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
March 29, 1997 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 March 29, 1997 was 55,527,265, consisting of 54,803,812 shares of
Common stock and 723,453 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 for the first quarters of
1997 and 1996 of Bausch & Lomb Incorporated and Consolidated
Subsidiaries are presented on the following pages. The audited balance
sheet at December 28, 1996 is presented for comparative purposes.
Financial statements for the three months ended March 29, 1997 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.
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF EARNINGS
First Quarter Ended
Dollar Amounts In Millions - March 29, March 30,
Except Per Share Data 1997 1996
Net Sales $ 451.2 $469.3
Costs And Expenses
Cost of products sold 227.2 207.9
Selling, administrative and general 181.0 197.3
Research and development 15.6 17.8
Restructuring charges 12.8 -
436.6 423.0
Operating Earnings 14.6 46.3
Other (Income) Expense
Investment income (10.0) (9.7)
Interest expense 13.6 12.3
(Gain) loss from foreign currency, net (1.2) -
2.4 2.6
Earnings Before Income Taxes And 12.2 43.7
Minority Interest
Provision for income taxes 4.3 16.5
Earnings Before Minority Interest 7.9 27.2
Minority interest in subsidiaries 4.6 4.7
Net Earnings $ 3.3 $ 22.5
Retained Earnings At Beginning Of Period 924.7 900.1
Cash Dividends Declared:
Common stock, $0.26 per share
in 1997 and 1996 14.4 14.7
Retained Earnings At End Of Period $ 913.6 $ 907.9
Net Earnings Per Common Share $ 0.06 $ 0.39
Average Common Shares Outstanding (000s) 55,615 57,108
See Notes to Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
March 29, December 28,
Dollar Amounts In Millions 1997 1996
ASSETS
Current Assets
Cash, cash equivalents and short-term investments $ 151.9 $ 167.8
Trade receivables, less allowances
of $13.5 and $13.3, respectively 358.4 268.4
Inventories, net 316.7 339.8
Recoverable income taxes 12.2 6.0
Deferred taxes, net 54.8 48.6
Other current assets 148.9 117.0
1,042.9 947.6
Property, Plant And Equipment, net 553.9 566.7
Goodwill And Other Intangibles,
less accumulated amortization
of $91.7 and $83.8, respectively 385.5 390.9
Other Investments 549.9 560.3
Other Assets 147.7 137.9
Total Assets $2,679.9 $2,603.4
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 526.2 $ 394.1
Current portion of long-term debt 87.4 88.0
Accounts payable 64.2 71.1
Accrued compensation 73.0 82.2
Accrued liabilities 297.1 293.7
1,047.9 929.1
Long-Term Debt, less current portion 235.6 236.3
Other Long-Term Liabilities 111.2 124.0
Minority Interest 431.2 432.1
Total Liabilities 1,825.9 1,721.5
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 24.1 24.1
Class B stock, par value $0.08 per share,
1,072,027 and 1,150,409 shares
issued, respectively 0.1 0.1
Capital in excess of par value 93.2 96.1
Retained earnings 913.6 924.7
Common and Class B stock
in treasury, at cost, 5,743,084 and
5,944,982 shares, respectively (221.2) (230.5)
Other Shareholders' Equity 44.2 67.4
Total Shareholders' Equity 854.0 881.9
Total Liabilities And Shareholders' Equity $2,679.9 $2,603.4
See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Three Months Ended
March 29, March 30,
Dollar Amounts In Millions 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3.3 $ 22.5
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation 22.2 23.1
Amortization 4.8 5.1
Change in deferred income taxes (1.6) 0.6
Restructuring charges, net of taxes 7.7 -
Loss on retirement of fixed assets 3.0 1.5
Changes in assets and liabilities:
Trade receivables (30.8) (21.8)
Inventories 9.4 (20.7)
Other current assets (36.3) (23.8)
Accounts payable and accruals (7.7) (24.4)
Income taxes 4.1 (10.5)
Other long-term liabilities (11.2) (5.7)
Net cash used in operating activities (33.1) (54.1)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchases of property, plant
and equipment (26.1) (25.6)
Net cash paid for acquisition of businesses - (80.2)
Other (10.9) (15.0)
Net cash used in investing activities (37.0) (120.8)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common and Class B shares (0.1) (9.9)
Exercise of stock options 3.7 1.1
Net proceeds from notes payable 68.5 142.4
Proceeds from issuance of long-term debt 2.5 34.3
Repayment of long-term debt (0.6) (51.2)
Payment of dividends (14.2) (14.8)
Net cash provided by financing activities 59.8 101.9
Effect of exchange rate changes on cash,
cash equivalents and short-term investments (5.6) (2.6)
Net decrease in cash, cash equivalents and
short-term investments (15.9) (75.6)
Cash, cash equivalents and short-term investments,
beginning of period 167.8 194.6
Cash, cash equivalents and short-term investments,
end of period $151.9 $119.0
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 17.6 $ 16.6
Income taxes $ 7.5 $ 24.5
See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Dollar Amounts in Millions - Except Per Share Data
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 55,615,000 at March 29, 1997 and 57,108,000
shares at March 30, 1996.
See Exhibit 11 filed as a part of this report for details
regarding the computation of earnings per share.
Effective for the quarter ending December 27, 1997, the company
will be required to adopt Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128
replaces the presentation of primary earnings per share with a
presentation of basic earnings per share and requires dual
presentation of basic and diluted earnings per share on the face
of the income statement. Had earnings per share been determined
consistent with SFAS No. 128, the company's basic earnings per
share would have been $0.06 and $0.40 for quarters ended March
29, 1997 and March 30, 1996, respectively. Diluted earnings per
share would have been $0.06 and $0.39 for each period,
respectively.
NOTE B: Inventories
Inventories consisted of the following:
March 29, December 28,
1997 1996
Raw materials and supplies $ 82.3 $ 89.4
Work in process 22.0 20.1
Finished products 220.4 238.3
324.7 347.8
Less: Allowance for valuation of
certain U.S. inventories
at last-in, first-out cost 8.0 8.0
$316.7 $339.8
NOTE C: Property, Plant And Equipment
Major classes of property, plant and equipment consisted of the
following:
March 29, December 28,
1997 1996
Land $ 21.3 $ 22.1
Leasehold improvements 32.3 33.1
Buildings 387.0 403.7
Machinery and equipment 700.2 689.7
1,140.8 1,148.6
Less: Accumulated depreciation 586.9 581.9
$ 553.9 $ 566.7
NOTE D: Adoption of SFAS 125
Beginning in the first quarter of 1997, the company adopted SFAS
125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities." Under this pronouncement,
an accounts receivable sale agreement entered into by the
company is now required to be presented as a financing
arrangement. As a result, the balance sheet at March 29, 1997
reflects $65 in receivables and borrowings related to this
agreement.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Dollar Amounts in Millions - Except Per Share Data
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. 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 &
Poor's 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. In that regard, the company recently adopted a new
financial management performance measurement system, Economic Value
Added (EVA), which has been implemented in 1997. EVA combines earnings
and capital management objectives into one index by subtracting from
earnings a capital charge for the utilization of assets employed to
generate those earnings. It aligns business decisions made by the
company with shareholder expectations that capital is being utilized
effectively.
RESULTS OF OPERATIONS
Comparability of Business Segment Information
Comparison of the company's 1997 and 1996 first quarter operating
results requires the consideration of certain significant events.
As announced in April 1997, the company's board of directors
approved plans to restructure portions of each of the company's four
business segments, as well as certain corporate administrative
functions, and a pre-tax restructuring charge of $13 was recorded. The
after-tax impact of this charge was $8 or $0.14 per share.
During 1996, the company divested two of its non-strategic
businesses, whose 1996 results were reported in the healthcare segment.
The dental implant business, which was sold in November 1996 and the
Oral Care Division, which was divested in September 1996, contributed
combined revenues of $15 and operating losses of $3 in the first quarter
of 1996.
NET SALES BY BUSINESS SEGMENT
Bausch & Lomb's operating results are reported in four business
segments: vision care, eyewear, pharmaceuticals and healthcare. The
vision care segment includes contact lenses and materials and contact
lens solutions. The eyewear segment is comprised of sunglasses and thin
film coating services. The pharmaceuticals segment includes
prescription ophthalmics and over-the-counter (OTC) medications. The
healthcare segment is comprised of biomedical products, hearing aids,
skin care products and the divested oral care and dental implant
businesses.
The following is a summary of sales by business segment:
Net Sales By Business Segment
First Quarter
1997 1996
Vision Care $201.4 $197.6
Eyewear 121.4 137.4
Pharmaceuticals 49.0 48.5
Healthcare - ongoing 79.4 70.9
451.2 454.4
Divested Healthcare - 14.9
Net Sales $451.2 $469.3
Consolidated revenues for the quarter ended March 29, 1997 were
$451, a decrease of $18 or 4% from the 1996 first quarter. When results
for divested businesses are excluded from 1996 results, the revenue
decrease from 1996 is $3 or 1%. Changes in foreign currency exchange
rates reduced sales in U.S. dollars by 3% compared to the first quarter
of 1996. Revenue declines in the eyewear segment were offset by modest
increases in the vision care and pharmaceuticals segments and double-
digit growth in the ongoing healthcare segment.
Vision Care Segment Results
The vision care segment includes results of the contact lens and lens
care businesses, with lenses comprising 45% of first quarter 1997
revenues and lens care representing 55%. For the first quarter of 1997,
revenues improved to $201, or 2% over the same period in 1996, resulting
from a 10% increase in contact lens sales offset by a 4% decline in lens
care sales and the adverse impact of foreign currency rate fluctuations.
On a constant dollar basis, vision care segment revenues increased 5%
over the prior year.
Strong performance in contact lenses was driven by a double-digit
increase in revenues for planned replacement and disposable lenses
(collectively PRP) which experienced strong gains in all geographic
areas. Traditional lens sales reflected a modest decline compared to
prior year results as the anticipated shift toward PRP lenses continued.
Rigid gas permeable (RGP) lens revenues were moderately below prior year
as declines in the U.S. and Europe were partially offset by an increase
in the Asia-Pacific region.
Revenues from lens care products decreased 4% from the first quarter
of 1996, reflecting both the effects of currency and slower sales in the
U.S. this quarter. Results in the U.S. were negatively impacted by
increased competition during the period and the timing of promotions,
but were in line with management's expectations.
Eyewear Segment Revenues
Eyewear segment revenues declined 12% in the first quarter of 1997
versus 1996. Sales of sunglasses, the major product line in the
segment, were down 11% due to sharply lower sales to Sunglass Hut
International, the segment's largest customer, and the effect of
currency, particularly in the Europe and Asia-Pacific regions.
Excluding the effect of currency and sales to this customer, total
sunglass revenues were up 5% benefiting from the performance of new
sunglass styles, such as Ray-Ban Rituals and Daddy-O and continuing
expansion of the company's Killer Loop sport brand. In the U.S.,
sunglass sales were down 17%, despite a 9% gain in sales to channels
other than sunglass specialty stores. Excluding the effect of currency
and sales to Sunglass Hut, sales outside the U.S. were up 2% led by
double-digit growth in Europe.
Pharmaceuticals Segment Revenues
Total revenues in the pharmaceuticals segment increased 1% from 1996
levels. Adverse currency movements impacted worldwide sales in U.S.
dollars by 7% compared to 1996.
Within the U.S., sales advanced 21%, largely attributed to the
successful launch of a generic equivalent of Polytrim, an anti-infective
drug for the eye, and higher sales of Ocutricin, Minoxidil and Crolom.
European revenues declined 13% from the same 1996 period. These
shortfalls were largely attributed to adverse currency effects and
pharmacy and wholesaler inventory reductions due to economic conditions
in Germany.
Healthcare Segment Revenues
Ongoing healthcare segment revenues for the first quarter of 1997 were
$79, an increase of $9 or 12% over the comparable period in 1996. Sales
for biomedical products rose 11%, driven primarily by increases in sales
of purpose-bred animals due to recent product line extensions and
significant increases in U.S. sales of pathogen-free egg products and
professional services. Hearing aid revenues increased 25% from 1996
aided by an increase in the number of company-owned retail outlets.
Skin care product sales increased 5% as gains by the Curel brand were
partially offset by lower sales of Soft Sense.
Net Sales By Geographic Region
The following analysis of trends excludes 1996 revenues from the oral
care and dental implant businesses.
Sales in markets outside the U.S. totaled $226 in 1997, an increase
of $2 or 1% from the 1996 first quarter. In total, non-U.S. sales
represented 50% of consolidated revenues, compared to 49% in the first
quarter of 1996. Changes in currency exchange rates weakened non-U.S.
sales comparisons to 1996 by 7%. Sales in the Asia-Pacific region
advanced 3%, due to increased sales of PRP lenses offset by unfavorable
sunglass sales and adverse currency impact in Japan. European revenues
showed a slight improvement over the same period last year, reflecting
favorable demand for PRP lenses, solutions and sunglasses, offset by a
decline in sales of OTC medications and prescription pharmaceuticals,
due largely to adverse currency rate fluctuations. Revenues in Canada
and Latin America declined 4% due primarily to the performance of
sunglasses, solutions and hearing aids.
U.S. sales totaled $225 in the first quarter, a decline of $5 or 2%
from 1996. Improvement in pharmaceuticals, hearing aid, biomedical and
skin care sales were offset by declines in sunglasses and solutions.
Costs And Expenses
The ratio of cost of products sold to sales was 50.4% for the 1997 first
quarter versus 44.3% for the comparable 1996 period. The unfavorable
ratio in 1997 reflected a $9 provision for the projected cost of exiting
certain Ray-Ban product lines and a decrease in manufacturing volume for
sunglasses. The Ray-Ban products referred to above were discontinued as
a result of recent additions and expansions to the company's product
portfolio, which the company believes can more effectively reach the
market niches in which these discontinued products compete. Excluding
the provision, the ratio of cost of products sold to sales would have
been 48.4%.
Selling, administrative and general expenses were 40.1% of sales in
the first quarter of 1997 compared to 42.0% in 1996. The favorable
ratio reflects decreases in marketing and advertising, due to the timing
of promotions, and a decline in selling expense due to efforts being
made to consolidate certain responsibilities in the vision care segment.
Offsetting these favorable variances is a $2 provision for the write-off
of the company's equity investment in a start-up eyewear technology
venture. Corporate administration expense was 2.7% of sales in the
first quarter of 1997 versus 2.8% in 1996. Research and development
expense for the first three months of 1997 decreased 12% from 1996
levels reflecting efforts to consolidate research and development
functions in the vision care segment. Research and development
expenditures are projected to return to normal levels over the remainder
of the year as the company plans to increase investments in new contact
lens technology and new pharmaceutical products.
Restructuring Reserves
In the first quarter of 1997, the company's board of directors approved
plans to further restructure all business segments as well as certain
corporate administrative functions. This restructuring effort is
expected to significantly reduce the company's fixed cost structure and
realign the organization to meet its strategic objectives. These
actions resulted in a first quarter accrual of pre-tax restructuring
charges of $13, with additional amounts to be recorded in future
periods. The total amount of charges expected to be incurred is
approximately $80. The program is expected to generate annual savings
of approximately $100 by 1999. Approximately one third of the savings
will be generated from projects related to the company's manufacturing
processes, including plans to phase out sunglass component manufacturing
at the company's Frame Center in Rochester, New York, and to optimize
manufacturing operations located in San Antonio, Texas, Waterford,
Ireland and Hong Kong. Those projects are expected to result in
improved operating margins, particularly in the eyewear business. The
remainder of the savings will come from restructuring administrative
functions. A substantial portion of those savings will be reallocated
to revenue generating activities, such as new product development and
increased marketing efforts.
As described in previous filings, the company's board of directors
approved plans, announced in late 1995 and early 1996, to restructure
portions of all business segments as well as certain corporate
administrative functions. As a result, pre-tax restructuring charges of
$15 and $27 were recorded in second quarter of 1996 and fourth quarter
of 1995, respectively.
The following table sets forth the activity in the restructuring
reserves through March 29, 1997:
<TABLE>
<CAPTION>
Vision Corporate
Care Eyewear Pharmaceuticals Healthcare Administration Total
<S> <C> <C> <C> <C> <C> <C>
Restructuring Provisions:
Total
1995 and 1996 $11.7 $20.8 $ - $4.8 $4.5 $41.8
1997 4.2 1.2 4.9 0.4 2.1 12.8
Less charges against 1995
and 1996 reserves:
Non-cash items 4.1 4.4 - 2.2 1.0 11.7
Cash payments 3.7 7.8 - 2.5 2.1 16.1
Less charges against 1997
reserve:
Cash payments 0.9 0.2 - 0.1 0.4 1.6
Balance at March 29, 1997 7.2 9.6 4.9 0.4 3.1 25.2
</TABLE>
Reserves remaining at March 29, 1997 primarily represent liabilities
for continuing severance payments.
Operating Earnings
Operating earnings totaled $15 for the first quarter of 1997, a decrease
of $32 or 68% compared to the 1996 first quarter. Excluding the
restructuring charge recorded in March, operating earnings would have
been $27. Operating results primarily reflect the unfavorable sales
performance of sunglasses, the discontinuance of product lines and write-
off of an equity investment discussed previously.
Other Income And Expenses
Income from investments totaled $10 for the first quarter of 1997, an
increase of 3% over the first quarter of 1996. Interest expense of $14
increased $1 over the first quarter of 1996, primarily due to higher
debt levels.
The company recognized a $1 foreign currency gain in the first
quarter of 1997. This was primarily due to the favorable results of
hedging activities.
LIQUIDITY AND FINANCIAL RESOURCES
Cash Used In Operating Activities
Net cash used in operating activities was $33 in the first quarter of
1997 compared to $54 in the prior year period. Although net earnings
were $19 below the first quarter of 1996, other operating factors,
including a decrease in inventory during the first quarter of 1997
compared to rising inventory for the comparable 1996 period and the
timing of tax payments and cash received for the net settlement of
foreign currency hedge contracts contributed to the favorable comparison
with prior year.
Cash Used In Investing Activities
Cash used in investing activities was $37 through March 1997 versus $121
for the prior year period. The change was almost entirely attributable
to cash outflows for acquisitions that occurred in the first quarter of
1996. Capital spending of $26 was essentially even with the prior year
and is expected to total approximately $125 for 1997, a significant
portion of which will support expanded contact lens manufacturing
capacity.
Cash Provided By Financing Activities
Through March 1997, $60 in cash was provided by financing activities,
primarily through the issuance of short-term debt. The 1997 amount was
$42 lower than the comparable 1996 amount, primarily due to increased
borrowings in the prior year to fund acquisitions. Cash used to
repurchase Common and Class B shares was negligible during the first
quarter of 1997 compared to $10 in 1996. Share repurchases are expected
to increase in the second quarter of 1997, as the company announced that
it has re-instituted its share repurchase program. In December 1996,
the board of directors authorized the repurchase of 250,000 Common
shares, none of which had been purchased prior to the end of first
quarter 1997.
Free Cash Flow
The company has a stated goal to maximize free cash flow, which is
defined as cash generated before the payment of dividends, the borrowing
or repayment of debt, stock repurchases and the acquisition and
divestiture of businesses. Free cash flow for the first quarter of 1997
was negative $76 or $22 favorable to the comparable 1996 period. The
change 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 $66 from year end 1996 due to an increase in short-term debt.
In addition, as previously explained in Note D, $65 of additional debt
was recorded due to the adoption of SFAS 125, which changed the
accounting treatment of the company's U.S. factoring agreement. The
remaining increase was primarily to fund operations and capital
expenditures.
The ratio of total debt to equity was 99.4% and 75.8% for the
quarters ended March 1997 and March 1996, respectively. Cash and short-
term investments totaled $152 and $119 at the end of the first quarters
of 1997 and 1996, respectively.
Access to Financial Markets
The company maintains U.S. revolving credit agreements, typically with
364-day credit terms, totaling $290. 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 March 29, 1997. 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 negative $5 at the end of the first quarter
of 1997, versus $19 at year end 1996 and $10 at March 1996. The current
ratio was 1.0 at March 29, 1997, December 30, 1996 and March 30, 1996.
OTHER FINANCIAL DATA
Dividends declared on Common stock were $0.26 per share in the first
quarters of both 1997 and 1996. The return on average shareholders'
equity of 7.2% for the twelve-month period ended March 29, 1997 was
negatively impacted by restructuring charges recorded in March 1997 and
June 1996. This return was 12.2% for the twelve-month period ended
March 30, 1996 which included a December 1995 restructuring charge.
Excluding the restructuring charges, return on average shareholders'
equity would have been 9.2% for the 1997 period versus 12.0% for 1996.
OUTLOOK
On a constant dollar basis, worldwide revenues are forecasted to grow at
a modest rate throughout the remainder of 1997. This growth will be
dependent on the successful launch of several new products and the
ability to expand contact lens capacity on schedule.
Revenues in the vision care segment are forecasted to grow during
the latter half of the year benefiting from the launch of a new ReNu
lens care product and expanded manufacturing capacity for Award one-day
disposable lenses and SofLens66.
Continued growth in the Killer Loop and Arnette product lines, the
launch of new Ray-Ban styles and more normalized sales within the
sunglass specialty channel are projected to benefit eyewear segment
revenues in the latter half of the year.
The pharmaceuticals segment is forecasted to experience growth
within the U.S., however, European revenues in this segment will be
heavily dependent upon economic factors in Germany. Increased
investments in research and development are projected to result in
increased product registrations and ultimately in continued revenue
growth in this business.
Ongoing revenues in the healthcare segment are projected to witness
growth throughout the remainder of the year, benefiting from continued
growth in the company's Charles River subsidiary and continued growth in
the company's Curel line of skin care products.
Earnings from ongoing operations are projected to benefit from
progress toward the $50 cost reduction program announced early in 1996.
These savings are projected to be largely offset by restructuring
charges recorded throughout the remainder of the year.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
The statements in this financial review which are not historical facts
are forward-looking statements that involve risks and uncertainties.
The company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the company's control. The
following discussion highlights some of the risks and uncertainties and
the possible impact of these factors on future results of operations.
Actual results, performance or achievements of the company may be
materially different from the projected results, performance or
achievements expressed or implied by such risks. Among the key factors
that may have a direct bearing on the company's results are:
Global Economic And Political Conditions
The company experiences fluctuations in operating results due to
seasonality and general economic conditions in the global market place.
Fluctuating exchange rates between the U.S. and foreign currencies,
particularly in those countries in Europe and Asia where the company has
several principal manufacturing plants, may have a material adverse
effect on the company's future international sales and consolidated
results of operations. Additionally, there is uncertainty in the
economic outlook in the Asia-Pacific region, particularly due to Hong
Kong reverting to China rule, as the company has its North Asia
headquarters, the Asia Distribution Center and a sunglass manufacturing
facility in Hong Kong.
Product Development And Introduction
The vision care and eyewear industries are characterized by rapid
changes in technology and consumer preference. The company believes
that its future results will depend largely upon its ability to offer
products that compete favorably with respect to price, demand,
performance and innovative design. This in turn is affected by the
company's ability to develop new manufacturing technologies and to
timely develop new products and gain acceptance of those products.
The company has observed a trend among contact lens wearers to
switch from traditional lenses to lower-margin products, such as planned
replacement and disposable lenses. The company's ability to improve
profitability in 1997 and beyond will depend heavily on the ability to
reduce the cost of producing these lenses.
Success in the eyewear area will require innovative design,
marketing expertise and flexible delivery and logistical capabilities.
An inability to reduce high levels of inventory of certain eyewear
styles or delays or difficulties with new product introductions or
product enhancements could have a material adverse effect on the
company's future business results.
Product Concentration
The company derives a substantial portion of its revenues from sales of
vision care solutions and eyewear. Any factor adversely affecting sales
of vision care solutions and eyewear, including such factors as product
performance, changing trends in consumer preferences and tastes,
consumer demand, price competition and growth of private label
competition for solutions, could have a material adverse effect on the
company's future business results.
Regulatory Approval
The company is subject to risks associated with future adverse changes
in the laws and regulations affecting products, taxes, the environment
and other governmentally regulated areas. In particular, growth in the
pharmaceuticals business is contingent upon obtaining necessary
regulatory approvals. In addition, this business anticipates shifting
its current product portfolio toward a more even balance between higher-
margin proprietary pharmaceuticals and lower-margin generic
pharmaceuticals. Failure to shift the portfolio to a more even balance,
delay in regulatory approval and increased competition in the generic
pharmaceuticals business could have a material adverse impact on the
company's future business results.
General Litigation
The cost of legal proceedings instituted by or against the company could
negatively impact future results of operations.
Costs And Expenses
Risks associated with the company's successful implementation of the
company's restructuring effort in reducing costs and expenses of
manufacturing processes and administrative functions could be material
to the company's consolidated financial results. In addition, expenses
such as pricing and the availability of equipment, material and supplies
and the cost of capital could have a significant adverse effect on
results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the company's Annual Report to
Shareholders on Form 10-K for the fiscal year ended December 28, 1996.
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: May 12, 1997 By:
Stephen A. Hellrung
Senior Vice President,
Secretary and General Counsel
Date: May 12, 1997 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
Exhibit 11
Statement Regarding Computation of Per Share Earnings
THREE MONTHS ENDED
Dollar Amounts In Millions - March 29, March 30,
Except Per Share Data 1997 1996
Net earnings $ 3.3 $ 22.5
Actual outstanding Common and Class B
shares at beginning of year 55,404 56,941
Average Common and Class B shares
issued for stock options and
effects of assumed exercise of
Common stock equivalents and
repurchase of Common shares (000) 211 167
Average Common shares outstanding (000) 55,615 57,108
Net earnings per Common and
Common share equivalent $ 0.06 $ 0.39
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed Charges
March 29, December 28,
Dollar Amounts In Millions 1997 1996
Earnings before provision for
income taxes and minority
interest $12.2 $168.9
Fixed charges 14.0 53.5
Capitalized interest, net of
current period amortization 0.1 0.3
Total earnings as adjusted $26.3 $222.7
Fixed charges:
Interest (including
interest expense and
capitalized interest) $13.6 $ 51.7
Portion of rents
representative of the
interest factor 0.4 1.8
Total fixed charges 14.0 $ 53.5
Ratio of earnings to fixed
charges 1.882 4.161
1 Excluding the effects of the restructuring charge recorded in 1996
and the net gain on divestitures of the oral care and dental implant
businesses, the ratio of earnings to fixed charges at December 28,
1996 would have been 4.47.
2 Excluding the effects of the restructuring charge recorded in March
1997, the ratio of earnings to fixed charges at March 29, 1997 would
have been 2.79.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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