March 15, 1996
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
Re: Bausch & Lomb Incorporated
File No. 1-4105
Dear Sirs:
On behalf of Bausch & Lomb Incorporated (the "Company"), the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 25, 1993 is being transmitted electronically to you, in
accordance with EDGAR, for filing pursuant to Section 13 of the
Securities Exchange Act of 1934.
The filing fee of $250.00 has been transferred to the Commission's
account at Mellon Bank in Pittsburgh, Pennsylvania.
One complete copy of the Annual Report on Form 10-K/A,
manually signed, including financial statements,
financial statement schedules, exhibits and all other
papers and documents filed as a part thereof, and one
additional copy without exhibits, are also being filed
by copy of this letter with the New York Stock
Exchange, on which the Company's Common Stock is
registered.
If you have any questions relating to this letter,
please contact Jean F. Geisel, Assistant Secretary of
the Company, at (716) 338-6010.
Very truly yours,
/s/ Stephen A. Hellrung
Stephen A. Hellrung
Vice President and General Counsel
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
_____________________
For the fiscal year ended Commission file number
December 25, l993 1-4105
BAUSCH & LOMB INCORPORATED
(Exact name of registrant as specified in its charter)
NEW YORK 16-0345235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BAUSCH & LOMB PLACE, ROCHESTER, NEW YORK 14604-2701
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code:(716) 338-
6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.40 par value New York Stock Exchange
Securities registered pursuant to
Section 12(g) of the Act: None
[Cover page 1 of 2 pages]
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 ___
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K/A or any amendment to this Form 10-K/A. [ X ]
The aggregate market value (based on the consolidated
tape closing price on February 11, 1994) of the voting stock
held by non-affiliates of the registrant was $3,056,170,482.
For the sole purpose of making this calculation, the term
"non-affiliate" has been interpreted to exclude directors and
corporate officers. Such interpretation is not intended to
be, and should not be construed to be, an admission by Bausch
& Lomb Incorporated or such directors or corporate officers
that such directors and corporate officers are "affiliates"
of Bausch & Lomb Incorporated, as that term is defined under
the Securities Act of 1933.
The number of shares of common stock of the registrant,
outstanding as of February 11, 1994 was 59,150,228,
consisting of 58,632,444 shares of Common Stock and 517,784
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.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II The Bausch & Lomb 1993 Annual Report to
Shareholders for fiscal year ended December 25, 1993 ("Annual
Report"). With the exception of the pages of the Annual
Report specifically incorporated by reference herein, the
Annual Report is not deemed to be filed as a part of this
Report on Form 10-K/A.
Part III Bausch & Lomb Incorporated Proxy Statement,
dated March 21, 1994 ("Proxy Statement"). With the exception of
the pages of the Proxy Statement specifically incorporated by
reference herein, the Proxy Statement is not deemed to be filed
as part of this Report on Form 10-K/A.
[Cover page 2 of 2 pages]
TABLE OF CONTENTS
PART I PAGE
Item 1. Business ................................ 1
Item 2. Properties .............................. 5
Item 3. Legal Proceedings ....................... 7
Item 4. Submission of Matters to a Vote
of Shareholders ......................... 9
PART II
Item 5. Market for Bausch & Lomb Incorporated's
Common Stock and Related Shareholder
Matters ................................. 9
Item 6. Selected Financial Data ................. 9
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations................ 9
Item 8. Financial Statements and
Supplementary Data ...................... 9
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure ................ 9
PART III
Item 10. Directors and Executive Officers
of Bausch & Lomb Incorporated............ 10
Item 11. Executive Compensation .................. 13
Item 12. Security Ownership of Certain
Beneficial Owners and Management ........ 13
Item 13. Certain Relationships and
Related Transactions .................... 13
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K .... 13
Signatures ......................................... 15
Schedules .......................................... S-1
Exhibit Index ...................................... E-1
Exhibits........... (Attached to this Report on Form 10-K/A)
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Bausch & Lomb Incorporated is a world leader in the
development, manufacture and marketing of products and
services for the personal health, medical, biomedical and
optics fields.
Bausch & Lomb was incorporated in the State of New York
in 1908 to carry on a business which was established in 1853.
Its principal executive offices are located in Rochester, New
York. Unless the context indicates otherwise, the terms
"Bausch & Lomb" and "Company" as used herein refer to Bausch
& Lomb Incorporated and its consolidated subsidiaries.
Highlights of the general development of the business of
Bausch & Lomb Incorporated during 1993 are discussed below.
The Company experienced good progress in 1993. Sales
increased to $1,830 million, 7% above the 1992 amount of
$1,709 million. Including restructuring charges in 1993,
earnings amounted to $139 million or $2.31 per share.
Excluding these charges, earnings advanced to $175 million, a
2% increase over the 1992 amount of $171 million. Earnings
per share of $2.92 in 1993 excluding restructuring charges
advanced 3% over the 1992 amount of $2.84 per share
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information concerning sales, business segment earnings
and identifiable assets attributable to each of Bausch &
Lomb's reportable industry segments is set forth on pages 34-
40 and 51-52 of the Annual Report and is incorporated herein
by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Bausch & Lomb's operations have been classified into two
industry segments: Healthcare and Optics. Below is a
description of each segment and information to the extent
that it is material to an understanding of the Company's
business taken as a whole. In addition, pages 22-32 of the
Annual Report are incorporated herein by reference.
Healthcare
The Healthcare segment includes personal health, medical
and biomedical products. In the personal health area, major
lines include solutions used for the care of contact lenses
and for the relief of eye irritation, contact lens
accessories, Clear Choice mouthwash, certain over-the-counter
pharmaceutical products, the Interplak power toothbrushes and
other oral care products, and Curel and Soft Sense skin care
products. Medical products include contact lenses and lens
materials, prescription drugs, the Miracle-Ear line of
hearing aids and Steri-Oss dental implants. Biomedical
products include purpose-bred laboratory animals for
biomedical research, products derived from specific pathogen-
free eggs, and a variety of other biotechnical and
professional services provided to the scientific research
community.
The Company markets its personal health products in the
U.S. to practitioners through its own sales force and through
drug stores, food stores, and mass merchandisers. Personal
health products are also marketed through an extensive
international marketing organization. Distribution in many
other countries is accomplished through distributors or
dealers. Medical products are marketed through the Company's
sales force to eyecare and dental care practitioners,
independent optical laboratories, and hospitals. Hearing
aids are distributed through the Miracle-Ear franchise
system. Sales to pharmacies are handled by drug wholesalers,
while marketing of medical products outside the U.S. is
accomplished through the Company's extensive international
marketing organization. In some countries, distribution is
handled through dealers or distributors. Biomedical products
are sold primarily through the Company's sales force
worldwide.
The Company acquired Steri-Oss, Inc., a California
manufacturer of dental implants, during the first quarter of
1993. The breadth and quality of its line of coated and
uncoated titanium implants has earned Steri-Oss an excellent
reputation among dental professionals.
During the second quarter of 1993, Bausch & Lomb
acquired the Curel and Soft Sense lines of skin care products
from S. C. Johnson and Son, Inc. These lines are expected to
benefit from the Company's marketing and distribution
expertise.
The acquisition of Dahlberg, Inc. during the third
quarter of 1993 expanded Bausch & Lomb's participation in the
hearing care field. Dahlberg is the maker of the Miracle-Ear
line of hearing aids, a widely recognized hearing aid brand
name, which has over 1,000 franchised locations in the U.S.
During the fourth quarter of 1993, the Company received
licenses to product several generic pharmaceuticals in its
state-of-the-art, aseptic manufacturing plant in Tampa,
Florida. Additional approvals are anticipated during 1994.
The Company introduced the Occasions line of contact
lenses in 1993. Occasions are worn only once before being
discarded and will be especially beneficial in selected
situations when contact lenses are preferred over spectacles.
Vivivit Q10 vitamins were introduced in Germany by the
Company's Dr. Mann Pharma subsidiary during the second half
of 1993. Favorable trade acceptance of this product led to a
successful launch.
Optics
The principal products of the Company's Optics segment
include sunglasses, binoculars, riflescopes, telescopes and
optical thin film applications and products.
Optical products are distributed worldwide through
distributors, wholesalers, manufacturers' representatives,
and independent sales representatives. These products are
also distributed through the Company's sales force to optical
stores, department stores, catalog showrooms, mass
merchandisers, sporting goods stores and, in the case of
optical thin films, to a variety of industrial customers.
During 1993, the Company launched the Ray-Ban Survivors
line of sunglasses. These products feature DiamondHard lens
coatings which render glass lenses more scratch resistant.
These sunglasses met with good acceptance among active,
outdoor oriented consumers.
The Company also introduced the Bausch & Lomb Elite
riflescope during the year. It features multi-coated optics,
durable construction and proven accuracy. It is expected to
meet with good aceptance among consumers who demand the
highest quality riflescopes.
Raw Materials and Parts; Customers
Materials and components in both of the Company's
industry segments are purchased from a wide variety of
suppliers and the loss of any one supplier would not
adversely affect the Company's business to a significant
extent. No material part of the Company's business in either
of its industry segments is dependent upon a single or a few
customers.
Patents, Trademarks & Licenses
While in the aggregate the Company's patents are of
material importance to its businesses taken as a whole, no
single patent or patent license or group of patents or patent
licenses relating to any particular product or process is
material to either industry segment. The Company actively
pursues technology development and acquisition as a means to
enhance its competitive position in its business segments.
In the healthcare segment, Bausch & Lomb has developed
significant consumer, eye care professional and dental care
professional recognition of products sold under the Bausch &
Lomb, Sensitive Eyes, ReNu, Boston, SeeQuence, Medalist, The
Boston Lens, Optima, Soflens, Charles River, VAF/Plus and
Interplak trademarks. Bausch & Lomb, Ray-Ban, Wayfarer and
Bushnell are trademarks receiving substantial consumer
recognition in the optics segment.
Seasonality and Working Capital
Some seasonality exists for the Interplak line of power
toothbrushes in the Healthcare segment and for sunglasses and
sports optics products in the Optics segment. During some
periods, the accumulation of inventories of such products in
advance of expected shipments reflects the seasonal nature of
the products. In general, the working capital practices
followed in each of the Company's industry segments are
typical of those businesses.
Competition
Each industry segment is highly competitive in both U.S.
and non-U.S. markets. In both of its segments, Bausch & Lomb
competes on the basis of product performance, quality,
technology, price, service, warranty and reliability. In the
Optics segment, the Company also competes on the basis of
style.
Research and Development
Research and development constitutes an important part
of Bausch & Lomb's activities. In 1993, the Company's
research and development expenditures totaled $58 million, as
compared to $53 million in 1992 and $49 million in 1991.
Environment
Although Bausch & Lomb is unable to predict what
legislation or regulations may be adopted or enacted in the
future with respect to environmental protection and waste
disposal, existing legislation and regulations have had no
material adverse effect on its capital expenditures, earnings
or competitive position. Capital expenditures for property,
plant and equipment for environmental control facilities were
not material during 1993 and are not anticipated to be
material in 1994 or 1995.
Number of Employees
Bausch & Lomb employed approximately 15,900 persons as
of December 25, 1993.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
Information as to sales, operating earnings and
identifiable assets attributable to each of Bausch & Lomb's
geographic regions, and the amount of export sales in the
aggregate, is set forth on page 51 of the Annual Report and
is incorporated herein by reference.
ITEM 2. PROPERTIES
The principal manufacturing, distribution and production
facilities and other important physical properties of Bausch
& Lomb at March 1, 1994 are listed hereafter and grouped
under the principal industry segment to which they relate.
Certain properties relate to more than one industry segment.
Except where otherwise indicated by footnote, all properties
shown are held in fee and are not subject to major
encumbrances.
HEALTHCARE
Manufacturing Plants Distribution Centers
Yorba Linda, CA (2) Yorba Linda, CA (2)
Sarasota, FL (1) Tampa, FL
Tampa, FL Tucker, GA (2)
Wilmington, MA (2) Golden Valley, MN (1)
Golden Valley, MN (1) Greenville, SC (2)
Hauppauge, NY (2) Lynchburg, VA (2)
Rochester, NY (1),(2) Turtle Lake, WI (1)
(Optics Center)
Greenville, SC
Turtle Lake, WI (1)
North Ryde, Australia (2)
Porto Alegre, Brazil
Rio de Janeiro, Brazil (2)
Kitchener, Canada (2)
Beijing, China (2)
Berlin, Germany
Bhiwadi, India
Jakarta, Indonesia (2)
Waterford, Ireland (2)
Milan, Italy
Umsong-Gun (Seoul), Korea
Naucalcan, Mexico (2)
Barcelona, Spain
Madrid, Spain
Hastings, United Kingdom
Production Facilities
Hollister, CA (2) Brussels, Belgium
Lebanon, CT (2) St. Constant, Canada
Preston, CT (2) Henfield, England
Summerland Key, FL Margate, England
Roanoke, IL (2) L'Arbresle Cedex, France
Wilmington, MA (2) Lyons, France
Windham, ME (2) St. Aubin-les-Elbeuf, France
Portage, MI (2) Extertal, Germany
O'Fallon, MO (2) Kisslegg, Germany
Raleigh, NC (2) Sulzfeld, Germany
Omaha, NE (2) Calco, Italy
Pittsfield, NH (2) Monticello Brienza, Italy
Newfield (Lakeview), NJ (2) Atsugi, Japan
Stone Ridge (Kingston), NY Hino, Japan
Reinholds, PA (2) Tskuba, Japan (2)
Charleston, SC Someren, Netherlands
Houston, TX Barcelona, Spain (2)
Oregon, WI (2)
OPTICS
Manufacturing Plants Distribution Centers
Mountain View, CA (2) Mountain View, CA (2)
Oakland, MD Richmond Hill, Canada (2)
Rochester, NY (1),(2) Broomfield, CO
(Optics Center) Overland Park, KS (2)
Rochester, NY Rochester, NY (1), (2)
(Frame Center) (Optics Center)
San Antonio, TX San Antonio, TX
North Ryde, Australia (2)
Rio de Janeiro, Brazil (2)
Pforzheim, Germany
New Territories, Hong Kong (2)
Bhiwadi, India
Waterford, Ireland (2)
Naucalcan, Mexico (2)
Nuevo Laredo, Mexico (2)
CORPORATE FACILITIES
Rochester, NY
One Chase Square (23rd, 24th, 25th Floors) (2)
Euclid Street (2)
42 East Avenue (2)
Optics Center (1),(2)
1295 Scottsville Road (2)
[FN]
(1) This facility is financed under a tax-exempt financing
agreement.
(2) This facility is leased.
Bausch & Lomb considers that its facilities are suitable
and adequate for the operations involved. All facilities are
being productively utilized.
ITEM 3. LEGAL PROCEEDINGS
1. In June 1990, the Company was served with six
"toxic tort" suits filed against it and approximately 80
other defendants in the 21st Judicial District Court of
Louisiana. These suits, which have been certified as a class
action, alleged claims for personal injury, property damage
and "fear of cancer" from waste allegedly generated by the
Company and others and transported to an oil reclamation site
in Louisiana. Each suit alleges joint and several liability
and claims actual and exemplary damages exceeding 10% of the
current assets of the Company on a consolidated basis, the
Company believes that if its waste is or was present at the
site, such waste would have amounted to approximately 0.1% of
the site's total waste, and that its share of liability, if
any, would be de minimis relative to other defendants'
potential liability and that is is not material to the
financial condition of the Company. On January 25, 1993, the
Company and ten other defendants were dismissed from the
action without prejudice, by a motion of the plaintiffs. It
is probable that either the plaintiffs or one or more of the
defendants will seek to bring the Company back into the
proceedings.
2. Since August 1993, the Company's wholly-owned
subsidiary, Dahlberg, Inc., has been served with seven
lawsuits by individuals seeking to represent a class of
consumers, including one action in the United States District
Court for the Northern District of California, five actions
in the Fourth Judicial District for the State of Minnesota
and one in the Circuit Court, Barbour County, Alabama. Each
action has been brought on behalf of alleged purchasers of
Miracle-Ear hearing aids equipped with the Clarifier
circuitry, which were manufactured and distributed by
Dahlberg. The complaints allege that Dahlberg induced
plaintiffs and others similarly situated to purchase hearing
aids through allegedly false and misleading statements
concerning the performance capabilities of the Clarifier
circuitry. Plaintiffs allege fraud, negligence, and
violation of federal and state statutes and are seeking
compensatory and punitive damages in an unstated amount.
Dahlberg is vigorously contesting the claims of the
plaintiffs, including their claim to be representatives of a
class.
3. In January 1994, the Department of Justice, acting
on behalf of the Federal Trade Commission, commenced an
action in the United States District Court for the District
of Minnesota against Dahlberg, Inc., a wholly-owned
subsidiary of the Company. The FTC is seeking civil
penalties and injunctive relief, claiming that certain
intended use claims in advertisements for hearing aids
equipped with the Clarifier circuitry violated a 1976 consent
order between the FTC and Dahlberg. The action seeks
penalties of up to $10,000 for each publication of the
advertisements. Dahlberg is vigorously contesting both the
FTC's authority to regulate intended use claims for hearing
aids and the allegation that the subject advertising violated
the 1976 consent order.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR BAUSCH & LOMB INCORPORATED'S COMMON
STOCK AND RELATED SHAREHOLDER MATTERS
The sections entitled "Dividends" and "Quarterly Stock
Prices" and table entitled "Selected Financial Data" on pages
44, 45 and 64-65, respectively, of the Annual Report are
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Selected Financial Data" on pages 64-
65 of the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The section entitled "Financial Review" on pages 34-45
of the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, including the notes thereto,
together with the sections entitled "Report of Independent
Accountants" and "Quarterly Results" of the Annual Report
included on pages 46-63, 63 and 45, respectively, are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
BAUSCH & LOMB INCORPORATED
Information with respect to non-officer directors is
included in the Proxy Statement on pages 3-7, and such
information is incorporated herein by reference. Set forth
below are the names, ages (as of March 1, 1994), positions
and offices held by, and a brief account of the business
experience during the past five years of, each executive
officer.
Name and Age Position
Daniel E. Gill (57) Chairman since 1982, Chief Executive
Officer since 1981 and Director since l978.
Ronald L. Zarrella (44) President and Chief Operating
Officer since February, 1993; Executive Vice President (1992-
February, 1993); Senior Vice President and President,
International Division (1987-1993); Vice President and
President, Subsidiary Operations, International Division
(1986-1987), and Director since April, 1993.
Henry L. Foster (68) Senior Vice President since 1988,
and Chairman of the Board since 1947 of Charles River
Laboratories, Inc., a subsidiary of the Company; President
and Chief Executive Officer, Charles River Laboratories, Inc.
(1947-1991); Vice President (1986-1988).
Jay T. Holmes (51) Senior Vice President, Corporate Affairs
since 1983, Secretary since 1981 and Director since l986.
Harold O. Johnson (59) Senior Vice President since l985 and
President, Contact Lens Division since l987; President,
International Operations (1985-1987).
James E. Kanaley (52) Senior Vice President since l985 and
President, Personal Products Division since l987; President,
Professional Eye Care Products Group (l985-l987).
Robert J. Palmisano (49) Senior Vice President since 1992 and
President, Eyewear Division since 1988; Vice President (1984-
1992); President, Sports Optics and Scientific Products Group
(1986-1988).
Carl E. Sassano (44) Senior Vice President since 1992;
Vice President (1986-1992); President, Polymer Technology
Corporation, a subsidiary of the Company (1983-1992).
Peter Stephenson (54) Senior Vice President - Finance
since March 1994; Vice President and Controller (February
1993-February 1994); Vice President and Corporate Treasurer -
Warner Lambert Company (1990-1991); Vice President and
Corporate Controller - Warner Lambert Company (1987-1990).
Frank M. Stotz (63) Senior Vice President since March 1994;
Senior Vice President, Finance 1991 to March 1994; Partner,
Price Waterhouse (1966-1991).
Omar Casal (44) Vice President and President -
Western Hemisphere Division since 1992; General Manager,
Bausch & Lomb IOM S.p.A. (1989-1992); General Manager, Bausch
& Lomb Australia Pty., Ltd. (1985-1989).
James C. Foster (43) Vice President, and President and
Chief Executive Officer of Charles River Laboratories, Inc.,
a subsidiary of the Company, since 1991; Executive Vice
President, Charles River Laboratories (1989-1991); Senior
Vice President, Charles River Laboratories and President,
Charles River Biotechnical Services (1987-1988); President,
Charles River Biotechnical Services and Vice President,
Biotechnical Group (1985-1987).
James P. Greenawalt (44) Vice President, Human Resources
since 1986.
Diane C. Harris (51) Vice President, Corporate
Development since 1981.
Stephen A. Hellrung (46) Vice President and General Counsel
since 1985.
Alexander E. Izzard (56) Vice President and President - Asia-
Pacific Division since 1990; Area Vice President - Far East,
International Division since 1985.
Franklin T. Jepson (46) Vice President, Communications
and Investor Relations since 1986.
Barbara M. Kelley (47) Vice President, Public Affairs since
April, 1993; Staff Vice President, Public Affairs (1991-
1993); Director, Public Affairs (1986-1991).
Alex Kumar (46) Vice President and President -
Europe, Middle East and Africa Division since 1989; Vice
President, Europe, Middle East and Africa, International
Division since 1988; Vice President, European Subsidiary
Operations, International Division (1987-1988); Area Vice
President, Europe, International Division (1986-1987).
Jon M. Larson (60) Vice President since 1981 and Vice
President, Quality since 1987; Vice President, Regulatory
Affairs (1989-1991); Vice President, Technical Services,
International Operations (1986-1987).
Stephen C. McCluski (41) Vice President and Controller since
March 1994; President - Outlook Eyewear Company (1992-
February 1994); Vice President - Controller, Eyewear Division
(1989-1992).
B. Joseph Messner (41) Vice President since 1989 and
President, Sports Optics Division since 1988; Vice President
Operations, Sports Optics Division (1987-1988); Vice
President and Controller, Sunglass Division (1984-1987).
Alan H. Resnick (50) Vice President and Treasurer since
1986.
Thomas M. Riedhammer (45) Vice President and President -
Worldwide Pharmaceuticals since January 1994; Vice President
and President - Pharmaceutical Division (1992-1993); Vice
President - Research and Development, Pharmaceutical Division
(1991-1992); Vice President, Paco Pharmaceutical Services,
Inc. and President, Paco Research Corp. (1986-1991).
Robert F. Thompson (40) Vice President since December 1993
and President Polymer Technology Corporation, a subsidiary of
the Company (1992-1993); Vice President - U.S. Business
Operations, Polymer Technology Corporation (1991-1992); Vice
President - Marketing, Polymer Technology Corporation (1988-
1991).
James J. Ward (56) Vice President - Audit Services
since February, 1993; Vice President (1984-1993); Controller
(1985-1993).
Except for Henry and James Foster, who are father and
son, there are no family relationships among the persons
named above. All officers serve on a year-to-year basis
through the day of the annual meeting of shareholders of the
Company, and there is no arrangement or understanding between
any of the officers of the Company and any other persons
pursuant to which such officer was selected as an officer.
ITEM 11. EXECUTIVE COMPENSATION
The portions of the "Executive Compensation" section
entitled "Compensation Tables" and "Defined Benefit
Retirement Plans", the second through fourth paragraphs of
the section entitled "Board of Directors", and the second
paragraph of the section entitled "Related Transactions and
Employment Contracts" included in the Proxy Statement on
pages 15-21, 1-2 and 21, respectively, are incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement on
pages 8-9 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Page 5 and the first paragraph of the section entitled
"Related Transactions and Employment Contracts" on page 21 of
the Proxy Statement are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
The following documents or the portions thereof
indicated are filed as a part of this report.
(a) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES COVERED BY REPORTS OF INDEPENDENT ACCOUNTANTS.
1. Data incorporated by reference in Page in
Item 8 from the Annual Report Annual Report
Report of Independent Accountants 63
Balance Sheet at December 25, 1993
and December 26, 1992 47
For the years ended December 25, 1993,
December 26, 1992 and December 28, 1991:
Statement of Earnings 46
Statement of Cash Flows 48
Notes to Financial Statements 49-63
2. Filed herewith
Report of Independent Accountants
on Financial Statement Schedules Exhibit (24)
For the years ended December 25, 1993,
December 26, 1992 and December 28,
1991:
SCHEDULE II-Amounts Receivable from Page S-1
Related Parties and Underwriters,
Promoters and Employees Other Than
Related Parties
SCHEDULE V-Property, Plant and Page S-2
Equipment
SCHEDULE VI-Accumulated Depreciation Page S-3
and Amortization of Property, Plant
and Equipment
SCHEDULE VIII-Valuation and Qualifying Page S-4
Accounts
SCHEDULE X-Supplementary Income Page S-5
Statement Information
All other schedules have been omitted because the required
information is not present or not present in amounts sufficient
to require submission of the schedule, or because the
information required is included in the consolidated
financial statements or the notes thereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during
the last quarter of 1993.
(c) 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. Each of Exhibits (10)-a
through (10)-u is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this
form pursuant to Item 14(c) of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 15, 1996 By:/s/ William H. Waltrip
William H. Waltrip
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Principal Executive Officer
Date: March 15, 1996 By:/s/ William H. Waltrip
William H. Waltrip
Chairman,
Chief Executive Officer
and Director
Principal Financial Officer
Date: March 15, 1996 By:/s/ Stephen C. McCluski
Stephen C. McCluski
Senior Vice President,
Finance
Controller
Date: March 15, 1996 By:/s/ Jurij Z. Kushner
Jurij Z. Kushner
Vice President and Controller
Directors
Franklin E. Agnew
William Balderston III
Bradford R. Boss
Ruth R. McMullin
John R. Purcell
Linda Johnson Rice
Alvin W. Trivelpiece
William H. Waltrip
Kenneth L. Wolfe
Date: March 15, 1996 By:/s/Jay T. Holmes
Jay T. Holmes
Attorney-in-Fact and
Director
EXHIBIT INDEX
S-K Item 601 No. Document
(3)-a Certificate of Incorporation of Bausch &
Lomb Incorporated (filed as Exhibit (3)-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).
(3)-b Certificate of Amendment of Bausch & Lomb
Incorporated (filed as Exhibit (3)-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).
(3)-c Certificate of Amendment of Bausch & Lomb
Incorporated (filed as Exhibit (3)-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).
(3)-d By-Laws of Bausch & Lomb Incorporated, as
amended, effective October 28, 1986 (filed as Exhibit (3)-b
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1986, File No. 1-4105, and
incorporated herein by reference).
(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).
(10)-a Change of Control Employment Agreement
with certain executive officers of the Company (filed as
Exhibit (10)-a to the Company's Annual Report on Form 10-K
for the fiscal year ended December 29, 1990, File No. 1-4105,
and incorporated herein by reference).
(10)-b The Bausch & Lomb Incorporated Executive
Incentive Compensation Plan as restated (filed herewith).
(10)-c The Bausch & Lomb Supplemental Retirement
Income Plan I, as restated (filed as Exhibit (10)-e to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1990, File No. 1-4105, and incorporated
herein by reference).
(10)-d The Bausch & Lomb Supplemental Retirement
Income Plan II, as restated (filed as Exhibit (10)-f to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1990, File No. 1-4105, and incorporated
herein by reference).
(10)-e The Bausch & Lomb Supplemental Retirement
Income Plan III (filed as Exhibit (10)-g 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).
(10)-f The Bausch & Lomb Incorporated Long Term
Incentive Program, as restated (filed as Exhibit (10)-g 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).
(10)-g Amendment to the Bausch & Lomb
Incorporated Long Term Incentive Program (filed as Exhibit
(10)-i 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).
(10)-h The Bausch & Lomb Incorporated Long Term
Performance Stock Plan I (filed herewith).
(10)-i Bausch & Lomb Incorporated Long Term
Performance Stock Plan II, as amended (filed herewith).
(10)-j The 1982 Stock Incentive Plan of Bausch &
Lomb Incorporated (filed as Exhibit III-F to the Company's
Annual Report on Form 10-K for the fiscal year ended December
26, 1982, File No. 1-4105, and incorporated herein by
reference).
(10)-k Amendment to the 1982 Stock Incentive
Plan of Bausch & Lomb Incorporated (filed as Exhibit (10)-l
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).
(10)-l Amendment to the 1982 Stock Incentive
Plan of Bausch & Lomb Incorporated (filed as Exhibit (10)-k
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 1990, File No. 1-4105, and
incorporated herein by reference).
(10)-m The 1987 Stock Incentive Plan of Bausch &
Lomb Incorporated (filed as Exhibit I.B to the Company's
Registration Statement on Form S-8, File No. 33-15439, and
incorporated herein by reference).
(10)-n Amendment to the 1987 Stock Incentive
Plan of Bausch & Lomb Incorporated (filed as Exhibit (10)-n
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).
(10)-o Amendment to the 1987 Stock Incentive
Plan of Bausch & Lomb Incorporated (filed as Exhibit (10)-n
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 1990, File No. 1-4105, and
incorporated herein by reference).
(10)-p The 1990 Stock Incentive Plan of Bausch &
Lomb Incorporated, as amended (filed as Exhibit (10)-o to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1990, File No. 1-4105, and incorporated
herein by reference).
(10)-q The Bausch & Lomb Incorporated Director
Deferred Compensation Plan, as restated (filed as Exhibit
(10)-p to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991, File No. 1-4105, and
incorporated herein by reference).
(10)-r The Bausch & Lomb Incorporated Executive
Deferred Compensation Plan, as restated (filed as Exhibit
(10)-q to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991, File No. 1-4105, and
incorporated herein by reference).
(10)-s The Bausch & Lomb Incorporated Executive
Benefit Plan, as amended (filed as Exhibit (10)-t to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1990, File No. 1-4105, and incorporated
herein by reference).
(10)-t The Bausch & Lomb Incorporated Executive
Security Program (filed as Exhibit (10)-s to the Company's
Annual Report on Form 10-K for the fiscal year ended December
30, 1989, File No. 1-4105, and incorporated herein by
reference).
(10)-u The Bausch & Lomb Retirement Benefit
Restoration Plan (filed as Exhibit (10)-t to the company's
Annual Report on Form 10-K for the fiscal year ended December
28, 1991, 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).
(13) The Bausch & Lomb 1993 Annual Report to
Shareholders for the fiscal year ended December 25, 1993
(filed herewith). With the exception of the pages of the
Annual Report specifially incorporated by reference herein,
the Annual Report is not deemed to be filed as a part of this
Report on Form 10-K/A
(22) Subsidiaries (filed herewith).
(24) Report of Independent Accountants on
Financial Statement Schedules and Consent of Independent
Accountants (filed herewith).
(25) Power of attorney with respect to the
signatures of directors in this Report on Form 10-K/A(filed
herewith).
(27) Financial Data Schedule (filed herewith)
EXHIBIT (10)-b
THE EXECUTIVE INCENTIVE COMPENSATION PLAN
1.0 INTRODUCTION
The Executive Incentive Compensation Plan is established to
provide incentive compensation in the form of a supplement to
the base salaries of those officers, managers, and key
employees who contribute significantly to the growth and
success of the Company's business; to attract and to retain,
in the employ of the Company, individuals of outstanding
ability; and to align the interests of those who hold
positions of major responsibility in the Company with the
interests of the Company's shareholders.
2.0 ELIGIBILITY
Those members of the executive management group whose duties
and responsibilities contribute significantly to the growth
and success of the Company's business are eligible. This
generally includes all positions in the mid-management/
technical band and above, in Rochester based
divisions or functions. The plan may be adopted by non-
Rochester based divisions.
The participant must be on the payroll in an eligible
position before July 1 of the plan year, to be eligible for
an award.
3.0 DEFINITIONS
3.1 A standard incentive award has been
established for each salary grade or job band and is
expressed as a percentage of period salary (i.e., eligible
base salary earnings for the year). Exhibit I defines
standard percentage schedules.
The standard incentive award is the award payout level which
over time, participants, units and the corporation should
average, and will be the amount which will be used for
financial accrual purposes during the incentive year.
3.2 An approved incentive is the incentive which
has been approved by the Chairman of the Board of directors
and the Committee On Management of the Board to be paid by
the company to the participant.
Actual incentive award amounts, based upon individual
and organizational performance, can vary from 0% for
unacceptable performance, or from a minimum of 25% to a
maximum of 175% of standard. In any event, an award cannot
exceed the maximum.
4.0 MEASURES OF PERFORMANCE
Each organizational unit and eligible participant will set
performance measures. These will be applied for incentive
plan purposes as follows:
<TABLE>
<CAPTION>
Corporation Unit Individual
<S> <C> <C> <C>
Senior Staff Officers 100%
Other Staff Officers and
Corporate Staff Participants 50% 50%
Division Officers 25% 75%
Division Participants 50% 50%
</TABLE>
4.1 The "Organizational Performance Management System"
(OPMS) has been established to evaluate corporate, division,
and profit center performance for Executive Incentive
Compensation Plan purposes.
The OPMS is based upon specific organizational objectives.
These objectives are to be agreed upon at the beginning of
the plan year. They must be measurable financial categories
such as sales, operating earnings, earnings per share, DSO,
inventory turns, or quantifiable strategic goals, for example
product development, products introduction market share.
Performance levels for 5, 4, 3, 2, and 1 ratings are to be
defined at the beginning of the plan year for each goal.
There will be a pre-determined weighting among the chosen
objectives reflecting the priority of those objectives.
In general, it is expected that the calculated organizational
results will determine the performance rating for the unit.
However, after calculation of year end OPMS results, the CEO
and COO may make a modification of +20% to the calculated
rating, if performance is not accurately reflected in
performance measures (i.e., due to general economic, industry
change, corporate strategy change, natural disaster).
Adjustments must be made in 5% increments.
4.2 The "Individual Performance Management System" (IPMS)
for use with the Executive Incentive Plan will consist of
five or fewer specific individual objectives. These
objectives are to be agreed upon at the beginning of the Plan
year. They must be measurable and generally within the
participant's control. Further, there will be a pre-
determined weighting among the objectives reflecting the
priority of these objectives. Individual performance will be
determined by the participants' supervisor and approved by
the Division/Group Presidents or appropriate corporate staff
function head.
In general, it is expected that the calculated individual
results will determine the performance rating. However, the
unit or functional officer may make an adjustment of +20% to
the calculated ratings if performance is not accurately
reflected in performance measures. Adjustments must be made
in 5% increments.
5.0 DEFINITION OF PERFORMANCE
The following "definitions of performance" are to be utilized
for the plan:
<TABLE>
<CAPTION>
PERFORMANCE
DESIGNATION DEFINITION
<S> <C>
5 (maximum) Extraordinary performance
where the objective was
exceeded by a wide margin.
4 (high standard) Excellent performance where
the objective was exceeded.
3 (standard) Successful performance where
the objective was well met.
2 (low standard) Performance fell short of
goal.
1 (minimum) Performance was well below
expectations.
</TABLE>
6.0 PROCEDURE FOR BONUS CALCULATION AND APPROVAL
Each participant's total bonus will be calculated as follows:
1) The standard bonus (see Section 3.1) is divided into
appropriate corporation/unit-individual components (as
defined in Section 4.0).
2) For the organizational components;
A. The final rating is converted to a percentage
factor (see Attachment I conversion table).
B. The factor is multiplied by the standard
organizational bonus.
C. There is no organizational award granted if final
rating is below 2.0.
3) For the individual component;
A. The final rating is converted to a percentage
factor (see Attachment III conversion table).
B. The factor is multiplied by the standard
individual bonus.
C. There is no individual award granted if final
rating is below 2.0.
4) To calculate the total bonus, the components are added.
The Division Presidents will submit their recommendations for
individual incentive awards to their immediate superiors (in
some cases only the Chief Operating Officer; in others Group
Presidents and COO). In all instances the recommendations
for the Corporate awards will be submitted to the Chief
Executive Officer for concurrence.
Corporate function heads will submit their recommendations
for individual awards to their immediate superior who will
then submit the recommendations to the Chief Executive
Officer for concurrence.
7.0 REMOVAL, TRANSFERS AND TERMINATIONS
7.1 Participants whose employment with the Company
is terminated because of retirement, death, or disability:
- - After the close of the plan year, but prior to the
actual distribution of awards for such year, may be awarded a
full incentive award for the plan year. In the case of
death, such payment will be made to a beneficiary.
- - After the beginning, but prior to the end of the plan
year, may receive an incentive award for that year based on a
prorated calculation reflecting their employment with the
Company and participation in the Plan during year. Awards
will not be paid for any period less than six months
participation in the plan year.
7.2 Participants who are terminated in the fourth quarter
of the year due to a re-structuring which results in job
elimination, may receive an incentive award for that year
based on a prorated calculation reflecting their employment
with the Company and participation in the Plan during that
year.
7.3 Participants transferred during the plan year within
the Company will be awarded an incentive payment through the
division in which the participant is employed at the end of
the plan year. It will be based on the contribution made in
each division in which the participant was employed during
the year. To this end a written evaluation and rating must
be completed by the participant's superior upon transfer.
The awarding division will be charged for the full amount of
the bonus.
7.4 Notwithstanding the foregoing, a special prorated
incentive award shall be paid to participants if, during the
period between the date of a change in control and the next
award date determined pursuant to Section 10:
1) the participant's employment is terminated
involuntarily other than for good cause, or
2) the Plan is terminated.
The amount of the award shall be calculated as a percentage
of period earnings based upon standard performance and
prorated through the date of termination of the participant
or the Plan, as applicable.
A change of control of the Company is defined as follows:
A. The acquisition by any individual, entity or group
(within the meaning of Section 13 (d) (3) or 14 (d) (2) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted
was itself acquired directly from the Company), (ii) any
acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of
paragraph C of this Section 7.0 are satisfied; or
B. Individuals who, as of the date hereof, constitute
the Board of Directors of the Company (the "Board" and, as of
the date hereof, the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for election
by the Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
C. Approval by the shareholders of the Company of a
reorganization, merger, binding share exchange or
consolidation, in each case, unless, following such
reorganization, merger, binding share exchange or
consolidation, (i) more than 60% of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such reorganization, merger, binding share
exchange or consolidation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger,
binding share exchange or consolidation in substantially the
same proportions as their ownership, immediately prior to
such reorganization, merger, binding share exchange or
consolidation, of the Outstanding Company Stock and
Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger, binding share
exchange or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger, binding
share exchange or consolidation, directly or indirectly, 20%
or more of the Outstanding Company Stock or Outstanding
Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger,
binding share exchange or consolidation or the combined
voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election
of directors and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such
reorganization, merger, binding share exchange or
consolidation were members of the Incumbent Board at the time
of the execution of the initial agreement providing for such
reorganization, merger, binding share exchange or
consolidation; or
D. Approval by the shareholders of the Company of (i)
a complete liquidation or dissolution of the Company or (ii)
the sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with
respect to which following such sale or other disposition,
(a) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other
disposition, of the same Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(b) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or such corporation
and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (c) at least
a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets
of the Company.
7.5 Participants who leave the company or are terminated
prior to the actual payment of award for reasons other than
retirement, death, disability, termination in the fourth
quarter due to a restructuring which results in job
elimination, change in control, will forfeit the award for
that plan year.
8.0 INCENTIVE AWARDS THROUGH CONTRACTUAL AGREEMENTS
Incentive awards may be made to participants who do not meet
the six month eligibility requirements only if the following
conditions are met.
(1) Award must be made through contractual
agreement made upon hiring, re-assignment, or commencement of
special project or assignment. These arrangements must be
approved in writing by Division President, Corporate
Compensation, Corporate V.P. Human Resources, and normal 1
over 1 approval matrix.
9.0 ADMINISTRATION OF THE PLAN
The Committee On Management of the Board of Directors
reserves the right to interpret, amend, modify or terminate
the existing program in accordance with changing conditions.
Further, no participant eligible to receive any payments
shall have any rights to pledge, assign, or otherwise dispose
of unpaid portion of such payments. The Committee On
Management is responsible for overall administration of the
Plan. It will determine who will receive incentives and the
amount of each incentive. It may also review the standards
and objectives for a particular year. The Committee On
Management may change or terminate the Plan at any time and
no person has any rights with respect to an incentive award
until it has been paid.
10.0 INCENTIVE AWARD DISTRIBUTION
Incentive awards, when payable, shall be paid in the latter
part of the month of February following the close of the
preceding fiscal year.
Participants may also elect to defer all or part of an
incentive award in accordance with the procedure set forth in
the Company's Deferred Compensation Plan.
EXHIBIT (10)-h
LONG TERM PERFORMANCE STOCK PLAN - I
I. PURPOSE
The Long Term Performance Stock Plan - I (the "Plan") is
designed to advance the interests of Bausch & Lomb
Incorporated (the "Company") and its shareholders by (i)
providing incentives for those key executives who have
overall responsibility for the long term performance of the
Company; (ii) reinforcing corporate long term financial
goals; (iii) providing competitive levels of long term
compensation for key executives; and (iv) aligning
management and shareholder interests.
II. ELIGIBILITY
Participation in the Plan is limited to senior officers with
overall responsibility for the long term performance of the
Company. The Committee on Management of the Board of
Directors (the "Committee") will designate executives to
participate in the Plan ("Participants").
III. AWARD CYCLES
Award cycles ("Award Cycles") will be measured over three
year periods, with the performance award, if any, for each
Award Cycle to be paid early in the fourth year. There will
be a series of overlapping Award cycles with a new Award
Cycle starting and an old Award Cycle finishing each year.
IV. PERFORMANCE GOALS
The chief executive officer of the Company, with approval of
the Committee, will establish the performance goals for each
Award Cycle, ensuring that the goals are equitable and
compatible with the Company's major business objectives.
The performance goals for each Award Cycle will be based
upon a matrix of sales growth and return on equity ("ROE")
for the Company.
V. AWARDS
If the performance goals of the Company are achieved for an
Award Cycle, Participants in the Plan will be eligible for
awards which are calculated using an adjusted salary mid-
point equal to the Participant's salary midpoint in effect
in the first year of the Award Cycle multiplied times 110%
("Adjusted Salary Midpoint"). The Adjusted Salary Midpoint
is then multiplied by 50% to calculate the standard award
("Standard Award") for each salary grade. If a
Participant's salary grade changes in the course of an Award
Cycle, the Participant's Standard Award will be adjusted
using the Adjusted Salary Midpoint for the new grade level
which was in effect during the first year of that Award
Cycle.
Depending upon the level of performance achieved by the
Company, the amount of a Participant's actual award will
range from 50% to 200% of the Standard Award (the "Award").
Awards paid pursuant to this Plan will consist of cash and
Bausch & Lomb Class B Stock granted pursuant to the 1990
Stock Incentive Plan or any successor plan (the "Stock
Plan").
VI. PERFORMANCE UNITS
At the February meeting of the Committee following the
commencement of the Award Cycle, each Participant will
receive performance units ("Performance Units") equal to the
number of shares of Class B Stock which, as of the date of
such meeting of the Committee, have an aggregate fair market
value (as determined under the Stock Plan) equal to 50% of
each Participant's Standard Award. During the Award Cycle,
Participants will receive quarterly cash payments on their
Performance Units equal to the dividends which would be
payable on a like number of shares of Class B Stock.
Participant's Standard Award calculation changes because of
a salary grade change in the course of an Award Cycle, the
number of Performance Units will be adjusted accordingly.
VII. PAYOUTS
At the end of each Award Cycle, the Standard Award will be
adjusted by the Committee to reflect sales growth and ROE
performance on the applicable payout matrix to determine the
amount of the Award payable to each Participant. The Award
payable to a Participant may also be modified by the
Committee if the Award does not accurately reflect
performance due to general economic conditions, industry
changes, corporate strategy changes, natural disasters or
any similar condition. One half of that amount shall be
paid in cash. The Participant will also receive shares of
Class B Stock(pursuant to the Stock Plan) equal to the
number of Performance Units granted to the Participant;
provided, however, that if the Award is based upon a
percentage which is more than or less than 100% of the
Standard Award, the number of shares of Class B Stock to be
granted will be adjusted up or down by a like percentage.
There will be no adjustments in the number of shares of
Class B Stock for fluctuations up or down in the fair market
value of Class B Stock from the date of grant of Performance
Units at the beginning of the Award Cycle to the date of
grant of the Class B Stock, if any, after the Award Cycle.
Notwithstanding any other provision of this Plan, if a
Participant's performance results in calculation of an Award
which would be less than 50% of the Standard Award, the
Participant will nonetheless be entitled to a minimum grant
of Class B Stock equal to 50% of the Performance Units
granted to the Participant.
Whether or not an Award is paid for an Award Cycle, all
Performance Units granted hereunder for an Award Cycle shall
expire at the end of the Award Cycle, and Participants shall
have no further rights with respect to such Units, except to
the extent that their performance entitles them to an Award.
Performance Units shall not give Participants any rights
under the Stock Plan maintained by the Company.
VIII. DEFERRAL
Any or all of the cash portion of an Award may be deferred,
at the option of the Participant, into the Company's
Deferred Compensation Plan. Notice of such a deferral must
be given to the Company at least 18 months prior to the end
of each Award Cycle for which deferral is requested.
IX. TERMINATION OF EMPLOYMENT
If the Participant's employment with the Company terminates
before the end of any Award Cycle due to death, disability,
or retirement, the Participant or his/her beneficiary is
entitled to a pro rata share of any Award paid at the end of
the Award Cycle, unless the Committee, upon the
recommendation of the Chief Executive Officer, decides that
a prorated Award should be paid prior to the end of the
Award Cycle. If the Participant's employment with the
Company terminates before the end of any Award Cycle for any
other reason, the Participant's Performance Units shall be
forfeited and the Participant shall not be entitled to any
Award hereunder.
X. ADMINISTRATION OF THE PLAN
The Committee is responsible for the overall administration
of the Plan. The Committee will, by formal resolution: 1)
approve the Performance Goals for the Award Cycle at the
beginning of each Award Cycle; 2) set new or adjust
previously set performance goals as appropriate to reflect
major unforeseen events; and 3) administer the Plan in all
respects to carry out its purposes and objectives including,
but not limited to, responding to changes in tax laws,
regulations or rulings, changes in accounting principles or
practices, mergers, acquisitions or divestitures, major
technical innovations, or extraordinary, non-recurring, or
unusual items, to preserve the integrity of the Plan's
objectives. The Committee reserves the right, in its
discretion, to pay any Awards hereunder entirely in cash.
The effective date of each Award Cycle is January 1 of the
first year of the performance period.
XI. RECAPITALIZATION
In the event there is any recapitalization in the form of a
stock dividend, distribution, split, subdivision or
combination of shares of common stock of the Company,
resulting in an increase or decrease in the number of common
shares outstanding, the number of Performance Units then
granted under the Plan shall be increased or decreased
proportionately, as the case may be.
XII. REORGANIZATION
If, pursuant to any reorganization, sale or exchange of
assets, consolidation or merger, outstanding Class B Stock
is or would be exchanged for other securities of the Company
or of another company which is a party to such transaction,
or for property, any grant of Performance Units under the
Plan theretofore granted shall, subject to the provisions of
this Plan for making Awards, apply to the securities or
property into which the Class B Stock covered thereby would
have been changed or for which such Class B Stock would have
been exchanged had such Class B Stock been outstanding at
the time.
EXHIBIT (10)-i
LONG TERM PERFORMANCE STOCK PLAN - II
I. PURPOSE
The Long Term Performance Stock Plan - II (the "Plan") is
designed to advance the interests of Bausch & Lomb
Incorporated (the "Company") and its shareholders by (i)
providing incentives for those key executives who have a
major impact on long term corporate performance; (ii)
reinforcing corporate long term financial goals; (iii)
providing competitive levels of long term compensation for
key executives; and (iv) aligning management and shareholder
interests.
II. ELIGIBILITY
Participation in the Plan is limited to officers and other
selected key executives who have a major impact on the
performance of the Company. The Company's chief executive
officer or his designees will designate executives to
participate in the Plan ("Participants").
III. AWARD CYCLES
Award cycles ("Award Cycles") will be measured over three
year periods, with the performance award, if any, for each
Award Cycle to be paid early in the fourth year. Award
Cycles will commence on January 1 of the first year of each
performance period.
IV. PERFORMANCE GOALS
The chief executive officer or his designees will establish
the performance goals for each Award Cycle, ensuring that
the goals are equitable and are compatible with the
Company's major business objectives. The performance goals
for each Participant will relate to the Participant's area
of responsibility and be consistent with the long term goals
of the Company. For Participants who are part of the
Company's corporate staff, their performance goals will be
weighted two-thirds based upon the Participant's individual
goals and one-third based upon the corporate wide financial
goals of return on equity and sales growth. The corporate
wide goals will be established by the chief executive
officer or his designees.
V. AWARDS
A. Officer Awards
If a Participant who is an officer achieves his or her
performance goals for an Award Cycle, such Participant will
be eligible for an award which is calculated using an
adjusted salary midpoint equal to the Participant's salary
midpoint in effect in the first year of the Award Cycle
multiplied times 110% ("Adjusted Salary Midpoint"). The
Adjusted Salary Midpoint is then multiplied by the
appropriate percentage set forth below to calculate the
three year standard award ("Standard Award") for each salary
grade:
<TABLE>
<CAPTION>
Percentage of
Salary Grade Adjusted Salary Midpoint
<S> <C>
66 75
67 75
68 100
69 100
</TABLE>
B. Non Officer Awards.
If a Participant who is not an officer achieves his or her
performance goals for an Award Cycle, such Participant will
be eligible for an award which is calculated using the
Participant's salary in effect in the first year of the
Award Cycle multiplied times 110% ("Adjusted Salary"). The
Adjusted Salary is then multiplied by 45% to calculate the
Standard Award for a non-officer Participant.
C. Adjustments to Award Calculation
If an officer Participant's salary grade changes in the
course of an Award Cycle, such Participant's Standard Award
will be adjusted using the Adjusted Salary Midpoint for the
new grade level which was in effect during the first year of
that Award Cycle. For all non-officer Participants, the
calculation of the Standard Award will be adjusted using
each such Participant's actual salary in the third year of
the Award Cycle.
D. Award Amount
Depending upon the level of performance achieved by each
Participant, the amount of a Participant's actual award, if
any, will range from 50% to 200% of the Standard Award as
adjusted pursuant to Section V.C. above (the "Award").
Awards paid pursuant to this Plan will consist of cash and
Bausch & Lomb Class B Stock granted pursuant to the 1990
Stock Incentive Plan or any successor plan (the "Stock
Plan"). If a Participant's performance results in
calculation of an Award which would be less than 50% of the
Standard Award, the Participant will nonetheless be entitled
to a minimum grant of Class B Stock equal to 50% of the
Performance Units granted to the Participant pursuant to
Section VI below.
VI. PERFORMANCE UNITS
In February following the commencement of an Award Cycle
each Participant will receive performance units
("Performance Units") equal to the number of shares of Class
B Stock which, as of the date of the February meeting of the
Committee on Management of the Board of Directors (the
"Committee"), have an aggregate fair market value (as
determined under the Stock Plan) equal to 50% of each
Participant's Standard Award. During the Award Cycle,
Participants will receive quarterly cash payments on their
Performance Units equal to the dividends which would be
payable on a like number of shares of Class B Stock. If an
officer Participant's Standard Award calculation changes
because of a salary grade change due to a promotion in the
course of an Award Cycle, the number of Performance Units
will be adjusted accordingly at the end of the Award Cycle.
For non-officer Participants the number of Performance Units
will be adjusted at the end of the third year of the Award
Cycle when the non-officer Participant's Standard Award is
adjusted for actual salary increases pursuant to Section
V.C. above.
VII. PAYOUTS
At the end of each Award Cycle, the Standard Award (as
adjusted pursuant to Section V.C. above) will be modified by
the chief executive officer or his designees to reflect
performance against the applicable goals and determine the
amount of the Award payable to each Participant. The Award
payable to a Participant may also be modified by the chief
executive officer or his designees if the Award does not
accurately reflect performance due to general economic
conditions, industry changes, corporate strategy changes,
natural disasters or any similar condition. One half of the
Award amount shall be paid in cash. The Participant will
also receive shares of Class B Stock (pursuant to the Stock
Plan) equal to the number of Performance Units granted to
the Participant; provided, however, that if the Award is
based upon a percentage which is more than or less than 100%
of the Standard Award, the number of shares of Class B Stock
to be granted will be adjusted up or down by a like
percentage. There will be no adjustments in the number of
shares of Class B Stock for fluctuations up or down in the
fair market value of Class B Stock from the date of grant of
Performance Units at the beginning of the Award Cycle to the
date of grant of the Class B Stock, if any, after the Award
Cycle.
Whether or not an Award is paid for an Award Cycle, all
Performance Units granted hereunder for an Award Cycle shall
expire immediately after the Award Cycle, and Participants
shall have no further rights with respect to such Units,
except to the extent that their performance entitles them to
an Award. Performance Units shall not give Participants any
rights under the Stock Plan.
VIII. DEFERRAL
Any or all of the cash portion of an Award may be deferred,
at the option of the Participant, into the Company's
Deferred Compensation Plan. Notice of such a deferral must
be given to the Company at least 18 months prior to the end
of each Award Cycle for which deferral is requested.
IX. TERMINATION OF EMPLOYMENT
If the Participant's employment with the Company terminates
before the end of any Award Cycle due to death, disability,
or retirement, the Participant or his/her beneficiary is
entitled to a pro rata share of any Award paid at the end of
the Award Cycle, unless the chief executive officer or his
designees decide that a pro rated Award should be paid prior
to the end of the Award Cycle. If the Participant's
employment with the Company terminates before the end of any
Award Cycle for any other reason, the Participant's
Performance Units shall be forfeited and the Participant
shall not be entitled to any Award hereunder.
X. ADMINISTRATION OF THE PLAN
This Plan has been adopted by the Committee, and the
Committee may amend, suspend or terminate the Plan or any
portion thereof at any time. The Committee is responsible
for the design of the Plan and the overall administration of
the Plan. Notwithstanding any other provision of this Plan,
all grants of Class B Stock made in connection with this
Plan shall be subject to the discretion of the Committee
which shall make any such grants pursuant to the Stock Plan.
The Committee reserves the right, in its discretion, to pay
any Awards hereunder entirely in cash.
The chief executive officer or his designees will: 1)
approve the Performance Goals for each Award Cycle at the
beginning of the Award Cycle; 2) set new or adjust
previously set performance goals or terminate current Award
Cycles and commence new Award Cycles for individual
Participants as appropriate to reflect major unforeseen
events which are negatively affecting performance; and 3)
administer the Plan to carry out its purposes and objectives
such as, but not limited to, responding to changes in tax
laws, regulations or rulings, changes in accounting
principles or practices, mergers, acquisitions or
divestitures, major technical innovations, or extraordinary,
non-recurring, or unusual items, to preserve the integrity
of the Plan's objectives.
XI. RECAPITALIZATION
In the event there is any recapitalization in the form of a
stock dividend, distribution, split, subdivision or
combination of shares of common stock of the Company,
resulting in an increase or decrease in the number of common
shares outstanding, the number of Performance Units then
granted under the Plan shall be increased or decreased
proportionately, as the case may be.
XII. REORGANIZATION
If, pursuant to any reorganization, sale or exchange of
assets, consolidation or merger, outstanding Class B Stock
is or could be exchanged for other securities of the Company
or of another company which is a party to such transaction,
or for property, any grant of Performance Units under the
Program theretofore granted shall, subject to the provisions
of this Program for making Awards, apply to the securities
or property into which the Class B Stock covered thereby
would have been changed or for which such Class B Stock
would have been exchanged had such Class B Stock been
outstanding at the time.
EXHIBIT 11
<TABLE>
Statement Regarding Computation of Per Share Earnings
Dollars And Shares In Thousands-
Except Per Share Data
<CAPTION>
FOR THE YEARS ENDED
December 25 December 26,
1993* 1992
<S> <C> <C>
Net earnings $138,902 $171,420
-------- ---------
-------- ---------
Actual outstanding Common
and class B shares
at beginning of year 59,444 59,481
Average Common shares issued for
stock options and effects of
assumed exercise of Common
stock equivalents and
repurchase of
Common and class B shares 671 918
-------- ---------
Average Common and Class B
shares outstanding 60,115 60,399
-------- ---------
-------- ---------
Net earnings per common and
common share equivalent $ 2.31 $ 2.84
-------- ---------
-------- ---------
<FN>
*Results have been restated as more fully described
in Note 2 - "Restatement of Financial Information"
</TABLE>
EXHIBIT 12
<TABLE>
Statement Regarding Computation of Ratio of Earnings to
Fixed Charges
Dollar Amounts In Thousands
<CAPTION>
December 25, December 26,
1993* 1992
<S> <C> <C>
Earnings before provision
for income taxes and
minority interest $216,022 $262,644
Fixed charges 35,664 31,618
Capitalized interest, net
of current period amortization (260) (200)
--------- ---------
Total earnings as adjusted $251,946 $294,462
--------- ---------
--------- ---------
Fixed charges:
Interest (including interest
expense and capitalized
interest) $ 34,202 $ 29,968
Portion of rents representative
of the interest factor 1,462 1,650
--------- ---------
Total fixed charges $ 35,664 $ 31,618
--------- ---------
--------- ---------
Ratio of earnings to fixed charges 7.06 <F01> 9.31
--------- ---------
--------- ---------
<FN>
*Results have been restated as more fully described in
Note 2 - "Restatement of Financial Information"
<F01>
Excluding the effect of restructuring charges described
in the Notes to Financial Statements, the ratio of earnings to
fixed charges at December 25, 1993 would have been 8.47.
</FN>
</TABLE>
EXHIBIT 22
<TABLE>
SUBSIDIARIES OF BAUSCH & LOMB INCORPORATED
As of December 25, 1993
<CAPTION>
Jurisdiction Under
Name Which Organized
<S> <C>
Bausch & Lomb AG Switzerland
Bausch & Lomb (Australia) Pty. Ltd. Australia
B.L.J. Company Ltd. Japan
Bausch & Lomb BV Netherlands
Bausch & Lomb (Bermuda) Limited Bermuda
Bausch & Lomb Bermuda Finance Limited Bermuda
Bausch & Lomb Canada, Inc. Canada
Charles River Laboratories, Inc. Delaware
BL Industria Otica, Ltda. Brazil
Bausch & Lomb China, Inc. Delaware
Bausch & Lomb Colombia, S.A. Colombia
Bausch & Lomb Danmark A/S Denmark
Bausch & Lomb Espana, S.A. Spain
Bausch & Lomb Finance S.A. Switzerland
Oy Bausch & Lomb Finland AB Finland
Bausch & Lomb Foundation, Inc. New York
Bausch & Lomb France, S.A. France
Bausch & Lomb Fribourg S.A. Switzerland
Bausch & Lomb GmbH Austria
Bausch & Lomb GmbH Germany
Bausch & Lomb (Hong Kong) Limited Hong Kong
Bausch & Lomb (Hong Kong) Lord Company Hong Kong
Bausch & Lomb (Ireland) Ireland
Bausch & Lomb India Limited India
Bausch & Lomb IOM/SpA Italy
Bausch & Lomb Korea, Inc. Korea
Bausch & Lomb (Malaysia) Sdn. Bhd. Malaysia
Dr. Mann Pharma Germany
Miracle-Ear Minnesota
Bausch & Lomb New Zealand, Ltd. New Zealand
Bausch & Lomb Norge A/S Norway
Operadora de Contactologia S.A. de C.V. Mexico
Outlook Eyewear Company Delaware
Bausch & Lomb Opticare, Inc. New York
Bausch & Lomb Oral Care Division, Inc. Georgia
Bausch & Lomb Pharmaceuticals, Inc. Delaware
Pharmafair, Inc. New York
Polymer Technology Corporation New York
Bausch & Lomb Puerto Rico, Inc. Puerto Rico
Bausch & Lomb Realty Corporation New York
Bausch & Lomb (Singapore) Private Ltd. Singapore
Bausch & Lomb Svenska AB Sweden
Bausch & Lomb Taiwan Limited Taiwan
Bausch & Lomb Turkey Turkey
Bausch & Lomb U.K. Limited England
Bausch & Lomb Venezuela C.A. Venezuela
Wilmington Partners L.P. Delaware
</TABLE>
EXHIBIT (24)
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Bausch & Lomb Incorporated
Our audits of the consolidated financial statements referred
to in our report dated January 23, 1996 appearing on page 63
of the 1993 Annual Report to Shareholders of Bausch & Lomb
Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual
Report on Form 10-K/A) also included an audit of the
Financial Statement Schedules listed in Item 14(a)2, of this
Form 10-K/A. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with
the related consolidated financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Rochester, New York
January 23, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 2-56066, 2-85158,
33-15439 and 33-35667) and in the Prospectus constituting
part of the Registration Statement on Form S-3 (No. 33-51117)
of Bausch & Lomb Incorporated of our report dated January 23,
1996 appearing on page 63 of the 1993 Annual Report to
Shareholders of Bausch & Lomb Incorporated which is
incorporated in this Annual Report on Form 10-K/A. We also
consent to the incorporation by reference of our above report
on the Financial Statement Schedules.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Rochester, New York
March 15, 1996
EXHIBIT (25)
POWER OF ATTORNEY
The undersigned directors of Bausch & Lomb Incorporated (the
"Company"), each hereby constitutes and appoints William H.
Waltrip and Jay T. Holmes, or either of them, his or her
respective true and lawful attorneys and agents, each with full
power and authority to act as such without the other, to sign for
and on behalf of the undersigned the Company's Annual Report on
Form 10-K/A for the year ended December 25, 1993, to be filed
with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 and the related rules and
regulations thereunder, and any amendment or amendments thereto,
the undersigned hereby ratifying and confirming all that said
attorneys and agents, or either one of them, shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, this instrument has been executed by the
undersigned as of this 27th day of February, 1996.
/s/ Franklin E. Agnew /s/ Linda Johnson Rice
Franklin E. Agnew Linda Johnson Rice
/s/ William Balderston III /s/ Alvin W. Trivelpiece
William Balderston III Alvin W. Trivelpiece
/s/ Bradford R. Boss /s/ William H. Waltrip
Bradford R. Boss William H. Waltrip
/s/ Jay T. Holmes /s/ Kenneth L. Wolfe
Jay T. Holmes Kenneth L. Wolfe
/s/ Ruth R. McMullin
Ruth R. McMullin
/s/ John R. Purcell
John R. Purcell
[ARTICLE] 5
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS QTR-4
[FISCAL-YEAR-END] DEC-25-1993 DEC-25-1993
[PERIOD-END] DEC-25-1993* DEC-25-1993*
[CASH] 513,241 513,241
[SECURITIES] 32,795 32,795
[RECEIVABLES] 358,892 358,892
[ALLOWANCES] 13,753 13,753
[INVENTORY] 309,754 309,754
[CURRENT-ASSETS] 1,383,130 1,383,130
[PP&E] 939,399 939,399
[DEPRECIATION] 398,338 398,338
[TOTAL-ASSETS] 2,492,997 2,492,997
[CURRENT-LIABILITIES] 713,503 713,503
[BONDS] 320,953 320,953
[COMMON] 24,154 24,154
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[OTHER-SE] 885,028 885,028
[TOTAL-LIABILITY-AND-EQUITY] 2,492,997 2,492,997
[SALES] 1,830,050 452,880
[TOTAL-REVENUES] 1,830,050 452,880
[CGS] 828,883 214,616
[TOTAL-COSTS] 828,883 214,616
[OTHER-EXPENSES] 776,300 225,765
[LOSS-PROVISION] 4,220 871
[INTEREST-EXPENSE] 34,202 9,242
[INCOME-PRETAX] 216,022<F1> <F1> 9,095
[INCOME-TAX] 72,404 673
[INCOME-CONTINUING] 138,902 7,001
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 138,902 7,001
[EPS-PRIMARY] 2.31 0.12
[EPS-DILUTED] 2.31 0.12
<FN>
*Amounts have been restated as more fully described in
in Note 2 - "Restatement of Financial Information".
<F1>
Income Before Taxes and Minority Interest
</FN>
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Dollar amounts in thousands)
<CAPTION>
Balance 1991 Activity
Dec. 29, 1990 Additions Retirements
Other
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land $ 20,805 $ 213 $ (1,005) $1,608
Leasehold
Improvements 13,187 2,895 (2,071) 1,949
Buildings 270,727 26,683 (4,177) 7,404
Machinery and
Equipment 370,925 58,798 (6,404) 2,196
----------------------------------------------------------
Total $675,644 $88,589 $(13,657) $13,157
-----------------------------------------------------------
-----------------------------------------------------------
S-2
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Dollar amounts in thousands)
<CAPTION>
Balance 1992 Activity
Dec. 28, 1991 Additions Retirements Other
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land $ 21,621 $ 605 $ (78) $ 220
Leasehold
Improvements 15,960 5,284 (1,562) 1,838
Buildings 300,637 41,738 (4,614) (1,595)
Machinery and
Equipment 425,515 71,704 (15,770) (8,418)
-----------------------------------------------------------
Total $763,733 $119,331 $ (22,024) $(7,955)
------------------------------------------------------------
------------------------------------------------------------
S-2
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Dollar amounts in thousands)
<CAPTION>
Balance 1993 Activity Balance
Dec. 26, 1992 Additions Retirements Other Dec. 25, 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land $ 22,368 $ 430 $ (2,823) $ 809 $ 20,784
Leasehold
Improvements 21,520 2,651 (154) 1,513 25,530
Buildings 336,166 12,178 (7,854) 9,683 350,173
Machinery and
Equipment 473,031 91,973 (17,119) (4,973) 542,912
--------------------------------------------------------------
Total $853,085 $107,232 $(27,950) $7,032 $939,399
--------------------------------------------------------------
--------------------------------------------------------------
S-2
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Dollar amounts in thousands)
<CAPTION>
Balance 1991 Activity
Dec. 29, 1990 Additions Retirements Other
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leasehold
Improvements $ 6,905 $ 1,882 $ (1,878) $ 99
Buildings 71,544 14,192 (1,657) 1,139
Machinery and
Equipment 178,436 41,251 (5,779) (270)
------------------------------------------------------------
Total $256,885 $ 57,325 $ (9,314) $ 968
------------------------------------------------------------
------------------------------------------------------------
S-3
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Dollar amounts in thousands)
<CAPTION>
Balance 1992 Activity
Dec. 28, 1991 Additions Retirements Other
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leasehold
Improvements $ 7,008 $ 2,150 $ (1,497) $ 1,443
Buildings 85,218 14,772 (3,216) (745)
Machinery and
Equipment 213,638 46,427 (13,965) (2,070)
------------------------------------------------------------
Total $305,864 $ 63,349 $(18,678) $(1,372)
-------------------------------------------------------------
-------------------------------------------------------------
S-3
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Dollar amounts in thousands)
<CAPTION>
Balance 1993 Activity Balance
Dec. 26, 1992 Additions Retirements Other Dec. 25, 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Leasehold
Improvements $ 9,104 $ 2,882 $ (386) $1,251 $ 12,851
Buildings 96,029 18,457 (3,319) 834 112,001
Machinery and
Equipment 244,030 50,662 (15,142) (6,064) 273,486
-------------------------------------------------------------
Total $349,163 $ 72,001 $(18,847) $(3,979) $398,338
-------------------------------------------------------------
-------------------------------------------------------------
S-3
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE VII - VALUATION AND QUALIFYING ACCOUNTS
Reserves for Doubtful Accounts
(Dollar amounts in thousands)
<CAPTION>
Restated
December 25, December 26, December 28,
1993* 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 11,834 $ 8,907 $ 8,834
Activity for the year:
Provision charged to income 4,220 3,919 3,306
Additions resulting from
acquisition activity 1,224 1,458 -
Accounts written off (4,418) (3,822) (3,958)
Recoveries on accounts
previously written off 893 1,372 725
--------- --------- ---------
Balance at end of year $ 13,753 $ 11,834 $ 8,907
--------- --------- ---------
--------- --------- ---------
<FN>
*Results have been restated as more fully described in
Note 2 -- "Restatement of Financial Information".
S-4
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
The following amounts were charged directly to profit
and loss accounts.
(Dollar amounts in thousands)
<CAPTION>
FOR THE YEARS ENDED
Dec. 25, 1993 Dec. 26, 1992 Dec.28, 1991
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and
Repairs $ 22,137 $ 20,294 $ 20,014
Advertising $201,023 $184,569 $165,642
Taxes other than payroll and income taxes, amortization of
intangible assets and deferred charges, and royalties were
less than 1% of net sales plus other income for all periods
presented.
S-5
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
<CAPTION>
Balance 1991 1991 Balance
Dec. 29, 1990 Additions Deductions Dec. 28, 1991
<S> <C> <C> <C> <C>
James N. Doyle $ - $10,969 $ - $10,969
Henry L. Foster - 1,109,567 1,109,567 -
James C. Foster - 33,301 - 33,301
Daniel E. Gill 532,204 - 5,411 526,793
Diane C. Harris 296,079 - 285,054 11,025
Jay T. Holmes 176,452 41,641 50,542 167,551
Alexander E. Izzard 52,511 24,131 525 76,117
Franklin T. Jepson - 40,164 14,766 25,398
Harold O. Johnson 126,723 - 1,376 125,347
James E. Kanaley - - - -
Carl E. Sassano 59,252 - 599 58,653
Ronald L. Zarrella - - - -
Stephen P. Kelbley 74,786 - 74,786 -
<FN>
Amounts receivable relate solely to the Company's 1975
Stock Option Plan and 1982 and 1987 Stock Incentive Plans.
S-1
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
<CAPTION>
1992 1992 Balance
Additions Deductions Dec. 26, 1992
<S> <C> <C> <C>
James N. Doyle $125,258 $870 $135,357
Henry L. Foster 418,449 - 418,449
James C. Foster 133,218 333 166,186
Daniel E. Gill - 5,411 521,382
Diane C. Harris - 126 10,899
Jay T. Holmes 117,241 1,739 283,053
Alexander E. Izzard 86,952 766 162,303
Franklin T. Jepson 51,967 19,242 58,123
Harold O. Johnson 95,322 1,375 219,294
James E. Kanaley 99,960 - 99,960
Carl E. Sassano 99,903 58,653 99,903
Ronald L. Zarrella - - -
Stephen P. Kelbley - - -
<FN>
Amounts receivable relate solely to the Company's 1975
Stock Option Plan and 1982 and 1987 Stock Incentive Plans.
S-1
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
<CAPTION>
1993 1993 Balance
Additions Deductions Dec. 25, 1993
<S> <C> <C> <C>
James N. Doyle $15,756 $1,362 $149,751
Henry L. Foster - 4,185 414,264
James C. Foster 19,113 1,666 183,633
Daniel E. Gill - 5,411 515,971
Diane C. Harris 453,978 227,442 237,435
Jay T. Holmes - 2,911 280,142
Alexander E. Izzard 221,922 163,524 220,701
Franklin T. Jepson 86,682 29,916 114,889
Harold O. Johnson 107,958 83,911 243,341
James E. Kanaley 367,781 99,960 367,781
Carl E. Sassano 98,955 998 197,860
Ronald L. Zarrella 136,793 - 136,793
Stephen P. Kelbley - - -
<FN>
Amounts receivable relate solely to the Company's 1975
Stock Option Plan and 1982 and 1987 Stock Incentive Plans.
S-1
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
<CAPTION>
Information Related to
December 25, 1993 Balance
Due Interest Terms
Date Rates of Repayment Collateral
<S> <C> <C> <C> <C>
James N. Doyle (1) 3.62% 1% per year "B" Stock
Henry L. Foster (1) 3.62% 1% per year "B" Stock
James C. Foster (1) 3.62% 1% per year "B" Stock
Daniel E. Gill (1) 3.62% 1% per year "B" Stock
Diane C. Harris (1) 3.62% 1% per year "B" Stock
Jay T. Holmes (1) 3.62% 1% per year "B" Stock
Alexander E. Izzard (1) 3.62% 1% per year "B" Stock
Franklin T. Jepson (1) 3.62% 1% per year "B" Stock
Harold O. Johnson (1) 3.62% 1% per year "B" Stock
James E. Kanaley (1) 3.62% 1% per year "B" Stock
Carl E. Sassano (1) 3.62% 1% per year "B" Stock
Ronald L. Zarrella (1) 3.62% 1% per year "B" Stock
Stephen P. Kelbley
<FN>
Amounts receivable relate solely to the Company's 1975
Stock Option Plan and 1982 and 1987 Stock Incentive Plans.
(1) Notes are due within 5 years following retirement.
Notes are due within 90 days of leaving the Company under
circumstances other than retirement.
S-1
</TABLE>
[Back Cover]
Bausch & Lomb
One Bausch & Lomb Place
Rochester, NY 14604-2701
Telephone:
(716) 338*6000
(800) 344*8815
Bausch & Lomb
Healthcare and Optics Worldwide
Printed in U.S.A.
M-1918-94
<PAGE>
[Front Cover]
The
1994
Annual
Report
Bausch & Lomb
Healthcare and Optics Worldwide
<PAGE>
Operations
Summary & Review
The Healthcare Segment
Bausch & Lomb's healthcare segment revenues increased 7%
in 1994 to $1,249.9 million. Excellent demand for contact lens care products and
pharmaceuticals led this progress. However, earnings declined as a result of a
goodwill impairment charge and efforts to reduce high distributor inventories of
contact lenses in the U.S.
5*Year Summary Of Results
Dollars In Millions 1990 1991 1992 1993 1994
Net Sales 856.4 943.8 1,033.2 1,169.2 1,249.9
Business Segment Earnings 142.3 102.4* 176.1 192.3** 91.5***
* Includes restructuring and special charges of $50.3 million.
** Includes restructuring charges of $15.9 million.
***Includes a goodwill impairment charge of $75.0 million.
Personal Health Sector
In Bausch & Lomb's personal health sector, sales grew 8% led by
strong demand for the Company's contact lens care solutions, general
eye care products and over-the-counter medications.
Medical Sector
Medical sector revenues improved moderately as excellent progress
for pharmaceuticals and incremental sales in the hearing care and
dental implant businesses offset declines in revenues for contact
lenses resulting from actions to reduce inventories at distributors,
including consigned inventory, in the U.S.
Biomedical Sector
Moderate growth in biomedical sector revenues was achieved in
1994 based on good demand for recently acquired product lines which
are building the Company's presence in rapidly emerging markets.
The Optics Segment
Optics segment revenues declined 3% in 1994 to $642.8 million. Reduction of high
distributor inventories of sunglasses during the year more than offset the good
progress achieved by the sports optics and optical thin film technology
businesses. Earnings also decreased from 1993 in the wake of lower sunglass
sales.
5*Year Summary Of Results
Dollars In Millions 1990 1991 1992 1993 1994
Net Sales 512.2 576.3 675.9 660.9 642.8
Business Segment Earnings 112.4 137.9 135.5 79.6* 72.1
*Includes restructuring charges of $32.9 million.
<PAGE>
Healthcare Segment
The Personal Health Sector
*Contact Lens Care Products
Bausch & Lomb's contact lens care business had an excellent year in 1994. Total
lens care revenues rose 10%, fueled by increased shipments of ReNu Multi-Purpose
Solution and the Boston line of rigid gas permeable (RGP) solutions, the world's
most technologically advanced products for the care and cleaning of contact
lenses. Worldwide sales for the ReNu line now approach $250 million, making it
one of the largest and most successful products in the Company's history.
[Photo: The MPS Traveler Unit]
[Caption: The MPS Traveller unit (left), introduced in Europe in 1994,
enjoyed strong acceptance due to its compact design and convenience
for lens wearers who are away from home.]
Sales in markets outside the U.S. advanced 8%, led by Europe, where revenues
rose 16%. Outstanding demand in Germany and the introduction of ReNu Multi-P
urpose Solution in the United Kingdom contributed to these results. In Asia,
improved market conditions in Japan paced moderate overall growth, while lens
care sales in Latin America also rose moderately.
In the U.S., lens care sales grew 11% as the Company's share of the chemical
disinfectant segment of the market reached an all-time high. The foundation of
this success continues to be professional recommendations. ReNu Multi-Purpose
Solution is the lens care product most frequently recommended by vision care
professionals in the U.S. This level of endorsement is sustained by a large
sales force of lens care specialists who call directly on doctors to explain the
features and benefits of ReNu solution. Their efforts enabled the Company's
share of starter kits given to new contact lens patients in the U.S. to reach a
record level.
Bausch & Lomb's success has encouraged competitors to launch their own dual- and
multi-purpose solutions. In 1994, three competitive multi-purpose formulations
received marketing approval from the Food and Drug Administration (FDA), and
competition in Europe was heightened by the entry of two new one-bottle
products. Newer entrants into the market, however, are based on different, and
as yet unproven, formulations and do not provide demonstrably better
performance. These formulations have been unable to obtain significant
professional endorsement, and, in some cases, are being offered under private
label to optical retailers and drug chains. The Company's response to this
heightened competition will be straightforward. Bausch & Lomb will expand its
direct sales force to reach increasing numbers of vision care professionals and
will continue to maintain a high rate of professional support for ReNu
Multi-Purpose Solution.
Bausch & Lomb's share of the European market for one-bottle chemical
disinfectants grew 10% in 1994, and the Company received approval to market ReNu
Multi-Purpose Solution in the United Kingdom. To date, the $80 million United
Kingdom solutions market has been comprised primarily of saline and hydrogen
peroxide products. Bausch & Lomb launched ReNu Multi-Purpose Solution in
September, and expects to
Geographic
Mix of Bausch & Lomb's
Lens Care Revenues
[Pie Chart]
U.S 63%
Europe, Middle East & Africa 16%
Asia-Pacific 16%
Latin America & Canada 5%
<PAGE>
Ranked number one in worldwide sales, Bausch & Lomb's lines of contact lens care
products continue to gain increased market share due to the support and
recommendations of eye care professionals. The Company pioneered the development
of multi-purpose formulations that make lens care simple and convenient.
U.S. Soft Lens Care
Market Information
U.S. Share Soft Lens Care Starter Kits
1992 1993 1994
ReNu Multi-Purpose Solution 36% 41% 42%
Competitor 1 39% 40% 40%
U.S. Market Share
Chemical Disinfectant
Segment
1992 1993 1994
Bausch & Lomb 28% 32% 35%
Competitor 1 31% 31% 32%
<PAGE>
convert a healthy share of this market to the ReNu line. In the remainder of
Europe, where lens care systems also continue to be dominated by hydrogen
peroxide formulations, the Company is well positioned to convert patients to a
more convenient system for maintaining their lenses.
[Bar Chart]
Worldwide
Sales for the ReNu
Product Line
Dollars In Millions
1990 89
1991 111
1992 152
1993 197
1994 248
Sales of lens care solutions in emerging markets such as China and India are in
the embryonic stage. The Company completed construction of a new solutions
manufacturing plant in China during 1993, and full-scale distribution of ReNu
Multi-Purpose Solution began in 1994. Shipments in India grew more than 80% from
a small base, while sales grew almost 50% in Brazil, another emerging market
with attractive potential.
Worldwide sales of solutions used for the care of RGP lenses, including the
Boston line, increased about 10% in 1994. Supported by an increased share of
care kits, the Boston line's commanding U.S. market share rose once again.
Revenues for RGP solutions in markets outside the U.S. also showed good
progress, growing 17%, led by excellent demand in Europe.
In 1994, Bausch & Lomb experienced outstanding initial acceptance of the MPS
Traveller unit, which was launched in Europe. Conveniently packaging both ReNu
solution and contact lenses, the MPS Traveller unit is scheduled for marketing
in the U.S. in 1995. ReNu One-Step Enzymatic Cleaner tablets, which extend the
convenience of the ReNu system, were introduced in the U.S. in 1994. ReNu
One-Step Enzymatic Cleaner tablets can be dissolved in ReNu Multi-Purpose
Solution, thus removing protein from the lens surface simultaneously with the
disinfection process. This product was very well received by consumers.
*Oral Care Products
Results for the Company's oral care line declined sharply in 1994 as a result of
sluggish demand and a goodwill impairment charge. Sales in the U.S. were down
significantly as the Company repositioned its Interplak product line and reduced
prices on older models in anticipation of the launch of a new generation of
products in the fourth quarter of 1994. In addition, revenues for the Company's
Clear Choice alcohol-free mouthwash, introduced in 1993, were below the level
achieved one year ago. The year ended on a good note, however, as trends in U.S.
shipments of the Interplak line turned positive in the fourth quarter, spurred
by the introduction of the new NT-6 and NT-10 Interplak models and promotional
efforts.
The new generation of Interplak devices was the subject of intense research and
quality testing prior to release. The NT-6 Interplak model has a unique compact
brush head for enhanced maneuverability, while the NT-10 design has a larger
brush head providing a broader cleaning surface. Research indicates that
consumers prefer the new generation of Interplak power plaque removers by 70%
over prior models. First-time buyers of power plaque removers are expected to
respond positively to these new Interplak models in 1995. Bausch & Lomb is
accelerating efforts to improve the operating performance of this business in
1995.
In February, the Company made a decision to consolidate oral care operations in
Rochester, New York, a move that is expected to result in increased
profitability through reduced administrative costs and a leaner operating
structure.
<PAGE>
*Skin Care Products
[Photo: Curel Lotion]
[Caption: Curel lotion delivers long-lasting moisturizing ingredients.]
Bausch & Lomb made outstanding progress in the first full year of marketing for
the Curel and Soft Sense product lines, acquired in 1993. The Company gained
additional share in this highly competitive market and exited the year with
sales growing almost 40% over the prior year's fourth quarter.
The Curel and Soft Sense lines are benefiting from the Company's established
healthcare marketing and distribution expertise. Curel lotion holds the
number-three position in the fast-growing therapeutic portion of the hand and
body lotion market, and is widely acknowledged as the standard against which
other moisturizers are measured. Its proprietary formulation provides delivery
of long-lasting moisturizing ingredients without a greasy, oily feeling. During
a year when larger competitors launched several products in the therapeutic
segment of the skin care market, Curel lotion's achievement of a record market
share was especially noteworthy.
The outlook for 1995 is quite positive. The Company will continue to support its
skin care products through targeted advertising and enhanced distribution.
*Eye Care Products
Bausch & Lomb's general eye care products posted record results in 1994. Total
revenues advanced almost 20%, outpacing overall market growth and enhancing
Bausch & Lomb's position in this attractive business. The Company's U.S.-based
general eye care line consists of ocular decongestants, artificial tears and
other products that address vision needs that generally occur at middle age and
beyond. Leading products include Bausch & Lomb Moisture Drops artificial tears,
which had sales growth of more than 15% in 1994, and Bausch & Lomb Maximum
Strength Allergy Drops solution, which rose almost 25% over 1993.
During 1994, the FDA approved Bausch & Lomb's application to market an
over-the-counter version of a prescription drug used to treat irritated eyes.
Called Opcon-A, this product contains two powerful ingredients: an antihistamine
to relieve itching and a decongestant to relieve redness. The Company introduced
Opcon-A drops in the fourth quarter of 1994, and this product is expected to
receive widespread distribution and acceptance in the months ahead.
*Over-The-Counter Medications
Good demand for Vivivit Q10 co-enzyme food supplements and Vivimed analgesics
stimulated an 18% increase in revenues for the Company's over-the-counter (OTC)
medications business. The OTC medications product line is distributed in Europe
- -- primarily Germany -- by the Company's Dr. Mann Pharma subsidiary and consists
of analgesics, sedatives, sleep aids, hayfever remedies, food supplements and
nasal decongestants.
The OTC medications business benefited from the first full year of marketing
Vivivit Q10, a food supplement containing co-enzyme Q10, which aids the process
of energy conversion in human cells. Dr. Mann Pharma's Vivimed analgesic line
also performed well, as stronger promotional support led to market share gains
in Germany. The Company's hayfever remedies and sleep aids maintained their
leading market positions during the year.
The OTC medications business is expected to record another year of solid growth
in 1995 driven by new products, increased exports within Europe and higher sales
of existing product lines.
<PAGE>
The Company is steadily increasing its production of generic drugs used to treat
a wide range of visual disorders. The market for value-priced generic ophthalmic
drugs is undergoing rapid expansion, and Bausch & Lomb's brand name and
reputation for quality should enable it to capture a major share of this
emerging business.
[Photo: Pharmaceutical Manufacturing]
[Caption: Pharmaceutical Manufacturing * Tampa, Florida]
<PAGE>
Bausch & Lomb scientists are developing new contact lens materials which carry
the promise of greater comfort and longer wearing cycles. A patented
"breathable" plastic material that is up to ten times more oxygen permeable than
materials currently being used by the Company will undergo expanded clinical
trials in 1995.
[Photo: 2 Researchers]
[Caption: Contact Lens Research & Development * Rochester, New York]
<PAGE>
The Medical Sector
*Contact Lenses
[Photo: 3 packages of contact lenses]
During 1994, the Medalist 66 contact lens was introduced in China and Optima
Colors contact lenses were launched in the U.S.
Worldwide revenues for contact lenses decreased modestly in 1994. However,
earnings for these products decreased significantly, reflecting the impact of
actions to balance distributor inventories in the U.S. and costs incurred for
repackaging costs and obsolescence expense related to traditional lenses
returned during the fourth quarter following a third quarter decision to accept
inventory returns from distributors related to an unsuccessful fourth quarter
1993 marketing program. Additional factors were a shift in sales mix to planned
replacement lenses and price reductions.
Since the second quarter of 1994, the Company has significantly reduced
its workforce and installed new management in the U.S. soft contact lens
business to address these trends.
Results in the U.S. are expected to show improvement in 1995. Contact lens
sales should benefit from increased demand for planned replacement and
disposable contact lenses, which are leading to U.S. market growth. Just four
years ago, lenses used in disposable and planned replacement programs
represented only 8% of the Company's lens sales. In 1994 this percentage climbed
to over 35%.
Despite turbulence in the U.S., sales in non-U.S. markets, which accounted
for almost 60% of the Company's 1994 total contact lens revenues, were largely
unaffected, rising 6%. Growth was led by Asia, where overall revenues increased
14% and sales of planned replacement and disposable lenses surged 80%. Similar
gains were achieved in Europe where revenues climbed 8% paced by a 46% gain in
sales of planned replacement and disposable lenses. In the Latin America and
Canada region sales declined as a result of volatile conditions in emerging
markets.
[Pie Chart]
Geographic Mix
of Bausch & Lomb's
Contact Lens
Revenues
U.S. 43%
Asia-Pacific 31%
Europe, Middle East & Africa 21%
Latin America & Canada 5%
Conversion to highly automated cast molding manufacturing, an objective which
has been a focus of the Company's capital spending for the past several years,
continues at an accelerated pace. By the end of 1995, about 60% of lenses
produced in the U.S. will be manufactured using this technology, providing the
Company with significant cost advantages over existing processes. In addition,
in June 1994 the Company signed an agreement with IBM to partner in the
development of software and manufacturing equipment for the next generation of
cast molding technology. Using IBM's extensive engineering expertise, the
Company expects to capitalize on its leadership in lens technology to jointly
develop a manufacturing capability that should be the most competitive in the
industry. Bausch & Lomb is on schedule to incorporate this technology into its
manufacturing operations in 1996.
The Medalist 66 lens, produced by the cast molding process, and made with the
newly developed alphafilcon A material, was launched in
<PAGE>
Scandinavia during the fourth quarter of 1993. This product sold briskly in
European markets such as France and the Netherlands where it was introduced in
1994. The lens is non-ionic and has a high water content, which many vision care
practitioners prefer. During 1994, the Company also introduced the Medalist 66
lens in China where the Company is planning to convert its existing patient base
of approximately two million people to planned replacement lenses. This lens is
scheduled for marketing in the U.S. in the second half of 1995.
Bausch & Lomb is test marketing a daily disposable soft contact lens in 1995.
The New Day contact lens, based on an improved Optima 38 lens design, will be
available for occasional wear or daily use, and will offer convenience, comfort
and affordability to patients who use and discard their lenses on a daily basis.
[Pie Chart]
% of Soft Contact
Lens Wearers in the U.S.
Using Disposable,
Planned Replacement
& Traditional Lenses
Traditional 59%
Disposable 20%
Planned Replacement 21%
Contact lens research and development efforts made good progress during the year
as Bausch & Lomb received FDA approval for a daily wear version of a lens made
from balafilcon A, a highly oxygen-permeable lens material developed in the
Company's laboratories. It is up to ten times more oxygen permeable than current
soft lens materials and is intended to meet demand for a lens that can be worn
for extended periods of time. Research and clinical trials for this material
will continue in 1995.
For the upcoming year, the Company expects improved results for its U.S. contact
lens business, driven by cost reductions and sales of new products. Outside the
U.S., sales should continue to respond to widened distribution of planned
replacement and disposable lenses.
*Pharmaceuticals
New product introductions, including Tobramycin Ophthalmic Solution, and
Levobunolol HCL Ophthalmic Solution, provided a strong stimulus to sales in
1994.
[Photo: New products in bottles and tubes with packaging]
Consolidated worldwide pharmaceutical revenues grew 18% in 1994 as shipments of
new products and the Company's value-priced glaucoma treatment fueled a 19%
increase in the U.S. In non-U.S. markets, the Company's Dr. Mann Pharma
subsidiary rebounded from a sales decline in 1993 caused by the adverse effects
of German healthcare reform, posting a 16% increase. The U.S. pharmaceutical
business also became profitable during the year, benefiting from restructuring
measures in 1993.
New product approvals contributed almost one-third of 1994 U.S. sales, led by
Tobramycin Ophthalmic Solution, a substitutable version of Tobrex, a widely
prescribed ophthalmic antibiotic. This product sold very well during the year
and exited 1994 having achieved a substitution rate of almost 60%. Production
and marketing of Levobunolol solution, a generic version of Betagan solution, a
leading glaucoma medication, also began during the year. Sales of Levobunolol
solution were brisk, with substitution rates for this product reaching 22% at
year end. The Company's experience in 1994 signals the significant opportunity
available for generic ophthalmic drugs manufactured by a company with a
well-recognized brand name and world-class quality standards.
<PAGE>
There was some moderation in the impact of German health care legislation
enacted in 1993, and results at Dr. Mann Pharma reflected gains across its
major ophthalmic product lines: glaucoma products, dry eye products and
antibiotics. Particularly notable were sales of the Company's Floxal and
Dexamytrex antibiotic lines, which grew more than 20% over the prior year.
[Pie Chart]
Composition of
U.S. Ophthalmic
Pharmaceutical Market
Beta Blocker 26%
Miotic/Glaucoma 16%
Corticoids 13%
Anti-Infectives 11%
Artificial Tears 10%
Decongestants 8%
Other 16%
Prospects in Bausch & Lomb's pharmaceutical business remain very encouraging.
The Company recently received clearance from the FDA to begin marketing Crolom -
cromolyn sodium sterile ophthalmic solution, 4%. It is indicated for seasonal
allergic eye conditions and competes in the $50 million ophthalmic allergy drug
market. Crolom will be marketed to allergists through an agreement with Dura
Pharmaceuticals, a firm that specializes in allergy treatment products. In
addition, the Company has filed with the FDA 19 abbreviated new drug
applications (ANDAs) for generic drugs with an estimated $100 million in sales
potential. Marketing for several of these new products should begin in the
upcoming year.
*Hearing Care
Bausch & Lomb's Miracle-Ear hearing care business, acquired in the third quarter
of 1993, made important strides during a difficult year. The Company revised and
improved its marketing practices, significantly streamlined operations and
expanded its product line through the introduction of several new hearing aids.
The acquisition of the Miracle-Ear business in 1993 followed a careful
evaluation of the hearing care market. The Miracle-Ear name is the most widely
recognized brand name in its field, with more than 1,000 franchised hearing
centers. This acquisition provided Bausch & Lomb with access to the most
extensive distribution system in the industry.
The Mirage hearing aid is one of the smallest hearing aids ever offered and
fits deep within the ear canal.
[Photo: Miracle Ear (Mirage model) hearing aid]
Adverse publicity generated by additional regulatory oversight by the Federal
Trade Commission (FTC) and the FDA, as well as lingering uncertainties
associated with healthcare reform proposals, exacted a toll on patient demand
for much of the year. Nevertheless, the Company believes that greater regulatory
oversight will eventually work in favor of both the industry and consumers as
the dispensing of hearing aids becomes more closely aligned with practices in
other regulated health care fields. Responding to these new market challenges,
the Company introduced the industry's only national guarantee of satisfaction in
1994. Backed by Miracle-Ear's extensive nationwide network of dealers, this
comprehensive plan assures consumers the highest level of professional care and
personalized service and support.
<PAGE>
New products will play an important role in plans for 1995, as Bausch & Lomb
strives to provide the most advanced hearing aid technology available. Sharp
Plus circuitry, using proprietary technology that delivers enhanced performance
with low power consumption, will be utilized across the entire Miracle-Ear line
in 1995.
*Dental Implants
Sales of Steri-Oss implants and associated instruments rose sharply in 1994, and
were accompanied by a strengthening in market share. Revenues were led by new
surgical products, including wide and narrow diameter implants and the Anatomic
Abutment System, which permits dentists to create a more natural, aesthetic
tooth restoration. New products represent a substantial portion of Steri-Oss'
sales in a field undergoing rapid innovation.
Steri-Oss, which was acquired in the first quarter of 1993, manufactures
devices that are implanted into the upper and lower jawbone, providing a
permanent anchor for artificial teeth. This new approach to replacing teeth
lost as a result of periodontal disease and other causes is gaining
acceptance on a global scale. Steri-Oss' 1994 performance enabled its share
of the dental implant market to rise significantly.
Steri-Oss is expected to post rapid sales growth again in 1995 as it adds new
sales staff in the U.S. and increases support of its international
distribution network.
The Biomedical Sector
[Pie Chart]
Geographic Mix of
Charles River Laboratories'
Revenues
U.S. 42%
Europe, Middle East & Africa 31%
Asia-Pacific 24%
Latin America & Canada 3%
Consolidated revenues from biomedical products and services increased 4% in
1994. Sales of purpose-bred research animals grew modestly, led by revenues in
non-U.S. markets which rose 6%. Revenues for other biomedical products and
services progressed more than 40%, and responded to higher demand for specific
pathogen-free eggs and incremental sales of diagnostic kits used to perform
endotoxin testing. Operating performance improved in 1994 as a result of
restructuring actions initiated during 1993, and an increase in the contribution
of new, non-animal businesses.
*Research Animals
Despite continuing turbulence in the pharmaceutical sector caused by efforts to
contain health care costs, sales of Charles River's virus antibody free and
other specialty research animals posted a modest gain in 1994. Pressure on
pharmaceutical research and consolidations within the pharmaceutical industry
have impacted overall demand, but revenues for Charles River's product lines
have continued to advance. A shift to higher quality animals has helped to
offset the impact of declining units in this mature market.
<PAGE>
*Biomedical Products & Services
Endosafe, acquired by Charles River in 1994, manufactures diagnostic products
which detect the presence of endotoxins in drugs and consumables.
[Photo: Diagnostic products]
A growing percentage of Charles River's revenues is comprised of non-research
animal businesses. Currently 11% of biomedical sector revenues, these emerging
product lines are expected to contribute to growth in future years.
For example, results for SPAFAS, which was acquired in 1993, were excellent.
Sales surged more than 30%, benefiting from increased demand for specific
pathogen-free eggs and expanded production capacity. SPAFAS is the world's
largest manufacturer of specific pathogen-free eggs, and its products are used
to make vaccines for poultry and humans, including vaccines for chicken pox,
measles and influenza.
Charles River is also the world's leading in-vivo producer of bulk monoclonal
antibodies -- bioengineered versions of proteins naturally produced in the body.
Lack of FDA approval for customers with new biopharmaceuticals using these
products limited demand in 1994.
[Pie Chart]
Distribution of
Charles River Laboratories'
Research Animal
Revenues
Pharmaceutical & Private Laboratories 59%
Colleges & Universities 22%
Biotechnology Companies 7%
Government 6%
Hospitals 6%
Charles River acquired Endosafe, Inc. during the year. Using serum from
horseshoe crabs, which are released unharmed after capture, Endosafe
manufactures a test which detects the presence of poisonous substances, called
endotoxins, in drugs and consumables. The FDA mandates that all injectable
products be screened for the presence of endotoxins, and Endosafe provides the
only FDA-approved in-vitro test. Results in 1994 were above the acquisition plan
and are expected to continue to show good progress in 1995.
Charles River continues to align its products with research efforts that lie at
the cutting edge of science. Additional milestones were reached in a program
through which organs from specially bred Charles River swine may one day be
transplanted into humans. Because of similarities in the physiology of swine and
humans, researchers have long suspected the feasibility of these transplants.
Swine to non-human primate transplant studies are progressing, and in several
years organs from swine may help alleviate the critical shortage of organs for
transplant that exists worldwide.
The Company expects biomedical revenues to continue on a positive track in 1995.
Growth should again be led by newly acquired businesses.
<PAGE>
One of the fastest growing segments of the premium-priced sunglass market
consists of models designed to serve the needs of sports enthusiasts and high
performance athletes. Reflecting this trend, sales of Bausch & Lomb's Killer
Loop line have increased at a compound annual rate of 60% over the past three
years.
[Photo: man playing volleyball]
[Caption: Karch Kiraly * Two-time Olympic Gold Medalist wearing Killer Loop
sunglasses]
<PAGE>
Optics Segment
*Sunglasses
The Ray-Ban Driving Series sunglass featuring ChroMax color contrast lens
technology and the Killer Loop Xtreme Pro line sold well during 1994.
[Photo: Sunglasses]
Worldwide sunglass revenues fell 6% in 1994 as reductions in high
distributor inventories depressed results. An inventory imbalance built up in
the latter part of 1993 and early 1994 due to a slower-than-anticipated rate of
improvement in worldwide consumer demand. In response, the Company sharply
curtailed trade programs which had contributed to the inventory bulge. Bausch
& Lomb also terminated or realigned numerous distributor relationships. Some of
these actions were directed towards customers in Southeast Asia who had diverted
sunglasses (sold sunglasses into unauthorized markets). As the year drew to a
close, distributor inventories had declined to more normalized levels, setting
the stage for much better performance in 1995.
Sales in the U.S. declined 3% in 1994 as the impact of high distributor
inventories was partially offset by incremental revenues from the Revo line of
high performance sunglasses. Revo became part of Bausch & Lomb in January 1994,
and is one of the fastest growing sunglass companies in the U.S. In non-U.S.
markets, sales declined 8% as lower sales to distributors offset gains in
European markets served by the Company's direct selling organizations. Actions
to stop diversion led overall sales in Asia to fall modestly. At the same time,
volatile economic conditions in Latin America constrained demand in that region
for most of the year. Despite the challenges faced by Bausch & Lomb in 1994, the
Company's dollar share of the world's premium-priced sunglass market remained
steady, ending the year above 40%.
New products account for a rapidly increasing portion of sunglass revenues.
Worldwide sales of new sunglass lines in 1994 were led by the Ray-Ban Driving
Series sunglass, the most successful sunglass product introduction in Company
history. Ray-Ban Driving Series sunglasses are the most advanced sunglasses ever
made for motorists, and feature ChroMax lens technology, which increases the
intensity of driving colors: red, green and amber. Over time, Bausch & Lomb's
product mix will probably continue to reflect a gradual decline in the
proportion of sales represented by the Wayfarer sunglass collection and other
styles which contributed to growth in the 1980s.
The Revo collection of high performance sunglasses posted strong results in the
first year after acquisition. Featuring lens technologies that were first used
in outer space to protect sensitive equipment from radiation damage, Revo
sunglasses compete in the upper end of the premium-price category of the U.S.
market, where sunglasses retail for $150 and above. Offering five distinct
collections combining lenses that enhance visual acuity with leading edge frame
styles, Revo sunglasses are expected to continue their rapid progress.
In 1995, the Company will enhance its competitiveness and product offerings in
the sports segment of the premium-price sunglass business with the launch of the
Ray-Ban xrays collection. Featuring state-of-the-art frames and distortion-free
polycarbonate shields, these sunglasses employ WaterClear coatings, the next
generation of the Company's DiamondHard coating. WaterClear coatings repel water
and render polycarbonate shields virtually as scratch resistant as glass. The
worldwide launch of the Ray-Ban xrays collection will be supported by high
levels of advertising and merchandising support. Also new in the sports segment,
the Company will promote Activ sunglasses with forward-looking designs as part
<PAGE>
of the Killer Loop collection. Additional new products include the Fugitive
sunglass model which will be a part of the Ray-Ban contemporary collection.
Targeted at young consumers, it will be priced attractively at $70-$90. The new
Boutique line for women will also retail for less than $100, and is positioned
in a price segment where Ray-Ban sunglass offerings for women have been
underrepresented.
[Pie Chart]
Geographic Mix of
Bausch & Lomb's
Sunglass Revenues
U.S. 48%
Europe, Middle East & Africa 21%
Asia-Pacific 19%
Latin America & Canada 12%
The Ray-Ban UV Index will continue to receive emphasis in 1995 as the Company
invests in programs to expand the premium-priced sunglass market. The index
publicizes readings from a network of ultraviolet (UV) monitoring sites in the
U.S. and translates them into an easy-to-understand index. A scale of 1 to 10
represents the amount of harmful radiation present in a particular location
during the forecast period, and helps consumers become more aware of the need
for eye protection. The Ray-Ban UV Index is being highlighted during television
weather broadcasts and major radio and newspaper reports in the U.S. It is
expected to generate one-half billion consumer impressions during the year. In
addition, Ray-Ban sunglass advertising will be significantly increased in 1995
to keep awareness and brand loyalty high.
The outlook for the Company's sunglass business is steadily improving. Actions
to realign distribution channels, stronger worldwide market conditions and cost
reduction efforts should result in a return to growth in sales and profits in
1995.
*Sports Optics
The Company's sports optics business, which designs and distributes binoculars,
riflescopes and telescopes, recorded strong results in 1994, as sales increased
12%. In January 1995, Bausch & Lomb announced that it had entered into a letter
of intent to sell this operation for a significant gain. The Company had been
successfully working to raise sports optics profitability over the past few
years, but determined that a sale was the appropriate way to maximize returns
from this business. The transaction is anticipated to close in the first half of
1995.
*Optical Thin Films
Revenues from the optical thin film technology business increased 15% during
1994. This business focuses on serving the display coating needs of major lamp
manufacturers who demand high-quality coatings. Revenues outside the U.S., where
Bausch & Lomb derives 65% of its coating sales, grew almost 50% in response to a
long-term supply agreement with a major customer.
The Company's optical thin film technology business continues to be the single
largest supplier of optical coatings to lamp manufacturers globally. Demand for
coating products in new Southeast Asian markets continues to increase, and this
region is a focus of Bausch & Lomb's efforts. Continued good progress in sales
of optical thin film coating products is expected in 1995.
<PAGE>
Financial
Section
Financial Contents
22 Financial Review
39 Financial Statements
42 Notes To Financial Statements
61 Report Of Independent Accountants
62 Selected Financial Data
Report Of Management:
The following financial statements of Bausch & Lomb Incorporated were prepared
by the Company's management, which is responsible for their reliability and
objectivity. The statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Financial information elsewhere in this annual report is consistent with that in
the financial statements.
Management is further responsible for maintaining a system of internal
controls to provide reasonable assurance that Bausch & Lomb's books and
records reflect the transactions of the Company; that assets are safeguarded;
and that its established policies and procedures are followed. Management
systematically reviews and modifies the system of internal controls to
improve its effectiveness. The internal control system is augmented by the
communication of accounting and business policies throughout the Company; the
careful selection, training and development of qualified personnel; the
delegation of authority and establishment of responsibilities; and a
comprehensive program of internal audit.
Independent accountants are engaged to audit the financial statements of the
Company and issue a report thereon. They have informed management and the audit
committee that their audits were conducted in accordance with generally accepted
auditing standards which require a review and evaluation of internal controls to
determine the nature, timing and extent of audit testing. The Report Of
Independent Accountants is on page 61 of this report.
The recommendations of the internal auditors and independent accountants are
reviewed by management. Control procedures have been implemented or revised as
appropriate to respond to these recommendations. In management's opinion, as of
December 31, 1994, the internal control system was functioning effectively and
accomplished the objectives discussed herein.
[Signature William H. Waltrip] [Signature Stephen C. McCluski]
William H. Waltrip Stephen C. McCluski
Chairman and Senior Vice President
Chief Executive Officer Finance
Report Of The Audit Committee:
The audit committee of the board of directors is comprised of three outside
directors. The members of the committee are: Kenneth L. Wolfe, Chairman; Linda
Johnson Rice; and Alvin W. Trivelpiece, Ph.D. The committee held three meetings
during 1994.
The audit committee meets with the independent accountants, management and the
internal auditors to provide reasonable assurance that management fulfills its
responsibilities in the preparation of the financial statements and in the
maintenance of an effective system of internal controls. The audit committee
reviews the performance and fees of the independent accountants, recommends
their appointment and meets with them and the internal auditors, without
management present, to discuss the scope and results of their audit work. Both
the independent accountants and the internal auditors have full access to the
audit committee.
[Signature Kenneth L. Wolfe]
Kenneth L. Wolfe
Chairman
<PAGE>
Financial
Review
This financial review, which should be read in conjunction with the accompanying
financial statements, contains management's discussion and analysis of the
Company's results of operations, liquidity and progress toward stated financial
objectives.
As more fully described in Note 2--Restatement of Financial Information, 1993
and 1994 financial information has been restated to reflect the decision to
account for shipments under a fourth quarter 1993 U.S. contact lens distributor
program as consigned inventory and to record revenues when the products were
sold by the distributors to their customers and to reverse the effect of
subsequent product returns and pricing adjustments related to this program which
had been previously recognized in 1994. Additionally, a restatement was made to
correct the improper recording of certain 1993 sunglass distributor sales in
Southeast Asia and to reverse related sales returns which had been previously
recorded in 1994.
Results Of Operations:
Bausch & Lomb strives to maximize total return to shareholders through a
combination of long-term growth in share price and the payment of cash
dividends. Although dividends have risen at a compound annual rate of 10% over
the most recent five-year period, total return to shareholders in 1994 has been
penalized by a sharp decline in the Company's stock price stemming from the
operational issues discussed in this review. This interrupted a ten-year period
during which the Company's stock price performance had generally exceeded market
averages.
The Company's long-term financial objectives were modified in 1994. Bausch &
Lomb seeks to manage its diverse operations to outperform peer companies on
key financial measures such as sales and earnings growth and return on assets
and equity. The Standard & Poors Healthcare Composite Group was formally
adopted as the peer group against which Bausch & Lomb will systematically
measure its financial progress. Previously, performance was measured in
comparison to internally-developed standards. The Company has also
reemphasized the need for operational stability, predictability and
profitability. These objectives were not uniformly attained during the period
covered in this financial review, but management is firmly committed to
achieving improved performance on a going-forward basis.
The analysis of 1994 operating results focuses on five major operational
matters. A summary of these and a discussion of their effect on the Company's
fourth quarter results are presented below.
Goodwill Impairment Charge
At December 1994, the Company recognized a goodwill impairment charge of $75
million, with no associated tax benefit, related to the 1988 acquisition of
Dental Research Corporation. This goodwill recognized the Interplak product as
the foundation for a broad-based, global consumer oral care business. Recently,
the Company has experienced intense competition for this product, a significant
decline in market share and operating losses. In December 1994, a series of
decisions was made fundamentally realigning oral care operations. This reflects
the Company's belief that directing future significant strategic investments
toward its core and emerging businesses will offer better opportunities for
realizing higher rates of return than its consumer oral care business in the
long-term. This has greatly reduced the expected life cycle and estimated future
cash flows for this business. Other December 1994 decisions included the
centralization of management of worldwide oral care operations under the U.S.
Oral Care Division and the redirection of management of most non-U.S. oral care
operations to selected distributors.
In determining the amount of the impairment charge, the Company developed its
best estimate of operating cash flows over the remaining business life cycle,
assumed to be 14 years. Future cash flows, excluding interest charges, were
discounted using an estimated 8.6% incremental borrowing rate. These
projections, after taking into account significant one-time expenses, including
cost reduction measures implemented during 1994 and development and product
launch expenses associated with the new technology Interplak product introduced
during the fourth quarter, reflect a 6.5% average return on sales in the years
1995-1997. In subsequent years, a continuing reduction in average return on
sales is projected as the Company's strategic investments are directed toward
other businesses. Resulting discounted cash flows are expected to decline at a
compound rate of 24% between 1997 and 2004. Discounted annual cash flows are
projected to average less than $1 million beyond 2004.
<PAGE>
Excess Distributor Inventories
In June 1994, the Company announced it was taking actions, principally a
curtailment of pricing and marketing promotions, to reduce high inventory
levels, including consignment inventory, at contact lens and sunglass
distributors. This imbalance was corrected over the remainder of the year. In
total, the Company's actions are estimated to have penalized full year 1994
revenues, versus sales which would have otherwise occurred, by at least $50
million for sunglasses and $25 million for contact lenses. The sunglass issues
were most significant in the U.S., although excess distributor inventories were
also identified in Southeast Asia, Europe and Latin America. The contact lens
issues were almost entirely in the U.S. market.
Contact Lens Distributor Program
In the fourth quarter of 1993, the Company adopted a business strategy to
shift responsibility for the sale and distribution of a portion of the U.S.
traditional contact lens business to optical distributors. A 1993 fourth quarter
marketing program to implement this strategy was developed. Revenues related to
this program were recognized when the distributors sold the product to their
customers as described in Note 2--Restatement of Financial Information.
Subsequently, this strategy proved unsuccessful. In October 1994, the Company
announced it had implemented a new pricing policy for traditional
contact lenses and agreed on a one-time basis to accept returns from these
distributors, largely of product consigned to distributors in the fourth quarter
1993 program. The new pricing policy sought to enhance the Company's competitive
position in a market segment where industry prices had declined since the
business strategy was implemented. The returns program allowed U.S. distributors
to send back the excess portion of unsold traditional lenses and balance their
overall contact lens inventories. The Company recorded provisions for
repackaging costs and obsolescence related to these lenses.
Asia-Pacific Sunglass Operations Issues
In the second half of 1994, the Company reconfigured the management of its
operations in Southeast Asia and curtailed the use of certain business practices
in its sunglass operations. This was a primary factor in the recording of
provisions, including those to realign or discontinue relationships with certain
sunglass distributors, including those recently determined to have been
diverting product to markets outside their authorized territories.
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. The major components of the restructuring
charge are set forth in the table below:
Dollar Amounts In Thousands
Sunglass Pharmaceutical Biomedical Total
Employee separations $10,962 $ 750 $ 3,289 $15,001
Asset writedowns 14,603 2,446 2,052 19,101
Other 8,957 5,822 1,119 15,898
$34,522 $ 9,018 $ 6,460 $50,000
The sunglass reserve provided for costs to shut down various manufacturing,
assembly and distribution operations, eliminate certain product lines and
realign global manufacturing operations. For pharmaceutical operations, the
reserve provided for the costs to obtain FDA approval and complete the transfer
of manufacturing to a new facility and to restructure global operations.
Biomedical actions included consolidating certain operations and administrative
functions.
<PAGE>
Asset writedowns primarily related to facilities being closed and product
inventories being eliminated. Other charges included losses on leases for
vacated facilities and project management expenses.
The following table sets forth the activity in the restructuring reserve through
December 31, 1994:
Dollar Amounts In Thousands
Sunglass Pharmaceutical Biomedical Total
Total 1993
restructuring provisions $34,522 $9,018 $6,460 $50,000
Less:
Charges against reserve
Non-cash items 14,603 2,446 2,052 19,101
Cash payments:
1993 1,458 2,118 1,402 4,978
1994 16,300 3,554 1,979 21,833
Balance at
December 31, 1994 $ 2,161 $ 900 $1,027 $ 4,088
All actions contemplated at the time of establishing the reserve have been
completed or are expected to be completed by June 1995. Remaining reserves
primarily represent liabilities for continuing severance payments and project
expenses and are believed to be adequate.
Future earnings are expected to benefit from more efficient production and the
streamlining of all three operations. Cost savings include reduced payroll and
administration expense, as well as the elimination of duplicate manufacturing
costs. Restructuring actions were estimated to have contributed $15 million in
pre-tax savings in 1994, primarily in sunglass and biomedical operations. The
three businesses should in the aggregate realize an estimated $20 million of
earnings improvements in 1995 and $25 million in 1996, which will more than
fully recover the costs of these restructuring actions.
Fourth Quarter Operating Results
In the 1994 fourth quarter, sales totaled $482 million, an increase of $28
million or 6% from the corresponding 1993 period. The Company incurred an
operating loss of $46 million compared to operating income of $12 million in the
1993 fourth quarter. After excluding the costs of the 1994 goodwill impairment
charge and 1993 restructuring charges, operating earnings of $29 million in 1994
declined $33 million or 53% from 1993. The goodwill impairment charge was the
primary factor leading to the 1994 fourth quarter operating loss. Earnings
results in 1994 also included lost margin and costs associated with efforts to
normalize contact lens and sunglass distributor inventories and the
corresponding related impact of lower worldwide manufacturing volumes on the
cost of contact lenses and sunglasses, the effect of reduced pricing on margins
for older technology Interplak products and operating losses for hearing care
products.
Operating earnings for the 1993 period were $12 million, a decline of $60
million or 83% from 1992 and reflect the impact of 1993 restructuring charges
and lower sales of traditional contact lenses.
Operating Results By Business Segment
Bausch & Lomb's operating 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,
specific pathogen-free eggs for vaccine production and a variety of biotechnical
and professional services provided to the scientific research community. These
products accounted for 66% of the Company's 1994 revenues and 56% of its
business segment earnings. Bausch & Lomb's optics segment includes sunglasses,
binoculars, riflescopes, telescopes and optical thin film coating services and
products. These products accounted for 34% of the Company's revenues and 44% of
its business segment earnings. Excluding the 1994 goodwill impairment charge,
the healthcare and optics segments would have comprised 70% and 30% of business
segment earnings, respectively.
<PAGE>
Net Sales
Consolidated revenues totaled $1,893 million in 1994, an increase of $63
million or 3% from 1993. Favorable exchange rate changes increased sales in
U.S. dollars by $6 million. In 1993, sales increased $121 million or 7% from
1992, net of the effect of unfavorable changes in currency exchange rates
which reduced growth in U.S. dollars by $30 million or 2%. Consolidated
revenues have increased at compound rates of 8% and 9% for the most recent
three- and five-year periods, respectively. A summary of sales by business
segment follows:
Net Sales By Business Segment
Dollar Amounts In Thousands
1994 1993 1992
Healthcare $1,249,923 $1,169,192 $1,033,233
Optics 642,763 660,858 675,853
Net sales $1,892,686 $1,830,050 $1,709,086
Healthcare Segment Revenues
Healthcare segment revenues advanced $81 million or 7% over 1993 to $1,250
million. In 1993, healthcare segment revenues advanced $136 million or 13% over
1992. Major product sector revenues as a percentage of total segment sales are
presented in the following table:
Healthcare Segment Sales By Product Sector
1994 1993 1992
Personal health 53% 53% 52%
Medical 33% 33% 33%
Biomedical 14% 14% 15%
Within the personal health sector, 1994 revenues for lens care products
advanced 10% from 1993, based primarily on higher unit shipments. Continued
strong demand for the Company's ReNu, Boston and Bausch & Lomb lines of lens
care solutions was reflected in improved results worldwide. Results also
benefited from a full year of sales of Curel and Soft Sense skin care
products. Additionally, over-the-counter medications in Europe achieved 18%
growth as a result of successful new product introductions. Worldwide oral
care revenues declined 28% from 1993. Increased competition in the U.S.
market led to price reductions and lost market share for the Interplak line
of power toothbrushes. Revenues for the Company's Clear Choice alcohol-free
mouthwash declined from 1993 based on heightened competition and a change in
business strategy.
Medical sector revenues increased 7% from 1993. Ophthalmic pharmaceutical
revenues improved 18%, led by results for recently approved products in the
U.S., including Tobramycin, a generic version of Tobrex, and Levobunolol, a
generic version of Betagan. Growth was also evidenced in Europe, indicating a
stabilization following regulatory changes in Germany in 1993.
<PAGE>
Medical sector results further benefited from a full year's sales of
Steri-Oss dental implants and Miracle-Ear hearing aids, both acquired in 1993.
However, overall sales levels for hearing aids were disappointing, consistent
with industry trends in response to recent FTC and FDA initiatives. The Company
took several actions in 1994 to address these concerns, and fourth quarter sales
indicated improved momentum as consumers responded positively to advertising for
its new Mirage product. Sales of disposable and planned replacement lens
products advanced 6% over 1993, reflecting improvement in non-U.S markets. The
Company's overall share of the highly competitive U.S. market for these lens
products is estimated to have remained even with the prior year. The U.S. launch
of the Occasions multi-focal lens in 1993 proved to be unsuccessful, as
practitioner fit rates were lower than expected. Returns of this product, net of
recorded reserves, exceeded shipments. Revenues for the SeeQuence 2 lens showed
good improvement. In contrast, sales of disposable and planned replacement
lenses outside the U.S., particularly in the Asia-Pacific region and Europe,
increased more than 50% over 1993. Traditional lens sales decreased moderately
from 1993, reflecting weakened economic conditions in key Latin American markets
and a continuing shift in consumer demand from traditional lenses, where Bausch
& Lomb enjoys a global leadership position, toward disposable and planned
replacement lenses. Additionally, in 1994 the Company agreed on a one-time
basis to accept returns of traditional contact lenses, primarily consigned
product from an unsuccessful 1993 fourth quarter program, and to provide price
adjustments to distributors.
Modest gains in the biomedical sector reflected the favorable effect of foreign
currency rate fluctuations on the results of non-U.S. operations, increased
shipments of specific pathogen-free eggs and incremental revenues from a line of
diagnostic products acquired in the first quarter of 1994.
Within the personal health sector, 1993 revenues for lens care products advanced
11% from 1992, primarily due to higher unit shipments. Continued strong demand
for the Company's ReNu and Boston lines of lens care solutions was reflected in
improved results in all geographic regions except Europe. Worldwide oral care
revenues increased by 10% over the prior year. The successful implementation of
quality and customer service enhancements for the Interplak product line
substantially reduced the level of returns from 1992. This more than offset the
effects of increased competition and a weakened economy on sales in the U.S.
Also included in total oral care sales were a full year's shipments of Clear
Choice alcohol-free mouthwash, introduced in the fourth quarter of 1992. Revenue
growth also benefited from incremental sales contributed by the Curel and Soft
Sense skin care product lines acquired in the 1993 second quarter.
In the medical sector, 1993 revenues advanced 14% over 1992. Worldwide
contact lens revenues increased 5%, reflecting significantly higher worldwide
demand for SeeQuence and Medalist lenses used in disposable and planned
replacement lens programs. U.S. results also included the launch of the
Occasions multi-focal lens, which contributed incremental sales. However, as
described earlier, returns of this product in 1994 exceeded amounts that were
reserved for estimated returns in 1993. Offsetting these positive trends,
traditional contact lens revenues declined 11%, reflecting a shift in consumer
demand toward disposable and planned replacement lenses and reduced pricing.
Ophthalmic pharmaceutical revenues in 1993 advanced moderately, as strong gains
in the U.S. were partially offset by the adverse effect of changes in government
regulations for prescription pharmaceuticals in Germany. Medical sector revenues
also included results from the first quarter acquisition of Steri-Oss, Inc., a
U.S. manufacturer of dental implants, and the third quarter acquisition of
Dahlberg, Inc., manufacturer of the Miracle-Ear line of hearing aids.
The 6% revenue growth in the biomedical sector in 1993 was led by incremental
sales resulting from the fourth quarter 1992 acquisition of SPAFAS, Inc., the
world's largest producer of specific pathogen-free eggs, as well as improved
pricing for research animals.
Optics Segment Revenues
Optics segment revenues declined $18 million or 3% to $643 million in 1994.
These results reflected actions to normalize sunglass distributor inventory
levels globally. Sales were also hindered by a general trend toward lower retail
and distributor inventories in the wake of a tightening of the Company's
worldwide marketing and sales policies. In the U.S., these trends were partially
offset by incremental results from the first quarter acquisition of the Revo
line of premium-priced sunglasses and a 15% gain for the Company's lines of
moderately-priced sunglasses. Sports optics revenues advanced 12%, led by
increased demand for binoculars and riflescopes, while sales of thin film
coating products and services advanced 15% as a result of higher shipments to
Europe, which accounts for approximately half of this business.
Optics segment revenues totaled $661 million in 1993, a decrease of $15
million or 2% from 1992. Worldwide sunglass sales declined modestly, as sluggish
demand in Asia and Europe was compounded by adverse currency exchange rate
changes in Europe. These factors were somewhat offset by substantial gains in
Latin America. In the U.S., favorable results from new moderately-priced
sunglass lines acquired in 1992 were offset by lower sales of premium-priced
sunglasses, reflecting a weakened economy as well as actions taken to prevent
the diversion of these
<PAGE>
products to other markets. Revenues for the Company's sports optics business
improved 11% from 1992 reflecting gains for Bushnell branded products,
particularly binoculars and riflescopes. The Company's optical thin film coating
business achieved modest revenue gains despite unfavorable economic conditions
in Europe.
Business Segment And Operating Earnings
Business segment earnings for 1994 totaled $164 million, a decline of $108
million or 40% from 1993. These results included a $75 million goodwill
impairment charge in 1994 and $49 million in restructuring charges in 1993.
Excluding these charges, business segment earnings would have been $239 million
in 1994, a decline of $82 million or 26% from 1993. Fluctuations in foreign
currency exchange rates had virtually no net impact on business segment earnings
versus the prior year. In 1993, business segment earnings totaled $272 million,
a decline of $40 million or 13% from 1992. Again, excluding 1993 restructuring
charges, business segment earnings would have been $321 million, an advance of
$9 million or 3% from the prior year. Unfavorable currency exchange rates
reduced the 1993 U.S. dollar improvement in business segment earnings by $8
million or 3%. The ratio of business segment earnings to sales was 8.6% in 1994
versus 14.9% in 1993. Excluding goodwill impairment and restructuring charges,
this ratio would have been 12.6% in 1994, 17.5% in 1993 and 18.2% in 1992.
Operating earnings of $120 million in 1994 decreased $105 million or 47% from
1993. Excluding goodwill impairment and restructuring charges, operating
earnings would have declined $80 million or 29% from 1993 levels. Operating
earnings of $225 million in 1993 decreased $45 million or 17% from 1992.
Excluding restructuring charges, operating earnings would have advanced $5
million or 2% over 1992. Business segment and operating earnings for the last
three years are presented below:
Business Segment And Operating Earnings
Dollar Amounts In Millions
1994 1993 1992
Healthcare $91.5 $192.3 $176.1
Optics 72.1 79.6 135.5
Business segment
earnings 163.6(1) 271.9(2) 311.6
Corporate
administration
expense 43.8 47.0(3) 41.4
Operating earnings $119.8 $224.9 $270.2
(1) Includes goodwill impairment charge of $75.0 million in the Healthcare
segment.
(2) Includes restructuring charges of $48.8 million as follows:
Healthcare, $15.9; Optics, $32.9.
(3) Includes restructuring charges of $1.2 million.
Costs And Expenses
The ratio of cost of products sold to sales was 48% in 1994, compared to 45%
in 1993 and 46% in 1992. The higher ratio in 1994 resulted from unfavorable
product mix, including lower sales of traditional contact lenses and Ray-Ban
sunglasses, which have historically contributed a higher return on sales, and
the effect of lower manufacturing volumes on contact lens and sunglass
product costs. These business developments more than offset the increase in
sales of higher margin lens care and skin care products and the improvement
in margins for U.S. pharmaceutical operations resulting from the success of
new product introductions and restructuring actions.
In 1993 the cost of products sold ratio improved based on production
efficiencies in sunglass and contact lens manufacturing operations in Europe and
the U.S. and the favorable impact of currency exchange rates on the cost of
products sourced from Ireland. Improvements also resulted from a shift towards
higher margin lens care products, successful cost reduction programs for U.S.
pharmaceuticals and a lower rate of product returns for U.S. oral care
operations. These gains were moderated by a shift toward lower margin disposable
and planned replacement contact lenses and lower sales levels and incremental
promotional programs for premium-priced sunglass products.
<PAGE>
Selling, administrative and general expenses, including corporate
administration costs, were 38% of sales in 1994, 37% of sales in 1993 and 36% of
sales in 1992. Over the past five years, advertising and promotion expenses have
grown from $205 million to $313 million. Measures to reduce discretionary
spending in the wake of lower contact lens and sunglass volumes were put into
place during the second half of 1994. However, these reductions were more than
offset by incremental spending to support recent acquisitions in the skin care
and sunglass businesses, for the launch of the next generation of Interplak
power toothbrushes and for actions taken to restore consumer confidence and to
introduce new products in the hearing care business. Additionally, 1994 costs
reflect increased advertising for over-the-counter pharmaceuticals in Germany
and severance charges incurred to adjust the size of contact lens, hearing care
and oral care operations. Corporate administration expenses totaled $44 million
in 1994, compared to $47 million in 1993 and $41 million in 1992. This
represented 2.3% of sales in 1994, 2.6% in 1993 and 2.4% in 1992, reflecting
continued success in managing these expenses to a target of no more than 3% of
sales.
Research and development expenditures totaled $60 million in 1994 compared to
$58 million in 1993, an increase of 4%. These costs were $53 million in 1992.
Research and development costs have risen at a compound rate of 8% over the past
five years. The Company continues to invest in programs to enhance technical
leadership in all of its key businesses. The majority of these expenditures in
1994 related to the development of contact lens materials, lens care products,
ophthalmic pharmaceuticals and sunglasses.
Healthcare Segment Earnings
Earnings of $92 million in the healthcare segment in 1994 declined $101
million or 52% from 1993. Operating margins for the healthcare segment were 7.3%
in 1994, 16.4% in 1993 and 17.0% in 1992. Excluding 1994 goodwill impairment and
1993 restructuring charges, healthcare segment earnings would have totaled $167
million in 1994, a decline of $42 million or 20% from comparable 1993 results.
On this basis, the comparable margin percentages for 1994, 1993 and 1992 would
have been 13.3%, 17.8% and 17.0%, respectively. 1994 results include global
operating losses for contact lenses, reflecting the impact of efforts in the
U.S. to reduce levels of contact lens inventories at distributors and
unfavorable manufacturing variances associated with the resulting lower
manufacturing volumes, as well as repackaging and obsolescence provisions
recorded in association with product returns from an unsuccessful fourth quarter
1993 marketing program. In addition, this business continued to experience a
shift in consumer demand toward lower margin disposable and planned replacement
lens products. Results for these products reflected the returns of Occasions
multi-focal lenses and costs for strategic investment in new technology in the
U.S. and Ireland required to manufacture low cost, high quality products in
volumes that will allow this business to become profitable in the future.
Operating losses for oral care products reflected the impact of reduced pricing
to meet competition and support for the launch of new technology products.
Operating losses of $12 million were incurred in the hearing care business in
1994 based on reduced sales levels and investments to restore consumer
confidence in this product category and to introduce new products and consumer
assurance programs. These actions followed heightened regulatory oversight of
the industry by the FTC and FDA. Results also included expanded support for
Miracle-Ear's franchised dealers. Positive factors in healthcare segment
earnings performance in 1994 included increased demand and shifts to higher
margin lens care products, improved profitability for pharmaceuticals, including
the savings realized from a successful restructuring of U.S. operations, and
gains in demand for dental implant products. Also, restructuring actions
completed in 1994 are estimated to have benefited healthcare segment earnings by
$5 million in the pharmaceutical and biomedical businesses.
Earnings of $192 million for the healthcare segment in 1993 advanced $16 million
or 9%. These results included $16 million in costs for restructuring ophthalmic
pharmaceutical and biomedical operations. Excluding these charges, healthcare
segment earnings would have totaled $208 million, an increase of $32 million or
18% over 1992, despite incremental spending for the U.S. launch of Clear Choice
mouthwash. Improved operating results for disposable and planned replacement
lenses were essentially offset by a decline in pricing for traditional
<PAGE>
lens products. Ophthalmic pharmaceutical operations improved from 1992 based on
successful U.S. cost reduction efforts and improved product margins. However,
this progress was largely offset by a sales related decline in Germany. Earnings
also reflected consumer reaction to recent regulatory actions in the hearing
care business. Biomedical sector earnings principally benefited from the
acquisition of SPAFAS, Inc., the world's leading producer of specific
pathogen-free eggs.
Optics Segment Earnings
Optics segment earnings of $72 million in 1994 were $7 million or 9% below
1993 levels. Optics segment margins were 11.2% in 1994, 12.0% in 1993 and 20.1%
in 1992. Excluding 1993 restructuring charges, optics segment earnings would
have been $40 million or 36% lower than 1993. On this basis, operating margins
were 11.2%, 17.0% and 20.1% in 1994, 1993 and 1992, respectively. 1994 results
included the impact of sales declines and lower manufacturing volumes on the
worldwide sunglass business, as well as provisions to realign or discontinue
distributor relationships in Asia. Partially offsetting these negative factors
were incremental earnings from the acquisition of the Revo sunglass line as well
as improved operating results for sports optics products. Restructuring actions
are estimated to have improved operating earnings by $10 million during 1994.
Optics segment earnings of $80 million in 1993 including restructuring charges
were $56 million or 41% below 1992. Excluding those charges, optics segment
earnings would have been $112 million, a decline of $23 million or 17% from
1992. This was largely attributable to volume reductions from anti-diversion
actions and the costs of promotional programs in the U.S. premium-priced
sunglass market. Earnings for sunglass products declined in Europe and the
Asia-Pacific region as a result of the effect of weakened economic conditions on
consumer spending. However, earnings improved in Latin America, primarily Brazil
and Mexico. Significant gains in profitability for sports optics products
stemmed from increased demand for higher margin Bushnell binoculars.
Operating Results By Geographic Region
Net Sales
Sales outside the U.S. totaled $847 million in 1994, an increase of $30
million or 4% from 1993. Non-U.S. sales represented 45% of consolidated revenues
in 1994 and 1993 and 48% in 1992. European revenues improved $17 million or 4%
from 1993, reflecting improved results for lens care solutions and disposable
and planned replacement lenses overall and for over-the-counter medications and
prescription pharmaceutical products in Germany. Sales for sunglass products
declined from 1993 based on actions to reduce distributor inventory levels as
well as increased competition in certain markets. Sales in the Asia-Pacific
region increased $12 million or 4%, mainly due to improved sales for disposable
and planned replacement lenses in Japan, as well as the favorable impact of
exchange rate changes for the Japanese yen, which more than offset weakened
consumer spending in that market. Revenues in Canada and Latin America were
essentially even with the prior year.
1994 U.S. revenues of $1,045 million increased $33 million or 3% from 1993.
This reflected efforts to reduce excess inventories of contact lenses at
distributors. Sunglass results were down slightly as incremental sales from the
acquisition of Revo were more than offset by efforts to normalize distributor
inventories and the effect of a tightening of marketing and sales policies. Oral
care revenues declined as a result of price reductions to address increased
competition and sell through older technology product. The full year impact of
1993 acquisitions in the skin care, hearing aid and dental implant businesses
and excellent gains in revenues for lens care and sports optics products
partially mitigated these factors. In addition, U.S. pharmaceutical revenues
advanced 19%, led by incremental sales of Tobramycin and Levobunolol.
<PAGE>
Sales outside the U.S. in 1993 decreased $8 million or 1% from 1992.
European revenues in total declined by $24 million or 6%, reflecting the
unfavorable impact of exchange rate changes and the effect of adverse economic
conditions on consumer demand in several markets. The successful introduction of
new over-the-counter products in Germany offset the impact of new government
regulations on drug pricing and prescribing in that market. Sales in the
Asia-Pacific region declined from 1992 levels, as lower sales of sunglass
products more than offset higher demand for lens and lens care products in
markets outside Japan. The strengthening of the yen benefited revenue results in
Japan by $16 million, while in local currency, sales remained slightly below
prior year levels due to the continued weakness in consumer spending.
Significant growth in Canada and Latin America was attributable to double digit
sales gains for lens care, contact lens and sunglass products. Brazil and Mexico
showed marked improvement over 1992 results.
U.S. revenues in 1993 exceeded the one billion dollar level for the first
time in the Company's history. Sales of $1,013 million increased $129 million or
15% from 1992. Acquisitions completed in 1993 in the skin care, hearing care and
dental implant businesses led this improvement. The full year effect of 1992
acquisitions and the introduction of Clear Choice mouthwash further contributed
to this advance. Overall, the Company experienced excellent gains in revenues in
the lens care and sports optics businesses. Contact lens revenues benefited from
the launch of the Occasions multi-focal lens and increased sales of planned
replacement lenses. This was somewhat offset by a decline in traditional lens
revenues resulting from pricing and the shift in consumer preference to planned
replacement products. U.S. pharmaceutical revenues advanced 17%, led by higher
shipments of OptiPranolol solution and the fourth quarter launch of Tobramycin.
In the U.S. premium-priced sunglass business, sales declined from the prior
year, reflecting both the weakened economy and further initiatives to curtail
product diversion by distributors.
Business Segment Earnings
Business segment earnings in 1994 in markets outside the U.S. totaled $128
million, an increase of $10 million or 9% from 1993. They represented 78% of
total business segment earnings in 1994, 43% of total business segment earnings
in 1993 and 42% of total business segment earnings in 1992. These returns were
impacted by the U.S. goodwill impairment and 1993 restructuring charges.
Excluding such charges, business segment earnings in non-U.S. markets would have
accounted for 54% of total business segment earnings in 1994, as compared to 45%
in 1993 and 42% in 1992. The $10 million increase from 1993 reflects gains for
lens care solutions and pharmaceutical products, offset by the margin effect of
lower sunglass revenues due to efforts to balance distributor inventories, as
well as the cost of excess capacity for the manufacture of disposable and
planned replacement lenses in Ireland. On a year-over-year basis, changes in
exchange rates had virtually no impact on earnings in U.S. dollars.
U.S. business segment earnings in 1994 decreased $119 million or 77% from
1993 after recognizing goodwill impairment and restructuring charges.
Excluding these charges, business segment earnings would have declined $67
million or 38%. These results reflected the impact on operating margins of
actions taken to normalize U.S. contact lens and sunglass distributor
inventories and price reductions related to the unsuccessful 1993 lens
distributor marketing program. Results also included costs for the launch of
new technology Interplak products and 1994 investments in the U.S. hearing care
business. Offsetting these factors were gains for lens care solutions, sports
optics products, eye care products and dental implants, as well as incremental
earnings contributed by the 1994 acquisition of the Revo product line.
In 1993, business segment earnings in markets outside the U.S. declined $12
million or 9% from 1992. Excluding restructuring charges, business segment
earnings in non-U.S. markets would have been $143 million, an increase of $13
million or 10%. Results benefited from the favorable margin impact of higher
lens care volumes, cost reduction initiatives and the favorable impact of
currency on the cost of Irish-sourced sunglasses and contact lenses. Non-U.S.
results also reflected the relatively greater advertising support for U.S.
based acquisitions and new
<PAGE>
product launches. Overall, currency reduced the year-over-year earnings
improvement by $8 million or 3%, primarily in Europe. Currency significantly
aided sales in Japan, but had a limited effect on earnings, due to changes in
product mix.
U.S. business segment earnings in 1993 decreased $28 million or 15% from
1992 after recognizing restructuring charges. Excluding these costs, business
segment earnings would have declined $4 million or 2%. The decline resulted from
a continued shift in consumer demand from traditional to disposable and planned
replacement lenses as well as reduced pricing for traditional lenses.
In addition, sunglass earnings declined from 1992, reflecting lower sales of
premium-priced products, the costs of promotional programs, new product activity
and the implementation of continuous flow manufacturing processes. These factors
were partially offset by improved operating results in the lens care,
pharmaceutical and sports optics businesses. The addition of the Curel and Soft
Sense skin care product lines also aided 1993 earnings. These factors were
moderated by incremental spending for new product launches, including Clear
Choice mouthwash. Results for the Miracle-Ear line of hearing aids were
adversely impacted by reduced consumer demand in the wake of regulatory actions
initiated by the FTC and FDA.
Other Income And Expenses
Income from investments was $35 million in 1994, $14 million in 1993 and $13
million in 1992. The increase in 1994 was attributable primarily to
discontinuing the use of intercompany loans to reduce short-term borrowings over
limited periods, which had been the practice in earlier years. The increase was
also due to income generated from an interest rate swap associated with
distributions from Wilmington Partners L.P. described below and to rising
interest rates in 1994. The 1993 increase was the result of higher average
investment levels which were only partially offset by declines in short-term
interest rates.
Interest expense was $41 million in 1994, $34 million in 1993 and $30 million
in 1992. The higher expense in 1994 reflected a full year's impact of
acquisition-related debt incurred in 1993, discontinuing the use in 1994 of
intercompany loans to reduce short-term borrowing over limited periods and
increases in interest rates. The 1993 increase was attributable to the
acquisition-related increase in average outstanding debt, which more than
offset the favorable effect of declining interest rates.
As a matter of policy the Company does not engage in interest rate speculation.
In managing its interest rate exposures, the Company seeks to maintain a balance
between floating rate assets and liabilities. Interest rate swap agreements are
used to achieve this balance when needed. Net payments or receipts under these
agreements are recorded as adjustments to interest expense.
In addition, the Company has entered into a swap agreement with a notional
amount of $380 million associated with distributions from Wilmington Partners
L.P. whereby it receives a fixed rate of 6.58% and pays a variable three-month
LIBOR rate. The swap agreement is marked-to-market and is classified by the
Company as held for purposes other than trading. Upon early termination of the
swap, no breakage payment would be due to either party. Periodic settlements
under the agreement were recorded as adjustments to interest income in 1994.
The following table summarizes the pre-tax components of foreign currency gains
and losses for the last three years:
Dollar Amounts In Thousands
1994 1993 1992
Transaction gains, net $(15,669) $(22,473) $(14,691)
Translation losses 13,054 11,405 6,006
Gain from foreign currency, net $ (2,615) $(11,068) $ (8,685)
As a matter of policy the Company does not engage in foreign currency
speculation. In addition to hedging its net investment in certain financing
subsidiaries, the Company effectively hedges all identified foreign currency
transaction exposures, with the only exceptions being those arising in countries
with hyperinflationary economies, restrictive exchange controls or undeveloped
currency markets. The Company also hedges certain firm
<PAGE>
purchase commitments. This hedging activity is performed on an after-tax basis.
While this helps protect against the impact of foreign currency fluctuations on
net income, it may contribute significantly to pre-tax foreign currency amounts
reported in the Statement of Earnings. The Company amortizes the forward
premiums or discounts on these currency hedge positions over the life of the
agreements as transaction gains or losses. This net pre-tax result is included
in the transaction gains reported above.
The forward premiums or discounts realized on hedge contracts are substantially
based on interest rate differentials between the countries whose currencies are
being traded. The decline in net transaction gains in 1994 compared to earlier
periods resulted from lower discount income on Irish pound contracts used to
hedge the equity investment in two subsidiaries and transaction exposures.
In 1994, the Company began to hedge a portion of identified transaction
exposures with purchased foreign currency option contracts. These contracts, for
which a premium was paid, comprised less than 2% of outstanding foreign currency
hedges. At 1994 year end, $18.3 million notional amount of option contracts was
outstanding. While the costs associated with executing option contracts are
higher than for forward exchange contracts, they protect the Company from
downside risk while allowing it to benefit from favorable exchange rate
movements.
The Company has recorded translation gains and losses as adjustments to
shareholders' equity. Generally, the Company does not hedge such translation of
non-U.S. assets and liabilities, except in the case of its equity investment in
two subsidiaries. Translation adjustments relating to subsidiaries in countries
with highly inflationary economies have been included in net earnings, along
with all transaction gains and losses. Translation losses increased in 1994,
primarily due to higher inflation and devaluations in Turkey and Venezuela.
On an after-tax basis, results associated with foreign currency denominated
transactions and the Company's hedging operations decreased 1994 earnings by $4
million or $0.07 per share, compared to increases of $2 million or $0.03 per
share for both 1993 and 1992. The change in 1994 reflected the significant
decline in income realized from Irish pound denominated forward hedging
contracts.
Increased minority interest expense in 1994 reflected distributions to the
outside investor in Wilmington Partners L.P., formed in December 1993.
Income Taxes
The Company's reported income tax rate for 1994 was 52.6%. Excluding the
goodwill impairment charge for which there was no associated tax benefit, the
reported rate would have been 32.0%. The tax rate for 1993 was 33.5% and 32.4%
for 1992. These trends reflect changes in the U.S. and German statutory tax
rates in 1993 and 1994, respectively. The Company's income tax rates were below
statutory levels due to the proportion of pre-tax earnings generated by
subsidiaries in countries with lower statutory tax rates than in the U.S. The
Company adopted SFAS No. 109, "Accounting for Income Taxes", at the beginning of
1992. In accordance with the provisions of the standard, the Company recognized
the impact of 1994 German tax rate changes and U.S. tax rate changes enacted in
1993 on its deferred tax benefit in each of those years. This was not material
to earnings results in either period.
Liquidity And Financial Resources:
The Company evaluates its liquidity from several perspectives, including its
ability to generate earnings and positive cash flows, its financial position,
its access to financial markets and the adequacy of working capital levels.
The Company has a stated goal to maximize free cash flow, which is defined as
cash generated before the payment of dividends, the repayment of debt, stock
activity and the acquisition of new businesses. Free cash flow for the year
ended December 31, 1994 totaled $188 million. This calculation excludes the
effect of the outflow of funds for a $425 million investment in securities of
a triple-A rated financial institution completed in the third
<PAGE>
quarter and described below. For the year ended December 25, 1993 free cash flow
totaled a negative $27 million. The substantial improvement in free cash flow
was primarily attributable to the success of programs to reduce accounts
receivable, including increased collections and tightened credit terms.
The Company historically maintained a relatively low level of net debt, or
borrowings less cash, cash equivalents and short-term investments. Because of
the 1994 transfer of liquid funds to a long-term investment, net debt is
significantly higher than in the recent past. Based on the expected success of
efforts to generate free cash flow to support operations, management does not
anticipate a need for significant new debt financing beyond that of anticipated
maturities and over time will reduce net debt from its current level.
Cash Flows From Operating Activities
Net earnings, adjusted for goodwill impairment, after-tax restructuring
charges and other non-cash items, including depreciation, amortization and
deferred taxes, increased by $14 million or 6% from 1993. Net cash provided by
operating activities totaled a positive $263 million in 1994, an improvement of
$121 million or 85% over 1993. This change was primarily the result of lower net
receivables, due to improved collections, reduced customer delinquencies and
tightened credit terms. This improvement was moderated by lower accrued
liabilities, which included charges against the 1993 restructuring reserve. Tax
reserves and deferred taxes have also decreased as a result of lower earnings
and the payments of 1993 tax liabilities.
Cash provided by operating activities totaled $142 million in 1993, a decrease
of 26% from 1992. Lower earnings were compounded by increased accounts
receivable, reflecting higher sales and extended credit terms. Inventories also
increased, resulting from higher contact lens levels to support growth in the
disposable and planned replacement lens business and acquisitions. The increase
in other current assets principally reflected the prepayment of fees associated
with the Company's sponsorship of the Olympic Games.
Cash Flows From Investing Activities
Cash used in investing activities increased $164 million from 1993 to $552
million. In the 1994 third quarter the Company's subsidiary, Bausch & Lomb
Ireland, invested $425 million in securities issued by a wholly-owned subsidiary
of a triple-A rated financial institution. Entering into this transaction
enhanced the Company's overall ability to raise funds, especially outside the
U.S., and to realize more favorable terms for other types of financial
transactions. In addition, the investment responded to a recent change in U.S.
tax law, under which the Company elected to invest in qualifying "active"
assets, rather than face increased tax expenses associated with its non-U.S.
earnings. The Company's past investments in Eurodollar time deposits would not
qualify as "active" investments under current tax laws. This investment is
described further in Note 7 - Other Investments.
Purchases of property, plant and equipment totaled $85 million in 1994, a
decrease of $22 million from 1993, reflecting stringent expenditure controls.
Major projects in the U.S. and Europe included new manufacturing technology for
contact lenses, added capacity for the production of lens care solutions and
improvements in sunglass manufacturing. Total cash used in investing activities
in 1994 included the first quarter acquisition of the assets of Revo and its
line of high-performance sunglasses.
Cash used in investing activities in 1993 increased $235 million from 1992 to
$388 million. This increase was primarily attributable to 1993 acquisitions,
including Dahlberg, Inc. and its Miracle-Ear line of hearing aids and the Curel
and Soft Sense brands of skin care products. Other investing activities included
the formation of Wilmington Partners L.P., described in Note 14 - Minority
Interest. Purchases of property, plant and equipment totaled $107 million in
1993, a decrease of $12 million or 10% from the prior year. Expenditures
included manufacturing capacity expansion for contact lenses in the U.S. and
Europe and for lens care solutions in Europe and China, improved biomedical
production facilities and investment in continuous flow manufacturing for the
sunglass business.
<PAGE>
Cash Flows From Financing Activities
Net cash used in financing activities totaled $47 million in 1994. Funds were
used for the payment of dividends and repurchases of the Company's Common
shares. Dividends are normally maintained at a payout level of between 30% and
35% of the previous year's earnings before non-recurring charges. The repurchase
of up to 6,000,000 Common shares has been authorized by the Company's board of
directors. At December 31, 1994, 3,646,000 shares have been purchased under the
authorization terms, including 532,000 shares repurchased during 1994. The
amount of repurchases in any year is based on market conditions, cash flows and
other business factors. The increase in debt represents additional U.S.
short-term borrowings.
Net cash provided by financing activities totaled $400 million in 1993. Sources
of cash included funds realized upon the creation of Wilmington Partners L.P.,
$85 million in additional borrowings under the Company's medium-term note
program and a $45 million increase in non-U.S. debt. Funds used in financing
activities included the exercise of the call provision on the Company's 8% notes
due in 1996, the payment of dividends and repurchases of the Company's Common
shares.
Financial Position
The Company's objective of maximizing return on shareholders' equity requires
the cost of capital to be minimized. The effective use of debt financing has
lowered the Company's cost of capital and contributed to its return to
shareholders.
In total, short- and long-term borrowings increased by $25 million to $590
million in 1994. The increase in borrowings was used to fund acquisition
activities. The ratio of total debt to equity stood at 65% and 62% at year-end
1994 and 1993, respectively. Cash and investments totaled $233 million in 1994
and $546 million in 1993, the decrease being due to the investment transaction
described in Note 7 - Other Investments. Cash equivalents consist primarily of
U.S. and Eurodollar time deposits with maturities of less than three months.
In prior years, the Company reported its tax-effected net debt to equity ratio,
which factored in the repatriation of non-U.S. cash and investments, net of
hypothetical taxes. A significant amount of these liquid assets has been used in
the long-term investment transaction. As a result, this particular ratio has not
been included in this discussion of the Company's financial position.
Derivative Financial Instruments
The carrying and fair value of the Company's derivative financial instruments
as of December 31, 1994 and December 25, 1993 is presented in the table
below:
Dollar Amounts In Thousands 12*31*94 12*25*93
Carrying Fair Carrying Fair
Value Value Value Value
Foreign exchange instruments:
Other current assets $18,176 $ 18,911
Accrued liabilities (8,622) (51,084)
Net foreign exchange instruments $ 9,554 $18,605 $(32,173) $(20,400)
Interest rate instruments:
Other current assets $ 3,733 $ 4,673
Accrued liabilities (3,434) (2,754)
Net interest rate instruments $ 299 $ 3,612 $ 1,919 $ (3,067)
The carrying value of foreign exchange instruments does not reflect unrecognized
net premium income totaling $957,000 in 1994 and $9,968,000 in 1993. After
including these amounts, outstanding foreign exchange contracts were in a net
unrealized positive cash flow position of approximately
<PAGE>
$10,511,000 at December 1994 and a net unrealized negative cash flow position of
approximately $22,205,000 at December 1993. This position is highly sensitive to
changes in foreign exchange rates. The Company estimates that for each $0.10
move in the U.S. dollar to Irish pound exchange rate, the annualized cash flow
impact for 1994 would have been approximately $30 million.
Net settlements under interest rate instruments are made quarterly or
semi-annually. Foreign exchange instruments have varying maturities with none
exceeding twenty-four months. The Company generally makes net settlements for
foreign exchange instruments at maturity, based on rates agreed to at inception
of the contracts. The Company also staggers the maturities of foreign exchange
instruments to mitigate the impact of contract settlements on cash flow in any
given period.
As noted earlier, the Company enters into foreign exchange contracts to hedge
firm commitments and certain non-U.S. equity investments. Gains and losses on
these positions are deferred and included in the basis of the transaction when
such purchases are completed or investments are liquidated. Cash flows are
reported as cash provided by operating activities.
Access To Financial Markets
Bausch & Lomb's reputation, coupled with its financial position and cash flows,
assures access to financing in markets around the world. The Company's
commercial paper has been rated A-1 by Standard & Poors and P-1 by Moody's
Investor Services. Its long-term debt is rated A and A2 by Standard & Poors and
Moody's, respectively. This enables the Company to raise funds at a low
effective cost. During the first quarter of 1995, the long-term debt rating was
lowered from A+ by Standard & Poors. The Company believes that this will not
have a material effect on its cost of financing in 1995. To support its
liquidity requirements, the Company maintains U.S. revolving credit agreements,
typically with 364-day credit terms totaling $290 million. 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 December 31, 1994, nor were there any borrowings outstanding under the
Company's $300 million medium-term note program. In addition, the Company
maintains bank lines of credit for its financing requirements. At year end,
unused U.S. bank lines of credit amounted to approximately $34 million. 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. Further information relating to the Company's
short-term debt is set forth in Note 9 - Short-Term Debt And Compensating Bank
Balances.
Working Capital
Working capital amounted to $277 million at year-end 1994 compared to $670
million in the prior year. The current ratio at year-end 1994 was 1.4 compared
to 1.9 in 1993. Both measures in 1994 were affected by the long-term investment
transaction completed in the third quarter.
Outlook:
Bausch & Lomb's worldwide sales from ongoing businesses are expected to advance
at a good rate in 1995. Actions completed in 1994 have reduced excess sunglass
and contact lens inventories and the Company has realigned or curtailed its
relationships with certain sunglass distributors, primarily in Southeast Asia.
Management will continue to focus on issues associated with these two businesses
in the coming year. As described in Note 21 - Litigation, the Company is
involved in two class action lawsuits seeking damages based upon the decreased
market value of the Company's stock in the wake of these actions.
The contact lens business will undergo a major change in manufacturing
technology in 1995 which is expected to significantly reduce costs,
particularly for disposable and planned replacement lens products. This is
one of the critical steps in returning this business to profitability. The
Company's U.S. traditional lens
<PAGE>
business will continue to face many challenges, including a decline in prices
and the continuing shift of a portion of its wearer base to highly competitive
disposable and planned replacement products. In non-U.S. markets, sales of
contact lenses should continue to grow at good rates based on a strong presence
in developed and emerging markets and new product introductions. However, as
described in Note 21 - Litigation, the U.S. contact lens business is faced with
a legal action related to the pricing of its various products. Associated
adverse publicity could have a negative impact on its operations. In addition,
the Company is involved with an inquiry by the Securities and Exchange
Commission apparently prompted by accounting issues arising out of the
unsuccessful fourth quarter 1993 contact lens marketing program.
The Company will face some uncertainty in its sunglass business, particularly in
the Asia-Pacific region, where certain discontinued business practices and
product diversion led to the 1994 realignment or curtailment of distributor
relationships. 1995 will reestablish the base from which this business will grow
in the future.
Overall, U.S. revenues are expected to increase as a percent of total sales,
based on incremental volume from recently acquired product lines and product
launches in the sunglass, lens care and contact lens businesses. Revenue gains
are also expected in the Asia-Pacific region, including Japan, and in Europe.
Partially offsetting these factors will be revenues lost as a result of the 1995
divestiture of the Company's sports optics business. Over the last three years,
this business accounted for 15% of optics segment sales and 10% of optics
business segment earnings. The recent devaluation of the Mexican peso is
expected to constrain sales and earnings in Latin America. Lastly, 1994
restructuring actions are expected to generate additional cost savings of
approximately $20 million in 1995.
Within the healthcare segment, personal health sector sales and earnings should
benefit from new product introductions in the eye care business, enhanced
distribution of skin care products and increased consumer acceptance of new
technology Interplak power toothbrushes. Reduced marketing efforts for Clear
Choice mouthwash will limit its contribution to sales. The Company expects the
introduction of further products by competitors targeting its ReNu Multi-Purpose
Solution. Management believes that the Company's market share will be maintained
as a result of strategies developed in the U.S. and other key markets to address
this competition. In the medical sector, U.S. pharmaceutical revenues and
earnings are expected to increase at good rates, primarily from the introduction
of new products and continued gains for products launched in 1994. Price
reductions typical of the industry are expected to partially offset this trend.
Some improvement is anticipated in the hearing care business, however that
outcome is heavily dependent on the recovery of consumer confidence in the
industry in general. The Company continues to work toward the successful
resolution of issues raised by the FTC and FDA. The biomedical sector should
experience moderate growth as a result of higher volumes in Japan and continued
increases in revenues generated by new lines of business.
In the optics segment, U.S. sunglass results will benefit from increased
distribution and development of new products in the Revo line of premium-priced
sunglasses, as well as the launch of new products, including Ray-Ban xrays
sunglasses, to better position Bausch & Lomb in the highly competitive sporting
channel of trade. Divestiture of the sports optics business is expected to occur
during the first half of 1995, and is expected to result in a significant
after-tax gain to the Company.
Other expenses are expected to increase substantially in 1995 as a result of
reduced foreign currency transaction gains, attributable to a decline in Irish
interest rates and the corresponding reduction in income from Irish pound
denominated hedge contracts. Higher U.S. interest rates will contribute to
increased net interest expense in 1995, including expense associated with the
interest rate swap related to distributions from Wilmington Partners L.P.
Results may also be negatively impacted by changes in exchange rates in Mexico
and China, countries where conventional foreign exchange contracts are not
readily obtainable for hedging exposures.
<PAGE>
Positive free cash flow in 1995 will be based on growth in net earnings and
ongoing asset management efforts. Capital expenditures are expected to total
approximately $100 million in 1995. Major projects will include new cast mold
technology for contact lenses and manufacturing improvements for sunglasses in
the U.S., Europe and Asia-Pacific regions. Proceeds from the sale of the
Company's sports optics business will be used primarily to repurchase additional
shares of the Company's Common stock.
Other Information:
Dividends
The annual dividend declared on Common stock was $0.955 per share in 1994, $0.88
per share in 1993 and $0.80 per share in 1992. Quarterly dividends declared on
Common stock were raised 11% to $0.245 per share in March 1994 compared to $0.22
per share for all of 1993. The 1993 quarterly dividend rate was 10% higher than
the 1992 amount of $0.20 per share. These increases reflect the Company's desire
to increase its dividend on an annual basis while maintaining a payout rate of
between 30% to 35% of the previous year's earnings before non-recurring charges.
Return On Equity And Capital
Return on average shareholders' equity was 3.2% in 1994, compared with 15.5% in
1993 and 20.3% in 1992. The results in both 1994 and 1993 include the impact of
non-recurring charges. Excluding these charges, return on equity would have been
11.0% in 1994 and 19.5% in 1993. The decrease from 1993 reflects lower earnings
performance in the contact lens, sunglass, hearing care and oral care
businesses. The 1993 decrease from 1992 stemmed from lower earnings in the
contact lens and for sunglass product lines. Excluding the cumulative
translation adjustment, return on equity for 1994 was 3.4%, compared with
15.9% for 1993 and 22.5% for 1992.
Return on average capital employed was 3.8% for 1994, 11.0% for 1993 and 15.9%
for 1992. Again, excluding non-recurring charges, return on capital would have
been 8.4% in 1994 and 13.4% in 1993. The decrease in the return in 1994 was
primarily due to the earnings shortfall noted above.
Environment
The Company believes it is in compliance in all material respects with
applicable environmental laws and regulations. The Company is presently involved
in remediation efforts at certain locations, some of which are Company owned. At
all such locations, the Company believes such efforts will not have a materially
adverse effect on its results of operations or financial position.
<PAGE>
Quarterly Results
The following table presents net sales, gross profit (net sales less cost
of products sold and research and development expenses), net earnings (loss)
and net earnings (loss) per share for each quarter during the past three years:
Net
Earnings
Dollar Amounts In Thousands* Net Gross Net Earnings (Loss)
Except Per Share Data Sales Profit (Loss) Per Share
1994
First $ 439,388 $219,438 $ 35,924 $0.60
Second 485,625 247,008 33,898 0.57
Third 486,059 223,238 23,377 0.39
Fourth 481,614 229,302 (62,076)(1) (1.04)(1)
Total $1,892,686 $918,986 $ 31,123 $0.52
1993
First $ 407,605 $206,005 $ 32,851 $0.54
Second 479,429 254,731 47,028 0.78
Third 490,136 258,989 52,022 0.87
Fourth 452,880 223,578 7,001(2) 0.12(2)
Total $1,830,050 $943,303 $138,902 $2.31
1992
First $ 371,871 $189,186 $ 28,668 $0.47
Second 447,497 230,866 41,055 0.68
Third 461,310 235,885 49,961 0.83
Fourth 428,408 221,197 51,736 0.86
Total $1,709,086 $877,134 $171,420 $2.84
(1) Includes goodwill impairment charge, with no associated tax benefit, of
$75.0 million or $1.26 per share.
(2) Includes the after-tax effect of restructuring charges of $36.5 million or
$0.61 per share.
Quarterly Stock Prices
Bausch & Lomb Common stock is listed on the New York Stock Exchange and is
traded under the symbol BOL. The following table shows the price range of the
Common stock for each quarter for the past three years:
1994 1993 1992
Price Per Share Price Per Share Price Per Share
High Low High Low High Low
First $53-7/8 $47-1/2 $57-1/2 $50-3/4 $60-1/2 $47-1/4
Second 52 37-1/8 55-3/8 47-7/8 51 44-1/2
Third 39-3/4 34-1/4 50-3/4 43 53-5/8 47-1/4
Fourth 39-3/8 30-5/8 53-1/2 45-1/8 59-1/4 48-1/2
<PAGE>
Statement
Of
Earnings
For The Years Ended
12*31 12*25 12*26
Dollar Amounts In Thousands
*Except Per Share Data 1994* 1993* 1992
Net Sales $1,892,686 $1,830,050 $1,709,086
Costs And Expenses
Cost of products sold 913,279 828,883 778,684
Selling, administrative
and general 724,219 668,436 606,889
Research and development 60,421 57,864 53,268
Goodwill impairment charge 75,000 -- --
Restructuring charges -- 50,000 --
1,772,919 1,605,183 1,438,841
Operating Earnings 119,767 224,867 270,245
Other (Income) Expense
Investment income (35,339) (14,289) (13,254)
Interest expense 41,379 34,202 29,540
Gain from foreign currency, net (2,615) (11,068) (8,685)
3,425 8,845 7,601
Earnings Before Income Taxes
And Minority Interest 116,342 216,022 262,644
Provision for income taxes 61,162 72,404 85,125
Earnings Before Minority Interest 55,180 143,618 177,519
Minority interest in subsidiaries 24,057 4,716 6,099
Net Earnings 31,123 138,902 171,420
Retained Earnings At Beginning Of Year 871,680 785,044 661,182
Cash Dividends Declared--Common Stock 56,558 52,266 47,558
Retained Earnings At End Of Year $ 846,245 $ 871,680 $ 785,044
Earnings Per Common Share $ 0.52 $ 2.31 $ 2.84
*Amounts have been restated for certain items as more fully described in Note
2--Restatement of Financial Information.
See Notes To Financial Statements
<PAGE>
Balance
Sheet
12*31 12*25
Dollar Amounts In Thousands 1994 1993*
Assets
Current Assets
Cash and cash equivalents $ 230,369 $ 513,241
Short-term investments,
at cost which approximates
market 2,173 32,795
Trade receivables, less
allowances of $16,830 and
$13,753, respectively 271,990 345,139
Inventories 312,781 309,754
Deferred income taxes,
less valuation allowances of
$17,882 and $13,206, respectively 40,372 79,897
Other current assets 96,281 102,304
953,966 1,383,130
Property, Plant And Equipment, net 542,750 541,061
Goodwill And Other Intangibles,
less accumulated amortization
of $77,394 and $59,396, respectively 395,950 456,944
Other Investments 425,000 --
Other Assets 140,065 111,862
Total Assets $2,457,731 $2,492,997
Liabilities And Shareholders' Equity
Current Liabilities
Notes payable $ 252,783 $ 222,642
Current portion of long-term debt 47,788 21,935
Accounts payable 71,718 85,306
Accrued compensation 71,742 66,077
Accrued liabilities 216,956 248,661
Federal and foreign income taxes 15,551 68,882
676,538 713,503
Long-Term Debt, less current portion 289,504 320,953
Other Long-Term Liabilities 149,094 128,328
Minority Interest 428,208 421,031
Total Liabilities 1,543,344 1,583,815
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, 1,072,880 shares
issued (936,348 shares in 1993) 86 75
Capital in excess of par value 90,637 88,101
Cumulative translation adjustment 47,609 8,915
Retained earnings 846,245 871,680
1,008,656 992,850
Common and Class B stock in treasury,
at cost, 2,278,745 shares
(2,016,430 shares in 1993) (94,269) (83,668)
Total Shareholders' Equity 914,387 909,182
Total Liabilities And
Shareholders' Equity $2,457,731 $2,492,997
*Amounts have been restated for certain items as more fully described in Note
2--Restatement of Financial Information.
See Notes To Financial Statements
<PAGE>
Statement
of
Cash Flows
For The Years Ended
12*31 12*25 12*26
Dollar Amounts In Thousands 1994* 1993* 1992
Cash Flows From
Operating Activities
Net earnings $ 31,123 $138,902 $171,420
Adjustments to reconcile
net earnings to
net cash provided by
operating activities:
Depreciation of property,
plant and equipment 82,421 72,001 63,349
Amortization of goodwill
and other intangibles 16,850 12,595 8,681
Goodwill impairment charge 75,000 -- --
Decrease (increase) in
deferred income taxes 36,833 (31,626) 4,625
Restructuring charges,
net of tax -- 36,463 --
Loss (gain) on retirement
of fixed assets 12,995 2,721 (844)
Exchange (gain) loss (226) (1,240) 5,249
Increase in undistributed
earnings of subsidiaries 5,779 1,996 4,132
Decrease (increase) in
accounts receivable 82,434 (66,722) (71,132)
Decrease (increase) in
inventories 7,691 (35,103) 928
Decrease (increase) in
other current assets 5,200 (35,794) (8,263)
(Decrease) increase in
accounts payable and accruals (54,037) 2,803 1,118
(Decrease) increase in
tax reserves (55,767) 33,944 1,050
Increase in other
long-term liabilities 16,602 11,315 11,904
Net cash provided by
operating activities 262,898 142,255 192,217
Cash Flows From
Investing Activities
Payments for purchases
of property,
plant and equipment (84,807) (107,232) (119,331)
Acquisition of businesses,
net of cash and
short-term investments
acquired (29,077) (244,197) (18,611)
Other investments (425,000) -- --
Other (13,178) (36,138) (14,611)
Net cash used in
investing activities (552,062) (387,567) (152,553)
Cash Flows From
Financing Activities
Repurchases of Common shares (20,581) (28,753) (30,497)
Exercise of stock options 8,143 5,845 12,715
Tax benefit of stock
transactions with employees 626 1,777 6,019
Restricted stock awards 3,758 43 3,030
Net proceeds from
issuance of debt 16,307 72,548 35,477
Proceeds from formation
of Wilmington Partners L.P. -- 400,000 --
Payment of dividends (55,177) (51,112) (46,446)
Net cash (used in)
provided by financing
activities (46,924) 400,348 (19,702)
Effect of exchange rate
changes on cash, cash
equivalents and short-term
investments 22,594 (25,773) (14,933)
Net (decrease) increase
in cash, cash
equivalents and short-term
investments (313,494) 129,263 5,029
Cash, cash equivalents
and short-term investments,
beginning of year 546,036 416,773 411,744
Cash, cash equivalents
and short-term investments,
end of year $232,542 $546,036 $416,773
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 39,842 $ 29,307 $ 26,801
Income taxes $ 69,827 $ 61,056 $ 70,189
*Amounts have been restated for certain items as more fully described in Note
2--Restatement of Financial Information.
See Notes To Financial Statements
<PAGE>
Notes
to
Financial Statements
Accounting Policies 1
Principles Of Consolidation
The financial statements include all majority-owned U.S. and non-U.S.
subsidiaries. Intercompany accounts, transactions and profits are eliminated.
The fiscal year is the 52 or 53 week period ending the last Saturday in
December. Certain amounts in the prior years' financial statements have been
reclassified to conform with the current year's presentation.
Cash And Cash Equivalents
Cash equivalents include time deposits and highly liquid investments with
original maturities of three months or less.
Inventories
Inventories are valued at the lower of cost or market, generally using the
first-in, first-out (FIFO) method. However, cost is determined by using the
last-in, first-out (LIFO) method for a significant portion of U.S. inventories.
Property, Plant And Equipment
Property, plant and equipment, including improvements that significantly add to
productive capacity or extend useful life, are recorded at cost, while
maintenance and repairs are expensed currently. Interest costs on significant
projects constructed for the Company's own use are capitalized as part of the
cost of the newly constructed facilities. Upon retirement or disposal of assets,
the cost and related accumulated depreciation are removed from the Balance Sheet
and any gain or loss is reflected in earnings.
Depreciation is calculated for financial reporting purposes using the straight-
line method based on the estimated useful lives of the assets as follows:
buildings, 30 to 40 years; machinery and equipment, 2 to 10 years; and leasehold
improvements, the lease periods.
Goodwill
Goodwill is the excess of the cost of net assets acquired in business
combinations over their fair value. It is amortized on a straight-line basis
over periods ranging from 10 to 40 years. The Company evaluates goodwill for
impairment at least annually. In completing this analysis, the Company compares
its best estimate of future cash flows, excluding interest costs, discounted at
its incremental borrowing rate with the carrying value of goodwill.
Investments In Debt And Equity Securities
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", in 1994. The
Company's reported other investments are classified as available-for-sale under
the provision of SFAS No. 115, and accordingly any unrealized holding gains and
losses, net of taxes, are excluded from income and recognized as a separate
component of shareholders' equity until realized. Fair value of the securities
is determined based on discounted cash flows and investment risk. As of December
31, 1994 the Company had not recorded any realized or unrealized holding gains
and losses.
Postemployment Benefits
During 1994, the Company adopted the provisions of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". The standard requires companies to
accrue the cost of postemployment benefits either during the years that the
employee renders the necessary service or at the date of the event giving rise
to the benefit. Adoption of SFAS No. 112 did not have a material effect on the
results of operations or financial position of the Company. All amounts relating
to probable and estimable actions were accrued at December 31, 1994 in
accordance with the standard.
Foreign Currency Translation
Assets and liabilities of certain non-U.S. subsidiaries are translated at
current exchange rates, and related revenues and expenses are translated at
average exchange rates in effect during the period. Resulting translation
adjustments are recorded as a currency component in shareholders' equity.
Financial results of non-U.S. subsidiaries in countries with highly inflationary
economies are translated using a combination of current and historical exchange
rates and any translation adjustments are included in net earnings, along with
all transaction gains and losses for the period.
<PAGE>
Foreign Exchange And
Interest Rate Instruments
The Company enters into forward exchange and purchased foreign currency option
contracts to hedge transactions denominated in foreign currencies, firm
commitments and certain non-U.S. equity investments. The gains or losses on
hedges of transaction exposures are included in income in the period in which
the exchange rates change. Gains and losses on contracts which hedge specific
foreign currency denominated commitments are deferred and recognized in the
period in which the transaction is completed. Gains and losses on forward
contracts hedging non-U.S. equity investments are recorded as a currency
component in shareholders' equity. The cash flows related to these gains and
losses are reported as cash flows from operating activities. The Company also
enters into interest rate swap, swap-option and cap agreements to balance its
floating rate asset and liability positions. The Company amortizes premium
income or expense incurred by buying or selling foreign exchange and interest
rate instruments over the life of the agreements. This premium income or expense
is included in the Company's results of operations.
Income Taxes
The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes. Deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities applying enacted statutory tax rates in effect
for the year in which the differences are expected to reverse.
The Company does not provide for additional U.S. and foreign income taxes on
undistributed earnings considered to be permanently reinvested in its
non-U.S. subsidiaries. Such earnings would become taxable upon the sale or
liquidation of the subsidiary, or the remittance of dividends. At December
31, 1994, earnings considered to be permanently reinvested in non-U.S.
subsidiaries totaled $679,000,000. Under the Omnibus Budget Reconciliation
Act of 1993, U.S. taxes could be assessed on undistributed current or
retained earnings of certain non-U.S. subsidiaries. At December 31, 1994,
certain earnings of non-U.S. subsidiaries were made subject to U.S. income
taxes under this provision, however foreign tax credits associated with those
earnings offset any increase in the Company's overall income tax expense.
Earnings Per Share
Net earnings per Common share are based on the weighted average number of
Common and Class B shares outstanding during the year, 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.
Restatement of Financial Information 2
The Company has restated its financial statements for the years ended
December 31, 1994 and December 25, 1993. This action was taken as a result of an
ongoing investigation which identified uncertainties surrounding the execution
of a fourth quarter 1993 contact lens sales program and the improper recording
of 1993 sunglass sales in Southeast Asia. In the fourth quarter of 1993 a
marketing program was initiated to implement a business strategy to shift
responsibility for the sale and distribution of a portion of the U.S.
traditional contact lens business to optical distributors. Subsequently, this
strategy proved unsuccessful and, in the 1994 third quarter, led to the
implementation of a new pricing policy for traditional contact lenses and a
decision to accept on a one-time basis returns from these distributors. The
investigation of this marketing program disclosed instances where unauthorized
terms may have been or were offered which were inconsistent with the stated
terms and conditions of the program. The resulting uncertainties relating to
the execution of this marketing program led to a decision to restate the 1993
financial statements to account for shipments under the program as consigned
inventory and to record revenues when the products were sold by the distributors
to their customers and to reverse the effect of subsequent product returns and
pricing adjustments related to this program which had been previously
recognized in 1994. The investigation of Southeast Asia sunglass sales disclosed
that in certain instances distributor transactions recorded as revenues in 1993
had not actually resulted from a sale to those customers, and thus were
improperly recorded. The 1993 financial statements have been restated to reverse
the improperly recorded sales with a corresponding restatement of the 1994
financial statements to reverse the effect of sales returns previously
recognized in that period. In the opinion of management, all material
adjustments necessary to correct the financial statements have been recorded.
The impact of these adjustments on the Company's financial results as originally
reported is summarized below:
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
(Except Per Share Data) 1994 1993
- ----------------------------------------------------------------------------------------------------
As Reported As Restated As Reported As Restated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales:
Healthcare $ 1,227,648 $ 1,249,923 $ 1,191,467 $ 1,169,192
Optics 622,904 642,763 680,717 660,858
- ----------------------------------------------------------------------------------------------------
Total $ 1,850,552 $ 1,892,686 $ 1,872,184 $ 1,830,050
====================================================================================================
Business Segment Earnings:
Healthcare $ 73,466 $ 91,541 $ 210,393 $ 192,318
Optics 64,148 72,075 87,456 79,529
- ----------------------------------------------------------------------------------------------------
Total $ 137,614 $ 163,616 $ 297,849 $ 271,847
====================================================================================================
Net Earnings $ 13,478 $ 31,123 $ 156,547 $ 138,902
====================================================================================================
Net Earnings Per Share $ 0.23 $ 0.52 $ 2.60 $ 2.31
====================================================================================================
Retained Earnings
at End of Year $ 846,245 $ 846,245 $ 889,325 $ 871,680
====================================================================================================
</TABLE>
Goodwill Impairment 3
At December 1994, the Company recognized a goodwill impairment charge of
$75,000,000, with no associated tax benefit, related to the 1988 acquisition of
Dental Research Corporation. This goodwill recognized the Interplak product as
the foundation for a broad-based, global consumer oral care business. Recently,
the Company has experienced intense competition for this product, a significant
decline in market share and operating losses. In December 1994, a series of
decisions was made fundamentally realigning oral care operations. This reflects
the Company's belief that directing future significant strategic investments
toward its core and emerging businesses will offer better opportunities for
realizing higher rates of return than its consumer oral care business in the
long-term. This has greatly reduced the expected life cycle and estimated future
cash flows for this business. Other December 1994 decisions included the
centralization of management of worldwide oral care operations under the U.S.
Oral Care Division and the redirection of management of most non-U.S. oral care
operations to selected distributors.
In determining the amount of the impairment charge, the Company developed its
best estimate of operating cash flows over the remaining business life cycle,
assumed to be 14 years. Future cash
<PAGE>
flows, excluding interest charges, were discounted using an estimated 8.6%
incremental borrowing rate. These projections, after taking into account
significant one-time expenses, including cost reduction measures implemented
during 1994 and development and product launch expenses associated with the new
technology Interplak product introduced during the fourth quarter, reflect a
6.5% average return on sales in the years 1995-1997. In subsequent years, a
continuing reduction in average return on sales is projected as the Company's
strategic investments are directed toward other businesses. Resulting discounted
cash flows are expected to decline at a compound rate of 24% between 1997 and
2004. Discounted annual cash flows are projected to average less than $1,000,000
beyond 2004.
Restructuring Charges 4
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 $50,000,000. The major components of the restructuring
charge are set forth in the table below:
Dollar Amounts In Thousands Sunglass Pharmaceutical Biomedical Total
Employee separations $10,962 $ 750 $3,289 $15,001
Asset writedowns 14,603 2,446 2,052 19,101
Other 8,957 5,822 1,119 15,898
$34,522 $9,018 $6,460 $50,000
The sunglass reserve provided for costs to shut down various manufacturing,
assembly and distribution operations, eliminate certain product lines and
realign global manufacturing operations. For pharmaceutical operations, the
reserve provided for the costs to obtain FDA approval and complete the transfer
of manufacturing to a new facility and to restructure global operations.
Biomedical actions included consolidating certain operations and administrative
functions.
Asset writedowns primarily related to facilities being closed and product
inventories being eliminated. Other charges included losses on leases for
vacated facilities and project management expenses.
The following table sets forth the activity in the restructuring reserve:
Dollar Amounts In Thousands Sunglass Pharmaceutical Biomedical Total
Total 1993 restructuring
provisions $34,522 $9,018 $6,460 $50,000
Less:
Charges against reserve
Non-cash items 14,603 2,446 2,052 19,101
Cash payments:
1993 1,458 2,118 1,402 4,978
1994 16,300 3,554 1,979 21,833
Balance at
December 31, 1994 $ 2,161 $ 900 $1,027 $ 4,088
All actions contemplated at the time of establishing the reserve have been
completed or are expected to be fully completed by June 1995. Reserves remaining
primarily represent liabilities for continuing severance payments and project
expenses and are believed to be adequate.
Geographic Region And Business Segment Information 5
Bausch & Lomb's operating 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,
specific pathogen-free eggs for vaccine production and a variety of
<PAGE>
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.
Inter-area sales to affiliates represent products which are transferred between
geographic regions on a basis intended to reflect the market value of the
products as nearly as possible.
Identifiable assets are those assets used exclusively in the operations of each
business segment or geographic region, or which are allocated when used jointly.
Corporate assets are principally cash and cash equivalents, short-term
investments, other investments and certain property, plant and equipment.
The following tables present sales and other financial information by geographic
region and business segment for the years 1994, 1993 and 1992.
Geographic Region
<TABLE>
<CAPTION>
Europe,
Dollar Amounts Middle East & Asia- Canada &
In Thousands United States Africa Pacific Latin America Consolidated
<S> <C> <C> <C> <C> <C>
1994
Sales to unaffiliated
customers $1,045,263 $414,236 $303,702 $129,485 $1,892,686
Inter-area sales
to affiliates 135,597 101,571 1,643 4,375 243,186
Business segment
earnings 35,253 91,939 29,964 6,460 163,616(1)
Identifiable assets 1,187,569 918,869 269,349 81,944 2,457,731
1993
Sales to unaffiliated
customers $1,012,690 $396,909 $292,183 $128,268 $1,830,050
Inter-area sales to
affiliates 130,093 94,949 2,139 2,397 229,578
Business segment
earnings 153,928 89,980 17,724 10,215 271,847(2)
Identifiable assets 1,306,114 837,007 266,333 83,543 2,492,997
1992
Sales to unaffiliated
customers $ 883,738 $421,118 $299,033 $105,197 $1,709,086
Inter-area sales to
affiliates 154,063 71,084 1,291 2,315 228,753
Business segment
earnings 181,678 79,827 36,839 13,260 311,604
Identifiable assets 839,660 735,422 232,654 65,953 1,873,689
<FN>
(1) Includes goodwill impairment charge of $75.0 million in the United States.
(2) Includes restructuring charges of $48.8 million as follows: United States,
$23.5; Europe, Middle East & Africa, $16.6; Asia-Pacific, $4.6; Canada &
Latin America, $4.1.
</FN>
</TABLE>
<PAGE>
Business Segment
Dollar Amounts In Thousands 1994 1993 1992
Net Sales
Healthcare $1,249,923 $1,169,192 $1,033,233
Optics 642,763 660,858 675,853
$1,892,686 $1,830,050 $1,709,086
Earnings Before Taxes
And Minority Interest
Healthcare $ 91,541 $ 192,318 $ 176,095
Optics 72,075 79,529 135,509
Business segment
earnings 163,616(1) 271,847(2) 311,604
Corporate administration
expense 43,849 46,980(3) 41,359
Operating earnings 119,767 224,867 270,245
Interest expense, net 6,040 19,913 16,286
Gain from foreign
currency, net (2,615) (11,068) (8,685)
$ 116,342 $ 216,022 $ 262,644
Depreciation
Healthcare $ 56,833 $ 46,778 $ 41,509
Optics 22,605 22,043 19,423
Corporate 2,983 3,180 2,417
$ 82,421 $ 72,001 $ 63,349
Identifiable Assets
Healthcare $1,211,165 $1,329,854 $ 979,666
Optics 471,794 492,507 466,738
Corporate 774,772 670,636 427,285
$2,457,731 $2,492,997 $1,873,689
Capital Expenditures
Healthcare $ 63,933 $ 83,460 $ 78,965
Optics 20,412 21,254 33,995
Corporate 462 2,518 6,371
$ 84,807 $ 107,232 $ 119,331
(1) Includes goodwill impairment charge of $75.0 million for Healthcare.
(2) Includes restructuring charges of $48.8 million as follows: Healthcare,
$15.9; Optics, $32.9.
(3) Includes restructuring charges of $1.2 million.
Inventories 6
Dollar Amounts
In Thousands 12*31 12*25
1994 1993
Raw materials and supplies $ 79,295 $ 66,768
Work in process 23,985 24,640
Finished products 222,079 226,518
325,359 317,926
Less: Reserve for valuation of
certain U.S. inventories at
last-in, first-out cost 12,578 8,172
$312,781 $309,754
<PAGE>
Inventories valued using the LIFO method were approximately $98,442,000 and
$98,680,000 at December 31, 1994 and December 25, 1993, respectively.
Property, Plant And Equipment 7
12*31 12*25
Dollar Amounts In Thousands 1994 1993
Land $ 21,474 $ 20,784
Leasehold improvements 32,635 25,530
Buildings 366,003 350,173
Machinery and equipment 587,586 542,912
1,007,698 939,399
Less: Accumulated depreciation 464,948 398,338
$ 542,750 $541,061
Other Investments 8
In the 1994 third quarter the Company's subsidiary, Bausch & Lomb Ireland,
invested $425,000,000 in securities issued by a wholly-owned subsidiary of a
triple-A rated financial institution. Entering into this transaction enhanced
the Company's overall ability to raise funds, especially outside the U.S., and
to realize more favorable terms for other types of financial transactions. In
addition, the investment responded to a recent change in U.S. tax law, under
which the Company elected to invest in qualifying "active" assets rather than
face increased tax expenses associated with its non-U.S. earnings. The Company's
past investments in Eurodollar time deposits would not qualify as "active"
investments under current tax laws.
The securities are unsecured and are neither payable upon demand nor have a
fixed maturity. The securities rank senior to all other classes of the issuer's
equity and rank junior to the secured and unsecured liabilities of the issuer,
including subordinated debt obligations. The securities pay quarterly cumulative
dividends at a variable LIBOR-based rate. At December 31, 1994 this rate was
5.95%. The issuer has a call option upon 180 days notice, or 30 days notice
after November 21, 2003. The securities will become freely transferable after
approximately nine and one half years from the initial investment. At that time,
the dividend rate will be reset, if necessary, to ensure that the market value
of the securities is equal to the par value.
Provision For Income Taxes 9
An analysis of the components of earnings before income taxes and minority
interest and the related provision for income taxes is presented below:
Dollar Amounts In Thousands 1994 1993 1992
Earnings before income taxes and
minority interest:
U.S. $ (3,556) $ 92,645 $ 141,463
Non-U.S. 119,898 123,377 121,181
$ 116,342 $ 216,022 $ 262,644
Provision for income taxes:
Federal
Current $ (7,316) $ 63,118 $ 51,438
Deferred 28,323 (22,526) (1,329)
State
Current (2,107) 10,274 9,013
Deferred 5,613 (4,127) (129)
Foreign
Current 27,534 41,940 22,502
Deferred 9,115 (16,275) 3,630
$ 61,162 $ 72,404 $ 85,125
<PAGE>
Deferred income taxes recognize the impact of temporary differences between the
amounts of assets and liabilities recorded for financial reporting purposes and
such amounts measured in accordance with tax laws and are detailed below.
Realization of the tax loss and credit carryforwards, which expire between 1995
and 2008, is contingent on future taxable earnings in certain non-U.S. tax
jurisdictions. Valuation allowances of $17,882,000 at December 31, 1994 and
$13,206,000 at December 25, 1993 were recorded to reserve for these and other
asset items which may not be realized.
Dollar Amounts In Thousands 12*31*94 12*25*93
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Reserve for postretirement
medical and life insurance
benefits $ 45,248 $ - $ 46,942 $ -
Reserve for other benefit
plans 8,202 4,697 7,442 4,551
Vacation accrual 6,001 - 4,704 -
Inventory and product
reserves 13,694 281 12,638 1,031
Intercompany profit
elimination 11,299 - 13,028 -
Tax loss and credit
carryforwards 20,527 - 14,199 -
Restructuring reserves 11,777 - 17,804 -
Sales and allowance
reserves 5,941 - 15,546 -
Advertising reserves 5,635 - 3,842 -
Reserve for bad debts 4,844 - 3,733 -
Depreciation 3,719 41,075 3,474 37,375
Amortization 3,226 24,231 3,326 19,928
Unrealized foreign
exchange losses 1,985 - 16,116 -
State income tax
accruals - 11,122 - 6,668
Other accruals 6,524 8,962 5,942 6,080
148,622 90,368 168,736 75,633
Less: Valuation allowance 17,882 - 13,206 -
Deferred income taxes $130,740 $90,368 $155,530 $75,633
Reconciliations of the statutory U.S. federal income tax rate to effective tax
rates were as follows:
1994 1993 1992
Statutory tax rate 35.0% 35.0% 34.0%
Goodwill impairment
charge with no
income tax benefit 22.6 -- --
Goodwill amortization 2.2 0.8 0.4
Rate differential for
Subpart F income 2.4 6.3 2.3
State income taxes,
net of federal
tax benefit 2.0 1.9 2.2
Difference between non-U.S. and
U.S. tax rates (2.9) (8.1) (5.7)
Effect of enacted changes in
non-U.S. tax rates (1.7) -- --
Foreign Sales Corporation
tax benefit (2.2) (1.3) (1.4)
Other (4.8) (1.1) 0.6
Effective tax rate 52.6% 33.5% 32.4%
In April 1991, the Internal Revenue Service (the "Service") issued a Notice of
Deficiency relating to its examination of the Company's federal income tax
returns for the 1983-1984 period. In July 1991, the Company filed a petition in
the U.S. Tax Court to contest these alleged deficiencies. In September 1991, the
Company and the Service settled all issues raised in the Notice of Deficiency
except those that relate to the Company's sunglass operations in Ireland and
Hong Kong.
In December 1991, the Service issued a Notice of Deficiency proposing
adjustments to the amount of the Company's income taxes for the 1985-1987
period. The Notice raised issues similar to those contested in the Petition for
the 1983-1984 period relating to the Company's overseas sunglass operations, as
well as other unrelated issues. The Company and the Service have agreed on a
basis for settling substantially all of the unrelated
<PAGE>
issues within the Company's tax provision. However, taxes and accrued interest
for the sunglass issues total approximately $18,000,000, and exceed the
Company's tax provision for the years in question. In January 1992, the Company
filed a petition in the U.S. Tax Court contesting these proposed adjustments.
In September 1993, the Service issued notices of proposed adjustments relating
to an examination of the Company's federal income tax returns for the 1988-1989
period. The predominant issues raised in the notices were similar to those being
contested relating to overseas sunglass operations. The notices also included
unrelated issues for the 1988-1989 period. At this time, litigation for these
unrelated issues is not anticipated and tax provisions for the years in question
are considered adequate to provide for any adverse determinations.
In December 1993, the trial on the overseas sunglass issues for the 1983-1984
and the 1985-1987 periods was held in the U.S. Tax Court. Following the trial,
under the U.S. Tax Court's rules of procedure, both the Company and the Service
were required to file briefs, the last of which was filed in July 1994. The
Court has the matter under review and, in accordance with its usual practices,
has not notified the Company or the Service of a date when a decision may be
expected. Based on assessments of the evidence introduced and the arguments
advanced by both parties during the trial and in the post trial briefs,
management continues to believe that any tax liability relating to the sunglass
issues which may arise from this litigation, or for subsequent years, will not
have a materially adverse effect on the financial position or results of
operations of the Company.
Short-Term Debt And Compensating Bank Balances 10
Short-term debt at December 31, 1994 and December 25, 1993 consisted of
$234,739,000 and $201,500,000 in U.S. commercial paper and $18,044,000 and
$21,142,000 in non-U.S. borrowings, respectively. To support its liquidity
requirements, the Company maintains U.S. revolving credit agreements with
364-day credit terms totaling $290,000,000. 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
December 31, 1994.
Short-term bank debt and commercial paper are borrowed at below prime rates in
the U.S. and at approximately the equivalent of prime rates in other countries
and are unsecured. All compensating balance arrangements are informal and do not
restrict the withdrawal of funds. Under these arrangements, the Company
maintained average compensating bank balances of $2,400,000 in 1994. In
addition, the Company maintains bank lines of credit for its financing
requirements. At December 31, 1994 unused U.S. bank lines of credit amounted to
approximately $34,000,000.
In February 1994, the Company entered into two interest rate swap agreements,
each in notional amounts of $100,000,000, which will convert $200,000,000 of
commercial paper and other floating rate debt into fixed rate obligations with
an effective interest rate of 6.48%. These swaps will commence on January 1,
1995 for a seven-year period ending on January 1, 2002.
In April 1993, the Company entered into a $72,000,000 notional amount interest
rate swap-option agreement to convert an equivalent dollar amount of commercial
paper into fixed rate obligations at an interest rate of 4.07%. This agreement
was canceled in October 1994 at the option of the counterparty.
<PAGE>
Information relating to the Company's short-term debt, which includes the effect
of the interest rate swap-option agreement on average interest rates, is
summarized in the following table:
Dollar Amounts In Millions
1994 1993
Average short-term interest
rates at year end:
U.S. 5.9% 3.5%
Non-U.S.* 6.1% 5.3%
Aggregate* 6.0% 3.7%
Average short-term interest rates
for the year* 4.6% 3.7%
Highest month-end balance $333.5 $592.3
Average month-end balance $294.3 $258.7
*Excludes the effect of short-term borrowings in the highly inflationary economy
of Brazil.
Excluding the effect of the interest rate swap-option agreement, the average
short-term interest rates for 1994 and 1993 would have been 4.7% and 3.6%,
respectively.
Long-Term Debt 11
12*31 12*25
Dollar Amounts In Thousands 1994 1993
Notes payable:
5.5% due in 1994 $ -- $ 13,145
6.7% due in 1995 40,000 40,000
3.35% due in 1995 4,989 --
6.8% due in 1996 40,000 40,000
3.495% due in 1996 49,890 45,600
3.35% due in 1996 4,989 --
6.48% due in 1997 85,000 85,000
5.95% due in 2003 85,000 85,000
Other 10,566 13,669
Mortgages payable 144 3,035
Capital lease obligations:
Industrial Development Bonds,
variable rate due in 2015 8,500 8,500
Other 8,214 8,939
337,292 342,888
Less: Current portion 47,788 21,935
$289,504 $320,953
All long-term debt is at fixed rates, except for the Industrial Development
Bonds, which are at a variable rate based on a range of 40% to 90% of the prime
rate as determined by prevailing market conditions. At December 31, 1994 this
rate was 6.0%. The Company filed a shelf registration with the Securities and
Exchange Commission in November 1993 for up to $300,000,000 in debt. In April
1994, the Company established a $300,000,000 medium-term note program, providing
for the issuance of fixed or variable rate notes with maturities between one and
30 years. There were no borrowings under this program at December 31, 1994.
Long-term borrowing maturities during the next five years are $47,788,000 in
1995, $99,100,000 in 1996, $87,880,000 in 1997, $1,745,000 in 1998 and
$1,678,000 in 1999.
As described in Note 19 - Derivative Financial Instruments, the Company may from
time to time enter into interest rate swap agreements to balance its floating
rate asset and liability positions. As part of this strategy, in 1992 the
Company entered into interest rate swap agreements with an aggregate notional
principal amount of $85,000,000 and in 1993 an interest rate swap-option
agreement with a notional principal amount of $85,000,000
<PAGE>
associated with long-term notes payable in the same dollar amounts due in 1997
and 2003, respectively. In 1994, the Company terminated the swap-option
agreement and entered into an interest rate swap agreement of an equal notional
principal amount. In each of these situations, the Company effectively converted
the notes to floating rate obligations with an interest rate based on the
one-month U.S. composite commercial paper rate. At December 31, 1994 this rate
was 6.0%.
The Company amortizes premium income or expense incurred by buying or selling
interest rate derivatives over the life of the agreements. Gains and losses on
terminated swaps and swap-options are recognized over the remaining life of the
underlying obligation. Interest rate swap agreements resulted in a reduction in
the long-term effective interest rate from 5.8% to 4.7% in 1994 and from 6.0% to
4.6% in 1993.
Operating Leases 12
The Company leases land, buildings, machinery and equipment under noncancelable
operating leases. Future minimum payments under these leases as of December 31,
1994 are as follows:
Dollar Amounts In Thousands
1995 $ 23,310
1996 19,025
1997 13,576
1998 12,076
Later years 36,317
Total minimum lease payments $104,304
Total rental expense for the years ended December 31, 1994, December 25, 1993
and December 26, 1992 amounted to $27,055,000, $26,862,000 and $20,830,000,
respectively.
The Company has entered into an agreement with an unaffiliated third party to
act as agent for construction of an office facility in Rochester, New York and
has guaranteed its completion. Upon completion, which is expected in 1995, the
Company will enter into a seven-year variable rate operating lease with an
associated residual value guarantee in an amount not to exceed $54,600,000. At
December 1994 estimated annual rent payments under the agreement approximated
$4,300,000.
Retirement Benefits 13
The Company and its consolidated subsidiaries sponsor several retirement plans
which, in the aggregate, cover substantially all U.S. employees and employees in
certain other countries. In general, retirement benefits are based on years of
service and the employee's compensation near retirement. Certain non-U.S.
pension arrangements also provide termination indemnity payments. For the
largest U.S. plan, employees are eligible to participate upon the attainment of
age 21 and the completion of one year of service. These employees vest in the
plan after five years of service or the attainment of age 55. The Company funds
its major U.S. plan in an amount not less than minimum statutory funding
requirements nor more than the maximum amount that can be deducted for federal
income tax purposes. The plan's investments consist primarily of equity
securities, corporate bonds, U.S. government issues, cash and cash equivalents.
The Company also sponsors defined contribution plans and participates in
government-sponsored programs in certain non-U.S. locations.
<PAGE>
The components of net periodic pension cost consisted of the following:
Dollar Amounts
In Thousands 1994 1993 1992
U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans Plans Plans
Service cost -
benefits earned
during the period $ 6,822 $ 2,003 $ 4,493 $ 1,696 $3,888 $1,508
Interest cost on
projected benefit
obligation 10,305 1,562 9,615 1,230 9,104 1,103
Actual return on
plan assets 711 708 (12,322) (3,140) (9,812) (361)
Net amortization
and deferral (9,760) (1,690) 3,981 2,643 1,855 (153)
Net periodic
pension cost $ 8,078 $ 2,583 $ 5,767 $ 2,429 $5,035 $2,097
Plan assets and the projected benefit obligation have been measured as of
December for each period. Net periodic pension cost has been determined using
assumptions as of the beginning of each year. The increase in net periodic
pension cost for 1994 reflects a decrease in the discount rate assumption in
1993 reflecting current interest rates, as well as demographic experience. Key
economic assumptions used in developing the projected benefit obligation for the
Company's major U.S. and non-U.S. plans at year-end were:
1994 1993
U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans
Discount rate 8.25% 5.5-8.0% 7.0% 5.5-8.0%
Rate of increase
in compensation levels 5.0% 4.2-6.5% 5.0% 4.2-6.5%
Expected long-term
rate of return on
plan assets 10.0% 5.5-9.0% 10.0% 5.5-9.0%
The table of actuarially computed plan assets and benefit obligations is
presented below for U.S. and non-U.S. plans at December 31, 1994 and December
25, 1993. The unrecognized projected benefit obligation in excess of plan assets
is being amortized against net periodic pension cost over the remaining service
lives of the plan participants. For both periods, the projected benefit
obligation of the Company's largest U.S. pension plan exceeded the value of plan
assets. The Company has recorded an additional liability to give recognition to
this underfunded position. An intangible asset reflecting the related
unrecognized prior service cost has also been recorded.
Dollar Amounts In Thousands 12*31*94 12*25*93
U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans
Actuarial present value of
benefit obligations:
Vested benefits $120,908 $17,453 $118,519 $ --
Non-vested benefits 3,960 532 4,142 --
Accumulated benefit obligation 124,868 17,985 122,661 13,732
Effect of projected future
salary increases 14,230 6,125 18,968 4,930
Projected benefit obligation 139,098 24,110 141,629 18,662
Plan assets at fair value 108,990 15,601 119,688 12,505
Projected benefit obligation
in excess of plan assets 30,108 8,509 21,941 6,157
Unrecognized net (loss) gain
from past experience
different from that
assumed (6,965) 1,050 (13,188) 3,015
Unrecognized prior
service costs (14,906) 21 (10,994) 20
Unrecognized net transition
obligation (5,644) (1,326) (5,694) (1,290)
Additional liability 18,410 -- 15,494 --
Accrued pension liability $ 21,003 $ 8,254 $ 7,559 $ 7,902
In addition to the defined benefit pension plans described above, the Company
sponsors supplemental defined benefit retirement plans for certain key
employees. These plans are unfunded. The pension liability associated with the
plans has generally been determined using the same actuarial methods and
assumptions as those used for the Company's qualified plans. The annual cost of
these plans has been included in the net periodic pension
<PAGE>
cost shown above and totaled $939,000 in 1994. The projected benefit obligation
relating to these unfunded plans at December 31, 1994 was $5,306,000.
Other Postretirement Benefits 14
In addition to retirement plans, the Company sponsors a participatory defined
benefit postretirement plan providing medical and life insurance benefits to the
majority of its U.S. employees. Prior to 1994 there were two separate plans for
medical and life insurance benefits. Effective in 1993, the plan provides
benefits to retirees who have attained age 55 with ten years of service. Prior
to 1993, vesting occurred when retired employees attained age 55 with five years
of service. This change in vesting did not have a material effect on the
Company's expense for these benefits. Covered spouses and certain employees on
disability also qualify for participation in the plan. In general, under the
medical benefits plan participants receive a stated percentage of most medical
expenses, reduced for annual and lifetime deductibles and any payments made by
government programs and other group coverage.
The Company has established a Voluntary Employee Benefit Association trust to
provide for payment of these benefits. An annual contribution of $5,000,000 was
made to the trust in 1994 and 1993. Earnings from the investments in this trust,
primarily participating insurance contracts, will over time reduce the expense
associated with providing these benefits. The Company intends to continue a
program of prefunding for these benefits on an annual basis, but the amount of
any future contributions is discretionary.
The components of net periodic postretirement benefit cost are presented below.
The decrease in expense in 1994 is attributable to changes in assumptions for
medical care cost trend rates, changes in demographic assumptions and favorable
medical claims experience.
Dollar Amounts In Thousands 1994 1993 1992
Service cost for benefits
earned during the period $2,598 $ 4,107 $ 3,681
Interest cost on accumulated
benefit obligation $6,463 8,869 8,549
Actual return on plan assets $1,080 377 --
Net amortization and deferral $(2,489) (792) (78)
Net periodic postretirement
benefit cost $7,652 $12,561 $12,152
Key economic assumptions used in developing the accumulated benefit obligation
at year-end were:
1994 1993
Discount rate 8.25% 7.0%
Rate of increase in
compensation levels 5.0% 5.0%
Medical care cost trend rate 12.0% 12.0%
Expected long-term rate of
return on plan assets 9.0% 9.0%
Plan assets and obligations have been measured as of December for each period.
In December 1994, the Company elected to revise its assumptions in recognition
of a higher level of current long-term interest rates. The discount rate was
raised from 7.0% to 8.25%. The medical care cost trend rate will decrease one
percent per year to 6.0% in the year 2000 for future valuations. Net periodic
postretirement benefit cost is determined using assumptions as of the beginning
of each year. The medical care cost trend rate assumption has a significant
effect on the expense reported. For example, a 1% increase in the medical care
cost trend rate would have increased the aggregate of the service and interest
cost components of net periodic postretirement benefit cost by approximately
$1,300,000 or 15% in 1994.
<PAGE>
The table of actuarially computed benefit obligations for the Company's U.S.
plans follows:
12*31 12*25
Dollar Amounts In Thousands 1994 1993
Actuarial present value of
postretirement
benefit obligations:
Retirees $ 59,924 $ 67,355
Active, eligible participants 8,578 9,164
Other active participants 18,385 35,842
Accumulated benefit obligation 86,887 112,361
Plan assets at fair value 8,543 4,623
Accumulated benefit obligation
in excess of plan assets 78,344 107,738
Unrecognized prior service cost 2,201 1,239
Unrecognized net gain (loss) 25,445 (482)
Accrued postretirement
benefit liability $105,990 $108,495
Increasing the assumed medical care cost trend rate by one percentage point
would have increased the accrued postretirement benefit liability as of December
31, 1994 by approximately $9,000,000 or 10%. This reflects the significant
effect this assumption has on the calculation of the obligation.
The Company also provides postretirement benefits to employees at a number of
its non-U.S. locations in accordance with local statutory requirements. Such
benefits are generally provided through government-sponsored plans. Adoption of
the provisions of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", for these plans in 1995 is not expected to have a
material effect on the results of operations or financial position of the
Company.
Minority Interest 15
In December 1993, four wholly-owned subsidiaries of the Company contributed
operating and financial assets with an estimated market value of $1,006,000,000
to Wilmington Partners L.P., a newly formed Delaware limited partnership (the
"Partnership"), in exchange for an aggregate 72% general and limited partnership
interest in the Partnership. Additionally, an outside investor contributed
$400,000,000 in cash to the Partnership in exchange for a 28% limited
partnership interest. Wilmington Management Corp., a wholly-owned subsidiary of
the Company, manages the activities of Wilmington Partners L.P. and has
fiduciary responsibilities to the Partnership. This transaction did not result
in any gain or loss for the Company.
The Partnership is a separate legal entity from the Company. The Partnership's
purpose is to own and manage a portfolio of assets. Those assets include
portions of the Company's biomedical operations at Charles River Laboratories,
Inc. (including small research animals, bioprocessing and ovum-derived vaccine
products), those used for the manufacture and sale of rigid gas permeable
contact lens materials and lens care solutions at Polymer Technology
Corporation, cash and cash equivalents, a long-term note guaranteed by the
Company and certain floating rate demand notes due from certain of the Company's
subsidiaries. At December 31, 1994 and December 25, 1993, the Company had
$470,900,000 and $400,000,000 of borrowings from the Partnership, respectively,
which were used to reduce U.S. short-term borrowings. For financial reporting
purposes, the assets, liabilities and earnings of the Partnership entities have
continued to be included in the Company's consolidated financial statements. The
outside investor's limited partnership interest in the Partnership has been
recorded as minority interest.
Shareholders' Equity 16
At December 31, 1994, 10,000 shares of 4% Cumulative Preferred stock, 25,000,000
shares of Class A Preferred stock, 15,000,000 shares of Class B stock and
200,000,000 shares of Common stock were authorized. The Company issues treasury
<PAGE>
shares to fulfill its obligations under the stock option plans. The difference
between the cost of treasury shares issued and the option price is charged to
capital in excess of par value. Changes in Common and Class B stock, capital in
excess of par value and treasury stock are summarized below:
<TABLE>
<CAPTION>
Common And Class B Capital In Excess Treasury
Amounts In Thousands Shares Amount Of Par Value Shares Amount
<S> <C> <C> <C> <C> <C>
Balance at December 28, 1991 60,911 $24,136 $74,477 1,429 $40,205
Shares issued under
stock option plans
and restricted stock
awards 179 14 14,611 (411) (7,139)
Repurchase of Common and
Class B stock -- -- -- 628 30,497
Balance at December 26, 1992 61,090 24,150 89,088 1,646 63,563
Shares issued under stock
option plans and
restricted stock awards 45 4 (987) (217) (8,648)
Repurchase of Common and
Class B stock -- -- -- 587 28,753
Balance at December 25, 1993 61,135 24,154 88,101 2,016 83,668
Shares issued under stock
option plans and
restricted stock awards 136 11 2,536 (298) (9,980)
Repurchase of Common and
Class B stock -- -- -- 561 20,581
Balance at December 31, 1994 61,271 $24,165 $90,637 2,279 $94,269
</TABLE>
The board of directors has authorized the repurchase, at management's
discretion, up to a total of 6,000,000 of the Company's issued shares of Common
stock. At December 31, 1994, up to 2,353,900 shares may be repurchased under the
terms of this authorization.
In 1988, the Company's board of directors approved the adoption of a shareholder
rights plan, in which preferred share purchase rights were distributed as a
dividend at the rate of one right for each outstanding share of the Company's
Common and Class B stock. Common and Class B shares issued subsequent to the
adoption of the rights plan automatically have preferred share purchase rights
attached to them. Under certain circumstances each right entitles shareholders
to purchase one two-hundredth of a share of Series A Preferred stock, par value
$1.00 per share. The rights become exercisable and transferable, apart from the
Company's Common and Class B stock, ten days after a person or group either
acquires 20% or more of the shares of the outstanding Common and Class B stock
or announces an offer which would result in such person or group owning 20% or
more of such shares. If the Company is acquired in a merger or other business
combination at any time after the rights become exercisable, each such right
will entitle its holder, other than the acquiror, to purchase common shares of
the acquiring company having a market value of twice the exercise price of each
right. If the Company is the surviving company, each holder, other than the
acquiror, would have the right to purchase Common stock of the Company having a
market value of twice the exercise price of each right. The board of directors
may substitute common stock equivalent preferred shares for Common shares for
the exercise of stock purchase rights. Until the rights become exercisable, they
have no dilutive effect on earnings per Common share.
The rights, which are non-voting, expire on July 1, 1998 and may be redeemed by
the Company at a price of $0.005 per right at any time prior to the acquisition
by a person or group of 20% of the outstanding shares of the Company's Common
and Class B stock. In the event a person or group has acquired 20%, but not more
than 50%, of such shares, the Company may redeem the rights of each holder,
other than the acquiror, in exchange for either one share of Common stock or one
two-hundredth of a share of Series A Preferred stock.
Stock Option Plans 17
Under the 1975, 1982, 1987 and 1990 stock option plans approved by the
shareholders, Class B stock has been authorized for issuance to employees. Class
B stock, which is used only in connection with the plans, has the same voting,
dividend and liquidation rights as Common stock. Options granted under the 1975
plan expire either five years (qualified) or ten years (nonqualified) from the
date of grant. All options granted under the 1982, 1987 and 1990 stock incentive
plans expire ten years
<PAGE>
from the date of grant. The following table summarizes data for the Company's
stock option plans:
<TABLE>
<CAPTION>
1994 1993 1992
Number Of Option Price Number Of Option Price Number Of Option Price
Shares Per Share Shares Per Share Shares Per Share
<S> <C> <C> <C> <C> <C> <C>
Shares under
option at
beginning of year 3,905,553 $ 9.84-$58.88 2,866,741 $ 9.84-$58.88 2,804,862 $ 9.84-$52.94
Options granted 432,485 $31.56-$39.25 1,332,265 $46.63-$52.00 684,713 $49.00-$58.88
Options exercised (197,882) $ 9.84-$49.31 (236,757) $ 9.84-$52.94 (529,072) $ 9.84-$42.69
Options canceled (248,880) $13.28-$58.88 (56,696) $ 9.84-$55.44 (93,762) $30.13-$49.31
Shares under option
at end of year 3,891,276 $15.59-$55.44 3,905,553 $ 9.84-$58.88 2,866,741 $ 9.84-$58.88
Total options
exercisable at
end of year 2,529,108 $15.59-$55.44 2,038,238 $ 9.84-$58.88 1,591,382 $ 9.84-$52.94
Shares available
for future grants
at end of year 2,547,340 2,543,890 2,547,370
</TABLE>
Under these plans, employees may borrow an amount equal to the purchase price of
shares secured by pledge agreements with the Company. Participants' borrowings
were $4,521,000 in 1994, $3,483,000 in 1993 and $2,835,000 in 1992.
Foreign Currency Translation 18
The cumulative translation adjustment includes the effects of translating assets
and liabilities of certain non-U.S. subsidiaries at current exchange rates.
Translation adjustments relating to non-U.S. subsidiaries in countries with
highly inflationary economies have been included in net earnings. An analysis of
the changes in the cumulative translation adjustment component of shareholders'
equity is as follows:
12*31 12*25 12*26
Dollar Amounts In Thousands 1994 1993 1992
Balance at beginning of year $ 8,915 $ 63,465 $ 99,686
Current year translation
adjustments 38,694 (54,550) (36,221)
Balance at end of year $ 47,609 $ 8,915 $ 63,465
Fair Value Of Financial Instruments 19
Financial instruments consisted of the following:
Dollar Amounts 12*31*94 12*25*93
In Thousands Carrying Fair Carrying Fair
Value Value Value Value
Nonderivatives:
Cash and cash
equivalents $ 230,369 $ 230,369 $ 513,241 $ 513,241
Short-term investments $ 2,173 $ 2,173 $ 32,795 $ 32,795
Other investments $ 425,000 $ 425,000 $ - $ -
Notes payable $(252,783) $(252,783) $(222,642) $(222,642)
Long-term debt,
including
current portion $(337,292) $(320,884) $(342,888) $(357,178)
Derivatives:
Foreign exchange
instruments:
Other current assets $ 18,176 $ 18,911
Accrued liabilities (8,622) (51,084)
Net foreign exchange
instruments $ 9,554 $ 18,605 $ (32,173) $ (20,400)
Interest rate
instruments:
Other current assets $ 3,733 $ 4,673
Accrued liabilities (3,434) (2,754)
Net interest rate
instruments $ 299 $ 3,612 $ 1,919 $ (3,067)
<PAGE>
The carrying amount of cash, cash equivalents and short-term investments
approximates fair value because their maturity is generally less than one year
in duration. Fair value of other investments was determined based on discounted
cash flows and investment risk. The carrying amount of notes payable
approximates fair value because their maturity is generally less than three
months in duration. Fair value for long-term debt was estimated using either
quoted market prices for the same or similar issues or the current rates offered
to the Company for debt with similar maturities. The fair value of foreign
exchange and interest rate instruments was determined based upon a model which
estimates the fair value of these items using market rates at year-end or was
based upon quoted market prices for similar instruments with similar maturities.
Derivative Financial Instruments 20
Foreign Exchange Risk Management
The Company does not engage in foreign currency speculation. Its objective is to
effectively hedge 100% of identified foreign currency transaction exposures on
an after-tax basis to minimize the impact of foreign exchange rate movements on
operating results. It does not hedge exposures arising in countries with
hyperinflationary economies, restrictive exchange controls or undeveloped
currency markets because it is not cost effective. The estimated notional amount
of such exposures that remained unhedged at December 31, 1994 totaled
$25,000,000. The Company also hedges certain firm commitments for the purchase
of inventory and equity investments in subsidiaries. As a matter of policy, the
Company does not hedge to protect the translated operating results of non-U.S.
operations or economic exposures.
Forward foreign exchange and purchased option contracts are used to hedge
foreign currency transactions and commitments on a continuing basis for periods
consistent with the committed exposures. These hedge instruments are classified
as held for purposes other than trading. Gains and losses on the contracts
generally offset losses and gains on the exposures being hedged. The gains and
losses on hedges of firm commitments for the purchase of inventory are deferred
and recognized in the basis of the transaction when such purchases are
completed. The deferred gains and losses are expected to be recognized within
one year and have been recorded in accrued liabilities. Such amounts totaled
less than $500,000 at December 31, 1994 and December 25, 1993. Gains and losses
on hedges of net investments are deferred until the investment is liquidated.
Foreign exchange instruments served to hedge the following items:
Contractual Amounts At
12*31 12*25
Dollar Amounts In Millions 1994 1993
Assets and liabilities $ 597 $ 591
Firm purchase commitments 7 49
Equity investments in
non-U.S. subsidiaries 399 576
$1,003 $1,216
Net gains from foreign currency include the amortization of premiums or
discounts on the foreign exchange instruments traded over the contractual term.
Amortization of such amounts resulted in income of approximately $13,000,000 for
the twelve months ended December 31, 1994 and $24,300,000 for the twelve months
ended December 25, 1993. These amounts relate primarily to Irish pound contracts
and result from interest rate differentials in the countries of the currencies
being traded. 1994 results reflect the combined impact of rising U.S. interest
rates and declining interest rates in Ireland. The Company estimates that a 50
basis point net move in either U.S. or Irish interest rates would have impacted
annualized pre-tax income in 1994 by approximately $1,500,000.
The following table summarizes by major currency the contractual amounts of the
Company's forward exchange and option contracts in U.S. dollars. The "buy"
amounts represent the U.S.
<PAGE>
dollar equivalent of commitments to purchase foreign currencies, and the "sell"
amounts the U.S. dollar equivalent of commitments to sell foreign currencies.
Contractual Amounts At
12*31*94 12*25*93
Dollar Amounts In Millions Buy Sell Buy Sell
Irish pound $565 $ -- $536 $ 22
Japanese yen 3 12 139 84
Singapore dollar 98 51 116 102
Swiss franc 58 -- 25 --
German mark 28 28 14 36
Hong Kong dollar 20 -- 20 --
Spanish peseta 12 19 9 17
British pound 11 19 6 11
French franc 4 12 15 8
Other 12 51 8 48
$811 $192 $888 $328
The forward exchange instruments have varying maturities with none exceeding
twenty-four months. The Company generally makes net settlements for foreign
exchange contracts at maturity, based on rates agreed to at the inception of the
contracts. Option contracts have typically been closed out prior to maturity.
Carrying value as presented in the table in Note 18 - Fair Value Of Financial
Instruments does not reflect unrecognized net premium income totaling $957,000
in 1994 and $9,968,000 in 1993. After including these amounts, outstanding
foreign exchange contracts were in a net unrealized positive cash flow position
of approximately $10,511,000 at December 31, 1994 and a net unrealized negative
cash flow position of approximately $22,205,000 at December 25, 1993. This net
cash flow position is highly sensitive to changes in foreign exchange rates. The
Company estimates that for each $0.10 move in the U.S. dollar to Irish pound
exchange rate, the annualized cash flow impact for 1994 would have been
approximately $30,000,000. The Company staggers the maturities of the forward
exchange and option contracts to mitigate the impact of contract settlements on
cash flow in any given period. The periodic cash inflows or outflows from
maturing or terminated forward exchange and option contracts impact the
Company's short-term debt position, but are not of sufficient magnitude to
impact the Company's ability to adequately fund operations or other business
opportunities.
Interest Rate Risk Management
The Company does not engage in interest rate speculation. Its policy is to
maintain, within reasonable parameters, a natural interest rate hedge between
floating rate assets, which are predominately held outside of the U.S., and
floating rate liabilities, which are predominantly U.S. obligations. To the
extent this natural hedge position becomes unbalanced, interest rate swap
agreements may be used. As a result of this policy, the Company is largely
indifferent to the normal rise and fall of U.S. interest rates. Interest rate
swap agreements require the exchange of fixed and variable rate interest payment
obligations without the exchange of the underlying principal amounts. The
Company has classified its swap agreements as held for purposes other than
trading. Net payments or receipts under the agreements are recorded as
adjustments to interest expense.
The Company has also entered into an interest rate swap agreement with a
notional amount of $380,000,000 associated with equity distributions from
Wilmington Partners L.P., whereby the Company receives a fixed rate of 6.58% and
pays a variable three-month LIBOR rate. Upon early termination of the swap, no
breakage payment would be due to either party. The swap agreement, which is
classified as held for purposes other than trading, is marked-to-market and
periodic settlements under the agreement were recorded as adjustments to
interest income in 1994.
The Company also periodically enters into interest rate swap-option agreements,
wherein the purchaser of the option may retain the right, but not the
obligation, to alter the underlying swap at some
<PAGE>
specified later date. The manner in which the swap may be altered can vary with
each transaction, but could entail the cancellation, extension, change in
interest rates, or other such alteration of the swap. The Company may sell such
options in order to reduce the interest rate obligations of the underlying swap,
but only to the extent that, in the event the option is exercised, the Company's
interest rate management guidelines are not violated and greater risk is not
incurred. In all cases, the swap-option agreements are linked to specific
portions of the Company's debt and other obligations, and are of notional
amounts and maturities that are consistent with such commitments. At December
31, 1994 there were no such agreements outstanding. Swap-options with a notional
principal amount of $157,000,000 were outstanding at December 25, 1993.
As of December 31, 1994, the Company had swap agreements outstanding with an
aggregate notional amount of $815,000,000. Of this amount, $380,000,000 is
associated with distributions from Wilmington Partners L.P., $170,000,000 is
associated with long-term debt placed by the Company, $200,000,000
(delayed-start) is associated with short-term debt and $65,000,000
(delayed-start) is associated with a future seven-year variable rate lease
commitment for an office facility, the construction of which commenced in 1993.
The following is a summary of the Company's interest rate swap agreements by
major type:
12*31 12*25
Dollar Amounts In Millions 1994 1993 Maturities Through
Receive fixed swaps--
notional amount $550 $550 2003
Average receive rate 5.60 - 6.58% 5.86 - 6.58%
Average pay rate 5.98 - 6.50% 3.26 - 3.31%
Pay fixed swaps--
notional amount $265 $137 2002
Average pay rate 6.48 - 7.25% 4.07 - 7.25%
Average receive rate delayed-start 3.26%
The variable rate portions of the swaps are based on either variable three-month
LIBOR or the one-month U.S. composite commercial paper rate. Disclosure of the
variable rate feature in the above table was based upon current variable
interest rates at December 31, 1994 and December 25, 1993, assumed to remain
constant throughout the term of the swap. Changes in LIBOR or commercial paper
rates would change the disclosures significantly, affecting future cash flows.
However, the Company is largely indifferent to these changes due to its natural
hedging policy.
As of December 31, 1994, the Company further had outstanding an interest rate
cap on variable rate obligations, which protects the Company from rising
interest rates. This cap is associated with the Company's future lease
obligation for an office facility and has a notional amount of $65,000,000.
Off-Balance-Sheet Risk And Concentrations Of Credit Risk 21
The Company places its cash, cash equivalents and short-term investments with
financial institutions and limits the amount of credit exposure with any one
financial institution. The Company actively evaluates the creditworthiness of
the financial institutions with which it invests.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base, and
their dispersion across different businesses and geographic areas.
The Company has invested $425,000,000 in securities issued by a wholly-owned
subsidiary of a triple-A rated financial institution. 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 to be
secure.
The Company cannot be characterized as trading actively in derivative
instruments since such instruments are executed as hedges of underlying
exposures. The Company does not engage in hedging of expected sales or earnings
performance for which hedge accounting treatment would not be permitted.
Therefore, the Company does not view itself as sustaining market risk from its
use of these instruments.
<PAGE>
The notional amounts of foreign exchange and interest rate instruments
summarized in Note 19 - Derivative Financial Instruments, do not represent
amounts exchanged by the parties and thus are not a measure of the exposure of
the Company through its use of these instruments. The amounts exchanged are
calculated on the basis of the notional amounts and other terms, which relate to
interest or exchange rates.
The Company is exposed to credit-related losses in the event of non-performance
by counterparties to the financial instruments, but it does not expect any
counterparties to fail to meet their obligations given their high credit
ratings. The Company has established quality standards for the financial
institutions with which it deals, basing such standards on the evaluation of a
recognized rating agency specializing in the rating of financial institutions.
Further, the Company actively monitors the concentrati on of business activity
with each financial institution in order to adequately diversify this credit
risk. The credit exposure of interest rate and foreign exchange instruments as
of December 31, 1994 was $3,733,000 and $18,176,000, respectively.
Litigation 22
On June 3, 1994, the Company announced that actions to normalize high levels
of inventories at distributors would cause sales and earnings for the second
quarter and remainder of 1994 to be below the level of the same periods in
1993 and that results for the year would be less than originally planned.
Several class action suits were filed in the United States District Court,
New York and consolidated in the Western District, against Bausch & Lomb and
one of its officers alleging the Company artificially inflated the value of
its stock by making false and misleading statements about expected financial
results. The plaintiffs seek unspecified damages based upon the decrease in
market value of shares of the Company's stock. Management intends to defend
these actions vigorously.
On January 31, 1995, a proposed class action suit was filed in the United States
District Court for the Western District of New York against Bausch & Lomb and
several of its officers. The suit alleges that the Company failed to fully
disclose the impact of the efforts to normalize distributor inventories on the
Company's 1994 financial results, thus misleading shareholders who purchased
shares between June 4, 1994 and January 25, 1995. The plaintiff seeks damages
based upon the decreased market value of the Company's stock. Management is
vigorously contesting these claims.
On December 28, 1994, the Company received a request from the Securities and
Exchange Commission for information apparently prompted by accounting issues
arising out of the unsuccessful marketing program initiated by the Contact Lens
Division, which was designed to transfer management of a portion of the U.S.
traditional lens business to optical distributors. The Company is cooperating
fully with the SEC in the inquiry but there can be no assurance regarding its
outcome.
In November 1994, the United States District Court for the Northern District of
Alabama certified a nationwide class of purchasers of Optima FW and Medalist
lenses between January 1, 1991 and November 1, 1994 to pursue claims related to
the Company's marketing and sale of Optima FW, Medalist and SeeQuence 2 contact
lens systems. Plaintiffs allege that the Company misled consumers by packaging
the same lens under three different names for three different prices. Plaintiffs
seek compensatory and punitive damages in an unspecified amount. The case may
proceed to trial in late 1995. Management is vigorously defending the marketing
of these lens systems.
The Company was also involved in other litigation, investigations of a routine
nature and various legal matters during 1994 which are being defended and
handled in the ordinary course of business.
While the ultimate results of the matters described above cannot be determined,
management does not expect that they will have a material adverse effect on the
Company's results of operations or financial position.
<PAGE>
Report
of
Independent Accountants
To The Shareholders And Board Of
Directors Of Bausch & Lomb Incorporated
In our opinion, the accompanying consolidated financial statements appearing on
pages 39 through 60 of this 1994 annual report of Bausch & Lomb Incorporated
after the restatement described in Note 2 present fairly, in all material
respects, the financial position of Bausch & Lomb Incorporated and its
subsidiaries at December 31, 1994 and December 25, 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
[Signature Price Waterhouse LLP]
Rochester, New York
January 23, 1996
<PAGE>
Selected
Financial Data
<TABLE>
<CAPTION>
Dollar Amounts In Millions
*Except Per Share Data
For The Year 1994* 1993* 1992
<S> <C> <C> <C>
Net sales $1,892.7 $1,830.1 $1,709.1
Earnings from continuing
operations before cumulative
effect of change in accounting
principle 31.1 138.9 171.4
Cumulative effect of change in
accounting principle - - -
Loss from discontinued operations,
net of taxes - - -
Net earnings 31.1 138.9 171.4
Earnings from continuing
operations before cumulative
effect of change in accounting
principle and non-recurring
charges 106.1 175.4 171.4
Average shares outstanding (000s) 59,739 60,115 60,399
Per Common Share
Earnings from continuing
operations before cumulative
effect of change in accounting
principle $0.52 $2.31 $2.84
Cumulative effect of change
in accounting principle - - -
Loss from discontinued
operations, net of taxes - - -
Net earnings 0.52 2.31 2.84
Earnings from continuing
operations before cumulative
effect of change in
accounting principle and
non-recurring charges 1.78 2.92 2.84
Shareholders' equity 15.50 15.38 15.11
Dividends 0.955 0.88 0.80
At Year End
Working capital $ 277.4 $ 669.6 $ 514.9
Property, plant and equipment 542.8 541.1 503.9
Total assets 2,457.7 2,493.0 1,873.7
Short-term debt 300.6 244.6 208.9
Long-term debt 289.5 321.0 277.7
Shareholders' equity 914.4 909.2 898.2
Statistics
Before Cumulative Effect
Of Change In Accounting Principle:
Return on sales 1.6% 7.6% 10.0%
Return on average
shareholders' equity 3.2% 15.5% 20.3%
Return on average total assets 1.2% 6.8% 9.5%
Before Cumulative Effect Of Change
In Accounting Principle
And Non-recurring Charges:
Return on sales 5.6% 9.6% 10.0%
Return on average shareholders'
equity 11.0% 19.5% 20.3%
Return on average total assets 4.1% 8.6% 9.5%
Average income tax rate 52.6% 33.5% 32.4%
Current ratio 1.4 1.9 1.9
Total debt to shareholders' equity 64.5% 62.2% 54.2%
Total debt to capital 39.2% 38.3% 35.1%
Capital expenditures $ 84.8 $ 107.2 $ 119.3
Employees 14,400 15,900 14,500
Common shareholders of record 9,100 8,100 7,700
<PAGE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985 1984
<C> <C> <C> <C> <C> <C> <C> <C>
$1,520.1 $1,368.6 $1,220.3 $ 978.3 $ 840.3 $698.9 $596.2 $533.6
85.9 131.4 114.4 97.9 85.3 74.7 66.8 58.8
(58.3) -- -- -- -- -- -- --
-- -- -- -- -- -- -- (8.6)
27.6 131.4 114.4 97.9 85.3 74.7 66.8 50.2
149.2 131.4 114.4 97.9 85.3 74.7 66.8 58.8
60,455 60,150 60,435 59,894 60,758 60,578 59,922 59,431
$ 1.42 $ 2.19 $ 1.89 $ 1.63 $ 1.40 $ 1.23 $ 1.11 $ 0.99
(0.96) -- -- -- -- -- -- --
-- -- -- -- -- -- -- (0.14)
0.46 2.19 1.89 1.63 1.40 1.23 1.11 0.85
2.47 2.19 1.89 1.63 1.40 1.23 1.11 0.99
13.77 13.95 11.96 10.55 9.70 8.16 6.84 5.52
0.72 0.66 0.58 0.50 0.43 0.39 0.39 0.39
$ 405.3 $ 341.9 $ 316.3 $ 217.3 $ 372.4 $348.5 $260.0 $199.4
457.9 418.8 351.0 294.3 226.5 205.6 150.9 127.6
1,738.5 1,677.4 1,429.2 1,212.6 978.7 885.7 627.3 566.7
256.1 285.2 228.2 184.7 18.6 22.1 21.4 51.6
195.7 214.5 219.1 152.5 160.5 206.9 81.3 76.6
819.3 825.5 713.3 629.0 576.6 490.8 408.1 327.2
5.7% 9.6% 9.4% 10.0% 10.2% 10.7% 11.2% 11.0%
10.3% 17.2% 17.5% 16.6% 15.9% 16.6% 18.7% 18.3%
5.0% 8.5% 8.7% 8.9% 9.2% 9.9% 11.2% 10.5%
9.8% 9.6% 9.4% 10.0% 10.2% 10.7% 11.2% 11.0%
17.7% 17.2% 17.5% 16.6% 15.9% 16.6% 18.7% 18.3%
8.7% 8.5% 8.7% 8.9% 9.2% 9.9% 11.2% 10.5%
39.7% 32.6% 32.6% 33.3% 36.8% 33.8% 33.8% 30.9%
1.7 1.6 1.7 1.6 3.1 3.1 3.2 2.3
55.1% 60.5% 62.7% 53.6% 31.1% 46.7% 25.2% 39.2%
35.5% 37.7% 38.5% 34.9% 23.7% 31.8% 20.1% 28.2%
$ 88.6 $ 108.4 $ 100.3 $ 103.1 $ 49.4 $ 50.3 $ 34.1 $ 33.3
13,700 13,000 12,500 10,000 8,300 8,000 7,600 8,300
8,400 6,900 6,700 7,100 6,200 6,300 6,500 6,700
*Amounts have been restated for certain items as more fully described in
Note 2--Restatement of Financial Information.
</TABLE>
