-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DHlVEoe6ucmX3kJ6ulv2HF7WAb6EjQ03slAEheTfxmhQtG9SX2pQKpA2Z1trFoDw Rdu6cT1o/nxXCue9U5JHCQ== 0000936392-97-000726.txt : 19970520 0000936392-97-000726.hdr.sgml : 19970520 ACCESSION NUMBER: 0000936392-97-000726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAIG JENNY INC /DE CENTRAL INDEX KEY: 0000878865 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 330366188 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10887 FILM NUMBER: 97608173 BUSINESS ADDRESS: STREET 1: 445 MARINE VIEW AVE STE 300 CITY: DEL MAR STATE: CA ZIP: 92014 BUSINESS PHONE: 6192597000 MAIL ADDRESS: STREET 1: 445 MARINE VIEW AVENUE STREET 2: SUITE 300 CITY: DEL MAR STATE: CA ZIP: 92014 FORMER COMPANY: FORMER CONFORMED NAME: JCI HOLDINGS INC DATE OF NAME CHANGE: 19600201 10-Q 1 FORM 10-Q, 3-31-97 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1997 Commission File No. 001-10887 JENNY CRAIG, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 33-0366188 - -------------------------------------------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 11355 NORTH TORREY PINES ROAD, LA JOLLA, CA 92037 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (619) 812-7000 -------------------- 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. Yes X No ---- ---- Number of shares of common stock, $.000000005 par value, outstanding as of the close of business on April 30, 1997- 20,690,971. -1- 2 JENNY CRAIG, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($ in thousands)
June 30, March 31, 1996 1997 --------- --------- (unaudited) ASSETS Cash and cash equivalents $ 43,535 33,780 Short-term investments 7,045 6,225 Accounts receivable, net 3,668 3,637 Inventories 17,401 14,710 Prepaid expenses and other assets 8,282 7,706 --------- --------- Total current assets 79,931 66,058 Cost of reacquired area franchise rights, net 7,496 9,653 Property and equipment, net 15,474 27,280 Other assets 1,500 1,500 --------- --------- $ 104,401 104,491 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable 20,916 16,562 Accrued liabilities 22,415 19,460 Income taxes payable 2,102 2,705 Deferred service revenues 4,506 3,522 --------- --------- Total current liabilities 49,939 42,249 Note payable -- 5,928 --------- --------- Total liabilities 49,939 48,177 Stockholders' equity: Common stock $.000000005 par value, 100,000,000 shares authorized; 27,579,060 shares issued; 20,856,251 and 20,690,971 shares outstanding at June 30, 1996 and March 31, 1997, respectively -- -- Additional paid-in capital 71,478 71,584 Retained earnings 54,230 57,903 Equity adjustment from foreign currency translation 1,883 1,518 Treasury stock at cost, 6,701,089 and 6,888,089 shares at June 30, 1996 and March 31, 1997, respectively (73,129) (74,691) --------- --------- Total stockholders' equity 54,462 56,314 Commitments and contingencies --------- --------- $ 104,401 104,491 ========= =========
See accompanying notes to unaudited consolidated financial statements. -2- 3 JENNY CRAIG, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME ($ in thousands, except per share amounts)
Three Months Ended Nine Months Ended March 31, March 31, -------------------- -------------------- 1996 1997 1996 1997 ---- ---- ---- ---- Revenues: Company-owned operations: Product sales $ 87,479 81,163 240,860 224,336 Service revenues 6,880 6,904 18,574 18,281 -------- -------- -------- -------- 94,359 88,067 259,434 242,617 -------- -------- -------- -------- Franchise operations: Product sales 10,763 7,151 31,070 22,730 Royalties 2,052 1,482 5,663 4,446 Initial franchise fees 130 0 210 210 -------- -------- -------- -------- 12,945 8,633 36,943 27,386 -------- -------- -------- -------- Total revenues 107,304 96,700 296,377 270,003 -------- -------- -------- -------- Costs and expenses: Company-owned operations: Product 74,278 77,324 215,916 212,445 Service 3,924 4,775 11,422 12,686 -------- -------- -------- -------- 78,202 82,099 227,338 225,131 -------- -------- -------- -------- Franchise operations: Product 8,091 5,556 23,330 17,094 Other 469 517 1,462 1,423 -------- -------- -------- -------- 8,560 6,073 24,792 18,517 -------- -------- -------- -------- 20,542 8,528 44,247 26,355 General and administrative expenses 7,325 7,194 20,751 21,718 -------- -------- -------- -------- Operating income 13,217 1,334 23,496 4,637 Other income, net, principally interest 692 317 2,286 1,300 -------- -------- -------- -------- Income before taxes 13,909 1,651 25,782 5,937 Provision for income taxes 5,654 646 10,694 2,266 -------- -------- -------- -------- Net income $ 8,255 1,005 15,088 3,671 ======== ======== ======== ======== Net income per share $ .35 .05 .62 .18 ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements. -3- 4 JENNY CRAIG, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands)
Nine Months Ended March 31, --------------------- 1996 1997 -------- -------- Cash flows from operating activities: Net income ........................................................... $ 15,088 3,671 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ........................................ 5,472 5,448 Provision for doubtful accounts ...................................... (400) -- (Increase) decrease in: Accounts receivable ........................................ (1,002) (702) Inventories ................................................ 5,065 2,999 Prepaid expenses and other assets .......................... (578) 575 Increase (decrease) in: Accounts payable ........................................... (740) (4,983) Accrued liabilities ........................................ 4,072 (4,290) Income taxes payable ....................................... 1,071 603 Deferred service revenue ................................... 863 (984) -------- -------- Net cash provided by (used in) operating activities 28,911 2,337 -------- -------- Cash flows from investing activities: Purchase of property and equipment .................................... (2,879) (15,604) Purchase of short-term investments .................................... (5,000) (16,359) Proceeds from maturity of short-term investments ...................... 6,009 17,179 Payment for acquisition of franchised centres ......................... -- (1,803) -------- -------- Net cash provided by (used in) investing activities (1,870) (16,587) -------- -------- Cash flows from financing activities: Purchase of treasury stock ............................................ (44,009) (1,562) Proceeds from note payable ............................................ -- 5,975 Principal payments on note payable .................................... -- (47) Proceeds from exercise of stock options ............................... 14 106 -------- -------- Net cash provided by (used in) financing activities (43,995) 4,472 -------- -------- Effect of exchange rate changes on cash and cash equivalents ............. 950 23 Net increase (decrease) in cash and cash equivalents ..................... (16,004) (9,755) Cash and cash equivalents at beginning of period ......................... 51,819 43,535 -------- -------- Cash and cash equivalents at end of period ............................... $ 35,815 33,780 ======== ======== Supplemental disclosure of cash flow information: Income taxes paid ..................................................... $ 9,623 1,723 Acquisition of franchised centres: Cancellation of accounts receivable ................................ $ -- 732 Fair value of assets acquired ...................................... $ -- 2,362 Liabilities assumed ................................................ $ -- 1,630
See accompanying notes to unaudited consolidated financial statements. -4- 5 JENNY CRAIG, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 1. The accompanying unaudited consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for any interim period are not necessarily indicative of the results for any other interim period or for the full year. These statements should be read in conjunction with the June 30, 1996 consolidated financial statements. 2. Net income per share is computed by dividing net income by the weighted average number of shares outstanding during the period, which were 23,430,000 and 20,721,000 for the quarters ended March 31, 1996 and 1997, respectively and 24,335,000 and 20,791,000 for the nine months ended March 31, 1996 and 1997, respectively. 3. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 supercedes Accounting Principles Board Opinion No. 15 "Earnings Per Share" ("APB 15") and specifies the computation, presentation, and disclosure requirements for earnings per share ("EPS"). SFAS No. 128 replaces "primary" and "fully diluted" EPS under APB 15 with "basic" and "diluted" EPS. Unlike primary EPS, basic EPS excludes the dilutive effects of options, warrants, and other convertible securities. Dilutive EPS reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted EPS. However, under SFAS 128, the Company would use the average market price for its stock during the reporting period to determine the cost of options as opposed to the greater of the closing price at the end of the period or the average market price during the period, as currently required by APB 15. SFAS 128 is effective for years ending after December 15, 1997. The Company is currently evaluating the impact of the implementation of SFAS 128. -5- 6 JENNY CRAIG, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS Forward-Looking Statements Information provided in this Report on Form 10-Q may contain, and the Company may from time to time disseminate material and make statements which may contain "forward-looking" information, as that term is defined by the Private Securities Litigation Reform Act of 1995 (the "Act"). These forward-looking statements may relate to anticipated financial performance, business prospects and similar matters. The words "expects", "anticipates", "believes", and similar words generally signify a "forward-looking" statement. These cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefit of "safe-harbor" provisions of the Act. The reader is cautioned that all forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. Among the factors that could cause actual results to differ materially are: increased competition; technological and scientific developments, including appetite suppressants and other drugs which can be used in weight-loss programs; increases in cost of food or services; lack of market acceptance of additional products and services; legislative and regulatory restrictions or actions; effectiveness of marketing and advertising programs; prevailing domestic and foreign economic conditions; and the risk factors set forth from time to time in the Company's annual reports and other reports and filings with the SEC. In particular, the reader should carefully review the cautionary statements contained under the caption "Forward-Looking Statements" in Item 1 of the Company's Annual Report on Form 10-K for the year ended June 30, 1996. Quarter Ended March 31, 1997 as Compared to Quarter Ended March 31, 1996 Revenues from United States Company-owned operations decreased 10% from $83,981,000 for the quarter ended March 31, 1996 to $75,790,000 for the quarter ended March 31, 1997. At March 31, 1996 there were 484 United States Company-owned Centres in operation compared to 527 at March 31, 1997. The increase in United States Company-owned Centres reflects the Company's acquisition of 38 Centres from a franchisee in September 1996 and the net opening of five Centres between the periods. Average revenue per United States Company-owned Centre decreased 17% from $174,000 for the quarter ended March 31, 1996 to $144,000 for the quarter ended March 31, 1997. Service revenues from United States Company-owned operations for the quarter ended March 31, 1997 decreased 2%, to $5,973,000 from $6,096,000 for the comparable year earlier period. This decrease in service revenues was due to a 4% decrease (12% on an average per centre basis) in the number of new participants enrolled in the Program. The decline in new enrollments also resulted in a decline in the number of active participants in the Program and led to a 10% decline in product sales, which consists primarily of food products, from United States Company-owned operations from $77,885,000 for the quarter ended March 31, 1996 to $69,817,000 for the quarter ended March 31, 1997. Revenues from foreign Company-owned operations increased 18% from $10,378,000 to $12,277,000 for the quarters ended March 31, 1996 and 1997, respectively, primarily due to an increase in the number of new enrollments in the Program in foreign Centres. There were 102 foreign Company-owned Centres at March 31, 1996 compared to 105 at March 31, 1997. There was a 2% weighted average increase in the Australian and Canadian currencies in relation to the U.S. dollar between the periods. (Continued) -6- 7 JENNY CRAIG, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS (Continued) In April 1996, the United States Food and Drug Administration ("FDA") approved dexfenfluramine, commonly referred to by its trade name Redux, for use as a doctor-prescribed medication for the treatment of obesity. The Company believes that the extensive publicity that accompanied the introduction of Redux heightened the public's interest in weight loss pharmaceuticals (including a combination of phentermine and fenfluramine commonly known as "phen-fen") and appears to be responsible for the softened demand being experienced by the Company for its products and services. During the quarter ended September 30, 1996, the Company began test marketing, on a very limited basis, a new program incorporating the weight-loss medications Redux and phen-fen in conjunction with the traditional elements of its weight management program. In late-December 1996, following evaluation of test market results, the Company added this new program to virtually all United States Company-owned Centres. Costs and expenses of United States Company-owned operations increased 4% from $68,352,000 to $71,358,000 for the quarters ended March 31, 1996 and 1997, respectively. Costs and expenses of United States Company-owned operations for the quarter ended March 31, 1996 were reduced by a $2,200,000 credit that resulted from the Company's successful litigation recovery from one of its insurance carriers. The increase in costs and expenses for the quarter ended March 31, 1997 reflects the additional costs, principally comprised of physician and related professional medical technicians, associated with offering the new program component utilizing weight loss medications and increased compensation expense related to staffing levels associated with the introduction of this program. The effect of these increased costs on total costs and expenses for the quarter ended March 31, 1997 was offset, in part, by the decreased variable costs, principally product costs, related to the lower level of operations. Costs and expenses of United States Company-owned operations as a percentage of United States Company-owned revenues increased from 81% to 94% between the periods principally due to the increased expenses of the new program component utilizing weight loss medications and the increased compensation expense related to staffing levels associated with the introduction of this program, the higher proportion of fixed costs when compared to the reduced level of revenues, and the $2,200,000 credit which reduced the percentage in the prior period. After including the allocable portion of general and administrative expenses, United States Company-owned operations incurred an operating loss of $601,000 for the quarter ended March 31, 1997 compared to operating income of $10,756,000 for the quarter ended March 31, 1996. Costs and expenses of foreign Company-owned operations increased 9% from $9,850,000 to $10,741,000 for the quarters ended March 31, 1996 and 1997, respectively, principally due to the increased variable costs related to the higher level of operations. After including the allocable portion of general and administrative expenses, foreign Company-owned operations had operating income of $864,000 for the quarter ended March 31, 1997 compared to an operating loss of $21,000 for the quarter ended March 31, 1996. Revenues from franchise operations decreased 33% from $12,945,000 to $8,633,000 for the quarters ended March 31, 1996 and 1997, respectively. This decline was principally due to a 17% decrease in the number of franchise Centres in operation, from 195 at March 31, 1996 to 161 at March 31, 1997, and a decrease in the number of new participants enrolled in the Program at franchised Centres resulting in reduced product sales and royalties. The decrease in the number of franchise Centres reflects the Company's acquisition of 38 Centres from a franchisee in September 1996. (Continued) -7- 8 JENNY CRAIG, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS (Continued) Costs and expenses of franchised operations, which consist primarily of product costs, decreased 29% from $8,560,000 to $6,073,000 for the quarters ended March 31, 1996 and 1997, respectively, principally because of the reduced level of franchise operations. The increase in franchise costs and expenses as a percentage of franchise revenues was principally due to certain advertising incentives granted to franchisees in the quarter ended March 31, 1997. General and administrative expenses decreased 2% from $7,325,000 to $7,194,000 but increased from 6.8% to 7.4% of total revenues for the quarters ended March 31, 1996 and 1997, respectively. The decrease was principally due to a decrease in compensation expenses. The elements discussed above combined to result in a 90% decrease in operating income from $13,217,000 for the quarter ended March 31, 1996 compared to $1,334,000 for the quarter ended March 31, 1997. Other income decreased 54% from $692,000 to $317,000 for the quarters ended March 31, 1996 and 1997, respectively. This decline was principally due to a decrease in the average balance of cash investments between the periods, substantially related to the Company's acquisition of 3,464,189 shares of its common stock at a cost of $34,642,000 in late March 1996. The Company and complaint counsel for the Federal Trade Commission have entered into a proposed Consent Order settling all contested issues raised in a complaint filed in September 1993 against the Company alleging that the Company violated the Federal Trade Commission Act by the use and content of certain advertisements for the Company's weight loss program featuring testimonials, claims for the program's success and safety, and statements as to the program's costs to participants. The proposed Consent Order does not admit any issue of fact or law or any violation by the Company of any law or regulation, and does not involve payment by the Company of any civil money penalty, damages, or other financial relief. The proposed Consent Order requires certain procedures and disclosures in connection with the Company's advertisements of its products and services. If the full Commission accepts the proposed Consent Order it will be published for public comment and, unless modified or withdrawn on the basis of public comments, it thereafter will become effective. The Company does not believe that compliance with the proposed Consent Order will have a material adverse effect on the Company's consolidated financial statements or its current advertising and marketing practices. -8- 9 JENNY CRAIG, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS Nine Months Ended March 31, 1997 as Compared to Nine Months Ended March 31, 1996 Revenues from United States Company-owned operations decreased 11% from $228,843,000 for the nine months ended March 31, 1996 to $204,602,000 for the nine months ended March 31, 1997. At March 31, 1996 there were 484 United States Company-owned Centres in operation compared to 527 at March 31, 1997. The increase in United States Company-owned Centres reflects the Company's acquisition of 38 Centres from a franchisee in September 1996 and the net opening of five centres between the periods. Average revenue per United States Company-owned Centre decreased 16% from $476,000 for the nine months ended March 31, 1996 to $399,000 for the nine months ended March 31, 1997. Service revenues from United States Company-owned operations for the nine months ended March 31, 1997 decreased 6% to $15,445,000 from $16,356,000 for the comparable year earlier period. This decrease in service revenues was primarily due to a 19% decrease (24% on an average per centre basis) in the number of new participants enrolled in the Program between the periods, offset, in part, by an increase in the average service fee charged per new participant. The decline in new enrollments also resulted in a decline in the number of active participants in the Program and led to an 11% decline in product sales, which consists primarily of food products, from United States Company-owned operations from $212,487,000 for the nine months ended March 31, 1996 to $189,157,000 for the nine months ended March 31, 1997. Revenues from foreign Company-owned operations increased 24% from $30,591,000 to $38,015,000 for the nine months ended March 31, 1996 and 1997, respectively, primarily due to an increase in the number of new enrollments in the Program. There was a 4% weighted average increase in the Australian and Canadian currencies in relation to the U.S. dollar between the periods. Costs and expenses of United States Company-owned operations decreased 2% from $198,129,000 to $193,595,000 for the nine months ended March 31, 1996 and 1997, respectively. Costs and expenses of United States Company-owned operations for the nine months ended March 31, 1996 were reduced by a $2,200,000 credit that resulted from the Company's successful litigation recovery from one of its insurance carriers. The decrease in costs and expenses for the nine months ended March 31, 1997 reflects the decreased variable costs, principally product costs, related to the lower level of operations offset, in part, by the additional costs, principally comprised of physician and related professional medical technicians, associated with offering the new program component utilizing weight loss medications and increased compensation expense related to staffing levels associated with the introduction of this program. Costs and expenses of United States Company-owned operations as a percentage of United States Company-owned revenues increased from 87% to 95% between the periods principally due to the higher proportion of fixed costs when compared to the reduced level of revenues, the increased expenses of the new program component utilizing weight loss medications and the increased compensation expense related to staffing levels associated with the introduction of this program, and the $2,200,000 credit which reduced the percentage in the prior period. After including the allocable portion of general and administrative expenses, United States Company-owned operations incurred an operating loss of $4,162,000 for the nine months ended March 31, 1997 compared to operating income of $16,675,000 for the nine months ended March 31, 1996. Costs and expenses of foreign Company-owned operations increased 8% from $29,209,000 to $31,536,000 for the nine month periods ended March 31, 1996 and 1997, respectively, principally because of the increased variable costs related to the higher level of operations. After including the allocable portion of general and administrative (Continued) -9- 10 JENNY CRAIG, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS (Continued) expenses, foreign Company-owned operations had operating income of $4,594,000 for the nine months ended March 31, 1997 compared to an operating loss of $215,000 for the nine months ended March 31, 1996. Revenues from franchise operations decreased 26% from $36,943,000 to $27,386,000 for the nine months ended March 31, 1996 and 1997, respectively. This decline was principally due to a 17% decrease in the number of franchise Centres in operation, from 195 at March 31, 1996 to 161 at March 31, 1997 and a decrease in number of new participants enrolled in the Program at franchised Centres resulting in reduced product sales and royalties. The decrease in the number of franchise Centres reflects the Company's acquisition of 38 Centres from a franchisee in September 1996. Costs and expenses of franchised operations, which consist primarily of product costs, decreased 25% from $24,792,000 to $18,517,000 for the nine month periods ended March 31, 1996 and 1997, respectively, principally because of the reduced level of franchise operations. Franchise costs and expenses as a percentage of franchise revenues remained relatively constant at 67% for the nine months ended March 31, 1996 compared to 68% for the nine months ended March 31, 1997. General and administrative expenses increased 5% from $20,751,000 to $21,718,000 and increased from 7.0% to 8.0% of total revenues for the nine months ended March 31, 1996 and 1997, respectively. The increase was principally due to an increase in consulting expenses, primarily pertaining to information systems. The elements discussed above combined to result in an 80% decrease in operating income from $23,496,000 for the nine months ended March 31, 1996 to $4,637,000 for the nine months ended March 31, 1997. Other income decreased 43% from $2,286,000 to $1,300,000 for the nine months ended March 31, 1996 and 1997, respectively. This decline was principally due to a decrease in the average balance of cash investments between the periods, substantially related to the Company's acquisition of 3,464,189 shares of its common stock at a cost of $34,642,000 in late March 1996. In March 1994 the Company accrued a provision for loss of $5,029,000 in connection with the planned closure of 55 Company-owned centres, $2,529,000 of which was designated for 30 United States centres and $2,500,000 for 25 foreign centres. As previously reported by the Company, substantially all of the expenses accrued in connection with the United States centres were incurred prior to June 30, 1995. Management's original estimate of the $2,529,000 provision was comprised of $1,643,000 for lease termination costs, $622,000 for the write-off of fixed assets and leasehold improvements, $147,000 for severance pay to employees, and $117,000 for customer refunds. The Company actually determined to close 51 United States Centres. Actual costs and expenses charged against the $2,529,000 accrual were $1,329,000 for lease termination costs, $1,151,000 for the write-off of fixed assets and leasehold improvements, $8,000 for severance pay and $41,000 for customer refunds. Additionally, the Company expensed $106,000 in fiscal 1996 in connection with the closures. With respect to the original $2,500,000 provision for foreign centre closures, as previously disclosed, the results of most of these centres improved substantially during the latter quarters of fiscal 1995. As a result, $1,843,000 was reversed during fiscal 1995 and was reflected in fiscal 1995 operating results. During fiscal 1996 one additional foreign centre was closed. The Company, encouraged by the (Continued) -10- 11 JENNY CRAIG, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS (Continued) operating results of the remaining foreign centres, opened three additional foreign centres in fiscal 1997. Accordingly, $400,000 of the remaining accrual was reversed during the quarter ended December 31, 1996. At March 31, 1997 the amount remaining in the accrual account was not material ($138,000). Financial Condition At March 31, 1997, the Company had cash, cash equivalents and short-term investments of $40,005,000 compared to cash, cash equivalents and short-term investments of $50,580,000 at June 30, 1996. Sources of cash, cash equivalents and short-term investments during the nine months ended March 31, 1997 include $2,337,000 provided from operations and $5,975,000 from a note payable to finance the purchase of the Company's executive office building. Uses of cash, cash equivalents and short-term investments during the nine months ended March 31, 1997, include $15,604,000 for the purchase of property and equipment (which includes $8,360,000 for the purchase of the executive office building), $1,803,000 for the acquisition of franchised centres and $1,562,000 for the purchase of treasury stock. The Company believes that its cash, cash equivalents and short-term investments and its cash flow from operations are adequate for its needs in the foreseeable future. Effects of Recent Accounting Pronouncement In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 supercedes Accounting Principles Board Opinion No. 15 "Earnings Per Share" ("APB 15") and specifies the computation, presentation, and disclosure requirements for earnings per share ("EPS"). SFAS No. 128 replaces "primary" and "fully diluted" EPS under APB 15 with "basic" and "diluted" EPS. Unlike primary EPS, basic EPS excludes the dilutive effects of options, warrants, and other convertible securities. Dilutive EPS reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted EPS. However, under SFAS 128, the Company would use the average market price for its stock during the reporting period to determine the cost of options as opposed to the greater of the closing price at the end of the period or the average market price during the period, as currently required by APB 15. SFAS 128 is effective for years ending after December 15, 1997. The Company is currently evaluating the impact of the implementation of SFAS 128. -11- 12 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.1 Agreement dated as of March 27, 1997 between Jenny Craig, Inc. and Sunil Dewan. 27. Financial Data Schedule. (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. -12- 13 SIGNATURE 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. JENNY CRAIG, INC. By: /S/ Michael L. Jeub ---------------------------------- Michael L. Jeub Sr. Vice President and Chief Financial Officer Date: May 12, 1997 -13- EX-10.1 2 EXHIBIT 10.1 1 [JENNY CRAIG STATIONERY] EXHIBIT 10.1 Wednesday, March 12, 1997 (Revised March 27, 1997) PERSONAL & CONFIDENTIAL Mr. Sunil Dewan 3516 Spencer Blvd. Sioux Falls, South Dakota 57103 Dear Sunil: It is with great pleasure that I offer you the position of Vice President of Franchise of Jenny Craig, Incorporated and this letter will serve to confirm the terms of your employment with Jenny Craig. Listed below are specific responsibilities you will assume and other issues related to your employment with the company. As used herein, the term "Company" refers to Jenny Craig, Inc. 1. Job Title. Your position with the Company will be Vice President of Franchise. 2. Duties & Responsibilities. The duties for this position will involve the oversight and responsibility for development of existing and new franchises, expansion of franchises in the United States and international, and oversight of existing U.S. franchises. Your initial assignment (involving the majority of your time during the first three months) will be focused on familiarizing yourself with existing U.S. franchises and Company center operations, philosophy and techniques. The balance of your time during this period will be devoted to developing an initial strategic plan for expansion outside of the United States including Canada. I anticipate that your focus beyond the initial three months will begin to shift with the majority of your time being devoted to international expansion. 2 Mr. Sunil Dewan Page 2 In addition, the Vice President of Franchise will be responsible for coordinating the franchisees' needs and specialty assistance from home office functions such as operations, finance, marketing, human resources, legal, advertising, media placement, location planning, etc. Coordination of these specialty support functions will be accomplished through peer group relationships and requests. By way of example, if the need arises for a banking relationship, it will be reviewed and agreed to in concert with the Senior Vice President, Chief Financial Officer and implemented as agreed to. Similarly, should the need arise for legal assistance, it will be accomplished in concert with the Vice President and General Counsel. 3. Productivity Tools & International Travel. (a) Productivity Tools. At your request, the Company will provide you with a portable computer for use during your employment with the Company. This computer will be returned to the Company should you elect to resign or be terminated by the Company for any reason. (b) International & Domestic Travel. Air travel in the business class section will be permitted for international travel. Travel in the first class section will only be permitted for emergency cases or for those routes where flight time exceeds two hours and business class is not available. The business class section can be utilized for travel lasting over two hours. However, it is understood that you will always make a best efforts basis to secure the lowest cost international air travel for the Company. Domestic travel should be via coach class unless different arrangements are made. 4. Compensation. (a) Salary and Bonus. Your annual compensation will be $150,000.00 payable on a semi-monthly basis, less applicable withholdings. Additionally, you will be entitled to participate in the Company's Executive Incentive Compensation plan for senior officers for fiscal year 1998, which begins on July 1, 1997. All reasonable business expenses will also be reimbursed so long as they are incurred in the ordinary course of business. 3 Mr. Sunil Dewan Page 3 (b) One Time Payment. Ninety days after the start of your employment with the Company, you will receive a one time payment of $20,000.00 from the Company. Should you voluntarily terminate from the Company within one year of the receipt of the above payment, you will be required to repay a prorated portion of the above payment at the rate of 1/12 per month from the date you begin employment with the Company. (c) Stock Options. You will receive an option to purchase 25,000 shares of common stock of the Company in concert with the Company's Stock Option Plan in effect on the date you begin employment. The option price will be the average of the high and low price for a share of JCI common stock on the New York Stock Exchange on the day you begin your employment. The vesting period for options will be over a four (4) year period in four equal installments of 25%, the first of which will vest on the first anniversary of your employment with the Company. If your employment is terminated by the Company without cause, all options not then exercisable will become exercisable. (d) Benefits. You will be entitled to participate in the Company's 401(K) plan beginning one year after the date your employment begins. You will immediately be entitled to the same fringe benefit opportunities as other senior executives in the Company, and you will be entitled to three weeks paid vacation each year in concert with the Company's practices. (e) Salary Review. Your base compensation will be reviewed on an annual basis. For the purposes of the annual review, a portion of the one time cash payment of $20,000 and the annual salary of $150,000 will be considered as base compensation in year one. Thus, any incremental increases in salary in your second year, based on year one compensation, will assume that year one compensation is $160,000. 5. Start Date of Employment. While we have not yet selected a date upon which you will begin your duties here at Jenny Craig, you will determine such date and communicate it to me on or before March 31, 1997. If you do not select a start date by March 31, 1997, this offer will terminate without further action. 4 Mr. Sunil Dewan Page 4 6. Relocation Expenses. It is the Company's intention to pay the necessary and reasonable expense of relocating you and your immediate family to the San Diego area. Details of the relocation are outlined in Exhibit A of this agreement. 7. Termination. The Company shall have the right to terminate your employment at any time, with or without cause, by written notice to you. If your employment is terminated by the Company without cause, or by you within ninety days following a change of control of the Company, you will receive a severance payment equal to your then current annual salary payable in 12 equal monthly installments. If your employment is terminated, all compensation, benefits, and rights you may have under this agreement will terminate on the date of termination of employment, except your right to receive the severance payment described above and your rights under the Company's Stock Option Plan. For purposes of this agreement, "cause" shall mean your death, disability (the inability to perform services for a period of 120 days in any consecutive 12 month period), a breach of this agreement or your duty of loyalty to the Company, willful misconduct or negligence in the performance of the duties contemplated hereby, your conviction of a felony, or conduct by you which brings you or the Company into public disrepute, or which could have a substantial adverse effect on the Company or its business. 8. Non-Compete, Confidentiality and Outside Activities. You agree that at all times, both during and after your employment by the Company, you will not use or disclose to any third party any information, knowledge or data not generally known to the public which you may have learned during your employment by the Company which relates to the operations, business or affairs of the Company. You agree to comply with all procedures which the Company may adopt from time to time to preserve the confidentiality of any information and immediately following termination of your employment to return to the Company all materials created by you or others which relate to the operation, business or affairs of the Company. You agree that for a period of two (2) years following termination of your employment you will not, directly or indirectly (a) employ or engage as an independent contractor or seek to employ, engage or retain any person who, during any portion of the two (2) years prior to the date of termination of your employment was, directly or indirectly, employed as an employee; or (b) induce any person or entity to leave his employment with the Company or 5 Mr. Sunil Dewan Page 5 terminate an existing independent contractor relationship with the Company or reduce any existing contractual relationship with the Company. 9. Arbitration. Any controversy or dispute arising out of or relating to this agreement, or the interpretation thereof, shall be settled exclusively by arbitration conducted in San Diego, California before one or more arbitrators in accordance with the commercial arbitration rules of the American Arbitration Association then in effect and with discovery permitted by both parties in California or any successor thereto, subject to such modifications as may be and judgment may be entered on the arbitrator's award in any court having jurisdiction. In the event of any such arbitration (or if legal action shall be brought in connection therewith), the party prevailing in such proceeding shall be entitled to recover from the other party the reasonable costs thereof, including reasonable attorney and accounting fees. We are looking forward to your joining Jenny Craig and the experience and knowledge you will bring in helping us achieve new heights. I personally look forward to working with you and to having your assistance in the many challenges ahead. Warm regards, Agreed and Accepted: /S/C. JOSEPH LABONTE /S/SUNIL DEWAN - ---------------------- ------------------------- C. Joseph LaBonte Sunil Dewan President & CEO 6 EXHIBIT A As stated in section five (5) of the employment agreement, it is the intent of the Company to assist you and your family in its relocation to San Diego. This letter is to formalize the details of that relocation. A. The Company will pay the expense of moving the reasonable and ordinary household effects and one automobile to the new location including, packing and unpacking, transportation, insurance. Items such as boats, large equipment and other items that do not fit on the moving van will not be paid for by the Company. If needed, the Company will also reimburse you for storage charges on household furniture until your purchase of a new home in San Diego has been finalized. B. The Company will pay for coach class air transportation expenses or cash equivalent thereof for you and your immediate family to the new location, including reasonable expenses incurred for meals and lodging en route. C. If necessary, the Company will pay the transportation costs and reasonable expenses of meals and lodging for you and your family for up to a maximum of three trips to San Diego for the purpose of securing permanent housing. If you are not in temporary housing at the time of these trips, the Company will provide reimbursement for hotel and reasonable food, laundry and incidental expenses. D. The Company will pay the necessary and reasonable expense of temporary residence for you for a period of up to 180 days for a furnished, two bedroom apartment. Trips to Sioux Falls for the purpose of facilitating your relocation and home sale will also be provided utilizing discounted airfare pricing secured in advance. E. The Company will reimburse you for closing costs on the sale of your home in Sioux Falls, South Dakota and the purchase of a residence in San Diego. The Realtor's commission on the sale of your home in Sioux Falls will also be reimbursed by the Company. F. The Company will also pay reasonable expenses for an incidental nature, relating to the sale of your home, such as disconnecting utilities and connecting appliances, cleaning and altering drapes, rugs, etc. This repayment will be made automatically and need not be substantiated by receipts. However, an estimate will be provided by you in advance. 7 The Company will gross up all non-deductible relocation expenses, however, we do not "gross up the gross up". This gross up will be for federal and state income tax, based on your current salary and at the current tax rate. All gross up adjustments will be made at the end of the calendar year and paid with the last payroll check of the year. Should you voluntarily terminate your employment within one year of your first day of work, you will be required to reimburse the Company on a prorated basis for all relocation expenses which are paid by the Company. You agree that in such an event, the reimbursement may be deducted from your final paychecks. I have read and agreed to the terms of the above relocation assistance plan. /s/ SUNIL DEWAN 20 March 1997 - ------------------------------------- ----------------------------- Sunil Dewan Date EX-27 3 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED MARCH 31, 1997 INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 33,780 6,225 3,637 0 14,710 66,058 27,280 0 104,491 42,249 5,928 0 0 0 56,314 104,491 247,066 270,003 229,539 243,648 0 0 105 5,937 2,266 3,671 0 0 0 3,671 .18 .18 THE ASSET VALUES FOR RECEIVABLES AND PP&E REPRESENT AMOUNTS NET OF ALLOWANCES AND DEPRECIATION, RESPECTIVELY.
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