SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File
September 30, 1995 Number: 1-4105
BAUSCH & LOMB INCORPORATED
(Exact name of registrant as specified in its charter)
New York 16-0345235
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
One Bausch & Lomb Place, Rochester NY 14604-2701
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (716) 338-6000
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
As of September 30, 1995 there were outstanding 57,196,543 shares of
Common Stock, consisting of 56,289,554 shares of Common Stock and
906,989 shares of Class B Stock which are identical with respect to
dividend and liquidation rights and vote together as a single class
for all purposes.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
As more fully described in Note A - "Restatement of Financial Information",
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.
Unaudited consolidated financial statements of Bausch & Lomb
Incorporated and Consolidated Subsidiaries for the third quarters of
1995 and 1994 are presented on the following pages. The audited
balance sheet at December 31, 1994 is presented for comparative
purposes. Financial statements for the nine months ended September
30, 1995 have been prepared by the Company in accordance with its
usual accounting policies and are based in part on approximations.
In the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial statements in accordance
with generally accepted accounting principles have been included.
All such adjustments were of a normal recurring nature.
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF EARNINGS
Dollar Amounts In Thousands -
Except Per Share Data
<CAPTION>
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
1995 1994* 1995 1994*
<S> <C> <C> <C> <C>
Net Sales $476,757 $486,059 $1,477,817 $1,411,072
Costs And Expenses
Cost of products sold 205,495 248,019 657,949 675,920
Selling, administrative
and general 173,764 178,343 574,707 524,054
Research and development 15,981 14,802 47,634 45,468
------- ------- --------- ---------
395,240 441,164 1,280,290 1,245,442
------- ------- --------- ---------
Operating Earnings 81,517 44,895 197,527 165,630
------- ------- --------- ---------
Other (Income) Expense
Investment income (9,310) (8,553) (28,839) (26,434)
Interest expense 11,013 10,182 34,999 29,409
Gain from foreign
currency, net 2,294 (1,084) 4,258 (2,222)
Gain on Sale of
Sports Optics Division - - (35,902) -
Litigation Provision - - 16,000 -
------- ------- --------- ---------
3,997 545 (9,484) 753
------- ------- --------- ---------
Earnings Before Income
Taxes And Minority
Interest 77,520 44,350 207,011 164,877
Provision for income
taxes 28,682 14,860 75,744 54,104
------- ------- --------- ---------
Earnings Before Minority
Interest 48,838 29,490 131,267 110,773
Minority interest in
subsidiaries 5,324 6,113 15,880 17,574
------- ------- --------- ---------
Net Earnings $ 43,514 $ 23,377 $ 115,387 $ 93,199
------- ------- --------- ---------
Retained Earnings At
Beginning Of Period $889,578 $913,960 $ 846,245 $ 871,680
Cash Dividends Declared:
Common stock, $0.26 and
$0.75 per share for
1995 ($0.245 and
$0.71 per share for
1994) 14,829 14,527 43,369 42,069
------- ------- --------- ---------
Retained Earnings
At End Of Period $918,263 $922,810 $ 918,263 $ 922,810
======== ======= ========= =========
Net Earnings Per
Common Share $ 0.75 $ 0.39 $ 1.98 $ 1.56
======== ======= ========= =========
Average Common Shares
Outstanding (000s) 58,247 59,787
========= =========
<FN>
*Results have been restated as more fully described in Note A - "Restatement
of Financial Information"
See Notes To Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
Dollar Amounts In Thousands
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 283,930 $ 230,369
Short-term investments,
at cost which approximates market 942 2,173
Trade receivables, less allowances
of $13,304 and $16,830, respectively 266,608 271,990
Inventories, net 303,958 312,781
Deferred income taxes, less valuation
allowance of $17,882 44,651 40,372
Other current assets 103,251 96,281
---------- ---------
1,003,340 953,966
Property, Plant And Equipment, net 541,223 542,750
Goodwill And Other Intangibles,
less accumulated amortization of
$91,892 and $77,394, respectively 393,396 395,950
Other Investments 434,753 425,000
Other Assets 127,200 140,065
--------- ---------
Total Assets $2,499,912 $2,457,731
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 212,498 $ 252,783
Current portion of long-term debt 99,973 47,788
Accounts payable 64,895 71,718
Accrued compensation 87,789 71,742
Accrued liabilities 247,192 216,956
Federal and foreign income taxes 28,568 15,551
--------- ---------
740,915 676,538
Long-Term Debt, less current portion 231,670 289,504
Other Long-Term Liabilities 139,267 149,094
Minority Interest 429,158 428,208
--------- ---------
Total Liabilities 1,541,010 1,543,344
--------- ---------
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,
1,278,771 and 1,072,880 shares issued,
respectively 102 86
Capital in excess of par value 90,006 90,637
Cumulative translation adjustment 96,004 47,609
Retained earnings 918,263 846,245
--------- ---------
1,128,454 1,008,656
Common and Class B Stock in treasury,
at cost, 4,280,550 and 2,278,745
shares, respectively (169,552) (94,269)
--------- ---------
Total Shareholders' Equity 958,902 914,387
--------- ---------
Total Liabilities And
Shareholders' Equity $2,499,912 $2,457,731
<FN> ========= =========
See Notes To Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Dollar Amounts In Thousands
<CAPTION>
Nine Months Ended
September 30, September 24,
1995 1994*
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $115,387 $ 93,199
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation of property, plant
and equipment 65,894 62,005
Amortization of goodwill and
other intangibles 12,108 12,737
(Increase) decrease in deferred
income taxes (6,478) 4,881
Gain on sale of Sports Optics
Division, after taxes (20,823) -
Provision for litigation expense,
after taxes 10,560 -
Loss on retirement of fixed assets 3,616 10,460
Exchange loss (gain) 9,804 (3,333)
Increase in undistributed earnings
of subsidiaries 12,035 4,113
(Increase) decrease in accounts
receivable (5,901) 42,413
Increase in inventories (16,417) 1,497
Decrease (increase) in other
current assets 12,623 (18,551)
Increase (decrease)in accounts
payable and accruals 28,136 (48,028)
Decrease in tax liabilities (9,812) (2,227)
Decrease in other long-term
liabilities (10,548) (2,641)
------- -------
Net cash provided by operating
activities 200,184 156,525
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchases of
property, plant and equipment (58,046) (63,122)
Acquisition of businesses,
net of cash and short-term
investments acquired (2,564) (27,089)
Proceeds from sale of Sports
Optics Division, net of cash
and short-term investments sold 76,291 -
Other investments (9,425) (425,000)
Other 8,314 (21,553)
------- -------
Net cash used in investing
activities 14,570 (536,764)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common shares (83,248) (11,211)
Exercise of stock options 4,764 7,631
Restricted stock awards 2,586 2,399
Net (repayment of) proceeds
from issuance of debt (47,436) 46,459
Payment of dividends (42,873) (40,642)
------- -------
Net cash provided by (used in)
financing activities (166,207) 4,636
------- -------
Effect of exchange rate changes on
cash, cash equivalents and
short-term investments 3,783 23,327
------- -------
Net increase (decrease) in cash,
cash equivalents and short-term
investments 52,330 (352,276)
Cash, cash equivalents and short-
term investments, beginning of
period 232,542 546,036
------- -------
Cash, cash equivalents and short-
term investments, end of period $284,872 $193,760
======= =======
Supplemental disclosures of cash
flow information:
Cash paid during the period
for:
Interest $ 37,092 $ 23,836
Income taxes $ 70,365 $ 56,789
<FN>
*Results have been restated as more fully described in Note A - "Restatement
of financial Information".
See Notes To Financial Statements
</TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A: Restatement of Financial Information
The Company has restated its financial statements for the years ended
December 25, 1993 and December 31, 1994. 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>
Dollar Amounts In Thousands -
(Except Per Share Data)
<CAPTION>
Third Quarter Ended Nine Months Ended
----------------------------------------------------
September 24,1994 September 24, 1994
-----------------------------------------------------
As Reported As Restated As Reported As Restated
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales:
Healthcare $298,281 $320,556 $ 891,626 $ 913,901
Optics 151,166 165,503 479,873 497,171
-----------------------------------------------------
Total $449,447 $486,059 $1,371,499 $1,411,072
Business Segment
Earnings $ 31,098 $ 54,756 $ 173,431 $ 198,414
-----------------------------------------------------
-----------------------------------------------------
Net Earnings $ 7,689 $ 23,377 $ 76,405 $ 93,199
------------------------------------------------------
------------------------------------------------------
Net Earnings
Per Share $ 0.13 $ 0.39 $ 1.28 $ 1.56
-------------------------------------------------------
-------------------------------------------------------
Retained Earnings
at end of
Period $923,661 $922,810 $923,661 $922,810
------------------------------------------------------
------------------------------------------------------
</TABLE>
NOTE B: Earnings Per Share
Net earnings per Common share are based on the weighted average
number of Common and Class B shares outstanding during the
period, adjusted for the assumed conversion of dilutive stock
options. In computing the per share effect of assumed
conversion, funds which would have been received from the
exercise of options are considered to have been used to purchase
Common shares at current market prices, and the resulting net
additional Common shares are included in the calculation of
average Common shares outstanding.
The number of Common shares used to calculate net earnings per
Common share were 58,247,318 at September 30, 1995 and
59,787,023 at September 24, 1994.
See Exhibit 11 filed with this Report for details regarding the
computation of earnings per share.
NOTE C: Inventories
Inventories consisted of the following:
<TABLE>
(Dollar Amounts In Thousands)
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Raw materials
and supplies $ 84,668 $ 79,295
Work in process 22,656 23,985
Finished products 207,142 222,079
-------- ---------
314,466 325,359
Less - Reserve for valuation
of certain U.S.
inventories at
last-in, first-
out cost 10,508 12,578
-------- ---------
$303,958 $312,781
======== =========
</TABLE>
NOTE D: Property, Plant And Equipment
Major classes of property, plant and equipment consisted of the
following:
<TABLE>
(Dollar Amounts In Thousands)
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Land $ 22,297 $ 21,474
Leasehold improvements 34,075 32,635
Buildings 390,368 366,003
Machinery and equipment 620,024 587,586
--------- ---------
1,066,764 1,007,698
Less - Accumulated
depreciation 525,541 464,948
--------- ---------
$ 541,223 $ 542,750
========= =========
</TABLE>
NOTE E: Legal Proceedings
In its 1994 Annual Report on Form 10-K and its first and second
quarter 1995 Forms 10-Q the Company reported on proposed class
actions filed in Pennsylvania, New Jersey, New York and
California state courts, alleging that the Company misled
consumers in its marketing and sale of Sensitive Eyes Saline and
Rewetting Drops, Boston Rewetting Drops and Conditioning
Solution and the Company's eyewash product. On September 12,
1995, the Company entered into a stipulation in the New York
case, certifying a nationwide class of consumers of Sensitive
Eyes Rewetting Drops, Boston Rewetting Drops, Bausch & Lomb
Eyewash and ReNu Rewetting Drops for the period May 1, 1989 to
June 30, 1995, which is awaiting court approval. A similar
action has been moved from federal to state court in California
and has been temporarily stayed pending further developments in
the New York case. In each of these matters, the Company is
defending itself vigorously in part on the basis that the
Company's actions were in compliance with applicable FDA
regulations.
In its 1994 Annual Report on Form 10-K, the Company described
proposed shareholder class actions involving purchasers of stock
between December 14, 1993 and June 3, 1994 and between June 4,
1994 and January 25, 1995. The suits claim the Company did not
fully disclose information about expected future financial
results, thus misleading its shareholders. On September 25,
1995, the plaintiffs in these actions consolidated their claims
and filed a second amended consolidated complaint. The Company
continues to vigorously defend against these claims.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This financial review, which should be read in conjunction with the
accompanying financial statements, contains management's discussion and
analysis of the Company's financial results, liquidity and progress
toward stated business objectives. The Company 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 & Poor's Healthcare Composite Group has
been formally adopted as the peer group against which Bausch & Lomb
will systematically measure its financial progress. The Company
also emphasizes the need for operational stability, predictability and
profitability. As more fully described in Note A - "Restatement of
Financial Information", 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. The discussion which follows
reflects the restated financial information.
RESULTS OF OPERATIONS
Comparability Of Financial Information
Comparisons of 1995 and 1994 third quarter and nine month financial
results are complicated by the sale in the 1995 second quarter of the
Company's Sports Optics Division, which marketed binoculars, riflescopes
and telescopes. That business contributed approximately $35 million and
$75 million in revenues for the 1994 quarter and nine-month periods,
respectively. Revenues from sports optics reported in the first
quarter of 1995 totaled approximately $18 million.
Net Sales By Business Segment
Bausch & Lomb's results are reported in two business segments. The
healthcare segment includes personal health, medical and biomedical
products. In the personal health sector, major lines include contact
lens care products, eye care solutions, over-the-counter medications,
skin care products and oral care products. Medical products include
contact lenses and lens materials, prescription pharmaceuticals, hearing
aids and dental implants. Biomedical products include purpose-bred
laboratory animals for biomedical research, specific pathogen-free eggs
for vaccine production, and a variety of biotechnical and professional
services provided to the scientific research community. Bausch & Lomb's
optics segment includes sunglasses and optical thin film coating services
and products.
Consolidated reported revenues for the third quarter ended September
30, 1995 were $477 million, a decrease of $9 million or 2% from the
1994 third quarter. Changes in currency exchange rates improved sales
comparisons to 1994 by approximately $11 million or 2%. For the first
nine months of 1995, net sales of $1,478 million increased $67 million
or 5% from the comparable 1994 period. Changes in currency exchange
rates improved sales comparisons to the 1994 period by approximately $53
million or 4%. Excluding revenues from the divested sports optics
business, consolidated revenues increased 6% and 9% for the quarter and
nine-month periods, respectively. The following is a summary of net sales
by business segment:
<TABLE>
Net Sales By Business Segment
(Dollar Amounts In Millions)
<CAPTION>
Third Quarter Nine Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Healthcare $345.4 $320.6 $1,014.9 $ 913.9
Optics 131.4 * 165.5 462.9 * 497.2
----- ------ ------- -------
Net Sales $476.8 $486.1 $1,477.8 $1,411.1
<FN>
*1995 amounts include results for the discontinued sports optics
business for the first quarter only.
</TABLE>
Healthcare Segment Revenues
Revenues in the healthcare segment increased $25 million or 8% over
the 1994 third quarter. On a year-to-date basis, healthcare segment
revenues advanced $101 million or 11% over the comparable 1994 period.
Major product sector revenues as a percentage of total healthcare segment
sales follow:
<TABLE>
Healthcare Segment Net Sales By Product Sector
<CAPTION>
Third Quarter Nine Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Personal Health 51% 53% 50% 52%
Medical 36% 33% 36% 34%
Biomedical 13% 14% 14% 14%
</TABLE>
Within the personal health sector, 1995 third quarter revenues
improved 2% from the comparable 1994 level. The Company's lines of lens
care solutions, including the ReNu and Boston brands, advanced more than
15% in non-U.S. regions. In the U.S., lens care solutions revenues
decreased 4%. The Company believes this decline is attributable to a
trend for soft lens care solutions toward lower retail inventory levels
and a reduction in dedicated shelf space in the wake of new private label
and competitive entries into this market. Skin care revenues advanced
17% during the quarter and included results for the recently introduced
Curel AHA product line. Eyecare products in the U.S. attained a 6%
increase in sales, benefiting from incremental sales of Opcon-A, an
antihistamine/decongestant, which has received good initial acceptance.
Revenues for consumer oral care products were nearly 20% below the third
quarter of 1994, primarily due to sluggish demand for Interplak power
toothbrushes and the discontinuation of the Clear Choice line of mouthwash
in the U.S.
Medical sector sales rose 18% from third quarter 1994 levels. Worldwide
contact lens revenues advanced 14%, led by a 45% increase in sales of planned
replacement lens products, most notably in markets in the U.S., Asia and
Europe. Although sales of traditional contact lenses increased in Japan,
they declined modestly in the third quarter of 1994 in other areas,
reflecting the general market shift toward planned replacement lenses.
Worldwide revenues for rigid gas permeable (RGP) lenses and lens materials
also contributed to overall contact lens growth and included sales of the
new Boston 7 lens material. Worldwide ophthalmic pharmaceutical revenues
improved 24%. Within the U.S., these results were attributable to the
success of recently introduced products, including Tobramycin and
Levobunolol, and to incremental sales of Crolom, which is indicated
for seasonal allergic eye conditions. Third quarter revenues for
prescription pharmaceuticals in Europe also advanced from the prior year.
Increased demand was noted for the Company's lines of dental implants and
hearing aids. Hearing aid revenues rose 25% in response to improved
overall market conditions and encouraging consumer demand for the
recently introduced Mirage completely in-the-canal product line. A
new programmable hearing aid was also introduced during the quarter.
A 6% improvement in the Company's biomedical sector reflected
increased shipments of specific pathogen-free eggs and toxicology
products, as well as increased revenues for animal operations outside
the U.S.
Optics Segment Revenues
Due to the sale of the Company's sports optics business earlier in
the year, reported optics segment revenues declined 21% and 7% for the
quarter and nine-month periods, respectively. Excluding sports optics
results from these comparisons, optics segment revenues grew 1% for the
third quarter and 5% for the first nine months. Revenue increases were
evidenced for premium-priced sunglasses, driven by strong demand for new
product lines including Ray-Ban xrays and Orbs and Killer Loop Activ
which more than offset a decline in demand for products with
more traditional designs. These positive results were attained during a
period in which this business was actively engaged in programs to develop
flexible manufacturing capacity for its new products. As a result, the
Company was not able to meet fully the demand created by strong global
consumer acceptance of new products. The ultra-premium-priced Revo and
moderately-priced sunglass lines, including Liz Claiborne and Suncloud,
also experienced increased sales in the 1995 third quarter. Many new
sunglass products are in the fashion and sport segments, areas where the
Company is trying to increase its market presence. Products in these
segments are subject, in part, to the ability to anticipate and satisfy
changes in consumer preferences and are generally characterized by
shorter life cycles. Being successful in these categories generally
requires innovative design and marketing expertise.
Net Sales By Geographic Region
Sales in markets outside the U.S. totaled $228 million in the third
quarter, an increase of $13 million or 6% from 1994, and represented 48%
of consolidated revenues, compared to 44% in 1994. European revenues
increased 12% and benefited from the favorable impact of currency
movements, particularly in Germany. This progress also reflected
improved demand for the Company's sunglasses, over-the-counter
medications, lens care products and planned replacement lenses. Sales in
Japan advanced 13%, attributable to favorable currency exchange rate
fluctuations, as well as increased sales of sunglasses, contact lenses
and lens care products. Elsewhere in Asia, revenues declined 3%, based
on lower demand for sunglasses and the effect of the sale of the sports
optics business. Revenues declined 12% in Latin America and Canada.
Sales shortfalls in Mexico more than offset improvement in Brazil, where
demand has increased primarily attributable to rising consumer
confidence. If results for the discontinued sports optics business are
excluded from these comparisons, sales in Europe and Japan each advanced
13% while revenues declined 2% in the Asia Pacific region outside Japan
and in Latin America and Canada.
U.S. sales totaled $248 million in the third quarter of 1995, a
decrease of $22 million or 8% from 1994. Revenue increases for
planned replacement contact lenses, sunglasses, pharmaceuticals and
hearing aids were offset by the divestiture of the sports optics
business and shortfalls for soft lens care solutions. Excluding
the divested sports optics business from 1994 results, U.S. sales
increased 4% over the prior year level, and reflect the impact of
new product introductions as well as a closer alignment of the
Company's sales to consumer purchasing patterns, particularly in
the sunglass business.
Costs And Expenses
The ratio of the cost of products sold to sales was 43.1% for the
1995 third quarter versus 51.0% for the comparable 1994 period. For the
respective nine-month periods, this ratio was 44.5% for 1995 and 47.9%
for 1994. The improvement is due to shifts in sales mix toward higher-
margin hearing aids and pharmaceutical products as well as the divestiture
of the sports optics business and favorable impact of foreign currency
exchange rate changes. These trends more than offset the impact of
increased demand for lower-margin planned replacement lenses and
new sunglass products. It is expected that developing new contact
lens manufacturing technologies and rationalizing some current product
lines should reduce the costs of producing soft contact lenses in the
future. Programs to develop flexible sunglass manufacturing capacity
are also expected to improve efficiencies and reduce the margin
differential between traditional and new products.
Selling, administrative and general expenses were 36.4% of sales in
the third quarter of 1995, a decrease from 36.7% in 1994 resulting from
lower advertising expenditures. For the nine-month period, these
expenses were 38.9% of sales in 1995 and 37.1% of sales in 1994. The
year-to-date increases reflect promotional support for the launch and
test marketing of several new products. Higher levels of advertising
and promotion spending in the first six months included additional
support for Ray-Ban sunglasses in key markets, skin care product
advertising and the establishment of a business development fund for
marketing programs directed toward contact lens patients. Corporate
administration expense was 2.6% of sales in 1995 versus 2.0% for the
1994 third quarter. The Company's stated objective is to manage these
expenses to a targeted level of no more than 3% of sales. Research and
development expense for the 1995 third quarter increased 8% from 1994
levels. 1995 spending has been primarily directed toward the support
of new sunglass, contact lens, and pharmaceutical products.
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. As of September 30, 1995,
$1.6 million of the original reserve remained on the Company's balance
sheet. All actions contemplated at the time of establishing the reserve
have been completed or are expected to be fully completed in 1995.
Reserves remaining primarily represent liabilities for continuing
severance payments and project expenses and are believed to be adequate.
Business Segment And Operating Earnings
Business segment earnings of $94 million for the 1995 third quarter
improved $39 million from 1994. This primarily reflected improved
operating results for oral care products, skin care products, contact
lenses, hearing aids and prescription pharmaceuticals. Operating
earnings totaled $82 million, an increase of $37 million from the
prior year period.
Other Income And Expenses
Income from investments totaled $9 million for the third quarters of
1995 and 1994, as higher non-U.S. investment levels and interest rates
were offset by lower income earned on an interest rate swap associated
with the Wilmington Partners L.P. transaction. Interest expense of $11
million for the 1995 third quarter increased $1 million over the third
quarter of 1994, despite lower debt levels, as a result of higher
interest rates on U.S. borrowings.
The Company recognized a net foreign currency loss of $2 million,
representing a decline of $3 million from the net $1 million gain
recognized in 1994. This reflected anticipated lower premium income
earned on the Company's Irish pound hedge contracts in the current year.
The Company's reported income tax rates for the three- and nine-month
periods were 37.0% and 36.6% in 1995 compared to 33.5% and 32.8% in 1994,
respectively. 1994 rates benefited from a reduction in statutory tax
rates in Germany for which the Company recorded an adjustment to its
deferred tax liabilities. 1995 rates reflected the increased
significance of earnings in countries with relatively higher
statutory rates, most notably Japan and Germany.
Liquidity And Financial Resources
Cash Flows Provided By Operating Activities
Cash flows provided by operating activities totaled $200 million
through September 1995, an increase of $44 million from the prior year
period. This improvement was primarily attributable to cash realized
from the net settlement of foreign currency hedge contracts, the
comparisons against significant restructuring actions completed in 1994
and the timing of payments for advertising and promotion. These factors
were moderated by the positive cash flow in 1994 generated by collections
on receivables outstanding at the end of 1993.
Cash Flows Provided By Investing Activities
Cash flows provided by investing activities improved $551 million
from 1994 to $15 million. Purchases of property, plant and equipment
totaled $58 million, a decrease of $5 million from 1994. Higher capital
spending in the prior year was primarily in support of the development
of new contact lens technology. Major projects in 1995 include new cast
mold capacity for contact lenses and manufacturing improvements for
sunglasses in the U.S., Europe and Asia-Pacific regions. Other
investing activities in the first nine months of 1994 included the
acquisition of the assets of Revo, Inc., a U.S.-based manufacturer
of high performance sunglasses and the investment of $425 million
in securities of a wholly-owned subsidiary of a triple-A rated
financial institution, while in 1995, the reported net inflows
of cash included amounts received from the divestiture of the
Company's sports optics business, from a deposit refund and from
collections of notes receivable.
Cash Flows Used In Financing Activities
Approximately $166 million in cash was used in financing activities,
including repurchases of the Company's Common shares, the payment of
dividends and repayments of U.S. promissory notes.
Free Cash Flow
The Company has continued to improve cash flow and reduce its
working capital requirements. The Company's goal is to maximize
free cash flow which is defined as cash generated before dividends,
the repayment of debt, stock repurchases and the acquisition or
divestiture of businesses.
Free cash flow for the nine months ended September 30, 1995 totaled
$154 million. For the nine months ended September 24, 1994 free cash
flow totaled $95 million. The increase over the prior year is primarily
attributable to changes in other current assets and accrued liabilities
levels and lower capital expenditures described previously.
Financial Position
The Company's total debt, consisting of short- and long-term
borrowings, decreased by $46 million from year-end 1994 to $544 million
at the end of the 1995 third quarter. Bausch & Lomb's ratio of total
debt to equity stood at 57% in September 1995 and 62% in September 1994.
Cash and investments totaled $285 million and $194 million at the end of
the third quarters of 1995 and 1994, respectively.
Access to Financial Markets
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 September 30,
1995 nor were there any borrowings outstanding under the Company's $300
million medium-term note program. The Company also maintains bank lines
of credit for its financing requirements. The availability of adequate
credit facilities provides the Company with a high degree of flexibility
to meet its obligations, fund capital expenditures and invest in growth
opportunities.
Working Capital
Working capital amounted to $262 million for the third quarter of
1995, versus $277 million at year-end 1994 and $301 million for the
third quarter of 1994. The current ratio was 1.4 at September 30, 1995,
December 31, 1994 and September 24, 1994.
OTHER FINANCIAL DATA
Dividends declared on Common stock were $0.26 per share in the third
quarter of 1995 and $0.245 per share in the third quarter of 1994. As a
result of the goodwill impairment charge recorded in December 1994 and
lower earnings performance reported during the most recent twelve-month
period, the return on average shareholders' equity for the twelve-month
period ended September 30, 1995 was 6%. This return was 11% for the
twelve-month period ended September 24, 1994. Excluding goodwill
impairment and restructuring charges, the return on average shareholders'
equity would have been 11% in 1995 versus 14% in 1994.
OUTLOOK
Worldwide sales for many of the Company's products are expected to
continue to show year-over-year growth for the remainder of 1995.
Within the lens care products category, success in the important U.S.
market is dependent on a rebound in shipments to retail customers.
Additionally, overall Company growth is dependent on the ability
to meet consumer demand for new sunglass products. The positive
effect of changes in foreign currency exchange rates noted earlier
in 1995 has lessened, and there can be no assurance that these
trends will continue into the fourth quarter. The Company also
continues to monitor the effect of adverse economic trends in
certain markets, particularly in Latin America.
For contact lenses, manufacturing capacity for the Company's next
generation of planned replacement lenses will be increased. The Company
has previously announced that it will commit a total of more than $30
million in this area. This increased capacity will allow the Company to
capitalize on consumer trends toward this type of lens product, and
reduce contact lens manufacturing costs beyond 1995.
As noted earlier, the increasing significance of earnings in Japan and
Germany have increased the Company's reported tax rate for the first
nine months of 1995, and this trend is expected to continue.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In its 1994 Annual Report on Form 10-K and its first and second
quarter 1995 Forms 10-Q the Company reported on proposed class
actions filed in Pennsylvania, New Jersey, New York and
California state courts, alleging that the Company misled
consumers in its marketing and sale of Sensitive Eyes Saline and
Rewetting Drops, Boston Rewetting Drops and Conditioning
Solution and the Company's eyewash product. On September 12,
1995, the Company entered into a stipulation in the New York
case, certifying a nationwide class of consumers of Sensitive
Eyes Rewetting Drops, Boston Rewetting Drops, Bausch & Lomb
Eyewash and ReNu Rewetting Drops for the period May 1, 1989 to
June 30, 1995, which is awaiting court approval. A similar
action has been moved from federal to state court in California
and has been temporarily stayed pending further developments in
the New York case. In each of these matters, the Company is
defending itself vigorously in part on the basis that the
Company's actions were in compliance with applicable FDA
regulations.
In its 1994 Annual Report on Form 10-K, the Company
described proposed shareholder class actions involving
purchasers of stock between December 14, 1993 and
June 3, 1994 and between June 4, 1994 and
January 25, 1995. The suits claim the Company did not
fully disclose information about expected future
financial results, thus misleading its shareholders.
On September 25, 1995, the plaintiffs in these actions
consolidated their claims and filed a second amended
consolidated complaint. The Company continues to
vigorously defend against these claims.
Item 6. Exhibits and Reports on Form 8-K.
(a) Item 601 Exhibits
Those exhibits required to be filed by Item 601 of
Regulation S-K are listed in the Exhibit Index immediately
preceding the exhibits filed herewith and such listing is
incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this Report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAUSCH & LOMB INCORPORATED
Date: March 15, 1996
By: (Jay T. Holmes)
Jay T. Holmes
Executive Vice President and
Chief Administrative Officer
Date: March 15, 1996
By: (Stephen C. McCluski)
Stephen C. McCluski
Senior Vice President,
Finance
EXHIBIT INDEX
S-K Item 601 No. Document
(4)-a Certificate of Incorporation of Bausch &
Lomb Incorporated (filed as Exhibit (4)-a to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1985, File No. 1-
4105, and incorporated herein by reference).
(4)-b Certificate of Amendment of Bausch &
Lomb Incorporated (filed as Exhibit (4)-b to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, File No. 1-
4105, and incorporated herein by reference).
(4)-c Certificate of Amendment of Bausch &
Lomb Incorporated (filed as Exhibit (4)-c to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 26, 1992, File No. 1-
4105, and incorporated herein by reference).
(4)-d Form of Indenture, dated as of September
1, 1991, between the Company and Citibank, N.A.,
as Trustee, with respect to the Company's Medium-
Term Notes (filed as Exhibit (4)-a to the
Company's Registration Statement on Form S-3,
File No. 33-42858, and incorporated herein by
reference).
(4)-e Rights Agreement between the Company and
The First National Bank of Boston, as successor
to Chase Lincoln First Bank, N.A. (filed as
Exhibit 1 to the Company's Current Report on
Form 8-K dated July 25, 1988, File No. 1-4105,
and incorporated herein by reference).
(4)-f Amendment to the Rights Agreement
between the Company and The First National Bank
of Boston, as successor to Chase Lincoln First
Bank, N.A. (filed as Exhibit 1 to the Company's
Current Report on Form 8-K dated July 31, 1990,
File No. 1-4105, and incorporated herein by
reference).
(11) Statement Regarding Computation of Per
Share Earnings (filed herewith).
(12) Statement Regarding Computation of Ratio
of Earnings to Fixed Charges (filed herewith).
(27) Financial Data Schedule (filed herewith)
<TABLE>
Exhibit 11
Statement Regarding Computation of Per Share Earnings
Dollars And Shares In Thousands-
Except Per Share Data
<CAPTION>
NINE MONTHS ENDED
September 30 September 24
1995 1994*
<S> <C> <C>
Net earnings $115,387 $93,199
======== =======
Actual outstanding Common
shares at beginning
of year 58,992 59,118
Average Common shares
issued for stock
options and effects
of assumed exercise
of common stock
equivalents and
repurchase of
Common shares (745) 669
------- ------
Average Common shares
outstanding 58,247 59,787
======= ======
Net earnings per Common
and common share
equivalent $ 1.98 $ 1.56
======= ======
<FN>
*Results have been restated as more fully described in Note A -
"Restatement of Financial Information".
</TABLE>
<TABLE>
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to
Fixed Charges
Dollar Amounts In Thousands
<CAPTION>
September 30, December 31,
1995 1994*
<S> <C> <C>
Earnings before provision
for income taxes and
minority interest $207,011 $116,342
Fixed charges 36,420 42,954
Capitalized interest, net
of current period
amortization 195 260
------- -------
Total earnings as adjusted $243,626 $159,556
======= =======
Fixed charges:
Interest (including
interest expense and
capitalized interest) $ 34,999 $ 41,379
Portion of rents
representative of the
interest factor 1,421 1,575
------- -------
Total fixed charges $ 36,420 $ 42,954
======= =======
Ratio of earnings to fixed
charges 6.69 3.71<F1>
======= =======
<FN>
*Results have been restated as more fully described in Note A -
"Restatement of Financial Information".
<F1>Excluding the effect of the goodwill impairment charge
recorded in the fourth quarter of 1994, the ratio of
earnings to fixed charges at December 31, 1994 would
have been 5.46.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS QTR-3
<FISCAL-YEAR-END> DEC-30-1995 DEC-30-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 283,930 283,930
<SECURITIES> 942 942
<RECEIVABLES> 279,912 279,912
<ALLOWANCES> 13,304 13,304
<INVENTORY> 303,958 303,958
<CURRENT-ASSETS> 1,003,340 1,003,340
<PP&E> 1,066,764 1,066,764
<DEPRECIATION> 525,541 525,541
<TOTAL-ASSETS> 2,499,912 2,499,912
<CURRENT-LIABILITIES> 740,915 740,915
<BONDS> 231,670 231,670
<COMMON> 24,181 24,181
0 0
0 0
<OTHER-SE> 934,721 934,721
<TOTAL-LIABILITY-AND-EQUITY> 2,499,912 2,499,912
<SALES> 1,477,817 476,757
<TOTAL-REVENUES> 1,477,817 476,757
<CGS> 657,949 205,495
<TOTAL-COSTS> 657,949 205,495
<OTHER-EXPENSES> 622,341 189,745
<LOSS-PROVISION> 5,415 63
<INTEREST-EXPENSE> 34,999 11,013
<INCOME-PRETAX> 207,011<F1> 77,520<F1>
<INCOME-TAX> 75,744 28,682
<INCOME-CONTINUING> 115,387 43,514
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 115,387 43,514
<EPS-PRIMARY> 1.98 .75
<EPS-DILUTED> 1.98 .75
<FN>
<F1>Income Before Taxes and Minority Interest
</FN>
</TABLE>
