SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
_____________________
For the fiscal year ended Commission file number
December 27, 1997 1-4105
BAUSCH & LOMB INCORPORATED
(Exact name of registrant as specified in its charter)
NEW YORK 16-0345235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
ONE BAUSCH & LOMB PLACE, ROCHESTER, NEW YORK 14604-2701
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: (716) 338-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock, $0.40 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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
[Cover page 1 of 2 pages]
<PAGE>
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___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value (based on the consolidated tape
closing price on February 24, 1998) of the voting stock held by
non-affiliates of the registrant was $2,476,057,910. For the
sole purpose of making this calculation, the term "non-affiliate"
has been interpreted to exclude directors and officers. Such
interpretation is not intended to be, and should not be construed
to be, an admission by Bausch & Lomb Incorporated or such
directors or officers that such directors and officers are
"affiliates" of Bausch & Lomb Incorporated, as that term is
defined under the Securities Act of 1933.
The number of shares of Voting Stock of the registrant,
outstanding as of February 24, 1998 was 55,569,003, consisting of
54,892,225 shares of Common Stock and 676,778 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.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II The Bausch & Lomb 1997 Annual Report to
Shareholders for fiscal year ended December 27,
1997 ("Annual Report"). With the exception of
the pages of the Annual Report specifically
Incorporated by reference herein, the Annual
Report is not deemed to be filed as a part of
this Report on Form 10-K.
Part III Bausch & Lomb Incorporated Proxy Statement,
dated March 18, 1998 ("Proxy Statement"). With
the exception of the pages of the Proxy
Statement specifically Incorporated by
reference herein, the Proxy Statement is not
deemed to be filed as part of this Report on
Form 10-K.
[Cover page 2 of 2 pages]
<PAGE> 1
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 2
Item 2. Properties 5
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Shareholders 7
PART II
Item 5. Market for Bausch & Lomb Incorporated's
Common Stock and Related Shareholder
Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 8
Item 8. Financial Statements and Supplementary
Data 8
Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure 8
PART III
Item 10. Directors and Executive Officers of
Bausch & Lomb Incorporated 9
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management 10
Item 13. Certain Relationships and Related
Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedule,
and Reports on Form 8-K 11
Signatures 12
Schedules S-1
Exhibit Index E-1
Exhibits (Attached to this Report on Form 10-K)
<PAGE> 2
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Bausch & Lomb Incorporated is a world leader in the development,
manufacture and marketing of products that go in or on the eye.
Bausch & Lomb was incorporated in the State of New York in 1908
to carry on a business which was established in 1853. Its
principal executive offices are located in Rochester, New York.
Unless the context indicates otherwise, the terms "Bausch & Lomb"
and "company" as used herein refer to Bausch & Lomb Incorporated
and its consolidated subsidiaries. Highlights of the general
development of the business of Bausch & Lomb during 1997 are
discussed below.
The year ending December 27, 1997 set the stage for growth as
significant progress was made in transforming the company from a
diversified healthcare and optics company to one focused on
global eye care. Reported revenues for 1997 were $1,916 million,
a decrease of $11 million or less than 1% from 1996. Net earnings
for 1997 amounted to $49 million, or $0.89 per diluted share,
compared to $83 million or $1.47 per diluted share, reported in
1996. Significant operational matters affecting both periods
included restructuring charges, disposition of non-core
businesses and litigation charges.
In early 1997, the company's board of directors approved plans to
further restructure all business segments as well as certain
corporate administrative functions. This restructuring effort is
expected to significantly reduce the company's fixed cost
structure and realign the organization to meet its strategic
objectives. These actions resulted in the recording of pre-tax
restructuring charges of $72 million in 1997. The program is
expected to generate annual pre-tax savings of approximately $100
million by 1999. Savings will be generated from projects related
to the company's manufacturing processes, including plans to
phase out sunglass component manufacturing at the company's Frame
Center in Rochester, New York. Savings will also come from
restructuring administrative functions. The projects are
expected to result in improved operating margins, particularly in
the eyewear business, and greater flexibility to invest in growth
opportunities.
In April 1997, the company acquired the assets and trademarks of
the Killer Loop eyewear brands from Benetton Sportsystem of Italy
in a transaction valued at approximately $43 million. Prior to
the acquisition, the company had an exclusive agreement to market
Killer Loop eyewear products.
The company announced in November 1997 that it had entered into
an administrative Consent Order with the Securities and Exchange
Commission (SEC), bringing to a close the SEC's three-year
investigation into certain contact lens and sunglass transactions
that were improperly recorded as sales for the 1993 fiscal year.
The company did not admit or deny liability and no fines or
penalties were imposed.
In a related matter, the company, without admitting any
liability, agreed to pay $42 million in cash to settle a three-
year-old consolidated shareholder class action suit where it was
claimed that the company knowingly misrepresented its 1993
earnings. The company's insurance carrier will pay a substantial
portion of the cost of the settlement. The company recorded a
pre-tax charge of $21 million in the fourth quarter to cover the
cost of the proposed settlement.
In December 1997, the company sold its Thin Film Technology
Division to Applied Image Inc. for $9 million. There was no
material gain or loss on the transaction. The division
manufactured and applied optical thin film coatings for various
eyewear, lighting, optical, commercial and industrial
applications.
In late 1997, the company secured a $900 million 364-day
revolving credit facility and a $300 million five-year revolving
credit facility. These new facilities are being used to support
borrowings to fund
<PAGE> 3
the acquisitions of Storz and Chiron Vision,
which were consummated subsequent to fiscal year end and are
described below, as well as to provide funds for operations of
the existing businesses. The interest rate applicable to
borrowing under the 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 at December 27,
1997.
On December 29, 1997, the company completed the acquisition of
Chiron Vision Corporation (Chiron Vision), the ophthalmic
products unit of Chiron Corporation, for $300 million in cash.
Chiron Vision researches, develops and manufactures innovative
products that improve results in cataract and refractive surgery,
and the treatment of progressive eye diseases.
On December 31, 1997, the company also completed the acquisition
of Storz Instrument Company (Storz), a subsidiary of American
Home Products Corporation, for $380 million in cash. Storz is a
leading international manufacturer and distributor of high
quality ophthalmic surgical instruments, surgical and diagnostic
equipment, intraocular lens implants and ophthalmic
pharmaceuticals.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information concerning sales, business segment earnings and
identifiable assets attributable to each of Bausch & Lomb's
reportable industry segments is set forth on pages 26-30 and 46-
47 of the Annual Report and are incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Industry Segments. Bausch & Lomb's operations are classified
into four industry segments: vision care, eyewear,
pharmaceuticals and healthcare. Below is a description of each
segment and information to the extent that it is material to an
understanding of the company's business taken as a whole.
Additional information can be found on pages 8-21 of the Annual
Report and are incorporated herein by reference.
Vision Care - The vision care segment includes contact lenses and
lens care products. Vision care products are marketed to licensed
eye care professionals, pharmaceutical retailers and mass
merchandisers by the company's own sales force and distributors.
Eyewear - The eyewear segment includes premium-priced sunglasses
and vision accessories. Eyewear products are distributed
worldwide through the company's direct sales force, as well as
through distributors, wholesalers and manufacturer's
representatives. These products are marketed through optical
stores, sunglass specialty stores, department stores, catalog
showrooms, mass merchandisers and sporting goods stores.
Pharmaceuticals - The pharmaceuticals segment manufactures and
sells generic and proprietary prescription pharmaceuticals with a
strategic emphasis in the ophthalmic field and over-the-counter
(OTC) medications. These products are marketed by the company's
sales force and distributed through wholesalers, independent
pharmacies, drug stores, food stores, mass merchandisers and
hospitals.
Healthcare - Included in this segment are businesses which
provide purpose-bred laboratory animals, pathogen-free eggs,
biomedical products and services, hearing aids and skin care
products. Biomedical products are sold through the company's own
sales force to the scientific research community. Hearing aids
are distributed primarily through the Miracle-Ear franchise
system and company-owned stores. Skin care products are sold
through the company's sales force and brokers to drug stores,
food stores, mass merchandisers, warehouse clubs and the military
class of trade.
Suppliers and Customers. Materials and components in all four of
the company's industry segments are purchased from a wide variety
of suppliers and the loss of any one supplier would not adversely
affect the company's business to a significant extent. No
material part of the company's business taken as a whole
<PAGE> 4
is dependent upon a single or a few customers. However, in the
eyewear segment approximately 13% of segment sales are
attributable to Sunglass Hut International and in the vision care
segment approximately 10% of segment sales are attributable to
Wal-Mart.
Patents, Trademarks and Licenses. While in the aggregate the
company's patents are of material importance to its businesses
taken as a whole, no single patent or patent license or group of
patent licenses relating to any particular product or process is
material to any industry segment. The company actively pursues
technology development and acquisition as a means to enhance its
competitive position in its business segments.
In the vision care segment, Bausch & Lomb has developed
significant consumer and eye care professional recognition of
products sold under the Bausch & Lomb, ReNu, ReNu MultiPlus,
Sensitive Eyes, SeeQuence, Medalist, Boston, Optima FW and
SofLens66 trademarks. Ray-Ban, Revo, Wayfarer, Arnette and
Killer Loop are trademarks receiving substantial consumer
recognition in the eyewear segment. Bausch & Lomb and Dr. Mann
Pharma are trademarks receiving substantial consumer recognition
in the pharmaceuticals segment. In the healthcare segment,
Miracle-Ear, Mirage, Curel, Soft Sense and Charles River are
trademarks receiving significant consumer and industry
professional recognition.
Seasonality and Working Capital. Some seasonality exists for
sunglasses in the eyewear segment. The accumulation of
inventories of such products in advance of expected shipments
reflects the seasonal nature of the products. In general, the
working capital practices followed in each of the company's
industry segments are typical of those businesses.
Competition. Each industry is highly competitive in both U.S.
and non-U.S. markets. In all of its segments, Bausch & Lomb
competes on the basis of product performance, quality,
technology, price, service, warranty and reliability. In the
eyewear segment, the company also competes on the basis of style.
Research and Development. Research and development constitutes
an important part of Bausch & Lomb's activities. In 1997, the
company's research and development expenditures totaled $67
million, as compared to $75 million in 1996 and $66 million in
1995.
Environment. Although Bausch & Lomb is unable to predict what
legislation or regulations may be adopted or enacted in the
future with respect to environmental protection and waste
disposal, existing legislation and regulations have had no
material adverse effect on its capital expenditures, earnings or
competitive position. Capital expenditures for property, plant
and equipment for environmental control facilities were not
material during 1997 and are not anticipated to be material for
1998 or 1999.
Year 2000 Software Compliance. Information regarding the
identification and resolution of year 2000 data and processing
issues is set forth on page 36 of the Annual Report and such
information is incorporated herein by reference.
Number of Employees. Bausch & Lomb employed approximately 13,000
persons as of December 27, 1997.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
Information as to sales, operating earnings and identifiable
assets attributable to each of Bausch & Lomb's geographic
regions, and the amount of export sales in the aggregate, is set
forth on pages 31-32 and 46 of the Annual Report and is
incorporated herein by reference.
<PAGE> 5
ITEM 2. PROPERTIES
The principal manufacturing, distribution and production
facilities and other important physical properties of Bausch &
Lomb at March 1, 1998 are listed below and are grouped under the
principal industry segment to which they relate. Certain
properties relate to more than one industry segment. Except
where otherwise indicated by footnote, all properties shown are
held in fee and are not subject to major encumbrances.
Eyewear
Manufacturing Plants Distribution Centers
Beijing, China (2) San Clemente, CA (2)
Bhiwadi, India Sunnyvale, CA (2)
Waterford, Ireland (2) San Antonio, TX
Rochester, NY (Frame Center) Richmond Hill, Ontario,
San Antonio, TX Canada (2)
New Territories, Hong Kong (2) Hoofdorp, Netherlands (2)
Nuevo Laredo, Mexico (2) North Ryde, Australia (2)
Guangzhou, China (2)
Healthcare
Production Facilities
Hollister, CA (2) Houston, TX
Lebanon, CT Brussels, Belgium
Preston, CT St. Constant, Canada
Storrs, CT Margate, England
Voluntown, CT West Sussex, England
Summerland Key, FL Lyon, France (2)
Colbert, GA (2) St. Aubin-les-Elbeuf, France
Eureka, IL St. Germain, France (2)
Roanoke, IL Extertal, Germany
Windham, ME Kisslegg, Germany
Southbridge, MA (2) Sulzfeld, Germany
West Brookfield, MA (2) Calco, Italy
Wilmington, MA Atsugi, Japan
Portage, MI Hino, Japan
O'Fallon, MO Tskuba, Japan (2)
Raleigh, NC Tuhuacan, Mexico (2)
Pittsfield, NH Someren, Netherlands
Newfield (Lakeview), NJ Barcelona, Spain (2)
Stone Ridge (Kingston), NY Uppsala, Sweden (2)
Charleston, SC (2) Budapest, Hungary (2)
Prague, Czech Republic (2)
Manufacturing Plants Distribution Centers
Golden Valley, MN (1) Wilmington, MA (2)
Kitchener, Ontario, Canada (2) Golden Valley, MN (1)
Preston, CT (2)
<PAGE> 6
Pharmaceuticals/Surgical
Manufacturing Plants Distribution Centers
Tampa, FL Tampa, FL
Berlin, Germany Bracknell, United Kingdom (2)
Claremont, CA (2) Heidelberg, Germany (2)
Irvine, CA
Clearwater, FL
St. Louis, MO
Artarmon, Australia (2)
Lyon, France (2)
Vision Care
Manufacturing Plants Distribution Centers
Sarasota, FL (1) Rochester, NY (Optics Center)
Wilmington, MA (2) (1)(2)
Rochester, NY (Optics Center) Greenville, SC (2)
(1)(2) Lynchburg, VA (2)
Greenville, SC Richmond Hill, Ontario,
Porto Alegre, Brazil Canada (2)
Beijing, China (2) Guangzhou, China (2)
Bhiwadi, India Hoofdorp, Netherlands (2)
Waterford, Ireland (2) Livingston, Scotland (2)
Milan, Italy
Umsong-Gun (Seoul), Korea
Livingston, Scotland (2)
Barcelona, Spain
Hastings, United Kingdom
Madrid, Spain (2)
North Ryde, Australia (2)
Corporate Facilities
Rochester, NY
One Bausch & Lomb Place (2)
Optics Center (1) (2)
1295 Scottsville Road (2)
(1) This facility is financed under a tax-exempt financing
agreement
(2) This facility is leased
Bausch & Lomb considers that its facilities are suitable and
adequate for the operations involved. All facilities are being
productively utilized.
<PAGE> 7
ITEM 3. LEGAL PROCEEDINGS
1. Since June of 1994, the company has defended several
shareholder actions against the company, its former Chief
Executive Officer and Chairman, Daniel E. Gill, and four other
officers, alleging that the defendants made false and misleading
statements about expected financial results. These actions have
been consolidated in the United States District Court for the
Western District of New York. On November 17, 1997, the company
announced that it had entered into a memorandum of understanding
with counsel representing the plaintiffs, agreeing to pay $42
million in full settlement of all claims. In entering into this
proposed settlement, the company and the individual defendants
have continued to deny all liability, but have settled in order
to avoid the expense and burden of further litigation. The
claimants include purchasers of the company's common stock from
December 13, 1993 through January 25, 1995. The proposed
settlement is subject to making appropriate notice to potential
class members and a review by the Court of the fairness and
adequacy of the terms of the settlement. The company's insurance
carriers have agreed to contribute substantially toward this
settlement and the company has recorded a one-time charge against
1997 fourth-quarter earnings of $21 million or $13 million after
taxes.
2. Since December 1994, the company has been the subject of an
investigation by the Securities and Exchange Commission (SEC)
principally focused on the accounting treatment of (i) a 1993
contact lens sales program and (ii) Asian sunglass sales from
late 1992 through early 1994. This investigation was concluded
when the company, without admitting or denying liability, entered
into a Consent Order with the SEC, which was announced on
November 17, 1997. The Order imposed no financial penalties on
the company.
3. The company has stipulated to certification by a New York
State Supreme Court of a nationwide class of purchasers of
Sensitive Eyes Rewetting Drops, Boston Rewetting Drops, ReNu
Rewetting Drops and Bausch & Lomb Eye Wash between May 1, 1989
and June 30, 1995. This action arose out of matters commenced in
1994 and 1995 alleging that the company misled consumers in its
marketing and sale of those products. Management vigorously
defends the company's practices.
4. In several actions, the company is defending its long-
standing policy of selling contact lenses only to licensed
professionals against claims that it was adopted in conspiracy
with others to eliminate alternate channels of trade from the
disposable contact lens market. These matters include (i) a
consolidated action in the United States District Court for the
Middle District of Florida filed in June 1994 by the Florida
Attorney General, and now includes claims by the attorneys
general of 21 other states, and (ii) individual actions pending
in California and Tennessee state courts. The company defends
its policy as a lawfully adopted means of ensuring effective
distribution of its products and safeguarding consumers' health.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
Inapplicable.
<PAGE> 8
PART II
ITEM 5. MARKET FOR BAUSCH & LOMB INCORPORATED'S COMMON
STOCK AND RELATED SHAREHOLDER MATTERS
The sections entitled "Dividends" and "Quarterly Stock Prices"
and table entitled "Selected Financial Data" on pages 34, 37 and
63, respectively, of the Annual Report are incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Selected Financial Data" on page 63 of the
Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The section entitled "Financial Review" on pages 26-36 of the
Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The section entitled "Derivative Financial Instruments" on pages
42 and 58-59 of the Annual Report is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, including the notes thereto, together
with the sections entitled "Report of Independent Accountants"
and "Quarterly Results" on pages 38-61, 62 and 37 of the Annual
Report, respectively, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
<PAGE> 9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
BAUSCH & LOMB INCORPORATED
Information with respect to non-officer directors is included in
the Proxy Statement on pages 3-7 and such information is
incorporated herein by reference. Set forth below are the names,
ages (as of March 1, 1998), positions and offices held by, and a
brief account of the business experience during the past five
years of, each executive officer.
Name and Age Position
William H. Waltrip (60) Chairman since January 1997; Chairman
and Chief Executive Officer (1996);
Chairman of Technology Solutions
Company since 1993; Chief Executive
Officer, Technology Solutions Company
(1993-1995); Chairman and Chief
Executive Officer of Biggers
Brothers, Inc. (1991-1993).
William M. Carpenter (45) Chief Executive Officer since January
1997; President and Chief Operating
Officer (1995-1996); Executive Vice
President, Global Business Manager,
Eyewear (1995-1996); President and
Chief Executive Officer, Reckitt &
Colman, Inc. (1994-1995); President
and Chief Operating Officer, Reckitt
and Colman, Inc. (1992-1994).
Dwain L. Hahs (45) Executive Vice President and
President - Eyewear since April 1997;
Senior Vice President, International
Operations (1996-1997); Vice
President and President Europe,
Middle East and Africa Division
(1994-1996); Vice President Field
Operations Europe, Middle East and
Africa Division (1992-1994).
Carl E. Sassano (48) Executive Vice President and
President - Vision Care since January
1997; Senior Vice President and
Global Business Manager, Vision Care
(1996); Global Business Manager,
Contact Lens Products (1994-1996);
Senior Vice President and President,
Contact Lens Division (1994-1996);
Senior Vice President and President,
Polymer Technology Corporation, a
subsidiary of the company (1992-
1994).
Daryl M. Dickson (46) Senior Vice President, Human
Resources since November 1996; Vice
President Human Resources (Foods
group), Quaker Oats Company (1993-
1996); Sector Director Organization,
Staffing and Development,
AlliedSignal Aerospace, AlliedSignal
Inc. (1991-1993).
James C. Foster (47) Senior Vice President since 1994
and President and Chief Executive
Officer of Charles River
Laboratories, Inc., a subsidiary of
the company, since 1991; Vice
President (1991-1994).
Stephen C. McCluski (45) Senior Vice President and Chief
Financial Officer since 1995; Vice
President and Controller (1994);
President, Outlook Eyewear Company
(1992-1994).
Thomas M. Riedhammer (49) Senior Vice President and President,
Worldwide Pharmaceuticals since
February 1998; Senior Vice President
and President, Worldwide
Pharmaceutical, Surgical, and Hearing
Care Products (1994-1998); Vice
<PAGE> 10
President (1993-1994); President,
Worldwide Pharmaceuticals (1994);
President, Pharmaceutical Division
(1992-1993).
Robert B. Stiles (48) Senior Vice President and General
Counsel since June 1997; Staff Vice
President and Assistant General
Counsel (1994-1997); Assistant
General Counsel (1991-1994).
Jurij Z. Kushner (47) Vice President, Controller since
1995; Vice President, Operations,
Personal Products Division (1994-
1995); Vice President and Controller,
Personal Products Division (1992-
1994).
All officers serve on a year-to-year basis through the day of the
annual meeting of shareholders of the company, and there is no
arrangement or understanding among any of the officers of the
company and any other persons pursuant to which such officer was
selected as an officer.
ITEM 11. EXECUTIVE COMPENSATION
The portions of the "Executive Compensation" section entitled
"Report of the Committee on Management", "Compensation Tables"
and "Defined Benefit Retirement Plans", the second and third
paragraphs of the section entitled "Board of Directors", the
graph entitled "Comparison of Five Year Cumulative Total
Shareholder Return" and the second paragraph of the section
entitled "Related Transactions, Employment Contracts and
Termination of Employment and Change in Control Arrangements"
included in the Proxy Statement on pages 10-13, 14-16, 17-18, 1-
2, 16, and 18, respectively, are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement on page 8 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The first paragraph of the section entitled "Related
Transactions, Employment Contracts and Termination of Employment
and Change of Control Arrangements" on page 18 of the Proxy
Statement is incorporated herein by reference.
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
The following documents or the portions thereof indicated are
filed as a part of this report.
(a) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES COVERED BY REPORTS OF INDEPENDENT ACCOUNTANTS.
1. Data incorporated by reference in Page in
Item 8 from the Annual Report Annual Report
Report of Independent Accountants 62
Balance Sheet at December 27, 1997 and
December 28, 1996 39
For the years ended December 27, 1997,
December 28, 1996 and December 30, 1995:
Statement of Earnings 38
Statement of Cash Flows 40
Notes to Financial Statements 41-61
2. Filed herewith
Report of Independent Accountants
on Financial Statement Schedules Exhibit 24
For the years ended December 27, 1997,
December 28, 1996 and December 30, 1995:
SCHEDULE II- Valuation and Qualifying
Accounts Page S-1
All other schedules have been omitted because the required
information is not present or not present in amounts sufficient
to require submission of the schedule, or because the information
required is included in the consolidated financial statements or
the notes thereto.
(b) REPORTS ON FORM 8-K
Inapplicable.
(c) 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. Each of Exhibits (10)-a through (10)-w is a
management contract or compensatory plan or arrangement required
to be filed as an exhibit to this form pursuant to Item 14(c) of
this report.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 23, 1998 By:/s/William M. Carpenter
William M. Carpenter
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Principal Executive Officer
Date: March 23, 1998 By:/s/William M. Carpenter
William M. Carpenter
President and Chief Executive
Officer
Principal Financial Officer
Date: March 23, 1998 By:/s/ Stephen C. McCluski
Stephen C. McCluski
Senior Vice President and Chief
Financial Officer
Controller
Date: March 23, 1998 By:/s/ Jurij Z. Kushner
Jurij Z. Kushner
Vice President and Controller
Directors
Franklin E. Agnew
William Balderston III
William M. Carpenter
Domenico De Sole
Jonathan S. Linen
Ruth R. McMullin
John R. Purcell
Linda Johnson Rice
Alvin W. Trivelpiece
William H. Waltrip
Kenneth L. Wolfe
Date: March 23, 1998 By:/s/Robert B. Stiles
Robert B. Stiles
Attorney-in-Fact
<PAGE>
Bausch & Lomb Incorporated
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Reserves for Doubtful
Accounts (Dollar December 27, December 28, December 30,
amounts in thousands) 1997 1996 1995
Balance at beginning
of year $ 13,278 $ 11,232 $ 16,830
Activity for the year:
Provision charged to
income 4,310 8,556 8,253
Reductions/(additions)
resulting from divestiture/
(acquisition) activity 68 (399) (821)
Accounts written off (5,179) (6,899) (10,194)
Recoveries on accounts
previously written off 1,538 788 634
Reclassifications<F1> -- -- (3,470)
------------------------------------
Balance at end of year $ 14,015 $ 13,278 $ 11,232
------------------------------------
------------------------------------
[FN]
<F1> Represents reserves related to trade receivables which have
been reclassified to Notes Receivable.
<PAGE>
EXHIBIT INDEX
S-K Item Document
601 No
(3)-a Certificate of Incorporation of Bausch & Lomb
Incorporated (filed as Exhibit (3)-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).
(3)-b Certificate of Amendment of Bausch & Lomb
Incorporated (filed as Exhibit (3)-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).
(3)-c Certificate of Amendment of Bausch & Lomb
Incorporated (filed as Exhibit (3)-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).
(3)-d By-Laws of Bausch & Lomb Incorporated, as amended,
effective October 28, 1986 (filed as Exhibit (3)-b to the
company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1986, File No. 1-4105, and incorporated herein by
reference).
(4)-a See Exhibit (3)-a.
(4)-b See Exhibit (3)-b.
(4)-c See Exhibit (3)-c.
(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).
(10)-a Change of Control Employment Agreement with certain
executive officers of the company (filed as Exhibit (10)-a to the
company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1990, File No. 1-4105, and incorporated herein by
reference).
(10)-b Change of Control Employment Agreement with certain
executive officers of the company (filed as Exhibit (10)-b to the
company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, No. 1-4105, and incorporated herein by
reference).
(10)-c Amended and restated Supplemental Retirement Income
Plan II (filed as Exhibit (10)-f to the company's Annual Report
on Form 10-K for the fiscal year ended December 29, 1990, File
No. 1-4105, and incorporated herein by reference).
(10)-d Supplemental Retirement Income Plan III (filed as
Exhibit (10)-g 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).
(10)-e The 1982 Stock Incentive Plan (filed as Exhibit III-
F to the company's Annual Report on Form 10-K for the fiscal year
ended December 26, 1982, File No. 1-4105, and incorporated herein
by reference).
(10)-f Amendment to the 1982 Stock Incentive Plan (filed as
Exhibit (10)-i 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).
(10)-g Amendment to the 1982 Stock Incentive Plan (filed as
Exhibit (10)-k to the company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1990, File No. 1-4105, and
Incorporated herein by reference).
(10)-h The 1987 Stock Incentive Plan (filed as Exhibit I.B
to the company's Registration Statement on Form S-8, File No. 33-
15439, and incorporated herein by reference).
(10)-i Amendment to the 1987 Stock Incentive Plan (filed as
Exhibit (10)-n 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).
<PAGE>
(10)-j Amendment to the 1987 Stock Incentive Plan (filed as
Exhibit (10)-n to the company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1990, File No. 1-4105, and
Incorporated herein by reference).
(10)-k Amended and restated 1990 Stock Incentive Plan
(filed as Exhibit (10)-y to the company's Annual Report on form
10-K for the fiscal year ended December 28, 1996, File No. 1-
4105, and Incorporated herein by reference).
(10)-l Amended and restated Director Deferred Compensation
Plan (filed as Exhibit (10)-bb to the company's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996, File No.
1-4105, and incorporated herein by reference).
(10)-m Amended and restated Executive Deferred Compensation
Plan (filed as Exhibit (10)-cc to the company's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996, File No.
1-4105, and incorporated herein by reference).
(10)-n Amended and restated Executive Benefit Plan (filed
as Exhibit (10)-t to the company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1990, File No. 1-4105, and
Incorporated herein by reference).
(10)-o Executive Security Program (filed as Exhibit (10)-s
to the company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989, File No. 1-4105, and incorporated herein
by reference).
(10)-p Retirement Benefit Restoration Plan (filed as
Exhibit (10)-t to the company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991, File No. 1-4105, and
incorporated herein by reference).
(10)-q Annual Retainer Stock Plan for Non-Employee
Directors (filed as Exhibit (10)-dd to the company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996,
File No. 1-4105, and incorporated herein by reference).
(10)-r Stock Purchase Agreement by and between Bausch &
Lomb Incorporated and Chiron Corporation (filed as Exhibit 2(a)
to the company's Current Report on Form 8-K dated January 13,
1998, File No. 1-4105, and incorporated herein by reference).
(10)-s Purchase Agreement by and among American Cyanamid
Company, American Home Products Corporation and Bausch & Lomb
Incorporated (filed as Exhibit 2(b) to the company's Current
Report on Form 8-K dated January 13, 1998, File No. 1-4105, and
incorporated herein by reference).
(10)-t Amended and restated Charles River Laboratories,
Inc. Executive Life Insurance/Supplemental Retirement Income Plan
(filed herewith).
(10)-u Agreement with William H. Waltrip (filed herewith).
(10)-v Corporate Officer Separation Plan (filed herewith).
(10)-w EVA Management Incentive Compensation Plan (filed
herewith).
(11) Statement Regarding Computation of Per Share
Earnings (filed herewith).
(12) Statement Regarding Computation of Ratio of Earnings
to Fixed Charges (filed herewith).
(13) The Bausch & Lomb 1997 Annual Report to Shareholders
for the fiscal year ended December 27, 1997 (filed herewith).
With the exception of the pages of the Annual Report specifically
incorporated by reference herein, the Annual Report is not deemed
to be filed as a part of this Report on Form 10-K.
(21) Subsidiaries (filed herewith).
(23) Report of Independent Accountants on Financial
Statement Schedules and Consent of Independent Accountants (filed
herewith).
(24) Power of attorney with respect to the signatures of
directors in this Report on Form 10-K (filed herewith).
(27) Financial Data Schedule (filed herewith).
EXHIBIT (10)-t
THE CHARLES RIVER LABORATORIES, INC.
EXECUTIVE LIFE INSURANCE/
SUPPLEMENTAL RETIREMENT INCOME PLAN
Amended and Restated
Effective March 15, 1988
1. AMENDMENT AND RESTATEMENT. This Plan amends and restates,
effective March 15, 1988, The Charles River Laboratories, Inc.
Executive Life Insurance/Supplemental Retirement Income Plan (the
"Plan") (previously referred to in some prior documents as The
Charles River Breeding Laboratories, Inc. Executive Supplemental
Insurance Plan). This Plan is the only such plan maintained by
Charles River Laboratories, Inc.
2. PURPOSE. Charles River Laboratories, Inc. (the "Company")
has adopted this Plan for a select group of management employees
in order to (a) attract, retain and motivate qualified management
employees, (b) facilitate the retirement of such employees, and
(c) in certain cases, provide survivor income for the
beneficiaries of such employees. The Plan is intended to be "a
plan which is unfunded and is maintained by an employer primarily
for the purpose of providing deterred compensation for a select
group of management or highly compensated employees" within the
meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and shall be interpreted and administered to the
extent possible in a manner consistent with that intent.
3. ADMINISTRATION. The Plan will be administered by a Committee
of not less than three officers or directors of the Company who
will be appointed from the Board of Directors of the Company and
who will serve at the pleasure of the Board. The Committee will
have authority to interpret the provisions of the Plan and decide
all questions and settle all disputes which may arise in
connection with the Plan, and may establish its own operative and
administrative rules and procedures in connection therewith. All
interpretations, decisions and determinations made by the
Committee will be binding on all persons concerned. No member of
the Committee who is a Participant in this Plan may vote or
otherwise participate in any decision or act with respect to a
matter relating solely to himself (or to himself and his
beneficiaries).
4. PARTICIPATION. The Participants in the Plan will be such
management employees as may be selected from time to time by the
Committee. Each Participant will be designated by the Committee
as belonging to either Group A or Group B for purposes of
determining the Participant's Vested Percentage under Section
7(c) below. A Participant may be moved from Group B to Group A
at the discretion of the Committee, but no Participant shall be
moved from Group A to Group B. The Committee may terminate an
employee's participation in the Plan (while he is still an
employee), but no such action will reduce the Company's
obligation to any Participant below the amount to which he would
be entitled under the Plan as in effect immediately prior to such
action if his employment then terminated.
5. LIFE INSURANCE BENEFIT.
(a) The Company (or the Trustee, if applicable) will purchase
and maintain one or more insurance policies on the life of each
Participant which, upon the death of the Participant (and subject
to Section 5(b) below), will pay directly to the Participant's
beneficiary an amount equal to
(i) in the case of a Participant who dies while employed by the
Company, the excess of (A) four times his Current Compensation,
over (B) $50,000, and
(ii) in the case of a Participant who dies after his employment
with the Company has terminated, the excess of (A) four times his
Current Compensation times his Vested Percentage, over (B)
$50,000.
(b) As of the date of a Participant's supplementary retirement
income payments under Section 6 below begin (or, in the case of a
Participant who is not entitled to receive any supplementary
retirement income payments under Section 6, as of the date
immediately following the date of such Participant's termination
of employment with the Company), (i) the Company's obligations
under this Section 5 to purchase and maintain insurance or
otherwise provide a death benefit with respect to the Participant
shall cease, (ii) the Participant will have no further rights
under this Section 5 or under any insurance policy purchased
hereunder, and (iii) if the Company (or, if applicable, the
Trustee of the Grantor Trust described in Section 7 below) in its
discretion decides to continue to maintain any insurance policies
on the life of the Participant purchased under this Section 5
beyond the applicable date described above in this Section 5(b),
the Company (or, if applicable, the Trustee) and, if required by
any such policies, the Participant, shall take all steps
necessary to name the Company (or Trustee) as the sole
beneficiary of such policies as of such date.
(c) A Participant may designate one or more beneficiaries
entitled to receive benefits under this Section 5 in the event of
his death on a form satisfactory to the Company and the insurance
company or companies issuing the policy or policies on his life
hereunder; however, the Participant shall have no other rights or
incidence of ownership in any such policy. It is intended that
any death benefit payable under an insurance policy purchased
under this Section 5 will not be includible in the income of the
beneficiary for federal income tax purposes, but that the one
year term cost of such life insurance protection, as determined
under the applicable provisions of the Internal Revenue Code and
the regulations and rulings thereunder, will be includible in the
gross income of a Participant while he has the right to name a
beneficiary entitled to receive the death benefit.
(d) A Participant shall cooperate fully with the Company in
connection with any such policy by submitting to such medical
examinations and providing such information as may be required
from time to time by the Company or an insurance company.
6. SUPPLEMENTARY RETIREMENT INCOME AFTER TERMINATION OF
EMPLOYMENT.
(a) A Participant whose employment with the Company terminates
for reasons other than death and who survives to the date
determined by the Committee for the commencement of benefits
under (b) below will be entitled to a monthly supplementary
retirement benefit equal to the Participant's Supplementary
Formula Amount, minus the Participant's Pension Offset Amount,
minus the Participant's Social Security Offset Amount determined
as of the month in which the particular payment is to be made,
(b) supplementary payments to the Participant under this Section
6 will begin on the first day of such month as may be determined
by the Committee in its sole discretion, provided that such
benefit may commence
(i) no earlier than the first day of the month coinciding with
or next following the later of the date the Participant attains
age 59 and the date his employment with the Company terminates,
and
(ii) no later than the first day of the month coinciding with or
next following the later of the date the Participant attains age
65 and the date his employment with the Company terminates.
(c) Once begun, supplementary payments to the Participant under
this Section 6 shall be made monthly for the life of the
Participant, but in any event for a minimum of 15 years from the
date the first payment is made. If the Participant dies prior to
the expiration of such 15-year period, his surviving spouse or,
if there is no surviving spouse, his designated beneficiary, will
receive a monthly amount for the remainder of the 15-year period
equal to the monthly amount that would be payable to the
Participant under this section 6 if he were still alive on the
date payment is to be made to the surviving spouse or other
beneficiary. A Participant nay designate a beneficiary entitled
to receive benefits under this Section 6 for the balance of the
15-year period in the event there is no surviving spouse, in
writing on a form satisfactory to the Company. If, after the
death of a Participant during the 15-year period there is no
surviving spouse or designated beneficiary, the present value of
the monthly supplementary retirement benefits remaining to be
paid during the 15-year period, determined using appropriate
assumptions used under The Pension Plan as in effect from time to
time (or if such plan is not then in effect, using appropriate
assumptions then used by the Pension Benefit Guaranty Corporation
in determining benefits upon plan termination), shall be paid as
soon as practicable to the Participant's estate. Beginning with
the first day of the month next following the later of (i) the
Participant's death and (ii) the expiration of the 15-year period
described above, the surviving spouse (determined as of the date
of the Participant's death), if any, of a Participant who was
receiving monthly payments under this Section 6 shall receive a
monthly amount equal to 50% of the amount that would be payable
to the Participant under this Section 6 if he were still alive on
the date payment is to be made to the surviving spouse. Such
payments to the surviving spouse shall continue each month for
the life of the surviving spouse.
7. CERTAIN DEFINITIONS. For purposes of this Plan,
(a) A Participant's "Current Compensation" is (i) in the case of
a Participant who dies while still employed by the Company, the
annual rate of base salary payable to the Participant in the
calendar year of his death plus 100% of the target incentive
compensation (as determined by the Company pursuant to its
incentive compensation plans as in effect from time to time) for
the salary grade of the Participant at the time of his death, and
(ii) in the case of a Participant who dies after his employment
with the Company has terminated, the amount that would be
considered to be his Current Compensation under (i) above if he
had died while an employee of the Company on the date his
employment otherwise terminated.
(b) A Participant's "Supplementary Formula Amount" is equal to
the product of (i) the Participant's Vested Percentage determined
as of the date his employment with the Company terminates, (ii)
his Average Annual Compensation determined as of the date his
employment with the Company terminates, and (iii) his Target
Percentage determined as of the first date on which monthly
supplementary retirement payments are made to the Participant
under Section 6 above.
(c) A Participant's "Vested Percentage" at any point in time is
determined according to the applicable schedule below, based on
whether he is a member of Group A or Group B and on his years of
service with the Company (as such years are computed under The
Pension Plan as in effect on the effective date of this
restatement):
Years of Service Vested Percentage
(Group A) (Group A)
less than 5 0%
5 but less than 6 50%
6 but less than 7 60%
7 but less than 8 70%
8 but less than 9 80%
9 but less than 10 90%
10 or more 100%
Years of Service Vested Percentage
(Group B) (Group B)
less than 5 0%
5 but less than 6 25%
6 but less than 7 30%
7 but less than 8 35%
8 but less than 9 40%
9 but less than 10 45%
10 but less than 11 50%
11 but less than 12 60%
12 but less than 13 70%
13 but less than 14 80%
14 but less than 15 90%
15 or more 100%
Notwithstanding the above schedules, however, upon a Change of
Control the Vested Percentage of a Participant who is employed by
the Company on the date of such Change will be 100%.
(d) A Participant's "Average Annual Compensation" is the average
of the amounts shown as wages on copies of Form W-2 which was
filed by the Company with the Internal Revenue Service with
respect to the Participant for the five consecutive calendar
years for which the aggregate wages were higher than for any
other five consecutive years.
(e) A Participant's "Target Percentage" is determined according
to the following schedule, based on his attained age as of the
date that the first monthly supplementary retirement payment is
to be made to him in the discretion of the Committee under
Section 6 above:
Attained Age as of Target Percentage
Payment Commencement
59 but not 60 46%
60 but not 61 49%
61 but not 62 52%
62 or over 55%
(f) A Participant's "Pension Offset Amount" is the amount that
would be payable to the Participant under The Pension Plan,
beginning on the date monthly supplementary retirement payments
to the Participant are to begin under Section 6(b) above, in the
form of an annuity which, in the case of a Participant who is
married at the time his monthly supplementary retirement payments
are to begin, will pay an amount to the Participant for his life
and an equal amount to his surviving spouse, if any, for the
spouse's life, and in the case of a Participant who is not
married at the time his monthly supplementary retirement payments
are to begin, will pay an amount for the life of the Participant
only. In the event that payments under The Pension Plan actually
begin on a date or are paid in a form other than that specified
above in this clause (ii), the amount described in this clause
(ii) shall be determined using such appropriate assumptions for
actuarial equivalence as are specified in The Pension Plan.
(g) A Participant's "Social Security Offset Amount" is equal to
(i) in the case of a monthly supplementary retirement payment to
be made to a Participant (or surviving spouse or other
beneficiary) prior to the date on which the Participant attains
(or would have attained) age 62, zero, (ii) in the case of a
monthly supplementary retirement payment to be made to a
Participant (or surviving spouse or other beneficiary) who has
attained (or would have attained) age 62 and whose monthly
supplementary retirement payment first began prior to his
attaining age 62, 50% of the monthly Social security benefit
which the Participant would receive had he begun to receive such
Social Security benefit at age 62, and (iii) in the case of a
monthly supplementary retirement payment to be made to a
Participant (or surviving spouse or other beneficiary) who has
(or had) attained age 62 and whose supplementary monthly
retirement payments first began on or after the date the
Participant attained age 62, 50% of the amount of monthly Social
Security benefit that the Participant would receive if he had
begun to receive such Social Security benefit on the date the
Participant's monthly supplementary retirement payments began.
(h) A "Change of Control" shall mean a change of control as
defined in the attached Schedule A hereto which occurs after the
effective date of this restatement.
(i) "The Pension Plan" is the Charles River Laboratories, Inc.
Pension Plan (Restated) as from time to time amended and in
effect.
(j) The "Trustee" is the trustee from time to time of the trust
described in Section 8 below.
8. NATURE OF CLAIM FOR PAYMENTS. Except as herein provided the
Company shall not be required to set aside or segregate any
assets of any kind to meet its obligations hereunder. A
Participant shall have no right on account of this Plan in or to
any specific assets of the Company (other than rights with
respect to life insurance policies purchased under Section 5
above). Any right to any payment that a participant may have on
account of the Plan shall be those of a general, unsecured
creditor of the Company.
The Company may establish a trust of which the Company is treated
as the owner under Subpart E of Subchapter J, Chapter 1 of the
Internal Revenue Code (a "Grantor Trust"), and may from time to
time deposit funds with the trustee of such trust (the "Trustee")
to facilitate payment of the benefits provided under the Plan.
In the event the Company establishes such a Grantor Trust with
respect to the Plan and, at the time of a Change of Control, such
Trust has not been terminated or revoked, within 30 days after
such Change of Control the Company shall assign to the Trustee
any life insurance policies purchased under Section 5 above which
have not already been so assigned, and shall further contribute
to such Grantor Trust,
(a) the then present value, determined as hereinafter provided,
of all benefits remaining to be paid under the Plan as in effect
immediately prior to the Change of Control, including benefits in
pay status and benefits that may become payable in the future
with respect to Participants and their beneficiaries and any
premiums required to purchase and maintain life insurance
policies under Section 5 above, less
(b) the value of all assets held in the Trust (using the cash
surrender value as the value of any life insurance policy held in
the Trust) determined as of the time immediately prior to the
time the contribution under this sentence is being made.
The present value of benefits payable in the future shall be
determined using appropriate assumptions then used under The
Pension Plan as in effect immediately prior to the Change of
Control, or if such Plan is not then in effect, appropriate
assumptions then used by the Pension Benefit Guaranty Corporation
in determining the present value of benefits upon plan
termination; provided that a Participant's compensation shall not
be projected forward beyond the year of the Change of Control for
purposes of determining such present value of benefits.
In the event a Grantor Trust is established and, following a
Change of Control, the Company obtains an opinion of counsel
acceptable to itself and the Trustee that under existing law the
Plan would be deemed "funded" for purposes of Title I of ERISA by
reason of the Trust, or that amounts held in the Trust or
contributed thereto, or earnings thereon (other than amounts
allocable to the one-year term cost of any life insurance
purchased under Section 5 above, as determined under the Internal
Revenue Code or regulations or rulings thereunder) would be
includible in the income of Participants or their beneficiaries
prior to distribution from the Grantor Trust, and as a result
thereof the Grantor Trust is terminated or revoked, the Company
shall promptly assign and deliver to the Participant (or, if the
Participant has died, to the persons or persons entitled to
receive survivor benefits under Section 6(c) above) any insurance
policies then maintained under the Plan with respect to the
Participant (including any cash value in excess of the death
benefit under such policies), and distribute to the Participant
(or, if applicable, such other person or persons entitled to
receive survivor benefits) an amount of cash equal to the amount,
if any, by which the then cash value of such insurance policies
is less than the then present value of the monthly supplementary
retirement benefits remaining to be paid with respect to the
Participant under this Plan. Present values under this paragraph
shall be determined using appropriate assumptions used under The
Pension Plan as in effect immediately prior to the Change of
Control, or, if such Plan is not then in effect, the appropriate
assumptions then used by the Pension Benefit Guaranty Corporation
in determining the present value of benefits upon plan
termination.
In all events, the Company shall remain ultimately liable for the
benefits payable under this Plan, and to the extent the assets at
the disposal of the Trustee are insufficient to enable the
Trustee to maintain any insurance policy or pay any retirement or
survivor benefit hereunder, the Company shall pay any and all
such premiums and any and all such retirement and survivor
benefits necessary to meet its obligations under the Plan.
9. ASSIGNMENT. The interest hereunder of any Participant or
beneficiary (including a surviving spouse) will not be alienable
by the Participant or beneficiary by assignment or any other
method and will not be subject to be taken by his creditors by
any process whatsoever, and any attempt to cause such interest to
be so subjected will not be recognized, except to such extent as
may be required by law.
The obligations of the Company hereunder shall be binding on its
successors or assigns, whether by merger, consolidation or
acquisition of all or substantially all of its business or
assets.
10. NO CONTRACT OF EMPLOYMENT. The Plan will not be deemed to
constitute a contract of employment between the Company and any
Participant, or to be consideration for the employment of any
Participant. The Plan will not be deemed to give any Participant
the right to be retained in the employ of the Company to
discharge any participant at any time.
11. AMENDMENT. The Plan (including the attached Schedule A) may
be altered, amended or revoked in writing by the Company at any
time, but no such action may reduce the Company's obligation with
respect to a Participant who is then still employed by the
Company below the amount to which he would be entitled under the
Plan as in effect immediately prior to such action if his
employment then terminated, and no such action may reduce the
Company's obligation with respect to a Participant whose
employment with the Company has already then terminated.
12. GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts to
the extent not preempted by federal law.
IN WITNESS WHEREOF, the Company, by its duly authorized officer,
has executed this amended and restated Plan, this 15th day of
March, 1988.
CHARLES RIVER LABORATORIES, INC.
By: /s/ John Thomas
SCHEDULE A
CHANGE OF CONTROL DEFINITION
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) there occurs a change of control of a Target of a nature that would
be required to be reported in response to Item 1(a) of the Current Report
on Form 8-K purusant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") or in any other filing under the
Exchange Act; or
(b) any Person becomes the owner of 25% or more of a Target's Common
Stock and thereafter individuals who were not directors of a Target
prior to the date such Person became a 25% owner are elected as directors
pursuant to an arragement or understanding with, or upon the request of
or nomination by, such Person and constitute at least 25% of a Target's
Board of Directors; or
(c) there occurs any solicitation or series of solicitations of
proxies by or on behalf of any Person other than a Target's Board of
Directors and thereafter individuals who were not directors of a
Target prior to the commencement of such solicitation or series of
solicitations are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such Person
and constitute at least 25% of a Target's Board of Directors; or
(d) a Target executes an agreement of acquisition, merger or
consolidation which contemplates that (i) after the effective date
provided for in the agreement, all or substantially all of the business
and/or assets of a Target shall be owned, leased or otherwise
controlled by another corporation or other entity and (ii) individuals
who are directors of a Target when such agreement is executed shall not
constitute a majority of the board of directors of the survivor or
successor company immediately after the effective date provided for in
such agreement; provided, however, for purposes of this paragraph (d)
that if such agreement requires as a condition precedent approval by a
Target's shareholders of the agreement or transaction, a Change of
Control shall not be deemed to have taken place unless and until such
approval is secured (but upon any such approval, a Change of Control
shall be deemed to have occurred on the date of execution of such
agreement).
For purposes of the above definition:
"Common Stock" shall mean the then outstanding Common Stock of a Target
plus, for purposes of determining the stock ownership of any Person, the
number of unissued shares of Common Stock which such Person has the
right to acquire (whether such right is excersisable immediately or only
after the passage of time) upon the exercise of conversion rights,
exchange rights, warrants or options or otherwise. Notwithstanding the
foregoing, the term Common Stock shall not include shares of Preferred
Stock or convertible debt or options or warrants to acquire shares of
Common Stock (including any shares of Common Stock issued or issuable
upon the conversion or exercise thereof) to the extent that the Board
of Directors of a Target shall expressly so determine in any future
transaction or transactions.
A Person shall be deemed to be the "owner" of any Common Stock:
(a) of which such Person would be the "beneficial owner" as such term
is defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission (the "Commission") under the Exchange Act; or
(b) of which such Person would be the "beneficial owner" as such term
is defined under Section 16 of the Exchange Act and the rules of the
Commission promulgated thereunder; or
(c) which such Person or any of its Affiliates or Associates (as such
terms are defined in Rule 12B-2 promulgated by the Commission under the
Exchange Act) has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options or otherwise.
"Person" shall have the meaning used in Section 13(d) of the Exchange
Act.
"Target" shall mean Charles River Laboratories, Inc. or Bausch & Lomb
Incorporated.
Exhibit (10)-u
AGREEMENT
Agreement dated as of January 1, 1997 between Bausch & Lomb
Incorporated, having its address at One Bausch & Lomb Place,
Rochester, New York 14604-2701 (the "Company") and William H.
Waltrip, having his address at 1261 Pequot Avenue, Southport,
Connecticut 06490 ("WHW").
1. The Company and WHW have, pursuant to the 1990 Stock
Incentive Plan, previously entered into an Incentive Stock Option
Agreement dated March 21, 1996, which provides WHW with an
incentive stock option to purchase 2,539 shares of Class B stock
of the Company and a non-qualified Stock Option Agreement dated
March 21,1996, which provides WHW with a non-qualified stock
option to purchase 97,461 shares of the Class B stock of the
Company (collectively, the "Option Agreements").
2. The exercise price for the options (the "Options") granted
pursuant to the Option Agreements is $39.375. This price was the
market value of the stock subject to the Options on January 18,
1996, which was the date on which the Committee on Management of
the Board of Directors granted the Options to WHW.
3. On December 12, 1995, when WHW assumed his responsibilities
as interim Chairman and Chief Executive Officer of the Company,
the market value of the Company's Class B stock was $36.94 per
share.
4. In order to provide WHW with the full benefit of any
appreciation in the value of the Company's stock from the date on
which WHW first assumed his executive responsibilities, the
Company agrees that at such time or from time to time when WHW
exercises all or any part of the Options, provided that the stock
price for such Options is equal to or greater than $39.375 at the
time of each such exercise) the Company will pay WHW $2.43 per
share of stock acquired upon each such exercise. WHW will be
subject to any applicable withholding taxes in connection with
any such payment.
5. The Company hereby confirms that this Agreement has been duly
authorized by the Committee on Management and executed by the
Company on behalf of the Committee.
Bausch & Lomb Incorporated
By: /s/ William H. Waltrip
William H. Waltrip
Exhibit (10)-v
CORPORATE OFFICER SEPARATION PLAN
1.0 Background
1.1 Purpose: The purpose of the Corporate Officer Separation
Plan is to establish an equitable measure of compensation for a
corporate officer of the Company who has been terminated; and
provide some continuation of benefit protection during the period
of outplacement.
1.2 Eligibility: Eligible employees under this Plan are
corporate officers of the Company, other than assistant officers,
whose employment is terminated for reasons other than cause,
voluntary resignation, disability, early or normal retirement, or
death.
2.0 Definitions
2.1 Termination for Cause: A termination of employment status
for fraud, violence, theft, gross misconduct, discrimination,
harassment or actions which create legal liabilities for the
Company or actions of malicious intent which directly compromise
the individual's role/accountabilities.
2.2 Separation Date: The last day of full time active
employment.
2.3 Termination Date: The end of the severance period, will be
the separation date or the last day as a severed employee
receiving benefits, in the event the officer elects to receive
cycle payments.
3.0 Severance Pay
3.1 Maximum Severance Pay Allowance: A corporate officer shall
be entitled to a severance pay allowance equal to twelve (12)
months of the corporate officer's base pay plus an amount equal
to the accrued vacation pay payable to the corporate officer as
of the separation date.
3.2 Method of Payment: The Company shall make payments to the
corporate officer monthly, based upon normal payroll procedures,
or in one lump sum payment at the officer's election.
4.0 Incentive Compensation
4.1 Executive Incentive Compensation and Long Term Incentive
Plans: Participants whose separation date is after June 30 in
any plan year, will receive a pro rata bonus based on the period
of active employment on the date that such bonuses are paid to
all other active eligible employees.
5.0 Stock Incentive Plan
5.1 Pursuant to the Company's Stock Incentive Plans:
- a corporate officer who is terminated will have 90 days
from the termination date in which to exercise vested stock
options. Only options which have vested on or before the
separation date may be exercised.
- on or after the separation date a corporate officer will
not be eligible for Company loans in connection with the exercise
of vested options.
- a corporate officer who is terminated has ownership rights
to restricted stock to the extent it was vested at the separation
date.
6.0 Outplacement Services
The Company will assist the corporate officer in the search for
new employment by paying professional fees for the services of an
outplacement organization or executive search firm and
reimbursement of reasonable travel expenses, not otherwise
reimbursable, incurred in the normal course of a job search.
7.0 Financial Perquisites
7.1 Company Car: Upon separation, the officer's car may be
purchased by the executive at a price to be determined by the
Company based upon the fair market value of the car. If not
purchased, the car must be returned to the Company on the
separation date. The purchase price will be deducted from the
severance payments if the executive has failed to make
arrangements to return or purchase the vehicle on or before the
separation date.
7.2 Club Membership: Eligibility for Company reimbursement or
payment normally made on behalf of certain executives for regular
dues associated with a country, social, luncheon or airline club
membership shall continue until the termination date.
7.3 Financial Counseling Plan: Benefits under the Executive
Financial Counseling Plan shall continue until the termination
date. For partial years, a pro rata allowance will be paid based
on months of severance.
8.0 Benefits/Perquisites
Executive Health, Life Insurance, Retirement Income, and Savings
Plus Plan:
Executive Health, Life Insurance, Retirement Income, and Savings
Plus Plan Benefits shall continue during the period of severance
with benefits, and cease on the termination date.
Benefits under the Disability Plan cease on the separation date.
There are no conversion privileges.
All other benefits made available by the Company to executives
from time to time shall cease as of the separation date.
9.0 Administration of the Plan
9.1 Preparation of Severance Package: Human Resources is
responsible for the preparation of the executive severance
package in accordance with this Plan.
9.2 Other Policies and Plans: This Plan supersedes the officer
separation plan of July 22,1987.
Exhibit (10)-w
BAUSCH & LOMB INCORPORATED
EVA MANAGEMENT INCENTIVE COMPENSATION PLAN
I. Introduction.
The EVA Management Incentive Compensation Plan (the "Plan")
is established to create effective incentives for managers
of Bausch & Lomb Incorporated (the "Company") to increase
shareholder value over the long term. The Plan is also
designed to provide competitive levels of compensation to
enable the Company to attract and retain managers who are
able to exert a significant impact on the value of the
Company for its shareholders.
II. Plan Participants.
Employees of the Company who are in the mid-management band
and above are eligible to participate in the Plan
("Participants").
III. Definitions.
A. "Economic Value Added" ("EVA") means the increase or
decrease in shareholder value of the Company or EVA profit
center, as applicable, determined pursuant to Subsections 1-
5 below.
1. EVA means the NOPAT that remains after subtracting
the Capital Charge, expressed as follows
NOPAT
Less: Capital Charge
Equals: EVA
EVA may be positive or negative.
2. "NOPAT" means Net Operating Profit After Tax,
calculated by adjusting Operating Earnings from an
accounting to an economic basis. Adjustments to Operating
Earnings would include the following applicable items:
Interest Income, Interest Expense on Non-Capitalized Leases,
Goodwill Amortization, Change in Capitalized R&D and
Specifically Defined Marketing Expenses, Restructuring
Charges/Unusual Items, and Taxes.
3. "Capital Charge" means the opportunity cost of
employing Capital in the Company's businesses, calculated as
follows:
Capital Charge = Capital x Cost of Capital
4. "Capital" means the investment made in the operation
of the Company or EVA profit center within the company.
Capital is calculated by adjusting Total Assets by the
following applicable items: Deferred Tax Assets, Non-
Interest-bearing Current Liabilities, Capitalized R&D and
Specifically Defined Marketing Expenses, Present Value of
Non-Capitalized Leases, Accumulated Goodwill Amortization,
Factored Receivables, Restructuring Charges/Unusual Items,
and Strategic Investments.
For each Plan year, Capital will be computed using a 5 point
average of the ending Capital of the prior Plan Year and
each quarter's ending Capital of the Plan Year.
5. "Cost of Capital" means the weighted average of the
cost of equity and the after-tax cost of debt. The Cost of
Capital will be determined by the Committee prior to each
Plan Year.
B. "Actual EVA" means the EVA for the Company as calculated
for the relevant Plan Year.
C. "Actual Profit Center EVA" means the EVA for a profit
center within the Company which is calculated in a manner
similar to the Company's Actual EVA, except that all
relevant terms are defined by reference to the particular
EVA profit center instead of the entire Company. The
Committee will determine the relevant EVA profit centers.
D. "Expected EVA Improvement" means the dollar amount by
which EVA must increase in the next Plan Year over the
Actual EVA achieved in the prior Plan Year in order for
Participants' Target Bonuses to be funded by the Company.
Expected EVA Improvement represents investors' expectations
for the Company's operating performance in the next Plan
Year. Expected EVA Improvement will be approved by the
Committee prior to the commencement of each Plan Year.
E. "Actual EVA Movement" means the dollar amount by which
Actual EVA or Actual Profit Center EVA, respectively, for a
Plan Year is greater than or less than Actual EVA or Actual
Profit Center EVA, as applicable, for the prior Plan Year.
F. "Target Bonus" is defined as a percentage of a
Participant's base salary earned during a Plan Year which
will be funded if the Expected EVA Improvement is achieved.
Percentages for Target Bonuses are established for certain
bands and all officer grades as set forth in Appendix I to
the Plan.
G. "EVA Interval" means the amount of deviation greater
than or less than the Expected EVA Improvement that would
correspondingly result in (i) doubling Participants' Target
Bonuses or (ii) eliminating Participants' Target Bonuses.
The amount of such deviation in Subsection (ii) which
eliminates Participants' Target Bonuses is referred to as
the "Zero Calculated Bonus Interval."
H. "Calculated Bonus" means the bonus amount calculated for
a Participant pursuant to Section V. which is added to or
deducted from the Cumulative Bonus Account pursuant to
Section VI.
I. "Actual Bonus" means the bonus amount which is actually
paid to a Participant pursuant to Section VI.
J. "Cumulative Bonus Account" means the "at risk" account
in which all Calculated Bonuses (positive and negative) are
accumulated over time and from which all Actual Bonuses are
subsequently paid to the extent provided in Section VI.
K. "Plan Year" means each one year period coincident with a
fiscal year of the Company.
L. "Committee" means the Committee on Management of the
Company's Board of Directors.
IV. Performance Measurement.
A. As soon as practicable after each Plan Year, Actual EVA
and Actual Profit Center EVA's, as applicable, will be
determined based on the EVA calculation set forth in Section
I.A., and Calculated Bonuses will be based on the bonus
calculation in Section V. The criteria for determining
Calculated Bonuses for Participants will be as follows:
1. Management Committee members - based 100% on the
Company's Actual EVA Movement.
2. Business unit managers - based on weighted
percentages for the Actual EVA Movement for their EVA profit
center and the Company's Actual EVA Movement as approved by
or under the direction of the Committee.
3. Country managers, controllers and commercial
directors - based on weighted percentages for the Actual EVA
Movement for their EVA profit center and accomplishment of
specific EVA "drivers" as approved by or under the direction
of the Committee.
B. For Participants listed in Subsection A.3. above, EVA
"drivers" will be established at the beginning of each Plan
Year. These EVA "drivers" may be individual, team,
functional or country goals designed to support the Company
and/or relevant business units in realizing Expected EVA
Improvement for that Plan Year.
V. Bonus Calculation.
A. The amount of the Calculated Bonus in any Plan Year is
determined as follows:
1. The Calculated Bonus is equal to the Target Bonus as
adjusted up or down by the Performance Adjustment based on
the amount by which the Company or EVA profit center
realizes an Actual EVA Movement which is greater than or
less than the Expected EVA Improvement.
2. The adjustment of the Target Bonus is based on
Actual EVA Movement and is determined using the following
calculation:
Calculated Bonus = Target Bonus plus
Performance Adjustment
Performance Adjustment = (Actual EVA Movement
Expected EVA Improvement)/divided by the EVA
Interval
3. There is no cap or floor on the amount of the
Calculated Bonus (i.e., the Calculated Bonus may be any
multiple or fraction of the Target Bonus, and it may be less
than zero).
4. For Participants who have EVA "drivers", the
Calculated Bonus will also include a weighted amount for
each such Participant's achievement of the predefined EVA
"drivers". The amount of any Calculated Bonus based on EVA
"drivers" may range from 0 to 200% of that weighted
component for the Target Bonus, depending upon whether
performance met, exceeded or was less than expectations.
B. A Calculated Bonus for an EVA profit center may be
modified as a result of the following:
1. Actual Profit Center EVA may be modified +/- 20% if
such Actual Profit Center EVA does not appropriately reflect
the business unit's contribution (or lack of contribution)
to the achievement of the Company's strategic growth goals.
Adjustments must be made in 5% increments and are subject to
the approval of the Company's chief executive officer.
2. Any Participant's Calculated Bonus may be modified
+/- 20% to accurately reflect the extent to which such
Participant's overall individual performance fulfills the
Company's leadership attributes. Adjustments must be made
in 5% increments and are subject to the approval of the
appropriate Management Committee member, or in the case of
the Company's chief executive officer, the approval of the
Committee.
C. Examples of the computation of the Calculated Bonus are
set forth in Appendix 2.
VI. Cumulative Bonus Account; Actual Bonus Payments.
A. To encourage management's long term commitment to the
enhancement of shareholder value in the Company, Calculated
Bonuses will be credited to the Cumulative Bonus Account
established for each Participant. All negative Calculated
Bonuses will be charged as a debit against the Participant's
Cumulative Bonus Account.
B. Each Participant's Cumulative Bonus Account balance will
initially be zero.
C. Provided that for the relevant Plan Year the Participant
has a sufficient positive Cumulative Bonus Account balance,
Actual Bonuses will be paid from the Cumulative Bonus
Account, as follows:
1. If Actual EVA Movement equals or exceeds Expected
EVA Improvement for a Plan Year, 100% of the Calculated
Bonus will be paid up to the amount of the Participant's
Target Bonus plus an additional 50% of any remaining
positive Cumulative Bonus Account balance.
2. If Actual EVA Movement is less than the Expected EVA
Improvement for a Plan Year, but Actual EVA or Actual Profit
Center EVA is greater than the Zero Calculated Bonus
Interval, 100% of that reduced bonus amount (i.e. less than
Target Bonus) will be paid to the Participant plus (i) any
Cumulative Bonus Account balance up to the Target Bonus and
(ii) an additional 50% of any remaining positive Cumulative
Bonus Account balance.
3. If (i) Actual EVA (or Actual Profit Center EVA, as
applicable) is less than the Zero Calculated Bonus Interval
(as defined in Subsection 1G) and (ii) the Calculated Bonus,
after taking into account any Calculated Bonus attributable
to EVA "drivers", is negative, such negative amount will be
charged as a debit against any positive Cumulative Bonus
Account balance or added to any negative Cumulative Bonus
Account balance.
4. If Actual EVA (or Actual Profit Center EVA, as
applicable) is less than the Zero Calculated Bonus Interval,
but the Calculated Bonus, after taking into account that
part of the Calculated Bonus attributable to EVA "drivers",
is positive, the Actual Bonus will be paid pursuant to
Subsection VI C.2 above.
D. In the event a Participant has a negative Cumulative
Bonus Account balance for the relevant Plan Year, Calculated
Bonuses will be subject to the following:
1. Only 50% of positive Calculated Bonuses up to the
amount of the Target Bonus will be paid as Actual Bonuses,
and the balance of such Calculated Bonuses will be used to
amortize the negative Cumulative Bonus Account balance until
the Cumulative Bonus Account balance is restored to zero.
To the extent Calculated Bonuses are required to be offset
against negative Cumulative Bonus Account balances pursuant
to this Subsection, such Calculated Bonuses will not, at any
time, become payable to a Participant.
2. 100% of negative Calculated Bonuses will be added to
such negative Cumulative Bonus Account balance.
E. Examples of the computation of Actual Bonuses are
included in Appendix 2.
F. Payouts of Actual Bonuses will be made to Participants
as soon as practicable after the end of each Plan Year.
VII. Change in Status During Plan Year
A. New Hires and Promotions
1. A newly hired or recently promoted employee of the
Company who is a Participant in the Plan for at least six
months of his/her first Plan Year will be eligible for an
Actual Bonus which is based on salary paid during the
partial Plan Year after the effective date of hire or
promotion, as the case may be.
2. A newly hired or recently promoted employee of the
Company who is a Participant for less than six months in
his/her initial Plan Year will be eligible for a Calculated
Bonus for a portion of that Plan Year after the effective
date of hire or promotion, as the case may be, only if the
terms of such partial Plan Year bonus are agreed to in
writing between the Participant and the Company at the time
of hire. These arrangements must be approved in writing in
advance by the Business Unit President, Corporate
Compensation, Corporate Senior Vice President Human
Resources, and normal 1 over 1 approval matrix.
B. Transfers.
1. A Participant who is transferred from one EVA profit
center to another EVA profit center during a Plan Year will
transfer with their Cumulative Bonus Account balance,
whether positive or negative.
2. The Calculated Bonus for the Plan Year in which the
transfer occurs will be based on the full year Actual EVA
results of both EVA profit center in which the Participant
worked, pro rated for the number of months of Participant's
service as recognized by payroll reporting in each EVA
profit center.
3. Any positive Cumulative Bonus Account balance
transferred with a Participant will only be paid out as part
of future Actual Bonuses calculated on the basis of the
performance of the Participant's new EVA profit centers.
4. Any negative Cumulative Bonus Account balance
transferred with a Participant will be increased or
decreased pursuant to Section VI D. using future Calculated
Bonuses based on the performance of the Participant's new
EVA profit center.
C. Terminations.
1. A Participant who terminates voluntarily from the
Company during a Plan Year will not be eligible for any
bonus for that Plan Year and will forfeit any positive
Cumulative Bonus Account balance.
2. (a) If a Participant's termination during a Plan
Year is due to retirement with age and service consistent
with post-retirement eligibility in the Bausch & Lomb Post
Retirement Benefits Plan(age 55 and ten years of service)
before having served at least six months "benefits eligible
retirement" as an eligible Participant in that Plan Year,
such Participant will not be eligible for any bonus for that
Plan Year, but any positive Cumulative Bonus Account balance
will be paid to such Participant as soon as
administratively feasible after the effective date of
retirement.
(b) If a Participant's termination during a Plan
Year is due to retirement and the Participant was actively
employed after having served at least six months as an
eligible Participant in that Plan Year, a pro rata
Calculated Bonus and Actual Bonus will be calculated and
paid in accordance with the Plan, and if the retirement was
a benefits eligible retirement, any remaining positive
Cumulative Bonus Account balance of such Participant will
thereafter also be paid in full to Participant. If a
benefits eligible retirement under this subsection 2(b)
occurs prior to or concurrent with the annual EVA payment
cycle, then payment of any Cumulative Bonus Account balance
will be paid at the next payment cycle.
3. In cases of involuntary termination due to death,
disability, reduction in work force, or the sale or closing
of a plant or business unit before completion by the
Participant of at least six months service as an eligible
Participant during the Plan Year, such Participant will not
be eligible for any bonus for that Plan Year, but any
positive Cumulative Bonus Account balance will be paid to
Participant after the Plan Year in which such termination of
the Participant occurred. In cases of involuntary
termination due to death, disability, reduction in work
force, or the sale or closing of a plant or business unit
after completion by the Participant of at least six months
service as an eligible Participant during the Plan Year , a
pro rata Calculated Bonus and Actual Bonus will be
calculated and paid in accordance with the Plan, and any
remaining positive Cumulative Bonus Account balance of
Participant will thereafter also be paid in full to
Participant after the Plan Year during which such
termination occurred.
4. A Participant who is terminated during a Plan Year
involuntarily for any other reason will not be eligible for
any bonus for the Plan Year in which termination occurs and
will forfeit any positive Cumulative Bonus Account balance.
D. Leave of Absence.
An employee whose status as an active employee is changed
during a Plan Year as a result of a leave of absence may, at
the discretion of the Committee, be eligible for a pro rata
bonus determined in the same way as in Subsection VII A.
E. Demotions
1. An employee who is transferred into a non-eligible
group of employees after having served six months during the
Plan Year shall be paid a pro-rata Calculated Bonus and
Actual Bonus determined in the same manner as in Subsection
VII A. Any remaining positive Cumulative Bonus Account
balance shall remain unpaid unless and until such time as
the employee again becomes eligible for the Plan,
notwithstanding provisions herein providing for payment of
Cumulative Bonus Account balances upon death, disability or
retirement.
2. An employee who is transferred into a non-eligible
group of employees prior to having served six months during
the Plan Year in an EVA eligible group of employees shall
not be entitled to a Calculated Bonus and Actual Bonus.
Any remaining positive Cumulative Bonus Account balance
shall remain unpaid unless and until such time as the
employee again becomes eligible for the Plan,
notwithstanding provisions herein providing for payment of
Cumulative Bonus Account balances upon death, disability or
retirement.
F. Change of Control.
Notwithstanding any other provision of this Plan, a special
incentive bonus shall be paid to Participants if, during the
period between the date of a change in control and the end
of the Plan Year:
1. the Participant's employment is terminated
involuntarily other than for good cause, or
2. the Plan is terminated.
The amount of the special incentive bonus shall equal (i)
the greater of (a) the Target Bonus without regard to any
other calculations under the Plan, prorated through the date
of termination of the Participant or the Plan, as
applicable, or (b) the Actual Bonus which would be payable
to the Participant based on results for the full Plan Year,
prorated through the date of termination of the Participant
or the Plan, as applicable, and (ii) any positive Cumulative
Bonus Account balance.
A change of control of the Company is defined as follows:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to
vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however,
that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise
of a conversion privilege unless the security being so
converted was itself acquired directly from the Company),
(ii) any acquisition by the Company, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of
subsection (c) of this Section are satisfied; or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger, binding share exchange or
consolidation, in each case, unless, following such
reorganization, merger, binding share exchange or
consolidation, (i) more than 60% of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such reorganization, merger, binding share
exchange or consolidation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger,
binding share exchange or consolidation in substantially the
same proportions as their ownership, immediately prior to
such reorganization, merger, binding share exchange or
consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger, binding share
exchange or consolidation and any Person beneficially
owning, immediately prior to such reorganization, merger,
binding share exchange or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common
Stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger,
binding share exchange or consolidation or the combined
voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election
of directors and (iii) at least a majority of the members of
the board of directors of the corporation resulting from
such reorganization, merger, binding share exchange or
consolidation were members of the Incumbent Board at the
time of the execution of the initial agreement providing for
such reorganization, merger, binding share exchange or
consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii)
the sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with
respect to which following such sale or other disposition,
(A) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and
(C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement
or action of the Board providing for such sale or other
disposition of assets of the Company.
VIII. Miscellaneous.
A. Amendments. The Committee shall have the right to
modify or amend this Plan from time to time, or suspend it
or terminate it entirely; provided that no such
modification, amendment, suspension, or termination may,
without the consent of any affected Participants (or
beneficiaries of such Participants in the event of death),
reduce the rights of any such Participants (or
beneficiaries, as applicable) to a payment or distribution
already payable under Plan terms in effect prior to such
change.
B. Role of the Committee. (i) Interpretation of the Plan.
Any decision of the Committee with respect to any issue
concerning individuals selected as Participants, the amount,
terms, form and time of payment of bonuses, and
interpretation of any Plan guideline, definition, term or
requirement shall be final and binding.
(ii) Appointment of the EVA Administrator. The
Committee may designate, from time to time, an EVA
Administrator to control and manage the operation and
administration of the Plan. Any person, including a
director, officer or an employee of the Employer is eligible
for appointment as EVA Administrator. Such members shall
serve at the pleasure of the Committee. Vacancies arising
by resignation death, removal or otherwise, shall be filled
by the Committee but shall not prevent the EVA Administrator
from functioning. The EVA Administrator shall administer
the Plan in accordance with its terms and shall have all
powers necessary to carry out the provisions of the Plan,
except such powers as are specifically reserved to the
Committee or some other person. The EVA Administrator's
powers include the power to make and publish such rules and
regulations as it may deem necessary to carry out the
provisions of the Plan.
C. Right to Continued Employment; Additional Awards.
Participation in the Plan or the receipt of a bonus under
the Plan shall not give the recipient any right to continued
employment (such employment shall be "at will"), and the
right and power to dismiss any employee is specifically
reserved to the Company. In addition, the receipt of a
bonus with respect to any Plan Year shall not entitle the
recipient to any bonus with respect to any subsequent Plan
Year, except as expressly provided in the Plan.
D. Withholding Taxes. The Company shall have the right to
deduct from all payments under this Plan any Federal or
state taxes required by law to be withheld with respect to
such payments.
E. Deferred Compensation. Participants may elect to defer
all or part of an Actual Bonus in accordance with the
procedures set forth in the Company's Executive Deferred
Compensation Plan.
F. Interaction with Management Incentive Compensation Plan.
Amounts payable under this Plan shall be offset against
amounts actually paid to a Participant under the Bausch &
Lomb Incorporated Management Incentive Compensation Plan,
dated as of January 1, 1998.
G. Governing Law. This Plan shall be construed in
accordance with and governed by the laws of the State of New
York.
BAUSCH & LOMB INCORPORATED
By: /s/ Daryl M. Dickson
Daryl M. Dickson
Senior Vice President
Human Resources
Dated: February 24, 1998
APPENDIX LIST
Appendix 1 - EVA TARGET BONUS TABLE
Appendix 2 Sample EVA Calculated Bonus and
Actual Bonus
APPENDIX 1
EVA TARGET BONUS TABLE
BAND/GRADE TARGET PERCENTAGE
Non-Officers
MM/T 15%
EXEC 30%
SR. EXEC 35%
Officers
65 37%
66 40%
67 45%
68 50%
69 55%
70 55%
71 55%
72 55%
73 60%
74 80%
75 80%
APPENDIX 2
Base Pay: $100,000
Target Bonus: 10%, $10,000
Expected EVA Improvement: $5.0MM
EVA Interval: $15.0MM
Actual EVA Movement: $10MM
Calculated Bonus = $10,000 x [1+(Actual EVA Move. - Expected
EVA Improve.)]
---------------------------
EVA Interval
= $10,000 x [ 1+ $10MM-$5MM ]
-------------
15MM
= $10,000 x [1 + .33]
= $10,000 x 1.33
= $13,333
BONUS PAYOUT
Bonus Payout. Cumulative Bonus Account (CBA)
Pay to Target = $10,000
Plus 50% of CBA = $1, 667
Total Payout = $11,667
CBA 50% Above Target = $1,667
Year Two Payout
Calculated Bonus = $12,000
Plus $1,667 In CBA = $13,667
Pay to Target = $10,000
Remaining CBA = $3,667
Pay 50% of CBA = $1,833
Total Payout = $11,833
CBA 50% = $1,833
BONUS PAYOUT EXAMPLE
Year Three Payout. Calculated Bonus Below Target
Calculated bonus = $8,000
Plus $1,833 in CBA = $9,833
Attempt to Pay to target = $9,833
Remaining CBA balance = $0
Year Four. Performance Below Zero Calculated EVA Interval
Actual EVA Movement = ($11MM)
Calculated bonus = $10,000 x [1+ ($11MM) - $5MM ]
--------------
$15MM
= $10,000 x [ 1 + -$16MM ]
---------
$15MM
= $10,000 x [ 1 - 1.07]
= $10,000 x [ -.07]
Cumulative Bonus Account Balance = -$700
<TABLE>
Bausch & Lomb Incorporated
Exhibit 11
<CAPTION>
Statement Regarding Computation of Per Share Earnings
(Share Amounts in Thousands Except Per Share Data)
TWELVE MONTHS ENDED
December 27, December 28,
1997 1996
_______________________________________________________________
<S> <C> <C>
Net earnings (in millions) (a) $ 49.4 $ 83.1
Actual outstanding Common
and Class B shares at
beginning of period 55,404 56,941
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 (21) (642)
Weighted Basic Shares (b) 55,383 56,299
Effect of assumed exercise
of Common stock equivalent 271 211
Weighted diluted Shares (c) 55,654 56,510
Basic earnings per
share (a/b) 0.89 1.48
Diluted earnings per
share (a/c) 0.89 1.47
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
Exhibit 12
<CAPTION>
Statement Regarding Computation of
Ratio of Earnings to Fixed Charges
(Dollar Amounts in Millions)
December 27, December 28,
1997 1996
____________________________________________________________
<S> <C> <C>
Earnings before provision
of income taxes and
minority interests $118.0 $168.9
Fixed charges 57.9 53.5
Capitalized interest,
net of current period
amortization 0.3 0.3
------ ------
Total earnings as adjusted $176.2 $222.7
------ ------
------ ------
Fixed charges:
Interest (including
interest expense and
capitalized interest) $ 56.1 $ 51.7
Portion of rents
representative of
the interest factor 1.8 1.8
------ ------
Total fixed charges $ 57.9 $ 53.5
------ ------
------ ------
Ratio of earnings to
fixed charges 3.04<F2> 4.16<F1>
<FN>
<F1> Excluding the effects of the restructuring charge
recorded in 1996 and the net gain on divestitures of the
oral care and dental implant businesses, the ratio of
earnings to fixed charges at December 28, 1996 would have
been 4.47.
<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>
[front cover]
BAUSCH
& LOMB
[graphic of an eye, background pattern of the earth]
Number One
in the
Eyes
of the
World
1997 Annual Report
<PAGE>
[inside front cover]
Bausch & Lomb
At A Glance
As a global eye care company, Bausch & Lomb will help consumers see,
look and feel better through innovative technology and design.
[background graphic of pie chart]
47%
Vision Care
[photo of Bausch & Lomb vision care products]
This segment includes contact lenses and lens care products. Brand names include
ReNu, ReNu MultiPlus, Sensitive Eyes, SofLens66 and Boston. Vision care products
are marketed through eye care professionals, pharmaceutical retailers and mass
merchandisers.
26%
Eyewear
[photo of Ray-Ban ad with characters from movie "Men in Black"]
Our eyewear segment includes premium-priced sunglasses sold worldwide under such
well-known names as Ray-Ban, Revo, Killer Loop, Arnette and Porsche Design.
10%
Pharmaceuticals
[photo of Bausch & Lomb products]
This business manufactures and sells generic and proprietary prescription
pharmaceuticals, mostly in the ophthalmic field, and over-the-counter (OTC)
medications. These products are marketed under the names Bausch & Lomb and Dr.
Mann Pharma.
17%
Healthcare
[photo of Charles River Laboratories products]
Included in this segment are businesses which provide purpose-bred laboratory
animals, biomedical products and services, skin care products and hearing aids.
These products are marketed under such established names as Miracle-Ear, Mirage,
Curel, Soft Sense and Charles River Laboratories.
Recent Acquisitions
[photo of various acquisition company products]
The acquisitions of Chiron Vision Corporation (Chiron Vision) and Storz
Instrument Company (Storz) will provide Bausch & Lomb with a strong leadership
position in ophthalmic surgery with products in cataract, refractive and retinal
surgery.
<PAGE>
Financial
Highlights
<TABLE>
<CAPTION>
For The Years Ended
December 30, 1995, December 28, 1996 Percentage
and December 27, 1997 Dollar Amounts Change
In Millions -- Except Per Share Data 1995 1996 1997 From 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Business Results
Net sales $1,932.9 $1,926.8 $1,915.7 (1%)
Operating earnings 210.6 190.8 148.0 (22%)
Net earnings 112.0 83.1 49.4 (41%)
Per share:
Basic earnings 1.94 1.48 0.89 (40%)
Diluted earnings 1.93 1.47 0.89 (39%)
Dividends declared 1.01 1.04 1.04 --
Shareholders' equity at year end 16.32 15.92 14.82 (7%)
Capital expenditures 95.5 130.3 126.1
Working capital 70.9 18.5 202.9
Average Common shares outstanding (000s):
Basic 57,704 56,299 55,383
Diluted 57,974 56,510 55,654
Return on average shareholders' equity 11.9% 9.2% 5.9%
High/low stock price $44-1/2 - $30-7/8 $44-1/2 - $32-1/2 $47-7/8 - $32-1/2
=====================================================================
</TABLE>
Contents
Letter to Shareholders 2
Strategic Discussion 8
Report of Management 25
Financial Review 26
Financial Statements 38
Notes to Financial Statements 41
Report of Independent Accountants 62
Selected Financial Data 63
Divisions and Subsidiaries 64
Directors and Officers 66
<PAGE>
To Our
Shareholders
We are pleased with the progress we made during 1997 in transforming Bausch &
Lomb from a diversified healthcare and optics company to one focused squarely on
global eye care. While changing market conditions and volatile foreign
currencies had a negative effect on our financial results, the company's overall
performance was reassuringly in line with the strategies we have put in place.
Achieving our vision to be "Number One in the Eyes of the World" requires that
we continue the momentum that we gained during 1997. We will continue to
rationalize our business portfolio and pursue new opportunities for strategic
growth. We will improve the value of our core businesses while managing non-core
businesses for the best possible investor return. And we will continue to
extract savings from our restructuring programs -- savings that will be
redirected to revenue-building activities and increasing investor returns.
New growth opportunities. A rationalized portfolio.
Beyond improving financial performance, 1997 was also a year in which we made
strategic acquisitions to set the stage for accelerated growth in the future.
Our acquisitions of Chiron Vision Corporation and Storz Instrument Company
strengthen the Bausch & Lomb portfolio and clearly establish the company as the
leader in global eye care. Together, these companies create a world-class
competitor in the cataract surgery market, augment our pharmaceutical business,
provide a platform on which to build a retinal surgery business and position us
as a front-runner in refractive surgery. The integration of these businesses is
well along and should yield significant financial benefits to investors after
1998.
Acquisitions like these leverage our core capabilities -- such as marketing
regulated products to eyecare professionals -- and build greater shareholder
value. Likewise, we are mindful of the need to derive maximum value from
non-core enterprises. To that end, the thin film technology business was sold in
1997, and we will continue to rationalize our portfolio in the future. While the
businesses in our healthcare segment performed well and enhanced the financial
performance of the company during 1997, we continue to closely evaluate their
long-term value.
Strengthening the core.
The key strategies for our vision care business are to leverage the strength of
our comprehensive product line and the globally recognized Bausch & Lomb name,
[2]
<PAGE>
[various photos of William M. Carpenter and William H. Waltrip]
Our acquisitions of Chiron Vision
and Storz clearly establish
the company as the leader in global eye care.
[3]
<PAGE>
protect our market leadership by continuously introducing innovative new
products and continue to aggressively lower production costs. This is a business
that has successfully risen to each competitive challenge. We expect to see
equally solid performance in 1998.
Our pharmaceutical business is focused on accelerating its growth by introducing
new proprietary ophthalmic products, maintaining a steady pipeline of generic
products that take advantage of its manufacturing strengths and regulatory
capabilities and expanding into new markets throughout the world.
Having built a solid foundation, this business should continue to show strong
growth.
Our eyewear business, which remained a drag on revenue and earnings growth, was
the subject of intense management attention in 1997, and our efforts appear to
be paying off. On a global basis, we have concentrated on strengthening the
leadership position of the Ray-Ban line through new designs, merchandising and
marketing programs, while also expanding our other brands to new markets.
However, our highest priorities continue to be in the areas of cost reduction,
margin improvement and expediting product delivery. Dramatic improvements in
these areas in 1997 will yield benefits this year. We expect the eyewear
business to return to profitability in 1998, and are committed to steadily
improve margins over the subsequent years.
Bausch & Lomb now has the broadest portfolio of eye care
products, for both the professional and consumer markets, of any
company in the world.
Restructuring for success.
Over the past two years, Bausch & Lomb announced restructuring programs designed
to save a total of $150 million in annual operating costs. Some of that is
earmarked to improve operating margins, while the remainder is to be reinvested
in growth opportunities.
In order to achieve our strategic initiatives over the next three years, it is
critical that we remain on track in delivering these savings. Beyond cost
reduction, these restructuring activities are also geared to improving our
global competitiveness. For example, we consolidated 13 warehouses in various
European countries into a single distribution center in Amsterdam. While
significantly reducing cost, this initiative was designed to improve customer
service, reduce inventory and simplify our delivery system in Europe.
On a broader scale and with longer term implications, we are transforming our
global financial systems. The establishment of three regional shared-service
centers -- in the United States, Europe and Asia -- will streamline, simplify
and
[4]
<PAGE>
Our objective is to ensure our
people recognize that transforming
a business is an ongoing process.
automate transaction processing while eliminating many unnecessary steps. While
saving $30 million a year, once implemented, this financial reengineering
project will also provide a centralized data warehouse which will be utilized to
enhance the quality and efficiency of our business analysis.
But these are specific programs with specific targets. Our objective is to
ensure our people recognize that transforming a business is an ongoing process,
especially in rapidly changing markets like ours. Through our work on Economic
Value Added (EVA) and the commitment to generate profits over and above the cost
of capital, we recognize that continuous improvement and cost reduction
initiatives need to be embedded in the way we evaluate ourselves and build our
operations.
Looking ahead.
Bausch & Lomb now has the broadest portfolio of eye care products, for both the
professional and consumer markets, of any company in the world. Our global
businesses have strategies in place that are designed to generate accelerated
performance in sales and earnings, and we are firmly on track to meet the $150
million in annual cost savings we have announced over the past two years. We are
committed to making sure the trends keep moving in the right direction. Through
our focus on EVA as a key measure of our performance, we can ensure the way we
manage the business is in the best interest of maximizing investor returns.
Overall, these achievements would not have been possible without the diligent
efforts of the men and women of Bausch & Lomb around the world, and the
continued support of our investors. As we approach the millennium, we are
clearly positioned to grow into the company we know we can be.
/s/ William H. Waltrip /s/ William M. Carpenter
William H. Waltrip William M. Carpenter
Chairman President and Chief Executive Officer
[5]
<PAGE>
[Graphic: technical illustration of imaging the earth on the retna of the eye]
Number One
in the
Eyes of
the
World
<PAGE>
Bausch & Lomb is a world leader in products that go in or on the eye. The
company is building on that position by expanding its current eye care
businesses, and pursuing promising new opportunities in eye care, such as the
recent acquisitions of Chiron Vision and Storz.
[7]
<PAGE>
Vision
Care
[Photos: Various people with contact lenses and a contact lens product
display.]
"We continue to gain market share through technological
leadership, innovative new products and exceptional brand
equity."
Carl E. Sassano
Executive Vice President
and President - Vision Care
Accomplishments
Launched: ReNu Multiplus solution is the world's first single-bottle lens care
solution that cleans, disinfects and removes protein buildup, thus eliminating
the need for a separate enzymatic cleaner for many consumers.
Launched: The new Boston MultiVision rigid gas permeable contact lens corrects
presbyopia, a sight-compromising condition in the growing population of
middle-aged people.
Expanded: Revenues grew by more than 40% in China, the world's fastest growing
vision care market. Disposable contact lens shipments in Japan nearly doubled.
Expanded: Production capacity for daily disposable lenses more than tripled.
Reduced: Over $15 million in annualized cost savings were achieved through
investment in new manufacturing processes.
Outlook
The continued growth of Bausch & Lomb's vision care segment depends heavily upon
technological leadership and innovative new products. To that end, during 1998,
we plan to launch our new SofLens66 toric cast-mold disposable contact lens for
people with astigmatism. This lens will have a significant production cost and
technology advantage in a potentially vast market. In addition, the U.S. launch
of SofLens one day disposable lenses will be an important step in Bausch &
Lomb's expansion in the growing single-use market. Finally, PureVision, a
breakthrough continuous wear lens, has entered clinical trials and will be
launched on a limited test basis in Europe. These new products, combined with
our existing products, will enhance the broadest portfolio of contact lenses in
the industry, and will provide a choice for wearers across all lens-wearing
modalities.
Vision care revenues are expected to grow by low double digits in 1998,
outpacing global market growth. ReNu MultiPlus solution will be available in
most markets, and approval for ReNu multi-purpose solution in Japan is
anticipated late in 1998.
[8]
<PAGE>
Our new SofLens66 toric lens, for people with astigmatism, will
have a significant production cost and technology advantage in a
potentially vast market.
ReNu MultiPlus solution sets a new standard, thereby ensuring the continued
market leadership of Bausch & Lomb.
PureVision, a breakthrough continuous wear lens, has entered
clinical trials.
Operations Review
Bausch & Lomb's vision care business is clearly on track and is expected to
demonstrate strengthened performance as we continue to focus on four key
strategies: differentiate Bausch & Lomb by continuing to develop innovative,
technology-based new products, build on brand equity through increased consumer
advertising, reduce production costs and leverage our full product line to
maximize our share of the lens wearing population.
Bausch & Lomb's global leadership in vision care was strengthened in 1997 by
important, new product introductions and vigorous expansion in high-growth
markets. Total sales increased by 8% in constant dollars and sales of disposable
lenses grew by more than 15% for the second year in a row.
Leading the company's new product introductions was ReNu MultiPlus solution, a
patented soft contact lens cleaning solution that removes protein buildup with
every use and eliminates the need for separate enzymatic cleaners for many
consumers. Launched in both the United States and Europe in the fall of 1997, it
is the first major breakthrough in soft lens care in a decade. ReNu MultiPlus
solution sets a new standard, thereby ensuring the continued market leadership
of Bausch & Lomb.
Breakthrough products and aggressive growth strategies.
To meet the rapidly growing demand for daily disposable lenses, in 1997 we more
than tripled capacity for SofLens one day lenses at our manufacturing facility
in Scotland. Capacity will be more than doubled again in 1998. Our single-use
business doubled in Europe in 1997, and a U.S. introduction is planned for
mid-1998. We intend to establish a strong presence in this rapidly growing
segment.
The company's leadership in China's emerging vision care market continued to
rise in 1997, with more than 40% growth in revenues, and comparable growth is
expected for 1998. In Japan, shipments of Bausch & Lomb disposable contact
lenses nearly doubled in 1997, and we gained the leadership position in the
two-week disposable category.
[9]
<PAGE>
[Photo: Bausch & Lomb products: SofLens, Medalist,
Boston Advance, Renu MultiPlus]
Bausch & Lomb's family of contact lenses provides
the company with the broadest product portfolio
and provides a choice for lens wearers across all
modalities.
Image adjusted for grindoff.
The Boston line of rigid gas permeable lens and
lens care products is the solid market share
leader around the world.
[10]
<PAGE>
Leverage our full product line.
Segment
Revenues
($ in millions)
[Bar charts]
1994 750
1995 814
1996 869
1997 909
Soft Contact Lens
Weighted Average Unit
Cost Index
1995 1.00
1996 .90
1997 .66
1998 (est.) .59
[End bar charts]
[11]
<PAGE>
Eyewear
[Photos: Various people wearing sunglasses]
"We will return the eyewear business to
profitability by successfully implementing major
cost reduction programs. We will achieve longer
term growth through reallocating structural cost
to building consumer demand."
Dwain L. Hahs
Executive Vice President and
President - Eyewear
Accomplishments
Revitalized: Sunglass sales in Europe turned the corner, growing 7% in constant
dollars for the year, stimulated by new products, new merchandising and a major
pan-European advertising campaign for Ray-Ban sunglasses.
Accelerated: Market delivery of all sunglass products improved dramatically in
1997, with back orders down more than 50% during the peak season. The new styles
for 1998 were launched five months earlier than ever before, allowing better
market penetration and production planning.
Acquired: Obtained worldwide rights to the Killer Loop eyewear business, and
increased international sales by approximately 50%.
Launched: Porsche Design sunglasses were introduced to high-end European
retailers in record time. Worldwide marketing will follow in 1998.
Outlook
While certain markets for sunglasses, including Asia-Pacific, are likely to
remain volatile in 1998, we are planning for moderate growth in sales for the
eyewear business. Growth will be driven by focused marketing and advertising
spending behind our flagship brand, Ray-Ban, funded by reallocation of overhead
costs, and continued global expansion of our allied brands.
Aggressive cost reductions realized through our global product delivery strategy
are expected to contribute to a return to profitability in 1998. As importantly,
we fully expect to have visibility this year to further significant improvements
in profitability for 1999, building ultimately to our 15% operating margin
target - objectives we believe must be met to ensure this business provides
added value to Bausch & Lomb investors over the longer term.
[12]
<PAGE>
The global product delivery strategy is
transforming Bausch & Lomb's manufacturing process
from five focused plants to three fully-integrated
product delivery centers that operate on a "build
to order" system.
The earlier introduction of our
1998 line allows us to participate
in the peak sunglass season in
the Mediterranean and Southern
Hemisphere markets with the
freshest styles.
Operations Review
During 1997, Bausch & Lomb's sunglass business, this segment's largest product
line, continued to face significant challenges. Competitive pressures, combined
with a slowdown in market growth in the U.S. and certain markets in Asia,
contributed to a constant dollar sales decline of 3% for the ongoing eyewear
segment. At the same time, significant progress was made on several fronts
during 1997- toward improving Bausch & Lomb's cost structure and setting the
stage for future sales and earnings growth.
Implementation of the global product delivery strategy continued on schedule.
This strategy is transforming Bausch & Lomb's manufacturing process from five
focused plants to three fully-integrated product delivery centers, that operate
on a "build to order" system. The final plant closing is scheduled to be
completed by mid-1998. The strategy will yield significant reductions in cost,
reduce our inventory requirements and improve our responsiveness to changes in
demand.
We've seen early signs of the success of our new global advertising campaign,
launched in our lead region, Europe, during 1997. Constant dollar sales growth
in that region reached 7% for the year.
New products continued to be a strong focus within all of our sunglass lines. In
1997, styles and designs introduced since the beginning of 1996 represented more
than half of Ray-Ban sunglass sales, and more than two-thirds of all other
sunglass brands.
More new products. Faster to market. Global marketing programs.
New styles for 1998 were introduced to the trade in September 1997, a full five
months ahead of any previous year. This was followed by strong orders for these
products from the trade in the fourth quarter and early indications of consumer
acceptance. The earlier introduction allows us to participate in the peak
sunglass season in the Mediterranean and Southern Hemisphere markets with the
freshest styles. Importantly, it also gives us feedback on which styles will be
this year's best sellers well before the sunglass season in the Northern
Hemisphere begins, and allows time to adjust our production planning.
[13]
<PAGE>
[Photos: different pairs of sunglasses]
Killer Loop sunglasses' outrageous, witty and
often irreverent imagery has proven popular among
young, trendy consumers.
Porsche Design sunglasses, "precision engineering
for the eyes," fill a gap in the Bausch & Lomb
portfolio for high-end sunglasses for consumers
over age 30.
[14]
<PAGE>
[Photos: different pairs of sunglasses]
Transforming product supply processes.
Sunglass Manufacturing
Overhead Cost Index
[Bar chart]
1994 1.00
1995 .92
1996 .91
1997 .71
1998 (est.) .55
[End bar charts]
The Arnette line of
high-performance,
extreme sport sunglasses
appeals to young,
fashion-forward consumers.
[15]
<PAGE>
Pharmaceuticals
Pharmaceuticals/Surgical
"New proprietary products such as Lotemax eyedrops
will drive major sales and earnings growth."
Thomas M. Riedhammer, Ph.D.
Senior Vice President and
President--Worldwide Pharmaceuticals
Accomplishments
Advanced: During 1997, Lotemax, the most promising new ophthalmic steroid
product in years, received Food and Drug Administration (FDA) "approvable"
status. In addition, a New Drug Application was filed with the FDA for Alrex
drops for allergic conjunctivitis, the second product in the Lotemax line. Both
products received FDA approval in first quarter 1998 and will be launched during
second quarter 1998.
Launched: A generic equivalent of Polytrim
ophthalmic anti-infective was launched in the U.S.
with extraordinary success, immediately earning a
95% share of the generic market and a 70%
substitution rate.
Launched: Liposic, Bausch & Lomb's new gel product
for dry eyes, was launched in Germany,
strengthening our number-one position for dry eye
products in that country.
Launched: Bausch & Lomb Computer Eye Drops were
launched in the fourth quarter of 1997. Aggressive
goals to gain distribution in large volume
accounts were reached a full month ahead of
schedule.
Revitalized: Bausch & Lomb's entire general eye
care line was repackaged to leverage the Bausch &
Lomb name. Strong double-digit growth is expected
for 1998.
Outlook
Pharmaceuticals segment sales are expected to accelerate in 1998, and earnings
are expected to increase in line with sales. The introduction of Lotemax and
Alrex anti-inflammatory eyedrops will mark an important step in Bausch & Lomb's
strategic shift toward proprietary ophthalmics. Outside the U.S., ophthalmics
growth will be driven by new product line introductions in Germany, including
Liposic and other Dr. Mann Pharma gel products, plus registration of various
Bausch & Lomb products in other European countries, Asia and Latin America. At
the end of 1997, Bausch & Lomb had 316 registrations pending in 56 countries.
[16]
<PAGE>
[Photo: Packages of Bauch & Lomb product]
Bausch & Lomb's general eye care line was
relaunched in 1997 by asking consumers to See How
It Feels.
Operations Review
Bausch & Lomb's pharmaceuticals segment sales improved 7% in constant dollars
over 1996. In the U.S., sales increased 17% driven largely by expanded
distribution of existing generic products and the highly successful launch of a
generic equivalent of Polytrim ophthalmic anti-infective. General eye care sales
benefitted from continued strong gains for Opcon-A allergy drops which was up
24% over 1996. Also benefitting 1997 was the fourth-quarter launch of Bausch &
Lomb Computer Eye Drops and increased retail distribution behind the relaunch of
the entire general eye care line.
Our intent to capture a greater share of the proprietary ophthalmic
pharmaceutical market was advanced considerably in 1997 with an "approvable
letter" from the FDA for Lotemax, a promising new ophthalmic anti-inflammatory.
Investing in proprietary ophthalmics.
Opening new markets for generics.
Developed in partnership with Pharmos Corporation, Lotemax and a companion
product, Alrex, are planned for a 1998 U.S. launch. Together, they should earn
Bausch & Lomb between 10% and 20% of the steroid segment.
In the company's Dr. Mann Pharma subsidiary in Germany, the prescription and OTC
businesses were adversely affected by a slow economy, currency fluctuations and
mandatory government price reductions. Nevertheless, prescription pharmaceutical
sales in Germany were up 10% in constant dollars over the previous year.
Both customers and consumers around the world
trust the Bausch & Lomb and Dr. Mann Pharma names
as sources for high-quality eye care.
[Large photo of Bausch & Lomb Computer Eye Drops]
[17]
<PAGE>
Surgical
Pharmaceuticals/Surgical
"Together, these companies
create a world-class
competitor in ophthalmic surgery."
William M. Carpenter
President and Chief Executive Officer
[Photos: Bausch & Lomb Building, Hakan S. Edstrom and Robert H. Blankemeyer]
Hakan S. Edstrom
Vice President and
President - Bausch & Lomb Surgical (left)
Robert H. Blankemeyer
Vice President and
Chief Operating Officer -
Bausch & Lomb Surgical
Acquisitions Create The World's Largest Eye Care Company
In December 1997, Bausch & Lomb became the world's largest competitor in the
$25 billion global eye care market with the acquisition of Chiron Vision
Corporation, the ophthalmic unit of Chiron Corporation, and Storz Instrument
Company, a subsidiary of American Home Products Corporation. The combined
acquisition cost of $680 million represents Bausch & Lomb's largest investment
ever, further reinforcing our commitment to the ophthalmology market,
particularly surgical ophthalmology.
Chiron Vision, which reported revenues (unaudited) of $213 million in 1997, is a
global leader in innovative products for cataract and refractive surgery. Storz,
which had revenues (unaudited) of $206 million in 1997, is also a leading
international producer of equipment and devices for ophthalmic surgery and
markets ophthalmic pharmaceuticals.
[Photo: the Storz Millennium Microsurgical System]
Meeting the demands of today's ophthalmic surgical
environment through the latest technological
innovations with a heritage of reliability and an
eye on the future...the Storz Millennium
Microsurgical System.
[18]
<PAGE>
Together, Chiron Vision and Storz give Bausch & Lomb a commanding presence in
the financially attractive cataract surgery market by bringing together two
highly complementary product lines. They solidify Bausch & Lomb's position as
the leader in in-eye vision correction by establishing a strong position in the
rapidly growing refractive surgery market. They also establish a platform for
participating in the next frontier of ophthalmic research - the treatment of
retinal disease. These acquisitions also enhance our existing ophthalmic
pharmaceuticals business with an expanded product portfolio and access to a
pipeline of additional new proprietary compounds. Through the integration of
Storz and Chiron Vision, Bausch & Lomb will have greater access to the
ophthalmic surgeon, an important professional customer for products currently in
Bausch & Lomb's portfolio and research pipeline.
Bausch & Lomb anticipates that these acquisitions will begin to add
substantially to the company's financial performance in 1999, as we realize the
benefit of significant cost saving synergies through integrating the businesses.
We expect that 1998 will be a transition year, in which the costs necessary to
generate longer term savings will offset the operating earnings from the new
surgical business.
By bringing together these two strong eye care companies with Bausch & Lomb, we
create an eye care company with an unsurpassed array of offerings for both the
consumer and the eye care professional.
[Large photo of eye drop container]
[Photo: surgical instruments]
Storz offers almost two centuries of experience in
producing fine surgical instrumentation.
[Photo: Storz line of pharmaceutical products]
Storz' line of pharmaceutical products will
augment Bausch & Lomb's existing portfolio.
[Photo: Hansatome microkeratomes (a surgical tool)]
Chiron Vision, with its technologically advanced
Hansatome, is the clear leader in the development
of microkeratomes used in the most common surgical
method for vision correction.
[19]
<PAGE>
Healthcare
"Bausch & Lomb's healthcare businesses showed strong
growth in revenues and earnings in 1997."
William M. Carpenter
President and Chief Executive Officer
Accomplishments
Increased: Charles River Laboratories increased constant-dollar sales by 13%.
Biotechnology sales rose sharply by 38%.
Increased: For the first time since acquisition, the Miracle-Ear hearing aid
business was profitable, and revenues grew more than 20% for the year.
Increased: Skin care revenues improved by 7% over 1996 with continued strong
growth for Curel hand and body lotion, one of the fastest growing brands in the
category.
Outlook
The businesses within Bausch & Lomb's healthcare segment will continue to be
managed to maximize investor value. We will continue to evaluate their longer
term value. Overall, segment revenues are expected to grow on par with 1997.
Charles River's contract research business is expected to achieve double-digit
growth in 1998, as the pharmaceutical industry continues to explore ways to
reduce the time required to get new products to market.
Miracle-Ear is expected to benefit from improved cost structure, increased
retail presence and new technologies introduced during 1997.
Bausch & Lomb's skin care business should benefit from increased retail
distribution and the planned introduction of two product line extensions under
the Curel brand.
[20]
<PAGE>
[Large photo: tray of eggs used for biomedical research]
Operations Review
Bausch & Lomb's healthcare segment, which includes the Charles River
Laboratories, Miracle-Ear and skin care businesses, achieved excellent growth in
sales and profits during 1997.
Charles River Laboratories, the world's leading producer of purpose-bred animals
for biomedical research, increased constant dollar revenues by 13%. Sales of
laboratory animals continued to rise, stimulated by product line extensions
introduced in 1996. The company's biotechnology business, including diagnostics
and special animal services, grew sharply with a 38% increase in sales.
Managed to maximize investor return.
The Miracle-Ear business was profitable in 1997 for the first time since
acquisition. Revenues for the business grew 23%, driven by a strategic shift
toward direct retail sales and the launch of a new digital hearing aid
technology.
Bausch & Lomb's U.S. skin care business continued to be very profitable in 1997.
Revenues improved by 7% as Curel, one of the fastest growing hand and body
lotion brands, continued its three-year trend of achieving double-digit sales
growth.
Segment Operating
Earnings (excluding
restructuring and
divestitures)
($ in millions)
[Bar chart]
1995 39
1996 43
1997 46
[End bar chart]
[Logo: 50 Years of Innovation]
[Photo: Lab mouse]
In 1997, Charles River Laboratories celebrated 50
years of Contributing to the Search for Healthier
Lives.
[Photo: Curel and Soft Sense skin care products]
Bausch & Lomb's skin care business, which consists
of the Curel and Soft Sense brands, improved
revenues by 7% over 1996.
[21]
<PAGE>
[Photos of people at work]
Human
Resources
"As leaders, we must understand that our value
lies less in our ability to manage the tasks of
others and more on looking into the future to
identify new horizons and opportunities."
Daryl M. Dickson
Senior Vice President
Human Resources
Diversity: A Global Competitive Advantage
Bausch & Lomb believes that building a corporate culture of diversity and
individual excellence helps us to better meet both investor expectations and
customer requirements, while offering our employees greater personal
fulfillment.
This principle is expressed in the company's commitment to provide an
environment open to the expression of ideas, where diversity is valued and
frankness is encouraged, and where creativity, innovation, teamwork and
receptivity to change are prized and rewarded.
In 1997, Bausch & Lomb was one of five companies in the United States honored
with the U.S. Labor Department's Exemplary Voluntary Efforts Award for its past
efforts to develop innovative programs to increase employment opportunities for
minorities, women and people with disabilities. The company believes that it
must continuously renew its efforts to develop, manage and retain a diverse
workforce, and expects that this issue will receive continued emphasis in 1998.
Leadership Initiative: Supporting Our Managers
With employees being encouraged to grow as individuals, and workgroup
decision-making now central to the way Bausch & Lomb functions worldwide, the
character of our corporation is evolving at a rapid pace. Change of this
magnitude challenges the tenets of traditional leadership.
To support our managers during this essential transition and advance their
leadership capabilities, Bausch & Lomb has, since 1996, introduced managers to
the Leadership Development Continuum, a series of courses on effective workgroup
management and facilitation.
[22]
<PAGE>
[Photo: Stephen C. McCluski]
Financial
Performance
"EVA has our people focusing on the balance sheet
as much as they do on earnings, and being very
conscious of the cost of the company's capital
when making financial decisions."
Stephen C. McCluski
Senior Vice President and
Chief Financial Officer
Restructuring: Trimming $100 Million More
In early 1996, we committed to removing $50 million of annual costs from our
businesses, primarily through administrative efficiencies, merging of functions,
consolidating warehousing and the closing of the company's Oakland, Maryland
eyewear plant. Half of those savings were achieved in 1997. The remainder will
come in 1998.
A second, more strategic cost-reduction initiative was announced in the second
quarter of 1997. We intend to cut an additional $100 million in costs through
further administrative efficiencies and facility rationalizations. Ninety
percent of the benefits will be realized by 1999 and all of them by the year
2000. In addition to reducing costs, the restructuring will improve Bausch &
Lomb's speed to market and customer responsiveness. Approximately one-third of
this savings will result in improved operating margins, while the remainder will
be re-allocated to revenue-generating activities such as new product development
and increased marketing efforts.
EVA: Attending To The Cost Of Capital
In 1997, Bausch & Lomb adopted EVA as a key decision-making tool to be utilized
by the company. With EVA, financial performance is based on profit after the
cost of the company's capital, a total-cost equation that improves shareholder
value. Simply put, employees are encouraged to ensure that every dollar spent in
the business yields an adequate return on investment. To ensure this, the Board
of Directors and Committee on Management approved adoption of EVA as the basis
for the company's incentive compensation system.
Key Financial Goals
During the next two to three years, our first priority for free cash flow will
be to pay down debt, with the ultimate goal of reducing our debt-to-capital
ratio to approximately 50%. We will continue to consider strategic acquisitions
which enhance existing businesses, and will re-instate our share repurchase
program to offset stock option exercises.
[23]
<PAGE>
Board of
Directors
[Photos: People in lab (wearing protective lab
gear) looking at computer monitor, and in
discussion]
Bausch & Lomb's Board of Directors is involved in
the key strategic initiatives of our core
businesses. They recently toured the
state-of-the-art cast-mold contact lens
manufacturing facility in Rochester, New York.
[24]
<PAGE>
Report Of
Management
The following financial statements of Bausch & Lomb Incorporated were prepared
by the company's management, which is responsible for their reliability and
objectivity. The statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Financial information elsewhere in this annual report is consistent with that in
the financial statements.
Management is further responsible for maintaining a system of internal
controls to provide reasonable assurance that Bausch & Lomb's books and records
reflect the transactions of the company; that assets are safeguarded; and that
management's established policies and procedures are followed. Management
systematically reviews and modifies the system of internal controls to improve
its effectiveness. The internal control system is augmented by the communication
of accounting and business policies throughout the company; the careful
selection, training and development of qualified personnel; the delegation of
authority and establishment of responsibilities; and a comprehensive program of
internal audit.
Independent accountants are engaged to audit the financial statements of
the company and issue a report thereon. They have informed management and the
audit committee of the board of directors that their audits were conducted in
accordance with generally accepted auditing standards which require a review and
evaluation of internal controls to determine the nature, timing and extent of
audit testing. The Report Of Independent Accountants is on page 62 of this
report.
The recommendations of the internal auditors and independent accountants
are reviewed by management. Control procedures have been implemented or revised
as appropriate to respond to these recommendations. In management's opinion, as
of December 27, 1997, the internal control system was functioning effectively
and accomplished the objectives discussed herein.
/s/ William H. Waltrip /s/ William M. Carpenter /s/ Stephen C. McCluski
William H. Waltrip William M. Carpenter Stephen C. McCluski
Chairman President and Senior Vice President
Chief Executive Officer and Chief Financial
Officer
Report Of The
Audit Committee
The audit committee of the board of directors, which held three meetings during
1997, is composed of four outside directors. The chair of the committee is Alvin
W. Trivelpiece, Ph.D. The other members are Domenico De Sole, Ruth R. McMullin
and Linda Johnson Rice.
The audit committee meets with the independent accountants, management and
the internal auditors to provide reasonable assurance that management fulfills
its responsibilities in the preparation of the financial statements and in the
maintenance of an effective system of internal controls. The audit committee
reviews the performance and fees of the independent accountants, recommends
their appointment and meets with them and the internal auditors, without
management present, to discuss the scope and results of their audit work. Both
the independent accountants and the internal auditors have full access to the
audit committee.
/s/ Alvin W. Trivelpiece
Alvin W. Trivelpiece, Ph.D.
Chair, Audit Committee
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[25]
<PAGE>
Financial
Review
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 1998 outlook.
Results Of Operations
Bausch & Lomb's operating results are reported in four business segments: vision
care, eyewear, pharmaceuticals and healthcare. The vision care segment includes
contact lenses and lens care products. The eyewear segment is comprised of
sunglasses, vision accessories and the divested sports optics and thin film
coating businesses. The pharmaceuticals segment includes prescription
pharmaceuticals and over-the-counter (OTC) medications. The healthcare segment
is comprised of biomedical products and services, hearing aids, skin care
products and the divested oral care and dental implant businesses.
The following table summarizes the proportion of reported revenues and
earnings derived from each business segment:
Revenues Earnings
-----------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------
Vision care 47% 45% 42% 94% 76% 59%
Eyewear 26% 27% 30% (29%) (2%) 16%
Pharmaceuticals 10% 10% 9% 15% 12% 14%
Healthcare 17% 18% 19% 20% 14% 11%
=====================================================
Net Sales Revenues in 1997 decreased $11 or 1% from 1996. A decrease in sales
due to the divestiture of the oral care and dental implant businesses in late
1996, as well as declines in sales of sunglasses and unfavorable currency, was
partially offset by strong sales of contact lenses. In 1996, revenues decreased
$6 partially due to a decline in sales in the oral care business and the
divestiture of the sports optics business in early 1995. While 1996 reflected
strong growth of contact lens revenues, this was partially offset by declines in
sunglass sales and unfavorable currency.
On a constant dollar basis (that is, adjusted for changes in foreign
currency exchange rates), 1997 revenues improved 3% over the prior year.
Constant dollar revenues in 1996 increased 2% over 1995.
Operating Earnings Operating earnings in 1997 decreased $43 or 22% due to an
increase in restructuring charges and operating losses in the eyewear segment,
partially offset by growth in the vision care, pharmaceuticals and healthcare
segments. For 1996, operating earnings decreased $20 or 9%, as reduced earnings
in the eyewear and pharmaceuticals segments were partially offset by improved
earnings in the vision care segment.
Comparability
To facilitate an analysis of the company's operating results, certain
significant events in each of the past three years should be considered. Unless
specified as "reported," amounts in the remainder of this "Results Of
Operations" section have been prepared using "comparable basis" results, which
exclude the items described below.
Restructuring Costs In each of the three years covered by this review, the
company's board of directors approved plans to restructure portions of each of
the company's business segments and certain corporate administrative functions.
These plans are described more fully in Note 4-Restructuring Charges, and
represent the company's efforts to enhance its competitive position and to
reduce the annual impact of general and administrative, logistics and
distribution costs by streamlining functions and closing certain facilities. In
1997, pre-tax restructuring charges of $72 were recorded. The after-tax impact
of these charges was $46 or $0.83 per diluted share. In 1996, pre-tax
restructuring charges were $15. The after-tax impact of these charges was $11 or
$0.19 per
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[26]
<PAGE>
diluted share. In 1995, pre-tax restructuring charges of $27 were recorded. The
after-tax impact of these charges was $17 or $0.30 per diluted share.
Divestitures In December 1997, the company divested the Thin Film Technology
Division, which was reported in the eyewear segment. This business contributed
revenues of $17, $20 and $29 in the years 1997, 1996 and 1995, respectively. The
business had an operating loss of $3 in 1997, broke even in 1996 and had
operating earnings of $3 in 1995. There was no material gain or loss to the
company on the divestiture. During 1996, the company divested two of its
non-core businesses whose results were reported in the healthcare segment. The
dental implant business, which was sold in November 1996, and the Oral Care
Division, which was divested in September 1996, contributed combined revenues of
$50 and $78 in 1996 and 1995, respectively. Combined operating losses of these
divested businesses were $8 in 1996 and $4 in 1995. The company recorded an
after-tax gain of $2, or $0.04 per diluted share on the divestitures. In May
1995, the company completed the sale of its Sports Optics Division. This
business contributed $18 to eyewear segment revenues in 1995; operating earnings
were break-even. Net earnings in 1995 reflected an after-tax gain on the
divestiture of $21 or $0.36 per diluted share.
Litigation As described in Note 17-Litigation, the company agreed to settle a
matter in litigation which resulted in a 1997 pre-tax charge of $21. The
after-tax impact of this charge was $13 or $0.24 per diluted share. The
company's assessment of the probable future impact of certain other legal
matters led the company to record pre-tax litigation provisions of $16 in 1996
and $22 in 1995. On an after-tax basis, such charges amounted to $10 or $0.18
per diluted share in 1996 and $14 or $0.24 per diluted share in 1995.
Revenues And Earnings By Business Segment
A summary of reported sales and earnings by business segment, corporate
administration expense and operating earnings, and comparable basis results
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
Comparable Comparable Comparable
As Reported Basis As Reported Basis As Reported Basis
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Vision care $ 908.9 $ 908.9 $ 869.1 $ 869.1 $ 813.7 $ 813.7
Eyewear 492.1 475.5 525.1 504.8 581.4 534.4
Pharmaceuticals 190.6 190.6 189.0 189.0 181.5 181.5
Healthcare 324.1 324.1 343.6 294.0 356.3 278.2
-----------------------------------------------------------------------------------
Total $1,915.7 $1,899.1 $1,926.8 $1,856.9 $1,932.9 $1,807.8
===========================================================================
========
Operating Earnings
Vision care $ 189.9 $ 209.3 $ 182.1 $ 190.7 $ 158.5 $ 161.7
Eyewear (59.2) (23.2) (5.6) (0.8) 43.7 57.7
Pharmaceuticals 31.5 36.5 28.6 28.6 38.5 38.5
Healthcare 39.9 45.8 34.8 42.5 30.8 39.0
-----------------------------------------------------------------------------------
202.1 268.4 239.9 261.0 271.5 296.9
Corporate
administration (54.1) (45.5) (49.1) (47.6) (60.9) (57.9)
-----------------------------------------------------------------------------------
Total $ 148.0 $ 222.9 $ 190.8 $ 213.4 $ 210.6 $ 239.0
===========================================================================
========
</TABLE>
Consolidated revenues have increased at compound annual rates of 4.6% and 4.8%
for the most recent three- and five-year periods, respectively. Revenues in 1997
increased $42 or 2% from 1996 and improved 6% on a constant dollar basis. In
1996, revenues increased $49 or 3% and improved 5% on a constant dollar basis.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[27]
<PAGE>
Vision Care Segment Results
1997 Versus 1996--Vision care revenues include sales of contact lenses,
representing 45% of total 1997 segment revenues, and lens care products,
comprising 55% of revenues. An increase in revenues of $40 or 5% was driven
primarily by sales of contact lenses. On a constant dollar basis, segment
revenues increased 8%.
Constant dollar contact lens revenues increased 13%. Strong sales of
Medalist lenses in Japan, increased shipments of SofLens66 lenses in the U.S.
and Europe and expansion of SofLens one day lenses (formerly Award) in Europe
contributed to the growth. The increase was partially offset by a decline in
traditional lenses, as the expected shift to planned replacement and disposable
lenses (collectively PRP) continued, and by a moderate decrease in rigid gas
permeable (RGP) lenses, most notably in Europe. Lens care products revenues
increased 4% on a constant dollar basis, benefiting from the launch of the new
premium-priced solution, ReNu MultiPlus, in the U.S. and Europe and increased
revenues for other lens care products outside the U.S.
Segment earnings improved $19 or 10%, and operating margins improved to 23%
in 1997 from 22% in 1996. The positive results reflect the impact of higher
sales and the continuing effects of cost reduction efforts.
1996 Versus 1995--Revenues in this segment improved $55 or 7%, led by a 17%
increase in sales of contact lenses. On a constant dollar basis, segment
revenues increased 9%. Strong constant dollar gains for PRP lenses, such as
Optima FW and SofLens66, in all regions and incremental sales of SofLens one day
more than offset the decline in sales of traditional lenses. Revenues from RGP
lenses in constant dollars were above 1995, with gains in the U.S. and the
Asia-Pacific region. Soft lens solutions reflected modest constant dollar gains,
with revenue growth from ReNu products offsetting declines in traditional
solutions such as saline, daily cleaners and enzymatic tablets. Worldwide
constant dollar revenues from RGP solutions declined from 1995 due to the timing
of promotions.
Operating margins in this segment were 22% in 1996 compared to 20% in 1995.
Contact lens earnings in 1996 were positive for the first time in several years,
driven by increased sales and cost reduction efforts. Segment earnings in 1996
were $191 compared to $162 in 1995, an increase of 18%.
Eyewear Segment Results
1997 Versus 1996--Segment revenues declined $29 or 6% compared to 1996. On a
constant dollar basis, segment revenues declined 3%. These trends reflect
results for sunglasses, the primary product in the segment.
Sunglass sales in the U.S. declined 6%, due in part to lower sales to the
segment's largest customer. In addition, increased competition for Ray-Ban and
Revo products and a loss in market share for Ray-Ban products contributed to the
shortfall. Offsetting this trend were favorable sales of new sunglass styles,
including the early launch of the 1998 Ray-Ban collection. Outside the U.S.,
constant dollar sales of sunglasses were slightly below prior year, primarily
due to sluggish retail markets in the Asia-Pacific region.
The segment operating loss increased to $23 in 1997, including an $11
charge recorded in the first quarter for the cost of exiting certain Ray-Ban
product lines and the write-off of the company's equity investment in a start-up
eyewear technology company. The impact of the sales shortfall, higher
manufacturing costs due to decreased production volumes, higher marketing and
advertising costs for sunglass products and higher amortization expense
associated with the first quarter acquisition of the Killer Loop eyewear
business were partially offset by cost savings realized from recent
restructuring actions.
1996 Versus 1995--Segment revenues declined $30 or 6% in 1996 as compared with
1995. On a constant dollar basis, revenues declined 4%. New Ray-Ban sunglasses,
such as Sidestreet, Orbs and Inertia styles, and new offerings in the Killer
Loop Street Sport and Revo Shapes collections, as well as incremental revenues
from the first quarter acquisition of the Arnette sunglass line, contributed
significantly to total sunglass sales. These positive results were more than
offset by an erosion in sales of more traditional product designs, particularly
in the Ray-Ban line, by new product supply issues and by a second-half reduction
in orders, primarily in the U.S., from the segment's largest customer.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[28]
<PAGE>
Eyewear segment losses of $1 in 1996 were $58 lower than 1995 results,
reflecting the adverse impacts of the sales shortfalls, the continued shift to
lower-margin new products, unfavorable manufacturing variances due to reduced
production volumes and increased provisions for obsolescence.
Pharmaceuticals Segment Results
1997 Versus 1996-Segment revenues increased $2 or 1% over the prior year as
strong U.S. sales were partially offset by a decline in revenues for the
company's Dr. Mann Pharma subsidiary in Germany. On a constant dollar basis,
sales increased 7%.
Contributing to a double-digit increase in the U.S. was the successful
launch of Trimethoprim, the new generic ophthalmic equivalent to Polytrim, a
drug to prevent eye infections. Trimethoprim sales for the year attained a
greater than 95% market share for the generic product. Muro, a hypertonic
ophthalmic solution and ointment for the temporary relief of corneal edema,
experienced solid sales for the year. The success of Minoxidil, a generic
version of Rogaine, continued in 1997 as did the sales of a variety of generic
pharmaceutical products introduced prior to 1994. The U.S. general eye care
business benefited from the continued strength of Opcon-A, an
antihistamine/decongestant, and Moisture Eyes PM, formerly Duolube, a
preservative-free ointment used for nighttime relief of dry eyes. Revenues also
benefited from the launch of Bausch & Lomb Computer Eye Drops, the first product
on the market positioned for computer users to soothe dry, strained and tired
eyes, as well as the relaunch of several other key eye care products. Constant
dollar revenues for prescription pharmaceuticals in Europe were up 10% from the
prior year reflecting a normalization of sales in the second half of 1997,
whereas European OTC pharmaceuticals experienced a 13% constant dollar decline
in revenue versus 1996. This sales shortfall was attributable to pharmacy
inventory reductions in Germany due to continued poor economic conditions.
Pharmaceutical segment earnings of $37 improved 28% in 1997 from the year
ago period. This improvement was driven by price and volume increases for many
of the U.S. generic products partially offset by unfavorable manufacturing
variances and higher allowances associated with the competitive nature of the
generic pharmaceuticals industry. Research and development was $14 or 7.4% of
sales in 1997, compared to $13 or 7.1% of sales in 1996, as the company
continued to invest in its pharmaceutical business.
1996 Versus 1995-Worldwide pharmaceutical segment revenues improved $8 or 4%
versus 1995. On a constant dollar basis sales improved 7%.
Revenues for products sold in the U.S. advanced 17% attributable to the
success of two new product launches: Minoxidil and Ocutricin, an antibiotic
short-term solution to treat superficial eye infections. Crolom, launched in
1995 for ocular inflammation, witnessed double-digit growth for the year.
Tobramycin, a generic version of Tobrex, experienced a significant decline in
sales compared to 1995 due to heavy competition resulting in the loss of both
market share and margins. OTC products in the U.S. attained a 5% increase in
sales, benefiting from improved sales of Opcon-A, introduced in the fourth
quarter of 1994, and Moisture Eyes PM. Revenues for prescription pharmaceuticals
in Europe advanced from the prior year, improving 8% on a constant dollar basis,
despite uncertainty in the fourth quarter regarding the German government's
proposed cutback on prescription reimbursements. The company's line of European
OTC products fell 2% in constant dollars versus 1995 although market share
remained steady as the whole industry struggled with the poor economic
conditions.
Reported pharmaceutical segment earnings of $29 declined $10 or 26% from
the 1995 level. Operating margins decreased as higher spending for advertising,
selling and research and development, as well as unfavorable currency movements
in Europe, was only partially offset by price and volume increases for many U.S.
generic products. Research and development costs increased to 7.1% of sales
versus 5.1% of sales in 1995 as the company moved forward with its growth plan
for generic and proprietary ophthalmic products.
Healthcare Segment Results
1997 Versus 1996-This segment includes results for biomedical products and
services, hearing aids and skin care products, which contributed 66%, 19% and
15% of total 1997 segment revenues, respectively. Revenues increased $30 or 10%,
over 1996 with gains in all product lines. Revenues were up 14% over the prior
year on a constant dollar basis.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[29]
<PAGE>
Revenues in the biomedical business increased 13% on a constant dollar
basis reflecting increases in purpose-bred animals due to product line
extensions and price increases, and strong growth in sales of biotech products
and services. Hearing aid revenues advanced 23% over 1996, aided by an increase
in company-owned retail outlets and sales of new products. Skin care product
revenues were up 7%, led by an increase in sales and market share for Curel
products partially offset by a decline in revenues for the Soft Sense line.
Segment earnings increased 8% on the strength of higher sales, with the
hearing aid business profitable for the first time since the company acquired
the business in 1993.
1996 Versus 1995-The healthcare segment experienced 6% revenue growth over 1995
and grew 9% in constant dollars with gains in all product lines. Constant dollar
revenues increased 10% for the company's biomedical business, reflecting the
impact of incremental sales of purpose-bred laboratory animals and other product
line extensions. Revenues for the Miracle-Ear line of hearing aids rose 9% due
to sales of new in-the-ear products and increased sales in company-owned stores.
Skin care revenues advanced 5% for the year, led by 15% growth in the Curel
product line, including Alpha Hydroxy and Nutrient Rich products, offset by a
12% decline in the Soft Sense line due to reduced consumer demand.
Healthcare segment earnings rose 9% with improvements in all businesses
resulting from the margin impact of sales increases, slightly offset by higher
operating expenses. While the hearing aid business showed a slight loss in 1996,
this business continued to show improvement in operating results.
Operating Costs And Expenses The ratio of cost of products sold to sales was
45.7% in 1997, versus 44.7% and 43.4% for 1996 and 1995, respectively. The
unfavorable trend in 1997 reflected a $9 charge for the cost of exiting certain
Ray-Ban product lines recorded in the first quarter, unfavorable manufacturing
variances for eyewear and pharmaceuticals as well as lower margins in the
company's core segments. Vision care margins declined slightly due to product
mix while eyewear margins reflected the unfavorable impact of decreased volumes.
Pharmaceuticals margins were negatively impacted by the downward pressure on
generic pharmaceutical selling prices. The unfavorable ratio in 1996, when
compared to 1995, resulted from a decline in sunglass sales in combination with
a shift in sales mix toward lower-margin sunglass styles and PRP lenses.
Selling, administrative and general expenses, including corporate
administration, were 39.0% of sales in 1997 compared to 40.1% in both 1996 and
1995. The year-over-year favorable ratio reflected decreases in marketing and
advertising, lower general administration costs and reduced spending in the
pharmaceuticals segment as well as lower selling expenses due mainly to
consolidation of certain responsibilities in the vision care segment. Offsetting
these favorable variances was a $2 charge recorded in the first quarter of 1997
for the write-off of the company's equity investment in a start-up eyewear
technology venture.
Corporate administration expenses were 2.4% of sales in 1997, versus 2.6%
and 3.2% in 1996 and 1995, respectively. These trends reflect efforts in expense
reduction resulting from company-wide restructuring programs. The 1995 expense
included $7 for retirement and other benefits for the company's former Chief
Executive Officer. Excluding this charge, 1995 corporate administration expenses
represented 2.8% of sales.
Research and development expenses totaled $66 in 1997, a decrease of $4 or
5% from 1996. In 1995, these costs were $59. This represented 3.5% of sales in
1997 versus 3.8% and 3.3% in 1996 and 1995, respectively. The 1997 decrease in
expense was due in large part to favorable project spending as efforts were
being made to consolidate research and development functions in the vision care
segment. Research and development is expected to increase in 1998 to support
development and approval of new products, particularly in the vision care and
pharmaceuticals segments. The increase in the 1996 levels demonstrated the
significant investment in new contact lens technology and the development of new
pharmaceutical products.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[30]
<PAGE>
Revenues And Earnings By Geographic Region A summary of sales and earnings by
geographic region follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------
Comparable Comparable Comparable
As Reported Basis As Reported Basis As Reported Basis
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Europe, Middle East
& Africa $ 481.9 $ 474.9 $ 500.8 $ 479.7 $ 471.0 $ 441.4
Asia-Pacific 356.6 356.0 346.6 340.7 345.3 336.4
Canada &
Latin America 110.5 110.5 116.1 112.4 119.0 112.2
U.S. 966.7 957.7 963.3 924.1 997.6 917.8
-----------------------------------------------------------------------------------
Total $1,915.7 $1,899.1 $1,926.8 $1,856.9 $1,932.9 $1,807.8
===========================================================================
========
Operating Earnings
Europe, Middle East
& Africa $ 58.8 $ 73.6 $ 74.7 $ 80.5 $ 93.2 $ 96.3
Asia-Pacific 20.4 23.1 36.1 37.4 43.6 42.7
Canada &
Latin America (0.8) 3.3 3.6 3.8 (2.0) (1.2)
U.S. 69.6 122.9 76.4 91.7 75.8 101.2
-----------------------------------------------------------------------------------
Total $ 148.0 $ 222.9 $ 190.8 $ 213.4 $ 210.6 $ 239.0
===========================================================================
========
</TABLE>
Sales outside the U.S. totaled $941 in 1997, an increase of $9 from 1996.
Non-U.S. sales represented 50% of consolidated revenues in 1997 and 1996 and 49%
in 1995. European revenues in 1997 were essentially even with the prior year on
a percentage basis. However, in constant dollars revenues rose 7% led by sales
growth for PRP lenses and lens care products, which benefited from the
introduction of ReNu MultiPlus solution, offset by lower pharmaceuticals
results. Sales in the Asia-Pacific region improved $15 or 4%. On a constant
dollar basis, sales increased 12% due to growth for vision care products.
Sunglass sales throughout the region were lower due to country-specific economic
issues and competitive pressures. In Canada and Latin America, sales fell $2 or
2% from 1996. Lower lens care products and eyewear sales in Canada offset
increased demand for sunglasses in Latin America and PRP lenses throughout the
region.
U.S. revenues in 1997 increased $34 or 4% from the prior year. Lower sales
of Ray-Ban and Revo sunglasses were more than offset by growth in PRP lenses and
U.S. generic pharmaceuticals. Growth in U.S. healthcare results included
increased sales of Miracle-Ear hearing aids and Curel products.
Sales outside the U.S. in 1996 increased $43 or 5% from 1995. Results were
driven by the European region where revenues increased $38 or 9% versus the
prior year, and 11% on a constant dollar basis. Strong contact lens performance,
especially in the PRP line, and incremental sales of SofLens one day contributed
to the improvement. Increased shipments of lens care products, somewhat offset
by price declines, also contributed to the year-over-year European growth. Sales
in the Asia-Pacific region increased 12% on a constant dollar basis. The region
demonstrated double-digit sales growth in constant dollars for vision care
products while sunglass sales, as a result of intense competitive pressures,
were below 1995 levels. In Canada and Latin America, sales were also relatively
flat to 1995, where modest growth in soft lens solutions and PRP lenses in
Canada was offset by lower sunglass sales throughout most of the region.
In the U.S., 1996 sales, including incremental sales from Arnette
sunglasses, increased $6 or 1% from 1995. Vision care sales improved with growth
in the Optima, Gold Medalist toric and SofLens66 product lines. Sunglass sales,
however, fell versus 1995 as a significant shortfall in traditional styles was
only partially offset
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[31]
<PAGE>
by the success of the company's new product launches. This, in combination with
reduced second-half orders from the segment's largest customer, contributed
heavily to the decline in overall U.S. sunglass sales. In healthcare, skin care
revenues were up from 1995 due primarily to an increase in Curel sales.
Operating earnings in markets outside the U.S. in 1997 decreased $22 or 18%
from 1996, and represented 45% of total operating earnings in 1997 versus 57%
and 58% in 1996 and 1995, respectively. The drop in earnings for 1997 was due
mainly to difficulty in the eyewear segment, where margins were impacted by
changes in sales mix toward lower margin new products from the more profitable
traditional products and adverse currency impacts. A change in sales mix for
vision care products away from higher margin lens care products towards contact
lenses, as well as adverse currency, were also factors.
In the U.S., 1997 operating earnings increased $31 or 34% versus prior
year. Margins were slightly lower than prior year, however, total profitability
was maintained through savings in operating expenditures, especially marketing
and advertising and research and development.
Operating earnings in markets outside the U.S. in 1996 decreased $16 or 12%
from 1995. The 1996 earnings decline was attributed to sales of lower-margin new
sunglass styles, adverse currency impacts and an increase in advertising
expenditures.
Operating earnings in the U.S. in 1996 decreased $10 or 9% from 1995 in
large part due to margin impacts of lower sunglass and lens care products sales,
partially offset by improved profitability in contact lenses.
Other Income And Expense Interest and investment income was $40 in 1997, $43 in
1996 and $39 in 1995. The decrease in 1997 from 1996 was attributable to lower
investment levels and interest income recorded in 1996 on an income tax refund,
partially offset by higher interest rates. The increase in 1996 over 1995 was
primarily due to interest on the tax refund and to higher income generated from
interest rate swaps, partially offset by lower interest rates.
Interest expense was $56 in 1997, $52 in 1996 and $46 in 1995. The 1997
increase over 1996 was primarily due to higher debt levels and higher interest
rates, while the 1996 increase over 1995 was due primarily to higher debt levels
partially offset by lower interest rates.
The company pursues an essentially neutral strategy with respect to
interest rate movements. Its policy is to maintain, within reasonable
parameters, a balance between floating-rate investments, which are predominately
held outside the U.S., and floating-rate debt, which represents primarily U.S.
obligations. To the extent this natural hedge position becomes unbalanced, the
company may enter into interest rate swap agreements or undertake long-term
fixed-rate borrowings, the proceeds from which may be used to repay short-term
debt. As a result of this practice, the company's exposure to the normal rise
and fall of U.S. interest rates is mitigated.
The company does not engage in foreign currency speculation. Its objective
is to hedge identified transaction exposures on an after-tax basis to minimize
the impact of exchange rate movements on operating results. The company
selectively hedges exposures arising in countries with hyperinflationary
economies. Transaction gains of $9 and translation losses of $2 resulted in net
foreign currency gains of $7 in 1997. In 1996, net foreign currency gains of $2
reflected transaction gains of $3 offset by translation losses of $1. In 1995,
net losses were $6 and were comprised of $2 transaction losses and $4
translation losses. The favorability in 1997 and 1996 was primarily due to
premium income on foreign exchange contracts hedging investments in selected
subsidiaries. Reduced translation losses resulting from increased economic
stability in hyperinflationary economies contributed to the 1996 favorability.
Income Taxes The company's reported tax rate was 38.7% in 1997 as compared to
37.7% in 1996 and 36.9% in 1995. The higher 1997 and 1996 rates reflected the
impact of restructuring and litigation charges and the net gain on divestitures
(collectively non-recurring charges) and shifts in geographic earnings.
Excluding non-recurring charges, the ongoing tax rate was 37.4%, 37.6% and 35.6%
for 1997, 1996 and 1995, respectively.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[32]
<PAGE>
Net Earnings And Earnings Per Share Reported net earnings of $49 or $0.89 per
diluted share in 1997 declined significantly from the 1996 reported amounts of
$83 or $1.47 per diluted share. The decrease is primarily attributable to the
operational matters discussed above, as well as the net impact of non-recurring
charges. Results for 1996 decreased from the reported 1995 amounts of $112 or
$1.93 per diluted share due to the operational matters discussed above and the
net impact of non-recurring charges.
Liquidity And Financial Resources
The company evaluates its liquidity from several perspectives, including its
ability to generate earnings, positive cash flows and free cash flow, its
financial position, its access to financial markets and the adequacy of working
capital levels. The company has a stated goal to maximize free cash flow, which
is defined as cash generated before the payment of dividends, the borrowing or
repayment of debt, stock repurchases and the acquisition or divestiture of
businesses. The following section is presented on a reported basis.
Cash Flows From Operating Activities Cash provided by operating activities
totaled $216 in 1997. This favorability was driven primarily by the timing of
income tax payments and refunds and by the lowering of inventory levels. Free
cash flow for 1997 was positive $68, versus a negative $47 for 1996. This
increase was primarily attributable to the operating factors cited above.
In 1996, operating activities generated $89 in cash flow, a significant
decrease from 1995. Lower earnings, increased inventory and accounts receivable
and reduced levels of accounts payable and income taxes all contributed to the
unfavorable comparison.
Cash Flows From Investing Activities Cash used in investing activities was $175
in 1997. Capital expenditures totaled $126, a significant portion of which
supported expanded contact lens manufacturing capacity. Cash outflows for
acquisitions were $49, primarily for the purchase of Killer Loop S.p.A., a
manufacturer of sunglasses based in Italy. Prior to the acquisition, the company
had an exclusive agreement with Killer Loop S.p.A. to market its products. Cash
realized in 1997 from divestitures reflected the sale of the Thin Film
Technology Division.
In 1996, cash used in investing activities was $142. Capital expenditures
were $130 and included spending for new contact lens technology and enhanced
sunglass manufacturing processes. Cash paid for acquisitions was $86 as the
company expanded its presence in both the sunglass sport and the SofLens one day
contact lens markets with the purchases of Arnette Optic Illusions Inc. and
Award plc, respectively. Divestitures yielded $78 as the company sold its oral
care and dental implant businesses.
Cash Flows From Financing Activities In 1997, $13 was used in financing
activities. The primary inflow was $214 from long-term debt proceeds, primarily
issuances under the company's medium-term note program. This inflow was more
than offset by dividend payments, repayment of long-term debt and net repayments
of short-term debt. During 1997, the company repurchased 500,000 Common shares,
exhausting all share repurchases authorized by the board of directors.
Cash provided by financing activities during 1996 was $29. Funds were used
to repay long-term debt, repurchase Common shares and pay dividends. Proceeds
from debt, primarily long-term, more than offset the cash outflows.
Financial Position The company's objective of maximizing its return on
shareholders' equity requires the cost of capital to be optimized. The company
uses debt financing to lower the cost of capital. In total, short- and long-term
borrowings were $855 in 1997, $718 in 1996 and $574 in 1995. As described in
Note 9--Debt, the
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[33]
<PAGE>
increase in long-term debt in 1997 was due in part to $75 associated with the
adoption of new accounting rules which required the company to classify proceeds
from its new trade receivable securitization agreement as debt. The ratio of
total debt to capital stood at 51.1%, 44.9% and 38.2% at year end 1997, 1996 and
1995, respectively. Subsequent to year end the company increased its short-term
borrowings by $680 to finance acquisitions. Cash and short-term investments
totaled $184 in 1997, $168 in 1996 and $195 in 1995.
Access To Financial Markets Bausch & Lomb's reputation, coupled with its
financial position and cash flows, assures access to financing in markets around
the world. 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 December 27, 1997. In addition, the company maintains other lines of
credit on which it may draw to meet its financing requirements. Subsequent to
year end the company filed a $500 shelf registration with the Securities and
Exchange Commission, under which it will be able to borrow in the long-term U.S.
public markets.
Following the announcement of the company's intent to acquire Chiron Vision
Corporation and Storz Instrument Company (see Note 2-Subsequent Events), both
Standard & Poor's and Moody's Investors Service placed the company's long-term
debt under review and subsequently lowered their ratings of this debt from
A-minus to BBB and from A-3 to Baa2, respectively. Concurrent with this rating
action, the company's commercial paper rating was confirmed at A-2 by Standard &
Poor's and P-2 by Moody's Investors Service. The company believes the lowering
of its long-term debt rating does not restrict its ability to raise funds in the
capital markets at reasonable costs. Concurrent with filing the shelf
registration discussed above, both Standard & Poor's and Moody's Investors
Service confirmed the company's long-term debt rating.
After its acquisition of Chiron Vision Corporation and Storz Instrument
Company, the company believes its existing and planned credit facilities will
provide adequate liquidity to meet obligations, fund capital expenditures and
invest in other potential growth opportunities. When a portion of the $680
short-term borrowings used to fund these acquisitions is converted to long-term
debt, the company will pay a higher rate of interest on such portions.
Working Capital Working capital was $203 at year end 1997 as compared to $19 and
$71 at year end 1996 and 1995, respectively. The current ratio was 1.2, 1.0 and
1.1 at year end 1997, 1996 and 1995, respectively.
Dividends The dividend on Common stock, declared and paid quarterly, totaled
$1.04 per share for each of the years 1997 and 1996 and $1.01 per share for
1995. Quarterly dividends were raised 6% to $0.26 per share in July 1995. The
company has a goal of maintaining a payout rate of between 30% to 35% of the
previous year's earnings before non-recurring charges. Future dividend increases
are not certain.
Return On Equity And Capital Return on average shareholders' equity was 5.9% in
1997, compared with 9.2% in 1996 and 11.9% in 1995. The decrease in 1997 was the
result of the unfavorable impact of non-recurring charges and lower earnings in
the eyewear segment, partially offset by higher earnings in the other segments.
The decrease in 1996 reflected the unfavorable impact of the non-recurring
charges and lower earnings in the eyewear segment. Return on average capital
employed was 5.0% in 1997, 7.2% in 1996 and 9.2% in 1995. The changes for both
1997 and 1996 were due primarily to the matters discussed above, as well as to
increases in the levels of debt on a year-over-year basis.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[34]
<PAGE>
Outlook
During 1998 the company expects its sales and operating performance in the
vision care, pharmaceuticals and healthcare segments to be consistent with 1997
trends with the eyewear segment exhibiting a return to profitability. These
expectations exclude the impact of currency, which would have a negative impact
if exchange rates remain at December 1997 levels. Since the company operates
globally, the businesses are subject to fluctuations in currencies, which can
have a material effect on non-U.S. sales and the results of consolidated
operations.
The company's vision care segment will continue to focus on four key
strategies: leveraging its complete product line, growing revenues and market
share through the introduction of new products, investing the savings reaped by
the company's restructuring efforts in consumer advertising to support new
products, and maintaining efforts necessary to lower production costs, which
remains a critical goal in light of the continuing trend in contact lens wearing
patterns from traditional to lower cost PRP lenses. Revenue growth on a constant
dollar basis is anticipated to remain strong, led by non-U.S. sales increases.
Margins should remain at their current levels. The revenue growth should be
driven by new product expansion in both contact lenses and lens care products.
Sales for contact lenses are expected to benefit from the introduction of the
company's single use lens, SofLens one day, in the U.S. and the worldwide
introduction of SofLens66 toric. Lens care product revenues worldwide should
benefit from the 1997 second-half launch of ReNu MultiPlus solution.
Key strategies for the eyewear segment in 1998 include strengthening the
brand leadership of Ray-Ban sunglasses, improving the company's product delivery
capabilities and expanding brands outside the U.S. Revenues in the U.S. are
expected to increase slightly, reflecting the benefit of reallocating
administrative spending to new product development, consumer advertising and
merchandising efforts. Growth outside the U.S. is forecasted to grow at a more
rapid pace driven by the continued expansion of the Killer Loop, Porsche Design,
Arnette and Revo lines into international markets. In consideration of the
volatile economic situation in Southeast Asia, the company has reduced its
expectations for those markets. The company anticipates that operating earnings
in this segment will be positive in 1998 as it benefits from lower production
costs, reductions in administrative expenses and improvement in product mix. As
in the past, success in the eyewear business will require innovative design,
marketing expertise and flexible delivery and logistical capabilities. An
inability to reduce high levels of inventory of certain eyewear styles or delays
or difficulties with new product introductions or product enhancements could
negatively impact the company's future business results.
The pharmaceuticals segment is committed to expanding its line of
proprietary ophthalmic drugs through collaborative ventures, continuing to
aggressively launch new generics as products come off patent, and penetrating
markets outside its current U.S. and German bases. Revenue growth in 1998 is
expected to remain solid driven by new products such as Lotemax, steroidal
anti-inflammatory drops designed to treat ocular inflammation, and the company's
Bausch & Lomb Computer Eye Drops product which was launched in late 1997.
Operating margins are expected to remain at 1997 levels. The segment is subject
to risks associated with future adverse changes in the laws and regulations
affecting products, taxes, the environment and other governmentally regulated
areas. In particular, growth is contingent upon obtaining necessary regulatory
approvals. In addition, this business anticipates shifting its current product
portfolio toward a more even balance between higher-margin proprietary
pharmaceuticals and lower-margin generic pharmaceuticals.
During 1998 the company will continue 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. Growth is anticipated in all of the
healthcare businesses.
In fiscal 1998 the company acquired two new businesses, Chiron Vision
Corporation and Storz Instrument Company. These businesses offer products in the
cataract, refractive and retinal surgery markets, as well as the ophthalmic
pharmaceuticals market. During 1998 these two acquisitions will be combined to
form
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[35]
<PAGE>
a new surgical business which enhances the company's existing portfolio of eye
care products. Overall, the success of the acquisitions will depend in large
part on the company's ability to integrate and capture synergies in the combined
businesses. Expenses are expected to be incurred related to the integration
process, especially in the first half of 1998, however the full year's earnings
impact should be neutral. These expectations do not include any potential
one-time charges related to the write-off of acquired in-process research and
development projects.
The company expects to record additional restructuring charges in early
1998 related to 1997 cost reduction programs. However, the results of those
restructuring and cost reduction efforts, coupled with profit improvement in the
sunglass business, should continue to result in consolidated earnings growth for
the company during 1998. Although not anticipated, risks that the company does
not achieve the stated cost reductions and restructuring goals could impact the
company's ability to meet its short- and long-term earnings goals.
Other Matters
Environment The company believes it is in compliance in all material respects
with applicable environmental laws and regulations. The company is presently
involved in remediation efforts at certain locations, some of which are company
owned. At all such locations, the company believes such efforts will not have a
materially adverse effect on its results of operations or financial position.
Year 2000 Software Compliance For the past several years the company has been
working to identify and resolve all year 2000 data and processing issues within
its current portfolio of software applications. Currently, management believes
that the costs of addressing potential problems are not expected to have a
material adverse impact on the company's financial position, results of
operations or cash flows in future periods. However, if the company, its
customers or vendors are unable to resolve such processing issues in a timely
manner, it could result in a material financial risk. The company plans to
devote the necessary resources to resolve significant year 2000 issues in a
timely manner.
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.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[36]
<PAGE>
Quarterly Results
The following table presents reported net sales, gross profit (net sales less
cost of products sold), net earnings and net earnings per share for each quarter
during the past two years:
Net Earnings
Per Share
Net Gross Net ----------------------
Sales Profit Earnings Basic Diluted
- -------------------------------------------------------------------------
1997
First $ 451.2 $ 224.0 $ 3.3(1) $0.06 $0.06(1)
Second 523.2 291.7 20.3(1) 0.37 0.36(1)
Third 468.3 255.2 18.5(1) 0.33 0.33(1)
Fourth 473.0 260.1 7.3(1,2) 0.13 0.13(1,2)
---------------------------------------------------------------
Total $1,915.7 $1,031.0 $49.4 $0.89 $0.89
===============================================================
1996
First $ 469.3 $ 261.4 $22.5 $0.40 $0.39
Second 545.5 311.8 30.3(3) 0.53 0.53(3)
Third 477.2 257.4 14.4(4) 0.26 0.26(4)
Fourth 434.8 223.9 15.9(5) 0.29 0.29(5)
--------------------------------------------------------------
Total $1,926.8 $1,054.5 $83.1 $1.48 $1.47
==============================================================
(1) Includes the after-tax effect of restructuring charges of $7.7 ($0.14 per
share), $18.3 ($0.33 per share), $11.0 ($0.20 per share) and $9.4 ($0.17
per share) for the first, second, third and fourth quarters of 1997,
respectively.
(2) Includes the after-tax effect of a litigation provision of $13.2 ($0.24 per
share).
(3) Includes the after-tax effect of restructuring charges of $10.9 ($0.19 per
share).
(4) Includes the after-tax effect of a litigation provision of $10.0 ($0.18 per
share) and the after-tax loss on sale of the Oral Care Division of $6.3
($0.11 per share).
(5) Includes the after-tax gain on sale of the dental implant business of $8.5
($0.15 per share).
Quarterly Stock Prices The Company's Common stock is listed on the New York
Stock Exchange and is traded under the symbol BOL. There were approximately
7,800 Common shareholders of record at December 27, 1997. The following table
shows the price range of the Common stock for each quarter for the past two
years:
1997 1996
Price Per Share Price Per Share
-----------------------------------------------
High Low High Low
-----------------------------------------------
First $40-1/4 $32-1/2 $41-3/8 $37
Second 47-7/8 36-3/8 44-1/2 36-1/8
Third 47-7/8 38-5/16 43-1/8 32-1/2
Fourth 43-5/8 37 38-1/4 32-1/2
===============================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[37]
<PAGE>
Statement Of
Earnings
For The Years Ended
December 27, 1997, December 28, 1996
and December 30, 1995
Dollar Amounts In Millions -- Except Per Share Data
1997 1996 1995
- --------------------------------------------------------------------------------
Net Sales $1,915.7 $1,926.8 $1,932.9
Costs And Expenses
Cost of products sold 884.7 872.3 860.0
Selling, administrative and general 743.8 773.1 770.0
Research and development 67.5 75.5 65.6
Restructuring charges 71.7 15.1 26.7
-------------------------------
1,767.7 1,736.0 1,722.3
-------------------------------
Operating Earnings 148.0 190.8 210.6
-------------------------------
Other Expense (Income)
Interest and investment income (40.4) (42.8) (39.0)
Interest expense 56.0 51.7 45.8
(Gain) loss from foreign currency, net (6.6) (1.6) 6.2
Gain on divestitures -- (1.5) (35.9)
Litigation provision 21.0 16.1 21.7
-------------------------------
30.0 21.9 (1.2)
-------------------------------
Earnings Before Income Taxes And
Minority Interest 118.0 168.9 211.8
Provision for income taxes 45.6 63.7 78.1
-------------------------------
Earnings Before Minority Interest 72.4 105.2 133.7
Minority interest 23.0 22.1 21.7
-------------------------------
Net Earnings 49.4 83.1 112.0
Retained Earnings At Beginning Of Year 924.7 900.1 846.2
Cash Dividends Declared-Common Stock,
$1.04 per share for 1997
($1.04 for 1996 and $1.01 for 1995) (57.6) (58.5) (58.1)
-------------------------------
Retained Earnings At End Of Year $ 916.5 $ 924.7 $ 900.1
===============================
Basic Earnings Per Share $ 0.89 $ 1.48 $ 1.94
Average Shares Outstanding-Basic (000s) 55,383 56,299 57,704
Diluted Earnings Per Share $ 0.89 $ 1.47 $ 1.93
Average Shares Outstanding-Diluted (000s) 55,654 56,510 57,974
===============================
See Notes To Financial Statements
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[38]
<PAGE>
Balance
Sheet
December 27, 1997 and December 28, 1996
Dollar Amounts In Millions --
Except Per Share Data 1997 1996
- ------------------------------------------------------------------------------
Assets
Current Assets
Cash, cash equivalents and
short-term investments $ 183.7 $ 167.8
Trade receivables, less allowances
of $14.0 and $13.3, respectively 374.8 268.4
Inventories, net 324.3 339.8
Recoverable income taxes -- 6.0
Deferred taxes, net 66.0 48.6
Other current assets 141.4 117.0
--------------------------
1,090.2 947.6
Property, Plant And Equipment, net 580.2 566.7
Goodwill And Other Intangibles,
less accumulated amortization
of $116.6 and $83.8, respectively 406.9 390.9
Other Investments 546.4 560.3
Other Assets 149.2 137.9
--------------------------
Total Assets $2,772.9 $2,603.4
==========================
Liabilities And Shareholders' Equity
Current Liabilities
Notes payable $ 339.4 $ 394.1
Current portion of long-term debt 4.4 88.0
Accounts payable 72.0 71.1
Accrued compensation 73.6 82.2
Accrued liabilities 365.9 293.7
Federal, state and foreign income taxes payable 32.0 --
--------------------------
887.3 929.1
Long-Term Debt, less current portion 510.8 236.3
Other Long-Term Liabilities 119.4 124.0
Minority Interest 437.0 432.1
--------------------------
Total Liabilities 1,954.5 1,721.5
--------------------------
Shareholders' Equity
4% Cumulative Preferred stock,
par value $100 per share -- --
Class A Preferred stock,
par value $1 per share -- --
Common stock, par value $0.40 per share,
60,198,322 shares issued 24.1 24.1
Class B stock, par value $0.08 per share,
856,905 shares issued
(1,150,409 shares in 1996) 0.1 0.1
Capital in excess of par value 76.8 96.1
Retained earnings 916.5 924.7
Common and Class B stock in treasury,
at cost, 5,846,286 shares
(5,944,982 shares in 1996) (223.1) (230.5)
Other shareholders' equity 24.0 67.4
--------------------------
Total Shareholders' Equity 818.4 881.9
--------------------------
Total Liabilities And Shareholders' Equity $2,772.9 $2,603.4
==========================
See Notes To Financial Statements
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[39]
<PAGE>
Statement Of
Cash Flows
For The Years Ended
December 27, 1997, December 28, 1996 and December 30, 1995
Dollar Amounts In Millions 1997 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net earnings $ 49.4 $ 83.1 $112.0
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 90.8 92.6 89.2
Amortization 21.2 20.7 16.1
Change in deferred income taxes 18.7 23.2 (44.8)
Gain on divestitures, net of taxes -- (2.2) (20.8)
Stock compensation expense 3.3 1.3 5.6
Provision for litigation expense, net of taxes 13.2 10.0 14.2
Restructuring charges, net of taxes 46.4 10.9 17.4
Loss on retirement of fixed assets 8.3 2.9 3.2
Changes in assets and liabilities:
Trade receivables (32.9) (22.4) 8.6
Inventories (1.0) (45.1) (18.2)
Other current assets (31.3) (23.9) 16.6
Accounts payable and accrued liabilities (11.7) (13.6) 50.0
Income taxes 51.0 (40.8) 40.6
Other long-term liabilities (9.9) (7.4) 0.3
-----------------------------
Net cash provided by operating activities 215.5 89.3 290.0
-----------------------------
Cash Flows From Investing Activities
Capital expenditures (126.1) (130.3) (95.5)
Proceeds from sale of equipment -- 9.6 --
Net cash paid for acquisition of businesses (48.6) (85.7) (1.9)
Net cash received from divestitures 9.3 77.7 60.5
Other investments -- -- (136.0)
Other (9.2) (13.8) 8.0
-----------------------------
Net cash used in investing activities (174.6) (142.5) (164.9)
-----------------------------
Cash Flows From Financing Activities
Repurchases of Common and Class B shares (21.8) (67.8) (94.1)
Exercise of stock options 14.8 5.2 5.4
Net (repayments) proceeds from notes payable (72.7) 111.4 32.3
Proceeds from issuance of long-term debt 213.5 135.2 0.6
Repayment of long-term debt (89.3) (96.4) (47.8)
Payment of dividends (57.1) (58.9) (57.8)
-----------------------------
Net cash (used in) provided by
financing activities (12.6) 28.7 (161.4)
-----------------------------
Effect of exchange rate changes on cash,
cash equivalents and short-term
investments (12.4) (2.3) (1.6)
-----------------------------
Net change in cash, cash equivalents
and short-term investments 15.9 (26.8) (37.9)
-----------------------------
Cash, Cash Equivalents And Short-Term
Investments, Beginning Of Year 167.8 194.6 232.5
-----------------------------
Cash, Cash Equivalents And Short-Term
Investments, End Of Year $183.7 $167.8 $194.6
==============================
See Notes To Financial Statements
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[40]
<PAGE>
Notes To
Financial Statements
Dollar Amounts In Millions - Except Per Share Data
1. Accounting Policies
Principles Of Consolidation The financial statements include all majority-owned
U.S. and non-U.S. subsidiaries. Intercompany accounts, transactions and profits
are eliminated. The fiscal year is the 52- or 53-week period ending the last
Saturday in December. Certain amounts in the prior years' financial statements
have been reclassified to conform with the current year's presentation.
Use Of Estimates The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management with consideration given to
materiality. For example, estimates are used in determining valuation allowances
for uncollectible trade receivables, obsolete inventory and deferred income
taxes. Actual results could differ from those estimates.
Cash And Cash Equivalents Cash equivalents include time deposits and highly
liquid investments with original maturities of three months or less.
Inventories Inventories are valued at the lower of cost or market, generally
using the first-in, first-out (FIFO) method. However, cost is determined by
using the last-in, first-out (LIFO) method for certain U.S. inventories.
Property, Plant And Equipment Property, plant and equipment, including
improvements that significantly add to productive capacity or extend useful
life, are recorded at cost, while maintenance and repairs are expensed as
incurred. Depreciation is calculated for financial reporting purposes using the
straight-line method based on the estimated useful lives of the assets as
follows: buildings, 30 to 40 years; machinery and equipment, 2 to 10 years; and
leasehold improvements, the lease periods.
Goodwill Goodwill is amortized on a straight-line basis over periods ranging
from 8 to 40 years. The company evaluates goodwill for impairment at least
annually. In completing this evaluation, the company compares its best estimate
of future cash flows, excluding interest costs, with the carrying value of
goodwill.
Revenue Recognition Revenues are generally recognized when products are shipped.
The company has established programs which, under specified conditions, enable
customers to return product. The company establishes liabilities for estimated
returns and allowances at the time of shipment. In addition, accruals for
customer discounts and rebates are recorded when revenues are recognized.
Stock-Based Compensation The company measures compensation cost for its
stock-based compensation plans under the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." In
accordance with Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," disclosure of compensation costs on
the basis of fair value is presented in Note 16--Stock Compensation Plans.
Advertising Expense External costs incurred in producing media advertising are
expensed the first time the advertising takes place. Promotional or advertising
costs associated with customer support programs are accrued when the related
revenues are recognized. At December 27, 1997 and December 28, 1996, $7.2 and
$5.8 of deferred advertising costs representing production and design costs for
advertising to be run in the subsequent fiscal year, were reported as other
current assets. Advertising expenses of $235.0, $241.8 and $232.5 were included
in selling, administrative and general expenses for 1997, 1996 and 1995,
respectively.
Start-Up Costs One-time, incremental out-of-pocket expenditures directly related
to and incurred during the start-up phase of major internal projects are
deferred and amortized over future periods. Upon conclusion of the start-up
period, these costs are amortized on a straight-line basis over periods of no
more than three years. Recoverability of these costs is assessed on an ongoing
basis and writedowns to net realizable value are recorded as necessary. At
December 27, 1997 and December 28, 1996, $3.6 and $4.3 of start-up costs were
reported as other assets, respectively.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[41]
<PAGE>
Investments In Debt And Equity Securities Certain of the company's other
investments are classified as available-for-sale under the terms of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities," and
accordingly, any unrealized holding gains and losses, net of taxes, are excluded
from income and recognized as a component of other shareholders' equity until
realized. Fair value of the investments is determined based on market prices or
using discounted cash flows and investment risk.
Foreign Currency Translation Assets and liabilities of certain non-U.S.
subsidiaries are translated at current exchange rates, and related revenues and
expenses are translated at average exchange rates in effect during the period.
Resulting translation adjustments are recorded in other shareholders' equity.
Financial results of non-U.S. subsidiaries in countries with highly inflationary
economies are translated using a combination of current and historical exchange
rates and any translation adjustments are included in net earnings, along with
all transaction gains and losses for the period.
Derivative Financial Instruments The company does not engage in foreign currency
or interest rate speculation. Derivative financial instruments are utilized to
hedge foreign exchange and interest rate risks and are not held or issued for
trading purposes.
The company uses a combination of foreign currency forward, option and swap
contracts to hedge foreign exchange exposures. The portfolio of contracts is
adjusted at least monthly to reflect changes in exposure positions as changes
become known. When possible and practical, the company matches the maturity of
the hedging instrument to that of the underlying exposure. Net settlements are
generally made at contract maturity based on rates agreed to at contract
inception. Gains and losses on hedges of transaction exposures are included in
income in the period in which exchange rates change. Gains and losses related to
hedges of foreign currency firm commitments are deferred and recognized in the
basis of the transaction when completed, while those on forward contracts
hedging non-U.S. equity investments are offset against the currency component in
other shareholders' equity. The receivable or payable with the counterparty to
the derivative contract is reported as either other current assets or accrued
liabilities, respectively. Deferred gains and losses, which are recorded as
other current assets or accrued liabilities, totaled less than $0.5 at December
27, 1997 and December 28, 1996 and are expected to be recognized within one
year.
The company enters into interest rate swap and cap agreements to
effectively limit exposure to interest rate movements within the parameters of
its interest rate hedging policy. This policy requires that interest rate
exposure from floating-rate assets be offset by a substantially similar amount
of floating-rate liabilities. Interest rate derivatives are used to readjust
this natural hedge position whenever it becomes unbalanced beyond policy limits.
Net payments or receipts are accrued into other current assets and accrued
liabilities and recorded as adjustments to interest expense or as interest
income. Interest rate instruments are entered into for periods no greater than
the life of the underlying transactions being hedged or, in the case of
floating-rate to fixed-rate swaps, for periods no longer than the underlying
floating-rate exposure is expected to remain outstanding. Interest rate
derivatives are normally held to maturity, but may be terminated early,
particularly if the underlying exposure is similarly extinguished. Gains and
losses on prematurely terminated interest rate derivatives are recognized over
the remaining life, if any, of the underlying exposure as an adjustment to
interest income or interest expense.
The company amortizes premium income or expense incurred from entering
into foreign exchange forward and option contracts and interest rate derivatives
over the life of each agreement as non-operating income and expense.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[42]
<PAGE>
2. Subsequent Events
On December 29, 1997, the company acquired Chiron Vision Corporation (Chiron
Vision), the ophthalmic products unit of Chiron Corporation, for a purchase
price of $300.0 in cash. Chiron Vision researches, develops and manufactures
innovative products that improve results in cataract and refractive surgery and
the treatment of progressive eye diseases. Chiron Vision had unaudited net sales
of $212.7 for the twelve months ended December 1997. Further, on December 31,
1997, the company acquired Storz Instrument Company (Storz) from American Home
Products Corporation, for a purchase price of $380.0 in cash. Storz is a leading
manufacturer of high quality ophthalmic surgical instruments, surgical and
diagnostic equipment, intraocular lens implants and ophthalmic pharmaceuticals.
Storz had unaudited net sales of $205.7 for the twelve months ended December
1997. The acquisitions will be accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase price will be allocated to
net tangible and intangible assets acquired based on their estimated fair
values. A portion will also be allocated to in-process research and development
projects that had not reached technological feasibility and had no probable
alternative future uses which will be expensed in the first quarter of 1998. The
balance of the purchase price will be recorded as goodwill. The company is
currently in the process of preparing the purchase price allocation and
determining the useful lives of the assets acquired. The acquisitions were
financed initially through $680.0 of short-term borrowings, the majority of
which the company plans to convert to long-term during 1998. The company expects
the full year earnings impact of the acquisitions in 1998 to be neutral.
3. Earnings Per Share
In 1997, the company adopted SFAS No. 128, "Earnings Per Share", which requires
the disclosure of basic and diluted earnings per share. Basic earnings per share
is computed based on the weighted average number of Common and Class B shares
outstanding during the period. Diluted earnings per share reflects the assumed
conversion of dilutive stock options. In computing the per share effect of
assumed conversion, funds which would have been received from the exercise of
options are considered to have been used to purchase Common shares at average
market prices for the period, and the resulting net additional Common shares are
included in the calculation of average Common shares outstanding. All previously
reported earnings per share amounts were restated upon adoption of SFAS No. 128.
The table below summarizes the amounts used to calculate basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------------------------------
Average Average Average
Outstanding Outstanding Outstanding
Net Shares Per Net Shares Per Net Shares Per
Earnings (000s) Share Earnings (000s) Share Earnings 000s) Share
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings
Per Share $49.4 55,383 $0.89 $83.1 56,299 $1.48 $112.0 57,704 $1.94
Effect of Dilutive
Stock Options -- 271 -- 211 -- 270
--------------------- ------------------ -----------------
Diluted Earnings
Per Share $49.4 55,654 $0.89 $83.1 56,510 $1.47 $112.0 57,974 $1.93
===========================================================================
=========================
</TABLE>
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[43]
<PAGE>
Certain antidilutive outstanding stock options were excluded from the
calculation of average shares outstanding since their exercise prices exceeded
the average market price of the Common shares during the period. The
antidilutive stock options so excluded at the end of each of the last three
years and their associated exercise prices are summarized below. The options
expire at various times between 2001 and 2007.
Number Of
Options (000s) Exercise Price
- --------------------------------------------------------------------
1997 3,431 $41.50 - $55.44
1996 2,981 36.38 - 55.44
1995 3,105 41.50 - 55.44
=============================================
4. Restructuring Charges
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 administration functions. As a result, cumulative pre-tax
restructuring charges of $74.2 were recorded throughout 1997, the major
components of which are summarized in the table below:
<TABLE>
<CAPTION>
Pharma- Corporate
Vision Care Eyewear ceuticals Healthcare Administration Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee
separations $17.2 $23.8 $3.9 $3.2 $3.7 $51.8
Asset writedowns 3.3 6.6 -- 1.8 0.3 12.0
Other 0.4 4.4 1.2 0.9 3.5 10.4
------------------------------------------------------------------------
$20.9 $34.8 $5.1 $5.9 $7.5 $74.2
------------------------------------------------------------------------
</TABLE>
This restructuring effort is expected to reduce significantly 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.
Asset writedowns primarily related to the closing of facilities and losses
resulting from equipment dispositions. Other charges included losses under lease
and other commitments.
In June 1996 and December 1995, the company's board of directors approved
plans to restructure portions of the vision care, eyewear and healthcare
operations and certain corporate administration functions. Accordingly, pre-tax
restructuring charges of $41.8 were recorded, the major components of which are
set forth in the table below:
Vision Corporate
Care Eyewear Healthcare Administration Total
- -------------------------------------------------------------------------------
Employee separations $ 4.5 $14.3 $2.1 $3.5 $24.4
Asset writedowns 4.1 4.4 2.2 1.0 11.7
Other 3.1 2.1 0.5 -- 5.7
----------------------------------------------------------
$11.7 $20.8 $4.8 $4.5 $41.8
==========================================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[44]
<PAGE>
The charges provided for costs associated with streamlining operations,
including the closure of certain manufacturing facilities, the reorganization of
European and Asian logistics and warehousing and consolidation of administrative
functions. During 1997, the actions relating to these programs were
substantially completed and remaining reserves of $2.5 were reversed, resulting
in net reported restructuring expense of $71.7 in 1997.
The following table sets forth the activity in the restructuring reserves
through December 27, 1997:
<TABLE>
<CAPTION>
Vision Pharma- Corporate
Care Eyewear ceuticals Healthcare Administration Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Restructuring
provisions:
1995 and 1996,
net of reversals $10.1 $18.8 $ -- $4.8 $5.6 $39.3
1997 20.9 34.8 5.1 5.9 7.5 74.2
Less charges against
1995 and 1996 reserve:
Non-cash items 4.1 4.4 -- 2.2 1.0 11.7
Cash payments 6.0 14.4 -- 2.6 4.6 27.6
Less charges
against
1997 reserve:
Non-cash items 3.3 6.6 -- 1.8 0.3 12.0
Cash payments 8.5 8.9 1.9 1.2 5.9 26.4
----------------------------------------------------------------------
Balance at
December 27,
1997 $ 9.1 $19.3 $3.2 $2.9 $1.3 $35.8
======================================================================
</TABLE>
All actions contemplated at the time of establishing the 1997 reserves have been
initiated and are expected to be fully completed during 1998. Reserves remaining
at December 27, 1997 primarily represent liabilities for continuing severance
payments and are considered to be adequate.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[45]
<PAGE>
5. Geographic Region And Business Segment Information
The company's operating results are reported in four segments: vision care,
eyewear, pharmaceuticals and healthcare. The vision care segment includes
contact lenses and lens care products. The eyewear segment includes sunglasses,
vision accessories, the optical thin film coating services and products business
which was divested in December 1997 and the sports optics business which was
divested in 1995. The pharmaceuticals segment includes prescription
pharmaceuticals and over-the-counter medications. The healthcare segment
includes biomedical products and services, skin care products, hearing aids and
the oral care and dental implant businesses which were divested in 1996.
Inter-area sales to affiliates represent products which are transferred
between geographic region on a basis intended to reflect the market value of the
products as nearly as possible.
Identifiable assets are those assets used exclusively in the operations of
each business segment or geographic region, or which are allocated when used
jointly. Corporate assets are principally cash and cash equivalents, short-term
investments, other investments and certain property, plant and equipment.
The following tables present sales and other financial information by
geographic region and business segment for the years 1997, 1996 and 1995:
Geographic Region
<TABLE>
<CAPTION>
Europe,
Middle East Asia- Canada &
U.S. & Africa Pacific Latin America Consolidated
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Sales to unaffiliated customers $ 966.7 $ 481.9 $356.6 $110.5 $1,915.7
Inter-area sales to affiliates 152.6 100.3 46.4 3.3 302.6
Operating earnings 69.6 58.8 20.4 (0.8) 148.0(1)
Identifiable assets 1,269.8 1,136.9 306.2 60.0 2,772.9
=================================================================
1996
Sales to unaffiliated customers $ 963.3 $ 500.8 $346.6 $116.1 $1,926.8
Inter-area sales to affiliates 162.4 75.5 19.7 3.1 260.7
Operating earnings 76.4 74.7 36.1 3.6 190.8(2)
Identifiable assets 1,204.2 1,090.5 238.3 70.4 2,603.4
=================================================================
1995
Sales to unaffiliated customers $ 997.6 $ 471.0 $345.3 $119.0 $1,932.9
Inter-area sales to affiliates 151.6 79.7 13.0 4.2 248.5
Operating earnings 75.8 93.2 43.6 (2.0) 210.6(3)
Identifiable assets 1,152.6 1,078.4 244.1 75.0 2,550.1
=================================================================
</TABLE>
(1) Includes restructuring charges of $71.7 as follows: U.S., $51.8;
Europe, Middle East & Africa, $13.3; Asia-Pacific, $2.5 and Canada &
Latin America, $4.1.
(2) Includes restructuring charges of $15.1 as follows: U.S., $6.3;
Europe, Middle East & Africa, $6.5; Asia-Pacific, $1.9 and Canada &
Latin America, $0.4.
(3) Includes restructuring charges of $26.7 as follows: U.S., $22.9;
Europe, Middle East & Africa, $3.3 and Canada & Latin America, $0.5.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[46]
<PAGE>
Business Segment
<TABLE>
<CAPTION>
Operating Identifiable Capital
Net Sales Earnings Depreciation Assets Expenditures
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Vision care $ 908.9 $189.9 $43.4 $ 652.5 $ 73.4
Eyewear 492.1 (59.2) 24.4 514.2 20.7
Pharmaceuticals 190.6 31.5 7.8 193.8 10.0
Healthcare 324.1 39.9 13.0 418.5 20.4
Corporate administration -- (54.1) 2.2 993.9 1.6
---------------------------------------------------------------------
$1,915.7 $148.0(1) $90.8 $2,772.9 $126.1
=====================================================================
1996
Vision care $ 869.1 $182.1 $38.2 $ 646.1 $ 61.9
Eyewear 525.1 (5.6) 23.4 461.0 28.6
Pharmaceuticals 189.0 28.6 8.4 200.5 14.2
Healthcare 343.6 34.8 16.9 417.6 21.5
Corporate administration -- (49.1) 5.7 878.2 4.1
---------------------------------------------------------------------
$1,926.8 $190.8(2) $92.6 $2,603.4 $130.3
=====================================================================
1995
Vision care $ 813.7 $158.5 $34.2 $ 593.2 $ 38.7
Eyewear 581.4 43.7 25.7 410.1 19.9
Pharmaceuticals 181.5 38.5 8.5 196.1 12.7
Healthcare 356.3 30.8 17.9 430.1 14.4
Corporate administration -- (60.9) 2.9 920.6 9.8
---------------------------------------------------------------------
$1,932.9 $210.6(3) $89.2 $2,550.1 $ 95.5
=====================================================================
</TABLE>
(1) Includes restructuring charges of $71.7 as follows: vision care, $19.3;
eyewear, $32.8; pharmaceuticals, $5.1; healthcare, $5.9 and corporate
administration, $8.6.
(2) Includes restructuring charges of $15.1 as follows: vision care, $8.6;
eyewear, $5.0 and corporate administration, $1.5.
(3) Includes restructuring charges of $26.7 as follows: vision care, $3.1;
eyewear, $15.8; healthcare, $4.8 and corporate administration, $3.0.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[47]
<PAGE>
6. Supplemental Balance Sheet And Cash Flow Information
Inventories
December 27, December 28,
1997 1996
- --------------------------------------------------------------------------------
Raw materials and supplies $ 96.3 $ 89.4
Work in process 23.4 20.1
Finished products 218.1 238.3
--------------------------------
337.8 347.8
Less allowance for valuation of certain
U.S. inventories at LIFO 13.5 8.0
--------------------------------
$324.3 $339.8
================================
Inventories valued using LIFO $ 84.1 $ 74.9
================================
Property, Plant And Equipment
December 27, December 28,
1997 1996
- --------------------------------------------------------------------------------
Land $ 21.0 $ 22.1
Buildings 392.2 403.7
Machinery and equipment 727.0 689.7
Leasehold improvements 34.9 33.1
--------------------------------
1,175.1 1,148.6
Less accumulated depreciation 594.9 581.9
--------------------------------
$ 580.2 $ 566.7
================================
Cash Flow Information Payments of interest in 1997, 1996 and 1995 were $56.2,
$48.6 and $44.6, respectively. Net (refunds) payments of income taxes during
those years were $(6.4), $85.7 and $94.5, respectively.
7. Other Investments
The company has invested 219 million Netherlands guilders (NLG), approximating
$136.0 at the time of the investment, in securities issued by a subsidiary of a
triple-A rated financial institution. The issuer's investments are restricted to
high quality short-term investments and government obligations and the issuer
reinvests all of its income. At December 27, 1997, the average U.S. dollar rate
of return was 5.50%, including the effects of a foreign currency swap
transaction which effectively hedges the currency risk and converts the NLG
income to a U.S. dollar rate of return. The company has the right to call for
redemption of the shares held each quarter at net asset value. In the event this
right is not exercised, the triple-A rated financial institution has the right
to put the shares it owns to the company in March and June, 2003.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[48]
<PAGE>
The company has also invested $425.0 in securities issued by a subsidiary
of a double-A rated financial institution. The securities rank senior to all
other classes of the issuer's equity and rank junior to the secured and
unsecured liabilities of the issuer, including subordinated debt obligations,
and are neither payable upon demand nor have a fixed maturity. The securities
pay quarterly cumulative dividends at a variable LIBOR-based rate. At December
27, 1997, this rate was 5.17%. The issuer holds a call option on the securities,
exercisable upon 180 days notice. The securities will become freely transferable
in 2004. At that time, the dividend rate will be reset, if necessary, to ensure
that the market value of the securities is equal to par value.
Management believes that each of the above investments is fully recoverable
at par value based on the high quality and stability of the institutions.
However, the investments are subject to equity risks.
8. Provision For Income Taxes
An analysis of the components of earnings before income taxes and minority
interest and the related provision for income taxes is presented below:
1997 1996 1995
- -------------------------------------------------------------------
Earnings before income taxes
and minority interest
U.S. $ 1.5 $ 42.0 $ 64.4
Non-U.S. 116.5 126.9 147.4
---------------------------------
$118.0 $168.9 $211.8
=================================
Provision for income taxes
Federal
Current $ 24.0 $ (3.2) $ 57.1
Deferred (12.3) 13.9 (27.5)
State
Current 4.1 4.4 12.3
Deferred (0.5) 2.0 (6.2)
Foreign
Current 36.4 48.4 47.1
Deferred (6.1) (1.8) (4.7)
---------------------------------
$ 45.6 $ 63.7 $ 78.1
=================================
Deferred taxes, detailed below, recognize the impact of temporary differences
between the amounts of assets and liabilities recorded for financial statement
purposes and such amounts measured in accordance with tax laws. Realization of
the tax loss and credit carryforwards, which expire between 1998 and 2012, is
contingent on future taxable earnings. Valuation allowances have been recorded
for these and other asset items which may not be realized.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[49]
<PAGE>
<TABLE>
<CAPTION>
December 27, 1997 December 28, 1996
------------------------------------------------------------
Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Inventories $ 26.4 $ -- $ 28.0 $ --
Restructuring accruals 23.3 -- 6.6 --
Employee benefits and compensation 20.1 -- 17.6 --
Sales and allowance accruals 14.7 -- 19.6 --
Legal/litigation accruals 10.5 -- 8.6 --
Other accruals 8.2 -- 9.4 --
Unrealized foreign exchange transactions 1.5 14.1 1.8 8.6
State and local income tax -- 10.5 0.4 7.4
Tax loss and credit carryforwards -- -- 1.2 --
------------------------------------------------------------
104.7 24.6 93.2 16.0
------------------------------------------------------------
Non-current:
Tax loss and credit carryforwards 49.7 -- 29.8 --
Employee benefits 32.4 0.2 40.0 0.6
Unrealized foreign exchange transactions 3.0 13.9 -- 8.4
Depreciation and amortization 0.1 53.6 0.6 56.7
Other accruals -- 4.2 -- 4.2
State and local income tax -- -- -- 1.8
Valuation allowance (27.4) -- (27.3) --
------------------------------------------------------------
57.8 71.9 43.1 71.7
------------------------------------------------------------
$162.5 $96.5 $136.3 $87.7
============================================================
</TABLE>
Reconciliations of the statutory U.S. federal income tax rate to effective tax
rates were as follows:
1997 1996 1995
- --------------------------------------------------------------------------
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 2.0 2.5 1.9
Difference between non-U.S. and U.S. tax rates 1.9 2.9 0.9
Goodwill amortization 1.1 1.0 1.0
Foreign Sales Corporation tax benefit (2.1) (1.8) (1.2)
Other 0.8 (1.9) (0.7)
--------------------------
Effective tax rate 38.7% 37.7% 36.9%
==========================
At December 27, 1997, earnings considered to be permanently reinvested in
non-U.S. subsidiaries totaled approximately $754.1. Deferred income taxes have
not been provided on these earnings, as the company does not plan to initiate
any action that would require the payment of income taxes. It is not practicable
to estimate the amount of additional tax that might be payable on these
undistributed foreign earnings.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[50]
<PAGE>
9. Debt
Short-term debt at December 27, 1997 and December 28, 1996 consisted of $297.0
and $366.3 in U.S. commercial paper and promissory notes issued to banks and
$42.4 and $27.8 in non-U.S. borrowings, respectively. To support its liquidity
requirements, the company maintains U.S. revolving credit agreements with
364-day and 5-year credit terms totaling $900.0 and $300.0, respectively. No
debt was outstanding under these agreements at December 27, 1997. Commitment
fees on these revolving credit agreements fluctuate according to the long-term
debt ratings of the company, and were 0.100% and 0.125% on the 364-day and
5-year agreements, respectively, as of December 27, 1997. The interest rate
applicable to borrowings under the agreements is based on the LIBOR rate, or, at
the company's option, the higher of several other common indices. The company
also maintains unused U.S. bank lines of credit amounting to approximately
$32.0. Compensating balance arrangements for these lines are not material.
The company has entered into two seven-year interest rate swap agreements,
each in notional amounts of $100.0, which convert $200.0 of U.S. commercial
paper into fixed-rate obligations with an effective interest rate of 6.48%. The
swaps will terminate on January 1, 2002.
Average short-term interest rates, which include the effect of the interest
rate swap agreements, were 6.0% and 5.8% at year end 1997 and 1996,
respectively. The maximum amount of short-term debt at the end of any month was
$529.4 in 1997 and $472.0 in 1996. Average month-end borrowings were $476.3 in
1997 and $405.8 in 1996.
The components of long-term debt were:
December 27, December 28,
1997 1996
- --------------------------------------------------------------------------------
Fixed-rate notes payable:
Notes due in 1997 $ -- $ 85.0
Notes due in 1999 23.3 26.3
Notes due in 2001 or 2026 100.0 100.0
Notes due in 2003 85.0 85.0
Notes due in 2004 200.0 --
Other 16.8 12.2
Securitized trade receivables expiring in 2002 75.0 --
Industrial Development Bonds due in 2015 8.5 8.5
Other 6.6 7.3
-----------------------------
515.2 324.3
Less current portion 4.4 88.0
-----------------------------
$510.8 $236.3
=============================
The notes maturing in 1999 relate to borrowings of 3 billion Japanese yen at
interest rates ranging from 2.21% to 2.28%. The $100.0 notes were issued under
the company's $300.0 medium-term note program at a fixed rate of 6.56%. The
holders, at their option, may put these notes back to the company in 2001;
otherwise the notes mature in 2026. An interest rate swap agreement on the $85.0
note due in 2003 effectively converts the note to a floating-rate obligation
with an interest rate based on the one-month U.S. composite commercial paper
rate. At December 27, 1997 this rate was 5.9%. Under the $300.0 medium-term note
program the com-
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[51]
<PAGE>
pany also issued $200.0 of underwritten notes due in 2004 at a fixed rate of
6.75%. The company, at its option, may call these notes at any time pursuant to
a make-whole redemption provision, which would compensate holders for any
changes in market value on early extinguishment of the notes. The interest rate
on the Industrial Development Bonds, which was 4.5% at December 27, 1997, varies
based on the prime rate and prevailing market conditions.
In 1997, the company entered into an agreement, expiring in 2002, to sell
undivided fractional interests in specific pools of U.S. trade receivables of up
to $75.0. Proceeds from the sales contemplated by the agreement, which totaled
$75.0 at December 27, 1997, were reported as long-term borrowings in accordance
with SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities." The interest rate applicable to the proceeds
from the agreement at December 27, 1997 was 5.82% and will vary based on the
company's credit rating. Separate U.S. and non-U.S. agreements for the sale of
receivables totaling $65.0 and 3 billion Japanese yen, respectively, were
terminated during 1997. Prior to their termination, proceeds from these
agreements were reported as reductions to trade receivables and totaled $86.8 at
December 28, 1996. Fees and discounting expenses related to the terminated U.S.
agreement were recorded as interest expense and totaled approximately $0.9 in
1997, $3.8 in 1996 and $4.5 in 1995.
Interest rate swap agreements on long-term debt issues resulted in a
reduction in the long-term effective interest rate from 5.9% to 5.7% in 1997 and
from 6.0% to 5.5% in 1996. Long-term borrowing maturities during the next five
years are $4.4 in 1998; $28.9 in 1999; $2.2 in 2000; $108.3 in 2001 and $76.6 in
2002.
10. Operating Leases
The company leases land, buildings, machinery and equipment under noncancelable
operating leases. Total annual rental expense for 1997, 1996 and 1995 amounted
to $35.2, $26.8 and $28.0, respectively.
Minimum future rental commitments having noncancelable lease terms in
excess of one year aggregated $130.8 as of December 1997 and are payable as
follows: 1998, $20.8; 1999, $14.7; 2000, $10.9; 2001, $9.2; 2002, $6.1 and
beyond, $69.1.
The company leases an office facility under a seven-year operating lease,
expiring in 2002, with an associated residual value guarantee in an amount not
to exceed $54.6. During 1997, net rental payments on the lease, included above,
approximated $4.3.
11. Employee Benefits
The company sponsors several retirement plans which, in the aggregate, cover
substantially all U.S. employees and employees in certain other countries. In
general, retirement benefits are based on years of service and the employee's
compensation near retirement. Certain non-U.S. pension arrangements also provide
termination indemnity payments. Contributions to the company's major U.S. plan
meet ERISA minimum funding requirements. The plan's investments consist
primarily of equity securities, corporate bonds, U.S. government issues and cash
and cash equivalents. The company also sponsors defined contribution plans and
participates in government-sponsored programs in certain non-U.S. locations.
In addition to retirement plans, the company sponsors a participatory
defined benefit postretirement plan providing medical and life insurance
benefits to a majority of its U.S. employees. The plan provides benefits to
retirees who have attained age 55 with ten years of service, spouses of such
employees and certain employees on disability. The company has established a
Voluntary Employee Benefit Association trust to provide for payment of these
benefits. Annual contributions of $5.0 were made to the trust in each of the
years 1997, 1996 and 1995. The trust's investments consist primarily of
participating insurance contracts. The company intends to continue a program of
prefunding for these benefits on an annual basis, but the amount of any future
con-
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[52]
<PAGE>
tributions is discretionary. The company also provides postretirement benefits
to employees at a number of its non-U.S. locations in accordance with local
statutory requirements. Such benefits are generally provided through
government-sponsored plans.
The company sponsors supplemental defined benefit retirement plans for
certain key employees. These plans are unfunded. The pension liability
associated with these plans has generally been determined using the same
actuarial methods and assumptions as those used for the company's qualified
plans. The annual cost of these plans has been included in the net periodic
pension cost shown below and totaled $1.4 in 1997, $1.2 in 1996 and $0.9 in
1995. The projected benefit obligation relating to these unfunded plans at year
end was $9.1 in 1997 and $7.7 in 1996.
The components of net periodic pension cost and net periodic postretirement
benefit (income) cost are presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------------------------------
U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans Plans Plans
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Retirement Plans
Service cost - benefits
earned during the period $ 6.3 $ 2.0 $ 6.5 $ 2.1 $ 5.4 $ 2.1
Interest cost on projected
benefit obligation 12.7 2.0 11.8 1.9 10.9 1.8
Actual return on plan assets (29.0) (2.1) (20.6) (2.7) (26.3) (1.9)
Charges due to curtailment -- -- 1.0 -- -- --
Net amortization and deferral 16.0 0.6 10.0 1.4 17.7 1.0
-------------------------------------------------------------------------------------
Net periodic pension cost $ 6.0 $ 2.5 $ 8.7 $ 2.7 $ 7.7 $ 3.0
===========================================================================
==========
Other Postretirement Benefits
Service cost - benefits
earned during the period $ 1.2 $ 1.9 $ 1.9
Interest cost on accumulated
benefit obligation 4.9 6.0 6.0
Actual return on plan assets (5.6) (1.9) (2.9)
Credits due to curtailment (1.0) (0.9) --
Net amortization and deferral 0.2 (2.0) (0.3)
-------------------------------------------------------------------------------------
Net periodic postretirement
benefit (income) cost $ (0.3) $ 3.1 $ 4.7
===========================================================================
==========
</TABLE>
Plan assets and the projected benefit obligations have been measured as of
December for each period. Net periodic pension and postretirement benefit costs
have been determined using assumptions as of the beginning of each year. The
overall decrease in net periodic pension costs was attributable to higher asset
returns in 1997 partially offset by increased interest costs on increasing
earned benefits. The curtailment charge in 1996 was a result of several plant
closings that occurred that year as a result of the company's restructuring
efforts. The decrease in postretirement benefit cost was attributable to changes
in assumptions for the medical care cost trend rate, population experience, a
favorable return on plan assets and favorable medical claims experience.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[53]
<PAGE>
Key economic assumptions used in developing the projected benefit obligations
for the company's major U.S. and non-U.S. retirement plans and U.S.
postretirement plans at year end were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------------------------------
U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans Plans Plans
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.5% 4.0-8.0% 7.75% 5.5-8.0% 7.75% 5.5-8.0%
Rate of increase in
compensation
levels 4.75% 3.7-6.5% 5.0% 3.7-6.5% 5.0% 4.2-6.5%
Expected long-term
rate of return on
plan assets 9.0-10.0% 2.5-9.0% 9.0-10.0% 2.5-9.0% 9.0-10.0% 5.5-9.0%
Medical care cost
trend rate 9.0% 10.0% 11.0%
===========================================================================
=========
</TABLE>
The company elected to revise its assumptions for 1997 for its U.S. plans in
recognition of lower long-term interest rates and a trend in recent years
favoring lower or stable inflation. The medical care cost trend rate is assumed
to decrease one percent per year to 6.0% in the year 2000 for future valuations,
and has a significant effect on the expense reported. For example, a one
percentage point increase in the medical care cost trend rate would have
increased the aggregate of the service and the interest cost components of net
periodic postretirement benefit cost by approximately $0.7 or 12% in 1997.
The following tables set forth the funded status and amounts recognized in
the company's consolidated balance sheet:
<TABLE>
<CAPTION>
December 27, 1997 December 28, 1996
- ---------------------------------------------------------------------------------------------------
Over Under Over Under
Funded Funded Funded Funded
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement Plans
Actuarial present value of benefit obligations:
Vested benefits $164.7 $16.6 $22.2 $144.8
Non-vested benefits 6.0 0.2 0.6 3.5
-----------------------------------------------
Accumulated benefit obligation 170.7 16.8 22.8 148.3
Effect of projected future salary increases 24.2 2.3 13.2 12.4
-----------------------------------------------
Projected benefit obligation 194.9 19.1 36.0 160.7
Plan assets at fair value 200.2 1.4 43.1 129.5
-----------------------------------------------
Projected benefit obligation (less than) in excess
of plan assets (5.3) 17.7 (7.1) 31.2
Unrecognized net gain (loss) from past experience
different from that assumed 12.3 (2.1) 10.4 (1.4)
Unrecognized prior service costs (12.7) (1.4) (0.2) (15.0)
Unrecognized net transition obligation (3.8) (0.3) (1.7) (3.4)
Additional liability -- 2.0 -- 7.4
-----------------------------------------------
(Prepaid) accrued pension liability $ (9.5) $15.9 $ 1.4 $ 18.8
===============================================
</TABLE>
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[54]
<PAGE>
December 27, December 28,
1997 1996
- --------------------------------------------------------------------------------
Other Postretirement Benefits
Actuarial present value of postretirement benefit obligations:
Retirees $56.2 $54.2
Active, eligible participants 6.3 9.0
Other active participants 13.0 18.2
--------------------------
Accumulated benefit obligation 75.5 81.4
Plan assets at fair value 33.9 23.3
--------------------------
Accumulated benefit obligation in excess of plan assets 41.6 58.1
Unrecognized prior service cost 1.5 1.8
Unrecognized net gain 38.8 33.1
--------------------------
Accrued postretirement benefit liability $81.9 $93.0
==========================
The unrecognized projected pension benefit obligation in excess of plan assets
for retirement plans is being amortized against net periodic pension cost over
the remaining service lives of the plan participants. The company records an
additional liability to give recognition to the underfunded plan positions.
Increasing the assumed medical care cost trend rates by one percentage
point would have increased the accrued postretirement benefit liability as of
December 27, 1997 by approximately $7.3 or 10%. This reflects the significant
effect this assumption has on the calculation of the obligation.
12. Minority Interest
Four wholly-owned subsidiaries of the company have contributed operating and
financial assets to a limited partnership for an aggregate 72% in general and
limited partnership interests. The partnership is a separate legal entity from
the company whose purpose is to own and manage a portfolio of assets. Those
assets include portions of the company's biomedical operations, those used for
the manufacture and sale of rigid gas permeable contact lenses and lens care
products, cash and cash equivalents, a long-term note guaranteed by the company
and certain floating-rate demand notes due from certain of the company's
subsidiaries. For financial reporting purposes, the assets, liabilities and
earnings of the partnership entities have continued to be included in the
company's consolidated financial statements. The outside investor's limited
partnership interest in the partnership has been recorded as minority interest
totaling $403.0 at both December 27, 1997 and December 28, 1996.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[55]
<PAGE>
13. Shareholders' Equity
At December 27, 1997, 10,000 shares of 4% Cumulative Preferred stock, 25 million
shares of Class A Preferred stock, 15 million shares of Class B stock and 200
million shares of Common stock were authorized. The company issues treasury
shares to fulfill its obligations under its stock option plans. The difference
between the cost of treasury shares issued and the option price is charged to
capital in excess of par value.
Changes in shareholders' equity accounts are summarized below:
<TABLE>
<CAPTION>
Common And Class B Treasury Other Shareholders' Equity
------------------ ----------------- -------------------------------------------
Capital In Net Unrealized Cumulative
Shares Excess Of Shares Unearned (Loss)/Gain On
Translation
(000s) Amount Par Value (000s) Amount Compensation Investments
Adjustment
- --------------------------------------------------------------------------------------------------------------------------------
- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 61,271 $ 24.2 $ 93.9 (2,279) $ (94.3) $ (3.2) $ --
$ 47.6
Net shares issued under
stock option plans and
restricted stock awards 196 -- 13.9 298 9.7 (10.3) -- --
Repurchase of Common
and Class B stock -- -- -- (2,545) (94.1) -- -- --
Amortization of
unearned compensation -- -- -- -- -- 4.3 -- --
Foreign currency
translation adjustment -- -- -- -- -- -- -- 37.5
--------------------------------------------------------------------------------------------------
Balance at December 30, 1995 61,467 24.2 107.8 (4,526) (178.7) (9.2) --
85.1
Net shares (canceled) issued
under stock option plans
and restricted stock awards (118) -- (11.7) 428 15.5 (1.9) -- --
Repurchase of Common and
Class B stock -- -- -- (1,847) (67.3) -- -- --
Amortization of unearned
compensation -- -- -- -- -- 0.3 -- --
Foreign currency translation
adjustment -- -- -- -- -- -- -- 4.9
Unrealized holding
loss on other investments -- -- -- -- -- -- (11.8) --
--------------------------------------------------------------------------------------------------
Balance at December 28, 1996 61,349 24.2 96.1 (5,945) (230.5) (10.8) (11.8)
90.0
Net shares (canceled) issued
under stock option plans and
restricted stock awards (294) -- (19.3) 621 29.2 3.1 -- --
Repurchase of Common
and Class B stock -- -- -- (522) (21.8) -- -- --
Amortization of
unearned compensation -- -- -- -- -- 2.6 -- --
Foreign currency
translation adjustment -- -- -- -- -- -- -- (60.9)
Unrealized holding
gain on other investments -- -- -- -- -- -- 11.8 --
--------------------------------------------------------------------------------------------------
Balance at December 27, 1997 61,055 $ 24.2 $ 76.8 (5,846) $(223.1) $ (5.1) $ --
$ 29.1
===========================================================================
=======================
</TABLE>
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[56]
<PAGE>
From time to time, the board of directors may authorize the repurchase,
at management's discretion, of Common shares. During 1997, 500,000 Common shares
were repurchased. The board of directors has not authorized any additional
repurchases.
Unearned compensation relates to awards of restricted stock and is
recorded at the date of award based on the market value of the shares and is
amortized to expense as stock performance goals are met over the applicable
vesting period.
In 1988, the company's board of directors approved the adoption of a
shareholder rights plan, in which preferred share purchase rights were
distributed as a dividend at the rate of one right for each outstanding share of
the company's Common and Class B stock. Common and Class B shares issued
subsequent to the adoption of the rights plan automatically have preferred share
purchase rights attached to them. Under certain circumstances each right
entitles shareholders to purchase one two-hundredth of a share of Series A
Preferred stock, par value $1.00 per share. The rights may become exercisable
under certain circumstances involving actual or potential acquisitions of 20% or
more of the outstanding Common and Class B stock by a person or group. The board
of directors may substitute common stock equivalent preferred shares for Common
shares for the exercise of stock purchase rights. Until the rights become
exercisable, they have no dilutive effect on earnings per share.
The rights, which are non-voting, may be redeemed by the company at a
price of one-half cent per right at any time prior to the acquisition by a
person or group of 20% of the outstanding shares of the company's Common and
Class B stock. In the event a person or group has acquired 20%, but not more
than 50%, of such shares, the company may redeem the rights of each holder,
other than the acquirer, in exchange for either one share of Common stock or one
two-hundredth of a share of Series A Preferred stock. During 1997, the board of
directors evaluated a proposal, passed by shareholders at the 1997 annual
meeting, to revoke this plan. The board concluded that the plan will be allowed
to lapse on the scheduled expiration of the rights on July 1, 1998.
14. Fair Value Of Financial Instruments
The carrying amount of cash, cash equivalents and short-term investments and
notes payable approximates fair value because their maturity is generally less
than one year in duration. The company places its cash, cash equivalents and
short-term investments with multiple financial institutions in order to limit
the amount of credit exposure with any one institution to between $25.0 and
$50.0, based on its credit rating and asset base. The company's remaining
financial instruments consisted of the following:
<TABLE>
<CAPTION>
December 27, 1997 December 28, 1996
----------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonderivatives
Other investments $ 546.4 $ 546.4 $ 560.3 $ 560.3
Long-term debt, including current portion $(515.2) $(516.4) $(324.3) $(320.9)
===================================================
Derivatives held for purposes
other than trading
Foreign exchange instruments:
Other current assets $ 45.3 $ 28.3
Accrued liabilities (40.5) (10.4)
---------------------------------------------------
Net foreign exchange instruments $ 4.8 $ 2.4 $ 17.9 $ 26.9
===================================================
Interest rate instruments:
Other current assets $ 17.5 $ 14.9
Accrued liabilities (12.6) (12.9)
---------------------------------------------------
Net interest rate instruments $ 4.9 $ 20.7 $ 2.0 $ 5.4
===================================================
</TABLE>
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[57]
<PAGE>
Fair value of other investments was determined based on contract terms and
an evaluation of expected cash flows and investment risk. Fair value for
long-term debt was estimated using either quoted market prices for the same or
similar issues or the current rates offered to the company for debt with similar
maturities. The fair value for foreign exchange and interest rate instruments
was determined based upon a model which estimates the fair value of these items
using market rates at year end or was based upon quoted market prices for
similar instruments with similar maturities.
15. Derivative Financial Instruments
Foreign Exchange Risk Management The company enters into foreign exchange
forward and purchased option contracts primarily to hedge foreign currency
transactions and equity investments in non-U.S. subsidiaries. At December 27,
1997, the company hedged aggregate exposures of $1,559.0 by entering into
forward exchange contracts requiring purchases of $964.4 U.S. dollar equivalent
currencies and sales of $594.6 U.S. dollar equivalent currencies. On December
28, 1996, hedged aggregate exposures were $1,434.1, with $818.0 and $616.1 of
purchases and sales of U.S. dollar equivalent currencies, respectively. Of the
outstanding contracts for both 1997 and 1996, the foreign currencies purchased
were primarily Irish pounds as well as Singapore and Hong Kong dollars, and with
respect to 1996, Swiss francs. The foreign currencies sold for the same periods
were primarily German marks, Netherlands guilders and Singapore dollars. The
company selectively hedges firm commitments that represent both a right and an
obligation, mainly for committed purchase orders for foreign-sourced inventory.
At year end 1997 and 1996, respectively, hedging activity related to assets and
liabilities was 43% and 57%. The majority of the remaining hedging activity was
related to the company's equity investments in non-U.S. subsidiaries. In
general, the forward exchange contracts have varying maturities up to, but not
exceeding, two years with cash settlements made at maturity based upon rates
agreed to at contract inception.
The company selectively hedges foreign currency transaction and commitment
exposures arising in countries with hyperinflationary economies, restrictive
exchange controls and underdeveloped currency markets because hedging all such
exposures is not cost effective. The estimated notional amount of such exposures
that remained unhedged at December 27, 1997 was $32.6.
Amortization of premiums or discounts on foreign exchange instruments,
primarily Irish pound contracts and for 1997 German mark and Japanese yen
contracts, resulted in income of approximately $6.7 and $3.6 for 1997 and 1996,
respectively. This amount is highly sensitive to changes in interest rates in
the countries whose currencies are to be exchanged. The company estimates that a
50 basis point net move in either U.S. or Irish interest rates would have
impacted annualized pre-tax income in 1997 by approximately $2.9. Similar
changes in interest rates in other countries would not have a material impact on
reported results.
Carrying value as presented in the table in Note 14--Fair Value Of
Financial Instruments does not reflect unrecognized net premium income totaling
$3.2 in 1997 and $5.4 in 1996. Factoring in these amounts with unrealized gains
and losses, the company's outstanding foreign exchange contracts were in a net
unrealized positive cash flow position of approximately $8.0 at December 27,
1997 as compared to $23.3 at December 28, 1996. The company estimates that for
1997 this net cash flow position, which is highly sensitive to movements in
exchange rates, would have changed by $53.6 for each ten-cent move in the U.S.
dollar to Irish pound exchange rate. Similar changes in exchange rates for other
currencies would have substantially less of an impact on the company. Changes in
periodic cash outflows that could result from such interest rate movements from
maturing or terminated foreign exchange and option contracts would not adversely
impact the company's overall liquidity position.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[58]
<PAGE>
Interest Rate Risk Management The following is a summary of the company's
interest rate swap agreements by major type:
December 27, December 28, Maturities
1997 1996 Through
- --------------------------------------------------------------------------------
Receive fixed swaps-notional amount $465.0 $550.0 2003
Average receive rate 5.60-6.58% 5.60-6.58%
Average pay rate 5.70-5.72% 5.63-5.68%
Pay fixed swaps-notional amount $265.0 $265.0 2002
Average pay rate 6.48-7.29% 6.48-7.29%
Average receive rate 5.70-5.72% 5.59-5.68%
Floating/floating swaps-notional amount $136.3 $132.0 2000
Pay rate (NLG) 3.27% 2.65%
Receive rate (USD) 5.50% 5.34%
========================================
The variable-rate portions of the swaps in the above table are based on either
three-month LIBOR or the one-month U.S. composite commercial paper rate at
December 27, 1997 and December 28, 1996. Changes in these rates would change the
above disclosures and future cash flows.
At December 27, 1997 and December 28, 1996 the company had outstanding an
interest rate cap with a notional amount of NLG 15.5 million which protects the
company from exposures to rising NLG interest rates.
Credit Risk The company is exposed to credit risk to the extent of
non-performance by counterparties to the foreign currency contracts and interest
rate swaps discussed above. The credit ratings of the counterparties, which
consist of a diversified group of major financial institutions, are regularly
monitored and thus credit loss arising from counterparty non-performance is not
anticipated.
16. Stock Compensation Plans
The company sponsors several stock-based compensation plans, all of which are
accounted for under the provisions of APB Opinion No. 25. Accordingly, no
compensation cost has been recognized for the company's fixed stock option plans
or its employee stock purchase plan. Had compensation expense for the company's
fixed options been determined consistent with SFAS No. 123, the company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Basic Earnings Diluted Earnings
Net Earnings Per Share Per Share
- ----------------------------------------------------------------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 49.4 $ 43.5 $0.89 $0.79 $0.89 $0.79
1996 83.1 78.9 1.48 1.41 1.47 1.40
1995 112.0 110.5 1.94 1.91 1.93 1.90
===========================================================================
=======
</TABLE>
The total number of shares available for grant in each calendar year for all
plans combined excluding incentive stock options shall be no greater than three
percent of the total number of outstanding shares of Common stock as of the
first day of each such year. No more than six million shares are available for
granting purposes as incentive stock options. As of December 27, 1997, 3.2
million shares remain available for such grants.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[59]
<PAGE>
Stock Options The company issues stock options which vest ratably over three
years and expire ten years from the grant date. Vesting is contingent upon
continued employment with the company.
For purposes of this disclosure, the fair value of each fixed option grant
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants outstanding in
1997, 1996 and 1995:
1997 1996 1995
- --------------------------------------------------------------------------------
Risk-free interest rate 5.66% 6.11% 5.39%
Dividend yield 2.54% 2.42% 2.17%
Volatility factor 25.17% 24.87% 24.88%
Weighted average expected life (years) 5 5 5
----------------------------------------
The weighted average value of options granted was $10.59, $9.34 and $10.45 in
1997, 1996 and 1995, respectively.
A summary of the status of the company's fixed stock option plans at year
end 1997, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Of Average Number Of Average Number Of Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
(000s) (Per Share) (000s) (Per Share) (000s) (Per Share)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 5,030 $39.90 4,426 $40.84 3,891 $40.50
Granted 1,176 42.32 1,253 35.86 1,182 40.98
Exercised (432) 30.34 (204) 27.40 (207) 26.26
Forfeited (588) 41.99 (445) 43.60 (440) 44.92
------- ----- -----
Outstanding at
year end 5,186 $41.00 5,030 $39.90 4,426 $40.84
===========================================================================
============
Options exercisable
at year end 3,065 3,029 2,661
===========================================================================
============
</TABLE>
The following represents additional information about fixed stock options
outstanding at December 27, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Weighted Average Weighted Weighted
Range Of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
Per Share (000s) (Years) (Per Share) (000s) (Per Share)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$21 to 25 66 0.6 $21.93 66 $21.93
26 to 35 1,447 6.8 34.78 862 34.42
36 to 45 2,488 8.0 41.76 952 41.60
46 to 55 1,185 5.2 48.09 1,185 48.09
------ -----
$21 to 55 5,186 6.9 $41.00 3,065 $41.67
===========================================================================
===========
</TABLE>
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[60]
<PAGE>
Stock Awards The company issues restricted stock awards to directors, officers
and other key personnel. These awards have vesting periods up to three years
with vesting criteria including attainment of certain stock price performance
goals, satisfactory job performance and continued employment until applicable
vesting dates. Compensation expense is recorded based on the applicable vesting
criteria and, for those awards with performance goals, as such goals are met. In
1997, 1996 and 1995, 61,600, 139,052 and 401,522 such awards were granted at
weighted average market values of $41.92, $38.43 and $45.02 per share,
respectively. The compensation expense relating to stock awards in 1997, 1996
and 1995 was $3.3, $1.3 and $5.6, respectively.
17. Litigation
Since June 1994, the company has defended several shareholder actions against
the company, its former Chief Executive Officer and Chairman, Daniel E. Gill,
and four other officers, alleging that the defendants made false and misleading
statements about expected financial results. These actions have been
consolidated in the United States District Court for the Western District of New
York. On November 17, 1997, the company announced that it had entered into a
memorandum of understanding with counsel representing the plaintiffs, agreeing
to pay $42.0 in full settlement of all claims. In entering into this proposed
settlement, the company and the individual defendants have continued to deny all
liability, but have settled in order to avoid the expense and burden of
litigation. The claimants include purchasers of the company's Common stock from
December 13, 1993 through January 25, 1995. The proposed settlement is subject
to making appropriate notice to potential class members and a review by the
Court of the fairness and adequacy of the terms of the settlement. The company's
insurance carriers have agreed to contribute substantially toward this
settlement and the company recorded a one-time charge against 1997
fourth-quarter earnings of $21.0, or $13.2 after taxes.
Since December 1994, the company has been the subject of an investigation
by the Securities and Exchange Commission (SEC) principally focused on the
accounting treatment of (i) a 1993 contact lens sales program and (ii) Asian
sunglass sales from late 1992 through early 1994. This investigation was
concluded when the company, without admitting or denying liability, entered into
a Consent Order with the SEC, which was announced on November 17, 1997. The
Order imposed no financial penalties on the company.
The company has stipulated to certification by a New York State Supreme
Court of a nationwide class of purchasers of Sensitive Eyes Rewetting Drops,
Boston Rewetting Drops, ReNu Rewetting Drops and Bausch & Lomb Eye Wash between
May 1, 1989 and June 30, 1995. This action arose out of matters commenced in
1994 and 1995 alleging that the company misled consumers in its marketing and
sale of those products. Management vigorously defends the company's practices.
In several actions, the company is defending its long-standing policy of
selling contact lenses only to licensed professionals against claims that it was
adopted in conspiracy with others to eliminate alternate channels of trade from
the disposable contact lens market. These matters include (i) a consolidated
action in the United States District Court for the Middle District of Florida
filed in June 1994 by the Florida Attorney General, and now includes claims by
the attorneys general of 21 other states, and (ii) individual actions pending in
California and Tennessee state courts. The company defends its policy as a
lawfully adopted means of ensuring effective distribution of its products and
safeguarding consumers' health.
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[61]
<PAGE>
Report Of
Independent Accountants
To the Shareholders and
Board of Directors of
Bausch & Lomb Incorporated
In our opinion, the accompanying consolidated financial statements appearing on
pages 38 through 61 of this 1997 annual report of Bausch & Lomb Incorporated
present fairly, in all material respects, the financial position of Bausch &
Lomb Incorporated and its subsidiaries at December 27, 1997 and December 28,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 27, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Rochester, New York
January 23, 1998
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[62]
<PAGE>
Selected
Financial Data
<TABLE>
<CAPTION>
Dollar Amounts In Millions --
Except Per Share Data 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Results For The Year
Net sales $1,915.7 $1,926.8 $1,932.9 $1,892.7 $1,830.1 $1,709.1
Net earnings 49.4 83.1 112.0 31.1 138.9 171.4
Basic earnings per share 0.89 1.48 1.94 0.53 2.34 2.89
Diluted earnings per share 0.89 1.47 1.93 0.52 2.31 2.84
Dividends per share 1.04 1.04 1.01 0.955 0.88 0.80
======================================================================
Year-End Position
Working capital $ 202.9 $ 18.5 $ 70.9 $ 277.4 $ 669.6 $ 514.9
Total assets 2,772.9 2,603.4 2,550.1 2,457.7 2,493.0 1,873.7
Short-term debt 343.8 482.1 383.5 300.6 244.6 208.9
Long-term debt 510.8 236.3 191.0 289.5 321.0 277.7
Shareholders' equity 818.4 881.9 929.3 914.4 909.2 898.2
======================================================================
Other Ratios And Statistics
Return on sales 2.6% 4.3% 5.8% 1.6% 7.6% 10.0%
Return on average shareholders' equity 5.9% 9.2% 11.9% 3.2% 15.5% 20.3%
Return on average total assets 1.8% 3.1% 4.5% 1.2% 6.8% 9.5%
Average income tax rate 38.7% 37.7% 36.9% 52.6% 33.5% 32.4%
Current ratio 1.2 1.0 1.1 1.4 1.9 1.9
Total debt to shareholders' equity 104.4% 81.5% 61.8% 64.5% 62.2% 54.2%
Total debt to capital 51.1% 44.9% 38.2% 39.2% 38.3% 35.1%
Capital expenditures $ 126.1 $ 130.3 $ 95.5 $ 84.8 $ 107.2 $ 119.3
======================================================================
</TABLE>
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[63]
<PAGE>
Divisions and
Subsidiaries
THE AMERICAS:
United States
Arnette Optic Illusions, Inc.
San Clemente, California(1)
Bausch & Lomb Lamex, Inc.
Miami, Florida(2)
Bausch & Lomb Pharmaceuticals
Tampa, Florida(1)
Bausch & Lomb Surgical
Claremont, California(1)
Irvine, California(1)
Clearwater, Florida(1)
St. Louis, Missouri(1)
Pearl River, New York(1)
Charles River Laboratories, Inc.
Hollister, California(1)
Summerland Key, Florida(1)
Windham, Maine(1)
Wilmington, Massachusetts(1)
Portage, Michigan(1)
O'Fallon, Missouri(1)
Pittsfield, New Hampshire(1)
Newfield, New Jersey(1)
Stone Ridge, New York(1)
Raleigh, North Carolina(1)
Charleston, South Carolina(1)
Houston, Texas(1)
Dahlberg, Inc.
Golden Valley, Minnesota(1)
East Acres Biologicals
Southbridge, Massachusetts(1)
Eyewear
Rochester, New York(1)
San Antonio, Texas(1)
Polymer Technology Corporation
Wilmington, Massachusetts(1)
Revo, Inc.
Sunnyvale, California(1)
SPAFAS
Lebanon, Connecticut(1)
Preston, Connecticut(1)
Storrs, Connecticut(1)
Voluntown, Connecticut(1)
Gainsville, Georgia(1)
Eureka, Illinois(1)
Roanoke, Illinois(1)
Vision Care
Sarasota, Florida(1)
Rochester, New York(1)
Greenville, South Carolina(1)
Lynchburg, Virginia(1)
Wilmington Partners, L.P.
Wilmington, Massachusetts
Brazil
BL Industria Otica, Ltda.
Porto Alegre(1)
Rio de Janeiro(1)
Canada
Bausch & Lomb Canada, Inc.
Richmond Hill, Ontario(2)
Charles River Canada, Inc.
St. Constant, Quebec(1)
Dahlberg, Inc.
Kitchener, Ontario(1)
Eyewear
Mississauga, Ontario(1)
Mexico
Operadora de Contactologia, S.A. de C.V.
Mexico City(1)
Eyewear
Nuevo Laredo(1)
Aves Libres de Patogenos Especiaficios SA
Puebla(1)
Puerto Rico
Bausch & Lomb Puerto Rico, Inc.
Rio Piedras(2)
Venezuela
Bausch & Lomb Venezuela, C.A.
Caracas(2)
1 Manufacturing, Production and Distribution
2 Direct Marketing and Sales
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[64]
<PAGE>
EUROPE, MIDDLEEAST& AFRICA:
Austria
Bausch & Lomb G.m.b.H.
Vienna(2)
Belgium
Bausch & Lomb Surgical
Antwerp(2)
Czech Republic
Charles River International
Prague(1)
England
Europe, Middle East & Africa Headquarters
London(2)
Bausch & Lomb Surgical
Berkshire(1)
Bausch & Lomb U.K., Limited
London(2)
Charles River U.K., Ltd.
Margate(1)
Madden & Layman Limited
St. Leonards-on-Sea(1)
Shamrock (Great Britain) Limited
Henfield(1)
Egypt
Bausch & Lomb Surgical
Cairo(1)
France
Bausch & Lomb France S.A.
Le Mesnil St. Denis(2)
Bausch & Lomb Surgical
Lyon(1)
Charles River France S.A.
Lyon(1)
St. Aubin-les-Elbeuf(1)
Iffa Credo S.A.
L'Arbresle Cedex(1)
Germany
Bausch & Lomb Surgical
Heidelberg(1)
Munich(1)
Charles River WIGA G.m.b.H.
Extertal Bosingfeld(1)
Kisslegg(1)
Sulzfeld(1)
Dr. Gerhard Mann, Chem.-Pharm.Fabrik G.m.b.H.
Berlin(1)
Greece
Bausch & Lomb International, Inc.
Athens(2)
Hungary
Charles River International
Budapest(1)
Italy
Bausch & Lomb-IOM S.p.A.
Milan(1)
Rome(2)
Bausch & Lomb Surgical
Rome(1)
Charles River Italia S.p.A.
Calco(1)
Killer Loop S.p.A.
Calco(1)
Netherlands
Bausch & Lomb B.V.
Heemstede(1)
European Logistics Center
Amsterdam(1)
Portugal
Bausch & Lomb Espana S.A.
Lisbon(2)
Republic of Ireland
Bausch & Lomb Ireland
Waterford(1)
Republic of South Africa
Bausch & Lomb South Africa (Pty.) Limited
Randburg(1)
Russia
Bausch & Lomb Distops
Moscow(2)
Scotland
Award plc
Livingston(1)
Spain
Bausch & Lomb Conoptica
Barcelona(1)
Madrid(1)
Bausch & Lomb Espana, S.A.
Barcelona(1)
Madrid(2)
Bausch & Lomb Surgical
Barcelona(1)
Criffa, S.A.
Barcelona(1)
Sweden
Bausch & Lomb Surgical
Helsingborg(1)
Bausch & Lomb Svenska A.B.
Stockholm(1)
Switzerland
Bausch & Lomb Distops S.A.
Geneva(2)
Turkey
Bausch & Lomb Saglik ve Optik
Urunleri Tic.A.S.
Istanbul(1)
ASIA & PACIFIC:
Australia
SPAFAS
Melbourne(1)
Woodend(1)
Bausch & Lomb (Australia) Pty. Limited
Sydney(1)
Hong Kong
North Asia Headquarters(2)
Bausch & Lomb (Hong Kong) Limited(1)
Bausch & Lomb-Lord Co.
(Hong Kong) Limited(2)
India
Bausch & Lomb India Limited
Bhiwadi(1)
New Delhi(2)
Japan
B.L.J. Company Limited
Tokyo(1)
Charles River Japan, Inc.
Atsugi(1)
Hino(1)
Tsukuba(1)
Yokohama(2)
Malaysia
South Asia Headquarters
Selangor(2)
Bausch & Lomb (Malaysia) Sdn. Bhd.
Selangor(2)
New Zealand
Bausch & Lomb (New Zealand) Limited
Auckland(2)
People's Republic of China
Bausch & Lomb China, Inc.
Beijing(1)
Guangzhou(1)
Spafas Jinan Poultry Company, Ltd.
Jinan(1)
Zhanjiang A&C Biological Ltd.
Zhanjiang(1)
Republic of China
Bausch & Lomb Taiwan Limited
Taipei, Taiwan(1)
Singapore
Bausch & Lomb (Singapore) Pte. Ltd.(1)
South Korea
Bausch & Lomb Korea, Ltd.
Seoul(1)
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[65]
<PAGE>
Directors and
Officers
DIRECTORS
William H. Waltrip(1)
Chairman
Bausch & Lomb
Director since: 1985
Franklin E. Agnew(1)(3)
Business Consultant
Pittsburgh, Pennsylvania
Director since: 1982
William Balderston III(1)(3)(4)
Retired Executive Vice President
The Chase Manhattan Bank
Rochester, New York
Director since: 1989
William M. Carpenter(1)
President and Chief Executive Officer
Bausch & Lomb
Director since: 1996
Domenico De Sole(2)
President and Chief Executive Officer
Gucci Group N.V.
Florence, Italy
Director since: 1996
Jonathan S. Linen(3)
Vice Chairman
American Express Company
New York, New York
Director since: 1996
Ruth R. McMullin(2)
Business Consultant
Savannah, Georgia
Director since: 1987
John R. Purcell(1)(4)
Chairman and Chief Executive Officer
Grenadier Associates Ltd.
Juno Beach, Florida
Director since: 1976
Linda Johnson Rice(2)
President and Chief Operating Officer
Johnson Publishing Company, Inc.
Chicago, Illinois
Director since: 1990
Alvin W. Trivelpiece, Ph.D.(2)(4)
Director
Oak Ridge National Laboratory and
President
Lockheed Martin Energy Research Corporation
Oak Ridge, Tennessee
Director since: 1989
Kenneth L. Wolfe(3)
Chairman of the Board and
Chief Executive Officer
Hershey Foods Corporation
Hershey, Pennsylvania
Director since: 1989
Committee Memberships:
1 Executive Committee
2 Audit Committee
3 Committee on Management
4 Committee on Directors
OFFICERS
William H. Waltrip
Chairman
2 years of service with the company
Named to current position: 12/95
William M. Carpenter
President and Chief Executive Officer
3 years of service with the company
Named to current position: 1/97
Dwain L. Hahs
Executive Vice President
and President - Eyewear
21 years of service with the company
Named to current position: 4/97
Carl E. Sassano
Executive Vice President
and President - Vision Care
25 years of service with the company
Named to current position: 12/96
Senior Vice Presidents:
Daryl M. Dickson
Human Resources
2 years of service with the company
Named to current position: 11/96
James C. Foster
Charles River Laboratories, Inc.
14 years of service with the company
Named to current position: 12/94
Stephen C. McCluski
Chief Financial Officer
10 years of service with the company
Named to current position: 1/95
Thomas M. Riedhammer, Ph.D.
President-Worldwide Pharmaceuticals
16 years of service with the company
Named to current position: 11/94
Robert B. Stiles
General Counsel
17 years of service with the company
Named to current position: 6/97
Vice Presidents:
Robert H. Blankemeyer
Chief Operating Officer -
Bausch & Lomb Surgical
less than one year of service with the company
Named to current position: 1/98
Omar Casal
South Asia
13 years of service with the company
Named to current position: 12/97
Robert D. Colangelo
Chief Information Officer
9 years of service with the company
Named to current position: 11/97
Alan P. Dozier
North American Vision Care
13 years of service with the company
Named to current position: 2/97
Hakan S. Edstrom
President - Bausch & Lomb Surgical
less than one year of service with the company
Named to current position: 1/98
Alan H. Farnsworth
Business Development
10 years of service with the company
Named to current position: 7/97
James T. Horn
Global Product Supply - Eyewear
6 years of service with the company
Named to current position: 5/96
Barbara M. Kelley
Corporate Communications
15 years of service with the company
Named to current position: 4/93
Jurij Z. Kushner
Controller
17 years of service with the company
Named to current position: 1/95
Thomas W. Lance
Global Operations - Vision Care
1 year of service with the company
Named to current position: 7/97
John M. Loughlin
North Asia
17 years of service with the company
Named to current position: 7/97
Steve Markwell
Europe, Middle East and Africa - Eyewear
4 years of service with the company
Named to current position: 12/97
Read McNamara
Latin America
2 years of service with the company
Named to current position: 7/97
James F. Milton
Japan
27 years of service with the company
Named to current position: 12/94
Stephen J. Osbaldeston
Healthcare/Vision Accessories
12 years of service with the company
Named to current position: 12/97
Angela J. Panzarella
Investor Relations
9 years of service with the company
Named to current position: 7/97
Alan H. Resnick
Treasurer
25 years of service with the company
Named to current position: 5/86
Paul Ruddlesdin
Europe, Middle East and Africa - Vision Care
15 years of service with the company
Named to current position: 12/97
James J. Ward
Reengineering Initiatives
21 years of service with the company
Named to current position: 5/97
David G. Whalen
North American Eyewear
7 years of service with the company
Named to current position: 7/97
Secretary:
Jean F. Geisel
22 years of service with the company
Named to current position: 7/97
Bausch & Lomb Incorporated and Consolidated Subsidiaries
[66]
<PAGE>
[inside back cover]
Corporate
Information
Bausch & Lomb on the Internet
Corporate, product, financial and shareholder information, including news
releases, financial filings and stock quotes are available at Bausch & Lomb's
worldwide web site:
www.bausch.com
Corporate Headquarters:
Bausch & Lomb
One Bausch & Lomb Place
Rochester, New York 14604
Telephone:
(716) 338-6000
(800) 344-8815
Bausch & Lomb News On Demand:
Bausch & Lomb's news releases are available on our website or by calling:
(800) 758-5804 ext. 109877
Financial Literature:
Copies of Bausch & Lomb's annual reports and financial reports filed with the
Securities and Exchange Commission are available on our website, by mail (attn:
Investor Relations) or by calling:
(888) 884-8702
(716) 338-5757
Investor Relations:
Security analysts and investors seeking information concerning company
operations, shareholder programs or dividend policy may contact:
Angela J. Panzarella
Vice President, Investor Relations
Telephone (716) 338-6025
[email protected]
Media Inquiries:
News media representatives may contact:
Holly Echols
Director, Media Relations
Telephone (716) 338-8064
[email protected]
Transfer Agent:
Shareholders seeking information regarding their individual accounts or dividend
payments may contact our stock transfer agent:
BankBoston, N.A.
c/o Boston Equiserve
P.O. Box 8040
Boston, MA 02266-8040
Telephone (800) 730-4001
www.equiserve.com
Dividend Reinvestment Plan:
The plan is available to all shareholders of Bausch & Lomb stock. Under the
plan, shareholders may elect to have their cash dividends automatically invested
in additional shares of the company's common stock. Shareholders may also elect
to make cash contributions of up to $60,000 per year to purchase additional
shares. For additional information contact:
BankBoston, N.A.
c/o Boston Equiserve
P.O. Box 8040
Boston, MA 02266-8040
Telephone (800) 730-4001
www.equiserve.com
Stock Listing:
The common stock of the corporation is traded under the symbol BOL on the New
York Stock Exchange. Options on the company's common stock are traded on the
American Stock Exchange.
Trademarks:
The trademarks of Bausch & Lomb Incorporated and its subsidiary companies
referred to in this report are:
Alrex
Arnette
Award
Bausch & Lomb
Boston
Boston Advance
Boston MultiVision
Charles River Laboratories
Contributing to the Search for Healthier Lives
Crolom
Curel
Dr. Mann Pharma
Duolube
Gold Medalist
Hansatome
Inertia
Killer Loop
Killer Loop Street Sport
Liposic
Medalist
Miracle-Ear
Mirage
Moisture Eyes PM
Ocutricin
Opcon-A
Optima
Optima FW
Orbs
PureVision
Ray-Ban
ReNu
ReNu MultiPlus
Revo
Revo Shapes
See How It Feels
Sensitive Eyes
SideStreet
SofLens
SofLens66
Soft Sense
Storz Millennium
Blues Brothers 2000 is a trademark of Universal Pictures
EVA is a trademark of Stern Stewart, Inc.
Lotemax is a trademark of Pharmos Corporation
Men in Black (MiB) is a trademark of Columbia Pictures Industries, Inc.
Muro is a trademark of Muro Pharmaceuticals
Porsche Design is a trademark of Porsche Design GmbH
Polytrim is a trademark of Allergan
Rogaine is a trademark of Pharmacia & Upjohn Co.
Tobrex is a trademark of Alcon Laboratories, Inc.
Design:
Inc Design, New York City
Printing:
Daniels Printing, Everett, Massachusetts
Typography:
Bowne Business Communications,
Secaucus, New Jersey
Executive & Lifestyle Photography:
Ted Kawalerski, New York City
Product Photography:
Rick Burda, New York City
(C) 1998 Bausch & Lomb Incorporated
All Rights Reserved Worldwide
[Recycle symbol] This book is printed on recycled paper.
<PAGE>
[back cover]
see how it feels
[Photos: people, close-up of an eye, Ray-ban poster with Blues Brothers 2000,
man in sunglasses, lab technicians in a lab, a woman's face]
BAUSCH
& LOMB
Bausch & Lomb, One Bausch & Lomb Place, Rochester, New York 14604
Bausch & Lomb Incorporated
Exhibit 21
Subsidiaries
(as of December 27, 1997)
Jurisdiction Under
Name Which Organized
Bausch & Lomb AG Switzerland
Arnette Europe SARL France
Arnette Optic Illusions, Inc. California
Bausch & Lomb (Australia) Pty. Limited Australia
Award plc Scotland
Bausch & Lomb (Bermuda) Finance Company, Ltd. Bermuda
Bausch & Lomb (Bermuda) Limited Bermuda
Bausch & Lomb B.V. Netherlands
Bausch & Lomb B.V.B.A. Belgium
Bausch & Lomb-Lord (BVI) Incorporated Virgin Islands
Bausch & Lomb Canada Inc. Canada
Charles River BRF, Inc. Delaware
Charles River Laboratories Inc. Delaware
Bausch & Lomb China, Inc. Delaware
B&L (China) Investment Company Ltd. China
115 Clinton Avenue, Inc. New York
Cordelia B.V. Netherlands
CR Pharmservices, Inc. Massachusetts
Dahlberg, Inc. Minnesota
Bausch & Lomb Danmark A/S Denmark
Bausch & Lomb Dist Ops S.A. Switzerland
Bausch & Lomb Domestic Finance Corp. Delaware
B&L Domestic Holdings Corp. Delaware
Dr. Mann Pharma Germany
Bausch & Lomb Espana, S.A. Spain
Beijing Bausch & Lomb Eyecare Company, Ltd. China
Bausch & Lomb Far East Pte. Singapore
OY Bausch & Lomb Finland AB Finland
Bausch & Lomb Foreign Sales Corporation Barbados
Bausch & Lomb Foundation, Inc. New York
Bausch & Lomb France S.A. France
Bausch & Lomb Fribourg SA Switzerland
Bausch & Lomb GmbH Austria
Guangzhou Bausch & Lomb Manufacturing Ltd. China
Bausch & Lomb Holdings B.V. Netherlands
Bausch & Lomb (Hong Kong) Limited Hong Kong
Bausch & Lomb-Lord, Co. (Hong Kong) Limited Hong Kong
Bausch & Lomb India Limited India
BL Industria Otica Ltda. Brazil
Bausch & Lomb International, Inc. New York
B&L International Holdings Corp. Delaware
Bausch & Lomb InVision Institute, Inc. Massachusetts
Bausch & Lomb Ireland Ireland
Bausch & Lomb IOM S.p.A. Italy
B.L.J. Company Limited Japan
Killer Loop Eyewear S.p.A. Italy
Bausch & Lomb Korea, Ltd. Korea
Bausch & Lomb Lamex, Inc. Delaware
Madden & Layman, Ltd. England
Bausch & Lomb (Malaysia) Sdn. Bhd. Malaysia
Miracle-Ear, Inc. Minnesota
Bausch & Lomb (New Zealand) Limited New Zealand
Bausch & Lomb Norway A/S Norway
Operadora de Contactologia, S.A. de C.V. Mexico
Bausch & Lomb Opticare, Inc. New York
Bausch & Lomb Panama, Inc. Panama
Bausch & Lomb Pharmaceuticals, Inc. Delaware
Polymer Technology Corporation New York
P.T. Bausch & Lomb Indonesia (Distributing) Indonesia
P.T. Bausch & Lomb Manufacturing Indonesia
Bausch & Lomb Puerto Rico, Inc. Delaware
Bausch & Lomb Realty Corporation New York
Revo, Inc. Delaware
Revo Europe Limited England
RHC Holdings, Inc. Delaware
Segrab, Inc. California
Bausch & Lomb Services Corp. New York
Sight Pharmaceuticals Incorporated Delaware
Sight Savers, Inc. Delaware
Bausch & Lomb (Singapore) Pte. Ltd. Singapore
Bausch & Lomb South Africa (Pty.) Ltd. South Africa
Bausch & Lomb South Asia, Inc. Delaware
South Asia Management Company Sdn. Bhd. Malaysia
Spafas, Inc. Delaware
Bausch & Lomb Svenska, AB Sweden
Bausch & Lomb Taiwan Limited Taiwan
Bausch & Lomb Turkey Turkey
Bausch & Lomb U.K. Limited England
Bausch & Lomb Venezuela, S.A. Venezuela
Wilmington Management Corp. Delaware
Wilmington Partners L.P. Massachusetts
Windmill Investments N.V. Netherlands
Windmill Investors Ltd. Bermuda
Windvest I N.V. Antilles
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 2-56066, 2-85158, 33-
15439 and 33-35667) and in the Prospectus constituting part of
the Registration Statement on Form S-3 (No. 33-51117) of Bausch &
Lomb Incorporated of our report dated January 23, 1998 appearing
in the 1997 Annual Report to Shareholders of Bausch & Lomb
Incorporated which is incorporated in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our
above report on the Financial Statement Schedule.
PRICE WATERHOUSE LLP
Rochester, New York
March 10, 1998
Report of Independent Accountants
on Financial Statement Schedule
To the Board of Directors of
Bausch & Lomb Incorporated
Our audits of the consolidated financial statements referred to
in our report dated January 23, 1998 appearing in the 1997 Annual
Report to Shareholders of Bausch & Lomb Incorporated (which
report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a)2
of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE LLP
Rochester, New York
January 23, 1998
Exhibit 24
POWER OF ATTORNEY
The undersigned directors of Bausch & Lomb Incorporated (the
"Company"), each hereby constitutes and appoints William M.
Carpenter and Robert B. Stiles, or either of them, his or her
respective true and lawful attorneys and agents, each with full
power and authority to act as such without the other, to sign for
and on behalf of the undersigned the Company's Annual Report on
Form 10-K for the year ended December 27, 1997, to be filed with
the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934 and the related rules and regulations
thereunder, and any amendment or amendments thereto, the
undersigned hereby ratifying and confirming all that said
attorneys and agents, or either one of them, shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, this instrument has been executed by the
undersigned as of this 24th day of February 1998.
/s/Franklin E. Agnew /s/John R. Purcell
/s/William Balderston III /s/Linda Johnson Rice
/s/William M. Carpenter /s/Alvin W. Trivelpiece
/s/Domenico De Sole /s/William H. Waltrip
/s/Jonathan S. Linen /s/Kenneth L. Wolfe
/s/Ruth R. McMullin
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 182,371
<SECURITIES> 1,373
<RECEIVABLES> 388,775
<ALLOWANCES> 14,015
<INVENTORY> 324,293
<CURRENT-ASSETS> 1,090,189
<PP&E> 1,175,160
<DEPRECIATION> (594,948)
<TOTAL-ASSETS> 2,772,850
<CURRENT-LIABILITIES> 887,311
<BONDS> 510,787
<COMMON> 24,129
0
0
<OTHER-SE> 794,221
<TOTAL-LIABILITY-AND-EQUITY> 2,772,850
<SALES> 1,915,733
<TOTAL-REVENUES> 1,915,733
<CGS> 884,742
<TOTAL-COSTS> 884,742
<OTHER-EXPENSES> 882,943
<LOSS-PROVISION> 4,310
<INTEREST-EXPENSE> 56,046
<INCOME-PRETAX> 118,002<F1>
<INCOME-TAX> 45,655
<INCOME-CONTINUING> 49,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,359
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<FN>
<F1> Income Before Taxes and Minority Interest.
</TABLE>
