SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File
March 28, 1998 Number: 1-4105
BAUSCH & LOMB INCORPORATED
(Exact name of registrant as specified in its charter)
New York 16-0345235
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Bausch & Lomb Place, Rochester NY 14604-2701
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (716) 338-6000
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x. No .
The number of shares of Common stock of the registrant,
outstanding as of March 28, 1998 was 55,609,767, consisting of
54,945,206 shares of Common stock and 664,561 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 1997 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.
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED
SUBSIDIARIES
STATEMENT OF EARNINGS
<CAPTION>
First Quarter Ended
Dollar Amounts In Millions - March 28, March 29,
Except Per Share Data 1998 1997
<S> <C> <C>
Net Sales $553.1 $451.2
Costs And Expenses
Cost of products sold 276.1 227.2
Selling, administrative and general 228.3 181.0
Research and development 20.6 15.6
Purchased in-process research and development 85.0 -
Restructuring charges 3.7 12.8
613.7 436.6
Operating (Loss) Earnings (60.6) 14.6
Other (Income) Expense
Investment income (10.1) (10.0)
Interest expense 25.4 13.6
Gain from foreign currency, net (1.7) (1.2)
13.6 2.4
(Loss) Earnings Before Income Taxes And Minority Interest (74.2) 12.2
Provision for income taxes (30.0) 4.3
(Loss) Earnings Before Minority Interest (44.2) 7.9
Minority interest in subsidiaries 5.2 4.6
Net (Loss) Earnings $(49.4) $ 3.3
Retained Earnings At Beginning Of Period 916.5 924.7
Cash Dividends Declared:
Common stock, $0.26 per share
In 1998 and 1997 14.4 14.4
Retained Earnings At End Of Period $852.7 $913.6
Basic Earnings Per Share $(0.89) $ 0.06
Diluted Earnings Per Share $(0.89) $ 0.06
Average Shares Outstanding - Basic (000s) 55,333 55,439
Average Shares Outstanding - Diluted (000s) 55,709 55,594
See Notes to Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED
SUBSIDIARIES
BALANCE SHEET
<CAPTION>
March 28, December 27,
Dollar Amounts In Millions 1998 1997
ASSETS
Current Assets
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments $ 152.2 $ 183.7
Trade receivables, less allowances
of $25.7 and $14.0, respectively 460.2 374.8
Inventories, net 422.3 324.3
Deferred taxes, net 95.7 66.0
Other current assets 175.6 141.4
1,306.0 1,090.2
Property, Plant And Equipment, net 654.5 580.2
Goodwill And Other Intangibles,
less accumulated amortization
of $111.8 and $116.6, respectively 847.4 406.9
Other Investments 543.3 546.4
Other Assets 161.0 149.2
Total Assets $3,512.2 $2,772.9
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 849.9 $ 339.4
Current portion of long-term debt 5.1 4.4
Accounts payable 87.8 72.0
Accrued compensation 85.9 73.6
Accrued liabilities 358.2 365.9
Federal, state and foreign income taxes payable 10.6 32.0
1,397.5 887.3
Long-Term Debt, less current portion 813.1 510.8
Other Long-Term Liabilities 110.3 119.4
Minority Interest 443.3 437.0
Total Liabilities 2,764.2 1,954.5
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,
994,987 and 856,905 shares
issued, respectively 0.1 0.1
Capital in excess of par value 79.8 76.8
Retained earnings 852.7 916.5
Common and Class B stock
in treasury, at cost, 5,583,542 and
5,846,286 shares, respectively (212.1) (223.1)
Accumulated other comprehensive income 15.7 29.1
Other shareholders' equity (12.3) (5.1)
Total Shareholders' Equity 748.0 818.4
Total Liabilities And Shareholders' Equity $3,512.2 $2,772.9
See Notes To Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
<CAPTION>
Three Months Ended
March 28, March 29,
Dollar Amounts In Millions 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) earnings $(49.4) $ 3.3
Adjustments to reconcile net (loss) earnings to net cash
used in operating activities:
Depreciation 27.8 22.2
Amortization 11.2 4.8
Change in deferred income taxes 2.8 (1.6)
Restructuring charges, net of taxes 2.4 7.7
Purchased in-process research and development, net of taxes 51.0 -
Loss on retirement of fixed assets 3.0 3.0
Changes in assets and liabilities:
Trade receivables (16.9) (30.8)
Inventories (4.2) 9.4
Other current assets (16.0) (36.3)
Accounts payable and accruals (106.0) (7.7)
Income taxes (17.7) 4.1
Other long-term liabilities (6.0) (11.2)
Net cash used in operating activities (118.0) (33.1)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (42.9) (26.1)
Net cash paid for acquisition of businesses (681.2) -
Other 7.8 (10.9)
Net cash used in investing activities (716.3) (37.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of Common and Class B shares - (0.1)
Exercise of stock options 8.5 3.7
Net proceeds from notes payable 511.4 68.5
Proceeds from issuance of long-term debt 304.2 2.5
Repayment of long-term debt (4.6) (0.6)
Payment of dividends (14.4) (14.2)
Net cash provided by financing activities 805.1 59.8
Effect of exchange rate changes on cash,
cash equivalents and short-term investments (2.3) (5.6)
Net decrease in cash, cash equivalents and
short term investments (31.5) (15.9)
Cash, cash equivalents and short-term investments,
beginning of period 183.7 167.8
Cash, cash equivalents and short-term investments,
end of period $152.2 $151.9
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 26.5 $ 17.6
Income taxes $ 7.2 $ 7.5
See Notes To Financial Statements
</TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Dollar Amounts in Millions - Except Per Share Data
NOTE A: Acquisitions and Divestitures
1) As described in the 1997 Annual Report on Form 10-K, on
December 29, 1997, the company acquired Chiron Vision Corporation
(Chiron Vision) from Chiron Corporation for $300 in cash, and on
December 31, 1997, it acquired Storz Instrument Company (Storz)
from American Home Products for $380 in cash. The acquisitions
were accounted for as purchases, whereby the purchase price,
including acquisition costs, were allocated to identified assets,
including tangible and intangible assets, purchased research and
development and liabilities based upon their respective fair
values. The excess of the purchase price over the value of
identified assets and liabilities, in the amount of $184, was
recorded as goodwill and is being amortized over lives of twenty
to forty years.
The following selected, unaudited pro forma data is
presented to provide a summary of the combined
results of Bausch & Lomb, Chiron Vision and Storz as
if the acquisitions had occurred as of the beginning
of 1997. The pro forma data is for informational
purposes only and may not necessarily reflect the
results of operations had the companies operated as
one for the quarter ending March 29, 1997. No effect
has been given for synergies, if any, that may be
realized through the acquisition.
For the Quarter
Ended March 29,
1997 (unaudited)
Net sales $548.0
Operating earnings $ 15.4
Net loss $ (4.2)
Earnings per share - basic $(0.08)
Earnings per share - diluted $(0.08)
2) The company has signed a definitive agreement to sell
its skin care business to The Andrew Jergens Company for $135 in
cash plus the assumption of certain liabilities. The sale is
expected to close during May 1998.
NOTE B: Inventories
Inventories consisted of the following:
March 28, December 27,
1998 1997
Raw materials and supplies $120.0 $ 96.3
Work in process 39.5 23.4
Finished products 276.2 218.1
435.7 337.8
Less: Allowance for valuation of
Certain U.S. inventories
at last in, first out cost 13.4 13.5
$422.3 $324.3
NOTE C: Property, Plant And Equipment
Major classes of property, plant and equipment consisted of the
following:
March 28, December 27,
1998 1997
Land $ 26.7 $ 21.0
Buildings 405.1 392.2
Leasehold improvements 39.9 34.9
Machinery and equipment 837.3 727.0
1,309.0 1,175.1
Less: Accumulated depreciation 654.5 594.9
$ 654.5 $ 580.2
NOTE D: Adoption of SFAS No. 130
In the first quarter of 1998, the company adopted
Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income." Comprehensive
income is defined as the change in equity of a business
during a period from transactions and other events and
circumstances from non-owner sources. Under SFAS 130,
the term "comprehensive income" is used to describe the
total of net earnings plus other comprehensive income
which for the company includes foreign currency
translation adjustments and unrealized gains and losses
on marketable securities classified as available-for-
sale.
The adoption of SFAS 130 did not impact the calculation
of net earnings or earnings per share nor did it impact
reported assets, liabilities or total shareholders'
equity. It did impact the presentation of the
components of shareholders' equity within the balance
sheet and will result in the presentation of the
components of comprehensive income within an annual
financial statement, which must be displayed with the
same prominence as other financial statements.
The components of the company's total comprehensive
income were:
Three Months Ended
March 28, March 29,
1998 1997
Net (loss) earnings $(49.4) $ 3.3
Foreign currency
translation
adjustments, net of
taxes (13.4) (34.0)
Unrealized holding gain,
net of taxes - 11.8
Total Comprehensive
Income $(62.8) $(18.9)
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 an updated 1998 outlook. References within this
financial review to earnings per share refer to diluted earnings
per share.
RESULTS OF OPERATIONS
Comparability of Business Segment Information
Comparison of the company's 1998 and 1997 first quarter operating
results requires the consideration of certain significant events.
As announced in April 1997, the company's board of directors
approved plans to restructure portions of each of the company's
four business segments, as well as certain corporate
administrative functions. The restructuring efforts have been
ongoing and resulted in pre-tax restructuring charges of $4 and
$13 for the quarters ended March 28, 1998 and March 29, 1997,
respectively. The after-tax impact of these charges was $2 or
$0.04 per share for the quarter ended March 28, 1998 and $8 or
$0.14 per share for the quarter ended March 29, 1997.
During the fourth quarter of 1997, the company divested its
thin film business, which was reported in the eyewear segment.
This business contributed sales and operating earnings of $4 and
negative $1, respectively, in the first quarter of 1997.
As described in Note A, the company acquired Chiron Vision
and Storz during the first quarter of 1998. The purchase price
was allocated to net assets acquired and to purchased in-process
research and development (R&D). Purchased in-process R&D
includes the value of products in the development stage not
considered to have reached technological feasibility. In
accordance with applicable accounting rules, purchased in-process
R&D is required to be expensed, and, accordingly, a pre-tax
charge of $85 was recorded during the first quarter of 1998. The
after-tax impact was $51 or $0.92 per share.
NET SALES BY BUSINESS SEGMENT
The company's operating results are reported in four business
segments: vision care, eyewear, pharmaceuticals/surgical and
healthcare. The vision care segment includes contact lenses and
lens care products. The eyewear segment includes sunglasses,
vision accessories and the divested thin film coating business.
The pharmaceuticals/surgical segment includes prescription
ophthalmics, over-the-counter (OTC) medications, and cataract,
refractive and other ophthalmic surgery products. The healthcare
segment includes biomedical products and services, skin care
products and hearing aids.
The following is a summary of sales by business segment:
Net Sales By Business Segment
First Quarter
1998 1997
Vision Care $216.0 $201.4
Eyewear - ongoing 112.3 117.2
Pharmaceuticals/Surgical 138.8 49.0
Healthcare 86.0 79.4
Continuing Net Sales 553.1 447.0
Eyewear - divested - 4.2
Net Sales $553.1 $451.2
Total net sales for the quarter ended March 28, 1998 were
$553, an increase of $102 or 23% from the 1997 first quarter.
The results include $91 in 1998 first quarter revenues generated
by the acquired pharmaceutical and surgical product lines. When
results for the divested thin film business are excluded from
1997 results, revenues increased $106 or 24%. On a constant
dollar basis (that is, excluding the effect of foreign currency
exchange rate changes), continuing business revenues increased
27% compared to the prior year period. Revenue increases in the
vision care and healthcare segments as well as incremental sales
from the acquired surgical businesses were partially offset by
declines in the eyewear segment.
Vision Care Segment Revenues
The vision care segment includes results of the contact lens and
lens care businesses, with lenses comprising 47% and lens care
representing 53% of 1998 first quarter revenues compared to 45%
and 55%, respectively, for the same 1997 period. Revenues
increased to $216 or 7% from the 1997 first quarter, resulting
from a 10% improvement in contact lens sales combined with a 5%
increase in lens care. Vision care segment revenues increased
11% over the prior year on a constant dollar basis.
Double-digit increases in contact lens revenues were driven
by worldwide gains for planned replacement and disposable lenses
(collectively PRP) and for the SofLens one day disposable lenses
in Europe, as the anticipated shift away from traditional lens
sales continued. PRP revenues also experienced growth in other
regions, led by Medalist lenses in the Asia-Pacific region as
well as incremental sales from the recently launched SofLens66 in
Latin American markets. On a constant dollar basis, first
quarter contact lens sales were up 14% versus 1997.
Strong gains in the U.S. in the company's Boston line of lens
care products for rigid gas permeable (RGP) lenses as well as
continued growth in the U.S. and Europe for sales of ReNu
products for soft contact lenses contributed to the year-over-
year lens care results. Market share continues to grow for ReNu
products in the U.S. led by strong demand for ReNu MultiPlus. On
a constant dollar basis, first quarter lens care product sales
were up 7% versus 1997.
Eyewear Segment Revenues
The following analysis excludes results from the divested thin
film business. Eyewear segment results are primarily driven by
sales of sunglass products, which account for approximately 98%
of this segment's portfolio. For the first quarter of 1998,
eyewear segment revenues decreased 4% from the comparable 1997
period. In line with the company's goal to bring its new sunglass
styles to market faster, the 1998 line was launched in the fourth
quarter of 1997, one quarter sooner than in prior years. The
earlier launch contributed to the unfavorable sales comparison,
since the first quarter of 1997 benefited from the later
comparative launch. On a constant dollar basis, segment revenues
decreased 2%.
U.S. sunglass revenues decreased 15%, reflecting the earlier
product launch, as well as lower inventory requirements at
Sunglass Hut International, the segment's largest customer. Non-
U.S. sunglass revenues increased 3% (7% on a constant dollar
basis), led by gains in the company's Ray-Ban product line in
Europe and Japan.
Pharmaceuticals/Surgical Segment Revenues
First quarter revenues for the pharmaceutical/surgical segment
were $139, an increase of $90 versus the same period in the prior
year, reflecting the acquisitions of Chiron Vision and Storz.
Excluding the incremental sales associated with these businesses,
pharmaceutical revenues for 1998 were 3% below prior year levels
but were favorable by 1% on a constant dollar basis.
In the U.S., pharmaceutical revenues increased 29% due to
the products acquired from Storz, such as Ocuvite nutritional
supplements, as well as a 3% increase in revenues from existing
pharmaceutical lines. Contributing to this increase was the U.S.
general eye care business, which showed a strong double-digit
increase in revenue from 1997, benefiting from the continued
strength of Opcon-A and Moisture Eyes PM, as well as incremental
sales of Bausch & Lomb Computer Eye Drops. Increased sales of
Trimethoprim, the generic ophthalmic equivalent of Polytrim, and
higher year-over-year sales of Crolom, also contributed to the
improvement. Pricing pressure on other generic products in the
company's portfolio partially offset these sales increases.
Non-U.S. pharmaceutical revenues were down 9% from the prior
year and were flat when adjusted for currency changes reflecting
results for the company's Dr. Mann Pharma subsidiary in Germany.
Double-digit constant dollar sales growth in prescription
ophthalmics was offset by declines in the over-the-counter
business, which has stabilized but still reflected ramifications
of pharmacy inventory reductions in Germany due to poor economic
conditions.
Healthcare Segment Revenues
Healthcare segment revenues for the first quarter of 1998 were
$86, an increase of $7 or 8% (11% on a constant dollar basis)
over the comparable period in 1997. Sales of biomedical products
rose 5%, driven primarily by strong increases in the
biotechnology and services business. Hearing aid revenue
advanced 23% as the number of company-owned retail outlets
continued to increase. The skin care business had 6% revenue
growth over the first quarter of 1997.
Net Sales By Geographic Region
The following analysis excludes 1997 revenues from the divested
thin film business which historically were included in the
eyewear segment.
Sales in markets outside the U.S. totaled $271 in the first
quarter of 1998, an increase of $48 or 22% compared with the 1997
period, and represented 49% of consolidated revenues compared to
50% in 1997. On a constant dollar basis this increase was 29%.
Sales from the acquired surgical businesses totaled $40 and
represented 18% of the year-over-year increase. Sales in the
European region advanced 23% versus 1997, or 29% in constant
dollars, due in large part to incremental surgical sales and
solid growth of vision care and eyewear products. Sales in the
Asia-Pacific region advanced 16% or 27% in constant dollars, due
in large part to incremental surgical sales and to the strong
growth of PRP lenses and modest growth of sunglasses. Revenues
in Canada and Latin America increased 32% over the prior year due
mainly to the performance of contact lenses as well as to
incremental surgical sales.
U.S. sales totaled $282 in the first quarter, an increase of
$58 or 26% from 1997, with incremental surgical sales totaling
$51. Strong growth in vision care products along with significant
gains in OTC pharmaceuticals and hearing aids was partially
offset by declines in sunglass sales.
Costs And Expenses
The following analysis excludes results from the divested thin
film business.
The ratio of cost of products sold to sales was 49.9% during
the first quarter for both 1998 and 1997. The 1998 ratio
reflected the $16 impact of higher reported cost of products sold
resulting from purchase accounting inventory adjustments related
to the surgical acquisitions. The 1997 ratio reflected a
provision for the projected cost of exiting certain Ray-Ban
product lines. Excluding these amounts in each year, the ratio
of cost of products sold to sales in the first quarter of 1998
would have been 47.0% versus 48.0% for the same period of 1997.
This improvement was driven primarily by favorable manufacturing
costs in eyewear.
Selling, administrative and general expenses, including
corporate administration, were 41.3% of sales in the first
quarter of 1998 compared to 40.3% in 1997. The year-over-year
unfavorable ratio reflected planned increases in marketing and
advertising related to product promotions in vision care as well
as the incremental expense associated with the transition of the
acquired product lines of Chiron Vision and Storz. Included in
the 1997 amount was a $2 provision for the write-off of the
company's equity investment in a start-up eyewear technology
venture.
Corporate administration expenses were 2.0% of sales in the
first quarter of 1998, versus 2.7% in the same period of 1997.
These amounts reflect the continued efforts in expense reduction
resulting from company-wide restructurings and a higher sales
base due to the surgical acquisitions.
Research and development expenses totaled $21 in the first
quarter of 1998, an increase of $5 over 1997. This represented
3.7% of sales in 1998, up from 3.4% in 1997. The increase is due
primarily to spending in the surgical business.
Restructuring Reserves
As described in previous filings, in the first quarter of 1997
the company's board of directors approved plans to restructure
all business segments as well as certain corporate administrative
functions. As a result, cumulative pre-tax restructuring charges
of $74 were recorded throughout 1997. In the first quarter of
1998 an additional charge of $4 was recorded in connection with
these programs.
The restructuring effort is expected to significantly reduce
the company's fixed cost structure and realign the organization
to meet its strategic objectives through the closure, relocation
and consolidation of manufacturing, distribution, sales and
administrative operations, and workforce reductions.
The following table sets forth the activity in the
restructuring reserve through March 28, 1998:
<TABLE>
Vision Pharmaceuticals/ Corporate
Care Eyewear Surgical Healthcare Administration Total
<S> <C> <C> <C> <C> <C> <C>
Restructuring $21.5 $36.7 $5.1 $5.9 $8.7 $77.9
Provisions
Less charges:
Non-cash items 3.3 6.6 - 1.8 0.3 12.0
Cash payments 10.3 14.7 3.3 1.9 7.5 37.7
Balance at March
28, 1998 $ 7.9 $15.4 $1.8 $2.2 $0.9 $28.2
</TABLE>
Reserves remaining primarily represent liabilities related
to employee separations. Expenses related to the program are
expected to be incurred through the second quarter of 1998.
Operating Earnings
For the first quarter of 1998, the company recorded an operating
loss of $61, compared to earnings of $15 for the same 1997
period. Excluding restructuring and purchased in-process
research and development charges recorded during the quarter,
operating earnings would have been $28. Operating results
reflect costs associated with the addition and transition of the
surgical business, increased spending on consumer-directed
marketing and advertising and the one-time write-up of inventory
discussed previously.
Other Income And Expenses
Income from investments totaled $10 for the first quarter of 1998
and was essentially flat to the same period in 1997. Interest
expense of $25 was an increase of $12 over the first quarter of
1997, primarily reflecting the incremental debt associated with
recent acquisitions. Foreign currency gains of $2 during the
first quarter of 1998 were primarily the result of favorable
hedging activities.
LIQUIDITY AND FINANCIAL RESOURCES
Cash Flows From Operating Activities
Cash used in operating activities was $118 through the first
quarter of 1998, an $85 decrease compared to the comparable 1997
period. A payment of approximately $40 to fund a proposed
settlement to litigation commenced in a prior year and amounts
paid to settle maturing foreign exchange contracts were the
primary drivers of the unfavorable comparison to 1997. Other
factors included increased payments against restructuring
accruals and the timing of tax payments.
Cash Used In Investing Activities
Cash used in investing activities was $716 during the first
quarter of 1998, an increase of $679 from the first quarter of
1997, reflecting acquisitions and capital spending. Capital
spending, which increased $17 to $43 compared to the prior year
period, is expected to be in the range of $200 for 1998. A
significant portion of 1998 capital spending will be used to
support expanded contact lens manufacturing capacity.
Cash Provided By Financing Activities
Through the first quarter of 1998, $805 was provided by financing
activities versus $60 for the comparable 1997 period. New
borrowings, totaling $816 during the quarter, were primarily used
to fund acquisitions and capital expenditures and fund the
proposed settlement of the litigation described previously.
Free Cash Flow
The company strives to maximize its free cash flow, defined as
cash generated before the payment of dividends, the borrowing or
repayment of debt, stock repurchases and the acquisition or
divestiture of businesses. Free cash flow through the first
quarter of 1998 was a negative $156 as compared to a negative $76
in the prior year. The decrease is due to the operational cash
flow factors described above.
Financial Position
The company's total debt, consisting of short- and long-term
borrowings, increased $814 from year end 1997 due primarily to
the borrowings needed to consummate recent acquisitions, to fund
the proposed litigation settlement and to pay for restructuring
charges. The increase in debt is reflected in the ratio of total
debt to capital, which was 69.0% at the end of the first quarter
of 1998 versus 49.9% at the end of the comparable 1997 period.
During the second quarter, the company expects to use cash
proceeds from the pending sale of the skin care business to
reduce outstanding short-term debt.
Cash and short-term investments totaled $152 at the end of
the first quarter of both 1998 and 1997.
Access to Financial Markets
The company maintains U.S. revolving credit agreements, with both
364-day and 5-year terms, totaling $1,200. The interest rate
under these agreements is based on the LIBOR rate, or, at the
company's option, the higher of several other common indices. No
debt was outstanding under these agreements as of March 28, 1998.
At March 28, 1998, the 5-year term portion of these revolving
credit agreements supported $300 of unsecured promissory notes
which have been classified as long-term debt. In addition, the
company maintains other lines of credit on which it may draw to
meet its financing requirements. During 1998, the company filed
a registration statement with the Securities and Exchange
Commission, under which it will be able to borrow up to $500 in
the long-term U.S. public markets.
The company believes its existing and planned credit
facilities will provide adequate liquidity to meet obligations,
fund capital expenditures and invest in potential growth
opportunities.
Working Capital
Working capital amounted to negative $91 at the end of the first
quarter of 1998, reflecting increased short-term borrowings
associated with recent acquisitions. Working capital was $203 at
year end 1997 and negative $5 at the end of the first quarter of
1997. The current ratio was 0.9, 1.2 and 1.0 for these periods,
respectively.
OTHER FINANCIAL DATA
Dividends declared on common stock were $0.26 per share in the
first quarters of both 1998 and 1997. The return on average
shareholders' equity of negative 0.4% for the twelve-month period
ended March 28, 1998 reflects restructuring charges recorded in
each of the last four quarters, the first quarter 1998 charge for
purchased in-process R&D and a fourth quarter 1997 charge for the
proposed litigation settlement. This ratio was 7.2% for the
twelve-month period ending March 29, 1997, and included
restructuring and litigation charges which were much lower than
those recorded in the most recent twelve-month period.
OUTLOOK
Worldwide revenues and operating earnings on a constant dollar
basis for all businesses were in line with management's
expectations for the first quarter. Sales and operating earnings
growth for the full year in the vision care, pharmaceuticals and
healthcare businesses is expected to be consistent with the
growth experienced in 1997. The eyewear segment is expected to
return to profitability this year.
Results in the vision care segment remain strong and revenue
growth is forecasted to continue for the remainder of the year.
Sales performance should be accelerated by products recently
launched or scheduled for introduction in the latter half of the
year. ReNu MultiPlus solution, which was launched in the second
half of 1997, continues to exhibit excellent results with strong
consumer sell-through. It is expected that 1998 will continue to
benefit from the new SofLens one day contact lens that was
reintroduced in Europe with an improved design, and from a mid-
year launch of the disposable SofLens66 toric lens in the U.S.
Revenue growth in the eyewear segment is expected to accelerate
over the next three quarters, driven by the success of new
products and the benefits of increased advertising and marketing
efforts. Operating earnings in this segment should be positive
in 1998 as the business benefits from lower production costs,
reductions in administrative expenses and improvement in product
delivery as a result of restructuring programs. The company
continues to be cautious concerning the eyewear segment, but
first quarter results indicate the expectations for 1998 are
still valid.
The pharmaceuticals/surgical segment is expected to experience
continued growth. Revenues should benefit from the launch of
both the Lotemax and Alrex products, which were recently approved
by the FDA. In the general eye care business, Bausch & Lomb
Computer Eye Drops should also contribute to sales growth. Full-
year operating margins from these product lines are expected to
be consistent with 1997. The integration of Chiron Vision and
Storz should continue to be on track with the company's
expectations. Expenses related to this integration process are
expected to be incurred; however the full year's earnings impact
should be neutral. This forecast does not include the impact of
the charge for purchased in-process R&D or the higher cost of
products sold resulting from the one-time purchase accounting
inventory adjustments.
The company continues to manage the healthcare segment in a
manner designed to maximize its return to investors. Revenues
are forecasted to grow at a rate consistent with 1997 and
operating margins are expected to increase at the same pace as
sales. As stated previously, the sale of the skin care business
is expected to be finalized during the second quarter.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
When used in this discussion, the words "anticipate," "should,"
"expect," "estimate," "project" and similar expressions are
intended to identify forward-looking statements. The forward-
looking statements contained in this report are made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements involve predictions of
future company performance, and are thus dependent on a number of
factors affecting the company's performance. Where possible,
specific factors that may impact performance materially have been
identified in connection with specific forward-looking
statements. Additional risks and uncertainties include, without
limitation, the impact of competition, seasonality and general
economic conditions in the global sunglass, vision care and
ophthalmic surgical and pharmaceutical markets, where the
company's core businesses compete, changes in global economic and
political conditions, customer concentration (the company's two
largest customers accounted for over 10% of total sales in 1997),
changing trends in consumer preferences and tastes, legal
proceedings initiated by or against the company, changes in
government regulation of the company's products and operations,
changes in private and regulatory schemes providing for the
reimbursement of patient medical expenses, difficulties or delays
in the development, production, testing and marketing of products
and the effect of changes within the company's organization, and
such other factors as are described in greater detail in the
company's filings with the Securities and Exchange Commission,
including its 1997 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
a)In its 1997 Annual Report on Form 10-K, the company discussed the
proposed settlement of several shareholder actions against the
company, the former Chief Executive Officer and Chairman, Daniel
E. Gill, and four other officers. On April 17, 1998, the United
States District Court for the Western District of New York gave its
preliminary approval to the proposed settlement. A fairness
hearing in this matter has been scheduled for the third quarter
of 1998.
b)In its 1997 Annual Report on Form 10-K, the company discussed a
class action pending before a New York Supreme Court alleging that
the company misled consumers in its marketing and sale of Sensitive
Eyes Rewetting Drops, Boston Rewetting Drops, Renu Rewetting Drops
and Bausch & Lomb Eye Wash. On April 21, 1998, the court dismissed
all of the plaintiffs' claims. It is not known whether the
plaintiffs will appeal this ruling.
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
The company filed the following Current Reports on Form 8-K and
Form 8-K/A during the quarter ended March 28, 1998.
(i) Current Report on Form 8-K dated January 13,
1998 included information relating to the acquisitions
of Chiron Vision and Storz Instruments and information
regarding the Stock Purchase Agreement by and between
Bausch & Lomb Incorporated and Chiron Corporation and
the Purchase Agreement by and among American Cyanamid
Company, American Home Products Corporation and Bausch
& Lomb Incorporated.
(ii)Amendment to Current Report on Form 8-K/A
dated March 13, 1998 included the required financial
information of the acquired surgical businesses as well
as the required unaudited pro forma financial
information.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAUSCH & LOMB INCORPORATED
Date: May 6, 1998 By:
Robert B. Stiles
Senior Vice President
and General Counsel
Date: May 6, 1998 By:
Stephen C. McCluski
Senior Vice President and
Chief Financial Officer
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).
Bausch & Lomb Incorporated
Exhibit 11
Statement Regarding Computation of Per Share Earnings
(Share Amounts in Thousands Except Per Share Data)
Three Months Ended
March 28, March 29,
1998 1997
Net Earnings (in millions) (a) $ (49.4) $ 3.3
Actual outstanding Common and
Class B shares at beginning of
period 55,209 55,404
Sum of weighted average activity
of : (1) Common and Class B
shares issued for stock options
(2) repurchases of Common and
Class B stock and
(3) cancellation of outstanding
stock options 124 35
Weighted Basic Shares (b) 55,333 55,439
Effect of assumed exercise of
Common stock equivalents 376 155
Weighted diluted Shares (c) 55,709 55,594
Basic earnings per share (a/b) $(0.89) $0.06
Diluted earnings per share (a/c) $(0.89) $0.06
(a/c)
<TABLE>
Bausch & Lomb Incorporated
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed Charges
(Dollar Amounts In Millions)
For the Quarter For the Year
Ending Ending
March 28, 1998 December 27, 1997
<S> <C> <C>
Earnings (loss) before provision of income
taxes and minority interests $ (74.2) $118.0
Fixed charges 26.0 57.9
Capitalized interest, net of current period
amortization 0.1 0.3
Total earnings (loss) as adjusted $ (48.1) $176.2
Fixed charges:
Interest (including interest expense and
capitalized interest) $ 25.4 $ 56.1
Portion of rents representative of the
interest factor .6 1.8
Total fixed charges $ 26.0 $ 57.9
Ratio of earnings (loss) to fixed charges (1.85)<F1> 3.04<F2>
<FN>
<F1> Excluding the effects of the restructuring charges and the charge for
purchased-in-process research and development from the surgical
acquisitions in 1998, the ratio of earnings to fixed charges at March 28,
1998 would have been 1.56.
</FN>
<FN>
<F2> Excluding the effects of the restructuring charges recorded in 1997, the
ratio of earnings to fixed charges at December 27, 1997 would have been
4.28.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> MAR-28-1998
<CASH> 146,554
<SECURITIES> 5,693
<RECEIVABLES> 485,944
<ALLOWANCES> 25,713
<INVENTORY> 422,324
<CURRENT-ASSETS> 1,306,003
<PP&E> 1,309,033
<DEPRECIATION> 654,565
<TOTAL-ASSETS> 3,512,233
<CURRENT-LIABILITIES> 1,397,463
<BONDS> 813,097
0
0
<COMMON> 24,148
<OTHER-SE> 723,872
<TOTAL-LIABILITY-AND-EQUITY> 3,512,233
<SALES> 553,067
<TOTAL-REVENUES> 553,067
<CGS> 276,059
<TOTAL-COSTS> 276,059
<OTHER-EXPENSES> 337,620
<LOSS-PROVISION> 4,245
<INTEREST-EXPENSE> 25,439
<INCOME-PRETAX> (74,209)<F1>
<INCOME-TAX> (29,964)
<INCOME-CONTINUING> (49,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,400)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> (0.89)
<FN>
<F1>Income Before Taxes and Minority Interest
</FN>
</TABLE>
