Exhibit 4.1)
EXHIBIT INDEX (continued)
4.4 First Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., and The
Bank of New York, as Trustee, filed as exhibit 2.1 to the Company's
Registration Statement on Form S-4 (No.
333-67389) and incorporated by reference herein.
4.5 Second Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., and The Bank of New York, as trustee,
filed as exhibit 2.1 to the Company's Registration Statement on Form S-4
(No. 333-67389) and incorporated by reference herein.
4.6 Third Supplemental Indenture, dated as of November 20, 1998, among Mrs.
Fields' Original Cookies, Inc., Great American Cookie Company, Inc., The
Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., and The Bank of
New York, as a Trustee, filed as exhibit 2.1 to the Company's
Registration Statement on Form S-4 (No. 333-67389) and incorporated by
reference herein.
4.7 Registration Rights Agreement, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., Jefferies & Company, Inc. and BT Alex.
Brown Incorporated, filed as exhibit 2.1 to the Company's Registration
Statement on Form S-4 (No. 333-67389) and incorporated by reference
herein.
10.1 Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields
Development Corporation, The Mrs. Fields' Brand, Inc. and Capricorn II,
L.P., filed as Exhibit 10.1 to the Company's Registration Statement on
S- 4 (No. 333-45179) and incorporated by reference herein
10.2 Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields,
Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn Investors II,
L.P., filed as Exhibit 10.11 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein
10.3 Amended and Restated Marketing Agreement, dated as of January 9, 1997,
between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA Fountain,
filed as Exhibit 10.27 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.4 Amendment, dated December 1, 1997, to Amended and Restated Marketing
Agreement between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA
Fountain, filed as exhibit 2.1 to the Company's Registration Statement
on Form S-4 (No. 333-67389) and incorporated by reference herein.
10.5 Corollary agreement, dated September 21, 1998, to existing marketing
agreement, dated as of January 9, 1997 and amended on November 13, 1997
and December 1, 1997 between Mrs. Fields' Original Cookies, Inc. and
Coca-Cola USA Fountain, filed as exhibit 2.1 to the Company's
Registration Statement on Form S-4 (No. 333-67389) and incorporated by
reference herein.
10.6 Employment Agreement, dated as of October 1, 1997, between Michael R.
Ward and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.28 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.7 Employment Agreement, dated as of October 1, 1997, between Pat Knotts
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.29 to the
Company's Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.8 Employment Agreement, dated as of October 1, 1997, between L. Tim Pierce
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.30 to the
Company's Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
EXHIBIT INDEX (continued)
10.9 Employment Agreement, dated as of July 1, 1996, between Lawrence Hodges
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.31 the
Company's Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.10 Employment Agreement, dated as of July 10, 1997, between Garry
Remington and Mrs. Fields' Original Cookies, Inc. , filed as exhibit
2.1 to the Company's Registration Statement on Form S-4 (No. 333-67389)
and incorporated by reference herein.
10.11 Lease Agreement, dated as of February 23, 1993, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.32 the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.12 Lease Agreement, dated as of October 10, 1995, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.33 the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.13 Letter of Agreement, dated as of October 1, 1992, between United
Airlines, Inc. and Mrs. Fields Development Corporation, filed as Exhibit
10.34 to the Company's Registration Statement on S-4 (No. 333- 45179)
and incorporated by reference herein
10.14 Lease Agreement, dated as of January 18, 1998, between 2855 E.
Cottonwood Parkway, L.C. and Mrs. Fields' Original Cookies, Inc., filed
as Exhibit 10.35 to the Company's Registration Statement on S-4 (No. 333
-45179) and incorporated by reference herein
10.15 Amendment to Supply Agreement, dated as of June 19, 1995 between Van Den
Bergh Foods Company and Mrs. Fields Inc., filed as Exhibit 10.37 to the
Company's Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.16 Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E.
Lisiewski, filed as Exhibit 10.39 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.17 License Agreement, dated as of March 1, 1992, between Mrs. Fields
Development Corporation and Marriott Corporation, filed as Exhibit 10.40
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.18 License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp., filed
as Exhibit 10.41 to the Company's Registration Statement on S-4 (No.
333-45170) and incorporated by reference herein.
10.19 Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc. Pretzel Time, Inc., and Martin E.
Lisiewski, filed as Exhibit 10.43 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.20 Franchise Agreement Addendum 2 and Area Development Agreement Addendum
2, dated as of September 2, 1997, between Pretzel Time, Inc. and Mrs.
Fields' Original Cookies, Inc., filed as Exhibit 10.44 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.21 Management Agreement, dated as of September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.45 to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
<PAGE>
EXHIBIT INDEX (continued)
10.22 Stock Purchase Agreement, dated as of September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.46 to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.23 Shareholder Agreement, dated as of September 2, 1997, among Mrs. Fields'
Holding Company, Inc., Martin E. Lisiewski and Pretzel Time, Inc., filed
as Exhibit 10.47 to the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.24 Employment Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Martin E. Lisiewski, filed as Exhibit 10.48 to the
Company's Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.25 Area Development Agreement, dated as of September 2, 1997, between
Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed as
Exhibit 10.49 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.26 $500,000 Promissory Note, dated as of September 2, 1997, between Martin
E. Lisiewski and Mrs. Fields' Holding Company, Inc., filed as Exhibit
10.50 to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.27 Exchange Agreement, dated September 2, 1997, between Mrs. Fields'
Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit 10.51 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.28 Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.52 to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.29 Franchise Development Agreement, dated September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.53 to the Company's Registration Statement on S-4 (No. 333- 5179) and
incorporated by reference herein.
10.30 Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields'
Pretzel Concepts, Inc., H&M Concepts, Inc., and The Managing Members of
H&M Concepts Ltd., Co., filed as Exhibit 10.53 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.31 Exhibit A to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.54 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.32 Uniform Franchise Offering Circular of Pretzel Time, Inc., filed as
Exhibit 10.56 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.33 Uniform Franchise Offering Circular of Great American Cookie Company,
Inc., as amended on November 24, 1998, filed as exhibit 2.1 to the
Company's Registration Statement on Form S-4 (No. 333-67389) and
incorporated by reference herein
10.34 Exhibit B to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc., and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.57 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein.
10.35 Assignment of Assets and Assumption of Liabilities Agreement, dated July
25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields' Pretzel
Concepts, Inc., filed as Exhibit 10.62 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
EXHIBIT INDEX (continued)
10.36 First Amendment to Operating Agreement for UVEST, LLC, dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited,
filed as Exhibit 10.64 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.37 First Amendment to Operating Agreement for LV-H&M, L.L.C., Dated July
25, 1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen,
filed as Exhibit 10.65 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.38 Lease Agreement, dated March 2, 1995, between Price Development Company,
Limited Partnership and Mrs. Fields Cookies, filed as Exhibit 10.69 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.39 Consulting Agreement, dated November 26, 1996, between Debra J. Fields
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.70 to the
Company's Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.40 Mrs. Fields' Holding Company, Inc. Director Stock Option Plan, filed as
exhibit 2.1 to the Company's Registration Statement on Form S-4 (No.
333-67389) and incorporated by reference herein.
10.41 Mrs. Fields' Holding Company, Inc. Employee Stock Option Plan, filed as
exhibit 2.1 to the Company's Registration Statement on Form S-4 (No. 333
-67389) and incorporated by reference herein.
10.42 Mrs. Fields' Holding Company, Inc. Director Stock Purchase Plan, filed
as exhibit 2.1 to the Company's Registration Statement on Form S-4 (No.
333-67389) and incorporated by reference herein.
10.43 Amended and Restated Loan Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank,
filed as Exhibit 10.73 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.44 Intellectual Property Security Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank,
filed as exhibit 2.1 to the Company's Registration Statement on Form S-4
(No. 333-67389) and incorporated by reference herein.
10.45 Pledge and Security Agreement, dated as of February 28, 1998, between
Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank, filed as
exhibit 2.1 to the Company's Registration Statement on Form S-4 (No.
333-67389) and incorporated by reference herein.
10.46 Stockholders' Agreement, dated as of July 17, 1998, between Mrs. Fields'
Holding Company, Inc. and its Stockholders, filed as exhibit 2.1 to the
Company's Registration Statement on Form S-4 (No. 333-67389) and
incorporated by reference herein.
10.47 Form of Settlement Agreement and Release, by and among Mrs. Fields'
Original Cookies, Inc., Capricorn Investors II, L.P., a Delaware limited
partnership, Great American Cookie Company, Inc., Cookies USA, Inc., The
Jordan Company, and the Franchisees parties thereto, filed as exhibit
2.1 to the Company's Registration Statement on Form S-4 (No. 333-67389)
and incorporated by reference herein.
10.48 Supply Agreement, dated as of March 30, 1998 between Mrs. Fields'
Original Cookies, Inc. and LBI Acquisition Corp. d/b/a Pennant Foods,
filed as exhibit 2.1 to the Company's Registration Statement on Form S-4
(No. 333-67389) and incorporated by reference herein.
10.49 Registration Rights Agreement, dated as of November 26, 1997, among Mrs.
Fields' Original Cookies, Inc. The Mrs. Fields' Brand, Inc., Jefferies
& Company, Inc. and BT Alex Brown Incorporated, filed as exhibit 2.1 to
the Company's Registration Statement on Form S-4 (No. 333-67389) and
incorporated by reference herein.
EXHIBIT INDEX (continued)
12.1 Computation of ratio of earnings to fixed charges of Mrs. Fields'
Original Cookies, Inc.
21.1 Subsidiaries of Mrs. Fields' Original Cookies, Inc.
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (for SEC use only), filed as Exhibit 27 to the
Company's Form 10-Q for the year ended January 2, 1999
99.3 Schedule II - Valuation and Qualifying Accounts
<PAGE>
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.
MRS. FIELDS' ORIGINAL COOKIES, INC.
April 2, 1999
Larry A. Hodges, President & CEO Date
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ * President, Chief Executive Officer April 2, 1999
- ---------------------------
(Larry A. Hodges) and Director (Chief Executive Officer)
/s/ * Senior Vice President, Chief Financial April 2, 1999
- ---------------------------
(L. Tim Pierce) Officer and Secretary (Chief Financial Officer)
/s/ * Vice President and Controller April 2, 1999
- --------------------
(Mark Ostler) (Principal Accounting Officer)
/s/ * Chairman of the Board of Directors April 2, 1999
- --------------------------------
(Herbert S. Winokur)
/s/ * Director April 2, 1999
- ------------------
(Richard M. Ferry)
/s/ * Director April 2, 1999
- ----------------------
(Debbi Fields)
/s/ * Director April 2,
1999
(Nathaniel A. Gregory)
/s/ * Director April 2, 1999
(Walker Lewis)
/s/ * Director April 2, 1999
- ----------------------------
(Peter W. Mullin)
/s/ * Director April 2, 1999
- -----------------------------
(Gilbert C. Osnos)
</TABLE>
<PAGE>
EXHIBIT 99.3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Mrs. Fields' Original Cookies, Inc. and
subsidiaries as of January 3, 1998 and January 2, 1999, and for the period from
inception (September 18, 1996) to December 28, 1996, for the year ended January
3, 1998 and for the year ended January 2, 1999 beginning on page 26 and have
issued our report thereon dated April 1, 1999. Our audits were made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. Schedule II, "Valuation and Qualifying Accounts", is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
April 1, 1999
<PAGE>
EXHIBIT 99.3
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<S> <C> <C> <C> <C>
Balance at
beginning Balance at
of period Additions Deductions end of
period
- ------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts:
Period from Inception (September
18, 1996) through December 28, 1996 $269,000 $106,000 $ - $375,000
========== ========== ============ ========
Year Ended January 3, 1998 $375,000 $494,000 $255,000 $614,000
========== ========== ========== ========
Year Ended January 2, 1999 $614,000 $816,000 $278,000 $1,152,000
======== ======== ========== ==========
Store Closure and Other Reserve:
Store Closure Reserve $5,060,000 - 305,000 $4,755,000
Transaction Fee Accrual 2,400,000 - 2,173,000 227,000
Legal Accrual 1,250,000 - 53,000 1,197,000
Lease Obligation Accrual 1,200,000 - 174,000 1,026,000
Finders' Fee Accrual 735,000 - - 735,000
Severance and Related Costs Accrual 655,000 - 539,000 116,000
--------- ------------------ --------- -- -------
Period from Inception (September
18, 1996) through December 28, 1996 $11,300,000 $ - $3,244,000 $8,056,000
== ============= ============= == ============ == =========
Store Closure Reserve $4,755,000 $3,395,000 $2,684,000 $5,466,000
Transaction Fee Accrual 227,000 - 227,000 -
Legal Accrual 1,197,000 - 548,000 649,000
Lease Obligation Accrual 1,026,000 - 867,000 159,000
Finders' Fee Accrual 735,000 - 735,000 -
Severance and Related Costs Accrual 116,000 - 116,000 -
-- --------- ------------------ --------- ------------
Year Ended January 3, 1998 $8,056,000 $3,395,000 $5,177,000 $6,274,000
== ============ == ============ == ============ ============ ==
Store Closure Reserve $5,466,000 $11,103,000 $1,858,000 $14,711,000
Transaction Fee Accrual - - - -
Legal Accrual 649,000 - 267,000 382,000
Lease Obligation Accrual 159,000 - 159,000 -
Finders' Fee Accrual - - - -
Severance and Related Costs Accrual - - - -
---------------- ------------------------------- -------------
Year Ended January 2, 1999 $6,274,000 $11,103,000 $2,284,000 $15,093,000
========== == =========== == ========== ============= ==
Impairment Reserve (1):
Stores to be Closed $7,587,000 $ - $854,000 $6,733,000
Stores to be Franchised 3,334,000 215,000 3,119,000
-- ----------- --------------- ---- --------- -------------
Period from Inception (September
18, 1996) through December 28, 1996 $10,921,000 $ - $1,069,000 $9,852,000
== ============= ============= == ============ ============ ==
Stores to be Closed $6,733,000 $1,423,000 $3,507,000 $4,649,000
Stores to be Franchised 3,119,000 1,077,000 492,000 3,704,000
-- ----------- -- ----------- ---- --------- -----------
Year Ended January 3, 1998 $9,852,000 $2,500,000 $3,999,000 $8,353,000
== ============ == ============ == ============ ============= ==
Stores to be Closed $4,643,000 $2,477,000 $2,115,000 $5,005,000
Stores to be Franchised 3,710,000 973,000 1,260,000 3,423,000
--------- ------ ------- --- --------- ---------
Year Ended January 2, 1999 $8,353,000 $3,450,000 $3,375,000 $8,428,000
== ========== == ========== == ========== ============= ==
</TABLE>
(1) THE IMPAIRMENT RESERVE REDUCES THE CARRYING AMOUNTS OF PROPERTY AND
EQUIPMENT AT STORES TO BE CLOSED TO ZERO AND THE CARRYING AMOUNTS OF
PROPERTY AND EQUIPMENT AT STORES TO BE
FRANCHISED TO NET REALIZABLE VALUE.
EXHIBIT 12
<TABLE>
Mrs. Fields
<S> <C> <C> <C>
September 18, 53 Weeks 52 Weeks
1996 through Ended Ended
December 28, January 3, January 2,
1996 1998 1999
---- ---- ----
(Dollars in thousands)
EARNINGS:
Income (loss)before provision for income taxes $ 3,856 $ 463 $ (18,372)
Fixed charges 2,027 8,891 13,229
Exclude preferred dividends (97) (644) (444)
Full minority interest gain or loss - (138) (11)
-------------- ----------- --------------
....Total earnings (loss) $ 5,786 $ 8,572 $ (5,598)
=========== ========= ===========
FIXED CHARGES:
Interest expense $ 1,867 $ 7,830 $ 13,197
Preferred stock dividends as adjusted 160 1,061 32
------------- ----------- ------------
......Total fixed charges $ 2,027 $ 8,891 $ 13,229
=========== ========= =========
RATIO OF EARNINGS TO FIXED CHARGES (a) 2.85x 0.96x NA
</TABLE>
(a) For purposes of computing the ratio of earnings to fixed charges, earnings
consists of income (loss) before provision for income taxes plus fixed charges,
less preferred dividends and adjusted for full minority interest gain or loss.
Fixed charges consist of interest expense on all indebtedness (whether paid or
accrued and net of debt premium amortization), including the amortization of
debt issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with capital lease obligations, letter of credit
commissions, fees or discounts and the product of all dividends and accretion on
mandatorily redeemable preferred stock multiplied by a fraction, the numerator
of which is one and the denominator of which is on minus the current combined
federal, state and local statutory tax rate.
EXHIBIT 21.1
MRS. FIELDS' ORIGINAL COOKIES, INC.
SUBSIDIARY COMPANIES
Cookies USA, Inc.
Great American Cookie Company, Inc.
Mrs. Fields Cookies (Canada)
Mrs. Fields Cookies Australia
The Mrs. Fields' Brand, Inc.
Mrs. Fields' Other Names, Inc.
Fairfield Foods, Inc.
Airport Cookies, Inc.
Pretzel Time, Inc.
Pretzelmaker Holdings, Inc.
UVEST
LV-H&M
H&M Concepts of Idaho, Inc.
Pretzelmaker, Inc.
Pretzelmaker Canada, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jan-2-1999
<PERIOD-START> Jan-4-1998
<PERIOD-END> Jan-2-1999
<EXCHANGE-RATE> 1
<CASH> 4,751
<SECURITIES> 0
<RECEIVABLES> 10,363
<ALLOWANCES> 1,152
<INVENTORY> 5,503
<CURRENT-ASSETS> 24,343
<PP&E> 47,262
<DEPRECIATION> 15,465
<TOTAL-ASSETS> 231,906
<CURRENT-LIABILITIES> 37,070
<BONDS> 150,989
1,261
0
<COMMON> 0
<OTHER-SE> 40,678
<TOTAL-LIABILITY-AND-EQUITY> 231,906
<SALES> 140,235
<TOTAL-REVENUES> 154,236
<CGS> 38,482
<TOTAL-COSTS> 159,625
<OTHER-EXPENSES> 409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,197
<INCOME-PRETAX> (18,372)
<INCOME-TAX> (316)
<INCOME-CONTINUING> (19,143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,143)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
