<PAGE> 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, $.000000005 par value, outstanding as
of the close of business on February 10, 2000- 20,688,971.
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<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
JENNY CRAIG, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
-------- ------------
(unaudited)
<S> <C> <C>
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 ..................................
======== =======
$112,614 112,109
======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 3
JENNY CRAIG, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ----------------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
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)
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 4
JENNY CRAIG, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-----------------------
1998 1999
------- -------
<S> <C> <C>
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
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE> 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- --------------------
1998 1999 1998 1999
----- ------ ----- -------
<S> <C> <C> <C> <C>
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)
===== ====== ===== =======
</TABLE>
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 $4,898,000, which is the
principal reason for the increase in accrued liabilities on the accompanying
balance sheet at December 31, 1999, will be substantially incurred by June 30,
2000.
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<PAGE> 6
JENNY CRAIG, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. The Company operates in the weight management industry. Substantially all
revenue results from the sale of weight management products and services,
whether the centre is operated by the Company or its franchisees. The Company's
reportable segments consist of Company-owned operations and franchise
operations, further segmented by geographic area. The following presents
information about the respective reportable segments ($ in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
------------------------ -----------------------
1998 1999 1998 1999
-------- ------- ------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
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<PAGE> 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):
<TABLE>
<CAPTION>
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
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
======= ====== ====== ======
</TABLE>
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<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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):
<TABLE>
<CAPTION>
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
-------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
======== ======= ====== ======
</TABLE>
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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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:
<TABLE>
<CAPTION>
SHARES VOTED SHARES FOR WHICH
NAME FOR AUTHORITY WAS WITHHELD
- ---- ------------ -----------------------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
SHARES VOTED FOR SHARES VOTED AGAINST SHARES ABSTAINING
- ---------------- -------------------- -----------------
<S> <C> <C>
20,147,133 7,600 13,405
</TABLE>
The results of the vote to approve amendments to the Company's 1991
Stock Option Plan were as follows:
<TABLE>
<CAPTION>
SHARES VOTED FOR SHARES VOTED AGAINST SHARES ABSTAINING
- ---------------- -------------------- -----------------
<S> <C> <C>
17,309,298 2,254,583 234,357
</TABLE>
There were no broker non-votes on any of the matters submitted to a vote of
security holders.
-16-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 28,772
<SECURITIES> 3,651
<RECEIVABLES> 2,099<F1>
<ALLOWANCES> 0
<INVENTORY> 18,250
<CURRENT-ASSETS> 78,335
<PP&E> 26,196<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,109
<CURRENT-LIABILITIES> 57,757
<BONDS> 7,271
0
0
<COMMON> 0
<OTHER-SE> 47,081
<TOTAL-LIABILITY-AND-EQUITY> 112,109
<SALES> 123,881
<TOTAL-REVENUES> 133,668
<CGS> 124,415
<TOTAL-COSTS> 131,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231
<INCOME-PRETAX> (18,378)
<INCOME-TAX> (6,986)
<INCOME-CONTINUING> (11,392)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,392)
<EPS-BASIC> (.55)
<EPS-DILUTED> (.55)
<FN>
<F1>THE ASSET VALUES FOR RECEIVABLES AND PP&E REPRESENT AMOUNTS NET OF ALLOWANCES
AND DEPRECIATION, RESPECTIVELY.
</FN>
</TABLE>
