-----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, T4+wd5I55yhQGq9sBq47b0A9qR6NTu/s9Kl8J3p/VXrhBRi3yC1vQQ3IIf8VVHQv sWgL1x+UcsqBpdFtP5zWrQ== 0000010427-96-000045.txt : 19960813 0000010427-96-000045.hdr.sgml : 19960813 ACCESSION NUMBER: 0000010427-96-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960812 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: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04105 FILM NUMBER: 96608371 BUSINESS ADDRESS: STREET 1: BAUSCH & LOMB INCORPORATED STREET 2: ONE BAUSCH & LOMB PLACE CITY: ROCHESTER STATE: NY ZIP: 14604-2701 BUSINESS PHONE: (716)338-6699 MAIL ADDRESS: STREET 1: ONE BAUSCH & LAMB PLACE CITY: ROCHESTER STATE: NY ZIP: 14604-2701 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended Commission File June 29, 1996 Number: 1-4105 BAUSCH & LOMB INCORPORATED (Exact name of registrant as specified in its charter) New York 16-0345235 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Bausch & Lomb Place, Rochester NY 14604-2701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 338-6000 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No The number of shares of Common stock of the registrant outstanding as of June 29, 1996 was 56,572,837 consisting of 55,848,089 shares of Common Stock and 724,748 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. Unaudited financial statements for the second quarters of 1996 and 1995 of Bausch & Lomb Incorporated and Consolidated Subsidiaries are presented on the following pages. The audited balance sheet at December 30, 1995 is presented for comparative purposes. Financial statements for the six months ended June 29, 1996 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
Second Quarter Ended Six Months Ended Dollar Amounts In Thousands - June 29, July 1, June 29, July 1, Except Per Share Data 1996 1995 1996 1995 Net Sales $545,559 $535,459 $1,014,827 $1,001,060 Costs And Expenses Cost of products sold 233,796 234,089 441,685 452,454 Selling, administrative and general 213,952 210,878 411,274 400,943 Research and development 19,442 16,730 37,216 31,653 Restructuring charges 15,077 - 15,077 - ------- ------- ------- ------- 482,267 461,697 905,252 885,050 ------- ------- ------- ------- Operating Earnings 63,292 73,762 109,575 116,010 ------- ------- ------- ------- Other (Income) Expense Investment income (9,264) (9,530) (18,978) (19,529) Interest expense 12,505 11,847 24,823 23,986 Loss from foreign currency, net 95 372 46 1,964 Gain on sale of Sports Optics Division - (35,902) - (35,902) Litigation provision - 16,000 - 16,000 ------- -------- ------- -------- 3,336 (17,213) 5,891 (13,481) ------- -------- ------- -------- Earnings Before Income Taxes And Minority Interest 59,956 90,975 103,684 129,491 Provision for income taxes 24,184 33,804 40,713 47,062 ------ ------ ------- ------- Earnings Before Minority Interest 35,772 57,171 62,971 82,429 Minority interest in subsidiaries 5,509 5,582 10,199 10,556 ------ ------ ------- ------- Net Earnings $ 30,263 $ 51,589 $ 52,772 $ 71,873 Retained Earnings At Beginning Of Period 907,894 852,272 900,095 846,245 Cash Dividends Declared: Common stock ($0.26 and $0.52 per share in 1996 and $0.245 and $0.49 per share in 1995) 14,734 14,283 29,444 28,540 ------- ------- ------- ------- Retained Earnings At End Of Period $923,423 $889,578 $ 923,423 $ 889,578 ======= ======= ========= ========= Net Earnings Per Common Share $ 0.54 $ 0.89 $ 0.93 $ 1.23 ==== ==== ==== ==== Average Common Shares Outstanding (000s) 57,034 58,451 ====== ====== See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES BALANCE SHEET
June 29, December 30, Dollar Amounts In Thousands 1996 1995 ASSETS Current Assets Cash and cash equivalents $ 136,460 $ 193,814 Short-term investments, at cost which approximates market 816 803 Trade receivables, less allowances of $12,858 and $11,232, respectively 314,247 250,587 Inventories, net 334,376 304,298 Deferred taxes, net 77,720 82,557 Other current assets 129,324 98,288 ------- ------- 992,943 930,347 Property, Plant And Equipment, net 543,704 550,366 Goodwill And Other Intangibles, less accumulated amortization of $99,822 and $96,597, respectively 447,254 381,495 Other Investments 554,728 561,232 Other Assets 137,097 126,626 --------- --------- Total Assets $2,675,726 $2,550,066 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 451,667 $ 284,510 Current portion of long-term debt 45,184 98,990 Accounts payable 70,682 81,927 Accrued compensation 81,817 79,767 Accrued liabilities 293,012 275,936 Federal and foreign income taxes 29,179 38,347 ------- ------- 971,541 859,477 Long-Term Debt, less current portion 224,476 190,974 Other Long-Term Liabilities 126,293 139,925 Minority Interest 431,791 430,390 --------- --------- Total Liabilities 1,754,101 1,620,766 --------- --------- 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, 1,095,194 and 1,268,578 shares issued, respectively 88 101 Capital in excess of par value 94,583 107,788 Cumulative translation adjustment 76,978 85,122 Retained earnings 923,423 900,095 --------- --------- 1,119,151 1,117,185 Common and Class B Stock in treasury, at cost, 4,720,679 and 4,525,844 shares, respectively (188,579) (178,730) Unearned compensation (6,156) (9,155) Unrealized holding loss on other investments (2,791) - --------- --------- Total Shareholders' Equity 921,625 929,300 --------- --------- Total Liabilities And Shareholders' Equity $2,675,726 $2,550,066 ========= ========= See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CASH FLOWS
Six Months Ended June 29, July 1, Dollar Amounts In Thousands 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 52,772 $ 71,873 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 44,634 44,348 Amortization 11,570 8,059 Decrease/(increase) in deferred income taxes 1,359 (6,690) Restructuring charges, net of taxes 10,898 - 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 5,112 1,298 Exchange loss 3,072 8,071 Increase in minority interest 2,143 1,446 Increase in accounts receivable (62,181) (24,938) Increase in inventories (26,578) (11,618) (Increase)/decrease in other current assets (29,852) 7,626 (Decrease)/increase in accounts payable and accruals (12,647) 36,351 (Decrease)/increase in tax liabilities (5,595) 4,505 Decrease in other long-term liabilities (13,466) (11,372) ------- ------- Net cash (used in) provided by operating activities (18,759) 118,696 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchase of property, plant and equipment (56,233) (33,997) Proceeds from sale of equipment 10,000 - Acquisition of businesses, net of cash and short-term investments acquired (81,294) (1,180) Proceeds from sale of Sports Optics Division, net of cash and short-term investments disposed - 76,291 Other (14,836) 5,477 ------- ------ Net cash (used in) provided by investing activities (142,363) 46,591 CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of Common shares (20,283) (74,933) Exercise of stock options 3,778 3,683 Restricted stock awards - 1,602 Net proceeds from issuance (repayments) of notes payable 167,730 (10,941) Proceeds from issuance of long-term debt 34,270 - Repayment of long-term debt (51,146) (4,244) Payment of dividends (29,559) (28,748) ------- ------- Net cash provided by (used in) financing activities 104,790 (113,581) ------- -------- Effect of exchange rate changes on cash, cash equivalents and short-term investments (1,009) 9,923 ------- --------- Net (decrease)/increase in cash, cash equivalents and short-term investments (57,341) 61,629 Cash, cash equivalents and short-term investments, beginning of period 194,617 232,542 ------- ------- Cash, cash equivalents and short-term investments, end of period $137,276 $294,171 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 23,941 $ 24,052 Income taxes $ 48,076 $ 43,063 See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE A: 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 57,034,000 at June 29, 1996 and 58,451,000 at July 1, 1995. See Exhibit 11 filed with this Report for details regarding the computation of earnings per share. NOTE B: Inventories Inventories consisted of the following:
June 29, December 30, (Dollar Amounts In Thousands) 1996 1995 Raw materials and supplies $ 95,268 $ 76,834 Work in process 17,104 21,905 Finished products 231,242 214,901 ------- ------- 343,614 313,640 Less:Reserve for valuation of certain U.S. inventories at last-in, first-out cost 9,238 9,342 ------- ------- $334,376 $304,298 ======= =======
NOTE C: Property, Plant And Equipment Major classes of property, plant and equipment consisted of the following:
June 29, December 30, (Dollar Amounts In Thousands) 1996 1995 Land $ 21,633 $ 22,124 Leasehold improvements 33,761 33,720 Buildings 398,311 396,954 Machinery and equipment 650,526 629,952 --------- --------- 1,104,231 1,082,750 Less:Accumulated depreciation 560,527 532,384 --------- --------- $ 543,704 $ 550,366 ========= =========
NOTE D: Legal Proceedings In its 1995 Annual Report on Form 10-K, the Company discussed an action pending in the United States District Court for the Northern District of Alabama on behalf of a nationwide class pursuing claims relating to the Company's marketing and sales of Optima FW, Medalist and SeeQuence 2 contact lens systems and other related proceedings. On July 31, 1996, the court preliminarily approved a settlement, which is subject to final approval following a fairness hearing scheduled for November 1996. Under the terms of the settlement, consumers who bought the lenses in question during specified time periods are eligible to receive cash and product certificates for each lens purchase. Consumers who purchased Medalist lenses between January 1, 1991 through December 31, 1995, Optima FW lenses between November 1, 1990 through December 30, 1995 and Criterion Ultra FW lenses between November 1, 1990 through April 30, 1996 are eligible to participate in this proposed settlement. The Company will record a charge against third quarter earnings in the amount of $16 million which, in addition to existing litigation reserves, is deemed adequate to satisfy the costs of the proposed settlement. 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 towards stated financial objectives. Bausch & Lomb strives to maximize total return to shareholders through a combination of long-term growth in share price and the payment of cash dividends. The Company systematically measures its financial progress against the Standard & Poors Healthcare Composite Group, with the goal of placing Bausch & Lomb among the top performers for each of its selected financial objectives. To achieve this goal, the Company has established multi-year objectives of compound annual sales and earnings growth in the range of 10% and, on a longer term basis, a return on equity of approximately 20%. The Company also emphasizes the need for operational stability, predictability and profitability. The Company's management team is firmly committed to achieving these performance objectives on a going-forward basis. RESULTS OF OPERATIONS Comparability of Business Segment Information Comparisons of 1996 and 1995 second quarter and six-month operating results are complicated by certain significant events described below. As announced in June 1996, the Company's Board of Directors approved plans to restructure portions of the sunglass, solutions and contact lens businesses, as well as certain corporate administrative functions and a pre-tax restructuring charge of $15 million was recorded. The action is part of the Company's continuing efforts to enhance its competitive position and to reduce the annual impact of general and administrative overhead, logistics and distribution costs. As announced on May 1, 1995, the Company completed the sale of its Sports Optics Division, which marketed binoculars, riflescopes and telescopes. 1995 results reflect the operations of this business for only the first three months of the year. The sports optics business contributed optics segment revenues of $18 million and break even operating earnings for the six-month period ended June 1995. 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 and optical thin film coating services and products. Optics segment results for 1995 also included the Company's Sports Optics Division. Consolidated revenues for the second quarter ended June 29, 1996 were $546 million, an increase of $10 million or 2% over the 1995 second quarter. Changes in foreign currency exchange rates weakened sales comparisons to 1995 by approximately $19 million or 3%. For the first six months of 1996, net sales of $1,015 advanced $14 million or 1% over the comparable 1995 period. Changes in foreign currency exchange rates weakened sales comparisons to the 1995 period by $23 million or 2%. When results for the divested sports optics business are excluded from 1995 results, year-to-date sales improved $32 million or 3%. The following is a summary of sales by business segment:
Net Sales By Business Segment Second Quarter Six Months (Dollar Amounts In Millions) 1996 1995 1996 1995 Healthcare $369.0 $353.2 $ 702.9 $ 669.5 Optics 176.6 182.3 311.9 331.6 ----- ----- ------- ------- Net Sales $545.6 $535.5 $1,014.8 $1,001.1 ===== ===== ======= =======
Healthcare Segment Revenues Revenues in the healthcare segment increased $16 million or 4% over the 1995 second quarter. On a year-to-date basis, healthcare segment revenues advanced $33 million or 5%. Major product sector revenues as a percentage of total healthcare segment sales are presented below:
Healthcare Segment Sales By Product Sector Second Quarter Six Months 1996 1995 1996 1995 Personal Health 47% 50% 48% 50% Medical 40% 37% 38% 36% Biomedical 13% 13% 14% 14%
Within the personal health sector, 1996 second quarter revenues were even with comparable 1995 amounts. An overall slight improvement was achieved for the Company's lens care solutions products. Continued strong demand for the Company's products in most major markets in Europe and the Asia Pacific region was somewhat offset by results in the U.S., where the overall market has not experienced growth in the current year. Nevertheless, the Company successfully defended its large U.S. market position and registered share gains and modest growth for soft lens care solutions. A 7% sales gain was achieved by the Company's line of skin care products in the U.S. Revenues for over-the-counter medications in Europe advanced 5%. Eye care products achieved 11% sales growth, primarily driven by results for the Opcon-A antihistamine/decongestant. Revenues for consumer oral care products were significantly below the second quarter of 1995, primarily due to sluggish demand for Interplak power toothbrushes. Medical sector sales increased 12% from second quarter 1995 levels. Worldwide contact lens revenues advanced 14%, led by significant gains for planned replacement products, including SofLens66 and Gold Medalist Toric, most notably in Asia, Europe and the U.S. The continued shift in market demand toward planned replacement lenses led to an 8% decline in revenues for traditional contact lenses, primarily in Asia. Worldwide ophthalmic pharmaceutical revenues improved 8% led by results in the U.S. where gains were largely attributable to the success of products recently introduced to the Company's portfolio, including Ocutricin and Minoxidil. Medical sector sales also benefited from increased demand for dental implants and hearing aids. Revenues in the Company's biomedical sector were even with the 1995 second quarter. Increased shipments of specific pathogen-free eggs and incremental sales generated by recent acquisitions were offset by the unfavorable impact of foreign currency changes. Optics Segment Revenues Second quarter revenues in the optics segment decreased 3% to $177 million, compared to $182 million in 1995. For the first six months of the year, revenues decreased 6% to $312 million, compared to $332 million in 1995. When results for the divested sports optics business are excluded from the latter comparison, optics segment revenues were even with the prior year. Worldwide sunglass sales declined 2% from the 1995 second quarter, largely in regions outside the U.S. In the U.S., a 2% sales improvement reflected incremental 1996 revenues from the first quarter acquisition of the Arnette sunglass line, with products directed toward the important sport channel of trade, and increased sales of Revo sunglasses. These results were offset by shortfalls in the Ray-Ban product lines, where demand for classic styles has declined sharply. An important measure for success in the sunglass business is the sale of new products, which accounted for more than 35% of global sunglass revenues in the second quarter of 1996. Orders for new products and more contemporary sunglass styles exceeded the Company's expectations, which resulted in a substantial level of unfilled demand. Revenues for thin film coating products and services declined significantly based on increased competition for core products from manufacturers outside the U.S. Net Sales By Geographic Region The following analysis of trends excludes 1995 revenues from the sports optics business. Sales in markets outside the U.S. totaled $268 million in the second quarter, an increase of $2 million or 1% from 1995, and represented 49% of consolidated revenues, compared to 50% in 1995. European revenues increased 6%, reflecting improved demand for the Company's planned replacement lenses, lens care solutions and pharmaceuticals products. Sales in Asia declined 8% due mainly to unfavorable exchange rate fluctuations in Japan. Revenues in Canada and Latin America increased 4%, primarily due to higher planned replacement lens and lens care solutions sales. U.S. sales totaled $277 million in the second quarter, a gain of $8 million or 3% from 1995. The improvement was primarily due to growth for planned replacement lenses and pharmaceutical products and incremental sales from the acquisition of the Arnette sunglass lines, offset by results for oral care products. Costs And Expenses The cost of products sold ratio was 43% for the 1996 second quarter versus 44% for the comparable 1995 period. For the six-month period, this ratio was 44% for 1996 and 45% for 1995. The improvement was primarily attributable to results for soft contact lenses. These products incurred operating losses in the 1995 quarter and six-month periods, but have experienced a return to profitability in the 1996 periods. These trends more than offset the negative impact of currency. Selling, administrative and general expenses were 39% of sales in the second quarters of both 1996 and 1995. For the six-month period, these expenses were 41% of sales in 1996 compared to 40% in 1995. This increase reflects higher spending for pharmaceutical and U.S. lens care advertising and amortization expense related to newly acquired businesses. Corporate administration expense was 2.5% of sales in the 1996 second quarter versus 2.3% for 1995. Research and development expense for the 1996 second quarter was 3.6% of sales versus 3.1% for 1995. The increase in spending is intended to enhance the Company's technical leadership in the pharmaceuticals, contact lens and lens care businesses. Restructuring Reserves As previously described, in the second quarter of 1996, the Company's Board of Directors approved plans to further restructure portions of the sunglass, solutions and contact lens operations, as well as certain corporate administrative functions. A pre-tax restructuring charge of $15 million was recorded. Additionally, in the fourth quarter of 1995, the Company announced plans to restructure its sunglass, pharmaceutical and biomedical operations and recorded a pre-tax restructuring charge of $27 million. The following table sets forth the activity in the restructuring reserves through June 29, 1996:
Dollar Amounts In Millions Contact Corporate Sunglass Biomedical Lens Solutions Administration Total Restructuring Provisions: Total 1995 $15.8 $4.8 $3.1 $3.0 $26.7 1996 5.0 - 4.1 $4.5 1.5 15.1 Less charges against 1995 reserve: Non-cash items 3.4 2.2 3.1 - 1.0 9.7 Cash payments 1.6 1.4 - - 0.5 3.5 Less charges against 1996 reserve: Non-cash items 0.6 - 0.4 0.7 - 1.7 Cash payments - - - 0.1 - .1 Balance at June 29, 1996 $15.2 $1.2 $3.7 $3.7 $3.0 $26.8
Reserves remaining at June 29, 1996 primarily represent liabilities for continuing severance payments and are believed to be adequate. Business Segment And Operating Earnings Business segment earnings of $77 million for the 1996 second quarter decreased $9 million or 10% compared to the 1995 second quarter. The continued return to profitability for contact lens products and improved operating results for hearing aids were offset by the restructuring charge recorded in the current quarter. Operating earnings totaled $63 million, a decrease of $10 million or 14% from the 1995 second quarter. Other Income And Expenses Income from investments totaled $9 million for the second quarter of 1996, compared to $10 million in 1995. Interest expense of $13 million for the 1996 second quarter increased $1 million over the second quarter of 1995. Overall, the impact of slightly lower interest rates was offset by higher levels of debt, primarily related to acquisitions. The Company realized a net foreign currency loss of $0.1 million, representing a decline of $0.3 million from the net $0.4 million loss realized in 1995. This was based largely on favorable results of hedging activities. 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 reported income tax rates for the three- and six-month periods were 40.3% and 39.3% in 1996 compared to 37.2% and 36.3% in 1995, respectively. The higher rate in 1996 reflected shifts in the geographic mix of earnings. Liquidity And Financial Resources Cash Flows From Operating Activities Net earnings adjusted for non-cash items increased 11% from 1995. However, cash flows used in operating activities totaled $19 million through June 1996, compared to a positive $119 million provided by operations in the prior year period. This change was primarily attributable to a higher increase in trade receivables during 1996 versus the comparable period in 1995, a build in inventories related to newly acquired businesses and in support of new contact lens product introductions in 1996, the timing of tax payments and cash paid for the net settlement of foreign currency hedge contracts. Cash Flows From Investing Activities Cash flows used in investing activities were $142 million, versus the $47 million provided by investing activities in 1995. Purchases of property, plant and equipment totaled $56 million, $22 million higher than 1995. Increased capital spending in the current year has been primarily in support of the development of new planned replacement contact lens technology and enhanced sunglass manufacturing capacity. Capital expenditures are expected to total approximately $130 million in 1996. Other investing activities during 1996 included the acquisitions of Arnette Optic Illusions, a U.S. based company marketing sunglasses to the sport market, and Award plc, manufacturer of a high-water content daily disposable lens based in Scotland, while 1995 activities included the disposition of the sports optics business. Cash Flows From Financing Activities Approximately $105 million in cash was provided by financing activities through June 1996, mainly through the issuance of U.S. short-term debt. Repurchases of the Company's Common shares have totaled $20 million in 1996 compared to $75 million in 1995. The higher level of repurchases in 1995 was financed primarily with cash proceeds received from the sale of the Sports Optics Division. Free Cash Flow Management continues to emphasize the generation of cash flow and management of its working capital requirements. The Company's goal is to maximize free cash flow which is defined as cash generated before financing activities and the acquisition and divestiture of businesses. Free cash flow for the six months ended June 29, 1996 totaled a negative $81 million. For the six months ended July 1, 1995 free cash flow totaled a positive $100 million. The change from the prior year is primarily attributable to the operating cash flow factors described earlier. Financial Position The Company's total debt, consisting of short- and long-term borrowings, increased $147 million from year-end 1995 to $721 million at the end of the 1996 second quarter. Borrowings have been used to finance acquisitions, fund working capital requirements and repurchase shares of common stock. Bausch & Lomb's ratio of total debt to equity stood at 78% in June 1996 and 63% in June 1995. Cash and investments totaled $137 million and $294 million at the end of the second quarter of 1996 and 1995, respectively. This change reflects the 1995 fourth quarter investment of approximately $136 million in securities issued by a subsidiary of a triple-A rated financial institution by the Company's subsidiary, Bausch & Lomb Ireland. 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 June 29, 1996 nor were there any borrowings outstanding under the Company's $300 million medium-term note program. On August 7, 1996 the Company issued $100 million of medium-term notes under the existing program. Such notes were issued at a fixed rate of 6.56% and may be put back to the Company on August 13, 2001, at the sole option of the holders of such notes, and will mature on August 26, 2026 if such option is not exercised. Proceeds from the issuance will be used to reduce outstanding short-term borrowings. 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 $21 million for the second quarter of 1996, versus $71 million at year-end 1995 and $244 million for the second quarter of 1995. The significant decrease from the second quarter of the prior year reflects the $136 million investment described previously. The current ratio was 1.0 at June 29, 1996, 1.1 at December 30, 1995 and 1.3 at July 1, 1995. OTHER FINANCIAL DATA Dividends declared on Common stock were $0.26 per share in the second quarter of 1996 and $0.245 per share in the second quarter of 1995. As a result of the charges recorded in December 1995 and June 1996, the return on average shareholders' equity for the twelve-month period ended June 29, 1996 was 10%. This return was 3% for the twelve-month period ended July 1, 1995. Excluding 1994 goodwill impairment and the restructuring charges, the return on average shareholders' equity would have been 13% in 1996 versus 9% in 1995. OUTLOOK Worldwide sales for many of the Company's products are expected to continue to develop at a good rate for the remainder of the year and to show improvement over 1995 results. Within the sunglass business these increases will be dependent on the continued success of new products as well as on incremental sales from the Arnette brands. It is anticipated that the contact lens business should continue to benefit from growth in the planned replacement lens area and from the acquisition of Award plc, which should enhance the Company's competitive position in Europe. In the lens care solutions business, the trend of growth outside the U.S. is also expected to continue. Earnings performance in future years is projected to benefit from the progress of announced efforts to reduce annualized costs by $50 million by 1998 and the recently announced restructuring efforts. Approximately $5 million of one-time period costs in addition to the 1996 restructuring charge will be incurred during the second half of 1996, primarily in the third quarter. These costs include systems development, relocation and training of personnel. Foreign currency exchange rate changes, particularly in Japan, are expected to continue to negatively impact sales comparisons to 1995. Lastly, the Company will continue its regular reevaluation of its portfolio of businesses to pursue opportunities to maximize shareholder return. As announced in July, this has led to an agreement to sell the Steri-Oss dental implant business at a gain prior to year end. Additionally, the Company continues to explore the sale of the Oral Care Division which markets the Interplak line of products. OTHER INFORMATION The statements in this financial review contain various forward-looking statements based on the Company's beliefs as well as assumptions made by and information currently available to the Company. When used in this document, the words "expect", "anticipate", "project", "should" and similar expressions are intended to and do identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Among the key factors that may have a direct bearing on the Company's results are: global economic conditions; fluctuations in the rate of consumer spending in the U.S. and the world; changes in U.S. and foreign interest rates; fluctuations in foreign currencies, particularly in those countries in Europe and Asia where the Company has several principal manufacturing plants; the rate and success of development of new manufacturing technologies including initiatives in the contact lens and sunglass businesses; the timely flow of competitive new products and market acceptance of those products; the pricing and availability of equipment, materials and supplies; brand awareness; the existence or absence of adverse publicity; changing trends in consumer preferences and tastes; production, distribution and supply constraints or difficulties; new product development and regulatory approval risks, particularly for personal health and medical sector products; and changes in the financial markets relating to the Company's capital structure and cost of capital. PART II - OTHER INFORMATION Item 1. Legal Proceedings In its 1995 Annual Report on Form 10-K, the Company discussed an action pending in the United States District Court for the Northern District of Alabama on behalf of a nationwide class pursuing claims relating to the Company's marketing and sales of Optima FW, Medalist and SeeQuence 2 contact lens systems and other related proceedings. On July 31, 1996, the court preliminarily approved a settlement, which is subject to final approval following a fairness hearing scheduled for November 1996. Under the terms of the settlement, consumers who bought the lenses in question during specified time periods are eligible to receive cash and product certificates for each lens purchase. Consumers who purchased Medalist lenses between January 1, 1991 through December 31, 1995, Optima FW lenses between November 1, 1990 through December 30, 1995 and Criterion Ultra FW lenses between November 1, 1990 through April 30, 1996 are eligible to participate in this proposed settlement. The Company will record a charge against third quarter earnings in the amount of $16 million which, in addition to existing litigation reserves, is deemed adequate to satisfy the costs of the proposed settlement. Item 4. Submission of Matters to a Vote of Security Holders. The 1996 annual meeting of shareholders was held on May 10, 1996. The nominees for Director elected at the meeting were as follows: Votes Cast Nominee For Withheld William M. Carpenter 46,979,870 1,062,473 John R. Purcell 46,882,813 1,159,530 Alvin W. Trivelpiece 46,890,914 1,151,429 William H. Waltrip 46,896,401 1,145,942 The shareholders voted to ratify the appointment of Price Waterhouse as independent accountants for 1996. 47,568,425 shares of Common and Class B stock were voted in favor of the proposal, 301,381 shares of Common and Class B stock were voted against the proposal and 172,537 shares of Common and Class B stock abstained. The shareholders also voted to approve an Annual Retainer Stock Plan for Non-Employee Directors. 46,752,533 shares of Common and Class B stock were voted in favor of the proposal, 1,012,589 shares of Common and Class B stock were voted against the proposal, and 277,221 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: August 12, 1996 By: Stephen A. Hellrung Senior Vice President, Secretary and General Counsel Date: August 12, 1996 By: 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. 1- 4105, 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. 1- 4105, 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. 1- 4105, 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
SIX MONTHS ENDED Dollars And Shares In Thousands- June 29, July 1, Except Per Share Data 1996 1995 Net earnings $52,772 $71,873 ====== ====== Actual outstanding Common shares at beginning of year 56,941 58,992 Average Common shares issued for stock options and effects of assumed exercise of Common stock equivalents and repurchase of Common shares 93 (541) ------ ------ Average Common shares outstanding 57,034 58,451 ====== ====== Net earnings per Common and Common share equivalent $ 93 $ 1.23 ====== ======
Exhibit 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
June 29, December 30, Dollar Amounts In Thousands 1996 1995 Earnings before provision for income taxes and minority interest $103,684 $211,847 Fixed charges 25,344 47,584 Capitalized interest, net of current period amortization 160 260 ------- ------- Total earnings as adjusted $129,188 $259,691 ======= ======= Fixed charges: Interest (including interest expense and capitalized interest) $ 24,823 $ 45,765 Portion of rents representative of the interest factor 521 1,819 ------- ------- Total fixed charges $ 25,344 $ 47,584 ======= ======= Ratio of earnings to fixed charges 5.10 (2) 5.46 (1) ==== ====
1 Excluding the effect of the gain on sale of Sports Optics Division and restructuring charges recorded in 1995, the ratio of earnings to fixed charges at December 30, 1995 would have been 5.26. 2 Excluding the effects of the restructuring charges recorded in 1996, the ratio of earnings to fixed charges at June 29, 1996 would have been 5.69. EX-27 2
5 6-MOS 3-MOS DEC-28-1996 DEC-28-1996 JUN-29-1996 JUN-29-1996 136,460 136,460 816 816 327,105 327,105 12,858 12,858 334,376 334,376 992,943 992,943 1,104,231 1,104,231 560,527 560,527 2,675,726 2,675,726 971,541 971,541 224,476 224,476 24,167 24,167 0 0 0 0 897,458 897,458 2,675,726 2,675,726 1,014,827 545,559 1,014,827 545,559 441,685 233,796 441,685 233,796 463,567 248,471 3,580 1,861 24,823 12,505 103,684 59,956 40,713 24,184 52,772 30,263 0 0 0 0 0 0 52,772 30,263 .93 .54 .93 .54 Income Before Taxes and Minority Interest
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