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: September 30, 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 incorporation (IRS employer identification no.)
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 10, 2000.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
-------------------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2000 and January 1, 2000............... 3
Condensed Consolidated Statements of Operations for the 13 Weeks
Ended September 30, 2000 and October 2, 1999................................................... 5
Condensed Consolidated Statements of Operations for the 39 Weeks
Ended September 30, 2000 and October 2, 1999................................................... 6
Condensed Consolidated Statements of Cash Flows for the 39 Weeks
Ended September 30, 2000 and October 2, 1999................................................... 7
Notes to Condensed Consolidated Financial Statements............................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 25
Item 3. Quantitative and Qualitative Disclosure about Market Risk....................................... 30
PART II. OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings............................................................................... 31
Item 6. Exhibits and Reports on Form 8-K................................................................ 31
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, January 1,
2000 2000
------------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,296 $ 4,919
Accounts receivable, net of allowance for doubtful accounts of $398
and $111, respectively 4,480 4,767
Amounts due from franchisees and licensees, net of allowance for doubtful
accounts of $881 and $821, respectively 3,779 3,236
Inventories 4,396 4,977
Prepaid rent and other 2,579 1,336
Deferred income tax assets 1,360 1,360
----------- ---------
Total current assets 17,890 20,595
----------- ---------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 29,672 26,698
Equipment and fixtures 23,398 22,540
Land 240 240
----------- ---------
53,310 49,478
Less accumulated depreciation and amortization (27,992) (20,813)
----------- ---------
Net property and equipment 25,318 28,665
----------- ---------
DEFERRED INCOME TAX ASSETS 2,139 2,139
----------- ---------
GOODWILL, net of accumulated amortization of $28,585 and $21,156,
respectively 123,388 132,479
----------- ---------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $4,568 and $3,700, respectively 12,194 13,062
----------- ---------
DEFERRED LOAN COSTS, net of accumulated amortization of $6,103 and
$4,052, respectively 9,029 10,818
----------- ---------
OTHER ASSETS 713 652
----------- ---------
$ 190,671 $ 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 (Unaudited)(Continued)
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
September 30, January 1,
2000 2000
------------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 676 $ 781
Current portion of capital lease obligations 914 842
Borrowings under line of credit 2,050 -
Accounts payable 6,402 10,514
Accrued liabilities 6,176 7,291
Current portion of store closure reserve 2,384 3,665
Accrued interest payable 4,764 1,288
----------- -----------
Total current liabilities 23,366 24,381
LONG-TERM DEBT, net of current portion 141,325 141,755
STORE CLOSURE RESERVE, net of current portion 2,516 3,529
CAPITAL LEASE OBLIGATIONS, net of current portion 2,536 3,107
----------- -----------
Total liabilities 169,743 172,772
----------- -----------
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 117 111
----------- -----------
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 (41,007) (27,442)
Accumulated other comprehensive loss (81) -
----------- -----------
Total stockholder's equity 20,811 34,457
----------- -----------
$ 190,671 $ 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 (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
September 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C>
REVENUES:
Net store and food sales $ 34,814 $ 35,350
Franchising 6,060 6,520
Management fee 3,100 -
Licensing 1,216 499
--------- --------
Total revenues 45,190 42,369
--------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 17,802 19,222
Cost of sales 11,581 10,599
General and administrative 8,683 5,339
Store closure benefit (321) -
Depreciation and amortization 5,503 5,429
--------- --------
Total operating costs and expenses 43,248 40,589
--------- --------
Income from operations 1,942 1,780
--------- --------
OTHER INCOME (EXPENSE), net:
Interest expense (4,512) (4,260)
Interest income 12 37
Other, net (175) (193)
--------- --------
Total other expense, net (4,675) (4,416)
--------- --------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (2,733) (2,636)
PROVISION FOR INCOME TAXES (5) (6)
--------- --------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (2,738) (2,642)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES
- (111)
MINORITY INTEREST 9 (8)
--------- --------
Net loss $ (2,729) $ (2,761)
========= ========
COMPREHENSIVE LOSS:
Net loss $ (2,729) $ (2,761)
Foreign currency translation adjustment (6) -
--------- --------
Comprehensive loss $ (2,735) $ (2,761)
========= ========
</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 OPERATIONS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
September 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C>
REVENUES:
Net store and food sales $ 101,249 $ 107,265
Franchising 18,103 18,082
Management fee 4,433 -
Licensing 1,577 1,187
----------- ---------
Total revenues 125,362 126,534
----------- ---------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 54,509 60,340
Cost of sales 33,582 32,455
General and administrative 20,143 16,212
Store closure benefit (521) -
Depreciation and amortization 17,492 16,692
----------- ---------
Total operating costs and expenses 125,205 125,699
----------- ---------
Income from operations 157 835
----------- ---------
OTHER INCOME (EXPENSE), net:
Interest expense (13,638) (12,946)
Interest income 57 115
Other, net (110) (303)
----------- ---------
Total other expense, net (13,691) (13,134)
----------- ---------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (13,534) (12,299)
PROVISION FOR INCOME TAXES (20) (216)
----------- ---------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (13,554) (12,515)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES
- (333)
MINORITY INTEREST (6) (12)
----------- ---------
Net loss $ (13,560) $ (12,860)
=========== =========
COMPREHENSIVE LOSS:
Net loss $ (13,560) $ (12,860)
Foreign currency translation adjustment (81) -
----------- ---------
Comprehensive loss $ (13,641) $ (12,860)
=========== =========
</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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
September 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,560) $ (12,860)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 17,492 16,692
Amortization of deferred loan costs and accretion of loan discount 2,114 1,638
Loss on sale of assets 366 285
Preferred stock accretion and dividends of subsidiaries - 333
Minority interest 6 12
Changes in operating assets and liabilities:
Accounts receivable, net (185) 92
Amounts due from franchisees and licensees, net (71) 1,519
Inventories 581 516
Prepaid rent and other (1,243) 335
Accounts payable (4,112) (1,596)
Bank overdraft - 4,038
Store closure reserve (2,294) (1,840)
Accrued liabilities (1,115) (484)
Accrued interest payable 3,476 3,722
Other (66) 751
----------- ---------
Net cash provided by operating activities 1,389 13,153
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisition expenses - (100)
Purchase of property and equipment (4,363) (3,401)
----------- ---------
Net cash used in investing activities (4,363) (3,501)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (598) (5,244)
Principal payments on capital lease obligations (688) (793)
Payment of debt financing costs (262) (1,474)
Net borrowings under line of credit 2,050 1,400
Reduction in preferred stock (1,070) (525)
----------- ---------
Net cash used in financing activities (568) (6,636)
----------- ---------
Effect of foreign exchange rates (81) -
----------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,623) 3,016
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 4,919 4,751
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 1,296 $ 7,767
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 8,111 $ 7,586
=========== =========
Cash paid for income taxes $ 219 $ 224
=========== =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
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 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 September 30, 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 and 39 weeks ended September 30, 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 herein are stated in thousands.
(2) RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the prior periods' condensed
consolidated financial statements to conform with the current periods'
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
have been accrued. The classification of some stores to be closed or franchised
may be changed and the store removed from the exit plan if that store's
operations change positively, or if the Company is unable to franchise the store
or negotiate a settlement with the landlord. 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 statement of operations.
8
<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 September 30, 2000 and October 2, 1999:
<TABLE>
<CAPTION>
Mrs. Fields Inc. and
Original Cookie H $ M Pretzel Time
----------------------------- -------------------------- ---------------------------
Business Company- Business Company- Business Company-
Combination Owned Combination Owned Combination Owned
and Stores and Stores and Stores
Subsequent Unrelated to Subsequent Unrelated to Subsequent Unrelated to
Adjustments Acquisitions Adjustments Acquisitions Adjustments Acquisition
-------------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000. $ 1,614 $ 1,581 $ 536 $ 294 $ 109 $ 86
Reversal during the 39
weeks ended
September 30, 2000.... (70) - - (26) - (44)
Utilization for the 39
weeks ended
September 30, 2000.... (466) (439) (89) (141) (33) -
-------- ------- ------- ------- -------- -------
Balance, September 30,
2000................. $ 1,078 $ 1,142 $ 447 $ 127 $ 76 $ 42
======== ======= ======= ======= ======== =======
Balance, January 2, 1999. $ 3,728 $ 4,674 $ 981 $ 367 $ 493 $ 264
Reversal for the 39
weeks ended
October 2, 1999 (540) - (212) - (191) -
Utilization for the 39
weeks ended
October 2, 1999. (1,019) (789) - (79) - (48)
-------- ------- ------- ------- -------- -------
Balance, October 2, 1999. $ 2,169 $ 3,885 $ 769 $ 288 $ 302 $ 216
======== ======= ======= ======= ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Great American Pretzelmaker Consolidated
---------------------------- ----------------------------- -----------------------------------------
Total Total
Business Company- Business Company- Business Company-
Combination Owned Combination Owned Combination Owned Total Business
and Stores and Stores and Stores Combinations
Subsequent Unrelated to Subsequent Unrelated to Subsequent Unrelated to and Company-
Adjustments Acquisition Adjustments Acquisition Adjustments Acquisitions Owned Stores
----------- ------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000. $ 1,674 $ 545 $ 105 $ 650 $ 4,038 $ 3,156 $ 7,194
Reversal during the 39
weeks ended
September 30, 2000.... - (151) - (230) (70) (451) (521)
Utilization for the 39
weeks ended
September 30, 2000.. (405) (160) (23) (17) (1,016) (757) (1,773)
-------- -------- -------- -------- --------- --------- ----------
Balance, September 30,
2000................. $ 1,269 $ 234 $ 82 $ 403 $ 2,952 $ 1,948 $ 4,900
======== ======== ======== ======== ========= ========= ==========
Balance, January 2, 1999. $ 3,399 $ 305 $ 500 $ - $ 9,101 $ 5,610 $ 14,711
Reversal for the 39
weeks ended
October 2, 1999 (852) - (368) - (2,163) - (2,163)
Utilization for the 39
weeks ended
October 2, 1999. (457) - - - (1,476) (916) (2,392)
-------- -------- -------- -------- --------- --------- ----------
Balance, October 2, 1999. $ 2,090 $ 305 $ 132 $ - $ 5,462 $ 4,694 $ 10,156
======== ======== ======== ======== ========= ========= ==========
</TABLE>
9
<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 originally
identified to be closed or franchised in connection with the applicable business
combination for the 39 weeks ended September 30, 2000 and 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 1, 2000.............. - 14 - - - -
Stores closed, franchised or removed
for the 39 weeks ended
September 30, 2000. - (12) - - - -
---- ---- ---- ---- ---- -----
Balance, September 30, 2000 .......... - 2 - - - -
==== ==== ==== ==== ==== =====
Balance, January 2, 1999.............. 23 36 6 7 3 -
Stores closed, franchised, or removed
for the 39 weeks ended October 2, 1999. (14) (14) (4) (4) (3) -
---- ---- ---- ---- ---- -----
Balance, October 2, 1999 ............. 9 22 2 3 - -
==== ==== ==== ==== ==== =====
</TABLE>
<PAGE>
<TABLE>
<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 1, 2000.............. 6 1 - - 6 15
Stores closed, franchised or removed
for the 39 weeks ended
September 30, 2000. (3) (1) - - (3) (13)
---- --- --- --- ---- ----
Balance, September 30, 2000 .......... 3 - - - 3 2
==== === === === ==== ====
Balance, January 2, 1999.............. 43 11 7 - 82 54
Stores closed, franchised, or removed
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
September 30, 2000, and 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 1, 2000.............. 3 4 - - - 1
Stores closed, franchised or removed
for the 39 weeks ended
September 30, 2000. (1) (2) - - - (1)
--- ---- --- --- --- --
Balance, September 30, 2000 .......... 2 2 - - - -
=== ==== === === === ==
Balance, January 2, 1999.............. 28 14 2 1 3 1
Stores closed, franchised, or removed
for the 39 weeks ended
October 2, 1999..... (20) (7) (2) - (1) (1)
--- ---- --- --- --- --
Balance, October 2, 1999 ............. 8 7 - 1 (2) -
=== ==== === === === ==
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Great American Consolidated
----------------------- -------------------
To Be To Be To Be To Be
Closed Franchised Closed Franchised
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Balance, January 1, 2000.............. - - 3 5
Stores closed, franchised or removed
for the 39 weeks ended
September 30, 2000. - - (1) (3)
---- --- ---- ----
Balance, September 30, 2000 .......... - - 2 2
==== === ==== ====
Balance, January 2, 1999.............. 4 - 37 16
Stores closed, franchised, or removed
for the 39 weeks ended
October 2, 1999..... (2) - (25) (8)
---- --- ---- ----
Balance, October 2, 1999 ............. 2 - 12 8
==== === ==== ====
</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 changes in the property and
equipment impairment reserves that were established in connection with the
applicable business combination for the 39 weeks ended September 30, 2000 and
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 1, 2000........................... $ 2,246 $ 640 $ 1,427 $ 169 $ 4,482
Addition to impairment for the 39 weeks ended
September 30, 2000 related to stores to be closed 42 - 89 - 131
Addition to impairment for the 39 weeks ended
September 30, 2000 related to stores to be
franchised...................................... 129 5 251 - 385
Utilization for the 39 weeks ended September 30,
2000 related to stores to be closed............. (666) (17) (264) - (947)
Utilization for the 39 weeks ended September 30,
2000 related to stores to be franchised......... (98) (85) - - (183)
-------- ------- ------- ------- -------
Balance, September 30, 2000........................ $ 1,653 $ 543 $ 1,503 $ 169 $ 3,868
======== ======= ======= ======= =======
Balance, January 2, 1999........................... $ 3,844 $ 1,380 $ 2,877 $ 327 $ 8,428
Utilization for the 39 weeks ended October 2, 1999
related to stores to be closed.................. (1,137) (405) (1,190) (157) (2,889)
Utilization for the 39 weeks ended October 2, 1999
related to stores to be franchised.............. (694) (332) (5) - (1,031)
-------- ------- ------- ------- -------
Balance, October 2, 1999........................... $ 2,013 $ 643 $ 1,682 $ 170 $ 4,508
======== ======= ======= ======= =======
</TABLE>
12
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(4) TCBY MANAGEMENT AGREEMENT
-------------------------
On February 9, 2000, Capricorn Investors III, L.P., an affiliate of
Capricorn Investors II, L.P., Mrs. Fields' Holding's majority shareholder,
entered into an agreement to acquire TCBY Enterprises, Inc. ("TCBY"), a retail
snack food company. This acquisition (the "TCBY Transaction") was completed on
June 1, 2000.
In connection with the TCBY Transaction, Mrs. Fields entered into a
Management Agreement (the "TCBY Management Agreement") with TCBY Holding
Company, Inc., the parent company of TCBY, and TCBY Systems, LLC, a wholly-owned
subsidiary of TCBY, pursuant to which the corporate and administrative functions
of TCBY were transferred to Mrs. Fields. Under the TCBY Management Agreement,
Mrs. Fields has agreed to manage and operate TCBY's business, and pay specified
operating and other costs of TCBY (including specified costs associated with the
transfer of the management function from Little Rock, Arkansas to Salt Lake
City, Utah), in exchange for a management fee that will be paid by TCBY
semi-monthly. Revenue generated from the management fee is reported under the
caption "Management fee revenue" on the statement of operations.
In connection with the TCBY Transaction, Mrs. Fields received a $300
acquisition advisory fee for its services rendered in connection with the
acquisition and for partial reimbursement of out-of-pocket costs and expenses
totaling approximately $725 incurred by Mrs. Fields in connection with its
performance of acquisition advisory services. Mrs. Fields will receive a
reimbursement from TCBY for costs incurred and expensed by Mrs. Fields related
to the transfer of the management function from Little Rock, Arkansas to Salt
Lake City, Utah upon TCBY's successful sale of its existing dairy processing
plant for net proceeds sufficient to retire debt associated with the plant.
Reimbursable expenses through September 30, 2000 were approximately $1,400. This
reimbursement, will be reflected as a one-time increase in the Management Fee
upon receipt. Mrs. Fields' management expects that the revenues from the TCBY
Management Fee and any fees earned in connection with a sale of the TCBY dairy
processing plant will exceed Mrs. Fields costs related to this agreement.
In accordance with the terms and conditions of the TCBY Management
Agreement, Mrs. Fields and TCBY will share cost savings that may be obtained
through the joint purchase of ingredients, supplies and services and Mrs. Fields
will be eligible to receive a portion of the anticipated cost savings in
connection with the expected outsourcing of TCBY's yogurt and ice cream
manufacturing requirements. For the 39 weeks ended September 30, 2000, Mrs.
Fields did not record any revenues or fees related to the cost saving
arrangement. The TCBY Transaction will also provide the opportunity for Mrs.
Fields and its eligible franchisees to become TCBY franchisees and for eligible
TCBY franchisees to become franchisees of Mrs. Fields or its subsidiaries.
(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 and sales from 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.
13
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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
revenue generated from the TCBY management fee, general and administrative
expense, other income (expense), interest expense, depreciation and amortization
of assets to its reportable operating segments. Mrs. Fields does not separate
the costs incurred while performing activities for the TCBY management agreement
from costs of operating Mrs. Fields, as most of Mrs. Fields' employees support
both companies, therefore the activity for managing TCBY is not reported as a
separate segment. Segment revenue and contribution margin are presented in the
following table.
<TABLE>
<CAPTION>
Company-Owned Stores, Franchising
including Mail Order and Licensing Total
--------------------- ------------- -----
<S> <C> <C> <C>
13 weeks ended September 30, 2000
---------------------------------
Segment revenues $ 34,814 $ 7,276 $ 42,090
Contribution margin 7,861 4,846 12,707
13 weeks ended October 2, 1999
------------------------------
Segment revenues 35,350 7,019 42,369
Contribution margin 7,893 4,655 12,548
39 weeks ended September 30, 2000
---------------------------------
Segment revenues 101,249 19,680 120,929
Contribution margin 20,247 12,591 32,838
39 weeks ended October 2, 1999
------------------------------
Segment revenues 107,265 19,269 126,534
Contribution margin 22,119 11,620 33,739
</TABLE>
14
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The reconciliation of contribution margin to net loss is as follows:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks Ended
September 30, 2000 October 2, 1999 September 30, 2000 October 2, 1999
------------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Contribution margin $ 12,707 $ 12,548 $ 32,838 $ 33,739
Management fee revenue 3,100 - 4,433 -
General and
administrative expense (1) (8,683) (5,339) (20,143) (16,212)
Store closure benefit 321 - 521 -
-------- -------- --------- --------
EBITDA (1)(2) 7,445 7,209 17,649 17,527
Depreciation and amortization (5,503) (5,429) (17,492) (16,692)
Interest expense (4,512) (4,260) (13,638) (12,946)
Other income (expense), net (159) (281) (79) (749)
-------- -------- ---------- --------
Net loss $ (2,729) $ (2,761) $(13,560) $(12,860)
======== ======== ========= ========
</TABLE>
(1) Included in general and administrative expenses for the 39 weeks ended
September 30, 2000, were approximately $1,400 of one-time transition costs
associated with transferring the management function from Little Rock,
Arkansas, to Salt Lake City. When TCBY is successful in selling its
existing dairy processing plant for net proceeds sufficient to retire debt
associated with the plant, Mrs. Fields' will receive reimbursement for
these transition costs.
(2) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income or expense. EBITDA is not intended to
represent cash flows from operations as defined by accounting principles
generally accepted in the United States and should not be considered as an
alternative to net income (loss) as an indicator of operating performance
or to cash flows as a measure of liquidity. EBITDA has been included in
this presentation because it is one of the indicators by which Mrs. Fields
assesses its financial performance and its capacity to service its debt.
Geographic segment information is as follows:
<TABLE>
<CAPTION>
Domestic International Domestic International Domestic
Company-Owned Company-Owned Franchising Franchising Management
Stores Stores and Licensing and Licensing Fee Revenue
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues
--------------
13 weeks ended September 30, 2000 $ 34,814 $ - $ 7,187 $ 89 $ 3,100
13 weeks ended October 2, 1999 35,350 - 6,930 89 -
39 weeks ended September 30, 2000 101,249 - 19,454 226 4,433
39 weeks ended October 2, 1999 107,244 21 18,980 289 -
</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.
No customers accounted for more than 10 percent of Mrs. Fields' total
revenues or individual segment's revenues.
15
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(6) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
----------------------------------------------------------
Mrs. Fields' obligation related to its $140 million 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 ranks 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.
16
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 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 $ 906 $ (2) $ 392 $ - $ 1,296
Accounts receivable, net 3,261 1,206 13 - 4,480
Amounts due from franchisees and
licensees, net 1,011 2,768 - - 3,779
Inventories 3,424 967 5 - 4,396
Other current assets and amounts due from
(to) affiliates, net 11,028 (6,415) (674) - 3,939
------------ ------------ ------------- -------------- ----------
Total current assets 19,630 (1,476) (264) - 17,890
PROPERTY AND EQUIPMENT, net 22,944 2,273 101 - 25,318
INTANGIBLES, net 68,586 75,813 212 - 144,611
INVESTMENT IN SUBSIDIARIES 65,010 - - (65,010) -
OTHER ASSETS 2,613 239 - - 2,852
------------ ------------ ------------- -------------- ----------
$ 178,783 $ 76,849 $ 49 $ (65,010) $ 190,671
============ ============ ============= ============== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations $ 1,590 $ - $ - $ - $ 1,590
Borrowing under line of credit 2,050 - - - 2,050
Current portion of store closure reserve 2,384 - - - 2,384
Accounts payable 5,138 1,254 10 - 6,402
Accrued liabilities 9,841 1,083 16 - 10,940
------------ ------------ ------------- -------------- ----------
Total current liabilities 21,003 2,337 26 - 23,366
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 143,542 319 - - 143,861
STORE CLOSURE RESERVE, net of current
portion 2,516 - - - 2,516
MINORITY INTEREST - - - 117 117
STOCKHOLDER'S EQUITY 11,722 74,193 23 (65,127) 20,811
------------ ------------ ------------- -------------- ----------
$ 178,783 $ 76,849 $ 49 $ (65,010) $ 190,671
============ ============ ============= ============== ==========
</TABLE>
17
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 13 WEEKS ENDED SEPTEMBER 30, 2000
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $ 39,202 $ 7,100 $ 159 $ (1,271) $ 45,190
------------ ------------ ------------- -------------- ----------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 18,056 - 35 (289) 17,802
Cost of sales 10,120 2,430 13 (982) 11,581
General and administrative 8,530 126 27 - 8,683
Store closure benefit (321) - - - (321)
Depreciation and amortization 3,804 1,683 16 - 5,503
------------ ------------ ------------- -------------- ----------
Total operating costs and
expenses 40,189 4,239 91 (1,271) 43,248
------------ ------------ ------------- -------------- ----------
(Loss) income from operations (987) 2,861 68 - 1,942
INTEREST EXPENSE AND
OTHER, net (4,590) (84) - (1) (4,675)
------------ ------------ ------------- -------------- ----------
(Loss) income before provision for
income taxes and equity in net loss
of consolidated subsidiaries (5,577) 2,777 68 (1) (2,733)
PROVISION FOR INCOME TAXES (5) - - - (5)
------------ ------------ ------------- -------------- ----------
(Loss) income before equity in net
loss of consolidated subsidiaries (5,582) 2,777 68 (1) (2,738)
MINORITY INTEREST - - - 9 9
------------ ------------ ------------- -------------- ----------
NET (LOSS) INCOME $ (5,582) $ 2,777 $ 68 $ 8 $ (2,729)
============ ============ ============= ============== ==========
</TABLE>
18
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED SEPTEMBER 30, 2000
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $ 109,416 $ 19,380 $ 437 $ (3,871) $ 125,362
------------ ------------ ------------- -------------- ----------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 55,227 - 139 (857) 54,509
Cost of sales 29,467 7,089 40 (3,014) 33,582
General and administrative 20,052 (4) 95 - 20,143
Store closure benefit (521) - - - (521)
Depreciation and amortization 12,644 4,824 24 - 17,492
------------ ------------ ------------- -------------- ----------
Total operating costs and
expenses 116,869 11,909 298 (3,871) 125,205
------------ ------------ ------------- -------------- ----------
(Loss) income from operations (7,453) 7,471 139 - 157
INTEREST EXPENSE AND
OTHER, net (13,361) (329) - (1) (13,691)
------------ ------------ ------------- -------------- ----------
(Loss) income before equity in net
loss of consolidated subsidiaries (20,814) 7,142 139 (1) (13,534)
PROVISION FOR INCOME TAXES (20) - - - (20)
------------ ------------ ------------- -------------- ----------
(Loss) income before preferred stock
accretion and dividends of
subsidiaries and equity in net loss
of consolidated subsidiaries (20,834) 7,142 139 (1) (13,554)
MIONORITY INTEREST - - - (6) (6)
------------ ------------ ------------- -------------- ----------
NET (LOSS) INCOME $ (20,834) $ 7,142 $ 139 $ (7) $ (13,560)
============ ============ ============= ============== ==========
</TABLE>
19
<PAGE>
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 39 WEEKS ENDED SEPTEMBER 30, 2000
(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 $ 145 $ 1,012 $ 232 $ - $ 1,389
------------ ------------ ------------- -------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment,
net (3,834) (529) - - (4,363)
------------ ------------ ------------- -------------- ----------
Net cash used in investing
activities (3,834) (529) - - (4,363)
------------ ------------ ------------- -------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt and
capital lease obligations (1,079) (207) - - (1,286)
Borrowings under line of credit 2,050 - - - 2,050
Payment of debt financing fees (262) - - - (262)
Reduction in preferred stock - (1,070) - - (1,070)
------------ ------------ ------------- -------------- ----------
Net cash provided by (used in)
financing activities 709 (1,277) - - (568)
------------ ------------ ------------- -------------- ----------
Effect of foreign exchange rates - - (81) - (81)
------------ ------------ ------------- -------------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,980) (794) 151 - (3,623)
CASH AND CASH EQUIVALENTS, beginning of
the period 3,886 792 241 - 4,919
------------ ------------ ------------- -------------- ----------
CASH AND CASH EQUIVALENTS, end of the
period $ 906 $ (2) $ 392 $ - $ 1,296
============ ============ ============= ============== ==========
</TABLE>
20
<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 2,603 13 - 4,767
Amounts due from franchisees and
licensees, net 1,314 1,922 - - 3,236
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
Current portion of store closure reserve 3,665 3,665
Accounts payable 8,823 1,676 15 - 10,514
Accrued liabilities 7,469 1,000 110 - 8,579
------------ ------------ ------------- -------------- ----------
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>
21
<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>
NET 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
Food 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, preferred stock
accretion, dividends of subsidiaries
and equity in net loss
of consolidated subsidiaries (2,487) (222) 73 - (2,636)
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>
22
<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>
NET 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
Food 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
------------ ------------ ------------- -------------- ----------
(Loss) income 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, preferred stock
accretion, dividends of subsidiaries
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>
23
<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
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:
Proceeds from line of credit 1,400 - - - 1,400
Payment of debt financing costs (1,449) (25) - - (1,474)
Reduction of long-term debt and
capital lease obligations (4,904) (1,133) - - (6,037)
Reduction in preferred stock - (525) - - (525)
------------ ------------ ------------- -------------- ----------
Net cash (used in) provided
by financing activities (4,953) (1,683) - (6,636)
------------ ------------ ------------- -------------- ----------
NET (DECREASE) INCREASE 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>
24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields" or the "Company"), 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 September 30, 2000, Mrs. Fields owned and
operated 126 Mrs. Fields Cookies stores, 82 Original Cookie Company stores, 90
Great American Cookies stores, 46 Hot Sam Pretzels stores, 78 Pretzel Time
stores and 5 Pretzelmaker stores in the United States. Additionally, Mrs. Fields
has franchised or licensed 858 stores in the United States and 112 stores in
several other countries. As of September 30, 2000, Mrs. Fields owned and
operated 427 continuing stores and 9 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 which in turn affects Mall traffic. 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 typically 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.
Results of Operations
The following table sets forth, for the periods indicated, certain
information relating to the operations of Mrs. Fields and percentage changes
from period to period. Data in the table reflect the consolidated results of
Mrs. Fields for the 13 and 39 weeks ended September 30, 2000 and the 13 and 39
weeks ended October 2, 1999.
<TABLE>
<CAPTION>
%CHG %CHG
FROM FROM
For the 13 Weeks Ended 1999 to For the 39 Weeks Ended 1999 to
Sep. 30, 2000 Oct. 2, 1999 2000 Sept.30,2000 Oct. 2. 1999 2000
------------- ------------ ------- ---------------------------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Net store and food sales.......... $ 34,814 $ 35,350 (1.5)% $ 101,249 $ 107,265 (5.6)%
Franchising....................... 6,060 6,520 (7.1) 18,103 18,082 .1
Management fee revenue............ 3,100 - N/A 4,433 - N/A
Licensing......................... 1,216 499 143.7 1,577 1,187 32.9
-------- --------- --------- ---------
Total revenues.................. 45,190 42,369 6.7 125,362 126,534 (.9)
-------- --------- ---------- ---------
Operating Costs and Expenses:
Selling and store occupancy costs. 17,802 19,222 (7.4) 54,509 60,340 (9.7)
Cost of sales..................... 11,581 10,599 9.3 33,582 32,455 3.5
General and administrative........ 8,683 5,339 62.6 20,143 16,212 24.2
Store closure benefit............. (321) - N/A (521) - N/A
Depreciation and amortization..... 5,503 5,429 1.4 17,492 16,692 4.8
-------- --------- --------- ---------
Total operating costs and expenses 43,248 40,589 6.6 125,205 125,699 (.4)
-------- --------- --------- ---------
Other Income (Expense):
Interest expense.................. (4,512) (4,260) 5.9 (13,638) (12,946) 5.3
Interest income................... 12 37 (67.6) 57 115 (50.4)
Other income (expense), net....... (171) (318) (46.2) (136) (864) (84.3)
-------- --------- --------- ---------
Total other expense, net (4,671) (4,541) 2.9 (13,717) (13,695) .2
-------- --------- --------- ---------
Net loss........................ $ (2,729) $ (2,761) 1.2% $ (13,560) $ (12,860) 5.4%
======== ========= ========= =========
</TABLE>
25
<PAGE>
13 Weeks Ended September 30, 2000 Compared to the 13 Weeks Ended October 2, 1999
As of September 30, 2000, there were 427 Company-owned stores and 970
franchised or licensed stores in operation. The store activity for the 13 weeks
ended September 30, 2000 and October 2, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Company-owned and Franchised or Licensed Store Activity September 30, 2000 October 2, 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 434 967 492 1,001
Stores opened (including relocations) 3 20 1 25
Stores closed (including relocations) (8) (18) (5) (72)
Stores sold to franchisees (1) 1 (5) 5
Non-continuing (exit plan) stores closed - (1) (2) -
Non-continuing (exit plan) stores franchised (1) 1 (3) 3
Stores acquired from franchisees - - 1 (1)
--- --- --- -----
Stores open as of the end of the 13 weeks ended 427 970 479 961
=== === === =====
</TABLE>
Revenues
Net Store and Food Sales. Total net store sales decreased $536, or 1.5
percent, from $35,350 to $34,814 for the 13 weeks ended September 30, 2000
compared to the 13 weeks ended October 2, 1999. The decrease was due primarily
to 52, or 10.9 percent, fewer stores open at September 30, 2000 compared to
October 2, 1999. Sales increased .6 percent for mall stores that had been open
one year or more when compared to the same prior year period. Mail order sales
for the 13 weeks ended September 30, 2000 increased $1,944, or 183.9 percent,
compared to the 13 weeks ended October 2, 1999. The increase was due to
increased mail order sales and the direct sales of frozen cookie dough in
supermarkets that in the prior year had been marketed by an outside licensee.
Franchising Revenues. Franchising revenues decreased $460, or 7.1 percent,
from $6,520 to $6,060 for the 13 weeks ended September 30, 2000 compared to the
13 weeks ended October 2, 1999. Franchising revenues were negatively impacted
primarily by lower initial franchise fees in the current period. Sales of cookie
dough to Great American franchisees were flat during the current quarter when
compared to the prior year period.
Management Fee Revenue. The Company received management fee revenue of
$3,100 during the current quarter to manage TCBY, which was acquired by an
affiliate of the Company on June 1, 2000. Under the terms of the management
agreement, the Company will receive monthly payments of $1,033 for managing and
operating TCBY's business. When TCBY is successful in selling its existing dairy
processing plant for net proceeds sufficient to retire debt associated with the
plant, Mrs. Fields' will receive reimbursement for approximately $1,400 of
one-time transition costs associated with transferring the management function
from Little Rock, Arkansas, to Salt Lake City. This reimbursement will be
reflected as a one-time increase in the Management Fee.
Licensing Revenues. Licensing revenues increased $717, or 143.7 percent,
from $499 to $1,216 for the 13 weeks ended September 30, 2000 compared to the 13
weeks ended October 2, 1999. The increase in licensing revenues was primarily
attributable to the signing of new licensees in the current year.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
decreased $1,420, or 7.4 percent, from $19,222 to $17,802 for the 13 weeks ended
September 30, 2000 compared to the 13 weeks ended October 2, 1999. The decrease
is attributable to 52, or 10.9 percent, fewer stores open at September 30, 2000
compared to October 2, 1999.
Cost of Sales. Total food cost of sales increased $982, or 9.3 percent,
from $10,599 to $11,581 for the 13 weeks ended September 30, 2000 compared to
the 13 weeks ended October 2, 1999. This increase was primarily the result of
increased mail order and batter facility sales and sales of frozen cookie dough
to retail outlets in 2000 compared to 1999. These sales have a lower gross
profit percentage than regular food store sales. Cost of goods sold for mall
stores decreased $758 or 8.8 percent due primarily to fewer stores open during
the 13 weeks ended September 30, 2000, compared to the prior period. Cost of
sales as percentage of sales for mall stores decreased from 25.1 percent for the
13 weeks ended October 2, 1999, to 24.7 percent for the 13 weeks ended September
30, 2000.
26
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased $3,344, or 62.6 percent, from $5,339 to $8,683 for the 13 weeks ended
September 30, 2000 compared to the 13 weeks ended October 2, 1999. The increase
in general and administrative expenses was primarily attributable to costs
associated with managing TCBY under the management agreement discussed above,
and to increased bad debt expense. The Company expects general and
administrative costs to continue at the current quarter's level in the future as
it manages and operates TCBY's business. However, these increased costs will be
offset by the management fee revenue received from TCBY.
Store Closure Benefit. The Company recorded a $321 store closure benefit in
the current period. The Company was able to close certain stores at a cost less
than what had been provided for in the plan. There was no comparable benefit or
provision in 1999. See Note 3 to the Condensed Consolidated Financial Statements
for a detailed explanation of the store closure reserve.
Depreciation and Amortization. Total depreciation and amortization expense
increased by $74, or 1.4 percent, from $5,429 to $5,503 for the 13 weeks ended
September 30, 2000 compared to the 13 weeks ended October 2, 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.
Total Other Expense. Total other expense increased by $130, or 2.9 percent,
from $4,541 to $4,671 for the 13 weeks ended September 30, 2000 compared to the
13 weeks ended October 2, 1999. The increase resulted primarily from higher
interest expense resulting from higher interest rates, partially offset by no
preferred stock accretion in the current quarter.
39 Weeks Ended September 30, 2000 Compared to the 39 Weeks Ended October 2, 1999
As of September 30, 2000, there were 427 Company-owned stores and 970
franchised or licensed stores in operation. The store activity for the 39 weeks
ended September 30, 2000 and October 2, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Company-owned and Franchised or Licensed Store Activity September 30, 2000 October 2, 1999
--------------------- ---------------------
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 462 981 566 972
Stores opened (including relocations) 7 97 11 74
Stores closed (including relocations) (29) (116) (12) (110)
Stores sold to franchisees (7) 7 (5) 5
Non-continuing (exit plan) stores closed (3) (2) (61) -
Non-continuing (exit plan) stores franchised (4) 4 (24) 24
Stores acquired from franchisees 1 (1) 4 (4)
--- --- ---- ----
Stores open as of the end of the 39 weeks ended 427 970 479 961
=== === === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store sales decreased $6,016, or 5.6
percent, from $107,265 to $101,249 for the 39 weeks ended September 30, 2000
compared to the 39 weeks ended October 2, 1999. The decrease was due primarily
to 52, or 10.9 percent, fewer stores open at September 30, 2000 compared to
October 2, 1999. For stores that had been open one year or more, mall store
sales decreased .3 percent when compared to the same period in the prior year.
Mail order sales for the 39 weeks ended September 30, 2000 increased $3,730, or
113.4 percent, compared to the 39 weeks ended October 2, 1999. The increase was
due to increased mail order sales and the direct sales of frozen cookie dough in
supermarkets that in the prior year had been marketed by an outside licensee.
Franchising Revenues. Franchising revenues increased $21, or .1 percent,
from $18,082 to $18,103 for the 39 weeks ended September 30, 2000 compared to
the 39 weeks ended October 2, 1999. Increased sales of cookie dough to Great
American franchisees was partially offset by lower royalty revenues resulting
from lower initial franchise fees during the 39 weeks ended September 30, 2000,
compared to the 39 weeks ended October 2, 1999.
27
<PAGE>
Management Fee Revenue. The Company has received management fee revenue of
$4,133 since June 1, 2000 to manage TCBY, which was acquired by an affiliate of
the Company on June 1, 2000. The Company also received a $300 acquisition
advisory fee as part of the acquisition. Under the terms of the management
agreement, the Company will receive monthly payments of $1,033 for managing and
operating TCBY's business. When TCBY is successful in selling its existing dairy
processing plant for net proceeds sufficient to retire debt associated with the
plant, Mrs. Fields' will receive reimbursement for approximately $1,400 of
one-time transition costs associated with transferring the management function
from Little Rock, Arkansas, to Salt Lake City. This reimbursement will be
reflected as a one-time increase in the Management Fee.
Licensing Revenues. Licensing revenues increased $390, or 32.9 percent,
from $1,187 to $1,577 for the 39 weeks ended September 30, 2000 compared to the
39 weeks ended October 2, 1999. The increase in licensing revenues for the 39
weeks ended September 30, 2000 was primarily attributable to new agreements
during the third quarter of 2000. This increase was partially offset by the
agreement with the licensee of frozen cookie dough for sale to supermarkets
which was in effect during the first nine months of 1999, but not during 2000.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
decreased $5,831, or 9.7 percent, from $60,340 to $54,509 for the 39 weeks ended
September 30, 2000 compared to the 39 weeks ended October 2, 1999. The decrease
is primarily attributable to 52, or 10.9 percent, fewer stores open at September
30, 2000 compared to October 2, 1999.
Cost of Sales. Total food cost of sales increased $1,127, or 3.5 percent,
from $32,455 to $33,582 for the 39 weeks ended September 30, 2000 compared to
the 39 weeks ended October 2, 1999. This increase was primarily the result of
increased mail order and batter facility sales and sales of frozen cookie dough
to retail outlets in 2000 compared to 1999. These sales have a lower gross
profit percentage than regular food store sales and the mail order business
incurred large advertising costs that negatively impacted its contribution in
the 39 weeks ended September 30, 2000, compared to the prior year period. Cost
of goods sold for mall stores decreased $2,948 or 11.2 percent due to fewer
stores open during the 39 weeks ended September 30, 2000, compared to the prior
year period. Cost of sales as a percentage of sales for mall stores decreased
from 25.3 percent for the 39 weeks ended October 2, 1999, to 24.8 percent for
the 39 weeks ended September 30, 2000.
General and Administrative Expenses. General and administrative expenses
increased $3,931, or 24.2 percent, from $16,212 to $20,143 for the 39 weeks
ended September 30, 2000 compared to the 39 weeks ended October 2, 1999. The
increase in general and administrative expenses was primarily attributable to
costs incurred by the Company in conjunction with Capricorn Investors III,
L.P.'s acquisition of TCBY, and to increased bad debt expense. Included in
general and administrative expenses were approximately $1,400 of one-time
transition costs associated with transferring the management function from
Little Rock, Arkansas, to Salt Lake City. When TCBY is successful in selling its
existing dairy processing plant for net proceeds sufficient to retire debt
associated with the plant, Mrs. Fields' will receive reimbursement for these
transition costs. Also included in general and administrative expenses are costs
associated with managing TCBY's ongoing business. These costs were offset by the
$300 acquisition advisory fee and the $4,133 management fee revenue discussed
above. This increase was partially offset by lower legal and risk management
insurance expenditures in the current year period. The Company expects general
and administrative costs to continue at increased levels in the future as it
manages and operates TCBY's business. However, these increased costs will be
offset by the management fee revenue received from TCBY.
Store Closure Benefit. The Company recorded a $521 store closure benefit in
the current nine month period. The Company was able to close certain stores at a
cost less than what had been provided for in the plan. There was no comparable
benefit or provision in 1999. See Note 3 to the Condensed Consolidated Financial
Statements for a detailed explanation of the store closure reserve.
Depreciation and Amortization. Total depreciation and amortization expense
increased by $800 or 4.8 percent, from $16,692 to $17,492 for the 39 weeks ended
September 30, 2000 compared to the 39 weeks ended October 2, 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.
Total Other Expense. Total other expense increased by $22, or .2 percent,
from $13,695 to $13,717 for the 39 weeks ended September 30, 2000 compared to
the 39 weeks ended October 2, 1999. Higher interest expense resulting from
higher interest rates, were partially offset by a lower tax provision and no
preferred stock accretion in the current year period.
28
<PAGE>
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 September 30, 2000, Mrs. Fields had $1,296 of
cash and cash equivalents on hand and $5,738 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 December 1, 2000 interest payment of approximately
$7 million on its long term debt. Based on current 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.
September 30, 2000 Compared to January 1, 2000
As of September 30, 2000, Mrs. Fields had liquid assets (cash and cash
equivalents and receivables) of $9,555, a decrease of 26.1 percent, or $3,367,
from January 1, 2000 when liquid assets were $12,922. Cash decreased $3,623, or
73.7 percent, to $1,296 at September 30, 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 1999, but not due until 2000.
Total receivables at September 30, 2000 were higher due to slower collections.
Mrs. Fields' working capital decreased by $1,690, or 44.6 percent, to a
deficit $5,476 at September 30, 2000 from a deficit $3,786 at January 1, 2000.
This decrease is due primarily to lower cash balances at September 30, 2000.
Long-term assets decreased $15,034 or 8.0 percent to $172,781 at September
30, 2000 from $187,815 at January 1, 2000. This decrease was primarily the
result of scheduled depreciation and amortization of property and equipment,
goodwill and deferred loan costs.
Mrs. Fields' operating activities provided cash of $1,389 for the 39 weeks
ended September 30, 2000, primarily from non-cash charges and increased accrued
interest balances. This increase was partially offset by lower accounts payable
balances.
Mrs. Fields utilized $4,363 of cash in investing activities during the 39
weeks ended September 30, 2000, primarily for capital expenditures relating to
store remodels and renovations.
Mrs. Fields used $568 in cash for financing activities during the 39 weeks
ended September 30, 2000. Cash was used to redeem the Preferred stock of Pretzel
Time, and for payment of capital lease and long-term debt obligations.
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 September 30, 2000 and October 2, 1999, Mrs.
Fields expended cash of $4,363 and $3,401, respectively, for capital assets and
expects to expend a total of approximately $9,500 in 2000. Capital expenditures
are expected to increase in the fourth quarter due to construction costs
associated with the opening of approximately 10 new stores. Management
anticipates that these expenditures will be funded with cash generated from
operating activities and short-term borrowings under its credit facility as
needed.
29
<PAGE>
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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS
137 and SFAS 138, is effective for the Company's fiscal year beginning 2001.
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that the Company recognize
all derivative instruments as either assets or liabilities in the condensed
consolidated balance sheet and measure those instruments at fair value. The
Company does not expect the adoption of SFAS 133, as amended, to have a material
impact on the Company's results of operations, financial position or liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no significant changes in market risks since the end of the
Company's January 1, 2000 year. For more information, please read the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended January 1, 2000.
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;
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.
30
<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
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 14, 2000
--------------------------------------------- -----------------
Larry A. Hodges, President & CEO Date
/s/Michael B. Malan November 14, 2000
--------------------------------------------- -----------------
Michael B. Malan, Vice President & Controller Date
(Principal Accounting Officer)
31
<PAGE>
