SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended: September 24, 1994
Commission File Co. Number: 1-4105
BAUSCH & LOMB INCORPORATED
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
IRS Employer Identification No. 16-0345235
One Chase Square, Rochester NY 14601-0054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 338-6000
Indicate by checkmark 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.
As of September 24, 1994 there were outstanding 59,138,894
shares of Common Stock, consisting of 58,573,624 shares of
Common Stock and 565,270 shares of Class B Stock which are
identical with respect to dividend and liquidation rights and
vote together as a single class for all purposes.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited consolidated financial statements of Bausch & Lomb
Incorporated and Consolidated Subsidiaries for the third
quarter of 1994 and 1993 are presented on the following
pages. The audited balance sheet at December 25, 1993 is
presented for comparative purposes. Financial statements for
the nine months ended September 24, 1994 have been prepared
by the Company in accordance with its usual accounting
policies and are based in part on approximations.
In the opinion of management, all adjustments necessary for a
fair presentation of the consolidated financial statements in
accordance with generally accepted accounting principles have
been included. All such adjustments were of a normal
recurring nature.
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF EARNINGS
Dollar Amounts In Thousands -
Except Per Share Data
<CAPTION>
Third Quarter Ended Nine Months Ended
Sept. 24, Sept. 25, Sept. 24, Sept.25,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales $449,447 $498,811 $1,371,499 $1,385,845
Costs And Expenses
Cost of products sold 237,599 219,992 664,360 617,607
Selling, administrative
and general 175,809 175,613 521,024 508,224
Research and development 14,802 14,495 45,468 43,178
428,210 410,100 1,230,852 1,169,009
Operating Earnings 21,237 88,711 140,647 216,836
Other (Income) Expense
Investment income (8,553) (1,764) (26,434) (9,476)
Interest expense 10,182 7,446 29,409 24,960
Gain from foreign
currency, net (1,084) (2,051) (2,222) (10,043)
545 3,631 753 5,441
Earnings Before
Income Taxes And
Minority Interest 20,692 85,080 139,894 211,395
Provision for
income taxes 6,890 28,332 45,915 72,468
Earnings Before
Minority Interest 13,802 56,748 93,979 138,927
Minority interest in
subsidiaries 6,113 995 17,574 3,295
Net Earnings $ 7,689 $ 55,753 $ 76,405 $ 135,632
Retained Earnings At
Beginning Of Period $930,499 $838,758 $ 889,325 $ 785,044
Cash Dividends Declared:
Common stock, $0.245
and $0.71 per share
for 1994 ($0.22 and
$0.66 per share
for 1993) 14,527 13,089 42,069 39,254
Retained Earnings
At End Of Period $923,661 $881,422 $ 923,661 $ 881,422
Net Earnings
Per Common Share $ 0.13 $ 0.93 $ 1.28 $ 2.25
Average Common Shares
Outstanding (000s) 59,787 60,151
See Notes To Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
Dollar Amounts In Thousands
<CAPTION>
September 24, December 25,
1994 1993
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 191,978 $ 513,241
Short-term investments,
at cost which
approximates market 1,782 32,795
Trade receivables,
less allowances
of $17,978 and
$16,053, respectively 315,452 384,973
Inventories, net 319,343 297,208
Deferred income taxes,
less valuation
allowance of $13,206 73,537 71,540
Other current assets 124,976 102,304
1,027,068 1,402,061
Property, Plant
And Equipment, net 545,472 541,061
Goodwill And
Other Intangibles,
less accumulated
amortization
of $73,941 and
$59,396,
respectively 482,553 456,944
Other Investments 425,000 -
Other Assets 136,132 111,862
Total Assets $2,616,225 $2,511,928
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 281,426 $ 222,642
Current portion
of long-term debt 8,601 21,935
Accounts payable 63,477 85,306
Accrued compensation 87,157 66,077
Accrued liabilities 215,228 249,947
Federal and foreign
income taxes 69,426 68,882
725,315 714,789
Long-Term Debt,
less current portion 330,549 320,953
Other Long-Term Liabilities 127,167 128,328
Minority Interest 426,120 421,031
Total Liabilities 1,609,151 1,585,101
Shareholders' Equity
4% Cumulative Preferred Stock,
par value $100 per share - -
Class A Preferred Stock, par
value $1 per share - -
Common Stock, par value $0.40
per share, 60,198,322 shares
issued 24,079 24,079
Class B Stock, par value $0.08
per share, 978,603 shares issued
(936,348 shares in 1993) 78 75
Capital in excess of par value 89,630 88,101
Cumulative translation adjustment 56,007 8,915
Retained earnings 923,661 889,325
1,093,455 1,010,495
Common and Class B Stock
in treasury, at cost, 2,038,031
shares (2,016,430 shares in 1993) (86,381) (83,668)
Total Shareholders' Equity 1,007,074 926,827
Total Liabilities And
Shareholders' Equity $2,616,225 $2,511,928
See Notes To Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Dollar Amounts In Thousands
<CAPTION>
Nine Months Ended
Sept. 24, Sept. 25,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 76,405 $135,632
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation of property,
plant and equipment 62,005 53,666
Amortization of goodwill and
other intangibles 12,737 8,657
Increase in deferred income taxes (3,308) (1,665)
Loss on retirement of fixed assets 10,460 2,155
Exchange gain (3,333) (1,168)
Increase in undistributed
earnings of subsidiaries 4,113 905
Decrease (increase) in
accounts receivable 79,986 (78,184)
Increase in inventories (10,063) (28,312)
Increase in other
current assets (18,551) (44,173)
(Decrease) increase in
accounts payable and accruals (49,058) 25,157
(Decrease) increase in tax reserves (2,227) 18,977
(Decrease) increase in
other long-term liabilities (2,641) 2,501
Net cash provided by
operating activities 156,525 94,148
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchases of
property, plant and equipment (63,122) (67,749)
Acquisition of businesses, net of cash
and short-term investments
acquired (27,089) (244,197)
Other investments (425,000) -
Other (21,553) (7,411)
Net cash used in
investing activities (536,764) (319,357)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common shares (11,211) (25,426)
Exercise of stock options 7,631 3,385
Restricted stock awards 2,399 172
Net proceeds from issuance of debt 46,459 59,335
Payment of dividends (40,642) (38,046)
Net cash provided by
(used in) financing activities 4,636 (580)
Effect of exchange rate
changes on cash, cash equivalents
and short-term investments 23,327 (21,185)
Net decrease in cash, cash equivalents
and short-term investments (352,276) (246,974)
Cash, cash equivalents and short-term
investments, beginning of period 546,036 416,773
Cash, cash equivalents and
short-term investments,
end of period $193,760 $169,799
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 23,836 $ 25,230
Income taxes $ 56,789 $ 37,766
See Notes To Financial Statements
</TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A: Earnings Per Share
Net earnings per Common share are based on the weighted average
number of Common and Class B Shares outstanding during the
period, adjusted for the assumed conversion of dilutive stock
options. In computing the per share effect of assumed
conversion, funds which would have been received from the
exercise of options have been used to purchase Common Shares at
current market prices, and the resulting net additional Common
shares are included in the calculation of average Common shares
outstanding.
The number of Common shares used to calculate net earnings per
Common share were 59,787,024 at September 24, 1994 and 60,151,061
at September 25, 1993.
See Exhibit 11 filed with this Report for details regarding the
computation of earnings per share.
NOTE B: Inventories
Inventories consisted of the following:
(Dollar Amounts In Thousands)
September 24, December 25,
1994 1993
Raw materials and supplies $87,086 $ 66,768
Work in process 27,738 24,640
Finished products 212,458 213,972
327,282 305,380
Less - Reserve for valuation
of certain U.S.
inventories at last-in,
first-out cost 7,939 8,172
$319,343 $297,208
NOTE C: Property, Plant And Equipment
Major classes of property, plant and equipment consisted of the
following:
(Dollar Amounts In Thousands)
September 24, December 25,
1994 1993
Land $ 21,410 $ 20,784
Leasehold improvements 32,809 25,530
Buildings 361,673 350,173
Machinery and equipment 582,275 542,912
998,167 939,399
Less - Accumulated
depreciation 452,695 398,338
$545,472 $541,061
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This financial review, which should be read in conjunction with the
accompanying financial statements, contains management's discussion and
analysis of the Company's financial results, liquidity and progress toward
stated business objectives. The focus of this review is on the underlying
business reasons for significant changes and trends affecting sales,
operating earnings and financial condition.
RESULTS OF OPERATIONS
Net Sales By Business Segment
Bausch & Lomb's results are reported in two business segments. The
healthcare segment includes personal health, medical and biomedical
products. In the personal health sector, major lines include contact lens
care products, eye care solutions, over-the-counter medications, skin care
products and oral care products. Medical products include contact lenses
and lens materials, prescription pharmaceuticals, hearing aids and dental
implants. Biomedical products include purpose-bred laboratory animals for
biomedical research and a variety of biotechnical and professional
services provided to the scientific research community. Bausch & Lomb's
optics segment includes sunglasses, binoculars, riflescopes, telescopes
and optical thin film coating services and products.
Consolidated revenues for the third quarter ended September 24, 1994
were $449 million, a decrease of $49 million or 10% from the 1993 third
quarter. For the first nine months of 1994, net sales of $1,371 million
declined $14 million or 1% from the comparable 1993 period. The following
is a summary of net sales by business segment:
Net Sales By Business Segment
(Dollar Amounts In Thousands)
Third Quarter Nine Months
1994 1993 1994 1993
Healthcare $298,281 $325,249 $ 891,626 $ 854,806
Optics 151,166 173,562 479,873 531,039
Net Sales $449,447 $498,811 $1,371,499 $1,385,845
In June 1994 the Company announced it was taking actions to reduce
high levels of inventories at contact lens and sunglass distributors.
During the third quarter further substantial progress was made in reducing
this imbalance. The Company announced, and in October implemented, a new
pricing and product return program for distributors of traditional contact
lenses in the U.S. A sales reserve of approximately $20 million was
recorded during the third quarter for these actions. The new pricing
policy enhances the Company's competitive position in a segment of the
market where industry prices have been declining. The returns program
will allow these distributors to return the excess portion of their unsold
traditional lens inventories and eliminate the inventory imbalance in the
U.S. This will aid sales performance in 1995. Additionally, during the
third quarter the Company estimates that excess distributor inventories of
sunglasses were reduced by $15 million. This is primarily attributable to
actions taken to realign or discontinue relationships with certain
sunglass distributors in Asia, including those recently determined to be
diverting product to markets outside their authorized territory. The
Company believes that an additional sales penalty of more than $5 million
was incurred in the period due to lost business with certain of these
distributors.
Healthcare Segment Revenues
Revenues in the healthcare segment decreased $27 million or 8%
compared to the 1993 third quarter. On a year-to-date basis, healthcare
segment revenues advanced $37 million or 4% over the comparable 1993
period. Major product sector revenues as a percentage of total healthcare
segment sales follow:
Healthcare Segment Net Sales By Product Sector
Third Quarter Nine Months
1994 1993 1994 1993
Personal Health 57% 53% 53% 52%
Medical 28% 34% 32% 33%
Biomedical 15% 13% 15% 15%
Within the personal health sector, third quarter revenues were even
with 1993 levels. Continued strong worldwide demand for the Company's
ReNu, Boston and Bausch & Lomb lens care solutions was experienced.
Additionally, a good rate of growth was achieved in the eye care solutions
business. Moderate sales growth was realized for over-the-counter
medications in Europe as the rate of growth experienced in previous
quarters was reduced by the impact of milder weather conditions on demand
for hayfever products. Revenues for oral care products declined from 1993
due primarily to the effect of heightened competition for the Interplak
and Clear Choice product lines, the reduction of selling prices to better
position Interplak products in the U.S. market and lower shipments of soon-
to-be discontinued models of Interplak power toothbrushes.
Medical sector sales declined 25% from 1993, led by overall contact
lens revenues, which were 41% below the 1993 third quarter. Traditional
lens sales decreased significantly from the prior year reflecting actions
taken to address excess inventories at U.S. distributors described
previously, the continuing shift in demand toward planned replacement lens
products worldwide and the effect of weakened economic conditions in Latin
America. Sales of planned replacement lens products declined 15% as
orders from U.S. distributor accounts have been impacted by an adjustment
in the Company's sales and marketing policies and disappointing consumer
response to the Occasions Multifocal lens product. In contrast, planned
replacement lens revenues outside the U.S. improved more than 60% led by
results in the Europe and Asia-Pacific regions. Ophthalmic pharmaceutical
revenues improved 31% from 1993, led by results for recently approved
products in the U.S., including Tobramycin and Levobunolol. Growth of 37%
was achieved for the Company's prescription pharmaceutical operations in
Europe. Medical sector sales also benefited from more than 15% gain in
sales of dental implant products and from incremental sales of the Miracle-
Ear line of hearing aids acquired in August 1993.
A modest improvement for the Company's biomedical sector reflected the
favorable effect of foreign currency rate fluctuations on the results of
non-U.S. operations, increased worldwide shipments of specific pathogen-
free eggs and incremental revenues from a first quarter acquisition.
Optics Segment Revenues
Revenues in the optics segment declined 13% to $151 million in the
third quarter compared to $174 million in 1993. The actions taken to
address the distributor inventory imbalance and realign distributor
relationships in Asia were the primary contributor to a 21% shortfall in
worldwide sunglass revenues compared to 1993. Additionally, the Company
believes that there has been a trend towards lower inventories at both the
retail and wholesale levels in the wake of a tightening of the Company's
worldwide marketing and sales policies. These trends were partially
offset by incremental sales from the 1994 acquisition of the assets of
Revo, noted for its line of premium-priced sunglasses, as well as improved
performance in Japan. In addition, sports optics revenues increased 11%
from 1993, led by increased demand for riflescopes and telescopes, while
sales of thin film coating products and services advanced as a result of
higher shipments to Europe.
Net Sales By Geographic Region
Sales in markets outside the U.S. totaled $201 million, a decrease of
$7 million or 3% from the 1993 third quarter. Favorable changes in
currency exchange rates increased sales in U.S. dollars from 1993 by $6
million or 1%. In total, non-U.S. sales represented 45% of consolidated
revenues, compared to 42% in the 1993 third quarter. European revenues in
total increased by 5%, primarily reflecting the impact of currency
movements. Sales improvement was achieved by the Company's over-the-
counter medications, prescription pharmaceuticals and thin film coating
products. These gains were partially offset by shortfalls in sunglass
revenues. Sales in the Asia-Pacific region declined 14%. Gains in Japan
for sales of contact lenses and sunglasses were offset elsewhere in the
region because of the actions described previously to address sunglass
distributor relationships. In Canada and Latin America, revenue
shortfalls for sunglasses and traditional contact lenses partially offset
gains for lens care solutions and reflected weakened economic conditions
in several key markets.
U.S. sales totaled $248 million in the third quarter, a decrease of
$43 million or 15% from the prior year period. Higher revenues for
contact lens care and pharmaceutical products and contributions from
recent acquisitions were more than offset by lower sales of contact lenses
and sunglasses, as well as shortfalls in oral care products.
Costs And Expenses
The ratio of cost of products sold to sales was 52.9% for the 1994
third quarter versus 44.1% for the comparable 1993 period. For the nine-
month period, this ratio was 48.4% for 1994 and 44.6% for 1993. The
higher ratio was primarily attributable to sales mix and the impact of
lower worldwide sunglass and contact lens volumes on manufacturing costs.
Reduced pricing for traditional contact lenses and oral care products in
the U.S. and the adverse currency impact on products sourced from Ireland
were also factors.
Selling, administrative and general expenses were 39.1% of sales in
the third quarter versus 35.2% for the comparable 1993 period. Over the
last three years these expenses have been managed to an average of
approximately 36% of sales. Additional measures to reduce discretionary
expenses in the wake of lower sales volumes for sunglass and contact lens
products were implemented during the third quarter. However, the success
of these efforts was more than offset by the sales effect of actions in
these businesses described earlier plus higher levels of spending to
support recent acquisitions. For the nine-month period, these same
factors led selling, administrative and general expenses to be 38.0% of
sales in 1994 versus 36.7% in 1993. Corporate administration expense was
2.2% of sales in the 1994 third quarter versus 2.4% for 1993 reflecting
the Company's continuing success in managing these expenses to a targeted
level of no more than 3% of sales. Research and development expense for
the first nine months of 1994 increased $2 million or 5.3% over 1993
levels, as the Company continued to invest in new technologies. The
majority of the expenditures related to product development for new
contact lens materials and the Company's next generation of oral care
products and hearing aids.
Restructuring Reserves
In the fourth quarter of 1993 the Company announced plans to
restructure its sunglass, pharmaceutical and biomedical operations and
recorded a pre-tax restructuring charge of $50 million. Within the
sunglass product line, a reserve of approximately $34 million was
established to provide for costs to be incurred to shut down various
manufacturing/assembly plants and distribution operations, eliminate
certain business lines and realign global manufacturing operations.
Actions included severance and project management costs of approximately
$19 million and asset impairment charges of approximately $15 million.
For pharmaceutical operations, a restructuring reserve of approximately $9
million was recorded for the costs to obtain FDA approval and complete the
transfer of manufacturing to a new Tampa, Florida facility and to
restructure worldwide operations. Actions included severance and project
expenses of approximately $7 million and asset impairment charges of
approximately $2 million. Biomedical restructuring actions included the
consolidation of European and certain North American operations and
administrative functions. A reserve of approximately $7 million was
provided for expenses, including severance and project expenses of
approximately $4 million and asset impairment charges of approximately $3
million.
During the first nine months of 1994, charges have been recorded
against the restructuring reserve for sunglasses, pharmaceuticals and
biomedical products for approximately $17 million, $7 million and $3
million, respectively. At September 24, 1994, $17 million of the original
reserve remained on the Company's balance sheet. All remaining actions
are expected to be initiated or completed prior to year end. Through
September, these restructuring actions are estimated to have contributed
pre-tax savings of approximately $10 million, primarily in sunglass and
biomedical operations.
Business Segment And Operating Earnings
Business segment earnings of $31 million for the third quarter of 1994
declined $70 million or 69% compared to the 1993 third quarter. Improved
operating results were achieved for contact lens care, ophthalmic
pharmaceutical and sports optics products. This earnings improvement was
more than offset by the significant effect of reduced sales and
manufacturing volumes in the sunglass and contact lens businesses
worldwide. Results for the Miracle-Ear line of hearing aids reflected the
increased costs of actions being taken to restore consumer confidence in
the category following regulatory actions initiated by the FTC. These
investments include advertising, franchise network support, and improved
warranty and customer satisfaction policies. Operating earnings totaled
$21 million, a decrease of $67 million or 76% from the prior year period.
Other Income And Expenses
Income from investments for the third quarter of 1994 totaled $9
million, compared to $2 million for the same period in 1993. The increase
was due to income generated from an interest rate swap associated with
distributions from Wilmington Partners L.P., as well as to interest earned
at higher rates on increased average investment levels. Interest expense
of $10 million for the 1994 third quarter was $3 million higher than the
third quarter of 1993, as a result of an increase in average outstanding
debt, based largely on recent acquisitions, and higher interest rates in
1994.
The Company realized a net foreign currency gain totaling $1 million
in the third quarter of 1994. This was $1 million below results in the
same period in 1993. As had been anticipated, premium income on the
Company's Irish pound hedge contracts decreased from the prior year.
However, this factor has been partially offset by lower translation losses
realized in Brazil in the third quarter, resulting from the recent
stability of the currency in that country.
Higher minority interest expense reflected distributions to the
outside investor in Wilmington Partners L.P. formed in December 1993.
The Company provided for income taxes at rates of 33.3% for the third
quarter of 1994 and 1993. As a result of a reduction in statutory tax
rates in Germany in 1994, income tax expense benefited from a one-time
adjustment to deferred tax liabilities recorded in the second quarter.
This adjustment reduced the reported tax rate for the first nine months of
1994 to 32.8% versus 34.3% in 1993.
Liquidity And Financial Resources
Cash Flows From Operating Activities
Net earnings adjusted for non-cash items, including depreciation,
amortization and deferred taxes, declined 25% from 1993. However, net
cash flows provided by operating activities totaled a positive $157
million in the first nine months of 1994, an improvement of $62 million
from the prior year period. This change was primarily the result of
initiatives to reduce net receivables levels, which have decreased $80
million in the first nine months of 1994. This gain was moderated by a
build in inventories from 1993 year end as a result of sales shortfalls in
the contact lens and sunglass businesses, sunglass returns from Asian
distributors, and from acquisitions. Lower accrued liabilities primarily
represented the net settlement of foreign currency hedge contracts and
charges against the restructuring reserve recorded in December 1993.
Cash Flows Used In Investing Activities
Cash flows used in investing activities increased $217 million from
the first nine months of 1993 to $537 million. During the third quarter
the Company invested $425 million in securities of a wholly owned
subsidiary of a triple-A rated financial institution, reported as Other
Investments on the balance sheet. The investment establishes a
relationship with a strong financial institution and its affiliates which
will further enhance the Company's ability to raise capital and meet other
financing needs. In addition it responds to recent changes in U.S. tax
law relating to profits earned overseas. Purchases of property, plant and
equipment totaled $63 million in 1994, a decrease of $5 million from 1993.
Capital expenditures will be limited to approximately $90 million in 1994
compared to an average level of more than $100 million over the last five
years. Major projects will include new manufacturing capacity for contact
lenses in the U.S. and Europe and actions to further improve sunglass
manufacturing efficiencies. Total cash used in investing activities in
1994 included the first quarter acquisition of the assets of Revo, a U.S.-
based manufacturer of high performance sunglasses.
Cash Flows From Financing Activities
Approximately $5 million in cash was provided by financing activities.
This reflects proceeds from additional U.S. short term borrowings. Cash
flow was used to repurchase the Company's Common shares and for the
payment of dividends.
Free Cash Flow
The Company has taken actions to improve cash flow and reduce its
working capital requirements in 1994. The Company's goal is to maximize
free cash flow which is defined as cash generated before dividends, the
repayment of debt, stock repurchases and the acquisition of new
businesses.
Free cash flow for the nine months ended September 24, 1994 totaled
$95 million. This calculation excludes the effect of the outflow of funds
for the $425 million investment completed in the third quarter and
described earlier. For the nine months ended September 25, 1993 free cash
flow totaled a negative $2 million. The increase over the prior year is
primarily attributable to changes in accounts receivable and accounts
payable and accruals levels described previously.
Financial Position
The Company's total debt, consisting of short- and long-term
borrowings, increased by $55 million to $621 million at the end of the
1994 third quarter. The net increase in borrowings was used to fund 1994
acquisitions and to pay dividends. Bausch & Lomb's ratio of total debt to
equity stood at 62% in September 1994 and 59% in September 1993, the
result of higher debt levels in 1994. Cash and investments totaled $194
million and $170 million at the end of September 1994 and 1993,
respectively.
Access to Financial Markets
The Company maintains U.S. revolving credit and term loan agreements
which total $250 million with 364-day credit terms. The interest rate
under the agreements is at the prime rate, or, at the Company's option, at
a mutually acceptable market rate. No debt was outstanding under these
agreements at September 24, 1994, nor were there any borrowings
outstanding under a shelf registration filed with the Securities and
Exchange Commission in November 1993 for up to $300 million in debt. The
Company maintains bank lines of credit for its financing requirements. In
addition, for limited periods during the year, intercompany borrowings may
be used to reduce U.S. short-term debt. The availability of adequate
credit facilities provides the Company with a high degree of flexibility
to meet its obligations, fund capital expenditures and invest in growth
opportunities.
Working Capital
Working capital amounted to $302 million for the third quarter of
1994, versus $687 million at year-end 1993 and $324 million for the third
quarter of 1993. The significant decrease from December 1993 pertains to
the investment transaction completed in the third quarter. The current
ratio was 1.4 at September 24, 1994, 2.0 at December 25, 1993 and 1.5 at
September 25, 1993.
OTHER FINANCIAL DATA
Dividends declared on Common Stock were $0.245 per share in the third
quarter of 1994 and $0.22 per share in the third quarter of 1993. Year-to-
date dividends declared on Common Stock were $0.71 compared to $0.66 per
share for the prior year period. This increase reflects the Company's
desire to increase its dividend on an annual basis while maintaining a
payout rate of between 30% and 35% of the previous year's earnings.
Return on average shareholders' equity was 14% for the twelve-month
period ended September 24, 1994 compared to 21% for the twelve-month
period ended September 25, 1993. Excluding the cumulative translation
adjustment, return on average shareholders' equity was 14% and 22% for the
twelve-month periods ending September 24, 1994 and September 25, 1993,
respectively. The change in the return ratio reflected the impact of the
restructuring charges recorded in December 1993 and lower earnings
performance in 1994.
OUTLOOK
The actions taken in the third quarter to correct the contact lens and
sunglass distributor inventory imbalances were not anticipated at the time
of the filing of the second quarter Form 10-Q, and management indicated
that earnings per share for 1994 would likely decline 15% - 20% from the
$3.21 per share earned before a restructuring charge in 1993. After
considering the impact of these third quarter actions, earnings in the
range of $2.00 per share seem attainable, however management's first
priority is to strengthen the Company and make progress toward
reestablishing a pattern of consistent growth.
The Company has estimated that, as a result of actions taken to date,
excess inventory levels at distributors will have declined to
approximately $10 million, primarily for sunglass products. These
inventories are expected to be substantially eliminated by the end of
1994.
Actions taken to implement the 1993 restructuring program are expected
to generate pre-tax savings of approximately $16 million in 1994. Further
earnings improvements are anticipated in subsequent years as the full
benefit of these actions is realized.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(1) In its Form 10-Q for the 1994 second quarter, the
Company reported on seven class-action lawsuits against its
subsidiary, Dahlberg, Inc., alleging false and misleading
statements concerning hearing aid performance. The Company also
reported that an Alabama court had conditionally certified a class
of all Dahlberg hearing aid purchasers between January 1989 and
January 1994, agreeing to reconsider the issue after 90 days. In
September, 1994, Dahlberg moved to decertify the class, and that
motion remains pending.
(2) In its Form 10-Q for the 1994 second quarter, the
Company reported on four class-action lawsuits challenging the
Company's long-standing policy to protect consumers' health by
selling contact lenses only to licensed professionals. Since that
report, an additional five class-action complaints have been
filed, in Alabama, Florida, Mississippi, Tennessee and Texas.
(3) In its Form 10-Q for the 1994 second quarter, the
Company reported on a class-action lawsuit filed in federal court
in Alabama claiming that the Company misled consumers by packaging
the same contact lens under three different names (Optima,
Medalist and SeeQuence II) for three different prices. The
Company had moved for transfer to the Western District of New York
and for dismissal (i) on the merits and (ii) on the basis of
federal pre-emption. These motions were denied on August 11,
1994, and the Company is vigorously defending itself on the
merits. On September 12, 1994, the Company also received an
inquiry on behalf of the Attorneys General of thirteen states
regarding the Company's pricing and labeling practices regarding
this product line.
Item 6. Exhibits and Reports on Form 8-K.
(a) Item 601 Exhibits
Those exhibits required to be filed by Item 601 of
Regulation S-K are listed in the Exhibit Index immediately
preceding the exhibits filed herewith and such listing is
incorporated herein by reference.
(b) Reports on Form 8-K
A report on Form 8-K dated August 2, 1994 was filed
during the third quarter to disclose the Company's $425 million
investment in securities of a wholly owned subsidiary of a triple-
A rated financial institution.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAUSCH & LOMB INCORPORATED
Date: November 4, 1994
By: (Jay T. Holmes)
Jay T. Holmes
Senior Vice President,
Corporate Affairs and
Secretary
Date: November 4, 1994
By: (Peter Stephenson)
Peter Stephenson
Senior Vice President,
Finance
EXHIBIT INDEX
S-K Item 601 No. Document
(4)-a Certificate of Incorporation of Bausch & Lomb
Incorporated (filed as Exhibit (4)-a to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 29, 1985, File No. 1-4105, and incorporated
herein by reference).
(4)-b Certificate of Amendment of Bausch & Lomb
Incorporated (filed as Exhibit (4)-b to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-4105, and incorporated
herein by reference).
(4)-c Certificate of Amendment of Bausch & Lomb
Incorporated (filed as Exhibit (4)-c to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 26, 1992, File No. 1-4105, and incorporated
herein by reference).
(4)-d Form of Indenture, dated as of September 1,
1991, between the Company and Citibank, N.A., as
Trustee, with respect to the Company's Medium-Term
Notes (filed as Exhibit (4)-a to the Company's
Registration Statement on Form S-3, File No. 33-42858,
and incorporated herein by reference).
(4)-e Rights Agreement between the Company and The
First National Bank of Boston, as successor to Chase
Lincoln First Bank, N.A. (filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated July 25,
1988, File No. 1-4105, and incorporated herein by
reference).
(4)-f Amendment to the Rights Agreement between the
Company and The First National Bank of Boston, as
successor to Chase Lincoln First Bank, N.A. (filed as
Exhibit 1 to the Company's Current Report on Form 8-K
dated July 31, 1990, File No. 1-4105, and incorporated
herein by reference).
(11) Statement Regarding Computation of Per Share
Earnings (filed herewith).
(12) Statement Regarding Computation of Ratio of
Earnings to Fixed Charges (filed herewith).
<TABLE>
Exhibit 11
Statement Regarding Computation of Per Share Earnings
Dollars And Shares In Thousands-
Except Per Share Data
<CAPTION>
NINE MONTHS ENDED
September 24, September 25,
1994 1993
<S> <C> <C>
Net earnings $76,405 $135,632
Actual outstanding Common
and Class B shares at
beginning of year 59,118 59,444
Average Common shares
issued for stock
options and effects of
assumed exercise of common
stock equivalents and
repurchase of Common
and Class B shares 669 707
Average Common and
Class B shares
outstanding 59,787 60,151
Net earnings per Common
and common share
equivalent $ 1.28 $ 2.25
</TABLE>
<TABLE>
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed Charges
Dollar Amounts In Thousands
<CAPTION>
September 24, December 25,
1994 1993
<S> <C> <C>
Earnings before provision
for income taxes
and minority interest $139,894 $242,024
Fixed charges 30,579 35,664
Capitalized interest, net
of current
period amortization 195 260
Total earnings as adjusted $170,668 $277,948
Fixed charges:
Interest (including
interest expense
and capitalized
interest) $ 29,409 $ 34,202
Portion of rents
representative
of the interest factor 1,170 1,462
Total fixed charges $ 30,579 $ 35,664
Ratio of earnings to
fixed charges 5.58 7.79 <F01>
<F01>
Excluding the effect of restructuring charges recorded in the
fourth quarter of 1993, the ratio of earnings to fixed
charges at December 25, 1993 would have been 9.20.
</F01>
</TABLE>
November 4, 1994
Filer Support/EDGAR
U.S. Securities and Exchange Commission
Operations Center
6432 General Greenway
Alexandria, VA 22312 Stop 0-7
RE: Bausch & Lomb Incorporated
File No. 1-4105
Ladies and Gentlemen:
Enclosed for filing is the Company's Quarterly Report on Form 10-Q for the
third quarter ended September 24, 1994 submitted pursuant to Rule 901 (d)
of Regulation S-T.
Very truly yours,
Thomas H. McLain, Assistant Controller
Corporate Accounting and Financial Reporting
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> QTR-3 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> SEP-24-1994 SEP-24-1994
<CASH> 191,978 191,978
<SECURITIES> 1,782 1,782
<RECEIVABLES> 333,430 333,430
<ALLOWANCES> (17,978) (17,978)
<INVENTORY> 319,343 319,343
<CURRENT-ASSETS> 1,027,068 1,027,068
<PP&E> 998,167 998,167
<DEPRECIATION> (452,695) (452,695)
<TOTAL-ASSETS> 2,616,225 2,616,225
<CURRENT-LIABILITIES> 725,315 725,315
<BONDS> 330,549 330,549
<COMMON> 24,157 24,157
0 0
0 0
<OTHER-SE> 1,069,298 1,069,298
<TOTAL-LIABILITY-AND-EQUITY> 2,616,225 2,616,225
<SALES> 449,447 1,371,499
<TOTAL-REVENUES> 449,447 1,371,499
<CGS> 237,599 664,360
<TOTAL-COSTS> 237,599 664,360
<OTHER-EXPENSES> 190,611 566,492
<LOSS-PROVISION> 3,071 7,963
<INTEREST-EXPENSE> 10,182 29,409
<INCOME-PRETAX> 20,692<F1> 139,894
<INCOME-TAX> 6,890 45,915
<INCOME-CONTINUING> 7,689 76,405
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,689 76,405
<EPS-PRIMARY> 0.13 1.28
<EPS-DILUTED> 0.13 1.28
<FN>
<F1>INCOME BEFORE TAXES AND MINORITY INTEREST
</FN>
</TABLE>
