August 9, 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
CIK: 0000010427
Ladies and Gentlemen:
Pursuant to the requirements of the Securities and Exchange Act of 1934,
we are transmitting herewith the attached Form 10-Q for the second
quarter ended June 25, 1994.
Very truly yours,
(Thomas H. McLain)
Thomas H. McLain, Assistant Controller
Corporate Accounting and Financial Reporting
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
June 25, 1994
Commission File 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)
16-0345235
(IRS Employer Identification No.)
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 June 25, 1994 there were outstanding 59,238,310
shares of Common Stock, consisting of 58,746,994 shares
of Common Stock and 491,316 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 for the
second quarter of 1994 and 1993 of Bausch & Lomb
Incorporated and Consolidated Subsidiaries are
presented on the following pages. The audited balance
sheet at December 25, 1993 is presented for comparative
purposes. Financial statements for the six months
ended June 25, 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.
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF EARNINGS
Dollar Amounts In Thousands -
Except Per Share Data
Second Quarter Ended Six Months Ended
-------------------- -----------------
June 25, June 26, June 25, June 26,
1994 1993 1994 1993
-------- -------- ------- --------
Net Sales $483,281 $479,429 $922,052 $887,034
Costs And Expenses
Cost of products sold 222,338 209,784 426,761 397,615
Selling, administrative
and general 187,450 180,135 345,215 332,611
Research and development 15,377 14,914 30,666 28,683
------- ------- ------- -------
425,165 404,833 802,642 758,909
------- ------- ------- -------
Operating Earnings 58,116 74,596 119,410 128,125
------- ------- ------- -------
Other (Income) Expense
Investment income (9,532) (3,109) (17,881) (7,712)
Interest expense 10,260 8,193 19,227 17,514
Loss (gain) from
foreign currency, net 886 (4,974) (1,138) (7,992)
------- ------- ------- -------
1,614 110 208 1,810
------- ------- ------- -------
Earnings Before Income Taxes
and Minority Interest 56,502 74,486 119,202 126,315
Provision for income taxes 17,437 25,772 39,025 44,136
------- ------- ------- -------
Earnings Before Minority
Interest 39,065 48,714 80,177 82,179
Minority interest in
subsidiaries 6,009 1,686 11,461 2,300
Net Earnings $33,056 $47,028 $68,716 $79,879
Retained Earnings At
Beginning Of Period 911,958 804,813 889,325 785,044
Cash Dividends Declared:
Common stock, $0.245 and $0.465
per share for 1994 ($0.22 and
$0.44 per share for 1993) 14,515 13,083 27,542 26,165
------- ------- ------- -------
Retained Earnings
At End Of Period $930,499 $838,758 $930,499 $838,758
------- ------- ------- --------
------- ------- ------- --------
Net Earnings Per
Common Share $0.55 $0.78 $1.15 $1.32
Average Common Shares
Outstanding (000s) 59,827 60,295
See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
Dollar Amounts In Thousands
June 25, December 25,
1994 1993
--------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 467,791 $ 513,241
Short-term investments,
at cost which approximates market 98,708 32,795
Trade receivables, less allowances
of $15,845 and $16,053, respectively 367,684 384,973
Inventories, net 330,025 297,208
Deferred income taxes, less valuation
allowance of $13,206 73,537 71,540
Other current assets 136,805 102,304
--------- ---------
1,474,550 1,402,061
Property, Plant And Equipment, net 555,556 541,061
Goodwill And Other Intangibles,
less accumulated amortization of
$68,570 and $59,396, respectively 477,983 456,944
Other Assets 122,636 111,862
Total Assets $2,630,725 $2,511,928
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 301,745 $ 222,642
Current portion of long-term debt 15,240 21,935
Accounts payable 74,799 85,306
Accrued compensation 72,489 66,077
Accrued liabilities 228,027 249,947
Federal and foreign income taxes 70,655 68,882
--------- ---------
762,955 714,789
Long-Term Debt, less current portion 323,456 320,953
Other Long-Term Liabilities 125,462 128,328
Minority Interest 424,176 421,031
--------- ---------
Total Liabilities 1,636,049 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, 920,051 shares
issued. (936,348 shares in 1993) 74 75
Capital in excess of par value 88,597 88,101
Cumulative translation adjustment 31,385 8,915
Retained earnings 930,499 889,325
--------- ---------
1,074,634 1,010,495
Common and Class B Stock in
treasury, at cost,1,880,063 shares
(2,016,430 shares in 1993) (79,958) (83,668)
--------- ---------
Total Shareholders' Equity 994,676 926,827
--------- ---------
Total Liabilities And
Shareholders' Equity $2,630,725 $2,511,928
--------- ---------
--------- ---------
See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Dollar Amounts In Thousands
Six Months Ended
-------------------
June 25, June 26,
1994 1993
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 68,716 $ 79,879
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation of property, plant and equipment 40,793 35,279
Amortization of goodwill and other intangibles 8,340 5,178
(Increase) decrease in deferred income taxes (2,488) 715
Loss on retirement of fixed assets 895 188
Exchange loss (gain) 3,410 (524)
Increase in undistributed earnings of subsidiaries 2,730 216
Decrease (increase) in accounts receivable 23,203 (52,667)
Increase in inventories (25,274) (20,634)
Increase in other current assets (33,154) (36,193)
(Decrease) increase in accounts payable
and accruals (33,605) 33,881
Increase in tax reserves 53 2,712
Decrease in other long-term liabilities (3,368) (5,810)
------- --------
Net cash provided by operating activities 50,251 42,220
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of property,
plant and equipment (49,280) (42,040)
Acquisition of businesses, net of cash and
short-term investments acquired (27,150) (122,005)
Other (9,669) (13,221)
------- --------
Net cash provided by investing activities (86,099) (177,266)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common shares (1,860) (8,741)
Exercise of stock options 6,065 2,234
Net proceeds from (repayment of) debt 69,654 (95,660)
Payment of dividends (26,044) (24,992)
------- --------
Net cash provided by (used in)
financing activities 47,815 (127,159)
------- --------
Effect of exchange rate changes on cash,
cash equivalents and short-term investments 8,496 (23,048)
------- --------
Net increase (decrease) in cash,
cash equivalents and short-term
investments 20,463 (285,253)
Cash, cash equivalents and
short-term investments,
beginning of period 546,036 416,773
-------- --------
Cash, cash equivalents and
short-term investments,
end of period $566,499 $ 131,520
-------- --------
-------- --------
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $ 20,451 $ 12,432
Income taxes $ 42,595 $ 27,342
See Notes To Financial Statements
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 are considered to 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 59,827,000 at June 25, 1994 and 60,295,000 at
June 26, 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)
June 25, December 25,
1994 1993
--------- ------------
Raw materials and supplies $ 83,895 $ 66,768
Work in process 32,242 24,640
Finished products 221,782 213,972
------- -------
337,919 305,380
Less:Reserve for valuation
of certain U.S.
inventories at
last-in, first-out cost 7,894 8,172
------- --------
$330,025 $297,208
------- --------
------- --------
NOTE C: Property, Plant And Equipment
Major classes of property, plant and equipment consisted of the
following:
(Dollar Amounts In Thousands)
June 25, December 25,
1994 1993
-------- -----------
Land $ 21,073 $ 20,784
Leasehold improvements 31,928 25,530
Buildings 361,687 350,173
Machinery and equipment 578,943 542,912
-------- ---------
993,631 939,399
Less:Accumulated
depreciation 438,075 398,338
$555,556 $541,061
-------- --------
-------- --------
NOTE D: Subsequent Event
On August 2, 1994 the Company's subsidiary, Bausch & Lomb
Ireland, transferred $425 million formerly invested in Euro-
dollar time deposits with various major financial institutions to
an investment in securities issued by a wholly owned subsidiary
of a triple-A rated financial institution. The securities pay
quarterly cumulative dividends at a variable LIBOR-based rate.
Although there are equity risks associated with these securities,
based on the extremely high quality and stability of the
institution this investment is considered by management of the
Company to be very secure.
The transaction will benefit the Company by enhancing its ability
to raise capital and meet other financing needs, especially
outside the U.S., through the establishment of a relationship
with a strong financial institution and its affiliates. The
Company further believes that this relationship will result in
more favorable terms for other types of financial transactions
which the Company enters into from time to time.
The investment also responds to a recent change in U.S. tax law.
Historically, profits earned by the Company's non-U.S.
subsidiaries had been used to provide capital and fund the growth
of its non-U.S. businesses. To the extent these earnings were
not immediately required for these businesses, the funds were
invested in Euro-dollar time deposits with selected financial
institutions. Under the new U.S. tax regulations effective in
1994, holding "passive investments", such as these time deposits,
would subject foreign earnings to U.S. tax, thereby depleting the
capital available to fund international growth. The Company
believes the securities constitute qualifying "active" assets,
which will avoid this result.
The securities will be reported as long-term assets, Other
Investments, in the Company's financial statements, given
management's ability and intention to hold them for a period
greater than one year. The Company will apply the provisions of
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", in accounting for this investment. The
securities will be classified as available-for-sale under the
terms of this standard, and any material unrealized holding gains
or losses in market value, net of taxes, will be excluded from
income and reported as a separate component of shareholders'
equity until realized. Adoption of this standard in 1994 did not
have a material effect on the Company's results of operations or
financial position.
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 second quarter ended June 25, 1994 were
$483 million, an increase of $4 million or 1% over the 1993 second
quarter. For the first six months of 1994, net sales of $922 million
advanced $35 million or 4% over the comparable 1993 period. The following
is a summary of net sales by business segment:
Net Sales By Business Segment
(Dollar Amounts In Thousands)
Second Quarter Six Months
------------------ ------------------
1994 1993 1994 1993
------ ----- ----- -----
Healthcare $308,839 $281,521 $593,345 $529,557
Optics 174,442 197,908 328,707 357,477
-------- ------- ------- -------
Net Sales $483,281 $479,429 $922,052 $887,034
-------- ------- ------- -------
-------- ------- ------- -------
In June the Company announced actions to reduce high levels of
inventories at contact lens and sunglass distributors in the U.S., Europe
and Asia which had resulted from the slower than anticipated recovery in
consumer demand in key markets. In response to this situation, the
Company curtailed trade marketing programs to the sunglass and contact
lens distributor channels of trade in the second quarter. This was a
factor in the decline in optics and contact lens revenues from 1993, and
in the slowing rate of total revenue growth in the period. The Company
estimates that these actions have penalized sales results to date by
almost $30 million.
Healthcare Segment Revenues
Revenues in the healthcare segment increased $27 million or 10% over
the 1993 second quarter. On a year-to-date basis, healthcare segment
revenues advanced $64 million or 12% over the comparable 1993 period.
Major product sector revenues as a percentage of total healthcare segment
sales follow:
Healthcare Segment Sales By Product Sector
Second Quarter Six Months
---------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
Personal Health 53% 52% 51% 52%
Medical 33% 33% 34% 32%
Biomedical 14% 15% 15% 16%
Within the personal health sector, second quarter revenues improved
11% from 1993. This progress was led by continued strong worldwide demand
for the Company's ReNu, Boston and Bausch & Lomb lens care solutions.
Incremental revenues for the Curl and Soft Sense skin care products
acquired in June 1993 also contributed to this improvement. Sales growth
in excess of 20% was also realized for over-the-counter medications in
Europe. However, revenues for oral care products declined from 1993 due
primarily to the effect of heightened competition for the Interplak and
Clear Choice product lines and the reduction of selling prices to better
position Interplak products in the U.S. market.
Medical sector sales gained 10% from 1993. Ophthalmic pharmaceutical
revenues improved by 22%, led by results for recently approved products in
the U.S., including Tobramycin and Levobunolol. Growth of 12% for the
Company's prescription pharmaceutical operations in Europe reflected
stabilization in that market following last year's change in government
regulations in Germany. Medical sector sales also benefited from
incremental revenues for the hearing aid business acquired last year and
the more than 30% growth in sales of dental implant products. These gains
were reduced by an overall decline of 6% in contact lens revenues from the
1993 second quarter reflecting the Company's efforts to rebalance
distributor inventories. Traditional lens sales improved modestly from
1993 as significant growth in Japan more than offset the weakened economic
conditions in key markets in Latin America, and the continuing shift in
demand toward planned replacement lens products worldwide. Overall sales
of planned replacement lens products declined almost 15% as orders from
distributor accounts were impacted by an adjustment in the Company's sales
and marketing policies for traditional lenses sold through that channel.
Planned replacement lens sales were also impacted by low consumer
acceptance of the Occasions Multifocal lens product.
A modest improvement for the Company's biomedical sector reflected
incremental revenues from a first quarter acquisition and increased
worldwide sales of specific pathogen-free eggs.
Optics Segment Revenues
Revenues in the optics segment declined 12% to $174 million in the
second quarter compared to $198 million in 1993. Weakened consumer demand
led to higher distributor inventories and was the primary contributor to a
15% shortfall in worldwide sunglass revenues compared to the 1993 second
quarter. This decline was partially offset by incremental sales from the
1994 acquisition of the assets of Revo, noted for its line of premium-
priced sunglasses. Sports optics products revenues increased 9% from
1993, led by increased demand for binoculars, while sales of thin film
coating products and services grew by more than 10%.
Net Sales By Geographic Region
Sales in markets outside the U.S. totaled $223 million, an increase of
$1 million from the 1993 second quarter. Changes in currency exchange
rates reduced the sales increase from 1993 by $4 million. In total, non-
U.S. sales represented 46% of consolidated revenues in both periods. The
Company's historically strong performance outside the U.S. has been
somewhat constrained by the slower rate of economic recovery in Europe and
Japan. European revenues in total increased by 3%, despite the adverse
impact of currency movements. This progress reflected improved demand for
the Company's over-the-counter medications and thin film coating products,
as well as contributions from recent acquisitions, partially offset by
shortfalls in sunglass sales. Sales in the Asia-Pacific region were
relatively even with 1993 levels. Gains in Japan for sales of contact
lenses and lens care solutions were offset by continued weakened demand
for sunglasses in this market. In Canada and Latin America, revenue
shortfalls for sunglasses and traditional contact lenses offset revenue
gains for lens care solutions and planned replacement lens products and
reflected weakened economic conditions in several key markets, including
Brazil.
U.S. sales totaled $260 million in the second quarter, an increase of
$3 million or 1% from the prior year period. Acquisitions completed
during 1993 in the hearing aid and skin care businesses and the first
quarter 1994 acquisition of the assets of Revo contributed the improvement
from the prior year. Higher revenues for contact lens care and
pharmaceutical products were more than offset by lower sales of contact
lenses and sunglasses, as well as shortfalls for oral care products.
Costs And Expenses
The ratio of cost of products sold to sales was 46.0% for the 1994
second quarter versus 43.8% for the comparable 1993 period. For the six-
month period, this ratio was 46.3% for 1994 and 44.8% for 1993. The
higher ratio was primarily attributable to the margin effect and reduced
manufacturing volumes attributable to lower sunglass and contact lens
sales levels, reduced pricing for traditional contact lenses and the
adverse currency impact on products sourced from Ireland.
Selling, administrative and general expenses were 38.8% of sales in
the second quarter versus 37.6% for the comparable 1993 period. Over the
last three years these expenses have been managed to an average of
approximately 36% of sales. Measures to reduce discretionary expenses in
the wake of lower sales volumes for sunglass and contact lens products
were not yet fully implemented at the end of the second quarter. In
addition, the Company has incurred higher levels of spending to support
recent acquisitions, including hearing aids and skin care products. For
the six-month period, these same factors led the costs to be 37.4% of
sales in 1994 versus 37.5% in 1993. Corporate administration expense was
2.5% of sales in 1994 versus 2.6% for 1993. These measures reflect the
Company's continued success in managing these expenses to a targeted level
of no more than 3% of sales. Research and development expense for the
first six months of 1994 increased $2 million or 7% over 1993 levels,
reflecting the Company's continued investment in new technologies. The
majority of these expenditures relate 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 six months of 1994, charges have been recorded
against the restructuring reserve for sunglasses, pharmaceuticals and
biomedical products for approximately $7 million, $7 million and $2
million, respectively. At June 25, 1994, $28 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
June, these restructuring actions have contributed pre-tax savings of
approximately $6 million, primarily in sunglass and biomedical operations.
Business Segment And Operating Earnings
Business segment earnings of $70 million for the second quarter of
1994 declined $16 million or 19% compared to the 1993 second quarter.
Improved operating results were noted for contact lens care and ophthalmic
pharmaceutical products and for over-the-counter medications in Europe.
The 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 to restore consumer confidence
throughout the industry in the wake of regulatory actions initiated by the
FTC and FDA, including advertising, franchise network support, and
improved warranty and customer satisfaction policies. Operating earnings
totaled $58 million, a decrease of $16 million or 22% from the prior year
period. Corporate administration expenses in the second quarter were
managed close to the level of the 1993 period.
Other Income And Expenses
Income from investments for the second quarter of 1994 totaled $10
million, compared to $3 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
on higher average investment levels. Interest expense of $10 million for
the 1994 second quarter was $2 million higher than the second quarter of
1993, as the favorable effect of lower interest rates was more than offset
by an increase in average outstanding debt, based largely on recent
acquisitions.
The Company realized a net foreign currency loss of $1 million in the
second quarter of 1994, representing a decline of $6 million from the net
gain realized in 1993. As had been anticipated, premium income on the
Company's Irish pound hedge contracts decreased from the prior year.
Additionally, higher translation losses were realized in hyperinflationary
economies in Latin America.
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 34.4% and 34.9% for
the first six months of 1994 and 1993, respectively. 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. This
adjustment reduced the reported tax rate for the first six months of 1994
to 32.7%.
Liquidity And Financial Resources
Cash Flows From Operating Activities
Net earnings adjusted for non-cash items, including depreciation,
amortization and deferred taxes, declined 5% from 1993. Total cash flows
provided by operating activities totaled a positive $50 million in the
first six months of 1994, an improvement of $8 million from the prior year
period. This change was primarily attributable to initiatives to reduce
receivable levels, reflected in the $23 million of cash flow generated by
these efforts in the first six months of 1994. This gain was moderated by
a build in inventories from 1993 year end resulting from sales shortfalls
in the contact lens and sunglass businesses and from acquisitions. Lower
accrued liabilities primarily represented the net settlement of foreign
currency hedge contracts, the timing of tax payments, and charges against
the restructuring reserve recorded in December 1993.
Cash Flows Used In Investing Activities
Cash flows used in investing activities have been reduced by $91
million from the first six months of 1993 to $86 million. Purchases of
property, plant and equipment totaled $49 million in 1994, an increase of
$7 million over 1993. Capital expenditures will be limited to
approximately $90 million in 1994 compared to an average level of $105
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 also 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 $48 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. The Company's total debt, consisting of
short- and long-term borrowings, increased by $75 million to $640 million
at the end of the 1994 second quarter.
Financial Position
Bausch & Lomb's ratio of total debt to equity stood at 64% in June
1994 and 44% in June 1993, the result of higher debt levels in 1994. The
Company also maintains a significant balance of cash and investments,
which totaled $566 million and $132 million at the end of June 1994 and
1993, respectively. The Company's net debt, or total borrowings less
cash, cash equivalents and short-term investments, totaled $74 million in
1994 and $267 million in 1993. After considering hypothetical taxes
payable upon repatriation of non-U.S. cash and investments, tax-effected
net debt totaled $207 million in 1994 and $389 million in 1993. The ratio
of tax-effected net debt to equity stood at 20.8% in June 1994 and 42.8%
in June 1993. The Company is planning to improve cash flow and reduce its
working capital requirements in 1994. The Company's goal is to maximize
the generation of free cash flow which will be available for the repayment
of borrowings, the payment of dividends, the repurchase of stock and the
acquisition of new businesses.
Access to Financial Markets
The Company maintains U.S. revolving credit and term loan agreements
which total $205 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 June 25, 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. In addition,
the Company maintains bank lines of credit for its financing requirements.
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 $712 million for the second quarter of
1994, versus $687 million at year-end 1993 and $365 million for the second
quarter of 1993. The significant increase over June 1993 pertains to non-
U.S. cash and cash equivalents, which were loaned to U.S. entities in 1993
to reduce third-party debt for a limited period of time. The current
ratio was 1.9 at June 25, 1994, 2.0 at December 25, 1993 and 1.7 at June
26, 1993.
OTHER FINANCIAL DATA
Dividends declared on Common Stock were $0.245 per share in the second
quarter of 1994 and $0.22 per share in the second quarter of 1993. Year-
to-date dividends declared on Common Stock were $0.465 compared to $0.44
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 15.6% for the twelve-month
period ended June 25, 1994 compared to 20.5% for the twelve-month period
ended June 26, 1993. Excluding the cumulative translation adjustment,
return on average shareholders' equity was 15.8% and 22.1% for the twelve-
month periods ending June 25, 1994 and June 26, 1993, respectively. The
change in the return ratio reflected the impact of the restructuring
charges recorded in December 1993 and lower earnings performance for the
first half of 1994.
OUTLOOK
Worldwide sales for many of the Company's products are expected to
continue to develop at a good rate for the remainder of 1994. However,
actions to correct an imbalance in distributor inventories of sunglass and
contact lens products may offset these gains in revenue performance. The
Company has estimated that, at the end of the second quarter, excess
inventories at distributors had declined to approximately $24 million for
sunglass products worldwide and $19 and $2 million for contact lens
products in U.S. and non-U.S. markets, respectively. These inventories
are expected to be substantially reduced by the end of 1994. Wide-range
actions to reduce expenses were identified late in the second quarter and
will be fully implemented by the end of the year. Operating earnings
will be penalized by approximately $17 million related to adjustments in
production and employment levels.
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.
The Company will continue to monitor improving economic conditions in
Europe and Japan. The economic and political instability in Latin
America, which has hampered growth in the first half of 1994, is expected
to continue to negatively effect results for the remainder of the year.
Strong positive trends in the Company's worldwide lens care business
are expected to continue, based on the Company's established ReNu, Boston
and Bausch & Lomb products. However, overall lens care revenues could be
somewhat effected by the introduction of products which compete with the
ReNu brand. Expanded distribution for skin care products should also
contribute to sales and earnings performance in the U.S. Over-the-counter
and prescription pharmaceutical product sales in Europe are expected to
continue the positive trends evident in results through June.
Management is also focusing attention on the transition of
pharmaceutical manufacturing operations to a new facility in Tampa,
Florida. This business will continue to benefit from recent restructuring
actions and the expected introduction of new products. The Company has
targeted the launch of its next generation of Interplak devices for the
1994 fourth quarter. This should help to offset the adverse effect
heightened competition has had on results for the Company's oral care
products. The Company will also continue to invest in its Miracle-Ear
line of hearing aids. Sales and earnings for biomedical, sports optics
and thin film products and services are also expected to continue their
trend of improvement from 1993.
Other expenses are expected to increase significantly. This primarily
reflects the expected reduction in premium income earned on the Company's
Irish pound hedge contracts and higher translation losses experienced in
hyperinflationary economies. Higher minority interest expense related to
Wilmington Partners L.P. will continue in the second half of 1994.
Based upon the factors described above, net earnings per share for
1994 are likely to decline 15% - 20% from the $3.21 per share earned
before a restructuring charge in 1993.
Free cash flow is expected to improve based on programs to reduce
working capital levels, primarily accounts receivable, and to limit
capital expenditure levels to $90 million in 1994.
Return on shareholders' equity is expected to be below the Company's
target of 20% for the year based upon the effect of anticipated earnings
shortfalls generated by the actions being taken in the global sunglass and
contact lens businesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
1. In its 1993 Annual Report on Form 10-K, the Company indicated
that its wholly-owned subsidiary, Dahlberg, Inc., had been
served with seven class-action consumer lawsuits alleging
that Dahlberg made false and misleading statements concerning
hearing aid performance capabilities. One action had been
brought in California, one in Alabama and five in Minnesota.
In July, 1994, the California plaintiffs voluntarily
discontinued their action after the court denied their motion
for class certification. In June, 1994, the Alabama court
conditionally certified a class of all purchasers of Dahlberg
hearing aids between January 1989 and January 1994, but
agreed to reconsider the issue after 90 days. The five
actions in Minnesota have been consolidated. The Company is
vigorously contesting these claims.
2. In June, 1994, the Company was served with five separate
shareholder actions, filed in the United States District
Court of New York, Western and Southern Districts. By
stipulation, an amended complaint will be filed in the
Western District, consolidating all of the cases. Plaintiffs
seek to represent all persons who purchased stock between
December 1993 and the Company's June 3, 1994 announcement
that its efforts to rebalance distributor inventories would
penalize 1994 revenues. Plaintiffs allege the Company
artificially inflated the value of the stock by making false
and misleading statements that financial results in 1994
would improve over 1993 and seek statutory damages based upon
the decrease in market value of the shares of the Company's
Common Stock. The Company contends that the claims lack
merit and it will vigorously defend against the suit.
3. In June, 1994, the Florida Attorney General, acting on behalf
of disposable contact lens consumers in the State of Florida,
filed an antitrust action against the Company and others in
the United States District Court for the Middle District of
Florida. The complaint challenges the Company's long-
standing policy to protect consumers' health by selling
contact lenses only to licensed professionals. Plaintiffs
allege that the policy was adopted in conspiracy with others
to eliminate alternative channels of trade from the
disposable lens market. The Florida Attorney General seeks
treble damages on behalf of all purchasers of contact lenses,
whether from the Company or others, a $1 million penalty and
injunctive relief. Four consumer class actions have also
been filed in the Middle District of Florida and in
California and Washington state courts. The complaints seek
identical relief on behalf of consumers outside the State of
Florida. The Company defends its policy in the interest of
safeguarding consumers' health.
4. The Company was served with a proposed class action filed in
the United States District Court (N.D. Ala.) in May, 1994.
Plaintiffs seek to represent a nationwide class of purchasers
of Optima, Medalist and SeeQuence II lenses during a three
year period. The plaintiffs seek damages claiming that the
Company misled consumers by packaging the same lens under
three different names for three different prices. Plaintiffs
seek unspecified damages under the Lanham Act, the RICO
statute, express and implied warranties and other common law
theories. The Company has moved to transfer this case to
Western District of New York, for dismissal on the merits for
failure to state a claim and, to the extent any claim is
stated, on the ground that the claims are preempted under
federal law.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1993 annual meeting of shareholders was held on April 26, 1994.
The nominees for Director elected at the meeting were as follows:
Votes Cast
Nominee For Withheld
Franklin E. Agnew 48,038,497 402,441
Daniel E. Gill 48,036,754 404,184
Ruth E. McMullin 48,037,830 403,108
Linda Johnson Rice 48,033,451 407,487
Robert L. Tarnow 48,036,254 404,684
At the meeting the shareholders voted to approve the Management
Executive Incentive Plan, pursuant to which certain senior officers of the
Company may be paid a bonus. 46,237,551 shares of Common and Class B
stock were voted in favor of the proposal, 1,709,689 shares of Common and
Class B stock were voted against the proposal, and 493,698 shares of
Common and Class B stock abstained.
The shareholders voted to approve the Long Term Performance Stock Plan
I, pursuant to which certain senior officers of the Company may receive
incentive awards. 41,669,897 shares of Common and Class B stock were
voted in favor of the proposal, 6,413,309 shares of Common and Class B
stock were voted against the proposal, and 357,732 shares of Common and
Class B stock abstained.
The shareholders voted to ratify the appointment of Price Waterhouse as
independent accountants for 1994. 48,182,230 shares of Common and Class B
stock were voted in favor of the proposal, 148,805 shares of Common and
Class B stock were voted against the proposal, and 109,903 shares of
Common and Class B stock abstained.
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 June 3, 1994 was filed during
the second quarter to disclose the Company's plan to rebalance
distributor inventories.
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: August 8, 1994
By: (Jay T. Holmes)
Jay T. Holmes
Senior Vice President,
Corporate Affairs and
Secretary
Date: August 8, 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).
Exhibit 11
Statement Regarding Computation of Per Share Earnings
Dollars And Shares In Thousands-
Except Per Share Data
SIX MONTHS ENDED
---------------------------
June 25, June 26,
1994 1993
------- -------
Net earnings $68,716 $79,879
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 709 851
------ ------
Average Common and Class B
shares outstanding 59,827 60,295
------ -------
------ -------
Net earnings per Common and
Common share equivalent $ 1.15 $ 1.32
------- -------
------- -------
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed Charges
Dollar Amounts In Thousands
June 25, December 25,
1994 1993
------- ------------
Earnings before provision for
income taxes and minority
interest $119,202 $242,024
Fixed charges 19,981 35,664
Capitalized interest, net
of current period
amortization 130 260
-------- --------
Total earnings as adjusted $139,313 $277,948
-------- --------
Fixed charges:
Interest (including interest
expense and capitalized
interest) $ 19,227 $ 34,202
Portion of rents representative
of the interest factor 754 1,462
------- -------
Total fixed charges $ 19,981 $ 35,664
------- ------
Ratio of earnings to
fixed charges 6.97 7.79 (1)
------- -------
[FN]
(1) 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.
