1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 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.)
445 MARINE VIEW AVE., SUITE 300, DEL MAR, CA 92014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 259-7000
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, $.000000005 par value, outstanding as
of the close of business on May 3, 1996 - 20,828,331.
-1-
2
JENNY CRAIG, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
June 30, March 31,
1995 1996
--------- ----------
(Unaudited)
ASSETS
Cash and cash equivalents ............................ $ 51,819 35,815
Short-term investments ............................... 7,959 6,950
Accounts receivable, net ............................. 2,129 3,531
Inventories .......................................... 17,676 12,611
Prepaid expenses and other assets .................... 7,821 8,399
-------- ------
Total current assets ....................... 87,404 67,306
Cost of reacquired area franchise rights, net ........ 8,218 7,697
Property and equipment, net .......................... 18,254 16,339
Other assets ......................................... 1,500 1,500
-------- ------
$115,376 92,842
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ..................................... 16,794 16,054
Accrued liabilities .................................. 17,855 21,730
Income taxes payable ................................. 3,311 4,382
Deferred service revenues ............................ 3,269 4,132
-------- ------
Total current liabilities ................. 41,229 46,298
Stockholders' equity:
Common stock $.000000005 par value, 100,000,000 shares
authorized; 27,502,620 shares issued; 25,196,000 and
20,813,731 shares outstanding at June 30, 1995 and
March 31, 1996, respectively ......................... -- --
Additional paid-in capital ........................... 71,148 71,162
Retained earnings .................................... 31,318 46,406
Equity adjustment from foreign currency translation .. 415 1,719
Treasury stock at cost, 2,304,400 and 6,688,889 shares
at June 30, 1995 and March 31, 1996, respectively .... (28,734) (72,743)
-------- ------
Total stockholders' equity ..................... 74,147 46,544
Commitments and contingencies
--------- ------
$115,376 92,842
======== ======
See accompanying notes to unaudited consolidated financial statements.
-2-
3
JENNY CRAIG, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- --------------------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues:
Company-owned operations:
Product sales ................ $80,406 87,479 227,043 240,860
Service revenues ............. 5,643 6,880 16,121 18,574
------- ------- ------- -------
86,049 94,359 243,164 259,434
------- ------- ------- -------
Franchise operations:
Product sales ................ 10,145 10,763 30,809 31,070
Royalties .................... 1,930 2,052 5,778 5,663
Initial franchise fees ....... 75 130 110 210
------- ------- ------- -------
12,150 12,945 36,697 36,943
------- ------- ------- -------
Total revenues ........... 98,199 107,304 279,861 296,377
------- ------- ------- -------
Costs and expenses:
Company-owned operations:
Product ...................... 77,179 74,278 213,906 215,916
Service ...................... 3,951 3,924 10,754 11,422
------- ------- ------- -------
81,130 78,202 224,660 227,338
------- ------- ------- -------
Franchise operations:
Product ...................... 8,041 8,091 24,228 23,330
Other ........................ 647 469 1,610 1,462
------- ------- ------- -------
8,688 8,560 25,838 24,792
------- ------- ------- -------
8,381 20,542 29,363 44,247
General and administrative expenses 6,738 7,325 19,808 20,751
------- ------- ------- -------
Operating income ........ 1,643 13,217 9,555 23,496
Other income, principally interest 650 692 1,491 2,286
------- ------- ------- -------
Income before taxes ..... 2,293 13,909 11,046 25,782
Provision for income taxes ........ 1,076 5,654 4,867 10,694
------- ------- ------- -------
Net income .............. $ 1,217 8,255 6,179 15,088
======= ======= ======= =======
Net income per share .... $ .05 .35 .24 .62
======= ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
-3-
4
JENNY CRAIG, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Nine Months Ended
March 31,
---------------------------
1995 1996
---- ----
Cash flows from operating activities:
Net income ........................................................... $ 6,179 15,088
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................................ 6,325 5,472
Provision for doubtful accounts ...................................... -- (400)
(Increase) decrease in:
Accounts receivable ........................................ 838 (1,002)
Inventories ................................................ 3,430 5,065
Prepaid expenses and other assets .......................... 1,759 (578)
Increase (decrease) in:
Accounts payable ........................................... 1,961 (740)
Accrued liabilities ........................................ 5,220 4,072
Income taxes payable ....................................... 1,261 1,071
Deferred service revenues .................................. (505) 863
Other ...................................................... 94 950
------- ------
Net cash provided by operating activities ............ 26,562 29,861
------- ------
Cash flows from investing activities:
Purchase of property and equipment .................................... (778) (2,879)
Purchase of short-term investments .................................... (5,743) (5,000)
Proceeds from maturity of short-term investments ...................... 20,922 6,009
------- ------
Net cash provided by (used in) investing activities .. 14,401 (1,870)
------- ------
Cash flows from financing activities:
Purchase of treasury stock ............................................ (5,306) (44,009)
Proceeds from exercise of stock options ............................... 3 14
------- ------
Net cash used in financing activities ................ (5,303) (43,995)
------- ------
Net increase (decrease) in cash and cash equivalents ..................... 35,660 (16,004)
Cash and cash equivalents at beginning of period ......................... 15,988 51,819
------- ------
Cash and cash equivalents at end of period ............................... $51,648 35,815
======== ======
Supplemental disclosure of cash flow information:
Income taxes paid ..................................................... $ 3,606 9,623
See accompanying notes to unaudited consolidated financial statements.
-4-
5
JENNY CRAIG, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
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, 1995 consolidated financial statements.
2. Net income per share is computed by dividing net income by the weighted
average number of shares outstanding during the period, which were 25,303,000
and 23,430,000 for the quarters ended March 31, 1995 and 1996, respectively and
25,622,000 and 24,335,000 for the nine months ended March 31, 1995 and 1996,
respectively.
3. In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). SFAS 121 requires that impairment losses for long lived assets be
recognized if the estimated undiscounted future cash flow, without interest, is
less than the carrying amount of the asset. SFAS 121 also requires that assets
designated to be disposed of are to be recorded at the lower of the asset
carrying value or fair value less cost to sell. The Company has not yet adopted
SFAS 121. The adoption of SFAS 121 is not expected to have a material impact on
the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
123, "Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995. SFAS 123 establishes the fair value based
method of accounting for stock-based compensation arrangements, under which
compensation cost is determined using the fair value of the stock option at the
grant date and the number of options vested, and is recognized over the periods
in which the related services are rendered. If the Company were to retain its
current intrinsic value based method, as allowed by SFAS 123, it will be
required to disclose the pro forma effect of adopting the fair value based
method. To date, the Company has not made a decision to adopt the fair value
based method.
-5-
6
JENNY CRAIG, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS
Quarter Ended March 31, 1996 as Compared to Quarter Ended March 31, 1995
Revenues from United States Company-owned operations increased 10% from
$76,246,000 for the quarter ended March 31, 1995 to $83,981,000 for the quarter
ended March 31, 1996. At March 31, 1995 there were 482 United States
Company-owned Centres in operation compared to 484 at March 31, 1996. Average
revenue per United States Company-owned Centre increased 10% from $158,000 for
the quarter ended March 31, 1995 to $174,000 for the quarter ended March 31,
1996. The number of active participants at United States Company-owned centres
during the quarter ended March 31, 1996 remained substantially the same as
during the quarter ended March 31, 1995. Although there was a 7% increase in the
number of new participants enrolled in the Program between the periods, service
revenues from United States Company-owned operations for the quarter ended March
31, 1996 increased 23%, to $6,096,000 from $4,968,000 for the comparable year
earlier period. This increase in service revenues was due to an increase in the
average service fee charged per new participant. Product sales, which consists
primarily of food products, from United States Company-owned operations
increased 9% from $71,278,000 for the quarter ended March 31, 1995 to
$77,885,000 for the quarter ended March 31, 1996. This increase was principally
due to an increase in the average food purchase per active participant in the
Program between the periods, and reflected an approximate 5% increase in the
retail selling price of the Company's food products effected in November 1995.
Revenues from foreign Company-owned operations increased 6% from $9,803,000 to
$10,378,000 for the quarters ended March 31, 1995 and 1996, respectively,
primarily due to an increase in the retail selling price of the Company's food
products and a 2% 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
5% from $71,690,000 to $68,352,000 for the quarters ended March 31, 1995 and
1996, respectively. Costs and expenses of United States Company-owned operations
for the quarter ended March 31, 1995 included a $2,200,000 provision to reflect
the settlement of certain securities class action litigation against the
Company. Costs and expenses of United States Company-owned operations for the
quarter ended March 31, 1996 were reduced by a $2,200,000 credit that resulted
from the Company's successful litigation recovery from one of its insurance
carriers related to the March 1995 settlement. Costs and expenses of United
States Company-owned operations as a percentage of United States Company-owned
revenues decreased from 94% to 81% between the periods principally due to the
aforementioned credit for the litigation recovery. This ratio was also favorably
affected by the revenue increase between the periods which reflected, in large
part, the increase in the retail selling price of the Company's products and
services without a related increase in costs and expenses, and the lower
proportion of fixed costs when compared to the increased revenues. Costs and
expenses of foreign Company-owned operations increased 4% from $9,440,000 to
$9,850,000 for the quarters ended March 31, 1995 and 1996, respectively,
principally due to the 2% weighted average increase in the Australian and
Canadian currencies in relation to the U.S. dollar between the periods and
increased compensation costs. After including the allocable portion of general
and administrative expenses, foreign Company-owned operations incurred an
operating loss of $21,000 for the quarter ended March 31, 1996 compared to an
operating loss of $149,000 for the quarter ended March 31, 1995.
(Continued)
-6-
7
JENNY CRAIG, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS
(Continued)
Revenues from franchise operations increased 7% from $12,150,000 to
$12,945,000 for the quarters ended March 31, 1995 and 1996, respectively. This
increase was principally due to increased food sales to franchisees. The number
of franchised Centres in operation was 197 at March 31, 1995 compared to 195 at
March 31, 1996.
Costs and expenses of franchised operations, which consist primarily of
food costs, decreased 1% from $8,688,000 to $8,560,000 for the quarters ended
March 31, 1995 and 1996, respectively, principally because of a reduction in the
purchase of national television advertising, a portion of which is allocated to
franchise operations. The decrease in franchise costs and expenses as a percent
of franchise revenues was principally due to the reduced national advertising.
General and administrative expenses increased 9% from $6,738,000 to
$7,325,000 but remained relatively constant at 6.9% of total revenues for the
quarter ended March 31, 1995 compared to 6.8% for the quarter ended March 31,
1996. The absolute increase was principally the result of increased compensation
and consulting expenses.
The elements discussed above combined to result in an increase in
operating income from $1,643,000 for the quarter ended March 31, 1995 compared
to $13,217,000 for the quarter ended March 31, 1996.
On September 30, 1993, a complaint against the Company was filed and is
presently pending before an administrative law judge of the Federal Trade
Commission ("FTC") alleging that the Company violated the Federal Trade
Commission Act (the "FTC Act") by the use and content of certain advertisements
for the Company's weight loss Program featuring testimonials, claims for the
Program's success and safety, and statements as to the Program's costs to
participants. The complaint seeks a cease and desist order requiring the Company
and its franchisees to discontinue such advertisements unless: the testimonial
advertisements disclaim any typicality of the testimonials; claims of success
for the Program are substantiated by scientific evidence; disclosure is made of
the statistics of achieving weight loss goals and weight loss maintenance by
participants in the Program; advertisements of the Program's price include all
required expenditures by participants; and disclosure is made that failure to
follow the Program's protocol may involve health risks. The FTC amended the
complaint against the Company to allege that a specific 1992 advertising
campaign of the Company premised on customer satisfaction also violated the FTC
Act. The FTC has indicated that it may, depending upon the outcome of the
administrative proceeding, seek by separate action in federal or state court to
redress injury to consumers and others in the form of restitution, refunds or
other relief. The Company believes that its advertisements comply with the FTC
Act and applicable rules of the FTC, and is vigorously defending against the
FTC's action. The Company has not recorded a provision for loss pertaining to
this matter because an estimate of the possible loss or range of possible loss
cannot be made at this time.
-7-
8
JENNY CRAIG, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS
Nine Months Ended March 31, 1996 as Compared to Nine Months Ended March 31, 1995
Revenues from United States Company-owned operations increased 6% from
$215,555,000 for the nine months ended March 31, 1995 to $228,843,000 for the
nine months ended March 31, 1996. At March 31, 1995 there were 482 United States
Company-owned Centres in operation compared to 484 at March 31, 1996. Average
revenue per United States Company-owned Centre increased 8% from $442,000 for
the nine months ended March 31, 1995 to $476,000 for the nine months ended March
31, 1996. The number of active participants at United States Company-owned
centres during the nine month period ended March 31, 1996 remained substantially
the same as during the nine month period ended March 31, 1995. Although there
was a 6% decrease in the number of new participants enrolled in the Program
between the periods, service revenues from United States Company-owned
operations for the nine months ended March 31, 1996 increased 15% to $16,356,000
from $14,257,000 for the comparable year earlier period. This increase in
service revenues was due to an increase in the average service fee charged per
new participant. Product sales, which consists primarily of food products, from
United States Company-owned operations increased 6% from $201,298,000 for the
nine months ended March 31, 1995 to $212,487,000 for the nine months ended March
31, 1996 principally due to an increase in the average food purchase per active
participant in the Program between the periods, and reflected an approximate 5%
increase in the retail selling price of the Company's food products effected in
November 1995. Revenues from foreign Company-owned operations increased 11% from
$27,609,000 to $30,591,000 for the nine months ended March 31, 1995 and 1996,
respectively, primarily due to an increase in the number of new enrollments in
the program. There was a 1% 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 increased
less than 1% from $197,736,000 to $198,129,000 for the nine months ended March
31, 1995 and 1996, respectively. Costs and expenses of United States
Company-owned operations for the nine months ended March 31, 1995 included a
$2,200,000 provision to reflect the settlement of certain securities class
action litigation against the Company. Costs and expenses of United States
Company-owned operations for the nine months ended March 31, 1996 were reduced
by a $2,200,000 credit that resulted from the Company's successful litigation
recovery from one of its insurance carriers related to the March 1995
settlement. Costs and expenses of United States Company-owned operations as a
percentage of United States Company-owned revenues decreased from 92% to 87%
between the periods principally due to the aforementioned credit for the
litigation recovery. This ratio was also favorably affected by the revenue
increase between the periods which reflected, in large part, an increase in the
retail selling price of the Company's products and services without a related
increase in costs and expenses, and the lower proportion of fixed costs when
compared to the increased revenues. Costs and expenses of foreign Company-owned
operations increased 8% from $26,924,000 to $29,209,000 for the nine month
periods ended March 31, 1995 and 1996, respectively, principally because of the
increased variable costs related to the higher level of operations. After
including the allocable portion of general and administrative expenses, foreign
Company-owned operations incurred an operating loss of $215,000 for the nine
months ended March 31, 1996 compared to an operating loss of $842,000 for the
nine months ended March 31, 1995.
(Continued)
-8-
9
JENNY CRAIG, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS
(Continued)
Revenues from franchise operations increased 1% from $36,697,000 to
$36,943,000 for the nine months ended March 31, 1995 and 1996, respectively. At
March 31, 1995 there were 197 franchised centres in operation compared to 195 at
March 31, 1996.
Costs and expenses of franchised operations, which consist primarily of
food costs, decreased 4% from $25,838,000 to $24,792,000 for the nine month
periods ended March 31, 1995 and 1996, respectively, principally because of a
reduction in the purchase of national television advertising, a portion of which
is allocated to franchise operations. The decrease in franchise costs and
expenses as a percent of franchise revenues was principally due to the reduced
national advertising.
General and administrative expenses increased 5% from $19,808,000 to
$20,751,000 but remained relatively constant at 7.1% of total revenues for the
nine months ended March 31, 1995 compared to 7.0% for the nine months ended
March 31, 1996. The absolute increase was principally the result of increased
compensation and consulting expenses.
The elements discussed above combined to result in an increase in
operating income from $9,555,000 for the nine months ended March 31, 1995 to
$23,496,000 for the nine months ended March 31, 1996.
Financial Condition
As of March 31, 1996, the Company's cash, cash equivalents and
short-term investments were $42,765,000. During the quarter ended March 31, 1996
cash, cash equivalents and short-term investments decreased $13,269,000
principally due to the Company's acquisition of 3,523,089 shares of its common
stock at a cost of $35,633,000, offset, in part, by the Company's net cash
provided by operating activities. Of the shares acquired by the Company during
the quarter, 3,464,189 shares were acquired via a tender offer, in the form of a
dutch auction, at a purchase price of $10.00 per share.
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.
-9-
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Agreement dated as of April 11, 1996 between Jenny
Craig, Inc. and Janet Rheault.
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
-10-
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JENNY CRAIG, INC.
By: /S/ Michael L. Jeub
--------------------------------
Michael L. Jeub
Sr. Vice President
and Chief Financial Officer
Date: May 9, 1996
-11-
12
Exhibit Index
EXHIBIT DESCRIPTION
10.1 Agreement dated as of April 11, 1996 between Jenny Craig, Inc. and
Janet Rheault.
27 Financial Data Schedule.
-12-