-----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, G/uKuMldnDBE8oonUctjJ5oK+VOi7jCBI8/FDuKBO8Rbe0R3h0mqOshn4XOVX8Tx bgxoyIZe3farb/QqkDR6qg== 0001095811-00-000302.txt : 20000215 0001095811-00-000302.hdr.sgml : 20000215 ACCESSION NUMBER: 0001095811-00-000302 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 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: SEC FILE NUMBER: 001-10887 FILM NUMBER: 542454 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 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 December 31, 1999 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(858) 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, $.000000005 par value, outstanding as of the close of business on February 10, 2000- 20,688,971. -1- 2 ITEM 1. FINANCIAL STATEMENTS JENNY CRAIG, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($ in thousands)
June 30, December 31, 1999 1999 -------- ------------ (unaudited) ASSETS Cash and cash equivalents ...................................... $ 38,864 28,772 Short-term investments ......................................... 3,150 3,651 Accounts receivable, net ....................................... 1,925 2,099 Inventories .................................................... 18,036 18,250 Prepaid expenses and other assets .............................. 4,795 2,347 -------- ------- Total current assets .................................. 66,770 55,119 Deferred tax assets ............................................ 13,406 23,216 Cost of reacquired area franchise rights, net .................. 8,078 7,578 Property and equipment, net .................................... 24,360 26,196 -------- ------- $112,614 112,109 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable ............................................... $ 16,393 18,657 Accrued liabilities ............................................ 15,110 21,350 Accrual for litigation judgment ................................ 8,203 9,211 Deferred service revenue ....................................... 10,075 8,539 -------- ------- Total current liabilities ............................. 49,781 57,757 Note payable ................................................... 5,336 5,242 Obligation under capital lease ................................. -- 2,029 -------- ------- Total liabilities ..................................... 55,117 65,028 -------- ------- Stockholders' equity: Common stock $.000000005 par value, 100,000,000 shares authorized; 27,580,260 shares issued; 20,688,971 shares outstanding at June 30, 1999 and December 31, 1999 ........... -- -- Additional paid-in capital ..................................... 71,622 71,622 Retained earnings .............................................. 56,507 45,115 Accumulated other comprehensive income ......................... 4,130 5,106 Treasury stock, at cost; 6,891,289 shares at June 30, 1999 and December 31, 1999 ........................................ (74,762) (74,762) -------- ------- Total stockholders' equity ............................ 57,497 47,081 Commitments and contingencies .................................. ======== ======= $112,614 112,109 ======== =======
See accompanying notes to unaudited consolidated financial statements. -2- 3 JENNY CRAIG, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except per share amounts)
Three Months Ended Six Months Ended December 31, December 31, ----------------------- ---------------------- 1998 1999 1998 1999 ------- ------- ------- ------- Revenues: Company-owned operations: Product sales ................................ $64,193 53,008 139,185 114,509 Service revenue .............................. 3,869 4,123 7,951 8,276 ------- ------- ------- ------- 68,062 57,131 147,136 122,785 ------- ------- ------- ------- Franchise operations: Product sales ................................ 5,235 4,327 10,961 9,372 Royalties .................................... 951 674 1,777 1,476 Initial franchise fees ....................... 5 25 5 35 ------- ------- ------- ------- 6,191 5,026 12,743 10,883 ------- ------- ------- ------- Total revenues ........................... 74,253 62,157 159,879 133,668 ------- ------- ------- ------- Costs and expenses: Company-owned operations: Product ...................................... 62,394 53,822 131,274 117,782 Service ...................................... 2,786 3,172 5,526 6,228 ------- ------- ------- ------- 65,180 56,994 136,800 124,010 ------- ------- ------- ------- Franchise operations: Product ...................................... 3,652 3,144 7,715 6,633 Other ........................................ 398 361 816 780 ------- ------- ------- ------- 4,050 3,505 8,531 7,413 ------- ------- ------- ------- 5,023 1,658 14,548 2,245 General and administrative expenses .............. 6,176 6,512 12,134 12,798 Litigation judgment .............................. -- 219 -- 1,008 Restructuring charge ............................. -- 7,512 -- 7,512 ------- ------- ------- ------- Operating income (loss) ................... (1,153) (12,585) 2,414 (19,073) Other income, net, principally interest .......... 466 308 931 695 ------- ------- ------- ------- Income (loss) before taxes ................ (687) (12,277) 3,345 (18,378) Income taxes (benefit) ........................... (270) (4,667) 1,272 (6,986) ------- ------- ------- ------- Net income (loss) .......................... $ (417) (7,610) 2,073 (11,392) ======= ======= ======= ======= Basic and diluted net income (loss) per share .................................. $ (.02) (.37) .10 (.55) ======= ======= ======= =======
See accompanying notes to unaudited consolidated financial statements. -3- 4 JENNY CRAIG, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands)
Six Months Ended December 31, ----------------------- 1998 1999 ------- ------- Cash flows from operating activities: Net income (loss) ................................................ $ 2,073 (11,392) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization .................................... 2,701 2,902 Non-cash portion of restructuring charge ......................... -- 1,303 Provision for deferred income taxes (benefit) .................... (4,802) (9,810) Loss on write-off of cost of reacquired area franchise rights .... -- 96 Loss on disposal of property and equipment ....................... 203 1,349 (Increase) decrease in: Accounts receivable .................................... (26) (174) Inventories ............................................ (2,855) (214) Prepaid expenses and other assets ...................... 2,264 2,448 Increase (decrease) in: Accounts payable ....................................... 4,327 2,264 Accrued liabilities .................................... (3,068) 4,310 Accrual for litigation judgment ........................ -- 1,008 Deferred service revenue ............................... (1,501) (1,536) ------- ------- Net cash used in operating activities ......... (684) (7,446) ------- ------- Cash flows from investing activities: Purchase of property and equipment ................................ (1,805) (2,957) Purchase of short-term investments ................................. (4,295) (3,375) Proceeds from maturity of short-term investments ................... 3,042 2,874 ------- ------- Net cash used in investing activities ......... (3,058) (3,458) ------- ------- Cash flows from financing activities- Principal payments on note payable and capital lease obligation.... (95) (164) ------- ------- Effect of exchange rate changes on cash and cash ..................... 15 976 equivalents ------- ------- Net decrease in cash and cash equivalents ............................ (3,822) (10,092) Cash and cash equivalents at beginning of period ..................... 42,124 38,864 ------ ------- Cash and cash equivalents at end of period ........................... $38,302 28,772 ======= ======= Supplemental disclosure of cash flow information: Income taxes paid ................................................. $ 3,832 1,464 Supplemental disclosure of investing activities: Equipment acquired under capital lease ............................ $ -- 2,726
See accompanying notes to unaudited consolidated financial statements. -4- 5 JENNY CRAIG, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 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, 1999 consolidated financial statements. 2. The weighted average number of shares used to calculate basic net income (loss) per share was 20,688,971 for all periods presented. The impact of outstanding stock options during the periods presented did not create a difference between calculated basic net income (loss) per share and diluted net income (loss) per share. Stock options had the effect of increasing the number of shares used in the diluted net income per share calculation by application of the treasury stock method by 5,584 shares for the six months ended December 31, 1998. The effect of 2,389,800 and 2,938,500 stock options have been excluded from the calculation of diluted net loss per share for the quarter ended December 31, 1998 and the quarter and six month period ended December 31, 1999, respectively, as inclusion of the effect of the stock options would have been antidilutive. 3. Comprehensive income (loss) for the quarters and six months ended December 31, 1998 and 1999 presented below includes foreign currency translation items. There was no tax expense or tax benefit associated with the foreign currency items.
Three Months Ended Six Months Ended December 31, December 31, -------------------- -------------------- 1998 1999 1998 1999 ----- ------ ----- ------- Net income (loss) $(417) (7,610) 2,073 (11,392) Foreign currency translation adjustments 512 497 15 976 ----- ------ ----- ------- Comprehensive income (loss) $ 95 (7,113) 2,088 (10,416) ===== ====== ===== =======
4. In November 1999, the Company announced a restructuring plan to reduce annual operating expenses. The plan included the closure of 86 underperforming Company-owned centres in the United States, which represented 16% of the total United States Company-owned centres, and a staff reduction of approximately 15% at the Company's corporate headquarters. All employees were notified in early November and the centres were closed by November 30, 1999. A charge of $7,512,000 was recorded in the quarter ended December 31, 1999 in connection with this restructuring. The charge was comprised of $3,882,000 for lease termination costs at the 86 centres, $1,563,000 for severance payments to terminated employees, $1,303,000 for the write-off of fixed assets at the closed centres, $291,000 for refunds to program participants at the closed centres, and $473,000 for other closure costs which include sign removals and demolition of leasehold improvements. The Company does not believe that there will be any material sub-lease income available with respect to the closed centres due to the relatively short remaining lease terms on the respective centres, nor does the Company believe that there will be any material salvage value of the fixed assets, which consist substantially of leasehold improvements. Of the total charge of $7,512,000, approximately $6,209,000 will require cash payments and $1,303,000 represents the non-cash write-off of fixed assets. As of December 31, 1999, the Company had made cash payments of $685,000 for lease termination costs, $547,000 for severance to terminated employees, $68,000 for refunds to program participants, and $11,000 for other closure costs. The Company estimates that the remaining cash payments of approximately $4,898,000, which is the principal reason for the increase in accrued liabilities on the accompanying balance sheet at December 31, 1999, will be substantially incurred by June 30, 2000. -5- 6 JENNY CRAIG, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. The Company operates in the weight management industry. Substantially all revenue results from the sale of weight management products and services, whether the centre is operated by the Company or its franchisees. The Company's reportable segments consist of Company-owned operations and franchise operations, further segmented by geographic area. The following presents information about the respective reportable segments ($ in thousands):
Three Months Six Months Ended December 31, Ended December 31, ------------------------ ----------------------- 1998 1999 1998 1999 -------- ------- ------- ------- Revenue: Company-owned operations: United States ............. $ 56,238 44,702 123,725 96,731 Foreign ................... 12,429 26,054 11,824 23,411 Franchise operations: United States ............. 4,888 3,328 9,989 6,874 Foreign ................... 1,698 4,009 1,303 2,754 Operating income (loss): Company-owned operations: United States ............. (14,615) (24,668) (4,069) (2,995) Foreign ................... 1,796 1,580 3,217 4,107 Franchise operations: United States ............. 920 109 1,521 290 Foreign ................... 341 1,198 200 671 Identifiable assets: United States ................ 95,501 97,132 95,501 97,132 Foreign ...................... 12,494 14,977 12,494 14,977
-6- 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Company has estimated various costs in connection with the restructuring charge, including the amount necessary to effect lease terminations, which will be dependent on future events and in some cases on the Company's ability to negotiate satisfactory termination provisions. 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, 1999. Quarter Ended December 31, 1999 as Compared to Quarter Ended December 31, 1998 The following table presents selected operating results for United States Company-owned and foreign Company-owned operations for the quarters ended December 31, 1998 and 1999 (U.S. $ in thousands):
U.S. Company Owned Foreign Company Owned Operations Operations Three Months Ended Dec. 31, Three Months Ended Dec. 31, -------------------------------------- -------------------------------- % % 1998 1999 Change 1998 1999 Change ------- ------ ------ ------ ------ ------ Product sales $53,104 41,631 -22% 11,089 11,377 3% Service revenue 3,134 3,071 -2% 735 1,052 43% ------- ------ ------ ------ Total 56,238 44,702 -21% 11,824 12,429 5% Costs and expenses 55,748 47,005 -16% 9,432 9,989 6% General and administrative 4,559 4,581 0% 596 860 44% Litigation judgment -- 219 -- -- Restructuring charge -- 7,512 -- -- ------- ------ ------ ------ Operating income (loss) $(4,069) (14,615) 1,796 1,580 ------- ------ ------ ------ Average number of centres 528 475 -10% 110 111 1% ======= ====== ====== ======
-7- 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Revenues from United States Company-owned operations decreased 21% for the quarter ended December 31, 1999 compared to the quarter ended December 31, 1998 reflecting reduced demand for the Company's products and services at United States Company-owned centres, which represented 80% of the worldwide Company-owned centres at December 31, 1999. The overall 21% decrease in revenues from United States Company-owned operations reflected a 12% decrease in the average revenue per United States Company-owned centre, from $107,000 for the quarter ended December 31, 1998 to $94,000 for the quarter ended December 31, 1999, and a 10% decrease in the average number of United States Company-owned centres in operation. The decrease in the number of United States Company-owned Centres reflects the net closure of 96 Centres between the periods, principally comprised of the closure of 86 centres in November 1999 in connection with a restructuring plan announced by the Company. Product sales, which consists primarily of food products, from United States Company-owned operations decreased 22% principally due to a 26% decrease in the number of active participants in the program between the periods. Although there was a 29% decrease in the number of new participants enrolled in the program between the periods, service revenues from United States Company-owned operations decreased only 2% principally due to an increase in the average service fee charged per new participant. Revenues from foreign Company-owned operations, which is derived from 85 centres in Australia and 26 centres in Canada, increased 5% principally due to 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 16% for the quarter ended December 31, 1999 compared to the same quarter last year. The decrease was principally due to the reduced variable costs associated with the decreased revenues and the decreased fixed costs associated with the decrease in the number of United States Company-owned centres in operation. Costs and expenses of United States Company-owned operations as a percentage of United States Company-owned revenues increased from 99% to 105% between the periods principally due to the higher proportion of fixed costs when compared to the reduced level of revenues. In November 1999, the Company announced a restructuring plan to reduce annual operating expenses. The plan included the closure of 86 underperforming Company-owned centres in the United States, which represented 16% of the total United States Company-owned centres, and a staff reduction of approximately 15% at the Company's corporate headquarters. All employees were notified in early November and the centres were closed by November 30, 1999. A charge of $7,512,000 was recorded in the quarter ended December 31, 1999 in connection with this restructuring. The charge was comprised of $3,882,000 for lease termination costs at the 86 centres, $1,563,000 for severance payments to terminated employees, $1,303,000 for the write-off of fixed assets at the closed centres, $291,000 for refunds to program participants at the closed centres, and $473,000 for other closure costs which include sign removals and demolition of leasehold improvements. The Company does not believe that there will be any material sub-lease income available with respect to the closed centres due to the relatively short remaining lease terms on the respective centres, nor does the Company believe that there will be any material salvage value of the fixed assets, which consist substantially of leasehold improvements. Of the total charge of $7,512,000, approximately $6,209,000 will require cash payments and $1,303,000 represents the non-cash write-off of fixed assets. As of December 31, 1999, the Company had made cash payments of $685,000 for lease termination costs, $547,000 for severance to terminated employees, $68,000 for refunds to program participants, and $11,000 for other closure costs. The Company estimates that the remaining cash payments of approximately $4,898,000, which is the principal reason for the increase in accrued liabilities on the accompanying balance sheet at December 31, 1999, will be substantially incurred by June 30, 2000. -8- 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) After including the allocable portion of general and administrative expenses and the restructuring charge, United States Company-owned operations incurred an operating loss of $14,615,000 for the quarter ended December 31, 1999 compared to an operating loss of $4,069,000 for the quarter ended December 31, 1998. Costs and expenses of foreign Company-owned operations increased 6% for the quarter ended December 31, 1999 compared to the quarter ended December 31, 1998, principally due to the increased variable costs associated with the increased revenues and the 4% weighted average increase in the Australian and Canadian currencies in relation to the U.S. dollar between the periods. After including the allocable portion of general and administrative expenses, foreign Company-owned operations had operating income of $1,580,000 for the quarter ended December 31, 1999 compared to operating income of $1,796,000 for the quarter ended December 31, 1998. Revenues from franchise operations decreased 19% from $6,191,000 to $5,026,000 for the quarters ended December 31, 1998 and 1999, respectively. This decline was principally due to a 12% decrease in the average number of franchise centres in operation between the periods and a decrease in the number of new participants enrolled in the program at franchise centres, resulting in reduced product sales and royalties. The decrease in the average number of franchise Centres reflects the Company's acquisition of 13 centres from two franchisees between the periods. At December 31, 1999 there were 119 franchised centres in operation, of which 82 were in the United States and 37 were in foreign countries, principally Australia and New Zealand. Revenues from United States franchise operations decreased from $4,888,000 to $3,328,000 for the quarters ended December 31, 1998 and 1999, respectively, while revenues from foreign franchise operations increased from $1,303,000 to $1,698,000 for the quarters ended December 31, 1998 and 1999, respectively. The decrease in revenues from United States franchise operations reflects the 13 fewer centres in operation and a decrease in the average revenue per centre experienced at United States franchised centres which resulted in reduced product sales and royalties for the Company. The increase in revenues from foreign franchise operations reflects an increase in the average revenue per centre experienced at foreign franchised centres which resulted in increased product sales and royalties for the Company. Costs and expenses of franchised operations, which consist primarily of product costs, decreased 13% from $4,050,000 to $3,505,000 for the quarters ended December 31, 1998 and 1999, respectively, principally because of the reduced level of United States franchise operations. Franchise costs and expenses as a percentage of franchise revenues increased from 65% to 70% for the quarters ended December 31, 1998 and 1999, respectively, principally due to the reduced royalty revenue which has a higher margin than product sales. General and administrative expenses increased 5% from $6,176,000 to $6,512,000 and increased from 8.3% to 10.5% of total revenues for the quarters ended December 31, 1998 and 1999, respectively. The increase in general and administrative expenses is principally due to increased legal fees. An additional $219,000 was expensed in the quarter ended December 31, 1999 with respect to the previously disclosed litigation judgment arising out of the dispute concerning the lease at the Company's former headquarters location. This additional charge consists of interest accrued on the judgment pending the appeal which has been filed seeking to overturn the judgment. The elements discussed above combined to result in an operating loss of $12,585,000 for the quarter ended December 31, 1999 compared to an operating loss of $1,153,000 for the quarter ended December 31, 1998. Other income, net, principally interest, decreased 34% from $466,000 to $308,000 for the quarters ended December 31, 1998 and 1999, respectively. This decrease was principally due to a decrease in the average balance of cash investments between the periods. -9- 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Year 2000 The Company did not experience any material disruption of its information technology ("IT") or non-IT systems with respect to the "year 2000" millenium change. The Company utilizes two primary IT systems: the corporate office system, which includes the general ledger and related applications, and the point-of-sale system, which is used at each of the Company-owned centres in North America to record sales to customers. With respect to the corporate office system, the Company determined that its then-current system, implemented in 1991, was not year 2000 compliant. Accordingly, the Company accelerated the planned replacement of this system by purchasing a new corporate office system in the first quarter of fiscal 1999. The implementation process for this new system is substantially complete, with all critical software functions having been placed in service by June 1, 1999. The cost of the new corporate office system software of $189,000 was capitalized and is being amortized over the five year estimated useful life of the new software. The cost of new hardware, which was purchased in January 1999 for the corporate office system, was $201,000 and is being depreciated over the five year estimated useful life of the new hardware. Application development and implementation costs, principally fees paid to external consultants, are estimated to be $920,000, of which $899,000 has been paid as of December 31, 1999, and are being capitalized as incurred. With respect to the point-of-sale system, there are two basic components: the software and the hardware. The point-of-sale software was assessed, and costs to modify this software to effect year 2000 compliance totaling approximately $484,000 were expensed as incurred as of December 31, 1999. The point-of-sale hardware is essentially a personal computer ("PC") configuration of two to four PCs at each Company-owned and franchised centre in North America. The Company completed an analysis of the hardware at these centres and concluded, based upon a study performed by an independent consultant engaged by the Company, that substantially all of this hardware required replacement. The cost to replace and install this hardware was approximately $7,000 per Company-owned centre, or $3,850,000 in aggregate, a substantial portion of which is being leased over a 48 month period. Substantially all of these costs were capitalized and will be depreciated over their estimated useful life of four years. The Company intends to move the newly acquired computer hardware from the 86 centres which were closed in connection with the restructuring to Australia, where it will be utilized in the Company's plan to automate the existing manual point-of-sale process. Legal Proceedings The Company, along with other weight loss programs and certain pharmaceutical companies, has been named as a defendant in an action filed in the Second Judicial District Court, State of Nevada, Washoe County (the "Nevada Litigation"). The action was commenced in August 1999 by a group of four plaintiffs, who are seeking to maintain the action as a class action on behalf of all persons in the State of Nevada who have purchased and used fenfluramine, dexfenfluramine and phentermine, alone or in combination, and who have not yet been diagnosed as having pulmonary heart disease or hypertension and/or valvular heart disease, but who are allegedly at an increased risk of developing such illnesses. The complaint includes claims against the Company and other defendants for alleged breach of express and implied warranties concerning the safety of using fenfluramine, dexfenfluramine and phentermine, and for alleged negligence in the advertising, warning, marketing and sale of these drugs. The complaint seeks a Court-supervised program funded by the defendants through which class members would undergo periodic medical testing, preventative screening and monitoring, as well as incidental damages not to exceed $75,000 per each class member, and costs of litigation including expert and attorney's fees. The Company has tendered the Nevada Litigation to its insurance carriers. The claims have not progressed sufficiently for the Company to estimate a range of possible loss, if any. The Company intends to defend the matter vigorously. -10- 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Six Months Ended December 31, 1999 as Compared to Six Months Ended December 31, 1998 The following table presents selected operating results for United States Company-owned and foreign Company-owned operations for the six month periods ended December 31, 1998 and 1999 (U.S. $ in thousands):
U.S. Company Owned Foreign Company Owned Operations Operations Six Months Ended Dec. 31, Six Months Ended Dec. 31, -------------------------------- ------------------------------- % % 1998 1999 Change 1998 1999 Change -------- ------- ------ ------ ------ ------ Product sales $117,198 90,441 -23% 21,987 24,068 9% Service revenue 6,527 6,290 -4% 1,424 1,986 39% -------- ------- ------ ------ Total 123,725 96,731 -22% 23,411 26,054 11% Costs and expenses 117,811 103,586 -12% 18,989 20,424 8% General and 8,909 9,294 4% 1,205 1,523 26% administrative Litigation judgment - 1,008 - - Restructuring charge - 7,512 - - -------- ------- ------ ------ Operating income (loss) $(2,995) (24,669) 3,217 4,107 ======== ======= ====== ======= Average number of centres 529 497 -6% 110 111 1% ======== ======= ====== ======
Revenues from United States Company-owned operations decreased 22% for the six months ended December 31, 1999 compared to the six months ended December 31, 1998 reflecting reduced demand for the Company's products and services at United States Company-owned centres, which represented 80% of the worldwide Company-owned centres at December 31, 1999. The overall 22% decrease in revenues from United States Company-owned operations reflected a 17% decrease in the average revenue per United States Company-owned centre, from $234,000 for the six months ended December 31, 1998 to $195,000 for the six months ended December 31, 1999, and a 6% decrease in the average number of United States Company-owned centres in operation. The decrease in the number of United States Company-owned Centres reflects the net closure of 96 Centres between the periods, principally comprised of the closure of 86 centres in November 1999 in connection with a restructuring plan announced by the Company. Product sales, which consists primarily of food products, from United States Company-owned operations decreased 23% principally due to a 25% decrease in the number of active participants in the program between the periods. Although there was a 30% decrease in the number of new participants enrolled in the program between the periods, service revenues from United States Company-owned operations decreased only 4% principally due to an increase in the average service fee charged per new participant. Revenues from foreign Company-owned operations, which is derived from 85 centres in Australia and 26 centres in Canada, increased 11% principally due to an increase in the number of active participants in the program in Australia and a 6% weighted average increase in the Australian and Canadian currencies in relation to the U.S. dollar between the periods. -11- 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Costs and expenses of United States Company-owned operations decreased 12% for the six months ended December 31, 1999 compared to the same period last year. The decrease was principally due to the reduced variable costs associated with the decreased revenues and the decreased fixed costs associated with the decrease in the number of United States Company-owned centres in operation, offset, in part, by a charge of $3,068,000 for obsolete inventory related to the discontinued On-the-Go program. Costs and expenses of United States Company-owned operations as a percentage of United States Company-owned revenues increased from 95% to 107% between the periods principally due to the higher proportion of fixed costs when compared to the reduced level of revenues and the aforementioned charge for obsolete inventory. In November 1999, the Company announced a restructuring plan to reduce annual operating expenses. The plan included the closure of 86 underperforming Company-owned centres in the United States, which represented 16% of the total United States Company-owned centres, and a staff reduction of approximately 15% at the Company's corporate headquarters. All employees were notified in early November and the centres were closed by November 30, 1999. A charge of $7,512,000 was recorded in the six month period ended December 31, 1999 in connection with this restructuring. The charge was comprised of $3,882,000 for lease termination costs at the 86 centres, $1,563,000 for severance payments to terminated employees, $1,303,000 for the write-off of fixed assets at the closed centres, $291,000 for refunds to program participants at the closed centres, and $473,000 for other closure costs which include sign removals and demolition of leasehold improvements. The Company does not believe that there will be any material sub-lease income available with respect to the closed centres due to the relatively short remaining lease terms on the respective centres, nor does the Company believe that there will be any material salvage value of the fixed assets, which consist substantially of leasehold improvements. Of the total charge of $7,512,000, approximately $6,209,000 will require cash payments and $1,303,000 represents the non-cash write-off of fixed assets. As of December 31, 1999, the Company had made cash payments of $685,000 for lease termination costs, $547,000 for severance to terminated employees, $68,000 for refunds to program participants, and $11,000 for other closure costs. The Company estimates that the remaining cash payments of approximately $4,898,000, which is the principal reason for the increase in accrued liabilities on the accompanying balance sheet at December 31, 1999, will be substantially incurred by June 30, 2000. After including the allocable portion of general and administrative expenses and the restructuring charge, United States Company-owned operations incurred an operating loss of $24,669,000 for the six months ended December 31, 1999 compared to an operating loss of $2,995,000 for the six months ended December 31, 1998. Costs and expenses of foreign Company-owned operations increased 8% for the six months ended December 31, 1999 compared to the six months ended December 31, 1998, principally due to the increased variable costs associated with the increased revenues and the 6% weighted average increase in the Australian and Canadian currencies in relation to the U.S. dollar between the periods. After including the allocable portion of general and administrative expenses, foreign Company-owned operations had operating income of $4,107,000 for the six months ended December 31, 1999 compared to operating income of $3,217,000 for the six months ended December 31, 1998. -12- 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Revenues from franchise operations decreased 15% from $12,743,000 to $10,883,000 for the six months ended December 31, 1998 and 1999, respectively. This decline was principally due to a 12% decrease in the average number of franchise centres in operation between the periods and a decrease in the number of new participants enrolled in the program at franchise centres, resulting in reduced product sales and royalties. The decrease in the average number of franchise Centres reflects the Company's acquisition of 13 centres from two franchisees between the periods. At December 31, 1999 there were 119 franchised centres in operation, of which 82 were in the United States and 37 were in foreign countries, principally Australia and New Zealand. Revenues from United States franchise operations decreased from $9,989,000 to $6,874,000 for the six months ended December 31, 1998 and 1999, respectively, while revenues from foreign franchise operations increased from $2,754,000 to $4,009,000 for the six months ended December 31, 1998 and 1999, respectively. The decrease in revenues from United States franchise operations reflects the 13 fewer centres in operation and a decrease in the average revenue per centre experienced at United States franchised centres which resulted in reduced product sales and royalties for the Company. The increase in revenues from foreign franchise operations reflects an increase in the average revenue per centre experienced at foreign franchised centres which resulted in increased product sales and royalties for the Company. Costs and expenses of franchised operations, which consist primarily of product costs, decreased 13% from $8,531,000 to $7,413,000 for the six months ended December 31, 1998 and 1999, respectively, principally because of the reduced level of United States franchise operations. Franchise costs and expenses as a percentage of franchise revenues increased from 67% to 68% for the six months ended December 31, 1998 and 1999, respectively, principally due to the reduced royalty revenue which has a higher margin than product sales. General and administrative expenses increased 5% from $12,134,000 to $12,798,000 and increased from 7.6% to 9.6% of total revenues for the six months ended December 31, 1998 and 1999, respectively. The increase in general and administrative expenses is principally due to increased legal fees. An additional $1,008,000 was expensed in the six months ended December 31, 1999 with respect to the previously disclosed litigation judgment arising out of the dispute concerning the lease at the Company's former headquarters location. This additional charge consists of attorney fees awarded to the plaintiff and interest accrued on the judgment pending the appeal which has been filed seeking to overturn the judgment. The elements discussed above combined to result in operating loss of $19,073,000 for the six months ended December 31, 1999 compared to operating income of $2,414,000 for the six months ended December 31, 1998. Other income, net, principally interest, decreased 25% from $931,000 to $695,000 for the six months ended December 31, 1998 and 1999, respectively. This decrease was principally due to a decrease in the average balance of cash investments between the periods. -13- 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources At December 31, 1999, the Company had cash, cash equivalents and short-term investments totaling $32,423,000 compared to $42,014,000 at June 30, 1999, reflecting a decrease during the six month period ended December 31, 1999 of $9,591,000. This decrease was principally due to $7,446,000 of net cash used in operating activities, principally resulting from the operating loss for the period, and $2,957,000 used for the purchase of property and equipment. 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. -14- 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a variety of risks, including changes in interest rates affecting the return on its investments and the cost of its debt, and foreign currency fluctuations. At December 31, 1999, the Company maintains a portion of its cash and cash equivalents in financial instruments with original maturities of three months or less. The Company also maintains a short-term investment portfolio containing financial instruments with original maturities of greater than three months but less than twelve months. These financial instruments, principally comprised of high quality commercial paper, are subject to interest rate risk and will decline in value if interest rates increase. Due to the short duration of these financial instruments, an immediate 10 percent increase in interest rates would not have a material effect on the Company's financial condition or results of operations. The Company has not used derivative financial instruments in its investment portfolio. The Company's long-term debt at December 31, 1999 is comprised of a note payable to a bank, secured by the Company's corporate office building, with a total balance of $5,431,000 and a capital lease agreement covering certain computer hardware with a total balance of $2,657,000. The note payable bears interest at the London Interbank Offered Rate plus one percent, with quarterly interest rate adjustments, and the capital lease is at a fixed rate. Due to the relative immateriality of the note payable, an immediate 10 percent change in interest rates would not have a material effect on the Company's financial condition or results of operations. Approximately 23% of the Company's revenues for the quarter ended December 31, 1999 were generated from foreign operations, located principally in Australia and Canada. In the quarter ended December 31, 1999, the Company was subjected to a 4% weighted average increase in the Australian and Canadian currencies in relation to the U.S. dollar compared to the quarter ended December 31, 1998. Currently, the Company does not enter into forward exchange contracts or other financial instruments with respect to foreign currency. -15- 16 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company's 1999 Annual Meeting of Stockholders was held on November 3, 1999. At the meeting the stockholders of the Company elected the six incumbent directors for terms of one year each and until their successors are duly elected and qualified, ratified the appointment of KPMG LLP as the independent certified public accountants of the Company and its subsidiaries for the fiscal year ending June 30, 2000, and approved amendments to the Company's 1991 Stock Option Plan. The results of the vote to elect the six directors were as follows:
SHARES VOTED SHARES FOR WHICH NAME FOR AUTHORITY WAS WITHHELD - ---- ------------ ----------------------- Sidney Craig 19,092,462 1,075,676 Jenny Craig 19,092,462 1,075,676 Scott Bice 19,094,262 1,073,876 Marvin Sears 19,092,912 1,075,226 Andrea Van de Kamp 19,094,762 1,073,376 Robert Wolf 19,094,762 1,073,376
The results of the vote to ratify the appointment of KPMG LLP as independent certified public accountants of the Company and its subsidiaries for the fiscal year ending June 30, 2000 were as follows:
SHARES VOTED FOR SHARES VOTED AGAINST SHARES ABSTAINING - ---------------- -------------------- ----------------- 20,147,133 7,600 13,405
The results of the vote to approve amendments to the Company's 1991 Stock Option Plan were as follows:
SHARES VOTED FOR SHARES VOTED AGAINST SHARES ABSTAINING - ---------------- -------------------- ----------------- 17,309,298 2,254,583 234,357
There were no broker non-votes on any of the matters submitted to a vote of security holders. -16- 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 10.1 Agreement dated as of November 23, 1999 between Jenny Craig, Inc. and Patricia Larchet. 10.2 Agreement dated as of December 1, 1999 between Jenny Craig, Inc. and Duayne Weinger. 10.3 Agreement dated as of December 7, 1999 between Jenny Craig, Inc. and Jeanne E. McDougall. 27. Financial Data Schedule. (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. -17- 18 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/ James S. Kelly --------------------------------- James S. Kelly Vice President and Chief Financial Officer Date: February 11, 2000 -18- EX-10.1 2 AGREEMENT DATED 11/23/99 1 EXHIBIT 10.1 [JENNY CRAIG LETTERHEAD] November 23, 1999 Ms. Patricia Larchet Jenny Craig International Australia Dear Patti: This letter will formalize our employment offer to you as President and Chief Operating Officer of Jenny Craig, Inc. (the "Company). While your duties will involve the broad spectrum of the Company's business, the following is an outline of the specific responsibilities you will assume upon your accepting your new position: 1. The term of this contract will commence December 3, 1999. 2. Your position will be President and Chief Operating Officer. 3. The duties for this position shall include, but not be limited to, oversight of day-to-day operations of all business of the Company as directed by the Chief Executive Officer ("CEO"), assisting in preparation and providing management oversight of marketing and advertising strategies, policies and procedures, managing line and staff functions as directed by the CEO, developing and implementing long and short range business objectives of the Company and carrying out all other business of the Company as necessary or as directed by the CEO or the Board of Directors. 4. Your annual compensation will be four hundred thousand dollars ($400,000) per year payable on a bi-monthly basis. You will also become eligible to participate in any executive incentive plans that may exist from time-to-time for senior executives. 2 5. You will receive an option to purchase five hundred thousand (500,000) shares of common stock of the Company in concert with the Company's Stock Option Plan. 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 as President and Chief Operating Officer. The vesting period for options will be over a four (4) year period in four equal annual installments of twenty five percent (25%), the first of which will vest on the first anniversary of your employment with the Company. 6. Upon accepting employment as President and Chief Operating Officer, you will be afforded the same fringe benefit opportunities as other senior executives in the Company. 7. It is the intent of the Company to assist you in relocation to San Diego. As a result, the following terms shall apply to your relocation: a. Company will pay the expense of moving the reasonable and ordinary household effects to San Diego, including packing and unpacking, transportation and insurance. If needed, Company will also reimburse you for reasonable and ordinary storage charges on household furniture until your purchase of a new home in San Diego has been finalized, up to a maximum of ninety (90) days. b. Company will pay for coach class air transportation expenses or cash equivalent thereof for you and your husband/family from Australia to San Diego. c. Company will pay the necessary and reasonable expense of temporary residence for you and your family for a period of up to ninety (90) days. d. The payments set forth in subparagraphs (a)-(c) above, are contingent upon your providing Company with documents supporting the costs and expenses you incur in a form satisfactory to Company. 8. a. 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 Company without cause, or by you within ninety (90) days following a change of control of Company, you will receive a severance payment equal to your then current annual salary payable in twelve (12) equal monthly installments (the "Severance Payments"). 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 Payments described above and your rights under 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 one hundred twenty (120) days in any consecutive twelve (12) month period), a breach of this agreement or your duty of loyalty to 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 3 November 23, 1999 Page 3 Company into public disrepute, or which could have a substantial adverse effect on Company or its business. b. The Severance Payments described in Paragraph 7(a) shall be paid in consideration of your execution of an agreement and general release in such form as is acceptable to Company, in which, among other things, you release and discharge Company from all claims and liabilities relating to your employment with Company and/or the termination of your employment, including without limitation, claims under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. You will be entitled to receive the Severance Payments described in Paragraph 8(a), above, only after the agreement and general release has been signed and delivered, and the time for you to revoke the agreement and general release, if any, has expired. 9. You agree that at all times, both during and after your employment by 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 Company which relates to the operations, business or affairs of Company. You agree to comply with all procedures which Company may adopt from time to time to preserve the confidentiality of any information and immediately following termination of your employment to return to Company all materials created by you or others which related to the operations, business or affairs of 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, engaged as an independent contractor or otherwise retained by Company; or (b) induce any person or entity to leave his employment with Company, terminate an independent contractor relationship with Company or terminate or reduce any contractual relationship with Company. 10. 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 Judicial Arbitration and Mediation Service then in effect and with discovery permitted by both parties in accordance with Section 1283.05 of the Code of Civil Procedure of the State of California, or any successor thereto, subject to such modification as may be directed by the arbitrator. The award of the arbitrator(s) shall be final and binding 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. 4 November 23, 1999 Page 4 Patti, we are looking forward to your joining us as President and Chief Operating Officer 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, Accepted and Agreed: /s/ PATRICIA LARCHET 12/3/99 ------------------------------ Signature Date /s/ SIDNEY H. CRAIG - ------------------- Sidney H. Craig EX-10.2 3 AGREEMENT DATED 12/1/99 1 EXHIBIT 10.2 [JENNY CRAIG LETTERHEAD] December 1, 1999 Mr. Duayne Weinger 6009 San Elijo Rancho Santa Fe, CA 92067 - -------------------------------------------------------------------------------- Dear Duayne: This letter will formalize our employment offer to you as Chief Administrative Officer of Jenny Craig, Inc. (the "Company"). While your duties will involve the broad spectrum of the Company's business, the following is an outline of the specific responsibilities you will assume upon your accepting your new position: 1. The term of this contract will concentrate December 1, 1999. 2. During the first six (6) months of your employment (the "Initial Term"), your position will be Chief Administrative Officer. 3. During the Initial Term, your duties shall be to assist the Chairman of the Board/CEO in overseeing all aspects of the Company's operations, including oversight over Centre Services, Finance, Information Services and Human Resources, and carrying out all other business of the Company as necessary or as directed by the Chairman of the Board/CEO or the Board of Directors. 4. Following the Initial Term, your employment shall continue provided that the Company and you mutually agree in writing to continue or to change your position and responsibilities. 5. Your compensation during the Initial Term will be thirty thousand dollars ($30,000) per month payable on a bi-monthly basis. You will also become eligible to participate in any executive incentive plans that may exist from time-to-time for senior executives. After the Initial Period, your compensation will be as agreed to in writing between the Company and you. 6. You will receive an option to purchase five hundred thousand (500,000) shares of common stock of the Company in concert with the Company's Stock Option Plan. 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 as Chief Administrative Officer. The vesting period for options will be over a three (3) year period 2 in three (3) equal annual installments of thirty-three and one-third percent (33.3%), the first of which will vest on the first anniversary of your employment with the Company. 7. Upon joining the Company, you will be afforded the same fringe benefit opportunities as other senior executives of the Company. 8. a. If the Company and you choose to continue your employment after the expiration of the Initial Period, the Company shall have the right to terminate your employment at any time, with or without cause, by written notice to you. If after the Initial Period your employment is terminated by the Company without cause or by you within ninety (90) days following a change of control of the Company, you will receive a severance payment equal to your then current annual salary payable in twelve (12) equal monthly installments (the "Severance Payments"). 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 Payments 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 one hundred twenty (120) days in any consecutive twelve (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. b. The Severance Payments described in Paragraph 8(a) shall be paid in consideration of your execution of an agreement and general release in such form as is acceptable to the Company, in which, among other things, you release and discharge the Company from all claims and liabilities relating to your employment with the Company and/or the termination of your employment, including without limitation, claims under the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, where applicable. You will be entitled to receive the Severance Payments described in Paragraph 8(a), above, only after the agreement and general release has been signed and delivered, and the time for you to revoke the agreement and general release, if any, has expired. 9. 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 related to the operations, 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, engaged as an independent contractor, or otherwise retained by the Company; or (b) induce any person or entity to leave his employment with the Company, terminate an 3 independent contractor relationship with the Company or terminate or reduce any contractual relationship with the Company. 10. 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 Judicial Arbitration and Mediation Service then in effect and with discovery permitted by both parties in accordance with Section 1283.05 of the Code of Civil Procedure of the State of California, or any successor thereto, subject to such modification as may be directed by the arbitrator. The award of the arbitrator(s) shall be final and binding 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. Duayne, we are looking forward to your joining us as our Chief Administrative Officer 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, /s/ SIDNEY H. CRAIG Sidney H. Craig Chairman & CEO Accepted and Agreed: /s/ DUAYNE WEINGER 12/1/99 ----------------------------------- Signature Date EX-10.3 4 AGREEMENT DATED 12/7/99 1 EXHIBIT 10.3 December 7, 1999 Jeanne Eller McDougall 802 Wilkinson Drive NE Leesburg, VA 20176 Dear Jeanne: It's been a pleasure to meet with you regarding the opportunities and challenges at Jenny Craig, and this letter will formalize our employment offer to you. While your duties will involve the broad spectrum of Jenny Craig Inc.'s business, the following is an outline of the specific responsibilities you will assume, and the other issues we discussed, upon your joining the Company: 1. Your position will be Vice President, Communications reporting directly to Duayne Weinger, Chief Administrative Officer (CAO). 2. The duties for this position involve the oversight and responsibility for the Company's public relations function including developing a corporate vision and strategic plan which supports the company's business goals. You will interact with all levels of management to define and prioritize internal and external customer needs as well as perform similar and incidental duties as required. 3. Your annual compensation will be one hundred and fifty thousand dollars ($150,000) per year payable on a bi-monthly basis (the 10th and the 25th). Your reporting date is January 3, 2000. Your performance review will be every January 3. For the remainder of this fiscal year (FY00) you will also be eligible to participate in any executive incentive compensation plan that might be initiated. Your bonus, if a plan is implemented, will be pro-rated from your date of hire to June 30, 2000. 4. You will receive an option to purchase twenty-five thousand (25,000) shares of common stock of the Company in concert with the Company's Stock Option Plan and subject to Board approval. 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 (4) annual equal installments of twenty five percent (25%), the first of which will vest on the first anniversary of your employment with the Company. 2 Jeanne McDougall December 7, 1999 Page 2 5. Upon joining the Company you will be afforded the same fringe benefit opportunities as other senior executives in the Company, e.g., group health, life, disability, 401(k), upon your initial hire date you will begin accruing Paid-Time-Off (PTO) at the rate of 6 hours per pay period or 18 days per year. The Company may modify these plans as well as the written policies of the Company from time to time. 6. The Company wishes to assist you with your relocation to San Diego by providing you with a $24,000 interest free loan. The terms and conditions of this loan include a repayment schedule at the rate of $2,000 per month. You will need to sign a Promissory Note for this loan. In addition to this loan, we will provide three (3) coach fare round trips per year for your daughters, to visit their father. The Company will be not responsible for the safety and health of your children while they are traveling or otherwise. This arrangement will terminate upon the 18th birthday of each of your daughters or sooner if you are no longer employed by the Company. 7. The Company will pay the expense of moving the reasonable and ordinary household effects to San Diego, including packing and unpacking, transportation, and insurance. If needed, Company will also reimburse you for reasonable and ordinary storage charges on household furniture until your purchase of a new home in San Diego not to exceed 60 days 8. 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 (90) days following a change of control of the Company, upon receipt of a general release signed by you, you will receive a severance payment equal to your then current annual salary payable in twelve (12) equal monthly installments. Further, 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 one hundred twenty (120) days in any consecutive twelve (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. 9. 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 other affairs of the Company. You agree to comply with all procedures which the Company may adopt from time to time to 3 Jeanne McDougall December 7, 1999 Page 3 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 operations, business or other 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, engaged as an independent contractor or otherwise retained by the Company; or (b) induce any person or entity to leave his employment with the Company, terminate an independent contractor relationship with the Company or terminate or reduce any contractual relationship with the Company. 10. You and the Company agree that if either party alleges a violation of the terms of this offer letter, or any other disagreements or disputes arise in connection with this letter or your employment or termination of your employment, any such disputes shall be settled exclusively by arbitration in the City of San Diego by one or more experienced labor and employment law arbitrator(s) licensed to practice law in California and selected in accordance with the commercial arbitration rules of the American Arbitration Association. This arbitration agreement includes, but is not limited to, any claim based on state or federal laws regarding: age, sex, pregnancy, race, color, national origin, marital status, religion, veteran status, disability, sexual orientation, medical condition, or other anti-discrimination or no-retaliation laws, including, without limitation, Title VII, the Age Discrimination In Employment Act, the Americans With Disabilities Act, the Equal Pay Act, and the California Fair Employment and Housing Act, all as amended. You and the Company understand and agree that they are both waiving any right to a jury trial based on these claims. The arbitrator(s) cannot have the power to modify any of the provisions of this offer letter. The arbitrator(s) decision shall be final and binding upon both you and the Company and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. 11. Should any provision of this agreement be declared or be determined by an arbitrator or any court to be illegal or invalid, the validity of the remaining parts, terms, or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this agreement. 12. This agreement does not restrict the Company's right to pursue claims and obtain injunctive relief and/or other equitable relief, including but not limited to claims for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information, as to which the Company may seek and obtain relief from a court of competent jurisdiction. 4 Jeanne McDougall December 7, 1999 Page 4 13. Only you or an official of the Company may amend this offer letter only in writing. Please sign this letter below and fax it to Roberta C. Baade, Vice President, Human Resources 858-812-2792 by 5:00 P.M. (PDT) on December 10, 1999 at which time this offer will expire. If you have any questions or concerns about this offer, please don't hesitate to call me (858-812-2414) or Roberta (858-812-2130). Jeanne, 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. Sincerely, Sid Craig Chairman and CEO Accepted and agreed: - ----------------------------------- ----------------------------------- Print Name Signature Date cc: Roberta C. Baade EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JUN-30-2000 JUL-01-1999 DEC-31-1999 28,772 3,651 2,099 0 18,250 78,335 26,196 0 112,109 57,757 7,271 0 0 0 47,081 112,109 123,881 133,668 124,415 131,423 0 0 231 (18,378) (6,986) (11,392) 0 0 0 (11,392) (.55) (.55) THE ASSET VALUES FOR RECEIVABLES AND PP&E REPRESENT AMOUNTS NET OF ALLOWANCES AND DEPRECIATION, RESPECTIVELY.
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