<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 April 1, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22003
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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 May 5, 2000 was 17,657,095.
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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 April 1, 2000 and December
31, 1999........................................................... 1
Condensed Consolidated Statements of Operations for the three months
ended April 1, 2000 and April 3, 1999.............................. 2
Condensed Consolidated Statements of Cash Flows for the three months
ended April 1, 2000 and April 3, 1999.............................. 3
Notes to the Condensed Consolidated Financial Statements............ 4-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 8-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 11
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................. 12
Item 6. Exhibits and Reports on Form 8-K.............................. 12
Signatures............................................................ 13
</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>
April 1, December 31,
ASSETS 2000 1999
------ ----------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 11,260 $ 8,945
Accounts receivable--trade, net..................... 50,537 48,372
Other receivables................................... 5,952 5,935
Inventories......................................... 53,634 57,507
Deferred income taxes............................... 18,189 18,324
Prepaid expenses.................................... 9,166 7,063
-------- --------
Total current assets.............................. 148,738 146,146
-------- --------
Properties:
Property, plant and equipment, at cost.............. 75,997 69,940
Accumulated depreciation............................ 10,784 8,762
-------- --------
Net property, plant and equipment................... 65,213 61,178
-------- --------
Other Assets:
Investment in affiliate............................. 2,786 2,034
Goodwill, net....................................... 2,609 2,720
Other assets........................................ 12,704 10,936
-------- --------
Total assets...................................... $232,050 $223,014
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Trade accounts payable.............................. $ 13,409 $ 17,281
Accrued compensation and benefits................... 17,757 27,776
Accrued advertising................................. 4,176 3,778
Other accrued liabilities........................... 9,202 8,964
Transition reserve.................................. 3,849 4,404
Income taxes payable................................ 1,793 1,152
Short term debt..................................... 3,794 2,441
-------- --------
Total current liabilities......................... 53,980 65,796
-------- --------
Negative goodwill, net................................ 11,219 11,492
Long term debt........................................ 57,000 48,000
Other liabilities..................................... 9,436 6,858
-------- --------
Total liabilities................................. 131,635 132,146
-------- --------
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 18,175,585 issued at April 1, 2000 and
December 31, 1999.................................. 182 182
Additional paid in capital.......................... 59,948 59,851
Accumulated earnings................................ 53,836 45,449
Treasury stock, at cost, 533,398 and 613,812 shares
at April 1, 2000 and December 31, 1999,
respectively....................................... (11,358) (13,077)
Accumulated other comprehensive loss................ (2,193) (1,537)
-------- --------
Total stockholders' equity........................ 100,415 90,868
-------- --------
Total liabilities and stockholders' equity........ $232,050 $223,014
======== ========
</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
----------------------
April 1, April 3,
2000 1999
----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales............................................... $81,892 $76,311
------- -------
Operating costs and expenses:
Cost of goods sold.................................... 26,692 25,118
Marketing and administrative.......................... 38,811 38,403
Research and development.............................. 2,795 2,873
Amortization of goodwill, net......................... (225) (229)
------- -------
Income from operations.................................. 13,819 10,146
Other (income) expense:
Interest income....................................... (190) (188)
Interest expense...................................... 1,053 1,211
Equity in net loss of affiliate....................... 248 --
------- -------
Income before income taxes.............................. 12,708 9,123
Income tax expense...................................... (4,321) (2,919)
------- -------
Net income.............................................. $ 8,387 $ 6,204
======= =======
Net income per common share:
Basic................................................. $ 0.48 $ 0.36
Diluted............................................... $ 0.44 $ 0.34
Weighted average common shares outstanding:
Basic................................................. 17,600 17,039
Diluted............................................... 18,863 18,455
</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>
Three Months Ended
-------------------------------
April 1, 2000 April 3, 1999
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities:
Net income................................... $ 8,387 $ 6,204
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation expense....................... 2,237 1,135
Amortization of capitalized financing fees. 156 156
Amortization of goodwill, net.............. (225) (229)
Equity in net loss of affiliate ........... 247 --
Deferred income tax........................ 73 (11)
Other...................................... -- 8
Changes in balance sheet items:
Accounts receivable--trade, net............ (2,905) 3,086
Other receivables.......................... (42) (130)
Inventories................................ 3,233 919
Other assets............................... (4,076) 446
Trade accounts payable..................... (3,695) 529
Accrued liabilities........................ (9,856) (12,354)
Other liabilities.......................... 2,608 1,188
Income taxes payable....................... 1,069 1,747
------- --------
Cash (used in) provided by operating
activities.............................. (2,789) 2,694
------- --------
Investing activities:
Investment in affiliate...................... (1,000) --
Capital expenditures......................... (6,827) (7,783)
Proceeds from the sale of assets............. 45 9
------- --------
Cash used in investing activities........ (7,782) (7,774)
------- --------
Financing activities:
Issuance of stock............................ 1,518 685
Proceeds from issuance of debt............... 10,402 8,000
Payments of debt............................. -- (5,000)
------- --------
Cash provided by financing activities.... 11,920 3,685
------- --------
Effect of exchange rates on cash and cash
equivalents................................. 966 93
Net increase (decrease) in cash and cash
equivalents................................. 2,315 (1,302)
Cash and cash equivalents:
Beginning of period.......................... 8,945 8,859
------- --------
End of period................................ $11,260 $ 7,557
======= ========
Supplemental disclosure of cash flow
information
Cash paid during the period for interest..... $ 842 $ 1,079
======= ========
Cash paid during the period for taxes, net... $ 3,038 $ 371
======= ========
</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"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
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, 1999.
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. Pending Merger Agreement
On March 19, 2000, the Company signed a definitive merger agreement with
Ocular Sciences, Inc. ("OSI"). OSI manufactures and distributes disposable
soft contact lenses. Under the merger agreement the Company plans to issue
approximately 16.9 million shares of its common stock to OSI stockholders who
will receive .721 shares of Wesley Jessen stock for each share of OSI stock
held. The merger is subject to approval by the shareholders of both Wesley
Jessen and OSI, and is expected to be accounted for as a pooling-of-interests.
4
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(unaudited)
3. 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
-------------------
April
April 3,
1, 2000 1999
------- -------
<S> <C> <C> <C>
Basic Net Income Per Share:
Net income......................................... $ 8,387 $ 6,204
Weighted average common shares outstanding......... 17,600 17,039
Basic net income per share......................... $ 0.48 $ 0.36
Diluted Net Income Per Share:
Net income......................................... $ 8,387 $ 6,204
Weighted average common shares outstanding......... 17,600 17,039
Net additional shares issuable in connection with
stock options..................................... 1,263 1,416
Diluted weighted average common shares outstanding. 18,863 18,455
Diluted net income per share....................... $ 0.44 $ 0.34
</TABLE>
4. Transition Reserve
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 is
currently closing its manufacturing operations in San Diego, California and
continues to shift conventional lens production to its plant in Cidra, Puerto
Rico. The plant closing will result in the termination of 471 employees (of
whom 355 had been terminated as of April 1, 2000). Payments related to the
transition reserve were $487 for employee related costs and $68 for lease
termination costs for the three months ended April 1, 2000.
5. Other Balance Sheet Accounts
Accounts receivable--trade, net consist of the following (in thousands):
<TABLE>
<CAPTION>
April December 31,
1, 2000 1999
------- ------------
<S> <C> <C>
Trade receivables................................... $61,007 $58,452
Less allowances:
Doubtful accounts................................. (5,185) (4,258)
Sales returns and adjustments..................... (5,285) (5,822)
------- -------
$50,537 $48,372
======= =======
</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>
April 1, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Raw materials...................................... $ 8,550 $ 6,744
Work-in-process.................................... 7,312 7,896
Finished goods..................................... 50,574 58,569
Less reserves...................................... (12,802) (15,702)
-------- --------
$ 53,634 $ 57,507
======== ========
</TABLE>
6. 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 April 1, 2000 was $113.0 million. The
credit facility is guaranteed by each of the Company's domestic subsidiaries
and collateralized 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.
7. Comprehensive Income
The components of comprehensive income for the three months ended April 1,
2000 and April 3, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
---------------
April April
1, 3,
2000 1999
------ -------
<S> <C> <C>
Net income............................................... $8,387 $ 6,204
Foreign currency translation adjustments................. (656) (2,060)
------ -------
Comprehensive income..................................... $7,731 $ 4,144
====== =======
</TABLE>
6
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(unaudited)
8. 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. Currently, the Company reissues its treasury stock to satisfy share
requirements related to the Company's stock incentive plans, the employee
stock purchase plans and employee stock awards.
9. Affiliates
In June, 1999, the Company purchased a 16.4% minority interest in Inoveon
Corporation for $2.4 million represented by shares of convertible Series A
preferred stock. In January 2000, the Company made an additional investment of
$1.0 million, which increased its ownership to 23.2%. 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 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.
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
---------------
April April
1, 3,
2000 1999
------- -------
<S> <C> <C>
Net sales:
United States (including Puerto Rico).................. $52,924 $50,198
United Kingdom......................................... 6,956 8,661
Rest of the world...................................... 22,012 17,452
------- -------
$81,892 $76,311
======= =======
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Wesley Jessen 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 222 person
salesforce and network of independent distributors, which together sell the
Company's products in more than 75 countries.
Recent Events
On March 19, 2000, the Company signed a definitive merger agreement with
Ocular Sciences, Inc. ("OSI"). OSI manufactures and distributes disposable
soft contact lenses. Under the merger agreement the Company plans to issue
approximately 16.9 million shares of its common stock to OSI stockholders who
will receive .721 shares of Wesley Jessen stock for each share of OSI stock
held. The merger is subject to approval by the shareholders of both Wesley
Jessen and OSI, and is expected to be accounted for as a pooling-of-interests.
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
is in the process of closing its manufacturing operations in San Diego,
California and continues to 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 April 1, 2000 (Unaudited) Compared to Three Months Ended
April 3, 1999 (Unaudited)
Net sales for the three months ended April 1, 2000 increased $5.6 million,
or 7.3%, to $81.9 million from $76.3 million for the three months ended April
3, 1999. This increase resulted primarily from a 21.4% growth in the sales of
disposable and planned replacement contact lenses primarily FreshLook
ColorBlends(R) and FreshLook(R) Toric, from $39.1 million to $47.5 million,
offset by a 7.5% decline in the sales of conventional lens products, from
$37.2 million to $34.4 million. Sales of disposable and planned replacement
lenses grew 16.2% in the U.S. and 29.2% internationally. Sales of conventional
lenses fell 13.4% domestically but increased 3.2% in the rest of the world.
For the three month period, total U.S. sales rose 1.2%, while total
international sales grew by 17.3%.
Gross profit for the three months ended April 1, 2000 increased $4.0
million, or 7.8%, to $55.2 million from $51.2 million in the comparable 1999
period primarily as a result of higher sales. Gross profit margin increased
0.3% to 67.4% in 2000.
8
<PAGE>
Marketing and administrative expenses for the three months ended April 1,
2000 increased by $0.4 million, or 1.1%, to $38.8 million from $38.4 million
for the three months ended April 1, 2000. This increase was largely due to
increased performance related compensation costs and an increase in required
bad debt reserve partially offset by lower consumer advertising expenses in
the U.S. As a percentage of net sales, marketing and administrative expenses
decreased to 47.4% in the 2000 period from 50.3% in the 1999 period.
Research and development expenses decreased $0.1 million, or 2.7%, to $2.8
million for the three months ended April 1, 2000 from $2.9 million for the
three months ended April 3, 1999. The decrease was primarily a result of
higher spending on bifocal lenses for the 1999 period. As a percent of net
sales, research and development expenses decreased to 3.4% in the 2000 period
from 3.8% in the 1999 period.
Equity in net loss of affiliate represents the Company's percentage
ownership of the operations of Inoveon Corporation, in which the Company holds
a minority interest investment. There was no comparable expense in the prior
period.
Interest expense decreased 13.4% to $1.1 million for the three months ended
April 1, 2000 from $1.2 million for the three months ended April 3, 1999 due
to lower debt balances partially offset by higher interest rates.
Net income for the three months ended April 1, 2000 increased by $2.2
million, or 35.2%, to $8.4 million from $6.2 million for the three months
ended April 3, 1999 as the higher gross profit was only partially offset by
higher spending in marketing and administrative expenses and an increase in
the effective tax rate from the comparable period in 1999. The increase in the
effective tax rate to 34% in 2000 from 32% in 1999 was primarily due to a
shift in the mix of earnings among the Company's various operations.
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
three months ended April 1, 2000, the Company used approximately $2.8 million
in cash from operating activities, as increased profitability, along with
lower inventory levels were more than offset by payments made for prior year's
performance related compensation, as well as higher accounts receivable and
prepaid advertising expenses. Since December 31, 1999 the Company has incurred
additional long term borrowings of $9.0 million.
For the three months ended April 1, 2000 and April 3, 1999, the Company
made capital expenditures of approximately $6.8 million and $7.8 million,
respectively. The majority of these capital expenditures were for information
technology enhancements, and production capacity expansion. The Company
anticipates that additional capital expenditures of approximately $28.0
million will be made throughout 2000 related to the upgrade in management
information systems and to continue capacity expansion. The Company expects to
fund these capital expenditures primarily by cash generated from operating
activities and borrowings under its revolving credit facility.
In 2000 the Company expects to incur $4.4 million of costs to complete its
integration of the Barnes Hind operations. For the three months ended April 1,
2000, the Company has paid $0.6 of these costs.
The Company maintains a $170 million revolving credit facility which
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 indebtedness of the Company under the credit
agreement is collateralized 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 April 1,
2000, the Company had approximately $113.0 million in borrowing availability
under this facility.
9
<PAGE>
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 April 1, 2000 of $11.3 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 debt obligations. 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, 1999, 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, 2001. The cap is intended to provide
partial protection from exposure relating to the Company's variable rate debt
instruments.
Approximately 41.3% of the Company's net sales for the three months ended
April 1, 2000 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.
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.
On December 3, 1999, the staff of the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition
in Financial Statements." SAB 101 summarizes the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. Based on these guidelines, revenue should not be recognized until
it is realized or realizable and earned. All registrants are expected to apply
the accounting and disclosure requirements that are described in SAB 101. Any
change related to applying SAB 101 must be reported as a cumulative effect of
a change in accounting principle no later than the first fiscal quarter of the
fiscal year beginning after December 15, 1999; any adjustments after the
latest period would require financial statement restatements. This statement
is not expected to have a material impact on the Company's financial
statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions
involving Stock Compensation". This Interpretation clarifies the application
of APB Opinion No. 25, "Accounting for Stock Issued to Employees". This
Interpretation is effective for July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent that this Interpretation covers
events occurring during the period after December 15, 1998, or January 12,
2000, but before the effective date of July 1, 2000, the effects of applying
this Interpretation are recognized on a prospective basis from July 1, 2000.
10
<PAGE>
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 and (vi) the ability of the Company to continue to
successfully develop and launch new products. 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, 1999.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 3, 2000, Bausch & Lomb commenced litigation against Wesley Jessen,
the Wesley Jessen Board and Ocular Sciences, Inc. ("OSI") in the Court of
Chancery of the State of Delaware, where both Wesley Jessen and OSI are
incorporated. Bausch & Lomb's complaint states that the Ocular Merger
Agreement was entered into in breach of the Wesley Jessen Board's fiduciary
duties to act on a fully informed basis and to advance the best interests of
Wesley Jessen shareholders. The complaint seeks injunctive relief against the
Ocular Merger Agreement, seeks to require the Wesley Jessen Board to redeem
the preferred share purchase rights to permit shareholders to accept the
Bausch & Lomb Offer and requests a declaration that any break-up fee OSI
receives will be held by it as a constructive trustee. The foregoing summary
is qualified in its entirety by reference to the complaint, which is filed as
Exhibit (a)(9) to Amendment No. 1 to the SC TO/A filed by Bausch & Lomb on
April 4, 2000.
On March 23, and March 24, 2000, respectively, Ari Parnes and Royla Cochran
commenced separate lawsuits, on behalf of themselves and all other holders of
Wesley Jessen Common Stock other than the defendants and their affiliates,
against Wesley Jessen and the Wesley Jessen Board in the Court of Chancery of
the State of Delaware, where Wesley Jessen is incorporated. On April 6, 2000,
Mr. Parnes and Ms. Cochran filed an amended complaint which joined their
separate actions. The amended complaint alleges that the Wesley Jessen Board
breached their fiduciary duties of care, loyalty and good faith toward Wesley
Jessen shareholders by approving the merger of OSI with Wesley Jessen. The
amended complaint seeks certification as a class action, injunctive relief
against the Ocular Merger Agreement and a direction that the Wesely Jessen
Board (i) give due consideration to any proposed business combination and (ii)
ensure that no conflicts exist between the interests of the Wesley Jessen
directors and those of the Wesley Jessen public shareholders or resolve any
conflicts in favor of the best interests of Wesley Jessen's public
shareholders.
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>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
March 22, 2000-Item 5. Other Events-Press release announcing a
definitive merger agreement between Wesley Jessen VisionCare, Inc. and
Ocular Sciences, Inc.
March 31, 2000-Item 5. Other Events-Agreement and Plan of Merger dated
March 19, 2000, among Wesley Jessen VisionCare, Inc. and Ocular Sciences,
Inc.
12
<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)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 11,260
<SECURITIES> 0
<RECEIVABLES> 61,007<F1>
<ALLOWANCES> 10,470
<INVENTORY> 53,634
<CURRENT-ASSETS> 148,738
<PP&E> 75,997
<DEPRECIATION> 10,784
<TOTAL-ASSETS> 232,050
<CURRENT-LIABILITIES> 53,980
<BONDS> 0
0
0
<COMMON> 182
<OTHER-SE> 100,233
<TOTAL-LIABILITY-AND-EQUITY> 232,050
<SALES> 81,892
<TOTAL-REVENUES> 81,892
<CGS> 26,692
<TOTAL-COSTS> 66,496
<OTHER-EXPENSES> (225)
<LOSS-PROVISION> 1,802
<INTEREST-EXPENSE> 863
<INCOME-PRETAX> 12,708
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<EPS-BASIC> 0.48
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<FN>
<F1> ALLOWANCES NETTED AGAINST TRADE RECEIVABLES INCLUDE BOTH BAD DEBT RESERVES
AND SALE RETURN RESERVES.
</FN>
</TABLE>
