United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File
March 27, 1999 Number: 1-4105
BAUSCH & LOMB INCORPORATED
(Exact name of registrant as specified in its charter)
New York 16-0345235
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Bausch & Lomb Place, Rochester NY 14604-2701
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (716)338-6000
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of Common stock of the registrant
outstanding as of March 27, 1999 was 57,043,675, consisting of
56,379,777 shares of Common stock and 663,898 shares of Class B
stock which are identical with respect to dividend and
liquidation rights, and vote together as a single class for all
purposes.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited interim consolidated financial
statements of Bausch & Lomb Incorporated and Consolidated
Subsidiaries have been prepared by the company in accordance with
the accounting policies stated in the company's 1998 Annual
Report on Form 10-K and should be read in conjunction with the
Notes To Financial Statements appearing therein, and are based in
part on approximations. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation in accordance with generally
accepted accounting principles have been included in these
financial statements.
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF EARNINGS
<CAPTION>
Three Months Ended
Dollar Amounts In Millions - March 27, March 28,
Except Per Share Data 1999 1998
<S> <C> <C>
Net Sales $574.8 $553.1
Costs And Expenses
Cost of products sold 267.3 276.1
Selling, administrative and general 228.8 228.7
Research and development 24.0 20.6
Purchased in-process research and
development - 41.0
Restructuring charges - 3.7
520.1 570.1
Operating Earnings (Loss) 54.7 (17.0)
Other (Income) Expense
Investment income (10.1) (10.1)
Interest expense 24.4 25.4
Gain from foreign currency, net (2.9) (1.7)
11.4 13.6
Earnings (Loss) Before Income Taxes And
Minority Interest 43.3 (30.6)
Provision for income taxes 15.6 (12.6)
Earnings (Loss) Before Minority Interest 27.7 (18.0)
Minority interest in subsidiaries 5.3 5.2
Net Earnings (Loss) $ 22.4 $(23.2)
Retained Earnings At Beginning Of Period 883.5 916.5
Cash Dividends Declared:
Common stock, $0.26 per share
In 1999 and 1998 14.9 14.4
Retained Earnings At End Of Period $891.0 $878.9
Basic Earnings Per Share $0.39 $ (0.42)
Diluted Earnings Per Share $0.39 $ (0.42)
Average Shares Outstanding - Basic (000s) 56,724 55,333
Average Shares Outstanding - Diluted (000s) 58,062 55,333
See Notes to Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
<CAPTION>
March 27, December 26,
Dollar Amounts In Millions 1999 1998
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 185.8 $ 129.2
Other investments, short-term 275.0 300.0
Trade receivables, less allowances
of $27.2 and $26.8, respectively 532.1 526.3
Inventories, net 454.0 440.7
Deferred taxes, net 66.1 68.4
Other current assets 156.2 122.2
1,669.2 1,586.8
Property, Plant And Equipment, net 722.8 725.0
Goodwill And Other Intangibles,
less accumulated amortization
of $149.3 and $137.3, respectively 753.8 758.9
Other Investments 116.8 249.2
Other Assets 175.1 171.8
Total Assets $3,437.7 $3,491.7
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 110.6 $ 160.4
Current portion of long-term debt 28.1 31.1
Accounts payable 100.2 92.6
Accrued compensation 95.2 110.3
Accrued liabilities 364.2 366.2
Federal, state and foreign income taxes
payable 54.3 51.8
752.6 812.4
Long-Term Debt, less current portion 1,281.1 1,281.3
Other Long-Term Liabilities 105.0 106.6
Minority Interest 448.2 446.4
Total Liabilities 2,586.9 2,646.7
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,
940,702 and 955,791 shares
issued, respectively 0.1 0.1
Capital in excess of par value 89.6 84.2
Common and Class B stock
in treasury, at cost, 4,095,349 and
4,625,026 shares, respectively (160.8) (178.9)
Retained earnings 891.0 883.5
Accumulated other comprehensive income 18.0 41.0
Other shareholders' equity (11.2) (9.0)
Total Shareholders' Equity 850.8 845.0
Total Liabilities And Shareholders' Equity $3,437.7 $3,491.7
See Notes To Financial Statements
</TABLE>
<TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
<CAPTION>
Three Months Ended
March 27, March 28,
Dollar Amounts In Millions 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings (loss) $ 22.4 $(23.2)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Depreciation 32.1 27.8
Amortization 11.9 11.5
Change in deferred income taxes 2.9 2.7
Restructuring charges, net of taxes - 2.4
Purchased in-process research and
development, net of taxes - 24.6
Loss on retirement of fixed assets 2.7 3.0
Changes in assets and liabilities:
Trade receivables (14.8) (16.9)
Inventories (18.6) (4.2)
Other current assets (33.6) (16.0)
Accounts payable and accruals 6.8 (106.0)
Income taxes 3.8 (17.7)
Other long-term liabilities 0.4 (6.0)
Net cash provided by (used in) operating
activities 16.0 (118.0)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (37.4) (42.9)
Net cash paid for acquisition of businesses (18.5) (681.2)
Proceeds from liquidation of other investment 150.0 -
Other (3.2) 7.8
Net cash provided by (used in) investing
activities 90.9 (716.3)
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 19.5 8.5
Net (repayments of) proceeds from notes payable (49.6) 511.4
Proceeds from issuance of long-term debt - 304.2
Repayment of long-term debt (2.8) (4.6)
Payment of dividends (14.7) (14.4)
Net cash (used in) provided by financing
activities (47.6) 805.1
Effect of exchange rate changes on cash and
cash equivalents (2.7) (2.3)
Net increase (decrease) in cash and cash
equivalents 56.6 (31.5)
Cash and cash equivalents - beginning of period 129.2 183.7
Cash and cash equivalents - end of period $185.8 $152.2
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 32.1 $ 26.5
Income taxes $ 15.1 $ 7.2
See Notes To Financial Statements
</TABLE>
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Dollar Amounts in Millions - Except Per Share Data
NOTE A: Inventories
Inventories consisted of the following:
March 27, December 26,
1999 1998
Raw materials and supplies $111.9 $ 84.7
Work in process 32.1 39.1
Finished products 311.9 319.3
455.9 443.1
Less: Allowance for valuation of
certain U.S. inventories
at last in, first out cost 1.9 2.4
$454.0 $440.7
NOTE B: Property, Plant And Equipment
Major classes of property, plant and equipment consisted
of the following:
March 27, December 26,
1999 1998
Land $ 25.1 $ 25.4
Buildings 415.0 416.0
Leasehold improvements 43.9 41.1
Machinery and equipment 955.6 930.2
1,439.6 1,412.7
Less: Accumulated depreciation 716.8 687.7
$ 722.8 $ 725.0
NOTE C: Comprehensive Income (loss)
The components of the company's total comprehensive
income (loss) were:
Three Months Ended
March 27, March 28,
1999 1998
Net earnings (loss) $ 22.4 $(23.2)
Foreign currency translation
adjustments, net of taxes (23.0) (13.4)
Total Comprehensive Loss $ (0.6) $(36.6)
NOTE D: Restructuring and Exit Activities
1997 Restructuring Program
In April 1997, the company's board of directors approved plans to
restructure all business segments as well as certain corporate
administrative functions, and cumulative pre-tax restructuring
charges of $85 were recorded through the first half of 1998.
The goal of the restructuring effort was to significantly
reduce the company's fixed cost structure and realign the
organization to meet its strategic objectives through the
closure, relocation and consolidation of manufacturing,
distribution, sales and administrative operations, and workforce
reductions.
<TABLE>
The following table sets forth the activity in the
restructuring reserve through March 27, 1999:
<CAPTION>
Vision Pharmaceuticals/ Centrally
Care Surgical Eyewear Healthcare Managed Total
<S> <C> <C> <C> <C> <C> <C>
Restructuring Provisions $12.0 $5.0 $33.6 $5.9 $29.0 $85.5
Less charges:
Non-cash items 3.0 - 6.9 1.8 0.8 12.5
Cash payments 7.7 4.8 26.0 1.7 25.2 65.4
Balance at March 27, 1999 $ 1.3 $0.2 $ 0.7 $2.4 $ 3.0 $ 7.6
</TABLE>
The original reserve included $53 related to severance and
relocation costs for approximately 2,100 employees in
manufacturing, logistics and administrative functions. The
remaining reserves represent liabilities for severance payments
related to approximately 200 employees, primarily in
administrative functions.
Amounts by segment in the preceding table have been
reclassified from those disclosed in the company's 1998 Annual
Report On Form 10-K to reflect current management accountability
for the restructuring activities. The total amount of the
provision has not changed. Amounts now associate specific
projects with the business segment that has management authority
over the project; those projects that are managed centrally at
corporate or impact several segments on a predominately
geographic basis are classified as "centrally managed".
Previously, amounts related to projects associated with more than
one segment were allocated among those segments.
Accrual for Acquisition-Related Exit Activities
On December 29, 1997 and December 31, 1997 the company completed
the acquisitions of Chiron Vision Corporation (Chiron Vision)
from Chiron Corporation and certain stock and assets of Storz
Instrument Company, Storz Ophthalmics, Inc. and Cyanamid
Chirurgie S.A.S. (collectively Storz) from American Home Products
Corporation, and undertook a program to integrate these two
former businesses into the newly formed Bausch & Lomb Surgical
Division. As part of this integration, management developed a
formal plan that included the shutdown of duplicate facilities in
the U.S., Europe and Asia, the elimination of duplicate product
lines and the consolidation of certain administrative functions.
The exit activities were committed to by management and formally
communicated to employees shortly after the acquisitions were
consummated.
<TABLE>
The following table sets forth activity in the exit
activities accrual accounts through March 27, 1999:
Employee Facilities
Severance and Closure Contract
Relocation Costs Terminations Total
<S> <C> <C> <C> <C>
Original Provisions $21.7 $5.5 $0.9 $28.1
Less charges:
Non-cash items - 0.5 - 0.5
Cash payments 8.0 0.7 0.9 9.6
Balance at March 27, 1999 $13.7 $4.3 $- $18.0
</TABLE>
The accrual for employee severance and relocation related to
approximately 600 employees in production, R&D, selling and
administration. As of March 27, 1999 approximately 140 of these
employees had been terminated. The facilities closure costs
primarily represent leasehold termination payments and fixed
asset writedowns relating to duplicate facilities. The closures
and consolidations in the U.S. are expected to be started or
substantially completed in 1999. Closures and consolidations
outside the U.S. are expected to commence in 1999 and be
substantially complete in 2000.
NOTE E: Business Segment Information
In 1998, the company adopted Statement of Financial Accounting
Standard (SFAS) 131, Disclosures about Segments of an Enterprise
and Related Information. The implementation of SFAS 131 did not
affect total company results but did impact the disclosure of
segment information. As a result, certain 1998 segment
disclosures and discussion reported in previous quarterly filings
have been recast to comply with this new standard.
The company is organized by product line for management
reporting with operating earnings being the primary measure of
segment profitability. Certain distribution and general and
administrative expenses, including some centralized services, are
allocated amongst the segments for management reporting. No items
below operating earnings are allocated to segments. Restructuring
charges and charges related to certain significant events,
described below, although related to specific product lines, are
also excluded from management basis results. The accounting
policies used to generate segment results are the same as the
company's overall accounting policies.
The company's operating results are reported in four
business segments: vision care, pharmaceuticals/surgical, eyewear
and healthcare. The vision care segment includes contact lenses
and lens care products. The pharmaceuticals/surgical segment
includes prescription ophthalmics, over-the-counter (OTC)
medications, and cataract, refractive and other ophthalmic
surgery products. The eyewear segment includes sunglasses and
vision accessories. The healthcare segment includes biomedical
products and services, hearing aids and the skin care business,
which was divested in 1998.
The following table presents sales and operating earnings by
business segment for the quarters ended March 27, 1999 and March
28, 1998. The company does not have material intersegment sales.
<TABLE>
First Quarter
1999 1998
Operating Operating
Net Sales Earnings Net Sales Earnings (Loss)
<S> <C> <C> <C> <C>
Vision Care $227.3 $ 33.5 $216.0 $ 32.5
Pharmaceuticals/Surgical 160.2 23.9 138.8 15.8
Eyewear 109.6 4.6 112.3 (2.8)
Healthcare - ongoing 77.7 8.5 72.4 9.1
Healthcare - divested - - 13.6 0.1
574.8 70.5 553.1 54.7
Corporate administration - (15.8) - (10.9)
Restructuring - - - (3.7)
Other significant charges - - - (57.1)
$574.8 $ 54.7 $553.1 $(17.0)
</TABLE>
Restructuring charges were recorded in the first quarter of 1998
as follows: vision care, $0.6; eyewear, $1.9 and corporate
administration, $1.2.
The first quarter 1998 "other significant charges" relate to
the pharmaceuticals/surgical segment. As referred to in Note D,
during the first quarter of 1998, the company acquired Chiron
Vision and Storz, which formed the company's surgical business.
Part of the purchase price was allocated to purchased in-process
research and development (R&D) and, in accordance with applicable
accounting rules, a pre-tax charge of $41.0 was recorded. In
addition to the purchased in-process R&D charge, purchase
accounting rules require that inventory acquired through an
acquisition be recorded at fair value. This resulted in a higher
cost of sales of $16.1 since part of the acquired inventory was
sold during this period.
NOTE F: Subsequent Event
Pending Divestiture
On April 28, 1999, the company announced that it had reached a
definitive agreement, pending regulatory approval, to sell its
sunglass business to Luxottica Group S.p.A. for $640.0 in cash.
Completion of this transaction is expected to occur by the end of
the second quarter. The parties have agreed to a transition plan
of at least one year, during which time the company will provide
administrative and distribution support for the business outside
the U.S. A copy of the company's press release announcing the
agreement is filed herewith as Exhibit 99, "Press Release of
Bausch & Lomb Incorporated, dated April 28, 1999."
The company expects that the transaction will result in an
after-tax gain of approximately $120.0, or $2.10 per share, which
includes estimated costs associated with exiting the sunglass
business outside the U.S. Cash generated by the sale, net of
taxes and expenses, is expected to be approximately $520.0.
Initially, the proceeds from this transaction are expected to be
used to pay down debt and to invest in money market securities.
Pro Forma Historical Financial Information (Unaudited)
On a going forward basis, the company will report the results of
the sunglass business as a discontinued operation. The results of
the vision accessories business, previously reported in the
eyewear segment, will be reported in the vision care segment.
The following pro forma results of operations give effect to
the pending divestiture and the application of the after-tax
proceeds, including the reduction in interest expense, as if the
transaction had occurred at the beginning of 1998.
The pro forma results are presented for informational
purposes only and do not purport to be indicative of the results
of operations which would actually have been obtained if the
transactions had occurred in such periods, or which may exist or
be obtained in the future.
The pro forma information is as follows:
<TABLE>
Three Months Ended
March 27, March 28,
1999 1998
<S> <C> <C>
Net Sales $467.6 $443.6
Operating earnings (loss) from
continuing operations $ 50.2 $(12.4)
Net earnings (loss) from
continuing operations $ 24.3 $(15.7)
Earnings (loss) per common
share from continuing
operations:
Basic $ 0.43 $(0.28)
Diluted $ 0.42 $(0.28)
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Dollar Amounts in Millions - Except Per Share Data
This financial review, which should be read in conjunction with
the accompanying financial statements, contains management's
discussion and analysis of the company's results of operations,
liquidity and an updated 1999 outlook. References to "comparable
basis" or "comparable basis results" in this financial review
exclude the impact on 1998 results of the restructuring and other
significant charges referenced previously in Note E, and the 1998
results from the divested skin care business reported in the
healthcare segment. References within this financial review to
earnings per share refer to diluted earnings per share.
NET SALES BY BUSINESS SEGMENT AND GEOGRAPHIC REGION
Total net sales for the quarter ended March 27, 1999 were $575,
an increase of $22 or 4% from the 1998 first quarter. The results
include $14 in 1998 first quarter revenues generated by the
divested skin care business. When results for this business are
excluded from 1998 results, revenues increased 7%. On a constant
dollar basis (that is, excluding the effect of foreign currency
exchange rate changes), continuing business revenues increased 5%
compared to the prior-year period. Revenue increases in the
vision care, pharmaceuticals/surgical and healthcare segments
were partially offset by declines in the eyewear segment.
Vision Care Segment Revenues
The vision care segment includes results of the contact lens and
lens care businesses, with lenses comprising 47% and lens care
representing 53% of 1999 first quarter revenues. Revenues
increased to $227 or 5% from the 1998 first quarter, resulting
from equal percentage increases for both product categories. On a
constant dollar basis, segment revenues increased 4% over the
prior year, demonstrating minimal impact from foreign exchange
rate changes in most regions.
The increase in contact lens revenues was driven by double-
digit growth of planned replacement and disposable lenses
(collectively PRD) including very strong results for SofLens one
day disposable lenses in Europe as well as double-digit increases
for planned replacement lenses in the Asia-Pacific region. These
results were partially offset by declines in traditional soft and
rigid gas permeable (RGP) lenses as the anticipated shift away
from these products continued.
Lens care revenue gains were led by results in the U.S. where
both the soft and RGP solutions lines gained market share during
the first quarter of 1999. Products for soft contact lenses
continued to exhibit strong demand, led by ReNu MultiPlus
solution, while the company's Boston line of solutions for RGP
lenses also delivered modest sales increases.
Pharmaceuticals/Surgical Segment Revenues
First-quarter 1999 revenues in the pharmaceuticals/surgical
segment were $160, an increase of 15% from the same period last
year, or 14% in constant dollars.
In the U.S., exceptional results were experienced in the
pharmaceuticals business as revenues increased 36% from the first
quarter of 1998. Lotemax and Alrex, two ophthalmic drugs
introduced in 1998, continued to gain market share. Another
contributor to these results was increased sales of generic otic
drugs, specifically ear drops, which benefited from the exit of a
competitor from this product line. Another first quarter
development was the FDA approval and subsequent launch of the
generic equivalent to Rhone Poulenc's DDAVP nasal spray. The U.S.
surgical business also delivered solid first quarter results, as
revenues grew by 10% over the equivalent 1998 period. The growth
was driven mainly by sales of products for refractive surgery.
Outside the U.S., sales of pharmaceuticals grew by 10% as
the company's Dr. Mann Pharma subsidiary continued to benefit
from a second quarter 1998 acquisition. Non-U.S. surgical
revenues increased by 11%, aided by strong growth in sales of the
company's Technolas lasers.
Eyewear Segment Revenues
Segment revenues are primarily driven by sales of sunglass
products, which account for about 98% of total revenue. First
quarter U.S. sunglass revenues were flat compared to the 1998
period, due mainly to stronger sales to Sunglass Hut
International, the segment's largest customer, offset by lower
sales in secondary channels. Non-U.S. revenues decreased by 3%,
primarily due to reductions in Europe, which was negatively
impacted by a significant amount of backorders, and in Latin
America, where unfavorable economic conditions contributed to the
sales shortfalls.
As more fully described in Note F and Exhibit 99, on April
28, 1999, the company announced that it had entered into an
agreement to sell its sunglass business to Luxottica Group S.p.A.
The transaction is expected to be completed in the second
quarter, pending regulatory approval.
Healthcare Segment Revenues
The following analysis excludes 1998 revenues from the divested
skin care business.
Healthcare segment revenues for the first quarter of 1999
were $78, an increase of $5 or 7% (6% on a constant dollar basis)
over the comparable period in 1998. Sales increases were driven
by biomedical products, which reported a 12% increase, partially
offset by an 8% decline in hearing aid revenues as significant
problems with conversion to a new information system disrupted
processing of customer orders, resulting in a substantial one-
time impact to sales and margin.
As announced in 1998, the company's strategic focus is now
in the businesses of vision care and ophthalmic pharmaceuticals
and surgical products. The company continues to aggressively seek
a buyer for its hearing aid business and is now also assessing
strategies for maximizing shareholder value relative to the
biomedical products business.
Net Sales By Geographic Region
The following analysis excludes 1998 revenues from the divested
skin care business which were included in the healthcare segment.
Sales in markets outside the U.S. totaled $276 in the first
quarter of 1999, an increase of $17 or 7% compared with the 1998
period, and represented 48% of consolidated revenues for both
years. Increased revenues from the pharmaceuticals/surgical
segment as well as growth in vision care offset slight declines
in eyewear. For the quarter, currency had a positive impact of 3%
on non-U.S. sales. Sales in the Asia-Pacific region advanced 10%
(3% in constant dollars), with favorability across the core
strategic businesses suggesting some recovery from last year's
economic difficulties. Growth in vision care, led by Medalist
lenses, was offset by declines in the eyewear business. European
sales increased 7%, or 4% in constant dollars, due in large part
to strong performance in the vision care segment, particularly
for Soflens one day contact lenses, offset by declines in
eyewear. European pharmaceuticals sales, which were aided by
incremental sales from a 1998 acquisition by the company's Dr.
Mann Pharma subsidiary, increased 17%. Sales in the Latin America
and Canada region decreased 3% over the prior year but grew 9% in
constant dollars. Currency movements in Brazil offset favorable
lens care sales in Canada.
U.S. sales totaled $298 in the first quarter, an increase of
$18 or 6% from 1998. Revenues benefited from strong growth in the
pharmaceuticals/surgical segment where sales increased 19% over
the same period in 1998, reflecting the incremental otic revenues
as well as recently introduced new pharmaceuticals products and
growth in products for refractive surgery.
Costs And Expenses
The reported ratio of costs of products sold to sales was 46.5%
during the first quarter of 1999, versus 49.9% for the same
period of 1998. On a comparable basis this ratio was 46.5% in
1999 compared to 47.5% in 1998. The 1999 ratio reflected margin
improvements in vision care and eyewear, where restructuring has
produced favorable year-over-year manufacturing benefits, offset
by slightly lower healthcare margins resulting from sales
declines in the hearing aid business.
Comparable basis selling, administrative and general
expenses, including corporate administration, were 39.8% of sales
in the first quarter of 1999 compared to 40.6% in 1998. The
favorable ratio reflected lower marketing and advertising costs
in eyewear combined with savings in the surgical business, as
integration synergies continued to be realized. Corporate
administration expenses were 2.7% of sales in 1999 versus 1.9% in
the same period of 1998, reflecting costs associated with year
2000 and financial systems upgrades.
Research and development expenses totaled $24 in the first
quarter of 1999, an increase of $4 over 1998. This represented
4.2% of sales in 1999, up from 3.8% in 1998. As anticipated, the
company continues to increase spending to develop new products in
the vision care and pharmaceuticals/surgical segments.
Operating Earnings
For the first quarter of 1999, the company recorded operating
earnings of $55, compared to an operating loss of $17 in 1998. On
a comparable basis, operating earnings improved $11 from the
first quarter of 1998. Operating results reflect improvements in
eyewear segment profitability related to restructuring efforts
and to increased margins resulting from a more favorable product
mix, increased sales in the pharmaceuticals business in the U.S.,
as well as cost reductions captured through integration synergies
in the surgical business.
Other Income And Expenses
Income from investments totaled $10 for the first quarter of 1999
and was essentially flat compared to the same period in 1998.
Interest expense of $24 decreased $1, primarily reflecting lower
debt levels. Foreign currency gains of $3 during the first
quarter of 1999 increased $1 over the prior year, primarily the
result of foreign currency hedging activities related to the yen.
Income Taxes
The company's reported tax rate was 36.0% for the first quarter
of 1999 compared to 40.9% for the same 1998 period. The higher
rate in 1998 was primarily due to the impact from the other
significant charges described in Note E.
LIQUIDITY AND FINANCIAL RESOURCES
Cash Flows From Operating Activities
Cash provided by operating activities was $16 through the first
quarter of 1999, a $134 increase compared to the comparable 1998
period. Increased profitability in 1999 and a $42 litigation
settlement paid in 1998 were the primary reasons for the
favorable comparison. Other factors included lower amounts in
1999 needed to settle maturing foreign exchange contracts and
reduced payments against prior year restructuring accruals.
Cash Flows From Investing Activities
Cash provided by investing activities was $91 during the first
quarter of 1999 versus a cash outflow of $716 in 1998. The amount
for 1999 included an inflow of $150 from a redemption of
securities. The net cash outflow in 1998 was primarily due to the
first quarter acquisition of the surgical businesses. Capital
spending of $37, which decreased $6 compared to the prior year
period, is expected to be in the range of $200 for 1999. A
significant portion of 1999 capital spending will be used to
support expanded contact lens manufacturing capacity.
Cash Flows From Financing Activities
Through the first quarter of 1999, $48 was used in financing
activities, primarily for net repayments of notes payable. In the
comparable 1998 period, $805 was provided by financing
activities, mostly from new borrowings needed to consummate the
surgical acquisitions.
Free Cash Flow
The company strives to maximize its free cash flow, defined as
cash generated before the payment of dividends, the borrowing or
repayment of debt, stock repurchases and the acquisition or
divestiture of businesses. Free cash flow through the first
quarter of 1999 was negative $27, an improvement of $128 from the
prior year period. The increase is due to the operational cash
flow factors described above.
The negative free cash flow for the first quarter of 1999 is
consistent with historical trends whereby the company has been a
user of free cash during the first half of the year and a
provider of free cash during the second half.
Financial Position
The company's total debt, consisting of short- and long-term
borrowings, was $1,420 at the end of the first quarter of 1999,
down by $53 from year-end 1998, and lower than the March 1998
amount by $248. The ratio of total debt to capital has improved
to 62.5% at the end of the first quarter of 1999 versus 63.5% at
the end of 1998 and 68.3% at March 1998.
Cash and cash equivalents totaled $186 and $152 at the end of
the first quarters of 1999 and 1998, respectively, and $129 at
the end of 1998.
Access to Financial Markets
The company maintains revolving credit agreements, both 364-day
and long-term, totaling $700. The interest rate under these
agreements is based on LIBOR, or at the company's option, the
higher of several other common indices. No debt was outstanding
under these agreements at March 27, 1999. The long-term portion
of these revolving credit agreements supported $300 of unsecured
promissory notes which were classified as long-term debt at both
March 27, 1999 and year-end 1998. In addition, the company
maintains other lines of credit on which it may draw to meet its
financing requirements.
The company believes its existing credit facilities provide
adequate liquidity to meet obligations, fund capital expenditures
and invest in potential growth opportunities.
Working Capital
Working capital was $917 and negative $109 at the end of the
first quarters of 1999 and 1998, respectively. At year-end 1998,
working capital was $774. The favorable trend is due primarily to
the third quarter 1998 issuance of long-term debt, which was used
to reduce short-term borrowings, and to an agreement to redeem a
long-term investment that resulted in a partial redemption during
the first quarter of 1999 and reclassification of the remainder
to current assets. The current ratio was 2.2 and 0.9 at the end
of March 1999 and March 1998, respectively, and 2.0 at year-end
1998.
OTHER FINANCIAL DATA
Dividends declared on common stock were $0.26 per share in the
first quarters of both 1999 and 1998. The return on average
shareholders' equity of 8.4% for the twelve-month period ended
March 27, 1999 reflects a restructuring charge and a gain on
divestiture recorded in the second quarter of 1998 and a fourth
quarter 1998 goodwill impairment charge. This ratio was 2.8% for
the twelve-month period ending March 28, 1998, and included
restructuring and litigation charges and one-time charges
associated with the surgical acquisitions.
RISKS ASSOCIATED WITH YEAR 2000 DATE ISSUES
The company has been addressing the potential risks associated
with the year 2000 date issue. It has established a formal
program to assess and renovate internal information technology
("IT") and non-information technology ("non-IT") operations that
are at risk, and further, to evaluate the year 2000 readiness of
key third-party suppliers and recipients of products, services,
materials or data. Year 2000 issues are being addressed through a
combination of software replacement, system upgrades and, in
limited instances, source code modifications (collectively,
"renovation"). Ongoing reengineering projects have had the
incidental benefit of remediating several major year 2000 issues.
The assessment phase of IT systems is substantially
complete. The renovation phase is on schedule and the company
plans to have all key IT systems tested and compliant in the
second and third quarters of 1999. Most other IT systems should
be tested and compliant by the end of 1999. For non-IT systems,
the company has engaged a leading production systems integration
firm specializing in year 2000 assessment and remediation of
manufacturing, distribution and R&D facilities. The assessment
phase is ongoing and substantially complete, and it should be
fully completed during the second or early third quarter of 1999.
Based on information available at this time, the company plans to
have all key non-IT systems tested and compliant during the third
or fourth quarter of 1999, depending on the project. The company
has been assessing the readiness of key suppliers and customers
since early 1998. To further facilitate this assessment, the
company will interact with each major supplier or recipient of
data, materials, products or services, including face-to-face
interviews with those considered to be critical to the company.
This assessment is scheduled for completion early in the fourth
quarter of 1999.
Anticipated costs, comprised of both period expenses and
capital expenditures, of identifying and remediating year 2000
issues in the above-described areas is expected to be in the
range of $65-$75, of which approximately $32 has been incurred to
date. Of the total anticipated costs, approximately 50% is
expected to be capitalized as part of system upgrades and
replacements. Management believes that its year 2000 program will
substantially reduce the risk of a material adverse impact on
future financial results caused by the year 2000 issue. Potential
risks of a failure to address a year 2000 issue (whether IT, non-
IT or external) that could have a materially detrimental impact
to the company include the inability to manufacture or ship
products, the inability to receive and fill orders, and problems
with customers or suppliers, including the loss of electrical
power or the failure of a key customer or supplier to purchase
products or provide anticipated goods and services. Contingency
plans for systems, customers and suppliers are in various stages
of development, with the greatest amount of resources being
dedicated to those areas deemed most essential to the company.
Contingency plans deemed necessary for critical systems,
customers and suppliers are expected to be completed in the
second and third quarters of 1999.
The estimated costs of remediation and the expected
completion dates described above are based on information
available at this time and may be updated as additional
information and assessment phase results become available.
Readers are referred to the section of this filing labeled
"Information Concerning Forward-Looking Statements" which
addresses forward-looking statements made by the company.
OUTLOOK
Solid results are expected to continue for the remainder of 1999
as the company continues to progress towards its goal of becoming
the preeminent healthcare company for the eye.
Results for vision care remain strong and the segment is
well positioned for an acceleration of quarter-over-quarter
growth for the remainder of the year with the expectation that
total year revenue growth will be in the range of 8-10%. The
contact lens business will benefit from the rollout of several
new products and the introduction of recently introduced products
into new markets. PureVision, the revolutionary extended wear
lens which received FDA approval during the first quarter of
1999, has been launched in the U.S. and is receiving excellent
feedback from vision care professionals. Sales in the second
quarter will benefit modestly from the introduction since the
early stages of the launch are focused primarily on education
with the major sales and earnings benefits expected later. In
addition, SofLens one day lenses will be rolled out in the U.S.
during the second quarter. The one-day market in the U.S. is not
as developed as in Europe, where SofLens one day excels, and
therefore a large revenue impact is not anticipated. Its
introduction, however, should make the company's overall U.S.
contact lens product portfolio even more appealing to doctors and
other practitioners. Significant benefits are expected from the
second quarter full-European rollout of SofLens66 toric, which
has been well-received in limited introductions within France and
the United Kingdom, and the continued rollout in the U.S. Lens
care sales should benefit from the recent regulatory approval and
second quarter launch in Japan of ReNu multi-purpose solution.
The pharmaceuticals/surgical segment is expected to continue
to grow throughout 1999.
Revenue growth in the pharmaceuticals business for 1999 is
expected to be in the high teens, with half of this growth coming
from incremental generic otic sales. Sales of Alrex anti-
inflammatory drops should gain momentum as the peak allergy
season approaches. The generic equivalent to Rhone Poulenc's
DDAVP, the first generic nasal spray ever approved by the FDA,
should continue to contribute sales and profitability growth
throughout the remainder of 1999. The expectation in the surgical
business for full-1999 results continue to be revenue growth in
the high single-digits with margins in the mid-teens, as benefits
from the synergies within the surgical business continue. For the
remainder of the year the expectation is for improvement in sales
of cataract products, as well as continued strength in the
refractive surgery lines, including growing demand outside the
U.S. for Technolas excimer lasers. Cataract product sales, which
were flat in the first quarter, were constrained by supply issues
with Soflex, the company's three-piece foldable IOL. Substantial
supply increases are expected to occur in the second and third
quarters as manufacturing for this product transfers to the
Clearwater, Florida facility, which recently received FDA
approval to produce this product. While significant sales impact
is not expected in 1999, FDA approval and launch of the Technolas
217 excimer laser in the U.S. is expected late in the year.
With the sale of the sunglass business expected to be
completed by the end of the second quarter, a high priority will
be given to completing a review of the remaining non-core
businesses - the Miracle Ear hearing aid business and the
biomedical products business represented by the Charles River
Laboratories subsidiary - with the objective of exiting 1999 with
a singular focus on the eye care lines.
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 businesses compete, changes in global and localized
economic and political conditions (for example, the company does
business in Asia and Brazil, where, recently, economies and
associated currency risks have been volatile), 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, regulatory approval, marketing of products,
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 1998 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Item 601 Exhibits
Those exhibits required to be filed by Item 601
of Regulation S-K are listed in the Exhibit Index
immediately preceding the exhibits filed herewith and
such listing is incorporated herein by reference.
(b) Reports on Form 8-K
None filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BAUSCH & LOMB INCORPORATED
Date: May 10, 1999 By:
Robert B. Stiles
Senior Vice President
and General Counsel
Date: May 10, 1999 By:
Stephen C. McCluski
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
S-K Item 601 No. Document
(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 26, 1998 (filed as
Exhibit (3)-a to the company's Form 10-Q for the
quarter ended September 26, 1998, 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 Supplemental Indenture No. 1, dated May 13, 1998,
between the Company and Citibank, N.A. (filed
as Exhibit 3.1 to the Company's Current Report on
Form 8-K, dated July 24, 1998, File No. 1-4105, and
incorporated herein by reference).
(4)-f Supplemental Indenture No. 2, dated as of
July 29, 1998, between the Company and Citibank N.A.
(filed as Exhibit 3.2 to the Company's Current
Report on Form 8-K, dated July 24, 1998, File No. 1-
4105, and incorporated herein by reference).
(11) Statement Regarding Computation of Per Share
Earnings (filed herewith).
(12) Statement Regarding Computation of Ratio of
Earnings to Fixed Charges (filed herewith).
(27) Financial Data Schedule (filed herewith).
(99) Press Release of Bausch & Lomb Incorporated,
dated April 28, 1999.
<TABLE>
Bausch & Lomb Incorporated
Exhibit 11
Statement Regarding Computation of Per Share Earnings
(Share Amounts in Thousands Except Per Share Data)
Three Months Ended
March 27, March 28,
1999 1998
<S> <C> <C>
Net Earnings (in millions) (a) $ 22.4 $ (23.2)
Actual outstanding Common and
Class B shares at beginning of
period 56,529 55,209
Sum of weighted average activity
Of Common and Class B shares
Issued for stock options,
Restricted stock awards and
Cancellations, and net activity of
Shares held in deferred
Compensation plan 195 124
Weighted Basic Shares (b) 56,724 55,333
Effect of assumed exercise of
Common stock equivalents 1,338 -
Weighted diluted Shares (c) 58,062 55,333
Basic earnings per share (a/b) $0.39 $(0.42)
Diluted earnings per share (a/c) $0.39 $(0.42)
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to
Fixed Charges
(Dollar Amounts In Millions)
March 27, December 26,
1999 1998
<S> <C> <C>
Earnings before provision of income
taxes and minority interests $43.3 $130.4
Fixed charges 24.9 102.6
Capitalized interest, net of current
period amortization 0.1 0.3
Total earnings as adjusted $68.3 $233.3
Fixed charges:
Interest (including interest expense
and capitalized interest) $24.5 $100.7
Portion of rents representative of
the interest factor 0.5 1.9
Total fixed charges $25.0 $102.6
Ratio of earnings to fixed charges 2.7 2.3<F1>
<F1> Excluding the effects of restructuring charges, impairment of
goodwill and purchased in-process research & development
expense and a gain from the sale of the skin care product line
recorded in 1998 the ratio of earnings to fixed charges at
December 26, 1998 would have been 3.1.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> MAR-27-1999
<CASH> 182434
<SECURITIES> 3324
<RECEIVABLES> 559263
<ALLOWANCES> (27169)
<INVENTORY> 453954
<CURRENT-ASSETS> 1669231
<PP&E> 1439543
<DEPRECIATION> (716771)
<TOTAL-ASSETS> 3437652
<CURRENT-LIABILITIES> 752598
<BONDS> 1281047
0
0
<COMMON> 24155
<OTHER-SE> 826654
<TOTAL-LIABILITY-AND-EQUITY> 3437652
<SALES> 574822
<TOTAL-REVENUES> 574822
<CGS> 267346
<TOTAL-COSTS> 267346
<OTHER-EXPENSES> 252763
<LOSS-PROVISION> 2546
<INTEREST-EXPENSE> 24440
<INCOME-PRETAX> 43244<F1>
<INCOME-TAX> 15568
<INCOME-CONTINUING> 22386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22386
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
<FN>
<F1>Income Before Taxes and Minority Interest
</FN>
</TABLE>
Contacts:
Sabina Grossi, IR Manager
Luxottica Group: +39-02-4801-3350 Italy
212-515-0244 New York
Holly Houston, Director - Media Relations
Bausch & Lomb: 716-338-8064 office
716-473-7104 home
800-405-5314 pager
Angela Panzarella, VP - Investor Relations
Bausch & Lomb: 716-338-6025
LUXOTTICA GROUP TO PURCHASE BAUSCH & LOMB SUNGLASS BUSINESS
Agordo, Italy, and Rochester, N.Y. (April 28, 1999) -- Luxottica
Group S.p.A. (NYSE: LUX) and Bausch & Lomb (NYSE: BOL) today
announced that their respective Boards of Directors have approved
a definitive agreement for Bausch & Lomb to sell the assets and
liabilities of its Sunglass Business to Luxottica for a cash
purchase price of $640 million. The transaction for all of the
sunglass lines including the prestigious Ray-Ban, Revo, Arnette
and Killer Loop lines, is subject to various regulatory approvals
and is expected to close by June 30, 1999.
Mr. Leonardo Del Vecchio, chairman and founder of Luxottica,
said, "We are excited about the potential economic and strategic
synergies of the Bausch & Lomb Sunglass business for our
shareholders. It has been a strategic focus for Luxottica for
several years to build our presence in the quality sunglasses
business. With this we add the most prestigious sun brands in
the world to our portfolio. We gain access to very cost
efficient, high quality sunglass lens and lens coating
production. With our combined production and global distribution
strengths and the committed associates of the Bausch & Lomb
Sunglass Business we are confident we can achieve a strong return
on this investment."
"This agreement will allow us to continue to refine our focus on
our strategic objective of becoming the world's preeminent
technology-based healthcare company for the eye," said William M.
Carpenter, chairman and CEO of Bausch & Lomb. "With the
divestiture of the sunglass business, we will give high priority
to completing a review of strategic alternatives for our
remaining non-core businesses, the Miracle Ear hearing aid
business and the Charles River Laboratories subsidiary, with the
objective of exiting 1999 with a singular focus on our eye-care
lines. We believe this agreement with Luxottica is a very
positive outcome for our sunglass employees, our investors and
our customers."
Italy-based Luxottica Group S.p.A. is a world leader in the
design, manufacture, marketing and distribution of high quality
eyeglass frames in the mid- and premium-priced categories, with
such brands as Giorgio Armani, Emporio Armani, Ferragamo, Brooks
Brothers, Vogue and Anne Klein. Luxottica also owns and operates
the LensCrafters chain of optical retail stores.
Bausch & Lomb indicated that it expects to record an after-tax
gain on the sale in the range of $120 million, or $2.10 per
share, subject to a variety of final adjustments at closing.
Under the terms of the agreement, Bausch & Lomb will provide
certain general administrative support and warehousing/
distribution services to Luxottica for a transition period of at
least one year. Bausch & Lomb is a global eye-care company
dedicated to helping consumers see, look and feel better through
innovative technology and design. Bausch & Lomb's core
businesses include soft and rigid gas permeable contact lenses,
lens-care products, ophthalmic surgical and pharmaceutical
products. Based in Rochester, N.Y., Bausch & Lomb's products are
available in more than 100 countries worldwide.
Luxottica Group was advised in this transaction by Rothschild and
Bausch & Lomb was advised by Warburg Dillon Read LLC.
# # #
__________________________________________________________ _____
Certain statements in this press release may constitute forward-
looking statements which are based on management's current
expectations and beliefs and are subject to a number of risks and
uncertainties that could cause actual results to differ
materially, including risks that may not be subject to the
companies' control. These risks include, but are not limited to
regulatory approval of the parties' transaction, fluctuations in
exchange rates, economic and weather factors affecting consumer
spending, as well as other political, economic and technological
factors, and other risks referred to in the companies' filings
with the Securities and Exchange Commission.
CF23-0499
