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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NO. 001-10887
JENNY CRAIG, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 33-0366188
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
11355 NORTH TORREY PINES ROAD,
LA JOLLA, CALIFORNIA 92037
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 812-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------- -----------------------------------------
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COMMON STOCK, $.000000005 NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 1, 2000, there were 20,688,971 shares of the registrant's
common stock outstanding, par value $.000000005, which is the only class of
common or voting stock of the registrant. As of that date, the aggregate market
value of the shares of common stock held by non-affiliates of the registrant
(based on the closing price for the common stock on the New York Stock Exchange
on September 1, 2000) was approximately $12,548,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended June 30, 2000 are incorporated by reference into Part II. The
information called for by Part III is incorporated by reference from the
definitive Proxy Statement of the Registrant which will be filed with the
Securities and Exchange Commission not later than 120 days after June 30, 2000.
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JENNY CRAIG, INC.
2000 FORM 10-K
TABLE OF CONTENTS
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PAGE
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Item 1. Business.................................................... 1
Item 1a. Executive Officers of the Registrant........................ 8
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 9
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 9
Item 8. Financial Statements and Supplementary Data................. 9
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 9
Item 10. Directors and Executive Officers of the Registrant.......... 10
Item 11. Executive Compensation...................................... 10
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 10
Item 13. Certain Relationships and Related Transactions.............. 10
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 10
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PART I
ITEM 1. BUSINESS
GENERAL BUSINESS DESCRIPTION
Jenny Craig, Inc. (the "Company") provides a comprehensive weight
management program (the "Program") through a chain of Company-owned and
franchised weight loss centres operating under the name JENNY CRAIG WEIGHT LOSS
CENTRES ("centres"). As of September 1, 2000, there were 434 Company-owned and
73 franchised weight loss centres throughout the United States, and 113
Company-owned and 38 franchised centres in Australia, New Zealand and Canada.
Through these centres the Company sells JENNY CRAIG CUISINE, its portion and
calorie controlled food products ("Jenny's Cuisine"), to participants in the
Program. As of September 1, 2000, there were approximately 64,000 active
participants in the Program in the United States, and 21,000 active participants
in foreign markets.
FORWARD-LOOKING STATEMENTS
Information provided herein 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 1996 (the "Act"). The words "expects," "anticipates,"
"believes" and similar words generally signify a "forward-looking" statement.
The cautionary statements below are being made pursuant to the provisions of the
Act and with the intention of obtaining the benefit of the "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. The discussion below,
together with portions of the discussion elsewhere in this Report, highlight
some of the more important risks identified by management of the Company but
should not be assumed to be the only things that could affect future financial
performance of the Company. Certain risk factors may also be identified by the
Company from time to time in other filings with the Securities and Exchange
Commission, press releases and other communications.
Competition; Technological and Scientific Developments. The weight loss
business is highly competitive and the Company competes against a large number
of companies of various sizes, some of which may have greater financial
resources than the Company. The Company competes against self-administered
weight loss regimens, doctors, nutritionists, dietitians, the pharmaceutical
industry and certain government agencies and non-profit groups which offer
weight control help by means of medication, diets, exercise and weight loss
drugs. The Company also competes against food manufacturers and distributors
which are developing and marketing low-calorie and diet products to
weight-conscious consumers. In addition, new or different products or methods of
weight control are continually being introduced. Such competition and any
increase in competition, including new pharmaceuticals and other technological
and scientific developments in weight control, may have a material adverse
impact on the Company.
From time to time, medical and health professionals have identified health
risks associated with weight loss. Weight loss pharmaceuticals are not risk-free
and side effects and potential health problems for certain users have been
identified. In September 1997, the United States Food and Drug Administration
requested the withdrawal of fenfluramine (one of the pharmaceuticals used in a
combination commonly known as "phen-fen") and dexfenfluramine, commonly referred
to by its trade name Redux, from the U.S. market based upon potential health
risks. The manufacturer and distributor of these pharmaceuticals agreed to an
immediate recall of these drugs. Medical and scientific developments or public
announcements associating a health risk with weight loss could have a material
adverse effect on the Company. See "Competition."
Legislative and Regulatory Restrictions; Litigation. The Company is subject
to a number of laws and regulations regarding its advertising, food products,
franchise operations and relations with consumers. See "Regulation." The Federal
Trade Commission ("FTC") and certain states regulate advertising, disclosures to
consumers and franchisees, and other consumer matters and the Food and Drug
Administration and the United States Department of Agriculture specify quality
standards for foods. The Company's customers may file actions on their own
behalf, as a class or otherwise, and may file complaints with the FTC or state
or local
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consumer affairs offices and these agencies may take action on their own
initiative or on a referral from consumers or others. See "Regulation" for
information regarding a Consent Order entered into by the Company with the FTC
relating to the advertising practices of the Company. Remedies sought in such
actions may include the refund of amounts paid by the complaining customer,
refunds to an entire class of participants, other damages, as well as changes in
the Centres' method of doing business. A complaint because of a practice at one
centre, whether or not that practice is authorized by the Company, could result
in an order affecting some or all centres in the particular state, and an order
in one state could influence courts or government agencies in other states
considering similar matters. Proceedings resulting from complaints may result in
significant defense costs, settlement payments or judgments and could have a
material adverse effect on the Company.
Future legislation or regulations including, without limitation,
legislation or regulations affecting the Company's marketing and advertising
practices, relations with consumers or franchisees or its food products, could
have a material adverse impact on the Company.
The Company's foreign operations and franchises are also generally subject
to regulations of the applicable country regarding the offer and sale of
franchises, the content of advertising, the labeling and packaging of food, and
promotion of diet products and programs. Although the Company is not currently
subject to any government-imposed restriction on the withdrawal of funds from
any foreign country, if Australia or any foreign country in which the Company
operates were to impose currency restrictions, the Company's business could be
materially adversely affected.
Effectiveness of Marketing and Advertising Program. The Company's business
is marketing intensive. Its success depends upon its ability to attract new
participants to the program. The effectiveness of the Company's marketing
practices, in particular its advertising campaigns, is important to the
Company's financial performance. If the Company's marketing and advertising
programs do not generate sufficient "leads" and "sales," the Company's results
of operations will be materially adversely affected.
Market Acceptance of New Products and Services. The Company's future
success will depend on its ability to enhance its existing products and services
and to develop and market new products and services on a timely basis that
respond to new and evolving customer demands, achieve market acceptance and keep
pace with new technological and scientific developments. There can be no
assurance that the Company will be successful in developing, introducing on a
timely basis and marketing such new products and services, or that any such new
products or services will be accepted by the market. The failure of such
products and services to be accepted by the market could have a material adverse
impact on the Company.
Cost of Food and Services. As a large percentage of the Company's revenues
are derived from sales of the Company's food products, increases in the cost of
food and food services could have a material adverse impact on the Company.
Fluctuations In Quarterly Operating Results; Seasonality. The Company has
experienced and expects to continue to experience fluctuations in its quarterly
results of operations. The Company's revenues are affected by a number of
factors, including the volume and timing of customer leads, success of marketing
and advertising programs, success of introductions of new services and products,
activities of competitors and the ability of the Company to penetrate new
markets. The Company's business is seasonal with revenues generally decreasing
in the quarter ending December 31 and during the summer months. The Company may
also choose to reduce prices or to increase advertising spending in response to
competition or to pursue new market opportunities, all or any of which may
materially adversely affect the Company's results of operations.
General Economy. The Company's future success will depend on the general
strength of the economy in the regions where the Company's centres are located,
both within and outside the United States. Any weakness in the general economy
of such areas may have a material adverse impact on the Company's results of
operations.
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THE PROGRAM
The Program offers a comprehensive, competitively priced approach to the
problem of losing and maintaining weight, combining a calorie controlled,
nutritionally balanced diet with education and motivation that assists
participants in achieving their weight loss needs. The Program features
individual counseling to assist participants in identifying and modifying their
eating habits to reach and maintain their desired weight. A cornerstone of the
Program is the purchase by participants of Jenny's Cuisine. These food products,
which are sold only at centres to participants in the Program, are manufactured
by the Company's suppliers to specifications approved by registered dietitians
employed by the Company and are designed to provide nutritionally balanced and
good tasting low calorie foods to facilitate weight loss. The Program recommends
mild exercise to participants, and the Company offers weight maintenance
assistance after completion of the Program. The Program is used by men and
women, and to a much lesser extent by adolescents, although most participants in
the Program are women of all ages and income levels who wish to lose in excess
of 30 pounds.
Each prospective participant in the Program meets with a Program Director
at the centre, where statistical information regarding height, weight, activity
patterns, and related information is obtained. This information is analyzed
using standards fixed by the Company to assist the prospective participant in
establishing a weight loss goal and the Program Director then explains the
Program. After enrollment, the participant is referred to a Weight Loss
Consultant to begin the Program and purchase the first week's supply of Jenny's
Cuisine. The Company does not engage physicians to examine or monitor the
progress of participants, nor does it undertake a medical examination of new
participants. However, prior to commencing the Program each new participant is
asked to complete a health questionnaire to disclose any current medical
treatment and medical history in order to determine whether participation in the
Program is inadvisable or should be monitored by the participant's personal
physician.
For the first half of the Program, participants are encouraged to eat
Jenny's Cuisine for every meal along with fresh fruits, vegetables and dairy
products. During this initial period, participants are expected to visit the
centre once a week to attend a private counseling session with a Weight Loss
Consultant during which the participant's progress is discussed, meal plans are
selected and the participant purchases Jenny's Cuisine.
After the initial period of the Program, participants are advised to eat
Jenny's Cuisine five days a week from various menus furnished by the centre, and
are given guidelines for their own food preparations two days a week, continuing
on this regimen until their weight loss goal is achieved. Throughout the course
of the Program participants continue their individual counseling sessions.
Each participant is allowed to utilize the centre's facilities and
personnel until the participant's weight loss goal has been achieved. During the
course of the Program a participant loses an average of 1 to 1.5 pounds per
week. While the length of time a participant remains on the weight loss portion
of the Program varies with the amount of desired weight loss and how long a
participant chooses to continue on the Program, an average participant remains
on the Program for approximately three to four months.
Participants in the Program pay a fixed service fee which covers all
aspects of the Program other than the purchase of Jenny's Cuisine. The Company
offers a Gold Program which includes a weight loss module and an audio walking
program for a fee which was $199 as of September 1, 2000. A significant number
of participants who enroll in the Program purchase a Platinum Program for a
fixed fee which was $296 at September 1, 2000. The Platinum Program includes a
weight loss module, a weight maintenance module, an audio walking program, a
Jenny Craig cookbook, Program return privileges, as well as an ability to obtain
a refund of a portion of the service fee if certain criteria are met. In
addition, the Company may offer special limited introductory programs for a
lower fee. During the weight loss portion of the Program, participants pay an
average of between $50 and $75 per week for Jenny's Cuisine. Fees charged for
the service portion of the Program are generally paid at commencement. In some
states participants have the legal right to withdraw from the Program within
specified periods following purchase and to receive a refund of the fees. Even
when not so required, the Company's policy is to refund a pro rata portion of
the fees upon request.
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JENNY CRAIG CUISINE
Jenny's Cuisine is portion and calorie controlled and consists of a
nutritionally balanced variety of foods. The Company employs registered
dietitians to assist it in developing its meal plans and food products.
The Company believes that its healthful, high quality and good tasting food
products have contributed in large part to the Company's success. Currently, the
Company supplies its centres with approximately 70 different breakfast, lunch,
dinner and snack food items for use in the Program, including prepackaged frozen
meals, shelf-stable and canned foods, snacks, and dried products. The Company
generally updates its menu once per year. Current food items include such
entrees as Blueberry Waffles, French Toast with Berries, Stuffed Shells, Baked
Turkey, Rising Crust Pizza, Chicken Fajitas, Teriyaki Beefsteak, Pasta
Primavera, and Chili Con Carne.
Product sales, principally comprised of Jenny's Cuisine, accounted for 94%
and 93% of the Company's revenues in fiscal 1999 and 2000, respectively. For the
year ended June 30, 1999, the Company's gross revenues from product sales were
$301,120,000 compared to $270,781,000 for the year ended June 30, 2000.
The Company purchases its food products from various companies which
manufacture the products to specifications approved by the Company. The
Company's major food suppliers are Overhill Farms and ZB Industries, Inc., which
supply frozen foods, Truitt Bros., which supplies shelf-stable food products,
Campbell's Soup Company and International Home Foods, which supply canned food,
and Natural Alternatives, Inc., which supplies vitamin supplements. The Company
believes that alternative sources for all of its food products are available
without material disruption of its operations.
HISTORICAL GROWTH
The Company commenced operations in Australia in 1983 and became one of the
largest weight loss companies in that country with 69 Company-owned and
franchised centres by the end of fiscal 1985. Following its success in the
Australian market, and recognizing the opportunities to market the Program
successfully in the United States, the Company expanded its operations to the
United States by initially opening 13 Company-owned centres in the Los Angeles
metropolitan area in February 1985 and six centres in the Chicago metropolitan
area in September 1985. The Company's growth through September 1, 2000 as
measured by the number of centres operating is shown in the following table:
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AT JUNE 30, AT
------------------------------------------------------------------- SEPTEMBER 1,
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2000
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Company-owned
United States.............. 326 370 476 502 478 485 542 533 524 437 434
Foreign.................... 86 88 103 106 102 103 106 110 110 113 113
--- --- --- --- --- --- --- --- --- --- ---
412 458 579 608 580 588 648 643 634 550 547
--- --- --- --- --- --- --- --- --- --- ---
Franchise
United States.............. 186 199 176 159 154 159 113 101 86 72 73
Foreign.................... 30 37 39 43 43 36 36 37 37 38 38
--- --- --- --- --- --- --- --- --- --- ---
216 236 215 202 197 195 149 138 123 110 111
--- --- --- --- --- --- --- --- --- --- ---
Total................... 628 694 794 810 777 783 797 781 757 660 658
=== === === === === === === === === === ===
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The number of franchise centres owned by affiliates at June 30, 2000 and
September 1, 2000 was 18.
In fiscal 2000, the Company closed 100 United States Company-owned centres,
principally comprised of 86 centres closed in November 1999 in connection with a
restructuring plan implemented by the Company. Also during fiscal 2000, the
Company acquired 17 centres from five franchisees in the United States, and sold
four centres to a franchisee in the United States. In addition, one franchise
centre was opened and two franchised centres were closed in the United States in
fiscal 2000.
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In fiscal 1999, the Company acquired six centres from a franchisee in the
United States and closed 15 United States Company-owned centres. Also during
fiscal 1999, two United States franchise centres were opened and 11 United
States franchise centres were closed.
In fiscal 1998, the Company acquired eight centres from two franchisees in
the United States, opened 13 United States Company-owned centres and closed 30
United States Company-owned centres. Also during fiscal 1998, two United States
franchise centres were opened and six United States franchise centres were
closed.
MARKETING
The Company's business is marketing intensive, because both maintaining its
market position and continued growth depend upon the Company's ability to
attract new participants for the Program. The Company conducts ongoing research
to better understand the prospective weight loss customer and needs of existing
clients. The data obtained is then utilized in the improvement and development
of the Company's products and services and the Company's marketing activities.
The Company also researches each prospective market to determine the appropriate
number and distribution of centres for that market. This determination is a
significant factor in developing leads, improving client convenience and
maximizing return on advertising investment.
The Company's advertising is designed to make the customer aware of the
Company's and the Program's attributes. The Company's advertising presents a
company which is caring, supportive, and understanding of the problems of being
overweight, and through the person of Jenny Craig, is differentiated from other
generic sounding weight loss companies. Testimonial advertising, featuring
participants in the Program, demonstrates the success of the Program on a
personal level. The Company's advertising contains a state-of-the-art 800
telephone number that connects the caller directly to the nearest centre in
every market in the United States.
The Company presently spends more than 10% of gross revenues on advertising
to generate leads, advertising extensively in each local market where it owns
and operates centres. The majority of this amount is spent on television
advertising, with the balance allocated to print advertising and radio
advertisements. The size of the Company's advertising budget, coupled with the
television spot media buying power of its agency enables the Company to
advertise on a low cost-per-spot basis. Franchise agreements generally require
that franchisees spend the greater of 10% of gross receipts or $1,000 per centre
per week for local advertising to promote the Program. Franchisees may elect to
use the Company's advertising, which the Company makes available to franchisees,
rather than generate their own advertising. In addition to its consumer
endorsements, the Company occasionally uses celebrity endorsements among its
other advertising campaigns. As is common in the weight loss industry, the
Company regularly utilizes various sales promotion campaigns, including a
reduction of the service fee for the Program.
One of the Company's most valuable assets is the participants who have
already joined the Program. Information on participants is maintained in the
Company's data base and is utilized in the Company's direct marketing programs
to existing and former participants. The Company encourages participants in the
Program to introduce other individuals to the Program by giving food discounts
and other incentives, and the Company believes that such referrals are an
important source of revenues.
FRANCHISE OPERATIONS
The Company's strategy is to have predominantly Company-owned centres. The
Company's general practice concerning franchising, with some exceptions, is to
offer franchised centres in smaller markets. However, from time to time
franchises have been granted to enable the Company to enter a large market more
quickly. Franchising frequently gives the Company the benefit of obtaining
franchisees who are more familiar with a local market than the Company, and also
enables the Company to expand its business without increasing the number of
employees by using franchisee management.
The Company believes that one of the factors contributing to its success
has been its strong commitment to franchisee relationships. The Company seeks
franchisees who demonstrate the management skills,
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experience and financial capability to develop multiple centres. In particular,
the Company seeks franchisees who demonstrate experience in businesses that are
similar to or have characteristics similar to the Company.
Franchised centres are required to adhere to the Company's policies and
procedures with respect to the operation of the centres and the implementation
of the Program. Although the franchise agreements do not require them to do so,
present owners of franchises have actively participated in the operation of the
centres. Franchisees are required to undergo training at a Company training
facility. To date, all franchisees have purchased their food from the Company,
although franchisees are not required to do so under the terms of the franchise
agreement.
As of September 1, 2000, the Company had 111 centres operating pursuant to
franchise agreements, of which 73 were located throughout the United States, 16
in Australia, 18 in New Zealand and 4 in Canada. During fiscal 2000, the Company
acquired 17 centres from five franchisees in the United States.
TRADE NAMES AND TRADEMARKS
The Company believes the names it uses are important to its business and
that its business could be harmed if others used the names. JENNY CRAIG WEIGHT
LOSS CENTRES is a registered service mark and JENNY'S CUISINE is a registered
trademark of the Company under the laws of the United States. The registration
of JENNY CRAIG WEIGHT LOSS CENTRES and JENNY'S CUISINE will expire in the United
States in October 2006 and in January 2008, respectively, if not renewed by the
Company. The Company has obtained registrations or filed applications under
applicable trademark and service mark laws in Australia, New Zealand, Canada,
Mexico and in various other countries to protect its use of JENNY CRAIG WEIGHT
LOSS CENTRES and JENNY'S CUISINE.
COMPETITION
The weight loss business is highly competitive and the Company competes
against a number of companies of various sizes, some of which may have greater
financial resources than the Company. The Company's principal direct competition
is from the international chain Weight Watchers International, as well as
regional and local weight loss businesses, some of which include supervision by
or consultation with doctors or nurses. The Company also competes against
self-administered weight loss regimens, internet-based weight loss programs,
doctors, nutritionists, dietitians, the pharmaceutical industry and certain
government agencies and non-profit groups which offer weight control help by
means of medication, diets, exercise and weight loss drugs. The Company also
competes against food manufacturers and distributors which are developing and
marketing low-calorie and diet products to weight-conscious consumers. In
addition, new or different products or methods of weight control are continually
being introduced. Such competition and any increase in competition, including
new pharmaceuticals and other technological and scientific developments in
weight control, may have a materially adverse impact on the Company.
The Company believes that it competes on the basis of the effectiveness of
the Program, its competitive pricing, the quality of Jenny's Cuisine, and the
marketing and management skills of its management and franchisees.
REGULATION
The Federal Trade Commission (the "FTC"), and certain states, regulates
advertising and other consumer matters. The Company's customers may file actions
on their own behalf, as a class or otherwise, and may file complaints with the
FTC or state or local consumer affairs offices and these agencies may take
action on their own initiative or on a referral from consumers or others.
Remedies sought in such actions may include the refund of amounts paid by the
complaining consumer, refunds to an entire class of participants, other damages,
as well as changes in the centres' method of doing business. A complaint because
of a practice at one centre, whether or not that practice is authorized by the
Company, could result in an order affecting some or all centres in the
particular state, and an order in one state could influence courts or government
agencies in other states considering similar matters. Proceedings resulting from
complaints may result in significant defense costs, settlement payments or
judgements and could have a material adverse effect on the Company.
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The Company and the Federal Trade Commission entered into a Consent Order
effective May 4, 1998 settling all contested issues raised in a complaint filed
in September 1993 against the Company alleging that the Company violated the
Federal Trade Commission Act by the use and content of certain advertisements
for the Company's weight loss program featuring testimonials, claims for the
program's success and safety, and statements as to the program's costs to
participants. The Consent Order does not admit any issue of fact or law or any
violation by the Company of any law or regulation, and does not involve payment
by the Company of any civil money penalty, damages, or other financial relief.
The Consent Order requires certain procedures and disclosures in connection with
the Company's advertisements of its products and services. The Company does not
believe that compliance with the Consent Order will have a material adverse
effect on the Company's consolidated financial position or results of operations
or its current advertising and marketing practices.
The Company is subject to certain United States laws and regulations in
connection with its food products. The Food, Drug and Cosmetic Act prohibits
adulteration and misbranding and provides for penalties and other remedies such
as seizure of products. The Food and Drug Administration ("FDA") enforces the
Food, Drug and Cosmetic Act, including specifying quality standards for foods
and, as do many states, regulating food labeling.
Those foods which contain 2% or more meat or poultry products, and the
plants which manufacture them, are subject to regulation (including labeling
requirements) and continuous inspection by the United States Department of
Agriculture ("USDA"). Although the FDA and the USDA require the manufacturers of
the Company's food products to obtain appropriate governmental approvals and to
comply with applicable regulations, the Company has responsibility for the
quality and labeling of food and for compliance with FDA and USDA regulations.
Prior to offering franchises in the United States, the Company, as is
generally the case with franchisors, is required under regulations of the
Federal Trade Commission to furnish potential franchisees with a disclosure
document describing the Company, the franchise agreement and related matters.
Some states require their own version of the disclosure document. In addition,
state franchise laws may require the Company to furnish a bond, escrow monies,
submit annual reports and meet other conditions.
Many states have statutes which may be applicable to the Company and
require that a written contract be provided to the participant, and that
participants be permitted to cancel their contract within specified periods
following purchase and receive a refund of the service fee.
The Company's foreign operations and franchises are also generally subject
to regulations of the applicable country regarding the offer and sale of
franchises, the content of advertising, the labeling and packaging of food, and
promotion of diet products and programs.
EMPLOYEES
As of September 1, 2000 the Company had approximately 3,210 employees, of
which 2,540 were located in the United States, 530 were located in Australia,
and 140 were located in Canada. None of the Company's workers in the United
States are represented by a labor union. The Company has never had a strike or
lockout and considers its employee relations to be excellent.
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ITEM 1a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company:
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NAME OF EXECUTIVE OFFICER AGE POSITION(S) HELD
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Sidney Craig..................... 68 Chairman of the Board, Chief Executive Officer and Director
Jenny Craig...................... 68 Chairman of the Executive Committee and Director
Patricia Larchet................. 38 President and Chief Operating Officer and Director
Duayne Weinger................... 51 Vice Chairman, Chief Administrative Officer and Director
Barbara Barry.................... 49 Vice President, Marketing
James S. Kelly................... 39 Vice President, Chief Financial Officer and Treasurer
Alan V. Dobies................... 52 Vice President, Corporate Services
</TABLE>
Sidney Craig has been Chairman of the Company or its predecessors since
1983 and served as Chief Executive Officer from 1983 through April 1994. In
October 1997, Mr. Craig was elected Chief Executive Officer of the Company.
Jenny Craig has served as Chairman of the Executive Committee since
September 2000, as Vice Chairman of the Company from September 1991 to September
2000, as President and Chief Operating Officer of the Company or its
predecessors from 1983 to August 1991 and as a director of the Company or its
predecessors from 1983 to date. Mrs. Craig served as President of the Company
from October 1997 through December 1998. Sidney Craig and Jenny Craig are
husband and wife.
Patricia Larchet, a director of the Company since September 2000, has
served as President and Chief Operating Officer of the Company since December
1999. Prior to serving as the Company's President, Ms. Larchet was General
Manager of the Australian subsidiary of the Company. Ms. Larchet has worked for
the Company since 1985.
Duayne Weinger has served as Chief Administrative Officer since December
1999, and as Vice Chairman of the Company since September 2000. From 1994 until
joining the Company, Mr. Weinger was a private investor. From 1987 until 1994,
Mr. Weinger owned and operated franchised centres of the Company. Mr. Weinger is
a director of Party City Corporation. Mr. Weinger is the son-in-law of Sidney
and Jenny Craig.
Barbara Barry has served as Vice President, Marketing since June 2000. From
June 1999 until June 2000, Ms. Barry was Vice President of Sales, Marketing and
Merchandising for 3 Day Blinds Inc., a custom manufacturer and retailer of hard
window coverings. From June 1997 until June 1999, Ms. Barry was Director of
Marketing for Smart and Final, a 220 store retail chain. From April 1994 until
June 1997, Ms. Barry was Senior Brand Development Manager for Unocal 76
Products.
James S. Kelly has served as Vice President, Chief Financial Officer and
Treasurer since June 1999 after having served as Vice President and Controller
since 1993 and as Controller from 1989 through 1993. From January 1983 to
January 1989, Mr. Kelly was employed by KPMG LLP, an international accounting
firm, most recently as an audit manager.
Alan V. Dobies has served as Vice President, Corporate Services since June
1990. From July 1988 to May 1990, Mr. Dobies was Vice President, Operations of
Joico International, a manufacturer of professional hair-care products.
Executive officers are elected to serve until their successors are elected
and qualified.
ITEM 2. PROPERTIES
At September 1, 2000, there were 547 Company-owned centres, all of which
are in leased premises, of which 434 were in the United States, 87 were in
Australia, and 26 were in Canada. A majority of the leases for Company-owned
centres were entered into for an initial period of five years. The leases
require fixed monthly rental payments which are subject to various adjustments.
The centres are generally located in retail shopping areas on major commercial
thoroughfares and generally occupy approximately 1,800 to 2,200 square feet of
space consisting of a reception area, individual counseling rooms, and food
storage space.
8
<PAGE> 11
The Company owns a 75,000 square foot office building located in La Jolla,
California in which its executive offices are located. The building is subject
to a promissory note to a bank, secured by a deed of trust, which had a balance
owing of $5,337,000 as of June 30, 2000. The Company leases a warehouse in
Rancho Cucamonga, California for its food and non-food inventory. The Company's
executive offices in Australia are leased and are located in Melbourne, and the
Company also owns a warehouse in Sunshine, Australia.
The Company believes that its executive office and warehouse space is
adequate for its current needs and that additional space will be available at
reasonable costs as needed.
ITEM 3. LEGAL PROCEEDINGS
The Nevada Litigation described in Item 3 of the Company's Report on Form
10-K for the year ended June 30, 1999 has been dismissed against the Company by
the plaintiffs in this matter. The Nevada Litigation was dismissed without
prejudice, which means that the plaintiffs may reinstitute the litigation if
they choose to do so.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Material appearing under the caption "Common Stock Data" on page 28 of the
Annual Report to Shareholders of Jenny Craig, Inc. for the fiscal year ended
June 30, 2000 ("2000 Annual Report") is hereby incorporated by this reference.
ITEM 6. SELECTED FINANCIAL DATA
Material appearing under the caption "Selected Financial Data" on the
inside front cover of the Company's 2000 Annual Report is hereby incorporated by
this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Material appearing under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 5 through 11 of the
Company's 2000 Annual Report is hereby incorporated by this reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Material appearing under the caption "Quantitative and Qualitative
Disclosures About Market Risk" on page 11 of the Company's 2000 Annual Report is
hereby incorporated by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and subsidiaries,
related notes to consolidated financial statements, and material appearing under
the caption "Independent Auditors' Report" on pages 12 through 26 of the
Company's 2000 Annual Report are hereby incorporated by this reference. Material
appearing under the caption "Selected Quarterly Financial Information" on page
27 of the Company's 2000 Annual Report is hereby incorporated by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
9
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after June 30, 2000. Information
regarding executive officers of the Registrant is set forth under the caption
"Executive Officers of the Registrant" in Item 1a hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after June 30, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after June 30, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after June 30, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
FINANCIAL STATEMENTS
The following appear in the 2000 Annual Report at the pages indicated below
and are incorporated into Part II by reference:
<TABLE>
<S> <C> <C>
(1) Independent Auditors' Report................................ Page 26
(2) Consolidated Balance Sheets as of June 30, 1999 and 2000.... Page 12
(3) Consolidated Statements of Operations for the Years Ended Page 13
June 30, 1998, 1999 and 2000................................
(4) Consolidated Statements of Stockholders' Equity for the Page 14
Years Ended June 30, 1998, 1999 and 2000....................
(5) Consolidated Statements of Cash Flows for the Years Ended Page 15
June 30, 1998, 1999 and 2000................................
(6) Notes to Consolidated Financial Statements.................. Pages 16 to 25
</TABLE>
SCHEDULES
The following financial statement schedule appears on page 14 of this
report:
II. Valuation and Qualifying Accounts
Schedules other than the schedule listed above are omitted because they are
either not required or not applicable.
10
<PAGE> 13
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of
Registrant (Incorporated herein by reference to Exhibit 3.1
to the Report on Form 10-K of the Company for the fiscal
year ended June 30, 1997.)
3.4 Restated By-laws of Registrant.(1)
10.1 Jenny Craig, Inc. Management Deferred Bonus Program.(1)(2)
10.2 Agreement dated as of May 10, 1999 between Jenny Craig, Inc.
and James Kelly. (Incorporated herein by reference to
Exhibit 10.2 to the Report on Form 10-K of the Company for
the fiscal year ended June 30, 1999.)(3)
10.3 Jenny Craig, Inc. Stock Option Plan, as amended.
(Incorporated herein by reference to Exhibit 10.1 to the
Report on Form 10-Q of the Company for the three month
period ended March 31, 2000.)(2)
10.4 Executive Employment Agreement between Jenny Craig, Inc. and
Jenny Craig. See Exhibit 10.8 for Amendment thereto.(1)(3)
10.5 Executive Employment Agreement between Jenny Craig, Inc. and
Sid Craig. See Exhibit 10.10 for Amendment thereto.(1)(3)
10.6 Agreement dated as of May 10, 1999 between Jenny Craig, Inc.
and Alan Dobies. (Incorporated herein by reference to
Exhibit 10.6 to the Report on Form 10-K of the Company for
the fiscal year ended June 30, 1999.)(3)
10.7 Trademark License Agreement dated July 30, 1999 between
Jenny Craig, Inc. and Balance Bar Company. (Incorporated
herein by reference to Exhibit 10 to the Report on Form 10-Q
of the Company for the three month period ended September
30, 1999.)
10.8 Agreement dated as of September 14, 1994 between Jenny Craig
and Jenny Craig, Inc. amending Exhibit 10.4.(3)
10.10 Agreement dated as of September 14, 1994 between Sidney
Craig and Jenny Craig, Inc., amending Exhibit 10.5.(3)
10.11 Agreement dated as of November 23, 1999 between Jenny Craig,
Inc. and Patricia Larchet. (Incorporated herein by reference
to Exhibit 10.1 to the Report on Form 10-Q of the Company
for the three month period ended December 31, 1999.)(3)
10.12 Lease between Jenny Craig Distributing Pty. Ltd. And Indalia
Pty. Ltd. dated November 16, 1990.(1)
10.13 Agreement dated as of December 1, 1999 between Jenny Craig,
Inc. and Duayne Weinger. (Incorporated herein by reference
to Exhibit 10.2 to the Report on Form 10-Q of the Company
for the three month period ended December 31, 1999.)(3)
10.14 Standard Form Lease dated May 14, 1996 between Jenny Craig
Products, Inc. and RCDC Associates Limited Partnership
(Incorporated herein by reference to Exhibit 10.14 to the
Report on Form 10-K of the Company for the fiscal year ended
June 30, 1997.)
10.15 Agreement dated as of December 7, 1999 between Jenny Craig,
Inc. and Jeanne E. McDougal. (Incorporated herein by
reference to Exhibit 10.3 to the Report on Form 10-Q of the
Company for the three month period ended December 31,
1999.)(3)
10.16 Tax Allocation and Indemnity Agreement among New York Life
Insurance Company et al, Security Pacific National Bank
individually and as Agent, Jenny Craig, Inc., Jenny Craig
Weight Loss Centres, Inc., Craig Enterprises, Inc., SJF
Enterprises, Inc., Sid Craig and Jenny Craig dated as of
June 30, 1989, as amended.(1)
10.17 Consent Order, effective May 4, 1998, in the matter of Jenny
Craig, Inc., a corporation, and Jenny Craig International,
Inc., a corporation. (Incorporated herein by reference to
Exhibit 10.42 to the Report on Form 10-K of the Company for
the fiscal year ended June 30, 1998.)
10.18 Supply Agreement between Jenny Craig Weight Loss Centres,
Inc. and IBM Foods, d/b/a Overhill Farms, dated September
22, 1988, with amendments.(1)
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.19 Amended and Restated Agreement dated as of August 20, 1996
between Marvin Sears and Jenny Craig, Inc. (Incorporated
herein by reference to Exhibit 10.36 to the Company's Report
on Form 10-K for the fiscal year ended June 30, 1996.)(2)
10.20 Supply Agreement between Jenny Craig Weight Loss Centres,
Inc. and Campbell Soup Company, dated June 1, 1991.(1)
10.21 Metropolitan Insurance and Annuity Company Key Man Life
Insurance Policy Relating to Jenny Craig.(1)
10.23 Prudential Insurance Company of America Key Man Life
Insurance Policy Relating to Jenny Craig.(1)
13. Portions of the Annual Report to Shareholders with respect
to the fiscal year ended June 30, 2000 which are
incorporated by reference in this Form 10-K.
18. Preferability Letter from KPMG LLP with respect to change in
accounting method. (Incorporated herein by reference to
Exhibit 18 to the Report on Form 10-K of the Company for the
fiscal year ended June 30, 1997.)
22. List of Subsidiaries (Incorporated herein by reference to
Exhibit 22 to the Report on Form 10-K of the Company for the
fiscal year ended June 30, 1997.)
23. Independent Auditors' Consent.
27. Financial Data Schedule.
</TABLE>
---------------
(1) Incorporated herein by reference to Registrant's Registration Statement on
Form S-1 filed October 29, 1991, Registration No. 33-42564. Each of the
exhibits so incorporated by reference bears the same exhibit number in
Registration Statement No. 33-42564.
(2) Compensatory Plan.
(3) Management contract.
B. REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the Company during the last
quarter of the period covered by this report.
12
<PAGE> 15
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Stockholders and Board of Directors
Jenny Craig, Inc.:
Under date of August 18, 2000, we reported on the consolidated balance
sheets of Jenny Craig, Inc. and subsidiaries as of June 30, 1999 and 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended June 30, 2000,
as contained in the 2000 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year ended June 30, 2000. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in Item
14. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
San Diego, California
August 18, 2000
13
<PAGE> 16
SCHEDULE II
JENNY CRAIG, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998, 1999 AND 2000
($ IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED CHARGED
BALANCE TO CHARGED BALANCE TO CHARGED BALANCE
AT COSTS TO AT COSTS TO AT
JUNE 30, AND OTHER WRITE JUNE 30, AND OTHER WRITE JUNE 30,
DESCRIPTION 1997 EXPENSES ACCOUNTS OFFS 1998 EXPENSES ACCOUNTS OFFS 1999
----------- -------- -------- -------- ----- -------- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts... 1,190 -- -- (110) 1,080 500 -- -- 1,580
Accumulated Amortization --
Reacquired Area Franchise Rights
and Other Intangibles........... 4,598 1,051 (408) -- 5,241 805 144 -- 6,190
Accumulated Amortization --
Computer Software............... 1,360 91 -- -- 1,451 164 -- -- 1,615
<CAPTION>
CHARGED
TO CHARGED BALANCE
COSTS TO AT
AND OTHER WRITE JUNE 30,
DESCRIPTION EXPENSES ACCOUNTS OFFS 2000
----------- -------- -------- ----- --------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts... 85 -- (93) 1,572
Accumulated Amortization --
Reacquired Area Franchise Rights
and Other Intangibles........... 815 (192) (60) 6,753
Accumulated Amortization --
Computer Software............... 443 -- (45) 2,013
</TABLE>
See accompanying Independent Auditors' Report on Schedule.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 26, 2000 JENNY CRAIG, INC.
By: /s/ SIDNEY CRAIG
------------------------------------
Sidney Craig
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SIDNEY CRAIG Chairman of the Board and Chief September 26, 2000
------------------------------------ Executive Officer (Principal
Sidney Craig Executive Officer)
/s/ JENNY CRAIG Chairman of the Executive Committee September 26, 2000
------------------------------------ and Director
Jenny Craig
/s/ JAMES S. KELLY Vice President, Chief Financial September 26, 2000
------------------------------------ Officer and Treasurer (Principal
James S. Kelly Financial and Accounting Officer)
/s/ PATRICIA LARCHET President and Chief Operating September 26, 2000
------------------------------------ Officer and Director
Patricia Larchet
/s/ DUAYNE WEINGER Vice Chairman, Chief Administrative September 26, 2000
------------------------------------ Officer and Director
Duayne Weinger
/s/ SCOTT BICE Director September 26, 2000
------------------------------------
Scott Bice
/s/ MARVIN SEARS Director September 26, 2000
------------------------------------
Marvin Sears
/s/ ANDREA VAN DE KAMP Director September 26, 2000
------------------------------------
Andrea Van de Kamp
/s/ ROBERT WOLF Director September 26, 2000
------------------------------------
Robert Wolf
</TABLE>
15
