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: July 1, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period from to
Commission File Number: 333-67393
MRS. FIELDS' HOLDING COMPANY, INC.
----------------------------------
(Exact name of registrant specified in its charter)
DELAWARE 87-0563475
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121-7050
--------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip code)
(801) 736-5600
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X yes no
The registrant had 3,387,019 shares of common stock, $0.001 par value,
outstanding at August 15, 2000.
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
-------------------------------
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets as of July 1, 2000 and January 1, 2000..................... 3
Condensed Consolidated Statements of Operations for the 13 Weeks
Ended July 1, 2000 and July 3, 1999.......................................................... 5
Condensed Consolidated Statements of Operations for the 26 Weeks
Ended July 1, 2000 and July 3, 1999.......................................................... 6
Condensed Consolidated Statements of Cash Flows for the 26 Weeks
Ended July 1, 2000 and July 3, 1999.......................................................... 7
Notes to Condensed Consolidated Financial Statements............................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 16
PART II. OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings............................................................................... 22
Item 6. Exhibits and Reports on Form 8-K................................................................ 22
</TABLE>
2
<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>
July 1, January 1,
2000 2000
------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,775 $ 4,919
Accounts receivable, net of allowance for doubtful accounts
of $230 and $111, respectively 3,823 4,295
Amounts due from franchisees and licensees, net of allowance
for doubtful accounts of $700 and $821, respectively 3,838 3,708
Inventories 4,701 4,977
Prepaid rent and other 883 697
Deferred income tax assets, current portion 1,360 1,360
---------- ---------
Total current assets 16,380 19,956
---------- ---------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 29,018 26,698
Equipment and fixtures 22,666 22,540
Land 240 240
---------- ---------
51,924 49,478
Less accumulated depreciation and amortization (26,171) (20,813)
---------- ---------
Net property and equipment 25,753 28,665
---------- ---------
DEFERRED INCOME TAX ASSETS, net of current portion 2,154 2,139
---------- ---------
GOODWILL, net of accumulated amortization of
$26,170 and $21,310, respectively 126,708 133,025
---------- ---------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $4,276 and
$3,700, respectively 12,486 13,062
---------- ---------
DEFERRED LOAN COSTS, net of accumulated amortization of
$6,114 and $4,523, respectively 11,501 12,618
---------- ---------
OTHER ASSETS 688 652
---------- ---------
$ 195,670 $ 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>
July 1, January 1,
2000 2000
------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 695 $ 781
Current portion of capital lease obligations 952 842
Line of credit 3,550 -
Accounts payable 8,369 10,514
Accrued liabilities 2,112 2,851
Current portion of store closure reserve 3,016 3,665
Accrued salaries, wages and benefits 3,107 3,180
Accrued interest payable 1,181 1,380
Sales taxes payable 745 1,128
Deferred credits 112 132
---------- ---------
Total current liabilities 23,839 24,473
LONG-TERM DEBT, net of current portion 179,239 176,672
STORE CLOSURE RESERVE, net of current portion 2,853 3,529
CAPITAL LEASE OBLIGATIONS, net of current portion 2,729 3,107
---------- ---------
Total liabilities 208,660 207,781
---------- ---------
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 126 111
---------- ---------
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 (51,265) (37,069)
Cumulative foreign currency translation adjustment (75) -
---------- ---------
Total stockholders' equity (deficit) (13,116) 1,155
---------- ---------
$ 195,670 $ 210,117
========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
4
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except share and per share data)
13 Weeks Ended 13 Weeks Ended
July 1, 2000 July 3, 1999
-------------- -------------
REVENUES:
<S> <C> <C>
Net store and food sales $ 32,639 $ 34,786
Franchising 6,097 5,146
Management fee 1,333 -
Licensing 201 241
-------------- -------------
Total revenues 40,270 40,173
-------------- -------------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 18,387 19,725
Cost of sales 11,034 9,925
General and administrative 6,339 5,571
Store closure benefit (200) -
Depreciation and amortization 6,342 5,877
-------------- -------------
Total operating costs and expenses 41,902 41,098
-------------- -------------
Loss from operations (1,632) (925)
-------------- -------------
OTHER INCOME (EXPENSE), net:
Interest expense (6,330) (5,715)
Interest income 22 40
Other, net 97 (3)
-------------- -------------
Total other expense, net (6,211) (5,678)
-------------- -------------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (7,843) (6,603)
PROVISION FOR INCOME TAXES (7) (106)
-------------- -------------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (7,850) (6,709)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES
- (111)
MINORITY INTEREST (12) (3)
-------------- -------------
Net loss $ (7,862) $ (6,823)
============== =============
Basic and diluted net loss per common share $ (2.32) $ (2.08)
============== =============
Weighted average number of common shares outstanding 3,387,019 3,285,599
============== =============
COMPREHENSIVE LOSS:
Net loss $ (7,862) $ (6,823)
Foreign currency translation adjustments (75) -
-------------- -------------
Comprehensive loss $ (7,937) $ (6,823)
============== =============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except share and per share data)
26 Weeks Ended 26 Weeks Ended
July 1, 2000 July 3, 1999
----------------- ----------------
REVENUES:
<S> <C> <C>
Net store and food sales $ 66,435 $ 71,915
Franchising 12,043 11,562
Management fee 1,333 -
Licensing 361 688
-------------- -------------
Total revenues 80,172 84,165
-------------- -------------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 36,707 41,118
Cost of sales 22,001 21,856
General and administrative 11,460 10,950
Store closure benefit (200) -
Depreciation and amortization 12,012 11,286
-------------- -------------
Total operating costs and expenses 81,980 85,210
-------------- -------------
Loss from operations (1,808) (1,045)
-------------- -------------
OTHER INCOME (EXPENSE), net:
Interest expense (12,468) (11,364)
Interest income 45 78
Other, net 65 (110)
-------------- -------------
Total other expense, net (12,358) (11,396)
-------------- -------------
Loss before provision for income taxes, preferred stock
accretion and dividends of subsidiaries and minority
interest (14,166) (12,441)
PROVISION FOR INCOME TAXES (15) (210)
-------------- -------------
Loss before preferred stock accretion and dividends of
subsidiaries and minority interest (14,181) (12,651)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES
- (222)
MINORITY INTEREST (15) (4)
-------------- -------------
Net loss $ (14,196) $ (12,877)
============== =============
Basic and diluted net loss per common share $ (4.19) $ (3.92)
============== =============
Weighted average number of common shares outstanding 3,387,019 3,285,599
============== =============
COMPREHENSIVE LOSS:
Net loss $ (14,196) $ (12,877)
Foreign currency translation adjustments (75) -
-------------- -------------
Comprehensive loss $ (14,271) $ (12,877)
============== =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
6
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
26 Weeks Ended 26 Weeks Ended
July 1, 2000 July 3, 1999
----------- ----------
Decrease in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(14,196) $(12,877)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 12,012 11,286
Amortization of discount on notes 2,895 2,474
Amortization of deferred loan costs 1,591 1,151
Deferred compensation expense - 77
Loss on sale of assets 511 117
Preferred stock accretion and dividends of subsidiaries - 222
Minority interest 15 4
Changes in assets and liabilities:
Accounts receivable, net 472 1,638
Amounts due from franchisees and licensees, net (130) 1,329
Inventories 276 590
Prepaid rent and other (186) 202
Other assets (36) 918
Accounts payable and accrued liabilities (2,884) (1,006)
Bank overdraft - (1,231)
Store closure reserve (1,325) (1,311)
Accrued salaries, wages and benefits (73) (90)
Accrued interest payable (199) 111
Sales taxes payable (383) (584)
Deferred credits (35) (126)
----------- ----------
Net cash (used in) provided by operating activities (1,675) 2,894
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisition expenses - (100)
Purchase of property and equipment (2,529) (2,604)
---------- ---------
Net cash used in investing activities (2,529) (2,704)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 3,550 7,000
Reduction of long-term debt (414) (5,340)
Payment of debt financing costs (474) (1,175)
Principal payments on capital lease obligations (457) (572)
Proceeds for exercise of stock options - 148
Payments for repurchase of common stock - (292)
Reduction in preferred stock (1,070) (43)
---------- -----------
Net cash provided by (used in) financing activities 1,135 (274)
---------- ------------
Effect of foreign exchange rates (75) -
----------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,144) (84)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 4,919 4,759
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 1,775 $ 4,675
========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 7,817 $ 7,588
========== ========
Cash paid for income taxes $ 124 $ 166
=========== =========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
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 July 1, 2000 and January 1, 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 26 weeks ended July 1, 2000 are
not necessarily indicative of the results that may be expected for the remainder
of the fiscal year ending December 30, 2000. All dollar amounts presented are
stated in thousands.
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").
(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 income statement.
8
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(Unaudited)
The following table presents a summary of the activity in the store closure
reserve during the 26 weeks ended July 1, 2000 and July 3, 1999:
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 SubsequentUnrelated to Subsequent Unrelated toSubsequent Unrelated
Adjustments Adjustments Adjustments Acquisition Adjustments Acquisitions 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 26
weeks ended July 1, 2000 - - - - - - - -
Utilization for the 26 weeks
ended July 1, 2000 (218) (312) (57) (120) (22) - (233) (130)
------ ------ ---- ---- ---- ----- ------ -----
Balance, July 1, 2000 $1,396 $1,269 $479 $174 $ 87 $ 86 $1,441 $ 415
====== ====== ==== ==== ==== ===== ====== =====
Balance, January 2, 1999 $3,728 $4,674 $981 $367 $493 $ 264 $3,399 $ 305
Utilization for the 26 weeks
ended July 3, 1999 (813) (504) - (43) - (67) (288) -
------ ------ ---- ---- ---- ----- ----- -----
Balance, July 3, 1999... $2,915 $4,170 $981 $324 $493 $ 197 $3,111 $ 305
====== ====== ==== ==== ==== ===== ====== =====
</TABLE>
<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 26
weeks ended July 1, 2000 - (200) - (200) (200)
Utilization for the 26 weeks
ended July 1, 2000 (16) (17) (546) (579) (1,125)
---- ----- ------ ------ -------
Balance, July 1, 2000 $ 89 $ 433 $3,492 $2,377 $ 5,869
==== ===== ====== ====== =======
Balance, January 2, 1999 $500 $ - $9,101 $5,610 $14,711
Utilization for the 26 weeks
ended July 3, 1999 - - (1,101) (614) (1,715)
---- ----- ------ ------ -------
Balance, July 3, 1999... $500 $ - $8,000 $4,996 $12,996
==== ===== ====== ====== =======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
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 26 weeks ended July 1, 2000 and July 3, 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.
Mrs. Fields Inc.
and
Original Cookie H&M Pretzel Time Great American
------------------ ----------------- ---------------- ------------------
To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000.............. - 14 - - - - 6 1
Stores closed, franchised or removed
for the 26 weeks ended July 1, 2000. - (11) - - - - (2) (1)
--- --- --- --- --- --- - --- ---
Balance, July 1, 2000 ................ - 3 - - - - 4 -
=== === === === === === === ===
Balance, January 2, 1999.............. 23 36 6 7 3 - 43 11
Stores closed, franchised or removed
for the 26 weeks ended July 3, 1999. (13) (13) (4) (4) (3) - (21) (1)
--- --- --- --- --- --- --- ---
Balance, July 3, 1999 ................ 10 23 2 3 - - 22 10
=== === === === === === === ===
</TABLE>
<TABLE>
<CAPTION>
Pretzelmaker Consolidated
---------------- --------------
To Be To Be To Be To Be
Closed Franchised Closed Franchised
<S> <C> <C> <C> <C>
Balance, January 1, 2000.............. - - 6 15
Stores closed, franchised or removed
for the 26 weeks ended July 1, 2000. - - (2) (12)
--- --- --- ---
Balance, July 1, 2000 ................ - - 4 3
=== === === ===
Balance, January 2, 1999.............. 7 - 82 54
Stores closed, franchised or removed
for the 26 weeks ended July 3, 1999. (4) - (45) (18)
--- --- --- ---
Balance, July 3, 1999 ................ 3 - 37 36
=== === === ===
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
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 26 weeks
ended July 1, 2000, and July 3, 1999:
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 during the 26
weeks ended July 1, 2000................................ (1) (2) - - - (1)
--- --- --- --- --- ---
Balance, July 1, 2000..................................... 2 2 - - - -
=== === === === === ===
Balance, January 2, 1999.................................. 20 10 2 1 2 3
Stores closed, franchised or removed during the
26 weeks ended July 3, 1999............................. (19) (4) (2) - (1) (2)
--- --- --- --- --- ---
Balance, July 3, 1999..................................... 1 6 - 1 1 1
=== === === === === ===
</TABLE>
<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 during the 26
weeks ended July 1, 2000................................ - - (1) (3)
--- --- --- ---
Balance, July 1, 2000..................................... - - 2 2
=== === === ===
Balance, January 2, 1999.................................. 5 - 29 14
Stores closed, franchised or removed during the
26 weeks ended July 3, 1999............................. (1) - (23) (6)
--- --- --- ---
Balance, July 3, 1999..................................... 4 - 6 8
=== === === ===
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands)
(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 26 weeks ended July 1, 2000 and July 3,
1999 for stores to be closed and franchised:
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 26 weeks ended
July 1, 2000 related to stores to be closed..... 42 - 89 - 131
Addition to impairment for the 26 weeks ended
July 1, 2000 related to stores to be franchised. 129 5 251 - 385
Utilization for the 26 weeks ended July 1, 2000
related to stores to be closed.................. (605) (17) (209) - (831)
Utilization for the 26 weeks ended July 1, 2000
related to stores to be franchised.............. (40) (85) - - (125)
------ ------- ------ ---- -------
Balance, July 1, 2000.............................. $1,772 $ 543 $1,558 $169 $ 4,042
====== ======= ====== ==== =======
Balance, January 2, 1999........................... $3,844 $1,380 $2,877 $327 $ 8,428
Addition to impairment for the 26 weeks ended
July 3, 1999 related to stores to be closed..... 25 - - - 25
Addition to impairment for the 26 weeks ended
July 3, 1999 related to stores to be franchised. 362 - - - 362
Utilization for the 26 weeks ended July 3, 1999
related to stores to be closed.................. (1,114) (405) (1,166) (157) (2,842)
Utilization for the 26 weeks ended July 3, 1999
related to stores to be franchised.............. (665) (335) (5) - (1,005)
------ ------- ------ ---- -------
Balance, July 3, 1999.............................. $2,452 $ 640 $1,706 $170 $ 4,968
====== ======= ====== ==== =======
</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" in the
income statement. Mrs. Fields' Holding does not separate the costs incurred
under the management agreement from costs of operating Mrs. Fields' Holding, as
most of Mrs. Fields' Holding employees support both companies, therefore the
activity for managing TCBY is not reported as a separate segment.
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.
In connection with the TCBY Transaction, Mrs. Fields' Holding received a
$300,000 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 $725,000 incurred by Mrs. Fields' Holding in
connection with its performance of acquisition advisory services. Mrs. Fields'
Holding will receive a fee of up to $1.5 million from TCBY 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'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
any costs not fully reimbursed by the acquisition advisory fee and related
reimbursement.
(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)
<TABLE>
<CAPTION>
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.
Segment revenue and contribution margin are presented in the following table (in
thousands).
Company-Owned Stores Franchising
including Mail Order and Licensing Total
-------------------- ------------- -----
<S> <C> <C> <C>
13 weeks ended July 1, 2000
Segment revenues $32,639 $6,298 $38,937
Contribution margin 5,659 3,857 9,516
13 weeks ended July 3, 1999
---------------------------
Segment revenues 34,786 5,387 40,173
Contribution margin 7,403 3,120 10,523
26 weeks ended July 1, 2000
Segment revenues 66,435 12,404 78,839
Contribution margin 12,386 7,745 20,131
26 weeks ended July 3, 1999
---------------------------
Segment revenues 71,915 12,250 84,165
Contribution margin 13,404 7,787 21,191
</TABLE>
<TABLE>
<CAPTION>
The reconciliation of contribution margin to net loss is as follows (in
thousands):
13 Weeks Ended 13 Weeks Ended 26 Weeks Ended 26 Weeks Ended
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Contribution margin $ 9,516 $10,523 $ 20,131 $ 21,191
Management fee revenue 1,333 - 1,333 -
General and
administrative expense (6,339) (5,571) (11,460) (10,950)
Store closure benefit 200 - 200 -
Depreciation and amortization (6,342) (5,877) (12,012) (11,286)
Interest expense (6,330) (5,715) (12,468) (11,364)
Other income (expense), net 100 (183) 80 (468)
------- ------- -------- --------
Net loss $(7,862) $(6,823) $(14,196) $(12,877)
======= ======= ========- ========
</TABLE>
<TABLE>
<CAPTION>
Geographic segment information is as follows (in thousands):
Domestic International Domestic International Domestic
Company-Owned Company-Owned Franchising and Franchising Management Fee
Stores Stores Licensing and Licensing Revenue
------------- -------------- --------------- ------------- --------------
Total revenues
<S> <C> <C> <C> <C> <C>
13 weeks ended July 1, 2000 $32,639 $ - $ 6,242 $ 56 $1,333
13 weeks ended July 3, 1999 34,786 - 5,276 111 -
26 weeks ended July 1, 2000 66,435 - 12,267 137 1,333
26 weeks ended July 3, 1999 71,894 21 12,050 200 -
</TABLE>
14
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Revenues from international franchising and licensing are generated from
Canada and Australia with no other countries having material representation.
During the year ended January 1, 2000 all remaining international company-owned
stores were closed.
There were no customers who accounted for more than 10 percent of Mrs.
Fields' Holding's total revenues or either segment's revenues.
15
<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 July 1, 2000, Mrs. Fields' Holding owned and operated 126 Mrs. Fields
Cookies stores, 89 Original Cookie Company stores, 91 Great American Cookies
stores, 47 Hot Sam Pretzels stores, 77 Pretzel Time stores and 4 Pretzelmaker
stores in the United States. Additionally, Mrs. Fields' Holding has franchised
or licensed 852 stores in the United States and 115 stores in several other
countries. As of July 1, 2000, Mrs. Fields' Holding owned and operated 423
continuing stores and 11 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. 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.
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 26 weeks ended July 1, 2000 and
the 13 and 26 weeks ended July 3, 1999.
<TABLE>
<CAPTION>
% CHG % CHG
For the 13 Weeks Ended FROM For the 26 Weeks Ended FROM
------------------------- 1999 TO ---------------------------- 1999 TO
July 1, 2000 July 3,1999 2000 July 1, 2000 July 3, 1999 2000
------------ ----------- ------- ------------ ------------ -------
(Dollars in thousands)
Statement of Operations Data:
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Net store and food sales.......... $32,639 $34,786 (6.2)% $66,435 $71,915 (7.6)%
Franchising....................... 6,097 5,146 18.5 12,043 11,562 4.2
Management fee revenue............ 1,333 - N/A 1,333 - N/A
Licensing......................... 201 241 (16.6) 361 688 (47.5)
------- ------- ------- -------
Total revenues.................. 40,270 40,173 .2 80,172 84,165 (4.7)
------- ------- ------- -------
Operating Costs and Expenses:
Selling and store occupancy costs. 18,387 19,725 (6.8) 36,707 41,118 (10.7)
Cost of sales..................... 11,034 9,925 11.2 22,001 21,856 .7
General and administrative........ 6,339 5,571 13.8 11,460 10,950 4.7
Store closure benefit............. (200) - - (200) - -
Depreciation and amortization..... 6,342 5,877 7.9 12,012 11,286 6.4
------- ------- ------- -------
Total operating costs and expenses 41,902 41,098 2.0 81,980 85,210 (3.8)
------- ------- ------- -------
Other Income (Expense):
Interest expense.................. (6,330) (5,715) 10.8 (12,468) (11,364) 9.7
Interest income................... 22 40 (45.0) 45 78 (42.3)
Other income (expense), net....... 78 (223) N/A 35 (546) N/A
------- ------- ------- -------
Total other expense, net (6,230) (5,898) 5.6 (12,388) (11,832) 4.7
------- ------- ------- -------
Net loss........................ $ (7,862) $ (6,823) 15.2% $(14,196) $(12,877) 10.2%
========- ========- ========- ========-
</TABLE>
13 Weeks Ended July 1, 2000 Compared to the 13 Weeks Ended July 3, 1999
As of July 1, 2000, there were 434 Company-owned stores and 967
franchised or licensed stores in operation. The store activity for the 13 weeks
ended July 1, 2000 and July 3, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Company-owned and Franchised or Licensed Store Activity July 1, July 1,
2000 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 446 980 516 991
Stores opened (including relocations) 1 42 4 18
Stores closed (including relocations) (8) (57) (7) (19)
Stores sold to franchisees (3) 3 (4) 4
Non-continuing (exit plan) stores closed (2) (1) (10) -
Non-continuing (exit plan) stores franchised - - (8) 8
Stores acquired from franchisees - - 1 (1)
--- --- --- -----
Stores open as of the end of the 13 weeks ended 434 967 492 1,001
=== === === =====
</TABLE>
16
<PAGE>
Revenues
Net Store and Food Sales. Total net store sales decreased $2,147, or
6.2 percent, from $34,786 to $32,639 for the 13 weeks ended July 1, 2000
compared to the 13 weeks ended July 3, 1999. The decrease was due primarily to
58, or 11.8 percent, fewer stores open at July 1, 2000 compared to July 3, 1999.
Sales were flat for mall stores that had been open one year or more when
compared to the same period in the prior year. Mail order sales for the 13 weeks
ended July 1, 2000 increased $871, or 77 percent, compared to the 13 weeks ended
July 3, 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 $951, or 18.5
percent, from $5,146 to $6,097 for the 13 weeks ended July 1, 2000 compared to
the 13 weeks ended July 3, 1999. Franchising revenues were positively impacted
by the Easter holiday occurring in the second quarter in fiscal 2000 compared to
Easter occurring in the first quarter in 1999. Sales of cookie dough to our
Great American franchisees also increased $166 during the 13 weeks ended July 1,
2000, compared to the 13 weeks ended July 3, 1999.
Management Fee Revenue. The Company received management fee revenue of
$1,033 in June of 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.
Licensing Revenues. Licensing revenues decreased $40, or 16.6 percent,
from $241 to $201 for the 13 weeks ended July 1, 2000 compared to the 13 weeks
ended July 3, 1999. The decrease in licensing revenues for the 13 weeks ended
July 1, 2000 was primarily attributable to a decrease in the number of licensees
with agreements in effect during the current quarter compared to 1999.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy
costs decreased $1,338, or 6.8 percent, from $19,725 to $18,387 for the 13 weeks
ended July 1, 2000 compared to the 13 weeks ended July 3, 1999. The decrease is
attributable to 58, or 11.8 percent, fewer stores open at July 1, 2000 compared
to July 3, 1999, and to cost cutting efforts.
Cost of Sales. Total food cost of sales increased $1,109, or 11.2
percent, from $9,925 to $11,034 for the 13 weeks ended July 1, 2000 compared to
the 13 weeks ended July 3, 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 13 weeks ended July 1, 2000, compared to the prior year period. Cost of
goods sold for mall stores decreased $1,120 or 14.0 percent due to fewer stores
open during the 13 weeks ended July 1, 2000, compared to the prior period. Cost
of sales as percentage of sales for mall stores decreased from 25.6 percent for
the 13 weeks ended July 3, 1999, to 24.0 percent for the 13 weeks ended July 1,
2000.
17
<PAGE>
General and Administrative Expenses. General and administrative
expenses increased $768, or 13.8 percent, from $5,571 to $6,339 for the 13 weeks
ended July 1, 2000 compared to the 13 weeks ended July 3, 1999. The increase in
general and administrative expenses was primarily attributable to one-time costs
incurred by the Company in conjunction with Capricorn Investors III, L.P.'s
acquisition of TCBY. These costs were offset by the $300 acquisition advisory
fee and the $1,033 management fee revenue discussed above. This increase was
partially offset by lower legal and risk management insurance expenditures in
the current 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 $200 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 its closure 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 $465, or 7.9 percent, from $5,877 to $6,342 for the 13
weeks ended July 1, 2000 compared to the 13 weeks ended July 3, 1999. The
increase is primarily due to depreciation on the newly installed point of sale
and other computer equipment, depreciation of new equipment installed in
continuing stores and the acceleration of depreciation on stores in the process
of being closed.
Total Other Expense, Net. Total other expense, net increased by $332,
or 5.6 percent, from $5,898 to $6,230 for the 13 weeks ended July 1, 2000
compared to the 13 weeks ended July 3, 1999. The increase resulted primarily
from higher interest expense resulting from higher interest rates, partially
offset by a lower tax provision and no preferred stock dividends in the current
quarter.
Net Loss. The net loss increased by $1,039, or 15.2 percent, from
$6,823 to $7,862 for the 13 weeks ended July 1, 2000 compared to the 13 weeks
ended July 3, 1999 due to the combination of factors described above.
26 Weeks Ended July 1, 2000 Compared to the 26 Weeks Ended July 3, 1999
<TABLE>
<CAPTION>
As of July 1, 2000, there were 434 Company-owned stores and 967
franchised or licensed stores in operation. The store activity for the 26 weeks
ended July 1, 2000 and July 3, 1999 is summarized as follows:
Company-owned and Franchised or Licensed Store Activity July 1, July 1,
2000 1999
--------------------- ---------------------
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
<S> <C> <C> <C> <C>
Stores open as of the beginning of the 26 weeks ended 462 981 566 972
Stores opened (including relocations) 4 77 10 49
Stores closed (including relocations) (21) (98) (23) (38)
Stores sold to franchisees (6) 6 (7) 7
Non-continuing (exit plan) stores closed (3) (1) (43) -
Non-continuing (exit plan) stores franchised (3) 3 (14) 14
Stores acquired from franchisees 1 (1) 3 (3)
--- --- --- -----
Stores open as of the end of the 26 weeks ended 434 967 492 1,001
=== === === =====
</TABLE>
Revenues
Net Store and Food Sales. Total net store sales decreased $5,480, or
7.6 percent, from $71,915 to $66,435 for the 26 weeks ended July 1, 2000
compared to the 26 weeks ended July 3, 1999. The decrease was due primarily to
58, or 11.8 percent, fewer stores open at July 1, 2000 compared to July 3, 1999.
For stores that had been open one year or more, mall store sales decreased .8
percent when compared to the same period in the prior year. Mail order sales for
the 26 weeks ended July 1, 2000 increased $1,786, or 80 percent, compared to the
26 weeks ended July 3, 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 $481, or 4.2
percent, from $11,562 to $12,043 for the 26 weeks ended July 1, 2000 compared to
the 26 weeks ended July 3, 1999. The increase was primarily from the sales of
cookie dough to our Great American franchisees during the 26 weeks ended July 1,
2000, compared to the 26 weeks ended July 3, 1999.
18
<PAGE>
Management Fee Revenue. The Company received management fee revenue of
$1,033 in June of 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.
Licensing Revenues. Licensing revenues decreased $327, or 47.5 percent,
from $688 to $361 for the 26 weeks ended July 1, 2000 compared to the 26 weeks
ended July 3, 1999. The decrease in licensing revenues for the 26 weeks ended
July 1, 2000 was primarily attributable to a decrease in the number of licensees
with agreements in effect during the first six months of 2000 compared to 1999.
Also, the agreement with the licensee of frozen cookie dough for sale to
supermarkets was in effect during the first six months of 1999, but not during
2000.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy
costs decreased $4,411, or 10.7 percent, from $41,118 to $36,707 for the 26
weeks ended July 1, 2000 compared to the 26 weeks ended July 3, 1999. The
decrease is primarily attributable to 58, or 11.8 percent, fewer stores open at
July 1, 2000 compared to July 3, 1999, and to cost cutting efforts. Selling and
store occupancy costs as a percentage of sales decreased from 57.2 percent in
1999 to 55.3 percent in 2000.
Cost of Sales. Total food cost of sales increased $145, or .7 percent,
from $21,856 to $22,001 for the 26 weeks ended July 1, 2000 compared to the 26
weeks ended July 3, 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 26
weeks ended July 1, 2000, compared to the prior year period. Cost of goods sold
for mall stores decreased $2,109 or 12.4 percent due to fewer stores open during
the 26 weeks ended July 1, 2000, compared to the prior period. Cost of sales as
percentage of sales for mall stores decreased from 25.2 percent for the 26 weeks
ended July 3, 1999, to 24.7 percent for the 26 weeks ended July 1, 2000.
General and Administrative Expenses. General and administrative
expenses increased $510, or 4.7 percent, from $10,950 to $11,460 for the 26
weeks ended July 1, 2000 compared to the 26 weeks ended July 3, 1999. The
increase in general and administrative expenses was primarily attributable to
one-time costs incurred by the Company in conjunction with Capricorn Investors
III, L.P.'s acquisition of TCBY. These costs were offset by the $300 acquisition
advisory fee and the $1,033 management fee revenue discussed above. This
increase was partially offset by lower legal and risk management insurance
expenditures in the current 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 $200 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 $726, or 6.4 percent, from $11,286 to $12,012 for the 26
weeks ended July 1, 2000 compared to the 26 weeks ended July 3, 1999. The
increase is primarily due to depreciation on the newly installed point of sale
and other computer equipment, depreciation of new equipment installed in
continuing stores and the acceleration of depreciation on stores in the process
of being closed.
Total Other Expense, Net. Total other expense, net increased by $556,
or 4.7 percent, from $11,832 to $12,388 for the 26 weeks ended July 1, 2000
compared to the 26 weeks ended July 3, 1999. The increase resulted primarily
from higher interest expense resulting from higher interest rates, partially
offset by a lower tax provision and no preferred stock dividends in the current
year.
Net Loss. The net loss increased by $1,319, or 10.2 percent, from
$12,877 to $14,196 for the 26 weeks ended July 1, 2000 compared to the 26 weeks
ended July 3, 1999 due to the combination of factors described above.
19
<PAGE>
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 July 1, 2000, Mrs. Fields'
Holding has $1,775 of cash and cash equivalents on hand and $4,366 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.
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.
July 1, 2000 Compared to January 1, 2000
As of July 1, 2000, Mrs. Fields' Holding had liquid assets (cash and cash
equivalents and accounts receivable) of $9,436, a decrease of 27.0 percent, or
$3,486, from January 1, 2000 when liquid assets were $12,922. Cash decreased
$3,144, or 63.9 percent, to $1,775 at July 1, 2000 from $4,919 at January 1,
2000. Cash decreased primarily from the retirement of the preferred stock of
Pretzel Time, the purchase of capital assets with cash rather than using capital
lease financing, and the payment of expenses incurred in 1999, but not due until
2000. Total receivables at July 1, 2000 were lower due to lower sales and
improved cash collection procedures.
Mrs. Fields' Holding's working capital decreased by $2,942, or 65.1
percent, to a negative $7,459 at July 1, 2000 from a negative $4,517 at January
1, 1999. This decrease is due primarily to lower cash balances in the current
period.
Long-term assets decreased $10,871, or 5.7 percent, to $179,290 at July 1,
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' Holdings utilized $1,675 of cash for operating activities for
the 26 weeks ended July 1, 2000, primarily due to lower accounts payable
balances and for cash payments to close stores.
Mrs. Fields utilized $2,529 of cash in investing activities during the 26
weeks ended July 1, 2000, primarily for capital expenditures relating to store
remodels and renovations.
Mrs. Fields received $1,135 in cash from financing activities during the 26
weeks ended July 1, 2000. The increase resulted from borrowings on the Company's
bank line of credit. During the current period, the preferred stock of Pretzel
Time was redeemed in full.
The specialty cookie and pretzel businesses do not require the maintenance
of significant receivables or inventories; however, Mrs. Fields' 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 26 weeks ended July 1, 2000 and
July 3, 1999, Mrs. Fields expended $2,529 and $2,604, respectively, for capital
assets and expects to expend a total of approximately $9,500 in 2000. Management
anticipates that these expenditures will be funded with cash generated from
operating activities and short-term borrowings under its credit facility as
needed.
Inflation
The impact of inflation on the earnings of the business has not been
significant in recent years. Most of Mrs. Fields' 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.
20
<PAGE>
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.
21
<PAGE>
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 August 15, 2000
--------------------------------------------- ---------------
Larry A. Hodges, President & CEO Date
/s/Michael B. Malan August 15, 2000
--------------------------------------------- ---------------
Michael B. Malan, Vice President & Controller Date
(Principal Accounting Officer)
22
