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
June 29, 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 June 29, 1996 was 56,572,837 consisting of 55,848,089 shares of
Common Stock and 724,748 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.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited financial statements for the second quarters of 1996 and
1995 of Bausch & Lomb Incorporated and Consolidated Subsidiaries are
presented on the following pages. The audited balance sheet at
December 30, 1995 is presented for comparative purposes. Financial
statements for the six months ended June 29, 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.
<PAGE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF EARNINGS
<CAPTION>
Second Quarter Ended Six Months Ended
Dollar Amounts In Thousands - June 29, July 1, June 29, July 1,
Except Per Share Data 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $545,559 $535,459 $1,014,827 $1,001,060
Costs And Expenses
Cost of products sold 233,796 234,089 441,685 452,454
Selling, administrative
and general 213,952 210,878 411,274 400,943
Research and development 19,442 16,730 37,216 31,653
Restructuring charges 15,077 - 15,077 -
------- ------- ------- -------
482,267 461,697 905,252 885,050
------- ------- ------- -------
Operating Earnings 63,292 73,762 109,575 116,010
------- ------- ------- -------
Other (Income) Expense
Investment income (9,264) (9,530) (18,978) (19,529)
Interest expense 12,505 11,847 24,823 23,986
Loss from foreign currency, net 95 372 46 1,964
Gain on sale of Sports Optics
Division - (35,902) - (35,902)
Litigation provision - 16,000 - 16,000
------- -------- ------- --------
3,336 (17,213) 5,891 (13,481)
------- -------- ------- --------
Earnings Before Income Taxes
And Minority Interest 59,956 90,975 103,684 129,491
Provision for income taxes 24,184 33,804 40,713 47,062
------ ------ ------- -------
Earnings Before Minority Interest 35,772 57,171 62,971 82,429
Minority interest in subsidiaries 5,509 5,582 10,199 10,556
------ ------ ------- -------
Net Earnings $ 30,263 $ 51,589 $ 52,772 $ 71,873
Retained Earnings At
Beginning Of Period 907,894 852,272 900,095 846,245
Cash Dividends Declared:
Common stock ($0.26 and $0.52
per share in 1996 and $0.245
and $0.49 per share in 1995) 14,734 14,283 29,444 28,540
------- ------- ------- -------
Retained Earnings
At End Of Period $923,423 $889,578 $ 923,423 $ 889,578
======= ======= ========= =========
Net Earnings Per
Common Share $ 0.54 $ 0.89 $ 0.93 $ 1.23
==== ==== ==== ====
Average Common Shares
Outstanding (000s) 57,034 58,451
====== ======
See Notes To Financial Statements
</TABLE>
<PAGE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
<CAPTION>
June 29, December 30,
Dollar Amounts In Thousands 1996 1995
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 136,460 $ 193,814
Short-term investments,
at cost which approximates market 816 803
Trade receivables, less allowances
of $12,858 and $11,232, respectively 314,247 250,587
Inventories, net 334,376 304,298
Deferred taxes, net 77,720 82,557
Other current assets 129,324 98,288
------- -------
992,943 930,347
Property, Plant And Equipment, net 543,704 550,366
Goodwill And Other Intangibles,
less accumulated amortization of
$99,822 and $96,597, respectively 447,254 381,495
Other Investments 554,728 561,232
Other Assets 137,097 126,626
--------- ---------
Total Assets $2,675,726 $2,550,066
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 451,667 $ 284,510
Current portion of long-term debt 45,184 98,990
Accounts payable 70,682 81,927
Accrued compensation 81,817 79,767
Accrued liabilities 293,012 275,936
Federal and foreign income taxes 29,179 38,347
------- -------
971,541 859,477
Long-Term Debt, less current portion 224,476 190,974
Other Long-Term Liabilities 126,293 139,925
Minority Interest 431,791 430,390
--------- ---------
Total Liabilities 1,754,101 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,
1,095,194 and 1,268,578 shares
issued, respectively 88 101
Capital in excess of par value 94,583 107,788
Cumulative translation adjustment 76,978 85,122
Retained earnings 923,423 900,095
--------- ---------
1,119,151 1,117,185
Common and Class B Stock in treasury,
at cost, 4,720,679 and 4,525,844 shares,
respectively (188,579) (178,730)
Unearned compensation (6,156) (9,155)
Unrealized holding loss on other investments (2,791) -
--------- ---------
Total Shareholders' Equity 921,625 929,300
--------- ---------
Total Liabilities And Shareholders' Equity $2,675,726 $2,550,066
========= =========
See Notes To Financial Statements
</TABLE>
<PAGE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
<CAPTION>
Six Months Ended
June 29, July 1,
Dollar Amounts In Thousands 1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 52,772 $ 71,873
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation of property, plant and equipment 44,634 44,348
Amortization 11,570 8,059
Decrease/(increase) in deferred income taxes 1,359 (6,690)
Restructuring charges, net of taxes 10,898 -
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 5,112 1,298
Exchange loss 3,072 8,071
Increase in minority interest 2,143 1,446
Increase in accounts receivable (62,181) (24,938)
Increase in inventories (26,578) (11,618)
(Increase)/decrease in other current assets (29,852) 7,626
(Decrease)/increase in accounts payable
and accruals (12,647) 36,351
(Decrease)/increase in tax liabilities (5,595) 4,505
Decrease in other long-term liabilities (13,466) (11,372)
------- -------
Net cash (used in) provided by operating
activities (18,759) 118,696
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of property,
plant and equipment (56,233) (33,997)
Proceeds from sale of equipment 10,000 -
Acquisition of businesses, net of cash and
short-term investments acquired (81,294) (1,180)
Proceeds from sale of Sports Optics Division,
net of cash and short-term investments disposed - 76,291
Other (14,836) 5,477
------- ------
Net cash (used in) provided by
investing activities (142,363) 46,591
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common shares (20,283) (74,933)
Exercise of stock options 3,778 3,683
Restricted stock awards - 1,602
Net proceeds from issuance (repayments)
of notes payable 167,730 (10,941)
Proceeds from issuance of long-term debt 34,270 -
Repayment of long-term debt (51,146) (4,244)
Payment of dividends (29,559) (28,748)
------- -------
Net cash provided by (used in) financing
activities 104,790 (113,581)
------- --------
Effect of exchange rate changes on cash,
cash equivalents and short-term investments (1,009) 9,923
------- ---------
Net (decrease)/increase in cash, cash equivalents
and short-term investments (57,341) 61,629
Cash, cash equivalents and short-term investments,
beginning of period 194,617 232,542
------- -------
Cash, cash equivalents and short-term investments,
end of period $137,276 $294,171
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 23,941 $ 24,052
Income taxes $ 48,076 $ 43,063
See Notes To Financial Statements
</TABLE>
<PAGE>
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 57,034,000 at June 29, 1996 and 58,451,000 at
July 1, 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:
<TABLE>
<CAPTION>
June 29, December 30,
(Dollar Amounts In Thousands) 1996 1995
<S> <C> <C>
Raw materials and supplies $ 95,268 $ 76,834
Work in process 17,104 21,905
Finished products 231,242 214,901
------- -------
343,614 313,640
Less:Reserve for valuation of
certain U.S. inventories at
last-in, first-out cost 9,238 9,342
------- -------
$334,376 $304,298
======= =======
</TABLE>
NOTE C: Property, Plant And Equipment
Major classes of property, plant and equipment consisted of the
following:
<TABLE>
<CAPTION> June 29, December 30,
(Dollar Amounts In Thousands) 1996 1995
<S> <C> <C>
Land $ 21,633 $ 22,124
Leasehold improvements 33,761 33,720
Buildings 398,311 396,954
Machinery and equipment 650,526 629,952
--------- ---------
1,104,231 1,082,750
Less:Accumulated depreciation 560,527 532,384
--------- ---------
$ 543,704 $ 550,366
========= =========
</TABLE>
<PAGE>
NOTE D: Legal Proceedings
In its 1995 Annual Report on Form 10-K, 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
SeeQuence 2 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 will
record 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.
<PAGE>
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 second quarter and six-month operating
results are complicated by certain significant events described below.
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
pre-tax restructuring charge of $15 million was recorded. 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 six-month period ended June 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, 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. Optics
segment results for 1995 also included the Company's Sports Optics
Division.
<PAGE>
Consolidated revenues for the second quarter ended June 29, 1996 were
$546 million, an increase of $10 million or 2% over the 1995 second
quarter. Changes in foreign currency exchange rates weakened sales
comparisons to 1995 by approximately $19 million or 3%. For the first six
months of 1996, net sales of $1,015 advanced $14 million or 1% over the
comparable 1995 period. Changes in foreign currency exchange rates
weakened sales comparisons to the 1995 period by $23 million or 2%. When
results for the divested sports optics business are excluded from 1995
results, year-to-date sales improved $32 million or 3%. The following is
a summary of sales by business segment:
<TABLE>
<CAPTION>
Net Sales By Business Segment
Second Quarter Six Months
(Dollar Amounts In Millions) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Healthcare $369.0 $353.2 $ 702.9 $ 669.5
Optics 176.6 182.3 311.9 331.6
----- ----- ------- -------
Net Sales $545.6 $535.5 $1,014.8 $1,001.1
===== ===== ======= =======
</TABLE>
Healthcare Segment Revenues
Revenues in the healthcare segment increased $16 million or 4% over the
1995 second quarter. On a year-to-date basis, healthcare segment revenues
advanced $33 million or 5%. Major product sector revenues as a percentage
of total healthcare segment sales are presented below:
<TABLE>
<CAPTION>
Healthcare Segment Sales By Product Sector
Second Quarter Six Months
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Personal Health 47% 50% 48% 50%
Medical 40% 37% 38% 36%
Biomedical 13% 13% 14% 14%
</TABLE>
Within the personal health sector, 1996 second quarter revenues were
even with comparable 1995 amounts. An overall slight improvement was
achieved for the Company's lens care solutions products. Continued strong
demand for the Company's products in most major markets in Europe and the
Asia Pacific region was somewhat offset by results in the U.S., where the
overall market has not experienced growth in the current year.
Nevertheless, the Company successfully defended its large U.S. market
position and registered share gains and modest growth for soft lens care
solutions. A 7% sales gain was achieved by the Company's line of skin
care products in the U.S. Revenues for over-the-counter medications in
Europe advanced 5%. Eye care products achieved 11% sales growth,
primarily driven by results for the Opcon-A antihistamine/decongestant.
Revenues for consumer oral care products were significantly below the
second quarter of 1995, primarily due to sluggish demand for Interplak
power toothbrushes.
<PAGE>
Medical sector sales increased 12% from second quarter 1995 levels.
Worldwide contact lens revenues advanced 14%, led by significant gains for
planned replacement products, including SofLens66 and Gold Medalist Toric,
most notably in Asia, Europe and the U.S. The continued shift in market
demand toward planned replacement lenses led to an 8% decline in revenues
for traditional contact lenses, primarily in Asia. Worldwide ophthalmic
pharmaceutical revenues improved 8% led by results in the U.S. where gains
were largely attributable to the success of products recently introduced
to the Company's portfolio, including Ocutricin and Minoxidil. Medical
sector sales also benefited from increased demand for dental implants and
hearing aids.
Revenues in the Company's biomedical sector were even with the 1995
second quarter. Increased shipments of specific pathogen-free eggs and
incremental sales generated by recent acquisitions were offset by the
unfavorable impact of foreign currency changes.
Optics Segment Revenues
Second quarter revenues in the optics segment decreased 3% to $177
million, compared to $182 million in 1995. For the first six months of
the year, revenues decreased 6% to $312 million, compared to $332 million
in 1995. When results for the divested sports optics business are
excluded from the latter comparison, optics segment revenues were even
with the prior year. Worldwide sunglass sales declined 2% from the 1995
second quarter, largely in regions outside the U.S. In the U.S., a 2%
sales improvement reflected incremental 1996 revenues from the first
quarter acquisition of the Arnette sunglass line, with products directed
toward the important sport channel of trade, and increased sales of Revo
sunglasses. These results were offset by shortfalls in the Ray-Ban
product lines, where demand for classic styles has declined sharply. An
important measure for success in the sunglass business is the sale of new
products, which accounted for more than 35% of global sunglass revenues in
the second quarter of 1996. Orders for new products and more contemporary
sunglass styles exceeded the Company's expectations, which resulted in a
substantial level of unfilled demand. Revenues for thin film coating
products and services declined significantly based on increased
competition for core products from manufacturers outside the U.S.
Net Sales By Geographic Region
The following analysis of trends excludes 1995 revenues from the sports
optics business.
Sales in markets outside the U.S. totaled $268 million in the second
quarter, an increase of $2 million or 1% from 1995, and represented 49% of
consolidated revenues, compared to 50% in 1995. European revenues
increased 6%, reflecting improved demand for the Company's planned
replacement lenses, lens care solutions and pharmaceuticals products.
Sales in Asia declined 8% due mainly to unfavorable exchange rate
fluctuations in Japan. Revenues in Canada and Latin America increased 4%,
primarily due to higher planned replacement lens and lens care solutions
sales.
<PAGE>
U.S. sales totaled $277 million in the second quarter, a gain of $8
million or 3% 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, offset by
results for oral care products.
Costs And Expenses
The cost of products sold ratio was 43% for the 1996 second quarter versus
44% for the comparable 1995 period. For the six-month period, this ratio
was 44% for 1996 and 45% for 1995. The improvement was primarily
attributable to results for soft contact lenses. These products
incurred operating losses in the 1995 quarter and six-month periods, but
have experienced a return to profitability in the 1996 periods. These
trends more than offset the negative impact of currency.
Selling, administrative and general expenses were 39% of sales in the
second quarters of both 1996 and 1995. For the six-month period, these
expenses were 41% of sales in 1996 compared to 40% in 1995. This increase
reflects higher spending for pharmaceutical and U.S. lens care advertising
and amortization expense related to newly acquired businesses. Corporate
administration expense was 2.5% of sales in the 1996 second quarter versus
2.3% for 1995. Research and development expense for the 1996 second
quarter was 3.6% of sales versus 3.1% 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.
The following table sets forth the activity in the restructuring
reserves through June 29, 1996:
<TABLE>
<CAPTION>
Dollar Amounts In Millions Contact Corporate
Sunglass Biomedical Lens Solutions Administration Total
Restructuring
Provisions:
Total
<S> <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 1.6 1.4 - - 0.5 3.5
Less charges
against 1996
reserve:
Non-cash items 0.6 - 0.4 0.7 - 1.7
Cash payments - - - 0.1 - .1
Balance at
June 29, 1996 $15.2 $1.2 $3.7 $3.7 $3.0 $26.8
</TABLE>
Reserves remaining at June 29, 1996 primarily represent liabilities
for continuing severance payments and are believed to be adequate.
<PAGE>
Business Segment And Operating Earnings
Business segment earnings of $77 million for the 1996 second quarter
decreased $9 million or 10% compared to the 1995 second quarter. The
continued return to profitability for contact lens products and improved
operating results for hearing aids were offset by the restructuring charge
recorded in the current quarter. Operating earnings totaled $63 million,
a decrease of $10 million or 14% from the 1995 second quarter.
Other Income And Expenses
Income from investments totaled $9 million for the second quarter of 1996,
compared to $10 million in 1995. Interest expense of $13 million for the
1996 second quarter increased $1 million over the second quarter of 1995.
Overall, the impact of slightly lower interest rates was offset by higher
levels of debt, primarily related to acquisitions.
The Company realized a net foreign currency loss of $0.1 million,
representing a decline of $0.3 million from the net $0.4 million loss
realized in 1995. This was based largely on favorable results of hedging
activities.
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 reported income tax rates for the three- and six-month
periods were 40.3% and 39.3% in 1996 compared to 37.2% and 36.3% in 1995,
respectively. The higher rate in 1996 reflected shifts in the geographic
mix of earnings.
Liquidity And Financial Resources
Cash Flows From Operating Activities
Net earnings adjusted for non-cash items increased 11% from 1995.
However, cash flows used in operating activities totaled $19 million
through June 1996, compared to a positive $119 million provided by
operations in the prior year period. This change was primarily
attributable to 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 cash paid for the
net settlement of foreign currency hedge contracts.
<PAGE>
Cash Flows From Investing Activities
Cash flows used in investing activities were $142 million, versus the $47
million provided by investing activities in 1995. Purchases of property,
plant and equipment totaled $56 million, $22 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 $130 million in 1996.
Other 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, while 1995 activities included the
disposition of the sports optics business.
Cash Flows From Financing Activities
Approximately $105 million in cash was provided by financing activities
through June 1996, mainly through the issuance of U.S. short-term debt.
Repurchases of the Company's Common shares have totaled $20 million in
1996 compared to $75 million in 1995. The higher level of repurchases in
1995 was financed primarily with cash proceeds received from the sale of
the Sports Optics Division.
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 six months ended June 29, 1996 totaled a
negative $81 million. For the six months ended July 1, 1995 free cash
flow totaled a positive $100 million. 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 $147 million from year-end 1995 to $721 million at the end of
the 1996 second quarter. Borrowings have been used to finance
acquisitions, fund working capital requirements and repurchase shares of
common stock. Bausch & Lomb's ratio of total debt to equity stood at 78%
in June 1996 and 63% in June 1995. Cash and investments totaled $137
million and $294 million at the end of the second 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 by the Company's
subsidiary, Bausch & Lomb Ireland.
<PAGE>
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 June 29, 1996 nor were there any borrowings outstanding
under the Company's $300 million medium-term note program. On August 7,
1996 the Company issued $100 million of medium-term notes under the
existing program. Such notes were issued at a fixed rate of 6.56% and may
be put back to the Company on August 13, 2001, at the sole option of the
holders of such notes, and will mature on August 26, 2026 if such option
is not exercised. Proceeds from the issuance will be 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.
Working Capital
Working capital amounted to $21 million for the second quarter of 1996,
versus $71 million at year-end 1995 and $244 million for the second
quarter of 1995. The significant decrease from the second quarter of the
prior year reflects the $136 million investment described previously. The
current ratio was 1.0 at June 29, 1996, 1.1 at December 30, 1995 and 1.3
at July 1, 1995.
OTHER FINANCIAL DATA
Dividends declared on Common stock were $0.26 per share in the second
quarter of 1996 and $0.245 per share in the second quarter of 1995. As a
result of the charges recorded in December 1995 and June 1996, the return
on average shareholders' equity for the twelve-month period ended June 29,
1996 was 10%. This return was 3% for the twelve-month period ended July
1, 1995. Excluding 1994 goodwill impairment and the restructuring
charges, the return on average shareholders' equity would have been 13% in
1996 versus 9% in 1995.
OUTLOOK
Worldwide sales for many of the Company's products are expected to
continue to develop at a good rate for the remainder of the year and to
show improvement over 1995 results. Within the sunglass business these
increases will be dependent on the continued success of new products as
well as on incremental sales from the Arnette brands. It is anticipated
that the contact lens business should continue to benefit from growth in
the planned replacement lens area and from the acquisition of Award plc,
which should enhance the Company's competitive position in Europe. In the
lens care solutions business, the trend of growth outside the U.S. is also
expected to continue.
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. Approximately $5
million of one-time period costs in addition to the 1996 restructuring
charge will be incurred during the second half of 1996, primarily in the
third quarter. These costs include systems development, relocation and
training of personnel.
Foreign currency exchange rate changes, particularly in Japan, are
expected to continue to negatively impact sales comparisons to 1995.
<PAGE>
Lastly, the Company will continue its regular reevaluation of its
portfolio of businesses to pursue opportunities to maximize shareholder
return. As announced in July, this has led to an agreement to sell the
Steri-Oss dental implant business at a gain prior to year end.
Additionally, the Company continues to explore the sale of the Oral Care
Division which markets the Interplak line of products.
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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In its 1995 Annual Report on Form 10-K, 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 SeeQuence 2
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 will record 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.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1996 annual meeting of shareholders was held on May 10, 1996. The
nominees for Director elected at the meeting were as follows:
Votes Cast
Nominee For Withheld
William M. Carpenter 46,979,870 1,062,473
John R. Purcell 46,882,813 1,159,530
Alvin W. Trivelpiece 46,890,914 1,151,429
William H. Waltrip 46,896,401 1,145,942
The shareholders voted to ratify the appointment of Price Waterhouse as
independent accountants for 1996. 47,568,425 shares of Common and Class B
stock were voted in favor of the proposal, 301,381 shares of Common and
Class B stock were voted against the proposal and 172,537 shares of Common
and Class B stock abstained.
The shareholders also voted to approve an Annual Retainer Stock Plan for
Non-Employee Directors. 46,752,533 shares of Common and Class B stock
were voted in favor of the proposal, 1,012,589 shares of Common and Class
B stock were voted against the proposal, and 277,221 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAUSCH & LOMB INCORPORATED
Date: August 12, 1996 By:
Stephen A. Hellrung
Senior Vice President,
Secretary and General Counsel
Date: August 12, 1996 By:
Stephen C. McCluski
Senior Vice President, Finance
<PAGE>
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).
<PAGE>
<TABLE>
Exhibit 11
Statement Regarding Computation of Per Share Earnings
<CAPTION>
SIX MONTHS ENDED
Dollars And Shares In Thousands- June 29, July 1,
Except Per Share Data 1996 1995
<S> <C> <C>
Net earnings $52,772 $71,873
====== ======
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 93 (541)
------ ------
Average Common shares outstanding 57,034 58,451
====== ======
Net earnings per Common and
Common share equivalent $ 93 $ 1.23
====== ======
</TABLE>
<PAGE>
<TABLE>
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to
Fixed Charges
<CAPTION>
June 29, December 30,
Dollar Amounts In Thousands 1996 1995
<S> <C> <C>
Earnings before provision for
income taxes and minority
interest $103,684 $211,847
Fixed charges 25,344 47,584
Capitalized interest, net
of current period
amortization 160 260
------- -------
Total earnings as adjusted $129,188 $259,691
======= =======
Fixed charges:
Interest (including interest
expense and capitalized
interest) $ 24,823 $ 45,765
Portion of rents
representative of the
interest factor 521 1,819
------- -------
Total fixed charges $ 25,344 $ 47,584
======= =======
Ratio of earnings to
fixed charges 5.10 (2) 5.46 (1)
==== ====
</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, the ratio of earnings to fixed charges
at June 29, 1996 would have been 5.69.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-28-1996 DEC-28-1996
<PERIOD-END> JUN-29-1996 JUN-29-1996
<CASH> 136,460 136,460
<SECURITIES> 816 816
<RECEIVABLES> 327,105 327,105
<ALLOWANCES> 12,858 12,858
<INVENTORY> 334,376 334,376
<CURRENT-ASSETS> 992,943 992,943
<PP&E> 1,104,231 1,104,231
<DEPRECIATION> 560,527 560,527
<TOTAL-ASSETS> 2,675,726 2,675,726
<CURRENT-LIABILITIES> 971,541 971,541
<BONDS> 224,476 224,476
<COMMON> 24,167 24,167
0 0
0 0
<OTHER-SE> 897,458 897,458
<TOTAL-LIABILITY-AND-EQUITY> 2,675,726 2,675,726
<SALES> 1,014,827 545,559
<TOTAL-REVENUES> 1,014,827 545,559
<CGS> 441,685 233,796
<TOTAL-COSTS> 441,685 233,796
<OTHER-EXPENSES> 463,567 248,471
<LOSS-PROVISION> 3,580 1,861
<INTEREST-EXPENSE> 24,823 12,505
<INCOME-PRETAX> 103,684<F1> <F1>59,956
<INCOME-TAX> 40,713 24,184
<INCOME-CONTINUING> 52,772 30,263
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 52,772 30,263
<EPS-PRIMARY> .93 .54
<EPS-DILUTED> .93 .54
<FN>
<F1>Income Before Taxes and Minority Interest
</FN>
</TABLE>
