-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, So+tAVc9KPP6uESCnOSIwQE3Nzyns652CM7u31vLrBLFm156EqQ5rlpsgRyEGYQ/ aoeaQdHM9EK4gKWj1W4UeA== 0000010427-96-000015.txt : 19960318 0000010427-96-000015.hdr.sgml : 19960318 ACCESSION NUMBER: 0000010427-96-000015 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950401 FILED AS OF DATE: 19960315 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAUSCH & LOMB INC CENTRAL INDEX KEY: 0000010427 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 160345235 STATE OF INCORPORATION: NY FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-04105 FILM NUMBER: 96535354 BUSINESS ADDRESS: STREET 1: ONE BAUSCH & LOMB PLACE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14604-2701 BUSINESS PHONE: (716) 338-6000 MAIL ADDRESS: STREET 1: ONE CHASE SQUARE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14601-0054 10-Q/A 1 10-Q/A SECOND QUARTER 1995 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q/A Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended July 1, 1995 Commission File Number: 1-4105 BAUSCH & LOMB INCORPORATED (Exact name of registrant as specified in its charter) New York (State or other jurisdiction of incorporation or organization) 16-0345235 (IRS Employer Identification No.) One Bausch & Lomb Place, Rochester NY 14604-2701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 338- 6000 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x . No . The number of shares of Common stock of the registrant outstanding as of July 1, 1995 was 57,264,749 consisting of 56,449,518 shares of Common Stock and 815,231 shares of Class B Stock which are identical with respect to dividend and liquidation rights and vote together as a single class for all purposes. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. As more fully described in Note A - "Restatement of Financial Information", 1994 financial information has been restated to reflect the decision to account for shipments under a fourth quarter 1993 U.S. contact lens distributor program as consigned inventory and to record revenues when the products were sold by the distributors to their customers and to reverse the effect of subsequent product returns and pricing adjustments related to this program which had been previously recognized in 1994. Additionally, a restatement was made to correct the improper recording of certain 1993 sunglass distributor sales in Southeast Asia and to reverse related sales returns which had been previously recorded in 1994. Unaudited financial statements for the second quarters of 1995 and 1994 of Bausch & Lomb Incorporated and Consolidated Subsidiaries are presented on the following pages. The audited balance sheet at December 31, 1994 is presented for comparative purposes. Financial statements for the six months ended July 1, 1995 have been prepared by the Company in accordance with its usual accounting policies and are based in part on approximations. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements in accordance with generally accepted accounting principles have been included. All such adjustments were of a normal recurring nature. BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF EARNINGS Dollar Amounts In Thousands - Except Per Share Data
Second Quarter Ended Six Months Ended ------------------------------------------ July 1, June 25, July 1, June 25, 1995 1994* 1995 1994* ------------------------------------------ Net Sales $535,459 $485,625 $1,001,060 $925,013 Costs And Expenses Cost of products sold 234,089 223,240 452,454 427,901 Selling, administrative and general 210,878 187,884 400,943 345,711 Research and development 16,730 15,377 31,653 30,666 ------- ------- ------- -------- 461,697 426,501 885,050 804,278 ------- ------- ------- -------- Operating Earnings 73,762 59,124 116,010 120,735 ------- ------- ------- -------- Other (Income) Expense Investment income (9,530) (9,532) (19,529) (17,881) Interest expense 11,847 10,260 23,986 19,227 Loss (gain) from foreign currency, net 372 886 1,964 (1,138) Gain On Sale Of Sports Optics Division (35,902) - (35,902) - Litigation Provision 16,000 - 16,000 - ------- ------- ------- ------ (17,213) 1,614 (13,481) 208 ------- ------- ------- ------ Earnings Before Income Taxes and Minority Interest 90,975 57,510 129,491 120,527 Provision for income taxes 33,804 17,603 47,062 39,244 ------- ------- ------- ------ Earnings Before Minority Interest 57,171 39,907 82,429 81,283 Minority interest in subsidiaries 5,582 6,009 10,556 11,461 ------- ------- ------- ------ Net Earnings 51,589 33,898 71,873 69,822 ------- ------- ------- ------ Retained Earnings At Beginning Of Period 852,272 894,577 846,245 871,680 Cash Dividends Declared: Common stock, $0.245 and $0.49 per share in 1995 ($0.245 and $0.465 per share in 1994) 14,283 14,515 28,540 27,542 ------- ------- ------- ------- Retained Earnings At End Of Period $889,578 $913,960 $889,578 $913,960 ------- ------- ------- ------- ------- ------- ------- ------- Net Earnings Per Common Share $ 0.89 $ 0.57 $ 1.23 $ 1.17 ------- ------- ------- ------- ------- ------- ------- ------- Average Common Shares Outstanding (000s) 58,451 59,827 ------- ------ ------- ------ *Results have been restated as more fully described in Note A - "Restatement of Financial Information". See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES BALANCE SHEET Dollar Amounts In Thousands
July 1, December 31, 1995 1994 ASSETS Current Assets Cash and cash equivalents $ 291,856 $ 230,369 Short-term investments, at cost which approximates market 2,315 2,173 Trade receivables, less allowances of $16,965 and $16,830, respectively 289,560 271,990 Inventories, net 303,057 312,781 Deferred income taxes, less valuation allowance of $17,882 45,927 40,372 Other current assets 108,431 96,281 --------- ------ 1,041,146 953,966 Property, Plant And Equipment, net 544,604 542,750 Goodwill And Other Intangibles, less accumulated amortization of $88,450 and $77,394, respectively 398,816 395,950 Other Investments 425,000 425,000 Other Assets 130,668 140,065 --------- --------- Total Assets $2,540,234 $2,457,731 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 242,615 $ 252,783 Current portion of long-term debt 109,765 47,788 Accounts payable 68,458 71,718 Accrued compensation 75,160 71,742 Accrued liabilities 268,859 216,956 Federal and foreign income taxes 32,207 15,551 --------- -------- 797,064 676,538 Long-Term Debt, less current portion 235,323 289,504 Other Long-Term Liabilities 138,912 149,094 Minority Interest 431,727 428,208 --------- -------- Total Liabilities 1,603,026 1,543,344 --------- --------- Shareholders' Equity 4% Cumulative Preferred Stock, par value $100 per share - - Class A Preferred Stock, par value $1 per share - - Common Stock, par value $0.40 per share, 60,198,322 shares issued 24,079 24,079 Class B Stock, par value $0.08 per share, 1,192,592 and 1,072,880 shares issued, respectively 95 86 Capital in excess of par value 89,429 90,637 Cumulative translation adjustment 96,745 47,609 Retained earnings 889,578 846,245 --------- -------- 1,099,926 1,008,656 Common and Class B Stock in treasury, at cost, 4,126,165 and 2,278,745 shares issued, respectively (162,718) (94,269) --------- -------- Total Shareholders' Equity 937,208 914,387 --------- -------- Total Liabilities And Shareholders' Equity $2,540,234 $2,457,731 --------- --------- --------- --------- See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CASH FLOWS Dollar Amounts In Thousands Six Months Ended July 1, June 25, 1995 1994* CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 71,873 $ 69,822 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 44,348 40,793 Amortization of goodwill and other intangibles 8,059 8,340 Increase in deferred income taxes (6,690) (2,269) Gain on sale of Sports Optics Division, after taxes (20,823) - Provision for litigation expense, after taxes 10,560 - Loss on retirement of fixed assets 1,298 895 Exchange loss 8,071 3,410 Increase in undistributed earnings of subsidiaries 1,446 2,730 (Increase) decrease in accounts receivable (24,938) 20,442 Increase in inventories (11,618) (24,134) Decrease (increase) in other current assets 7,626 (33,154) Increase (decrease)in accounts payable and accruals 36,351 (33,309) Increase in tax liabilities 4,505 53 Decrease in other long-term liabilities (11,372) (3,368) ------- ------- Net cash provided by operating activities 118,696 50,251 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchase of property, plant and equipment (33,997) (49,280) Acquisition of businesses, net of cash and short-term investments acquired (1,180) (27,150) Proceeds from sale of Sports Optics Division, net of cash and short-term investments disposed 76,291 - Other 5,477 (9,669) ------- ------- Net cash provided by (used in) investing activities 46,591 (86,099) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of Common shares (74,933) (1,860) Exercise of stock options 3,683 6,065 Restricted stock awards 1,602 - Net (repayment of) proceeds from issuance of debt (15,185) 69,654 Payment of dividends (28,748) (26,044) ------- -------- Net cash (used in) provided by financing activities (113,581) 47,815 ------- ------- Effect of exchange rate changes on cash, cash equivalents and short-term investments 9,923 8,496 ------- ------- Net increase in cash, cash equivalents and short-term investments 61,629 20,463 Cash, cash equivalents and short-term investments, beginning of period 232,542 546,036 ------- ------- Cash, cash equivalents and short-term investments, end of period $294,171 $566,499 ------- -------- ------- -------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 24,052 $ 20,451 Income taxes $ 43,063 $ 42,595 *Results have been restated as more fully described in Note A - "Restatement of Financial Information". See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE A: Restatement of Financial Information The Company has restated its financial statements for the years ended December 25, 1993 and December 31, 1994. This action was taken as a result of an ongoing investigation which identified uncertainties surrounding the execution of a fourth quarter 1993 contact lens sales program and the improper recording of 1993 sunglass sales in Southeast Asia. In the fourth quarter of 1993 a marketing program was initiated to implement a business strategy to shift responsibility for the sale and distribution of a portion of the U.S. traditional contact lens business to optical distributors. Subsequently, this strategy proved unsuccessful and, in the 1994 third quarter, led to the implementation of a new pricing policy for traditional contact lenses and a decision to accept on a one-time basis returns from these distributors. The investigation of this marketing program disclosed instances where unauthorized terms may have been or were offered which were inconsistent with the stated terms and conditions of the program. The resulting uncertainties relating to the execution of this marketing program led to a decision to restate the 1993 financial statements to account for shipments under the program as consigned inventory and to record revenues when the products were sold by the distributors to their customers and to reverse the effect of subsequent product returns and pricing adjustments related to this program which had been previously recognized in 1994. The investigation of Southeast Asia sunglass sales disclosed that in certain instances distributor transactions recorded as revenues in 1993 had not actually resulted from a sale to those customers, and thus were improperly recorded. The 1993 financial statements have been restated to reverse the improperly recorded sales with a corresponding restatement of the 1994 financial statements to reverse the effect of sales returns previously recognized in that period. In the opinion of management, all material adjustments necessary to correct the financial statements have been recorded. The impact of these adjustments on the Company's financial results as originally reported is summarized below: Dollar Amounts In Thousands - Except Per Share Data
Second Quarter Ended Six Months Ended ---------------------------------------------------- June 25, 1994 June 25, 1994 ----------------------------------------------------- As Reported As Restated As Reported As Restated ----------------------------------------------------- Net Sales: Healthcare $308,839 $308,839 $593,345 $593,345 Optics 174,442 176,786 328,707 331,668 ----------------------------------------------------- Total $483,281 $485,625 $922,052 $925,013 ----------------------------------------------------- Business Segment Earnings $ 70,126 $ 71,134 $142,333 $143,658 ----------------------------------------------------- ----------------------------------------------------- Net Earnings $ 33,056 $ 33,898 $ 68,716 $ 69,822 ----------------------------------------------------- ----------------------------------------------------- Net Earnings Per Share $ 0.55 $ 0.57 $ 1.15 $ 1.17 ----------------------------------------------------- ----------------------------------------------------- Retained Earnings at end of Period $930,499 $913,860 $930,499 $913,960 ----------------------------------------------------- -----------------------------------------------------
NOTE B: Earnings Per Share Net earnings per Common share are based on the weighted average number of Common and Class B shares outstanding during the period, adjusted for the assumed conversion of dilutive stock options. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options are considered to have been used to purchase Common shares at current market prices, and the resulting net additional Common shares are included in the calculation of average Common shares outstanding. The number of Common shares used to calculate net earnings per Common share were 58,451,000 at July 1, 1995 and 59,827,000 at June 25, 1994. See Exhibit 11 filed with this Report for details regarding the computation of earnings per share. NOTE C: Inventories Inventories consisted of the following: (Dollar Amounts In Thousands)
July 1, December 31, 1995 1994 Raw materials and supplies $ 84,875 $ 79,295 Work in process 24,826 23,985 Finished products 203,814 222,079 ------- ------- 313,515 325,359 Less: Reserve for valuation of certain U.S. inventories at last-in, first-out cost 10,458 12,578 ------- ------- $303,057 $312,781 ------- ------- ------- -------
NOTE D: Property, Plant And Equipment Major classes of property, plant and equipment consisted of the following: (Dollar Amounts In Thousands)
July 1, December 31, 1995 1994 Land $ 22,826 $ 21,474 Leasehold improvements 33,863 32,635 Buildings 384,510 366,003 Machinery and equipment 613,780 587,586 ------- --------- 1,054,979 1,007,698 Less: Accumulated depreciation 510,375 464,948 --------- --------- $ 544,604 $ 542,750 --------- --------- --------- ---------
NOTE E: Legal Proceedings In its 1994 Annual Report on Form 10-K and its first quarter 1995 Form 10-Q, the Company reported on a proposed class action filed in New York state court, alleging that the Company misled consumers in its marketing and sales of Sensitive Eyes Saline Rewetting Drops and Boston Rewetting Drops and Conditioning Solution, as well as the marketing and sales of the Company's eyewash product. Five additional state court actions have been filed - two each in Pennsylvania and New Jersey state courts, and one in California state court. The plaintiffs' attorneys have agreed to file stipulations staying each of those actions pending the outcome of a class certification motion filed in the original New York state court case in Manhattan. In its 1994 Annual Report on Form 10-K, the Company described actions brought in Alabama and Minnesota on behalf of a nationwide class of purchasers of MiracleEar hearing aids manufactured and sold by the Company's Dahlberg, Inc. subsidiary between January 1989 and January 1994. The Company has reached a proposed settlement with the plaintiffs in both of these actions, which is subject to court approval following hearings scheduled for November 1995 in both Minnesota and Alabama. The Company's current assessment of certain legal matters has permitted management to estimate the likely costs and expenses to be incurred in connection with the actions. Accordingly, the Company recorded a $16 million reserve for these matters in the second quarter of 1995. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 progress toward stated financial objectives. As more fully described in Note A - "Restatement of Financial Information", 1994 financial information has been restated to reflect the decision to account for shipments under a fourth quarter 1993 U.S. contact lens distributor program as consigned inventory and to record revenues when the products were sold by the distributors to their customers and to reverse the effect of subsequent product returns and pricing adjustments related to this program which had been previously recognized in 1994. Additionally, a restatement was made to correct the improper recording of certain 1993 sunglass distributor sales in Southeast Asia and to reverse related sales returns which had been previously recorded in 1994. The Company seeks to manage its diverse operations to outperform peer companies on key financial measures such as sales and earnings growth and return on assets and equity. The Standard & Poor's Healthcare Composite Group has been formally adopted as the peer group against which Bausch & Lomb will systematically measure its financial progress. The Company also emphasizes the need for operational stability, predictability and profitability. RESULTS OF OPERATIONS Net Sales By Business Segment Bausch & Lomb's results are reported in two business segments. The healthcare segment includes personal health, medical and biomedical products. In the personal health sector, major lines include contact lens care products, eye care solutions, over-the counter medications, skin care products and oral care products. Medical products include contact lenses and lens materials, prescription pharmaceuticals, hearing aids and dental implants. Biomedical products include purpose-bred laboratory animals for biomedical research, specific pathogen-free eggs for vaccine production and a variety of biotechnical and professional services provided to the scientific research community. Bausch & Lomb's optics segment includes sunglasses, binoculars, riflescopes, telescopes and optical thin film coating services and products. As announced on May 1, 1995, the Company has completed the sale of its Sports Optics Division, which marketed binoculars, riflescopes and telescopes. Consolidated revenues for the second quarter ended July 1, 1995 were $535 million, an increase of $50 million or 10% over the 1994 second quarter. Changes in currency exchange rates improved sales comparisons to 1994 by approximately $25 million or 5%. For the first six months of 1995, net sales of $1,001 million advanced $76 million or 8% over the comparable 1994 period. Changes in currency exchange rates improved sales comparisons to the 1994 period by approximately $43 million or 5%. The following is a summary of sales by business segment: Net Sales By Business Segment (Dollar Amounts In Millions)
Second Quarter Six Months 1995 1994 1995 1994 Healthcare $353.2 $308.8 $ 669.5 $593.3 Optics 182.3 176.8 331.6 331.7 ------ ------ -------- ------ Net Sales $535.5 $485.6 $1,001.1 $925.0 ------ ------ -------- ------ ------ ------ -------- ------
Healthcare Segment Revenues Revenues in the healthcare segment increased $44 million or 14% over the 1994 second quarter. On a year-to-date basis, healthcare segment revenues advanced $76 million or 13% over the comparable 1994 period. Major product sector revenues as a percentage of total healthcare segment sales follow: Healthcare Segment Sales By Product Sector
Second Quarter Six Months 1995 1994 1995 1994 Personal Health 50% 53% 50% 51% Medical 37% 33% 36% 34% Biomedical 13% 14% 14% 15%
Within the personal health sector, 1995 second quarter revenues improved 8% from the comparable 1994 level. Continued strong demand for the Company's lens care solutions products, including the ReNu and Boston lines, contributed to the revenue gain. Sales of over-the-counter medications in Europe advanced strongly as did revenues for eyecare products in the U.S. The eyecare line benefited from incremental sales of Opcon-A, an antihistamine/decongestant, which has received good initial acceptance. Skin care revenues were essentially even with the level of a year ago. Revenues for consumer oral care products were more than 20% below the second quarter of 1994, primarily due to competitive price reductions implemented on the Interplak line of power toothbrushes in prior periods and reduced U.S. sales of a line of mouthwash that is being discontinued. Medical sector sales rose 29% from second quarter 1994 levels. Worldwide contact lens revenues advanced 25%, led by increased shipments of planned replacement lens products, most notably in the U.S., Asia and Europe. While sales of traditional contact lenses in Japan increased, overall revenues were even with the second quarter of 1994, reflecting the general market shift toward planned replacement lenses. Worldwide revenues for rigid gas permeable (RGP) lenses and lens materials also contributed to overall contact lens growth and included sales of the new Boston 7 lens material. Worldwide ophthalmic pharmaceutical revenues improved significantly. Within the U.S., these results were attributable to the success of recently introduced products, including Tobramycin and Levobunolol, and to incremental sales of Crolom, which is indicated for seasonal allergic eye conditions. Second quarter revenues for prescription pharmaceuticals in Europe also advanced from the prior year. Increased demand was also noted for the Company's lines of dental implants and hearing aids. Hearing aid revenues rose 30% in response to improved overall market conditions and encouraging consumer demand for the recently introduced Mirage completely in-the-canal product line. A 7% improvement in the Company's biomedical sector reflected increased revenues for animal operations outside the U.S., increased shipments of specific pathogen-free eggs and incremental sales generated by recent acquisitions. Optics Segment Revenues Second quarter revenues in the optics segment increased 3% to $182 million, compared to $177 million in 1994. Revenues were $332 million for each of the six-month periods. Revenue increases were evidenced for premium-priced sunglasses, including strong demand for new products like Ray-Ban xrays and Orbs and Killer Loop Activ. The Company's ultra-premium-priced Revo and moderately- priced sunglass lines, including Ion Sport, Bausch & Lomb i's and Suncloud, also experienced increased sales in the 1995 second quarter. Several of these new products are in the fashion and sport sunglass segments, areas where the Company is trying to increase its market presence. Products in these segments are subject, in part, to the ability to anticipate and satisfy changes in consumer preferences and are generally characterized by shorter life cycles. Being successful in these categories generally requires innovative design and marketing expertise as well as flexible production capabilities, skills the Company has strengthened over the last year. Comparisons versus the 1994 period were moderated by the divestiture of the Company's sports optics business for which no revenues were recorded in the 1995 second quarter. If these products are excluded from results for both 1995 and 1994, optics segment growth for the second quarter was 19% or $29 million and for the first six months was 7% or $22 million. Net Sales By Geographic Region Sales in markets outside the U.S. totaled $266 million in the second quarter, an increase of $40 million or 18% from 1994, and represented 50% of consolidated revenues, compared to 46% in 1994. European revenues increased 18% and benefited from the favorable impact of currency movements, particularly in Germany. This progress also reflected improved demand for the Company's sunglasses, over-the-counter medications, lens care products and planned replacement lenses. Sales in Japan advanced 49%, attributable to favorable currency exchange rate fluctuations, as well as increased sales of sunglasses, contact lenses and lens care products. Elsewhere in Asia, revenues declined 3%, despite favorable currency exchange movements based on lower demand for sunglasses and the lack of sales of sports optics products in 1995. Revenues declined 4% in Latin America and Canada. Sales shortfalls in Mexico were more than offset by improvement in Brazil, primarily due to increasing consumer confidence which has fueled sales of product in this market. If the 1994 second quarter revenues for the sports optics business are excluded from these comparisons, revenues improved 19% in Europe and 7% in Latin America and Canada, and declined 2% in Asia outside of Japan. U.S. sales totaled $269 million in the second quarter, an increase of $10 million or 4% from 1994. Revenue increases for sunglasses, planned replacement lenses, pharmaceuticals, RGP solutions and hearing aids were somewhat offset by the divestiture of the sports optics business. These results reflect the impact of new product introductions as well as a closer alignment of the Company's sales to consumer purchasing patterns, particularly in the sunglass business. Excluding the divested sports optics business from 1994 results, U.S. sales increased 12% over the prior year level. Costs And Expenses The cost of products sold ratio was 43.7% for the 1995 second quarter versus 46.0% for the comparable 1994 period. For the six month period, this ratio was 45.2% for 1995 and 46.3% for 1994. The improvement is due to shifts in sales mix toward higher-margin hearing aids, sunglasses and pharmaceutical products as well as the divestiture of the sports optics business and favorable impact of foreign currency exchange rate changes. These trends more than offset the impact of higher sales of lower-margin planned replacement lenses. It is expected that developing new cast molding technologies for contact lens manufacturing and replacing some current product lines should reduce the costs of producing soft contact lenses in the future. Selling, administrative and general expenses were 39.4% of sales in the second quarter of 1995 compared to 38.7% in 1994. For the six-month period, these expenses were 40.1% of sales in 1995 and 37.4% of sales in 1994. The increases reflect promotional support for the launch and test marketing of several new products. Higher advertising and promotion spending included additional support for Ray-Ban sunglasses in key markets, skin care product advertising and the establishment of a business development fund for marketing programs directed toward contact lens patients. Corporate administration expense was 2.3% of sales in the second quarter of 1995 versus 2.5% for 1994 and reflected the Company's continuing success in managing these expenses to a targeted level of no more than 3% of sales. Research and development expense for the 1995 second quarter increased 9% from 1994 levels. 1995 spending has been primarily directed toward the support of new sunglass, contact lens and pharmaceutical products. Restructuring Reserves In the fourth quarter of 1993, the Company announced plans to restructure its sunglass, pharmaceutical and biomedical operations and recorded a pre-tax restructuring charge of $50 million. The following table sets forth the activity in the restructuring reserve through July 1, 1995: Dollar Amounts In Millions
- ----------------------------------------------------------------------- Sunglass Pharmaceutical Biomedical Total - ----------------------------------------------------------------------- Total 1993 restructuring provisions $34.5 $9.0 $6.5 $50.0 Less charges against reserve: Non-cash items 14.6 2.4 2.1 19.1 Cash payments: 1993 1.4 2.2 1.4 5.0 1994 16.3 3.5 2.0 21.8 1995 1.2 - 1.0 2.2 ----- ---- ---- --- Balance at July 1, 1995 $ 1.0 $0.9 $ - $ 1.9 ----- ---- ---- --- ----- ---- ---- ---
All actions contemplated at the time of establishing the reserve have been completed or are expected to be fully completed in 1995. Reserves remaining primarily represent liabilities for continuing severance payments and project expenses and are believed to be adequate. Business Segment And Operating Earnings Business segment earnings of $86 million for the 1995 second quarter improved $15 million or 21% compared to the 1994 second quarter. Improved operating results for sunglasses, hearing aids, prescription pharmaceuticals and over-the-counter medications in Europe offset the impact of shifts in sales mix toward lower-margin planned replacement lenses and the increased advertising and promotion activities to support several product lines. Operating earnings totaled $74 million, an increase of $15 million or 25% from the prior year period. Other Income And Expenses Income from investments totaled $10 million for the second quarters of 1995 and 1994, as higher non-U.S. investment levels and interest rates were offset by lower income earned on an interest rate swap associated with the Wilmington Partners L.P. transaction. Interest expense of $12 million for the 1995 second quarter increased $2 million over the second quarter of 1994, due to higher interest rates on U.S. borrowings. The Company realized a net foreign currency loss of $0.4 million, representing a decline of $0.5 million from the net $0.9 million loss realized in 1994. This reflects anticipated lower premium income earned on the Company's Irish pound hedge contracts in the current year, partially offset by the positive comparative impact of a significant devaluation of the currency in Brazil which occurred in the 1994 second quarter. During the 1995 second quarter, the Company sold its Sports Optics Division and recorded a gain of $36 million on the transaction. Additionally, during the 1995 second quarter the Company recorded a $16 million reserve for certain legal matters. The Company's current assessment of the matters has permitted management to estimate the likely costs and expenses to be incurred in connection with the actions. The Company's reported income tax rates for the three and six month periods were 37.2% and 36.3% in 1995 compared to 30.6% and 32.6% in 1994, respectively. 1994 rates benefited from a reduction in statutory tax rates in Germany for which the Company recorded an adjustment to its deferred tax liabilities. The Company expects to provide taxes on operations at a higher rate in 1995 based on the increased significance of earnings in countries with relatively higher statutory rates, most notably Japan and Germany. Liquidity And Financial Resources Cash Flows Provided By Operating Activities While net earnings adjusted for the after-tax gain on sale of the Sports Optics Division and non-cash items decreased 17% from 1994, cash flows provided by operating activities totaled $119 million through June 1995, an increase of $68 million from the prior year period. This improvement was primarily attributable to cash realized from the net settlement of foreign currency hedge contracts, the comparisons against significant restructuring actions completed in the 1994 second quarter and the timing of payments for advertising and promotion. These factors were moderated by collections in 1994 on the significant amount of accounts receivable outstanding at the end of 1993. Cash Flows Provided By Investing Activities Cash flows provided by investing activities increased $133 million from 1994 to $47 million. Purchases of property, plant and equipment totaled $34 million, a decrease of $15 million from the 1994 second quarter. Higher capital spending in the prior year was primarily in support of the development of new contact lens technology. Major projects in 1995 include new cast mold capacity for contact lenses and manufacturing improvements for sunglasses in the U.S., Europe and Asia-Pacific regions. Other investing activities in the first half of 1994 included the acquisition of the assets of Revo, a U.S.-based manufacturer of high performance sunglasses, while in 1995, the reported net inflows of cash included amounts received from the divestiture of the Company's sports optics business, from a deposit refund and from collections of notes receivable. Cash Flows Used In Financing Activities Approximately $114 million in cash was used in financing activities, including repurchases of the Company's Common shares, the payment of dividends and repayments of U.S. promissory notes. The proceeds from the divestiture of the sports optics business were primarily used for the repurchase of the Company's Common shares. At its July 25, 1995 meeting the board of directors authorized the repurchase of an additional two million shares of Common stock, which will permit the Company to continue its program of repurchasing shares in the open market. Free Cash Flow The Company has continued to improve cash flow and reduce its working capital requirements. The Company's goal is to maximize free cash flow which is defined as cash generated before dividends, the repayment of debt, stock repurchases and the acquisition or divestiture of businesses. Free cash flow for the six months ended July 1, 1995 totaled $100 million. For the six months ended June 25, 1994 free cash flow totaled a negative $0.2 million. The increase over the prior year is primarily attributable to changes in other current assets and accrued liabilities levels and lower capital expenditures described previously. Financial Position The Company's total debt, consisting of short- and long- term borrowings, decreased by $2 million from year-end 1994 to $588 million at the end of the 1995 second quarter. Bausch & Lomb's ratio of total debt to equity stood at 63% in June 1995 and 65% in June 1994. Cash and investments totaled $294 million and $566 million at the end of the second quarter of 1995 and 1994, respectively. This change reflects the 1994 third quarter investment in $425 million in securities issued by a wholly-owned subsidiary of a triple-A rated financial institution reported as other investments on the balance sheet. Access to Financial Markets The Company maintains U.S. revolving credit agreements, typically with 364-day credit terms, totaling $290 million. The interest rate under the agreements is at the prime rate, or, at the Company's option, at a mutually acceptable market rate. No debt was outstanding under these agreements at July 1, 1995 nor were there any borrowings outstanding under the Company's $300 million medium-term note program. In addition, the Company maintains bank lines of credit for its financing requirements. The availability of adequate credit facilities provides the Company with a high degree of flexibility to meet its obligations, fund capital expenditures and invest in growth opportunities. Working Capital Working capital amounted to $244 million for the second quarter of 1995, versus $277 million at year-end 1994 and $695 million for the second quarter of 1994. The significant decrease from the second quarter of the prior year reflects the $425 million investment described earlier. The current ratio was 1.3 at July 1, 1995, 1.4 at December 31, 1994 and 1.9 at June 25, 1994. OTHER FINANCIAL DATA Dividends declared on Common stock were $0.245 per share in the second quarters of 1995 and 1994. On July 25, 1995 the board of directors approved a 6% increase in the annual dividend rate on the Company's Common stock to $1.04 per share from the previous level of $0.98 per share. As a result of the goodwill impairment charge recorded in December 1994 and lower earnings performance reported during the most recent twelve-month period, the return on average shareholders' equity for the twelve-month period ended July 1, 1995 was 3%. This return was 14% for the twelve-month period ended June 25, 1994. Excluding goodwill impairment and restructuring charges, the return on average shareholders' equity would have been 9% in 1995 versus 18% in 1994. OUTLOOK Worldwide sales for many of the Company's products are expected to continue to show year-over-year growth for the remainder of 1995. However, anticipated results are dependent on the success of several new product introductions scheduled for the remainder of the year in the pharmaceutical and contact lens businesses. Within the lens care products category, continued success is also dependent on the Company's ability to withstand competitive market pressures. Additionally, the continued positive effect of changes in foreign currency exchange rates noted in the first six months of 1995 is dependent upon rates remaining at current levels for the remainder of 1995. There can be no assurance, however, that the trends will continue. PART II - OTHER INFORMATION Item 1. Legal Proceedings In its 1994 Annual Report on Form 10-K and its first quarter 1995 Form 10-Q, the Company reported on a proposed class action filed in New York state court, alleging that the Company misled consumers in its marketing and sales of Sensitive Eyes Saline Rewetting Drops and Boston Rewetting Drops and Conditioning Solution, as well as the marketing and sales of the Company's eyewash product. Five additional state court actions have been filed - two each in Pennsylvania and New Jersey state courts, and one in California state court. The plaintiffs' attorneys have agreed to file stipulations staying each of those actions pending the outcome of a class certification motion filed in the original New York state court case in Manhattan. In its 1994 Annual Report, the Company described actions brought in Alabama and Minnesota on behalf of a nationwide class of purchasers of Miracle-Ear hearing aids manufactured and sold by the Company's Dahlberg, Inc. subsidiary between January 1989 and January 1994. The Company has reached a proposed settlement with the plaintiffs in both of these actions, which is subject to court approval following hearings scheduled for November 1995 in both Minnesota and Alabama. Item 4. Submission of Matters to a Vote of Security Holders. The 1995 annual meeting of shareholders was held on April 25, 1995. The nominees for Director elected at the meeting were as follows: Votes Cast Nominee For Withheld William Balderston III 48,701,685 804,928 Bradford R. Boss 48,720,537 786,076 Kenneth L. Wolfe 48,758,696 747,917 The shareholders voted to ratify the appointment of Price Waterhouse as independent accountants for 1995. 48,785,561 shares of Common and Class B stock were voted in favor of the proposal, 288,073 shares of Common and Class B stock were voted against the proposal, and 432,979 shares of Common and Class B stock abstained. Item 6. Exhibits and Reports on Form 8-K. (a) Item 601 Exhibits Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter for which this Report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAUSCH & LOMB INCORPORATED Date: March 15, 1996 By: (Jay T. Holmes) Jay T. Holmes Executive Vice President and Chief Administrative Officer Date: March 15, 1996 By: (Stephen C. McCluski) Stephen C. McCluski Senior Vice President, Finance EXHIBIT INDEX S-K Item 601 No. Document (4)-a Certificate of Incorporation of Bausch & Lomb Incorporated (filed as Exhibit (4)-a to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1985, File No. 14105, and incorporated herein by reference). (4)-b Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (4)-b to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 14105, and incorporated herein by reference). (4)-c Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (4)-c to the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992, File No. 14105, and incorporated herein by reference). (4)-d Form of Indenture, dated as of September 1, 1991, between the Company and Citibank, N.A., as Trustee, with respect to the Company's Medium Term Notes (filed as Exhibit (4)-a to the Company's Registration Statement on Form S-3, File No. 33-42858, and incorporated herein by reference). (4)-e Rights Agreement between the Company and The First National Bank of Boston, as successor to Chase Lincoln First Bank, N.A. (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated July 25, 1988, File No. 1-4105, and incorporated herein by reference). (4)-f Amendment to the Rights Agreement between the Company and The First National Bank of Boston, as successor to Chase Lincoln First Bank, N.A. (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated July 31, 1990, File No. 1-4105, and incorporated herein by reference). (11) Statement Regarding Computation of Per Share Earnings (filed herewith). (12) Statement Regarding Computation of Ratio of Earnings to Fixed Charges (filed herewith). (27) Financial Data Schedule (filed herewith). Exhibit 11 Statement Regarding Computation of Per Share Earnings Dollars And Shares In Thousands- Except Per Share Data
SIX MONTHS ENDED July 1, June 25, 1995 1994* Net earnings $71,873 $69,822 ------- ------ ------- ------ Actual outstanding Common shares at beginning of year 58,992 59,118 Average Common shares issued for stock options and effects of assumed exercise of Common stock equivalents and repurchase of Common shares (541) 709 ------- ------ Average Common shares outstanding 58,451 59,827 ------- ------ ------- ------ Net earnings per Common and Common share equivalent $ 1.23 $ 1.17 ------- ------ ------- ------ *Results have been restated as more fully described in Note A - "Restatement of Financial Information".
Exhibit 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges Dollar Amounts In Thousands
July 1, December 31, 1995 1994* Earnings before provision for income taxes and minority interest $129,491 $116,342 Fixed charges 24,908 42,954 Capitalized interest, net of current period amortization 130 260 -------- ------- Total earnings as adjusted $154,529 $159,556 -------- -------- -------- -------- Fixed charges: Interest (including interest expense and capitalized interest) $ 23,986 $ 41,379 Portion of rents representative of the interest factor 922 1,575 ------- ------- Total fixed charges $ 24,908 $ 42,954 -------- -------- -------- -------- Ratio of earnings to fixed charges 6.20 3.71 -------- -------- -------- -------- *Results have been restated as more fully described in Note A - "Restatement of Financial Information". Excluding the effect of the goodwill impairment charge recorded in the fourth quarter of 1994, the ratio of earnings to fixed charges at December 31, 1994 would have been 5.46.
EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 6-MOS QTR-2 DEC-30-1995 DEC-30-1995 JUL-01-1995 JUL-01-1995 291,856 291,856 2,315 2,315 306,525 306,525 16,965 16,965 303,057 303,057 1,041,146 1,041,146 1,054,979 1,054,979 510,375 510,375 2,540,234 2,540,234 797,064 797,064 235,323 235,323 24,174 24,174 0 0 0 0 913,034 913,034 2,540,234 2,540,234 1,001,060 535,459 1,001,060 535,459 452,454 234,089 452,454 234,089 432,596 227,608 5,352 2,708 23,986 11,847 129,491 90,975 47,062 33,804 71,873 51,589 0 0 0 0 0 0 71,873 51,589 1.23 0.89 1.23 0.89 Income before taxes and minority interest
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