<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-------------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended: October 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)
DELAWARE 87-0552899
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121-7050
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip code)
(801) 736-5600
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year, if changed since last
report)
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
---
The registrant had 400 shares of common stock, $0.01 par value, outstanding at
November 15, 1999.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of October 2,
1999 and January 2, 1999........................................ 3
Condensed Consolidated Statements of Operations for the 13 Weeks
Ended October 2, 1999 and October 3, 1998....................... 5
Condensed Consolidated Statements of Operations for the 39 Weeks
Ended October 2, 1999 and October 3, 1998....................... 6
Condensed Consolidated Statements of Cash Flows for the 39 Weeks
Ended October 2, 1999 and October 3, 1998....................... 7
Notes to Condensed Consolidated Financial Statements............ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 22
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings............................................... 30
Item 6. Exhibits and Reports on Form 8-K................................ 30
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,767 $ 4,751
Accounts receivable, net of allowance for doubtful accounts
of $759 and $74, respectively 3,116 3,208
Amounts due from franchisees and licensees, net of allowance
for doubtful accounts of $246 and $1,078, respectively 4,484 6,003
Inventories 4,987 5,503
Prepaid rent and other 3,682 4,017
Deferred income tax assets, current portion 771 861
-------- --------
Total current assets 24,807 24,343
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 33,815 29,914
Equipment and fixtures 11,946 17,108
Land 240 240
-------- --------
46,001 47,262
Less accumulated depreciation and amortization (17,394) (15,465)
-------- --------
Net property and equipment 28,607 31,797
-------- --------
DEFERRED INCOME TAX ASSETS, net of current portion 2,728 2,638
-------- --------
GOODWILL, net of accumulated amortization of
$19,033 and $11,231, respectively 135,711 145,782
-------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $3,560 and $2,615, respectively 13,451 14,296
-------- --------
DEFERRED LOAN COSTS, net of accumulated amortization of
$2,958 and $1,320, respectively 11,554 11,718
-------- --------
OTHER ASSETS 581 1,332
-------- --------
$217,439 $231,906
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
---- ----
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ 8,171 $ 4,133
Current portion of long-term debt 852 8,046
Current portion of capital lease obligations 822 299
Line of credit 1,400 -
Accounts payable 9,127 10,723
Accrued liabilities 3,576 3,597
Current portion of store closure reserve 5,269 4,577
Accrued salaries, wages and benefits 3,279 3,155
Accrued interest payable 4,869 1,260
Sales taxes payable 510 962
Deferred income 183 318
-------- --------
Total current liabilities 38,058 37,070
LONG-TERM DEBT, net of current portion 141,597 141,647
STORE CLOSURE RESERVE, net of current portion 4,887 10,134
CAPITAL LEASE OBLIGATIONS, net of current portion 1,768 997
-------- --------
Total liabilities 186,310 189,848
-------- --------
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of PTI (a wholly owned
subsidiary), aggregate liquidation preference of $1,182 and $1,495,
respectively 1,182 1,261
-------- --------
MINORITY INTEREST 129 119
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized and 400 shares
outstanding - -
Additional paid-in capital 61,899 59,899
Accumulated deficit (32,081) (19,221)
-------- --------
Total stockholder's equity 29,818 40,678
-------- --------
$217,439 $231,906
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
4
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
October 2, 1999 October 3, 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
REVENUES:
Net store and food sales $35,350 $34,163
Franchising, net 6,520 2,030
Licensing, net 499 398
------- -------
Total revenues 42,369 36,591
------- -------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 19,222 18,449
Cost of sales 10,599 8,987
General and administrative 5,339 4,423
Depreciation and amortization 5,429 3,510
------- -------
Total operating costs and expenses 40,589 35,369
------- -------
Income from operations 1,780 1,222
------- -------
OTHER INCOME (EXPENSE), net:
Interest expense (4,260) (3,355)
Interest income 37 113
Other expense (193) (112)
------- -------
Total other expense, net (4,416) (3,354)
------- -------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (2,636) (2,132)
PROVISION FOR INCOME TAXES (6) (54)
------- -------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (2,642) (2,186)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES (111) (111)
MINORITY INTEREST (8) (92)
------- -------
Net loss $(2,761) $(2,389)
======= =======
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
5
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
October 2, 1999 October 3, 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
REVENUES:
Net store and food sales $107,265 $92,850
Franchising, net 18,082 4,612
Licensing, net 1,187 1,081
-------- -------
Total revenues 126,534 98,543
-------- -------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 60,340 52,357
Cost of sales 32,455 24,172
General and administrative 16,212 12,621
Depreciation and amortization 16,692 9,707
-------- -------
Total operating costs and expenses 125,699 98,857
-------- -------
Income (loss) from operations 835 (314)
-------- -------
OTHER INCOME (EXPENSE), net:
Interest expense (12,946) (8,981)
Interest income 115 530
--------
Other expense (303) (256)
-------- -------
Total other expense, net (13,134) (8,707)
-------- -------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (12,299) (9,021)
PROVISION FOR INCOME TAXES (216) (68)
-------- -------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (12,515) (9,089)
--------
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES (333) (333)
MINORITY INTEREST (12) (268)
-------- -------
Net loss $(12,860) $(9,690)
======== =======
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
6
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
39 Weeks Ended October 39 Weeks Ended
October 2, 1999 October 3, 1998
--------------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,860) $ (9,690)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 16,692 9,707
Amortization of deferred loan costs 1,638 658
Loss on sale of assets 285 256
Preferred stock accretion and dividends of subsidiaries 333 333
Minority interest 12 268
Changes in assets and liabilities:
Accounts receivable, net 92 (361)
Amounts due from franchisees and licensees, net 1,519 (1,624)
Inventories 516 (127)
Prepaid rent and other 335 1,306
Other assets 751 (207)
Accounts payable and accrued liabilities (1,617) 356
Bank overdraft 4,038
Store closure reserve (1,840) (1,892)
Accrued salaries, wages and benefits 124 (110)
Accrued interest payable 3,722 2,886
Sales taxes payable (452) (530)
Deferred income (135) (553)
-------- --------
Net cash provided by operating activities 13,153 676
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisition expenses (100) (28,699)
Purchase of property and equipment (3,401) (5,616)
-------- --------
Net cash used in investing activities (3,501) (34,315)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 1,400
Proceeds from issuance of long-term debt 39,400
Reduction of long-term debt (5,244) (40,838)
Payment of debt financing costs (1,474) (5,007)
Proceeds from common stock infusion 29,056
Principal payments on capital lease obligations (793) (49)
Reduction in preferred stock (525) (64)
-------- --------
Net cash (used in) provided by financing activities (6,636) 22,498
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,016 (11,141)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 4,751 16,287
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 7,767 $ 5,146
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 12,946 $ 6,291
======== ========
Cash paid for income taxes $ $
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
7
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared by Mrs. Fields' Original Cookies, Inc. and subsidiaries ("Mrs. Fields")
in accordance with the rules and regulations of the Securities and Exchange
Commission for Form 10-Q, and accordingly, do not include all of the information
and footnotes required by generally accepted accounting principles. In the
opinion of management, these condensed consolidated financial statements reflect
all adjustments, which consist only of normal recurring adjustments necessary to
present fairly the financial position of Mrs. Fields as of October 2, 1999 and
January 2, 1999, and the results of its operations and its cash flows as of and
for the periods presented herein. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the fiscal year ended January 2, 1999
contained in Mrs. Fields' Annual Report on Form 10-K.
The results of operations for the 13 and 39 weeks ended October 2, 1999 are not
necessarily indicative of the results that may be expected for the remainder of
the fiscal year ending January 1, 2000. Loss per share is not presented as Mrs.
Fields is wholly owned by Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") and therefore, its shares are not publicly traded.
(2) RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the prior period's condensed
consolidated financial statements to conform with the current period's
presentation.
(3) PRO FORMA RESULTS OF OPERATIONS
-------------------------------
The following unaudited pro forma information presents a summary of the
consolidated results of operations of Mrs. Fields assuming the Great American,
Deblan, Chocolate Chip, Karp, Cookie Conglomerate and Pretzelmaker acquisitions
and related financings had occurred at the beginning of the 39 weeks ended
October 3, 1998. Pro forma adjustments have been made to give effect to
amortization of goodwill, interest expense on acquisition debt and certain other
adjustments. 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 had the acquisitions been consummated at the
beginning of the 39 weeks ended October 3, 1998 (in thousands).
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
October 3, 1998 October 3, 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
Total revenues $46,851 $139,491
Income from operations 639 1,269
Net loss (3,801) (11,865)
</TABLE>
8
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(4) STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES
------------------------------------------------------------
Mrs. Fields' 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. Mrs. Fields'
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 Mrs. Fields' 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. As a result, although all stores under the
current exit plans will be exited by at least the end of fiscal year 2000, a
portion of the store closure reserve will remain until all cash payments have
been made. No operating losses are accrued for. If and when a reserve that was
established as part of purchase accounting is not fully utilized, Mrs. Fields
reduces the reserve to zero, and goodwill is adjusted for the corresponding
amount.
During the 13 weeks ended October 2, 1999, management updated an analysis of
the status of the store closure plans, by concept and by store, and recorded a
$2,163,000 reduction to the store closure reserve. The net reduction in the
reserve was recorded in connection with management's reassessment of the
estimated store closure costs. The adjustment to the reserve related only to
those stores that were originally planned to be exited at the time of a related
business combination. A net amount of $2,100,000 was offset as a reduction to
goodwill and a net amount of $63,000 was recorded as an offset to general and
administrative expenses in the accompanying unaudited condensed financial
statements.
9
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents a summary of the activity in the store closure
reserve during the 39 weeks ended October 2, 1999:
<TABLE>
<CAPTION>
Mrs. Fields Inc. and
Original Cookie Co. H&M Pretzel Time
------------------- --- ------------
Business Company- Company- Company-
Combination Owned Business Owned Business Owned
And Stores Combination and Stores Combination and Stores
Subsequent Unrelated to Subsequent Unrelated to Subsequent Unrelated to
Adjustments Acquisition Adjustments Acquisition Adjustments Acquisition
------------ ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1999...... $ 3,728,000 $ 4,674,000 $ 981,000 $ 367,000 $ 493,000 $ 264,000
Utilization for the 39 weeks
Ended October 2, 1999......... (1,019,000) (789,000) - (79,000) - (48,000)
Decrease in reserve for the
39 weeks ended October 2,
1999......................... (540,000) - (212,000) - (191,000) -
------------ ------------- ----------- ------------- ----------- -------------
Balance, October 2, 1999...... $ 2,169,000 $ $ 3,885,000 $ 769,000 $ 288,000 $ 302,000 $ 216,000
============ ============= =========== ============= =========== =============
<CAPTION>
Great American Pretzelmaker Consolidated
-------------- ------------ ------------
Company-
Company- Business Owned
Business Owned Business Combination Stores Total Business
Combination and Stores Combination and and Unrelated Combinations
Subsequent Unrelated to Subsequent Subsequent To and Company-
Adjustments Acquisition Adjustments Adjustments Acquisition Owned Stores
----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1999...... $3,399,000 $305,000 $ 500,000 $ 9,101,000 $5,610,000 $14,711,000
Utilization for the 39 week
Ended October 2, 1999......... (457,000) - - (1,476,000) (916,000) (2,392,000)
Decrease) in reserve for the
39 weeks ended October 2,
1999......................... (852,000) - (368,000) (2,163,000) - (2,163,000)
---------- -------- ----------- ----------- ----------- ------------
Balance, October 2, 1999...... $2,090,000 $305,000 $ 132,000 $ 5,462,000 $4,694,000 $10,156,000
========== ======== =========== =========== ========== ===========
</TABLE>
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 39 weeks ended October 2, 1999. This table does not include
a summary of activity for stores Mrs. Fields intends to close or franchise that
were not originally identified in connection with a business combination.
<TABLE>
<CAPTION>
Mrs. Fields Inc.
And
Original Cookie H&M Pretzel Time
-------------------- -------------------- -------------------
To Be To Be To Be To Be To Be To Be
------- ----------- ------- ----------- ------- ----------
Closed Franchised Closed Franchised Closed Franchised
------- ----------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1999...................... 23 36 6 7 3 -
Stores closed or franchised for the 39 weeks
ended October 2, 1999....................... (14) (14) (4) (4) (3) -
--- --- ---- ---- --- ----
Balance, October 2, 1999...................... 9 22 2 3 - -
=== === ==== ==== === ====
<CAPTION>
Great American Pretzelmaker Consolidated
-------------------- ------------------- ------------------
To Be To Be To Be To Be To Be To Be
------- ----------- ------- ---------- ------ ----------
Closed Franchised Closed Franchised Closed Franchised
------- ----------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1999...................... 43 11 7 - 82 54
Stores closed or franchised for the 39 weeks
ended October 2, 1999....................... (22) (1) (4) - (47) (19)
--- --- --- ---- --- --
Balance, October 2, 1999...................... 21 10 3 - 35 35
=== === ==== ==== === ===
</TABLE>
10
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents a summary of activity for stores Mrs. Fields
intends to close or franchise that were not originally identified to be closed
or franchised in connection with a business combination for the 39 weeks ended
October 2, 1999:
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and Original Cookie H&M Pretzel Time
--------------------- ------------------- --------------------
To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised
-------- ----------- ------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1999....................... 28 14 2 1 3 1
Stores closed or franchised during
the 39 weeks ended October 2, 1999............ (20) (7) (2) - (1) (1)
--- --- --- - --- ---
Balance, October 2, 1999....................... 8 7 - 1 2 -
=== === === = === ===
<CAPTION>
Great American Consolidated
------------------- --------------------
To Be To Be To Be To Be
Closed Franchised Closed Franchised
------- ---------- ------- -----------
<S> <C> <C> <C> <C>
Balance, January 2, 1999....................... 4 - 37 16
Stores closed or franchised during
the 39 weeks ended October 2, 1999............ (2) - (25) (8)
-- ---------- --- ---
Balance, October 2, 1999....................... 2 - 12 8
== ========== === ===
</TABLE>
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 39 weeks ended October 2, 1999 for
stores to be closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields,
Inc. and
Original Great
Cookie Co. H&M American Pretzelmaker Consolidated
----------- --- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 2, 1999....................... $ 3,844,000 $1,380,000 $ 2,877,000 $ 327,000 $ 8,428,000
Utilization for the 39 weeks ended October 2, 1999
related to stores to be closed............... (1,137,000) (405,000) (1,190,000) (157,000) (2,889,000)
Utilization for the 39 weeks ended October 2, 1999
related to stores to be franchised........... (694,000) (332,000) (5,000) - (1,031,000)
----------- ---------- ----------- --------- -----------
Balance, October 2, 1999....................... $ 2,013,000 $ 643,000 $ 1,682,000 $ 170,000 $ 4,508,000
=========== ========== =========== ========= ===========
</TABLE>
11
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(5) REPORTABLE SEGMENTS
- ------------------------
Management evaluates performance at Mrs. Fields using two reportable
operating segments; namely, (1) company-owned stores and related activity and
(2) 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 fee and monthly royalties based on a percentage of gross sales
and other licensing activity not related to cookie or pretzel stores. Sales and
transfers between segments are eliminated in consolidation.
Mrs. Fields evaluates performance of each segment based on contribution
margin. Contribution margin is computed as the difference between the revenues
generated by a reportable segment and the selling and store occupancy costs and
cost of sales related to that reportable segment. It is used as a measure of the
operating performance of an operating segment. Mrs. Fields does not allocate any
general and administrative expense, other income (expense), interest expense,
depreciation and amortization of assets to its reportable operating segments.
Segment revenue and contribution margin are presented in the following table (in
thousands).
<TABLE>
<CAPTION>
Company- Franchising
owned Stores and Licensing Total
------------ ------------- ------
<S> <C> <C> <C>
13 weeks ended October 2, 1999
- ------------------------------
Total revenues $ 35,350 $ 7,019 $ 42,369
Contribution margin 7,893 4,655 12,548
13 weeks ended October 3, 1998
- ------------------------------
Total revenues $ 34,163 $ 2,428 $ 36,591
Contribution margin 6,727 2,428 9,155
39 weeks ended October 2, 1999
- ------------------------------
Total revenues $107,265 $19,269 $126,534
Contribution margin 22,119 11,620 33,739
39 weeks ended October 3, 1998
- ------------------------------
Total revenues $ 92,850 $ 5,693 $ 98,543
Contribution margin 16,321 5,693 22,014
</TABLE>
The reconciliation of contribution margin to net loss is as follows (in
thousands):
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks Ended
October 2, 1999 October 3, 1998 October 2, 1999 October 3, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Contribution margin $12,548 $ 9,155 $ 33,739 $ 22,014
General and
administrative expense (5,339) (4,423) (16,212) (12,621)
Depreciation and amortization (5,429) (3,510) (16,692) (9,707)
Interest expense (4,260) (3,355) (12,946) (8,981)
Other income (expense), net (281) (256) (749) (395)
------- ------- -------- --------
Net loss $(2,761) $(2,389) $(12,860) $ (9,690)
======= ======= ======== ========
</TABLE>
12
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Geographic segment information is as follows (in thousands):
<TABLE>
<CAPTION>
International Domestic International
Domestic Company- Company- Franchising and Franchising
owned Stores owned Stores Licensing and Licensing
------------ ------------ --------- -------------
<S> <C> <C> <C> <C>
Total revenues
- --------------
13 weeks ended October 2, 1999 $ 35,350 $ 6,930 $ 89
13 weeks ended October 3, 1998 34,076 $ 87 2,387 41
39 weeks ended October 2, 1999 107,244 21 18,980 289
39 weeks ended October 3, 1998 92,716 134 5,231 462
</TABLE>
Revenues from international franchising and licensing are generated from
Canada and Australia with no other countries having material representation.
Revenues from international company-owned stores are immaterial. As of October
2, 1999 there are no remaining international company-owned stores.
There were no customers who accounted for more than 10% of Mrs. Fields' total
revenues or either segment's revenues.
(6) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
----------------------------------------------------------
Mrs. Fields' obligation related to its $140,000,000 aggregate principal amount
of 10 1/8 percent Series A, B and C Senior Notes due 2004 is fully and
unconditionally guaranteed (the "Guarantee") on a senior basis by four of Mrs.
Fields' wholly owned subsidiaries. The Guarantee is a general unsecured
obligation of The Mrs. Fields' Brand, Inc., Great American Cookies, Inc.,
Pretzel Time, Inc. and Pretzelmaker Holdings, Inc. (the "Guarantors"), rank
senior in right of payment to all subordinated indebtedness of the Guarantors
and rank equal in right of payment with all existing and future senior
indebtedness of the Guarantors. There are no restrictions on Mrs. Fields'
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"), the Guarantor Subsidiaries and
the Non-guarantor Subsidiaries (which include Mrs. Fields' Cookies Australia,
Mrs. Fields' Cookies (Canada) Ltd., H & M Canada, and Fairfield Foods, Inc. and
three partially owned subsidiaries). Mrs. Fields has not presented separate
financial statements and other disclosures concerning the Guarantors because
management has determined that such information is not material.
13
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 5,748 $ 1,756 $ 263 $ $ 7,767
Accounts receivable, net 2,651 62 (1) 2,712
Amounts due from franchisees
and licensees, net 873 3,611 4,484
Inventories 3,808 1,173 6 4,987
Other current assets and
amounts due from (to)
affiliates, net 20,310 (14,665) (788) 4,857
-------- -------- ----------- -------- -----------
Total current assets 33,390 (8,063) (520) 24,807
PROPERTY AND EQUIPMENT, net 26,865 1,562 180 28,607
INTANGIBLES, net 77,261 83,167 288 160,716
INVESTMENT IN SUBSIDIARIES 64,926 (64,926)
OTHER ASSETS 3,150 126 33 3,309
-------- -------- ----------- -------- -----------
$205,592 $ 76,792 $ (19) $(64,926) $ 217,439
======== ======== =========== ======== ===========
LIABILITIES AND STOCKHOLDER'S
- -----------------------------
EQUITY (DEFICIT)
- -----------------
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease obligations $ 1,387 $ 287 $ $ $ 1,674
Accounts payable 15,600 1,712 (14) 17,298
Accrued liabilities 17,142 1,934 10 19,086
-------- -------- ----------- -------- -----------
Total current liabilities 34,129 3,933 (4) 38,058
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current
portion 143,365 143,365
OTHER ACCRUED LIABILITIES 4,887 4,887
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED STOCK 1,182 1,182
MINORITY INTEREST 129 129
STOCKHOLDER'S EQUITY (DEFICIT) 23,211 71,677 (144) (64,926) 29,818
-------- -------- ----------- -------- -----------
$205,592 $ 76,792 $ (19) $(64,926) $ 217,439
======== ======== =========== ======== ===========
</TABLE>
14
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 13 WEEKS ENDED OCTOBER 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $36,825 $6,730 $256 $(1,442) $42,369
------- -------- ------- -------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy
costs 19,511 42 (331) 19,222
Cost of sales 6,499 5,196 15 (1,111) 10,599
General and administrative 5,238 (25) 126 5,339
Depreciation and amortization 3,727 1,702 5,429
------- -------- ------- -------- --------
Total operating costs and
expenses 34,975 6,873 183 (1,442) 40,589
------- -------- ------- -------- --------
Income (loss) from operations 1,850 (143) 73 1,780
INTEREST EXPENSE AND
OTHER, net (4,337) (79) (4,416)
------- -------- ------- --------- --------
(Loss) income before provision
for income taxes and equity
in net loss of consolidated (2,487) (222) 73 (2,636)
subsidiaries
PROVISION FOR INCOME TAXES (6) (6)
------- -------- ------- -------- --------
(Loss) income before preferred
stock accretion and dividends
of subsidiaries and equity in
net loss of consolidated
subsidiaries (2,493) (222) 73 (2,642)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES (111) (111)
EQUITY IN NET LOSS OF
CONSOLIDATED SUBSIDIARIES 260 (268) (8)
------- -------- ------- -------- --------
NET (LOSS) INCOME $(2,233) $ (333) $ 73 $ (268) $(2,761)
======= ======== ======= ======== ========
</TABLE>
15
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED OCTOBER 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $111,190 $ 19,494 $ 360 $ (4,510) $ 126,534
-------- -------------- ------------- ------------ ------------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy
costs 61,145 162 (967) 60,340
Cost of sales 29,170 6,775 53 (3,543) 32,455
General and administrative 16,057 29 126 16,212
Depreciation and amortization 11,694 4,998 16,692
-------- -------------- ------------- ------------ ------------
Total operating costs and
expenses 118,066 11,802 341 (4,510) 125,699
-------- -------------- ------------- ------------ ------------
Income (loss) from operations (6,876) 7,692 19 835
INTEREST EXPENSE AND
OTHER, net (12,975) (159) (13,134)
-------- -------------- ------------- ------------ ------------
(Loss) income before provision
for income taxes and equity
in net loss of consolidated
subsidiaries (19,851) 7,533 19 (12,299)
PROVISION FOR INCOME TAXES (216) (216)
-------- -------------- ------------- ------------ ------------
(Loss) income before preferred
stock accretion and dividends
of subsidiaries and equity in
net loss of consolidated
subsidiaries (20,067) 7,533 19 (12,515)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES (333) (333)
EQUITY IN NET LOSS OF
CONSOLIDATED SUBSIDIARIES 7,219 (7,231) (12)
-------- -------------- ------------- ------------ ------------
NET (LOSS) INCOME $(12,848) $ 7,200 $ 19 $ (7,231) $ (12,860)
======== ============== ============= ============ ============
</TABLE>
16
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 39 WEEKS ENDED OCTOBER 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 10,407 $ 2,561 $ 185 $ $ 13,153
-------- -------------- ------------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash paid for acquisitions (100) (100)
Purchase of property and
equipment, net (3,145) (256) (3,401)
-------- -------------- ------------- ------------ ------------
Net cash used in investing
activities (3,245) (256) (3,501)
-------- -------------- ------------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowing on line of credit 1,400 1,400
Reduction of long-term debt
and capital lease obligations (4,904) (1,133) (6,037)
Payment of debt financing fees (1,449) (25) (1,474)
Reduction in preferred stock (525) (525)
-------- -------------- ------------- ------------ ------------
Net cash used in financing
activities (4,953) (1,683) (6,636)
-------- -------------- ------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,209 622 185 3,016
CASH AND CASH EQUIVALENTS,
beginning of the period 3,539 1,134 78 4,751
-------- -------------- ------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of
the period $ 5,748 $ 1,756 $ 263 $ $ 7,767
======== ============== ============= ============ ============
</TABLE>
17
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 1999
---------------------
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 3,539 $ 1,134 $ 78 $ $ 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 STOCKHOLDER'S
- -----------------------------
EQUITY (DEFICIT)
----------------
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
STOCKHOLDER'S EQUITY (DEFICIT) 42,821 64,476 (16) (66,603) 40,678
--------- --------- -------- --------- ---------
$227,642 $ 70,616 $ 132 $(66,484) $231,906
========= ========= ======== ========= =========
</TABLE>
18
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 13 WEEKS ENDED OCTOBER 3, 1998
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 33,945 $ 2,511 $ 975 $ (840) $ 36,591
------------ ------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 18,787 73 (411) 18,449
Food cost of sales 8,638 748 30 (429) 8,987
General and administrative 3,820 258 345 4,423
Depreciation and amortization 2,742 645 123 3,510
------------ ------------ ------------ ------------ ------------
Total operating costs and expenses 33,987 1,651 571 (840) 35,369
------------ ------------ ------------ ------------ ------------
(Loss) income from operations (42) 860 404 1,222
INTEREST EXPENSE AND
OTHER, net (3,361) 4 3 (3,354)
------------ ------------ ------------ ------------ ------------
(Loss) income before provision for
income taxes and equity in net
loss of consolidated subsidiaries (3,403) 864 407 (2,132)
PROVISION FOR INCOME TAXES (54) (54)
------------ ------------ ------------ ------------ ------------
(Loss) income before preferred
stock accretion and dividends of
subsidiaries and equity in net
loss of consolidated subsidiaries (3,457) 864 407 (1,252) (2,186)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES (111) (111)
EQUITY IN NET LOSS OF
CONSOLIDATED SUBSIDIARIES (1,160) (92)
------------ ------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (2,297) $ 864 $ 296 $ (1,252) $ (2,389)
============ ============ ============ ============ ============
</TABLE>
19
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED OCTOBER 3, 1998
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 93,926 $ 3,194 $ 2,842 $ (1,419) $ 98,543
------------ ------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 53,096 251 (990) 52,357
Food cost of sales 23,780 748 73 (429) 24,172
General and administrative 10,692 812 1,117 12,621
Depreciation and amortization 8,073 1,285 349 9,707
------------ ------------ ------------ ------------ ------------
Total operating costs and expenses 95,641 2,845 1,790 (1,419) 98,857
------------ ------------ ------------ ------------ ------------
(Loss) income from operations (1,715) 349 1,052 (314)
INTEREST EXPENSE AND
OTHER, net (8,733) 18 8 (8,707)
------------ ------------ ------------ ------------ ------------
(Loss) income before provision for
income taxes and equity in net
loss of consolidated subsidiaries (10,448) 367 1,060 (9,021)
PROVISION FOR INCOME TAXES (68) (68)
------------ ------------ ------------ ------------ ------------
(Loss) income before preferred
stock accretion and dividends of
subsidiaries and equity in net
loss of consolidated subsidiaries (10,516) 367 1,060 (9,089)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES (333) (333)
EQUITY IN NET LOSS OF
CONSOLIDATED SUBSIDIARIES 1,094 (1,362) (268)
------------ ------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (9,422) $ 367 $ 727 $ (1,362) $ (9,690)
============ ============ ============ ============ ============
</TABLE>
20
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 39 WEEKS ENDED OCTOBER 3, 1998
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES $ (37,783) $ 37,954 $ 505 $ - $ 676
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash paid for acquisitions (35,656) 6,957 (28,699)
Purchase of property and
equipment, net (5,609) (7) (5,616)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided
by investing activities (41,265) 6,957 (7) (34,315)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term debt 39,400 39,400
Payment of debt financing costs (5,007) (5,007)
Equity from MFH 29,056 29,056
Reduction of long-term debt and
capital lease obligations (49) (40,522) (316) (40,887)
Reduction in preferred stock (64) (64)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing activities 63,400 (40,522) (380) 22,498
------------ ------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (15,648) 4,389 118 (11,141)
CASH AND CASH EQUIVALENTS,
beginning of period 14,270 725 1,292 16,287
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $ (1,378) $ 5,114 $ 1,410 $ $ 5,146
============ ============ ============ ============ ============
</TABLE>
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields''), a Delaware
corporation, is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc.
("Mrs. Fields' Holding"). Mrs. Fields' Holding is a majority owned subsidiary of
Capricorn Investors II, L.P. (''Capricorn''). Mrs. Fields has seven 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., and Pretzelmaker
of Canada; and three partially owned subsidiaries.
Mrs. Fields primarily operates and franchises retail stores, which sell
freshly baked cookies, brownies, pretzels and other food products through six
specialty retail chains. As of October 2, 1999, Mrs. Fields owned and operated
136 Mrs. Fields Cookies stores, 100 Original Cookie Company stores, 99 Great
American Cookies stores, 54 Hot Sam Pretzels stores, 86 Pretzel Time stores and
4 Pretzelmaker stores in the United States. Additionally, Mrs. Fields has
franchised or licensed 832 stores in the United States and 129 stores in several
other countries. As of October 2, 1999, Mrs. Fields owned and operated 389 core
stores and 90 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.
Mrs. Fields' business follows seasonal trends and is also affected by
climate and weather conditions. Because Mrs. Fields' stores are heavily
concentrated in shopping malls, the Mrs. Fields' sales performance is
significantly dependent on the performance of those malls. Mrs. Fields
experiences its highest revenues in the fourth quarter of the calendar year due
to the holiday season.
Results of Operations
The following table sets forth, for the periods indicated, certain
information relating to the operations of Mrs. Fields expressed in thousands of
dollars and percentage changes from period to period. Data in the table reflects
the consolidated results of Mrs. Fields for the 13 and 39 weeks ended October 2,
1999 and the 13 and 39 weeks ended October 3, 1998. As supplemental information
the table also segregates the statement of operations data into a core stores
and stores in the process of being closed or franchised format.
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 39 Weeks Ended
---------------------- ----------------------
% chg % chg
from from
October 2, October 3, 1998 to October 2, October 3, 1998 to
1999 1998 1999 1999 1998 1999
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Net store and food sales................. $35,350 $34,163 3.5% $107,265 $92,850 15.5%
Franchising, net......................... 6,520 2,030 221.2 18,082 4,612 292.1
Licensing, net........................... 499 398 25.4 1,187 1,081 9.8
------- ------- -------- -------
Total revenues.......................... 42,369 36,591 15.8 126,534 98,543 28.4
------- ------- -------- -------
Operating Costs and Expenses:
Selling and store occupancy costs........ 19,222 18,449 4.2 60,340 52,357 15.2
Cost of sales............................ 10,599 8,987 17.9 32,455 24,172 34.3
General and administrative............... 5,339 4,423 20.7 16,212 12,621 28.5
Depreciation and amortization 5,429 3,510 54.7 16,692 9,707 72.0
------- ------- -------- -------
Total operating costs and expenses 40,589 35,369 14.8 125,699 98,857 27.2
------- ------- -------- -------
Other Income (Expense):
Interest expense......................... (4,260) (3,355) 27.0 (12,946) (8,981) 44.1
Interest income.......................... 37 113 (67.3) 115 530 (78.3)
Other expenses, net...................... (318) (369) (13.8) (864) (925) (6.6)
------- ------- -------- -------
Total other expense, net (4,541) (3,611) 25.8 (13,695) (9,376) 46.1
------- ------- -------- -------
Net loss................................ $(2,761) $(2,389) 15.6% $(12,860) $(9,690) 32.7%
======= ======= ======== =======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 39 Weeks Ended
---------------------- ----------------------
% chg % chg
from from
October 2, October 3, 1998 to October 2, October 3, 1998 to
1999 1998 1999 1999 1998 1999
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Supplemental Information
- ------------------------
Core stores:
Net store and food sales.................. $31,811 $30,050 5.91% $95,735 $81,947 16.8%
------- ------- ------- -------
Operating costs and expenses:
Selling and store occupancy costs....... 16,797 15,043 12.9 51,681 42,768 20.8
Cost of sales........................... 7,218 7,096 1.9 22,119 20,329 8.8
Depreciation and amortization........... 2,496 1,403 77.9 7,024 3,833 83.3
------- ------- ------- -------
Total operating costs and
expenses............................... 26,511 23,542 12.6 80,824 66,930 20.8
------- ------- ------- -------
Core stores contribution $ 5,300 $ 6,508 (18.6)% $14,911 $15,017 (0.7)%
======= ======= ======= =======
Stores in the process of being closed or
franchised:
Net store and food sales.................. $ 3,539 $ 4,113 (14.0)% $11,530 $10,903 5.8%
------- ------- ------- -------
perating costs and expenses:
Selling and store occupancy costs......... 2,425 3,406 (28.8) 8,659 9,589 (9.7)
Cost of sales............................. 1,069 1,143 (6.5) 3,561 3,095 15.1
Depreciation and amortization............. 13 107 (87.9) 202 356 (43.3)
------- ------- ------- -------
Total operating costs and
expenses............................... 3,507 4,656 (24.7) 12,422 13,040 (4.7)
------- ------- ------- -------
Stores in the process of being
closed or franchised contribution $ 32 $ (543) 105.9% $ (892) $(2,137) 58.3%
======= ======= ======= =======
</TABLE>
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.
Core store contribution measures the amount of store contribution from stores
that Mrs. Fields does not intend to close or franchise. Store contribution for
stores in the process of being closed or franchised measures the amount of store
contribution from stores that Mrs. Fields has determined to either close or
franchise and for which Mrs. Fields has included in a store closure reserve.
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.
13 Weeks Ended October 2, 1999 Compared to the 13 Weeks Ended October 3, 1998
As of October 2, 1999, there were 479 Company-owned stores and 961
franchised or licensed stores in operation. The store activity for the 13 weeks
ended October 2, 1999 and October 3, 1998 is summarized as follows:
<TABLE>
<CAPTION>
Company-owned and Franchised or Licensed Store Activity October 2, 1999 October 3, 1998
---------------------- ----------------------
Company- Franchised Company- Franchised
Owned Or Licensed Owned Or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of the 13 weeks ended 492 1,001 470 554
Stores opened (including relocations) 1 25 111 236
Stores closed (including relocations) (5) (72) (2) (23)
Stores sold to franchisees (5) 5 (3) 3
Non-core (exit plan) stores closed (September 18, 1996
forward) (2) (13)
Non-core (exit plan) stores franchised (September 18, 1996
forward) (3) 3 (2) 2
Stores acquired from franchisees 1 (1) 7 (7)
----- ----- ----- -----
Stores open as of the end of the 13 weeks ended 479 961 568 765
===== ===== ===== =====
</TABLE>
23
<PAGE>
Revenues
Net Store and Food Sales. Total net store sales increased $1,187,000, or
3.5%, from $34,163,000 to $35,350,000 for the 13 weeks ended October 2, 1999
compared to the 13 weeks ended October 3, 1998. For stores that had been open
one year or more, mall store sales decreased 1.3% when compared to the same
period in the prior year. The decrease is primarily due to deceased foot traffic
in the malls where our stores are located.
Net store sales from core stores increased $1,761,000, or 5.9%, from
$30,050,000 to $31,811,000 for the 13 weeks ended October 2, 1999 compared to
the 13 weeks ended October 3, 1998. The increase in net store sales from core
stores was primarily attributable to the operation of 66 Great American and 2
Pretzelmaker core stores obtained in connection with the acquisitions of these
companies in August and November 1998, respectively.
Net store sales from stores in the process of being closed or franchised
decreased $574,000, or 14.0%, from $4,113,000 to $3,539,000 for the 13 weeks
ended October 2, 1999 compared to the 13 weeks ended October 3, 1998. This
decrease resulted from closing 75 stores and franchising 25 stores since the
third quarter of 1998.
Franchising Revenues. Franchising revenues increased $4,490,000, or 221.2%,
from $2,030,000 to $6,520,000 for the 13 weeks ended October 2, 1999 compared to
the 13 weeks ended October 3, 1998. The increase in franchising revenues was
primarily attributable to batter sales made to franchisees from the Atlanta
batter facility purchased in August 1998 and the addition of 201 Great American
and 205 Pretzelmaker franchisees due to the acquisition of these companies in
August and November 1998, respectively.
Licensing Revenues. Licensing revenues increased $101,000, or 25.4%, from
$398,000 to $499,000 for the 13 weeks ended October 2, 1999 compared to the 13
weeks ended October 3, 1998. The increase in licensing revenues for the 13 weeks
ended October 2, 1999 was primarily attributable to increased purchases for
seasonal licensees for "Back to School" and early stocking for the fourth
quarter.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $773,000, or 4.2%, from $18,449,000 to $19,222,000 for the 13 weeks
ended October 2, 1999 compared to the 13 weeks ended October 3, 1998.
Selling and store occupancy costs for core stores increased by $1,754,000,
or 11.7%, from $15,043,000 to $16,797,000 for the 13 weeks ended October 2, 1999
compared to the 13 weeks ended October 3, 1998. These increases were primarily
attributable to the 66 Great American and 2 Pretzelmaker core stores obtained in
connection with the acquisition of these companies in August and November 1998,
respectively, coupled with lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $981,000, or 28.8%, from $3,406,000 to $2,425,000 for
the 13 weeks ended October 2, 1999 compared to the 13 weeks ended October 3,
1998. This decrease was primarily the result of closing or franchising 18 stores
during the 13 weeks ended October 3, 1999.
Cost of Sales. Total food cost of sales increased $1,612,000, or 17.9%,
from $8,987,000 to $10,599,000 for the 13 weeks ended October 2, 1999 compared
to the 13 weeks ended October 3, 1998.
Food cost of sales for core stores increased $122,000, or 1.7%, from
$7,096,000 to $7,218,000 for the 13 weeks ended October 23, 1999. This increase
was primarily the result of the addition of 66 Great American and 2 Pretzelmaker
core stores in August and November 1998, respectively.
Food cost of sales for stores in the process of being closed or franchised
decreased $74,000, or 6.5%, from $1,143,000 to $1,069,000 for the 13 weeks ended
October 2, 1999 compared to the 13 weeks ended October 3, 1998. This decrease is
primarily the result of closing 75 stores and franchising 25 stores since the
third quarter of 1998.
General and Administrative Expenses. General and administrative expenses
increased $916,000, or 20.7%, from $4,423,000 to $5,339,000 for the 13 weeks
ended October 2, 1999 compared to the 13 weeks ended October 3, 1998. The
increase in general and administrative expenses was primarily attributable to
the acquisitions of Great American and Pretzelmaker.
24
<PAGE>
Depreciation and Amortization. Total depreciation and amortization expense
increased by $1,919,000, or 54.7%, from $3,510,000 to $5,429,000 for the 13
weeks ended October 2, 1999 compared to the 13 weeks ended October 3, 1998. This
increase was primarily attributable to increased goodwill and fixed assets from
the Great American and Pretzelmaker acquisitions.
Depreciation and amortization expense for core stores increased $1,093,000,
or 77.9%, from $1,403,000 to $2,496,000 for the 13 weeks ended October 2, 1999
compared to the 13 weeks ended October 3, 1998. This increase in depreciation
and amortization expense was primarily attributable to the acquisitions of 66
Great American and 2 Pretzelmaker core stores in August and November 1998,
respectively.
Interest Expense. Interest expense increased $905,000, or 27.0%, from
$3,355,000 to $4,260,000 for the 13 weeks ended October 2, 1999 compared to the
13 weeks ended October 3, 1998. This increase was primarily attributable to
interest on the $40,000,000 in high yield notes issued in August 1998.
Interest Income. Interest income decreased $76,000, or 67.3%, from $113,000
to $37,000 for the 13 weeks ended October 2, 1999 compared to the 13 weeks ended
October 3, 1998. This decrease was primarily the result of interest income
earned in 1998 on excess cash provided by the $100,000,000 in high yield notes
which were put in place in November 1997 that was not earned in fiscal 1999.
Other Expenses. Other expenses, decreased $51,000, or 13.8%, from $369,000
to $318,000 for the 13 weeks ended October 2, 1999 compared to the 13 weeks
ended October 3, 1998.
Net Loss. The net loss increased by $372,000, or 15.6%, from $2,389,000 to
$2,761,000 for the 13 weeks ended October 2, 1999 compared to the 13 weeks ended
October 3, 1998 due to the combination of factors described above.
Contribution from Core Stores. Contribution from core stores decreased by
$1,208,000, or 18.6%, from $6,508,000 to $5,300,000 for the 13 weeks ended
October 2, 1999 compared to the 13 weeks ended October 3, 1998, primarily due to
the depreciation of fixed assets from 66 Great American and 2 Pretzelmaker core
stores obtained in connection with the acquisitions in August and November 1998,
respectively.
Negative Contribution from Stores in the Process of Being Closed or
Franchised. The negative contribution from stores in the process of being closed
or franchised decreased by $575,000, or 105.9%, from ($543,000) to $32,000 for
the 13 weeks ended October 2, 1999 compared to the 13 weeks ended October 3,
1998. This decrease was primarily the result of closing 7 stores and franchising
8 stores during the 13 weeks ended October 2, 1999 and the effect of closing or
franchising 11 stores during the 13 weeks ended October 3, 1998. In addition, 68
stores were closed and 17 franchised over the remainder of fiscal year 1998,
which were in operation during the 13 weeks ended October 3, 1998. See Note 4 to
the Unaudited Condensed Consolidated Financial Statements as of October 2, 1999
for a more detailed analysis of Mrs. Fields store closure reserve.
39 Weeks Ended October 2, 1999 Compared to the 39 Weeks Ended October 3, 1998
As of October 2, 1999, there were 479 Company-owned stores and 961
franchised or licensed stores in operation. The store activity for the 39 weeks
ended October 2, 1999 and October 3, 1998 is summarized as follows:
<TABLE>
<CAPTION>
October 2, October 3,
Company-owned and Franchised or Licensed Store Activity ---------- ----------
1999 1998
---- ----
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of the 39 weeks ended 566 972 481 553
Stores opened (including relocations) 11 74 116 278
Stores closed (including relocations) (12) (110) (9) (65)
Stores sold to franchisees (5) 5 (4) 4
Non-core (exit plan) stores closed (September 18, 1996
forward) (61) - (21) -
Non-core (exit plan) stores franchised (September 18, 1996
forward) (24) 24 (13) 13
Stores acquired from franchisees 4 (4) 18 (18)
----- ----- ----- -----
Stores open as of the end of the 39 weeks ended 479 961 568 765
===== ===== ===== =====
</TABLE>
25
<PAGE>
Revenues
Net Store and Food Sales. Total net store sales increased $14,415,000, or
15.5%, from $92,850,000 to $107,265,000 for the 39 weeks ended October 2, 1999
compared to the 39 weeks ended October 3, 1998. For stores that had been open
one year or more, sales decreased .3% when compared to the same period in the
prior year. The decrease is primarily due to decreased foot traffic in the malls
where our stores are located.
Net store sales from core stores increased $13,788,000, or 16.8%, from
$81,947,000 to $95,735,000 for the 39 weeks ended October 2, 1999 compared to
the 39 weeks ended October 3, 1998. The increase in net store sales from core
stores was primarily attributable to the operation of 66 Great American and 2
Pretzelmaker core stores obtained in connection with the acquisitions in August
and November 1998, respectively.
Net store sales from stores in the process of being closed or franchised
increased $627,000, or 5.8%, from $10,903,000 to $11,530,000 for the 39 weeks
ended October 2, 1999 compared to the 39 weeks ended October 3, 1998. This
increase resulted from the addition of 41 to be closed stores and 13 to be
franchised stores in the fourth quarter 1998.
Franchising Revenues. Franchising revenues increased $13,470,000, or
292.1%, from $4,612,000 to $18,082,000 for the 39 weeks ended October 2, 1999
compared to the 39 weeks ended October 3, 1998. The increase in franchising
revenues was primarily attributable to batter sales made to franchisees from the
Atlanta batter facility purchased in August 1998 and the addition of 201 Great
American and 205 Pretzelmaker franchisees due to the acquisitions of these
companies in August and November 1998, respectively.
Licensing Revenues. Licensing revenues increased $106,000, or 9.8%, from
$1,081,000 to $1,187,000 for the 39 weeks ended October 2, 1999 compared to the
39 weeks ended October 3, 1998.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $7,983,000, or 15.2%, from $52,357,000 to $60,340,000 for the 39 weeks
ended October 2, 1999 compared to the 39 weeks ended October 3, 1998.
Selling and store occupancy costs for core stores increased by $8,913,000,
or 20.8%, from $42,768,000 to $51,681,000 for the 39 weeks ended October 2, 1999
compared to the 39 weeks ended October 3, 1998. These increases were primarily
attributable to the 66 Great American and 2 Pretzelmaker core stores obtained in
connection with the acquisitions in August and November 1998, respectively,
coupled with lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $930,000, or 9.7%, from $9,589,000 to $8,659,000 for the
39 weeks ended October 2, 1999 compared to the 39 weeks ended October 3, 1998.
This decrease was primarily the result of closing or franchising 98 stores
during the 39 weeks ended October 2, 1999.
Cost of Sales. Total food cost of sales increased $8,283,000, or 34.3%,
from $24,172,000 to $32,455,000 for the 39 weeks ended October 2, 1999 compared
to the 39 weeks ended October 3, 1998.
Food cost of sales for core stores increased $1,790,000, or 8.8%, from
$20,329,000 to $22,119,000 for the 39 weeks ended October 2, 1999. This increase
was primarily the result of the addition of 66 Great American and 2 Pretzelmaker
core stores in August and November 1998, respectively.
Food cost of sales for stores in the process of being closed or franchised
increased $466,000, or 15.1%, from $3,095,000 to $3,561,000 for the 39 weeks
ended October 2, 1999 compared to the 39 weeks ended October 3, 1998. This
increase was primarily the result of the addition of 41 to be closed stores and
13 to be franchised stores in the fourth quarter 1998.
General and Administrative Expenses. General and administrative expenses
increased $3,591,000, or 28.4%, from $12,621,000 to $16,212,000 for the 39 weeks
ended October 2, 1999 compared to the 39 weeks ended October 3, 1998. The
increase in general and administrative expenses was primarily attributable to
the acquisitions of Great American and Pretzelmaker.
26
<PAGE>
Depreciation and Amortization. Total depreciation and amortization expense
increased by $6,985,000, or 72.0%, from $9,707,000 to $16,692,000 for the 39
weeks ended October 2, 1999 compared to the 39 weeks ended October 3, 1998. This
increase was primarily attributable to increased goodwill and fixed assets from
the Great American and Pretzelmaker acquisitions.
Depreciation and amortization expense for core stores increased $3,191,000,
or 83.3%, from $3,833,000 to $7,024,000 for the 39 weeks ended October 2, 1999
compared to the 39 weeks ended October 3, 1998. This increase in depreciation
and amortization expense was primarily attributable to the acquisitions of 66
Great American and 2 Pretzelmaker core stores in August and November 1998,
respectively.
Interest Expense. Interest expense increased $3,965,000, or 44.1%, from
$8,981,000 to $12,946,000 for the 39 weeks ended October 2, 1999 compared to the
39 weeks ended October 3, 1998. This increase was primarily attributable to
interest on the $40,000,000 in high yield notes, which were issued in August
1998.
Interest Income. Interest income, decreased $415,000, or 78.3%, from
$530,000 to $115,000 for the 39 weeks ended October 2, 1999 compared to the 39
weeks ended October 3, 1998. This decrease was primarily the result of interest
income earned in 1998 on excess cash provided by the $100,000,000 in high yield
notes which were put in place in November 1997 that was not earned in fiscal
1999.
Other Expenses. Other expenses for the 39 weeks ended October 2, 1999 were
comparable to the 39 weeks ended October 3, 1998.
Net Loss. The net loss increased by $3,170,000, or 32.7%, from $9,690,000
to $12,860,000 for the 39 weeks ended October 2, 1999 compared to the 39 weeks
ended October 3, 1998 due to the combination of factors described above.
Contribution from Core Stores. Contribution from core stores decreased by
$106,000, or .7%, from $15,017,000 to $14,911,000 for the 39 weeks ended
October 2, 1999 compared to the 39 weeks ended October 3, 1998, primarily due to
the depreciation of fixed assets from 66 Great American and 2 Pretzelmaker core
stores obtained in connection with the acquisitions in August and November 1998,
respectively.
Negative Contribution from Stores in the Process of Being Closed or
Franchised. The negative contribution from stores in the process of being closed
or franchised decreased by $1,245,000, or 58.3%, from $2,137,000 to $892,000 for
the 39 weeks ended October 2, 1999 compared to the 39 weeks ended October 3,
1998. This decrease was primarily the result of closing 43 stores and
franchising 14 stores during the 39 weeks ended October 2, 1999 and the effect
of closing or franchising 19 stores during the 39 weeks ended October 3, 1998.
In addition, 22 stores were closed and 4 franchised over the remainder of fiscal
year 1998, which were in operation during the 39 weeks ended October 3, 1998.
See Note 4 to the Unaudited Condensed Consolidated Financial Statements as of
October 2, 1999 for a more detailed analysis of Mrs. Fields store closure
reserve.
Liquidity and Capital Resources
General
Mrs. Fields' principal sources of liquidity are cash flows from operating
activities, cash on hand and available borrowings under Mrs. Fields' existing
revolving credit facility. As of October 2, 1999, Mrs. Fields has $7,767,000 of
cash and cash equivalents on hand and $6,749,000 additional borrowings available
under its revolving credit facility. Mrs. Fields expects to use its existing
cash, cash flows from operations and its credit facility to provide working
capital, finance capital expenditures and to meet debt service requirements,
including the December 1, 1999 interest payment. 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, 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.
October 2, 1999 Compared to January 2, 1999
As of October 2, 1999, Mrs. Fields had liquid assets (cash and cash
equivalents and accounts receivable) of $15,367,000, an increase of 10.1%, or
$1,405,000, from January 2, 1999 when liquid assets were $13,962,000. Cash
increased $3,016,000, or 63.5%, to $7,767,000 at October 2, 1999 from $4,751,000
at January 2, 1999. Accounts receivable decreased $1,611,000, or 17.5%, to
$7,600,000 at October 2, 1999 from $9,211,000 at January 2, 1999 due to the
seasonality of the business and improved collections.
27
<PAGE>
Mrs. Fields' working capital decreased by $524,000, or 4.1%, to a negative
$13,251,000 at October 2, 1999 from a negative $12,727,000 at January 2, 1999.
This decrease is due to the decreases in current assets which more than offset
the decreases in current liabilities.
Long-term assets decreased $14,931,000, or 7.2%, to $192,632,000, at
October 2, 1999 from $207,563,000 at January 2, 1999. This decrease was
primarily the result of scheduled depreciation and amortization of fixed assets,
goodwill and deferred loan costs.
During the 39 weeks ended October 2, 1999, Mrs. Fields Holdings, the
Company's sole shareholder, made a capital contribution of $2,000,000 by
assuming a $2,000,000 note payable due December 31, 1999.
Mrs. Fields' cash flows from operating activities of $13,153,000 for the 39
weeks ended October 2, 1999, resulted primarily from store sales and franchising
and licensing revenues net of costs and expenses incurred to generate these
sales and better management of cash flows.
Mrs. Fields utilized $3,501,000 of cash in investing activities during the
39 weeks ended October 2, 1999, primarily for capital expenditures relating to
store remodels and renovations.
Mrs. Fields utilized $6,636,000 of cash in financing activities during the
39 weeks ended October 2, 1999, primarily for the payment of debt related to the
acquisitions.
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 39 weeks ended October 2, 1999 and October 3, 1998, Mrs.
Fields expended $5,488,000 and $5,616,000, respectively, for capital assets and
expects to expend a total of approximately $7,000,000 in 1999. Management
anticipates that these expenditures will be funded with cash generated from
operating activities and short-term borrowings under its credit facility as
needed.
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 systems used for collecting and communicating sales data from
retail locations. This assessment was based primarily on independent, third-
party verification from Mrs. Fields' vendors and suppliers.
Mrs. Fields is currently replacing its 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 80% of its
stores. Mrs. Fields projects installation will be complete by November 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 were completed
in the first and second quarters of 1999 at an estimated cost of $10,000. No
information technology projects have been deferred as a result of Mrs. Fields'
Year 2000 efforts.
Mrs. Fields is not dependent on the proper operation of the sales
collection systems 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 its results of
operations.
Mrs. Fields has assessed Year 2000 issues with respect to its 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
28
<PAGE>
providing goods and services to Mrs. Fields. Failure of Mrs. Fields' key
suppliers to remedy their own Year 2000 issues could delay shipments of
essential products, thereby disrupting Mrs. Fields' operations. Furthermore,
Mrs. Fields relies on various service providers, such as utility and
telecommunication service companies, which are beyond its control. This
assessment is 100% complete. Based upon the results of the assessment to date,
Mrs. Fields is not aware of any Year 2000 issues relating to its significant
vendors, financial institutions or its non-information technology systems.
Mrs. Fields does not have a contingency plan in place to address untimely
or incomplete remediation of Year 2000 issues, but it is currently developing
contingency plans. These contingency plans are expected to address issues
related to significant vendors and financial institutions.
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) and 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.
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' 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:
. 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;
. Our ability to meet our debt and interest obligations,
. Performance by franchisees and licensees;
. Difficulties or delays in developing and introducing anticipated new products
or failure of customers to accept new product offerings;
. Changes in consumer preferences and our ability to adequately anticipate such
changes;
. The seasonal nature of our operations;
. Changes in general economic and business conditions;
. Actions by competitors, including new product offerings and marketing and
promotional successes;
. Claims which might be made against Mrs. Fields, including product liability
claims;
. Changes in business strategy, new product lines, changes in raw ingredient
and employee labor costs;
. Changes in our relationships with our franchisees and licensees;
. Changes in mall customer traffic and
. 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.
29
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
In the ordinary course of business, Mrs. Fields is involved in routine
litigation, including franchise 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 Mrs. Fields' business, financial
condition or results of operations beyond amounts provided for in the
accompanying financial statements.
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 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
- ----------- -----------
27.1 Financial data schedule (for SEC use only)
(b) Forms 8-K
None
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MRS. FIELDS' ORIGINAL COOKIES, INC.
/s/ Larry A. Hodges November 17, 1999
- -------------------------------------- -----------------
Larry A. Hodges, President & CEO Date
/s/ Mark S. Tanner November 17, 1999
- -------------------------------------- -----------------
Mark S. Tanner, Chief Financial Officer Date
(Principal Accounting Officer)
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JUL-04-1999
<PERIOD-END> OCT-02-1999
<EXCHANGE-RATE> 1
<CASH> 7,767
<SECURITIES> 0
<RECEIVABLES> 8,605
<ALLOWANCES> 1,005
<INVENTORY> 4,987
<CURRENT-ASSETS> 24,807
<PP&E> 46,001
<DEPRECIATION> 17,394
<TOTAL-ASSETS> 217,439
<CURRENT-LIABILITIES> 38,058
<BONDS> 141,597
1,182
0
<COMMON> 0
<OTHER-SE> 29,818
<TOTAL-LIABILITY-AND-EQUITY> 217,439
<SALES> 107,265
<TOTAL-REVENUES> 126,534
<CGS> 32,455
<TOTAL-COSTS> 125,699
<OTHER-EXPENSES> 188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,946
<INCOME-PRETAX> (12,299)
<INCOME-TAX> (216)
<INCOME-CONTINUING> (12,515)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,860)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
