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: 333-67393
MRS. FIELDS' HOLDING COMPANY, INC.
----------------------------------
(Exact name of registrant specified in its charter)
DELAWARE 87-0563475
--------------------------------------- ---------------------------------
(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 3,387,019 shares of common stock, $0.001 par value,
outstanding at November 13, 2000.
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
-------------------------------
<TABLE>
<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............ 17
Item 3. Quantitative and Qualitative Disclosure about Market Risk........................................ 23
PART II. OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings...............................................................................24
Item 6. Exhibits and Reports on Form 8-K................................................................24
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share and per share data)
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 1,345 697
Deferred income tax assets 1,360 1,360
---------- ---------
Total current assets 16,656 19,956
---------- ---------
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
$28,774 and $21,310, respectively 123,899 133,025
---------- ---------
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
$6,909 and $4,523, respectively 10,726 12,618
---------- ---------
OTHER ASSETS 713 652
---------- ---------
$ 191,645 $ 210,117
========== =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(Continued)
(in thousands, except share and per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<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 1,380
---------- ----------
Total current liabilities 23,366 24,473
LONG-TERM DEBT, net of current portion 180,583 176,672
STORE CLOSURE RESERVE, net of current portion 2,516 3,529
CAPITAL LEASE OBLIGATIONS, net of current portion 2,536 3,107
---------- ----------
Total liabilities 209,001 207,781
---------- ----------
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
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value; 5,000,000 shares authorized
and 3,387,019 shares outstanding 3 3
Warrants to purchase common stock 2,895 2,895
Additional paid-in capital 35,711 35,711
Deferred compensation expense (385) (385)
Accumulated deficit (55,616) (37,069)
Accumulated other comprehensive loss (81) -
---------- ----------
Total stockholders' equity (deficit) (17,473) 1,155
---------- ----------
$ 191,645 $ 210,117
========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
4
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except share and per share data)
<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 5,367
Store closure benefit (321) -
Depreciation and amortization 5,515 5,441
------------- ------------
Total operating costs and expenses 43,260 40,629
------------- ------------
Income from operations 1,930 1,740
------------- ------------
OTHER INCOME (EXPENSE), net:
Interest expense (6,117) (5,821)
Interest income 12 37
Other, net (175) (193)
------------- ------------
Total other expense, net (6,280) (5,977)
------------- ------------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (4,350) (4,237)
PROVISION FOR INCOME TAXES (5) (6)
------------- ------------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (4,355) (4,243)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES - (111)
MINORITY INTEREST 9 (8)
------------- ------------
Net loss $ (4,346) $ (4,362)
============= ============
Basic and diluted net loss per common share $ (1.28) $ (1.33)
============= ============
Weighted average number of common shares outstanding 3,387,019 3,285,599
============= ============
COMPREHENSIVE LOSS:
Net loss $ (4,346) $ (4,362)
Foreign currency translation adjustment (6) -
------------- ------------
Comprehensive loss $ (4,352) $ (4,362)
============= ============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
5
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except share and per share data)
<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 16,317
Store closure benefit (521) -
Depreciation and amortization 17,527 16,727
------------ ------------
Total operating costs and expenses 125,240 125,839
------------ ------------
Income from operations 122 695
------------ ------------
OTHER INCOME (EXPENSE), net:
Interest expense (18,585) (17,185)
Interest income 57 115
Other, net (110) (303)
------------ ------------
Total other expense, net (18,638) (17,373)
------------ ------------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (18,516) (16,678)
PROVISION FOR INCOME TAXES (20) (216)
------------ ------------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (18,536) (16,894)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES - (333)
MINORITY INTEREST (6) (12)
------------ ------------
Net loss $ (18,542) $ (17,239)
============ ============
Basic and diluted net loss per common share $ (5.47) $ (5.25)
============ ============
Weighted average number of common shares outstanding 3,387,019 3,285,599
============ ============
COMPREHENSIVE LOSS:
Net loss $ (18,542) $ (17,239)
Foreign currency translation adjustment (81) -
------------ ------------
Comprehensive loss $ (18,623) $ (17,239)
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
6
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(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 $ (18,542) $ (17,239)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 17,527 16,727
Amortization of discount on notes 4,376 3,767
Amortization of deferred loan costs 2,386 1,953
Deferred compensation expense - 101
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) 333
Amounts due from franchisees and licensees, net (71) 1,653
Inventories 581 516
Prepaid rent and other (648) 372
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 3,384 3,879
Other (66) 751
---------- ----------
Net cash provided by operating activities 1,593 13,561
---------- ----------
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:
Net borrowings under line of credit 2,050 1,400
Reduction of long-term debt (570) (5,244)
Payment of debt financing costs (494) (1,741)
Principal payments on capital lease obligations (688) (793)
Proceeds for exercise of stock options - 148
Payments for repurchase of common stock - (292)
Reduction in preferred stock (1,070) (525)
---------- ----------
Net cash used in financing activities (772) (7,047)
---------- ----------
Effect of foreign exchange rates (81) -
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,623) 3,013
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 4,919 4,759
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 1,296 $ 7,772
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 12,827 $ 11,353
========== ==========
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' HOLDING COMPANY, 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' Holding Company, Inc. and subsidiaries ("Mrs.
Fields' Holding") 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' Holding as of September 30, 2000, and the related results of
operations and cash flows for the periods presented herein. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the fiscal year
ended January 1, 2000 contained in Mrs. Fields' Holding's registration statement
on Form S-4, which was declared effective on May 16, 2000.
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.
Mrs. Fields' Holding is a majority owned subsidiary of Capricorn Investors
II, L.P. ("Capricorn"). Mrs. Fields' Holding is a holding company and does not
have any material operations other than ownership of all of the capital stock of
Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields").
All dollar amounts presented 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' Holding's management reviews the historical and projected
operating performance of its stores on a periodic basis to identify
underperforming stores for impairment of net property investment or for targeted
closing. Mrs. Fields' Holding's policy is to recognize a loss for that portion
of the net property investment determined to be impaired. Additionally, when a
store is identified for targeted closing, Mrs. Fields' Holding 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 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' Holding 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' HOLDING COMPANY, 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 Great American
----------------------- ------------------------ -------------------------- -------------------------
Business Company- Business Company- Business Company- Business Company-
Combination Owned Combination Owned Combination Owned Combination Owned
and Stores and Stores and Stores and Stores
Subsequent Unrelated to Subsequent Unrelated to Subsequent Unrelated to Subsequent Unrelated to
Adjustments Acquisitions Adjustments Acquisitions Adjustments Acquisition Adjustments Acquisitions
----------- ------------ ----------- ------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000. $ 1,614 $ 1,581 $ 536 $ 294 $ 109 $ 86 $ 1,674 $ 545
Reversal during the 39
weeks ended
September 30, 2000..... (70) - - (26) - (44) - (151)
Utilization for the 39
weeks ended
ended September 30,
2000................... (466) (439) (89) (141) (33) - (405) (160)
------- -------- ------ -------- ------- -------- -------- ------
Balance, September 30,
2000................... $ 1,078 $ 1,142 $ 447 $ 127 $ 76 $ 42 $ 1,269 $ 234
======= ======== ====== ======== ======= ======== ======== ======
Balance, January 2, 1999. $ 3,728 $ 4,674 $ 981 $ 367 $ 493 $ 264 $ 3,399 $ 305
Reversal for the 39
weeks ended
October 2, 1999....... (540) - (212) - (191) - (852) -
Utilization for the 39
weeks ended
October 2, 1999....... (1,019) (789) - (79) - (48) (457) -
------- -------- ------ -------- ------- -------- -------- ------
Balance, October 2, 1999. $ 2,169 $ 3,885 $ 769 $ 288 $ 302 $ 216 $ 2,090 $ 305
======= ======== ====== ======== ======= ======== ======== ======
</TABLE>
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
<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
Reversal during the 39
weeks ended
September 30, 2000..... - (230) (70) (451) (521)
Utilization for the 39
weeks ended
September 30, 2000.... (23) (17) (1,016) (757) (1,773)
-------- --------- -------- -------- ----------
Balance, September 30,
2000.................. $ 82 $ 403 $ 2,952 $ 1,948 $ 4,900
======== ========= ======== ======== ==========
Balance, January 2, 1999. $ 500 $ - $ 9,101 $ 5,610 $ 14,711
Reversal for the 39
weeks ended
October 2, 1999....... (368) - (2,163) - (2,163)
Utilization for the 39
weeks ended
October 2, 1999........ - - (1,476) (916) (2,392)
-------- --------- -------- -------- ----------
Balance, October 2, 1999. $ 132 $ - $ 5,462 $ 4,694 $ 10,156
======== ========= ======== ======== ==========
</TABLE>
9
<PAGE>
MRS. FIELDS' HOLDING COMPANY, 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' Holding
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' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents a summary of activity for stores Mrs. Fields'
Holding 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' HOLDING COMPANY, 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' HOLDING COMPANY, 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, on June 1, 2000, Mrs. Fields'
Holding 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' Holding. Under
the TCBY Management Agreement, Mrs. Fields' Holding 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' Holding 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 and expensed by Mrs. Fields' Holding in
connection with its performance of acquisition advisory services. Mrs. Fields'
Holding will receive a reimbursement from TCBY for costs incurred by Mrs.
Fields' Holding 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' Holding's 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' Holding and TCBY will share cost savings that may be
obtained through the joint purchase of ingredients, supplies and services and
Mrs. Fields' Holding 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. The TCBY Transaction will also provide the
opportunity for Mrs. Fields' Holding and its eligible franchisees to become TCBY
franchisees and for eligible TCBY franchisees to become franchisees of Mrs.
Fields' Holding or its subsidiaries.
(5) REPORTABLE SEGMENTS
-------------------
Management evaluates performance at Mrs. Fields' Holding 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.
13
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Mrs. Fields' Holding 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'
Holding 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' Holding 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' HOLDING COMPANY, 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) (5,367) (20,143) (16,317)
Store closure benefit 321 - 521 -
-------- -------- --------- ---------
EBITDA (1)(2) 7,445 7,181 17,649 17,422
Depreciation and amortization (5,515) (5,441) (17,527) (16,727)
Interest expense (6,117) (5,821) (18,585) (17,185)
Other income (expense), net (159) (281) (79) (749)
-------- -------- --------- ---------
Net loss $ (4,346) $ (4,362) $ (18,542) $ (17,239)
======== ======== ========= =========
</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' Holding's
total revenues or individual segment's revenues.
15
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(6) SUBSEQUENT EVENT
----------------
On October 30, 2000, Mrs. Fields' Holding Company, Inc., purchased the area
development rights, and 20 Pretzel Time stores from a franchisee for
approximately $3.8 million. Mrs. Fields' Holding Company, Inc plans to enter
into a management agreement with Mrs. Fields to manage and operate these stores.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Mrs. Fields' Holding Company, Inc. ("Mrs. Fields' Holding"), is a majority
owned subsidiary of Capricorn Investors II, L.P. ("Capricorn"). Mrs. Fields'
Holding is a holding company and does not have any material operations other
than ownership of all of the capital stock of Mrs. Fields' Original Cookies,
Inc. ("Mrs. Fields"). 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' Holding, through its Mrs. Fields subsidiary, 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' Holding 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' Holding has
franchised or licensed 858 stores in the United States and 112 stores in several
other countries. As of September 30, 2000, Mrs. Fields' Holding 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' Holding's business follows seasonal trends and is also
affected by climate and weather conditions, which in turn affects Mall traffic.
Because Mrs. Fields' Holding's stores are heavily concentrated in shopping
malls, Mrs. Fields' Holding's sales performance is significantly dependent on
the performance of those malls. Mrs. Fields' Holding 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.
17
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain
information relating to the operations of Mrs. Fields' Holding and percentage
changes from period to period. Data in the table reflects the consolidated
results of Mrs. Fields' Holding 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 5,367 61.8 20,143 16,317 23.4
Store closure benefit............. (321) - N/A (521) - N/A
Depreciation and amortization..... 5,515 5,441 1.4 17,527 16,727 4.8
-------- --------- --------- -----------
Total operating costs and
expenses 43,260 40,629 6.5 125,240 125,839 (.5)
-------- --------- --------- -----------
Other Income (Expense):
Interest expense.................. (6,117) (5,821) 5.1 (18,585) (17,185) 8.1
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 (6,276) (6,102) 2.9 (18,664) (17,934) 4.1
-------- --------- --------- -----------
Net loss........................ $ (4,346) $ (4,362) (.4)% $ (18,542) $ (17,239) (7.6)%
======== ========= ========= ===========
</TABLE>
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>
18
<PAGE>
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's parent 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.
General and Administrative Expenses. General and administrative
expenses increased $3,316, or 61.8 percent, from $5,367 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 $5,441 to $5,515 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.
19
<PAGE>
Total Other Expense. Total other expense increased by $174, or 2.9
percent, from $6,102 to $6,276 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.
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's parent 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.
20
<PAGE>
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 $3,826, or 23.4 percent, from $16,317 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' Holding 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 $16,727 to $17,527 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 $730, or 4.1
percent, from $17,934 to $18,664 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.
Liquidity and Capital Resources
General
Mrs. Fields' Holding's principal sources of liquidity are cash flows from
operating activities, cash on hand and available borrowings under Mrs. Fields'
Holding's existing revolving credit facility. As of September 30, 2000, Mrs.
Fields' Holding has $1,296 of cash and cash equivalents on hand and $5,738
additional borrowings available under its revolving credit facility. Mrs.
Fields' Holding expects to use its existing cash, cash flows from operations and
its credit facility to provide working capital, finance capital expenditures and
to meet debt service requirements, including the December 1, 2000 interest
payment of approximately $7 million on its long term debt. Based on current
operations, Mrs. Fields' Holding 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' Holding's business will continue to generate cash
flows at or above current levels.
21
<PAGE>
September 30, 2000 Compared to January 1, 2000
As of September 30, 2000, Mrs. Fields' Holding had liquid assets (cash and
cash equivalents and accounts receivable) 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' Holding's working capital decreased by $2,193 or 48.6 percent,
to a deficit $6,710 at September 30, 2000 from a deficit $4,517 at January 1,
2000. This decrease is due primarily to lower cash balances at September 30,
2000.
Long-term assets decreased $15,172 or 8.0 percent to $174,989 at September
30, 2000 from $190,161 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' Holding's operating activities provided cash of $1,593 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 $772 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' Holding
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' Holding's 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.
Inflation
The impact of inflation on the earnings of the business has not been
significant in recent years. Most of Mrs. Fields' Holding's 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' Holding's employees are paid hourly wages at the Federal minimum wage
level. Minimum wage increases will negatively impact Mrs. Fields' Holding's
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.
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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 Mrs. Fields'
Holding's registration statement on Form S-4, for the year ended January 1,
2000, which was declared effective on May 16, 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' Holding's
future financial performance, including growth in net sales and earnings, cash
flows from operations, capital expenditures, the ability to refinance
indebtedness, and the sale of assets. These forward-looking statements are
subject to risks, uncertainties and assumptions, including the following:
o Our ability to combine the businesses of companies acquired during the
year with Mrs. Fields' Holding and to realize the expected 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' Holding, 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
In the ordinary course of business, Mrs. Fields' Holding is involved in
routine litigation, including franchise disputes. Mrs. Fields' Holding is not a
party to any legal proceedings which, in the opinion of management of Mrs.
Fields' Holding, after consultation with legal counsel, is material to Mrs.
Fields' Holding's business, financial condition or results of operations beyond
amounts provided for in the accompanying financial statements.
Mrs. Fields' Holding's 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' HOLDING COMPANY, 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)
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