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 27, 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
September 27, 1997 was 55,255,041, consisting of 54,624,741 shares of
Common stock and 630,300 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
The accompanying unaudited interim consolidated financial statements of
Bausch & Lomb Incorporated and Consolidated Subsidiaries have been
prepared by the company in accordance with the accounting policies stated
in the company's 1996 Annual Report on Form 10-K and should be read in
conjunction with the Notes To Financial Statements appearing therein, and
are based in part on approximations. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation in accordance with generally accepted accounting
principles have been included in these financial statements.
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF EARNINGS
Third Quarter Ended Nine Months Ended
September 27, September 28, September 27, September 28,
Dollar Amounts In Millions -
Except Per Share Data 1997 1996 1997 1996
Net Sales $468.3 $477.2 $1,442.7 $1,492.0
Costs And Expenses
Cost of products sold 213.1 219.8 671.8 661.5
Selling, administrative
and general 181.2 177.5 564.0 588.7
Research and development 16.4 18.8 48.1 56.0
Restructuring charges 16.0 - 54.9 15.1
426.7 416.1 1,338.8 1,321.3
Operating Earnings 41.6 61.1 103.9 170.7
Other (Income) Expense
Interest and investment income (10.9) (9.5) (30.3) (28.5)
Interest expense 13.9 13.0 41.6 37.8
Gain from foreign currency,
net (1.0) (0.7) (4.8) (0.6)
Loss on divestiture - 26.1 - 26.1
Litigation provision - 16.1 - 16.1
2.0 45.0 6.5 50.9
Earnings Before Income Taxes And
Minority Interest 39.6 16.1 97.4 119.8
Provision for income taxes 15.6 (3.9) 39.2 36.9
Earnings Before Minority
Interest 24.0 20.0 58.2 82.9
Minority interest in
subsidiaries 5.5 5.6 16.2 15.7
Net Earnings $ 18.5 $ 14.4 $ 42.0 $ 67.2
Retained Earnings At
Beginning Of Period 919.4 923.4 924.7 900.1
Cash Dividends Declared:
Common stock, $0.26 and $0.78 per
share in both 1997 and 1996 14.5 14.6 43.3 44.1
Retained Earnings At End Of
Period $923.4 $923.2 $ 923.4 $ 923.2
Net Earnings Per Common Share $ 0.33 $ 0.25 $ 0.75 $ 1.18
Average Common Shares
Outstanding (000s) 55,708 56,793
See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
September 27, December 28,
Dollar Amounts In Millions 1997 1996
ASSETS
Current Assets
Cash, cash equivalents and short-term
investments $ 162.2 $ 167.8
Trade receivables, less allowances
of $13.7 and $13.3, respectively 380.0 268.4
Inventories, net 311.5 339.8
Recoverable income taxes - 6.0
Deferred taxes, net 52.7 48.6
Other current assets 156.3 117.0
1,062.7 947.6
Property, Plant And Equipment, net 567.6 566.7
Goodwill And Other Intangibles,
less accumulated amortization
of $112.0 and $83.8, respectively 412.1 390.9
Other Investments 545.3 560.3
Other Assets 143.7 137.9
Total Assets $2,731.4 $2,603.4
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 483.4 $ 394.1
Current portion of long-term debt 86.8 88.0
Accounts payable 63.3 71.1
Accrued compensation 84.6 82.2
Accrued liabilities 315.4 293.7
Federal and foreign income taxes 10.4 -
1,043.9 929.1
Long-Term Debt, less current portion 315.6 236.3
Other Long-Term Liabilities 105.6 124.0
Minority Interest 435.1 432.1
Total Liabilities 1,900.2 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,
965,984 and 1,150,409 shares
issued, respectively 0.1 0.1
Capital in excess of par value 80.5 96.1
Retained earnings 923.4 924.7
Common and Class B stock
in treasury, at cost, 5,909,265 and
5,944,982 shares, respectively (226.0) (230.5)
Other Shareholders' Equity 29.1 67.4
Total Shareholders' Equity 831.2 881.9
Total Liabilities And Shareholders' Equity $2,731.4 $2,603.4
See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Nine Months Ended
September 27, September 28,
Dollar Amounts In Millions 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 42.0 $ 67.2
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation 68.8 66.2
Amortization 15.7 15.5
Change in deferred income taxes (0.8) (15.3)
Restructuring charges, net of taxes 36.9 10.9
Loss on retirement of fixed assets 6.3 2.7
Loss on divestitures, net of taxes - 6.3
Provision for litigation expense, net of taxes - 10.0
Changes in assets and liabilities:
Trade receivables (30.2) (23.3)
Inventories 18.0 (27.3)
Other current assets (44.1) (30.7)
Accounts payable and accruals (25.8) (25.7)
Income taxes 42.2 5.5
Other long-term liabilities (13.9) (12.3)
Net cash provided by operating activities 115.1 49.7
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchases of property, plant
and equipment (81.2) (80.0)
Proceeds from sale of equipment - 9.6
Net cash paid for acquisition of businesses (46.6) (85.7)
Net cash received from divestitures of businesses - 20.3
Other (10.4) (10.6)
Net cash used in investing activities (138.2) (146.4)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common and Class B shares (21.4) (55.9)
Exercise of stock options 11.4 4.6
Net proceeds from notes payable 67.9 71.3
Proceeds from issuance of long-term debt 13.5 135.2
Repayment of long-term debt (2.7) (55.5)
Payment of dividends (43.1) (44.3)
Net cash provided by financing activities 25.6 55.4
Effect of exchange rate changes on cash,
cash equivalents and short-term investments (8.1) (1.0)
Net decrease in cash, cash equivalents and
short-term investments (5.6) (42.3)
Cash, cash equivalents and short-term investments,
beginning of period 167.8 194.6
Cash, cash equivalents and short-term investments,
end of period $162.2 $152.3
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 46.3 $ 40.2
Income taxes $ 27.5 $ 79.3
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: Accounting Policies
In January 1997 the SEC issued Financial Reporting Release 48,
"Disclosure of Accounting Policies for Derivative Financial
Instruments and Derivative Commodity Instruments and Disclosure of
Quantitative and Qualitative Information About Market Risk
Inherent in Derivative Financial Instruments, Other Financial
Instruments, and Derivative Commodity Instruments". The release
requires specific qualitative disclosures regarding the company's
accounting policies for derivative financial instruments. Below
are additional disclosures required by the release not already
contained in the 1996 Annual Report.
Derivative Financial Instruments
Foreign currency (forward, option and swap) contracts are
accounted for using either hedge or deferral accounting treatment
in accordance with the requirements of Statement of Financial
Accounting Standards (SFAS) No. 52. The company hedges exposures
on a continuing basis, employing foreign exchange contracts in a
variety of currencies that effectively neutralize the after-tax
impact of exchange rate fluctuations on the underlying exposures.
The portfolio of contracts is adjusted at least monthly to reflect
changes in exposure positions as these changes become known. When
possible and practical, the company matches the maturity of the
hedging instrument to that of the underlying exposure.
Interest rate swap agreements are entered into only to hedge
underlying investment or debt obligations and other firm
commitments and are accounted for using settlement accounting, in
accordance with the requirements of Emerging Issues Task Force
Issue 84-36. The company enters into interest rate swap and cap
agreements to effectively limit exposure to interest rate
movements within the parameters of its interest rate hedging
policy. This policy limits the amount by which floating-rate
assets may exceed, or be less than, floating-rate liabilities.
Interest rate instruments are entered into for periods no greater
than the lives of the underlying transactions being hedged or, in
the case of floating-rate to fixed-rate swaps, for periods no
longer than the underlying floating-rate exposure is expected to
remain outstanding. Interest rate derivatives are normally held
to maturity, but may be terminated early, particularly if the
underlying exposure is similarly extinguished.
NOTE B: Earnings Per Share
Net earnings per Common share are based on the weighted average
number of Common and Class B shares outstanding during the period,
adjusted for the assumed conversion of dilutive stock options. In
computing the per share effect of assumed conversion, funds which
would have been received from the exercise of options are
considered to have been used to purchase Common shares at current
market prices, and the resulting net additional Common shares are
included in the calculation of average Common shares outstanding.
The number of Common shares used to calculate net earnings per
Common share were 55,708,000 at September 27, 1997 and 56,793,000
shares at September 28, 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 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 pro forma
basic and diluted earnings per share would have been $0.33 and
$0.26 for the quarters ended September 27, 1997 and September 28,
1996, respectively. For the nine months ended September 27, 1997
and September 28, 1996, pro forma basic earnings per share would
have been $0.76 and $1.19, respectively. Pro forma diluted
earnings per share would have been $0.75 and $1.18, respectively.
NOTE C: Inventories
Inventories consisted of the following:
September 27, December 28,
1997 1996
Raw materials and supplies $ 83.8 $ 89.4
Work in process 22.4 20.1
Finished products 213.0 238.3
319.2 347.8
Less: Allowance for valuation of
certain U.S. inventories
at last-in, first-out cost 7.7 8.0
$311.5 $339.8
NOTE D: Property, Plant And Equipment
Major classes of property, plant and equipment consisted of the
following:
September 27, December 28,
1997 1996
Land $ 21.2 $ 22.1
Leasehold improvements 34.6 33.1
Buildings 391.3 403.7
Machinery and equipment 718.6 689.7
1,165.7 1,148.6
Less: Accumulated depreciation 598.1 581.9
$ 567.6 $ 566.7
NOTE E: Adoption Of SFAS No. 125
Beginning in the first quarter of 1997, the company adopted SFAS
No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities." Under this
pronouncement, an agreement for the sale of U.S. accounts
receivable entered into by the company is now required to be
presented as a financing arrangement. As a result, the balance
sheet at September 27, 1997 reflects $75 in receivables and
borrowings related to this agreement.
NOTE F: Subsequent Events
On October 21, 1997, the company announced that it had signed a
definitive agreement to acquire Chiron Vision Corporation, the
ophthalmic products unit of Chiron Corporation, for $300 in cash.
Chiron Vision researches, develops and manufactures innovative
products that improve results in cataract and refractive surgery,
and the treatment of progressive eye diseases.
On October 22, 1997, the company announced that it had signed a
definitive agreement to acquire Storz Instrument Company, a
subsidiary of American Home Products Corporation, for $380 in
cash. Storz is a leading international manufacturer and
distributor of high quality ophthalmic surgical instruments,
surgical and diagnostic equipment, intraocular lens implants and
ophthalmic pharmaceuticals.
Both acquisitions are expected to be completed in early 1998. The
company intends to put in place a syndicated revolving credit
agreement to support commercial paper facilities to fund the
pending acquisitions. The full financial impact to the company as
a result of these two acquisitions can not be determined at this
time. See Item 5 - Other Matters for additional information.
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 seeks to align 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 third-quarter and nine-month
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. As a
result, pre-tax restructuring charges of $16 and $55 were recorded in the
three- and nine-month periods ended September 1997, respectively. The
after-tax impact of these charges was $11 or $0.20 per share in the third
quarter and $37 or $0.67 per share on a year-to-date basis.
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 ($11 or $0.19 per share after taxes) was
recorded in the second quarter of 1996.
During 1996, the company divested two of its non-strategic businesses
whose 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 $14
and $45 for the three- and nine-month periods, respectively, ended
September 1996. Combined operating losses of these divested businesses for
the three- and nine-month periods were $4 and $8, respectively. An after-
tax loss of $6 or $0.11 per share on the sale of the Oral Care Division was
recorded in the third 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 lens care products. The
eyewear segment includes sunglasses and thin film coating services. The
pharmaceuticals segment includes prescription ophthalmics and over-the-
counter (OTC) medications. The healthcare segment includes 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
Third Quarter Nine Months
1997 1996 1997 1996
Vision Care $241.8 $228.0 $ 676.4 $ 650.0
Eyewear 104.4 120.3 382.9 436.4
Pharmaceuticals 43.0 41.6 146.1 146.7
Healthcare - ongoing 79.1 73.6 237.3 214.0
468.3 463.5 1,442.7 1,447.1
Healthcare - divested - 13.7 - 44.9
Net Sales $468.3 $477.2 $1,442.7 $1,492.0
Consolidated revenues for the quarter ended September 27, 1997 were
$468, a decrease of $9 or 2% from the 1996 third quarter. When results for
divested businesses are excluded from 1996 results, revenues increased from
1996 by $5 or 1%. Excluding the effect of foreign currency exchange rate
changes, comparable basis revenues increased 5% compared to the prior year
period.
For the first nine months of 1997, net sales declined by $49 or 3%
from the comparable 1996 period. When sales from divested businesses are
excluded from 1996 results, the revenue decrease was $4 or less than 1%.
Excluding the effect of foreign currency exchange rate changes, comparable
basis sales increased 3% versus 1996. For the three- and nine-month
periods, revenue declines in the eyewear segment were largely offset by
increases in the vision care and ongoing healthcare segments.
Vision Care Segment Results
The vision care segment includes results of the contact lens and lens care
businesses, with lenses comprising approximately 45% of 1997 revenues and
lens care representing approximately 55%.
For the third quarter of 1997, vision care revenues improved $14, or
6%, over the same period in 1996. Contact lens revenues increased at a
rate of 8% while lens care products increased 5%. Excluding the effects of
foreign currency exchange rate changes, contact lens sales increased 13%
and sales of lens care products increased 8%. The strong performance in
contact lenses was driven by double-digit increases in shipments of planned
replacement and disposable lenses (collectively PRP). Declines in
traditional lens sales were experienced as the anticipated shift toward PRP
lenses continued. Lens care sales in the U.S. were favorably impacted by
initial sales of ReNu MultiPlus Solution, the company's new premium lens
care product. Outside the U.S., lens care growth continued in the Europe
and Asia-Pacific regions.
Year-to-date vision care revenues exceeded 1996 by $26, or 4%.
Contact lens revenues increased at a rate of 9% while sales of lens care
products were essentially even with the prior year. Excluding the effects
of foreign currency exchange rate changes, contact lens sales increased 14%
and sales of lens care products increased 3%. Sales of contact lenses for
the nine-month period reflect the trends noted above. In the U.S., lens
care revenues are below 1996 reflecting increased competition. Outside the
U.S., year-to-date trends are consistent with those discussed above.
Eyewear Segment Revenues
For the third quarter of 1997, eyewear segment revenues decreased 13% from
the comparable 1996 period. Excluding the impact of foreign currency
exchange rate changes, segment revenues decreased 10%. These results
reflected performance for sunglass products, which represent approximately
95% of this segment's portfolio. U.S. sunglass revenues decreased 9%,
while non-U.S. revenues declined 11% excluding the effects of foreign
currency exchange rate changes. These decreases were partially due to
lower sales to Sunglass Hut International, the company's largest sunglass
customer. Excluding sales to this customer, sunglass revenues decreased
11% from the 1996 third quarter. Other factors contributing to the overall
decline were continued competitive pressure in the U.S. and sluggish retail
markets in the Asia-Pacific region.
Year-to-date eyewear segment revenues decreased 12% from 1996.
Excluding the impact of foreign currency exchange rate changes, segment
revenues decreased 10%. Excluding sales to Sunglass Hut International,
revenues declined 7%. U.S. sunglass revenues declined 16%, while non-U.S.
revenues declined 5% excluding the effects of foreign currency exchange
rate changes, due to the factors discussed previously.
Pharmaceuticals Segment Revenues
Pharmaceutical segment revenues for the third quarter improved $1, or 3%,
over the same period in 1996. Excluding the effects of foreign currency
exchange rate changes, sales increased 11%. Third quarter sales increased
12% over 1996 in the U.S., benefiting from sales of new ophthalmic drugs
launched earlier this year, such as Trimethoprim, a generic version of
Polytrim (a drug to treat eye infections), and continued growth in sales of
the generic drug Crolom (for ocular inflammation) and Neo/Poly/Gramicidin,
formerly Ocutricin, (an antibiotic solution used to treat superficial eye
infections). Economic conditions in Germany continued to impact revenues
in the Dr. Mann Pharma subsidiary, down 9% for the quarter in actual
dollars but up 9% when adjusted for currency, reflecting growth in
prescription products.
Year-to-date pharmaceutical segment revenues were flat compared to
1996, but increased 6% excluding the effects of foreign currency exchange
rate changes. Sales advanced 19% in the U.S., reflecting the trends noted
above. In Germany, strong growth in prescription products was moderated by
declines in OTC revenues.
Healthcare Segment Revenues
Ongoing healthcare segment revenues for the third quarter of 1997 were $79,
an increase of $6 or 8% over the comparable period in 1996. Year to date,
revenues increased $23 or 11%. The adverse impact of currency rate
fluctuations reduced sales growth by 3% and 4% for the three- and nine-
month periods, respectively.
Sales of biomedical products rose 6% for the quarter and 9% for the
nine-month period, driven primarily by increases in sales of purpose-bred
animals due to product line extensions and significant increases in sales
of pathogen-free eggs and other professional services. Hearing aid
revenues showed strong double-digit growth over 1996 aided by an increase
in the number of company-owned retail outlets and increased sales of new
products. Skin care product sales decreased 5% for the quarter due to the
effect of initial sales of Curel Nutrient Rich in 1996, but were up 7% year
to date driven by gains for all Curel brands.
Net Sales By Geographic Region
The following analysis of trends excludes 1996 revenues from the oral care
and dental implant businesses. Both businesses historically were
classified as healthcare segment revenues.
Sales in markets outside the U.S. totaled $218 in the third quarter of
1997, a decrease of $5 or 2% compared with the 1996 period, and represented
47% of consolidated revenues compared to 48% in 1996. Changes in currency
exchange rates weakened non-U.S. sales comparisons for the three- and nine-
month periods by 8% and 7%, respectively. Third quarter sales in the Asia-
Pacific region advanced 7% (13% excluding the effect of currency) and year-
to-date increased 6% (13% adjusted for currency) above 1996 due to strong
growth in sales of PRP lenses and soft lens care solutions partially offset
by a decline in sunglass sales. Reported sales for the third quarter in
the European region declined 8%, but advanced 3% excluding the effect of
currency. For the year-to-date period, reported sales in that region
declined 4%, but were 4% above 1996 when adjusted for currency. The
constant dollar results reflect growth in PRP lenses and soft lens care
solutions partially offset by declines in traditional lenses and OTC
medications. Sales in Canada and Latin America declined 11% and 8% for the
three- and nine-month periods, respectively, primarily due to declines in
soft lens care solutions partially offset by gains in sunglasses in Latin
and South American markets.
U.S. sales totaled $250 in the third quarter, an increase of $10 or 4%
from 1996. Year-to-date U.S. sales of $735 were essentially flat with the
comparable 1996 period. Sales declines in sunglasses were completely
offset by double-digit growth in the pharmaceutical and healthcare segments
and single-digit growth in the vision care segment.
Costs And Expenses
The following analysis of trends excludes 1996 results from the oral care
and dental implant businesses.
The ratio of cost of products sold to sales was 45.5% for the 1997 and
1996 third quarter periods. For the nine-month period, this ratio was
46.6% for 1997 and 43.9% for 1996. The year-to-date unfavorable ratio in
1997 reflected a $9 provision for the projected cost of exiting certain Ray-
Ban product lines recorded in the first quarter and unfavorable
manufacturing volume variances in sunglasses as well as lower margins for
vision care (related to product mix), eyewear (related to volume) and
pharmaceutical products (related to competitive pricing issues). The Ray-
Ban products 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 brands compete.
Excluding the provision, the 1997 ratio of cost of products sold to sales
would have been 46.0% year to date.
Selling, administrative and general expenses (including corporate
administration) were 38.7% of sales in the third quarter of 1997 compared
to 36.7% in 1996. Year to date, these expenses were 39.1% of sales in both
years. The year-over-year results include decreases in marketing and
advertising, mainly 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 was a $2 provision recorded in the first quarter for the write-
off of the company's equity investment in a start-up eyewear technology
venture.
Research and development expense for the 1997 third quarter was 3.5%
of sales versus 3.8% for 1996. On a year-to-date basis, research and
development expense was 3.3% of sales versus 3.6% in 1996. The decrease in
costs was due to favorable project spending as efforts are being made to
consolidate research and development functions in the vision care segment.
Research and development efforts going forward will focus on the generation
of new products, particularly contact lenses and pharmaceuticals.
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
the recording of pre-tax restructuring charges of $55 during the first nine
months of 1997, $16 of which was during the third quarter, 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 a plan, 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 September 27, 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 17.1 25.2 4.9 2.2 5.5 54.9
Less charges against 1995 and
1996 reserves:
Non-cash items 4.1 4.4 - 2.2 1.0 11.7
Cash payments 4.5 14.4 - 2.6 3.5 25.0
Less charges against 1997 reserve:
Non-cash items 2.4 5.0 - 0.9 0.3 8.6
Cash payments 6.8 5.9 1.4 0.9 3.9 18.9
Balance at September 27, 1997 $11.0 $16.3 $3.5 $0.4 $1.3 $32.5
</TABLE>
Reserves remaining at September 27, 1997 primarily represent
liabilities related to employee separations associated with the 1996 and
1997 actions.
Operating Earnings
Operating earnings totaled $42 for the third quarter of 1997, a decrease of
$20 or 32% compared to the 1996 third quarter. Excluding restructuring
charges recorded in the third quarter of 1997, operating earnings would
have been $58, a decrease of $4 or 6%. Third-quarter operating results
before restructuring charges primarily reflect the unfavorable sales
performance of sunglasses partially offset by growth in the vision care
segment and pharmaceuticals segments.
Other Income And Expenses
Income from investments totaled $11 for the third quarter of 1997 and $30
year to date, an increase of 15% and 6%, respectively over the 1996 three-
and nine-month periods. Interest expense totaled $14 in the third quarter
and $42 year to date, an increase of 7% and 10%, respectively over the same
periods in 1996, primarily due to increasing debt levels. The company
recognized a $1 foreign currency gain in the third quarter and $5 gain year
to date, representing increases over the same 1996 periods, primarily due
to premium income generated from hedging activities.
The 1996 third quarter results included a $26 loss on the divestiture
of the Oral Care Division and a $16 charge for the settlement of a class
action lawsuit concerning the marketing of certain contact lenses.
LIQUIDITY AND FINANCIAL RESOURCES
Cash Flows From Operating Activities
Cash provided by operating activities was $115 through the first nine
months of 1997 compared to $50 for the comparable 1996 period. Operating
factors, including a decrease in inventory during the first nine months of
1997 compared to rising inventory for the comparable 1996 period, and the
timing of tax payments, contributed to the favorable comparison versus the
prior year.
Cash Used In Investing Activities
Cash used in investing activities was $138 through September 1997, an $8
reduction from the comparable 1996 period primarily attributable to reduced
expenditures for acquisitions in the current year versus cash received from
the divestiture of the company's oral care business in 1996. Capital
spending of $81 was $1 higher than the comparable prior year period and is
expected to total approximately $125 for 1997, a significant portion of
which will support expanded contact lens manufacturing capacity.
Acquisitions in 1997 included the purchase of Killer Loop S.p.A., a
manufacturer of sunglasses based in Italy, with whom, prior to its
acquisition, the company had an exclusive agreement to market its eyewear
products.
Cash Provided By Financing Activities
Through September 1997, $26 in cash was provided by financing activities,
primarily through the issuance of short-term debt. The 1997 amount was $30
lower than the comparable 1996 amount, primarily due to increased
borrowings in the prior year to fund acquisitions partially offset by
reduced spending to repurchase the company's common shares through the
open market. Cash used to repurchase Common and Class B shares was $21
compared to $56 in 1996. Since December 1996, the company's board of
directors has authorized and the company has repurchased 500,000 Common
shares.
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 through the third quarter of 1997 was $15,
which was $48 favorable to the comparable 1996 period. The improvement 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 $167 from year end 1996 due to increases in both long- and short-
term debt. The long-term debt increase was due primarily to $75 associated
with the adoption of SFAS No. 125, as previously explained in Note E, which
impacted the accounting treatment of the company's accounts receivable sale
agreement implemented in April 1997. The remaining debt increase was
primarily to fund acquisitions and capital expenditures.
The ratio of total debt to equity was 106.6% and 81.6% for the quarters
ended September 1997 and September 1996, respectively. Cash and short-term
investments totaled $162 and $152 at the end of the third 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 $490. The interest rate under the agreements is
at the prime rate, or, at the company's option, a mutually acceptable
market rate. No debt was outstanding under these agreements at September
27, 1997. In addition, the company maintains unconfirmed bank lines of
credit for its financing requirements. The company also has the ability to
issue up to $200 under its $300 medium-term note program.
Following the announcement of the company's pending acquisitions, see
Item 5 - Other Matters, both Standard & Poor's and Moody's Investors
Service placed the company's long-term debt ratings under review for
possible downgrade. The company's long-term debt is currently rated A
minus by Standard & Poor's and A-3 by Moody's Investors Service. The
company's commercial paper rating is affirmed and was not placed under
review.
The company believes that it will have adequate financial capacity to
consummate the pending acquisitions and to take advantage of any other
opportunities that might arise.
Working Capital
Working capital amounted to $19 at the end of the third quarter of 1997 and
year end 1996 versus $106 at September 1996. The current ratio was 1.0 at
September 27, 1997 and December 28, 1996 and 1.1 at September 28, 1996.
OTHER FINANCIAL DATA
Dividends declared on Common stock were $0.26 per share in the third
quarters of both 1997 and 1996. The return on average shareholders' equity
of 6.8% for the twelve-month period ended September 27, 1997 was negatively
impacted by restructuring charges recorded in each quarter of 1997. This
ratio was 6.9% for the twelve-month period ended September 28, 1996 which
included June 1996 and December 1995 restructuring charges. Excluding
restructuring charges, return on average shareholders' equity would have
been 10.9% for the 1997 period versus 10.0% for 1996.
OUTLOOK
Worldwide revenues are forecasted to grow at a moderate pace throughout the
remainder of 1997. This growth will be primarily dependent on the
successful launch of new products and increased sales to Sunglass Hut
International.
The momentum in the vision care segment is expected to continue in the
fourth quarter with retail sell-through of ReNu MultiPlus Solution. This
new product confirms the company's position as the technological leader in
the lens care market and will help to maintain the premium stature of the
ReNu flagship brand. Benefits to vision care segment results are also
expected with the continued expansion of manufacturing capacity for Award
one-day disposable lenses and SofLens66 PRP lenses. The company intends
to
seek U.S. regulatory clearance for the Award lens and is optimistic for a
1998 launch of this product in the U.S.
The company continues to be cautious concerning the eyewear segment but
is confident that its strategies will lead to improved performance. The
company expects fourth-quarter sales to benefit from 1998 new product
introductions, which occurred in September 1997, five months earlier than
in previous years. In addition, stabilized buying patterns in 1997 from
Sunglass Hut International should result in favorable comparisons to 1996
due to the cancellation of that customer's orders in the fourth quarter of
1996.
The pharmaceuticals segment is expected to experience continued growth
in despite difficult market conditions in Germany. Growth in prescription
products should continue in both the U.S. and in Europe while sales of OTC
products in Europe are expected to maintain market share, which should lead
to higher revenues when economic conditions ease. Investments in research
and development are projected to result in additional product registrations
and ultimately continued long-term revenue growth in this business.
Earnings from ongoing operations for the fourth quarter of 1997 are
projected to be level with those in the third quarter. Although eyewear
revenues are projected to increase, initiatives to improve operating
margins will not have an impact until 1998. In addition, a strengthened
dollar will adversely impact operating performance.
Similar trends are expected into 1998. The company is projecting
revenue growth in the range of 10% in the vision care, pharmaceutical and
healthcare segments. The eyewear business is expected to return to
profitability in 1998. However, if exchange rates remain at their current
levels, comparisons for the first half will be negatively impacted. The
two recently announced pending acquisitions should add substantial
revenues. The benefit to earnings in 1998 will be offset by period costs
expected to be incurred to generate synergies in the businesses and some
level of business interruption during the integration period. However,
earnings are expected to be accretive after 1998.
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. The company does not have a significant presence in those Asia-
Pacific countries which have recently experienced significant currency
devaluations. However, should the devaluations affect other countries in
the region where the company does have a larger presence, there could be a
negative impact on the company's operating performance. 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.
Customer Concentration
The company's two largest customers together comprised almost 10% of the
company's revenues in 1996. A reduction in orders from these or other of
the company's major customers could have a material adverse effect on the
company's businesses in future periods.
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 PRP lenses. The
company's ability to improve profitability will depend heavily on the
ability to reduce the cost of producing and to expand production capacity
for these lenses.
Success in the eyewear segment 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 products and eyewear. Any factor adversely affecting sales of
vision care products 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 effect on results of operations.
Pending Acquisitions
The company has announced pending acquisitions of Chiron Vision Corporation
and Storz Instrument Company. These acquisitions, which are material to
the company, depend for their success on a number of factors, including,
without limitation the ability to obtain regulatory approvals, successful
implementation of integration strategies and access to technology.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In its 1996 Annual Report on Form 10-K, the company discussed shareholder
actions commenced in June 1994 against the company and several officers.
Motions by the company and individual officers for reconsideration of
October 1996 motions to dismiss were denied. Discovery has commenced in
the consolidated action and a motion by plaintiffs to certify the alleged
class is pending.
In its 1996 Annual Report on Form 10-K, the company discussed actions
pending in the provinces of Ontario and British Columbia, Canada, alleging
that the company misled consumers by packaging the same lens under
different names for different prices. A similar action was subsequently
commenced in Quebec. A settlement of these three actions has been reached
under which consumers who purchased certain lenses during certain time
frames are eligible to participate. The settlement received final court
approval on October 27, 1997.
In its 1996 Annual Report on Form 10-K, the company discussed an
investigation by a working group of state attorneys general into the
company's contact lens pricing, labeling and advertising. This
investigation has been concluded, with the company agreeing to pay the
states the cost of their investigation and limit the way it markets contact
lenses in the future.
In its 1996 Annual Report on Form 10-K, the company discussed an
antitrust action filed in 1994 by the Florida Attorney General against the
company and others in United States District Court for the Middle District
of Florida and an action filed in December 1996 by the New York State
Attorney General on behalf of itself and 21 other states. Those actions
have been consolidated.
Item 5. Other Matters
On October 21, 1997, the company announced in a press release its intention
to acquire Chiron Vision Corporation. The full text of the press release
is as follows:
ROCHESTER, N.Y. and EMERYVILLE, Calif.-- Bausch & Lomb (NYSE/BOL)
and Chiron Corporation (NASDAQ/CHIR) jointly announced today that they
have signed a definitive agreement in which Bausch & Lomb will acquire
Chiron's ophthalmic products unit, Chiron Vision Corporation, for $300
million in cash.
"The transaction reflects Bausch & Lomb's strategic intent to move
aggressively to expand our presence in the $25 billion global eye care
market," said William M. Carpenter, Bausch & Lomb's president and CEO.
"Entry into the high margin cataract business and the high growth
refractive surgery market solidifies B&L's position as the leader in `in
eye' vision correction. The acquisition of Chiron Vision also builds on
Bausch & Lomb's position in professional ophthalmic products and provides
additional business-building opportunities for our growing ophthalmic
pharmaceuticals line. Chiron Vision brings leading-edge technology and
demonstrated success in building global franchises in ophthalmic surgery
and retinal drug delivery."
"We intend to continue to expand our presence in ophthalmic surgery,
primarily through aggressive pursuit of additional acquisition
opportunities, rather than by internal development," Carpenter continued.
Chiron Vision researches, develops and manufactures innovative
products that improve results in cataract and refractive surgery, and the
treatment of progressive eye diseases. Its product portfolio includes
microkeratomes and blades for LASIK refractive surgery; an advanced excimer
laser with a built-in LASIK workstation for refractive surgery; equipment
and viscoelastics for cataract surgery; PMMA and foldable intraocular
lenses (IOLs); and the Vitrasert Implant, the first drug delivery system to
provide local, sustained therapy for the treatment of cytomegalovirus
retinitis (CMV) in people with AIDS.
Chiron Vision, based in Claremont, Calif., reported annual sales in
1996 of $211 million. The acquisition is expected to have no impact on
Bausch & Lomb's 1998 earnings, and should contribute to the company's
financial performance thereafter.
"Chiron Vision has grown into an eminent organization by advancing the
ophthalmic surgeon's capabilities through product innovation and
education," said William J. Link, founder and CEO of Chiron Vision. "The
management and employees of the division have done an outstanding job of
building a business from scratch into a top competitor in the surgical
ophthalmic arena."
"We are pleased to transfer a highly developed global business segment
to a company whose industry expertise, we're confident, will assure its
continued growth and success," commented Edward E. Penhoet, CEO of Chiron
Corporation. "Through this strategic divestiture, Chiron continues to
streamline its operations and sharpen its focus on its core capabilities
and its tripartite strategy -- the prevention, diagnosis and treatment of
targeted diseases."
Completion of the transaction, which is subject to regulatory
approval, is expected early in 1998. Bausch & Lomb said it expects the
business will continue to be operated from its current locations under its
current management.
This press release contains, among other things, certain statements of
a forward-looking nature relating to future events or the future business
performance of Bausch & Lomb. Such statements involve a number of risks
and uncertainties including those concerning economic conditions, product
development and introduction, the financial well-being of key customers,
the successful execution of marketing strategies, the continued successful
implementation of the restructuring effort in reducing costs and expenses
of manufacturing processes and administrative functions, as well as the
risk factors listed from time to time in the company's SEC filings,
including but not limited to the Report on Form 10-Q for the quarter ended
June 28, 1997.
On October 22, 1997, the company announced in a press release its intention
to acquire Storz Instruments Company. The full text of the press release
is as follows:
ROCHESTER, NY - Bausch & Lomb (NYSE/BOL) announced today that it has
signed a definitive agreement to acquire Storz Instrument Company, a
subsidiary of American Home Products Corporation (NYSE/AHP) for $380
million in cash. With this transaction, and the announcement yesterday of
its acquisition of Chiron Vision, Bausch & Lomb becomes the world's largest
eye care company, with estimated annual eye care revenues of more than $2
billion.
Storz, based in St. Louis, Missouri, is a leading international
manufacturer and distributor of high quality ophthalmic surgical
instruments, surgical and diagnostic equipment, intraocular lens implants
and ophthalmic pharmaceuticals.
Founded in 1782, Storz today combines advanced technology with one of
the most widely recognized and respected names in ophthalmology, occupying
a unique position in the surgical eye care marketplace. Its reputation for
quality and service to the ophthalmology community is unsurpassed. 1996
annual sales for the acquired Storz product lines were approximately $200
million.
Chiron Vision, a subsidiary of Chiron Corporation, researches,
develops and manufactures innovative products that improve results in
cataract and refractive surgery, and treat progressive eye diseases. Its
product portfolio includes equipment for refractive and cataract surgery,
foldable intraocular lenses (IOLs) and the Vitrasert retinal drug delivery
system which treats a leading cause of blindness in people with AIDS.
"We are bringing together two strong eye care companies -- Storz and
Chiron Vision -- which combine to generate substantial strategic and
financial synergies and provide powerful opportunities for leveraging their
core capabilities," said William M. Carpenter, president and CEO of Bausch
& Lomb. "The combination of the two will result in the businesses becoming
more competitive, as a result of their complementary strengths. In
addition, it is expected that considerable savings will result from the
integration of the two operations."
"Bringing these newly acquired businesses into the Bausch & Lomb
family will achieve several additional benefits," Carpenter continued.
These include:
- - Creation of a strong competitive presence for Bausch & Lomb in the
cataract surgery market.
- - Significant enhancements to B&L's existing pharmaceutical business
including increased sales volume; additional ophthalmic products; an
expanded pipeline of new proprietary ophthalmic drugs; additional
resources to build its pharmaceuticals business and greater access to an
important professional customer - the ophthalmic surgeon. A significant
share of these benefits is brought by Storz, whose pharmaceutical
products and development pipeline are particularly well-suited to B&L's
current portfolio.
- - A leadership position in the high-growth refractive surgery market,
which completes the B&L continuum of product offerings for `in eye'
vision correction, from cosmetic and specialty contact lenses through
leading-edge laser surgical procedures.
"These acquisitions put B&L well on the way to realizing our corporate
vision of becoming Number One in the Eyes of the World," said Carpenter.
"No other eye care company can claim such a broad array of offerings for
both the consumer and the eye care professional."
The combination of the two acquisitions is expected to have no impact
on 1998 earnings for B&L, but should contribute to the company's financial
results thereafter, especially as synergies are realized with the
combination of the Storz and Chiron Vision businesses.
Completion of the Storz transaction, which is subject to regulatory
approval and the closing of Bausch & Lomb's acquisition of Chiron Vision,
is expected early in 1998. Bausch & Lomb said that when the transactions
close, it expects that both the Storz and Chiron Vision businesses will
continue to operate from their current locations with current management.
Over the longer term, the leaders of the two units will work together to
develop a plan to maximize the growth and earnings potential of their
cataract and refractive businesses.
This press release contains, among other things, certain statements of
a forward-looking nature relating to future events or the future business
performance of Bausch & Lomb. Such statements involve a number of risks
and uncertainties including those concerning economic conditions, product
development and introduction, the financial well-being of key customers,
the successful execution of marketing strategies, the continued successful
implementation of the restructuring effort in reducing costs and expenses
of manufacturing processes and administrative functions, the continuation
of key supplier relationships, regulatory approvals, satisfactory
resolution of pending litigation, access to intellectual property rights,
as well as the risk factors listed from time to time in the company's SEC
filings, including but not limited to the Report on Form 10-Q for the
quarter ended June 28, 1997.
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 4, 1997 By:
Robert B. Stiles
Senior Vice President
and General Counsel
Date: November 4, 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 (filed herewith).
Exhibit 11
Statement Regarding Computation of Per Share Earnings
NINE MONTHS ENDED
Dollar Amounts In Millions - September 27, September 28,
Except Per Share Data 1997 1996
Net earnings $ 42.0 $ 67.2
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 (000s) 304 (148)
Average Common shares outstanding (000s) 55,708 56,793
Net earnings per Common and
Common share equivalent $ 0.75 $ 1.18
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed Charges
September 27, December 28,
Dollar Amounts In Millions 1997 1996
Earnings before provision for
income taxes and minority
interest $ 97.4 $168.9
Fixed charges 43.3 53.5
Capitalized interest, net of
current period amortization 0.2 0.3
Total earnings as adjusted $140.9 $222.7
Fixed charges:
Interest (including
interest expense and
capitalized interest) $ 41.6 $ 51.7
Portion of rents
representative of the
interest factor 1.7 1.8
Total fixed charges $ 43.3 $ 53.5
Ratio of earnings to fixed
charges 3.26<F2> 4.16<F1>
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 charges recorded in 1997,
the ratio of earnings to fixed charges at September 27, 1997 would have
been 4.53.
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