<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 October 2, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 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 November 9, 1999 was 17,494,678.
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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 October 2, 1999 and December
31, 1998............................................................ 1
Condensed Consolidated Statements of Operations for the three and
nine months ended October 2, 1999 and September 26, 1998............ 2
Condensed Consolidated Statements of Cash Flows for the nine months
ended October 2, 1999 and September 26, 1998........................ 3
Notes to the Condensed Consolidated Financial Statements............. 4-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 8-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 13
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 14
Signatures............................................................. 15
</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>
October 2, December 31,
1999 1998
---------- ------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 9,614 $ 8,859
Accounts receivable--trade, net..................... 48,584 47,363
Other receivables................................... 6,169 6,840
Inventories......................................... 57,284 62,055
Deferred income taxes............................... 18,582 18,602
Prepaid expenses.................................... 6,074 6,977
Assets held for sale................................ -- 1,222
-------- --------
Total current assets.............................. 146,307 151,918
-------- --------
Properties:
Property, plant and equipment, at cost.............. 61,724 40,537
Accumulated depreciation............................ 7,624 4,199
-------- --------
Net property, plant and equipment................... 54,100 36,338
-------- --------
Other Assets:
Investment in affiliate............................. 2,228 --
Goodwill, net....................................... 2,732 2,569
Notes receivable.................................... 1,341 1,803
Other assets........................................ 10,520 11,890
-------- --------
Total assets...................................... $217,228 $204,518
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Trade accounts payable.............................. $ 14,029 $ 17,689
Accrued compensation and benefits................... 25,920 25,565
Other accrued liabilities........................... 21,600 21,690
Income taxes payable................................ 788 3,257
Short term debt..................................... 2,352 --
-------- --------
Total current liabilities......................... 64,689 68,201
-------- --------
Negative goodwill, net................................ 11,766 12,587
Long term debt........................................ 54,000 69,000
Other liabilities..................................... 6,237 4,778
-------- --------
Total liabilities................................. 136,692 154,566
-------- --------
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 17,468,538 and 16,994,884 issued and
outstanding at October 2, 1999 and December 31,
1998, respectively................................. 182 180
Additional paid in capital.......................... 60,709 60,847
Accumulated earnings ............................... 35,747 10,438
Treasury stock, at cost, 707,047 and 1,000,000
shares at October 2, 1999 and December 31, 1998,
respectively....................................... (15,064) (21,306)
Accumulated other comprehensive loss................ (1,038) (207)
-------- --------
Total stockholders' equity........................ 80,536 49,952
-------- --------
Total liabilities and stockholders' equity........ $217,228 $204,518
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
October 2, September 26, October 2, September 26,
1999 1998 1999 1998
----------- ------------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales................. $80,744 $75,254 $237,060 $219,266
------- ------- -------- --------
Operating costs and
expenses:
Cost of goods sold...... 24,910 23,255 75,334 67,957
Marketing and
administrative......... 36,853 35,891 112,910 108,894
Research and
development............ 3,607 2,820 9,393 7,853
Amortization of
goodwill, net.......... (163) (247) (620) (794)
------- ------- -------- --------
Income from operations.... 15,537 13,535 40,043 35,356
Other (income) expense:
Interest income......... (144) (159) (475) (414)
Interest expense........ 876 1,495 3,112 3,878
Equity in net loss of
affiliate.............. 187 -- 187
------- ------- -------- --------
Income before income
taxes.................... 14,618 12,199 37,219 31,892
Income tax expense........ (4,678) (4,148) (11,910) (10,844)
------- ------- -------- --------
Net income................ $ 9,940 $ 8,051 $ 25,309 $ 21,048
======= ======= ======== ========
Net income per common
share:
Basic................... $ 0.57 $ 0.47 $ 1.47 $ 1.20
Diluted................. $ 0.53 $ 0.43 $ 1.36 $ 1.10
Weighted average common
shares outstanding:
Basic................... 17,323 17,134 17,166 17,589
Diluted................. 18,682 18,521 18,583 19,084
</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>
Nine Months Ended
-------------------------
October 2, September 26,
1999 1998
----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities:
Net income......................................... $25,309 $21,048
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense............................. 3,663 1,787
Amortization of capitalized financing fees....... 469 428
Amortization of goodwill......................... (620) (795)
Equity in net loss of affiliate.................. 187 --
(Gain) loss on disposal of property, plant, and
equipment....................................... 13 (15)
Deferred income tax.............................. (11) (96)
Other............................................ 82 266
Changes in balance sheet items:
Accounts receivable-trade, net................... (1,443) (9,467)
Other receivables................................ 523 (2,109)
Inventories...................................... 4,053 (8,715)
Other assets..................................... 1,495 1,015
Trade accounts payable........................... (3,555) 739
Accrued liabilities.............................. 557 2,745
Other liabilities................................ 1,435 2,033
Income taxes payable............................. 1,710 7,474
------- -------
Cash provided by operating activities.......... 33,867 16,338
------- -------
Investing activities:
Investment in affiliate............................ (2,415) --
Proceeds from Natural Touch sale................... 500 1,000
Net assets acquired................................ -- (3,078)
Capital expenditures............................... (21,604) (12,935)
Proceeds from the sale of assets................... 1,322 117
------- -------
Cash used in investing activities.............. (22,197) (14,896)
------- -------
Financing activities:
Issuance of stock.................................. 1,973 1,556
Repurchase of shares............................... -- (21,306)
Proceeds from issuance of debt..................... 11,143 29,000
Payments of debt................................... (24,000) (9,000)
------- -------
Cash provided by (used in) financing
activities.................................... (10,884) 250
------- -------
Effect of exchange rates on cash and cash
equivalents....................................... (31) (821)
Net increase in cash and cash equivalents.......... 755 871
Cash and cash equivalents:
Beginning of period................................ 8,859 4,759
------- -------
End of period...................................... $ 9,614 $ 5,630
======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for interest........... $ 3,047 $ 3,277
======= =======
Cash paid during the period for taxes, net......... $ 9,118 $ 3,086
======= =======
</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. The
computation of basic and diluted net income per share are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
October 2, September 26, October 2, September 26,
1999 1998 1999 1998
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Basic Net Income Per
Share:
Net income.............. $ 9,940 $ 8,051 $25,309 $21,048
Weighted average common
shares outstanding..... 17,323 17,134 17,166 17,589
Basic net income per
share.................. $ 0.57 $ 0.47 $ 1.47 $ 1.20
Diluted Net Income Per
Share:
Net income.............. $ 9,940 $ 8,051 $25,309 $21,048
Weighted average common
shares outstanding..... 17,323 17,134 17,166 17,589
Net additional shares
issuable in connection
with stock options..... 1,359 1,387 1,417 1,495
Diluted weighted average
common shares
outstanding............ 18,682 18,521 18,583 19,084
Diluted net income per
share.................. $ 0.53 $ 0.43 $ 1.36 $ 1.10
</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 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 plant closing will result in the termination of 471 employees
(of whom 337 had been terminated as of October 2, 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........... (2,628) (313) (220) (3,161)
Reallocation of reserve October 2,
1999............................. (700) (80) 780 --
------ ---- ---- ------
$3,841 $149 $735 $4,725
====== ==== ==== ======
</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 $0.2 million as of October 2, 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.................... (117) (67) (20) (204)
Reversed to income......................... -- (172) -- (172)
---- ---- ---- ----
Restructuring reserve at October 2, 1999... $ 70 $ 49 $ 94 $213
==== ==== ==== ====
</TABLE>
4. Other Balance Sheet Accounts
Accounts receivable-trade, net consist of the following (in thousands):
<TABLE>
<CAPTION>
October 2, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Trade receivables................................. $59,279 $62,968
Less allowances:
Doubtful accounts............................. (4,389) (4,992)
Sales returns and adjustments................. (6,306) (10,613)
------- -------
$48,584 $47,363
======= =======
</TABLE>
5
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(unaudited)
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
October 2, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Raw materials.................................... $ 5,527 $ 5,934
Work-in-process.................................. 7,355 6,463
Finished goods................................... 44,402 49,658
------- -------
$57,284 $62,055
======= =======
</TABLE>
5. 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 in August 1999
when the then-existing bank credit agreement was amended to increase the
levels allowed for intercompany loans, capital contributions to foreign
subsidiaries, investments, stock repurchases and capital expenditures.
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 as of October 2, 1999 was $116.0 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. Comprehensive Income
The components of comprehensive income for the three and nine months ended
October 2, 1999 and September 26, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
October 2, September 26, October 2, September 26,
1999 1998 1999 1998
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net income............... $ 9,940 $8,051 $25,309 $21,048
Foreign currency
translation adjustments. 2,078 1,156 (831) (99)
------- ------ ------- -------
Comprehensive income..... $12,018 $9,207 $24,478 $20,949
======= ====== ======= =======
</TABLE>
7. 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. During the third quarter of 1999, a portion of the stock was
reissued in connection with the Company's stock incentive plans, the employee
stock purchase plans and employee stock awards.
6
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(unaudited)
8. Affiliates
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 implementaion
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 is being accounted for under the equity method of accounting.
The excess of the Company's investment over the equity in the net assets of
Inoveon represents purchased technology which is being amortized over 5 years.
9. Acquisitions
In May, 1999, the Company, through its Hong Kong subsidiary, acquired
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 acccounting. None of these acquisitions were material
to the Company's financial statements.
10. Business segment 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.
Financial information by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
October 2, September 26, October 2, September 26,
1999 1998 1999 1998
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net sales:
United States (including
Puerto Rico)........... $ 52,757 $49,252 $154,059 $147,892
United Kingdom.......... 9,527 9,950 28,174 26,721
Rest of the world....... 18,460 16,052 54,827 44,653
-------- ------- -------- --------
$ 80,744 $75,254 $237,060 $219,266
======== ======= ======== ========
</TABLE>
7
<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 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 October 2, 1999 Compared to Three Months Ended September
26, 1998
Net sales for the three months ended October 2, 1999 increased $5.4
million, or 7.3%, to $80.7 million from $75.3 million for the three months
ended September 26, 1998. This increase resulted primarily from 34.4% growth
in the sales of disposable and planned replacement contact lenses led by the
launch of FreshLook ColorBlends(R) and FreshLook(R) Toric, from $31.9 million
to $42.8 million, offset by a 12.6% decline in the sales of conventional lens
products, from $43.4 million to $37.9 million. Sales of disposable and planned
replacement lenses grew 36.6% in the U.S. and 31.6% internationally while
sales of conventional lenses fell 10.6% domestically and 15.8% in the rest of
the world. For the three month period, total U.S. sales rose 8.3%, surpassing
the total international sales growth of 5.9%.
Gross profit for the three months ended October 2, 1999 increased $3.8
million, or 7.4%, to $55.8 million from $52.0 million in the comparable 1998
period. Gross profit margin remained constant at 69.1% for both periods.
Marketing and administrative expenses for the three months ended October 2,
1999 increased by $1.1 million, or 3.2%, to $37.0 million from $35.9 million
for the three months ended September 26, 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 45.9% in the 1999 period from 47.7% in the 1998 period.
Research and development expenses increased $0.8 million, or 27.9%, to $3.6
million for the three months ended October 2, 1999 from $2.8 million for the
three months ended September 26, 1998. The increase was
8
<PAGE>
driven by developmental spending for the bifocal lens product and higher
regulatory costs in Japan related to applying for approval to market the
FreshLook Colors product line. As a percent of net sales, research and
development expenses increased to 4.5% in the 1999 period from 3.7% in the
1998 period.
Interest expense decreased 41.4% to $0.9 million for the three months ended
October 2, 1999 from $1.5 million for the three months ended September 26,
1998 due to lower current year interest rates and debt balances along with the
capitalization of interest costs in the 1999 period related to the
construction of additional production capacity. Excluding the impact of
capitalization, interest expense decreased 26.3%.
Net income for the three months ended October 2, 1999 increased by $1.8
million, or 23.5%, to $9.9 million from $8.1 million for the three months
ended September 26, 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.
Nine Months Ended October 2, 1999 Compared to Nine Months Ended September 26,
1998
Net sales for the nine months ended October 2, 1999 increased $17.8
million, or 8.1%, to $237.1 million from $219.3 million for the nine months
ended September 26, 1998. This increase resulted primarily from 37.8% growth
in the sales of disposable and planned replacement contact lenses driven by
the introduction of FreshLook ColorBlends and FreshLook Toric, from $89.3
million to $123.1 million, offset by a 12.3% decline in the sales of
conventional lens products, from $130.0 million to $114.0 million. Sales of
disposable and planned replacement lenses grew 48.2% in the U.S. and 25.7%
internationally while sales of conventional lenses fell 9.4% domestically and
16.9% in the rest of the world. For the nine month period, total U.S. sales
increased 12.2%, surpassing total international sales growth of 2.4%.
Gross profit for the nine months ended October 2, 1999 increased $10.4
million, or 6.9%, to $161.7 million from $151.3 million in the comparable 1998
period. Gross profit margin decreased 0.8% to 68.2% in 1999, reflecting short
term production inefficiencies during the first six months of the year related
to meeting the sales demand for new products.
Marketing and administrative expenses for the nine months ended October 2,
1999 increased by $4.2 million, or 3.9%, to $113.1 million from $108.9 million
for the nine months ended September 26, 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 47.7% in the 1999 period
from 49.7% in the 1998 period.
Research and development expenses for the nine months ended October 2, 1999
increased by $1.5 million, or 19.6%, to $9.4 million from $7.9 million for the
nine months ended September 26, 1998. As a percentage of net sales, research
and development expenses rose to 4.0% in the 1999 period from 3.6% in the 1998
year period. The increase was driven by spending for the development of
capacity enhancements, bi-focal and other new products and regulatory costs
for gaining approval to market an expanded product line in Japan.
Interest expense decreased 19.8% to $3.1 million for the nine months ended
October 2, 1999 from $3.9 million for the nine months ended September 26, 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 decreased 9.0% due to lower interest rates
available to the Company in the current year under its revolving credit
facility.
Net income for the nine months ended October 2, 1999 increased $4.3
million, or 20.2%, to $25.3 million from $21.0 million for the nine months
ended September 26, 1998 as increased marketing and administrative costs and
higher research and development expenses were more than offset by gross profit
gains and the impact
9
<PAGE>
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.
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
nine months ended October 2, 1999, the Company generated approximately $33.9
million in cash from operating activities, driven by profitability gains and
decreased inventory levels. For the nine months ended September 26, 1998, the
Company generated approximately $16.3 million in cash from operating
activities as improvements in profitability, along with increases in income
taxes payable and accrued liabilities, were partially offset by higher
accounts receivable and inventory balances. Since December 31, 1998, the
Company has made net payments against long term debt of approximately $12.9
million.
For the nine months ended October 2, 1999 and September 26, 1998, the
Company made capital expenditures of approximately $21.6 million and $12.9
million, respectively. The majority of these capital expenditures were for
production capacity expansion, information technology enhancements, and site
consolidations. The Company anticipates that additional capital expenditures
of $8.4 million will be made during the fourth quarter of 1999 to continue
capacity expansion, further consolidate facilities and improve 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
aggregate 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
October 2, 1999, the Company has paid $15.7 million of these integration
costs.
The Company maintains a $170 million revolving credit facility as amended
in August, 1999. 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. The most
recent amendment to the credit agreement relaxes certain restrictions on the
Company's use of loan proceeds by increasing the levels allowed for
intercompany loans, capital contributions to foreign subsidiaries,
investments, stock repurchases and capital expenditures. 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. As of October 2, 1999, the Company had
approximately $116.0 million in borrowing availability under this facility.
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 October 2, 1999 of $9.6 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 to comply with the terms of its
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.
10
<PAGE>
Approximately 39% of the Company's net sales for the nine months ended
October 2, 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 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 shares 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. Currently, the Company reissues 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 is
accounted for under the equity method of accounting.
In May, 1999, the Company, through its Hong Kong subsidiary, acquired
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 was 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
11
<PAGE>
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-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 has been completed. The Company's critical systems
including manufacturing and application software have 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 expects to incur total
costs of $3.4 million, of which $1.5 million and $0.8 million has been spent
in 1999 and 1998, respectively, and has projected additional spending of $1.1
million in future periods, primarily for payments on leased computer
equipment. 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,
contingency plans have been developed, concentrating on critical functions
such as order entry, distribution and manufacturing. Continued monitoring of
systems and equipment will occur throughout the remainder of 1999 and during
2000.
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.
12
<PAGE>
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 the euro currency conversion
are addressing the issues involved, currently with preliminary emphasis on
order processing, banking and assessment of financial systems.
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.
13
<PAGE>
PART II. OTHER INFORMATION
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> <C>
10.1 Second Amendment to the Credit Agreement, dated as of
February 19, 1997 and reinstated as of September 10, 1997
and further amended by a First Amendment and Consent dated
as of June 9, 1998, among Wesley Jessen VisionCare, Inc.,
Wesley Jessen Corporation, various lending institutions, and
Bankers Trust Company, as Agent.
10.2 Promissory note of Kevin J. Ryan.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
None.
14
<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)
15
<PAGE>
SECOND AMENDMENT
-----------------
This is the SECOND AMENDMENT (this "Amendment"), dated as of August
18, 1999, among WESLEY JESSEN VISIONCARE, INC. ("Holdings"), WESLEY JESSEN
CORPORATION (the "Borrower"), the financial institutions party to the Credit
Agreement referred to below (the "Banks") and BANKERS TRUST COMPANY, as agent
(the "Agent"). All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the Credit Agreement
referred to below.
WITNESSETH:
WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties
to a Credit Agreement, dated as of February 19, 1997 and amended and reinstated
as if September 10, 1997 and further amended by a First Amendment and Consent
dated as of June 9, 1998 (as modified, supplemented and amended to, but not
including the date hereto, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Agent and the Banks agree
to the amendments provided herein, and the Agent and the Banks (subject to the
terms and conditions hereof) are willing to agree to such amendments;
NOW, THEREFORE, it is agreed:
1. Paragraph 8.05(g) of the Credit Agreement is amended by
substituting "$32,000,000" for "$22,000,000", so that the paragraph now reads as
follows:
"(g) The Borrower may make intercompany loans and advances to any of
its Subsidiaries and any Subsidiary of the Borrower may make intercompany
loans and advances to the Borrower or any other Subsidiary of the Borrower
(collectively, "Intercompany Loans"), provided, that (w) at no time shall
the aggregate outstanding principal amount of Intercompany Loans made
pursuant to this clause (g) by the Borrower and its Domestic Subsidiaries
to Foreign Subsidiaries, when added to the amount of contributions,
capitalization and forgiveness therefore made pursuant to clause (1) exceed
$32,000,000 (determined without regard to any write-downs or write-offs or
such loans and advances), (x) each Intercompany Loan made by a Foreign
Subsidiary to the Borrower or a Domestic Subsidiary shall contain the
subordination provisions set forth on Exhibit K, (y) each Intercompany Loan
shall be evidenced by an Intercompany Note and (z) each such Intercompany
Note (other than (1) Intercompany Notes issued by Foreign Subsidiaries to
the Borrower or Domestic Subsidiaries and (2) Intercompany Notes held by
Foreign Subsidiaries) shall be pledged to the Collateral Agent pursuant to
the Pledge Agreement;"
2. Paragraph 8.05(l) of the Credit Agreement is amended by
substituting "$32,000,000" for "$22,000,000", so that the paragraph now
reads as follows:
1
<PAGE>
"(1) the Borrower and its Domestic Subsidiaries may make cash
capital contributions to Foreign Subsidiaries, and may capitalize or
forgive any Indebtedness owed to them by a Foreign Subsidiary and
outstanding under clause (g) of this Section 8.05, provided, that the
aggregate amount of such contributions, capitalization and forgiveness
made pursuant to this clause (1), when added to the aggregate outstanding
principal amount of Intercompany Loans made to Foreign Subsidiaries under
clause (g) (determined without regard to any write-downs or write-offs
thereof) shall not exceed an amount equal to $32,000,000;"
3. Paragraph 8.05(x) of the Credit Agreement is amended by
substituting respectively, "$15,000,000" for "$7,500,000" in both places,
so that the paragraph now reads as follows:
"(x) in addition to investments permitted by clauses (a) through
(w) above, so long as no Default or Event of Default then exists or
would result therefrom, the Borrower and its Subsidiaries may make
additional loans, advances and investments to or in a Person so long
as the amount of any such loans, advance or investment (at the time of
the making thereof) does not exceed an amount equal to the sum of (A)
$15,000,000 less the aggregate amount of such $15,000,000 previously
used to make loans, advances and investments pursuant to this clause
(x) to the extent same are then still outstanding (determined without
regard to any write-downs or write-offs thereof and net of cash
repayments of principal in the case of loans and cash equity returns
(whether as a dividend or redemption) in the case of equity
investments) plus (B) an amount equal to the Cumulative Income and
Equity Amount at such time; provided, that (1) any loan, advance or
investment made with the Cumulative Income and Equity Amounts shall be
in or to a Person of which the Borrower owns (directly or indirectly)
at least a majority economic and voting interest (including the
interest purchase or to be purchased with the respective investment)
and (2) neither the Borrower nor any of its Subsidiaries may make or
own any investments in Margin Stock."
4. Notwithstanding anything to the contrary contained in Section
8.06 of the Credit Agreement, in addition to any other Dividends permitted
under such Section, (a) at any time and from time to time Holdings may
redeem or purchase shares of Holdings Common Stock, provided that the
aggregate amount expended by Holdings to redeem or purchase such Holdings
Common Stock pursuant to this Amendment, when added to the aggregate amount
expended for such purpose pursuant to Section 2 of the First Amendment and
Consent, dated as of June 9, 1998, in connection with the Credit Agreement,
shall not exceed $50,000,000 and (b) so long as no Default or Event of
Default then exists or would result therefrom, the Borrower may pay cash
Dividends to Holdings so long as the cash proceeds thereof are promptly
used by Holdings for the purpose described in clause (a) above.
5. Paragraph 8.08(a) of the Credit Agreement is amended by
substituting respectively, "December 31, 2000" for "December 31, 1999",
"$95,000,000" for "$37,900,000", "$35,000,000" for "$25,000,00", and
"$35,000,000" for "$10,000,000", so that the paragraph now reads as
follows:
-2-
<PAGE>
"8.08 Capital Expenditures. (a) Holdings will not, and will not
permit any of its Subsidiaries to, make any Capital Expenditures,
except that: (i) during the period commencing on July 1, 1997 and
ending December 31, 2000, the Borrower and its Subsidiaries may make
Capital Expenditures in an aggregate amount not to exceed $95,000,000
(provided that such Capital Expenditures shall not exceed $35,000,000
in any fiscal year of the Borrower) and (ii) during any fiscal year
thereafter the Borrower and its Subsidiaries may make Capital
Expenditures so long as the aggregate amount of such Capital
Expenditures does not exceed $35,000,000."
6. In order to induce the Agent and the Banks to enter into this
Amendment, the Borrower hereby represents and warrants that (i) no Default
or Event of Default exists on the Amendment Effective Date (as defined
below) both before and after giving effect to this Amendment and (ii) all
of the representations and warranties contained in the Credit Agreement or
the other Credit Documents are true and correct in all material respects on
the date hereof and on the Amendment Effective Date with the same effect as
though such representations and warranties had been made on and as of such
date (it being understood that any representation or warranty made as of a
specific date shall be true and correct in all material respects as of such
specific date).
7. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
8. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with each of the Borrower and the Agent.
9. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF TBE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
10. This Amendment shall become effective on the date, on or after
the date of this Amendment, (the "Amendment Effective Date") when each of
Holdings, the Borrower and the Required Banks shall have signed a copy
hereof (whether the same or different copies) and shall have delivered
(including by way of telecopier) the same to the Agent.
11. From and after the Amendment Effective Date, all references in
the Credit Agreement and in each of the Credit Documents to the Credit
Agreement shall be deemed to be references to such Credit Agreement as
amended hereby.
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the
date first above written.
WESLEY JESSEN VISIONCARE, INC.
By: /s/ Edward J. Kelley
-----------------------------
Name: Edward J. Kelley
Title: V.P. and Chief Financial Officer
WESLEY JESSEN CORPORATION
By:/s/ Edward J. Kelley
-----------------------------
Name: Edward J. Kelley
Title: V.P. and Chief Financial Officer
BANKERS TRUST COMPANY,
individually and as Agent
By:/s/ Mary Kay Coyle
-----------------------------
Name: Mary Kay Coyle
Title: Managing Director
THE FIRST NATIONAL BANK OF
CHICAGO
By:/s/ Julia A. Bristow
------------------------------
Name: Julia A. Bristow
Title: Managing Director
FLEET NATIONAL BANK
By:/s/ Andy Sassine
------------------------------
Name: Andy Sassine
Title: Vice President
-4-
<PAGE>
HARRIS TRUST AND SAVINGS BANK
By: /s/ Lee A. Vandermyde
----------------------------
Name: Lee A. Vandermyde
Title: Managing Director
LASALLE NATIONAL BANK
By: /s/ Sara K. Tenbroer
----------------------------
Name: Sara K. Tenbroer
Title: Vice President
NATIONAL BANK OF CANADA
By: /s/ Jonathan M. Millard
--------------------------------
Name: Jonathan M. Millard
Title: Assistant Vice President
By: /s/ William W. Mucker
------------------------------
Name: William W. Mucker
Title: Assistant Vice President
SOCIETE GENERALE
By: /s/ John J. Wagner
-------------------------------
Name: John J. Wagner
Title: Vice President
BANK POLSKA KASA OPIEKI, SA
By:
-------------------------------
Name:
Title:
-5-
<PAGE>
NATIONAL CITY BANK OF MICHIGAN/ILLINOIS
By:/s/ Mark R. Long
-----------------------------
Name: Mark R. Long
Title: Vice President
-6-
<PAGE>
Exhibit 10.2
PAID IN FULL
PROMISSORY NOTE--BRIDGE LOAN
$2,600,000 U.S.
FOR VALUE RECEIVED, Kevin J. Ryan ("Promisor"), promises to pay to the
order of Wesley Jessen Corporation, a Delaware corporation ("Company"), at its
offices at 333 East Howard Avenue, Des Plaines, IL 60018, or such other place as
the Company hereof may designate, the aggregate principal sum of TWO MILLION SIX
HUNDRED THOUSAND DOLLARS ($2,600,000).
Interest on this Note will accrue on a daily basis on the outstanding
principal amount of this Note at a rate equal to five and five-sixteenths
percent (5.3125%) per annum, computed on a daily basis of a year of 365 days for
the actual number of days elapsed.
The principal amount (together will all accrued and unpaid interest
thereon) of this Note shall become due and fully payable on the earliest of: (i)
December 31, 1999, (ii) five (5) days following the sale of Promisor's current
principal residence, to the extent of the proceeds received with respect to such
sale, (iii) five (5) days following termination of Promisor's employment by
Company, (iv) immediately, upon Company's determination that any statement or
agreement of Promisor which was the basis for extending the loan underlying
this Note (including statements within such documentation as Company may demand
regarding the current and prospective residences of the Promisor) is false or
unfulfilled, (v) five (5) days following the death or disability of Promisor,
(vi) five (5) days following the date on which Promisor sells, pledges,
transfers or otherwise disposes of any of his capital stock (or any interest
therein, including, without limitation, any stock options for such capital
stock) of Wesley Jessen VisionCare, Inc., to the extent of the proceeds received
with respect to such sale, pledge, transfer or disposal, or (vii) a demand from
Company for payment in full of the amounts owned under this Note following the
occurrence of an Event of Default; provided, that upon the occurrence of an
Event of Default of the type specified in clauses (ii) or (iii) of the following
paragraph of this Note, demand from the Company of the Note for payment
hereunder shall be deemed to have occurred automatically prior to the occurrence
of such Event of Default.
Any one of the following events shall constitute an "Event of Default"
hereunder, (i) Promisor shall fail to pay any amount when due under this Note,
(ii) Promisor shall (A) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of all or
any substantial part of his property, (B) admit in writing his inability to pay
his debts as they become due, (C) make a general assignment for the benefit of
his creditors or (D) commence a voluntary case under the Federal Bankruptcy Code
or file a petition or make any other application seeking to take advantage of
any other law
<PAGE>
relating to bankruptcy, insolvency, liquidation, reorganization, dissolution,
winding up or composition or readjustment of debts, or acquiesce in writing to,
or fail to contest in a timely manner, or consent to, any such relief in an
involuntary case or other proceeding commenced against him, or (iii) a case or
other proceeding shall be commenced, without the application or consent of
Promisor, under any law relating to bankruptcy, insolvency, liquidation,
reorganization, dissolution, winding up or composition or readjustment of debts,
in any court or competent jurisdiction, seeking the liquidation, reorganization,
dissolution, winding up or composition or readjustment of debts of Promisor, the
appointment of a trustee, receiver, custodian, liquidator or the like of all or
any substantial part of the assets of Promisor or any similar action with
respect to Promisor and such case or proceeding shall continue undismissed, or
unstayed and in effect, for a period of 60 consecutive days; or any order for
relief in respect of Promisor shall be entered in an involuntary case under the
Federal Bankruptcy Code; or an analogous order in respect of Promisor shall be
entered in any similar state law proceeding.
Promisor hereby represents and warrants that: (i) The proceeds of the loan
evidenced by this Promissory Note will be used solely for the purchase of a new
principal residence for Promisor at (address omitted), CA; (ii) Promisor's
current principal residence at (address omitted),CA ("Current Principal
Residence") is available for sale; (iii) Promisor will not permit the Current
Principal Residence to become subject to further indebtedness prior to
repayment to Company of all amounts due under this Promissory Note; and (iv)
Promisor will not convert the Current Principal Residence to business or
investment use at any time prior to repayment to Company of all amounts due
under this Promissory Note.
This Note shall be secured by all stock options for the capital stock of
Wesley Jessen VisionCare, Inc. held by or on behalf of Promisor at the time of
execution of this Note. Promisor shall execute such documents as may be
necessary to effectuate the interest of the Company in said assets in such form
and at such time as Company may request.
In the Event of Default, Promisor authorizes Company, in addition to the
other remedies hereunder, to withhold from wages payable by Company to Promisor
in connection with Promisor's employment semi-monthly installments of principal
and accrued interest in an amount equal to 25% of Promisor's gross semi-monthly
wages.
In the event Promisor fails to pay any amounts due hereunder when due,
Promisor shall pay the Company hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys' fees.
<PAGE>
Promisor, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the Company hereof may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of Promisor hereunder.
This Promissory Note shall be governed by and construed and enforced in
accordance with the substantive laws (without regard to conflict of law
principles) of the State of Illinois.
Dated Promisor
07/27/99 /s/ Kevin J. Ryan
- ------------- -----------------
Kevin J. Ryan
Witnessed by:
/s/ Joy Rosen
- -------------
Joy Rosen
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-04-1999
<PERIOD-END> OCT-02-1999
<CASH> 9,614
<SECURITIES> 0
<RECEIVABLES> 59,279<F1>
<ALLOWANCES> 10,695
<INVENTORY> 57,284
<CURRENT-ASSETS> 146,307
<PP&E> 61,724
<DEPRECIATION> 7,624
<TOTAL-ASSETS> 217,228
<CURRENT-LIABILITIES> 64,689
<BONDS> 0
0
0
<COMMON> 182
<OTHER-SE> 50,354
<TOTAL-LIABILITY-AND-EQUITY> 217,228
<SALES> 80,744
<TOTAL-REVENUES> 80,744
<CGS> 24,910
<TOTAL-COSTS> 64,255
<OTHER-EXPENSES> (163)
<LOSS-PROVISION> 1,115
<INTEREST-EXPENSE> 732
<INCOME-PRETAX> 14,618
<INCOME-TAX> 4,678
<INCOME-CONTINUING> 9,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,940
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.53
<FN>
<F1> ALLOWANCES NETTED AGAINST TRADE RECEIVABLES INCLUDE
BOTH BAD DEBT RESERVES AND SALES RETURN RESERVES.</FN>
</TABLE>
