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: April 1, 2000
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
May 16, 2000.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- -------------------------------
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets as of April 1, 2000 and January 1, 2000.................... 3
Condensed Consolidated Statements of Operations for the 13 Weeks
Ended April 1, 2000 and April 3, 1999.......................................................... 5
Condensed Consolidated Statements of Cash Flows for the 13 Weeks
Ended April 1, 2000 and April 3, 1999.......................................................... 6
Notes to Condensed Consolidated Financial Statements............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 20
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings............................................................................... 26
Item 6. Exhibits and Reports on Form 8-K................................................................ 26
</TABLE>
<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>
April 1, January 1,
2000 2000
-------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 545 $ 4,919
Accounts receivable, net of allowance for doubtful accounts of $281 and $111,
respectively 4,037 4,295
Amounts due from franchisees and licensees, net of allowance for doubtful
accounts of $903 and $821, respectively 4,120 3,708
Inventories 4,564 4,977
Prepaid rent and other 3,014 1,336
Deferred income tax assets, current portion 1,360 1,360
---------- ---------
Total current assets 17,640 20,595
---------- ---------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 26,805 26,698
Equipment and fixtures 23,178 22,540
Land 240 240
---------- ---------
50,223 49,478
Less accumulated depreciation and amortization (22,735) (20,813)
---------- ---------
Net property and equipment 27,488 28,665
---------- ---------
DEFERRED INCOME TAX ASSETS, net of current portion 2,139 2,139
---------- ---------
GOODWILL, net of accumulated amortization of $23,586 and $21,156, respectively
129,317 132,479
---------- ---------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated amortization of $3,989 and
$3,700, respectively 12,773 13,062
---------- ---------
DEFERRED LOAN COSTS, net of accumulated amortization of $4,748and
$4,052, respectively 10,134 10,818
---------- ---------
OTHER ASSETS 520 652
---------- ---------
$ 200,011 $ 208,410
========== =========
</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>
April 1, January 1,
2000 2000
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 722 $ 781
Current portion of capital lease obligations 930 842
Accounts payable 5,743 10,514
Accrued liabilities 2,682 2,851
Current portion of store closure reserve 3,457 3,665
Accrued salaries, wages and benefits 3,088 3,180
Accrued interest payable 4,943 1,288
Sales taxes payable 760 1,128
Deferred credits 122 132
---------- ---------
Total current liabilities 22,447 24,381
LONG-TERM DEBT, net of current portion 141,609 141,755
STORE CLOSURE RESERVE, net of current portion 3,191 3,529
CAPITAL LEASE OBLIGATIONS, net of current portion 2,975 3,107
---------- ---------
Total liabilities 170,222 172,772
--------- ---------
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED
STOCK of PTI (a wholly owned subsidiary), aggregate
liquidation preference of $1,070 at January 1, 2000 - 1,070
---------- ---------
MINORITY INTEREST 114 111
---------- ---------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized and 400 shares
outstanding - -
Additional paid-in capital 61,899 61,899
Accumulated deficit (32,224) (27,442)
---------- ---------
Total stockholder's equity 29,675 34,457
---------- ---------
$ 200,011 $ 208,410
========== =========
</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
April 1, 2000 April 3, 1999
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Net store and food sales $ 33,796 $ 37,129
Franchising 5,946 6,416
Licensing 160 447
----------- -----------
Total revenues 39,902 43,992
----------- -----------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 18,320 21,393
Cost of sales 10,967 11,931
General and administrative 5,121 5,324
Depreciation and amortization 5,658 5,396
----------- -----------
Total operating costs and expenses 40,066 44,044
----------- -----------
Loss from operations (164) (52)
----------- -----------
OTHER INCOME (EXPENSE), net:
Interest expense (4,598) (4,337)
Interest income 23 38
Other expense (32) (107)
----------- -----------
Total other expense, net (4,607) (4,406)
----------- -----------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (4,771) (4,458)
PROVISION FOR INCOME TAXES (8) (104)
----------- -----------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (4,779) (4,562)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES
- (111)
MINORITY INTEREST (3) (1)
----------- -----------
Net loss $ (4,782) $ (4,674)
=========== ===========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
5
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 1, 2000 April 3, 1999
-------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,782) $ (4,674)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 5,658 5,396
Amortization of deferred loan costs 715 539
Loss on sale of assets 351 107
Preferred stock accretion and dividends of subsidiaries 111
Minority interest 3 1
Changes in assets and liabilities:
Accounts receivable 258 1,760
Amounts due from franchisees and licensees (412) 1,023
Inventories 413 355
Prepaid rent and other (1,678) 289
Other assets 132 916
Accounts payable and accrued liabilities (4,940) 6,479
Bank overdraft - (1,133)
Store closure reserve (546) (480)
Accrued salaries, wages and benefits (92) (428)
Accrued interest payable 3,655 3,569
Sales taxes payable (368) (312)
Deferred income (10) (101)
---------- ----------
Net cash (used in) provided by operating activities (1,643) 13,417
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisition expenses - (97)
Purchase of property and equipment (1,192) (1,282)
---------- ----------
Net cash used in investing activities (1,192) (1,379)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (225) (5,053)
Payment of debt financing costs (11) (800)
Principal payments on capital lease obligations (233) (423)
Reduction in preferred stock (1,070) (21)
---------- ----------
Net cash used in financing activities (1,539) (6,297)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,374) 5,741
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 4,919 4,751
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 545 $ 10,492
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 228 $ 77
========== ==========
Cash paid for income taxes $ 120 $ 164
========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
6
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(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 accounting principles generally
accepted in the United States. 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 April 1, 2000 and January 1, 2000, and the results of its
operations and its cash flows for the periods presented herein. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
January 1, 2000 contained in Mrs. Fields' Annual Report on Form 10-K.
The results of operations for the 13 weeks ended April 1, 2000 are not
necessarily indicative of the results that may be expected for the remainder of
the fiscal year ending December 30, 2000. Loss per share information 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. All
dollar amounts presented are stated in thousands.
(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) 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, Mrs. Fields' accrues 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 reached 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. Any excess reserve that was
not established as part of purchase accounting is adjusted through the income
statement.
7
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The following table presents a summary of the activity in the store closure
reserve during the 13 weeks ended April 1, 2000 and April 3, 1999:
<TABLE>
<CAPTION>
Mrs. Fields Inc. and
Original Cookie H & M Pretzel Time Great American
--------------------- ------------------------ --------------------- ------------------------
-----------
Company- Company- Company- Company-
Business Owned Business Owned Business Owned Business Owned
Combination Stores Combination Stores Combination Stores Combination Stores
And Unrelated and Unrelated and Unrelated and Unrelated
Subsequent to Subsequent to Subsequent to Subsequent to
Adjustments Acquisitions Adjustments Acquisition Adjustments Acquisition Adjustments Adjustments
----------- ------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 $ 1,614 $ 1,581 $ 536 $ 294 $ 109 $ 86 $ 1,674 $ 545
Utilization for the 13
weeks ended April 1, 2000 (89) (174) (48) (29) - - (157) (30)
-------- -------- ------- ------- -------- ------- ------- -------
Balance, April 1, 2000. $ 1,525 $ 1,407 $ 488 $ 265 $ 109 $ 86 $ 1,517 $ 515
======== ======== ======= ======= ======== ======= ======= =======
Balance, January 2, 1999 $ 3,728 $ 4,674 $ 981 $ 367 $ 493 $ 264 $ 3,399 $ 305
Utilization for the 13
weeks ended April 3, 1999 (328) (165) (20) (17) - (5) (136) (48)
-------- -------- ------- ------- -------- ------- ------- -------
Balance, April 3, 1999 $ 3,400 $ 4,509 $ 961 $ 350 $ 493 $ 259 $ 3,263 $ 257
======== ======== ======= ======= ======== ======= ======= =======
</TABLE>
8
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The following table presents a summary of the activity in the store closure
reserve during the 13 weeks ended April 1, 2000 and April 3, 1999:
<TABLE>
<CAPTION>
Pretzelmaker Consolidated
---------------------------- -----------------------------------------------
Total Total
Business Company- Business Company-
Combination Owned Combination Owned Total Business
and Stores and Stores Combinations
Subsequent Unrelated to Subsequent Unrelated to and Company-
Adjustments Acquisition Adjustments Acquisitions Owned Stores
------------ ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 $ 105 $ 650 $ 4,038 $ 3,156 $ 7,194
Utilization for the 13
week ended April 1, 2000 (19) - (313) (233) (546)
-------- -------- -------- -------- ---------
Balance, April 1, 2000 $ 86 $ 650 $ 3,725 $ 2,923 $ 6,648
======== ======== ======== ======== =========
Balance, January 2, 1999 $ 500 $ - $ 9,101 $ 5,610 $ 14,711
Utilization for the 13
weeks ended April 3, 1999 - - (484) (235) (719)
-------- -------- -------- -------- ---------
Balance, April 3, 1999. $ 500 - $ 8,617 $ 5,375 $ 13,992
======== ======== ======== ======== =========
</TABLE>
9
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
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 13 weeks ended April 1, 2000 and April 3, 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 Great American
------------------- ------------------ ----------------- -------------------
To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ----------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000.............. - 14 - - - - 6 1
Stores closed or franchised for the
13 weeks ended April 1, 2000.......... - (1) - - - - - -
----- ---- ----- ----- ----- ---- ----- -----
Balance, April 1, 2000 ............... - 13 - - - - 6 1
===== ==== ===== ===== ===== ==== ===== =====
Balance, January 2, 1999.............. 23 36 6 7 3 - 43 11
Stores closed or franchised for the
13 weeks ended April 3, 1999.......... (10) (9) (5) (3) (2) - (12) (1)
----- ---- ----- ----- ----- ---- ----- -----
Balance, April 3, 1999 ............... 13 27 1 4 1 - 31 10
===== ==== ===== ===== ===== ==== ===== =====
</TABLE>
10
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
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 13 weeks ended April 1, 2000 and April 3, 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>
Pretzelmaker Consolidated
------------------ ------------------
To Be To Be To Be To Be
Closed Franchised Closed Franchised
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Balance, January 1, 2000.............. - - 6 15
Stores closed or franchised for the
13 weeks ended April 1, 2000.......... - - - (1)
---- ----- ---- ------
Balance, April 1, 2000 ............... - - 6 14
==== ===== ==== ======
Balance, January 2, 1999.............. 7 - 82 54
Stores closed or franchised for the
13 weeks ended April 3, 1999.......... - - (29) (13)
---- ----- ---- ------
Balance, April 3, 1999 ............... 7 - 53 41
==== ===== ==== ======
</TABLE>
11
<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 13 weeks ended
April 1, 2000, and April 3, 1999:
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and Original Cookie H&M Pretzel Time Great American Consolidated
------------------- ------------------ --------------- ------------------ -------------------
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
------ ---------- ------ ---------- ------ --------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000..... 3 4 - - - 1 - - 3 5
Stores closed or franchised
during the 13 weeks ended
April 1, 2000................ (1) (1) - - - (1) - - (1) (2)
---- ----- --- ---- --- ---- ---- ---- --- ---
Balance, April 1, 2000....... 2 3 - - - - - - 2 3
==== ===== === ==== === ==== ==== ==== === ===
Balance, January 2, 1999.... 20 10 2 1 2 3 5 - 29 14
Stores closed or franchised
during the 13 weeks ended
April 3, 1999................ (10) - (2) - (1) (2) (1) - (14) (2)
---- ----- --- ---- --- ---- ---- ---- --- ---
Balance, April 3, 1999...... 10 10 - 1 1 1 4 - 15 12
==== ===== === ==== === ==== ==== ==== === ===
</TABLE>
12
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 13 weeks ended April 1, 2000 and April
3, 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 1, 2000........................... $ 2,246 $ 640 $ 1,427 $ 169 $ 4,482
Addition to impairment for the 13 weeks ended
April 1, 2000 related to stores to be closed.... 29 - 22 - 51
Addition to impairment for the 13 weeks ended
April 1, 2000 related to stores to be franchised 14 - 10 - 24
Utilization for the 13 weeks ended April 1, 2000
related to stores to be closed.................. (204) - (419) - (623)
Utilization for the 13 weeks ended April 1, 2000
related to stores to be franchised.............. (742) (101) (43) - (886)
-------- ------- -------- --------- --------
Balance, April 1, 2000............................. $ 1,343 $ 539 $ 997 $ 169 $ 3,048
======== ======= ======== ========= ========
Balance, January 2, 1999........................... $ 3,844 $ 1,380 $ 2,877 $ 327 $ 8,428
Addition to impairment for the 13 weeks ended
April 3, 1999 related to stores to be closed.... 32 5 2 - 39
Addition to impairment for the 13 weeks ended
April 3, 1999 related to stores to be franchised 355 11 - - 366
Utilization for the 13 weeks ended April 3, 1999
related to stores to be closed.................. (936) (410) (629) (3) (1,978)
Utilization for the 13 weeks ended April 3, 1999
related to stores to be franchised.............. (623) (277) (6) - (906)
-------- ------- -------- --------- --------
Balance, April 3, 1999............................. $ 2,672 $ 709 $ 2,244 $ 324 $ 5,949
======== ======= ======== ========= ========
</TABLE>
13
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(4) 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 and sales of its mail order business. 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, sales of cookie dough manufactured by the
Company to its franchisees 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 April 1, 2000
Total revenues $ 33,796 $ 6,106 $ 39,902
Contribution margin 5,656 4,959 10,615
13 weeks ended April 3, 1999
- ----------------------------
Total revenues $ 37,129 $ 6,863 $ 43,992
Contribution margin 6,001 4,667 10,668
</TABLE>
The reconciliation of contribution margin to net loss is as follows (in
thousands):
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 1, 2000 April 3, 1999
-------------- --------------
<S> <C> <C>
Contribution margin $ 10,615 $ 10,668
General and
administrative expense (5,121) (5,324)
Depreciation and amortization (5,658) (5,396)
Interest expense (4,598) (4,337)
Other income (expense), net (20) (285)
---------- ---------
Net loss $ (4,782) $ (4,674)
========= =========
</TABLE>
14
<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>
Domestic International Domestic International
Company-owned Company-owned Franchising and Franchising
Stores Stores Licensing and Licensing
------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Total revenues
13 weeks ended April 1, 2000 $ 33,796 $ - $ 6,025 $ 81
13 weeks ended April 3, 1999 37,108 21 6,774 89
</TABLE>
Revenues from international franchising and licensing are generated
from Canada and Australia with no other countries having material
representation. During the year ended January 1, 2000 all remaining
international company-owned stores were closed.
There were no customers who accounted for more than 10 percent of Mrs.
Fields' total revenues or either segment's revenues.
(5) TCBY MANAGEMENT AGREEMENT
-------------------------
On February 9, 2000, Capricorn Investors III, L.P., an affiliate of
Capricorn, the Company's majority shareholder, entered into an agreement to
acquire TCBY Enterprises, Inc. ("TCBY"), a retail snack food company. It is
expected that, if this acquisition is completed, Mrs. Fields will enter into a
management agreement to provide management services to TCBY. If completed, this
acquisition would occur during the second quarter of 2000. There can be no
assurance that this acquisition will be completed. Terms of the management
agreement have not been finalized. Management of Mrs. Fields believes that, if
completed, this acquisition would offer Mrs. Fields the opportunity to sell its
products in TCBY stores.
(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"), ranks
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.
15
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 1, 2000
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
ASSETS
- ------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ (344) $ 559 $ 330 $ - $ 545
Accounts receivable, net 3,835 190 12 - 4,037
Amounts due from franchisees and
licensees, net 729 3,391 - 4,120
Inventories 3,489 1,071 4 - 4,564
Other current assets and amounts due
from (to) affiliates, net 19,297 (14,248) (675) - 4,374
------------ ------------ ------------- -------------- ----------
Total current assets 27,006 (9,037) (329) - 17,640
PROPERTY AND EQUIPMENT, net 25,297 2,071 120 - 27,488
INTANGIBLES, net 73,230 78,740 254 - 152,224
INVESTMENT IN SUBSIDIARIES 66,484 - - (66,484) -
OTHER ASSETS 2,615 44 - - 2,659
------------ ------------ ------------- -------------- ----------
$ 194,632 $ 71,818 $ 45 $ (66,484) $ 200,011
============ ============ ============= ============== ==========
LIABILITIES AND STOCKHOLDER'S
- -----------------------------
EQUITY (DEFICIT)
----------------
CURRENT LIABILITIES:
Current portion of long-term debt
and capital lease obligations $ 1,469 $ 183 $ - $ - $ 1,652
Accounts payable 4,582 1,138 23 - 5,743
Accrued liabilities 13,960 1,091 1 - 15,052
------------ ------------ ------------- -------------- ----------
Total current liabilities 20,011 2,412 24 - 22,447
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 144,341 243 - - 144,584
STORE CLOSURE RESERVE, net of current
portion 3,191 - - - 3,191
MINORITY INTEREST - - - 114 114
STOCKHOLDER'S EQUITY (DEFICIT) 27,089 69,163 21 (66,598) 29,675
------------ ------------ ------------- -------------- ----------
$ 194,632 $ 71,818 $ 45 $ (66,484) $ 200,011
============ ============ ============= ============== ==========
</TABLE>
16
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 13 WEEKS ENDED APRIL 1, 2000
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $ 34,993 $ 6,115 $ 168 $ (1,374) $ 39,902
------------ ------------ ------------- --------------- ------------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 18,576 - 47 (303) 18,320
Cost of sales 9,721 2,302 15 (1,071) 10,967
General and administrative 5,014 58 49 - 5,121
Depreciation and amortization 4,058 1,593 7 - 5,658
------------ ------------ ------------- --------------- ------------
Total operating costs and
expenses 37,369 3,953 118 (1,374) 40,066
------------ ------------ ------------- --------------- ------------
Income (loss) from operations (2,376) 2,162 50 - (164)
------------ ------------ ------------- --------------- ------------
INTEREST EXPENSE AND
OTHER, net (4,466) (141) - - (4,607)
------------ ------------ ------------- --------------- ------------
(Loss) income before provision for
income taxes and equity in net loss
of consolidated subsidiaries (6,842) 2,021 50 - (4,771)
PROVISION FOR INCOME TAXES (8) - - - (8)
------------ ------------ ------------- --------------- ------------
(Loss) income before preferred stock
accretion and dividends of
subsidiaries and equity in net loss
of consolidated subsidiaries (6,850) 2,021 50 - (4,779)
EQUITY IN NET LOSS OF CONSOLIDATED
SUBSIDIARIES - - - (3) (3)
------------ ------------ ------------- --------------- ------------
NET (LOSS) INCOME $ (6,850) $ 2,021 $ 50 $ (3) $ (4,782)
============ ============ ============= =============== =============
</TABLE>
17
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 13 WEEKS ENDED APRIL 1, 2000
(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 $ (2,781) $ 1,049 $ 89 $ - $ (1,643)
----------- ---------- ----------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment,
net (1,080) (112) - - (1,192)
----------- ---------- ----------- ------------- -----------
Net cash used in investing
activities (1,080) (112) - - (1,192)
----------- ---------- ----------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt and
capital lease obligations (358) (100) - - (458)
Payment of debt financing fees (11) - - - (11)
Reduction in preferred stock - (1,070) - - (1,070)
----------- ---------- ----------- ------------- -----------
Net cash used in financing
activities (369) (1,170) - - (1,539)
----------- ---------- ----------- ------------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,230) (233) 89 - (4,374)
CASH AND CASH EQUIVALENTS, beginning of
the period 3,886 792 241 - 4,919
----------- ---------- ----------- ------------- -----------
CASH AND CASH EQUIVALENTS, end of the
period $ (344) $ 559 $ 330 $ - $ 545
=========== ========== =========== ============= ===========
</TABLE>
18
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 1, 2000
(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 $ 3,886 $ 792 $ 241 $ - $ 4,919
Accounts receivable, net 2,151 2,131 13 - 4,295
Amounts due from franchisees and
licensees, net 1,314 2,394 - - 3,708
Inventories 4,009 968 - - 4,977
Other current assets and amounts due
from (to) affiliates, net 22,236 (18,898) (642) - 2,696
---------- ----------- ----------- ------------ -----------
Total current assets 33,596 (12,613) (388) - 20,595
PROPERTY AND EQUIPMENT, net 26,481 2,033 151 - 28,665
INTANGIBLES, net 74,301 81,769 289 - 156,359
INVESTMENT IN SUBSIDIARIES 65,468 - - (65,468) -
OTHER ASSETS 2,714 134 (57) - 2,791
---------- ----------- ----------- ------------ -----------
$ 202,560 $ 71,323 $ (5) $ (65,468) $ 208,410
========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDER'S
- -----------------------------
EQUITY (DEFICIT)
----------------
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations $ 1,377 $ 246 $ - $ - $ 1,623
Accounts payable 8,823 1,676 15 - 10,514
Accrued liabilities 11,134 1,000 110 - 12,244
---------- ----------- ----------- ------------ -----------
Total current liabilities 21,334 2,922 125 - 24,381
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 144,582 280 - - 144,862
STORE CLOSURE RESERVE, net of current portion 3,529 - - - 3,529
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED
STOCK - 1,070 - - 1,070
MINORITY INTEREST 111 111
STOCKHOLDER'S EQUITY (DEFICIT) 33,115 67,051 (130) (65,579) 34,457
---------- ----------- ----------- ------------ -----------
$ 202,560 $ 71,323 $ (5) $ (65,468) $ 208,410
========== =========== =========== ============ ===========
</TABLE>
19
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 13 WEEKS ENDED APRIL 3, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 38,257 $ 6,635 $ 59 $ (959) $ 43,992
---------- ----------- ----------- ------------ -----------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 21,632 - 83 (322) 21,393
Food cost of sales 9,330 3,217 21 (637) 11,931
General and administrative 5,270 54 - - 5,324
Depreciation and amortization 3,745 1,651 - - 5,396
---------- ----------- ----------- ------------ -----------
Total operating costs and
expenses 39,977 4,922 104 (959) 44,044
---------- ----------- ----------- ------------ -----------
(Loss) income from operations (1,720) 1,713 (45) - (52)
INTEREST EXPENSE AND
OTHER, net (4,379) (27) - - (4,406)
---------- ----------- ----------- ------------ -----------
(Loss) income before provision for
income taxes and equity in net loss
of consolidated subsidiaries (6,099) 1,686 (45) - (4,458)
PROVISION FOR INCOME TAXES (104) - - - (104)
---------- ----------- ----------- ------------ -----------
(Loss) income before preferred stock
accretion and dividends of
subsidiaries and equity in net loss
of consolidated subsidiaries (6,203) 1,686 (45) - (4,562)
PREFERRED STOCK ACCRETION AND DIVIDENDS
OF SUBSIDIARIES
- (111) - - (111)
EQUITY IN NET LOSS OF CONSOLIDATED
SUBSIDIARIES 1,500 - - (1,501) (1)
---------- ----------- ----------- ------------ -----------
NET (LOSS) INCOME $ (4,703) $ 1,575 $ (45) $ (1,501) $ (4,674)
========== =========== =========== ============ ===========
</TABLE>
20
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 13 WEEKS ENDED APRIL 3, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES $ 19,701 $ (6,261) $ (23) $ - $ 13,417
---------- ----------- ----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (97) - - - (97)
Purchase of property and
equipment, net (1,282) - - - (1,282)
---------- ----------- ----------- ------------ -----------
Net cash used in investing
activities (1,379) - - - (1,379)
---------- ----------- ----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt financing costs (800) - - - (800)
Reduction of long-term debt and
capital lease obligations (4,588) (888) - - (5,476)
Reduction in preferred stock - (21) - - (21)
---------- ----------- ----------- ------------ -----------
Net cash used in financing
activities (5,388) (909) - - (6,297)
---------- ----------- ----------- ------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 12,934 (7,170) (23) - 5,741
CASH AND CASH EQUIVALENTS, beginning of
period 3,539 1,134 78 - 4,751
---------- ----------- ----------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 16,473 $ (6,036) $ 55 $ - $ 10,492
========== =========== =========== ============ ===========
</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 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.
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 April 1, 2000, Mrs. Fields owned and operated 127
Mrs. Fields Cookies stores, 91 Original Cookie Company stores, 92 Great American
Cookies stores, 51 Hot Sam Pretzels stores, 81 Pretzel Time stores and 4
Pretzelmaker stores in the United States. Additionally, Mrs. Fields has
franchised or licensed 852 stores in the United States and 128 stores in several
other countries. As of April 1, 2000, Mrs. Fields owned and operated 421
continuing stores and 25 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, 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.
All dollar amounts presented herein are stated in thousands.
22
<PAGE>
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 weeks ended April 1, 2000 and
the 13 weeks ended April 3, 1999. As supplemental information, the table also
segregates the statement of operations data into a continuing stores and stores
in the process of being closed or franchised format.
<TABLE>
<CAPTION>
% CHG
FROM
For the 13 Weeks Ended 1999 TO
April 1,2000 APRIL 3,1999 2000
------------ ------------ -------
(Dollars in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Net store and food sales.......... $ 33,796 $ 37,129 (9.0)%
Franchising, net.................. 5,946 6,416 (7.3)
Licensing, net.................... 160 447 (64.2)
----------- -----------
Total revenues.................. 39,902 43,992 (9.3)
----------- -----------
Operating Costs and Expenses:
Selling and store occupancy costs. 18,320 21,393 (14.4)
Cost of sales..................... 10,967 11,931 (8.1)
General and administrative........ 5,121 5,324 (3.8)
Depreciation and amortization 5,658 5,396 4.9
----------- -----------
Total operating costs and expenses 40,066 44,044 (9.0)
----------- -----------
Other Income (Expense):
Interest expense.................. (4,598) (4,337) 6.0
Interest income................... 23 38 (39.5)
Other expenses, net............... (43) (323) (86.7)
----------- -----------
Total other expense, net (4,618) (4,622) (.1)
----------- -----------
Net loss........................ $ (4,782) $ (4,674) 2.3%
=========== ===========
% CHG
FROM
For the 13 Weeks Ended 1999 TO
April 1,2000 April 3,1999 2000
------------ ------------ -------
(Dollars in thousands)
Supplemental Information
- ------------------------
Continuing stores:
Net store and food sales........... $ 30,964 $ 32,601 (5.0)%
----------- -----------
Operating costs and expenses:
Selling and store occupancy costs 16,302 17,772 (8.3)
Cost of sales.................... 7,780 8,311 (6.4)
Depreciation and amortization.... 2,031 1,970 3.1
----------- -----------
Total operating costs and
expenses...................... 26,113 28,053 (6.9)
----------- -----------
Continuing stores contribution.. $ 4,851 $ 4,548 6.7%
=========== ===========
Stores in the process of being closed
or franchised:
Net store and food sales........... $ 2,832 $ 4,528 (37.5)%
----------- -----------
Operating costs and expenses:
Selling and store occupancy costs.. 2,018 3,621 (44.3)
Cost of sales...................... 885 1,424 (37.9)
Depreciation and amortization...... 152 101 50.5
----------- -----------
Total operating costs and
expenses....................... 3,055 5,146 (40.6)
----------- -----------
Stores in the process of being
closed or franchised $ (223) $ (618) (63.9)%
contribution =========== ===========
</TABLE>
23
<PAGE>
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 accounting principles generally
accepted in the United States. Store contribution may not be comparable to other
similarly titled measures.
13 Weeks Ended April 1, 2000 Compared to the 13 Weeks Ended April 3, 1999
As of April 1, 2000, there were 446 Company-owned stores and 980
franchised or licensed stores in operation. The store activity for the 13 weeks
ended April 1, 2000 and April 3, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Company-owned and Franchised or Licensed Store Activity April 1, 2000 April 3, 1999
-------------- -------------
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 462 981 566 972
Stores opened (including relocations) 3 35 6 31
Stores closed (including relocations) (13) (41) (16) (19)
Stores sold to franchisees (3) 3 (3) 3
Non-continuing (exit plan) stores closed (September
18, 1996 forward) (1) - (33) -
Non-continuing (exit plan) stores franchised
(September 18, 1996 forward) (3) 3 (6) 6
Stores acquired from franchisees 1 (1) 2 (2)
--- --- --- ---
Stores open as of the end of the 13 weeks ended 446 980 516 991
=== === === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store sales decreased $3,333, or
9.0 percent, from $37,129 to $33,796 for the 13 weeks ended April 1, 2000
compared to the 13 weeks ended April 3, 1999. For stores that had been open one
year or more, mall store sales decreased 1.5 percent when compared to the same
period in the prior year. The decrease is primarily due to the Easter holiday
not occurring until the second quarter in fiscal 2000, and the continued decline
of non-core brands.
Net store sales from continuing stores, including sales of our mail
order facility, decreased $1,637, or 5.0 percent, from $32,601 to $30,964 for
the 13 weeks ended April 1, 2000 compared to the 13 weeks ended April 3, 1999.
The decrease in net store sales from continuing stores was primarily
attributable to the Easter holiday not occurring until the second quarter in
fiscal 2000, and the continued decline of non-core brands. Mail order sales
increased $1,237 or 112.4 percent for the 13 weeks ended April 1, 2000 compared
to the 13 weeks ended April 3, 1999. The increase was due to increased mail
order sales and the direct sales of frozen cookie dough in supermarkets, that
had been previously marketed by an outside licensee.
Net store sales from stores in the process of being closed or
franchised decreased $1,696, or 37.5 percent, from $4,528 to $2,832 for the 13
weeks ended April 1, 2000 compared to the 13 weeks ended April 3, 1999. This
decrease resulted from closing 49 stores and franchising 34 stores since the
first quarter of 1999.
Franchising Revenues. Franchising revenues decreased $470, or 7.3
percent, from $6,416 to $5,946 for the 13 weeks ended April 1, 2000 compared to
the 13 weeks ended April 3, 1999. Franchising revenues were negatively impacted
by the Easter holiday not occurring until the second quarter in fiscal 2000.
Also, sales of cookie dough to our Great American franchisees decreased during
the 13 weeks ended April 1, 2000, compared to the 13 weeks ended April 3, 1999.
Licensing Revenues. Licensing revenues decreased $287, or 64.2 percent,
from $447 to $160 for the 13 weeks ended April 1, 2000 compared to the 13 weeks
ended April 3, 1999. The decrease in licensing revenues for the 13 weeks ended
April 1, 2000 was primarily attributable to no new agreements signed in the
first quarter of 2000.
24
<PAGE>
<PAGE>
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy
costs decreased $3,073 or 14.4 percent, from $21,393 to $18,320 for the 13 weeks
ended April 1, 2000 compared to the 13 weeks ended April 3, 1999.
Selling and store occupancy costs for continuing stores decreased by
$1,470, or 8.3 percent, from $17,772 to $16,302 for the 13 weeks ended April 1,
2000 compared to the 13 weeks ended April 3, 1999. These decreases were
primarily attributable to fewer company owned stores and cost cutting efforts.
Selling and store occupancy costs as a percentage of sales decreased from 54.5
percent in 1999 to 52.7 percent in 2000.
Selling and store occupancy costs for stores in the process of being
closed or franchised decreased $1,603, or 44.3 percent, from $3,621 to $2,018
for the 13 weeks ended April 1, 2000 compared to the 13 weeks ended April 3,
1999. This decrease was primarily the result of closing 49 stores and
franchising 34 stores since the first quarter of 1999.
Cost of Sales. Total food cost of sales decreased $964, or 8.1 percent,
from $11,931 to $10,967 for the 13 weeks ended April 1, 2000 compared to the 13
weeks ended April 3, 1999.
Food cost of sales for continuing stores decreased $531, or 6.4
percent, from $8,311 to $7,780 for the 13 weeks ended April 1, 2000, compared to
the 13 weeks ended April 3, 1999. As a percentage of sales, food costs for
continuing stores decreased from 25.5 percent for the 13 weeks ended April 3,
1999 to 25.1 percent for the 13 weeks ended April 1, 2000. This decrease was
primarily the result of favorable raw material prices and increased sales prices
in selected markets.
Food cost of sales for stores in the process of being closed or
franchised decreased $539, or 37.9 percent, from $1,424 to $885 for the 13 weeks
ended April 1, 2000 compared to the 13 weeks ended April 3, 1999. This decrease
is primarily the result of closing 49 stores and franchising 34 stores since the
first quarter of 1999.
General and Administrative Expenses. General and administrative
expenses decreased $203, or 3.8 percent, from $5,324 to $5,121 for the 13 weeks
ended April 1, 2000 compared to the 13 weeks ended April 3, 1999. The decrease
in general and administrative expenses was primarily attributable to lower
expenditures on marketing costs.
Depreciation and Amortization. Total depreciation and amortization
expense increased by $262, or 4.9 percent, from $5,396 to $5,658 for the 13
weeks ended April 1, 2000 compared to the 13 weeks ended April 3, 1999. The
increase is primarily due to depreciation on the newly installed point of sale
and other computer equipment, depreciation of new equipment installed in
continuing stores and the acceleration of depreciation on stores in the process
of being closed.
Depreciation and amortization expense for continuing stores increased
$61, or 3.1 percent, from $1,970 to $2,031 for the 13 weeks ended April 1, 2000
compared to the 13 weeks ended April 3, 1999. This increase in depreciation and
amortization expense was primarily attributable to the factors mentioned above.
Other Income (Expense). Other income (expense) for the 13 weeks ended
April 1, 2000 was comparable to other income (expense) for the 13 weeks ended
April 3, 1999.
Net Loss. The net loss increased by $108, or 2.3 percent, from $4,674
to $4,782 for the 13 weeks ended April 1, 2000 compared to the 13 weeks ended
April 3, 1999 due to the combination of factors described above.
Contribution from Continuing Stores. Contribution from continuing
stores increased by $303, or 6.7 percent, from $4,548 to $4,851 for the 13 weeks
ended April 1, 2000 compared to the 13 weeks ended April 3, 1999.
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 $395, or 63.9 percent, from a loss of $618 to a loss
of $223, for the 13 weeks ended April 1, 2000 compared to the 13 weeks ended
April 3, 1999. This decrease was primarily the result of losses incurred by
stores closed in 1999 and not recurring in 2000. See Note 3 to the Unaudited
Condensed Consolidated Financial Statements 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 April 1, 2000, Mrs. Fields had $545 of
cash and cash equivalents on hand and $8,282 additional borrowings available
under its revolving credit facility. Mrs. Fields expects to use its existing
cash, cash flows from operating activities and its credit facility to provide
working capital, finance capital expenditures and to meet debt service
requirements, including the June 1, 2000 interest payment. Based on current
25
<PAGE>
operations, 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 on both
a short and long-term basis. There can be no assurance, however, that Mrs.
Fields' business will continue to generate cash flows at or above current
levels.
April 1, 2000 Compared to January 1, 2000
As of April 1, 2000, Mrs. Fields had liquid assets (cash and cash
equivalents and receivables) of $8,702, a decrease of 32.7 percent, or $4,220,
from January 1, 2000 when liquid assets were $12,922. Cash decreased $4,374, or
88.9 percent, to $545 at April 1, 2000 from $4,919 at January 1, 2000. Cash
decreased primarily from the retirement of the Preferred stock of Pretzel Time,
the purchase of capital assets with cash rather than using capital lease
financing, and the payment of expenses incurred in December 1999, but not due
until January 2000. Total receivables at April 1, 2000 were comparable to the
balance at January 1, 2000.
Mrs. Fields' working capital decreased by $1,021, or 27.0 percent, to a
negative $4,807 at April 1, 2000 from a negative $3,786 at January 1,2000. This
decrease is due primarily to the decrease in cash.
Long-term assets decreased $5,444 or 2.9 percent to $182,371, at April
1, 2000 from $187,815 at January 1, 2000. This decrease was primarily the result
of scheduled depreciation and amortization of fixed assets, goodwill and
deferred loan costs.
Mrs. Fields' operating activities used cash of $1,643 for the 13 weeks
ended April 1, 2000, primarily for the payment of expenses incurred in December
1999, but not paid until January.
Mrs. Fields utilized $1,192 of cash in investing activities during the
13 weeks ended April 1, 2000, primarily for capital expenditures relating to
store remodels and renovations.
Mrs. Fields utilized $1,539 of cash in financing activities during the
13 weeks ended April 1, 2000, primarily for the payment of debt related to
acquisitions. During the current quarter, the Preferred stock of Pretzel Time
was redeemed in full.
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 13 weeks ended April 1, 2000 and April 3,
1999, Mrs. Fields expended $1,192 and $1,282, respectively, for capital assets
and expects to expend a total of approximately $9,000 in 2000. Management
anticipates that these expenditures will be funded with cash generated from
operating activities and short-term borrowings under its credit facility as
needed.
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 accounting principles generally accepted in the United States, 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 operating activities, capital expenditures, the ability to refinance
indebtedness. These forward-looking statements are subject to risks,
uncertainties and assumptions, including the following:
o Our ability to continue integrating the businesses of companies
acquired with Mrs. Fields and to realize the expected ongoing benefits
and cost savings from our acquisitions;
26
<PAGE>
o Our ability to meet our debt and interest obligations,
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 and
o Changes in mall customer traffic
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.
27
<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
28
<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 May 16, 2000
- ------------------------------------- ------------
Larry A. Hodges, President & CEO Date
/s/Mark S. Tanner May 16, 2000
- --------------------------------------- ------------
Mark S. Tanner, Chief Financial Officer Date
(Principal Accounting Officer)
29
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