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 25, 1999 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 19, 2000) of the voting stock held by
non-affiliates of the registrant was $3,424,970,460. 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 19, 2000, was 57,400,087, consisting
of 57,023,214 shares of Common stock and 376,873 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, II The Bausch & Lomb 1999 Annual Report to
and IV Shareholders for the fiscal year ended December
25, 1999 ("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 24, 2000 ("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 6
Item 4. Submission of Matters to a Vote of Security 6
Holders
PART II
Item 5. Market for Bausch & Lomb Incorporated's Common
Stock and Related Shareholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes In and Disagreements With Accountants
on Accounting And Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of Bausch &
Lomb Incorporated 8
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial
Owners and Management 9
Item 13. Certain Relationships and Related Transactions 9
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 10
Signatures 11
Schedules 12
Exhibit Index 13
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 1999 are
discussed below. Per share amounts in the remainder of this
section reflect December 1999 year-to-date diluted average shares
outstanding.
During the year ended December 25, 1999, a chapter was closed in
Bausch & Lomb's history with the sale of the sunglass business,
which had been part of the company since 1930. In addition,
other remaining non-core businesses were divested, allowing the
company to focus solely on being a technology-based healthcare
company for the eye. The company now reports its operating
results in three segments: vision care, pharmaceuticals and
surgical. Revenues from continuing operations for 1999 were
$1,756.1 million, an increase of $158.6 million or 10% from 1998.
Net earnings for 1999 amounted to $444.8 million, or $7.59 per
share, compared to 1998 earnings of $25.2 million, or $0.45 per
share. Results for 1999 include a net after-tax gain on
divestitures of $308.1 million or $5.26 per share. Income from
continuing operations was $102.7 million or $1.75 per share in
1999 compared to $55.6 million or $.99 per share in 1998.
In January 1999, the company acquired Hansa Research &
Development, Inc., a designer and manufacturer of the HansatomeT
microkeratome used in the majority of worldwide refractive
surgery procedures. The keratomes produced by Hansa had been
previously distributed under an exclusive agreement with Chiron
Vison, now part of Bausch & Lomb Surgical.
In April 1999, the company purchased Orbtek, Inc., the developer
of a unique diagnostic system that gives surgeons critical
information about both the anterior and posterior surfaces of the
cornea which can improve the accuracy and predictability of a
variety of ophthalmic surgery procedures.
In June 1999, the company sold its sunglass business to Luxottica
Group S.p.A. for $636 million in cash. The sale included all of
the company's lines of sunglasses, including Ray-Banr, Revor,
ArnetteT, and Killer Loopr. The company recorded an after-tax
gain of $126.3 million or $2.16 per share related to this sale.
Charles River Laboratories and the Miracle-Ear hearing aid
business, representing the last of the non-core businesses, were
sold during the third quarter of 1999. Miracle-Ear was sold to
Amplifon S.p.A., resulting in an after-tax gain of $11.1 million
or $0.19 per share. Charles River Laboratories, a breeder of
research laboratory animals, was sold for $400 million in cash
and $43 million in promissory notes to DLJ Merchant Banking
Partners II, L.P., an affiliate of the investment banking firm of
Donaldson, Lufkin and Jenrette. The company retained a 12.5%
equity interest in the Charles River Laboratories business. An
after-tax gain of $170.7 million or $2.91 per share was recorded.
A pre-tax charge of $56.7 million was recorded in the fourth
quarter of 1999 as part of a program to consolidate contact lens
manufacturing and accelerate global administrative savings. Most
of these costs are associated with employee severance payments
and capital equipment write-offs. During 1999, all actions under
a previous restructuring program were completed and the unused
reserve of $3.2 million was reversed. The 1999 charge offset by
the reversal yielded an after-tax impact of $34.2 million or
$0.59 per share. The company is also evaluating additional
actions to rationalize its contact lens products and
manufacturing processes, which could result in additional pretax
charges of up to $15 million by the end of 2000.
(b) FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
Information concerning sales, operating earnings and assets
attributable to each of the company's operating segments is set
forth on pages 9-12 and 30-32 of the Annual Report and is
incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Operating Segments Bausch & Lomb's operations are reported in
three segments: vision care, pharmaceuticals, and surgical.
Below is a description of each segment to the extent that it is
material to an understanding of the company's operations.
Information concerning sales by segment is set forth on page 9 of
the Annual Report and is incorporated herein by reference.
Vision Care - The vision care segment includes contact lenses and
lens care products and the vision accessories business. Vision
care products are marketed to licensed eye care professionals,
health products retailers, independent pharmacies, drug stores,
food stores and mass merchandisers by the company's sales force
and distributors.
Pharmaceuticals - The pharmaceuticals segment manufactures and
sells generic and proprietary prescription pharmaceuticals with a
strategic emphasis in the ophthalmic field and over-the-counter
(OTC) ophthalmic medications. These products are marketed by the
company's sales force and distributed through wholesalers,
independent pharmacies, drug stores, food stores, mass
merchandisers and hospitals.
Surgical - The surgical segment manufactures and sells products
and equipment for cataract, refractive, and retinal surgery.
Surgical products are marketed by the company's sales force to
ophthalmic surgeons, hospitals, ambulatory surgery centers and
distributors.
Suppliers and Customers Materials and components in all three of
the company's segments are purchased from a wide variety of
suppliers; 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
vision care segment approximately 8% of segment sales are
attributable to Wal-Mart controlled retail outlets.
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, the company has developed significant
consumer and eye care professional recognition of products sold
under the Bausch & Lomb, ReNu, ReNu MultiPlus, Sensitive Eyes,
Medalist, Boston, Optima FW, SofLens, PureVision and Opcon-A
trademarks. Bausch & Lomb, Dr. Mann Pharma, and Ocuvite are
trademarks receiving substantial consumer recognition in the
pharmaceuticals segment. Storz Millennium, Technolas, Hydroview,
Vitrasert, Hansatome and Orbscan are trademarks receiving
substantial professional recognition in the surgical segment.
Seasonality and Working Capital The nature of the products sold
is not significantly impacted by seasonality issues. In general,
the working capital requirements in each of the company's
segments are typical of those businesses.
Competition and Markets Products in each of the company's
segments are marketed throughout the world. Each segment is
highly competitive in both U.S. and non-U.S. markets. In all of
its segments, the company competes on the basis of product
performance, quality, technology, price, service, warranty and
reliability.
Research and Development Research and development constitutes an
important part of the company's activities. In 1999, the
company's research and development expenditures included in
continuing operations totaled $97.6 million, as compared to $76.7
million in 1998 and $49.8 million in 1997.
Government Regulation The company's products are subject to
regulation by governmental authorities in the United States and
other markets. These authorities, including the Food and Drug
Administration (FDA) in the United States, generally require
extensive testing of new products prior to sale and have
jurisdiction over the safety, efficacy and manufacturing of
products, as well as product labeling and marketing. In most
cases, significant amounts of time and money must be spent to
bring a new product to market in compliance with these
regulations. The regulation of pharmaceutical products and
medical devices, both in the United States and in other markets,
has historically been subject to change.
Environment Although the company 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 1999 and are not anticipated to be material for
2000 or 2001.
Year 2000 Software Compliance Information regarding the
identification and resolution of year 2000 data processing issues
is set forth on page 16 of the Annual Report and such information
is incorporated herein by reference.
Number of Employees The company employed approximately 11,500
persons as of February 19, 2000.
(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 12-13
and page 32 of the Annual Report and is incorporated herein by
reference.
ITEM 2. PROPERTIES
The principal physical properties (and their primary functions)
of the company at March 1, 2000 are listed below and are grouped
by the main operating segment to which they relate. Except where
otherwise indicated by footnote, all properties shown are held in
fee and are not subject to major encumbrances. The company
considers that its facilities are suitable and adequate for the
operations involved. All facilities are being productively
utilized.
Warehouse/ Sales/Administration/
Vision Care Manufacturing R&D Distribution Office
Rochester, NY (Optics
Center)(1) X X X
Greenville, SC (1) X X X
Waterford, Ireland (1) X X X
Milan, Italy (1) X X X
Beijing, China X X X
Bhiwadi, India (1) X X X
Hoofdoorp, Netherlands(1) X X
Livingston, Scotland (1) X X X
Tokyo, Japan (1) X X
Sarasota, FL X X
Les Mesnil St. Denis,
France X X
Lynchburg, VA (1) X X
Wilmington, MA (1) X X
Kingston Upon Thames,UK X
Taikoo Shing Hong Kong(1) X
New Territories, Hong
Kong (1) X
Umsong-Gun(Seoul),Korea X X
Madrid, Spain X X X
North Ryde, Australia(1) X X
Gauteng, South Africa(1) X X
Porto Alegre, Brazil X X X
Pharmaceuticals
Tampa, FL X X X X
Berlin, Germany X X X X
Valley Cottage, NY (1) X
Surgical
St. Louis, MO X X X X
Clearwater, FL X
Earth City, MO (1) X
Claremont, CA (1) X
Irvine, CA (1) X X
Manchester, MO X
Munich, Germany (1) X X X X
Heidelberg, Germany X X X
Salt Lake City, UT (1) X X X
Miami, FL (1) X
Corporate Headquarters
Rochester, NY (1) X
(1) This facility is leased.
ITEM 3. LEGAL PROCEEDINGS
1. In its 1998 Annual Report on Form 10-K, the company discussed
a class action lawsuit pending before a New York State Supreme
Court, alleging that the company misled consumers in its
marketing and sale of Sensitive Eyes Rewetting Drops, Boston
Rewetting Drops, ReNu Rewetting Drops and Bausch & Lomb Eyewash.
The plaintiffs had appealed the dismissal of all of their claims
by the trial court. On September 16, 1999, the New York
Appellate Division, First Department, reversed the trial court's
ruling, reinstating the plaintiff's claims. The company has moved
to decertify the matter as a class action.
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
Not applicable.
PART II
ITEM 5. MARKET FOR BAUSCH & LOMB INCORPORATED'S COMMON
STOCK AND RELATED SHAREHOLDER MATTERS
The section entitled "Dividends" on page 15 and the tables
entitled "Quarterly Stock Prices" and "Selected Financial Data"
on page 43 of the Annual Report are incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Selected Financial Data" on page 43 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 9-18 of the
Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The section entitled "Market Risk" on page 15 of the Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, including the notes thereto, together
with the section entitled "Report of Independent Accountants" on
pages 19-43 and 45 of the Annual Report, respectively, are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
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 2-8 and such information is incorporated
herein by reference. Set forth below are the names, ages (as of
March 1, 2000), 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 (47) January 1999; Chief Executive Officer (1997-
1998); President and Chief Operating Officer
(1995-1996); Executive Vice President,
Global Business Manager, Eyewear (1995);
President and Chief Executive Officer,
Reckitt & Colman, Inc. (1993-1995).
Carl E. Sassano President and Chief Operating Officer since
(50) January 1999; Executive Vice President and
President - Vision Care (1997-1998); Senior
Vice President and Global Business Manager,
Vision Care (1996); Senior Vice President
and President, Contact Lens Division (1994-
1996).
Dwain L. Hahs (47) Senior Vice President and President, Global
Vision Care since November 1999; Special
Assistant to the President (October 1999-
November 1999); President, Ray Ban Sun
Optics, Luxottica Group SpA (June 1999-
September 1999); Executive Vice President
and President - Eyewear (April 1997-June
1999); 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
(48) November 1996; Vice President Human
Resources (Foods group), Quaker Oats Company
(1993-1996).
Hakan S. Edstrom Senior Vice President and President, Global
(49) Surgical since November 1999; Senior Vice
President and President
Surgical/Pharmaceutical (January 1999-
October 1999); Vice President and
President, Bausch & Lomb Surgical (December
1997-December 1998); President and CFO,
Chiron Vision (1997); 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).
Stephen C. Senior Vice President and Chief Financial
McCluski (47) Officer since 1995; Vice President and
Controller (1994).
Thomas M. Senior Vice President, Chief Technical
Riedhammer (51) Officer and President, Global
Pharmaceuticals since November 1999; Senior
Vice President and Chief Technical Officer
(January 1999 - October 1999); Senior Vice
President and President, Worldwide
Pharmaceuticals (1998); Senior Vice
President and President, Worldwide
Pharmaceuticals, Surgical, and Hearing Care
Products (1994-1998); Vice President (1993-
1994); President, Worldwide Pharmaceuticals
(1994).
Robert B. Stiles Senior Vice President and General Counsel
(50) since June 1997; Staff Vice President and
Assistant General Counsel (1994-1997);
Assistant General Counsel (1991-1994).
Jurij Z. Kushner Vice President, Controller since 1995; Vice
(49) 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, 18-19, 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 pages 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 pages 19-20 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 45
Balance Sheets at December 25, 1999 and 20
December 26, 1998
For the years ended December 25, 1999,
December 26, 1998 and December 27, 1997:
Statements of Income 19
Statements of Cash Flows 21
Statements of Changes in Shareholder's Equity 22
Notes to Financial Statements 23-43
2. Filed herewith
Report of Independent Accountants
on Financial Statement Schedule Exhibit 23
For the years ended December 25, 1999,
December 26, 1998 and December 27, 1997:
SCHEDULE II-Valuation and Qualifying Accounts Page 12
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
A report on Form 8-K describing the disposition of the
company's healthcare segment (including the third quarter 1999
disposition of Charles River Laboratories), and attaching pro
forma financial information, was filed by the company on October
13, 1999.
(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)-dd 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 22, 2000 By:/s/___________________________
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 22, 2000 By:/s/___________________________
William M. Carpenter
Chairman and Chief Executive
Officer
Principal Financial Officer
Date: March 22, 2000 By:/s/___________________________
Stephen C. McCluski
Senior Vice President and Chief
Financial Officer
Controller
Date: March 22, 2000 By:/s/___________________________
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 22, 2000 By:/s/___________________________
Robert B. Stiles
Attorney-in-Fact
<TABLE>
Bausch & Lomb Incorporated
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Reserves for Doubtful Accounts December 25, December 26, December 27,
1999 1998 1997
(In millions)
<S> <C> <C> <C>
Balance at beginning of year $ 26.8 $ 14.0 $ 13.3
of year
Activity for the year:
Provision charged to income 9.1 8.6 4.3
(Reductions)/additions
resulting from
(divestiture)/acquisition
activity (7.2) 9.9 0.1
Accounts written off (10.7) (5.8) (5.2)
Recoveries on accounts
previously written off 1.6 0.1 1.5
Balance at end of year $ 19.6 $ 26.8 $ 14.0
</TABLE>
EXHIBIT INDEX
S-K Item Document
601 No.
(3)-a Certificate of Incorporation of Bausch & Lomb Incorporated
(filed as Exhibit (3)-a to the company's Annual Report on
Form 10-K for the fiscal year ended December 29, 1985, File
No. 1-4105, and incorporated herein by reference).
(3)-b Certificate of Amendment of Bausch & Lomb Incorporated
(filed as Exhibit (3)-b to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988, File
No. 1-4105, and incorporated herein by reference).
(3)-c Certificate of Amendment of Bausch & Lomb Incorporated
(filed as Exhibit (3)-c to the company's Annual Report on
Form 10-K for the fiscal year ended December 26, 1992, File
No. 1-4105, and incorporated herein by reference).
(3)-d By-Laws of Bausch & Lomb Incorporated, as amended, effective
October 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 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)-l 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)-m 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)-n 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)-o 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)-p 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)-q 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)-r 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)-s 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)-t LTI Deferred Compensation Plan, as amended, effective
December 8, 1998 (filed as Exhibit (10)-v to the company's
Annual Report on Form 10-K for the fiscal year ended
December 26, 1998, File No. 1-4105, and incorporated herein
by reference).
(10)-u Amended and restated 1990 Stock Incentive Plan (filed
herewith).
(10)-v Amendment to the Director Deferred Compensation Plan (filed
herewith).
(10)-w Amendment to the Executive Deferred Compensation Plan (filed
herewith).
(10)-x Amendment to the LTI Deferred Compensation Plan (filed
herewith).
(10)-y Purchase Agreement between Bausch & Lomb Incorporated and
Luxottica Group, S.p.A. dated April 28, 1999 (filed as
Exhibit 2(a) to the company's Current Report on 8-K, dated
July 12, 1999, File No. 1-4105, and incorporated herein by
reference).
(10)-z Letter Agreement between Bausch & Lomb Incorporated and
Luxottica Group S.p.A. dated June 25, 1999 (filed as Exhibit
2(b) to the company's Current Report on Form 8-K, dated July
12, 1999, File No. 1-4105, and incorporated herein by
reference).
(10)aa Recapitalization Agreement among Bausch & Lomb Incorporated,
Endosafe, Inc., CRL Holdings, Inc., Charles River
Laboratories, Inc., Charles River Spafas, Inc., Bausch &
Lomb International, Inc., Wilmington Partners, L. P., Bausch
& Lomb Canada, Inc., CRL Acquisition LLC and DLJ Merchant
Banking Partners II, L. P. dated as of July 25, 1999, (filed
as Exhibit 2(a) to the company's Current Report on Form 8-K,
dated October 13, 1999, File No. 1-4105, and incorporated
herein by reference)
(10)bb Amendment No. 1 to Recapitalization Agreement dated as of
September 29, 1999 by and among Bausch & Lomb Incorporated
and CRL Acquisition LLC (filed as Exhibit 2(b) to the
company's Current Report on Form 8-K, dated October 13,
1999, File No. 1-4105, and incorporated herein by
reference).
(10)cc Investors' Agreement dated as of September 29, 1999 among
CRL Holdings, Inc. and the several Stockholders from time to
time parties hereto (filed as Exhibit 2(c) to the company's
Current Report on Form 8-K, dated October 13, 1999, File No.
1-4105, and incorporated herein by reference).
(10)dd Recap Co Subordinated Discount Note due 2010 (filed as
Exhibit 2(d) to the company's Current Report on Form 8-K,
dated October 13, 1999, File No. 1-4105, and incorporated
herein by reference).
(11) Statement Regarding Computation of Per Share Earnings (The
section entitled "Earnings Per Share" on page 28 of the 1999
Annual Report is incorporated herein by reference).
(12) Statement Regarding Computation of Ratio of Earnings to
Fixed Charges (filed herewith).
(13) The Bausch & Lomb 1999 Annual Report to Shareholders for the
fiscal year ended December 25, 1999 (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
Schedule and Consent of Independent Accountants (filed
herewith).
(24) Power of attorney with respect to the signatures of
directors in this Report on Form 10-K (filed herewith).
(27) Financial Data Schedule (filed herewith).
Exhibit (10)-u
THE
BAUSCH & LOMB INCORPORATED
1990 STOCK INCENTIVE PLAN
AND
RELATED INFORMATION
This document constitutes part of a prospectus covering
securities that have been registered
under the Securities Act of 1933
Plan Approved April 24, 1990
Amended by the Committee on Management July 22, 1991
Amended by the Committee on Management December 9, 1996
Amended by the shareholders on April 28, 1998
Amended by the Committee on Management July 26, 1999
INTRODUCTION
The 1990 Stock Incentive Plan (the "Plan") was adopted by
the Company's Board of Directors on February 27, 1990, and
subsequently was approved by the Company's shareholders at the
1990 Annual Meeting, which was held on April 24, 1990. Under the
Plan, shares of the Company's Class B stock, as well as options
to purchase such stock, may be awarded to directors, officers and
other key employees. The Plan is intended to advance the
interests of the Company and its shareholders by providing to
those individuals upon whose judgment, initiative and efforts the
conduct of the Company's business largely depends an incentive to
continue their service with the Company and/or its subsidiaries.
In recognition of your contributions to the Company, you have
been selected to receive an award under the Plan. To enable you
to better understand how the Plan works, we have attached a copy
of the Plan, as well as certain supplemental information
concerning the Plan and the awards made thereunder. Please read
all parts of this document carefully.
As explained in Section 3 of the Plan, the Plan is administered
by the Compensation Committee of the Board of Directors, which is
now called the Committee on Management ("Committee"). The
Committee consists of at least three directors, and is elected
annually by the entire Board of Directors. In addition to its
specific authority with respect to implementation of the Plan,
the Committee has the general responsibility for recommending to
the Board remuneration for the Chairman of the Board, the
President and directors, and determining the remuneration of
other corporate officers. The Plan is not subject to the
provisions of the Employee Retirement Income Security Act of 1974
and is not a qualified plan under Section 401(a) of the Internal
Revenue Code.
To obtain more information about the Plan and its administrators,
contact Robert B. Stiles, Senior Vice President and General
Counsel, Bausch & Lomb Incorporated, One Bausch & Lomb Place,
Rochester, New York 14601-0054 (telephone (716) 338-6000).
BAUSCH & LOMB INCORPORATED
1990 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Stock Incentive Plan (the
"Plan") is to advance the interests of Bausch & Lomb
Incorporated, a New York corporation (referred to herein as the
"Company"), and its shareholders by providing an incentive for
its directors, officers and other key employees who are primarily
responsible for the management of the business to continue
service with the Company and its subsidiaries. By encouraging
such directors, officers and other key employees to become owners
of Common Stock of the Company, the Company seeks to attract and
retain people of experience, ability and training and to furnish
additional incentive to directors, officers and other key
employees upon whose judgment, initiative and efforts the
successful conduct of its business largely depends. It is
intended that this purpose will be effected through the granting
of stock options and stock awards (sometimes collectively
referred to as "grants")) as provided herein. It is intended
that awards granted under the Plan will comply with the
requirements of Code Section 162(m) as it relates to allowing for
deduction by the Company of compensation paid to executives,
unless otherwise designated by the Committee in accordance with
Section 11 herein.
2. Effective Date. The effective date of the Plan shall
be the date the Plan is approved by the shareholders of the
Company.
3. Administration of the Plan. The Plan shall be
administered by the Compensation Committee of the Board of
Directors of the Company (referred to herein as the "Committee"),
which shall consist of at least three directors, none of whom,
while serving on such Committee, shall be, or within one year
prior thereto have been, eligible to receive any grants
hereunder, except as specifically authorized under Section 16 of
the Plan. The Committee shall have authority to adopt rules and
regulations for carrying out the Plan, select the employees to
whom grants will be made, determine the number of shares to be
optioned or awarded to each such employee and interpret, construe
and implement the provisions of the Plan. Decisions of the
Committee shall be binding on the Company and on all persons
eligible to participate in the Plan.
4. Stock Subject to the Plan.
(a) Subject to adjustment as provided in Sections 9
and 10, the total number of shares of the $.08 par value
Class B Stock of the Company available for grant under the
Plan in each calendar year (including partial calendar
years) during which the Plan is in effect shall be equal to
three percent (3%) of the total number of shares of Common
Stock of the Company outstanding as of the first day of
each such year for which the Plan is in effect; provided
that any shares available for grant in a particular
calendar year (or partial calendar year) which are not, in
fact, granted in such year shall not be added to the shares
available for grant in any subsequent calendar year. In
addition to the limitation set forth above with respect to
the number of shares available for grant in any single
calendar year, no more than three million (3,000,000)
shares of Class B Stock shall be cumulatively available for
the grant of incentive options over the life of the Plan.
Shares subject to an option or award under the Plan may be
authorized and unissued shares or may be "treasury shares"
as defined in Section 102(a)(14) of the New York Business
Corporation Law. Approval by a majority vote of the
shareholders of the Company shall constitute authorization
to use such Class B shares for the purposes of the Plan.
Any shares subject to an option or award which for any
reason expires or is terminated unexercised as to such
shares may again be subject to an option or award under the
Plan.
(b) Subject to adjustment as provided in Sections 9
and 10, unless and until the Committee determines that an
award under the Plan to an officer who, as of the date of
vesting and/or payout of the award, as applicable, is, or
reasonably may be expected to be, one of the group of
"covered employees," as defined in the regulations
promulgated under Code Section 162(m), or any successor
statute (a "Covered Employee") shall not be designed to
comply with the performance-based exception from the tax
deductibility limitations of Code Section 162(m) (the
"Performance Based Exception"), the following rules shall
apply to grants of such awards under the Plan:
(1) Stock Options: The maximum aggregate
number of shares of Class B stock that may be granted
in the form of options, pursuant to any award granted
in any one fiscal year to any one single participant
shall be five hundred thousand (500,000).
(2) Alternate Rights: The maximum aggregate
number of shares of Class B stock that may be granted
in the form of stock appreciation rights or accelerated
rights pursuant to any award granted in any one fiscal
year to any one single participant shall be five
hundred thousand (500,000).
(3) Stock Grants: The maximum aggregate
grant with respect to awards of Stock Grants granted in
any one fiscal year to any one participant shall be two
hundred fifty thousand (250,000) shares.
5. Eligible Persons. Options and awards may be granted
only to directors, officers and other key employees of the
Company or any subsidiary corporation of the Company. Except as
expressly authorized by Section 16 of the Plan, however, no grant
shall be made to a director who is not an officer or salaried
employee. Further, no grant shall be made to an individual who
as a result of such grant would own stock possessing more than
10% of the total combined voting power or value of all classes of
stock of the Company or a subsidiary. Stock which such
individual may purchase under outstanding options, whether
incentive or nonqualified, shall be treated as stock owned by
such individual for purposes of this Section.
6. Stock Options. It is intended that options granted
hereunder to officers and other employees of the Company shall
be, at the discretion of the Committee, either "incentive
options," under the provisions of Section 422A of the Internal
Revenue Code of 1986 and the regulations thereunder or
corresponding provisions of subsequent revenue laws and
regulations in effect at the time such options are granted
hereunder, or nonqualified options.
Incentive options shall be granted within ten (10) years
from the effective date of the Plan and shall be evidenced by
stock option agreements in such form as the Committee shall
approve from time to time, which agreements shall conform with
the Plan and shall contain in substance the following terms and
conditions:
(a) Number of Shares. The option agreement shall
specify the number of shares to which it pertains.
(b) Purchase Price. The purchase price per share of
stock under each option shall be 100% of the fair market
value of such stock on the day the option is granted, which
shall be deemed to be the mean between the highest and
lowest quoted selling prices of the Company's Common Stock
on the New York Stock Exchange (or other composite quoted
market) on that day (or, if there were no such sales on such
day, on the next preceding day on which there were such
sales). The purchase price of an option shall not be
reduced during its term (except as provided in Section 9 or
10 hereof).
(c) Exercise. No option shall be exercisable after
the expiration of ten (10) years from the date such option
is granted.
Except as provided in Section 16 of the Plan, each such
option may be exercised at such time and in such manner as
specified by the Committee, which may, among other things,
provide that options may become subject to exercise in
installments. Except as provided in Section 15 hereof, no
option may be exercised at any time unless the holder
thereof is then an employee or director, as applicable, of
the Company or one of its subsidiaries. An individual
electing to exercise an option under the Plan shall give
written notice of such election to the Company.
(d) Payment; Loans. The purchase price of any stock
purchased pursuant to the exercise of an option granted
hereunder shall be payable in full on the exercise date in
cash or by check or by surrender of shares of Class B Stock
or Common Stock of the Company registered in the name of the
optionee duly assigned to the Company with the assignment
guaranteed by a bank, trust company or member firm of the
New York Stock Exchange, or by a combination of the
foregoing. Any such shares so surrendered shall be deemed
to have a value per share equal to the fair market value of
a share of Common Stock on such date. Notwithstanding any
other provision of this Plan, the exercise price of an
option (or any portion thereof) shall not be payable by
surrender of Class B Stock or Common Stock of the Company
registered in the name of the optionee unless the shares to
be so surrendered have been held for such period of time and
in such manner as may be required by generally accepted
accounting principles in order to prevent the exercise of
such option to be deemed additional cash compensation to the
optionee chargeable against the earnings of the Company.
Subject to the approval of the Committee, or of
such person to whom the Committee may delegate such
authority (its "designee"), the Company may loan to the
optionee a sum equal to an amount which is not in excess of
100% of the purchase price of the shares so purchased, such
loan to be evidenced by the execution and delivery of a
promissory note; provided, however, that a designee shall
have no authority to approve loans to himself. Approval of
the Plan by a majority vote of the shareholders of the
Company shall constitute authorization under Section 714 of
the New York Business Corporation Law for any loan made
hereunder (including loans made pursuant to Section 16(d) of
the Plan) to any director of the Company.
Interest shall be paid on the unpaid balance of the
promissory note at such times and at such rate as shall be
determined by the Committee. Such promissory note shall be
secured by the pledge to the Company of shares having an
aggregate purchase price on the date of purchase equal to or
greater than the amount of such note. An optionee shall
have, as to such pledged shares, all rights of ownership
including the right to vote such shares and to receive
dividends paid on such shares, subject to the security
interest of the Company. Such shares shall not be released
by the Company from the pledge unless the proportionate
amount of the note secured thereby has been repaid to the
Company; provided, however, that shares subject to a pledge
may be used to pay all or part of the purchase price of any
other option granted hereunder or under any other stock
incentive plan of the Company under the terms of which the
purchase price of an option may be paid by the surrender of
shares, subject to the terms and conditions of this Plan
relating to the surrender of shares in payment of the
exercise price of an option. In such event, that number of
the newly purchased shares equal to the shares previously
pledged shall be immediately pledged as substitute security
for the pre-existing debt of the optionee to the Company,
and thereupon shall be subject to the provisions hereof
relating to pledged shares. All notes executed hereunder
shall be payable at such times and in such amounts and shall
contain such other terms as shall be specified by the
Committee or its designee or stated in the option agreement;
provided, however, that such terms shall conform to
requirements contained in any applicable regulations which
are issued by any governmental authority.
If employment of the optionee terminates for any reason
other than death, disability or retirement, any unpaid
balance remaining on any such promissory note shall become
due and payable upon not less than three months' notice from
the Company, which notice may be given at any time after
such termination; provided, however, that such unpaid
balance shall without notice, demand or presentation become
due and payable in any event five years following the date
of such termination. Notwithstanding any other provision of
this section, in the event that an optionee's employment is
terminated within two years after a Change in Control (as
defined in Section 7(b)(3)), any unpaid balance remaining on
any such promissory note shall be due and payable five years
from the date of the Change in Control.
In the case of termination of employment due to
disability or retirement, any unpaid balance on such
promissory note shall become due and payable five years from
the date of such termination. Notwithstanding the above, in
the case of death, at any time, of an employee who has
delivered a promissory note to the Company hereunder, any
unpaid balance remaining on such note on the date of his
death shall without notice, demand or presentation become
due and payable one year from such date. "Retirement" as
used herein shall mean early or normal retirement as defined
in the Company's retirement program.
(e) Rights as a Shareholder. The individual shall
have no rights as a shareholder with respect to any shares
covered by his grant until the date of issuance to him of
such shares. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date
such stock is issued.
(f) Maximum Value of Shares. The aggregate fair
market value of stock (determined at the time the option is
granted) with respect to which incentive stock options are
exercisable for the first time by an employee during any
calendar year, under this or any other incentive stock
option plan of the Company or its subsidiaries, shall not
exceed $100,000.
(g) Non-Transferability of Rights. No grant shall be
transferable by the individual except by will or the laws of
descent or distribution. During the life of an individual,
the grant shall be exercisable only by him or his guardian
or legal representative.
Nonqualified options shall be evidenced by stock option
agreements in such form as the Committee shall approve from time
to time, which agreements shall indicate that the options are not
incentive options, shall conform with the Plan and shall contain
in substance the terms and conditions specified in parts (a),
(c), (d), (e), and (g) of this Section 6, plus such other terms
and conditions as the Committee shall designate. Except as
provided in Section 16 of the Plan, the purchase price per share
of stock under a nonqualified option shall be determined by the
Committee, in its discretion; provided, however, that the
purchase price shall in no case be less than the par value of the
shares subject to the option. Notwithstanding the provisions of
Section 6(g) the individual may also transfer grants of non-
qualified stock options to members of the individual's immediate
family, charitable institutions, or trusts or other entities
whose beneficiaries or beneficial owners are members of the
individual's immediate family and/or charitable institutions
pursuant to such conditions and procedures as the Committee may
establish. Any transfer permitted hereunder shall be subject to
the condition that the Committee receive evidence satisfactory to
it that the transfer is being made on a gratuitous or donative
basis and without consideration (other than nominal
consideration).
Without in any way limiting the authority of the Committee
to make grants hereunder, and in order to induce officers and
other key employees to retain ownership of shares in the Company,
the Committee shall have the authority (but not an obligation) to
include within any option agreement a provision entitling the
optionee to a further option (a "Re-load Option) in the event
the optionee exercises the option evidenced by the option
agreement, in whole or in part, by surrendering other shares of
the Company in accordance with this Plan and the terms and
conditions of the option agreement. Any such Re-load Option
shall be for a number of shares equal to the number of
surrendered shares, shall become exercisable in the event the
purchased shares are held for a minimum period of time not less
than three years, and shall be subject to such other terms and
conditions as the Committee may determine.
7. Alternate Rights. The Committee may, in its
discretion, award alternate rights to any officer or director who
is also an employee of the Company who is subject to Section
16(b) of the Securities Exchange Act of 1934, in conjunction with
incentive stock options or nonqualified stock options then being
granted to him or her, or to be attached to one or more such
options theretofore granted and at the time held unexercised by
such officer or director, which shall entitle such individual to
receive payment from the Company in accordance with the terms of
the alternate right so awarded. The alternate rights set forth
in Subsections (a) and (b) herein shall be subject to such terms
and conditions as the Committee shall determine from time to
time.
(a) Stock Appreciation Rights
(1) An alternate right granted under this
Subsection (a) (an "SAR") may be made part of an option
at the time of its grant or at any time thereafter up
to six months prior to the expiration of the option.
(2) An SAR will entitle the holder to elect to
receive, in lieu of exercising the option to which it
relates, an amount (in cash or in Common Stock, or a
combination thereof, all in the sole discretion of the
Committee) equal to 100% of the excess of:
(A) the fair market value per share of the
Company's Common Stock on the date of exercise of
such SAR, multiplied by the number of shares with
respect to which the SAR is being exercised, over
(B) the aggregate option price for such
number of shares.
(3) An SAR will be exercisable only to the extent
that it has a positive value and the option to which it
relates is exercisable.
(4) Notwithstanding the foregoing, no SAR shall
be exercisable (i) during the first six months after
the date of its grant, or (ii) if any related stock
option was exercised during the first six months after
the date of its grant; provided, however, that the
limitations contained in this paragraph (4) shall not
apply in the event death or disability of the grantee
occurs prior to the expiration of the six-month period.
(5) Upon exercise of an SAR, the option (or
portion thereof) with respect to which such SAR is
exercised shall be surrendered and shall not thereafter
be exercisable.
(6) Exercise of an SAR will reduce the number of
shares purchasable pursuant to the related option and
available under the Plan to the extent of the number of
shares with respect to which the SAR is exercised.
(b) Accelerated Rights.
(1) An alternate right granted under this
Subsection (b) (an "Accelerated Right") may be made
part of an option at the time of its grant or at any
time up to six months prior to its expiration, and
shall provide the optionee with the rights specified in
Subsection (b) (2) below.
(2) Upon the occurrence of a Change in Control
(as defined in Subsection (b) (3) below), all options
to which an Accelerated Right is attached (i) shall
become immediately and fully exercisable and (ii)
unless the Committee shall determine otherwise at the
time of grant, will entitle the holder, in lieu of
exercising the option, to elect to surrender all or
part of the option to the Company, provided that
written notice of the election (the "Election") is
given to the Company within the sixty (60) day period
from and after the Change in Control (the "Election
Period"). Upon making such an Election, the holder
shall be entitled to receive in cash, within thirty
(30) days of such Election, an amount equal to the
amount by which the Change in Control Price (as defined
in Subsection (b) (4) below) per share of the Company's
Common Stock on the date of such Election shall exceed
the exercise price per share of stock under the option,
multiplied by the number of shares of stock granted
under the option as to which the Accelerated Right
shall have been exercised (such excess referred to
herein as the "Aggregate Spread"); provided, however,
that if the option to which the Accelerated Right is
attached is held by an individual subject to Section 16
of the Securities Exchange Act of 1934 (the "Exchange
Act"), the Election provided for herein shall not be
made prior to six months from the date of grant of the
Accelerated Right. Notwithstanding any other provision
of the Plan, if the end of the Election Period is
within six months of the date of grant of an
Accelerated Right held by an individual subject to
Section 16 of the Exchange Act, the option to which the
Accelerated Right is attached shall be canceled in
exchange for a cash payment equal to the Aggregate
Spread on the day which is six months and one day after
the date of grant of such Accelerated Right.
(3) "Change in Control" shall mean (i) the
acquisition by any individual, partnership, firm,
corporation, association, trust, unincorporated
organization or other entity, or any syndicate or group
deemed to be a person under Section 14(d)(2) of the
Exchange Act (a "person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of the Company's
outstanding shares of stock having general voting
rights, or (ii) individuals who currently 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 was approved by a vote of at least a
majority of the directors then comprising the Incumbent
Board shall be deemed a member of the Incumbent Board.
(4) In the event of a Change in Control under
Subsection (b) (3) (ii) above, "Change in Control
Price" shall mean the highest reported sales price of a
share of Common Stock on the Composite Tape for New
York Stock Exchange Listed Stocks (the "Market High")
during the sixty (60) day period prior to and ending on
the date of the Change in Control. If the Change of
Control is the result of a transaction or series of
transactions described in Subsection (b) (3) (i) above,
the "Change in Control Price" shall mean the higher of
(i) the highest price per share of the Common Stock
paid in such transaction or series of transactions by
the person having made the acquisition, and (ii) the
Market High as determined above. Notwithstanding the
foregoing, with respect to any incentive option, the
Change in Control Price shall not exceed the market
price of a share of Common Stock (to the extent
required by Section 422A of the Internal Revenue Code
of 1986, as amended) on the date of surrender thereof.
8. Stock Grants. The Committee may make a grant,
evidenced by such written agreement as the Committee shall, from
time to time, prescribe, to any officer or other key employee
consisting of a specified number of shares of the Company's Class
B stock, as defined in Section 4 ("Stock Grants"). A Stock Grant
shall be neither an option nor a sale. The Committee, in its
discretion, shall decide whether any Stock Grant shall be subject
to certain conditions and restrictions, such conditions and
restrictions designated by the Committee. In such a case,
appropriate written notice of the conditions and restrictions
shall be set forth in the document effecting the grant
("Restricted Stock"). Restricted Stock shall be subject to, but
not limited to, the following conditions and restrictions:
(a) Restricted Stock may not be sold or otherwise
transferred by the employee until ownership vests at such
time and in such manner as specified by the Committee.
(b) Restricted Stock may be offered for sale to the
Company after all conditions are fulfilled and all
restrictions lapse, and the Company shall be obligated to
purchase all shares so offered at the then fair market value
of the Company's Common Stock or, at the Company's sole
discretion, to issue in exchange for any or all such
Restricted Stock the equivalent number of shares of the
Company's Common Stock.
(c) The Company may at any time exchange any shares of
Class B Stock held as Restricted Stock for an equivalent
number of shares of its Common Stock encumbered by the same
restrictions as those shares exchanged, in which case an
appropriate restrictive legend shall be affixed to the
Common Stock certificate(s).
(d) If the holder of Restricted Stock shall die while
still in the employ of the Company or a subsidiary prior to
the lapse of restrictions, the Company shall be obligated to
purchase all such shares at the then fair market value of
its Common Stock if and as offered by the employee's
executor.
(e) Except as provided in Section 8(d) or as otherwise
determined by the Committee, all rights and title to
Restricted Stock granted to a participant under the Plan
shall terminate and be forfeited upon termination of the
participant's employment with the Company or other failure
to fulfill all conditions and restrictions applicable to
such Restricted Stock.
(f) Except for the restrictions set forth herein and
those specified by the Committee, a holder of Restricted
Stock shall possess all the rights of a holder of the
Company's Class B Stock.
All other provisions of the Plan not inconsistent with
this Section shall apply to Stock Grants or the holder
thereof, as appropriate, unless otherwise determined by the
Committee. In addition, a grantee may elect to have a
portion of the stock otherwise issuable to him or her
pursuant to a Stock Grant withheld in order to satisfy
applicable Federal, state and local withholding tax
requirements, provided that such election complies with the
following:
(1) The election shall be submitted to the
Company in writing and shall be irrevocable;
(2) The value of the shares subject to the
withholding election shall not exceed the maximum
marginal tax rate to which the grantee is subject in
connection with the Stock Grant; and
(3) If made by an individual subject to Section
16 of the Exchange Act, the election shall be made
during the 10-day period beginning on the third
business day following the date of release of the
Company's quarterly or annual summary statements of
sales and earnings and ending on the twelfth business
day following such date or, as an alternative in the
case of a Restricted Stock Grant, at least six months
prior to the lapse of the restrictions.
For purposes of the foregoing, the shares withheld
shall be deemed to have a value per share equal to the fair
market value of the shares on the date the tax liability
arises, and any balance due on the liability shall be
payable in cash or by delivery of a check.
9. Recapitalization. In the event there is any
recapitalization in the form of a stock dividend, distribution,
split, subdivision or combination of shares of Common stock of
the Company, resulting in an increase or decrease in the number
of Common shares outstanding, and there is not a corresponding
recapitalization in the Class B shares, the number of Class B
shares then available for grants or options under the Plan or
covered by then outstanding grants or options or authorized
pursuant to Section 16 of the Plan shall not change. In such a
case, the award limits set forth in Section 4(b) hereof shall
also not change. However, a proportionate adjustment shall be
made in the number of shares of Common stock the aggregate value
of which will determine the purchase price of a Class B share or
which are exchangeable by the Company for a Class B share. In the
event there is a recapitalization resulting in an increase or
decrease in the number of Common shares outstanding and there is
a corresponding increase or decrease in the number of Class B
shares outstanding, the number of Class B shares available or
authorized under the Plan, the number of shares covered by
outstanding grants or options and the price per share thereof in
each such grant or option, and the award limits set forth in
Section 4(b) of the Plan shall be increased or decreased
proportionately, as the case may be, without change in the
aggregate purchase price.
10. Reorganization. If, pursuant to any reorganization,
sale or exchange of assets, consolidation or merger, outstanding
Class B Stock is or would be exchanged for other securities of
the Company or of another company which is a party to such
transaction, or for property, any option or other award under the
Plan theretofore granted shall apply to the securities or
property into which the Class B Stock covered thereby would have
been changed or for which such Class B Stock would have been
exchanged had such Class B Stock been outstanding at the time. In
any of such events, the total number and class of shares then
remaining available for issuance under the Plan (including shares
reserved for outstanding options and awards and shares available
for future grant of options or other award under the Plan or
authorized under Section 16 hereof) shall likewise be adjusted so
that the Plan shall thereafter cover the number and class of
shares equivalent to the shares covered by the Plan immediately
prior to such event. The award limits designated in Section 4(b)
shall also be adjusted in such a case so that the Plan shall
thereafter cover the number and class of shares equivalent to the
shares covered by the Plan immediately prior to such event.
11. Compliance with Code Section 162(m). At all times when
Code Section 162(m) is applicable, all awards granted under this
Plan shall comply with the requirements of Code Section 162(m);
provided, however, that in the event the Committee determines
that such compliance is not desired with respect to any award or
awards available for grant under the Plan, then compliance with
Code Section 162(m) will not be required. In addition, in the
event that changes are made to Code Section 162(m) to permit
greater flexibility with respect to any award or awards available
under the Plan, the Committee may, subject to the terms of the
Plan, make any adjustments it deems appropriate.
12. Performance-Based Awards. The performance measure(s) to
be used for purposes of grants to Covered Employees which are
designed to qualify for the Performance-Based Exception, the
attainment of which may determine the degree of payout and/or
vesting with respect to such awards, shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Return on assets, return on equity, and
return on sales;
(d) Cash flow return on investments which equals net
cash flow divided by shareholders' equity;
(e) Share price, growth in share price, and total
shareholder return; and
(f) Changes in Economic Value Added.
The Committee shall have the discretion to adjust the
determinations of the degree of attainment of the preestablished
performance goals; provided, however, that awards which are
designed to qualify for the Performance-Based Exception, and
which are held by a Covered Employee, may not be adjusted upward
(the Committee shall retain the discretion to adjust such awards
downward).
In the event that applicable tax and/or securities laws
change to permit Committee discretion to alter the governing
performance measures without obtaining shareholder approval of
such changes, the Committee shall have sole discretion to make
such changes without obtaining shareholder approval. In addition,
in the event that the Committee determines that it is advisable
to grant awards which shall not qualify for the Performance-Based
Exception, the Committee may make such grants without satisfying
the requirements of Code Section 162(m).
13. Transfer of Certain Shares. In addition to any other
restrictions hereunder, Class B shares issued pursuant to this
Plan may not be conveyed, transferred, or encumbered, except as
follows:
(a) Such shares may be pledged to the Company under
Section 6(d) of the Plan.
(b) Subject to any security interest of the Company in
such shares as established under Section 6(d) of the Plan,
such shares may be transferred by will or by the laws of
descent or distribution, or may be transferred by gift to
members of an employee's family or their descendants or to
trusts solely for their benefit.
(c) Such shares may be offered for sale to the Company
at any time by a grantee, his legal representative or
transferee or such other person who acquires such shares by
bequest or inheritance. The Company shall be obligated to
purchase all shares so offered at the current fair market
value of the Company's Common Stock on the date of such
offer, provided, however, that the Company may, in its
discretion, issue in exchange for any or all Class B shares
so offered an equivalent number of shares of the Company's
Common Stock and provided further that the portion of any
loan secured by such shares under Section 6(d) has been
fully paid on the date of such offer or is paid forthwith.
Upon demand by the Company at any time, the Company may
exchange any shares of Class B Stock outstanding which are in the
possession of the Company as collateral security for a note
executed under Section 6(d) of the Plan for an equivalent number
of shares of its Common Stock, which Common Stock shall be held
by the Company as collateral security on the same basis as the
Class B Stock was held.
14. General Restriction. Each grant shall be subject to
the requirement that if at any time the Board of Directors shall
determine, in its reasonable discretion, that the listing,
registration or qualification of the shares subject to such grant
upon any securities exchange or under any state or federal law,
or that the consent or approval of any government regulatory
body, is necessary or advisable as a condition of, or in
connection with, such grant or the issue or purchase of shares
thereunder, such grant shall be subject to the condition that
such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not
reasonably acceptable to the Board of Directors.
15. Termination of Employment or Director Status.
(a) Incentive Stock Options. Incentive stock options,
to the extent exercisable as of the termination date, may be
exercised within three months of the date of termination
unless such termination results from disability (as defined
in Section 105(d) (4) of the Internal Revenue Code, as
amended) or death, in which case such options shall be
exercisable by the optionee or his legal representative,
heir or devisee, as appropriate, within one year from the
date of disability or death.
(b) Nonqualified Stock Options. Nonqualified stock
options, to the extent exercisable as of the date of
termination, may be exercised within three months of the
date of termination unless such termination results from
death, disability (as defined in Section 105(d)(4) of the
Internal Revenue Code, as amended) or retirement (as defined
in the Company's retirement plan or age 65), in which case
such options may be exercised by the optionee, his legal
representative, heir or devisee, as appropriate, within five
years from the earliest of the dates of death, disability or
retirement.
(c) Exercise Period Not Extended. Nothing contained
in this Section 15 shall under any circumstances be
interpreted as or have the effect of extending the period
during which an option may be exercised beyond the terms or
the expiration date provided in such option agreement or
established by law or regulation. Death of an optionee
subsequent to termination shall not extend such periods.
Whether leave of absence shall constitute a termination of
employment for purposes of the Plan shall be determined by
the Committee.
(d) Work in Competing Capacity.
(1) Notwithstanding anything to the contrary
contained in the Plan, the Committee, in its
discretion, may include as a term of any employee's
option agreement a proviso that, if the employee
voluntarily terminates his or her employment with the
Company or is terminated for misconduct or failure or
refusal to perform his or her duties of employment (as
determined by the Committee), and within a period of
one year after such termination shall, directly or
indirectly, engage in a competing activity (as defined
below), the employee shall be required to remit to the
Company, with respect to the exercise of any option by
the employee on or after the date six months prior to
such termination1 an amount in cash or a certified or
bank check equal to 100% of the excess of:
(A) the fair market value per share of the
Company's Common Stock on the date of exercise of
such option, multiplied by the number of shares
with respect to which the option is exercised,
over
(B) the aggregate option price for such
number of shares.
(2) Notwithstanding anything to the contrary
contained in the Plan, the Committee may, in its
discretion, as a condition of any Stock Grant to an
employee, provide that, if the employee voluntarily
terminates his or her employment with the Company or is
terminated for misconduct or failure or refusal to
perform his or her duties of employment (as determined
by the Committee), and within a period of one year
after such termination shall, directly or indirectly,
engage in a competing activity (as defined below), the
employee shall be required to remit to the Company,
with respect to any unrestricted Stock Grant which was
made or any Restricted Stock Grant which became fully
vested on or after the date six months prior to such
termination, the fair market value of the shares
subject to such grant on the date of the grant (as to
unrestricted stock) or the date of vesting (as to
Restricted Stock). Such remittance shall be payable in
cash or by certified or bank check or by delivery of
shares of Class B Stock or Common Stock of the Company
registered in the name of the grantee duly assigned to
the Company with the assignment guaranteed by a bank,
trust company or member firm of the New York Stock
Exchange, or by a combination of the foregoing. Any
such shares so delivered shall be deemed to have a
value per share equal to the fair market value of the
shares on such date.
(3) For purposes of this Section 15(d), an
employee is deemed to be "engaged in a competing
activity" if he or she owns, manages, operates,
controls, is employed by, or otherwise engages in or
assists another to engage in any activity or business
which competes with any business or activity of the
Company in which the employee was engaged or involved,
or which, as of the time of the employee's termination,
was in a state of research or development by any such
business of the Company.
(4) No provision or condition implemented by the
Committee under subparagraphs (1) and (2) above shall
be interpreted as or deemed to constitute a waiver of,
or diminish or be in lieu of, any other rights the
Company may possess as a result of the employee's
direct or indirect involvement with a business
competing with the business of the Company.
(5) Notwithstanding the foregoing, a provision or
condition implemented by the Committee under
subparagraph (1) or (2) above shall become null and
void, and therefore automatically shall be deemed
waived by the Company, upon a Change in Control (as
defined in Section 7(b)(3) of this Plan), and the
Committee shall incorporate such a waiver into any
provision or condition implemented under subparagraph
(1) or (2) above.
16. Director Stock Options.
(a) Each director of the Company who is not an
employee of the Company or any subsidiary shall, on the
fourth Tuesday of July following the director's election at
the annual meeting of shareholders (commencing with July
1990)and on the fourth Tuesday of each July thereafter
during such director's term, automatically be granted
nonqualified options to purchase Class B Stock at a purchase
price per share determined in accordance with Subsection
6(b) of the Plan. The number of shares subject to each such
option shall be equal to (i) two times the average of all
compensation paid to non-employee directors, divided by (ii)
the fair market value per share of the Company's Common
Stock on the date of grant. The average of non-employee
director compensation shall be determined by dividing the
number of non-employee directors who were eligible for
director stock options throughout the entire twelve (12)
month period ending on the date of the Annual Meeting of the
Shareholders of the Company preceding the grant (the
"Calculation Year") into the aggregate compensation paid or
payable (including compensation which is deferred) to all
such directors with respect to services rendered to the
Company as directors during the Calculation Year. A
director's stock option granted hereunder shall be fully
vested on the date of grant.
(b) Transition grants of nonqualified options shall
automatically be made to non-employee directors who are not
up for election at the 1990 annual meeting of shareholders.
The transition grants shall be made at the times and shall
be based upon the formula set forth in Section 16(a) for the
number of years remaining in such director's term following
the 1990 shareholder meeting. A transition grant made
hereunder shall be fully vested upon the date of grant.
(c) The grants to directors provided for in this
Section 16 shall in all respects supersede, and be in lieu
of, any automatic grants to directors which would otherwise
be made pursuant to the Company's 1987 Stock Incentive Plan,
it being intended that the only options to be granted to
directors shall be made pursuant to this Plan. Approval of
this Plan by a majority vote of the shareholders of the
Company shall constitute approval by the shareholders of the
cessation of future grants to directors under the 1987 Stock
Incentive Plan.
(d) Automatic director stock option grants shall only
be made if, as of each date of grant, the director (i) is
not an employee of the Company or any subsidiary, and (ii)
has served on the Board of Directors continuously since the
commencement of his term.
(e) A director may, upon the exercise of director
stock options, request that the Company loan to him a sum
equal to an amount which is not in excess of 100% of the
exercise price of the shares so purchased, and the loan
shall be made to the director, and shall be subject to the
terms and conditions set forth in Section 6(d) of the Plan,
except that "retirement" shall be as defined in the
Company's policy for directors. No member of the Committee
shall participate in the approval of loans to himself.
(f) Director stock options, as grants to directors of
the Company who are subject to Section 16(b) of the Exchange
Act, shall automatically include Accelerated Rights as
provided for in Subsection 7(b) of the Plan.
(g) In the event that the number of shares of the
Company's Class B Stock available for future grant under the
Plan is insufficient to make all automatic grants required
to be made on such date, then all non-employee directors
entitled to a grant on such date shall share ratably in the
number of options on shares of the Company's Class B Stock
available for grant under the Plan.
(h) Except as expressly provided in this Section 16,
director stock options shall be subject to the terms and
conditions of Section 6 for nonqualified stock options and
in accordance with the Plan.
17. Definitions. Any terms or provisions used herein which
are defined in Sections 83, 421, 422A or 425 of the Internal
Revenue Code of 1986 or the regulations thereunder or
corresponding provisions of subsequent laws and regulations in
effect at the time grants or options are made hereunder shall
have the meanings as therein defined.
18. Amendment of the Plan. The Plan may at any time be
terminated, modified, or amended by a majority vote of the
outstanding shares of the Company having general voting power or,
to the extent authorized or permitted by applicable law, rule or
regulation, by the Board of Directors of the Company or the
Committee.
19. Duration of the Plan. The Plan shall remain in effect
until all shares subject to, or which may become subject to, the
Plan shall have been conveyed pursuant to the provisions of the
Plan.
SUPPLEMENTAL INFORMATION CONCERNING THE
1990 STOCK INCENTIVE PLAN
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options
Neither the grant nor the exercise of an incentive option
will result in taxable income to the optionee. Provided that the
disposition of stock acquired pursuant to the exercise of an
incentive option occurs at least two years after the grant of the
option and one year after the transfer of the shares upon
exercise, the gain or loss realized on disposition would be
treated as a long-term capital gain or loss. The gain or loss
would be equal to the difference between the option price and the
amount realized from the disposition.
A "disqualifying disposition" occurs if stock acquired upon
the exercise of an incentive option is disposed of before the
expiration of either the one-year or two-year holding periods
referred to above. Any amount received upon a disqualifying
disposition generally will be taxable as ordinary income in the
year of disposition to the extent that the lesser of (a) the fair
market value of the shares on the date the option was exercised,
or (b) the amount realized from such disposition, exceeds the
option price.
Any amount realized from a disqualifying disposition in
excess of the fair market value of the shares on the date of
exercise will be treated as long- or short-term capital gain,
depending on the holding period of the shares. If the amount
realized is less than the option price, the loss will be treated
as long- or short-term capital loss, depending upon the holding
period of the shares.
No deduction will be allowed to the Company for federal
income tax purposes upon the grant or exercise of an incentive
option. At the time of a disqualifying disposition by an
optionee, the Company will be entitled to a deduction for the
amount taxable to the optionee as ordinary income.
While it is possible to pay the option price under an
incentive option with previously acquired stock of the Company,
it is not possible to do so by making a series of connected
option exercises. Optionees are urged to consult their own tax
advisors and the Company if they contemplate using stock to pay
the exercise price.
Since 1983, the excess of the fair market value of stock on
the date of exercise of an incentive option over the option price
has been an "item of tax preference." Items of tax preference
will be taken into account for purposes of the alternative
minimum tax. Beginning in 1987, this tax is imposed at the rate
of 21% of the alternative minimum tax base and is payable to the
extent that it exceeds the regular income tax. The alternative
minimum tax base is generally equal to adjusted gross income,
less certain itemized deductions, less an exemption amount, plus
items of tax preference.
Nonqualified Stock Options
No income will be recognized by an optionee at the time a
nonqualified option is granted.
The rules for recognizing income upon exercise of the option
depend on whether the optionee is an "insider" (i.e., is subject
to Section 16(b) of the Securities Exchange Act of 1934). In the
case of a non-insider, ordinary income will be recognized by the
optionee on the date he exercises a nonqualified stock option.
The amount of income will be equal to the excess of the fair
market value of the shares on the date of exercise over the
option price. The holding period for capital gain and loss
purposes will begin on the date of exercise.
In the case of an insider, ordinary income will be
recognized by the optionee on the first day on which a sale of
the stock at a profit would not expose the optionee to Section
16(b) liability (the "date of taxation"). The amount of income
will be equal to the excess of the fair market value of the
shares on the date of taxation over the option price. The
holding period for capital gain and loss purposes will begin on
the date of taxation. An insider may elect to be taxed according
to the rules applicable to non-insiders by filing an election
with the Internal Revenue Service within 30 days from the date of
exercise.
The Company will be entitled to a deduction at the time that
the optionee is required to recognize income from the option
exercise. The deduction will be equal to the amount which is
taxable to the optionee as ordinary income as a result of
exercise.
If the option price of a nonqualified stock option is paid
by surrendering stock of the Company, the optionee will recognize
no gain or loss on the shares that he surrenders to pay the
option price (the "surrendered shares"). The shares that he
receives upon exercise of the option in excess of the surrendered
shares will be called the "additional shares." The optionee will
recognize ordinary income upon the exercise equal to the fair
market value of the additional shares on the date of exercise,
less any cash paid toward the option price. The basis of the
additional shares will be equal to their fair market value on the
date of exercise, and their holding period will begin on that
date. The shares that the optionee receives upon exercise equal
to the surrendered shares will have a basis and holding period
equal to that of the surrendered shares.
Alternate Rights
No income will be recognized by a recipient at the time a
Stock Appreciation Right or Accelerated Right is granted. In the
case of a non-insider, ordinary income will be recognized by the
recipient on the date the non-insider exercises any such right.
The amount of income will be equal to the sum of (a) the amount
of cash received, and (b) the fair market value of the Company's
stock received, determined as of the date of exercise. The
holding period for capital gain and loss purposes will begin on
the date of exercise.
In the case of an insider, ordinary income attributable to
stock received upon the exercise of a Stock Appreciation Right or
Accelerated Right will be recognized on the first day on which a
sale of the stock at a profit would not expose the recipient to
Section 16(b) liability (the "date of taxation"). The amount of
income will be equal to the fair market value of the shares on
the date of taxation. The holding period for capital gain and
loss purposes will begin on the date of taxation. Any cash
received by an insider upon exercise of a Stock Appreciation
Right will be taxed as ordinary income upon receipt. An insider
may elect to be taxed according to the rules applicable to non-
insiders by filing an election with the Internal Revenue Service
within 30 days from the date of exercise.
The Company will be entitled to a deduction at the time that
the optionee is required to recognize income. The deduction will
be equal to the amount which is taxable as ordinary income as a
result of the exercise.
Cash received pursuant to the automatic payment on an
Accelerated Right due to a change in control will be taxed as
ordinary income on the date it is received.
Stock Awards
No income will be recognized by a recipient at the time that
a Restricted Stock award is made. Ordinary income will be
recognized on the day when an unrestricted stock award is made
or, as to Restricted Stock, when the conditions and restrictions
set forth in the grant with respect to any shares of stock are
fulfilled (the "date of taxation"). The amount of such income
will be equal to the fair market value of the shares on the date
of taxation. The holding period of the shares for capital gain
and loss purposes will begin on the date of taxation.
Dividend payments made with respect to a share of stock
prior to the date of taxation will constitute ordinary
compensation income.
The Company will be entitled to a deduction equal to the
amount of ordinary income recognized by the recipient of a stock
award, including income resulting from dividend payments or from
the fulfilling of the conditions and restrictions.
Subsequent Dispositions
The basis of a share acquired pursuant to the exercise of a
nonqualified option, Stock Appreciation Right, or Accelerated
Right, or pursuant to a stock award will be the amount included
in ordinary income due to receipt of that share.
When the recipient disposes of shares acquired pursuant to a
nonqualified stock option, a Stock Appreciation Right, an
Accelerated Right, or a stock award, any amount realized in
excess of the basis of the shares will be treated as a long- or
short-term capital gain, depending on the holding period of the
shares. If the amount realized is less than the basis of the
shares, the loss will be treated as long- or short-term capital
loss, depending on the holding period of the shares.
STATE INCOME TAX CONSEQUENCES
New York State Income Tax Consequences
The New York State income tax treatment of incentive and
nonqualified stock options, Stock Appreciation Rights,
Accelerated Rights and stock awards generally is the same for New
York State residents as the federal income tax treatment.
Ordinary income from the disqualifying disposition of incentive
stock option stock, from the exercise of a nonqualified stock
option, Stock Appreciation Right, or Accelerated Right, and from
a stock award will be eligible for the 9% New York State maximum
tax on personal service income. The item of tax preference
arising from the exercise of an incentive stock option will be
subject to the New York State minimum tax, and will also reduce,
dollar for dollar, the income eligible for the 9% maximum tax.
Other State Income Taxes
Participants in the Plan should consult their tax advisors
concerning the applicability of any other state law which may
impose income taxes in connection with Grants and Director Stock
Options under the Plan.
DESCRIPTION OF BAUSCH & LOMB
COMMON AND CLASS B STOCK
The Company's Certificate of Incorporation authorizes the
issuance of 100,000,000 shares of Common Stock, par value $.40
per share, 6,875,000 shares of Class B Stock, par value $.08 per
share, 10,000 shares of 4% Cumulative Preferred Stock, par value
$100 per share, and 25,000,000 shares of Class A Preferred Stock,
par value $1 per share.
The shares of Common Stock and of Class B Stock are equal in
all respects except that the par value of the Common Stock is
$.40 per share and the par value of the Class B Stock is $.08 per
share, and except as otherwise specified in this paragraph.
Shares of Class B Stock are issuable only under the Plan and the
Company's 1975, 1982 and 1987 stock option plans. All such
shares are subject to restrictions on transferability, as
described in the plans. The Company's Common Stock is listed on
the New York Stock Exchange, whereas the Class B Stock is not so
listed.
Subject to the prior payment, or declaration and setting
apart for payment, of dividends on any 4% Cumulative Preferred
Stock hereafter issued and to any preferred dividends to which
Class A Preferred Stock hereafter issued may be entitled, the
holders of the Common Stock and of the Class B Stock are entitled
to receive (equally per share) such dividends as the Board of
Directors may from time to time lawfully declare.
The Certificate of Incorporation of the Company provides
that, if any of its 4% Cumulative Preferred Stock is issued and
outstanding, there shall be certain limitations upon the amount
of dividends (other than stock dividends) which may be paid on
any class of stock junior to such 4% Cumulative Preferred Stock
(which would include both the Common Stock and the Class B
Stock).
The holders of Common Stock and of Class B Stock, voting
together as a single class (except on such matters as to which
they each may be required by law to vote separately as a class),
possess the full and exclusive voting power for the election of
directors and for all other purposes, except to the extent that
Class A Preferred Stock hereafter issued may be granted voting
rights, and subject to any rights of 4% Cumulative Preferred
Stock hereafter issued to vote as to certain matters as described
in the Company's Certificate of Incorporation. Each share of
Common Stock and each share of Class B Stock is entitled to one
vote. The shares of Common Stock and the shares of Class B Stock
do not have cumulative voting rights.
In the event that the Company is liquidated, dissolved or
wound up, the holders of Common Stock and of Class B Stock are
entitled to receive all assets available for distribution to
shareholders, after there shall have been paid or set apart for
the holders of any 4% Cumulative Preferred Stock and the holders
of any Class A Preferred Stock the full preferential amounts to
which they are entitled.
The holders of Common Stock and the holders of Class B Stock
have no pre-emptive rights. All such stock issued under the Plan
will, when paid for in cash, be fully paid and non-assessable.
Shares of Class B Stock, to the extent that they are pledged to
secure loans by the Company, are considered not to be fully paid
and to be assessable, but only to the extent of the amounts owed
on the promissory notes secured thereby.
Any amendments to or changes in the description of stock
reported on documents filed by the Company pursuant to Sections
13 and 15(d) of the Securities Exchange Act of 1934 made
subsequent to the date of these materials are incorporated herein
by reference.
RESTRICTIONS ON REOFFER OR RESALE OF COMMON STOCK
These materials may not be relied upon for reoffers or
resales by "affiliates" of the Company of shares of the Company's
Common Stock acquired by them in exchange for shares of Class B
Stock. According to the definition set forth in Rule 405 under
the Securities Act of 1933, an "affiliate" of the Company is "a
person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with" the Company. Affiliates must effect such reoffers
or resales either in accordance with Rule 144 under the
Securities Act of 1933 or pursuant to a separate prospectus
covering such reoffer or resale. Persons who are not affiliates
of the Company generally are entitled to make such reoffers or
resales without such restrictions.
In addition, every person who is directly or indirectly the
beneficial owner of more than 10% of the outstanding shares of
the Company's Common Stock and every person who is a director or
officer of the Company is subject to the provisions of Section
16(b) of the Securities Exchange Act of 1934, which restrict the
ability of such persons to sell and purchase or purchase and sell
any equity security of the Company within any period of less than
six months.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Bausch &
Lomb Incorporated (the "Company") with the Securities and
Exchange Commission, are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1989.
2. The Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990, and all other reports filed by the
Company pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 since December 30, 1989.
All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange
Act of 1934 prior to the filing of a post-effective amendment
which indicates that all securities offered have been sold or
which deregisters all securities then remaining unsold, also
shall be deemed to be incorporated by reference and to be a part
of these materials from the date of filing of such documents.
Upon request, the company will provide without charge to
each person to whom a copy of these materials has been delivered
a copy of any and all of the information that has been
incorporated by reference herein, except exhibits, as well as any
other document required to be delivered to participants in the
Plan pursuant to Rule 42B(b) under the Securities Act of 1933.
Requests should be directed to Robert B. Stiles, Senior Vice
President and General Counsel, Bausch & Lomb Incorporated, One
Bausch & Lomb Place, Rochester, New York 14604-2701 (telephone
(716) 338-6000).
Exhibit (10)-v
BAUSCH & LOMB INCORPORATED
DIRECTOR DEFERRED COMPENSATION PLAN
Amendment No. 1
Pursuant to Section 12, the Plan is amended, effective
January 1, 2000, as follows:
1. Section 7(d) is amended by deleting the first sentence
thereof and substituting in its place the following:
Earnings/losses on Investment Accounts hypothetically
invested in mutual funds or other assets for which
daily pricing is available ("Daily-Priced Investments")
shall be valued daily in accordance with the relevant
terms and conditions of the Daily-Priced Investments.
Earnings/losses on Investment Accounts hypothetically
invested in investments other than Daily-Priced
Investments shall be credited effective on the last
business day of each month.
2. Section 7(f) is amended by deleting the first clause
thereof and substituting in its place the following:
A participant may elect to reallocate amounts already
in his/her Investment Accounts among the various
Investment Accounts at such times and in accordance
with such procedures as the Plan Administrator may in
its sole discretion, prescribe;
3. Section 8(d) is amended by adding to the end thereof
the following new paragraph:
A Participant may make a change in the form of payment
from the form previously elected to any other form
permitted under the Plan at any time up to 24
months prior to the date payments commence. Any change
elected within 24 months of a participant's payment
commencement date shall be disregarded.
Dated ________________ BAUSCH & LOMB Incorporated
By______________________________
Title_____________________________
Exhibit (10)-w
BAUSCH & LOMB INCORPORATED
EXECUTIVE DEFERRED COMPENSATION PLAN
Amendment No. 1
Pursuant to Section 12, the Plan is amended, effective
January 1, 2000, as follows:
1. Section 7(d) is amended by deleting the first sentence
thereof and substituting in its place the following:
Earnings/losses on Investment Accounts hypothetically
invested in mutual funds or other assets for which
daily pricing is available ("Daily-Priced Investments")
shall be valued daily in accordance with the relevant
terms and conditions of the Daily-Priced Investments.
Earnings/losses on Investment Accounts hypothetically
invested in investments other than Daily-Priced
Investments shall be credited effective on the last
business day of each month.
2. Section 7(f) is amended by deleting the first clause
thereof and substituting in its place the following:
A participant may elect to reallocate amounts already
in his/her Investment Accounts among the various
Investment Accounts at such times and in accordance
with such procedures as the Plan Administrator may in
its sole discretion, prescribe;
3. Section 8(d) is amended by adding to the end thereof
the following new paragraph:
A Participant may make a change in the form of payment
from the form previously elected to any other form
permitted under the Plan at any time up to 24
months prior to the date payments commence. Any change
elected within 24 months of a participant's payment
commencement date shall be disregarded.
Dated ________________ BAUSCH & LOMB INCORPORATED
By______________________________
Title_____________________________
Exhibit (10)-x
BAUSCH & LOMB INCORPORATED
LTI DEFERRED COMPENSATION PLAN
Amendment No. 2
Pursuant to Section 12, the Plan is amended, effective
February 29, 2000, as follows:
Section 8(d) is amended by adding to the end thereof
the following new paragraph:
A participant may make a change in the form of
payment from the form previously elected to any
other form permitted under the Plan at any time up
to 24 months prior to the date payments commence.
Any change elected within 24 months of a
participant's payment commencement date shall be
disregarded.
Dated _______________ Bausch & Lomb Incorporated
By_____________________
Title____________________
Bausch & Lomb Incorporated
Exhibit 11
Statement Regarding Computation of Per Share Earnings
(Share Amounts in Thousands Except Per Share Data)
The section entitled "Earnings Per Share" on page 28 of the
Annual Report is incorporated herein by reference.
Bausch & Lomb Incorporated
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to
Fixed Charges
(Dollar Amounts In Millions)
December 25, 1999 December 26, 1998
Earnings from continuing
operations before
provision for income taxes
and minority interests $185.0 $119.7
Fixed charges 90.3 102.6
Capitalized interest, net of
current period amortizaiton 0.2 0.3
Total earnings as adjusted $275.5 $222.6
Fixed charges:
Interest (including
interest expense and
capitalized interest) $88.3 $100.7
Portion of rents
representative of the
interest factor 2.0 1.9
Total fixed charges $90.3 $102.6
Ratio of earnings to fixed
charges 3.1 2.2
<PAGE>
"SEE THE FUTURE"
[GRAPHIC]
BAUSCH & LOMB
1999 ANNUAL REPORT
[BAUSCH
& LOMB LOGO]
<PAGE>
<TABLE>
<CAPTION>
VISION CARE SURGICAL PHARMACEUTICALS
<S> <C> <C> <C>
REVENUE
($ in millions)
97 918.1 190.6
98 971.2 384.7 241.6
99 1,029.5 432.7 293.9
</TABLE>
CONTENTS
Financial Highlights ........................... IFC
Letter to Shareholders ......................... 1
Financial Review ............................... 9
Financial Statements and Notes ................. 19
Reports of Management, Audit Committee
and Independent Accountants ................ 44
Directors and Officers ......................... 46
<TABLE>
<CAPTION>
VISION CARE SURGICAL PHARMACEUTICALS
<S> <C> <C> <C>
EARNINGS
($ in millions)
Comparable basis*
97 210.9 36.6
98 208.4 43.0 49.2
99 200.5 64.1 66.1
</TABLE>
* Comparable basis excludes restructuring charges, asset write-offs and other
significant charges.
BAUSCH
& LOMB
<PAGE>
AT A GLANCE
KEY PRODUCTS
VISION CARE
RENU: The ReNu line is the global market leader in the growing chemical
disinfectant segment for soft contact lens care. ReNu MultiPlus solution was the
first one-bottle multi-purpose solution for soft lenses to eliminate the need
for a separate enzymatic cleaner. Other products include a companion rewetting
drop for ReNu MultiPlus and preservative-free rewetting/lubricating drops
designed for use with soft contact lenses.
SOFLENS: A number of contact lens products are offered under the SofLens name.
SofLens one day lenses are daily disposable lenses manufactured using a low-cost
production process. SofLens66 toric lenses are high performance cast-molded
lenses for people with astigmatism that compete in the planned replacement
category.
PUREVISION: Bausch & Lomb's newest contact lens, which offers a high degree of
oxygen permeability and is approved for seven- to 30-day extended wear,
depending on approvals in specific markets.
BOSTON: The Boston line of contact lenses and lens care products has a
commanding lead in the global rigid gas permeable (RGP) category. Recent
introductions include Boston EO, an RGP lens with high oxygen permeability and
excellent lathing properties, and Boston Enhanced Original Formula Conditioning
Solution, a solution with improved RGP lens wetting performance.
SURGICAL
TECHNOLAS 217: Narrow-beam advanced scanning excimer laser, capable of offering
integrated microkeratome and excimer laser procedures. The Technolas 217 laser
has recently received FDA approval in the U.S. and is the leading laser outside
the U.S.
HANSATOME: Advanced, pivotal action microkeratome for superior positioned hinge.
The Hansatome is the best-selling microkeratome on the market today.
ORBSCAN II: Corneal and anterior segment topography system that simultaneously
measures the curvature and elevation of both surfaces of the cornea, as well as
the anterior lens and iris.
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.
INTRAOCULAR LENSES (IOLS) AND DELIVERY SYSTEMS: One- and three-piece minimally
invasive, small incision IOLs, including the Soflex line, as well as the
Passport and MPORT delivery devices for cataract surgery.
AMVISC/AMVISC PLUS: Viscoelastic products indicated for both anterior and
posterior segment procedures, including extraction of cataracts, insertion of
IOLs, corneal transplantation surgery, glaucoma filtering surgery and surgical
procedures to reattach the retina.
VITRASERT: Posterior chamber implant which offers sustained therapeutic drug
delivery for several months. The product contains the drug ganciclovir and is
used to treat CMV retinitis.
PHARMACEUTICALS
PRESCRIPTION
LOTEMAX: An ophthalmic steroid designed for effective treatment of inflammation
with an excellent safety profile. Active ingredient is loteprednol etabonate
0.5%.
ALREX: Ophthalmic suspension containing a lower concentration of loteprednol
etabonate (0.2%), designed specifically to relieve signs and symptoms of
seasonal allergic conjunctivitis.
OTC
OCUVITE: Number one recommended vitamin/mineral supplement brand by eye care
professionals. Contains certain antioxidants that may assist in maintaining the
health of the eye. Product offerings include Ocuvite and Ocuvite Extra tablets
and Ocuvite Lutein capsules, which contain the carotenoid lutein, a highly
protective antioxidant found in the crystalline lens and retinal pigment of the
eye.
NEW PRODUCT PIPELINE*
NEW PLANNED REPLACEMENT LENS: New contact lens manufactured using the same
low-cost process as our one-day lenses. The lens is expected to compete in the
two-week planned replacement market in the U.S. and the monthly market overseas.
RAPID DISINFECTING SOLUTION: Multi-purpose regimen designed to reduce
disinfecting time for soft contact lenses.
NEXT GENERATION ONE BOTTLE RGP CARE REGIMEN: New RGP lens care solution designed
to provide improved cleaning.
CONTINUOUS WEAR PROGRAM: Various next generation continuous wear contact lenses
and lens care products.
NEW LENS CARE SOLUTION: Multi-purpose regimen designed to reduce soft contact
lens handling and improve convenience.
ABERROMETER WAVEFRONT TECHNOLOGY: Diagnostic technology that provides
a wavefront analysis of the entire optical system in addition to providing a
complete and accurate refraction of the eye.
CUSTOMIZED ABLATION: Software technology designed to provide customized
refractive surgery based upon integrated diagnostics.
SURODEX: Controlled drug delivery system designed to treat inflammation
following cataract surgery.
CATAREX: Minimally invasive new surgical technology for removal of cataracts.
MPORT SI INSERTER: Next generation microincision insertion device for
foldable IOLs.
HYDROPHILIC ACRYLIC IOL: Advanced minimally invasive acrylic IOL and inserter.
PHAKIC IOL (NEXT GENERATION): Comprehensive platform technology designed to
allow for additive as well as subtractive refractive correction.
PERFLUOROCARBON II: Intraocular gas used to flatten the retina while healing
occurs following surgical correction of detached retina.
PRESCRIPTION
LOTEPREDNOL ETABONATE COMBINATION: Loteprednol etabonate/anti-infective
combination, designed to treat 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).
VITREOUS IMPLANT TECHNOLOGY: System designed to deliver pharmaceutical products
directly to the back of the eye. The potential exists to treat numerous retinal
diseases.
OTC
LONG-LASTING DRY EYE DROP: Designed to relieve dry eye symptoms longer than
existing monograph products.
NEXT GENERATION ALLERGY DROP: Designed to offer superior symptom relief
for allergic conjunctivitis and to relieve dryness.
* Note: New Product Pipeline products have not yet received regulatory
approvals for marketing in the U.S. and/or are currently under development.
<PAGE>
GLOBAL VISION CARE MARKET
[PIE CHART OMITTED]
CONTACT LENSES 62%
LENS CARE 38%
GROWTH RATES
- --------------------------------------------------------------------------------
TOTAL 5-8%
Contact Lenses 9-12%
Lens Care (1)-1%
Global Market $4.7 Billion
GLOBAL OPHTHALMIC SURGERY MARKET
[PIE CHART OMITTED]
VITREORETINAL 12%
REFRACTIVE 25%
CATARACT 63%
GROWTH RATES
- --------------------------------------------------------------------------------
TOTAL 11-14%
Cataract 3-5%
Refractive 35-40%
Vitreoretinal 5%
Global Market $1.8 Billion
GLOBAL OPHTHALMIC PHARMACEUTICALS MARKET
[PIE CHART OMITTED]
GLAUCOMA 44%
ALLERGY 17%
ANTI-INFECTIVE 21%
ANTI-INFLAMMATORY 9%
BACK OF THE EYE 1%
OTHER 8%
GROWTH RATES
- --------------------------------------------------------------------------------
TOTAL 5.8%
Glaucoma 5-7%
Allergy 3.5%
Anti-Infective(2) (2)-0%
Anti-Inflammatory 0-2%
Back of the Eye 100+%
Global Market $3.9 Billion
- ---------------
Source: Company Estimates
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED DECEMBER 27, 1997,
DECEMBER 26, 1998 AND DECEMBER 25, 1999
DOLLAR AMOUNTS IN MILLIONS - EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
Percentage Change
1997 1998 1999 from 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BUSINESS RESULTS
Net sales $ 1,108.7 $ 1,597.5 $ 1,756.1 10%
Segment earnings 247.5 300.6 330.7 10%
Operating earnings - reported 162.9 169.5 214.2 26%
Operating earnings - comparable basis+ 202.0 248.0 267.7 8
Income from continuing operations 62.0 55.6 102.7 85%
Net income 49.4 25.2 444.8 *
Per share:
Continuing operations - diluted 1.12 0.99 1.75 77%
Net income - diluted 0.89 0.45 7.59 *
Dividends declared 1.04 1.04 1.04 --
Shareholders' equity at year end 14.82 14.93 21.48 44%
Capital expenditures 126.1 201.5 155.9
Working capital 202.9 774.4 1,190.7
Diluted Common shares outstanding (000s) 55,654 56,367 58,639
Return on average shareholders' equity 5.9% 3.1% 43.3%
Return on invested capital 5.0% 3.8% 21.7%
High/low stock price $47 7/8 - $32 1/2 $ 59 3/8 - $37 3/4 $ 83 3/8 - $52 5/8
</TABLE>
+ Represents company's results excluding amounts related to restructuring
charges and asset write-offs and other significant charges.
* Represents an increase in excess of 100%.
THE FUTURE... SOMETHING THAT EVERYONE REACHES AT THE RATE OF SIXTY MINUTES AN
HOUR... SIXTY SECONDS A MINUTE... IT'S HERE, IT'S NOW.
AT BAUSCH & LOMB, WE MAKE EVERY SECOND COUNT.
<PAGE>
DEAR FELLOW SHAREHOLDERS:
We entered the year 2000 as a very different company than the one that began
1999. During the past year we successfully completed our strategic realignment
and firmly established our future as a technology-based health care company for
the eye.
We did this by divesting our non-strategic businesses and by augmenting our
core business portfolio through acquisitions - principally in the surgical
segment. We evolved organizationally and streamlined our administrative
functions to move from a diversified holding company to a more integrated
operating company that can leverage our unique skills and combined capabilities.
As a result, millions of dollars in savings are being reinvested in new products
and providing improvements in profitability.
THE FUTURE IS NOW.
"WE'RE CREATING IT."
[PICTURE OF WILLIAM M. CARPENTER]
William M. Carpenter
Chairman and Chief
Executive Officer
"WE'RE FOCUSED ON IT."
[PICTURE OF CARL E. SASSANO]
Carl E. Sassano
President and Chief
Operating Officer
<PAGE>
[Photo]
"OUR GOALS ARE IN FOCUS" [Picture of Eye]
ADVANCED PRODUCTS FOR CONTACT LENS WEAR
OVER THE LAST THREE YEARS, BAUSCH & LOMB'S FULL LINE OF PRODUCTS FOR THE CONTACT
LENS WEARER HAS BEEN TRANSFORMED WITH THE INTRODUCTION OF INNOVATIVE NEW
PRODUCTS. PERHAPS THE MOST REVOLUTIONARY IS PUREVISION, A BREAKTHROUGH CONTACT
LENS DESIGNED TO BE WORN CONTINUOUSLY FROM SEVEN DAYS UP TO A MONTH AT A TIME,
DEPENDING ON REGULATORY APPROVALS. ITS PATENTED MATERIAL OFFERS AN OPTIMAL
BALANCE OF ATTRIBUTES FOR HEALTHY AND COMFORTABLE EXTENDED WEAR. NEW PRODUCTS
SUCH AS PUREVISION LENSES HAVE REESTABLISHED BAUSCH & LOMB AS THE TECHNOLOGY
LEADER IN VISION CARE.
During 1999, we dramatically ramped up our investment in research and
development (R&D), with spending increasing 27% to 5.6% of net sales. Our focus
on technology generated accelerated revenue growth, with our ongoing businesses
posting a healthy 10% gain over 1998. Products introduced over the past 24
months drove this expansion, accounting for more than 20% of total revenues.
Our emphasis on improving the top line through higher margin eye care
products, combined with aggressive product and administrative cost reduction
programs, has led to a renewed focus on profitable growth. For the year, net
earnings and earnings per share from continuing operations before one-time
events increased 31% and 27%, respectively.
The divestiture of non-strategic businesses also significantly strengthened
the financial health of the company. The roughly $1 billion in proceeds we
received reduced our debt to capital ratio to 45.3% (from 63.5% in 1998) and
significantly enhanced our ability to fund future acquisition opportunities to
accelerate further growth and add shareholder value. We are using a portion of
the proceeds to buy back up to five million shares of stock because we believe
it's a great investment that will improve the return to our shareholders, a goal
of any EVA company.
As our financial strength and performance have improved, so too has our
stock price. Over the past two years, the value of Bausch & Lomb shares has
increased at a compound rate
See the future 2 Bausch & Lomb
<PAGE>
NEW & INNOVATIVE PRODUCTS WILL CONTINUE TO DRIVE GROWTH.
[STOP WATCH GRAPHIC]
TIMING:
DELIVERING
NEW TECHNOLOGIES
WE'RE IN A RACE AGAINST TIME. TIME TO BRING NEW AND BETTER PRODUCTS TO MARKET.
TO WIN THAT RACE WE'VE STEPPED UP OUR EFFORTS IN RESEARCH AND DEVELOPMENT,
INVESTING MORE, AND INVESTING SMARTER. OUR EFFORTS ARE PAYING OFF IN INNOVATIVE
NEW PRODUCTS THAT ARE PROPELLING OUR GROWTH. IN OUR VISION CARE BUSINESS ALONE,
ALMOST 20% OF 1999 REVENUES CAME FROM PRODUCTS INTRODUCED IN JUST THE PAST TWO
YEARS. WE ARE COMMITTED TO INVESTING MORE EACH YEAR TO DEVELOP NEW TECHNOLOGIES,
BECAUSE TIME DOESN'T STAND STILL.
<TABLE>
RESEARCH & DEVELOPMENT SALES FROM PRODUCTS
EXPENSE INTRODUCED SINCE 1997
<S> <C> <C>
INCREASED R&D DIVING
REVENUE GROWTH
Percent of
consolidated sales
97 4.5 2.7
98 4.8 11.4
99 5.6 20.6
</TABLE>
See the future 3 Bausch & Lomb
<PAGE>
[PHOTO]
"OUR VIEW IS PRECISE" [GRAPHIC]
LEADING THE WAY IN REFRACTIVE SURGERY PRODUCTS
AMONG BAUSCH & LOMB'S COMPREHENSIVE OFFERINGS FOR REFRACTIVE SURGERY IS THE
TECHNOLAS 217, PICTURED ABOVE, AN ADVANCED SMALL BEAM, SPOT-SCANNING LASER.
ALREADY THE TECHNOLOGY LEADER OUTSIDE THE U.S., IT RECENTLY RECEIVED REGULATORY
CLEARANCE FOR THE U.S. MARKET.
AT CENTER IS A SAMPLE CORNEAL MAP GENERATED BY THE ORBSCAN II CORNEAL
TOPOGRAPHER, THE ONLY DIAGNOSTIC TOOL OF ITS KIND THAT MAPS BOTH THE FRONT AND
BACK SURFACES OF THE CORNEA, PROVIDING INVALUABLE INFORMATION TO THE REFRACTIVE
SURGEON.
of 31%, outstripping the gains in both the S&P 500 and the S&P Health Care
Composite indices.
So, what does the future hold? Only time will tell, but certainly our
vision of being Number One in the Eyes of the World will drive and provide focus
to all that we do.
We are the global leader in products for the contact lens wearer - and
intend to stay that way! We'll do this by continuing to introduce
technologically differentiated products and by further expanding our geographic
reach. Over the past few years, we have transformed our vision care offerings
through the introduction of four new products: SofLens one day contact lenses
for daily wear; SofLens66 toric, our technologically advanced two-week
disposable contact lens for people with astigmatism; PureVision, our
breakthrough contact lens designed for continuous wear and approved for
seven-day wear in the U.S. and 30-day wear in Europe; and ReNu MultiPlus, the
first truly all-in-one lens care product. We will introduce a new two-week
conventional spherical contact lens in the first half of 2000, produced using
the same low-cost manufacturing process as our one-day lens. Based on the
successful expansion of these products, we have moved to reduce cost further and
to consolidate our contact lens manufacturing into "centers of excellence."
Together, we expect these factors to allow us to accelerate revenue growth,
increase market share and improve the profitability of our vision care business
in 2000 and beyond.
See the future 4 Bausch & Lomb
<PAGE>
20/10 VISION CAN BE REALIZED SOONER THAN YOU THINK. [GRAPHIC TARGET]
TARGET:
20/10 VISION
PERSONALIZED VISUAL PERFECTION. BEYOND 20/20 TO OPTIMAL VISUAL ACUITY. TO GET
THERE, BAUSCH & LOMB RESEARCHERS ARE HARNESSING THE POWER OF OUR ADVANCED
DIAGNOSTIC TECHNOLOGY TO YIELD A CUSTOMIZED LASER PRESCRIPTION THAT COMPENSATES
FOR THE INDIVIDUAL IMPERFECTIONS OF EACH PERSON'S EYE. THE RESULT:
CUSTOM-TAILORED VISION THAT WILL SET A NEW STANDARD IN REFRACTIVE SURGERY. NEVER
SATISFIED, BAUSCH & LOMB RESEARCHERS WILL CONTINUE TO REINVENT WHAT IS POSSIBLE
THROUGH VISION CORRECTION.
[Chart]
ESTIMATED TIME TABLE FOR CUSTOMIZED ABLATION SYSTEM
- --------------------------------------------------------------------------------
2000 2001
- --------------------------------------------------------------------------------
Clinical Studies System Marketed Outside the U.S.
Outside the U.S.
- --------------------------------------------------------------------------------
Investigational Device
Exemption Filing with FDA Pre-Market Approval System Marketed
and U.S. Clinical Trials Filing with FDA in the U.S.
- --------------------------------------------------------------------------------
See the future 5 Bausch & Lomb
<PAGE>
[PICTURE] "NUMBER ONE IN THE EYES OF THE WORLD"
GLOBAL LEADERSHIP
PEOPLE AROUND THE WORLD ENTRUST TO BAUSCH & LOMB THEIR MOST PRECIOUS
SENSE - THE SENSE OF SIGHT. TO BE WORTHY OF THAT TRUST, WE CONSTANTLY STRIVE TO
FIND A BETTER WAY IN ALL THAT WE DO. BY OFFERING THE MOST COMPREHENSIVE AND
INNOVATIVE LINE OF EYE CARE PRODUCTS, AND THROUGH OUR PARTNERSHIPS WITH EYE CARE
PROFESSIONALS, OUR GOAL IS TO ENHANCE THE VISUAL PERFORMANCE OF PEOPLE OF ALL
AGES. SAID ANOTHER WAY, OUR VISION IS TO BE NUMBER ONE IN THE EYES OF THE WORLD.
In the surgical business, we continue to be excited by the rapid growth of
refractive surgery. We are already the global leader in this area, offering the
most advanced technology covering all aspects of LASIK, the most common
refractive procedure. We are currently conducting clinical trials in Europe to
integrate our unique diagnostic and refractive technologies. This will enable
surgeons to determine an individualized customized ablative pattern for treating
each patient, and thus allow patients to attain vision better than 20/20 - in
essence, perfect vision. In turn, it has the potential to provide Bausch & Lomb
with an annuity stream of revenues to augment our equipment sales and capitalize
on the projected growth in global refractive surgery procedures. We will also
maintain a strong presence in cataract surgery, the most common ophthalmic
surgical procedure today, where we expect to introduce technology that will
allow for less invasive surgery and new intraocular lens offerings over the next
few years.
In our pharmaceuticals business, our expanded R&D efforts are yielding the
breakthrough technology that we believe can provide future breakout potential
for Bausch & Lomb. In 2000, we will be in Phase III clinical trials for an
extension to the Lotemax line with a product designed to treat eye inflammation
and infection, with an expected launch in 2001. However, our most exciting
opportunity is with a drug delivery technology to treat sight-threatening
[Photo]
See the future 6 Bausch & Lomb
<PAGE>
[GRAPHIC OF WORLD]
WE ARE WORKING TO BATTLE THE CAUSES OF SIGHT-THREATENING DISEASES.
VISION:
TREATING GLOBAL EYE DISEASE
SOME OF THE MOST COMMON CAUSES OF BLINDNESS ARE ALSO THE MOST DIFFICULT TO
TREAT. CHRONIC DISEASES OF THE BACK OF THE EYE, SUCH AS AGE-RELATED MACULAR
DEGENERATION, DIABETIC MACULAR EDEMA AND POSTERIOR UVEITIS, AFFECT MILLIONS OF
PEOPLE WORLDWIDE AND PRESENT FEW TREATMENT OPTIONS, IN LARGE PART BECAUSE OF THE
DIFFICULTY IN GETTING DRUG THERAPIES TO THAT PART OF THE EYE. BAUSCH & LOMB IS
WORKING WITH A PARTNER ON A TINY IMPLANTED DRUG DELIVERY SYSTEM THAT DELIVERS
MEDICATION IN SLOW DOSES FOR MONTHS OR YEARS. WE EXPECT TO BEGIN CLINICAL TRIALS
THIS YEAR ON PRODUCTS COMBINING THIS INNOVATIVE TECHNOLOGY WITH WELL-UNDERSTOOD
DRUGS TO TREAT SIGHT-THREATENING CONDITIONS. OUR SUCCESS WILL MEAN MORE THAN A
POTENTIAL BLOCKBUSTER PRODUCT. IT WILL MEAN WE CAN PRESERVE THE JOY OF SIGHT FOR
MILLIONS OF PEOPLE AROUND THE WORLD.
- --------------------------------------------------------------------------------
The tiny Vitrasert implant pictured here uses an innovative drug delivery
technology to treat CMV retinitis, a complication of AIDS. Clinical trials are
planned to begin this year to apply this proven technology to delivering drugs
to treat other forms of retinal diseases. [GRAPHIC]
- --------------------------------------------------------------------------------
See the future 7 Bausch & Lomb
<PAGE>
"WE ARE MEETING THAT CHALLENGE"
diseases like age-related macular degeneration, diabetic macular edema and
posterior uveitis that attack the retina and optic nerve or "back of the eye."
The results from our clinical trials so far are very promising, and we expect to
move into Phase III clinicals during 2000 and be on the market potentially as
early as 2003.
While we continue to develop the technology, operational capabilities and
financial strength necessary to achieve our ambitions, it is the tenacity and
dedication of our people that will ultimately power our success. We are
confident that the future of this company is bright because of the dedication of
our past and present employees. We are grateful to these men and women for their
efforts, which not only have made Bausch & Lomb the company it is today, but the
company it will be in this new millennium. They have allowed us to build our
strong technological leadership and global presence, driven our efforts in R&D
and provided unique opportunities to integrate and leverage our broad product
portfolio. We have the people, the products and the capabilities to continue to
lead this category of healthcare and bring the joy of sight to millions of
people in the years ahead.
/s/ William M. Carpenter
-----------------------------------
WILLIAM M. CARPENTER
Chairman and Chief Executive Officer
See the future 8 Bausch & Lomb
<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 2000 outlook. References within
this financial review to earnings per share refer to diluted earnings per share.
Bausch & Lomb Incorporated (the "company") reported net income of $445 or
$7.59 per share for the year ended December 25, 1999, compared to 1998 net
income of $25 or $0.45 per share. During 1999, the company sold its sunglass,
hearing aid and biomedical businesses, which generated an aggregate after-tax
gain of $308 or $5.26 per share. Income from continuing operations was $103 or
$1.75 per share in 1999 compared to $56 or $0.99 per share in 1998.
Restructuring charges and asset write-offs recorded in the fourth quarter of
1999, partially offset by reversals of restructuring charges recorded in prior
periods, reduced 1999 income from continuing operations by $34 or $0.58 per
share after taxes. Purchase accounting adjustments related to the surgical
acquisitions, as well as restructuring charges and asset write-offs, reduced
1998 income from continuing operations by $49 or $0.87 per share after taxes.
In 1997, net income and income from continuing operations were $49 or $0.89
per share and $62 or $1.12 per share, respectively. Results were negatively
impacted by restructuring charges and asset write-offs of $25 or $0.45 per share
after taxes and a litigation charge of $13 or $0.24 per share after taxes.
REVENUES AND EARNINGS
BY BUSINESS SEGMENT
The company split the pharmaceuticals/surgical segment into two separate
segments in 1999 to reflect changes in the manner in which financial information
is viewed by management for decision-making purposes. The company now reports
its operating results in three segments: vision care, pharmaceuticals and
surgical. The vision care segment includes contact lenses, lens care products
and vision accessories. The pharmaceuticals segment includes prescription
ophthalmic drugs and over-the-counter (OTC) medications. The surgical segment is
comprised of cataract, refractive and other ophthalmic surgery products. Prior
year results have been reclassified to reflect these new segment
classifications.
The following table summarizes continuing sales and earnings by segment and
presents total company operating earnings. Throughout the remainder of this
financial review, the term "other significant charges" will be used to refer to
purchased in-process research and development and other required purchase
accounting adjustments recorded in 1998 associated with the surgical
acquisitions.
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------
As % of Total As % of Total As % of Total
Reported Net Sales Reported Net Sales Reported Net Sales
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES
Vision Care $1,029.5 58% $ 971.2 61% $ 918.1 83%
Pharmaceuticals 293.9 17% 241.6 15% 190.6 17%
Surgical 432.7 25% 384.7 24% -- --
-----------------------------------------------------------------------------------
$1,756.1 $1,597.5 $1,108.7
====================================================================================
<CAPTION>
-----------------------------------------------------------------------------------
% of Segment % of Segment % of Segment
Earnings Earnings Earnings
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Earnings
Vision Care $ 200.5 61% $ 208.4 70% $ 210.9 85%
Pharmaceuticals 66.1 20% 49.2 16% 36.6 15%
Surgical 64.1 19% 43.0 14% -- --
-----------------------------------------------------------------------------------
$ 330.7 $ 300.6 $ 247.5
Corporate administration (63.0) (52.6) (45.5)
Restructuring charges and
asset write-offs (53.5) (5.4) (39.1)
Other significant charges -- (73.1) --
-------- -------- --------
$ 214.2 $ 169.5 $ 162.9
======== ======== ========
</TABLE>
See the future 9 Bausch & Lomb
<PAGE>
NET SALES Net sales in 1999 increased $159 or 10% from 1998 with virtually no
impact from foreign currency exchange rate changes. All segments experienced
favorable year-over-year growth with double-digit gains in both the
pharmaceuticals and surgical businesses. In 1998, net sales increased $489 or
44% versus 1997 and improved 47% on a constant dollar basis (that is, excluding
the effect of foreign currency exchange rate changes) reflecting the impact of
acquisitions. Excluding these incremental revenues, total company revenues
increased $70 or 6% (8% in constant dollars).
OPERATING EARNINGS Operating earnings are comprised of segment earnings less
corporate administration expenses, restructuring and asset write-offs and other
significant charges. In 1999, segment earnings increased $30 or 10% versus the
prior year reflecting double-digit increases in the pharmaceuticals and surgical
businesses offset by a decrease in vision care. Segment earnings in 1998
increased $53 or 21% versus 1997. Incremental results from acquired
pharmaceuticals and surgical businesses drove the increase that otherwise would
have been flat year-over-year. Corporate administration expense in 1999 of $63
or 3.6% of net sales increased over the $53 or 3.3% of net sales in 1998, driven
primarily by costs associated with year 2000 and financial systems upgrades.
Corporate administration expense in 1998 improved as a percentage of sales
versus the 4.1% in 1997. This improvement reflected effects of expense reduction
resulting from restructuring programs and a higher sales base due to the
surgical acquisitions. The other significant charges in 1998 amounted to $41 for
purchased in-process research and development and $32 for other required
purchase accounting adjustments. Restructuring charges and asset write-offs are
discussed below.
Unless otherwise noted, discussion in the remainder of this financial
review concerning segment results, operating costs and expenses and geographic
region results exclude the restructuring charges and asset write-offs, corporate
administration expense and other significant charges.
RESTRUCTURING CHARGES AND
ASSET WRITE-OFFS
In 1999 and 1997, the company's board of directors approved plans to restructure
certain of the company's business segments and corporate administrative
functions. These plans are described more fully in Note 5 - Restructuring
Charges and Asset Write-offs, and represent the company's programs to enhance
its competitive position.
1999 PROGRAM
In December 1999, management announced that in order to increase its
competitiveness and performance, the company would exit certain manufacturing
platforms in the contact lens business and consolidate others into focused
facilities, as well as reduce certain global administrative costs. As a result,
a pre-tax amount of $57 was recorded during the fourth quarter for restructuring
and asset write-offs. The after-tax impact of this charge was $36 or $0.62 per
share. Major actions in this restructuring plan include:
<TABLE>
<CAPTION>
Anticipated
Project Start Date Completion Date
- -----------------------------------------------------------------
<S> <C> <C>
VISION CARE
Exit certain European
manufacturing platforms Q4/99 Q2/00
Exit certain U.S.
manufacturing platforms Q4/99 Q4/00
Eliminate internal
infrastructure costs Q4/99 Q2/00
OTHER/ADMINISTRATIVE
Eliminate internal
infrastructure costs Q4/99 Q4/00
</TABLE>
The above actions are expected to result in cash outflows of approximately
$31. The majority of the outflows are expected to occur in the second half of
2000. The company anticipates that its current cash position as well as the cash
provided through operations will provide adequate funding for these actions.
This program is expected to yield pre-tax cost savings of approximately $16
in 2000 and $30 annually beginning in 2001. These savings will be realized
primarily through reduced cost of products sold and selling, administrative and
general expenses. A portion of these savings will be reinvested into research
and development (R&D).
The company is considering additional actions to rationalize its contact
lens product line and manufacturing processes. These actions, which may include
the discontinuance of certain product lines, could result in additional pre-tax
charges of up to $15 during 2000.
1997 PROGRAM
During 1998 and 1997, the company recorded cumulative pre-tax restructuring
charges and asset write-offs of $46 pertaining to continuing businesses. The
after-tax impact of these charges was $4 and $26 or $0.07 and $0.47 per share
for the fiscal years 1998 and 1997, respectively.
During 1999, all actions under this program were completed and the unused
reserve of $3 was reversed and included in the restructuring charges and asset
write-offs line of the company's statement of income.
The goal of the 1997 restructuring program was to enhance the company's
competitive position and to reduce the annual impact of general and
administrative, logistics and distribution
See the future 10 Bausch & Lomb
<PAGE>
costs by streamlining functions and closing certain facilities. Actual cost
savings were approximately $41, a portion of which has been reinvested in
marketing and advertising to support new product launches.
VISION CARE SEGMENT RESULTS
1999 Versus 1998 The vision care segment includes the contact lens, lens care
and vision accessories businesses. Revenues in this segment were $1,029 in 1999,
an increase of 6% over 1998, with a negligible impact from currency rate
changes. Lenses comprised 46% of sales and lens care and vision accessories
together comprised the remaining 54%.
Contact lens revenue grew 8%, driven by double-digit growth in planned
replacement and disposable lenses (collectively, PRD), including SofLens one
day, SofLens66 toric and PureVision. Outside the U.S., contact lens sales grew
by 14%, driven by strong gains in sales of SofLens one day in Europe, as well as
increased sales of Medalist in Japan. Contact lens sales were flat in the U.S.,
with modest growth in the company's PRD lenses offset by an expected decline in
sales of traditional lenses. Lens care and vision accessories revenues grew by
4% in 1999 with gains driven primarily by strong sales of the ReNu line,
especially in Japan where ReNu multi-purpose solution was introduced.
Earnings in this segment declined $8 or 4%. This decline was due primarily
to increased selling, administrative and general expenses and unfavorable
manufacturing variances caused by reduced production of older lines of PRD
lenses.
1998 VERSUS 1997 Revenues increased $53 or 6% driven by a 9% improvement in
contact lens sales combined with a 3% improvement in lens care and vision
accessories revenues. On a constant dollar basis, segment revenues increased 8%.
Contact lens revenue gains were driven by strong growth in PRD lenses
including SofLens one day in Europe, where sales more than doubled from 1997,
and Medalist in Japan. PRD sales in the U.S. grew modestly but were offset by
declining sales of rigid gas permeable and traditional lenses. Revenues from
lens care and vision accessories products were up 5% in constant dollars, driven
primarily by strong results in Europe. Segment earnings declined $2 or 1%, and
operating margins declined to 21% in 1998 from 23% in 1997, primarily the result
of currency changes.
PHARMACEUTICALS SEGMENT RESULTS
1999 Versus 1998 The pharmaceuticals segment includes prescription ophthalmic
drugs and OTC medications. Segment revenues increased $52 or 22% with a
negligible impact from currency.
In the U.S., pharmaceuticals revenues increased 37%. Contributing to these
results was a significant increase in sales of generic otic products, which
benefited from a competitor's exit from the market in late 1998; increased
revenues from the company's line of proprietary ophthalmic anti-inflammatory
products, Lotemax and Alrex, which continued to gain market share throughout
1999; strong results for generic desmopressin, the first generic prescription
nasal spray to be approved by the FDA; and an increase in revenues in the OTC
business due in part to higher sales of Opcon-A. The U.S. growth was somewhat
mitigated by flat results in Europe, reflecting lower OTC sales and negative
currency impacts which affected the company's Dr. Mann Pharma subsidiary in
Germany.
Segment earnings increased 35% from 1998, due in part to favorable pricing
opportunities in the otics line. A substantial portion of the incremental margin
realized from increased otic sales was reinvested in R&D, which increased by $14
or 65% and represented 12% of 1999 sales versus 9% in 1998.
1998 VERSUS 1997 Segment revenues increased $51 or 27% reflecting the additions
of the Chiron Vision and Storz pharmaceuticals product lines as well as the
pharmaceuticals product lines of Dr. Winzer Pharma in Germany (the acquired
product lines). Excluding the impact of the acquired product lines,
pharmaceuticals revenues increased 9%. Currency rate changes had a negligible
impact on segment revenues.
In the U.S., pharmaceuticals revenues increased 29% due to the acquired
product lines, the introductions of Lotemax and Alrex, increased revenues from
trimethoprim, the generic equivalent to Polytrim, and increased generic otic
sales. Also contributing to this increase was the OTC business, which benefited
from strong sales of Opcon-A. Competitive pressures, including price declines on
certain generic products, partially offset this sales growth. Pharmaceuticals
revenues outside the U.S. improved 24% over the prior year, reflecting the
acquired product lines, new product introductions and more stable market
conditions in Germany than had been experienced in 1997.
Segment earnings increased 34% over 1997, primarily reflecting the impact
of the acquired product lines. 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. R&D increased to
9% of sales from 7% of sales in 1997, reflecting additional spending to support
development of proprietary products.
See the future 11 Bausch & Lomb
<PAGE>
SURGICAL SEGMENT RESULTS
1999 Versus 1998 The surgical segment includes products used for cataract,
refractive and retinal surgery. Segment revenues were $433 which represented an
increase of $48 or 12% over 1998, and an increase of 14% in constant dollars.
The increase in revenues in all regions was driven primarily by sales of
products for refractive surgery, including Hansatome microkeratomes and
disposable blades, diagnostic technologies and lasers. This success was aided by
the acquisition of Hansa Research and Development, Inc. in the first quarter of
1999, which improved the company's ability to deliver microkeratomes and blades
to the market. Also contributing to the segment's success in the refractive
market has been the positive response received regarding the company's Orbscan
diagnostic technology which was obtained through the 1999 acquisition of Orbtek,
Inc.
Segment earnings increased $21 or 49% due to a reduction in selling,
administrative and general expenses as a percentage of sales as a result of the
successful integration of the two surgical businesses the company acquired at
the beginning of 1998.
1998 VERSUS 1997 In the U.S., surgical revenues were $231 and represented 60% of
total segment sales. Operations outside the U.S. accounted for $154 or 40% of
total segment sales. Total 1998 segment earnings were $43. All sales and
earnings of this segment related to the 1998 acquisitions and were incremental
to 1997.
OPERATING COSTS AND EXPENSES
The ratio of cost of products sold to sales for continuing businesses was 40.2%
in 1999, versus 39.4% and 36.1% for the years ended 1998 and 1997, respectively.
Results in 1999 reflected a decrease in vision care margins due to unfavorable
manufacturing variances resulting from lower production of certain contact
lenses and higher costs in the European distribution center. Offsetting these
declines were gains in the pharmaceuticals segment. The unfavorable trend in
1998 was primarily the result of the addition of the surgical businesses, which
generated lower margins than other continuing segments. Also contributing to
this result were lower vision care margins due to product mix and lower
pharmaceutical margins, which reflected lower selling prices for generic
products.
Selling, administrative and general expenses, including corporate
administration, were 39.0% of sales in 1999 compared to 40.2% in 1998 and 41.2%
in 1997. The year-over-year favorable ratio was driven by lower marketing
expenditures in the pharmaceuticals business, particularly for OTC products, and
benefits from the integration of the surgical business. The 1998 favorable ratio
reflected improvements resulting from company-wide system upgrades, lower
marketing and advertising costs and cost savings from restructuring programs
offset by incremental expenses associated with the integration of Chiron Vision
and Storz.
R&D expenses totaled $98 in 1999, an increase of $21 or 27% over 1998. In
1997, these costs were $50. This represented 5.6% of sales in 1999 versus 4.8%
and 4.5% in 1998 and 1997, respectively. Overall, the three-year trend
demonstrates the company's continued commitment to accelerate the R&D spending
needed to support its goal of consistently bringing new products to market.
REVENUES AND EARNINGS BY GEOGRAPHIC REGION
A summary of sales and earnings from continuing businesses by geographic region
follows.
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
As % of Total As % of Total As % of Total
Reported Net Sales Reported Net Sales Reported Net Sales
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES
U.S. $ 929.5 53% $ 841.9 53% $ 564.0 51%
Non-U.S. 826.6 47% 755.6 47% 544.7 49%
-----------------------------------------------------------------------------------
$1,756.1 $1,597.5 $1,108.7
===================================================================================
<CAPTION>
% of Operating % of Operating % of Operating
Earnings Earnings Earnings
- -----------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS
U.S. $ 139.7 52% $ 122.7 49% $ 111.1 55%
Non-U.S. 128.0 48% 125.3 51% 90.9 45%
--------------------------------------------------------------------------------------
$ 267.7 $ 248.0 $ 202.0
======= ======== ========
</TABLE>
See the future 12 Bausch & Lomb
<PAGE>
1999 VERSUS 1998 Sales in markets outside the U.S. increased 9% over the prior
year and represented 47% of total revenues in 1999 and 1998 and 49% in 1997.
Increased revenues for vision care products, driven by exceptional results for
PRD lenses, and favorable surgical results, more than offset flat sales in
pharmaceuticals. Currency exchange rates had a minimal impact on consolidated
non-U.S. sales. European revenues advanced 3%, and 8% in constant dollars, due
mainly to strong results of PRD lenses. Sales in the Asia-Pacific region
increased 18% over the prior year, and advanced 8% in constant dollars, due in
large part to the growth of PRD lenses and lens care products throughout most of
the region. Revenues in the Canada and Latin America region increased 20% with
improved surgical sales in Canada partially offset by currency impacts in Latin
America.
U.S. sales, which represented 53% of total consolidated revenues, increased
10% from 1998. U.S. sales benefited from strong double-digit growth in
pharmaceutical products, led by the incremental impact from generic otic
products and the proprietary products Lotemax and Alrex, as well as exceptional
growth in sales of products for refractive surgery.
In 1999, operating earnings in markets outside the U.S. increased 2% from
1998, and represented 48% of total operating earnings, versus 51% and 45% in
1998 and 1997, respectively. Earnings were led by the Asia-Pacific region where
Medalist contact lenses and ReNu multi-purpose solution performed well, aided by
favorability in foreign currency. Earnings in the European region declined
overall versus 1998 due to the impact of currency. In the U.S., 1999 operating
earnings increased 14% versus the prior year. Margin improvements in the
pharmaceuticals and surgical segments combined to offset higher R&D and
administrative expenditures.
1998 VERSUS 1997 Sales outside the U.S. increased 39% in 1998 over 1997.
Incremental sales from the acquired surgical businesses and increased revenues
for vision care products, primarily contact lenses, drove the improvement.
European revenues advanced significantly from the prior year led by incremental
pharmaceuticals and surgical sales and growth in vision care sales. Sales in the
Asia-Pacific region increased 15%. On a constant dollar basis, sales in the
region advanced 21% due in large part to incremental surgical sales and to
strong growth of PRD lenses throughout most of the region. In the Canada and
Latin America region, sales increased 24% driven by incremental surgical sales
and higher sales of vision care products.
U.S. revenues in 1998 increased 49% from the prior year due primarily to
incremental surgical sales. Vision care sales saw year-over-year improvement led
by growth in PRD lenses, rigid gas-permeable (RGP) solutions and the launch of
ReNu MultiPlus.
Operating earnings in markets outside the U.S. increased 38% from 1997.
Incremental surgical results and the Dr. Winzer acquisition in Germany drove the
increase.
In the U.S., 1998 operating earnings increased 10%. These results reflected
improvements in the vision care segment offset by higher R&D and administrative
expenses as well as incremental amortization expense associated with recent
acquisitions. Administrative expenses increased primarily due to initial costs
associated with year 2000 and financial systems projects.
NON-OPERATING INCOME AND EXPENSE
OTHER INCOME AND EXPENSE Interest and investment income was $46 in 1999, $43 in
1998 and $39 in 1997. The increase in 1999 over 1998 was due mainly to higher
cash balances because of the divestitures, and higher interest rates. The
increase in 1998 over 1997 was primarily attributable to a gain on the sale of a
long-term note associated with a 1996 divestiture.
Interest expense was $88 in 1999, $99 in 1998 and $55 in 1997. The decrease
in 1999 from 1998 was mostly due to 1999 divestitures, which yielded in excess
of $1 billion in cash, some of which was used to significantly reduce short-term
debt. In 1998, debt increased significantly due to the surgical acquisitions,
thus increasing interest expense compared to 1997.
The company's net gain from foreign currency transactions has not varied
materially during the three-year period ending in 1999 due in part to the
company's risk management strategy.
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.
Other income of $7 in 1999 resulted from the liquidation of an investment
in preferred securities associated with a 1995 divestiture. In 1997, a pre-tax
charge of $21 resulted from a legal settlement.
INCOME TAXES The company's effective tax rate for continuing operations was
36.0% in 1999 as compared to 35.2% in 1998 and 38.1% in 1997. The impact of
charges for litigation, acquired in-process R&D, restructuring and asset
write-offs are reflected in the appropriate years. Excluding these items, the
ongoing tax rates were 36.0%, 36.2% and 37.5% for 1999, 1998 and 1997
respectively.
When calculating income tax expense, the company recognizes valuation
allowances for tax loss and credit carryforwards, which may not be realized by
utilizing a "more likely than not" approach. This is more fully described in
Note 9 - Provision for Income Taxes.
See the future 13 Bausch & Lomb
<PAGE>
MINORITY INTEREST Minority interest was $16, $22 and $20 for 1999, 1998 and
1997, respectively. The reduction in 1999 from the prior two years primarily
reflects the impact from the restructuring of a limited partnership as described
in Note 13 - Minority Interest.
DISCONTINUED OPERATIONS Income from discontinued operations, net of income
taxes, in 1999 was $34 compared to losses of $63 and $13, respectively, for the
years ended 1998 and 1997. The loss in 1998 occurred primarily because of an $85
impairment charge associated with the former hearing aid business while the loss
in 1997 was due mostly to restructuring charges and asset write-offs in the
eyewear business.
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.
CASH FLOWS FROM OPERATING ACTIVITIES Cash provided by operating activities
totaled $223 in 1999, an increase of $77 from 1998. The increase was driven
primarily by increased earnings from continuing businesses and lower net
financing expenses due to the repayment of debt that occurred as a result of
divestitures, partially offset by increases in accounts receivable. In 1998,
operating activities generated $146 in cash flow, a decrease of $69 from 1997.
Increases in accounts receivable, interest on incremental debt associated with
the surgical acquisitions and the settlement of litigation commenced in a prior
year contributed to this result.
Free cash flow for 1999 was $79, an increase of $153 from 1998. The
increase was primarily attributable to the operating factors cited above, as
well as to a decrease in capital expenditures.
CASH FLOWS FROM INVESTING ACTIVITIES Cash provided by investing activities was
$1,163 in 1999. Cash inflows from divestitures were $1,048 while an additional
$300 was realized from the liquidation of an investment. Capital expenditures of
$156 primarily supported expanded contact lens manufacturing capacity and year
2000 and financial system improvements, while the acquisition of two companies
within the surgical segment resulted in a cash outflow of $43.
In 1998, cash used in investing activities was $797 as outflows of $719 and
$202 for acquisitions and capital expenditures, respectively, were partially
offset by divestiture proceeds of $135.
CASH FLOWS FROM FINANCING ACTIVITIES Cash used in financing activities during
1999 was $687 as the company reduced debt by nearly $450, and had a net outflow
of $200 resulting from the restructuring of a limited partnership, as explained
in Note 13 - Minority Interest. The board of directors authorized the repurchase
of up to 250,000 Common shares in July 1998 and up to 5,000,000 additional
Common shares in November 1999. The company has repurchased 630,548 shares
through December 25, 1999 and expects the remaining 4,619,452 shares to be
repurchased during 2000 using the cash generated from the 1999 divestitures.
In 1998, $593 was provided by financing activities. Net new borrowings
totaling $605 were used primarily to support the surgical acquisitions.
FINANCIAL POSITION The company's total debt, consisting of short- and long-term
borrowings, was $1,024 and $1,473 at the end of 1999 and 1998, respectively. The
repayment of debt was accomplished through use of a portion of divestiture
proceeds. The ratio of total debt to capital stood at 45.3% and 63.5% at
year-end 1999 and 1998, respectively. Cash and cash equivalents totaled $827 in
1999 and $129 in 1998.
Certain tranches of the company's long-term debt contain options that allow
holders to put the debt back to the company, or allow remarketing agents to call
the debt from the holders and remarket the debt at a higher interest rate than
the then current market rate. Based on current interest rate levels, the company
expects the remarketing agreements to expire, thus allowing the company to
retire each tranch at the earlier maturity date. The company does not believe
that the potential exercising of these rights would materially impact its
financial position.
ACCESS TO FINANCIAL MARKETS During the second quarter of 1999, the company
restructured its revolving credit agreements and now maintains 364-day bilateral
revolving credit agreements totaling $500. The interest rate under these
agreements is based on LIBOR, or at the company's option, such other rate as may
be agreed upon by the company and the bank. No debt was outstanding under these
agreements at December 25, 1999. In addition, the company maintains other lines
of credit on which it may draw to meet its financing requirements.
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 strong cash position, existing credit facilities
and access to financial markets provide adequate liquidity to meet obligations,
fund capital expenditures and invest in potential growth opportunities.
See the future 14 Bausch & Lomb
<PAGE>
WORKING CAPITAL Working capital and the current ratio were $1,191 and 2.9,
respectively, at year end 1999 and $774 and 2.0, respectively, at year end 1998.
DIVIDENDS The dividend on Common stock, declared and paid quarterly, totaled
$1.04 per share for each of the years ended 1999, 1998 and 1997.
RETURN ON EQUITY AND CAPITAL Return on average shareholders' equity was 43.3% in
1999, compared with 3.1% in 1998 and 5.9% in 1997. The increase in 1999 was
mainly due to the gains realized on the divestitures. The decrease in 1998 was
primarily the result of an impairment charge in a now divested business and the
purchased in-process R&D charge described below.
Return on invested capital was 21.7% in 1999, 3.8% in 1998 and 5.0% in
1997. The increase in 1999 was due primarily to the gain on divestitures and the
debt repayments associated with the use of proceeds from the divestitures. The
decrease in 1998 was due primarily to the matters discussed above, as well as
to the debt increase associated with the surgical acquisitions.
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
use financial instruments for trading or other speculative purposes, nor does it
use leveraged financial instruments.
The company primarily uses foreign currency forward contracts to hedge
foreign currency transactions and equity investments in non-U.S. subsidiaries.
For contracts outstanding at the end of 1999, foreign currencies purchased were
primarily Singapore dollars, Hong Kong dollars and British pounds. The
currencies sold were primarily the euro, the Japanese yen and the British pound.
With respect to 1998, the outstanding contracts at year end required the
purchase of primarily Irish pounds, Singapore dollars and Hong Kong dollars and
the sale of German marks, Netherlands guilders and Singapore dollars. The
magnitude and nature of such hedging activities are explained further in Note 14
- - Financial Instruments. 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 1999
positions, if the U.S. dollar strengthened against all foreign currencies by
10%, the company's earnings would have been reduced by approximately $2 after
taxes. If the U.S. dollar weakened against all foreign currencies by 10% based
on 1998 net exposures, the company's earnings would have been reduced by
approximately $1 after taxes.
The company may enter 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 when it becomes unbalanced beyond policy limits. Due
mainly to the proceeds received from the 1999 divestitures, the company exceeded
policy limits at December 25, 1999. 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 interest rates
also 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 decrease in interest rates, which represents a
greater than 10% change, would increase the company's net financial expense by
approximately $8, based on 1999 year-end positions. With respect to 1998
year-end positions, the sensitivity analysis indicates that an increase in
interest rates of one percentage point would increase net interest expense by
approximately $1.
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.
OUTLOOK
In 2000, the company expects revenues to grow in the upper single digits,
supported by its newer product offerings within its vision care segment and the
expected continued strong growth in sales for products for refractive surgery.
Operating earnings are expected to improve by approximately 20% or more, driven
by savings from the restructuring programs announced in December 1999, as well
as a sales mix shift to newer, higher margin products. These projections presume
that foreign currency exchange rates remain fairly consistent with year end
levels. Since the company operates globally, the business is subject to
fluctuations in currencies which can have a material effect on sales and the
results of operations outside the U.S.
In the vision care segment, revenue growth is expected to be in the upper
single digits with lens care growing slightly and contact lenses growing in the
low double digits. The contact lens business should benefit from higher sales
from new and innovative products including SofLens one day disposable lenses;
SofLens66
See the future 15 Bausch & Lomb
<PAGE>
toric, a two-week disposable lens to correct astigmatism; PureVision, an
extended wear lens; and a new two-week conventional disposable lens which the
company plans to introduce during the first half of 2000. The new two-week
disposable lens will be manufactured using the same low-cost process that is
used for its one-day disposable product and is expected to allow the company to
compete more effectively in the price/value driven segment of the contact lens
market. The combination of increased sales of higher margin new products and
cost reduction initiatives are expected to yield improved operating margins in
this business.
In the surgical segment, revenues are expected to grow in the low double
digits, driven primarily by continued strong growth in demand for products used
in refractive surgery. Operating margins in this segment are expected to expand
to nearly 20% over the next two years, driven by the continued integration of
the two surgical businesses acquired in 1998, and a sales mix shift toward
higher margin products.
In the pharmaceuticals segment, revenues are expected to grow in the
mid-single digits in 2000. As the company anticipated, new competition in the
generic otic market is resulting in prices for these products trending down to
their pre-1999 levels. Consequently, 2000 sales comparisons will be off a
larger-than-normal base. Operating margins are expected to be in the high teens
in 2000 reflecting higher R&D spending and sales mix shifts.
Capital spending in 2000 is expected to be approximately $130. The majority
of this spending will be to support expanded manufacturing capacity within the
vision care and pharmaceuticals segments, as well as to upgrade global financial
and human resource systems. The company plans to expand its R&D spending
specifically in its pharmaceuticals and surgical segments to support new
technology. In addition, the company will continue to repurchase shares of its
common stock during 2000 under a five million share repurchase authorization,
announced in 1999. The company expects to generate free cash flow in excess of
$100 in 2000.
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 As stated in previous reports, the
company established a formal program to assess and renovate internal information
technology ("IT") and non-information technology ("non-IT") operations that were
identified as being at risk with regard to the year 2000 date issues, and
further to evaluate the readiness of key third party suppliers of products,
services, materials or data. The company experienced only limited minor
incidents due to the date changeover, none of which affected its operations,
products or services in a material way. Year 2000 costs, comprised of both
period expenses and capital expenditures, of identifying and remediating year
2000 issues is expected to be approximately $53, of which approximately $51 has
been spent to date. The remaining amount is expected to be spent during the
first two quarters of 2000 as final year 2000 related programs are completed. Of
the total anticipated costs, approximately 80% is expected to be capitalized as
a part of system upgrades and replacements. The company will continue to monitor
both its IT and non-IT systems for year 2000 issues as the year progresses.
Contingency plans deemed necessary for critical systems and for addressing a
potential failure of a key customer or supplier have been completed. The
estimated costs of remediation and other information described above are based
on information available at this time and may be updated as additional
information becomes available. Readers are referred to the section of this
filing labeled "Information Concerning Forward-Looking Statements" which address
forward-looking statements made by the company.
THE EURO On January 1, 1999, eleven of the fifteen 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.
EMPLOYEE BENEFITS Effective January 1, 2000, the company's contributory defined
benefit pension plan was converted to a noncontributory cash balance plan. This
plan covers essentially all U.S. employees. The company's defined contribution
plan was also amended to increase the company match. The changes to these plans
are not expected to materially affect the company's results.
See the future 16 Bausch & Lomb
<PAGE>
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
and general economic conditions in the global 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), changing trends in practitioner
and consumer preferences and tastes, changes in technology, medical developments
relating to the use of the company's products, 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 1999 Annual Report on Form 10-K.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the 1998 acquisitions of Chiron Vision and Storz, the company
immediately expensed $41 ($28 for Storz and $13 for Chiron Vision) of the
combined purchase price of these businesses, representing amounts for in-process
research and development (IPR&D). The expensed IPR&D represented the value of
projects that had not yet reached technological feasibility and for which the
assets to be used in such projects had no alternative future uses (See Note 2 -
Acquisitions). The company expects that products developed arising from the
acquired IPR&D will begin to generate sales and positive cash flows in the time
frames discussed in the following paragraphs. However, development of these
technologies remains a significant risk due to the remaining effort to achieve
technical viability, rapidly changing customer markets, uncertain standards for
new products and significant competitive threats from numerous companies.
Failure to bring the products associated with these projects to market in a
timely manner could result in a loss of market share or a lost opportunity that
could have a material adverse impact on the company's businesses and operating
results.
The company estimated the fair value of the purchased IPR&D for each of
these acquisitions using an income approach. Such methodology involved
estimating the fair value of the purchased IPR&D using the present value of the
estimated after-tax cash flows expected to be generated as a result of these
projects and using risk-adjusted discount rates and revenue forecasts as
appropriate. The selection of the discount rate was based on consideration of
the company's weighted average cost of capital, as well as other factors,
including the useful life of each project, anticipated profitability levels of
each project and the uncertainty surrounding successful development of each
project known at the time. The amount expensed was also impacted by the
percentage of completion for each project. The company expects to fund all R&D
efforts, including acquired IPR&D, from cash flow from operations.
Set forth below are descriptions of certain acquired IPR&D projects,
including their status at the end of 1999:
STORZ At the beginning of 1998, the company acquired Storz, a leading
manufacturer of high-quality ophthalmic surgical instruments, surgical and
diagnostic equipment, intraocular lens (IOL) implants and ophthalmic
pharmaceuticals. The allocation of $28 of the $370 purchase price to IPR&D
represented its estimated fair value using the methodology described above. The
$28 was allocated to the following projects: Cidofovir, $12; Ocuvite, $10 and
other technologies, $6.
Cidofovir - The company estimated that revenues attributed to Cidofovir, a
broad spectrum anti-viral agent for the treatment of ocular infections, were
expected to average in excess of $50 per year for the six years beginning in
2001. The discount rate and stage of completion used to derive the IPR&D amount
were 18% and 32%, respectively. During 1998 and 1999 the company spent
approximately $3 on R&D efforts for this product. Product development, however,
has been discontinued due to a failure to meet expected performance attributes.
Consequently, the company will not realize its forecasted revenues from this
project.
Ocuvite - Revenues attributed to alternative formulations of a currently
marketed product, Ocuvite, a high-potency vitamin/mineral supplement, were
expected to total approximately $37 for the three years ending in 2004, and then
average approximately $40 annually through 2011. The discount rate and stage of
completion used to derive the IPR&D amount were 22% and 54%, respectively. The
company believes development costs and revenue projections made at the time of
acquisition are still valid.
See the future 17 Bausch & Lomb
<PAGE>
Other technologies - Of the remaining three projects, as originally
anticipated, one began to generate revenues in 1999 and two are expected to
generate revenues in 2001. The expected rate of revenue growth varies depending
on the project and does not vary materially from original projections. At the
acquisition date, the expected aggregate cost to complete the projects was
expected to be $5 and the actual amounts are not expected to vary materially
from these estimates. The discount rate used to derive the IPR&D amounts was 15%
for all projects with the stage of completion ranging from 17% to 44%.
Approximately $2 in development costs remained at the end of 1999, all of which
is expected to be spent by the end of 2002.
CHIRON VISION At the beginning of 1998, the company acquired Chiron Vision for
$298 cash. Chiron Vision researches, develops and manufactures innovative
products that improve results of cataract and refractive surgeries and enhance
the treatment of progressive eye diseases. The allocation of $13 to IPR&D
represented its estimated fair value using the methodology described above. The
$13 was allocated to the following projects: IOL technologies, $7; disposable
keratome, $4, and other refractive technology, $2. Each of these projects was
assigned a discount rate of 18% to calculate IPR&D.
IOL technologies - Revenues attributed to various IOL line extension
technologies were expected to be approximately $50 over the three years ending
in 2002. At the acquisition date, costs to complete these projects were expected
to be $1. These projects were estimated to be over 80% complete at the time of
acquisition. Development was completed in 1999. The actual results to date for
these projects in the aggregate are consistent in all material respects with the
assumptions at the time of acquisition.
Disposable keratome - Revenues attributed to a project to develop a
single-use keratome were expected to be $37 over the five years beginning in
1999. At the acquisition date, costs to complete the project were expected to be
less than $1. This technology did not meet management's performance
expectations. The loss of these anticipated revenues are expected to be offset
by the additional revenues generated from the 1999 acquisition of Hansa Research
and Development, Inc., the maker of the Hansatome microkeratome.
Other refractive technology - Revenues attributed to a new type of
refractive IOL are expected to begin in 2003 and generate approximate annual
revenues of $27 by around 2006. At the acquisition date, costs to complete the
R&D efforts were expected to be approximately $6. Approximate expenditures over
the next five years are expected to average $1. The company believes development
costs and revenue projections made at the time of the acquisition are still
valid.
See the future 18 Bausch & Lomb
<PAGE>
STATEMENTS OF INCOME
For The Years Ended December 25, 1999, December 26, 1998 and December 27, 1997
Dollar Amounts In Millions - Except Share and Per Share Data
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,756.1 $1,597.5 $1,108.7
Costs And Expenses
Cost of products sold 706.3 662.2 400.6
Selling, administrative and general 684.5 642.7 456.3
Research and development 97.6 76.7 49.8
Purchased in-process research and development - 41.0 -
Restructuring charges and asset write-offs 53.5 5.4 39.1
-------------------------------------------------
1,541.9 1,428.0 945.8
-------------------------------------------------
OPERATING INCOME 214.2 169.5 162.9
Other Expense (Income)
Interest and investment income (45.5) (43.0) (39.1)
Interest expense 88.4 99.4 54.9
Gain from foreign currency, net (7.0) (6.6) (6.9)
Other income (6.7) - -
Litigation provision - - 21.0
-------------------------------------------------
29.2 49.8 29.9
-------------------------------------------------
Income From Continuing Operations
Before Income Taxes And Minority Interest 185.0 119.7 133.0
Provision for income taxes 66.6 42.2 50.6
-------------------------------------------------
Income From Continuing Operations
Before Minority Interest 118.4 77.5 82.4
Minority interest 15.7 21.9 20.4
-------------------------------------------------
Income From Continuing Operations 102.7 55.6 62.0
-------------------------------------------------
Discontinued Operations
Income (loss) from discontinued operations, net 34.0 (63.4) (12.6)
Gain on disposals of discontinued operations, net 308.1 33.0 -
-------------------------------------------------
342.1 (30.4) (12.6)
-------------------------------------------------
NET INCOME $ 444.8 $ 25.2 $ 49.4
=================================================
BASIC EARNINGS (LOSS) PER SHARE:
Continuing Operations $ 1.79 $ 1.00 $ 1.12
Discontinued Operations 5.97 (0.55) (0.23)
-------------------------------------------------
$7.76 $ 0.45 $ 0.89
=================================================
Average Shares Outstanding - Basic (000s) 57,287 55,824 55,383
=================================================
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing Operations $ 1.75 $ 0.99 $ 1.12
Discontinued Operations 5.84 (0.54) (0.23)
-------------------------------------------------
$ 7.59 $ 0.45 $ 0.89
=================================================
Average Shares Outstanding - Diluted (000s) 58,639 56,367 55,654
=================================================
</TABLE>
See Notes To Financial Statements
See the future 19 Bausch & Lomb
<PAGE>
BALANCE SHEETS
DECEMBER 25, 1999 AND DECEMBER 26, 1998
DOLLAR AMOUNTS IN MILLIONS - EXCEPT SHARE AND PER SHARE DATA
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 827.1 $ 129.2
Other investments, short-term 125.0 300.0
Trade receivables, less allowances of $19.6 and $26.8, respectively 438.0 526.3
Inventories, net 239.6 440.7
Deferred taxes, net -- 68.4
Other current assets 156.0 122.2
Net assets held for disposal, short-term 24.6 --
-----------------------
Total Current Assets 1,810.3 1,586.8
Property, Plant And Equipment, net 524.8 725.0
Goodwill And Other Intangibles, less accumulated amortization
of $129.3 and $137.3, respectively 606.8 758.9
Other Investments, long-term 173.8 249.2
Other Assets 153.1 171.8
Net Assets Held For Disposal, long-term 4.7 --
-----------------------
TOTAL ASSETS $3,273.5 $3,491.7
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 45.9 $ 160.4
Current portion of long-term debt 1.0 31.1
Accounts payable 94.8 92.6
Accrued compensation 74.6 110.3
Accrued liabilities 356.0 366.2
Federal, state and foreign income taxes payable 47.3 51.8
-----------------------
Total Current Liabilities 619.6 812.4
Long-Term Debt, less current portion 977.0 1,281.3
Deferred Income Taxes 117.7 --
Other Long-Term Liabilities 99.6 106.6
Minority Interest 225.6 446.4
-----------------------
TOTAL LIABILITIES 2,039.5 2,646.7
-----------------------
Common Stock, par value $0.40 per share, 200 million shares authorized,
60,198,322 shares issued in both 1999 and 1998 24.1 24.1
Class B Stock, par value $0.08 per share, 15 million shares authorized, 613,324
shares issued (955,791 shares in 1998) -- 0.1
Capital In Excess Of Par Value 89.6 84.2
Common And Class B Stock in Treasury, at cost, 3,435,738 shares
(4,625,026 shares in 1998) (150.1) (178.9)
Retained Earnings 1,268.4 883.5
Accumulated Other Comprehensive Income 9.0 41.0
Other Shareholders' Equity (7.0) (9.0)
-----------------------
TOTAL SHAREHOLDERS' EQUITY 1,234.0 845.0
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,273.5 $3,491.7
=======================
</TABLE>
See Notes To Financial Statements
See the future 20 Bausch & Lomb
<PAGE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
DOLLAR AMOUNTS IN MILLIONS
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 444.8 $ 25.2 $ 49.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 112.8 117.3 90.8
Amortization 43.4 46.5 21.2
Gain on divestitures (475.0) (56.0) --
Deferred income taxes 195.9 (2.5) (14.4)
Restructuring charges and asset write-offs 53.5 11.3 71.7
Stock compensation expense 8.0 10.6 3.3
Loss on retirement of fixed assets 31.4 14.6 8.3
Goodwill impairment charge -- 85.0 --
Purchased in-process research and development -- 41.0 --
Provision for litigation expense -- -- 21.0
Changes In Assets And Liabilities:
Trade receivables (93.0) (64.0) (32.9)
Inventories (11.6) (19.7) (1.0)
Other current assets (47.1) 17.0 (31.3)
Accounts payable and accrued liabilities (45.5) (98.3) (11.7)
Income taxes 3.9 21.5 51.0
Other long-term liabilities 1.9 (3.3) (9.9)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 223.4 146.2 215.5
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (155.9) (201.5) (126.1)
Net cash paid for acquisition of businesses (43.1) (718.9) (48.6)
Net cash received from divestitures 1,048.4 135.0 9.3
Proceeds from liquidation of other investment 300.0 -- --
Other 13.9 (12.0) (9.2)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,163.3 (797.4) (174.6)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of partnership interest 200.5 -- --
Redemption of investor's interest in partnership (400.0) -- --
Repurchases of Common and Class B shares (43.9) (1.8) (21.8)
Exercise of stock options 62.3 47.7 14.8
Net repayments of notes payable (414.7) (183.5) (72.7)
Proceeds from issuance of long-term debt -- 801.4 213.5
Repayment of long-term debt (31.6) (12.7) (89.3)
Payment of dividends (59.5) (58.1) (57.1)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (686.9) 593.0 (12.6)
-------- -------- --------
Effect Of Exchange Rate Changes On Cash And Cash Equivalents (1.9) 3.7 (12.4)
-------- -------- --------
Net Change In Cash And Cash Equivalents 697.8 (54.5) 15.9
Cash And Cash Equivalents, Beginning Of Year 129.2 183.7 167.8
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 827.1 $ 129.2 $ 183.7
======== ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 89.8 $ 85.6 $ 56.2
Net cash payments for (refunds of) income taxes 52.4 55.8 (6.4)
======== ======== ========
</TABLE>
See Notes To Financial Statements
See the future 21 Bausch & Lomb
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
DOLLAR AMOUNTS IN MILLIONS - EXCEPT SHARE AND PER SHARE DATA
<TABLE>
<CAPTION>
COMMON CAPITAL IN
AND CLASS B EXCESS OF TREASURY RETAINED
TOTAL STOCK (1),(2) PAR STOCK EARNINGS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996 $ 881.9 $ 24.2 $ 96.1 $ (230.5) $ 924.7
Components of Comprehensive Income:
Net income 49.4 -- -- -- 49.4
Currency translation adjustments (60.9) -- -- -- --
Unrealized holding gain 11.8 -- -- -- --
--------
Total comprehensive income 0.3
--------
Net shares (canceled) issued under
employee plans (293,504 shares) (16.2) -- (19.3) -- --
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 -- -- -- --
Dividends (3) (57.6) -- -- -- (57.6)
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 27, 1997 818.4 24.2 76.8 (223.1) 916.5
Components of Comprehensive Income:
Net income 25.2 -- -- -- 25.2
Currency translation adjustments 11.9 -- -- -- --
--------
Total comprehensive income 37.1
--------
Net shares (canceled) issued under
employee plans (98,886 shares) (0.6) -- 7.4 -- --
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 -- -- -- --
Dividends (3) (58.2) -- -- -- (58.2)
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 26, 1998 845.0 24.2 84.2 (178.9) 883.5
Components of Comprehensive Income:
Net income 444.8 -- -- -- 444.8
Currency translation adjustments (32.0) -- -- -- --
--------
Total comprehensive income 412.8
--------
Net shares (canceled) issued under
employee plans (342,467 shares) 0.4 (0.1) 5.4 -- --
Treasury shares issued under employee
plans (1,854,740 shares) 72.2 -- -- 72.2 --
Treasury shares repurchased (665,452 shares) (43.4) -- -- (43.4) --
Amortization of unearned compensation 6.9 -- -- -- --
Dividends (3) (59.9) -- -- -- (59.9)
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 25, 1999 $1,234.0 $ 24.1 $ 89.6 $ (150.1) $1,268.4
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER OTHER
COMPREHENSIVE SHAREHOLDERS'
INCOME EQUITY
- --------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT DECEMBER 28, 1996 $ 78.2 $ (10.8)
Components of Comprehensive Income:
Net income -- --
Currency translation adjustments (60.9) --
Unrealized holding gain 11.8 --
Total comprehensive income
Net shares (canceled) issued under
employee plans (293,504 shares) -- 3.1
Treasury shares issued under employee
plans (620,621 shares) -- --
Treasury shares repurchased (521,925 shares) -- --
Amortization of unearned compensation -- 2.6
Dividends (3) -- --
- --------------------------------------------------------------------------------
BALANCE AT DECEMBER 27, 1997 29.1 (5.1)
Components of Comprehensive Income:
Net income -- --
Currency translation adjustments 11.9 --
Total comprehensive income
Net shares (canceled) issued under
employee plans (98,886 shares) -- (8.0)
Treasury shares issued under employee
plans (1,255,044 shares) -- --
Treasury shares repurchased (33,784 shares) -- --
Amortization of unearned compensation -- 4.1
Dividends (3) -- --
- --------------------------------------------------------------------------------
BALANCE AT DECEMBER 26, 1998 41.0 (9.0)
Components of Comprehensive Income:
Net income -- --
Currency translation adjustments (32.0) --
Total comprehensive income
Net shares (canceled) issued under
employee plans (342,467 shares) -- (4.9)
Treasury shares issued under employee
plans (1,854,740 shares) -- --
Treasury shares repurchased (665,452 shares) -- --
Amortization of unearned compensation -- 6.9
Dividends (3) -- --
- --------------------------------------------------------------------------------
BALANCE AT DECEMBER 25, 1999 $ 9.0 $ (7.0)
================================================================================
</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 1997, 1998 and 1999.
See Notes To Financial Statements
See the future 22 Bausch & Lomb
<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.
SEGMENT REPORTING In accordance with Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an Enterprise and Related
Information, the company split the pharmaceuticals/surgical segment into two
separate segments in 1999 to reflect changes in the manner in which financial
information is viewed by management for decision-making purposes. The company
now reports its operating results in three segments: vision care,
pharmaceuticals and surgical. Prior year amounts have been restated to conform
with the 1999 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 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 using the
first-in, first-out (FIFO) method.
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 ten years;
and leasehold improvements, the shorter of the estimated useful life or the
lease periods. In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of, the company
assesses all long-lived assets, including property, plant and equipment, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles are amortized on a
straight-line basis over periods of up to 40 years. In accordance with SFAS 121,
the company assesses intangible assets for impairment 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 the assets. If undiscounted cash flows do not exceed the recorded
value, 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
to the customer. 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 25, 1999 and December 26, 1998, $3.3 and
$4.0 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 for continuing operations of $181.2,
$180.5 and $148.8 were included in selling, administrative and general expenses
for 1999, 1998 and 1997, respectively.
COMPREHENSIVE INCOME 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 Statements of Changes in Shareholders' Equity.
A change in unrealized holding gains was reported net of an income tax benefit
of $11.8 in 1997.
INVESTMENTS IN DEBT AND EQUITY SECURITIES In 1997, certain of the company's
other investments were classified as available-for-sale under the terms of SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
accordingly, unrealized holding gains and losses, net of taxes, were excluded
from
See the future 23 Bausch & Lomb
<PAGE>
income and recognized as a component of accumulated other comprehensive
income. Fair value of the investments was determined based on market prices or
by reference to discounted cash flows, and investment risk.
FOREIGN CURRENCY For most subsidiaries outside the U.S., the local currency is
the functional currency and translation adjustments are accumulated as a
component of accumulated other comprehensive income. The accumulated balances of
currency translation adjustments, net of taxes, were $9.0, $41.0 and $29.1 at
the end of 1999, 1998 and 1997, respectively.
For subsidiaries that operate in U.S. dollars or whose economic environment
is highly inflationary, the U.S. dollar is the functional currency and gains and
losses that result from remeasurement are included in earnings. The company
currently has one subsidiary that operates in a hyperinflationary economy. The
risk exposure related to this subsidiary is not considered material to the
company's consolidated financial statements. The effects from foreign currency
translation were losses of $3.8 in 1999, $2.2 in 1998 and $1.5 in 1997.
The company hedges certain foreign currency transactions and firm
commitments by entering into forward exchange contracts. Gains and losses
associated with currency rate changes on forward contracts hedging foreign
currency transactions are recorded in earnings. The effects of foreign currency
transactions, including related hedging activities, were gains of $10.8, $8.8
and $8.4 in 1999, 1998 and 1997, respectively.
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 25, 1999 and December 26, 1998 and are expected to be recognized
within one year.
When appropriate, the company will generally enter into interest rate swap
and cap agreements to effectively limit its exposure to interest rate movements
within the parameters of its interest rate hedging policy. This policy indicates
that interest rate exposures from floating-rate assets may be offset by a
substantially similar amount of floating-rate liabilities. Interest rate
derivatives may be 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 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. Due mainly to
the proceeds received from the 1999 divestitures, the company exceeded policy
limits at December 25, 1999.
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 was subsequently amended by SFAS 137, which requires the
company to adopt SFAS 133 no later than the first quarter of 2001. SFAS 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 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 is immediately recognized in earnings.
The impact of SFAS 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 financial statement impact of adopting SFAS
133.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements", which summarizes certain of the SEC's views in applying generally
See the future 24 Bausch & Lomb
<PAGE>
accepted accounting principles to revenue recognition in financial statements.
Management believes the company's revenue recognition policies, as more fully
described above, comply with the guidance contained in SAB 101 and, therefore,
the company's results of operations will not be materially affected.
2. ACQUISITIONS
The following table presents information about acquisitions by the company
during the two year period ended December 25, 1999, as well as the goodwill and
other intangible asset balances at December 26, 1998 and December 25, 1999. The
1999 and 1998 acquisitions were accounted for under the purchase method with a
portion of the purchase price allocated to goodwill and other intangible assets
and, in some cases, purchased in-process research and development (IPR&D).
<TABLE>
<CAPTION>
GOODWILL OTHER INTANGIBLES
(GROSS) (GROSS) TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCES AT DECEMBER 26, 1998
Storz(1) $107.7 $172.1 $279.8
Chiron Vision(2) 104.0 96.3 200.3
Dr. Winzer Pharma(3) 31.4 -- 31.4
All other - continuing(4) 153.5 37.2 190.7
All other - discontinued(5) 182.4 11.6 194.0
------ ------ ------
579.0 317.2 896.2
Activity during 1999
Hansa(6) 17.7 -- 17.7
Orbtek(6) 12.1 12.4 24.5
All other - discontinued(5) (182.4) (11.6) (194.0)
Other 1999 activity -- (8.3) (8.3)
------ ------ ------
Balance at December 25, 1999 $426.4 $309.7 $736.1
====== ======
Accumulated Amortization(7) (129.3)
------
Goodwill and Other Intangibles, net
at December 25, 1999 $606.8
======
</TABLE>
(1) Storz Instrument Company, Storz Ophthalmics, Inc. and Cyanamid Chirurgie
S.A.S. (collectively, Storz) was a leading manufacturer of ophthalmic
surgical instruments, surgical and diagnostic equipment, intraocular lens
implants and ophthalmic pharmaceuticals. It was acquired at the beginning
of 1998 for $369.7 in cash. Goodwill is being amortized over an original
life of 40 years. Other intangible assets are being amortized over original
lives as follows: tradename of $37.3 and workforce of $12.9, 17 years;
customer relationships of $80.8, 40 years; and technology/patents of $28.0,
10 years.
(2) Chiron Vision Corporation, acquired for cash of $298.1 in the beginning of
1998, researched, developed and manufactured innovative products that
improved results in cataract and refractive surgeries and that enhanced the
treatment of progressive eye diseases. Goodwill is being amortized over an
original life of 20 years. Other intangible assets are being amortized over
original lives as follows: tradename of $26.4 and customer relationships of
$41.4, 20 years; workforce of $10.7, 14 years; and technology/patents of
$18.1, 8 years.
(3) Dr. Winzer Pharma, a pharmaceutical company in Germany, was acquired in May
1998. Goodwill has an original life of 15 years.
(4) Goodwill includes the following amounts: Dr. Mann Pharma, acquired in 1986,
$82.5 with an original life of 30 years; Award, plc, acquired in 1996,
$36.3 with an original life of 15 years; remainder has average original
life of 26 years with an average remaining life of 19 years.
(5) Amounts represent goodwill and other intangibles for businesses sold during
1999 as described in Note 3 --Discontinued Operations.
(6) Hansa Research and Development, Inc, acquired in January 1999 for $18.4,
manufactured the Hansatome microkeratome used in refractive surgery
procedures. Goodwill is being amortized over an original life of 15 years.
Orbtek, Inc, acquired in March 1999 for $24.7, developed a unique
diagnostic system to give surgeons critical information about the eye.
Goodwill is being amortized over an original life of 20 years. Other
intangible assets are being amortized over original lives as follows:
workforce of $0.2, 14 years; regulatory approvals of $8.5, 20 years; and
technology/patents of $3.7, 10 years.
(7) Accumulated amortization at December 26, 1998 was $137.3.
See the future 25 Bausch & Lomb
<PAGE>
The purchase price for the acquisitions was allocated to tangible assets
and intangible assets, including goodwill and identifiable intangible assets,
less liabilities assumed, and in the case of Storz and Chiron Vision, to IPR&D.
As required under generally accepted accounting principles, IPR&D was
immediately expensed, resulting in a non-cash charge to earnings, since the
underlying R&D projects had not reached technological feasibility and the assets
to be used in such projects had no alternative future use.
The useful lives of goodwill was determined based upon an evaluation of
pertinent factors, including:
- - Individual aspects of each acquisition and the associated useful lives
- - Consideration to legal, regulatory and contractual provisions which could
limit the maximum useful life
- - Management's professional judgement and in some instances, the expert
opinions of independent appraisers
After considering these factors as they related to the Chiron Vision and
Storz acquisitions, it was determined that the associated goodwill related
explicitly to the perceived earnings potential of these businesses, and
furthermore, that the future periods to benefit from these potential earnings
were integrally associated with the acquired customer bases. Therefore, the
asset lives assigned to goodwill were the same as the lives assigned to the
customer base component of other intangible assets, which was 40 and 20 years,
respectively, for Chiron Vision and Storz.
The asset lives of the other intangible assets acquired in the Chiron
Vision and Storz acquisitions were determined by independent appraisers, and
agreed to by management, using generally accepted actuarial methodologies needed
to estimate useful lives from observed historical data. In estimating the useful
life of the Storz customer relationships referred to in the above table, the
appraisers evaluated relationships that Storz had fostered since its formation
(and the formation of companies it had acquired) and calculated the useful life
by observing the pattern of historical customer attrition. Based on this
attrition pattern, customers were sorted into "vintage groups" that identified
the length of tenure with Storz, analyzed for survival rates and translated into
loss rates for each vintage. The annual survivor rates were then extrapolated to
determine the future rate of customer loss and from this data a useful life of
40 years was calculated. The same statistical technique was used to determine
the life of customer relationships for Chiron Vision, which was estimated to be
20 years.
For the other categories of other intangible assets - tradenames, workforce
and technology/patents - specific facts and circumstances were analyzed by the
appraisers to determine appropriate asset lives.
There were a combined 11 product development projects for Chiron Vision and
Storz included in the $41.0 pre-tax charge to IPR&D. The projects were unique
from other pre-existing core technology and pertained primarily to the
development of new ophthalmic pharmaceutical drugs, new or redesigned
intraocular lenses and products that support eye surgery procedures. The value
allocated to IPR&D was determined using an income approach. Such methodology
involved estimating the fair value of the purchased IPR&D using the present
value of the estimated after-tax cash flows expected to be generated as a result
of these projects and using risk-adjusted discount rates and revenue forecasts
as appropriate. These estimates were consistent with historical pricing, margins
and expense levels for similar products. Revenues were estimated based on
relevant market size and growth factors, expected industry trends, individual
product sales cycles and other factors. Estimated operating expenses, income
taxes, and charges for use of contributory assets were deducted from estimated
revenues to determine estimated after-tax cash flows for each project. Estimated
operating expenses included cost of goods sold and selling, administrative and
general expenses. The discount rates used to value the IPR&D projects ranged
from 15% to 22%. These rates were based on the company's weighted average cost
of capital, as well as other factors, including the useful life of each project,
the anticipated profitability of each project and the uncertainty regarding the
successful completion of each project. The value of IPR&D was also impacted by
the stage of completion of each project, which ranged from 17% to 95%.
Management is primarily responsible for estimating the fair value of assets
and liabilities obtained through acquisitions and has conducted due diligence in
determining fair values. Management made estimates and assumptions at the time
of each acquisition that affect the reported amounts of assets, liabilities and
expenses, including IPR&D, resulting from such acquisitions. Actual results
could differ from those amounts. During 1999, two of the product development
projects representing 40% of the $41.0 pre-tax charge were discontinued. Costs
and expected revenues related to the remaining projects have not varied
materially from original projections.
ACCRUAL FOR EXIT ACTIVITIES As part of the integration of Chiron Vision and
Storz, 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:
See the future 26 Bausch & Lomb
<PAGE>
<TABLE>
<CAPTION>
Costs of Exit Activities
------------------------------------------------------------------
Employee
Severance Facilities Contract
and Relocation Closure Costs Terminations Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued at acquisition date $21.7 $ 5.5 $ 0.9 $28.1
Less 1998 Activity
Cash payments (6.3) (0.7) (0.9) (7.9)
Non-cash items -- (0.3) -- (0.3)
----- ----- ----- -----
Balances at December 26, 1998 15.4 4.5 -- 19.9
Less 1999 Activity
Cash payments (10.7) (0.4) -- (11.1)
Non-cash items -- (2.6) -- (2.6)
----- ----- ----- -----
Balances at December 25, 1999 $ 4.7 $ 1.5 $ -- $ 6.2
===== ===== === =====
</TABLE>
The costs of employee terminations related to 596 employees in production,
R&D, selling and administration. During 1999 and 1998, 384 and 100 of these
employees were terminated, respectively, leaving 112 to be terminated in 2000.
Employees to be terminated in 2000 include those in a foreign jurisdiction that
involved a lengthy statutory process of notice and approval prior to
termination. Management does not believe such process will result in severance
payments or other costs materially different from those accrued. The facilities
closure costs primarily represented leasehold termination payments and fixed
asset writedowns relating to duplicate facilities. The closures and
consolidations in the U.S. were substantially completed in 1999. The closures
and consolidations outside the U.S. were commenced in 1999 and are expected to
be substantially complete in 2000. Involuntary termination benefits of $18.1
were accrued in 1998. Amounts paid and charged against the liability were $8.4
in 1999 and $5.4 in 1998.
3. DISCONTINUED OPERATIONS
On June 26, 1999, the company completed the sale of its sunglass business to
Luxottica Group S.p.A. for $636.0 in cash. The company recorded an after-tax
gain of $126.3 or $2.16 per diluted share, which included the costs associated
with exiting the business, such as severance pay and additional pension costs.
The results of the sunglass business have been reported as discontinued
operations in the accompanying Statements of Income. Revenues of this business
were $252.7, $445.6 and $482.9 for 1999, 1998 and 1997, respectively. At the
time of the sale, certain non-U.S. sunglass businesses were subject to deferred
closings due to local regulatory and legal considerations, all of which should
be resolved to enable closings to occur within a 12-month period from the
original date of sale, with the exception of the company's interest in the
sunglass business of Bausch & Lomb India Limited, which is expected to occur
within 24 months from the original date of sale. Most of the deferred closings
were completed prior to December 25, 1999. Net assets from the remaining units
were classified as net assets held for disposal in the company's December 25,
1999 balance sheet. Net assets of the sunglass business subject to deferred
closing totaled $29.3 at December 25, 1999, and consisted primarily of
inventory, receivables, property, plant and equipment, accrued liabilities and
payables.
On August 30, 1999 the company completed the sale of its hearing aid
business to Amplifon S.p.A., a privately-held company in Italy. The company
recorded an after-tax gain of $11.1 or $0.19 per diluted share, including costs
associated with exiting the business. Also during the third quarter, the company
completed the sale of Charles River Laboratories, a biomedical business, to DLJ
Merchant Banking Partners II, L.P., an affiliate of the investment banking firm
of Donaldson, Lufkin and Jenrette, for approximately $400 in cash and $43 in
promissory notes. The company retained a 12.5% equity interest in the Charles
River Laboratories business. The company recorded an after-tax gain of $170.7 or
$2.91 per diluted share, including costs associated with exiting the business.
The hearing aid, the biomedical and the skin care business (which was sold in
1998) collectively, comprised the company's healthcare segment. The results of
the healthcare segment have been reported as discontinued operations in the
accompanying Statements of Income. Revenues for this segment were $241.0, $319.7
and $324.1 for 1999, 1998 and 1997, respectively.
Income (loss) from discontinued operations as reported on the company's
Statements of Income were net of income taxes of $20.6, $14.2 and $(5.0) for the
fiscal years ended 1999, 1998 and 1997. The balance sheets at December 25, 1999
and December 26, 1998 and the statements of cash flows for the years ended
December 25, 1999, December 26, 1998 and December 27, 1997 have not been
restated to reflect the divestitures of these businesses.
See the future 27 Bausch & Lomb
<PAGE>
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 reflect 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 repurchase
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 diluted
earnings per share:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 102.7 $ 55.6 $ 62.0
Income (loss) from discontinued operations, net 34.0 (63.4) (12.6)
Gain on disposals of discontinued operations, net 308.1 33.0 --
---------- ---------- ----------
Net Income $ 444.8 $ 25.2 $ 49.4
---------- ---------- ----------
BASIC NET INCOME PER COMMON SHARE:
Continuing operations $ 1.79 $ 1.00 $ 1.12
Discontinued operations 0.59 (1.14) (0.23)
Gain on disposal of discontinued operations 5.38 0.59 --
---------- ---------- ----------
Net income per common share $ 7.76 $ 0.45 $ 0.89
---------- ---------- ----------
DILUTED NET INCOME PER COMMON SHARE:
Continuing operations $ 1.75 $ 0.99 $ 1.12
Discontinued operations 0.58 (1.13) (0.23)
Gain on disposal of discontinued operations 5.26 0.59 --
---------- ---------- ----------
Net income per common share $ 7.59 $ 0.45 $ 0.89
---------- ---------- ----------
Basic average common shares outstanding (000s) 57,287 55,824 55,383
Dilutive effect of stock options (000s) 1,352 543 271
---------- ---------- ----------
Diluted average common shares outstanding (000s) 58,639 56,367 55,654
====== ====== ======
</TABLE>
Antidilutive outstanding stock options were excluded from the calculation
of average shares outstanding. Options excluded, in thousands, totaled 1,149 in
1999, 1,709 in 1998 and 3,431 in 1997. Actual outstanding Common and Class B
shares at the beginning of the period were 56,529 in 1999, 55,209 in 1998 and
55,404 in 1997.
See the future 28 Bausch & Lomb
<PAGE>
5. RESTRUCTURING CHARGES AND ASSET WRITE-OFFS
1999 PROGRAM
In December 1999, the company's board of directors announced that it was
implementing a comprehensive program to exit certain contact lens manufacturing
platforms and take additional steps to further reduce the administrative cost
structure throughout the company. As a result, the company recorded a pre-tax
charge of $56.7 for 1999, the major components of which are summarized in the
table below:
<TABLE>
<CAPTION>
Vision Care Other/Administrative Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROVISIONS
Employee terminations $27.1 $ 3.7 $30.8
Asset write-offs 25.8 0.1 25.9
----- ----- -----
52.9 3.8 56.7
LESS 1999 ACTIVITY
Cash payments (1.0) -- (1.0)
Non-cash items (25.8) (0.1) (25.9)
----- ----- -----
Remaining reserve at December 25, 1999 $26.1 $ 3.7 $29.8
===== ===== =====
</TABLE>
The restructuring program within the vision care segment will focus on the
elimination of certain contact lens manufacturing platforms resulting from
exiting less cost-effective technologies. The programs included under
other/administrative will focus primarily on further reducing overhead costs
throughout the company. The major actions in this restructuring plan include:
<TABLE>
<CAPTION>
Start Date Anticipated Completion Date
<S> <C> <C>
PROJECT
Vision Care
Exit certain European manufacturing platforms Q4/99 Q2/00
Exit certain U.S. manufacturing platforms Q4/99 Q4/00
Eliminate internal infrastructure costs Q4/99 Q2/00
OTHER/ADMINISTRATIVE
Eliminate internal infrastructure costs Q4/99 Q4/00
</TABLE>
The above projects will result in the termination of approximately 900
employees. Vision care includes terminations of 710 employees in production and
116 administrative staff. The other/administrative actions include the
termination of approximately 80 staff in both administrative and sales roles. As
of December 25, 1999, approximately 240 employees have been involuntarily
terminated under this restructuring plan with $1.0 of related costs being
charged against the liability.
The employee terminations will result in future cash outflows to the
company. These cash outflows, which began in December 1999, are expected to take
place throughout 2000, with the majority of the outflows occurring in the second
half of the year. The company will use its current cash balance as well as cash
provided by operations to fund these cash outflows.
In addition to employee terminations, the above projects resulted in $25.9
of asset write-offs, primarily for the abandonment of manufacturing equipment.
The disposition and/or decommissioning of these assets occurred in the fourth
quarter of 1999 and January 2000.
See the future 29 Bausch & Lomb
<PAGE>
1997 PROGRAM
In April 1997, the company's board of directors approved plans to restructure
portions of each of the company's business segments, as well as certain
corporate administration functions. As a result, cumulative pre-tax
restructuring charges of $85.5 were recorded through the first half of 1998. Of
these charges, $46.0 related to ongoing operations and $39.5 related to divested
businesses and are reported as part of income from discontinued operations. The
following table sets forth the activity in this reserve for continuing
operations through December 25, 1999:
<TABLE>
<CAPTION>
Vision Care Pharmaceuticals Corporate Services Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Original Provision(1) $12.0 $ 5.0 $29.0 $46.0
Less 1997 Activity
Cash payments (8.5) (1.9) (5.9) (16.3)
Non-cash items (3.3) -- (0.3) (3.6)
Less 1998 Activity
Cash payments (6.2) (1.7) (3.1) (11.0)
Non-cash items -- -- -- --
Less 1999 Activity(1)
Cash payments 6.6 (1.2) (17.0) (11.6)
Non-cash items 0.2 -- (0.5) (0.3)
Less 1999 Reversal of Reserve (0.8) (0.2) (2.2) (3.2)
------------------------------------------------------------
Remaining Reserve 12/25/99 $ -- $ -- $ -- $ --
------------------------------------------------------------
</TABLE>
(1) During the first quarter of 1999, the company reclassified its
restructuring provisions and historical charges to properly reflect
responsibilities for restructuring activity consistent with current segment
reporting. The 1997 restructuring provisions and 1999 related charges have
been amended to properly reflect the reclassification.
The goal of this restructuring program 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. During 1999, the actions relating to these programs were completed
and the remaining reserve of $3.2 was reversed.
The 1997 program was expected to yield approximately $41.0 in annual cost
savings. Actual cost savings related to this plan are in line with expectations.
These cost savings are reflected primarily in reduced cost of sales and lower
selling, administrative and general costs. The originally anticipated cost
savings were largely reinvested in marketing and advertising to support new
product launches.
6. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
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 segments are vision care, pharmaceuticals and surgical. The
vision care segment includes contact lenses, lens care products and vision
accessories. The pharmaceuticals segment includes prescription ophthalmic drugs
as well as over-the-counter medications. The surgical segment is comprised of
cataract, refractive and retinal products.
Segment assets represent operating assets of U.S. commercial entities,
global manufacturing locations and inventories of non-U.S. commercial entities.
Net assets from discontinued operations subject to deferred closings are
classified as "net assets held for disposal" in the company's 1999 balance
sheet. Other operating assets of non-U.S. commercial entities are reported as
"amounts not allocated" in the following table.
See the future 30 Bausch & Lomb
<PAGE>
BUSINESS SEGMENT The following table presents sales and other financial
information by business segment for the years 1999, 1998 and 1997. The company
does not have material intersegment sales.
<TABLE>
<CAPTION>
Operating Depreciation Capital
Net Sales Earnings and Amortization Expenditures Assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Vision Care $1,029.5 $ 200.5 $ 65.3 $ 54.5 $ 524.3
Pharmaceuticals 293.9 66.1 16.0 21.1 266.4
Surgical 432.7 64.1 41.4 18.3 769.3
-------- -------- -------- -------- --------
1,756.1 330.7 122.7 93.9 1,560.0
Corporate administration -- (63.0) 6.5 43.4 1,246.0
Restructuring(1) -- (53.5) -- -- --
Discontinued assets -- -- 27.0 18.6 --
Net assets held for disposal -- -- -- -- 29.3
Amounts not allocated -- -- -- -- 438.2
-------- -------- -------- -------- --------
$1,756.1 $ 214.2 $ 156.2 $ 155.9 $3,273.5
======== ======== ======== ======== ========
1998
Vision Care $ 971.2 $ 208.4 $ 62.8 $ 112.8 $ 555.3
Pharmaceuticals 241.6 49.2 15.6 17.2 262.2
Surgical 384.7 43.0 36.6 14.5 696.3
-------- -------- -------- -------- --------
1,597.5 300.6 115.0 144.5 1,513.8
Corporate administration -- (52.6) 2.7 18.7 448.8
Restructuring(2) -- (5.4) -- -- --
Other significant charges(3) -- (73.1) -- -- --
Discontinued assets -- -- 46.1 38.3 657.9
Amounts not allocated -- -- -- -- 871.2
-------- -------- -------- -------- --------
$1,597.5 $ 169.5 $ 163.8 $ 201.5 $3,491.7
======== ======== ======== ======== ========
1997
Vision Care $ 918.1 $ 210.9 $ 49.0 $ 73.6 $ 463.1
Pharmaceuticals 190.6 36.6 10.9 10.0 192.5
-------- -------- -------- -------- --------
1,108.7 247.5 59.9 83.6 655.6
Corporate administration -- (45.5) 2.2 1.6 456.0
Restructuring(4) -- (39.1) -- -- --
Discontinued assets -- -- 49.9 40.9 817.4
Amounts not allocated -- -- -- -- 843.9
-------- -------- -------- -------- --------
$1,108.7 $ 162.9 $ 112.0 $ 126.1 $2,772.9
======== ======== ======== ======== ========
</TABLE>
(1) Restructuring charges and asset write-offs were recorded as follows: vision
care, $52.9; pharmaceuticals, $2.0; corporate administration, $1.8 and a
reversal of $3.2 related to the 1997 reserve.
(2) Restructuring charges and asset write-offs were recorded as follows: vision
care, $2.3 and corporate administration, $3.1.
(3) Other significant charges consisted of a charge of $41.0 for purchased
in-process R&D and a purchase accounting inventory adjustment of $32.1.
Both adjustments related to the Chiron Vision and Storz acquisitions.
(4) Restructuring charges and asset write-offs were recorded as follows: vision
care, $19.4; pharmaceuticals, $5.0; and corporate administration, $14.7.
See the future 31 Bausch & Lomb
<PAGE>
GEOGRAPHIC REGION The following table presents sales and long-lived assets by
geography for the years 1999, 1998 and 1997. 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>
1999
Sales to unaffiliated customers $ 929.5 $826.6 $1,756.1
Long-lived assets 951.8 506.8 1,458.6
1998
Sales to unaffiliated customers $ 841.9 $755.6 $1,597.5
Long-lived assets 1,073.0 831.9 1,904.9
1997
Sales to unaffiliated customers $ 564.0 $544.7 $1,108.7
Long-lived assets 743.8 938.9 1,682.7
</TABLE>
7. SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 25, 1999 December 26, 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVENTORIES
Raw materials and supplies $54.0 $ 84.7
Work in process 15.9 39.1
Finished products 169.7 319.3
----- -------
239.6 443.1
Less allowance for valuation of certain U.S.
inventories at LIFO(1) -- (2.4)
----- -------
$239.6 $440.7
----- -------
Inventories valued using LIFO $ -- $49.7
===== =======
</TABLE>
(1) LIFO valuation allowance related to certain inventories held by the
company's divested sunglass business.
<TABLE>
<CAPTION>
December 25, 1999 December 26, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Land $ 12.0 $ 25.4
Buildings 212.8 416.0
Machinery and equipment 772.1 930.2
Leasehold improvements 35.2 41.1
--------- ---------
1,032.1 1,412.7
Less accumulated depreciation (507.3) (687.7)
--------- ---------
$524.8 $ 725.0
========= =========
</TABLE>
See the future 32 Bausch & Lomb
<PAGE>
8. OTHER SHORT- AND LONG-TERM INVESTMENTS
NETHERLANDS GUILDER INVESTMENT 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 (less than 90 days) and government obligations, and as
such, the net asset value is not expected to be materially different than fair
value. The issuer reinvests all of its income. At December 25, 1999, the average
U.S. dollar rate of return was 5.29%, 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.
The company, through two non-U.S. legal entities, owns approximately 22% of
the subsidiary of the financial institution; the financial institution owns the
remainder. The company has the right to put its equity position at net asset
value to the financial institution at the end of each quarter until January
2003. Since the securities are not readily marketable, this represents the
company's ability to exit from the investment.
The company also has the right to call the financial institution's equity
position at net asset value at the end of each quarter until October 2003.
Should the company choose not to exercise either its put or call options, the
financial institution may put its equity at net asset value to the company in
March or June 2003. In either instance, the company would then own 100% of the
subsidiary of the financial institution and account for it as a consolidated
entity. The company would use the high quality, short-term investments of the
issuer to offset the reduction in liquidity associated with full ownership of
the subsidiary of the financial institution.
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.
U.S. DOLLAR INVESTMENT The company invested $425.0 in equity 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 25, 1999, this rate was 4.96%. The issuer and the company agreed to
redeem these securities at par over a 12-month period commencing January 5,
1999, and as a result, the company classified $300.0 of this investment as
short-term at December 26, 1998. At December 25, 1999, the remaining $125
unredeemed portion of the investment was classified as short-term and
subsequently, on January 5, 2000, the remaining portion was redeemed. The
company used the redemption proceeds to finance operational requirements outside
the U.S. and invest in short-term money market instruments.
OTHER INVESTMENTS Upon the sale of the company's biomedical business in
September 1999, the company received a subordinated discount note due September
2010, with an original issue price of $43.0. The interest on this note, which
varies from a rate of 12.0% to 15.0%, accretes daily to a value at maturity of
$175.3. This note may be redeemed at any time prior to maturity at the
discretion of the issuer at the accreted value on the date redeemed. The note is
subordinate to the senior indebtedness of the issuer. The company also maintains
a 12.5% equity interest in the divested business, valued at $19.9 at the end of
1999, and accounted for under the cost method.
See the future 33 Bausch & Lomb
<PAGE>
9. PROVISION FOR INCOME TAXES
An analysis of the components of earnings from continuing operations before
income taxes and minority interest and the related provision for income taxes is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTEREST
U.S. $ 39.7 $ (36.8) $ 27.3
Non-U.S. 145.3 156.5 105.7
------- -------- -------
$ 185.0 $ 119.7 $ 133.0
------- -------- -------
PROVISION FOR INCOME TAXES
Federal
Current $ 13.4 $ 6.5 $ 36.2
Deferred 6.6 (11.4) (18.5)
State
Current 4.7 1.2 6.2
Deferred 4.9 (3.3) (0.8)
Foreign
Current 43.5 35.2 33.0
Deferred (6.5) 14.0 (5.5)
------- -------- -------
$ 66.6 $ 42.2 $ 50.6
======= ======= =======
</TABLE>
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, some of which expire between 2000 and
2006, and others which have no expiration, 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. Each
carryforward item is reviewed for expected utilization, using a "more likely
than not" approach, based on the character of the carryforward item (credit,
loss, etc.), the associated taxing jurisdiction (U.S., state, non-U.S., etc.),
the relevant history for the particular item, the applicable expiration dates,
operating projects that would impact utilization, and identified actions under
the control of the company in realizing the associated carryforward benefits.
Additionally, the company's utilization of U.S. foreign tax credit and state
investment credit carryforwards is critically dependent on related statutory
limitations that involve numerous factors beyond overall positive earnings, all
of which must be taken into account by the company in its evaluation. The
company assesses the available positive and negative evidence surrounding the
recoverability of the deferred tax assets and applies its judgment in estimating
the amount of valuation allowance necessary under the circumstances. The company
continues to assess and evaluate strategies that will enable the carryforwards,
or portion thereof, to be utilized, and will reduce the valuation allowance
appropriately for each item at such time when it is determined that the "more
likely than not" approach is satisfied.
See the future 34 Bausch & Lomb
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 25, 1999 DECEMBER 26, 1998
ASSETS LIABILITIES ASSETS LIABILITIES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT:
Sales and allowance accruals $ 23.4 $ -- $ 17.8 $ --
Employee benefits and compensation 17.2 -- 22.5 --
Inventories 20.0 5.3 25.1 --
Restructuring accruals 9.7 -- 4.5 --
Other accruals 1.3 7.1 11.4 1.0
Unrealized foreign
exchange transactions 1.9 8.0 1.8 2.5
State and local income tax -- 8.1 -- 11.9
------ ------ ------ ------
$ 73.5 $ 28.5 $ 83.1 $ 15.4
====== ====== ====== ======
NON-CURRENT:
Tax loss and credit carryforwards $110.8 $ -- $ 48.7 $ --
Employee benefits 26.4 0.3 30.0 0.3
Other accruals -- 11.6 -- 8.9
Unrealized foreign exchange
transactions -- 14.0 -- 15.1
Depreciation and amortization -- 25.1 7.6 21.7
Valuation allowance (45.6) -- (39.6) --
Intercompany investments -- 203.3 -- --
------ ------ ------ ------
91.6 254.3 46.7 46.0
------ ------ ------ ------
$165.1 $282.8 $129.8 $ 61.4
====== ====== ====== ======
</TABLE>
Reconciliations of the statutory U.S. federal income tax rate to the effective
tax rates for continuing operations were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 3.3 (1.2) 4.1
Goodwill amortization 0.9 0.1 --
Foreign Sales Corporation tax benefit (0.9) (1.7) (1.2)
Difference between non-U.S. and U.S. tax rates (2.8) 3.9 (1.4)
Other 0.5 (0.9) 1.6
---- ---- ----
EFFECTIVE TAX RATE 36.0% 35.2% 38.1%
==== ==== ====
</TABLE>
At December 25, 1999, earnings considered to be permanently reinvested in
non-U.S. subsidiaries totaled approximately $902.5. 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.
See the future 35 Bausch & Lomb
<PAGE>
10. DEBT
Short-term debt at December 25, 1999 and December 26, 1998 consisted of $20.9
and $101.9 in U.S. borrowings and $25.0 and $58.5 in non-U.S. borrowings,
respectively. To support its liquidity requirements, the company maintains U.S.
revolving credit agreements. During the second quarter of 1999, the company
restructured its revolving credit agreements and now maintains 364-day bilateral
revolving credit agreements totaling $500.0. The interest rate under these
agreements is based on LIBOR, or at the company's option, such other rate as may
be agreed upon by the company and the bank. No debt was outstanding under these
agreements at December 25, 1999. In addition, the company maintains other lines
of credit on which it may draw to meet its financing requirements. The company
believes its existing credit facilities provide adequate liquidity to meet
obligations, fund capital expenditures and invest in potential growth
opportunities. Commitment fees on the revolving credit agreements fluctuate
according to the long-term debt ratings of the company and were 0.1% as of
December 25, 1999. The company also maintains unused U.S. bank lines of credit
amounting to approximately $27.0. Compensating balance arrangements for these
lines are not material.
During 1999, the company terminated two seven-year interest rate swap
agreements. Each swap agreement had a notional amount of $100.0 and was used to
convert $200.0 of U.S. commercial paper into fixed-rate obligations with
effective interest rates, prior to termination, of 6.48%.
Average short-term interest rates, which include the effect of the interest
rate swap agreements in 1998, were 5.4% and 5.7% for the years ended 1999 and
1998, respectively. The maximum amount of short-term debt at the end of any
month was $261.4 in 1999 and $893.3 in 1998. Average short-term, month-end
borrowings were $171.9 in 1999 and $550.1 in 1998.
The components of long-term debt were:
<TABLE>
<CAPTION>
Interest Rate Percentage December 25, 1999 December 26, 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED-RATE NOTES PAYABLE
Notes due in 1999 2.21-2.28 $ -- $ 25.8
Notes due in 2001 or 2011(1) 6.15 100.0 100.0
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) 6.38 100.0 100.0
Notes due in 2004(4) 6.75 200.0 200.0
Notes due in 2005 or 2025(1) 6.50 100.0 100.0
Notes due in 2028(4) 7.13 200.0 200.0
All other fixed-rate notes Various -- 7.0
VARIABLE RATE AND OTHER BORROWINGS
Promissory notes(5) -- -- 300.0
Securitized trade receivables expiring in 2002 5.44(6) 75.0 75.0
Industrial Development Bonds due in 2015 5.15(6) 8.5 8.5
Other Various 9.5 11.1
----------------------------------------------------------------
978.0 1,312.4
Less current portion (1.0) (31.1)
------ --------
$977.0 $1,281.3
====== ========
</TABLE>
(1) Notes contain put/call options exercisable at 100% of par in 2001, 2003 and
2005 for the 6.15%, 6.38% and 6.50% notes, respectively. The company has
also entered into remarketing agreements with respect to each of these
issues, which allow the agent to call the debt from the holders on the
option exercisable dates, and then remarket them. If this right is
exercised the coupon rate paid by the company will reset to a rate higher
than the then current market rate.
(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 this note to a
floating-rate liability. At December 25, 1999, the effective rate on these
notes was 5.88%.
(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) At December 26, 1998, a long-term revolving credit agreement supported
$300.0 short-term unsecured promissory notes which were classified as
long-term debt.
(6) Represents rate at December 25, 1999.
See the future 36 Bausch & Lomb
<PAGE>
Interest rate swap agreements on long-term debt issues resulted in an increase
in the long-term effective interest rate from 6.31% to 6.33% in 1999 and a
reduction in 1998 long-term rates from 6.20% to 6.16%. Long-term borrowing
maturities during the next five years are $1.0 in 2000; $9.0 in 2001; $75.8 in
2002; $85.8 in 2003 and $199.8 in 2004. If all options on debt are exercised in
future years, then $208.9 and $185.8 of long-term debt will be payable by the
company in 2001 and 2003, respectively.
11. OPERATING LEASES
The company leases land, buildings, machinery and equipment under noncancelable
operating leases. Total annual rental expense for 1999, 1998 and 1997 amounted
to $34.2, $34.5 and $26.2, respectively.
Minimum future rental commitments having noncancelable lease terms in
excess of one year aggregated $134.3 as of December 25, 1999 and are payable as
follows: 2000, $24.8; 2001, $21.8; 2002, $67.7; 2003, $6.7; 2004, $4.1 and
beyond, $9.1.
The company leases an office facility under a seven-year operating lease,
expiring in 2002, with an associated residual value guarantee in an amount not
to exceed $54.6. During 1999, net rental payments on the lease, included above,
approximated $3.1.
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 information provided below 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 25, 1999.
<TABLE>
<CAPTION>
Pension Benefit Plans Postretirement Benefit Plan
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at beginning of year $ 257.1 $ 214.0 $ 68.1 $ 75.5
Service cost 9.8 9.2 1.2 1.3
Interest cost 16.9 16.2 4.3 4.8
Participant contributions (1.7) (1.6) -- --
Plan amendments -- 0.4 -- --
Divestitures/acquisitions (30.3) 0.8 -- --
Currency translation adjustments (2.8) 1.8 -- --
Curtailment gains (1.9) -- (1.4) --
Benefit payments (18.0) (14.6) (6.5) (6.3)
Actuarial loss (gain) 5.2 30.9 (3.4) (7.2)
------- ------- ------- -------
OBLIGATION AT END OF YEAR $ 234.3 $ 257.1 $ 62.3 $ 68.1
======= ======= ======= =======
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year $236.5 $ 201.6 $ 39.3 $ 33.9
Actual return on plan assets 46.5 38.4 10.4 11.7
Divestitures/acquisitions (30.3) 0.1 -- --
Employer contributions 7.5 8.2 -- --
Participant contributions 1.7 1.6 -- --
Benefit payments (18.0) (14.6) (6.5) (6.3)
Currency translation adjustments (2.9) 1.2 -- --
------- ------- ------- -------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 241.0 $ 236.5 $ 43.2 $ 39.3
======= ======= ======= =======
RECONCILIATION OF FUNDED STATUS TO NET
AMOUNT RECOGNIZED ON THE BALANCE SHEET
Funded status at end of year $ 6.7 $ (20.6) $ (19.1) $ (28.8)
Unrecognized transition (asset) obligation (7.6) 3.5 -- --
Unrecognized prior-service cost 10.0 11.6 (1.2) (1.3)
Unrecognized actuarial gain (10.9) (0.9) (46.5) (45.8)
------- ------- ------- -------
NET AMOUNT RECOGNIZED $ (1.8) $ (6.4) $ (66.8) $ (75.9)
======= ======= ======= =======
</TABLE>
See the future 37 Bausch & Lomb
<PAGE>
The plan assets shown above for the pension benefit plans include 52,800
shares of the company's Common stock. In 1999, three plans were sold as part of
the biomedical divestiture, and in 1998, one plan was acquired with the purchase
of the surgical businesses.
The following table provides information related to underfunded pension
plans:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $13.9 $25.0
Accumulated benefit obligation 11.4 20.9
Fair value of plan assets 0.1 1.8
</TABLE>
The company's postretirement benefit plan was underfunded for each of the
past two years.
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
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 9.8 $ 13.6 $ -- $ --
Accrued benefit liability (11.6) (20.0) (66.8) (75.9)
------- ------- ------- -------
Net amount recognized $ (1.8) $ (6.4) $ (66.8) $ (75.9)
======= ======= ======= =======
</TABLE>
The following table provides the components of net periodic benefit cost
for the plans for fiscal years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefit Plans Postretirement Benefit Plan
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 9.8 $ 9.2 $ 8.3 $ 1.2 $ 1.3 $ 1.2
Interest cost 17.0 16.2 14.7 4.3 4.8 4.9
Expected return on plan assets (21.1) (18.9) (16.8) (3.5) (3.0) (2.6)
Amortization of transition obligation 0.7 0.7 0.7 -- -- --
Amortization of prior-service cost 1.7 1.8 1.8 (0.2) (0.1) (0.2)
Amortization of net gain (0.4) (0.3) (0.2) (3.0) (2.7) (2.6)
------- ------- ------- ------- ------- -------
Net periodic benefit cost 7.7 8.7 8.5 (1.2) 0.3 0.7
Curtailment loss (gain) 2.2 -- -- (1.4) -- (1.0)
------- ------- ------- ------- ------- -------
Net periodic benefit cost after curtailments $ 9.9 $ 8.7 $ 8.5 $ (2.6) $ 0.3 $ (0.3)
======= ======= ======= ======= ======= =======
</TABLE>
The 1997 curtailment resulted from several plant closings that occurred as
part of restructuring initiatives. In 1999, the curtailment was related to the
divestiture of the sunglass business.
Key assumptions used to measure benefit obligations in the company's
benefit plans are shown in the following table:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 7.2% 6.8%
Expected return on plan assets 7.8% 8.6%
Rate of compensation increase 4.6% 4.3%
</TABLE>
See the future 38 Bausch & Lomb
<PAGE>
For amounts pertaining to postretirement benefits, a 6.75% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
1999. This rate is assumed to decrease 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 service and interest cost components of net periodic
postretirement health care benefit cost $0.6 $(0.6)
Effect on the health care component of the accumulated postretirement
benefit obligation $6.1 $(5.1)
</TABLE>
The costs associated with defined contribution plans totaled $11.9, $12.0
and $8.4 for 1999, 1998 and 1997, respectively.
13. MINORITY INTEREST
In 1993, four wholly-owned subsidiaries of the company 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 which owns and manages a portfolio of assets. Those assets included
portions of the company's former biomedical operations and certain assets used
for the manufacture and sale of RGP contact lenses and RGP lens care products.
During 1999, the partnership was restructured and no longer includes assets of
these businesses. Partnership assets continue to include cash and cash
equivalents, a long-term note from a consolidated subsidiary of the company, and
floating-rate demand notes from another consolidated subsidiary of the company.
For the company's consolidated financial statements, the long-term note and the
floating-rate demand notes are eliminated while the outside investor's interest
in the partnership is recorded as minority interest.
In 1999, the original outside investor sold its interest in the partnership
and was replaced by an investment banking firm. The outside investors' limited
partnership interest in the partnership has been recorded as minority interest
totaling $200.0 at December 25, 1999 and $403.2 at December 26, 1998.
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 25, 1999 December 26, 1998
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONDERIVATIVES
Other investments $ 173.8 $ 173.8 $ 249.2 $ 249.2
Long-term debt, including current portion (978.0) (922.6) (1,312.4) (1,319.2)
====== ====== ======== ========
DERIVATIVES HELD FOR PURPOSES
OTHER THAN TRADING
Foreign exchange instruments
Other current assets $ 14.2 $ 7.6
Accrued liabilities (10.4) (15.7)
------- ------- --------- ----------
Net foreign exchange instruments $ 3.8 $ (7.3) $ (8.1) $ (8.3)
======= ======= ========= ==========
Interest rate instruments
Other current assets $ 21.9 $ 22.1
Accrued liabilities (10.2) (15.2)
------- ------- --------- ----------
Net interest rate instruments $ 11.7 $ 40.7 $ 6.9 $ 14.9
======= ======= ========= ==========
</TABLE>
See the future 39 Bausch & Lomb
<PAGE>
Fair value of other investments was determined based on contract terms and
an evaluation of expected cash flows and investment risk. Fair value for
long-term debt was estimated using either quoted market prices for the same or
similar issues or the current rates offered to the company for debt with similar
maturities. The fair value for foreign exchange and interest rate instruments
was determined 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.
The company enters into foreign exchange forward contracts primarily to
hedge foreign currency transactions and equity investments in non-U.S.
subsidiaries. At December 25, 1999 and December 26, 1998, the company hedged
aggregate exposures of $874.6 and $1,063.0, 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
25, 1999 and December 26, 1998, the company deferred gains of less than $0.5
relating to hedged firm commitments.
The company's exposure to changes in interest rates results from investing
and borrowing activities. The company may enter 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 25, 1999 and
December 26, 1998, the company was party to swap contracts that had aggregate
notional amounts of $295.4 and $869.5, respectively. At year end 1999 and 1998,
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 APB 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 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>
Net Earnings Basic Earnings Per Share Diluted Earnings Per Share
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $444.8 $433.9 $7.76 $7.57 $7.59 $7.40
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
</TABLE>
The total number of shares available for grant in each calendar year,
excluding incentive stock options, shall be no greater than three percent of the
total number of outstanding shares of Common stock as of the first day of each
such year. No more than six million shares are available for granting purposes
as incentive stock options under the company's current plan. As of December 25,
1999, 2.5 million shares remain available for such grants.
STOCK OPTIONS
The company issues stock options which vest ratably over three years and expire
ten years from the grant date. Vesting is contingent upon continued employment
with the company.
For purposes of this disclosure, the fair value of each fixed option grant
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants outstanding in
1999, 1998 and 1997:
See the future 40 Bausch & Lomb
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.22% 4.69% 5.66%
Dividend yield 1.96% 2.48% 2.54%
Volatility factor 31.06% 25.67% 25.17%
Weighted average expected life (years) 3 4 5
</TABLE>
The weighted average value of options granted was $18.11, $10.93 and $10.59 in
1999, 1998 and 1997, respectively. A summary of the status of the company's
fixed stock option plans at year-end 1999, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- --------------------------- -----------------------------
Weighted Weighted Weighted
Number Of Average Number Of Average Exercise Number Of Average Exercise
Shares Exercise Price Shares Price Shares Price
(000s) (Per Share) (000s) (Per Share) (000s) (Per Share)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 5,050 $43.98 5,186 $41.00 5,030 $39.90
Granted 1,185 72.85 1,400 50.64 1,176 42.32
Exercised (1,444) 42.97 (1,265) 39.45 (432) 30.34
Forfeited (413) 48.66 (271) 41.48 (588) 41.99
OUTSTANDING AT YEAR END 4,378 $51.69 5,050 $43.98 5,186 $41.00
===== ====== ===== ====== ===== ======
Options exercisable at
year end 2,451 2,735 3,065
===== ===== =====
</TABLE>
The following represents additional information about fixed stock options
outstanding at December 25, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ------------------------------------
Weighted Average Weighted Weighted
Range Of Number Remaining Average Exercise Number Average
Exercise Prices Outstanding Contractual Life Price Exercisable Exercise Price
Per Share (000s) (Years) (Per Share) (000s) (Per Share)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$26.00 to 35.49 465 5.6 $35.13 462 $35.13
35.50 to 45.49 1,398 6.3 41.12 1,155 40.83
45.50 to 55.49 1,351 6.8 50.09 822 49.55
55.50 to 65.49 14 9.9 63.12 -- --
65.50 to 75.00 1,150 9.6 72.97 12 72.97
----- -----
4,378 7.3 $51.69 2,451 $42.84
</TABLE>
STOCK AWARDS
The company issues restricted stock awards to directors, officers and other key
personnel. These awards have vesting periods up to three years with vesting
criteria based upon the attainment of certain Economic Value Added (EVA) targets
and continued employment until applicable vesting dates. EVA is defined by the
company as net operating profit after tax less a capital charge calculated as
average capital employed multiplied by the company's cost of capital. EVA is not
the same as, nor is it intended to be, a measure of operating performance in
accordance with generally accepted accounting principles.
Compensation expense is recorded based on applicable vesting criteria and,
for those awards with performance goals, as such goals are met. In 1999, 1998
and 1997, 90,050, 259,905 and 61,600 of such awards were granted at weighted
average market values of $63.41, $46.14 and $41.92 per share, respectively. The
compensation expense relating to stock awards in 1999, 1998 and 1997 was $8.0,
$10.6 and $3.3, respectively.
See the future 41 Bausch & Lomb
<PAGE>
16. LITIGATION
In its 1998 Annual Report, the company discussed a class action lawsuit pending
before a New York State Supreme Court, alleging that the company misled
consumers in its marketing and sale of Sensitive Eyes Rewetting Drops, Boston
Rewetting Drops, ReNu Rewetting Drops and Bausch & Lomb Eyewash. The plaintiffs
had appealed the dismissal of all of their claims by the trial court. On
September 16, 1999, the New York Appellate Division, First Department, reversed
the trial court's ruling, reinstating the plaintiffs' claims. The company has
moved to decertify the matter as a class action.
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.
17. SUBSEQUENT EVENT
On January 27, 2000, the company announced that it had settled a lawsuit with
Alcon Laboratories, Inc. (Alcon). The settlement relates to a patent
infringement case that the company filed against Alcon in October 1994 for a
patent related to enzymatic cleaning of contact lenses.
Under the terms of the settlement agreement, Alcon made an up-front payment
to the company of $25 to resolve all issues relative to the company's claims
filed against them, which amount will be recorded as income in the first quarter
of 2000. Additionally, Alcon will pay to the company a royalty stream over the
next eight years, the present value of which approximates $49. This royalty
stream compensates the company for Alcon's future use of a worldwide license
under the company's patent for the simultaneous use of chemical disinfecting
solutions with an enzyme cleaning product for contact lens care.
18. QUARTERLY RESULTS, STOCK PRICES AND SELECTED FINANCIAL DATA
QUARTERLY RESULTS (UNAUDITED)
The following table presents reported net sales, gross profit (net sales less
cost of products sold), net income (loss) and earnings (loss) per share for each
quarter during the past two years. Net sales and gross profit are from
continuing operations and are reported on the same basis as amounts in the
accompanying Statements of Income on page 19.
<TABLE>
<CAPTION>
Earnings (Loss) Per Share
Net Gross Net -------------------------------
Sales(8) Profit(8) Income (Loss) Basic Diluted
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
First $ 389.9 $ 227.4 $ 22.4 $ 0.39 $ 0.39
Second 453.3 275.9 173.4(1) 3.03 2.94 (1)
Third 446.3 270.0 231.8(2) 4.03 3.94 (2)
Fourth 466.6 276.5 17.2(3) 0.30 0.29 (3)
-------------------------------------------------------
$1,756.1 $1,049.8 $444.8 $ 7.76 $ 7.59
- -------------------------------------------------------------------------------------------------------------------------
1998
First $ 357.6 $ 191.1 $(23.2)(4),(5) $(0.42) $(0.42) (4),(5)
Second 408.3 229.9 55.3 (4),(6) 0.99 0.98 (4),(6)
Third 403.1 246.0 36.2 0.65 0.64
Fourth 428.5 268.3 (43.1)(7) (0.77) (0.77) (7)
-------------------------------------------------------
$1,597.5 $935.3 $ 25.2 $ 0.45 $ 0.45
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the after-tax gain on sale of the sunglass business of $126.3
($2.14 per share).
(2) Includes the after-tax gain on sale of the biomedical and the hearing aid
businesses totaling $181.8 ($3.09 per share).
(3) Includes the after-tax effect of restructuring charges that reduced net
income by $34.2 ($0.59 per share).
(4) 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.
(5) Includes the after-tax write-off of purchased IPR&D of $24.6 ($0.44 per
share).
(6) Includes the after-tax gain on sale of the skin care business of $33.0
($0.58 per share).
(7) Includes an impairment charge of $85.0 ($1.51 per share) recorded by the
company's divested hearing aid business.
(8) Previously reported amounts for the first quarter of 1999 and for each
quarter of 1998 included sales from the divested sunglass and healthcare
businesses. Previously reported amounts were as follows: first quarter 1998
(net sales, $553.1; gross profit, $277.0); second quarter 1998 (net sales,
$635.1; gross profit, $336.8); third quarter 1998 (net sales, $575.6; gross
profit, $317.4); fourth quarter 1998 (net sales, $599.0; gross profit,
$338.5) and first quarter 1999 (net sales, $574.4; gross profit, $307.5).
See the future 42 Bausch & Lomb
<PAGE>
QUARTERLY STOCK PRICES (UNAUDITED)
The company's Common stock is listed on the New York Stock Exchange and is
traded under the symbol BOL. There were approximately 7,000 and 7,200 Common
shareholders of record at year-end 1999 and 1998, respectively. The following
table shows the price range of the Common stock for each quarter for the past
two years:
<TABLE>
<CAPTION>
1999 1998
Price Per Share Price Per Share
High Low High Low
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $66 7/8 $56 5/16 $46 1/4 $37 3/4
Second 83 3/8 61 52 11/16 45 1/4
Third 78 5/8 61 1/2 52 3/4 38 11/16
Fourth 69 1/16 52 5/8 59 3/8 38 1/16
</TABLE>
SELECTED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RESULTS FOR THE YEAR
Net sales(1) $1,756.1 $1,597.5 $1,108.7 $1,066.6 $1,003.2 $ 899.0
Income from continuing operations(1) 102.7 55.6 62.0 63.5 45.9 59.6
Net income 444.8 25.2 49.4 83.1 112.0 31.1
Continuing operations -
basic earnings per share(1) 1.79 1.00 1.12 1.13 0.80 1.01
Net income - basic earnings per share 7.76 0.45 0.89 1.48 1.94 0.53
Continuing operations -
diluted earnings per share(1) 1.75 0.99 1.12 1.12 0.79 1.00
Net income - diluted earnings per share 7.59 0.45 0.89 1.47 1.93 0.52
Dividends per share 1.04 1.04 1.04 1.04 1.01 0.96
---------------------------------------------------------------------
YEAR END POSITION
Working capital $1,190.7 $ 774.4 $ 202.9 $ 18.5 $ 70.9 $ 277.4
Total assets 3,273.5 3,491.7 2,772.9 2,603.4 2,550.1 2,457.7
Short-term debt 46.9 191.5 343.8 482.1 383.5 300.6
Long-term debt 977.0 1,281.3 510.8 236.3 191.0 289.5
Shareholders' equity 1,234.0 845.0 818.4 881.9 929.3 914.4
---------------------------------------------------------------------
OTHER RATIOS AND STATISTICS
Return on sales for continuing operations 5.8% 3.5% 5.6% 6.0% 4.6% 6.6%
Return on average shareholders' equity 43.3% 3.1% 5.9% 9.2% 11.9% 3.2%
Return on invested capital 21.7% 3.8% 5.0% 7.2% 9.3% 3.8%
Return on average total assets 13.1% 0.7% 1.8% 3.1% 4.5% 1.2%
Effective income tax rate for
continuing operations 36.0% 35.2% 38.1% 38.7% 36.5% 31.9%
Current ratio 2.9 2.0 1.2 1.0 1.1 1.4
Total debt to shareholders' equity 83.0% 174.3% 104.4% 81.5% 61.8% 64.5%
Total debt to capital 45.3% 63.5% 51.1% 44.9% 38.2% 39.2%
Capital expenditures $ 155.9 $ 201.5 $ 126.1 $ 130.3 $ 95.5 $ 84.8
---------------------------------------------------------------------
</TABLE>
(1) Amounts have been modified or added, as necessary, to reflect the
divestitures described in Note 3 - Discontinued Operations and Note 2 -
Acquisitions.
See the future 43 Bausch & Lomb
<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 25, 1999, the internal control system was functioning effectively
and accomplished the objectives discussed herein.
/s/ William M. Carpenter /s/ Stephen C. McCluski
- -------------------------------- -----------------------------------
William M. Carpenter Stephen C. McCluski
Chairman and Chief Executive Officer Senior Vice President and Chief
Financial Officer
REPORT OF THE AUDIT COMMITTEE
The audit committee of the board of directors, which held three meetings during
1999, is composed of five outside directors. The chair of the committee is Alvin
W. Trivelpiece, Ph.D. The other members are Franklin E. Agnew, 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, with and
without management present, to discuss the scope and results of their audit
work. Both the independent accountants and the internal auditors have full
access to the audit committee.
/s/ Alvin W. Trivelpiece
- --------------------------------
Alvin W. Trivelpiece, Ph.D.
Chair, Audit Committee
See the future 44 Bausch & Lomb
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF BAUSCH & LOMB INCORPORATED:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, cash flows and changes in shareholders'
equity present fairly, in all material respects, the financial position of
Bausch & Lomb Incorporated and its subsidiaries at December 25, 1999 and
December 26, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 25, 1999 in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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.
PricewaterhouseCoopers LLP
Rochester, New York
January 25, 2000
See the future 45 Bausch & Lomb
<PAGE>
DIRECTORS
WILLIAM M. CARPENTER (1)
Chairman and Chief Executive Officer
Bausch & Lomb
Director since 1996
FRANKLIN E. AGNEW (1)(2)(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
Committee Memberships:
1 Executive Committee
2 Audit Committee
3 Committee on Management
4 Committee on Directors
OFFICERS
WILLIAM M. CARPENTER
Chairman and Chief Executive Officer
5 years of service with the company
Named to current position: 1/99
CARL E. SASSANO
President and Chief Operating Officer
27 years of service with the company
Named to current position: 1/99
SENIOR VICE PRESIDENTS
- ----------------------
DARYL M. DICKSON
Human Resources
4 years of service with the company
Named to current position: 11/96
HAKAN S. EDSTROM
Global Surgical
2 years of service with the company
Named to current position: 10/99
DWAIN L. HAHS
Global Vision Care
23 years of service with the company
Named to current position: 10/99
STEPHEN C. MCCLUSKI
Chief Financial Officer
12 years of service with the company
Named to current position: 1/95
THOMAS M. RIEDHAMMER, PH.D.
Global Pharmaceuticals and
Chief Technical Officer
18 years of service with the company
Named to current position: 10/99
ROBERT B. STILES
General Counsel
19 years of service with the company
Named to current position: 6/97
VICE PRESIDENTS
- ---------------
GARY M. ARON
Scientific Affairs - Vision Care/Surgical
5 years of service with the company
Named to current position: 12/99
ALAN P. DOZIER
North American Vision Care
15 years of service with the company
Named to current position: 2/97
ALAN H. FARNSWORTH
Business Development
12 years of service with the company
Named to current position: 7/97
GEOFFREY F. IDE
Japan
12 years of service with the company
Named to current position: 6/99
DAVID F. JAROSZ
North American Pharmaceuticals
14 years of service with the company
Named to current position: 7/99
BARBARA M. KELLEY
Corporate Communications
17 years of service with the company
Named to current position: 4/93
JURIJ Z. KUSHNER
Controller
19 years of service with the company
Named to current position: 1/95
THOMAS W. LANCE
Global Operations - Vision Care
3 years of service with the company
Named to current position: 7/97
PAUL A. LOPEZ
North American Surgical
2 years of service with the company
Named to current position: 7/99
JOHN M. LOUGHLIN
Asia
19 years of service with the company
Named to current position: 7/97
JAMES F. MILTON
Latin America
29 years of service with the company
Named to current position: 6/99
ANGELA J. PANZARELLA
Investor Relations
11 years of service with the company
Named to current position: 7/97
ALAN H. RESNICK
Treasurer
27 years of service with the company
Named to current position: 5/86
MARK M. SIECZKAREK
Europe, Middle East and Africa
5 years of service with the company
Named to current position: 10/99
DAVID A. SOUERWINE
General Eye Care
17 years of service with the company
Named to current position: 1/00
SECRETARY
- ---------
JEAN F. GEISEL
24 years of service with the company
Named to current position: 7/97
See the future 46 Bausch & Lomb
<PAGE>
CORPORATE INFORMATION
INTERNET ADDRESS:
Corporate, product, financial and shareholder information, including news
releases, financial filings and stock quotes are available at Bausch & Lomb's
web site: www.bausch.com
CORPORATE HEADQUARTERS:
One Bausch & Lomb Place
Rochester, New York 14604
(716) 338-6000
(800) 344-8815
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, including its Form 10-K, 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, New Jersey 07606
(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 3339
South Hackensack, New Jersey 07606
(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 Incorporated and its subsidiary companies
referred to in this report are:
Aberrometer
Alrex
AMVISC
Amvisc Plus
Bausch & Lomb
Boston
Boston EO
Catarex
Hansatome
Medalist
Millennium
MPORT
MPORT SI
Ocuvite
Ocuvite Extra
Opcon-A
Orbscan
Orbscan II
Passport
PureVision
ReNu
ReNu MultiPlus
SofLens
SofLens66
Soflex
Technolas 217
Vitrasert
EVA is a trademark of Stern Stewart & Co.
Lotemax is a trademark of Pharmos Corporation
Polytrim is a trademark of Allergan, Inc.
Surodex is a trademark of Oculex Pharmaceuticals, Inc.
DESIGN: Richard Uccello, Andrew Wessels
Ted Bertz Graphic Design
Middletown, Connecticut
PRINTING: Finlay Brothers Printing
Bloomfield, Connecticut
EXECUTIVE PORTRAIT: Ted Kawalerski
New York, New York
(C)2000 Bausch & Lomb Incorporated
All Rights Reserved Worldwide
[LOGO] Total recycled fiber content of not less than 50%
<PAGE>
HAVE A LOOK.
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ARE THAT YOU CAN. YOU'VE JUST MIMICKED A PROCEDURE USED BY OPHTHALMOLOGISTS
WORLDWIDE TO HELP DIAGNOSE CAUSES OF POOR VISION. THIS REPORT IS ALSO ABOUT
FOCUS: BAUSCH & LOMB'S FOCUS ON DEVELOPING THE TECHNOLOGY TO IMPROVE THE SIGHT
OF MILLIONS OF PEOPLE AROUND THE WORLD.
BAUSCH & LOMB
ONE BAUSCH & LOMB PLACE
ROCHESTER, NEW YORK 14604
Bausch & Lomb Incorporated
Exhibit 21
Subsidiaries
(as of December 25, 1999)
Jurisdiction Under
Name Which Organized
Bausch & Lomb Argentina S.R.L. Argentina
Bausch & Lomb AG Switzerland
Bausch & Lomb (Australia) Pty. Limited Australia
Award plc England & Wales
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 British Virgin Islands
Bausch & Lomb Canada Inc. Canada
Bausch & Lomb China, Inc. Delaware
B&L (China) Investment Company Ltd. China
Cordelia B.V. Netherlands
B&L CRL Inc. Delaware
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
B&L Financial Holdings Corp. Delaware
Bausch & Lomb Foreign Sales Corporation Barbados
Bausch & Lomb France S.A.S. France
Bausch & Lomb Fribourg SA Switzerland
Bausch & Lomb GmbH Austria
Guangzhou Bausch & Lomb Manufacturing Ltd. China
Bausch & Lomb Holdings B.V. Netherlands
Bausch & Lomb (Hong Kong) Limited Hong Kong
Bausch & Lomb-Lord, Co. (Hong Kong) Limited Hong Kong
Bausch & Lomb India Limited India
BL Industria Otica Ltda. Brazil
Bausch & Lomb International, Inc. New York
B&L International Holdings Corp. Delaware
Bausch & Lomb InVision Institute, Inc. Massachusetts
Iolab Corporation California
Bausch & Lomb Ireland Ireland
Bausch & Lomb IOM S.p.A. Italy
B.L.J. Company Limited Japan
Bausch & Lomb Korea, Ltd. Korea
Bausch & Lomb Lamex, Inc. Delaware
Madden & Layman, Ltd. England
Bausch & Lomb (Malaysia) Sdn. Bhd. Malaysia
Bausch & Lomb Mexico, S.A. de C.V. Mexico
Bausch & Lomb (New Zealand) Limited New Zealand
Bausch & Lomb Nordic AB Sweden
Orbtek, Inc. Texas
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
RHC Holdings, Inc. Delaware
Bausch & Lomb Services Corp. New York
Bausch & Lomb (Shanghai) Trading Company
Limited China
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
B&L SPAF 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 & Wales
Bausch & Lomb Venezuela, S.A. Venezuela
Wilmington Management Corp. Delaware
Windmill Investments N.V. Netherlands Antilles
Windmill Investors Ltd. Netherlands Antilles
Windvest I N.V. Netherlands Antilles
Bausch & Lomb - Young Han, Inc. 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,
33-15439,33-35667, 333-03611 and 333-18057) 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 25, 2000 appearing in
the 1999 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 of our above report
on the Financial Statement in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Rochester, New York
March 22, 2000
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 25, 2000 appearing in the 1999 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, 2000
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 25, 1999, 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 29th day of February 2000.
/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
<TABLE> <S> <C>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> DEC-25-1999
<CASH> 446,452
<SECURITIES> 380,617
<RECEIVABLES> 457,545
<ALLOWANCES> (19,596)
<INVENTORY> 239,597
<CURRENT-ASSETS> 1,810,225
<PP&E> 1,032,157
<DEPRECIATION> (507,329)
<TOTAL-ASSETS> 3,273,451
<CURRENT-LIABILITIES> 619,601
<BONDS> 977,047
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<COMMON> 24,099
<OTHER-SE> 1,209,905
<TOTAL-LIABILITY-AND-EQUITY> 3,273,451
<SALES> 1,756,071
<TOTAL-REVENUES> 1,756,071
<CGS> 706,320
<TOTAL-COSTS> 706,320
<OTHER-EXPENSES> 835,595
<LOSS-PROVISION> 9,066
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<INCOME-CONTINUING> 102,673
<DISCONTINUED> 342,121
<EXTRAORDINARY> 0
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<NET-INCOME> 444,794
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