<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
FORM 10-Q
----------------
(Mark
One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22003
----------------
WESLEY JESSEN VISIONCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4023739
(State of Incorporation) (I.R.S. Employer Identification No.)
333 East Howard Avenue
Des Plaines, Illinois 60018-5903
847-294-3000
(Address and telephone number, including area code, of registrant's principal
executive office)
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 [_]
The number of shares of Common Stock ($0.01 par value) of the Registrant
outstanding as of August 12, 1999 was 17,283,024.
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<PAGE>
WESLEY JESSEN VISIONCARE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at July 3, 1999 and December
31, 1998............................................................ 1
Condensed Consolidated Statements of Operations for the three and six
months ended July 3, 1999 and June 27, 1998......................... 2
Condensed Consolidated Statements of Cash Flows for the six months
ended July 3, 1999 and June 27, 1998................................ 3
Notes to the Condensed Consolidated Financial Statements............. 4-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 9-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 14
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders................ 15
Item 6. Exhibits and Reports on Form 8-K............................... 15
Signatures............................................................. 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
WESLEY JESSEN VISIONCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
July 3, December 31,
ASSETS 1999 1998
------ ----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 11,403 $ 8,859
Accounts receivable--trade, net..................... 45,054 47,363
Other receivables................................... 6,989 6,840
Inventories......................................... 57,847 62,055
Deferred income taxes............................... 18,582 18,602
Prepaid expenses.................................... 6,057 6,977
Assets held for sale................................ -- 1,222
-------- --------
Total current assets.............................. 145,932 151,918
-------- --------
Property, plant and equipment, net.................... 49,115 36,338
Investment in affiliate............................... 2,415 --
Other assets.......................................... 5,733 6,011
Deferred income taxes................................. 3,529 3,528
Notes receivable...................................... 1,813 1,803
Goodwill, net......................................... 2,622 2,569
Capitalized financing fees, net....................... 2,038 2,351
-------- --------
Total assets...................................... $213,197 $204,518
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Trade accounts payable.............................. $ 15,438 $ 17,689
Accrued compensation and benefits................... 20,036 25,565
Accrued advertising................................. 6,510 4,060
Other accrued liabilities........................... 9,750 9,744
Transition reserve.................................. 5,473 7,886
Income taxes payable................................ 4,245 3,257
Short term debt..................................... 828 --
-------- --------
Total current liabilities......................... 62,280 68,201
-------- --------
Negative goodwill, net................................ 12,039 12,587
Long term debt........................................ 68,000 69,000
Other liabilities..................................... 6,043 4,778
-------- --------
Total liabilities................................. 148,362 154,566
-------- --------
Stockholders' equity
Common stock, $.01 par value, 50,000,000 shares
authorized, 17,187,585 and 16,994,884 issued and
outstanding at July 3, 1999 and December 31, 1998,
respectively....................................... 182 180
Additional paid in capital.......................... 63,268 60,847
Accumulated earnings ............................... 25,807 10,438
Treasury stock, 1,000,000 shares at July 3, 1999 and
December 31, 1998, at cost......................... (21,306) (21,306)
Accumulated other comprehensive loss................ (3,116) (207)
-------- --------
Total stockholders' equity........................ 64,835 49,952
-------- --------
Total liabilities and stockholders' equity........ $213,197 $204,518
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales..................... $80,005 $73,417 $156,316 $144,012
------- ------- -------- --------
Operating costs and expenses:
Cost of goods sold.......... 25,306 22,763 50,424 44,702
Marketing and
administrative............. 37,654 35,440 76,057 73,003
Research and development.... 2,913 2,647 5,786 5,033
Amortization of goodwill,
net........................ (228) (273) (457) (547)
------- ------- -------- --------
Income from operations........ 14,360 12,840 24,506 21,821
Other (income) expense:
Interest income............. (143) (131) (331) (255)
Interest expense............ 1,025 1,263 2,236 2,383
------- ------- -------- --------
Income before income taxes.... 13,478 11,708 22,601 19,693
Income tax expense............ (4,313) (3,981) (7,232) (6,696)
------- ------- -------- --------
Net income.................... $ 9,165 $ 7,727 $ 15,369 $ 12,997
======= ======= ======== ========
Net income per common share:
Basic....................... $ 0.53 $ 0.43 $ 0.90 $ 0.73
Diluted..................... $ 0.49 $ 0.40 $ 0.83 $ 0.67
Weighted average common shares
outstanding:
Basic....................... 17,139 17,859 17,081 17,822
Diluted..................... 18,599 19,326 18,530 19,367
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
July 3, June 27,
1999 1998
----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities:
Net income........................................... $ 15,369 $ 12,997
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense............................... 2,366 945
Amortization of capitalized financing fees......... 313 282
Amortization of goodwill........................... (458) (547)
(Gain) loss on disposal of property, plant, and
equipment......................................... 5 (24)
Deferred income tax................................ (11) (132)
Changes in balance sheet items:
Accounts receivable--trade, net.................... 670 (6,970)
Other receivables.................................. (369) (836)
Inventories........................................ 2,223 (6,488)
Other assets....................................... 1,068 759
Trade accounts payable............................. (1,818) 3,914
Accrued liabilities................................ (5,049) (2,211)
Other liabilities.................................. 1,333 (170)
Income taxes payable............................... 2,594 4,086
-------- --------
Cash provided by operating activities............ 18,236 5,605
-------- --------
Investing activities:
Investment in affiliate.............................. (2,415) --
Capital expenditures................................. (16,225) (6,652)
Proceeds from the sale of assets..................... 1,257 --
-------- --------
Cash used in investing activities................ (17,383) (6,652)
-------- --------
Financing activities:
Issuance of stock.................................... 1,163 1,338
Repurchase of shares................................. -- (11,867)
Proceeds from issuance of debt....................... 9,844 21,000
Payments of debt..................................... (10,000) (1,000)
-------- --------
Cash provided by financing activities............ 1,007 9,471
-------- --------
Effect of exchange rates on cash and cash
equivalents......................................... 684 (766)
Net increase in cash and cash equivalents............ 2,544 7,658
Cash and cash equivalents:
Beginning of period.................................. 8,859 4,759
-------- --------
End of period........................................ $ 11,403 $ 12,417
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for interest............. $ 2,012 $ 2,088
======== ========
Cash paid during the period for taxes, net........... $ 3,196 $ 2,353
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Description of Business
Basis of presentation
The consolidated financial statements include the accounts of Wesley Jessen
VisionCare, Inc., its wholly owned subsidiary, Wesley Jessen Corporation, and
Wesley Jessen Corporation's wholly owned subsidiaries (collectively, the
"Company").
The unaudited financial information presented reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
consolidated financial statements for an interim period. All such adjustments
are of a normal, recurring nature. Results of operations for an interim period
are not necessarily indicative of results for the full year. These interim
financial statements should be read in conjunction with the financial
statements and related notes contained in the Annual Report on Form 10-K for
the year ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Description of business
The Company's primary business activity is the research, development,
manufacture, marketing and sale of conventional and disposable soft contact
lenses in the United States and certain other countries. The Company is
headquartered in Des Plaines, Illinois and operates in one business segment.
2. Net Income Per Common Share
The Company calculates net income per common share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share." The
difference between the weighted average shares used in the computation of basic
and diluted earnings per share is the dilutive effect of outstanding stock
options, using the treasury stock method from the date of grant and are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
--------------- ---------------
July June
3, June 27, July 3, 27,
1999 1998 1999 1998
------ -------- ------- -------
<S> <C> <C> <C> <C>
Computation of Basic Net Income Per Share:
Net income............................... $9,165 $7,727 $15,369 $12,997
Weighted average common shares
outstanding............................. 17,139 17,859 17,081 17,822
Basic net income per share............... $ 0.53 $ 0.43 $ 0.90 $ 0.73
Computation of Diluted Net Income Per
Share:
Net income............................... $9,165 $7,727 $15,369 $12,997
Weighted average common shares
outstanding............................. 17,139 17,859 17,081 17,822
Net additional shares issuable in
connection with stock options........... 1,460 1,467 1,449 1,545
Diluted weighted average common shares
outstanding............................. 18,599 19,326 18,530 19,367
Diluted net income per share............. $ 0.49 $ 0.40 $ 0.83 $ 0.67
</TABLE>
4
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Transition Reserve and Restructuring Charge
On October 2, 1996, the Company acquired the contact lens business of
Pilkington plc, operating as the Pilkington Barnes Hind Group ("the Barnes-Hind
Acquisition"). In connection with the Barnes-Hind Acquisition, management
approved a plan to integrate the acquired operations, for which an accrual of
$20.4 million ("transition reserve") was established in purchase accounting.
The transition reserve included costs related to the closure of the Barnes-Hind
corporate offices in Sunnyvale, California which was completed in the third
quarter of 1997 and resulted in the termination of 123 employees. The Company
announced the closing of its manufacturing operations in San Diego, California
expected to be substantially complete by March, 2000, with a shift of
conventional lens production to its plant in Cidra, Puerto Rico. The plant
closing will result in the termination of 471 employees (of whom 321 had been
terminated as of July 3, 1999). Payments related to the transition reserve are
as follows (in thousands):
<TABLE>
<CAPTION>
Facility
Employee Lease Restoration
Related Termination and Other
Costs Costs Costs Total
-------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Transition reserve at December
31, 1998...................... $ 7,169 $ 542 $ 175 $ 7,886
Charges against reserve........ (1,923) (276) (214) (2,413)
Reallocation of reserve........ (700) (80) 780 --
------- ----- ----- -------
July 3, 1999................... $ 4,546 $ 186 $ 741 $ 5,473
======= ===== ===== =======
</TABLE>
In addition to the transition plan, the Company committed to a plan to
restructure the Wesley Jessen operations following the Barnes-Hind Acquisition.
Pursuant to the restructuring plan, the Chicago distribution facilities were
consolidated with those at Des Plaines, Illinois in October, 1997. The
restructuring reserve of $0.3 million as of July 3, 1999 was dedicated to costs
related to employee termination, lease termination and other restructuring
costs associated with the consolidation of certain Wesley Jessen facilities in
Europe with facilities acquired in the Barnes-Hind Acquisition. Usage of the
restructuring reserve is as follows (in thousands):
<TABLE>
<CAPTION>
Employee Lease
Related Termination Other
Costs Costs Costs Total
-------- ----------- ----- -----
<S> <C> <C> <C> <C>
Restructuring reserve at December 31,
1998.................................. $187 $ 288 $114 $ 589
Charges against reserve................ (81) (65) (4) (150)
Reversed to income..................... -- (172) -- (172)
---- ----- ---- -----
Restructuring reserve at July 3, 1999.. $106 $ 51 $110 $ 267
==== ===== ==== =====
</TABLE>
4. Accounts Receivable-Trade, Net
Accounts receivable-trade, net consist of the following (in thousands):
<TABLE>
<CAPTION>
July 3, December 31,
1999 1998
------- ------------
<S> <C> <C>
Trade receivables................................... $57,647 $ 62,968
Less allowances:
Doubtful accounts................................. (4,174) (4,992)
Sales returns and adjustments..................... (8,419) (10,613)
------- --------
$45,054 $ 47,363
======= ========
</TABLE>
5
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
5. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
July 3, December 31,
1999 1998
------- ------------
<S> <C> <C>
Raw materials........................................ $ 5,277 $ 5,934
Work-in-process...................................... 7,492 6,463
Finished goods....................................... 45,078 49,658
------- -------
$57,847 $62,055
======= =======
</TABLE>
6. Property, Plant and Equipment, Net
Property, plant and equipment, net consist of the following (in thousands):
<TABLE>
<CAPTION>
July 3, December 31,
1999 1998
------- ------------
<S> <C> <C>
Buildings and improvements.......................... $ 9,492 $ 9,449
Machinery, equipment, furniture and fixtures........ 21,150 19,638
Construction-in-progress............................ 23,964 11,450
------- -------
54,606 40,537
Less accumulated depreciation....................... (5,491) (4,199)
------- -------
$49,115 $36,338
======= =======
</TABLE>
7. Long-Term Debt
The Company's credit agreement consists of a $170.0 million revolving loan
facility, the availability of which will be reduced by $20.0 million on
September 11, 2000 and $20.0 million on September 11, 2001. The facility
matures on September 11, 2002. The agreement became effective on July 29, 1998
when the then-existing bank credit agreement was amended to increase the
borrowing availability to permit the repurchase of a maximum of $35.0 million
of the Company's common stock.
Amounts borrowed under the credit agreement bear interest at either the Base
Rate (higher of (i) 0.5% in excess of the Federal Reserve reported adjusted
certificate of deposit rate and (ii) the lender's prime lending rate plus a
margin up to 0.5% based on leverage ratios calculated as of certain dates) or
the Eurodollar Rate as determined by the lenders plus a margin of 0.375% to
1.500% based on the type of loan and leverage ratios calculated as of certain
dates as defined in the credit agreement. Additionally, the Company is required
to pay a commitment fee on the unutilized revolving loan commitment, as defined
in the credit agreement, ranging from 0.175% to 0.400% based on leverage ratios
calculated as of certain dates. The unutilized portion of the credit facility
at July 3, 1999 was $102.0 million. The credit facility is guaranteed by each
of the Company's domestic subsidiaries and secured by essentially all assets of
the domestic subsidiaries.
The credit agreement contains a number of covenants restricting the Company
and its subsidiaries with respect to the incurrence of indebtedness, the
creation of liens, the consummation of certain transactions such as sales of
substantial assets, mergers or consolidations, the making of certain
investments, capital expenditures and payment of dividends. In addition, the
Company is required to maintain certain financial covenants and ratios.
6
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
8. Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
the disclosure of all non-owner changes in equity.
The components of comprehensive income for the three and six months ended
July 3, 1999 and June 27, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
---------------- ----------------
July June
3, June 27, July 3, 27,
1999 1998 1999 1998
------ -------- ------- -------
<S> <C> <C> <C> <C>
Net income.............................. $9,165 $7,727 $15,369 $12,997
Foreign currency translation
adjustments............................ (849) (652) (2,909) (1,255)
------ ------ ------- -------
Comprehensive income.................... $8,316 $7,075 $12,460 $11,742
====== ====== ======= =======
</TABLE>
9. Treasury Stock Purchase Plan
The Board of Directors approved a share repurchase plan on June 10, 1998
which the Company completed on September 18, 1998. Under the plan, the Company
repurchased one million shares of its outstanding common stock. Repurchases
were made periodically in normal market trading at prevailing prices. The
funding of the program came from operating cash flow and the existing bank
facility. Beginning in the third quarter of 1999, a portion of the stock will
be reissued in connection with the Company's stock incentive plans, the
employee stock purchase plans and employee stock awards.
10. Acquisitions and Investments
In June, 1999, the Company established a minority investment interest of
$2.4 million in Inoveon Corporation, represented by a 16.4% ownership in shares
of convertible Series A preferred stock. Inoveon, an Internet disease
management company, has granted the Company exclusive U.S. rights to market a
proprietary national system to help optometrists manage diabetic retinopathy, a
leading cause of preventable blindness. After an initial implementation period,
during which Inoveon will deploy the system to integrated health care
providers, the Company will begin marketing it to the optometric community. The
investment will be accounted for under the equity method of accounting.
In May, 1999, the Company, through its Hong Kong subsidiary, executed a
purchase agreement to acquire certain assets of Eycon Lens (Hong Kong) Co.,
Ltd. from its sole shareholder. In June and July, 1998, the Company completed
two other international acquisitions. The total adjusted purchase price for the
three acquisitions of approximately $3.2 million, including related fees and
expenses, was funded with existing liquidity. The Company accounted for these
acquisitions under the purchase method of accounting. None of these
acquisitions were material to the Company's financial statements.
11. Business segments and geographical information
The Company operates in one product segment--the development, manufacture
and marketing of contact lenses. The aggregation criteria for sales are based
on point of production and shipment.
7
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Financial information by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
--------------- -----------------
June
July 3, 27, July 3, June 27,
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales:
United States (including Puerto
Rico)................................ $51,104 $48,412 $101,302 $ 98,640
United Kingdom........................ 9,986 9,722 18,647 16,771
Rest of the world..................... 18,915 15,283 36,367 28,601
------- ------- -------- --------
$80,005 $73,417 $156,316 $144,012
======= ======= ======== ========
</TABLE>
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is the leading worldwide developer, manufacturer and marketer of
specialty soft contact lenses, based on its share of the specialty lens market.
The Company's products include cosmetic lenses, which change or enhance the
wearer's eye color appearance; toric lenses, which correct vision for people
with astigmatism; and premium lenses, which offer value-added features such as
improved comfort for dry eyes and protection from UV light. Founded in 1946 by
pioneers in the contact lens industry, the Company has a long-standing
reputation for innovation and new product introductions. Wesley Jessen develops
technology, manufacturing processes and products through a combination of its
in-house staff of more than 100 engineers and scientists and Company-sponsored
research by third-party experts. The Company markets and sells its products to
consumers through the second largest advertising campaign in the industry and
to eyecare practitioners through its 211 person salesforce and network of
independent distributors, which together sell the Company's products in more
than 75 countries.
Barnes-Hind Acquisition
On October 2, 1996, the Company acquired the contact lens business of
Pilkington plc, operating as the Pilkington Barnes Hind Group (the "Barnes-Hind
Acquisition"). In connection with the Barnes-Hind Acquisition, the Company
identified significant operating synergies and substantial cost saving
opportunities. The Company has completed the majority of its initial cost
reduction measures which, as expected, have improved the Company's operating
results. The Company expects to close its manufacturing operations in San
Diego, California by March, 2000 and shift conventional lens production to its
plant in Cidra, Puerto Rico. The Company believes this consolidation of
facilities will generate additional cost savings and further operating
leverage. However, there can be no assurance that the Company will be able to
achieve such cost savings in future periods.
Results of Operations
Three Months Ended July 3, 1999 (Unaudited) Compared to Three Months Ended
June 27, 1998 (Unaudited)
Net sales for the three months ended July 3, 1999 increased $6.6 million, or
9.0%, to $80.0 million from $73.4 million for the three months ended June 27,
1998. This increase resulted primarily from 36.7% growth in the sales of
disposable and planned replacement contact lenses led by the launch of
FreshLook ColorBlends and FreshLook Toric, from $30.1 million to $41.1 million,
offset by an 10.3% decline in the sales of conventional lens products, from
$43.3 million to $38.9 million. Sales of disposable and planned replacement
lenses grew 51.0% in the U.S. and 21.6% internationally while sales of
conventional lenses fell 9.3% domestically and 11.9% in the rest of the world.
For the three month period, total U.S. sales rose 12.6%, surpassing the total
international sales growth of 4.0%.
Gross profit for the three months ended July 3, 1999 increased $4.0 million,
or 8.0%, to $54.7 million from $50.7 million in the comparable 1998 period.
Gross profit margin decreased 0.6% to 68.4% in 1999, reflecting temporary
inefficiencies related to increased production to meet the sales demand for new
products.
Marketing and administrative expenses for the three months ended July 3,
1999 increased by $2.2 million, or 6.2%, to $37.6 million from $35.4 million
for the three months ended June 27, 1998. This increase was largely due to
higher selling expenses incurred to support an expansion of the international
direct salesforce along with increased performance related compensation costs.
As a percentage of net sales, marketing and administrative expenses decreased
to 47.1% in the 1999 period from 48.3% in the 1998 period.
9
<PAGE>
Research and development expenses increased $0.3 million, or 10.0%, to $2.9
million for the three months ended July 3, 1999 from $2.6 million for the three
months ended June 27, 1998. The increase was driven by developmental spending
for the bifocal lens product. As a percent of net sales, research and
development expenses remained constant at 3.6% for both the 1999 and 1998
periods.
Interest expense decreased 18.8% to $1.0 million for the three months ended
July 3, 1999 from $1.3 million for the three months ended June 27, 1998 due to
the capitalization of interest costs in the current period related to the
construction of additional production capacity. Excluding the impact of
capitalization, interest expense decreased 3.6% as the effects of lower current
year interest rates available to the Company under its revolving credit
facility more than offset a higher average debt balance in 1999.
Net income for the three months ended July 3, 1999 increased by $1.5
million, or 18.6%, to $9.2 million from $7.7 million for the three months ended
June 27, 1998 as improvement in gross profit was partially offset by higher
spending in marketing and administrative expenses along with a more favorable
year-over-year effective tax rate. The decrease in the effective tax rate to
32% in 1999 from 34% in 1998 was primarily due to a shift in the mix of
earnings among the Company's various operations.
Six Months Ended July 3, 1999 (Unaudited) Compared to Six Months Ended June
27, 1998 (Unaudited)
Net sales for the six months ended July 3, 1999 increased $12.3 million, or
8.5%, to $156.3 million from $144.0 million for the six months ended June 27,
1998. This increase resulted primarily from 39.6% growth in the sales of
disposable and planned replacement contact lenses driven by the introduction of
FreshLook ColorBlends and Freshlook Toric, from $57.4 million to $80.2 million,
offset by a 12.1% decline in the sales of conventional lens products, from
$86.6 million to $76.1 million. Sales of disposable and planned replacement
lenses grew 55.0% in the U.S. and 22.6% internationally while sales of
conventional lenses fell 8.8% domestically and 17.4% in the rest of the world.
For the six month period, total U.S. sales increased 14.3%, while international
sales were even with last year.
Gross profit for the six months ended July 3, 1999 increased $6.6 million,
or 6.6%, to $105.9 million from $99.3 million in the comparable 1998 period.
Gross profit margin decreased 1.3% to 67.7% in 1999, reflecting short term
production inefficiencies related to meeting the sales demand for new products.
Marketing and administrative expenses for the six months ended July 3, 1999
increased by $3.1 million, or 4.2%, to $76.1 million from $73.0 million for the
six months ended June 27, 1998. This increase was largely due to additional
selling and distribution expenses to support the expansion of the international
direct salesforce and sales markets as well as higher performance related
compensation costs. As a percentage of net sales, marketing and administrative
expenses decreased to 48.7% in the 1999 period from 50.7% in the 1998 period.
Research and development expenses for the six months ended July 3, 1999
increased by $0.8 million, or 15.0%, to $5.8 million from $5.0 million for the
six months ended June 27, 1998. As a percentage of net sales, research and
development expenses rose to 3.7% in the 1999 period from 3.5% in the 1998 year
period. The increase was driven by spending for the development of new products
and regulatory costs for gaining approval to market an expanded product line in
Japan.
Interest expense decreased 6.2% to $2.2 million for the six months ended
July 3, 1999 from $2.4 million for the six months ended June 27, 1998 as
interest costs were capitalized in 1999 in connection with the Company's
construction of expanded production capacity. Excluding the impact of
capitalization, interest expense increased 1.9% due to higher average debt
balances in the current year, partially offset by the effects of lower interest
rates available to the Company in 1999 under its revolving credit facility.
Net income for the six months ended July 3, 1999 increased $2.4 million, or
18.3%, to $15.4 million from $13.0 million for the six months ended June 27,
1998 as increased marketing and administrative costs and higher research and
development expenses were more than offset by gross profit gains and the impact
of a lower year-over-year effective tax rate. The decrease in the effective tax
rate to 32% in 1999 from 34% in 1998 was primarily due to a shift in the mix of
earnings among the Company's multi-national entities.
10
<PAGE>
Liquidity and Capital Resources
The Company finances its operations primarily through funds provided from
operations and through borrowings under its revolving credit facility. For the
six months ended July 3, 1999, the Company generated approximately $18.2
million in cash from operating activities, as profitability gains, a higher
income taxes payable balance and decreased inventory levels were partially
offset by payments made for the prior year's performance related compensation
and integration costs related to the Barnes-Hind Acquisition. For the six
months ended June 27, 1998, the Company generated approximately $5.6 million
from operating activities. This source of funds resulted from improvements in
profitability along with increases in accounts payable and income taxes
payable, partially offset by increases in accounts receivable and inventories.
Since December 31, 1998, the Company has made payments against long term debt
of $1.0 million.
For the six months ended July 3, 1999 and June 27, 1998, the Company made
capital expenditures of approximately $16.2 million and $6.7 million,
respectively. The majority of these capital expenditures in 1999 were for
production capacity expansion, information technology enhancements, and site
consolidations. The Company anticipates additional capital expenditures of
$15.0 million will be made throughout 1999 to continue capacity expansion,
further consolidation of facilities and improvement of management information
systems. The Company expects to fund these capital expenditures primarily by
cash generated from operating activities and borrowings under its revolving
credit facility.
As a result of the Barnes-Hind Acquisition, the Company expects to incur
integration costs of approximately $20.4 million, principally for severance
costs and lease expenses on vacated premises. Management expects that this
restructuring will be substantially completed by March, 2000. As of July 3,
1999, the Company has paid $14.9 million of these integration costs.
The Company maintains a $170 million revolving credit facility as amended in
July 1998. As of July 3, 1999, the Company had approximately $102.0 million in
borrowing availability under this facility. The credit agreement imposes
certain restrictions on the Company, including restrictions on its ability to
incur indebtedness, declare dividends or other distributions, make investments
and capital expenditures, grant liens, sell its assets and engage in certain
other activities. In addition, the indebtedness of the Company under the credit
agreement is secured by substantially all of the assets of the Company,
including the Company's real and personal property, inventory, accounts
receivable, intellectual property and other tangible assets.
Management believes that, based on current levels of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds including borrowings under the credit agreement and
cash on hand at July 3, 1999 of $11.4 million, will be adequate over the next
twelve months to make required payments of principal and interest on the
Company's indebtedness, to fund anticipated capital expenditures and working
capital requirements, including the aforementioned restructuring and
integration costs, and to enable the Company and its subsidiaries to comply
with the terms of their debt agreements. However, actual capital requirements
may change, particularly as a result of any acquisitions which the Company may
pursue. The ability of the Company to meet its debt service obligations and
reduce its total debt will be dependent upon the future performance of the
Company and its subsidiaries which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond the Company's control. A significant portion of the consolidated
debt of the Company bears interest at floating rates; therefore, the Company's
financial condition is and will continue to be affected by changes in
prevailing interest rates. In December, 1996, the Company purchased an interest
rate cap on $35.0 million notional principal amount at a fixed rate of 8.5%,
which expires on December 31, 1999. The cap is intended to provide partial
protection from exposure relating to the Company's variable rate debt
instruments.
Approximately 39% of the Company's net sales for the six months ended July
3, 1999 were to international customers and the Company expects that sales to
international customers will continue to represent a material portion of its
net sales. Historically, fluctuations in foreign currency exchange rates have
11
<PAGE>
had only a minor impact on the Company's results of operations and the Company
does not expect such fluctuations to be material in the foreseeable future.
Share Repurchase Program
The Board of Directors approved a share repurchase plan on June 10, 1998
which the Company completed on September 18, 1998. Under the plan, the Company
repurchased one million of its outstanding common stock at an average cost of
$21 per share. Repurchases were made in normal market trading at prevailing
prices and were funded from operating cash flow and the existing bank facility.
Beginning in the third quarter of 1999, the Company will reissue a portion of
its treasury stock to satisfy share requirements related to employee stock
incentive plans, employee stock purchase plans and employee stock awards.
Recent Investments and Acquisitions
In June, 1999, the Company established a minority investment interest of
$2.4 million in Inoveon Corporation, represented by ownership in shares of
convertible Series A preferred stock. Inoveon, an Internet disease management
company, has granted the Company exclusive U.S. rights to market a proprietary
national system to help optometrists manage diabetic retinopathy, a leading
cause of preventable blindness. After an initial implementation period, during
which Inoveon will deploy the system to integrated health care providers, the
Company will begin marketing it to the optometric community. The investment
will be accounted for under the equity method of accounting.
In May, 1999, the Company, through its Hong Kong subsidiary, executed a
purchase agreement to acquire certain assets of Eycon Lens (Hong Kong) Co.,
Ltd. from its sole shareholder. In June and July, 1998, the Company completed
two other international acquisitions. The total adjusted purchase price for the
three acquisitions of approximately $3.2 million, including additional fees and
expenses, was funded with existing liquidity. The Company accounted for the
acquisitions under the purchase method of accounting. None of these
acquisitions were material to the Company's financial statements.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" issued in June, 1998,
establishes accounting and reporting standards for derivative instruments and
for hedging activities. Amending SFAS 52, "Foreign Currency Translation" and
SFAS 107, "Disclosures about Fair Value of Financial Instruments" and
superceding SFAS 80, "Accounting for Futures Contracts," SFAS 105 "Disclosure
of Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk" and SFAS 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments," SFAS 133 requires the recognition of all derivatives as either
assets or liabilities in the statement of financial position and measurement of
those instruments at fair value. The effective date for this Statement is
fiscal years beginning after June 15, 2000. Retroactive application to prior
period financial statements is not permitted. The Company expects to adopt this
Statement in its financial statements for the year ending December 31, 2001.
This Statement is not expected to have a material impact on the Company's
financial statements.
Year 2000
The Company utilizes and relies upon computer technology in many facets of
its operations, such as in the manufacture of contact lenses, the distribution
of lenses to customers, the arrangement of credit in connection with the
purchase of goods and the internal and external reporting of financial and
operational information. The technologies employed by the Company throughout
its operation include hardware and software as well as microprocessors and
other electronic devices which are components of production equipment
("embedded chips"). In the past, certain computer programs were written using
two digits rather than four to define the applicable year. Consequently, any of
the Company's systems and equipment that involve the use of time-
12
<PAGE>
sensitive software programmed in that manner may recognize a date using "00" as
the year "1900" rather than "2000", which could result in miscalculations or
system failures. This is commonly referred to as the "Year 2000" or "Y2K"
issue.
The Company has undertaken a global approach to addressing the Year 2000
issue and considers that effort to be substantially complete. The Company
identified the areas of its operations in which the Year 2000 issue could arise
and conducted a global survey of all personal computer, software and other
essential equipment to identify components to be modified or replaced. A formal
program to acquire and repair existing Company personal computers and
associated software was substantially completed in June, 1999. Mainframe system
software modifications were made and tested. During the first six months of
1999, manufacturing and application software, which had been remediated and
validated, was moved to the production environment. As of July, 1999, the
Company's critical systems had been modified, tested and implemented. In
addition, the Company initiated written communications with significant
suppliers and all banking institutions with which the Company has financial
arrangements to determine the extent to which the Company's systems and
operations were vulnerable to those third parties' failures to remediate their
Year 2000 compliance problems. The Company's global steering committee has met
bi-weekly to monitor the progress of testing all Company Information Technology
("IT") and relevant non-IT systems, to establish milestones for completion of
specific Year 2000-related tasks throughout the Company's facilities, and to
supervise generally the measures taken by the Company to address the Year 2000
issue.
The Company presently believes that, as a result of its actions, the Year
2000 issue will not pose significant operational problems for its computer
systems. If, however, the modifications, conversions and testing described
above have failed to identify a potential problem area, the Year 2000 issue
could have a material impact on the Company's operations. In addition, there
can be no guarantee that the systems of third parties will be made compliant in
a timely manner and would not have an adverse effect on the Company.
The Company has used both internal and external resources to identify and
test systems for Year 2000 compliance and to modify or replace them where
necessary. To assure Year 2000 compliance, the Company has made commitments of
$1.9 million to date, of which $1.0 million and $0.9 million was spent in 1999
and 1998, respectively, and has projected additional commitments of $0.8
million in future periods. The majority of these costs have been expensed as
incurred, with the remainder treated as capital expenditures. Costs related to
Year 2000 compliance were not significant in the years prior to 1998.
At this time, management is unable to estimate the effect of noncompliance
with the Year 2000 issue on the Company's results of operations, liquidity and
financial condition beyond the belief that noncompliance would be material in
nature. To mitigate the potential risk related to unsuccessful remediation on
either the part of the Company or its significant suppliers or bankers, a
contingency plan is being developed and is scheduled for completion in the
third quarter of 1999. Continued monitoring of systems and equipment will occur
throughout the remainder of 1999.
Conversion to Euro Currency
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency, the euro. The conversion to the euro will
eliminate currency exchange risk between member countries. Beginning in
January, 2002, new euro-denominated bills and coins will be issued, and legacy
currencies will be withdrawn from circulation. The transition period for the
introduction of the euro will be between January 1, 1999 and June 30, 2002.
The Company conducts business in some member countries affected. The more
important issues facing the Company include: converting information technology
systems; negotiating and amending business agreements and contracts; processing
tax and accounting records; and potentially the competitive impact of cross-
border price transparency. In conjunction with the Year 2000 effort, the
Company's operating subsidiaries affected by
13
<PAGE>
the euro currency conversion are addressing the issues involved, currently
with preliminary emphasis on order processing, banking and assessment of
financial systems. Due to the uncertainties involved, the issue of one common
currency's effect on pricing and its impact on results of operations cannot be
reasonably estimated at this time.
Based on our work to date, we believe the euro currency conversion has not
and will not have a material impact on the Company's consolidated financial
condition and results of operations.
Forward-Looking Statements
The Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"). Such forward-looking statements are based on the beliefs of the
Company's management as well as on assumptions made by and information
currently available to the Company at the time such statements were made. When
used in this MD&A, the words "anticipate," "believe," "estimate," "expect,"
"intends," and similar expressions, as they relate to the Company are intended
to identify forward-looking statements, which include statements relating to,
among other things, (i) the ability of the Company to continue to compete
successfully in the contact lens market; (ii) the anticipated benefits from
new product introductions; (iii) the completion of the integration of Barnes-
Hind with the Company; (iv) the strategic benefits of the Barnes-Hind
Acquisition; (v) the continued effectiveness of the Company's sales and
marketing strategy; (vi) the ability of the Company to continue to
successfully develop and launch new products; (vii) the timely resolution of
the Year 2000 issue by the Company and its suppliers; and (viii) the Euro
conversion. Actual results could differ materially from those projected in the
forward-looking statements as a result of the matters discussed herein and
certain economic and business factors, some of which may be beyond the control
of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's market risk exposure
since December 31, 1998.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
The 1999 Annual Meeting of Stockholders was held on May 26, 1999. The
following matters were submitted to a vote of shareholders:
a. Election of Directors
Each of the three individuals nominated to serve as directors of the
Company was elected to office.
<TABLE>
<CAPTION>
Votes Conclusion
Director Votes For Withheld of Term
-------- ---------- -------- ----------
<S> <C> <C> <C>
Edward J. Kelley........................... 16,601,464 202,079 2002
Adam W. Kirsch............................. 16,601,464 202,079 2002
Sol Levine................................. 16,592,824 210,719 2002
</TABLE>
The other Directors whose terms of office continue after the meeting
are set forth below:
<TABLE>
<CAPTION>
Conclusion
Director of Term
-------- ----------
<S> <C>
John J. O'Malley............................................... 2000
Stephen G. Pagliuca............................................ 2000
Kevin J. Ryan.................................................. 2000
John W. Maki................................................... 2001
Michael A. D'Amato............................................. 2001
</TABLE>
b. Approval of the Amendment to the Stock Incentive Plan
The shareholders were asked to approve the adoption of an amendment
to the Company's Stock Incentive Plan which increases the number of
shares reserved for issuance thereunder by a total of 1,000,000 shares
of Common Stock. A total of 10,005,519 shares were voted in favor of
the amendment, 5,574,741 shares were voted against it and 8,286 shares
abstained.
c. Appointment of Independent Auditors
The shareholders were asked to ratify and approve the appointment of
PricewaterhouseCoopers LLP as independent certified accountants for the
Company for the fiscal year ended December 31, 1999. A total of
16,798,687 shares were voted in favor of ratification and approval, 709
shares were voted against it and 4,147 shares abstained.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed herewith and made a part hereof:
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<C> <S>
10.1 Amended Stock Incentive Plan.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Wesley Jessen Visioncare, Inc.
/s/ Ronald J. Artale
By __________________________________
Ronald J. Artale
(Duly authorized officer,
Vice President and Controller)
16
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
STOCK INCENTIVE PLAN
--------------------
(as amended on May 26, 1999)
ARTICLE 1
Identification of the Plan
1.1 Title. The plan described herein shall be known as the Wesley
Jessen VisionCare, Inc. Stock Incentive Plan (the "Plan").
1.2 Purpose. The purpose of this Plan is (i) to compensate certain
officers and employees of Wesley Jessen VisionCare, Inc. (the "Company") and its
Subsidiaries for services rendered by such persons after the date of adoption of
this Plan to the Company or any Subsidiary; (ii) to provide certain officers and
employees of the Company and its Subsidiaries with significant additional
incentive to promote the financial success of the Company; and (iii) to provide
an incentive which may be used to induce able persons to enter into or remain in
the employment of the Company or any Subsidiary.
1.3 Effective Date. The Plan shall become effective upon its approval
by the Board of Directors and the stockholders of the Company (the "Effective
Date").
1.4 Defined Terms. Certain capitalized terms used herein have the
meanings as set forth in Section 10.1 of the Plan.
ARTICLE 2
Administration of the Plan
2.1 Initial Administration. This Plan shall initially be
administered by the Board of Directors. The Board of Directors shall delegate
the administration of the Plan to a Compensation Committee (the "Committee") in
the event that such a committee is established by the Board of Directors and is
comprised of persons appointed by the Board of Directors of the Company in
accordance with the provisions of Section 2.3. The Board shall exercise full
power and authority regarding the administration of the Plan until such
administration is delegated to the Committee. Unless the context otherwise
requires, references herein to the Committee shall be deemed to refer to the
Board of Directors until the administration of the Plan has been delegated to
the Committee.
<PAGE>
2.2 Committee's Powers. The Committee shall have full power and
authority to prescribe, amend and rescind rules and procedures governing
administration of this Plan. The Committee shall have full power and authority
(i) to interpret the terms of this Plan, the terms of the Awards and the rules
and procedures established by the Committee and (ii) to determine the meaning of
or requirements imposed by or rights of any person under this Plan, any Award or
any rule or procedure established by the Committee. Each action of the Committee
which is within the scope of the authority delegated to the Committee by this
Plan or by the Board shall be binding on all persons.
2.3 Committee Membership. The Committee shall be composed of two
or more members of the Board, each of whom is an "outside director" as defined
in Section 162(m) of the Code and a "Non-Employee Director," as defined in
Securities and Exchange Commission Rule 16b-3, as amended ("Rule 16b-3"), or any
successor rules or government pronouncements. The Board shall have the power to
determine the number of members which the Committee shall have and to change the
number of membership positions on the Committee from time to time. The Board
shall appoint all members of the Committee. The Board may from time to time
appoint members to the Committee in substitution for, or in addition to, members
previously appointed and may fill vacancies, however caused, on the Committee.
Any member of the Committee may be removed from the Committee by the Board at
any time with or without cause.
2.4 Committee Procedures. The Committee shall hold its meetings at
such times and places as it may determine. The Committee may make such rules and
regulations for the conduct of its business as it shall deem advisable. Unless
the Board or the Committee expressly decides to the contrary, a majority of the
members of the Committee shall constitute a quorum and any action taken by a
majority of the Committee members in attendance at a meeting at which a quorum
of Committee members are present shall be deemed an act of the Committee.
2.5 Indemnification. No member of the Committee shall be liable, in
the absence of bad faith, for any act or omission with respect to his or her
service on the Committee under this Plan. Service on the Committee shall
constitute service as a director of the Company so that the members of the
Committee shall be entitled to indemnification and reimbursement as directors of
the Company for any action or any failure to act in connection with service on
the Committee to the full extent provided for at any time in the Company's
Certificate of Incorporation and By-Laws, or in any insurance policy or other
agreement intended for the benefit of the Company's directors.
-2-
<PAGE>
ARTICLE 3
Persons Eligible to Receive Awards
A person shall be eligible to be granted an Award only if on the
proposed Granting Date for such Award such person is a full-time, salaried
employee of the Company or any Subsidiary, excluding non-management directors of
the Company, or has rendered or is expected to render advisory or consulting
services to the Company or any Subsidiary within a twelve-month period of the
Granting Date. A person eligible to be granted an Award is herein called a
"Grantee."
ARTICLE 4
Grant of Awards
4.1 Power to Grant Awards.
(a) The Committee is authorized under the Plan to enter into any type
of arrangement with any Grantee that is consistent with the provisions of the
Plan and that by its terms involves the issuance or potential issuance of (i)
shares of Common Stock, par value $.01 per share, of the Company ("Common
Stock") or (ii) a Derivative Security (as such term is defined in Rule 16a-1
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as such Rule may be amended from time to time) with an exercise or
conversion right at a price related to Common Stock or with a value derived from
the value of the shares of Common Stock. The entering into of any such
arrangement is referred to herein as the grant of an "Award."
(b) Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
restricted stock unit, stock options, reload stock options, stock purchase
warrants, other rights to acquire stock, securities convertible into or
redeemable for stock, stock appreciation rights, limited stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares, and an Award may consist of one or more such security or benefit.
4.2 Granting Date. An Award shall be deemed to have been granted
under this Plan on the date (the "Granting Date") which the Committee designates
as the Granting Date at the time it approves such Award, provided that the
Committee may not designate a Granting Date with respect to any Award which is
earlier than the date on which the granting of such Award is approved by the
Committee.
-3-
<PAGE>
4.3 Award Terms Which The Committee May Determine. The Committee
shall have the power to determine the Grantee to whom Awards are granted, the
number of Shares subject to each Award, the number of Awards granted to each
Grantee and the time at which each Award is granted. Except as otherwise
expressly provided in this Plan, the Committee shall also have the power to
determine, at the time of the grant of each Award, all terms and conditions
governing the rights and obligations of the holder with respect to such Award.
With respect to any Award granted under this Plan that is an option to purchase
Common Stock of the Company (an "Option"), the Committee shall have the power to
determine: (a) the purchase price per Share or the method by which the purchase
price per Share will be determined; (b) the length of the period during which
the Option may be exercised and any limitations on the number of Shares
purchasable with the Option at any given time during such period; (c) the times
at which the Option may be exercised; (d) any conditions precedent to be
satisfied before the Option may be exercised, such as vesting period; (e) any
restrictions on resale of any Shares purchased upon exercise of the Option; (f)
the extent to which the Option may be transferable; and (g) whether the Option
will constitute an Incentive Stock Option.
4.4 Award Agreement. No person shall have any rights under any Award
unless and until the Company and the person to whom such Award is granted have
executed and delivered an agreement expressly granting the Award to such person
and containing provisions setting forth the terms of the Award (an "Award
Agreement"). Unless otherwise provided by the Committee, the form of Stock
Option Agreement attached to this Plan as Exhibit A shall be used by the
Committee in granting nonqualified Options under the Plan.
4.5 Limitation on Shares Issuable to any Grantee. The aggregate
number of Shares that may relate to Awards granted to a Grantee during any
calendar year (including those already exercised by the Grantee) shall not
exceed 50,000 shares, as adjusted pursuant to Article 8 of this Plan.
ARTICLE 5
Award Terms
5.1 Plan Provisions Control Terms. The terms of this Plan shall
govern all Awards. In the event any provision of any Award Agreement conflicts
with any term in this Plan as constituted on the Granting Date of such Award,
the term in this Plan as constituted on the Granting Date of the Award shall
control. Except as provided in Article 8, the terms of any Award may not be
changed after the Granting Date of such Award without the express approval of
the Company and the Award Holder.
-4-
<PAGE>
5.2 Term Limitation. No Incentive Stock Option may be granted under
this Plan which is exercisable more than ten years after its Granting Date.
This Section 5.2 shall not be deemed to limit the term which the Committee may
specify for any Awards (including Options) granted under the Plan which are not
intended to be Incentive Stock Options.
5.3 Transfer of Awards. An Award granted pursuant to this Plan may
be transferable as provided in the Award Agreement. It shall be a condition
precedent to any transfer of any Award that the transferee executes and delivers
an agreement acknowledging such Award has been acquired for investment and not
for distribution and is and shall remain subject to this Plan and the Award
Agreement. The "Holder" of any Award shall mean (i) the initial grantee of such
Award or (ii) any permitted transferee.
5.4 $100,000 Per Year Limit on Incentive Stock Options. No Grantee
may be granted Incentive Stock Options if the value of the Shares subject to
those options which first become exercisable in any given calendar year (and the
value of the Shares subject to any other Incentive Stock Options issued to the
Grantee under the Plan or any other plan of the Company or its Subsidiaries
which first become exercisable in such year) exceeds $100,000. For this
purpose, the value of Shares shall be determined on the Granting Date. Any
Incentive Stock Options issued in excess of the $100,000 limit shall be treated
as Options that are not Incentive Stock Options. Incentive Stock Options shall
be taken into account in the order in which they were granted.
5.5 No Right to Employment Conferred. Nothing in this Plan or (in
the absence of an express provision to the contrary) in any Award Agreement (i)
confers any right or obligation on any person to continue in the employ of the
Company or any Subsidiary or (ii) affects or shall affect in any way any
person's right or the right of the Company or any Subsidiary to terminate such
person's employment with the Company or any Subsidiary at any time, for any
reason, with or without cause.
ARTICLE 6
Regulatory Compliance
6.1 Taxes. The Company or any Subsidiary shall be entitled, if the
Committee deems it necessary or desirable, to withhold from an Award Holder's
salary or other compensation (or to secure payment from the Award Holder in lieu
of withholding) all or any portion of any withholding or other tax due from the
Company or any Subsidiary with respect to any Shares deliverable under such
Holder's Award or the Committee may (but need not) permit payment of such
withholding by the Company's retention of Shares which
-5-
<PAGE>
would otherwise be transferred to the Award Holder upon exercise of the Option.
In the event any Common Stock is retained by the Company to satisfy all or any
part of the withholding, the part of the withholding deemed to have been
satisfied by such Common Stock shall be equal to the product derived by
multiplying the Per Share Market Value as of the date of exercise by the number
of Shares retained by the Company. The number of Shares retained by the Company
in satisfaction of withholding shall not be a number which when multiplied by
the Per Share Market Value as of the date of exercise would result in a product
greater than the withholding amount. No fractional Shares shall be retained by
the Company in satisfaction of withholding. Notwithstanding Article 7, unless
the Board shall otherwise determine, for each Share retained by the Company in
satisfaction of all or any part of the withholding amount, the aggregate number
of Shares subject to this Plan shall be increased by one Share. The Company may
defer delivery under a Holder's Award until indemnified to its satisfaction with
respect to such withholding or other taxes.
6.2 Securities Law Compliance. Each Award shall be subject to the
condition that such Award may not be exercised if and to the extent the
Committee determines that the sale of securities upon exercise of the Award may
violate the Securities Act or any other law or requirement of any governmental
authority. The Company shall not be deemed by any reason of the granting of any
Award to have any obligation to register the Shares subject to such Option under
the Securities Act or to maintain in effect any registration of such Shares
which may be made at any time under the Securities Act. An Award shall not be
exercisable if the Committee or the Board determines there is non-public
information material to the decision of the Holder to exercise such Award which
the Company cannot for any reason communicate to such Holder.
ARTICLE 7
Shares Subject to the Plan
Except as provided in Section 6.1 and Article 8, an aggregate of
1,800,000 Shares of Common Stock shall be subject to this Plan. Except as
provided in Section 6.1 and Article 8, the Awards shall be limited so that the
sum of the following shall not as of any given time exceed 1,800,000 Shares: (i)
all Shares subject to Awards outstanding under this Plan at the given time and
(ii) all Shares which shall have been issued by the Company by reason of the
exercise at or prior to the given time of any of the Options. The Common Stock
issued under the Plan may be either authorized and unissued shares, shares
reacquired and held in the treasury of the Company, or both, all as from time to
time determined by the Board. In the event any Award shall expire or be
terminated before it is fully exercised, then all Shares formerly
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<PAGE>
subject to such Award as to which such Award was not exercised shall be
available for any Award subsequently granted in accordance with the provisions
of this Plan. No fractional Shares will be eligible to be issued under the Plan.
In the event of a change in the Shares as presently constituted, which is
limited to a change of all of its authorized shares with par value into the same
number of shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Shares within the
meaning of the Plan.
ARTICLE 8
Adjustments to Reflect Organic Changes
The Board shall appropriately and proportionately adjust the number
and kind of Shares subject to outstanding Awards, the price for which Shares may
be purchased upon the exercise of outstanding Awards, and the number and kind of
Shares available for Awards subsequently granted under this Plan to reflect any
stock dividend, stock split, combination or exchange of shares, merger,
consolidation or other change in the capitalization of the Company which the
Board determines to be similar, in its substantive effect upon this Plan or the
Awards, to any of the changes expressly indicated in this sentence. The Board
may (but shall not be required to) make any appropriate adjustment to the number
and kind of Shares subject to outstanding Awards, the price for which Shares may
be purchased upon the exercise of outstanding Awards, and the number and kind of
Shares available for Awards subsequently granted under this Plan to reflect any
spin-off, spin-out or other distribution of assets to stockholders or any
acquisition of the Company's stock or assets or other change which the Board
determines to be similar, in its substantive effect upon this Plan or the
Awards, to any of the changes expressly indicated in this sentence. The
Committee shall have the power to determine the amount of the adjustment to be
made in each case described in the preceding two sentences, but no adjustment
approved by the Committee shall be effective until and unless it is approved by
the Board. In the event of any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the Company's assets which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock, the Board may (but shall not be
required to) substitute the per share amount of such stock, securities or assets
for Shares upon any subsequent exercise of any Award.
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<PAGE>
ARTICLE 9
Amendment and Termination of the Plan
9.1 Amendment. Except as provided in the following two sentences, the
Board shall have complete power and authority to amend this Plan at any time and
no approval by the Company's stockholders or by any other person, committee or
other entity of any kind shall be required to make any amendment approved by the
Board effective. So long as the Common Stock is eligible for trading on the
Nasdaq National Market, the Board shall obtain stockholder approval for those
amendments of the Plan required to be so approved pursuant to the By-laws of the
National Association of Securities Dealers. The Board shall not, without the
affirmative approval of the Company's stockholders, amend the Plan in any manner
which would cause any outstanding Incentive Stock Options to no longer qualify
as Incentive Stock Options. No termination or amendment of this Plan may,
without the consent of the Holder of any Award prior to termination or the
adoption of such amendment, materially and adversely affect the rights of such
Holder under such Award.
9.2 Termination. The Board shall have the right and the power to
terminate this Plan at any time, provided that no Incentive Stock Options may be
granted after the tenth anniversary of the adoption of this Plan. No Award shall
be granted under this Plan after the termination of this Plan, but the
termination of this Plan shall not have any other effect. Any Award outstanding
at the time of the termination of this Plan may be exercised after termination
of this Plan at any time prior to the Expiration Date of such Award to the same
extent such Award would have been exercisable had this Plan not terminated.
ARTICLE 10
Definitions and Other Provisions of the Plan
10.1 Definitions. Each term defined in this Section 10.1 has the
meaning indicated in this Section 10.1 whenever such term is used in this Plan:
"Award" has the meaning such term is given in Section 4.1 of this
Plan.
"Award Agreement" has the meaning such term is given in Section 4.4 of
this Plan.
"Board of Directors" and "Board" both mean the Board of Directors of
the Company as constituted at the time the term is applied.
-8-
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" has the meaning such term is given in Section 2.1 of this
Plan.
"Common Stock" means the issued or issuable Common Stock, par value
$.01 per share, of the Company.
"Company" as applied as of any given time shall mean Wesley Jessen
VisionCare, Inc., a Delaware corporation, except that if prior to the given time
any corporation or other entity has acquired all or a substantial part of the
assets of the Company (as herein defined) and has agreed to assume the
obligations of the Company under this Plan, or is the survivor in a merger or
consolidation to which the Company was a party, such corporation or other entity
shall be deemed to be the Company at the given time.
"Expiration Date" as applied to any Award means the date specified in
the Award Agreement between the Company and the Holder as the expiration date of
such Award. If no expiration date is specified in the Award Agreement relating
to any Award, then the Expiration Date of such Award shall be the day prior to
the tenth anniversary of the Granting Date of such Award. Notwithstanding the
preceding sentences, if the person to whom any Incentive Stock Option is granted
owns, on the Granting Date of such Option, stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company (or of any parent or Subsidiary of the Company in existence on the
Granting Date of such Option), and if no expiration date is specified in the
Award Agreement relating to such Option, then the Expiration Date of such Option
shall be the day prior to the fifth anniversary of the Granting Date of such
Option.
"Grantee" has the meaning such term is given in Article 3 of this
Plan.
"Granting Date" has the meaning such term is given in Section 4.2 of
this Plan.
"Holder" has the meaning such term is given in Section 5.3 of this
Plan.
"Incentive Stock Option" means an incentive stock option, as defined
in Code Section 422, which is granted pursuant to this Plan.
"Option" has the meaning such term is given in Section 4.3 of this
Plan.
-9-
<PAGE>
"Plan" has the meaning such term is given in Section 1.1 of this Plan.
"Securities Act" at any given time shall consist of: (i) the
Securities Act of 1933 as constituted at the given time; (ii) any other law or
laws promulgated prior to the given time by the United States Government which
are in effect at the given time and which regulate or govern any matters at any
time regulated or governed by the Securities Act of 1933; (iii) all regulations,
rules, registration forms and other governmental pronouncements issued under the
laws specified in clauses (i) and (ii) of this sentence which are in effect at
the given time; and (iv) all inter pretations by any governmental agency or
authority of the things specified in clause (i), (ii) or (iii) of this sentence
which are in effect at the given time. Whenever any provision of this Plan
requires that any action be taken in compliance with any provision of the
Securities Act, such provision shall be deemed to require compliance with the
Securities Act as constituted at the time such action takes place.
"Share" means a share of Common Stock.
"Subsidiary" means any corporation in which the Company owns, directly
or indirectly, 50% or more of the total combined voting power of all classes of
securities of such corporation.
10.2 Headings. Section headings used in this Plan are for convenience
only, do not constitute a part of this Plan and shall not be deemed to limit,
characterize or affect in any way any provisions of this Plan. All provisions
in this Plan shall be construed as if no headings had been used in this Plan.
10.3 Severability.
(a) General. Whenever possible, each provision in this Plan and in
every Award at any time granted under this Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Plan or any Award at any time granted under this Plan is held to be
prohibited by or invalid under applicable law, then (i) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (ii) all other provisions of
this Plan and every Award at any time granted under this Plan shall remain in
full force and effect.
(b) Incentive Stock Options. Whenever possible, each provision in
this Plan and in every Award at any time granted under this Plan which is
evidenced by an Award Agreement which expressly states such Option is intended
to constitute an Incentive Stock Option under Code Section 422 (an "intended
ISO") shall be interpreted in such manner as to entitle such intended ISO to the
-10-
<PAGE>
tax treatment afforded by the Code to Options which do constitute Incentive
Stock Options under Code Section 422, but if any provision of this Plan or any
intended ISO at any time granted under this Plan is held to be contrary to the
requirements necessary to entitle such intended ISO to the tax treatment
afforded by the Code to Options which do constitute Incentive Stock Options
under Code Section 422, then (i) such provision shall be deemed to have
contained from the outset such language as shall be necessary to entitle such
intended ISO to the tax treatment afforded by the Code to Options which do
constitute Incentive Stock Options under Code Section 422, and (ii) all other
provisions of this Plan and such intended ISO shall remain in full force and
effect. If any Award Agreement covering an intended ISO granted under this Plan
does not explicitly include any terms required to entitle such intended ISO to
the tax treatment afforded by the Code to Options which do constitute Incentive
Stock Options under Code Section 422, then all such terms shall be deemed
implicit in the intention to afford such treatment to such Option and such
Option shall be deemed to have been granted subject to all such terms.
10.4 No Strict Construction. No rule of strict con struction shall be
applied against the Company, the Committee or any other person in the
interpretation of any of the terms of this Plan, any Award or any rule or
procedure established by the Committee.
10.5 Choice of Law. This Plan and all documents contemplated hereby,
and all remedies in connection therewith and all questions or transactions
relating thereto, shall be construed in accordance with and governed by the
internal laws of the State of Delaware.
10.6 Tax Consequences. Tax consequences from the purchase and sale of
Shares may differ among grantees under the Plan. Each grantee of an Award
should discuss specific tax questions regarding participation in the Plan with
his or her own tax advisor.
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-04-1999
<PERIOD-END> JUL-03-1999
<CASH> 11,403
<SECURITIES> 0
<RECEIVABLES> 57,647<F1>
<ALLOWANCES> 12,593
<INVENTORY> 57,847
<CURRENT-ASSETS> 145,932
<PP&E> 54,606
<DEPRECIATION> 5,491
<TOTAL-ASSETS> 213,197
<CURRENT-LIABILITIES> 62,280
<BONDS> 0
0
0
<COMMON> 182
<OTHER-SE> 64,653
<TOTAL-LIABILITY-AND-EQUITY> 213,197
<SALES> 80,005
<TOTAL-REVENUES> 80,005
<CGS> 25,306
<TOTAL-COSTS> 65,873
<OTHER-EXPENSES> (228)
<LOSS-PROVISION> 128
<INTEREST-EXPENSE> 882
<INCOME-PRETAX> 13,478
<INCOME-TAX> 4,313
<INCOME-CONTINUING> 9,165
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,165
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.49
<FN>
<F1> ALLOWANCES NETTED AGAINST TRADE RECEIVABLES INCLUDE BOTH BAD DEBT RESERVES
AND SALE RETURN RESERVES.
</FN>
</TABLE>
