SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File
September 28, 1996 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
The number of shares of Common stock of the registrant
outstanding as of September 28, 1996 was 55,508,599 consisting of
54,782,849 shares of Common Stock and 725,750 shares of Class B
Stock which are identical with respect to dividend and
liquidation rights and vote together as a single class for all
purposes.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited consolidated financial statements of Bausch & Lomb
Incorporated and Consolidated Subsidiaries for the third quarters
of 1996 and 1995 are presented on the following pages. The
audited balance sheet at December 30, 1995 is presented for
comparative purposes. Financial statements for the nine months
ended September 28, 1996 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
<CAPTION>
Third Quarter Ended Nine Months Ended
Dollar Amounts In Thousands - September 28, September 30, September 28, September 30,
Except Per Share Data 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $ 477,189 $ 476,757 $1,492,016 $1,477,817
Costs And Expenses
Cost of products sold 219,769 205,495 661,454 657,949
Selling, administrative
and general 177,546 173,764 588,820 574,707
Research and development 18,758 15,981 55,974 47,634
Restructuring charges - - 15,077 -
416,073 395,240 1,321,325 1,280,290
Operating Earnings 61,116 81,517 170,691 197,527
Other (Income) Expense
Investment income (9,512) (9,310) (28,490) (28,839)
Interest expense 12,995 11,013 37,818 34,999
(Gain)/loss from foreign currency,
net (632) 2,294 (586) 4,258
Loss(gain) on divestiture 26,069 - 26,069 (35,902)
Litigation provision 16,100 - 16,100 16,000
45,020 3,997 50,911 (9,484)
Earnings Before Income Taxes
And Minority Interest 16,096 77,520 119,780 207,011
Provision for income taxes (3,877) 28,682 36,836 75,744
Earnings Before Minority Interest 19,973 48,838 82,944 131,267
Minority interest in subsidiaries 5,539 5,324 15,738 15,880
Net Earnings $ 14,434 $ 43,514 $ 67,206 $ 115,387
Retained Earnings At
Beginning Of Period 923,423 889,578 900,095 846,245
Cash Dividends Declared:
Common stock ($0.26 and $0.78
per share in 1996 and $0.26
and $0.75 per share in 1995) 14,671 14,829 44,115 43,369
Retained Earnings
At End Of Period $ 923,186 $ 918,263 $ 923,186 $ 918,263
Net Earnings Per
Common Share $ 0.25 $ 0.75 $ 1.18 $ 1.98
Average Common Shares
Outstanding (000s) 56,793 58,247
See Notes To Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
<CAPTION>
September 28, December 30,
Dollar Amounts In Thousands 1996 1995
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 150,980 $ 193,814
Short-term investments,
at cost which approximates market 1,277 803
Trade receivables, less allowances
of $13,898 and $11,232, respectively 275,199 250,587
Inventories, net 327,338 304,298
Deferred taxes, net 88,826 82,557
Other current assets 125,265 98,288
968,885 930,347
Property, Plant And Equipment, net 547,442 550,366
Goodwill And Other Intangibles,
less accumulated amortization of
$82,278 and $96,597, respectively 419,681 381,495
Other Investments 556,269 561,232
Other Assets 133,997 126,626
Total Assets $2,626,274 $2,550,066
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 354,640 $ 284,510
Current portion of long-term debt 42,608 98,990
Accounts payable 65,934 81,927
Accrued compensation 86,097 79,767
Accrued liabilities 298,383 275,936
Federal and foreign income taxes 14,799 38,347
862,461 859,477
Long-Term Debt, less current portion 323,327 190,974
Other Long-Term Liabilities 126,310 139,925
Minority Interest 430,786 430,390
Total Liabilities 1,742,884 1,620,766
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,
1,086,489 and 1,268,578 shares issued, respectively 88 101
Capital in excess of par value 95,244 107,788
Cumulative translation adjustment 83,119 85,122
Retained earnings 923,186 900,095
1,125,716 1,117,185
Common and Class B Stock in treasury, at cost,
5,776,212 and 4,525,844 shares, respectively (224,924) (178,730)
Unearned compensation (10,341) (9,155)
Unrealized holding loss on other investments (7,061) -
Total Shareholders' Equity 883,390 929,300
Total Liabilities And Shareholders' Equity $2,626,274 $2,550,066
See Notes To Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
<CAPTION>
Nine Months Ended
Dollar Amounts In Thousands September 28, September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 67,206 $ 115,387
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property, plant and equipment 66,235 65,894
Amortization 15,538 12,108
Decrease/(increase) in deferred income taxes 69 (6,478)
Restructuring charges, net of taxes 10,898 -
Loss (gain) on divestitures, after taxes 6,254 (20,823)
Provision for litigation expense, after taxes 9,982 10,560
Loss on retirement of fixed assets 2,667 3,616
Exchange loss 5,906 9,804
Increase/(decrease) in minority interest 1,304 (173)
Increase in accounts receivable (27,366) (5,901)
Increase in inventories (32,122) (16,417)
(Increase)/decrease in other current assets (25,943) 12,623
(Decrease)/increase in accounts payable and accruals (28,422) 28,136
(Decrease)/increase in tax liabilities (9,411) 2,396
Decrease in other long-term liabilities (13,512) (10,548)
Net cash provided by operating activities 49,283 200,184
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchases of property, plant and equipment (82,901) (58,046)
Proceeds from sale of equipment 9,615 -
Acquisition of businesses (81,294) (2,564)
Proceeds from divestitures 20,343 76,291
Other investments - (9,425)
Other (11,736) 8,314
Net cash (used in) provided by investing activities (145,973) 14,570
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common shares (55,873) (83,248)
Exercise of stock options 4,642 4,764
Restricted stock awards - 2,586
Net proceeds from issuance (repayments) of notes payable 71,243 (40,279)
Proceeds from issuance of long-term debt 135,239 -
Repayment of long-term debt (55,539) (7,157)
Payment of dividends (44,284) (42,873)
Net cash provided by (used in) financing activities 55,428 (166,207)
Effect of exchange rate changes on cash,
cash equivalents and short-term investments (1,098) 3,783
Net (decrease) increase in cash, cash equivalents and
short-term investments (42,360) 52,330
Cash, cash equivalents and short-term investments,
beginning of period 194,617 232,542
Cash, cash equivalents and short-term investments,
end of period $ 152,257 $ 284,872
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 40,150 $ 37,092
Income taxes $ 79,271 $ 70,365
See Notes To Financial Statements
</TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A: Earnings Per Share
Net earnings per Common share are based on the weighted
average number of Common and Class B shares outstanding
during the period, adjusted for the assumed conversion of
dilutive stock options. In computing the per share
effect of assumed conversion, funds which would have been
received from the exercise of options 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 56,793,312 at September
28, 1996 and 58,247,318 at September 30, 1995.
See Exhibit 11 filed with this Report for details
regarding the computation of earnings per share.
NOTE B: Inventories
Inventories consisted of the following:
September 28, December 30,
(Dollar Amounts In Thousands) 1996 1995
Raw materials and supplies $ 91,673 $ 76,834
Work in process 19,549 21,905
Finished products 225,412 214,901
336,634 313,640
Less - Reserve for valuation of
certain U.S. inventories at
last-in, first-out cost 9,296 9,342
$327,338 $304,298
NOTE C: Property, Plant And Equipment
Major classes of property, plant and equipment consisted
of the following:
September 28, December 30,
(Dollar Amounts In Thousands) 1996 1995
Land $ 22,170 $ 22,124
Leasehold improvements 33,618 33,720
Buildings 403,035 396,954
Machinery and equipment 661,666 629,952
1,120,489 1,082,750
Less - Accumulated depreciation 573,047 532,384
$ 547,442 $ 550,366
NOTE D: Legal Proceedings
In its 1995 Annual Report on Form 10-K and as updated in the
Company's first and second quarter forms 10-Q for 1996, the
Company discussed an action pending in the United States District
Court for the Northern District of Alabama on behalf of a
nationwide class pursuing claims relating to the Company's
marketing and sales of Optima FW, Medalist and SeeQuence2 contact
lens systems and other related proceedings. On July 31, 1996,
the court preliminarily approved a settlement, which is subject
to final approval following a fairness hearing scheduled for
November 1996. Under the terms of the settlement, consumers who
bought the lenses in question during specified time periods are
eligible to receive cash and product certificates for each lens
purchase. Consumers who purchased Medalist lenses between
January 1, 1991 through December 31, 1995, Optima FW lenses
between November 1, 1990 through December 30, 1995 and Criterion
Ultra FW lenses between November 1, 1990 through April 30, 1996
are eligible to participate in this proposed settlement. The
Company has recorded a charge against third quarter earnings in
the amount of $16 million which, in addition to existing
litigation reserves, is deemed adequate to satisfy the costs of
the proposed settlement. Additionally, on October 3, 1996, the
Company was served with a statement of claim filed in British
Columbia, Canada, naming the Company and Bausch & Lomb Canada.
The plaintiff seeks to represent a class of Canadian consumers
alleging similar claims. Management continues to vigorously
defend the marketing of these lens systems.
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 towards stated financial objectives.
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. The Company systematically measures
its financial progress against the Standard & Poors Healthcare
Composite Group, with the goal of placing Bausch & Lomb among the
top performers for each of its selected financial objectives. To
achieve this goal, the Company has established multi-year
objectives of compound annual sales and earnings growth in the
range of 10% and, on a longer term basis, a return on equity of
approximately 20%. The Company also emphasizes the need for
operational stability, predictability and profitability. The
Company's management team is firmly committed to achieving these
performance objectives on a going-forward basis.
RESULTS OF OPERATIONS
Comparability Of Business Segment Information
Comparisons of 1996 and 1995 third quarter and nine-month
operating results are complicated by certain significant events
described below.
As announced in September 1996, the Company completed the
sale of its Oral Care Division, which marketed the Interplak line
of products, to Conair. The Company recorded a non-recurring
after-tax loss on the divestiture of $6 million, or $0.11 per
share, which is reflected in the Company's third quarter
earnings. Oral care revenues were reported in the personal
health sector of the Company's healthcare segment and for the
1996 third quarter were $6 million, a decrease of $7 million or
54% from the 1995 third quarter. For the first nine months of
1996, revenues were $22 million, a decrease of $14 million or 39%
from the same period in 1995.
As announced in August 1996, the Company reached a settlement
of a class action lawsuit concerning the marketing of its
Medalist, Optima FW and Criterion Ultra FW soft contact lenses.
Although the settlement is preliminary and awaits final court
approval, a charge against third quarter earnings in the amount
of $16 million before taxes, or $10 million after taxes was
recorded. This charge reduced earnings per share by $0.18. The
Company believes that this amount, in addition to existing
litigation reserves, will be adequate to provide for the costs of
the proposed settlement.
As announced in June 1996, the Company's Board of Directors
approved plans to restructure portions of the sunglass, solutions
and contact lens businesses, as well as certain corporate
administrative functions and a restructuring charge of $15
million before taxes, or $11 million after taxes, was recorded in
the second quarter. This charge reduced earnings per share by
$0.19. The action is part of the Company's continuing efforts to
enhance its competitive position and to reduce the annual impact
of general and administrative overhead, logistics and
distribution costs.
As announced on May 1, 1995, the Company completed the sale
of its Sports Optics Division, which marketed binoculars,
riflescopes and telescopes. 1995 results reflect the operations
of this business for only the first three months of the year.
The sports optics business contributed optics segment revenues of
$18 million and break even operating earnings for the nine-month
period ended September 1995.
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 and skin 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. Healthcare segment results
for 1996 and 1995 also include the Company's Oral Care Division.
Bausch & Lomb's optics segment includes sunglasses and optical
thin film coating services and products. Optics segment results
for 1995 also include the Company's Sports Optics Division.
Consolidated revenues of $477 million for the third quarter
ended September 28, 1996 were even with the third quarter of
1995. Changes in foreign currency exchange rates had a negative
impact of 2% on sales comparisons to 1995. When results for the
divested Oral Care Division are excluded, sales improved $7
million or 2% over 1995. For the first nine months of 1996,
sales totaled $1,492 million, compared with $1,478 million in the
same period of 1995, an increase of 1%. Changes in foreign
currency exchange rates reduced 1996 revenues in U.S. dollars by
2% on a year-to-date basis when compared to 1995. When results
for the divested Oral Care and Sports Optics Divisions are
excluded from 1996 and 1995 results, sales totaled $1,470 million
compared with $1,424 million, an increase of 3%.
Net Sales By Business Segment
Third Quarter Nine Months
(Dollar Amounts In Millions) 1996 1995 1996 1995
Healthcare $359.0 $345.4 $1,061.8 $1,014.9
Optics 118.2 131.4 430.2 462.9
Net Sales $477.2 $476.8 $1,492.0 $1,477.8
Healthcare Segment Revenues
Revenues in the healthcare segment increased $14 million or 4%
over the 1995 third quarter. On a year-to-date basis, healthcare
segment revenues advanced $47 million or 5%. When results for
the divested Oral Care Division are excluded, healthcare segment
revenues increased $21 million or 6% over the 1995 third quarter
and increased $61 million or 6% over the first nine months of
1995. Major product sector revenues as a percentage of total
healthcare segment sales are presented below:
Healthcare Segment Net Sales By Product Sector
Third Quarter Nine Months
1996 1995 1996 1995
Personal Health 45% 51% 47% 50%
Medical 41% 36% 39% 36%
Biomedical 14% 13% 14% 14%
Within the personal health sector, 1996 third quarter revenues
decreased $12 million or 7%. When the Oral Care Division results
are excluded, revenues decreased $5 million or 3%. Sales of the
Company's ReNu multipurpose solution continued to report solid
gains worldwide, while revenues from the Company's Boston line of
rigid gas permeable lens care solutions reflected a 9% decrease,
primarily due to timing of promotional activities. The overall
result was a 2% decrease in the Company's lens care solutions
business. Sales gains by the Company's line of skin care products
were led by strong sales of Curel. These were more than offset
by sales declines of over-the-counter drugs produced by Dr. Mann
Pharma, which decreased $3 million or 29%.
Medical sector revenues increased 17% from the third quarter
of 1995, due primarily to worldwide contact lens sales, which
rose 19%. Sales of planned replacement lenses, including
SofLens66, reflected 39% worldwide growth, led by the U.S., Asia
and Europe, while the acquisition of Award plc aided sales in
Europe. Sales of traditional lenses declined 1%, reflecting the
continuing shift toward planned replacement lenses outside the
U.S. Worldwide prescription pharmaceutical revenues improved 14%
with sales in the U.S. accounting for the majority of this
increase. This improvement was largely attributable to the
success of Crolom, as well as Minoxidil, a product introduced to
the Company's portfolio this year. Medical sector sales also
benefited from increased demand for dental implants and hearing
aids.
Biomedical sector sales increased 10% over the 1995 third
quarter aided primarily by product line extensions.
Optics Segment Revenues
Third quarter revenues in the optics segment decreased $13
million or 10% from 1995. On a year-to-date basis, optics
segment revenues decreased $33 million or 7%. Excluding the
results of the divested Sports Optics Division from the year-to-
date comparison, the decrease from 1995 was $15 million or 3%.
Worldwide sunglass sales declined 9% from last year's third
quarter. Significant shortfalls were reported in Ray-Ban
products in all regions, with the U.S. representing more than
half of the decline. Continued strong sales of new products,
including Orbs and Side Street sunglasses were more than offset
by the erosion of sales of older Ray-Ban products, including
classic and traditional styles as well as reduced orders by the
Company's largest customer in the U.S. sunglass specialty
channel. Killer Loop, Arnette and Revo sunglass sales continued
to gain, contributing 21% of the Company's 1996 third quarter
sunglass revenues compared to 8% in the comparable 1995 period.
Revenues for thin film coating products and services declined 23%
due primarily to significant competitive challenges outside of
the U.S.
Net Sales By Geographic Region
The following analysis of trends excludes 1996 and 1995 revenues
from the Oral Care Division.
Sales in markets outside the U.S. totaled $223 million in the
third quarter, a decrease of $3 million or 1% from 1995, and
represented 47% of consolidated revenues, compared to 49% in
1995. Sales in Europe and Latin America were consistent with the
same period last year. Sales in Asia declined 3% due mainly to
unfavorable exchange rate fluctuations in Japan.
U.S. sales totaled $248 million in the third quarter, a gain
of $11 million or 5% from 1995. The improvement was primarily
due to growth for planned replacement lenses and pharmaceutical
products and incremental sales from the acquisition of the
Arnette sunglass lines.
Costs And Expenses
The cost of products sold ratio was 46% for the 1996 third
quarter versus 43% for the comparable 1995 period. The increase
in this ratio was due primarily to the impact of currency rate
changes, reductions in sunglass orders and deterioration of
margins in the divested Oral Care Division. For the nine-month
period, this ratio was 44% for 1996 and 45% for 1995.
Selling, administrative and general expenses were 37% of
sales in the third quarter of 1996 and 36% in 1995. For the nine-
month period, these expenses were 40% of sales in 1996 compared
to 39% in 1995. This increase reflects higher spending for
global sunglass, global contact lens and U.S. lens care
advertising and amortization expense related to newly acquired
businesses as well as one-time period costs associated with
relocation and training of personnel related to the Company's
effort to reduce annualized costs by $50 million. On a year-to-
date basis, corporate administration expense was 2.4% of sales in
1996 and 1995. Research and development expenses for the nine-
month periods was 3.8% of sales in 1996 versus 3.2% for 1995.
The increase in spending is intended to enhance the Company's
technical leadership in the pharmaceuticals, contact lens and
lens care businesses.
Restructuring Reserves
As previously described, in the second quarter of 1996, the
Company's Board of Directors approved plans to further
restructure portions of the sunglass, solutions and contact lens
operations, as well as certain corporate administrative
functions. A pre-tax restructuring charge of $15 million was
recorded.
Additionally, in the fourth quarter of 1995, the Company
announced plans to restructure its sunglass, pharmaceutical and
biomedical operations and recorded a pre-tax restructuring charge
of $27 million.
<TABLE>
The following table sets forth the activity in the restructuring reserves
through September 28, 1996:
<CAPTION>
Dollar Amounts In Millions Contact Corporate
Sunglass Biomedical Lens Solutions Administration Total
Restructuring Provisions:
Total
<C> <C> <C> <C> <C> <C>
1995 $15.8 $4.8 $3.1 $3.0 $26.7
1996 5.0 - 4.1 $4.5 1.5 15.1
Less charges against 1995 reserve:
Non-cash items 3.4 2.2 3.1 - 1.0 9.7
Cash payments 2.8 2.3 - - 0.6 5.7
Less charges against 1996 reserve:
Non-cash items 0.6 - 0.4 0.7 - 1.7
Cash payments 0.5 - - 1.0 0.4 1.9
Balance at September 28, 1996 $13.5 $0.3 $3.7 $2.8 $2.5 $22.8
</TABLE>
Reserves remaining at September 28, 1996 primarily represent
liabilities for continuing severance payments and are believed to
be adequate.
Operating Earnings
Operating earnings totaled $61 million, a decrease of $20 million
or 25% from the 1995 third quarter. The continued return to
profitability for contact lens products and improved operating
results for hearing aids were offset by shortfalls in the
sunglass business and the divested Oral Care Division.
Other Income And Expenses
Income from investments totaled $10 million for the third
quarter of 1996, an increase of 2% over the third quarter of
1995. Interest expense of $13 million for the 1996 third quarter
increased $2 million over the third quarter of 1995. This
increase was due primarily to higher debt resulting from lower
cash provided by operations, higher capital expenditures and
increased outlays for acquisitions.
The Company realized a net foreign currency gain of $0.6
million in the third quarter of 1996, representing an increase of
$2.9 million from the net $2.3 million loss realized in 1995.
This was caused largely by premium income associated with hedging
activities relating to Germany and Japan.
During the 1996 third quarter the Company sold its Oral Care
Division and recorded a pretax loss of $26 million on the
transaction. Additionally, during the 1996 third quarter the
Company recorded a $16 million reserve for settlement of the
aforementioned consumer class action case.
The Company's reported income tax rates for the three- and
nine-month periods were (24.1%) and 30.8% in 1996 compared to
37.0% and 36.6% in 1995, respectively. The lower rates in 1996
reflect the tax benefit recognized on the loss on sale of the
Oral Care Division. This benefit resulted from differences
between the tax and book bases which arose upon a previous
writedown of goodwill for financial statement purposes. When
this benefit is excluded, the tax rates for the three- and nine-
month periods were 37.8% and 38.8%, respectively.
Liquidity And Financial Resources
Cash Flows From Operating Activities
Cash flows provided by operating activities totaled $49
million through September 1996, a decrease of $151 million from
the prior year period. This change was primarily attributable to
lower earnings, a higher increase in trade receivables during
1996 versus the comparable period in 1995, a build in inventories
related to newly acquired businesses and in support of new
contact lens product introductions in 1996, the timing of tax
payments and payments against litigation reserves.
Cash Flows Provided By Investing Activities
Cash flows used in investing activities were $146 million,
versus $15 million provided by investing activities in 1995.
Purchases of property, plant and equipment totaled $83 million,
$25 million higher than 1995. Increased capital spending in the
current year has been primarily in support of the development of
new planned replacement contact lens technology and enhanced
sunglass manufacturing capacity. Capital expenditures are
expected to total approximately $110 million in 1996. Investing
activities during 1996 included the acquisitions of Arnette Optic
Illusions, a U.S.-based company marketing sunglasses to the sport
market, and Award plc, manufacturer of a high-water content daily
disposable lens based in Scotland. Other investing activities
included the disposition of the Oral Care Division in 1996 and
the Sports Optics Division in 1995.
Cash Flows From Financing Activities
Through September 1996, $55 million in cash was provided by
financing activities primarily through the issuance of U.S. short-
term debt and medium-term notes. Repurchases of the Company's
common shares have totaled $56 million in 1996 compared to $83
million in 1995.
Free Cash Flow
Management continues to emphasize the generation of cash flow
and management of its working capital requirements. The
Company's goal is to maximize free cash flow which is defined as
cash generated before financing activities and the acquisition
and divestiture of businesses.
Free cash flow for the three- and nine-month periods was $44
million and negative $37 million in 1996 compared to $54 million
and $154 million in 1995. The change from the prior year is
primarily attributable to the operating cash flow factors
described earlier.
Financial Position
The Company's total debt, consisting of short- and long-term
borrowings, increased $146 million from year-end 1995 to $721
million at the end of the 1996 third quarter. Bausch & Lomb's
ratio of total debt to equity stood at 82% in September 1996 and
57% in September 1995. Cash and short-term investments totaled
$152 million and $285 million at the end of the third quarter of
1996 and 1995, respectively. This change reflects the 1995
fourth quarter investment of approximately $136 million in
securities issued by a subsidiary of a triple-A rated financial
institution.
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 the prime rate, or, at the
Company's option, a mutually acceptable market rate. No debt was
outstanding under these agreements at September 28, 1996. In
August 1996, the Company issued $100 million of thirty-year notes
under its $300 million medium-term note program. It was the
first borrowing under this program. The notes were issued at a
fixed rate of 6.56% and may be put back to the Company in August
2001, at the sole option of the holders. Proceeds from the
issuance were used to reduce outstanding short-term borrowings.
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.
On August 7, 1996, Moody's Investors Service downgraded the
Company's long-term debt rating from A2 to A3. This downgrade
will result in future long-term debt being issued at a slightly
higher rate of interest.
Working Capital
Working capital amounted to $106 million at September 1996,
versus $71 million at year-end 1995 and $262 million in September
1995. Working capital benefited from the $100 million issuance
of medium-term notes described earlier. The significant decrease
from the third quarter of the prior year reflects the $136
million investment described previously. The current ratio was
1.1 at September 28, 1996 and December 30, 1995 and 1.4 at
September 30, 1995.
OTHER FINANCIAL DATA
Dividends declared on Common stock were $0.26 per share in both
the third quarters of 1996 and 1995. The return on average
shareholders' equity of 7% for the twelve-month period ended
September 28, 1996 was negatively impacted by the restructuring
charges recorded in December 1995 and June 1996. This return was
6% for the twelve-month period ended September 30, 1995.
Excluding 1994 goodwill impairment and the restructuring charges,
the return on average shareholders' equity would have been 10% in
1996 versus 11% in 1995.
OUTLOOK
The healthcare segment should continue to benefit from growth in
the contact lens business, due primarily to planned replacement
and disposable lenses. In addition, the growth trend in the lens
care solutions business outside of the U.S. is expected to
continue. In the near term, sales in the optics segment are
expected to be sluggish, due to erosion in sales of traditional
styles of sunglasses and reduced orders by the Company's largest
customer in the U.S. specialty sunglass channel. Although
development of new sunglass styles has been accelerated, this is
not expected to completely offset the aforementioned declines
until after the end of this year.
Earnings performance in future years is projected to benefit
from the progress of announced efforts to reduce annualized costs
by $50 million by 1998 and the recently announced restructuring
efforts.
Foreign currency exchange rate changes, particularly in
Japan, are expected to continue to negatively impact sales
comparisons to 1995.
The Company will continue its regular evaluation of its
portfolio of businesses to pursue opportunities to maximize
shareholder return.
OTHER INFORMATION
The statements in this financial review contain various forward-
looking statements based on the Company's beliefs as well as
assumptions made by and information currently available to the
Company. When used in this document, the words "expect",
"anticipate", "project", "should" and similar expressions are
intended to and do identify forward-looking statements. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual
results, performance or achievement of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Among the key factors that may have a direct bearing
on the Company's results are: global economic conditions;
fluctuations in the rate of consumer spending in the U.S. and the
world; changes in U.S. and foreign interest rates; fluctuations
in foreign currencies, particularly in those countries in Europe
and Asia where the Company has several principal manufacturing
plants; the rate and success of development of new manufacturing
technologies including initiatives in the contact lens and
sunglass businesses; the timely flow of competitive new products
and market acceptance of those products; the pricing and
availability of equipment, materials and supplies; brand
awareness; the existence or absence of adverse publicity;
changing trends in consumer preferences and tastes; production,
distribution and supply constraints or difficulties; new product
development and regulatory approval risks, particularly for
personal health and medical sector products; and changes in the
financial markets relating to the Company's capital structure and
cost of capital.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In its 1995 Annual Report on Form 10-K as updated in the
Company's first and second quarter forms 10-Q for 1996, the
Company discussed an action pending in the United States District
Court of the Northern District of Alabama on behalf of a
nationwide class pursuing claims relating to the Company's
marketing and sales of Optima FW, Medalist and SeeQuence2 contact
lens systems and other related proceedings. On October 3, 1996,
the Company was served with a statement of Claim filed in British
Columbia, Canada, naming the Company and Bausch & Lomb Canada.
The plaintiff seeks to represent a class of similarly situated
Canadian consumers.
Reference is made to Item 1 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 30, 1995, and Item 1
contained in the Company's Form 10-Q for the first and second
quarter for 1996, filed on March 30, 1996 and June 29, 1996,
respectively.
Item 5. Other Significant Matters
(a) Appointment of Chief Executive Officer
On October 24, 1996, the Company announced that
its Board of Directors had approved a leadership
transition plan in which William M. Carpenter, currently
the Company's President and Chief Operating Officer, will
become Chief Executive Officer on January 1, 1997.
William M. Waltrip, the Company's present Chairman and
Chief Executive Officer, will continue as Chairman.
(b) Appointment of Directors
On October 23, 1996, the Company announced the
appointment of two new Directors. Domenico De Sole and
Jonathan S. Linen will serve until April 1997, at which
time they will be nominated for election by the Company's
shareholders.
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: November 12, 1996 By:
Stephen A. Hellrung
Senior Vice President,
Secretary and General Counsel
Date: November 12, 1996 By:
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
<CAPTION>
NINE MONTHS ENDED
Dollars And Shares In Thousands- September 28, September 30,
Except Per Share Data 1996 1995
<S> <C> <C>
Net earnings $67,206 $115,387
Actual outstanding Common
shares at beginning of year 56,941 58,992
Average Common shares issued for
stock options and effects of
assumed exercise of Common
stock equivalents and
repurchase of Common shares (148) (745)
Average Common shares outstanding 56,793 58,247
Net earnings per Common and
Common share equivalent $ 1.18 $ 1.98
</TABLE>
<TABLE>
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
<CAPTION>
September 28, December 30,
Dollar Amounts In Thousands 1996 1995
Earnings before provision for
income taxes and minority
<S> <C> <C>
interest $119,780 $211,847
Fixed charges 39,224 47,584
Capitalized interest, net
of current period
amortization 240 260
Total earnings as adjusted $159,244 $259,691
Fixed charges:
Interest (including interest
expense and capitalized
interest) $ 37,818 $ 45,765
Portion of rents
representative of the
interest factor 1,406 1,819
Total fixed charges $ 39,224 $ 47,584
Ratio of earnings to
fixed charges 4.062 5.461
</TABLE>
1 Excluding the effect of the gain on sale of Sports Optics
Division and restructuring charges recorded in 1995, the
ratio of earnings to fixed charges at December 30, 1995 would
have been 5.26.
2 Excluding the effects of the restructuring charges recorded
in 1996 and the loss on divestiture of the Oral Care
Division, the ratio of earnings to fixed charges at September
28, 1996 would have been 5.11.
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> SEP-28-1996 SEP-30-1996
<PERIOD-END> SEP-28-1996 SEP-30-1996
<CASH> 150,980 150,980
<SECURITIES> 1,277 1,277
<RECEIVABLES> 289,097 289,097
<ALLOWANCES> (13,898) (13,898)
<INVENTORY> 327,338 327,338
<CURRENT-ASSETS> 968,885 968,885
<PP&E> 1,120,489 1,120,489
<DEPRECIATION> 573,047 573,047
<TOTAL-ASSETS> 2,626,274 2,626,274
<CURRENT-LIABILITIES> 862,461 862,461
<BONDS> 323,327 323,327
<COMMON> 24,167 24,167
0 0
0 0
<OTHER-SE> 859,223 859,223
<TOTAL-LIABILITY-AND-EQUITY> 2,626,274 2,626,274
<SALES> 1,492,016 477,189
<TOTAL-REVENUES> 1,492,016 477,189
<CGS> 661,454 219,769
<TOTAL-COSTS> 661,454 219,769
<OTHER-EXPENSES> 659,871 196,304
<LOSS-PROVISION> 6,774 3,194
<INTEREST-EXPENSE> 37,818 12,995
<INCOME-PRETAX> 119,780<F1> 16,096<F1>
<INCOME-TAX> 36,836 (3,877)
<INCOME-CONTINUING> 67,206 14,434
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 67,206 14,434
<EPS-PRIMARY> 1.18 .25
<EPS-DILUTED> 1.18 .25
<FN>
<F1>Income Before Taxes and Minority Interest
</FN>
</TABLE>
