UNITED STATES
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 26, 1998 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
$200,000,000 6.75% Notes, Due New York Stock Exchange
2004
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 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 23, 1999) of the voting stock held by
non-affiliates of the registrant was $3,393,433,140. 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 23, 1999, was 56,827,357, consisting
of 56,171,809 shares of Common Stock and 655,548 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 The Bausch & Lomb 1998 Annual Report to
II Shareholders for fiscal year ended December 26,
1998 ("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 23, 1999 ("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.
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 Security 7
Holders
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 9
Item 9. Changes In and Disagreements With Accountants
on Accounting And Financial Disclosure 9
PART III
Item 10. Directors and Executive Officers of Bausch &
Lomb Incorporated 10
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 12
Signatures 13
Schedules S-1
Exhibit E-1
Index
Exhibits (Attached to this Report on Form 10-K)
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Bausch & Lomb Incorporated is a world leader in the development,
manufacture and marketing of healthcare products for 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 1998 are
discussed below.
During the year ending December 26, 1998, the company
successfully integrated the newly acquired surgical businesses
into its existing product lines and furthered its transition
toward becoming a technology-based healthcare company for the
eye. Reported revenues for 1998 were $2,363 million, an increase
of $447 million or 23% from 1997. Net earnings for 1998 amounted
to $25 million, or $0.45 per diluted share, compared to $49
million, or $0.89 per diluted share, reported in 1997.
Significant operational matters affecting 1998 included
restructuring charges, disposition of a non-core business, and
goodwill impairment and purchased in-process research and
development (R&D) charges.
As described in the 1997 Annual Report on Form 10-K, the company
acquired Chiron Vision Corporation for $298 million and the Storz
Instrument Company for $370 million in the first quarter of 1998.
The purchase price was allocated to net assets acquired and to
purchased in-process research and development. In accordance
with applicable accounting rules, purchased in-process R&D is
required to be expensed and, accordingly a pre-tax charge of $41
million was recorded in the first quarter of 1998.
A pre-tax restructuring charge of $11 million was recorded in
1998 related to the restructuring program begun in 1997. 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. Restructuring charges concluded during the second
quarter of 1998.
In May 1998, the company sold its skin care business to The
Andrew Jergens Company for $135 million in cash plus the
assumption of certain liabilities. The company recorded a pre-
tax gain of $56 million on the transaction. This business
marketed the Curel and Soft Sense brands of skin care products.
During the third quarter of 1998, the company sold $300 of
putable/callable long-term notes with varying maturities and
interest rates, and $200 million of 30-year debentures. The
proceeds were used to reduce short-term debt.
In November 1998, the company announced that as a result of its
strategic planning process, an investment-banking firm had been
hired to help assess strategic alternatives for the sunglass
business. Alternatives to be considered include joint ventures,
sale, spin-off, or other business combinations. The business
consists of well-known sunglass brands including Ray-Ban, Killer
Loop, Arnette and Revo.
In the fourth quarter of 1998, the company recorded an impairment
charge of $85 million or $1.51 per diluted share, with no
associated tax benefit, related to the goodwill acquired as part
of the company's Miracle Ear hearing aid business. During 1998,
the company began to reassess the strategic value of the business
to its total portfolio. Additionally, during the second half of
the year, profitability of the business began to decline. In the
fourth quarter, the company's senior management publicly
announced that it would be focusing on healthcare products for
the eye and no longer had the goal of becoming a diversified
healthcare company, leading to the decision to divest the
business. The combination of these factors, and their impact on
projected future cash flows of the business, led to the
conclusion that the goodwill had become impaired.
(b) FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
Information concerning sales, operating earnings and assets
attributable to each of Bausch & Lomb's operating segments is set
forth on pages 26-30 and 48-50 of the Annual Report and is
incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Operating Segments Bausch & Lomb's operations are classified
into four segments: vision care, pharmaceuticals/surgical,
eyewear 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 3 and 7-23 of the
Annual Report and is incorporated herein by reference.
Vision Care - The vision care segment includes contact lenses and
lens care products, with lenses comprising approximately 45% and
lens care products representing approximately 55% of segment
revenues. Vision care products are marketed to licensed eye care
professionals, pharmaceutical retailers and mass merchandisers by
the company's own sales force and distributors.
Pharmaceuticals/Surgical - The pharmaceuticals/surgical segment
manufactures and sells generic and proprietary prescription
pharmaceuticals with a strategic emphasis in the ophthalmic field
and over-the-counter (OTC) ophthalmic medications, and products
and equipment for cataract, refractive, and other ophthalmic
surgery. Surgical products accounted for approximately 60% of
this segment's revenues in 1998 and were entirely incremental to
1997 results. Pharmaceuticals products accounted for
approximately 40% of 1998 segment revenues. These products are
marketed by the company's sales force and distributed through
wholesalers, independent pharmacies, drug stores, food stores,
mass merchandisers and hospitals.
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 manufacturers'
representatives. These products are marketed through optical
stores, sunglass specialty stores, department stores, catalog
showrooms, mass merchandisers and sporting goods stores.
Healthcare - Included in this segment are businesses which
provide purpose-bred laboratory animals pathogen-free eggs,
biomedical products and services and hearing aids. 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.
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 is
dependent upon a single or a few customers. However, in the
eyewear segment approximately 12% of segment sales are
attributable to Sunglass Hut International and in the vision care
segment approximately 9% 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. Bausch & Lomb , Dr. Mann Pharma, Storz
Millennium, Technolas, Hydroview and Vitrasert are trademarks
receiving substantial consumer recognition in the
pharmaceuticals/surgical segment. Ray-Ban, Revo, Wayfarer,
Arnette and Killer Loop are trademarks receiving substantial
consumer recognition in the eyewear segment. In the healthcare
segment, Miracle-Ear, Mirage 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
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 1998, the
company's research and development expenditures totaled $92
million, as compared to $67 million in 1997 and $75 million in
1996.
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 1998 and are not anticipated to be material for
1999 or 2000.
Year 2000 Software Compliance Information regarding the
identification and resolution of year 2000 data processing issues
is set forth on pages 35-36 of the Annual Report and such
information is incorporated herein by reference.
Number of Employees Bausch & Lomb employed approximately 15,000
persons as of December 26, 1998.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Information as to sales and long-lived assets attributable to
U.S. and non-U.S. geographic regions is set forth on pages 31-32
and page 50 of the Annual Report and is incorporated herein by
reference.
ITEM 2. PROPERTIES
The principal manufacturing, distribution and production
facilities and other important physical properties of Bausch &
Lomb at March 1, 1999 are listed below and are grouped under the
principal operating segment to which they relate. Certain
properties relate to more than one 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
San Antonio, TX San Clemente, CA (2)
Guangzhou, China (2) San Antonio, TX
New Territories, Hong Kong (2) North Ryde, Australia (2)
Bhiwadi, India Guangzhou, China (2)
Waterford, Ireland (2) Mississauga, Ontario Canada (2)
Pederobba, Italy New Territories, Hong Kong (2)
Nuevo Laredo, Mexico (2) Hoofddorp, Netherlands (2)
Healthcare
Production Facilities
Hollister, CA (2) Maribyrnong, Australia (2)
Lebanon, CT Melbourne, Australia (2)
Preston, CT Woodend, Australia (2)
Storrs, CT Brussels, Belgium
Voluntown, CT St. Constant, Canada
Summerland Key, FL Prague, Czech Republic (2)
Colbert, GA (2) Margate, England
Eureka, IL West Sussex, England
Roanoke, IL Lyon, France
Windham, ME St. Aubin-les-Elbeuf, France
Southbridge, MA (2) St. Germain, France
West Brookfield, MA (2) Extertal, Germany
Wilmington, MA Kisslegg, Germany
Portage, MI Sulzfeld, Germany
O'Fallon, MO Budapest, Hungary (2)
Raleigh, NC Calco, Italy
Pittsfield, NH Atsugi, Japan
Newfield (Lakeview), NJ Hino, Japan
Stone Ridge (Kingston), NY Tskuba, Japan (2)
Troy, NY (2) Tuhuacan, Mexico
Malvern, PA (2) Someren, Netherlands
Charleston, SC (2) Barcelona, Spain (2)
Houston, TX Uppsala, Sweden (2)
Manufacturing Plants Distribution Centers
Golden Valley, MN (1) Preston, CT (2)
Kitchener, Ontario, Canada (2) Wilmington, MA (2)
Golden Valley, MN (1)
Pharmaceuticals/Surgical
Manufacturing Plants Distribution Centers
Claremont, CA (2) Tampa, FL
Irvine, CA (2) Earth City, MO (2)
Clearwater, FL Artarmon, Australia (2)
Tampa, FL Heidelberg, Germany (2)
St. Louis, MO Bracknell, United Kingdom (2)
Lyon, France (2)
Berlin, Germany
Munich, Germany (2)
Vision Care
Manufacturing Plants Distribution Centers
Sarasota, FL (1) Rochester, NY (Optics Center) (1) (2)
Wilmington, MA (2) Greenville, SC (20
Rochester, NY Lynchburg, VA (2)
(Optics Center) (1) (2) North Ryde, Australia (2)
Greenville, SC New Territories, Hong Kong (2)
Porto Alegre, Brazil Hoofddrop, Netherlands (2)
Beijing, China Mississauga, Ontario Canada (2)
Bhiwadi, India Livingston, Scotland (2)
Waterford, Ireland (2)
Milan, Italy
Livingston, Scotland (2)
Umsong-Gun (Seoul), South Korea
Barcelona, Spain
Madrid, Spain
Hastings, United Kingdom
Corporate Facilities
Rochester, NY
One Bausch & Lomb Place (1) (2)
Optics Center (1) (2)
1295 Scottsville Road (2)
(1) This facility is financed under a tax-exempt financing
arrangement
(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.
ITEM 3. LEGAL PROCEEDINGS
1. 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. On April 21, 1998, the
court dismissed all of the plaintiffs' claims. The plaintiffs
have appealed this ruling.
2. 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 for 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.
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
62, respectively, of the Annual Report and the section entitled
"Outstanding Shares" on page 1 of the Proxy Statement are
incorporated herein by reference. The company's common stock is
traded on the New York Stock Exchange.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Selected Financial Data" on page 62 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 25-36 of the
Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The company, as a result of its global operating and financing
activities, is exposed to changes in interest rates and foreign
currency exchange rates that may adversely affect its results of
operations and financial position. In seeking to minimize the
risks and/or costs associated with such activities, the company
manages exposures to changes in interest rates and foreign
currency exchange rates primarily through its use of derivatives.
The company does not utilize financial instruments for trading or
other speculative purposes, nor does it utilize leveraged
financial instruments.
The company uses foreign currency forward contracts to hedge
foreign currency transactions and equity investments in non-U.S.
subsidiaries. Of the outstanding contracts for both 1998 and
1997, the foreign currencies purchased were primarily Irish
pounds, Singapore and Hong Kong dollars, and with respect to
1997, Swiss Francs. The foreign currencies sold for the same
periods were primarily German marks, Netherlands guilders and
Singapore dollars. The magnitude and nature of such hedging
activities are explained further in Note 14, "Financial
Instruments", on pages 57-58 of the Annual Report. A sensitivity
analysis to measure the potential impact that a change in foreign
currency exchange rates would have, net of hedging activity, on
the company's net income indicates that, based on its year-end
positions, if the U.S. dollar weakened against all foreign
currencies by 10%, the company would incur an after tax loss of
less than $1 million.
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. For foreign currency denominated borrowing and
investing transactions, cross-currency interest rate swap
contracts are used, which, in addition to exchanging cash flows
derived from rates, exchange currencies at both inception and
termination of the contract. A sensitivity analysis to measure
the potential impact that a change in interest rates would have,
net of hedging activity, on the company's net income indicates
that a one percentage point increase in interest rates would
increase the company's net interest expense by $1.3 million.
Counterparties to the financial instruments discussed above
expose the company to credit risks to the extent of non-
performance. 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.
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 38-60, 61 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
BAUSCH & LOMB INCORPORATED
Information with respect to 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, 1999), 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 M. Chairman and Chief Executive Officer since
Carpenter (46) January 1999; Chief Executive Officer (1997-
1998); President and Chief Operating Officer
(1995-1996); Executive Vice President,
Global Business Manager, Eyewear (1995-
1996); President and Chief Executive
Officer, Reckitt & Coleman, Inc. (1994-
1995); President and Chief Operating
Officer, Reckitt and Coleman, Inc. (1992-
1994).
Carl E. Sassano President and Chief Operating Officer since
(49) January 1999; Executive Vice President and
President - Vision Care (1997-1998); 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).
Dwain L. Hahs (46) 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).
Daryl M. Dickson Senior Vice President, Human Resources since
(47) November 1996; Vice President Human
Resources (Foods group), Quaker Oats Company
(1993-1996).
Hakan S. Edstrom Senior Vice President,
(48) Surgical/Pharmaceutical since January 1999;
Vice President and President, Bausch & Lomb
Surgical (December 1997-December 1998);
President Hoefer Pharmacia Biotech, Inc.
(1997); Senior Vice President, Corporate
Ophthalmic Business Development, Pharmacia &
Upjohn, Inc. (1996-1997); President and
Chief Executive Officer, Pharmacia
Ophthalmics Inc. (1989-1996).
James C. Foster Senior Vice President since 1994 and
(48) President and Chief Executive Officer of
Charles River Laboratories, Inc., a
subsidiary of the company, since 1991; Vice
President (1991-1994).
Stephen C. Senior Vice President and Chief Financial
McCluski (46) Officer since 1995; Vice President and
Controller (1994); President, Outlook
Eyewear Company (1992-1994).
Thomas M. Senior Vice President and Chief Technical
Riedhammer (50) Officer since January 1999; Senior Vice
President and President, Worldwide
Pharmaceuticals (1998); Senior Vice
President and President, Worldwide
Pharmaceutical, Surgical, and Hearing Care
Products (1994-1998); Vice President (1993-
1994); President, Worldwide Pharmaceuticals
(1994).
Robert B. Stiles Senior Vice President and General Counsel
(49) since June 1997; Staff Vice President and
Assistant General Counsel (1994-1997);
Assistant General Counsel (1991-1994).
Robert D. Vice President and Chief Information Officer
Colangelo (39) since November 1997; Vice President and
Controller, Global Vision Care (1996-1997);
Vice President and Controller, Contact Lens
Division (1995-1996); General Manager,
Venezuela and Colombia (1992-1995).
Jurij Z. Kushner Vice President, Controller since 1995; Vice
(48) 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 10-14, 15-17, 18-20, 2,
18 and 20 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 Directors and Executive Officers" in the Proxy
Statement on page 8-10 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 in Control Arrangements" on page 20 of the Proxy
Statement is incorporated herein by reference.
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 61
Balance Sheet at December 26, 1998 and 39
December 27, 1997
For the years ended December 26, 1998,
December 27, 1997 and December 28, 1996
Statement of Income 38
Statement of Cash Flows 40
Statement of Changes in Shareholder's Equity 41
Notes to Financial Statements 42-60
2. Filed herewith
Report of Independent Accountants
on Financial Statement Schedules Exhibit 23
For the years ended December 26, 1998,
December 27, 1997 and December 28, 1996:
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)-v 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.
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 24, 1999 By:/s/ William M. Carpenter
William M. Carpenter
Chairman 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 24, 1999 By:/s/ William M. Carpenter
William M. Carpenter
Chairman and Chief Executive
Officer
Principal Financial Officer
Date: March 24, 1999 By:/s/ Stephen C. McCluski
Stephen C. McCluski
Senior Vice President and Chief
Financial Officer
Controller
Date: March 24, 1999 By:/s/ Jurij Z. Kushner
Jurij Z. Kushner,
Vice President and Controller
Directors
Franklin E. Agnew
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 24, 1999 By:/s/ Robert B. Stiles
Robert B. Stiles
Attorney-in-Fact
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Reserves for Doubtful Accounts December 26, December 27, December 28,
1998 1997 1996
(Dollar amounts in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 14,015 $ 13,278 $ 11,232
Activity for the year:
Provision charged to income 8,568 4,310 8,556
(Reductions)/additions
resulting from (divestiture)/
acquisition activity 9,868 68 (399)
Accounts written off (5,787) (5,179) (6,899)
Recoveries on accounts
previously written off 144 1,538 788
Balance at end of year $ 26,808 $ 14,015 $ 13,278
</TABLE>
EXHIBIT INDEX
S-K Document
Item
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 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).
(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).
(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 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)-o 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)-p Amended and restated Charles River Laboratories, Inc.
Executive Life Insurance / Supplemental Retirement Income
Plan (filed as Exhibit (10)-t to the company's Annual Report
on Form 10-K for the fiscal year ended December 27, 1997,
File No. 1-4105, and incorporated herein by reference).
(10)-q Agreement with William H. Waltrip (filed as Exhibit (10)-u
to the company's Annual Report on Form 10-K for the fiscal
year ended December 27, 1997, File No. 1-4105, and
incorporated herein by reference).
(10)-r Corporate Officer Separation Plan (filed as Exhibit (10)-v
to the company's Annual Report on Form 10-K for the fiscal
year ended December 27, 1997, File No. 1-4105, and
incorporated herein by reference).
(10)-s EVA Management Incentive Compensation Plan (filed as Exhibit
(10)-w to the company's Annual Report on Form 10-K for the
fiscal year ended December 27, 1997, File No. 1-4105, and
incorporated herein by reference).
(10)-t 1998 Amendment to the Bausch & Lomb Incorporated 1990 Stock
Incentive Plan (filed as Exhibit (10)-a to the company's
Form 10-Q for the quarter ended June 27, 1998, File No. 1-
4105, and incorporated herein by reference).
(10)-u Management Incentive Compensation Plan (filed as Exhibit
(10)-b to the company's Form 10-Q for the quarter ended June
27, 1998, File No. 1-4105, and incorporated herein by
reference).
(10)-v LTI Deferred Compensation Plan, as amended, effective
December 8, 1998 (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 1998 Annual Report to Shareholders for the
fiscal year ended December 26, 1998 (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).
As approved by the Committee on Management
Of the Board of Directors
As of April 1, 1998
As amended as of December 8, 1998
LTI DEFERRED COMPENSATION PLAN
1. Introduction
This LTI Deferred Compensation Plan (the "Plan") provides the
opportunity for participants in the Bausch & Lomb Incorporated
(the "Company") Long Term Incentive Plan (the "LTI Plan") to
defer their awards under the LTI Plan.
2. Effective Date
The effective date of this Plan is April 1, 1998 (the
"Effective Date"). It covers eligible compensation earned
after the Effective Date and deferred hereunder.
3. Eligibility
Commencing on the Effective Date, the Plan is available to all
participants in the LTI Plan who (1) are in the active employ
of the Company on the date they make a deferral election and
(2) are with a select group of management or highly
compensated employees as provided for in Title I of ERISA.
Individuals who are not current participants in the LTI Plan
will become eligible to participate in this Plan upon receipt
of their first grant under the LTI Plan.
4. Amount of Deferral
An eligible employee may become a participant in the Plan by
electing to defer any grant or award under the LTI Plan.
Deferrals must be as to an entire grant, and partial deferrals
of individual grants are not permitted.
5. Time of Deferral Election
a) A participant's election to defer compensation must be made
by written notice to the Plan Administrator on behalf of the
Company before the compensation is earned. Without limiting the
generality of the foregoing, subparagraphs 5(b) and 5(c) and 5(d)
identify particular instances as to when effective elections may
be made.
b) For any grants in the first calendar quarter of 1998 which
have a performance cycle ending before January 1, 1999, deferral
elections may be made at any time after the Effective Date of
this Plan but not later than April 30, 1998.
c) For any person newly eligible to participate in this Plan,
as set forth in paragraph 3 hereof, an initial deferral election
may be made at any time within 30 days of being newly eligible.
d) For any LTI Plan grants with a performance cycle of greater
than one year, deferral elections may be made at any time prior
to the end of the Bausch & Lomb fiscal year next preceding the
final Bausch & Lomb fiscal year of the performance cycle.
6. Deferral Election
a) To defer compensation under the Plan, a participant must
give written notice to the Plan Administrator. This notice must
include (1) identification, by Cycle End Date (as defined in the
LTI Plan), of the grant to be deferred; (2) the payment
commencement date (i.e. retirement or date certain); (3) the
method of payment desired (i.e. annual installments, lump sum)
and, if annual, the number of years of installment payments; and
(4) the designation of payment to the participant's estate or
beneficiary in the event of the participant's death. The Company
will provide notice forms for deferral elections (see Exhibit),
which shall include identification of payment methods and
installments as may be approved in advance by the Plan
Administrator.
b) If a participant names someone other than his or her spouse
as a beneficiary in the event of participant's death, a spousal
consent form must be signed by that participant's spouse and
returned to the Company.
c) For all compensation deferred after the Effective Date of
this Plan, a participant may elect only two payment options, each
consisting of a payment commencement date and a method of
payment.
d) If a participant elects to receive his or her deferred
compensation in installments, the installment payments will be
calculated in the following manner: the participant's account
balance at the payment commencement date will be multiplied by a
fraction, the numerator of which is 1, and the denominator of
which is the number of remaining installment periods.
e) Retirement, for purposes of the Plan, shall mean the date on
which the participant is both (i) at least age 55 and (ii) no
longer employed by the Company.
7. Deferred Compensation Investment Account
a) An investment account will be established for each
participant ("Investment Account") to record all deferrals a
participant makes under this Plan plus all earnings on these
deferrals.
b) All deferrals will be deferred and, subject to subparagraphs
(g) and (h) below, held in shares of Company Stock.
c) Prior to the vesting of any grants, deferred shares will be
held by the Plan as Class B shares of the Company.
d) Upon vesting of any grants, shares previously held as Class
B shares will be converted, on a one-to-one basis, to regular
shares of Company Common stock and invested in a rabbi trust (the
"Trust") established for this purpose.
e) If any grant does not vest, all shares theretofore held by
the Company as Class B stock shall be forfeited and the
participant's Investment Account shall be adjusted to reflect
such forfeiture.
f) Dividends on deferred shares, whether vested or not, will be
paid into the Trust and invested in regular shares of Company
common stock.
g) All investments in Investment Accounts under the Plan are
hypothetical to the participant, regardless of whether or not the
Plan holds Class B or Common shares, or other assets. At the
time of each deferral of an LTI Plan award into the Plan, a
participant will be credited with an imputed number of shares for
the Investment Account. Participants will have no right to vote
these imputed shares. Thereafter, the value of a participant's
Investment Account will fluctuate in accordance with the actual
performance of the Investment Account. Dividends on the imputed
shares also will be credited to the participant's Investment
Account. Distributions and forfeitures will be deducted from the
Investment Account.
h) All vested deferred amounts shall remain invested in Company
Common stock.
8. Payment of Deferred Compensation
a) A participant's right to payment of deferred compensation
under the Plan is a contractual obligation of the Company to the
participant, and his or her right to such monies or assets shall
be an unsecured claim against the general assets of the Company.
However, the Company has established the Trust as an irrevocable
rabbi trust for participants for the purpose of holding, after
vesting of awards, assets used to pay deferred compensation
required to be paid by this Plan. The Company shall make
periodic contributions to the Trust as may be required to fund
amounts payable under the Plan. The Trust provides a participant
with assurance that deferred monies or assets will be paid to the
participant in accordance with the Plan, except in the event of
the Company's bankruptcy or insolvency. Notwithstanding the
establishment of the Trust, the Company remains ultimately
responsible to pay deferred compensation to each participant.
This obligation shall be met from the general assets of the
Company if the Trust has insufficient funds to pay benefits.
b) Payments of deferred compensation to a participant shall be
pursuant to the participant's deferral election notice given
pursuant to Section 6 hereof. Except as provided in Subsections
(c) and (d) below, a participant may not change the payment
commencement date or method of payment for monies or assets
already in his or her Investment Account. However, a participant
may choose a different payment commencement date and/or method of
payout for future deferrals subject to Section 6 above.
c) If, in the discretion of the Plan Administrator, a
participant has a need for funds due to a financial emergency
beyond the control of the participant, a payment may be made to
the participant from the vested funds in his or her account under
the Trust at a date earlier than the payment commencement date
chosen by the participant at the time of deferral. A
distribution based upon financial hardship may not exceed the
amount required to meet the immediate financial need created by
the hardship less the amount reasonably available to the
participant from other sources. Notwithstanding the foregoing, a
participant may not obtain a distribution based on financial
hardship which would create liability of the participant to the
Company under Section 16. As used herein, the term "Section 16"
shall mean Section 16 of the Securities Exchange Act of 1934.
A participant requesting a hardship distribution must supply
the Plan Administrator with a statement indicating the
nature of the need creating the financial hardship, the fact
that all other available resources are insufficient to meet
the need, and any other information that the Plan
Administrator deems necessary to evaluate whether a
financial hardship exists.
d) A participant may make an early withdrawal of vested funds
or assets held in the participant's Account under the Trust at
anytime, subject to the following penalties:
Forfeiture of 10% of the amount of the early withdrawal; and
Suspension of eligibility to make further deferral elections
for a period of five years.
Notwithstanding the foregoing, a participant may not obtain
a distribution under this Subsection which would create
liability of the participant to the Company under Section 16.
e) In the event of a participant's death before he or she has
received all of the deferred compensation payments to which
he or she is entitled, payments will be made, according to
the participant's deferral election pursuant to Section 6
hereof, to the participant's estate or beneficiary either
(a) continuing in the same manner as designated with respect
to payments to the participant while living or (b) in a
single lump sum payment the value of which is determined as
of the date immediately following the participant's death
and paid on the first January 15 or July 15 following such
valuation date (or as soon as reasonably possible
thereafter).
f) All payments made to participants under the Plan shall be
subject to all taxes required to be withheld under applicable
laws and regulations of any governmental authorities.
g) Upon termination of a participant as an employee of the
Company, the first day of February next following the date of
termination will be deemed to be the payment commencement date
for account balances of less than $3,500 (or such higher amount
as may be determined by the Plan Administrator) and such payment
will be made to the participant in a lump sum.
h) Upon a Change of Control (as defined below) notwithstanding
a participant's payment commencement date with respect to any
compensation deferred hereunder or method of payout with respect
to any compensation deferred hereunder, all amounts in a
participant's deferred compensation account (including earnings
credited thereto) shall be due and payable to the participant in
a cash lump sum payment within 15 days following the Change of
Control; provided, however that amounts which shall be due and
payable in accordance with this subparagraph 8(h) shall be paid,
at the election of the participant, in a manner so as not to
create liability of the participant to the Company under Section 16.
i) Notwithstanding any other provisions to the contrary herein,
all amounts invested in Company Common Stock shall be paid
to the participant upon distribution in Company Common Stock
or, at the sole option of the Company, in cash, based upon
the market value of Company Common Stock at the time of
distribution.
j) For purposes of this Plan, Change of Control shall mean:
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 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 (i) (C) of this Section 8 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 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 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, (1) 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, (2) 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 (3) 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.
9. Administration
The Treasurer of the Company, as the designee of the Committee
on Management of the Board of Directors, shall be the Plan
Administrator and has the authority to control and manage the
operation and administration of the Plan. The Investment
Committee shall be the Investment Committee of Bausch & Lomb
Incorporated.
10. Assignability
No right to receive payments under the Plan is transferable or
assignable by a participant except by will or by the laws of
descent and distribution.
11. Business Days
In the event any date specified falls on a Saturday, Sunday,
or holiday, such date will be deemed to refer to the next
business day thereafter.
12. Amendment
The Plan may at any time or from time to time be amended,
modified, or terminated by the Board of Directors or the
Committee on Management of the Board of Directors of the
Company. No such amendments, modification, or termination
will, without the consent of the participant, adversely affect
the participant's accruals in his or her deferred compensation
account.
BAUSCH & LOMB INCORPORATED
By:______________________________
Date:____________________________
<TABLE>
Exhibit 11
Statement Regarding Computation of Per Share Earnings
(Share Amounts in Thousands Except Per Share Data)
Twelve Months Ended
December 26, December 27,
1998 1997
<S> <C> <C>
Net Earnings (in millions) (a) $ 25.2 $ 49.4
Actual outstanding Common and
Class B shares at beginning
of period 55,209 55,404
Sum of weighted average activity
of:(1) Common and Class B shares
issued for stock options (2)
repurchases of Common and
Class B stock and (3)
cancellation of outstanding
oustanding stock options 615 (21)
Weighted Basic Shares (b) 55,824 55,383
Effect of assumed exercise of
Common stock equivalents 543 271
Weighted diluted Shares (c) 56,367 55,654
Basic earnings per share (a/b) $ 0.45 $ 0.89
Diluted earnings per share
(a/c) (a/c) 0.45 0.89
</TABLE>
<TABLE>
Bausch & Lomb Incorporated
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to
Fixed Charges
(Dollar Amounts In Millions)
December 26, December 27,
1998 1997
Earnings before provision of
income taxes and minority
<S> <C> <C>
interests $130.4 $118.0
Fixed charges 102.6 57.9
Capitalized interest, net of
current period amortization 0.3 0.3
Total earnings as adjusted $233.3 $176.2
Fixed charges:
Interest (including interest
expense and capitalized interest) $100.7 $56.1
Portion of rents representative
of the interest factor 1.9 1.8
Total fixed charges $102.6 $57.9
Ratio of earnings to fixed charges 2.27<1> 3.04<2>
1 Excluding the effects of restructuring charges,
impairment of goodwill and purchased in-process research
& development expense and a gain from the sale of the
skin care product line recorded in 1998 the ratio of
earnings to fixed charges at December 26, 1998 would have
been 3.07.
2 Excluding the effects of the restructuring charges
recorded in 1997 the ratio of earnings to fixed charges
at December 27, 1997 would have been 4.28.
</TABLE>
[front cover]
Bausch & Lomb
[ 1998 Annual Report ]
[photos: Javon and Janice Baker, Richard Kratz, M.D., Kristian Hohla, Ph.D.,
with various products: Renu, SoFlex, Moisture Eyes, Ocuvite, Alrex, Opcon-A,
SoftLens, Boston Simplicity, Boston Advance, Pure Vision, Optima FW and others]
-----------
VISIONARIES
-----------
[logo: BAUSCH
& LOMB]
[Inside front cover flap page 1]
[ At A Glance ]
- -------
REVENUE
- -------
($ in millions)
Comparable Basis*
[bar charts]
Vision Care
1996 869.1
1997 908.9
1998 960.8
Pharmaceuticals/
Surgical
1996 189.0
1997 190.6
1998 626.3
Eyewear
1996 504.9
1997 475.4
1998 456.0
Healthcare
1996 249.1
1997 276.6
1998 300.5
- --------
EARNINGS
- --------
($ in millions)
Comparable Basis*
Vision Care
1996 190.7
1997 209.4
1998 206.9
Pharmaceuticals/
Surgical
1996 28.6
1997 36.5
1998 92.1
Eyewear
1996 (0.9)
1997 (12.3)
1998 6.0
Healthcare
1996 36.9
1997 38.3
1998 37.9
[end bar charts]
- --------------------------------------------------------------------------------
*Comparable basis excludes certain items as described on pages 25 - 27.
- -----------------
TABLE OF CONTENTS
- -----------------
Financial Highlights 1
Letter to Shareholders 2
Strategic Discussion 9
Financial Review 25
Financial Statements and Notes 38
Reports of Management, Audit Committee
and Independent Accountants 61
Selected Financial Data 62
Directors and Officers 63
Bausch & Lomb Locations 64
Glossary 66
<PAGE>
[Inside front cover flap page 2]
[ At A Glance ]
- ------------
KEY PRODUCTS
- ------------
- --------------------------------------------------------------------------------
Vision Care
ReNu: The ReNu line is the global market leader in the growing chemical
disinfectant segment for soft lens care.
PureVision: Bausch & Lomb's new soft contact lens with a high degree of oxygen
permeability. PureVision is approved for seven-day continuous wear in the U.S.
and 30-day continuous wear in Europe.
SofLens: Bausch & Lomb offers a variety of products under the SofLens name.
SofLens66 and our new SofLens66 cast-molded toric contact lenses compete in the
two-week disposable category, while SofLens one day competes in the growing one
day disposable segment.
Medalist: Medalist, which competes in the two-week disposable lens category, is
the leading contact lens in the growing Japanese market.
Boston: The Boston line of lenses and lens care products has a commanding lead
in the global rigid gas permeable (RGP) category. Boston lenses account for 50%
of the U.S. RGP lens market, while Boston solutions boast a greater than 75%
market share for RGP lens care products in the U.S.
- --------------------------------------------------------------------------------
Pharmaceuticals/Surgical
Technolas 217: Advanced scanning excimer laser used in refractive procedures.
Currently the best selling laser outside the U.S.; awaiting FDA approval in the
U.S.
Hansatome: Advanced, pivotal action microkeratome for superior
positioned hinge. Bausch & Lomb Surgical's Hansatome is the most
popular microkeratome in the market today.
Millennium: Advanced microsurgical system with both anterior segment and
posterior segment functionality. The Millennium system's modular design allows
surgeons to keep pace with innovations in ophthalmic surgery.
AMVISC/AMVISC Plus: Viscoelastic products indicated for both anterior and
posterior segment procedures, including extraction of cataracts, insertion of
intraocular lenses (IOLs), corneal transplantation surgery, glaucoma filtering
surgery and surgical procedures to reattach the retina.
Chiroflex (IOL), Passport, Soflex (IOL), MPORT: One and three-piece minimally
invasive, small incision IOLs and delivery devices for cataract replacement
surgery.
Vitrasert: Posterior chamber implant which offers sustained therapeutic drug
delivery for several months. It delivers the drug ganciclovir directly to the
site of infection and is used to treat CMV retinitis in patients with AIDS.
Hydroview: Hydrogel foldable IOL which is currently marketed outside
the U.S.; awaiting FDA approval in the U.S.
Prescription
Lotemax: Site-specific ophthalmic steroid, designed for effective
treatment of ocular inflammation with improved safety profile. Key
ingredient is loteprednol etabonate 0.5%.
Alrex: Lower concentration of loteprednol etabonate (0.2%), designed
specifically for use in seasonal ocular allergy.
OptiPranolol: Non-selective beta blocker used in the treatment of ocular
hypertension.
OTC
Moisture Eyes: Bausch & Lomb has a full line of over-the-counter (OTC)
dry-eye products under the Moisture Eyes name, ranging from single-dose
artificial tears to preservative-free lubricating ointments.
Ocuvite: The number one recommended vitamin/mineral supplement by eye care
professionals, contains certain antioxidants, which are believed to
maintain the health of retinal tissue.
Opcon-A: A leading OTC eye drop indicated for relief of allergic
conjunctivitis.
================================================================================
- --------------------
NEW PRODUCT PIPELINE*
- --------------------
Vision Care
Continuous Wear Program: Various next generation continuous
wear contact lenses. Line extensions include higher oxygen permeability,
advanced biocompatibility and toric and RGP lenses.
No-Rub Disinfecting Solution: Disinfects soft contact lenses with
no rubbing or rinsing. Designed for lenses worn for one month or less.
Rapid Disinfecting Solution: Soft lens multi-purpose solution
combined with 10-minute lens disinfection.
Rewetting Drops: Rewetting/lubricating drop designed especially for use with
PureVision lenses.
Liquid Enzyme Cleaner for Soft Lenses: ReNu one-step enzyme in a convenient
liquid form.
- --------------------------------------------------------------------------------
Pharmaceuticals/Surgical
Topolink: Software technology which provides customized laser ablation based
upon individual corneal topography.
Catarex: Minimally invasive new surgical technology for removal of cataracts.
Perfluorocarbon II: Intraocular gas used to flatten the retina while healing
occurs following surgical correction of detached retina.
Phakic IOL (next generation): Comprehensive platform technology which allows
for additive as well as subtractive refractive correction.
Prescription
Loteprednol Etabonate Combination: Loteprednol etabonate/anti-infective
combination, being evaluated for treatment of inflammatory and infectious
conditions of the eye.
Next Generation Anti-Infective: Iodine-based anti-infective, designed as a
"universal anti-infective" to treat all causes of ocular infections
(bacterial, viral and fungal).
Drug Delivery Program: Bausch & Lomb has a number of collaborative ventures
to develop technology for more effectively delivering drugs to the diseased
site in the eye. Examples include sustained release eye drops and surgical
implants.
Cidofovir: Topical anti-viral agent, designed to treat Herpetic Eye Disease
(HSV) and Epidemic Keratoconjunctivitis (EKC) "pink eye". Currently, there
are no effective treatments for EKC.
OTC
Long Lasting Dry Eye Drop: Relieves dry eye symptoms for up to four hours
with one application. Current products last for up to one hour.
Next Generation Allergy Drop: Superior symptom relief for allergic
conjunctivitis. Relieves dryness.
Ocuvite Line Extension: Ocuvite product line extension with added
nutritional supplement.
- --------------------------------------------------------------------------------
*Includes projects in various phases of development.
<PAGE>
[Inside front cover flap page 3]
[pie chart]
Global Vision Care Market
Lens Care 41%
Lenses 59%
[end pie chart]
Growth Rates
- ------------
Total 7 - 9%
Lens 12 - 14%
Lens Care Flat
Global Market $4.4 Billion
- --------------------------------------------------------------------------------
[pie chart]
Global Ophthalmic Surgery Market
Cataract 71%
Refractive 16%
Retinal 13%
[end pie chart]
Global Growth Rates
- -------------------
Cataract 5%
Refractive 25 - 30%
Retinal 5%
Global Market $1.6 Billion
- --------------------------------------------------------------------------------
Ophthalmic Pharmaceuticals
Major Markets
[pie chart]
U.S. 32%
All Others 29%
Japan 20%
France 6%
Germany 6%
Italy 4%
Brazil 3%
[end pie chart]
Global Market $3.4 Billion
- --------------------------------------------------------------------------------
[photos: Family of vision care products, Family of surgical products, Passport
II one-piece IOL inserter, Millennium microsurgical system, Technolas 217
excimer laser, Family of pharmaceutical products]
<PAGE>
- --------------------
FINANCIAL HIGHLIGHTS
- --------------------
For The Years Ended December 28, 1996, December 27, 1997 and December 26, 1998
Dollar Amounts In Millions - Except Per Share Data
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Percentage Change
1996 1997 1998 from 1997
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Business Results
Net sales - reported $1,926.8 $1,915.7 $2,362.8 23%
Net sales - comparable basis 1,812.1 1,851.5 2,343.6 27%
Operating earnings - reported 190.8 148.0 123.7 (16%)
Operating earnings - comparable basis 207.7 226.4 290.3 28%
Net earnings 83.1 49.4 25.2 (49%)
Per share:
Basic earnings 1.48 0.89 0.45 (49%)
Diluted earnings 1.47 0.89 0.45 (49%)
Dividends declared 1.04 1.04 1.04 -
Shareholders' equity at year end 15.92 14.82 14.93 1%
Capital expenditures 130.3 126.1 201.5
Working capital 18.5 202.9 774.4
Average Common shares outstanding (000s):
Basic 56,299 55,383 55,824
Diluted 56,510 55,654 56,367
Return on average shareholders' equity 9.2% 5.9% 3.1%
Return on invested capital 7.2% 5.0% 3.8%
High/low stock price $44-1/2 - $32-1/2 $47-7/8 - $32-1/2 $59-3/8 - $37-3/4
----------------------------------------------------------------------------
</TABLE>
Bausch & Lomb is emerging as the preeminent technology-based
healthcare company for the eye, with the innovative products and the
capabilities that will allow us to define the nature of competition in
the categories in which we compete. We have the people, the products
and the momentum to realize our vision - to be Number One in the Eyes
of the World.
Visionaries Bausch & Lomb 1998 Annual Report 1
<PAGE>
- ---------------------
MUCH MORE THAN SEEING
- ---------------------
Dear fellow shareholders: Bausch & Lomb is emerging from a period of strategic
restructuring that has left the company stronger and more vital than ever. I am
proud of what we have accomplished and am tremendously excited about our future.
Bausch & Lomb is now the preeminent healthcare company for the eye, with the
most comprehensive line of eye care products in the world. We have the benefit
of core businesses with track records of solid growth and profitability, as well
as our emerging businesses - refractive surgery and pharmaceuticals - with the
potential for accelerated growth. As we look ahead, we have in the pipeline
technologically superior new products that will allow us to leverage our
powerful brand equity and strengthen our position as the leader in eye care.
Three years ago, when we began restructuring the company to accomplish our
vision of being Number One in the Eyes of the World, our first priority was to
establish a sound foundation, both strategically and financially. We realigned
our portfolio and business strategy to focus on eye care, and established an
appropriate cost structure that would allow for improved profitability while
also reallocating resources to support the introduction of innovative new
products that will fuel our growth. We also established EVA as the key measure
of our performance to focus our efforts on maximizing our return on every dollar
invested in our business. We made progress on all fronts in 1998 - we sold our
skin care business, made strategic acquisitions, hit key milestones of our
restructuring programs, accelerated growth and significantly improved our
ongoing earnings, a key driver in our 1998 EVA improvement.
1998 also marked a turning point for our sunglass business. Late in the
year, we announced that we had retained investment bankers to help us evaluate
strategic alternatives for this business. Our decision did not stem from a lack
of confidence in the business, which posted dramatic improvement in its
performance in 1998,reversing four years of market share erosion and two years
of operating losses to return to profitability. We recognized, however, that our
sunglass business operates under market dynamics that, increasingly, are
diverging from those driving our other three
[bar chart]
Bausch & Lomb
Comparable Basis Earnings
($ in millions)
1996 207.7
1997 226.4
1998 290.3
[end bar chart]
2 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
[ VISION ]
- ----
NAME Bausch & Lomb Chairman and Chief Executive Officer, William M. Carpenter
- ----
- ------
VISION To Be Number One in the Eyes of the World
- ------
Innovators. Pioneers. Dreamers. No matter what they are called, no matter
what their field of endeavor, these seekers, these visionaries possess a passion
for improvement, for finding a better way. It is this passion that impels them -
and Bausch & Lomb - to see opportunities and to seize opportunities that improve
our lives and transform our view of the future.
Clearly, ours is a vision company. And a company with a clear vision - to
be Number One in the Eyes of the World. Being Number One is about more than size
- - it's about leading the way in all that we do. On the following pages, you will
be introduced to some of the extraordinary people who help us explore new
possibilities and show us new ways to look at the world.
Building on our heritage of advancing technology to make viable the dreams
of these visionary pioneers, Bausch & Lomb continues always to seek the
innovative, to look beyond the horizon, to change the way the world sees.
<PAGE>
[photos: members of Board of Directors, various Bausch & Lomb products]
[caption: Board of Directors,
from left to right:
Jonathan S. Linen,
John R. Purcell,
William M. Carpenter,
Linda Johnson Rice,
Alvin W. Trivelpiece, Ph.D.
Ruth R. McMullin,
Franklin E. Agnew,
Domenico De Sole,
William H. Waltrip,
Kenneth L. Wolfe]
strategic eye care businesses. The sunglass business is fashion-oriented and a
"pure" consumer business that has little in common with our more professionally
oriented eye care lines. With the sunglass business demonstrating progress in
its recovery and a solid plan in place for 1999, the time is right to look at
alternatives that will maximize its value for the Bausch & Lomb shareholder.
We will also continue to evaluate strategic alternatives for our Miracle-Ear
hearing aid business during 1999, as well as begin to assess our longer-term
plans for Charles River Laboratories. Although these businesses are valuable
assets for the Bausch & Lomb shareholder, clearly neither one supports our
strategic focus on healthcare for the eye.
We are committed to accelerate the growth of our core eye care businesses
through new products, and our efforts to speed the pace of innovation are
clearly bearing fruit. In our vision care business, new products, including our
SofLens one day daily disposable lens, helped fuel strong contact lens revenue
growth in 1998. And, in its first full year on the market, ReNu MultiPlus
solution drove revenue and market share gains for the more mature lens care
business. We exited the year with the introduction of two more new contact lens
products: SofLens66 toric, a superior disposable lens for people with
astigmatism, and PureVision, a truly breakthrough lens designed to be worn
continuously for up to 30 days at a time.
Global Vision Care
New Product Submissions
[bar chart]
1996 217
1997 230
1998 284
[end bar chart]
4 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
----------------
IT'S ABOUT IDEAS
----------------
Our pharmaceuticals business demonstrated that we can increase our
investment in new product development while improving our profitability. In
1998, we introduced Lotemax ocular anti-inflammatory drops and Alrex ocular
allergy drops, innovative products that have been very well received by
practitioners. Products like these allow us to leverage the low-cost leadership
that has made us successful in generics across a growing portfolio of higher
margin proprietary pharmaceuticals. Our goal is to continue to allocate more of
our operating expenses to R&D to support the exciting pharmaceuticals in our
pipeline, and to capitalize on the tremendous opportunities we see for the drug
delivery technologies we have in development.
In the beginning of 1998, we entered a new field of eye care, ophthalmic
surgery, by finalizing the acquisitions of Chiron Vision Corporation and Storz
Instrument Company. By forging together these former competitors, we
successfully created Bausch & Lomb Surgical, a global leader in the field of
ophthalmic surgery. The integration of the acquisitions has progressed even
faster than we had anticipated and enhanced our financial performance in 1998.
We expect this business to be highly accretive in 1999 as further integration
benefits are realized and growth accelerates
Global Refractive
Surgery Procedures
[bar chart
1998 750,000
2001E 1,500,000
E = estimate
[end bar chart]
Visionaries Bausch & Lomb 1998 Annual Report 5
<PAGE>
from new cataract surgery products and the explosive expansion of our refractive
surgery business.
As we go forward, even greater opportunity lies in capitalizing on the
tremendous synergies that exist across our eye care businesses of vision care,
pharmaceuticals and ophthalmic surgery. Together, they give us the broadest and
most innovative line of eye care products in the world, with unsurpassed global
reach. Importantly, they also share common distribution channels, manufacturing
platforms and core technical competencies. Through these three businesses, we
are afforded product line leverage, customer leverage, geographic leverage and
technology leverage for unprecedented competitive advantage.
To capitalize on these opportunities, Bausch & Lomb is evolving from a
holding company with separate global businesses related to eye care, to an
integrated operating company that can extract the tremendous potential of our
three core businesses. We are aligning the organization to focus on our future.
At the beginning of 1999, Carl E. Sassano became President and Chief Operating
Officer, charged with implementing our strategy to take advantage of the common
elements across our businesses, while also ensuring the continued progress of
the vision care business. Hakan S. Edstrom was named Senior Vice President and
President, Surgical/Pharmaceutical, with operating responsibility for the two
businesses that have the most immediate opportunities for cross-business
leverage. Thomas M. Riedhammer, Ph. D. was appointed Senior Vice President and
Chief Technical Officer, with responsibility to leverage our capabilities in R&D
and manufacturing.
Finally, I took over the reins as chairman of the board, succeeding William
H. Waltrip, who remains a highly valued member of our board of directors. On
behalf of the board and all of us at Bausch & Lomb, I wish to express our
sincere thanks to Mr. Waltrip for his counsel during this critical period in
Bausch & Lomb's history.
We have emerged as the preeminent technology-based healthcare company for
the eye, with the innovative products and the capabilities that will allow us to
define the nature of competition in the categories in which we compete. We have
the people, the products and the momentum to realize our vision - to be Number
One in the Eyes of the World. Our thanks to all who are helping us make this
transformation happen - the people of Bausch & Lomb around the world whose
efforts have delivered these gratifying results - and to you, our owners, for
your continued confidence in our ability to fulfill this exciting vision.
/s/ William M. Carpenter
William M. Carpenter
Chairman and Chief Executive Officer
[grid showing product use within various medical sectors]
Customer Overlap
| Vision Care | Pharmaceuticals | Surgical
| | |
- ---------------------+-----------------+--------------------+---------------
Optometrists | X | X |
- ---------------------+-----------------+--------------------+---------------
Ophthalmologists | X | X | X
- ---------------------+-----------------+--------------------+---------------
Retail Optical | X | X |
- ---------------------+-----------------+--------------------+---------------
Hospitals | | X | X
- ---------------------+-----------------+--------------------+---------------
Managed Care | X | X | X
- ---------------------+-----------------+--------------------+---------------
[photo: William M. Carpenter, Carl E. Sassano]
William M. Carpenter, Chairman and CEO
Carl E. Sassano, President and COO
6 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
[ VISIONaries ]
Beyond
20/20
The magic sense - the sense of sight. Who is the steward for this magnificent
sense? It is Bausch & Lomb. We are building on a shared heritage of technology
to move beyond eye care to eye performance, enabling people around the world to
do more and be more than they ever imagined. We are leveraging our resources and
working together to be the best. Bausch & Lomb. Helping people see the wonders
of the world.
<PAGE>
[ VISIONary ]
- ----
NAME Otto Wichterle, Ph.D.
- ----
- ------
VISION Changing the way we look
- ------
This visionary Czech chemist imagined extraordinary possibilities for a
soft, water-based plastic that he developed. He believed that properly shaped,
it could be inserted into the eye to correct vision more comfortably than the
bulky hard lenses that were understandably in limited use. Undeterred by those
who refused to see and fund the opportunity, Dr. Wichterle improvised a
lens-making machine using a record player and an erector set, and labored for
years to prove his critics wrong.
Seeing the potential of Dr. Wichterle's prototype lens and seizing the
opportunity to change the way the world sees, Bausch & Lomb acquired the rights
to the process in 1966. With persistence, vision and skill, we developed the
technology that made possible the revolutionary introduction of the world's
first soft contact lens in 1972. Today there are more than 50 million soft
contact lens wearers around the world, a testament to the pioneering work of Dr.
Wichterle and Bausch & Lomb.
Honoring the past, we dedicated the 1998 Bausch & Lomb European Symposium
on Contact Lenses in Prague to the memory of Dr. Wichterle, who died in
September. Preparing for the future, Bausch & Lomb established the Otto
Wichterle Scholarship for Innovative Research in Contact Lenses to nurture the
next generation of visionaries whose work, like Dr. Wichterle's, will change the
way the future looks.
<PAGE>
--------------------
MORE THAN TAKING AIM
--------------------
Bausch & Lomb began 1998 with challenging goals: successfully integrate the two
largest acquisitions in our history; execute strategic restructuring programs;
maintain the strong performance of our core vision care and pharmaceuticals
businesses and return our premium sunglass business to profitability. We
achieved our goals, and began 1999 with a clear vision for our future.
New Surgical Business. One of the highlights of 1998 was the progress made to
integrate our acquisitions of Chiron Vision Corporation and Storz Instrument
Company to form Bausch & Lomb Surgical. Through these acquisitions, Bausch &
Lomb gained an exceptionally strong product line for cataract surgery, the most
common surgical procedure performed by ophthalmologists today. Our access to the
surgical suite opens an important channel of distribution for our pharmaceutical
products, and provides tremendous advantage to build on the leading position we
acquired in refractive surgery, the fastest growing segment of ophthalmic
surgery.
In its first year, Bausch & Lomb Surgical delivered operating profits in
excess of the incremental cost of financing the acquisitions. With the full-year
benefit of administrative consolidations and the opportunities yet to be
realized from manufacturing consolidations, the surgical business is expected to
expand its operating margin and significantly enhance our financial results in
1999 and beyond.
Restructuring Progress. 1998 was also notable for the progress we made in the
strategic restructuring program we began two years earlier. Our objective was to
slash overhead to improve profitability and free resources to support new
product development. Our cost saving projects are on track.
[photo caption: A year ago, Dorothy Winch's view of the world was threatened by
cataracts, a condition that affects as many as half of those over the age of 60.
Her sight was restored by surgery in which her clouded natural lens was replaced
by an intraocular lens, or IOL. Bausch & Lomb has a leading position in products
used for cataract surgery, and a growing line of pharmaceuticals, such as
Lotemax ocular anti-inflammatory drops, that help speed the recovery of patients
following cataract surgery.]
[photo: Dorothy Winch]
Visionaries Bausch & Lomb 1998 Annual Report 9
<PAGE>
Although we took the last of the restructuring charges associated with the
program during 1998, some of the projects are continuing, and will deliver
additional cost savings through the end of the year 2000.
Core Business Growth. Through our vision care business, Bausch & Lomb is the
leader in products for the contact lens wearer, with the most complete line of
contact lenses and lens care products of any manufacturer. The business
benefited from a number of new products in 1998, including ReNu MultiPlus
solution, the first multi-purpose lens care product to eliminate the need for
enzyme cleaning. Introduced in the second half of 1997, ReNu MultiPlus solution
has helped Bausch & Lomb strengthen our share leadership in the growing chemical
segment of the lens care market.
Bausch & Lomb benefited in 1998 from market expansion of SofLens one day
contact lenses in Europe. The acceptance of this low-cost daily disposable lens
was even better than we had anticipated, leading us to defer the launch of the
product in the U.S. until 1999 in order to focus on the fast-growing European
market.
In our pharmaceuticals business, Bausch & Lomb has a broad line of
over-the-counter (OTC) eye care products, a complete line of generic ophthalmic
prescription pharmaceuticals in the U.S. and the leading share of branded
ophthalmics in Germany. In 1998, Bausch & Lomb introduced Lotemax and Alrex,
innovative site-specific ophthalmic steroids developed in collaboration with
Pharmos Corporation. Proprietary products such as these allow us to leverage our
leading position in generics and our low-cost manufacturing capabilities for
faster market penetration and higher profitability.
Alternatives Sought for Sunglasses. Two years of intensive restructuring
efforts began delivering substantially improved results for our sunglass
business. After two years of operating losses, this business turned profitable
in 1998 and is poised for continued improvement in 1999. Recognizing that the
business has evolved to have less and less in common with our other,
professionally oriented eye care lines, in late 1998 we announced our intention
to evaluate strategic alternatives for the sunglass business.
[photo caption: Optometrist William Lapple has been prescribing Bausch & Lomb
contact lenses and lens care products for more than 15 years. "Bausch & Lomb's
comprehensive product line meets a broad range of my patients' needs," says Dr.
Lapple, who has shown his confidence in Bausch & Lomb by conducting clinical
studies of our new products in his practice. Most recently, Dr. Lapple
contributed his clinical expertise to test Bausch & Lomb's new SofLens66 toric,
an innovative disposable lens for patients with astigmatism.]
[photo: William Lapple]
10 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
- ------------------
IT'S ABOUT SEIZING
- ------------------
- -------------
OPPORTUNITIES
- -------------
Future Vision. With our core businesses on sound footing, the new surgical
business being successfully integrated, and a process underway to maximize the
value of our sunglass business, Bausch & Lomb has moved beyond restructuring,
and is emerging as the preeminent technology-based healthcare company for the
eye.
Our vision care, surgical and pharmaceuticals businesses have remarkably
strong competitive positions in today's most attractive eye care categories.
They give us the broadest line of eye care products of any company in the world,
with a global reach that is unsurpassed among eye care competitors. The future
of Bausch & Lomb lies in more fully leveraging these eye care businesses in
order to seize the tremendous opportunities for synergy among them.
These core businesses share common distribution channels, allowing us to
leverage the breadth of our product line with our customers to gain competitive
advantage. They also share common elements in their engineering and
manufacturing platforms, and the technical competencies of the businesses are
highly complementary. We are seizing the opportunities to have our experts in
each technical field apply their skills to benefit development efforts across
our product lines, and to ensure that every dollar invested in research and
manufacturing is used to the best advantage.
As we enter 1999, we are aligning the organization to capitalize on these
opportunities. We will ensure that Bausch & Lomb continues to lead the way in
eye care with the people, the products, the marketing strategies and the
technologies that will allow us to thrive in the dynamic markets of the next
millennium.
[photo caption: As a polymer scientist for Bausch & Lomb Surgical, Shiao Chang,
Ph.D. is one of the leading experts in the development of innovative materials
for IOLs and other products for cataract surgery. Dr. Chang is excited about the
unique opportunity to collaborate with other Bausch & Lomb scientists skilled in
developing contact lens materials. Dr. Chang believes that their exchange of
ideas will lead to the development of a new generation of biocompatible
materials for both surgical and contact lens products.]
[photo: Shiao Chang, Ph.D.]
Visionaries Bausch & Lomb 1998 Annual Report 11
<PAGE>
[many pictures of members of the PureVision Team]
[ VISIONary ]
- ----
NAME PureVision Team
- ----
- ------
VISION Expanding the way we see
- ------
Imagine what it would be like to have perfect vision 24 hours a day. You
simply open your eyes and the world is in focus. For more than half of the
world's population, it's just a dream. Imagining a soft contact lens so healthy,
so breathable, so comfortable that it could stay on the eye continuously for up
to a month, a team of Bausch & Lomb employees saw the potential and seized the
opportunity to make the dream come true.
The challenge was enormous. They needed to invent a lens material that
would allow sufficient oxygen to pass through it when the eyes were closed -
vital for eye health - and they needed a material that would stay wet - critical
for comfort and handling. With Bausch & Lomb's unwavering support over a decade
of discovery, they created what some said could never be done - a novel blend of
silicone and hydrogel that finally makes possible healthy and comfortable
continuous soft lens wear. Their true vision was transformed into the
revolutionary PureVision lens, designed for up to 30-day continuous wear.
Consumers have long clamored for the comfort and convenience of continuous wear
contacts. It took our expertise in developing innovative manufacturing
technology to take the invention from the lab bench to dispensers' shelves.
<PAGE>
[many pictures of members of the PureVision Team]
The next step, getting PureVision lenses on the eyes of consumers,
required careful, convincing clinical studies to calm prescribers' concerns
about extended overnight wear. The results, the ophthalmic counterpart of a
grand slam home run, show that the corneal swelling associated with wearing the
PureVision lens overnight is equivalent to sleeping with no lens at all. And
consumers prefer it two-to-one over the leading soft lens for comfort, handling,
visual quality and overall satisfaction.
As the PureVision lens is being introduced around the world, the team
once again has fixed its sights firmly on a bold vision for the future:
imagining a contact lens that can be worn safely for up to one year and finding
a way to make it real.
[photo caption: PureVision Team-left page (L to R) - Tom Ireland, Ron Borden,
Wendy Nooitgedagt, Douglas Robinson, Dave Seelye, Christine Skolnick, Joe McGee,
Jim Erickson, Madhu Ayyagari, Graham Biddle, Kevin DeRyke, Bill Appleton, Kim
Tolley, George Grobe, Chris Van Zandt, Ruthia Wong, John Shannon, Pattie Glover,
Dominic Ruscio, Kamal Sarbadhikari, Gary Aron, Joe Salamone, Michael Moorehead,
Mike Dobner, Ed Vaquero, Wendy Bieber, Sanjay Palit, Tim Comstock, Mike
Hochheiser, Ian Cox, Ila Riddle [bullet] PureVision Team-right page (L to R) -
Paul Valint, Dean Burrows, Kathleen Murphy, Kym Karutz, Ullrika Sjoberg, Carlos
Palencia, Linda Mosack, Judith Chapman, Glenn Davies, Dennis O'Brien, Tom
Crescuillo, Don Siegel, Lynne Scheurich, James Barton, Gary Friends, Brian Levy,
Keith Peck, Mike Santalucia, Yu-Chin Lai, Erik Indra, Kevin Zacher, Bryan Reed,
Tom Peter, Sue Gilliam, Marc Robboy, John Monaco, Colum Honan, Ray Murray, Joe
Dowling, Gabriel Kennedy, Jay Kunzler]
<PAGE>
[pictures of people from all parts of the world]
<PAGE>
---------------------
IT'S ABOUT KEEPING UP
---------------------
--------------
WITH THE WORLD
--------------
The multi-billion dollar categories in which Bausch & Lomb competes are
experiencing solid growth, benefiting in large part from favorable demographic
trends. The aging of the population in developed markets is driving increased
demand for eye care products that address the unique needs of the elderly, such
as products for cataract surgery. Second in growth only to the maturing "baby
boomers" is the population of young adults - prime candidates for contact lenses
and refractive surgery.
In emerging markets, rapid population growth is helping fuel an explosion in
demand for eye care. A key factor in the development of these markets is
consumers' increasing access to vision care, a function both of the improving
purchasing power of consumers and the expanding pool of professionals with the
requisite training and tools.
The breadth of Bausch & Lomb's product portfolio and global infrastructure
are tremendous assets in our ability to build our business in developing
countries. Our line of ophthalmic surgical products, for example, includes
entry-level equipment for cataract surgery that permits doctors in emerging
markets to equip new surgical clinics affordably. In China, Bausch & Lomb has
enjoyed extraordinary success building the base of consumers wearing contact
lenses by offering traditional lenses for annual replacement and ReNu
multi-purpose lens care solution, a lens-wear regimen affordable to consumers in
that country. We also have the critical mass in these regions to train
practitioners to prescribe our products - building both the market and
professional loyalty to Bausch & Lomb.
[photo: Brian Levy, O.D.]
[photo caption: According to Brian Levy, O.D., Bausch & Lomb Vision Care's Vice
President, Clinical Research, there is a tremendous unmet need for eye care in
markets like China, where trained eye care professionals are in short supply.
Dr. Levy is a leader in Bausch & Lomb's efforts to do something about the
problem. Dr. Levy helped establish a Bausch & Lomb supported program in China to
train a new breed of primary eye care practitioner who can diagnose and treat
refractive errors, dispense contact lenses, perform refractive and cataract
surgery and treat most common ocular diseases.]
Visionaries Bausch & Lomb 1998 Annual Report 15
<PAGE>
[ VISIONary ]
[photo: Jack Barefield, Jim Anderson, Lynn Detlor]
- ----
NAME Premier Purchasing Partners, Ltd.
- ----
- ------
VISION Transforming the way we care
- ------
Each year, more than 300,000 people suffering from vision-stealing
cataracts will have their sight restored by skilled surgeons using
state-of-the-art technology at the member hospitals and healthcare facilities of
Premier Inc., one of the largest alliances of health systems in the United
States.
Putting the most effective therapies in the hands of those who heal,
while keeping quality care within the financial reach of patients and providers,
is the creative challenge for Lynn Detlor, CEO of Premier Purchasing Partners,
Ltd., the buying group for the Premier alliance. Premier Purchasing Partners is
achieving its vision by partnering with the world's largest eye care company,
Bausch & Lomb, to provide its 1,700 member facilities with Bausch & Lomb's
complete line of leading-edge products for cataract surgery and with training
for Premier's medical staff.
Bausch & Lomb, in turn, is seizing the extraordinary opportunity to
leverage a comprehensive portfolio of products - unmatched in the ophthalmic
industry - within the growing managed care environment, which is influencing the
future of medical care. Like Bausch & Lomb Surgical's Jack Barefield and Jim
Anderson, our sales teams across the company are creating innovative,
cost-effective ways to make sure that our products and services get to the
people whose lives - and eyes - depend on them.
[photo caption; Pictured: (L to R) - Jack Barefield, Jim Anderson, Lynn Detlor]
<PAGE>
-----------------
MORE THAN GROWING
-----------------
---------------
WITH THE MARKET
---------------
[photo: Nancy Harrison]
[photo caption: As a contact lens wearer who also suffers from the dry eye
symptoms of Graves' disease, Nancy Harrison trusts Bausch & Lomb to answer all
her eye care needs. Bausch & Lomb is the name consumers know best for the most
innovative and highest quality eye care products. Consumers benefit from the
broad availability of Bausch & Lomb products, including contact lenses, lens
care products, OTC eye drops and prescription medications. Nancy, for example,
can pick up her ReNu multi-purpose solution and Moisture Eyes eye drops with one
stop at her favorite store.]
With our comprehensive product line, strong competitive position and global
reach, Bausch & Lomb is uniquely positioned to capitalize on the growing
interest among its customers for "one-stop-shopping". Driven by the need to
contain costs, customers in every channel of trade are recognizing the
efficiency of consolidating their business with vendors who can supply all their
needs.
The trend mirrors what is occurring within the consumer base. Consolidation
is becoming the norm among retailers, managed care organizations and
professional practices both to gain economies of scale and to provide
one-stop-shopping to their patients and customers.
Bausch & Lomb is at the forefront of responding to these trends. Our
complete line of eye care products is allowing us to become the vendor of choice
for large volume purchasers. For example, Bausch & Lomb can supply not only the
eye drops and lens care products mass merchandisers want for OTC sales, but also
the contact lenses that will be dispensed in the merchandisers' in-store optical
shops. We can provide ophthalmology practice groups with everything from the
pharmaceuticals to the contact lenses to the cataract and refractive surgery
products that their specialists need. And, in doing so, we can leverage the
margin from our broad array of products to offer great value, without competing
on the basis of price alone for a single offering.
Visionaries Bausch & Lomb 1998 Annual Report 17
<PAGE>
[photo: Richard Kratz, M.D.]
[ VISIONary ]
- ----
NAME Richard Kratz, M.D.
- ----
- ------
VISION Revolutionizing the way we operate
- ------
Driven by a desire to help people see, Dr. Richard Kratz, a retired
ophthalmic surgeon, also is a remarkable innovator, pioneering dramatic
techniques to remove the cataracts that cloud people's eyes and limit the
quality of their lives.
Twenty-five years ago he began training ophthalmic surgeons around the
world in the then-new surgical procedure called phacoemulsification, a process
that has since become the gold standard in cataract removal. The clouded natural
lens is carefully broken up with the aid of ultrasound waves and removed through
a small incision, making way for the insertion of an artificial lens that
restores sight.
Like Bausch & Lomb - a global leader in the manufacture of cataract
surgery equipment and products - Dr. Kratz continues to seek a better way, a
quicker, less-invasive way, to treat cataracts. He is consulting with Optex
Ophthalmologics, Inc., a Bausch & Lomb partner, in the development of Catarex,
breakthrough technology that could transform cataract surgery. Simpler and
faster, the Catarex system removes the cataract using a vortex created by a tiny
rotating impeller, leaving intact more of the lens' surrounding capsule.
Preparing now for clinical trials, Bausch & Lomb expects the introduction of
Catarex to seize an opportunity to transform the way we treat a condition whose
incidence will rise dramatically as the world grows older.
<PAGE>
-----------------------
IT'S ABOUT CHANGING THE
-----------------------
---------------------
NATURE OF COMPETITION
---------------------
Lasting success in today's dynamic eye care market requires more than scale, and
more than simply a full product line of parity products. Bausch & Lomb's success
has been driven by the truly innovative products that have made a difference in
eye care professionals' practices and in consumers' lives. To ensure our future,
we have been aggressively managing our overhead costs to fund the promising
ideas that will develop into the exciting new products of tomorrow.
The pace of innovation has quickened dramatically in Bausch & Lomb's vision
care business, evidenced by the growing number of regulatory submissions to
register products around the world - 217 in 1996, 230 in 1997 and a remarkable
284 in 1998.
In 1999, Bausch & Lomb will benefit from two more new products. The
SofLens66 toric lens, introduced late in 1998, is for people with astigmatism, a
market that is both underpenetrated and growing fast. Our innovative low-cost
manufacturing process allows us to price SofLens66 toric lenses so that
consumers can afford to replace their lenses every two weeks. In clinical
trials, practitioners loved the lens for its easy fit, and consumers preferred
it two-to-one to the leading, more expensive, disposable toric.
The potential for Bausch & Lomb's PureVision lens is even more exciting.
Based on frame-breaking technology (see pages 12-13), the PureVision lens gives
Bausch & Lomb the opportunity to fundamentally alter the contact lens market by
giving consumers what they have long wanted - healthy continuous wear. In early
1999, the lens received approval in the U.S. to be worn continuously for up to
seven days; studies are underway to gain U.S. approval for 30-day wear by 2001.
[photo: Thomas Tooma, M.D.]
[photo caption: Thomas Tooma, M.D., is an ophthalmic surgeon who performs over
100 LASIK procedures each week. He uses a Bausch & Lomb laser and Bausch &
Lomb's microkeratomes in his busy practice. Dr. Tooma is looking forward to
adding Bausch & Lomb's most advanced laser, the Technolas 217, to his practice
when it receives regulatory clearance in the U.S. The Technolas 217 laser has a
spot-scanning beam for more accurate results and is ergonomically designed to
improve a surgeon's efficiency. Dr. Tooma feels he can invest in Bausch & Lomb's
technology with confidence, knowing that the company will lead the way in
innovative upgrades that will keep the Technolas platform state-of-the-art.]
Visionaries Bausch & Lomb 1998 Annual Report 19
<PAGE>
[ VISIONary ]
- ----
NAME Kristian Hohla, Ph.D.
- ----
- ------
VISION Shaping the vision of tomorrow
- ------
At the core of the quest for visual perfection, where matter and energy
intersect, you will find Munich physicist Kristian Hohla, a laser pioneer whose
work on the corneal frontier has made him a legend in refractive eye surgery.
Dissatisfied with the inherent limitations of common external vision
correction - spectacles and contact lenses - Dr. Hohla dreamed of solving vision
problems at their source: the eye's misshapen surface. Using precise beams of
energy to delicately reshape the cornea, he invented the world's most
technologically advanced excimer laser, with spot-scanning capabilities. Bausch
& Lomb, recognizing the potential of this concept, acquired Dr. Hohla's company,
Technolas when it purchased the ophthalmic surgery business of Chiron Vision
early in 1998. With the Technolas laser and the exquisitely precise Hansatome
microkeratome as the centerpieces, Bausch & Lomb is the only company in the
world to offer eye surgeons the complete package of advanced instrumentation
needed for LASIK, the fastest-growing refractive procedure.
Dr. Hohla knows that eyes are like snowflakes, with no two alike. He is
creating innovative computer software, which, when used with the Technolas 217
laser and unique diagnostic tools, will transform measurements from inside a
patient's eye into a customized laser prescription. The result - truly
personalized visual perfection, beyond 20/20 to the ultimate in sight.
Already the market leader outside the United States, the Technolas 217
laser is awaiting final regulatory clearance for marketing in the U.S. Bausch &
Lomb, aiming to introduce it in the U.S. this year, is looking forward to
reshaping the vision of the future.
<PAGE>
-----------------------
IT'S ABOUT TAKING IT TO
-----------------------
--------------
THE NEXT LEVEL
--------------
PureVision
contact lenses were launched on a limited basis for seven-day wear in Europe
late in 1998, but Bausch & Lomb expects to expand to a full scale European
roll-out based on a 30-day wearing schedule by mid-1999.
In our surgical business, we have had tremendous success in the cataract
market with our Millennium line of phacoemulsification equipment, used by
ophthalmic surgeons to remove the clouded natural lens during a cataract
procedure. The unique modularity of this system allows customers to purchase
upgrades to expand the system's capabilities. Bausch & Lomb is also broadening
our offerings of foldable IOLs with the Hydroview, a lens that has been well
received in Europe, and is awaiting FDA approval for the U.S. market. On the
horizon is the Catarex system (see page 18), breakthrough technology that will
allow surgeons to perform cataract surgery more easily, more safely and more
efficiently.
In refractive surgery, Bausch & Lomb is the undisputed leader in innovative
products for LASIK, the preferred refractive procedure. LASIK combines the use
of a precise cutting tool, called a microkeratome, with a laser to reshape the
cornea. With the patented Hansatome, Bausch & Lomb commands a share of over 80%
of the microkeratomes used in LASIK procedures today. Our Technolas 217 laser is
the leader in laser placements outside the United States, and is expected to be
introduced in the U.S. for LASIK by the end of 1999, pending FDA approval. In
development is Topolink, a unique software system in clinical testing that will
allow doctors to customize LASIK for each patient in a way that no other
competitor in refractive surgery can match (see page 20).
In our pharmaceuticals business, our goal is to leverage our leading
position in generic ophthalmic pharmaceuticals and our access to ophthalmic
surgeons, with a growing line of proprietary offerings developed through
collaborative ventures. We're seeing the fruits of that strategy with our
Lotemax series of anti-inflammatory
[photo: 3 kids making faces at the camera]
[photo caption: What if we could prevent the changes in the eye that occur in
childhood that cause severe myopia, or nearsightedness? Bausch & Lomb is
studying that possibility. We are conducting clinical studies to determine
whether the use of rigid gas permeable lenses before adolescence slows the
progression of myopia. Although the full results of the studies will not be
known until the latter part of 1999, early anecdotal and experimental data look
promising.]
Visionaries Bausch & Lomb 1998 Annual Report 21
<PAGE>
[photo: Javon and Janice Baker]
[ VISIONary ]
- ----
NAME Javon Baker
- ----
- ------
VISION Seeing a future of unlimited opportunity
- ------
Look into the eyes of a child and there you will see a world of endless
possibilities. Looking into the eyes of her four-month-old son, Janice Baker saw
a world of trouble. Javon's eyes were infected. He needed immediate treatment.
Javon's pediatrician promptly wrote a prescription for a proven antibiotic
from a trusted manufacturer - Bausch & Lomb's erythromycin ointment. Janice
Baker confidently used it to heal her baby's eyes. She knows it well. She is a
quality control inspector at Bausch & Lomb's state-of-the-art pharmaceutical
manufacturing facility in Tampa, Florida, where the ointment is made. The trust
and confidence with which doctors prescribe and patients use our products
reflect Bausch & Lomb's exceptionally high standards for pharmaceutical
manufacturing. This reputation for quality has made us the leading producer of
generic ophthalmic pharmaceuticals in the United States.
Our comprehensive line of generic therapies for the eye ranges from
antibiotics like the one little Javon needed, to treatments for glaucoma, a
sight-robbing disease prevalent in older people. Seeing ample opportunities for
growth, Bausch & Lomb is expanding into innovative proprietary ophthalmics. On
the cusp of a new century, with our distinguished 147-year heritage of helping
people see, look and feel better, we are looking at the future, and just like
peering into the eyes of a child, we see a world of unlimited possibilities.
[photo caption: Pictured: Javon and Janice Baker]
<PAGE>
ophthalmics. In the pipeline for introduction past the year 2000 are, among
others, a next generation, universal iodine-based anti-infective and a
once-a-day glaucoma treatment which uses a unique drug delivery system.
-------------------------
IT'S ABOUT OUR VISION FOR
-------------------------
----------
THE FUTURE
----------
We also see tremendous opportunities for more effectively delivering
pharmaceuticals to the eye. Eye drops and ointments require frequent dosing - a
challenge for many patients - and do not reach the back of the eye, the site of
many devastating diseases. Systemic medications, on the other hand, expose the
entire body to powerful and potentially toxic drugs. Bausch & Lomb and our
development partners are working on strategies for delivering sight-saving drugs
over a sustained period to the diseased site in the eye.
One promising opportunity is Surodex, a unique, biodegradable drug delivery
technology licensed from Oculex Pharmaceuticals, Inc., that is in phase III
development. Designed to treat post-surgical inflammation, Surodex is implanted
during cataract surgery. Tiny, coated beads of dexamethasone dissolve slowly and
deliver a sustained dose of medication over a period of seven days, eliminating
the need for frequent dosing of eye drops following surgery. This and other
technologies have the potential to more effectively deliver other drugs that are
currently administered systemically, to help the millions of people who suffer
from sight-threatening diseases such as age-related macular degeneration and
diabetic-related conditions, for which treatment options are woefully limited.
Whether it's finding revolutionary ways to enhance visual performance or
new strategies for treating the age-old scourge of blindness, Bausch & Lomb is
firmly committed to developing the new frontiers of eye care, with the
technology and innovation that will make a difference in people's lives.
[pie charts]
Global Ophthalmic
Pharmaceutical Market
1998
$3.4 Billion
Glaucoma 37%
Allergy 18%
Anti-Infective 20%
Anti-Inflammatory 15%
Other 9%
Back of the Eye 1%
2004 (estimate)
$4.5 Billion
Glaucoma 28%
Allergy 14%
Anti-Infective 15%
Anti-Inflammatory 11%
Other 7%
Back of the Eye 25%
[end of pie charts]
Visionaries Bausch & Lomb 1998 Annual Report 23
<PAGE>
[ VISIONaries ]
--------------------
IT'S ABOUT TAKING IT
--------------------
Beyond
9/8
The future of Bausch & Lomb lies in finding ways to enhance eye performance that
are innovative and competitively superior, and in delivering those products and
services to customers in ways that can only be accomplished through global
presence and scale. A key measure of our success is Economic Value Added (EVA),
a financial measure that focuses on maximizing the return Bausch & Lomb earns on
every dollar used in running our company. We will drive continued improvement in
EVA by investing in new products that will give us profitable growth and
long-term competitive advantage; by relentless efforts to find new ways to
leverage our capabilities to lower our costs; and by always being mindful that
every asset of our company must yield a fair return for our owners.
<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 1999 outlook. References within
this financial review to earnings per share refer to diluted earnings per share.
Significant Events
To facilitate an analysis of the company's operating results, certain
significant events in each of the past three years should be considered.
Acquisitions On December 29, 1997, the company acquired all of the issued and
outstanding shares of Chiron Vision Corporation (Chiron Vision) from Chiron
Corporation. On December 31, 1997, the company also completed its acquisition of
certain stock and assets of Storz Instrument Company, Storz Ophthalmics, Inc.
and Cyanamid Chirurgie S.A.S. (collectively, Storz) from American Home Products
Corporation. The acquisitions were accounted for under the purchase method of
accounting; accordingly, operating results of Chiron Vision and Storz have been
included in the company's results from the dates of acquisition.
In connection with the acquisitions, the purchase price was allocated to
net assets acquired and to purchased in-process research and development (R&D).
Purchased in-process R&D includes the value of products in the development stage
not considered to have reached technological feasibility at the time of
acquisition. In accordance with applicable accounting rules, a pre-tax charge of
$41 was recorded during the first quarter of 1998. This amount was $25 or $0.44
per share after taxes. The calculation of the in-process R&D charge is more
fully described in Note 2 - Business Combinations.
The company expects to continue supporting R&D efforts associated with the
charge and believes it has a reasonable chance to successfully complete the R&D
programs. However, there is risk associated with the projects and the company
cannot be assured that either technological or commercial success will be
attained. If none of these R&D projects are successfully developed, the sales
and profitability of the company may be adversely affected in future periods.
The failure of any individual project in process would not materially impact the
company's financial position or results of operations. Total estimated costs to
complete the projects range from less than $0.1 to $13 with anticipated
completion dates ranging from 1999 through 2002. The projections used in
calculating the charge were based on a variety of estimates and judgments.
Actual results may vary materially due to a number of significant risks,
including those discussed in "Other Matters" following.
In addition to the purchased in-process R&D charge, purchase accounting
rules required that acquired inventory be written up to fair value, an increase
of $32 over the value of the inventory reflected at its manufactured cost. This
write-up resulted in higher cost of goods sold since the inventory was sold
during the first half of the year.
Impairment Charge In the fourth quarter of 1998, the company recorded an
impairment charge of $85 or $1.51 per share, with no associated tax benefit,
related to the goodwill acquired as part of the company's Miracle-Ear hearing
aid business. During 1998, the company began to reassess the strategic value of
the business to its total portfolio. Additionally, during the second half of the
year, profitability of the business began to decline. In the fourth quarter, the
company's senior management publicly announced that it would be focusing on
healthcare products for the eye and no longer had the goal of becoming a
diversified healthcare company, leading to the decision to divest the business.
The combination of these factors, and their impact on projected future cash
flows of the business, led to the conclusion that the goodwill had become
impaired.
Other Charges In fiscal 1997, one-time charges of $11 were incurred to exit
certain Ray-Ban product lines and to write off an equity investment in a
start-up eyewear technology company.
Throughout the remainder of this Financial Review, the term "other
significant charges" will be used to refer to the purchased in-process R&D,
inventory write-up, goodwill impairment charge and the 1997 other charges.
Visionaries Bausch & Lomb 1998 Annual Report 25
<PAGE>
Restructuring Charges
Consolidated reported operating earnings include restructuring charges however,
for management reporting purposes such charges are not allocated to business
segments. In 1997 and 1996, 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
5 - 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 connection with these plans, pre-tax
restructuring charges of $11 were recorded in 1998. The after-tax impact of
these charges was $8 or $0.13 per share. In 1997, pre-tax restructuring charges
were $72. The after-tax impact of these charges was $46 or $0.83 per share. In
1996, pre-tax restructuring charges were $15. The after-tax impact of these
charges was $11 or $0.19 per share.
Results Of Operations
During 1998 the company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures About Segments of an Enterprise and Related
Information. Amounts in this financial review have been restated as necessary
for comparability purposes based on the requirements of this standard. Bausch &
Lomb'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 products and equipment for cataract, refractive and other ophthalmic
surgery. The eyewear segment includes sunglasses, vision accessories and the
divested thin film coating business. The healthcare segment includes biomedical
products and services, hearing aids and the divested oral care, dental implant
and skin care businesses.
The following table summarizes the proportion of reported revenues and
earnings derived from each business segment. Segment earnings are presented as
viewed by management for decision-making purposes, and exclude the other
significant charges and restructuring charges as defined above.
<TABLE>
<CAPTION>
| Revenues | Segment Earnings+ |
+-------------------------+--------------------------+
| 1998 1997 1996 | 1998 1997 1996 |
+-------------------------+--------------------------+
<S> <C> <C> <C> <C> <C> <C>
Vision care | 41% 47% 45% | 60% 76% 75% |
Pharmaceuticals/Surgical | 26% 10% 10% | 26% 13% 11% |
Eyewear | 19% 26% 27% | 2% (6%) - % |
Healthcare | 14% 17% 18% | 12% 17% 14% |
+-------------------------+--------------------------+
</TABLE>
Net Sales Total reported net sales for 1998 increased $447 or 23% from 1997.
On a constant dollar basis (that is, excluding the effect of foreign currency
exchange rate changes), business revenues increased 26% compared with the
prior-year period. The results include $410 in 1998 revenues generated by the
acquired surgical and pharmaceuticals businesses described more fully in Note 2
- - Business Combinations. Revenue gains in the company's core business segments
of vision care and pharmaceuticals/surgical were partially offset by shortfalls
in the eyewear segment. Healthcare segment revenues declined as a result of the
second quarter 1998 divestiture of the skin care business. Total reported
revenues in 1997 decreased $11 or 1% from 1996, while constant dollar revenues
increased 3%. 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, was partially offset by strong sales of contact lenses.
Operating Earnings Total reported 1998 operating earnings of $124 decreased $24
or 16% from 1997. Incremental results from acquired surgical and pharmaceuticals
businesses, improved results in the eyewear segment and ongoing pharmaceuticals
product lines and lower restructuring charges, were more than offset by the
other significant charges described above. 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 company's other segments.
26 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Comparability
Unless specified as "reported," amounts in the remainder of this "Results Of
Operations" section have been prepared using "comparable basis" results, which
is consistent with the method management uses to view the company's results for
decision-making purposes, and thus excludes amounts related to the other
significant charges, restructuring and to the following items.
Divestitures The company sold its skin care business during the second quarter
of 1998. As a result, a non-recurring gain of $56 ($33 or $0.59 per share after
taxes) was recorded. This business was reported in the healthcare segment and
contributed sales of $19, $48 and $45 and operating earnings of $3, $7 and $6 in
1998, 1997 and 1996, respectively. In December 1997, the company divested the
Thin Film Technology Division, which was reported in the eyewear segment. This
business contributed revenues of $17 and $20 in 1997 and 1996, respectively. The
business had an operating loss of $3 in 1997 and broke even in 1996. 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 combined operating losses of $8 in that
year. The company recorded an after-tax gain of $2, or $0.04 per share on the
divestitures.
Litigation As described in Note 16 - Litigation, the company agreed to settle a
matter in litigation that resulted in a 1997 pre-tax charge of $21. The
after-tax impact of this charge was $13 or $0.24 per share. The company's
assessment of the probable future impact of certain other legal matters led it
to record a pre-tax litigation provision of $16 in 1996. On an after-tax basis,
such charges amounted to $10 or $0.18 per share.
Revenues And Earnings By Business Segment
A summary of sales and earnings by segment, as well as a presentation of total
company operating earnings, follows:
<TABLE>
<CAPTION>
| 1998 | 1997 | 1996 |
+----------------------------+-------------------------------+-----------------------------+
| As Comparable | As Comparable | As Comparable|
| Reported Basis | Reported Basis | Reported Basis |
+----------------------------+-------------------------------+-----------------------------+
<S> <C> <C> <C> <C> <C> <C>
Net Sales | | | |
Vision care | $ 960.8 $ 960.8 | $ 908.9 $ 908.9 | $ 869.1 $ 869.1 |
Pharmaceuticals/Surgical | 626.3 626.3 | 190.6 190.6 | 189.0 189.0 |
Eyewear | 456.0 456.0 | 492.1 475.4 | 525.1 504.9 |
Healthcare | 319.7 300.5 | 324.1 276.6 | 343.6 249.1 |
|----------------------------|-------------------------------|-----------------------------|
| $ 2,362.8 $ 2,343.6 | $ 1,915.7 $ 1,851.5 | $ 1,926.8 $ 1,812.1 |
+============================+===============================+=============================+
Operating Earnings | | | |
Vision care | $ 206.9 $ 206.9 | $ 209.4 $ 209.4 | $ 190.7 $ 190.7 |
Pharmaceuticals/Surgical | 92.1 92.1 | 36.5 36.5 | 28.6 28.6 |
Eyewear | 6.0 6.0 | (15.5) (12.3) | (0.6) (0.9)|
Healthcare | 40.7 37.9 | 45.8 38.3 | 34.8 36.9 |
+----------------------------+-------------------------------+-----------------------------+
| $ 345.7 $ 342.9 | $ 276.2 $ 271.9 | $ 253.5 $ 255.3 |
Corporate administration | (52.6) (52.6) | (45.5) (45.5) | (47.6) (47.6)|
+-----------+----+-----------+-------------+----+------------+-------------+---+-----------+
| $ 293.1 | |$ 290.3 | $ 230.7 | |$ 226.4 | $ 205.9 | | $ 207.7 |
Restructuring charges | (11.3)| |===========| (71.7) | |============| (15.1) | |===========|
Other significant charges | (158.1)| | (11.0) | | - |
|---------- | | --------- | |-------------|
| $ 123.7 | | $ 148.0 | | $ 190.8 |
|========== | |=============| |=============|
</TABLE>
Visionaries Bausch & Lomb 1998 Annual Report 27
<PAGE>
Comparable basis revenues have increased at compound annual rates of 9.9%
and 8.4% for the most recent three- and five-year periods, respectively.
Revenues in 1998 increased $492 or 27% from 1997 and improved 29% on a constant
dollar basis, reflecting the impact of the acquired businesses. Excluding these
incremental revenues, total company revenues increased $83 or 4% (6% in constant
dollars). In 1997, revenues increased $39 or 2% and improved 6% on a constant
dollar basis.
Vision Care Segment Results
1998 Versus 1997 The vision care segment includes the contact lens and lens
care businesses, with lenses comprising approximately 45% and lens care products
representing approximately 55% of revenues. An increase in revenues of 6% was
driven by a 9% improvement in contact lens sales combined with a 3% improvement
in lens care revenues. On a constant dollar basis, segment revenues increased
8%.
Contact lens revenue gains, 11% in constant dollars, were driven by
continued strong growth in planned replacement and disposable lenses
(collectively, PRD), including SofLens one day disposable lenses in Europe,
where sales more than doubled from the prior-year period, and Medalist lenses in
Japan, where the brand is now the market leader. PRD sales in the U.S. grew
modestly but were offset by declining sales of rigid gas permeable and
traditional lenses. Despite difficult comparisons to 1997, which benefited from
the initial sell-in of ReNu MultiPlus, a premium-priced multipurpose solution,
revenues from lens care products were up 5% in constant dollars, driven
primarily by results in Europe. Segment earnings declined $2 or 1%, and
operating margins declined to 22% in 1998 from 23% in 1997, primarily the result
of currency changes.
1997 Versus 1996 Revenues in this segment improved 5%, led by strong gains in
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 in Europe contributed to the
growth. The increase was partially offset by a decline in traditional lenses, as
the expected shift to PRD lenses continued, and by a moderate decrease in rigid
gas permeable lenses, most notably in Europe. Lens care products revenues
increased 4% on a constant dollar basis benefiting from the initial sell-in of
ReNu MultiPlus solution in the U.S. and Europe and increased revenues from other
lens care products outside the U.S.
Segment earnings improved 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.
Pharmaceuticals / Surgical Segment Results
1998 Versus 1997 Segment revenues increased $436, reflecting the additions of
the Chiron Vision and Storz surgical and pharmaceuticals product lines as well
as the pharmaceuticals product lines of Dr. Winzer Pharma in Germany (the
acquired product lines). Surgical products accounted for approximately 60% of
revenues in 1998 and were entirely incremental to 1997 results. Pharmaceuticals
products accounted for approximately 40% of 1998 segment revenues.
Pharmaceuticals revenues increased 27% over 1997 or 28% on a constant dollar
basis. Excluding the impact of the acquired product lines, pharmaceuticals
revenues increased 9% or 10% in constant dollars.
In the U.S., pharmaceuticals revenues increased 29% due to acquired product
lines, the introductions of Lotemax and Alrex ophthalmic steroids, increased
revenues from Trimethoprim, the generic equivalent to Polytrim, and increased
generic otic pharmaceuticals sales. Also contributing to this increase was the
general eye care business, where sales of Opcon-A drove increases in revenues
from 1997. Competitive pressures, including price declines on certain generic
products, partially offset these sales increases. Non-U.S. pharmaceuticals
revenues improved 24% over the prior year, reflecting the acquired product
lines, new product introductions and more stable market conditions in Germany.
Segment earnings more than doubled from 1997, primarily reflecting the
impact of the acquired product lines. For pharmaceuticals, price and volume
increases for many U.S. generic products were offset by unfavorable
manufacturing variances and higher allowances associated with the competitive
nature of the generic industry, as well as increased spending for marketing,
advertising and R&D. For the pharmaceuticals product line, R&D increased to 8.9%
of sales from 7.4% of sales in 1997, reflecting spending to support development
of proprietary products. R&D was 6.5% of total segment sales, compared with 7.4%
in 1997.
28 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
1997 Versus 1996 Segment revenues increased 1% over the prior year as strong
U.S. sales were partially offset by a decline in revenues for the company's Dr.
Mann 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, which attained a greater than 95% market share for the generic
product. Muro, a hypertonic ophthalmic solution and ointment, 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 and Moisture Eyes PM. Revenues also
benefited from the launch of Bausch & Lomb Computer Eye Drops, 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. In 1996,
uncertainty surrounding the German government's proposed cutback on prescription
reimbursements negatively impacted sales. European OTC pharmaceuticals
experienced a 13% constant dollar decline in revenue versus 1996, attributable
to pharmacy inventory reductions in Germany due to poor economic conditions.
Segment earnings improved 28% in 1997. This improvement was driven by price
and volume increases for many U.S. generic products partially offset by
unfavorable manufacturing variances and higher allowances associated with the
competitive nature of the generic pharmaceuticals industry.
Eyewear Segment Results
1998 Versus 1997 Segment results are primarily driven by sales of sunglass
products, which account for over 97% of this segment's portfolio. As a result of
the company's objective to concentrate on healthcare products for the eye, as
well as the sunglass business's performance over the last several years, the
company has announced that it is exploring various strategic alternatives for
this product line.
Segment revenues decreased 4% from 1997, or 2% on a constant dollar basis.
Sunglass revenues in the U.S. decreased 8%, partially due to lower sales to
Sunglass Hut International (SHI), the region's largest customer. Much of the
shortfall occurred in the fourth quarter, resulting in part from a disruption of
normal business caused by the aforementioned announcement. Outside the U.S.,
revenues for the year declined 1%. Revenue increases in Europe were offset by
results in the Asia-Pacific and Latin America regions, as difficult economic
situations led to sales shortfalls.
The segment reported operating income of $6 in 1998 as compared to a loss
of $12 in 1997. Cost savings realized from recent restructuring actions, lower
marketing and advertising costs for sunglass products and a shift in sales mix
toward higher margin products drove this improvement.
1997 Versus 1996 Segment revenues declined 6% compared with 1996. On a constant
dollar basis, segment revenues declined 3%, reflecting sunglass results.
Sunglass sales in the U.S. declined 5%, due in part to lower sales to SHI.
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 in 1997. 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
restructuring actions.
Visionaries Bausch & Lomb 1998 Annual Report 29
<PAGE>
Healthcare Segment Results
1998 Versus 1997 Healthcare revenues include sales of biomedical products and
services and hearing aids. Segment revenues increased 9%, with year-over-year
growth in each product line. On a constant dollar basis, sales improved 11%.
Biomedical results rose 11% on a constant dollar basis driven primarily by
increases in purpose-bred animals in the U.S. and Europe as well as by growth in
the biotechnology and services business. Hearing aid revenues advanced 15%
reflecting an increase in the number of company-owned retail outlets.
Segment earnings were even with 1997 as biomedical margins remained strong
while the margin impact of increased revenues in the hearing aid business was
offset by higher operating expenses, primarily selling and marketing. Although
increased company-owned retail outlets has resulted in higher hearing aid
revenues in 1998, the business's profitability has not met management's
expectations.
1997 Versus 1996 Revenues increased 11% over 1996 with gains in all product
lines. Revenues were up 16% over the prior year on a constant dollar
basis. 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 biotechnology
products and services. Hearing aid revenues advanced 23% over 1996 aided by an
increase in company-owned retail outlets and sales of new products.
Segment earnings increased 4% on the strength of higher sales, with the
hearing aid business profitable for the first time since the company acquired it
in 1993.
Operating Costs And Expenses
The reported ratio of cost of products sold to sales was 46.3% in 1998, versus
46.2% and 45.3% for the years ended 1997 and 1996, respectively. On a comparable
basis, this ratio was 45.0% in 1998, 45.7% in 1997 and 45.1% in 1996. Eyewear
margins were favorable to the prior year due to lower manufacturing costs
resulting from recent restructuring actions. These results were more than offset
by lower vision care margins, due to product mix, and pharmaceuticals product
margins, which continued to reflect the lower generic product selling prices.
The unfavorable trend in 1997 reflected higher manufacturing variances for
eyewear, resulting from reduced volumes, and lower margins in vision care and
pharmaceuticals, due to downward pressure on generic pharmaceuticals selling
prices.
Comparable basis selling, administrative and general expenses, including
corporate administration, were 38.7% of sales in 1998 compared with 38.5% in
1997 and 39.7% in 1996. The year-over-year unfavorable ratio in 1998 reflected
planned increases in marketing and advertising, higher selling costs as well as
the incremental expenses associated with the integration of Chiron Vision and
Storz. The year-over-year favorable ratio in 1997 reflected decreases in
marketing and advertising, lower general administration costs and reduced
spending in the pharmaceuticals/surgical segment as well as lower selling
expenses due mainly to consolidation of certain responsibilities in the vision
care segment.
R&D expenses totaled $91 in 1998, an increase of $26 or 40% over 1997. In
1996, these costs were $69. This represented 3.9% of sales in 1998 versus 3.5%
and 3.8% in 1997 and 1996, respectively. As expected, R&D in 1998 increased to
support the company's goal of consistently bringing new products to market. For
the year, these increases were primarily in the pharmaceuticals/surgical
segment. The 1997 decrease in expense was due in large part to favorable project
spending as efforts were made to consolidate R&D functions in the vision care
segment.
30 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Revenues And Earnings By Geographic Region
A summary of sales and earnings by geographic region follows:
<TABLE>
<CAPTION>
| 1998 | 1997 | 1996 |
+------------------------------+-------------------------------+-----------------------------+
| As Comparable | As Comparable | As Comparable|
| Reported Basis | Reported Basis | Reported Basis |
+------------------------------+-------------------------------+-----------------------------+
<S> <C> <C> <C> <C> <C> <C>
Net Sales | | | |
U.S. |$ 1,236.8 $ 1,217.6 | $ 1,000.3 $ 936.1 | $ 1,020.9 $ 912.9 |
Non-U.S. | 1,126.0 1,126.0 | 915.4 915.4 | 905.9 899.2 |
+------------------------------+-------------------------------+-----------------------------+
|$ 2,362.8 $ 2,343.6 | $ 1,915.7 $ 1,851.5 | $ 1,926.8 $ 1,812.1 |
+==============================+===============================+=============================+
Operating Earnings | | | |
U.S. |$ 126.2 $ 123.4 | $ 130.4 $ 126.1 | $ 88.3 $ 90.1 |
Non-U.S. | 166.9 166.9 | 100.3 100.3 | 117.6 117.6 |
+------------------------------+-------------------------------+-----------------------------+
|$ 293.1 $ 290.3 | $ 230.7 $ 226.4 | $ 205.9 $ 207.7 |
+==============================+===============================+=============================+
</TABLE>
1998 Versus 1997 Sales in markets outside the U.S. increased 23% in 1998
compared to 1997. Non-U.S. sales represented 48% of consolidated revenues in
1998, 49% in 1997 and 50% in 1996. Non-U.S. sales from the acquired surgical
businesses and increased revenues for vision care products, primarily contact
lenses, offset declines in the eyewear segment. Currency exchange rates had a
negative impact of 5% on non-U.S. sales. European region revenues advanced 39%
versus 1997, with minimal impact from currency, due in large part to incremental
pharmaceuticals/surgical sales and growth in vision care and sunglass sales.
Sales in the Asia-Pacific region, including Japan, increased 7% over the prior
year, and advanced 15% in constant dollars, due in large part to incremental
surgical sales and to the strong growth of PRD lenses throughout most of the
region. Revenues in Japan were up 4% versus 1997, or 11% in constant dollars,
due primarily to the continued success of Medalist contact lenses. Revenues in
the Canada and Latin America region increased 7% over the prior year due mainly
to incremental surgical sales and sales of vision care products. Latin America
eyewear sales declined as economic conditions deteriorated in the region.
U.S. sales increased 30% from 1997, due primarily to incremental surgical
sales. Increased vision care and healthcare sales were offset by shortfalls in
the eyewear segment.
Operating earnings in markets outside the U.S. in 1998 increased 66% from
1997, and represented 58% of total operating earnings in 1998 versus 44% and 57%
in 1997 and 1996, respectively. Incremental surgical results and the Dr. Winzer
acquisition in Germany, combined with improved results in Japan due to Medalist
lenses and to sunglass products, were partially offset by changes in currency
rates.
In the U.S., 1998 operating earnings decreased 2% versus the prior year.
These results reflected higher R&D and administrative expenses, operating losses
for hearing aid products, as well as incremental amortization expense associated
with recent acquisitions, which were only partially offset by improvements in
the vision care and eyewear segments. Administrative expenses increased
primarily due to initial costs associated with streamlining the company's
backroom financial operations.
1997 Versus 1996 Sales outside the U.S. increased 2% in 1997 over 1996.
European revenues were flat with the prior year, but in constant dollars
revenues rose 9% led by sales growth for PRD 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, including
Japan, improved 6%. On a constant dollar basis, sales in the region increased
14% due to growth in vision care products. Sunglass sales throughout the region
were lower due to country-specific economic issues and competitive pressures. In
the Canada and Latin America region, sales fell 5% from 1996. Lower lens care
products and eyewear sales in Canada offset increased demand for sunglasses in
Latin America and PRD lenses throughout the region.
Visionaries Bausch & Lomb 1998 Annual Report 31
<PAGE>
U.S. revenues in 1997 increased 3% from the prior year. Growth in PRD
lenses, U.S. generic pharmaceuticals and healthcare products offset lower
sunglass sales.
Operating earnings in markets outside the U.S. in 1997 decreased 15% from
1996. 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 40% versus 1996. Margins
were slightly lower than prior year however, total profitability was maintained
through savings in operating expenditures, especially marketing, advertising and
R&D.
Other Income And Expense Interest and investment income was $45 in 1998, $40 in
1997 and $43 in 1996. The increase in 1998 over 1997 was primarily attributable
to a gain on the sale of a long-term investment associated with the divestiture
of the dental implant business. The decrease in 1997 from 1996 was due to lower
investment levels in 1997 and interest income recorded in 1996 on an income tax
refund, partially offset by higher interest rates.
Interest expense was $101 in 1998, $56 in 1997 and $52 in 1996. The 1998
increase over 1997 was primarily due to additional debt associated with the
surgical acquisitions. The 1997 increase over 1996 was mainly due to higher debt
levels and higher 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 speculate in foreign currency. It may, however,
selectively execute foreign currency transactions to protect the translated
earnings and cash flows of certain foreign units. Such foreign currency
transactions may not be accorded hedge accounting treatment under U.S.
accounting rules. In addition, the company hedges identified transaction
exposures on an after-tax basis to minimize the impact of exchange rate
movements on operating results and selectively hedges exposures arising in
countries with hyperinflationary economies. Transaction gains of $8 and
translation losses of $2 resulted in net foreign currency gains of $6 in 1998.
In 1997, net foreign currency gains of $7 reflected transaction gains of $9
offset by translation losses of $2. In 1996, net gains were $2 and were
comprised of $3 transaction gains and $1 translation losses.
Income Taxes The company's reported tax rate was 60.9% in 1998 as compared with
38.7% in 1997 and 37.7% in 1996. The 1998 rate reflected the goodwill impairment
charge for which there is no associated tax benefit. All years reflected the
impact of restructuring, litigation charges and net gain on divestitures while
1998 also reflected the charge for in-process R&D. Excluding these items, the
ongoing tax rates were 36.2%, 37.4% and 37.6% for 1998, 1997 and 1996,
respectively. The decrease in rates reflected geographic shifts in earnings.
Net Earnings And Earnings Per Share Reported net earnings of $25 or $0.45 per
share in 1998 decreased $24 or $0.44 per share from 1997. These results
reflected the goodwill impairment charge, purchased in-process R&D and
restructuring charges discussed previously, offset by the incremental results
from the acquired businesses and increased operating earnings from the eyewear
segment and pharmaceuticals product line. Amounts declined significantly in 1997
from the 1996 reported amounts of $83 or $1.47 per share, due primarily to the
impact of restructuring charges recorded in 1997.
32 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
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 an "as reported" basis.
Cash Flows From Operating Activities Cash provided by operating activities
totaled $146 in 1998, a decrease of $69 from 1997. Contributing to this
unfavorability were increases in accounts receivable, interest on incremental
debt associated with the surgical acquisitions and the settlement of litigation
commenced in a prior year.
In 1997, operating activities generated $216 in cash flow, a significant
increase from 1996. 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 1998 was negative $74, versus positive $68 for 1997. The
decrease was primarily attributable to the operating factors cited above, as
well as to an increase in capital expenditures.
Cash Flows From Investing Activities Cash used in investing activities was $797
in 1998. Cash outflows for acquisitions were $719, primarily for the purchase of
the surgical businesses, while capital expenditures totaled $202, a significant
portion of which supported expanded contact lens manufacturing capacity. Cash of
$135 was realized in 1998 upon the divestiture of the skin care business.
In 1997, cash used in investing activities was $175. Capital expenditures
were $126 and included spending for expanded contact lens manufacturing
capacity. Cash paid for acquisitions was $49, primarily for the purchase of
Killer Loop S.p.A., a manufacturer of sunglasses based in Italy. Divestitures
reflected the sale of the Thin Film Technology Division.
Cash Flows From Financing Activities In 1998, $593 was provided by financing
activities. Net new borrowings totaling $605 were used primarily to support the
surgical acquisitions. In July 1998, the board of directors authorized the
repurchase of up to 250,000 Common shares, none of which had been repurchased
prior to year end.
Cash used in financing activities during 1997 was $13. 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, net repayments of short-term debt and the
repurchase of 500,000 Common shares.
Financial Position The company's total debt, consisting of short- and long-term
borrowings, was $1,473 in 1998, $855 in 1997 and $718 in 1996. The increase in
debt in 1998 was due primarily to the surgical acquisitions, while the increase
in long-term debt in 1997 was due in part to $75 associated with the adoption of
new accounting rules that required the company to classify proceeds from its
trade receivable securitization agreement as debt. The ratio of total debt to
capital stood at 63.5%, 51.1% and 44.9% at year end 1998, 1997 and 1996,
respectively. Cash and cash equivalents totaled $129 in 1998, $184 in 1997 and
$168 in 1996.
Access To Financial Markets Bausch & Lomb's reputation, financial position and
ability to generate positive cash flows provide access to financing in markets
around the world. 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 year end 1998
and 1997. In addition, the company maintains other lines of credit on which it
may draw to meet its financing requirements.
Visionaries Bausch & Lomb 1998 Annual Report 33
<PAGE>
The company's commercial paper is rated A-2 and P-2 by Standard & Poor's
and Moody's Investors Service, respectively. Its long-term debt is rated BBB by
Standard & Poor's and Baa2 by Moody's Investors Service.
The company believes its existing credit facilities and access to financial
markets provide adequate liquidity to meet obligations, fund capital
expenditures and invest in potential growth opportunities.
Working Capital Working capital was $774 at year end 1998 as compared to $203
and $19 at year end 1997 and 1996, respectively. The current ratio was 2.0, 1.2
and 1.0 at year end 1998, 1997 and 1996, respectively.
Dividends The dividend on Common stock, declared and paid quarterly, totaled
$1.04 per share for each of the years ended 1998, 1997 and 1996.
Return On Equity And Capital Return on average shareholders' equity was 3.1% in
1998, compared with 5.9% in 1997 and 9.2% in 1996. The decrease in 1998 was
mainly due to the goodwill impairment and purchased in-process R&D charges
described previously. The decrease in 1997 was the result of the unfavorable
impact of restructuring, the other significant charges defined previously and
lower earnings in the eyewear segment, partially offset by higher earnings in
the other segments.
Return on average capital employed was 3.7% in 1998, 5.0% in 1997 and 7.2%
in 1996. The decrease in 1998 was due primarily to the matters discussed above,
as well as to the debt increase associated with the surgical acquisitions. The
1997 decrease was largely due to increased restructuring charges and debt
levels.
Outlook
In 1999, management believes that Bausch & Lomb will continue to progress toward
its goal of becoming the preeminent technology-based healthcare company for the
eye. The company expects high single-digit consolidated revenue growth in 1999,
driven by new product introductions in the vision care and
pharmaceuticals/surgical segments. Operating margins are expected to increase
approximately one percentage point over 1998 results. These projections include
results for the sunglass business, for which management continues to explore
strategic alternatives. They also presume that foreign exchange rates remain
fairly consistent with current 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.
In the vision care segment, revenue growth in 1999 is expected to be in the
high single digits. Over the next three years, the combination of a growing
market and differentiated new products should further drive revenue growth. In
the lens care portion of the business, the company's strategy will continue to
be to gain market share from the conversion of consumers from older disinfectant
systems and to capitalize on growth potential in emerging markets. In the
contact lens business, double-digit growth will continue to be driven by new
products. The SofLens one day lens will be introduced in the U.S. in the first
half of 1999, and the SofLens66 toric lens, introduced in the fourth quarter in
the U.S., will be launched globally throughout 1999. The PureVision lens, the
first silicone-hydrogel soft contact lens designed for up to one-month
continuous wear, will be launched in early 1999 outside the U.S. for one-month
wear, and in the U.S. for seven-day wear. The combination of higher margins on
most newer products and the company's ongoing efforts to reduce manufacturing
costs is expected to result in margins above 20%.
In the pharmaceuticals/surgical segment, revenue growth is expected to be
over 10%. The company remains committed to expanding its line of proprietary
ophthalmic drugs through collaborative ventures, continuing to aggressively
launch new generics as products come off patent and to penetrate markets outside
its current base. In the surgical product line, the company's broad portfolio of
cataract products will enable generation of incremental growth in the near term.
Pending Food and Drug Administration approval, the company expects to introduce
the Hydroview foldable intraocular lens (IOL) in the U.S. This product, which
provides surgeons with an alternative to other foldable IOLs, has been very
successful in Europe. In the refractive surgery market, underlying market growth
trends as well as the expected U.S. regulatory approval for the company's line
of excimer lasers in the second half of 1999, should benefit the company. New
products in the pharmaceuticals business include product line extensions for
Ocuvite vitamins plus additional generic and proprietary formulas. Operating
margins for the segment are expected
34 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
to be over 15% as the company benefits from the integration of the former Chiron
Vision and Storz businesses. Growth in this business segment is contingent upon
obtaining regulatory approvals in markets around the world and is therefore
subject to risks of changing regulatory environments. In addition, the
pharmaceuticals business anticipates shifting its current, mostly generic,
product portfolio toward more higher margin proprietary products.
The eyewear segment is expected to post modest revenue growth and improved
profitability with a goal of achieving an operating margin approaching 10%.
Improved margins will result from savings associated with recent restructuring
programs, improved mix toward higher-margin products and more focused spending
by operating channel and brand.
In 1999 the company will continue to manage the healthcare segment in a
manner designed to maximize its return to shareholders. Revenues for the
biomedical business, the primary driver of this segment, are expected to grow at
a rate approaching 10%, with commensurate increases in operating earnings.
Capital spending in 1999 is expected to be in the range of $175-$200, with
cumulative spending over the next three years approaching $500. More than half
of the cumulative spending will be in the vision care segment, where capacity
expansion will be needed to support accelerated new product introductions. In
addition, a significant portion will be spent on system upgrades, including
global financial and human resources systems being implemented as part of recent
restructuring initiatives. In the pharmaceuticals/surgical segment, R&D and
operations facilities will be expanded to accommodate the company's growing
business needs. The company's goal is to generate $400 to $500 of free cash flow
over the next three years.
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.
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. Other IT systems
should be tested and compliant during the first three quarters of 1999,
depending on the project. 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 quarter 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 many of 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 are expected to be in the range of $65-$75, of which
approximately $27 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
Visionaries Bausch & Lomb 1998 Annual Report 35
<PAGE>
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. At this stage, no overall contingency plan has
been developed. 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 appearing below which addresses
forward-looking statements made by the company.
The Euro On January 1, 1999, 11 of the 15 member countries of the European
Union began operating with a new currency, the euro, which was established by
irrevocably fixing the value of legacy currencies against this new common
currency. The euro may be used in business transactions along with legacy
currencies until 2002, at which time it will become the sole currency of the
participating countries.
The company has processes in place to address the issues raised by this
currency conversion, including the impact on information technology and other
systems, currency risk, financial instruments, taxation and competitive
implications. The company expects no material impact to its financial position
or its results of operations arising from the euro conversion.
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 pharmaceuticals 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), customer
concentration (the company's five largest customers accounted, in the aggregate,
for approximately 10% of total sales during 1998), 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.
36 Visionaries Bausch & Lomb 1998 Annual Report
<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:
<TABLE>
<CAPTION>
|-------------------|--------------------|----------------------|----------------------------------|
| | | | Net Earnings Per Share |
| Net | Gross | Net | ------------------------- |
| Sales | Profit | Earnings | Basic Diluted |
|-------------------|--------------------|----------------------|----------------------------------|
<S> <C> <C> <C> <C> <C>
1998 | | | | |
First | $ 553.1 | $ 277.0 | $ (23.2)(1,2) | $ (0.42) $(0.42)(1,2)|
Second | 635.1 | 336.8 | 55.3 (1,3) | 0.99 0.98 (1,3)|
Third | 575.6 | 317.4 | 36.2 | 0.65 0.64 |
Fourth | 599.0 | 338.5 | (43.1)(4) | (0.77) (0.77) (4) |
|-------------------|--------------------|----------------------| |
| $ 2,362.8 | $ 1,269.7 | $ 25.2 | $ 0.45 $ 0.45 |
|===================|====================|======================|==================================|
1997 | | | | |
First | $ 451.2 | $ 224.0 | $ 3.3 (5) | $ 0.06 $ 0.06 (5) |
Second | 523.2 | 291.7 | 20.3 (5) | 0.37 0.36 (5) |
Third | 468.3 | 255.2 | 18.5 (5) | 0.33 0.33 (5) |
Fourth | 473.0 | 260.1 | 7.3 (5,6) | 0.13 0.13 (5,6)|
|-------------------|--------------------|----------------------| |
| $ 1,915.7 | $ 1,031.0 | $ 49.4 | $ 0.89 $ 0.89 |
|===================|====================|======================|==================================|
</TABLE>
(1) Includes the after-tax effect of restructuring charges of $2.4 ($0.04 per
share) and $5.1 ($0.09 per share) for the first and second quarters of
1998, respectively.
(2) Includes the after-tax write-off of purchased in-process R&D of $24.6
($0.44 per share).
(3) Includes the after-tax gain on sale of the skin care business of $33.0
($0.58 per share).
(4) Includes the goodwill impairment charge of $85.0 ($1.51 per share).
(5) 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.
(6) Includes the after-tax effect of a litigation provision of $13.2 ($0.24 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 7,200 and 7,800 Common
shareholders of record at year end 1998 and 1997, respectively. The following
table shows the price range of the Common stock for each quarter for the past
two years:
<TABLE>
<CAPTION>
| 1998 Price Per Share | 1997 Price Per Share |
- -------------|----------------------------|-----------------------------|
| High Low | High Low |
- -------------|----------------------------|-----------------------------|
<S> <C> <C> <C> <C>
First | $46-1/4 $37-3/4 | $40-1/4 $32-1/2 |
Second | 52-11/16 45-1/4 | 47-7/8 36-3/8 |
Third | 52-3/4 38-11/16 | 47-7/8 38-5/16 |
Fourth | 59-3/8 38-1/16 | 43-5/8 37 |
</TABLE>
Visionaries Bausch & Lomb 1998 Annual Report 37
<PAGE>
Statement Of Income
For The Years Ended December 26, 1998, December 27, 1997 and December 28, 1996
Dollar Amounts In Millions - Except Per Share Data
<TABLE>
<CAPTION>
|----------------------|----------------------|---------------------|
| 1998 | 1997 | 1996 |
- --------------------------------------------------------|----------------------|----------------------|---------------------|
<S> <C> <C> <C>
Net Sales | $ 2,362.8 | $1,915.7 | $ 1,926.8 |
Costs And Expenses | | | |
Cost of products sold | 1,093.1 | 884.7 | 872.3 |
Selling, administrative and general | 917.0 | 743.8 | 773.1 |
Research and development | 91.7 | 67.5 | 75.5 |
Goodwill impairment charge | 85.0 | - | - |
Purchased in-process research and development | 41.0 | - | - |
Restructuring charges | 11.3 | 71.7 | 15.1 |
|----------------------|----------------------|---------------------|
| 2,239.1 | 1,767.7 | 1,736.0 |
|----------------------|----------------------|---------------------|
Operating Earnings | 123.7 | 148.0 | 190.8 |
Other Expense (Income) | | | |
Interest and investment income | (45.1) | (40.4) | (42.8) |
Interest expense | 100.8 | 56.0 | 51.7 |
Gain from foreign currency, net | (6.4) | (6.6) | (1.6) |
Gain on divestitures | (56.0) | - | (1.5) |
Litigation provision | - | 21.0 | 16.1 |
|----------------------|----------------------|---------------------|
| (6.7) | 30.0 | 21.9 |
|----------------------|----------------------|---------------------|
Earnings Before Income Taxes And Minority Interest | 130.4 | 118.0 | 168.9 |
Provision for income taxes | 79.4 | 45.6 | 63.7 |
|----------------------|----------------------|---------------------|
Earnings Before Minority Interest | 51.0 | 72.4 | 105.2 |
Minority interest | 25.8 | 23.0 | 22.1 |
|----------------------|----------------------|---------------------|
Net Earnings | $ 25.2 | $ 49.4 | $ 83.1 |
|======================|======================|=====================|
Basic Earnings Per Share | $ 0.45 | $ 0.89 | $ 1.48 |
Average Shares Outstanding - Basic (000s) | 55,824 | 55,383 | 56,299 |
Diluted Earnings Per Share | $ 0.45 | $ 0.89 | $ 1.47 |
Average Shares Outstanding - Diluted (000s) | 56,367 | 55,654 | 56,510 |
|======================|======================|=====================|
</TABLE>
See Notes To Financial Statements
38 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Balance Sheet
December 26, 1998 and December 27, 1997
Dollar Amounts In Millions - Except Per Share Data
<TABLE>
<CAPTION>
|------------------|------------------|
| 1998 | 1997 |
- ------------------------------------------------------------------------------|------------------|------------------|
<S> <C> <C>
Assets | | |
Cash and cash equivalents | $ 129.2 | $ 183.7 |
Other investments, short-term | 300.0 | - |
Trade receivables, less allowances of $26.8 and $14.0, respectively | 526.3 | 374.8 |
Inventories, net | 440.7 | 324.3 |
Deferred taxes, net | 68.4 | 66.0 |
Other current assets | 122.2 | 141.4 |
|------------------|------------------|
Total Current Assets | 1,586.8 | 1,090.2 |
Property, Plant And Equipment, net | 725.0 | 580.2 |
Goodwill And Other Intangibles, less accumulated | | |
amortization of $137.3 and $116.6, respectively | 758.9 | 406.9 |
Other Investments, long-term | 249.2 | 546.4 |
Other Assets | 171.8 | 149.2 |
|------------------|------------------|
Total Assets | $ 3,491.7 | $2,772.9 |
|==================|==================|
Liabilities And Shareholders' Equity | | |
Notes payable | $ 160.4 | $ 339.4 |
Current portion of long-term debt | 31.1 | 4.4 |
Accounts payable | 92.6 | 72.0 |
Accrued compensation | 110.3 | 73.6 |
Accrued liabilities | 366.2 | 365.9 |
Federal, state and foreign income taxes payable | 51.8 | 32.0 |
|------------------|------------------|
Total Current Liabilities | 812.4 | 887.3 |
Long-Term Debt, less current portion | 1,281.3 | 510.8 |
Other Long-Term Liabilities | 106.6 | 119.4 |
Minority Interest | 446.4 | 437.0 |
|------------------|------------------|
Total Liabilities | 2,646.7 | 1,954.5 |
|------------------|------------------|
Common Stock, par value $0.40 per share, 200 million shares authorized, | | |
60,198,322 shares issued in both 1998 and 1997 | 24.1 | 24.1 |
Class B Stock, par value $0.08 per share, 15 million shares authorized, | | |
955,791 shares issued (856,905 shares in 1997) | 0.1 | 0.1 |
Capital In Excess Of Par Value | 84.2 | 76.8 |
Common And Class B Stock In Treasury, at cost, 4,625,026 shares | | |
(5,846,286 shares in 1997) | (178.9) | (223.1) |
Retained Earnings | 883.5 | 916.5 |
Accumulated Other Comprehensive Income | 41.0 | 29.1 |
Other Shareholders' Equity | (9.0) | (5.1) |
|------------------|------------------|
Total Shareholders' Equity | 845.0 | 818.4 |
|------------------|------------------|
Total Liabilities And Shareholders' Equity | $ 3,491.7 | $2,772.9 |
|==================|==================|
</TABLE>
See Notes To Financial Statements
Visionaries Bausch & Lomb 1998 Annual Report 39
<PAGE>
Statement Of Cash Flows
For The Years Ended December 26, 1998, December 27, 1997 and December 28, 1996
Dollar Amounts In Millions
<TABLE>
<CAPTION>
| 1998 | 1997 | 1996 |
- ----------------------------------------------------------------------|---------------|---------------|----------------|
<S> <C> <C> <C>
Cash Flows From Operating Activities | | | |
Net Earnings $ 25.2 $ 49.4 $ 83.1
Adjustments to reconcile net earnings to net cash | | | |
provided by operating activities: | | | |
Depreciation | 117.3 | 90.8 | 92.6 |
Amortization | 46.5 | 21.2 | 20.7 |
Goodwill impairment charge | 85.0 | - | - |
Purchased in-process research and development, | | | |
net of taxes | 24.6 | - | - |
Deferred income taxes | 11.9 | 18.7 | 23.2 |
Gain on divestitures, net of taxes | (32.8) | - | (2.2) |
Stock compensation expense | 10.6 | 3.3 | 1.3 |
Restructuring charges, net of taxes | 7.6 | 46.4 | 10.9 |
Provision for litigation expense, net of taxes | - | 13.2 | 10.0 |
Loss on retirement of fixed assets | 14.6 | 8.3 | 2.9 |
Changes In Assets And Liabilities: | | | |
Trade receivables | (64.0) | (32.9) | (22.4) |
Inventories | (19.7) | (1.0) | (45.1) |
Other current assets | 17.0 | (31.3) | (23.9) |
Accounts payable and accrued liabilities | (98.3) | (11.7) | (13.6) |
Income taxes | 4.0 | 51.0 | (40.8) |
Other long-term liabilities | (3.3) | (9.9) | (7.4) |
|---------------|---------------|----------------|
Net Cash Provided By Operating Activities | 146.2 | 215.5 | 89.3 |
|---------------|---------------|----------------|
Cash Flows From Investing Activities | | | |
Capital expenditures | (201.5) | (126.1) | (130.3) |
Net cash paid for acquisition of businesses | (718.9) | (48.6) | (85.7) |
Net cash received from divestitures | 135.0 | 9.3 | 77.7 |
Other | (12.0) | (9.2) | (4.2) |
|---------------|---------------|----------------|
Net Cash Used In Investing Activities | (797.4) | (174.6) | (142.5) |
|---------------|---------------|----------------|
Cash Flows From Financing Activities | | | |
Repurchases of Common and Class B shares | (1.8) | (21.8) | (67.8) |
Exercise of stock options | 47.7 | 14.8 | 5.2 |
Net (repayments) proceeds from notes payable | (183.5) | (72.7) | 111.4 |
Proceeds from issuance of long-term debt | 801.4 | 213.5 | 135.2 |
Repayment of long-term debt | (12.7) | (89.3) | (96.4) |
Payment of dividends | (58.1) | (57.1) | (58.9) |
|---------------|---------------|----------------|
Net Cash Provided By (Used In) Financing Activities | 593.0 | (12.6) | 28.7 |
|---------------|---------------|----------------|
Effect Of Exchange Rate Changes On Cash And Cash Equivalents | 3.7 | (12.4) | (2.3) |
|---------------|---------------|----------------|
Net Change In Cash And Cash Equivalents | (54.5) | 15.9 | (26.8) |
Cash And Cash Equivalents, Beginning Of Year | 183.7 | 167.8 | 194.6 |
|---------------|---------------|----------------|
Cash And Cash Equivalents, End Of Year | $ 129.2 | $ 183.7 | $ 167.8 |
|===============|===============|================|
Supplemental Cash Flow Disclosures | | | |
Cash paid for interest | $ 85.6 | $ 56.2 | $ 48.6 |
|---------------|---------------|----------------|
Net cash payments for (refunds of) income taxes | 55.8 | (6.4) | 85.7 |
|===============|===============|================|
</TABLE>
See Notes To Financial Statements
40 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Statement Of Changes In Shareholders' Equity
For The Years Ended December 26, 1998, December 27, 1997 and December 28, 1996
Dollar Amounts In Millions
<TABLE>
<CAPTION>
- ------------------------------------------|----------|------------|----------|----------|----------|----------------|--------------|
| | | | | | Accumulated | |
| | Common |Capital In| | | Other | Other |
| | and Class B| Excess | Treasury | Retained | Comprehensive | Shareholders'|
| Total | Stock(1,2)| of Par | Stock | Earnings | Income | Equity |
- ------------------------------------------|----------|------------|----------|----------|----------|----------------|--------------|
<S> <C> <C> <C> <C> <C> <C> <C>
Balance At December 30, 1995 |$ 929.3 | $ 24.2 | $ 107.8 |$ (178.7) | $ 900.1 | $ 85.1 | $ (9.2) |
Components of comprehensive income: | | | | | | | |
Net earnings | 83.1 | - | - | - | 83.1 | - | - |
Currency translation adjustments | 4.9 | - | - | - | - | 4.9 | - |
Unrealized holding loss | (11.8) | - | - | - | - | (11.8) | - |
|----------| | | | | | |
Total comprehensive income | 76.2 | | | | | | |
|----------| | | | | | |
Net shares canceled under employee | | | | | | | |
plans (118,169 shares) | (13.6) | - | (11.7) | - | - | - | (1.9) |
Treasury shares issued under employee| | | | | | | |
plans (428,579 shares) | 15.5 | - | - | 15.5 | - | - | - |
Treasury shares repurchased | | | | | | | |
(1,846,929 shares) | (67.3) | - | - | (67.3) | - | - | - |
Amortization of unearned compensation| 0.3 | - | - | - | - | - | 0.3 |
Dividends (3) | (58.5) | - | - | - | (58.5)| - | - |
|----------|------------|----------|----------|----------|----------------|--------------|
Balance At December 28, 1996 | 881.9 | 24.2 | 96.1 | (230.5) | 924.7 | 78.2 | (10.8) |
Components of comprehensive income: | | | | | | | |
Net earnings | 49.4 | - | - | - | 49.4 | - | - |
Currency translation adjustments | (60.9) | - | - | - | - | (60.9) | - |
Unrealized holding gain | 11.8 | - | - | - | - | 11.8 | - |
|----------| | | | | | |
Total comprehensive income | 0.3 | | | | | | |
|----------| | | | | | |
Net shares (canceled) issued under | | | | | | | |
employee plans (293,504 shares) | (16.2) | - | (19.3) | - | - | - | 3.1 |
Treasury shares issued under employee| | | | | | | |
plans (620,621 shares) | 29.2 | - | - | 29.2 | - | - | - |
Treasury shares repurchased | | | | | | | |
(521,925 shares) | (21.8) | - | - | (21.8) | - | - | - |
Amortization of unearned compensation| 2.6 | - | - | - | - | - | 2.6 |
Dividends (3) | (57.6) | - | - | - | (57.6)| - | - |
|----------|------------|----------|----------|----------|----------------|--------------|
Balance At December 27, 1997 | 818.4 | 24.2 | 76.8 | (223.1) | 916.5 | 29.1 | (5.1) |
Components of comprehensive income: | | | | | | | |
Net earnings | 25.2 | - | - | - | 25.2 | - | - |
Currency translation adjustments | 11.9 | - | - | - | - | 11.9 | - |
|----------| | | | | | |
Total comprehensive income | 37.1 | | | | | | |
|----------| | | | | | |
Net shares (canceled) issued under | | | | | | | |
employee plans (98,886 shares) | (0.6) | - | 7.4 | - | - | - | (8.0) |
Treasury shares issued under employee| | | | | | | |
plans (1,255,044 shares) | 46.0 | - | - | 46.0 | - | - | - |
Treasury shares repurchased | | | | | | | |
(33,784 shares) | (1.8) | - | - | (1.8) | - | - | - |
Amortization of unearned compensation| 4.1 | - | - | - | - | - | 4.1 |
Dividends (3) | (58.2) | - | - | - | (58.2)| - | - |
|----------|------------|----------|----------|----------|----------------|--------------|
Balance At December 26, 1998 |$ 845.0 | $ 24.2 | $ 84.2 |$ (178.9) | $ 883.5 | $ 41.0 | $ (9.0) |
|==========|============|==========|==========|==========|================|==============|
</TABLE>
(1) There are also 10 thousand shares of $100 par value 4% cumulative preferred
stock authorized, none of which has been issued.
(2) There are also 25 million shares of $1 par value Class A preferred stock
authorized, none of which has been issued.
(3) Cash dividends of $1.04 per share were declared on Common and Class B stock
in each of the years 1996, 1997 and 1998.
See Notes To Financial Statements
Visionaries Bausch & Lomb 1998 Annual Report 41
<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, two to 10 years;
and leasehold improvements, the lease periods.
Goodwill Goodwill is amortized on a straight-line basis over periods ranging
from eight to 40 years. The company evaluates goodwill for impairment at least
annually or whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In completing this evaluation, the
company compares its best estimate of undiscounted future cash flows, excluding
interest costs, with the carrying value of goodwill. If undiscounted cash flows
do not exceed the recorded value of goodwill, an impairment is recognized to
reduce the carrying value based on the expected discounted cash flows of the
business unit. Expected cash flows are discounted at a rate commensurate with
the risk involved.
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.
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 26, 1998 and December 27, 1997, $6.5 and
$7.2 of deferred advertising costs representing primarily production and design
costs for advertising to be run in the subsequent fiscal year, were reported as
other current assets. Advertising expenses of $253.2, $235.0 and $241.8 were
included in selling, administrative and general expenses for 1998, 1997 and
1996, respectively.
Start-Up Costs It has been the company's policy to capitalize one-time,
incremental out-of-pocket expenses incurred during the start-up phase of major
internal projects and amortize them over future periods. During 1998, the
Accounting Standards Executive Committee issued Statement of Position (SOP)
98-5, Reporting on the Costs of Start-up Activities. This SOP requires that
companies expense all start-up costs as incurred. The company will adopt the SOP
in the first quarter of 1999, and its impact will not be material to
consolidated financial results.
Comprehensive Income The company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, at the beginning of
1998. As it relates to the company, comprehensive income is defined as net
earnings plus the sum of currency translation adjustments and unrealized holding
gains/losses on securities (collectively "other comprehensive income"), and is
presented in the Statement of Changes in Shareholders'
42 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Equity. Changes in currency translation adjustments are reported net of income
tax (benefit) expense of $(5.9), $15.8 and $12.8 for the years ending 1998, 1997
and 1996, respectively. Changes in unrealized holding gains/losses are reported
net of income tax (benefit) expense of $(11.8) in 1997 and $11.8 in 1996.
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 accumulated other comprehensive
income until realized. The accumulated balance of unrealized holding losses, net
of taxes, was $11.8 at December 28, 1996. Fair value of the investments is
determined based on market prices, or by reference to discounted cash flows and
investment risk.
Currency Translation Adjustments 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 recognized as a component of accumulated
other comprehensive income. The accumulated balances of currency translation
adjustments, net of taxes, were $41.0, $29.1 and $90.0 at the end of 1998, 1997
and 1996, respectively. 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 enters into foreign currency and
interest rate derivative contracts for the purpose of minimizing risk and
protecting earnings.
The company uses principally foreign currency forward contracts to hedge
foreign exchange exposures. The portfolio of contracts is adjusted at least
monthly to reflect changes in exposure positions as they 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
accumulated other comprehensive income. The receivable or payable with the
counterparty to the derivative contract is reported as either other current
assets or accrued liabilities. Deferred gains and losses totaled less than $0.5
at December 26, 1998 and December 27, 1997 and are expected to be recognized
within one year.
The company enters into interest rate swap and cap agreements to
effectively limit exposures to interest rate movements within the parameters of
its interest rate hedging policy. This policy requires that interest rate
exposures 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 on these agreements are accrued as other current assets
and accrued liabilities and recorded as adjustments to interest expense or
interest income. Interest rate instruments are entered into for periods no
longer 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
derivative instruments over the life of each agreement as non-operating income
and expense.
New Accounting Guidance In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which the company is required to adopt effective no later than the
first quarter of 2000. SFAS No. 133 will require the company to record all
derivatives on the balance sheet at fair value. Changes in derivative fair
values will either be recognized in earnings as offsets to the changes in fair
value of related hedged assets, liabilities and firm commitments or for
forecasted transactions, deferred
Visionaries Bausch & Lomb 1998 Annual Report 43
<PAGE>
and recorded as a component of accumulated other comprehensive income until the
hedged transactions occur and are recognized in earnings. The ineffective
portion of a hedging derivative's change in fair value will be immediately
recognized in earnings. The impact of SFAS No. 133 on the company's financial
statements will depend on a variety of factors, including the future level of
forecasted and actual foreign currency transactions, the extent of the company's
hedging activities, the types of hedging instruments used and the effectiveness
of such instruments. The company is currently evaluating the impact of adopting
SFAS No. 133 to its financial statements.
2. Business Combinations
On December 29, 1997, the company acquired all of the issued and outstanding
shares of Chiron Vision Corporation (Chiron Vision) from Chiron Corporation for
$298.1 in cash. Chiron Vision researches, develops and manufactures innovative
products that improve results of cataract and refractive surgery and the
treatment of progressive eye diseases. On December 31, 1997, the company
completed its acquisition of certain stock and assets of Storz Instrument
Company, Storz Ophthalmics, Inc. and Cyanamid Chirurgie S. A. S. (collectively,
Storz) from American Home Products Corporation, for $369.7 in cash. Storz is a
leading manufacturer of high-quality ophthalmic surgical instruments, surgical
and diagnostic equipment, intraocular lens implants and ophthalmic
pharmaceuticals. The acquisitions were accounted for under the purchase method
of accounting; accordingly, operating results of Chiron Vision and Storz have
been included in the pharmaceuticals/surgical segment's results from the date of
acquisition. The acquisitions were originally financed through short-term
borrowings however, $500.0 was converted to long-term debt during 1998.
Allocation of Purchase Price The company used professional appraisal
consultants to assist in assessing and allocating the purchase price among
assets acquired and liabilities assumed based on fair values at the acquisition
date. This valuation was performed separately for Chiron Vision and Storz and
did not consider any synergies of the combined entities. For certain of the
assets, the fair value was determined by discounting future cash flows at an
interest rate commensurate with each company's inherent risk, which ranged from
12% for Storz to 13% for Chiron Vision. The allocation of purchase price was as
follows:
<TABLE>
|----------|
<S> <C>
Identifiable intangible assets |$ 268.5 |
Goodwill | 211.6 |
Working capital | 96.1 |
Property, plant and equipment | 68.4 |
Purchased in-process research and development | 41.0 |
Accrual for exit activities | (28.1) |
All other, net | 10.3 |
|----------|
|$ 667.8 |
|==========|
</TABLE>
Intangible Assets Identifiable intangible assets consisted of customer
relationships, trademarks, workforce in place, technology, patents and
regulatory approvals. They will be amortized on the straight-line basis over
their estimated lives, which range from eight to 40 years. Goodwill represents
the excess of purchase price over the fair values of the assets acquired and
liabilities assumed, and is being amortized over 20 years for Chiron Vision and
40 years for Storz.
Purchased In-Process Research and Development Purchased in-process research and
development (R&D) represents the estimated fair value of incomplete projects at
the date of acquisition based on cash flows discounted on a risk-adjusted basis.
At the date of acquisition, the development of these projects had not yet
reached technological feasibility and the R&D in progress had no alternative
future uses. Accordingly, these costs were expensed in the first quarter of
1998.
44 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
The discount rate used to value the in-process R&D projects ranged from 15%
to 22%. These rates were higher than the rates used to value assets described
above due to the inherent uncertainties surrounding the successful development
of the purchased in-process R&D, and the uncertainty of technological advances.
The value of the in-process R&D projects was adjusted to reflect the relative
value and contribution of the acquired R&D. In doing so, consideration was given
to each project's stage of completion. The company believes the assumptions used
in the valuation were reasonable at the time of the business combination. No
assurance can be given, however, that the underlying assumptions used to
estimate project sales, development costs or profitability or the events
associated with such projects will transpire as estimated. For these reasons,
actual results may vary from the projected results.
There were 11 projects included in the purchased in-process R&D charge. The
projects were unique from the other preexisting acquired core technology and
fell into one of two categories. These categories were targeted at either (1)
developing new pharmaceutical drugs related to the prevention or treatment of
eye-related diseases or (2) developing new technologies to assist in the
correction of vision. The projects in the first category were at stages of
completion between 17% and 54%. Those in the second category were at stages of
completion between 10% and 95%. Stage of completion was determined by reviewing
total project costs incurred through the acquisition date as compared to total
anticipated project costs.
Accrual for Exit Activities As part of the integration of the businesses,
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. The major components
of the accrual were as follows:
<TABLE>
|----------|
<S> <C>
Employee severance and relocation | $ 21.7 |
Facilities closure costs | 5.5 |
Contract terminations | 0.9 |
|----------|
| $ 28.1 |
|==========|
</TABLE>
The accrual for severance and relocation related to approximately 600 employees
in production, R&D, selling and administration. As of December 26, 1998
approximately 100 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. As of December 26, 1998 approximately $20 of the
exit costs originally accrued remained on the balance sheet.
Pro Forma Financial Information The following selected, unaudited pro forma
data is presented to provide a summary of the combined results of the company,
Chiron Vision and Storz as if the acquisitions had occurred as of the beginning
of 1997, after giving effect to certain adjustments for amortization of
goodwill, increased interest expense on the acquisition debt and related income
tax effects. The pro forma data is for informational purposes only and does not
necessarily reflect the results of operations had the companies operated as one
during this period. No effect has been given for synergies, if any, that may be
realized through the acquisitions.
<TABLE>
<CAPTION>
(Unaudited) | 1997 |
- --------------------------------------------------|-----------|
<S> <C>
Net sales | $2,334.1 |
Operating earnings | 182.0 |
Net earnings | 41.7 |
Earnings per share - basic | 0.75 |
Earnings per share - diluted | 0.75 |
|===========|
</TABLE>
Visionaries Bausch & Lomb 1998 Annual Report 45
<PAGE>
3. Goodwill Impairment Charge
Consistent with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and Assets to be Disposed Of, the company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In the fourth quarter of
1998, the company recorded a charge of $85.0, with no associated tax benefit, or
$1.51 per share, related to the goodwill associated with the 1993 acquisition of
the Miracle-Ear hearing aid business. This business is reported in the company's
healthcare segment.
During 1998, the company began to reassess the strategic value of this
business in relation to its total portfolio. Additionally, during the second
half of the year, profitability of the business began to decline. In the fourth
quarter, the company's senior management publicly announced that it would be
focusing on healthcare products for the eye and no longer had the goal of
becoming a diversified healthcare company, leading to the decision to divest the
business. The combination of these factors, and their impact on projected future
cash flows of the business, led to the conclusion that the goodwill had become
impaired.
In computing the impairment charge, projected cash flows were discounted to
present values using a rate of 13.1%, which was commensurate with the risk
involved. The resulting discounted projected future cash flows were compared to
the carrying value of the business and resulted in a charge to income.
4. Earnings Per Share
Basic earnings per share is computed based on the weighted average number of
Common and Class B shares outstanding during a 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 were 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.
The table below summarizes the amounts used to calculate basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
| 1998 | 1997 | 1996 |
- -------------------------------------|---------------------------|----------------------------|--------------------------|
| 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 | $ 25.2 55,824 $ 0.45 | $ 49.4 55,383 $ 0.89 | $ 83.1 56,299 $1.48|
Effect of Dilutive Stock Options | - 543 | - 271 | - 211 |
|----------------- |----------------- |----------------- |
Diluted Earnings Per Share | $ 25.2 56,367 $ 0.45 | $ 49.4 55,654 $ 0.89 | $ 83.1 56,510 $1.47|
|===========================|============================|==========================|
</TABLE>
Antidilutive outstanding stock options were excluded from the calculation of
average shares outstanding. Options excluded, in thousands, totaled 1,709 in
1998, 3,431 in 1997 and 2,981 in 1996.
46 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
5. Restructuring Charges
1997 Program 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, pre-tax restructuring
charges of $74.2 were recorded in 1997 with an additional $11.3 recorded in the
first half of 1998. The major components of the charges are summarized in the
table below:
<TABLE>
<CAPTION>
|--------------|------------|-------------------|-------------|-------------------|------------|
| | | Pharmaceuticals/ | | Corporate | |
| Vision Care | Eyewear | Surgical | Healthcare | Administration | Total |
- --------------------------|--------------|------------|-------------------|-------------|-------------------|------------|
<S> <C> <C> <C> <C> <C> <C>
Employee separations | $ 19.1 | $ 23.5 | $ 3.8 | $ 3.2 | $ 3.7 | $ 53.3 |
Asset writedowns | 3.3 | 7.1 | - | 1.8 | 0.3 | 12.5 |
Other | 0.9 | 10.8 | 1.2 | 0.9 | 5.9 | 19.7 |
|--------------|------------|-------------------|-------------|-------------------|------------|
| $ 23.3 | $ 41.4 | $ 5.0 | $ 5.9 | $ 9.9 | $ 85.5 |
|==============|============|===================|=============|===================|============|
</TABLE>
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.
The employee separations of $53.3 related to severance and relocation costs
for approximately 2,100 employees in operations and activities being exited,
primarily manufacturing, logistics and administrative functions. Asset
writedowns related primarily to the closing of facilities and losses resulting
from equipment dispositions. Other charges included losses under lease and other
commitments.
1995/1996 Program 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:
<TABLE>
<CAPTION>
|------------------|------------------|------------------|-------------------|------------------|
| | | | Corporate | |
| Vision Care | Eyewear | Healthcare | Administration | Total |
- --------------------------------|------------------|------------------|------------------|-------------------|------------------|
<S> <C> <C> <C> <C> <C>
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 |
|==================|==================|==================|===================|==================|
</TABLE>
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 completed and remaining reserves of $2.5 were reversed, resulting in net
reported restructuring expense of $71.7 in 1997.
Visionaries Bausch & Lomb 1998 Annual Report 47
<PAGE>
The following table sets forth the activity in the restructuring reserves
through December 26, 1998:
<TABLE>
<CAPTION>
|---------------|------------|-------------------|--------------|------------------|-----------|
| | | Pharmaceuticals/ | | Corporate | |
| Vision Care | Eyewear | Surgical | Healthcare | Administration | Total |
- ----------------------------------|---------------|------------|-------------------|--------------|------------------|-----------|
<S> <C> <C> <C> <C> <C> <C>
Restructuring provisions: | | | | | | |
1995/1996 programs, | | | | | | |
net of reversals | $ 10.1 | $ 18.8 | $ - | $ 4.8 | $ 5.6 | $ 39.3 |
1997 program | 23.3 | 41.4 | 5.0 | 5.9 | 9.9 | 85.5 |
Less charges against | | | | | | |
1995/1996 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 | 7.1 | - | 1.8 | 0.3 | 12.5 |
Cash payments | 14.7 | 33.1 | 3.6 | 2.6 | 9.0 | 63.0 |
|---------------|------------|-------------------|--------------|------------------|-----------|
Balance at December 26, 1998 | $ 5.3 | $ 1.2 | $ 1.4 | $ 1.5 | $ 0.6 | $ 10.0 |
|===============|============|===================|==============|==================|===========|
</TABLE>
Reserves remaining at December 26, 1998 primarily represented liabilities for
continuing severance payments and are considered to be adequate. These severance
liabilities related to approximately 300 employees, primarily in administrative
functions.
6. Business Segment And Geographic Information
In 1998, the company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 superseded SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The adoption of SFAS
No. 131 did not affect results of operations or financial position but did
affect the disclosure of segment information. As a result, prior years' segment
information has been restated.
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 provided by corporate functions, are allocated based on segment sales.
No items below operating earnings are allocated to segments. Restructuring
charges and charges related to certain significant events, 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 product line segments are 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 medications, and
cataract, refractive and other ophthalmic surgery products. The eyewear segment
includes sunglasses, vision accessories and the optical thin film coating
business, which was divested in 1997. The healthcare segment includes biomedical
products and services, hearing aids, the skin care business, which was divested
in 1998, and the oral care and dental implants businesses, which were divested
in 1996.
Segment assets represent operating assets of U.S. commercial entities,
global manufacturing locations and inventories of non-U.S. commercial entities.
Other operating assets of non-U.S. commercial entities are reported as "amounts
not allocated."
48 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Business Segment The following table presents sales and other financial
information by business segment for the years 1998, 1997 and 1996. The company
does not have material intersegment sales.
<TABLE>
<CAPTION>
|-----------------|------------------|---------------------|------------------|------------------|
| | Operating | Depreciation and | Capital | |
| Net Sales | Earnings | Amortization | Expenditures | Assets |
- -------------------------------|-----------------|------------------|---------------------|------------------|------------------|
<S> <C> <C> <C> <C> <C>
1998 | | | | | |
Vision care | $ 960.8 | $ 206.9 | $ 62.8 | $ 112.7 | $ 553.2 |
Pharmaceuticals/Surgical | 626.3 | 92.1 | 52.2 | 31.7 | 958.5 |
Eyewear | 456.0 | 6.0 | 27.1 | 21.5 | 382.0 |
Healthcare | 319.7 | 40.7 | 19.0 | 16.9 | 278.0 |
|-----------------|------------------|---------------------|------------------|------------------|
| 2,362.8 | 345.7 | 161.1 | 182.8 | 2,171.7 |
Corporate administration | - | (52.6) | 2.7 | 18.7 | 448.8 |
Restructuring(1) | - | (11.3) | - | - | - |
Other significant event(2) | - | (158.1) | - | - | - |
Amounts not allocated | - | - | - | - | 871.2 |
|-----------------|------------------|---------------------|------------------|------------------|
| $ 2,362.8 | $ 123.7 | $ 163.8 | $ 201.5 | $ 3,491.7 |
|=================|==================|=====================|==================|==================|
1997 | | | | | |
Vision care | $ 908.9 | $ 209.4 | $ 48.8 | $ 73.4 | $ 461.5 |
Pharmaceuticals/Surgical | 190.6 | 36.5 | 10.9 | 10.0 | 192.5 |
Eyewear | 492.1 | (15.5) | 31.2 | 20.7 | 400.5 |
Healthcare | 324.1 | 45.8 | 18.9 | 20.4 | 418.5 |
|-----------------|------------------|---------------------|------------------|------------------|
| 1,915.7 | 276.2 | 109.8 | 124.5 | 1,473.0 |
Corporate administration | - | (45.5) | 2.2 | 1.6 | 456.0 |
Restructuring(3) | - | (71.7) | - | - | - |
Other significant events(4) | - | (11.0) | - | - | - |
Amounts not allocated | - | - | - | - | 843.9 |
|-----------------|------------------|---------------------|------------------|------------------|
| $ 1,915.7 | $ 148.0 | $ 112.0 | $ 126.1 | $ 2,772.9 |
|=================|==================|=====================|==================|==================|
1996 | | | | | |
Vision care | $ 869.1 | $ 190.7 | $ 42.5 | $ 61.9 | $ 441.9 |
Pharmaceuticals/Surgical | 189.0 | 28.6 | 12.2 | 14.2 | 198.8 |
Eyewear | 525.1 | (0.6) | 28.3 | 28.6 | 388.9 |
Healthcare | 343.6 | 34.8 | 24.5 | 21.5 | 418.1 |
|-----------------|------------------|---------------------|------------------|------------------|
| 1,926.8 | 253.5 | 107.5 | 126.2 | 1,447.7 |
Corporate administration | - | (47.6) | 5.8 | 4.1 | 371.6 |
Restructuring(5) | - | (15.1) | - | - | - |
Amounts not allocated | - | - | - | - | 784.1 |
|-----------------|------------------|---------------------|------------------|------------------|
| $ 1,926.8 | $ 190.8 | $ 113.3 | $ 130.3 | $ 2,603.4 |
|=================|==================|=====================|==================|==================|
</TABLE>
(1) Restructuring charges were recorded as follows: vision care, $2.3; eyewear,
$6.6 and corporate administration, $2.4.
(2) Other significant events consisted of an $85.0 goodwill impairment charge
within the healthcare segment, a charge of $41.0 for purchased in-process
R&D, and a purchase accounting inventory adjustment of $32.1 related to the
surgical acquisitions.
(3) Restructuring charges were recorded as follows: vision care, $19.3;
pharmaceuticals/surgical, $5.1; eyewear, $32.8; healthcare, $5.9 and
corporate administration, $8.6.
(4) Other significant events consisted of a $9.0 write-off of discontinued
sunglass inventory and a $2.0 write-off of an equity investment in a
start-up eyewear technology venture.
(5) Restructuring charges were recorded as follows: vision care, $8.6; eyewear,
$5.0 and corporate administration, $1.5.
Visionaries Bausch & Lomb 1998 Annual Report 49
<PAGE>
Geographic Region The following table presents sales and long-lived assets by
geography for the years 1998, 1997 and 1996. Sales to unaffiliated customers
represent net sales originating in entities physically located in the identified
geographic area.
Long-lived assets include property, plant and equipment, goodwill and
intangibles, other investments and other assets.
<TABLE>
<CAPTION>
|-------------|------------------|-----------------|
| U.S. | Non-U.S. | Consolidated |
- ------------------------------------|-------------|------------------|-----------------|
<S> <C> <C> <C>
1998 | | | |
Sales to unaffiliated customers |$ 1,236.8 | $ 1,126.0 | $ 2,362.8 |
Long-lived assets | 1,073.0 | 831.9 | 1,904.9 |
1997 | | | |
Sales to unaffiliated customers |$ 1,000.3 | $ 915.4 | $ 1,915.7 |
Long-lived assets | 743.8 | 938.9 | 1,682.7 |
1996 | | | |
Sales to unaffiliated customers |$ 1,033.6 | $ 893.2 | $ 1,926.8 |
Long-lived assets | 742.2 | 913.6 | 1,655.8 |
|=============|==================|=================|
</TABLE>
7. Supplemental Balance Sheet Information
<TABLE>
<CAPTION>
|------------------------|------------------------|
| December 26, 1998 | December 27, 1997 |
- ------------------------------------|------------------------|------------------------|
<S> <C> <C>
Inventories | | |
Raw materials and supplies | $ 84.7 | $ 96.3 |
Work in process | 39.1 | 23.4 |
Finished products | 319.3 | 218.1 |
|------------------------|------------------------|
| 443.1 | 337.8 |
Less allowance for valuation | | |
of certain U.S. inventories | | |
at LIFO | 2.4 | 13.5 |
|------------------------|------------------------|
| $ 440.7 | $ 324.3 |
|========================|========================|
Inventories valued using LIFO | $ 49.7 | $ 64.6 |
|========================|========================|
</TABLE>
<TABLE>
<CAPTION>
|-------------------------|-----------------------|
| December 26, 1998 | December 27, 1997 |
- ------------------------------------|-------------------------|-----------------------|
<S> <C> <C>
Property, Plant And Equipment | | |
Land | $ 25.4 | $ 21.0 |
Buildings | 416.0 | 392.2 |
Machinery and equipment | 930.2 | 727.0 |
Leasehold improvements | 41.1 | 34.9 |
|-------------------------|-----------------------|
| 1,412.7 | 1,175.1 |
Less accumulated depreciation | 687.7 | 594.9 |
|-------------------------|-----------------------|
| $ 725.0 | $ 580.2 |
|=========================|=======================|
</TABLE>
50 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
8. Other Short- And Long-Term Investments
The company has invested 219 million Netherlands guilders (NLG), all classified
as long-term and 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
26, 1998, the average U.S. dollar rate of return was 5.10% including the effects
of a cross-currency swap transaction that effectively hedges the currency risk
and converts the NLG income to a U.S. dollar rate of return. Each quarter, the
company has the right to call for redemption of the securities at net asset
value. In the event this right is not exercised, the triple-A rated financial
institution can put the securities it owns to the company in March and June,
2003. Management believes this investment is fully recoverable at par value
based on the high quality and stability of the financial institution. However,
the investment is subject to equity risk.
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
26, 1998, this rate was 4.76%. The issuer and the company have agreed to redeem
these securities at par over a 12-month period commencing January 5, 1999, and
as a result, the company has classified $300.0 of this investment as short-term.
The company will use the redemption proceeds to finance off-shore operational
requirements and invest in short-term money market instruments.
9. 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:
<TABLE>
<CAPTION>
|--------------------|----------------------|------------------|
| 1998 | 1997 | 1996 |
- --------------------------------------------------------|--------------------|----------------------|------------------|
<S> <C> <C> <C>
Earnings before income taxes and minority interest | | | |
U.S. | $ (65.1) | $ 1.5 | $ 42.0 |
Non-U.S. | 195.5 | 116.5 | 126.9 |
|--------------------|----------------------|------------------|
| $ 130.4 | $ 118.0 | $ 168.9 |
|====================|======================|==================|
Provision for income taxes | | | |
Federal | | | |
Current | $ 23.9 | $ 24.0 | $ (3.2) |
Deferred | (3.5) | (12.3) | 13.9 |
State | | | |
Current | 4.3 | 4.1 | 4.4 |
Deferred | (6.8) | (0.5) | 2.0 |
Foreign | | | |
Current | 44.0 | 36.4 | 48.4 |
Deferred | 17.5 | (6.1) | (1.8) |
|--------------------|----------------------|------------------|
| $ 79.4 | $ 45.6 | $ 63.7 |
|====================|======================|==================|
</TABLE>
Visionaries Bausch & Lomb 1998 Annual Report 51
<PAGE>
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 1999
and 2008, is contingent on future taxable earnings in the appropriate
jurisdictions. Valuation allowances have been recorded for these and other asset
items, which may not be realized. The decrease in the non-current deferred
liability for depreciation and amortization relates to the charge for purchased
in-process R&D associated with the surgical acquisitions described in Note 2 -
Business Combinations.
<TABLE>
<CAPTION>
|---------------------------------------|------------------------------------|
| December 26, 1998 | December 27, 1997 |
| Assets | Liabilities | Assets | Liabilities |
- --------------------------------------------------|-----------------|---------------------|-----------------|------------------|
<S> <C> <C> <C> <C>
Current | | | | |
Inventories | $ 25.1 | $ - | $ 26.4 | $ - |
Restructuring accruals | 4.5 | - | 23.3 | - |
Employee benefits and compensation | 22.5 | - | 20.1 | - |
Sales and allowance accruals | 17.8 | - | 14.7 | - |
Legal/litigation accruals | 2.5 | - | 10.5 | - |
Other accruals | 8.9 | 1.0 | 8.2 | - |
Unrealized foreign exchange transactions | 1.8 | 2.5 | 1.5 | 14.1 |
State and local income taxes | - | 11.9 | - | 10.5 |
|-----------------|---------------------|-----------------|------------------|
| 83.1 | 15.4 | 104.7 | 24.6 |
|=================|=====================|=================|==================|
Non-current | | | | |
Tax loss and credit carryforwards | 48.7 | - | 49.7 | - |
Employee benefits | 30.0 | 0.3 | 32.4 | 0.2 |
Unrealized foreign exchange transactions | - | 15.1 | 3.0 | 13.9 |
Depreciation and amortization | 7.6 | 21.7 | 0.1 | 53.6 |
Other accruals | - | 8.9 | - | 4.2 |
Valuation allowance | (39.6) | - | (27.4) | - |
|-----------------|---------------------|-----------------|------------------|
| 46.7 | 46.0 | 57.8 | 71.9 |
|-----------------|---------------------|-----------------|------------------|
| $ 129.8 | $ 61.4 | $ 162.5 | $ 96.5 |
|=================|=====================|=================|==================|
</TABLE>
Reconciliations of the statutory U.S. federal income tax rate to effective tax
rates were as follows:
<TABLE>
<CAPTION>
|------------------|----------------------|--------------------|
| 1998 | 1997 | 1996 |
- ---------------------------------------------------------------|------------------|----------------------|--------------------|
<S> <C> <C> <C>
Statutory U.S. tax rate | 35.0% | 35.0% | 35.0% |
Goodwill impairment charge with no income tax benefit | 22.7 | - | - |
Difference between non-U.S. and U.S. tax rates | 3.2 | 1.9 | 2.9 |
Goodwill amortization | 1.1 | 1.1 | 1.0 |
State income taxes, net of federal tax benefit | 0.7 | 2.0 | 2.5 |
Foreign Sales Corporation tax benefit | (1.8) | (2.1) | (1.8) |
Other | - | 0.8 | (1.9) |
|------------------|----------------------|--------------------|
Effective tax rate | 60.9% | 38.7% | 37.7% |
|==================|======================|====================|
</TABLE>
At December 26, 1998, earnings considered to be permanently reinvested in
non-U.S. subsidiaries totaled approximately $885.5. 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.
52 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
10. Debt
Short-term debt at December 26, 1998 and December 27, 1997 consisted of $101.9
and $297.0 in U.S. commercial paper and $58.5 and $42.4 in non-U.S. borrowings,
respectively. To support its liquidity requirements, the company maintains U.S.
revolving credit agreements with 364-day and long-term credit terms totaling
$400.0 and $300.0, respectively. The agreements mature in December 1999 and
December 2002. No debt was outstanding under these agreements at year end 1998
and 1997. At December 26, 1998, the long-term revolving credit agreement
supported $300.0 of unsecured promissory notes which have been classified as
long-term debt. 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 short-term and long-term agreements, respectively, as of December
26, 1998. The interest rate applicable to borrowings under the agreements is
based on LIBOR 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. 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 5.7% and 6.0% for the years ended 1998 and 1997,
respectively. The maximum amount of short-term debt at the end of any month was
$893.3 in 1998 and $529.4 in 1997. Average short-term, month-end borrowings were
$550.1 in 1998 and $476.3 in 1997.
The components of long-term debt were:
<TABLE>
<CAPTION>
|-------------------------|---------------------|--------------------|
|Interest Rate Percentage | December 26, 1998 | December 27, 1997|
- ---------------------------------------------------------|-------------------------|---------------------|--------------------|
<S> <C> <C> <C>
Fixed-rate notes payable | | | |
Notes due in 1999 | 2.21-2.28 | $ 25.8 | $ 23.3 |
Notes due in 2001 or 2011(1) | 6.15 | 100.0 | - |
Notes due in 2001 or 2026(2) | 6.56 | 100.0 | 100.0 |
Notes due in 2003(3) | 5.95 | 85.0 | 85.0 |
Notes due in 2003 or 2013(1) | 6.38 | 100.0 | - |
Notes due in 2004(4) | 6.75 | 200.0 | 200.0 |
Notes due in 2005 or 2025(1) | 6.50 | 100.0 | - |
Notes due in 2028(4) | 7.13 | 200.0 | - |
All other fixed rate notes | Various | 7.0 | 16.8 |
Variable rate and other borrowings | | | |
Promissory notes(6) | | 300.0 | - |
Securitized trade receivables expiring in 2002 | 4.89(5) | 75.0 | 75.0 |
Industrial Development Bonds due in 2015 | 4.05(5) | 8.5 | 8.5 |
Other | Various | 11.1 | 6.6 |
|-------------------------|---------------------|--------------------|
| | 1,312.4 | 515.2 |
Less current portion | | 31.1 | 4.4 |
|-------------------------|---------------------|--------------------|
| | $ 1,281.3 | $ 510.8 |
|=========================|=====================|====================|
</TABLE>
(1) Notes contain put/call options exercisable in 2001, 2003 and 2005 for the
6.15%, 6.38% and 6.50% notes, respectively.
(2) Notes contain an option allowing the holder to put these notes back to the
company in 2001; otherwise the notes mature in 2026.
(3) An interest rate swap agreement effectively converts these notes to a
floating-rate liability. At December 26, 1998, the effective rate on these
notes was 5.13%.
(4) 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 of the notes upon early extinguishment.
(5) Represents 1998 year end rate.
(6) At December 26, 1998, a long-term revolving credit agreement supported
$300.0 short-term unsecured promissory notes which have been classified as
long-term debt.
Visionaries Bausch & Lomb 1998 Annual Report 53
<PAGE>
Interest rate swap agreements on long-term debt issues resulted in a
reduction in the long-term effective interest rate from 6.20% to 6.16% in 1998
and from 5.91% to 5.68% in 1997. Long-term borrowing maturities during the next
five years are $31.1 in 1999; $3.3 in 2000; $8.6 in 2001; $76.2 in 2002 and
$86.1 in 2003.
11. Operating Leases
The company leases land, buildings, machinery and equipment under noncancelable
operating leases. Total annual rental expense for 1998, 1997 and 1996 amounted
to $34.5, $26.2 and $26.8, respectively.
Minimum future rental commitments having noncancelable lease terms in
excess of one year aggregated $145.2 as of December 1998 and are payable as
follows: 1999, $28.5; 2000, $22.3; 2001, $18.7; 2002, $65.1; 2003, $4.9 and
beyond, $5.7.
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 1998, net rental payments on the lease, included above,
approximated $3.5.
12. Employee Benefits
The company's benefit plans which, in the aggregate, cover substantially all
U.S. employees and employees in certain other countries, consist of defined
benefit pension plans, defined contribution plans and a participatory defined
benefit postretirement plan. The costs associated with defined contribution
plans totaled $14.7, $9.7 and $12.0 for 1998, 1997 and 1996, respectively.
The remaining discussion in this footnote pertains to the company's
defined benefit pension and postretirement plans. The following table provides
reconciliations of the changes in benefit obligations, fair value of plan assets
and funded status for the two-year period ending December 26, 1998.
54 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
<TABLE>
<CAPTION>
|-------------------------------------|------------------------------------|
| Pension Benefit Plans | Postretirement Benefit Plan |
| 1998 | 1997 | 1998 | 1997 |
- --------------------------------------------------|------------------|------------------|------------------|-----------------|
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation | | | | |
Obligation at beginning of year | $ 214.0 | $ 196.7 | $ 75.5 | $ 81.4 |
Service cost | 9.2 | 8.3 | 1.3 | 1.2 |
Interest cost | 16.2 | 14.7 | 4.8 | 4.9 |
Participant contributions | (1.6) | (1.4) | - | - |
Plan amendments | 0.4 | - | - | - |
Acquisitions | 0.8 | - | - | - |
Currency translation adjustment | 1.8 | (3.8) | - | - |
Curtailments | - | - | - | (1.0) |
Benefit payments | (14.6) | (13.9) | (6.3) | (5.7) |
Actuarial loss (gain) | 30.9 | 13.4 | (7.2) | (5.3) |
|------------------|------------------|------------------|-----------------|
Obligation at end of year | $ 257.1 | $ 214.0 | $ 68.1 | $ 75.5 |
|==================|==================|==================|=================|
Reconciliation of fair value of plan assets | | | | |
Fair value of plan assets at beginning of year | $ 201.6 | $ 172.6 | $ 33.9 | $ 23.3 |
Actual return on plan assets | 38.4 | 31.1 | 11.7 | 11.3 |
Acquisitions | 0.1 | - | - | - |
Employer contributions | 8.2 | 16.1 | - | 5.0 |
Participant contributions | 1.6 | 1.4 | - | - |
Benefit payments | (14.6) | (13.9) | (6.3) | (5.7) |
Currency translation adjustment | 1.2 | (5.7) | - | - |
|------------------|------------------|------------------|-----------------|
Fair value of plan assets at end of year | $ 236.5 | $ 201.6 | $ 39.3 | $ 33.9 |
|==================|==================|==================|=================|
Reconciliation of funded status to net | | | | |
amount recognized on the balance sheet | | | | |
Funded status at end of year | $ (20.6) | $ (12.4) | $ (28.8) | $ (41.6) |
Unrecognized transition obligation | 3.5 | 4.1 | - | - |
Unrecognized prior-service cost | 11.6 | 14.2 | (1.3) | (1.5) |
Unrecognized gain | (0.9) | (10.2) | (45.8) | (38.8) |
|------------------|------------------|------------------|-----------------|
Net amount recognized | $ (6.4) | $ (4.3) | $ (75.9) | $ (81.9) |
|==================|==================|==================|=================|
</TABLE>
The plan assets shown above for the pension benefit plans include 52,800
shares of the company's Common stock. A defined benefit pension plan which
covers certain non-U.S. employees, was acquired in 1998 with the purchase of the
surgical businesses as detailed in Note 2 - Business Combinations.
The following table provides information related to underfunded pension
plans:
<TABLE>
<CAPTION>
|------------------|------------------|
| 1998 | 1997 |
- ---------------------------------------|------------------|------------------|
<S> <C> <C>
Projected benefit obligation | $25.0 | $ 19.1 |
Accumulated benefit obligation | 20.9 | 16.8 |
Fair value of plan assets | 1.8 | 1.4 |
|==================|==================|
</TABLE>
The company's postretirement benefit plan was underfunded for each of the past
two years.
Visionaries Bausch & Lomb 1998 Annual Report 55
<PAGE>
The following table provides the amounts recognized in the balance sheet as of
the end of each year:
<TABLE>
<CAPTION>
|---------------------------------|-------------------------------------|
| Pension Benefit Plans | Postretirement Benefit Plan |
| 1998 | 1997 | 1998 | 1997 |
- -----------------------------------------------|---------------|-----------------|--------------------|----------------|
<S> <C> <C> <C> <C>
Prepaid benefit cost | $ 13.6 | $ 12.1 | $ - | $ - |
Accrued benefit liability | (20.0) | (16.4) | (75.9) | (81.9) |
|---------------|-----------------|--------------------|----------------|
Net amount recognized | $ (6.4) | $ (4.3) | $ (75.9) | $ (81.9) |
|===============|=================|====================|================|
</TABLE>
The following table provides the components of net periodic benefit cost for the
plans for fiscal years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
|-----------------------------------------|------------------------------------------|
| Pension Benefit Plans | Postretirement Benefit Plan |
| 1998 | 1997 | 1996 | 1998 | 1997 | 1996 |
- ------------------------------------------|-----------|---------------|-------------|--------------|--------------|------------|
<S> <C> <C> <C> <C> <C> <C>
Service cost | $ 9.2 | $ 8.3 | $ 8.6 | $ 1.3 | $ 1.2 | $ 1.9 |
Interest cost | 16.2 | 14.7 | 13.7 | 4.8 | 4.9 | 6.0 |
Expected return on plan assets | (18.9) | (16.8) | (14.9) | (3.0) | (2.6) | (1.9) |
Amortization of transition obligation | 0.7 | 0.7 | 0.8 | - | - | - |
Amortization of prior-service cost | 1.8 | 1.8 | 2.0 | (0.1) | (0.2) | (0.2) |
Amortization of net gain | (0.3) | (0.2) | (0.1) | (2.7) | (2.6) | (1.8) |
|-----------|---------------|-------------|--------------|--------------|------------|
Net periodic benefit cost | 8.7 | 8.5 | 10.1 | 0.3 | 0.7 | 4.0 |
Curtailment loss (gain) | - | - | 1.0 | - | (1.0) | (0.9) |
|-----------|---------------|-------------|--------------|--------------|------------|
Net periodic benefit cost after | | | | | | |
curtailments and settlements | $ 8.7 | $ 8.5 | $ 11.1 | $ 0.3 | $ (0.3) | $ 3.1 |
|===========|===============|=============|==============|==============|============|
</TABLE>
The curtailments resulted from several plant closings that occurred as part of
restructuring initiatives.
Key assumptions used to measure benefit obligations in the company's benefit
plans are shown in the following table:
<TABLE>
<CAPTION>
|--------------------|-------------------|
| 1998 | 1997 |
- ------------------------------------------|--------------------|-------------------|
<S> <C> <C>
Weighted Average Assumptions | | |
Discount rate | 6.8% | 7.5% |
Expected return on plan assets | 8.6% | 8.1% |
Rate of compensation increase | 4.3% | 4.8% |
|====================|===================|
</TABLE>
For amounts pertaining to postretirement benefits, an 8.0% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
1998. This rate is assumed to decrease ratably to 5.5% in the year 2000 and
remain constant thereafter. To demonstrate the significance of this rate on the
expense reported, a one percentage point change in the assumed health care cost
trend rate would have the following effect:
<TABLE>
<CAPTION>
|-----------------|-----------------|
| 1% Increase | 1% Decrease |
- ----------------------------------------------------------------|-----------------|-----------------|
<S> <C> <C>
Effect on total of service and interest cost components of | | |
net periodic postretirement health care benefit cost | $0.6 | $(0.7) |
Effect on the health care component of the accumulated | | |
postretirement benefit obligation | $6.7 | $(5.6) |
|=================|=================|
</TABLE>
56 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
13. 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 $403.2 at both December 26, 1998 and December 27, 1997.
14. Financial Instruments
The carrying amount of cash, cash equivalents, current portion of long-term
investments and notes payable approximated fair value because maturities are
less than one year in duration. The company's remaining financial instruments
consisted of the following:
<TABLE>
<CAPTION>
|-----------------------------------|------------------------------------|
| December 26, 1998 | December 27, 1997 |
| Carrying | Fair | Carrying | Fair |
| Value | Value | Value | Value |
- ------------------------------------------------------|-----------------|-----------------|-------------------|----------------|
<S> <C> <C> <C> <C>
Nonderivatives | | | | |
Other investments | $ 249.2 | $ 249.2 | $ 546.4 | $ 546.4 |
Long-term debt, including current portion | (1,312.4) | (1,302.7) | (515.2) | (516.4) |
|=================|=================|===================|================|
Derivatives held for purposes other than trading | | | | |
Foreign exchange instruments | | | | |
Other current assets | $ 7.6 | | $ 45.3 | |
Accrued liabilities | (15.7) | | (40.5) | |
|-----------------|-----------------|-------------------|----------------|
Net foreign exchange instruments | $ (8.1) | $ (8.3) | $ 4.8 | $ 2.4 |
|=================|=================|===================|================|
Interest rate instruments | | | | |
Other current assets | $ 22.1 | | $ 17.5 | |
Accrued liabilities | (15.2) | | (12.6) | |
|-----------------|-----------------|-------------------|----------------|
Net interest rate instruments | $ 6.9 | $ 14.9 | $ 4.9 | $ 20.7 |
|=================|=================|===================|================|
</TABLE>
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 using a model that estimates fair value at market rates, or was
based upon quoted market prices for similar instruments with similar maturities.
The company, as a result of its global operating and financing activities,
is exposed to changes in interest rates and foreign currency exchange rates that
may adversely affect its results of operations and financial position. In
seeking to minimize the risks and/or costs associated with such activities, the
company manages exposures to changes in interest rates and foreign currency
exchange rates by entering into derivative contracts. The company does not
generally use financial instruments for trading or other speculative purposes,
nor does it use leveraged financial instruments.
Visionaries Bausch & Lomb 1998 Annual Report 57
<PAGE>
The company enters into foreign exchange forward contracts primarily to
hedge foreign currency transactions and equity investments in non-U.S.
subsidiaries. At December 26, 1998 and December 27, 1997, the company hedged
aggregate exposures of $1,063.0 and $1,559.0, respectively, by entering into
forward exchange contracts requiring the purchase and sale of U.S. and foreign
currencies. The company selectively hedges firm commitments that represent both
a right and an obligation, mainly for committed purchase orders for
foreign-sourced inventory. 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. At December
26, 1998 and December 27, 1997, the company deferred gains of less than $0.1
relating to hedged firm commitments.
The company's exposure to changes in interest rates results from investing
and borrowing activities. 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. At December 26, 1998 and
December 27, 1997, the company was party to swap contracts that had aggregate
notional amounts of $869.5 and $866.3, respectively. At year end 1998 and 1997,
the company had an outstanding interest rate cap with a notional amount of NLG
15.5 million that protects the company from exposures to rising NLG interest
rates.
Counterparties to the financial instruments discussed above expose the
company to credit risks to the extent of non-performance. 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.
15. Stock Compensation Plans
The company sponsors several stock-based compensation plans, all of which are
accounted for under the provisions of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. 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, Accounting for Stock-Based
Compensation, 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>
1998 | $ 25.2 $ 16.5 | $ 0.45 $ 0.30 | $ 0.45 $ 0.29 |
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 |
|==========================|=========================|===========================|
</TABLE>
The total number of shares available for grant in each calendar year,
excluding incentive stock options, shall be no greater than 3% 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 under the company's current plan. As of December 26,
1998, 2.5 million shares remain available for such grants.
58 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Stock Options The company issues stock options that vest ratably over three
years and expire 10 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
1998, 1997 and 1996:
<TABLE>
<CAPTION>
|---------------------|--------------------|---------------------|
| 1998 | 1997 | 1996 |
- ----------------------------------------------|---------------------|--------------------|---------------------|
<S> <C> <C> <C>
Risk-free interest rate | 4.69% | 5.66% | 6.11% |
Dividend yield | 2.48% | 2.54% | 2.42% |
Volatility factor | 25.67% | 25.17% | 24.87% |
Weighted average expected life (years) | 4 | 5 | 5 |
|=====================|====================|=====================|
</TABLE>
The weighted average value of options granted was $10.93, $10.59, and $9.34 in
1998, 1997 and 1996, respectively. A summary of the status of the company's
fixed stock option plans at year end 1998, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
| 1998 | 1997 | 1996 |
|-------------|----------------|-------------|----------------|------------|----------------|
| | 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 | 5,186 | $ 41.00 | 5,030 | $ 39.90 | 4,426 | $ 40.84 |
Granted | 1,400 | 50.64 | 1,176 | 42.32 | 1,253 | 35.86 |
Exercised | (1,265) | 39.45 | (432) | 30.34 | (204) | 27.40 |
Forfeited | (271) | 41.48 | (588) | 41.99 | (445) | 43.60 |
|-------------| |-------------| |------------| |
Outstanding at year end | 5,050 | $ 43.98 | 5,186 | $ 41.00 | 5,030 | $ 39.90 |
|=============|================|=============|================|============|================|
Options exercisable at year end | 2,735 | | 3,065 | | 3,029 |
|=============| |=============| |============|
</TABLE>
The following represents additional information about fixed stock options
outstanding at December 26, 1998.
<TABLE>
<CAPTION>
| Options Outstanding | Options Exercisable |
|------------------|------------------|------------------|-------------|---------------|
| |Weighted Average | Weighted | | Weighted |
Range Of | | Remaining | Average | Number | Average |
Exercise Prices | Number |Contractual Life | Exercise Price | Exercisable | Exercise Price|
Per Share |Outstanding (000s)| (Years) | (Per Share) | (000s) | (Per Share) |
- -------------------------------------|------------------|------------------|------------------|-------------|---------------|
<S> <C> <C> <C> <C> <C>
$26 to 35 | 823 | 6.3 | $ 34.78 | 617 | $ 34.60 |
36 to 45 | 2,041 | 7.3 | 41.35 | 1,267 | 40.88 |
46 to 55 | 2,186 | 7.5 | 49.90 | 851 | 48.26 |
|------------------| | |-------------| |
| 5,050 | 7.2 | $ 43.98 | 2,735 | $ 41.76 |
|------------------|------------------|------------------|-------------|---------------|
</TABLE>
Visionaries Bausch & Lomb 1998 Annual Report 59
<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 contingent upon continued employment until applicable vesting
dates. Under a separate plan, the company issues restricted stock awards to
certain officers based on the attainment of Economic Value Added (EVA) targets.
These awards also have vesting periods up to three years. Compensation expense
for both plans is recorded based on applicable vesting criteria and, for those
awards with performance goals, as such goals are met. In 1998, 1997 and 1996,
259,905, 61,600 and 139,052 such awards were granted at weighted average market
values of $46.14, $41.92 and $38.43 per share, respectively. The compensation
expense relating to stock awards in 1998, 1997 and 1996 was $10.6, $3.3 and
$1.3, respectively.
16. Litigation
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. On April 21, 1998, the court dismissed all of the plaintiffs'
claims. The plaintiffs have appealed this ruling.
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 alternative 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 for 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.
60 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Report Of Management
The preceding 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 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 26, 1998, the internal control system was functioning effectively
and accomplished the objectives discussed herein.
The audit committee of the board of directors, which held four meetings during
1998, 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.
To the Shareholders and Board of Directors of Bausch & Lomb Incorporated:
In our opinion, the accompanying consolidated financial statements appearing on
pages 38 through 60 of this 1998 annual report of Bausch & Lomb Incorporated
present fairly, in all material respects, the financial position of Bausch &
Lomb Incorporated and its subsidiaries at December 26, 1998 and December 27,
1997, and the results of their operations, cash flows and changes in
shareholders' equity for each of the three years in the period ended December
26, 1998, 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/ William M. Carpenter
William M. Carpenter
Chairman and Chief Executive Officer
/s/ Stephen C. McCluski
Stephen C. McCluski
Senior Vice President and Chief Financial Officer
Report Of The Audit Committee
/s/ Alvin W. Trivelpiece
Alvin W. Trivelpiece, Ph.D.
Chair, Audit Committee
Report Of Independent Accountants
/s/ PricewaterhouseCoopers LLP
Rochester, New York
January 26, 1999
Visionaries Bausch & Lomb 1998 Annual Report 61
<PAGE>
Selected Financial Data
Dollar Amounts In Millions - Except Per Share Data
<TABLE>
<CAPTION>
|-------------|-------------|--------------|--------------|--------------|-----------|
| 1998 | 1997 | 1996 | 1995 | 1994 | 1993 |
- --------------------------------------------|-------------|-------------|--------------|--------------|--------------|------------|
<S> <C> <C> <C> <C> <C> <C>
Results For The Year | | | | | | |
Net sales | $2,362.8 | $1,915.7 | $1,926.8 | $1,932.9 | $1,892.7 | $1,830.1 |
Net earnings | 25.2 | 49.4 | 83.1 | 112.0 | 31.1 | 138.9 |
Basic earnings per share | 0.45 | 0.89 | 1.48 | 1.94 | 0.53 | 2.34 |
Diluted earnings per share | 0.45 | 0.89 | 1.47 | 1.93 | 0.52 | 2.31 |
Dividends per share | 1.04 | 1.04 | 1.04 | 1.01 | 0.955 | 0.88 |
|=============|=============|==============|==============|==============|============|
Year End Position | | | | | | |
Working capital | $ 774.4 | $ 202.9 | $ 18.5 | $ 70.9 | $ 277.4 | $ 669.6 |
Total assets | 3,491.7 | 2,772.9 | 2,603.4 | 2,550.1 | 2,457.7 | 2,493.0 |
Short-term debt | 191.5 | 343.8 | 482.1 | 383.5 | 300.6 | 244.6 |
Long-term debt | 1,281.3 | 510.8 | 236.3 | 191.0 | 289.5 | 321.0 |
Shareholders' equity | 845.0 | 818.4 | 881.9 | 929.3 | 914.4 | 909.2 |
|=============|=============|==============|==============|==============|============|
Other Ratios And Statistics | | | | | | |
Return on sales | 1.1% | 2.6% | 4.3% | 5.8% | 1.6% | 7.6% |
Return on average shareholders' equity | 3.1% | 5.9% | 9.2% | 11.9% | 3.2% | 15.5% |
Return on invested capital | 3.8% | 5.0% | 7.2% | 9.3% | 3.8% | 11.0% |
Return on average total assets | 0.7% | 1.8% | 3.1% | 4.5% | 1.2% | 6.8% |
Average income tax rate | 60.9% | 38.7% | 37.7% | 36.9% | 52.6% | 33.5% |
Current ratio | 2.0 | 1.2 | 1.0 | 1.1 | 1.4 | 1.9 |
Total debt to shareholders' equity | 174.3% | 104.4% | 81.5% | 61.8% | 64.5% | 62.2% |
Total debt to capital | 63.5% | 51.1% | 44.9% | 38.2% | 39.2% | 38.3% |
Capital expenditures | $ 201.5 | $ 126.1 | $ 130.3 | $ 95.5 | $ 84.8 | $ 107.2 |
|=============|=============|==============|==============|==============|============|
</TABLE>
62 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
Directors
William M. Carpenter (1)
Chairman and Chief Executive Officer
Bausch & Lomb
Rochester, New York
Director since: 1996
Franklin E. Agnew (1) (3)
Business Consultant
Pittsburgh, Pennsylvania
Director since: 1982
Domenico De Sole (2)
President and Chief Executive Officer
Gucci Group N.V.
London, United Kingdom
Director since: 1996
Jonathan S. Linen (3)(4)
Vice Chairman
American Express Company
New York, New York
Director since: 1996
Ruth R. McMullin (2)
Chairperson,
Eagle-Picher Personal Injury
Settlement Trust
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
William H. Waltrip (1)
Chairman of the Board
Technology Solutions Company
Chicago, Illinois
Director since: 1985
Kenneth L. Wolfe (1)(3)
Chairman of the Board and Chief
Executive Officer
Hershey Foods Corporation
Hershey, Pennsylvania
Director since: 1989
Officers
William M. Carpenter
Chairman and Chief Executive Officer
4 years of service with the company
Named to current position: 1/99
Carl E. Sassano
President and Chief Operating Officer
26 years of service with the company
Named to current position: 1/99
Dwain L. Hahs
Executive Vice President - Eyewear
22 years of service with the company
Named to current position: 4/97
Senior Vice Presidents
Daryl M. Dickson
Human Resources
3 years of service with the company
Named to current position: 11/96
Hakan S. Edstrom
Surgical/Pharmaceutical
2 years of service with the company
Named to current position: 1/99
James C. Foster
Charles River Laboratories, Inc.
15 years of service with the company
Named to current position: 12/94
Stephen C. McCluski
Chief Financial Officer
11 years of service with the company
Named to current position: 1/95
Thomas M. Riedhammer, Ph.D.
Chief Technical Officer
17 years of service with the company
Named to current position: 1/99
Robert B. Stiles
General Counsel
18 years of service with the company
Named to current position: 6/97
Vice Presidents
Omar Casal
Asia-Pacific - Eyewear
14 years of service with the company
Named to current position: 12/97
Robert D. Colangelo
Chief Information Officer
10 years of service with the company
Named to current position: 11/97
Alan P. Dozier
North American Vision Care
14 years of service with the company
Named to current position: 2/97
Alan H. Farnsworth
Business Development
11 years of service with the company
Named to current position: 7/97
James T. Horn
Global Product Supply -- Eyewear
7 years of service with the company
Named to current position: 5/96
Barbara M. Kelley
Corporate Communications
16 years of service with the company
Named to current position: 4/93
Jurij Z. Kushner
Controller
18 years of service with the company
Named to current position: 1/95
Thomas W. Lance
Global Operations -- Vision Care
2 years of service with the company
Named to current position: 7/97
John M. Loughlin
Asia-Pacific -- Vision Care
18 years of service with the company
Named to current position: 7/97
Stephen Markwell
Europe, Middle East and Africa -- Eyewear
5 years of service with the company
Named to current position: 12/97
Read McNamara
Latin America
3 years of service with the company
Named to current position: 7/97
James F. Milton
Japan
28 years of service with the company
Named to current position: 12/94
Angela J. Panzarella
Investor Relations
10 years of service with the company
Named to current position: 7/97
Alan H. Resnick
Treasurer
26 years of service with the company
Named to current position: 5/86
J. Paul Ruddlesdin
Europe, Middle East and
Africa -- Vision Care
16 years of service with the company
Named to current position: 7/97
David A. Souerwine
Strategy
16 years of service with the company
Named to current position: 12/98
James J. Ward
Reengineering Initiatives
22 years of service with the company
Named to current position: 5/97
David G. Whalen
North American Eyewear
8 years of service with the company
Named to current position: 7/97
Secretary
Jean F. Geisel
23 years of service with the company
Named to current position: 7/97
Committee Memberships:
(1) Executive Committee
(2) Audit Committee
(3) Committee on Management
(4) Committee on Directors
Visionaries Bausch & Lomb 1998 Annual Report 63
<PAGE>
[background: Western hemisphere]
Bausch & Lomb Locations
United States
Claremont, California
Hollister, California
Irvine, California
San Clemente, California
Lebanon, Connecticut
Preston, Connecticut
Voluntown, Connecticut
Clearwater, Florida
Miami, Florida
Sarasota, Florida
Tampa, Florida
Colbert, Georgia
Eureka, Illinois
Roanoke, Illinois
Southbridge, Massachusetts
Wilmington, Massachusetts
Portage, Michigan
Golden Valley, Minnesota
Earth City, Missouri
Manchester, Missouri
St. Louis, Missouri
Newfield, New Jersey
Pearl River, New York
Rochester, New York
Stone Ridge, New York
Raleigh, North Carolina
Malvern, Pennsylvania
Rio Piedras, Puerto Rico
Charleston, South Carolina
Greenville, South Carolina
Houston, Texas
Laredo, Texas
San Antonio, Texas
Lynchburg, Virginia
Canada
Kitchener, Ontario
Mississauga, Ontario
Richmond Hill, Ontario
St. Constant, Quebec
Latin America
Porto Alegre, Brazil
Rio de Janeiro, Brazil
Mexico City, Mexico
Nuevo Laredo, Mexico
Caracas, Venezuela
64 Visionaries Bausch & Lomb 1998 Annual Report
<PAGE>
[background: Eastern hemisphere]
Europe, Africa & Middle East
Vienna, Austria
Brussels, Belgium
Le Mesnil St. Denis, France
Lyon, France
St. Aubin-les-Elbeuf, France
St. Germain, France
Berlin, Germany
Extertal Bosingfeld, Germany
Heidelberg, Germany
Kisslegg, Germany
Munich, Germany
Sulzfeld, Germany
Athens, Greece
Budapest, Hungary
Waterford, Ireland
Calco, Italy
Milan, Italy
Pederobba, Italy
Heemstede, Netherlands
Hoofddorp, Netherlands
Lisbon, Portugal
Moscow, Russia
Livingston, Scotland
Transvaal, South Africa
Barcelona, Spain
Madrid, Spain
Stockholm, Sweden
Geneva, Switzerland
Istanbul, Turkey
Berkshire, United Kingdom
Crownhill, United Kingdom
Hampton/Middlesex, United Kingdom
Henfield, United Kingdom
Kingston-Upon-Thames, United Kingdom
Margate, United Kingdom
St. Leonards-on-Sea, United Kingdom
Asia-Pacific
Artarmon, Australia
North Ryde, Australia
Beijing, People's Republic of China
Guangzhou, People's Republic of China
Fanling, Hong Kong
Taikoo Shing, Hong Kong
Bhiwadi, India
New Delhi, India
Atsugi City, Japan
Hino-cho, Japan
New Science City, Japan
Tokyo, Japan
Selangor, Malaysia
Auckland, New Zealand
Makati City, Philippines
Singapore, Singapore
Seoul, South Korea
Umsong-gun, South Korea
Taipei, Taiwan-ROC
Bangkok, Thailand
Visionaries Bausch & Lomb 1998 Annual Report 65
<PAGE>
Glossary
ARMD (Age Related Macular Degeneration): Damage or breakdown of the macula, the
small area at the back of the eye that allows us to see fine details clearly.
Astigmatism: Irregular curvature of the cornea, the clear covering of the eye.
Astigmatism causes light to focus on more than one point on the retina,
resulting in blurry or distorted images.
Cataract: The clouding of the eye's natural lens, cataracts occur as part of
the eye's natural aging process. The lens may require surgical removal if visual
loss becomes significant, with lost optical power replaced with an intraocular
lens (IOL).
Continuous Wear Contact Lens: A contact lens that can be worn day and overnight
without removing, for a time period as prescribed by an eye care practitioner.
Diabetic Retinopathy: A disease of the blood vessels of the retina which is
associated with diabetes.
Excimer Laser: Provides an ultraviolet beam of light which is emitted in
pulses. Each pulse removes a microscopic amount of tissue from the surface of
the cornea. It would take about 200 pulses from an excimer laser to cut a human
hair in half.
Glaucoma: A disease of the eye marked by increased pressure within the eyeball
that can result in damage to the optic nerve and gradual loss of vision.
Generic Drug: Nonproprietary.
Graves' Disease: A condition caused by an over-active thyroid. Symptoms
include: an increased rate of metabolism, rapid weight loss, enlarged thyroid
gland, increased heart rate, high blood pressure and dry eyes.
Hydrogel: Water absorbing materials which can be described as soft, elastic,
water-containing gels.
Hyperopia: Also known as farsightedness, hyperopia is caused by an eyeball that
is relatively too short, and/or a cornea that is too flat, causing light to
focus behind the retina.
IOL (Intraocular Lens): An artificial lens that may be surgically implanted to
replace the natural lens of the eye following cataract removal. There are
numerous styles, including foldable and rigid, and may be made from rigid or
soft materials including plastic, silicone, acrylic and hydrogel.
LASIK: Refractive surgery procedure where the surgeon uses a microkeratome to
create a hinged flap from the surface layer of the cornea. An excimer laser is
then used to vaporize a thin layer of the underlying corneal tissue to correct
the refractive error. The top flap is then folded back into place.
Microkeratome: An instrument used to cut the corneal flap in the most common
refractive surgery procedure - LASIK. Microkeratomes usually incorporate a
disposable blade that is replaced for each patient.
Myopia: Also known as nearsightedness, myopia is caused by an eyeball that is
relatively too long, and/or a cornea that is too steep, causing light to focus
in front of the retina.
Phacoemulsification: A surgical procedure to remove a cataract. An ultrasonic
vibration is used to break up the cataract, which is then removed through an
irrigation/aspiration process. Commonly called "phaco".
PRK (Photorefractive Keratectomy): Surgical procedure to correct vision using a
laser beam to reshape the surface of the cornea.
Proprietary Drug: One that is protected by secrecy, patent, FDA-granted
marketing exclusivity or copyright against free competition related to name,
product, composition or manufacturing process.
Refractive Surgery: A rapidly developing eye care specialty involving surgery
to change the eye structure to correct nearsightedness, farsightedness and
astigmatism.
Rigid Gas Permeable Lens: A "hard" contact lens which allows oxygen and other
gases to be transmitted through it.
Toric Contact Lens: Designed to differentially refract light in two principal
meridians of the eye to correct astigmatism.
66 Visionaries Bausch & Lomb 1998 Annual Report
<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
(716) 338-6000
(800) 344-8815
Bausch & Lomb News on Demand:
Bausch & Lomb's news releases are available toll-free by calling:
(888) 329-1096
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 shareholders seeking information concerning company
operations, shareholder programs or dividend policy may contact:
Angela J. Panzarella
Vice President, Investor Relations
(716) 338-6025
[email protected]
Media Inquiries:
News media representatives and others seeking general information may contact:
Holly Houston
Director, Media Relations
(716) 338-8064
[email protected]
Transfer Agent:
Shareholders seeking information regarding their individual accounts or dividend
payments may contact our stock transfer agent:
ChaseMellon Shareholder Services
P.O. Box 3315
South Hackensack, NJ 07606-1915
(800) 288-9541
www.chasemellon.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:
Mellon Bank, N.A.
Investment Services
P.O. Box 3338
South Hackensack, NJ 07606-1938
(800) 288-9541
www.chasemellon.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 and its subsidiary companies referred to in this
report are:
<TABLE>
<S> <C>
Alrex ReNu
AMVISC ReNu MultiPlus
AMVISC Plus Revo
Bausch & Lomb Sensitive Eyes
Boston SofLens
Catarex SofLens66
Charles River Laboratories Soflex
Chiroflex Technolas
Hansatome Technolas 217
Hydroview Topolink
Killer Loop Vitrasert
Medalist ----------------------
Millennium EVA is a trademark of
Miracle-Ear Stern Stewart & Co.
Moisture Eyes
Moisture Eyes PM Lotemax is a trademark
MPORT of Pharmos Corporation
Ocuvite
Opcon-A Muro is a trademark of
Optima FW Muro Pharmaceuticals
OptiPranolol
Passport Polytrim is a trademark
Passport II of Allergan
PureVision
Ray-Ban Rogaine is a trademark of
Pharmacia & Upjohn Co.
Surodex is a trademark of
Oculex Pharmaceuticals, Inc.
</TABLE>
- --------------------------
Design: Richard Uccello
Ted Bertz Graphic Design,
Middletown, Connecticut
Printing: Daniels Printing,
Everett, Massachusetts
Executive & Lifestyle Photography:
Ted Kawalerski,
New York City
Product Photography:
Paul Horton,
Middletown, Connecticut
(C)1999 Bausch & Lomb Incorporated
All Rights Reserved Worldwide
[recycle symbol] Total recycled fiber content of not less than 50%
<PAGE>
[back cover]
---------
SEEING IS
---------
---------
BELIEVING
---------
Bausch & Lomb
One Bausch & Lomb Place
Rochester, New York 14604
Bausch & Lomb Incorporated
Exhibit 21
Subsidiaries
(as of December 26, 1998)
Jurisdiction Under
Name Which Organized
Adatomed GmbH Germany
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
Cyanamid Chirurgie S.A.S. France
Dahlberg, Inc. Minnesota
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
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 China
Manufacturing Ltd.
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
Bausch & Lomb Holdings Corp. Delaware
Bausch & Lomb InVision Institute, Inc. Massachusetts
Iolab Corporation California
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. South Korea
Laboratories Domilens S.A.S. France
Bausch & Lomb Lamex, Inc. Delaware
Madden & Layman, Ltd. England
Bausch & Lomb (Malaysia) Sdn. Bhd. Malaysia
Bausch & Lomb Mexico, S.A. de C.V. Mexico
Miracle-Ear, Inc. Minnesota
Bausch & Lomb (New Zealand) Limited New Zealand
Bausch & Lomb Nordic AB Sweden
Bausch & Lomb Opticare, Inc. New York
Bausch & Lomb Pharmaceuticals, Inc. Delaware
Bausch & Lomb (Philippines), Inc. Philippines
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 Surgical (Asia Pacific)
Pte Ltd. Singapore
Bausch & Lomb Surgical Espana SA Spain
Bausch & Lomb Surgical (France) S.A.S. France
Bausch & Lomb Surgical GmbH Germany
Bausch & Lomb Surgical, Inc. Delaware
Bausch & Lomb Surgical Italia Srl Italy
Bausch & Lomb Surgical (U.K.) Limited England & Wales
Bausch & Lomb Taiwan Limited Taiwan
Bausch & Lomb (Thailand) Limited Thailand
Technolas GmbH Germany
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. Netherlands Antilles
Bausch & Lomb - Young Han, Inc. South Korea
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 Prospectuses constituting part
of the Registration Statement on Form S-3 (Nos. 33-51117 and
333-45223) of Bausch & Lomb Incorporated of our report dated
January 26, 1999 appearing in the 1998 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.
PricewaterhouseCoopers LLP
Rochester, New York
March 22, 1999
Exhibit 23
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 26, 1999 appearing in the 1998
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.
PricewaterhouseCoopers LLP
Rochester, New York
March 22, 1999
Exhibit 24
BAUSCH & LOMB
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 26, 1998, 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 23rd day of February 1999.
/s/ Franklin E. Agnew /s/ John R. Purcell
/s/ William M. Carpenter /s/ Linda Johnson Rice
/s/ Domenico De Sole /s/ Alvin W. Trivelpiece
/s/ Jonathan S. Linen /s/ William H. Waltrip
/s/ Ruth R. McMullin /s/ Kenneth L. Wolfe
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<RECEIVABLES> 553147
<ALLOWANCES> (26808)
<INVENTORY> 440707
<CURRENT-ASSETS> 1586763
<PP&E> 1412703
<DEPRECIATION> (687685)
<TOTAL-ASSETS> 3491724
<CURRENT-LIABILITIES> 812413
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0
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<COMMON> 24148
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<TOTAL-LIABILITY-AND-EQUITY> 3491724
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