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 July 1, 1995
Commission File Number: 1-4105
BAUSCH & LOMB INCORPORATED
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation
or organization)
16-0345235 (IRS Employer Identification No.)
One 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 .
The number of shares of Common stock of the registrant
outstanding as of July 1, 1995 was 57,264,749 consisting of
56,449,518 shares of Common Stock and 815,231 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 financial statements for the second quarters of 1995
and 1994 of Bausch & Lomb Incorporated and Consolidated
Subsidiaries are presented on the following pages.
The audited balance sheet at December 31, 1994 is presented
for comparative purposes. Financial statements for the six
months ended July 1, 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>
Second Quarter Ended Six Months Ended
------------------------------------------
July 1, June 25, July 1, June 25,
1995 1994* 1995 1994*
------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $535,459 $485,625 $1,001,060 $925,013
Costs And Expenses
Cost of products sold 234,089 223,240 452,454 427,901
Selling, administrative
and general 210,878 187,884 400,943 345,711
Research and development 16,730 15,377 31,653 30,666
------- ------- ------- --------
461,697 426,501 885,050 804,278
------- ------- ------- --------
Operating Earnings 73,762 59,124 116,010 120,735
------- ------- ------- --------
Other (Income) Expense
Investment income (9,530) (9,532) (19,529) (17,881)
Interest expense 11,847 10,260 23,986 19,227
Loss (gain) from
foreign currency, net 372 886 1,964 (1,138)
Gain On Sale Of
Sports Optics Division (35,902) - (35,902) -
Litigation Provision 16,000 - 16,000 -
------- ------- ------- ------
(17,213) 1,614 (13,481) 208
------- ------- ------- ------
Earnings Before
Income Taxes and
Minority Interest 90,975 57,510 129,491 120,527
Provision for income taxes 33,804 17,603 47,062 39,244
------- ------- ------- ------
Earnings Before
Minority Interest 57,171 39,907 82,429 81,283
Minority interest
in subsidiaries 5,582 6,009 10,556 11,461
------- ------- ------- ------
Net Earnings 51,589 33,898 71,873 69,822
------- ------- ------- ------
Retained Earnings At
Beginning Of Period 852,272 894,577 846,245 871,680
Cash Dividends Declared:
Common stock, $0.245
and $0.49 per share
in 1995 ($0.245 and
$0.465 per share
in 1994) 14,283 14,515 28,540 27,542
------- ------- ------- -------
Retained Earnings
At End Of Period $889,578 $913,960 $889,578 $913,960
------- ------- ------- -------
------- ------- ------- -------
Net Earnings Per
Common Share $ 0.89 $ 0.57 $ 1.23 $ 1.17
------- ------- ------- -------
------- ------- ------- -------
Average Common Shares
Outstanding (000s) 58,451 59,827
------- ------
------- ------
<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>
July 1, December 31,
1995 1994
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 291,856 $ 230,369
Short-term investments,
at cost which approximates market 2,315 2,173
Trade receivables, less allowances
of $16,965 and $16,830, respectively 289,560 271,990
Inventories, net 303,057 312,781
Deferred income taxes, less valuation
allowance of $17,882 45,927 40,372
Other current assets 108,431 96,281
--------- ------
1,041,146 953,966
Property, Plant And Equipment, net 544,604 542,750
Goodwill And Other Intangibles,
less accumulated amortization of
$88,450 and $77,394, respectively 398,816 395,950
Other Investments 425,000 425,000
Other Assets 130,668 140,065
--------- ---------
Total Assets $2,540,234 $2,457,731
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 242,615 $ 252,783
Current portion of long-term debt 109,765 47,788
Accounts payable 68,458 71,718
Accrued compensation 75,160 71,742
Accrued liabilities 268,859 216,956
Federal and foreign income taxes 32,207 15,551
--------- --------
797,064 676,538
Long-Term Debt, less current portion 235,323 289,504
Other Long-Term Liabilities 138,912 149,094
Minority Interest 431,727 428,208
--------- --------
Total Liabilities 1,603,026 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,
1,192,592 and 1,072,880 shares issued,
respectively 95 86
Capital in excess of par value 89,429 90,637
Cumulative translation adjustment 96,745 47,609
Retained earnings 889,578 846,245
--------- --------
1,099,926 1,008,656
Common and Class B Stock in treasury, at cost,
4,126,165 and 2,278,745 shares issued,
respectively (162,718) (94,269)
--------- --------
Total Shareholders' Equity 937,208 914,387
--------- --------
Total Liabilities And Shareholders' Equity $2,540,234 $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
Six Months Ended
July 1, June 25,
1995 1994*
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 71,873 $ 69,822
Adjustments to reconcile
net earnings to net
cash provided by
operating activities:
Depreciation of property,
plant and equipment 44,348 40,793
Amortization of goodwill and
other intangibles 8,059 8,340
Increase in deferred income taxes (6,690) (2,269)
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 1,298 895
Exchange loss 8,071 3,410
Increase in undistributed earnings
of subsidiaries 1,446 2,730
(Increase) decrease in accounts receivable (24,938) 20,442
Increase in inventories (11,618) (24,134)
Decrease (increase) in other
current assets 7,626 (33,154)
Increase (decrease)in accounts payable
and accruals 36,351 (33,309)
Increase in tax liabilities 4,505 53
Decrease in other long-term liabilities (11,372) (3,368)
------- -------
Net cash provided by
operating activities 118,696 50,251
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of property,
plant and equipment (33,997) (49,280)
Acquisition of businesses, net of cash and
short-term investments acquired (1,180) (27,150)
Proceeds from sale of Sports Optics Division,
net of cash and short-term investments
disposed 76,291 -
Other 5,477 (9,669)
------- -------
Net cash provided by (used in) investing
activities 46,591 (86,099)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common shares (74,933) (1,860)
Exercise of stock options 3,683 6,065
Restricted stock awards 1,602 -
Net (repayment of) proceeds from
issuance of debt (15,185) 69,654
Payment of dividends (28,748) (26,044)
------- --------
Net cash (used in) provided by financing
activities (113,581) 47,815
------- -------
Effect of exchange rate changes on cash,
cash equivalents and
short-term investments 9,923 8,496
------- -------
Net increase in cash, cash equivalents
and short-term investments 61,629 20,463
Cash, cash equivalents and short-term investments,
beginning of period 232,542 546,036
------- -------
Cash, cash equivalents and short-term investments,
end of period $294,171 $566,499
------- --------
------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 24,052 $ 20,451
Income taxes $ 43,063 $ 42,595
<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>
Second Quarter Ended Six Months Ended
----------------------------------------------------
June 25, 1994 June 25, 1994
-----------------------------------------------------
As Reported As Restated As Reported As Restated
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales:
Healthcare $308,839 $308,839 $593,345 $593,345
Optics 174,442 176,786 328,707 331,668
-----------------------------------------------------
Total $483,281 $485,625 $922,052 $925,013
-----------------------------------------------------
Business Segment
Earnings $ 70,126 $ 71,134 $142,333 $143,658
-----------------------------------------------------
-----------------------------------------------------
Net Earnings $ 33,056 $ 33,898 $ 68,716 $ 69,822
-----------------------------------------------------
-----------------------------------------------------
Net Earnings
Per Share $ 0.55 $ 0.57 $ 1.15 $ 1.17
-----------------------------------------------------
-----------------------------------------------------
Retained Earnings
at end of
Period $930,499 $913,860 $930,499 $913,960
-----------------------------------------------------
-----------------------------------------------------
</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 58,451,000 at July 1,
1995 and 59,827,000 at June 25, 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>
July 1, December 31,
1995 1994
<S> <C> <C>
Raw materials and supplies $ 84,875 $ 79,295
Work in process 24,826 23,985
Finished products 203,814 222,079
------- -------
313,515 325,359
Less: Reserve for valuation
of certain U.S.
inventories at
last-in, first-out
cost 10,458 12,578
------- -------
$303,057 $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>
July 1, December 31,
1995 1994
<S> <C> <C>
Land $ 22,826 $ 21,474
Leasehold improvements 33,863 32,635
Buildings 384,510 366,003
Machinery and equipment 613,780 587,586
------- ---------
1,054,979 1,007,698
Less: Accumulated
depreciation 510,375 464,948
--------- ---------
$ 544,604 $ 542,750
--------- ---------
--------- ---------
</TABLE>
NOTE E: Legal Proceedings
In its 1994 Annual Report on Form 10-K and its first
quarter 1995 Form 10-Q, the Company reported on a
proposed class action filed in New York state court,
alleging that the Company misled consumers in its
marketing and sales of Sensitive Eyes Saline Rewetting
Drops and Boston Rewetting Drops and Conditioning
Solution, as well as the marketing and sales of the
Company's eyewash product. Five additional state court
actions have been filed - two each in Pennsylvania and
New Jersey state courts, and one in California state
court. The plaintiffs' attorneys have agreed to file
stipulations staying each of those actions pending the
outcome of a class certification motion filed in the
original New York state court case in Manhattan.
In its 1994 Annual Report on Form 10-K, the
Company described actions brought in Alabama and
Minnesota on behalf of a nationwide class of purchasers
of MiracleEar hearing aids manufactured and sold by the
Company's Dahlberg, Inc. subsidiary between January 1989
and January 1994. The Company has reached a proposed
settlement with the plaintiffs in both of these actions,
which is subject to court approval following hearings
scheduled for November 1995 in both Minnesota and Alabama.
The Company's current assessment of certain legal matters
has permitted management to estimate the likely costs and
expenses to be incurred in connection with the actions.
Accordingly, the Company recorded a $16 million reserve
for these matters in the second quarter of 1995.
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 results of operations, liquidity and
progress toward stated financial objectives. 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 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.
RESULTS OF OPERATIONS
Net Sales By Business Segment
Bausch & Lomb's results are reported in two business segments.
The healthcare segment includes personal health, medical and
biomedical products. In the personal health sector, major lines
include contact lens care products, eye care solutions, over-the
counter medications, skin care products and oral care products.
Medical products include contact lenses and lens materials,
prescription pharmaceuticals, hearing aids and dental implants.
Biomedical products include purpose-bred laboratory animals for
biomedical research, 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, binoculars, riflescopes,
telescopes and optical thin film coating services and products.
As announced on May 1, 1995, the Company has completed the sale of
its Sports Optics Division, which marketed binoculars, riflescopes
and telescopes.
Consolidated revenues for the second quarter ended July 1,
1995 were $535 million, an increase of $50 million or 10% over the
1994 second quarter. Changes in currency exchange rates improved
sales comparisons to 1994 by approximately $25 million or 5%. For
the first six months of 1995, net sales of $1,001 million advanced
$76 million or 8% over the comparable 1994 period. Changes in
currency exchange rates improved sales comparisons to the 1994
period by approximately $43 million or 5%. The following is a
summary of sales by business segment:
<TABLE>
Net Sales By Business Segment
(Dollar Amounts In Millions)
<CAPTION>
Second Quarter Six Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Healthcare $353.2 $308.8 $ 669.5 $593.3
Optics 182.3 176.8 331.6 331.7
------ ------ -------- ------
Net Sales $535.5 $485.6 $1,001.1 $925.0
------ ------ -------- ------
------ ------ -------- ------
</TABLE>
Healthcare Segment Revenues
Revenues in the healthcare segment increased $44 million or
14% over the 1994 second quarter. On a year-to-date basis,
healthcare segment revenues advanced $76 million or 13% over the
comparable 1994 period. Major product sector revenues as a
percentage of total healthcare segment sales follow:
<TABLE>
Healthcare Segment Sales By Product Sector
<CAPTION>
Second Quarter Six Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Personal Health 50% 53% 50% 51%
Medical 37% 33% 36% 34%
Biomedical 13% 14% 14% 15%
</TABLE>
Within the personal health sector, 1995 second quarter
revenues improved 8% from the comparable 1994 level. Continued
strong demand for the Company's lens care solutions products,
including the ReNu and Boston lines, contributed to the revenue
gain. Sales of over-the-counter medications in Europe advanced
strongly as did revenues for eyecare products in the U.S. The
eyecare line benefited from incremental sales of Opcon-A, an
antihistamine/decongestant, which has received good initial
acceptance. Skin care revenues were essentially even with the
level of a year ago. Revenues for consumer oral care products
were more than 20% below the second quarter of 1994, primarily due
to competitive price reductions implemented on the Interplak line
of power toothbrushes in prior periods and reduced U.S. sales of a
line of mouthwash that is being discontinued.
Medical sector sales rose 29% from second quarter 1994 levels.
Worldwide contact lens revenues advanced 25%, led by increased
shipments of planned replacement lens products, most notably in
the U.S., Asia and Europe. While sales of traditional contact
lenses in Japan increased, overall revenues were even with the
second quarter of 1994, 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 significantly. 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.
Second quarter revenues for prescription pharmaceuticals in
Europe also advanced from the prior year. Increased demand was
also noted for the Company's lines of dental implants and hearing
aids. Hearing aid revenues rose 30% in response to improved
overall market conditions and encouraging consumer demand
for the recently introduced Mirage completely in-the-canal product
line.
A 7% improvement in the Company's biomedical sector reflected
increased revenues for animal operations outside the U.S.,
increased shipments of specific pathogen-free eggs and incremental
sales generated by recent acquisitions.
Optics Segment Revenues
Second quarter revenues in the optics segment increased 3% to
$182 million, compared to $177 million in 1994. Revenues were
$332 million for each of the six-month periods. Revenue increases
were evidenced for premium-priced sunglasses, including strong
demand for new products like Ray-Ban xrays and Orbs and Killer Loop
Activ. The Company's ultra-premium-priced Revo and moderately-
priced sunglass lines, including Ion Sport, Bausch & Lomb i's and
Suncloud, also experienced increased sales in the 1995 second
quarter. Several of these new products are in the fashion and
sport sunglass 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 as well as
flexible production capabilities, skills the Company has
strengthened over the last year. Comparisons versus the 1994
period were moderated by the divestiture of the Company's sports
optics business for which no revenues were recorded in the 1995
second quarter. If these products are excluded from results for
both 1995 and 1994, optics segment growth for the second quarter was
19% or $29 million and for the first six months was 7% or $22
million.
Net Sales By Geographic Region
Sales in markets outside the U.S. totaled $266 million in the
second quarter, an increase of $40 million or 18% from 1994, and
represented 50% of consolidated revenues, compared to 46% in 1994.
European revenues increased 18% 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 49%,
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%, despite
favorable currency exchange movements based on lower demand for
sunglasses and the lack of sales of sports optics products in 1995.
Revenues declined 4% in Latin America and Canada. Sales shortfalls
in Mexico were more than offset by improvement in Brazil, primarily due to
increasing consumer confidence which has fueled sales of product
in this market. If the 1994 second quarter revenues for the
sports optics business are excluded from these comparisons,
revenues improved 19% in Europe and 7% in Latin America and
Canada, and declined 2% in Asia outside of Japan.
U.S. sales totaled $269 million in the second quarter, an
increase of $10 million or 4% from 1994. Revenue increases for
sunglasses, planned replacement lenses, pharmaceuticals, RGP
solutions and hearing aids were somewhat offset by the divestiture
of the sports optics business. These results 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. Excluding the divested sports optics
business from 1994 results, U.S. sales increased 12% over the
prior year level.
Costs And Expenses
The cost of products sold ratio was 43.7% for the 1995 second
quarter versus 46.0% for the comparable 1994 period. For the six
month period, this ratio was 45.2% for 1995 and 46.3% for 1994.
The improvement is due to shifts in sales mix toward higher-margin
hearing aids, sunglasses 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 higher sales of lower-margin planned
replacement lenses. It is expected that developing new cast
molding technologies for contact lens manufacturing and replacing
some current product lines should reduce the costs of producing
soft contact lenses in the future.
Selling, administrative and general expenses were 39.4% of
sales in the second quarter of 1995 compared to 38.7% in 1994.
For the six-month period, these expenses were 40.1% of sales in
1995 and 37.4% of sales in 1994. The increases reflect
promotional support for the launch and test marketing of several
new products. Higher advertising and promotion spending 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 2.3% of sales
in the second quarter of 1995 versus 2.5% for 1994 and reflected
the Company's continuing success in managing these expenses to a
targeted level of no more than 3% of sales. Research and
development expense for the 1995 second quarter increased 9%
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.
The following table sets forth the activity in the restructuring
reserve through July 1, 1995:
<TABLE>
Dollar Amounts In Millions
<CAPTION>
- -----------------------------------------------------------------------
Sunglass Pharmaceutical Biomedical Total
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total 1993 restructuring
provisions $34.5 $9.0 $6.5 $50.0
Less charges against
reserve:
Non-cash items 14.6 2.4 2.1 19.1
Cash payments:
1993 1.4 2.2 1.4 5.0
1994 16.3 3.5 2.0 21.8
1995 1.2 - 1.0 2.2
----- ---- ---- ---
Balance at July 1, 1995 $ 1.0 $0.9 $ - $ 1.9
----- ---- ---- ---
----- ---- ---- ---
</TABLE>
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 $86 million for the 1995 second
quarter improved $15 million or 21% compared to the 1994 second
quarter. Improved operating results for sunglasses, hearing
aids, prescription pharmaceuticals and over-the-counter
medications in Europe offset the impact of shifts in sales mix
toward lower-margin planned replacement lenses and the increased
advertising and promotion activities to support several product
lines. Operating earnings totaled $74 million, an increase of
$15 million or 25% from the prior year period.
Other Income And Expenses
Income from investments totaled $10 million for the second
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 $12 million for the 1995 second
quarter increased $2 million over the second quarter of 1994, due
to higher interest rates on U.S. borrowings.
The Company realized a net foreign currency loss of $0.4
million, representing a decline of $0.5 million from the net $0.9
million loss realized in 1994. This reflects anticipated lower
premium income earned on the Company's Irish pound hedge
contracts in the current year, partially offset by the positive
comparative impact of a significant devaluation of the currency
in Brazil which occurred in the 1994 second quarter.
During the 1995 second quarter, the Company sold its Sports
Optics Division and recorded a gain of $36 million on the
transaction. Additionally, during the 1995 second quarter the
Company recorded a $16 million reserve for certain legal matters.
The Company's current assessment of the matters has permitted
management to estimate the likely costs and expenses to be
incurred in connection with the actions.
The Company's reported income tax rates for the three and six
month periods were 37.2% and 36.3% in 1995 compared to 30.6% and
32.6% 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. The
Company expects to provide taxes on operations at a higher rate
in 1995 based on 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
While net earnings adjusted for the after-tax gain on sale of
the Sports Optics Division and non-cash items decreased 17% from
1994, cash flows provided by operating activities totaled $119
million through June 1995, an increase of $68 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 the 1994 second quarter and
the timing of payments for advertising and promotion. These
factors were moderated by collections in 1994 on the significant
amount of accounts receivable outstanding at the end of 1993.
Cash Flows Provided By Investing Activities
Cash flows provided by investing activities increased $133
million from 1994 to $47 million. Purchases of property, plant
and equipment totaled $34 million, a decrease of $15 million from
the 1994 second quarter. 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 half of 1994 included the
acquisition of the assets of Revo, a U.S.-based manufacturer of
high performance sunglasses, 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 $114 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. The proceeds from the divestiture of the sports
optics business were primarily used for the repurchase of the Company's
Common shares. At its July 25, 1995 meeting the board of directors
authorized the repurchase of an additional two million shares of Common
stock, which will permit the Company to continue its program of
repurchasing shares in the open market.
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 six months ended July 1, 1995 totaled
$100 million. For the six months ended June 25, 1994 free cash
flow totaled a negative $0.2 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 $2 million from year-end 1994
to $588 million at the end of the 1995 second quarter. Bausch &
Lomb's ratio of total debt to equity stood at 63% in June 1995
and 65% in June 1994. Cash and investments totaled $294
million and $566 million at the end of the second quarter of
1995 and 1994, respectively. This change reflects the 1994
third quarter investment in $425 million in securities issued
by a wholly-owned subsidiary of a triple-A rated financial
institution reported as other investments on the balance sheet.
Access to Financial Markets
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 July 1, 1995 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. 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 $244 million for the second
quarter of 1995, versus $277 million at year-end 1994 and $695
million for the second quarter of 1994. The significant decrease
from the second quarter of the prior year reflects the $425
million investment described earlier. The current ratio was 1.3
at July 1, 1995, 1.4 at December 31, 1994 and 1.9 at June 25,
1994.
OTHER FINANCIAL DATA
Dividends declared on Common stock were $0.245 per share in
the second quarters of 1995 and 1994. On July 25, 1995 the board
of directors approved a 6% increase in the annual dividend rate
on the Company's Common stock to $1.04 per share from the
previous level of $0.98 per share. 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 July 1, 1995 was 3%. This return was 14% for the
twelve-month period ended June 25, 1994. Excluding goodwill
impairment and restructuring charges, the return on average
shareholders' equity would have been 9% in 1995 versus 18% 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. However, anticipated results are dependent on
the success of several new product introductions scheduled for
the remainder of the year in the pharmaceutical and contact lens
businesses. Within the lens care products category, continued
success is also dependent on the Company's ability to withstand
competitive market pressures. Additionally, the continued positive
effect of changes in foreign currency exchange rates noted in the
first six months of 1995 is dependent upon rates remaining at
current levels for the remainder of 1995. There can be no
assurance, however, that the trends will continue.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In its 1994 Annual Report on Form 10-K and its first quarter
1995 Form 10-Q, the Company reported on a proposed class action
filed in New York state court, alleging that the Company misled
consumers in its marketing and sales of Sensitive Eyes Saline
Rewetting Drops and Boston Rewetting Drops and Conditioning
Solution, as well as the marketing and sales of the Company's
eyewash product. Five additional state court actions have been
filed - two each in Pennsylvania and New Jersey state courts, and
one in California state court. The plaintiffs' attorneys have
agreed to file stipulations staying each of those actions pending
the outcome of a class certification motion filed in the original
New York state court case in Manhattan.
In its 1994 Annual Report, the Company described actions brought
in Alabama and Minnesota on behalf of a nationwide class of purchasers
of Miracle-Ear hearing aids manufactured and sold by the Company's
Dahlberg, Inc. subsidiary between January 1989 and January 1994.
The Company has reached a proposed settlement with the plaintiffs in
both of these actions, which is subject to court approval following
hearings scheduled for November 1995 in both Minnesota and Alabama.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1995 annual meeting of shareholders was held on April 25,
1995. The nominees for Director elected at the meeting were as
follows:
Votes Cast
Nominee For Withheld
William Balderston III 48,701,685 804,928
Bradford R. Boss 48,720,537 786,076
Kenneth L. Wolfe 48,758,696 747,917
The shareholders voted to ratify the appointment of Price
Waterhouse as independent accountants for 1995. 48,785,561
shares of Common and Class B stock were voted in favor of the
proposal, 288,073 shares of Common and Class B stock were voted
against the proposal, and 432,979 shares of Common and Class B
stock abstained.
Item 6. Exhibits and Reports on Form 8-K.
(a) Item 601 Exhibits
Those exhibits required to be filed by Item 601
of Regulation S-K are listed in the Exhibit Index
immediately preceding the exhibits filed herewith and
such listing is incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
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. 14105, 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. 14105, 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. 14105, 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>
SIX MONTHS ENDED
July 1, June 25,
1995 1994*
<S> <C> <C>
Net earnings $71,873 $69,822
------- ------
------- ------
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 (541) 709
------- ------
Average Common shares outstanding 58,451 59,827
------- ------
------- ------
Net earnings per Common and
Common share equivalent $ 1.23 $ 1.17
------- ------
------- ------
<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>
July 1, December 31,
1995 1994*
<S> <C> <C>
Earnings before provision for
income taxes and minority
interest $129,491 $116,342
Fixed charges 24,908 42,954
Capitalized interest, net
of current period
amortization 130 260
-------- -------
Total earnings as adjusted $154,529 $159,556
-------- --------
-------- --------
Fixed charges:
Interest (including interest
expense and capitalized
interest) $ 23,986 $ 41,379
Portion of rents
representative of the
interest factor 922 1,575
------- -------
Total fixed charges $ 24,908 $ 42,954
-------- --------
-------- --------
Ratio of earnings to
fixed charges 6.20 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> 6-MOS QTR-2
<FISCAL-YEAR-END> DEC-30-1995 DEC-30-1995
<PERIOD-END> JUL-01-1995 JUL-01-1995
<CASH> 291,856 291,856
<SECURITIES> 2,315 2,315
<RECEIVABLES> 306,525 306,525
<ALLOWANCES> 16,965 16,965
<INVENTORY> 303,057 303,057
<CURRENT-ASSETS> 1,041,146 1,041,146
<PP&E> 1,054,979 1,054,979
<DEPRECIATION> 510,375 510,375
<TOTAL-ASSETS> 2,540,234 2,540,234
<CURRENT-LIABILITIES> 797,064 797,064
<BONDS> 235,323 235,323
<COMMON> 24,174 24,174
0 0
0 0
<OTHER-SE> 913,034 913,034
<TOTAL-LIABILITY-AND-EQUITY> 2,540,234 2,540,234
<SALES> 1,001,060 535,459
<TOTAL-REVENUES> 1,001,060 535,459
<CGS> 452,454 234,089
<TOTAL-COSTS> 452,454 234,089
<OTHER-EXPENSES> 432,596 227,608
<LOSS-PROVISION> 5,352 2,708
<INTEREST-EXPENSE> 23,986 11,847
<INCOME-PRETAX> 129,491<F1> <F1> 90,975
<INCOME-TAX> 47,062 33,804
<INCOME-CONTINUING> 71,873 51,589
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 71,873 51,589
<EPS-PRIMARY> 1.23 0.89
<EPS-DILUTED> 1.23 0.89
<FN>
<F1> Income before taxes and minority interest
</FN>
</TABLE>
