SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
AMENDMENT #1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):December 29, 1997
BAUSCH & LOMB INCORPORATED
(Exact name of registrant as specified in its charter)
New York 1-4105 16-0345235
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) 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
Inapplicable
(Former name or former address, if changed since last report).
<PAGE>
The undersigned registrant hereby amends the following item of its
Current Report on Form 8-K dated December 29, 1997, and filed on
January 13, 1998, as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Chiron Vision Corporation
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statement of Operations for the year ended December
31, 1996
Consolidated Statement of Cash Flows for the year ended December
31, 1996
Notes to Consolidated Financial Statements
Unaudited Consolidated Condensed Balance Sheet as of September
28, 1997
Unaudited Consolidated Condensed Statement of Operations for the
nine months ended September 28, 1997
Unaudited Consolidated Condensed Statement of Cash Flows for the
nine months ended September 28, 1997
(ii) Storz Ophthalmics, Inc., Storz Instrument Company, Storz
Instrument GmbH,
Cyanamid Chirurgie S.A.S. and Certain Affiliates (the "Storz
Group")
Report of Independent Public Accountants
Combined Balance Sheet as of December 31, 1996
Combined Statement of Income and Changes in Parent Company's
Investment and Advances for the year ended December 31, 1996
Combined Statement of Cash Flows for the year ended December 31,
1996
Notes to Combined Financial Statements
Unaudited Combined Condensed Balance Sheet as of September 30,
1997
Unaudited Combined Condensed Statement of Income for the nine
months ended September 30, 1997
Unaudited Combined Condensed Statement of Cash Flows for the nine
months ended September 30, 1997
(b) Pro Forma Financial Information
Unaudited Pro Forma Consolidated Statement of Earnings for the
year ended December 28, 1996
Unaudited Pro Forma Consolidated Statement of Earnings for the
nine months ended September 27, 1997
Unaudited Pro Forma Consolidated Balance Sheet as of September
27, 1997
Unaudited Notes to Unaudited Pro Forma Consolidated Financial
Statements
<PAGE>
CHIRON VISION CORPORATION
(A Wholly Owned Subsidiary of Chiron Corporation)
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
Board of Directors
Chiron Vision Corporation:
We have audited the accompanying consolidated balance sheet of Chiron
Vision Corporation, a wholly owned subsidiary of Chiron Corporation
(the Company), and subsidiaries as of December 31, 1996 and the
related consolidated statements of operations and cash flows for the
year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Chiron Vision Corporation and subsidiaries as of
December 31, 1996 and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Orange County, California
May 2, 1997
<PAGE>
CHIRON VISION CORPORATION
(A Wholly Owned Subsidiary of Chiron Corporation)
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1996
(In thousands)
Assets
Current assets:
Cash $ 5,453
Accounts receivable, net of allowance of $5,949 48,268
Inventories, net 43,577
Other 10,437
---------
Total current assets 107,735
Property, equipment and leasehold improvements:
Land and buildings 25,812
Laboratory, production and office equipment 31,230
Leasehold improvements 4,747
Construction in progress 8,092
---------
69,881
Less accumulated depreciation and amortization (21,780)
---------
Net property, equipment and leasehold improvements 48,101
Intangible assets, net of accumulated amortization
of 22,642 73,763
Notes receivable from related parties (note 2) 741
Other assets 2,836
---------
Total assets $ 233,176
=========
Liabilities and Business Equity
Current liabilities:
Current portion of long-term liabilities (note 6) $ 1,486
Accounts payable 10,761
Accrued compensation and related expenses (note 9) 7,438
Accrued royalties 2,201
Income taxes payable (note 8) 3,562
Other 18,838
---------
Total current liabilities 44,286
Long-term liabilities, less current portion (note 6) 6,432
---------
Total liabilities 50,718
Commitments and contingencies (note 7)
Business equity (note 11) 182,458
---------
Total liabilities and business equity $ 233,176
=========
See accompanying notes to consolidated financial statements.
<PAGE>
CHIRON VISION CORPORATION
(A Wholly Owned Subsidiary of Chiron Corporation)
AND SUBSIDIARIES
Consolidated Statement of Operations
Year ended December 31, 1996
(In thousands)
Net product sales $ 211,004
Cost of sales 98,877
---------
Gross profit 112,127
---------
Expenses:
Research and development 16,608
Selling, general and administrative 86,899
Other operating expenses 8,501
--------
Total expenses 112,008
--------
Income from operations 119
Other income 399
--------
Income before income taxes 518
Provision for income taxes (note 8) 3,114
--------
Net loss $ (2,596)
========
See accompanying notes to consolidated financial statments.
<PAGE>
CHIRON VISION CORPORATION
(A Wholly Owned Subsidiary of Chiron Corporation)
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year ended December 31, 1996
(In thousands)
Cash flows from operating activities:
Net loss $ (2,596)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 16,189
Gain on sale of fixed assets (18)
Changes in:
Accounts receivable (125)
Inventories 53
Other current assets 3,297
Accounts payable (3,175)
Accrued royalties 935
Accrued compensation and expenses (2,820)
Income taxes payable 3,382
Other current liabilities (504)
----------
Net cash provided by operating activities 14,618
----------
Cash flows from investing activities:
Capital expenditures (12,544)
Increase in intangible assets (4,078)
Increase in other assets (602)
----------
Net cash used in investing activities (17,224)
----------
Cash flows from financing activities:
Repayment of long-term liabilities (3,822)
Proceeds from net capital contribution from Chiron
Corporation 6,841
---------
Net cash provided by financing activities 3,019
---------
Net increase in cash 413
Cash at beginning of the year 5,040
---------
Cash at end of the year $ 5,453
=========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 275
Income taxes $ 58
See accompanying notes to consolidated financial statements.
<PAGE>
CHIRON VISION CORPORATION
(A Wholly Owned Subsidiary of Chiron Corporation)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
(1) The Company and Summary of Significant Accounting Policies
The Company
Chiron Vision Corporation (Vision or the Business) is headquartered
in Claremont, California and is Chiron Corporation's wholly owned
ophthalmic surgical products subsidiary. The Business' principal
operations consist of the research, development, manufacturing,
marketing and distribution of ophthalmic products for the surgical
correction of vision. Vision manufactures products in plants located
in Irvine and Claremont, California; Lyon, France and Munich,
Germany. Vision markets products in the U.S., Europe and other
geographic regions worldwide.
Vision operates in three areas of the ophthalmic surgery market:
cataract, refractive and retinal. Vision's cataract business
includes both hard and foldable intraocular lenses and delivery
devices for cataract replacement surgeries, phacoemulsification
instruments for small incision cataract surgeries and viscoelastics
used in various ophthalmic surgeries. Vision's refractive business
specializes in developing instruments and techniques to correct vision
with products including corneal shapers and excimer lasers. The
retinal business products include an implant for drug deliveries,
Vitrasert TM, which received approval from the Food and Drug
Administration (FDA) in March 1996. Chiron Vision is co-marketing
the Vitrasert TM implant worldwide with Hoffman-La Roche, Inc., which
manufactures the drug ganciclovir (marketed with the Vitrasert TM
implant). Additionally, the retinal business markets both silicone
oil and perflurocarbons used in retinal surgery. Vision also has an
ongoing program dedicated to the development and approval of new
products in the ophthalmic surgical markets it serves.
Basis of Presentation
The accompanying consolidated balance sheet does not include Chiron
Corporation's corporate assets or liabilities not specifically
identifiable to Vision. The Business' consolidated financial
statements include all of the direct operating expenses of Vision
and allocations of certain shared administrative services costs from
Chiron Corporation. Vision's management believes that these
allocations are based on assumptions that are reasonable in the
circumstances. However, these allocations are not necessarily
indicative of the costs and expenses that would have resulted if
the Business had been operated as a separate entity. Chiron
Corporation will continue to support and fund the operational
shortfalls of Chiron Vision Corporation until such time as this
subsidiary is sold or becomes profitable.
All material transactions between the Business and other Chiron
Corporation operations have been identified in the consolidated
financial statements as transactions between related parties.
Principles of Consolidation
The consolidated financial statements include the financial
statements of Chiron Vision Corporation and its wholly owned
and majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation,
except for those balances due to Chiron Corporation and non-Vision
affiliates.
Fiscal Year
The 1996 fiscal year ended on December 29, 1996 and was 52 weeks
long. For presentation purposes, dates used in the consolidated
financial statements and notes refer to the calendar month-end.
Foreign subsidiaries report to Vision on a one month lag, therefore,
the fiscal 1996 year-end for foreign subsidiaries was on November
30, 1996.
Revenue Recognition
Net product sales are generally recognized when products are
shipped. Vision has established programs which enable customers
to retain lens products on consignment. Sales of these products
are recognized upon implantation of the lens by a customer, until
which time the inventory held by the customer remains Vision's
inventory.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories
consist of the following at December 31, 1996 (in thousands):
Finished goods $ 26,313
Work in process 5,871
Raw materials 11,393
--------
Total inventories $ 43,577
========
Property, Equipment and Leasehold Improvements
Property and equipment are recorded at cost and depreciated over
their estimated useful lives using the straight-line method. The
estimated useful lives of buildings and building improvements
range from 20 to 30 years. Leasehold improvements are amortized
over the shorter of their useful lives or the term of the lease.
The estimated useful lives of equipment range from 3 to 10 years.
Long-Lived Assets, Including Intangible Assets
In accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," the Business reviews, as
circumstances dictate, the carrying amount of its intangible
assets and manufacturing facilities. The purpose of these reviews
is to determine whether the carrying amounts are recoverable.
Recoverability is determined by comparing the projected undiscounted
net cash flows arising from the long-lived assets against their
respective carrying amounts. The amount of impairment, if any, is
measured based on the excess of the carrying value over the fair
value. Management believes that no impairment of the carrying value
of long-lived assets, including intangible assets, has occurred.
Goodwill, which represents the excess of purchase price over the
fair value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefited, generally 8 to 15
years. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
Other intangible assets consist of purchased technology, patents,
exclusive license agreements and start-up organization costs. The
cost of these intangibles is amortized using the straight-line
method over the estimated useful lives of the respective assets,
which range from 5 to 15 years.
Net intangibles consist of the following at December 31, 1996 (in
thousands):
Purchased technology $ 28,124
Goodwill 34,638
Other 11,001
--------
Total $ 73,763
========
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation," which defines a fair
value method of accounting for stock-based awards. As permitted
by SFAS 123, Vision elected to continue to follow the existing
accounting requirements for stock options and other stock-based
awards contained in Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees." However,
Vision has provided in note 9 the required pro forma disclosures
pursuant to SFAS 123.
Foreign Currency Translation
Local foreign currencies are generally considered to be the
functional currency of the Business' foreign subsidiaries.
Accordingly, the assets and liabilities of subsidiaries
denominated in foreign currencies are translated at the exchange
rates in effect at the balance sheet date. The revenues and
expenses of such subsidiaries are translated at the average
exchange rates for the period of operation. Adjustments resulting
from such translation are included in "Cumulative foreign currency
translation adjustment," as a component of business equity. Net
realized transaction gains amounted to $351,000 in 1996 and are
included in other income in the accompanying consolidated
statement of operations.
Income Taxes
The Company accounts for income taxes using the asset and
liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.
Use of Estimates in Preparation of Consolidated Financial
Statements
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities,
the disclosure of contingent assets and liabilities and the
amounts of revenues and expenses to prepare these consolidated
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(2) Related Party Transactions
Vision has quality assurance and warranty service arrangements
with certain Chiron Corporation subsidiaries. Included in cost of
sales is approximately $84,000 which Vision paid related to these
arrangements.
Vision acquired a 30% equity interest in Control Delivery Systems
(CDS, the inventor of the Vitrasert TM Implant technology) in
December 1992. The investment in CDS has been offset with
Vision's share of CDS' net losses and as a result is carried at
zero value in the consolidated balance sheet at December 31, 1996.
Vision also entered into an agreement with CDS at that time
securing all rights to Vitrasert TM and the related technology,
and Vision has rights of first refusal for all new CDS products
under this agreement. Vision makes royalty payments to CDS for
third-party Chiron Vision sales of the Vitrasert TM product at an
average rate of 5% to 6% of net sales. During 1996, Vision paid
$690,000 to CDS for royalties.
At December 31, 1996, two loans to two officers of the Business
were outstanding as follows: (a) a $540,000 secured loan,
including interest, to the Managing Director of a foreign
subsidiary which bears interest at 8% and is due March 31, 2000;
the loan is collateralized by the Managing Director's minority
interest in the foreign subsidiary; and (b) an unsecured note
receivable with a balance of $101,000, including interest, which
was advanced to an officer of the Business. The note bears
interest at an annual rate of 9%. Interest and principal are due
on June 30, 1999. An additional $95,000 was advanced to this
officer during 1995, which was to be amortized over a three-year
employment term. Due to his resignation in January 1997, the net
balance of approximately $76,000 was forgiven concurrent with his
resignation.
(3) Business Combination and Restructuring
On March 31, 1995, Vision acquired the ophthalmic surgical product
division of IOLAB from Johnson & Johnson for approximately $95.0
million. The acquisition was accounted for under the purchase
method of accounting, and accordingly, IOLAB's financial results
have been included in Vision's consolidated results of operations
from the date of purchase. The purchase price of the acquired
assets and assumed liabilities was allocated based upon their
estimated fair values on the acquisition date. The fair value of
the net liabilities assumed, including in-process technology, was
estimated based, in part, on independent valuations of the acquired net
assets. In connection with the acquisition, net liabilities were
assumed as follows (in thousands):
Fair value of assets
acquired $ 108,768
Cash paid (95,000)
Acquisition costs (1,013)
---------
Net liabilities
assumed $ 12,755
=========
The amount allocated to purchased in-process technology of $10.3
million was charged against earnings in the first quarter of 1995.
Other purchased intangible assets of approximately $46.5 million
consisting of base technology, goodwill, trade name and a customer
list are being amortized over their estimated useful lives of 10
to 15 years using the straight-line method. Also, the company
recorded additional charges for IOLAB restructuring and
integration-related expenses totaling $16.9 million in 1995.
Of the $16.9 million recorded as a result of the acquisition of
IOLAB, approximately $6.7 million related to write-downs of
previously capitalized facility and inventory costs. The remaining
$10.2 million consisted of $5.5 million of employee termination
costs and $4.7 million of lease termination and other costs. Vision
has consolidated its European intraocular lens manufacturing
operations into its facility in Lyon, France, and the North American
manufacturing operations into its facility in Claremont, California.
The related work force reduction of 130 employees was the result of
increased manufacturing efficiencies as plants were closed, a
concentration of research and development efforts and an elimination
of overlap in sales and marketing and general and administrative areas.
At December 31, 1996, the accrual for restructuring and
reorganization costs totaled $3.5 million and consisted primarily
of $2.5 million of lease termination costs, which includes future
noncancelable operating lease costs and the write-down of leasehold
improvements and certain equipment. The liability for lease
termination costs will be settled over the lives of the related lease
terms which expire through 2012.
The current status of the accrued restructuring charge which is
included in other current liabilities, inventories and long-term
liabilities in the accompanying consolidated balance sheet is
summarized below (in thousands):
Amount Amount to
Amount of utilized be
total through utilized
restructuring December in future
charge 31, 1996 periods
------------- -------- ----------
Employee-related costs $ 5,506 (5,506) -
Facility and lease
termination costs 6,242 (3,730) 2,512
Duplicate and excess
inventory 3,476 (2,888) 588
Other 1,724 (1,369) 355
-------- ------- -----
$ 16,948 (13,493) 3,455
======== ======= =====
(4) Collaborations and Joint Business Arrangements
In June 1995, Vision entered into a co-marketing agreement with
Hoffman-La Roche Inc., the manufacturer and marketer of the
ganciclovir drug, to market the Vitrasert TM Implant to deliver
ganciclovir for the treatment of CMV retinitis in patients with
Acquired Immune Deficiency Syndrome (AIDS). Vision received FDA
approval to begin marketing the Vitrasert TM product in March
1996. Vision makes payments to Hoffman-La Roche Inc. at a rate of
approximately 50% of its defined net profits from Vitrasert TM
sales. During 1996, Vision paid $5.1 million to Hoffman-La Roche
Inc.
(5) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires that fair
values be disclosed for the Business' financial instruments. The
carrying amount of cash, accounts receivable, other current assets,
accounts payable, other liabilities and obligations under
long-term liabilities are considered to be representative of their
respective fair values because of the short-term nature of these
financial instruments. The carrying amount of the long-term
liabilities are reasonable estimates of fair value as the loans
bear interest based on market rates currently available for debt
with similar terms.
(6) Long-term Liabilities
Long-term liabilities consist of the following at December 31,
1996 (in thousands):
Note payable $ 247
Rent abatement 1,509
Excess rent 5,581
Capital lease
obligations 258
Other long-term debt 323
-------
7,918
Less current portion 1,486
-------
$ 6,432
=======
Note Payable
The note payable to a bank bears interest at 8.79% and is
unsecured. Principal is due October 31, 1999. Interest is paid
monthly.
Rent Abatement
As part of the 1995 restructuring discussed in note 3 above,
Vision terminated leases for facilities in Rapid City, South
Dakota; Huntington, West Virginia and London, England.
In accordance with Emerging Issues Task Force Issue 94-3,
"Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)," Vision accrued the future
noncancelable operating lease costs associated with these
facilities.
Excess Rent
As part of the purchase of a business in France, Vision assumed a
noncancelable, operating lease contract with terms in excess of
market for which it accrued the future minimum lease costs in
excess of the fair market rent at the date of the business
combination.
Capital Lease Obligations
Capital lease obligations consist primarily of leases for various
machinery and equipment used in operations throughout the world.
At December 31, 1996, the gross amount of machinery and equipment
held under noncancelable capital leases totaled $2.2 million and
accumulated depreciation totaled $1.9 million. Future payments
under capital lease obligations (including interest of
approximately $47,000) are as follows (in thousands): 1997 - $63;
1998 - $115; 1999 - $63; and 2000 - $64.
(7) Commitments and Contingencies
Operating Leases
Vision leases laboratory, office and manufacturing facilities,
land and equipment under noncancelable operating leases which
expire at various times through 2012. Rent expense under these
leases was approximately $4.7 million in 1996, excluding lease
costs associated with the IOLAB rent abatement and the excess rent
accruals as discussed in note 6. Additionally, in February 1997,
the Business entered into a new five-year operating lease agreement
to continue renting the Irvine, California facility that is currently
used for lens and retinal manufacturing. Future minimum lease
payments under all operating leases, including leases involving the
rent abatement and excess rent discussed in note 6, are as follows
(in millions): 1997 - $5.7; 1998 - $4.8; 1999 - $4.5; 2000
- $4.3; 2001 - $3.9 and $4.7 thereafter.
Worldwide Enterprise Data Processing System
Vision is in the process of implementing an enterprise-wide data
processing system. The system, when complete, is expected to
fully integrate on-line customer ordering through manufacturing,
distribution and customer billing for all three business units.
Vision spent $9.9 million on system implementation costs during
1996 of which $7.6 million was capitalized for software and
hardware costs. Vision has commitments to purchase $1.5 million
in additional computer hardware and software and has $1 million of
outstanding contract commitments for systems implementation
consulting as of December 31, 1996.
Purchase Commitments
The Business has entered into unconditional, long-term purchase
commitments to obtain certain raw materials used in the
manufacturing of perflurocarbons. Under these contracts, the
Business is required to take-or-pay for a minimum amount of goods
at a value no less than $3.5 million.
(8) Income Taxes
For financial reporting purposes, income (loss) before income
taxes includes the following components for the year ended
December 31, 1996 (in thousands):
United States $ ( 2,225)
Foreign 2,743
---------
$ 518
=========
Significant components of the provision for income taxes are as
follows:
Current:
Federal $ -
State 50
Foreign 3,064
----------
$ 3,114
==========
The reconciliation of the provision for income taxes, computed by
applying the statutory U.S. income tax rate of 35%, to the amount
of income before income taxes is as follows:
Computed "expected" tax provision $ 182
State taxes 50
Foreign tax at different
effective rate 157
Goodwill amortization 927
Current losses not providing
benefit 1,798
-------
Provision for income taxes $ 3,114
=======
Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes and the tax effects of net operating losses and
credit carryforwards. Significant components of the Business'
deferred income tax assets and liabilities are as follows:
Deferred income tax assets:
Inventory and other reserves $ 5,899
Property and equipment 6,376
Foreign net operating loss
carryforwards 12,383
---------
24,658
Less valuation allowance 23,648
---------
Net deferred income tax
assets 1,010
Miscellaneous deferred
income tax liabilities 1,010
---------
Net deferred income taxes $ -
=========
The tax provision has been prepared as if the Business filed
separate tax returns on a stand alone basis and includes a
carryforward for utilization of prior operating losses of $1.7
million. However, since the Business has actually been included
in the consolidated tax filings of Chiron Corporation, its prior
losses have been utilized in the Chiron Corporation consolidated
tax return. As such, should the Business actually file separate
tax returns in the future, no net operating losses would be
available.
The Business' tax provision is not necessarily reflective of
Chiron Corporation's consolidated Federal tax return.
(9) Chiron Corporation Stock-Based Compensation Plans and Retirement
Savings Plan
Employees of Vision participate in certain Chiron Corporation
stock-based compensation plans, which are described below. Vision
applies APB 25 and related Interpretations in accounting for its
employees' participation in these plans. Accordingly, no
compensation expense will be recognized by Vision under the plans
in which its employees participate other than for performance-
based awards granted to Vision employees.
Fixed Stock Option Plan
The Chiron Corporation fixed stock option plan provides for the
grant to Vision employees of either nonqualified or incentive
stock options. Incentive options are to be granted at not less
than the fair market value of common stock at the date of grant
and nonqualified options at not less than 85% of such fair market
value. Options are exercisable based on vesting terms determined
by Chiron Corporation's Board of Directors (generally four years)
and option terms cannot exceed ten years.
A summary of participation by Vision employees in Chiron Corporation's
fixed stock option plan is as follows:
Weighted-
average
exercise
Shares price
--------- ----------
Outstanding options at January
1, 1996 3,017,933 $ 15.93
Granted 906,359 22.65
Exercised (279,597) 13.86
Forfeited (268,504) 18.32
--------- -------
Outstanding options at December
31, 1996 3,376,191 $ 17.71
========= =======
Options exercisable at December
31, 1996 1,358,885 $ 15.83
========= =======
Weighted-average grant date fair
value of options granted
during 1996 $ 8.26
=======
The weighted-average grant date fair value of 1996 option grants
was estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions:
expected volatility of 35%; a risk-free interest rate of 6.2%;
an expected life of four years; and a dividend yield of 0%.
Employee Stock Purchase Plan
Vision employees in the U.S. may participate in the Chiron
Corporation stock purchase plan through payroll deductions. At
the end of each quarter, funds deducted from participating Vision
employees' salaries are used to purchase common stock at 85% of
the lower of market value at the quarterly purchase date or the
employees' eligibility date for participation. Purchases by
Vision employees under the Chiron Corporation stock purchase plan
were for an aggregate of 254,300 shares in 1996.
Under SFAS 123, pro forma compensation cost is recognized by
Vision for the fair value of participating Vision employees'
purchase rights, which was estimated using the Black-Scholes model
with the following assumptions for 1996: expected volatility of
35%; a risk-free interest rate of 5.7%; an expected life of one
year; and a dividend yield of 0%. The weighted-average fair value
of the purchase rights granted to Vision employees was $4.78 per
share in 1996.
Performance-Based Stock Plan
In 1996, the stockholders of Chiron Corporation approved an
amendment to the Chiron Corporation fixed stock option plan,
allowing certain executives to receive performance units.
Performance units are stock awards for which vesting is contingent
upon the attainment of certain pre-established performance goals
over a specified period, as established by the Compensation
Committee of Chiron Corporation's Board of Directors. Currently,
the performance units are based on total stockholder return over a
three year period as measured against certain published benchmark
indices that are representative of Chiron Corporation's peer
group.
In 1996, performance units on 5,200 shares of common stock were
awarded to Vision executives. None of these units were
exercisable at December 31, 1996. In order for there to be a
payout, Chiron Corporation's stockholder return must be within 15%
of the 3-year rolling weighted-average of the benchmark indices.
In accordance with APB 25, compensation expense related to these
awards is based on the extent to which the performance criteria
are met. Through December 31, 1996, no expense was recognized by
Vision in the accompanying consolidated financial statements for
the performance units granted to Vision executives.
Pursuant to SFAS 123, the weighted-average fair value of the
performance units awarded to Vision executives was estimated on
the date of grant using the Black-Scholes option-pricing model
with the following assumptions: expected volatility of 35%; a
risk-free interest rate of 6.0%; an expected life of three years;
and a dividend yield of 0%. The weighted-average fair value of the
performance units awarded to Vision executives was $7.57 per unit
in 1996.
Had compensation cost for Vision employees' participation in the
stock-based compensation plans described above been determined
based upon the fair value method prescribed under SFAS 123,
Vision's net loss for the year ended December 31, 1996 would have
been as follows (in thousands):
Net loss:
As reported $ (2,596)
Pro forma (6,795)
========
Pro forma net loss for the year ended December 31, 1996 includes
compensation cost, determined based upon the fair value method
prescribed under SFAS 123 and net of 1996 tax effects, attributable
to grants to Vision employees during 1995 under the Chiron Corporation
fixed stock option plan. The weighted-average grant date fair value
of these 1995 option grants of $5.98 per share was estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: expected volatility of 35%;
a risk-free interest rate of 6.2%; an expected life of four years;
and a dividend yield of 0%.
Because awards to participating Vision employees under Chiron
Corporation's stock-based compensation plans generally vest over
several years and Vision employees' participation in these plans
is expected to continue, the effects of determining compensation
cost or providing pro forma disclosures pursuant to SFAS 123 for
the year ended December 31, 1996 are not likely to be
representative of the effects on Vision's reported net income for
future years.
Retirement Savings Plan
Substantially all full-time U.S. employees of Vision are eligible
to participate in Chiron Corporation's defined-contribution
savings plan, qualified under Section 401(k) of the Internal
Revenue Code. Participating Vision employees may defer a portion
of their pretax earnings up to the Internal Revenue Service annual
contribution limit. Vision matches its employees' contributions
according to a specified formula determined by Chiron
Corporation's Board of Directors. Vision's matching contributions
totaled $866,000 in 1996.
(10) Legal Proceedings
Vision is party to various claims, investigations and legal
proceedings arising out of the normal course of its business.
These claims, investigations and legal proceedings relate to
intellectual property rights, contractual rights and obligations,
claims of product liability and other issues. While there can be
no assurance that an adverse determination of any such matters
would not have a material adverse impact in any future period,
management does not believe, based upon information known to it,
that the final resolution of these matters will have a material
adverse effect upon the Business' consolidated financial position,
results of operations or cash flows.
(11) Business Equity
Business Equity represents Chiron Corporation's ownership interest
in the recorded net assets of Chiron Vision. All cash
transactions and intercompany transactions with Chiron Corporation
are reflected in this amount. A summary of the activity is as
follows:
Beginning balance, January 1996 $ 178,213
Net loss (2,596)
Translation adjustments (3,595)
Net intercompany activity 10,436
---------
Ending balance, December 1996 $ 182,458
=========
<PAGE>
Unaudited condensed consolidated financial statements of Chiron Vision
Corporation ("Chiron Vision") for the nine months ended September 28,
1997 are presented on the following pages. These financial statements
have been prepared by Chiron Vision in accordance with its usual
accounting policies and are based in part on approximations and should
be read in conjunction with the audited financial statements of Chiron
Vision for the year ended December 31, 1996.
In the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial statements in accordance
with generally accepted accounting principles have been included. All
such adjustments were of a normal recurring nature.
<PAGE>
CHIRON VISION CORPORATION
(A Wholly Owned Subsidiary of Chiron Corporation)
AND SUBSIDIARIES
Consolidated Condensed Balance Sheet (Unaudited)
September 28, 1997
(In thousands)
Assets
Current assets:
Cash $ 10,769
Accounts receivable, net of allowance of $5,501 41,545
Inventories, net 37,601
Other 7,159
---------
Total current assets 97,074
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization of $25,305 49,013
Intangible assets, net of accumulated amortization of
$26,763 68,183
Notes receivable from related parties 570
Other assets 1,938
----------
Total assets $ 216,778
==========
Liabilities and Business Equity
Current liabilities:
Current portion of long-term liabilities $ 1,306
Accounts payable 7,202
Accrued compensation and related expenses 7,338
Accrued royalties 3,763
Income taxes payable 2,083
Other 15,363
---------
Total current liabilities 37,055
Long-term liabilities, less current portion 288
Other long-term liabilities 21,392
---------
Total liabilities 58,735
Business equity 158,043
----------
Total liabilities and business equity $ 216,778
==========
<PAGE>
CHIRON VISION CORPORATION
(A Wholly Owned Subsidiary of Chiron Corporation)
AND SUBSIDIARIES
Consolidated Condensed Statement of Operations (Unaudited)
Nine months ended September 28, 1997
(In thousands)
Net product sales $ 150,692
Cost of sales 72,722
---------
Gross profit 77,970
---------
Expenses:
Research and development 9,899
Selling, general and administrative 58,856
Other operating expenses 6,475
---------
Total expenses 75,230
---------
Income from operations 2,740
Other expense (3,900)
---------
Income before income taxes (1,160)
Provision for income taxes 288
---------
Net loss $ (1,448)
=========
<PAGE>
CHIRON VISION CORPORATION
(A Wholly Owned Subsidiary of Chiron Corporation)
AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows (Unaudited)
Nine months ended September 28, 1997
(In thousands)
Cash flows from operating activities:
Net loss $ (1,448)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 12,073
Gain on sale of fixed assets (50)
Changes in:
Accounts receivable 6,723
Inventories 5,976
Other current assets 3,278
Accounts payable (3,559)
Accrued royalties 1,562
Accrued compensation and related expenses (100)
Income taxes payable (1,479)
Other current liabilities (3,475)
--------
Net cash provided by operating activities 19,501
--------
Cash flows from investing activities:
Capital expenditures (6,387)
Increase in intangible assets (968)
Decrease in other assets 1,069
--------
Net cash used in investing activities (6,286)
--------
Cash flows from financing activities:
Repayment of long-term liabilities (1,932)
Repayment to Chiron Corporation (5,967)
--------
Net cash used in financing activities (7,899)
--------
Net increase in cash 5,316
Cash at beginning of the year 5,453
---------
Cash at September 28, 1997 $ 10,769
=========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 89
Income taxes $ 278
<PAGE>
The Storz Group
Combined Financial Statements as of December 31, 1996
Together With
Report of Independent Public Accountants
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Storz Instrument Company:
We have audited the accompanying combined balance sheet of the Storz
Group, as defined (see Note 1), as of December 31, 1996 and the related
combined statement of income and changes in parent company's investment
and advances, and cash flows for the year then ended. These financial
statements are the responsibility of the Storz Group's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the financial position of the Storz Group, as
defined (see Note 1), as of December 31, 1996 and the results of its
operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Roseland, New Jersey
January 30, 1998
<PAGE>
THE STORZ GROUP
(as defined, Note 1)
COMBINED BALANCE SHEET AS OF DECEMBER 31, 1996
(in thousands of U.S. dollars)
ASSETS
CURRENT ASSETS:
Cash $ 2,565
Accounts receivable and current portion of customer finance
receivables, net of unearned income of $401 and allowance
for doubtful accounts of $5,389 32,561
Inventories, net 27,857
Other current assets 601
--------
Total current assets 63,584
NONCURRENT CUSTOMER FINANCE RECEIVABLES, net of current
portion, less unearned income of $216 and allowance for
doubtful accounts of $520 1,133
PROPERTY, PLANT AND EQUIPMENT, net 34,807
GOODWILL, net 222,002
OTHER ASSETS 5,758
--------
$327,284
========
LIABILITIES AND PARENT COMPANY'S INVESTMENT AND ADVANCES
CURRENT LIABILITIES:
Accounts payable $ 6,409
Accrued expenses 20,704
Current portion of Other Noncurrent Liabilities 32
--------
Total current liabilities 27,145
--------
OTHER NONCURRENT LIABILITIES 1,985
COMMITMENTS AND CONTINGENCIES
PARENT COMPANY'S INVESTMENT AND ADVANCES 298,154
--------
Total liabilities and parent company's investment
and advances $327,284
========
The accompanying notes to the combined financial statements
are an integral part of this balance sheet.
<PAGE>
THE STORZ GROUP
(as defined, Note 1)
COMBINED STATEMENT OF INCOME AND CHANGES
IN PARENT COMPANY'S INVESTMENT AND ADVANCES
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands of U.S. dollars)
NET SALES $192,595
COST OF GOODS SOLD 80,491
--------
Gross profit 112,104
--------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 76,103
RESEARCH AND DEVELOPMENT EXPENSES 14,099
--------
Operating income 21,902
OTHER INCOME (EXPENSES):
Amortization of goodwill (5,852)
Interest income, net 71
Licensing income, net 500
Other expense, net (151)
--------
Income before provision for income taxes 16,470
PROVISION FOR INCOME TAXES 8,235
--------
Net income 8,235
PARENT COMPANY'S INVESTMENT AND ADVANCES, beginning of year 308,943
ADVANCES, WITHDRAWALS AND DIVIDENDS, net (19,024)
--------
PARENT COMPANY'S INVESTMENT AND ADVANCES, end of year $298,154
========
The accompanying notes to the combined financial statements
are an integral part of this statement.
<PAGE>
THE STORZ GROUP
(as defined, Note 1)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands of U. S. dollars)
OPERATING ACTIVITIES:
Net income $ 8,235
Adjustments to reconcile net income to net cash provided from
operating activities-
Depreciation and amortization 10,853
Loss on sale of fixed assets 147
Changes in working capital-
Accounts receivable 6,560
Inventories 4,551
Other current assets (85)
Noncurrent finance receivables 571
Other noncurrent assets (2,888)
Accounts payable 269
Accrued expenses (2,842)
Other noncurrent liabilities (10)
--------
Net cash provided from operating activities 25,361
--------
INVESTING ACTIVITIES -- Purchases of plant and equipment, net (3,923)
--------
FINANCING ACTIVITIES -- Change in parent company's investment
and advances, net (18,458)
--------
EFFECT OF EXCHANGE RATES (566)
--------
Increase in cash 2,414
CASH, beginning of year 151
--------
CASH, end of year $ 2,565
========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 150
========
Cash paid for income taxes $ 439
========
The accompanying notes to the combined financial statements
are an integral part of this statement.
<PAGE>
THE STORZ GROUP
(as defined, Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(1) DESCRIPTION OF BUSINESS:
The combined balance sheet reflects, except for certain assets,
liabilities and notes receivables of divested businesses, all of
the assets and liabilities of four legal entities Storz
Ophthalmics, Inc., Storz Instrument Company, Storz Instrument GmbH
and Cyanamid Chirurgie S.A.S. combined with inventories, prepaid
expenses, specified fixed and other assets and certain accruals of
the ophthalmics business of American Home Products Corporation
(collectively, the "Storz Group").
The Storz Group develops, manufactures, and markets a wide array
of ophthalmic products including surgical equipment, implants,
pharmaceuticals and hand held surgical instruments.
On October 21, 1997 American Cyanamid Company (ACC) and American
Home Products Corporation (AHPC or Parent) entered into an
agreement with Bausch & Lomb Incorporated (B&L) for the sale of the
Storz Group in the amount of $380,000.
Basis of Presentation of the Combined Statements of Income-
Excluded from these statements are all revenue and expenses
related to the excluded assets and excluded liabilities. Where
expenses could not be specifically related to the included
products, costs were allocated to these products on the basis of
the included products' gross profit as a percent of total gross
profit, which management believes is a reasonable allocation
methodology.
All significant intercompany accounts and transactions have been
eliminated in preparing the combined statements.
Summary of Significant Accounting Policies-
Accounts Receivable-
Revenue is recognized when merchandise is shipped and title and
risk of loss passes to the customer.
At December 31, 1996 the accounts receivable and current
portion of customer finance receivables are comprised of the
following-
Accounts receivable, trade $ 34,879
Current portion of customer finance receivables 3,472
Less - Allowance for doubtful accounts and
unearned income (5,790)
--------
$ 32,561
========
Accounts receivable and the allowance for doubtful accounts of
the affiliated entities are not separately identifiable from
the accounts receivable of other businesses within those
affiliated entities. As such, the Storz Group has estimated
the amount of accounts receivable, net, included in the
accompanying balance sheet based upon the related sales
reflected in the accompanying statement of income.
The book value of the noncurrent customer finance receivables
is considered to approximate their fair market value.
Allowance for Doubtful Accounts and Unearned Income-
The following summarizes the allowance for doubtful accounts
and unearned income and the related activity-
Write-offs and
offs and
Beginning Charged to Reductions, Net Ending
Description Balance Expense of Recoveries Balance
----------- --------- ---------- ---------------- -------
Allowance for doubtful
accounts and unearned
income-
Year ended December $ 6,094 $ 1,369 $ 937 $ 6,526
31, 1996
Inventories-
Inventories are stated at the lower of cost or market.
Inventories valued under the last-in, first-out (LIFO) method
amounted to $15,108 at December 31, 1996. Current value
exceeded LIFO value by $4,988 at December 31, 1996. The
remaining inventories are valued under the first-in, first-out
(FIFO) method.
The components of inventory at December 31, 1996 are as follows-
Raw materials and work-in-process $ 10,892
Finished goods (including consignment) 16,965
--------
$ 27,857
========
Property, Plant and Equipment-
Property, plant and equipment is stated at cost. Normal
maintenance and repairs are charged to expense as incurred.
Additions and improvements either to provide necessary capacity,
improve the efficiency of production, or to modernize facilities
are capitalized. Depreciation is calculated on a straight-line
basis over the estimated useful lives of the various classes of
assets (which range from three to thirty-one years).
Land and land improvements $ 6,038
Building and building improvements 21,465
Machinery and equipment 15,217
Furniture and fixtures 12,870
--------
Property, plant and equipment 55,590
Less- Accumulated depreciation (20,783)
--------
$ 34,807
========
Goodwill-
During 1994, AHPC acquired substantially all of the outstanding
shares of ACC which included the Storz Group. Goodwill represents
the excess of cost over the fair value of net assets acquired that
relates to the Storz Group. Goodwill is being amortized using the
straight-line method over a 40 year period.
Goodwill $234,193
Accumulated amortization (12,191)
--------
Goodwill, net $222,002
========
Impairment of Long-Lived Assets-
Under Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", the Storz Group is required,
among other things, to review its long-lived assets and certain
related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of such assets may
not be fully recoverable. The Storz Group does not believe that
any such change has occurred.
Research and Development-
Research and development costs are charged to expense as incurred.
Other Assets-
As of December 31, 1996 other assets consists primarily of
undeveloped land in Clearwater, FL of $2,432 and approximately
$3,000 of demonstration equipment, net of accumulated amortization
of $5,840.
Noncurrent Customer Finance Receivables-
Noncurrent customer finance receivables relate to the sale of
ophthalmic device business capital equipment by the Storz Group
through financing agreements. Payment terms are generally granted
up to a maximum of 36 months with payments made on a monthly basis
over the terms of the agreements. These finance receivables carry
interest at annual rates ranging from 4% to 10%.
Concentration of Risk-
Financial instruments subject to credit risk are primarily trade
accounts receivable. Due to the large number and diversity of the
Storz Group's customer base, concentration of credit risk with
respect to trade receivables is limited.
Use of Estimates-
The preparation of the combined financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ
from those estimates.
Accounts Payable and Accrued Expenses-
Accounts payable consist of trade payables. Accrued expenses
consist primarily of accrued payroll, commissions, warranties,
promotional programs, rebates/chargebacks and professional fees.
Accounts payable and certain accrued expenses payable to
affiliates have been included as part of the Parent Company's
investment and advances.
Other Noncurrent Liabilities-
Other noncurrent liabilities consist primarily of deferred
payments owed from Storz Instrument GmbH's 1984 acquisition of
Leonard Klein Chirurgische Augeninstrumente, an ophthalmic
instrument manufacturing business. Amounts are comprised of two
elements: a deferred purchase price and a pension liability.
In accordance with the agreement, the deferred purchase price is
actuarially determined each year based on payments made the
previous year and is adjusted annually, as appropriate, utilizing
an interest rate of 6% and an inflation rate equal to 75% of the
inflation rate in Germany. Payments will be made to the previous
owner and his spouse or survivor until their deaths. The pension
liability calculation is actuarially determined utilizing an
interest rate of 6% and an inflation rate of 3%. The previous
owner will receive an amount annually upon reaching age sixty-five
or becoming disabled, whichever comes first. This pension will
also be paid to the previous owner and his spouse or survivor
until their deaths. In case of death of the previous owner, his
spouse is entitled to sixty percent of the pension benefit.
Other noncurrent liabilities also include a pension liability for
the Storz Instrument GmbH defined benefit pension plan (see Note
6). This pension liability is actuarially determined at the end
of each year.
The components of other noncurrent liabilities at December 31,
1996 are as follows-
Present Value of deferred purchase price $ 1,078
Less - Current Portion (32)
--------
Present Value of noncurrent deferred purchase
price 1,046
Pension liability - previous owner 325
--------
Due to previous owner 1,371
Pension liability - Storz Instrument GmbH
employees 570
Other 44
--------
$ 1,985
========
Parent Company's Investment and Advances-
Parent Company's investment and advances includes the
stockholder's equity of the Storz Group described in Note 1. The
equity of the individual subsidiaries represents the original
investment by AHPC, plus accumulated net income and net advances,
withdrawals and dividends. Cash receipts are transferred to AHPC
by daily cash sweeps and AHPC makes funds available for operating
expenses.
(2) COMMITMENTS AND CONTINGENCIES:
The Storz Group leases certain warehouse space, machinery, office
equipment and automobiles under operating leases. Rental expense
for the year ended December 31, 1996 of $1,485 is included in cost
of goods sold and selling, general and administrative expenses.
The future minimum lease payments are as follows-
1997 $ 862
1998 332
1999 252
2000 178
2001 75
The Storz Group is self-insured for losses and liabilities related
to health care up to predetermined amounts, above which third party
insurance applies. Losses are accrued based on the Storz Group's
estimates of aggregate liabilities for incurred and reported claims
as well as estimates of aggregate liabilities for incurred but not
reported claims. Such estimates are based on the Storz Group's
loss experience as well as loss development patterns generally
followed in the insurance industry. Storz Instrument Company and
Storz Ophthalmics, Inc. have recorded a provision of approximately
$3,524 for the year ended December 31, 1996 related to such
estimates of losses and liabilities. The reserve as of December
31, 1996 was $1,013.
The Storz Group is a participant in the U.S. National Institute of
Health's Age Related Eye Disease Study (AREDS). The Storz Group
can terminate its participation on 30 days written notice. The
annual support to this study is $330 plus a supply of Ocuvite
samples.
The Storz Group is involved in various legal matters including
product liability and intellectual property proceedings which are
considered normal to its business. One such litigation involves
breast implants which were distributed by the Storz Group device
business during the 1960's and 1970's. The manufacturer of the
breast implants has indemnified the Storz Group against any
liability arising from such lawsuits and has assumed the defense of
such lawsuits on behalf of the Storz Group.
In the opinion of management, although the outcome of any legal
proceeding cannot be predicted with certainty, the ultimate
liability in connection with these proceedings will not have a
material adverse effect on the combined balance sheet, but could be
material to the Storz Group's results of operations in any one
accounting period.
(3) TRANSLATION OF CURRENCIES:
In accordance with Statement of Financial Accounting Standards No.
52, international assets and liabilities are translated into United
States dollars at period end exchange rates and international
profit and loss account items are translated into United States
dollars at monthly average exchange rates.
(4) INCOME TAXES:
The operations of the Storz Group are included in the consolidated
tax returns of AHPC and its subsidiaries except for Storz GmbH which
files on a stand alone basis in Germany. The Storz Group has
reflected taxes in the accompanying statement of income at the
statutory tax rates without regard for temporary differences.
Accordingly, the Storz Group has no deferred tax assets or
liabilities since those amounts are being paid or received by AHPC.
Deferred tax assets and liabilities would reflect temporary
differences between assets and liabilities for financial reporting
purposes and income tax purposes. Such temporary differences are
primarily attributable to depreciation, allowances for doubtful
accounts, trade promotion accruals and other accruals and have not
been significant.
The provision for income taxes consists of-
Domestic $ 4,554
Foreign 3,681
--------
$ 8,235
========
A reconciliation between the Storz Group's effective tax rate and
U. S. statutory rate is as follows-
U. S. statutory rate 35%
Foreign taxes, taxed at higher rates 3
Amortization of other intangibles and
purchase price over fair value 12
---
Effective tax rate 50%
===
(5) RELATED PARTY TRANSACTIONS:
The combined statement of income includes the costs of certain
administrative and other services provided by AHPC and allocated to
the Storz Group. These services include treasury, tax, legal,
environmental, safety, public relations, audit and executive
management advisory functions. The charge to the Storz Group for
corporate administration was $1,685 in 1996.
Various insurance coverages are provided to the Storz Group through
AHPC consolidated programs. Auto, property, product liability and
other insurance charges incurred by AHPC are allocated to the Storz
Group based on AHPC's overall cost. The charge for these coverages
of $561 in 1996 has been included in the combined statement of
income.
The costs have been allocated on a basis which management believes
is reasonable.
(6) INCENTIVE PLANS:
AHPC has a Management Incentive Plan that provides for cash and
deferred contingent common stock awards to key employees and a
stock option program. No awards were made to the Storz Group
personnel under the AHPC Management Incentive Plan for 1996.
During 1995 and 1996 certain employees of the Storz Group were
granted stock options under the AHPC stock option plans. These
options had a ten year term and generally vested one year from
date of grant.
Transactions involving the plans are summarized as follows-
Weighted
Average
Exercise
1996 Price
----- ---------
Options shares-
Outstanding January 1 395.6 $45.66
Granted 161.7 53.06
Canceled ($45.66-$53.06) (41.6) 47.97
Exercised (37.4) 45.66
----- -----
Outstanding December 31 ($45.66-$53.06) 478.3 47.96
Exercisable December 31 329.6 45.66
===== =====
Effective January 1, 1996, AHPC adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." As permitted by
the statement, AHPC has elected to continue to account for stock-
based compensation using the intrinsic value method under
Accounting Principles Board Opinion No. 25. Accordingly, no
compensation expense has been recognized for stock options. If
compensation expense for the Storz Group's stock options issued in
1995 and 1996 had been determined based on the fair value method of
accounting, as defined in SFAS No. 123, the Storz Group's net
income would have been reduced to the pro forma amount indicated
below-
Net income-
As reported $ 8,235
Pro forma 6,529
The fair value of issued stock options is estimated on the date of
grant using the Black-Scholes option-pricing model incorporating
the following assumptions for options granted in 1996: expected
volatility (the amount by which the stock price is expected to
fluctuate) of 15.0%; expected dividend yield of 4.3%; risk-free
interest rate of 6.4% and expected life of four years. The
weighted average fair value of options granted during 1996 was
$6.82.
(7) DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS:
Storz Instrument Company maintained a noncontributory defined
benefit plan covering substantially all its union employees who
became participants prior to October 2, 1991. In accordance with a
plan amendment, an employee could not become a participant on or
after October 2, 1991. Credited service, as defined, was frozen as
of August 1, 1991.
Effective August 15, 1995, the Board of Directors of Storz
Instrument Company elected to terminate the Plan, subject to the
provisions set forth in ERISA. All pension benefits which were not
previously forfeited, were nonforfeitable as of the termination
date. The amount of pension benefits to which a participant is
entitled is based on credited service through July 31, 1991. In
1996, the Storz Group made all contributions necessary such that
the Plan assets are sufficient to provide for all benefit
liabilities. The combined statement of income includes $41 of
company contributions for the year ended December 31, 1996.
In connection with the Plan termination, on October 1, 1996 Storz
Instrument Company entered into a contractual agreement with
Principal Life Insurance Co. to purchase for $220 a group annuity
contract for participants electing annuity payments. In addition,
lump sum distributions of approximately $790 were made to
participants electing this form of distribution. All remaining
assets were used to pay final plan expenses.
Storz Instrument Company maintains the following defined
contribution plans-
Savings and Profit Sharing Plan - This Plan is designed to provide
Storz Instrument Company and Storz Ophthalmics Inc.'s nonunion
employees with funds for retirement or for their beneficiaries in
the event of death. Participants may make annual contributions up
to 15% of their compensation, as defined. Storz Instrument
Company and Storz Ophthalmics Inc. make matching contributions
equal to 25% of each participant's contribution, up to 6% of the
participant's compensation, as defined. Employees become eligible
to participate in the Plan upon attaining age 21, and following
one full year of service, as defined. The combined statement of
income includes $276 of company matching contributions for the
year ended December 31, 1996.
Money Purchase Pension Plan - This Plan is designed to provide
Storz Instrument Company and Storz Ophthalmics Inc.'s nonunion
employees with funds for retirement or for their beneficiaries in
the event of death. Contributions to the Plan are made by Storz
Instrument Company and Storz Ophthalmics Inc. in the amount equal
to 7% of each participant's prior calendar year compensation
subject to social security taxes, plus 12% of each participant's
compensation in excess of the social security limit. Employees do
not contribute to the Plan. Employees become eligible to
participate in the Plan upon attaining age 21, and following one
full year of service, as defined. The combined statement of
income includes $1,677 of company contributions for the year ended
December 31, 1996.
Surgical Instrument Workers 401(k) Savings Plan - This Plan is
designed to provide union employees with funds for retirement or
for their beneficiaries in the event of death. Participants may
make annual contributions up to 15% of their compensation, as
defined. Storz Instrument Company made contributions equal to
3.0% of the participant's previous year's compensation, as
defined, through March 31, 1995. In accordance with the
provisions of the Plan, the employer contributions increased to
3.5% and 4% of the participant's previous year's compensation, as
defined, effective April 1, 1995 and 1996, respectively.
Employees become eligible to participate in the Plan upon
attaining age 21, and following twelve consecutive months of
service, as defined. The combined statement of income includes
$171 of company contributions for the year ended December 31,
1996.
Storz Instrument GmbH maintains a defined benefit pension plan for
its employees. Net periodic pension expense of $219 has been
recorded in selling, general and administrative expense for the
year ended November 30, 1996. Accumulated plan benefits as of
November 30, 1996, the date of the latest actuarial valuation, are
as follows-
Actuarially computed value of benefits-
Vested $187
Nonvested 383
----
$570
====
This amount is included in other noncurrent liabilities in the
accompanying balance sheet.
There has been no funding of this plan since its inception.
(8) IMPACT OF RECENT ACCOUNTING STANDARDS:
In June 1997, SFAS 130, "Reporting Comprehensive Income", was
issued to establish standards for reporting and displaying of
comprehensive income and its components in a full set of general-
purpose financial statements. This statement requires disclosure
of the components of comprehensive income including, among other
things, foreign currency translation adjustments, minimum pension
liability items and unrealized gains and losses on certain
investments in debt and equity securities. The statement is
effective for fiscal years beginning after December 15, 1997. The
Storz Group anticipates compliance with this statement in 1998.
(9) TRANSITION AGREEMENTS:
On December 31, 1997 AHPC and Bausch & Lomb Incorporated entered
into a transition services agreement, whereas, AHPC will provide
for a fee, among other services, certain back office and support
services, services related to international regulatory affairs,
quality assurance and quality control services, warehouse and
distribution services for certain periods not exceeding twelve
months.
<PAGE>
Unaudited condensed combined financial statements of Storz Ophthalmics
Inc., Storz Instrument Company, Storz Instrument GmbH, Cyanamid
Chirurgie S.A.S. and Certain Domestic and International Affiliates ("the
Storz Group") for the nine months ended September 30, 1997 are
presented on the following pages. These financial statements have been
prepared by the Storz Group in accordance with its usual accounting
policies and are based in part on approximations and should be read in
conjunction with the audited financial statements of the Storz Group
for the year ended December 31, 1996.
In the opinion of management, all adjustments necessary for a fair
presentation of the combined financial statements in accordance with
generally accepted accounting principles have been included. All such
adjustments were of a normal recurring nature.
<PAGE>
THE STORZ GROUP
Combined Condensed Balance Sheet - September 30, 1997 (Unaudited)
(in thousands of U.S. dollars)
Assets
Current assets:
Cash $ 3,983
Accounts receivable and current portion of customer
finance receivables, net of unearned income of $224
and allowance for doubtful accounts of $4,936 33,954
Inventories, net 25,463
Other current assets 704
--------
Total current assets 64,104
Non-current customer finance receivables, net of
current portion, less unearned income of $162 and allowance
for doubtful accounts of $216 1,312
Property, plant and equipment, net 33,177
Goodwill and intangibles, net 217,913
Other assets 5,068
--------
$321,574
========
Liabilities and Parent Company's Investment and Advances
Current liabilities:
Accounts payable $ 5,698
Accrued expenses 23,507
Current portion of Other Noncurrent Liabilities 582
---------
Total current liabilities 29,787
---------
Long-term debt, less current portion 1,692
Other non-current liabilities 376
Parent company's investment and advances 289,719
Total liabilities and parent company's --------
investment and advances $321,574
========
<PAGE>
THE STORZ GROUP
Combined Condensed Statement of Income
For the nine months ended September 30, 1997 (Unaudited)
(in thousands of U.S. dollars)
Net sales $149,546
Cost of goods sold 59,928
--------
Gross profit 89,618
--------
Selling, general and administrative expenses 57,748
Research and development expenses 9,539
--------
Operating income 22,331
Other income (expenses):
Amortization (4,389)
Interest expense, net (66)
Other expense, net 744
--------
Income before provision for income taxes 18,620
Provision for income taxes 8,351
--------
Net income $ 10,269
========
<PAGE>
THE STORZ GROUP
Combined Condensed Statement of Cash Flows (Unaudited)
For the nine months ended September 30, 1997
(in thousands of U.S. dollars)
OPERATING ACTIVITIES:
Net income $ 10,269
Adjustments to reconcile net income to net cash
provided from Operating activities -
Depreciation and amortization 9,437
Loss on sale of fixed assets (677)
Changes in working capital -
Accounts receivable (1,393)
Inventories 2,394
Other current assets (103)
Non-current finance receivables (179)
Other non-current assets (760)
Accounts payable (161)
Accrued expenses 2,803
Other non-current liabilities 83
--------
Net cash provided from operating activities 21,713
--------
INVESTING ACTIVITIES:
Purchase of plant and equipment, net (1,291)
Other (300)
--------
Net cash used in investing activities (1,591)
--------
FINANCING ACTIVITIES - Change in parent company's
investment and advances, net (18,334)
--------
EFFECT OF EXCHANGE RATES (370)
--------
Increase in cash 1,418
CASH, beginning of year 2,565
--------
CASH, end of year $ 3,983
========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 74
Cash paid for income taxes $ 112
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma consolidated balance sheet and
statements of earnings have been prepared to illustrate the effect of
the acquisitions by Bausch & Lomb Incorporated ("the company")of Chiron
Vision Corporation ("Chiron Vision") and Storz Ophthalmics Inc., Storz
Instrument Company, Storz Instrument GmbH, Cyanamid Chirurgie S.A.S. and
Certain Domestic and International Affiliates (the "Storz Group") under
the purchase method of accounting.
The pro forma consolidated balance sheet assumes that the acquisitions
were consummated on September 27, 1997. The pro forma consolidated
statements of earnings for 1996 and 1997 assume that the acquisitions
were consummated on December 31, 1995. The Chiron Vision financial
statements utilized in preparing the pro forma consolidated balance
sheet and the pro forma consolidated statements of earnings are for the
year ended December 31, 1996 and the nine months ended September 28,
1997. The Storz Group financial statements are for the year ended
December 31, 1996 and the nine months ended September 30, 1997. The
pro forma adjustments, and the assumptions on which they are based, are
described in the accompanying Notes to the Pro Forma Financial
Statements.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of operating results or financial
position that would have occurred if the acquisitions had been
consummated as of the dates indicated, nor is it necessarily indicative
of future operating results or financial position. No effect has been
given in the pro forma statements of earnings for synergies, if any,
that may be realized through the acquisitions. For purposes of
developing the pro forma balance sheet, Chiron Vision's and the Storz
Group's assets and liabilities have been recorded at their estimated
fair values based upon a preliminary allocation of purchase price.
Adjustments will be made during the allocation period based on a
detailed review of the fair value of assets and liabilities acquired.
These pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements and
the related notes of the company, which were previously reported on the
company's 1996 Annual Report to Shareholders on Form 10-K and the
company's quarterly report on Form 10-Q for the quarter ended September
27, 1997, and the audited financial statements and related notes of
Chiron Vision and the Storz Group for the year ended December 31, 1996
and unaudited financial statements of Chiron Vision and the Storz Group
for the nine months ended September 28, 1997 and September 30, 1997,
respectively, included in Item 7(a) of this form 8-K/A.
<PAGE>
BAUSCH & LOMB INCORPORATED, CHIRON VISION CORPORATION AND THE STORZ GROUP
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 28, 1996
DOLLAR AMOUNTS IN MILLIONS
(UNAUDITED)
Historical Information
----------------------------
Bausch Chiron Storz Pro Forma Pro Forma
& Lomb Vision Group Adjustments Combined
------ ------ ----- ----------- ---------
Net Sales $1,926.8 $211.0 $192.6 $2,330.4
Cost And Expenses
Cost of products
sold 872.3 98.9 80.5 $ 8.9 (f) 1,060.1
0.6 (h)
(1.1) (j)
Selling,
administration
and general 773.1 95.4 81.7 (8.9) (f) 949.5
7.0 (g)
1.2 (h)
Research and
development 75.5 16.6 14.1 0.4 (h) 106.6
Restructuring
charges 15.1 15.1
------- ------ ----- --- -------
1,736.0 210.9 176.3 8.1 2,131.3
------- ------ ----- --- -------
Operating Earnings 190.8 0.1 16.3 (8.1) 199.1
Other Expense (Income)
Interest and investment
income (42.8) (0.1) (42.9)
Interest expense 51.7 42.6 (e) 94.3
(Gain) loss from
foreign currency,
net (1.6) (0.4) (2.0)
Gain on divestitures (1.5) (1.5)
Litigation provision 16.1 16.1
------ ------- ----- ---- -------
21.9 (0.4) (0.1) 42.6 64.0
------ ------- ----- ---- -------
Earnings Before
Income Taxes And
Minority Interest 168.9 0.5 16.4 (50.7) 135.1
Provision for income
taxes 63.7 3.1 8.2 (24.0) (i) 51.0
------- ----- ---- ----- -------
Earnings Before
Minority interest 105.2 (2.6) 8.2 (26.7) 84.1
Minority Interest 22.1 22.1
------- ----- ---- ----- -------
Net earnings $ 83.1 $(2.6) $8.2 $(26.7) $62.0
======= ===== ==== ===== =======
Basic earnings
per share $1.48 $1.10
======= =======
Diluted earnings
per share $1.47 $1.10
======= =======
Average shares
outstanding--basic 56,299 56,299
Average shares
outstanding--diluted 56,510 56,510
See accompanying Notes to Pro Forma Financial Statements.
<PAGE>
BAUSCH & LOMB INCORPORATED, CHIRON VISION CORPORATION AND THE STORZ GROUP
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997
DOLLAR AMOUNTS IN MILLIONS
(UNAUDITED)
Historical Information
--------------------------
Bausch & Chiron Storz Pro Forma Pro Forma
Lomb Vision Group Adjustments Combined
-------- ------ ----- ----------- --------
Net Sales $1,442.7 $150.7 $149.5 $1,742.9
Cost and Expenses
Cost of products sold 671.8 72.7 59.9 $ 6.9 (f) 811.7
0.4 (h)
Selling, admininstrative
and general 564.0 65.3 61.4 (6.9) (f) 689.9
5.2 (g)
0.9 (h)
Research and develop
-ment 48.1 9.9 9.5 0.2 (h) 67.7
Restructuring charges 54.9 54.9
------- ------ ----- ---- -------
1,338.8 147.9 130.8 6.7 1,624.2
------- ------ ----- ---- -------
Operating Earnings 103.9 2.8 18.7 (6.7) 118.7
Other Expense (Income)
Interest and investment
income (30.3) (30.3)
Interest expense 41.6 32.6 (e) 74.2
(Gain) loss from foreign
currency, net (4.8) 3.9 (0.9)
------ ----- ----- ---- ------
6.5 3.9 - 32.6 43.0
------ ----- ----- ---- ------
Earnings Before Income
Taxes & Minority
Interest 97.4 (1.1) 18.7 (39.3) 75.7
Provision for Income
Taxes 39.2 0.3 8.4 (16.9) (i) 31.0
----- ----- ----- ----- -----
Earnings Before
Minority Interest 58.2 (1.4) 10.3 (22.4) 44.7
Minority Interest 16.2 16.2
----- ----- ----- ----- -----
Net earnings $42.0 $(1.4) $10.3 $(22.4) $28.5
===== ===== ===== ====== =====
Basic earnings per
share $0.76 $0.51
===== =====
Diluted earnings
per share $0.75 $0.51
===== =====
Average shares
outstanding--basic 55,421 55,421
Average shares
outstanding--diluted 55,700 55,700
See accompanying Notes to Pro Forma Financial Statements.
<PAGE>
BAUSCH & LOMB INCORPORATED, CHIRON VISION CORPORATION AND THE STORZ GROUP
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 27, 1997
DOLLAR AMOUNTS IN MILLIONS
(UNAUDITED)
Historical Information
----------------------------
Bausch & Chiron Storz Pro Forma Pro Forma
Lomb Vision Group Adjustments Combined
-------- ------ ----- ----------- ---------
Assets
Current Assets
Cash, cash equivalents and
short-term investments $162.2 $10.8 $ 4.0 $ (14.8) (d) $ 162.2
Trade receivables, net 380.0 41.5 34.0 (10.8) (d) 444.7
Inventories, net 311.5 37.6 25.5 29.5 (b) 409.1
5.0 (c)
Deferred income taxes,
net 52.7 32.0 (b) 84.7
Other current assets 156.3 7.2 0.7 164.2
------- ------ ------ ------ -------
Total current assets 1,062.7 97.1 64.2 40.9 1,264.9
Property, Plant and
Equipment, net 567.6 49.0 33.2 9.1 (b) 633.5
(25.4) (d)
Goodwill and Other
Intangibles, net 412.1 68.2 217.8 680.0 (a) 877.4
(495.7) (b)
(5.0) (c)
Other Investments 545.3 545.3
Other Assets 143.7 2.5 6.4 10.0 (b) 162.6
-------- ------ ------ ------ --------
Total Assets $2,731.4 $216.8 $321.6 $213.9 $3,483.7
======== ====== ====== ====== ========
Liabilities and
Shareholders' Equity
Current Liabilities
Notes payable $ 483.4 $ 0.6 $180.0 (a) $ 664.0
Current portion of
long-term debt 86.8 $ 1.3 (0.2) (d) 87.9
Accounts payable 63.3 7.2 5.7 (0.8) (d) 75.4
Accrued compensation 84.6 7.3 3.9 95.8
Accrued liabilities 315.4 19.1 19.6 50.0 (b) 402.4
(1.7) (d)
Income taxes payable 10.4 2.1 0.4 (d) 12.9
-------- ------ ------ ------ --------
Total current
liabilities 1,043.9 37.0 29.8 227.7 1,338.4
Long-term debt
less current portion 315.6 0.3 1.7 500.0 (a) 817.6
Other Long-term
liabilities 105.6 21.4 0.4 (17.0) (b) 109.4
(1.0) (d)
Minority Interest 435.1 435.1
--------- ------ ------ ------ -------
Total liabilities 1,900.2 58.7 31.9 709.7 2,700.5
Shareholders' Equity 831.2 158.1 289.7 (400.1) (b) 783.2
(48.0) (b)
(47.7) (d)
Total liabilities and -------- ------ ------ ------ --------
shareholders' equity $2,731.4 $216.8 $321.6 $213.9 $3,483.7
======== ====== ====== ====== ========
See Accompanying Notes to Pro Forma Financial Statements.
<PAGE>
BAUSCH & LOMB INCORPORATED, CHIRON VISION CORPORATION AND THE STORZ
GROUP
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Pro Forma Balance Sheet Adjustments:
(a) Represents consideration for the purchase of Chiron Vision and the
Storz Group of $680.0 million. The acquisition was initially
financed through short-term commercial paper debt through
available credit facilities. However, for purposes of these pro
forma statements, it is assumed that the acquisitions will be
financed by $500.0 million of long-term borrowings and $180.0
million of short-term borrowings as this is management's intent.
The actual amount and timing of the debt issuance(s) are subject
to market and business conditions.
(b) Represents the elimination of historical equity amounts for net
assets acquired, preliminary allocations of the total purchase
price to identified tangible and intangible assets and
liabilities based on their relative fair values, and resulting
goodwill of approximately $190.0 million. Included in this
preliminary allocation of purchase price is a pre-tax one-time
expense of $80.0 million ($48.0 million after taxes) related to
purchased in-process research and development which has been
charged directly to shareholders' equity for pro forma purposes
and not reflected in the pro forma statements of earnings.
Additionally, liabilities assumed include an accrual for
approximately $40.0 million for restructuring costs primarily
to eliminate duplicate activities of the acquired entities.
(c) Represents adjustment to eliminate the LIFO inventory reserve
included in the Storz Group's historical financial statements.
Inventories will be carried at FIFO cost subsequent to the
acquisition in accordance with the accounting policies of the
company.
(d) Represents an adjustment to eliminate assets and liabilities
included in historical financial statements which were not
acquired as part of the acquisition agreement.
Pro Forma Statement of Earnings Adjustments:
(e) Represents additional interest expense associated with the
acquisition debt. The interest rate used for the long-term
portion of the financing was assumed to be 6.67% for the
nine months ended September 27, 1997 and 6.50% for the twelve
months ended December 28, 1996. These rates approximate the
company's long-term borrowing rate. The interest rate used for
the short-term portion of the financing was the historical
average commercial paper rate for each period. This rate was
5.67% for the nine months ended September 27, 1997 and 5.50%
for the twelve months ended December 28, 1996.
(f) Represents an adjustment to reclassify expenses relating to
distribution and warehousing functions from selling,
administrative and general expenses to cost of goods sold,
in conformity with the company's accounting policies.
(g) Represents an adjustment to record incremental amortization
expense of goodwill and intangible assets based on the
preliminary asset valuation. Goodwill is being amortized over
periods of twenty-five to forty years on a straight line basis
for pro forma purposes. Other intangibles, including customer
lists, tradenames and workforce in place, are being amortized
on a straight-line basis over periods ranging from five to
30 years for pro forma purposes.
(h) Represents an adjustment to record incremental depreciation
expense on acquired fixed assets based on the preliminary
asset valuation.
(i) Represents an adjustment to reflect the net change in the
provision for income taxes based upon pro forma results of
operations. The pro forma rate used for the nine months ended
September 27, 1997 and for the twelve months ended December
28, 1996 was 37.5%, representing the company's effective tax
rate for ongoing operating results for each of those periods.
(j) Represents an adjustment to eliminate the LIFO inventory
adjustment included in the historical Storz Group financial
statements.
2. In addition to the expenses reported on the pro forma statement of
earnings, the company anticipates that it will incur integration
expenses related to the combining of Chiron Vision and the Storz Group
to form its new surgical unit. These expenses were not included in the
purchase price allocation or determination of goodwill as they do not
meet the criteria for accrual as established under EITF Issue #95-3.
Such expenses will be incurred in 1998 and 1999 as integration occurs.
Additionally, in connection with the preliminary purchase price
allocation, inventory values were increased by approximately $29.5
million. This step-up in value will be realized during the first
half of 1998 as inventory is sold and result in reduced reported
gross profit for that period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BAUSCH & LOMB INCORPORATED
/s/ Stephen C. McCluski
Stephen C. McCluski
Senior Vice President & Chief Financial Officer
Dated: March 13, 1998
